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My passion has always been in building productivity apps for consumers and small businesses. The productivity space is a tough one though with thousands of applications but very few breakout success stories. While many apps promise significant improvements in productivity, they often still fail to gain any meaningful traction.
At the same time certain applications do succeed and I’ve tried to discern what sets these applications apart from the numerous failures. I’ve concluded that for productivity applications, success comes down to the following value equation: the productivity gain from using the app must exceed the cost of the constraints imposed by it.
In terms of the productivity gain, most applications have clearly understood productivity benefits over alternative solutions. But sometimes these benefits aren’t compelling enough to warrant continued usage of the application. The goal has to be to create a 10x productivity improvement over the alternative solution since habits are difficult to change and only such a dramatic improvement will warrant users changing their behavior. Many applications fail to deliver on this required level of productivity benefits and thus find it difficult to retain users over time.
The more difficult part of the equation, however, is the cost of the constraints imposed by the application. Even when an application does deliver significant productivity benefits, it may still fail due to the constraints it imposes. What I mean by this is prior to adopting your solution, a user had an alternative means of accomplishing the same task. And while they may have not been using a sophisticated application to accomplish the task, the simplicity, flexibility, and speed of the alternative solution often trumps the value that the new application delivers. And when they attempt to leverage the application, they may find that simplicity, flexibility, speed, or some other important attribute of their existing solution has been sacrificed. These constraints often prevent users from incorporating the new application into their routine.
Let’s make this concrete by taking a look at a specific productivity space, some of the common benefits and constraints imposed by applications in this space, and an example of an application that is successfully delivering on the productivity app value equation.
Case study: Note taking applications
One of the most popular categories of productivity apps are note taking applications. The productivity benefits these applications provide include fast search across all notes, easy categorization of notes by tag, and more. It’s clear to most the value of consolidating all of their notes into one easily searchable index.
While these applications are certainly not new, only recently has an application in this space gotten much traction. Namely Evernote has become a breakout success in note taking and productivity applications in general. To understand Evernote’s success, we need to start with understanding the alternative solution that remains still more popular than any application to date: a simple pen and notebook. Nothing trumps the notebook in terms of flexibility. You can capture meeting notes, to do lists, wireframes, and free form drawings. You can even stuff a photo or a printout into your notebook as well. Similarly, notebooks are easy enough to carry with you everywhere you go. Most previous note taking applications could not easily replicate the flexibility, speed, and everywhere access that a simple notebook or pad of paper provides.
What Evernote was able to do is finally significantly reduce these key constraints. First, it enabled the ability to easily capture any note type: meeting notes, task lists, web pages, voice notes, photos, PDFs, mobile phone images, and much more. By supporting practically any form of note you wish to take, they were able to emulate the flexibility of a notebook. Second, Evernote ensured their application was available everywhere you wanted it. With the advent of smartphone applications, Evernote finally became available in your pocket, making it in some ways even more convenient than a notebook. Similarly, they have desktop applications (with offline access), a robust web application, browser plugins, and support across many different platforms to ensure it’s truly available wherever you want it.
By getting past the constraints typically imposed by note taking applications, Evernote was able to gain traction well beyond that of previous applications. Of course there’s lots more to Evernote’s success than this, but it illustrates the importance of productivity apps ensuring their productivity gains far exceed the cost of the constraints they impose.
In just the last few years I’ve moved much of my financial management to next generation software solutions that greatly simplify my life. I wanted to share how Mint, Personal Capital, and Wealthfront have each become important parts of my financial management strategy.
My primary use of Mint is to easily analyze my monthly discretionary spending. By integrating my primary spending accounts (credit cards, checking accounts, and savings accounts) I can see a total of my monthly spending as well the breakdown by expense category. No longer do I have to tediously categorize transactions in my own spreadsheet or more realistically, rely on my faulty memory for knowing how I’m spending my money.
Mint does a decent job of categorizing my transactions across high level categories like food & dining, bills & utilities, shopping, entertainment, and more. Though it does miscategorized transactions every so often, the directional values are helpful to know where my money is going.
If you’re particular about correctly classifying each and every transaction, you may find Mint’s occasional inaccuracies frustrating and are likely better off sticking with your own spreadsheet. However, if you’d like a nice weekly summary of your spending with almost no work, Mint is the perfect tool for you.
