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How do you talk about a product before anything like it exists? How do you guide the engineers building it and the marketing department who has to sell it?
As co-creator of the iPod and iPhone, founder of the learning thermostat Nest, and with over 300 patents to his name, Tony Fadell is a serial entrepreneur who now focuses on investing. He tells Azeem Azhar how he uses opinion-based decision-making in his work, and why thinking like a product manager helps drive radical innovation.
They also discuss:
- What a “parent CEO” is and why they are crucial to an innovating company.
- How focusing on profits and loss (“P&L”) can stifle innovation in large companies.
- Why no one has been able to design the perfect TV remote.
- Why Tony believes the metaverse, as a social experience, is doomed to fail.
@azeem
@exponentialview
@tfadell
Further resources:
- General Magic (Documentary Film 2018)
AZEEM AZHAR: Welcome to the Exponential View podcast. I’m Azeem Azhar, your host. Now, if you’re listening to this podcast – and I know you are listening to it – it’s almost certainly the case (I would say definitely the case) that my guest today has influenced your life. He was the boss of Apple’s iPod division, which created many versions of that music device, and he’s also known as the co-creator of the iPhone before going on to found Nest, the company that created the learning thermostat, which tackled the unsexy sector of home heating. My home has two nests, thank you very much. Now, those contributions are merely the start. He has more than 300 patents to his name and has spent the last eight years helping founders build products that matter through his firm, Future Shape. And now if that wasn’t enough, he’s published his first book, Build: An Unorthodox Guide to Making Things Worth Making. Tony Fadell, welcome to Exponential View.
TONY FADELL: Azeem, thanks for having me. It’s great to be here.
AZEEM AZHAR: I desperately needed you this morning. My home network is the network of someone who has been working from home for several years. I have a big router, I’ve got a bunch of switches, redundant cables and ducts, seven or eight access points and dozens of devices on the network. And my network went down for the first time in more than two years, and I’ve been on my hands and knees methodically tracking down the problem. Then jury-rigged a solution with old switches and power injectors, just something to keep it alive for a few days. And I was thinking, with our conversation happening later in the day, “This is so complicated. I mean, Tony would never let this be.” So, why haven’t you fixed networking the way you fixed digital music with the iPod?
TONY FADELL: Well, that’s a great question. It’s the bane that I always have going to any dinner party or any family event is I become the IT guy for everyone. And so, I have to accept that, but in this case, I think the biggest issue that people have is that there are better products out there, but they’re really and truly not marketed the way they need to be to the end consumer. The biggest problem with that whole space is there’s no money in it. So, if you look at all those independent WiFi and router companies that came out, they all got bought, or they’re all bankrupt, because there is no money in it because, “Oh, it’s just infrastructure. I’m going to pay the lowest dollar I can for it, because I really care about spending more money on my phone or my laptop, but I don’t care about the stuff in between,” which is exactly the wrong way to think for the problem that you had today, which is you’re crawling through everything. If you are running an internet service provider or a telephone company, you would want to have the most reliable infrastructure you can. And so, when you’re relying on this stuff and it’s inside your house, you need to put reliable infrastructure as well, and so that’s what I did. I go and get the stuff that I really believe in that costs a little bit more, and it works every day.
AZEEM AZHAR: There was a few years ago, back in the mid 2000s to early 2010s, a range of companies that produced very sexy looking, often organic looking WiFi routers that would self configure and run across a home. And of course, eventually, 3Com or Netgear has to buy them because people aren’t willing to pay that premium infrastructure.
TONY FADELL: It baffles my mind, especially when working from home or whatever. And it’s a critical source of how you do everything now that you would go and buy something second rate.
AZEEM AZHAR: The reason I care about it is that I have been thinking about the internet since the early ’90s. And what I love about your book is that it, I mean, of course, it’s full of a lot of wisdom that we will get into in the conversation, but it’s absolute catnip for me because it takes me down memory lane. It takes me down the stories of General Magic, names like Marc Porat. You take us into the iPod and the iPhone development in its early years. And you have these great views on Google on the inside. So, it really does speak-
TONY FADELL: My Trojan horse worked.
AZEEM AZHAR: Yeah, absolutely. So, that was how you get the guys like me who are in our late forties and fifties into the book, but you did something else in the book design. Your chapters are really short. And I was looking at that thinking, “This is not to attract me. This is to attract a different market segment.”
TONY FADELL: It was to attract me if I was twenty years old again. And then if you interest me and hook me, then I’ll read further.
AZEEM AZHAR: It’s a different product factor. So, what you’ve done is you’ve delivered a book, but the book has a different product surface to it because you’ve got-
TONY FADELL: It’s an encyclopedia in my mind.
AZEEM AZHAR: Well, yeah, it’s got a load of short chapters. It also has this key learnings at the beginning of each one that you’ve chosen to put in a different typeface. Right? So, you have separated those out. And it made me think that in a way this is a more than just an author’s approach to crafting a book. This is a product person’s approach to crafting a book, right? Would you say that’s fair? You’re nodding.
