steve's blog

This post originally appeared on TechCrunch.

On Thanksgiving, Pinterest’s co-founder Ben Silbermann sent an email to his entire user base saying thanks. It was fitting, as Pinterest was born two years ago on Thanksgiving day 2009.  Ben had been working on a website with a few friends, and his girlfriend came up with the name while they were watching TV. Pinterest officially launched to the world 4 months later.

Some startups go crazy with hype and users right after launch. And some don’t. I don’t know the founders, but I thought I’d take apart Pinterest’s story to discuss growth and virality in consumer web startups. Pinterest was not an overnight success. On the contrary, its growth was surprisingly modest after Turkey Day 2009.

Take a look at Pinterest’s one-year traffic on Compete from Oct 2010 to Oct 2011, which is the picture in this post, and shows Pinterest rising from 40,000 to 3.2 million monthly unique visitors. I took both ends of this chart and estimated monthly compounded growth over Pinterest’s lifetime, then interpolated the curve using constant growth and put the results in this Google Spreadsheet.

Backing out of Compete’s numbers, we see Pinterest grew about 50% month over month from a base of zero since its inception (on average, smoothing the curve). Today growth is catching fire, as evidenced by the near doubling of traffic last month, and Pinterest’s page views growing 20X since June, according to comScore.

Note these numbers are approximations and also do not count the significant traffic the service sees from mobile (Pinterest’s app currently takes the #6 social spot in the iTunes store). Also my guess is that a lot of its unique visitors arrive out of network (from Facebook / Twitter), and many of these uniques leave Pinterest without registering (more on this below) so it’s tough to know their exact user numbers.

But let’s play pretend and use the data we have to do some projections on where Pinterest could be a year from today.  Its recent VCs certainly did this, and decided to give the startup a $200M+ valuation.  Ron Conway said recently that Pinterest is growing like Facebook did in 2006. Facebook actually grew from 14 million uniques to 26 million uniques from May 2006 to May 2007, then a year and half later they had rocketed to 140 million uniques, and were growing at about 20 million uniques per month. So monthly growth early on for Facebook was around 10-15%.

Can Pinterest really sustain its wild 45% monthly growth? No, unless it’s destined to be the fastest growing startup in history. However, we can be pretty sure Pinterest has hit a tipping point… their page view numbers are simply insane. If they were to grow 20% month/month over the next year, Pinterest would be at 30 million uniques a year from today. And with 25% month/month growth, they’d be at 50 million.  These are pure guesses, but Ron’s statements and last month’s growth make this look possible, so let’s examine virality and Pinterest’s underlying fundamentals.

Virality – Does My Startup Really Need It?

Viral sharing is typically emphasized in products or services where the cost to acquire a customer needs to be low, and you can’t afford to spend money on paid channels, like Mint.com did, or like a Living Social / Groupon.  Having a free method, ideally a user-driven method, is critical to consumer web startups.

But there’s a lot of confusion around virality. The reality is that you can build a sustainable business without “going viral” and this point is not understood well among techies or investors. The connotation “going viral” typically means having a viral growth coefficient of greater than 1. For every user that comes on your platform, he or she refers 1 additional user. This ensures a service will “hockey stick”.

But what if every user only refers, say 0.2 new users? Contrary to popular belief, this can also lead to a sustainable business. However, the lack of pure virality implies that you absolutely must retain existing users to grow. This is why daily active users and monthly active users are such important metrics, and are tracked maniacally by CEOs and investors. Churn is your ultimate enemy. Sure, it will take longer to grow if each user brings in fewer new people, but as long as most users don’t leave, you’re all good.

Viral cycle times also factor in – the shorter the “referrer” period, the faster the virality takes hold – for example, if a user invites 1 new user every month, that’s better than if she invites 1 per year. Social games like Zynga historically have extremely short viral cycles; however they must, because churn is extremely high (user lifetime is often measured in hours or days, because users get bored with games quickly and move on).

Obviously, the more viral a service, the more sustainable it is, but it’s really in the details. And overnight success is not a guarantee for sustainability. Many startups are pushing way too prematurely on press before they’ve demonstrated real sustainability. I see this all the time and Eric Ries covered this in his discussion on the danger of vanity metrics.

The truth is that startups often draft off of artificial success that originates simply from hype within the tech echo-chamber. Some sites go from 0 to 100K+ visitors in weeks and people high five one other, then look around and say “what’s next,  how do we keep these users happy?”

Pinterest’s Virality and Sharing Examined

Pinterest’s story is much different – they didn’t have the same early “hype spikes” as many other startups do, standing at only 40K uniques 8 months after launch! It took Pinterest quite a while for a network-effect to take hold. Clearly every startup should hope for early virality. But if it doesn’t exist initially, you must work to perfect a soft onboarding of virality that’s based on high engagement, and create a product that people love and will come back to, while layering viral techniques on top of that.

Today, Pinterest is clearly insanely addictive among its user base, and they are sharing.  But one reason I see Pinterest as a valuable case study is precisely because they didn’t experience the early adopter “hype” spike 18 months ago. Like many tech startups, I am sure some content was seeded within the tech community by the founders. But their “normal” user was a housewife in the Midwest, not a techie reading TechCrunch or Hacker News. And I’m sure Pinterest made a bunch of product tweaks early on to iterate around sharing and engagement, as virality took hold.

