A Black Friday Reflection: The Art of Want and Apple's Marketing Mastery

A Hungry Apple

Today, there’s probably one thought on people’s minds: will I get the best bargain ever? Yes, it’s Black Friday, and many have a shopping list ready to scoop up on those deals. As we scan those websites to see what’s on sale, it is an excellent time to reflect on how the Master of Marketing gets into our minds and makes us buy. Who would that be? It is Apple, of course.

Earlier this year, we looked at the chasm between the company's ESG aspirations and the resource-intensive nature of its operations. Today, we explore Apple’s uncanny ability to cultivate an obsessively loyal following, some of which deify the company.

Deify? Yes, deify.   According to a BBC documentary:

“The neuroscientists ran a magnetic resonance imaging (MRI) test on an Apple fanatic and discovered that images of the technology company's gadgets lit up the same parts of the brain as images of a deity do for religious people, the report says.”

The documentary also explained that a gadget from a competitor did not elicit the same brain activity.

Psychological Obsolescence: Will You Buy the Best iPhone Ever?

When examining the amount of money Apple spends advertising its iPhone, the figure falls within the $1 billion to $2 billion range. For the 2022 fiscal year, the figure is buried in the $25 billion categorized as "Selling, General, and Administration" expenses. [1] We can’t be sure as to how much Apple spends, as the Company inexplicably stopped publishing this figure in their financials back in 2016. [2] For 2015, the total advertising expenditure came in at $1.8 billion. [3] Assuming that advertising spending is proportional to revenue generated by their different product lines, we can estimate that Apple spends approximately $1.2 billion on advertising the iPhone.

However, focusing solely on the numbers would not do justice to Apple's advertising expertise. Annually, Apple fans must face the fear of missing out. Year after year, Apple enthusiasts are enticed onto a never-ending treadmill of upgrades, each promising the 'best iPhone ever.' Here, we can see the Siren calls in succession: [4]

"Today, Apple is going to REINVENT the phone"

 (Original iPhone, 2007)

"It's REALLY, REALLY GREAT and it feels even BETTER IN YOUR HAND if you can believe it"

 (iPhone 3G, 2008)

"This is the MOST POWERFUL, FASTEST iPhone we've ever made"

 (iPhone 3GS, 2009)

"One of the MOST BEAUTIFUL things we've ever made"

 (iPhone 4, 2010)

"Has an INCREDIBLE STAINLESS STEEL BAND around it making it the THINNEST SMARTPHONE"

 (iPhone 4S, 2011)

"It is an ABSOLUTE JEWEL; it is the MOST BEAUTIFUL product we have ever made, BAR NONE"

 (iPhone 5, 2012)

"The MOST BEAUTIFUL phone ever made"

 (iPhone 5S, 2013)

"They are WITHOUT A DOUBT the BEST IPHONES we've ever done"

 (iPhone 6, 2014)

"MOST ADVANCED SMARTPHONES"

 (iPhone 6S, 2015)

"It's the BEST IPHONE that we have ever created"

 (iPhone 7, 2016)

"MOST POWERFUL and SMARTEST CHIP ever"

 (iPhone 8, 2017)

"It is the BIGGEST LEAP FORWARD since the original iPhone. This REALLY IS THE FUTURE"

 (iPhone X, 2017)

"MOST ADVANCED iPhone we've ever created"

 (iPhone XS, 2018)

"Most ADVANCED IPHONE that we have ever built"

 (iPhone 11, 2019)

"In iPhone 12 Pro Max, we've been able to create our BEST CAMERA EVER."[5]

 (iPhone 12, 2020)

"And we're NOT DONE YET... Let's take a look at our MOST PRO IPHONE EVER"[6]

 (iPhone 13, 2021)

“iPhone 14 Pro and iPhone 14 Pro Max: the BEST IPHONES we've EVER CREATED”[7] 

(iPhone 14, 2022)

Apple is not the first to use this strategy. Employing this approach of psychological obsolescence goes back to the 1920s as one of the strategies to deal with the spectre of overproduction. Silver manufacturers, for example, used advertising campaigns to "shame the prospect into buying the latest model of a venerably old product." They targeted newlyweds who valued heirloom silverware, making them feel outdated and encouraging them to purchase newer models by ridiculing the past from which their old sets originated. Similarly, Elgin's wristwatch advertisements sought to make owners of older models self-conscious, nudging them to upgrade. Both campaigns harnessed the power of social shame to drive new purchases, tackling the business dilemma of durable products that don't require frequent replacement. [8]

