Picture the $1tn healthcare business. What do you see? United? Could be. But worth considering another scenario of a different future. One in which, the biggest company in healthcare won’t look like the behemoths we know today. It won’t be born and grow within the current healthcare web. It will talk directly to you, the person, cover a range of health areas, and make billions not by playing in the sick care game but by focusing on keeping you healthy.
At the core, is software. It is getting smarter, and with new AI maturing, we see a revolution in biotech. Biotech and healthcare are intertwined. Biotech innovations precede healthcare innovation and here’s why. Biotech enables precision—finding the right -omics signature, allows drug targets, sub-typing, and eventually getting the right treatment to the right person at the right time. This level of precision allows for repeatability; taking the knowledge out of just the doctor’s office and “productizing it”.
That’s big. It means less dependence on the most expensive and rare members of the healthcare system, more accurate tests and treatments, and inevitably lower costs.
Now, this would all be great if it weren’t for the current system, which is kind of a hindrance. The current dominant model of healthcare (US and increasingly UK) is built on a structure where everyone from practitioners to hospitals to pharmacies is incentivized to prescribe services and treatments as much as they can when covered by insurance and that is when you are sick. The system thus isn’t about your health but more about your sick phase; different providers charging fees for each service means it’s more about their bottom line and less about outcomes. How do you address such a system? How do you kill a snake with 9 heads? You don’t. You just go around it.
Think about the last time you saw a real shake-up in a set industry. Consumers are usually the first to take part.
Take vacuum cleaners. Dyson couldn’t get his bagless vacuums into stores because those stores made a killing on selling bags. So he went straight to the customers, and it worked. Dyson is now a $20bn brand. Another company did even better by owning and integrating all modules themselves and building a loving relationship with consumers. Apple. There’s real power and no end to it in going directly to the consumer. In fact, of the top 10 companies in the world, all the recent ones are consumer companies. Apple, Amazon, Alphabet, Meta, Microsoft.
Healthcare would also improve outcomes by starting with the individual. We are all unique. This is important because it makes healthcare the de facto consumer company, and its future is about data-driven personalization. And not the kind that gets you to stick on a screen but actually personalizing health guidance adding years to your life and life to your years. It’s about taking all the data we can about your health and using it to tell you exactly what you need to do to stay healthy. Imagine a system that gets to know you better the more you use it and adjusts to help you stay well and you are happy to reveal all that information.
Innovation in healthcare doesn’t fit well with the current setup. Government, endless forms, unions, FDA, insurance companies, and healthcare providers intermediating relationships—they all have a say in what gets to market. Innovators are by definition misfits and for them, that’s like death by a thousand cuts. You can’t innovate if you’re constantly trying to please everyone in the old system.
So a new kind of company appears; it stands in the center of it all, aligned with the individual, the person not the out-of-sync system— where caregivers make more when they provide more services, and insurance companies make more by paying less.
The future winners in healthcare will be those who want to keep us well, avoid sickness, and focus on prevention. And slowly we will see the rise of a system that helps keep you well, not one that just kicks in when you’re sick.
Who pays? The consumer initially. $100 / £100 per month will be adopted by a few pioneers for services. Getting to a few billion is not just possible but rather likely. The avalanche has started.
And where do we start? With one organ. If I had to bet, I’d bet it on the brain. The Latins were spot on: “Mens sana in corpore sano”—a healthy mind in a healthy body. We now know that to be accurate biologically which makes it the best place to start. Why? There are so many bodily comorbidities affecting your brain. And this means you need a holistic approach. A healthy body for a healthy brain. And then add to it that neurodegenerative diseases are a leading cause of death, irreversible, costing $1Tn, and Dementia is the most feared disease amongst an aging population and one to catch early. Starts to seem like a pretty good place to start?
So how does the avalanche grow? Employers are likely to become the second part of the growth story: from a few billion in revenue to tens of billions. They have a lot to gain if their workers are healthy and are the least integrated. I’d go after them. They can offer health services as a perk, and share the extra costs, going from, e.g., £100 to £200 per person in the UK. Adjusting for real value and purchasing parity power, this is not so far from the average $658 that the current system is costing the average American employer.
Why would employers bother? Because it’s a good deal for them. Keeping employees healthy can cost less than an extra £1k per person each year. That reduces sick days and keeps people at the company longer, saving a ton on hiring and training. Insurance becomes indeed part of the game but last; at a point where a new player can’t be ignored.
It’s simple, really. Person-centered health is the new frontier, and the smart money is on prevention and personalization. The future is direct to the consumer. And that’s not just better for us; it’s better for the world and hey, it’s better business.
Toward the end of 2022, as the Product of the organization at ZOE was expanding, the speed at which we were making an impact was slowing. As we were growing revenue and customers very rapidly, it was critical to increase performance. The following is a piece I wrote during my time at ZOE. It was a precursor to a Product re-org whose aim was to increase our focus, align and provide clarity to the product teams, and subsequently increase quality to drive velocity, not the speed of development. Since it touches on a constellation of product management scaling topics, it might be a useful read, especially if you’re involved in a fast-scaling, high-touch, premium product or service that materially affects lives.
Is shipping code a good way to learn? Should we know every detail of an initiative before we start? How long do we take to understand and explore a customer problem? Should everything be pitch-perfect all the time?
A common telltale of a product organization reaching its adolescence is the increasing number of debates around “how to build”.
More and more of these conversations are happening and seems like a good time to audit our ways of building products and what matters to us most. By agreeing on what matters to us, we can live with the trade-offs.
To provoke the discussion here’s a contrarian view.
The main difference between us and other products is that ZOE is a philosophy.
Our members lead their lives based on our advice and we give advice based on science, based on truth.
The thing is, philosophy does not have an MVP. And neither should we.
And as such, we can benefit from putting aside revered frameworks and thinking about what great looks like for us, now, and how we get there given our current situation.
Revisiting history
To understand how we got to a world of reverence around agile and lean in Product, allow me to wind the clock back ~20 years, to the dot-com era. Whilst some of the most iconic companies were founded a bit before that era (google, amazon just to name two) the overall aftertaste of Web 1.0 was poor. Investors learned an expensive lesson. The internet was here to stay but we needed more substance and fewer empty ideas. A better way was needed to assess the impact.
And so a few years later, in 2005 and 2008, two new and overlapping thought systems about software startups emerged and became the zeitgeist of the era: The Lean Startup & YCombinator’s startup advice.
At the same time two other technical trends were accelerating rapidly, Cloud Computing (AWS, 2006) and (cloud) Analytics as a service (Google Analytics, 2005), which enabled the rapid adoption of the two.
Understanding them is important because a lot of the approaches discussed stem from these two examples.
The Lean Startup
Eric Ries proposed the following idea: Why don’t we treat every product as a series of small experiments? We ship, we measure, and we assess (learn).
The promise was clear. By shipping code in smaller, modular, chunks and testing one customer hypothesis at a time, companies could get feedback earlier, remove the unnecessary parts of a product and learn faster what works. The result of that was a shift in the ratio of the thinking-to-building across the product dev team. Too much planning and thinking were reduced to enable faster development (and learning) cycles. MVP aficionados pondered less about the overall customer problem, the context, and the solution before releasing code to production. The key lesson was: to have a clear hypothesis and the right experiment will give you the answer.
The world loved this idea. Why would anyone try to build anything with a plan of 5 years in a world of increasing complexity and speed? why not get revenue faster?
This cult broke out and became mainstream to the point that today if someone challenges “MVP” they attract doubtful looks at best.
At the same time, there’s the Paradox of ideas: The more popular an idea becomes, the more distorted, the less valuable.
If we take a step back we notice some cracks:
The terms mean different things to different people and in fact, make alignment harder.
MVP is not the best way to engineer all products but rather it’s a good fit for pure software businesses but not for products that are expected to be robust 100% of the time (medical, consumer electronics, bio to name a few).
“Shipping to learn” places more emphasis on shipping than learning.
Key takeaway:
Learn by evidence. Reduce your assumptions.
Ycombinator
Ycombinator built on the ethos of learning rate and focused their teachings on the following:
Be frugal with your attention and resources, ship early, and iterate by learnings from customers.
There is one key difference: to be frugal you need to think a LOT about the customer, and their problem and be sure that your solution works before you move to code as your resources are limited. AND (!) at the same time you need to move fast. That is achieved by focusing ruthlessly on prioritizing the most important problems to solve / opportunities.
The principle of learning by being frugal AKA the 90/10 solution, in particular, gave birth to both incredible founders and stories. Airbnb (2008), Dropbox(2007), and Stripe(2010) are just some to name early notable companies. Notice the time. It was right about the global financial crisis and Ycombinator advised their startups to be scrappy, to almost know something will work before they build. That was a key difference vs building to learn.
The most progressive interpretation of the principle can be understood as: “No code before product validation.” It also gave birth to a book, called The mom test 3 by a YC founder, Rob Fitzpatrick who goes at length to explain techniques for doing so.
Key takeaway: Build 90/10 solutions
(no code until you have 10-100 committed customers loving your product. ****hack it, wizard-of-oz it but ENSURE they are committed.)
