March 16, 2012
A few days ago I returned from my annual pilgrimage to the South-by-Southwest Interactive conference in Austin, Texas. As always, the SXSWi event was a great opportunity to network with old new friends, support the companies we invest in, and get a first look at what's coming next technology services and tools. Much of the news coverage of the event revolves around speculation of which startup might "breakout" and go viral after capturing the attention of SXSW attendees. Twitter's big coming out party at SXSWi happened in 2007, and Foursquare made a national splash at the 2009 event. Since two data points obviously make a line, the world was waiting to see which startup would have the upward arrow pointing at it this year. While there are a handful of winners of the buzz award at this year's SXSWi, I do not believe the ideas that capture the attention of this very small, extremely tech-forward group will be big enough to break out. Most of the startup buzz this year focused on a group of new apps with "social discovery" benefits. These apps build on the popularity of existing social networks like Facebook, Twitter, LinkedIn and Foursquare and solve the "problem" of helping you physically locate people you know (or might want to meet) near you at any given time. They are mobile-first apps that stay active in the background on your smartphone. When someone interesting and relevant gets close (around 100 feet), you receive an alert and can either send him a message or approach her directly. There are already several players in the same space competing to the the one that wins a battle to scale, including: Highlight, Glancee, Kismet, Sonar, Banjo, and Meeps. There are probably more, but 6 is enough to seed a problem in your minds (more later on that). I had heard of none of these apps until touchdown in Austin last week. Within a few seconds of turning my phone on again at the arrival gate, I received 4 or 5 messages from people who wanted to connect through Banjo, using a Twitter Direct Message. Each of these people sent a similar, non-personalized message such as the following: Now, I would love to meet this person or any one of my +6,000 Twitter followers. After all, making new connections is the number one reason why I went to SXSWi. However this generic outreach was a total turnoff. I'm guessing that Banjo's marketing strategy is to send such mass DMs in order to drive awareness, but it flies in the face of the benefit it was built for: to encourage real-life meetings between people who know each other or share common interests. My second experience came with the Highlight app a few days later. During a very interesting seminar about how technology can make conferences like SXSW even better, tech legend Robert Scoble took over for a few minutes to rave about Highlight. He told a story of standing in the hotel lobby the previous day and discovering through Highlight that the editor of Al Jazeera was nearby. As Scoble described: "I am a big fan of what Al Jazeera is doing, and wanted to meet with this guy. He wanted to meet me, too, and we ended up having a great discussion. Without Highlight, this great meeting wouldn't have happened." Well, within seconds everyone with an iPhone was pulling up the App Store and installing Highlight in hopes of making a similar priceless connection. I, too, took the plunge and began playing around with the tool. Unfortunately my experience wasn't as remarkable as Scoble's. Highlight did ping me with some relevant and interesting connections as I walked around Austin. Some old friends popped up, but I had already met them during the days before. Most of the other connections were too broad or just not worth following through on. For example, I frequently found people who were also Facebook fans of, say, Red Bull and Modern Warfare 2. Not exactly a relevant match. At the Austin airport on my way home I made an outreach attempt - pinging a minor startup celebrity whose seminar I attended a few days before. I sent a nice, personalized message through Highlight in hopes of a response...Alas, my overture was unanswered and I had flashbacks of prom date rejections from decades before. Highlight got a lot less relevant when I arrived at the Atlanta airport for a 2 hour layover. Suddenly no one popped up on the app. Even at a crowded, international airport there was no one else with my somewhat broad interests (c'mon! Red Bull and Modern Warfare?!). It seems we were a very long way from SXSWi. But just as I about gave up hope, I did have one brush with another technology/marketing celebrity that I admire. I received a Twitter @ message from Joseph Jaffe just as I was about to power down for the flight home: I was excited but puzzled by Jaffe's message. I quickly googled "chipping norton" and discovered that it is a lovely place in the Cotswalds region of England, which I visited on a business retreat a few years ago. Thus, my reply: And Jaffe's response: So, let's just say that Banjo has a few bugs to work out...But it's more than bugs that plagues the prospect for such Social Discovery Apps' chances for success. First, while the technology has a certain gee-whiz factor, the benefit of these services is weak. Simply put, whether you are launching a new laundry detergent or the latest and greatest mobile app, to succeed with a large user group, your new business must solve an important pain point or be incredibly entertaining. I believe Social Discovery Apps fall far short on both. The "pain" of needing to meet people with relevant