Subtlely beautiful user experience
Despite the continuing increase in IT costs in companies, many investors and entrepreneurs have recently turned their attention to the area of end users. The reason is that many bright successes of the last 10 years, which were supported by venture capital, were originally B2C: Ebay, Google, RealNetworks, etc. Consumer spending is growing, and the online advertising market is growing. So many entrepreneurs believe that this is the right time to drive into Silicon Valley on a white horse with a new cool idea of consumer service.
Alas, most of the colossal venture losses are also B2C projects. The staggering majority of well-funded e-commerce and social networking companies are either on the dot-com slump dump or are heading in that direction. I thought it would be useful to reflect a bit about B2C entrepreneurship:
Almost all of the best user businesses that took venture capital investments “raised” their first round after a large number of users accepted a product or service. This does not mean that companies were profitable or generated income (although the famous Ebay did not spend a cent of venture capital), but showed to some extent that user experience (UX) was obvious. This was the case for Ebay, Google, RealNetworks, and this is so for the most interesting B2C projects, such as Facebook (admitted by millions of students) or Skype (tens of millions of users). On the reverse side of the coin there are huge failures that got invested before they received user acceptance (think, for example, of many online pet stores). There are, of course, exceptions, but they are few. Why is that?
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Ebay's feedback system was critical for building community and trust in it. The primary restriction on Facebook for students only, with addresses ending in “.edu”, kept the service relevant and free from pollution by unwanted users and the plague behavior of other social networks. The fact that Skype worked through the NAT / firewall and had a surprisingly clean voice codec made it possible to surprise, encourage and breathe joy into users from the very first use. For each successful product, there are usually several failed competitors with the same idea, but who do not grasp the same subtleties (Six Degrees vs. Facebook, Dialpad vs. Skype, etc.). Traditional B2C companies (film studios, electronics manufacturers) realized this a long time ago, and structured their business in the form of a portfolio, where “cash cows” of profitable products sponsor new products that are prone to failure. It is no secret that venture capitalists who are trying to predict user acceptance usually leave with nothing. Worse, many venture capitalists exacerbate the problem by encouraging their entrepreneurs to quit experimenting in order to focus on quick profit generation. If the product has not yet resonated, this is a recipe for disaster.
The usual question is: "How do I start my service without money." Word of mouth broadcast has always been the best form of user recognition. The RealNetworks player was downloaded thousands of times before Accel invested in it. Ebay's initial growth was solely due to oral recommendations. Services that somehow help virus spread using network effects usually have the best explosive user acceptance characteristics. Facebook was launched by a 19-year-old Harvard student right from his dorm room, and has grown to several million users on more than 600 campuses without the single cost of “engaging users.” Of course, the original nature of Facebook is communication with other people, so distribution in this case is the natural result of user acceptance. Money can buy traffic or trial version, but not repeated use. If the service is not compelling, then money only temporarily masks the unsuccessful interaction of users. Poor usability.
Even great products benefit from strong distribution. The Google OEM deal with Yahoo first brought a lot of traffic. Skype has benefited from the distribution of the network Kazaa. PayPal is de facto distributed through Ebay users. But what is remarkable, Ebay's own service, Billpoint, failed to benefit from the same distribution method. Which again shows how users are loyal to great usability.
Not every service with good traffic or “usage” statistics becomes good business. For example, I looked at the mobile TV service with excellent growth of "subscribers". Looking deeper, I saw that a huge number of people tried the service, and very few actually used it more than once a month. The best user interactions are addictive, and they take root in the user's life day after day. Ebay has become a whole lifestyle for thousands of people and small businesses. Families keep in touch with foreign relatives on Skype. Facebook has expanded its social interaction services to many areas of student life: events, training courses, collaboration, communication, etc. Thus, it is important to understand such metrics of statistics as “frequency of use” and “turnover”. Most services with growing acceptance can clearly make money if the price of delivering a product or service is fairly low.
