In this post I’m going to explain exactly what disruption is, what are the different types of disruption and how to find disruptive opportunities.

The misunderstanding of disruption

Clayton Christensen first coined the term disruption in his seminal book, The Innovators Dilemma. Since then, the term has been consistently misused or misunderstood by countless media organisations, entrepreneurs, journalists and people interested in the intersection of business and technology.

What is disruptive innovation?

There are basically two type of innovation. Clay’s definition of disruption innovation is not where you simply improve something, but instead you create a new market. Sustaining innovation is where you improve an existing technology within an existing market, and so the two terms often get confused.

Sustaining innovation is either evolutionary or revolutionary. Evolutionary innovation is where a product is improved in ways that the customer expects it to. For example, with every new smartphone, the camera is expected to improve. Revolutionary innovation, also known as discontinuous innovation, is where the innovation is not expected, but it does not effect the current market. For example, adding a new unthought of feature to a smartphone is sustaining revolutionary innovation because it is usually introduced by the market leaders.

Disruptive innovation is where you create a new market by focusing on a different set of values than that are currently applied in the existing market. This new market then ultimately takes over the existing market. For example, when you offer a product that is significantly cheaper than the existing products on the market because you focus on different characteristics. This is a disruptive innovation because you are creating a new market based upon a new set of values.

It is now commonly accepted that technology is not the defining characteristic of disruption. Clay replaced disruption technology with disruption innovation after he recognised that new technology often had nothing to do with disruption.

Disruption usually occurs where existing off-the-shelf technology is combined in an innovative new way to produce a new market. This is the key to understanding disruption.

The automobile was not disruptive

A good real life example of misunderstood disruption is the automobile. When cars were first created they were expensive, hard to repair and were only adopted by the very rich. Cars where a much better technology than horse drawn carriage, but they were not a disruptive innovation.

Henry Ford recognised the opportunity to mass produce cars on a production line to make them more affordable to the mass market. Henry Ford did not invent cars or even the production line, but he did take two existing technologies to create a powerful new market opportunity. By standardising cars, he made them faster to produce, cheaper to repair and more affordable for the average American household. That was a real market disruption.

What are the types of disruption?

There are basically two types of disruption, Low end and New market.

Low end

Low end disruption is where a disruptor introduces a new product that targets the least profitable customers in a market. This product usually only meets the very basic needs of the market, but because of it’s low price, it is adopted by people who are price sensitive and currently over served by the current offering.

Once the disrupter has achieved a foothold in the market, it begins to search for higher margins by moving up market. At first, the product is no where near adequate to compete against the current market leaders. But over time, the product improves rapidly up until the point where it meets the needs of the mass of consumers.

The disrupter has usually rewritten the rules of value in the market at the low end and so it is able to create a product that meets the requirements of the market at a totally different value proposition. The incumbent companies can’t fight in unprofitable markets within their current value proposition, and so they are forced to move up market.

As the disrupter continues to innovate, the incumbent company is eventually pushed out of the market all together.

New market

New market disruption is where the disrupter focuses on a niche segment of the market who are currently under served by the existing incumbents.

New market disruption is usually an opportunity when there is a significant group of customers who can’t be served by the existing market. For example, if a product is inaccessible to a certain type of person because it’s too expensive, the financial commitment is too big or it is just not available in a certain location or to a certain demographic of people, there is an opportunity for new market disruption.

New market disruption is significant because it is competing against non-consumption. For whatever reason, there is a group of potential consumers who can’t use the existing incumbent’s products because it is not available to them.

How to find disruptive opportunities

In order to find opportunities for true disruption, you have to analyse existing markets and products. Once you know about the two types of disruptive innovation, you begin to frame markets around low end or new market opportunities.

How to find low end disruptive opportunities?

Low end disruptive opportunities are easy to find because all you have to do is find companies that are comfortable serving a market segment. These types of companies have usually moved to a high margin market segment, and so they have left the low profitable part of the market unoccupied.

As companies move upwards in the search of bigger margins, they will often tie themselves to legacy models that they can’t get out of. For example, serving a smaller number of customers at a very high price point will have a higher margin, but it will also handcuff the company to meeting those customer’s needs. When you attack the market from the bottom, those types of companies won’t want to defend the low end of the market because it is not profitable, but also because their current legacy situation won’t allow them.

Look for opportunities where the current incumbents are neglecting the low end of the market and where they have handcuffed themselves to their legacy value proposition. Find a way to offer the smallest possible version of their product that will meet the needs of the low end of the market so that you can move away from their expensive value proposition.

How can you reconfigure existing technology or strip away the incumbent’s product features to offer a minimal viable product?

How to find new market disruptive opportunities?

In order to find new market disruptive opportunities, you need to find a group of people who would be willing to use the product, but it is current not accessible to them.

For example, smartphone payment technology like Square is great if you live in America and you own a high end smartphone, but what if you live in Africa and you only have a standard feature phone? How can you support your business and take payments if you don’t live in the right geographical area and you don’t have the expensive device?

New market disruptive opportunities are attractive because you are applying an existing idea and focusing it on an under-served segment of the market. By recognising a market segment that is ready to use the product if it was available to them, you can discover a profitable beachhead to disrupt the market.

Conclusion

In order to find disruptive opportunities, you need to understand what disruption really is. However, once you do have an understanding of how the disruption of markets and incumbents actually occurs, it becomes easier to see opportunities.

I think a big problem when people come up with new product ideas is, they can see the use case for the product, but they don’t understand what makes it disruptive. Once you can frame your product idea within the confines of disruption, a clear to market and growth strategy begins to emerge.

Hopefully this was a good introduction to disruption, what it really means and how you can spot disruptive opportunities in existing markets.

How to find disruptive opportunities was written by Philip Brown on Culttt - Articles on business, technology and the Internet

Whilst Yahoo, eBay, Amazon and Google continue to show strong performance (for the most part), it’s the likes of Facebook and Twitter that are continuing to push the surge of online companies. If you look at Facebook for example, they have started holding product launches that feel more like the release of new Apple products, rather than how you would normally see a new online product being introduced.

Last week Twitter launched their new music service #Music. At first glance, #Music looks to be a doubling down on Twitter’s #Discover service, showing the power of their real time network of information and communication. But does #Music reveal the future plans of Twitter as a whole?

With a rumoured IPO on the horizon, Twitter is in a position where it needs to dramatically prove it’s viability as a revenue generating company. Unless it wants to reenact the shambles of the Facebook IPO, Twitter needs to ensure that it can prove the future growth as an online giant.

Is #Music the first tentative step?

Twitter as a company

Whilst there are still doubters of Twitter, I’m definitely in the bullish camp. Twitter is interesting because it is a real time network of what is going on right now. Whilst Facebook has seen much faster growth and traction, I believe that Twitter posses many qualities that Facebook does not.

Two of Twitter’s big areas of potential for growth and future monetization are it’s ability to close the advertising loop, and the power of it’s real time network.

Closing the advertising loop

It’s a well understood concept that before the Internet, half of all marketing budgets were wasted, just nobody knew which half. The Internet has added a massive amount of transparency and analytics to track the Return of Investment which can be attained through online advertising.

Google remains the undisputed leader of online advertising with it’s Adwords product. Google is able to sell inventory in a perfect marketplace where each advertiser is paying exactly the right price for that spot. Google is then able to show exactly how each penny of a marketing budget translated into sales and how the advertiser can improve their campaign through online tools such as Google Analytics.

Twitter has the potential to offer a similar type of advertising product, but one that is more targeted to mobile and location aware devices. An advertiser can target a customer through deep understanding of that user’s profile through what they have tweeted in the past as well as who they are following and who they are influenced by. Tweets are inherently connected to physical location due to the ubiquity of mobile, and so an advertiser can track the success of a campaign in getting customers to a physical location.

Twitter is already generating significant revenue through their sponsored tweets and sponsored trends advertising products, but in order to justify their value and the future growth as a public company, Twitter needs to cement it’s earning potential.

Real Time Network

The second big opportunity for Twitter is to leverage their position as the undisputed real time social network. Twitter is already the undisputed leader for breaking citizen journalism, media commentary and the latest news. When an event happens in the world, Twitter is the first network to spread the news or the message.

Twitter is made to be a real time social network because of it’s simplicity, openness and the follower model that it has adopted. Twitter allows a message to spread quickly through it’s network. Facebook has tried to emulate this model by moving from private silos to a more open network, but Twitter is still by far the leader due to the potential proliferation through retweets, particular from individuals who have amassed large audiences.

If Twitter is going to be able to grow into a defensible company that can produce significant revenue and growth, it has to leverage this huge advantage.

I believe #Music and #Discover are how Twitter is planning for this growth.

What is #Music?

So what exactly is #Music? Well #Music is an independent application that uses the power of Twitter to surface what music is currently popular on Twitter, what new artists are emerging and what music the people you follow are currently listening to. #Music allows you to listen to tracks within the app through music streaming services, or you can purchase the track from Apple’s iTunes.

#Music is essentially the same as fflick, a movie recommendation engine that used the power of Twitter to see what movies your friends were watching (Fflick was acquired by Google in 2011).

