Some of the most interesting businesses such as Facebook, Twitter or Pinterest are based on communities. Obviously they are very attractive because they
- create network effects which attract more users
- have decreasing customer acquisition costs as the firm grows larger
- are hard to copy because they are more than a combination of technical features
So far so easy.
But how do I get to this point? With frequency & surprises…
There is an important twist which make the most successful services so sticky and addicting. Interaction is
b) outcome is unclear
The frequency of interaction helps to ideally become a habit like checking emails or Facebook. The very best companies even become a verb. Think about statements like “I’ll google that later” or “Let’s skype”.
Interestingly, the underlying requirement is that the outcome of using the service is unclear. Consumers want to be surprised and discover something cool, fun or useful. Take pictures from a friends vacation for example, or a cool party that is planned for the weekend. Basically anything qualifies which is relevant to the user but what the user couldn’t predict before he opened the service and used it.
Another good example which illustrates this point is an Excel spreadsheet with your business plan. The outcome is clear (i.e. the calculations haven’t changed) vs the stock market or online news page where the outcome of opening the website is not clear. Which one do you check more often?
So what do we learn from this?
Lesson 1: Unexpected content must be relevant and to be that it must be within certain parameters. With Facebook you would expect an update from your friends vs. Linkedin where you would rather expect some information regarding your business contacts.
Lesson 2: This drives frequent visits and increases the likeliness that the service becomes a habit.
Lesson 3: The parameters need to be established over time and can’t be all planned upfront. The community needs to agree on a set of rules. The biggest danger here is that the community grows too fast in the early days and is not homogenous enough to really build out a core group which adheres to these rules. Or in Crossing the Chasm terms: with communities the early majority needs the guidance by the early adopters. The chasm still exists because the early majority are also pragmatists. For them the service or product is the combination of technical features and the community that already uses it.
The Red Hat Challenge
Innovations which allow drastic cheaper prices by e.g. delivering digital media files instead of physical DVDs or harnessing the power of open source software have huge impact on the market these innovations disrupt.
Take the market penetration of Linux systems as an example. Linux replaced Sun Solaris in many webservers because you could achieve more or less the same for a fraction of the price. While this seems like an obvious observation, this has a very important implication: In order to make 100 million in revenues, e.g. Red Hat had to capture 1 billion in market size of the Solaris / Unix market.
If you can’t expand your market, take somebody elses’s
The alternative to shrinking the market is that the new price allows tapping into new customer segments which were previously not buying because of a high price. There are many markets like books or TV, however, which already have a pricing affordable by nearly everyone. So any price reduction will directly affect the market size and the amount/size of companies the market can sustain.
If Netflix streaming subscriptions or Amazon e-books are going bring us cheaper prices, which I think they have to because otherwise somebody else will, this means that they are forced to cannibalize themselves. When they start scaling through the early majority the correspondingly large increases in subscription numbers will needed to sustain growth on a base of already significant revenues as well as making up the decrease in subscription rates. So, after a successful market introduction revenue growth will be difficult to maintain. Amazon chose to expand their role in the value chain and to take over the role of a publisher to make up for the drop in prices. I wonder how Netflix will react to this threat because I think it will be much more difficult to act as a publisher in the movie industry.
Twitter is an awesome service. It’s one my regular sites which I always login to as soon as I start a browser. But I have doubts that it will be in its current form a mass communication tool such as Email.
I think Twitter has three main use cases:
a) For broadcasting: because you don’t have to mutually agree on friendship the resulting graph is more similar to the media industry where it is possible to publicize a news and opinions in a one to many approach
b) For trends/analytics: if you really want to know what people are thinking about your product create a Twitter search. You will find out quickly what’s wrong and can engage directly with you customers
c) Hand curated discovery: Yahoo ultimately declined in search because the web grew faster than Yahoo’s ability to hand curate search results. Twitter kind of brings that back in a crowed sourced way. They’re taking it from a slightly different angle because you d on’t have to search, the information “finds” you. Of course you can manually maintain an RSS feed use TechMeme, StumpleUpon or good old browser bookmarks, but Twitter allows to filter news by the interests of the people who you follow. As a consequence it is also able deal with news which is normally not in one’s core interest areas would pretty quickly come through if it’s important enough like a natural disaster.
Why media and tech love Twitter
Many argue about how similar or different Twitter is to Facebook by pointing out the use cases implied by the underlying 1 to many graph. Few doubt that Twitter will become a universally used service (in the way that email, Facebook or Amazon are used).
I am not so sure to be honest. I see why the media, tech enthusiasts and Venture Capitalists love Twitter. Most Top 20 users on Twitter are from the media industry or politics.
And the tech community is always hunting for the next big trend, so for them it is a fantastic long tail analytics and curation tool (as well as a very promising investment opportunity). See here or here.
In my eyes Twitter faces a classic crossing the chasm problem. Twitter has successfully scaled through the innovators and early adopters, but the majority are pragmatists. If I look at the use cases above and at the non-tech group of family and friends, I don’t see that they find the same things equally appealing.
This group values opinions and updates by friends and the ability of instant delivery of messages and that’s why Email and Facebook are tools appealing to huge masses. These friends may read some journals which provide job related information and get general news from the big news sites on the web or TV. In my understanding this satisfies their need for information. They don’t have a “customer problem” in terms of that they don’t get enough news.
So what could Twitter do?
- voting up/down for posts to improve the signal/noise ratio?
- allowing more than 140chars so it doesn’t feel like a 1990 style mobile text anymore? You don’t need to go for the other extreme, but how about 50 words?
- the above would require a more powerful and easier to use tagging system to foster better categorization?
- use an app store approach to centralize all twitter add ons and make them easily accessible for main stream audiences?
Unfortunately, I think it would involve adding features (it’s pretty hard to remove anything – that’s for sure) and I am sure that this has been intensely discussed internally. However, I have never heard of an innovative market leader who stayed in that spot by moving nowhere.