TONY FADELL: Absolutely. Without a doubt, it said, “How is this going to be different? How is it going to be different and better if it really isn’t online?” And so, yeah, it took a very much a designer approach to it, not just from a form factor, but from the actual physical materials.
AZEEM AZHAR: How does a product manager think about a book? The idea of product, I think, is a relatively young professional discipline. When I first came across product managers in the mid to late ’90s-
TONY FADELL: You did? Wow. That’s interesting. You found product managers in the ’90s.
AZEEM AZHAR: Well, I didn’t find them. I read about them.
TONY FADELL: Okay.
AZEEM AZHAR: And I was reading about people involved in product in companies like Apple. And I was reading the Silicon Valley literature as existed in ’97, ’98, ’99, but there wasn’t a sense you would hire product managers. People knew about project managers who knitted all the themes together and delivered something on time. What is a product manager?
TONY FADELL: A product manager is the voice of the customer. It’s that person who’s sitting there every day going, “Does this make sense for our customer? Are we saying the right things? Are we delivering the right things? Are we confusing them? How do our customers consider our product versus the competition, both indirect and direct?” This is someone who’s always thinking and has full empathy for the customer and trying to help the customer understand what it is we do in their language and can be the face in each of the meetings to uphold their needs and make sure that we don’t all of a sudden go down the, “Oh, we need this technology for technology’s sake path,” or, “We’re telling a fictional story in our marketing.” But when the product actually shows up, it doesn’t relate anything to what marketing’s saying.
TONY FADELL: This is somebody who really takes to heart what the customer is looking for and make sure it stays on point, not just for the product, but for every single customer touchpoint. That includes the websites, press releases, any social customer support, packaging, retailing. All along the way they’re looking out for the customer.
AZEEM AZHAR: One of the things that strikes me about the product role and essentially what has been the development of your career and someone who’s done this at the highest level is that you have to also bring together a set of real uncertainties, because you’re sometimes delivering products that don’t exist, that can’t be articulated by the customer. They can’t be articulated by the channel. They don’t know whether this is a calculator or is it a telephone? Where should it sit in our shelves? The technologies are perhaps a little bit immature today, but engineering and research are promising you that they’re going to get the price performance and form factor that you will need by launch. How do you juggle those uncertainties to construct something that, at the end of the day, needs to be tangible? I have to hold it in my hand and it has to do the thing that I didn’t know I ever wanted it to do, but it does it. It first starts with the story you’re trying to tell. What are you trying to bring to life? And that’s a combination of technology, a combination of pain killing. In other words, what pain does the customer have, and how are you killing that pain? Hopefully, that becomes a superpower. It comes with the price. It comes with all of these different aspects of it. And it doesn’t have to just be a product with atoms. It can be a product with just electrons, or it could be just a service. It could be anything. But at the end of the day, what you have to understand is, if you’re doing anything that’s different, that’s disruptive, most likely it’s born out of opinion. It’s you have an opinion for how to solve it. You’re going to have some data, but how to solve it is not going to be a data-driven decision. It’s going to be opinion based on all the things you’ve seen come before, what’s different about the market now, what’s different about technology, timing, everything else, and saying, “Now we believe this is the right time for this thing with these features with these painkillers, blah, blah, blah.”
TONY FADELL: So, that’s another job of the product manager is to help with those opinion-driven decisions. Now, at the end of the day, though, you’re going to have to have leadership and a one person or small, very, very small person team, two, three, who make those opinion-based decisions and drive this all the way to market so you can get it there and then evolve off of that to see what you got right or wrong or what have you.
AZEEM AZHAR: I think one of the things that’s so critical about that is that in the last 60 or 70 years in business, we have moved to this myth of arbitrary precision where everything can be structured and everything can go into grids and checklists and you can weigh off factors and large, large spreadsheets, but what you are describing is really the application of judgment, and judgment is born of experience-
TONY FADELL: Exactly.
AZEEM AZHAR: … more than anything else. Is that the distinction between the experience that we had in General Magic, which was this wonderful, wonderful company? Was it that people’s judgment muscles were not as mature back in the early ’90s, late ’80s compared to where those same people’s judgment muscles were twenty years later having been through the cycle a few times?
TONY FADELL: Well, I think number one is we’ve been able to articulate product management more so now than ever. I’ll tell you, if you remember in the ’80s, even in the ’90s, people were talking about design, design, design. And people would say, “Oh, it’s mechanical engineering.” It’s like, “No, design is a certain thing. It’s a certain discipline, and it needs to have a certain view. It should be a peer with the different things. It shouldn’t just be an inservice of, but it has to be coming from the customer point of view.” Product management is the same. Product management is much further, much bigger than design itself. Design is one discipline. Product management encompasses all those pieces, and that’s something people are just still waking up to and have not elevated, first, understanding what product management is and the second thing, elevate it to that same place where engineering, sales, marketing, legal, whatever, should be. There are certain companies that get it, but most don’t, because they just think either it’s a startup, and the startup usually the product manager is the founder. But then over time they even have to have product management because those founders have to be doing their real jobs, whether it’s CEO or CTO or whatever it is. They still need product management because it’s so important.
