KPCB's Internet 2013 Trends and SMBs

The recently released KPCB 2013 Internet Trends report received wide coverage as usual. Much was made about how consumers will benefit from wearable computing and the rise of Chinese internet companies. But what about SMEs (small and mid sized enterprises)? What can they take away from this report? Here are a few personal recommendations: 

1. Content: The KPCB report highlights the sheer amount of information created and shared - 500 million photos uploaded and shared daily, 100 hours per minute of video uploaded to YouTube. Fast moving SMEs are increasingly making available their content in shareable format on their websites, or proactively engaging their customers on social networks. Moo.com is a great example of an SME that sells bespoke business cards, competing effectively with the likes of much bigger players such as Vistaprint, a listed company that turns over > $1bn. Moo encourages its customers to post tweets or videos on YouTube when they receive their deliveries and also has an active Facebook and Google+ presence. With tens of thousands of followers across these platforms, Moo is successfully generating additional awareness and new customers at low cost. 

2. Mobile:  Mobile internet traffic is trending to 30% of total by 2014. Many big firms, spend significant resources on the desktop version of their websites, yet neglect the mobile versions. Smart SMEs realise they can compete with larger players, by optimizing their sites for mobile traffic. The Co-operative could benefit from having a mobile optimized site, much like Tesco and Sainsbury's have already done. Graze.com is a sterling example an SME in this space. Graze delivers healthy snacks direct to its customers and has one of the best user experiences I have come across. It is an excellent example of a simple, attractive and yet highly functional mobile site - using it makes me want to snack!

3. Emerging markets: The growth in internet users is now being driven mainly by emerging markets, the likes of China, India and also Indonesia, Nigeria and Brazil. Consumers in these markets have increasing disposable income, and British companies with strong brands are working out how to target them. However, SMEs with niche offerings can also benefit. Scotweb sells a range of tartan and offers free delivery worldwide. The Scotweb site also allows you to easily price your tartan in Chinese Renminbi, Indian Rupees or Indonesian Rupiahs. Many well known British brands deliver to a limit number of countries and often charge a delivery fee outside the UK regardless of order value. Perhaps they could learn a thing or two from Scotweb?

As the KPCB trends deck points out - today, on the internet, everybody knows you are a dog. Big businesses should watch out - with a little creative thinking, nimbler SMEs are eating their lunch!

Hyperlocal mobile content – coming soon to a neighbourhood near you

The internet has had a hugely disruptive impact on every aspect of the publishing industry and rising mobile internet uptake is a ‘second wave’, that is going to herald similarly profound changes. This blog explores the implications of mobile internet on local content consumption.

The publishing industry and changes in internet usage

The internet has affected every step of the publishing value chain. The cost of publishing has fallen to near zero with blogs. Direct ad sales are worth a fraction of print and can be outsourced to ad networks, more or less on tap (albeit at a discount to premium inventory). Distribution through search engines has levelled the field yet more. This effect has been compounded by the general absence of online subscription to date. Not surprisingly, the newspaper industry has been hurt badly - with some large local UK publishers losing tens of millions in revenues in the last financial year alone.  But some forms of localized media survived as an internet connected PC or laptop was not always an option. Most locally oriented websites are meant for planning rather than on site consumption –  e.g. the Hampton Court website is much more likely to tell you what is happening there, than to help you navigate the attractions of this venerable royal property.  As another example, Zagat or Michelin print guide provided a level of quality and portability that was unequalled.

 Smartphones and portables such as the iPad changed this. Mobile internet adoption has seen exponential growth recently, but the interesting story is around local usage. Google has noted that a third of its mobile queries have local “intent”. Recent studies by Microsoft back this up - 27% of Bing’s mobile queries show intent to take action locally as opposed to 18% on PCs. Besides search, mobile maps have also been a big beneficiary – according to comScore, the UK had 5.7bn users of mobile maps in 3 months to Feb 2010, an 86% increase over the previous year.  Many mobile maps users tend to follow up their navigation usage with a local search, so it is not surprising that directories e.g. Yellow Pages have reported a significant increase in mobile apps usage and mobile internet traffic. IPhone App Store rankings also reflect the local flavour of searches, with many popular apps in the Travel and Lifestyle category having a location based search or local element.

