Internet Marketing

January 5, 2007

Paranoia and Web App Design

From the FreshBooks blog:

Let me tell you a little story about a restaurant I love.

The restaurant is Churrasco Villa (beware the audio). I like them because they are fast, the quality is always good, their meals are nutritious, their facility is clean, their staff courteous and I can collect a take out dinner when I need to (usually 3-4 times per month). It’s the kind of neighborhood restaurant that always has people in the take out line and most of their seating capacity is full.

A few weeks ago I was deliriously hungry. You don’t have to spend much time around me to learn I eat every 3-4 hours and the wheels start to fall off if I have to wait much longer than that. So I called up the take out line and ordered.

When I went and picked up my food, I asked if I could sit at an unused table near the door and quickly eat my meal. The take out person said no. I then offered to tip the wait staff even though they would not be serving me – just for the quick use of that area and because I thought that might be the issue. The answer? No. And guess what? Now I’m mad.

As I quietly turned way from the counter I asked myself, “how did I turn so quickly from loving this place to being SO mad at it?” I was so mad I wanted to tell everyone what a dump it was. The trouble was I knew that was untrue…my rational mind still knew I loved the place.

So what happened? Clearly the staff at the take out window have been given some kind of policy that runs something like this: you can’t eat in if you order take out. Fair enough! The trouble is, how often do people really ask to do that? Once a month? Once a quarter? I’m willing to bet I looked awfully hungry when I collected my food, and as a regular customer, could they not cut me a break? Sure they could, the trouble is businesses fear the worst when they open the door to something like this because they fear it will be abused – the reality is they shouldn’t be afraid. Few people abuse your business and your policies and this fact is true of web applications too.

Inevitably when you are designing a web app or a website you will think of a scenario where a user can – in small way – abuse your site or game your system. It might be a really small thing like not entering a valid email address then they sign up. To prevent this you may force them to validate their email address before they can access their account. In theory you convince yourself that you are acting in your own best interest. The truth is you are not.

Trust your users and don’t worry about the small percentage of abusers – they won’t act ethically no matter what you do, so don’t invest your time trying to change them. The fact is very few people will abuse your sign up form, and invariably it takes more time to develop a form so that people can’t “trick” you. Also, designing and developing with a paranoid state of mind almost always adds a barrier to entry (i.e. “I have to check my email to get started? What a pain…forget it.”) that will get in the way of ethical users who want to use your service. These barriers will slow adoption and cost you in the long run.

December 11, 2006

Wake Up Web 2.0…and be Prepared to Spend

One of my themes on this blog has been, “You need to spend on marketing if your web app is going to succeed”. There are exceptions to every rule, and these exceptions are most often the “Success Stories” that get press. This does would-be (naive?) entrepreneurs a disservice in my opinion because it sets false expectations for people building and releasing new tools.

Ryan Carson – who is almost single handedly trying to dispell these kinds of mistruths with his Bare Naked App project – just posted a piece that describes some of his growing pains with Amigo and how he is coming to the realization that spending on marketing may be necessary. It’s a good read and the comments are interesting too.

I replied and said this:

Ryan,

Great post…I think a lot of web app developers will be wrestling with the question of “how much to spend on marketing” over the next few years and I think that is only a sign that the web app space is growing up a little…and that’s a good thing.

Here is a post I wrote a while back that touches on the fact the you need to spend:

http://www.michaelmcderment.com/2006/06/07/your-sexyunsexy-mix/

So, if you want to bootstrap and grow organically (which is a wonderful way to run your own business, it just takes a little longer than the traditional VC route of FAST, FAST, FAST), then challenge is finding your balance between spending and not spending on marketing. It’s a tough balance, but definitely something you will need to put some thought into as more and more apps are released and things get crowded.

I also touched on some of these things in a Work Happy interview here:

http://www.workhappy.net/2006/10/interview_with_.html

Probably worth a look for anyone starting a web app.

This trend is something that was inevitable and it is something I touched on a while back in my From the Web 2.0 Trenches: How to Build Real Businesses post/essay last November.

November 21, 2006

Web 2.0 Summit Takeaway – Google Insight

I am due to write up my adventures at the Web 2.0 Summit. That is on the way very soon, as well as a post about StartUp Camp. In the meantime, I wanted to share something you may have seen on the FreshBooks blog:

“One of my favourite takeaways from the Web 2.0 Summit was Marissa’s presentation about something she learned working at Google. She ran a survey and Google users told her they wanted 30 results in the Google search results page. She delivered thirty results in the results pages and then watched as users ran from Google faster than she could say, “What happened?”

At first she did not know why they left. In time she came to realize page load times – an extra half second to download the extra HTML required to display 30 results – was what drove people away. So, in a word, slowness drove them away. Looking at things from the other direction, the results indicated that speed keeps users coming back to Google.

