Making sense of good and bad content

Are you afraid a competitor could quickly replicate your web application?  If you’re not, you should be.  For better or for worse, intellectual property rights appear to not mean much on the web.  And as a web application provider, you’re offering is up there for everyone to see.

Recently, Google launched two products that may have immediately put competitors out of business.  Its “to do” list list is a direct threat to Remember the Milk and its Latitude product is a direct threat to Loopt.  Whether fair or not, Google, Facebook, Amazon, Apple and Microsoft have virtually free distribution through their “installed base” of search, social, ecommerce, music, and browser/os users.  And those firms have the technology talent to copy many web application’s features.  So, how can you build a business that is not a feature big firms can replicate and distribute?

1) Target a profitable niche: Most big companies only look at big markets.  They need to increase the value of a multi billion dollar business.  Only Amazon seems to go after tiny markets, given its decentralized operating structure

2) Create switching costs with users: If a user has to invest time to learn your application, and placed data in your application in a proprietary format (think: photoshop and their file system), then a user is likely to remain with your service even if someone releases the same features.  But be careful.  Data in a proprietary format that exists elsewhere (e.g., my friendgraph is known by Facebook and Google/gmail) or data with a high decay rate (e.g.,  last week’s “to do” list)  does not create a switching cost.

3) Build supplier and distributor partnerships: Unlike features, businesses have suppliers and distributors.  If you’ve negotiated exclusive partnerships with a low cost or unique supplier or distribution partner, then you have an unfair advantage that can’t be replicated.

What else do you think differentiates a business from a feature?

Reddit had a catchy tagline. They were going to be your “front page of the web”. After getting an audience, and selling to CondeNast, they quickly changed business models to focus on providing a technology that can go after verticals, like cosmetics with lipstick.com, now weheartgossip.com.  Why wasn’t Reddit bought to be a front page?

Some things in media don’t change too much. One is that the front page isn’t where the money is. Back in 2001, I was given a case interview from a global consulting firm on why newspapers revenues were declining. The answer was that websites like Monster, eBay and Craigslist were taking away the profit centers of newspapers. The lesson was that newspapers used their front page to draw readers into verticals that they could monetize. And the web was doing a better job in serving consumers in those verticals with functionality like search instead of getting ink on your hands.

Mozilla’s FireFox has an interesting in their approach to this problem. By providing you a browser or entry point to the web, they’re essentially a frontpage, if only the outside border of your page. And they’ve monetized this space by selling ‘default’ positioning in the search bar. iGoogle and MyYahoo have a similar approach to monetization. Front pages can serve as lead generation for search businesses.

This is why Digg is going to have trouble delivering returns for investors with an advertising based business model. They can’t grow the value of their ad inventory unless they can steer users to a profit center. Of course, Digg can try other things.

Can Digg provide a myDigg to users that serves as a front page, allowing them to tap into this search revenue? Is that where they are heading with their recommendation engine and your data made available through Facebook Connect? Time will tell.

Tags: Advertising, social bookmarking exits

Online communities have a tough time getting started. There is a chicken and egg problem. Who wants to join a community that doesn’t exist? To solve this dilemma, Yelp’s CEO openly admits that early on the company decided to pay reviewers and now pays “community managers” in major cities. A second founding decision was to focus on getting the most reviews possible with its user rewards system.

Yelp’s founding community in any city is those who are willing to contribute reviews for low pay (i’m assuming rates did not attract top writers and bloggers…because it didn’t). For example, for many moderate and expensive restaurants, reviews often cite discounted Restaurant Week specials. Yelp is now challenged with broadening its set of active contributors in order to get broadly applicable content for the larger audience it is attracting.

The second original decision founders made was to encourage the community to review often. Online Karma awards are given for Firsts, and users compete to see who can have the most reviews or Firsts. As the community prefers to be heard rather than rated, Yelp accepts reviews about old meals or reviews that focus on the circumstances of the meal. Sadly, this has led to a proliferation of low quality reviews for restaurants, a category where one size does NOT fit all.

I think Yelp has a lot of potential (17 million unique visitors a month is already impressive), but right now the main feature that helps me is the mashup of google maps, yellow pages, and pictures.

Tags: Community incentives, Founding decisions, Social karma, Yelp