A Wikipedia a Day Keeps Facebook Away

 

Seeing the stat that Facebook users in the US are spending 50 minutes per day on the service, I can’t help but recall Clay Shirky’s book Cognitive Surplus.

From my own review:

Cognitive Surplus starts with a potent historical parallel and an astonishing data point. Early 18th century England had a “Gin Craze” as the population tried to anesthetize themselves against dramatic social changes accompanying the industrial revolution. Shirky asserts television has played the same role over the last 50 years, absorbing the vast preponderance of free time in the developed world: “The sitcom has been our gin, an infinitely expandable response to the crisis of social transformation”. He takes a little time to catalog television’s pernicious effects, and makes the point along the way that the asymmetric dynamic between broadcasters and passive audiences of the 20th century media was an anomaly that isn’t going to be reinstated on the Internet any time soon.

The astonishing data point arises from a television producer’s reaction to his relating the story of Wikipedia: “Where do people find the time?” The impolitic answer of course is Wikipedia’s creators aren’t watching television. Shirky estimates that Wikipedia is the result of on the order of 100 million hours of work by a vast number of participants. This seems staggering until he puts it in context: Americans watch 200 billion hours of television every year and “we spend roughly a hundred million hours every weekend just watching commercials.” That tees up the book: there is a vast collective cognitive surplus available to be harnessed if we can just turn off the television. What happens when billions of couch potatoes begin to participate, create and share collectively?

With 173 million daily active users in the US and Canada, 50 minutes a day means 8.65 billion aggregate minutes a day or over 144 million hours, i.e. over a Wikipedia a day. And closing in on TV with over 50 billion hours a year. Never mind the rest of the world.

So “what happens when billions of couch potatoes begin to participate, create and share collectively?” Humanity’s noblest hopes are no match for cat memes and an echo chamber of clickbait.

And then there is the mystery of declining productivity growth. I’m sure it is just a coincidence that Facebook was founded right about at the 50 year peak in productivity growth and it has been all downhill ever since.

Book Review: Disrupted: My Misadventure in the Start-up Bubble

Dan Lyons’ “Disrupted: My Misadventure in the Start-up Bubble” is laugh-out-loud funny in places, as one would expect from Dan, creator of the Fake Steve Jobs blog, comic novelist, and a writer for HBO’s Silicon Valley. But it is also an unexpectedly personal and serious book. Dan doesn’t just lob one-liners from the sidelines, but frankly chronicles his own missteps on a not-very-successful journey of personal reinvention from career journalist to marketing professional at age 52. Along the way he raises some uncomfortable questions about the technology industry.

After being “unceremoniously dumped” as Newsweek’s technology editor and a brief stint editing an economically unsustainable website, he joins HubSpot, a Boston-area marketing automation company. As Dan notes, “Online marketing is not quite as sleazy as Internet porn, but it’s not much better, either.” As if to compensate, his new employer has made “changing the world” its mantra. HubSpot turns out to be the Platonic form of the wanna-be tech company, amping every inane startup trope to 11 while neglecting the actual technology part (the company makes mediocre software with which to spam prospective customers). Most of the humor comes from simply holding a mirror up to its management (or lack thereof), “the Cult of the Orange People” culture and “adult kindergarten” workplace trappings, all of which the New York Times succinctly describes as “self-satirizing”. The excerpt in Fortune captures a lot of this.

My vote for the funniest part is the chapter about attending the Dreamforce conference and realizing that as over the top as HubSpot’s marketing antics may be, they are but a pale east coast imitation of Salesforce:

“There’s an art to this kind of horseshit, and Benioff is its Michelangelo.”

“Now, here in the Moscone Center, the P. T. Barnum of the tech industry is giving a master class in how the game is played.”

“Sure, Benioff is full of shit, but so are we, and Benioff is way better at being full of shit than we are.”

(Note to Dan: don’t rule out Salesforce as a future employer. Seriously).

Wrapped within that tortilla of humor, the book contains two meatier critiques of the technology industry, with HubSpot as poster child but hardly the only offender. One is labor practices that both exploit younger workers (who seemingly are easily distracted away from the size of their paycheck) and cast older workers in a remake of Logan’s Run, with no discernible happy medium between. As a guy who was twice the age of the average employee at HubSpot, Dan experiences the ageism firsthand (plus the CEO of HubSpot is dumb enough to advocate it in a New York Times interview). He also takes aim at tech companies that never make a profit yet whose founders and early funders do extremely well, even if no one else does. “Grow fast, lose money, go public, get rich. That’s the model.” While the book has precipitated some discussion about tech’s treatment of both the young and the olds, not so much for the second topic.