Let’s be honest, #Music is not exactly an ambitious product for a company of Twitter’s size, but perhaps it shows that Twitter is interested in creating these vertical applications to surface data around certain categories. Whilst #Music might not be that interesting on it’s own, if Twitter is pursuing this strategy, it does have some interesting implications.

Twitter as the real time news room

Back in early 2011, I wrote a post on why I thought Twitter should acquire Digg. At the time, Digg was losing relevance as Twitter and Facebook, amongst others, had taken a serious hit on it’s traffic. Digg had recently launched version 4 and had faced a user backlash after it had introduced some dramatic changes.

I suggested that Twitter’s unique position and Digg’s history of being able to surface the best of the the Internet’s trending content and news would be a perfect match.

Whilst Twitter did not acquire Digg, a similar company called Betaworks did. Betaworks is a studio that creates new online companies and invests in others in order to fuel growth. One of the central themes, is the social, real time Internet and intelligent media. Betaworks has created properties like bitly, Chartbeat and it is now rebuilding Digg. Through Bitly, Chartbeat and Digg, the Betaworks portfolio companies are able to leverage the real time pulse of the Internet to know exactly what is trending and where activity is rising.

Although Betaworks has created this source from it’s many portfolio companies, Twitter is arguable the hottest source of real time information and trending news.

I believe that Twitter’s next big move will be to become the online newsroom of the Internet.

Twitter’s #News vertical

Following the #Discover and #Music verticals, I believe Twitter will finally unleash it’s power on real time news under the #News vertical.

Arguably Twitter is already acting as this model, despite not formally having a dedicated product. As the recent news events in Boston have shown, when the public wants real time breaking news, Twitter is the undisputed leader. The problem is, you need to be following the exact right people in order to get the breaking news. Often you only hear about what the breaking events are after tweets have been retweeted into your timeline. This isn’t an efficient way of surfacing the latest news.

Twitter should create the news room of the 21st century by creating a dedicated application that aggregates all of the breaking news stories and media all in one place. Leading news organisations will be able to gain wider exposure to their breaking news, videos and photos and the general public will have a single source for getting the latest news without having to skim a whole Twitter timeline.

Twitter will be able to surface breaking news as it happens by analysing trending topics, hashtags and sentiment analysis. Twitter can also offer leading news organisations the opportunity to promote their stories or coverage. Breaking news can be segmented by geographical location, or viewed by analysing the followers of a user. This would enable a user to find specific breaking news around a story in their local area that had not yet hit the mainstream press.

As a central source for breaking news, #News would act as a better filter for getting the facts. Once you can see that a trending story has reached a level of proliferation, and is backed up by major news outlets, it could prevent random rumours from spreading incorrect information or details of a story.

The power of the news vertical

Twitter is a ever increasing mature company. After a couple of years of technical difficulties and controversy, Twitter has emerged as a powerful new online network and source of real time information.

With an IPO on the horizon, Twitter needs to find a huge new avenue of growth and revenue. Whilst not everyone wants to become a contributor on Twitter, the network is increasingly becoming more valuable, particularly when breaking events are happening from around the world.

#Music is an interesting application, but it is still such a niche use case. If Twitter is to pursue this vertical strategy, I think #News could be the defining moment in the company’s history.

Twitter has already replaced TV coverage for breaking news and is already cemented it’s place as the second screen for other major events. If Twitter wants to continue on this trajectory, it needs to create a product that can leverage this opportunity.

I’m looking forward to #News.

Does #Music signal the future of Twitter? was written by Philip Brown on Culttt - Articles on business, technology and the Internet

In this post I will be looking at the opportunity, some of the interesting companies who have chosen this model and how you can create this type of company too.

What is the model?

The future is here, it’s just not evenly distributed. There are many industries that are still relatively untouched by modern technology. Online payments, social, mobile, location, big data and real time technology are just some of the new innovations that have come to prominence in the last decade. Yet, it doesn’t take much to find an industry that has not adopted any of these new things.

You’ll probably notice these untouched industries just through your day-to-day browsing of the Internet. Anytime you’ve been greeted with a janky interface, a convoluted process or a nasty design, it’s probably because the technology has not been updated in years.

There are even more opportunities to bring new technology to industries when you consider how much social, mobile and location can make connections between people, events and experiences that were previously impossible. Online payments and the level of trust to make transactions online or through mobile has also come a long way.

Many industries are either just ignoring or are oblivious to how they could be radically improved if they would just adopt this new technology.

This inaction creates opportunities for new companies to build the technology that can revolutionise a tired industry. By embracing new technology and understanding how it can be implemented in a traditional industry, you can either create a huge amount of value for both the consumer and the current players, or better yet, you can change the rules of the game to bypass those who are unwilling to evolve.

What companies are using this model?

There are countless companies in a wide array of industries that have noticed this opportunity. I believe this type of business model works best when there are four key components that fit naturally with the opportunity. I’ll discuss those key components later on in this post, but for now, here are three companies that are already doing interesting things in this space.

Square

Square is such a good example of this opportunity in action that is would be rude to not include it. Square is a mobile payment processing company that allows anyone to accept payments through their smartphone. This has enabled anyone to quickly and easily start taking money from customers without the traditional bureaucracy that was once the case. In the past, taking credit card payments from customers meant you needed to set up bank accounts, buy Point of Sales units and integrate it all together into your current system. Square has made it possible to start taking payments with just a simple card reader that fits into your current device.

The second big move Square made was to make a Point of Sales service for iPad, Square Register. Now traditional brick and mortar establishments can start taking payments. This enabled them to get rid of their old technology and create a seamless experience for their customers.

The third big move Square made was to bake loyalty rewards, discovery and payments right into the application. Square Wallet allows consumers to make payments without getting anything out of their pockets. They can find new places to visit and be rewarded for using the service without having to keep track of coupons or loyalty cards. For businesses, it allows them to track their most important customers and get rich data on the activity of their business.

When Square started out, it seemed like the company was attacking the lethargic payments industry. Finally, it was simple to start accepting payments through the device you already own. Square took all the pain out of dealing with taking payments and they provide everything you need to just get going. However, Square’s real play is to become an integral part of the small business transaction process. Square has positioned itself to become the source of where consumers find and discover new places to go. When Square can drive new and repeat customers to a business, and track the transaction of that customer over time, it has become a critical new player in the traditional technology-less industry of traditional retail.

I’ve previously written about Square and how Loyality apps are dead and why you need to solve the bigger problem.

Square is probably one of the best examples of this business model in action because it has been executed so well over the last couple of years. However, in this post I want to focus on just one niche, the promotion and discovery of music events and the traditional industry of ticketing. Two hot new startups have emerged in this space recently, Jukely and WillCall.

Jukely

Jukely is a “concert concierge” service that curates local music events. Music promotion and ticketing is an industry that has seemingly tried to blocked any new technology from shifting the balance of power away from the monopoly. If you have ever been on a ticket website that can’t handle the pressure of traffic, or you have missed a gig simply because you were unaware of it, you will know what I mean.

Jukely is a company that is looking to change all that with it’s integrated mobile application. Jukely discovers and recommends gigs and concerts in your local area. The application bakes social right in with integration with your social graph on Facebook and Twitter allowing you to see which of your friends are already going to the event. Jukely is working with venues and promoters and so it allows it’s users to purchase tickets with one tap.

Jukely is the perfect example of a company that is seizing on the lack of innovation in an industry. Online ticketing has not changed in years. The process is slow, frustrating and it has not embraced social or mobile at all.

Jukely on the other hand has embraced all of these new possibilities by starting from a clean slate. Without the legacy of existing systems or processes, Jukely can create a service that is made for 2013 and is not stuck 10 years in the past.

WillCall

WillCall is a very similar company as Jukely. It’s interesting to see how two emerging companies can attack the same opportunity at the same time.

WillCall curates selected events that are happening in your area. With social integration, you can see who of your friends are attending the event and who is undecided. And much like Jukely, you can purchase tickets to the event straight from the app.

As you can see from Jukely and WillCall, the opportunity to create a better discovery and payment process for live music and events is something that has been waiting to be revolutionised. The inspiration for both of these companies has clearly originated from how terrible the current situation is.

What are the key elements for making it work?

So from the examples above, you should be able to recognise the consistent themes that make these services so compelling.

The way I see it, the opportunity has two main components and two additional components which can naturally fit in with certain industries.

Curation

Curation is the important first component because this is something that is almost universally neglected by traditional companies. In just about every industry there are too many choices and too much going on for the average person to ingest. When there is so much noise, it can be difficult to get any value from the signal.

Curation is typically neglected by traditional companies because up until recently it was pretty hard to do. Now that it’s easier to track usage, location and related interest from a social graph, each individual user of a system should have an experience that is uniquely tailored to them.

By curating results, you enable your users to discover new interests and things that appeal to them. When results are better matched to the individual user, repeat usage will significantly increase.

Transactions

The second critical component of this model is the opportunity to process transactions naturally within the experience. As I mentioned above, we’ve come a long way in the last decade when it comes to taking payments and processing transactions. Both Apple and Android operating systems allow you to take payments natively through the app, and companies like Stripe have removed all of the headache from accepting payments through your website or online application.

