Understanding Customer Experiences

“Stories have defined our world. They have been with us since the dawn of communication, from cave walls to the tall tales recounted around fires. They have continued to evolve, with their purpose remaining the same: to entertain, to share common experiences, to teach and to pass on traditions.”

Recent discussions have spurred me on to write this post as a quick start guide to folks starting out in creating compelling customer experiences. “Customer experience”, like “innovation” and “disruption”, has become a very commonly used phrase in recent years with many businesses projecting their customer experience as a competitive differentiator.

Everybody has an opinion on how their “user experience” should be. And many are very eager to utter their opinions strongly. But that doesn’t mean every user is a designer, just like asking for salt doesn’t make you a cook. The user experience designer deals with the many different opinions and tries to find the best compromise. Good compromises are not in the middle, they are superior to the initial options.

Though the definition varies from digital experiences and interactions, such as on a website or a smartphone to customer service, or the speed at which problems are solved in a call center, to be really successful on a long-term basis, customer experience needs to be seen as all these things, and more. It is the sum-totality of how customers engage with your company and brand, not just in a snapshot in time, but throughout the entire arc of being a customer.

I recently applied for a debt card at a major bank. During the application, I was told to wait for a message on my mobile for the card to arrive at the bank. When I received a message stating the OTP (One Time Password) to set my PIN, I naturally assumed that my card arrived. However, I was told that I would receive yet another message stating that my card has been delivered. Sending an OTP a week prior to that actual card delivery date is an obviously stupid call. However, no one bothered to care.

You don’t need to be an engineer to find out that your car doesn’t start. But you do to fix it.

When it comes to use, all opinions are equal, but when it comes to engineering they are not. Like scientists, engineers collect feedback, test and validate their assumptions, and develop both theory and practice. As a user experience designer you need to know how things work, not merely rely on your own perception or opinions. You need to test products with their audience.

Your company, just like every company, provides a customer experience regardless of whether you create it consciously. That experience may be good, bad or indifferent, but the very fact that you have customers, you interact with those customers in some manner, and provide them products and services, means that they have an experience with you and your brand. It’s up to you whether it’s superlative, awful or industry average.

People don’t behave like robots, and no matter how well we craft an experience, they will not perceive exactly as we anticipate or hope. So, there is a strong case to be made that companies cannot fully control experiences, because experiences inevitably involve perception, emotion, and unexpected behaviors on the parts of customers. With that said, companies cannot afford to throw up their hands and give up in the face of unpredictably. Instead, they need to plan for the worst and aim for the ideal when considering the experiences they want to create.

Creating a great customer experience does not require knowledge of magical incantations. Instead, customer experiences spring from concrete, controllable elements — the touchpoint. There are three key layers to consider:
  1. Customer Journey: The fundamental piece of knowledge you need to start with is a thorough understanding of the journey that your customers take with your company.
  2. Touchpoints: Products, web sites, advertising, call center, etc. — that support the customer through their journey.
  3. Ecosystems: Integrated ecosystems of products, software and services open up new possibilities for customer journeys and experiences in ways that more isolated touchpoints cannot.

Becoming competent takes more than being active on social media, reading about it, talking about it or even selling it. Practical experience is essential. For User Experience Design that’s designing interfaces, building interfaces, and dealing with the (often very angry) feedback. However, once you’re hooked you’ll find pleasure in weird things like:

  • Studying user behavior via Analytics etc. on a daily basis, just for fun
  • Usability tests and interviews
  • Prototype testing and optimization
  • Fixing mistakes after the launch by closely watching and evaluating angry user reactions
  • Learning about new technology and business processes
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Power of Context

A couple days ago, Benedict Evans wrote “16 mobile thesis” which is a must read for anyone building a mobile/internet company or investing in that sector. These 16 theses are organised roughly chronologically, starting with what has largely happened, followed by what is happening, and ending with what may happen.

Sections 7-9 in which Ben talks about where the action is turning to in the mobile ecosystem. My favourite part is “Post Netscape, post PageRank, looking for the next run-time.” In this part Ben describes what used to be the dominant environment and the search for what is next. At the end he states:

We’re actually looking for a new run-time – a new way, after the web and native apps, to build services. That might be Siri or Now or messaging or maps or notifications or something else again. But the underlying aim is to construct a new search and discovery model – a new way, different to the web or app stores, to get users.

I agree with Ben; but I think there won’t be one run-time in the mobile era. I think what is emerging is multiple run-times depending on the context.

  • A lunchtime meal delivery service for tech startups, that’s a Slack bot
  • A ride-sharing service, that’s going to run in Google Maps and Apple Maps
  • A “how do I look” fashion advisor service, that’s going to run in Siri or Google Now
  • An IPL dashboard app, that is mostly going to run on the mobile notifications rails

So the war for users in mobile and the race to be a platform is real and it is important. And Apple and Google are playing that game as well (the notification, map and voice runtimes are controlled by them already).

But it isn’t clear that all of these contextual runtime environments will be controlled by and or subsumed into the mobile OS. That’s what makes chat so interesting. Slack has emerged as the dominant chat app in the enterprise, but not the only one. Facebook Messenger has emerged as the dominant cross platform chat app in the US, but not the only one. Whatsapp and Telegram are very popular outside of the US.

