Customer Ecosystem

Entries categorized as ‘Uncategorized’

Was the Tesla Roadster a MVP?

02/01/2010 · Leave a Comment

Tesla recently announced their plans to go IPO. The  desire to go public was not much of a surprise to anyone who had been paying attention, but buried in the S-1 was one thing that most people hadn’t speculated upon: Tesla is no longer going to make the only car they’ve ever made… the Tesla Roadster.

This was somewhat surprising news and while many people have been very skeptical of Tesla (myself included), they have managed to turn very little into a lot of financial support (from Daimler and the US Government) and now seek an additional $100 million in their IPO. How did they do this?

And then I thought about it. The Tesla Roadster, in prototypical lean startup fashion, was a minimum viable product (MVP). They identified a product that they thought the market was interested in. They threw an electric engine in a Lotus body and they stood back an saw if anyone would buy it. Consumers ( and investors) bought in and then Tesla said, “OK, now we have to make the real car.”

It was the equivalent of selling a barely functional web service by merely setting up a sell page with a Google Forms document.

Also in true lean startup fashion, Tesla made an iteration based on the market. Through sophisticated market research (I’m sure) they realized that they would need to expand their target market beyond aggro VCs from Atherton. Hence the move from the sporty Roadster to the Model S sedan. Well, that and the fact that the US government gave them money for the Model S, not the MVP.

Obviously, this article is somewhat tongue-in-cheek, but what Tesla has done really does validate the lean startup model. Get your product out there first, make sure it works and then make the changes that the market demands. The one caveat is that if you are an automobile or consumer electronics startup you are not lean. You have high manufacturing and material costs. You need sufficient runway to succeed.

I worked at a CE startup that launched what the customers called a “beta product,” but could adequately be described as a MVP. The result was not pretty and not because valuable data wasn’t gathered in the process, but because most consumers do not want an MVP– especially in an established space. If you are going to try an MVP in anything but a burgeoning market, you should expect a major hit on your brand and you need to have the runway to survive. As far as I can tell Tesla may have succeeded by the slimmest of margins. Time will tell.

Categories: Uncategorized
Tagged: , ,

Marketing for coders (part 1)

01/25/2010 · Leave a Comment

The situation: You’re a technical co-founder, launching/managing a startup on a shoestring. You don’t have a marketing budget, but you need to reach a consumer (non-technical) audience. There’s good news to be had, you can use your technical skills to build a marketing apparatus for virtually nothing.

For the sake of this discussion, marketing will be discussed in relation to the customer ecosystem model.  Part one will focus on acquisition and conversion. Part two will look at upsell and retention.

Acquisition

Acquisition is what most people think of when they think of marketing. However, it’s important to keep in mind that marketing does more than acquire customers.  Marketing engages customers. Marketing upsells customers. Marketing retains customers.

Because acquisition is when the funnel is the broadest, it gets most of the attention.

————————-

Search engine optimization (SEO) is the no-brainer of acquisition. SEOmoz.com is a great resource for those interested in SEO information and I found this presentation that they gave to the Y Combinator folks to be a great overview. There are two ways  to attack the problem of SEO. You can see what keywords you appear in and improve your ranks in those areas or you can see what people are searching for and then build around that. I prefer the latter. The best way to optimize in my view is through multiple landing pages with relevant content that can be swapped out early and often to remain fresh. Utilizing a free content management system is probably the easiest way to do so. That being said, if you’re a real estate site don’t optimize around Miley Cyrus. You should optimize around FSBO, foreclosures, and short sale even if you’re a site like Zillow whose niche is not listings but property values.

All of this can be accomplished for free through an adwords account. You don’t need to specifically pay to advertise with Google to get access to their tools, you just need an adwords account. As far as optimizing for other search engines, I wouldn’t really bother. Google’s share of the paid market is about 80% and for all intents and purposes, the paid market represent the value of the search.

SEO also helps validate your idea. If you’re having trouble finding the right long tail of searches, perhaps the market isn’t there for the solution you proffer.

———————–

Virality of product is probably the best way to acquire new customer. How did you first register for Facebook or Twitter? I can promise it wasn’t via a banner ad or a paid text link. Chances are, however, that you’re not building the next Facebook or Twitter. Therefore, it is important that you build social tools into your product in a way to enable sharing and promotion.

