|Musings from Jay Weintraub, Customer Acquisition Strategist. Currently, Founder of Grow.co. Previously Founder of LeadsCon.
As conversation around the tech correction heats up, many of the conversations have focused on "burn rates."
What Is A Burn Rate And Is A Burn Rate Bad?
Those in startups (especially venture funded ones) with exposure to the p&l, will be very familiar with the notion of a burn rate. The term is a euphemism for how much a company loses (generally expressed as a monthly amount). Along with their burn rate, you will also hear companies refer to how many months or years of cash they have remaining at their "current burn rate."
A high burn rate is not necessarily a sign of a bad company. Many companies today and in the past would have run out of money had they not sold, had investors continuing to write checks, or exited to the public markets. This includes Amazon, YouTube, and Twitter. The vast majority of companies, though, won't be as fortunate to have seemingly never ending funding to see the vision out to profitability as Google did with YouTube.
A seemingly never-ending supply of money is nice when it happens, but it is a very precarious position in which to put yourself. And it is simply not a realistic position for the vast majority of stratups, even though many are essentially binary bets for their investors. That is, the investors either expect it be a big winner or go to zero.
The burn rate conversation is focused not on the odds of a successful outcome but changes to their spending habits that keep the company at bat longer and less likely to need to go back to the till, which if predictions hold true, will be drier than it has been and as such a rude awakening for many.
Moving Away from the Burn Rate Conversation
While I run a startup and have invested in more than two dozen (don't tell that number to my wife!), as I'm not a professional investor, I am in no position to offer guidance on what one's burn rate should be. Instead, I would like to reframe this conversation in a way that almost anyone could identify. And that is by focusing on revenue, specifically customer concentration.
Although obvious, I think it is still essential for every company, especially young ones to understand their customers as much, if not more than their expenses. A simply way to do this is to say, what happens if we lose our top two? Our top five? It is important for a company to know how many companies make up 10% of its revenue, 20%, 50% and so on.
The next step beyond having a grasp on one's revenue concentration is to understand the companies that are spending with you. This is what many didn't understand or see coming during the 2000 internet crash. They might have had many customers. The problem, though, was that all of the customers were the same. It is equivalent of owning many stocks but all in the same sector, such that any sector changes will impact your entire portfolio more than the market as a whole.
A commonly referenced statistic is that 75% of venture funded companies fail. If one's clients are all venture funded, you might be in a position to lose 75% of your business. Even if your clients beat the odds, they might still view you as non-core to their spend. That was certainly the case in the early 2000's. Seeing the carnage pile up, traditional brands and agencies pulled back on all digital spending, hurting all digital companies. That could very well happen again. If big brands decide that spending on social should be tweaked (i.e., cut), even if they cut budgets by 5%, it will mean billions in lost revenue for the ecosystem.
We have seen huge investments - both by investors and companies as clients. There is clear value and amazing things happening, but it doesn't mean that there aren't potential points of exposure. Understanding those points of exposure - both expenses and income - is a first step to being ready as a company for any changes.
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My wife and I have 14-month-old fraternal twins, son Ryan and his younger sister by 11 minutes Madeline.
Other parents have shared with me how awe inspiring and impossible to understand the development process is. I find it doubly so with two kids who share 50% of their DNA but seemingly nothing else, excluding my wife and I as parents.
Most people who see them remark on the obvious external differences, Ryan with his curly hair and brown eyes, Maddie (as we call her) with straight hair, fairer skin, and bright blue eyes. From the shape of the ears to the structure of their toes, looking at them is like looking at a game of Mr. Potato head where two siblings managed to pull their parts from two different parts bins.
Their internal differences, those that my ninth grade biology class cannot help understand, fascinate me as much, if not more than any external difference. We see behaviors common to both because of their age, but I am amazed at the differences in how they process and express what they learn.
My son reminds me of me – sensitive, silly, linear, and determined. My daughter must take after her mother given that her problem solving that already tops mine and as my mom tells me, has patience and calmness not seen in my unless cartoons were playing. Maddie just figures things out without having to try and understand each of the components. I love my son, but I’m often in awe of our daughter. She doesn’t sit there and do what makes sense because it is the obvious way to do so, nor does she hit a wall and keep trying the same thing again and again until deciding to take a different tact.
According to my mother, I was indeed a lot like my son as a child. I suspect then that he too might develop into being an idea guy; whereas his sister, is more like the hacker. He will wonder why things are the way they are, and she will figure out how to use what exists to get things done faster, cheaper, and better.
