On Bots, Conversation Apps, and Fin

Sam, 21 Jan 2016

On Bots, Conversational Apps and Fin

2016 is being declared the year of bots. And it feels like there is a broad shift in the developer ecosystem away from traditional point-and-click apps, towards chat-based user interfaces.

It’s happening because there is broad consumer and developer fatigue with apps. Consumers don’t want to install or use new traditional apps. And partially as a result, developers are faced with rising distribution costs.

At the same time, the American platform companies are preparing for a new post-app battleground modeled after the Asian messaging services. Companies like Slack are looking at chat-as-platform as a major next step. Facebook is banking on its messaging properties (Messenger and WhatsApp) to get back into the app platform game.

The many-billion-dollar question, however, is whether the transition to bots and conversational interfaces will represent a major point of disruption or more of an evolution in the interface paradigm.

In the last few decades we have seen several moments of big platform turnover. There was the move from shrink-wrapped software on desktops dominated by Microsoft to the free-for-all of the Web. Then there was the move from the Web to the app world dominated by Apple and Google. And now we are at the start of the move from apps to bots and conversations.

The bet I am making, both as an investor and operator, is that the 2016 bot paradigm shift is going to be far more disruptive and interesting than the last decade’s move from Web to mobile apps, though perhaps not as important as the move from shrink wrap to Web.

The Last Big Shift: 2008

In 2008 Apple opened up the app store and began to usher in the move away from the Web and back towards client software in the form of downloadable apps.

Developers had to deal with new languages, new approval processes and to remember how to deal with all the cost and complexity of developing and maintaining client software.

But it was clearly worth the move.

Phones expanded the market for developers by increasing the reachable population of people online and expanding the time each person was spending connected. At the same time, new payment options made it possible for developers to monetize better than they could before.

There was a gold rush. Categories like casual games, which could monetize the new platform quickly and efficiently, grew rapidly. The disruption also allowed several companies, like Instagram and Snapchat, to wedge into valuable positions against Web incumbents.

That rush, however, was relatively short lived, and many if not most of the high-flying app first companies have been wiped out. Today, the list of dominant players doesn’t look all that different from the way it looked pre-app. Facebook, Google, and Amazon dominate their respective verticals—communication, search, and commerce—just as they had at lower-total-scale pre-app.

Over time the legacy of the app rush is likely to be enabling on-demand services like Uber and Postmates by making it easy to manage a distributed geo-located workforce, more than fundamentally changing the dynamics around how people spend their time and money.

The app era certainly enabled some new awesome services. But when you step back for a moment it really didn’t change the fundamental landscape of communication, search, entertainment, or commerce very much. It just increased the reach and depth of the incumbents.

The Next Big Shift: 2016

If the app shift moved developers away from server side development and towards clients, the most important part of the current shift is a move back towards the server and away from client software in the form of bots.

Practically this means that services are being developed in one of two ways. The first is with no client-side software, using things like text-messaging today, and perhaps Facebook and Slack tomorrow, as the user-facing front end. Or, short of that, with very lightweight and simple apps connected to much deeper server-side services.

There are several advantages to this shift. First, and I don’t say this lightly, dealing with installed client software is slow. You have multiple versions of the same software running on different devices, and you have to ship software that cannot be easily recalled for bugs or errors. Startups have a hard time winning at the game (as I have written about before). The bot paradigm is going to allow developers to move fast again.

Second, while phones have certainly gotten more powerful and have more storage than ever before, they’re toys compared to what you can do server side with massive data and processing power. This is a big part of the reason that so many so-called AI companies are springing up. They will be the arms dealers to bot developers.

Third, services with bots on the front end can, in theory, be far more personal than apps. Apps that are downloaded and installed are broadly the same for all users. Sure, the content inside the app might be personal, but the layout, functionality, and context of remotely installed software is very hard to customize for each user. Bots are different. In theory they are infinitely more personalizable because you aren’t moving interface around, you are customizing content and service.

At the same time, it isn’t all gravy for developers in bot-land.

First, the fact that bots aren’t installed so much as messaged is a double-edged sword for developers.

Taking away the installation step makes it much easier to quickly start using a bot versus the heavy install process on apps. This will reduce the friction in getting users to try new things.

The negative part is that with apps, if a developer makes it onto a user’s home screen, they can develop a direct relationship with the user. Bots have a much harder time getting to that point to the extent they sit on top of messengers and can’t occupy as prominent screen real estate.

Second, the platform business-dynamics around bots is yet to be determined. The specific rules that get set for bots will matter a great deal in defining whether they become a vibrant ecosystem or a failed backwater.

There are two possible extremes to this. On one hand, companies like Slack and Facebook could decide to play kingmaker in various verticals, just as their Asian messaging counterparts have done. Doing this could drive more profit directly to the platforms and might actually provide better, more deeply-integrated services. But it would also kneecap a lot of innovation.

The other extreme would be a bot-free-for-all, which would lead to a lot of innovation, but also probably a lot of user issues around quality of service and privacy.

The likely outcome is almost certainly somewhere in the middle. The platform companies have too much history and experience to make the mistakes of either extreme. But the reliance of developers on single platforms and the ability of those platforms to change the rules and distribution characteristics for apps will leave developers on edge for the foreseeable future.

Fin.

There are people that like to talk about the bot space, or the "conversational app" space. I think this is ridiculous. Bots or conversational apps is not a "space." It is a broad paradigm which describes a direction that developers are moving in.

There are conversational apps that are focused on shopping. They will compete with Amazon and other commerce platforms that will, in time, move towards the conversational space when it becomes important to their business.

There are conversational apps that are focused on travel, helping you figure out where to go, how to get there, where to stay and what to do. They will compete with Travelocity and Tripadvisor, and even Airbnb, which will build their own conversation interfaces too.

There will also be conversational apps focused on entertainment, news, and basically every other vertical that currently exists in the app store.

I’m part of a small group working on a conversational agent. It is called Fin, and it is in the search and information space.

We use a combination of machine and human intelligence to find answers, send messages and remember everything for you.

You use it like Siri, Echo, or Google Now. But because we use people, Fin gives you an answer every time rather than occasionally, and can handle natural human requests that go beyond simple facts.

Are we competing for the entire conversational market? Of course not. We do, however, think that we can make some core experiences you have every day dramatically better.

Conclusion

I hate buying into hype. I would love to say that all of the chatter and attention around conversational experiences and bots is just PR crap.

I don’t think it is. I think it is a fundamental shift that is going to change the types of applications that get developed and the style of service development in the valley, again.

In general, I am very excited. In the optimistic case I think that bots will open up better services for users faster and disrupt some very large entrenched players in a way that the app paradigm never did.

What remains to be seen is not who wins the conversational app space, which is an irrelevantly broad concept but, rather, which big incumbents seamlessly navigate this next shift, and which get taken out by new nimbler developers working in a new way, with new tools.