Our own Context
Let’s consider our own context. There are a few things that are unique to ZOE.
Our product changes lives
We are not here to “ship fast and break things”. We don’t measure impact in eyeballs on a page, merchandise value, or performance improvements.
Our impact is literally the extent to which human life is extended and its quality improved.
We assume the responsibility that for every change we push, we need to have thought carefully about not just the immediate but also second-order effects.
Visceral Belief
Our mere inquisition, never mind our beliefs are a challenge to the status quo and we are asking the world to trust us versus everyone else. And like it happens with pioneers, we are in the spotlight. Get asked questions. As such, we are transparent, sharing openly even when it’s hard, don’t allow for inconsistencies in our science, and can’t afford a varying degree of quality in the product. We need to remember though that the product is not separate from science but very much interconnected: it is the conduit of our science to people and as such, their perception matters.
At the core of any new habit is belief. Belief is hard to build and easy to destroy. It does not matter if ZOE has the best science and the best product, we also need to look the part. By doing so, our customers adopt our groundbreaking advice and achieve the impact they need.
The baby has learned to walk
We have grown. At the time of writing this post, there are ~ x00,000 people requesting access to the product and looking up to us to help change their lives. This is unlike the early days of a startup that launches a mediocre product to learn or an org post-maturity striving to innovate.
We can always learn more but the cost of learning has increased. And therefore we can’t assume that if we “throw enough shit against the wall, something is going to stick”.
Tenets (..unless you know better)
Compelling customer problems
On what we build
We work on compelling problems that inspire our teams and make step changes to our fundamentals, not micro improvements. In fact, we don’t build micro improvements. We only focus on fundamentals.
Members complaining about small things and wishing for more is not a reason to build.
If they can live with it, it’s not a problem we will solve.
#thinkBig
70% certain before you touch the codebase
On how we study & learn.
We should obsess about understanding customer problems. Customer problems are not a number. They’re not even a snapshot. They are dynamic situations shifting across time. They are part of someone’s life.
We need to understand them in depth, in context, AND in numbers. We need to know how many people experience the problem and how severe the problem is. We understand the problem so well that we would be able to meet a new customer and guess what their problem is to the point that they would say “That’s exactly it!”
We take time to build conviction or we don’t code. It is particularly hard to be right without perfect data but such are the differences that separate us from the rest. And by the time we begin to code our solution, we are confident it will be impactful.
#actSlowToGoFast
Craftwork, not patchwork
On how we release
Our goal is to make universal progress to the problems we touch; not short-lived, kinda-working patches.
When we release a product it’s because we are confident it expresses our collective craft. It works. it’s fast. It’s a delight to use.
Can your product bring substantial progress to a problem and delight the customers without any rework? If not, then don’t release.
#startwithourmembers
Prioritization drives speed
On how we move fast
Execution day to day gives us speed. Prioritization is the direction. Without direction, speed does not matter. And so we will go as deep as needed to measure impact and progress. Our prioritization should resemble a function more than it does intuition.
By staying in the right direction, not only we can afford to take the time to plan and think but understand that this is the way to go both fast and far.
What great looks like: at any given point, in any part of the product organization is there a very clear, quantified & data-informed, stacked ranked prioritization of initiatives?
First prioritization, then and only then, execution.
#diveDeep
Kill the snake
“The first rule is if you see a snake, don’t call committees, don’t call your buddies, don’t form a team, don’t get a meeting together, just kill the snake”.
Jim Barksdale
We know what are the important problems the ones that have a material impact on our customer’s lives. And since we know both what they are and what the level of quality we aspire to is, everyone should be an owner, and when they see a problem act on it without much discussion.
#empower
An invitation, a challenge, and a request
The aim of this post is to start a conversation about our approach to product development.
So here is an invitation: Let’s work together on this. Let’s think, debate, and craft together.
A challenge for you to think about and answer:
What is not clear to you?
What do you disagree with and want to challenge?
Are there examples that come to mind to use as case studies? Share the story.
One Request. Object and build: When you want to challenge a point, please start with your understanding of the argument and add your build. If you just disagree without pointing or replaying the argument it will be hard to get the essence of your argument and grok on it.
All feedback will be gathered and synthesized in order to contribute.
In the high-stakes environment of startups, “maybe” is a word that can spell disaster. Lingering in “maybe land” – a state of indecision and uncertainty – can trigger confusion, loss of momentum, and ultimately, failure. Startups often strive to move fast and break things, embodying the spirit of swift innovation. Yet, in their haste, they often overlook crucial details, finding themselves trapped in a cycle of ambiguity and second-guessing.
Neglecting minor details or evading in-depth analysis can lead startups to accumulate what I think of as “cognitive debt.” This issue becomes apparent when startups fail to critically examine research questions, conduct surveys without thoughtfully planned samples, or define ambiguous metrics such as “weekly retention” without delving into specifics. This disregard for detail results in an accumulation of ‘maybes,’ hindering progress and leading to analysis paralysis.
As an advisor, I’ve frequently come across this lack of attention to detail as the root cause of a variety of challenges faced by startups, including delays, lack of alignment, and compromised quality of work. It’s a pervasive issue that can stifle the growth potential of even the most promising ventures.
Taking a page from Frank Slootman’s book and his concept of ‘amping it up,’ I believe the best place to apply this intensity early on for product leaders is in formulating precise hypotheses and engaging deeply in the corresponding data analysis. The intensity here refers to an unrelenting focus, taking the extra niggling step, in-depth exploration of meticulously articulated research questions and KPIs, and a steadfast commitment to decisions. It’s about understanding that ‘maybe’ is not an option when building and launching successful products. In startups, you may not always be right, but you absolutely have to be clear.
By focusing on more features or expanding their customer base, Startups inadvertently aim for breadth,. However, this leads to a lack of depth in understanding specific customer problems, reducing the effectiveness of solutions and slowing down progress.
Striking a balance between speed and depth of understanding is paramount. Merely identifying a customer problem isn’t sufficient; one must understand its intricacies, context, and nuances to develop a solution that is both effective and efficient. Without this depth of understanding, startups risk making inconclusive decisions, leading to wasted resources and diminished momentum.
Here’s a recent example of the opposite. One of my teams at ZOE was exploring ways to help more of our customers achieve their goals, their Jobs To Be Done (JTBD). We knew that our intervention works and hence the closer they followed the program, the more foods they logged, the healthier they became. Instead of asking a broad question like, “Does logging improve retention?” we went for breadth and then zoomed in. We questioned, “What are all the factors contributing to customers fulfilling their goals, could logging be one of them? To what extent does it hold predictive value? Can we be confident that its impact is replicable across our entire user population versus just a random sample?”
The answer was not “sometimes” or “somewhat”. We got to the conclusion that if a user logged their activities more than 28 times within their first week (which doesn’t sound like a lot if you consider all small treats, snacks, and drinks), they were significantly more likely to see the impact on their goals faster and subsequently promote the product (measured by NPS – also correlated to referral) and renew their subscription. Importantly, these active users were more likely to achieve their health goals by the 90-day mark, a fact we established with a 95% confidence interval. This wasn’t just about boosting user activity; it was directly tied to the user problem of effectively meeting their health goals. This insight offered clear guidance for our product team: we needed to convey the value of consistent logging to our users, encouraging them to log their activities for a week, after which they were typically bought in.
For pre-Product Market Fit (PMF) and scaling startups, a key piece to get right is to double down on the detail of their hypotheses and their analysis because accumulating “maybes” is a cost a startup cannot afford.
Clarity and absence of cognitive debt are pivotal enablers of speed and, ultimately, survival for a startup.
I am impressed by Instagram’s Threads and whilst there’s talk about stealing Twitter’s users, I think the vision is much much bigger:
BECOME THE OS FOR THE OPEN, SOCIAL WEB.
It goes beyond being just another app; IMO it is the perfect Trojan horse to infiltrate the deep web, establish itself as the operating system for it and open a whole new chapter of Growth for Meta.
First and foremost, I must commend the execution. Clear trade-offs from PMs (e.g. onboarding and activation are flawless for IG users) in Threads with a clear aim to get quickly engaged users VS get new users. The process is seamlessly guided, ensuring a smooth and effortless experience. However, it was another detail to pay attention to—the reference to the Fediverse.
The Fediverse, for those unfamiliar, is a network of interconnected social platforms that operate on open protocols. It facilitates seamless communication and interaction across different services, fostering an open web that connects the world like never before. It holds immense potential.
Ok, that’s cool and all but if the primary goal is not merely to steal Twitter users, what is the grand vision behind Threads? I think it’s an audacious one—Threads serves as an evangelist to the Fediverse which in turn is widely accepted as an open-web protocol and becomes Meta’s Trojan horse to all the communities behind Auth.
Imagine, for a moment, every site with restricted access gaining the ability to post on threads. Such a bold move would open up a whole new world of content and participation, breaking down barriers and democratizing online discourse which conveniently is the perfect enactment of Meta’s previous vision of connecting the world and a bandaid to its beaten-up brand. It signifies something positive, an expansion of content and the liberation of communication all whilst being really ambitious commercially.