Like other idea people, no topic seems unexplored, from a better bathroom experience to those inline with my current efforts, such as ideas for new conferences or event technology. Some I will share; others, I still think are so good they deserve to be locked up in my head waiting for that moment when someone else does it, but where I at least get to say – I had that idea.
Those ideas that we don’t share, are they really the best ideas; or, are the best ideas those that you could share because no one else can pull it off as well as you? As much as I’d like to say it has to be the former, the truth is probably closer to the latter, at least for the ideas that matter. If it’s an idea you can’t share because you don’t want someone else to do it, there is probably a chance you aren’t the only person with the idea or even the best person to pull off the idea.
That notion, that the best ideas might be those that you could share, is what has taken me far longer than I hope it will take my kids to understand. The true value of any idea only comes when it gets executed. Similarly, the success of the idea rests not in the idea but how well it gets executed.
In “Idea Versus Execution A Tale of Two Founders,” I wrote:
In thinking through ideas versus execution, there are three things I've had to come to terms with personally. The first is that I'm an idea guy through and through. The second is that a large number of my ideas exceed my ability to execute, and the most difficult is that almost all of my ideas have been thought of first by others. The ONLY thing that matters is who executes best - not even first but best. For idea guys, this principal can be painful, because it means learning to let go of ideas and realizing that ideas aren't where the value is.
So, why are we still so hesitant to hang on to our ideas? Is it because we truly think that we are the best person for the job, or could it also be something else, i.e., the power of hope the way buying a lottery ticket fills you with promise despite the near-impossible odds? Only in this case, the idea is a perpetual lottery ticket that you can hang onto without having to hear multiple-times per week that you have not won. And even if you lose, i.e., someone else does it, you still get to feel as though you accomplished something by its clearly having been a good idea.
Speaking of hope, this (finally?) brings us to Angry Anthony. Granted, talking about Anthony as an example of an idea guy is slightly extreme and/or depressing, but it does help illustrate the value (or lack of inherent value) in the idea. I call him “Angry Anthony” (well, not to his face), because he is a rather vitriolic sort. He is white, in his forties, and an ex-con. If he finished high school, it does not show in the spelling or grammar of his signs.
Anthony was born and raised in Upstate New York, which like the parts of California not within 75 miles of the Ocean or major metro, resembles a completely different world – one that typically has less transparency about how to escape a world of seemingly limited opportunities. So, it is an unfortunate cliché that Anthony was drawn to the glamour of crime, which in the short-term provided greater excitement and access than the slower, less certain paths. His path though meant at least eight years in prison for a non-violent crime and forever carrying around a felony conviction. Not that he seems all that remorseful, more nostalgic for the days when he had things and experiences worth remembering.
I have already dedicated more cycles than I should to thinking about Anthony, be from a marketing perspective of wanting to A/B test his signs to the cadre of classic curiosities around ways to break the cycle. It’s his ideas that are the most interesting, because like so many ideas, they don’t actually suck. His signs clearly do, as “If I were illegal, I would be working,” is not the sympathy inducing fare likely to win wallet share when up the street sits a man with 1.5 legs, even though his use of funds has some very suspect applications. Add to that Anthony’s views on homosexuality and gender equality, and it whittles down the pool of sympathizers in the form of money. He is though truly homeless, and I’ve not seen him drunk or on any form of drug other than nicotine.
The first idea I heard from Anthony was his wanting to see a KISS themed hotel. He believed that certain brands had enough pull that people would rather stay at a hotel with that brand’s likeness than the one-size fits all approaches of today’s hotels. Would True Blood fans want to? Why not? Maybe this is called Universal Studios, but clearly there is something not completely idiotic about the concept. Anthony even had met someone that was a developer and another person that worked for the KISS brand.
His most recent idea is almost an ad-tech one. It’s essentially an offline ad network leveraging building real estate that in NYC is currently overlooked/underused. If there exists a business painting the sides of buildings with ads, this one can surely work too. He event knows one of the companies that could facilitate (think ad server) were the two sides of the network put together.
Would you pay for this idea? Would you work on it and give some percent of the profits to the idea? It’s arguably not patentable, and even were it patentable, he couldn’t afford to do so. It’s an interesting conundrum that helps illustrate when ideas have value and when they don’t.
In the past, I’ve proposed an Idea Marketplace. With Angel List, Quirky, Kickstarter, etc. we are getting close, but we aren’t quite in a place where an idea can lift someone up from the streets. Hopefully, for Anthony, the “I’m sweating my balls off” sign will perform better than usual.
My treatise of all treatises has been interrupted this morning by something much more mundane, a customer service call with United Airlines.
