Tech Bound #39: Venmo, the social network that shouldn’t be one

8 min read
Hey friends,
 
we’re slowly but surely entering the slow summer months. If you’re going on vacation: enjoy! I’ll be spending a bit of time in Tel Aviv, Israel, in early August. If you want to meet, let me know! There will be no break for Tech Bound, though. I want to make sure you have something to read at the beach ;-).
 
If you want to know what Tech Bound “sounds like”, check out the link to the Spotify playlist below. Turn it on while you read the Email to get the full experience ;-). I’ll update it on a regular basis.
 
Other than that, I got a few more confirmations for conferences I’ll speak at. Will update you, soon!
 
Cheers,
Kevin
 
 
Tech Bound Spotify Playlist:
 

 
– Case Study

Venmo, the social network that shouldn’t be one

When brands becomes verbs, you know they’re legit: “Google it”, “Just Slack me”, “Wanna Netflix & chill?”.
 
Another one of these staples is “Can I just Venmo you?”. In the US, Venmo is the app for lending friends small sums and even paying rent. How did it get there? 
 
Venmo, a marriage between the latin word “vendere” (to sell) and “mobile”, has a surprising social network character. It’s a peer-to-peer payments platform that allows anyone to accept and send payments. The problem it solves is real because people, especially friends, lend each other small sums of money all the time.
 
The three social feeds (personal, friends only, and public) are more than just an entertaining gimmick, they’re a network effect. It adds defendability to the business. Whenever you manage to connect users with other users in an app, you can leverage strong peer-to-peer network effects. Users can even interact with other users’ transactions (commenting and liking). That’s not obvious, when you think about it. The app wasn’t born with social functionality.
 
In my presentation on SEO and Machine Learning, I describe how Emojis are becoming their own language. Venmo did an analysis in 2016 that looked at what emoji is the most expensive one, meaning which one is most often used for the highest transactions (it’s rent). I don’t think this is a Growth play, but it says something about Core Product Value. If I was Venmo, I’d use that information to improve my product and marketing.
 
venmo sketch
 
The mobile cash transfer company was founded in 2009 by Andrew Kortina and Iqram Magdon-Ismail and now belongs to PayPal. In terms of Product-Market Fit, it took Venmo 3 years to come out of beta! At the beginning, it was only an SMS prototype. The mobile app came later. At this point, it was growing 30% YoY #hypergrowth. Shortly after, it sold to Braintree for $26M – 21.6x of the raised seed money!
 
But, according to Vator, the sale to Braintree came only two weeks before the company is bankrupt:
We felt the product was ready, however, our costs were growing exponentially as our transaction volume was growing. So we were spending lots and lots of money. It would have required hundreds of millions of dollars from investors in order to sustain Venmo, even to the point where it was break even. We had plans to earn revenue but nothing was promising, we had no promising traction, profitability was nowhere near us and everyone was kind of getting antsy. So we started to explore acquisition possibilities because nobody wanted to continue to invest in Venmo.”
 
The way Venmo makes money is through partnerships: it takes a 2.9% cut per transaction in other apps. Partnerships are a huge vehicle for growth, but they come at a certain risk. If you integrate too early, you risk being copied or eaten by your partner. Business transactions have the biggest potential for future growth, after my humble opinion. That’s where Venmo can easily integrated and snap a piece of the pie, which is also very scalable.
 
Venmo, after all, was planned to be a verb from scratch.
 
Key lessons
  1. Consider partnerships as growth vehicle, but be careful.
  2. Find a social component in your product to create network effects.
  3. If you have social component in your product, look at what people use it mostly for and let that inform Core Product Value.

 

– Point of view

First-mover, does it matter?

As a startup mentor at the German Accelerator, I’m often being asked how important it is to be a “first mover”. The term comes from Chess, where the player making the first move has an advantage.
 
Most people say:
 
Being the first-mover doesn’t matter…
The typical contra arguments against being first to market are:
  • First-movers have a longer learning curve.
  • First-movers often sacrifice deliberateness for speed.
  • The cost to replicate is lower than the cost to innovate.
 
