Instagram currently has zero revenue, but to earn reasonable financial return on the $1 billion investment they probably need revenues of around $200 – 300 million per year. This just doesn’t seem possible to me.

So I think Om Malik is right, it was a purely defensive acquisition for Facebook:

Facebook was scared shitless and knew that for first time in its life it arguably had a competitor that could not only eat its lunch, but also destroy its future prospects. Why? Because Facebook is essentially about photos, and Instagram had found and attacked Facebook’s achilles heel — mobile photo sharing.

In other words, great for Instagram’s founders, not so great (but better than the alternative) for Facebook, and probably lousy for competition and for customers (ie users).

I’ve taken my tpot.tv web app off the air. In case you haven’t tried it, tpot.tv was an app that presented a handpicked selection of interesting videos from both Vimeo and YouTube. I designed it especially for watching videos on iPad, with a scrolling strip of videos thumbnails across the bottom and a large video player filling the screen. Not that I’m claiming any credit, but the same style of design has been adopted by YouTube, Vimeo and Google Play in recent times. At least I know I was on the right track design-wise.

Anyway, the main problem was that tpot.tv never attracted enough attention and traffic to make it sustainable. I eventually intended to insert discrete ads to generate some revenue but traffic levels never exceeded about 100 visitors per day. Given that it was taking about an hour per day to find half a dozen or so interesting videos, the benefits and costs to me didn’t stack up.

I learned a lot of things through this process. Making web apps is very hard because there are so many different platforms you have to worry about. The other problem is getting attention – I listed the web app in Google’s Chrome store and a few other web app stores. However, almost all of the visitors from these stores were viewing tpot.tv on their computer, despite having designed it especially for iPad. I submitted tpot.tv to app review sites, but none are interested in web apps. The key lesson is that iPad users are not looking for web apps, they are looking for native apps in the App Store.

I might reincarnate tpot.tv as a native iPad app at some point. Then the interesting question will be whether to make the app free and insert ads, or have some sort of subscription model.

Google’s Project Glass concept video is getting a lot of attention (not all good). There are some similarities to this cheesy Nokia concept video posted about two and a half years ago:

Thankfully Google Glass doesn’t seem to require the dorky bracelet. But the part that really struck me in the Nokia video is where she chooses some music to play. She has to select Music, then Songs, then choose a song, then Play. This is pretty similar to the interaction required on an iPod or iPad via the Music app. But voice control like Siri cuts through all these menus.

The potential importance of advanced voice control (Siri still needs work) is very apparent when you think about this. No matter how good your design, graphical interfaces still require obscuring features within menu layers of some kind. Voice control provides more direct and faster control of the device and requires less thought. All you need to think about is which song you want to play, and you don’t need to devote brainpower to navigating the UI.

The app itself is free. This gives you access to all features and two drawing tools – a brush and an eraser. Four other drawing tools are available via in-app purchase for US$1.99 each or US$7.99 for a bundle of all four.

First up, it’s a little stupid to price the bundle of all four tools higher than the price of buying all the tools individually. Ok, it’s only three cents more, but that’s bound to annoy some customers. More importantly, profitable bundle pricing usually involves giving some discount for the bundle, to segment demand between groups of customers who want all tools and customers who only want one or two. I would have priced the four tool bundle at the same price as three individual tools.

The design of the in-app store is also a little dumb in that the four tool bundle is presented last in a scrolling window after all individual tools. This doesn’t matter if the bundle is the same price (or more expensive!) than the individual tools, but if there’s a bundle discount then it should be presented first so people realise it exists before buying any individual tools. I didn’t even realise there was a bundle option at first and thought I could only buy each tool separately.

Second, I’m not sure about the wisdom of the in-app purchase strategy. It does allow people to experience the app for free, which will feed overall demand through word of mouth. But having got the app for free, the question is whether the marginal value of each tool to the user exceeds $1.99. In other words, does each new tool provide more than $1.99 of value to the user on top of what they already have for free?