Fliers like me fall into a funny category. We are the hard to measure incremental dollars. It is exactly what a loyalty program should capture, but it's not easy to track what that actually gets the program provider. My back of the envelope math suggests that United made $2,000+ incremental revenue of me each year. That's the amount I could have saved by flying the better route and the better price on a different carrier. Instead, in the aim of maintaining my status, I flew on United.
For the past twelve years, I have hit Gold, which on most airlines entails 50,000 miles. The big difference for me is that most of the miles were spent as though it was my money. A good 70% were business travel, but it was for my business, so each trip was evaluated and each dollar mattered. The extra dollars I could have saved would have been felt, versus the more coveted travelers whose companies pay or the most coveted travelers, consultants, who get other companies to pay but keep the perks of flying the most expensive class of tickets.
No Status for You!
On my customer service call looking into two fees that I had never had in the past, what I found out is that I have no status for 2014. I flew 24,497 miles in 2013, which is 503 miles short of the lowest level, Silver. There was a site that allowed travelers to pay for miles to get them to the next status level if they came within a certain number of miles. I feel like I saw a piece of direct mail about it to my wife.
My error? I assumed. I assumed that my loyalty was automatically worth something. That it would be recognized and rewarded by at the very least a bump to Silver. How foolish ultimately, as the rules are the rules. All I can think is how nice to be so spoiled and entitled as consumers to find this strict adherence to clearly marked rules unacceptable. But that's the new customer service reality. It is no longer about adhering to your rules. It is about performing up to the new global standard.
Now that I have zero status, I have zero incentive to stay loyal. I might has well see what is the best return for not only the $2,000+ incremental dollars but the annual travel budget. It's one thing if the company offers the best of the best, but in United's case they are lacking in so many ways, for example:
As it's easy to my ego protective state of assuming I mattered, I'll bypass a few more woe is me comments and skip to what I'd do if I were them.
1. Know Your Customers
A) Look for people who have obviously shown loyalty and bucket them, e.g., 2 or more years, 5 or more years, 10 or more years. Have a few basic criteria for each bucket, e.g.., minimum status level, maximum status level, and average status level. Goal: simple but meaningful segments
B) Their customer service history - number of times called, issues unresolved or escalated, refunds processed, etc. Goal: how resources intensive are they and are they introvert customers or extrovert customers.
C) Get some sense of their digital self - are they connected, public, chronic complainers, able to offer real insight. Goal:
D) Assign a score or have multiple scores based on miles, dollars, consistency, service, digital; make the data simple to read and intuitive. Goal: a universal way for anyone to understand a customer in one quick look.
E) See What They've Received And Score It- when was the last upgrade? Average number of perks (e.g., upgrades) last year, in the last x years. Goal: have they been rewarded and are they feeling loyal. Create an index of perks to x (trips or miles) so you know their sentiment.
F) What What Has Changed in Their Life - Are they buying for different people? Did they go from one ticket on non-business trips to two or three or four (like us with twins)? Maybe they didn't get an upgrade because they started flying with their wife and didn't want to be separate? Maybe they have had a kid or kids. What has the data said about their flying change. Did they relocate? A lot of this data is easy and inexpensive to append. Goal: Combine other relevant data to act as triggers and ways that let you take action in a way that feels more personal than messaging by status level.
2. Look for Deviations
Set alerts for any changes or the possibility of change. The data will tell you what a person's typical frequency is. Are they not taking certain habitual trips? Have they started to trend differently? Goal: Know almost before they do what may be happening so that you can take action.
3. Take Action And Proactive Acts of Kindness
Let's take someone like myself who has given 10 years of loyalty for what used to involve an upgrade or two (until the program changed and my route no longer qualified for free upgrades) and earlier boarding (now available for $300/yr via a credit card). In my case, they could have, in an ideal world, given me a year free of status in recognition of past loyalty and life events. Or, they could have sent me a note about my status and instead of saying click here to pay, they could have just given me Silver. Finally, they could have actually been proactive about communicating my shortage instead of assuming that I knew exactly where I stood. Just as I shouldn't have assumed, I don't think they should have either. With data aggregation and triggers, they could help create loyalty - timed discounts along with unexpected but appreciated rewards - from status to lounge visits.
It's easy for me to suggest what should be done, but United is a huge corporation, that despite the pretty pre-flight videos, has to operate on the lowest common denominator. That means individual employees are not empowered to help individual customers. Empowered is a culture change, it's a management change, and it means an incentive structure where service matters. Is it possible? Absolutely. Just look at Chase Bank or Best Buy. I actually have loyalty to a bank, and why? No special program but an intense culture change that has saved me some money, some time, but more than anything makes you not loathe a commodity business.
