Idea, Product, Business

Your division starts off on a new project with a bang. And months later ends with a whimper. You shut the thing down, your folks are terribly frustrated but you don’t really know what went wrong. From my experience, here’s probably what happened:

First, there’s the idea.

Then, there’s the productization of that idea.

Finally, there’s the business built around that product.

But you cannot make money off an idea. You can only make money from a business. And you cannot take an idea to market. You can only take a product to market.

Too often, Management doesn’t see the difference between the three and misses asking the right questions at the stage those questions need to be asked. The result is usually a shoddy product, reactive execution, management by crisis, a demoralized team and money down the drain.

Been there before?

If you rush to build a business around nothing more than an idea, you’ll probably find that

Your audience doesn’t understand your product because you don’t understand the audience. Or you spent so much time early on thinking about monetization you didn’t think enough about adoption.  Or by the time you launched, your product was a year behind its competition. Or you built your mobile app for a platform your early adopters don’t use. Or you launched without customer support or the ability to collect feedback.  Or you give up on the product too quickly because it didn’t really really excite you to begin with.

Seem familiar?

Here’s what I think might help avoid these holes:

When evaluating an idea you’d ask

  • Has this problem already been solved?
  • Does our organization – firm, company, startup – understand this space?
  • Is this way of doing business in our DNA?
  • Does it personally excite you, o ringmaster?
  • When the product will be ready, will it still be relevant?

And then, once the idea’s passed evaluation and you’ve begun to build,

  • Who are your early adopters?
  • How do we put together the talent needed to get this out the door?
  • What platform do we develop for? (mobile platform, web platform)
  • What features do we bake in/leave out?
  • What is our go-to-market plan?
  • What kind of customer support should we have (phone/email/in-app form)
  • How will we collect feedback?
  • What parameters will we monitor?

Once you’ve launched, gotten traction, feedback and momentum,

  • How do we make money?
  • What does our product roadmap look like? How often do we release?

You’re likely better off asking these questions when they really matter. Not too early, not too late. #Ilearntthehardway.

Among the most challenging advice I’ve received

… is this (at the very start of building a new product):

Assume your product’s already been built. Now think about how you’re going to get adoption and usage among your audience.

Too often you get so caught up in the excitement of building something cool, you don’t tackle the hard problem of seeding it and getting usage among early adopters until you’re very close to – or at – launch. Then you’ve got a product that’s ready and no one but yourselves using it. Your go-to-market guy’s under tremendous pressure and your developer’s twiddling his/her thumbs. Your team can run out of momentum and enthusiasm really quickly and it’s very hard to get your mojo back.

This has happened to us before. And I’m still working on that advice.

The MV Wisdom

While the monstrosity is gone, we had a chance to take a gander last week:

I wrote the following the next morning:

Well one had to see it. Because it’s there. And the reports of how it didn’t miss the Bandra Worli Sea Link by much, relatively speaking. From the spot on Juhu beach where the damn thing is, you can easily see the taller pair of towers of the Sea Link.

But it’s big. Driving down Juhu Tara from Santacruz, near the Ramada curve, I told myself to Keep a Watch out; you don’t want to Miss It. I thought it’d be a hundred feet off the beach or suchlike. Watch out my ass. It’s like the Worli TV tower while coming off the BWSL – in your damn face. It’s on the sand. For something this massive to come this close to the shore it’d have to be not just crazy, but Charlie-Sheen-stark-raving-nuts-berserk-crazy. This helicopter shot is straight out of a disaster movie – the damn vessel-from-hell is headed straight for the Juhu Centaur:

So I pay-and-parked in front of the Ramada and walked towards it. Few analogies, really. Dinosaur? Gulliver? Space ship? None come close. It’s ancient. Filthy. Tired. Rusting. The last vestiges of dignity seeping out of it. And yet disinterested in its fate, just as long as there’s one in store. So there’s a massive loneliness, sadness around it:


And yet it utterly dominates the horizon around it. Standing close to it gives you a sense of creeping agoraphobia, until you just have to look away. It’s arguably smaller than the Centaur and the Ramada in front of it but unmatched in sheer presence. No shacks, palm groves, seafront bungalows, miscellaneous other construction and crumbling walls around it. It stands alone. Off to its left there’s nothing until Madh, far into the distance. On its right, the Sea-link,the only comparable superstructure, is obscured by the hump of land at Juhu Koliwada.

So it stands, despicable, unwelcome, but unchallenged as emperor of its stretch of sea-land.

So there.

