Consumer Internet

More musings on passwords–solution needs to be easier as well as more secure

By | Consumer Internet | No Comments

Last week I wrote about my frustration with passwords. A number of you chipped in saying you shared the feeling and a few of you suggested services that can help with the problem.

These services break down into two groups.

The first group run client software (maybe in the browser) and automatically enter passwords so users don’t have to remember them. They can also generate complex passwords that are hard to hack. I haven’t seen their numbers but my impression is that they are doing ok, but haven’t penetrated the mainstream. They have been in the market for a while. I started using one of them myself a year or so back but didn’t really stick with it. I think they are good services, but to use them effectively takes a bit of work from the user, who has to install the software on multiple devices (and it might not work on all their phones) and may have to pay for a premium subscription. My guess is that the money and effort is worth it for the people who most worried about password security, maybe because they have been hacked or because they place a very high value on peace of mind, but not for the mainstream. I haven’t named these services because I don’t want to be critical of specific companies (at least not when they are startups).

The second group can be classed as new approaches. PixelPin is one, Nok Nok Labs is another. Rather than work with existing text based password systems they seek to replace the ‘password’ dialogue box with another form of authentication. PixelPin asks users to remember specific points on a photo whilst Nok Nok uses smartphones to identify via voice recognition and fingerprints. Like the first group they are primarily focused on solving the memory problem, but they have chosen a different go-to-market route. Instead of going after consumers they are going after websites and services that ask their users to enter passwords. If the products are designed well this has the merit of potentially being simultaneously less effort for consumers and much more secure, which would be a massive step forward. They will, however, have to convince website operators to implement their systems. To do that they will have to on the right side of the cost/convenience equation for them too, although the calculations of the costs of existing systems should include the cost of replacing passwords and sorting out people whose accounts have been hacked.

So it all comes down to ease of use – either from the consumer side or the perspective of the site operator. That tells me that the lack of security which comes with users using the same password across multiple services doesn’t worry most consumers or site operators that much.

Designing for viral growth

By | Consumer Internet | 3 Comments

I don’t post many infographics here, but this is a great one. It covers concepts like the viral co-fficient and time through the viral loop and lists out a bunch of tactics for increasing virality. None of this stuff is new, but this list is comprehensive and it’s great to have it in one place.

Additionally, not many businesses have the characteristics that make viral growth a possibility and the other thing I like about this infographic is that it can be used as a kind of check list to establish whether viral growth is a possibility.

Design for Viral Growth by Digital Telepathy

How to Design for Viral Growth by Digital Telepathy, a user experience design studio.
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Customer segmentation and the need for good data

By | Consumer Internet | 7 Comments

There was a good post on Gamesbrief a couple of days back about customer segmentation – i.e. dividing the customer base into groups based on behavioural characteristics and targeting each group with different communication campaigns. The article starts by saying that most game developers intuitively understand that player segmentation is important, and goes on to say that getting started can be daunting, but is actually easier than many people realise. My immediate thought was that these points apply to consumer internet generallly, not just games, and that consumer internet developers may be further back on the learning curve than games developers.

Our former portfolio comapny Lovefilm had a very effective customer segmentation programme which divided customer into groups depending on how engaged they were with the service – added no films to the list, added 1 to X films to their list, added more than X films to their list, regularly added new films to their list, and so on – and each of these groups got different emails designed to push them on to the next level of engagement with the overall goal of reducing churn. I haven’t seen many consumer internet companies get as sophisticated as that, whilst most either don’t do anything or maybe have separate emails for newbies (a set of welcome emails), and/or run the odd campaign designed to reactivate dormant members.

Some good use cases for segmented messages:

  • Welcome programmes which help users get familiar with the basics of a service – starts with the sign up flow, should increase the percentage of new users returning in the first week or two
  • Tips for more experienced users – should increase engagement amongst the heavy users and inrease downstream retention
  • Gifts for the best customers
  • Reactivation campaigns

Like most areas of consumer internet execution getting this right isn’t rocket science, but it does require good data, clear thinking, and hard work over an extended period of time to design the campaigns, measure their effectiveness, and then optimise. Reading this post back, the requirement for good data stands out as the biggest stumbling block for most companies. Good data pays dividends in so many areas and if I had one piece of advice it would be to bear than in mind from day one. Too many companies end up with services that are having some early success but struggle to optimise because it is too difficult to get good data out and they don’t have the time and/or resources to re-write their code and fix the problem.


