Michael Mace's WinMarkets Blog

Lessons from the PayPal developer conference

2009-11-10T01:12:53Z

PayPal's developer conference in early November, the company's first such event, gave some good lessons for tech companies that want to create their own developer communities. Since that seems to include most tech firms these days, we thought it might be helpful to point out some of the lessons, both positive and negative...

The backstory. About a year ago, eBay (PayPal's owner) changed CEOs. According to the new management team, they decided to put more focus on growing PayPal, and specifically on embracing developers to do it. You can debate whether this was a visionary decision or a reaction to competition from Amazon Flexible Payments Service, but at any rate PayPal has spent much of the last year creating new offerings for developers, a process that culminated in the developer conference.

What worked well

Solve real developer problems. Companies recruiting third party developers typically create a set of APIs, toss them on the market, and then tell developers to "go be creative." That sometimes works, but there is a lot of demand on the time of software developers, and if you can't imagine how they will use your technology, there's a good chance they won't be able to do so either. Yes, you do want to enable innovation that you didn't anticipate, but if you want to get developer adoption quickly, it's important to also do your best to solve particular developer problems.

PayPal went out of its way to make its APIs easy to use, and to tailor them for the needs of developers. For example, we were shown a live demo of how you add PayPal payments to an iPhone app. The process was slick. You open the iPhone development environment, link to a code library written by PayPal (that's a one-click operation), and then paste into your app a section of code provided by PayPal. You change one line in that code to insert your PayPal vendor ID. Compile your app, and a PayPal payments button appears in your application.

That's how it should be. Especially for an ingredient technology like payments, it's important to make adoption brain-dead simple for developers. That means you need to take responsibility for creating things like code samples and link libraries.

Hang out with friends. PayPal has engaged with some large computing companies to support its new APIs. SAP was on stage with them, and used PayPal to pay an $18,000 corporate invoice online, not the sort of transaction you usually expect to do with PayPal. IBM did an hour-long session on its cloud computing platform, and how it integrates with the PayPal APIs. The endorsements were impressive, and should have given developers a sense of safety about working with PayPal.

Get endorsed. PayPal had Tim O'Reilly deliver its keynote at the end of the first day. O'Reilly talked about the web as a giant distributed operating system, with PayPal providing a set of APIs in that OS. O'Reilly is a celebrity influencer among web app companies, and having him at their conference was an important endorsement.

Areas for improvement

It's not about you. It was clear that PayPal's executives were pumped about the conference, because they told us so over and over again. Several times they did the "Are you excited????" call and response routine that you normally use at employee communication meetings. They seemed to be disappointed at the half-hearted response from the audience.

They also spent a lot of time telling us how great PayPal is -- how it's going to double in size in the next three years, how it's driving "the new wave of payments innovation," and how developers are going to help PayPal achieve all of that.

It's a great message to PayPal employees and investors, but the wrong message to send to developers. App developers do not get excited about making someone else rich; they get excited about someone else making them rich. And they're not pumped up to be at the start of a developer conference; they are excited at the end, after you've shown them how much they can do with your technology.

This is especially true for an ingredient technology like PayPal. If you're creating a new smartphone OS, your installed base is directly relevant to developers because the more users you have, the more units they can sell. But PayPal's installed base of stores is much less directly tied to the success of developers who use it.

If you're ever asked to make the opening remarks at your company's developer conference, say something like this:

"Thanks very much for coming. We're grateful that you've chosen to work with us, and we're very excited by the things we'll be telling you about today. You are the foundation of our success. We're dedicated to helping you create awesome products that no one else on Earth could build, and we want to help you grow your company like a weed and become wildly profitable. To help with that process, our engineers will be holding hands-on code camps until 3 am tomorrow morning, and we'll have an endless supply of Dove bars in the lobby. Now let's demo those new APIs..."

Note: Rubicon has no current or past business relationship with PayPal or eBay. We did, though, receive a free pass to their conference.

Software platforms as a business tool: How we got here, and where we're going

2009-05-21T20:37:13Z

Intuit and Stanford recently asked me to give talks on computer platforms and what makes them successful. (By platforms I mean software with APIs that third party developers can write apps on top of; Windows and Macintosh are both platforms, as is Java.) Platforms are a hot topic in Silicon Valley these days. The success of the iPhone app store in mobile, and Facebook on the web, have forcefully reminded people that you can grow a tech business more quickly if you get third party developers to help you. Almost every tech company Rubicon talks to today is trying to expose some sort of API or platform offering in its products.

To explain how software platforms work today, I thought it'd be good to start with their history. But I wasn't sure about many of the details myself, so I ended up doing some research. The information was surprisingly hard to find, and also pretty controversial -- for every person who claims to be the first to have done something in computing, there's someone else who begs to differ. I did my best to sort through all the claims. The picture that developed makes an interesting story, but also has some very important lessons about where the industry might go next.

Fair warning: this is a long story. But I hope you'll feel that the destination is worth the trip.

Here's what I found:

Hardware memory, software amnesia

The computer industry is often criticized for its failure to remember its own history. Supposedly we're so focused on the new thing that we forget what's come before.

In reality, though, we're actually fairly good at remembering a lot of our hardware history (for example, Apple fans are celebrating the 25th anniversary of the Macintosh this year). There's passionate controversy over what was the first computer -- was it Konrad Zuse's Z1 (link), Tommy Flowers' Colossus (link), etc. The answer depends in part on your definition of the word "computer." But it's a well-documented disagreement, and you can find a lot of information about it online, including a cool timeline at the Computer History Museum (link).

The machine most commonly cited as the first fully programmable general-purpose electronic computer was ENIAC, the Electronic Numerical Integrator And Computer. It was completed in 1946 (link).

Here's ENIAC (well, part of it, anyway)

You can find lots of histories of ENIAC online (link). There are multiple simulators of it on the web (link), and the engineering school at the University of Pennsylvania even has an ENIAC museum online (link).

But when it comes to software, our memories are much hazier. For example, I doubt there will be a 25th anniversary celebration in 2010 for Aldus PageMaker, the program that did more than any other to make Macintosh successful. And just a few days before I posted this article -- May 11, 2009 -- was the 30th anniversary of the first demo of Visicalc, the first spreadsheet program. Did anyone hold a parade?

Today we take it for granted that you can use a computer for a variety of business or personal tasks, but it didn't always work that way. ENIAC and Colossus were government-funded tools for solving military and scientific problems. The US Army funded ENIAC, and in addition to calculating artillery tables, it was also used for tasks like weather prediction, wind tunnel design, and atomic energy calculations.

These nice ladies are programming ENIAC, by moving cables around.

How did we end up using computers for other purposes? The UPenn site says only, "it is recalled that no electronic computers were being applied to commercial problems until about 1951."

Yeah, "it is recalled." This is where I had to start digging. Once again there are disputes (link), but you can make a very good case that business computing started in the UK, and it involved something called a Swiss roll.

The first business computer

I had never heard of Joseph Lyons & Company, but in the 1950s they ran a chain of tea shops in the UK. I have to pause here for a second and explain what the term "tea shop" means. It's not a shop where you can buy bags of tea (which is what I assumed). Instead, it is what Americans call a coffee shop -- a fixed-menu restaurant that people would come to when they wanted to have a quick meal, snack, or meeting. The closest equivalent in the US these days is probably Denny's.

In the 1950s, Lyons had the biggest network of tea shops in the UK. It employed 30,000 people and served 150 million meals a year. The company sold 36 miles of Swiss roll a day (link).

(In case you're wondering, Swiss roll is a flat sponge cake rolled around a filling. Americans call it jelly roll. In India, it's called jam roll. In Sweden, rulltårta. In Japan, "roll cake." But in Spain, for some reason it's called brazo de gitano (gypsy's arm). Don't ask me why. [link] )

A Swiss roll made and photographed by Musical Linguist on 25 June 2006

Like every other company of its day, everything at Lyons was run manually -- tallying 150 million receipts, calculating payroll, managing taxes, and even figuring out how many miles of Swiss roll you need to make for tomorrow's customers. All of that by hand with adding machines. It was an incredibly expensive and error-prone way of running a business, but it was the best anyone could do at the time.

When the people at Lyons first heard about these new computer thingies, they wanted one immediately to help run the business. But there wasn't any way to buy one. So they donated $5,000 (about $50k today) to Cambridge University to create a modified version of a computer that Cambridge had been working on.

The result was called LEO (Lyons Electronic Computer), and when it started regular operations on November 17, 1951, it was the world's first business computer. It occupied 5,000 square feet of floor space (about 500 square meters), and its 4k memory unit weighed half a ton because it was full of mercury. LEO's lead programmer was David Caminer, who is generally credited as either the world's first business software programmer or the first systems analyst. LEO's software let it handle -- guess what -- the same sorts of tasks we handle on business computers today: payroll, inventory, financials, and so on. It cut the time to calculate one employee's wages from eight minutes to 1.5 seconds (link).

David Caminer

Pause for a moment and think about the courage and vision it took for Lyons -- a catering company -- to build its own computer. There was no guarantee the process would succeed, and indeed the process took two years, with plenty of setbacks along the way.

But LEO was eventually a big success, and Lyons eventually spun it out as a separate computing subsidiary. Caminer went on to have a distinguished career in computing. He died in 2008, unfortunately, so we just missed our opportunity to say thanks to him. If you want to read more about LEO, Caminer co-wrote a book about it (link). Naturally, it's out of print, and the cheapest used copy when I looked it up was $75.

What is software, anyway?

One interesting aspect of LEO is that although Caminer and his team wrote software for it, that software was not available separately from the computer. That's the way the computing industry worked throughout the 1950s. For example, if you bought an IBM computer there was a set of standard IBM programs that ran on it.

In fact, the term "software" didn't even exist until it was popularized by John Tukey in 1958, more than ten years after ENIAC began operation (link). He wrote:

Today the "software" comprising the carefully planned interpretive routines, compilers, and other aspects of automative programming are at least as important to the modern electronic calculator as its "hardware" of tubes, transistors, wires, tapes and the like.

So the whole idea of software as a separate entity, a concept that we take for granted today, did not exist at the beginning of computing. The concept of making computers reprogrammable came along quite early, but it took a couple of decades for software to fully separate itself from hardware as its own distinct discipline.

John Tukey

(Naturally, there's some dispute about whether Tukey was the first to use the term "software." You can read about it here.)

Tukey was an interesting guy. He also created the term "bit," helped design the U-2 spy plane, and did a lot of other fascinating things (link).

If you want to read more about the history of software technologies, there's an essay here. And the best (and just about only) book on the history of the software industry is here.

Software as a business

Once we got the idea of software into our heads as a separate discipline, the next milestone in platform history was the creation of the first independent computer program, the first one you could buy separately from the hardware. As far as I can tell, that idea didn't just spring into being all at once; it emerged as a slow-motion avalanche over a period of 15 years.

Computer Usage Corporation, founded in 1955, is often cited as the first computer software company. It focused on custom programming services (link). Another very early custom programming company was CEIR, founded in 1954 (link). After them, a number of other custom programming firms sprang up. Sometime between 1962 and 1965, California Analysis Center, Inc. started selling a proprietary version of the Simscript programming language as a standalone product (the Computer History Museum says it was 1962 here, but CACI's own website says 1965 here). The 1962 date is the earliest I can find for any sort of independent software product. To my amazement, CACI is still selling Simscript today (link).

Several other programming languages and compilers came to market in the early 1960s, but there's disagreement over how much they actually sold, or whether they were really managed as independent products (link). A file management program called Mark IV, by Informatics, is credited as the first independent software product to generate more than a million dollars revenue. It was published in 1967 (link). That year also saw the first publication of the International Computer Programs Quarterly, the first commercial software catalog, which helped small software companies get to market at low cost (link). Think of it as a paper version of the iPhone App Store.

But if you want to find the first snowball that started the commercial software avalanche, I think it was tossed in 1964 when a contract programming company called Advanced Data Research was jerked around on a business deal by RCA.

The first commercial software product

In the mid-1960s, a cottage industry of contract programming firms did custom software development. When a new mainframe was in the works, its manufacturer would sometimes hire these firms to create software to offer with it. Computer owners could also hire those development houses to write create custom software for them. The idea of off-the-shelf software didn't exist; you got it for free with your computer, had it written for you, or developed it yourself.

RCA, which at the time was a promising mainframe company, approached ADR asking them to create a program to draw flow charts of computer programs (the flow charts were used for documentation and debugging). That may not sound like a big deal today, but in the early days of computing the industry didn't have the sort of automated debugging tools it has today. A flowchart was very useful to help maintain and document a custom software program after the project was finished.

So ADR created a proposal and submitted it to RCA. Fortunately for the computer industry, RCA turned it down, as did every other mainframe company. But ADR believed in its concept, so it decided on its own to develop the product anyway. It spent over $5,000 (about $35k in today's money) and half a man-year on the project.

But RCA was not impressed. Once again they said no.

Now ADR had a sunk cost. In business school they teach you to walk away from those, but in real life companies hate to admit they made a mistake. So ADR decided to try marketing the software on its own. They named it Autoflow, and wrote a letter to all 100 RCA mainframe owners offering them the program for $2,400 on a three year lease. It was three milestones in one: the first commercial software program, the first subscription software, and the first junk mail urging you to buy a software program.

ADR sold two licenses.

That may not sound like much, but somebody at ADR did the math -- if we sold two copies to 100 RCA customers, what would happen if we offered our software to IBM's much larger installed base? So ADR ported Autoflow to IBM mainframes. In the second half of the1960s it sold more than a thousand licenses of Autoflow, and created a portfolio of other independent software programs for IBM systems.