But the book has become a circus unto itself, beyond the one featured in its pages. Fulfilling every author’s wildest promotional fantasy, HubSpot executives evidently tried to obtain a copy of the manuscript before publication. This led to the CMO/co-founder being fired by the board, the CEO “reprimanded”, another executive quitting before he could be fired, all with a chaser of an investigation by the FBI. HubSpot utilized a tone-deaf PR strategy of stonewalling that will surprise no one who has read the book, only allowing that there was “some fishiness” and “really aggressive tactics”. The FBI characterized those tactics as possible extortion and hacking, although they ultimately didn’t press charges. Dan has yet to get an explanation of what they tried to do to him and wonders whether he missed some bigger malfeasance HubSpot was worried would be uncovered in the book.

Reactions to these events have added to the spectacle. HubSpot sympathizers and Boston tech fanboys rallied around the company and basically acted like the Patriots fans most of them are (i.e. the type who would loudly maintain Tom Brady’s innocence – and deity status — even if he were convicted of multiple felonies based on incontrovertible evidence and a full confession). Outside of Boston, VCs who never miss an episode of Silicon Valley were disdainfully harrumphing on Twitter that they had no plans to read the book. How dare he mock these noble entrepreneurs busy changing the world? Struck a little too close to home perhaps, but it underscores the need for an alternative playbook for those companies that aren’t, in fact, “changing the world”.

I’d retain at least a modicum of sympathy for HubSpot and the ridiculous company they have created except that even after all this they’re still out hyping their culture and belief in “radical and uncomfortable transparency”. No acknowledgement whatsoever — much less explanation – of how that vaunted culture led to executive dismissals and an FBI investigation. Or how to reconcile their stonewalling on the whole episode with that deeply held commitment to transparency.

Google’s Scalability Day

In May 1997, Microsoft held a big press event dubbed Scalability Day. Microsoft was a relatively new arrival to enterprise computing and was beset by criticism it wasn’t “enterprise ready”. The goal of the event was to once and for all refute those criticisms and get the industry to accept that Microsoft would be a major factor in the enterprise (because, of course, that was what the company wanted…).

Microsoft at the time was an extremely engineering-centric company, so it processed all the criticisms through a technical lens. Soft, cultural, customer, and go-to-market issues were discarded as they did not readily compute and the broader case against Microsoft’s enterprise maturity was distilled down to the concrete and measurable issue of scalability. The company assumed some benchmarks plus updated product roadmaps would clear up any remaining “misunderstandings” about Microsoft and the enterprise.

The event was a disaster and served to underscore that all the criticism was true. It was a technical response to non-technical issues and showed that the company didn’t even know what it didn’t know about serving enterprise customers. Internally, the event served as a painful wake-up call that helped the company realize that going after the enterprise was going to be a long slog and would require lots of hard and not very exciting work. It took over a decade of very concentrated focus and investment for Microsoft to really become a credible provider to the enterprise. Enterprise credibility is not a feature set that gets delivered in a single release, but is acquired over a long time through the experience and trust built up working with customers.

I couldn’t help but think about Scalability Day while watching Google’s #GCPNext event today. After telling us for months that this event would demonstrate a step function in their ability to compete for the enterprise, it was a technology fest oblivious to the elephant in the room: does Google have any interest in or actual focus on addressing all the boring and non-product issues required to level up and serve enterprise customers?

As is their norm, Google showed amazing technology and highlighted their unrivaled infrastructure. And they have as much as admitted they’ve been living in an Ivory Tower since Google Compute Platform was announced in 2012 and “need to talk to customers more often”. Recognizing you have a problem is always the first step, but beyond throwing the word “enterprise” and related platitudes around, they did little to convince us they are committed to traveling the long and painful road to really serving enterprise customers.

Some may wonder why Google needs to focus on the enterprise at all. Isn’t it just legacy? Couldn’t they just focus on startups and position themselves for the future and not worry about the messy past or present? Unfortunately not, as it is the shift of enterprise IT into the cloud that makes cloud so interesting. As the enterprise moves, you have a jackpot on the order of a trillion dollars of TAM. To play to win big in cloud, you have to serve the enterprise (and serve it well).

Google has many intangibles to overcome if it wants to be a serious enterprise player. They still seem to believe every potential customer wants to be like Google. The vast majority of companies aren’t Google, can’t ever be Google and don’t even want to be Google. SnapChat and Spotify are not exactly emblematic enterprises. Culturally, Google starts with even less experience with enterprise customers than Microsoft had at the time of Scalability Day and arguably an even more engineering-driven culture with even less appreciation for the cognitive foibles of the median human. Unlike a Microsoft that had building an enterprise business as its top priority, Google the advertising company and Alphabet the technology conglomerate have many other (and frankly way cooler) priorities. It isn’t clear that a mundane investment in say 5,000 enterprise sales and support people will get the nod over the moonshot de jour (Drones! Robots! Life Extension! Board Game Championships! Squirrel! Space Elevators!).