Transactions are important because not only do they enable the service to become a natural utility, but they also create a very obvious business model. When you are dealing with transactions it’s very easy to become profitable. From taking a cut per transaction, to affiliate fees or driving new sales, there are many possible answers to “but how will this make money?”.

Transactions are really an integral part of this business model. You want your revenues to increase naturally with your usage. Growing attention without revenue can be a risky game. By baking transactions natively into the model, you can be profitable from day one.

Social and Mobile

And finally, the two additional components that make this opportunity so compelling are Social and Mobile. Both Social and Mobile only really fit into certain industries and opportunities, but when they do, they usually offer the consumer a significantly better experience.

Social and Mobile are probably two components of a traditional company’s strategy that they are yet to get around to. When you see an opportunity where the current players are not taking advantage of Social and Mobile it’s usually a good thing to integrate them deeply in your product and gain an even bigger advantage.

Social is important because it allows you to create a better more connected service. When a user can open a product for the first time and be greeted with faces of people they know and familiar recommendations, you have a much greater chance that you will make a good first impression. Social also allows you to seize the opportunity to grow virally.

Mobile is a big opportunity because mobile usage is quickly outgrowing desktop usage. If your product can be freed from the shackles of a desktop, it’s probably best that you do so. In not too many years, more people will probably own a mobile device than a computer. Smartphones also open up a number of interesting new opportunities. Smartphones can obviously be taken all over, not just the home or office and they are location aware with an ever-present internet connection. Smartphones also have sensors, telephony and a camera that can be utilised to create a better experience that is currently being offered by the incumbents of many industries.

How to start your own

So how to do you get started building this type of company? I think there is a huge amount of opportunity for startups to wedge themselves into incumbent industries by adding a service layer through curation and discovery. Depending on the industry, you probably don’t need permission to get started and you can become a strong force without ever having to work with the incumbents.

If I was going to start this type of company today, I would focus on the following 5 things:

1. Let the opportunity find you

My first piece of advice would be, let the opportunity find you. When Jack Dorsey tells the story of why he started Square, he recounts his friend who couldn’t take a payment from a customer because he couldn’t process a credit card. I’m guessing the founders of both Jukely and WillCall have also had similar frustrations with event discovery and the social and transactional nature of going to music gigs.

I think it’s incredibly difficult to try to solve a problem in an industry if you are not already entrenched in it. Trying to solve other people’s problems is so difficult because you end up with a solution that nobody wants. There are certain industries where it might seem desirable to be a part of, but it takes years of experience to fully understand the nuances of why things don’t work and what needs to be done to fix them.

Don’t look for this kind of opportunity, let it find you. The next time you have a frustrating experience, start to think about how your knowledge of mobile, social and the connected power of networks could make this situation significantly better. When you start to become aware of what frustrates you, but you are able to blend your knowledge and experience in adjacent areas, you start to be able to clearly see how things could be better.

2. Pick a niche

Once you have found a frustration that can be solved by integrating a service layer of curation and discovery, you need to focus on one particular niche to get started. Perhaps you already have a very specific niche that you want to focus on. For example, both Jukely and WillCall are focusing on young people in major cities who regularly go to music events.

But to really make this in to a big opportunity, you need to not only be able to focus on one specific niche and how it can be vertically integrated into the industry, but also how the same model can be applied horizontally to other adjacent industries.

It’s not hard to imagine that the same model for curation and discovery and the transactional opportunity for selling tickets and the integration of social can be applied to many other vertical industries such as sporting events, musicals or festivals.

I’ve written previously on how the key to startup success is attacking the nice.

When you are first starting the journey of building your startup, you will have no money, no connections and no one will know who you are. Trying to solve a problem that is too big, or trying to attack incumbents head on is a sure fire way to complete failure. Instead you need to establish yourself on a beachhead within a very tight niche. Only after you become the undisputed leader within this niche can be start to think of expanding into adjacent niches. This theory is covered extensively in Geoffrey A. Moore’s Crossing the chasm.

So hopefully you have discovered a problem that can be solved first with one specific niche, but also more broadly across an incumbent industry.

3. Find a transactional model

The next important component to look for in my opinion is some kind of transactional model. In the examples I’ve given in this post, each has a strong emphasis on enabling users with a seamless transaction process experience. This not only improves the experience of your user, but it also creates a clear opportunity for a business model.

Ideally, you will want to be able to grow revenues as you scale usage. Growing an engaged audience through attention is a popular online business model, but monetizing that attention is a big swing. On the other hand, by enabling transactions from day one, you create the opportunity to scale revenue as the company grows.

I think there needs to be more to the business model in this opportunity than just transactions. If you look at Square for example, the profit it is able to generate from processing transaction is really quite small. The bigger opportunity for Square is the overall Square Wallet experience, and so you can take this as a good example of how you should build a multitiered business model that is more defensible than simply processing transactions.

4. Build without permission

In Clayton M. Christensen’s The Innovators Dilemma, disruption is where startups are able to beat established industry leaders by focusing on the low end of the market and working upwards. By first offering a product that only meets the needs of a specific market segment, the startup is able to quickly work it’s way up to take on the incumbents as the product improves.

When you are introducing new technology to an industry, it is likely that the established market leaders will see you as a threat. Fortunately your business will be far too small for them to care about, and so they will probably just leave you alone until it is too late.

Whilst business development deals will likely significantly increase your early traction and distribution, I would focus on by-passing the incumbents and build and end-to-end system without their permission.

For example, TicketMaster is probably aware of both Jukely and WillCall, but even the combined revenue of both of these startups is not going to make a dent in the behemoth’s revenue. TicketMaster is not going to create a low end competitor to Jukely and WillCall until their revenue is an order of magnitude bigger, and by that point it will be too late. Both Jukely and WillCall are wise to connect consumers with music promotors and venues and completely by-pass TicketMaster altogether.

Look for opportunities where you can build your company without the permission of anyone else. Industry business development deals can seem like attractive opportunities at first, but they don’t always work out to be that way. A business development deal will only work if both parties are gaining from the deal. In the early life of a startup, it’s unlikely that you can offer an established company much value.

Instead focus on what you can build on your own that can enable the opportunity. When you can build a defensible foundation, you will have much more leverage in the future.

5. Build without technology

If you are not technical, but you have an opportunity you want to pursue it can seem like you have a barrier from stopping you from getting started. You might want to seek out a technical person to partner with, but really this isn’t a good way to approach the problem.

This opportunity is more about building a brand and a network around solving the problem. I don’t think being a technological leader is really going to make a significant impact on your rate of success.

Try to build as much of your Minimal Viable Product that you can by yourself. For example, WordPress has a huge open marketplace of plugins and themes that can make building an MVP really easily. Also, don’t think that every part of the product needs to be built straight away. A lot of it you can just do manually to begin with. The design and execution of your product is not the most important thing to at the start, it is all about proving that this is a problem worth solving.

Conclusion

Adding a service layer to an established industry through curation and discovery is an exciting opportunity. Many industries have not embraced new technology for a long time and so there are huge gaps in these industries for new startups to wedge themselves in.

I feel like there is a whole new generation of people growing up who expect everything to behave in a certain way. If a modern company has not embraced technological change, they feel stodgy and behind the times.

Building this type of company allows you to create a business that is defensible and scalable. One of the most important aspects of creating a company is the moat that you build around yourself. When you create value from curation and discovery, you build natural network effects and an engaged audience.

The next time you find yourself in a frustrating situation, or you notice that an industry has not embraced new technology, try to imagine how your problem could be solved and what value you could create for people just like you.

Adding a service layer to incumbent industries through discovery and curation was written by Philip Brown on Culttt - Articles on business, technology and the Internet

There are many different types of affiliate websites, some much more successful than others. It is probably safe to say that the majority of all money that is made from affiliate marketing is earned by a tiny sliver of the actual affiliate marketers online.

In this post I hope to shed some light on the business model, cover what people usually do wrong and show you how (with a lot of effort) you can build a successful affiliate based website too.

Why would I want to use an affiliate based business model?

There are a number of ways you can monetise a website these days. Traditional CPM or CPC advertising can be difficult to generate significant returns unless you have a large amount of traffic and page views. These forms of revenue rely on huge numbers because rates are so low and so are best utilised when your traffic is measured in millions and is focused on a lucrative demographic that is valued by advertising companies.

Affiliate marketing is a great way to very easily add a revenue model to a website that has traction. Content based websites remain extremely popular on the Internet, but it can be difficult to also create premium content or a related product that can generate significant revenue. Physical products can also be a difficult model to crack early on, particularly due to lack of cash-flow or investment. Affiliate marketing makes perfect sense for companies that are looking to get into an industry such as fashion, but do not have the resources to handle their own stock or distribution just yet.

What types of website are good for affiliate based models

There are many different types of content based website that fit well within an affiliate based business model. I think really the most important characteristic of successful affiliate websites is they naturally make you want to become a repeat visitor.

