Archive for May, 2010

Lightweight models and cost-effective scalability

May 12, 2010

“There will be aggregator businesses and content or specific service businesses.” (Jason Fried, 2004). Tasty Planner is one of those ‘content’ businesses. It’s essentially a recipe finder/sharer and a meal planner. Users can join and upload or find recipes, schedule meals and generate shopping lists.
Tasty Planner has followed best practice by implementing a variety of different revenue models. Firstly, it offers sponsorship opportunities – companies can pay $400 for a week of having only their advertisements appear on certain pages of the Tasty Planner site (however, this seems to exclude a block advertisements from Google that also appear on those pages). Although this brings in money for Tasty Planner, it could be argued that some this is a bad move since the ads from sponsoring companies aren’t necessarily contextually relevant and could distract from the purpose of the site (the ads from Google appear to be contextually relevant).

Secondly, Tasty Planner lets its users create accounts. The first type of account is free and offers most, if not all, of the site’s functionality. The second type of account is only available for a fee and lets users use the site without seeing ads. Whilst some fees are enough to turn away potential customers who expect online services for free, the Tasty Planner rates are so low (a dollar per month) as to likely avoid repelling these users. This is a clever strategy as it ensures that either way (whether the users are viewing ads or paying for freedom from ads) the site is still bringing in money. It also provides the flexibility to support different types of user – those who don’t want to pay can still use the site.

Thirdly, Tasty Planner has discreetly included a small image linking to its ‘pledgie’ page. ‘Pledgie’ appears to be a site where people can donate amounts to different ‘campaigns’. In the case of the ‘Tasty Planner campaign’, this seems to be not working so well as there’s a notice stating that no donations have been made yet. That said, the theory behind this is sound since they have little to lose by including this option and (potentially) a whole lot of money to gain.

Fourthly, Tasty Planner lets people license it. This means it offers customisable versions of it to people wanting something similar to its current form. In their own words:“Imagine you are a recipe book publisher, you can have your own version of Tasty Planner customized with your design and only your recipes. Those who buy your book would get much more than just a list of recipes, therefore giving you a competitive advantage. Imagine a collection of 50 cooking books, owners of your cooking books would have an interactive way to plan their weekly meals with the recipes contained in the book. This is a reason for shoppers to buy your book in favor of the next one on the shelf, and this is just one example” (Tasty Planner). This is a clear, clever example of providing outsource infrastructure to people seeking pre-packaged solutions. The Tasty Planner model is successful – successful to the extent that other people are willing to pay for a version of it customised to meet their specific needs.

This organisation encourages viral marketing by offering ‘badges’ (small images linking back to the Tasty Planner website) for recipe contributors to display on their own web pages. All that’s necessary to incorporate one of these images is to copy the code provided and paste it into your own site’s code. Tasty Planner suggests using the badges for, amongst other things, blogs and MySpace accounts. Again, this is a low-risk, easily implemented opportunity for attracting more users (and, therefore, potentially more revenue).

Part of the way Tasty Planner saves money is by having most, if not all, of its content contributed by its users. Outsourcing this task not only reduces cost but enables the acquisition of content that may otherwise have never been found or uploaded so quickly, creating a massive, rich collection of data that can then be served back to the users. What’s more, the diversity and sheer amount of data helps to draw in more users, thus continuing the cycle of user contribution and user attraction.

Another way Tasty Planner has reduced costs is by having very few staff – on its ‘about page’, it states that the site is developed and maintained by only four people, despite having almost 10000 contributing members. This sort of site scales naturally as more users means the opportunity for better content.

Overall, Tasty Planner is an excellent example of a lightweight application and business model.

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Leveraging the ‘Long Tail’

May 3, 2010

You can find everything out there on the Long Tail” ~ (Chris Anderson, 2004)

The idea is that, while a small number of products make up a large quantity of sales, there are many products in relatively low demand that don’t sell well on their own, but which together can outsell the more popular products.” (Danny Bradbury, 2005)

The two quotes above both help to explain the key concepts of the “Long Tail” as popularised by Chris Anderson back in 2004. Many businesses are awakening to the fact that with decreased production, distribution and support costs, selling niche market products is becoming not merely viable as a business model but profitable. ‘Stuff On My Cat‘ demonstrates some of the characteristics and best practices of ‘Long Tail Businesses’. In short, Stuff On My Cat is a site where users can upload pictures of their cats with stuff on them (toys, clothes, etc). It was started in 2005 and has since started selling related products (books of some of the photos submitted, clothes and other articles with pictures on them, etc). It sells only niche products but with decreased costs making business viable, it has found its place targeting a little segment of the ‘long tail’.

If you want to take business away from established competitors who ignore the Long Tail, you need to service the Long Tail, but doing so is going to cost you, and you can mitigate these costs by creating a market. In a market the service provider for one of your customers is another customer, not you. The key to getting customers to serve each other’s needs, is to create an environment where both sides of each transaction are serving their own self-interest.” (Francisco Gutierrez, 2005) SOMC is a clever example of the creation of a market served by its users since the products SOMC sells are partially created by users (based on the photos submitted by the users). This means those same users are likely to be interested in buying the products because they feel a sense of ownership and because they are similar/relevant to the users’ interests. In this case the self-interest driving users includes the sense of importance and benevolence that arises from contributing and helping other users.

The image above has been created to apply specifically to software and services, but the principles apply to Web 2.0 applications as well. SOMC exemplifies these.

  • Democratising the tools of production – in the case of SOMC, the tools of production are cameras and an internet connection, which these days are so prolific many or most people have access to them.
  • Democratising distribution – SOMC products are sold both over the internet and in physical stores, making them available to everyone with internet access and many people without it. SOMC also employs a form of viral marketing to attract more users – it includes links below each image that help them to immediately share the image with their friends through email, Facebook, Myspace, Digg and many others.
  • Connecting consumers and producers – since most of the people who would be interested in buying SOMC products would be those who know about the site, all SOMC has to do to connect them with the supply of products is make sure visitors to the site are aware of its online store. Once it’s done that, almost the entire market has been reached.
  • Democratising monetisation – SOMC not only sells its products, it sells targeted advertising space.

SOMC has studied its users and has a clear profile of the ‘typical user’ accessing their site (young, caucasian and female) and how many unique visitors they get a month (about 130 000). They have published these (and other) user statistics and that they are willing to sell advertising space on their site to attract businesses who are looking to target that demographic.

The site has a detailed FAQ section and a forum where users can find the answers to their problems on their own. Also, the process for submitting content is automated. All of these factors leverage customer self-service to decrease support costs and so help to make the site a viable business but the site also provides contact details for user who haven’t found the solution through the channels above.

SOMC depends substantially on the ‘wisdom of the crowds’ to moderate content and verify content submission. Users can ‘flag’ inappropriate content (abuse reporting) to bring it to the attention of (and possibly deletion by) SOMC staff. In addition to this, only registered users can submit photos – this helps to protect against robots and other automated submission software. SOMC also uses wisdom of the crowds to rate content – users can assign a ‘five star’ rating number to an image.