Let’s compare Pinterest to Instagram for a minute, since both base off of photo content as their primary unit. Instagram has actually done nearly all its user acquisition virally out of network (sharing to Facebook and Twitter) and via word of mouth, with limited sharing in the network. This is remarkable when you think about it.  By that I mean that there’s no real sharing inside the network other than liked photos surfacing due to popularity, and manual discovery via hashtags. There is no “regram” if you will. You also can’t follow people or like a photo from Instagram without an iPhone (even if it’s tweeted or posted to the web!) unless you’re a power user on an API mashup (see Inkstagram). All this reveals just how impressive Instagram’s growth has been, as they went from about 1 million to 10 million users over the past year.

Being realistic, Pinterest could have much higher growth than Instagram based on the fact that it’s unconstrained as a platform – it works from web, mobile web, in-app, and has easier baked-in virality around sharing. “Pinning” has this built in because many initial pins start as “repins” of other people’s content. In this way, existing content will often be the seed for a new user’s stream. The pin unit is genius.

Users can also visit the Pinterest site and participate (i.e. browse endlessly) before signing up. This allows full consumptive access before registering and is a secret weapon if done right. Fred Wilson discussed this recently in his post about the logged out user, giving an example of his mom checking his tweet stream without logging into Twitter – she gets value out of the service while ironically bringing down Twitter’s monthly active user metric. Similar value can be granted to consumptive users who visit the site but don’t initially register.

Then when a user is ready to pin content, they create an account and go wild – Pinterest leverages web content from Tumblr like no site that has ever existed, thus riding on top of its network-effect while not requiring user generated content like many services. They’ve also perfected in-network virality (pin, repin, like) in addition to out of network sharing (Facebook, Twitter) to grow virally. For these reasons Pinterest could conceivably grow as fast as any consumer service we have seen in recent memory. It’s fun to speculate on all this when you factor in Ron Conway’s statements comparing growth to Facebook’s early heydays.

And perhaps most notably, though it will surely take a while, Pinterest is already threatening to monetize, as those Midwest housewives are literally using it for shopping discovery, which Pinterest can profit off of by taking attribution for purchases that originate off its platform. I know several friends who’ve purchased stuff spontaneously via random discovery on the site. I expect Pinterest to be thriving a year from now (my guess is 30 million users next Thanksgiving) and also spawn hundreds of copycat startups in other verticals (“Pinterest for that”). Sadly, many of these will arrive on TechCrunch and spike in hype, then fail to nail any true virality before they are slowly forgotten… After all, this is the cycle of consumer startups.

In November of 2010, just 9 months ago, I  wrote a post on TechCrunch about application layer disruption in telecom and messaging, called Why the Carriers Are Losing Their Voice. At the end of the post I wrote: 

There is simply no doubt that the future of voice and messaging is with companies innovating at the application layer, and my guess is there is going to be a ton of investment activity and M&A in this space as new realtime communication tools are developed over the next few years.

Less than a year later, a lot of the observations I made have become realities. Traditional carriers like AT&T continue to languish, doing weird things like cutting messaging plans to boost ARPU, and Skype is the fastest growing telecom network in the world. 

Of course during that time, innovation at the application layer has accelerated what feels like ten-fold. Competitors in voice and messaging have launched at a blistering pace, Facebook made an M&A play in groups / messaging, Google+ launched, and Skype was sold for $8.5B. 

I also made the decision to join GroupMe (I absolutely knew there was something special here), and have helped drive our business development and brand / user acquisition strategies. And now we’re part of Skype.

Wow... that’s a hell of a lot of disruption and M&A in 9 months.

All of this is exactly the type of innovation that I'd envisioned back last year, but it’s important to remember we’re still in the beginning throes of a revolution here. The traditional concept of “telecom” is being disrupted at the application layer in ways that we have not yet seen. The things we’re building at GroupMe blow my mind when I look at the traditional telecom stack, and Skype is going to enable us to move even faster.

There is simply no doubt that the peer to peer economy and group-based social communication are massively disruptive forces within the tech and social ecosystem. But one thing that people aren’t yet talking about -- even smart people like Om, who miss the larger opportunity -- is how these amazing communication and social layers in mobile are going to drive new use-cases for commerce.

The peer to peer economy is driving unprecedented intelligence to the edge of the network, and messaging is just the first wedge in helping individuals and groups make decisions and take actions instantaneously. When I talked about Groupon closing the redemption loop a few months ago, I was adamant that a mobile commerce layer and a social / communication layer are being built out that will have unprecedented impacts on how we interact and consume things with friends in our physical environments.

At our core, humans are social, and friends drive a lot of our decision-making and actions. Where traditional telecom allowed fairly static connections between people, the mobile internet is driving a new peer to peer economy where people not only instantaneously connect with each other, but take actions to consume, share and enrich their real-world lives.

This is just part of our opportunity at GroupMe, and now Skype. And I’m incredibly excited about the possibilities that lay in front of us. #)

Admittedly, Groupon is a work in progress. They continue to spend insane amounts of money to acquire customers and merchants to try to extend their dual-sided network effect with consumers and merchants. Many people see this as unsustainable, some adamant it’s all just a Ponzi scheme. 

But these naysayers who are fixated on the current “daily deal” economics as long-term unsustainable are completely missing the point. The real innovation Groupon brought to the table wasn't in advertising deals per se, it was their ability to profit off of closing the attribution loop in online-to-offline commerce. And this is a huge land grab that others had completely missed. 