I also use Mint’s Ways to Save feature to help me optimize my other financial accounts. For example, I recently switched to the Chase Sapphire Preferred credit card as suggested by Mint since it maximizes cash rewards, especially for someone like me with high dining & travel expenditures. Similarly, I opened a American Express Personal Savings account, as recommended by Mint, for their high yield savings account.
I also used to use Mint for tracking my overall net worth, but after the Intuit acquisition I experienced significant issues with their third-party integrations to many of the investment and saving financial institutions I use.
So I switched to Personal Capital, an alternative financial aggregation tool that provides the same comprehensive aggregation of all your financial accounts. It has had great support for almost all of my credit card, checking, saving, 401k, IRA, investment, brokerage, and online banking accounts that I have. One of the challenges in working in technology startups is you switch roles frequently, resulting in a myriad of legacy 401k and IRA accounts scattered across institutions. Personal Capital certainly helps to give you a comprehensive view of your entire financial portfolio.
I use it to keep tabs on whether I am achieving my desired savings rate and to ensure I’m maintaining my desired allocation of funds across asset classes.
When it comes to managing my savings, I’m a big believer that you should ideally keep 6-12 months worth of living expenses in cash or other liquid assets, then allocate up to 20% of the remaining capital to discrete investment opportunities that you believe in, and invest the remaining 80% in a well diversified portfolio across various asset classes.
It’s this last category of investment that Wealthfront excels at. Ever since my investment management class at Wharton, I’ve believed that it’s very difficult to beat the market, either yourself or through active fund managers. While certain funds do occasionally outperform, it’s difficult to ensure consistent performance over time. Given this, I’ve always invested in index funds that cheaply give me exposure to a certain asset class. And then I’ve diversified this exposure through investment in various asset classes. Wealthfront fundamentally agrees with this philosophy and manages an investment portfolio accordingly to these principles automatically for you.
You start by determining your risk tolerance through a simple survey of a few questions. This informs your allocation across the six asset classes they support (us stocks, foreign stocks, emerging markets, real estate, natural resources, and bonds). A lower risk tolerance will result in larger exposure to less volatile asset classes, like bonds. Wealthfront then uses ETFs to gain exposure to each of these asset classes, which is an even cheaper alternative when compared to index funds as far as expense fees. Wealthfront also automatically reinvests dividends and automatically rebalances your portfolio to the appropriate allocation as your exposure to each asset class changes over time.
Wealthfront takes all the work out of managing a well diversified portfolio. Simply set your risk tolerance, make your initial investment, and keep depositing new savings as you accrue it, and Wealthfront does all the rest!
There is still so much opportunity for brilliant software in personal finance. Can’t wait to see how this industry evolves over time.
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Yet with this new world has come new challenges. Specifically, finding the information most relevant to you right now has become a real struggle with the explosion of availability of content. When you look across the web today at the most successful properties, they can often be looked at as productivity tools helping us to increase the signal-to-noise ratio to make sense of our new information overload challenges. These services help us to filter and discover the content that is most relevant to us right now.
Given that this is still an emerging space, there are a variety of tactics that are being used across these services to increase the signal to noise ratio. I thought I'd take a moment to discuss ten trending tactics that these services are leveraging so that you can bring them to your own applications. I expect to see us refine our best practices across each of these tactics as well as see new ones emerge as we continue to understand how to handle this explosion of content that empowers the Internet today.
Search is clearly the predominant way that users find information relevant to them on the Internet today, as evidenced by Google being the #1 property on Alexa's Top 500 Global Sites list.
The thing to remember about search is that it has itself been a mini revolution within the Internet. In the early days the major portals like AOL, MSN, and Yahoo controlled our web experience and search was a very insignificant portion of it. But user's behaviors have now changed to come to expect keyword search based experiences.
Given this transformation, if you don't at least have a search bar on your own application, your missing out on a great opportunity to leverage user's existing behaviors and help your users get to their desired content fast. This doesn't have to be an expensive feature. You can leverage Google Custom Search Engine to simply show Google Results for your site on your page, styled to your own CSS.
