Seems to me the tech startup world and the music business have more in common than either would probably like to admit. They are hit-driven businesses. Like record companies, venture capitalists invest in 10 companies hoping for one huge hit. I’m not sure what the numbers are in the music business, but I imagine they’re similar. VCs are, in certain ways, like music agents – though instead of hanging out at smoky bars and high school talent shows they lurk around hackathons and Stanford. But there’s a similar hunt for “one-in-a-million” stars and certain investors who seem to have an almost sixth sense for hit-makers.
So in these hit-driven businesses, is there anything other than just “general gut” that can point to winners? Since I fall more on the tech side, I can’t help but think that there has to be some way to mathematically model the future popularity of a service. This post is the beginning of that quest.
Of course by “model” I don’t mean manipulate real, actual metrics like number of users, daily active use, angle of hockey-stick growth curve, etc. – any intern with an Excel model can do that. It’s more subtle than that. Instead, if you can somehow ascribe numerical value to the non-measurable attributes of a startup (or perhaps a musician) that might give a more complete picture of future adoption.
In the academic world, I have seen this refered to as memetics – the growing field that uses principles from several disciplines to gauge how quickly something will spread.As one author describes it: “At the center of this overlap lies cybernetic theory, but it also entails strategies from marketing, psychology, social networking, cultural analysis, rhetorical principles, and biological theory, (specifically viral and epidemiological models).”
For these qualities – I’m not really talking about useful but boring services. I’m much more interested in those few products that for whatever reason do a good job of capturing attention/consciousness (ahem, Twitter).
In other words, is there a way to quantify je ne sais quoi in the world of consumer tech? I suppose there are worse ways to spend a Sunday.
I came up with a list of levers/attributes that I believe contribute to popularity. The next step would be to take these qualities and begin to assign values – though I’ll leave that for another, far nerdier post. Here’s the working list – and I’m definitely looking for more suggestions:
Product:The product itself is extremely important – I hope the rest of the post does not indicate that I think otherwise. All of the established product prinicples – about making something people want, cherishing your users, finding product-market fit, etc. all apply.I suppose I am more trying to debunk the “build it and they’ll come” idea that the fight for users begins and ends at the product stage. From what I’ve seen as an outsider, this is far from true.
Tech: The tech cannot suck. The product must work and it should be fast. Every single dollar spent on amazing engineering talent is worth it.
Market Trends: Macro trends are important – there are certain general umbrellas that investors, journalists and consumers will find compelling. Don’t pursue niches that are overexposed – which right now is group-buying (Groupon knock-offs!), social gaming (Zynga) and location-based social networks (Foursquare). Instead, find a niche where there are indicators that it will be a huge market. If I knew what these were I’d be starting businesses in them, but talk to any investor and they can give you some theories.
Early Users: This is incredibly important. There’s a great post from Tara Hunt about how many marketers assume that if you just spam the “influencer” types that that can make a product. That’s fine, and sure I’d love it if Beyonce wants to endorse whatever I’ve made, but it seems like it’s actually better to get more rabid fans early on and court the influencers later. (Have you read “1000 True Fans” yet?)
Internal and External Storytelling: Two angles here – how the startup tells its own story and how it presents itself to the outside world, and the second, and perhaps more importantly, how the product/company’s story is told by third-party sources – whether that’s early users, journalists, or just a person-to-person interaction at a conference or in a coffee shop.
Graspable Depth: What I mean here is that your service has to be complex enough to be interesting to early-adopter-types who have “seen it all” but simple enough to be appealing to your average consumer. Wolfram Alpha suffers from too much depth, while the plethora of group-buying sites are now uninteresting.
Rawness: Perhaps I have saved the most important for last. I wasn’t sure really what to call this, but it’s that pang of guilt and curiosity that comes when you see a new service that is somehow mold-breaking. Do you remember the first time you signed on to Facebook?When you saw that the person in your math class loves Wes Anderson movies as much as you? Previously, this information was only attainable through person-to-person contact (there were other social networking sites, yes, but it wasn’t the same sort of feeling). There’s a certain excitement in an interaction becoming automated.Or Chatroulette. Did you really think I’d write a whole post about popularity and not mention Chatroulette? The first time you see it, you’re like “I SHOULD NOT BE LOOKING” – but you do anyway. It is the willingness to sit at the intersection of appropriateness and lunacy – that is what I mean by rawness.
I think there’s this big misconception in the tech world that good tech can save you. If you make your site faster or use the hotttttest new web framework that that will somehow make up for the lack of other attributes (this is related to “product-market fit” in a way). I don’t buy it – amazing technology is assumed.I would relate it to the whole Lady Gaga phenomenon – her music on its own is pretty pedestrian, but her willingness to embrace ridiculousness and create a story around herself that shows both depth and actual musical talent has propelled her past pop musician to superstar.
