It's Rishi

If you haven’t heard of Meebo by now, you’re behind the curve. I’m not suggesting that Meebo is right for everyone, everytime (I use the AIM client on my laptop and Meebo only when on the go), but Meebo is one of the admittedly few “Web 2.0″ companies that has built and refined a product that truly fulfills a need for a lot of people.

Just like the telephone is about talking with people, IM is about chatting with people. The telephone “just works”, IM should too. Yet the major players like AOL and Yahoo! are clouding the IM experience by bloating their clients with whizbang features and add-ons. Meebo, instead, has been committed to ensuring that IM is simple and universally accessible.

A friend of mine, having just discovered Meebo himself, asked me about how the company makes money. He noticed that they do not charge for the service nor serve any ads. I responded to him that as far as I knew they have not made a dime. They have, however, raised plenty of money from top-tier VC’s so they surely will have time to explore various revenue streams. In Meebo’s most recent message to its users, CEO Seth Sternberg, states that:

We’re looking forward to exploring three ways to generate revenue from meebo: advertising (no “punch the monkey” banners), allowing our user community to personalize meebo (similar to Cyworld’s approach in Korea or QQ’s in China), and distributing other services that directly monetize (like sending IMs over the SMS networks).

Let’s review each of these three ideas that Seth states:

Advertising – Contextual advertising is not going to work. Determining what ads are relevant to a conversation is pretty hopeless. Moreover, I think users will find it very creepy if Big Brother is monitoring their conversations and serving up ads in response to the topic. Run a CPM campaign? Sure, but be prepared for abysmal, MySpace-like ad rates. Content is unpredictable, targeting is low, and Meebo often lives in the background of a user’s session. Serve an ad and there’s a good chance the user’s eyeballs never see it. I suppose a solution to this problem would be to serve new ad impressions only when there is a new incoming or outgoing message. Still though, some money can be made through traditional advertising, but not a lot and what’s worse is that it has a negative impact on the user experience.

Allowing users to customize Meebo…for a price – Seth cites CyWorld as an example of where users in a community pay to customize/personalize their profile. CyWorld has been wildly successful in getting its users to pay for all sorts of additions – from clothing to decorations to background music – for their own virtual world (think “The Sims”) called their “minihompy”. Customizing profiles is nothing new. On MySpace, if you haven’t customized your profile, you’re an uncool newbie. Our profile in a social community like CyWorld and MySpace is a direct expression of ourselves. Every one of us wants to express our own uniqueness, and customizations allow us that ability. Just as in real life, plenty of people are happy to open up their wallets in the name of self-expression. On the flip side, all IM clients allow customization to some degree. Few users take advantage of it. Furthermore, even if Meebo allows fancy customizations, they will likely only be viewable by other Meebo users, not users of other IM clients. I can see maybe 5% of users (Meebo addicts) spending on average $10/year to customize their Meebo experience, but, unlike in social networking communities, I just don’t see a big market here.

Distributing other services that directly monetize – I’m not sure exactly what Seth has in mind for this one. He says “like sending IM’s over the SMS network”? Yes, most carriers offer SMS-based IM functionality on their networks. And, yes, the carriers are making lots of money from all the SMS fees incurred by users as a result of their IM usage. So how will Meebo fit into this? I’m not sure. Meebo will not make any money from user’s sending IM’s to mobile users. For example, Teleflip allows you to conveniently send messages to SMS uses for free. Teleflip does not make any money (they receive no kickback from the carrier nor have they chosen to insert ads into messages). I could be wrong here, but I don’t see how Meebo can make money from SMS. What might be interesting is enabling VOIP telephony over Meebo, but while I can think of some use cases for this I think the demand for this would generally be questionable.

