Making City Living Better as an Investment Theme

Sometimes I find new investment themes proactively by trying to think about the world and where I see technology heading. In other cases, I realize that I’ve become interested in a theme by looking back at the companies I’ve met and find fascinating. I recently took a look back at a lot of the companies that I found really interesting, regardless of whether I invested or not, and tried to group them. It turns out that there is a large cluster in one theme – city living. While San Francisco is not as dense as New York or Tokyo, it does have sufficient density to unlock some really interesting businesses that maybe wouldn’t work as well in a more sparsely-populated area.

I think part of my interest in companies that make living in cities more interesting, convenient, or pleasant stems from my recent full-time move to San Francisco. Living and working in SF has given me a different view on what convenience means after living in Mountain View and Palo Alto for 14+ years. I can broadly lump my investment in things that make urban living better into a few large clusters:

  • Transportation – In addition to the obvious breakouts such as Uber and Lyft, there are lots of other people tinkering at how both intra-city and inter-city transportation can be improved. This includes everything from companies that are doing interesting work in mass transit to those who are innovating on ride sharing. I’d put companies like Leap Transit, Corral, Ridepal, Scoot Networks, and others in this category.
  • Logistics, Storage and Delivery – One area that I really appreciate as a city dweller is the investment in making logistics and delivery much easier. This is everything from making it easier to get on-demand delivery from services such as Postmates (disclosure: I am an investor) to services such as MakeSpace and Boxbee that make it easier to get access to storage for items that don’t fit in smaller apartments or living spaces. And then there is an emerging category of services such as Luna and Doorman that enable consumers to receive packages at night when they are actually at home.
  • Food – There is no shortage of companies that are looking to build services that will deliver food to you, whether that food comes from a restaurant or is made in a commercial kitchen on behalf of a given service. This includes everything from Munchery to Sprig to SpoonRocket to many other emerging providers and established providers like GrubHub and Caviar.

I think I like companies in this category for three reasons. One, they can achieve meaningful scale by focusing energy and attention on a relatively small number of major metros that offer dense concentration of potential customers. Second, the secrets to what make these businesses successful is often non-obvious and rooted in the things you learn from operating a service at scale. This gives you a real edge in terms of defensibility when it comes to competing with new entrants. Last, a good number of these businesses either have strong network effects or are likely to lead to winner-take-all outcomes given the economies of scale you get from being a market leader. I’ll probably write more about that last point in another post.

If you’re working on a business that makes living in cities or urban areas more pleasant or interesting, I’d love to chat with you. Feel free to leave a comment below or send me your thoughts on Twitter @chudson.

On-Demand Music Streaming is Winner-Take-All, Right?

This is a quick full blog post that is a follow up to a question I posted on Quora. One thing I’ve been thinking about is whether the battle between Spotify, Deezer, Rdio, Beats Music, and the various other competitors from Google, Amazon, and others will result in a winner-take-all scenario. I have a few basic thoughts on the space and am curious to hear what others think – I’m including my basic views on the space below:

  • All properly-capitalized providers have access to the same basic catalog of music content – From what I’ve seen, most, if not all, on-demand music companies can negotiate or simply license access to the same catalogs of music content on roughly equal terms.
  • While UI / UX is a differentiator, most UI / UX and design innovations can and will be copied by competitors – While companies can innovate around and within design and UI, anything innovative and interesting will be copied by a competitor and hence cannot be a long-term differentiator or advantage for any well-capitalized company in the space.
  • Consumers care about price and no provider will get a sufficiently differentiated pricing agreement such that they can differentiate in terms of end price to the consumer – Ultimately, consumers do have a fixed budget for what they will spend on music and the price of unlimited or limited on-demand music offerings has a firm ceiling in terms of what consumers will pay. And given the nature of licensing terms and catalog access, no company will be able to get preferential licensing and access terms for any reason other than scale and usage. There is no “club deal” to be done by any provider on the long term. This does not mean that some companies cannot afford to lose money in the short term to secure market share, but I do not see a model for a long-term price advantage for a single provider.
  • Eventually, the winner will be the company that can spend the most on customer acquisition and afford to wait out the content owners (labels) until their rivals wither – If no single player can get preferential economics when multiple players exist and all players have access to the same underlying content catalog, the winning company will be the one that can advertise the most and acquire the largest consumer base. I don’t believe most consumers, particularly those with budget constraints, will subscribe to multiple services. In the end, most consumers will subscribe to one service and one service only.