Blogs

Blogging is the most obvious type of website that fits into the affiliate based business model because it lends itself so naturally to the process. When you consistently write articles on a blog, your opinion becomes respected over time as your audience sees you making good recommendations. If someone recommends something to you, and it turns out to be a really good thing, your respect for that person’s opinion is naturally going to be elevated. Blogging about a new product, book or service is a perfect because it allows you to explain in depth about the product, the benefits and how it helped you or improved your life.

This form of product recommendation is perfect as long as it is kept within the bounds of natural interaction. Everyime you see your friends you don’t harass them in to buying something knowing that you will get a kick back.

But if you take the time to really review a product, you give an honest opinion of it and you maintain the respect of your readers, then earning a small commission by recommending products is a completely legitimate form of earning money to continue writing your content and grow your business.

For example, someone like Tim Ferriss can recommend products to his audience because he has earned an authoritative voice on fitness, productivity, learning and lifestyle design through his blog and his books. Tim’s blog is a perfect example of how to build a successful affiliate model. Tim rarely actually recommends products, but when he does you can tell he is being genuine and not just trying to earn money from his audience.

Community and curated content

The other big opportunity for affiliate based model are community and curated content based websites. These are much better at scaling than blogs because it does not rely on a small number of people to create all of the content. However, this does mean that control of the content is largely up to the community, rather than the host.

The community curated content website has really sprung up in the last couple of years. Websites like Tumblr and Pinterest have created hyper focused niches on highly valuable industries like fashion and retail. I think Tumblr has the opportunity to do something with affiliates, but it is Pinterest that is really looking to go after the opportunity.

These types of websites work best when you create tools to easily create content. For example, both Pinterest and Tumblr make it incredibly easy to post content to their sites. Both websites also allow you to “repost” content from other members and so content can quite easily go viral across the network.

Curation plays a big part in both of these websites. Power users can create large followings by curating content rather than generating it all themselves.

Community based affiliate websites have the potential to scale to a much bigger business than a traditional blog, but they are much harder to get off the ground and become popular.

Where do people go wrong?

Affiliate based business models are not hard to understand. If someone buys something after using your affiliate link, you earn a commission. It’s not rocket science.

So how come so many people never make money from it?

Well, I think there are many reasons why the majority of websites never reach scale:

Shit content

The biggest mistake people make is commoditising their content. When you put little effort into producing content, then you don’t deserve the opportunity to earn commission from making recommendations. If your strategy is to just churn out as much content as you possibly can, you will never build an audience who respects your work.

It’s even worse when every bit of content you write is an affiliate link or is trying to sell a product. How can you expect to build an engaged audience if all you are doing is trying to sell to them? People don’t go to blogs to buy stuff, it’s that simple.

No expertise in the area

Another big mistake is when you see affiliate based content websites that are recommending products where the writer has no place making the recommendation.

If you are going to write a piece of content that has an affiliate link to a high-end DSLR camera, you need to be an expert in order to make it credible. Your whole website needs to revolve around the product and how to use it, rather than eyeing up the fat commission you can make if you dupe someone into using your link from that one piece of content.

It’s so easy to tell that the writer does not understand the product when their content is basically just a padded out version of the product specifications.

To create a successful affiliate website you need to focus on one tiny niche. You need to create a body of content around that niche that shows you are an authoritative voice and you understand the nuances of the product. You need to be the expert friend that you would consult if you were about to make the purchase decision.

Linking to every popular product on an affiliate market place is not the right way to approach this opportunity.

Products that aren’t targeted

Creating a website or writing a piece of content and then sprinkling affiliate links on each of the pages is not going generate significant revenues. When you link to an affiliate product, you need to make sure that your page is hyper focused on why your reader will get value from the product.

This means writing an in-depth coverage of a product and then linking directly to that product or landing page. You need to ensure that your page is so well written that it becomes an invaluable resource for people who are already interested in the product.

When you don’t have this hyper focus on the content and the product, you end up with a website that is just flailing about and clutching at straws to earn money. I also don’t think that you should affiliate link to more than one product on any given page or post on your website. Each piece of content has to be targeted to a specific product.

No value to the reader

And finally, probably the biggest overarching reason why the majority of affiliate websites fail is because they provide no value to the reader. Creating value for your audience should be your number one objective. If you create value and a loyal and engaged audience, revenue will naturally follow.

If you create a website purely as a way of generating affiliate revenue I don’t think you will ever create the kind of audience that you need to earn significant revenue from the opportunity.

Creating value should be your number one priority, not earning money.

How to build a successful affiliate based website

There are many things that go into building a successful affiliate based website, so I’ve tried to distil it down to three simple objectives.

Build a tribe

The very most important objective for creating this type of website is you need to create an engaged audience around your niche. Without an engaged audience, you will never be able to continue to grow.

A really good example of building an engaged audience is Thrillist. Thrillist started out as an email newsletter that curated products and experiences aimed at young american urban males. Thrillist was able to grow it’s subscriber base to millions of readers and has been able to generate significant revenue. In 2010, Thrillist acquired Jack Threads, a members only online fashion retailer.

None of this would of been possible if Thrillist had not grown an engaged audience from the start.

I have previously written more about Thrillist and their business model in the post, The intersection of Content and Commerce.

Create amazing content

The next important objective is, you need to create amazing content. This means from the outset, you need to invest heavily into creating the best possible content that you can.

The Internet has created a strange paradigm around content that breaks the traditional offline model. In the offline world, you would happily pay for premium content in the form of a magazine or newspaper. However, content on the internet is much more valuable, in my opinion, when it is completely free.

By making premium quality content free, you enable it to spread across the Internet. One of the truly enabling factors of the Internet is it allows a message to travel to millions of people with very little friction. When you make your content free, it enables search, social and sharing to grow your audience without the traditional requirement of marketing.

In my opinion, creating premium content should be a loss leader. You should invest heavily in premium quality content in order to build an audience, and then you can find a much better way to generate revenue by offering more exclusive content or products to your most loyal readers.

The real take away here is, just because you a producing free content, does not mean it shouldn’t be extremely high quality and engaging. You want your content to spread and for it to be share worthy, and not something that will dupe a search engine or an unsuspecting visitor into landing on your website.

Be open with your model

And finally, I think you should always be open with your model. When you are recommending products to an audience and receiving a financial kick back, you need to maintain a position of trust by being transparent about how you earn revenue. Some members of your audience won’t want to click an affiliate link, even when you are completely open like this, but I believe having this level of integrity will serve you better over the long run.

When you build a business around an engaged audience and your first priority is to create value, I think your best consumers will actively want to help your continue and grow your business. It seems like the Internet has supercharged the opportunity for a business to grow a loyal audience, where members actively look to support the company because they feel part of the tribe.

At the end of the day, if you can’t maintain your dignity and integrity through your daily activities, what is the point in starting this kind of company in the first place?

Conclusion

Building an affiliate based website is an exciting opportunity for anyone starting out with the vision of creating an amazing online brand. Getting off the ground with an affiliate website is incredibly easy because all it takes is a simple blog or email newsletter and the passion to build a tribe around a certain niche.

I also think that affiliate based business models provide an amazing opportunity to build up momentum and eventually create a product or ecommerce based company. Selling your own products will always be more lucrative than being an affiliate business, but there is an inherent risk associated with this model. If you can grow an engaged audience over a long period of time, it will be much easier to transition to your own products and the investment in manufacturing and distribution will not be as big of a risk because you will already have an audience.

If you dream about creating your own online company around the thing that you are passionate about, but you are unsure about how to get there, take the small step of creating a content based, affiliate business model website, on the path to your future success.

What have you got to lose?

The right way to build an online affiliate based business model was written by Philip Brown on Culttt - Articles on business, technology and the Internet

However, the loyalty opportunity has been so over-saturated that it has become a sea of competing apps and websites, with very little differentiation. Why would you choose one over the other, particularly when the whole model requires an inherent investment of your time?

As the weaker of these type of companies die off, the real winners begin to emerge. What characterises the winners from the losers is that loyalty and rewards are not enough. The real winners of this opportunity bundle the loyalty and rewards with a much larger problem that is associated with the space. It is the solution to the larger problem that actually makes these companies the winners.

The following post is a breakdown of the loyalty / rewards opportunity, what happened and why the winners emerged. The real takeaway from this post has actually nothing to do with this particular opportunity, but more for nascent opportunities in adjacent or future spaces

A brief history

Monetizing large networks that rely on a strong Viral Coefficient for growth is very difficult. Subscription based services are great when your target market is small and very focused on a given problem. However this just doesn’t work for consumer based applications that want to scale to a certain level.

Many companies try to go down the Freemium path (Is Freemium right for your product?) but again this relies on a very specific product that solves a specific problem. It is extremely difficult to add on a business model once your product has been developed as it should be one of the core decisions that is made at the very start of the process.

In late 2011 I wrote about Avoiding the “Brand partnership” trap. Combining online activity with real life rewards and brand partnership was an extremely hot business model at the time. Large brands wanted access to the new generation of consumers and had the marketing budgets to do so. Founders of consumer based websites and apps suddenly had a customer to support their users. It seemed like such a natural fit that companies wanted to access consumers and these new niche Social Networks could provide that platform.

