a16z Podcast - a16z Podcast: Messaging is the Medium

Episode Date: April 3, 2015

The potential to turn messaging into a platform is driving much of the excitement in mobile, says a16z’s Benedict Evans. It's a platform through which other apps flow (and where all the users get aggregated). Take for example Facebook's recent announcements, which put it right where it wants to be on the mobile phone -- in control. So what’s next in messaging? And what will Apple, Google, and other players like WeChat have to say about it? The views expressed here are those of the individual AH Capital Management, L.L.C. (“a16z”) personnel quoted and are not the views of a16z or its affiliates. Certain information contained in here has been obtained from third-party sources, including from portfolio companies of funds managed by a16z. While taken from sources believed to be reliable, a16z has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only, and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any fund managed by a16z. (An offering to invest in an a16z fund will be made only by the private placement memorandum, subscription agreement, and other relevant documentation of any such fund and should be read in their entirety.) Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by a16z, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by Andreessen Horowitz (excluding investments and certain publicly traded cryptocurrencies/ digital assets for which the issuer has not provided permission for a16z to disclose publicly) is available at https://a16z.com/investments/. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Please see https://a16z.com/disclosures for additional important information.

The content here is for informational purposes only, should not be taken as legal business tax or investment advice or be used to evaluate any investment or security and is not directed at any investors or potential investors in any A16Z fund. For more details, please see A16Z.com slash disclosures. Welcome to the A16Z podcast. I'm Michael Copeland, and we are here with Benedict Devinz. Hey, Benedict. You've got this new post out and you started off by describing, by saying, that the smart phone itself is a social platform? I think that's something that's been clear for a year or two, really. And in fact, I've been saying it for a year or two.

That is to say any app you put on your smartphone can access your address book and can get your photo library and your camera and your location and it can do push notifications and it gets an icon on your home screen. And so you don't have to check another site to see if something's happened. You don't have to upload your... It's easy to share photographs. and you can get to any new social app you install just by tapping two buttons

and so all of the friction that made it and of course you install the app and instantly you can see all of your friends and tell you who's already using this app you don't have to go and log in to Google or upload an address book file or something and so all of the friction that made it difficult to use more than one social network on the desktop web

goes away of mobile or almost all of it the only thing that remains is well you've still got to get people actually to install an app but other than that once you've got the app installed it's extremely easy to have more than one of these things extremely easy to switch between the two of them and this is why we've seen in the last two or three years an explosion of social messaging apps of various kinds

from WhatsApp onwards I think that much is kind of given that's been fairly well understood for the last couple of years I think what's interesting now is that you're kind of going into a second phase beyond that that we kind of had the first wave of guys who are basically doing SMS plus

or building little building kind of portals and identity platforms which is kind of what line and so on we're doing. But then you've had kind of two subsequent waves. One of them was building platforms, which is what we chat most obviously is done and a few other people has done as well. And the other which is equally interesting is finding kind of little pieces of psychology

or new types of use of behaviour and riding off those, which is what you see in Instagram and you see in Snapchat and you see in me a cat and various other things in secret and various other things like that. And so what you point out, and this is what I want to dig into too, is that Facebook really and that second wave has really led, you know, other technology companies, is this kind of driving things with acquisitions, like you say, point out of Instagram and WhatsApp, but...

Well, they've been driving the catch-up, that is to say, well, they haven't actually created any new behavior since the news feed. What they've been done is they bought Instagram, and they bought it very early. at what at the time everyone said it was a ludicrously high price at the time it was actually a very good price and then they bought WhatsApp

So whether they've seen the second wave coming or whether they helped sort of push it and create it by acquisition Facebook is really driving a lot of behavior right now and so let's get into that a little bit when you talk about like these three threads that you can pull out of this second wave

that we're seeing and what those are Yeah so I think this two parts to this. On the one hand, can you find some interesting and cruel behavior that you can use as a way of gaining user base? And because of this sort of smartphone as a social platform dynamic, if you can find that, you can get astonishing growth. You can get 10, 20, 30, 50 million, 100 million users quite quickly. The risk, of course, is actually they can leave really fast as well. Right. But at the end, the other part is how do you build, can you actually build a platform? And this is where the gold is, because it's one thing to sell your users, which is what Facebook

it basically does. It's quite another thing actually to sell installed and to sell traffic and to sell acquisition. That's to say advertising is one thing, but, you know, app installs and purchases and e-commerce are quite another. And so what you saw first with WeChat and then with, you know, Kik attempted to do this in the West as well, is you actually can build little apps inside a messaging application. And so I can send you, I mean, the example would be I can send you a coupon for a lift ride in a messaging app and you get that coupon and you tap on it and the lift experience opens inside the messaging app on your phone without having to go to the app store and install it and it then has access to the payment wallet that's built into your messaging app as well and

