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Cuil and Business Models: Complement, Replace or Create?

Cuil went live Monday. The new search engine promises dramatically better search results:

Rather than rely on superficial popularity metrics, Cuil searches for and ranks pages based on their content and relevance. When we find a page with your keywords, we stay on that page and analyze the rest of its content, its concepts, their inter-relationships and the page’s coherency.

Cuil went live with an incredibly high level of publicity. Alas, the promise of the company’s press release has not been met initially:

So Cuil has its work cut out.  And Cuil is running into the classic 9x problem anyway. As Harvard professor John Gourville explains it, new products need to be nine times better than the product they replace. Two parts to that nine times rationale:

  1. Risk aversion: the market will overvalue the incumbent product, with all its warts and limitations, because the benefits are certain and entrenched
  2. Uncertainty: the described benefits of the new product may not be realized

Three Philosophies to Building Products

I lack any build-your-own-company experience, so my observations are those of an outsider looking in. From what I see, companies build products that do one of the following:

Each product strategy entails its own risks and rewards.

Complement Strategy

In the Complement strategy, companies plug into an installed based and existing ecosystem. They see an opportunity to improve the functionality of the existing product.

The nice thing with the Complement Strategy is that there is a defined market. The incumbent provider has done the hard work of creating it. And the way customers use the incumbent product is well-known, so creating an experience consistent with that makes the new company’s job easier.

The Complement Strategy company ties its fortunes to the incumbent’s installed base and future product roadmap.  A nice exit strategy is to be acquired by the incumbent. There is the risk that the incumbent company will just add the feature on their own to their product.

One good example was Summize. Summize built a very nice search application in support of Twitter. Summize didn’t ask you to use it for micro-blogging. It worked on top of Twitter, making up for a limitation in twitter: search.

9 times better impact: Companies that pursue the Complement Strategy buys themselves a much easier time of it. The issue of risk aversion is put to bed because customers are not asked to give up their existing products.

Replace Strategy

The company that pursues the Replace Strategy aims to dislodge the incumbent. This is a tough thing to do. Customers know what they value in the existing product. They know how to work around the limitations of the products. They built their own processes around the product.

That’s going to be tough to disrupt. But the rewards are terrific. Typically, the incumbent has a large market size. The customers’ use cases are well-developed, and the shortcomings of the existing product are easy to identify.

Still, it takes ripping out a lot of entrenched processes and mindset to replace.

The iPhone is a good example of a product successfully employing the Replace Strategy. Not that it has actually replaced the bast majority of existing mobile phones yet. But it has gotten vital traction in the mobile market and is carving out its share.

9 times better impact. This strategy is the one that runs hardest into the issue of a product needing to be nine times better than what it replaces. Customers are going to overvalue what they have, and the completeness and reliability of the replacement product will be questioned.

Create Strategy

The Create Strategy is a storied one in the world of entrepreneurship. To create a whole new category of usage. Companies that pursue this are riding the visionary edge. Fun place to be.

The landscape is littered with companies that have tried this approach. That’s the big risk with this approach. It takes a lot of experimentation to find the new products that resonate with the market and really change people’s experience.

If a company hits on success in creating a new category, it will enjoy first mover advantages. These are important as Replace Strategy competitors inevitably crop up.

Twitter is an example of this. Twitter is the leader in the micro-blogging/social messaging movement. Other companies are trying to move into the space (Jaiku, Pownce, Plurk, Identi.ca), but Twitter continues to enjoy a dominant position.

9 times better impact. This strategy has an easier time relative to the nine times better requirement. The Create Strategy does have replacement aspects, but they’re often more time replacement issues. Using Twitter as an example, Twitterers were likely replacing some of their activity on email, instant messenger and social networks. But they really weren’t replacing those. Twitter stands on its own merits, not in comparison to other apps.

Diigo: A Hybrid Case

Diigo is a new bookmark and tagging service. Ultimately, Diigo would like to replace Del.icio.us as users’ go-to site for bookmarking (Replace Strategy). But Diigo is being sm,art about it. They have made it easy for sites bookmarked in Diigo to be exported over to Del.icio.us at the same time. So by bookmarking in Diigo, users are suimultaneous bookmarking in Del.icio.us. In this way, Diigo is also pursuing the Complement Strategy. This allows users to get comfortable with Diigo while not losing their existing investment in Del.icio.us.

Cuil: The Challenge of the Replace Strategy

Google Search has en established brand. It has a huge share of mind. People have Google Toolbars. Google Search is a popular add-on to the Firtefox browser. Google Search powers myriad corporate websites.

Louis Gray has a nice post describing the challenge start-ups face when they take on incumbents. Often they start out with dreams of becoming the next big thing, but may have to settle for niche market positions.

