There are four strands of argument here: a technological claim (digital infrastructure is effectively Free), a psychological claim (consumers love Free), a procedural claim (Free means never having to make a judgment), and a commercial claim (the market created by the technological Free and the psychological Free can make you a lot of money).The only problem is that in the middle of laying out what he sees as the new business model of the digital age Anderson is forced to admit that one of his main case studies, YouTube, “has so far failed to make any money for Google.”
This is the kind of error that technological utopians make. They assume that their particular scientific revolution will wipe away all traces of its predecessors
And there’s plenty of other information out there that has chosen to run in the opposite direction from Free.
Apple may soon make more money selling iPhone downloads (ideas) than it does from the iPhone itself (stuff).
Malcolm Gladwell on Chris Anderson’s “Free”
The Perfect Twitter Client (Hint: Not Quite Built Yet)
The Twitter client battle continues. Yesterday, Seesmic released the latest version of its Seesmic Desktop, followed up by TweetDeck doing the same plus launching its iPhone app. There’s coverage of the specifics on CNET and elsewhere but the highlights for each release are Seesmic Desktop’s integration of personal third-party accounts (like bit.ly) and cross posting to multiple accounts versus TweetDeck’s syncing of groups and columns between its desktop and iPhone app.
Out with the Old, in with the New
Competition is a great thing. With the growing number of Twitter clients, users continue to benefit from choices. Of course, that makes it hard for Twitter client developers. But that hasn’t stopped new entrants. For example, check out Mike Rundle’s Beak app (Mac only).
A competitive market means less users will lock themselves to a particular client. I recall that Twitterific use to dominate the marketplace. Adobe AIR apps like Snitter, Twhirl (purchased by Seesmic), and eventually TweetDeck came along and changed all that. One reason is that the latter versus for the former are cross-platform, finally allowing the large PC userbase to actually have decent options to try.
Anecdotally, in a given day, on my desktop, I switch between TweetDeck, Tweetie, Beak, and some Firefox add-ons. On my iPhone, I again use Tweetie, TwitterFon, and now TweetDeck. Yesterday, I also re-installed Seesmic Desktop, after being unimpressed with its initial release. The point here is that unless the developers start figuring out features that keep users from switching to the “coolest” updated app, this trend will continue.
One Client to Rule Them All
A major reason I’m usually switching between apps is because each Twitter client seems to miss one thing I need. On the Mac side, Beak gives me easy access to my favorite tweets but Tweetie let’s me click on a user and see his recent stream (in Tweetie, I have to look at my own profile to see my favorites). Now, with Seesmic Desktop, instead of jumping over to bit.ly to shorten my link with my own account (instead of generically), I can do so directly in the application. TweetDeck provides a seamless transition from any of my desktops (I use PC + Mac everyday) to my phone. You get the picture.
While I’m sure my feature set is not exhaustive, I’ve created a mindmap of what Twitter client developers should try to include in their builds. This list assumes that for the most part, the developers have already covered the basics. It also does not overly focus on the user experience of the application. The latter is a key factor because these features need to be included intelligently.
(full size on Flickr)
My Current “Winners”
On the desktop, Tweetie is starting to be opened more and more. It incorporates the most features from the list above, in a way that’s intuitive. Overall, it will be harder for Adobe AIR apps to compete on the Mac platform. So, from that perspective TweetDeck will have a tougher time with Mac users but will likely completely dominate on the PC. That being said, I am one of those crazy ambidextrous users who works both on a PC and Mac throughout the day and syncing groups and other settings is very appealing.
Plus, TweetDec on the iPhone just blew up the App Store. There are no other apps (not just Twitter-specific) like TweetDeck. Syncing is going to push Mac users to sacrifice the beauty of a native Mac Twitter client for the functionality of seamless Mac to iPhone usage.
Conclusions
Going forward, I think Tweetie could add groups, easier favorite access, and if it wanted to really “go big” syncing with iPhone. It would then compete head-to-head with TweetDeck’s big feature and solidify its grip on Mac users. Syncing is a large effort and that’s probably why TweetDeck focused on it. For TweetDeck, an easy win would be adding third-party integration for services like bit.ly, which would lessen Seesmic Desktop’s “wow” factor.
Web Startups – Does Venture Funding and Geography Still Matter? (Part 1)
There’s been some good discussions on the role of venture funding and geography for web startups over the last months. These are topics that particularly interest me for several reasons:
- I’ve worked with web startups, either as an individual consultant, vendor, or employee during the last five years. I also have tinkered with a number of my own projects.
- I live on the East Coast, in the D.C. area, where historically this region has been known for political and non-profit organizations.