Doing life in software is hard

Google+ is like a VCR. I know exactly what I can do with it. But I cannot figure out how. Maybe I’m slower in the head now, but I remember within minutes I was using Orkut in the same way that I would always use it. Ditto Facebook. Then again, it was probably because they’re such simple, single-textured attempts at replicating real connections. + is more ambitious.

+ is supposed to be the notFacebook network. The gentleman hero that gives back to the meanings of ‘social’ and ‘share’ the nuance they had lost for the last five years. To create social circles of people that really matter to you. To share with them pictures, plans, numbers, confessions that couldn’t make it to Facebook. To boldly go…, so to speak.

But now I find myself being ‘added’ by the same people I’d spent time weeding out of my Facebook friends in an attempt to create those private spaces that + was supposed to let me create in the first place. I herded the party out the back only to have them stagger in the front door.

And what does ‘added’ by someone mean? Would I begin seeing things they shared? Would they see what I shared? Was I part of circles I didn’t know about? Frustratingly, for a network that was supposed to let you create social connections on your terms, I couldn’t even refuse to be ‘added’. Logging in to +, for now at least, seems like walking into a party blindfolded.

But you can retreat into your own circles, can’t you? Yes and No. Maybe I’m the social weirdo here, but I can’t tell just what my today-in-real-life-circles are. I mean I can group/circle the guys from school, the folks from IBM, my first roommates, my then-close friends at IIMK. Each group corresponds to people in distinct phases of my life, people that have remained prominent as the others have faded.

The group reveals itself only after the phase has passed.

And then it also strikes me. That I can only recollect a single group for each phase should tell me something – I really _belonged_ to only one group at a time. It tells me that groups like ‘work’ and ‘family’ and ‘cousins’ and daily commute gang’ and such are really just only contexts for interactions. You can force-create + circles for them, but they’re really freeform amoeba-like shapes, and will change. Not even snap, just thin out at points and separate into other blobs without much emotional ado. Attempts to share ‘stuff’ with them on services like + will peter out in weeks. Or days. I mean what would you share with your ‘work’ circle that you wouldn’t share publicly on Facekut? And how long would you keep sharing with ‘cousins’? Google weakly suggesting ‘Acquaintances’ as a possible option demonstrates just how hard it is to find more than one meaningful, binding circle in your life.

Maybe I don’t get it. It meaning having real-life connections. Maybe + is really a move-to-the-next-curve improvement in social networks, and I’m a bottom-of-the-curve hermit.

Or maybe doing life in software really is hard.

Always tinker

I learnt recently that even when all indications are that your business (or life. or city. or whatever) is running fine, something could be wrong – in plain view – that those indicators can’t tell you.

The only way to discover these problems is to tinker around with data. Ask questions of it.

Here’s what happened.

Ours is a prepaid subscriptions business. You sign up, put money into your account and pick your subscriptions.

Our signups, payments and new subscriptions – the three primary indicators of our health [1] – were growing at expected rates relative to each other. Nothing seemed to be wrong.

Until one day, I discovered that many new signups didn’t have any subscriptions. That was unexpected. It meant that most of our new subscriptions were via older subscribers.

That meant – and this was quickly confirmed – that most of our payments were also made by older subscribers. This is a problem, and we commissioned a quick survey to find out what was wrong with our new signups.

But then we tinkered further. We plotted a histogram of (normalized) new subscriptions started (all of this is excluding renewals) versus how long ago the subscribers had signed up, and we found this:

 

Click for a larger image - bet you can't read the tiny text

 

Astonishing. The older the subscriber, the more the number of new subscriptions they started recently [2]. We had a larger problem than we expected; our older subscribers were so active, they’d hidden how un-engaged our newer subscribers were for several months.

While we took immediate steps to fix this, we also realized that it’s hard to build a dashboard for stuff like this. You can – and should – track primary measures of success, results of specific campaigns, and suchlike. But under-the-surface stuff like this – we’d never have figured it out if we hadn’t tinkered with data.


[1] There’s also ARPU and churn, but they aren’t material to this discussion.

[2] The data for months 8 and 9 is skewed by a small set of people with a lot of subscriptions each, but they’re still much higher than any other month, and the trend is the same

(Cross posted from the MyToday blog.)

Cost of acquisition versus lifetime value

A post on Fred Wilson’s excellent blog about cost of acquiring each customer versus the lifetime value of that customer. And it’s pretty simple: “LTV has to be greater than CPA or you won’t be able to scale – or, for that matter, survive.