AZEEM AZHAR: I will take this moment to publicly apologize to all of the product managers I hired in my startups because, of course, it was really hard for me to give up that role to anyone when it was needed. And it really was iteration number three where finally I had matured enough to say, “Okay, I’m going to let go of the reins.”
TONY FADELL: There you go.
AZEEM AZHAR: But I think the reverse must be the case though as companies get larger because this judgment, this leadership, which between them is essentially risk-taking. It is something that can’t show up on the spreadsheet, yet as companies get bigger, they have to have these formal risk management and financial processes in place. So, the traditional view, I suppose, has been as companies get bigger, they can’t innovate anymore, and yet we know that there are exceptions. Apple, of course, being the greatest exception. Is there something that is replicable about that, that allows a large company to say, “We can have an output of great innovation that creates products that people care about?”
TONY FADELL: It all boils down to leadership. 100% leadership. And what normally happens is people could come up with great ideas, but the system stifles those great ideas in large companies because the people at the top typically weren’t the ones who were making those risk decisions when the company was small to bring it to something large. They’re maintainers. They’re babysitter CEOs or babysitter management. They’re not risk takers. And what they do is they hire third party management consulting firms to turn anything that’s an opinion-based decision into data so that they can blame those people if the thing doesn’t go well. So, it all boils down to leadership. First and foremost, is the leader there? Do they understand it’s an opinion-based decision? Is the leader going to watch over these nascent little teams and help them navigate these big corporate structures to get the resources without getting the antibodies attached to them and trying to kill them? How do they go off and make sure those teams are rewarded for taking the risk, are helped inside this large organization? And it all starts with leadership at the end of the day.
AZEEM AZHAR: Is there something that we can generalize about what those leaders need? I mean, there’s Steve Jobs, right? And he has created this environment, which allowed people like you to do great work. I guess, within Tesla for a long time we were seeing a lot of that happening as well, but that’s an equals to, right, in the social scientist domain.
TONY FADELL: Both of them are founders. You have to remember those leaders are founders. So, they are by nature parent CEOs.
AZEEM AZHAR: So, how does one become a parent CEO? And how does a board identify from a candidate that this candidate is a parent and this candidate is a babysitter?
TONY FADELL: Because he is going to tell the board that they work for him and not the other way around, and that he’s not working for the shareholders, and that he’s doing it for the best of the company, “And let me tell you the vision. And here’s some opinion-based new products that I want to get, and this is how we’re going to get it done.” And the board has to go, “Okay.” The board has to be there to hire and fire the CEO, not to tell the CEO what to do. Okay? Obviously, there’s got to be limits and bounds and everything, but at the end of the day, the board should help to enable the CEO with the vision. And it’s just mismanagement. Then they fire the CEO, but they have to allow the CEO to take risks.
TONY FADELL: Look, Steve, I think, at best, 30% of his decisions were good. 70% were bad, but if you’re not making bad decisions and taking risks, you’re not trying. So, you’re going to have to, by nature, fail to be able to find the good ideas. If not, you’re in a stalemate.
AZEEM AZHAR: So, if we look at some of the well-known, and I don’t just mean the top five public tech companies, but choose some that are well-known, which ones do you think have got these parent CEOs with the potential to create this great product?
TONY FADELL: Microsoft. Look at Satya. Look at Pat Gelsinger. Pat is now whipping Intel into shape. It needed it for 20 years. It’s finally getting there. It’s got a parent CEO. He’s not a founder. Satya’s not a founder, but both of them are. Actually, if you thought about the previous CEOs in those companies and how they were languishing, and now they’re under a whole different management and things are shaking up and people are now paying attention. Microsoft’s further down that road, of course, because Satya’s been in the seat awhile. But look at what’s going on in the market. They’re like, “Oh my God.” They’re competing. They’re beating Google in certain instances, competing with Amazon. Whereas everyone is like, “Ah, Microsoft, whatever.” And then look at Intel. I was writing off Intel. Now. I’m like, “Man, Pat’s doing a good job.” The name of the door is still the same. It’s Intel, but the leadership is very different, and you can feel that in how he’s making changes that happen.
AZEEM AZHAR: There was a moment, I think it was last year, when he started to talk about what his plans for Intel were. And it really electrified how the community thought about this company that we had said, “Well, Nvidia is going to run away with it. The risk architectures are going to do their things. And apple is building its own Silicon.” And Intel was a lovely note in history.
