March 24, 2011

69) Zynga – is its Facebook dependency good or bad?

危 wēi  danger

More and more often startups are built with a total dependency on a third party, for example on external platforms such as Facebook, Twitter, Google Apps or iTunes.  The allure of access to a sales channel, rich data and potential customers is obvious but surely that dependency creates huge risk?  What if the external platform changes its approach or decides to develop its own version of the startup?  What if the platform decides that it will no longer support third-parts apps as Twitter did last week.   Zynga, the social gaming company, is an interesting example – it has been valued at over $10bn – surely this is crazy given its complete dependency on Facebook?

机 jī opportunity

I was inspired a few weeks by an article on Techcrunch.  The article categorizes dependencies as symbiotic or parasitic.  Parasitic dependencies are problematic, increasing the chance of the third party taking a hostile approach but symbiotic dependencies, in which both parties derive a benefit, pose less of a risk.

By this definition I think Zynga’s dependency on Facebook remains symbiotic.  Facebook has benefitted because games such as Farmville enrichen the Facebook’s user’s experience – currently over half of FB users play Zynga games, increasing their average time on site considerably.  In addition, Facebook Credits are integrated into all Zynga games (for which Facebook takes a cut of 30%) and the company is reportedly the largest advertiser on Facebook, spending millions a year to drive new installs.

In return, Zynga has benefitted by leveraging the rapidly growing FB community, successfully harnessing FB tools such as user news feeds to promote game updates.  It’s hard to imagine that Zynga would have grown its user base for CityVille within a week of launch to over 3 million at the end of last year without FB.  Given this symbiotic dependency, Facebook’s growth rate and estimates of it making $630m this year, Zynga’s valuation seems more reasonable.

It is also worth pointing out that none of this has stopped Zynga building a Plan-B, if only to improve its negotiating power with FB.  For example it began requiring email addresses from users (enabling it to contact them outside FB) and buying mobile application companies – including Newtoy (creator of Words With Friends and Chess With Friends) last year and New York developer Area/Code last month.

In the case of Twitter it seems ruthless for them to close down so many apps, after all those 3rd party clients helped create behaviors that now make Twitter so valuable: @ mentions, direct messages, re-Tweets and so on (none of which were Twitter’s idea originally).  But, those app’s were effectively in direct competition with Twitter, placing their own advertising and pulling users away from Twitters own platform – a parasitic dependency.  Twitter’s rationale as outlined in this developer forum explains this and the message is clear – if you’re going to develop apps make them symbiotic…

How About…

  • Considering who your business might be dependent upon?
  • If you do have dependencies can you make them symbiotic rather than parasitic?
  • And how can you plan for the worst?

—

March 16, 2011

68) Quora – innovation from recombination

危 wēi danger

Adam D’Angelo quit his position as CTO of Facebook to create Quora, an online knowledge market that aggregates questions and answers on various topics and allows users to collaborate on them.  He explained at the time: “Q & A is one of those areas on the internet where there are a lot of sites, but no one had come along and built something that was really good yet.” He’s right that Q&A has been around for a long time, with sites such Answers.com and Yahoo! Answers both receiving over 40 million unique visitors a month.  In addition there are more specific solutions such as Stack Overflow (for professional and amateur programmers) which has 250,000 users. Surely Quora would struggle to differentiate?

机 jī opportunity

On the contrary, Quora has had continued strong growth: since receiving funding from Benchmark Capital last year (valuing the start-up at a rumored $86 million) it has grown to nearly 500k users. This is all the more interesting because none of its components are revolutionary, instead the Quora team seems to have done an excellent job of spotting and tapping into emergent online behaviours and trends. Robert Scoble wrote this great post on why he thinks Quora is the future of blogging, in it he references some of the things that Quora learned from other sites, for example:

  1. Quora learned from Twitter – if you ask your social network a question they’ll answer it.  Twitter also taught us that alerts when new people follow you or answer questions you follow are a great way to pull users back to the site
  2. It learned from Digg – a voting mechanism (in which you can vote an answer up or down) enables you to have the best quality answers rise to the top
  3. It learned from Facebook – if you build a news feed that pushes new items to the user their average time on site and page views increase
  4. It learned from the best apps – we all want a sense of community instantly so it imports yours from Twitter
  5. It learned from RSS readers – curation is a valuable service so it allows users to follow topics in addition to people
  6. It learned from blogs about how to do great SEO – it’s amazing how often Quora shows up at the top of Google searches
  7. It learned from instant messaging clients – it shows who is answering a question while they are answering it
  8. It learned from Wikipedia – people are willing to suggest edits and the whole process can be predominantly user-administered

Although none of these features are necessarily groundbreaking the combination is completely novel. Often innovations are just a recombination of existing features to create a new offer – in this case the Quora founders call their offer “reverse-blogging”. In other words, it’s a content system that starts with an interested audience and then fills in the content to serve that audience. The question is whether Quora can maintain the quality of answer as it grows beyond its Silicon Valley early adopters – when the numbers of questions outstrip the capacity of the informed to answer them.  But that’s a whole other blog post.

How About…

  • When launching a new venture – look for emergent trends in adjacent industries?
  • What features can you recombine to create a completely new offer?

—

February 25, 2011

67) Y-Combinator’s application process

危 wēi  danger

Recruiting is tough. As Howard Schultz, the founder of Starbucks said: “Hiring people is an art, not a science, and resumes can’t tell you whether someone will fit into a company’s culture.”

The same is also true when selecting investments – Paul Graham, the Founder of Y-Combinator,  believes that finding the right people to invest in is more important than finding the right ideas, after all the idea often changes through the life of a startup whereas the founders are fixed.  When Y-Combinator launched in 2005 it invested in 8 startups, in the current cycle there are 40. Surely the seed stage investment firm has scaled so quickly it has compromised its ability to select the right people?

机 jī opportunity

To the contrary I think that Y-Combinator has kept the people selection bar incredibly high, partly because the team is getting smarter but also because of its creative application process.  Applicants are asked to submit their resume and to answer some specific questions, including: Please tell us about the time you most successfully hacked some (non-computer) system to your advantage. But the most interesting aspect of the process to me is that applicants are required to submit a 1 minute video, the application form states:

“In the video please introduce yourselves, explain what you’re doing and why, and tell us anything else you want to about the founders or the project.  The video should contain nothing except the founders talking. No screenshots or postproduction wizardry.  Just talk spontaneously as you would to a friend.”

I love the idea of making video applications mandatory.  It sets a hurdle to ensure the applicant’s commitment and enables the hirer to take a view on many skills that resumes only hint at: communication, sense of humour and interest.  It provides the best shot at assessing the thing Schultz recognised was so important, cultural fit. Although it’s useful to assess academic background with resumes it seems crazy to leap from that to in person interviews – video applications seem to be the smart middle step.

How About…

  • Why not require all applicants to submit a short video with their application?
  • And can you ask the candidate to answer questions that may give you a better idea of cultural fit?

Oh, and if you’re a candidate and need to create a video application – here’s how not to do it (remember – this guy might have actually looked good on paper):

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