Me, Myself and Muziboo

A Bootstrapper’s Diary

A reasonable question to ask because once you decide to charge your users for your online service, you are straight away confronting a double whammy. One, you are trying to overcome the general consumer mindset of everything on the net is free and two, you aren’t selling a commodity but feel-goodness and convenience. So, does it work?

The answer to this depends largely on the target market and the expectation in terms of revenues. There are three important factors that determine your revenues: % conversion from Free to Paid, Pricing and the Churn rate (for subsequent years).

When it comes to conversion, however sleek the service is, it is tough to expect anything beyond 2-3% conversion from Free to Paid. Even a 2-3% can be a significant sum if you have sufficient traction in a huge market. The other two challenges are partitioning the Free and Premium features and Pricing. (This itself calls for a separate post. What with all the books written on pricing!). The challenge with Pricing is that there are no standard bench marks available in the market and the whole task of finding what your users perceive as value and how much they are willing to pay for it can be a little tricky. User surveys and  A/B testing are generally helpful in determining these.

When it comes to partitioning features, one thing to be kept in mind is  that it should be done in a way that the premium service lives up to the ‘Premium’ label. And you should be careful enough not to restrict the free service so much that the ability for your free users to spread your name is lost. The more you are able to give for free and keep the conversion unaffected, the better it is for you. Because the free users indirectly help in increasing visibility for your service through their content.

Here are some interesting stats from Muziboo (Muziboo is an online community for music sharing and discussion). This is our pricing page for reference:

• 2% of our Uploaders  convert to Pro
• Revenues doubled after changing the price tag from $25/year to $50/year. Which means conversion% was unaffected even after the price hike.
• Overall conversion to Pro increased after the introduction of a 3rd slab (Monthly subscription)
• Conversion to Pro through Monthly plan increased after the price hike from $5/month to $10/month
• Conversion increased when the upload limit for the Free accounts was brought down from 20 – 10
• Conversion remained the same when upload limit was brought down from 10 – 5 but had a disappointing slide in the repeat visits and number of total uploads. We almost concluded we had reached the saturation point and 10 was the optimum limit.

At this point we decided to carry out yet another experiment. Open up the platform by giving 5 uploads for free every month. We had expected to see a major slide in the Free to Pro conversion and hoped to offset it with more ads on Free pages. With the already mounting back-up and server costs giving 5 away for free every month with the expectation of the conversion going down was a little unnerving. We wanted to run the experiment nevertheless.

Phew, conversion remained the same! Because of the free cushion number of tweets, FB widgets, page views and SEO traffic increased significantly.

The results above to a large extent beat our common instincts and beliefs. There’s only one thing that I can say: Before concluding Freemium models do not work for your service, get bold enough to run experiments. And remember, once you start charging, the backdrop against which you measure your achievements completely changes.

As I recall reading somewhere, the general assumption is that a woman’s achievements stem from her value as a domestic, sexual and romantic companion rather than as a skilled worker. Isn’t this an evidence of sexism pervading our society?

A Bootstrapper’s Diary

In the last post I had concluded that there are a few online marketing strategies that go hand in hand with product development which trump other offline approaches. Any approach that is measurable and can be easily iterated upon is a great initial strategy that can help in validating the product concept against a customer base.

From our personal experience, we have seen that, following a  targeted approach offered by online marketing (SEO and SEM) has far better results than following the blanketed approach in offline strategies. The early adopters of your service are most likely the ones that are actively searching for you. And a  majority of those solve their problems by searching for solutions online. The good thing about making yourself available to that set of audience is that they are actively looking for you. This without doubt puts them ahead of those who haven’t even realized that they have a need. And that exactly is the risk involved in offline marketing – spending resources on an audience that hasn’t realized there’s a need yet.

Also on the internet, the prospective customers that you reach out to are just a click away from your product unlike an offline approach where the funnel is too deep.

When we launched Muziboo, we busied ourselves with marketing by distributing Muziboo posters and demo-ing in colleges. What better way than marketing our product to the youth which will inturn help us spread like wild fire! Let me hasten to add this: it was all a gross misadventure for all the reasons stated above. And of-course, to make use of the volume discounts, we printed posters in huge numbers. For one, printing in large volumes totally discards the possibility of iterating on the messaging. And another, even if the messaging is right, the cost of distribution is enormous. We have changed our positioning and offering since then (which is inevitable for a startup) and hence couldn’t salvage much from the resources already spent. We still have thousands of them sitting tight in our attic while some of them occasionally  get used for brainstorming – thanks to the one blank side!

