Fixed Cost Marketing

Maximize your fixed cost marketing before you raise money and throw it at user acquisition.

No one at Qbix is an expert in traditional marketing. We’ve focused on other things: carefully designing user experiences, building great products and steadily architecting solutions to challenges facing social apps, which have come together in a unified platform. And until now, it has served us well. From day one we have proudly displayed our user metrics on our website:

Most of the user base growth has been linear, because both Groups and Calendar have so far been for personal use without much reason to invite friends. That will change this summer, but for now, let’s analyze what occurred.

We have had very few articles written about us or our apps until now. We didn’t actively seek to take part in promotions. We have spent next to nothing on marketing or PR. In fact, until now, we haven’t even raised very much money compared to Silicon Valley startups, but the vast majority of what we did raise went into web hosting and development. All this growth was achieved organically, using existing systems the way they normally work.

To be honest, we didn’t do this on purpose. We actually did put in some effort to get stories about our apps, but without prior relationships, it proved to be more difficult than we thought. We tried advertising Calendar Plus (our Mac app which sells for $9.99) but didn’t find an ad network that would target ads by operating system. We tried raising a Series A round two years ago, but weren’t successful, being inexperienced with fundraising – as well as being on the east coast in the middle of a Series A crunch with very few personal connections. Still, we continued basically doing the thing we knew how to do best: build products and iterate them, making sure our growing user base stuck around.

Two years ago, when we launched our apps, we wrote about our progress and how we were able to achieve it. Since then, we’ve come a long way, our team has grown, and we realized that our experience can be valuable to others. We want to continue sharing those lessons which we feel are making the greatest difference for us.

Customer Acquisition Cost

The truth is, if your app already converts visitors into paying customers at a proven rate, you’re probably ready to do traditional marketing. As long as your customer lifetime value exceeds your customer acquisition cost, you will probably be able to find an investor to finance this operation.

In reality, though, the trade-off is between the uncertainty in how much a customer will really pay over time, vs. the friction involved in an up-front purchase. If you could pull it off, it would be much better to create a product with a free trial where customers eventually sign up for a subscription. By properly using social elements in your product, you can reduce your customer acquisition cost tremendously, and actually prove you can get loyal paying customers. Once you’ve done this, then you can go big, and you won’t have to go home. That is what the rest of this article will be about.

Discovery

The concept of fixed costs and variable costs are well known in marketing and economics. Looking back, one of the biggest reasons we were able to get where we are is that our strategies all involved fixed marketing costs. They used existing infrastructure, but sometimes took advantage of certain “hacks” to gain an advantage over the competition.

There are many ways to stand out in creative ways. One of the most obvious ways we did this was to get in early and grab names such as “Groups” and “Calendar” to begin with. Being aware of how the app store worked, we knew that users would search for a particular word to solve their problem, and we named our apps with that word. This, combined with making our apps free, caused them to rank #1 in the search.

If you’re starting a business, the first step isn’t to register it with the state – it is to make sure a good domain name is available, one that can be a good brand which stands out in searches. That is how many people will find you. The domain “Qbix.com” cost us $2000 (how we got that is a story for another day). RapGenius is another example of a website that is found entirely organically without marketing, thanks to song lyrics. They didn’t have to pay lots of sites to get good search engine ranking.

Certainly, there are other, more external ways to be discovered. Most of them rely on viral marketing. And while guerilla marketing can be fun and effective, we are not experts on it, and thus we aren’t sharing our experience here. Almost all our efforts that succeeded so far have been intrinsic in the actual products we build.

Thoroughness

At Qbix, we have “best practices” documents for lots of things we do, from hiring to releasing a product. When we find a major tactic or strategy that worked for us, or for someone else, we save it there. Over time, this has proved to be invaluable, allowing us to learn from previous mistakes (much like regression tests are for software) and brainstorm new solutions from existing patterns (like someone who is fluent in a language).

For example, we found out the hard way that apps are supposed to proactively ask users to rate them in the store. The message should go something like, “If you like our app, could you please review it?” Without this, people were much more likely to rate the app if they had a bad experience, leading to much lower ratings. Moreover, the number of ratings – especially positive ratings – increased when we asked people on every 3rd day. Similarly, the amount of bad ratings decreased when we placed the Support link and FAQ section prominently in the app, pre-empting many a user flow that ended up in a bad review. (Sadly, an app like Groups on the iOS can run into OS bugs in some environments. As frustrating as it was, sometimes the best we could do is build a clunky workaround.)

After discovery, thoroughness is the next big factor for maximizing the bang for your buck. Each particular technique can make a difference when the factors are multiplied together.

The Flow

In essence, the main thing we’re talking about is maximizing the following user flow:

Discovery -> Onboarding -> Engagement -> Evangelism -> Monetization

Whether you have an app, some kind of business, or even a nonprofit charity, you should develop metrics to measure how effective each transition is from one state to the next. Do A/B testing and iterate until your KPIs comfortably exceed the thresholds needed to achieve a good return on your variable costs. Prove this to yourself, and then prove it to others with shiny, convincing reports – or maybe even a video. Then you are ready to commit a substantial amount of money and do a land grab. It will go much further, and you will be able to raise it on better terms as well.

We have written in the past how a business can dramatically reduce customer acquisition costs by adding organic social elements. But it goes further than that. The invited user – whether they are a person or an organization – gets psychologically invested in the app the more they use it. It is here that your onboarding process becomes crucial. If you can make the user happy early on, and give them what they’re looking for without making them work too hard, they will come back. The rewards have to be disproportionally large in the beginning.