your location and so you can see that and you can order the car and you can acquire that user using social as a channel for sharing and engagement without having to get an app installed and so that was kind of the first that was kind of the first vision right um then what happened last week is that Facebook actually turned around and did something quite different and they kind of pulled that whole model inside out which is very interesting very clever what they're doing I mean they're actually doing two things that the first thing they're doing which I'll come back to in a minute is they're letting websites send messages directly into directly to you in Facebook Messenger even if they don't have an app installed on your phone

so you can place an order on gilt.com where you're signed in with Facebook and guilt can tell you that that order is shipped in Facebook Messenger without you having to install the GILD app. I see. So again, it's coming straight to Facebook. And so who owns that? And then, so then there's a second thing that they're doing, which is that any, an app that you have on your phone can share content into a Facebook Messenger feed.

So if I have an app that makes a cool GIF or a cool video or cool cartoon, basically stickers, I can write an app that can record video, edit video, cut up all sorts of stuff, and then insert that into Facebook Messenger. And then in Facebook Messenger, there's a little more button that lists all the apps on the app store that can do this and which of them you've got installed. So you can send me that sticker.

I don't necessarily even have to have the app installed. You don't have to have the app installed, and there will be a little install this app button underneath that content. And so what Facebook have done is they've made an API for the sticker button, in effect. And the kind of the jujitsu part here is, you've got that you've sought up that new piece of psychology

do you try and get everybody to install it and get all of their friends to install it before they can share that piece of content or do you plug into Facebook Messenger 600 million monthly active users and then only one person in a social group has to get it one person at school gets this new thing they can send it to all of their friends at school

a week later everybody's tap the download link and it's growing and so you get a kind of a viral growth potentially much quicker than you have if you force people to go to the app store in order to be able to But this is Facebook's App Store, right? Exactly, but the catch is, well, it actually takes you out to Google Play Auto iTunes, the catch is their Facebook's

users. Uh-huh. Well, describe that, how are they Facebook's users? Because you're sending it through the Messenger social graph, you're sending it into Messenger and Messenger's deciding Messenger, Facebook is deciding whether to, Facebook is deciding whether to feature you are not on that list. They're acting as a gatekeeper

and a Kingmaker. And so what they're doing in effect is co-opting the net Snapchat. So they're doing two things. Firstly, they're co-opting the next Snapchat. This is very seductive. Do you want to sit and slog away to try and build an audience for your type of content or do you just drop it into Facebook Messenger?

Instantly, you can get access to 600 million people. But you aren't ever going to be a $10 billion or $20 billion company because they're not your users. They're all Facebook users. So then the other part of this, of course, is this means that if you stay out, then you'll

competing not just with Facebook Messenger, but with every single app that plugs into Facebook Messenger. So what effectively, what Facebook's trying to do is make Snapchat compete with the whole app store. Because Snapchat is only going to have the content that Snapchat dreams up, whereas Facebook Messenger will have the content that anybody can dream up and decide to plug into it. So that's the vision. What they're trying to do is they are attacking the concept of the smartphone as a social platform. You know, because the great criticism was made is, well, they bought Instagram for whatever it was, 1% of the value of the company. And then they bought Facebook for,

so then they bought WhatsApp for, say, 10% of the value of the company. They can't keep buying everything. They didn't manage to buy Snapchat. They can't just buy every one of these ones that comes along. And so what I think they've done is they've attempted to get ahead of that and say, like, actually, we're going to make sure that a awful lot of the things that bubble up in the future never turn independent networks.

We just get them to flow their stuff straight into Facebook and become a platform in its own right. And so therefore they address both this kind of the we chat, so to speak, question of do they build the platform, but also the kind of the virality question and try and get away from this dynamic of there being dozens of these things rising and falling all the time and turn them all into a Facebook product. And meanwhile, let's not forget, this is happening either within Android or iOS. So how does then Facebook's maneuver with Messenger play against both Google? and Apple. Well, this is interesting. I mean, some people have pointed out that if you read the Apple iTunes terms of conditions, it would appear to forbid Facebook Messenger. Now, one would suspect that Apple and Facebook are both perfectly aware of that, and Apple have taken the decision

and actually what this is doing is it's driving engagement, it's making the experience better. They don't want to block this. I think there's a broader and much more interesting point, though, for both Google and Apple, which is what's actually happening much more broadly than Facebook Messenger is you're seeing notifications becoming another runtime on the device. That is to say you have the web browser and then you have native apps in part combination with the App Store. But then more and more the way that your primary unit of interaction is a notification.