Google never had success (monetarily) with online to offline search, because you can’t go to a search box and carry that discovery process to your offline environment. Yes, you can absolutely use a search query to find a place to go, but when you get there no one knows that you found it on Google…

The same can be said for services like Yelp. Yelp might drive people to restaurants, but it doesn’t benefit Yelp if merchants don’t attribute the new customer to Yelp. And how would they know? It’s not like you walk in the door and tell the restaurant owner you just located them on your iPhone via Yelp’s app. Foursquare hasn’t solved this either, despite having 250K merchants signed up and literally inventing the act of announcing your presence to the world.  Both are great companies solving problems, but only Groupon has closed this attribution loop. 

Groupon essentially short-circuited what others haven’t been able to do by inserting itself between the customer and the transaction. They gave merchants an advertising channel (yes Groupon is just an ad unit), and in return they immediately take a cut, regardless of when the voucher is redeemed. Groupon not only closes the redemption loop, but also banks the cash way ahead of redemption. Pretty sweet deal. 

And Google understood how valuable this was a long time ago.  It’s well documented that AdWords’ genius is its ability to harvest intent that was generated elsewhere. About 10 years ago, search became the last place where consumers interacted during many online transactions, and has since trumped all forms of intent generation via display advertising, review sites, and other forms of marketing. Those mediums generate your intent to buy that camera, but Google profits off of it. 

This is precisely why Google wanted Groupon – they were able to solve a REALLY difficult problem in a simple way, creating an offline link between customer and merchant and profiting off of it. Hopefully for them a link that is valuable over the long term… 

And that’s the exact issue in question that people are puking over. Those reading the S1 believe this merchant to customer link is very weak, because Groupon left out key metrics for effective customer acquisition cost and merchant churn. 

That would be a sensible conclusion IF today’s email-based daily deal world were to remain static…  if that were the case all this would be extremely worrisome. But things are changing. We’re entering the next phase for daily deals, something Groupon has been public about: real time bidding on remnant inventory at places around you. 

In order for real time to work you need inventory. Lots of it.  That’s why this is an onboarding and growth exercise to get people on the platform. It truly is a land grab. That’s Groupon’s bet and it’s why every major player is copying Groupon. 

Fact is that right now a mobile commerce layer and a social / communication layer are being built out on mobile that will have unprecedented impacts on how we interact and consume things in our physical environment. 

Trust me – getting email deals to your inbox will appear old and tired within several years. But that’s all local merchants can do today. They can’t bid for individual customers against “searches” because you don’t have an environment with enough context or sophistication on the merchant side to support an Adwords-like product for local commerce and there is no publishing platform to push this to consumers. 

All this is changing. FAST. 

First with massive creation of context: location/proximity, stored preferences, conversational sentiment, social indicators such as groups, and a bunch of stuff that’s temporally and geographically relevant to you and your group in the real world. I'm talking massive amounts of data.  

And second with sophistication on the merchant side. Tablets are being put In place at the point of sale at an increasing rate, and a healthy percentage of merchants have now created accounts on daily deal sites. Google Wallet is coming online and almost subsidizing merchants with new point of sale technology. Surely Facebook is thinking about doing something to link credits with their new deals, and has arguably done a better job at self-serve deals than Groupon Stores. 

I remember having a conversation with Vin Vacanti at Yipit awhile back, and we both talked about a future time when a restaurant’s staff will say to you “let me consult the tablet” to make decisions in the restaurant.  Metaphorically-speaking. 

Kind of like how you consult your iPhone when you need to do something in your physical world. The employee “consults the tablet” and pushes a lever to bring in some customers – it’s a little slow in the restaurant for a Thursday night. Meanwhile you are “searching” for somewhere to go to dinner that night with 4 of your friends. This is the future of self-serve at the merchant level. 

An hour later your group shows up, dines, and receives the check. They bring the bill to your table in one of those standard-looking black folios—except it has an embedded NFC tag. You pay through a credit card linked to your mobile phone. Unbeknownst to the waiter, you purchased that deal in real time 1 hour before you went to dinner and get 20% off, right after assembling your group, planning, deciding, and purchasing on the go. 

So the real end-goal for daily deal sites is in assembling a marketplace and exchange that has enough inventory and users to support these types of new online to offline behaviors at massive scale. And if Groupon doesn’t figure it out, someone else will. There is way more money to be made in offline commerce than there is in online commerce. Everyone knows that by now.

The reality is we’re in inning 2 or 3 of deals and local commerce. We’re moving away from these static one-time deals toward a marketplace for your attention in the physical world. And someone is going to make a lot of money off of it. 

We all know that the delineation between public and private was eroded by Facebook a long time ago. Over. Done. But now Facebook’s sheer scale is pushing it in a new direction, one that encroaches on your authenticity.

Facebook is no longer a social network. They stopped being one long before the movie. Facebook is really a huge broadcast platform. Everything that happens between its walls is one degree away from being public, one massive auditorium filled with everyone you’ve ever met, most of whom you haven’t seen or spoken to in years.

Last week a bunch of massive sites across the web, including TechCrunch, adopted Facebook commenting. The integration of the formatting and fonts is so strong that when you're reading comments you actually feel like you are on Facebook, not a tech focused vertical site.

