Reading on the iPad Part 6: Forbes was a disappointment.

The July 18, 2010 issue of Forbes contains an editorial that lays out big changes happening at Forbes to embrace the digital world: The new Forbes web site offers more up-to-date information outside the print cycle. The new tools inside of Forbes for content creation allow richer content creation for staff, and embraces contributions from the outside in the form of blogs and feedback postings. The pages of Forbes now contain articles with significant commentary from outside. From that editorial, and a thread of commentary through a couple issues, I built up high expectations of what the online Forbes experience would be. I was disappointed.

There seems to be a basic assumption that all this new online input comes from a baseline of reading the paper edition. Although the entire content of the print edition is available on the web site, it is again on offer as a table of contents with links to articles. As with other general interest glossy magazines, I found I really wanted to turn the pages, not dispatch from the table of contents. It also seemed that Forbes on the web crammed too many overly intrusive ads into its presentation. It was quite distracting.

There is no Forbes app for the iPad. It was with hopeful anticipation that I investigated the Forbes Kindle subscription. Unfortunately, I pretty much hated everything about the experience of Forbes for Kindle on the iPad.

The beautiful glossy magazine had been ground down into a cheap paperback book. The pages shrank down to 3x6 inches and the typography was reduced to a single font in only a couple point sizes. Colorful icons and graphical navigational aids were eliminated and everything re-formatted into block paragraphs. But as if to comply with a marketing directive to be able to say, "We offer color!" a very few select photographs were retained as "color plates" scattered throughout.

There was one difference between Forbes for the iPad Kindle app that made it less usable than a paperback book: With a paperback book, you can start at the first page, and flip through all the pages. You CANNOT do that with Forbes for Kindle. You must choose an article from the table of contents. When you get to the end of the article, you can continue to other articles in the same section, but when you're through all the Features, or all the Lifestyle articles, you hit a wall and must return to the table of contents and choose another article starting point.

Worst of all, the table of contents is complete re-arrangement of the print edition organized by article priority. Feature articles appear first, then other sections and lastly is the Editorial section. This is an interesting approach conceptually, but is totally at odds with my well-established habits of travel through the print edition. I liked reading the editorial content early, then the short articles to get me limbered up for the more detailed features which I would read last, with "Thoughts" as desert.  Instead, everything is in the opposite order, under unfamiliar section headings in the table of contents, with the editorials at the end smooshed together on top of "Thoughts".

I'm so glad the subscription came with a 15 day full-refund guarantee.  I asked for my refund after 15 minutes.

I think Forbes would be extremely well served if it discontinued offering a Kindle subscription and switched over to using qmags.com. Everything that is good about the typography and organization of Forbes would be retained. The experience would be the same as or better than the experience of turning the pages of the print edition.

This concludes part 6. Let's move on to Reading on the iPad Part 7: Fast Company: applying my WSJ reading habits.

Reading on the iPad Part 5: outsourcing to qmags works well!

I belong to a couple professional societies, the Institute for Electrical and Electronics Engineers (IEEE) and the Association for Computing Machinery (ACM).  This section describes the good experience I had with the IEEE's outsourced publication, IEEE Spectrum, and my experience with the ACM publication, and why I advocate it switch to the IEEE's approach of outsourcing to a third party qmags.com.

The IEEE

The IEEE has been exploring a couple different approaches to online viewing. It offers a tremendous number of publications via the web, and has invested heavily in their Xplore digital library. The primary interface for these publications is article search or a table of contents web page containing links to the articles in various formats including PDF and HTML.

For the narrow-cast publications within the various IEEE societies, I think this makes sense. My subscriptions are to Spectrum, the IEEE publication for more general audiences, and Computer the general-audience-directed publication of the IEEE Computer Society. My reading of these two magazines doesn't work with the "dispatch from table of contents" model.

Happily, the IEEE offers selected publications with an iPad app with a "flip all the pages" interface through a third party, qmags.com. Each publication comes as a separate app that offers a bookshelf of the available issues and an interface similar to what I found for The Economist and Wired. By my evaluation criteria, it ranks quite high:

• It is a "turn all the pages" interface.
• The table of contents is a sensible refinement of that from the print edition.
• The pages render quickly and are almost always visible and in focus immediately.
• The interface is sensible and obvious with a small bar at the top with controls and navigation aids.

