Over the past two years, I was running a consumer video startup called Clipik (I’ll soon post a detailed analysis on why it didn’t work as expected). During that period, I got to observe a lot and think hard about how people interact with video and where the friction points were. The title of this post might seem bold, but let me explain my rationale:
Let me start by defining what (in my view) Instagram is: it’s an app that allows people to add value to PERSONAL USER GENERATED CONTENT (in this case, photos) and share & interact with others in their network. It is NOT just a sharing app (it actually ‘outsources’ most of the sharing part to powerful networks like Facebook and Twitter). It is also not a buzz-making machine, as most of the content posted has a fairly small number of impressions with high engagement, because there tends to be a previous relationship between content creator and viewer.
Also, let me define what I mean by “Instagram for video”: it’s an app that does with video EXACTLY what Instagram does with pictures, and which presents (or will present) similar level of traction and engagement. Reasoning about why this is not doable is what this post is about.
Just to clarify, this post is NOT about apps such as SocialCam, Viddy and others with a similar structure. Even though they claim to be sort of “Instagram for video”, they are not. They’ve got very good traction, but most of the content published is not personal and in many cases is not even user generated. I think the best way to describe them is “YouTube + Emergency Exit in the NYC Subway”. Here’s why: For those who are not familiar with the subway in NY, the normal way to exit the station is through the turnstile. But if you are carrying a baby, or a big volume (or if you are a lazy a**hole with a bad attitude), you may use the emergency exit door, which is easy to use but, every time you open it, it triggers a deafening alarm that makes everybody in the station look at you - tourists will be like “What?? What the hell is going on?? Is there a bomb or fire???”, and locals will be “Who’s the a**hole that’s making my ears bleed this time??”. There’s no way to get through the emergency exit and be stealthy about it. That’s what SocialCam & Co. do: you have to install the app to see a video, and from that moment on, every video you see will “trigger an alarm” in your Facebook feed. Get the analogy?
Ok, but let’s get to the point:
Video = photo multiplied. In all senses. Technically, practically and emotionally. Technically, it’s nothing but a big number of photos played sequentially at a high speed (~30 per second, on average, nowadays), and it sure enough takes up more memory space and CPU cycles to process. Practically, it takes much longer to produce, to consume, to transfer, etc. On the emotional side, the engagement that people have with a good video is many times stronger than with photos - for example, grandma sure puts a big smile when she receives that photobook of little Tommy, but when she watches the video, she sits down and cries of joy (we saw that many times!). Or what would be funnier, to see a picture of Louis CK with a joke written beside him or to watch him telling that joke in a video -
I think you get the idea, right?
Now let me propose the following framework to think about personal content:
CCxPP (Creator & Consumer x Pleasure & Pain)
(Quick note: I’m sorry for the 2x2 matrix. It was just a nice way to visualize. I’m not a consultant, I promise!)
Over the past 5 or so years, smartphones and social networks made the infrastructure practically “free” (cheap, easy, fast) to create basic content and share. The big variable became the balance between costs and benefits (pleasure & pain) of adding quality to content. That’s why Instagram won the photo-sharing race: they were able to add great quality to the final product without practically adding any cost to the production. Other apps even had nice outputs, but usability was not as good, so the cost to produce was a bit higher. Also, not only Instagram had a better aggregate Pleasure/Pain ratio, but also the aggregate delta Pleasure / delta Pain (or the increase in the left side of the chart above vs the increase on the right side) reached a certain threshold that made this new photo-sharing behavior spread like wildfire.
And how does this apply to video?
Turns out, there is no feasible solution out there (nor will be for many years) to really shift the aggregate pleasure/pain balance like Instagram did for photos. Here is why:
Consumption cost is too high, a simple filter won’t do it: a picture of a stone with a nice filter may be visually interesting and costs almost nothing to consume. 2 seconds, bam!, move on. As visually interesting as a boring scene with a filter may be, the cost of consumption is too high - 10 seconds? 15? a minute? It better be good! Just a mildly interesting visual experience is not enough to grab my attention for more than 2 seconds…
Production + post-production cost is too high: any video worth watching (unless it’s an extraordinary scene in and of itself, like a dude falling from a 3-story building on his head and immediately getting up dancing tango with a bystander) requires a big effort in production / post-production. Many shots and scenes are needed, good editing, soundtrack, etc. Even if you could create an algorithm to properly edit videos - believe me: there are some interesting editing products out there, but NO ONE IS EVEN CLOSE to having something comparable to what a human can do on the editing side - it would still require a decent raw content, *some* plot or sequence, etc. In other words: productions that make a video enjoyable (or even watchable) to a larger number of people are few and far between, because there are just not enough people willing to bear the pain of the production.
It is very hard (if not currently impossible) to shift the aggregate pleasure/pain ratio in video as Instagram did with photos.
Does it mean that the whole business case around the growth of video is wrong? Absolutely not! The amount of raw content being generated is growing exponentially and the engagement people have with good video is extremely high. The big gap here is the difficulty in transforming raw content to good content, and the way to tackle it is to create a product that makes it easy enough for people to create content that’s good enough that they are willing to pay for - and that’s what we were trying to do at Clipik.