This seems obvious. But when you’re preparing a revenues-versus-costs estimate for a business plan, you often overlook how much you earn versus spend per customer over time. Here’s a slight variation of that from a few weeks ago:

The CEO of our firm shot down a recent plan I presented, one that involved both the mobile web and SMS working in tandem. The product was different, compelling, and the estimates said we’d be profitable in a year on the gross. But our SMS costs were 80% of the revenue we would have earned from advertising.

“Keep SMS out; figure out the mobile web part. If you’re spending 80% of your revenue on acquisition and retention, you won’t have enough to spend on content and infra and operations and product innovation – and that’s not even counting people.”

And this was true not just in the month we acquired the customer. Month on month, the SMS costs kept pace with the ad revenue per customer [1], so we’d never have enough money to spare. In other words, the CPA was lower than the LTV. But not nearly low enough [2].


[1] It was also likely, I realised later, that over time the customer would yield less ad revenue as he/she tired of the service, but the SMS costs would be the same. So we would have to evaluate the customer’s worth and adjust SMS quality of service constantly, making things rather complicated.

[2] As an aside, these costs also grew linearly not just over the lifetime of each customer, but also with the addition of every new customer – there were no economies of scale to be had. If there were, the total lifetime value of all customers would have grown faster than the total (SMS) cost of acquisition and retention, and it would’ve been viable after a point of time.

The unbearable burden of Facebook

From TIME magazine’s Person of the Year profile of Mark Zuckerberg:

“We’re trying to map out what exists in the world,” he says. “In the world, there’s trust. I think as humans we fundamentally parse the world through the people and relationships we have around us.

And you begin to understand why Facebook remains controversial in spite of its everywhereness. Mark Zuckerberg views Facebook as a digital analogue of our real-world relationships, and a way to make the Internet a better place because of those relationships.

But that is a huge responsibility to place on people. Your friend list on Facebook is likely nothing like ‘what exists in the world’ for you. Very few among you have enough self-awareness to know who you really have a relationship with. Fewer still have the strength of character to decline friend requests from your extended family, current and former colleagues, former batchmates, acquaintances from the city you used to live in, your old boyfriend or girlfriend – all people who you had some relationship with, perhaps a very close one, but no longer. And even fewer will un-friend people in your list who no longer matter (with equanimity, I mean. youdumpedmeyoupigunfriendthere doesn’t count).

Hence the different ways people use Facebook: a professional marketing tool for yourself or your company, or a way to peek into the life of your former crush, or while away boredom at work through gameaftergameaftergame, or to share random blurry photos from your phone camera, or channel every semi-conscious thought into a status update directed to no one in particular but one you always expect comments on. Ways of using Facebook which betray everything about you – desires, insecurities, biases, sparks of geniuses, likes – but rarely reflect your your real-world relationships.

It emerges in the article that Zuckerberg does possess such confidence, such self-awareness, such integrity. This is rare, and it is probably only such who can use Facebook as Zuckerberg intended it, with no conflicts – of privacy, time, expectation or obligation.

As the writer of the TIME profile points out, “Facebook is still a painfully blunt instrument for doing the delicate work of transmitting human relationships”. Indeed, we inhabit so many imperfectly formed, constantly changing personas (some of them semi-conscious) that any such Facebook alternative would have to be so complex as to be completely unusable. So like any sufficiently complex issue, we make Facebook a binary decision – log in or not.

Oh, how much is that second-hand app on the home screen?

Frédéric Filloux in his Monday Note column describes a rights-based (as opposed to files-based) future for managing digital content (whether magazines or books):

A first phase is likely to consist of an extension of what we have today, i.e. a transaction system based of book files: text-based books or richer media products. The main players will remain Amazon, or the Apple iBooks store. But, in five to ten years, this way of dealing with intellectual content  will be seen as primitive.

The true revolution will be a shift from a files transaction system to a rights transaction system. This transformation involves radical changes in the way we think of digital content, books, videos or even games.

Today, Joe can’t share a book that he bought (rented?) from an e-book-store, can’t give it back, can’t pass it on, can’t re-sell it – nothing. He can either keep it or delete it. – what a waste! The publisher and technology industries, for all their talent, have created a form that, in important ways, is less convenient than even the original physical book form that it is based on .[1]

They will be forced to fix this state of affairs as more people read their books, magazines and more online, and competitors with saner policies enter the market.

