Why Kindle is a hit...

When Amazon announced their Kindle last year, I bought one.  I wasn't too optimistic, as I had read a lot of bad reviews.

However, to my surprise, I've really enjoyed my Kindle experience.  The screen is extremely readable -- and while the controls are somewhat limiting, it's very easy to use.  And as long as I view the Kindle as a replacement for a book (rather than a replacement for a PC), it has surpassed my expectations.   So I'm not surprised to see today's reports that Kindle is a hit.

More importantly, I've found that I have purchased about 3 times more books using the Kindle than I otherwise would have purchased.  Surprisingly, the primary drivers of my increased purchases are due to the business model -- not the actual hardware.  Specifically:

1)  My bookshelves at home are filled with books that I never finish.  There's nothing more frustrating than buying a book, getting 20 pages into it, and then deciding that you don't like it.  Amazon's Kindle allows you to download the first few chapters of a book for free - so you can make a purchase decision after you've started to read the book.  Very cool.  I've avoided purchasing more than six books because I didn't like how they began.

2)  The average book on the Kindle costs under $10.  While it's still more you'd pay at Half.com, the instantaneous download  and low price do provide a real benefit.  I've downloaded books on trains, at airports and at hotels -- and have found that the experience is seamless and addictive.

The biggest drawback?  Reading on planes.  Use of electronic devices is prohibited during the first 20 minutes of a plane ride.  It's pretty frustrating to see everyone around you reading a book/newspaper, when your Kindle needs to be holstered. 

Google's Universal Search

A little over a year ago, I wrote a blog entry about Google's OneBox feature -- and it's potential to impact other vertical search engines.  Danny Sullivan's SearchEngineLand blog has a detailed post that shows how Google has shifted from OneBox towards Universal Search.  If you're interested in search or content discovery, Danny's post is well worth the read...

After the Techcrunch Bump

I see many consumer Internet pitches these days where the basic marketing strategy is to (1) get covered by Techcrunch, (2) get tens of thousands of users from the "Techcrunch Bump", and then (3) "grow virally".  While a positive Techcrunch review has the potential to send thousands of consumers your way, it does not represent a marketing plan.  Munjal Shah at Riya found this out after the launch of Riya back in 2006, when he wrote about "the cocaine like high and subsequent crash of the Techcrunch effect":

The Techcrunch article got put on Digg and read in thousands of feed readers and viola... the Techcrunch effect begins. Michael's blog is the single more effective vehicle to get the word to the online blogosphere about new technology companies on the planet..The unfortunate fact was that the initial hammering [our servers] took was just not the reality we would see later. The number of photos uploaded per hour began to fall and then stabilized near the end of the 22nd at around 25,000 photos per hour and would continue to fall for weeks to come. - Munjal Shah

So while a positive reception from the blogging community is valuable -- and can generate a lot of initial activity/interest and a nice looking Alexa chart -- it is not the only ingredient in your ultimate marketing success.  When I see a post-launch consumer Internet startup, I basically look for a few simple things:

1)  Usage Growth -- how many unique users are visiting/engaging with your site and product, and how is the rate of growth evolving over a several week period of time.  I also look at the source of this growth -- is it scalable, repeatable and systemic?  Is it event-driven (ie, PR)?  Is it organic or driven by marketing (ie, is the company buying growth via Adwords, etc)?

2)  Virality -- So many people misunderstand virality.  Virality is not "word of mouth".  And having a product go viral is not easy -- nor is it something you can just "sprinkle on a product" after creating it.  If making a product viral was as easy as adding a "share with your friends" button, there would be no reason for the $100 Billion advertising industry.  (I can see companies asking themselves -- "let's see, should we spend millions on advertising...or should we just add virality...Hmmm").  I believe a viral product is one where a consumer's basic usage of a site/product brings new users (and therefore additional utility) to the site/product.  Facebook, LinkedIn and Paypal are all great examples of viral products.  If you're pitching your business, you should know your viral coefficient.  That is, how many new users get added virally from each additional user.  And if you can get your viral coefficient greater than 1.0, then you've built something really special. 

3)  Engagement Level -- Do your visitors actively engage in your site?  How long are they there for?  How many pages do they view?  What is their user experience like?  One of the easiest ways I've found to evaluate a company's engagement level is to have them (temporarily) share access to their Google Analytics account -- this gives us the ability to get the data/insight we'd need without having to bother them to run each and every report. 

4)  Repeat Usage -- User retention tends to be an area where people pay the least amount of attention, but I think is one of the most important to monitor.  Specifically, how often do people come back to your site.  While there are a lot of different ways to measure retention, my preferred way is to look at a cohort analysis.  Say you've had your site running for five months -- you now have five "first month cohorts", four "second month cohorts", three "third month cohorts", two "fourth month cohorts" and one "fifth month cohort".  And you can see, what percent of your users come back in each subsequent month.  A simple chart is below.