Virality works best when it’s baked into the product. The quick and easy thing to do is to enable someone to share their activity via Facebook or Twitter. This is getting old quick, however, and I’m sure that I’m not the only one with status ennui. Much better to have engaged user send a customized e-mail to a close friend or share a heartfelt message to their blog than to have them post a half-assed Twitter update to 72 followers.

Be creative and you can build a viral feature into almost any web product

——————————–

Co-marketing is another great way to great way to acquire customers. Now since we’re talking zero budget marketing this might be tough, but not impossible. Look at these examples from Billshrink and FourSquare. Getting a top-tier mobile carrier or cable network to feature your product in a national television advertising campaign may not be in the cards, but look around for natural partners, especially ones that might benefit from aligning with your technology and your product.

If that doesn’t work so well, do a charity fundraising with your users. First off, you will get lots of karma for doing something good. Secondly, you will engender a lot of goodwill and curiosity with others who are associated with that charity. Silicon Valley is in LOVE with Kiva.org and doing a campaign for them will get the attention of the valley’s entrepreneurs. Be sure, though, that your charity efforts are something that your users and your target market are passionate about. This is marketing after all and don’t feel guilty or cynical for using this as a way to acquire new users. It’s still a net positive for the charitable organization.

Conversion:

Conversion is all about landing pages. The better the landing page, the better the conversion. Period.

Ideally you should have a landing page for almost every search term, while this is an important part of optimization to bring in the traffic, it’s also an important part of the converting the traffic.

Having multiple landing pages is a great way to bring in diverse traffic. Once you bring that traffic in, you need to fine tune the landing pages to determine the best way to convert those potential customers.

A few tips:

  • A strong visual component.
  • Very little text
  • A strong call-to-action (CTA)

Your CTA should probably be in the form of a button. Here’s a great primer to get you started. The important thing is to have multiple iterations and to continue to refine.

Working with Google Website Optimizer makes the process almost pain-free. Starting off with simple AB tests makes sense, but you’ll probably want to move into full multivariate testing soon thereafter just because it’s so much fun.

————————-

The other big part of conversion is  understanding where your traffic is coming from. While it’s easy to find out where traffic is coming via Google, it’s a lot harder to track conversion from viral efforts. it is especially hard to track success when you have multiple viral efforts going at once. Therefore it’s important to build the ability to track campaigns.

Ability for promo codes is probably the best way to track a viral campaigns success. The ability to accept promo codes will help whether it’s an invite to a closed beta or an opportunity for free/discounted use of a premium feature. Moving forward, it will also help track the success of paid marketing campaigns.

Easier than setting up a promo code is a unique landing page: it.com/promo, but in my experience people tend to read right through these and go straight to the homepage. Especially if they are obviously promotional, like it.com/radioad.

———————

Look for part 2 to this post next week.

Categories: Uncategorized
Tagged:

Why Facebook wants you to have more friends

01/24/2010 · 5 Comments

We tend to think of Facebook as an 800 lb. gorilla, lumbering toward an IPO and world dominance in social networking. The user growth (350M+) has indeed been impressive, but the question I have is about user engagement. Is it as strong as before? Is Facebook experiencing problems with retention?

The question seems pertinent because Facebook very recently made a big push for users to find more of their friends on Facebook through use of their friend finder tool. This has gotten a lot of attention. Andrew Chen tweeted: “wow, huge “find friends” ad at the top of Facebook today. Wonder if they are trying to juice their growth?”

I think the answer is that the user growth is just fine… it’s engagement and retention where Facebook is trying to move the bar.

Anecdotally, I’ve noticed quite less usage from a many friends who used to be very active on Facebook. Based on my friend’s list I would say that the regular users from a year ago are a lot less active on Facebook now. Additionally, the most active users in my friendfeed are not even hopping on Facebook to update their status, but rather are doing so via Twitter.

So I’m betting that Facebook has a problem with user engagement. Revenue does not come from adding new users, but retaining engaged users. The more engaged users are, the more time the spend on the site and the more pages they see. The more pages they see, the greater the number of ads that Facebook serves. This certainly is not rocket science.

So Facebook tries to solve the problem of decreasing engagement and retention.

But how?

