Archive for the ‘NexGen Web’ Category

The #hash economy

hastBack in the late 90′s I started noticing URLs at the end of many TV advertisements. They started as general company URLs (and were relatively infrequent) and eventually because almost ubiquitous  leading not just to company home pages but eventually to product pages or other ares of a company’s site were one could get more information about whatever was being hocked on TV (or in a magazine, etc.). Fast forward a few years and we saw the same phenomenon with brands and their Facebook pages. And then Twitter. These were/are great ways for brands to get more information to people interested in their products. And to some extent through Twitter and Facebook “engage” with people so inclined to interact in that way with the producers of products they like and use.

Now we’re seeing something pretty different and I’m interested to see where it goes (and have been thinking from an investment perspective for ways to participate in it as a growing trend). What I’m referring to (which will be obvious to anyone who read the title of this post) is the emergence of the #hashtag. You see it everywhere now. And not just on advertisements, but anywhere people are trying to drive a group conversation – at the end of magazine articles, during TV shows, sporting events, cable new channels. The #hash’s are generally topic related, not brand related (CNN isn’t pushing the #CNN hash but instead pushing #Election2012; we’ll all be tweeting about #superbowl this Sunday, etc.).

And like a lot of things in this new era of the internet the #hash economy is much more democratic. No one “owns” a #hashtag and the conversation is both easy to follow and easy to participate in (for example not limited just to one social platform). I think this kind of democratization of the internet is really interesting to follow. We’ve moved from platforms for people to broadcast out, to one where people could self organize into communities (but where these communities were still somewhat siloed) to one where we’re creating horizontal overlays to the internet that allow for much broader dissemination of information and that support more free flowing communities of interest (where both the participants in the community are free flowing but also the communities themselves).

I’m not entirely sure where this will take us, but I love the notion that barriers to participation are falling and as a result more and more people are able to interact and create content. The bar for that participation has been lowered massively and the old 80/19/1 paradigm (80% passive consumers/19% responders/ 1% creators of content) has been completely flipped on its head. I’d love your thoughts on this subject as it’s been knocking around in my head for a while but I’m not sure I’ve reached any definitive conclusions about where this is heading and what that means.

January 31st, 2013     Categories: NexGen Web     Tags: , ,

Pricing models, the freemium myth and why you may not be charging enough for your product

image I’ve been pulled into a number of product and pricing meetings recently (for reasons unknown I’ve become the Foundry pricing and productization guy). I thought it would be helpful to put some of my thoughts into a blog post and hopefully spur some conversation in the comments and over email. With any broad topic, there are always exceptions to the general rules. There are also few absolutes and much of this advice varies depending on your specific product and market. And keep in mind here that I’m dealing generally with web services of some kind in the advice below (not consumer apps and not enterprise software). With those caveats, here are some ideas on pricing models:

- Beware of too many pricing tiers. Relative simplicity is helpful in many things related to building companies and pricing models are no exception. As it relates to pricing tiers, I favor fewer pricing levels. More tiers = more complication = more confusion. It also makes you more likely to violate some of the other ideas below. I generally like 3 or 4 product tiers plus one “call us for enterprise pricing” tier.

- Have a clear delineation between product tiers. Many companies initially offer a base level that includes all of the features of their product and then offer a little more of each feature at various incremental pricing levels. For some relatively straightforward services this can make sense (think Basecamp where your sales pitch is about offering more of a relatively defined thing, that everyone pretty much understands and values, and generally will want more of as they use the product more). For most products, however, this is a bad idea. For starters, most companies vastly overestimate their prospective customers’ ability to understand the features of their product (thinking the value of each feature is self evident). It also complicates the buying process as prospective customers try to figure out how much of each of those great features you’ve developed they want, and doesn’t create clear delineations between pricing tiers. While there are some features in almost any product that need to be priced this way, I generally favor opening up some number of completely new features with each pricing increment (say an analytics layer or workflow module, etc.). This has the side benefit of giving you lots of nice ways in your product itself to promote higher tiered features (think grayed out features – “click here to upgrade!”). It also makes the upper tier value propositions relatively straightforward – want X feature? You’ll need to purchase the Silver package for that.

- How about overlay features that you charge by the drink for? Many companies have parts of their product which some advanced users may want to access at every product level (API level access being a pretty obvious example). In these cases (and to be clear, these should be product features that a subset of your customer base is looking for – if not, they should likely fall into your regular pricing tiers) I think it’s fine to have an overlay where you charge incrementally to the base price of each tier ($X for every 1000 API calls or something similar).