Of course in reality, that was never going to work. Social Networks rely on a “Winner Takes All” model and so the majority of all new Social applications end up with an insignificant number of users. Without the users, there is no reason for a brand to spend money to attract those users and so the whole business model breaks down.

The problem with Groupon

Whilst Groupon doesn’t really fit into the “Social Network / Loyality / Reward” opportunity, I think it’s worth bringing it up anyway.

For a couple of years, Groupon was the latest hot dot com. Groupon is an email based coupon scheme that allows consumers to get big discounts from retailers in their local area. By signing up to their email newsletter, a user can get coupons delivered straight to their inbox.

Whilst Groupon was courted as the next big thing, the reality of the broken model was not revealed until after the company had gone public. Groupon is required to spend a huge amount of money sourcing deals from retailers and often has to pressure these businesses into giving huge discounts. On the retailer’s side, they often don’t make any money from the deals, and the consumers that are brought in have no value because they are only there for the deal, and won’t spend any more money or comeback.

The real problem with Groupon though is the complete lack of loyalty because there is no cost of switching. If you have signed up for Groupon, but there is a better detail on LivingSocial, then you are going to take the deal on LivingSocial instead.

Fundamentally, Groupon does not solve a bigger problem related to discovery or transactions for local retailers or small businesses.

Who are the winners, and why are they successful?

Despite the problems associated with this opportunity, there are two real big winners in this space, Square and Foursquare. Both of these companies have have managed to connect the online world and the real world through smartphones. Whilst Loyalty and Rewards form an important component of both of these company’s business models, it is the larger problems that they have solved that have really marked them as winners.

Square

Square is a mobile payment facilitator from Twitter Co-Founder, Jack Dorsey. Square has two major components to their business.

Firstly, there is Square register which enables small retailers to start taking payments instantly using their smartphone. It simplifies the cost of accepting transactions and removes a lot of the hassle of setting up and managing a traditional Point of Sales.

Secondly, there is Square wallet which is a consumer application that can be used in conjunction with Square register. Square wallet does a number of things that have turned this industry on it’s head. Firstly, it allows you to make a payment without taking out any cash or cards. All you have to do is say your name and you can instantly pay for your order. Secondly Square wallet will track your transactions and offer you coupons based explicitly on your loyalty. Square wallet keeps a record of your transactions and can store all of your coupons or money off vouchers all in one place.

Square is fundamentally different to every other Loyalty or Reward scheme because it is aiming to completely replace the Point of Sales unit. By intercepting at this point of the transaction, Square can become an integral part of the discovery and processing of sales. Whilst other Loyalty or Reward schemes aim to drop off consumers at the door, Square enables the discovery and also processes the transaction. This means they have valuable data on the purchasing habits of their customers.

By completely replacing the problem of the transaction, Square has positioned itself to become a critical component in the small business transaction process.

Square solved the bigger problem of enabling small businesses to take payment and process transactions. By doing so, they have wedged themselves into a very important area. Whilst other mobile payment processors have been focused on making money from the commission of each transaction, Square has positioned itself as a completely new form of discovery, payment and brand loyalty.

Foursquare

Foursquare is the other Loyalty Reward company that has actually positioned itself to become a market leader. Foursquare has over 3 billion crowdsourced checkins and has created a geo-location layer of knowledge over the developed world. I’ve already wrote about the Lessons to learn from Foursquare, but I will expand here on why I think they will really succeed in the future.

I think Foursquare will grow to become a huge company because of the parallels that the company has with Google. Google is a very data driven, scientific company that pioneered Search algorithms to provide it’s users with fast and accurate results. Google broke the traditional Search Engine model by aiming to get users to the resource they were looking for as quickly as possible.

In order to monetize Google, Google combined Google AdWords and Google Analytics to allow advertisers to directly track and monitor how each penny of their marketing spend was being utilised. By enabling this transparency of the Return of Investment, Google created a money-making machine where advertisers could track and optimise their advertising campaigns.

Google can now get a user from the Search results to an advertisers website and track that user through the payment process. This enables business owners to see the source of their sales and which campaigns directly attributed to sales. It is this transparency that creates the value and stickiness of Google’s services.

I believe Foursquare is in a similar position to build the same kind of business model but within the real world. Instead of getting people to websites, Foursquare can recommend places in the physical world. Instead of dropping people off at the door, Foursquare can get them into the physical location and track the habits of that user as well as every other user within that location. Foursquare has already partnered with American Express to provide money off when a user makes a purchase using their American Express card and so the transaction loop is closing.

The big problem Foursquare is solving is the exploration and recommendation of physical locations. By crowdsourcing data regarding the habits of it’s users, Foursquare can surface interesting recommendations based on a wealth of different parameters including, time, past experiences, the experiences of friends or people who share similar interests. This enables Foursquare to become the glue that creates the discovery and loyalty opportunity.

The real takeaway

The real takeaway from this post should be, if you want to be the winner within a certain opportunity, you need to be able to solve the bigger fundamental problem. Just turning up and hoping that your product is compelling is not enough to become a market leader.

There have been thousands of niche Social Networks that targeted brand partnership or loyalty reward schemes as their business model. The majority of these companies are now dead. You can’t build a big company by trying to be another me-too Social Network or product and trying to emulate the business model of a much large company that is solving a real problem (Startups that don’t solve a real problem).

To become a big company, you need to solve a big and difficult problem. If your strategy is to just be the next cool thing, you won’t get very far. Big problems are difficult and time consuming, but they give you a competitive advantage and a moat that can’t be crossed.

Don’t try and become the next hot me-too. Solve a fundamental problem first!

Loyalty apps are dead: Why you need to solve the bigger problem was written by Philip Brown on Culttt - Articles on business, technology and the Internet

Over the last 5 to 10 years, an interesting new paradigm has arisen on the Internet that has fundamentally changed online distribution forever.

Social services like Facebook and Twitter have grown exponentially and revolutionised how we communicate with our friends, how we consume news, information and media. Breaking news appears online first, and televisions shows reference social streams and urge viewers to join the conversation online.

Location services like Foursquare and Yelp have crowdsourced a geolocation layer of data across the modern world. We now have an amazing depth of knowledge about the world we live in right in our pockets.

WordPress has been one of the truly great enabling factors of the Internet that has given anyone with an Internet connection a voice. The traditional gatekeepers of publishing have lost their control and now anyone in the world can seize the opportunity to become a publisher.

And finally, the iPhone completely revolutionised the strangle hold mobile phone networks had on what software we could have on our phones. The iPhone introduced the App Store and in doing so created a platform for developers to build software and deliver it straight to their customers.

Each of these platforms offer both benefits and drawbacks to developers. Whilst on the one hand they offer unparalleled access to users, in each case at least some aspect of control of your own destiny is lost.

In this post I’ll be looking at each of the 4 major platforms, the benefits and drawbacks and how you can mitigate those drawbacks to prevent handcuffing yourself to someone else’s future.

The problem so far

The risk of building on someone else’s platform is a fairly new one, but there have already been a number of high profile cases. When you build on someone’s platform, you get instant access to a large, engaged audience. But you must also play by the platform’s rules, and you sacrifice the flexibility and stability of your future as a company.

The Zynga and Facebook relationship is probably one of the most high profile cases of building on someone else’s platform. Zynga was one of the first Social Gaming companies that built on top of Facebook’s Connect platform. Zynga enjoyed massive growth from Facebook, but has since been unable to show that same growth on it’s own or through mobile gaming. The trouble of the relationship can be seen in the continually falling prices of both companies stock. Zynga became too reliant on Facebook, and Facebook had the majority of their revenue directly coming from Zynga.

There have also been other cases where developers have been burned by the platforms they have built upon. Dalton Caldwell started a Twitter alternative App.net after Facebook tried to bully him out of his company (…Dear Mark Zuckerberg). Twitter has also famously blocked Instagram and Tumblr from using their API for finding friends on their service and has also cracked down on developers creating alternate clients.

As more and more cases of platforms tightening their API rules, is it really wise to tie your success to the future decisions of another company?

Social

One of the real big advantageous of Twitter and Facebook is the graph that maps all of our connections and who we are interested in enough to follow. Twitter and Facebook really defined the new wave of online Social applications by building a platform rather than just a service.

It’s now expected that most new Social Consumer applications have Facebook and Twitter integration built in. This smoothes the on-boarding process by allowing new signups to quickly find the people they already know who are using the service. It also gives the application the opportunity to grow through a Viral Coefficient by allowing it’s users to share out to their existing connections on other Social applications.

Building on top of Facebook and Twitter is a fantastic opportunity if your application is just finding it’s feet. Previously it was much harder to find new users and allow your current users to help grow your product. With Twitter and Facebook integration, all of these problems have already been solved.

But it’s easy to become addicted to this source of growth. It’s not a good sign if the majority of your traction, traffic and growth is coming from any one Social platform. As I’ve already mentioned, there are countless examples of companies that have become reliant on Facebook or Twitter for growth. When either of these two giants decide to either replicate your product, or cut off your access to their data, you could quickly find yourself in trouble.

Advice: Do not rely on any other service for your traction or growth. It’s good to integrate with other services, but you need to ensure your product is compelling enough to grow on it’s own accord.