If a 20 year pilot whose airline goes under must start from zero at a new airline, do I really expect less mission critical pieces to be better run?
In 2002, if you took a look at the lead generation landscape, it would have consisted of one main vertical - mortgage and one up and coming vertical, for-profit education. A dozen years later, the lead generation has undergone some radical transformations, from sector diversification to smart uses of technology to connect users with companies more efficiently.
Both mortgage and education exist, each, though looks very different today than before. On the former, we can argue that the recent financial crisis set the industry back. Consumer demand remains strong, but the legislation changes along with interest rate sensitivity, mean that companies cannot come close to fulfilling the consumer demand.
The changes that have taken place in the education space are equally fascinating, and the issues equally charged. It's a topic that I certainly have thought about since going from first-hand marketer to industry organizer. As the operator, I understand the marketer's maniacal focus on demand generation. As a semiofficial liaison for the industry, I understand the macroeconomic and political factors that have translated into not just increased scrutiny but inappropriate labeling of the industry.
I'll admit the slight stretch, but in many ways the business of education is not dissimilar from medicine. At their core, they are helping people live better lives. Like any large, complex, and emotionally charged sector, it is very easy for those on the inside and on the outside to form divergent opinions. And, it is possible for both to be correct. We are seeing it in medicine and certainly within the education sector.
For the uninitiated, the for-profit education sector contains both degree granting institutions and non-degree granting institutions. Of the two, the degree granting institutions are the ones that have garnered the most attention. They include institutions with no central campus, like University of Phoenix, that began with a specific focus on underserved students (working adults) to partnerships between your traditional schools and companies who help them leverage the brand to create an online, profit generating division of the "non-profit" school.
As I've learned by being around education industry, once you attach for-profit to something, it becomes charged, and even more so in education. The term is really a misnomer, and it's unfortunate. Currently, though, the discussion surrounding education has become so embroiled in partisanship that having a meaningful discussion about it can be difficult.
The government loan issue is a tricky one, and for better and worse, it makes innovation trickier because the degrees must conform to accreditation guidelines. It's the same issue surrounding all traditional education and the debate whether what is taught at traditional higher education institutions prepares people for the jobs.
Flying under the radar in some respects are the non-degree granting institutions - the scammy ones being mail-order fraud but the real ones providing skills training, e.g., truck driving. It's a segment of the market that has escaped debate primarily because it is typically private pay, that is, students do not qualify for government backed loans.
The under the radar area is anything but under the radar with respect to their impact, not just on the traditional jobs but some of the most in demand fields, programming and user design for example. Getting a job here does not require a full degree. It requires very specific skills, ones that are able be distilled and taught in a condensed period of time.
Programming was and is taught at degree institutions. With the volume of shared data online - most importantly libraries allowing programmers to quickly use pre-written code - the timeframe for learning has decreased and ability to do things with that training has taken a leap forward. Instead of four years, a person can spend three months of intensive training and be qualified enough to be the equivalent of a paralegal or better depending on the student.
These programs, referred to as immersives/intensives, seemingly have sprung up from nowhere. The first was General Assembly in New York, and today the field contains 70+ institutions, more than half of whom have formed in the past twelve months. Like any new education discipline, it just sort of happened, but the more business savvy realized that they were on to something.
The course fees are anything but trivial, averaging $10,000 or more for the three months. But, the current market demand for the skill and subsequent placement rate means that the $10,000 becomes a pretty calculable ROI for students, many of whom upon getting placed will earn back the money in the first year. Even if they earn back the money in three year's, that far exceeds the ROI of most other education.
What I saw watching the space was something akin to the education industry in the 90's and early 2000's. I had a scratch pad of a site that would compare the schools and aggregate the information to assist with the student discovery process. Two years later, not having actually done anything with that paper, I decided instead to back a startup that had the same idea. It is called CourseReport.com, and for hard core lead gen folks, it's directly approach will appear familiar, but instead of just aspiring to be a discovery platform, they want to help be an end to end play for the student.
It will be fun to see where this space goes. No doubt the "big guys" of for-profit education are already hard at work at looking into this space. More than anything, I hope this space will continue to do what it has started to - providing education that is actionable and employable.
Chrys Bader, a former YouTube and Google+ Product Manager wrote a piece on his blog, TakeASwig, that tackles a very common prognostication, but with an articulation that fluff pieces lack. I saw his article, The End of the Facebook Era, on Quibb, and like many read it - agreed with some, disagreed with some but went back to thinking about Facebook's in the near term - namely, its stock, whether my wife still uses it, and how it performs from an ad platform standpoint.
