stephen sullivan .com

http://foursquare.com/

Origins of an App

Foursquare was founded by the makers of Dodgeball, a similar location service that Google bought and subsequently killed to insert their own product called Latitude.  Dodgeball’s founders became disgruntled and soon split off from Google to create Foursquare as the next evolution of the original service.  It launched to the public at SXSW in 2008 and has been rapidly growing ever since.

Foursquare’s growing success is interesting from an academic standpoint.  It’s a perfect example of incentives and rewards, and how the right design can overcome the divide between the minority who publish and the majority who watch. Foursquare is a location service that provides just the right incentives to create and harness network effects.

Posters vs. Watchers: The Divide

Location services seem great on the surface.  There’s the obvious appeal of knowing where your friends are and what they are doing at any given time.  This would provide great opportunities for serendipitous meet-ups, conversations, and event planning.  But there is one fundamental problem.  While people generally are interested in knowing what their friends are up to, a vast majority are not publishers by nature and therefore are not motivated to broadcast their own location.  This leads to location networks were you can’t actually see what your friends are doing because too few people are participating.  These inactive networks are not very interesting.

Incentivizing Participation

To address this issue, Foursquare provides a tiny incentive, points in a game, to broadcasting your own location. Suddenly it is more beneficial to broadcast your location than to keep it private.  With this, we find a network where you want to post your location and your friends do too.

The funny thing is, you don’t actually win anything in this game, but the simple point system is enough to make you feel like you are getting something out of broadcasting your location. Just like Wikipedia and Yelp, Foursquare have figured out that people are motivated by more than just money.

Now the question is: Can Foursquare defend their service against competitors and copycats? Now that Foursquare seems to have found the secret sauce for for a location network, is it just a matter of time before Facebook unveils its own location features to take over the space?

This morning, as I sat in bed with my 15-inch Macbook Pro on my lap and my fiancee read the news on her tiny iPhone screen, I had this thought:

“The iPad is going to be huge.”

Why? Because computers aren’t built for what most people need them for. Think about what a computer’s interface was designed for: everything. Controlling mainframes, writing software, editing photos, cutting video for a feature length film, writing e-mail, writing documents, making power point slides, chatting with friends, playing 3-D games, surfing the internet.

I have a powerful, flexible machine that does everything in the world, but all I want to do is wake up and read the damn Wall Street Journal before the paywall goes up.  That’s why there is room for a new category.  That’s why my PC usage dropped by hours a day when I got my iPhone.  I don’t need all those extra things.

The iPad will let people do computing things, but leave the computer behind.

At home, most users surf the internet, e-mail, organize photos, and listen to music.  Optimize around these things and you end up with the iPad.  Goodbye folders, windows, and mice.  Hello touching what you want and making it work.

People cry out, “But what about the keyboard?  There’s no keyboard!”  That’s the point.  Touch will free us of the extra clutter of keys and track pads.  Entering text only needs to be good enough, not half the surface area of my device.  Tablet PCs aren’t huge because they don’t make trade-offs.  They use the old Windows interface and keep the keyboard.  You are left with a really heavy PC, a stylus, and shabby touch screen.  Tablets are optimized for nothing. On the other hand,  eliminating the keyboard is a trade-off that lets you do other things better.

Will the iPad kill laptops? No, and they aren’t meant to.  I will still use my Macbook for all sorts of work type things.  But what do I really need when I wake up on a lazy sunday morning?  An iPad.

While reading a blog post for work I came across one of my favorite statistical distortions.

Look at this chart.  Isn’t it amazing?  Visually, it seems that yahoo mail users simply have way less friends than Gmail users!  How sad for them.  Maybe if they got Gmail they would be more popular.

Here is the same data formatted differently.

Looks like those yahoo mail people have friends after all.  They have almost as many as most of the other e-mail users and only 6 less than the Gmail users.  By changing the axis range we are able to completely alter the visual message of the chart.  Therefore we can see that careful selection of scale and range is an extremely important part of presenting statistical data.

Another issue with this chart has to do with lumping all the user age groups together for the average.  Since Gmail users tend to trend younger, it is possible the difference can be explained by demographics.  It makes more sense to segment by age-group and then compare.  I would like to know if there is any difference in the average friends per user between mail services in the 30-45 year age group.  That would be more interesting to know.