The qmags.com app seems to be a generic viewer that displays a bit-for-bit rendering of the actual magazine page images. This means that sometimes there is a brief delay as the page is scaled and rendered. In practice this doesn't happen too often. It's actually kind of fun getting my fingers and my eyes working together to flip through, zoom in and out, and to read through. I believe this is the way reading on a tablet should be.

The qmags.com app provides a thumbnail view that allows overview and quick access to distant pages. I think this interface is less clever and actually more intuitive than the scrollbar interface offered by the apps for The Economist and Wired.

One other nice feature of how qmags.com has the business set up: I get email alerting me to the existence of the new issues. Perhaps that is available for Wired and The Economist, but I haven't figured out how to turn it on.

To my way of thinking, publishers should try out qmags.com and see if it works for them rather than developing and supporting an application in-house. I'd be interested in trying out The Wall Street Journal with this interface, although I suspect that the page size is too big, and there would be too many zoom in/zoom out operations in the course of reading.

CACM: A candidate for qmags.com

The Association for Computing Machinery (ACM), like the IEEE has made a huge investment in their online library. As with the IEEE, the ACM digital library offers article search, and the "dispatch from the table of contents" interface. Additionally, for their general interest publication, Communications of the ACM (CACM), members can log onto the web site, and use the "Digital Edition" link to get to a fast and powerful interface implemented in JavaScript. This interface provides a bit-for-bit rendering of the magazine's page images, enhanced with links, quite similar to the experience of the qmags.com interface.

For reading CACM on my desktop computer which is always connected at high speed to the Internet, this combination of interfaces works quite well. I can flip pages or I can grab an article at a time. For the iPad, these interfaces are definitely sub-optimal because:

1. I use the "flip all the pages," not the "dispatch from table of contents" as my primary mode of reading it. (Just as I do with the IEEE's general-audience publications.)
2. The pages are NEVER on screen and ready to read when I ask for them. Instead, every page turn triggers a page download and time consuming scaling to render. When I go back to a previous page, no cache is kept so the page is again downloaded and rendered.

I have suggested to the ACM Member Services Department that they give serious consideration to adopting qmags.com for CACM.

This concludes part 5.  On to the next part: Reading on the iPad Part 6: Forbes was a disappointment.

Examine Disney for insight on the future of Apple

The news wires are abuzz today with speculation on the future of Apple. Stepping down as CEO, Steve Jobs has made a little more real, the inevitability of his ultimate departure.

Some believe that the death of Steve Jobs means the death of Apple. Others, who view themselves as pragmatic realists foresee a bland and boring future for a company that will lose its defining spark, and its ultimate shepherd. Apple and its customers are widely described as in the thrall of the "Cult of Steve". What will happen when Steve is gone?

I find an interesting model for the future in Disney. Like Apple, Disney was founded by a visionary who saw the world's favorite play space where others saw just a swamp. Remember that construction of Walt Disney World, a property that defined the Disney company going forward, was begun the year after Walt's death. (Somewhere out in The Net is the account of Walt pushing through the planning for Disney World from his hospital bed. When I find it, I'll link to it here.)

It should be reassuring to Apple customers and stockholders that, unlike Disney, Apple got the chance to explore life without their visionary. At that time, the accepted wisdom was that Apple could only succeed by breaking with the approach of "that crazy Steve Jobs". Steve's return showed how to hew to his vision, come back from behind and change the world with unimagined levels of success.

A decade ago, David Pogue wrote In Praise of Corporate Tyranny for Macworld. Will Apple maintain focus without Steve Jobs to crack the whip, and reset expectations and behavior?

When the founding visionary goes, those left behind must imagine a way forward guided by belief. Instead of the unpleasant but simple intervention by the Tyrant, there will need to be discussion and consensus building. It will not be efficient, but it can achieve greatness. Jim Collins in Good to Great documents know companies guided by a common vision can go farther than those operated by "one great man with a thousand assistants".

