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Think Big. Move Fast.

I missed two posts earlier this month with the same general theme, that the best way to come up with a new web company is to take an old idea that works, and recycle it.

Marc Hedlund (founder of Wesabe) says to create a new company, take a UNIX command and webify it:

…find an old UNIX command that hasn’t yet been implemented on the web, and fix that. talk and finger became ICQ, LISTSERV became Yahoo! Groups, ls became (the original) Yahoo!, find and grep became Google, rn became Bloglines, pine became Gmail, mount is becoming S3, and bash is becoming Yahoo! Pipes. I didn’t get until tonight that Twitter is wall for the web.

The comments to his post are worth reading if you are into UNIX humor – it mostly went over my head. (I also skip the Ubuntu posts of Digg!)

Jason Kottke says (excerpting – go to his post for the full text):

…take something that everyone does with their friends and make it public and permanent. (Permanent as in permalinked.) Examples:

* Blogger, 1999. Blog posts = public email messages.
* Twitter, 2006. Twitter = public IM.
* Flickr, 2004. Flickr = public photo sharing.
* YouTube, 2005. YouTube = public home videos.

Both Jason and Marc are essentially advocating “High Concept” Startups.
In addition to curent online and software/OS behaviour, another good place to mine for new “high concept” ideas is the offline world.

“High concept” movies are movies that can be summarized in one sentence, often referencing another well known movie or book e.g. “Superfriends in 19th Century London“, “Schindler’s list in Rwanda“, “Jaws in space“, or “Heart of Darkness during the Vietnam War“.
[rockyou id=61482296&w=400&h=300]

Hence by analogy the “High Concept” startup (e.g. “List serv on the web“, “Public IM“, “Flickr for Video“, “Myspace for Baby Boomers“, “Bumper stickers for the web” etc.).

There is a lot to like about this approach to building a new company. The first is that you know that you’re targeting a large user base because you can observe an existing large market. The second is that adoption can be very rapid because you’re taking advantage of behavioural metaphors that people are already used to – they “know what to do”. (The importance of this concept can’t be overemphasized. I’ll blog more about this later). The third is that monetization models can often be predicted by analogy – a low CPM massive scale advertising business in client form will likely be a low CPM massive scale advertising business on the web. Past can be looked to as prologue.

The challenge of the “high concept startup” is that it is often not all that novel. There may well be multiple other companies targeting the same idea. There is nothing wrong with competition, but this creates a greater level of murkiness in the water so that often the “best” product is not the winner. Sites with early adoption – whether due to Distribution, Virality or just plain luck, can end up pulling away from the others. In all startups, execution is at least as important as the idea itself, but this is even more true for the “High Concept” startup.

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Today’s release of Google’s Cost-Per-Action (CPA) beta has generated a lot of attention. Most are focusing on the impact on affiliate networks such as Commission Junction or Link Share as the test is currently confined to Adsense ads that show up on the Google Publisher Network.

I’m waiting for the other shoe to drop. The next logical step is to have these CPA ads show up as Adwords next to Google’s search results.

This presents a direct and present threat to many lead gen businesses, especially those that rely on CPC to CPA arbitrage as their business. I posted on the future of lead gen in January, where I noted that, simplifying substantially, lead gen comprises three processes:

1. Acquiring traffic (e.g. from paid search, organic search, brand advertising, banner advertising, distribution deals etc).
2. Converting traffic to leads through a form-fill process
3. Finding the highest value for a lead among multiple buyers (ie having a network of advertisers and knowing who placed what value on each lead)

Google’s current beta will essentially eliminate the arbitrage opportunities in part one of this value chain. Companies driving the majority of their traffic from organic search and (long term) distribution deals will be less affected, as will those who add value to the process by qualifying users and directing them to the best matched vendors as leads. But those whose core competencies are in clever media buying will be pressured because a CPA model shifts the risk out of buying CPC and CPM media and converting to lead forms.

There are a large number of lead gen companies that have grown to over $100m in revenue. These have grown to their current size by being well managed, and building multiple sources of traffic and an efficient mechanism for matching leads to their highest value.