IBM was not pleased. Nobody was supposed to mess with the IBM customer base; that might weaken IBM's control over its customers. The company created its own flow charting software, which it gave away for free to its customers, and started to copy ADR's other programs as well. This became a huge competitive problem for ADR -- even if its software worked better than IBM's, it was hard to compete with free. IBM was also able to freeze the market for ADR by promising that it would in the future offer a free version of something ADR was currently selling. Customers would delay ADR purchases until they could evaluate the IBM product.

ADR and other fledgling software companies complained to the US government. In 1969, the Justice Department, ADR, and several others filed antitrust suits against IBM. ADR collected $2 million in penalties, and IBM agreed to stop bundling free software with its computers.

And thus the independent software industry was born.

Martin Goetz (above) was the product manager of Autoflow. I wrote to him and asked for his take on which was the first software product. Here's his reply:

Autoflow was recognized as the first software product to be commercially marketed. Starting in 1964, ADR licensed its products nationally and through ads in all the major computer publications, started investing in the development of other products and became known as a software products company.

I think that's the right way to look at it: Autoflow was the first software product to be commercially marketed, which is why I call it the snowball that started the avalanche. Informatics' Mark IV also played an important role because its financial success validated the market -- reportedly it was the top-selling software product for the next 15 years (link).

Goetz says Mike Guzik was the lead programmer on Autoflow (link), and he cites ADR President Dick Jones as a strong supporter of the idea (link). I think we should credit Goetz and Guzik as the creators of the first commercial software application, although neither of them has an entry in Wikipedia.

Incidentally, Goetz also holds the first software patent:

Computerworld, June 1968

That has to be one of the most visionary headlines in the history of the computer press: "Full Implications Are Not Yet Known." Here we are 41 years later, and it's still accurate.

Goetz was named the "Father of Third-Party Software" by mainframezone.com (link) and there's a very interesting interview with him here. You can find a much longer interview here and his memoirs are here.

Advocates of open source software will probably view Goetz as a bad guy, since he helped make software a for-profit industry. But he has some pretty strong opinions about the poor quality and slow innovations that happened in software when it was only free. In particular, he says that a completely free software industry was not responsive to the needs of users (link).

An amusing anecdote complaining about Goetz, apparently written by a former ADR employee, is here. I can't verify the anecdote, but if nothing else it shows that ADR was also a pioneer in the practice of engineers making catty comments about product managers.

(I should add that there are some different interpretations of the effect of IBM's unbundling decision. One is in a very interesting interview with the creator of the ICP catalog here.)

The rise of the third party application platform

The next evolutionary step was for computer companies to see their products as development platforms -- for them to actively encourage software developers rather than viewing them as a nuisance. I haven't been able to figure out when in the 1970s this change in perspective happened (please post a comment if you know the history). It may have happened in the era of minicomputers, or it may have been a PC thing. Definitely Dan Bricklin and Bob Frankston's VisiCalc, the world's first spreadsheet program, played a role when it came to market for the Apple II in 1979. It was so revolutionary that reviewers at the time didn't know how to describe it. They just said it was a way to make the computer do things you want it to do, without writing your own program. VisiCalc established the idea of the "killer app," a software program so popular that it drove demand for the underlying hardware.

"Visicalc could some day become the software tail that wags (and sells) the personal computer dog." --Ben Rosen, co-founder of Compaq, reviewing VisiCalc when we was still an analyst with Morgan Stanley. Nice call, Ben. (Link)

By the early 1980s, software developers were being actively courted by computer manufacturers. Apple had a developer recruitment team for the Macintosh, and apparently coined the term "software evangelism." That's where Guy Kawasaki cut his eyeteeth, although he wasn't the first evangelist. As he puts it:

Mike Boich started evangelism and hired me, and Alain Rossman worked with me as a software evangelist. Essentially, Mike started evangelism, Alain did the work, and I took the credit. (Link)

I happen to know that Guy did a bit of the work too.

The other critical change in the 1980s was the separation of the OS from the underlying hardware. Most of the new PC software platforms had been tied to hardware, just like traditional computers. For example, you had to buy a Macintosh in order to run Mac software, or an Amiga in order to use Amiga apps. But then IBM created the PC, and through a series of business blunders allowed Microsoft to separately sell the DOS operating system used on its hardware. IBM's brand and marketing power established the PC as a standard, but the company enabled Microsoft and Intel to create a "clone" hardware market, and eventually drive IBM out of the PC business.

So now there were three layers in the industry -- the application was independent of the OS, and the leading OS was independent of the hardware.

The network strikes back

That's where the situation sat until the late 1990s, when Java and web browsers threatened to create another layer in the architecture by separating software applications from the OS. The theory was that instead of writing programs that depended on Windows, programmers could create code that worked on Java, or on the Netscape browser.

Microsoft fought back very aggressively, killing Netscape by giving away Internet Explorer, and crippling Java on the PC. Looking back, it was an impressive use of business muscle, worthy of Microsoft's tutor IBM.

But it was also a pyrrhic victory. Microsoft's actions in the 1990s forced software innovation completely off the PC platform, because investors were afraid that new software apps would just get cannibalized by Microsoft. Instead software innovation moved onto the web, where Microsoft had virtually no control. That's one of several reasons why the next generation of software is being written as web apps.

And that's where we are today.

Where we go next

As I said at the start of the post, I think all of this history is fun in its own right. I also wanted to take this opportunity to thank some of the people who built the tech industry into the fun place it is today.

But understanding computing history is also very important because, if you look across the sweep of it from the 1940s to today, it's much easier to see where we might go next.

Here's what I think that long perspective shows us: The history of software is a history of disaggregation. First the application software gets separated from the hardware, then the OS gets separated from the hardware, and so on.

I think disaggregation is a natural outcome of the maturation of the industry, because multiple companies can move faster than a single one. At the start you need everything coordinated together to make sure the whole thing will work. But over time, no single company can pursue all of the innovation possibilities, so you get a backlog of potential creativity that can happen only if control over the architecture is broken into pieces.

For example, most of the interesting innovation in applications happened only after they were separated from the hardware.

But as the industry continues to grow, each of the pieces becomes its own stodgy monolith, and eventually another subdivision happens.

The fastest growth and the easiest innovation has generally happened at the leading edge of disaggregation, because each change creates new business opportunities.

That doesn't mean that old school companies are dead. IBM still sells mainframes, and Apple still makes PCs bundled with an OS. But to succeed in an old paradigm you have to execute extremely well, and it's much harder to grow explosively. The easiest progress is made at the leading edge.

A common thread among the people working at the leading edge of disaggregation is their excitement as they recognize the opportunities created by the change:

There was a tremendous euphoria of success. You couldn't lose. All you needed was a group of highly technical people who could create a software product and that was it. And to some degree there was some truth to that. Because you didn't have to be good sales people. You didn't have to worry about the competition. For years I used the aphorism that we were like little boys on the beach each with our sand piles. There was plenty of sand to put in our buckets. We didn't have to edge out the other little boy to get all the sand we needed. We were limited by the size of our pail and our little shovels but not by the amount of the beach that was there or the fact that there was another little boy there with his pail.

That's Walter Bauer, cofounder of Informatics, talking about the birth of the independent software industry in the 1960s (link). But you could find similar sentiments from the people who built the first computers, or the first Mac programmers, or the first web app developers. The leading edge of disaggregation is where the action is; it's where the fun happens.

So, if you're looking to succeed in the software industry, it's extremely important to figure out what's going to get disaggregated next. Which brings us to the point of this article.

Say hello to the metaplatform

Sun's rallying cry in the 1990s was, "the network is the computer" (link). It was an excellent insight that pointed to the emerging importance of the Internet, but most of the industry misread what it meant. We looked at the architecture of the thing we knew best, the PC, and tried to map it directly to the network. So servers would replace the PC hardware, and software on those servers would replace Windows. The PC itself would be reduced to light client, a screen connected to a wire.

What we expected

But instead of a new OS on the network replacing the OS on the PC, what we're seeing is the breakdown of the OS into component parts that live everywhere, on both the client and the server.

In other words, the OS is the next thing that gets disaggregated.

What's actually happening

People have been talking about elements of this change for years, but like the proverbial blind men feeling bits of the elephant, we've talked about individual pieces of it, with each of us assuming that the piece in front of us was the most important. So people producing software layers like Java and Flash say that they are separating the APIs on the device from the underlying OS. And the advocates of cloud computing say they're creating a software services architecture that runs on servers. But in reality we're doing both of those things, and a lot more. The OS is dissolving into a soup of resources distributed across both the network and the local device, with the application in the middle calling on both as appropriate. We need to get off the idea that the network or the client will be dominant; they're both supporting elements in something larger.

You can see this process operating in the evolution of web applications. The first web app companies tried to make applications that were entirely light client, but they didn't work particularly well -- they were slow, and their user interfaces were too limited. Web apps took off only when they adopted an approach in which the platform was split between the PC and the network -- the user interface ran locally through the browser, while back-end calculation and data storage was done on the network.

Mobile computing reinforces the need for this sort of hybrid architecture. Wireless broadband has important limitations that make pure light client computing extremely problematic. Wireless networks are relatively slow compared to wired networks, there's high latency on them, coverage is inconsistent, heavy communication drains device batteries rapidly, bandwidth is expensive, and most importantly, total wireless bandwidth is limited. The most effective mobile application are and will continue to be hybrids of local and network resources, like RIM's e-mail solution.

Companies entering the mobile market often ask me which mobile operating systems are going to win long term. I think that's the wrong question. What we're seeing is the gradual evolution of a super-OS that includes both the network and the device.

Like software developers before the word "software" was invented, we don't have a name for this new thing, and so we have trouble talking about it. It's not just the Network or the Cloud, because those terms are usually understood not to include the software on the client computer. And it's certainly not just the local APIs on the client device.

I'm calling it the "metaplatform" because it subsumes all other platforms. No single company controls the metaplatform. Google obviously contributes a lot to it, as does Amazon Web Services, as does Microsoft. But they're only fragments of the picture. There are thousands of other contributors to the metaplatform, in areas ranging from mapping to graphics to identity.

There's still a lot of work that needs to be done on the metaplatform, especially in the mobile space. But already it's evolving faster than any single company could move it, because the work is divided across so many companies, and because there's competition driving innovation at almost every point in the architecture. Although the metaplatform isn't necessarily elegant (because it's poorly coordinated), what it lacks in beauty it more than makes up for in rate of change and versatility.

New opportunities

The metaplatform helps to solve some computing problems, but creates others. For example, a recurring problem for software in the OS era has been compatibility. Old data files, even when perfectly preserved, can become unreadable if the hardware and software that created them is no longer available. A lot of software is very dependent not just on the hardware, but on the particular version of the OS it's running on. (If you want to see that effect in action, try running a ten-year-old Windows game on a new PC. It may work, it may refuse to run at all -- or it may freeze right when you're about to defeat the boss bad guy.)

The metaplatform is helping to resolve some compatibility problems, through emulators available online. But more importantly, web apps on a PC are less vulnerable to PC-style compatibility breakdowns because PC browsers are relatively standardized, and much of the OS code the web app relies on lives on the same server as the app itself, so they are less likely to get out of sync.

But metaplatform-based software is uniquely vulnerable to a new set of problems. When a user's data is stored on a web app company's server 3,000 miles away, what happens if that company goes out of business or just decides to stop maintaining the product?

Another problem experienced by any website using plug-ins is component breakage. If you've incorporated external web services into your site, the site will break if any of those services stops working. This can happen without warning. On my own weblog, the load time for the site suddenly became ridiculously long. It took me weeks to realize that a user-tracking service I'd once signed up for had gone out of business without telling anyone. My site stopped loading while it tried helplessly to connect to a tracking site that no longer existed.

An old software application from the OS era has some hope of revival if you have a copy of the CD, because all the code that made up the app is together in one place. But an old, broken web app will be almost irretrievably dead, because huge chunks of its code will be missing.

Problems like these are just starting to emerge, but as the metaplatform grows and ages they'll become much more prominent. We don't have any systematic ways to deal with problems like these today -- which means they're a business opportunity for the next crop of software entrepreneurs.

What the metaplatform means to you

Much of the discussion in this post is pretty theoretical. But I think it has important practical implications. Here are a few specifics to think about:

If you're a computer user (and if you're reading this, you must be), keep in mind that the most interesting new software innovations are likely to come from companies that consciously work the metaplatform. If you want to be at the leading edge of software innovation, you should keep yourself open to experimenting with new web applications and plug-ins, and make sure your browser doesn't artificially cut you off from some technologies. This is especially true for mobile devices. The iPhone today gives (in my opinion) the best overall mobile browsing and app discovery experience, but you pay a price for it -- you're cut off from some web technologies (Flash, Java) and your choice of applications is limited by the Apple app police. You pay a serious price for the superior user experience of the iPhone. That price is worth paying today, but in the future I hope there will be mobile devices that are as satisfying as the iPhone but less controlled. Actually, I'm sure that will happen over time. But "over time" can sometimes mean a long time in the future. You can help the process along with what you buy and by the feedback you give to device manufacturers.

Are you working at an OS company? If so, you probably measure success by the number of devices your software controls. You need to rethink that viewpoint. The OS is going to be less and less of a technology control point in the future. It will become commodity plumbing underneath the metaplatform, limiting your ability to charge a lot of money for it. So at a minimum, you need to plan for cost control.

But you should also be asking if plumbing is the right place for your company's creativity in the long term. There will be much more profit opportunity in contributing to the metaplatform by creating APIs and developer functionality that can be used across different operating systems. OS companies have many of the assets needed to build those components of the metaplatform. A successful OS can be a great launching point for technologies that run across platforms, because you already have a big installed base that you can use to jump-start the technology's adoption.

Are you at an application company? Many successful app vendors are trying to create APIs that will enable other developers to extend their products. This is the right idea, but the implementation is often off-target. Many of the app companies I talk to are trying to make their APIs into the business equivalent of an operating system, with developers coming to them and living entirely within their private ecosystem. A warning sign is when a company uses a phrase like, "(insert company name) developer network" to describe its offering.