TONY FADELL: And what changed? The name on the door is the same. The investors are still the same. The board’s more or less the same. The company underneath Pat is more or less the same, but Pat’s changing it because he’s the leader and he’s out there going at it and saying, “No, we need to fix these things.” And he’s not just making little window dressing changes. He’s making substantial changes to the businesses overall just like Satya did five, six years ago.
AZEEM AZHAR: There used to be a lot of management books that would come out and say the first 100 days, right? So you’ve got the job. This is what you need to achieve in the first 100 days as a CEO. So they were all written before people really understood what product management was. So, picture a parent CEO who is going to be brought in to run a company with a franchise that has got a bit boring, stayed in the doldrums, and you’re going to electrify it. You’re going to bring that product centricity to it. What do you have to get done in the first 100 days?
TONY FADELL: One is you already had. Whatever discussion you had with the board was already done like, “Look, this is what I’m going to do. These are the changes I’m going to make. Support me.” Now, the second thing is where are your product managers? And bring them in with each of the product teams and have them pitch you the roadmap and the why’s behind everything, not the what’s, but the why’s. And I want the product management plus the right engineering people, the right sales people, the right marketing people all in the same room, and then having that discussion and saying, “Look, I don’t know if this project’s going to be going anymore. We might kill it. Tell me why it should exist. Why are customers loving it?” And literally you got to go piece by piece by piece. And then I would also go to my technology thing and understand what my roadmaps look like. Okay? Those are the first things is what do I got to work with? Right? I understand my big lines of business, but are the people in charge really those risk-taking, opinion-driven leaders who can then go off and build these kinds of businesses? Because each one I want to make sure as the leader actually I’m really mentoring all these people because they’re all running the businesses. What’s going on? Do I have incentive alignment in terms of how my bonus structures are aligned? I would want to go chapter verse over our culture, our technology and our products and our leadership to make sure that I understand what capabilities we have and where we’re lacking. That’s where I would go over first.
AZEEM AZHAR: There’s a shift in power, isn’t there, in that conversation, right? Because power might move from those who own P&L, which might be territory or geography-
TONY FADELL: I’d kill P&L right away. I’d do unit economics. Without a doubt, unit economics in every business group, but I would never do P&L. That is exactly the wrong way of going about it.
AZEEM AZHAR: For those who are not so familiar with unit economics and how they differ from P&L, just explain to us what unit economics means and why is it powerful in this context?
TONY FADELL: Okay. So, unit economics are really what’s the price it takes to build or create whatever it is we’re creating, and what are we selling at, and what’s the difference, right? What’s the margins on that? And there might be some customer support baked in, but it doesn’t have marketing baked in. It doesn’t have all kinds of financial structures or stock packages or any of that other stuff. It just talks about purely how we build what we build and are those things profitable, separating out sales commissions and separating out marketing and all the other stuff. And that’s where the P&L lies. P&L (profit and loss statement) is for the company. Business economics or unit economics is about the things those business groups are selling individually. And then they roll up into some greater corporate P&L structure. But when people start arguing all day about their marketing budgets and, “Oh, we’re using such and such from the technology lab. So, I have to pay for those people from the technology lab and treat them like third party outsources.” You get all of this confusion because everyone’s trying to protect their P&Ls, their budgets and their egos, right? I remember when Steve had this saying. He came back to Apple. He had every single business group present their business plan. I think there was six or seven at the time. And he said, “Every single one of them presented a profitable business plan and how they were all making money, but yet the company was totally losing. It was a disaster.” He’s like, “What’s going on?” Because everyone’s aligned with their little purview and where their bonuses come from or whatever and not the greater thing. You need those leaders of those business groups and the people who report to them to understand they’re part of a bigger entity and they need to work together to make that entity work, and unit economics is the only way to do that. If you P&L, then all of a sudden you become just another financial holding company of this conglomerate that no one’s working together.
AZEEM AZHAR: The simplistic way I think about this is that customer satisfaction and that sense that they laid love and they need your product can tell you that your product’s working. The unit economics tells you that you can produce them profitably. And that is the journey towards being able to build successful franchises. And it’s interesting. When Steve Jobs came back to Apple, Apple was a very, very broad company. It was making monitors and laser printers and modems and different computers, mostly with numeric names like the Centrica 6,150 and the LC 523, and who knows which was which. And one of the things he did was, I think something that you alluded to, he went through and said, “What are the customers we’re actually serving? Or what are the products we need?” And I guess there was a bit of a painful process of letting go of lots of business lines.