Location

The recent smartphone revolution brought with it connected handheld devices that are more powerful than desktop computers from just a few years ago. Mobile Internet is coming of age and mobile technology is finally realising the impending vision of the last 10 years.

One of the new abilities of modern smartphones is to track and broadcast location information. These new sensor enabled devices paved the way for location based services like Foursquare to build a new data layer of information about the places around us. Foursquare has crowdsourced billions of checkins from millions of users around the globe to build a real time data mine of what is going on right now.

Foursquare’s data is a huge competitive advantage in the mobile location space. For a company starting today, it seems unsurmountable that they could ever beat Foursquare at building a better dataset.

Many adjacent Social services have decided to integrate Foursquare’s location API into their application, rather than trying to build their own. Notable examples include Instagram and Path.

Whilst it’s still relatively unknown what path Foursquare will take in the future, it can safely be said that they are only of a few players who truly own the location dataset. So far Foursquare has been open with their API, allowing other companies and developers to build off their data. However it is not unthinkable that Foursquare will change the rules of the game and possibly destroy anyone other company that is relying on Foursquare’s location tools.

Advice: Whilst it’s fine to build off the readily available adjacent services, it would be a mistake to rely on that availability for core features of your product.

Publishing

The Internet has democratised many different industries over the years, one of which is media. Publishing has been dramatically changed over the last 20 years. These days, publishing companies are forgetting about the capital intensive, low profits and inventory risk of physical publishing to move into the dynamic and highly engaged global opportunity online. Countless magazines and newspapers are now focusing their attention exclusively on the new world of online publishing and many more continue to make the transition.

At one time, Gatekeepers decided who and what would be published in books and magazines. Any individual in the world can now become a publisher with simple tools that allow you to be up and running in minutes. Hosted services like Tumblr, Svbtle and Medium allow you to publish into growing networks of audiences whilst self hosted Open Source software like WordPress allow you to manage and host your content on your own domain (psst WordPress is also available as a hosted service).

WordPress has become one of the most widely used Open Source projects to date. Almost 20% of all new websites are powered by WordPress and it is being used by individual bloggers all the way up to the largest organisations in the world.

Whilst I love WordPress, the project inevitably suffers from problems.

Depending on your outlook, the benefits and drawbacks can either be positives or negatives.

Firstly, WordPress is backwards compatible back to almost it’s inception. This is good for ensuring old themes and plugins continue to work. But it means that the growth of the project is hampered by legacy code.

Secondly, WordPress has evolved into so much more than just blog software. WordPress has become a fully integrated Content Management System and can be extended to become an Ecommerce website, Social Consumer applications and many other things. Whilst the power to extend WordPress is great, it inevitably means that a lot of the possibilities are just complicated extras if all you want to do is blog.

WordPress is not a problem for publishers as it’s fairly simple to get your content out of a MySQL database and in to any other format. However, it is the countless companies and projects that build upon WordPress that need to be wary of putting their future into the hands of WordPress.

It’s difficult to mitigate the risk of building upon Open Source software. WordPress might eventually splinter into more application specific software, but for the foreseeable future, building your entire company future off an Open Source project is taking a risk.

Advice: Use, support and contribute to Open Source projects like WordPress because it is these projects that really power the opportunity of the Internet. However, don’t put all of your eggs into one Open Source project as it is too unpredictable for what the future might hold.

Mobile

Another of the really revolutionary powers of the Internet is the transition from connected network, to distribution network. One of the most powerful applications of this has been in the Software industry.

When all software was distributed through CD-ROMs, software was shipped on a yearly basis and required complex distribution networks of creators, manufacturers, wholesalers and retailers. These days the majority of all software is delivered in real time over the Internet.

Before the iPhone, network operators and phone manufacturers had complete control on what software you could use on your mobile phone. With the introduction of the App Store, you can now download any application you want.

This is not only great for the consumer, it is also a huge opportunity for developers large and small. It is now possible to create an application and sell it to a global market of millions. All payments and refunds are handled for you and there is a centralised place for consumers to discover your app.

However, once again, with these opportunities, also comes drawbacks. The App Store is fraught with negatives. Apple have a strict policy of rejecting an App that does not meet it’s requirements. Approval can take weeks which means that shipping updates to customers can be slow and tedious. Apple also have complete control over who and what is promoted, and so discoverability is still a problem.

It goes without saying that the App store is a huge opportunity for developers to get their software into the hands of consumers. But once again, becoming too reliant on this as your only source of income is taking unnecessary risks. Apple has a habit of releasing it’s own Applications that look to emulate already established successful apps. Apple is a 400 pound gorilla you don’t want sitting on your only stream of revenue.

Advice: Use the App Store to build up revenue, a user base and a following, but don’t rely on it forever. Build value and opportunities for your company away from centrally controlled platforms like the App Store and more towards the decentralised open Internet.

Mitigate the risk

Building on top of an established network is a massive opportunity when you are looking to add traction to a product. You get access to users and their network and the opportunity to spread your message through Viral growth. But becoming too reliant on any one network is putting your company’s future at huge risk. For-profit companies need to do what is in their best interest in order to survive and grow. Companies and products need to make constant dramatic shifts in order to keep ahead of the curve and to extend into new opportunities for growth. If you rely on any one source to grow, you could find that the owner of that source has suddenly killed your business.

There are far more platform opportunities out there than I have mentioned in this post. For example, Dropbox and Spotify allow developers to do interesting things with storage and music respectively. But if these are core features of your product, or you are relying on access to these platforms in order to use your product, you are asking for trouble somewhere along the line.

Whilst Business Development relationships usually start out optimistic, you can’t rely on anyone else to dictate your company’s future. Don’t allow your future success to be handcuffed to the decisions of someone else.

The Developer’s Dilemma was written by Philip Brown on Culttt - Articles on business, technology and the Internet

Freemium business models are usually implemented for digital products or services where the cost of adding an additional user is negligible. Cloud Storage, Online Games and Productivity Software as a Service are typical examples of products that use a Freemium business model.

A Freemium business model works because the revenue generated from the small percentage of paid users is enough to sustain the usage of the entire user base. Freemium is an attractive option for product developers because it reduces the barrier to entry to a product, allowing customers to try for free. The challenge is therefore to convert a large enough amount of free users to premium users.

The term Freemium was coined after this 2006 blog post by Venture Capitalist Fred Wilson, My Favorite Business Model.

Variations of the Freemium business model

The Freemium business model comes in a variety of forms.

Advertising supported content

The most common version is simply content that is supported through advertising. This is obviously not a new online business model as banner advertising has been around for years. However, it is going through a renaissance period with the likes of Facebook, Twitter and Tumblr integrating contextual advertising through the activity stream.

Time or usage based

The second oldest form of Freemium is the time or usage based plan. This is where a user will get access to the full product for either a limited amount of time, or a limited amount of usage.

Advanced features, capacity or “seats”

With a lot of modern Software as a Service products, pricing plans are usually defined by the available features, capacity or the “number of seats”.

Typically a user will have unlimited access in terms of time and usage to a product but the available features or capacity will be reduced. This allows the user to become invested in the product so that upgrading to a paid plan becomes inevitable through their continued usage.

A product that is based on “seats” would typically be a Project Management or team based product that would be used by a business. This enables the business to increase their licences as they grow larger, or reduce their spending if they reduce their staff.

Virtual goods in-app purchases

With the rise of Zynga and the ability to make one tap payments in smartphone applications, in-app purchases have become extremely popular. There is now an opportunity to create a game and aim for a large amount of users with a free product. You would then look to monetize the power users with in-app purchases.

Freemium success stories

Two of the largest Freemium success stories are DropBox and Evernote.

Both DropBox and Evernote give their users the opportunity to register and use their full product for an unlimited amount of time.

This allows their users to sign up for free and use the product without restrictions.

Once the user has used all of their free capacity, they can opt for a paid premium plan. Obviously by this stage, the user is more than happy to pay for a premium version of the product because they are already so invested.

Why does Freemium work?

Freemium works for a number of reasons.

Try before you buy

Firstly, it allows users to try a product before they need to make a commitment. If your product is something of value like productivity software, it’s important for a user to be confident that it will fit their purpose. In the case of DropBox, it allows a user to quickly solve the problem of transferring files between computers.

Greater user acquisition

When your product has a free plan, you will likely experience better user acquisition from cold traffic to free users of your product.

It is extremely difficult to convince someone to make a purchase when they are landing on your website for the first time. If you are able to convert cold traffic to free users, you are more likely to be able to convert that user eventually into a paid user.

Network effects

If you can integrate Network Effects and a growing your Viral Coefficient you can acquire user’s through your current user base. This is far more efficient way of acquiring users because you are leveraging your current users for free.

Why Freemium doesn’t work

There are also many reasons why Freemium doesn’t work.

Incorrect Product DNA

Freemium only works for a limited type of products and services. Unless you have a product that already has the ability to restrict certain advanced features or capacity in such a way that encourages usage and conversion to a paid plan, you will struggle to make Freemium work for you.

It shouldn’t be difficult to see how your product would fit into a Freemium business model. Ideally, you should plan the business model from the outset because it is extremely difficult to iterate yourself into something that works.