To me, the right strategy for Meebo is pretty clear: the desktop. Meebo, and IM clients in general, are very unique in that the user is “stuck” to it for their entire online session. Personally, whenever I’m online, I’m logged into my IM accounts. E-mail clients are probably the only rival in terms of session stickiness. Let’s look at the stats from their recent press release: average session is 70 minutes, users spend a collective total of 165 years on Meebo every single day. Because Meebo is so sticky and because Meebo is one of the cornerstones of a Meebo user’s online experience, Meebo can take control of a user’s online interaction – acting as a gateway to other information and services. In other words, it can become an excellent online desktop (the popular term is “ajax desktop”).

To expand Meebo’s reach, the company has partnered with other companies that have ajax desktop products such as Netvibes and Microsoft Windows Live. While this is certainly a good strategy for Meebo to get more users, I have got to believe that Meebo’s long-term intent is to compete directly with these companies. I expect Meebo to come out with add-on widgets as you would see on any typical ajax desktop product: RSS reader, PIM functions, search, etc. With increased content comes increased advertising opportunities. Not only can Meebo run traditional ads, they will also be able to establish affiliate marketing agreements (e.g. eBay/Shopping.com for shopping).

Beyond simply advertising opportunities, owning the desktop gives immense leveraging power. As Microsoft proved many times over with Windows, companies will pay big bucks to be available by default on new desktops. Netvibes already charges companies to include their widgets in Netvibes.

So where is the billion dollar business in all of this? To be honest, I can’t define it right now. Clearly, though, right now and into the future, companies will increasingly be fighting for eyeballs. Meebo will be able to provide that to other services in spades. More importantly, Meebo has the attention of it’s user’s eyeballs not seconds or even minutes in a session. We’re talking hours. That’s extraordinarily valuable. More valuable than we can even appreciate today.

One of the most prolific symbols of the “Web 2.0″ generation has been the tag cloud (if you’re not sure what a tag cloud is, the top of the sidebar on the right of this blog is an example). Well, eat your hearts out tag clouds. I came across this at thebeststuffintheworld.com.

I’m not sure if these guys were the first to do it but it’s a very cool idea. This actually reminds me of the milliondollarhomepage.com.

Is a photo tag cloud more useful than a regular tag cloud? Not really. But then again, I often wonder if traditional tag clouds are really all that useful either. One thing’s for sure, photos are a helluva lot slicker looking than words.

Labor costs money. The price of a product always factors in the labor costs associated with designing and manufacturing that product. The price of a service includes the labor costs associated with delivering that service. The higher the labor cost, the higher the price of the product or service. That’s pretty much a universal truth.

As markets become saturated and differentiation becomes increasingly difficult, companies are forced to compete on price. The cost of raw materials used to produce a product can only be controlled so much. Thus, companies concentrate on reducing the amount of manual labor required to produce their products. The trend towards automation has become so dominant that “handmade” products are now rare and often prohibitively expensive.

Well, what about services? Better service generally involves either more labor or higher-skilled labor (or both). Because the cost of labor has only been increasing over time, service is becoming increasingly expensive. Once again, businesses are forced to compete on price and, as a result, services are either reduced or eliminated altogether. The key thing to remember is that businesses are able to reduce the service they offer only because consumers are willing to sacrifice service for reduced cost. Given the option to pump their own gas or pay a bit extra, most people chose to pump their own gas so full-service gasoline pumps are all but extinct.

Let’s say you need to buy a new oven for your kitchen. You could go to the local mom & pop appliance store and receive a personalized shopping experience OR you could goto your local electronics mega-retailer like BestBuy, get minimal service but save a few bucks. Most people opt for BestBuy. Of course, the ultimate form of sacrificing service for price is on the Web. Web merchants can generally offer rock-bottom pricing because no physical presence means no inventory cost and no labor costs. Continuing the trend of preferring self-service and lower prices, consumers are increasingly hopping on the Web to shop.