Sandi Macpherson, the founder of Quibb, asked for the communities' feedback. I didn't plan on writing, but as a marketer, the dichotomy is interesting. For marketers, Facebook is starting to hit its stride, so to think of it as flawed and underperforming does not jive with its current business reality. But then again, that's part of the criticism, it being a business. That's not the real complaint, though.
Where the Kids Hang Out
The real macro knock is that Facebook was cool. It's not cool anymore, and that consequently Facebook has a real problem on its hands because the next generation of users aren't using Facebook. No new users, no built in source of growth.
For marketers, asking the importance of being where the kids hang out is a weird question, because only a handful of brands can make money marketing to kids, and almost none in the customer acquisition space can. Nothing says no thank you quicker than hearing, "Hey, we have millions of teens and tweens."
What we're talking about is not 12 to 24 month issue for Facebook, but 36 to 60 month potential hit. Then again, the place that has the teens today might not have them when they are older; and even if Facebook had a way to get them, it's not a given they could keep them.
Do They Need the Kids
Facebook needs growth, and you can grow in two ways - yield (which they have at least 2x) and user base. And, it's the latter where the talk of the kids come. The big reason they aren't coming according to conventional wisdom is because their parents are there, which of course is why marketers love Facebook and Google.
It's really hard to appeal to kids and adults in a single brand. It's also really, really hard if not impossible to bet on owning the kids and having them transition to you as adults. Habits transfer, like a preference for Coke or Pepsi. Emotions transfer, such as those that Nike instills. Parents who drink Coke don't make Coke less appealing for kids. Similarly, parents who wear Nikes don't make it less cool for kids to wear Nikes. Utilities like Google fall into a different category.
The concern is that they are more like TV - a habit and way of life for one generation but not a lasting habit that transfers to future generations. They are a piece of technology susceptible to major disruption. A buggy whip manufacturer on the dawn of the age of cars. AOL at the time of the broadband revolution. But guess who loves TV, marketers. So, declining TV audiences is not a wonderful thing either.
It's funny to me, because the walled garden was the initial appeal of Facebook and a source of power, but now it's being touted as an achilles heel. Talk to those smarter than us marketers, and they make it sound like the original AOL or pre-Apple smart phones - thanks for keeping us safe, but now you're too restrictive.
I think we all knew that Facebook wouldn't be brought down by a direct competitor the way it took down MySpace and MySpace took down Friendster. We knew the same of Bing that it wouldn't make any real dent in Google, only fight to maintain its share. But, as a marketer, I'm not ready to call for Facebook's demise. When a platform works for business, you have a strong motivation and a big pool of people fighting to see it work. That's a nice ally. It may not make you cool, but it's nice to go into to battle with.
Where Does Snapchat Fit
The easy thing when it came to assessing Google vs. Yahoo (circa 2002) is that you had two companies doing the same thing and one of them had a better product. It was by no means a sure bet, but it wasn't a stretch to see Google as the air apparent.
As Facebook was never going to be taken down by a direct competitor, we just don't know what, if anything, that will be. My barometer for Facebook is my wife. So long as she still uses it, I believe in it. She's a lurker, but an active one, and she's a very valuable ad impression - a member of the same audience that has allowed Zulily to be a multi-billion dollar commerce company.
I haven't yet heard anyone suggest that Facebook's unsuccessful bid for Snapchat might become akin to Yahoo not wanting to pay enough for Google in 2007. Most point to Snapchat's hold on the younger demographic as (I above and others have beaten over the head) simply emblematic of Facebook's longer terms issues. Why Snapchat said no, only the founders and the board's of both companies know. I suspect that Snapchat's refusal speaks less to any inherent flaw with joining Facebook (Instagram's success would make me hopeful) and more to Snapchat's own issues and challenges.
Whether it's Facebook's lack of appeal to youth or its appreciation of new platforms, that it was willing to spend 20%+ of its free cash to hedge, is a powerful datapoint. It could be a meaningless one too, like AOL buying Bebo. Ok, that was a low blow.
Can You Have It All
When I think of Nike, their defining moment was Nike Air. Michael Jordan aside, when you first put on a shoe with "Air," it was so far and above anything else. It created a lasting impression upon which they have built an enduring brand. Their products have to be good, but a good product doesn't make Nike, amazing marketing does. The same holds true with Coke and so many other consumer brands.