Under this pricing model there’s no way to extract value for all the other functions of the app itself including its beautiful design. The in-app purchase mechanism makes the app feel expensive because you are being asked to pay $1.99 for a relatively minor addition to a nearly full functioning app. My gut feeling is that this will be less profitable than simply selling a fully functioning app for $7.99.

The key point is that in-app purchases have a different frame of reference to app purchases and that will matter for demand and revenue. The relevant comparison for the consumer is marginal benefit versus price. Giving away the app for free changes the marginal benefit significantly.

While that’s great for consumers, it also means a huge number of purchases that would have been made with local retailers are now going overseas and delivering little economic benefit to this country outside the freight sector.

Wrong – when I buy a shirt for $150 that I was willing to pay $300 for, I receive an “economic benefit” (otherwise known as consumer surplus) of $150. This is a genuine benefit that I receive, and while local retailers are worse off, it’s quite wrong to say there’s “little economic benefit outside the freight sector”.

More generally the issue is about the gains from (international) trade. Online retailers overseas have economies of scale that local retailers can’t match, hence their lower prices. This is a good thing for the country as a whole. It will be painful for local retailers, and some of them might go out of business or be forced to be more efficient. But overall there is a net economic benefit if shirts that formerly cost $300 can now be had for half price. We can outsource retailing activities to other countries that are relatively more efficient, and use our scarce resources to produce other things.

If you have trouble seeing this, think about it from a personal point of view. Imagine you had to produce all your own clothes, grow your own food, and build your own house. You’re probably not very good at many of those things, and you’d work extremely hard to achieve a meagre standard of living. So you don’t do that, you specialise in teaching, or law, or medicine, and trade your services for things produced by other people. If someone else is more efficient than you at producing something, you should let them do it and focus on what you do best, and this will benefit both of you.

Exactly the same logic applies from a country’s point of view as it does from your own point of view. If you think international trade is not good for the economy then you should be growing your own food.

I have never visited an Apple factory, or any kind of electronics factory, in China. I have however visited China twice. I visited small cities as well as big ones.

The scale and pace of economic development occurring right now in China is astounding. You have to see it with your own eyes to really understand. Massive infrastructure is being built everywhere, and in the big cities you can get the very best of the best of everything.

However, China is a huge country with a huge population and the economic miracle has not yet reached everyone. Millions of people have few good job opportunities. I suspect that the average American living in a city of 5 million people has no idea what the quality of life is like for many of the people living in a city of 5 million people in China (a small city by Chinese standards). There is a big difference, again it is something you need to see to really appreciate.

Now Apple’s factories in China are by no means perfect, but they are surely much much better than the options that are available to many people in China. Literally hundreds of thousands of people have jobs that are likely to be significantly better than the alternatives. No wonder Foxconn has no trouble recruiting employees. Chinese people are not stupid, and they would not work at Foxconn if they had something better.

It is important to be realistic about the alternatives. It’s also important to realise that restrictions on working conditions benefit those who work, but makes the product more expensive. Higher costs of production mean less demand, and less work, and fewer jobs. At the margin, somebody will be forced into a less desirable job. Does that make the world better or worse overall? I am not sure, but it’s important when debating this issue to recognise the tradeoff and recognise the costs. Like many economic problems, it is not a black and white issue.

I don’t think they will do something predictable (sensible?) like paying a huge dividend. That would be like naming the new iPad the iPad 3. My guess is they will make some key acquisitions to make Apple less dependent on outsiders and its suppliers. It looks like Foxconn can be had for about 5 billion US dollars. I also predict they will spend big on R&D, aimed at destroying Android.

Or they could just give about 15 dollars to every person on the planet :) We’ll find out in about three hours from now …

Update: Boring!!

The version number disease started with the iPhone 3G, which Apple wanted to distinguish from the original iPhone which lacked 3G capability. Then came the faster 3GS, then the 4 and 4S. This disease infected iPads too, but Apple now seems to have cured it.