In content, there is an entirely different set of “runtime environments.” Facebook and YouTube are huge content discovery and consumption environments. Twitter and Snapchat are trying like hell to join them. So are many other mobile social platforms. Content is a bit like chat. I don’t see this sector converging quickly into the mobile OS platforms.

So the thing that is a bit different in the mobile era of the Internet, as opposed to the desktop era, is not everything is built on top of a browser. The phase we are in now, phase one I guess, has two dominant “run-times”, mobile web and native app.

But we are heading into a new era in which a few native apps, chat, maps, voice input, notifications, content/social, and surely a few more, will become the new browsers. And entrepreneurs will be building contextual services on top of them.

In this era context will be critical. The example I keep coming back to is the list of places I need to go to when I’m in a new place. Like Foursquare’s list of top places where you are this week, seeing that list on a map versus on a list makes a huge difference.

That is the power of context and that’s where I think the next big moves are to be made on the mobile internet.

Lipstick Metrics

Metrics is all the big thing in startups. Be it number of users, clicks on site, time spent of a page etc. A lot of times, the startup founder look for promising metrics and the hockey stick graph in an effort to incorporate them in slide decks for investors. This is not prevalent only in startups, but also in well established firms. But is there something wrong with this model?

Let us consider two firms A and B. Suppose A has 150 consumers and B has just 15 consumers. And just to bias the sample let us say A has been acquiring users on a hockey stick graph while B has slowed down. Does this necessarily mean that B is not faring well?

This is the trap most people get into. They drive their sales teams to deliver on the hockey stick. And ironically most teams deliver (or are pushed out). The downside with this approach is that it only works if two key conditions are met:

  1. All the clients/consumers are of equal value
  2. There is minimal turnover among the acquired consumers

In the example above if B is able to retain all of its users and the value of their users is much higher than A, say $100,000 for B vs $1,000 for A. So B had accumulated a total consumer value of $1.5 million while A had accumulated only $150,000. It would be far worse it A is having a significant churn of their users.

As a friend of mine recently put is beautifully, these are all ‘lipstick’ metrics – only to attract and confuse the uninformed. I hope this serves as a gentle reminder for all of you who are in charge of metrics to dig deep and see if your metrics are of real value, and for those who are presented the metrics to see if they really makes sense.

P.S: I am not implying that hockey stick graph in itself is a bad thing. If your profits follow the graph, then there is nothing like it. However, I only suggest that you need to be cognizant of where you are looking for it.

Qualitative measures of Product development

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Technology companies have a tendency towards the quantitative. We like to measure things. And there is a lot that can be measured from page load times to net promoter scores. Even in board meetings the question “have we A/B tested that” is common. But the quantitative can only take you so far. 

One good definition of empathy is “experiencing emotions that match another person’s emotions.” Or put differently, the way to “measure user frustration” (where frustration is clearly an emotion) is to experience that emotion oneself. There are two ways of accomplishing that: first, observe a user directly and second, put yourself in the user’s position by actually using the product. Surprisingly few companies do both of these well.

User observation sounds easy but is in fact quite hard. If you want to know how to do it well, I suggest reading “Customers Included” by Mark Hurst. Mark describes a method known as a listening lab, in which you observe one customer at a time without guidance to create as natural a product interaction as possible. There are no task prompts asking the user to take a specific action. Just the occasional reminder to verbalize what they are thinking.

In order for this to actually result in empathy it is essential to have as many people in the company either directly observe or at a minimum watch video of the observation. A written summary by a user experience researcher circulated to the team does not do the job. Why? Because the scientific evidence shows that empathy works primarily through reading facial expressions and body posture.

Another legitimate and important way to experience the same emotion as customers and thus develop empathy is to actually use the product oneself. I am often surprised how many people inside of companies – and for that matter on the board of companies – don’t use the product. And that includes every aspect of a product, including how a new user would experience it, e.g. go through the on-boarding flow yourself. I strongly recommend that everyone inside of the company do this on a semi-regular basis but especially anyone in the leadership team (which should give you empathy not just for the customer but also your team).

Now some people may say that’s all well for consumer products but we have a B2B product or a developer product so this doesn’t apply to us. Well it does! Developers are humans. People working inside of companies are humans. They experience frustration just as much. And you need to observe them and put yourself in their shoes.

None of this means that you shouldn’t A/B test or have other quantitative measure. But all of those will mean very little if you don’t have the qualitative context that only observation and usage can provide. Empathy is central to product development.

If you are interested in reading more about qualitative measurement of Product development the following are some excellent collections:
1. Empathy is everything project
2. Whitney Hess’ blog

Tech Bubble 2.0? – A look back at Evolution of Startups from the Dot-com Era

I have recently been watching an excellent discussion by Silicon Dragon’s Rebecca Fannin, Bhavani Rana of Amadeus Capital, Mark Thompson of Sidley Austin, Zach Tan of Infocomm Investments, Ricardo Schaefer of Seedcamp, and Hussein Kanji of Hoxton Ventures (whom I had a chance to meet very recently) about the possibility of a tech bubble.

