Lincoln Logs

Last weekend I finished Doris Kearns Goodwin’s excellent Team of Rivals. The book follows Lincoln and his presidential cabinet through the Civil War, outlining the political and military crises that faced the administration.

By the end of the book it’s clear: Lincoln’s abilities as leader and manager are what steered the country through its period of civil strife. Few could have lead the country through the war with the Union intact; none but Lincoln could have done so while winning a constitutional ban against slavery.

In the century and a half since, Lincoln has been immortalized as a moral compass for humanity. In the words of Tolstoy, “the greatness of Napoleon, Caesar, or Washington is only moonlight by the sun of Lincoln. His example is universal and will last thousands of years… as a great character he will live as long as the world lives.”

All of this adoration is justified; Lincoln is, without a doubt, one of the greatest people to ever live. But what Goodwin does so well in Team of Rivals is sift through the myth of Lincoln to uncover the actual day-to-day behaviors that led to his eternal success. In doing so, she shows that it wasn’t just Lincoln’s moral strength and character that saved the Union -- it was his supreme intelligence and empathy, and his ability to navigate the faction-ridden political landscape of the mid-19th century.

Here are a few of Lincoln’s defining character traits that emerge over the course of Team of Rivals.

  • He took the blame. The North did a lot of losing in the early years of the war. There was plenty of blame to dish. Throughout all of it, Lincoln consistently stepped to the forefront and took the blame, even if it wasn’t his to claim.
  • He didn't hold grudges. “A man has not time to spend half his life in quarrels. If any man ceases to attack me, I never remember the past against him.”
  • He didn’t write angry emails (letters.) After a snafu by one of his Union generals, Lincoln drafted a note. “Before sending the letter, which he knew would leave [the general] disconsolate, Lincoln held back, as he often did when he was upset or angry, waiting for his emotions to settle.”
  • He kept an even keel. One cabinet member noted that “verbal arguments with Lincoln were like throwing water on a duck’s back.” The President always kept his cool in heated moments, which led cabinet members to make their case in writing (and not in verbal outbursts) when seeking an agenda in the administration. A good outcome.
  • He was funny. There were moments during the war when the mood in the White House was notably grim. Throughout Team of Rivals, there are examples of Lincoln easing this collective anxiety through stories and humor. In one example, John Hay, one of Lincoln’s advisors, recalls a morning when the President woke up “and related a peculiarly pleasant dream. He was at a party and overheard one of the guests call him  ‘a very common-looking man.’ In the dream, he relished his reply: ‘The Lord prefers Common-looking people that is the reason he makes so many of them.’ His dreamed response still amused him as he recalled it the next day.”

Just a few Lincoln logs for guidance in our own day-to-days. 

Talking to Yourself in Public

How good does voice recognition need to get for us to start talking to ourselves in public?

There’s a lot of buzz these days around voice-as-an-interface, most of it centered on Amazon Echo and the use cases it enables within the home. For good reason, the home is the one place where a voice interface---hands-free, always-listening---trumps mobile. At least for now.

Smartphone makers aren’t going to relinquish the space so easily. They have a lot at stake here (see Tim Cook’s ode to Homekit in yesterday’s event) and are starting to think about how they’ll design for the hands-free, always-listening voice experience that consumers are learning to expect with products like Echo. 

We got a peek into this thinking yesterday when Apple announced its new wireless earbuds, the Airpods. With a light tap, they engage Siri and the user can demand away. Not exactly hands-free. Still, better than what consumers are used to with Siri today.

As the headphone jack controversy settles, I think we’ll see Apple start pushing the Siri-Airpod-voice use case more and more. Expect new media portraying the young, urban go-getter, on the move, never without an Airpod in an ear.

Still, hurdles to the chic voice-on-the-go use case remain.

For one, is voice recognition good enough to consistently pick out our requests in the fray of the L train? How about other crowded, awkward places? Will we have to shout at ourselves in public? IS THAT SUCH A BAD THING? Yet to be seen, but I’m bullish on the technology getting there (without shouting as a requisite.)

The other question, is it chic? Will people subject themselves to the dangling appendage of the Airpod? Is a (nearly) hands-free voice interface worth always having something hanging from your ear? That’s the psychological consumer preference element that I’m less willing to bet on.

When it’s designers in a room, the use case is always worth the sartorial secession. When it’s real consumers on the street, not so much.

Still, with the Airpod and continued good news from the forefront of voice recognition, it’s not hard to imagine a near future in which talking to ourselves in public is the norm. When we hop onto an elevator, and the scene looks like this.

her phone scene.gif

Labor Day Long Reads

Long weekends are for long reads. A quick post this week curating some of my favorite articles I’ve encountered this year. If you, too, are holed up in a shore house this weekend, watching tropical storm Hermine rumble through, here’s some reading material to pass the time.  

After Dark by Michael D. Shear. Ever since West Wing I’ve been obsessed with the daily habits of Presidents. This article is a cool peek into Obama’s routine. “Always seven almonds.”

A Whole New Ball Game by D.T. Max. Robots in schools.

Gone Guy by Frank Guan. A thorough and hilarious examination of Drake’s oeuvre.

Hamilton by Joe Posnanski. A father and his daughter get to see Hamilton.

This Old Man by Roger Angell. Roger Angell, master stylist and long-time contributor to the New Yorker, writes about what it’s like to be 92. This came out a few years ago but it’s a must-read.

Which Rockstar Will Historians of the Future Remember? by Chuck Klosterman. One of the great pleasures in life is reading Mr. Klosterman geek out about music. Plenty of that here.

Happy Labor Day weekend.

Gliders

Why do we do the things we do? Why do bureaucracies not do things? Why do large companies do things three years too late? These are the questions that we seek to answer through emergence.

Emergence

Emergence is the process in which lower-level objects, with their own rules and behaviors, interact with one another to unknowingly create an abstracted, higher level pattern.

In his book Creation: Life and How to Make It, Steve Grand, creator of the 1993 computer game Creatures, discusses how he used emergence to create bottom-up digital organisms. Grand argues that the top-down approach (e.g. brute force search,) which had heretofore dominated the AI field, could never represent real intelligence; a computer beats a rabbit in chess, but when thrown in a pond, which swims to safety?

The fallacy inherent in early AI techniques, Grand states, is that they are “modeled on the outward appearance of mental processes, rather than the structures that give rise to them.” We regard our brains as top-down, serial, procedural machines because that’s how our stream of consciousness perceives them. In reality, our brains are a “parallel, relational, and bottom-up” system of neurons in which a serialized stream of consciousness emerges.

Conway’s Life

To illustrate this model of emergence, Grand recalls a mid-80s art exhibit at SeaTac airport -- a wall of light bulbs programmed to represent John Horton Conway’s Life.

In Conway’s Life, each light bulb (or bit) has two possible states: on or off. The wall of lights is set to a beginning pattern by the user and then refreshes itself in cycles. With each cycle, a given light will reverse its state (from on to off or vice versa) depending on the state of its adjacent lights. From this simple rule emerge complex behaviors.  