Steve Jobs was right that people often don’t know what you want until you give it to them, but in many more mundane cases people do know what they want. There is so much potential to learn …

Many of the benefits of fast broadband are claimed to be in education. Back when I was a lecturer, I thought that video lectures were some newfangled nonsense and students wouldn’t learn anything unless they came and sat down before me.

Recently, for fun, I’ve been “taking” a Stanford University course on computer programming via iTunes U. Now that I’m on the other side of the camera, I have a different opinion. Video lectures are great! If my mind wanders, I can rewind and review, or fast-forward the boring bits. I can watch the lectures on the bus to work, and review them again when I’m doing the homework problems. At the moment iTunes U lacks the ability for students to interact and ask questions or get their homework marked, but surely these features will come.

It helps that the Stanford course is very well organised and the lecturer, Paul Hegarty, is one of the best I’ve ever seen. Actually this technology is probably bad news for most lecturers. If you’re an average lecturer, why should students come to you when they can access the best in the world? Just like digital music caused the local CD shop to close down, digital teaching might spell the end for local teaching, at least for some subjects like economics and mathematics that are suitable for mass teaching.

I predict in 10 or 20 years we’ll start to see the rise of global teaching megastars, but fewer teachers overall. There will also be opportunities to teach extremely niche subjects where local demand wouldn’t support it, but there is sufficient global demand.

Never mind all the assumptions that are used to come up with 32.8 billion dollars of consumer surplus and productivity benefits (surely an underestimate because it does not include HD streaming porn).

The real fundamental problem with the report is that the costs of the fibre build are counted as an economic benefit. These are real resource costs, that could have been used for something else if we do not build a fibre network. They should be subtracted from the benefits, not added.

And shame on the NBR for reporting that “Crown fibre will pay for itself” and saying that $1.65 billion of government investment will generate $5 billion of GDP.

Repeat after me … SHOW ME THE COUNTERFACTUAL …

Update: Ok, the Alcatel-Lucent report presents the GDP “impact” of the fibre build, not the “benefits” of the build. But the problem is the same – GDP is not going to increase just because you choose to use resources for building fibre. What matters is the economic activity the fibre generates vs what would have been generated if the resources were used for something else.

Which makes me wonder why they don’t scale the claim limits for minor claims in proportion to the total amount insured. Perhaps it’s more profitable to just take advantage of people’s propensity to overestimate the probability of catastrophes and encourage customers to overinsure.

Being a bit of an Apple geek, I watched this 1997 video of Steve Jobs talking about the integration of NeXT and Apple, and his future plans for Apple software. One thing that struck me was his praise for Adobe as a small software developer who had made the revolutionary Pagemaker (desktop publishing) software on the original Macintosh. Of course now Adobe is gigantic and is generally regarded as producing bloated, poorly designed software, while the true innovators are small companies writing iOS and Mac apps. I couldn’t help but wonder what this portends for Apple itself.

I heard about teaching-focused schools that highlight teaching excellence rather than research. I also heard about exceptional research institutions. I heard about business schools that require all faculty to have spent time (in years) practicing their trade in industry. I heard about institutions with explicit dual track approaches recognising exceptional researchers and exceptional teachers for their equally important contributions.

Stephen laments these innovations being lacking in Australia. I believe the same is true in New Zealand. Lack of reward for teaching was one of the reasons why I left academia. According to my student evaluations, I was an excellent teacher, but based on my publications I was an average researcher. Research was regarded much more highly than teaching for determining job security, promotions and esteem of colleagues. This was despite the fact that staff were supposed to spend equal amounts of time on research and teaching.

Perhaps I shouldn’t whinge and just seek out one of those institutions that Stephen mentioned that reward teaching. But I agree with him that it’s disappointing that many universities have such a narrow focus. Great teaching takes just as much talent and energy as great research.

iTunes U has been around for a while in the desktop iTunes app, but the new iPad app is awesome. There are some interesting courses taught by great lecturers at top universities. The quality of the video lectures that I checked out is very high.