In some ways the brands have it easy. They need to figure out how to use technology to get their message out, but they are rarely beholden to any one technology. What if Twitter is no longer cool? Nike will find another way to handle its RSVP system. That doesn't mean each new communication platform doesn't pose real pain in the ass challenges for brands, but their issues are very different from a company that has been the platform.
Google has and will continue to go through this. Apple too. Even TV will prevail.
I remember when many were predicting Google's demise as the web went mobile. Instead of crumbling, Google still sits in an enviable position - it maintains its cash machine while also being at the forefront of future innovation - be it the mobile operating system to wearables. It wasn't Bing that was going to threaten Google, it was change and staying relevant.
No single consumer brand has had to try and figure it out at a scale that Facebook faces. It's easy to say they need to become a tentpole brand, which they've started to do with Instagram. It's a practice perfected by the movie industry whose domestic blockbuster ticket sales account for a mere 20% of a big picture's total revenue. But saying and doing are different things, as you don't know in advance if the pole you just planted is in solid ground or likely to slide away and drag the rest of your tent down with you… or at least distract you and eat your cash when the real winner comes. I'm sure NewsCorp felt good it didn't buy Friendster. Is Snapchat the Facebook or just the Friendster / MySpace?
I was talking to an Aussie friend living in San Francisco, and he mentioned that of the holidays, he likes Thanksgiving more than Christmas as it has all the benefits without the downsides. In his opinion, Christmas might be about family, but family takes second place to presents. Thanksgiving doesn't have presents, only family. It was an interesting observation; one that makes sense, yet is more and more at odds with Thanksgiving.
Thanksgiving may not have presents like Christmas, but it has shopping. Some times, I'm not sure if we are giving thanks for family or celebrating discounts. Our we purging our guilt about the origin of Thanksgiving or continuing our conquesting ways, this time of retail.
This year marks a cultural shift, technically the second year of a cultural shift, one where stores open on Thanksgiving. I hadn't heard about this until my wife mentioned that the Gap was open, and today I noticed an article in the LA Times, titled, "Retailers try to put positive spin on their creep into Thanksgiving."
According to the article, while many (employees and "purists") complained, vocally in many cases, 35 million Americans Thanksgiving shopped - offline and online. Stores might argue it makes sense to open early, especially given how late Thanksgiving falls, making the shopping season up to a week shorter than in the past.
For me, the shopping creep reminds me of Christmas. Growing-up, stores didn't open on Christmas. The ones open were movie theaters and ethnic restaurants, the latter realizing that some people don't celebrate the holiday and didn't mind capitalizing while offering value. The same went for movie theaters which provided a much needed outlet for those of us that weren't celebrating and had little entertainment options available.
The commercialization of Christmas happened slowly. Fifteen years ago was a step change from 25 years ago, and five years ago feels unrecognizable to the memories of yore. Movie theaters aren't just opened, but studios have made Christmas Day a major opening day. The commercialization has become more about looking out than looking in.
The commercialization of Thanksgiving is happening, but in many ways, it's very different than what happened to Christmas, mainly because the commerce side of Thanksgiving was separate from the holiday itself. It was more about timing. When I think of commercialization of the holidays, I'm not worried about stores being open. It's why they are open.
When the independent Chinese restaurant decided to stay open on Christmas, it was the epitome of the American spirit - ingenuity, problem solving, and a sense of why can't we, why should we just do things a certain way because that's how they've been done. That attitude only adds to the occasion.
What we have happening today is perhaps less the commercialization of the holidays and more the Hallmarkification of the holidays. They are being usurped and the very thing that has made America great - a capitalistic spirit has become the main player not the supporting character. Once commerce becomes the only thing rather than a catalyst for better things, we lose the greatness.
America is a commerce, media, and marketing culture. Facebook and Twitter are true platform evolutions, but they are valuable businesses only thanks to the advertising culture that exists. If we want to change it, we have to change it and take the holidays back. If we do that, we can reclaim our own independence and become stronger all while still enjoying the deals and excitement that comes with this time of year.
We can't separate the holidays and commerce, but we can make the commerce about the holiday and not the holiday about the commerce.
I briefly looked into Snapchat right before the company officially announced its $60mm Series B Funding. See "The Hidden Costs of Joining the Billion Dollar Valuation Club." After turning down a rumored $3bn+ cash offer from Facebook, I decided to give it a try.
Part I of the story looks at Snapchat more with an investor hat on, i.e., the environment in which Snapchat operates as a company. Part II is are my experiences.
Summary. I can rationalize the appeal, but there is a distinct bias that must be overcome. If only WhatsApp had the UI/onboarding of Snapchat, it could be even better.
Part I. The Bubble?