This latest push by Facebook to tie people to one identity across the interwebs is very troublesome.

The problem with tying internet-wide identity to a broadcast network like Facebook is that people don’t want one normalized identity, either in real life, or virtually.

People yearn to be individuals. They want to be authentic. They have numerous different groups of real-life friends. They stylize conversations. They are emotional and have an innate need to connect on different levels with different people. This is because humans are born with an instinctual desire to understand the broader context of their surroundings and build rapport, a social awareness often called emotional intelligence.

In the beginning, Facebook catered to this instinct we all have. But FB in its current form, a big graph of people who may or may not know anything about one another, does not.

And forcing people to comment – and more broadly speaking to log-on – with one identity puts a massive stranglehold on our very nature. I'm not too worried about FB Comments in isolation, but the writing is on the wall: all of this off-site encroachment of the Facebook graph portends where FB is really going in pushing one identity. And a uniform identity defies us. 

Face it, authenticity goes way down when people know their 700 friends, grandma, and 5 ex-girlfriends are tuning in each time they post something on the web.

Don’t believe me? Go to TechCrunch and count the comments on last week’s posts. Better yet, go read the comments. They suck. They’re sterile and neutered.  

The nature of commenting on the web needs to feel organic and fluid, just like it does in real life.  And even anonymous if necessary, though that’s not at the core of my argument.

My main contention is that the off-network spread of Facebook’s identity graph is parasitic for the web. Now – just to join the best technology community on the internet (TechCrunch) – we need to live inside Facebook walls.

Unfortunately, it doesn’t surprise me why this is happening. The carrot here for content sites is clear: even with a lower volume of comments, the potential viral effects and CTRs are something parent sites like AOL are surely extrapolating, based on their recent manifesto to boost reach, drive traffic, and maximize page views (though I'd argue they would perform much better on mainstream sites like HuffPo or TMZ than a niche vertical like TC, which your friends are less likely to be aware of). 

There's a pretty straightforward reason why FB is valued at an astonishing $75B, and it's all about them forming a reciprocal feedback loop between Facebook.com and other sites so that you can be targeted. 

But for such a massively social company, Facebook’s insistence that you have one identity across the web is both short-sighted and asinine, and people I talk to are starting to realize this.

Fact is, one social network will not rule the web... People are simply way too social to allow that.

It’s with incredible excitement that I announce I’m joining GroupMe as their first full time Business Development hire. I met Jared and Steve shortly after the TechCrunch Disrupt Hackathon in April 2010, where they took agile development to a new level, releasing a beautiful product over the course of a weekend. Since then I've fallen in love with the service, we've become good friends, and it’s been tremendous to watch such smart guys attract the best people and build momentum. 

It was GroupMe's elegance and simplicity which attracted me the first time I played with it... But it's their vision and opportunity at the intersection of groups, messaging, mobile, and social which really excite me. I've never been more excited about the opportunity to help grow a business, which is definitely what I love to do best, and I'm thrilled to be able to do this at GroupMe in 2011!

TechCrunch Link

Lately it seems like there is endless news around messaging, VoIP and video calling. Apple recently announced they’d added FaceTime support for the Mac, and had shipped 19 million FaceTime-enabled iOS devices since June. Google Voice also made headlines last week for an outage, but I think the bigger news associated with that downtime is how fast they’ve been growing. And there’s been a flurry of startup activity around messaging and communication as well, such as the super innovative GroupMe releasing an Android App.

The resounding theme from all these seemingly disparate announcements is that messaging, voice, video, and chatting applications are on fire. Sure, we all use social media, but it sure hasn’t dampened people’s affinity for texting or making a call.

More revealing, all of this innovation seems to be happening at the application layer, far from the AT&Ts of the world, who are missing another wave of innovation which is happening on top of their networks. It’s very evident that Google and Apple are making overtures to become your de facto voice and messaging provider, and the carriers are sitting with their pants down, struggling to plan how they stay relevant.

Why the Carriers Will Become Irrelevant in Voice and Messaging

It’s easy to bash carriers. I recently wrote about the technical reasons why AT&T’s network is so awful which got their higher ups to contact me and whine about what I’d written. Truth is, there are long-standing reasons behind AT&T’s failures—network decisions take many years to unfold, especially since the telco monopolies are, by their very nature, slow to respond to change and innovation.

But forget the past, let’s look at why the carriers are poised to become more and more irrelevant beyond being pipe providers in the future. And let’s do so specifically around voice and messaging, the bread and butter services that they evolved to provide.

Imagine the future of communication on your smartphone: you’re on a video call with your significant other across the world on different networks, you tap your screen, and instantly their phone screen mimics yours as you flip through photos of your trip while continuing your call. Or imagine sending out an MMS to a group, and when each of your friends open it they immediately tap into a live HD audio/video stream which you’re broadcasting to everyone. No delays, no dialing, and no going in and out of different apps—it just works.

All of these amazing use-cases, and more, will be enabled by 4G wireless standards. This is because 4G is 100% IP-based, which is what the internet was founded upon. Today, voice is routed separately from data on mobile networks due to legacy “circuit-switched” architecture. With LTE, the first phase of 4G, voice and video sessions will be packetized and sent over the network from your smartphone just like any other application layer data, which will open a range of new capabilities.

LTE Now; Voice in 2013 – Are You Kidding Me?