 General Motors was another company that embraced the concept of psychological obsolescence in the 1920s. Executives who transitioned from DuPont to General Motors imported marketing strategies directly from the nascent fashion industry. They introduced the concept of styling in their 1923 Chevrolet models, realizing that consumers were willing to upgrade for aesthetic appeal rather than just technological advancements. [9] Harley Earl, a GM executive, summed it up by stating that hastening obsolescence was the company's "big job." He highlighted that the average car ownership span had dropped from five years in 1934 to just two years by 1955, to reduce it to one year for a "perfect score." [10]

 

Apple’s Secret Sauce: Secrecy & Scarcity

The key to making the Apple iPhone launch events successful in extracting the maximum fear of missing out is secrecy. Apple's ability to rapidly assemble new devices gives it an operational edge, allowing it to match production to consumer demand closely. This quick turnaround minimizes excess inventory and creates a sense of scarcity, further fueling consumer anticipation. Critically, the swifter a device moves through the production process, the fewer the chances for information leaks, reinforcing the shroud of secrecy that is absolutely vital for building unparalleled hype and FOMO around each new iPhone release. [11]  

 Steve Jobs was the one who pioneered the idea of using secrecy as a critical marketing strategy for the launch of the inaugural iPhone.The iPhone began as a secret project code-named “Purple”. In the “Purple Dorm,” management had posted the sign “Fight Club” to remind people about the movie's first rule, “that they do not talk about Fight Club.” It's a bit of an irony that a film denouncing materialism was used to usher in an age of unprecedented consumerism. When working with suppliers, Apple would give “false schematics” to give the false impression they were working on the iPod. Also, employees would pretend to be representing “other companies when meeting with vendors to avoid starting rumors.” [12]

The secrecy created a strenuous work environment. Employees found it divisive and an obstacle to collaboration. For example, the User Interface (UI) was kept so secret that it made it difficult for employees to finish their work. Tony Fadell, the “father of the iPod”[13], showed exasperation when discussing the intensely political environment he had to operate in. He was the only hardware team member who could see the UI. He notes that “it was [so] super-secretive…[that you] … had to ask permission for everything, and it really built a huge rift between the two teams.” Andy Grignon, a senior engineer at Apple, described lunch as a “Mexican standoff” requiring code names. He described the environment as “passive aggressive.” [14]

 So why did Jobs want all this secrecy? One ex-Apple executive suggested “that keeping the first iPhone secret “was worth hundreds of millions of dollars.” The secrecy simultaneously generates free press coverage and instigates that desire in the masses. [15]

A closely related element to secrecy is the artificial scarcity that Apple creates around its iPhones. According to a paper entitled “It's a secret: Marketing value and the denial of availability,” Apple purposefully “keeps supplies immediately post-launch artificially low.” [16] Such a strategy is focused on provoking FOMO within us.   

What about Planned Obsolescence?

While Apple's mastery of psychological obsolescence is second to none, the company has also faced scrutiny for planned obsolescence. This controversial practice has led to legal challenges and public outcry. In 2005, Apple settled out of court over customer complaints “alleging that the iPod did not have the battery life Apple represented...and that the battery’s capacity to hold a charge diminished substantially over time".[17] The article also noted that customers “who bought a first or second-generation iPod who experienced a battery failure within two years of purchase,” which of course would force them to buy a new one. [18]  

The issue also surfaced in 2018, when Apple confirmed that it purposefully slowed down its older model. As noted in the Guardian: “The feature was recently highlighted by users on Reddit, who noticed that their processors were running slowly in iPhones with older batteries, but that when they replaced the batteries the speed of the phone returned to normal…Analysis of data by benchmarking firm Primate Labs collected from thousands of iPhones appeared to confirm the theory, showing multiple performance peaks for phones of different ages, slowing down from their maximum speed.”[19]

Consumerism or Technology: What Matters More?

Apple’s products are often first to mind when thinking about modernity. The iPhone, specifically, is seen as a fruition of sci-fi-inspired gadgets like Star Trek’s Tricorder. Stepping back, however, we see that science and technology are not the prime movers of success regarding Apple. Its ability to tell a better story and convince people to buy its products has distinguished the company. This reveals that success is not raw science or technology. Instead, it’s about the art and science of persuasion. In this ESG-conscious era, understanding the drivers of our consumer decisions is critical to mitigating the environmental and social fallout of rampant consumerism. This reflection is essential in steering us towards a more sustainable future.

