My name is Spencer Lazar. I am a venture capitalist at General Catalyst. I grew up with the internet, spend my life thinking about how it can make our lives better, and work with world-class entrepreneurs to affect that chanage. NYC is my home. This is my blog.

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Saturday
Jun192010

Seeding a Network Effect: iPhone 4 Product Marketing

This week, with the launch of Apple's iPhone 4, we are going to witness something that only successfully occurs once or twice in a generation: the seeding of a network technology. While I bounce back and forth between which of the device's many upgrades (Retina Display, antenna technology, precision of design, HD Video Recording/Editing, Method of Multi-Tasking...) impresses me most, it is clear that the flagship feature is Facetime - video chat in the palm of your hand. While Streve Jobs has been at the helm of many of the most important technological revolutions of the past 30 years (from PCs to Pixar & iPods to iPads), we have never seen the master marketer attempt a launch quite like this.

A network technology (or a technology that scales via a "network effect") is one in which the value of the product to each incremental user grows exponentially in proportion to the number of users who have already adopted the technology. Networks are always predicated on some level of user communication or interaction.

One of my most vivid memories of such a technology transition dates back to 1995, when my grandmother saw something exciting in Hammacher Schlemmer. It was one of the first home video chatting technologies. This was pre-consumer web. A lunchbox-sized video camera was mounted on top of a small television. The audio for the calls was routed through our landline phone. The video was routed through our TV cable. To coordinate a chat, you called each other to schedule, set the TV to channel 3, and with a prayer, a live feed was up and running. That holiday season, she bought a set-up for our family, my mom's bother's family, and herself. The gift was intended to help us stay in touch. But, at the end of the day, it was just too hard to communicate. The universe of people we could chat with was extremely limited. Even if a connection was made, if you moved while on camera, the system would almost surely crash. We used it thrice.

Now take an example of a successful launch. Remember the early days on Facebook? It was not all that fun, was it? You had no photos from friends to look at. No articles posted by classmates to read. No goofy videos of roommates doing stupid things. Nothing juicy. As your friends started to join and the system opened up beyond local colleges & universities, however, things got more interesting. You were able to catch up with long lost friends from sleep-away camp; meet & learn about people that would become future colleagues, and let your grandparents keep up with your misadventures. While the sociological dynamics with each technology are different, similar user acquisition & interaction dynamics exist with the telegraph, telephone, fax machine, email, instant messaging, Twitter, Foursqaure, and even Chatroulette: the more incremental users on the platform, the more benefit I stand to gain from the service. And, they have to be easy to use.

One June 24th, a lucky few hundred thousand people will buy iPhone 4's and be some of the first in the Western world to join Apple's new implicit mobile video social network. Given the level of precision that Jobs & Co. employ in every area of product messaging, it feels safe to assume that every part of the product role out was a conscious decision and scrutinize them accordingly. I will focus on four.

  • Penis Envy (or "I've Got Something You Don't Have"): Facetime will begin as an exclusively iPhone 4 to iPhone 4 technology. For a network technology, some might see this as a surprising limitation. They will begin by capping the number of people benefiting from their powerful feature set. One has to imagine that technology was not the limitation to letting users make video calls to other video camera-enabled devices (even if only to Apple's very own iChat, which works on both laptop and desktop devices). This would have been a tremendous benefit to users in the feature's early days, helping them avoid the techno-isolation I experienced via Hammacher Schlemmer. Given how good Apple is at releasing products of any kind, Jobs has to be betting that enough people will be purchasing the device to begin with that whatever limitations this places on their network's traction will be more than made up for by the creation of the public perception that the only way one can participate in such an experience is by purchasing an iPhone 4. In a somewhat similar way, RIM has done the same things with their internal BBM service on Blackberry devices - a huge marketing success for them in the teenage demographic, where kids can send messages to one another all day long without it showing up on their parent's cell phone bill.

  • Reliability. Facetime will begin as an exclusively WiFi-based experience. While the real "Jetsons Experience," as Jobs calls it, is the ability to truly video conference on the go, the company has learned from its experience with AT&T. As in the case of the Hammer Schlemmer device, if the service quickly earns a reputation for poor video call quality, consumers will dismiss the technology as a novelty feature. Jobs has also learned from the failure of AppleTV. After a weak inital product launch into a new category, it is tough to get a second chance with consumers. 3G conferencing will come in a matter of time.

  • Bundling. Facetime is one of "100" new features on the new iPhone and the last of 9 specifically called out at the lastest Apple marketing event. This is an important hedge for Jobs & Co. They know that each feature will not resonate with each consumer. Some will buy the device only for the retina display. Some will think of it as a camcorder and a substitute for a device like a Flip. Some will buy it for Facetime. No matter the purchasing intent, Apple's goal is to get the iPhone 4 in as many hands as possible. Buy selling these and each of the many other features, they are implicitly telling all of us that no matter who we are, the iPhone 4 has something that we will love. From the network's perspective this is hugely helpful. Anyone who has an iPhone 4 will be another node, and each node increases the value of the network to that next user manyfold.

  • Openness. In the coming months, Facetime will open source its underlying architectural protocols to the developer community. While the details of this decisions still need to be fleshed out over time, it is clear that Apple would like to allow its mobile video-enabled devices to communicate with as many other devices as possible (mobile, laptop, desktop, and otherwise). Contrary to my Hammacher Schlemmer experience, this is intended to give each user as many instant benefits from purchasing their product as possible. If I am a child in a family of other iPhone 4s, openness might not matter. As soon as I fire up my device for the first time, Facetime will work. But for heterogenous environments, which the broader world is, this will become key. The more instant satisfaction that my network delivers, the more I am likely to use it. The more I use it, the more benefit I will be delivering to each of the other nodes in the network by extension.

While Jobs is a prosthelytizer of simplicity, he did explicitly leave something out that I believe will be important over time: a video conferencing buddy list. Leaving out this functionality at launch makes sense. If you opened your buddy list on June 25th or even December 25th, you might not see many people on it. Like a guest list to a party without no one on it, Facetime chatting might not be worth considering. Over time, however, as the feature's adoption crosses some critical mass, a simple buddy list, even something as small as a video icon next to corresponding names on a contact list, would go a long way. Seeing a rich "attendance" list will compel widespread attendance.

The goal of a product developer in the launch of a new network technology needs to be to both get as many useful connections on the system as fast as possible and to lower the barriers to interaction as much as possible. Apple appears to have something magical here. Very much looking forward to seing how things unfold.

UPDATE: Very interesting to see that Apple has already begun to struggle with the infancy of its Facetime network.  They launched 1-888-FACETIME to give people without a critical mass of iPhone 4 contacts the ability to chat with an Apple representative instead (8:00 AM - 8:00 PM CDT).  I wonder how long it will take them to make the service interoperable with other video chatting clients. 

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