But there’s a roadblock to realizing this vision of ubiquity. Right now the carriers can’t agree on what’s happening with respect to voice. In classic fashion, they are stuck in endless consortium meetings arguing about standards instead of moving forward, picking one, testing, and deploying.

Some carriers are behind a voice technology called IPMS (IP Multimedia Subsystem), which is 100% IP-based, and others are clinging to VoLGA (voice over LTE via generic access), which splits mobile voice and messaging apart from the IP-based LTE network in a technique called “circuit-switched fallback”.

Guess when they plan to resolve all this? 2013! Per this AT&T slide from a few weeks ago. And it’s easy to envision any resolution extending years past this date, which is crazy considering what’s at stake for the carriers as they struggle so stay relevant in voice communication.

FaceTime best foreshadowed their dwindling relevance, since video calls over WiFi bypass the carrier network entirely. And though FaceTime doesn’t yet work on 3G you can see the writing on the wall. Meanwhile Google Voice still requires you to dial out using your carrier’s network, but Google’s acquisition of Gizmo5 last year foretells this will go away in favor of full VoIP too. Then of course there’s Skype, which now works over 3G, bypassing the voice network of your carrier too.

The Bureaucracy Behind Why The Carriers are Missing Out

Carriers are in the process of transitioning from a telco model, which is closed, to the internet model, which is open. In the old days it was deemed acceptable for them to stew over standards for multiyear periods, but innovation on the internet doesn’t work this way.

Recently at CTIA, Verizon declined to discuss the VoLTE situation because they simply don’t have anything cohesive to communicate. This is embarrassing, considering their LTE network is supposed to be ready by the end of the year. What this means is that voice will be routed over their old network for years to come—fabulous.

This is absurd, and is symbolic of how consortiums and standards bodies work in telecom—anyone who has ever sold to or interacted with a carrier understands the glacial pace at which they move. What the carriers really need to do is get out of bed and resolve how voice will be packetized, then move forward and deploy it. It’s simply embarrassing that they can’t do this, but it’s not surprising, since they still receive so much revenue from voice plans.

The Internet Wins Again – Go Back to Sleep Carriers

The future in mobile communication is being written at the application layer—both by innovative giants like Apple and Google, and smaller startups such as GroupMe and Twilio—not at the infrastructure layer by the AT&Ts and Verizons of the world. The carriers had a chance to provide a better voice and messaging experience with 4G, and to charge a toll for that experience, but they are missing that window.

Apple and Google are closing it fast. Back in June, when iPhone 4 was released, people wondered why Apple made FaceTime an open standard. Here is one important reason why: A closed standard may have caused an overly fragmented market for video-calling, which would definitely benefit the carriers. This is  likely, at least in part, why Steve Jobs decided to open up FaceTime, as any open standard's success in video/telephony limits the power of the carriers.

The funny thing is, they seem to be screwing it all up without Steve’s help. There is simply no doubt that the future of voice and messaging is with companies innovating at the application layer, and my guess is there is going to be a ton of investment activity and M&A in this space as new realtime communication tools are developed over the next few years.

TechCrunk Link

During the “Back to the Mac” event two weeks ago, Steve Jobs made a particularly witty remark as he unveiled the MacBook Air, one that made the audience chuckle in laughter:

“We asked ourselves, what would happen if a MacBook and an iPad hooked up? Well, this is the result, we think it’s the future of notebooks.”

There is always a strategic intent with the things that Apple says at product launches, especially when they come from Steve Jobs. This is because Apple cares deeply about the perception of its products. By intimating that the Air is the future, and that it blends the best of the MacBook Pro and iPad, Apple is signaling a lot. There is no doubt that this first phase in “hooking up” between the MacBook and iPad foretells a deeply converged future on many levels.

iOS and OS X Aren’t Hooking Up 

Often when people visualize the convergence of the iPad and MacBook lines, they wonder whether a unified operating system will take over, which somehow blends the best of both the touch and “mouse” metaphors.

This is unrealistic and silly. Though iOS is OS X’s little cousin—both use different APIs and layers, but reside on top of UNIX—merging them makes little sense from an end-user perspective. iOS and OS X serve different use-cases, applications, and markets, and the touch metaphor on a MacBook simply wouldn’t serve a user well in the majority of cases. And running multiple browser tabs and multitasking between 8 open applications requires a much more immersive experience than iOS may ever provide.

But despite the fundamental difference in how we interact with a MacBook and iPad, Jobs made sure to deeply blend how we view the two products at the marketing level, by touting attributes like the Air’s ability to turn on instantly, and last 30 days without a charge.

Why the Hardware is Rapidly Intersecting

One reason why Steve Jobs wants us to think about the MacBook Air as an extension of the iPad, is because there is a hardware convergence happening under the hood. The MacBook Air benchmarks were the most telling sign that this is occurring. Apple was able to double the system performance of the MacBook Air, despite using the same 3 year-old CPU technology from Intel—Intel Core 2 Duo processors running at pokey speeds.

Though profound this isn’t surprising—the Air uses flash instead of spinning disks, and SSD technology dramatically cuts data transfer bottlenecks for applications that are I/O (Input/Output) constrained. And guess what? Most simple computing tasks are memory and IO-constrained. This fact helps the flash-based Air operate on par with Apple’s high end MacBook Pro line, except under taxing CPU-intensive scenarios such as video rendering.

