Building The Web

MassTLC UnConference Re-Cap

Yesterday, I attended MassTLC's The Future of Software & the Internet unConference, which was a terrific forum.  Enough so that it snapped me back from my 1-year hiatus from blogging.

The first forum I attend was titled "If not advertising, then what?", where we discussed the pitfalls of advertising as a revenue model for the web and dug into other forms.

Why do ads fail on the web?

Well, because ads rely on context for value.  Ads work best when you have a captive audience in the right frame of mind for the material that you deliver them.  In most cases on the web, your audience is anything but captive, and simply relying on semantic modeling to increase relevancy will not help that.  The relevancy needs to go beyond the basic to the sublime, and the only way to do that is to have deep context of the viewer.  This is why niche web sites can maintain reasonable CPMs, while everyone else is seeing theirs decline.  But then, that CPM does not scale.  Increased traffic usually dilutes the the CPM and kills the ROI.  This problem plagues the newspaper industry as well.  As newspapers grow in distribution, the costs of adspace increases for the paper and the ROI for localized and regional businesses drop.  For large, traditional newspapers to succeed without drastically reformulating their business model, like the WSJ did, they need to look into how they can localize themselves to regions, towns or even individuals to increase relevancy.

What are the other revenue models?

Micropayments or microtransaction is a new trend for a number of recent startups in the social space.  In Japan, virtual goods is a multi-billion dollar market that is largly supported by micropayments.  Micropayments allow for a large number of small transactions to be grouped together into a single financial transaction to reduce the per-transaction costs.  This is like going to an arcade and trading $20 for 125 tokens, or how iTunes groups your purchases together and only charges your card once a day.  In the U.S. the virtual goods market is only $500M, with about $40M of that coming from Facebook.  One limitation of this model is facilization.  With it being such a young market, there are only a few early stage services in the market, most of which is focused on online gaming.

Freemium is like shareware rebranded for the hipsters.  Everyone gets limited access to your product for free, and then have to pay for the rest.  It makes for painless acquisition and gives you a longer window to make activation occur.  The pitfalls are knowing where to draw the lines such that they are after a rewarding experience, but no later.

What else?  Sell 'things'.  Physical things.  Make something people can hold in their hands.  Quality prints, 3D prints, appearal, stationary, etc.  Sell 'services'.  Give out your tools and content for free, then sell professional services around them.  For example Drupal is a free framework for building social community web sites, and Acquia makes money by supporting it commercially.  Sell 'experiences'.  Play to people's passions and the human factor by making something that satisfies an unquantifiable need.  The "I paid $1000 for this red button" iphone app, or an online community for millionaires are one type of example.  Games and movies of course can fit in this category.

The important take-away here is that "traffic is no longer a revenue defining co-efficient".

One point that I saw people missing in a number of discussions is that there is something to be said for getting an investment out of your users.  Do it soon, do it early.  Don't wait to ask for money, email address, phone number, first born, whatever.  Give your value proposition, ask for a commitment.  The emphasis people give to being "painless" or "frictionless" is misguided.  You should remove all hurdles, pains, and frictions, except the ones that make you money, or the ones that allow you to further drive the commitment from the individual.  By giving something for free, you have immediately killed the retention value of that product.

Co-Working

I love what Tim Rowe is doing for Kendall Sq. area.  His latest endevors with CambridgeCoworking and "The Venture Cafe".  I cannot wait.

CloudCamp Boston

Now there were dozens of people who wanted to talk about clowds and there were a number of talks about clowd computing.  Appearantly there was little agreement or common understanding amonst a number of the attendees.  I tried to avoid these talks like the plague, but I could not avoid the one posted to for the end of the day. "Boston Clowd".  In this talk was Michael Werner of Microsoft Azure, John Treadway of ClowdBzz.com and ClowdCamp, and a number of great folks.  We were not just talking about clowds, but about the brain drain of New England and the need for us not to fall behind, especially in clowd computing.  We talked about how best to develop a collaborative/consortium/catalyst/combinator/collective clowd committee to write the wrong.  With some luck there will be a CloudCamp Boston in the late half of July that might include an exciting challenge to the entrepreneurs and developers in the area.  We will see.

What was missing from this event?

Mobile discussions.  Very few people discussed mobile technoloy, netbooks, sms, etc.  There was little discussion of Twitter, Facebook, App Store, Android, or consumer products and services as a whole.  All-in-all, it was well worth attending, and I look forward to next year.

Slide won the Facebook race, but the competition is just starting.

Slide says it is done making Facebook applications, and while many read into this as a victory announcement, I think of it more like winning the New Hampshire Primaries.  Sure this marks the end of the great Facebook app race, but this is still just the beginning leg of a longer race.  With other social platforms opening their doors, there is now a wealth of OpenSocial real estate up for grabs.

What is more, Facebook is somewhere north of 70 million active users.  According to Adonomics, Slide has about 4.5 million active users or 6.5% of the Facebook active population.  There is still a very large population of people that fall outside of these numbers.  Namely, active Facebook users only make up 0.1% of the world's population, or somewhere around 15% of the U.S. population.  For Slide, those numbers are less than 0.01% and 1%.