 1] https://www.sec.gov/ix?doc=/Archives/edgar/data/320193/000032019322000108/aapl-20220924.htm  

[2] https://www.businessinsider.com/apple-stopped-disclosing-ad-spend-2016-11  

[3] https://www.sec.gov/Archives/edgar/data/320193/000119312515356351/d17062d10k.htm   

[4] Taken from CNET’s compilation for iPhone events from 2007 till 2019; https://www.youtube.com/watch?v=5WcjWxW2W2Y  

[5] https://www.youtube.com/watch?v=KR0g-1hnQPA

[6] Taken from the 2021 Apple Event; https://www.youtube.com/watch?v=EvGOlAkLSLw 

[7] https://www.youtube.com/watch?v=ux6zXguiqxM

[8] Giles Slade. Made to Break: Technology and Obsolescence in America (Kindle Locations 498-504). Harvard University Press, 2006. Kindle Edtion..

[9] Giles Slade. Made to Break: Technology and Obsolescence in America (Kindle Locations 42-48). Harvard University Press, 2006. Kindle Edtion..

[10] Giles Slade. Made to Break: Technology and Obsolescence in America (Kindle Locations 419-421). Harvard University Press, 2006. Kindle Edtion.

[11] Merchant, Brian. The One Device (pp. 284-285). Little, Brown and Company, 2017. Kindle Edition.

[12] Merchant, Brian. The One Device: The Secret History of the iPhone (p. 349). Little, Brown and Company. Kindle Edition.”

[13] https://appleinsider.com/articles/17/05/11/ipod-father-tony-fadell-speaks-at-computer-history-museums-iphone-360

[14] Merchant, Brian. The One Device (pp. 350-351). Little, Brown and Company, 2017. Kindle Edition.

[15] Merchant, Brian. The One Device (pp. 300-301). Little, Brown and Company, 2017. Kindle Edition.

[16] Merchant, Brian. The One Device (pp. 300-301). Little, Brown and Company, 2017. Kindle Edition.

[17] https://www.macworld.com/article/1045105/ipodsuit.html  

[18] https://www.macworld.com/article/1045105/ipodsuit.html  

[19] https://www.theguardian.com/technology/2017/dec/21/apple-admits-slowing-older-iphones-because-of-flagging-batteries 

 

Furious Five: Meta Launches Twitter Rival, AI at the Big 4, FTX relaunch & lawsuit, and Open-AI shuts off Browse-with-Bing

 

Meta vs Twitter: The Battle Begins

Meta's Threads Skyrockets to 100 Million Sign-Ups, Posing a Challenge to Twitter

Meta's social media platform, Threads, recorded 100 million sign-ups within five days of its launch, surpassing OpenAI's ChatGPT as the fastest-growing platform to reach this number. Seen as a potential rival to Twitter, Threads has attracted a broad user base including celebrities and politicians. Despite its rapid growth, it still lags behind Twitter's 240 million daily active users. Twitter has threatened to sue Meta, alleging Threads was built using its trade secrets. Threads supports posts up to 500 characters and media content but lacks a desktop version, direct messaging, and features like hashtags and keyword search. Meta has stated it will only consider monetization once Threads is on track to reach one billion users. (Source: CBC)

Balancing Act: Harnessing AI’s Potential in Tax and Accounting Amidst Regulatory Hurdles

Generative AI adoption is growing in tax and accounting firms, despite challenges like data privacy concerns and regulatory uncertainties. The technology, exemplified by OpenAI's ChatGPT, has potential for significant impacts but is also hindered by its limitations and the uncertainty of its economic effects. Major firms, including Ernst & Young, KPMG, Deloitte, and PwC, have invested in AI training and data analysis capabilities. However, AI's learning process raises data privacy issues, and regulators are lagging in addressing the fast-paced AI evolution. While AI has the potential to detect corporate fraud and revolutionize industries, firms need time for experimentation and learning to establish necessary standards and regulations. (Source: Bloomberg) 

Unveiling FTX 2.0: Relaunch Amidst Ongoing Crypto Crackdown

FTX is proceeding with its intentions to relaunch its primary global cryptocurrency exchange. WSJ, quoting Chief Executive John J. Ray III, reported that FTX  "has begun the process of soliciting interested parties to the reboot of the FTX.com exchange." The success of "FTX 2.0", however, is unclear. Despite its tattered reputation, the larger challenge may be overcoming the ongoing crackdown on crypto. (see here for our prior coverage of this) Source: WSJ)

Former FTX CCO Sued for Silencing Whistleblowers

FTX is also suing its former Chief Compliance Officer (CCO). Daniel Friedberg has been accused in a lawsuit filed by FTX and its debtors in the U.S. Bankruptcy Court for the District of Delaware of paying off whistleblowers to suppress information about the company's alleged fraudulent activities. The suit claims that Friedberg, who also served as the General Counsel for CEO Sam Bankman-Fried's crypto hedge fund, Alameda Research, disregarded internal control deficiencies and focused on keeping whistleblowers quiet while allowing the co-mingling of customer assets, which led to the downfall of both entities. (Source: Compliance Week)