TONY FADELL: Absolutely. Because you just need to worry about unit economics and not P&Ls. Everybody thought they were all CEO of their own product line, which is absolutely the wrong way to consider it, right? And so, you have to say there’s one customer. Who is that one customer serving? And this company serves those customers. They didn’t understand that at the time. Almost all the customers were … There are two types of customers. There’s creatives, and that was going away fast because it was all in the PC. There was no more software for the Mac. And the other one were just Mac fan boys and girls who just cared about the Mac because that was it. That was the only two customers out there. And that was less than 1% market share. And everybody’s fighting over the same people. It was ludicrous
AZEEM AZHAR: From that focus, of course, we now have the twenty-year history of Apple creating the most powerful technology franchise in history. I wanted to maybe change tempo, but before I do, I just want to ask one question, which is, why is it so hard to build a really good TV remote control? So, I have Samsung TVs buttons all over the place, can barely use them. I have the old Apple TV remote and the new TV remote. Even for my twelve-year-old, who can normally use everything, we really, really struggle. Why is the TV remote so hard to get right?
TONY FADELL: Because everybody has a different idea of what it should be. This is like a smart home. This is what I learned at Nest. Everybody wants one button to do everything in their house. But if you talk to mom and you talk to dad and you talk to the kids, that one button does everything differently than what the other person wants. The same thing happens with remote controls. That’s first thing is you don’t know who the user is because they always have a different way of wanting to use it. The second thing is that a lot of the big brands out there want you to only buy their stuff. So, they make sure that they just don’t embrace standards. They decide that they’re going to use their stuff on top of standards because that’s all they sell, right? At the end of the day, they only sell hardware. They don’t sell a service slash a full solution. So, the only way they can force a solution is by making it harder to work with third party, other things. And I try to fix that actually at General Magic with the General Magic device. I was in charge of the IR remote then. I’ve been working on it forever. My wife keeps saying, “When are you going to fix that?”
AZEEM AZHAR: One of the things that’s going on in tech analyst circles is this idea of platforms, and we had the mini computer in the ’70s. Then we had the PC, and then we had the internet, and then we had mobile, and then we started to have wearables, and the next platform is going to surround us and we are going to live in a 3D space.
TONY FADELL: Virtual insanity, right?
AZEEM AZHAR: Is that what it is? So you are really well placed to have a view on this, right? Have a view both on what the customer might want and what the engineering challenges of virtual reality, metaverse, augmented reality might be. Don’t hold back, Tony.
TONY FADELL: Well, let’s first start. I have been working around virtual reality since 1989. Okay? I made gloves and glasses and all kinds of stuff in the ’80s. All right? So, I have a little bit of history. So, that’s one thing. The other thing is I tried to do glasses at Apple for the iPod to do full screen video on the go. And then I tried to reboot Google glass at Google back in 2015. So, of dabbled in this, if you know what I mean. I love AR and VR. Let’s be clear. XR as well. I believe that there are great applications and pain killers that can be created with VR. Perfect one is Gravity Sketch. Gravity Sketch is a collaborative 3D environment for designing any kind of object in 3D space that has been incredibly hard to do until now. And VR enables that, and it makes it happen. It makes it happen in an extraordinary way.
AZEEM AZHAR: You put the Oculus on and you can draw and shape your object and you can export it back into whatever software you might use on your computer to take it to the next level.
TONY FADELL: And when you create a painkiller like that, then that’s worth it, and in augmented reality. Augmented reality, when I was doing the Google thing, I saw that one of the most powerful applications was what I dub see what I see. You put on the glasses, you’re doing something. Let’s say it’s surgery, cooking, something like that. And all of a sudden you’re having a difficulty, and you just call in an expert, tap, tap, “Hey, I’m having this.” And they see it and they go, “Oh, I would do this. I would change that. Try this. Have you done this?” Literally, these people can look through your eyes, through the glasses and see what’s going on and talk to you in real-time and help you just as if you had an expert right on your shoulder. Tremendous use cases.
AZEEM AZHAR: Yeah. But that use case is interesting because we have a prototype of it, which is, should I just video and put it on FaceTime for you? So, in a way you have some validation that this use case exists already.
TONY FADELL: It exists, and it works and people do it all the time. So, to me, that’s just amazing. But when I hear things about we are going to socially connect with one another, make human connection with one another in the metaverse. We’re going to go dancing and dating in the metaverse, and it’s going to become a social network. When I can’t look into your eyes, when I can’t see who you are, we can’t even moderate text based chat. We can’t moderate visual chat or video chat. All of a sudden we’re going to moderate this metaverse chat social experience. It’s not going to happen. And what we’re doing is we’re taking all these brilliant brains and resources and throwing them on a problem that doesn’t exist. We’re creating more problems. Let’s work on existential problems we have, like the climate crisis, these kinds of things. Let’s not waste more time and money and these precious resources when we have better things to solve for.
AZEEM AZHAR: I mean, the scale is gargantuan. Facebook has thousands of people working on virtual reality. And if you include Oculus, they must-
TONY FADELL: Doesn’t mean it’s going to be better.
AZEEM AZHAR: Doesn’t mean it’s going to be better, but there’s a lot of smarts going into this. I mean, knowing that industry and the ways of thinking from Silicon Valley, as you do, what has motivated the reasoning to make these sorts of investments?