While this may initially seem like a stretch, it is precisely this kind of ambition that paves the way for groundbreaking success for Meta’s Products. It literally holds the potential to reshape the digital landscape especially given the likes of Reddit and Twitter are bruised.
Commercially though… the case is HUGE: Making the “Fediverse” a thing and Threads being the centerpiece brings forth a tremendous opportunity— for Meta to become the operating system (OS) of the open web. In this position, Meta can serve as the backbone, exerting control over data, ad space, and even cloud infrastructure. The strategic value is limitless. Stealing Twitter users should not even be a secondary consideration. This is about owning the future.
As the year 2022 drew to a close, my yearly period of reflection has begun. It has been a remarkable year, and it was a random reunion with an old friend that has set the stage for what lies ahead.
I hadn’t seen my friend for a while and two things were evident. First, he had faced numerous challenges and obstacles. Second, these experiences had led him to a newfound sense of clarity. Despite recounting difficulties in various aspects of his life—social interactions, work, self-esteem, and his relationship with his partner—he was now exuding genuine happiness and a refreshing self-assurance. Witnessing my friend thriving was a joy, and I was intrigued to understand the turning point he had reached. So, I asked him to share his story.
He said that through a series of transformative events, he had reached a breaking point in his life, realizing that a change was necessary. In response, he devised a plan to declutter and refocus his priorities. He meticulously composed a list encompassing the various areas of his life, both past and present: his athleticism, personal appearance, relationships with others, and career aspirations among others. For each of these areas, he conducted a ruthlessly honest assessment of himself and also articulated his future expectations.
He described the process as both humbling and illuminating. Reflecting on the state of his life and comparing his past and present needs enabled him to zero in on what truly mattered.
Several unnecessary behaviors and obligations were cut loose. For instance, he realized that being overly athletic was not an area he excelled (he said “I’m a 5/10”) but also not a top priority. It was a remnant of high school; an unfulfilled desire to be good at football so as to be accepted by his classmates. Once he acknowledged this as a desire of the past, it was easy to remove any expectations. Instead of stressing about his athleticism and overall fitness, he accepted that he does not want to worry about it. The knock-on effect was he actually lost weight and was fitter since the last time I saw him.
I thought of this exercise to be honest, wise, and powerful. It acted as a reminder that opting in is a choice, and so is opting out. We can choose what we want to fight for and, just as importantly, what we don’t want to fight for. Battles that once made sense to us but no longer do, are merely a reflection of a persona long gone.
And so, at the overture of 2023, I wanted to share the questions I am asking myself: What do I care enough about to have expectations for myself? What do I want to be great at? And, what is the weight I need to shed to move forward?
As the new year comes, ask yourself deep questions and voice the hard truths. For truth is the beginning of beautiful outcomes.
$3,000 per day. This is the day rate for an SEO audit from an expert. In other words, $3,000 to tell how your web app sucks, not even how to suck less. . Why? Because SEO matters. There is good news too. You don’t have to pay a dime as long as you have your eyes on your users. This is how we did it at Timewith, my company, and ended up growing 1,000% within 6 months just from SEO.
Timewith is a therapy marketplace. Initially I was apprehensive about SEO. We were a pure-bred product/engineering team and SEO seemed like a dark art incompatible with our structured approach. How could we trust a process we neither understood nor controlled? But the prize was large so I decided to make a few shy attempts. Our first foray in search engine optimization was enough to teach me that SEO rewards products focused on pleasing the users. And this changed my mindset. Sure, there is depth to cover in the technical details one needs to master and sure, a Google “randomness” factor applies but equally, the biggest wins came from product and UX improvements. We also didn’t have any experts at hand, so perhaps you can do the same without spending $xx,000.
SEO and marketplaces in particular have had a natural love affair that has been going on since the humble beginnings of the internet. Amazon, Expedia, eBay, Airbnb, Craigslist, Thumbtack. The list is endless.
To make it visual and add some other nice examples, here’s a visual with just a few unicorns where SEO really made a difference.
SEO & local Marketplaces. A recipe for success. Mtsireud.com, 2021.
There is good reason for that. Marketplaces are not producers. Instead, their function is to organize the corresponding market’s information and make it easy for potential buyers to assess, compare and select the right product or service for them. A curated, thought-through aggregation results in a better web experience and makes customers happy.
And since marketplaces make customers happy, Google (and other search engines) promotes aggregated listings pages that offer true utility to the customers (not to be confused with scrapers/aggregators with no added context which are down ranked by Google).
On the other hand, SEO is critical for the growth stage and viability of a marketplace and there lies the basis of this fragile symbiosis.
SEO strategy in 2021: UX above it all
Due to the intrinsic value of SEO the level of competition steadily grew. Whilst a decade ago, simply aggregating and presenting information would serve a business well, nowadays pages need to abide by the principles of great UX, provide unique insight, and be supported by great engineering. Backlinks are another important factor but since they’re not location-specific, I will leave this out for now. However, there is one case (Thumbtack) worth looking into where they used local gov organizations backlinks to boost local listings. Amazing.
And since SEO is equally art and science it makes a natural fit for a Product Management viewpoint. “What does this mean?” you say. Think about the user, about the business case, think about engineering precision. And think about Google.
The ideal scenario is that is that when a customer visits a result link, they educate themselves on the offering, engage by progressing deeper down the funnel and finally make an action. Of course not all experiences happen in a linear, centralized or or sequential fashion but this is a starting point for the goal. The bad scenario is that the user can’t find what they want or are misled so they bounce. Google notes that as a negative signal.
Marketplace Funnel, a simple, linear perspective
So what is the best SEO strategy? It’s the one pleasing the users and a good way to go about this is by preempting their needs. Ask their questions beforehand.
How many of the customer queries can we answer?
Can we make the answers granular and specific?
Can we add unique insight to each answer?
Can we get the answers fast enough? Can we internally promote the right pages?
Can we allow users to find the right solutions for them?
Can we allow users to dissect, compare and filter the right solutions for them?
Can we create trust that we are offering the right solution?
Do we have the right products or suppliers to help them?
SEO: A product management approach. Mtsireud.com, 2021.
Product functionality
Search & filter
Imagine you are looking for a therapist. What is it that you need to do to find, assess and compare in order to find the right one for you?
You might need help in assessing what you need help with. A short “test” might be available. This helps you create a relationship with the app and also the app benefits usually from capturing some data, prompting the user to come back.
Secondly, once you have a sense of what you’re looking after you might think about what is “the right therapist”. This might include credentials, experience, tone and attitude and therapeutic modality or it might be practical considerations such as location, price and spoken languages.
In general, to keep a customer happy you need to know the question they’ll answer and crete a series of search and filtering experiences that ideally serve the content before it’s asked through personalization and recommendations or at least allow the user to easily discover what they’re looking for.
Supply and quality of data
Supply matters. It matters to business model and it matters to SEO too. There’s a dangerous allure to onboard as many professionals or inventory to please Google. But this does not matter if the content is poor. In other words, a product, a shop or a professional are not a useful addition unless there is proper QA and the information around the products and services provided is detailed at least, unique ideally.
Social Proof and Trust building
Often considered a conversion tactic, Social proof and Trust building can take your SEO a long way. Generous cancellation policies, refunds, 24/7 customer support are great to create trusted relationship. Publications, accolades and reviews for social proof. Besides the obvious benefits, there are a few SEO specific reasons why this is important.
More clients convert if the brand seems legitimate. In fact, nowadays client’s won’t convert unless the brand is legitimate; the bar is higher than ever. From an SEO perspective, this is also great signal.
It can be a strong signal for search engines to use reviews.
It helps with retention and virality which creates a virtuous cycle for SEO too. When users trust a brand they sign up for newsletters, follow pages on social media and in the end come to the site “direct” i.e. typing the name of the business. All that is a strong signal for SEO and in the same time plays a valuable strategic goal of slowly setting up the stage for independence from SEO which is and will be owned by Google.
Information Architecture
Information architecture should be designed by thinking in terms of information priority or in other words, what are the questions users ask and in what order? This is where good keyword research comes handy.
Let’s return to our therapist example. In this case, looking at the keyword structure (UK) we conclude that the top Searches are in this order:
“Therapist in <location>” – between 500,000 to 1,000,000 searches per month. Example: Therapist in Manchester
<Counselling> therapist between 100,000 – 250,000 searches per month. Example: Depression therapist in London
What does this tell us? It tells us what is the way people think. Firstly, users might think in terms of distance and locality. However this subset of users may or may not have a lot of knowledge in the sector. For instance, they might have not considered what the right modality for them is and thus, might also be of lower intent.
If you’re starting up and building your domain ranking, it makes sense to go for the niche, specific queries. When it comes to SEO, less search traffic is often correlated with lower competition and higher intent. Then you can build your way up to the fat heads (e.g. therapist in <location>).
However, from an overall architecture, here is what this could look like in terms of your information order and URL structure.