It is great that Google has woken up, now recognizes the magnitude of the commercial cloud opportunity and wants to chase it. But we’re still waiting to see signs Google understands what that entails and will actually make the vast commitment and investment in activities beyond mere technology required for success.

New Heights in Collateralization: Cheese Bonds

In our never-ending quest to be your go-to source for developments in Italian cheese finance, we call your attention to the issuance of Parmesan-backed bonds. No word on whether the beleaguered mozzarella industry is also pursuing this path. FinTech startup Cheese.ly cannot be far behind.

Understanding Cloud Numbers

Tis earnings season, so cloud revenue and growth claims will fly fast and furious. The inability to compare vendors on an apples-to-apples basis can be frustrating. But by focusing on companies’ primary activities, and excluding their immaterial businesses, the sources of revenue for both the major hyperscale cloud providers and the remaining wannabes are easy to understand:

The diagram above illustrates the five distinct sources of cloud revenue: Infrastructure-as-a-Service (IaaS), Platform-as-a-Service (PaaS), Software-as-a-Service (SaaS), Hot Air about Services (HaaS) and Snapchat.

A Dispatch from Cloud City – State of the Union 2016

With a venerable tradition dating back over a year, the annual Platformonomics state of the cloud union strives to combine the exhilaration of the running of the bulls at Pamplona with the hyperbole of Oracle’s annual proclamation that this year they really are serious about cloud. Or at least to land a few jokes along the way.

In summary, we’ve reached the end of the beginning for cloud computing.

There is no longer much question whether public cloud will be the foundation for IT going forward; instead we quibble about timing and implementation details. The largest enterprises as well as the most sophisticated workloads are wafting up into the cloud. The leaders are distancing themselves from the pack while the dreams of cloud wannabes are deflating like footballs around Tom Brady. Legacy vendors’ worlds are imploding. Private cloud proponents are harder and harder to find: except for those few diehards hunkered down in their closet-sized data centers with several years supply of canned goods and tape backup cartridges, previous private cloud proselytizers now talk earnestly about hybrid clouds in hopes of retaining a few on-premises crumbs in the process. And even the very largest corporations are realizing they can’t keep up with the hyperscale public clouds.

I contend there were two critical inflection points for cloud this past year:

Customers tipped, specifically the enterprises who spend vast sums on IT. Most CIOs have shifted from resistance or tire kicking to active embrace, and are doing so increasingly for business reasons as opposed to technical. Sticking your head in the sand is no longer a viable option. The objections have been knocked down one after another. Security turned out to be powerful a reason to go to the cloud, not shun it. The enterprise tipping point is critical because it dramatically expands the size of the cloud opportunity. We can now realistically talk about a trillion dollars of existing IT spend in play, aka the “cloud jackpot”.

Amazon’s transparency, both financial and cultural. The breaking out of AWS financials in April forever banished the platitudes “your margin is my opportunity” and “the race to the bottom”. AWS proved to be a very large, very profitable and very rapidly growing business. Even bulls were surprised to learn not only that the business is profitable, but much more profitable than anyone imagined. The initial operating margins for AWS were almost identical to those of financial engineering savant IBM. Amazon also had some unsolicited transparency inflicted upon it by the New York Times, who took a deep look at the company’s culture.

“I CAN SEE THE CLOUD FROM MY HOUSE”

My thesis for the last two years has materialized: it is a two horse race located here in Cloud City (Seattle) with AWS in the lead and Microsoft the only other vendor who can still see them. Besides being extremely convenient for me, this means your cloud landlord is probably in Seattle. Please don’t be late with the rent check. The geographic version of Gartner’s Infrastructure-as-a-Service Magic Quadrant (™ ® © All rights reserved. p = 0.796513. Trough of disillusionment. Etc.) underscores that the cloud world is not flat.

It is so obvious that even the denizens of Wall Street have noticed, with one brokerage firm hyping it as a ‘206 area code street battle for the cloud’. (Never mind that Microsoft is in a different area code. I’m sure they’re using an area code map from The New Yorker where everything west of the Hudson blurs together, just as all those buy and sell recommendations from east of the Hudson blur together).

