the vc in me....

"Social Rank" will bring a new wave of disruptive web companies

Very successful web companies were created in the  early days of search when Google perfected the page rank algorithm, amassed huge traffic as the start page for an internet journey, and then directed this traffic to sites that ranked high.  These sites (primarily content related) were easily readable by google, had unique/original content, and were first movers – they generated 10s of millions of visits per month from google.   Multi hundred million dollar revenue companies like About.com and TripAdvisor were formed with very little marketing cost – making them very profitable (we’re talking 40-50% EBITDA margins).    Other hot companies such as Yelp, Fixya and even Wikipedia can attribute early mover in “SEO” as a key success factor.

We are now in a new era of social media where I believe Facebook will have similar “kingmaking” power and will result in a whole new crop of vertical sites that are socially driven.  Why?  Now over 500M people have exposed their digital identity and social graph via facebook for the rest of the web to use.  This will only grow to billions as it will be a requirement to have “digital identity” in order to be seen, heard, and transact in the real world – and facebook seems to be the platform of choice globally (I will leave it to the pundits on whether it will be an open platform or remain closed).   The recent product enhancements of facebook allow their “social widgets/signals” to be embedded all over the web to provide the hooks for these new sites to get weaved into the social graph and also appear high in facebook’s “social rank”.  As facebook will enter the search space, this will be even more powerful. The difference vs Google’s page rank is that the important sites and web pages are determined by real people, their actions, and the strength of their connections.   This will drive not only a key aspect of search (better answers to research-related vs navigational queries) but also enable “discovery” of new content – when a consumer isn’t sure what they want, they will get socially driven recommendations at sites that cater to the verticals (e.g. travel, entertainment, shopping).   Most verticals will be impacted and many new companies will be created that drive tremendous free traffic from facebook feeds, embeds, comments, links, etc.  This is what Zuckerberg wants – to be the new nexus of information and applications all across the web (and mobile).

I’m particularly interested in funding companies in high value verticals that will take a 100% social approach from ground up.  Yes, some web 1.0 companies will rank well due to their brand and quality of content (e.g. New York Times, CNN) and because they will integrate social widgets but there will be many other new brands created – in Travel, Real Estate, Education, Finance, and Shopping (just to name a few) that are solely focused on being the best nodes on the social graph.

If you’ve got a company that you believe will take advantage if this new disruption, I want to hear from you!

Short Term Pain for Long Term Gain? Not for Consumer Internet Users

In today's world, the largest risk in a consumer internet startup is typically consumer adoption.  VCs ask ourselves the question - how many users will the service attract, engage, and monetize and how quickly and easily can this occur?

One simple design factor I've noticed that can be influenced more than others is the position where the product requires user investment (in terms of time) to receive benefit.  The simple premise is that human nature is such that we are more willing to engage in products that require little upfront investment.  Even if the short term cost will produce 5x returns in future use, we are moving too fast around the net to make this tradeoff - we like to find the path of least resistance.  That said, we will tolerate increasing time investment as we use and get addicted to the product.   

Too many products require a significant investment of time upfront (e.g. long registration forms, entry of preferences, creation of a large profile, etc) before any value is received.   The consumer may be excited about the proposition (e.g. meet new friends, save time doing X with our service, find the lowest prices) but attention spans are increasingly tuned to short term benefits (e.g. search results from one query vs a multi-faceted advance search).  The "UI" was even worse in consumer products which required reading a 25 page manual before you can benefit - of course, now the smartest product manufacturers include a one page graphical quick start guide which I would bet is used far more often than any other manual.

One way to solve this problem is to collect only what's absolutely needed initially and then gradually ask for more information - even if the product won't be as flexible or sacrifices some of the long term benefits.   These changes seem easy but have huge implications on databases, customer tracking, etc.  For instance, at Snapfish, we first made the user do a lengthy registration process before uploading a photo to snapfish.  After we noticed the dropoff, we thought it would be easy to allow upload first and registration later once we have the user's photos and they take an action which requires registration (e.g. buy or share photos).  It seemed simple but it required us to rethink the way we store customer data as some users would have "orphan" accounts and this issue rippled thru all processes that involved customer data - needless to say it was very tough to even test this change.   With new services, its a lot easier to "do it right the first time" (we called it the DIRFT process) - which is advice I give all our startups.

In summary, think about the fastest path to user benefit with least cost/pain (time or data investment) - even if it sacrifices functionality or long term benefit.  Once you get a user hooked, you will have their attention to move them up the cost/benefit continuum.