Information architecture could look like this:
Information order
Nearby areas
Actual results
Pagination
Related searches with area and approach
Stats about therapy inside the search area (custom content, continuously updating)
Featured therapist & therapy approaches (custom content, continuously updating)
The more technical view, including URL architecture could look like this:
Reviews. Insights. Comments. Recovery data. A dedicated section for “How our first session works”. Anything that is not automated, duplicated and scraped and offers insight in a question a user might have is gold.
Here the winnings are twofold: first, you keep users spending longer time on your pages and secondly they progress down the funnel due to trust and no cognitive barriers – you have answered their questions -.
This is a great example where product management and SEO overlap. Product managers think in those terms already to increase conversion, revenue and decrease CAC. But guess what? This is what Google looks for too.
Finally, deliver content that keeps your users coming back. Emails and Social media prompts are reasons for your users to come back.
Here’s what blending the concepts of tags, content and overall architectural considerations might look like for a results page:
Engineering
Finally, you got latency. When was the last time you waited for more than 3” to load a page? According to Google analytics, after 7 seconds, 32% of users will have bounced from a page. Why do you think Facebook, Twitter, and Instagram do all this work to load in less than 3 seconds?
So here are a few suggestions to get right early on to get any application to load in under 2 seconds.
Consider pre-rendered content. An example architectural solution would be a React application with Server-side rendering.
CDN caching – cache the pre-rendered pages for <x> hours/days.
Only load the information (content) required for Google to index the pages, e.g. don’t pre-load the availability of listings – this is pulled in after the whole page is loaded in the browser.
Use compressed versions of images together with lazy loading them as the user scrolls down the page i.e. don’t load the whole page just the first results like the Facebook feed.
Preload any CSS, JS assets so your page rendering isn’t blocked. There are trade-offs here between performance and UI (e.g. with preloading you may see an unstyled version of the page for a fraction of a sec before seeing the styled one) but hey; SEO benefits, right?
Finally, database design. If you’re using a relational DB, make sure the relationships in your database are such that serve the performance of loading the data.
When it comes to engineering specifically, I see this as free points. Every team control their own performance vs controlling users’ reactions in a new experience. That’s not to say it will be trivial or easy to do the above. It will time but this is also the most straightforward optimization conceptually. In other words, this is up to you.
Link equity and no-follow
Another important concept to consider is that of link equity. Think of your site as having a total amount of credit. Which pages should this credit be distributed to? Are your meta-tags reflecting this hierarchy of page importance?
Meta tags
First listing page <meta name=”robots” content=”index, follow”> – these are the pages Google indexes, so only the first pages are showing on google results. These are the pages where your link equity is diverted to.
Next pages <meta name=”robots” content=”noindex, follow”> — tells google to not index all other pages in the results but to follow all links on these pages.
Also, avoid to index pages with few results that don’t provide a meaningful search experience.
Finally, do not follow links in the footer section which you don’t require for SEO reasons (e.g. terms or privacy pages), because why pass link equity yo T&Cs?
And so just like that you got SEO game.
How much should you invest in SEO?
If SEO sounds like the land of promise, it’s not and there are pitfalls to be aware of. As time goes by, Google may change their algorithms or decide to capture a larger part of SEO for themselves by selling promoted listings.
A good example is the travel vertical of search. Type “flights to <location>” and you will see the google flight product, Google’s own flight search product.
Is this an imminent threat in your industry? The answer is it depends how big your market is but it is an eventuality. When you rent a house, the landlord will eventually kick you out.
For the marketplace, the end game is to end up with the majority of the traffic flowing direct, create a destination site. Early on every business to solve for discoverability which can either be paid and expensive or it can be organic and SEO is a known and tested formula to do so fast but it’s dangerous to be the end-to-end play.
Does this mean not investing in it? Certainly not. Take on SEO early on, treat it like a core part of the product and you will have consistent, sustainable strategy that can take you far.
Make millions, lifelong friends, and a professional wolfpack for the years to come. Also possible: leave with no money, work for a minimum wage hourly rate or less when overtime is accounted for, and burn out. In the world of extremes, this is a good description of the startup experience.
So how should you be thinking about joining a startup? Is it worth leaving the cushy, well-paying job?
There’s no crystal ball and every choice is unique. In the end, it’s your life, your choice, and if your gut tells you to go for it, then don’t bother reading further. You have your answer.
If however, you’re on the more popular side of the camp, where options are swirling in your head inconclusively, then this is for you.
Know what you want.
Ask yourself, “what is it that you want”. Is it money? Acknowledgment or perhaps challenging yourself?
The older I get, the more I take seriously the question of “where do you see yourself in 10 years”. Have an answer to that and you can reverse engineer your way to the end result without feeling like you are groping in the dark.
The experience element
Are you next to the action?
Startups are great for learning; unless you’re the last cog of the machine in which case you simply “do stuff”. You won’t even experience the actual journey. Business insights will be tainted by what the narrative told across the business. This is not pessimism. The unfortunate truth is that founders have to sugarcoat things a lot – if not outright lie -to their employees, since everything is shaky at the early days (pre-series B) of a startup.
On the other hand, if you are the Founder’s right-hand and get exposure to investors, customers and get to witness the decision-making journey of a strong founding team, this is a golden ticket irrespective of the result.
Are you a key employee?
Key employees don’t have to be the first 10 people. Key employees can be employees in the formative years of the company, the first 500 employees of a 5,000 person company, or any employee whose remit allows them to execute and learn on someone else’s account.
Imagine you’re a director of marketing and you’re given a few million pounds to execute on a marketing strategy. The experience of having experimented and seen the direct outcome of your actions at scale from the front seat, are an automatic step change in your work capabilities and skillset. You’ve levelled up.
Seeking an adrenaline rush or balance?
The ubiquitous, understated, unquantifiable issue of startups: can you deal with dedicating your life to your work? You will have to.
On the other hand, your cushy job means socializing, going to the gym, and having personal time for family and friends. This is a trade-off that seems easy conceptually but just like bodybuilding, it’s hard every-single-day.
The value of experience is delayed
Startups that grow like rocketships offer a scarce experience: the experience of seeing a constantly transforming, growing organization. This is critically important since there is no company that would not want to follow that trajectory nor is there another successful company that does not want to poach the “experienced hires” who were there for the ride.
Being part of this journey means that IF YOU LAST and if you become a key employee, then you can cash out that experience for the foreseeable future, and all sorts of doors open easily. Also, it’s cool.
Hopefully, this helps. Now, to brass tacks. The payoff. When does it make financial sense to join a startup?
How to calculate the payoff
Before I get into specifics, there are a few principles:
Think about wealth, not money.
Aim at equity, not salary.
Know your number, don’t settle for someone else’s.
In the end, every startup succeeds when it participates in wealth creation. If you don’t think a startup can create wealth, don’t join, move on.
If the startup you’re considering is not offering a generous pool of equity, move on. Because, what is a startup? Fundamentally, it’s a speculation on a potential future. And when it comes to private markets, there’s only one way to participate in the speculation: equity.
Finally, know your number; don’t compromise for someone else’s. Forget the spiel about “the pool is maxed” or “no one has more stock than this” or the even more offensive – and my personal favourite – “people with twice your years of experience make this”.
You’re not an amateur experience seeker. You’re a professional playing the game and you ought to have a threshold number and stick with it. What is the ticket you’re looking for when the startup exits? It does not matter if you like the business, the founders, or the setup. It’s likely that your number is not possible to be met. Can this business get you where you want to be? If not, don’t compromise, move on.
How much can you really make?
Total Equity owned x Exit Value – tax.
The total amount you will receive from your time at a company is basically the vested options you end up with by the time there’s an exit minus the tax you pay. Simple right?
Well, no.
Let’s start with an example.
Assume you’re offered a job at a hyper-growth startup. By that I mean a company that is growing in terms of people and VC inflow way faster than the mean of the industry. Imagine a company that grew from 0 to 100 employees within a year and raised £10m in 12 months in Seed and Series A. Since the startup is raising way more money than average, the dilution is also quite high and the startup is valued £30m.
You’re offered to join by the time they’re 50 people. Your offer includes options worth 0.2% of total equity (£60k) and a salary of £100k which I will leave out since salary would be matched in lots of places – and is not a wealth-creating mechanism -.
So, how much do you stand to gain?
Let’s move on with our scenario. The business raised meteoric rounds of £50m at £150m and £300m at £900m and gets sold. You’re left with about 0.08% of a unicorn (in dollars) or £720,000.
Now let’s divide by the number of years it took to get here. We are on a rocketship, so let’s say it’s 3 years and the return per year is £240k. But what about tax? Let’s say it’s EMI qualified (the UK tax incentive for early employees of businesses) and only taxed at 10% and the market value was negligible to acquire shares so won’t even calculate it. This leaves us with £216k per year.
But judging an option based on the outcome is not really precocious approach. What you need to think is the expected payoff is and since a lot of things can go wrong and at early stages, even if you’re in a rocketship, can you really be that sure? I will be generous and assume 50% certainty (at Series A!) to exit the business.
As a result, before you take the job, you are looking at shares worth £108k per year which is very different from your original 0.2% of £900m.
