A year ago I wrote a post on predictions for 2011 and listed five meta-trends that I saw transpiring in the world of tech and media.  I thought it would be a good idea to bring them back up and discuss what happened and what didn’t.  It looks like the obvious stuff happened (although I would welcome contrarian viewpoints), but some of the more nuanced predictions fell flat.  Later this week I’ll write some predictions for 2012, but for now here’s some analysis on how this past year panned out:

Prediction 1: Exponential growth in the U.S. smartphone market.

This was the low hanging fruit of predictions and to a large extent it’s safe to say that this happened.  According to eMarketer,  aggregate U.S. smartphone penetration jumped from 26% in 2010 to 38% in 2011.  That’s the biggest jump we’ll see as adoption slows YOY through 2015.  Of particular interest is the increased adoption in the 35-44 and 45-64 cohorts of the population.  A big question we should ask is how this group intends to use smartphones in the coming years, and what types of mobile services can we offer them?

Prediction 2: An increase in mobile gaming, but a decrease in pay-for-app models.

This prediction largely played out as well (don’t worry, I’m wrong about everything else).  I think this graph from Flurry is the best visualization of the sea change that’s happening in gaming:

This graph came from a great piece written by Flurry’s GM of games, Jeferson Valadares,  who identifies why this strategy is useful to game developers.

Flurry data shows that the number of people who spend money in a free game ranges from 0.5% to 6% depending on the quality of the game and its core mechanics. Although this means that more than 90% of players will not spend a single penny, it also means that players who love your game spend much more than the $0.99 you were considering charging for the app.  And since you gave away the game for free, your “heavy spender” group can be sizable.

This ‘sizable’ group can drive the business value for your game, and the free-to-try model drastically lowers acquisition costs, keeping your funnel lean and activity high.  I expect this trend to continue for non hit-based games (think casual gamers) in 2012.

Prediction 3: Continued adoption of cloud-based productivity apps by businesses

2011 saw a number of companies make this bet in various industries, and I am confident that cloud-based applications will continue their adoption curve into 2012.  Was 2011 the breakout year for this change?  I think the jury is still out on that and I’ve had trouble finding hard data around this either way.  If anyone has real data on this in terms of customers or revenue I’d love to check it out.  The best piece I’ve found was this NYT article on SAP, but it doesn’t really size the market shift.

One observation that I had this year was that consumers are starting to bring their preferred apps into the workplace.  I didn’t see this as an entry point for enterprise businesses, but it looks like companies like Evernote and Dropbox are going to make their way into the workplace not through the traditional, long sales cycle that enterprise apps make to businesses, but through consumers just adding them on to their computers and demanding that they be permitted to use them.

Chris Dixon correctly points out that the user and the buyer in enterprise are different people, and I think that explains the drag in adoption pretty well.  We’ll see what happens in 2012, but this change is definitely on its way.

Prediction 4: Fragmented social networks

Last January I predicted that people would want more choice in how they share content and who they share it with.  This largely hasn’t happened yet on the web.  Facebook continues to grow at shocking rates considering the law of large numbers – I think they’re predicted to grow over 8% in 2012 according to eMarketer.  In defense of my prediction,  Google seemed to have thought the same thing and made a big bet on Google+ and the ability to develop ‘circles’, which are essentially micro-social networks.  We’ll see how this plays out in 2012.

Another note, when it comes to mobile I think we’re going to see an increase in demand for smaller networks.  Path reached over 1M users this year and released a beautiful iOS app.  Two mobile networks in the K2 Portfolio, Sonar and Tracks,  are both focused on unique mobile networks and are seeing incredible traction.

Prediction 5: Flat adoption of mobile coupons

This was flatter than most predicted, or hoped.  I think the best example of this lack of pickup would be Groupon Now: Groupon’s mobile solution. According to Yipit, when Now launched in May of 2011, Groupon predicted that mobile deals would represent 50% of Groupon’s sales within two years, but it has largely failed to deliver on that promise-  Now has been less than 1% of revenues in North america so far:

I don’t think there’s a question of whether or not mobile coupons will become a driving force for consumer behavior in the future.  However, timing is everything an 2011 was not the year for widespread adoption.

That’s is for 2011. Overall the big trends that we saw forming up a year ago have largely played out as predicted.  I’ll put some predictions around 2012 later this week.

