Thursday, December 13, 2007

Improving Your Internet Application Success

Many VCs and Entrepreneurs struggle with the problem of predicting when to invest money and time into a new idea and when to pass. Some just guess, others invest in people and passion. I decided to try and see if we can analyze and find some success predictors.

A method often used by investors include a mental simulation that assumes the investor is the target audience (even if it is a product for kids) which will usually end up with one conclusion “I would not use it, why would anyone else”. When in doubt, they will say let’s wait and see if it gets some traction. This is a good test but if the product gets traction without marketing budget, you may not need the investment, or the valuation would be different.

Entrepreneurs often get excited an in love with an idea and forget the basics such as the business model. As a frequent visitor to the NY Tech Meetup forum I can tell you that the forum organizer banned the Business Model question simply because, many entrepreneurs had no idea what it is.

To make that process a bit simpler I have decided to do a summary of my non-scientific observations of some internet product features that can be used as predictors for success.
As a reference I chose to look generally on some successes such as ICQ, Skype, MySpace / Facebook, Google, Twitter, Wikipedia and try to ask the question “what traits do they all have in common?”

I came up with the following list of “success” factors (traits or features) that seem to repeat themselves on the more popular applications and websites. I have also added some of my own experience to the mixture.

Let's start with those:

  • Viral or Social Characteristics
  • Simple & Reliable
  • No installation
  • User Participation (UGC)
  • “Usefulness
  • Business Model
  • Marketing and Budget
  • Investment Requirement

Viral or Social Characteristics

If a product is more useful to you when your friends have it, it means that it poses the viral trait. For instance what can you do with ICQ or Skype by yourself? Maybe talk to strangers. Yet, when your friends have it, you are really thriving.

If we look at my MySpace, the need to show people your new psychedelic page background drives you to ask others to join in.

If you have designed your product with a viral approach, good, if not, try to ride on top of an existing Social Network that has strong communication tools, so that it would very simple for a user to tell a friend, see what I found.

LinkedIn for instance has Poor communication tools, they adopted the “Don’t e-mail me, I will call you” approach whereas Facebook did the opposite with features such as Poke, Status, and Simple internal mail.

The use of OpenSocial API (led by Google) will enable new application to get closer to the Holy Grail of interoperability and Viral Distribution with the mantra of “write once run many” (on many Social Networks that is).

Simple & Reliable

Not much to say here, the product should Simply Work (Like Skype) vs. for instance MSN Messenger or other SIP phones that at least initially suffered from all kind of NAT (networking and fire wall) issues. I would say that new products should be designed with security in mind and work behind corporate firewalls. It seems that people now work from home, and “shop” from the office.

The GUI must be as simple as possible, like twitter; it should work on every OS, and on any browser. I know it is not always simple to do, yet it is a good design consideration, that can be achieved over time.

No installation

Every installation that a user is required to do is a friction point, even Skype in my opinion may have been more popular if it did not require setup for the first second.

My recommendation is to use Flash when possible (if a web page browser based technology is not sufficient). There are new similar or Flash like next-generation environment but it is better to stick to those already deployed with end users. The most popular applications such as G-mail, Facebook, MySpace, don’t require installation.

Sometimes the audience you need for Business Development is different than the one really using your product. Skype Developer Program manager said in a developer session in NY “Make sure your application can run on a Mac” so more people in skype will know about you.

User Participation (UGC)

It makes sense, that applications, which let users share private or public information, get more attention. First the users who placed the information keep getting back to update, or share more. Second it provides for an incentive to tell others about it.

In a way it feeds our basic curiosity to see what other people expose and our need to be exposed. In other words the basic human Voyeurism and Exhibitionism. Good examples for that are Q&A sites, Facebook and MySpace.

It turns out that UGC it is also good for SEO (Search Engine Optimization), which dramatically contributes to the economics of the site.