The changing dynamics of consumer internet investing

By | Business models, Consumer Internet, Venture Capital | 5 Comments

Fred Wilson wrote yesterday about changes in the consumer web and their implications for startups. Frist he observed that the large platforms (Google, Facebook, Amazon, MSFT, Twitter, etc) are ‘starting to suck up a lot of the oxygen’ making it ‘harder than ever to build a large audience from a standing start’. Secondly, he notes that the move from ‘desktop/web to mobile/app’ makes it more expensive to build a large user base, principally because of the need to develop for multiple platforms.

These changes are altering the dynamics of investing in consumer web companies. Historically the best of these businesses have been highly capital efficient and able to grow very fast on the back of the strength of their product and without dependence on a third party. This made consumer internet a very exciting investment category – this Pinterest case study shows why. Going forward the risk reward profile will be different. Higher development costs and dependence on the large platforms push the risk up and at the same time the chances of hitting a Facebook size winner have fallen (it is hard to see any of the large platforms allowing that to happen).

This doesn’t mean that the opportunities in consumer web are over. It does mean that going all out to build a huge audience without building in a solid business model from day one has become a riskier bet where success is largely predicated on one of the platform players acquiring the company. For me the sweet spot has now shifted to businesses that are able to able to extract a high ARPU from a focused community. Often times that will mean the companies are ‘close to the transaction’ or ecommerce related. These businesses can be capital efficient in spite of mobile development costs because they are able to generate meaningful revenues fairly early on and they can have great operational leverage which combined with high ARPUs allows them to generate significant profits from audiences in the tens of millions.

Lyst and MoviePilot are good examples of businesses from our portfolio that fit into this category.

Winning services help people do what they already want to do

By | Consumer Internet, Startup general interest | One Comment

My friend Sokratis posted a link to the video below in a comment on the post I wrote Wednesday about building habit forming consumer services. The main point of that post was introducing Nir Eyal’s concept of the Desire Engine – a trigger, action, (variable) reward, commitment loop.

In the video behaviour change expert BJ Fogg unpacks the first two steps – exploring the circumstances under which people respond to a trigger and take an action (or behaviour in Fogg’s parlance).

For me the four takeaways from the video are below, but they don’t come close to doing justice to the richness of understanding you will get from watching Fogg’s talk in full.

  1. Build (or invest in) services where the desire or motivation is already there – all big successes on the consumer web have done this – find stuff on the internet, stay in touch with my friends, buy stuff..
  2. Behaviours (actions) only happen when motivation, ability to complete the action, and a trigger are present at the same time. Fogg puts that in a formula – B=MAT.
  3. The best place to start with a service is triggering the folk who already have motivation and ability – these will be your early adopters and probably long term core users
  4. After that it is better to work on the ‘A’ in B=MAT than the ‘M’. Making it easier for people who are motivated to use your service (i.e. increasing their ability) is sticky – if it is easier today it will be easier tomorrow, but with motivation you have to start from scratch every day. This is counterintuitive. For many the first thought is how do I make my service better – i.e. increase motivation.

I think it is the social scientist in me that enjoys these frameworks so much. By themselves they don’t provide any answers, but I find them very helpful in breaking complex issues into manageable chunks.

Building habit forming consumer internet services

By | Consumer Internet | 9 Comments

I’ve just spent an hour reading the excellent nirandfar blog by Stanford psychology and business lecturer Nir Eyal. The most important post sets out Nir’s concept of the Desire Engine which is a framework for building habit forming services. His other posts explore elements of the framework in more detail (e.g. building commitment by making users do work, and how to hook users with variable rewards) and case studies (e.g. Instagram).

What follows is a summary of the core elements of the theory which I hope will a) firmly cement the framework in my mind, b) convince many of you to go and read Nir’s work in full (if you are responsible for designing or building a consumer internet service then you really should), and c) serve as a quick intro for those of you who are time challenged.

I’d love to get your reactions. As always.

The centrepiece of Nir’s theory is that successful sites push users through the four steps of the Desire Engine every time they visit.

The first step is the trigger that takes them to the site – that could be an email, a post on Twitter or Facebook, or it could be a thought or emotion that occurs to the user and makes them reach for the service (an internal trigger).

Next comes the action the trigger is designed to precipitate – that could be clicking on a link in the email to go to the website (responding to an external trigger) or sharing a photo of something beautiful you’ve just seen on Instagram.

Third up is the reward. This is where the theory gets interesting. Two points stand out for me here – firstly the reward has to be amazing, and secondly the reward shouldn’t be the same every time. Giving the user an amazing reward is hard enough – Facebook gets you pictures of last night’s party, and Twitter gets you breaking news or amazing articles, but most sites fail to really wow – but to keep it interesting for the consumer the reward must be unpredictable. It turns out that our brains are hardwired to find patterns in things and when rewards vary we are compulsively drawn back by a need to find some order. Variability makes us value rewards more and makes sites more addictive. Returning to Facebook and Twitter – the rewards on any given visit vary hugely, and sometimes there are none. Similarly on Instagram – who knows whether people will love your photos or not.