The wave of the future is not turning an application inward into its own little walled garden; it's opening the application outward so it can be mixed and matched with other functionality in the metaplatform. If you have the best drawing program in the industry, you should be asking how you can also become the best drawing module in the metaplatform. Get used to being a component in addition to a standalone product. You lose some identity in the process, but gain greater opportunities to grow.

And besides, if you don't do it, you'll be vulnerable to someone else doing it and taking your place.

If you're a computing student, or a computing veteran looking to create a new product, think about what role you can play in the metaplatform, and what customer problems you can solve with this new tool. There will be big market openings in both products for users and companies, and infrastructure for other developers in the ecosystem (billing, rights management, security, etc).

As in previous generations of software, the answers are not immediately obvious, and the people who figure them out first will have huge opportunities to do something impactful. Like Caminer, Goetz, Bauer, Bricklin, and Frankston, you're on an enormous beach with a trowel and bucket, and you have a chance to shape the next generation of computing.

Have fun.

====

I'd like to thank Eugene Miya of NASA Ames and Martin Goetz for helping with the research that contributed to this article. They're not responsible for any errors I made, but they definitely corrected some.

I'm sure there are folks out there who have additional information on the history I wrote about here. If you have anything to add (or correct) please post a comment.

This post also appeared on Mobile Opportunity.

Smartphones as appliances: Different phones for different usages

2009-04-24T18:04:02Z

Summary

The growth of the mobile data marketplace is one of the bright spots for business in the current recession. Mobile carriers report increasing demand for data services, and Apple and Research in Motion both reported strong earnings aided by sales of their smartphone products.

To understand better how the mobile data market is developing, Rubicon recently conducted a quick study of smartphone users in the US.

Key findings:

Smartphones are carried by about 10-11% of US adults.
RIM Blackberry is the leading smartphone in the US, with almost half of smartphone users.
Apple's iPhone is second; it's carried by about a quarter of smartphone users.
Users of different smartphones have different feature priorities. iPhone users rank browsing as the most important feature when choosing a phone. Blackberry users favor e-mail, many Palm users favor calendar, and Google G1 users put heavier emphasis on maps.
The best-selling smartphones are the ones that most strongly associate with one or two particular features. Blackberry and iPhone each have one or two standout features that more than half their users rank as extremely important. It appears that these strong identities attract more users.
Although the iPhone application store has been getting huge press coverage, the ability to add applications is only the #4 priority for iPhone users, below browsing, e-mail, and 3G capability.

What it means: Smartphones are more like appliances than computers

Although reviewers and analysts often try to determine which smartphone is "best" overall, people apparently choose them according to which functions they care about the most. In the minds of many users, smartphones are apparently more like appliances than like general-purpose computers -- users buy them for a specific task, and choose the one that is best optimized for that task.

Understanding how the mobile data market works is much more than an academic exercise. Creating a strong franchise in mobile data can have a huge impact on a company's valuation. For example, RIM has a market capitalization of about $39 billion, far ahead of Motorola at about $13 billion and surprisingly close to Nokia at $52 billion.

The best-selling smartphones today are those that are most strongly identified with a particular usage, rather than those that are seen as moderately good several things. In our survey, this appears to be a particular challenge for Windows Mobile (which did not have a distinctive user profile), Palm, and the Google G1 (whose association with mapping was fairly weak).

It will be interesting to see if the mobile industry's heavy promotion of application stores will make users start to view smartphones more like general-purpose computers. That would not necessarily be a good thing for most smartphone manufacturers, as it could lead to the sort of consolidation and commoditization seen in the PC market.

Installed base share: RIM leads the US smartphone market

Although many industry analysts produce market share figures for smartphones, most of them are based on self-reported shipment numbers provided by the manufacturers themselves. That means they show current sales rather than installed base, and are not verified independently. In contrast, this survey looked at the installed base, as reported by users themselves.

The chart below shows which models of mobile phone are used by respondents to the survey. About 80% of PC users in the survey use conventional mobile phones (called feature phones by the industry). About 15% are smartphone users, and the remaining 5% do not carry any mobile phones.

About 70% of US adults use personal computers, and few non-computer users are likely to carry smartphones. So we think it's fair to say that about 10-11% of the US adult population carries a smartphone.

RIM is the US smartphone installed base leader, with just under half the installed base. Apple iPhone is next, with about a quarter of the installed base. The remaining share is taken up by Windows Mobile, Palm, and the G1 "GPhone."

Notes:

--The installed base of Windows Mobile phones was a little bit lower than we expected, compared to reported Windows Mobile sales over the years. This could be due to several factors:

Some users may not realize that they are running Windows Mobile, since it is available through a number of different handset brands.

Some Windows Mobile users may have migrated to iPhone and/or RIM.

Some Windows Mobile users probably identified themselves as Palm users, and were captured in that slice of the market.

--We did not distinguish between Palm users running Windows Mobile and those running Palm OS. In our experience, it's hard for many users to make that distinction in a quick survey.

--We did not measure Nokia smartphone users. Nokia share in the US is quite low, and in our experience it's almost impossible for Nokia users in a quick study to distinguish whether they are running a smartphone or a feature phone, as the identity of the OS is not prominent.

Different phones attract different types of users

Most reporters and analysts cover the mobile phone market as if it's a single unified marketplace, with all mobile phones competing directly against one-another. In reality, the market appears to be is heavily segmented. Different people favor different features, and so they buy different phones. This is especially true of smartphones, because they have more variable features.

The average mobile phone user is focused on practical aspects of the device -- price, choice of carrier, and the size of the phone. The chart below shows the percent of all mobile phone users (including smartphone and feature phone users) who listed a particular feature among their top four features. So about 70% of mobile phone users said price is one of their four most important features, but only about 15% listed mobile e-mail as one of their top four.

Top features of the average mobile phone user

Percent of users listing a particular feature in their top four.

Blackberry = e-mail

The priority profile for RIM Blackberry users is very different. By far their top feature is e-mail (not surprising), and they are also much more interested than average phone users in web browsing and calendar. Blackberry users are substantially less interested in price, size of the phone, and address book management.

iPhone = browsing

Since Blackberry is the leading smartphone platform, we'll keep it in the chart, and show how other smartphones differ from it. First is the iPhone. The priorities of iPhone users are dramatically different from either typical mobile phone users or RIM users. Browsing was the iPhone users' #1 feature, followed closely by e-mail. iPhone users were much more interested than RIM users in music, maps, 3G, and the ability to add new software. Of all the smartphones, iPhone has the most diverse feature profile, although browsing and e-mail are the clear leading features.

Windows Mobile user profile is similar to Blackberry, but less distinctive

The priorities of Windows Mobile users are similar to Blackberry users, with the exception that Windows Mobile users are a bit less focused on e-mail and more interested in adding new software and using maps.

No feature of Windows Mobile was #1 for more than about 40% of users, indicating that it doesn't have a very distinct feature identity in the market.

Palm = calendar

Palm users were also somewhat similar to RIM users, with the exception that they were quite a bit more focused on calendar (it was their #1 feature), and did not rank e-mail and browsing as highly. It appears that RIM and Apple are siphoning off most of the people who care the most strongly about browsing and mail.

Calendar scored higher among Palm users than among any other platform, which probably fits with Palm's roots as a PDA company.

Like Windows Mobile, Palm didn't have any feature that was #1 to more than about 40% of users. It doesn't have as distinct an identity as Blackberry and iPhone do.

Google G1 isn't very distinctive, but maps stand out

Compared to all the other smartphones, the Google G1 "GPhone" has the least distinctive feature profile. It is cited for maps more than any other phone, but only 30% of users call that a top four feature. We were surprised that relatively few G1 users said browsing is a high priority. Given Google's role in the web ecosystem, we would have expected a lot of G1 users to be very focused on browsing. Instead, it was far below iPhone, and on a par with RIM.

Methodology

Rubicon Consulting conducted an online survey of about 3,000 PC users in the US in March 2009. The sample was provided by a national sampling service.

The margin of error for the survey is approximately plus or minus two percentage points at the 95% confidence level.

Understanding Twitter's growth and usage

2009-04-22T18:50:54Z

Summary: For most users, Twitter is a casual entertainment tool

One of the hottest recent stories in the tech industry has been the rapid rise of the messaging service Twitter. Starting from a small base of enthusiast users, the service has rapidly risen to prominence in the media, with extensive coverage of its adoption by celebrities. In the last month, Google counted about 65,000 news stories mentioning Twitter, and the web tracking service Alexa reported a remarkable 400% increase in traffic to Twitter.com in the last four months. In April 2009, Alexa reported that daily visits to twitter.com surpassed those to cnn.com:

Percent of web users visiting a site on a daily basis, November 2008-April 2009. Source: Alexa.com.

But much of the coverage has focused on describing the Twitter phenomenon rather than explaining exactly what role it plays in peoples' lives. To explore that, Rubicon recently surveyed 3,000 US adult computer users on their awareness and usage of Twitter. The results showed:

The number of Twitter users has indeed risen very rapidly. In our research, the increase is about 280% in the last six months.

Although most computer users are now aware of Twitter, only a small percentage are using it. Awareness of Twitter has become mainstream, but at present usage has not.

Twitter isn't for everyone. About a third of the people who have ever tried Twitter have stopped using it.

Twitter usage is generally casual and focused on personal rather than business purposes. Most Twitter users call themselves light users, and say it doesn't play an important role in their lives. In other words, for most users, Twitter is a form of casual entertainment.

What it means: It's a new medium, treat it differently

Most people have never tried Twitter, so it's still far too early to judge what it will grow into. But as of today, it looks like a very promising entertainment tool. Companies looking to integrate Twitter into their communication strategies should think carefully about how the service is really used today, and what users expect from it. Treating it like e-mail or blogging would be a big mistake; it's a very different medium.

Awareness of Twitter is high, but understanding is low

About 85% of the survey respondents said they have heard of Twitter, but most of those who have heard of it said they know nothing or only a little bit about it. This is undoubtedly an effect of the recent surge in media coverage. Usage of Twitter hasn't necessarily crossed into the mainstream, but basic awareness has.

"Please choose the phrase that best describes your awareness and use of the web service Twitter."

Heavy users of Twitter are still a very small group

This is a more detailed view of the information presented in the pie chart above. Most users of Twitter describe themselves as light users. Only 0.7% of the computer-using population (10% of Twitter users) describe themselves as heavy users of Twitter. About 20% of Twitter users call themselves moderate users, and about 70% are light users:

Usage pattern of Twitter users

The survey also showed that 3% of computer users have tried Twitter and stopped using it. This sort of churn is not surprising for any technology service, but it indicates that Twitter doesn't please everyone.

Twitter accounts have risen rapidly

Percent of US PC users who use Twitter

Our survey showed 6.9% of the US computer-using population was using Twitter as of March 2009. Previously, in September of 2008, Rubicon surveyed US computer users on their usage of various community websites, including Twitter (link). At that time, about 2.4% said they had Twitter accounts. So the number of Twitter users appears to have increased by about 280% in six months.

The margin of error in both studies is about plus or minus two points at the 95% confidence level, so it's difficult to say Twitter's exact growth rate. But the surveys confirm that it's growing fast.

For most people, Twitter is a form of entertainment

When asked how important Twitter is in their lives, most users say it does not play an important role. They also describe their use of Twitter as much more personal than business-oriented. For most users, Twitter today is a form of personal entertainment.

"How important is Twitter to you in your work and personal life?"

More than half of Twitter users said it is not at all important in their work lives, and more than a third said it is not at all important in their personal lives. So the majority of Twitter users say it doesn't play a big role in their lives, and usage is skewed toward personal rather than work purposes.

This pattern doesn't necessarily say anything bad about Twitter; since so many users are new, it shouldn't be expected to play a huge rule in their lives just yet. But it does mean that the big jump in Twitter usage could be transient if the service fails to weave its way into users' lives more deeply.

In other words, it's too early to judge whether Twitter will be a fad or a sustained phenomenon.

Personal and business usage patterns are very different

The more heavily someone uses Twitter, the more likely they are to say it plays an important role in their personal life. This is not a surprise -- you are more likely to use a service frequently if it's important to you.

Importance of Twitter in their personal lives

But the pattern was very different for business usage. Even heavy Twitter users generally said it doesn't play an important role in their business lives. Twitter simply isn't a business tool for most people today, even those who use it heavily.

Importance of Twitter in their business lives

Methodology

Rubicon Consulting conducted an online survey of about 3,000 PC users in the US in March 2009. The sample was provided by a national sampling service.

The margin of error for the survey is approximately plus or minus two percentage points at the 95% confidence level.

Proposition 8 and community review sites: Everybody loses

2008-12-14T02:09:58Z

The passage of California's Proposition 8 (the gay marriage ban) has created a nasty problem for Yelp and other online reviews sites. The situation is a good example of the complexities of running a social site, and the ability of web-organized groups to distort a social ratings system. I'm not sure what the lesson is from the whole situation, but review sites are becoming more influential in business, so it's important for us all to understand how they work and how they can break down.

If you don't live in California, it may be hard to understand how polarizing the aftermath of Proposition 8 has been. The campaign was ugly, with heavy TV advertising playing on a lot of fears, and people were passionate on both sides of the debate. In the wake of the proposition's passage, there has been a fair amount of protest, and efforts by some Proposition 8 opponents to boycott businesses that supported it.

Case in point: A Los Angeles restaurant called El Coyote, whose manager contributed $100 to Proposition 8. Since the election, the restaurant has been the site of protests, and business is off substantially (link). The restaurant's Yelp site has been flooded with one-star reviews trashing the restaurant's food and service, some specifically mentioning Proposition 8 (link). A few excerpts from recent one-star reviews:

Never "loved" this place, but enjoyed it every so often, especially with a few margaritas helping the canned Mexican food go down. Then I find out the owner gave money in support of Prop 8, and that sealed the deal for me. Until they apologize and right their wrong, don't expect me to stop by."