First, there are still configurations, in which an array of lights is balanced and will not change its state upon refresh.

Then there are oscillating configurations in which an array will switch back and forth between two states.

And then there are emergent behaviors. In his book, Grand talks about the glider -- an array whose pattern actually glides across the wall of light bulbs.

Here’s the glider in isolation.

And here is a series of gliders moving across the wall.

The glider pattern in Life is a great example of emergence. It’s comprised of lower-level elements (the light bulbs) that, in their own behavior and state checks, are driving an abstracted, emergent behavior (the glider) of which they are completely unaware.

Steve Grand would take this idea of emergent behavior and use it in Creatures, creating a lower-level of sensory inputs to drive the abstracted level of intelligence present in his digital creatures.

Applications of Emergence

The cool thing about emergence is that, once you’re aware of it, you start to see it everywhere. Nature. Cities. Companies. All are systems in which lower-level components interact in a way that produces higher-level phenomena.

The hard things about these large systems is that their inherent complexity makes it near impossible to predict the emergent behavior that will emerge. To our minds, it looks like chaos.

As we saw in the popular approach taken to AI, our immediate response to chaos is to try and categorize it using the directive, top-down method our minds are used to. This is probably clearest in large companies, in which management dictates the strategy that the organization will take and mandates it -- top-down -- to the rest of the organization.

Emergence presents a different approach to management. One in which innovation and strategy are fostered from the bottom-up. Companies that take this approach (Google, Amazon, et al) focus not on top-down strategy, but, instead, on how they can influence the behavior of individuals. In the context of Conway’s Life, these companies don’t focus on the entire wall of lights, they focus on the behavior that drives the state of each light bulb, and how that behavior leads to the company’s emergent strategy (e.g. innovation.)

The behavior that drives these lower-level states is a company’s culture. Here’s Edgar Schein (sourced via Stratechery) on the importance of culture in fostering a company’s emergent behavior:

“Perhaps the most intriguing aspect of culture as a concept is that it points us to phenomena that are below the surface, that are powerful in their impact but invisible and to a considerable degree unconscious. In that sense, culture is to a group what personality or character is to an individual. We can see the behavior that results, but often we cannot see the forces underneath that cause certain kinds of behavior. Yet, just as our personality and character guide and constrain our behavior, so does culture guide and constrain the behavior of members of a group through the shared norms that are held in that group.”


In culture, a leader gets an opportunity to structure the “shared norms” that will guide behavior and, hopefully, drive the organization towards its objectives. Of course, therein lies the rub. Everything between the culture and the results it produces is chaos; it’s hard to see the destination from the path tacked today. All that one can do is set the right values for their organization, and see which way it glides.

Concert Moments

The last stretch of blog posts have been pretty industry and tech heavy. Time to lighten it up. Here are, in reverse chronological order, my top five favorite concert moments of all time.

1. Mac DeMarco crowd surfs to back of the Fillmore for tequila shot and balcony crowd dive during Top Gun theme encore performance.

The heading says it all here. What a performer.

2. Haim family encore at the Fillmore

Another great concert moment at the Fillmore in SF. The Haim sisters rip live. There’s the Este Haim bass face. There’s the super heavy cover of Fleetwood Mac’s “Oh Well.” But, on this night in SF, it was their parents joining them on stage for a cover of Mustang Sally that made the night. Mr. Haim played drums. Mrs. Haim sang lead. The sisters backed. Familial excellence.

3. The Tupac hologram

For two minutes in 2012, during Dr. Dre and Snoop Dogg’s headlining Coachella set, I believed, with complete and utter conviction, that Tupac was still alive.

4. Fleet Foxes twice in one day at Sasquatch 2008

In high school my friends and I started an annual tradition of attending the Sasquatch music festival. We were doe-eyed youngsters, new to the festival circuit. As such, we would dutifully show up at the opening of each festival day, eager to cheer on whatever band held the unenviable 11:45am opening slot on the Sasquatch main stage. In 2008, that responsibility fell upon the shoulders of a local band from Lake Washington High School named Fleet Foxes.

It was a short set to an empty Gorge Amphitheater. Still, as famed local producer Phil Ek put it, “it was obvious [Robin Pecknold, lead singer of the band,] had talent coming out of his ass.” The band walked off the stage and our friends looked round at each other, nodding in approval -- they would be back.  As it turns out, sooner than we could have expected.

Later on in the day, when the grassy rim of the Gorge had filled out with people, festival emcee Rainn Wilson* came on stage to inform us that The National’s bus had broken down. They wouldn’t be performing. As a consolation, Fleet Foxes took the stage for the second time that day. They played the same short set (having only released their second EP, Sun Giant, a month earlier) and the Gorge went nuts. A month later they would release their first full-length album and take off. It felt like one of those rare moments when the rapid ascent of a great band is palpable, when it can be felt.

5. James Brown regenerative cape

When I was in the fifth grade I went to a James Brown concert. It was my little brother’s birthday and he asked for James Brown tickets. Standard request from an eight year old. The whole set was exactly what you’d hope for from Soul Brother No. 1. Sax solos. Indiscernible yelps. Drum breaks.

At one point in the set, the Godfather of Soul started to grow weary. He held up his hands to the audience as if to say, “give me a minute.” He knelt to the ground -- gravity had become too much weight to bear. He turned away from the crowd, beckoning to the wings.  I was concerned. After all, Mr. Dynamite was in the twilight years of his life.

And then his stagehands brought out the cape. They swaddled him in its sequined glory. The band grew quiet until there was just a slight murmur from the stage. Then, a high-pitched squeal; Mr. Brown erupted from his crouch, reborn. The cape flew into the air, dusting the front three rows in glitter. The show could continue.

The regenerative cape routine happened at least three more times during the set.

*it’s hard to make this story any more Pacific Northwest.

 

Stranger Things Just Happened to TV

There are strange things afoot in the television industry. In July, Stranger Things, Netflix’s nostalgia-fest sci-fi horror mini-series, took over the collective mindshare of the internet after being rejected by 15+ major cable networks. Two weeks later, NBC’s network coverage of the Olympics turned live sports broadcasting -- the golden child of the major networks -- into an albatross after an excess of ads and live-sports delays frustrated audiences.

So what’s going on here? The networks have received a fair heft of blame and ridicule for all of this, but, in truth, there are larger forces at work.

Why the Networks Passed on Stranger Things

Let’s start with Stranger Things. First off, it’s a great show and if you haven’t seen it yet, go do so now. But more than just being great TV, Stranger Things hints at the new structure of content consumers want to see (i.e. long-form movies) and how the television networks are ill-suited to provide it.

In a recent interview, the creators of Stranger Things describe how they were turned down by various networks. What becomes clear in reading the interview is that the networks were never in a position to take a chance on Stranger Things -- it didn’t align with their incentive system.