Where is Google in this race? In some ways they have the fastest horse and are certainly the third hyperscale player in terms of their global infrastructure footprint. But Google’s horse is sitting some other pasture, contemplating space elevators, indifferent to the idea they need to actually show up for the race to win it.

I have a fundamental question for each of the hyperscale players pertaining to whether and how market shares will shift as this market continues to grow, plus some thoughts on the rest of the rapidly diminishing field.

AMAZON WEB SERVICES

Amazon remains the cloud trailblazer, maintaining their frenetic pace of innovation while also making necessary investments to become a mainstream enterprise provider. The question for AWS is can they adapt and evolve their culture in order to extend their current leadership into dominant share of that trillion dollar cloud jackpot? (Note that cloud will also bring significant revenue compression, aka customer savings.) This is very much an issue of “what got you here won’t get you to the next level.”

Beyond all the substantive if boring investments required to sell to and support enterprise customers, there are a bunch of cultural issues AWS must navigate. Some stem from their position inside Amazon and some are unique to AWS. The broader Amazon culture issues that the New York Times highlighted also impact AWS’s ability to realize its potential, not least their ability to hire and retain talent. AWS is a very different business from the rest of Amazon and one sitting on the pole position of a trillion dollar opportunity. It requires a different culture than the core Amazon MVP trial balloon autocannon and one that doesn’t resort to zero sum political hackery to assuage its ego.

Public cloud providers are among the most important dependencies any company will take. Successful vendors in this position understand the nature of this relationship with their customers and actively work to build customer trust and mutual co-dependence. Not surprisingly, enterprise vendors are very transparent with their customers. Yet this is at odds with the secretive Amazon culture that seems incapable of putting numbers on the y-axis of charts.

Even more, successful enterprise vendors mitigate customer fears of lock-in. AWS has not figured this out and is struggling with lock-in fears, as evidenced by what can only be seen as disappointing adoption of higher level services like the EC2 Container Service and Lambda, despite their technical appeal. Business as usual will not overcome these fears, and not addressing them means a future where customers only feel comfortable consuming base compute and storage. Being cognizant about your own power is challenging, as big technology companies’ internal mindset invariably lags their growth. They go on thinking they’re the plucky little startup long after they’ve become Godzilla.

I used to think Amazon should spin off AWS so it could maniacally focus on retaining or expanding their current share of the cloud jackpot, and build the distinct culture necessary to fully realize that opportunity (and avoid the distractions from the rest of Amazon). After seeing the financials, I believe AWS should spin the rest of the Amazon e-commerce business.

MICROSOFT

Microsoft has executed extremely well to emerge as the only credible challenger to AWS, leveraging both their platform heritage plus the fortune of a massive and overly-optimistic infrastructure build-out for search. Further, they’re the only vendor from a previous generation to make the leap to hyperscale. Unlike many of their peers, Microsoft’s survival in the cloud era is not in doubt.

But as the enterprise market for cloud really begins to open, the question for Microsoft is whether they can bring their enterprise capabilities to bear in a way that both reels in AWS and allows them to materially expand their share of the cloud jackpot. It is not clear Microsoft fully appreciates those enterprise capabilities, in relative or absolute terms. It is a long road to become a credible enterprise vendor, and having lived through that process when I was at Microsoft, it brings great cognitive dissonance to realize they are by far the best of the hyperscale bunch (and it is even weirder to see the company getting good marks for “Playing well with others” these days). Microsoft also has an advantage as a full spectrum provider across IaaS, PaaS and SaaS, to which AWS is just starting to react. But more of the same is not going to materially increase Microsoft’s market share position. Further success starts with a strong dose of self-awareness.

GOOGLE

The big question for Google is when will they realize cloud is more than just an engineering problem? If they want to build a real business where customers take a enormous dependency on them, they are going to have to do some critically important but mundane things that don’t involve algorithms. Worse, it is likely to involve fickle humans. They must overcome their deep antipathy to both customer-facing operations and enterprises as customers.

Post Alphabet, where any previous inhibitions about pursuing new hobbies have evaporated, it is even harder to imagine the “capital allocators” choosing to invest in thousands of enterprise sales and support people given alternatives involving life extension and/or space elevators. After all, won’t the robotics division eventually solve any problem that today requires humans?

THE CULLING OF THE WANNABES

Last year we catalogued the delusions afflicting a long list of public cloud wannabes. This year we simply observe the epidemic of sobriety sweeping the vendor landscape (and the morning-after wreckage). HP managed to exit the public cloud business not just once but twice this year. Helion is Heli-off. Rackspace, still recovering from its OpenStack misadventure, is shifting its center of gravity from the data center to the call center. Both vCloud Air and Virtustream have disappeared into a miasma of highly leveraged financial engineering emanating from Austin. AT&T, CenturyLink and Verizon are all hoping no one remembers they once claimed to be public cloud providers (and probably will get away with it). Cisco, presumably, has filed a missing persons report for their InterCloud.

