Highlight (http://highlig.ht/), an ambient location-based social network and social discovery tool, was poised to be the breakout app of SXSW 2012. Highlight is a mobile app that runs in the background on users’ smartphones, alerting them to interesting people nearby–friends, friends of friends, and people with similar interests–using push notifications. Highlight promises to help users meet interesting people in a frictionless way.
Given the level of hype surrounding Highlight ahead of the conference, the general consensus was that Highlight and similar apps like Glancee failed to breakout at SXSW, and may have missed their chance to succeed entirely. Why did Highlight fail and what could they have done differently?
Highlight exhibits strong network effects; as more users join the service, users are more likely to discover interesting people using the app around them. To help facilitate interactions despite a small early user base, Highlight made their service extremely sensitive (i.e., they would send notifications even for the most tenuous of connections). At SXSW, a conference filled with tech early adopters that had almost all signed up for the service, this level of sensitivity proved overwhelming for users, who were flooded with notifications. Outside of SXSW, users found that notifications, when they did pop up, were uninteresting and unactionable.
Highlight also quickly developed a reputation as a battery killer, despite the app’s use of Apple’s battery-conserving background location services. This dampened the app’s appeal, especially at a conference where people rely on their phones to stay connected throughout the day. Even outside of SXSW, people with smartphones rely on their phones to stay connected while out and about, and will be reluctant to use an app that reduces battery life.
Highlight can overcome network effects in its early stages by providing standalone value independent of network effects. Perhaps Highlight could provide info about interesting places nearby, sourced from a robust location database like Foursquare’s Venues Platform (https://developer.foursquare.com/overview/venues). Highlight might show popular landmarks nearby. It could even go a step further, showing only landmarks most likely to be interesting to users given their interests, incentivizing users to input their interests during signup. Though Highlight’s long-term goal would still be to facilitate social discovery, the addition of standalone value could keep users coming back until a critical mass of users is reached, and incentivize them to input valuable data in the process.
With standalone value established, Highlight can keep the bar high for notifications, only notifying users when a truly interesting and actionable person is nearby (i.e., someone with a significant number of friends and interests in common). This will ensure that the social discovery feature is actually useful and compelling, and will rarely be a nuisance.
Finally, Highlight should make it easier for users to take action once they’ve discovered someone that they want to meet. Users should be allowed to silently “tap” nearby users that they find interesting. In the event of a mutual tap, Highlight should reveal the mutual interest to both users, reveal richer information about each user, and allow the users to set a meeting place and time and/or actively guide them to each other using GPS. Without such a feature, it might be too overwhelming to approach another stranger discovered through the service, and notifications might simply go ignored.
Highlight is an exciting concept, and it’s not dead yet. In fact, the team released an updated app with “expanded profiles, ‘high fives,’ and improved notifications” just yesterday. The prospect of more easily discovering and interacting with interesting people nearby (in a non-creepy way) is an exciting one. But maybe Highlight needs to try a different tack to succeed. Or, maybe it’s just ahead of its time.