"I've been here a few times, and this is without a doubt the worst place I know of in California. Do not go here unless you don't mind bad food, high prices, a horrible vibe, and can turn your back on risks of food poisoning and human rights and health code violations!"

"Maybe I have a weak stomach, but I couldn't stop vomiting after eating here.

Although it's impossible to tell for sure which of the reviews are fake, the averages tell an interesting story. Prior to the election, El Coyote had a rating of over three stars (fairly good for a casual restaurant). Since then, its average rating is less than two (quite bad). Here's the relevant chart:

On Citysearch, the El Coyote reviews page (link) shows a similar pattern of recent one-star reviews, many referencing Proposition 8. But those reviews don't appear to have changed the restaurant's overall rating:

As you can see, the restaurant's rating is about 4.5 stars, although the average user score is about three stars. I don't know how that works. Citysearch claims the ratings it displays are a composite of the user ratings (link), but clearly they're doing something to adjust the numbers. This seems to be true of some other restaurants as well, so it's not just a Proposition 8 thing. I couldn't find an explanation on Citysearch's site; please comment if you know the answer.

Yelp has been pushing back on the protesters by deleting some reviews that reference Proposition 8. As the company explained (link):

I'm writing to let you know about our decision to remove a few of your reviews, those only pertaining to Proposition 8....Our review guidelines... state: "Reviews aren't the place for rants about a business's employment practices, political ideologies, or other matters that don't address the core of the normal customer experience."

Those deletions have angered some Yelp users, and apparently led the Mayor of San Francisco to cancel the city's planned Yelp Day (link).

This is a complete no-win situation for Yelp. Parts of the Yelp user base are now polarized on both sides of the issue (link), and the company has lost a PR opportunity. More importantly, despite the deletions, the perceived integrity of Yelp's rating system has been compromised. Many reviews still mention Proposition 8, so the deletions look arbitrary. And the rating for El Coyote has clearly been distorted. But Yelp can't do much about it because there's no way to tell for sure which of the reviews are fake.

That raises the question -- which other online reviews have been gamed? If a company like Yelp can't filter out a publicly-declared protest, how many other reviews there and on other sites have been distorted by more subtle campaigns, either in favor of or against a particular business?

I don't honestly know. And neither do you.

This has important implications for any company involved in online ratings. If they're influential in your market, you should watch carefully to make sure a competitor isn't subtly distorting your ratings. And you should be very wary of angering organized groups that can use social sites against you. In particular, you should be aware that political contributions are part of the public record, and require that the contributor's employer be identified. Those records are easily searched on the web.

If you run a ratings site, you have a couple of choices. You can decouple your overall ratings from the user ratings, as Citysearch apparently does. But that reduces the credibility of your site -- in our survey of web users, they trusted user reviews a lot more than reviews written by editors. If you want to rely on user reviews, being transparent is probably your best defense. Yelp's ability to show ratings over time is useful, and probably needs to be featured more prominently, so users can spot strange trends. There should also probably be a way for users to flag a review page that shows unusual activity, just like Wikipedia pages can be flagged when something unusual is happening with them. And it makes sense to let users sort reviews according to the track record and credibility of reviewers.

Unfortunately, all of these measures implicitly say to a casual user that the site's reviews might be suspect, which in itself hurts the credibility of the site.

In the end, I don't think there are any easy answers. Like the situation in computer security, there's going to be a long-term arms race between rating sites and people who want to game them. The best we can do is be aware of the problem and try to make the gaming process as hard as possible.

Influencers vs. the swarm: Why both views of purchase influence are wrong

2008-12-04T02:06:19Z

Summary. There's been a heated online debate about the ways consumers are influenced to buy things and adopt new social trends. Some people say a small group of Influencers drive most consumer decisions. Others argue that ideas spread through society from random starting points, without a hierarchy. The evidence shows that both groups are wrong in important ways, especially when the web is taken into consideration. This has huge implications for how companies market online.

For years, many marketing thinkers have told us that the best way to influence consumers is to work through Influencers -- a small group of early adopters in society who try out ideas and then recommend them to all of their friends. The idea goes back several decades, to sociological studies on things like the spread of new seed types among farmers in the Midwest, and the adoption of hygiene practices among villagers in the developing world.

The researchers noticed that some people in those social settings were opinion leaders who had high social status, and whose decisions swayed others around them. If the opinion leaders adopted new practices or products, they were quickly copied by others in the society. On the other hand, some other people who tried new ideas were social misfits who had little credibility with others. When they embraced an idea or practice, it did not spread.

The researchers concluded that it's important to target the opinion leaders if you wanted to get people to try something new. Everett Rogers wrote up the idea in 1962, in the book Diffusion of Innovations. He and others popularized the bell-shaped adoption curve and the idea of Early Adopters, work that has been revisited repeatedly since then, in books including Geoffrey Moore's Crossing the Chasm (link), Malcolm Gladwell's The Tipping Point (link), and Berry & Keller's The Influentials (link).

"One American in 10 tells the other 9 how to vote, where to eat, and what to buy." --Ed Keller & Jon Berry, The Influentials

When you apply the Influencer idea to marketing, you get a very hierarchical view of the world -- spend your money courting those early adopters, and they'll carry your ideas to everyone else:

The counterattack: Welcome to the swarm

Recently the influencer idea has come under heavy attack from some prominent people online. One of the first was Duncan Watts, a researcher at Yahoo who ran a series of experimental simulations on the spread of ideas. Watts' conclusions were reported in a widely-read article in Fast Company earlier this year (link; you can read one of his papers here).

In the article, Watts said that the whole idea of "influencers" is an after the fact rationalization of an almost random adoption process. Ideas, he said, can be advocated first by anyone. If society is ready for the ideas, they will spread. If society is not ready for them, the ideas won't spread. The so-called Influencers are just people who happened to be the first to stumble onto an idea that was ripe for adoption in society.

"Whatever influence these individuals exert on the collective outcome is an accidental consequence of their randomly assigned position in the queue." --Duncan Watts, Yahoo

Watts' ideas, as portrayed by Fast Company, paint a picture of society as a swarm of randomly-interacting bits:

If you want to spread an idea, the best thing you can do is seed it broadly. Don't bother trying to identify Influencers; just seed as many people as you can, and hope that your idea will take hold and spread.

The shotgun vs. the rifle

For a marketer, the most troubling aspect of these two ideas is that they give 100% opposite advice on marketing strategies. The Influencer advocates say to focus on intense communication to early adopters, using targeted media. It's like firing a sniper rifle. The swarm advocates say to use shotgun-blast mass marketing techniques to reach as many people as you can at low cost. Each camp argues passionately that using the other's techniques is a waste of money.

We'd like to suggest a third perspective: They're both wrong.

For us, the Influencer and Swarm theories in their pure forms both fail the "sniff test" of whether they make sense in the real world. And they don't match what we've found in our own market research. Here's why:

Of course some people have more influence

Consider, please, the case of Paris Hilton, postmodern media starlet, a woman famous mostly for being famous (link). No matter what you think of Paris's taste in boyfriends (or much of anything else), you have to admit that she's a trend-setter. If she wears a certain style of dress, or drinks a certain vodka, it's extremely likely that a lot of people will imitate her. She's not just a random influence, because her effect on fashion trends is repeatable. That's why companies will gladly pay her to wear their clothing or hang out in their club.

There's no way you can convince us that Paris is not an influencer, no matter how powerful the computer simulations you run on the servers at Yahoo. That's good news for the Influencer camp.

However, there's a catch.

"There's no mystical energy field controls my destiny." --Han Solo

Classical Influencer theory says the same 10% of the population drives all consumer decisions. The influencers are supposed to be social leaders who are looked up to and imitated by everyone else in all fields. That may or may not work in a traditional village in Africa, but it breaks down into absurdity in a large media-driven society with its blizzard of different connections. Paris may well be an influencer in fashion, but she has zero influence over the market for, say, home gardening tools. In fact, if Paris endorsed a lawn aerator she would probably drive customers away from it.

In a modern, connected society, people can and do look to different thought leaders for different subjects. The world isn't a hierarchy, it's a wildly interconnected network in which an influencer for one subject is a follower for another. That makes it very hard to identify the influencers for a particular decision or market. So maybe the Swarm folks are right after all, and you should break out the shotgun.

But then factor in the Web, and the picture changes again.

Gravity and radiation: A new form of influence

The old models of influence were all built around word of mouth communication: One person individually shares an idea with someone else. Even Watts' critique of the influencer idea assumed a word-of-mouth process in which an influencer could reach up to a few dozen people. The Web has fundamentally changed that situation in two ways:

-- One person can now potentially communicate to thousands of other people, and
-- Influence is separated from conventional social status. (As the old joke puts it, on the Internet no one can tell you're a dog. Or that you're Paris Hilton.)

So let's modify the picture of society we drew earlier. Rather than being a completely scattered swarm, or a rigid hierarchy, the web lets people cluster according to their interests. One person can belong to many different clusters. They did this before the web, of course, via things like clubs and special interest magazines, but the process now is much faster, supports narrower verticals, reaches worldwide (depending on your language), and enables a lot more peer to peer communication (instead of writing a letter to the editor, who may or may not publish it a month later, you post a comment to everyone else). So online society looks a bit like this:

In that clumped-up online world, people can choose how much influence they'll put into each group. In some places you may be a listener and in others you may be a talker. Post more comments and your voice will be heard more loudly. Obviously there are still social limits on how much you can influence (if you express yourself poorly or you annoy people, they will tune you out), but the process is much more open than it was in the past, and each individual has control over how much they contribute. They don't have to go through an editor or other gateway to get their voice heard.

The people who contribute the most to a discussion start to work like lighthouses, radiating ideas to others in the community:

Those online voices have a big impact on purchases of products. When we surveyed people about their product selection process, they said online interviews and comments from real users are second only to a personal recommendation from a friend as a purchase influencer.

As Watts points out in his papers, it's risky to trust what people tell you in a survey after the fact. Maybe they say something influenced them, but it really didn't. But there's also a lot of other evidence that topical review sites like Yelp (link) and TripAdvisor (link) have a real impact on business. A study by researchers at Texas A&M detailed TripAdvisor's influence (link) and a survey by sponsored by Comscore reported that good online reviews affect both the likelihood to purchase a product, and the price people are willing to pay for it (link)

The other thing that the web changes about those lighthouses is how brightly they can shine. A member of a social club 40 years ago might have been able to influence 20 or 30 people once a month, when the club met. Someone posting comments or reviews online can reach thousands of people with a single post, and they can do it over and over again. In our surveys, the most frequent contributors to discussion sites posted about 300 times more comments and reviews than the average user. The combination of broader reach and higher frequency enormously multiplies the influence of the people who are very active online.

They're influential, but they're not Influencers

When we first looked at these numbers, in the web user research we reported on several weeks ago (link), we thought our findings confirmed the Influencer thesis. But as we looked at the numbers more deeply, we realized that in fact the most frequent contributors (MFCs) are very different from traditional Influencers. In the traditional view, Influencers are people with high social status, the pillars of the community. The Influentials describes them as middle-aged, educated, upper-middle class, married, conservative, computer-using professionals.

Golly, we've rediscovered Ward Cleaver.

Several online studies, including our own, have painted a very different picture of the MFCs. The Pew Internet folks found that they tend to be early adopters of the Internet who have graduated from reading content to creating it (link). A survey by Universal McCann characterized them as risk-taking, gregarious novelty-seekers (link). And in our own research, we found that they are:

-- Young (half are under age 22)
-- Technically sophisticated
-- 60% male
-- 40% students
-- 31% nonwhite (more than the US population as a whole)
-- 2:1 Democrats vs. Republicans

In other words, they are not the average person, and they are not traditional Influencers. They are a different type of people, with their own dynamics.

For marketers, they are a new frontier.

What to do about it

Here's how the influencing process appears to work online:

-- Many web users rely heavily on online reviews and comments by users when making purchase decisions.
-- A small subset of users write most of those online reviews and comments.
-- Therefore, those most frequent contributors have a disproportionate effect on product purchases.

If you're in marketing, what do you do about this?

The first thing you need to do is pause and think about your company's particular situation. The biggest flaw of both the swarm and influencer hypotheses is that they try to reduce a very complex influencing process to a few simple aphorisms. The real world has a lot more grays in it. The role and power of online reviews appears to vary from market to market, and in most cases the right approach for you will be a mix of traditional marketing and web activity. You need to tailor that mix to your particular situation.

Don't let the absence of a simple answer depress you -- it means companies will have an ongoing need for smart marketing people who can work the full range of marketing tools both online and offline. If the answer were simple, they could replace you with a chimp.

Here are some of the questions you should ask on order to assess the role of online reviews and the MFCs in your market:

1. What's the pattern of influence in your market? Studies consistently show that the impact of online reviews varies widely from market to market. For activities like finding hotels, buying consumer electronics, and picking restaurants, users say online reviews are very influential. For tasks like picking a doctor or choosing who to vote for, users say online reviews have much less influence. The impact of online reviews can vary even within a category. For example, TripAdvisor users said they are likely to use online reviews to pick a hotel, but not necessarily to decide which attractions to visit once they get to a destination.

Several factors seem to drive the importance of online reviews:

Is the product hard for a customer to sample in advance? If it is, online reviews become more important. So they're very important for restaurants and hotels, but less important for music (which people can sample directly by listening to the radio, online previews, or friends' music players).

Is the product an impulse buy? This is a function of both price and durability. If you buy a bad carton of orange juice, you'll just throw it out and buy a different brand. If you buy a bad stereo system, you'll have to either return it or live with your bad decision for years. Guess which purchase is more likely to be researched online.