The question of whether or not we are in a tech bubble has been raised regularly for years now; 2012, particularly Facebook’s acquisition of an app called Instagram for a ridiculous $1 billion, was a particular high point. And now Instagram is valued at a staggering $35 billion! Maybe the 2012 doomsayers were not too bit off.

Still, it’s possible to be off in timing but right in meaning; in retrospect Alan Greenspan was correct to, at the end of 1996, characterize what we now call the dot-com bubble as a period of “irrational exuberance”; the correction just took a few extra years to materialize, and it was all-the-more painful for having taken as long to arrive as it did. Might the tech industry be facing a similar reckoning?

Lets look at the evidence.

Market Evolution

Let us analyze the mobile phone market, particularly iOS versus Android, through the lens of Apple versus Microsoft in the 80s and 90s. The issue is not the obvious differences — this time Apple was first, the absolute numbers are much larger, etc. — but rather the fact that many of these commentators simply have their facts wrong. Windows didn’t win because it was open or all the other nonsense that is ballyhooed about; it won because MS-DOS was the operating system for IBM PCs, and at a time when personal computers were sweeping corporate America, “no one got fired for buying IBM.” By the time the Mac arrived in 1984, the battle was already over: businesses, the primary buyers, were already invested in MS-DOS (and, over time, Windows), and not many consumers were buying PCs. Today, of course, the situation is the exact opposite: consumers vastly outnumber business buyers. Thus, the chief reason iPhone/Android is not Windows/Mac is because the market is fundamentally different.

I tell this story because I think a similar mistake is made when comparing today’s funding environment to the dot-com era: it’s easy to look at numbers, whether that be valuations, revenue multiples, or simple counting stats, but any analysis is incomplete without understanding markets. In 1999 most consumer markets were simply not ready, whether it be for lack of broadband, logistics build-out, etc., while most enterprise opportunities were in selling licensed software to CIOs. And, in this latter market especially, the competition was other tech companies.

Today, by contrast, many of the most valuable unicorns are consumer-focused companies like Uber or Airbnb. Moreover, these companies are competing not with other tech companies but rather with entirely new (to tech) industries like transportation or hospitality. And, even for more traditional pure software plays like Snapchat or Stripe the implications of mobile-everywhere means a whole lot more time — and contexts — to reach consumers. In short, the size of the addressable market for tech companies has exploded — why shouldn’t valuations as well?

Business Model Evolution

Today’s startups also have very different business models than companies did in the dot-com era (to the extent they had business models at all, of course). The difference is the most stark when it comes to enterprise software: back in the late 90s enterprises bought software licenses that were usually paid for up-front. Thus, when a company closed a sale, they would get paid right away.

Today, on the other hand, most enterprise startups sell software-as-a-service (SaaS) which is paid for through subscriptions. In the long run this is a potentially more lucrative business model, as the startup can theoretically collect subscription revenue forever, but it also means revenue is much slower to arrive as compared to the old software licensing model. For example, suppose you spend $100 to acquire a customer who pays $35/year: in year one, for that customer, you will lose $65, but then profit $35 every year thereafter. It’s a great model, but it looks bad, especially when you consider growth:

Year New Cust Growth CAC Total Cust Total Rev Annual Profit/Loss
1 1 $100 1 $35 ($75)
2 2 100% $200 3 $105 ($95)
3 3 100% $300 6 $210 ($90)
4 6 100% $600 12 $420 ($180)
5 12 100% $1200 24 $840 ($360)

No company, though, can double forever, so watch what happens when the growth rate slips to, say, ~30%:

Year New Cust Growth CAC Total Cust Total Rev Annual Profit/Loss
6 7 29% $700 31 $1085 $38
7 9 29% $900 40 $1400 $500
8 12 30% $1200 52 $1820 $620
9 15 29% $1500 67 $2345 $845
10 20 30% $2000 87 $3045 $1045

This is a simplistic example: there is no churn on one hand, and no decrease in CAC (which usually happens at scale) or increase in revenue/customer via add-on services on the other. The takeaway, though, is that particularly during a period of hyper-growth, SaaS companies need a lot of capital, and more pertinently, a lot more capital than a company that monetizes through up-front software licenses.

There is a similar dynamic for many consumer companies, particularly companies that monetize through advertising. Advertising works at scale, which in today’s world means hundreds of millions of users; getting all of those users requires years of operating without revenue, which means a lot of capital. All of this is magnified for companies that operate in markets that include network effects: network effects translate into winner-take-all opportunities, which significantly increases the growth imperative, requiring, again, significant amounts of capital.

Capital Evolution

The question, then, is where does all that capital come from? Traditionally, from one place: the public markets.

There are multiple advantages to an IPO, for all of the various stakeholders in a startup:

  • The company gets additional capital to fuel growth, non-dilutive shares to use for acquisitions, and a bit of added prestige that can help with sales, particularly to enterprises
  • Founders and employees can finally be fully compensated (by selling shares) for their years spent building the company
  • Venture capitalists get a return on their investment that they can distribute to their limited partners

Downsides

There are downsides, though, as well. The run-up to an IPO is very difficult, and requires a lot of attention from senior management, the disclosure of a lot of information, and a large expense that has only increased because of recent legislation. The disclosure and expense continues, too, on a quarterly basis, which brings its own pressures and risks, including activist shareholders and SEC oversight.