interests around you and the "benefit" of attempting to meet with them is just not that compelling. Actually...there is one app that is succeeding with this problem and need--it's called Grindr, and it offers a way for gay men to meet each other. Grindr is winning because of a specific audience focus and (ahem) need, dating. With Highlight, Banjo, and the rest, there really isn't a clear "thing to do" once you have found someone that matches up with your interests. There is also the problem of having a handful of people like Scoble and Jaffee who a lot of people want to meet, but who don't necessarily offer reciprocal benefits--an imbalance of power and interest, so to speak. I'm sure this is a problem with Grindr, too, but I digress. The second big barrier to Social Discovery Apps' success is the Catch-22 of network effects. You know the story by now--the first guy with a fax machine feels like a jerk until everyone in the world gets one. To bring social discovery apps into the analogy, the first guy with a fax machine also has to wait to see which of the 6 competing phone line providers signs up everyone in the world. That's right, not only are relatively few people using these apps, but those few early adopters much choose among the list of players I named above--plus probably another 3 or 4 that launched since I started this blog post. Again, if there aren't many people online then any benefit that the app offers is moot. Then there are the costs. Although all of these services are free, technology consumers increasingly calculate the indirect costs before trying something new. In Social Discovery Apps, the costs include a faster-draining battery (as they must "work in the background" continuously to find people), and overall privacy concerns. In my Minimum Viable Concept testing I have found privacy to be a significant and growing issue for a number of people. In fact, I see that any "free service" is viewed with skepticism by people who now know enough to question how their data will be used to power someone's business model. And there's the stronger physical privacy concerns. I personally ended an experiment with Foursquare after my wife worried that strangers could see when I was checking in from out-of-town. It was a small concern for her, but I weighed it against the much smaller benefit I got from using Foursquare--and quickly logged off permanently. Alas, someone else is now the mayor of my local dry cleaner. Overall, the fact that Social Discover Apps make it into the mainstream press with little benefit and significant costs suggests that our digital startup world (or at least the fishbowl of SXSWi) has "jumped the shark." Perhaps we have reached the point in digital startup evolution where the biggest problems are already solved, and we must come up with new gimmicks to keep up the flow of investors' dollars and reporters' ink. A few months ago, Bloomberg Businessweek wrote about the "alternate reality" of Silicon Valley, where many of today's new startups "could be falling out of touch with the rest of the world." The article went on to tell the story of one startup, Color, which raised $40 million from investors before launching an iPhone app that enabled people to share photos with strangers nearby. Sounds a bit like a SXSWi Social Discovery App, eh? The CEO, serial entrepreneur, Bill Nguyen, said Color would be "ideal for parties" and "an interesting way to meet people in cafes and bars." Well, Color was soundly rejected upon launch, as people actually didn't want to be photo voyeurs, and the company quickly pivoted away.
Too many startups make products for people like them, which is predictable but not interesting. (Roger McNamee)Whether you are a seasoned investor or a 19-year-old startup founder, it is often a trap to focus too closely on something that fits one's own very narrow interests. As we approach the 20th anniversary of the first web startup, there are still a lot of big issues, touching billions of lives, that breakthrough technology can help us solve. Ironically, the startup I heard mentioned most often at SXSWi was a company that barely had a presence at all: Pinterest. The company's CEO spoke at a panel, but there was no Pinterest party house or costumed mascots for the firm roaming the streets of Austin and giving away novelty pins. Many SXSWi veterans have been caught off guard by Pinterest's success--since it didn't get to 16 million monthly visitors by winning over the digital geeks and VC power brokers first. Pinterest became a winning Social Discovery App by offering something that people want and do today--collect and share interests. While Banjo and Highlight attempt to make us do something we normally avoid--meeting strangers--Pinterest is a better way of doing something that a lot of people like to do already; or as the New York Times writes: "Unleashes the Scrapbook Maker in All of Us." By shooting for a big, existing need across a large group of people, Pinterest gives both hope and guidance to those of us who dream of startup success. So I would encourage you not to settle for solving small problems that only impact a tiny niche of users. Get out into the big, real world out there and find a huge problem that needs solving or a better way of doing something that people absolutely love. If you need some data to test whether or not your idea is big enough, I'm standing by and ready to help you with a Minimum Viable Concept Test! You should learn more about the MVC Test here, and follow me on Twitter here. +Bob Gilbreath