Perhaps the most salacious numbers are not what companies sell for but the offers they turn down. The latter was certainly the case with Snapchat who turned down a reported $3bn offer by Facebook.
Not many companies have the luxury of turning down billion dollar acquisition offers, or in Snapchat's case, twice from the same company (Facebook). Maybe Snapchat was insulted that the value of the business only quadrupled since their $60mm raise in June. As an investor, I wouldn't mind 4x my money in a few months, but then again like most mere mortals, I play exclusively with my own money and do not have the luxury of aiming for venture returns.
I can't comment on the value of Snapchat. No one can - except those with the capital to help give the company a value. If there is any time for Snapchat's side to go all in, it's now, when they don't make any money. The value of zero revenue and millions of users is either 0 or infinity. And as anyone that has run a business with revenue can tell you, it is a lot harder from a valuation perspective once you actually make money. It's perverse, but it is how the game is currently played.
Along the binary outcomes framework of venture investing, Snapchat's management and investors will either look like geniuses or the shining symbol of the second internet bubble. As I wrote about during their Series B raise at the end of June (see "The Hidden Costs of Joining the Billion Dollar Valuation Club"), the only real losers of the zero outcome are the average employees (and to a lesser extent the institutional money). If you are an "average employee" with 0.1% of the company, you'd be thrilled at a $3bn payday. You'd make $3mm. If you were a senior/strategic hire who happened to have 1%, you'd make an amazing $30mm. Given the company's trajectory, both have a chance at more, but unfortunately for them, it will either be more or zero. That's a hard pill to swallow for many as it represents the majority (most likely the entirety) of their potential wealth.
As for the founders, they won't be thrilled if the company goes to zero, but they have almost surely received some liquidity during the Series B and/or in the secondary market. It's very conceivable that each founder has already taken home more than $10mm. Chump change compared to being a billionaire, but given that each is still too young to rent a car from most places, having enough money where if managed correctly you would never have to work again and be able to live a quality life in the highest tax bracket is by most people's standards not too shabby. If it goes to zero, the investors will lose some personal money, but it's a diminimus amount of their own net worth.
Part II. This Old Man And Snapchat.
Like many, I have been thinking more than I ever intended to about Snapchat in particular what it is about Snapchat (both the app itself and symbolically) that I have a problem with. Sure, it's easy to look at them and say if this doesn't signify a tech bubble than what does. It's also easy to comment on the inane "bro" culture or that such a uniquely unoriginal idea could be rewarded so greatly. All are valid (and maybe necessary for this idea to actually work), but they come off as the complaints of those who come in second (which in our binary world means first loser).
In a crazy idea, I figured to better understand Snapchat, I should join Snapchat - which felt creepy enough once I saw the hero image for the app store (pictured above). After less than a week, I now can better share what it is that actually bothers me… and it has nothing to do with the idea. It's that I'm not used to a product that I can't use being so valuable and beloved. That's the source of my personal dissonance.
Pinterest isn't designed for me, and it too has a multi-billion dollar valuation. But Pinterest has a cleaner valuation story. Unlike Snapchat which is a self-contained universe of eyeballs, Pinterest doesn't just have eyeballs, it has and continues to drive them to businesses. And when you sit in between users and businesses in a value add way, you get to charge a value added tax - Google being the most dominant.
My Snapchat issue is threefold. First, I don't know what to do on it. All the behaviors I've been trained on don't exist - no "liking," following (although the stories are coming close), or reposting. (I do appreciate the UI and the clever on boarding which helps solve for the empty room problem, though.)
I don't know what to do on it because I'm of the generation that still finds it amazing that I can take as many pictures as I want and keep them. I remember actually taking photos with cameras that required printing in order to see them. The truly digital generation couldn't comprehend such a scenario. I also don't know inherently what to do because I'm of the generation that in response to the closed nature of the generations before us, lives our lives publicly, perhaps too publicly.
Sexting aside, the most compelling argument I have heard for Snapchat involved the younger generation's desire to live in a connected world (which for them is just the world) but with some privacy. What teenager doesn't want privacy and a feeling of control over their life? For them, Snapchap is probably just chat.
If my first issue is what to do, my second is how. The issue isn't that the photos I send or receive disappear. It's that the only way to communicate right now is through photos. I don't know how to answer a photo with a photo. Maybe you don't actually answer, that the proper way to Snapchat is a bunch of one way communications. Snapchat does make it stupid simple to caption photos. When I see that, I think of memes, which are already the most popular forms of communication on Facebook. That Snapchat allows you to create your own is a smart move.