When I add all of this up, it seems to argue to me that there will be one major winner in on-demand music streaming. The one wildcard in this space is companies like Google and Amazon for whom on-demand music streaming can be marketed as a loss-leader. Given Google’s interest in both the Google Play ecosystem and Android and Amazon’s larger ambitions in boosting both Prime and its own content ecosystem around the Kindle and other content, both of those companies could make the decision that subsidizing on-demand music as part of a larger offering makes sense. I’m not sure that’s a good idea, but I believe it is possible and potentially aligned with their larger strategies.

I am by no means a music expert but interested in the space. And I feel that Internet radio is fundamentally different given the licensing rules and nature of the experience. The one thing I do think that is potentially interesting is seeing some of these streaming providers becoming effectively “labels” in that they have preferential licensing and distribution terms for breakout content.

Feel free to leave a comment below or send me your thoughts on Twitter (@chudson) or Quora.

Commerce Marketplaces, Network Effects, and Winner-Take-All Outcomes

In the past few months I’ve looked at quite a few commerce marketplaces and social networks. One thing I’ve been trying to understand more deeply is the set of circumstances when commerce networks tip toward winner-take-all outcomes, with one dominant network accounting for the bulk of transactional activity. This blog post is very much a work in progress, but it’s a topic I want to understand better as I’m interested in continuing to invest in marketplaces going forward.

Winner-Take-All in Social Networks

In social networks, we’ve seen strong winner takes all dynamics in some geographic markets and around certain horizontal use cases. Facebook and Tencent are global general purpose social networks that offer their respective user bases a wide variety of social sharing and communications features. But even with their horizontal dominance, there are other strong networks that have emerged to compete with them. In some cases, the vector of competition is geographic focus (Kakao Talk, LINE) and in other cases its around a laser focus on a particular feature (Instagram before Facebook bought them, WhatsApp prior to the Facebook acquisition, Pinterest around visual sharing and communication, and many other examples too numerous to list). The one other thing we’ve seen in social networks is the ability to defeat powerful incumbents by focusing attention and product development on interaction models that are orthogonal to the core value proposition of the leaders. I would put Snapchat and Twitter in this boat – in each case the interaction model (asymmetric follow for Twitter, temporal photos for Snapchat) is very different from what Facebook proposes and hence it has been hard for that company to compete with those services effectively.

In most social networks, it seems that they tip to winner-take-all in broad horizontal categories because most people want to participate, share, or interact where others are. Not surprisingly, social networks are largely governed by the power of network effects when it comes to sharing and communicating.

When Can Commerce Tip to Winner-Take-All?

The dynamics of commerce marketplaces is slightly different. Most social networks seem to grow or die based on ongoing usage and participation by one’s social network – that engagement reinforces the value of being a part of the network and encourages you to participate more fully. For commerce networks, the incentive is somewhat different. For commerce networks, buyers want to be where sellers are and sellers want to be where buyers are as that formula tends to drive maximum liquidity for all.

The more commerce marketplaces I see, the more I tend to believe the natural state of affairs for the markets in which they operate is to have one dominant marketplace provider that wins. Late last year, I started asking myself the same question every time I get excited about a particular new commerce marketplace:

Is there a really compelling reason that all buyers and sellers shouldn’t be on one single platform? If that outcome doesn’t maximize transaction liquidity, why?

Framing the question this way has helped me think through the opportunity to invest in marketplaces. In trying to get to the answer to the question above, I try to think about the 3 somewhat durable ways I’ve seen commerce marketplaces differentiate themselves:

