Each Saturday, Farhad Manjoo and Mike Isaac, technology reporters at The New York Times, review the week’s news, offering analysis and maybe a joke or two about the most important developments in the tech industry.
Farhad: How’s it hanging, Mike? I wanted to start by addressing an awful rumor — I heard you were moving from New York to California, where I live. Please tell me this isn’t true.
Mike: I regret to inform you that this rumor is true. Also, our editors gave me the O.K. to move in with you. I think we have a chance at turning our new life together into an entertaining buddy comedy and/or reality show.
Farhad: Oh no. My wife and kids are going to hate having to move.
Anyway, before I start checking out Craigslist housing ads in Nevada, let’s go over the tech news of the week, which was dominated by several huge earnings reports. I’ve got to say, I love earnings season. It’s the one time we get a peek at some of the actual numbers that are often hidden in the murk of Silicon Valley puffery. And this week brought some big reversals.
Mike: Nerd. (I do too.)
Farhad: Apple reported its slowest-ever growth in iPhone sales, suggesting that the company has hit at least a temporary peak. I argued that the future for Apple is still bright, but many observers see a new, diminished era for a company that has grown like a steroidal gym rat over the last few years.
Mike: As my economics professor always said, what goes up must come down, right? Or maybe that was my physics professor. I can’t remember. I slept through most of high school.
Farhad: Meanwhile, Microsoft’s earnings showed that while its legacy personal computer businesses are in decline, it now has a thriving cloud business, and its line of Surface tablets and computers is selling well, too. So in a weird way, Microsoft’s rebound offers an encouraging lesson for Apple fans — if you lose the crown, you can always claw your way back.
Mike: I think Omar said that in the second season of “The Wire.” I’m full of quote references today!
I wonder if we’re witnessing what could be a long-term shift in Wall Street’s attitude toward Jeff Bezos’s shopping engine. For two decades, investors have been willing to let Bezos reinvest every penny Amazon makes into building out a bigger and bigger company. But last year, Amazon started to show investors some skimpy profits — which are, like, the actual point of running a business — and to everyone’s surprise, people on Wall Street seemed to like the money, and now they seem to keep wanting more.
So it will be interesting to watch Amazon’s fortunes over the next year. Will investors continue to punish it for favoring growth over profits? And if they do, will Jeff Bezos care?
Then, finally, there was Facebook. I was told we couldn’t use emoji in these newsletters, which is too bad, because the best way to illustrate Facebook’s monster earnings would be several paragraphs of the Money Bag symbol.
But you covered the earnings, so I’ll let you take it away.
Mike: I mean, it’s the same story for Facebook that it has been for the past two and a half years: The company has absolutely nailed the secret to selling mobile advertising.
Back in 2012, if you recall, the condition of Facebook’s stock price was best described by using an animated GIF of a garbage fire. Shares were half what they were at the time of the company’s initial public offering. The entire industry — including our own, mind you — was caught completely off guard by an enormous shift in consumer habits: People started viewing websites and using apps on their smartphones much more often than they used desktop computers.
No one was ready for it, as we spent years just building out advertising for larger screens. Entire companies were destroyed. There were ripple effects in adjacent companies that were deeply connected to Facebook. (Go look at Zynga before and after its I.P.O.) It was a total mess.
Facebook went heads down and figured out how to create ads that aren’t terrible and conform to a screen the size of a smartphone. And lo and behold, the company did it in an amazingly fast amount of time. In 2012, Facebook’s mobile advertising revenues represented roughly 20 percent of the company’s overall ad revenue. As of last quarter, that number has quadrupled to 80 percent. It’s astounding how fast it was able to do it.
Farhad: All that’s true, but I think you skipped an even earlier thing: Before making great mobile ads, Facebook first decided to make a great mobile app. I don’t know if readers remember the earliest Facebook apps for smartphones but if not, they should click back to that animated GIF of a garbage fire. Until 2012, Facebook on an iPhone was slow and crashed more often than the Chinese stock market. By all accounts, Mark Zuckerberg himself was late to realizing the importance of touch-screen smartphones — I’ve heard that he regularly used a BlackBerry until around 2010.
Mike: Good lord.
Farhad: Early in 2012, as he prepared for the I.P.O., Zuckerberg finally realized that Facebook had to have a better mobile strategy. I think that’s the key thing to credit him for; when he finally understood the importance of mobile software, he went all in. He forced Facebook’s iPhone team to completely redo its app. When it did, Facebook’s App Store reviews shot up from 1.5 stars to 4. The rest is history. Facebook is now one of the most-used apps on phones, and Instagram, Messenger and WhatsApp, Facebook’s other properties, are all must-haves. Once you accomplish that, the piles of money follow.
Mike: All very good points. But here’s the rub: Now we see articles like the one USA Today ran on Thursday about Facebook being the new “Teflon company,” usurping Apple. Expectations for Facebook to keep up its enormous growth engine are just ratcheting up higher and higher. The company is probably going to run up against the same problem you just described with Amazon this last quarter.
That’s why I always try to keep people’s expectations of me incredibly low. That way when I do something cool, everyone practically gives a party.
Farhad: I guess I won’t expect you to be doing any dishes after you move in. See you soon!