Is there a good place to go for reviews? In categories where there are well-established review sites pointed to by search engines, online reviews are more likely to be used. To see how this operates, look up the name of a restaurant on a search engine and see how prominent that restaurant's Yelp listing is. On the other hand, in a category where there isn't a well-defined forum for reviews, customers can't find them even if they want to. This situation is true for many services categories, such as medicine and auto repair.

The influence of online reviews on product purchase:

If there isn't a good source for reviews in your product category, you might want to think about sponsoring one. A vendor-owned review site rarely has credibility with users (do not waste your time trying to set one up), but independent community sites are often hungry for sponsorship, and a budget that feels small to a company may have a huge impact on the viability of a community site. Being a sponsor doesn't let you control the content on a site, but it gives you an opening to build relationships and create good will among the MFCs who will write most of the content.

2. Are you focused on the right sort of online communication? Much of the literature about online marketing focuses on how to manage bloggers. The evidence shows that for purchase decision-making, weblogs are often very low on the totem pole. Most web users do not read weblogs frequently (if at all), and when someone is doing a web search for a purchase, weblogs typically are not ranked highly in the results. The review sites are where the recommendations happen.

The role of weblogs seems to be more about forming general ideas about companies and product categories. We haven't found a lot of good market research on this, but weblogs seem to work as demonstration gardens for ideas. An idea that looks good there can be picked up and magnified by other media. New communication tools like Twitter have sped up this idea transfer process among web power users.

So courting the weblogs may be much more useful for creating a new category, advocating an idea, or heading off bad PR, than it is for driving demand and purchase recommendations.

3. Carefully court the MFCs. Once you understand the influence structure for your market, it's time to start building relationships. Your goal isn't to directly control what happens in online communities and weblogs; that is impossible, and heavy-handed efforts at control usually drive customers away rather than attracting them. Your goal is to make yourself a member of the online community, to build up good will so that people will treat you fairly, and give you the benefit of the doubt when you make a mistake. You can't control what people say about you, but you can do a lot of influence the emotion behind those comments.

If online reviews are important in your market, start by getting to know your MFCs. Although the average MFC is young, male, and technically sophisticated, there's evidence that the MFC profile varies dramatically from category to category. For example, the Texas A&M study on TripAdvisor found that heavy users of its reviews tend to be women aged 35 to 64. The people who write reviews on Trip Advisor are a little younger and less skewed toward females, but still they are quite different from the average MFC profile across the web.

Once you know who your MFCs are, it's important to monitor what they're doing, and reach out to them when possible. The reaching out part can be tricky, because most reviewers value the credibility they get by being independent from any vendor. Review-writers tend to view themselves as volunteer community helpers who assist others and reward companies that have good products. They don't review for money, so it's not wise to try to directly pay them. But it is possible to contact them asking for advice, and to politely request a new review when they've had a bad experience with you in the past.

Some sites even allow vendors to post direct responses to negative reviews. If you do this, be very careful to stay factual and humble; you're a guest in their community, and they will judge you by both what you say and how you say it. Often it's better to just apologize than to try to discredit an angry reviewer. It's very hard for people to stay angry at someone who answers emotion with courtesy.

4. Work with the community's personality and structure. In addition to understanding the MFCs themselves, it's also important to understand the overall behavior of the community where reviews are being posted. The stronger an online community, the more likely it is to have developed its own personality and code of behavior for contributors. For example, Wikipedia has a formal, almost legalistic set of guidelines for writing and reviewing articles. Yelp doesn't have as many written rules, but its most active reviewers tend to be young and very focused on hip new restaurants and interesting clubs. In contrast, Trip Advisor reviewers tend to give high ratings to places that have good service and friendly proprietors, even if the facilities are a bit run down.

You should adapt your community outreach to the personality of a review community. For example, some restaurants try to court the Yelp community by offering party nights for Yelp members. That has a chance of working because Yelp's MFCs are young and socially active. But the same tactic would be unlikely to work on TripAdvisor, which has less of a social aspect, and whose members are much less concentrated in any particular region. Special offers for community members, and sponsoring the sites, can be ways to show that you care without giving people the feeling that you're trying to control the online discussion.

What not to do with MFCs: Product design. MFCs are not normal users. The demographics and behavior of people who write a lot of reviews and comments are often radically different from the people who read and rely on those reviews. So although it's important to take good care of the MFCs, designing products with them in mind is very risky, because they are not a good proxy for the typical customer. You may get great reviews and a quick burst of sales, but if the users aren't satisfied your sales will eventually drop off. We've seen this happen frequently with technology products; a high tech device that pleases the average online reviewer is often too complex and expensive for the average user. When designing a product, it's much better to use traditional market research methods to get the reactions of average users, rather than just asking for feedback online.

This also means it's important to explain to online communities exactly who you're targeting with a new product or service. If you tell them it's designed for a user who's different from them, they'll usually take that into account in their reviews. This is one more reason why it's important to have a good ongoing dialog with the community sites in your category.

We've done a lot of additional thinking about online community and what it means to companies. Please drop us a note or give us a call if you'd like to discuss the subject. And we welcome your comments below.

Online Communities and Their Impact on Business: Ignore at Your Peril (Introduction)

2008-10-23T22:20:44Z

--Many companies are still learning about online community and don't know what to do or what to expect.

--Some companies have already tried some online community activity, but were disappointed -- often because they attracted only a few enthusiasts rather than the masses of end users they expected.

--And of course some companies run successful web communities, either as a sideline or as their core business. They're very hungry for information on how other communities operate, and insights on what they could do better.

To help deal with all of those questions, we just conducted a very elaborate study of online community in the US. We surveyed more than 3,000 US web users on their overall Internet usage, and then dived deep on their use of online communities and what impact those communities have on their lives.

Here are some of the key things we learned:

--Small groups of enthusiasts dominate most online conversations, but that doesn't mean online communities matter only to a narrow segment of people. Most web users read community content rather than contributing to it, and are strongly influenced by the things they see there, especially product reviews and recommendations. Those reviews are now second only to word of mouth as a purchase influencer for web users.

--Because most web users are voyeurs more than contributors, you should think of an online discussion as theatre -- it's a performance in which the community leader(s) interact with a small group of contributors for the education and amusement of the rest of us. All the web's a stage, but we're not all players in it.

--This means companies that turn away from web communities because they're populated by only enthusiasts are missing the point. You've mistaken your fellow actors for the audience. Take care of the active participants in a community and the audience will watch and learn.

--If you needed more incentive to work with the Internet, it turns out that the web has also become the number two source of product support information for web users. After checking the manual, web users are more likely to check your website for information or search the web than they are to take traditional steps like calling you or asking a dealer.

--There are an enormous number of tidbits in the study regarding web use. A few items that stood out to me include:

About a quarter of web users say they have dated someone they first met online.

Although Twitter and SecondLife get a lot of press, their audiences are very narrow when you compare them to major social sites like MySpace, Facebook, and LinkedIn.

Yahoo is the second most valued website in the minds of US web users, after Google. It's ahead of major web properties like YouTube and Wikipedia.

The major social networks are much more satisfying and useful to teens than they are to adults. In fact, satisfaction with the social sites peaks at age 14 and declines steadily with age.

Democrats are more active online than Republicans, and say the web has a greater influence on their behavior, including voting.

Young people dominate online conversations, with people 22 and under producing about half of all user-generated content and comments. So if you sometimes feel like you're dealing with kids online, it may be because you are.

A full report on the findings is available in PDF format here (link). But we know many people don't like to read PDFs online, and besides you can't easily comment on them or link to sections in them. So we're also posting the report online, cut into several sections for easy reading.

Part One summarizes the report, and gives detailed information on the use of community online, and what that means for business (link).

Part Two discusses the leading web destinations in the US, measured in several ways, and discusses the role of community in them (link).

Part Three talks about the role of community sites in the social lives of Americans (link).

To go on to Part One, click here.

Online Communities and Their Impact on Business. Part Three: Web Community and Social Life

2008-10-23T21:45:56Z

In our strategy work with tech companies, we're frequently asked about web communities -- how they operate, what they can and can't do, and how a company should look to work with them. To help answer those questions, we surveyed more than 3,000 US web users on their overall Internet usage, and then dived deep on their use of online communities and what impact those communities have on their lives. This report summarizes the findings and implications to companies.

Part One (link) discussed how online communities work. Part Two (link) discussed the leading web destinations and online communities. Part Three, which you're reading now, concludes the report. It talks about the role of online communities in the social lives of Americans.

Social sites have a much bigger impact on young people

The web has taken on an important role in social lives of web users. The study explored membership in social sites, how they're used, and what effect they have on people.

Membership in social sites: Facebook, MySpace... and Classmates.com

The survey gave a list of the leading social community sites in the US (as determined by Alexa), supplemented by a few sites that have received extensive press coverage. Respondents were asked which of the sites, if any, they have a personal profile on. Facebook and MySpace were almost tied, followed by a very strong showing for Classmates.com, a site that gets much less press coverage than Facebook or MySpace. In fourth place was LinkedIn, followed by a long tail of various social, dating, and communication sites.

Two social-related sites that have received enormous press coverage, Twitter and SecondLife, have relatively small user bases. That doesn't mean they are unimportant, but they're currently serving niches rather than broad audiences.

About 30% of web users said they have no personal profile on any site.

Percent of web users having a personal profile on a given site

Although Twitter and SecondLife have both received copious amounts of press coverage, their actual user bases are still very small compared to the major social sites. This isn't necessarily an indictment of their businesses, it just means they serve niches today.

Membership in the leading sites varied dramatically by age. MySpace and Facebook were dominant among young people, while LinkedIn and Classmates were made up mostly of adults:

Community membership by age

Membership in dating sites is also skewed toward adults, with most users being between age 22 and 50:

Dating site membership by age

Satisfaction with social sites

We asked people who use social sites a series of questions about their satisfaction and usage patterns on the sites. The results pointed out some potential problems with the sites, and assuaged some fears:

Reactions of social site members

Most social site members tend to ignore invitations to join new social sites. This explains why the first social sites to get established in a market tend to remain dominant. The barriers to entry for a new social site have been raised substantially.
Some people report making new friends through the social sites, but more than half say they haven't.
A majority of social site users are satisfied, but the overall satisfaction level is good rather than great.
Some people reported that the sites play an important role in their social lives, but a majority said they don't.
Most members said it's not a big hassle for them to maintain their online profiles. This explains the lukewarm response many web users have shown to products designed to help them consolidate management of their profiles; to most people, it's just not an issue.
Although most people ignore invitations to join new sites, most do not say they belong to too many sites.
Few people said social sites play an important role in their business lives. We think this may be an opportunity for a new type of social site focused on business.
Very few people said they had been harassed or stalked through a social site, which may be reassuring to some parents.

Adults are much less satisfied with social sites

Social sites work better and are much more satisfying to younger people. We don't know if this means social sites work better for people with a student lifestyle, or if the younger generation just knows how to use them better. But the differences are striking -- social site users are most satisfied at 13-14 years of age, and satisfaction drops steadily after that. Older adults are also less likely to make friends through the sites, and most say the sites do not play an important role in their social lives.

Percent agreeing strongly with statement, by age band

How people manage their online relationships

Young people are much more profligate with connections

There are also big differences by age in the way people manage their social connections online. Older people expect to know someone much more thoroughly before they will approve them as a connection. More than 50% of users under 18 will approve a connection to anyone they have ever heard of, whereas less than 20% of people over age 50 will do that.

How web users usually handle an invitation to connect on a social site, by age

This means older people view online connections as a reflection of relationships they have already formed elsewhere, while young people view online connections as the start of a relationship. To older people, the friends list is an outcome. To younger people, the friends list is a beginning.

There's less deception than we expected in online profiles...

We thought we might find a lot of instances in which people have created multiple or false identities on social websites, especially among young people who are the most active social site users. But only 12% of users say they have created multiple profiles on a single site, and the rate is fairly steady across age groups.

Among the people who did create multiple profiles, the main motivations were just to have fun, to separate different groups of friends, and to protect their own privacy.

..but many people fake personal information they give to companies online

We also asked web users if they ever give false personal information when registering to use a site or download something. 27% of web users say they have given false personal information, and the rate varies a lot by age. More than half of web users under age 18 say they have faked personal information, compared to only 9% of users over age 50.

Percent of web users who have falsified personal info, by age

The reasons for falsifying information vary by age. Young people tend to do it to avoid site restrictions and age limits; older people do it to protect their privacy and avoid being contacted.

Among people who falsified information, reasons given

The personal information that's most likely to get falsified is (in order): Phone number, mailing address, name, and e-mail address. Users are much less likely to falsify non-contact information such as sex and race.

This means companies that collect contact information online should expect to get a fairly high rate of false information -- especially if they are dealing with younger web users.

The web's impact on personal lives

More than a quarter of web users have dated someone they met online

Given the relatively low usage rate for online dating sites, we were surprised when 24% of web users said they have dated someone they first met online. The rate is highest for people age 22-30:

Percent of web users who have dated someone they first met online

Presumably most of those dates are being arranged outside of dating sites, since the usage rate for dating sites was a lot lower than these figures.

More than a quarter of teens have embarrassing information online

With the rising use of social and video sharing sites, there are plenty of anecdotes in the press about people who get in trouble over something they have posted online. We wanted to see how widespread that problem could be. Eleven percent of web users said there is information about them online that could embarrass them. The rate was much higher among teenagers, ranging between a quarter and a third of users:

Is there information about you online that would embarrass you if it was seen by...

Some of the higher rate for teens may be because they actually do have more embarrassing information online, and some may be because they are more easily embarrassed than older adults. As for who they don't want to see the embarrassing information, the young people cited parents, other relatives, and teachers. Once they reach working age, bosses replace teachers on the list.

The main message of this finding, though, is that even among teens, most people do not have any embarrassing information about themselves online.