To explain the significance of this, I created some graphics (which are NOT based on data):

How goolge does it

See the difference in approach? Yahoo! tries to get you to stay as long as they can get you to stay on Yahoo! properties. Google wants you to visit and leave their site as quickly as possible, the idea being that the positive experience you have with Google will keep you coming back more frequently (i.e. you do more searches). And guess what? Every time you return Google gets another chance to monetize you…and Google monetizes about 30% of the searches people make. Impressed? I was. Thanks for sharing Marissa.”

November 3, 2006

Usability Thoughts if you are Interested

I’ve sort of been on fire at the FreshBooks blog today. Here are some posts you might want to have a look at…both usability centic.

Breaking Conventions For Better Usability
“We are doing something slightly different in the new release. We are dropping the text size of the bolded words (they are still useful for contextual reference within the page) and leaving the plain text (i.e. the useful content) larger. It looks like this (see the Green box)…”

iTunes…Why?
“I love my I pod…for the most part I like iTunes software, but why on earth can’t Apple figure out how to do software updates painlessly? They want to make me go to their site, download the update and install the new version. WTF. Can’t they figure out how ask me if I want the upgrade, then do this in the background without bothering me?”

Both posts have photos. Use the links if you want to see them.

September 22, 2006

Web Application Tracking Surprise

I just posted an interesting discovery on the FreshBooks blog – the post includes a really useful tip for anyone building a web app.

Check out the article, and consider what the reduced conversion rate implies about users and their disdain for marketing offers in their user experience. Paul Kedrosky wrote this on eBay’s decision to offer Goolge Adsense ads on their site:

“any high-traffic application that does not also run ads is passing up material revenues, and its shareholders should take it to task.”

To which I replied:

“I’d like to see more data on this. While you are probably right, when you run ads you give up realestate and make usability trade offs that may have more of a long impact on your numbers than may be apparent at first blush. eBay built eBay didn’t they? Part of the appeal for users has been lack of ads. Isn’t lack of ads a community first approach and therefore a good thing long term? I’d say yes, but again, I’d like to see some real numbers on this…and let’s not forget when google runs ads in their free apps, they have no middle man therefore their margins are not comparable (read HIGHER) than other apps who run Google’s ads….”

How do design distractions affect your bottom line over time…hard to calculate, but worth considering.

September 14, 2006

Managing Customers as Investments

I am working the spreadsheets this week and I am trying to quantify “the lifetime value” of a FreshBooks customer. In digging into that, I came across this excerpt from “Managing Customers As Investments“:

On average, a 1% improvement in acquisition cost improves customer value by only 0.1%. Improving margins by 1%, for example, by cross-selling, improves customer value by about 1%. This result is similar across firms and is consistent with the margin elasticity discussed in [an appendix]. Improving customer retention by 1% improves customer value by almost 5%. In addition, retention shows a virtuous cycle – the higher the current retention rate (e.g., Ameritrade’s 95% versus Amazon 70%), the higher the impact of improving retention.

Customer service in the services world – and I include web services in that world – is SO important. To some extent that belief has always been a gut thing; it’s great to find the research to backup your instincts. Here’s a good review of the book.

August 31, 2006

The Good News For Innovation: Google Went Public

So there has been a lot of talk about Google becoming the new Microsoft and how Google is suffocating innovation by carelessly stomping on emerging markets. Now I see eBay has decided pay-per-click ads on its sites.

So what’s the good news for innovation about Google going public? Just like eBay’s, Google’s investors are going to realize how much money Google is leaving on the table – and they are not going to be happy. Think about it… I’ve never clicked an ad from within my Gmail account. If they’re selling impression based ads (and I bet they are), then they make some money on my account IF I am a very active user. I’ll bet they don’t make $5 a month though, or even close for that matter.

So as Google moves into other applications, they are going to find there is far less revenue in running ad-sense ads. Why? I don’t know about you, but I am in my email all day long. No other application even comes close in terms of my attention or usage.

So… Let’s apply Google’s strategy to other applications – ones that are less commoditized than email, but the perceived value is higher. In those scenarios a user might generate $5-$10/YEAR in Ad-sense revenue – and active user that is. But because the perceived value added by the application is higher, that same user would be willing to spend $15/MONTH for the service.

Clearly, they will be leaving heaps of money on the table. Wall Street will tighten the vice. Paid services are inevitable atGoogle…especially when they enter the business space where many organizations want to pay the services they consume.

August 25, 2006

Have You Seen This Before?

As posted on the FreshBooks Blog:

I’m about to coin a phrase, or make a fool of myself by describing a concept that has been around for ages. Hold on to your hats, here come my thoughts on “transitional services”.

Transitional Services are services that help facilitate a user’s transition from one platform to the next – or at the least, ease their pain.