- Be careful what you put a tariff on. You should understand very clearly what drives your own costs as you start to matrix out your pricing so you know what user behaviors cost you money. You should also understand (by talking to early users) what drives customer adoption, usage and lock-in of your product. And with all that in mind, be careful what you chose to put a tax on. There’s no hard and fast rule here and this is a nuanced conversation that’s hard to generalize and put into writing. But remember that your pricing will effect your customer’s behavior around your product. And I’ve found that many companies make the mistake of charging for features that are the key lock-in points for customers in their early use of a product and in so doing actually limit their likelihood of getting enough value out of the product that results in their becoming a long term user. To be clear, you should try to align (but not necessarily match exactly) customer value to customer cost. But not at the expense of lock-in. To keep on the Basecamp example, note that they allow for unlimited users at even the base pricing level. They (correctly) realized that while they could have easily charged for this they’re better off getting as many people in an organization using the product as possible.

- The freemium myth. I’ve been a great beneficiary of freemium models (as both a consumer and an investor) but I think for many companies the freemium model doesn’t make sense. If your product offers value out of the gate, if your service is such that it doesn’t necessarily benefit by having a large volume of users (and back-end data aggregation is probably not that benefit, which I point out since I often hear it used to justify fremium models for companies that in my mind shouldn’t have them), if you are selling largely to enterprises (companies) – you may not be the right candidate for a freemium model. I know it’s in vogue and I know that your product is so cool if only you could get a million people using it you’d blow past the typical freemium upgrade rates of 1-3%. But in all likelihood if you’re offering a product of value that’s well thought through, well designed and well architected, you’ll make more money by simply charging for your service out of the gate. (Note that I’m really not talking about consumer oriented applications here, where freemium models tend to make more sense)

- Don’t be afraid to charge for your product. The other benefit of not going down the freemium path is that avoids another common mistake companies often make which is not charging enough for their product. When you’re jumping from “free” to “something” that something often needs to be relatively modest – after all you don’t want to scare customers off and you do need enough of them to pay something in order to stay in business. But the reality is that if you have a good product, many users who will pay “something” will pay more than you think for your product. Put another way, those that get value out of what you do get enough value to be willing to pay a meaningful amount of money for it. You may lose a few people at the low end, but many products have a lower price elasticity than their creators realize. I’ve watched many companies spend untold cycles trying to raise the price of their product after initially setting prices so low that they essentially commoditized what they do. It’s also worth noting that if you get it wrong it’s a lot easier to lower prices than to raise them. And to be perfectly clear, I’m generally not a fan of the $19.99 entry price point for a product/service sold to business users. You can charge more. And you should.

- Beware the long “trial” period. I’ve written about this before. I think most companies offer too long a trial period for their product. Just like most customers who will pay for a product will pay more for that product, most trial users who will eventually become customers at 30 days will do so at 14 days. The idea here is to give people enough time to see how awesome you are but not too much time to change their minds or to forget about you. There was a great debate about this question when I wrote about it last time and I still haven’t found any academic research to back up my hypothesis, but that’s my opinion.

Hopefully some of these ideas will be helpful to you. Maybe a few will be provocative (as always, let me know!). I do recommend that companies working on their product pricing matrix spend plenty of time with customers to understand how they are using their product. It’s also helpful to bounce pricing ideas off of not just your early customers but also some trusted advisors who are not as close to what you’re doing. Getting a fresh set of eyes on your feature set is a good way to avoid drinking too much of your own cool-aid when it comes to your view of the ease with which potential customers will understand your value and pricing matrix.

August 12th, 2010     Categories: Marketing, NexGen Web, Product    

VCs and social media

I recently participated in a Thomson Reuters webinar entitled "Boosting Returns with Web 2.0 Technology". The seminar was targeted to VC and Private Equity professionals and focused on how investment firms can use social media in managing their investment business. 