I wouldn’t be surprised if someone asked the data warehouse to analyze the user activity and find out more about the most active users and how they differ from less active users. And I’m sure they were told something like this.

  • Active users average 37 more friends than inactive users
  • Active users are 5 times more likely to receive an e-mail than inactive users.

Hence the push of the friend finder tool and  hence the messages you get on the sidebar to send someone an e-mail. Take a look at who they want you to send a message to. It’s invariably someone who is not very active on Facebook.

So these are the tools that Facebook is using to boost engagement and aid retention, but do they work? Hard to say, but it’s important to remember that correlation is not causation. Trying to artificially create user behaviors without understanding the motivations behind them seems superficial and short-sighted. Engagement and retention come from understanding the the customer and the why. Facebook seems to be focused on the how.

Categories: Uncategorized
Tagged: ,

Lean startup viability: how to know when to quit

12/21/2009 · 1 Comment

This post was prompted in part by a discussion a few weeks back by former Joost COO Hedrik Werdelin’s post, “Twitter used to be a crappy idea”,  about Twitter and their viability as a startup based on user metrics. While I think the article was more linkbait than reasoned analysis, it did raise an interesting question. How do you determine the viability of a lean startup? Or more importantly, how do you know when to quit?

In a VC or even angel-backed startup your viability, assuming you are not profitable, is generally based on one thing…. The ability to raise additional funding. When the money runs out either you raise more funds or you go home.

In a lean startup however, there is no such Darwinian fate. By the very nature of a lean startup and its iterative customer development process, a lean startup can live virtually forever and perhaps never find success. Therefore it falls to the entrepreneur to decide when to cut bait.

In this post I have applied the customer ecosystem model below (also see examples for Zynga and Twitter) as a means of determining lean startup viability.

Wederlin’s point was that Twitter had poor user acquisition growth and user numbers in the early years of the business.

Now, I think this point is debatable, but let’s assume for a moment that this is the case for StartupX.  StartupX launches and sees low to moderate user adoption. Despite this, there is no reason to necessarily throw in the towel. However (contrary to Wederlin’s assertions), mere faith in the technology or the team is not enough. You need to have strength in one of the following customer ecosystem areas: conversion, upsell, or retention.

Conversion

Almost more important than user acquisition is converting those new users once they arrive at the site. Obviously each type of web startup has has its own metrics, but  if conversion and usage is high it can more than make up for poor acquisition results. Consider the case of Twitter. Sure it’s user base may have been growing slowly, but is that how they were measuring success? More than likely they were looking at other metrics as being important:

  • % of unique visitors who register
  • % of users who send a tweet
  • % of users who follow someone
  • % of users who have followers
  • % of users who tweet 5 times a day
  • % of users who have more than 100 followers

Merely looking at the number of new registrants is a poor way of measuring success, but also growth. Internally, even though acquisition growth may have not been growing as they had hoped, my hunch is that metrics like those above were growing strongly, indicating that they were on the right path. They weren’t just flying blind.

Now let’s look at imaginary StartupX:

After a brief write-up in a techblog, StartupX gains 15,000 new users. Six months later they are adding only 500 new users a month and the active userbase is steady. Time to cut the cord? Not necessarily.

Consider:

  • 65 percent of unique site visitors register and create a profile (up from 33% just two months ago)
  • 35 percent of users post content on StartupX (up from 25% three months ago)

Metrics like these are good and would indicate that (contrary to the acquisition numbers) that StartupX is still viable. There obviously are acquisition issues (wrong target market, poor virality, etc.), but when one aspect of the customer ecosystem is executing well, it means that with a sufficient pivot, the startup is viable.

Upsell

Are people paying money for your product? Usually this excludes about 90% of web startups, but cash money can be an amazing salve for a startup which is not experiencing substantial new user growth. If you are able to get users to pay either a one-time fee or a subscription then you have something to build upon.

Let’s look at the StartupX upsell scenario.

StartupX has a premium service for active users which includes and enhanced profile and unlimited uploads. Despite the fact that user growth is slow, more than 5% of active users pay for the premium service. Not only that, only 1% of users paid for a premium membership 4 months ago. Growth in premium subscriptions is a much more valuable metric than total user growth. Some users are more equal than others.

