5 Years Ago, the iPhone Changed Everything June 29, 2012Posted by justincaldbeck in communication, culture, discovery, iphone.
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While it almost seems hard to believe, it was just five years ago today that the first iPhones were sold. I remember the enormous amount of people lined up outside of Apple Stores eagerly waiting for their new device. It was easy to understand the hype of the device, but what many did not predict would be the way it would shape our behaviors and give birth to an entire industry.
The iPhone itself is a game changer, few could deny that, but much like iTunes was the real power behind the iPod, the App Store has been the big game changer for our industry.
We didn’t all immediate realize the power of the App Store, in fact my partners wrote an interesting post in 2009 about how little revenue Apple was making from apps. But today, we have seen companies emerge as App providers and other that have started as popular Apps and then expand to other platforms. Rovio, makers of Angry Birds, Pulse*, Instagram, Uber and Foursquare are just a few examples of companies that have seen incredible success as mobile apps.
In addition, the iPhone has played a big role in reducing the friction for consumers to use products from businesses that were previously web-centric such as TaskRabbit*, LivingSocial* and GrubHub* as well as retailers like Gilt. These companies not only built better customer engagement through the iPhone but also attracted new users who discovered the brand for the first time on a mobile device.
Despite all of these early successes, the market is still in its infancy in many ways. While it may seem that everyone we know has an iPhone or Android device, Nielson recently reported that only about 50 percent of US consumers have a smartphone today. As that number grows, the audience and demand for new applications and types of mobile solutions will grow too.
For my part, I feel fortunate to have the opportunity to watch the market emerge and evolve and help companies take advantage of this amazing platform.
*Lightspeed portfolio companies
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iPad games are a big opportunity June 28, 2012Posted by jeremyliew in games, games 2.0, gaming, ipad, tablet.
I posted recently about discovery being the challenge in gaming. This is very true of mobile gaming where the level of noise is very high.
I think that iPads, and tablets broadly, present a current opportunity for game developers. According to Pew Internet Life, one in three Americans owns a tablet or ereader as of January 2012. Many publishers acknowledge that tablets are going to be very important gaming platforms. John Ricatello, CEO of EA, recently said that iPad is EAs fastest growing platform. Says the International Business Times,
Reuters reported Gonzague de Vallois, senior vice president of publishing at Gameloft, saying: “The iPad is the fourth step in the gaming evolution. The first being the microcomputer, the second being the game console and the third being smartphones.”
Even Microsoft, with it’s new Smartglass product, acknowledges that the iPhone and iPad will be important gaming platforms.
Yet today, there are far fewer games built specifically for iPads. Discovery is substantially easier for iPad than iPhone as it is less crowded. And even most “HD” iPad games are simply upresed version of the iPhone game. Yet tablet gaming has the opportunity to be quite different to phone gaming:
- Longer session times
- More screen real estate for display
- Multi-touch and other more complicated gestures more feasible
- Opportunity for co-op and competitive play with another person sharing the same device
If the tablet is fundamentally an entertainment device that lives in the living room (versus the phone being a utility device that lives in the pocket and is frequently used out of the home), then you would expect different use cases to emerge, and different games to address those use cases. There is a window where better products can lead to better discoverability. I expect this window to close over the next 18-24 months.
Who do you think is doing the best job of optimizing the tablet gaming experience?
More on the future of books June 26, 2012Posted by jeremyliew in ebooks.
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I’ve posted before on how tablet and kindle are changing reading, and how fan fiction is changing writing. The WSJ has another good example of how writing is changing, when it describes how Seth Godin used Kickstarter to estimate demand for his latest books.
Mr. Godin began his publishing experiment in June on Kickstarter, a website that enables people to solicit funds from individual investors. Before agreeing to his new deal with Portfolio, an imprint of Pearson PLC’s Penguin Group, Mr. Godin hoped to gauge interest from readers in the three new projects he had in mind. To potential backers, he presented a variety of pledge packages—that is, different levels of financial support for the projects bring perks for individuals, such as previews of the books and copies autographed by the author.
The two way interaction between writers and readers that the internet enables is allowing more real time feedback that can actually affect the book. We see exactly the same behavior, more systematically organized, at wattpad.
It makes sense that user feedback can change a writers direction, just as it does all the time for bloggers and web publishers.
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This weekend I had the opportunity to join AngelHack, a hackathon event that took place in Palo Alto, New York, Boston and Seattle, to help judge the finalists in Palo Alto. Over 1,500 people participated in the event around the country competing for over $200,000 in prize money.