2. Search + Filter
A newer trend in search has been marrying search results with various category or content type filters to enable further result refinement. Bing was the first search engine I can remember that did this, but this has become an important part of Google as well. Even in social networking, LinkedIn has released a multi-faceted search experience that leverages the same concept to display relevant filters to refine your people search results.
The additional filter refinements are important because it allows a user to easily jump to the subset of results that are relevant to them without having to think about how to use traditional keywords to more precisely refine their search. It removes the need for additional cognition, which saves time and valuable mental cycles that can be directed elsewhere.
While implementing this does require the ability to cluster results around categories, your data set most likely already lends itself to a natural categorization structure that you already have in place.
Recommending content based on marrying a user's content consumption history with that of other user is the hallmark of Amazon's product recommendations experience. They were the earliest and still today one of the best in doing so.
Recommendations take advantage of the fact that people don't always know exactly what they are looking for, but by leveraging your existing understanding of their content consumption, you can recommend additional content they may enjoy consuming.
While the collaborative filtering techniques that companies like Amazon and YouTube leverage are non-trivial to implement, there are often cheaper shortcuts for early implementations, like serving up recommendations based on top categories of the content the user has consumed. In addition, there are existing recommendation engines that you can leverage like DirectedEdge that bring the intelligence of collaborative filtering to your data set.
With the advent of powerful mobile devices comes the ability to create relevance from location. The simplest example of this is how Google Mobile can automatically leverage your current location to serve up search results filtered to your current city.
Mobile scenarios are often the most straightforward to implement since it's expected that at the time the user would be looking for locally-relevant information on the go. However, many existing web applications can take advantage of location as well. Many applications lend themselves easily to location-centric information, like restaurant reviews, weather, news, and more. But even outside of the typical categories, location can be used in many ways to improve a user's experience. Milo, for example, leverages not only the user's location, but location and availability information of product to tell you where you can locally purchase a product right now. Or photo sites like Panoramio (acquired by Google) leverage location to put photos on a map of where they were taken.
The HTML5 Geolocation API enables all web developers to get access to a user's current location in a modern browser. As HTML5 becomes ubiquitous across desktop and mobile browsers, this data will become pervasive. In addition, users are already announcing their location across a variety of services like Twitter, Foursquare, and more and most provide easy APIs to get access to this information for you and your friends. Each of them are building proprietary places databases, but I expect larger standards to emerge. In the meantime, services provide ready access to their places database that you can leverage in your application. For example, the Google Places API can be leveraged shortly to look up various locations.
Another emerging trend is the usage of realtime data for relevancy. Twitter and Facebook alone are creating monstrous archives of publicly accessible real time information in addition to Google's recent efforts to better catalog realtime content.
Many scenarios can and are being enhanced with realtime relevancy, including up-to-date news about various events, latest product reviews for a just shipped product, to customer support reviews for a popular brand.
Twitter makes this data easily searchable through their API. Others are providing even more powerful APIs on top of the data set, like Topsy, which gives you deeper history data than even Twitter's API. While Facebook has an interesting data set as well, much of it is not publicly accessible and requires your users to be friends with the content publisher. This can be useful in some cases, but may be limiting in others.
6. Crowdsourced Ranking
Another popular way to increase the signal to noise ratio of content is to leverage the wisdom of the crowds and allow your user's usage pattern or explicit ranking of content to influence the ranking of content displayed on browse pages of your application.
Digg uses explicit votes to rank submitted links, YouTube uses video watches to rank uploaded videos, Delicious uses number of bookmarks to rank bookmarks, Rotten Tomatoes uses user movie reviews, and so on.
This method is often difficult to bootstrap since it requires significant network effects to truly provide value. However, in many cases there is no better source of quality data than your own users. As a best practice, it's best to leverage both implicit and explicit signals. The implicit signals get you much broader data sets, like video watches and bookmarks. But the explicit voting, commenting, ranking often provide the highest signal to noise ratio.
In addition to using the wisdom of the crowds, using the specific tastes and preferences of a user's friends can significantly enhance the filtering experience.