The trick here is that if you are getting people to pay for your product, you need to work to identify how large the realistic addressable market is and determine strategies to get traction in this market. If you’re bootstrapping, it does you no good to be exaggerating your addressable market (as opposed to when you’re trying to raise VC). However it behooves you to look far wand wide and identify other groups that may pay for your product. The key here is to continue growth in this revenue stream.

Retention

Retention is the kissing cousin of conversion in the customer ecosystem model. For conversion, is the content/experience compelling enough to for you to register or participate? For retention, is the content/experience compelling enough to keep you coming back.

If, for example, 80% of registered users are coming back on a weekly/monthly basis, there’s a lot of potential in what you are doing. Even low to moderate user growth with high retention levels can be a success.

Overcoming Acquisition Issues

In order to be successful, every startup will eventually need to figure out the acquisition puzzle. Sometimes there are businesses where the acquisition costs are just too high for a viable business. The point however of this blog post is that startups need not initially live and die by acquisition numbers. Other components of the customer ecosystem model are equally important components to figure out and basing viability on initial acquisition efforts is foolhardy.

Knowing When To Quit

If your acquisition efforts are failing, there need to be signs from other places in the model (conversion, upsell, retention) that the business is on the right path. If you’ve been at it for a long time and acquisition is poor and everything else is muddling along, then it’s time to quit. However, if you have found that you can either convert, upsell or retain customers well, then keep plugging away.  The feedback from users is that your startup is on the right path…. now it’s time for incremental improvements in the other areas of the model to allow the business to reach the next level.

Categories: Uncategorized
Tagged: ,

Why Twitter shouldn’t pursue an advertising business model

12/03/2009 · 1 Comment

First, a confession. I made the decision recently that when I start an internet company it will not be dependent on advertising for revenue. As an aficionado of the lean startup model and customer development process, I believe it imperative to have paying customers from the get-go. When I developed the Customer Ecosystem model, I explicitly included a revenue component that was independent of advertising. The simple fact being that as VC funding becomes more tight and companies need to show their worth more quickly, advertising as a revenue model is going to become a relic… a bubble throwback that we will all talk about, but probably not think about employing.

Recently, Twitter co-founder Biz Stone and COO Dick Cost0lo have  made comments about the first substantial real revenue stream that we’re going to see from the über-hyped microblog company. And if you chose chose advertising (really cool, non-traditional advertising) in the pool…. prepare to collect your winnings.

Even though Twitter has millions of users and can probably become profitable rather quickly, I think it is a mistake for Twitter to pursue an advertising model.

Who has succeeded, and I mean “knocked it out of the park” succeeded in using an advertising model? Google…and that’s about it.

The internet is strewn with the living dead of companies that have tried to become internet kingmakers and failed using an advertising revenue model: AOL, Yahoo, MySpace, MSN Digg, and countless others.

And then let’s look at the key players in the market who generate their revenues from ads, the up-and-comers like Glam Media. Well, they recently took Series E (!) funding.

Many of the businesses that are reliant upon advertising are getting CRUSHED. Look at the the New York Times, NBC Universal, Clear Channel etc… the simple fact of the matter is that it’s becoming very hard to be a business that matters with advertising as a revenue model.

Sure, Facebook may be able to pull it off, but like Google they are also turning the advertising world on it’s head and there’s still no promises of success. Consider:

Google: Changed the advertising world on its head by making ads relevant, practical and contextual. And of course, they executing the living bejeezus out of their  biz model. Anyone with any doubt about about their ability to execute should try to advertise on MSN or whatever the hell they call it now.

Facebook: In the process of changing the advertising world through massive amount of demographic/psychographic data that allows for targeting via affinity. We still don’t know if they will be able to pull it off. Smartly though, Facebook is hedging its bets and looking seriously at other business models.

Twitter: Trying to re-do advertising model. The problem is that they just don’t have the numbers compared to Facebook and their growth is slowing.

I’m not saying that Twitter is in trouble, far from it. I’m just saying that an advertising model, no matter how innovative, will have a hard time succeeding.

So let’s look at what Twitter does have:

  1. Loyal, active (not to mention affluent) users
  2. The attention of the corporate world
  3. A core technology that would be difficult  for competitor to supplant/replace

If this doesn’t spell subscription model, I don’t know what does.