]]> http://earnedmedia.wordpress.com/2012/01/01/the-rest-of-the-story-revisiting-2011-predictions/feed/ 2 cbrucculeri Smartphone Penetration in the U.S. Freemium Games googleplus-icon Groupon Now http://earnedmedia.wordpress.com/2011/12/28/thinking-big/ http://earnedmedia.wordpress.com/2011/12/28/thinking-big/#comments Thu, 29 Dec 2011 00:26:43 +0000 Christian Brucculeri http://earnedmedia.wordpress.com/2011/12/28/thinking-big/ ]]> I love this vision slide from Zynga’s Road Show deck.

You cannot build a big company without thinking like this:

A few takeaways that I’ve gotten from the class:

1. The web is an awesome place of infinite possibilities.
2. Despite the current movement of learning everything for free online, having weekly assignments that I had to present in front of the class kept me on track and learning.  ITP also offered an environment that was conducive to creating, a community that was phenomenally supportive and a professor who kept the conversation moving forward.  I think educational solutions like Kahn Academy are helping to structure the online learning process, but nothing beats having to show up, sit down, turn your phone off and learn. I’m a huge believer in traditional classroom work and, while I think the Internet can definitely enhance the current model, it will never replace it.
3. Basic coding skills should be an absolute must for anyone who hopes to found a web-startup.  You don’t have to build your own site, but you need to understand the process.  The same is true for developers learning business development and strategy. For example, I am better at excel models because of this class, and I can better communicate with technical teams.  I plan to continue my investment in programming and I expect it to pay dividends in the future.

For my final we had to build something and present it.  I wanted to build something that helped me visualize data in a new way, and based on my experience in social I wanted to play around with the Twitter API.  So, I built an application that allows a user to put in a Twitter handle and then receive a sorted list of words used to @reply that handle,  sorted by frequency. Here’s a walkthrough of the application using Charlie O’Donnell’s handle (@ceonyc):

Here’s another visualization of @replies to Gary Vaynerchuck:

As you can see, it needs a bunch of work before it presents real value.  On the upside, I was able to dynamically access the Twitter API, pull and sort data, and display it.  I’m looking forward to continuing to build on what I started at ITP!

The Company is a bit of a hybrid, in that it makes early-stage investments and also incubates companies in-house.  My day-to-day job will include working with CEO Daniel Klaus and Chairman Kevin Wendle on due diligence, planning and implementing strategies around new startup investments, as well as working in a supporting role with the current portfolio companies.  On the investing side I hope to build on what I’ve learned from Joe, Nikhil and the rest of the team at Softbank Capital, and from my time learning from Jerry Neumann at NEU VC.  From an operations perspective,  I’m hoping my time in business development, social marketing, product development, and my background in media & entertainment has given me a foundation of experience to be a value add to the incredibly talented group of entrepreneurs at K2.  I’ve spent lots of time selling services to businesses, and building in mobile and on Facebook.  While I still have limited knowledge and tons to learn, I hope that the skill set and network that I’ve built will be helpful to the entrepreneurs I will work with.

Aside from the in-house team at K2 , the fund has a phenomenal group of investors and advisors. Overall, I could not be more excited by the opportunity to learn from this team.  There aren’t many opportunities to work on both the investment and operations sides of early stage businesses, so I feel incredibly lucky to be here and I can’t wait to hit the ground running.

I plan to invest more time and energy into this blog, posting more often on topics covering startup operations and early stage investing.  If you ever want to connect, you can find me at christian[at]k2medialabs.com, or on twitter @nycsteady.

Digital marketing strategy is changing the way consumer brands and enterprises have to think about content.  That’s been true for some time, but there are two main reasons why ‘this time it’s different’:

1. Like never before, data on the internet is so widely available with every activity, the desire to leverage it is (or should be) natural.  IBM released a study last week after interviewing over 1,700 CMOs globally.  The number one headache identified for their future?  The explosion of data that’s occurring in their worlds (incidentally, social media was number 2).  Over 70% of CMOs reported being underprepared to manage the data.  That’s a staggering percentage…
2. Media consumption habits have changed so drastically that the volume of content a brand must create in order stay relevant in real-time conversations has gone up exponentially, but the relationship between creative spend and measurable ROI has decreased.  In other words, everyone needs a higher volume of less expensive content than they used to.

My instincts and training, and the above data points, scream that using data is infinitely smarter in the long-run than using hunches to produce content.