It is not Instagram (disposable content, blast photos out, zero willingness to pay, no business model, let’s get tens of millions of users and pray for Facebook to buy us, amen!).
It’s Shutterfly, where for some reason millions of people every year are paying to print photos that they could be storing and sharing for free in thousands of other sites, including Shutterfly itself (emotional content, super high value, long-lasting content, willingness to pay, real business model).
That is: as an investor, I would turn down any pitch defined as “Instagram for videos”. They don’t seem to know what they are saying.
As a product guy, I tend to observe stuff and how people interact with stuff.
The general design principle - which became mainstream in the 20th century - that form follows function (i.e., the purpose or how the thing works is more important than how good the thing looks) seems to be very fluid though: different people attribute different weights to form and function, both to their lives in general and to specific items.
Below is a simplified summary of my observations:
Ok, this may sound a bit of a Monday Morning Quarterback kind of thing, given that Evernote just announced a $70 million D round at a $1 billion valuation, but the people close to me are witnesses that I’ve been raving about Evernote for months.
I wish I had written about it 2 weeks ago… but anyways, this post is about why I think this round will make history as one of the best opportunities for investors, how I came to this conclusion and what I (humbly) think Evernote will (or should) do to get there.
How I realized Evernote is the next big thing
I had been using Evernote for simple note-taking for about 2 years. I didn’t use it that often. A few months ago, after deciding to wind down my startup and to teach myself how to code, I started using Evernote to organize the information I came across, including tutorials, tools and resources, sources of inspiration, etc.
I did that because simple bookmarking doesn’t offer you cross-reference (multiple tags as opposed to storing the URL in one folder) nor content indexing (the ability to search within the content).
Given the fact that I’m a big proponent of ultimate simplicity, I realized that I could also ditch services like ReadItLater or Instapaper and, instead, just clip the articles I wanted to read at another time and tag them with “ReadLater”. Now I would have all that in one single place, sync’ed with my laptop, my iPad and iPhone.
One day, while waiting for the train, I started thinking about my imminent move to San Francisco and how much of a pain in the ass it would be to sort through the papers and documents that had piled up in my previous apartment, and thought “it’s freakin’ 2012 and it’s about time to go paperless!” The way to do it? A good scanner + a paper shredder + Evernote.
By the time the train got to the station, I was ready to outsource my entire life to Evernote and had already thought of some potential expansions to the product that would make life so much simpler and more efficient that, in a time span of 20 minutes, Evernote went from being a nice product I used to becoming my favorite company in the world.
Most people still don’t get it
Evernote’s branding (name, logo and slogans) are great and I think it really helped the company in the beginning. But now, I feel like they are quite limiting and may be slowing down the adoption. I realized that by seeing the reaction people have (and I’m talking about my geeky friends, not my 65 years old uncle) when I talked about how good Evernote is: “hmmm… why do you think that? It’s alright, but I never really got into it… it’s just alright for note-taking…).
The way I see it, Evernote is NOT about notes, or “your second brain”, or something that will help you “remember everything”… it’s WAY more than that! It’s your file cabinet. It’s your organizer. It’s your bookmarking tool. It’s your research tool (through your stuff).
Really… it could be THE ONLY productivity and organization tool you will ever need. It will force David Allen to rewrite Getting Things Done.
And what’s missing is user education. People seem to need some help thinking about ways to use the product. They need suggestions, tips. They need to see how much can be done with Evernote (and its complementary products, both proprietary and from third parties via the Trunk)
Turns out, it seems like most people are still using their ‘second brain’ the same way they use the main one: at a fraction of its capacity. It’s up to the company to change that.
Product evolution: what they will do (or, at least, what I’d like to see them doing)
The path to take Evernote from your ‘second brain’ to the ‘ultimate productivity tool’ will require a few components (that might end up stealing away Xerox’s old slogan “The Document Company” from them):
- Integration + Storage: Not a Product… a Platform
Evernote has already started the integration via its API and Trunk, and the list of services in there is awesome! Also, hardware integration has already been underway.
What will probably happen is that this integration will accelerate and we may start to see scanners with Evernote’s logo in it, and service companies built to run exclusively on top of Evernote’s platform. I also wouldn’t be surprised to see deeper device-level integration such as the recent integration of Twitter into iOS.
Not only that, the growth in the storage volume will probably force the company to work on a more robust storage system and will probably end up having to integrate with the likes of Dropbox.
It may even prompt the development (or acquisition) of something like Greplin, that allows you search into what’s in most of your online services such as Gmail, Facebook, Dropbox and others, all from within your Evernote dashboard.
Some of the most sensitive information and documents, such as scans of your passport or social security card, contracts and even passwords, may need a separate place to live within Evernote. A type of a ‘vault’ that is not indexed and that requires additional levels of authentication to be accessed.
And why? Well, in cases like passwords, I want to be able to remember them, but I don’t feel comfortable just leaving them with the rest of the entries. Same goes to my social security card.