SEO In general is something that needs to start from day one, from the point when you register the domain name, or buy one that has traffic, and on, on every page that comes up on the website.


Usefulness or Utility is hard to predict, what useful for me may not be useful for others and vise versa. I would never think that emoticons will be useful in any way, yet almost two Million users of Zlango think otherwise. When Skype came out people might say why I need another Messenger/Yahoo/AIM/ICQ/… well apparently me2 is not always useless and if it always works with better audio quality, it is useful.

A product is also useful if fills a personal social need like, promoting global knowledge, by writing articles in Wikipedia or a need for personal promotion by writing a
personally related factual page in Wikipedia.

Fun is another form of utility if people can derive fun of a product it is useful for that purpose.

So how do you predict if a product or a webpage is useful, I guess by asking as many people as you can, or finding a specific need that the product covers. One way to try and predict is by using the
Kawasaki map of Uniqueness vs. Value.

Business Model

There are many business models that one can come up with, yet the most successful are Ad Revenue which is based on traffic or Eyeballs, Recurring Subscription fees as done with Linked-In, and WOW (World of Warcraft) and so on. The last is selling non tangible replicable products such as Music, Videos and things like Software Download. A type product that makes you money while you sleep.

Commission based models that are driven by paid clicks (and not by organic traffic) are getting hard to support with the climbing prices of popular keywords. In some popularlucrative domains (sex for instance) a click can cost more than $10, imagine how much money has to be made per transaction to get the net revenue balance the cost of the click divided by the conversion rate. The party receiving the gross revenue is the one that need to support the ad, not the party receiving the commission, and this is a hard situation to create.


Never leave marketing to pure luck. The more successful companies (leaving out those that got lucky or had other traits working for them) started with nice marketing budget. They started with their SEO activities, such as creating content, creating back links, grass root buzz creating activities, Ads, Videos, TV commercials, radio commercials, free “minutes”, and more.
A good young marketing person is an asset worth having on board. Pure luck is simply to hard to manufacture.

Having said that a startup need to make sure it allocates sufficient funding for marketing purpose.

Investment Requirements

A product or a web site is not built in one day, it takes time and time needs funding. As an entrepreneur I would recommend that the first Angel or VC round will take in account R&D and Marketing. From an entrepreneur point of view if you finish the product and you can not market it to create traction; you will not be able to raise the next round. Investor place no value on Internet technology those days, as sophisticated as it might be.

An investor on the other hand would argue that it is better to raise money for marketing after the product is proven, or has gone few improvement phases. This obviously seems to minimize the risk, and drives the company to make improvements trying to make the product get traction without marketing.

I say, raise the money up-front. Spend on marketing only after you have done some improvement phases. Don’t get caught with a product everyone says is good, but has no traction to prove them right.

I will conclude by stating that not every application or website encompasses all the ingredients from day one, the more it has from the get go the better its chances are to succeed.
You must keep adding the ingredients and funding in order to move from the initial success to the ultimate exit opportunity. If you are stuck without one or the other, start writing Blogs :).

Alon Cohen

Tuesday, December 11, 2007

VoIP and Wide Band Audio

As one of my friends indicated to me "I am still making news" (see article bellow). When VoIP was launched in February 1995 with the first iPhone (Internet Phone by VocalTec) the idea was to displace telephony. Later while working on VoIP standards such as H.323 and SIP protocols people started to ask about the benefits of VoIP my answer was "imagine your phone negotiating CD quality call with the phone on the other side, establishing the call and taking less resources than a PSTN call".

As some of the industry veterans indicated this is not happening yet, at least not at CD quality, but some companies such as Skype and VAPPS with their HD conferencing do support Wide Band audio typically 8KHZ of audio bandwidth (almost FM Radio Quality) which is a big improvement. I would compare that to flying first-class, at a lower price than coach.