THE SUPERBOWL OF CLOUDWASHING

While the number of hallucinating vendors has plummeted, devotees of delusion should not despair. Despite all the departures, aggregate levels of industry delusion may be hitting new highs between the efforts of IBM and Oracle. These delusional dinosaurs are locked in a battle every bit as fierce as one between the hyperscale competitors, except they are vying for the World Championship of Cloudwashing™. Given cloud poses an existential threat to both companies, it is not surprising they are talking cloud. But their delusion manifests itself in the colossal gap between their rhetoric and their actual capabilities.

I have been arguing for almost three years that IBM is likely to be the cloud’s biggest scalp. Their best outcome is they’re just a much smaller company in the cloud era, not that they’re executing on that path. The stock is down a third since I started beating this drum and is currently exploring new five-year lows. They continue to confuse boutique hosting with hyperscale cloud, and have been reduced to asserting Watson will somehow be their cloud Hail Mary (at what point is it reasonable to expect Watson to progress beyond an endless PR campaign, never mind drive revenue material enough to bolster the ever-shrinking IBM topline?).

A year ago IBM had the cloudwashing title wrapped up but Larry “Lazarus” Ellison is not one to back away from a challenge. Hypercompetitive: yes. Hyperscale: not even remotely. The question for Oracle is do they really believe it when they assert they are the leaders in cloud (or even have a cloud as opposed to some SaaS apps?) or they believe that empty rhetoric is a legitimate substitute for millions of lines of code and billions of dollars of capex? It is embarrassing when your employees feel compelled to point out the discrepancy between announcements and action, and in particular recurring confusion around tenses (also a lesson here for press who happily write the “this time we’re serious AND we are already the clear leader” Oracle cloud story every year without reflecting upon their credibility or past proclamation performance).

But this speaks volumes about Oracle’s cloud:

For instance, when the team was struggling with Oracle’s central IT to get the server resources they needed, the team requisitioned a bunch of desktop computers from Oracle’s Seattle office and turned them into an OpenStack-powered private-cloud-development environment so they could continue their work in peace, right in the middle of the office floor.

IT involved? Check. Private cloud? Check. OpenStack? Inauspicious. Desktop computers under the desk? Are you f*%king kidding me?

To paraphrase William Goldman: “Follow the capex” with IBM and Oracle. We’ll see if they’re still pretending next year.

(CLOUD) BURSTS

Dell/EMC/VMware/WTF: the metal-bending M&A muttonheads have likely inflicted irreparable damage to VMware, the best asset in the so-called “federation”. Pivotal also risks being caught up in financial shenanigans perpetrated by those who neither understand nor appreciate software.

DevOps: if you’re buying DevOps tools, you’re doing it wrong.

Digital Ocean: needs to make its play as the dark horse window is closing.

Docker: despite all the political hijinks as competitors tried to box Docker in, Docker has become boring. That is good; the container infrastructure continues to mature. More exciting perhaps are new developer models emerging that are “native” to containers.

GitHub: the Craigslist of cloud?

HubSpot: this is not cloudy, but given the infrequency of my blogging, I will predict their CEO steps down in 2016 with p = .7. The board may follow. The level of transparency has not yet become “uncomfortable”. But it will.

Industry Foundations: after an ugly outbreak of industry foundations last year, we can only hope to be certified Foundation-free in 2016. As we have seen, this affliction is highly contagious. As with cockroaches, when you see one foundation, you will likely see more. So it is important to prevent potential foundation epidemics; the best protection is not letting companies that can’t write code get involved.

PaaS: still a zero billion dollar market though the data is suggesting I might finally have to stop using that line next year. Perhaps more importantly, containers have reinvigorated the endless ontological debate about what exactly constitutes a PaaS. Cloud Foundry is having some success selling to very large enterprises, but they seem to be selling hope more than product. The Fortune 500 is packed with companies grasping for anything that lets them believe they can become software companies.

OpenStack: like a poorly performing European football team, OpenStack has been relegated to a lower division. It is now a solution for telcos. As the saying goes, if at first you don’t succeed, you can still sell it to telcos. OpenStack is a great fit with the NFV misdirection, which gives telcos the infrastructure toys everyone else had a decade ago while leaving the networking crown jewels firmly in vendor hands.

