Scaling an Internet Business

I built the chart below to illustrate a few points about internet businesses.

1. The chart shows the virtuous cycle that comes from sites with user generated content.  YouTube's and Facebook's products are their users.  Their users generate videos and photos that make the site more valuable.  More value, more users, more value, more users.
2. This cycle doesn't exist as cleanly for deal sites.  Their product is deals that come from salespeople.  If they want more deals, they need more salespeople.  That's expensive (they have 4,000 of them).  Certainly, more users make their salespeoples' pitch better, but that cycle doesn't happen neatly.
3. Groupon has a a huge advantage when it comes to conversions.  People come to Groupon to shop; their deals (i.e. ads) are their product.   Conversely, people do not come to Youtube and Facebook to shop.  Their ads are a distraction.  Because Facebook and Youtube make money by distracting people from what they want to do on their sites, Groupon arguably has a more sustainable model.
4. Because Facebook's and Youtube's products are their users and Groupon's product is their salespeople, it's interesting to think about how much incremental value their engineers are adding.  Youtube and Facebook are mostly made up of engineers.

When you build a consumer internet business, don't assume that it's going to happen like it happened for YouTube and Facebook.  Think through whether your value will build on itself or if you need to buld it incrementally, the old fashioned way.  It's also crtical to think through where your scale is going to come from: users, salespeople, or engineers.  The answer isn't always clear.

Drip Marketing Framework

A colleague of mine drew this framework on our whiteboard the other day.  I thought it was spot on so I'm posting it here. It basically outlines the drip marketing process that a salesperson uses to keep a prospect engaged.  I wrote about Drip Marketing in an earlier post.

The framework instructs you to drip the prospect with some information, if you get their attention work to understand what matters to them, if you know what matters to them align your product/service (if possible) to meet their need/pain point.

It's Not Viral Marketing

I wrote about this in an earlier post, but I think it's worth a reminder. Viral Marketing is not:

Telling your friends to Tweet about your new site.

Posting about your upcoming concert on Facebook.

These are simply modern ways of doing old fashioned push marketing.

Viral Marketing is when:

1. one person tells two people about your product (3)
2. each of the two tells two more people (7)
3. each of the four new people tell two more people (15)
4. each of the new 8 people tell two more people (31)
5. each of the new 16 people tell two more people (63)
6. each of the new 32 people tell two more people (127)
7. each of the new 64 people tell two more people (255)

You get the idea.

Viral marketing is when word about your product spreads, naturally, like a virus; and frankly, without much effort from you. Other than making the product worth talking about.

Your Social Network Asset

Currently I have about 80 followers on Twitter, about 500 Facebook friends and about 500 LinkedIn connections.

There's some overlap between networks, but more or less with a few keystrokes I can send a message to 1,000 people that trust me and are attentive and willing to listen to what I have to say.

That is an asset. A social asset. Not only the captive and trusting audience but the ability to communicate to that audience in real-time, whenever I want and as often as I want.

Like any asset, I can make it more or less valuable over time, either by losing or gaining audience, losing or gaining trust, or losing or gaining attention.

I think it's worth thinking about this for a few seconds next time you want to post something you want people to support. Will it make your social network asset more or less valuable?

Email and E-Commerce

Fred Wilson had a post last week called Don’t Forget Your Logged-Out Users where he discussed how social media sites need to pay attention to the value they create for users that aren’t logged-in; i.e. Twitter allows you to see Lebron James’ Tweets without logging-in.

This is something I’ve thought about a lot in the context of e-commerce.  You need to be very careful about what value you provide to a user before you force them to authenticate (i.e. force them to give you their email address). 

Most web services drive the majority of their traffic through email – especially repeat traffic.  As a result, email capture for a new visitor is critical.  It’s hard to get a user to your site, it’s even harder to get them back – in most cases you need their email address to get them back.  An email address allows you to regularly market to that user to bring them back when you have a better or more relevant offer for them.

So when you think about how much value you provide to a user that isn’t logged-in, you need to consider the potential missed opportunity to capture that user’s email address.

I’ve found that when you put up a authentication page before allowing a first-time user to shop, you lose about 20% of visitors; most users came to your site to see what you have and they’re willing to take an extra step to see it.

I’ve also found that when a user comes a site, there’s about a 5% chance they’ll transact on the first visit. 

Think of it this way:

Scenario 1 – Authentication and email capture before user can shop

1,000 New Visitors

800 New Email Addresses

40 Transactions

Scenario 2 – No Authentication before user can shop

1,000 New Visitors

50 New Email Addresses

50 Transactions

Here’s the question to consider when making the decision on how much value to provide to users that aren’t logged-in to your e-commerce site: what’s more valuable to you, 10 transactions or 750 new emails?