The web plays a bigger role for Democrats

Most surveys in the US show that young people today are more likely to identify themselves as Democrats than Republicans. This has a significant effect on the online world. Because young people are more active online, Democrats are over-represented in the MFC group. Democrats are also somewhat more likely than Republicans to be heavily influenced by the online world.

For example:

13% of online Democrats visit video sharing sites like YouTube daily, compared to 7% of Republicans.

11% of online Democrats post comments at least once a day, compared to 7% of Republicans.

27% of online Democrats have dated someone they met online, compared to 18% of Republicans.

14% of online Democrats say there is embarrassing information about them online, compared to 7% of Republicans.

40% of online Democrats say they have a profile on MySpace, compared to 29% of Republicans (the percentages are virtually tied for Classmates.com, though).

22% of online Democrats say they would be strongly influenced in a voting decision by online information, compared to 17% of Republicans.

Party affinity of the MFCs, compared to all web users:

"Which political party do you feel is closest to your personal political views?"

=====

About the study

In September of 2008, Rubicon Consulting's web strategy practice surveyed 3,036 web users age 13 and up in the United States.

The survey was conducted online, using respondents sourced from a national sampling company, and should be projectable to the US web-using population, or about 75% of US residents. The margin of error is about plus or minus two points at a 95% confidence level.

Usage of web communities varies dramatically from country to country. Although the general principles outlined in this study should apply worldwide, the actual site ratings apply only in the US.

=====

About Rubicon Consulting

Rubicon Consulting is a strategy and marketing consultancy designed specifically for the needs of tech companies, from today’s global giants to tomorrow’s. Rubicon’s proprietary methodology continuously delivers significant material results to clients, driving revenue growth, market share, and profits. Rubicon clients include Adobe, Hewlett-Packard, Logitech, Nokia, Symantec, Autodesk, and numerous small web and software startups.

Rubicon’s insight has helped its clients thrive through the rise and fall of numerous paradigms, from the PC era to the graphical OS wars, e-commerce, Web 1.0, Web 2.0, and the rise of mobility. The firm combines the intellectual rigor and wisdom expected from a giant consulting firm with the savvy and hands-on focus of veterans from some of Silicon Valley’s best companies.

The company's website is: www.rubiconconsulting.com

For more information on this report, contact:

Harry Max
harry at rubiconconsulting dot com

Michael Mace
mike at rubiconconsulting dot com

Harry Max, Principal, is a seasoned Web strategist and cofounder of two web companies who combines broad high-tech business experience with an unusual set of strengths. His working knowledge spans UI, customer engagement models, systems design and strategic problem solving, and includes recent work in leadership coaching. Max helps clients get to the heart of their problem and identify solutions that work. He is co-author of two books: Skype: The Definitive Guide and Art-directed Technology: Anatomy of a Shrek 2 Sequence.

Michael Mace, Principal, is a 20-year veteran of some of the tech industrys toughest battles, and is a seasoned strategist for product management, mobile, and web. Mace was Vice-President of Strategic Marketing at PalmSource, where he helped handset companies and wireless carriers plan new smartphone products and wireless services. Before that, he was Chief Competitive Officer and Vice-President of Product Planning at Palm, Inc. Mace spent almost 10 years at Apple in a variety of leadership roles. A well-known industry spokesman, Mace publishes, speaks and has appeared in the Wall Street Journal, CNN, Computerworld, and many technology trade publications.

We welcome your questions and comments. Please contact us at the addresses above, or feel free to post a comment here.

Online Communities and Their Impact on Business. Part Two: Leading Web Destinations and Community

2008-10-23T21:07:40Z

Part One (link) discussed how online communities work. This part continues with a discussion of the leading web destinations and online communities.

Community sites are among the top online destinations, no matter how you measure it

Although many people think of online community as an emerging trend, community sites are already some of the most popular and influential destinations on the web. To explore that, the survey looked at site usage rates.

Website popularity: Search is #1, but what comes next?

There is no single best way to measure the popularity of websites. Is a popular site the one with the most visitors every day, or the one that the largest number of people eventually visit, even if they come only once a month? The answer is that it depends on what the site is trying to accomplish.

In the survey, we looked at the popularity of websites in three ways:

Which types of sites have the most intense usage -- the largest number of daily visitors?

Which types of sites have the broadest usage -- they don't necessarily have a lot of daily usage, but are eventually visited by most of the population?

Which specific sites create the most loyalty -- large numbers of people say they would pay a monthly fee to access the site?

In all three approaches, search websites ranked #1. But the rankings below #1 varied a lot.

Sites with the most intense usage

Measured by percent of web users visiting them daily, the top five categories of web site are:

Top five most visited web categories

The high rating for social networking sites was driven by very heavy usage among young people. For example, 65% of 19-21year olds visit social sites every day. In contrast, news, sports, and online banking were all more popular among older users:

Percent of web users in each age band visiting a website daily.

The popularity of sports news websites was driven mostly by men. 22% of men in the survey said they visit sports news sites daily, compared to 4% of women.

At the end of this section you'll find a full list of the site categories tested and their usage rates.

Sites with the broadest usage

Some websites don't necessarily generate a lot of daily usage, but are the place to go for certain types of information or services that many people need from time to time. Those sites are best identified by the percent of web users who ever visit them. By that measure, the top five categories of site were:

Top five web categories with the broadest audiences

Other categories with very broad user bases included medical information and auction sites.

Niche sites. Some prominent categories of website have attracted relatively small groups of intense users but haven't attracted a broad audience. Among the site categories we asked about, the ones with the narrowest user bases were:

Five web categories with narrow audiences

In other words, despite all the publicity about them, dating websites have never been visited by 80% of web users, and virtual reality sites like SecondLife have never been visited by 77% of web users. They may or may not be very successful financially, but they are serving a niche.

The one exception to the niche categorization may be pornography sites. For men they are a major category, with 56% of men visiting at least occasionally. But for women they are a narrow niche, with only 15% of women ever visiting. (Or at least those are the percentages of people who will admit to visiting.)

The most valued sites: YouTube, Wikipedia, and Facebook stand out

We gave users a list of the most-visited general-use and community websites (as reported by Alexa), plus selected sites that have been covered heavily in the tech press recently. We asked which sites, if any, the users would be willing to pay $2 per month to access. Note that this question really measures loyalty. It doesn't measure the actual monetary value of the sites, and we're not advocating that any of these sites should start charging a fee to visit.

Google was, as expected, the most valued site. Without search, it's hard to use the web in general. Yahoo came in second. We think that's not due just to Yahoo search, but also to the many other features of Yahoo's site. Six of the top ten websites are community sites.

The top ten sites are:

Ten most valued websites

Once again, young people had a strong influence on these rankings. They were much more willing than older users to pay for the social sites and YouTube. Older users were more willing to pay for eBay and MapQuest.

Young people value websites more

Young people were generally willing to pay for access to a larger number of web sites. The average 13-14 year old was willing to pay for access to 4.3 sites, while the average 31-40 year old was willing to pay for 1.9. We don't know if that's because younger people value the web more, or because they would expect their parents to do the actual paying:

Number of sites an average user would be willing to pay for, by age

The full list of website valuations is at the end of this post.

Comparing the ratings by age gives some other interesting insights:

Communities: Facebook more valued than MySpace

Percent of each age group willing to pay $2 / month to visit

Comparing some popular community sites, Facebook was about as valued as YouTube, and both were rated ahead of MySpace. SecondLife had a very low valuation, while LinkedIn was one of the few community sites to get a higher value rating from older users. That's not surprising, since LinkedIn focuses on career networking for people after college.

Even among older users, though, Facebook and MySpace were both more highly valued than LinkedIn. We didn't expect that result. The difference may be that LinkedIn is generally used to maintain professional contacts, while even older Facebook and MySpace members use the sites for a broader range of social activities.

Search and portals: Google and Yahoo ahead of everyone else

Percent of each age group willing to pay $2 / month to visit

It's difficult to do direct comparisons between these sites because Yahoo, AOL, and the Microsoft sites all act as portals in addition to search engines, whereas Google is pure search. But the results confirm that Google is in the lead, and Yahoo is firmly in second place. This chart makes it pretty clear why Microsoft wants to buy Yahoo.

Reference and news sites: Wikipedia more valuable than any single news site

Percent of each age group willing to pay $2 / month to visit

Although news sites in general attract a lot of visitors, there are many different sites carrying news, and this depresses the perceived value of any one of them. By contrast, there are few substitutes for Wikipedia, so it gets a higher score in all age groups, but especially among students who use it to help with homework.

CNN.com and ESPN.com were both perceived as more valuable than NYTimes.com.

Photo sharing: Photobucket ahead of Flickr

Percent of each age group willing to pay $2 / month to visit

One interesting head to head comparison was between photo sharing sites. Flickr probably gets more publicity in the technology press, but Photobucket has a strong lead in valuation, driven by its stronger appeal to young people.

Full results for frequency of visits and valuation

Frequency and breadth of visits

Percent of web users visiting various site categories, and how often they visit

Website valuation

Percent of web users willing to pay $2 per month for access

That's the end of Part Two. Part Three concludes the report with a look at the role of online community in the social lives of Americans. Click here to read it.

Online Communities and Their Impact on Business. Part One: How online community works

2008-10-23T19:48:16Z

This is Part One of the report. To return to the Introduction, click here.

Summary

Working with online communities has long been touted as a great way for a company to save money in its marketing, support, sales, and even product development. But for most companies, the diversity of communities online, and the challenge of learning how to work with them, is daunting. Most companies don't understand how online communities work, how they make a difference, and how to engage with them.

Among the companies that have tried to work with communities online, many have found that they conversation is dominated by extreme enthusiasts rather than average users, and have concluded that online community is a distraction from their real customers.

That turns out to be a very dangerous mistake.

Rubicon Consulting's web practice team recently conducted a broad survey of US web users to understand better how people in the US use the web, with a special focus on web community and its effect on consumers. Key findings of that survey, and its implications for companies, include:

It's true, enthusiasts do dominate online conversations

Most web users are consumers of information, not creators. About 80% of the user-generated content on the web, including comments and questions, is created by less than 10% of web users, a group we refer to as the most frequent contributors (MFCs).

User reviews drive product purchases

But despite the low content creation rates, online communities have enormous influence on almost all web users. Online comments and reviews posted by the enthusiasts are second only to word of mouth as a purchase driver for all web users. Those personal reviews are far more influential than official reviews posted by a website or magazine, or information posted online by a manufacturer.

This means the old idea of "influencers" is confirmed and explained. The most frequent contributors are the influencers, and they have a strong influence on purchase decisions because they write most of the online recommendations and reviews.

Web discussion is theatre

These findings mean online community matters enormously to companies, but not in the way that most of them expect. Online discussion is a poor way to communicate with the average customer, because average customers don't participate. But it is a great way to communicate to them, because average customers watch and listen.

Most content and discussion sites should be viewed as performances, in which the site's organizers interact with a relatively small number of users in order to educate, persuade, or entertain everyone else. This means it is critical that companies understand who the MFCs are, and how to take care of them, because they are the companies' fellow actors in the online performance.

MFCs are different from the average web user. They're more ethnically diverse; more technically skilled; more likely to be single; more likely to work in technology, entertainment, or communication companies; and more likely to be Democrats. But most of all, they are younger than typical web users. Half of the web's most frequent contributors are under age 22.

Other insights: Leading websites, and the web's impact on social lives

The survey also explored general use of web community, and its impact on users' lives. Some of the most interesting insights include:

Search is the leading web category, but what comes after that?

It depends on how you ask the question. If you look at sites generating the most daily traffic, the most intensely used site categories after search are:

Social networking (such as Facebook and MySpace),

General news sites (such as CNN.com and NYTimes.com), and

Online banking.

If you look at breadth of visitors (in other words, which sites are eventually visited by the largest percent of web users), the leaders after search are:

Mapping (MapQuest and others),

Retail (Amazon.com and others), and

Reference (including Wikipedia).

Either way, community sites are in the top four web destinations.

Yahoo is the second most valued website. A good way to measure the value of a website is to ask users if they would pay a monthly fee to get access to it. By this measure, Google is the site web users value most, as expected. But Yahoo stood out as the clear number two. It was followed by three leading community-driven sites: YouTube, Wikipedia, and Facebook. The press coverage of Yahoo's financial challenges sometimes obscures the size and loyalty of its user base.

Site valuation differs a lot by age. Among web users over 30, Google and Yahoo are still the top two, but they are followed by eBay and MapQuest.

Other key findings about site usage:

Facebook appears to be ahead of MySpace in terms of number of people who have profiles, and the value people assign to the site.

ESPN.com and CNN.com are both more valued than NYTimes.com, but all three are eclipsed by community-based Wikipedia.

The web has a big impact on social lives, but mostly for young people

Who's #3 in social sites? Most people know that Facebook and MySpace are the leading social networking sites in the US, but the strong #3 in registrations is Classmates.com, followed distantly by LinkedIn. Those two sites have many more adult users than teens.

Twitter and SecondLife serve niches. Although both Twitter and SecondLife have received enormous amounts of press coverage, and are used intensely by some people, they are dwarfed in membership by the major social sites such as Facebook, MySpace, and even LinkedIn.

Social sites are much more satisfying to teens than adults. Although many adults have joined MySpace and Facebook, those sites are much less effective and satisfying for users over 21. Adults say they make fewer friends through social sites, and say the sites play a less important role in their social lives.

Adults and teens use their social networks differently. Most adults will approve someone as a friend on a social site only if they already know them. Many teens will approve someone as a friend as long as they have even a vague idea of who they are. This means the two groups use the friends list in different ways. To adults, the friends list confirms relationships that they already have elsewhere. To teens, the friends list is an entry point for a relationship.

Despite differences over the social sites, the web as a whole has a significant impact on the social lives of many users. For example, about 24% of web users say they have dated someone they first met online. In the 22-30 age group, that percentage rises to 37%. Many of those meetings are happening outside of dating websites, as only 9% of web users said they visit dating websites at least once a month.