TONY FADELL: What was the motivation behind 3D TV? Remember we were told for three years 3D TV. There was even a cable channel and a satellite channel.
AZEEM AZHAR: And in the UK as well, right?
TONY FADELL: “Oh, 3D TV’s going to be all the rage.” Guess what happened? Nothing. Complete flop, the entire industry, all the media we’re talking about. I was like, “Not going to happen.” Not that I didn’t think 3D wasn’t a great technology for certain applications, but it wasn’t for these novelties that we see. Same thing goes with social connectivity. So, I understand there’s lots of money being thrown at it. It doesn’t mean it’s a good thing. I remember General Magic having a lot thrown at it. The media said it was going to be the next greatest thing. I don’t see what pain they’re trying to solve. They’re just creating more pain.
AZEEM AZHAR: You could argue that today on things like Fortnite and Roblox and a couple of the other-
TONY FADELL: That’s entertainment and gaming. I agree with that.
AZEEM AZHAR: … 500, 600 million monthly actives.
TONY FADELL: Fine. I’m talking about a social network where I’m going to sit here and talk to you, look into your face. It’s so easy to make a connection with you, because video’s even better than a phone call. But as a cartoon character, I don’t know whether that’s a non-playable character in the metaverse or a real person.
AZEEM AZHAR: I’m a bit skeptical as you are. I’ve spent time talking to people at Facebook and startup founders who are building things, especially intersection of metaverse and crypto, to try to figure out what is there. I’m willing to say that I’m wrong. I mean, I’m often wrong, and it’s been my life has been mostly being wrong and occasionally being right. So, maybe I’ll be wrong. But I have also struggled to find that general computing application that I can say, “I can see this being used in a lot of places.”
TONY FADELL: And that’s the thing. When people talk about platforms, platforms only exist after you solve an application really well. The iPhone wasn’t a platform until after it solved some things really well. Then it became a platform. Okay? All these investors and CEOs they think of the 1980s when it was DOS and windows and Macintosh and these platforms. People don’t think that way anymore. They’re not buying that stuff. No one cared about the platform. They cared about what they could do with it. Right? And every time I hear about, “Ah, I got this great platform.” I go, “Don’t tell me about platform. Tell me what it does. Tell me why it should exist, what painkillers.” And this is what happened with Google Glass, “Look at this great platform. Developer’s going to bring whatever they want to, and they’re going to make something great,” but no one did. The same thing’s going to happen with the metaverse. You got to solve an application really well. Then people can build off of that. But right now the metaverse, as a social connectivity platform, I’m willing to go on record and say it’s going to be a total flop.
AZEEM AZHAR: Quite often what happens is a beautiful product comes out and it really simplifies our life. I mean, the Nest Thermostat is a great example of that. I just walked past it once in a while and give it a pat to check in on it and it’ll tell me how it’s doing, and it’s a much better relationship with the heating in my house than I’ve had. But in other spaces, what we’ve started to see, as things have become simpler and therefore become more ubiquitous, is that the system itself gets more complicated and gets more complex. It feels much more complex to navigate the digital media ecosystem today than it did five or ten years ago because there are more services, there are more passwords. Everyone uses one time passwords and SMS and this. And it’s becoming more and more frustrating, and design patterns are slightly different, so the user is forced to learn new behaviors as a human for ten, twenty, thirty, fifty different services. What’s the responsibility for the individual product designer in thinking through those issues? Or is it a, I don’t know, a professional standards effort that has to happen, or is it just a unavoidable consequence of this type of innovation?
TONY FADELL: I think if you look at everything in history, they go through this Cambrian explosion of features, and then over time they get whittled down to what it really matters. I think what you’re experiencing right now is that Cambrian explosion, and we’re still swimming in so many different options. There’s all kinds of other technologies that are going to make it easier over time. A lot of the industry players see the need for this stuff, and they’re doing it, but it takes time to get everybody aligned, but it will happen. And there’ll be consolidation. Not every streaming service is going to exist, all that stuff. Think about how many car companies there were in the early 1900s, right? And then it got whittled down. Well, look at all the car companies now, and they keep expanding. There’s 400 or 500 in China alone, and it’ll get whittled down again. I think it will get easier. And I hate to say it. There’s only a few companies out there doing really well, like Apple, where they think about the holistic customer experience.
AZEEM AZHAR: Let’s look at the example of Apple that you brought up. There was a moment where as more product managers got access to push notifications on the phones, we went from getting one or two notifications a day to getting one a minute because every single app from the weather app to the stock app to-
TONY FADELL: They all want your attention.
AZEEM AZHAR: Wanted your attention. And then people like me, I mean, I just turned off my notifications, and it took a change in Apple’s operating system to create a notification management layer. And now you can get your notifications bundled and sent to you once a day except for the important ones. And we’ve now got that control we needed, but that actually came because of Apple’s benevolent dictatorship of its user ecosystem. Right? And therein lies some questions about power, about who can we trust, extent of trust. I mean, is that a soluble problem in a way that keeps people happy, or does it always have that trade off?