  • Geographic segmentation – For some marketplaces, there are reasons that you cannot have a global or national marketplace in a given product or service. That could be due to the nature of the product, cultural differences, fulfillment issues, or some other reason that allows several regional players to flourish over time (as opposed to exploit a temporary advantage). Increasingly, I find geographic segmentation to be more of a temporal, as opposed to durable, advantage for marketplace companies.
  • Supplier or Buyer Self-Selection – One other reason that marketplaces can avoid tipping to winner-take-all is that buyers or sellers self-select into or out of a given marketplace. One way in which this happens is by the chosen business model for the marketplace. For example, if the marketplace sets prices, wages, or rates, service providers who want to charge more might opt out of the marketplace. By the same token, if the quality of service providers is concentrated in either high-skill / high cost or low-skill / low cost, there can be buyer populations whose needs are not served in that marketplace. This can create multiple marketplaces that self-sort based on the needs of buyers and suppliers.
  • Commodity Products vs Experience Goods – Last, I think the nature of the product or service being sold really does matter. As I’ve written about in a previous post, the nature of the product or service being sold matters. Is the product or service a standardized service or product that is easy to evaluate prior to usage or is it something where consumer preferences and tastes matter and the only way to evaluate the service is by becoming a consumer? For commodity or standardized products, I think the power of concentration on one platform is high – if I want to buy an unboxed iPhone, I’ll probably want to buy it at the place that has the most unboxed iPhones for sale as they’re all the same. Service marketplaces tend to be different – in many cases, the only way to figure out if the marketplace meets your needs is to test the service providers offered.

Of the 3 bullet points above, I spend the most time thinking about the implication of the last bullet points. Understanding the nature of the product and service being sold really drives a lot of my thinking. Take ridesharing for example. If you think that a ride from point A to point B is a commodity good where the primary driver in consumer decision-making is price, then you’d suspect that the one provider who can consistently provide the lowest cost and highest liquidity will win the entire market. However, if you think that ridesharing is an experience good where consumers do not think of a ride from point A to point B as a commodity but as an experience where they will trade price for convenience, style, or some other feature, there is a strong argument for why multiple services can thrive.

In addition to ridesharing, the other areas where I think this could play out in an interesting way are the home and apartment rental sharing space (airbnb and onefinestay), peer-to-peer second-hand commerce, and those who are trying to chip away at Craigslist on specific vertical use cases.

As always, comments are open below. You can also share your thoughts with me on Twitter @chudson.

Only Apple Can Fix Its App Store Search

A few days ago I was trying to find two new-ish apps, Jelly and Secret and I went to the App Store and just tried to find them via search. The results were not encouraging. I got a lot of results that were not at all what I was looking for. It turns out that the fastest way for me to find both applications was to actually just do a search on Google and click on the iTunes link that pointed to the app install pages. I shared this tweet and got a lot of interesting results from developers and others:

Only Apple Can Fix iOS Search

Apple will never let a 3rd party take over its App Store search. They have been pretty consistent about that. I don’t think we’ll see another situation like where Google powered search on Yahoo – nobody will be given that opportunity. And anyone who has tried to create a recommendation or discovery layer that puts their company between Apple and the consumer gets shut down or decides to do something else. I think the reason is very simple. Apple, like most other companies that own their own search engines, understands that owning the data on search intent is valuable and critical to understanding how consumers are ultimately finding the content they desire. And I took Apple’s acquisition of Chomp nearly two years ago as a signal that they were going to devote more resources to improving the search experience.

I don’t know much about how the Apple App Store search algorithm works, but I do know that it rarely seems to return my intended result at the top of the list. In many ways it feels like searching the Internet before Google had PageRank up and running. There’s lots of obvious keyword stuffing and title or description manipulation designed to capture people looking for popular apps. In my experience, the App Store search engine seems to do a poor job of disambiguating app names and category names. It’s hard for me to understand how search results are ranked when I do get results for queries. Overall, it’s a frustrating experience for me in searching for apps and most times it just feels easier to use Google.

At some point I hope that Apple App Store search feels more like Google, with largely relevant and consistent results, than the Internet pre-Google. But only Apple can make that happen and I hope they are continuing to make progress on that front.

As always, feel free to leave a comment below or send me a message on Twitter @chudson.

Marketplaces, Rating Systems, and Leakage

In the past three years I have had the pleasure of meeting many marketplace companies looking for seed funding. I have also had the privilege of investing in quite and continue to learn along the way. One of the things I spend a lot of time thinking about and exploring is what drives “leakage” and what marketplaces can do to keep transaction settlement on their platforms. One of the most common ways in which marketplaces try to keep transactions on-platform is by rolling out rating or review services for service providers (and in some cases for buyers as well). I’ve been thinking about when and why these rating systems work (they are not instant panacea) and more broadly about some observations about marketplace dynamics that tend to lead to “leaks”, or off-platform transactions where the platform provider does not capture the revenue associated with the transaction they helped facilitate.

