a16z Podcast - a16z Podcast: Searching for Mobile's Third OS

Episode Date: February 7, 2015

Consumers seem content with the mobile duopoly we currently have. So what can be gained from a third mobile operating system? If it's an open computing platform, argues Cyanogen CEO and co-founder Kirt McMaster (in discussion with a16z's Zal Bilimoria), one big win for developers and device makers is access to the guts of an operating system -- and the opportunity to exist as core services rather than simple apps riding on top of an OS. For consumers this means potentially new and unique software for smartphones, tablets, and wearables that take advantage of that tight integration. How else could the next Siri or Gmail take hold on mobile ... without necessarily coming from the likes of Apple and Google?? 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 have here today with us Kurt McMaster, CEO and co-founder of cyanogen. Kurt, welcome. Hey, good to see you. And from A16 Z, Z, Al Bilamoria. Hey, how's it going?

Good. So we're here today to talk about mobile and the potential for a third mobile OS. And we've been chasing this for a long time and the sort of main players have shifted over the years. But now things seem fairly locked into the Android iOS state of being. But that said, I want to sort of set the tone then and get your opinion. opinions then, and maybe we can start with you, Kurt, on who benefits from a third mobile OS and why is it something that we should all be caring about at some level? I think the assumption is such that all of the innovation that can't occur in mobile computing

has occurred with Apple and Google leading to charge, right? Nobody else is creating an OS, only Apple and Google. In China, everybody's making iterative versions of Android in some ways. there's a few others that are trying and they're doing a really bad job at doing so but at the end of the day we think there's a lot more innovation to occur in mobile computing right

and we think that as mobile computing goes from a couple billion users to well over six billion users there's an opportunity on the global platform for definitely a third maybe even a fourth right well let's talk about that I mean Apple just came off

a record setting quarter they sold 75 million phones clearly people love their devices and the OS running therein. Android is cranking up all over the world. Windows is doing its thing and Nokia's, you know, helping them out. There's Tyson from Samsung. Consumers, you know, they seem happy. What are they missing out on? And then on the flip side, what are, what is the industry missing out on, or worried about missing out on, I should say? I think that fundamentally iOS and Google-driven Android are shells for their services, right? And everybody else can exist as an application, which means the level of innovation that occurs for services and core services that can take advantage of things at the low level on the device, kernel, etc.

the kinds of APIs and SDKs that are only revealed by Apple to themselves to create interoperability between these services is absent from that of other services, right? And I'm not talking about games, I'm talking about core services that people should be able to use every day, things that should be, should intimately be more integrated with the OS. And that's something that's missing today. It's interesting, right? Because, like, you know, you start seeing, you know, this whole idea of the open systems versus closed systems, and, you know, Apple is doing extremely well globally, and it's, you know,

it's basically unseated Samsung in China. And then you see Xiaomi coming in at the low end, Apple taking the high end, Xiaomi taking the low end, and that's also a relatively closed system in the sense of they build their own hardware, they've got their own software, they've got their me, UI operating system, they've got their own set of developers in China, kind of building apps for that market. And it's kind of interesting to kind of see how these closed systems are actually kind of accelerating versus some of these these other companies that are kind of trying to figure out should I be building my own operating system i mean Nokia blackberry you know samsung like really they should probably not be building any software because they're really good at hardware

right well again i think that when you look at anybody else that's attempting to create an OS number one they're a doing a bad job number two they're nothing more than closed systems there's no innovation there and how they actually attend to evolve what mobile computing is today and that's something that we're very passionate about is what does an open computing platform actually look like and I don't even want to mention the word mobile now because it all it all ties into that right so what does an open computing platform look like

and not only does it start with smartphones it extends to wearables and things thereafter if you look at Androidware today that is incredibly closed there is no open source component to Androidware whatsoever right right so in our mind an open computing platform starts with smartphones extends to wearables and iot and everything else and i think that what will arise from that

is going to lead to sort of a next generation in mobile computing and the kinds of interaction models and use cases that people have yet to see right what describe for us what that open computing platform starts to look like from a consumer perspective and then also from a developer point of view so it is a brief example on the developer side i think that there's a class of startup in the valley, focused on machine learning and AI. There's a number of different startups that have attempted to do what Google Now does, et cetera. But these kinds of services can't really exist as applications. A, they don't get any traction. Anything that requires machine learning and AI requires massive user bases to start to build out their data sets so that they

get all the more powerful, et cetera. So what happens is you have these great minds coming together to create some really interesting technologies that don't have access to the core platform that can allow them to scale to the point where they actually become meaningful, right? And when they're locked out of that core system, they just really have no hope to thrive. I think that what's on the mind of a lot of these guys,

these startup entrepreneurs that are creating these kind of companies is such that, hey, maybe we'll create some great technology, get enough traction to prove the use case, and then hopefully Google or Apple will buy us so that they can integrate us into Siri or our own machine learning, you know, capabilities, et cetera. We believe that within the open computing platform, these kind of companies can actually survive a standalone entities, right?