On the flip side, a number of IPO advantages have been peeled away:

  • The most important has been the emergence of a new type of capital: growth capital. Growth capital is less speculative than traditional venture capital; it seeks to make relatively larger investments for relatively smaller stakes in companies with provably viable businesses that are seeking to grow for all of the reasons listed above. Now an IPO is no longer necessary for growth
  • Secondary markets and special purpose vehicles that buy stock from founders and early employees give founders and early employees a way to realize some of their gains, again, without an IPO. This too removes a previous forcing condition for an IPO
  • Finally, more and more early investors have determined that doubling down on winners often provides a better return than spreading bets widely; indeed, an increasing number of venture funds are explicitly marketed to limited partners as a combination of venture and growth capital

Just as Arthur Rock and Fairchild Semiconductor birthed venture capital, Yuri Milner and Facebook deserve the most credit for the development of growth capital. In 2009 Milner and Facebook shocked the Valley with a $200 million investment that valued the company at $10.2 billion. This investment was the growth capital archetype: a large amount of money in absolute terms for a surprisingly small stake in a provably viable business, and it paid off handsomely. Facebook would go on to further expand the growth capital market, first to private equity (Elevation Partners in 2010) and then to Wall Street (Goldman Sachs in 2011): Facebook was clearly a winner, and if Goldman Sachs’ clients wanted in, then growth capital was the answer. Since then nearly every huge startup has followed the same path, and Wall Street especially has responded: growth is no longer found by investing in IPOs, but in private companies that need the money but not the hassle of an IPO, and any qualms have been drowned in an environment where multiple countries are issuing negative rate bonds (a big contrast from 1999) — growth is hard to find!

So to recount:

  • Today’s startups have massively larger markets than in 1999
  • Today’s business models require significantly more capital than ever before
  • Thanks to Facebook, funding this growth via Growth Capital has been established as a viable alternative to an IPO

In short — and I’m not the first to say this — it’s less that valuations are unnaturally high than it is the fact that there is a completely new capital market — the growth market.

There are, though, some downsides and new risks:

  • The most obvious downside is that the best growth opportunities are increasingly out of the reach of retail investors like you or I. Goldman Sachs Facebook Special Purpose Vehicle (SPV), for example, required a minimum $2 million buy-in
  • Companies like Facebook, Uber, or Palantir may be obvious winners, but the difficulty in investing in them creates a powerful sense of FOMO — Fear of Missing Out. This has the potential of pushing less sophisticated investors desperate for growth towards higher-risk companies
  • Relatedly, there is very little oversight around these investments, particularly when it comes to the disclosure of audited financial information. A lot of these growth investors are plunging in a bit blind

Bill Gurley, an investor I greatly admire and have learned a lot from (his blog is a must-read), is worried the last two points in particular are leading to a risk bubble:

All of this suggests that we are not in a valuation bubble, as the mainstream media seems to think. We are in a risk bubble. Companies are taking on huge burn rates to justify spending the capital they are raising in these enormous financings, putting their long-term viability in jeopardy. Late-stage investors, desperately afraid of missing out on acquiring shareholding positions in possible “unicorn” companies, have essentially abandoned their traditional risk analysis. Traditional early-stage investors, institutional public investors, and anyone with extra millions are rushing in to the high-stakes, late-stage game.

Read that carefully: much of the media has adopted Gurley as the apostle of the “here we go it’s 1999 all over again” mantra, but that was a valuation bubble. Companies simply weren’t worth what they were priced at. Gurley is arguing that the private market with its limited information and oversight is producing something very different: investors putting too much money in companies without enough information or enough potential upside to justify the risk.

This though, is why concern one — the lack of access for retail investors — is arguably a firewall against this truly being a bubble. For one, if everything goes sour, the folks taking a hit can very much afford it. More importantly, a bubble is less about companies than it is a bet on euphoria — the assumption that no matter how nonsensical your investment, there will always be someone on the other end ready-and-willing to buy. While many of these growth investors are arguably making such a bet on a future IPO that may or may not materialize, there is no question the combination of increased investor sophistication necessary to participate in this market and the lack of liquidity makes betting on euphoria a far more risky — and thus far more unlikely — outcome.

Or, to put it another way, bubble talk is less 1999 than it is Y2K: a potential problem, and some people will lose money, but in all likelihood a far smaller deal than many in the media are making it out to be.

My take on Net Neutrality

The Mobile Movement

Flipkart, India’s sixth most popular website (according to Alexa) recently announced that it would abandon its web portal and go mobile application only. Here a good article on why Flipkart abandoned its mobile website:

Now, if you tack on a gigantic population with miserable internet connection speeds, the prospect of scaling up your website operations and back end to deal with not only the overload on it, but also the abysmal experience on the consumer end, whether it is mobile or desktop, is even more bleak. An app allows a user to stay logged in while updates and other information are efficiently and constantly downloaded, ready for consumption almost instantly. It is, in fact, perfect for low-bandwidth situations.

