MochaTalk

Very few companies nail their value proposition in their first try. Apple with the iPod, of course, a great example of product that was very successful in its first iteration. The BlackBerry today is also another successful device with its own iconic following – the so called “Crackberry” addicts. But few people know how even in the early days RIM did a great job of delivering a compelling value proposition despite facing many hurdles from an infrastructure point of view.

The first BlackBerry came out in 1999. The original hardware was a pager style device with a small screen and ran on a very slow Mobitex network. Despite some of these limitations, BlackBerry soon became a hit in the financial community. Hindsight is always 20/20 as they say. But here’s a little bit of history on why RIM became a standout in the wireless e-mail arena whereas many others including Palm (with Palm VII) failed.

Focus on E-mail
RIM focused on a single application with a compelling value proposition – email. They didn’t try to compete with Palm on their terms by building a full fledged PDA style device. They knew that they had a sizable target market of corporate users for whom e-mail access on the go was very important.

Keyboard vs Pen based Input
With the success of the Palm device, an obvious choice would have been to go with a stylus based input. In fact, RIM salespeople had to deal with this objection in the early days. But RIM made the right choice to go with the thumb style keyboard. A stylus is fine for small amounts of data entry but you really need a keyboard to write even a short piece of e-mail. Even the Palm founders eventually abandoned the stylus with the Treo.

Another key hardware innovation that RIM introduced was the trackwheel. It was conveniently located with respect to the keyboard and made navigation through the BlackBerry menu structure very quick and easy.

Push E-mail
Push e-mail was a key RIM innovation (despite the NTP lawsuit) that made the BlackBerry standout from its competitors for a very long time. It was key to its addictive quality since you could engage into an instant messaging style dialog with a colleague thousands of miles away. Push e-mail was also key to hiding the latency of the network and improving the BlackBerry’s battery life. Even though the original Mobitex network was very slow, RIM could deliver e-mail in the background (and that also the first 2K of the message) and then have the device notify the user giving the impression of instantaneous delivery. Also, by using a Push strategy RIM could minimize battery consumption because the device didn’t have to use precious battery checking for e-mail at regular intervals.

Bullet Proof Security
As we all know security is key issue for corporate IT. Without the support of the corporate IT organizations, it would have been very hard for RIM to make any real progress in the enterprise space. Unlike other solutions on the market that utilized simple POP or IMAP interfaces that lacked security, RIM focused on building an enterprise server that provide end-to-end security based on triple DES encryption. Over time, it also introduced many useful administration features that made it fairly easy for corporate IT to control and manage the large number of BlackBerry’s being deployed to throughout their workforce.

All you can eat pricing
While many of the other solutions were based on variable usage based models, RIM made a very smart move by introducing a $40 per month all you can eat model. There were many benefits to this approach. The pricing was simple to understand (you didn’t have to understand MBs), it encouraged high usage and created a very profitable model for RIM that eventually got the wireless carriers interested. The risk for RIM in implementing an all you can eat model was fairly low given that they utilized data bandwidth very efficiently (by downloading only portions of your e-mail or attachments).

Of course, early success is no guarantee of long-term success. Will BlackBerry continue to be leader in the future given all the new competition in the market? Let me know your thoughts.

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It is very interesting to look back to 1999 when I started TeamOn and compare how different things are today compared to the late 90s. The internet has evolved significantly in the last 7 to 8 years. According to Neilsen/NetRatings, overall Internet penetration in the US reached 74% at home in February 2006. Broadband penetration is now at 68% of active internet users making internet access much more compelling. A whole new generation of users (the “MySpace/Facebook” generation) has emerged that is much more actively engaged in the internet compared to the generation in the late 90s. As broadband penetration has increased, internet users are devoting much more time on the web. According to Neilsen, since February 2003, the average PC time per person among active Web users has increased approximately five hours from 25.5 hours a month to 30.5 hours a month. As this cuts into TV viewing time, it’s no wonder that advertisers are increasingly diverting a bigger chunk of the advertising budget to the web.

Lower Startup Costs
It is a lot cheaper now to start a company. There is a lot more open source software that that you can leverage to get a jump start on getting your service out. It allows you to focus more on building your core value proposition rather than spending time building the plumbing. Many startup companies are also reducing their costs by outsourcing their work to India or Eastern European countries. However, unless you are really constrained with respect to your funding, I would not recommend this option until you a more established development team. With a startup, team building, cohesion and rapid execution is very important and that is much harder to achieve if part of your team is half the globe away.

