andreas.com FAQ: Laws of Computering
Someone asked me a few weeks how long I’ve been in the web industry. Well, I have andreas.com, so I’ve been in it from the beginning. Over the years, I’ve learned a few things. Here are the basic laws of computering.
Law #1: #1 Isn’t Always #1
- Many people think the #1 product is also best in category. But quality does not guarantee success.
- There are plenty of examples. Here are two. The Commodore Amiga, a computer in the late 80s, was the most advanced computer on the market at the time. But they sold it as a games platform, so it never entered the business, industrial, or scientific market. Unix was a better solution as an operating system for computers, but Microsoft’s licensing and marketing pushed it out of the market.
- Sometimes, the top product is the best solution. But generally, the top company is the one with the best marketing, sales, or distribution. Just because you’re the best doesn’t mean you’ll be #1.
- Which leads to Law #2.
Law #2: There Is No #2
- In “Talladega Nights,” Reese Bobby said to his son Ricky Bobby “If you’re not first, you’re last.” Ricky Bobby, a NASCAR race car driver, later realizes this doesn’t make any sense. But it’s true in computering. There is no #2 in computers.
- In any computer category, one product has such overwhelming market share that they are the category. The other companies get single-digit market share.
- Try this: For word processor software, there is Microsoft Word. What’s the #2 word processor? In spread sheets, there is Microsoft Excel. What spreadsheet is #2? In slide presentation software, there is Microsoft PowerPoint. What is #2? For graphics, there is Adobe Photoshop. For taxes, there is TurboTax. Quickbooks owns the accounting market. Oracle is databases. For enterprise resource management, there is SAP. Social is Facebook. The same with desktop operating systems: Microsoft Windows has 96% market share. The iPad is the tablet category. The iPod is the music category.
- This happens only in computering. In cars, refrigerators, cameras, airlines, soft drinks, tennis rackets, blue jeans, and everything else, dozens of competitors can co-exist. It’s rare for a company to have more than 25% of a market. But in computers, it’s normal.
- Why does this happen in computers? When a new category is created, perhaps 20-30 companies compete against each other for that space. But within months, the market consolidates around one of the companies and the others fall to the side. Why? Because users prefer standards. They want a software package that is easy to buy and easy to install. They want to easily share files. They want books and guides to learn the tool, and there are usually tutorials only for a few products. New users go along with the crowd. They won’t consider alternatives. Within a year, nobody will know there are alternatives.
- This also means you can’t break into an established market. There is no way to sell a new word processor or spreadsheet: the market has settled on the standard and you can’t replace it, even by offering it for free.
- This isn’t good because there is a loss of diversity. Competing ideas disappear. The market gets locked into one vision of doing things. And the creator of the software has no incentive or motivation to improve. The market space becomes stale. There haven’t been significant improvements or changes in most of the major software packages in 15 years or more.
Law #3: The Business Model Is the Business
- The business model is the real business of the company. The products however are often not the business of the company.
- Starting in the dotcom boom and ever since, web-based companies have presented a cloudy picture of the product and the business model. Often, users think a computer company’s product is the business model.
- The product is what the company offers to the public. The business model is what the company does to stay in business, such as revenues, costs, and profits. For example, McDonalds’ product is hamburgers. They sell a burger, they get $2. That’s easy. In their case, the product and the business model are the same.
- But in many web-based companies, the product has nothing to do with how the company makes money. For example, Facebook’s product is their social network. People use the Facebook website to connect with each other. But that’s not how Facebook makes money. Facebook makes money by creating an audience and then renting that audience to advertisers and games companies. Users aren’t aware of this. They think Facebook is the product. No, the user is the product.
- The same with LinkedIn. People think LinkedIn is a way for professionals to connect with each other. LinkedIn’s business model however is to create a large pool of rÈsumÈs and then sell access for recruiters and HR to that pool of workers. As with Facebook, it’s the users who are the product.
- That is deception, but generally, customers accept that. Most media companies, such as radio, TV, newspapers, and magazines create audiences and sell access to that audience. People accept that in media.
- However, a company can be confused about this, which leads to problems. For example, Google thinks it is a search engine, but its business model is advertising. An astonishing 98% of Google’s $40 billion in revenues come from advertising, yet the company refuses to acknowledge that (they have 10,000 computer scientists and computer engineers who would never dream of working in an advertising company). Thus the CEO and upper management focus on the search engine and ignore advertising. Google has put nearly $10 billion into research and innovation, but none of those ideas have made any money. Why? Because those ideas don’t have a business model. Because Google thinks it is a search engine company, it ignores the ad engine. There has been no significant innovation in Google Adwords in more than six years.
- In many other cases, dotcom companies and social media companies don’t realize they need a business model. They think they just have to become big like Facebook and when they get there, they’ll figure out a business model. That’s Twitter and several dozen social media companies. So they start companies without business models, which is like going fishing without hooks. At some point, the company will collapse. If you’re thinking about working for a social media startup, your main question is “what’s the business model?”
Law #4: Web Companies Aren’t High Tech
- Starting in the 30s and up to the mid-90s, Silicon Valley was based on innovation in technology and hardware. They built faster computers by researching and exploiting the physical properties of elements. This resulted in better chips, hard disks, and so on.
- Starting with the dotcom boom and the web in the mid-90s, Silicon Valley turned into media companies, which is to say, they are advertising platforms. This includes Yahoo, Google, Facebook, Twitter, Youtube, and so on. They create large blocks of audiences and then sell access to that audience. There is no essential difference between Google and American Idol (a TV show). They are both in the business of selling advertising.
- No significant high-tech companies have been created since the early 1990s. Intel and others have been around for a long time now.
- The technology focus has moved to bio tech. You need a Ph.D. in molecular chemistry to work in a bio tech startup.
Law #5: Computers Don’t Compute
- Law #4 brings us to #5: most of today’s computers aren’t used as computers.
- A computer can compute. It calculates. It uses algorithms (rules) to process data and generate results. A computer is programmable. You can create complex rules that consider different conditions and generate results.
- But computer companies realized in the 90s that the public wouldn’t learn to program. So they switched to computers as consumer entertainment devices, just like TVs and radios. Computers were dumbed down. The programming capability receded into the background and finally, disappeared. Microsoft DOS allowed people to write BATCH files for all sorts of tasks. These disappeared in Microsoft Windows. Apple has been the leader in turning computers into consumer devices by focusing on design instead of technology (and in many cases, making design decisions that resulted in poor technological results.) The final stage is the iPad, a toy computer. Apple’s products are like Pop-Tarts. You can’t open the case, you can’t see the code that creates web pages. Development for the iPad is done on a computer, not an iPad.
Law #6: Social Media Isn’t Social
- This one should be obvious. Social media isn’t about social connectivity. Social media companies are advertising platforms.
- This means there is a possibility for something that is better than Facebook. Come up with something that really lets people connect with each other and you’ll be the next 20-something billionaire.