So let’s get this straight: Apple is using several year old technology, and the Air’s system performance screams. This is nothing short of incredible proof that after a certain threshold, CPU advancements are only adding incremental benefit to 90% of what the user cares about today.

Instead, performance is more dependent on graphics processing than ever. This is why Apple designed the Lion OS to heavily focus on OpenCL, which leverages parallel constructs within the GPU to extend its utility to non-graphics tasks. And a big reason why Apple didn’t go with Intel’s newer CPU line is they lack support for OpenCL, and Apple is probably designing new applications like iLife 11 to take advantage of OpenCL’s power.

The fact that Apple’s sexiest new Notebook didn’t go with Intel’s latest technology is damning for Intel and is the best signal yet of how innovation in PCs is getting blown away by what’s happening in the mobile ecosystem. Right now, benchmarks show that the fastest ARM-based smartphone CPUs are only about 25% as fast as the Core 2 Duo that Apple is using in the MacBook Air. But this delta will compress fast.

In about 2-3 years we will be seeing integrated chipsets make their way up the food chain, and potentially fit in notebook-class form factors. Multicore ARM solutions, based on ARM-15, will make this a reality in about 2 cycles of Moore’s Law.

Skeptics will say “no way — never, not with the need for Flash”. I agree that Flash is probably here to stay on desktops. But all the pressure on Adobe to make Flash better is, ever so slowly, improving how rendering and compositing are done in hardware. And even in the midst of their darkest public battle last Spring, Apple and Adobe were cooperating in getting Flash acceleration to work on desktop Macs. In the future, it’s conceivable that Flash could be the only remaining bottleneck that prevents Apple from using an embedded SoC in a MacBook Air. But hardware acceleration for Flash is approaching which can solve this dilemma.

All of this rapid advancement in what’s under the hood has huge ramifications for the future of the MacBook Air and iPad. Anyone want a MacBook Air that is several pounds, Runs OS X, lasts for 30 hours, has a detachable keyboard, and then converts to an iPad running iOS once the screen is removed?

I am not saying that Apple is going to make this device, nor that it’s even in their best interest to pursue one-size-fits-all form factors. But there is no denying that the hardware is converging, and the “Back to the Mac” theme of Apple’s latest event deeply intimated this.

The Mac Store’s Incredible Network Effect

The remaining puzzle piece in the intersection of the MacBook and iPad is all about the applications—both end-user discovery & distribution and developer support. The iOS storefront was the genius behind the iPhone becoming a low friction distribution warehouse for content.

In much the same way, the Mac Store is Apple’s umbrella strategy to encourage developers of long-tail content to have an easy landing pad on the Mac, developers who are already building apps on top of iOS.

Interestingly, the Mac Store allows Apple to do the reverse of what Microsoft is doing with Windows Phone 7: whereas Microsoft can leverage .NET familiarity to encourage the desktop dev community to write apps for WM7, Apple will use its iOS franchise to kick-start a vibrant ecosystem of Mac developers.

But there’s also something more magical that this network-effect provides for Apple: by specifying that developers use Apple’s tools, namely Xcode and LLVM, Apple gains a layer of control in how this hardware convergence plays out.

How so? Apple can have developers simply flip a recompile switch and upload universal versions of apps to the Mac App Store, which work on both ARM and x86. In this way, Apple is setting up a distribution mechanism to host and install code which will allow them to transition hardware seamlessly.

This is the ultimate in streamlined distribution, since a developer can focus on one unified environment based around Cocoa Touch and Objective-C, along with a set of UI / UX constraints. Apple then abstracts all this from the user, independent of the hardware.

Apple Hates Control and Loves Optionality

If it’s not completely clear yet, Apple is setting the stage to be processor and component agnostic. This not only allows them the above-mentioned architecture-neutrality, but also affords them incredible pricing power, and ensures they can tap into consistent component supply, which will be a critical challenge as they lock up an even bigger slice of the supply chain.

Apple can build an A4-variant themselves, or they can partner up with one of many vendors. If Intel starts innovating again, that’s an easy choice for Apple. If nVidia, with its graphics pedigree, emerges as a winner in combining GPUs with ARM-based CPUs, Apple can partner more deeply or buy the company. Or Apple might decide to stick with x86, but use GPU/CPU technology from AMD.

It’s all about optionality. And Apple is building that into its long-term strategy, by combining its rapidly expanding footprint in mobile hardware / software with its iOS developer mind-share to rev its Mac franchise into much higher gear.

Wow Hooking Up Feels Amazing – When’s Our Next Date?

I believe it’s pretty clear: Apple wants to use OS X, running on an incredibly battery efficient MacBook Air-like form factor, as a bottoms-up strategy to attract loyal iOS fans over to the Mac franchise. After all, there are around 150M users of iOS worldwide. Apple knows that iOS is a secret weapon to bring both consumers and corporate users to higher end Mac products. And the marketing around the Back to the Mac event is just a precursor for Apple’s underlying strategy in mixing these two worlds.

Behind-the-scenes, Steve Jobs is setting up all the pieces for Apple to converge these product lines. But it’s all about optionality for Apple. When and how they choose to get there is up to them. And my guess is Steve Jobs is going to do so in a way that continues to make the Apple experience a superior one for you, its loyal customer.

TechCrunch Link

Last week we saw the carriers’ growth numbers for Q3 2010, and AT&T completely blew away Verizon with new subscribers. Despite mass availability of Android phones, Verizon only added 1 million subscribers in Q3, its lowest total in years. AT&T added 2.6 million.