The contrarian point, though, has its merits. For one, we’ve been using qualitative insights to sell things for centuries.  So what’s wrong with good content ‘just being good’? After all, doesn’t the insistence of data in everything we do take some of the magic out of the equation?  The most eye-catching  ideas I’ve seen come out of creative agencies were less about data and more about bright shiny objects.

I’ve been teetering lately between the idea of ‘creative’ content development versus data driven decision-making.   I don’t believe these are mutually exclusive, and the best future content creators will leverage data to create content, but there are some differences. Having spent some time on this, here’s what I’ve come to learn over time:

1. Bright shiny objects close deals.  Everyone wants ideas, a new hotness. Content experts with a high EQ and an intuitive understanding of  emotional pull have a tendency to win when it comes to meetings. There are a lot of biases in the way we present ideas that lend themselves to the ‘PRETTY-PICTURE-BOOH-MATH’ approach to marketing.  The first is that we’re still presenting creative concepts with meetings that we give titles like tissue sessions. Imagine walking into a pitch with a tissue covered board and unveiling a spreadsheet, then talking about segmentation.  Snoozer.
2. Data keeps business relationships alive.  After the party,  when the bright shiny object wears off,  marketers are always struggling to grasp ROI.  As I was writing this, I stumbled across this article on Moneyball for the Consumer Web that talks about how Rent the Runway employed data to determine the 19 variables that are important to their customers, including color, designer name, dress length, time of year, occasion/purpose, age of renter, body type, neckline, model wearing dress, price.  Now, let’s pretend you need to manage a Facebook Page for Rent the Runway, or write a blog,  or create content to get into other bloggers’ hands to help spread the word.  Do you think that having those 19 variables would be helpful in developing your content calendar?  I would imagine that one could write a few articles on each variable and build a post per week that would be relevant and keep the content flowing (and relavant).

There’s a mentality that I think a lot of upcoming business executives accept that is career-limiting.  I believe that there’s an over-emphasis in our graduate level schools on gaining depth within a functional area,  or only focusing on training and coursework that directly relates to your career path.  While I agree that’s the primary purpose of a graduate degree, I think a lot of value can be unlocked by learning completely new things that at first glance appear unrelated to your current skill set and career goals, especially courses that are creative in nature.  Intro to Comp Media has been that experience for me.  For everyone outside of an academic program, I’d encourage you to check out a skillshare class.

Back to my rudimentary coding skills. Processing is a computer language that’s primarily used by visual artists.  For our last assignment, we had to create a ‘chance composition’ using the object-oriented approach to development.  I made a pretty ridiculous looking space ship that meanders it’s way through some random stars.  Overall, nothing to write home about.  However, re-learning some of the fundamentals of coding has really helped me communicate with the real developers that I work with on a daily basis, and it’s been a great experience to get outside of my comfort zone.

A couple weeks ago when Steve Jobs announced his retirement, I did a little research to try to sum up my takeaways from his success.  One of his stories was about taking a calligraphy class in college, and how that class gave him enough knowledge in the subject to create font sets in the first Apple products (which were later copied by Microsoft for Word).   At the time when he took that class, he had no idea how or why that class would be useful. Only when Jobs looked backwards he was able to connect the dots.

Jobs’ belief that ‘you can only connect the dots looking backwards’ struck me when I heard it, probably for the same reasons that it resonates with all of us. We all like to believe that everything we do has a deeper meaning, that every experience is building to a purpose and therefore no time and energy is ever truly wasted.  I like to think that way on a personal level,  but I also think this can be applied to entrepreneurship and product development.

Businesses are products of several environmental inputs:  the entrepreneurs behind them, the industry that they serve, the macro-economy, the trends at the time, customer needs, etc.  I believe many budding entrepreneurs, especially in the MBA communities, spend a lot of time thinking about these inputs and putting them into their business plans.  I think this is smart work to do.   You want to make sure that the market exists and is big enough to make your effort worthwhile.  With that said, there’s a limit to the value of doing this exercise and very few people seem capable or willing to take the next step, which I believe is creating a minimum viable product for early adopters to see and give you feedback on.   There’s a limited amount of planning that can be done in the startup phase, and much of entrepreneurship is based on experience and a ‘hunch’ that there’s some white space where you’re attacking.  5% of your learning will happen in the business planning process, 95% of it will happen when you start building.