ChatGPT Plus Users Lose Browsing: OpenAI Reacts to Paywall Concerns

OpenAI has temporarily disabled the 'Browse with Bing' feature in ChatGPT Plus due to concerns about bypassing paywalls and privacy settings. The decision follows user feedback that the feature was displaying full content from URLs, infringing on content owners' rights. Despite criticism from some users, OpenAI is working to fix the issue but has not specified when the feature will be back online. (Source: Yahoo Finance)

Author: Malik Datardina, CPA, CA, CISA. Malik works at Auvenir as a GRC Strategist that is working to transform the engagement experience for accounting firms and their clients. The opinions expressed here do not necessarily represent UWCISA, UW, Auvenir (or its affiliates), CPA Canada or anyone else. This post was written with the assistance of an AI language model. The model provided suggestions and completions to help me write, but the final content and opinions are my own.

The Dilemma of Zlibrary: Empowering Students or Enabling Piracy?

As the year 2022 came to a close, a significant event occurred that may have gone unnoticed by many. The famous online repository of ebooks and articles, Z-library, was shut down. This event serves as a reminder of how too much attention can have negative consequences. In this blog post, we will delve deeper into the story of Zlibrary and the issues surrounding shadow libraries, intellectual property rights, and access to knowledge.

 

The Impact of Digitized Info: The Rise of Z-library

Z-library is an online repository of ebooks and articles that provides free access to information and knowledge. The site started in 2009 and has since grown to be one of the largest shadow libraries on the internet. According to Fast Company:

"Z-Library offered more than 10 million ebooks and 86 million articles at its peak, with a limited number of monthly downloads accessible to millions of users free of charge, and more available for a small fee."

Many people around the world rely on such resources as they may need access to the expensive subscription-based services that are often required to access academic articles and books. Proponents of websites like Zlibrary, Sci-Hub, and Libgen argue that they strive to break down barriers to knowledge and education, enabling users to access the information they need to learn and grow.

The TikTok Effect on Zlibrary: More Popularity, More Problems

The rising popularity of Z-library, however, attracted the scrutiny of copyright holders and legal authorities, putting both the site and its users in a vulnerable position. The increased attention also raised legal questions about using such a resource.

 According to TorrentFreak, Z-library has emerged as a vastly popular, high-volume source of illegal ebook downloads in recent years. The site's growth can be attributed to users who openly advertise the site on social media, with TikTok playing a significant role in its popularity. The hashtag #zlibrary on the popular social media platform has 4 million views, with countless videos posted by college and high school students and others across the world promoting it as the go-to place for free ebooks.

However, the attention that Zlibrary received on TikTok was a double-edged sword. While it certainly helped spread the word about the site, it also brought more attention to its illegal activities. This attracted the attention of copyright holders and legal authorities, namely the FBI.

Starving Students vs Starving Artists: Who really benefits from the closure of Z-library?

According to the Washington Post, the FBI has charged two Russian nationals, Anton Napolsky and Valeriia Ermakova, with criminal copyright infringement, wire fraud and money laundering for operating Z-Library. The authorities took down the website on November 4th and the U.S. Attorney for the Eastern District of New York, Breon Peace, stated that the defendants profited illegally by uploading works within hours of publication and victimized authors, publishers, and booksellers in the process.

The Washington Post also noted how authors and users had a clash of opinions. Users were mourning the loss of their ability to download free textbooks, novels, and academic papers. However, authors were relieved by the shutdown as they argued that piracy harms their sales and the publishing industry and that mourning Z-library is mourning the end of theft.

But is this really a debate between starving students and starving artists? Not really.

According to a report by Citigroup obtained by Rolling Stone, in the music industry's digital streaming era, the people who make the most money from copyrighted content like books or music are not the artist/author, but the holder of the copyright. They take nearly 90% of the money.

The story of Jerry Siegel and Joe Shuster, the authors of the original Superman comic book, highlights the unfortunate reality that creators of copyrighted content may not always receive fair compensation for their work. Despite the immense success and wealth generated by Superman and the concept of superheroes, the inventors only received a small sum of $130 for signing over the rights to their creation to D.C. Comics. This has led to ongoing legal battles, with the families of the inventors seeking their fair share of the fortune generated by the invention. Of course, the copyright holders won.

The Z-library Takedown: Can we just dismiss the concern of students?  

One tweet succinctly summed up the students' feelings, stating "The closure of Zlibrary is like the burning of the Library of Alexandria in our time." This tweet draws parallels between the loss of this online library and the historical burning of the Library of Alexandria during the reign of Julius Caesar.

Burning Z-Library: Rendered by Stable Diffusion 2.1

Can we just dismiss this as students being overly emotional? Well, it's more complicated than that.