Hyperlocal content optimized for mobile formats

There is now evidence that hyperlocal print media has not escaped - a recent FT article profiled the demise of the guidebook industry. Interestingly, the biggest threat to the guidebook industry is not from startups that have invested in creating local content and digitized, but from apps that mash freely available content and navigation (supplied by the likes of Google). Whilst smartphones are hurting local media, the accessibility of hyperlocal content is also opening new avenues. A recent NYT article profiled US startups that are mapping the interior of malls and convention centres. These companies are much more focused on navigation than rich content, but they are hyperlocal in that they map out small geographical locations and support them with value added content. However, commercial venues are beginning to realise that by organizing their wares virtually, much as Google has done for the internet, they can generate additional returns.

The hyperlocal content value chain

The economics of app creation and mobile site creation could have hit a tipping point. Currently, a professionally developed mobile app costs in the £10k - £50k range (although m-commerce apps with rich content can be much more expensive). This is much cheaper than setting up an equivalent (PC) website and the costs of mobile apps and mobile websites will fall further. This should have the effect of putting the long tail hyperlocal content within the reach of enthusiasts. So for the London 2012 Olympics, fencing enthusiasts could quickly create an app that mashed Twitter feeds, Google maps, bios of each participant, local hangouts, Facebook Places/Deals and the like. The same dynamic will allow sectors such as the guidebook or the local media industry to take many small bets at a low cost – witness the ‘Thisis’ set of sites that have been launched by Northcliffe Media.

However, building the apps is only one part of the equation. In order to reach critical mass, a simple and convenient distribution system is required. Whilst the FT article alludes to Google being the gateway for content distribution, there are other players hard at work on alternatives. Consumers have been trained to look at static maps at malls and museums and search for the ‘You are here’ sign. What is needed is a similarly signposted system that allows consumers to access virtual content locally.  Amongst other mobile platforms, Apple’s patents seem to point the way (no pun intended). The essence of one of Apple’s location based apps patent is that users will be alerted to the presence of local content and be able to access this for the duration of their local experience. This could be a spur to both commercial and enthusiast driven content creation and distribution.

And what of their business models? Many of these long tail apps will be freeware and most will come to rely on some form of internet advertising for revenues. With current mobile CPMs in the £1 range, it could take 10,000,000 visitors to breakeven. Location based targeting CPMs can achieve a 10x CPM multiple, but would still require significant traffic to be viable. Many iPhone and iPad apps have a freemium business model – it is conceivable that basic local content will be freely available and premium content will be charged for. This will allow hyperlocal app creators to monetize through advertising and premium sales.

The opportunity for local media

Time was when recruitment, property, auto sales and the classifieds were the mainstay of the newspaper industry, both local and national. The internet resulted in the aggregation of local and national content through job sites and this favoured the larger national players, who had the audiences to brand and monetize these quickly. The hyperlocal phenomenon may be different. The ability to develop quality local content, in association with cultural venues and the like and refresh it regularly could play to the strengths of the local media. For example, it is interesting to note that guidebook creators are busy developing hyperlocal apps and commercializing them through iTunes. If distribution is not controlled by a few big players such as Google, locally based media groups will be able to use existing networks to create awareness of their offerings. Monetizing this will be challenging, and there is a case to be made that ad networks that can acquire this remnant content cheaply and optimise to best converting ads will do well. However, networks tend to focus on the largest advertisers. Hyperlocal content should appeal to small and mid sized businesses – the very advertisers that were the mainstays of classifieds that supported local media.

In conclusion, the scene is set for a revolution in the way we consume local content and this is going to create new set of challenges and opportunities. Organizations with the right mix of sales and editorial resources could reap outsize rewards. 