When revenue comes from advertisers, a network has to take into account a certain set of questions when considering potential shows:

  • Who is the intended audience? TV networks need a clear target demographic for a show that they can use in discussions with advertisers. Stranger Things, a show about kids but targeted at adults, probably sounded iffy.
  • How will the content vibe with sponsors? I don’t think Stranger Things was scarier or more violent than some of the other shows on network TV, but its nostalgic sci-fi vibe might have thrown off network execs.
  • Does the show’s structure and pacing lend itself to advertising? For many cable networks, a hit show is one that audiences love and the network can stretch to 20+ episodes a season. This means that, in the eyes of the networks, an eight episode mini-series like Stranger Things can’t have the same value as other long-running shows because it provides a fraction of the ad inventory.

Beneath all of these questions is an underlying compromise between a network’s two customers: advertisers and viewers. It’s impossible for a network to prioritize content that’s streamlined for a viewer -- that content would mean no ads. Instead, networks end up with programming like Lost where the show’s tenure is extended longer than necessary and filler episodes and tangential plots weasel into the lineup.

The New TV

Compare this to Netflix. The only customer Netflix cares about is its subscribers. When you don’t have to worry about advertisers, certain trends emerge in your content.

  • Content gets shorter. People value their time.
  • Content gets darker. There isn’t a sponsor fretting over violent associations.
  • Content gets more specific. No need to appeal to the broad audience of networks, just to a specific niche within the Netflix audience base.
  • Content is always available. There’s already been a lot written about the disruptive non-linear programming model that streaming services bring to TV. I won’t rehash it here other than to say it’s something that eluded the traditional networks because of their ties to advertisers.

Stranger Things is an example of all of these trends. So is True Detective*. My hunch is that as more viewers move to a streaming-service-only reality, we’ll see more content fit into the mold defined by these long-form movies masquerading as mini-series.

What's Left for Networks

While streaming services cast aside the interests of advertisers, the networks are now burdened with a revenue model supported by advertising and affiliate fees, both of which are jeopardized by the new streaming industry. Advertising by the fact that as network-produced content gets less popular with viewers, it becomes less appealing to advertisers. Affiliate fees by the fact that as cable TV becomes less appealing to viewers (since the content they want is on streaming services) those viewers will cancel their cable bills, decreasing the overall size of the affiliate fee pie.

Getting squeezed from both sides, the networks have no choice but to try to maximize ad revenue on the content that is still valuable to viewers. That is, live sports.

Cue the NBC Olympics.

If you’re still catching up, NBC received some criticism on its NBC Olympics coverage.

“...such is the onslaught of adverts - from McDonald's and United Airlines to Hillary Clinton's campaign and Mini cars - that critics have renamed the network Nothing But Commercials.”

Twitter, too, chimed in on commercials during the Opening Ceremony, an especially difficult segment for viewers.

NBC is certainly the lightning rod in this scenario, but as I mentioned at the beginning of this post, there are other parties involved. As an Olympics viewer, who are we to blame, the network that supplied excessive ad inventory for the Opening Ceremony, or the advertisers that demanded it?

We’re in a transition period where traditional advertising is still working to catch up with consumers. Ad execs still push the majority of spend to TV spots, while viewers (cord-cutters and otherwise) try to find live streams of their favorite events on Google, Snapchat discover, and Twitter moments.

All hope is not lost for the networks, they still have great live content that viewers want. But if they’re to succeed in this changing landscape of content and media, they need to embrace new channels, not try to force viewers into old ones.

Go watch Stranger Things.


*ONLY SEASON ONE.

Finding Ideas

Two weeks ago, after the Softbank-ARM news broke, I stumbled upon this great 1992 interview with Softbank founder and CEO Masayoshi Son. The whole thing is worth reading, but I especially enjoyed a passage where Masayoshi spoke about his early twenties, a time he spent unemployed, reading everything he could find, and thinking about what he wanted to spend the rest of his life doing.

Here’s Masayoshi Son:

“I wanted to start my own company when I came back to Japan. I thought of 40 different businesses I could start. It was like thinking of an invention. As a student, I had a hobby of inventing new ideas for products. For me, thinking of new businesses is like inventing new products.

For a year and a half, I did research and made business plans. While I prepared, I had no income. I spent money, I had a new baby. My wife was worried. All my friends, my father, my mother, everybody was worried. They asked me, what are you going to do? You spent years studying in the United States, and now you aren’t doing anything. I spent all my time just thinking and thinking, studying what to do. I went to the library and bookstores. I bought books, I read all kinds of materials to prepare for what I would do for the next 50 years.”

There’s a general narrative thrill here -- “everybody was worried” -- that makes Masayoshi’s story (and the remainder of his interview with HBR) an entertaining read. But there’s also an underlying framework on how to find good ideas. In reading the remainder of the interview, in which Masayoshi outlines this framework, I noticed a few similarities with another approach, Paul Graham’s How to Get Startup Ideas.

If good advice becomes great advice when it’s echoed,* then here are three things that a great idea should be, according to Graham and Son.

Product-focused

“Why do so many founders build things no one wants? Because they begin by trying to think of startup ideas... [Choose] something a small number of people want a large amount.” - PG

“For me, thinking of new businesses is like inventing new products.” - MS

Focus on building something that people need. The business plan comes later. 

Based in the future

“If you're at the leading edge of a field that's changing fast, when you have a hunch that something is worth doing, you're more likely to be right… Live in the future, then build what's missing.” - PG

“I wanted to pick a business where the business category itself would be growing for the next 30 to 50 years. I didn’t want to choose a sinking ship.” - MS

Put yourself on the leading edge of technology. Look to the end game. 

Interesting to you

“Live in the future and build what seems interesting.” - PG

“One success measure was that I should fall in love with a particular business for the next 50 years at least. Very often, people get excited for the first few years, and then, after they see the reality, they get tired of the business. I wanted to choose one that I would feel more and more excited about as the years passed.” - MS

My personal favorite. Focus on learning as much as possible about whatever interests you. If it’s something you’re going to be doing for a long time, you’ll only do it well if it’s something you have a genuine interest in.  

That’s it for this week. There’s plenty more from both Graham and Son (see the links above) but I’ll cap it at three. Thanks for reading.

*let’s note that, per mob psychology, good advice echoed at scale might be a) timeless b) trite c) both or d) sour.

Advice from Coco

Advice is a wet noodle flung against a wall; sometimes it sticks, sometimes it doesn’t. As I get older, I’m often surprised by what sticks and what slides down the linoleum into oblivion.

Conan O’Brien’s final monologue for “The Tonight Show” is one al dente noodle that’s stuck with me. His remarks came after a month-long press tornado in which his employer publicly debated his fate -- he might have been bitter, wry, caustic. Instead, he ended the show on a note of appreciation and sincerity.

Six years later, the final lines of that monologue still stick.