And both Apple and Google have made notifications interactive so you can have an action button or two and you can have a payload so you can have an image. And then if you think about what the watch does, either Apple Watch or Android Wear, to the extent that they have those become a success, those in turn, also kind of reinforce this model of like an atomic unit of content. Right. And it's only sort of notification at some level, right?

Well, it's all a notification or a message of some sense. I mean, it's, you know, you can argue about quite what you call it, but it's a little atomic unit of content is not the whole app, the whole experience. And so you're unbundling a piece of something, whether it's a message from a friend or a piece of information about any product or, you know, your calendar app pops up and says, hey, because, you know, your calendar app pops up and says, hey, you know, you need to leave your message in the next, for your next meeting in five minutes, do you want to call a car? Yes, no.

And if you press, yes, the API to that service just summons a car without you ever unloading the app from that ride-sharing service. And so, and of course, then if you look on the watch, again, of course, that reinforces that model of just a one-button apps or one- or two-button interaction models. And so the notifications panel becomes its other runtime. And if you pull your notifications panel down now and you're not kind of anal about clearing it out all the time,

you'll see like a whole dozen or two dozen bunches of things. And they're, you know, they're sorted differently on iOS and Android. And there's kind of, you know, both of them have kind of, both Apple and Google have kind of got halfway in building the notification story. In that they kind of, they started from a modal dialogue that popped up and said, hey, there's a message from this, dismiss or, okay. And then they think, yeah, maybe we should store those somewhere. Right.

So you get a notifications pull down, which was actually originally a third-party developer who, something for jailbroken iPhone, I think. I can't remember now. Anyway, whatever it is. It didn't start out as like, this is going to be another runtime. It's kind of turned into another runtime, just from the kind of the business logic and the interaction logic. And so now you've got this thing, which is actually quite often my main, my first step in interacting with the property. So you think, right, okay, how do we turn that into something that works in a systematic way? Maybe that should be sorted. Maybe they should be an algorithm for that.

maybe like the Facebook news feed is an analogy here what does it mean for Google or Apple to do that then you think okay well certainly Google is going to be interested in websites going to be being able to send notifications to the notifications panel certainly websites on the phone because that's the whole vision of Chrome is that Chrome tabs become a native citizen so Chrome tabs are going to have to be able to send notifications so any website you go to on your phone can send you notifications Apple already does this on your Cusemite, but those aren't personalized. It's just a news alert. So, I mean, again, you kind of, you keep thinking about these swirling, moving parts. Then the next question is, well,

Facebook has an identity platform. So you can go to a website, you'll log, you can be logged in with that to the website with Facebook on your PC. Then it can send messages to your phone and their messages to you. Michael, your shoes have shipped, your surfboarded ship, you know, your VW is overdue to be serviced and have a new rainbow painted on at the garage in Berkeley. Right. So, you know, Google would like to have that identity platform in Plus. Plus clearly didn't work. Apple doesn't have an identity platform in that sense. And it's probably quite ambivalent about whether it wants one, given its whole sort of mission sense, if we don't collect information. But on the other hand, Apple clearly has an identity story in Touch ID and in Apple Pay.

And so, you know, there's a sort of an obvious question. The way that I think about Apple Pay is it's not very interesting at point of sale. It's very interesting inside apps because suddenly you don't have to enter your credit card and your billing address and your shipping address you just press yes and put your finger on the scanner and so the question when apple pay came out was clearly is the next version that you open that up to apps on the phone do you even open it app to open an apple pay up to apps on the desktop if you want a mac or something um do does apple pay become a broader identity platform does that become a way for you to log into websites if so do can they send notifications so you start kind of pursuing the idea

maze off in all sorts of different directions as to what are the potential roadmaps here the underlying point is there is this other whole other model of interacting with stuff that has emerged on the mobile device and Facebook would like to capture that and make itself that kind of primary channel I mean the thing the subtext for Facebook of course has been

you know we saw this with home Facebook is inside one blue icon on your phone and it wants to break out of that icon one way it can break out is to say there's 150 things inside that blue icon and actually you should have three or four different icons it. So you have a messenger app that actually does messaging well and you have a Facebook proper app that actually just does a newsfeed well. But that's kind of, and then you have Instagram which just does photos well and so on. But that's kind of, you know, that's just kind of,

that's a sort of not terribly profound product shift. The deeper point is they want to get further down the stack on the phone itself. Because, I mean, sort of the fundamental change here is that for 20 years the internet experience was a web browser and a mouse and a keyboard. And the web browser was fundamentally neutral platform. You know, I don't think Amazon ever sat and thought we should make a web browser. Right. Well, maybe they did, but yeah. But they didn't actually do that, yeah.