Raja Saggi

Why Facebook Places deals announcement is great for location based startups – perhaps even for Foursquare

In the last year working at Yell (the UK’s leading directory company), I have been approached by a number of very interesting location based startups that were keen on partnerships. These are companies that have gone beyond simple location based search, and created unique IP which is augmented by location targeting. Some have already launched whilst others are still in the prototype stage. All face one or more of the following difficulties:

• Accurate listings information: Most location based apps share a need to do geoproximity searches for useful businesses. Accurate geolocation information, name, address and telephone number are minimum requirements. Getting this information and having it refreshed regularly for a large number of businesses that are started up, shut down or just move premises, is a daunting task.

• Marketing/distribution plan: Acquiring new customers is the bane of the B2C startup. To date, location based services had to rely on app stores or marketing a standalone site. Whilst Apple does try its best to highlight new apps, with over 300k apps available, gone are the days when an interesting startup could count on leveraging word of mouth alone. Most new entrants are easily outshone or outspent by bigger brands that can invest in mobile marketing. Even those that do, find that this seldom translates virally.

• Business model: Those that have traffic, struggle to monetize it. Other than paid for apps or paying for upgrades to free apps, mobile advertising is the only option. Those with deep pockets can afford to hire large number of sales people but for almost all startups, that means working with mobile ad networks or Google AdSense. With mobile CPMs on the floor (location based multipliers are still few and far between), you need a lot of traffic before you can pay the rent. The lack of a compelling business model affects their ability to get funding as well.

Foursquare is a great team that has solved all the above problems, but they have spawned numerous clones. The reason for that is whilst the above activities are time consuming and expensive, paradoxically, they are quite simple. It is no wonder that the location based services space has so few hits and limited usage. Foursquare have been around for over a year and a half and acquired just 3 million plus users, despite great interest from the general media and a $20M B round.

Facebook has the ability to alter this landscape dramatically and has a track record nurturing a huge number of startups. This far into the life of Zynga, they had several times the number of users that Foursquare has. The reasons are to do with creating the right ecosystem. First and foremost, this means a rich platform that is already in use by 200M potential mobile customers and growing. The reason it is still possible to virally launch a niche app on Facebook is that it has volume, and a long tail that is highly networked. It is also relatively cheap to target your audience. How else can a 13 year old with little cash get 16k fans in 4 days? Adding freely available local listings and allowing geoproximity searches to this mix is a great enabler. Coupons could be the answer to the ‘Show me the money’ VC or angel question. Whilst the current launch allows businesses to create deals free of charge, Mark Z. has indicated that he would consider making money from deals in the future if it were in the interests of its user community – presumably that could include the app developers.

To be sure, there are going to be challenges. The accuracy of Facebook’s location data is suspect, but then again, that is true of other larger players too. To achieve critical mass, in coupons, you also need volume. Whilst millions of early business adopters are already signed up, Facebook lacks a large sales team to get businesses to publish their offers. However, these issues could be remedied by working with partners, such as directory companies and media sales houses.

And what of Foursquare, that had already invested much effort to create its own platform (and was charging businesses to display deals)? Have they been outmanoeuvred? Perhaps. But Foursquare partly got into the platform business by necessity. If a team that innovative refocused on their core, which is creating a great gaming experience based around local presence, and ported their product onto Facebook, they could yet be the Zynga of location.

Two to tango: The takeup of location based services such as Foursquare and Facebook Places is highly dependent on smartphone OS evolution.

The launch of Facebook’s Places created a positive feedback loop of locations, seamless check ins and tagging and encouraged a much wider audience to experiment with location services - the ensuing publicity even resulted in an increase in Foursquare signups. However, as regards fostering true location based innovation, developers may have to wait for the next generation of location aware smartphones as the ‘Facebook platform’ is but an app when it comes to smartphones.

To understand why, it is worth examining the evolution of location based services. The first such services had to grapple with small screen sizes, used various cell tower geolocation methods in the absence of widespread GPS availability and were limited by processor speed and battery technology. The situation improved somewhat with the higher end business phones that came out in the later half of the decade, however operators kept a tight grip on device decks (not to mention keeping data costs high) and location based services were limited to early adopters. Thus, launching a location based startup had pretty much the same odds as buying a lottery ticket and mobile pundits such as Tomi Ahonen questioned the commercial future of these services.