(Free) Stock Tips: if wave one of the cloud disruption hit enterprise hardware, wave two is hitting enterprise software. VMware preemptively tubed its stock by letting itself be the funny business in the Dell-EMC deal, so it not clear how much more downside there is in VMW. Oracle’s stock has already started to roll over. But there is still time to short Red Hat who, despite being irrelevant to cloud, sports a multiple of over 75 yet will see a much smaller fraction of every dollar that shifts to the cloud. If you have a cloud infrastructure software company to sell, Red Hat is your first call.

Fumbling the Future: Virtual Reality Edition?

The Sports Illustrated cover jinx pales in comparison to the curse of the barefoot young techie on the cover of Time

TL;DR Facebook’s Oculus virtual reality play is far from a sure thing.

Fumbling the Future is a great book that plausibly explains why Xerox merely copies and prints, despite having pioneered foundational elements of computing at PARC, including bitmapped displays, local area networking, WYSIWYG document editing, object-oriented programming and built the first GUI computers. More broadly, the authors ask:

“Why do corporations find it so difficult to replicate earlier successes in new and unrelated fields?”

With all their talent, resources, mountains of cash and often dead-on insights into the next big thing, why do leading technology companies almost inevitably fail to translate dominance from one era/area into the next?

There is no shortage of management theories which abstractly analyze such moves, but case studies can be much more edifying. It is too early to assess Hooli’s Google’s Alphabet adventure, which looks to be the mother of all corporate experiments in leaping into multiple new and unrelated fields, all at once, as they seek to build the world’s first advertising/life sciences/automotive/ fashion/space elevator conglomerate. But we have another example unfolding now with virtual reality where the early returns are deviating from the master plan laid out in a Fortune 500 boardroom.

The Next Major Platform

Social networking supremo Facebook decided virtual reality was the next big thing and has made it the company’s first major foray beyond its core. Mark Zuckerberg put the world on notice, repeatedly saying virtual reality is the “next major computing and communication platform.” One assumes the unspoken addendum to this is “…and we intend to dominate it”.

Facebook bought Oculus for $2 billion in March of 2014, and supposedly has committed another $5 billion of additional investment. Oculus gets (and deserves) credit for reviving virtual reality (henceforth VR, to save a few characters) from a long hibernation with its breakthrough 2012 Oculus Rift Kickstarter campaign. With the exception of some embarrassing contemporaneous Hollywood movies, VR’s initial ‘90s incarnation had been forgotten. Less heralded is the assistance Oculus received from Moore’s Law, the vast economies of the smartphone manufacturing complex and a few others who were quietly keeping the VR dream alive.

Oculus arrived at Facebook right at the closing of the “move fast and break things” frontier era. They were going to do VR “right”, as befits a major technology corporation, and set out systematically on multiple fronts. They vacuumed up talent, including luminaries like Michael Abrash from Valve and gaming legend John Carmack. They opened more offices than I can count (three in the Seattle area alone), plus established a research group as well as game and movie studios.

Part of doing VR “right” was to set an incredibly high quality bar, not only for themselves, but for the entire industry. They feared inferior VR could ruin the opportunity for everyone, and so became the industry’s self-appointed quality sheriff. Competitors like Sony were patronizingly chided for perhaps insufficient attention to quality.

Consistent with this high quality bar, the Oculus talking points shifted from the previous North Star of inexorable progress towards shipping the consumer version of the Rift to more philosophical discussions of all the difficult challenges they were so generously working to overcome on behalf of the entire industry. Oculus statements like “input is hard” were offered up so frequently as to become a meme with its own shorthand of “IIH”.

When Platformonomics last looked at VR back in December 2014, some cracks were already visible in the strategy (if I may quote myself):

Oculus, the uncontested leader in VR just a few months ago, backed by billions of Facebook’s dollars, is already in a bit of a strategic quandary.

After years of selling the dream of the “consumer Rift”, Oculus has gotten very vague about when if ever we will see that oft-promised device.

Big Company Games

As they arrived at Facebook, Oculus got entangled with Samsung, playing the kind of reindeer games that BigCos are obligated to play. Samsung, the world’s foremost practitioners of “ship first, people only care about hardware specs and worry about software later”, decided to do their own VR headset, which crudely speaking, bolted an Android smartphone to your face for a minimalist VR experience, and would be differentiated primarily by its ship date (like the dog who catches the car, it gets tricky for fast followers who find themselves out ahead of their role models).

Oculus was skeptical about VR on a mobile platform. The combination of underpowered hardware vis-a-vis Oculus’s PC-centric approach and Samsung’s software track record set off all of Oculus’ quality alarm bells. They worried Samsung would do their usual crap software job and ruin the pool party for everyone. There is also a question of to what degree Samsung held display panels for Oculus headsets hostage, but whatever the case, Oculus chose to take one for the industry team and partner with Samsung to make sure what became known as the Gear VR would not rely solely on Samsung software.