What Good Marketplaces Do Well

I studied Economics in college, so I’ve always been attracted to the marketplace model. When applied and executed correctly, good marketplaces do many things to reduce transaction costs between buyers and sellers, including the following:

  • Reduce search costs for buyers and sellers – Good marketplaces make it easier for buyers and sellers to find and connect with each other. This liquidity is the lifeblood of a healthy marketplace.
  • Reduce transaction costs for both parties – When speaking about transaction costs, I don’t simply mean facilitating financial payments. Many marketplaces have standard fees and rules that make dealing with unknown strangers simpler and transactions more standard.
  • Reduce bargaining and enforcement costs – A good marketplace usually has both norms and rules that make dealing with unknown parties safer. These rules and services can include payment escrow, trust and safety teams, and dispute resolution for cases when things go wrong.

The nice thing about the marketplace business model is that marketplaces that provide the services above are often able to command a transaction fee or premium for doing so. However, doing so often means that the marketplace needs to be in the middle of the transaction. The real risk to most marketplaces is that they provide all of these valuable services and, at the moment of the transaction, the transaction “leaks” and the buyer and seller settle the transaction off platform.

Experience Goods Tend to Have Marketplace Leakage Issues

Experience goods are products and services that require actual usage and experience in order to evaluate the quality of said service. For example, housecleaning services and ridesharing services are both experience goods. On the other hand, any unboxed iPhone is effectively the same as any unboxed iPhone – all unboxed iPhones are effectively commmodities. For experience goods, the main risk for a buyer is often that the quality of service, once delivered and experienced, will prove to be of low quality. For commodity goods, the main risks are that the seller will not actually fulfill his or her end of the transaction by providing the product or that the product will prove to be counterfeit or otherwise defective.

The reason that experience goods tend to have leakage is that once you know that a given supplier has proven to be good, there is a tremendous incentive to use that person again. And given that a lot of the value that many marketplaces provide is associated with the search and identification of a trustworthy service provider, there can be a strong incentive for both parties to complete future transactions out-of-band as it allows both the buyer and supplier to avoid the marketplace transaction fee. If you want to kno more about marketplace, rakes, you should definitely read this post by Bill Gurley as I reference it often.

One way that many marketplaces try to combat leakage is by rolling out rating and review systems. More on the logic as to why below.

The Role of Rating Systems in Transaction Costs and Leakage

Ratings systems are a pretty simple and tried-and-true system to grasp. In most cases, buyers have the ability to review the experience in dealing with a seller. In some marketplaces, namely eBay and Uber, both sellers and buyers can review each other. In order for a review system to work in terms of enforcing norms of good behavior, two things have to be true:

1. Suppliers have to value their rating, either as a buyer-facing signal of quality or because supplier rating determines how leads are distributed and routed within the marketplace.

2. Buyers have to trust in the validity and quality of the rating as a reliable indicator of supplier quality.

When both of these conditions hold, there is at least a chance that reviews will be of some value to those in the market. If suppliers do not value their rating, they will not care about taking their transactions off platform because having a high rating does not tie to the things they care about – making more money and potentially getting more customers. And if buyers believe that ratings are gamed or otherwise influenced, they lose their value as a signifier of quality. Getting review systems right is not easy, but well-designed rating systems can provide a strong nudge to settle transaction on-platform.

There are three situations where I continue to see strong incentives to go off-platform even in the face of the existence of a rating system. I’ve outlined them below:

  1. Situations where there is real value to repeat usage with a chosen service provider. One area where I tend to see opportunities for leakage is the world of services marketplaces. In the case of tutoring, housecleaning, childcare, or any other service that is truly an experience good, there is almost always buyer risk on the initial transaction. But once you, as a buyer, find a service provider you like, the search is over. And, often the value of completing the transaction on the marketplace and paying the associated fees goes down. It might be more economical and simple for both the supplier and buyer to complete the transaction off-platform and avoid paying a fee.
  2. Marketplaces where the marketplace itself delivers a small percentage of the service provider’s total income.The other situation in which I tend to see marketplace leakage is where the marketplace delivers a relatively small portion of the service provider’s total revenue. In those cases, suppliers tend not to care about their ratings because the amount of money to be made or lost on that marketplace is small relative to their total income. Any money or leads lost due to a low rating can easily be made up elsewhere.
  3. Marketplaces where the buyer and supplier are geographically proximate and can easily complete the transaction offline. Last but certainly not least is what I describe as the Craigslist use case. In situations where buyers and sellers meet in person, there is a huge opportunity to simply settle in cash, Square, or some other form of payment rather than complete the transaction on the platform.