So what will be the next mega-hit in the world of consumer tech? If I had a few million bucks, my money would be on Blippy. Sure, tech-heads already know that the company has some interesting buzz, but to me the case for Blippy is more complex than just general chatter coming from all the right places. When I look at the list above, it all seems to fit – the rawness of looking at someone’s financial history, the interesting macro talk around financial and social data, especially in light of the recent Mint acquisition, the simplicity of sharing your accounts combined with the gravity of what it actually *means* to do so, the evangelism around the product and the fact that their tech seems to be awesome (though I don’t have any info on whether it actually is or not).
The seven qualities above are just the beginning – I’m very interested in feedback and criticism on popularity modeling. With startups, looking beyond the product itself is difficult and not always a productive use of time, but to me it’s where you can find all the most interesting indicators of future success.
First-mover advantage (FMA, not to be confused with FML) is one of those things they teach you in business school as *doctrine*. Be first, or don’t bother. This leads to much malaise when, upon coming up with, say, a brilliant idea for a mobile coupon business, hopes and dreams are shattered when it becomes known that hordes of other entrepreneurs are working on the same idea.
I have been thinking about how FMA applies to web startups, and after some thought, I now believe first-mover advantage is a myth in the web world.
If the premise of FMA relies on the fact that a first-mover will gain resources and advantages that later entrants will not be able to match, then these advantages have to be compelling enough to warrant fighting to be first. And I’m not sure they are any more.
Argument below. Thoughts/criticism welcome. Put this together pretty quickly (and highly unscientifically) so I’m sure there are lots of holes.
1. Moore’s Law and speed.
Moore’s law is one of those “golden rules” in the tech world. Everybody looooves to cite it. Moore’s law is to tech nerds what Foucault is to philosophy junkies.
It’s because there’s a lot of brilliance in Moore’s law. As I understand it - the real brilliance here was the observation that technology progresses much quicker than people would think possible (or more accurately, that the number of transistors on a chip doubles every 24 months).
If you think about how this plays out in the consumer world, it means that consumers will become socialized to adopting more advanced technology faster. So the amount of time it takes for a market to develop, hit a peak, and become saturated (say, photo sharing) is shrinking.
How does this affect first-mover advantage? Take a look at my lovely graph below. If a technology markets develop more quickly, this will seriously reduce the potential upside for a first-mover. The top graph is what we think is FMA, the bottom is what I believe it really looks like.
If this is true, the potential upside you can gain from FMA is shrinking.
2. Underestimated importance of initial users (adoption) and marketing.
I know a lot of entrepreneurs who have the “if you build it they will come” mentality. No one will admit to this, obviously. They talk to you all day about marketing and user acquisition, but it seems like very very few web startups actually do this well.
Initial users are the ones that will evangelize your service and make it zeitgeisty and remarkable. I saw this great video last night on the importance of “first followers” and how they help to create mass movements.
Sharp marketing and committed users have nothing to do with FMA and seemingly everything to do with popularity and adoption.
3. Zero barriers to entry, commodification of apps, low switching costs.
Have you noticed all of those “hey look at what I built in a weekend” links on Hacker News? The ease-of-use afforded by these new slick web frameworks like Rails and Django make it pretty easy and quick to build a site and enter a market.
Web sites and mobile apps are undergoing a process of commodification as they become easier and easier to make, and the move toward cloud-based apps makes the switching costs for the user nearly zero. It’s no longer enough to have a single hit with a single great app.
All of these trends are really cutting into the upside of being first.
4. “Early is the same as wrong”. This is something I heard a lot in Silicon Valley. I don’t necessarily agree - if you are early but are smart enough about your cash to hold on until the market matures, then you’re not necessarily wrong. Seems like the emphasis on being first is flawed - it’s about timing.
The tough part is finding the trade-off. There’s this sweet spot between the first-mover land-grab and market readiness, but you have to hold on until the wave hits. Everyone’s favorite example here is online video - there were plenty of video sites pre-YouTube but they were slow and mostly annoying. The strategic use of flash and rise in broadband internet in homes helped to make the market timing nearly perfect, though with the dominance window narrowing I think even trying to time the market is an exercise in futility.
Market Dominance in the Brave New Web World
So, if not from FMA, where does real market dominance come from?
I suppose in a way I’m making an argument for extreme iteration. But it’s more than that. I think the consumer web industry - similar to fashion and music - is incredibly driven by trends and timing. If you can hit a curve at the point right before widespread adoption, and do this consistently, you will become more invaluable to your user.