“I’m asking this particularly of young people who watch. Please do not be cynical. I hate cynicism. For the record, it’s my least favorite quality. It doesn’t lead anywhere. Nobody in life gets exactly what they thought they were going to get. But if you work really hard and you’re kind, amazing things will happen. I’m telling you, amazing things will happen. I’m telling you. It’s just true.”

It’s great advice: simple and difficult to misconstrue. No matter what work you’re in -- entertainment, tech, whatever -- work hard and be kind. And have faith that, in the long term, it will all work out.

It’s a little sentimental, but I like it. As Coco implores us, “do not be cynical.”

Spotify's Library Organization Problem

I like music. My tastes span an eclectic range. Sometimes, I hi-jack the aux cord at casual get-togethers, trading bossanova for Bieber. A close friend once called me a music snob.

Throughout my life, this music snobbery has lent itself to a habit of constant music collection and curation.

Fifteen years ago, this behavior was manifest in a modest iTunes library of around 15,000 tracks* on the desktop PC in my childhood bedroom. Back then music collection was tough. I grew my library through friends’ hard drives, burned and purchased CDs, and bike rides to the public library. Despite a wide array of sources, once my files were in one place, iTunes made it easy to organize them through playlists and metadata.

Fast forward to now. My iTunes library has been relegated to a closet. All of my music collection happens on Spotify. No more sweaty bike rides to the public library to pick up CDs. The contemporary music catalog is just a keyword search away.

Today music collection is easy. It’s music organization that feels like a sweaty bike ride to the public library.

Don’t get me wrong, Spotify is an awesome service. For $10 a month, it provides users with access to more music than they could ever need. But for all of the on-demand gratification that Spotify provides, there is a lack of file organization and classification capabilities. If Spotify is going to be the place where our music collections live from now on, we shouldn’t have to compromise on the way we manage those collections.

In this post, I’m going to cover a specific problem Spotify faces re: library organization, the user story that illustrates that problem, and my proposed solution.

I’ve already proposed this solution on Spotify’s idea submission forum. You can vote for it here.

Why music library organization is important

In Spotify (and all music services) there are two separate use cases around music search and discovery:

  1. How do I discover new music that I’ve never heard before?

  2. How do I find music that I’ve listened to before and have filed away in my personal library for later listening?

Spotify has spent a lot of engineering bandwidth on the first use case. Within the desktop client, a user can click on the “Browse” button at the top of their navbar to see the many Spotify features available for discovering new music: curated playlists, genres & moods, charts, concerts.

The second use case hasn’t gotten as much roadmap attention, which is a little baffling when you consider how important it is to Spotify’s key objectives. Here’s why Spotify should care about how its users curate their Spotify libraries and find familiar content:

  • It increases product lock-in. Users can find new music on a number of different services: Spotify, YouTube, iTunes. They can only find their favorites in whatever service they use for library curation. If Spotify prioritized features that gave the user incentive to spend a lot of time on library organization, those users would have a harder time leaving for other services.
  • It’s a more frequent use case. Listeners choose familiar songs over new the majority of the time they’re listening to music.
  • Better discoverability = more song plays = more revenue. Today, with Spotify’s keyword search, I have to know exactly what I’m looking for. In the future, with better organization capabilities like metadata (e.g. “rating”,) foldering across Spotify objects (right now it’s just available for playlists,) and polyhierarchy facet organization (one object rolling up to multiple nodes or folders,) the user has more ways to find familiar content. When it’s easier to find familiar content on Spotify, users have less incentive to leave for other mediums that encourage passive listening (e.g. radio, the low-barrier alternative to Spotify users fed up with trying to find songs in their personal library.)

Features that promote familiar music and library organization are important for Spotify. Next, let’s look at an existing problem Spotify users face when trying to organize familiar music for later listening.

The Problem

As a Spotify user, there is no clear user flow for collecting and organizing album objects. The existing user flows -- saving an album to the “Your Music” section of the navbar or saving an album “as a playlist” -- lead to outcomes that promote ambiguity in the UI and lack the level of folder organization that should be available in a music library.

The User Story

To illustrate this problem, I’ll walk through the following user story:

As a premium Spotify user, how do I tag/file and album that I’ve found via keyword search so that I can find it within my library navigation bar at a later date?

Here’s an example. I’m your everyday premium Spotify user. A friend tells me about a new band from Seattle named Tacocat (best band name of 2016.) I find Tacocat’s new album on Spotify and, at this point, am faced with two options (pictured below.)

I can either 1) “Save” the album, directing it to the “Your Music” section of my library nav bar or 2) save the album as a playlist. There are inherent issues in saving albums as playlists (which I’ll discuss in a bit) so let’s assume I click “Save” and push the Tacocat album to “Your Music.”

By clicking “Save,” I’m saving the album to the “Your Music” section of my library. In theory, this should work -- albums live under “Your Music.Albums” and playlists live under “Playlists.” The issue is that the “Your Music” section is completely flat -- it has no folder organization or container capabilities. Once an album lives in "Your Music", it can’t be organized any further. This is kind of insane. For any music collector that likes to organize their library, this lack of foldering makes "Your Music" unusable.

 The flat mess of "Your Music."

The flat mess of "Your Music."

Because I want to have more folder organization than what’s available in the “Your Music” section, I’ll go back to the Tacocat album and save it as a playlist. At this point, Tacocat just lives as a playlist within the root level of the playlists section of my Spotify collection (see below.)

Saving an album as a playlist creates a problem: when albums and playlists are visually synonymous within the UI, it makes browsing ambiguous and cluttered for the user. If we look at the screenshot above, there’s no way to differentiate between albums and playlists. They look exactly the same within my library.

Here’s my brain on Spotify:

In review, there are a few tics in Spotify album organization, that, while not debilitating to the user experience, could be addressed.

  • Spotify’s Your Music feature doesn’t allow for folder organization. This requires users to save albums as playlists.
  • When playlists and albums are synonymous, it creates ambiguity in library navigation and management.

The Solution

For this problem, there’s a simple fix, available in the following use cases.

As a Spotify user, I should be able to:

  • create folders within the “Albums” tab of "Your Music."
  • nest "Albums" folders within one another.
  • drag-and-drop "Saved" album objects into the folders within "Albums" section of "Your Music."

That’s it. Just add foldering to the “Your Music” section of Spotify. This way users can leverage “Playlist” functionality for true playlists and keep any album-related organization within the “Albums” tab of “Your Music.” No more saving albums as playlists. No more UI ambiguity within the Playlists section of the navbar.

In summary, organization capabilities are key for discovering familiar music, the dominant use case for listeners and one with a lot of importance for Spotify. There are a number of features Spotify can implement to improve on this, but foldering within “Your Music” is a good start. (Reminder: you can go vote for this feature here.)

*lingo of the music snob, for who it must always be “tracks” and never “songs.”
 

Rabbit Ears

I watched Game 7 of the NBA Finals through a TV antenna and it was incredible.