Examples:
  • Google didn’t build the first search engine.
  • Apple didn’t invent the computer.
 
… until it does
 
Being first to market can come with a lot of benefits: 
  • strong brand recognition
  • customer loyalty
  • additional time to perfect the product
  • (exclusive) partnerships
  • economies of scale
  • lock-in effects
 
Examples:
  • Amazon created the first online bookstore.
  • eBay built the first online auction marketplace.
 
The best first-mover advantage comes from a breakthrough in R&D. When you invent something substantially new, the chance is lower that somebody else has discovered it. However, once you launched, it’s out there. Look at what happened to Snapchat stories!
 
So, you have to be successful – fast. If you get stuck, it’s likely a competitor will provide some serious troubles. Once example is UBER, which ran into cultural issues (are they even over, yet?) and gave away marketshare to Lyft.
 
The goal is to gain substantial marketshare asap and then defend them through moats, network effects, or lock-in effects. Google and Facebook defend their markets very aggressively, but we all know what happens when you become complacent: Yahoo, Microsoft, Dell.
 
It’s true that first-movers don’t always win. After all, it’s easy to say Google didn’t invent search engines and Apple didn’t computers. But, Google invented an algorithm to rank search engine results and Apple invented the iPod and iPhone. Once a company is able to develop solid network effects, it’s almost impossible to compete with. 
 
Whoever gets to network effects first, wins” >  “The second mouse gets the cheese.
 
If you’re curious about an example that’s playing right in front of our eyes, check out “The Scooter Wars will be a bloodbath — and Uber will win”.

 

Your weekly dose of awesome content

SearchEngineJournal: “YouTube Shows Searchable Hashtags Above Video Titles
This could actually be huge. As far as I’ve seen, you can use hashtags in Youtube’s search function to see all videos and the hashtags are linked under the video itself. You can add hashtags right in the video title or the description, but only the first 3 ones will be displayed under the video. You shouldn’t include more than 15 hashtags per video, otherwise you risk being removed from the platform.
That could be a way to see find out what videos appear for a hashtag and how they’re interlinked. I have to play around with that a little bit ;-).
 
Oh, also check out Youtube’s robots.txt for a quick laugh.
 
Tom Tunguz: “The Compounding Returns of Content Marketing” 
Tomas brings is to the point: “In reality, content marketing campaigns balance evergreen and temporal content. While it may not generate long term returns, temporal content keeps blogs fresh. But to benefit from the compounding effects of content marketing, marketers should actively invest in building evergreen content that keeps contributing to traffic growth, building the company’s brand and eventually generating sales.”
 
Intercom: “Eventbrite’s Brian Rothenberg on growing a marketplace
Cool roundhouse kick on Eventbrite’s growth, product development, and localization.
 
From the future: “How to optimize your website’s crawl budget
 
Hallam Internet: “Introduction to log files
I personally find log files EXTREMELY important for good SEO (provided you have more than 1,000 pages on your site).
 
Elichait: “How the 100 largest marketplaces solved the chicken and egg problem
Solving the chicken-egg problem is the hardest challenge marketplaces have to solve. This article introduces three methods used by the top100 marketplaces: standalone method, filling empty seats on the suppliers side, and building both sides simultaneously.
 
Searchmtrics: “Unwrapping the Secrets of SEO: How About.com Got Its Groove Back With Domain Splitting
Thematic focus has become super important in the last years. Google wants to see that a domain is an expert in a specific topic, so spreading yourself too thin might not be a good idea.
 
Forbes: “How 20-Year-Old Kylie Jenner Built A $900 Million Fortune In Less Than 3 Years
Kylie Jenner is running a billion-dollar empire on… Shopify! Very interesting article about how she runs her company ultra-lean. Of course, that’s all driven by her social media presence: she has over 110M followers on Instagram and millions on Snapchat.
 
Bonus
Google Market Finder: Interesting little tool to find new markets for your company. Fun to watch what categories Google puts you in!