As noted in the Huntington News, a 2014 study found that the average cost of a college textbook is about $105, which is difficult to justify for most college students. In the same study, 65% of college students said they didn't purchase their required textbooks even though they knew it could hurt their grade.

The burden of student debt is heavy for many young people in Canada and the U.S. In Canada, the total amount of student loans owed to the federal government reached a staggering $22.3 billion in 2020. And this figure doesn't even consider provincial and personal loans, lines of credit and education-related credit-card debt. On average, a Canadian student graduating with a bachelor's degree holds $28,000 in student loan debt, while college grads hold $15,300 in debt. In the U.S., the situation is similarly dire. For 2023, the total amount of student loan debt (including federal and private loans) has reached $1.75 trillion. The average student borrower holds $28,950 in debt.

The situation in Canada and the U.S. has a wide-reaching social impact, as this debt load can make it difficult for young people to start their careers, buy homes, or even save for retirement. It is clear that the cost of education is a growing concern not just for students but for society as a whole.

Consequently, the Z-library debate must be connected to the economic reality that students face, such as the rising costs of education, high levels of student debt, and a lack of affordable access to educational resources. It highlights how the students' anger at the site's shutdown is a part of a broader crisis they face. It is essential to understand this context when discussing the issues surrounding shadow libraries and intellectual property rights.

Digital Tech: Innovation and the Struggle for a Knowledge Society

The Z-library debate highlights how intellectual property can be an obstacle to creating a knowledge society. From a technological standpoint, the ability to digitize text, information, and knowledge can revolutionize access to information and education. However, as demonstrated by Zlibrary, the economic realities of the publishing industry and the protection of intellectual property rights often stand in the way of this potential. Technology has advanced, but the economics have not evolved to keep pace, resulting in the same exploitative dynamics seen in other industries such as music and comics. To truly create a knowledge society, we must re-examine how intellectual property laws and systems can be adapted to enable access to information and knowledge for all rather than just protecting the profits of a select few.

Author: Malik Datardina, CPA, CA, CISA. Malik works at Auvenir as a GRC Strategist that is working to transform the engagement experience for accounting firms and their clients. The opinions expressed here do not necessarily represent UWCISA, UW, Auvenir (or its affiliates), CPA Canada or anyone else.

What can bitcoiners reaction to Facebook Libra cryptocurrency can teach us about innovation and the blockchain?

In the last post, we discussed Facebook's Libra coin. Since then the US Treasury Secretary Steven Mnuchin, has implicitly given Facebook the go-ahead to issue the stable-coin on the condition that they "implement the same anti-money-laundering and countering financing of terrorism, known as AML/CFT, safeguards as traditional financial institutions". In the WSJ, they were a bit more explicit:

“Many players have attempted to use cryptocurrencies to fund their malign behavior. This is indeed a national security issue,” Treasury Secretary Steven Mnuchin said in remarks at a Monday news briefing. Should Facebook develop its digital coin, called Libra, to “have a payments system correctly with proper [anti-money-laundering safeguards], that’s fine,” Mr. Mnuchin said" [emphasis added]

It's impossible for Facebook to have not  known that this was an issue. The idea that this agreement didn't pass by the general counsels (who would have consulted risk and regulatory experts) at each of the organizations is simply not realistic. In fact, only two of the 28 organizations are getting cold feet. In the world of compliance, that's not so bad.  

The US is pretty committed to fostering all their muster against China and enabling capital flight from their country would be an important tool in the new "Great Game" that is being played by these hegemons. 

What can bitcoiners teach us about innovation and cryptocurrency? 

Although the grand chess match between China and the US is important, the innovation angle is also something worth analyzing.

What did bitcoin enthusiasts have to say about Facebook's Libra?

It turns out their critique, via Mastering Bitcoin's author Andreas M. Antonopoulos, yield some insight into the reality of blockchain innovation. He had the following to say about Libra:

As per the video, he notes that cryptocurrency is "open, public, borderless, neutral, and censorship resistant" (this post lays out what each means, so check that out). More importantly, he points out these characteristics can only emanate from a decentralized approach used by bitcoin and certain other public cryptocurrencies. Conversely, if we have a centralized blockchain - like Libra or Ripple - then it loses these magical qualities. As pointed above, Mnuchin requires a "throat to choke". The only way you can't have a "throat to choke" - is when that throat is decentralized.

What's the innovation? 
In the class, I teach about Audit, Innovation and Technology, I went through my Delta Framework. In this table, we have key characteristics of the old system or technology. The second column looks a bitcoinesque cryptocurrency, while the third looks at Libra.