Earlier this year, I joined the cord-cutter generation. Since then, I’ve happily subsisted on a digital-only diet of Game of Thrones, Silicon Valley, and The West Wing. I stream GoT and SV via HBO GO (thank you for the login, Cait’s dad!) and the occasional episode of West Wing via Netflix. My pre and post cable lineups are exactly the same -- the latter just costs $60 less a month.

As a cord cutter, I bask in the smug contentment of one who saves money while sacrificing nothing. Then a live major-network sports event comes around, and I repent.

If you are a fellow cord-cutter, you’re well aware that the achilles heel of a content plan sans cable is sports (and other primetime network events.) For those of you still considering cutting the cord, I’d guarantee it’s primetime network events (and not daytime television) that’s making you think twice. And for good reason.

As a cord-cutter, here are your options when primetime events are on TV:

  • Watch at a bar. Often comes with a riled milieu, minimal seating, and the temptation of wings. Not an effective venue for presidential debates and other non-sports primetime events.
  • Stream from an illegal source. Though I’ve never tried this, friends tell me it usually entails a barrage of pop-ups and adware than can leave one asking, “is anything really worth it anymore?”
  • Watch at a friend's place. Generally requires that you bring something, which, for some, can be worse than not watching at all.

And so it was that last Sunday, four hours from Game 7 of the NBA Finals, I found myself regrettably deciding between the choices above. My girlfriend, for whom the option of “let’s just watch in a bar” rang especially grim, threw out the idea of buying a TV antenna. I scoffed. She persisted and we went to Best Buy to see what we could find.

We found a classic rabbit ears TV antenna for fifteen dollars. We got home and had it working in ten minutes. There we were, watching the NBA Finals, in my apartment, for free. The quality was what you’d expect on a standard definition cable connection.

It was an ineffable moment. The strange combination of amazement and nostalgia you get in finding that a vintage piece of technology still does exactly what it was made to do.

There’s not much more to tell here, so I’ll just end with a public service announcement. If you’re without cable and looking for a better way, look no further than the “rabbit ears” TV antenna. The Olympics are just around the bend.

Three Takeaways from Meeker '16

Mary Meeker presented her annual “Internet Trends” report two weeks ago at Code Conference.

The report is always a great State of the Union for all things tech. Here are my three biggest takeaways from Meeker’s talk.

Takeaway #1. Legacy media channels are still over-indexed; more mobile ad spend growth to come. 

My annual favorite in Meeker’s report is her comparison of consumer time spent to ad spend across major channels. I’ve stacked a few of these annual charts below to show how they trend: in short, ad spend lags behind consumer trends.

When a new channel makes itself available, consumers get there first, enjoying a honeymoon period of ad-free usage before 1) the channel implements a monetization strategy and 2) advertisers convince businesses to use it.

Here’s the chart from 2010’s report when “internet” (what, today, we’d call digital ad spend) was the new channel where advertisers were under-spending.

And here’s last year’s chart. Internet advertising had equalized, but mobile emerged as a new channel with under-indexed ad spend.

Now this year’s version. There’s still plenty of room for mobile ad spend growth.

As I mentioned in a blog post earlier this year, I think most of this will go to Facebook (though Snapchat has shown advertisers that they can deliver unique mobile content that resonates with users, as Meeker discusses in page 48 of her report -- included below.)

Takeaway #2. U.S. E-Commerce is not finished taking share from traditional retailers.

In industries “dislocated” by the internet (hat tip to Meeker for avoiding “disrupted”,) big winners have emerged with big market caps. The slide below shows that these big winners have a lot more revenue left to gain in their respective industries.

E-Commerce, in particular, is an industry with a clear winner in Amazon. The lack of any real domestic competition to Amazon has likely caused the media to move on to other topics, and forget how much e-commerce growth is still left for Amazon and differentiated online brands (e.g. Bonobos.)

Many in the U.S. doubt whether e-commerce can completely replace in-store retail. I’m confident that, in the long-term, it will (at the least) take the majority of the market. China is a good example of a market in which this end state is already here.

Takeaway #3. Voice interfaces are here. Increases in voice output (user feedback) signal the next wave of adoption.

I’ve discussed voice interfaces a lot on this blog, both in relation to Amazon Echo and Google Home. Though voice has seen good growth -- one of Meeker’s slides notes a 35x in Google voice queries since 2008 -- many voice queries are still single command queries (e.g. “Call Mom” or “Play Mac Demarco”) and not true input/output experiences.

The righthand chart in the slide below shows the sharp increase we’re seeing in voice interface output.

For voice to really take off (especially in relation to mobile,) it will need to facilitate an input-feedback experience (s/o to @msiegs for this insight via Medium comment.) That is, as a user, I need to be able to navigate through a hierarchy, or specify parameters on a query, through the voice interface itself. It isn’t just enough to tell a voice interface what song to play -- an interface of that simplicity falls short of the smartphone in too many cases.

Users need be able to navigate through a list of Spotify playlists, or hear their grocery list read back to them, through the voice interface they’re addressing. This is why a rise in output is important for voice and why the chart above is an exciting sign of things to come.

Summary

Three key takeaways: two with clear winners and one that’s still up for grabs:

  • Lots of growth left in mobile ad spend. Most of this will go to Facebook.
  • Lots of growth left in U.S. E-commerce. Most of this will go to Amazon.
  • Voice interfaces are about to take off. Though there are early players -- Amazon, Google, Apple -- a clear winner hasn’t emerged and the space is still up for grabs.

G.O.A.T. Series: Moby Dick

This post is part of a new series called GOAT: greatest of all time. In it, I’ll discuss a favorite book, album, or other work. GOAT posts will normally come during weeks when I’m traveling and don’t have the bandwidth for a full post.

First up in the GOAT series is Moby Dick.

My brother chose Moby Dick for his senior thesis and it quickly spread to the rest of the family. It’s since become one of my favorites, for reasons discussed below. I hope you enjoy this summary, and, if you dive into the great book, reach out as it lends itself to discussion.

“One of the strangest and most wonderful books in the world.” These eleven words from D.H. Lawrence epitomize Moby Dick. It is an odd little epic. A work of contrast that floats between realism, nonfiction, and near-verse as it speaks of the sea and the mind’s wanderings through its depths.

For years, this book loomed in my mind. An insurmountable task. America’s longest, greatest work that, someday, I would fail to read. Upon opening it, I was surprised and delighted to find the humor and pace with which Melville lights his novel.

The language, though full of unusual sentence structure and colloquialisms, often warms with humble simplicity. In a favorite early chapter, “A Bosom Friend”, Melville comments with wry affection on his unlikely friendship with the cannibal Queequeg--“a cosy, loving pair.” In another, the aptly named “Of The Monstruous Pictures of Whales,” Melville roasts the whale enthusiasts that preceded him. One particularly unlucky fellow, Culver, gets a large serving: “in a word, Culver’s Sperm Whale is not a Sperm Whale, but a squash.”

When he’s not laughing with the reader, Melville winds out long romantic sentences that evoke the awe and horror we witness in face of nature.