Disney, with the common theme of "What would Walt do?" exploits and refines a cult of personality into great experiences for guests and excellent profits for stockholders. I expect that Apple will do the same. Those who disagree would do well to review Disney's history.

Epilogue:  5 October 2018.

25 August 2011, when I wrote this post, Apple stock closed at $53.39.

The first iPad was a year and a half old.

There was no Apple watch.

Today Apple stock closed at 227.99.  According to a CAGR calculator I found on the web, that's a compound annual growth rate of 19.9%.

This time, it appears I was right. And I put my money where my mouth was, so I reaped the benefits of my convictions for a change. YAY!

Reading on the iPad Part 4: Extreme disappointment: The Wall Street Journal.

The Wall Street Journal set an impressive milestone when it maintained and expanded online readership after putting most of the content behind a pay wall. Perhaps others were driven to the online-only subscription as I was when the print subscription price doubled. At any rate, the online Wall Street Journal does a pretty good job of offering all the content of the print edition as well as additional, more up-to-date content on "internet time."

I've read The Wall Street Journal every day since 1986 or so. I began by reading it like a book -- studying every word of most articles to understand the basics of business and business news. Over the years I evolved a ritual of flipping all the pages, and letting my eye work together with the typography to get what I wanted about the relevant business, world, and national stories currently in play.

When I switched to the online WSJ, I had to radically change my ritual. It was too time consuming to flip through every article. However the web site, for each section of the paper, provided an excellent table of contents. I settled into a comfortable triage and selection ritual, opening the articles in background tabs so that they would download and render while I finished the current table of contents. Thus I took explicit control to enable the content to be on screen when I wanted, maintaining smooth workflow.
When I went to The Wall Street Journal iPad application, I was hopeful that I could establish an even more efficient flow, because the whole issue would be loaded in and cached on the iPad.

Sadly, I found the WSJ iPad experience to be like trying to read a newspaper through a peep hole via remote manipulation, as one might work with radioactive isotopes. The iPad app gives you a transformed image of every page. The articles are placed on the page in the same place they appear in the paper edition, but since the "paper" is six inches by eight inches instead of 29 by 23 inches, the article text is truncated. The truncation almost always happens in the middle of a sentence. Although I get more text than I would find in the summary entry on the Web site, I am left less sure of whether or not I want to read the article. I suspect a subtle aspect of human factors is at work -- the brain's craves completion when offered half a sentence makes it more difficult to skip the follow-up and move on.

In fairness, I can see how this was an interesting attempt to transform a typographically useful layout onto a radically smaller a display area. Unfortunately I found the experience extremely unpleasant. I had to go back to flipping through every page of the paper, but my flow was interrupted by having to tap on articles I would not have ordinarily read in order to feel comfortable moving on.

Increasing the unpleasantness, the WSJ iPad app uses a unique gesture to return from following an article. Everywhere else on an iPad, the pinch gesture shrinks the image. In the WSJ iPad article, it means, "Close" the article you were reading and go back to what you were doing before.

Such a "Close" gesture is really quite clever. It pretty much means what it is, and it is a reasonable paradigm for returning from a diversion into an article. There are two problems with it: The pinch gesture is already established as another behavior and there is a quarter century of experience with a thing called a "Back" button.

So, in spite of the great effort made by Dow Jones & Company, I find myself going back to the web browser for my daily read of The Wall Street Journal. On the iPad this has a couple additional consequences: I will not be able to read the WSJ offline. This downside is somewhat reduced by my viewing a fairly small number of articles that are only kilobytes in size. Easily accommodated by the cellular network.

I will not be using Safari to read it until Safari offers tabbed browsing. I spent the $0.99 for Atomic Browser so that I can "Open Page in Background Tab" just like I do on my desktop. However, Atomic Browser's extreme aversion to any pop-ups, means that photos that are shown with a pop up simply do not work and I need an additional link to re-log in when the WSJ server has expired my session keys. (This seems to happen more frequently than I would expect, once every couple days rather than every couple of weeks.)