Hardware, hosting costs, bandwidth (thank god for the Telecom bust) are also much cheaper. I recall that for TeamOn that we were paying $5000+ per month for hosting costs and bandwidth. We had to purchase expensive Sun servers to host our database.

Lower startup costs mean that a lot more companies can get started with lower personal investment. A lot more angels can get involved since the commitment they have to make is much lower and it may even be possible to take a company all the way to a reasonable exit just on angel funding.

You can deliver a higher quality experience through the web
The original TeamOn service delivered a complete web based online e-mail/groupware experience. However, we were ahead of our time. Broadband penetration was much lower. DHTML was around but majority of users were still using older generation browsers and performance was a big concern. As a result, it was much more difficult for us to compete with the Outlook and Outlook Express experience that users were used to. Today, the combination of Ajax and broadband speeds is enabling web based applications to successfully compete with the desktop incumbents. For example, companies like Zimbra are now able to compete effectively with Outlook/Exchange.

Customers are looking for your services
In the old days, you had to invest tens of millions of dollars doing distribution deals. In fact, this was a major source of revenue for the major portals like Yahoo, AOL etc. before the Dot Com bust happened. These days customers come looking for your services using search engines. For example, whenever I personally have a need for services, I go straight to Google and type in my search knowing that there will be some service provider who will address my need. More importantly, I don’t pay as much attention to the natural search results as I used to before – I go directly to the paid search results. Why? – because I find them to be a lot more targeted and I figure that they probably have a real business model to support their ability to pay for the Google AdWords. Increasingly, more and more users are behaving in this fashion. This means that your marketing dollars are not being wasted as with traditional display advertising. You are only paying for customers who are actually looking for your services.

Customers are more engaged
Overall, as the internet community has become more mature and access has become much easier, users have become much more comfortable turning to the web to leverage a multitude of services that are becoming available. As I mentioned earlier, a whole new MySpace/Facebook generation has emerged for whom the internet has become an integral part of the social networking experience. Users are much more open to trying new services and, if they are successful, the ramp up rate is much faster as we have seen with MySpace, Facebook, YouTube etc. And users are actively contributing content to the community making the sites much more vibrant and relevant to user needs (not to mention reducing the content generation costs for the web site provider). The whole Web 2.0/Social networking phenomena is no longer an end feature by itself. Now even mainstream sites are starting to incorporate these capabilities to enhance their core value proposition.

Business models are more viable
Given shift of eyeballs from TV to the web, it is no surprise that TV advertisers are increasingly shifting their dollars to the web. The internet ad market is growing very rapidly. It is now projected to grow from $16.8 billion in 2006 to at least $20 billion in 2007. Advertisers also have a wider choice of ad inventory over what they had available. Ads are much more interactive and, with the success of YouTube, video advertising has now emerged as a new category providing TV advertisers a similar medium to what they were used to on TV (except with much better tracking). The larger size of the advertising market also means that the niche areas that various companies are targeting are also much bigger and can support healthy businesses.

Google has also made advertising market a lot bigger by making it a lot more accessible to small/medium size businesses to advertise on. They also made it much easier for smaller companies to leverage their ad network and generate a decent revenue stream from the get go. However, be forewarned that unless you achieve significant scale and targeted demographics, don’t expect that advertising (Google AdSense or otherwise) will be sufficient to make your business model work.

Overall, it is a great time to start a new company. The risk is a lot lower which makes it easier to experiment with new innovative ideas. And if your value proposition hits home with customers, the ramp up can be much faster and you have many more opportunities to monetize your customer base.

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It is amazing how quickly the word gets out these days despite trying to operate in “stealth mode”. Barely 2 weeks after we had put up our web site, we were covered on Mashable (albeit briefly). Yesterday, we got a call from John Cook from Seattle PI wanting to know more about our venture. John Cook is an intrepid reporter who is very plugged into the Seattle startup scene. I would highly recommend his blog if you want to get the inside scoop on local startups and recent VC investments in the Seattle area.