Into the breach went Oculus CTO John Carmack, who spent months working with Samsung on the Gear VR, noting bluntly along the way that Android development “really does suck”. In the end, the Gear VR, powered by Oculus software, didn’t outright suck, benefiting from Carmack the Magnificent’s efforts (and perhaps the low expectations Samsung brings to anything involving software).

At the same time, Google, congenitally unable to resist toying with their mortal enemy Facebook, kicked off their own big company reindeer game and introduced Cardboard, an eponymously constructed and priced VR headset for Android phones. No doubt their pride hurt by Carmack’s disparaging comments about Android’s graphics architecture, Google soon began to see VR as another front in the battle to retain control over the Android ecosystem. Cardboard added still further impetus to mobile-centric VR even as it risked to lower the quality bar even further, which in turn probably motivated Oculus’ mobile efforts even more.

Surprise Surprise

Ultimately, Oculus made their peace with mobile VR and began to talk about a platform spanning both mobile and PC experiences (even if they were papering over two incompatible efforts). But the Oculus dream of the consumer Rift headset was deferred by the attention required on Samsung and mobile VR.

Oculus went into the Game Developers Conference in March 2015 downplaying the prospect of any news, content to demo the “Crescent Bay” prototypes it had been showing for at least six months. Like everyone else, they were surprised by the bombshell announcement of the Vive headset from HTC, powered by Valve’s VR technology. The industry assumption was Valve’s long time VR efforts had been abandoned after Oculus hired away some key employees post Facebook hookup.

HTC and Valve did a great job of keeping the Vive under wraps – it appears to have been a complete surprise. The Vive product has several attributes important to our discussion. First, it delivers an exceptional VR experience, So good that Valve was willing to make an absolute statement that “zero percent of people get motion sick”, a claim that certainly could not be made about the Oculus. Even when I tried to induce motion sickness with the Vive by jerking my head around wildly, I couldn’t do it. Second, input may be hard, but the Vive comes with a pair of controllers that offer very precise control over objects in VR. The Longbow demo where you shoot a bow and arrow illustrates how capable these controllers are, and makes it easy to imagine manipulating all kinds of sophisticated implements in VR.. Third, the Lighthouse system uses “frickin” lasers (versus Oculus’ optical approach) for exceptionally accurate positional tracking within a roughly 12 x 12 foot space, which means VR no longer has to be a seated activity (though you are still tethered by the headset). And fourth, and maybe most importantly, they promised to ship in 2015.

Simply put, the Vive is great and enables amazing VR experiences. And it beat the prototypes Oculus had been showing with a smoother experience, better positional tracking, better input and an actual ship date. People who have tried both Vive and Oculus invariably give the nod to the Vive.

The Empire Strikes Back, Sort Of

My guess is Oculus convened their first meeting about actually shipping the consumer Rift on March 2, the day after the Vive announcement. Their first decision appears to have been to give themselves the corporate handbook standard of 90 days to pull together a plan and a year to ship their answer to the Vive.

On June 11th (just over 90 days later), Oculus announced the long-awaited consumer Rift would ship in Q1 2016, a hopefully insignificant interval after the Vive’s promised Q4 2015 date. But they had to really scramble to make this announcement and the compromises show.

Input seemingly remains hard for Oculus, as evidenced by their introduction of not one but two controllers. First, they announced the consumer Rift would ship with — wait for it — an Xbox controller. Second, they announced the Oculus Touch, their own controller which appears similar in function to the Vive controllers but with what seems to be more refined ergonomic design.

The Touch is clearly a work in progress, and the mockup plastic may still have been warm at the June announcement. Even in late August, the Touch is still clearly labeled a prototype: “What we’ve shown today in the Touch Half Moon prototypes is not necessarily representative of what the final product will be…” Access to the controllers remains tightly controlled, the first SDK has just shipped and the company continues to do input-related acquisitions.

But the most telling thing about the Touch is it is supposed to ship a quarter after the consumer Rift, a strategy that has been likened to Apple shipping the mouse for the original Macintosh a quarter after the computer.

Meanwhile, despite having at least one and maybe two orders of magnitude more people working on VR than Valve, Oculus has been jettisoning other deliverables left and right. They cut Mac and Linux support and despite the relationship with Microsoft for Xbox controllers, Oculus did not have Windows 10 support when it shipped and were in an awkward position of asking developers to hold off upgrading.

