The Narrow World of Platforms and APIs

by Humberto Ayres Peirera (republished from his personal blog)

In our upcoming venture, we at the team of Centroid.it have had the hard task of choosing a "partner platform". Or service relies heavily on venue search, or POI (Point of Interest Search), and naturally we don't think its feasible that we'll build one ourselves. Also, at this point in time where major POI platforms have emerged, asking users of yet another online tool to built the database themselves, the phenomena known as crowd-sourcing, also won't do it.

So we set out to find the best one available that would suit our needs. We looked into:

• Yelp
• Foursquare
• Google Hotpot (a social layer on top of Google Places, these guys are a mess really)
• Facebook Places
• Gowalla and others..

At the start of our search, december 2010, the main choices were Yelp and Foursquare. Google Hotpot/ Places had a semi-functional API with loads of restrictions and usage limits. Facebook Places didn't really have those many interesting venues and user feedback. Gowalla did have a fully functional API with loads of features (I'll get there in a second), but it just seems (for now) they're number 2 in the social/ badge race. And you don't want to bet in number 2.

That left us with Yelp and Foursquare. We tested and tested, and this is my assessment of the platforms:

• Yelp has a bigger density of relevant venues by a long distance, but they're only open in a handful of countries worldwide, which clearly isn't enough by any standards. World Wide Web, anyone? Also, they have more complete information per venue too (such as “group-friendly” tags which are veryrelevant to our application) and even reservations through openTable. Finally, their API has much more advanced parameters than any other, like searching within a specific city polygon.

• Foursquare has less venues but on far more cities (can I risk to say all?) in what is a crowd-sourcing model. Their API is more open and has more social data built into the venues (for friends recommendations, etc). I'd say their APIv2 is just good enough. Most of the stuff they built is for checkins, badges, and the social gaming interaction - and if you want to be a player there, there's a lot to work on.

But, in the end, none is perfect for us; basically they were developed to serve applications close to their very core objectives, which makes each platform deep but very narrow. The absence of data write capabilities beyond basic stuff like checkin-in or writing tips for venues makes it hard for developers to really build anything way different then their main application, which is not the objective of a platform. Maybe they want developers to build extra functionality they will later "copy", clearly a move Apple has played in the past in their OS. Not the best one I'd say. I would love to see lots more useful information on each platform (menus, hours of operations, contacts, etc, etc), especially on foursquare. These could be crowd-sourced through custom-tags, etc. Yelp should focus on expanding the platform and building a better reccomendation engine.

I must say not everyone agrees with me. When I made this point at the Launching Tech Ventures class at HBS about Foursquare, where we had Jeff Bussgang to comment on Foursquare, other students who have had far greater explorations into the start-up world didn't seem to care much. Maybe platforms are supposed to be narrow and deep. Maybe users and developers don't want a one-stop-shop, maybe all they want is to cherry pick functionality here and there: if the service works, they bring it in-house, if it doesn't, burn and restart. One thing I'm certain: When/ if eventually Centroid.it makes it there, we will definitely try to be a better platform host than anyone else, by providing non-restrictive, and wide use beyond our core focus to our service.

(BTW, we chose Foursquare. We want an international footprint and also its good to side with a fast-growing start-up loaded with talent.)

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Lean Logic Extends To All Functions, Not Just Product Development

by Private

Our class discussion around Foursquare highlighted a strange paradox that I’ve been trying to articulate for a while now. We all agreed that Foursquare follows and is one of the best instances of a lean startup method we’ve seen. They launched with a buggy product, initially did not have too many features, collected consumer feedback on the product and constantly improved. However, the discussion broke down when we turned to their monetization strategy. Yes, Foursquare does have data about location and users that can be broken down in several ways to add value to advertisers, but then all the methods that we discussed involved high touch activities. At first sight there also seems to be a lack of metrics around how the success of advertising campaigns can be made measurable to add value to advertisers. 