I was excited last week to read that Twitter was considering a subscription model in Japan, only to have them put the kibosh on those plans the next day.

It’s too bad. Because Twitter could have a very strong customer ecosystem:

Acquisition: (Good) Despite somewhat stagnating growth compared to Facebook, and an unremarkable viral coefficient in the truest internet business sense, Twitter spends virtually nothing on acquisition, gets tons of free press and is promoted actively by many corporations and individuals.

Conversion: (Fair) More than half of twitter registrants never follow anyone, tweet or get followed. This is not so bad considering their acquisition numbers, but it speaks to and underlying weakness in conversion to a mass market.

Upsell: (Good) Obviously, we’re in pure speculation territory here, but I see huge potential in multiple subscription levels on both an individual and corporate basis. I can imagine a $5.99 a month subscription for individuals who for the following features:

  • Ability to send direct message
  • Ability to send more than 25@ replies per month
  • Backup/storage/offline accessibility to tweets
  • Support for more than 500 followers

Obviously the corporate subscription would have some similar features, but would focus on marketing/support and would have robust analytic tools.

Retention: (Good) If there was a ever a trapped customer it would be the Twitter customer. Sine Google killed Jaiku (and I’ll never understand that one) there has only been one microblogging platform. Additionally Twitter users love the service and promote it heavily. Eventually, a new technology may come and replace Twitter, but not in the near future.

Twitter is a great company with a world-changing product… let’s just hope that their revenue model (when it eventually comes) won’t consign them to the garbage heap.

UPDATE: Twitter testing enterprise tools. Looks like a good first step.

Categories: Uncategorized
Tagged: , , , ,

Actually, the internet is becoming more open

11/18/2009 · Leave a Comment

The web as we know it is in danger! Members of the internet punditcacy, Tim O’Reilly and Chris Messina, sound the alarms! Anil Dash pipes in on an ongoing discussion about the ever-changing internet and technologies arguing that we can have an open web, but we’re going to have to fight for it.

Similarly, Doc Searls says the problem with social media is that it’s not under personal control:

Today in the digital world we still have very few personal tools that work only for us, are under personal control, are NEA, and are not provided as a grace of some company or other. (If you can only get it from somebody site, it ain’t personal.) That’s why I bring up email, blogging, podcasting and instant messaging. Yes, there are plenty of impersonal services involved in all of them, but those services don’t own the category. We can swap them out. They are, as the economists say, substitutable.

All this sturm und drang is a bit much. That’s why you won’t find most people complaining.

The death of open platforms, the obsolescence of the URL, the lack of personal control don’t matter one iota to most people today, because the internet is becoming more open for them.

When the web first came into popularity the killer app was AOL, which provided you with a personalized view of the world. We all had information. We could chat with our friends in distant lands. We had naughty pictures on demand. It was waaay better than sliced bread and it was a closed, proprietary system which eventually became obsolete.

Now the killer app is Twitter, which allows you to provide the world with a personalized view of you. Likewise, it’s a proprietary system which will eventually go the way the of the Dodo. But for right now, Twitter, Facebook, etc. are giving the power back to the people. Finally, we have a vox populi. Who gives a shit if it’s more closed than it should be… there are many platforms to choose from and the numbers are growing.

Of course, things could be more open than they are, but we have Brizzly, Tweetie and Seesmic. We have iPhone apps sharing to Facebook. Don’t like Posterous? Use Tumblr. Interoperability comes with time but let’s not worry too much about the internet, it’s finally in the hands of everyone, not just the self-appointed internet guardians. And I’m guessing that’s where some of the angst comes from. Google page rank and RSS feeds and blog aggregators are becoming less important. Readers of this blog are much more likely to find it via Twitter or Facebook than via a google search.

So where do these new technologies leave us?

In addition to taking over the conversation, we are also poised to take over marketing.

Not just individuals, but small business and other agile businesses are able to use these tools, no more need for the splash pages and expensive media campaigns. Less need for internet gurus and conferences. Everyone can become a guru and everyone can host (and attend) a conference. These new technologies are bringing us virality  x1000. This is the internet becoming more open. Dependence on a well-traveled URL or an O’Reilly web 2.0 conference is diminishing and this is a good thing.

