SortiPreneur

Meaningful Testing

You have an idea.  Will it work?  The easiest way to find out is to give it a shot.  Too expensive?  Then, prototype it.  Create a simpler (read: cheaper) version and see if your potential users (or customers) will utilize it the way you hypothesize.

This is usually the advice I give to entrepreneurs if I am meeting them at the business idea stage.  However, as Tim Levine of SocialMedia.com points out in his post at Inside Facebook, this could be a tricky approach.

The most common mistake in A/B testing is not running enough ‘trials.’ The second is running too many. The latter risks wasting potentially more productive opportunities, but the former is far worse because you risk managing by noise. How wasteful it would be to invest in a redesign because of a difference that might just be from random variation!

Many internet ventures in Turkey depend on, and make assumptions regarding, CPC advertising.  Turkish entrepreneurs should find the example Tim gives in his post useful.

Heads Hanging on Wall St.

I am a big fan of the dotted headshots (they call them "hedcuts") of The Wall Street Journal.  I've always assumed that they are pretty standard - that once the WSJ has created one for a business figure, it kept using the same image.

Well, apparently not.  Columbia Journalism Review reports that the hedcuts have been changing, with examples that show the change - reflecting a more somber mood in line with the market's woes. (via SAI)

Groups: The Next Generation

I have been procrastinating writing about the new round of funding for Grou.ps, primarily since it had already been widely reported.  Then, Fred's post from this morning prompted me to finally post about both the round, and the other critical news from Grou.ps, the open-sourcing of the platform.

Fred's conclusion is:

So using the less is more mantra, someone should build just that, make it drop dead simple, and then build the killer API that lets everyone build on top of that. It may be that the big social nets are in the best spot to do that. Or maybe not.

Emre Sokullu, the founder and CEO of Grou.ps, commented on Fred's blog, pointing out that the needs of group members and owners differ, which is a good point and an area that Grou.ps focuses on intently.

Another thing that Grou.ps has made a huge leap in is the open-sourcing of the platform.  This goes beyond the killer API solution Fred offers and is a critical step for wider adoption of Grou.ps.  Some of the proceeds from the new round will go towards opening the whole system, which, according to Emre, will:

• Commoditize the Grou.ps platform, makes it the natural choice of all online community leaders
• Give Grou.ps the competitive advantage to hire the most talented and motivated people from the pool of open source contributors.
• Let everyone create their own modules, share it with the rest of the world
• Allow the team to rethink their framework and make it even more modular and easily extensible

Grou.ps is already getting a lot of comparisons to Ning as a competitor.  The open-sourcing should help it stay competitive on the technology front.

Congratulations to Emre and the team on the new funding.  I'm also excited to be collaborating with the Golden Horn Ventures team to make Grou.ps a winner in social groupware.

Features

Ryan Singer of 37signals blogged on the recent screw-up around profiles at Netflix:

Here’s another reason to double, triple, quadruple-check yourself when you want to add a new feature. A while back Netflix added a “Profiles” feature to their service. A couple weeks ago, they decided to pull the feature because it was too confusing and it wasn’t adding value. But it was too late. People were pissed. The blog post received 1286 comments. In the face of this reaction, Netflix had to turn 180 and keep the feature. Whether Netflix Profiles are good or bad, clear or confusing, they’re here to stay.

The lesson: Once your user base has grown beyond a certain point, you cannot take features away from them. They will freak out. Whether the feature is good or bad, once you launch it you’ve married it. This changes the economics of feature additions. If you can’t destroy what you build, each addition holds the threat of clutter. Empty pixels and free space where a new feature could be added are the most valuable real estate on your app. Don’t be quick to sell it, because you can never get it back.

I quoted the entire post since I think this is a very very important issue.

The temptation to add features if your product is not seeing the uptake you'd hoped for in the market is a big one.  Add to this the pressure that your competitors are putting on you through press releases on new features.  Then you've got your salespeople telling you that they keep hearing demands and desires from prospects...  It adds up, you give in, and pop comes a new feature, along with the baggage Ryan describes above.

I think it's exceedingly rare that a web application's success or failure is related to whether it's feature-rich enough.

Powerset to MSFT?

Rumors abound today that Powerset is getting acquired by Microsoft for about $100m.  If this is true, I think it's good news for its high profile investors, albeit at a lower valuation that they must have expected.   This one almost smells like a bailout by MSFT. 

Powerset set out with high expectations around semantic search and gradually ended up as a Wikipedia search tool.  There's probably more behind the scenes in terms of technology, but if an agile startup with Silicon Valley credentials and a geek-skewed early audience could not present enough differentiation to the search user, how will Microsoft, with an immediate comparison to Google?

All eyes must be on Hakia now.

Facebook is NOT a Media Company

Andrew Chen's got an interesting analysis of MySpace vs. Facebook, where he concludes:

• MySpace leads in the major market (the US) but is losing ground overseas
• The overseas losses are material losses - not just random non-revenue countries
• The major losses all occurred in the mid/late 2007 timeframe
• Several markets are plateauing in traffic, meaning that the social network market is starting to mature - consider that MySpace+Facebook uniques, duplicated, is over 90M active users, which is a huge percentage of the online audience in the US
• How strong are the network effects of social sites, if incumbents can be displaced? Maybe it's not so strong after all

I'd agree with most of his points, but still believe that it's a misguided comparison:  MySpace and Facebook is apples and oranges.

