11/19/06 It's Hard to Predict the Future
Slide, the company I work for, recently announced that we raised a round of financing. The additional funds will help us grow faster as we ramp up our infrastructure and bring on more engineers and designers to build out our service. It also adds Vinod Khosla, co-founder of Sun Microsystems and former general partner at Kleiner Perkins Caufield & Byers to our team.
Raising money can also draw criticism, as people look at your company and question its value and ability to succeed. Liz Gannes from GigaOm mentioned that "we (GigaOm) can’t say we get the big idea."
Criticism is fair. Far too many companies have squandered investor dollars on services that were ill conceived and poorly managed. But it's also hard to predict the future.
Consider the Yahoo! homepage in 1994:
It's hard to imagine this is a company that in 10 years would grow to having a market capitalization in the tens of billions, and would become one of the top two, if not the most, trafficked Internet site in the world.
Or consider Amazon's homepage when it was founded in 1995:
When I heard of a company selling books online I thought the idea was niche at best. I was wrong. Amazon is now the largest online shopping site. When it was founded in 1995, it had 11 employees by the end of the year. Within four years, it had more than 1,600 employees and four million customers.
As John Gruber of Daring Fireball notes, the success of products and service typically come after a long journey of incremental improvements, rather than overnight success:
"The most remarkable thing about Apple’s iPod/iTunes platform is how incrementally it has grown. These annual iPod/iTunes special events garner tremendous fanfare, and deservedly so, but it’s really just been one small evolutionary step after another.
"It started with nothing more than a $399 5 GB Mac-only MP3 player and a Mac-only jukebox app. Then they officially supported Windows, albeit without iTunes,5 and only on PCs equipped with FireWire. Then the iTunes Music Store, still Mac-only. Then the Windows version of iTunes. The expansion to a family of iPods: the Mini. Then photos and color screens. The Shuffle. Then, a year ago, the Nano and video iPods. And, now, after a year of selling 30- and 60-minute TV shows, feature-length motion pictures. Walk, jog, run.
"Steady, consistent improvement and expansion, one step at a time — and now it’s a juggernaut."
Slide has come a long way since we launched the service at the end of August 2005. Slide hasn't released any numbers about our service usage, so all I can really do is point you to publicly available information. For example, I've graphed the number of links from blogs that we've received (according to Technorati) since we launched.
The growth is exponential.
As Reuters reports, The Hitwise numbers for October also reflect Slide's strong growth:
"Slide ranks as the sixth-most-visited U.S. photo entertainment site, according to Web measurement firm Hitwise Inc, attracting more visitors than sites such as Snapfish and Shutterfly. In terms of visitors, it is neck and neck with Yahoo Inc.'s Flickr in the category."
Hitwise tracks only US Internet usage, and I suspect if we were to look worldwide, Flickr would pull ahead. That said, it's impressive to see this type of growth through what is basically word-of-mouth distribution. Slide doesn't spend money on advertising.
Another criticism is that Slide is not, at this point, revenue focused. The success of Slide, long term, is ultimately tied to how well we can monetize our service. But it's important to keep in mind that for a startup at the early phase, being overly concerned with profits can actually be problematic, as Paul Graham notes:
"The idea of building something popular then figuring out how to make money from it was born in the Bubble. It sounds irresponsible, but it works. Requiring founders to have a carefully worked out plan for making money is not hard-headed business sense. It's what hackers call 'premature optimization.' The really important thing is to make something people want."
This leaves us with two certainties:
1. Slide has come a long way.
2. It's hard to predict the future.
Posted by johnnie at Nov 19, 06 02:29 PM | Comments (2)
07/24/06 Advertising
Monetizing Eyeballs
As the online advertising market shot up from $0 in 1995 to $6B in 1999--with projections of hitting $16B by 2005--there was a surge of companies building websites that could "monetizing eyeballs". With the advertising slump that accompanied the dot com crash, in conjunction with the economic recession and post-9/11 economic stagnation, a lot of companies moved away from the online advertising model to premium and subscription based revenue streams.
Today, with an online advertising market of about $12B and Google's 2005 revenues hitting $6.1B--based on 99% ad revenue--the desire to revisit the original premise of an online advertising driven business has increased.
The Economist recently published a report on the online advertising business entitled "The ultimate marketing machine" in which it details a number of new trends that are making online advertising not only a desirable outlet for promotion but also a competitor to traditional advertising channels.
Online advertising is no fad. It has evolved out of thousands of years of commercial promotion ranging from signs written on to papyrus in ancient Egypt to the $300M mega-campaigns of today.
A look at the evolution will show where we've been and where we're going.
