Learned Behavior: how the best products eventually change their users

When I evaluate product, either at the early or late stage of a startup, I’m always looking to see if the product has the potential to permanently modify user behavior outside of the product itself

A few examples of this:

  • Instagram : double-tap
    Apple designer Bill Atkinson devised the double-click, and soon it became the de-facto way to open files across all desktop GUI’s (Windows, Linux). The clever folks at Instagram appropriated it for their Mobile application to “like” a post. I’ve found myself mindlessly double-tapping photos in other applications. (NB: In light of this, I’m not sure I agree with secret’s choice to make the “like post” gesture as a left-to-right swipe.)
  • Netflix : binge consumption
    The way today’s content travels is much more binary – you’ll either never see the light of day or go viral (think: YouTube videos, 2048, any Upworthy article). To put it differently, today’s content distribution models enable and encourage binge consumption. Netflix is one of the first large tech companies to realize and capitalize on it by releasing traditional content in a way that enables binge consumption. Will that eventually put pressure on other content distributors?
  • Uber : pay through app
    It has become so easy to take an Uber that I’ve found myself walking out of regular cabs without paying. Embarrassment aside, it comes to show that Uber is creating a new behavior of seamless payment, something that Square and other startups have been attempting to do. 

The best products eventually change user behavior because they simplify those existing user behaviors; making it so natural that users have incorporated the habits into their regular lives. 

Quick Thoughts on @YCombinator’s First #FemaleFounders Conference

YC’s FFC was one of the more enjoyable conferences I’ve been to in a while. The attendees were great, the format was brisk, and the content shared was by and large very helpful. 

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At one point, there was a panel of founders discussing the topic of fundraising. Two things hit me:

  • It was weird. I have never seen an all-female panel before, especially not at any previous tech conferences. The fact that seeing an all-female panel seemed strange surprised me in and of itself – even I, as a female technologist of sorts, had become used to and complacent of the male-dominated nature of my field.
  • It was enlightening. As a VC, I rarely hear such candid tales of fundraising from the entrepreneur’s point of view. Since I learned so much from this short session, I would definitely encourage any entrepreneur, aspiring or otherwise, to sit in on a couple VC-focused events. After all, EdTech vendors often attend Educator conferences and likewise, many industry conferences include both vendors & customers as attendees. In a way, VC’s and entrepreneurs are simultaneously each other’s customers – so why not get to know your customer better?
  • It was inspiring. All of the female founders speaking at the conference were extremely humble – they had a “if I could do it, so could you” attitude, and many went at length to highlight their failures and inadequacies. It was a great reminder that I should probably be building, too.

With PG in the spotlight, many people forget that Jessica Livingston was also a co-founder. She shared her story her responsibilities as the sole nontechnical co-founder (delivering AC units to YC companies!) and juggling being a founder and a mom. She also highlighted that YC has been trying to fund more female founders over the years. 

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Re-building TaskRabbit One Use Case at a Time

TaskRabbit is getting disrupted, in the same way craigslist was just a few years ago. Andrew Parker at Spark Capital once posted this graphic showing how craiglist is being replaced by a host of startups, a single vertical at a time. image

The market of low-skill services is also being displaced by a crop of new entrants:

  • Postmates: getting food delivery from any restaurants
  • Washio: drycleaning and laundry delivered to your door
  • Homejoy: professional home cleaning for $20 / hour
  • Shout: location-centric marketplace for intangible goods (such as your spot in the Cronut line)

It has always been surprising to me that TaskRabbit never caught on as much as it should have. There are tons of daily tasks everyone goes through that nobody necessarily enjoys: picking up dry cleaning, mowing the lawn, putting together IKEA furniture… When I propose TaskRabbit to my friends, however, there is always a lukewarm reception even though I believe the monetary trade-off is a no-brainer for them. A couple of reasons why I think folks are slightly fuzzy on the whole concept:

  • Unclear use cases: the TaskRabbit landing page doesn’t have key examples on how you can use TaskRabbit. I think a great example of demonstrated use cases is the Venmo homepage, where they show a live stream of transactions their users are completing. 
  • Friction in negotiation:The beauty of mobile apps lies in their simplicity in getting a task done – there is no back-and-forth, no talking to a human. The one-time I used Taskrabbit, I had to evaluate all the offers I received and also discuss the task with the selected TaskRabbit. For apps geared towards single use cases, this friction is reduced dramatically.