Whenever there is a platform shift, there is transition, and straddling. For example, for the past ten years the photography industry has been shifting from celluloid to digital. The industry and its consumers are undergoing a transition from one platform to another. This transition has consequences. Many users are reluctant to transition because they are invested in the first platform (i.e. “I have cameras and film, slide projectors and photo albums”). Once the decision to transition has been made, users may want to bring their old platform content (think printed photos) with them to the new platform format (think scanning photos) and they find themselves at a point where they are straddling the new platform and the old. Both the transition and the straddling phases create pain and opportunity in the marketplace.

With me so far?

I wrote Paul Kedrosky a note saying I think there is a huge and growing market for transitional services in the Web 2.0. I pointed out how helping people get from offline processes to online processes – while helping to ease the pain of the straddling phase – will be a strategy that start-ups and established players can leverage and that I foresee an increasing number doing so in the coming years.

This whole conversation was sparked by FreshBooks recent release of its transitional ground mail service. The solution FreshBooks is selling is to help business transition their invoicing/receivables process online where significant benefits can be realized (streamlined processes, reduce costs, and improved customer relations). Businesses want to get online, but there is a world of pain awaiting them in the transition phase (“How do we build the service we need?”) and straddling phases (“How do we manage our cash flow when half our clients pay us online and half pay us offline?”)

That ability to gradually transition customers from ground mail invoices to online invoices and recurring billing is what FreshBooks offers, but there are other examples of businesses that help facilitate traditional office activities. You can create and send photo albums as gifts via Flickr. This is an example of a reverse transitional service where Flickr is facilitating a transition from the new platform (digital images) to the old (printing and mailing images).

What’s magical about all of this, and a hallmark of a transitional service in the Web 2.0, is how the line between the online world and the offline world blurs. The slicker the service, the more seamless the delivery, the more the offline world gets pulled online.

In terms of opportunities, I foresee more and more services leveraging transitional strategies and delivering transitional services as backend services and incremental revenue generators.

So, while none of these concepts is new, and the act of delivering such services has been around for some time, I have seen no attempts to define the phenomenon, so I have done it here. If this has already been done elsewhere, please let me know. As I have not had the time to consider the implications of transitional strategies as much as I would like, I encourage you to sound off with your own thoughts. Can you think or other examples? Better yet, can you think of industries in need of transitional services, where ripe opportunities exist? Please comment below.

August 2, 2006

Measure The Success of Your Web Application

One of the reasons I love web apps – and internet marketing in general – is that you can track everything. Gone are the days that you pay for a TV spot and *hope* it does something. The internet has brought a new paradigm of measurement for all things marketing and product use related.

It’s been a goal of mine to share my knowledge about running web applications so that others can be successful in building and growing their web services. In this vein I wrote a feature for ThinkVitamin.com that explains how you can measure the success of you web application. If you have any marketing background, the principles behind this piece will be old news to you. But I’d like to think there is some value in there for anyone, especially first time entrepreneurs who are building a web app. Check it out.

On a side note, at the time of writing this post I noticed there are no comments on the article. It only went live about four hours ago, but the thinkvitamin readers usually get their articles by RSS and are frequent commenters on articles (there are some on Digg here). For example, I have already received an offer to share application funnel data because I included this call to action at the end:

“Shout out to those of you who run web services: I’d love to know how your conversion funnel is doing so that I can aggregate some data and share it with entrepreneurs who are trying to get started. Shoot me an email if you would like to participate. Thanks.”

What is interesting about that is I put no call to action for comments in my article. It’s my mistake and something I will learn from. As a rule of thumb, in any piece you write for a publication where comments are enabled, it’s a good idea to *ask* for comments, especially in this world where journalism is a conversation and your readers often have at least as much knowledge as you.

July 25, 2006

Pricing Web Services: Step 2 – No Annual Plans

A while ago I wrote a piece about pricing web services and getting them into buckets. I mentioned I’d write more so here goes.

Pricing is an incredibly hard thing to do. As I mentioned in the last post, getting things into three buckets is really important, so I want to talk today about yearly packages.

At first blush offering your customers a yearly option may seem like a great idea. For one, you lock them in for a year – this is good. For two, you have more cash right now – this is also good. There are two major problems with yearly packages though.

The first problem is too much choice. When you talk about getting your pricing into three buckets to make your pricing simple, adding yearly packages (assuming you are doing monthly packages in the first place) will double the number of packages you offer. So right out of the blocks you have 6 packages which is three too many. [Note: if you question this, read the pricing buckets post].

The second problem is the smoothness of your cash flow. Reporting, monitoring and improving monthly cash flow is much more manageable and consistent with monthly packages than when you try to manage yearly subscriptions. As a start-up cash flow is king. Demonstrating steady growth is key when you are talking with stakeholders. Monthly packages can derail your revenue reporting if you have a relatively high or low number of annual sign-ups in any given month. With monthly packages, these fluctuations and their effects are moderated.

I’m going to post more on pricing again in the future. By the way, Levi and I are presenting at DemoCamp 8 tonight. If you are there, please say hello.