I was reminded of the mew media technology bubble that I live in a few months ago when I spoke on a similar topic at the PEI Investor Relations and Communications Forum. When I asked the crowd of about 150 people how many were on Twitter and a single hand went up I realized that I had my work cut out for me (I might have guessed that that when I walked into the room and was the only person wearing jeans, but that’s another story)…

Because of my experience at the PEI forum (realizing that most VC/PE professionals are still just beginning to understand social media and how they might use it for promoting themselves or their firm) I focused my presentation for the Thomson Reuters webinar on the basics of social media (and reinforcing that there are a handful of firms – primarily early stage VC firms – that are active users of the technology). I highlighted how we’ve used social media at Foundry Group and specifically the benefits we’ve gotten out of being extremely public about our investment themes, our reasons for investing in specific companies, etc (see the slide that highlights the Lijit search tag cloud on our blog). The builds in the deck don’t come through SlideShare, so some of the slides are busier (or more confusing) than they were when built up correctly, but you’ll get the idea. One of my co-presenters, David Teten of Teten Advisors has a post up about the seminar as well (along with a link to his slides).

September 1st, 2009     Categories: NexGen Web, Venture Capital     Tags: ,

Revenge of the database

I had a note from a break-out session I led at defrag a few months ago that read "database is back".  It was by far the biggest take away from the two-day conference for me.  While a significant infrastructure has developed around simplifying and virtualizing pretty much every aspect of the technology stack, the common denominator to all NextGenWeb, Web 2.0, social networking, aspiring platform companies is the database.  And while the other elements of the technology stack are getting all of the fanfare the very unsexy database that back-ends all of this great new stuff is the real hero.  After all, many of the companies in the categories I mention above are really just fancy front-ends to a large.  This presents problems for companies that are developing new services since there are very few options for lightweight databases and essentially no options for virtualizing these databases (at least nothing very robust and scalable).  For the most part they’re stuck handling the set-up, implementation and maintenance of this technology themselves.  The result is greater cost, more headaches and an inability to quickly scale if their business is successful.

The post I intended to write after the conference was going to point this out and push for a forward thinking company to come up with a solution.  Procrastinate for a few weeks and that’s just what happens (minus the original blog post).  Amazon today is releasing a limited beta of SimpleDB – a cloud based database to compliment its S2 and EC2 offerings.  From the Amazon site: "This service works in close conjunction with Amazon Simple Storage Service (Amazon S3) and Amazon Elastic Compute Cloud (Amazon EC2), collectively providing the ability to store, process and query data sets in the cloud."  The addition of SimpleDB makes the Amazon stack an unbelievably compelling value.

This is great news for web companies looking to buy all of their infrastructure by the drink and move infrastructure costs from upfront CapEx to more manageable operational expense.  Not to mention the added ability to quickly scale up or down depending on success.  Sure – eventually when they’re successful many companies will find it cheaper (and operational expedient) to manage their own infrastructure.  Eventually . . .

See also:

TechCrunch article on the announcement

GigaOm’s take

December 14th, 2007     Categories: NexGen Web    

The missing social network

Facebook trying to co-opt the web into Facebook highlights for me how backwards the social networking world is today. I’m a fan of the platform idea, but the more I think about this, the more I come to the conclusion that the world already has the greatest platform yet developed at its fingertips – the Web itself. I understand why Facebook is trying to enable the reporting of external content all over their site but what would really be great is if rather than trying to port the net into my social network, my social network extended onto the net. When I’m in Facebook, I don’t really care that much if Brad just bought Book A or if Chris just purchased movie tickets. When I really care is when I’m on Amazon looking for my next read or when I’m at Fandango about to buy tickets to see a film. More generally, when I hit a site, I’d love to know who else I know who has been there, where they surfed to afterwards and what other related sites I should be checking out based on the behavior of my network. When I’m on a blog, I’d love to see who I know who has left comments, how they’ve rated the content and if I’m reading something written by someone that’s a few degrees of separation from someone I know. I’d like all of my networks (my contacts, my LinkedIn connections, my Facebook friends, etc.) to be a part of this extension of the web and for it to inform and enhance my surfing.

Adaptive Blue is starting to cover some of this with their Blue Organizer. So is me.dium with social browsing and SocialThing with its network of networks. Now we just need to bring it all together. . .

December 7th, 2007     Categories: NexGen Web    

Widgets are s-l-o-w-i-n-g m–e d—o—w—n

The great thing about having a bunch of widgets on my blog is that every time my site slows down I have my choice of people to blame. Shame on me for having so many widgets, I guess, but really – there has to be a better way of managing this.

From start to finish, the experience of inserting a widget on my blog is unsatisfying. I have to configure each separately (so it’s hard to make them consistent in look and feel); I have to manually insert the javascript on my blog; to change attributes or location of the widget I have to mess around with the code again or have to go back to the site where I created the widget in the first place; I can’t create a library of widgets and turn them on and off at will; and my widgets are constantly breaking something on my site (apologies for those using my Lijit search last week, which I managed to inadvertently disable when I was moving a few things around on my sidebars). And because I use advanced templates in Typepad everything that’s designed to make at least some of this easier doesn’t work.