One of the most effective ways to achieve this is to present new users with useful crowdsourced data to explore, clone and interact with. As they do this, transactional notifications pull other users on the app into social interaction that rewards both the old and new users, effectively providing them with genuine social feedback and releasing dopamine in their brain – not from game points but from positive social interaction. They will then voluntarily invite their friends, as part of another flow that someone initiates on the app.

Prove there is Demand

This coming year, we plan to expand into two markets that we haven’t entered yet. While we already have a good user base, and a plan to move forward, questions remain – is there demand for our solution? Are people willing to pay? And how do we market to those people?

Traditionally, these problems were solved by doing an in-depth analysis of a particular vertical. Maybe your app lets customers reserve time on someone’s calendar. It can be used by tons of professionals, but you have to pick one particular segment and build the app for them. If you guessed wrong, then you might have to pivot. The real issue, however, is that it’s much better to identify demand before investing in variable costs. First, maximize your bang for the fixed cost as we’ve been describing. Prove there’s demand, and that you can be successful in measurable ways. Only then, after you’ve done the math, raise the money and pull the trigger.

There are lots of ways to test for demand on a small scale – many of you are familiar, for instance, with using Google Adwords before actually building a website. However, there is one killer strategy that, if you can pull it off, will give your company a significant advantage over its competitors.

Put simply, create a social product that people find their own reasons to use. This can be well-executed chat app such as WhatsApp, or it can be a social jukebox. But whatever it is, it must be social and you must iterate until you have good metrics on discovery, engagement, and so on.

After a while, look at what people are using it for and find out who stands to benefit from this. Those are your customers. Now you can devote your limited resources to building the best onboarding process for those customers. These are still fixed costs. You haven’t begun marketing yet. You first must beta test with actual customers and iterate until the onboarding works like a charm.

Now, incentivize your existing users to invite your customers. Perhaps you’d like to use in-app credits which they can use at the customer’s business. Usually, the customer won’t mind rewarding the user who invited them, and chances are, they were friends long before your app came along. Once the potential customer is invited, your onboarding process can take over. The more results you get for them (such as importing their data into your social app’s system, giving them ways to engage your users, etc.) the more they will be willing to pay later.

Finally, incentivize customers to invite more users by cross-promoting them in your app. Give them promotional materials (with your app’s QR codes) to give to their members, and in return

And if you’ve done all the above, and you still want to grow faster, then you can finally begin engaging in variable-cost marketing.

We’d love to know whether any of the ideas here were helpful. Tell us what you’re working on in the comments below.

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A new kind of social platform

There’s a reason our blog bears those two words, “Empowering People”. Qbix was founded on the notion that great platforms can power great tools, and great tools can empower people to get more done and greatly improve their lives.

Today I want to share with you a glimpse of the upcoming Q Platform which our team has been working on for the last two years, in stealth mode. Even as we grew our consumer apps to over 1 million downloads (1.3M as of this writing), we were quietly working on a platform for group activities, that we would unroll to our entire user base. We built it for ourselves, but we are eventually planning to release it to the entire web developer community. I’ll get into what it does, but first a few words about why this is the right time for such a platform.

What’s out there today

Lately, more and more entrepreneurs and developers have begun to feel the need for alternatives to the Facebook platform in order to get real social growth and engagement for their apps. Investors are starting to realize too, that apps built on a platform that may be pulled out from under you tomorrow are very risky. I certainly learned this lesson the hard way a few years ago. I started building facebook apps back when the Platform first came out, in 2007. Things changed a lot since then.

Twitter, is a famous example, too, of cannibalizing its third party ecosystem as it grew. It went from bad (in 2010) to worse (in 2012).

The biggest social networks of today started in the age of desktop computers, whereas most people have moved to mobile today. Their mentality of sharing and ad views is behind the times and delivers smaller margins all the time, increasing the temptation to “sell out” their users and expose them to more advertising. Our vision is very different.

Social networks are very useful. They should let good applications spread through social channels that are responsibly managed, whether those applications are third-party or not. But that’s not happening now.

A new approach is needed.

The Q Platform

Okay, so what should a modern social platform have that would create better opportunities for developers and users? At the core, it should have a philosophy:

empower people — both app developers and users — by giving them control over their own data, and tools that match what they are actually looking to do.

That’s all well and nice, what about specifics? Well, I’m glad you asked, because we’ve had a lot to do over the last two years. Once you finish reading the list below, you’ll wonder why a platform like this isn’t around yet. We were wondering the same thing.