Slide's position as the #1 Facebook application provider is still quite admirable.  The population is rich with 18-28 year-old, english-speaking, early adopters, and is an ideal marketing audience for many companies.  What this really means is for other companies to compete for this demographics attention, they are really going to have to do so outside of Facebook.

My thoughts on this are:

• This demographic will eventually move on from Facebook.
• For all other important and specialized demographics, the race is still on.

BarCampBoston3 Recap

Last weekend, I attended my first BarCampBoston event.  I found it be one of the most invigorating ways to spend a weekend.  For those who are unaware, BarCamp is an unconference held in response to O'Reilly's invitation only Foo Camp.  Discussions are run by the attendees, and can cover topics from emerging technologies, viral marketing, hiring, to Battlestar Galactica.

When I think about what differentiates the east coast from the west coast (namely Boston and San Francisco), it always comes down to communication.  San Francisco definitely has a more of a sense of open collaboration and shared learning.  However, I think the intellectual prowess of the Boston area is quite impressive, and events like this are helpful for the community.

What excites me about Boston, and this is a point that both Jay Neely and I agree on, is that Boston has "normal" people.  San Francisco is chock full of early adopters and technology enthusiasts.  While this is healthy soil to give birth to new technology, it is not the environment for solving long-tail user adoption.  If you want to cross the chasm, you need to take a step out of San Francisco to do it.

At least this is what I tell myself, since deep down, I could move to SF in a heartbeat.

I, myself, live among the lakes and trees of central New Hampshire.  I endure a 90-minute commute to Boston in order to live somewhere nice enough for the French President to vacation at.  I rely on telecommuting and a distributed work environment to allow me such a luxury.   It was for this reason I was inspired on Sunday of BarCampBoston to lead a discussion titled "Nowhere! - living/working/hiring remotely".  The talk was unprepared and actually the first that I had given in a while.  In spite of that, the discussion seemed to draw a decent crowd and go quite well.  It was nice to see that I was not the only one passionate about the subject.

I am now eagerly looking forward to BarCampManchester.  I hope that all of you north of Boston to come join us, and offer your help to Ian and Kelly who plan the event.

The Future of Social Apps

Don't jump on the bandwagon

If you are just getting into the arena, it is a terrible idea to simply copy successful apps like those by slide and rockyou.  While you will probably find some success, it will not be very measurable.  The boom is over, and market stabilization is on the way.  If you have not yet done so, read The State of the Facebook Platform.  While I do not think the demise of Facebook Apps is near, I do think the excitement is fizzling for Facebook.  And MySpace has had its day.

Start thinking globally

If it is reach you want, start looking at hi5.  Hi5 has over 80 million registered users and more than 40 million monthly uniques.  Their population is only 15% US, with a strong 30% from South America.  The hi5 application API just opened up less than a couple months ago.

Or, start thinking small

Many smaller social networks are setting up their own OpenSocial API's to allow for applications.  Expect Linked-In to release their API any day now.  Over the next year, I expect the number of social networks with OpenSocial API's to be at least four times the number it is now.

Generally, the more specialized your audience is, the higher the CPC and eCPM.  In other words, get excited if HGTV setups up an OpenSocial API.

Monetization as a product strategy for social web applications

I have been looking into different social applications to see where they succeed and fail at monetizing their product.  Just as adding a share feature does not make a product naturally viral, just inventing a feature set add-on does not make it a money maker.

The thoughts below focus on new product initiatives.  How to get to market faster by improving you initial ROI on engineering by using monetization as a strategy. While I am focusing on selling features below, the principal is the same for any monetization strategy, as building value and desire is the name of the game.

Here are some of the thoughts that I have had about maximizing ROI by minimizing feature sets and reserving them to find out their monetization potential. The thought here is: Once you give these features out for free, you cannot charge for them later.  (Unless of course, you are selling crack.)  You are better off waiting for your users to tell you what they really want, and how bad they want it.

Build Walls

I know it seems against the concept of the open web, but building walls between users is actually important on several levels.  I am reminded of Randy Paush's speech about Brick Walls. According to Randy Paush, walls exist for several reasons:

 

• to see how much you want it
• to keep the others out
• let us show our determination

So to improve your ROI on initial engineering effort, leave up as many of the walls as possible.  The walls will protect your users, and they will build desire for access.  Let the user's desire determine what additional walls to take down.  For an example, look at Linked-In.

Build Gates

Set usage limits that protect your infrastructure cost, and protects your community.  Limit number of items, pictures, daily messages, data storage, etc.  If walls protect and build value in the community, gates help you manage it.  There thousands of examples of sites that have done this well. Allowing cheap access drives acquisition.  Limiting it drives desire and retention.  For an example, look at Backpackit.

Take Bribes

Outside forces are going to find a way in eventually.  But, if you build good walls and gates, buying their way in should be easier for them.  Sponsor packages are only valuable if they cannot achieve the same goals as a regular user.  Also, sponsored accounts build honesty in the community.