Recognizing the challenge of a faithful typographical rendition on the small iPad form factor I would suggest the following amendments to the iPad app for The Wall Street Journal:

• Provide a navigation and control bar as the apps for The Economist and Wired do.
• Put a "Back" button on that control bar, and get rid of the "Close" gesture.
• Make every subset article end on a sentence, or ideally, a paragraph boundary.
• Offer the multiple sectional table of contents access mechanism copied in from the web version.

These changes are applying lessons learned from the successful apps: Make navigation explicit, and tune up the table of contents for online viewing.

For now, I classify the iPad app for The Wall Street Journal as "too clever in ways that significantly degrade usability."

This concludes part 4. Continue with Reading on the iPad Part 5: outsourcing to qmags works well!.

Reading on the iPad Part 3: My Favorites

My Favorite: The Economist

As far as I can tell, The Economist works the hardest to offer extremely usable content in a variety of non-traditional formats all at no extra charge to subscribers to the print edition.The economist.com web site offers a high quality mix of online discussions, immediate news stories, links to the print edition, and links to other formats. Following the Digital & mobile link near the top of the page brings you to the page where you can download apps for Kindle, iPhone, iPad and Android that offer the full content of the print edition, as well as apps that offer other classes of content. Additionally, word-for-word audio transcription is available either as a podcast, a zip file with mp3's of the entire issue, or individual sections in a zip file.

The Economist is my favorite magazine. If I had to pick from all my subscriptions a single one to retain, it would be The Economist. I like it because it covers world events from a high level and local events in several countries and world regions. It contains rigorous analysis and tutorials on events viewing them from the perspective of economics. When Leavitt and Dubliner published Freakonomics, I was already a receptive audience, having worked through such a perspective as a long-time reader of The Economist. Additionally The Economist presents current events in Science, Technology, Books and The Arts. The Science & Technology section has only a few articles, but they're the important ones that you eventually hear about everywhere else. Finally, there is the Obituary where one learns about people, sometimes famous, often obscure who made a big difference in the world.

With all this content, for a very long time, I was terribly backlogged with The Economist. I could never finish one before the next weekly issue would arrive. That is, until I put the word-for-word audio edition into my car and began listening while driving. I include all this detail to show how the iPad app so perfectly fits my needs when reading and listening to The Economist. Every Friday, I open the iPad app, see the new issue on offer and tap "Download" to bring it onto the iPad. Inside the issue, I tap on an icon of headphones to download the entire word-for-word audio edition.

I flip through the pages scanning the articles for the quick factual updates on news stories, the alternate perspective on world and somewhat local events. As I do that, I pick out which audio articles I'll play in the car. Even with this triage and filtering, I still find there's a whole week's worth of driving that's covered by the audio edition.

By the criteria I set in the previous section the iPad app for The Economist is a home run:

• I want a "turn all the pages" interface, and the app offers it. Unlike the Wall Street Journal iPad app, (see below), the iPad app for The Economist does an excellent job of translating the print edition usefully into a subtly different format for consumption on the iPad.
• I don't want a special summary in the table of contents, and I don't get one. I get a table of contents laid out similarly to the print edition, with the articles grouped by section, but the sections organized in the same order as they appear as one flips the pages. (This is something I wish all the other iPad and web editions would do.)
• After downloading the issue, the content is all right there when I want it. Of particular note is how the app sensibly renders content so there there is no delay waiting for the page to be scaled and imaged. (This is a problem for most PDF-based renderings.) I found that I could flip the pages in the iPad app faster than I could flip pages in the paper edition, and that resulted in my being able to read more in less time. This experience was often the case with the iPad editions.
• The interface is indeed familiar, sensible and obvious. I particularly like how there's a little bar at the top with controls and navigation aids. The only negative here is that the controls for the audio edition playback fade away on a timeout, not with a gesture. This becomes annoying when I need to pause the audio playback when the iPad has put the display to sleep.

From the standpoint of usability, quality of execution, and business model, the experience of reading/listening to The Economist is first rate. It is the best of the best.