A suggestion for TaskRabbit is to perhaps go the Uber route and do some fun, single use case promotions for holidays like Valentine’s Day – something like a flat $20 delivery fee for a box of chocolates.

In today’s world, the cost of switching from one service to another is almost frictionless for the consumer. It makes very little difference to me to switch between something like Postmates and Homejoy instead of using a generalist application like TaskRabbit.

Unbundling @Facebook: what the Whatsapp acquisition tells us about Facebook’s mobile strategy

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When the HTC First was released in early 2013, critics scoffed at the idea of a so-called “Facebook Phone”. It didn’t help that the product appeared half-baked – and many considered it to be Facebook’s first flop. AT&T quietly dropped the phone from its offerings mere months after launch. 

Today’s announcement of Facebook’s $19B acquisition of Whatsapp reveals that Facebook hasn’t given up on taking over our phones – but taking a much more hacker-like approach. It went from a standalone, all-encompassing app to a network of apps, including Instagram, Messenger, Paper, and now Whatsapp. That’s not including other mobile assets that Facebook attempted to buy (Snapchat, Waze, etc.) On Messenger, one of the coolest, least-known features is the Talking Heads. It allows you to include a contact on your Android home screen, to quickly launch a conversation with him/her. 

The platform wars are over – iOS and Android have emerged as the winners. But true to its hacker DNA, Facebook still wants to take over the mobile experience, one product/feature/use case at a time.

For me as an investor, the much more interesting question is, what’s next?

  • Storage: The idea of storing files/messages/photos/etc. is central to the phone experience. Facebook acquired the now defunct Drop.io team in late 2010 as most likely an acq-hire. I think they’re still looking for this functionality – maybe Dropbox or Hightail?
  • Location: Gowalla and Hot Potato were two other acq-hires, but Facebook places never took off and they were outbid for Waze. Perhaps Foursquare, Factual, Yelp, or PlaceIQ? This one I’m unsure about, since I don’t have visibility into how robust the Facebook Places data set is.
  • Music / Video: Google has Youtube, and Apple has iTunes. Consuming media is a highly social experience, so will Facebook want a content distribution platform as well? Hulu, Soundcloud, Rdio, and Oyster come to mind. 
  • Commerce: The shopping experience on mobile is incredibly compelling and we already know how CTR and conversion rates can be higher than those on the desktop. There are a few startups powering commerce on Facebook’s native platform, such as Soldsie and Chirpify. Short of purchasing another asset like Pinterest, I’m curious to see how Facebook will proceed in this vertical.
  • Calendar / Events: When I think about what products I use the  most, Google Calendar is a top contender. Facebook Events haven’t integrated with my calendar app very well – and there’s definitely an opportunity to better discover events, a la Eventbrite  
  • What else do you use your phone for?

10% of Facebook’s market cap is a lot to pay for an acquisition (of only 32 engineers!) But when I start thinking about paying 10% for a messaging platform that is so core to our mobile experience – it starts looking like a steal.

Hardware as Software and the Business Model Revolution

I wrote a post this week and Alex published it as a guest post on his blog. Go check it out!

alexstechthoughts:

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Jordan Kong is an Associate at Institutional Venture Partners, a late-stage venture fund in Menlo Park. She previously studied at Columbia University, interned at several NYC tech startups, and did a two-year stint on Wall Street. Jordan blogs regularly, tweets frequently, and takes photos

Hardware as Software and the Business Model Revolution

Uber and the Economics of Price Surging

There’s been tons of emotional outrage and blog posts on the repercussions and implications of Uber’s price surges. Uber’s been addressing this criticism with the protest that price surging is just a result of free market forces. As an Economist by training, I can’t help but add my two cents, because as an Economist by training, I also know that free market mechanisms rarely work as perfectly as they do in textbooks. 