But even in a digital rights-based world, what about a second-hand market for digital books – and apps? If Joe purchased an email program for his Nokia smartphone, and a year later bought an iPhone, he could

1. return his app (the rights to the app) to the store he bought it from. In this case, does Joe get a full or partial refund? Unlike a physical good, there has been no wear. And it’s fair to say he’d be refunded whatever the current price is (or maybe the price he bought it for, whichever is less). But this is flawed – since the number of rights are infinite, they are worth nothing themselves. The store gains nothing by refunding Joe his money, so there’s no incentive in a return-refund.

2. transfer his app (the rights) to Jane’s Nokia. Unless Joe’s gifting the app away, a transfer means Jane will need to pay Joe for those rights. How much are those rights worth to Joe?

This is the second-hand market for digital goods.

An eBay for digital goods sounds about right, and about time [2].

[1] And when we attempt to set the digital book/magazine free, the limited corral of policies we build around it is maddening in its clumsiness: you-can-only-share-with-so-many-people, you-can-only-share-so-many-times, you-can-only-share-with-an-identical-device, you-have-to-pay-extra-to-share. This is when you know that from among the inventors, engineers, marketers, lawyers and accountants, the first two have left the room.

[2] This market will need support from app stores and developers, of course. There’s no way – over-the-counter or otherwise – for Joe to transfer his app to Jane (or any other bidder). This is regardless of whether it’s bought from an app store (Apple/Android/RIM/(ugh)Nokia) or from the app developer itself.

But their own mission is far from achieved

Is [old giant] losing out to [hot upstart] over [new trend]?

Did Microsoft miss out on the big search opportunity that Google pounced on? Is Google losing the real-time communication game to Twitter?

Microsoft’s original mission was “a computer on every desk and in every home” [1]. Even with their almost total dominance of the PC industry, that mission remains far from accomplished.

Google’s mission is “to organize the world’s information and make it universally accessible and useful”. That’s a mouthful. But it’s also nowhere near completion.

Both companies – one over 3 decades old, the other over a decade old – have still only plucked the low-hanging fruit. Urban homes and corporations have computers, but there are still billions of potential Microsoft consumers – who might be well served with a mobile “computer”, for instance. For Google, even with its mind-boggling data center infrastructure and web-crawling, the task is just begun. Books. Space. History. Energy and resource consumption. And more. And that’s just the “organize” bit. Converting all that data to information so that it is “accessible and useful” is another thing altogether.

Companies like these are larger than the “next big thing”. Their own “thing” is so incredibly significant, so humbling. That’s why it’s unfortunate when such an organization changes its very mission to something that can mean absolutely anything (and therefore also nothing): Microsoft’s mission is now “to help people and businesses throughout the world realize their full potential” [2].

Google isn’t about to kill Microsoft. Not if Microsoft directs all its resources towards what it set out to do. Likewise for Google; Twitter isn’t out to organize everything known to man. So ignore those predictions of doom.

 

 

[1] According to Wikipedia the exact words were “to get a workstation running our software onto every desk and eventually in every home”

[2] Although I didn’t find any evidence to suggest Microsoft changed its mission in response to any other company or threat

Tomorrow Today: Google Universal Search – Part 3: What it means for MS and Yahoo!

Bob Cringely contends that the battle for search is over, with Google emerging the clear winner. With Google Universal Search, Google has put so much distance between itself and numbers two and three, that the incremental return on additional investment into search by either Yahoo! or Microsoft will be negative. Both firms will be better off putting their money in other lines of business.Why has GUS ended the search wars? Apart from standard Web Search, Google’s also ruled vertical search – maps, books, images, and video. (The only exception was news, where Y! did a better job.) So if Y! and MS were to follow suit with their own integrated searches, the top video (or book) results would be on Google’s properties. In fact, the better they made their searches, the more traffic they’d drive to YouTube or books.google.com! Not only does Google do the best job with vertical search, today it also owns the properties where this vertical content resides!

So where does that leave Microsoft? Simple. Microsoft should get out of search. And out of online advertising altogether.

Surprised? Read on.

Microsoft is a company that, after having led consumer computing for a generation, is now finding itself playing follow-the-leader. Over the last few years, its strategy has been plainly, reactive. Its Live initiative (Windows Live Search, Windows Live Mail, Windows Live Messenger, Office Live) was a poor attempt to match Google’s online portfolio, pitting application service against application service. But it didn’t work out. Today, the Live initiative is an acknowledged damp squib.

