In An Internet Marketplace, Competiton Helps

Fred Wilson had a good post yesterday talking about the Fallacy of Zero Sum Game Thinking in internet marketplaces. The Zero Sum Theory suggests that as more sellers come onto a marketplace it hurts the early adopters. I’ve worked in internet marketplaces in 3 different industries -- real estate, e-commerce and now healthcare -- and I can tell you that this theory is a myth. I posted the following comment on Fred's blog:

The zero sum game theory is really just a misunderstanding of how good marketplaces drive traffic and acquire new users.

If most of Etsy's traffic came from them buying SEM or running TV ads, then yes, there is a fixed amount of traffic that sellers are competing for. But I'd bet that the vast majority of Etsy's new buyers come to them organically. That is, a buyer has a good experience on Etsy, then tells a friend, and that friend tells a friend, and that friend tells a friend, and on and on.

More sellers >> more good buying experiences >> more buyers.

The beautiful thing about marketplaces where traffic is driven by a quality buying experience (and word of mouth) is that instead of sellers competing with one another for traffic, they actually rely on one another for traffic.

I recommend checking out the original post. There's some great stuff in there on how, despite the controversy, Spike Lee raising money on Kickstarter actually increased funding for lesser known filmmakers. Great topic.

Spreading Innovation

There’s a long but good Atul Gawande article in this week’s New Yorker worth reading that’s relevant to what many of us are trying to do -- spread innovation and change minds. He writes about why some new innovations spread quickly and others don’t.  Talks about the fact that doctors adopted anesthesia really quickly but it took them years and years to begin sterilizing operating rooms (arguably a more important innovation).

Talks about the critical importance of the human factor in spreading innovation – and how a simple treatment for Cholera (a mix of sugar, salt and water) never spread in Bangladesh until human beings went out on foot and sold it, door to door.  Also uses a more relevant analogy:

This is something that salespeople understand well. I once asked a pharmaceutical rep how he persuaded doctors—who are notoriously stubborn—to adopt a new medicine. Evidence is not remotely enough, he said, however strong a case you may have. You must also apply “the rule of seven touches.” Personally “touch” the doctors seven times, and they will come to know you; if they know you, they might trust you; and, if they trust you, they will change. That’s why he stocked doctors’ closets with free drug samples in person. Then he could poke his head around the corner and ask, “So how did your daughter Debbie’s soccer game go?” Eventually, this can become “Have you seen this study on our new drug? How about giving it a try?” As the rep had recognized, human interaction is the key force in overcoming resistance and speeding change.

Some SEO Insights

I picked up some good insights on search engine optimization (SEO) over the last few weeks. For those that aren't familiar, SEO is the process of affecting the visibility of a website or a web page in a search engine's "natural" or un-paid ("organic") search results. So these are not the 'bolded' results at the top or right hand side of a Google search page. 80% of users click on the organic links instead of the paid links (personally, I almost never click on paid links).

16% of Google searches that occur each day were never searched for before.

Google’s primary job is to satisfy the user, so they’re going to send the user to the place that will make them the happiest. So the primary drivers of good SEO results (in no particular order) are:

1. Number of inbound links to the content
2. Amount of content
3. Recency of content
4. Click-through rate (from search result to click)
5. Stickiness of site (time spent on site)
6. Lack of dummy content (content that isn't relevant to the page or topic)

There have been incidents in the past where e-commerce sites would intentionally and blatantly ripoff a portion of their customers -- causing those customers to go to the internet and write bad reviews with links back to the offending site. It used to be that this kind of behavior would cause the site to be listed higher in organic search results (more links = higher SEO score).

To prevent this, Google has started to use something called sentiment analysis or opinion mining. By applying an algorithm against a variety of social media sites, discussion boards, blogs and news sites, Google can get a pretty good sense of whether or not the internet likes your site. And if they do, you'll rank higher.

Of course, sentiment analysis is complicated and not 100% reliable (due to cultural factors, language nuances and wide-ranging contexts) but is a useful way for Google to ensure that individuals aren't gaming the system.

In short, I think the key insight is that if you want to rank high in SEO over the long term, you have to do the right thing. You have to give users a site that makes them happy. You may be able to fool Google for a little while, but they'll eventually catch up and when they do you can forget about SEO as a source for acquiring new business.

The UP By Jawbone

The other day I bought a Jawbone UP, the popular health monitoring device that tracks steps, sleep and sleep quality. I’ve only been using it for a few days but so far so good. I mostly bought it for the sleep monitoring feature, and because I've been generally a bit anxious to test out a health monitoring device.

I’m slightly obsessed about the amount of sleep I get. Often there are nights where I get a good night’s sleep, but I don’t think I did so I worry about it. UP has begun to put my mind at ease – I’m actually getting more sleep than I had thought. The sleep part of the app monitors how long it took me to get to sleep, how long I slept and even deciphers periods of deep sleep versus light sleep.

