APIs First

Lots of discussion about whether a service should be “mobile first” or “web first”.  I tweeted it actually should be “API first”, and I got a lot of reaction to that comment and asked to expand.

First let me clarify.  I believe mobile IS important and a huge emerging channel.  Source of traffic has shifted dramatically and I don’t have my head buried in the sand in that regard.  Across many of my companies, mobile origination (tablet included) comprises anywhere from 30-50%+ of traffic.  I recognize that access patterns have structurally changed.

When I say API first, I mean that an idealized service needs to start with a core infrastructure with robust APIs that is tapped into via any number of “front ends”:  web, mobile, and even 3rd party ecosystems.  If you look behind many “web first” companies today, including in our portfolio, you’ll see a very clean architectural split between the front end and the back end.  The back end exposes a range of services that allows the front end to innovate independently and be re-purposed in interesting ways depending on changing business needs.  The rate of change on the front end is usually a LOT higher than in the back; the scale and stability requirements on the back are far more demanding than on the front.

“Mobile first” companies really are just a front end selection accessing a solid API driven backend infrastructure.  The use case, the logic, and what the app is optimized for may be a subset or different than Web, and I think this is what Fred Wilson and others are focused on.

But as I look at the world, while point of entry may vary, I believe having all three elements of web, mobile and 3rd party are going to be table stakes in the future.  You CANNOT be one only.  Users want different experiences for their different point of engagement.  Mobile is about speed of access, much more transactional and timely, very much about getting something done.  The web is great for researching, deliberating, and exploring.  Both are different aspects of the same service, and I’d want both as a user depending.  Finally, enabling third parties is a realization of the web services and SOA manifests from the late 90s that allow for programmatic distribution and can launch powerful new economic models.

Facebook has already shown us the above and what a powerful, mature, winning service looks like.  They have their core site, their massively used mobile applications, and their various graphs 3rd parties access which gives them tremendous power, platform extension, and plata.  Instagram, normally cited as the poster child for “mobile first”, recently announced they intend to move consumption to their core web site.

So to wrap up, sure, there might be some apps that are best started purely in a mobile context.  But I’d bet 99% of the services out there will have to incorporate all three elements and that starts with building an incredibly solid foundation.  API first, front end second, all screens third.

A Little Human Touch?

For the past decade, business on the Web has focused on driving usage and user base independent of a clear financial model.  Charging for products or services with utility was anathema to the cause of driving user adoption.  Systems were designed to create as much “automation” as possible to allow for massive scalability with minimal cost.  And given the Web as a new medium, those strategies made a ton of sense.

With viral loops and massive usage, services like Facebook and Twitter were able to create fundamental platform businesses that took the connectivity of the Internet and created “connections”.  The goal to drive audiences brought content walled gardens down, and drove a whole new generation of folks to the Web.  Automated activities like user generated content and self service models became the hallmarks of success.  Get other people to create site connect or sign up for a service, and make money off of their effort.  No better business right?  Those mantras created a stark positive value proposition and led to a huge critical mass of online activity.

But the world of usage, automation and free has some collateral effects.  Given how easy it is to start a site or a service, we now also have a world of noise.  People are dealing with the problem of excess.  Spam email, offers, products, content, tweets, updates – you name it, almost every category has infinite shelf space competing for finite attention.

That is part of the reason why I see the pendulum shifting again towards simplification, organization, and curation.  Paid content walls are going up again, as businesses identify customers out of the masses willing to pay for content with cost and create unique ways of interacting with content.  It’s not that the same perspective or content isn’t available for free somewhere on the Web, it’s that people don’t have to time to sift through and find all of it.  The same is true for products and services.  We’ve seen a number of businesses growing rapidly whose primary value proposition is not showing customers 1000s of SKUs, but a few really good options.  And automation?  Perhaps not fully.  Virtual call centers, email communication, on demand conversations all seem to be getting layered back into the equation.  Of course this will all be done in a much more efficient and productive way than ever before, but it seems to me the human touch is fighting its way back into dogma of long tail and free.

Facebook Credits: A Paypal in Training?

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I’ve been reading curiously about the new beta Facebook Credits platform.  Most coverage tends to focus on the unique elements of allowing users to vote economically for better content.  Give a good content producer some credits, and perhaps that will incent them to produce more.  Think Digg with economic value.  I think the launch of Credits again reflects the brilliance of Facebook and I for one see a much bigger play at hand.

Facebook understands very well the amount of money flowing into virtual goods, both from their own virtual goods, as well as the money machine created by their gaming partners like Zynga, SGN, and the like (who buy large chunks of advertising to feed their virtual goods money machine).  Enabling users to generate credits that work across games and applications would be of huge value, and allows Facebook to generate different and ultimately more economics from the platform developers.  In addition, Facebook now represents over 1 in 4 US pageviews.  Their user base is over 200 million.  They have HUGE scale, which allows them to have the credibility to pull off a payment play.  Users would inherently trust the FB platform over fragmented app creators.  This creates the perfect recipe for a Paypal alternative, and has inherent distribution that a Google Checkout or Amazon may not.