Instead of just being an application, you can actually be a core service for the OS, and you can build a company and a business around that and provide your own SDKs and APIs linked into, you know, open platforms so that you're providing value to everything else that, you know, is deeply integrated into that system. Yeah, it's basically just like, you know, apps today, software companies today,

They just basically get to sit on top of Android and maybe potentially have a little bit of enhanced functionality and features and really be able to kind of showcase their product in a very kind of narrow way because they can't plug in to kind of the root of the operating system. And so for a good example, is like on iPhone, right, you can actually have the Twitter OAuth and you can actually sign into Twitter at the settings level

and then you can actually have apps kind of be like, oh, okay, well, you can integrate your app with Twitter, Twitter sign-in, Twitter, Twitter login, right? And, but that's still kind of relatively minor. It's just a login system. I think, I think to Kurt's point, there's so many different services and elements within the operating system that could make software that much more compelling if a third mobile operating system was able to kind of open the doors to developers for all

kinds of new innovation that was not possible with the two major vanguards today. And that open computing platform that you're talking about, I mean, I get to really get in there and muck around and have access to everything and anything that I would like as a developer. And then as a consumer, what do I get? Potentially, once the developers do their magic, right? Well, listen, there's a reason that Facebook tried to do a phone and Amazon tried to do a phone

because they all recognize how they're locked out in the existing incumbent mobile OS plays. So if you were to sit down with any product manager at Facebook or Spotify or Amazon, all of these guys would have incredible ideas in regard to how their services should be core services and how they could be fully integrated into the entire stack. And that's just sitting on top and acting as an application, right? So there's a significant amount of use cases. And I think a lot of people can come up with them.

And I don't want to ream off a whole bunch of different ones. But at the end of the day, there is no question. that once you have this deeper level access and access to an open framework that enables complementary experiences to more effectively communicate with one another, you see a new class of experience arise. And I think that's what will begin to manifest on these platforms. And that's ultimately what's going to allow people's creativity to blossom as well. It's like now we can do things that previously were impossible to do.

Right. That may be only Apple can do within its own ecosystem. Right. Look at Google now, right? they just announced that they've opened up their platform to both, you know, 20, 30 new partners, right? And they're just, they're providing cards. They're, you know, Google Now provides basically cards, right? So you can extend cards way out beyond, you know, into other different use cases and scenarios whereby you have those interactions and that data being served

in a meaningful way to the user. But the only way that, you know, Google Now is really effective as a, as a platform is such that it has the core system access and it has access to all of the users over the platform, right? So it becomes all the more intelligent, which gives it, it creates that value, not only for Google, but the partners that they allow to integrate over time. Right, right. And that's a huge advantage, you know, you could argue

an unfair advantage, I suppose. Right, allowed to integrate. Right. Right now they've expanded from 5 to 40. It's still 40. How many apps are there in the Android App Store today? 1.4 million? Right. Let's talk about where cyanogen fits in all this, then just give us a

sort of a high-level state of the state for cyanogen and how you guys operate within this open computing world? This is key to what we believe is creating a more open mobile computing platform whereby developers can realize the full potential of what their product can be instead of existing as a sandbox standalone application, right? And creating that platform and the APIs, et cetera, to bring all of this together. You know, our roots were the community and the personalization and the openness, right?

So we created an OS by the people that use the OS in many ways, right? That's how we modified and started adding features to Android, et cetera. Extending that further is how can we begin to evolve the OS based on what developers want to do? Not just giving them an SDK so they can be an application, but saying you have the whole canvas. right now what can you become and that's what we want to do so it's not only about creating an OS that's evolved with the users in tangent with the users as it currently exists within our open source community but extending it further to the development community right and then as and then I really believe that will have a significant impact on a mass market consumer I'd like to

think that at some point in time over the next 12 to 18 months you'll start to see experiences arise within the cyanogen world that just do not exist within the iOS or the Android world. Yeah, it's kind of interesting. Like, even from a location perspective, like, we think of, you know, the American U.S., you know, the model around Android is everyone's on Google, everyone's using all the various services that Google offers, maps, YouTube, Gmail, you name it. But if you think about, like, China or India or Russia, there's so many other different