I measure my daily workouts fairly closely and I use the MapMyRun app for my outdoor runs so the step measuring feature isn’t all that useful to me. Though I think over time it’ll be interesting to look back at the data to see how much I’m moving, and how I'm moving more or less during different periods. I also like being able to view my general activity levels in contrast to my rest.

The wristband itself is good. It looks decent on my wrist, seems durable, the controls are really responsive and it's easy to sync. The iPhone app is fabulous. It’s easy to use and has a seemingly endless number of ways to slice the data it collects.

There are a few more features I haven't used yet that I'll try out in the coming weeks. Lots of people believe that this kind of self-monitoring is the future of healthcare (particularly to help monitor various physiological statistics and behavior change for people with acute illness and/or high risk factors).

I'll write another post on my experience with the UP in a few months after I've compiled a bunch of data.

The Big 4 Internet Companies (Continued)

A year ago this month someone asked me this question: if I had to invest in one of the big four internet companies -- Amazon, Apple, Facebook and Google -- which one would it be? Without hesitating, I chose Amazon. I wrote a post about my reasoning at the time.

One year later, I thought I'd check in to see if I made the right choice. Here's how each of the stocks performed in 2012:

• Facebook - down 17% (since their IPO in March)
• Apple - down 1%
• Google - up 33%
• Amazon - up 47%

So it turns out I made the right call. Too bad I didn't put my money where was my mouth was.

That said, it's not a completely missed opportunity. I definitely think there's still a lot of money to be made on Amazon. I'm probably even more bullish on them now then I was 12 months ago.

My iPhone's Home Screen

I had a conversation the other day about the apps I have on my iPhone's home screen. I thought I'd capture the list here. Here's a screenshot.

Foursquare. I like 'checking in' because it keeps a record of the places I've been. I don't interact with people on it but the 'explore' function is good for finding new bars, restaurants and coffee shops. It's better than Yelp in many ways.

Twitter. I don't Tweet all that frequently but I check my feed multiple times a day.

Reeder. This is where I read the blogs that I follow. I check it multiple times a day.

Facebook. I'm trying to move away from using Facebook. I hardly ever post though I check it a couple times a day.

Google Maps. The best mapping app I've ever used. I use it constantly when I'm on the road.

LinkedIn. I interact with people through LinkedIn almost every day. I also check it sporadically for news and other updates.

WEEI. This is an app for my favorite Boston sports talk radio station. I listen to it pretty much every morning.

TripIt. This app keeps me organized when I travel. I wrote a post about it a while back.

Instagram. I don't use it that much but I have it on my home screen as a reminder to take more photos.

Podcasts. I listen to multiple podcasts a day.

Weather. Very simple app. I've preset the cities I travel to most frequently so I can easily find out what to expect.

Kindle. I don't use this app all that often as I prefer to do long form reading on a larger device. But I try to crack it open while I'm on the subway.

Music. I have lots of music apps (screenshot below). I'm still trying to determine the app(s) that work best for me. I probably use Pandora the most these days. I'm going to write a post on this in the coming weeks.

Settings. I have this on my home screen so I can easily manage wi-fi connections. I wish there was an easier way to manage these on the iPhone.

Clock. I use the alarm clock app daily.

WordPress. I've actually never written a blog post on the app but I use it often to capture new ideas.

So that's my home screen. It'll be interesting to see how this changes over time.

Ecosystems Create More Jobs Than Companies

60 Minutes had a story last week on the increasing impact of robots in corporate America. Because of the technical innovation that continued during the recession, as companies begin to grow again they're finding that they can replace many of the lost jobs with robots instead of people. One of the researchers in the piece points out that Apple, Amazon, Facebook and Google are all public companies and have a combined market capitalization of nearly a trillion dollars. But together, they only have  around 150,000 employees. Which is about half of the size of GE and less than the number of new entrants into the American workforce each month. Sounds like a bad thing, huh?

Not really. What this comment ignores is the ecosystem that these companies have built.  Each one of the companies listed above creates far, far more jobs than the number of employees that work for them directly.

Some examples:

• Apple's app store now has more than one million apps that are built and sold by entrepreneurs that don't work for Apple.
• Thousands of independent merchants sell their goods through the Amazon Seller Program. Amazon gives these sellers access to 200 million+ shoppers each month. Amazon also enables authors to self-publish and sell their work through the platform.
• There are more than 10 million revenue generating apps that plug into Facebook.
• Google's Android app store has more than one million apps built and sold by entrepreneurs that aren't employees.

So when you dig a bit deeper you find that the combined market cap of these four companies is incredibly dependent on the work of an enormous number of entrepreneurs that are making a living through these platforms. So while GE may have more employees than these companies, the number of individual livelihoods that are supported by their platforms dwarf the employee headcount of any American company.

Blocking Out The Competition

Over the last few months, Twitter has removed the auto-preview feature for Instagram Tweets. So now you have to click through the link in the Tweet to see the photo. Presumably Twitter did this to encourage their users to use their native photo sharing application. When LinkedIn redesigned their profile page about a month ago, they dramatically decreased the exposure of a user's Twitter account. In fact, it's not even on the main profile page, you have to click "contact info" to see a user's Twitter account. This is a drastic change given the LinkedIn/Twitter integration that used to exist.