And I am not finished. As competition rises and alongside it pressure does too, the startup succumbs to dealing with terms that are not beneficial for you. There might be liquidation preferences, a bridge/down round (the valuation drops) and suddenly you end up with a much smaller amount.
The allure of big tech
Now let’s say that you get a job at a FAANG business. At a mid-senior level, a Product manager/engineer in one of these businesses can make £130k and another £200k in stock and bonus which may I add is often exercisable from the first month i.e. you can treat it as cash. You also have a sign-on bonus and performance bonus – you can double your stock-.
Let’s also assume that an 8% year-on-year increase on the total compensation is an average scenario.
In this case you’re expected annual payoff is ((£200,000 + £216,000 + £233,280)/3) or £216,000 pre-tax or £108k after tax assuming your 50% tax rate on RSUs.
In other words, the best case startup scenario is the average at Big tech.
Some other things to consider:
Getting fired from a startup is not uncommon.
Big Tech keeps offering stock, startups don’t usually until much later.
There are very few UK businesses that have exited with more than £1bn in value.
So if money is the reason you’re joining, the option is simple.
Follow your gut, or follow your plan
Progress is not linear. Whether that is experience, money, or career, we make plans only to see them fall through.
One good startup will leave you with experiences, opportunities, and money for the next decade at best or with some learnings that stick with you for the rest of your life.
But as a person that has done both and has passed on opportunities for the right and the wrong reasons, I want to leave you with this: if you can follow your gut instead of a plan, do that. But if go with a plan, stick with it. In both cases, consistency trumps intensity and if you make a mistake, know it’s yours, not someone else’s. Good luck!
Google search is one of the top engineering marvels of the 20th century.
Its business one of the top industry defining businesses of the century. Google is the true dominant name really in the category it helped invent. The rest of the players are inevitably and undoubtedly playing catch-up.
And here comes the unfathomable: A new better search is needed and Google might not be the one to make it.
Yes, you read correctly and no, Google won’t lose in its own game. The question is whether it will be able to capitalize on the new wave. That which is driven by the needs of knowledge workers and the creative economy. One driven by digital skills as a means to productivity and the corporation’s appetite for paid productivity tools.
The trends are all there: an ever connected globe of 5 billion connected devices. 45% of jobs already being digitally enabled driving more competition amongst firms than ever. An increasing flow of capital in productivity -33% of unicorns in 2020- is reported and across all areas of work (email, design, notes, sheets).
There is soon going to be a new paradigm for search. It will be for businesses only at first, costly, exclusive, and a trillion dollar business.
The next frontier in search
There’s a few reasons why search innovation on the consumer side has not happened.
First, no one can or wants to compete against Google.
Secondly, the barrier to entry in search is very high.
Third, search is currently “free” and works really well.
The thing is, it works really well for consumer use cases. And though all three were true till recently, we are now at a tipping point. But first, it’s important to examine what is the current and future opportunity in search.
The business of search & AdWords
Let’s start with the business of search. What does Google sell? It sells attention and corresponding leads in the form of keywords. In a way, Google AdWords is a marketplace. And how are there keywords priced? Keywords are priced on a Cost per click (CPC) basis with the exact price calculated as a derivative of the sale. Google’s thinking is that since a customer made a purchase as a result of discovering the product or service from Google, then they deserve to be paid a fraction of that transaction. As a result, factors that pertain to the CPC cost are things like demand of the keyword, the probability of a user buying a service as a result of clicking on the keyword and finally the cost of the service. A rough formula then appears for valuing a keyword.
Keyword Cost = Demand competition x P(purchase) x Cost of service/good.
To exemplify what I mean consider this. For google “find a plumber” is more valuable than “How to find out if you have a leak” since the first is indicating intent and thus more likely to result in a job whereas the latter merely an interest in a house issue. Following that logic, Google prices the former search phrase higher.
From that lens Google’s strategy becomes easier to understand: provide free knowledge and responses to all the non-commercial questions so that users love it and come back frequently so that when they do have a commercial query in mind, Google can monetize that.
Whilst the amount of new questions people ask on Google tends to infinity, it turns out that they can conceptually be categorized in three broad types based on their commercial value.
Here’s a nice illustration from Moz showcasing that.
There’s three categories of search: Navigational, Informational and Transactional.
Navigational queries are the original use case of search and of low value to the business. Informational are what makes people love Google and the basis of SEO nowadays and transactional where Google makes the majority of its revenue.
Whilst there are no public data around the distribution of revenue per category, it’d be logical to assume that transactional queries might contribute above 80% of the total ad revenue.
And this leaves us with an interesting observation: Google’s incredible business model is leaving the majority of searches without monetization. In Google’s case it is partly intentional. Free traffic (SEO) is the reason why companies comply with Google’s standards. This in return provides Google with better data, less problems to solve and better monetization in transactional queries.
It’s also safe to assume that the more complicated the informational query, e.g. “what is the total valuation of online marketplaces” the less ads are likely to be targeting the phrase. Additionally, this is not an insignificant amount of traffic. Complicated queries inherently require more more words in each search and according to Moz, this amounts to approximately 20% – in line with the percentage of people clicking on multiple results per query.
In other words, the answers to the complex informational queries that are powering the workers of the future are free yet unattainable unless one performs multiple searches, opens multiple tabs and manually extracts the data points from each page.
GPT-3, Transformers & search v2
And then GPT-3 arrives. GPT-3 is a new search paradigm by OpenAI and possibly the biggest threat to the status quo of search. Both Google and GPT-3 accept a string (a sequence of characters) as input but while Google needs to return a relevant link which hopefully will result in a paid click, GPT-3 is an API which merely returns a text-mashup of the most relevant information it has collated from the web and charges on a per call basis. GPT-3 is also able to generate answers for any symbolic query, not just words. In the example below, GPT-3 returns code that is rendered on the browser.
This is mind blowing.
With GPT-3, I built a layout generator where you just describe any layout you want, and it generates the JSX code for you.
In doing so, GPT-3 does not need to worry about neither transactions happening off the back of a search nor owning the client. In fact, that’s not the purpose. GPT-3 is focusing on complicated informational queries. In doing so, it is breaking down the so tightly held barriers to entry in the search space.
Additionally, GPT-3 provides a superior user experience to this growing segment of digital workers which rely on information gathering and analysis to conduct their jobs.
To understand why that is, consider the previous example of “What is the total valuation of all online marketplaces”.
Google is not able (in its current form) to respond optimally to this query because it is designed to find the most relevant web resource, written by a human and surface it. However this desirable answer to such a query requires gathering information from multiple sources and aggregating it all in one place. Today, this means opening up multiple tabs (some relevant, some not), reading through each post and manually stitching together the relevant information.
This inherent limitation in the way the engine is built is the reason why Google’s 21% of search queries result in multiple open tabs. This is an effect we have never questioned because we didn’t have to. However just as people don’t want a mortgage, they want a house, similarly people are searching for multiple data points, not multiple open tabs.
On the other hand, GPT-3 will aim to understand the intent behind the query, find all the marketplaces online, collate information about their valuation and then return a complete response.
The Google approach might take hours whereas the GPT-3 search will take seconds and return a complete response. Apart from the argument of convenience, consider the difference this makes for an employer. This is not a step change. This is a game-changer. This is search v2.
So @OpenAI have given me early access to a tool which allows developers to use what is essentially the most powerful text generator ever. I thought I’d test it by asking a medical question. The bold text is the text generated by the AI. Incredible… (1/2) pic.twitter.com/4bGfpI09CL
GPT-3 used for medical advice – not suggesting this will be the primary use case 😉
The difference in terms of working hours is massive. And of course this does not stop here. This revolution of search can be applied in any field which requires the user to research and collate information and each field will present different requirements. Search v2 will be vertical-first.
Here are some other interesting use cases:
Sales: Return a list of all the names of Texas based CEOs in companies with more than 200 people.
Education: Create a set of exercises to test a user’s knowledge on “Advanced computer architecture”.
Investment Analysts: Return a list of all London based businesses with less than 10 people focusing on <you_name_it>.
The list of use cases is endless for someone with a little imagination and one thing is for sure; our kind is full of that.
However the three use cases above all seem relevant under a corporate setting. There’s good reason to believe businesses will be the first customer for search v2. Under the current global context discussed above, they’re the most likely to perceive paying for a new kind of search as an “edge” rather than as an unnecessary expense. Additionally and in accordance to the history of disruptive innovations, these revolutions start from “toy architectures”, niche use cases and with limited capabilities. Businesses present the perfect starting point.
And so, following recent updates to email, sheets and the rest of productivity tools there are a few things we can expect:
A freemium version of such a search engine
A product-led growth approach defined by low initial operational expenditure and healthy cash flows from day one.
Inherent product virality stemming from collaboration use cases
User adoption that will move from (small) business to enterprise and finally to the general public similar to the desktop computer and unlike Facebook or Google.
And a true competitor to the latter.
And here is another interesting thing to consider. If a company with a slick UX and good interactive design managed to persuade people to pay $30 per month for email (yes, Superhuman), what would a consulting firm be willing to pay for the new generation of its knowledge workers? The answer is simple: way more.