If you are wondering about why the change to HD Audio was a slow process, read the enlightening article from a friend of mine Dan Berninger (now CEO of FWD) who recently wrote in Giga OM the following:

Here Comes Trouble: Infocom Voice

via GigaOM » Voice by Daniel Berninger on 12/10/07

During the spring of 1995, I participated in a series of meetings at AT&T Bell Laboratories, at which management lamented the impending doom of the telephone business model. The looming threat, however, was neither MCI (which had instigated the breakup of AT&T) nor the Bell companies (which did eventually undermine and absorb AT&T). No, the once-dominant telco feared a $50 software product released by two 20-year-olds at a startup in Israel: Vocaltec Internet Phone, which made voice communication an application of the Internet.

The death of the telecom business remains a standard prediction, but telephone bills continue to arrive 12 years after Vocaltec introduced VoIP to the masses. ITXC (now a part of VSNL) used VoIP to help cut international calling rates to an average of 10 cents a minute currently from 99 cents a minute in 1995. Vonage gets credit as the first to offer flat-rate, unlimited usage plans, erasing the distinction between local and long-distance calling. But aside from price, the telecom business remains largely unchanged by VoIP.

Consider the improvement of infotech platforms since 1995. Intel et al remained true to Moore's Law by expanding processor performance 100-fold, while the price performance improvements of storage, memory and many other components exceeded this pace. But although improved performance and falling costs usually combine to produce new applications, this does not seem to be the case for VoIP and the voice business.

Reducing the price of a telephone call does not erase all the frustrations associated with communication. Humans can detect sounds of up to 20kHz, yet the frequency response of the traditional telephone call has remained stuck at 3.3kHz since the 1930s. The audio quality of a telephone call compares unfavorably even to the 5.6kHz frequency response of AM radio; we still revert to military radio protocols ( "A" as in alpha and "T" as in tango) when spelling a word.

Miscommunication remains a significant source of daily frustration. CallerID seems to be the best telecom has to offer. (Imagine paying extra for the privilege of knowing who sent you an email.)

The differences in the pace of innovation between telecom and infotech can be traced to differences in their respective business models. Telecom companies chase profit growth through margin expansion, which requires controlling costs and resisting the potential for competition to reduce price (e.g. controlling supply).

Conversely, competition forces infotech companies to chase profit growth through revenue growth. This requires investment in the innovations necessary to create demand. The pace of innovation in communication promises to accelerate as the search for revenue growth leads infotech companies to pursue communication business more aggressively.

Developments in communication shape human history. The Renaissance followed the printing press because less expensive books produced educated citizens that demanded more representative government. The telephone offered more than simply a better telegraph. If the infocom sector can move beyond cheap telephone calls, it might finally represent the threat to the status quo imagined by my AT&T colleagues.

Friday, December 7, 2007

Art of Innovation - Guy Kawasaki (NY)

Innovation and what you need to succeed at that, was the topic discussed by Mr. Guy Kawasaki in a lecture I was lucky to attend.

Here is the short version.

- Make Meaning – your desire and major goal should be to leave a mark on the world and not to make money.

- Mantra - define your goals with a four words mantra.

- “Jump to the next curve” - make a ten fold improvement over the prior art. Jump to the next Generation.

- The product must have Depth, Intelligence, and elegance. It must evoke emotions and be complete.

- Don’t worry, be crappy - If you have done all the above, and your product is complete but not perfect, it will be accepted.

- Polarize people - Do not be afraid to aim your product to an exclusive group of people, and invest in making your target consumers very happy.

- Let it grow - If your product turns to fit a different market segment than planned, don’t hesitate to sell it to anyone who wants it.

- Reduce churn - Improve the product to the users who bought it. Don’t listen to those who didn’t. Those who didn’t will always find a valid reason why not to buy.

- Make sure your product is unique and valuable (see diagram).