Interruption Marketing
In the 1950's with television viewership booming there was a rise in brand advertising. The theory was that the best way to sell your company's sugar cereal was to tie it to a brand that was larger than the product itself. This style of advertising is typically referred to as "Interruption Marketing" because it would interrupt what someone was focused on to present them with the promotion. This was easy to do with television, particularly when there were very few channels to choose from. Of course, The "Tony the Tiger" style brand building of the 1950's didn't scale. The number of brands and the number of channels through which people are exposed to brands increased to the point where people were too bombarded with advertising to even notice. The expenditures continue, however.
Permission Marketing
In response the 1960's brought forth a more subtle form of advertising, where the content and the promotion was blurred. It marked a fundamental shift in print media, with the perennial example being Cosmopolitan Magazine. Cosmopolitan was started in the 1880's and grew rapidly as a publication of fiction stories, printing the works of talented authors such as Jack London and H. G. Wells. With the advent of television the demand for fiction magazines was decreasing and the subscription rates were falling. Helen Gurley Brown, a former advertising copywriter, approached Hearst about transforming the magazine to focus on women's advice, which allowed them to more easily blur the line between paid placements and their content. The influence is undeniable. Cosmo readers today account for £1 out of every £11 spent on cosmetics and skincare in the UK.
An extension of this trend came with the rise Permission Marketing. Cable Television jumped on this trend with stations like MTV that were entirely devoted to promotional content that people would opt to watch. Of course the next wave would be the most interesting, as the Internet allowed for unprecedented interactivity and contextual marketing.
Interactive & Contextual Marketing
The cost per 1000 viewers (CPM) of a Super Bowl ad, the quintessential place for brand advertising, is roughly $25, and there is no shortage of companies lined up to pay. TV averages around $10. This is not that different from newspaper CPM rates which can be anywhere from $5 up to $65.
Of course with this style of interruption advertising you have no real idea how effective a particular spot was. There is no direct customer feedback in the form of an action to the ad.
Overture, an online advertising company that Yahoo! purchased in 2003 for $1.7B, patented the notion of an auction system for advertising that is paid for based on user action (a click of a mouse) rather than simply an impression.
Google, which has come to popularize the notion of Pay Per Click and Contextual Advertising, agreed to issue 2.7 million shares of common stock to Yahoo! in exchange for a perpetual license of U.S. Patent 6,269,361.
Although the costs can vary wildly because of the auction-based pricing system, a click will typically cost a company around 50 cents or $500 per 1000, which is around 25x going rate of CPM. This premium reflects the additional value that advertisers feel they receive from placements that are interactive and require user participation, rather than just passive placements.
Of course CPC advertising is not without its problems. Just because someone clicks on an ad doesn't mean they're necessarily interested in your product. They may simple by clicking on ads on their own site to raise revenue, or clicking on a competitor's ad to force them to waste advertising dollars. Both of these are types of click fraud that are rampant today, with ads for "Clicks for Rupees" tantalizing those in India to destroy the benefits of CPC advertising.
Google and other companies are moving beyond pay per click and initiating CPA, or Pay per sale, advertising models in which the company is only paid if they lead to a sale. The premiums here are far more significant, with potential affiliate rates of $10, $20 and up per sale, which is around 30x CPC and 750X CPM.
Diverse Opportunities for Promotion
The online advertising world has changed a lot since 1999, and it has also had a significant impact on traditional Madison Avenue advertising philosophy. New models haven't destroyed old ones, but have impacted the premiums that they can charge and offered more choice to advertisers. The more time people spend online, in an interactive environment, the more the opportunities there are for promotions that are well metricized and understood. As the Economist noted: "If you can track the success of advertising, especially if you can follow sales leads, then marketing ceases to be just a cost-centre, with an arbitrary budget allocated to it. Instead, advertising becomes a variable cost of production that measurably results in making more profit."
Posted by johnnie at Jul 24, 06 11:42 PM | Comments (1)
05/ 6/06 3 (Controversial) Techniques to Improve Usability
Usability is king. If you can help people accomplish something valuable, you'll succeed. But you already know this; the software industry has come a long way since the late-80s and early-90s. Other industries from grocery stores to snowshoes are also focused on building usable products and services.
There are many conferences, associations, and courses designed to help people learn how to build usable products. Hearing from people's real-life experience also helps, so here are three techniques that may seem counter-intuitive or controversial, but will greatly increase your chances of building a more usable product.
1. Embrace Ugliness
Subtle changes to color, typeface and layout can greatly affect usability. For this reason many people will spend a fair amount of time focusing on fine tuning the user interface to their product prior to its release. If you're working on the 10th iteration to Photoshop (which really should pick up the visual style of After Effects 7.0 by the way), this is reasonable. Photoshop is over a decade old and doing a face-lift to improve readability and increase the smoothness of the interface is well worth it.
That said, if you're working on a new product or a larger redesign, you must embrace ugliness. Do not spend a lot of time perfecting and fine-tuning the interface because you will only get attached to it. In the same way the designers at IDEO will make crude prototypes with cardboard and hot glue so that they can test 10 or 15 prototypes before deciding on one, you too must do this with your digital product. If you make something too pretty, too refined, it will take you longer to build it and longer to change it. It may kill your chances of success.
