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?

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October 11, 2010

62) diaspora* and Kickstarter

危 wēi  danger

Four students at New York University’s Courant Institute of Mathematical Sciences listened to a lecture on cloud computing and privacy and began to worry about relinquishing ownership of their data to Facebook and other social networks.  They believed that they should retain all of their personal data, after all once you give up control initially you effectively lose the option to regain control over it permanently.   The students believed that they could build a distributed social networking service to overcome this which they called diaspora*. Users would set up their own server (or “seed”) to host content; seeds would then interact to share status updates, photographs and other social data.  The team wanted to test whether anyone else shared its concerns and to raise $10k seed capital to build the product.  Surely the inexperienced team would struggle to get the idea off the ground without giving up huge amounts of equity?  And how would they test demand more broadly than just in their close social groups?

机 jī opportunity

Instead of testing the idea with potential users in face to face discussions and tapping into angel funding the team decided to place a request for funding on Kickstarter, a platform that enables crowd-funding of creative projects.  The team set their goal at $10k, recorded a video outlining why the project was important to them and explained what donors would receive in exchange for any backing.  For example, those that pledged $25 or more would receive “a CD, note, a bunch of cool diaspora stickers, and an awesome diaspora t-shirt!”.  As with all Kickstarter projects no equity was offered in exchange for funding (conveniently reducing the need for financial regulation of the Kickstarter platform) and the project had to be fully funded before its time expired or no money changes hands. diaspora* was fully funded within 12 days and within a few weeks the team had received pledges of over $200,000 from over 6500 backers.

Here’s the Kickstarter widget for the Diaspora project:

The team had proven that their product had appeal and had raised 20 times the capital they had aimed for without giving up a single percent of equity. diaspora* is now in build: a developer preview was released on the 15 September 2010 and a consumer alpha is planned for October 2010.

This approach is developing into a business model itself – just look at American Idol or X-Factor (read more in my article here).

How About…

  • Crowd-funding new ideas – testing demand and perhaps eliminating the need to give up equity?

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October 4, 2010

61) Amazon Prime

危 wēi  danger

Retailer loyalty programmes fall in and out of fashion.  Their supporters describe increased customer stickiness (particularly for retailers that become known for value in price-sensitive markets), increased average spend per customer and valuable data aggregation for market research on shopping habits.  Tesco clearly believes in these benefits as it relaunched its Clubcard last summer, leading to an increase in scheme members to 15 million.  However, the schemes are expensive to launch and run: Clubcard’s relaunch cost c£150m.  In addition, as referenced in this Marketing Magazine blog, Tesco is quite unique: it sees data frequently and across many items, is able to change its offer using that data and can sell the data to its suppliers, turning a cost-centre to a revenue centre.  Given the high costs and uncertainty of benefits Amazon would surely be crazy to launch a loyalty programme open to everyone in a similar way?

机 jī opportunity

Maybe not.  Keith Melker, my friend from HBS, recently brought to my attention a slightly counter-intuitive trend in the introduction of ‘paid’ loyalty programmes in the US, and helped me understand why they’re often smarter than they appear.

Amazon Prime, launched in 2005 is one such example in which members enjoy unlimited free shipping with no minimum purchase amount.  But, instead of giving membership away free Amazon charges $79 per year.

Superficially you might expect this to be taken up solely by Amazon’s most frequent customers and that the programme would be loss-making because those customers place frequent orders (which Amazon would have to foot the shipping bill for).  But that assumes that customers don’t change their behaviour as a result of being a Prime member and a quick scan of various blog posts suggests that they do.  In fact anecdotal evidence suggests that Amazon’s customers go from about $160/yr to $600/yr after they buy Prime.  It appears that once customers pay for Prime they begin to order more (perhaps because they feel that they’re beating the system).  So, assuming the combination of the Prime charge and the increase in margin per member is greater than the value lost through free shipping it’s a business masterstroke.  Had Amazon given it away free the uptake might have been greater and the behaviour change might not have been as dramatic: that could have been hugely expensive.

How About…

  • Re-examining loyalty programmes – perhaps deliberately offering it to a select group (rather than everyone)?
  • Or even charging for it if it might drive positive behaviour change?

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