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Summary:

Over the past few days, there has been a heated debate about Quora, a year-old startup. Looking back at other startups that have successfully made the transition to Internet-scale companies, there are three elements to the magic formula for success.

Over the past few days, there has been a heated debate about Quora, a year-old startup, that offers a more sophisticated version of Yahoo Answers’ question-and-answer platform. Quora has found success with early adopters because of its high-fidelity content, but it has also grappling with the arrival of the masses, which are going to drown out those signals with noise. This dichotomy is one of the toughest challenges for not only Quora, but for any other Internet service with dreams of mega-success.

Let’s face it: Today, success on the consumer Internet essentially equates with scale. Unless you have scale — which is nothing more than a nerdy euphemism for massive mainstream adoption — you don’t have much of a chance of becoming a major Internet company.

Our systems of monetization on the Internet all hark back to old media — television and print. The concept of audiences and cost-per-thousand impressions are the terminology used by media companies of yore. The other monetization models involve subscriptions, where people pay for a service or information, and what is known as e-commerce, where you buy goods such as books, clothes and shoes.

You need to be Internet scale to fit the current monetization models — advertising and subscriptions — and make meaningful revenues worthy of a large company.

So, What Works on the Internet?

In order to answer that question, I turned on the time machine of my mind and started thinking about successful (and not so successful) Internet companies, many of which have vanished under petabytes of history. If you look hard enough, it becomes clear that many successful consumer Internet services have three things in common that allows them to scale, get investor attention and, more importantly, bring in the much-needed revenues (and eventually profits).

Those things are:

  1. They have a clear purpose.
  2. They are simple to use.
  3. They are fun to use or facilitate some type of entertainment or both

Now I don’t mean to suggest that you must have all three to be successful — but if you do, your chances of finding fame and fortune are much higher. Google, for instance had a clear sense of purpose (search/looking for information) and was simple enough to use (a search box on a white page, you don’t get simpler than that). As a result, it was able to become a $200 billion (in market capitalization) behemoth. Some might argue that finding the results one was looking for was “fun,” but I think that’s a bit of a stretch.

On that note, I don’t want to underscore the fact that these three elements aren’t the only reasons services become a hit. They have to be the right products at the right times. There is the undeniable element of luck, but the services also have to have that mysterious “it” factor, that something which makes millions of people go clicking.

Pop the Popcorn and Turn on Netflix

Now let’s look at a service that combines all three aspects: Netflix, which has seen its market capitalization go up 10 times over past 36 months.

  1. It has a clear sense of purpose: Watch movies and television shows.
  2. It is dead simple. You don’t need a manual to get started and start ordering DVDs or watching videos online. (Some might want a better Netflix experience. Well, I want to be 15 pounds lighter.)
  3. It is all about “fun” or “entertainment.”

And since it isn’t ad-supported, the company has done the next best thing — priced it low enough that people don’t mind paying for the service every month, even though they may or may not tune in enough to justify spending the money. The low price point — $8 a month for the streaming-only option — is why people put up with the service’s limited access to the latest movies.

Yelp Needs No Help

Another company that has done a good job of combining the three aspects successfully is Yelp. The San Francisco-based company is valued at over $600 million and has 41 million users as of December 2010. Yelp offers reviews of everything from local eateries to maid services. It even has had its share of scandals.

It works because it has the three elements:

  1. Clear purpose: to help you find inside information on a local restaurant, for example
  2. Simple interface: look up a restaurant, peruse a list, then use the “star-rankings” to decide if you are interested.
  3. Yelp is about finding fun and entertainment: going out, finding new places and if all fails, reading the comments which are always a source of amusement.

Being a bit of a big-city snob, I don’t much care about using Yelp, but many others do and use it obsessively. In fact, the company is so popular that Google wanted to buy it, and when that failed, it started trying to kill the service.

Yelp, however needs to scale, that is, have a lot of people use its service so it can keep generating page views, for it needs to show billions of banners to make millions of dollars in revenues. Same goes for other companies.

Like Yelp, Groupon is another company that has combined three elements and built what seems to be (at least for now) a scale business. It has a clear purpose (save you money via discounts), is simple to use (the offers are sent right to your inbox — even my mom can use it) and it’s fun. It has grown massively and is doing a big book of business.

Ditto for Skype, Facebook and several other services that blend these three elements and build enough scale to make money off their audiences. Interestingly, many of these companies found favor outside of Silicon Valley first before they became big in Palo Alto, Calif., so to speak.

Minus One, Hoping for a Home Run

One of the hotter companies on the web these days is Foursquare, the New York-based, location-based-services company. It’s certainly simple to use, and it’s fun to participate in. After all, who wouldn’t like to own the JetSetter badge.

Back in 2000, when the world was going to broadband, Google changed people’s behavior and found growth. I think Foursquare, like many of its peers, is at the right place at the right time, to tap into a the shift to anywhere computing. All it has to do is find its purpose.

