Airbnb and The Myth of the Black Box Technology Company

blackbox.jpgEvery subsection of society has its myths. Social groups need unifying beliefs that often are designed to shield its members from harsh realities. On the political stage we are currently experiencing what bad things can happen when myths (the Tea Party’s beliefs in how government should work) run wild.

The big myth of the tech industry is that there is such a thing as a black box technology company, one that doesn’t have to deal with customers — people — directly. The technology will handle that, says the myth. Everything is self-service. No need to handle stupid questions and annoying phone calls. No need to sell, because people will find you on Google and then just buy.

Tech startup founders (who are often introverts and don’t like to deal with people that much) and VCs love this idea: The perfectly scalable company, designed around algorithms and websites and network effects, not depending on icky personal interaction and unpredictable human behavior. No need to hire a lot of service agents and salespeople, we just need a few super smart engineers. And customers are just data points swimming through the sales funnel.

The poster child for this myth is of course Google. Some people actually still believe that Google makes all its money from a pure self-service model. Funnily enough, Google seems to believe this myth itself and treats customer service — at least for the unwashed masses — as an unnecessary distraction, to be avoided if possible. Even though, according to some sources, at least half of Google’s employees work in sales and service (hidden away in the lesser buildings on campus with strongly reduced perks), Google still projects an image of a pure technology company.

There’s of course nothing wrong with trying to achieve as much self-service as possible. Customer service is expensive. The terrible quality of the service that most companies provide is not due to their evil nature, but to the fact that customers want to pay less and less, which leaves less money for good service.

But the tech industry has an aversion against customer service that goes beyond this economic aspect. The latest case in point is Airbnb’s “Ransackgate”. The apartment of a customer was completely destroyed by a renter that was referred by Airbnb. According to the customer’s description, Airbnb was somewhat slow to react to this terrible situation, and even went into adversarial mode when the customer blogged about her experience. A co-founder explained to the customer that Airbnb was currently raising money and could suffer from this negative publicity, so could she please blog something positive? Now even the respected Paul Graham, one of Airbnb’s investors, suggests online that the customer is probably lying.

This just shows how far removed the tech elite is from the reality of normal people. When your apartment gets destroyed, you’re not happy being treated with the normal standardized customer service process (“Please include your ticket number…”). It’s a destroyed apartment, a traumatic experience, not a browser compatiblity issue.

It’s pretty telling that Airbnb’s young founders and even its senior investors (who really should act as the adult supervision in such cases) don’t recognize why this could be a problem that resonates emotionally with many people and therefore needs the unconditional attention of the company’s leadership. Oh, a customer has a problem? Yuck, it’s emotionally charged. Let’s just wait and it might go away.

Customer service is more than just necessary, it can be a fundamental differentiator in a crowded market. But interestingly, it’s kind of a taboo topic for most investors. A while ago a VC told me that one of this very successful portfolio companies has this fully automated self-service sales process that needs almost no direct customer interaction. I was very surprised because I know the company fairly well, and I know that probably more than half of its employees spend most of their day on the phone with customers, selling to them and then helping them get up and running. You could even say (and another VC confirmed this later) that their personalized sales process and customer service is the secret of their success. But this VC wanted to believe that it’s all about the technology. He really, really wanted to believe in the black box.

As long as tech companies and their investors can’t go beyond their belief in black boxes, they will struggle to reach the mass market and build profitable businesses. You could even think that the awful performance of the VC industry over the past decade was partially caused by this naive view of reality. Everybody is chasing the magic black box, but nobody wants to build businesses that work in the real world.

(Picture: Martin Deutsch)

FCP X: Apple’s strategic focus and the consumerization of video editing

faq_icon.jpg The “consumerization of IT” is a trend that started about 5 years ago and that has been reshaping the world of information technology quite radically. Consumer technology such as smartphones, lightweight web-based applications and now tablets has invaded more and more enterprises, to the shock of IT managers everywhere.

The biggest winner of this trend is of course Apple, which now has a market cap close to that of the old Wintel (Microsoft/Intel) monopoly. Apple basically owns the high-end laptop market, even though MacBooks are still not considered “enterprise technology” by most IT departments. It totally dominates tablets, and it makes more than 50% of all profits of the mobile phone industry, even though its market share is still small.

Consumerization is what took Apple from a barely surviving also-ran to the dominant technology company of our time. Is it surprising that Steve Jobs and his lieutenants are focusing all their resources on this successful strategy? For instance, Apple recently killed its pro-level server business (Xserve), effectively exiting the data center market.

The latest victim of this strategy is the Final Cut Pro (FCP) line of video editing applications. FCP Studio is probably the most popular suite of video production software in the market. It started small a decade ago as a cheap alternative to Avid, but it is now the choice of many high-end editors in broadcast TV and even Hollywood. Nowadays even editor legend Walter Murch uses FCP, which once was ridiculed as a toy by the movie tech intelligentsia.

The new version of Final Cut, FCP X, caused a major sh*tstorm in the editor community when it was released two weeks ago. It gets only a 3-star rating in the App Store, attracting comments such as “FCP X = Windows Vista” (which probably is not meant as a compliment). Countless articles complain about all the missing features that professional editors can’t do without, not least the baffling fact that FCP X can’t import projects from older versions of FCP.

So what’s going on here?

First of all, FCP X is a great product, if still a bit 1.0. I’ve been playing with it for a couple of weeks now, and I certainly won’t go back to the old FCP or any of its clones (such as Adobe Premiere Pro). FCP X reinvented quite a few things in how editing is done, and most of the changes are really great, speeding up the editing process considerably.