“… as the wind howled on, and the sea leaped, and the ship groaned and dived, and yet steadfastly shot her red hell further and further into the blackness of the sea and the night… then the rushing Pequod, freighted with savages, and laden with fire, and burning a corpse, and plunging into that blackness of darkness, seemed the material counterpart of her monomaniac commander’s soul.”

Outside of his humor and bizarre (yet endearing) prose, Herman’s masterpiece is labeled as such because of its ability to find in nature’s infinite scale the small details of relative analogy. Though named after the pursuit of Ahab, the vindictive captain who seeks the whale that took his leg, the book is less about chasing a whale and more about what do when you don’t have a whale to chase.

Its narrator–“Call me Ishmael”–is the sort to find himself lost in the “blending cadence of waves with thoughts,” staring into the “deep, blue, bottomless soul, pervading mankind and nature.” Ishmael is an introvert.

This contrast, the monomaniacal, bloodthirsty Ahab and the aimless, uninterested Ishmael, frames the book’s main subject: the paradox of the human condition. That is, if I truly know what I want, and am willing to go to any lengths to get it, I’m the mad man, being dragged into the deep; overhead, “the great shroud of the sea [rolls] on as it rolled on five thousand years ago.” If I look for introspective meaning, I’m just “another orphan,” floating “in manhood’s pondering repose of If.”

And in the midst of Melville’s crisis of existence, we have no eye for how soon it will all be over. This, Melville says, is the tragedy that we share. “All men live enveloped in whale lines.”

What Google Wants | I/O '16

Last week Google hosted its annual developer’s conference I/O. There are a number of announcements to unpack here: all revolve around Google doubling down on AI as a core competency to win search, no matter the interface.

Before I get into the I/O announcements, it’s helpful to remember Google’s end game and what they’re after here: ad spend. In the aughts, Google defined and won the digital ad spend pie by becoming the default runtime for consumers web search. When those users started leaving for mobile, Google started looking for ways to place themselves within the mobile path to content.

Google’s mobile efforts have had varied success, none anywhere near their web browser monopoly, and so last week’s conference seemed to be a combination of two things:

  1. Google continuing its pursuit of search share on the current runtime. (Mobile.)
  2. Google starting its pursuit of search share on the future runtime. (Voice.)

Let’s start with how Google pursues user attention on mobile.

Messaging

With mobile applications fragmented across the OS, many have looked to messaging (and the model built around it in Asia) as the runtime to rule them all. In reality, mobile users in the U.S have grown too accustomed to the current state of affairs---search for restaurants on Yelp, search for friends on Facebook, search for random tidbits of knowledge on mobile browser---to shift the entirety of their search behavior to a messaging app. Still, tech companies are trying, and Google is no exception.

Allo was the big messaging announcement last week. It’s a standalone messaging app with contextual response suggestions based on image recognition and machine learning. The Google-specific add-ons are cool from a tech lens, but Allo faces two challenges.

First, it’s another messaging app.

Two, it’s machine learning will need to be really great to make it worthwhile to users relative to their current messaging apps. Google says predictive responses make for a messaging app that is “simple and more productive,” but it’s hard to see how anyone can make messaging simpler than it already is today. The addition of predictive responses actually makes Allo a more complex user experience, as now the user needs to determine whether or not to use Allo’s suggested responses instead of doing it the old fashioned way (i.e. typing.)

In my mind, the smarter messaging play from Google is Gboard, an OS agnostic keyboard extension that lets users run a Google query within any messaging app. Easier GIFs and emoji are the advertised benefit to consumers but it’s putting search directly within consumer messaging apps that makes this valuable to Google.

Instant Apps

The other big news in mobile came with Instant Apps, an Android update that lets apps run instantly, no installation required. Though this isn’t directly related to the AI-driven Google Assistant news, it’s still key to Google’s core objective in mobile. With Instant Apps, Google removes the primary barrier consumers face in mobile search.

It’s great news for android users and a good reminder that making mobile content easier to access is big time for Google. The other reminder is AMP (Accelerated Mobile Pages,) Google’s HTML framework that optimizes web pages for mobile.

In summary, Google wants to make it easier to find mobile content by making search contextual and predictive and widely available across the OS (browser app, proprietary messaging app, keyboard extension for other apps,) all while making it easier to access that content (no matter its host app) once it’s been found.

Google Home

The announcement of Home signals Google’s move towards the future runtime. Home is a voice recognition product -- the first big-name competitor to Amazon Echo and further evidence that the next wave of personal computing is voice interface.

It’s good to see Google moving in the direction of things to come, but Home as a concept seems to fall short in the same way that the company’s mobile efforts have to date. Google’s web browser search engine was a hardware-agnostic, OS-agnostic search runtime monopoly that dominated the digital advertising industry for the last fifteen years. Google Home is not that.

Primarily, it’s not platform-agnostic. Amazon won’t secede the query runtime of their own hardware to Google, even if the latter has a search experience that is smarter and more predictive. There is too much at stake in the direct purchases that Echo users make through the device.

For all of the R&D Google has poured into NLU and AI, when it comes to contextual runtime in the home, they will still find themselves competing with another piece of hardware. That is a problem www.google.com never had to consider.

The good news is Google is pushing forward and trying to find the next big thing. They’ve made a big bet on AI and its ability to serve contextual, predictive queries, but for all the innovation here -- and Google has done incredible things with AI -- it’s still not obvious that proactive responses are what consumers need in a messaging app, or a home assistant.

And so, for all the announcements at I/O, I was still left wondering, do Google and consumers want the same thing?

Nice Robot

Last night I read D.T. Max’s New Yorker article, A Whole New Ball Game, a profile on robotics-slash-childrens-toy-company Sphero. It’s a nice piece that highlights the company’s successes and how they’re piquing interest in computer science. 

The company, which started in the vague aim of Bluetooth and Internet of Things, hit its stride when an investor advised it to build something tangible that customers could play with. Its hardware-oriented co-founder remembered a robotic ball project he’d started at fourteen (precocity comes in many shapes) and Sphero was born.

Sphero has seen most of its success through a BB-8 replica (because Star Wars) but it’s also started to gain traction in schools. In addition to its smartphone controls, the rotund cyborg can be programmed by students using drag-and-drop block language (or via Oval, a C-variant, for that select group of kids who find C fun.)

Any time a toy is introduced into schools with the lofty aim of education, there’s skepticism, and the article acknowledges these doubters with coy observation.

“When [the teacher] was busy elsewhere, Spheros were often skidding and skipping and rolling underfoot---a toy is a toy.”

That said, the pervading sense you get is that the kids are engaging in Spheros and its block language in a way that isn’t just play, it’s “play [as] a kind of learning.”

During the author’s trip to a Sphero-equipped school in New Jersey, he contrasts how two of the students find play (and, by association, learning) in their own different ways.

"Meghan, a fifth grader, smoothly pulled down commands and got her Sphero to roll, execute a nice circlet, and come back. She also programmed it to light up in different colors to make it “pretty.”"