To be a fair, the first chart is the default one you get when you enter the data into PowerPoint or Excel.  So you have to be careful and edit the axis to avoid this problem.

You can find the whole article here: Link

A recent Harvard Business School study showed that a small percentage of Twitter users tweet…  then the blogs exploded.  Fortunately, after the initial “See why Twitter is doomed” posts, some good commentary focused on understanding the reason for the numbers.

What we should expect from Twitter use hinges on the extent to which it is a conversation versus a broadcast platform.  There is a great article on this here: link.  My initial inclination is to say that Twitter is more of a broadcast platform because a lot of use centers around events and news.  Musicians and celebrities have found Twitter extremely useful for connecting with fans.  This is because they usually have announcements many people are interested in.  Unfortunately they can’t write back to all 1M of their followers if they respond.  (This means you Ashton Kutcher! Why won’t you reply to my tweets?!)

I personally tend to use Twitter to send messages to a certain group of people in my social network.  These friends are primarily marketers and entrepreneurs in the tech space.  My twitter graph is more like a small focused community rather than a general broadcasting space.  This is one reason I post updates to Twitter more than Facebook.  My Facebook account isn’t yet set up to reach particular audiences based on interest.

We can look to the past to understand Twitter’s future

The main reason the Twitter research results should not be surprising is past online community studies.  When analyzing the frequency of comments posted on blogs, a pattern known as the 90-9-1 rule was found.  This means that for an online community

• 90 % of users are views
• 9 % are moderate contributors
• 1% are heavy contributors

But we also know a rule called the 80-20 rule.  This suggests that 20% of your users create all the content. Link

The answer for Twitter is its in a ballpark somewhere in between.  As I have graphed below, the reason for differences in participation rates depends on at least 2 main factors.  These are:

• Privacy of the community
• Ease of participation

As privacy gets higher, the community usually gets smaller and participants are more likely to post.  Small communities with focused target markets often get higher participation and user loyalty.

Ease of participation is very straightforward.  The lower the effort to participate, the more people will contribute.  This is obvious when you think about the number of people who write blog posts versus the number that update their Facebook status. Link.

We see from this simple diagram that the 90-10-1 and 80-20 rules make up frontiers based on the 2 parameters.  Although numbers are not exact, a visual reference lets us put the report results in perspective. By comparing services, we see that Twitter is not really unusual.  Participation falls between Facebook status updates and writing Blog posts.  It would be interesting to know if smart phone adoption is raising participation levels since it lowers the effort required to contribute to online communities.

So if you are starting your own online community or service, do not get caught off guard by your analytics.  Make sure to form realistic expectations based of research and focus on more pressing problems, such as growth rates and a business model that works.

Recently, a reader asked me how to figure out the best way to make money from their iPhone application. Below is my response:

Without knowing more about your app, I can’t give you a definite answer. What I can tell you is how to weigh your options to make better decisions.

At MIT Sloan, we would determine the best approach by creating an excel model.  This model would include assumptions and best/worst case scenarios that give insight into the possible scenarios for you app/business. You can then do a sensitivity analysis on your model’s variables to see which factors are most important.

Some of the main assumptions you will need are:

User growth rate
User drop-off rate
Ad views per session
Cost to serve ads
CPM/CPC

Once these are plugged into a model, project out month by month and see where you end up. If you have an app you think people will use often, ads will probably be better. iPhone apps are extremely price elastic. One app we studied when from 10,000 downloads to 100 when moved from free to 99 cents. On the other hand, if your app is a fun impulse buy that will only get used a couple times, you are better off charging upfront because it will take a lot of ads served to reach 99 cents.

Finally, the nice thing about the app store is that you can change models midstream.  If you find something is not working, then update the model with the new data and try somethings else.

Here are a couple recent articles on the subject

http://venturebeat.com/2009/05/06/iphone-ads-not-your-path-to-wealth/
http://www.businessinsider.com/some-iphone-apps-making-money-from-ads-2009-5

Regards,

-Stephen

So that Microsoft laptop hunter ad with Lauren has been driving me crazy.  Not because I am a rabid Apple fan however.  It’s because of the picture below:

If someone says I get $1000 to spend, no way am I going to go out and spend only $699.99.  Lauren is leaving a couple hundred dollars on the table (assuming tax).  I am not going to take any laptop buying advice from someone who is not even economically rational.