TONY FADELL: I think it always has that trade off. At the end of the day, you have to trust the brand you’re working with, and hopefully they’re doing the right thing for you the customer. Right” And sure, it was unintended consequences. It was like, “Oh, it’s just notifications.” And then all of a sudden everyone exploited them for whatever their profit motive was. And then Apple’s like, “We’re going to stop this, and we’re going to give users control again.” I think we’re seeing that with screen time as well. To a certain extent, needs to go further. So, how many other companies are doing that, right? Because usually their business models are more ads or more notifications or what have you. We’re going to regulate this. You think the government’s going to get it right? No, I don’t think so. Not likely. So, we’re going to have to trust that there are good actors out there and there are good brands and good companies that you buy from and that they uphold it. And if not, hopefully there’s another company next to it doing a better job, but we are where we are.
AZEEM AZHAR: And we’re also now at a moment where many of the things that are worth making are in different domains and specifically in the domains around climate change, tackling the carbon crisis. How difficult is it to drive change in the climate tech space as a product person when you have this strange mix of customers who are perhaps not directly affected, but you also have regulators and governments and incumbents? Do you have to think about addressing this problem in a different way to consumer product?
TONY FADELL: No, I don’t think so. Look, at Nest, we turned energy savings and something that was totally unloved unsexy to something that people wanted, because we put together this rational, emotional combination of things that could definitely help the planet and help you personally. We have to tell really great stories. And if we come to market with things that are half baked or promises that can’t be kept, or we don’t talk about the real why’s or the painkillers, not just help the planet, you got to have much more than just helping the planet. How am I helping myself? Right? I see climate-focused companies all the time, and I get to look in the future five, ten, fifteen, years out, and the technologies are staggeringly great. Do we have the will to actually adopt them? And what we do at Future Shape has helped them with the storytelling to make sure we create a nonfictional story to help them blow out what it is that they’re doing in a much more impactful way.
AZEEM AZHAR: Can you share one example of that of a story that has helped motivate the market in that impactful way?
TONY FADELL: We have Menlo Micro right now, and what Menlo Micro is making the transistor moment happen for the relay. So, relay opens and closes electronically, and it allows wireless signals and electricity to flow. So, everything that’s going wireless and everything that’s going electrical needs relays in it. Well, they’ve made the transistor of relays, so to speak. It’s the first time in 150 years.
AZEEM AZHAR: The benefit of that is it’ll be miniaturized. It’ll use less power. We’ll be able to get more of them.
TONY FADELL: Let me give you a real work case. India takes between 6% and 8% of all the electricity produced to run ceiling fans in homes, 6% to 8%, depending on the season. With one of our switches, it goes down to 3% to 4%. So, 50% reduction in all power just for ceiling fans. You don’t have to change your behavior. You don’t have to change anything. All you do is put this in, and now all of a sudden the grid has a lot less taxing on it, right? So, that’s like another one of these things is like, “My God, that’s great.”
AZEEM AZHAR: But a story like that, that’s like an enterprise story. We were talking about infrastructure, my network a few minutes ago.
TONY FADELL: Sure. Right.
AZEEM AZHAR: This feels like it’s in infrastructure. So, how are you going to go and get that infrastructure story to be cared for by the wider market? Right? The older ways would’ve been to say, “Let Siemens or Bosch, when they do the home upgrade, put this in their next generation of wall switches.”
TONY FADELL: Sure. Right. I look at this the same way electrical companies do. Now they say, “Switch out your gas-based appliances for electricity. $50 credit or a $200 credit on getting new things, or we’ll get the old one out and put the new one in, because we don’t want to have to buy more power plants.” 60% of all energy produced on this planet is wasted today. 60% is thrown away. Yes. It’s infrastructure, and it’s bad infrastructure that’s been created over the last 150 years. It’s time to upgrade our infrastructure. Right? We upgraded our homes when there was electricity. This is just a standard nudge. And by the way, you’re going to save a lot of money in your electrical bill. And this is not Palo Alto, California. We’re talking Delhi, right?
AZEEM AZHAR: I’m fascinated by the shift in the last five or six years for more and more smart founders tackling these types of questions. And what I love about these products is how they connect back to the deep science, right? There’s often some difficult science material, science, engineering, electrochemistry. I spoke last week to Jennifer Holmgren from LanzaTech who uses CO2 from industrial processes and gets bacteria turned into ethanol. And it basically allows you to produce carbon-based products without putting carbon into the atmosphere. It’s absolutely fantastic. The stories are great, but what do these product managers who’ve cut their teeth in Apple and Facebook have to leave behind, and what do they have to learn new to do this well?