You know, no e-commerce company would be sitting and thinking, we need to have a web browser. Facebook never made a web browser. Google did make a web browser, but, you know, that was sort of for other reasons. But then on the mobile, on smartphone, it's not the web browser that's the platform. It's the phone that's the platform. And the platform owners, like Google and Apple can do stuff, like they can embed search into it, or they can embed product discovery or they can embed social internet

or messaging into that and so Facebook is sort of sitting as a silo on someone else who sells this platform and that someone else sort of competes for them That is sort of a church and horse they want to move out of the icon And so they want to say they tried home

that didn't work for a whole bunch of reasons then they're thinking okay maybe notifications for a better way of doing this Now on Android of course which is something I forgot to mention in my blog post you can make your own notifications panel and install one. So, you know, Facebook could make a notifications panel.

There are a couple of interesting entrepreneurs making them themselves on iOS. Obviously, you can't. So you think, okay, well, what should we do? But it feels like that's another way for Facebook to try and kind of pull back an aggregation model and try and aggregate everything that's happening on your fame. And so do notifications become, for lack of a better word, a sort of form of portal? You mean? Or are we not?

Yeah, well, yeah, we kind of, you know, it's the old Jim Barksdale, line about, you know, the only ways to make money in software are bundling and unbundling. And so, you know, how many different layers of bundling have we got here? I mean, this is a joke I made in another blog post about this a while ago. There's a sort of a quote from PG Woodhouse, a character who thinks his fiancé has been stolen from him

says that when he catches this man, he'll pull him inside out and make him swallow himself. How many times can you pull this whole model inside out? So you've got, you have the websites, you unbundled websites from the browser into apps, then you bundle, unbundled content from the apps into notifications, then you bundle the notifications, the interface

messenger then you have um then you have a watch and what does that do and it's kind of it's like a kind of an endless cycle round and round and round um where is the best place to put this stuff um i mean this is sort of there's another aside here but there's a sort of there's a narrative in the industry that says we need a common standard for messaging apps which to me i think completely misunderstand it's the motivation the motivation of anybody who's building a messaging app that's the last thing they want but actually if you pull down your notifications panel on your phone well there it is there there's it all aggregated right You know, they're all your messages from eight different services.

There is your common standard. That is your common platform. And so going forward, I mean, developers are always faced with a choice. Do I play Apple's game? Now it seems like do I play Facebook's sort of view of the world, play within that? Does this change a developer's calculus as they're thinking where to go and how to go out? Well, it's always, you know, there's always a carrot and a stick. And Facebook is offering a big, juicy carrot in a form of 600 million users.

they're offering, you know, not so much a stick, but the downside is they're not your users. So there are some developers for whom this is going to be absolutely the right thing. Now suddenly you've got a route to market for your product and you never really have managed to get enough a lot of people installing that kind of that creative that you had in mind.

For others, you know, it's very clear you shouldn't do that. For a lot of people, it would be kind of ambivalent in the middle. I think there's two other strands to kind of pull out here. One of them is there's a whole, you know, sort of the whole history of Facebook is of it creating development platforms that then kind of went away. The challenge, I think, and of course at each stage, people had a bunch of really coherent and sensible reasons why Facebook wouldn't shoot them in the back of the head and somehow

or other always handed up happening. They did, yeah. So I think there was a difference here in that where the reason that Facebook talented to pull back in the past was that it's very, very rigorously focused on protecting the user experience of the news feed and then if stuff is happening that's annoying people it will shut it down no matter how much it's previously said that it was committed to making that work or something now the point is though the news feed is algorithmically filtered your friend list and the stuff that your friend sent to you is not right and so um you know they can shut down an app that's

annoying if you know if you've got an app that's automatically posting stuff into all of your friend's news feed and it's annoying them it will they will Facebook will turn off the tap but if I'm sending my friends pictures of gifts Facebook isn't going to start editing what I send to them I mean it might pull the app if the app is posting stuff that's making the app crash or something but it's not going to just say well you know your friends don't we decided that quite a lot of people don't like getting animated

gifts so you're not going to be able to send them anymore you know it's a completely different calculation it's not the news feed that's my point I hope that day never comes everything else was the news feed this is not the news feed this is not filtered and curated so there is no algorithm where facebook would change settings to break this um the other thing and this is sort of you know to go to a much higher level you couldn't do meerkat using facebook's platform i mean you could tell all your friends you're posting to but you couldn't deliver that content type you couldn't do live video using this all you could do

is send them a link which is you know really who care it's not you know which is what people are doing on twitter um you couldn't really do snapchat either you couldn't that is that is in the sense of getting messages to disappear. You certainly couldn't do what WeChat's doing, which is actually sharing, you know, having embedded apps within, although Facebook may well add that later. And so, you know, the thing that's kind of happens is,

you know, we're kind of in this way of where the whole bunch of people doing kind of cool things that you can share with people inside a chat app. That's, okay, that's fine. But actually the next thing that comes along, it's going to be huge, may well not be something that works like this. It may be another interaction model.