  • Write once, deploy everywhere – Apps built on the Q platform can work on desktop computers, tablets and mobile smartphones. HTML5 makes it possible, with help from great tools like PhoneGap
  • Universal user signup – Out of the box, your users can sign up using an email address, mobile number, or connect with facebook at any time. We recommend mobile numbers because it’s harder to get a lot of accounts and spam the system.
  • The address book is the new friend list – Instead of those 1038 fake “friends” on facebook, the people in your address book actually pick up the phone when you call. These are the connections we help people utilize, and give them tools to effectively manage them.
  • Group activities – We consider ourselves a Group Activity Platform, because we focus on facilitating actual collaboration between people. What the activity consists of depends on the particular app. The Q platform will enable many existing apps to become collaborative apps, by giving them all these social features out of the box.
  • Real time collaboration – Our platform is based around streams that people publish. We use Node.js and socket.io to push real time changes to everyone who’s online participating in the stream.
  • Offline notifications – When you walk away from your computer, and aren’t looking at the stream in real time, you can have notifications delivered to your email or smartphone.
  • Eliminate SPAM – The Q platform gives users full control over what streams they want to subscribe to receive notifications from. People can even set up specific filters and rules deliver some alerts to them on their mobile device — for example if it’s from their family. The platform learns about their usage and can suggest intelligent defaults for them that they can override as needed, minimizing work but retaining full control.
  • Privacy back in your hands – We give you complete control over who sees what you publish. On facebook, you can be tagged in a photo or invited to a group without your consent. On the Q platform, you’re invited to a stream and only when you actually show up do you accept or decline. We go much further, however. We have a full and robust roles and permissions system, where any individual or group can show different things to different types of contacts in their address book. Individuals have friends & family, while groups can have managers & admins. The platform can be used for teams and enterprise applications as well. You will find our architects waxing poetic about the group vs the individual, and what design will best empower people to get things done.
  • One-step invitations – If you want your apps to go viral, you want the least amount of friction for new people to sign up. Our platform allows people to invite their contacts to any group activity, and each invite has a special link, so as soon as you click it, your email or mobile number is verified. We also give you infinite sessions so you don’t have to set up a passphrase unless you try to log on from another computer. In fact, you can try out the app without downloading anything, and if you like it, you can get the native app, and continue using it without needing a password. New users can get started with minimal commitment and maximal security.
  • Real names – Speaking of privacy, what about the heavy handed real name policies from Facebook and Google? On the Q platform, a user’s first and last name are streams like anything else, which they can choose to display to some and not others. If someone can’t see your first or last name, then your username is displayed. Thus, a blog which incorporates the platform can be personalized to different degrees for different people.
  • Private and Instant Personalization – Many people thought this wasn’t possible. In the past, facebook simply shared your data with some “trusted partners” in order to “instantly” personalize your experience. We have solved this problem, and this was one solution that was non-trivial enough to patent. Thus, websites using the Q platform can display highly personalized information to visitors while being completely unaware of the information themselves, and even unable to track the user between sites.
  • Scalable out of the box – Suppose your app grows quickly to millions of users. The platform has you covered. Being passionate about the subject, we built a decentralized architecture that can be distributed among many machines around the world. And for local data centers, we built a sharding library that can split a hot shard into 2 or more anytime while your app stays online. Next up is automating this with Amazon Web Services APIs and monitoring.

We have built all this and more. Imagine a platform where you can access the apps from any (web enabled) device, try them out before registering for an account, and easily invite your friends through your phone’s address book. A platform where groups and individuals can control all the data, contacts, roles, privacy for stuff they publish, and easily manage subscriptions for stuff they consume. Where you can tweak them anytime but you usually don’t want to, because they are set just right. We’ve solved the technical architecture. Now it’s just a matter of building out the last 10%, and carefully iterating.

You’ll be hearing a lot more about our platform as we begin rolling it out to our own userbase. Until then – if you’d like to get involved, contact us! We are looking for great developers, designers, documentation writers, evangelists, and PR professionals. Because until now we’ve been doing it mainly on our own.

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1 million downloads, and beyond.

Qbix is starting this new year with some exciting news. A few days ago we passed 1 million downloads!

Since we first launched, we’ve always been confident to openly display our stats right on our website. Here are some highlights that we are proud of, though:

  • About 1 in every 5 people decided to keep our apps.
  • That’s about 220,000 monthly users, of which 40,000 are using them every day.
  • Both Groups and Calendar have a 4.5 out of 5 star rating.

Besides the above, we also launched our first paid app, Calendar Plus, to help people see everything that’s happening in their lives, in one place — whether it’s google calendars or facebook events, birthdays, or the weather. Looks like it got some good reviews.

Where this is all headed

Many startups begin with big dreams of changing the world, through new technology. They build and launch their MVP. Then their big challenge becomes finding product-market fit and getting traction. This is where the winners are made.

Over the last two years, we were lucky to find real demand our first products, and built a loyal and enthusiastic userbase. But this was only the tip of the iceberg. Many of you who have been following us know that we had much more in the works. Even as we worked on them for the last two years, we didn’t reveal our bigger plans publicly — until now.

The previous generation

Two years ago, before GroupMe and WhatsApp and Voxer and Google+, we realized that there was something major missing on the internet. Sure, people were spending all these massive amounts of time on their computers sharing pictures and videos with each other. But as they spent more and more of their lives sharing online, their real lives did not get any easier or more fulfilling.

There were many reasons for this, but most had to do with the design and business models of the original social networking sites, like Facebook and Twitter. Facebook, for example, is proud of being the site you spend most of your time on, but penalizes you for friending people that you might want to meet in real life.

The mobile generation

Mobile smartphones changed the game, starting with the iPhone. People are now able to have rich interactions with others anywhere. But to truly improve people’s lives, we have to move beyond “sharing stuff online”.

People need a better a way to coordinate and plan things in the real world. Tools that are able to help people do this will lead to organic business models around mobile, where marketplaces make money when actual transactions are made and everyone wins. That is where mobile’s untapped trillion-dollar potential lies.

Our vision

Qbix actually began with a big vision. We believe in the power of everyday communication tools to shape how groups of people collaborate. We set out to build tools that helped people naturally connect, form groups, and coordinate their activities. These tools would empower communities to get things done. There was a lot to do, and if we got this right, we would change the world.

Our goal for this year is to combine the Groups and Calendar apps into a social calendar, where people can spontaneously organize activities, plans can come together organically, and groups can make reservations at local businesses.