The fourth and final step is commitment. Having enjoyed a reward the users brain is swimming with dopamine and they are happy to do a bit of work and put something back in. Putting something back in should serve two purposes – firstly to make the service better next time they use it, and secondly to get the user to feel more invested in the service and hence committed to it. Dressing avatars, buying virtual goods in games, adding profile information and updating preferences are all good examples of work that users can be asked to do.

By now you may have picked up that there are two types of triggers – internal and external. External triggers are manufactured by the service, and include emails, social media mentions and adverts. Internal triggers originate in the mind of the user when a service becomes associated with thoughts or emotions that occur spontaneously – e.g. read an interesting article, post it on Twitter. Nir’s second major insight is that successful sites drive super growth by transitioning users from relying on external triggers to responding to internal triggers by taking them through the desire engine a few times.

In summary, the key challenges are finding compelling and variable rewards, getting users to commit by doing some work, and designing a user experience that cycles users through the four steps quickly to encourage the development of internal triggers.

On social network transience and profitability

By | Consumer Internet, Exits, Social networks | 13 Comments

Consider this piece of logic from Derek Powazek:

The flow, as I see it, works like this.

  1. We want to be a social network. The more people in it, the more “value” it has, so we need everyone to join. Because we want everyone to join, we cannot put up a pay barrier, so we have to make money another way. Let’s say advertising. (Note: Most never make it this far.)
  2. Our advertisers want as much data about, and contact with, our users as possible. We want to only allow limited engagement. Either advertiser interest wanes (Flickr), or we coast on our investment (Twitter, Tumblr), or we give in and let the advertisers run the show (pretty much everyone else).
  3. Members become angry at us because we’re selling them out. The exodus begins. There’s always somewhere else to go (see Friendster, MySpace). Go back to step 1.

See it? The bigger you go, the harder the road.

And a similar idea put differently by Maciej:

Were you a big Gowalla fan? Did you like Dodgeball? Did you think (gasp!) was better than Pinboard? Did you make a lot of contributions to Nextstop? Do you miss Aardvark andEtherPad? Did "I Want Sandy" change your life?

These projects are all very different, but the dynamic is the same. Someone builds a cool, free product, it gets popular, and that popularity attracts a buyer. The new owner shuts the product down and the founders issue a glowing press release about how excited they are about synergies going forward. They are never heard from again.

Whether or not this is done in good faith, in practice this kind of ‘exit event’ is a pump-and-dump scheme. The very popularity that attracts a buyer also makes the project financially unsustainable.

I think there is something in this. Facebook and LinkedIn are highly profitable free social networks, but I can’t think of any others. I can however think of many that are very popular, but not making money – Twitter, Tumblr, and Pinterest spring to mind. Four or five years ago the list of free social networks that were popular but not making money was equally long, but totally different. Back then I might have listed Bebo, Myspace, and Friendster. Of these three, two sold out for what seemed like big headline prices at the time before going into terminal decline and the third (Friendster) slowly faded into insignificance. The most common explanation for this is that they were fads, but maybe the tension between user experience and profitability had more to do with it.

From Flickr to Instagram, over the last ten years building large but unprofitable social networks and selling them to large corporates has been a lucrative business for entrepreneurs and their VCs, but it hasn’t usually worked out well for the acquirers, or more accurately their shareholders. This imbalance won’t continue forever. I think the two ingredients for change are acquirers getting smarter about assessing whether their target has the magic to be one of the very few that monetises like Facebook or LinkedIn, and reduced valuations on the public markets for acquirers (high dollar value acquisitions look cheap to CEOs of companies with highly valued stock). The first of these ingredients isn’t far away, and may even be in place already. The second is harder to predict.

The implications of this analysis, which I’m not yet wholly sold on, is that the odds of winning the ‘get big really fast’ lottery are in decline. This is a bit counter-intuitive given recent successes at Instagram and Pinterest, but it is important to remember the large numbers of Pinterest wannabees and avoid being deceived by selective reporting and success bias.

Bonus extra: When he’s not writing about social networks Derek Powazek edits a quarterly book of true stories and original art called Fray. It’s rather good.

When consumer internet companies should get a business model

By | Business models, Consumer Internet | 2 Comments

Frank Lee, who is a new partner at Lightbank, the VC behind Groupon gave an interview to Business Insider last week.  His comment on consumer internet companies and business models summed up my own thinking neatly:

the point that I’m cognizant of is that at the end of the day, these things [consumer internet companies] need some semblance of a business model at some point. There’s notion that you can create something and you’ll figure out a business model much later on, after we’ve aggregated all these users with a ton of engagement. It’s valid, and it has happened, but statistically speaking, the odds of hitting that lottery are pretty slim.