People often write of countries like India or Africa bypassing landlines or PCs to skip ahead to technologies like wireless or smartphones, but I haven’t heard of countries treating the web as one of those intermediate technologies to be hopped over. Internet connection speeds are really slow there, and loading the web can be painful. Seeing so much content and online interaction move behind the walls of social networks seems like an epic tragedy to many, and I empathize. Many people in India, China, and other parts of the world, where bandwidth is low and slow, and where mobile phones are their one and only computer, have no room for such sentimentality. They may never have experienced the same heyday of the web, so they feel no analogous nostalgia for it as a medium. Path dependence matters here, as it does in lots of areas of tech, and one of the best ways to detect it is to widen your geographic scope of study outside the U.S. Asia is a wonderful comparison group, especially for me because I have so many friends and relatives there and because I still interact with them online at a decent frequency. In the U.S., many tech companies were lauded as pioneers for going mobile first when in Asia companies are already going mobile only. In some ways, Asia feels like it lives in the past as compared to the U.S., especially when one sees so many fast followers of successful U.S. technology companies, but in a surprisingly large number of ways, Asia lives in our near future.

Net neutrality

What exactly is net neutrality? In the simplest terms – data is data irrespective of the source or the destination. 1MB of data from Netflix would be exactly the same as 1MB of data from Flipkart. Now you may ask – “Isn’t this obvious?“. Well it is. But not to the telecom companies. They want to ride high on popular websites such as Facebook and Flipkart and charge higher amounts for them. (For completeness, Flipkart recently pulled out of Airtel’s zero scheme).

The debates

President Obama recently endorsed net neutrality in the US. FCC outlined 6 principles of net neutrality:

  1. Consumers are entitled to access the lawful Internet content of their choice.
  2. Consumers are entitled to run applications and use services of their  choice, subject to the needs of law enforcement.
  3. Consumers are entitled to connect their choice of legal devices that do not harm the network.
  4. Consumers are entitled to competition among network providers, application and service providers, and content providers.
  5. Non-discrimination: ISPs must not discriminate against any content or applications;
  6. Transparency: ISPs must disclose all their policies to customers.

The debate however, has restarted in India. But of course, the telcos and cable companies don’t want to be subject to these rules and they have been fighting them tooth and nail for years. They complain that they won’t be able to invest in their networks. They say that business interests don’t support these rules. Without these rules, investors who invest in the “open internet” will not be able to invest anymore. So you can choose between telcos saying they won’t be able to invest under one set of rules vs VCs who say they won’t be able to invest under another set of rules. But if you look at history, you can see that telcos have invested very heavily in their networks while under the threat of net neutrality regulation or even in instances when they were under direct net neutrality regulation. The argument is specious and their actions have show that. But if you look at VCs, you see another story. Look at the mobile Internet from the late 90s until the advent of the app store.

Benedict Evans from Anderson Horowitz says:

Many VCs such as our firm would not invest in the mobile Internet when it was controlled by carriers who set the rules, picked winners, and used predatory tactics to control their networks. Once Apple opened things up with the iPhone and the app store, many firms changed their approach, including our firm.

And if you look at the hundreds, maybe thousands, of mobile Internet firms that were VC funded in the first decade of the mobile Internet, when the business was controlled by the carriers, you will see an enormous failure rate and certainly negative returns for the entire sector. Contrast that with the current environment and the difference is striking. So a lightweight regulatory framework for the Internet is good for business, particularly the businesses that are getting funded today. And it is not bad for the carriers’ businesses.

There is no mention of pricing in the six principles. The carriers will be able to charge whatever they feel is necessary to finance their network buildouts. But what they will not be able to do is charge on both sides of the network, where they could stifle innovation at the edge. The bottom line is we want the carriers to be able to make money, invest in their networks, and build the broadband internet. But we do not want them to be able to control it and turn it into the kind of Internet that existed in the mobile environment in the past decade. I care deeply about the net neutrality debate, but the reason I am writing this is my fear that what we are witnessing is the start of a pattern that will hurt tech industry in the long run. Those who are injured by the impact of technology will diligently make their case in the political realm, while we in the industry who genuinely believe we are changing the world ignore the messiness of politics. And then, suddenly, we will be blindsided again and again by unfavorable legislation or regulation, at which point we will raise a fuss, with ever decreasing effectiveness.

The truth isn’t just that technology has had an impact on society, but that it is only getting started. FiveThirtyEight and the End of Average talks about the power curve in journalism; this idea, though, is broadly applicable to every field touched by technology. The ease of communication and distribution on the Internet is rendering vast swathes of the economy uncompetitive, even as certain sectors, companies, and individuals reap absolutely massive profits. I am by no means saying this is a bad thing, but I am certainly sympathetic to those who can no longer compete. I am also extremely concerned that recourse for these changes will increasingly be sought through the political process without tech having a seat at the table, much less a coherent solution for dealing with the human fallout of technological progress.