No Network Effects or a low Viral Coefficient

Pinning your hopes on user acquisition through Network Effects can be difficult because it is hard to find the right product and opportunity to fully take advance of it.

DropBox grew very quickly early on because of it’s “invite a friend” scheme. DropBox incentivised it’s users to invite their friends by giving them more capacity for every friend they introduced.

If you want your users to actively recruit new users for you, you need to offer a similar incentive program that adds real value to their user experience. DropBox is essentially giving away the value they hope to monetise. There is no point incentivising users with something they do not care about.

You need a large market

In order to really create a sustaining business from Freemium, you need to be able to acquire a very large number of users. Typically you will need to have over a million users to grow a company if only a couple of percentage of your total users convert to premium users.

Freemium doesn’t really work with niche products because you wouldn’t be able to get those types of numbers. If you product is niche, you need to be converting a much higher number of users. However, even then, the potential growth of your company will be limited.

When looking for a business opportunity to attack with a Freemium business model, you should go for a universal problem that is experienced by a wide variety of demographics and has a large number of use cases.

It is not a solution to no traction

If your product has been live for a while now, and you are experience very little traction, a Freemium business model is unlikely going to be the fuel that grows your business.

If you are really struggling for traction, you should take a hard look at your product to see why it is not wanted by the market.

A Freemium business model might increase your user acquisition by allowing people to try your product for free. However, this is futile if your product is not good enough to eventually convert that traffic into paid premium users.

Freemium is still a lottery

Freemium is not an easy solution to the “What’s my business model?” conundrum. Freemium relies upon rapid user acquisition and market dominance. If you already have a strong competitor that is acquiring customers at a quicker rate than you, you are in trouble.

The problem you are solving needs to be clearly defined if you want to succeed. With one strong market leader, you need to be in a position to be the first company in mind when a user needs to solve your problem.

Freemium is very much still a lottery and is not an easy business model option. If you think you are going to struggle to become the undisputed market leader, perhaps it’s better to aim for a more conservative Software as a Service subscription model that does not utilise free as a option.

Is Freemium right for your product? was written by Philip Brown on Culttt - Articles on business, technology and the Internet

Betaworks is a hybrid incubator and investment fund that takes fledgling ideas and products and helps them grow into fully mature technology companies. Betaworks are the creators of Bitly, Chartbeat and SocialFlow and are looking to build a collection of companies that all fit into the Betaworks vision of the future of the Internet.

The structure of Betaworks allows the company to take in young companies and ideas and build them into finished products. Betaworks also makes seed stage investments into early technology based companies. However, Betaworks does all of this off it’s Balance Sheet and does not work in the traditional investment model of Limited Partners. Instead Betaworks is a stock company with shareholders.

Betaworks’ thesis is structured around the real-time social web and how information is able to flow across the Internet. The vision for Betaworks originates from the monumental shift of the new real-time wave of the Internet. The Internet can now be categorised as a flow of information rather than static pages of content. Each of the companies that Betaworks invests in and builds fits into this vision of the future of the Internet.

Betaworks was founded by John Borthwick and is based in New York City.

A collection of companies

The Betaworks thesis is to create a collection of companies in the vision of the real-time social web. Instead of having one company that dominates in a single vertical, Betaworks aims to create a collection of separate companies that are loosely connected. These companies are then able to work together whilst still concentrating on their specific vertical.

A large part of the Betaworks thesis is structured around Web Services and APIs (Application Programming Interface). The majority of the Betaworks companies are available as both a website and a web service. This allows the companies to share data laterally and fits into the Betaworks thesis of information flow and pushing data through the real-time social web.

Social

Social is obviously a huge part of the Betaworks’ thesis. Twitter’s growth can be attributed, at least in part, to the huge growth of the real-time social web and has become the real break out company that represents this new vision. Betaworks was an early investor in Summize and TweetDeck, both of which were acquired by Twitter.

The social web really shifted the emphasis of online discovery and dissemination of information away from search. Whilst search will continue to remain an important structure of the Internet, the social web enabled an entirely new approach that has completely changed how we consume information.

Real time

The real time web has come about thanks to a number of new technology innovations and ideas meeting at an intersection. As the cost of server computing has reduced, mobile internet has finally matured, and services like Twitter have become popular, the real time web has emerged as a new wave of technology innovation.

Web 1.0 can be broadly categorised as information on static pages whereas Web 2.0 is the real time broadcasting and consumption of data through new technology and protocols that allow information to spread.

APIs

APIs (Application Programming Interface) are an integral part of the real time social web.

An API basically allows external applications to use data and information from another application. Web APIs have become common in the last couple of years as web services look to grow and widen their usage by allowing external applications to request and create new data within their application.

APIs have fuelled the growth of services like Twitter and Facebook and are an important aspect of new services for the future.

Betaworks companies

The second part of this post will be talking about some of the more prominent Betaworks companies that are changing the face of online content, consumption and intelligent media.

Bitly

Bitly was really the flagship Betaworks product and has come to truly represent the company’s vision.

Bitly started out as just a link shortening service to be used on Twitter. Bitly was never intended to become a huge property, but due to the explosive growth of Twitter, Bitly quickly began being used for millions, and now tens of billions, short links each month.

The real value of Bitly is of course much more than a shorter link. When you shorten a link using Bitly you get instant access to real time analytics of that link. You can see when people click on it, where they click it from and where in the world they are located.

As Bitly has grown and the number of links it is tracking has increased, Bitly can now generate a real time layer of what is happening on the Internet. At any given moment, Bitly knows what is trending and where the activity is and where it is coming from. This powerful real time dataset has become one of the integral pillars of the Betaworks model.

News.me was a product that Betaworks spun off from the data that was generated from Bitly. News.me is a daily summary of the top stories from your Facebook and Twitter accounts.

Bitly goes to show that a small germ of an idea and product can truly revolutionise an industry.

Chartbeat

Chartbeat is a real time analytics engine for websites. It allows website owners to track and analyse their website and their content to gain instant real time insights into what is happening and what is popular right at that second.

In the fast paced world of Social Media, Chartbeat allows companies to react to what is happening in real time. It allows website owners to understand their traffic sources and take action when it deviates from the norm.

Chartbeat also spawned an enterprise version Chartbeat Publishing that is being used by major publishers like The New York Times. Chartbeat Publishing allows huge content publisher and news services to gain deep insights into what is happening right at that moment and to take real time action if there is a sudden surge in interest in a particular story.

Socialflow

SocialFlow is another Betaworks property that uses real time data and analytics in an interesting way. SocialFlow allows companies to target contextual advertising by looking into the language and conversation users are having across the social web.

Traditional contextual advertising looks to match advertisements with the demographic of a user, their age, gender, interest and aspects of their profile. This is however still going down the old interruption model.

SocialFlow aims to give a better Return On Investment for companies looking to target advertise online by understanding the context of existing conversations to gain trust.

Digg

Digg was one of the very first crowd-sourced news aggregators and was really the first wave of the social internet. Digg grew to become one of the largest online properties, but has suffered in recent years as it lost relevance to Twitter and Facebook.

Betaworks purchased Digg for $500,000 and decided to completely reboot it into a startup again. Betaworks wanted to take the fallen giant back to it’s roots as a social news aggregator that collects and surfaces news based upon activity and interest across the social web.

Although it is too early to tell whether Betaworks’ reboot of Digg will be enough to revive it, Betaworks is probably in the best possible position to really make a relevant crowd-sourced news aggregator.

Back in February 2011, I suggested that Twitter would be well advised to acquire Digg to create a crowd-sourced product to aggregate news across the social web (Twitter and Digg – A match made in user submitted news stories heaven!) so I was very happy to see that a company with the ability of Betaworks also believed in the value that I saw.

Betaworks positioned as the leader in intelligent online media

Through the companies that have been founded and the investments they have made, Betaworks has positioned itself as the clear leader in social news, real time data analysis and intelligent online media. Betaworks is not a single vertical company that has had a breakout success, it is a representation of a vision of the future and how a collection of companies can fully realise that vision.

Through the success of Bitly, Chartbeat and SocialFlow, Betaworks can look to give a fallen giant like Digg a new lease of life by empowering the old vision with a new technological outlook. Digg clearly has future value as a way to crowd-source and analyse what is happening and what is popular on the web right now.

Betaworks is very much like the initial beginnings of Google. Google re-imagined online search to create the undisputed product leader. Google was able to build an extremely healthy company from that one source of revenue, but every other Google product has failed to even come close to that success.

Betaworks, on the other hand, has been able to accomplish the huge goal of real time analytics across the entire internet through a number of aggressive approaches through multiple companies in adjacent verticals. This re-thinking of that traditional one company dominant leader has positioned Betaworks to be able to continue to grow through various smaller initiatives. I believe in the long run, Betaworks would be better positioned than Google to transition as the Internet evolves in the coming years because of this loosely defined structure. I also think you will see a lot more innovation and smaller bets that have the potential to grow into huge product defining leaders who disrupt traditional industries.

Here are some interesting interviews with Betaworks CEO John Borthwick as he talks about his company, his vision and the future of the real-time social Internet.