To come to the point, we pretty much shot ourselves in the foot by spending most of the initial but crucial months on this approach. And worse still, missing the opportunity of having the early entrant advantage with an app when Facebook app platform was launched. Unfortunately we couldn’t keep up our focus on either product development or online marketing with our offline efforts.

Just to give you an idea, we signed up about a hundred users a month during those months. But ever since we realised the power of online marketing we have been growing steadily. And today we sign up around 15k users every month with ZILCH marketing spend. We achieved this rate of growth sitting right in front of our comps from our bedroom office (we have a proper office now though) without  having to step out or spend resources.

Well, after this experience would it be terribly wrong to conclude that offline marketing for a consumer internet start-up is a non-starter for a strategy?

A Bootstrapper’s Diary

The big question that awaits us all after we – a 2 or 3 member bootstrapped team – have cranked out enough code to launch a web product is “How do we market it?”. A sensible question to ask considering all the effort that has gone into developing it. And the answer that we most often settle on, though considered somewhat trite, is to go for online advertising, press releases, e-mail campaigns and the like to fetch probably the initial hundred users. In-spite of making a headway in this direction, there is a nagging dissatisfaction that we all experience for the reason that these answers can only go thus far…fetching a few hundred users. It is at this point that we are plagued by the inevitable thought: If there are hundreds of them using the platform just a few months from launch, it is only a matter of getting the word out to a million of them and success is all ours to celebrate. Hence, let’s go full hog on the all obvious approach of pumping more resources into mass marketing.

Does this thinking make sense? Intuitively yes. But from personal experience, we have understood that this approach, at this stage, is useless at best and detrimental at worst. Let’s see why.

A few months from launch, most of us are still finding our ground; looking to carve a niche. And the initial traction just indicates a possible need in the market for a product like yours and nothing more. What is pertinent at this stage is to engage with the early users to understand how your product is perceived, how your hypothesis of solving their needs with your product has worked out and what can be done to offer them better value and better experience. This step is extremely crucial for this not only shapes your product but also helps you validate your market. Also, undertaking this step offers the invaluable opportunity to evaluate features based on user needs and stop development efforts in directions that have not been welcomed thus saving precious development time and resource.

Another much overlooked aspect in the user engagement step is how it helps in making evangelists of your early adopters thus setting the ground for Word Of Mouth marketing. Right after launch it is quite possible that you perceive your product to be a bunch of features thrown together to be marketed to millions. However, over the course of your engagement with your users, you will realize that your product is not just about features but an experience in itself that needs to be improved for better adoption and wider consumption.

If you skip this crucial step and spend your time and money on driving mass adoption just months from launch, you will most likely be pumping resources into marketing a half baked product, a solution for a need that is still not validated, a company philosophy that hasn’t fully evolved and a positioning that is fragile. And how does all this prove detrimental? You have cut your existence short by exhausting limited resources. And you have unhappy customers or non-complaining ones at best.

A Bootstrapper’s Diary

Stories of successful Internet companies are heart warming fairy-tales – after they have exacted their fair share of efforts, from the founders, to get scripted. Any news of Internet success in the market leaves the self proclaimed ‘gurus’ mouth-watering, with an appetite to use start-up jargons and generous doses of ass-kissing, to give their ‘I told you so’ nuggets for wannbae entrepreneurs.  Start-up lessons are a dime a dozen in the WWW, as there are MBAs and weekend hackers. What leaves an odd taste in the mouth is that very few come from people with any experience at all. Most are abstract and aimless cliches feeding illusions of milk, honey and big-money which often work to the reader’s disadvantage.

Disadvantageous because, only entrepreneurs with real experience talk about setbacks and challenges (those everyday realities of business) rather than predictable fluff (build smart products; be committed as founders; stay ahead of competition) . Any straight talk is  glaringly missing in today’s discourses. These fake pundits have taught us enough to celebrate success, which may not be a bad idea by itself, as long as we don’t miss out on discussing those practical techniques that help in reaching the goal without quitting.

As an entrepreneur that has sustained the same business for 2 years, without soliciting or even needing an investment, I frequently get asked “How do you do it?” and “What is the journey like?”. Beyond all these plaudits, I sincerely feel, Muziboo could have gotten here faster with some sensible advice – admittedly, this was hard to come by. Hence my decision to take it upon myself, to discuss ( and not teach ) through a series of posts  all our experiences and learnings that we (Prateek and I) have gained through Muziboo under the heading ‘A Bootstrapper’s Diary’ in this blog.

I watched the movie Pi recently. It is a gripping movie about a number theorist by name Max, who is obsessed about unraveling the mystery of nature by understanding number patterns. There is one dialogue between Max and his mentor that brought a twinkle to my eyes. Reading this would not spoil the fun of watching the movie if you plan to. Hence, read on…

Mentor: You remember Archimedes of Syracuse? eh?