- Be prepare to pitch - follow Guy’s 10/20/30 rule.
10 Slides – must be sufficient
20 Minutes presentation – leave time for questions
30 Points font – VCs are older than you or use the following font size formula (VC_age / 2)

- Don’t give up when people that look smart tell you it will not work. Even Guy gave up 2B dollars when he refused to be the CEO of Yahoo on the grounds that it is not interesting and too long of a commute.

The session was very entertaining, if you get a chance go and listen to Guy first hand.

Alon Cohen

Monday, December 3, 2007

More Realistic GUIs (Graphical user Interfaces)

When thinking about futuristic realistic GUIs (Graphical user Interfaces) for our computers there are few things that come to mind. The first is obviously 3D GUI such as Second Life.

The more futuristic version of that format is the Virtual reality 3D GUI where the user wares motion gloves and 3D goggles that enable manipulation of virtual objects in a 3D virtual reality environment. All those are nice but will take time to get to our day to day life.

It seems that multi-touch user interfaces are now getting more popular since the release of the iPhone, and obviously they did not start there as many Mac People may think, they are nicely visualized in the movie Minority Report (Tom Cruise).

Recently we saw the Microsoft version of that multi-touch display in the form of the Surface computer, that not only gives you ability to manipulate objects on the screen in a more realistic graphics fashion but also added a nice component which is the ability to interact with real world physical objects such as your Cell phone, Zoon or digital camera. The surface computing will probably take time to mature just because of the expensive hardware it requires.

The latest GUI I saw, which drew my attention, was potentially the simplest solution so far to creating realistic GUI for organizing your desktop. I am sure some of you remember that from your own childhood, but I was asking my mother not to move anything on your desk as I remember at which layer every notebook is. Well it took few years but now it is becoming a reality with the Bump Top GUI. The Bump Top I predict at some form will become popular as it really has the ability to be implemented on any existing computer, activated with a simple mouse or a pen and tablet computer. Check out the Bump Top 3D Desktop Prototype

Bump Top is a fresh and engaging new way to interact with your computer desktop. You can pile and toss documents like on a real desk. Break free from the rigid and mechanical style of standard point-and-click desktops. Interact by pushing, pulling and piling documents with elegant, self revealing gestures. Bump Top’s stunning interface makes clever use of 3D presentation and smooth physics-based animations for an engaging, vivid user experience.

video of the Bump Top interface was or maybe still is the most watched video of software on YouTube, ever.

Watch a demo of the Bump Top GUI. Enjoy

Saturday, November 17, 2007

Multimedia E-commerce MME

Ever since VocalTec (VOCL) came out with it’s with its free calls internet Phone in February 1995 named iPhone, everyone involved with the Internet and VoIP asked the same question, how can we monetize the Internet if it is all free.

The concept of a platform for delivering services came to me back then, but was hard to implement from many reasons: luck of Broadband connectivity, low VoIP Audio quality on those early days, luck of payment systems and luck of e-commerce consumer behavior.

All that, I assumed, was about to grow and I started to build a business case for what is now BitWine Inc, or as I named the space back then Multimedia E-Commerce or MME.

The first thing I did was to map the world of e-commerce trying to predict the market direction in a hope to get there first.

In my quest I met Charlie Federman who introduced me to my brilliant partner Elad Baron and together the there of us set sail to build BitWine. We recruited a group of excellent Angel investors and an extremely talented group of developers, which worked hard to bring BitWine to life.

I recently looked back on my MME e-commerce map to try and see how far off I was in 2003-2004. I think I was on the money, but I will let you be the judge of that.

I did not predict Amazon grid computing and storage services per-se but they certainly have a place on the map.

The diagram show that e-commerce applications spread from tangible goods to non-tangible goods, and from Auction to Buy Now and to pay-as-you-go.

If the trend continues, it seems that the market will experience growth in the next few years to keep an open window of opportunity to companies such as BitWine and fast investors who can ignore trendy investments and are able to focus on growth potential and tangible business models.

After all, 50% of US GDP or about $7T is derived from services, so there is plenty of room for the space to grow.