So LinkedIn is blocking out Twitter and Twitter is blocking out Instagram.

I think this is dangerous for LinkedIn and Twitter. I've written in the past about how difficult it is to build a successful B2C business. Your product has to be so great and so valuable if you want to win. You don't have the luxury of a salesperson whispering in the user's ear giving them context on your decisions or information about what's coming soon and how the product will improve. The product has to be great, right now.

Of course, I don't know all of the facts behind these decisions. But I do know that the effect of blocking out applications that users like is bad. And in a B2C business, what's bad for the "C" very quickly becomes bad for the "B".

Snapchat & Sharing With Discretion

I've written in the past about the fact that Google+ is trying to fix social networking. While they’re not doing it very successively, the concept behind Circles is a powerful one. It allows users to easily share with discretion; i.e. to share certain updates and photos with selected groups (or circles) of friends. If Facebook favors 'open social networking', and Google+ is promoting 'discreet social networking', then Snapchat is promoting 'private social networking'.

From Wikipedia, Snapchat is:

a photo messaging application. Using the app, users can take photos, record videos, add text and drawings, and send them to a controlled list of recipients. Users set a time limit for how long recipients can view their photos, up to 10 seconds, after which it will be deleted from the recipient's device and the company's servers.

Sounds like something James Bond would use.

Snapchat was started back in September 2011 by a couple of Stanford guys. It now has around 200k monthly uniques, a $50 million valuation and users are sending 50 million 'snaps' a day.

Snapchat's success is a clear indication that there's a market for privacy. Social networks that don't facilitate the ability to easily share with discretion would be smart to take a closer look at Snapchat.

The Problem With Google Health

Google Health, the self-managed patient portal that launched back in 2008, shut down on December 31st. According to Google's blog post, they made the move due to a lack of user adoption:

Now, with a few years of experience, we’ve observed that Google Health is not having the broad impact that we hoped it would. There has been adoption among certain groups of users like tech-savvy patients and their caregivers, and more recently fitness and wellness enthusiasts. But we haven’t found a way to translate that limited usage into widespread adoption in the daily health routines of millions of people.

Google Health faced the same challenge that EHR (electronic health records) faced in driving adoption among physicians: everyone sees the long term benefit of getting patient information online, but in the short term, it's a lot of work.

In order to drive wide-ranging engagement and adoption of a self-managed patient portal like Google Health, there has to be an instant piece of value in return for the patient's time and effort. That value can be money, time savings, or some other functional piece of value -- the greater the value, the greater the adoption. Case in point: EHR adoption finally picked up after the government provided high value, short term financial incentives to physicians that reached an acceptable rate of usage.

Because Google didn't offer some kind of immediate, tangible benefit to their users they weren't able to drive the wide-ranging adoption they expected. It may sound a bit simplistic to claim that companies have to offer some kind of tangible reward to drive real adoption of a patient portal. But in some cases, it really is that simple.

Individual Employee Budgets

The other day I wrote about the fast growing b2e2b business model where enterprise software companies make their product available (often for free) to individual employees. Then – after those employees love the product – they put pressure on their employers to buy the premium version or to buy the product for the entire enterprise. While I believe that this model is going to continue to grow at an extremely fast pace in 2013, there is no doubt that it’s inefficient – i.e. the employee has to go through a bureaucratic purchasing department to buy a tool that will make them better at their jobs.

That’s why I believe that, as we see b2e2b grow, I think we’ll also see this inefficiency addressed. That is, we’ll start to see more budgetary control put in the hands of the individual employee. Many companies – even large companies – already give their employees a cell phone budget. I think we’ll see this kind of control flow down to other productivity tools as well to the point that budgets won't be bucketed by division or group or team -- we'll see more and more money flowing into individual employee budgets.

Of course there are internal compatibility, security and scalability concerns that will slow down this trend, but I think this it's something for enterprise focused companies to watch out for in the coming years.

Enterprise Software & The Network

Fred Wilson posted a talk he did the other day on enterprises and networks. Including Q&A, the talk is nearly an hour. For me there is one incredibly important takeaway for software companies that are focused on the enterprise. And that is that in today's environment, in the long term, you must remember that your business model is a commodity, your software is a commodity, your customer service is a commodity and your sales team is a commodity. The thing that will provide you with sustainable, incremental value over the long term is your network of users. That is the one thing that is extremely difficult to copy in the long term. Enterprise focused companies that have large networks of engaged users that are adding value to the product simply because they use the product are the products that will win over the long term. Here are five good examples of enterprise software products that are successfully using their network to increase engagement and product value.

• Yammer (users are an extension of the sales force)
• LinkedIn (users -- i.e. job candidates -- are the product for recruiters)
• Mongo DB (users improve the code by using the product)
• DropBox (users are an extension of the sales force)
• Disqus (user discussion drives increased traffic and engagement to participating blogs)