2. Skip the Lab Tests
Let's go back to Adobe once more. Adobe spends a lot of money on lab tests. They recruit people to come down to headquarters in San Jose, sit in a room with cameras and two-way mirrors, and go through detailed task analysis. All this is a big investment of time and money. For a multi-billion dollar company it's not particularly prohibitive but for a startup it can be a costly process that may not necessarily be the best way to improve usability.
Instead of sinking time and money in to doing lab tests, spend that time and money to instrument your product so that you can learn what real users and doing on their own machines in their own homes. Imagine if Photoshop had a plug-in that volunteers could install that would report back to Adobe how people were using the product--not just 6 people in a usability test, but thousands of people. Think of it as a Nielsen rating system, except for your product. On the web this is even easier because you can even fork your traffic to go through different interfaces and test in real-time which is doing the best.
The advantage of doing this is that unlike lab tests where there will always be debates about exactly how to change things, when the product is instrumented you can see a more direct link to changes and outcomes because the sample size is larger and you don't need to spend a lot of time screening and recruiting people to come to your office at night so you can watch over their shoulder.
3. Don't use Features as a Crutch
No matter what you build it seems like there's always a list a million items long of bells and whistles that people want you to add. In many cases people say they can't (or won't) use what you have unless those things are added. Especially with a new product, there are typically huge holes that have to be patched up in order to make it usable.
There is a trap here, however. A lot of times the core of the product is not what people want, but they try to make you feel better by enumerating a list of things they think you should shoe-horn in to make it less terrible.
If you've built something that no one is using, it is rare that adding enhancement features will get people to adopt it. Typically there is a core problem that has to be addressed. You've got a pig and people try to help you by suggesting you add lipstick, earrings, a scarf, and spray the thing down with Chanel No. 5. The problem is that you'll keep sinking time and money in to this pig until you've driven your company in to the ground. "If we could get another round of financing, we would paint the toe-nails, and I'm sure we'll have a hit on our hands!" you may be thinking.
Posted by johnnie at May 6, 06 11:09 PM | Comments (0)
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11/08/05 Time for 9rules submissions: Round 3
09/06/05 John Maeda: Yahoo! vs. Google
08/24/05 ALA is back.
08/18/05 Adobe Blogs.
08/18/05 Rupert Murdoch flirts with $3B for Skype?
08/13/05 AOL.com is in Beta? AOL.com.
07/25/05 Yahoo! acquires Konfabulator. A wise move to bridge the web and the client.
07/13/05 Illustrator to XAML converter.
05/11/05 Bad Design.
04/17/05 Drool.
02/23/05 hicksdesign.com vs. hicksdesign.co.uk. Pack your bags. We're going to England.
01/29/05 15" Powerbook Battery Recall Mine was only holding a 3 hr charge anyway.
01/06/05 yousendit.com Send files to people without having to use email or FTP. This replaces tinyurl.com as my new favorite website that will never make money.
01/03/05 Adobe Creative Suite 2.0 rumors. I can't comment on the accuracy, but I will say that next version of Illustrator is so, *so* good. Trust me on this one.
12/16/04 google.yahoo.com? This is getting out of hand.
11/12/04 Goodby ad campaign for Adobe's Intelligent Document Platform. Simplicity.
11/05/04 Data Visualization. Chris Henderson sent me a link to this graph that not only shows electoral college votes mapped to area, but also to population.
10/23/04 Fundrace.org. Turns out Bill Gates and Carly Fiorina each donated $2000 to George Bush. I couldn't find Larry Page, Sergey Brin, Bruce Chizen or Steve Jobs on there, but Jobs's wife has donated repeatedly to the Democrats. Time to apply to Apple?
10/17/04 Mini Apple Store. Sprinklers are hidden on the wall so that there is a solid panel that reflects the solid floor. Good work Steve. I'm glad someone out there is more OCD than I am.
10/17/04 Packing up my bags and moving to Jumpline. After 5 years with the wonderful folks at Yahoo Website Services, I'm packing up my bags and joining Andrei at Jumpline. Yahoo was reliable and the customer service was good, but it was expensive and limiting.
10/15/04 Ads by Google? Is it just me, or are Yahoo and Google converging. I almost thought Yahoo Shopping was using Ads by Google. It looks almost identical. Can't say I miss the banner ads, though. Good work everyone!
10/13/04 Close, but no cigar. At least they didn't give up after the first two versions of the Media Center were a complete disaster. Maybe by version 5 they'll get pretty good, people will start to use it, and then Microsoft can abandon it just like it did with Internet Explorer.
10/12/04 Creative Code is here. I just got my copy, but haven't had a chance to really crack in to it yet. It seems a bit repetitious if you've read his last books, but I figure I could use a little repetition in my life.