types of apps and services that are considered the leaders or the better products in those specific regions. And there's no way to kind of have. that deeper level of integration with those apps and services with google's android versus having kind of more i mean we talk about this all the time um you know there's all these countries out these these these great apps that just that don't have that level of integration so this is an interesting story is it and from cyanogen's perspective is this more a story at least for the moment that's outside the u.s as opposed to inside the u.s. listen we think that mobile first

countries i.e. people whose first computing device is a mobile device over time like in a very short period of time, I'd say within 12 to 18 months of using that computing device, are doing things with those devices that nobody in mature markets would do because we have the luxury of having PCs, tablets,

and multiple computing devices. You know, PlayStation's and Xboxes, etc. Right. This is their only computing device. Right. So if you look at what's happened in China, there are many examples of how China is significantly more advanced

with, you know, mobile products and services than in the U.S. and mature markets. So I think it's an, unfair distinction that people often make that working in India or any of these emerging markets that you're somehow creating a dumbed down product. No, I find that these products, in fact, are more advanced and evolved. And I like to think that things that come out of India and Indonesia and Brazil, etc., are going to impact mature markets in a significant way, right? So that's my question. And it sounds to me like that evolution is happening faster and kind

of more prominently in places other than the U.S. where, like you say, we have all these other computing options. And we have a much faster acceleration of just volume shipments that are going to happen over the next five years. I mean, we've got about 2.2 billion smartphones in the world today. The next five billion, a vast majority are going to come in the countries that, you know, China, India, Russia, Brazil, the ones that Kurt mentioned. If that's where the innovation's going to happen, that's where the shipments are going to happen. It's not only where the innovation is happening. It's where the, it's where the commoditization of hardware is happening, which means we're seeing the rise of these new local kings around the world, these new OEMs, like Micromax.

Last August, they surpassed Samsung as volume shipment sales in India. Last week, they passed Samsung as the number one smartphone manufacturer in India, right? They're now a top 10 global OEM, right? Right. Xiaomi is now at number three. We're going to see more of these guys. And how much is Micromax's a flagship model? Yeah, $140.

But it's a $140-L-E device, the cheapest of its kind in the planet Earth. What's amazing is when we launched our first device, the One Plus, that thing was $299. Price performance is the best Android device in the world. That device at $299 was as good as any iPhone selling at $600. Now we have a $140-cord LTE device, right? The optimizations that we do on the kernel side make that device perform like the One Plus, etc. So you're getting to the point now where you have $140 devices that, for all intents and purposes to an average person, right, Not somebody leaving the valley that's going to scrape over every feature and frame rate, et cetera.

For the average person, it's as good as a freaking iPhone. Right. That's significant, which means emerging markets are going to lead to the decimation of Tier 1 OEMs because the Samsung's, etc, will not be able to compete at that level. If you look at Clay Christensen, I mean, the whole theory of disruption is that disruption always comes from the low end, not the high end. And it's the guys on the high end that are incapable of innovating at the low end, right? So we're going to see some radical transformation. it's also a shift from hardware to software clearly right and and how do you mean well I mean

because the commoditization you mean yeah because hardware has gotten so so good and and I know that you know faster chips I agree so what I see where you're going here right so hardware is becoming commoditized in many ways hardware has always been commoditized right I mean Apple products are not that much better they've just figured out a way to charge that much more than everyone else and make a better margin on these products right you know and Apple products are so good good, why? Really, it comes down to one thing. Everyone else is so bad. That's why, right? It's, it's not rocket science. Right. So once there's a few more guys that are at parity or even a little bit better, incrementally, I believe over time Apple's even going to have problems because

they're not going to be able to sustain these margins. And in these markets where Android is dominant, Apple's market share will be negligible. Right. As these markets continue to grow, as these markets begin to impact the rest of the world, then I think you're going to see. Apple under increasing pressure within the next five to ten years. Apple is not going to be able to get these people who have never had a phone before in these emerging markets. This is not only going to be their first phone, this is going to be their first computer that they've ever interacted with. And at 100, 140 bucks, and they're going to have a stellar experience versus before when they bought a $100 phone maybe five years ago, you could tell it was a $100

phone. It felt different from maybe the leading Android or leading iPhone at the time. So make no mistake, there's $50 Android devices out there and we're looking. got some different scenarios there, and you can tell there are cheap phones. But next year, there's going to be $50 and $75 phones that are just as good, almost as good as an iPhone. Right. And the distinguishing characteristic will then be the software that's running inside of it. Absolutely, it will be the software, right? And if you can take that device that's $75 and have experiences that don't even exist on a $600 iPhone, people are going to go for that device.