Although there were smartphones (Nokia’s N95 for example) that solved some of these issues and drove early adoption of services such as Google Maps, it arguably took the first versions of the iPhone to drive mainstream use of location based services. The 3G iPhone built on earlier versions that had Wi-Fi hotspot lookup and made it practical to reliably find yourself on maps and see nearby points of interest. Foursquare, GoWalla and others layered innovative social functionality on these foundations, in tune with the growing importance of social networking (read Facebook).

However, apps like Foursquare have reached the limits of what is possible with current handsets. One of the biggest complaints by Foursquare users (self included), is that it does not go far enough in encouraging repeat usage - only one person can be mayor of a place at any on time, and even that wears thin after a while. Foursquare is addressing the usage issue by signing partnerships that give the user special offers or content when they check in. But transitioning from early adopters to the mainstream requires either a large number of offers which requires deep pockets, or highly targeted offers that can be pushed to users.

To date, Facebook has proven to be extremely good at providing a social platform conducive to the growth of all manner of applications. The rich APIs and large audience are tailor made for viral growth (helped of course by a healthy budget of hyper targeted advertising). For example, Foursquare's integration with Facebook (pre Places) meant that if a check-in was mentioned in a user’s feed, there was a chance that it would lead to higher experimentation and adoption. But viral experimentation will not make a major dent in the end user value equation. That is where smartphone OSes can play a big part. Until iOS4, multitasking was constrained and third party apps were unable to sit passively in the background and geotarget users. This changed with iOS4, and within weeks of its launch, automatic checkins proliferated with apps such as Future Checkin and SCVNGR. It is a matter of time before Foursquare and Gowalla follow suit.

Problem solved? Perhaps. Geotargeting is highly attractive - some location based ad networks are reporting a 10x CPM advantage – and it won’t be long before more apps try to take advantage of this potential revenue uplift. If you have multiple location aware apps running in the background auto-polling on your phone, you pretty quickly hit a hardware constraint, not to mention the privacy implications. This is a platform issue and will have to be resolved on the mobile platform and not by individual apps. In the face of the privacy storms erupting around Google, Facebook and others, Apple in particular has been careful to stress its fine grained privacy controls, which have now extended to include location apps. It is reasonable to expect these to become standard issue in other OS. As location based apps become more capable, expect the controls to become richer and allow users to manage the type of information that passive apps can collect or the events they can trigger.

However, there still remains a transactional problem. How do users redeem a special offer such that marketers can track the success of such campaigns across a large number of outlets? Current practice for mobile coupon redemption involves scanning a barcode displayed on a phone screen or reading out the code and store staff keying it in manually. The process is inefficient and in the latter case error prone. Near field communications (NFC) may provide the answers. Nokia has had such phones on general availability for some time and said that all its phones will be NFC enabled by 2011. Apple is also working on them - recent patents incorporate an NFC enabled framework for data exchange between the iPhone and a merchant device that supports exchange of user information and payment. This enables iPhone users to make transactions on the go and in the manner of their choosing, without having to use long winded credit card payment (cue Japanese mobile phone users stifle a yawn).

Future users of location based apps may be able to take advantage of content that can be targeted both locally and socially and redeemed or purchased frictionlessly using coupons or m-commerce payments. Think Foursquare or Groupon with automated coupon push and redemption/purchase functionality based on your social graph, and that is just scratching the surface. Just as the advent of the iPhone 3G unleashed a wave of creativity, the widespread availability of always on geotargeting and NFC payments supercharged by social graph and other hyper-targeting information will hold surprises for us in the near future.

Channel Selection for New Product Launches

I have been reviewing the go to market strategy for two ventures, both of which are trying to penetrate new markets. The first is an established B2B SaaS company that has a huge customer base of SMEs and wants to enter the UK market. The second, is a UK startup trying to launch an innovative new product in the B2C insurance space. Both decided to pursue a channel sales strategy which made sense on paper. But after detailed discussions, they agreed to re-evaluate their approaches.

