@andrewchen

Seattle is a great tech city
Since I was 5 years old until 4 years after college, I called Seattle my home, and technology was intertwined with my childhood. As a kid, I found lots of avenues to my formative years in computing, including access to gopher and telnet via Seattle Community Network, the pre-web BBS scene, and a 5th grade classroom filled with Macs. As a college student, I got to work at various tech startups and ended up at a VC firm after I graduated. There’s not a lot of cities that have the ecosystem to have given me opportunities like that – maybe half a dozen at the most, and Seattle is certainly high up on the list.

Ultimately though, I left after 2006 – it took a lot of soul searching but ultimately one question got me over the edge. Let me explain what that was.

The question that got me to leave Seattle
As I pondered staying or leaving Seattle, I did a lot of thinking about the city from a startup context and what was working and not. Obviously it’s great to have companies like Microsoft, Amazon, Real, and others there – it produced a wonderful tech ecosystem that is thriving and growing every day.

But in late-2006, the social networking world had caught fire, and I wondered:

Post-bubble, when was the last time Seattle produced a world-changing consumer internet company?

And try as I might, I couldn’t shake the idea that while the rest of the tech world in California was producing YouTube, MySpace, Facebook, Google, and others, Seattle had Amazon and sort of stopped.

I wasn’t sure that I would be able to answer WHY, but I packed my bags and figured I’d figure out a theory at some point. A few years later, thinking about the question now, I think it has a lot to do with the kinds of companies being built in Seattle.

Different kinds of companies – Commerce versus Community
My current hypothesis is that Seattle has a strong history in retail and commerce, which has influenced the kinds of companies that are started there. Obviously you have Amazon, but you also have Eddie Bauer, Blue Nile, Nordstrom, Costco, Starbucks, and numerous other online/offline retail businesses there. There are also lots of transaction-focused startups based in real estate (like Redfin) or travel (Expedia).

These retail and transactionally-focused businesses are great money-makers, but because they target in-market buyers for a particular good or service, it means that you’re not really building a huge audience. You end up with the <10% of the general population that is in-market for buying a diamond or plane tickets or a house, not a viral and sticky UGC site you visit every day.

The classic way to build a huge audience is to focus on ad-driven businesses in the world of communication or content publishing, and there just aren’t that many of them in Seattle. (Though congrats to the Ben Huh for marching his horde of cats in this direction – the Cheezburger sites have the #1 traffic slot in Seattle right now) If you look at categories like social networking or YouTube or Twitter, these are more like everyday tools that hundreds of millions of people might use every day to communicate or find the content they want. Those are mass audience driven businesses and end up being high-variance outcomes – you end up with huge hits and also big failures because you need more money-losing years to build up the audience necessary to monetize at the rates you want. (just look at Imeem’s recent firesale even as they had amassed tens of millions of active users)

Different types of expertise – SEO versus viral/social
Similarly, the above influence also drives the skillset involved for one of the key startup goals: Driving traffic. My working hypothesis for Seattle is that it’s a very strong SEO-oriented community, and you have many of the top experts living and working there. The reason, of course, is that retail and transactional sites are mostly found via Google, and it makes sense to develop a skillset around getting that traffic for free rather than paying the search engine for it.

That’s great, but that also closes the door for the all-important knowledge of the viral loop that companies in social gaming are learning now, and what social networks companies learned before them.

For that reason, much of the social gaming and social network action happens down in the Bay Area.

Comments?
In short, years later I think I’ve mostly answered my own question – my hypothesis is that Seattle hasn’t produced mass audience consumer products mainly because it’s focused on down-to-earth charge-users-for-a-product types of businesses that are more transactional than community. I don’t think that’s a good or bad thing – just as you’ll get more biotech in Boston, there’s a specialization in Seattle around commerce/retail. But if you’re doing a social UGC thing, the Bay area is the best place to be.

Seattle folks (or otherwise): Do you agree or disagree with the above? Let me know in the comments – would enjoy hearing your thoughts.

UPDATE: For all the people who think I’m being a Seattle-hater, here’s a similar analysis for the Bay Area: Does Silicon Valley noise detract from long term value creation? It’s a related piece and discusses some of what I’ve noted since being down in SF.