 Foursquare And Glancee Are Cool, But Here’s Why I’m So Excited About Using Highlight At SXSW, Eric Eldon, TechCrunch, http://techcrunch.com/2012/03/03/myhighlight/, written 3/3/12, accessed 11/21/12
 The two hottest apps you’ll “run into” at SXSW, Robert Scoble, The Next Web, http://thenextweb.com/apps/2012/02/24/the-two-hottest-apps-youll-run-into-at-sxsw/, written 2/24/12, accessed 11/21/12
 How Glancee And Highlight Are Fixing Those Background Location And Notification Problems, Eric Eldon, TechCrunch, http://techcrunch.com/2012/03/13/locationsignals/, written 3/13/12, accessed 11/21/12
 Location Awareness Programming Guide – iOS Developer Library, http://developer.apple.com/library/ios/#documentation/userexperience/conceptual/LocationAwarenessPG/CoreLocation/CoreLocation.html, accessed 11/21/12
 The Real SXSW “Winner” Is The Mophie Juice Pack, http://techcrunch.com/2012/03/17/the-real-sxsw-winner-is-the-mophie-juice-pack/, written 3/17/12, accessed 11/21/12
 Highlight Launches Android App And New iOS App With Expanded Profiles, “High Fives,” And Improved Notifications, Ryan Lawler, TechCrunch, http://techcrunch.com/2012/11/20/une-autre-version-de-highlight/, written 11/20/12, accessed 11/21/12
Last summer, I read an interesting blog post titled Building successful consumer apps in The Age of the Humblebrag (1)(2). In his post, William Peng describes the three main building blocks of building a successful consumer app:
1) Playing to inherent human nature / behavior / psychology
2) Driving interaction in an app
3) Productizing around the behavior – gamification / network effects
Peng does a great job going through some concrete examples of how Facebook, Twitter, Instagram and Foursquare have done exactly this. I wanted to apply this same logic to another company that is seeing consumer traction: Paperless Post. Paperless Post is an online invitations company that is driven by their focus on design. Senders are able to pick and choose between different designs and customize for their own unique aesthetic. Paperless Post currently has a $10 million revenue run rate (3) – how did they do it?
Playing to inherent human nature / behavior / psychology
Co-founder Alexa Hirshfeld visited campus this past weekend and quoted Al Pacino from The Devil’s Advocate in describing her users: “Vanity, definitely my favorite sin.” (4) In invitations, people like to show off how capable they are in designing something beautiful. This is why Paperless Post has stolen customers from services like Evite, which allows very generic customization. The average number of recipients for each Paperless Post is roughly forty, a great captive audience that has a vested interest in your invitation.
Driving interaction in an app
With Paperless Post, you are able to create distinctive cards through a combination of great content and customization. And, even though there are an infinite number of combinations, each one is a reflection of its sender. Each card is distinct and reminiscent of fine stationary, thus giving the impression that the sender spent time designing a beautiful invitation just for this event, when in fact, it was more than likely just a few small tweaks to an existing template.
Productizing around the behavior – gamification / network effects
The initial sender may be Paperless Post’s first customer, but each recipient also becomes a customer as soon as they receive their invitation. Because the recipient needs to interact with the invitation to RSVP, they are then exposed to the platform. As long as their initial impression of the product was positive, it is a great built-in marketing tool to spread the Paperless Post name. Additionally, Paperless Post utilizes an interesting pricing plan, which includes coins instead of real dollars. And, although you can purchase coins (average $0.08 per coin), it is also possible to earn coins by connecting with Paperless Post on social media or by inviting your friends. With these coins, you can add small details such as envelope liners or premium content furthering your ability to customize and impress your invitees.
It seems clear to me that both aesthetic design and market design has played a critical role in the success of Paperless Post. Now, with 1.5 million registered users, 30 million plus invites sent and over $12 million in funding (4), I believe Paperless Post has developed an interesting platform for the future of “printed” digital correspondence.
In my search for a potential home to purchase, I found myself on Zillow.com conducting most of my research. Zillow is a data aggregation website that seeks to provide a wealth of data on the housing market in the US and connects buyers and sellers- take a look if you’re in the market for a home or if you’re just curious about how much the large house down the road is worth. In an attempt to see if I was using the best resource for housing research, I began exploring the various online real estate search websites and came across a TechCrunch video interview with Spencer Rascoff, CEO of Zillow, in which he talked about their growth. In his interview, Rascoff praised Google for finding the “holy grail” of advertising- the ability to have advertisements seem like an enhancement to the user experience rather than a distracter. Are Google ads an enhancement to my search experience? I’m not so sure. Currently Zillow charges a subscription to brokers to provide their contact information, in the form of ads, next to the property details. Rascoff believes that the future of Zillow is to replicate the path of Google. To be fair, Google’s success is pretty impressive – owning almost 70% of the search market in the US – but I’m not convinced that Zillow will become the next “Google” of real estate search.  More importantly, if they could, I don’t believe they should.
It seems that Zillow is poised to take advantage of some of the same factors that Google was able to benefit from during it’s user acquisition stage, namely strong network effects, but there are still a few factors that the real estate search market is lacking for it to be winner-take-all.