When you pay for a service, you are paying someone to do something that you either lack the necessary skill or knowledge to do or simply don’t want to do. With the advent of the Internet, the barrier to acquire knowledge and skill has been shattered. Accordingly, the demand for services is diminishing. Why pay a plumber to fix my faucet when I can follow one of many DIY guides on the Web? Why pay a few hundred bucks to an auto broker to buy a car for me when I can now find model information, reviews, dealer invoices and submit quote requests to several dealers for free on the Web?

I think it’s time to analyze what the terms ’self-service’ and ‘full-service’ really mean. Self-service means that your request will only be fulfilled with further input of your time and energy. Full-service means that you make a request and it is fulfilled without any further input of time or energy by you. Nowhere in the definition of full-service does it say that your request is to be fulfilled by a human. Traditionally, people think that if you’re going on the Web to do something, it’s self-service. After all, it takes your time and energy. However, because there is often not much in the way of price differentiation between Web-based companies, these companies are forced to provide a higher level of service. Since employing humans to provide this service would kill their business models, technology is used to deliver higher levels of service.

One example is search engines. The search engine is technology’s replacement for the human librarian. Imagine that you’re planning a vacation to Australia. You could walk into your local library, tell the librarian “Hi, I’m planning a trip to Australia. Can you help me find some information on that”, and for a few minutes you’ll have your own personal research assistant. Unfortunately, having a personal research assistant at our disposal full-time is too expensive. Search engines like Google attempt to do the same thing. Instead of randomly poking around on the Web trying to find Australia travel information, we can use these technology-based services to help us locate the information we seek.

Dontbuyjunk was created to, in a sense, be a full-service shopping experience. You state what you want e.g. “I want a digital camera with good battery life and low-light shooting” and the system told you what to buy and where to buy it. To accomplish that, we developed a technology called TotalRank which essentially replaces a knowledgable salesman that you might find at a store.

Everyone likes good service. We all want the best experience with the least effort. Traditionally, good service meant extra cost and as a result good service is hard to find. But through technology, companies are once again able to differentiate themselves by offering better service. Long-term, I think we’ll see the return of full-service experiences. The difference will be that instead of people providing service, technology will. The result will be great service with minimal additional cost. Finally, consumers will get to have their cake and eat it too.

I was having lunch with a friend of mine a couple days ago and while we were eating, I was ranting to him about how if you search for “Rishi Khaitan” on Google, itsrishi.com is not the first result. Before I knew it I started explaining to him how Google ranks results, SEO, etc. About a minute into it, he interrupted me and was like “I guess I never really thought about how Google does it’s thing. I love Google ’cause it just works.” I thought about what he said some more. It hit me that I’ve become accustomed to talking endlessly about how things work with my geeky friends that sometimes I’ve lost focus on what’s really important. Users universally want one thing. They want things to “just work”.

Sure, Google has a simple interface and is very fast, but what makes it so ubiquitous is the fact that it doesn’t require any specialized knowledge of its user in order to work well and reliably. You type in some search words, click Search, you get good results. That’s it. Everytime. When things “just work” you feel in control. When you drive, it’s the same thing. Gas pedal go. Brake pedal stop. Everytime. There’s a sense of satisfaction and control that people have when driving. Could you imagine if even 5% of the time, the brake pedal did something else? We’d have a lot less people driving that’s for sure. But this isn’t just an issue of reliability. Complexity of operation is just as important. Just about everyone today owns at least one camera. You press the button, it takes a picture. You don’t have to know jack about what’s going on. It just works. What if auto-focusing was never invented? If you had to manually focus every shot, there would be a whole lot less cameras sold. Things that “just work” make us feel confident and in control which in turn makes us feel comfortable and joyful.

There will always be successful products which offer lots of functionality because their primary market demands it, such as SLR cameras which are intended for photography hobbyists and professionals. Such products are complex and most people won’t be happy with it. But that’s fine. Most people will choose more accessible, mainstream options.

The lesson here is, if you’re aiming to make your product a household name, you gotta make sure it “just works”. I know this doesn’t sound like rocket science, but I seem to come across countless products which promise to be the next “big thing” yet violate this basic principle.