Of the three points mentioned above, I think the first tends to be the most pernicious. And the more marketplaces I meet, the more I am beginning to believe that the most pernicious situation of all is the combination of #1 and #2. I might even argue that marketplaces that are struggling mightily with #1 and #2 might want to rethink whether they are in the marketplace business or really in more of a lead-gen context. And when I meet new marketplaces, I try to get comfortable with how they will address the points above should they occur.

I think it’s really hard to build a marketplace that effectively balances the three concerns above. I think the ridesharing services, Uber in particular, are doing a great job of balancing all of these pressures. I suspect that Uber-delivered rides represent a significant chunk of income for their drivers. And drivers and riders are matched with each other in part based on their respective ratings or scores. That creates a pretty strong incentive to not “cheat” the platform and to care about your score as both a service provider and a buyer. That, to me, is evidence of a well-designed, well thought out system.

If you’re working on a marketplace and have insights to share, I’d love to speak with you and hear your experiences. As always, comments are open below. You can also chat with me on Twitter @chudson.

iOS7 and the Need for Smart Notifications for the Pebble

I’ve been wearing and using my Pebble a lot more since they announced support for a broader framework of notifications with the release of iOS 7. I was excited to learn that I’d be able to get notifications from a broader set of applications as I thought it would make the watch more useful and interesting. Thus far, I’ve had a mixed experience with the new notifications. The problem is that I get too many notifications – I get every notification that I normally get on my phone on my watch. There is a way to tinker with this via settings, but it requires me to change the way I handle notifications on my phone as well – I don’t really want to change those. I want to change how my Pebble determines what’s worthy of an interruption and what isn’t.

When I first got my Pebble I thought I wanted a phone on my wrist. I thought I wanted something that would largely replicate my phone experience but in a wrist form factor. The more I use it, the more I realize that I don’t want something that replicates my phone on my wrist. I want a very smart subset of my phones features on my wrist and I want that wrapped in some intelligence about how and when to notify me about something new.

I wonder if Pebble (or someone in the app ecosystem) will end up making a smart notification manager that handles this much better. For people who do not have many notifications enabled on their phones, this is not much of a problem. But I have a lot of apps and a lot of notifications that I actually find useful. I think there is an opportunity to build something that handles this more elegantly than a blast firehose.

I also wonder if the major hardware companies who are investing in smart watches, namely Google, Apple, and Samsung, will use their smartphone footprints to make notification management work natively for their vertical stacks. I would like to hope that the iWatch, GWatch, and Galaxy Gear will have smart notifications managers that can differentiate between what I get on my phone and what goes to the watch.

Ironically, the deluge of notifications that I get now has made me acutely aware of the kind of notifications that I don’t get but would like to get. For example, I’d love it if my Pebble + phone combination were smart enough to know that I am in a meeting and either switch to silent mode or only disturb me with a buzz if the incoming item is pertinent to this meeting or the next or is truly an emergency. Also, I have no need to get notifications that are not actionable on my watch.

As always, comments are open. You can also send me a message on Twitter @chudson to share your thoughts.

Lessons Learned from Sharing Twist With My Network

I’ve written a few posts about how I think about location sharing and location sharing applications, the latest of which is this one. One of the most interesting experiences I’ve had of late is trying to activate my network to start using Twist. For those who are unfamiliar, Twist is a mobile app that allows you to share both your current location and your ETA with someone else. I find myself continuing to use it more and more each day for three primary use cases:

  • Given the current awful state of Bay Area traffic, I generally send a Twist whenever I am heading to or from San Francisco to or from the Peninsula. Originally I used Twist to just to tell people when I was running late, but now I send it out in advance because sometimes it turns out I’ll arrive early and we can actually start a meeting sooner.
  • For my intra San Francisco meetings, I use it in much the same way – I like to walk to most of my meetings when possible (and Lyft or Uber when necessary). It’s surprisingly easy to make bad guesses when it comes to the time required to get from one meeting to the next and I feel better when the other person has some visibility that I’m on my way and when I’ll arrive.
  • The third use case is social (as opposed to professional). If I’m going to pick up a friend or meet someone, I’ll usually send a Twist so that I know that I’m on my way. It takes a lot of the guesswork out of when I’ll actually get there and is super useful when you’re trying to pick someone up and want them to know that you’re on your way.