You can also plot it out graphically -- I've attached a generic Cohort Analysis Excel document.  From this data you can learn a lot.  Not only do you see how many people are returning this month, but you can see the trends over time.  For example, in this model spreadsheet you can see that while the site is still just retaining a small percentage of their overall users, the rate of retention has gone up by over 250% over the course of the year.  And while this example cohort analysis is shown by month, immediately post-launch I'd recommend that you create and track cohorts by week.

Even more on pricing...

Further to my post a few weeks back about pricing, a study released yesterday from the Proceedings of the National Academy of Sciences found that the more wine costs, the more people enjoy it -- regardless of how it tastes!

The researchers said that when 20 adult test subjects sampled the same wine at different prices, they reported experiencing pleasure at significantly greater levels when told the wine cost more. At the same time, the part of the brain responsible for pleasure showed significant activity.

via Reuters -- thanks to Donna Murdoch for alerting me to the study...

The earlier the better...

Most VC’s typically “pass” on a deal with a line like “you’re too early for us, but let’s stay in touch as you execute your plan and hit your milestones.”  Why wouldn’t they?  This non-pass pass gives the VC a second opportunity to see a deal – and let’s the VC avoid the finality of declaring: “Nope, we’re not ever going to fund you.”  In a business that’s all about maintaining options, the non-pass pass has become standard practice.

At First Round Capital, we can’t follow this standard practice.  We prefer to see (and fund) companies early – after all, we’re not Second Round Capital.  We are comfortable with “Powerpoint Risk” (ie, funding powerpoints) and are used to funding incomplete technologies, teams and business models.  Our fund’s average initial investment is just under $500,000.  So I found it ironic last week, when, I ended up passing on several startups using a line like “you’re too late for us – I wish I had seen you six months ago during your angel round.”

Since our inception, First Round Capital has always been focused on early-stage, seed investments.    Just last week we closed a new fund.   And as rumors spread that we might be raising a larger fund, we’ve already started to get more inbound requests for larger, later-stage, deals – ($2+ million funding rounds).   But while our fund is larger, our focus remains the same.  We plan to continue to make the same early-stage, seed investments we always have.   The same initial investment size.  The same investment style.  And the same investment strategy.

Our average initial investment will remain around $500,000.   And our investment goal remains the same – to help an entrepreneur validate, “de-risk,” or disprove his/her hypothesis…and to do so as quickly and capital efficiently as possible.   The only real difference is that we won’t be raising a new venture fund annually (as we did in the past), allowing us to spend more time with our portfolio companies and looking at new deals.    So in an election year where everyone seems to scrambling to embrace "CHANGE", we’re looking forward to more of the same in 2008 and beyond.

(And keep the Powerpoints coming – you can’t send them early enough!)

Old Half.com Commercials

I was going through my music on my computer the other day, and I came across two old radio commercials from the Half.com days.  I got a laugh out of hearing them, so I thought I'd share.  Click either of the buttons below to hear the commercials...

 

boomp3.com

boomp3.com

Some thoughts on pricing...

I recently returned from a family vacation, and while I tried not to do much "work", I did find that a hotel can provide an interesting ecosystem to observe some interesting pricing dynamics. 



Pick a Price, Any Price
Despite my best efforts to kick the habit, I still find myself addicted to Diet Coke.  And while I was able to lower my intake on vacation, I still found myself craving a Diet Coke or two during the day.   What surprised me was the multitude of different places -- and different prices -- a single hotel sold the same product for.  The mini-bar in the room sold a can of diet coke for $3.50 (ouch!).  The soda machine down the hall sold it for $1.00.  The gift shop sold it for $2.00.  You can order it in one of their restaurants for $2.50 a glass (with free refills) or you can get it delivered poolside for $2.50 (with no refills).   And you can order it via room-service for $2.50 plus a $2 delivery fee.  Five different prices (ranging from $1 to $4.50) for the same product.  The only difference is the method of delivery -- and the convenience each method offers the consumer. 

And this got me thinking- can this model work online?  Are there examples of online services which charge differentially for the exact same product?  Let me know what you think...


The Anti-Penny Gap
I've written before on "The Penny Gap" -- where I discussed the challenge in converting a user from free to paying.   In that post I concluded that the hardest part of an online business was "getting your users to pay you anything at all".  Well, after this vacation I have to add an amendment to my theory. 

My wife and I wanted to go out to dinner without the kids a few times on the trip, so we asked the concierge if they could recommend any baby sitters.  The provided me with a list of three services - Capable Caregivers, Affordable Assistance, and Reliable Babysitting Agency.  There was no description of the services.  No references.  No recommendations.  No listing of "years in business".  Just their names, prices and contact information. 

So how am I to choose which one to select?  Do I trust my kids lives with "Affordable Assistance" for $12.50 an hour?  Or do I select the more expensive "Capable Caregivers?"  Well, in the absence of any comparative information, I chose the Capable Caregivers.  (As did, it appears, everyone else in the hotel -- my informal study of six other families who hired babysitters from the hotel concluded that everyone chose the most expensive option).

So I hereby amend the Penny Gap theory -- when a decision involves (1) safety/security/risk, (2) children, and/or (3) information assymetry, the highest price is often chosen over all over options.  Let me know any other places where the "Anti-Penny Gap" applies.