While social search is still in it's infancy, social filtering has been leveraged across many experiences to provide compelling value. Much of the success of the Facebook News Feed is predicated on highly robust social filtering algorithms to bring to the top the content that you will enjoy the most based on your closeness to the content publisher. The beauty of social filtering is that in addition to the high likelihood that friends share taste preferences, users are also likely to interact with their friend's content purely because they are interested in their friend.
A great example of this is in my product Feedera. Feedera produces a daily digest of the top content that your friends have shared across Twitter. When I started prototyping the interface, I did some content extraction to try to extract the relevant photo from the article to surface it in the article summary (similar to what you see on Google News), thinking that it would increase click-through rates by giving you a visual picture of the content. But when I simply replaced the content picture with a profile picture of the user that shared that piece of content, click through rates significantly increased. That association of the content with people you trust provides a great incentive for users to engage with your content.
All the popular social networks today, including Facebook, Twitter, LinkedIn, and MySpace provide easy to use APIs that you can leverage to get access to the social graph and social data to create compelling social filtering experiences. You'll want to be judicious about picking with social graph(s) are most relevant to your specific content or scenarios.
8. UI Personalization
Another way to help reduce the friction in content discovery and consumption is via UI personalization. While typically only leveraged by your most advanced users, it can enhance their experience.
YouTube, for example, allows you to customize your home page experience by adding, removing, or reordering its discovery widgets, including subscriptions, featured videos, popular videos, what people are watching now, etc. If a specific widget resonates well with the user, they can put them front and center and allow them to easily access that content every time they visit the site.
While storing customized preferences is easy, it may be significant work to enable a modular experience that can be re-organized and re-worked. Given that UI personalization features are typically leveraged only by power users, it's important to asses the cost of offering personalization with the expected uptake of such features.
The recent announcements that Hotmail will finally support email message threading and that Gmail will finally offer an option to turn off Conversation View reminded me that the concept of threading is not a commonly accepted best practice, but still an emerging tactic.
We've seen threading become an important information presentation technique mainly in communication scenarios, like email messages, comments, and forum posts. But beyond these instances, it works as a generic presentation technique to allow you to easily prioritize as well as collapse content for later retrieval to increase your user's efficiency in consuming content.
The key implementation consideration in cases where threading is not natural to the underlying data set is figuring out the right way to break up the tree with your content type. I'm confident that their is often a way to present your data in a tree form and it's worth at least considering as a potential way to improve content consumption for your data set.
10. Most Recently Used List
While this one may seem like a no-brainer, I feel the need to remind web designers about it because I rarely see it inside web apps. With traditional desktop software you are used to always having a most recently used list of the content within that application that you have leveraged. It was so standard, that you often expected to find it under the File menu of an application. Since we live in a world with constant distractions, you are often leaving a given experience and later coming back to consume that content. That has become even more true in the web world.
While some web applications do provide most recently used lists, I am still shocked that many applications don't. Sure, search provides a quick and easy way to get back to that content, but it still requires additional unnecessary mental cycles. So I implore you to look at your application usage patterns and if you see frequent usage of the same content, make sure to provide a simple most recently used list to make the lives of your users a little friendlier.
I remember as a kid being very excited about the future. One concept that was extremely enticing was the coming age of robots. I was assured that they were only around the corner by my favorite cartoon at the time, The Jetsons, and their robot Rosie. I knew in the future I would want my very own robot to take care of the laundry, vacuum the house, and cook all my meals.
Fast forward to today and unfortunately the closest thing we have to commercialized personal robots is the iRobot Roomba that can vacuum your carpets. That's sadly about it.
Yet the underlying beauty of having a personal robot, something that was always taking care of things for you while you were busy with the rest of your life, has found it's way into many interesting software solutions.
The concept has materialized into passive monitoring solutions that are constantly monitoring some set of activities that are relevant to you and providing you with insight in the form of summarized and aggregated views, relevant alerts, and more. While large scale passive monitoring solutions have existed in B2B industries in a variety of verticals, only recently have these solutions started to become commonplace in consumer internet. Much of this has to do with a set of trends that are coming together. For one, all of our communications, transactions, and activities continue to be digitized and move online, making it easier for software to monitor these activities. In addition, open APIs are starting to pervade many verticals, making the task of extracting the interesting data from across disjoint data sets even easier. Finally, cloud computing has also played a significant role is decreasing the cost of constantly monitoring a set of activities with the flexibility to scale up and down resources with your user needs.