The business case for search-as-a-service: a trillion dollar opportunity
Google search yields about $36 per user globally. In fact, to better visualize how possible it would be to create a new trillion dollar search business, consider that business search, search v2 is priced at $99 per month, or $1,188 per year, yielding 33x Google’s ARPU.
For context, Microsoft Office business Premium is about £180 per annum per person, or $240 at the current conversion, so 5x less but at full market penetration.
I guess the point I am circling around to is this: to reach Google’s 2019 $133bn in revenue, search v2 would not need 3.6Bn users. It would only need 110m, or 1/8 people of the combined US/EU population or ⅓ people on Linkedin.
And when this means your work halving and productivity doubling, this suddenly the combination of price and market penetration does not seem so crazy.
So, the next billion dollar question is: who is going to reap the benefits of this?
The players in the search industry
Microsoft
Did you forget about Bing? In this new game they’re not an outsider; rather they’re the dominant platform. There is a few reasons for that. Firstly, Microsoft is a SaaS-first business and workplace is its bread and butter. Office, Teams and Outlook and search v2 make for a good combination.
Secondly, they invested $1bn in OpeanAI, the business behind GPT-3. Additionally, they have the customer base and thus very effective distribution.
Finally, Microsoft owns LinkedIn and GitHub. The former is conveniently the most powerful distribution mechanism to businesses while the latter provides an edge to Microsoft within the developer community should they decide to pursue a platform approach.
Google
This is definitely Google’s opportunity to miss. Google Cloud and its enterprise division are very well positioned in the space of productivity and Google can already power search V2. Additionally, many organizations rely on the search giant for Storage, Sheers, Docs & email which is also one of its fastest growing segments.
This could very well be another product offered as a premium tier of the gSuite or at least use the customer base of the division.
The main issue here is that Google has to face the innovator’s dilemma: how to launch a product which is competitive to the cash cow?
Startups
With GPT-3 being offered as an API this means that any startup can basically compete in the quest for dominating this new trillion dollar industry. VCs have also shown a clear appetite for funding productivity and working on the future of search would be as sexy as it gets
This also makes sense since newcomers can have insights in specific use cases for business and enhance search with the necessary tools to make this a complete product for the industry.
I feel inclined to highlight DuckDuckGo as a fit candidate since this approach would be completely in line with their privacy-first and, using GPT-3 as a basis for new search products, with their indie approach.
Conclusion? Brace yourself. Search v2 is coming. it will be the biggest business since Google and it’s up for grabs. Possibilities are endless.
When I think of marketplaces in the future I see Facebook against the world.
Facebook vs eBay vs Amazon vs Shopify vs Craigslist Vs everyone-that-comes-along-in-any-vertical.
A few years ago this comparison would seem nonsensical.
But in the ever-expanding internet universe, these businesses are not commerce, fashion or social. They’re all network businesses.
This makes sense once you look under the hood. Networks don’t derive value from individuals but rather from their interactions. And ultimately, monetize in similar ways:
1. Ads
2. Listing fees
3. Rake.
(4. SaaS – but let’s leave that for another post).
So is it any wonder that marketplaces are targeting ads?
Marketplaces go after ads and services
eBay, in its 2019 annual report, mentions that marketplace net transaction revenue grew to 8.86% up from 8.25% as a result of “promoted listing fees”, a nifty way to promote sellers’ items.
The marketplace recorded $85bn in GMV and of the total revenue 7.5% was attributed to…ads.
Amazon makes $12.5bn in revenue from ads, 23.5% up in 2020, which is not far from the rate at which AWS, the crown jewel of the company, is growing.
But it’s not only the behemoths.
Etsy made a controversial foray in advertising revenue. In contrast to the more commonly accepted model of “you may promote your listing” they forced advertisers to pay an extra % in case their item was sold as part of a cross-promotional effort namely Etsy advertising on their behalf across Pinterest, Facebook and Google. In other words, Etsy is no less than forcing their retailers to pay for the services of an outsourced marketing department which is genius and yet a step too far.
Instacart, Deliveroo, Uber Eats & basically any marketplace where sellers are not commoditized (will) offer a promotional boost and eventually seek the ad revenue as the next frontier.
Is it any surprise? Marketplaces exist to allow users to discover and for sellers to sell.
All marketplaces started by offering the same things to users: Search amongst a plethora of suppliers and better pricing as a result of information symmetry. Today, marketplaces dominate by improving the experience of transacting with others.
eBay was the pioneer of this new wave of marketplaces. First it established trust with its sellers reviews. Later by purchasing PayPal, it added further ease and value to parties. Payments not only increased the profit margins but allowed the marketplaces to expand in value-adding services. eBay, using PayPal’s capabilities, added the “money back guarantee” and in doing so, created a new playbook for marketplaces.
One where marketplaces would use their low cost structures and high profit margins to reinvest in streamlining the experience. In turn, users would be happier, buy more and return more frequently. Whilst eBay might be the pioneer it is far from an isolated case.
Amazon revolutionized logistics with Prime and changed eCommerce forever. AirBnb offers insurance to hosts. ThredUp offers to sift through the seller’s clothes, price them and sell them saving them the hassle. OpenDoor is willing to buy house’s upfront.
Meanwhile, internet penetration and digital marketing maturity are increasing driving paid advertising costs up. In turn, capturing a bigger part of the customer lifetime value turned from opportunity into imperative. Capturing a higher chunk of revenue is necessary and a mix of advertising revenue and services offered is the way.
Yet there is one outlier in the game. A network first, Facebook didn’t need to worry about customer acquisition. All of us are there.
From ads to transactional revenue: the Facebook way
Engagement, growth and more engagement. The Facebook playbook in a nutshell. If anything was obvious early on it was that user engagement needs to be protected at all costs.
Facebook holds its users’ real identity and and the responsibility to protect it is a business imperative. Over the years, Facebook has invested significantly in what is internally called “community integrity”. The aim was clear: remove all posts that are net detractors of engagement and stymie growth. This was a key move their predecessors had missed and a precocious one at that.
At the same time functionality built around identity propelled their targeting capabilities to levels previously unmatched – even by Google -.
Sign in with Facebook was a key move that subtly, yet critically, allowed Facebook to break out of its own limitations. Businesses all over the web would allow Facebook to track their users outside of the network. This was a fantastic move for two reasons: better targeting directly improves targeting and thus revenue but also allows Facebook to gain critical data it didn’t have before whilst rooting across the whole worldwide web.
Facebook had secured trust amongst its users. Now it also had intent. And with its advanced machine learning it could mine and classify all sorts of interactions. Recommendations requests. Preferences. And of course, commerce.
The social network had all the information it needed. The best part? Unlike any marketplace, users join and broadcast information for free allowing the business to continually reinvest in engineering tools and targeting capabilities.
What remained now, was to come up with an efficient way to expose that information.
Facebook launched its marketplace in 2016 reaching 800m users in 2018; its foray on search, however, had started much earlier. In 2011, the entity graph was introduced which, given its scale and time, was an engineering marvel.
The original focus was on people’s relationships. This quickly extended to map entities around each user. Facebook was already building an advanced ranking mechanism for listings and items.
And somewhat like that Facebook had the foundations for a strong marketplace of its own with built-in acquisition, trusted connections, never-ending inventory and incredible targeting.
Facebook marketplace model, Mark Tsirekas
The first steps were ultimately successful as the marketplace reinforced the existing flywheel.
It also provided yet another reason to be on Facebook which meant increase on the time users spent, data the network aggregated and ads served. So far so good.
But to compete in the future of marketplaces, Facebook will need more; it will need to create vertical experiences for buyers and sellers alike.
So the question becomes: Is there anything stopping Facebook from doing so?
The main thing in Facebook’s way is itself
Facebook’s ever-compounding flywheel is predicated on two things: zero cost of customer acquisition and targeting. This is the core asset powering everything very much like Google’s search is powering all its verticals.
But when it comes to commerce, what got the company so far can be a challenge for the future. Specifically, there are a few things that will be roadblocks:
Public market expectations
Finite real estate
The Facebook Brand
Opportunity Cost
Identity
Public market expectations
Most startups go through the “valley of death”.
This is the concise way of saying that even for the most successful companies, innovation is costly and to kickstart the flywheel a business – marketplaces in particular – requires heavy investments upfront which may never pay off.
Additionally as capital becomes cheaper and add-on services a strategy for marketplaces (think Opendoor), said experiments require increased costs per unit.
Facebook owns $55B in cash or equivalents. So not a showstopper so far, right?
Indeed, cash is not the core issue. Expectations are. Whilst a startup can stay away from the spotlight for years, Facebook can’t. Risky bets are likely not to be welcomed by analysts not just because of their short-term financial impact but also because they raise questions of strategic coherence. Each new service layer adds costs which are accompanied by more rigid organizational changes. Financing, delivery, insurance – all require customer support and bespoke operations.
Should Facebook start building teams around these activities who knows how that would change the company profile in the years to come? It’s a risk worth considering.