Sure, it’s a little messy now, but let’s embrace these changes for what they have brought to people, not quibble about transient platforms which have brought about

 

Categories: Uncategorized
Tagged:

Why Zynga couldn’t go public soon enough – Customer Ecosystem Weakness

11/02/2009 · 7 Comments

Zynga logoIt’s becoming increasingly evident why Zynga wants to go public as soon as humanly possible. Farmville is hot, Cafe World is getting there. The revenue is just rolling in and everything is great. But it’s not going to last, and I think they know that.

Looking at Zynga’s customer ecosystem it’s clear that their current efforts have probably reached their apogee without making significant changes to their ecosystem.  Their scorched earth business model will not provide sustainable growth to support a decent IPO.

Here’s why:

Acquisition: Dependence on Facebook

Go check out Farmville.com. Nothing really there is there? They drive you back to Facebook to play the game. All well and good except that despite as much money they pour into Facebook they don’t own the platform. Additionally, their viral efforts are subject to Facebook’s whims. Having an acquisition model dependent on partners and platforms is one thing. Having an acquisition model dependent on one partner is entirely another.

Now don’t get me wrong, they have some leverage with Facebook…. heck, it’s been reported that they’re on pace to spend $50M annually on Facebook ads. However, as Facebook matures they are going to start getting revenues in other places, like e-commerce. For now, as both of these companies slog toward and IPO they need each other, but Facebook is already beginning to clean up their act. Zynga is going to need to identify new acquisition models when the hammer falls.

Conversion: Smooth sailing, I think

For the uninitiated, let me say that the barriers to entry on a Zynga social game are very low. I can’t imagine they have any trouble getting people to play games. And people love the games, and get addicted, which brings us to the upsell.

Upsell: Scammy incentivization finally getting notice

Lost of people play social games, but few are willing to pay for them. That’s where offers come in. The firestorm that Michael Arrington created at the Virtual Goods Conference has moved one step closer to its denouement today with a post from Zynga CEO Mark Pincus. Not really walking back from using the incentivization model,  Pincus claims that they’re vigilantly cleaning up the scams and that most are good companies. However, with Zynga admitting that these partners make up at least 1/3 of their revenues (and I’d bet they’re higher) don’t expect to many changes. In fact, a quick glance of the offer page (below) shows 12 pages worth of offers.

Zynga offers

Even worse for Zynga is that they can have this revenue stream cut off from them. I remember similar programs back in 2002 when I was working for Classmates.com. In fact, one Classmates exec told the PM in charge of the program, “I don’t know how you sleep at night.” Since nothing has changed in 7 years, nothing will ever change, right? Actually no, it’s very possible that a more activist FTC under Obama could come into this industry and clean house. The necessity of such an action can be debated, but one thing is sure, the laissez-faire regulatory approach of the Bush administration provided these businesses with a great deal of leeway.

Retention: Lack of brand loyalty, innovation and the transience of social games

How many people playing Mob Wars, Farmville, or Cafe World know they are playing a Zynga game? How many care? Many Zynga games are essentially rip-offs of other games from Playdom or other companies. Nothing is innovative or unique about their games. Zynga’s on a streak, they execute well, but that’s about it. No one is going to be playing Farmville three months from now, so Zynga will need to continue to hit home run after home run and that’s not going to be easy.

So, let’s go to the tale of the tape…

To illustrate the problems that Zynga discussed above, I plugged Zynga into a customer ecosystem model I like to use. If a company is strong, it will have three of four squares rated green. Anytime a company has a red square it essentially means that their customer ecosystem is unhealthy.

In this case, it’s my opinion that Zynga (as it currently stands) is in a bad position… and probably knows it. Hence the desire to push out an IPO very soon. Good luck with that.

UPDATE: Historical footage of Mark Pincus discussing Zynga’s initial growth strategy. Many strong companies (like MySpace) have a questionable past. But this does nothing to help Zynga’s IPO hopes.

UPDATE II: Senate committee investigates the offer business, including my alma mater, Classmates.com.

UPDATE III: Maybe someone at Zynga is reading this site. Zynga to enable Farmville play on Farmville.com.  a good first step and removing the constraints of the Facebook platform.


Bookmark and Share

Categories: Uncategorized
Tagged: , , ,