Four such passive monitoring solutions have found their way into my own day-to-day life.
Mint does an amazing job of aggregating all of my financial accounts, across credit cards, saving and checking accounts, and investment and retirement accounts, to provide an aggregated summary of my spending and overall net worth. While I can log in to the dashboard whenever I like, I love that Mint sends me a weekly summary of my financial data. Mint not only provides a great overview of your financial assets, but also provides deep drill down capability into specific transactions categories or transactions themselves. I've also found it extremely helpful that Mint keeps my transaction history forever, versus many of the credit card and bank online interfaces limit my view into my own transactions to sometimes as little as 90 days.
The key enabling technology behind Mint is a company called Yodlee which developed the interfaces to connect to your bank transactions. Mint simply licensed their service and created a compelling experience on top of it.
RescueTime provides a view into how I spend my time each week in front of my computer, breaking down all of my activities into specific application and web site usage as well as summarized category usage. Categories include communication, social networking, news, software development, and more.
By looking at my weekly RescueTime summaries, I can get a great sense of how productive I was that week as well as an understanding of how much time was wasted on non-productive activities. It's a great way for myself to help realize where all my time is going and then make course corrections based on them. RescueTime is able to get this detailed information about my computer activities through a simple monitoring tool they install on your desktop to collect your data.
Tripit has become an invaluable aspect of my travel experience. Everytime I get an itinerary confirmation from an airline, I simply email it to email@example.com and Tripit lets me rest assured that the rest of my travel experience will be extremely simplified. Once Tripit receives your e-mail, it parses it to understand exactly what flights you are taking as well as the time for that flight. It then creates a calendar that you can subscribe to that shows you exact departure and arrival times. I used to do this manually, but now it's all automated. In addition, their iPhone app provides me access to my itinerary on the way to the airport. I don't have to hunt for that e-mail with the confirmation in it. For premium subscribers, it even provides text message alerts on delays on your flight through regular monitoring of your flight status.
Feedera provides a daily summary of the latest buzz amongst my friends on Twitter. It makes it much easier for me to keep up with Twitter without a significant time investment in constantly watching my feed.
Feedera provides this summary by constantly monitoring your feed, scoring all the content that comes across it by popularity and friend relevance, and delivering a daily digest of the highest ranked content. Feedera basically reads my feed to find the good stuff so I don't have to. It's significantly decreased the time I spend on Twitter and that is a great thing.
While these solutions may seem like no-brainers, there are a set of key criteria that these types of applications need to satisfy in order to ensure successful adoption.
Maximize data accuracy.
When a user decides to adopt one of these solutions, they are placing their trust in the application to monitor the given activity for them so that they don't have to. This is a high trust level required for a piece of software. The issue with this is that trust is quickly rescinded if the application fails to uphold it's end of the bargain. And the most common breach of trust is the result of data accuracy issues.
A friend of mine told me that the reason he abandoned Mint in the early days was that their categorization of transactions was always off. This forced him to go through and look at every transaction to ensure it was categorized correctly. He therefore saw little value in the automation and ultimately abandoned the solution.
In addition to a user expecting to trust the output of such an application, a user needs to place even more trust on the system ensuring the security of their credentials used to get access to the data as well as the security of the data itself.
One of the things Mint had to deal with in the early days was getting users to put their financial account credentials into their service. They spent a lot of effort building this trust through education, security reviews, compliance tests, etc. Similarly, RescueTime collected potentially personal data about your application usage and web site history. User's need to trust that this data will be kept private. It's thus important for applications to invest heavily in maintaining and building this trust. Blippy, a startup that displays your credit card transactions to your friends, unfortunately suffered from a serious breach of trust recently that will be sure to effect at least their short term growth rate.
Regularly re-engage your user.
Given that these solutions are constantly monitoring a set of activities, oftentimes there isn't a natural point at which the user should re-engage with the application. This may result in high expense for the application to monitor the customer's data, but little customer utility.
Therefore it's important for the solution to provide meaningful re-engagement points with their user. The most effective ones I have seen are daily or weekly e-mail summaries as well as real-time notifications. Feedera sends out a daily summary, while Mint and RescueTime send out weekly summaries. Tripit, on the other hand, sends out real-time notifications before and during your travel plans.