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I’ve been blogging less and less
As many of my readers may have noticed, I’ve been blogging less and less lately – it used to be multiple times a week, then it became once a week, and recently I’ve been blogging once every other week or so. I’m sure I can keep up that pace for quite a while, but it certainly makes for a less interesting blog

Anyway, some of the reasons why I’ve slowed down in my blogging:

Blogging is more fun when you’re meeting people from lots of diverse companies and industries
When I was doing my Entrepreneur-in-Residence gig, I had an excuse to do lots and lots of meetings with people from across the digital media industry. On a single day, I might talk to companies in mobile, ad infrastructure, payments, social networking, games, and more. That was a great opportunity to blog because it’s easy to see connections and talk about ideas across industries. I don’t do this much anymore, so it’s harder to come up with these observations.

Getting deeper and narrower results in boring blog posts
Getting deeper and deeper in an area is a key part of the startup experience – you learn lots of weird things about your particular project, your particular target audience, and your specific industry. This doesn’t translate to great blog posts though, because most of what you learn there is completely inapplicable to other peoples’ situations. Instead, you get articles that are too “inside baseball” and esoteric.

Long blog posts are hard (and get harder over time)
Sometimes I really appreciate Twitter’s 140 character limit because it forces you to be short and sweet. A blog post, in particular my blogs, go the other direction. Over time, this has become a big pain in the ass since I’m not as comfortable posting one or two paragraph blog posts and instead go overboard with essays. I should probably just come up with a word limit and try to keep things down to a more reasonable size instead

News-driven versus writing whatever
Another is getting inspired to write something – it’s a lot easier to write to comment on something in the news, versus just thinking about a particular topic and writing something great there. It’s always helpful to have some inspiration.

Potential changes?
From the above, it seems like a couple experiments might make sense. A big thing I should do is probably to write shorter things, and maybe do more news commentary. We’ll see if that helps at all

Anyway, less excuses – back to blogging!

Followup to Ning’s Viral Loop article
I was recently sent a copy of Viral Loop by Adam Penenberg, which just came out. I was first introduced to Adam in early 2008, when Marc Andreessen wrote us both while Adam was starting to write an article about Ning and their viral loops. That article was ultimately published in April 2008 as Ning’s Infinite Ambition, which you should read if you haven’t. After the article, Adam subsequently spent more time researching the topic, ultimately resulting in the book. I finished it and wanted to share a high-level summary and also talk through some points that the book brings up.

Summary
The book mostly covers a series of case studies from both offline and online companies. These include detailed dissections of viral companies from all stripes, including:

• Offline: Tupperware, Ponzi schemes
• Andreessen’s companies: Mosaic/Netscape, and Ning
• Bubble era companies: Hotmail, eBay, PayPal, HotOrNot
• Web 2.0 startups: Flickr, YouTube, MySpace, Bebo, Tribe, Tagged
• Widgets and apps, etc: Facebook, Slide, RockYou, Zynga

Some of the companies get pages and pages, and others just get a paragraph or two. But there’s a lot of stories that were new even to me, which is always a good sign, since I tend to love reading this kind of stuff.

The book also covers a bunch of high-level concepts about virality, such as the viral coefficient, viral loops, RockYou’s model for calculating virality, etc. All in all, a useful intro to all the major concepts in the field. It’s a great walkthrough of the history of viral companies since the late 90s when some of the formalizations started to happen.

Metrics-focused virality versus not?
One of the interesting distinctions that isn’t made in the book is the trend of startups who use quantitative techniques to optimize their virality versus products that went viral through other means. In particular, a lot of modern techniques are borrowed from the world of leadgen, ecommerce, and advertising, including:

• Formally defining landing pages (and using associated techniques)
• Creation and formal creation of funnels
• A/B testing
• Extensive use of analytics and targeting
• Deep understanding of email marketing, deliverability, and addressbook importing

From my personal experience, it seems like a lot of these ideas about virality ultimately originated from a few small teams here in the Bay Area who have now helped generations of viral companies succeed.