See the graph below - the point here is that it’s no longer a single curve and a single market. Instead, the companies that will do the best, in my mind, are the ones that can take advantage of many markets consecutively.
The company that I believe does this best is Facebook. If they had stayed a profile -n- poke site, they’d surely be dead by now. Instead, each product launch happens right around the top end of a curve - photos, videos, Twitter-style-messages, and now talk of geo-enabled features and even “check-ins”.
While FMA as a concept is not dead to me completely - it can be incredibly helpful in many many other markets, to me in the app-driven world of the web (and increasingly mobile too) it just doesn’t seem all that important.
Conclusion: “someone’s already doing this” should be a crappy deterrent.
I am betting aggressively on the coming ubiquity of portable projection devices.
Not just because they’re cool. But because, as our lives become more digital, content will need to get out from the confines of a screen.
First, some background:
I took this class last semester at the MIT Media Lab called “Social TV”. Perhaps it was all those hours I spent as a teenager watching endless hours of television, but the class had a profound effect on the way I think about TV and media in general. I learned the term “three screens” – for television, computer and mobile – and spent a lot of time thinking about how the three-screen experience has changed the way we consume media.
The big question now is how to integrate those three screens in a way that is intuitive and seamless. No easy task. There have been a few attempts, but it seems to me that the timelines won’t align: by the time someone is aggressive enough to do deals with the telcos, MSOs AND the content providers, the technology itself will be so different that it might not matter. Technology moves fast; large “cruise ship” companies like Comcast move slow.
The fundamental problem with three-screen integration attempts is that the television model is, for the most part, still very bankable. People still watch a crapload of television and pay their service providers handsomely, on a monthly basis. So the MSOs have little motivation to indulge new models, and the content providers (especially powerful ones like ESPN, MTV, CNN, etc.) are scared to rock the boat, especially when it’s related to the companies that are writing them enormous checks every month.
As a result, recently I have moved away from thinking about integration. In some ways, I believe that the three screen model isn’t sustainable – maybe the screens are not meant to work in tandem, and instead are in a sort of battle for dominance. Problem is though, all three have very compelling pluses: TV has massive market penetration and usage, computers have the greatest capabilities, and mobile phones are with you 24/7.
Of these three, I think mobile phones will eventually win the battle. Look at laptops – they keep getting smaller and more portable, while mobile phones get smarter and more powerful. A phone most definitely can replace a computer, but a computer will never become a phone. Form factor is a big issue here as well. Perhaps that’s why there is so much excitement about the Apple Tablet – I now think of laptops as huge versions of the clamshell cell-phones of the mid 1990s. They’re bulky and not particularly intuitive, but the use of a laptop has become so ritualized at this point that I don’t think people notice any more.
If you buy the hypothesis that phones will eventually replace computers, which I do, then the real stumbling block is the display. It’s just too small for sharing.
This is the crux of my bet on mobile projection devices. The usages are endless, the technology is there and is awesome, and the battle that I believe mobile phones will eventually win is in full force. Perhaps this is the market opportunity I should pursue - I saw this video of Marc Andreessen on Business Insider talking about how to define the future, and he said you can see what’s coming in the near-term by hanging out at university labs. I am starting to see these devices everywhere. Perhaps this is worth examining further…
I worked at small web companies before business school. This meant that anything I did not know how to do, which was a lot, I made up as I went along. Terms like EBITDA, ROI, and value proposition were all foreign. This is why I came to business school - it’s finishing school for those of us who have never spent time as consultants.
I am fascinated by the term “customer acquisition cost”. Like many other b-school terms, to me it reflects the core narcissism of many businesses. Because it’s not just you, the business, that must “pay” (whether in dollars or otherwise) to acquire me, your customer. I have to pay as well to move over to your product. Maybe it’s not necessarily money, your product could be cheaper than whatever I’m using now. But I need to change my habits to adjust to whatever it is you’re offering. And this cost is MUCH MUCH higher than I think many new businesses realize.
Why?
Because I, the consumer, am lazy and averse to change.
This is the problem that I have with aggregators. You think you’re making life easier by pulling together various “feeds”, but really you’re making it harder by giving me a new interface I have to get used to and yet another account to manage. If there’s no value-add (b-school term in action!) what do I gain from shifting?
Example: weather widgets. Seems like they’re everywhere - on my desktop, taskbar, cell phone and anywhere else you can think of. But I check the weather on weather.com. Every time. Just because it’s habit and it’s reliable. My eyes already know where to find the information on the page and it’s always there. In order to sway someone to change his/her habits whatever you’re offering has to be an order of magnitude better than what’s already out there. And even then it still takes time.