Overall I'm very impressed with how far passive monitoring solutions have come and expect to see many more pervade our daily lives. While it's not the robots that I dreamed of as a kid, it's definitely an analogous trend towards personal assistants in the software world.
While social games is the newest category of apps monetizing virtual currencies, MMOs like World of Warcraft and Second Life have had vibrant virtual economics for years. In addition, casual MMos like Gaia Online, Habbo, and IMVU have also built thriving currencies.
Yet the most recent trend that is fascinating to me is the incorporation of virtual currencies in non-gaming sites. As growth in the online advertising market continues to deteriorate, sites are seeking alternate forms of monetization to wane their dependence off ads. Many eye the robust gaming virtual currency revenue stream and are eager to expand its success into non-gaming environments. With Facebook itself estimated to have made $30-$40 million from its virtual gifts, many others hope to imitate and expand upon such early success.
Given this, I decided to put together a quick case study of five of the most interesting virtual currencies in non-gaming sites today.
myYearbook, a teen oriented social network founded by two high school students in 2005 with now over 4.4M US uniques, is a popular destination for socializing, meeting new people, and entertaining yourself.
myYearbook has incorporated their "lunch money" virtual currency into every aspect of their experience. Even when a new user first creates an account, they are awarded lunch money for simply uploading a profile picture and inviting their friends to join. Wherever possible, myYearbook attempts to offer you additional lunch money for additional activity across the site. By getting high scores in flash games on the site, you are awarded lunch money. For winning popularity battles, you are granted additional lunch money. myYearbook has even built their own rendition of Friends for Sale called Owned. Users acquire points through the game but also spend points to purchase their friends. You can also acquire points through various offers as well as direct payment options ranging from credit card, to mobile payments, to PayPal.
Once you have acquired lunch money, you have a variety of ways to spend your currency. In addition to buying your friends in the Owned game, you can purchase additional top friends slots to showcase your friends on your profile. You can also purchase a pimped out mp3 player and more songs for your playlist. Or battle super votes to ensure you win battles or support your friends. They have even built a Causes application, allowing you to contribute lunch money toward world causes like hunger, global warning, save the rain forest, and more. myYearbook then converts your contributed lunch money into hard cash that they contribute to the appropriate charities.
Heysan is a mobile web-based IM aggregator allowing users to easily connect to MSN, AIM, ICQ, Yahoo, and Gtalk on the go from their phone.
Similar to myYearbook, Heysan initially offers up "coins" for simply joining the service and inviting your friends. Heysan also provides additional coins for performing actions on the site that they want to encourage, including daily sign-in, validating your phone number for SMS notifications, or filling out your profile. You can also get additional coins through various offers and direct payments.
What's cool about Heysan is how you can spend your coins. They can be used to get exclusive emoticons, new buddy icons, wallpapers, photo backgrounds, background colors, profile font colors, friend gifts, feature profiles, and more.
Scrapblog is the easiest way to create stunning multimedia online and print scrap books. With over 2 million registered users, media partnerships with Disney, Discovery, and Photobucket, and a newly raised round of $4 million, Scrapblog is poised for success.
Scrapblog has traditionally monetized through printing and sponsored promotions. However, they have recently introduced the Scrapblog Marketplace, which allows you to purchase premium content for your scrap book with Scrapbook "credits" that are purchased with a credit card.
These credits are used to purchase anything from new backgrounds to specially made stickers for your scrapblog. A variety of premium designers have put together an expansive selection of exclusive content for your scrap booking needs.
Dogster is the premier social network for a man's best friend. Showcase your own animal, browse your friends dogs, and check out the half a million dogs already captured on the site.
Dogster has monetized through advertising sold through their own direct sales team targeting the $42B pet industry as well as a premium subscription service for $20/year that provides benefits including the ability to upload more pictures, photo captions, ad-free browsing, and more.
In addition, Dogster has monetized through its own virtual currency, known as zealies. Dogster provides a variety of free ways to acquire zealies. You get some when you join. If you give them more info about yourself, they'll award you more. Sometimes you get them from games and other times they give them away for holidays. They try to rotate a variety of free ways of acquiring zealies. You can also acquire zealies by purchasing them at a rate of 20 zealies for $5 through Paypal. Users can additionally get monthly zealies through the paid subscription service.