So why not just come out with the grand plan?  Well, the launch of a payment platform is non-trivial.  There are hundreds of ways it can go wrong; PayPal has spent years and huge sums of money learning lessons on how to deal with fraud.  Amazon, Google Checkout and others are all working through their own issues.  It also deals with one of the most sensitive items for people (ie, their money).  On a social platform like Facebook, the last thing you want to do is to alienate users.  Facebook cannot turn on a major transactional system that would be the immediate target of phishing, fraud, and rip offs without understanding the issues thoroughly.  The initial Credits approach lets them dip a little toe into the water, quietly and under the radar, and rapidly gain feedback/experience without exposing themselves to major financial or reputational damage.  With that knowledge, they can slowly train their way into the Paypal market.

I have a lot of respect for what Facebook has built.  And per my prior post, I think they are going to spread their tentacles broadly.  Facebook controls the social graph, Facebook Connect controls identity, Facebook “Communications” will come, and Facebook Payments on the roadmap…. Stay tuned, and note the date and time of publication, but that’s my highly speculative, uncorroborated and unsolicted vision for their future.

[Update 11/26/09 - looks like things may be happening behind the scenes .  This seems much more like a transactional fee, but I'd bet once it works internal to Facebook, it'll show up externally as a third party service but with a more paypal competitive pricing model.]

[Update 1/12/2010:  News flow indicating this is likely.]

Facebook, Twitter, and the Convergence of Messaging

Lots of chatter about Twitter being offered $500MM by Facebook.  Some think Twitter is crazy not to take it, while many others correctly point out that $500MM is not $500MM if it’s in stock.  While Facebook may hold out the Microsoft $15 billion valuation (an artificial auction given how strategically important the advertising deal was to Microsoft, not to mention that they received preferred stock), my discussions with a number of people tell me Facebook common stock has been trading hands at somewhere between $3 and $4 billion in value.  If you’re Twitter, that’s the difference between owning 3% of Facebook and 12.5%.  That’s a huge difference in ownership when it comes to upside! 

Facebook is an unbelievable social hub, where casual communications amongst friends are mainstay.  Facebook has also been incredibly successful with mobile usage.  There are over 15 million active users of Facebook Mobile, growing over 300% from last year!  By comparison, Twitter “only” has 6 million active users of the product.  If Facebook is the dominant player in casual communications and has an incredibly strong product in the Mobile space, why would it make a “buy” decision versus a “build” one? 

I think Facebook is looking to take advantage of this downturn in the economy to become the largest social network and communications hub out there.  It turned down some huge offers to stay independent.  There’s no turning back now.  Twitter is the poster child “Web 2.0” company – incredible usage, no revenues.  If Facebook could get Twitter for a reasonable price (ie, selling them on a $15 billion valuation), they could clearly capitalize on Twitter’s market momentum.  Pick up a viral service that has got a high degree of overlap with your own users, and use the integrated service to draw everyone else from Facebook onto the service.   Even if they don’t buy Twitter, Facebook must be working on some sort of SMS-based Twitter-like feature.  They might even add a Loopt style service alongside the same platform.   Extrapolating from the chart below, text messaging is a very important communications medium for Facebook’s core audience, and clearly offering a full feature set would rank high in ensuring Facebook’s dialogue with their core audiences. 

 

teen

Looking at the chart above also provides some hint as to where Facebook might be headed next.  In my mind, the next most obvious place for them to go is email.   While younger kids view email as the “formal” way of communicating with adults, its usage is uniform across age demographics (see below).  And we all know how incredibly sticky email addresses are.  Yahoo! has over 260 million users of its email service, and AOL has long maintained audiences with its legacy email accounts.  Gmail by Google, while growing, is a surprising distant follower.  I’d bet many of the younger users of Facebook would easily use an “@facebook” account, or any separate brand Facebook might come up with, especially if it was appropriately integrated into their social messaging platform.  Facebook might even do something really interesting by providing POP access to its social messages to drive adoption.  Putting aside the details of how Facebook sorts/presents email from chat or social messages, it would seem like a great way to start building an organic presence in email for a huge audience you control.

Other possibilities could be expanding Facebook’s chat platform.  While they have their own internal chat function, why not approach Meebo or eBuddy to acquire their tens of millions of interoperable IM users.  Like Twitter, they likely share attributes of “high usage, light revenues”.  In addition, Facebook could launch a VoIP based voice service that it embeds into their chat platform and their smart phone mobile applications. 

Imagine the converged communications possibilities.  Facebook would have the SMS market cornered via Twitter or its own offering, it could have not only the internal usage of their Chat application but also corner interoperable IM services via acquisition, it could have users starting their sticky email “lives” with the launch of @Facebook/ @nameyourbrand so users can communicate with all those “adults” outside the Facebook ecosystem, it could have applications messaging enabled by the open Facebook platform, and it could have voice (VoIP) services embedded via the web and the downloadable mobile app.  While pure speculation on my part, one can see how the innocent Twitter play could be one small step towards Facebook aggressively trying to converge our messaging platforms.