Technology and business model

Over the last two years, you saw Groups and Calendar go from launch to getting a million downloads. Behind the scenes, a large part of our team was busy building the Q platform, an ambitious new technology you’ll hear a lot more about in the months to come.

Building a mobile platform for real world collaboration presents real opportunities for innovation. Our work to improve the current user experience has led us to focus on several key directions:

  1. Less Pull, More Push.

    Many people incessantly feel the need to check their phone to see if there were any updates. This takes away from their real life and the people they’re with. Instead, people should be able set up subscriptions and filters for what they are interested in, and the service should notify them when something very relevant happens.

    If we get this right, the phone will stop being a distraction. A person should normally only want to reach for their phone if something in their real life prompts them to check out something specific, or because they are bored.

  2. Less Sharing, More Planning.

    So much of what we do online seems to consume our time and energy, a bit like the machines in the Matrix. Sharing your life online is possible to do after you’ve already lived it in the real world. But a different kind of interaction with technology takes place before you head out. This is when you can make plans with other people and reserve various venues and services. Lots of social apps have made sharing a very engaging experience, but there is still a lot of opportunity to make planning real world activities an effective exercise.

    If we get this right, every minute people spend online will help lead to hours of activity in the real world, rather than the other way around. People view planning as a means to a definite end, such as having dinner, or learning a new instrument.

  3. Less Ads, More Deals.

    As I write this, the price of advertising online is falling. More and more ads are being shown on mobile devices, but they are less likely to lead to a purchase and thus cheaper. Big tech companies like Facebook and Google are trying to “crack the mobile problem.” The problem is in the psychology of ads: they feel like they want something from us.

    On the other hand, people will be using the mobile phones to spend money in more and more ways. And what we really want is get a good deal on something. What’s more, we’d be more than willing to earn rewards for taking meaningful actions that help the business. Things such as writing a review for others, or getting a group together for a social activity.

    If we get this right, businesses will come up with creative and useful ways for their customers to help them generate a good deal for themselves and their friends. Both sides will benefit from the deal, and will gladly pay the app for brokering it.

Expect us…

It looks like 2013 will be a breakout year for Qbix. We plan to roll out the above platform to our users, one step at a time. In time, the entire vision will come together and become clear to everyone.

If you’d like to know more, subscribe to our blog. I will be writing in much more detail about the technical and user experience issues as we go along. Until then, take a look at this infographic, constructed by InsightsNow for AOL and BBDO, which shows how people are using their mobile phones today.

Reasons for using your mobile phone

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Calendar Plus has launched!

This is a big milestone for Qbix. After 9 months of development, we finally launched our first paid app: Calendar Plus. And a day later, it’s rocketed into the top 10 Productivity apps, and climbing.

Top Productivity Apps - Mac App Store

Top Productivity Apps - Mac App Store

We haven’t done any marketing or PR yet. So how did we get our app off to such a good start? Well, while I don’t have all the answers, we have done a few things differently. So let’s take a few steps back.

Step 1: Simple needs

Back when we released our first apps, we wanted to address a pressing need that we all felt:

  • Groups – Provides a way to manage your address book on your phone. The iPhone supported groups of contacts, but had no way to make them!
  • Calendar – Provides a way to view your calendars at a glance. The Mac didn’t even give you an easy way to check what day a future date was.

Due to the simple way we named our apps, people who were looking to solve these problems found them right away. That’s how we grew without any marketing. As of this writing, a year later, Groups is still the #1 app if you search for “groups” and Calendar is still #1 if you search for “calendar” on the respective app stores.

Step 2: Connect with users

Since their launch, our apps have had a combined 769,000 downloads. Not everyone kept it, but today we’re happy to have over 160,000 monthly users, of whom more than 30,000 use our apps every day.

Those users are using our apps in a very similar way to us, day in and day out. A quick look at the reviews of the Groups app will reveal this. We have a shared passion, and thus it’s often clear to everyone what we need to work on next.

Step 3: Keep in touch

Groups was getting raving reviews (to the point where people kept saying it should have come with the iPhone), and we wanted to do the same for Calendar. We had released Calendar quickly, so as to get something into the Mac App Store. But building a full featured version would go on to take 9 months.

During this time, despite Calendar’s shortcomings, it attracted a loyal user base. Calendar at its peak enjoyed 30,000 users a day (but is now down to 20,000 because apparently Mountain Lion renamed iCal to Calendar, which silently hides our app after the upgrade!)

We had set up a facebook page for Calendar, to serve as a support forum. While we were busy working on Calendar Plus, the page got over 2,000 likes! It also proved to be a great source of feedback and ideas for what we should include in Calendar Plus.

Step 4: Release something awesome

Calendar Plus brings together everything we wanted in a desktop calendar:

  • Accessible from an icon in the menu bar
  • Ability to integrate with iCal and Google Calendar, of course
  • Facebook: birthdays, events you’re invited to, events friends are going to
  • Totally customizable backgrounds and themes
  • Keyboard shortcuts for everything
  • Weather forecast

We figured that version 1.0 would be compelling enough to make a big splash in the app store. See it in action.

Step 5: Tell all your existing users

A couple days before the launch, we told our facebook fans that we were about to release Calendar Plus, and that it would be on sale for the first couple days. We created a page for them to leave their email address so we’d let them know when we launched it. Dozens of people left us their email.

Our apps have a way to display a message if we have something interesting, such as new product launch. In this case, we told all our existing Groups and Calendar users to check out Calendar Plus. That drove and continues to drive people to buy the calendar.