Developers also complain about the poor quality and architectural churn of Oculus’ SDK: some on the record, more off the record. And they report developer support is noxious brew of ambivalence and entitlement, as if Oculus are unaware that they are no longer the only game in town.

Beyond product and schedule, Oculus also has a communications problem. Their strategy seems to be very visible and loud to compensate for their market position, but are talking too much (e.g. the much ridiculed Time magazine cover above), are tripping over themselves with conflicting messages and often come across as tone deaf.

Here are Oculus’ top two people a week apart in the same publication:

Oculus VR CEO Brendan Iribe still thinks that the technology – and the company’s Oculus Rift PC-based HMD – is set to ‘take off very quickly’.

Oculus Rift creator Palmer Luckey doesn’t think that the tech will break into mainstream overnight, recently stating that it’s something that will take ‘a long time’.

Sometimes they seem to be trying to lower expectations for their first product by stressing just how far out their roadmap extends; other times they’re cheerleading version one. A serendipitous juxtaposition in my feed reader gives us this credibility-sapping combination:

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But most of all, their June 11th announcement ranks as one of the most awkward product announcements ever. This video clip brutally highlights the vast disconnect between Oculus’ expected reaction and the non-virtual reality (what do you do when the teleprompter says “wait for applause” and there is none?).

Stay Tuned

It is way too early to call this market. The cliché would be we’re not even in the first inning, as neither Oculus nor Vive have shipped, while Sony lurks in the background with the forthcoming Project Morpheus headset for Playstation 4.

But Oculus is far from romping to victory here, as many expected a year ago (including presumably Facebook when they wrote that enormous check). They had and lost the pole position and find themselves behind on both capabilities and schedule. Valve and HTC are deep inside Oculus’ proverbial OODA loop, and by virtue of being forced to react, Oculus has made suboptimal decisions. And more consequences of being back-footed are likely to surface.

For example, Oculus’ business model is unclear. Are they going to make money on headset hardware or sell it at close to cost to create sockets for other businesses? If hardware is an enabler, where is the software revenue? Can they make money from an app store vig when they have made a pretty strong statement that they will allow sideloading and face a deeply established competitor in Valve’s Steam with its over 125 million users? Will they drive material app revenue? Or do they incur mass disdain and end up defaulting to Facebook’s ad-based model? When you’re behind, the desire/pressure to sacrifice margins and/or piggyback on the mothership increase because you just don’t have as many levers at your disposal. Or perhaps they sacrifice further time to transition the hardware to a partner?

The Vive isn’t a sure thing either. I am sure they’re also on a very tight schedule. HTC is financially precarious (although the fact they seem to be betting the company on Vive is good in terms of focus). The Vive lags Oculus in some areas like audio and maybe wirelessly connected controllers (I am not clear on whether they ship wireless controllers with the initial product). And the challenge of scaling manufacturing is already showing up with the statement that while the Vive will ship this year as planned, volumes will be limited, which was no doubt joyous news in Oculus’ many offices.

But returning to our Xerox lede, the expected VR coronation for Facebook/Oculus foretold on magazine covers is in question. Oculus has lost the clear leadership position they had a year ago and. if you are wearing a rose-colored headset, the best you can say is it now is a horse race. But they’re not unique. These kind of “unexpected” underdog outcomes seem to happen with remarkable regularity, much to the frustration of the technology titans and their megalomaniacal machinations. It is part of what makes tech so interesting to watch.

As with any BigCo initiative, Oculus’ execution to date has been impacted by some combination of a lack of strategic clarity, distractions, an inability to completely conceptualize the entire new value chain (vs. just building technology), an abundance of people, a lack of urgency combined with a utopian quality bar and who knows what other factors that always create drift from the strategy slides.

There is one other possible explanation, which is that Facebook’s VR dream suffers not so much from the usual imperfections in BigCo execution, but rather a strategic mistake. Maybe Facebook made a mistake buying a company whose capabilities were not what they seemed. One of the biggest unanswered questions in the history of VR is to what degree Oculus raised venture money and then sold themselves to Facebook based on demonstrations of Valve’s technology rather than their own. Oculus received a lot of help from Valve in its early days and even had their own “Valve room” installation in their offices in Irvine. Why are there pictures of Mark Zuckerberg trying out the Valve headset at Oculus as opposed to the Oculus headset he ponied up billions for?

Thanks to all the developers who shared their VR perspectives – you know who you are even if you don’t want to be named Winking smile

So will Oculus get it together and recapture the lead? Or will someone write a Fumbling the Future-esque book about how they didn’t? Or is this just narrative fallacy run amok?