The discussion highlighted that the lean methodology may not be consistent with all divisions at a startup. Some startups have done a great job implementing the lean method in their product development, but not necessarily followed the same principles while looking at their business development or monetization strategy. Let me illustrate: 

• First, the lean startup method as I understand it involves starting with a hypothesis and collecting data to validate that hypothesis. That necessarily means that you need to collect data and metrics not only around your customers and what they prefer but also around the advertisers whose needs you are trying to address. A startup’s business development activities will truly be lean when they can start with definite metrics around what they are trying to achieve from each advertising or monetization campaign and provide advertisers or entities on the other side very definite metrics by which to assess success. 
• Second, in a product context while you need to launch fast and get feedback, in a business development context you need to be scalable. A key problem we discussed with Foursquare is the scalability of a model that involves outreach to several local businesses to illustrate the value of the service and get them to sign up for deals. On the other side, I see a lack of metrics in the branded campaigns that the company is working on. Yes, their partnerships with Zagat, Bravo TV etc. definitely create engagement with the brand but what are the metrics that these advertisers can go back with when judging the impact of the campaign?

This discussion around scalability revolves not just around Foursquare but quite a few of the cases we have discussed such as Rentjuice. How scalable is it to reach out to brokers and real estate agencies on an individual basis for example to get them to sign up for the service? I would like to propose that the lean startup methodology be applied not just to product development to ensure that the startup perfects its product but also to other aspects that make sure it functions cohesively and scales fast. This requires applying the same rigor to business development as you would to product development to start with, introduce monetization strategies whose impact is very directly measurable for the advertiser and the company. Start with a target and then ascertain whether the monetization strategy can move the needle on that target instead of starting with a monetization strategy without a specific target in mind. On the costs side, running a program involves a cost, when we talk about product development we bring in metrics around CAC and LTV, similarly these methods should be applied to the business development process to ascertain whether this can really scale. 

I feel a lot of startups have mastered the lean startup methodology and have come up with great products that have viral features and thus drive user adoption but the same virality doesn’t apply to their monetization strategy, the approach to business development and monetization is still one off deals without a hypothesis behind it and high touch advertiser or brand acquisition as opposed to product features that encourage adoption by advertisers- a push versus a feature based pull strategy. As startups following the lean methodology grow up what I remain most interested in seeing is whether they can successfully apply the same lean methodology to their monetization practises as well.

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In Defense of Foursquare

by Katharine Nevins (blog: http://katharinenevins.posterous.com/)


Last week, half of my LTV classmates declared that they’d short Foursquare stock if they could.  I wonder whether their bearishness is driven by the popular caricature of Foursquare as a tool for urban hipsters to get sloshed together in the trendy bars.  Given that all of my classmates are interested in technology entrepreneurship, I’d like to think we’d have more imagination than that. After all, many normal people still think Twitter is primarily a tool for the self-absorbed to share the minutae of their day. (NB:  This use case actually does exist... in the past half hour as I write, fifteen people tweeted what they had for lunch.  Fortunately, it is far easier to avoid bores on Twitter than it is in the offline world.  But I digress.)

There are a number of interesting consumer use cases for Foursquare, of which the “serendipitously meeting friends at bars” scenario is among the least compelling.  I strongly believe that driving more customers to local shops by collecting user attention and data is a promising business.  Having worked at Intuit (which makes tools for very small businesses), I can safely say that any marketing tool more advanced than a sign in the storefront and a phone book listing could be a huge win for most local businesses.  My only question is who will win.  Though it has stiff competition, Foursquare has a shot at any combination of the following use cases:

Google for the Physical World

Last summer, I got lost in Beirut looking for a bar my aunt had recommended.  Beirut doesn’t really do street addresses (street names are inherently political and therefore problematic) and I don’t speak Arabic, so I was glad Foursquare could tell me the exact location.   From the business’ perspective, the ability to be found on Foursquare and then track the user’s check-in is quite valuable as well.