For now, we’ve surpassed Fantastical and CalendarBar in the Mac App Store. As this is being written, Calendar Plus is #30 paid app in the entire store. And the rate at which people are downloading it seems to be accelerating.

So what now?

Now we admit that we could use some help with the PR and marketing. Our team is awesome at building products and getting traction from users, but we haven’t spent time getting to know important bloggers in the tech world yet.

So if you’re reading this and you think you can help us reach out to TechCrunch, Mashable, NY Times or another outlet, definitely get in touch. We’ve accomplished everything on our own steam for now. Qbix seems to be writing its own great story, but very few people know about it … for now.

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Simplify.

The new year is here, and here at Qbix we are pursuing multiple directions at once, to implement our vision.

  • We are working on releasing Calendar Pro, a vast improvement over our current popular calendar app (with realistic calendars, social backgrounds, weather, and more) — our first paid app.
  • We are building a unified interface for our apps that will work on desktop, mobile and tablet browsers. About 3/4 of the way done with that.
  • We are working on a system that would allow people to invite each other to things more smoothly than ever before, participate in real time streams, subscribe to updates, download native apps on all platforms, and all this in a way that is more secure than using passwords.

Whew.

As usual, there is a lot to do. But if we are going to accomplish big things this year, sometimes we have to launch small. What I have noticed is that big things take a long time to get done — and while they are getting done, people have almost no idea what it is you are building. I’ve found myself talking about what we are doing, and sometimes I am able to get people to imagine it, but I would rather be showing. We should be launching.

So I have had a general insight about building a system — whether the tech side or the business side — that I want to tell you about. Launch the minimum extendable product first. Sometimes this is the minimum viable product, aka the MVP. But in a system so complex as ours, we have to worry that when thousands of people start using the minimum viable product, it will become too complex or impossible to build out the rest of our vision.

For example, Facebook has started with just a big group of “friends” with no way to put them into groups, until much later. As a result, the entire website has been defined by this. This has affected every part of what they do — from their look and feel, to the experience people have on their site, to their business strategy and decisions as a company.

We already have traction. Every day we have over 30,000 people using our apps (and, from what it looks like during upgrades, at least 150,000 people have them installed). What we are worried about is painting ourselves into a corner and not being able to execute the full vision we have set out to fulfill: namely, a platform for tools that really help people get things done together.

So we have a challenge. If we launch something, it will let people really start getting what we’re doing, and we will get a lot more money and resources which will enable us to pursue our ultimate vision. On the other hand, we shouldn’t launch something that will prevent us from executing our main vision as things grow in another direction.

The solution is to take the minimum product which has the potential to grow (e.g. by invitations and word of mouth), but make sure that even after it has a lot of users, there is a way to build your full vision.

In our case, most of the issues revolve around syncing contacts with your various address books. Part of the way we help people stay more productive is by organizing contacts into groups. But on the other hand, sync is a hard problem to solve. There are very good solutions already in place, but they do not support OAuth and people essentially have to give out their password for you to write a CardDAV and CalDAV client for them. Something that flies in the face of what we are trying to do. So we have to write our own address book importers and figure out what to do about syncing changes. Can we launch without solving those problems? Yes. I would talk more about that but this blog post has already become quite long, and in order for us to get things done, we will just have to break things up into smaller more presentable pieces.

Simplify. And launch!

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People love our apps.

The other day I got a notification that someone wrote on Calendar For Mac’s facebook wall. When I arrived there, I noticed something on the left that I hadn’t paid much attention to before:

Calendar For Mac facebook Wall

Check out the likes

We had 1,236 likes! Now, we had never asked people to like us on facebook. People come to this page when they click “Support” in our app. Apparently, out of the roughly 200,000 people who downloaded our app, 1,236 decided to “like” it on facebook. That made us feel good.

By the way, Calendar now has anywhere between 27,000 and 35,000 users on any given day. Its average rating on the app store is 4/5.

This seems to be an even better time for our iPhone app, Groups. Since iOS 5 came out, Groups has surpassed Calendar in the number of downloads. The number of people using it has grown to around 7,000 a day. And we love reading the reviews from people. I decided to take screenshots from the last two weeks and share them with you all. You know these are real because the second review wasn’t so flattering :)

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Phase 2: Complete!

It’s been a busy summer.

What we accomplished

Two weeks ago we had our 300,000th download. We are now up to somewhere around 340,000. On average, around 30k people a day use our apps. But all this happened without being viral. We didn’t want to launch any social features until we completed our back end and made it scalable. A couple servers can only host so many people, and we don’t want to crash if we grow too fast.

The Q Framework

Those of you who have been following our progress know that we’ve been pretty mysterious about our strategy. Yes, we want to change the world through better tools, but what does a Groups app and a Calendar have to do with that? Everything.

For the past two years, we’ve been working on a new technology. A unified framework that would power social applications more useful than the ones around today. They will be able to run on the web, on mobile devices, and on tablet computers, as well as be accessible by email, Jabber and SMS. It contains a number of serious innovations for which we have 4 pending patents. While I am not a big fan of software patents, I am glad that ours are not frivolous but represent serious improvements to the current state of the art. We are considering licensing them to companies such as Google.

Our Team

As we watched our apps grow on the app store, we worked hard to complete our web framework. Most of the summer has been spent coding and writing documentation.