A close second: Wired

Wired too offers an iPad app, rather than deferring to a more generic interface. Like the iPad app for The Economist, one starts the app, and taps to download the current issue.Early adopters of the iPad app for Wired complained that the file size of the magazine was unreasonably large. Apparently subsequent refinement has reduced the file size. At the present time a 500 megabyte book or magazine isn't a problem for me, but it is something others might care about.

There are many other similarities between the interfaces of the iPad apps for Wired and The Economist:

• There is a "turn all the pages" interface.
• The table of contents is a sensible refinement of that from the print edition.
• Content is on screen when I ask for it without a wait. As with The Economist, there is a re-rendering for the iPad form factor that displays quickly, and is readable.
• The interface is sensible and obvious with a small bar at the top with controls and navigation aids.

Wired adds:

• An article overview grid, with the articles arranged horizontally, and the pages of the articles arranged vertically.
• A scrollbar that allows you to zoom through the whole issue. This works by showing a couple of small-sized images of the pages as an inset on the screen as you slide the scrollbar. When you stop sliding, the main page changes to what was on display in the inset.
• Multi-media enhancements to articles and ads. This takes the form of videos that jump out at you when you visit particular ads, and interactive figures. Some will consider these enhancements gratuitous. I'll call them "mostly harmless".

Wired doesn't offer an audio transcription like The Economist does. I believe not offering it was a reasonable tradeoff. The Economist consists of lot of text and a only few diagrams that often can be described verbally. Wired is more of an experience of article with pictures and diagrams designed to enhance. This narrative with media approach is why I'm willing to cut Wired slack over whether or not the media enhancements add value.

I also noticed that Wired doesn't allow you to resize the text with the pinch/spread gesture like the Economist interface does. This generally isn't a problem because the rendered fonts are reasonably large.

One criticism I will make of Wired: The business model is evolving and currently contains a dis-incentive to go paperless. Wired generously provides the iPad edition to all subscribers to the print edition. Because I'm a long-time Wired subscriber, I get my print edition at significantly lower cost than the $19.99 per year that is the current rate for the iPad edition.

In fairness, we have to wait for customers voting with their feet to either adopt or abandon different offerings in the marketplace. Some, perhaps those inside Wired, may see the media enhancements as worth demanding a premium over the print edition price. Personally, I see production as a cost common to both online and print editions, but fabrication (printing on paper) and distribution (postage) to be significant additional costs.

I believe I should pay less to receive bits and not kill trees, because Wired doesn't have to print and mail the thing to me. For the time being, I'm receiving the print edition and recycling it (or giving it to a friend) while I do my actual reading of Wired on my iPad. It is my hope that the dis-incentive will go away with a lowering of the cost of the iPad edition, not an uplift to the cost of the print edition.

This concludes part 3. Continue with Reading on the iPad Part 4: Extreme disappointment: The Wall Street Journal.

Reading on the iPad Part 2: Background

The effect of reading goals and habits

As I worked through the different publications and interfaces I discovered that I had different goals and habits for reading the different sources. The ability of the interface to support my preferred reading strategy and meet my goal was the key to whether the experience was a good or bad one.

With a book, I start at the beginning and read every page to the end. For a time I tried to read the newspapers and magazines that way as well. As one might expect, it didn't work. There are just not enough hours in the day to read every word that comes in a subscription. In retrospect, I'm surprised it took me so long to realize that one has to triage and to become quite discriminating over what one spends time reading.

Theoretically, a good table of contents with well-written summaries would clue a reader into whether or not an article is desirable to read. This does not play out well in practice. Sometimes the goal is to harvest a few key facts either because the topic is familiar and needs only an update or because the details are simply not of interest. Other times the goal is to drill down into minutiae to flesh out a rich understanding. I often scan for the main ideas and viewpoints to compare and contrast it with my own. Most of these activities don't fit with a workflow of reading a summary for a yes/no "go to article" decision. Generally, by flipping every page, my eye, aided by the artful use of layout and typography is able to do what needs to be done to meet my goal.