In software, this process is called iterative development, or the agile method.  Here’s a quote from the wiki page:

The basic idea behind the agile method is to develop a system through repeated cycles (iterative) and in smaller portions at a time (incremental), allowing software developers to take advantage of what was learned during development of earlier parts or versions of the system. Learning comes from both the development and use of the system, where possible key steps in the process start with a simple implementation of a subset of the software requirements and iteratively enhance the evolving versions until the full system is implemented. At each iteration, design modifications are made and new functional capabilities are added.

Creating a feedback loop that includes early adopters will allow you test many of the assumptions that you’ve made in your business plan.  It also allows you make changes to your business model based on what you’ve learned.  When we built Crowdstream, we weren’t really sure what was going to resonate with artist managers or with fans.  It took four iterations to get it closer to right and we’re still iterating.  The product that we have today is vastly different from the product that we originally designed, but looking back its easy to connect the dots.

Everyone loves a good narrative

Having worked in both business development and production,  I feel like I’ve learned a lot about people.  The importance of people in every job function can’t be over stated.  It doesn’t really matter if you’re selling enterprise software, building a product or making a trade,  you need to think about the person on the other side.  People are the consistent thread no matter what desk you’re sitting at.

I had an experience the other day responding to a request for a technical document around a piece of software.  The request was to write out a summary of something technical to an audience that was mostly non-technical, and then to discuss it at a meeting.   As an experiment, instead of writing out a summary, describing the environment that the software lives in, and listing the functional components of the software, I wrote out a narrative.  The narrative was a story about a person who I considered to be a typical user, going through a typical experience needing and using the software.  I named the user John and told a story about him using the software:  how he found it, why he wanted to use it, what he did when he started using it,  how he interacted with it and what brought him back.  It was highly effective and I think everyone appreciated the approach.

There are a few reasons that I think narratives rock:

1. Narratives are familiar to everyone:  When was life better than when you were getting stories read to you as a kid?  When you start telling a story, your audience naturally falls into a more relaxed state.  Everyone understands stories because they’re relatable.  There’s no need to try to ‘keep up with the technical details’, so there’s very little anxiety about the complicated topic.
2. They are visual:  People love visuals.   If you don’t have a designer nearby, a narrative is your next-best asset.  Good visuals create memories by eliciting emotional connections.  If your story explains a user and then the use case, everyone has a person in their head walking through a process. It helps complete the picture for the listener.
3. They force the storyteller to think about use case:  Storytelling can improve your product or idea.  By creating stories to present, the storyteller is forced to think from a user or customer’s perspective.  This sounds overly simplistic, but I found it to be incredibly productive and a creative way to understand the software.
4. They offer a platform for deeper conversations: To me, this was the most interesting benfit.  After the story ended, all of the followup questions came in the form of questions about the narrative’s main character.  Instead of ‘How does X do Y?’,  the question was “What happens if John…?”  This made the followup creative and productive, and kept everyone thinking through the process using visuals. It was the most productive product overview conversation I’ve had in a long time.

On the heels of Steve Jobs’ announcement that he’s retiring from Apple (okay, I’m a little late for the heels, but there was a pseudo-hurricane),  I thought I’d reflect on the top five things I take from the single greatest entrepreneur in the history of consumer technology.

1. Know Your Customer:  When you start a business or step into an existing enterprise, it becomes easy to focus on operational or strategic issues.  It seems to me that having an almost religious obsession with the customer experience is the best bet you can make on where to expend your limited resources.

• Jobs understood that his customers want their computing experiences to be seamless, and that they’re not interested in working through compatibility issues between manufacturers and software developers.  This understanding has allowed Apple to enjoy premium prices in a commoditized market for decades.
• Remember what everyone was saying about the iPad before it was released?  Those who doubted the market demand for tablets spent months trying to catch up after the iPad’s initial success,  only to release products that felt like cheap knockoffs months too late.
• An example from another successful tech company: when Google’s Page Rank algorithm was first created, the company’s first strategy was to license its search technology to existing search engine websites.  The issue, as the story is told, is that Google’s technology was too fast and, if users left the search sites too quickly it would hurt display advertising revenues.  Of course, users wanted fast search and that became the model that eventually won out.

There are a million other great examples of this approach paying off in big ways.  Know your customer and understand their needs.