We as an industry absolutely need to wake up

I understand that politics is messy, and leaves one feeling just a bit queasy. But that queasiness is not a function of politics in the abstract, but the reality of any institution concerned with the behavior of humans. I am familiar with the desire to escape, to put one’s head down and do work that makes one proud, but I don’t know how much longer we as an industry have the luxury. I also know how easy it is to look at politics with a defeatist attitude: how much of a difference can one person make? And yet, working at scale is exactly what we as an industry are good at! Every business model in the Valley is predicated on the idea of serving massive groups of customers with easily repeated processes and software. We can do this. The world is changing because we are changing it, just like we all wanted to, and now it’s time to grow up and deal with the consequences in a serious way. I truly hope that the fight for net neutrality will only be the beginning. That is what this fight is all about. And so I would encourage all you business leaders working and investing in the open Internet to stand up and say that net neutrality is pro-business. The following video explains the issues with TRAI’s proposed regulation in layman’s terms. https://www.youtube.com/watch?v=vxaFnc-MoVE

Save the internet. Tell TRAI we need network neutrality!

Video of the week: Building an Investment Thesis

Every deal your company proposes to do – big or small, strategic or tactical – should start with a clear statement how that particular deal would create value for your company. We call this the investment thesis. The investment thesis is no more or less than a definitive statement, based on a clear understanding of how money is made in your business, that outlines how adding this particular business to your portfolio will make your company more valuable. Many of the best acquirers write out their investment theses in black and white. Joe Trustey, managing partner of private equity and venture capital firm Summit Partners, describes the tool in one short sentence: “It tells me why I would want to own this business.”

Pedro Torres-Picon of Quotidian Ventures delivered a great talk a couple weeks ago at the Pre Money Conference on “How To Build An Investment Thesis”. Pedro does an excellent job of explaining it with some quotes from Fred Wilson and prominent others.

Here is the slidedeck from Pedro’s talk for your reference.

Mobile Platforms – Messaging as the Dominant Design

A tweet that I read recently got me to thinking about the evolution of mobile applications.

Old: all software expands until it includes messaging
New: all messaging expands until it includes software

One of the fundamental things that smartphones changed about the internet is that the smartphone itself is a social platform:

  • Every app can access your address book, getting an instant social graph. The phone number in particular acts as a unique social identifier
  • They can access the photo library and camera directly (and location), making sharing easy
  • Push notifications mean you don’t need people to keep checking your site (or open emails).
  • Every app is just two taps away on the home screen, which makes switching services easier, and also drives a trend for focused, single-purpose apps over apps that do everything – it’s easier to find a feature as an icon on your home screen than as an option in a sub-menu of the Facebook app

So joining a new service from a different company is much easier than it was on the desktop and, crucially, using more than one at a time is also much easier. People can swap apps in and out for different behaviours or content types or social groups, on top of that underlying platform, and they do it all the time. And so there has been an explosion of apps trying to take advantage of this. Facebook bought two of the biggest, Instagram and WhatsApp, but it can’t buy them all.

Looking at all of these apps, I think there are three threads that we can pull out:

  1. More or less plain vanilla person-to-person text messaging, with extras like group chat, pictures, stickers and voice clips etc added on. The big global winner so far has clearly been WhatsApp, which dominates outside the USA and East Asia (and is doing 50% more message volume than the entire global SMS system), but Facebook Messenger is doing pretty well too, mostly in the USA. I’d expect relatively little new innovation to happen here now, and most of it to be in the next two categories:
  2. New pieces of psychology – new behaviors or attitudes that an app can enable or ride on. Sitting on that underlying social platform, an app that finds one of these can go viral. Examples include Instagram, Snapchat, Yo, Yik Yak, Secret or Meerkat. The challenge for these is to find a behavior that’s different and compelling enough to create that growth, but not weird or specific enough to be a gimmick or a fad and flame out, or at least to evolve beyond that specificity once the growth is there, which one could argue Snapchat is doing
  3. Platforms – messaging apps that aim to broaden the UX beyond pure person-to-person messaging into a development environment. WeChat is the big example here, with 500m users, almost all in China, while Line in Japan and Kik in the USA are also significant.

Messaging as it stands now

The potential to turn messaging into a platform drives a lot of the excitement in the sector. It’s one thing to sell stickers and quite another to sell users: Can you use social to spread content and acquire users, and to solve the problem of app installation? Can it become the third runtime and the third channel on the phone, after the web and native apps?

The first big success here has been WeChat, which has 500m MAUs (Monthly Active Users), almost all in China. WeChat has built a messaging client that’s also a development environment, using web views and APIs so you can build services within the app that can access location, identity, payment and other tools from within the app. You can send money, order a cab, book a restaurant or track and manage an eCommerce order, all within one social app. So, like the web, you don’t need to install new apps to access these services, but, unlike the web, they can also use push and messaging and social to spread. This is Facebook’s old desktop platform, more or less, but on mobile.

The common criticism of this approach is that this is ‘just a portal’, and that integrating lots of different services into one app is doomed in the same way that Yahoo on the desktop was doomed to be replaced by more powerful and focused single-purpose products. The more subtle version of this is that WeChat only works in China because the market structure is different – no vertical category killers (Google, Facebook, Amazon) and instead parallel, horizontal competition by large competing companies. WeChat is providing the ‘primitives’ that you can’t get elsewhere. This may be true – but it may also be that WeChat (and similar products such as Baidu Maps, which also has deep service integration) show us what the rest of the world might look like if the big portals had executed better.