As for monetization, with Snapchat you have an inbox, so the criticism about the disappearing nature of the product becomes more philosophical than an actual business challenge to overcome. The inbox seems ready for a "native advertising" platform, but the easier money maker is probably to take the route that most Asian chat programs have - offering decals, stock photos, and a slew of ways to communicate in the current fashion but using ready to use options, i.e., sexy clipart. That would help those like me who feel the need to reply but don't necessarily have a photographic way to do so. (We do have the money too though…)
It's fair to say that we've figured out why Snapchat turned down Facebook's offer (it's about the money honey), why it appeals to kids, and that they can make money. My first two issues with it are age / behavior related more than anything. Even if I could solve for those, I still can't use it. Why? That's the third problem I have. Snapchat may just be a meme generator and a new interface to access the phone camera, but it still stands for bad behavior if you are not a kid.
If my wife saw Snapchat on my phone, what would she think? If I saw it on her phone, what would I think? Just looking at my contacts who also have Snapchat is revealing in its own way… and not one my wife would like. Thankfully, I have quite a few years until my kids might be using Snapchat (or its equivalent). I might understand them using it intellectually, but as-is, I'd be pretty tempted to install the Snapchat logger app just to make sure.
Almost one year ago, I wrote a post "The Richest People I Know (Still) Have Blackberries - And They Aren't Looking to Change." As I do with some of my less Inside Baseball posts, I shared it on Facebook. The conversations were great. Almost everyone over 30 has owned a Blackberry and has gone from Blackberry to some other mobile phone / operating system. One half are thrilled that a better alternative came along. The other half are still pissed that Blackberry screwed up so badly.
Last year, there was a small but powerful minority who still used their Blackberry, and if you looked at median wealth of these users, it would be been astounding. As I wrote then, "Some of the Blackberry users I know aren't people who don't "get" smartphones or can't appreciate the app ecosystem. In fact it's the opposite. They understand the value almost scientifically. And, they have determined that their productivity remains far increased with Blackberry devices. Moving to another device will cost them money, and when your net effective earnings exceeds $10,000/hr, 30 min gains in efficiency are meaningful."
Today, that small but powerful minority is a dying breed, as I circled back with a few of them to see what phones they were using, and it wasn't a Blackberry. Unfortunately, Blackberry has only Blackberry to blame. While my advice was worth about that of anyone from the cheap seats and undifferentiated, I thought Blackberry will succeed not by competing with Apple but by being the anti-Apple. They should copy Apple, though, by leveraging their "fan boys." Apple may be cool, but Blackberry could again become an aspirational brand. I know I wouldn't mind having a piece of whatever has made that small but powerful group successful, and it's much easier to ascribe that success to something tangible, like a phone, something we can all have.
Alas, Blackblerry did the exact opposite. Their most winning products were the 8000 and 9000 series. Next up after a product from 2008 was the 10 series. But, instead of improving the lives of their small but disproportionately powerful fan base, they did the opposite. The first 10 series phone was, you guessed it, a touch-screen one - The Blackberry 10 Z10. The Blackberry operating system, while nicely ingrained for many enterprises, is not a good enough hook to challenge people to use a subpar touchscreen phone. And frankly, any first or second generation touchscreen that wasn't Apple's iOS sucks. Why would you want to alienate your core further by giving them something that in no way can be competitive?
Months later, Blackberry (finally) released the Blackberry 10 Q10, a new keyboard phone with their revised operating system. But, as one keyboard user says, it's as though the entire phone was an after thought. The issues he has fall right into "Treat versus Chore." It's a framework and scale for evaluating the mental tax of using a product, and when you have more chores than treats, you build up a tide of negative sentiment that isn't noticeable on the surface but can lead to mass exodus' later. The last thing Blackberry needed was to screw up their keyboard phone, and that's just what they did. The very reason why this group used the phone was not just the keyboard, it was the efficiency as a result of the keyboard. Screw up the efficiency and no keyboard is going to save you.
In this case, Blackberry took away the much-loved shortcut buttons from the phone. There's an added chore. The extreme customization, also gone. I listened to one person who got his new Blackberry as part of his new job. Never has used the phone with any other email account. Yet, when he types his name, his old email address from his past phone shows up. No way way to clear the cache or history with name. Then there was the phone itself. If you missed a call, it showed the contact and which number, but the missed call was from a line item level not a contact level. So if you wanted to call that person back on a different line, you had to exit the phone, go to contacts, find that person and call. That wasn't the case before. And, the list went on. At some point, which was now, enterprise security was not enough to force people for whom time is their most valuable commodity to waste more of it.
Blackberry, you will be missed.