I'll mention in passing that it seems publishers of glossy magazines of general interest seem to put a lot of effort into supporting the "flip all the pages" approach. Yes, there's a table of contents, but it seems much more like a teaser to get you interested by the time you get to the feature. This aspect came through most clearly when I attempted to read Forbes through the Kindle interface. I believe that the professional societies whose publications I read are recognizing this aspect a little slowly, but acting on it usefully going forward.

To app or not to app?

I've seen a lot of different approaches to online reading in my time. My online reading began with documentation clack-clack-clack'ing out of a Model 33 Teletype® in high school. At MIT, I used Multics, ITS, and early distributions of UNIX™, each with their own unique approaches. I watched as the online reading experience evolved. I remember my excitement when the Apple Macintosh brought to the masses the online experience I'd sampled on the Alto from Xerox PARC and the MIT Lisp Machine.  Later I was a software developer for the Tulip project which was an early attempt to serve technical journals online instead of on paper. Through all that time I watched a cycle from special purpose reader application to generic browser and back again.

For the Tulip project, I' developed an online reader application that could present a new page in what was then a surprisingly quick two seconds. I felt confusion and consternation when my customers abandoned my reader for the much slower generic interface through the Mosaic web browser. For those customers, the added step of installing software trumped performance concerns.

More than a decade after Tulip, I hoped we would understand the reading experience well enough to have produced a generic browser up to the reading task and that a basic understanding of usability would have become widely enough understood to provide a baseline for all reader applications, but no.

On the iPad, I used publication-specific applications, the broader-based iBooks reader which acted as a generic PDF reader, and the Safari and Atomic browsers to operate interfaces through the publisher's web sites. Sometimes an app was best, and sometimes web browser or iBooks PDF reader was best. Here again was a surprising observation: I expected a custom reader would have a richer set of user behaviors and controls that would be the significant differentiator. Instead the following aspects mattered most:

• Did the reader offer a good, "turn all the pages" interface when I wanted it?
• Did the publication offer a good table of contents summary and easy fetch when I wanted it?
• Was the content in front of me when I wanted to read it or did I have to wait?
• Was the interface familiar, sensible, and obvious?

I use these criteria in my evaluations of the various offerings.

Now, on to the first set of actual evaluations, Reading on the iPad Part 3: My Favorites.

Reading on the iPad Part 1 of 8: Overview

I have a problem with newspaper/magazine subscriptions: I try to read too much from too many of them. As part of my process of pruning my subscriptions and managing my reading, I decided to throw technology at the problem. I bought an iPad II.
My goal for using the iPad is to be more organized, carry one object about the same weight as one of the several magazines I often carry around, and to streamline my reading process. I've been partially successful so far. Along the way, I've experimented with several different publications and reading methods and I'd like to share my experience.
Describing my iPad experiences together with their context, and the background that created that experience for me requires going into significant detail. Too much for a single blog posting, so I'm cutting this survey into chunks:

• Reading on the iPad Part 2: Background -- Read this to understand the other sections. It contains the sub-sections, The effect of reading goals and habits and To app or not to app?
• Reading on the iPad Part 3: My Favorites -- It contains details of my experiences with The Economist and Wired.
• Reading on the iPad Part 4: Extreme disappointment: The Wall Street Journal.
• Reading on the iPad Part 5: outsourcing to qmags works well! -- This part details my experiences with the professional society journals, IEEE Spectrum, IEEE Computer, and CACM
• Reading on the iPad Part 6: Forbes was a disappointment.
• Reading on the iPad Part 7: Fast Company: applying my WSJ reading habits.
• Reading on the iPad Part 8: Boston Business Journal: Generic trounces clever!

Summary Conclusions

Reading on the iPad is definitely a work in progress. Different publishers are at different stages of exploration, deployment and refinement of their iPad and other online offerings.I was disappointed by the Association for Computing Machinery, but also by Forbes. I was pleasantly surprised by Wired, and amazed by The Economist. I expected Wired to suffer from being too clever, as trend setters sometimes are, but I found its offering a perfect balance of fancy and prosaic. On the other hand, I felt the iPad app for The Wall Street Journal was way too clever for its own good, and created an actively unpleasant experience.Before presenting my detailed experiences, I want to take a moment and discuss the tradeoff between using a specific app versus using a generic browser.
On to Background!