This isn’t an inevitable win for Foursquare.  Today (in the US at least), Yelp has better local search functionality for things like bars, free wi-fi, etc., but Foursquare could potentially compete in two ways.  Firstly, they could include more venues that Yelp doesn’t cover well.  These would include temporary venues such as conferences and street fairs, as well as places people don’t often review on Yelp such as airports or drugstores.  Secondly, if they can build more check-in volume among more people, they could provide reliable ratings of businesses based on actual customer behavior rather than written reviews. 

Location-Aware Groupon (Do I get buzzword points?)

Foursquare’s “nearby deals” feature provides a good reason for anyone, including non-hipsters, to check in to a venue.  It also has the potential to drive new customers into local stores at a much lower cost than Groupon.  Foursquare (1) can do a better job of targeting new (rather than existing) customers because they have previous check-in data and (2) may not have to offer as large a discount because the user doesn’t need as big of an incentive to go to a shop less than a block away.

Universal Loyalty Card

Clearly, American Express beat me to this conclusion, but the obvious killer application for Foursquare is in merchant loyalty programs.  Grocery stores have trained every soccer mom in the country to use loyalty cards, and Foursquare provides a way to manage the wallet space constraint.

Of course, Foursquare is not the only company with this idea.  Facebook, Google, and Yelp all have larger user bases and are trying to capture this space as well.  To beat the competition in check-in volume (assuming they can’t beat Google or Facebook in terms of user count), Foursquare needs to convince normal people that their privacy is protected.  It would seem they have a better shot at this than Facebook does, but they still have a long way to go before people can get past their preconceived notion of Foursquare as a broadcasting tool for bar-hoppers.

To make the loyalty program successful, they also need to collect more actionable data for merchants, ideally by tracking customer purchases.  The American Express deal helps immensely, and partnerships with Square and/ or Blingnation could help as well.

For any of these ideas to make Foursquare a billion dollar company, of course, Foursquare has a long way to go.  They need to build awareness, understanding, trust, and usage among a critical mass of normal folks.  Toning down its image as a game for drunken hipsters could help; last night I had the questionable honor of earning the “krunked” badge for checking in four times in one evening (even though not one check-in was at a bar!).

Assuming Foursquare can build customer usage, they’ll also need to find a scalable way to reach local businesses.  For now, they seem to rely on PR and consumer word of mouth in combination with an online self-service tool.  Facebook, Google, Groupon, and Yelp all have substantial sales teams, and Foursquare may have to do the same in order to compete for the attention of busy small business owners.

Foursquare has plenty of challenges ahead and is by no means a sure thing, but I wouldn’t short it yet.  

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The Varsity Entrepreneur

by Trina Spear

Imagine a high school football field.  Fall 2009.  Division Championship.  Sean Murphy, starting quarterback at Riverview High, throws the 80-yard touchdown pass to win the most exciting game of his young career.  Sean has been a very successful quarterback exploiting this exact play, the long pass.  As the clock runs up, the team hoists Sean onto their shoulders and carries him around the field.  As he struts through the halls, he feels the eyes on him and grins as people pat him on the back.  He is on top of the world – he is the star on the football team, has earned straight A’s, has recently received football scholarships to Northwestern, Wisconsin and Harvard and to top it all off, his girlfriend was just voted homecoming queen.

The following month Sean finds himself in a tough position playing for the Conference Championship: down by 4 points, 45 seconds left in the game, forty yards away from the end zone.  Unlike in other games, worry and uncertainty consume him.  Thoughts pour through his head – what if I mess up the play, what if I get injured, what if my girlfriend leaves me for a lacrosse player, what if I lose my scholarships?  Coach Kypriss pulls Sean aside to go over the upcoming play.  He tells Sean to throw the ball down the field to wide receiver, Bobby Hunter.  Sean slams his helmet onto his sweat drenched head and walks back onto the field, confident on what needs to be done.  He has executed this play a million times.  Fourth down and five.  Hut hut hut.  The ball is snapped into Sean’s hands.  As he runs left to get into position, he notices Bobby is covered on all sides.  Sean quickly shifts his mindset from the potentially blocked pass to other opportunities on the field.  Sean dodges two line backers and catches a glimpse of wide receiver, Jonathan Warren.  He quickly pitches the ball to Jonathan, who runs the distance for the touchdown.  Riverview prevails.