Web activity is more important to Democrats than Republicans. Web users who identify with the Democratic Party were more active on community websites and said they were more likely to be influenced in their voting decisions by online information. In part this may be due to age -- young people in the survey were much more active online, and were also more likely to identify with the Democratic Party.

Online communities are not created equal

Although many observers speak of web community as if it's a single thing, in reality different types of web community have very different dynamics and user bases. Approaches that work well in one type of community may fail utterly in another. That means companies looking to found community sites, or partner with them, need to understand what kind of community they are engaging with.

Based on the research on this report and our other experience in the industry, Rubicon has developed a taxonomy of web communities that classifies them into five broad categories:

Proximity, where users share a geographic location (Craigslist is an example);
Purpose, where they share a common task (eBay, Wikipedia);
Passion, where they share a common interest (YouTube, Dogster);
Practice, where they share a common career or field of business (many online professional groups fall in this category); and
Providence, where they discover connections with others (Facebook).

More information to come

This report is the first in a series on the status of the web and use of online community. The dynamics and requirements of the different forms of community will be covered in much more detail in upcoming publications. For more information on Rubicon's web strategy practice, and the other information and presentations in the series, please see the contact details at the end of this report.

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Web communities: 10% contributors, 70% voyeurs

The common perception of web communities is that they allow groups of people to share ideas and information, and that they allow companies to communicate directly with their customers. This is factually true, but also misleading. The vast majority of online conversation is driven by a small group of web users -- less than ten percent of them. The rest of the web community sits back and watches the interactions as a mostly-passive audience that only occasionally injects a few comments.

Community experts have been aware of this phenomenon for years, calling it "participation inequality." Jakob Nielsen wrote an influential article on the subject in 2006, describing the "90-9-1 rule" (link). It states:

"90% of users are lurkers (i.e., read or observe, but don't contribute).
"9% of users contribute from time to time, but other priorities dominate their time.
"1% of users participate a lot and account for most contributions: it can seem as if they don't have lives because they often post just minutes after whatever event they're commenting on occurs."

The 90-9-1 phenomenon means that an online community generally doesn't represent the opinions and interests of the average customer; instead, it tends to reflect the views of extreme enthusiasts. This is a source of intense dismay to many online community advocates, and a huge amount of effort has gone into trying to reduce the rate of inequality. Software strategist Dennis Howlett (link) recently summarized the outcome (link):

"You can add all the social software you want but getting more than a small number to actively participate and use is a devil's own job. I've got the scars to prove it from projects I've been running the last two years. There are precious few signs that Nielsen's 1:9:90 participation inequality law is in any danger of being proven wrong. The people I meet squirm at the notion of 'social anything.'"

Rubicon's survey confirm the idea behind the "1-9-90" rule, but not its specific details. The 1-9-90 rule says that 90% of web users are completely silent lurkers. In our research, a majority of web users said they sometimes contribute something, even if it's just an occasional comment. The truly silent lurkers are only 9% of the web population. So the ratio we found is more like 10-70-20. But the vast majority of content still comes from a small percentage of the population:

How web users participate in online community. About 80% of content is produced by 9% of users, the Most Frequent Contributors. About 65% of web users are passive readers who contribute content only occasionally. They account for only about 20% of content, depending on the medium. Another 9% of web users are pure lurkers, never contributing any content. And about 17% are community abstainers; they believe they never visit any community-related site on the web. (Think of AOL users who use the Internet only to read e-mail.)

Another interesting finding in our research is that the rate of participation varies according to the type of content. Some people are contributors in one type of content but lurkers in another:

Rates of participation, by content type

About 70% of web users have shared at least one photo online, but less than 5% do it daily. By contrast, only about 30% have ever had a weblog.

These differing rates of participation are similar to what Forrester Research has found in its surveys of US consumers, as documented in the book Groundswell by Charlene Li and Josh Bernoff. Forrester reports that rates of participation in community sites have been rising over time, which may explain why our findings don't match the research reported by Nielsen (link).

But even with rising participation rates, the activities of the most frequent contributors drive online content. To understand why, think through the cumulative effect of someone who posts frequently. Someone posting a comment once a day will produce seven times more comments than someone posting once a week, and 30 times more comments than someone posting once a month. The most active participants end up dominating online conversations. The chart below shows roughly what percent of total content is contributed by people in each frequency category:

Percent of total activity created by each contribution group

The people who post daily produce most of the activity, and everyone posting less than several times a week is almost completely drowned out.

Netting it all out, about 10% of web users generate the vast majority of all user-created content. The rest of us are more or less voyeurs. Here's what the top 10% contribute, according to the study:

Percent of total activity created by top 10% of web users

Websites that host communities see this phenomenon in their own usage statistics. Exact participation rates vary from site to site, but the concentration of frequent contributors is almost universal across both enterprise and consumer web conversations. For example:

SAP's Community Network is a leading enterprise-oriented discussion site, with over one million registered members and more than 700,000 unique visitors a month. About 100,000 members have ever contributed any content, and just 4,600 members are classified by the company as highly active contributors.

Cruiser Customizing is a consumer review and discussion website dedicated to motorcycle enthusiasts. It has 180,000 registered members, but 10% of them contribute 83% of the content.

Online community managers sometimes worry that they need to increase the rate of participation, but in fact the 10/80 ratio or something like it seems to be a natural outcome of the way people interact with the web, at least at this point in the web's development.

User comments online drive purchase decisions

The web, and web communities in particular, has a big impact on the behavior of consumers in the US. But that impact is not uniform. In some parts of our lives the web is very influential, while in other areas it has only a small role. The survey attempted to map out where the web is having the most impact. Our most important finding was about the role of the web in product purchasing.

Online reviews are second to word of mouth in influencing purchase decisions

Word of mouth (personal advice from a friend) is still the #1 driver of purchase decisions. Among web users (who are about 75% of the US population), content on the web has moved into second place, ahead of printed reviews and advice from salespeople. But not all web content is created equal. Reviews and comments posted by actual users are more influential than third-party reviews or information posted by manufacturers:

Influence of various sources of information on purchasing

There really are "influencers," and they really do matter

In the last year there has been a debate in marketing circles about the existence and significance of "influencers," a small group of people who drive purchases by others. The Rubicon survey documented how the influencer process actually works: The MFCs write most of the online reviews and comments, and other web users rely heavily on those comments when making purchasing decisions. Online comments are the new word of mouth, and MFCs do the most commenting.

Web influence varies by product or service category

The influence of the web varies tremendously, according to what category of product or service the consumer is looking for. Decisions on consumer products, vacations, and movies are all heavily influenced by online information. On the other hand, many services decisions -- such as choosing a doctor, an auto mechanic, or a politician to vote for -- are influenced much more weakly by online information.

Percent of web users who say they are heavily influenced by online information when making a decision on various products and services

The differences in web influence may be because people don't feel comfortable using web information for some decisions, or because there isn't yet an established online source for information in that category.

Given the attention that both political parties have put on online campaigning in 2008, it is interesting that most web users say online information is not a heavy influence on their voting decisions.

Young people more influenced by online information

In general, younger people were more likely to be influenced by online information. For movies in particular, more than 60% of young people said they were strongly influenced by online information, compared to less than 40% of web users over 40.

Percent of each age group strongly influenced by online information

Use of the web for product support varies by age

Once web users choose a product, the web also plays a big role in helping them use it. When web users have technical problems with a product, their most common response is to check the manual. After that, though, the web takes on a prominent role. It is neck and neck with asking a friend, and ahead of calling the manufacturer or asking a dealer. There are also some interesting differences by age. Older users are more likely to look on a manufacturer's website for information, while younger ones are more likely to go straight to a search engine:

Web users' most common responses to a technical problem

Companies looking to reduce their support costs should be aware that many web users will look online before making a call. If the companies ensure that good support information is available online, and that it's well indexedby search engines, they can head off many technical support calls and probably increase customer satisfaction as well. It's also a very good idea to make sure the manual is well written.

What it means to companies: Online discussion is theatre

Combine the information on how MFCs drive online community content, with the influence of that content on purchases, and you reach a very important conclusion:

Web discussion is a performance in which a small group of people interact with each other, and with companies, for the benefit, education, and amusement of everyone else.

This has huge implications to companies running, and looking to interact with, online communities. Even though you can't get most of your customers to interact with you online, they watch what you do with the MFCs, and they judge you based on it. Far from being an irrelevant bunch of fanatics, the MFCs are proxies for, and advisers to, your entire customer base.

Know your fellow actors. The MFCs are your fellow performers in the theatre of online community. They need to be cared for and catered to carefully, but without making the passive audience members feel unwelcome or discriminated against.

Who are the Most Frequent Contributors?

We classified as MFCs the people who post at least one type of content (a comment or a video or a review, etc) more than once a day. The people who do that are 9% of the total web-using population in the survey, and they are not typical web users.

First, and most important, the MFCs are a lot younger than the average web user:

Percent of each age group who are MFCs, compared to all web users in the survey

Half of all MFCs are age 21 or younger. Some 22% of young people fit into the MFC category, whereas only 5% of people over 22 do. If it sometimes feels like people online behave like children, that may be because many of the noisy ones are.

The MFCs are more sophisticated technically than other web users:

Self-reported technical sophistication of MFCs, compared to all users in survey

The MFCs are also more ethnically diverse than average web users:

Race or ethnic identity of MFCs compared to all web users in survey

The MFCs much more aggressive users of social, file sharing, and discussion-related websites. In contrast, their usage of general news, sports, and online banking is little different from the average web user:

Percent of each group who visit a site category every day

Some other notable characteristics of the MFCs:

Because they're young, they are more likely to be single than other web users.

61% of them are male.

40% of them are students. Again, that is no surprise given the age profile.

Among those with jobs, the MFCs are more likely than other web users to work in the technology, arts, entertainment, and communications industries.

They are more likely than other web users to be Democrats. This appears to be tied to age.

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Different types of community require very different strategies

The survey showed that different types of online communities have very different user bases and rates of usage. Although many observers speak of web community as if it's a single thing, in reality there is incredible diversity between communities. Approaches that work well in one type of community may fail utterly in another. That means companies looking to found community sites, or partner with them, need to understand what kind of community they are engaging with.

Every community is unique, but they can be grouped into five broad categories, based on the motivations of the people who participate in them. The five major types of communities are:

Proximity, where users share a geographic location (Craigslist is an example);

Purpose, where they share a common task (eBay, Wikipedia);

Passion, where they share a common interest (YouTube, Dogster);

Practice, where they share a common career or field of business (many online professional groups fall in this category); and

Providence, where they discover connections with others (Facebook).

Many communities cross boundaries. For example, MySpace is a community of providence. But many MySpace users are very focused on music, making it a community of passion as well.

Communities of providence have the largest and youngest audience today

More than 25% of web users visit communities of providence daily. This is not at all surprising, given the popularity of Facebook and MySpace.

Percent of web users visiting the various community sites daily

Looking at community members by age, practice has the oldest users, peaking in the 31-40 age band. That makes sense, since communities of practice are often driven by shared professions, and you have to be established in your career before you need them. Communities of providence had the youngest users, driven by the social communities.

Percent of each age band who are daily visitors to the various community types

Users of the different communities value websites differently

The providence users valued Facebook and MySpace highly, as would be expected. Passion users had a special affection for YouTube, while proximity users showed huge enthusiasm about Craigslist. Purpose users favored eBay, and practice users gave an especially low value to MySpace and Facebook while giving a good value to CNN.

Percent of daily community visitors willing to pay $2 a month for access to selected websites

Proximity users are more likely to create multiple profiles

For reasons we don't understand, heavy users of proximity communities were a lot more likely to create multiple identifies online.

Percent of daily community visitors who create multiple identities

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Implications for companies

Know how the web plays in your industry. For companies, the single most important implication of this survey is that you have to understand the role of the web in your particular industry. How much do customers in your industry rely on web information? If the rate is low, that probably means the right online marketplace hasn't yet been created for your industry (most of the categories where people reported low web influences were ones in which it's currently hard to gather online information comparing offerings).

This may be an opportunity for you -- the company that creates the best marketplace in a category usually gets the lead. Just ask Amazon.com.

Take care of the MFCs. Even if the web's influence in your industry is relatively low, you'll still have a lot of customers making decisions based on the user comments they see online. Most of those comments will be generated by a small percentage of users, who you can identify and court. Since the people posting comments online are also the most enthusiastic web users, you can use your website to reach out to them and make sure their needs are met.

When we say web communities are theatre, we mean that literally -- you need to partner with the performers (the MFCs) and make sure the show looks good. The difference from theatre is that you can't pay the actors; you have to win them over through love, enthusiasm, and fairness.

Know what type of community you're dealing with. Most companies are dealing with online communities in one or more ways. Some have communities of users online, others are trying to market through online communities. And some are trying to build communities of their own. In all cases, you need to understand what type of community you're dealing with. A community of passion works very differently from a community of practice; if you treat one like the other, you may actually alienate people.

Rubicon has created a training that gives much more detail on the types of community and educates companies in how to deal with them. To learn more, please contact us using the contact information on the last page of this document.

If you're creating an online community

You need to know all of the above, plus you must understand the type of user traffic you're looking to generate.

There are three categories of very successful sites:

Sites that get a lot of daily use from large numbers of people (search and social sites are good examples)

Sites that get occasional use from large numbers of people (reference, shopping, etc)

Sites that get intense usage from small numbers of people but are ignored by everyone else.

You have to know which category your site is in, and optimize the community design for that.

That's the end of Part One. Part Two looks at the leading web destinations and communities in the US. Click here to read it.