Successful B2C businesses usually resonate first with a particular community of interest, although this community may initially not be viewed as potential customers. Ebay began as a service for those who collect toys PEZ (pez-dispenser collectors). Tickle, the online dating site that first used the psychological evaluation of users, received the acceptance of female Texas evangelists. Skype began with a teenage audience Kazaa, which they also grew up (the founders of Kazaa then engaged in Skype). Facebook started with students, but now it has spread to graduates. The adoption of PayPal began with the Ebay community (although initially the target market was PDA users who exchange money via infrared). Although it is not always easy to predict which particular segment will first resonate with your service, it is important to see this resonance and enhance these effects after launch to a wider audience.
Many entrepreneurs, former developers of corporate software, bring their corporate attitude to consumer projects ... with disastrous results. Entrepreneurs are scratching their heads trying to understand why users merge every attempt to “organize” search results better, or manage their calendar more effectively, or help them “collaborate”. Simply, the initial needs of users are controlled by more primitive instincts: free or cheap services (Ebay, Skype, LendingTree, Wal-Mart), quick access to information (Google, Yahoo), entertainment (RealNetworks, iTunes), escape from loneliness / social interactions (theFacebook, Skype, Match.com), or competitions (online games, etc.). Of course, such evils as pornography and gambling, too, are driven by people, but even being not too Freudian-like, one can say that these are just extreme forms of competition and escape from loneliness. This list of motives, of course, is not complete, and successful user businesses often grow to meet more subtle and complex needs. But if the basic user idea is quite far from these specified motivations, then an entrepreneur should think about whether the service really touches the strings of the soul of users.
So, what is the proper role of venture capital in B2C businesses? As soon as the core of the service has established some kind of resonance, the partner and the company are critical in order to fix distribution channels, hire the best team, build the infrastructure for growth, consolidate the brand, and survive the competition. Start-up businesses are incredibly fragile, and can often be easily copied and broken by well-capitalized industry leaders. eToys were broken by Amazon. Microsoft pushed noticeably at the time of Netscape, but RealNetworks, Macromedia, and Intuit survived, despite pressure from Microsoft. Initial acceptance from users is a difficult barrier, but this is only the first step.
Kevin Efrusy is investing in B2C Internet startups for Accel Partners. He led investments in Facebook and is a member of the board of directors of BBN Technologies.
Alas, most of the colossal venture losses are also B2C projects. The staggering majority of well-funded e-commerce and social networking companies are either on the dot-com slump dump or are heading in that direction. I thought it would be useful to reflect a bit about B2C entrepreneurship:
It’s best to experiment and get real acceptance by users before looking for an investment.
Almost all of the best user businesses that took venture capital investments “raised” their first round after a large number of users accepted a product or service. This does not mean that companies were profitable or generated income (although the famous Ebay did not spend a cent of venture capital), but showed to some extent that user experience (UX) was obvious. This was the case for Ebay, Google, RealNetworks, and this is so for the most interesting B2C projects, such as Facebook (admitted by millions of students) or Skype (tens of millions of users). On the reverse side of the coin there are huge failures that got invested before they received user acceptance (think, for example, of many online pet stores). There are, of course, exceptions, but they are few. Why is that?
')
The key “hit” characteristics of usability are often quite difficult to grasp and can only be felt through early experiments.
Ebay's feedback system was critical for building community and trust in it. The primary restriction on Facebook for students only, with addresses ending in “.edu”, kept the service relevant and free from pollution by unwanted users and the plague behavior of other social networks. The fact that Skype worked through the NAT / firewall and had a surprisingly clean voice codec made it possible to surprise, encourage and breathe joy into users from the very first use. For each successful product, there are usually several failed competitors with the same idea, but who do not grasp the same subtleties (Six Degrees vs. Facebook, Dialpad vs. Skype, etc.). Traditional B2C companies (film studios, electronics manufacturers) realized this a long time ago, and structured their business in the form of a portfolio, where “cash cows” of profitable products sponsor new products that are prone to failure. It is no secret that venture capitalists who are trying to predict user acceptance usually leave with nothing. Worse, many venture capitalists exacerbate the problem by encouraging their entrepreneurs to quit experimenting in order to focus on quick profit generation. If the product has not yet resonated, this is a recipe for disaster.
Money can not attract users. Users are attracted by excellent usability.