Finite Real estate
You wouldn’t buy coffee from the Coca-Cola company, would you? But you might buy Costa Coffee which is owned by Coca-Cola. And in essence, you’re buying from Coca-Cola without thinking of it like that. A brand is a powerful asset but has its limits.
Facebook diversified its brand on social networks by owning Instagram, WhatsApp and Oculus amongst others. But when it comes to marketplaces it still uses its own brand and accompanying real estate.
So far, Facebook has doubled down on two products: Marketplace and Dating.
Both of them have occupied prime real estate in the Facebook app facilitated by a navigation bar overhaul. The bottom navigation is dynamic serving whichever app the algorithm deems appropriate but currently seems to be pushing dating a lot.
The center of the bottom navigation is so prominent users will click on by accident. But what about all the other applications Facebook has created such as offers, movies and blood donations to name some? Surely, these can all be served by dynamic shuffling in the nav bar but to entrench a position in a user’s mind, more is needed. Facebook will need to spin off its successes for them to occupy their own space on the web and in the user’s mind. And of course that bears the question: would these be successful on their own, away from the mothership and how would that work?
The Facebook brand
Then we have the elephant in the room meta-problem: the better Facebook gets at targeting, the more creepy people deem it to be. This is not a problem that can be shrugged off; the resulting clash is more than a nuisance. It’s an orthogonality between its primary and secondary value creating activities.
To put this better in perspective, consider how a firm value chain works. The value chain represents the set of activities a firm must perform in order to compete. The key idea here is that the activities summed provide a value that is larger than the individual cost.
Each firm has primary activities that pertain to the production of its services and goods and a set of secondary activities that supercharge the primary activity.
As an example consider the cost of creating a pair of shoes.
Primary Cost of material: £10. Cost of labor: £10 Distribution: £10 Secondary
Design & branding: £10
Marketing: £10
Management: £10
Final retail price: £100.
The key here is that if a business is selling the material is only making £10. So is another firm assembling the shoe (labor). But it’s the business that owns the design, marketing and management of production that reaps the excess value of the final price.
And this is what great businesses do: operate an individual value chain synergetically to position itself as a dominant player in the industry value chain.
Under that lens, here’s what the Facebook Value chain looks like for marketplaces.
The primary activity for Facebook is to add more users to its network, keep them engaged, and then show them listings that are relevant to them across categories.
Facebook value chain, Mark Tsirekas
And all of it is underpinned by excellent targeting capabilities which in turn rely on an endless stream of information people give Facebook.
And here lies the conundrum. The better facebook gets at targeting and predicting the needs of the individual, the more disliked it becomes. It becomes “creepy”.
In all fairness, creepy is a compact way of saying that Facebook inadvertently surfaces the existential anxiety in all of us. Facebook’s algorithms expose our flaws, predict our desires and in doing so remind us how vulnerable and normal we all are.
Beyond philosophical implications, this is bad for business. Facebook is not “cool” and this is costing in terms of new community monetization and capturing value.
While disliking the brand won’t be a showstopper for the daily mindless feed scroll, it certainly is an issue for services that Facebook would be primed to capitalize but require a different level of trust and brand association.
Brand is important for a simple reason. Every purchase we make is a vote in the community and culture the brand stands for.
eBay introduced a world of discovery and bargain. Staying at an Airbnb still maintains the edge of the experimental. Etsy supports the creators.
But Facebook is a threat.
Would anyone want Facebook to become their general practitioner, insurer and bank with which they pay both of the above? Unlikely.
Opportunity cost
Corporate strategy argues the firm should leverage its existing assets to optimize the chances of continuous innovation. In practice this means that you don’t expect a grocer to produce shoes or a fashion retailer to do research on chemicals. Each to their own.
Similarly, Facebook’s core asset is the astounding engagement of its user base. From the perspective of building marketplaces, Facebook has no cost of customer acquisition (CAC). Its users keep coming back and that is an opportunity to promote more ads.
Facebook advertising cohort net revenue, Mark Tsirekas
This creates a virtuous flywheel. User A brings User B. Together they stay longer in the network and consume more ads which in turn help businesses and Facebook grow.
There is a stark difference between the growth curve of the advertising business and Facebook’s. Whilst the business grows its cost and revenue somewhat proportionately, Facebook’s net revenue increases while its cost structure remains the same. In other words, Facebook’s profit margin from advertising increases without further effort.
This is part of the Facebook magic. And so here lies the other question:
When does it make sense to risk enraging your advertisers to pursue a new business line?
Identity
When a user posts something in the marketplace, it is visible to all. Again, staying true to the flywheel logic this is perfectly sensible. Every post is another attempt to keep people on their screens.
Despite the marketing attempts, users will still feel wary of being exposed to a certain extent. After all, it’s their own identity. And since dating requires time and exposure, there should be doubts over long term user retention. Same goes for all activities which are deeply personal.
So, looking ahead what is Facebook’s marketplace endeavor going to look like?
The future of Facebook marketplaces
Here’s what seems likely to happen then in the next 5 years and how nascent marketplaces should view the giant.
Facebook will invest in engineering driven services with high profitability to add value to its marketplaces (e.g. payments).
It won’t venture in categories where it would require an overhaul of mindset and cost structure (e.g. iBuying).
It is likely to launch further marketplaces in verticals with low set up costs and a strong human touch (e.g. recruitment)
Finally, for the attempts which will work we might see them to be separated from the core site/app and try to capture their own space (e.g Dating, Marketplace).
Facebook will invest in payments & engineering driven solutions
Facebook will aim to capture the transaction in-network. Whether that is within the Facebook marketplace, through WhatsApp or as a tool via Facebook Pay the intent is clear: own payments when a transaction occurs.
This makes a lot of sense. Payments bode well with the general strategy of the business. Rely on technical implementation, have low marginal costs and keep the users in the network.
Similar services: ID & verification, insurance underwriting, psychometric matching.
Won’t venture in new categories
Facebook is unlikely to go after innovations that require an overhaul in its structure and mindset.
For Uber to scale, Uber partnered with maps, car manufacturers and even set up physical stores to serve their drivers’ queries. And Uber is still in deficit.
Whilst Facebook could rely on individuals to create its own mobility network, immersing itself in the operational side of it seems unlikely.
Service based marketplaces
But it is likely that Facebook will not stop fighting for services. Should dating work, this will herald a new playbook for Facebook. One where it can monetize 1-to-1 relationships.
And in services there’s all that. Recruitment being a close relative to dating and a huge market. And given Facebook is already eyeing up work, similar experiments in job seeking seem sensible.
Facebook will spin off apps
As Facebook tries to deal with the finite space it has to entrench itself as many more things than a social network in the mind of its users, it makes sense to spin off its successful apps to extend the real estate it owns within our smartphones.
Consider this as an emancipation moment and a filtering process:
Is an app established enough to stand and grow on its own? Spin it off
Is an app in need of the Facebook mothership? Position it in the middle of the users’ screen till it becomes a habit.
What does this mean for vertical marketplaces?
In the categories Facebook will venture into, marketplaces will face increased competition. This might not be felt immediately as the eCommerce market is growing but it will intensify the need for differentiation.
I expect that more and more marketplaces will compete on the Experience layer of the transaction (delivery, fintech, services) which in turn implies a higher cost structure to start a marketplace.
For the moment, this is ok since Venture Capital is at an all time high. From a cultural standpoint it becomes difficult to be an founder running an indie marketplace (like yours truly).
However it seems unlikely that Facebook, despite its unfair advantage, will become an unstoppable marketplace factory anytime soon and likely that consumers will reap the benefit of increased competition and corresponding innovation.
You are reading Part 1 of a 3-part series on the publishing industry.
Part 1 is about the past. Specifically, the internal mechanics of publishing and the forces that defined the industry’s response to Google and Facebook.
Part 2 is about today. How has publishing adapted to the change, what is working and what is not?
Part 3 is about tomorrow and what sustainable news & content publishing can look like.
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If you thought Google and Facebook killed the news industry you’d be right; but only partially right.
It is true that the internet nullified the raison d’être of buying the paper. It’s also true that these two internet behemoths robbed the publishing industry of its audience and the attention that came with it.
Disruption is the inevitable outcome in the life of any company. It is not possible to predict the future; it is within the realm of possibility to respond to the present. And that is where news has failed; in providing no response of their own for the past 27 years.
This is a story of games, corporatism, and misaligned incentives. Let’s start at the beginning.
The business model of news
The first colonial American newspaper was printed in 1690. The New York Times is 169 years old. The industry itself is 330 years old.
As it often happens, the news revolution was kindled by matching idealistic founders with a technological revolution; in this case, the printing press.
In the process of distributing the news, the founders of the first newspapers were the first to capture public attention en masse.
And in doing so, in these past three centuries, newspapers have enjoyed their fair share of influence, and profits. So much so, that there is a special term for their importance in our society. “The fourth estate” was coined to denote their crucial role in regulating our society. There was no other industry that enjoyed this level of attention.
If anyone understood the importance of how stories underpin economic value, it was news publishers.