The courses are free, so I assume the universities are not making money from iTunes U directly. So why are they doing this? Places like Stanford and Yale are capacity constrained – there are many more students who want to go there than can be accommodated. So their demand is high, and offering free courses in iTunes U probably isn’t going to bring demand down to the point where the capacity constraint no longer binds. This is because the iTunes U courses don’t give you any kind of diploma and you can’t get feedback on your homework.

So there’s not really any revenue loss for the university, and they get some nice publicity and a feel good factor. But for a less famous university that isn’t really capacity constrained, the effect on their demand could be more significant. So I expect to see mainly famous universities offering these online courses, as long as they are free. The happy side-effect is that this should also maintain the high quality of courses in iTunes U.

In the longer term I can easily see a charging model arise. Some of the courses I’ve sampled are so good that I would gladly pay around the same amount that I’d pay for a textbook. I’d pay even more if I could interact with the teaching staff.

I like that DDG doesn’t track you and doesn’t try to filter search results according to what it thinks you are interested in. But many times when I couldn’t find what I was looking for on DDG’s first page of results, I tried the same search on Google with more success.

Part of the problem is that DDG doesn’t appear to have anything beyond a basic web search yet. It doesn’t search news, doesn’t seem to search blogs very well, and doesn’t have image search. It will need all of these things to compete properly with Google.

The other thing about DDG is that it’s just a little slow. Searches that are more or less instant on Google take several noticeable seconds on DDG. While it doesn’t seem like a lot, somehow it increases my perceived cost of searching significantly, and makes searching feel like a chore.

It looks like a very striking design, brilliantly executed, and I’m sure it’s going to sell extremely well. I have a couple of comments though:

• Gestures are the keyboard shortcuts of touch apps. Clear looks pretty intuitive, but I’m not sure if I’d be able to remember them all. I bought Calvetica because it looked cool, but ended up using the built-in calendar app more often because I couldn’t remember the Calvetica gestures.
• Two-finger gestures require the use of two hands, which is not efficient, and sometimes not possible.

The Times article fairly points out that conditions in Chinese factories of Apple’s competitors are just as bad, or worse. However, a company that has just made a record $13 billion profit in three months can expect to come under intense scrutiny. Apple tries to be transparent with its supplier responsibility reports, but it seems these are mostly bark and no bite. From The Times article:

“If you see the same pattern of problems, year after year, that means the company’s ignoring the issue rather than solving it,” said one former Apple executive with firsthand knowledge of the supplier responsibility group. “Noncompliance is tolerated, as long as the suppliers promise to try harder next time. If we meant business, core violations would disappear.”

Most interestingly, The Times translated their article into Chinese and posted it on a Chinese website. Some of the comments by Chinese readers were then translated back to English. Most of the translated comments are along these lines:

If people saw what kind of life workers lived before they found a job at Foxconn, they would come to an opposite conclusion of this story: that Apple is such a philanthropist.

Or these lines:

The story of Apple is just an individual case. There will be endless problems from Pear or Banana … even if you revealed Apple’s inside conduct. We have to solve the fundamental problems, which include labor laws, corporate social responsibility, China’s industrial policies and others.

As DuckDuckGo explains, Google’s obsession with collecting data on you and using that to deliver more ‘relevant’ search results can lead to you living in a search filter bubble, where your own history and biases can affect what see. Thus leading to a vicious cycle of confirming your own prejudices. But maybe some people like to live in a cozy self-created bubble.

What do people really want? The market will decide …

But there is an externality on all the other drivers queued up behind on the main road, as they are slightly delayed too. Thus there will be too much niceness and everyone gets delayed more than necessary. So next time you are thinking about being nice and letting someone in, don’t do it, and play your part to reduce negative externalities :)

This also made me wonder whether traffic signals use economic concepts when calculating the timing of their phases. With enough sensors in the road it should be possible to optimise (ie minimise) total delay.