It’s now completely clear why Verizon has finally capitulated and cozied up with Apple—even with tons of Android models, Verizon simply can’t compete with AT&T in terms of new subscriber growth.

Right now the question du jour among iPhone aficionados is how many net subscribers will leave AT&T and switch to Verizon once the iPhone becomes a reality in January 2011. That number is going to be a lot larger than people think for a series of compounding reasons.

First off, let’s establish that iPhone service on AT&T has not improved. Dropped calls are one issue. But so are dead connections, intermittent signal, and my personal favorite—the inability to use the phone for voice or data even when you have “full signal”.

There is a reason why these issues are endemic to iPhones on AT&T, but don’t affect either Android smartphones on Verizon, or iPhones on other GSM carriers worldwide. And it always intrigues me that it’s hardly ever mentioned by either analysts, the media, or by Apple and AT&T themselves.

I suppose the former community doesn’t understand the issue, and the latter doesn’t want you to know the truth. Earlier this summer I uncovered the real reasons why AT&T’s network is so terrible, just prior to iPhone 4 and iOS4 being released.

Contrary to what’s normally discussed in the press, the issues are not capacity related. It’s not about the number of cell towers or wireless bandwidth. Instead, they relate to “signaling”, control and status information which is communicated back and forth across wireless networks. Smartphones use signaling for network polling and status updates, for functions like SMS, billing, and for DHCP requests.

When I wrote that piece, Steve Jobs had just gone on record at D8 saying that AT&T was working hard and the issues would get better by the end of the summer.

Well guess what? They haven’t.

The issues have not been alleviated because they require a completely rethought approach to network topology at the signaling layer, and after three years it’s clear AT&T has no clue how to do this, especially amidst a continual onslaught of iPhone subscriber growth.

Attempts to overhaul its signaling network present a chicken-and-egg problem. AT&T must also build out its LTE network, which is the real solution to creating robust signaling.

This dilemma is compounded by the fact that 3G isn’t going away—I recently learned Apple plans to bypass LTE in 2011, instead opting to wait for “4G” to mature. This means that AT&T subscribers will be relying on AT&T’s woefully strained 3G network for another 18 months or more.

Unless they switch to Verizon.

The premise that Verizon’s network will support the iPhone fine is now anecdotally supported by the fact that Verizon smartphone subscribers use more data than iPhone subscribers, and because Android phones actually use the same power saving disconnect methods that the iPhone popularized.

Up until this point AT&T could physiologically assuage the concerns of iPhone users since they had exclusivity. But soon people will be able to compare Apples to Apples, if you will. An iPhone user on Verizon will not experience the same issues as an iPhone user on AT&T. If you don’t believe me, this will become clear for everyone when the Verizon CDMA iPhone becomes available.

The really interesting part is that it appears Apple is going to supply a dual mode GSM/CDMA iPhone in mid-2011 which supports all carriers worldwide.  Imagine the scenario of a new customer walking into the Apple store—why on earth would they go with AT&T when their neighbor talks about how well the iPhone works on Verizon?

This confluence of reasons—the general delay of 4G, coupled with Apple’s plans to support a dual mode GSM/CDMA iPhone—will hurt AT&T. It’s beginning to look like there are going to be a lot more AT&T defections to Verizon than the majority of people think. And once again, Steve Jobs will smile like the Cheshire cat while Apple stands above the fray, as the primary beneficiary.

TechCrunch link

Back in August I broke the news that Apple was lining up a component purchase of several million chipsets from Qualcomm for a CDMA-powered Verizon iPhone due in January. Last week, over two months later, the Wall Street Journal confirmed this story.

Now that folks are finally celebrating the iPhone’s imminent arrival to Verizon, speculation has shifted to whether the January model will take advantage of Verizon’s “4G” network. 4G (not to be confused with iPhone 4) refers to the fourth generation of cellular standards, and both Verizon and AT&T have publicly released launch plans for 4G networks based on LTE in 2011.

This impending shift from 3G to 4G presents a major inflection point in the reign of the iPhone franchise. Does Apple move to 4G right away, or do they wait for the network to mature? Recall that Apple waited to support 3G for one entire cycle, opting to release the original iPhone on AT&T’s mature 2.5G EDGE network, despite wide availability of 3G by early 2007.

That situation mirrors what is happening now with LTE in 2011, and as these questions become front and center, I have some very interesting news to share about Apple’s plans.

First things first — the iPhone CDMA model due in January won’t support LTE.  But here’s where it gets really interesting: sources tell me that the iPhone refresh in mid-2011 won’t support LTE either. Instead, Apple will produce a dual mode iPhone containing 3G flavors of GSM and CDMA, which operates on all carriers worldwide. If this holds true, Apple won’t support the LTE standard until some time in 2012.

A lot of you aren’t going to be very happy with this news, since 4G-enabled Android phones already exist on Sprint’s WiMAX network, and dual-mode LTE-enabled Android phones will start to emerge for use on Verizon’s new network in the first half of next year.

But as we cut through the hype on LTE, I believe Apple’s decision to wait may be the right one. While the carriers are promising LTE as an upgrade path that will drive new applications and higher speeds, the reality is that 4G deployments will take much longer than the carriers are letting on.