To the extent that you’re not limiting yourself by being tied down to a specific business model, all that said, I think that you still have to be mindful that there is a path to creating a real business at some point down the line.

The kicker for me is the part in bold in the final sentence (emphasis mine).  It is often the right strategy to grow traffic first and monetise second but if there is no clear path to driving revenues then you are into the lottery that Frank describes.  The path may change, in fact it probably will, but at least you know early on that there is a path.  Otherwise there simply might not be.

Smartphones as sensor platforms for health tracking

By | Apple, Consumer Internet | 12 Comments

image Earlier in the year I wrote a couple of posts about the future of healthcare from a consumer products perspective.  One of my points was that data gathered from smart phones and specialist wireless health devices will enable a new generation of products, and I named a couple that I have been using.  I’m writing today about some new developments in this sphere.

Nike just released a new iPhone app which takes run tracking to a new level.  It uses the GPS sensor and accelerometer to track pace, distance, and calories burned and visually maps the run routes on Google Maps – see the picture insert.  Full review on VentureBeat.

I have been using Runkeeper, which does many of the same things, but with a less intuitive interface.  In particular Runkeeper makes it difficult to see exactly where on my run I go slowly and where I go at a better pace.  I’ve installed the Nike app and will try it out tomorrow.

Nike have slapped a £1.19 charge on the app though which I think is a strange decision.  Their reason for releasing the app must be brand promotion, and, given that any revenues Nike might earn from app sales will be negligible in the context of their apparel business, I would have thought their best strategy would be to get the maximum number of installs by making the app free.

This Nike app, and also Runkeeper, Gymfu and the others that I use make use of the sensors within the iPhone (accelerometer, GPS).  I’m also fascinated by the idea of third party sensors that connect to the iPhone to display data and sync with web apps.  The Withings scale I have at home works in this way and my next ask is for a heart rate monitor that works in the same way.

I haven’t been able to find one yet, but the device from ithelete in the pictures below points the way.  It connects with a heart rate monitor and runs analytics on the heart rhythm which guide how hard you should train on any given day.  That is a little sophisticated for my training requirements, but will bring information formerly only available to professionals to serious amateurs.

image image

Does augmented reality need to use the camera?

By | Consumer Internet | 7 Comments

I blogged about Dutch virtual reality business Layar last week and I spent 20 minutes last night playing with the app whilst I was waiting for a friend to come meet me for a drink in north London.  As I mentioned in last weeks post they have an active developer community and what these developers do is write Layars which run within the Layar augmented reality browser.  All Layars share the same underlying structure – when the Layar is opened the iPhone/Android phone opens up the camera and the screen shows the camera view augmented with content relevant to that Layar which is tied to a specific location and within a distance set by the user. 

mobypicture have written one of my favourite Layars and from the iPhone screen grabs below you can see how the interface works.  In the first image you can see the wall in our office augmented with pictures taken nearby.  The circle in the top right corner has white dots for all the photos within 800m and the photos layered over the top and the detail at the bottom shows pictures in the direction my phone was pointing.  I was pointing the phone in the direction of Google’s offices in Victoria and as you can see in the second and third images the Layar found a picture of my friend Anil who heads up corp dev for Google in Europe. 

The Layar browser provides the camera interface, link to the compass in the phone and format for displaying the content on the screen.  Each Layar then integrates whatever content they are interested in – in the case of mobypicture it is pictures taken nearby, other interesting apps are the Tweeps around (3D), and the Rolling Stones Exile on Your Street campaign.

image image image

As you can see for Layar the notion of augmented reality is taking reality as per the camera view and augmenting it with interesting content.

Foursquare however has come up with a different idea which doesn’t use the camera and the phone’s compass, but simply takes the location information from a user checks in and pushes the relevant data via an on screen alert.  For example, the Independent Film Channel (IFC) just announced a ‘layer’ on Foursquare which takes descriptions of places crowd sourced from the IFC member base and then pushes them to Foursquare users who opt in who get to see ‘the world as IFC fans see it’  – see the picture below.


The Wikipedia article on augmented reality focuses heavily on adding content to video in the way that Layar does, so the Foursquare notion stretches traditional definitions in this area, but they do so in quite a cool way. One of the limitations of Layar is that you have to open the app and wave the phone around to find the content you want, which (for now at least) is not a natural feeling process (trust me…).  To access the Foursquare augmentation of reality I only have to make a single opt in and then use Foursquare as I normally would, which seems like a lower barrier to adoption. 

What do you think – is augmented reality just hype? is the camera view important?

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