2. You Cannot Replicate Culture: One of the reasons that Apple’s stock didn’t take a big hit following Jobs’ announcement is that investors have bought into the idea that not much is going to change at Apple.  The reason that nothing is going to change is because their culture is fully-baked.  One of the advantages of being a first-mover is that you can spend more time developing your product than your fast followers can.  Apple is a design firm first and that DNA shows in everything they release.  That type of culture is almost impossible to replicate; it will give Apple a competitive advantage for years to come.

3. Do What You Love / Follow Intuition:  Check out this quote from Jean-Louis Gassee.  I think that doing what you love means accepting that fact that a lot of people will be sure that you’re doing it wrong.   I’m finishing a behavioral finance class with a professor who spent all of 1999 shorting tech stocks.  He said that he became physically ill every night as the market continued to rise– that he didn’t sleep for a year.  But his intuition was right: doubling your market cap every month is unsustainable and it doesn’t make any sense.  When I think about Steve Jobs, I think about how difficult it must have been to get fired from the company that you founded.  The idea that ‘you’re doing it wrong’ can affect your decision-making if you let it and the contagion can eat you up, even if you were right in the first place.  Doing what you truly love helps you mitigate those downsides and it helps you trust your intuitions.

4. Think Big and Small: Apple’s products are a collection of seamlessly integrated UX details.  While Apple changed the world in a lot of ways, most of what they accomplished came through creating superior user experiences– the details.  For example,  while strategy played a roll with the iPod (iTunes music store), everyone bought an iPod because it was slick and it made digital music fun.  I think that the importance of UX / design cannot be overstated, especially in web and mobile products.

5. Fail: As Jobs himself said in his commencement address at Stanford,  ”you can only connect the dots looking backwards”.  Creating and ideating are the only tools you have to build something great.  Failing is, for most people, an inevitable outcome for the majority of your attempts.   Don’t think Apple has had any failures?  Check out these five epic Apple fails (granted, not all of them occurred on Steve Jobs’ watch).  Aside from these more esoteric failures,  think about the battle for industry standard when the PC first came out.  Jobs and Apple lost in a glorious fashion to the Wintel model.  As a result of that failure, Jobs learned the importance of available software applications on any system– which is why we have the App Store today and why the iPhone and iPad have been such a huge success.  Early failures + great leaders = future successes.

I had the privilege of hearing Albert Wenger speak this evening at the Entrepreneurs’ Roundtable in Microsoft’s New York office.  I met with him once before at Union Square’s open office hours a little over a year ago when I was working on a location-based service for live events.  Both then and tonight, Albert talked about the USV approach to investing in networks, the idea being that the only lasting competitive advantage on the web comes from establishing networks.

The web is generally a very fluid place for users.  The ‘next click is always free’ and attention is harder to capture than ever (and is being driven by different forces than just a few years ago).  Albert mentioned this evening that the scarcity of the web is attention, not publishing. In other words, it’s relatively easy to put something out, and content is in near-infinite supply as a result,  the real challenge is getting noticed.  A few years ago, one of the biggest solutions to the attention issue was getting up in organic search results, or paying for search in order to get traffic (attention) to your site. That’s been changed significantly as social media has altered the way we find and consume content on the web.  The Facebook stream is the new organic search result.

I think this thesis is what has driven new startups towards the user acquisition model in the web. Most new consumer-facing web businesses have focused less on ‘traffic’ and more on ‘users’.  The smartest businesses are leveraging a new user’s social graph in order to get their friends in on the experience, which creates value that cannot be replicated by a competitor.  Users don’t buy into a new service on the web based on feature sets, the stickiest users are actually buying into being a part of a network.

In the world of Facebook and Twitter, very large horizontal networks that have captured massive user bases, this probably means creating vertical networks that are still big enough opportunities to make them worth the effort and risk.  These opportunities can be identified by analyzing groups that have high-intensity shared needs and interests that cannot be satisfied by the larger players.  For example, AirBnb has built a network for people with apartments and people who need to rent for short durations.  Craigslist wasn’t doing this in a way that facilitated any trust, and Facebook doesn’t offer a place for these transactions–  so now Airbnb is on its way to becoming a billion dollar business.  I think there are still an incredible number of industries that haven’t been disrupted by the new way that we organize and consume information.  Even industries with existing players on the web, like tutoring or test prep, tend to replicate the real-world model online without considering the fact that the same assumptions that are required to make a real world business work are not the same assumptions required to make a web business work.