"Kieran, a sixth grader, boasted, “Coding is my second language.”... Kieran’s face glowed as he added commands with easy swipes; he clearly had the gift. He set his Sphero to go, but it stopped well short of the hurdle. “I will get this,” he said. “I think I got it. I think I got it. Nope? O.K.” He began furiously editing his program. The route could be navigated with just three commands, and, looking over his shoulder, I saw that he had put in a bunch of extraneous steps. He explained that this was deliberate. He was trying to fashion a more winding path through the course—another kind of pretty."

My favorite soundbite came from the author’s trip to a Sphero school in San Francisco, where “second graders play with Dash & Dot, a pair of robots that have anthropomorphic features. After programming them, one girl set them face to face. “I’m going to make them kiss.””

Through all of its cute anecdotes, A Whole New Ball Game delivers one message: the future of educational robotics isn’t coming, it’s here. And it looks a lot friendlier than we thought it would.

In a robotics field where most news centers around the types of futuristic creations that James Cameron taught us to run from, the petite Sphero and its gentle ambitions are a welcome change. The market has responded as such; Google has reportedly put its Boston Dynamics division up for sale due to concerns about its perception in the public eye. Meanwhile, Sphero and its makers are trying to figure out what to teach next.

It’s a nice direction to be rolling.

The Amazon Flywheel: Part 2, Amazon and the Global Supply Chain

As a nine year old I used my parents’ dial-up connection to make my first e-commerce purchase: the Mulan soundtrack, via Amazon.com. It took three weeks to get from Amazon’s Seattle warehouse to our address in Bellevue, WA. I know because I agonized over the days, and how each one, in succession, delayed my reenactment.

Today’s youth can expect a similar purchase from Amazon to arrive within two days.

All of this is to say, the Amazon supply chain wasn’t always the swift, efficient, ever-expanding machine that it is today.

In last week’s post I covered Amazon’s flywheel and how, through engines of new growth and scale, the company reinvests earnings back into infrastructure. One of these infrastructure investments was Fulfillment by Amazon (FBA), Amazon’s inventory and logistics overhaul.

In this week’s post, I’ll review how Amazon regained control over its supply chain through  the FBA initiative and how, moving forward, the company will continue to expand both downstream -- through continued investment in same-day, urban delivery -- and upstream -- through an expansion in cross-border infrastructure.

As a quick refresher, here’s my version of the Amazon flywheel, which breaks out improved efficiency (and the faster delivery times that result from it) as a part of the wheel and a key differentiator for Amazon’s customer experience.

Amazon Supply Chain Beginnings

In the beginning Amazon sold books. They bought them from distributors, stored them in their warehouses, and sent them off to traditional logistics providers when they received a customer order.  

If we lay this out (and abstract for simplicity’s sake,) we get the diagram below. This entire process was manual.

Growth and Amazon’s Logistics Overhaul

In 2000, Amazon launched Marketplace, bringing 3rd-party sellers into an Amazon supply chain that had grown to include more than just books. The added volume from 3rd-party sellers and additional product categories outstripped the manual processes within their warehouses. Customer orders were often late or unfulfilled (e.g. my Mulan soundtrack.)

Amazon handled this in two ways.

First, automation.

Bezos and his executive team realized that if they couldn’t improve on delivery, they’d be at a serious disadvantage to in-store retailers. In 1998, if I’d gone to Tower Records instead, I would have had my Mulan record that day. Instead, I waited three weeks. The burden of the early adopter.

Amazon poured investment into revamping these warehouses, automating merchandise retrieval and routing. The output of this investment was the massive Fulfillment Center network.

Second, logistics-as-a-service.

Once Amazon built its Fulfillment Center network to a point where it could handle additional capacity, they started offering it as a service to third-party sellers.

All of this fed the flywheel, enabling Amazon to reinvest third-party service income back into their logistics infrastructure, furthering their goals of improved cost structure and delivery time.

If we look back on Amazon’s early day supply chain and evaluate how it changed through the FBA years, we land here:

The distributors were bypassed through Amazon’s direct negotiations with publishers/manufacturers/sellers, and Amazon manual warehouses evolved into largely automated Fulfillment Centers. (That link jumps to a video tour of an Amazon Fulfillment Center. It’s worth your time. The conveyor belt speed at 2:22 is intimidating.)

With all of this we see Amazon gaining cost structure control over its own supply chain components (the warehouses) as well as those components that lived upstream -- i.e. the distributors.

Amazon: Downstream

This takes us into Amazon’s downstream supply chain expansion.

If we look at this through the lens of the flywheel, we know Amazon will expand downstream as long it enables them to a) gain more control over their cost structure and/or b) reduce delivery time for customers.

This strategy started as early in 2014 with the Amazon Prime Now and Last Mile initiatives, projects aimed at building a downstream logistics infrastructure for shipping direct from Fulfillment Centers to customers.

“As a prelude to the U.S. moves, Amazon has been testing a delivery network in the U.K. "We've created our own fast, last-mile delivery networks in the U.K., where commercial carriers couldn't support our peak volumes. There is more invention to come."” -- Bezos in his annual letter to shareholders, 2014

As it stands today, Amazon can only pursue this same-day, direct-to-consumers strategy for those customers within reasonable distance of an Amazon Fulfillment Center. Any farther and Amazon depends on its full-service logistics providers -- UPS, FedEx, USPS -- to fly them to customers.

Amazon had started addressing this Fulfillment-Center-range issue in 2014 through the development of sortation centers: smaller extensions of the Fulfillment Centers that get packages closer to customers.

Now, Amazon is replacing their logistics providers altogether.

Last week brought the official news (everything prior was hearsay) that Amazon would be leasing twenty Boeing 767 freighters from Atlas Air, signaling Amazon’s entry into a space that they’ve historically left to the traditional logistics companies. The response from Amazon management was one of deferral, along the lines of “we’re just doing this to have greater supply chain capacity during the holidays, not to eat anyone else’s lunch.”

I think they’re pursuing a larger opportunity. Here’s an excerpt from an Amazon job listing that does a good job of outlining the company's goals in downstream logistics:

"Amazon is growing at a faster speed than UPS and FedEx, who are responsible for shipping the majority of our packages. At this rate Amazon cannot continue to rely solely on the solutions provided through traditional logistics providers. To do so will limit our growth, increase costs and impede innovation in delivery capabilities." -- Amazon job listing, as cited here.

The twenty freighters Amazon leases will constitute a tiny portion of their shipping volume, but the long-term trends are in Amazon’s favor. They’ll use these first planes to learn the ins-and-outs of air freight, with the long-view goal of adding it as an owned and differentiated link within their end-to-end supply chain.

Taking the air freight and same-day delivery initiatives into account, the Amazon supply chain starts to look something like the diagram below, wherein the role of shipping companies gets smaller and smaller over the long-term.