What the analysis confirmed is how permissioned blockchain, such as Libra, is more of an incremental innovation rather than something radical that would upset the apple cart. Specifically, the ability to use permissioned ledgers will make it really easy for the consortium to fulfill their AML obligations. Why? Because all the record keeping is automated. And that last word is key: automation. Permissioned blockchain is really about "frictionless" transaction propagation between known parties via a decentralized ledger. The Libra consortium is essentially establishing systems that can trace a transaction from crade-to-grave because the underlying blockchain technology is all about automating the accounting. Regulators are actually going to love it.

The public blockchain, on the other hand, is about disrupting the concept of fiat currency itself. If governments can conjure currency out of thin air, why not Satoshi Nakamoto? And there you have bitcoin. Of course, as previously published,  governments are not going to like this and have worked to crush bitcoin by going after people.  But the point is that eliminating the centralized intermediaries of trust was never bitcoin's objective and could be arguably are caught in a "gale of creative destruction". Rather, it was to offer an alternative to the fiat currency order that we live in and the blockchain technology was just the means to do it.

Author: Malik Datardina, CPA, CA, CISA. Malik works at Auvenir as a GRC Strategist that is working to transform the engagement experience for accounting firms and their clients. The opinions expressed here do not necessarily represent UWCISA, UW, Auvenir (or its affiliates), CPA Canada or anyone else

End of an Era: Blackberry to exit hardware business

CBC reported that Blackberry is exiting the hardware business. The news doesn't come as a surprise. As noted in this interview with CNBC in June of this year, the interviewer notes how Blackberry was steadily outsourcing the manufacturing of its devices. The CEO, John Chen, also confirmed that they were planning on exiting the business if it failed to be profitable:


Blackberry was my first smartphone, the 8900, to be exact.

However, when I saw the Torch, I remember thinking that after using the device how it was the perfect compromise between the touch screen and the classic keyboard. However, that feeling faded quite quickly after using the device. It was so under-powered compared to the competition and of course it lacked the apps that you could find in the Apple AppStore. But at the time I could never imagine giving up the physical QWERTY keyboard.

Since then I have moved onto Android and more specifically to the SwiftKey keyboard - to the point I can't go back to a physical keyboard!

How did BlackBerry fail to keep up with the times?

As noted in this article, Mike Lazaridis the founder of the CEO, was inspired to develop the BlackBerry when he recalled his teacher's advice while watching a presentation in 1987 - almost a decade before the Internet - on how Coke used wireless technology to manage the inventory at the vending machines. What was his teacher's advice? His teacher advised him not to get swept in the computer craze as the real boon lay in integrating wireless technology with computers.

BlackBerry caused a storm in the corporate introducing it's smartphones in 1998. It went on to dominate the corporate smartphone market as the gold standard in mobile communications. The following graphic from Bloomberg really captures the subsequent rise and fall quite well:

What happened how did the iPhone, unveiled in 2007, and the Android Operating System outflank the Blackberry?

This article in the New Yorker larger blames BlackBerry's inability to understand the trend of "consumerization of IT": users wanted to use their latest iPhone or Android device instead of the BlackBerry in the corporate environment - and was it just a matter of technology to make this happen.

Although luminaries, such as Clay Christensen, have written extensively on the challenge of innovation. And there's always the problem of hindsight bias.

However, is the problem more basic?

When we look at the financial crisis, some people like to blame poor modeling. But I think that is more convenient than accepting the reality that people got swept up in the wave.

Isn’t it fair to say that people knew that house of cards was going to come down (and some of the investment banks were even betting on it falling apart), but were overly optimistic that they would get out before everyone else does?

But that’s the point.

When we are in a situation where we are surrounded by people who confirm our understanding of the world – we may believe them instead of trying to see if our understanding of the situation is correct. With the housing bubble, the key players wanted to believe that those models were correct – even though models have failed the infamous Long Term Capital Management.

With BlackBerry, what I wonder is did they not even try to see within their families and those around them who were using the iPhone or Android devices? Weren’t they curious what “all the fuss was about”?

Although this is problem with many of us who want to believe that the present situation is going to continue indefinitely (especially when things are going our way), there are others who do stay on top of things. Most notably is the Encyclopedia Britannica that actually stopped issuing physical encyclopedias and moved to the digital channel instead.

Change is a challenge, but the key is to be prepared to admit that the current way of doing things can be done better, faster and in radically different way.

Reflections on the demise of Yahoo!

By now we've all heard that Yahoo!'s web assets were bought by Verizon. According to the Wall Street Journal, Verizon paid $4.83 billion in cash for the assets. Yahoo itself will continue to hold the remaining assets but will eventually change its name and become an investment company. In total, the company was rumoured to be worth $6 billion.

For us Gen Xers this is an interesting day: we witnessed the end of a company we saw as innovative and fresh just a "few" (i.e. read ~20) years ago.