Strong network effects: Zillow is a classic example of strong network effects; the more users you have on the website, the more advertisers and brokers are willing to pay to gain access. Zillow has done an incredible job of becoming the de facto market leader in search for real estate. This is mostly due to their proprietary appraisal of homes called “zestimates”- an added element of transparency in what was historically a very opaque industry. They seem to be continuing to grow at an impressive rate with 33,474 average unique user visits per month, a 61% growth from 2011. This growth will continue to reinforce the strong network effects.
High-switching costs- Zillow doesn’t seem to be as “sticky” as Google, who has various additional functions like Gmail and Google docs that lock users in. There doesn’t seem to be many switching costs for users. Most educated home shoppers and sellers would use various websites available to search for housing information. In addition, on the advertiser side, there doesn’t seem to be a large cost that limits agents from continuing to market their properties on other websites. The power remains with the brokers and home-owners to provide the information to Zillow; Zillow cannot officially list properties from the broker database of homes, MLS, on their website without a broker’s approval. With the exception of being able to use Zillow to get a “zestimate” on a home, which all websites can import to their websites, there are little costs of switching associated with Zillow.
Limited demand for a differentiated product: As mentioned before, educated users are looking for a complete picture of the real estate market. In this case, a search result is an individual house- a highly differentiated product. The ability for a website to have a certain listing, particularly increased numbers of for sale by owners, only on their website will allow users to be forced to search multiple listing sources. Again, the power resides with the listing agents and sellers.
These factors would suggest to me that it will be very improbable for Zillow, or any real estate search website, for that matter, to become the monopoly player in the real estate search space.
The more interesting question to me is whether or not they should want to replicate Google. I don’t think that Zillow should use Google ads as a model for revenue growth. First, Zillow is now a public company that will have expectations and demands for continued growth. With that, as you have seen with Google, there will be a temptation to shift away from their core mission- providing superior information and search results. Google has increased the number of their advertisements that distracts the user- moving away from their original model. Second, they will continue to be pressured by the very people that pay them to compromise their search results to drive revenue. This is also seen in Google’s ad “shenanigans”- placing paid advertising within search results in an attempt to confuse users. Lastly, advertising is a huge market, but there is a lot of uncertainty on how it will be best monetized. Zillow should maintain focused on actually providing a service that brokers are willing to pay for with a subscription while limiting display ad proliferation- their latest financials show that 70% of revenue comes from agents, not display adds.  This is a positive sign. I believe a business model that is centered around providing true value to both user-ends of a network will be the most effective way to be successful in the long run. They should remain focused on providing superior information to end users and connecting users to brokers.
Posted by Carlo Lim on Sep 28, 2012 | Tags: network effects, Questions | 1 comment
Network-Effect vs. Unmet Customer Need?
Over the last few weeks, our class has discussed several online business models that were heavily reliant on network effects as part of their mobilization strategies. While I understand the substantial value of network effects, what worries me is how this knowledge may stunt ideation as entreprenuers, particularly around concepts we have learned in other courses, such as identifying unmet customer needs and finding solutions to meet their demands. If you can think of a great idea that solves a customer need, but does not have strong network effects, does that debunk your idea as a great business?
For example, if we look at the e-commerce businesses for Lululemon, a brick-and-mortar yoga apparel retailer (http://shop.lululemon.com/home.jsp), one cannot clearly see the benefits of network effects. Having more online customers doesn’t necessarily have a positive impact on current online customers yet the business itself can still be successful, albeit never reaching “viral” proportions say a Twitter or Facebook could achieve. Do we immediately undermine this business (or this type of business)?
So to reiterate, should we box ourselves into only online businesses that have strong network or should we rely on our noses for a good business concept, regardless of any network benefits. I’m sure there’s a common ground between the two but how can we quantify the decision? Businesses with network effects, while lucrative, can work negatively if the business never generates enough buzz to reach scale. On the other hand, non-network effect business ideas, while less profitable, can arguably generate a “safer” less volatile ROI. The finance guy in me would say “just use an IRR or NPV calculation to factor in the riskiness”… but something tells me the answer is not that simple.