The news was immediately entrenched in society and publishers exerted a strong influence in the public sphere. With an addictive product, the revenue model was simple. Want the paper? Pay per unit. Want to read more newspapers? Buy more units. Circulation became the core metric. And circulation skyrocketed.
At the beginning of the 20th century, advertising found its natural place within the newspaper and the combined business model exploded. Advertising had zero marginal costs from a print and editorial perspective but all the upside. The news started selling the attention it captured.
And the cherry on the top? Starting a newspaper was hard. Matched with a high barrier to entry due to fixed costs (printing press, distribution) news publishing offered a recipe for a long-term oligopoly.
The news business model had been on an unstoppable growth trajectory that would last almost 100 years.
New Statesman, 2012
Internally, the job of a journalist was perceived as an elite craft and the editor’s job was revered. Editors commandeered the nation’s attention and journalists instigated commercial, political and social action one word at a time. The editorial team were the superstars of their industry basking in the widespread belief that revenue and influence stemmed from their actions. This level of attention is addictive and when the individual finds themselves in the middle of change, change is not welcome.
News itself was a cornerstone of society, a part of the system. The most brilliant of the institutions. The blueprint of a corporation.
Fast forward to the end of the 20th century.
The market had reached peak maturity. Revenue concentration, combined with barriers to entry has led to consolidation leaving a few despots and trusts running the show. They had become part of the establishment.
And then the internet arrived.
Going free online (1994 – 2006)
Today it’s clear that the orchestrators of the internet, Google and Facebook, won our attention and the advertising dollars that come with it. In hindsight this is obvious. However, it could have been different. It started with one crucial decision: posting online for free.
The Telegraph started posting online in 1994. The Guardian in 1997. Both for free. Reading the news online for free is a given today but at that point paying for news was standard behavior. In fact, the only behavior. So why go free?
It is true that payment technology was embryonic (PayPal didn’t exist) and people’s appetite for transacting online was nonexistent. But even then, there could have been simple ways to work around this. News publishers had tight relationships with distributors and could reach corner stores, kiosks, and off-license shops. Selling a digital subscription through print would require a passcode within the newspaper to access a site. Or one providing yearly access. Cash could be exchanged physically at the point of purchase. Technicalities were not the sticking point.
The first reason that emboldened publishers in going online early and free was conflating the notion of readership with that of a loyal audience. This is justified as in the past circulation was the only measure of both revenue and attention. Paying for information was a good enough signal the customer cared. And so, the presumption that readers would be loyal online too was not scrutinized. Circulation online was named traffic – the new core metric that mattered.
Since traffic was important, missing out on the new way to capture the audience bred fear. Fear of missing out. Every major publisher was petrified by the “what if” scenario where the internet explodes (hint: it did) and they missed out on following their audience (online).
The reasoning went as such: “If we go online, we can capture a new audience. And if we go free and the competition goes paid, we could capture their audience. In the likely scenario our competition goes free as well, we find ourselves in a good position for the future. This is more important than payments for now.”
So before understanding the threat of Google and Facebook, the news publishers viewed the internet as a Zero-sum game between themselves; one in which they were compelled to participate.
To exemplify, assume a total market of 100 readers. Then a simplistic version of the publisher’s perceived payoff of going online in 1997 would look like this:
Going online: Publisher’s perceived payoffs
From a short-term perspective, publishers were incentivized in going free. Going paid was also tricky as no one could predict the trajectory of news monetization online. What would be the right business model and how many people would be interested in reading online was unknown. In fact, buying a paper every morning was more convenient than downloading the news via a clunky modem on a slow churning PC.
But in fear of their competitors thriving in the new medium, going free was a “what if” inspired action, a defensive play. Assuming a static order of things, there is certain merit to this logic.
This period lasted approximately 15 years. It was not until 2010 when it became clear that the drop in print revenues was not a blip but rather a combination of broadband penetration, Google’s search dominance, and Facebook’s 600 million friends.
Monetization online was still a question mark albeit one thing was clear; the open web was not good for business. Print circulation and ad revenues had been in decline for the past 5 years, quickly depreciating the once most valuable assets of the corporation, the printing press.
The time to be nonchalant and experimental had run out. Still, no business innovation. The News industry decided to chase pageviews instead of long term viability. This time it was not games of fear but rather corporatism and misaligned incentives that got in the way.
Why the publishers didn’t react: an ode to corporatism (2006 – today)
This might not be obvious yet it’s not an overstatement; the executives were, in fact, incentivized to avoid innovation. Here’s why.
The executive team (CEO, CFO) would set a strategy. Since they are appointed by the BoD, this is who they answer to. Their career success hinges first on staying in good terms with their managers, secondarily with the City of London (or Wall Street if you’re in the US), and then and only then with their customers.
Of course, where you pay attention defines what you see.
Inevitably a CEO who wants to maintain their position has to keep the BoD and thus the stock at a stable level. How is this going to happen? Generally, there are two options: go after the market or go after internal mechanics. The former involves increasing market share, product innovation, and revenue with customers. It assumes entrepreneurship, innovation, and taking uncomfortable bets. The latter implies cost-cutting. And it bodes well with the corporate management approach.
See, under the corporatist view, the interrelation with large institutions is the primary driver of value rather than market competition and innovation. Customers are simply in between and disposable. And institutions want to see higher earnings per share. And so innovation was too risky. It could rock the boat.
And there was the spin. Traffic was growing rapidly and despite digital advertising margins squeezed by Google and Facebook, the digital ads revenue was growing too. So, it was easy to present a story hinged on digital ad growth as a deus ex machina somewhere in the future.
In parallel, circulation was plummeting for every publisher and the return of the fixed assets -printing, factories & distribution- is diminishing. This means one thing: an opportunity for consolidation. Consolidate printing and distribution, reduce the number of employees, increase prices per unit, and increase operating profit in the short-term leaving the long-term business model question to the successor. Such is the corporation.
In the UK, there’s a perfect example: Reach PLC (FKA Trinity Mirror). In 2015, Reach PLC acquires Local world, a large regional publisher. In 2017, the Guardian scraps their £80m printing facility in Manchester and outsources printing to Reach PLC. In 2018, Reach PLC acquires the Express and other core publishing assets from Northern & Shell, combining circulation and revenue. Their operating profit margin increases almost every year whilst revenue like-for-like (revenue without the contribution of the acquisitions) drops sharply.
Reach PLC, annual statement, 2019, page 2
Meanwhile, quantity over quality becomes an unspoken rule. Journalists are judged by the number of pageviews they rack up. Each journalist is required to publish multiple times per day at an average reach of 10,000 views per article, so that a stifling number of ads can be inserted and the short-term digital growth bubble won’t burst. The editorial department sees its craft slowly commoditized and finds itself ensnared in an existential crisis. A once symbiotic relationship between them and their corporate patrons becomes a balancing act ahead of a rift.
The effect on the product is also clear. Bounce rates are higher than ever, brand loyalty eroded and publishers are commoditized further, one post at a time. Editorial is not allowed to invest in what they do best; corporate is focused on margins and technology is a catch-up play. No hint or attempt for product innovation.
The new strategy and story to stakeholders is simple: maintain a strong cash-flow position derived from the declining print revenues until digital revenue takes off. The elephant in the room is this won’t happen and it’s obvious both for strategic reasons but also by looking at the numbers. Given the digital advertising value chain, ads revenue for newspapers will never take off to cover for the loss of print revenue.
Yet, this is a long-term problem. In the short-term these moves have a positive effect. Operating profit is increased and that is the goal. So much so, that the new CEO’s bonus is 70% influenced by operating profits and only 15% by “strategic goals” i.e. product innovation. The other 15% is revenue. However this is the same remuneration structure the previous CEO was offered. Perhaps an optimistic bet – if not naive – to replace the individual instead of the goal structure, especially since the CEO’s goals cascade over layers of the business stifling innovation. Then there’s the cynical view: pointing the finger at an individual is more convenient.
The narrative was found at last. But it was not one to inspire editorial, employees or customers. It is one of a beleaguered, ailing industry that is willing to do anything to survive. Erode its core value, destroy product integrity, and trust. A narrative suitable for Boards of Directors and investors. Publishers can keep on painting a positive picture of recovery whilst fundamentally passing the pressing question “what are we doing in the future” down to their successors.
Financial analysts herald consolidation and cost cuts as moves to efficiency. The exec team will be deemed successful by executing on the strategy they set out and approved from the beginning.
But in truth, at this rate, most news publishers will not make it.
At last, startups are making shy steps towards a sustainable business model. Fake news, clickbait, and rigidity in news reporting have intensified the necessity for quality news and thus, business innovation. New organizations are embracing the world of social media and leverage niche audiences. It is still to be seen whether news publishers can ever reach their old glory and society can maintain the integrity of the fourth estate.
In the next part I examine news (and general content publishing) revenue models of today. What works, what doesn’t, and why.
Notes
Disclaimer: From 11/2016 till 6/2018 I acted as an Entrepreneur in Residence at Reach PLC working under the CTO to diversify the revenues of the business. The above post only reflects my personal beliefs.
MTsireud 