Although very few areas in life mirror the types of fanaticism surrounding high school football, I hope to make the comparison that start-ups feel much of the same trepidation that Sean felt once they attain success.  Success can be much more stressful than failure.  Once you are the big time quarterback on the best team or the founder of the top company on TechCrunch, everyone is looking to see your next move which makes that move appear riskier than it actually is.  The stakes are higher and success can paralyze entrepreneurs if they do not use it to fuel continual improvement. 

In this vein, it is easy for successful athletes and entrepreneurs to get stuck on a path and not adapt, to try to shift the environment to fit a business instead of the other way around.  Businesses like Chegg and foursquare have gained much initial success – lots of angel and VC money, millions of users, and extraordinary PR.  At this crucial point, these companies, among others, should not fear moving away from their core businesses if they need to in order to remain competitive.  In the end, if the right move is for Chegg to shift into the digital business, they should do so and not fear the sunken investment made up until this point.  If the right move is for foursquare to target and monetize local merchants, they should do so and not worry about alienating their current user base.  Not all is lost in changing directions – these start-ups are much better positioned to find new opportunities given their experience, current set of overlapping capabilities, and better understanding of the changing landscape.

I urge entrepreneurs at whatever stage they are in to continue to improvise – it’s the only way to keep winning the game!

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The Best Tech Ventures Pursue Vision First and Monetization Later...

…they are in effect social enterprises that are for profit by necessity not by design


by Evan Baehr (blog: http://www.evanbaehr.com)

"[My aspiration is] to change the world," said Dennis Crowley, cofounder of Foursquare.  "If this turns out to be an amazingly big business at the same time, well, that's an added bonus."  This is hardly what you would expect to hear from a founder who raised $20 million in a Series A from all stars including Andreessen Horowitz.  Aren't these guys supposed to be razor focused on monetization?  In a quixotic way, many founders of revolutionary internet companies begin with visions that have no component on monetization.  How can we explain this irony: some of the "best" and "most innovative" internet companies--and therefore those with the highest valuations--are often founded by visionaries who are supposedly indifferent to--you might even say disinterested in--monetization.

Consider Crowley, a dreamer who was fascinated by the idea of bringing a gaming layer to the physical world.  Indeed he even wrote his NYU thesis on the subject.  And it was this nearly-academic curiosity that shaped his vision for the company.  "We just want to get all these things built... and to put as many pieces in place as possible.  After we do that, then we'll try to monetize," he explained.  "And if we can't monetize, at least we will have pushed the world forward a little.  We taught people about check-ins.  We taught them about location services and about life as a game," he offered.  For Crowley, monetization is literally an afterthought.  It is secondary in sequence and importance to product and impact.  To understand Crowley and founders like him, it is critical to understand his personal motivations.  He values teaching society about a concept.  He values helping people build better relationships.  And he values pioneering sociological concepts that enable future companies to realize his vision.  His passion reminds me of Ronald Reagan's line: "It is amazing how much you can get done if you don't care who gets the credit."

Yet this attitude--indifference to ownership and IP, a disinterest in monetization--would seem a poor fit for the model of venture-backed s-corps that nearly all of these companies pursue.  How do we make sense of the essentially communitarian, visionary disposition of innovative founders in the context of venture-backed companies with billion dollar valuations?  Would Martin Luther King have built a megachurch and charged for attendance?  Would Karl Marx have required a subscription for his podcast?  Would Mother Theresa have billed $500 an hour for a hospital visit?  Probably not.

A conversation with Chris Cox, VP of Product for facebook, helped me answer this question.  He said that in certain ways facebook should be a non-profit.  Facebook’s mission--"to give people the power to share and make the world more open and connected"--sounds like it could be the mission of the Reporters Without Borders or the Berkman Center.  So why not run facebook as a nonprofit?  They ran into a little problem: in order to realize the mission, they needed a few hundred of the smartest engineers, pedabytes of data storage, and world class infrastructure.  And to have this, they needed money.  And lots of it.