To me, the most important work in metrics-based viral marketing came from these companies below – I’ve listed the companies along with “descendent” startups who took the culture, playbook, and to build the next group of viral companies

• PayPal (Peter Thiel and Max Levchin)
  • PayPal mafia (Slide, Yelp, YouTube, Linkedin, Geni, etc.)
• Jumpstart (Greg Tseng and Johann Schleier-Smith)
  • Crushlink, Tagged, Hi5, others
• Plaxo (Sean Parker)
• Tickle (James Currier)
  • Ooga Labs (Medpedia, Wonderhill)
• BirthdayAlarm (Michael Birch)
  • Bebo, Flixster

There is lots and lots of overlap amongst this group above, and people cross-advise each others’ companies. Let me also caveat that the list isn’t exhaustive, and there are plenty of important VCs, advisors, and entrepreneurs that “get it” and help cross-pollinate between companies. In particular, I’ve found that the PayPal folks are involved in a tremendous number of companies in the Bay Area, and have been teaching their various companies to go viral for quite a while.

That said, I believe that the social relationships above have become less important over time to startups, as the knowledge around designing and optimizing viral loops has become more widespread. Certainly the Facebook economy has taught a wider generation of 20-something developers on how to build highly viral applications, with or without the help of the folks above. I’d note that some of them aren’t as numbers-oriented as copycat-oriented, but it’s still working for many people. As a result, I think the Bay Area is set up nicely to create the next generation of web companies as the bench in this area has gotten very deep indeed.

Who am I missing? Email me or let me know if I am in the comments. Or if someone on the above list would like to graciously identify who taught them the viral playbook, I can help trace the history further

“Viral Loop” stays high-level
One aspect, both good and bad, about the Viral Loop book is that it stays pretty high level. As mentioned above, even after you understand what a viral loop is, you have to understand the tools of the trade well enough to go execute one. Learning the ins-and-outs of direct marketing takes a long time, especially to become an expert.

Adam does a great job keeping the book high-level and relevant to people both inside and outside of the industry, but certainly it doesn’t go into any of the details that have to be mastered to do the actual execution part.

It is for this reason that the total supply of viral experts will always be relatively constrained. Anyone worth their salt would likely be working on an amazing project, early on in the team, rather than working for an established startup. Instead, what tends to happen is that the community operates on a “money + knowledge” type of relationship, in which successful viral experts advise new startups to provide both angel investment and advisory.

The limitations of viral loops as a force multiplier
Another thing that isn’t discussed much in the book, which I think is very important, is the limitations of viral loops. The quantitatively marketed companies that I mention above certainly have their successes, but similarly, many of them are plateauing and failing as well.

The reason is that there are some important factors that are not well-understood by the extended community.

First, I refer to this great presentation by Siqi Chen (of Serious Business) and David King (of Green Patch), called Metrics for Social Games:

The first slide contains a deep truth: Metrics are a force multiplier. If you don’t have a great product, then you won’t get anywhere. But if you have a great product, then it help you build a huge business.

I’ve written about a similar concept in a blog post called Creating value versus optimizing revenue.

Hitting saturation in viral networks
Another important limitation is that there’s a finite number of users out there, and after you churn through all of them, all you have to look forward to is the long plateau. I first wrote about this in my post Facebook Viral Marketing: When and why do apps “jump the shark.”

I wrote that post back in March 2008, and a lot has happened on the Facebook platform since then. This includes an incredible growth rate of the underlying platform itself (now hitting 325 million monthly actives), the appearance of Social Gaming, and it turns out that the current model to beat on Facebook comes from Zynga. They get around the jumping the shark issue by releasing lots and lots of games – 17 on Facebook, 9 on MySpace, 8 on other networks, and 5 on iPhone. And more to come every day

Although it doesn’t seem like much of a problem for most companies to hit the saturation ceiling in the networks they are operating in, it is a huge problem for VC-backed startups because then the story stops being about growth. So for the entrepreneurs who are working on their startups, it becomes important to hit a product/market fit early, and scale then, rather than prematurely going viral without a long-term product direction.

Buy the book here
Hope you enjoyed the post, and you can buy Adam Penenberg’s Viral Loop here.

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If you liked this post, please subscribe or follow me on Twitter. You can also find more essays here.