I was recently explaining to a young lad in his early 20s about life before the Internet: you had to find books at the library and it was almost impossible to connect socially with people beyond your classmates. So to use Yahoo or other search engines to access information or people was a completely new and mind-blowing concept.

As I noted in this post commemorating Google's 17th anniversary:

"It's especially memorable for those of us who were in university in the late 90s because we had access to high speed internet on campus unlike the painfully slow dial-up at home. 

I remember my first job as a coop student at the UW Federation of Students (I can't believe this quote is still hanging around from that time!) when a co-worker was explaining to me how OpenText was the best search engine (of course using my NetScape Browser). Of course back then there was a number of search engines including, Yahoo, Lyco, Alta Vista, etc. However, I stuck to OpenText for a while then eventually switched, along with everyone else, to Google...Well Lycos, OpenText (as a search engine) and AltaVista may be long gone, but it looks like plaid is back!"

So now we can add Yahoo! to the pile of "has beens" search engine.

Beyond nostalgia, I had the following reflections on the Verizon of Yahoo based on the WSJ article above:

• Verizon is no longer just pipes: Verizon has a strategy to move beyond just serving mobile and broadband services. Verizon is adding Yahoo to its existing portfolio of content plays, such as AOL. For Verizon, it's an overall strategy to make billions through content and advertising. Net neutrality can potentially limit their ability to use this vertical integration to undermine competition, but regardless it shows how being a "pipes-only" company is not enough. Of course it is a bit ironic that former rivals, Yahoo and AOL, are now sitting in the same tent.  
• Big Data is monetized at the expense of privacy: The ability of Verizon to combine the data plays between its various content plays is a great illustration of a point that I have noted before: for big data achieve value it must water down privacy. Since there are synergistic values (i.e. instead of just being additive) of combining the data, it could be argued that it's something that a user should explicitly consent because a user may simply not want Verizon to use their Yahoo data this way.  
• Remember the Internet Bubble? Yahoo! had a market capitalization of "more than $125 billion at the height of the dot-com boom in early 2000", which is quite a steep decline to $6 billion. I wonder if it ever produced the cash flows to justify that valuation. 
• Algorithms win over people: WSJ today published a good read comparing the algorithmic approach of Google, in contrast manual effort required to index the Internet. This is similar to Amazon's who found that the algorithms to better than humans in getting people to buy things: "Amabot replaced the personable, handcrafted sections of the site with automatically generated recommendations in a standardized layout," according to The Everything Store, a new book exploring the history of Amazon. "The system handily won a series of tests and demonstrated it could sell as many products as the human editors."
• Innovation and exponential thinking: On a separate note, but related note Yahoo could have bought Google for $3B in 2002 but it didn't. It's a great example of how Google embraced leading-edge technology to deal with the exponential growth of the Internet and Yahoo's inability to recognize Google's approach as the winning approach led to its demise.

Yahoo! is now literally a shell of its former self - both in structure and the assets it holds. However, it's a good case study of how failing to identify exponential trends - and acting on them - can ultimately lead to disaster.

Cloud vs corporate IT: Insights into how the share-economy will play out?

When thinking about disruption we often attempt to look to the past for how it will affect our future. However, we can also explore how disruptive tech is impacting our world today.

Consider a recent WSJ article that gave us insights in to how cloud and mobile is disrupting "classic tech":

• EMC, Intel and IBM are being disrupted. The move to cloud and mobile is impacting the ability of these companies to meet earnings expectations. For example, EMC's sales of storage products declined by 10%, while Intel has seen an overall decline in PC Market sales.
• Companies are slashing their workforce in response to such trends. The shift to cloud & mobile is resulting has resulted in the hemorrhaging of 12,000 jobs, or 11% of the workforce, at Intel alone. 
• Overall decline in revenues/profits despite strategic shifts in product mix. IBM's cloud computing business grew 34%, while Intel's data centre business, serving cloud providers grew 9% (for more on this "corporatification trend" see here). However, IBM's total revenue fell almost 5%. Intel had a tough time keeping up with rivals like ARM who posted revenue gains of 22%. This compares to 7% of which the WSJ attributes a chunk of that rise to an acquisition Intel made. 

Reflecting on these trends, is it fair to think of cloud as the original use case for the share economy? 

When we think of Uber, Airbnb, etc., we see how users can use these platforms to monetize their excess or underutilized asset by renting it to others.

However, isn't that also the story of the cloud?

Amazon, Intuit, and other cloud computing companies decided to "share" their excess computing capacity to others. In a sense, we are talking about servers instead of houses, but the concept is really the same.

And this goes to my initial point. We are living through the disruptive impacts of cloud and mobile on legacy-tech and we can quantify, analyze and understand its impact.