Should Google Buy Netflix?

In a previous entry I described how  I tripped over a question that I found fun to ponder:

Should Google Buy Netflix?

The short answer I give is, yes, Google should buy Netflix.  Here's why:

Background:  Google as my TV provider

Although Google is my phone, my search engine, my address book, and on its way to becoming my email provider, Google is not yet my TV.   Google supplements my TV watching with YouTube.  Netflix supplements my TV watching, but in a very different way.  I watch YouTube in my home office on the computer.  I watch Netflix in my living room.  My YouTube watching is generally solitary.  I watch Netflix DVDs and Internet streams with friends, just like I do with regular TV.  According to an article in The Economist, Changing the Channel, this communal TV watching is one of the reasons for the continued strength of conventional TV in the face of competition from the Internet.

My TV still comes from a cable company, Comcast. With the purchase of NBC by Comcast, there is a vertically integrated monopoly from script writer, to my TV.  Comcast owns a piece of every link in the value chain.  

Internet streaming is a flanking attack on the likes of an NBC/Comcast vertically integrated monopoly of content creation and delivery: perhaps via Hulu, perhaps subscription via Amazon, perhaps through purchases via ABC/Disney/Apple.  Netflix is the stealth-leader, offering a tremendous breadth of content at a low subscription price with a set-top box that is widely available.

Think about Netflix like Android

I see some important similarities between a deal with Reed Hastings for Netflix and the deal with Andy Rubin for Android:

• Netflix is building up a following in a new and intensely competitive market.
• This new market, online video delivery, is in a space Google seems to want to inhabit.
• Reed Hastings is an extremely talented entrepreneur who makes bold moves and makes them work.
• Netflix has made it easy for people to acquire the hardware needed to access the service.

There are differences, of course:

• The asking price, and ongoing cash flow to feed Netflix would be dramatically larger than Android.
• Reed Hastings is not a technologist who fits into the existing Google "numbers and code" mindset.
• It is unclear that Reed Hastings sees an advantage to selling to Google.
• It is unclear that Google sees a significant advantage to funding Hastings and Netflix.

What Google gets from buying Netflix

The first thing Google gets is a ubiquitously deployed set-top box.  I expect the value of this aspect is under-appreciated at Google. Every other Google success, search, email, online maps/directions, smart phone market share, came when the new Google version came along and displaced entrenched competitors.

However, Google always took advantage of being crucially different and better than a group of evenly matched competing products. Google became a big player by displacing a group of smaller players. It's never had to displace a single dominant player. For example, when Google search appeared on the scene in 1998, it was a close competition between Lycos, Yahoo, HotBot, Excite, AOL and MSN. They competed with each other until Google differentiated itself from them all. The kind of market staying power, largely inertia from familiarity and existing big share was not a factor for Google here or elsewhere.

With web-based email services, Google gmail entered a market with no clear winner and lots of somewhat un-differentiated competition among Hotmail and the portal email services of Yahoo, Excite, AOL, and others. Again, many small players competing but similar enough to each other to give Google an opportunity to differentiate and dominate.

With maps and directions, Google was on-track to displace Mapquest, and Yahoo Maps on the desktop when it suddenly became the one that worked BOTH on your phone and on your desktop. This simple, direct differentiation lead to domination.

Lastly, with the smart phone market, Android entered and differentiated itself from Palm, Windows Mobile, Symbian, and Blackberry and is now in a two horse race with Apple.  I explored this in greater detail in my blog entry, Apple's "Moat" is its brand not IOS.

In the home video streaming market, there is a stealth leader: Netflix.  Netflix has a widely distributed set top box and an extremely broad range of interesting content at an attractive price.  In the set top box realm, we can say that Netflix has "solved the chicken/egg problem":  Consumers do not want to shell out for a set top box until the service is well established.  The service does not become well established until lots of consumers shell out for the set top box.