Because there’s been a decent amount of buzz lately around the Mint acquisition, I’ll use that site as an example. I attribute the popularity of Mint not to the fact that it aggregates one’s bank accounts, or because it has a fancy UI, but because it was so, so much better than what already existed and gave so much *new*, valuable information to its customers.
The internet has been around long enough that people have developed habits. This is great - you can afford to be a bit riskier with design simply because you can assume a baseline of familiarity that is much higher than it was even five years ago. But be warned: the cost of disrupting habit is high and not necessarily always welcome. What you’re offering has to be exponentially better than what’s already out there, or completely integrated into existing habits. Otherwise it will be hard to convert people.
I really love the website stackoverflow.com. When I discovered the site about a month ago, I had one of those “wow” moments that I was desperate to share with any willing soul, though it was difficult to find someone interested in freaking out with me over a fancy coding bulletin board. Alas.
Stackoverflow.com is a free question-and-answer site for developers, but yes, so much more. Poking around on this site has inspired me to think about how this model can be used for education on the web. I’m calling the model“lurk and learn”and will explore in this post how to replicate it.
But first, why the site is awesome:
1. Concentration of Expertise - Whatever “secret sauce” they used to attract so many developers worked. Clicking around the site you can tell that this site has a higher concentration of top-developer-talent posting to it than probably any other site on the web. The ability to corral smart people is extremely difficult - just ask any conference organizer. Yet day after day, top minds congregate at stackoverflow.com to ask and answer highly technical questions.
Anyone who doesn’t see the opportunity here is nutso. If you want to see the pulse of the developer world, here it is. Part of any job is learning the syntax of the industry - the way that people talk about what they’re doing, the terms that they use, the “language” of the trade. It’s all here, and nicely grouped into tags for easy browsing.
2. Bite-Sized Bits of Knowledge - The problem with learning from experts is that many incredibly smart and accomplished people are terrible at communicating what they know in a way that’s easy for novices to grasp. StackOverflow combats this problem through the question-and-answer format. Instead of “tell me everything you know about Java”, users will ask very specific questions like “Is there a Java library that performs a message digest on a tree of objects?” This allows beginners to piece together bits of knowledge at their own pace instead of alienating/frustrating them at the beginning with a massive brain-dump of hard-to-grasp programming talk.
Additionally, every company I’ve ever worked at whines about “knowledge transfer”. What’s the best way for the smartest people in the company to teach the new kids? I’m starting to believe more and more that bite-sized little packets might be the answer.
So here I was, thinking about the coolness of StackOverflow when I stumbled on this video – a Google TechTalk from Joel Spolsky, one of the founders of the site:
And then the wheels started turning. Could this work as a model for other industries?
Defining the Educational Model: “Lurk and Learn”
I am a big fan of learning by osmosis. If you surround yourself with smart people and listen to how they talk, what they read, who they listen to, eventually it will penetrate your habits, thoughts and behavior. This is why I love Twitter – it has virtualized osmosis-learning for me. I can fill my stream with people who I think are interesting and accomplished and smart and then maybe a little bit will rub off. Maybe.
What works about StackOverflow is that there is evidence of an entire spectrum of expertise on the site. It’s not just the whiz-kids, there are some dummies too. This is a good thing – it makes the site a lot less intimidating. The newest of wannabe coders can click around as much as they please (“lurk”) without ever having to answer a question, absorbing information like a giant sponge (“learn”).
This socialization process allows new users to develop a relationship with the community. There an article in ReadWriteWeb that discusses the “building blocks of social engineering” that Spolsky discusses in the video. Here’s the key diagram (read the article for an explanation of each block):
When you hear Spolsky talk about the site, it becomes clear that this model is not specific to the coding world.
So can it be replicated? I think it’s a worthy experiment that I would love to work on. In addition to the social engineering road map above, I would suggest three rules:
1. Create sites focused around a single subject/industry but with lots of breadth. LOTS.
This requires lots of users, so there’s high potential for a chicken/egg fail. Providing value immediately is really important.
For a whole range of search terms, Google currently favors a range of well-SEOed but ultimately useless content sites that are filled with ads and just the right keywords. This is especially frustrating when you’re searching for a very specific, somewhat advanced topic.
Having a site focused on a single, highly specific vertical will hopefully attract your key user: the experts. This is the difference between StackOverflow and the other hoards of q+a sites (Yahoo Answers, Mahalo, etc.) - it’s specialized. Attracting experts will be the key to success – if StackOverflow was a bunch of novices like me asking questions and not getting answers the site would be useless. Instead, lure in the experts and treat them well. Let them rule their own small sliver of the internets and fight hard to keep them around.
Additionally, the specific focus and emphasis on breadth will help with Google as well. StackOverflow’s SEO is so good that it now pretty much owns Google for a lot of very specific coding terms (long-tail score!!)