Now… here’s where it starts to become a bit of a leap (that I would love to see implemented!): if I am going to store my social security card in there, wouldn’t it be great if there was a service that authenticated it, as in making sure that this is the exact image of the physical document and not a photoshopped version? And that would be an non-editable document that could be sent through the platform and have the same value of the original, physical one? This is what gets me to the next item…
Evernote is already becoming a transactional platform, as we can see, for example, from the integration with EchoSign that allows you to e-sign documents and send them through Evernote. Goodbye fax machines…
But more than that, it could really do away with much of the bureaucracy that we are subject to in our daily lives. Picking up from where I left above, imagine if you could use pre-stored information to fill out a form, submit authenticated copies of your social security or other identifying documents, and e-sign everything before submitting? That means you would only have to show up at the DMV to take the driving test, because everything else would be done remotely. Imagine what a breeze it would be to open a bank account, put a bid for an apartment or any other errand that requires a lot of paperwork? I dream about that day, as I suffer from acute ‘burocrophobia’!
Sure it would take some coordination with the public sector, but the proposition could save them so much money and make processes so much more efficient that it might be doable… are we going to see Evernote creating the “Public Services / Government” unit within its Biz Dev team? Hopefully…
On top of all that, an amazing business
Evernote’s conversion rates (paying users over total users) are good and getting better. Over 1 million users out of its almost 30 million pay the company approximately $45 per year. As per Phil Libin’s (the CEO) recent talk, it is very safe to assume that average conversion rates will greatly increase over time, and this is a super sticky product.
Also, with all the additional products and services, there’s a lot of revenue that can be captured either via more premium plans or via revenue sharing with partners (by the way, is not too far fetched to think that, if the company maintains its growth, we may see things like scanner manufacturers paying royalties to use Evernote’s logo, since it may be the only thing scanners will be used for before they die…)
Are all these points enough to see the extent that Evernote’s presence in our lives may have, if they play their cards right? We will all use Evernote as much as we use Facebook or Google.
What’s even better: WE will be the ones happily paying for that, which should reduce the privacy concerns associated with one single company having access to so much information. After all, the only one paying Evernote to have access to your information will be YOU.
Oh, and then there’s the whole corporate market, that the company seems not be focusing too much on right now, other than group plans and some third party applications - which I think is totally right for now. After all, if it’s already hard enough to get the message across to consumers, imagine how hard it would be to get the message straight in a sea of project management tools, CRMs, ERPs, internal communication applications, you name it. There’s already a lot of work to be done in Consumerland, and they should probably focus there for now.
If Evernote’s IPO comes anywhere under $10 billion, I’m a buyer.
FOR THE RECORD: I have no inside information about Evernote and don’t even think I know any of the company’s employees personally. All of the above might be completely wrong and was written based exclusively on public info, my usage of the product and my occasional visits to La La Land.
Google Drive has just launched and, naturally, everybody is discussing what’s it going to be for Dropbox.
First of all, I do think it IS a big hit for Dropbox. It will limit their ability to grow and will create a strong price competition, given Google’s distribution power and apparent willingness to commoditize prices.
Product-wise, while there are some differences in features, sharing and types of files supported online, I would guess that the majority of usage for these services still happens within Windows Explorer or Mac’s Finder (*) and both are pretty similar in there, so it might be hard to differentiate if Dropbox wants to pull the “better product” card (I still think they are better, it will just be hard to see…)
What is going to happen is that Dropbox will have to find a way to increase conversion rates for the paid accounts, since they face lower margins on paying users and higher costs on the non-paying ones (they just upped the free limit to 5GB). That should be done via lower prices, which feeds the cycle… good luck working the numbers there!
Also, they will probably try to move more aggressively into SMBs, and will eventually collide with Box, which caters to bigger enterprises. It will be fun to see all this unfolding…
Now, I think that there’s a longer term and much bigger effect that the success of Google Drive would bring to the tech industry as a whole, and Microsoft is the big loser here.
The first and obvious conclusion is that, yes, MS Office will suffer with the competition from Google Docs, as MS Office slowly makes its way into the cloud [edit: this includes SkyDrive in the rationale, as a reader pointed out that I forgot to mention them]
But the reason why Google’s seamless integration between Drive and Docs (well… they are the same, really) is such a smart move is that it completely blurs the line between which files are local and which ones are in the cloud. They become totally interchangeable. It’s not about backing up stuff in the cloud or sync’ing your devices anymore… they become the same thing, and the only decision is which device or interface you will use to access that info.
But why is it so bad for Microsoft? Well, remember Google’s view of the future? Everything in the cloud, lighter OS, lighter hardware, more server-side processing…? In that case, Chrome OS becomes more relevant and Windows less. And Google is definitely more capable of competing in the cloud than Microsoft is, so Microsoft could suffer a major hit on both of its main products - Office AND Windows.
Right… but that’s not news, everybody knew it would happen sooner or later. True, but in my eyes, Google Drive is the missing link between the status quo in the industry and the future of cloud computing, which we are all expecting and Google wants to be the one to make it happen.
Well played, Google… well played.
* at least 95% of my usage is via Finder, and my guess is that the broad average is pretty high, probably north of 75% or 80% - but I have no data on that