Smaller “mom and pop” lead gen shops that depending on buying traffic through banner advertising and CPC advertising to landing pages and selling these leads to a small network of buyers will find their margins under increasing pressure if their clients can disintermediate them through Google’s new products.

UPDATE: Some very insightful responses posted in comments that I will attempt to summarize as “you’re assuming more efficiency exists than actually does, thats why this will still create a lot of value”. Its a fair point. If you read this in RSS, its worth reading the comments.

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Broadly speaking, there are two types of internet users, Time Rich (more time than money) and Time Poor (more money than time). I’d speculate that many of the readers of this blog fall into the Time Poor category, but the vast majority of internet users fall into the Time Rich category. If you’re starting a new internet company, its important to know who your audience is, and to make sure that you don’t let your own experience and that of other Time Poor people guide you wrong.

Time Poor

Time Poor people use the internet to get things done. They are very task focused, and their favorite websites help them use their precious time more efficiently. Great examples of websites built for the Time Poor include search engines, first gen comparison shopping engines (trying to find the lowest price as quickly as possible), ecommerce and lead gen sites where the purchase is more functional than emotional, and many of the “social news” websites that filter the news for you.

If you’re building a website for the Time Poor, your focus should be to minimize their time and pages on site. As a result, business models around e-commerce, CPC and lead generation are good matches for these sort of site – it aligns both user and site around getting to a transaction as quicly as possible. Depending on what you do, you may even be able to charge a subscription as well.

Time Rich

Time Rich people use the internet to kill some time. They are bored. They are willing to be diverted and entertained. Great examples of websites built for the Time Rich include broad based social networks, targeted social networks, picture sharing sites, anything celebrity related, anything sports related, social shopping sites (recreational shopping), social discovery websites that suggest new sites to you, all video websites and causal games websites.

If you’re building a website for the Time Rich, your focus should be to give them options to explore. Links density is the name of the game – more links means more clicks. Suggest a next click at any natural pause point, and keep people clicking within your site. Stimulate communication and community – it keeps people engaged and coming back. Give people reasons to bookmark you and come back often with fresh content and evergreen favorites.

You’ll likely monetize through advertising – sponsorship and CPM as well as CPC. Subscriptions may work for you too if you have certain features held back. If the products you sell are bought spontaneously, then ecommerce may also work for you. But don’t fall into the trap of creating extra pageviews for your own benefit and not that of your user (e.g. by splitting articles across multiple pages, or creating extra steps in a process to edit a profile page) as your users will wise up to your game soon enough. Time Rich does not mean unsophisticated. Your users spend enough time on the internet, and on your competitors sites, to know what are the best practices.

Know your audience when you build your site, keep the target clear, and you’ll have a better chance of meeting their needs.

UPDATE: New visitors, if you liked this post try the second most popular post, Three Ways to Build an Online Media Business to $50m in revenue

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Since my earlier post on “Three ways to build an online media business to $50m in revenues” was well received, I thought I’d examine the e-commerce industry as well.

The margin structure in most (physical) ecommerce businesses is …

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As my previous post indicated, it is not easy to build an online media company to $50m in revenue. Depending on whether you’re broad reach, demographically focused, or can support endemic advertisers, you need to get to top 10, top …

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I’m speaking at the Web 2.0 Expo in April. Its a “how to” conference for people who are starting in or working at web 2.0 companies and companies that aspire to be “web 2.0″. The organizers have lined up a …

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Josh Kopelman has a good post this weekend about the friction between free and one penny when charging consumers for goods that can be delivered digitally (e.g. articles, video, music, information etc). As he points out, price elasticity is not …

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Thanks to a glitch in my Netvibes reader, I got exposed to an old but very useful post by David Cowan on “How to NOT write a business plan“. It sparked me to post on how to get …

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As a venture capitalist, I often get the question, ‘Is it people or market?’

My answer is ‘Yes.’

There’s no doubt that great markets facilitate the building of great companies. But as we saw during the bubble, great markets can …

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Viral marketing has evolved from word of mouth to a much more scientific endeavor in the online world. Based on my previous posts and some additional thinking about the subject I’ve defined seven mechanisms that companies have used to successfully …

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