Other sites that follow this model and do it really well:
- HackerNews – uses the reputation model and provides some of the most in-depth and interesting startup-related content on the web.
- ChinesePod – I have been a fan of this site since 2006. I was living in China and trying to learn Chinese (Chinese and now coding. Can you tell I am a masochist?) They have nutured a huge Chinese-studying community using bite-sized podcasts on specific parts of the Chinese language (for example “Calling a Supplier for a Quote“). Their levels range from novice to advanced meaning that the community can also teach/learn from each other. And now they’re so popular that they charge a crapton for their content. (And good for them – $17/month – daaaaaaaaamn).
2. Support discussions (whether through a question + answer format or otherwise) as opposed to definitive and static content
Wikipedia is great, but there’s only a single Wikipedia entry for a given topic. Example – let’s say I’m trying to understand tort law. I can easily go and read the Wikipedia entry, but sometimes it take more than a single explanation to “get it”. This is the difference between going to law school for three years and reading a bunch of wikipedia entries. So what’s in the middle? The place where you go to get a working understanding of highly advanced subjects?
As far as I can tell, there isn’t one. The process of knowledge acquisition is different for different folk, and sometimes a single definitive explanation isn’t as good as multiple explanations of varying quality. Wikipedia is definitive; learning is not.
Another example – take this question: “What does Ruby have that Python doesn’t, and vice versa?” You could answer the question in a few sentences, or read through the twenty-four answers posted on StackOverflow and get a much more comprehensive explanation of the differences between Ruby and Python, sorted according to how useful the community deems each answer.
3. Create a hang-out spot, not just a content site. And make it just as compelling for experts as for beginners.
For me, the best part of learning is the struggle. It’s surveying some seemingly insurmountable subject matter and breaking it down into digestable pieces. But a lot of people are more likely to walk away/give up rather than go through the process of breaking down complicated subjects. Sites like StackOverflow take care of that process for you.
Additionally, the constantly changing content and the social engineerning that Spolsky and Jeff Atwood implemented when they created the site turns it from simply a content site to a hang-out spot. And one that’s interesting for people with varying ranges of expertise. They keep coming back because they keep finding useful stuff.
Where to begin?
Medicine would be a great place to start. Given the recent what-have-yous over healthcare, there is increased public attention on the topic and people are craving change.
Law would also be on my list, though I have a feeling lawyers hate the internets. Finance would be on there too, along with food/recipes/cooking, language learning (like Chinese!), auto repair, chemistry, accounting, real estate, and umm etc. Oh, and SAT and other standardized tests would be cool too. This list goes on.
You could also create a network of sites like these, roll them up and build a massive search engine on top of it. Perhaps that is what Mahalo is trying to do, but because it’s not vertically-focused I have trouble tracking down information there.
The reason why “lurk and learn” is so hard to pull off in the real world is because when you walk into a classroom, you’re noticed. You require a seat and there are a limited number of seats. At the best schools, you have to pay for a seat, and you need to pass through rigorous tests just to be able to pay for a seat. On the internet, though, there are infinite seats. Now we just need to create the classrooms.
Despite the fact that this is more than likely my last “first day of school” EVER (scary thought) I am still dreading the “OMG how was your summer?!” bombarding that one gets at the beginning of the school year. Here’s my summary for your consumption. I’ll try to include more than the required sound byte: “I was in NYC working here, and it was great.” Cause I was, and it was.
So what did I get out of a summer working in VC?
Three main take-aways:
1. A summer is just long enough to figure out that you’ve got a lot to learn
Ten weeks go by, and right at the moment when you feel like you’re starting to “get it” it’s over. I am pumped for the class “Early Stage Capital” this fall where I’ll continue to chip away at the intricacies of term sheet math and excel models. For someone whose finance experience before school was exactly zero, this sort of thing excites me. Perhaps I should not admit to such things in a public forum.
2. New York Startup Forecast: Rosy
If the launch of the First Growth Venture Network wasn’t a huge give-away that there’s a lot of excitement around the NYC startup scene let me say it again: THERE IS.
After starting off the summer at Internet Week, I went to one packed-house event after another all summer until it was beat into my nay-saying little head that yes, people DO want to start companies in one of the most expensive cities in the whole world.
While New York lacks the informal advising/hacking culture of the Valley, it makes up for this through the fact that every other industry has solid representation in NYC. A clothing startup that wants to do deals with designers? You can just trot down to their studios. An art website that wants to feature gallery work? The subway to Chelsea will get you there.