But FCP X also asks you to relearn a lot of things. It can do practically everything FCP 7 could do and a lot more, but many tasks are just done very differently. There are a lot of “WTF?” moments when you switch to FCP X, but once you discover what the new way of doing things is, it all makes a lot of sense. I’ve only encountered one or two things that I still find more elegant in the old FCP.

To use a metaphor from my other field of work: it’s like learning a new programming language. When you switch from something like C++ or Java to Python or Ruby, a lot of things look strange or even ridiculously simplistic. But after a while, you don’t miss the overhead that the old tool required you to deal with. You recognize that the irritating, seemingly amateurish simplicity is actually productivity-enhancing elegance.

That’s great for prosumers and lone-wolf freelancers, but it’s no consolation for the high-end editing pros who depend on sophisticated, highly specialized workflows. Relearning everything and reorganizing your corporate workflow is not a great proposition for somebody who constantly works under tight deadlines.

So is Apple trying to consciously scare off the high-end pro market? In some ways, yes. Every successful business has to decide what its focus is, who its customers are. Even for a giant company like Apple it’s incredibly difficult to serve entirely different target markets.

High-end video production houses and broadcast stations often run their video production infrastructure like traditional enterprise IT: A central department decides which platform to use. Then internal technical people and consultants implement the system, endlessly tweaking every detail, and the maintenance of the whole system takes considerable resources. Individual workers don’t get to choose what tools they want to work with, but have to adapt to the rules of the organization (Don’t like our Avid system? Go look for another job).

Apple is great at selling stuff to people who make their own purchasing decisions, be it consumers, freelancers or even employees of larger corporations who have enough authority to choose their own tools. Apple is not very good at dealing with IT departments and at adapting its products to the myriad specialized requirements that larger organizations have.

The old FCP clearly suffered from feature creep that was dictated by larger customers, and that made the product difficult to use for the broader prosumer market. It looks like Apple made a clear decision with FCP X: It’s going after the big mass market, and if that means it’s going to lose the high-end segment, so be it. There’s really no other good explanation for the fact that Apple released FCP X without some crucial pro-level features.

Always remember that software is a tiny piece of Apple’s business, and the pro segment is even tinier. But pros are a tough crowd to please, and Apple probably just decided that this can’t be a priority anymore. It looks like it will deliver some of the missing features, but probably not on the scale the pros hoped for. Tough for the professionals who invested a lot in FCP, but this kind of gut-wrenching change is the reality of technology markets. Remember IBM selling off its PC business? Didn’t please a lot of people either.

Without a doubt Apple will lose a lot of fans in the video editing community. But it now has an editing product that is years ahead of everything else, perfect for the big and growing market of serious hobbyists, freelance editors (particularly in online media), independent filmmakers and corporate marketing users. It’s a big bet, but it could pay off.

Google+: Finally an end to the social media duopoly?

I can’t help myself, but I think the past few years of social media market development have been a bit of a disappointment.

What once was a bustling ecosystem of blogs, forum sites, multiple social networks, video and photo sharing sites, social bookmarking services and so on has more or less turned into a boring duopoly of Facebook and Twitter.

MySpace? Delicious? Digg? Dead, or almost dead. Blogs? The frequently updated ones are mostly run by professionals. YouTube? Very successful, but only for passive viewing and not social interaction. The many, many forum sites that run on vBulletin or phpBB? Only relevant for tiny niches. Location-oriented services like Foursquare? Feel increasingly like a short-lived fad, easily copied by the big players.

Helped by the always oversimplifying mainstream media, the only social media channel most consumers really use is Facebook, and maybe they have heard of Twitter and use it passively.

It’s a pretty sad state. How can the complexity of human interaction only take place in two venues? It’s like having only a choice of two restaurants, maybe McDonald’s and Olive Garden (which, come to think of it, might even be the reality in some small towns). And don’t get me started on the walled-garden nature and constant privacy issues of Facebook and the lack of innovation at Twitter.

The launch of Google+ finally brings back some hope for more interesting times in the social space. Google has botched all its previous attempts at going social, but G+ feels surprisingly right. It’s not only powerful and flexible, it also offers a great, mainstream-compatible user experience, definitely on the level of Facebook. Oh, and Google finally figured out that it should leverage the heck out of its search dominance. Putting G+ front and center in Webmaster Tools and Google Analytics seems like a no-brainer in retrospect, but Google somehow missed out on this aspect with earlier social projects.

After just one week, it looks like much of the Internet elite has moved on from Facebook to G+. Even Twitter seems to see a noticeably reduced post volume from the usual early adopters. It’s very understandable. Twitter’s 140 character restriction has its charm, but it’s extremely limiting when you want to share deeper content. Facebook’s overcrowded feed that mixes relevant content with puppy pictures and Farmville invites is just too distracting for serious content sharers. People who liked FriendFeed are probably already on G+ now.

So, is G+ a Facebook/Twitter killer? No, and it doesn’t need to be. But Facebook probably has already lost the elite, and if Google makes some pretty straightforward improvements (API, anyone?) it could easily take away much of Twitter’s fanbase.

G+ is a huge step towards a more diversified, use-case oriented social media environment. McDonald’s doesn’t go broke just because there’s a hip new restaurant in town. Different social environments attract different people. There’s no reason why social media should be any different.