Zealies are then used to purchase a variety of gifts for dogs across the site. Gifts include rosettes, which are one-month lasting ribbons you can give to your favorite dogs to recognize them. Then there are a variety of holiday related gifts. They even have sponsored gifts, including a recent Febreeze branded collar that was given away for free and paid for by the advertiser.
Mahalo recently launched Mahalo Answers, a Q&A service similar to Yahoo and Google Answers.
The interesting twist for this service is that besides users answering questions for free, the question asker can also offers Mahalo Dollars to the best answerer. This Mahalo Dollars virtual currency can be funded through PayPal. The question asker then awards the tip to the best answer. The users who receive Mahalo Dollars can convert it back to real cash after they reach a minimum amount of tips and after Mahalo takes it 25% cut.
Mahalo has also created a points system, allowing people to acquire points for answering questions well and adding friends. As a user acquires points, they progress through multiple belt levels, with higher belts designating that you are more of an expert in the community.
Yet the economic recession that we are in the middle of poses new challenges. While it hit in the financial and real estate sectors first, it is undeniable that it will have a lasting effect on all sectors of our global economy.
For the startup community, the most immediate ramifications have been difficulty in raising funding. Many angel investors have significantly cut back their investing. VC dollars have dropped 33% in Q4 08 alone. And for those who can obtain funding, lower valuations, down rounds, and 3X liquidation preferences are back.
At the same time, consumer confidence is down. Unemployment is at all time highs and only increasing. This has resulted in consumer spending being down across the board. With the drop in spending comes the slashing of advertising budgets.
The days of eyeball companies are also gone. No longer can you hope to build a service, drive significant traffic, and be acquired by one of the tech giants. Google, Microsoft, and Yahoo have all announced layoffs and project closures. Everyone knows that acquisitions in 2009 with be far fewer than those in the previous years.
Despite painting this landscape of doom and gloom, I still believe now is a great time to start a company. It simply requires a tighter lens through which to evaluate startup opportunities. A lens that takes into account the challenges of raising funding and early acquisitions and instead focuses on achieving cash-flow positive, ramen profitability, and self sustainability.
And hence I come to my own corollary to the YC motto: "Make Something People Will Buy".
Let me first address how this relates to the original motto. If you think about what this means, it fully encompasses the original statement. In order to make something people will buy, you first have to make something people want. But now making something people want is a necessary, but insufficient condition. You have to take it to the next level and make something people find compelling enough to buy.
This most definitely makes the issue of business model and monetization a first order problem. Instead of taking the tack that this can be addressed later, it forces you to consider this with the initial problem definition. With this paradigm you'll find yourself, as I do, thinking as much about ARPU and TAM as UX and traction.
Many who first come across this will assume it implies freemium, e-commerce, and subscription business models. And it definitely emphasizes these direct monetization opportunities as well as the now growing virtual currency and virtual goods space. As we won't see much growth in online advertising in 2009, charging your users directly for your service will become a much more popular model. We have already seen Sprout, Jott, and others abandoning their free applications in favor of simply providing their paid products.
Yet I by no means intend for this mantra to rule out indirect methods of monetization. It simply requires that if you do plan on leveraging indirect monetization models, you think through the entire conversion funnel of how your app will eventually result in a purchase event. So instead of simply planning on slapping on text and banner ads on your site from your favorite ad network and monetizing page views, you have to think through exactly how your site aggregates a qualified audience, purchase intent, or vertical interest that can be leveraged for commercial value.
We've seen a lot of innovation in the last 5 years on product, but limited innovation on the monetization front. I hope with the current flight to revenue, quality, and sustainable businesses, we start to see real creativity in the business models and monetization methods that drive web businesses.
I find myself going through the mental exercise to challenge myself to think through how Facebook and Twitter, the stars of 2008, could develop a revolutionary monetization strategy as Google once did with its AdWords and AdSense products. And I'm sure you'll see me writing more on my blog about my thoughts on monetization.
So I challenge you to go forth, try this new lens, and make something people will buy.