• Foundation with John Borthwick
• Borthwick on Facebook IPO, Betaworks’ Strategy
• Why Digg.com Had to Redesign
• Borthwick at TechCrunch Disrupt NY 2012

How Betaworks is leading the new wave of intelligent media was written by Philip Brown on Culttt - Articles on business, technology and the Internet

Many of these business owners are suffering from The Sunk Cost Fallacy.

The Sunk Cost Fallacy

Sunk Costs is a term that comes from business and economic theories which relates to the previous investments a company has made. Once an investment has been made, it is now an unrecoverable cost in the history of the company.

The Sunk Cost Fallacy is where future business decisions are clouded because of the previous investment decisions of the company.

Here’s an example:

Imagine John is the CEO of a Law firm. Last year he decided to move his entire Customer Relationship Management software to a new web-based platform. The new platform was a new startup that promised huge new benefits over John’s current CRM software.

A year after making the transition and after considerable costs, John’s staff are having major trouble using the new system because it is often broken, unreliable and it does not produce the kind of reports they need to do their day-to-day jobs.

John has made a bad decision and has invested heavily in the new CRM system. The correct decision John must make is to drop the current system and invest in a new system. However, because of the previous investment, John is unwilling to invest more money into a new system.

John’s law firm will now suffer because John has made a bad future decision about his company based upon the previous investments that are now in the history of the company.

The Sunk Cost Fallacy is part of human nature. No one wants to admit they made a mistake or a bad investment. It is also tempting to try and rectify bad decisions by persevering. But making future decisions based upon the sunk costs of a company can be potentially devastating.

Your previous investments should have no bearing on what is the best path forward for the future of your business.

The Sunk Cost of Web Development

How does this relate to Web Development? Well, the majority of companies now have a business website. However, it seems that many are not happy with how their website is performing.

The typical company will usually hire a Web Development Agency to create a website from their specification. This specification will usually be the businesses owner’s idea of how his company’s website should look and work.

However, the fact that the company is hiring a Development Agency goes to show that the business owner does not have a grasp of how the website will actually fuel the growth of the company.

Once the website is live and under performing (or not making the company money because there wasn’t any real goals to measure performance in the first place), the business owner will not consider that he made a bad investment in the first place.

Instead of investing in a new website that is created to specifically fuel the growth of the company, the business owner will either give up, or throw money at link building in order to resurrect the failing website.

In this example, the business owner is making the incorrect future decision for his company because of his previous investment.

Common examples

Here are some examples of The Sunk Cost Fallacy in Web Development that I’m keep hearing again and again. If any of these situations sound familiar, you could be suffering from The Fallacy too.

A website with no conversion

One of the common problems I keep hearing is that the website does not convert traffic into prospects or signups. This is usually because the website has no strategy for conversion at all.

When writing a specification, you need to be considering how you are going to convert traffic into an end goal from the very start. Conversion is fundamental to the structure of your website and so you are bound to fail if you tack it on as an after thought.

In this case I usually advise the company to scrap their current website and start again. Formulating a plan before development is critical to creating a high converting website in the future.

Self made website

The Internet is the new land of opportunity. Anyone who creates websites professionally (including me) got started by tinkering and trying to make websites themselves. However, I see a lot of business owners trying to create their company’s website themselves, with disastrous results.

I understand that some people don’t want to heavily invest in a website, or they feel that it doesn’t warrant investment because it isn’t an integral part of their business. But, as a business owner, you are seriously harming your company’s future prospects by having a very low quality or cobbled together website. If you care that little about the public image of your company, investing money into a website is the least of your troubles.

I’ve had a couple of business owners come to me to ask for help after they have struggled to create a WordPress theme for their website. Usually they take an existing theme and hack changes so it is to their liking. However, often it either breaks the theme, or it is pointless and does not meet any of their goals for their website.

Learning how to manage your website as a business owner is fantastic, but you need to accept that your first attempts won’t be up to the standard that your business deserves. You wouldn’t cut corners and try to save money on other areas of your company’s professional image, so don’t do it on the Internet just because you can.

I’ve written previously about this topic, Should my business use an off-the-shelf WordPress template?.

Inadequate websites

Open Source Content Management, Ecommerce and Community Software Systems are fantastic for getting off the ground really quickly. In a matter of hours you can have a website live, and due to the active nature of Open Source communities, anything you want to do with your website has probably already been done.

However, often these types of websites will only ever get you so far. If you ever want to be the next LinkedIn or Fab.com, it’s unlikely that you are going to get there with generic Open Source software.

Making the transition from a growing site on a rickety infrastructure, to a new bespoke structure can be daunting because of the investment that has already been made to get the website this far. However, as you try and add more advanced functionality to your website, you will find it becomes a minefield of hacks and workarounds and you are forever at the mercy of someone else.

The next steps

If you have read this far and you’ve identified yourself as being under The Sunk Cost Fallacy of Web Development, here are the next steps you must take.

• Objectively look at your website and see what is wrong
• Decide on the 1 or 2 goals you have for you website in the coming year
• Draw a map of how you expect traffic to convert into sales or prospects
• Get rid of everything else
• Write a detailed specification of the website you want
• Contact a Web Design Agency who have experience building amazing websites

Conclusion

The Sunk Cost Fallacy can be devastating for a company. By allowing your history to dictate your future, you are setting yourself up for failure.

Sunk Costs are in the past and should have zero bearing on the future of your company. Don’t stress or try to make up for yesterday’s mistakes. Instead, look towards tomorrow as a new opportunity to achieve your goals.

The Sunk Cost Fallacy of Web Development was written by Philip Brown on Culttt - Articles on business, technology and the Internet

But Social Commerce can be a difficult thing to get right. There are a number of features that have become synonymous with Social Commerce, and so, to position yourself as a player within this vertical, you need to get your website right.

Here are some common features and ideas that have propelled a number of companies to the forefront of Social Commerce. Hopefully it will give you so inspiration and some ideas when you are designing and developing your new Social Commerce website.

Fab – Rewards for sharing

Fab has shown hockey stick like growth over the last couple of years due to the strong targeting of Social Commerce and referrals. Any Fab customer can earn rewards for referring their friends to become a customer, and these rewards can go up to £500! Fab makes it easy to invite friends with a dedicated page and simple link that can be shared via Twitter, Facebook or Email.

Threadless – Easy social sharing

Threadless is one of the largest T-shirt retailers due to their unique designs and style. Threadless T-shirts are always beautiful and are a very share-worthy product. Threadless has made it easy for people to share their favourite designs to Social Networks like Twitter, Facebook and Pinterest by having a large Social buttons section on each product page.

Jack Threads – Big beautiful product images

In Social Commerce, it is all about desirable products. A desirable product is something that will be shared and curated on content websites like Pinterest or Svpply. Jack Threads provide perfect ammunition for this by offering big beautiful images and a way to see the finer details of each product.

Busted Tees – Easy product selection

One of the common themes of Social Commerce is the big effort to create seamless and usable experiences. Due to the fact that Social Commerce is a brand new opportunity, it seems to have been released from the shackles of legacy User Interface and User Experience Design. Busted Tees, for example, makes it extremely easy to choose a product, a type, a size and add it to your cart in one simple process.

Gilt – Membership features (Favourites)

Social Commerce has really taken the idea of Ecommerce and combined it with the best features of Social Media. Gilt allows members to “favourite” items so that customers can curate a list of their favourite items. Social Networking has introduced a number of features like favouriting to the everyday lives of Internet users. Social Commerce websites can take advantage of this new found understanding of these tools to build even stickier websites.

Etsy – Real time product stats

The Internet is now a real time network of what is going on in the world. From trends on Twitter, to what is hot and not, real time stats can make a big difference to even Social Commerce websites. Etsy makes good use of product data by displaying it on each product page.

FarFetch – Facebook likes

Whilst I’ve mentioned Social Sharing above, one of the most important Social proof elements not to miss are Facebook Likes. When Facebook introduced Likes to the world, it enabled Facebook’s influence to spread across the whole of the Internet. By displaying a Like button on your products, you enable your visitors to easily share it with their friends in a frictionless way. It also shows as a social proof that other people like this product. If you have products with hundreds or thousands of likes, they will become much more desirable to passing traffic.

Conclusion

As you can see, many of the elements above follow the theme of allowing customers to quickly and easily purchase and share the products they love.

Ecommerce is a daunting opportunity to take on. You might look at the likes of the established brands, and think you could never compete.

But your small size is a actually a huge advantage. You can implement new social features and experiment with social opportunities and new business models without the risk that a large company has.

Social Commerce has been categorised by a young set of companies that have taken a chance on the Social uprising of the Internet. If you want to become a player in Social Commerce, you need to break out of the traditional model and seek new opportunities where others have not explored.

Social Commerce is also all about building a niche community of people that love your product, your industry and everything you stand for. You need to seek these hardcore people out and indulge their interests and their love. Nearly everything has become a commodity these days. By building exclusivity, uniqueness and a sense of community, you can create value and a huge opportunity for your brand.

Elements of successful Social Commerce websites was written by Philip Brown on Culttt - Articles on business, technology and the Internet