- I consider myself a student of demography and am interested in how today’s technology impacts the need for geographic proximity. My employer has multiple remote offices, so I have firsthand experience in understanding what it means to work in a distributed workforce.
It might seem shortsighted to focus on these two particular topics. So, let me be clear that there are many other elements of web startups to question and explore. These happen to be the most timely and relevant, both for me and the larger web community.
Part 1 – Does Venture Funding Still Matter for Web Startups?
Entrepreneurial Incentives – Then and Now
Based on research from Professor Robert Hendershott of Santa Clara University, the NYT asked Do Web Entrepreneurs Still Need Venture Capitalists? and promptly concluded “no.” The Times does a nice job highlighting Professor Hendershott’s research but his actual paper has the data to support his claims.
Hendershott spends quite a large part of his discussion focused on conventional VC investment models as they relate to entrepreneurial incentives in the current marketplace. While staged investments are better at keeping entrepreneurs incentivized, ultimately they still promote an environment where selling a company early can be more advantageous to an entrepreneur than the risk for a larger upside. Traditionally, investor ownership stakes and liquidation preferences have offset this misalignment of incentives.
In recent times, however, less capital has been needed for companies to build technology. For example, cloud computing and cloud storage greatly reduce costs typically associated with early stage startups. With less capital needed to build technology, lower first stage investments result in entrepreneurs winding up with greater ownership into their companies. Subsequently, they would earn a larger percentage of a first round sale. Basically, historical checks are removed. Hendershott explores this unravelling more but the end game is that “[p]otentially, the venture model for finding, developing, and vetting new Web-based businesses breaks down.”
The iPhone Gold Rush
Even without Hendershott’s analysis, there are enough anecdotal iPhone success stories to see that it takes far less resources to bring a new web (or more generally “digital”) startup to market today. For those that have the business and technical skills, places like Apple’s App Store provide a large and immediate distribution channel that handles logistics like payment authorization and to a lesser extent, marketing.
The App Store represents a marketplace that significantly lowers barriers to entry (e.g., cost and time) and mitigates the risk of failure. Unsuccessful attempts to launch an application may not simply be brushed aside but they also likely won’t break the bank.
Venture 2.0
Professor Hendershottt doesn’t go as far as to say that Apple is replacing venture capitalists but he does indicate that the environment the App Store fosters “mimics” venture models. He also points to traditional VC firms like KleinerPerkins’ iFund, who are adapting to this new world.
Rather than adapting, TechStars and Y Combinator have focused on a strategy of much lower seed stage investments. By taking this very smart approach, they’ve played the odds in their favor. Hendershott actually lays out the type of mindset of investment funds like TechStars but never directly makes the connection:
“The first round investor, while also risk-averse, is presumably diversified across a portfolio of similar young firms. This makes the investor more willing, even eager, to take the chance of a complete loss in any given portfolio company in exchange for a good chance at a much higher gain in at least one portfolio company.”
Of course, the idea behind “Venture 2.0″ mostly speaks to VCs reinventing themselves to stay relevant and a factor within the web startup equation.
Future – Venture Funding for Web Startups
It would be presumptuous to believe that venture funding will play no role in the future of web startups. Hendershott carefully chooses his words when he writes (my emphasis), “entrepreneurs should recognize that venture capital may play a smaller role in their future start-ups, and plan accordingly.”
My instinct is that taking VC investment will largely relate to the preference, experience, financial stability, comfort level, and skills of the entrepreneur.
In other cases, the choice will be dictated by the idea itself. For example, a YouTube-like startup could not get off the ground without the funds to cover its large bandwidth costs. Any explosive idea will require the capital to cover the scalability of infrastructure, even with the cloud.
Now – To Raise or Not to Raise?
Since VC funding for web startups is not disappearing tomorrow, it is important to understand if or when it’s a good time to raise funding. FreshBooks CEO Mike McDerment recently penned a piece entitled five milestones to reach before raising venture capital. The first milestone is the best:
When: you don’t need the money
This may seem counter-intuitive on a whole bunch of levels, but the time to raise money is when you don’t need it. What I mean by “don’t need it” is you can carry on without it, or you have alternatives (like other people who want to invest, or a house you will mortgage). Many entrepreneurs don’t understand the value of finding their way without VC money, or they think they need the money more than they actually do, or they think they need it sooner than they do, or all of the above! (READ: the 7 ways I’ve almost killed FreshBooks) The result is they spend a lot of time too early in their businesses lifecycle focused on serving VCs instead of serving their customers. Raising money is a negotiation. You need options when you are sitting at the bargaining table – you need a path without capital, a legitimate path.