I’m glad I finally got this off my chest.

In the post checkbook age*, people tend to be lazy about managing their finances.  It’s not easy too keep track of everything.  Just look at the list of online financial accounts I have:

• Ameritrade Account
• Vanguard Account
• Bank of America Account
• Student Loan Account
• Credit Card Account

That’s 5 separate log-ins just to see how much money I’ve lost in the stock market lately.  Thank goodness for Mint.com.  There are a small number of sites that I believe are must use; Gmail, Facebook, Hulu.  I include Mint.com in this group as well.

Mint.com summarizes all my account information in one place.  The service sends weekly e-mail summaries of transactions and is accessible through their iPhone application.  It also highlights stock gains/losses and lists a total net worth number.

Here is what their website says:

“At Mint, we believe that money is for living. That’s why we’ve created the simplest and most effective way to manage your money…and why Mint.com is free.”

The most important part of Mint.com is that it gives you information that lets you take action.  If I find I am spending more money on food than I expected, it tells me.  If Microsoft stock is way up and I need to sell to lock in profits, it tells me.  If I do not have any money in my checking account and can’t afford my next credit card payment, it tells me.  I may never have noticed these events before and now I can make/save money with the help of Mint.com.

The service offers clear value and best of all, it is free.

*If you still use a checkbook you might want to look into online bill statements and stop wasting your time.

This is the perfect title:

Google Threatened by Twitter

Notice how it broadcasts two ideas that are guaranteed to drive web traffic, Google going under and Twitter.  I wonder if bloggers actually care about these topics in proportion to how much they cannot shut up about them.   I logged on to Techmeme this morning and at least 9 of the articles listed had Twitter in the name.  Ridiculous.  Is there anything else going on in tech these days.  How about technology’s relation to the current Global Economic Meltdown (GEM)?

Oh well. Why fight it.  I guess bloggers are just giving people what they want.  My next post will feature Twitter.

Boy am I excited about Google’s new latitude product.  See initial review here.  This is for a couple reasons.  First, it is just a cool product with great potential.  Second, maybe this will pressure Facebook to finally release the location features they have been working on.

When the iPhone was released with location features, I celebrated.  Here was a platform that finally let people make all the cool location apps the telecoms had restricted through their overbearing management practices.  On release, a few Apple presentations featured the social networking App Loopt.  I quickly downloaded it, eager to get the benefits I imagined sharing my location with friends would bring.  Only problem is, my friends will never be on Loopt.  This app had a network / critical mass problem in the worst way.

I briefly experimented with the idea of building a simple location app with plans to use it at MIT Sloan. (Even made a prototype)  Only problem was, I heard that Google was working on almost the same thing.  How would Google build the network?  Didn’t they have the same problem as Loopt?  Then Google took advantage of the original social networking app… E-mail.  Genius.  They have built in links from Gmail that are easy to import.  They don’t have it as easy as another company however….

Facebook needs to get on with it.

I have already confirmed that Facebook is working on location. (not that its not an obvious direction anyway)  This is why Loopt is doomed.  Facebook has the network.  All they have to do it turn on this “feature” and they have critical mass is built in.  I have been told the reason Facebook has not released location services yet is that it has an obsessive concern with privacy.  They want to make sure to get it right.  This is good, but get on with already.  Now that Google has Latitude, maybe Facebook will be a lot more motivated.

Take a minute and guess what the most visible piece of advertising is in Tanzania.  What product do you suppose it is for?  What company logos are most prominent?

Coca-Cola?

Some local beer?  (Kilimanjaro beer.  They got the marketing to tourists thing down)

Nope.  The ads you see plastered on every store in Tanzania are for cell phone carriers.  It turns out that 4 carriers are in brutal competition to capture the market.  These are tiGO, Celtell, Zantel and Vodacom.

(did GoLoco steal its logo from tiGO or the other way around)

Cell phones the most revolutionary thing to come to Africa in decades.  It was always too expensive to run copper lines so not many people had them.  Now you get crystal clear coverage right in the middle of the Serengeti.

It isn’t cheap though.  In Tanzania you are charged for outgoing calls by the second.  Everything is prepaid, and text messages are free.

This is a country where people walk miles just to go to the market to trade goods.  Not many people have cars and the ability to coordinate over distance changes everything.  As such, everyone wants to have a phone and companies are more than happy to compete for their business.