Amazon: Upstream

What might we expect from Amazon in regards to their upstream supply chain?

Global logistics analytics startup Flexport largely answered the question at the start of the year when they broke the news that Amazon had registered to provide ocean freight services.  It’s a great read and one that I’ll defer to for explaining why this is such a big move for Amazon.

“Ocean freight is cheap right now. As of January 2016, Flexport’s ocean freight customers were paying less than $1300 to ship a 40-foot container from Shenzhen to Los Angeles. More than 10,000 parcels can fit in a single container, so the price for the ocean freight leg could be as low as $0.14 per parcel. Here’s another way to think about that figure: Right now it costs under $10 to ship a flat screen television across the Pacific.

With ocean freight itself so low, a considerable portion of logistics costs come through labor costs—particularly compliance and coordination of cargo handoffs between different players in the chain. It’s here that automation, something no traditional freight forwarding company can do even one percent as well as Amazon can, becomes the key competitive advantage over legacy freight forwarders. By using software to eliminate additional transaction costs associated with government filings, status updates, pricing, booking and more, Amazon will be able to cut their costs significantly. At the same time, fulfilling products directly from China to consumers in the U.S. will cut handling costs at U.S. warehouses.”

To bring that quote back into the context of this blog post, Amazon will extend their reach upstream and into the realm of international manufacturers. It’s a move that would bring Amazon’s ruthless efficiency into an ocean freight industry that’s largely remained an outsider in the world of automation.

Once Amazon starts ocean freight services, it will be moving product from foreign manufacturers directly to its automated fulfillment centers in the U.S., which, at that point in time, will likely have direct routes to Amazon customers through either domestic air freight or urban same-day delivery.

With all of this in mind, the future of the Amazon supply chain:

With this end-to-end visibility and control of their supply chain, Amazon will be able to further throttle efficiencies out of their process, reduce their cost structure, and give lower prices back to the consumer.

Amazon and Global Trade

All of this adds up to a big long-term vision: Global Fulfillment by Amazon, a one-stop shop for international manufacturers to insert themselves directly into a U.S. logistics network. There’s a loose parallel here to the Stripe Atlas model, in which a U.S.-based company provides international businesses with access to U.S. consumers, enabling those businesses to focus on their core competencies (and not on the paperwork associated with entering the U.S. marketplace.)

This cross-border ease of doing business (if Amazon can pull it off) will be a huge advantage for e-commerce over traditional retail. When cross-border trade is involved, it’s much easier for a company to sell to its international customers online than it is for them to establish a storefront presence in their customers's country of origin. This means more retail market share for Amazon. 

Amazon won’t be the only e-commerce company looking to go global. They’ll be competing with Alibaba (et al), who, having conquered Chinese e-commerce, will look to expand to the U.S. market. But Amazon has the better hand here. They cater better to regulators -- if Alibaba wants to operate in the U.S. at scale, they’re going to need to clean up the counterfeit issue -- and, of course, Amazon has their massive FBA network.

There are larger global macro drivers in effect. The U.S. is raising the ceiling on the amount of foreign goods U.S. citizens can import without paying duties.  All signs point to global trade and an automated global logistics network to support it. Few companies are in as good of a position as Amazon to win this huge opportunity.

Starbucks: Third Place Economics

The air carries the faint smell of warmed gouda and ham. A Citizen Cope-Norah Jones-Leon Bridges medley mingles with the bleepy triplets of a TurboChef i1 Sota Microwave Oven in the corner. Customers line from the door to the counter, where employees wear an assortment of beanies, sun hats, and fedoras.

This is the Williamsburg Starbucks, and there is ample seating available.

A large segment of the 20-something community treats Starbucks with an air of condescension. It’s too corporate. Not an “authentic” experience. The coffee is mediocre.

But you know what? When you want to get shit done, Starbucks is the spot. (Also, I like their drip coffee. There. I said it.)

This past weekend, I went to Starbucks. I bought a relatively affordable cup of coffee. I used free wi-fi that didn’t require asking for a password. I sat in a seat that I found quickly and with ease. I was, in short, enjoying what Starbucks calls the “third place” experience. And a thought occurred to me: there are very few players in the retail coffee industry who can afford to play the “third place” game with Starbucks.

The “third place” strategy offers Starbucks locations as an alternative location for customers that isn’t home or the office. Oft cited as a brilliant case study in brand and marketing strategy, it’s too often ignored for what it is from an economic point-of-view: a competitive moat, a barrier to entry for other coffee (or food service) establishments seeking to challenge Starbucks at the local or international level.

Starbuck's advantage sits in its scale and its ability to subsidize the cost of urban flagship stores with lower cost suburban locations. With national store distribution, Starbucks can spend more rent on urban hubs, knowing they’ll make it back on the margins they get from smaller shops.

A local shop or a Blue Bottle doesn’t have this luxury -- if they want to make their urban location a “third place,” the extra cost associated with the larger lease means lower margins. Blue Bottle doesn’t have any Topeka drive-in locations to subsidize their San Francisco Ferry Building shop.

topeka starbucks.png

"Iconic Seattle-based coffeehouse chain", kitty corner from the Cracker Barrel. Topeka, KS.

For these smaller companies without the scale of Starbucks, the only way to make up the lost margins associated with a larger store is through volume. To do this, they employ the “takeaway” strategy. A “takeaway” is that perfect customer who walks in, buys a cup of coffee, and leaves. No wi-fi. No lounging. Just a purchase. Here’s a Quora answer on the takeaway strategy from a guy who has to compete with Starbucks:

“I know all your friends will tell you to get comfortable lounges, free wi-fi, table service and lots of in-house entertainment ... but customers sitting on one cup of coffee for hours enjoying all these benefits, won't pay your rent.

My most financially successful coffee shops had a limited number of not-so-comfortable bench & bar stools to make the coffee shop look lived in and loved, but I concentrated on building the takeaway business.

Takeaway customers pay the same price as the sit-down customer but without any of the occupancy costs and you will serve 10 of them by the time your sit down customer has finished sipping on their first cup of coffee as they enjoy a chat with their friends on Facebook using your free wi-fi service.”

Think about the non-Starbucks coffee shops in your area. Whether big or small, many include minimal seating, usually just stools at a small counter. Some don’t offer wi-fi service on weekends. The goal is high customer turnover. Takeaway customers.

The problem is “takeaway” shops lose a huge segment: any of those customers looking for a place to work or socialize. These are the third placers. They’re the ones who, shunned by the takeaway service of most cafes, flock to Starbucks.

In this regard, the biggest new threat to Starbucks might be shared workspaces like WeWork, those hubs of social activity that draw away the laptop hordes that once rushed the little green mermaid. Of course, with capital looking to tighten up in 2016, there’s a fair chance the laptoppers make a move to reduce costs. If that’s the case, they’ll return to Starbucks. Wi-fi and office space for the easy rent of $2.50 a day. Plus, it comes with a free cup of coffee. And a Wilco soundtrack.