Q Framework Guide

Q Framework Guide

We hired a couple more developers, and trained them in the use of our framework. The documentation and training has paid off well. I am happy to say that I’m now able to transition away from coding completely, and focus more on my responsibilities as a CEO. We have a team of extremely talented developers and we are all ready to go into what will be the most exciting period of our company to date. We will launch the first apps on our social platform!

Next Steps

In early October, we plan to release Calendar Pro, a vast improvement to our Calendar for the Mac. It will feature a realistic-looking calendar, natural-language event adding, integration with facebook and google, and much more. We’ll be entering the same space as CalendarBar and FantastiCal.

Also in October, we will be releasing Groups, our popular iPhone contact management application, for all mobile platforms, thanks to PhoneGap. That means it’s coming to Android and Blackberry, as well. Our new Groups will feature Chat, putting us in the same space as Kik Messenger and GroupMe. Except that we will have technology that makes communicating much more effective for everyone.

Whenever we release an app, we can let our 30,000 daily active users know about it. So far many of them have been writing in, asking when we will release the paid versions of our apps. Well everyone, stay tuned — it’s going to be better than you think :)

Long Term Plans

Many of you have guessed what our long term goals are. We are combining Groups and Calendar, and together with our social platform, we plan to release a Social Calendar. Yes, social calendars have been done before. But none of them have been done well. We haven’t spent 2 years for nothing.

By the way, we have started raising our second round of funding. If interested, contact us.

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Phase 2: Under way

Back in the end of March, I posted about successful completion of Phase 1. We had released two very successful products: Groups and Calendar, and they were being used by 26,000 times a day 7,500 people. Two months later, our numbers have doubled: every day now, they’re used 49,000 times by 20,000 people. How do we know? We programmed our apps to ping the server every time they’re opened, so we can analyze usage and improve user engagement.

Here is the overview from the last 10 days, if you’re interested:

mysql> SELECT DATE(time_ping) day, COUNT(DISTINCT udid) users, COUNT(1) pings
    -> FROM calendar_ping WHERE time_ping >= "2011-05-01" GROUP BY day;
+------------+-------+-------+
| day        | users | pings |
+------------+-------+-------+
| 2011-05-28 | 12944 | 27429 |
| 2011-05-29 | 14214 | 30504 |
| 2011-05-30 | 16323 | 36986 |
| 2011-05-31 | 17021 | 39326 |
| 2011-06-01 | 17023 | 39488 |
| 2011-06-02 | 16669 | 39085 |
| 2011-06-03 | 15802 | 36066 |
| 2011-06-04 | 13889 | 30173 |
| 2011-06-05 | 15245 | 34086 |
| 2011-06-06 | 17645 | 39671 |
+------------+-------+-------+
37 rows in set (3 min 59.63 sec)

mysql> SELECT DATE(time_created) day, COUNT(DISTINCT udid) users, COUNT(1) pings
    -> FROM groups_ping WHERE time_created >= "2011-05-01" GROUP BY day;
+------------+-------+-------+
| day        | users | pings |
+------------+-------+-------+
| 2011-05-28 |  4047 |  9418 |
| 2011-05-29 |  3901 |  9379 |
| 2011-05-30 |  4213 |  9653 |
| 2011-05-31 |  4714 | 11118 |
| 2011-06-01 |  4754 | 11298 |
| 2011-06-02 |  4628 | 11071 |
| 2011-06-03 |  4644 | 11213 |
| 2011-06-04 |  4102 |  9566 |
| 2011-06-05 |  4189 |  9911 |
| 2011-06-06 |  4119 |  9514 |
+------------+-------+-------+

 

Improvements

Since then, we’ve been working hard on our next phase — increasing user engagement, improving the user experience, and launching revenue streams.

One of the problems that you can see above is that there is a high churn rate. As of this writing, we have had roughly 100k downloads of Groups and 100k downloads of Calendar. While it’s true that every day, our apps are being used by 1 in 10 users who have ever downloaded it, we should do better. What about the other 9/10 of users? Well, we got a partial answer when we checked out our updates. The Groups app was updated on May 8th, and this led to the following chart:

Updates

Updates

Counting the number of people who upgrade gives us a pretty good estimate of how many people still have the app after they’ve installed it. By May 8th, we had around 80,000 users, and 20,000 users kept the app.

So our user retention rate for Groups was pretty okay. 1 out of 4 people kept our app and got the new upgrade when it came out. Our user engagement was less impressive — they used our app less than once every two days.

Calendar was doing much better. It was also downloaded by around 100,000 people, but it was being used three times as much. It actually became sort of a running game on the team to see which app would outdo the other. When Groups became free, it quickly started catching up to Calendar in terms of downloads, but its user engagement was still lagging behind.

Analytics

Thanks to our pings, we had a whole lot of data to look at. Our first idea was to check out how many users who fired up the app wound up using it on day 2, day 3, and days 7, 14 and 21. We found that most people who kept the app until day 2 liked it and continued using it. The problem, then, was with the new users. The app was not easy enough to start using or not compelling enough.

We knew that by adding social features later, we could increase user engagement, but this wasn’t a day-to-day user engagement problem. This was an issue that called for improving the first impression that our app made with users.

What do users want?

So we spoke with our users. Every day, we’d receive several support emails from Groups users. We decided to add a “PS:” to each email, asking them how they easy they found Groups to engage with when they first launched. Turned out, a lot of people had trouble navigating the interface — especially those who weren’t very tech savvy or just got their iPhone recently. Additionally, we felt that if the user didn’t make any groups, they wouldn’t find the app very useful as a contact manager.