Replicating Offline Strategies Online?
Another nagging question I’ve had was whether or not replicating offline strategies online is really the way to succeed. Marketing 101 would teach us that have a singular consistent strategy is preferable since you want to present a singular product to your consumer. But given how different offline and online consumers are, both in terms of how they digest information and how they make decisions, could a different online strategy yield better results?
Let’s use the case on Big Skinny as an example. This thin wallet company primarily focuses on the “impulse shopper”, who is wowed by a salesperson at a street fair. Even though this strategy has proven highly successful offline, is this necessarily the marketing plan we want to recreate offline? Wowing the customer online can be very difficult since many online consumers have learned to either ignore or temper down showy advertising. Instead, could Big Skinny simply proliferate its products on large online retailers like Amazon and try to compete as a purchase alternative to a rational wallet buyer who is seeking to compare several wallets in his/her decision making process? I’m aware that this hypothesis can be confirmed with A/B testing but are there frameworks or historical references we can use to better understand what makes replicating offline marketing online more or less successful?
After Apple’s most recent triumph over Samsung in the legal battle concerning the highly valuable intellectual property of rounded rectangles and pinch to zoom, it is with a stroke of poetic justice that the U.S. Patent and Trademark Office denied Apple its attempts to trademark its “Music” app icon, deciding that it is too similar in appearance to Myspace’s own music icon, acquired from iLike in 2009.
You would be forgiven for wondering whether Myspace is still around, given its meteoric decline in the wake of rival social network Facebook’s ascent to global social dominance. But you may not want to write Myspace off just yet; its recent redesign has left many tech journalists hoping for a comeback.
Naysayers may cite the overwhelming network effects enjoyed by Facebook, as well as the relatively lackluster performance of Google+, despite enormous investment by Google. However, less than 10 years ago, the “dominant” social network was not Facebook, but Friendster, which gained several million users within months of its launch before being overtaken and ultimately acquired by Facebook. Myspace itself, which enjoyed a user base of over a million users before Facebook launched, is a testament to the fallibility of incumbent social networks. The key to Facebook’s success of course, was expanding from the niche of Harvard University, and thereafter to other Ivy League universities, then to other college campuses, then high schools, and so on.
With its redesign, Myspace appears to be taking a page out of Facebook’s (ahem) book, looking to expand from the niche of musicians looking to be discovered, just as Zuckerberg et al. did with colleges. Admittedly, this isn’t the first time Myspace has made a run at the music niche—arguably, Myspace’s embedded music player is the one feature that has kept it limping along for the past few years—but the new redesign takes the focus on musicians to a whole new level. As seen in its recently released video preview, the redesign brings the media player to the forefront in an omnipresent toolbar at the bottom of the screen, and adds “mixes” (social playlists), trending entertainment news (laid out in the increasingly ubiquitous Pinterest-style image grid), radio stations, music videos, music events, as well as a set of analytics tools for artists to track their fan base.
The redesign also reveals several other mobilization strategies that Myspace seems to be employing to overcome the weight of Facebook’s network effects. The site allows you to login with your Facebook credentials, for starters, and can push status updates to both Facebook and Twitter, providing a sort of “backwards compatibility” with other social networks. Several of the features (e.g., trending articles, music catalogues) appear to offer significant standalone value, making the experience of being the only one of your friends using Myspace a little less lonely. Additionally, Specific Media’s and Justin Timberlake’s co-ownership of the new Myspace allow it to simultaneously invest in the complementary media content that will help the new platform flourish. And, of course, the notable absence of advertisements from the new Myspace suggests, for the time being, a willingness of Specific Media and Timberlake to subsidize the growth of the platform in its infancy, in hopes of monetizing the increased traffic down the road.
In an interview last year, former Facebook president Sean Parker suggested that Myspace could have avoided its decline by simply copying Facebook rapidly. Perhaps Facebook’s current preoccupation with placating an increasingly dissatisfied Wall Street will allow the new Myspace to flourish under Facebook’s reign, just as the old Myspace did for Facebook.