Why? Because the New Web is not central to Microsoft’s business model. It never has been. In the mid-to-late nineties, when it “woke up to the Internet”, it reacted. And made Internet Explorer integral to Windows 98, added TCP/IP support and made it easy to connect to the Internet (it also bought Hotmail, launched the MSN portal and tried to play ISP). These didn’t seem to me, either then or now, to be part of a concerted strategy to leverage the opportunity the Internet presented. Cut to today. With Ray Ozzie’s “leaked” memo in 2005, the company once again found itself waking up to the New Web. Once again we find a set of ad hoc tactics that don’t collectively define a web strategy. It seemed crazy that a person with the sagacity and vision of Ozzie would talk drivel like “online advertising is the next big revenue opportunity, and therefore we must move everything – Windows, Office, Mail – online, and make money out of ads”. It is almost as if with each generation, the Web is being retrofitted into Microsoft’s business strategy.

In contrast, Google is a company that has been built from the ground up to leverage the “Internet opportunity”. The firm realised that first public, then private data would find its way to the web. It first created tools so that it would have access to all of this data (either by crawling or by hosting this content). Simultaneously, it created applications that people could use to access the information they needed from this data. And it monetized this access.

Microsoft is a desktop applications company. From 1975 to 2007, repeat, it has been a desktop applications company. Further, though it may have had a profound effect on consumer computing, its revenue has come from enterprise customers. Finally, its largest selling products are not its search service, or its MSN portal, or Hotmail, or Messenger. Its largest selling products are its Windows Operating System and Office Application Suite. The mandarins at Microsoft have to consider these facts before running around like confused chicken.

The Enterprise does not “get” the Internet. It gets the network, or, more precisely, the intranet, but it does not get the Internet. There’s just too much data that needs to be kept within the walls of the organization. Two paragraphs ago, I said that Google’s essence is to have access to data, either by crawling or hosting. No large firm is willing, either now or in the forseeable future, to let that happen. This Enterprise market has been growing for two decades now, will continue growing. This is where Microsoft faces virtually no competition from the likes of Google.

How can Microsoft enter a new phase as an enterprise software company? How can it create better applications using the Network? That’s another Tomorrow Today in itself, coming up soon after this series is done.

And Yahoo! ? The Google of the late nineties is foundering. Brad Garlinghouse’s “Peanut Butter” memo seems to have done little more than cause a rearrangement on the company’s board, but I don’t see a strategy shift in the least.

Yahoo should also get out of the search and Pay-per-click advertising space.

What is Yahoo! as a company? As Terry Semel himself stated several months ago, Yahoo! is primarily a media company that is technology-heavy. An online media company, to be precise. Now think of the online advertising world in terms of the Long Tail. Yahoo’s customers were in the “head” of the Long Tail graph – a few thousand advertisers, but each one worth big bucks. Google instead targets the “long tail” with its AdWords model. In fact, AdWords is not effective for large advertisers, but then it was never intended to be.

Yahoo! needs to realise that there is much more to the online marketing world than simply advertising, especially when compared to the sophisticated offline marketing campaigns that professional marketing and PR firms run. Yahoo! would do well to induct that kind of talent onto its rolls. I’m thinking an acquisition of a respected marketing/advertising agency. Being able to use more media like video, audio, images and maps willl increase the richness of future campaigns, With regard to video, having traffic driven to Google’s properties (YouTube) won’t seem so bad once the videos on that website have been created by Yahoo! (PR videos, video ads, videos with embedded ads, the works!)

Online PR, viral and buzz marketing, social network marketing and affiliate marketing are areas that are currently a fishmarket of small fragmented firms, none of whom have the scale or the expertise to cater to truly large clients. They’d be cannon fodder should Yahoo! choose to muscle into these spaces.

Finally, mobile is one area where I believe Yahoo! already has a lead over Google. Its widget-oriented OneSearch service proves that the mandarins at Yahoo! have the right idea. The company recognises that the mobile web is different. Although more intent-based than the PC Web, mobile web is subscription-driven instead of search-driven. OneSearch is a large step down that road. Mobile online communities could be a massive revenue-earner. Google has Orkut and Dodgeball in its armory but isn’t doing a thing with them. Will Yahoo! grab this opportunity instead?

In summary, both Yahoo! and Microsoft have forgotten their company DNA in their zeal to show Wall Street that they’re wise to every Google trick. They don’t have to be. In fact, as we’ve seen in this rather detailed Tomorrow Today, they’re three very different companies operating in three different spaces, playing to their different strengths. The sooner Redmond and Sunnyvale realise this, the sooner they’ll be able to drag these companies out of the morass they’re sliding into.

Tomorrow we’ll wind up by examining what GUS means for Google itself, and where the company could go from here.