It may be something that doesn't look like messenger. That's the point. And I think to kind of, and so, you know, Facebook is, you can argue that they're trying to get ahead of this and reset this dynamic of the smartphone as a social platform that allows hundreds of competitors by tempting those hundreds of competitors to adopt the Facebook platform in order to do this

because it's easier to get app installs. And let's make this clear as well. If someone fixed app installs, you know, this is Facebook's a. to fix app installs as well, amusingly, incidentally, it undermines their app install ad revenue because now your apps can go viral with app, which is another interesting question. But the point is it sort of predicated on the current structure of, well, this is what people share and this is how, this is this is this problem with getting people to install apps.

So to the extent that that problem gets solved, this becomes so relevant. And I think, you know, to kind of to make a higher level point, as I said earlier, we had the web browser and the mouse and a keyboard for 20 years, and that was the model. and then for 10 or 15 years we had Google there on top of that and then we went to smartphones and we left that behind clearly we know we have a much more complicated

in model now with all sorts of different stuff going on including this and WeChat and you know passbook and Syria and now and all sorts of other stuff but we haven't actually settled on something new and so everything keeps changing and I think what we're seeing you know then you sort of you go back to your question

of all Apple and Facebook versus Apple Google well what are Apple and Google going to do about notifications this week this summer. They might do something really radical around an identity platform and letting you send stuff from the web. They might not. They might have some whole other roadmap. And Facebook is running hard in this one direction. It turns out like, well, we're going to go in a completely different sort of... It may be that I go off in an orthogonal direction and just ignore this. Yeah. Ignore notifications. It may be that Apple's got this

big plan for how they rebuild notifications and Google doesn't. It's actually quite likely both of them got a big plan for how they rebuild notifications. Unlike a four-year roadmap and apples will drop at a different time to Google. So, you know, apples will drop one summer and Googles will drop another summer. And everyone said, oh, my God, Apple ripped off Google or Google ripped off Apple. And it's actually like, no, come on. This is not how self-developing works. Right.

You know, so the point is there's a bit, there's roadmaps there. There's roadmaps around things like Syria now and around, you know, location and around the watch and all this other stuff. And so to my point, these are not neutral platforms and they're changing all the time. The web didn't change like this. Right. The web browser was kind of there, and it kind of gained, you know, better standards and what have you. But you didn't fundamentally have whole completely new stuff that somebody could do.

Well, and to your point, though, I mean, and based on what you've observed over time, it likely will continue to change, right? Or it's not like we land on something that works and, okay, we've done it. Let's stick with this. Yeah, exactly. And that was kind of what happened with the web. And the web people, you had the web, and then people spent 20 years fixing it and making it better and adding all the standards and the stuff that you have now that let you do Ajax and everything else. But it was kind of the web.

Right. And it was very, very hard to do anything outside it. Obviously, you have email sitting inside a client, and then you have things like Spotify and Skype around the sides. But basically everything happened in the browser, it was a square box with an address bar at the top. And that was it. That was your realist.

Whereas on a smartphone, it's just way, way, way, way wide open as to what the interaction models are going to look like. I mean, I'd, you know, to go off on another tangent, it's entirely possible that in five years time, Google's mobile story is a crows. Chrome phone that only runs web apps. That is to say the iPhone, ironically, that's what the iPhone was in 2007.

It's an app that only runs a phone that doesn't run native code only on's web apps. And of course, Apple is getting more and more open, and you have extensions, and you have APIs, and you have all this other stuff going on. So, you know, it's tremendously exciting. It's tremendously complicated. You know, and I think, you know, this creates

these sorts of opportunities for Facebook to try and, you know, insert itself into various places in the user. a flow to make itself more central to the way that you use your phone. So this is not about gifts, you know, but obviously it's, you know, it is about gifts, but it's also about a lot of other stuff as to how Facebook can make itself kind of central onto your device. Benedict, as this unfolds, we will talk more about it.

And, you know, and as other players trying to wedge themselves into this as well, so whether it's coming from, you know, Asia and WeChat and others, we'll keep you here and keep us up to date. Cool. Thanks very much. Thank you.