A channel sales programme is a significant investment once the partner identification, contractuals and ramp up costs are taken into account. Done right, it offers the chance of rapidly increasing sales and generating positive buzz that propels the business to the next level. The wrong strategy can set you back a year or more and in the case of startups, be a life or death question.

This article reviews important considerations for identifying the right channel(s) for new product launches.

1. Which channels do your target customers use/transact through?

All organizations consider this question very carefully. What channels have regular contact with my customers? For example industry associations are venues where B2B SMEs regularly interact with each other and prospective vendors. SME decision makers have also developed trusted relationships with local resellers who are happy to position new products. In the case of B2C product targeting consumers searching for insurance, the internet is the best medium as many people compare prices online. Internet traffic acquisition channels include SEM (Google AdWords, Yahoo etc), display advertising and affiliate networks as well as direct partnerships with sites that attract relevant traffic. Typically, several channels will be identified that can be used to target customers for a single product.

2. Product Channel fit: Is the channel motivated and able to sell or service the product properly?
The next thing to do is match the prospective channels to the product category. It is important to decide beforehand if you want the channel to perform either lead generation, close deals or service the product, or all or part of these. The tradeoffs are that lead generation is a low touch activity, while closing deals and supporting customers can involve significant partner investment and hence revenue sharing.

Questions to ask include:

• Has the product demonstrated success for its target customers in the channels that you have selected? Partners are more willing to promote and sell a proven product. In a new product launch, it is helpful to invest time in acquiring beta customers directly to serve as references.
• Is the product simple for third parties to position? Does it require significant training on behalf of the partner? Groundbreaking or complex high value products are usually better left to a direct sales force which has undergone comprehensive training.
• As a proportion of a channel's customers, how many fall into your target segments? Partner sales managers prefer to promote products that appeal to the broadest number of their customers. If your product appeals to less than 50% of a channel's customers, you may need to invest significant effort in proper segmentation.
  
• Does it fit into the partner's portfolio, or even enhance the value of a bundled offering? In the case of an affiliate or partner website, does this product help the partner's positioning of their site?
  
• What is the sell price of the product relative to the typical transaction through this channel? Can your product help the salesperson meet their revenue or margin targets? Is the affiliate revenue or margin share competitive relative to other products being promoted?
• Does the partner sell or service products that compete with yours? Could your channel program be subsidizing your competitors' products?

Be wary of partners that have the customers you want to target, but have a different focus. I have seen several examples of channels that failed to deliver as the product was not a good fit with the rest of the partner's portfolio.

3. Is it economically viable?

Channels can be well aligned with customers and products but still be economically risky to pursue. Many of the questions in the previous category help you to identify the true costs of a partner launch.

Questions to ask to include:

• How many transactions can this channel accomplish relative to the total cost of launching the product? How much work will it entail to modify the product to make it fit into the channel? How much is the cost of training and supporting the partners on an ongoing basis? Be sure to validate your penetration and cost assumptions with the closest substitutes.
• What is the opportunity cost of launching in the channel and helping it get up to speed? In a fast moving market, will your competitors be able to steal a march on you through direct sales? In offline channels, there is sometimes a long lead time involved in getting partners to launch your offering. This is especially true of deployments with volume channels such as Telcos which have deployment roadmaps that extend into several quarters and require much preparation on behalf of the vendor.
  
• What is the cost of failure? If the partner fails to launch or support the product on your behalf, how much more will you have to invest for a re-launch?
• How does this compare with direct sales?
  

After going through this thought process, the B2B venture is evaluating a phased telesales through to reseller model, that allows it to achieve initial success quickly and then experiment with a channel strategy. The B2C venture has realized that SEM (Google AdWords/Yahoo etc) is too costly for the market they are entering. They are investigating a sales and marketing combination of affiliates, PR and social media to showcase the innovation their product can bring to the insurance market.