Ultimately, startups need something that will provide momentum. I think - contrary to the popular Valley-centric belief that it’s “here or nowhere” - there are a lot of different ways to create momentum and one is having access to the best + biggest players in many, many different industries. No place better than NYC for that.
3. Early-Stage Investing is about People
What I found so heinously unattractive about finance jobs (for the 2.5 seconds that I was considering working at a bank) is that I saw it as high-class paper pushing. You don’t get to really know people. It’s about excel and ratios and presentations and deals, but not really about people. Early-stage investing is mostly people-focused. It’s about getting to know a team and assessing not only what they’re building but how they will build a successful company.
I believe this is what separates really good VCs from the rest - the ability to not only spot a market-crushing business model or technology but the ability to pick out a winning team.
This is not something one can learn in a summer.
So that was my summer. There were some other key moments, but I need to leave some items for the first-day-of-school excitement. I even got a new haircut.
I thought “Town Holler” was organized by Foursquare. Nope.
The event, the first of its kind as far as I know, was organized by a user and fan of Foursquare and managed to draw 50+ people to come out at 4pm on a Saturday in the middle of summer.
It started at One and One in the East Village, and everyone drank beer and wore name tags with his/her name and the name of the place where he/she was the “mayor”. The event went on into the evening with people coming in and out and the crowd moving to different venues around the East village.
I met some new people - not necessarily “strangers” but definitely new faces. They were friends of friends, in a similar field, had similar interests, etc. Not friends, not strangers. Fr-rangers. Or maybe just other “foursquares”.
It reminded me of Paul Graham’s quote that I love: “Better to make a few users love you than a lot ambivalent.” Foursquare is a great example of that quote in action. People care enough about the product to self-organize and show up.
Through events like Town Holler, Foursquare is helping to solve an issue that social networks, dating websites, and location-centered local sites have been trying to solve for a while: meeting new people and finding new places. And Foursquare, so far, does it best. Why? Because it’s built for mobile devices. After all, when’s the best time to meet new people and find new places:
a. while at home surfing the internet
b. when you’re already out and about
Yeah, that’s what I thought.
And then - oh yeah - there are the HUGE potential benefits for local businesses. The biggest challenge for a lot of local businesses is foot traffic. They want bodies in their establishment spending cash money. Foursquare drove a hoard of people to a group of local bars during the dreary afternoon lull - and the establishments were more than happy to provide drink/food specials as a result. Sounds like win/win to me.
If anything, yesterday’s event was Charlie’s post brought to life. I knew it before, but saw it so clearly yesterday: Foursquare will soon be the default engine for connecting people to local businesses and to new and exciting things around them.
If you believe that bit.ly - Twitter’s default domain shortener - is going to re-organize and re-curate the web, there’s got to be an arbitrage opportunity there, right?
I missed the first round of really juicy domain squatting because I was 11 years old when all the good, generic domain names were registered. For you non-internet-lovers: registering a good domain name like travel.com in the mid-1990s and then holding it would likely yield millions if you still owned it today. So I’m keeping my eyes out for round two.
Here is my thinking: There are several reasons why people pay so much for generic domain names, like fund.com, which was the highest domain transaction in 2008 and sold for just under $10m.
One is direct traffic. Yes, there are those people that decide they want some clothes, so they go to their browser and type in clothes.com. I don’t know who those people are, but apparently lots of them exist.
Second, supposedly Google’s search algorithm favors domain names with the searched term in the title, though this is completely unverified.
Finally, there’s credibility. Some people, unfamiliar with the fact that any know-nothing hack can go register a domain name, believe that if you own digitalcamera.com you’re somehow a credible authority on the subject (“on the internet, nobody knows your a dog”).
When you shorten a URL using bit.ly, there used to be the option to pick a “custom name” for your shortened link, a feature they disabled as of Monday July 20 a feature that you must be signed-in to access as of the homepage update from July 20. This custom name can’t be changed, and once the name is used that’s it. I was playing around with this feature quite a bit over the weekend.
The Plan
So I decided to make some bets. This has so far cost me nothing because bit.ly is a free service (remember - in the very early days of the web it was free to register domains as well). I took some generic terms and am having bit.ly forward them to a website I own. The terms I got are:
This, I believe, places me squarely in the category of “know-nothing hack” that I mentioned above. Regardless, I plan to make landing pages with ads and see what happens. To me, this is a long-term bet. If the internet is really going to be re-curated by services like bit.ly, then this is good real estate to squat on, though it will take some time and additional structure like an improved bit.ly search and the introduction of real-time search added to major engines.
I think this could go either way.