Whereas competitors, Google TV, Apple TV, Roku, Boxee, etc sell one set top box to get onto their service, Netflix has its internet streaming service built into BluRay players and other devices people already buy from over 200 vendors.  Google should have done this, but didn't.  Now it will have to negotiate a path Netflix has already traversed. Hulu too is available in some of these devices, but it does not have the breadth of content, and does not have the popularity and market familiarity that Netflix built.

The Reed Hastings Wild Card

Another big value I find in Netflix that may be  under-valued by Google is Reed Hastings himself.  Like Steve Jobs (Apple), John Chambers (Cisco), Larry Ellison (Oracle), and Page and Brin of Google, Reed Hastings is a business builder.  Commentators kept wondering when Netflix would be killed by Blockbuster practically until the day Blockbuster was liquidated to Direct TV.  Hastings has a flare for seeing a key to transforming an emerging market.

An article in Wired, Netflix Everywhere: Sorry Cable, You're History, alerted me to Hastings' cleverness with the deal he cut with Starz in October 2008. It bypassed the "windowing system" that studios have in place controlling who can show what films when.  By treating Netflix as a content aggregator, akin to a cable company like Comcast, Netflix gained the ability to stream a bunch of films over the Internet at the same time they would normally show up on a Starz, rather than waiting for a DVD to be made, or waiting until the end of the "90 day pay window."

That contract created a significant advantage for Netflix that Google TV lacked:  A license to stream 2500 movies much sooner than what the studios would normally permit.  This was a sweet deal that looked like the first step in rewriting the business model for cable companies.  But subsequently it came to be viewed as a one-off mistake by Starz that won't be repeated.  The other deals Netflix subsequently struck with EPIX and Relativity were more costly, involved the standard windowing rules and granted license to less interesting content than the Starz deal did.  Reuters, in Starz talks with Netflix weekly, no rush for new deal, reported how any renewal of the deal between Netflix and Starz will be for a lot more money and for a lot less access, so as to maintain their good relations with the conventional cable companies.  But Reuters also pointed out that a way to trump such a problem would be for Netflix to buy Starz.

Netflix needs to keep itself attractive by maintaining an ever broader range of available content, while confronting providers who want more dollars for less access. How will Netflix balance revenue against content quantity? That question is key to deciding whether or not to buy Netflix stock.  Alan Edwards posted in the blog The Markets Are Open a straightforward analysis of the present situation with speculation about the future and the conclusion that Netflix is on an unsustainable trajectory.

Now Hastings has answered that concern by taking the bold and controversial step of changing the structure and pricing of the service.  Although customers are up in arms, the move comes at a time when again, Netflix is the stealth leader.  When I look at the streaming content services, even at $8 a month, Netflix has the most content at the lowest cost, and is positioned to maintain that lead.  I'll grumble about paying more, but I'll pay it. Hastings is brilliant at making those kinds of business decisions.

If Brin, Page and Eric Schmidt could open their executive committee to one more member, Hastings would be a powerful addition.  But it is unclear that the four of them would want to work together.  I suspect Hastings would want to be the king, but that the other three like their Great Triumvirate just fine.

If Hastings were content to own the TV division of Google the way Andy Rubin owns the Android division, then Google should DEFINITELY sign the paper and do the deal. Google would de-cloak as the instant market leader in licensed content and set top box ubiquity.  If not, then Google will be playing catch up to compete against the NBC/Comcast vertically integrated cable TV monopoly and the Netflix stealth leader in the internet streaming realm.

Would the direction and culture that created Netflix survive the infusion of cash and sheer size that acquisition by Google entails?  Netflix is just big enough right now to be interesting, and to still get reasonable deals with studios and other content providers.  The combined Netflix/Google entity might be too scary for content providers to deal with.

On the other hand, with Comcast NBC preparing to become the 2000 lb. gorilla, might ABC/Apple/Disney want to acquire a stronger dissemination presence?  Perhaps Disney should buy Netflix.  Perhaps Netflix would sell itself to Google to prevent being taken over by Disney?  This space continues to evolve in interesting ways every day.