Note: I work for a venture-backed web startup and I’m thankful for that. Venture capitalists have been enabling entrepreneur dreams and big ideas for many years and as I indicate above, I generally expect their involvement to continue in some fashion, especially for non-web startups.
The Role of Users and “Power Users” in Product Development
I’ve worked with web startups for the past five years and one of the most overused adages is that “users must drive product development.” Of course, users do play an important role in shaping a product. But they don’t play the only role.
To state the obvious, users do play a role in product development because they are the ones using the product (or a similar one) each day. The problem with looking to users (or a user) only is that they are sometimes greedy (e.g., “We want all features…now!”), often are not knowledgeable about the larger marketplace, don’t always represent the correct sampling of the entire user base (or target user base), and typically are blind to business goals (e.g., how to make money).
Marshall Kirkpatrick’s recent analysis of Twitter highlights these types of issues from another angle. Namely, that Twitter employees might not truly understand how to develop Twitter successfully because they are not “power users.” Overall, he focuses on the volume of their tweets and number and type of people the employees are following compared to “power users.” Marshall uses this example to help bolster his argument:
To follow that analogy, if you were someone who used a heavy duty washer and dryer in your home and found out that the electric company didn’t employ people who regularly used any appliances bigger than a toaster – wouldn’t you be a little concerned about the long term viability of your power supply?
There are two issues with this example and Marshall’s piece in general: 1) The assumption that Twitter employees are average users. 2) His focus on what he considers “power users” and his unstated bias that they are the most important element in shaping a product.
Let’s consider the example above for a moment. A “power user” of electricity is probably doing more than just running a “heavy duty washer and dryer.” He’d probably be running about a hundred of them. Most average users of electricity are likely using a handful of appliances, with a central heating system, as well as some lights.
There’s recent data that supports that Twitter employees align more closely with a “power user” labeling than with the average user. Keeping the metaphor alive, Twitter employees probably aren’t running a hundred washers and dryers…but definitely many more than one. Harvard Business Publishing’s stats showed that “a typical Twitter user contributes very rarely” and that “over half of Twitter users tweeting less than once every 74 days.” Comparatively, it would seem Twitter employees are well ahead of the curve if they post several tweets a day and are following more than several hundred people. That point debunks Marshall’s premise of Twitter employees having a “different understanding” of Twitter but it doesn’t address if “power users” should be looked to as product sages.
While never defined, let’s assume that the “power users” are the most devoted and obsessive users of a particular product or service. They are the ones that might leverage a product outside its originally intended use, are the most vocal about what they like or dislike, and have the highest expectations for what a product is now and what they expect it to be. For most startups, consider “power users” to be tech celebs, influential digerarti, early adopters, and many people living in Silicon Valley.
If you are building a product or service that you hope will one day completely infiltrate the masses (like say, Twitter) and continually attempt to satisfy this group of “power users,” you are going to fail. “Power users” will never represent the types of users that use cases need to be developed against, are usually going to find something to complain about, and will always somehow feel entitled to dictate what a product should be even if they are not tied to the company or didn’t originate and build the idea themselves. On this last point, Marshall quotes Dave Winer who has concerns that Twitter users may not like Twitter’s business model when its revealed. Oops! That’s right, Twitter is supposed to have approval for its business model(s) from its “power users” or else!!!
The advantages of “power users” are clear — free promotion, feedback, and traction, especially during early stage development. But the pitfalls with this group are equally as clear — bad press, criticism, and threats to leave (and take others with them) when their whims are not addressed. In the case of Twitter, it’s fairly evident that the last category now holds little weight as Twitter has broken into mainstream vocabularly and widespread adoption.
Here’s the bottom line: power users are just one segment of a user base and users are just one factor in influencing product development. Does that mean that a power user has more, less, or an equal voice in the overall user base? The answer depends on the maturity of the product and the goals of the company. For example, “power users” might not equate to paying customers. In this case, if a goal is to see revenue growth, the features “power users” want should receive a much lower priority on the product roadmap and release cycle.
To put it frankly, “power users” may kick and scream with certain product releases. That’s happened with Twitter, Facebook, and others lately. It’s to be expected because people don’t like change and users think they know exactly what is right. As companies listen to users though, users also need to extend some trust to companies. After all, these companies and their founders are the ones who originally brought these extremely innovative and useful products to market. They spend countless hours in product meetings, study competitors, talk with advisors, and interact with a wide range of users (not just “power users”).
In conclusion, there are some fair questions in Marshall’s post. But ultimately his laser focus on Twitter “power users” driving product development is equally as problematic as “unknowing” Twitter employees doing the same.