The answer was clear — make a tutorial. So one of the things we added to Groups 1.6, our latest version, is a tutorial that you can launch if you haven’t made any groups yet. It walked you through the major 3 or 4 screens of the app, and showed you the main things you can do with it. We just submitted it to Apple, and once we have some data, I will write about whether that made a difference.

Poking Around

The current phase we’re in is all about metrics. If we are going to improve something, we have to be able to measure it. So we’re building tools to better analyze our user engagement, user retention, and user ramp-up metrics from the data we’ve been getting. As far as revenue streams, that’s pretty straightforward. Each in-app purchase is roughly independent of another, so the metric is how much revenue each one is bringing in every day.

Profitability

One of the other things we started working on is becoming profitable. If we will bring in more money than our burn rate, we are able to sustain our business indefinitely. This is a good position to be in when negotiating a valuation for the next round of funding in your company. You can sit back and focus on growing the value of your company, and take investment only if it makes sense, rather than out of fear that you’ll run out of money.

Later this month we’ll be releasing a major product: Calendar Pro. Unlike Calendar, it will be a paid app, probably around $1.99 , and in many ways it will be far beyond the various calendar apps that are selling right now for $15 or more. It will have things like:

  • Google and Facebook syncing
  • Weather forecasts
  • Beautiful calendar views and backgrounds
  • Community managed collections of backgrounds
  • Ability to add events just by typing the information

We are looking to see if it makes sense to add any in-app purchases, as they were just announced at the WWDC earlier today. Anyway, we have some plans with this calendar app, but we aren’t going to reveal them just yet.

Next Steps

While our team is working on Groups and Calendar, we’ve had a couple other projects in the works. The team has grown to about 7 people, some working part-time, others full time. I’ve been busy coding, working on a scalable architecture for what is coming. I had said to myself I won’t code much anymore, but this particular thing I’m working on is very important.

Stage 3 will be all about viral applications. Only after we tweak the user engagement and user satisfaction, and we are satisfied with our metrics, will we add viral features. We are lucky that our apps have great discoverability, and that many our users stick around and love them and keep using them. So we can take our time and get things right before continuing.

But before we dare make something viral, we need to scale. I will talk about our scaling architecture in a future post. It is quite different from the typical stuff you find on highscalability.com . What I am working on won’t just be scalable, but distributed.

In short, there are fun things ahead. Right now, we are just working hard to prepare.

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What Makes Companies Great

Investors have all sorts of criteria for trying to predict whether a company will become a runaway hit. Here’s ours:

It’s about the experience of the user (individually) and the user base (collectively).

Each person goes through their own personal story of interacting with your product. At each step, they have a certain impression and attitude. Each person is unique, but collectively, their actions create awesome effects. I have a great respect for the power of the crowd. Edward Burnays, who all but started the field of PR, understood that you can change the world by motivating the crowd, and to do that, you need to appeal to individual people.

Social media is the next generation of this. We get to craft products today that can have an incredibly rich and individual interaction with people, and give them a way to connect with the other users of the product. There are a million possibilities, and the products that succeed are the ones that can become viral and engaging. The products that become great are the ones that give users the tools to create even larger social effects, and have an effect on our culture.

How to be confident that you will succeed

Every person that uses your product will go through certain steps in a user flow, including:

A) They somehow find out about your product
B) They get their first initial experience with it.

E) They get engaged and start investing their time into it.

M) They discover other people using the product.

R) They start generating revenue for you

V) You achieve viral growth

X) Your company is successful.

Z) Your company is great.

Given what I said above, the main question I ask when I want to know a company’s chances of succeeding, is:

How will you get a person to go from step A to step R?

Once you are step R, you are fine. Turning revenues into profits can be done by streamlining your business, charging enough to cover your costs. You can reduce your customer acquisition costs to zero by increasing your viral coefficient. And your revenues should be able to help get you to step V.

Once you hit step V, you are in really good shape. This is mostly because once you start growing virally, a lot of people with money and connections will be interested in helping you grow. With so many people and resources on your side, it’s not about you failing anymore. You will expand in new directions. The investors win, you win.

But for me, it’s all about the experience of the user at every step. What will make them want to progress to the next step?

  • Social proof. When a user first encounters your application, will it come recommended by a friend? Even better, will it have an activity that your friend needs you to join, that you would enjoy more together?
  • Self-expression. Make it easy to publish something to your friends. Then you will want to invite them to look at it. YouTube won because of this.
  • Potential reward. The prospect of earning points towards a reward, such as a badge or extra privileges on the service, motivates a lot of people. Just make sure the game mechanics are not cheesy, and show people a taste of what they will get before they put in their time and effort.

There are lots more things you can do. Our products are all distinguished by the fact that we give groups of people the tools to collaborate on a common activity. So you don’t just invite your friends to view what you’re doing, but to participate in it. It combines social proof, self-expression, and — we believe — increases productivity for everyone.

How can we be confident that we will succeed? Because we have investigated the way people will interact with our products, before we even built them. You can do a simple market study with people from all walks of life, and it will tell you a lot about your chances. Here is what you do:

  • For each screen and stage of your product, mock up a realistic image of what the user will see.
  • Have the person imagine interacting with the product.
  • Tell them the story of how they arrived at this screen. Perhaps a friend just invited them and they are at step A. Perhaps they have the opportunity to invite friends to see their work, or abandon it and leave the site.
  • Ask them to literally “click” or “tap” what they would do next, and describe what they are thinking, and what they want.
  • Try different variations of the screens. We found that the word “Save” is better than “Share”, because people are worried about their work being discarded after putting in the effort to create it.
  • Realize that the probabilities multiply. If a person has a high probability of going from A to B, B, to C, but most people don’t want to go from C to D, then you have to fix that before you can claim your business will be successful.