TONY FADELL: Okay, well, that’s a great question. So I don’t think they have to learn much new. They have to learn a little bit about technology. A lot of times they have to go to B2B, right? A lot of this is B2B, but it’s a B2B2C, which is business to business to consumer. And that means doing things like, and we did this at Nest, which is working with the energy companies to do incentive programs to then get these new products out. We did this to get our thermostats out. You’d sign up for an energy plan, you’d get a Nest Thermostat for free or discounted, what have you.
TONY FADELL: So, I think that these product managers can get into these businesses if they so choose. I do think that there still needs to be more incentive for the investors getting into these businesses. We need to do a much better job of nudging the investors to make as much noise about these spaces as they do other ones. If the tax rules were different for these investors as well as for these businesses that are green or climate crisis focused, my God, we see what happens, the difference when you have a qualified small business in the US. You have a qualified small business, you invest in it, you get zero taxes for your gains up to a certain point. If we had that same thing and we knew the government might be matching our funds and maybe even helping to accelerate permitting for some of this infrastructure work so that we knew we were aligned, you’d see tons of money rush into that. You shouldn’t have the same tax treatment, whether you’re doing the metaverse for social versus climate crisis. That’s just asinine.
AZEEM AZHAR: So, there’s a set of interventions that could work there. I guess there’s another one, which is that these things just take a little bit longer. A lot of funds are constituted to be for ten years. And perhaps you need to have limited partners who are willing to stay in for twenty years because just that cycle is a bit slower right now. I mean, it might not be this slow in five years time, but today the truth is, doing anything with battery chemistry or with microbes just takes longer than doing it in software.
TONY FADELL: Sure. But we’re not going to fix this planet with bits. We have to fix the planet with bits and atoms. Bits will help a little bit, but it ain’t going to cut it when we have to build infrastructure. No, I look at it this way. What just happened with the financial disaster that’s happened over the last six, eight weeks? That is going to slow down everybody’s return in every market. And actually, it’s going to focus the things, especially with the tragedy, the horrible war in Ukraine, showing that we need to accelerate certain developments as well for infrastructure. So, maybe this green stuff might go faster than some of these other businesses that are going to be so underwater for investors, because who’s going to go rushing back into certain types of industries now that the bottom’s fallen up?
AZEEM AZHAR: I, like you, feel pragmatically optimistic about our ability to do that. And the fact that learning curves also benefit from greater scale, right? The more you sell, the more you learn. And for a lot of these technologies, like hydrogen storage or certain aspects of distributed grid, we’ve been really subscale. And that means the amount of learning the product managers have been able to do has been quite small. As market demands increases, their learning rates will increase.
TONY FADELL: Absolutely. Right. I do think we need some more nudges from the government for tax treatments for both the companies and the investors who are trying to do the right thing in these green industries. There’s so many people around the planet working on this. This is not like there’s just Silicon Valley. I can go to every corner of the globe and someone’s working on some kind of climate crisis solution for their local problems or something bigger than that. So for me, I’m cautiously optimistic. I’m not always just breathlessly optimistic about everything, but I’ve seen it. I can feel it. I’ve been part of it. This can happen. It’s just a matter of will.
AZEEM AZHAR: So, Tony, you’ve worked on so many products in your career. Which is your favorite one?
TONY FADELL: My favorite one. I’ll say for me personally my most favorite now is Build, my book. My book is really something that I didn’t know if I was ever going to write. It took me fifteen years to think about it. And I am just so happy that this is the one thing that can last more than three or four or five years and doesn’t end up in a junk drawer somewhere. I’m really proud of Build. All profits from Build are matched by me 5X. So, anything I see, I match 5X, and then it goes right into a climate crisis fund for startups. So, my hope is Build is going to help in some way those people as well as some of those companies to address our climate prices.
AZEEM AZHAR: Well, there is a lot of wisdom in Build, and there are some great stories as well. So, thank you for writing it. And Tony Fadell, thank you for taking the time to speak to me today.
TONY FADELL: Azeem, thanks. It was really fun batting around all these topics. So, thanks.
AZEEM AZHAR: Well, that was a particularly wide-ranging discussion, and our archive allows you to explore all those subjects in more detail. If you disagree with Tony on the metaverse, then you’ll love my conversation with philosopher David Chalmers. And if you want to know about the specifics of how investors can support climate tech companies, then my chat with Elemental Excelerator’s Dawn Lippert will be enlightening, or maybe you’d like to hear the journey from the founder’s side. Then simply check out my previous discussion with LanzaTech’s Jennifer Holmgren, climate tech’s ultimate startup veteran, or write to our popular newsletter, Exponential View. If you want 20% off your annual subscription, go to www.exponentialview.co/listener. Today’s episode was produced by Marija Gavrilov and Fred Casella. Our researcher was Chantal Smith. Our editor is Bojan Sabioncello. Exponential View is a production of E to the Pi i Plus One, Limited.