A lot of people thought that Facebook would clone this, but it’s actually done something quite different. Rather than trying to turn Messenger itself into a development environment, it’s opened it up to become a channel for anything else on your phone and the web. This means that it’s addressing both the platform thread and the viral apps thread outlined above, and that rather than WeChat, it’s going after the iOS and Android notifications panel.

First, if you have an idea for a great type of content for messaging – a new piece of psychology that might go viral – your iPhone or Android app can now insert that directly into a thread inside the Messenger app, and your app can be invoked directly from within the Messenger app. Messenger has a list of featured apps (with links out to the App Store or Google Play) and, crucially, each piece of content posted into a message thread comes with a link to install the app – a viral hook. Facebook has made an API for the ‘sticker button’, and turned it into an acquisition channel for third party apps, and is now letting the entire internet compete for that slot, with itself as gatekeeper.

The WeChat model achieves some of this, avoiding the app installation problem itself by putting everything into web views within the WeChat app, but that puts a cap on how sophisticated you can get – it’s hard to make video clips with web apps. Facebook is trying to square the circle – rich native code to make cool stuff, yet no need for an app installation for it to spread.

This is a great move, and very seductive. Facebook is trying to co-opt the next Snapchat. Yes, the smartphone is a social platform that makes it easy to use multiple social apps, but you still have to get someone over the hurdle of installing the app in the first place, and they have to get all of their friends to install it too so that they have someone to send to.  Facebook is trying to bypass that – you can drop your content straight into the existing Messenger install base (600m MAUs). Now just one person can get a cool app and send messages to their friends even if their friends don’t have it, and if it’s cool enough they can tap on the link and install it too.

So acquisition is much easier, but they’re Facebook’s users, and always will be. And since there will be dozens of apps fighting it out for that slot, SnapChat and any other new stand-alone network will be competing against all of those apps – against the whole app store. This means that Facebook is trying to reset some of the dynamics I described at that beginning of this piece – it’s trying to avoid the ‘whack-a-mole’ problem of having to buy cool new messaging companies (Instagram, WhatsApp) by getting those communication forms to happen inside Messenger instead, using Facebook’s own social graph instead of the phone’s address book.  And as I said, this is seductive – Facebook removes a major barrier to growth, but owns your users and has a history of ruthlessness in dealing partners who build on its platforms. Join, get growth ‘easily’ and give Facebook control, or stay out and struggle for installs against Facebook and all its partners as well.

The second part of the Messenger announcement is just as interesting – Facebook will also let websites send messages directly into Messenger, without having their own apps installed on your phone, if you logged into that website with Facebook when you placed the order. So you can order shoes and get a message in Messenger that they’re out of stock and be offered an alternative. This is another attack on email (and Gmail) and another attempt to pull your communications and commerce into the Facebook data platform. And again, if you do this you get richer and more engaging communication with your users, and don’t need them to install your app, but your access is entirely controlled by Facebook.

If you take all of this together, it looks like Facebook is trying not to compete with other messaging apps but to relocate itself within the landscape of both messaging and the broader smartphone interaction model. Facebook Home tried to take over the home screen and lock screen – Messenger is trying to take over the notifications panel, by pulling those notifications inside its own app, and to co-opt large chunks of future communications developments on the phone.

This makes perfect sense – notifications themselves are becoming that third runtime. That pull-down panel aggregates activity from everything on your phone, and Google and Apple have made notifications actionable and given them payloads. One can already look at an iPhone or Android phone’s notification screen and ask – Where’s the algorithm filtering this? And in a sense, the notification panel fills the ‘cross platform compatibility’ role that some people would like to see in messaging – all the notifications for all my messaging apps show up there. More and more, one’s primary interaction with any app, social messaging or otherwise, is a little pop-up with a button or two.

So shouldn’t that get a native, messaging-focused UI? Instead of replacing stand-alone apps with light-weight versions built inside a messaging app, is it better for rich, actionable messages from native apps to be aggregated into a notification panel? Once you have that runtime, do you need an actual stand-alone app on the actual phone itself, or can you send those messages – really, little applets, down from the cloud? Do you turn apps into messages and notifications, or messages and notifications into apps?

Meanwhile, smart watches (to the extent that they take off) reinforce a model of atomic units of content with a handful of possible actions, and of glancing at a few key items rather than submerging yourself in a dedicated UI. So after unbundling sites from the web browser into apps, notifications take things further, unbundling each unit of content or action – each verb or noun – into a separate atom. So you can order a car with a flick of your wrist and a tap or two, instead of fishing your phone out of your pocket, unlocking it, loading an app and navigating the UI.

This obviously leads one to ask what the platform owners themselves are doing. Should this be done by Facebook or the platform owners (the same question as for deep linking last year)? Do Apple or Google introduce an algorithmic filter to manage the flow in the system-wide notification panel, and does that compare to Facebook’s lethal power over newsfeed partners? They’re some of the way there. Both Apple and Google have perfectly solid mobile messaging apps that are not development platforms in their own right, and have done a lot of work on notifications in their smartphone OSs yet clearly have lots more to do. And Apple already lets websites send push notifications on OS X, while Google is clearly pushing Chrome hard as a development environment and so notifications from the web there would also make sense.