Potential for jackpot: As bit.ly links become more ubiquitous, they gain credibility. Now when you see a bit.ly link, you know that it is a human-curated link to something. Throw a keyword in there and it adds extra credibility. http://bit.ly/promdresses? Well gosh! This must be the best site on the web about prom dresses! Additionally, if there is a more robust bit.ly search in our future, throwing a sponsored ad on the side with the keyword in the domain will I bet yield significantly more click-throughs than the typical letters and numbers ending.
Additionally, bit.ly’s got volume. As of June, this was on the order of about 150 million clicks a week (source here). Bit.ly is essentially prime domain real-estate, v 2.0. There’s enough attention around bit.ly links that I believe it’s only a matter of time before the system-gamers pounce. Just ask Digg.
The crux of the argument is this:custom names on some URL shortening services are free, but good keywords are scarce.The supply and the demand aren’t aligned. If you wanted to, you could write a script that would assign ALL good keywords to your ad-filled landing page of choice, just to test the theory.I’m afraid I don’t have that much patience.
Potential for nothing: You don’t own your bit.ly links. Yes, you can assign the keywords, but the company could go back at any time and change where the forwarding links are pointing. Additionally, since there’s currently no search engine that favors such keywords, for now there’s just the potential for direct traffic.
What does this mean for brands and public figures?
Yet another opportunity for “reputation management” by the masses. I figured surely the publicists would be on to this by now. Nope. Instead, the current service functions as a kind of stumble-upon for keywords. What is bit.ly/michaeljackson? A random blog post about a staph infection Jackson had back in February. Bit.ly/generalmotors? An article about the GM bankruptcy.
I see bit.ly as the next-generation of crowd-powered content curation. Personally, I have pointed bit.ly/wellsfargo to Get Satisfaction’s Wells Fargo page, because man their customer service is BAD. And bit.ly/janetjackson goes to Rhythm Nation. Natch.
Because no one except for bit.lyowns the links, it’s likely tough to make changes once the keyword has been assigned. So bit.ly/tomcruise will forever point to his crazy Scientology video. Sorry Tom.
The future of SEO
What does this mean for the future of SEO? Tough to say. Real-time search is coming, that’s for sure. Because of bit.ly’s real-time tracking stats and analytics I have little doubt that it will dominate, at least for a while. There is no indication that using a bit.ly custom keyword will have any effect at all on future real-time search algorithms, but that’s not where I see the potential. I think it’s on the consumer side. Essentially: if the average web user starts noticing bit.ly links everywhere they will be more willing to click on targeted bit.ly links. For example, if I was searching for “headphones” and I saw google.com/headphones would I click on it? ABSOLUTELY. Google is a trusted brand because it is absolutely everywhere. Bit.ly is heading in that direction.
Ownership + Moneymaking for bit.ly
Bit.ly hasn’t stated what their revenue plans are. Do they have a top-secret revenue model? Probably. For what it’s worth, here’s my suggestion:
I see the future of bit.ly as both a search engine and a registrar. They can employ a standard search setup with organic results in the center and sponsored links on the side, except that ALL the results will be bit.ly links, a move that I believe is called “branding genius”. Start charging for the custom keywords - which will create a market where there wasn’t one before. Let brands, public figures, and anyone with a trademark own their bit.ly domain (similar to Twitter’s “verified accounts”). Allow users to put their custom-keyword-sponsored-link on the side of bit.ly search. The problem with that, of course, is that once a keyword is assigned it can’t really ever be changed.I would say a few years into the future the way to solve that problem is to spin-off a second keyword-only shortener that somehow allows for tradability.
Assumptions
This argument rests on several assumptions:
1. Bit.ly will dominate the URL shortener market
This is really a baseless assumption that rests only the fact that I like bit.ly the best, they are the default shortener for Twitter, and bit.ly has approx $2m in the bank.Money = power, no?
2.Ubiquity = Credibility
This is how I first got turned on to Yelp. Every restaurant I searched had a Yelp result that would come up first or second for whatever I was searching. It was seemingly everywhere, so it gained my trust. The fact that I’m seeing bit.ly’s everywhere now is building serious trust in the brand. And I’m sure that’s completely intentional.
3.The number of letter/number combinations for URL shorteners is essentially limitless, the number of keywords is fixed/scarce.
This is true for any URL shortener - there are only so many good keywords to squat on. When you have a free product, you need seemingly limitless resources, otherwise you’ll attract arbitrageurs (and haven’t I always wanted the opportunity to call myself an arbitrageur).
Conclusion
Sure, this entire master scheme rests on the continued growth of Twitter, the move to real-time search, and the continued dominance of bit.ly as the link shortener of choice. But so?