The usual question is: "How do I start my service without money." Word of mouth broadcast has always been the best form of user recognition. The RealNetworks player was downloaded thousands of times before Accel invested in it. Ebay's initial growth was solely due to oral recommendations. Services that somehow help virus spread using network effects usually have the best explosive user acceptance characteristics. Facebook was launched by a 19-year-old Harvard student right from his dorm room, and has grown to several million users on more than 600 campuses without the single cost of “engaging users.” Of course, the original nature of Facebook is communication with other people, so distribution in this case is the natural result of user acceptance. Money can buy traffic or trial version, but not repeated use. If the service is not compelling, then money only temporarily masks the unsuccessful interaction of users. Poor usability.
When possible, go after the truck
Even great products benefit from strong distribution. The Google OEM deal with Yahoo first brought a lot of traffic. Skype has benefited from the distribution of the network Kazaa. PayPal is de facto distributed through Ebay users. But what is remarkable, Ebay's own service, Billpoint, failed to benefit from the same distribution method. Which again shows how users are loyal to great usability.
Do not confuse use with acceptance
Not every service with good traffic or “usage” statistics becomes good business. For example, I looked at the mobile TV service with excellent growth of "subscribers". Looking deeper, I saw that a huge number of people tried the service, and very few actually used it more than once a month. The best user interactions are addictive, and they take root in the user's life day after day. Ebay has become a whole lifestyle for thousands of people and small businesses. Families keep in touch with foreign relatives on Skype. Facebook has expanded its social interaction services to many areas of student life: events, training courses, collaboration, communication, etc. Thus, it is important to understand such metrics of statistics as “frequency of use” and “turnover”. Most services with growing acceptance can clearly make money if the price of delivering a product or service is fairly low.
Learn and own your demographic base before expanding
Successful B2C businesses usually resonate first with a particular community of interest, although this community may initially not be viewed as potential customers. Ebay began as a service for those who collect toys PEZ (pez-dispenser collectors). Tickle, the online dating site that first used the psychological evaluation of users, received the acceptance of female Texas evangelists. Skype began with a teenage audience Kazaa, which they also grew up (the founders of Kazaa then engaged in Skype). Facebook started with students, but now it has spread to graduates. The adoption of PayPal began with the Ebay community (although initially the target market was PDA users who exchange money via infrared). Although it is not always easy to predict which particular segment will first resonate with your service, it is important to see this resonance and enhance these effects after launch to a wider audience.
Forget about ROI. Users do not behave like engineers or businessmen.
Many entrepreneurs, former developers of corporate software, bring their corporate attitude to consumer projects ... with disastrous results. Entrepreneurs are scratching their heads trying to understand why users merge every attempt to “organize” search results better, or manage their calendar more effectively, or help them “collaborate”. Simply, the initial needs of users are controlled by more primitive instincts: free or cheap services (Ebay, Skype, LendingTree, Wal-Mart), quick access to information (Google, Yahoo), entertainment (RealNetworks, iTunes), escape from loneliness / social interactions (theFacebook, Skype, Match.com), or competitions (online games, etc.). Of course, such evils as pornography and gambling, too, are driven by people, but even being not too Freudian-like, one can say that these are just extreme forms of competition and escape from loneliness. This list of motives, of course, is not complete, and successful user businesses often grow to meet more subtle and complex needs. But if the basic user idea is quite far from these specified motivations, then an entrepreneur should think about whether the service really touches the strings of the soul of users.
The right partner and capital are critical for taking advantage of the opportunity.
So, what is the proper role of venture capital in B2C businesses? As soon as the core of the service has established some kind of resonance, the partner and the company are critical in order to fix distribution channels, hire the best team, build the infrastructure for growth, consolidate the brand, and survive the competition. Start-up businesses are incredibly fragile, and can often be easily copied and broken by well-capitalized industry leaders. eToys were broken by Amazon. Microsoft pushed noticeably at the time of Netscape, but RealNetworks, Macromedia, and Intuit survived, despite pressure from Microsoft. Initial acceptance from users is a difficult barrier, but this is only the first step.
Kevin Efrusy is investing in B2C Internet startups for Accel Partners. He led investments in Facebook and is a member of the board of directors of BBN Technologies.
Source: https://habr.com/ru/post/45186/
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