An increasing number of entrepreneurs have been asking me what I think of the prospects for consumer Internet startups. Strategic purchases of companies seem to be slowing; advertising spending might be flat next year; and growth on the large social network platforms is getting harder. What’s a startup to do?
This heightened level of concern right now, I believe, is resulting from a fundamental shift in the value of consumer engagement. Several years ago, practically any type of consumer engagement was valuable. A large community of unique users either created a desired asset to a strategic buyer looking for Internet reach or, alternatively, provided enough impressions to get to profitability on an advertising-based business model. More traffic, more value.
These days, that’s no longer the case. The buyers have made their bets, and now, given all of the alternatives fighting for consumer attention, it’s much more difficult to become a top 50 U.S. destination site, roughly the level required to get to profitability and revenue above seven digits. Chasing unique users today as the primary business goal is no different from chasing eyeballs at the start of this decade. It’s not a complete business strategy.
Rather than get discouraged, I think this simply means that companies need to innovate. They need to move from engagement for traffic to engagement that matters.
Engagement that matters is a consumer experience flow that navigates the user to a place where he or she ultimately takes a specific “call to action” that leads to a purchase of a good or service. HotorNot, for example, moved to engagement that matters when it developed effective navigation paths for its community to purchase dating services and digital goods. Making this move transformed the company from a fun, entertaining site to one that generated meaningful profits and value.
Creating engagement that matters isn’t easy, but these questions might help frame the discussion:
What “Call to Actions” are valuable and plausible?
Valuable “call to actions” are those instances that lead to a purchase or direct a customer to someone who can monetize that lead. Identifying these calls isn’t hard – “Click to buy this digital camera!” is an obvious one. The challenge is designing the consumer experience so that the consumer is guided down a path, the engagement path, which leads that person to a plausible decision point to make a call to action.
The key to plausibility is deeply understanding what the consumer’s mindset is during the experience and finding offerings that fit and aren’t jarring. Ways to find plausible “call to actions” include surveying users to find out what they want or need; looking at comparable real life businesses to see what they offer; and examining the business models of proven online businesses from Web 1.0. Although Photobucket, the most popular photo hosting site in the U.S., was large enough to be profitable on an ad-only model, the team augmented the business with a number of different subscription service offerings (storage amount, mobile distribution, editing capability) in response to consumer feedback.
In defining these calls to action, don’t discount the obvious. For example, getting consumers to become engaged in investigating consumer products can lead to good affiliate or lead gen opportunities. Sites concerning money can indeed sell financial services. And social sites can lead to dating offerings, although that’s a pretty crowded category. The key here is to respect the consumer and understand his/her needs and not just focus on getting him or her to push a button so that they can push a button again.
How do you lead users to that “Call to Action”?
Once a startup has a list of plausible “call to actions”, the team needs to figure out how to lead the customer to take that action. The two concepts that I find helpful here are dissatisfaction and guardrailing.
What’s often overlooked about consumerism is that consumers take “call to actions” when they’re dissatisfied. They take action to satisfy a latent or articulated need. What this means is that a startup’s objective is to navigate the consumer to a place where he or she can be satisfied by taking a “call to action” that benefits both the user and the company.
A business’s mission is to create satisfied customers profitably. It can satisfy the consumer’s need prior to getting money, but if the business’s services cost too much money, it will ultimately go out of business. Startups therefore have to balance how much satisfaction and dissatisfaction they provide through the engagement path. Too much of either one leads to an unsuccessful business.
An engagement path that I thought balanced satisfaction and dissatisfaction well was one offered by Tickle.com, a leading quiz website founded in 1999 and subsequently purchased by Monster. For a path within this website, the user takes a test and gets back a high level summary result. For those users who are still dissatisfied, they can buy the detailed results. By contrast, a navigation path that doesn’t work is the one in message boards. Consumers are primarily there for social engagement or to find answers to questions. Message boards are generally too effective at satisfying users’ needs and therefore don’t easily lead to other forms of monetization.
The second concept, of guardrailing, requires a longer discussion, but in short, the goal is to design a path that provides choices, but not too many, and helps steer users to the choice that best serves both users and the company. The book “Nudge,” by Richard Thaler and Cass Sunstein (Yale University Press, April 2008), dives into the design of “choice architecture”: which choice is first; should it be opt-in versus opt-out; and how many choices make sense? I like the design of Tickle, Netflix and Classmates. They have targeted paths for very specific cohorts of consumers that operate a lot like the way video games keep gamers on the right path through a level.
I hope readers find these questions and concepts here useful. I look forward to having conversations with anyone interested in theorizing about the future of engagement that matters. For future discussions, I can be reached at email@example.com.