  • Inelastic Supply: Uber explains that by raising prices during demand peaks, they are “putting more Ubers on the road” by increase driver incentives. Uber supply, however, is not perfectly elastic – there is a limited supply of Uber drivers in a given location and each driver is often faced with other constraints that doesn’t let her respond immediately to increased demand. (In Economic terms, while Uber attempts to move the supply curve to the right, it can mostly only move along the same supply curve.) If Uber’s market mechanics were elastic, when we would see price surging for just the amount of time it takes supply to increase to meet demand. Instead, I’m pretty sure price surging typically occurs for the entirety of a peak demand period.
  • Driver Incentives: I’m not even certain that price surges align driver incentives properly. Sure, getting 3x the fare seems great, but I would imagine that demand probably drops materially during price surges. Perhaps not enough to completely off-set the fare multiple (ie. demand doesn’t drop 66% in a 3x price surge situation), but probably very close to it. 
  • Income Targeting: While this is a minor point, income targeting may help explain some of the supply inelasticity. Economic research has shown that taxi drivers tend to be target earners – meaning that regardless of demand, taxi drivers tend to work until their daily income target are met. By the same token, drivers who have already hit their daily income targets will likely stop working, instead of increasing their hours to meet higher demand.

Uber also insists that price surging assures rides to those who need the rides the most, but it’s difficult to take that statement at face value. For one, Uber’s price surging is done as a multiple of the base fare, but a more accurate way of pricing according to demand would be as a % of income. The latter is an obviously more difficult methodology, but wouldn’t automatically out-price lower-income customers who may just “need” that ride more than someone with more purchasing power. At its core, Uber’s price surging is essential to its mission of guaranteeing rides when you need it, only because it out-prices the majority of the market.

I’m disappointed by Travis Kalanick’s comparison of Uber’s price surging to the high cost of air travel during the holidays. Sure, the supply/demand mechanics work in a similar way, but airlines are faced with constrained supply in a way Uber insists it’s not. Moreover, airlines probably have one of the lowest customer satisfaction ratings and probably isn’t and shouldn’t be what Uber aspires to be.

I’m an avid Uber user in San Francisco and will continue to be. I have, however, been surprised by some friends (mostly in NYC) who have decided to no longer use Uber due to the politics of price surging.

Free Ventures at Berkeley

I was recently invited to judge at Free Ventures, student-run incubator for UC Berkeley entrepreneurs. The program just completed its first semester of workshops and mentorship, with 5 student teams accepted out of a pool of ~40. This past Monday was their Demo day, which allowed each group to present to a panel of judges and get feedback on how they can improve their product. 

Having been on the other side of this, I was really looking forward to the pitches and was thoroughly impressed by how well-prepared the students were – the coaching really paid off!

The Free Venture Fall 2013 startups were:

  • Supertag: a SMS API that enables users to use hashtags to hyperlink locations or other meta data. The judges were particularly interested in how this can help aging Telco’s bolster their SMS offerings. 
  • Lily: a quadcopter camera that autonomously tracks a headband to film a dynamic subject. Would loved to see a live demo of this, but I guess it wouldn’t have been a great idea to launch it indoors. Prototype is still a hack, but looks a lot like GoPro’s early days and I could see this getting really popular with extreme sport enthusiasts, but also amateur videographers and maybe even journalists. 
  • Fractal: dead simple platform that allows users to create mobile apps without knowing how to code. Geared towards small groups (ie. the Berkeley chess club) who want a mobile app that facilitates communication between club organizers and its members. Great idea, but in a very crowded space. Also, I’m not sure the needs of small interest groups would be better served by a native app vs. an HTML5 mobile website.
  • CloverInk: recruiting platform for startups and new grads. Again, in a very crowded space, but I liked their low-cost advantage and the signing bonus per hire. The pass-through bonus of $100 to the applicant will ensure that transactions are completed on the platform, but may also increase return customers on the applicant side. 
  • Clique: intimate “anti-social” network with 15-person limit. Loved the way they tested their initial idea (using private Twitter accounts) and the innovative shake-to-push-notification feature. Obviously reminded the judges of Path, but I think the 15-person limit makes much more sense than Path’s 150.