Dan Frommer at SAI takes a similar approach when commenting on Techcrunch's comparison of social netwrok valuations, but offers two caveats:

• The data he uses to establish the average Internet ad spend per person factors in all Internet advertising -- not just the social networking sector, which is relatively cheap ad inventory. We assume that's the best data he could get for all of the countries he analyzed. (We don't know if it varies enough by country to make much of a directional difference, anyway.)
  
• The two most lucrative valuation comps -- LinkedIn and Facebook -- should both come with big asterisks. The first one, which Mike acknowledges, is that LinkedIn's employed professionals should be worth much more per eyeball than any other social network user base. The second one, which he doesn't really spell out, is that no one really believes Facebook's $15 billion valuation, and that it's really the product of Microsoft's (MSFT) desperation to beat out Google (GOOG) for an investment bake-off.

Both Arrington's and Frommer's approaches are useful and largely valid.  However, I still think they miss a very central distinction.  All three analyses of social networks' values focus on media metrics:  audience size, engagement and demographics.  These work for most of the properties we are dealing with, including MySpace, but it does not work for Facebook.

Facebook is an infrastructure company.  They are building an identity layer on top of the internet.  They called this the social graph and tried to differentiate their jargon from that of the internet media world. However, the pressures created by the $15b valuation must be felt, so they came up with a smart, if somewhat early model to monetize, using a media monetization tactic called advertising, Beacon. They should not have - they are not a media company. (I wonder what Seth Goldstein would think about this, given his recent Social Banners post.)

It now looks like Beacon is not working well.  I really don't think this matters.  Facebook is a technology company that is going to own a critical layer of the internet.  There will be a way to generate economic value out of this.

Going back to valuations, I have heard that Facebook shares are privately changing hands at around the $9b mark.  This is above the $2-4b range mentioned by stone in the Frommer's post's comments.  At either level, I remain a strong buy.

 

Green Turk

Murat Gunak, the former head of design at VW, has launched a new green automotive startup:  Mindset.  Even though I am generally turned off by nationalism, I find that I enjoy writing about the successful ventures of fellow Turks.

Mindset's first car is called the Six50, named after the weight of  the vehicle.  Treehugger has more figures:

Six50 hints at the target weight: 650 kg (1430 pounds). According to recent reports, the prototype aluminum frame with plastic body actually weighs in at 800 kg. The car will have a range of 100km (62 miles) on one charge of its lithium ion batteries and up to 800km with the two-cylinder petrol motor acting as a generator when necessary. Solar panels built into the roof help charge the battery. At its light weight, the 70kW (95HP) motor should move the Six50 along at up to 140km/h (75mph) and from 0 to 100km/h in under 6 seconds.

Seems like a smart move with oil headed to $200.

Euros' Rift Over Euros

I just read that German banking customers have been showing a preference towards Euro notes based on origin of issue, and exchanging those notes originating from Italy, Spain, Greece and Portugal, with those from Germany. (Thanks, Turgut!)

...
People clearly suspect that southern notes may lose value in a crisis, or if the eurozone breaks apart. This is what happened in the US in the Jackson era of the 1840s when dollar notes from different regions traded at different values.
...

There is criticism of comments from Italian, Spanish, and French politicians that threaten the independence of the ECB, viewed as sacrosanct in Germany.

But the key concern appears to be price stability. Germany's wholesale inflation rate reached 8.1pc in May, the highest level in 26 years.

This news story, against the backdrop of Euro 2008 Football Championship (and Turkey's fantastic last 15-minute comeback against the Czech Republic!), is as entertaining as it is incredible.  Especially, the last sentence:

Many have kept a stash of D-Marks hidden in mattresses to this day. A recent IPOS poll showed that 59pc of Germany now had serious doubts about the euro.

MoMo Istanbul Meeting

This afternoon, Mobile Monday Istanbul is having its final event of the season.  Check out the MoMo blog for the details.

Miracle Fruit of Venture Capital

A small berry makes everything you eat afterwards make sweeter, as the NY Times reports:

[A] small red berry called miracle fruit ...  rewires the way the palate perceives sour flavors for an hour or so, rendering lemons as sweet as candy.
...
The cause of the reaction is a protein called miraculin, which binds with the taste buds and acts as a sweetness inducer when it comes in contact with acids...
...limes were candied, vinegar resembled apple juice, goat cheese tasted like cheesecake on the tongue and goat cheese on the throat. Bananas were just bananas.

The venture capital industry has its own version of these miracle fruits.  In 2005, the miracle fruit was social networking.  In 2006, user-generated content, and in 2007, web video, when mentioned in a business plan, made made it sweeter.

I am not sure what the miracle fruit in 2008 is.  It seems to be a cautious year, so maybe it's positive cash flow.