I tend to have two experiences when I send someone a Twist, which suggests that they install the app so they can have the same experience.

  • Whoa, this is really cool – I got to see when you were on your way. Totally downloading this app.
  • What is this and why are you sending me this Twist thing? Just text me when you’re on your way.

I honestly don’t get anything other than these two polar responses. There isn’t any really anything that predicts where someone will land on that spectrum, either. I have some techie friends who love apps and don’t particularly like Twist and I have some late adopter friends who have really taken to using the app aggressively. I also have friends across a pretty wide age spectrum and even age doesn’t seem to predict whether someone will like the experience or not.

The one thing I’ve seen that seems to be predictive of adoption and usage is the “ah ha” moment of getting insight into someone’s ETA when their initial guess or suggestion as to when they’ll arrive. At the end of the day, I do think Twist really competes with the alternatives of sending a text to tell someone you’re on your way or simply doing nothing and hoping you arrive on time. If people have that “ah ha” moment on their first or second experience with the app, I bet it sticks. If they don’t perhaps it doesn’t feel like it’s worth the effort beyond using a text.

If you use any of the location sharing applications and have experiences you’d like to share, feel free to leave a comment below or send me a note on Twitter @chudson.

Context, Commerce, and Content Will Battle for the Android Lockscreen

One area where I’ve been spending some time meeting companies and learning is in the broad area of Android UI customization. I’ve started to see a handful of companies providing interesting approaches to customizing the Android home screen UI as well as taking over the lockscreen to provide consumers with information or entertainment.

It’s not surprising to me that people are spending lots of time trying to own this real estate – it’s the first thing you see when you pick up or unlock your phone. According to one report, people swipe their phones 100 or more times per day. That’s a lot of views and time that nobody currently controls. And the opportunity to be the first thing that people see (or control the experience that they see) that many times for day is a really interesting opportunity for both startups and established companies and one that I expect to get more competitive in the near term. There are already a few startups tackling this space, namely Aviate, Cover, and Locket, along with a few other teams and companies that have not yet launched or publicly announced what they’re doing. And then there are some of the newer Android hardware devices that include things like Active Display Notifications that allow you to peek at incoming items without actually unlocking your phone.

The interesting thing to me is that I’ve seen three relatively distinct approaches around how to better use the homescreen and lockscreen real estate. I think they can all be successful but all have really different approaches and value proposition for consumers:

Ad-Driven Monetization Experiences

Many of these seem to be inspired by the Cash Slide experience in Korea, where consumers earn a small amount of money for swiping on ads or otherwise interacting with promoted content with the lockscreen. The primary hook or driver here is obvious – it’s a way for consumers to earn money (real or some form of reward currency) and there is already a pool of advertisers willing to get their marketing messages in front of consumers on that screen. The ultimate test of these models is whether customers will, in the long term, continue to have an interest in looking at ads or other promoted content and whether the companies providing this promoted content can have a good mixture between things that monetize well and things that engage the consumer.

Putting Social Front and Center

Another approach for building launcher and UI customization is Facebook Home. I think Facebook Home is still a very interesting experiment in how much persistent screen real estate and UI consumers are willing to give up in order to stay connected to the core Facebook experience. I think Facebook is out in front in terms of pushing the boundary of what’s possible here and I imagine they’re learning a lot about what consumers like and dislike about having a more pervasive social experience outside of the core application.

Beyond Facebook, I wouldn’t be surprised if some of the more social applications on mobile (the new crop of messaging services, Twitter, the newest crop of photo services, etc) move toward making their product experiences more pervasive over time. And I would also expect some developers to start building social application experiences like Home that pull from multiple services.

Context and Content Driven Intelligence

The last major approach I see people taking is making the lock screen and overall layout smarter by taking into account context (location, upcoming meetings, interest, etc) and matching that with relevant content. That can include anything from using knowledge of my calendar to push me information that’s relevant for my next meeting even if my phone is locked (something richer than a simple push notification) to more complex scenarios like pushing me breaking news complete with video or imagery (as opposed to just a link in a push notification) when topics or interests I follow have meaningful updates. I think this is a really interesting area to explore, but it is also likely to push these companies toward the current arc of Google Now. For me, the big unanswered question is how hard Google will push Google Now to the forefront of the Android UI experience. Google Now already does a pretty good job on context and content but it’s not (yet) front and center in the Google experience. I read a good Ars Technica article on their take about how Google is beginning to push some of its services more to the forefront.