It might have found it, though Dennis Crowley isn’t sharing it with us or anybody just yet. I can guess that Foursquare’s true purpose is to help discover new places and new things to do.

Digg Your Own Grave

Every time a service deviates from the magic formula, it tends to lose its way. Let’s take Digg as an example. Digg became popular because:

  1. It had a clear purpose: Help find people interesting, mostly tech related content.
  2. It was dead simple to use. You submitted a link, got folks to vote it up and eventually, if it was good enough, it hit the front page.
  3. It was fun to use. You could discover interesting stories to read. It was even more fun to find your submissions on the front page. You got a sense of joy, which made the experience more addictive.

The company raised a lot of money, and it tried to justify its existence by diversifying into different verticals. Somewhere along the line, the service’s noble mission got hijacked by search engine optimization experts.

If that wasn’t enough, the company decided it needed a new direction. Digg management, displaying a complete lack of understanding of their own core value proposition, took a ham-fisted approach to redesigning the service. It was never meant to be social in a Twitter-sort of way. Instead, Digg had always been social in a group-hug sort of fashion.

Oops!

Now compare that with StumbleUpon, which not only survived eBay but is thriving, quietly, mostly because of its ability to focus on its core values — discovery of content in a simple and fun manner. (See Google Trends comparison chart, below. Red is for Digg and blue is for StumbleUpon.)

I don’t mean to pick on Digg, but it’s a visible example of what happens when companies lose their mission and deviate from the magic formula.

Somewhere in there is a lesson for Quora!

I will follow up with part two of this post, on the importance of connectedness and ubiquity, later this week.

Uh oh!

Something is wrong with your Wufoo shortcode. If you copy and paste it from the Wufoo Code Manager, you should be golden.

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  1. Good article, worth pointing out that Digg came out as a replacement from Slashdot
    http://www.google.com/trends?q=slashdot,+digg&ctab=0&geo=all&date=all&sort=0

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    1. …And Reddit came along as a replacement for Digg.

      http://www.google.com/trends?q=slashdot%2C+digg%2C+reddit&ctab=0&geo=all&date=all&sort=0

      Can we see a similarity to the rotation through Friendster, MySpace and Facebook?

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  2. me thinks much the same principles apply to Mobile App Design.

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    1. I agree. I think you cannot make a good mobile app without similar approach.

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  3. Om, somewhere there…probably in the fun element, there is the social standing that drives many people to participate and contribute. It’s true for Facebook, Twitter (which you don’t mention), Zynga, Foursquare, and Yelp, but not as much for Google, Netflix, and Groupon.

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    1. Shyam

      I think Twitter is still trying to find its purpose and I argue that even now the service is evolving.

      Social standing is highly over-rated because not everyone does things because of social reasons. However, everyone does want their apps to give them a sense of joy.

      At least I think so.

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      1. Om, I agree with you that not everyone does things for social standing, but I feel that the first wave of adopters do and they bring on others that just use it for the pure joy or utility of it. Foursquare is an example of a service that has not yet progressed from social standing for the few (badges) to utility/joy for the masses.

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  4. Awesome. Awesome post OM. Dropbox and Instapaper are also good case study for this.

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    1. Indeed — I think Dropbox is more so that any one of its peers. It has done a good job of keeping things simple.

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  5. Six!!! Cannot wait for the next over :)

    What about threadless, Innocentive??

    Doesn’t everything boil down to the innately narcissistic nature of humans? If you can offer any excuse or ways to satisfy their selfish needs, be it easy/convenient access to information/Knowledge/(Google, perhaps Quora if they heed your advice, wikipedia) or be it fun/need to be socially engaged (twitter, facebook, foursquare, zynga). Ultimately, all of these services cater to the human desire to be more efficient, better and happier.

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  6. This is why I read Gigaom. Excellent analysis Om. Very detailed article with thorough analysis. Will be interesting to see how Quora tackles this problem. I personally think it is a q&a website with a great marketing team behind a simple product (q&a)

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    1. Thanks! Appreciate the sentiment.

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  7. Exactly right. Hpw do you thread the needle and provide something other than porn and paypal to get those niche consumers? Fetish payments?

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  8. Om,

    Excellent analysis. Look forward to your new post on what you think of Quora and what it needs to do in order to be successful.

    Cheers,

    Venugopal
    Vengo Ventures

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    1. Thanks! My next post is not about Quora. It is indeed about what connectedness means for apps and services.

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  9. Did we forget about KISS??

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  10. The trend I see is that most internet companies grow to a certain level and then halts or starts coming down.Then its taken over by a big company which tries to revamp it and then fails(Mostly). Also I see that only giants like facebook,twitter,google etc who have established themselves can really bring changes which do matter because most small companies wont be able to show it.

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