In Palo Alto, more than 30 companies presented their hack on Sunday afternoon. I am always impressed to see what small teams can develop in just a weekend, and Angelhack was certainly no exception. From the 30, eight companies were selected as finalists:
GiveGo – Turning daily exercise into charitable micro-fundraising
Synco de Mayo – fun and easy collaborative web browsing.
Major Tom – helps app develops better understand what is happening and how users are interacting with mobile apps
FlyIO – a system that allows users to navigate their computer with your eyes and a webcam
Humans++ – makers of Pull, a device that makes it easier to navigate using the GPS from your phone
Xmit – simplified file sharing
Bling Labs – makers of Wishboard, a crowd-sourcing tool for ideas
Steer the Beat – Pandora meets Spotify meets Turntable
Congratulations to GiveGo, which was named the winner in Palo Alto, and to all of the teams that participated in this round!
Next up, the top 20 companies from around the country will all meet in Palo Alto on July 12 for the grand finals where two big winners will receive $25,000 in seed funding.
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As a follow up on my guest post at Pando Daily about why ecommerce startups come in waves, I did a follow up post making the case that celebrities will drive the next wave of ecommerce startups. Check it out.
Waves of ecommerce startups June 21, 2012Posted by jeremyliew in Ecommerce.
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Check out my guest post on Pando Daily about why ecommerce startups come in waves.
WSJ recognizes the surge in fan fiction June 18, 2012Posted by jeremyliew in Uncategorized.
I’ve posted in the past about how tablets and kindle will change reading. Friday’s WSJ had a big story on the fan fiction phenomenon that is well worth reading. One of the companies that they call out is Wattpad, which recently raised a large round. Watch this space, both writing and reading will continue to change as tablets and kindles take share from physical books.
I’ve been asked several times how the analysis would differ for an ecommerce business, so I finally got around to uploading a sample cohort analysis for an ecommerce business. Please note that this is a SAMPLE only. Data is dummy data, so you should not use it for benchmarking purposes. I have not allowed editing to the google doc so that the spreadsheet will be useful to anyone who finds it, but you can download it and edit it offline as you see fit.
For an ecommerce business, rather than focusing on the percentage of retained subscribers per cohort, instead you focus on the net revenue (after discounts, returns and refunds) from that cohort in a given period. This revenue has to be normalized by dividing by the number of (original) buyers in each cohort so that you can make meaningful comparisons. You should focus on revenue per (original) buyer in each period for each cohort as the raw data from which you can build a lifetime value analysis. Then you should average across cohorts to understand “typical” revenue per sub in period 1, 2, 3 etc, where period 1 is the first month (quarter/ year) when you see a buyer make a purchase.
You still typically see a steep drop off in revenue per buyer after the initial period. But a well run ecommerce business that does a good job of retention marketing and line expansion should see stable revenue per buyer after the initial drop off. This is in contrast to subscription businesses which typically continue to see attrition over time. If you do see continued drop off, you should model that in a similar way that I do it for subscription screen sharing businesses, but if you see relatively stable out month revenues per buyer, it’s OK to model that in the out months.
Lifetime Value is calculated as the cumulative contribution of an average customer, so you have to multiply lifetime revenue by contribution margin. Contribution margin should include all variable costs except one time acquisition costs. This typically includes COGS, packaging, shipping and handling, reverse logistics, inventory obsolescence/write offs, customer service, credit card charges, hosting costs, fraud accruals etc. It would not include fixed costs such as photography, production, site development, merchandising or other overhead.
The two most importnat metrics that I look at to gauge the health of an ecommerce business are LTV/Customer Acquisiton Cost ratio and payback period. This is why i highlighted these two metrics in the spreadsheet.
I like to see LTV/CAC > 2.5 (which tells you that you have a robust long term business with enough margin to cover overhead) and Payback periods under 12 months.
If you found this post useful, follow Lightspeed on Twitter @lightspeedvp
Discovery is the problem in gaming June 11, 2012Posted by jeremyliew in games, games 2.0, gaming.
In 2009 I wrote a guest post at Industry Gamers about why social gaming is so attractive to investors, where I talked about the three key elements oin gaming: Development, Distribution and Discovery. Basically, I compared circa 2009 social games to AAA games and said that they were cheaper to develop (a few months and a few hundred thousand dollars), distribution was virtually ubiquitous (since they could be played in browser versus bought in a store and played on a console or high end PC) and discovery was free through viral growth instead of driven through heavy marketing campaigns. I concluded that this dynamic, which allowed a startup to take multiple “shots on goal” with a venture capital investment, was what had brought renewed investor interest to gaming, an industry that had largely been financed by publishing deals.