These concepts are only part of the picture of how to monetize social applications, but these are important concepts for early-stage projects.  Skipping these steps can make it harder to monetize your product later, and if you cannot sell the left out features, you will win over your users when you give them what they want for free and strengthen your retention and referrals.

AARRR! Getting the booty out of the social web

Startup Metrics 101: a Product & Marketing Workshop

From: dmc500hats, 1 week ago

| View | Upload your own

This presentation demonstrates a simple, actionable 5-step model for measuring startup metrics. The 5 steps are: Acquisition, Activation, Retention, Referral, & Revenue (AARRR!). The presentation also explains how to use the model to make better product & marketing decisions for your startup.Created by Dave McClure & Hiten Shah, presented at Web 2.0 Expo SF on Tue 4/22/08.

SlideShare Link

Attention is greater than Retention

I have heard from more than one source that social websites are reliably seeing their CTR drop logarithmically in relation to page views.  This means that by the third page view, the CTR has dropped by more than half.  This is important information.  If ad space is part of your business model, then you might want to pay attention.  This says that increased page views does not equal increased revenue.  On the contrary, increased page views may actually mean increased cost.  It actually makes sense that newer visitors are more likely to bounce out of the site rather than stay around.  So, if you cannot get these people to click ads, what can you do?  Assuming ad space is you primary revenue model, my recommendation is that by page view number three, you should stop pushing ad impressions, and start encouraging referrals.  New referrals mean new eyes, which means higher CTR.  If you have other revenue models for users, such as virtual goods or feature sets you can shift to internal marketing and push these other monetization sources.

Virtual Good

While at the Web 2.0 Expo in San Francisco, Max Levchin of Slide.com gave a keynote interview.  In it he mentioned his excitement at the market potential for virtual goods.  That is goods bought and used strictly online.  For example, a virtual leather couch for your virtual room, so you can impress your online friends.  To see an example, check out Cyworld or Second Life.  Jeremy Liew of Lightspeed VP has expressed his interest in the market on many occasions.

However, there are many who are cynical of the frivolousness of the virtual goods market.  Many are criticizing the act of turning real money into virtual goods and stating that it is counter-intuitive to society.  I actually argue much the opposite.  Frivolousness and discretionary spending is a part of human nature.  The Internet has not changed that.   People buy more than one pair of sunglasses, custom rims for their car, and fill their house with designer furniture.  If you think about where all this stuff comes from and goes, you will realize the environmental and economical impact that all of this stuff has on our society.  So, channeling even a percentage of that spending into goods that have virtually zero impact could actually reduce the frivolousness cost on our economy and environment.  I think the U.S. is still early on the adoption curve, but I am hopeful for what this may mean for reducing waste in our country.

 

Why acquaintances matter

The social web supports many interactions for friends, family members and business contacts.  But rarely do you hear people in the web 2.0 space excited about acquaintances.  But why not?  Well, because acquaintances generally do not interact.  The misguidance here is that the social web is only about interaction.  It is not.  The social web is about mimicking real world social behavior in a virtual environment.  The benefits of which are that time and space matter far less, which allows social interactions to happen at a faster pace.

So, why do acquaintances matter?  The answer is in social obligation. Social obligation lies behind the success of viral loops, asynchronous gaming and all of the major social networks.  Invitations and messages are common forms of social obligations.  Social obligations may also be known as an incomplete social act.  An acquaintance is a long lingering form of an incomplete social interaction.  You have become aware of that individual, and for a long time, will have you keeping track of this individual in the back of your mind until you take the next step in growing the relationship.  Companies that leverage incomplete social acts are often much more successful.

I would argue that acquaintances is what supports a large portion of the traffic for blogs and news feeds, as they support and keep this interaction alive, particularly in the long tail of social blogging and microblogging.  People keep track of acquaintances using these tools in hopes of finding a way of completing the social act and taking the next step in building the relationship.  I think that products and companies that take time to figure out how their product fits within the acquaintance social model will see a larger coefficient of success than those who do not.

Weekend Warriors of the Web

As I have been spinning the idea for a new app for Facebook with a colleague, I began doing some research on web 2.0 usage surrounding drinking.  I soon found this data using Facebook's Lexicon, and I was immediately excited (and a bit thirsty).

I have looked at a number of traffic and frequency charts.  On almost every chart, the middle of the week is a slow or large hump between weekends.  This is not just an inverse of that, but an exaggerated opposite of it.  Many spikes are more than 25%, very well defined and consistently reliable.  I would like to compare this cycle further against discretionary spending behavior.  This chart suggests there is some correlation.  But, it would be nice to get some data direct from merchants or credit card companies.

With all of the recession talk, I have had discussions about how beer is a bellweather. Then, during the first night of keynotes at the Web 2.0 Expo in San Francisco, the topic of society's need for gin during the Industrial Revolution was an amusing topic.

I am already optimistic about the correlation between alcohol consumption and discretionary spending and the possibilities of utilizing that in marketing for the social web.  I am excited to see where goes and hope to find more supporting data.