Given this premise what does this above tell us about the share-economy?

Firstly, better utilization of assets leads to the sale of less assets.  This should be expected as there is a more efficient use of assets leads to  (servers, car, house, etc) less market size as demand remains constant. As I had noted in the post a few months ago, Uberization of the taxicab industry would ultimately lead to a fleet of cars that are owned by a company like Google - leading to a net reduction of cars used by society. GM probably understands this concept as they have invested $500 million into Lyft; a competitor to Uber.

Secondly, it illustrates how the share-economy is subject to concentration of wealth: the cloud computing landscape is dominated by large players, including Amazon, Google and Microsoft. As noted by Douglas Rushkoff in the following video, since these innovations emerge out of the "operating system of capitalism", they inevitably result in the formation of a handful of platforms dominate the industry and capture the lion's share of the profits.


(Also check out his book that discusses this in more depth)

Thirdly, its difficult for behemoths to adjust to these types of shifts. Despite Intel and IBM investing in the disruptive technologies, it's hard for them to adjust to the dynamics of the new economy. This illustrates how much more challenging it will be for those disrupted by such platforms to re-tool and compete in the landscape.

For accountants and auditors, one such platform to watch out for is Gigwalk. As per their website, their value proposition is that by leveraging the 350,000 “professional services” workers (see graphic below) the manufacturer or other upstream supplier can get visibility into the actual retail outlet. For example, Whirlpool wanted to “Audit the presence of its Swash product on showroom floors, communicating back to corporate compliance gaps in real-time”.

And the "starter Store Audit Package" begins at $10.

Creative destruction is not inevitable, but we should learn from the lessons of these tech giants and plan prudently to meet such challenges head on.

Remembering those Blackberry days

The Globe and Mail reported on BlackBerry's latest approach in terms of rebuilding its mobile user base. The company is offering $400 trade + a $150 gift card for anyone who trades in their iPhone for the rather odd square shaped Passport. Here is the review from the Verge regarding the latest:


Coincidentally, I came across an BlackBerry of mine: the Torch. I remembered thinking that after using the device how it was the perfect compromise between the touch screen and the classic keyboard. However, that feeling faded quite quickly: the device was so under-powered compared to the competition and of course it lacked the apps that you could find in the Apple AppStore. But at the time I could never imagine giving up the physical QWERTY keyboard.

Since then I have moved onto Android and more specifically to the SwiftKey keyboard - to the point I can't go back to a physical keyboard!

How did BlackBerry fail to keep up with the times?

As noted in this article, Mike Lazaridis the founder of the CEO, was inspired to develop the BlackBerry when he recalled his teacher's advice while watching a presentation in 1987 - almost a decade before the Internet - on how Coke used wireless technology to manage the inventory at the vending machines. What was his teacher's advice? His teacher advised him not to get swept in the computer craze as the real boon lay in integrating wireless technology with computers.

BlackBerry caused a storm in the corporate introducing it's smartphones in 1998. It went on to dominate the corporate smartphone market as the gold standard in mobile communications. The following graphic from Bloomberg really captures the subsequent rise and fall quite well:

What happened how did the iPhone, unveiled in 2007, and the Android Operating System outflank the Blackberry? This article in the New Yorker larger blames BlackBerry's inability to understand the trend of "consumerization of IT": users wanted to use their latest iPhone or Android device instead of the BlackBerry in the corporate environment - and was it just a matter of technology to make this happen.

Although luminaries, such as Clay Christensen, have written extensively on the challenge of innovation. And there's always the problem of hindsight bias. However, is the problem more basic? When we look at the financial crisis, some people like to blame poor modeling. But I think that is more convenient than accepting the reality that people got swept up in the wave.

Isn’t it fair to say that people knew that house of cards was going to come down (and some of the investment banks were even betting on it falling apart), but were overly optimistic that they would get out before everyone else does?

But that’s the point.

When we are in a situation where we are surrounded by people who confirm our understanding of the world – we may believe them instead of trying to see if our understanding of the situation is correct. With the housing bubble, the key players wanted to believe that those models were correct – even though models have failed the infamous Long Term Capital Management. With BlackBerry what was it? Did they think their hold over the corporate IT? What I wonder is did they not even try to see within their families and those around them who were using the iPhone or Android devices? Weren’t they curious what “all the fuss was about”?

Although this is problem with many of us who want to believe that the present situation is going to continue indefinitely (especially when things are going our way), there are others who do stay on top of things. Most notably is the Encyclopedia Britannica that actually stopped issuing physical encyclopedias and moved to the digital channel instead.

Change is a challenge, but the key is to be prepared to admit that the current way of doing things can be done better, faster and in radically different way.