As always, comments are open or you can send me messages on Twitter @chudson.

Kickstarter Campaigns and Product vs Category Demand

I wanted to write a quick blog post based on a tweet I shared recently:

Overall, I continue to believe that Kickstarter (and IndieGoGo and self-starter) campaigns are generally more indicative of consumer interest in a given product category than they are of consumer interest in a given company’s product. As others have noted, this is largely due to the fact that most pre-order campaigns generate interest based on the product promise as opposed to the actual product. This doesn’t mean that popular crowdfunded / self-started products won’t be successful. Rather, I’m just arguing that you shouldn’t substitute crowd enthusiasm for the work of figuring out whether a given team has the right product and concept for a given market. Evidence of demand in the form of pre-orders doesn’t mean that a given company will be the winner.

As always, comments are open. You can also share your thoughts on Twitter by sending me a message @chudson.

Mobile Messaging Won’t Be a Winner-Take-All Market (And That’s Okay)

The world of mobile messaging has really taken off in the last few years, with products like WhatsApp, MesssageMe, Kakao, LINE, WeChat, Facebook Messenger, Kik, Viber, and others building large and growing user networks. I think many of these companies are really interesting and many of them are building really interesting businesses in their own right, whether as platforms that enable other applications and games to ride on top or finding other ways to directly monetize the usage of their own applications.

Network Effects vs Cost of Simultaneous Usage

As with many communication tools, many (if not all) of these products have strong network effects. One nice property of network effects businesses is that they have the ability to become really sticky – switching off the social network or mobile messaging product that your friends use becomes more difficult as you have more friends on a given platform. If you want to read more about the nature of network effects, you can read more here.

The latest crop of mobile messaging companies feel like the next evolution in communication. And, as is the case with previous waves, there is some question as to whether this market will tip toward winner-take-all (as was largely the case with social networks) or will support islands of relative strength (as was the case with instant messaging).

While a lot of the conversation about how mobile messaging will play out is focused on the importance of network effects and the potential to create winner-take-all outcomes, there is another dimension to consider. The other dimension to consider is the cost of using several products simultaneously. While network effects make products sticky, having a low cost of simultaneous usage means that it’s not that hard to use several products at the same time. In the case of social networking, the cost of using several services is high – it’s not financially expensive, it’s expensive in terms of time and attention. Most people don’t want to post status updates, upload photos, and be active on many social networks (but they will use more than one). On the other hand, the cost of simultaneously using several instant messaging products is fairly low – you either run multiple clients or use some sort of aggregator.

I tried to create a simple table of the various services and markets and the nature of their network effects and the cost of simultaneous usage:

Category Example Products Nature of Switching Costs Cost of Simultaneous Usage
Consumer Email AOL, Gmail, Yahoo Let everyone know you have a new email address or set up a forwarder Modest overhead in checking multiple inboxes
Instant Messaging AIM, ICQ, Y!, MSN Messenger Difficult to coordinate moving all friends to a common network Relatively low – run multiple clients or use an IM aggregator
Social Networks Facebook, MySpace, Twitter High as value comes from activity. It’s only fun if your friends participate Relatively low as you can easily be a member of lots of social networks at once.
Mobile Messaging LINE, Kakao, FB Messenger, WeChat High if the goal is to get all of your friends on one network, low otherwise Relatively low as you can easily be a member of lots of social networks at once.

In the end, I don’t think mobile messaging is one of those markets that will tip toward winner-take-all outcomes. While the network effects are definitely present, the cost of simultaneously using these products is low. The products are, for the most part, free or very inexpensive to use. They are all delivered as applications and widely available on the most common mobile OS platforms, so access is not an issue. They all use push notifications or other channels to bring you back to the app when you have a message, so the cost of keeping up with message activity is also fairly low – so the attention overhead can be very low.

At the end of the day, I think it’s relatively easy for me to just let my network use whichever messaging platform suits their needs. The cost of simply responding to them in whichever messenger or platform they want to use is fairly low and the cost of trying to get them to all switch to a common platform feels high.

Fortunately for these companies, building interesting businesses in this space doesn’t require a monolithic winner-take-all outcome. There is plenty of diversity across geography, demographic slices, and use cases to allow lots of companies in this space to flourish without one company being the dominant product for all people in all use cases.

As always, comments are open below and you can also send me a message on Twitter @chudson.