Apple doesn’t want to mess with the first generation of LTE chipsets, since they will be bulky and power hungry. Instead, Apple will make a unified model that works across 3G networks on all carriers, and innovate with incredible new features like NFC which mirror what they accomplished with FaceTime on iPhone 4.

Apple simply doesn’t want to be the guinea pig on new LTE networks that aren’t ready for primetime, and Steve Jobs knows not to trust the hype that’s spewed by the carriers on 4G. The truth is that 3G networks have many more years of life, and the transition to LTE will be much slower than the carriers want you to believe (LTE doesn’t even have its voice standard fleshed out yet).

This is why AT&T is upgrading modem cards in its basestations to support the newest flavor of 3G called HSPA+, and it’s why Verizon is rumored to be working hard on Voice over Revision A, which will allow simultaneous data and voice. These upgrades greatly extend the life of 3G networks, and hedge against the transition to LTE. And Apple is pushing the carriers to extend 3G.

So if you’re waiting for an iPhone that works on 4G carrier networks, it’s probably going to be a while. I’m sure we’ll be hearing a lot more about this story as the months unfold, especially as next summer’s iPhone approaches the “engineering verification test” stage. But based on my knowledge of both the supply chain and networking infrastructure, I feel pretty confident this is the way it’s going to play out.

For years, offline merchants have been acquiring data about you in attempts to personalize your experience through loyalty and rewards cards, credit card data, and surveys. But the problem is these interactions occur after it’s too late: at the point of sale. You’ve already checked out and are leaving the store, or have ordered dinner. For a merchant to convince you to add an extra item to your shopping cart, or buy an appetizer with your meal, the interaction must happen sooner.

Online check-ins, as a trend and use-case, have created a remarkably compelling opportunity for offline merchants to interact with consumers who are in the store before the sale happens. When you announce you’re at a store or restaurant by checking into Foursquare or Facebook Places, for example, your experience can be shaped and molded in compelling ways.

This is precisely why check-ins are incredibly powerful—they give the offline merchants an opportunity to shape your behavior before you buy or consume. Unfortunately, check-ins alone provide little value to merchants in the absence of contextual data about you. And checking into a place definitely does not equate to liking it. Imagine how many restaurants you visit, then consciously decide to never return to. Without a feedback loop this context will be used erroneously for future offers and recommendations.

The real power in converged online/offline interactions will come from a hybrid of realtime contextual offers, deals, and advertisements which can change a consumer’s behavior long before any transaction occurs. Recommendations and offers that take into account nearly everything about you as an individual.

This is a why Steve Jobs strategically entered mobile advertising with iAd. Contrary to what Carol Bartz thinks, Apple is thinking way beyond serving brand advertisements within mobile apps. The real potential is about blending offline and online data about you as a person, data that can be transferred across services and devices. iAd is absolutely a secret weapon for Apple to ultimately leverage its micro-payments franchise to influence you at the point of sale. But they could work not just while you’re mobile, but at home as well. Imagine watching rich immersive ads on your Apple TV, which are tailored based on your offline behavior while your iPhone simultaneously knows what channel you’re watching and gives you a click-to-act offer or saves a deal which you can unlock later.

And though Google bought Admob for a simpler reason (to own mobile/online display), it’s clear that their success with Android and momentum with Google TV is driving them toward similar ambitions.

There’s simply no doubt that the offline and online worlds are melding in a way where “ads” will incorporate your presence and behavior across the entire web. Obviously the use of apps and web services on your mobile phone will be the source of a lot of this data. But because apps don’t use cookies like traditional websites do, proprietary layers of data are becoming silo’d inside these individual services and applications.

This is one fundamental reason why you see so many mash-ups and “data threesomes” happening between services these days – there is incredible power in blending silo’d data across web services. For example, say Foursquare reaches beyond check-ins with a recommendation service, while also providing curated offers by tapping into the API of a group buying service. Then imagine this combined data mash-up accessing the API of a mobile payments service like Square to provide not only a discount, but also an integrated loyalty or reward at the point of sale. You get a recommended list of restaurants, check-in with your friends, trigger a context-aware offer, then immediately get a discount and reward when you pay.

This is the future. And ultimately, this creates massive opportunities for companies to enter the fray with great ideas and leverage APIs from other services. Many will end up as commodity layers, but it’s likely that those which play the greatest role in shaping purchasing intent will benefit tremendously from this massive online/offline convergence and acceleration of mobile commerce.

And these trends likely form the underlying strategy for why Facebook is building a mobile phone. They want to become a participant, not just a layer or service, in how this offline/online commerce plays out. This week’s announcement that Target will sell Facebook credit gift cards is another telling sign of Facebook’s ambitions.

That’s why it’s funny when people see Facebook’s push into phones as a basic play to make phones more social. Dan Lyons wrote a silly Newsweek article this week about Facebook not innovating. I believe innovation is alive and well right now, and is likely accelerating. And Facebook’s push into mobile is much more profound than making phones more social – Facebook believes owning elements of the mobile stack will help it leverage its vast social graph to influence offline/online commerce.

And though companies like Facebook and Apple are salivating at the opportunities in this offline/online convergence, so are many startups. TechCrunch Disrupt will undoubtedly mark the arrival of some amazing new startups which are poised to take advantage of these trends as well.  We’re on a new frontier of mobile commerce and life after check-ins looks pretty good from where I’m standing.