The king asks Archimedes to determine if a present he received is solid gold.

Unsolved problem at that time. I tortures the great Greek mathematician for weeks. Insomnia haunts him and he twists and turns in his bed for nights on end. Finally, an equally exhausted wife, forced to share a bed with this genius, convinces him to take a bath, to relax.

While he is entering the tub, he notices the bath water rise.

Displacement – A way to determine volume and thus a way to determine density. Weight over volume and thus Archimedes solves the problem.

He screams “Eureka!” and runs naked to the king to report his discovery.

Now, what is the moral of the story?

Max: That, a breakthrough will come

Mentor: Wrong! the point of the story is the wife. Listen to your wife, she’ll give you perspective.

Meaning, you need a break or you’ll get nowhere

The concept of charging users for an on-line community platform is quite a departure from the conventional preachings of the internet. ‘Freemium models’ are most often dismissed as an overreaching effort to increase revenues. But there are a few good reasons why I strongly feel a freemium model would work better.

One of the toughest challenges in building and sustaining an on-line community is establishing trust among users who have never met in the real world. Most users are wary of false identities and this inhibits the formation of trusted interpersonal relationships online. Paid account holders carry a certain level of authenticity and thus establishing mutual trust among such users gets easier.

Charging users creates a decently high barrier to entry and any barrier acts as a filter that ensures a certain quality in content. This also ensures that as a business owner you spend much lesser resource and time on moderating/flagging content to keep the place clean.

And last but not the least, users are not threatened by the possibility of the service shutting down due to unmanageable costs.

More revenues, lesser overheads and better trust – What more do we need to believe in this model?

Myself and Prateek were discussing the other day about how existing brick and mortar companies would alter their business plan and functioning if they got inspired by the internet companies. The core objective is this – Never charge your customer for your core competency(offering). Give it away for free to attract more customers. Make money through something not directly related to your offering.

It is evil to charge your customers. It is your problem if you are not creative enough to come up with other attractive ways to make a business of your offering.

I am jotting a few of them here. All contributions welcome.

KFC, Mac D and the likes

Everything in the menu is free. The company takes a cut from the tip to the waiter ( Tipping is not mandatory).

Automobile companies

The vehicle is free. The customers will be charged for all accessories and maintenance

The Wall marts and the Big bazaars

All items on display free. Customers will be charged for parking space

The above examples sound hilarious, almost ridiculous. But the this is the norm in the internet world!

Let’s see how the whole ‘attention economy’ thing unfolds!

In my opinion it hardly is. By saying its an alternate career option are we trying to tell the students that they can choose to work with Wipro or Infy or heck, they can do something on their own? Well entrepreneurship is not an alternate choice, its a personal option chosen by a person after having some experience to understand himself and what he wants and how he wants it.

I am immensely puzzled by the sudden trend to promote entrepreneurship in colleges through courses as a part of the syllabus. Well it definitely makes sense to learn how to draw up a business plan but thats just a part of a business course! Entrepreneurship to a large extent is about perseverance, patience, ability to take initiatives, responsibilities and myriad challenges. When such is the case how is anybody gonna teach all this in a classroom. If there was so much logic and science behind entrepreneurship that it can be taught in a classroom why are entrepreneurs still dabbling?

Well, what made me twitch was this . If I am not wrong, its NEN conducting a course for teachers to teach entrepreneurship to students. Is something grossly amiss about my understanding of things?

Is NEN sure about what its goals are? If they are out to create an ecosystem around entrepreneurs and startups, it can have tangible benefits. But pumping resource and energy into spreading and celebrating entrepreneurship at college level when nobody has any clue seems to undermine the true spirit.

Orkut is undeniably the biggest and the most used social network in India. But slowly the Facebook fad is catching up here for many reasons- their cool apps, the privacy settings, the american population etc etc., Also, am really not sure how the apps on orkut are faring. I have not received feeds from friends on them adding or using apps or for that matter even invitations for apps. If thats not the case, am not sure how users are supposed to discover apps on Orkut. And sad enough when I visit friends profiles, it takes so long for the applications to load that, by the time it happens I am done with my job there and long gone!

To top all this, I see lot of google ads for Orkut which invariably have irrelevant ad description. If I am not wrong this is the first time I see google advertising for its own product and worst still is the fact that the ads grossly lack class!

To many of us, Google has meant class and zen which they definitely have across all their products. Well in my opinion the first exception is Orkut. There is a strong possibility of Orkut losing out to Facebook in the SNS game which is right now the biggest wave on internet

Personally this is the first slip I have seen from Google!