And I know I’m not the only one scheming (check out bit.ly/cocacola)…
The presentation from Exit Strategy NYC at tonight’s New York Tech Meetup made me think about alternative ways to raise seed capital. When you’re raising money for your paradigm-shifting, world-changing startup, it can take a long time to build your product and simultaneously convince people with money that your team+product+company is worth funding. You want to meet the right investor, find the right “fit” etc etc etc etc. Months go by, and chip away at the time you’d normally spend building your product and - right - changing the world.
Enter Jonathan and Ashley Wegener. They took a real pain-point (have YOU ever gotten out at the wrong end of the platform in Union Square? Vom.) spent two months riding subway cars and making sweet Adobe Illustrator files and built a very cool iphone app that I have already shelled out $1.99 to download. Is Exit Strategy venture-backable? Nope. But I figure they’ll probably make around $100-$250K from selling this app to New Yorkers and tourists alike. I bet the whole process was about 3-4 months start to finish.
Now, they could spend the cash on boats and dinners and houses, or double-down and use the cash to build their “big vision”. They’ll probably make enough money from ExitStrategy to get through that painful product-development period without starving, they have already proven that they can execute, AND they have built a product that will make a lot of people’s lives just a little bit easier.
What I wasn’t expecting, though, was about 40 minutes in when Fred Wilson said: “This holiday season there will be Boxee boxes in the stores. So you can go to the store and get a Boxee box and you can take it home and connect it to your TV and you’re done.” (Though he did say later that Boxee will not be making the boxes).
This is amazingly awesome news for Boxee (and for me!).
Why? I see at least 7 reasons (this list started out with 3 FYI):
1. Differentiation from other online video platforms
Outside of YouTube and Hulu, there are a myriad of other ways to consume video online and a whole truckload more in development. By making the link between the computer and the television, Boxee is taking a huge risk (would you really want to go up against Hulu, the MSOs and a whole host of other large corporations?), but the potential upside is significant. I think true differentiation in the video space is extremely difficult right now and this could be the key for Boxee.
2. The UI gap between television and the internet has become, well, HUGE
People who spend the majority of their time on the internet get this look of disgust on their faces when talking about the state of television. It’s not that the next best UI for TV isn’t out there - from what I can tell, TV Guide did such a great job locking in the cable providers and patenting everything related to guide technology (including a “claim for generating a simple EPG grid with channels on one axis and times on the other”) that the pace of innovation has slowed significantly.
This has created, in a way, a perfect storm for a product like Boxee: alienated users, a battle between giants that doesn’t really seem to be going anywhere, and an enormous market ripening itself for widespread change.
3. Nothing says “Recession: Game Over” like a holiday rush on Best Buy for the hottest new electronic toy
What’s the competition this year? Windows 7? Please. The economy is starting to bounce, and what better symbolizes a return to consumption than the long line outside electronics stores on Black Friday? (Circuit City R.I.P.).
I am pretty anti-widget when it comes to the future of television. I have no interest in seeing a sun in the corner of my screen when I’m watching Law and Order: SVU. I like Boxee’s app-driven model much better.
I know a lot of people are really into the Yahoo! widgets and there has been a lot of praise for the new Samsung TVs, but I’m not a huge fan.
The recent Boxee app development challenge is a great example of what can be done with the Boxee platform - photos, education, and news are just the beginning.
6. Boxee in its current state is too difficult to use with your TV and only sometimes compelling to use with your computer
Do I really use Boxee that much now? Nope. I love it, but for videos I find myself most often at Hulu, YouTube and Vimeo. The “pain point” is much sharper for television; online video is too slick and user-friendly, competition is vast and the video space in general is really crowded.
7. I am sick of paying for cable
Comcast, are you reading this? We’re breaking up. It pains me to pay $60/month so that I can scroll through those silly ads between every four listings in the guide software. I can’t stand staring at my remote and wondering what to do with all those buttons that I never seem to use. Anecdotally, it seems like the early adopter crowd is fed up and starting to unplug en masse. Here’s my guess on how the rest of the demo groups will shake out:
NOW - Early Adopters - Currently hacking together solutions that for the most part involve Mac Minis
1-3 Years - College Students - What do all dorm rooms have? Internet Access. Probably wireless. Cable TV is a pain in dorms, and colleges would love an IP solution that could just use the existing wireless
1-3 Years - Yuppies - The ones who always have to have the “latest and greatest”
4-6 Years - Moms - Once word gets out that you can look at baby photos through Flickr on your TV? Forget it.
5-7 Years - Everyone Else - Yeah, five years is a long time, but the MSOs are huge and the TV world moves slower than the internet.
Anyway, here’s hoping the Boxee set-top rumors will pan out this holiday season.
I'm Amanda Peyton. I am an MBA student at MIT Sloan and this is my blog about startups, technology, entrepreneurship, business school and "other". For more about me visit http://amandapeyton.com.