So is that the key? Particularly when we can optimize for local geos. Apple's not doing anything to optimize for local geos. What does that mean? That means integration of services for local geos, whether it's messaging. It's like Zal pointed to previously. Google Mobile Services, although everybody thinks of the holy gray, I mean, Google makes some great services, don't get me wrong.

It's our intention as a company to always work with Google and I use Google services. We love Google Services. But at the end of the day, there's a lot of Geos where certain mapping products are the dominant, right? Right. You know, BBM is dominant in Indonesia, for God's sake. So in these markets, there will be multiple permutations of what a day. a Google mobile service stack looks like in the U.S., right?

And neither Google or Apple are really doing anything to embrace these, other than the fact that they offer the App Store and the people's the ability to download these applications. We're going to be optimizing for these local GOs with all of these different partners, right? So we'll have different kinds of stacks that work in different GOs that might not work in others. Give me some evidence that a third mobile S

is sort of ripe for now. And the reason I ask that is because clearly Microsoft has spent a lot of money to try and get there. Nokia ruled the roost forever and has fallen up. You can't attempt to do another mobile computing platform that is at parity or under that of a dominant platform, right? If you're not offering anything different other than trying to offer Instagram wrapped in, you know, the Metro design language, that's not good enough for the end user. There's nothing there to get people that's pulling people into the platform, right? You have to capture people's imaginations.

You have to create experiences that ignite them, that don't exist elsewhere, right? And that will only happen on an open platform. And it's going to take time to get there. Don't get me wrong. It's not going to happen overnight. I mean, another way to think about it is like those ones that we mentioned, BlackBerry, Nokia, you know, et cetera. They are inherently hardware companies.

And they spent most of their resources and most of their time building great hardware. And sure, they had an operating system on top of it. And whether there was Nokia and Symbian and, Blackberry with their, you know, their, you know, fairly kind of basic operating system that they've had. But they weren't, that was not where their core was. The core is shifting. The core is shifting now because people realize that it can be, there can be much faster and

more interesting innovation to Kurt's point using software versus the actual hardware. And I think it has to take a software company to push that third mobile. And not only a software company to push it, a company that's focused on that, right? So I think maybe, maybe having a counterpoint here could be interesting, right? So where, you know, yes, you know, the idea of a third mobile OS is about open ecosystem. It's about open apps. It's about software developers being able to innovate and create a lot of value and choice and freedom for users to have the experiences that they want. But it almost reminds me of maybe 10 years ago when I bought a laptop and I opened it up and I saw all the business development partnerships preloaded and pre-installed on the desktop, right?

And so I think one wonder is like, can all of these services and all these apps from all these disparate companies for a particular geography, as you mentioned, Like, let's say Bulgaria has a particular set of apps that really work well there. Like, does that, is that actually going to work well together, tied together? Yeah, so, again, this is not, you know, bloatware 3.0, right? You know, it's our belief that if you look at the app world, I would say probably less than 200 applications account for 75 to 80% of all global mobile data usage. And going beyond games, et cetera, a lot of these things are core services. core services are things that I think people use multiple times during the course of the day, whether it's music and media, social, messaging, whatever it may be, et cetera.

I believe that all of these things will, core services should fade to black. They should just, you should be able to use them. They should just come into use when you require these kind of things, right? So I think the identification over time, as we look forward over the next 10 to 15 years, the identification of a brand will come more from a set of experiences you get from that brand and a billing relationship you have with that brand, but the sort of the branded nature and the user experience and design language that everybody attempts to manifest through their own applications, some of this stuff is just going to become invisible because I'd like to

think that these core services need to be invisible. Computing needs to get out of the way. Computing going forward will become more transparent, right? And that's just what I think an open platform enables. It enables the transparency of course services, right? Technology, begins to disappear. So you're just doing, and whether that's with your handset or you're wearable or whatever, it just is a part of how you do things. Right, it's parsing. So it's not like you're selecting certain things from settings, et cetera.

These things are just happening. When you set your device up, you might make a certain selection of defaults based upon what you use, right? I might use a certain music service. I might use a certain messenger. I might use a certain messenger and a certain geo. These are all defaults. And when in those frameworks and, you know, space time constraints, these things begin to activate and manifest spontaneously based on the location environment experience that you're having,

right? Well, Kurt, we'll talk more about this, and thanks very much. And Zal, thanks for joining. Yeah, thank you. Thanks.