So we can see some building blocks, but we can also see obstacles. The obvious one is that neither has the kind of desktop social presence that would make it easy for them to drive personalized push motivations for web to mobile – you’re not logged into anything from Apple or Google when you shop on the desktop web. On the other hand, you’re always logged in on Android, and Apple has shown plenty of hints that it might see TouchID as a universal identity platform, and of course, they do have your address book. So Apple or Google could easily let an app send a push notification to a friend who doesn’t have that app. Meanwhile as mobile devices zoom past half of time spent on commerce sites and a third of the transaction value, a web identity platform might matter less.

The core issue across all of this, I think, is how much is still totally unsettled. We spent 20 years in which the mainstream internet experience was a web browser, mouse and keyboard, and over a decade in which Google was the way you navigated. Smartphones ended all that, but we haven’t settled on a new model, and the idea we’ll all revert back to the comfortable, simple model of the web seems increasingly remote. Even within messaging, the  model is still in flux. What will the next blow-up model be –  synchronous or not? One to one or one to many? Feed based or thread-based? Algorithmic filter or endless stream? Rich client or rich message? Runtime or deep links? That may be the real problem for Facebook – the next messaging thing may not be messaging at all.

Messaging and Commerce

Chris Messina recently described as a new trend towards “conversational commerce,” in which users will be able to shed the need for countless apps from different companies in favor a simple mobile messaging interface.

“Conversational Commerce is about delivering convenience, personalization, and decision support while people are on the go, with only partial attention to spare,” Messina says. Put more simply: we all text more than ever, so why not expand texting’s potential to sending payments, buying products, ordering on-demand services, paying bills, and more?

Facebook is not alone in making a big bet that Conversational Commerce marks the next stage of texting’s evolution. We’re in the midst of a veritable messaging gold rush. Earlier this month, Alibaba poured $200 million into SnapChat, which now lets you send money to a friend or buy a product using their newly-launched SnapCash. This follows Alibaba’s $215 million investment in Tango last year. Rakuten recently snapped up Viber for $900 million with an eye towards integrating mobile commerce into the messaging app.

We all text more than ever, so why not expand texting’s potential to sending payments, buying products, ordering on-demand services, paying bills, and more?

Asian investors were the drivers of this trend for the simple reason that Asia is ahead of the US in harnessing mobile messaging’s true potential.

China’s WeChat, for example, generates over $1.1 billion in revenue by offering its 440 million users an all-in-one approach, letting them pay their bills, hail taxis, and order products with a text. Line, a Japanese messaging app with 200 million users, has rolled out LinePay, allowing its users to make mobile payments, order groceries, book taxis, and more.

The Conversational Commerce trend is also being boosted by a number of new ‘concierge’ messaging services that employ a combination of human and artificial intelligence. Magic became the talk of the town by enabling users to send a text to order food, send flowers, or get laundry detergent delivered within the hour.

Other start-ups in the “conversational commerce” space include Scratch and BRANDiD, which provide curated shopping recommendations; and Native, whose personal travel assistant service allows you to book flights and hotels by sending a text. Path Talk was the first messaging app to allow users to message directly with businesses, making restaurant reservations as easy as sending an SMS.

Over time, the use of natural language processing will automate these concierge services, while retaining a human-in-the-loop to ensure accuracy and handle the long tail of requests that cannot be automated.

These innovations point us in an exciting direction, liberating us from the traditional limitations of the mobile interface such as small screen sizes and unwieldy ‘shopping cart’ forms. You no longer need to download and launch separate apps for each on-demand service. Over time, the use of natural language processing will automate these concierge services, while retaining a human-in-the-loop to ensure accuracy and handle the long tail of requests that cannot be automated.

The inevitable evolution of messaging apps like Facebook Messenger and SnapChat into commerce platforms will change the way we think about mobile commerce. It won’t be long until you’ll be texting your food order to DoorDash, paying bills by SMS, or firing off a quick Facebook Message to send flowers to your loved one.

Magic may not be able to be deliver on their promise of bringing a tiger to your front door, but it’s clear that mobile messaging is about to get a whole lot more powerful.

Further reference

In case you are looking to spend further time on the topic please consider listening to this excellent podcast from a16z.

The art of storytelling

A tourist is backpacking through the highlands of Scotland, and he stops at a pub to get a drink. And the only people in there is a bartender and an old man nursing a beer. And he orders a pint, and they sit in silence for a while.

And suddenly the old man turns to him and goes, “You see this bar? I built this bar with my bare hands from the finest wood in the county. Gave it more love and care than my own child.But do they call me MacGregor the bar builder? No.”

Points out the window. “You see that stone wall out there? I built that stone wall with my bare hands. Found every stone, placed them just so through the rain and the cold. But do they call me MacGregor the stone wall builder? No.”

Points out the window. “You see that pier on the lake out there? I built that pier with my bare hands. Drove the pilings against the tide of the sand, plank by plank. But do they call me MacGregor the pier builder? No.

But you fuck one goat … “

Storytelling is joke telling. It’s knowing your punchline, your ending, knowing that everything you’re saying, from the first sentence to the last, is leading to a singular goal, and ideally confirming some truth that deepens our understandings of who we are as human beings.

Film maker Andrew Stanton (“Toy Story,” “WALL-E”) shares what he knows about storytelling — starting at the end and working back to the beginning.