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May 12, 2006
Crossing the Crunch Chasm
Josh Kopelman nailed something in a savvy post yesterday. Too many companies are currently targeting an audience of 53,651. That number is, to allay your puzzlement, the number of subscribers to Mike Arrington's must-read, influential TechCrunch blog feed.A good TechCrunch writeup can easily get you anywhere from 5,000 to 25,000 beta users of your product or service, which is great. It is also misleading, for reasons that might best be called a "crunch chasm".
As writer Geoffrey Moore described in his book Crossing the Chasm, the people (he calls them "technology enthusiasts", which might be the definition of TechCrunch readers) who tend to try early and unproven technologies aren't like the rest of us. They try everything. And in the case of the TechCrunch audience, they try everything en masse within a few hours of a mention, and then, as evidenced by personal experience, move on (mostly) to the Next Hot Thing. The result: A just-launched service gets to wander around telling people that it already has, say, 12,000 people trying the product when the reality is that it is the same fickle folks who try and discard everything.
Brad puts a nice point on it:
For the past few months, whenever I talk to someone about a Web 2.0 application and hear that they already have "10,000 users", I've been telling that them the first 25,000 users are irrelevant.
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Good questions both.
Mike can give better answers, but it seems obvious looking at Alexa data that Mike's readership is growing astoundingly quickly.
The bigger question, however, given the relative small size of the group (in pure media audience terms) is whether or not you can get people to pay for anything. My general experience with "technology enthusiasts", in classic chasm terms, is that those people don't pay for services.
You need to break out people who try something for free vs. those willing to pay for it. While I agree that 10,000 technology enthusiasts trying something for free is uninteresting, 500 people paying $10 a month to try something is very interesting.
Exactly right. Most of these Web 2.0 products seem to target geeks, not grandma. They get a brief buzz with early adopters, but are a dud with the mainstream.
The key feature for the mainstream is saving people time. Most of these Web 2.0 startups are banging out shiny AJAX tricks that are just toys for geeks. They are building time wasters, not time savers.
Amen to that. I don't read TechCrunch and I don't care what happens at the nuveau bubble parties in Atherton.
Applications are both pertinent and non-events. The development of the semantic web is a matter of growth and it will not pay off until it reaches a critical state. It has begun in the deep web with federated search engines for researchers and is already paying off for them. If you look at the need for the applications, yes, they are toys for the geek public. That's just a little piece of the semantic web sitcking out where you can see it. If you are smart enough to use one of the applications, you can design your own organism quite quickly. I honestly have no idea why it has to be used by grandma to make money. The web becomes a stage in a production cycle. That gives it value. Maybe not much in your terms, but like a ball bearing, it is a necessary bit.
Kevin Merrit: "You need to break out people who try something for free vs. those willing to pay for it. While I agree that 10,000 technology enthusiasts trying something for free is uninteresting, 500 people paying $10 a month to try something is very interesting."
Unfortunately there is a seductive and deadly hole in this logic as it applies to "social network" applications.
Due to the network effect, the individual user value of such applications grows non-linearly with the total number of users, and, therefore, so does the percentage of paying customers.
Consider, for example, the case of LinkedIn:
"LinkedIn Corporation today announced that due to the rapid adoption of its premium services, the company expects to reach profitability this month. LinkedIn’s premium accounts were introduced just seven months ago and are priced between $60 and $2,000 per year."
http://www.linkedin.com/static?key=press_releases_030706
The percentage of LinkedIn users willing to pay "between $60 and $2000 per year" is much higher now, with a user database of some 5 million registered members than when they had, say, 10,000.
In fact, I think it's fairly safe to say the percentage of LinkedIn users willing to pay $2000/yr for "premium access" to a 10,000-user database would have been approximately zero.
This phenomenon is seductive and deadly for social networking startups because it is a logically compelling excuse for not posting any revenue for years at a time. The business model becomes, "do anything to attract new registrants". E.g., anything that might get a positive mention on TechCrunch.
I disagree with your comment that enthusiasts don't pay.
Personally, I'm a technological enthusiast who still pays (among others) basecamp, blinksale, and paid for backpack for a while.
However, i do agree with our overall argument, even monetising such a crowd is not interesting unless the start-up is meant to start and stay a very (_very_) small operation.
Recently I've come across many blogs that do little more than reiterate the stuff that goes of techmeme and techcrunch, this echo-chamber effect can be devastating if not taken with a generous portion of healthy scepticism.
Two questions leap to mind about this segment I'll call "53,651":
1. Is 53,651 growing rapidly?
2. Is 53,651 an attractive segment? (ie, can you monetize it)