On top of all of this, since pages load sequentially, if I have a slow widget or two everything comes to a crawl (and when I say “if”, I mean “when . . . daily”). This isn’t how the world should work. How about someone developing a CDN for widgets? I’m imaging a widget distribution system that manages the calls back to the widget creators, cashes the appropriate material, allows for better compatibility across browsers and platforms and manages the page loading in a more intelligent fashion (ideally all of my content should load first, then the internal links such as my recent posts, and lastly, all the other stuff I’ve littered the page with – although I understand that what I’m describing won’t be able to do this entirely). This same system could also handle the creation of widgets, streamline how I turn them on or off, how I move them around my site and when they are displayed (i.e., I could rotate them if I wanted to or vary their display based on post topic or blog category). This system would be the single place that my blog called back to in order to render all third party content. If a widget wasn’t loading properly, they could just skip it and move on to the next one without holding up the loading process. They’d also be in a better position to architect a network more suitable for this type of content distribution (since most widgets are created to extend content where the widget creator isn’t particularly focused on their distribution network once their content is in place).

We’ve been talking about variants of this in the Boulder tech crowd for months – let’s get on it!

December 6th, 2007     Categories: NexGen Web    

BioWest with a ‘Vue

One of the best parts of being a part of TechStars this summer has been watching the companies make their way onward and upward now that TechStars 2007 is fading into memory. While most are still in some form of beta (meaning that their sites don’t tell you much about what they are up to) a good handful are making real progress. A great example is EventVue (also still in beta), which provides conference attendees a way to interact before, during and after a conference (which is really the main reason anyone attends a conference in the first place). BioWest just announced that they would be using the platform to support their upcoming conference and my friend Adam Rubenstein (who writes a blog about the Colorado life science investing) has a nice post up on why BioWest went with EventVue. Go TechStars Go!

December 4th, 2007     Categories: NexGen Web    

The gentrification of FaceBook

I first signed up for FaceBook about 8 months ago, interested in checking out the platform and to playing with the technology. I was happy to find a handful of my geek Boulder friends already there as well as a few colleagues and one or two college buddies. The TechStars guys (most of whom were under 25) were, of course, well established on FB already and happy to point me in the right direction (download this, pull your blog into your news feed, see your contacts this way, etc.).

Over the first few months I noticed some of my VC friends join up as well as more of the Boulder tech crowd. Then I started seeing a few more people from College and finally even some friends from high school ‘friending’ me. I’ve noticed over the last month or so that this trend is accelerating . . . quickly. And it’s not just older tech geeks – it’s anyone and everyone starting to jump on and sign up. While the overwhelming majority of FaceBook users are still college and just post college age (18-24) there’s real growth happening in the 34 and up crowd (FaceBook itself reports that its fastest growing segment is those over 25, but doesn’t break it out more specifically).

What does this all mean? I believe that at the moment, FaceBook is the most important platform on the internet. And while I’m sure that iGoogle and others will give it a run for its money, anyone looking for an audience online can’t ignore the 55 million and growing number of users on FaceBook (still doubling every 6 months). And while there are over 7,000 FaceBook applications, the growing number of older . . . I mean experienced . . . users suggests some different ways that publishers and app developers can and should target this demographic. This has implications for gaming, for recommendation engines, for book and movie advertising and reviews, for conferences, for the guys spamming my inbox incessantly with advertisements for Viagra and for just about anyone else who has a product or service to sell for the 35+ crowd.

The beauty of FaceBook as a platform is how broadly applicable it is to any demographic – the utility is a function of the people you are connected with rather than the application itself. This explains why we’ll see FaceBook usage accelerate, particularly across new demographics.

November 24th, 2007     Categories: NexGen Web    

They get it

There’s no question that OpenSocial supports exactly what I was talking about last week. Check out Marc Andreessen’s post on the effort here – a must read for anyone who cares about open platforms.

November 1st, 2007     Categories: NexGen Web    

Web2.0 social-networking SaaS is the way to go!

Someone joked with me the other day that after a recent experience trying to get funding for an old school enterprise software business they were going to reposition themselves as a Web 2.0 social networking SaaS company to see if that helped. Ahh . . . bubble humor . . . it would be even funnier if it didn’t ring so true . . .

October 26th, 2007     Categories: NexGen Web