Overall, Free Ventures ran a tight ship and the quality of start-ups produced this semester bodes very well for the program’s future. Here’s the kicker – of all the teams that presented, there wasn’t a single female entrepreneur. I’m sure this wasn’t intentional, as the judging panel had a healthy mix of both female and male perspectives, but it does leave me to wonder if it was a result of selection bias or lack of female applicants.  

Exitround and its effects on behavioral economics

The latest and greatest in the world of acqui-hires is Exitround, a startup who helps other startups get acquired by tech giants. 

My first reaction was skeptical. I’m not bullish on any startups who build their business model around unique market trends. This reminds me a bit of SecondMarket, who started their business in secondary transactions for private companies. As that market declined, it became necessary to pivot and today, SecondMarket is a provider of financial services for private market transaction (including fundraising.)

I’m also not sure if Exitround helps the startup ecosystem. If anything, it would increase the friction between founders and investors by further mis-aligning incentives. In doing so, Exitround would also be meaningfully increasing the noise to signal ratio.

That aside, here are a couple of areas I think Exitround can help:

  • Downside anchor – Exitround essentially reduces founders’ risks by providing a baseline for the downside case scenario. For all those talented folks who are risk adverse, Exitround gives them an extra reason to take the leap.
  • Market efficiency – As a economist by trade, I’m a big fan of market efficiency. Exitround essentially lowers transaction costs and increases liquidity in the market, thus increasing market efficiency as a whole.
  • Resource allocation – One of the tragedies of the Bay Area is the reality that many great minds are helping solve seemingly unimportant (or, very 1%) problems. Acqui-hires allow brilliant young minds, who don’t have the benefits of experience, to help solve a problem they can’t think up themselves. On the other hand, Googlers have confessed that hundreds of very smart people are doing the most mundane tasks. Do tech giants really need to amass more talent?

I think where Exitround will really excel in a down-market, where small, talented startups will not have the revenues or the access to funding to keep afloat. And despite our best current efforts, the economy will remain cyclical and a down-market is in the cards.

Red Herring Metrics

With all that’s been written about the Series A crunch, it’s no secret that series A investing has become more difficult. I would argue that it’s become more difficult because the definition of traction (a key decision factor in Series A investing) has changed dramatically over the past decade. In short, industry conditions have made it much harder to determine if a product is truly getting traction, or will only be a flash in the pan.

Increased Eyeballs: There are countless charts which show how new applications are acquiring millions of users in record time. It could be that today’s consumer startups have a high value prop and a better user acquisition strategy. But the underlying driver is that today’s populations are more plugged-in than ever, creating an easier climate to acquire those millions of users. Charts comparing such user acquisition rates are not apples-to-apples are don’t take into account macro conditions.

Ease of adoption: With increasingly better mobile infrastructure, downloading a new app has become effortless. With several services offering one-click sign-up (Facebook, Twitter, Google+ integration), user registration has become more frictionless as well. This is a double-edge sword – it’s never been easier to both acquire and lose users.

Duplicated Data: In the wake of social network proliferation, personal data is no longer a proprietary asset. A picture taken on mobile can be simultaneously sent/posted/shared to dozens of apps (Twitter, FB / Instagram, Tumblr, to name a few). For all pitch decks showing user data metrics, it’s helpful to keep in mind the Venn Diagram intersection of this user data with existing applications and platforms. 

Network Effects as the New Norm: Social as a necessary feature has allowed most app to instantly on-board your entire network when you sign up. Even if you don’t like to use Facebook or Twitter sign-up, most mobile apps will also have access to your phone address book, making it easier to find friends and to invite other contacts to the service.

Which metrics should matter, then?

  1. Relative traffic: Measured on a relatively basis and keeping in mind that Facebook has 150mm MAU and Youtube gets 1bn unique visits per month.
  2. Engagement: Today’s consumer startups are not only competing for wallet-share, but for attention-share as well. 
  3. Real business moats: the more things change, the more they stay the same.