The essential tension is this: in order to realize revolutionary impact from innovative new technology products--even ones with social, communitarian purposes--the business must have a way to monetize so that it can finance the development, roll out, and support of the product.  Thus for facebook, monetization became a tactic to help realize the vision of the product--monetization was not an end in itself.

We might even go as far as to say that the success of revolutionary internet companies is partly explained by the absence of monetization strategies at their founding.  Monetization ought to emerge—but only as a supporting mechanism to realizing the vision.

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Foursquare: Monetization as a Means to Growth

by Ashwin Limaye

A recurring theme in many of our class discussions and my conversations with entrepreneurs has been the 'When to monetize' question, which is frequently posed as a 'Monetization v.s. Growth' tradeoff. The thesis here is that in the early stage, tech startup first focuses on product market fit, and seeks to establish a customer base with which it can validate critical assumptions and which is also the seed market that hopefully goes viral and grows into a large user base. While in this stage, spending effort on monetization is likely unproductive. For one, monetization may require the investment of scarce human resources that do not really 'improve' the product but focus on meeting the needs of other constituencies such as advertisers. Indeed, some features may need to be built or introduced that become a nuisance for the product's primary customer. Consequently, it seems logical and sensible to invest in creating the right product first, growing the user base next and then figuring out how to monetize the whole thing. Prominent examples include google and facebook, and more close to home, IMVU, Triangulate, Rentjuice, MochiMedia, etc


What struck me when thinking about foursquare was that the monetization v.s. growth tradeoff was not necessary applicable here. Sure, you could say (and many did) that the founders spent time honing the product, passionately seeking direct customer feedback and passionately incrementally working on new features to get a product that users loved and wanted before thinking about making money off it. However, as some classmates noted, could foursquare be the analogue for a local, real-time Groupon? That is, foursquare would 'sell' its services to restaurants as a platform for offering group deals: users who had checked in within a certain vicinity of the restaurant could be offered deals for visiting the restaurant in sufficient numbers over a certain time period. This would extend the platform and offer strong incentives for users to use and benefit from checkins, while encouraging vendors to sign up and offer deals, growing the other side of the platform. Users could be given an option to 'turn off all deals' thereby enabling them to use the product as before. By charging for its service, foursquare would position itself as a money-making, going-concern business committed to meeting its users' needs and could fund product development and sales teams from the money thus made. Indeed, the ability to make make money in a locality of a certain size and user concentration could be the basis for deciding areas of future expansion, valuation for raising funds as well as 'pull' users and vendors alike. 


To generalize, monetization can be a means to growth rather than a tradeoff to growth in the case of technology platforms that have the following broad characteristics:
1. Network effects exist at sub-scale i.e. a small group of interconnected users find value in using the platform even if no more users join
2. Vendors benefit from targeting such small groups and will pay to offer value to these users
3. Such sub-scale groups can be formed dynamically, and a user can at once and over time be a part of many different groups, which creates a higher level network effect of 'subgroups' that becomes a driving source of value
4. Vendors care for stability of the service provider and can see clear and immediate return on investment of their participation.


For such a technology platform, I believe that early monetization is actually a means to growth rather than a tradeoff. To give a simple analogy, consider cab-sharing services at airports: they offer a platform (kiosk, in most cases) that can form small groups of users (passengers) in real-time, to whom vendors (cab drivers) can provide 
value (pay less than fare if traveling alone, but more/equal total fare for cabbie)
. Vendors need to see this value to be a part of the platform, while users are frequently transient members of such platforms and will use such services as-needed across their travels. By making money, the kiosk stays in business and attracts more both passengers and cab drivers, allowing it to scale up profitably.


The question, though, is whether such examples and the above criteria can be codified to create 'necessary and sufficient' characteristics. That would enable entrepreneurs to design their offerings better, plan for scale and growth, fund themselves internally and make money from the word go. Suggestions?

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