John’s article about LiveMocha (Venture Capital: Creator of social startup LiveMocha a bit mum) is on the front page of the business section of the Seattle PI today. While I didn’t go into specifics of our venture, the article accurately describes our strategy – which is to dramatically transform a large market niche we have identified by applying the latest Web 2.0/social networking concepts. John correctly identifies that “Social networking may be one of the most overused buzzwords of the new Internet era. But the concept — using the Internet to share information and connect people of like-minded interests — is rapidly catching hold as millions of people set up profiles on MySpace, Facebook, LinkedIn, Flickr and other sites.” While there is certainly a “gold rush” mentality these days around social networking, there is no doubt that it is transforming the way users (especially the younger demographic) are interacting with each other over the internet. As I had mentioned in one of my previous blogs, I view this phenomena as creating a “platform shift” and if you are first in your market to leverage the platform shift, you have the opportunity to disrupt markets, create significant value and displace incumbents.

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Incumbents in a market can be very hard to displace even if you clearly have a superior offering. Market inertia and barriers to change can be too hard a challenge to overcome. Prior to Windows, Microsoft tried very hard for years to displace WordPerfect and Lotus 1-2-3. However, it was only with a platform shift to Windows that Microsoft was able to finally break the monopoly that WordPerfect and Lotus 1-2-3 had established. A platform shift provides a unique opportunity for new entrants to displace incumbents by being the first to take advantage of the unique capabilities offered by a new platform. Often the existing market leaders are too set in their ways and business model and too risk averse to adopt a new platform. In this blog, I will discuss some key examples of how new players were able to establish market leadership positions by taking advantage of these platform shifts.

Lotus 1-2-3 and IBM PC – Here is a great example from the beginning of time. Before Lotus 1-2-3 became a leader in spreadsheets, there were many players in the market including VisiCalc (who had the 1st mover advantage), Microsoft Multiplan and others. However, these spreadsheets all were written for multiple OS platforms like CP/M and DOS since there was no dominant OS at that time. As a result, none of these spreadsheets could really be optimized for any of these platforms. Lotus, however, embarked on a different strategy. With the IBM PC, they saw a great new platform that provided a large amount of memory (at least in those days) and processing power to build a powerful spreadsheet. Instead of taking a multi-platform approach, Lotus built and optimized its spreadsheet program just for the IBM PC platform. Lotus 1-2-3 quickly became the dominant spreadsheet because it provided the best feature set and performance as a result of its singular focus on the IBM PC platform. Visicalc and Multiplan quickly lost market share because they couldn’t re-architect their offerings to provide the performance that Lotus 1-2-3 could deliver

Microsoft Word and Excel – It is interesting that Lotus forgot the very lesson that they had taught the industry. Microsoft had tried for years with MS Word to displace WordPerfect which was loved by its user base. However, Windows 3.0 provided the perfect opportunity for Microsoft to displace the incumbents. First, Lotus and WordPerfect resisted supporting Windows since it wasn’t to their advantage to make Windows successful. Second, they decided to port their DOS application to Windows instead of building from scratch to take advantage of the many advanced capabilities of Windows. Microsoft, not surprisingly, built their apps to take full advantage of the Windows platform. Their goal was not only to build the best Windows applications but also the best word processor and spreadsheet. Soon, thereafter, Microsoft changed the rules again creating the Microsoft Office Platform which initially was just a simple package made up of Word, Excel and Powerpoint. Over time, they delivered real value through a common menuing system and integration between the various applications. The rest is, of course, is history!

BlackBerry and Palm – As we all know, while Palm was not the first PDA on the market, they delivered the first truly usable PDA on the market. PALM enjoyed great success and buzz. They were even the first player add wireless capabilities. However, Palm VII was a dismal failure because the wireless capabilities were simply added on to the existing Palm platform with no real thought given to how to leverage the enormous opportunities that lay ahead in delivering a great wireless experience.

RIM, on the other hand, built BlackBerry completely to take advantage of the emerging wireless platform. They focused first on building a great e-mail experience which was the killer application that compelled the early adopters to become BlackBerry addicts. In fact, while BlackBerry provided PIM applications none of them were as good as Palm’s application. It didn’t matter, however, because BlackBerry delivered the best wireless e-mail experience on the market and that’s what people really cared about. As wireless networks became more advanced and supported greater bandwidth, it became only a matter of time before a disconnected PDA became an historical footnote.

There are many other examples of new players taking advantage of a platform shift to establish a dominant position in the market. The internet – the greatest platform shift in history – itself created many rags to riches stories and vice versa. Monster.com, Expedia, Amazon are all companies that took better advantage of the new internet platform before the incumbents and established a dominant position. Of course, not all markets lend themselves to a platform shift. Pets.com, WebVan and others were all examples of companies where the internet didn’t afford these companies any compelling value proposition to displace the incumbents.

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