Much has changed since 2009, and browser (including social) and mobile games are the two hottest areas in gaming right now. But I think the framework of Development, Distribution and Discovery is still a useful lens to view the industry
Development costs have gone up since 2009, as has production quality and game quality. Many of the circa 2009 social games were more focused on growth than retention, and in many cases more focused on “satisfaction” than fun. This has changed dramatically. Game design has improved, as has design and art. This has caused development costs and timelines to increase, but generally but less than an order of magnitude. Good mobile and web games can still be built for a budget in the low single digit millions range and below, and in under a year.
Distribution continues to be easy, but it is no longer free. In 2009, there were no facebook credits and 360M people used Facebook. The iPhone app store had been around for a year or so, but there were less than 10m iphones in use. Today, there are 1bn smartphones (including Android), 900M people use Facebook every month, and in all cases you pay a toll to the platform. But gaming companies do not compete on distribution, it is a level playing field.
The outcome of easy development and distribution has been a massive explosion in the number of games available. For both mobile and Facebook, games are the most popular category of apps. In a world as crowded and noisy as this, Discovery has become the bottleneck.
In 2009, viral growth through invitations and notification were the way that Facebook games could get discovered. As these channels became better policed, discovery moved to the feed. Today, even the feed is no longer a reliable driver of discovery.
For mobile, charting is the primary mode of discovery, and this led to widespread app store manipulation.
Today, game quality is an ante, but discovery is the differentiator. We see a few strategies work repeatably for at scale discovery in the current environment:
- Cross promotion to an existing base. Game publishers with a lot of Facebook or mobile install bases are able to make their user base aware of new releases in a free and scaleable way. Zynga has repeatedly made use of this approach to launch its new games at real scale.
- Sequels. Publishers with a hugely successful hit game can often milk the IP with subsequent releases. Rovio has done this repeatedly with Angry Birds. With the game market being so noisy and confusing, most players will give a sequel a shot if they enjoyed the first game.
- Borrowing IP from another media. Much like a sequel, gamers will respond to a brand they recognize. This can be IP from another gaming platform (Bejeweled Blitz, Zynga Poker, Sonic the Hedgehog, Sims Social) of another medium (Hollywood Squares)
- Paid acquisition. Smartphone and Facebook both have relatively efficient markets for paid installs at this point. If a game monetizes better than others, it can pay more for a new player than others can, and it can find its audience through paid channels. This requires excellent monetization. Kixeye, a Lightspeed portfolio company, has followed this approach with great success.
- Get featured by the platform. This is hard to do. Infinity Blade benefited from a lot of promotion from Apple, in large part because it changed peoples perceptions about what was possible for an iPhone game. This drove a lot of users for the game, despite its relatively high pricepoint. Getting featured by the platform is hard to plan for, and can take a combination distinctiveness, something in your game that also promotes the platform, business development expertise, and someone simply taking a shine to your game.
Many of these are not useful strategies to startups since they are only available to larger companies who have already seen success. But we still see new games break through, get discovered, and race up the charts. This can always happen to great games at any time. But it relies on luck, and luck is not a strategy.
What is your strategy for discovery?
Media & Mobile Shine at LAUNCH Silicon Valley Event June 7, 2012Posted by Bipul Sinha in mobile.
Tags: brands, media, mobile, startups, startups entrepreneurship
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Earlier this week I had the opportunity to help judge a session on Media & Mobility at the LAUNCH Silicon Valley Conference in Mountain View. Five companies presented:
- AppSmyth which provides a mobile loyalty platform for retailers and brands
- KlickEx, a currency exchange service that helps consumers in markets around the world avoid paying banking fees
- Moodstocks provides an API and SDKs that brands can use to build image recognition into your apps
- Notous develops application software for NFC (near field communication and RFID software and hardware integration services.
- Wiz Communications which describes itself as a “disruptive cloud-based over the top push mobile messaging exchange”
It was an impressive group and while each company had a unique offering, there was one a common theme that many shared: enabling brands to reach their customers on mobile.
Where we are today in mobile reminds me a lot of the early days of social media when many big brands were struggling to figure it out. A number of interesting start-ups emerged that helped companies not only understand how to better engage with customers, but also how to mine the information they were getting from them to build better products and experiences.
Fast forward to today and brands are now challenged with how to reach and engage with their customers now that they are spending more and more time on their mobile devices. It’s an exciting time and space and I look forward to see which players emerge as the leaders.
Until then, congratulations to KlickEx for being named one of the day’s companies “Most Likely to Succeed” and to all of the companies for a job well done.