In my opinion, this sort of research is crucial for predicting the success of an internet startup. Of course, your business model should make sense, given the projected viral coefficient from this research. But if you can show that the business model remains profitable for a broad range of inputs, and if you can show through empirical research that a significant proportion of people have gladly taken the steps A – R on paper, then your project is probably worth funding.

At that point, it’s a question of execution and metrics. If you build your product and your metrics are falling below what your research predicted, then you should work on getting them within your business model parameters. You would do this through repeated A/B testing. Finally, when everything checks out, you can publicly launch.

Good luck and may we all be involved with great companies.

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What’s Your Business Model?

Before the internet, most businesses would generate revenue directly from their customers, and invest in marketing to bring in more customers. Only mass media –including newspapers, magazines and TV — was ad-supported. In fact, even AOL made its money using this traditional business model.

The web became a big game changer. Suddenly, you could publish an interface that everyone with a web browser could interact with, anywhere in the world. Inviting other people, and accepting the invitation, became as simple as sending an email, and clicking a link, respectively. Suddenly, any website could become a “mass media” outlet, and sponsor itself with advertising revenue. New business models became possible. Ad networks for the internet appeared.

At its core, every successful company provides an experience where enough visitors want to progress to the next step, and become clients. In another article, we will talk about the psychological and social aspects of this, but here, we are just concerned with the numbers.

The Formula

Let’s derive a general formula that describes how almost all internet businesses make money.

For a business to be profitable, its revenues must exceed its expenses. The fixed costs include software development, user experience design, and the usual overhead of bureaucracy and running a business. The variable expenses include the cost of acquiring a new client, the resources spent in serving this client (bandwidth, hard disk, support), and the resources spent in serving visitors who do not become clients. This can be expressed as a function of n, the number of clients, and time, t:

Profit(n, t) = Revenue(n, t) – Acquisition(n, t) – Serving(n, t) – Visitors(n, t) – Fixed(t)

  • Acquisition(n, t) – the cost of acquiring n clients
  • Serving(n, t) – the cost of serving n clients
  • Visitors(n, t) – the cost of serving the visitors that led to the n clients
  • Fixed(t) – the fixed cost, it amortizes over time.

When you want to start a business, figure out what your costs would be for this formula. I would recommend making an Excel spreadsheet and plugging in some realistic estimates of the revenues and costs. Then — and this is important — do a sensitivity analysis. Perform a Monte Carlo simulation where you perturb the various revenues and costs, and see what the constraints must be in order for you to make a profit. Often you will find that your business model depends on incredible luck or a huge number of clients in order to start generating a profit. It is not viable — yet.

Viral Can Work

One of the greatest game changers on the internet is that the viral coefficient can dramatically lower the your client acquisition costs, and make an otherwise un-viable business model viable.

Without users inviting other users, your acquisition cost would be a fixed cost per client: spend $5 on ads, get 20 visitors, and convert one to a paying client. Thus, if on average only 1 out of r visitors becomes a client, the cost of acquiring n clients would be:

Acquisition(n) = Ads(n • r) + Visitors(n • r)

Typically, the biggest expense here is the advertising — websites try not to spend too much on visitors who haven’t made an account yet. So when your users start to bring more visitors, really good things start to happen. Your advertising costs go down significantly.

But user invitations is not something you have to leave up to chance. By defining your concepts in useful ways, you can analyze your business model scientifically.

The Viral Coefficient

There are many ways one can measure the rate at which users invite other users. Let’s define the viral coefficient for a given week to be:

V = the number of new visitors that was brought to the site during that month by following an invitation link, divided by the total number of visitors at the start of that week.

By defining the viral coefficient this way, we are able to actually measure it at the end of each week. From this definition, one can see that V has compounding effects on your advertising costs, eventually eliminating the need for advertising.

  • Typically, V is small for most websites — perhaps something like 0.1 . If it stays constant, you will get a geometric series: for every 100 people you bring directly using pay-per-click advertising, you will get 10 for free the next month, and 1 the month after that. The waves die out eventually, but the cumulative sum is somewhere near 1 / (1 – V).
  • If V has been >= 1 for several weeks, you don’t need to advertise at all. Your user base is growing exponentially!

Notice that calculating the V required some very simple operations at the end of each week. However, this definition has a direct relationship to your business model, allowing you to see exactly how far your pay-per-click dollars are going.

Making Your Site More Viral

It’s pretty clear by now that the viral coefficient plays a crucial role in the profitability of your business. The bigger it is, the more profit your business can make, and the faster it attract users.

Be careful what you wish for, because all the other variable costs increase with the number of users. This is where the architecture of your back end servers really becomes important. If it’s not designed correctly, your costs will skyrocket quickly and you won’t be able to scale. This has killed quite a few promising sites. Sometimes, steady growth can be a good thing.

Increasing the virality of your site requires measuring it in the first place. By tracking links inside invitations, you can get a more in-depth analysis of how often the invites get accepted. You can take a google-like approach, and do A/B testing among dozens of different types of invitations. Since invitations are shared away from your site, you wouldn’t use the normal Google analytics tools, though. You’ll need special analytics to track invitations.

The platform we are building will allow you to get these types of analytics out of the box, see how your business model is performing, and figure out which steps you should take to improve your profits. Stay tuned.

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