How not to win points with bloggers

2008-08-22T18:27:06Z

As someone who writes a weblog that gets thousands of visitors a week, I receive an e-mail like this every few days (the names have been deleted out of politeness):

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From: [deleted]
Sent: Friday, August 22, 2008 7:56 AM
Subject: Mobile Opportunity Blog - Blogroll

Hi Michael,

I hope you're doing well.

I've been following your writing about the mobile/wireless space and wanted to introduce you to [weblog title] blog on [URL]. [name] is the CEO of [company name] -- like you, [CEO's first name] is blogging on major issues and news in the wireless space.

We're big fans of the Mobile Opportunity Blog, and we're hoping to be added to your blog roll (which, of course, we'd want to reciprocate).

For your background, [company name] is a [description of company]. Feel free to visit the site at [company URL] to learn more about the company!

Let me know your thoughts, and please don't hesitate to contact me with any questions or comments.

All the best,

[name deleted]
[external PR firm name deleted]

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The letter gets points for politeness, and if you're not a blogger it probably looks like a very reasonable request. But viewed through the eyes of a blog author, there are several problems.

First, the letter is from an external PR agency, not from the author of the blog. Writing a weblog is a very personal activity for most people, and they expect contact to be author to author. If the CEO really does like my weblog, why didn't he send me a note himself? Because he's too busy, obviously. Which means I'm not really important to him, and he's not really committed to blogging. He's just trying to get some PR for his company.

That's confirmed by a quick visit to the CEO's weblog. The biggest red flag is that the CEO did one "welcome" post in January of 2008 and didn't post again until July. The implication is that someone set up the blog for him, but he didn't make a commitment to posting to it. There have been several posts since July, but you have to wonder whether the CEO wrote them, or the PR firm did it for him.

Either way, the pattern of posts shows a lack of passion. Good blogs are driven by passion: The author has a point of view and can't restrain him- or herself from writing about it. An active blog author can spot lack of passion in somebody else a mile away.

The next problem is the topic of the posts. The CEO has posted only articles that relate directly to his business, and they are all relentlessly positive on the prospects for his company. The CEO isn't engaging in a conversation about the industry, he's trying to spin things and score PR points. Again it seems less than genuine.

So add it all up:
--The contact comes from a PR firm, not the blog author
--The blog author doesn't post consistently
--The posts don't feel like a genuine conversation

Why in the world would anyone want to link to his weblog? By linking to a site, you're endorsing it. Linking to his site would damage your credibility with the people who read your site.

The right way to kiss up to a blogger

Here are a few rules to follow if you're starting a company weblog and want to get traffic:

1. Make sure you really mean it. Don't start blogging unless you have carved out the time to update it regularly, you have a perspective you want to share, and you're prepared to have a conversation with the marketplace. If you personally don't have time to do this, find somebody in your organization who does and get them to blog.

2. Make contact yourself. Don't let your PR firm or your marketing director or your personal assistant be your interface to the blogging community. They can help you in the background, but the whole point and power of writing a blog is to create a feeling of direct contact from you to the reader. You destroy that feeling when you let someone else shill for you.

3. Spread love without requiring a return. If you genuinely think a blog author is great and you want to get their attention, pick out one of their articles, write a post saying you agree with it, and link back to that blogger's site. Most bloggers track the traffic to their weblogs pretty closely, and will check out a new site that links to them. Maybe also you can send them a fan e-mail (again, from you, not from your PR guy). Most bloggers won't be able to resist checking out a site that compliments them, and if you're writing good stuff then you'll get links back.

Keep in mind that most bloggers write because they crave an audience, not because they're making money from it. Be a good audience, add to the conversation, and you'll eventually get some attention yourself.

Thoughts on Apple's 3G iPhone announcement

2008-06-10T17:13:44Z

Apple's 3G iPhone announcement on June 9 was probably the minimum necessary to please the Apple community. The real news was the things that weren't announced:

No tablet device (again).
No major changes to the form factor of the iPhone.
No other major product announcements.

Apple has made its Macworld and WWDC keynotes into a specialized form of performance art, complete with cleverly-dropped pre-announcement hints, and often some sort of surprise at the end of the speech. Apple's own past successes have created a bread-and-circuses atmosphere in which anticipation for the keynotes so high that it's a disappointment if some sort of major surprise doesn't happen.

Check out Engadget's live blog of the speech if you want to see the result (link). It's littered with whining like this:

"We love what you've done here, but we're yawning."
"Man, these demos are crazy boring."
"Man, please let this string of demos end!"
"Another developer demo. Ugh."
"Wow, we heard Apple's stock is down almost $5 since this keynote started. Maybe they should just demo their top three and keep going."
"Someone, wake us when Steve's back."

I didn't actually attend the talk, so I don't know how boring all those demos were. But I think it's fair to remind people that the WWDC is a developer conference. It is traditional to do a fairly large number of app demos at a developer conference, because that's a low-cost way of rewarding your developers.

Apple discussed some other interesting things in the keynote. Here's what stood out to me, with some comments:

The "lower" pricing. This was completely necessary. AT&T claimed in an interview with the New York Times that $199 is a magic price point for smartphones (link). They're right, it is. But as the Times pointed out in another article, the price cut isn't actually as meaningful as it sounds -- AT&T is making up for it by raising the price of the unlimited iPhone data plan by $10 a month, with a two year contract requirement that will apparently be rigorously enforced. So to get that $200 discount on the purchase price of the iPhone, you pay an extra $240 over two years.

You're not actually saving any money in the long run, but now the iPhone is priced in the same way as every other phone on the market, making it more comfortable to buy. That figures to help iPhone sales -- especially in Europe, where the unusual price structure for iPhone caused a lot of complaints.

If they really do enforce the contract, that will probably put an end to the widespread practice of buying iPhones in the US, unlocking them, and shipping them to places like China. But the iPhone is getting much stronger international distribution, with up to 70 countries in the works according to Apple. We have no way of knowing how well the contracts will be enforced around the world. Chances are there will be gray market leakage from somewhere.

Notification vs. background processing. One of the critiques of the iPhone is that it doesn't allow third party applications to run in the background, without being visible to the user. Apple said this is to prevent background applications from hurting performance, the way they do on Windows Mobile. But that's a very disingenuous explanation -- Windows Mobile manages memory very strangely, often leaving things in memory whether they run in the background or not. You could create a very efficient architecture that still allows background processing.

Apple says it has solved the background problem by setting up a notification server that can wake up applications on your iPhone and pass incoming messages to them. I don't know how that looks on screen -- since Apple won't run apps in the background, does that mean they'll suddenly launch on screen and start operating? And although notification does some of the things you'd want from the background, it doesn't do them all. For example, some developers want to write background applications that would perform tasks automatically, whether they are pinged by an outside server or not.

All in all, it's interesting that Apple's establishing a messaging server for iPhones. Combine that with Apple's new MobileMe service, and Apple is gradually creating a lot of back end infrastructure for the iPhone. In the long run, Apple could build many innovative new services around that infrastructure.

I wonder if they'll charge developers a fee for passing messages through the Apple infrastructure.

When do the developer limits come off? Apple bragged in the keynote that there were 25,000 applicants to the iPhone developer program, but the company admitted only 4,000. In other words, they seriously pissed off 21,000 developers. Not the sort of thing I would brag about, but this is Apple and they can sometimes operate on a different set of rules.

The question is, when (if ever) do the other 21,000 developers get into the program? As far as I know, Apple was silent on that issue. If they were about to open up the program, you'd think they would have announced that.

The application demos skew consumer. Four of the applications demonstrated during the keynote were games, one was a consumer news applications, one was a social network product (Loopt), one was consumer shopping (eBay), one was consumer blogging (TypePad), one was sports information, and two were vertical medical. Although Apple talked about enterprise at the start of the keynote, the apps they chose to demo tell you everything you need to know about who Apple sees as the iPhone's buyers.

What happens next? The iPhone is only a year old, and it generally takes 18 months to design a major new device. So the 3G iPhone we saw today was probably already in early development when the original iPhone was launched. We could see more radical hardware change this fall, but I think it's more likely that would wait for Macworld 2009.

What happens to pricing? I was surprised that the price of the iPod Touch didn't change today. It now looks more expensive than the iPhone, and it lacks GPS. I would not be shocked if the Touch ends up getting a price action this fall.

As for when we'll see the long-rumored larger-screen iPod/iPhone, your guess is as good as mine. Fall is the best time for introducing new products, because it's right before the holiday/new year buying season. If the product exists, that would be the time to announce it.

Lessons from Hollywood's use of the web for marketing

2007-11-30T21:22:04Z

One of the most aggressive users of online promotional campaigns is Hollywood. Movies need to quickly create a mass following, and studios have embraced the web as a way to drive word of mouth. The LA Times online recently ran an overview of some of the most notable Hollywood online promotions in 2007, and it's well worth a look (link). Some things to think about:

--The production values on many of the promotions are incredibly high. Hollywood is a trendsetter in this area, and is setting a high bar for other companies.

--Web marketers struggle to figure out how to measure success for an online campaign. In this spirit, it's a little distressing to see that some of the most popular online promotions in 2007 were tied to movies that did terribly at the box office. On the other hand, that's probably telling us something we already knew -- if a movie stinks, no amount of clever advertising will force people to go to it. The same principle applies to online marketing of other sorts of product.

--In one case, a mysterious website was designed to promote a video game, but people online decided that it must actually be designed to promote a movie coming out at the same time. So it ended up driving awareness of the movie. Be careful with those teaser campaigns!

One more thing to think about: Many of the most successful websites create a long-term relationship with the user. Although online promotions are fun, their ephemeral nature cuts against some of the basic nature of the web. We wonder if Hollywood might not be better off building a presence within online communities of people who are the right audience for a film, rather than trying to drive those people to a new website.

Lessons from Amazon Kindle for other tech companies

2007-11-20T18:55:48Z

One of the toughest tasks in the technology industry is jump-starting sales of a platform -- a product that requires a lot of third-party content or software. A PC without applications is a doorstop; an iPod without music is just a piece of jewelry. Platforms have a chicken and egg problem: Content won't be produced until there's a big installed base of the product, but people won't buy the product until there's a lot of content available for it.

We were reminded of this problem when Amazon announced Kindle, its e-book reader. I posted a lot of analysis of the announcement on my personal weblog here; in this article, I'd like to talk about its lessons for the tech industry.

Kindle needs a large library of content in order to be successful. Here's how some other platforms have tackled that situation:

Macintosh: Induce lust. Apple enticed developers into creating Mac applications through two technolust and money lust. It was possible to create much more innovative software on the early Mac than on MS-DOS, and the desire to create software art drove a lot of early Mac developers. The money lust came from Apple's crew of evangelists, who persuaded developers that the Mac market was going to explode in size.

Netscape: Give it away free. Netscape (and the other early free browser vendors) made it so simple to add a browser to your computer that many people were willing to try it on a whim. This created a critical mass of browser-equipped PCs, making it worthwhile to create web pages. And the Web took off.

iPod: Rip content from elsewhere. The best source of music for early iTunes and iPod users wasn't the online store, it was the user's own stockpile of CDs. iTunes made it easy to create your own library of music from CDs and downloaded MP3 files. This made a critical mass of content available for the early iPods, driving a critical mass of users to the store.

Game consoles: Brute force. Companies making game consoles have traditionally used a brute force approach in which they pay to produce one or more "killer" games that jump-start sales of the platform, creating a market for other game developers. Microsoft's use of Halo on the Xbox is a great example. A variant of this strategy is making the platform good at one function that drives sales, and then using the critical mass to branch to other functions. A successful example is the mobile phone industry's addition of texting as a new feature of mobile phones, but this strategy has often failed when the newly added features didn't fit with the core usage of the platform.

We're not sure what Amazon's strategy is to get to critical mass. The company's decision to use Sprint's wireless network as the main delivery mechanism for content means that it has to charge for every piece of information delivered to the device, even content that's otherwise free. So each document sent to the device costs 10 cents, and subscribing to a weblog costs $1-2 per month per weblog. This prevents Sprint from using the Rip strategy.

A Kindle without books doesn't have much value -- you can access Wikipedia and there's a dictionary built in, but almost no one would pay $400 for that. There are 90,000 "books" available for Kindle, but that figure starts to look sketchy when you realize that short stories are included in the total. Magazines and newspapers might help, but there are only about a dozen of them available so far. Amazon needs more e-books.

Unlike the early Macintosh, there's no technolust factor driving creation of electronic books. We don't think Amazon can get a lot of Kindle-only novels written. And at $399, Kindle is definitely not a giveaway product. So that leaves money-lust as the other motivator. To succeed, Amazon probably needs to convince the publishing world that Kindle is destined to sell in mass volumes. That is a high-expense, high-effort strategy.

The lesson: If you're planning a product that depends on third party development, think very carefully about your strategy to get to critical mass. Creating the product may be the easy part; you have to make sure your company is prepared to follow through. In Amazon's case, it has chosen a road that'll require a lot of investment, a lot of patience, and a lot of evangelical savvy. It would be a big challenge for any tech company.

Whole Foods throws out the baby with the bathwater

2007-11-07T17:48:27Z

When it was revealed that the CEO of Whole Foods had posted anonymous online comments disparaging his competitors, the company properly took a lot of heat. For a company that promises wholesomeness and integrity, misleading people online was a massive violation of its brand promise. It's a case study in how to break the bonds of trust between a brand and its customers.

Now, months later, comes word that the company has banned its executives from making any comments to online forums that the company doesn't control (link). This is the wrong answer. If you have a brand that promises trust, the right way to rebuild that trust is more openness, not tighter control.

What Whole Foods should have done was ban all of its employees from making anonymous comments online, but encouraged them to get out and interact with customers on the web. It's the same as encouraging your employees to talk to customers in the store -- the more you interact, the deeper your relationship will be. The ban on messages implies that Whole Foods has something to hide, and it robs the company of one of its best tools for rebuilding trust. It makes the problem worse.