Cuil’s initial approach is one of being better than Google Search. Not carving out a particular niche. But based on the initial feedback, Cuil has not come anywhere near being nine times better than Google Search. Cuil is not trying to create a new category. It is not trying to complement existing search. It is firmly in the Replace Strategy mode. Here are its options:

  • Completely replace Google Search: continue to compete against Google for more content that is searched and superior relevance.
  • Replace Google Search for a niche segment: be better than Google at just one thing. But really be nine times better.

Might there be a hybrid strategy for Cuil? You get your Google search results, but get to see what Cuil found? Perhaps like dogpile.com. Not sure how that would work though. And it really doesn’t address the entrenched ecosystem that Google has.

Choose Your Strategy with Care

Dave Winer makes a nice point when it comes to competing against an incumbent like google:

Google is a thriving coral reef, and one doesn’t just show up one day with an idea and compete with an ecosystem.

I don’t know if the Replace Strategy or the Create Strategy is harder. Both have their challenges. It seems Complement Strategy is the easiest, but probably has the lowest market potential.

What do you think? Did I miss any other product market strategies?

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FriendFeed Will Make Switching Social Networks Easier

There has been quite a lot of coverage for the FriendFeed service. FriendFeed aggregates updates from a variety of other social networks and Web 2.0 apps, such as Twitter, Flickr, Jaiku, LinkedIn, YouTube, etc. TechCrunch’s Michael Arrington reports that FriendFeed just added a search capability, making it “suddenly feel like a destination site”. The service is growing and improving.

Aside from aggregating your feeds, you can subscribe to the aggregated feeds of others. You “friend” others the same way to do with Twitter. Just subscribe to their FriendFeed. They don’t approve your subscription, you just do it. FriendFeed is essentially a social network in its own right, allowing users to post comments and share feeds amongst friends.

Which got to me thinking…the emergence of FriendFeed and other “networks of social networks” is going to make switching services a lot easier for individuals. And that’s going to make life harder for the social networks.

Here’s what I mean. I signed up for FriendFeed. I added several other services to which I belong: Twitter, Google Reader, LinkedIn, Pandora and del.icio.us. Suddenly, I see my updates all in one place. That, by itself, is pretty cool.

I then subscribed to the FriendFeeds of others. Robert Scoble is an active FriendFeed guy, by virtue of his involvement in every other social network and Web 2.0 service out there. It’s pretty interesting to see what he’s up to and what he’s commenting on.

Then I notice something. I’m seeing Scoble’s Jaiku updates (Jaiku is a competitor to Twitter).

Jaiku? I don’t belong to Jaiku!

And this is how these social network aggregators are going to change things. On Twitter, I can subscribe to others’ Twitter posts. For example, I subscribe to Scoble’s Twitter updates. But to subscribe to Scoble’s Twitter updates, you need to join Twitter. Through FriendFeed, that’s no longer the case. You can follow anything Scoble puts up on his FriendFeed: Twitter, Jaiku, Pownce, and others.

So here’s how this unfolds. You and your friends join FriendFeed. You’re all on Twitter. You love the ease and carefree way you can post updates to Twitter. Your friends on Twitter see your updates, either on Twitter or on FriendFeed. But after a while, you decide the features of Jaiku are even better – you make the switch to Jaiku.

Normally, the switch to Jaiku from Twitter would be disruptive. Your Twitter-using friends no longer see your updates, and you can no longer see theirs. The pain of this disruption is a form of lock-in, as the value of switching does not equal the costs of doing so (see In Praise of Inertia: MyYahoo #1 for more discussion on this topic).

But with FriendFeed, the cost of switching social networks nears zero. Whether I post updates on Twitter, Jaiku, Pownce or Google Talk, my friends will see them on FriendFeed. There is a loss of the the ability to talk back to your friends directly on their different service, but FriendFeed lets you post comments on any update of your friends.

This is great for the individual, expanding the choices for different services. And it puts more pressure on social network and web service apps to continually improve their features and user experience. Otherwise, users will easily switch to a better service.

Lookout social networks and web services – the lifestream aggregators are coming.

UPDATE: Sarah Perez of ReadWriteWeb has a March 20, 2008 post up entitled “The Conversation Has Left the Blogosphere“.  In it, she observes that blog comments may ultimately migrate to lifestream aggregators, such as FriendFeed.  This thought is another variation on the idea that the lifestream cloud becomes the community, replacing the apps-based communities we know today.

In Praise of Inertia: MyYahoo Still #1

Over at TechCrunch, they’ve got a post up discussing the top six personal homepages. #1? MyYahoo. MyYahoo has been around for quite a while. 6-7 years? It’s an oldie, but still a goodie. It’s my homepage.

There are others on the list. #2 iGoogle looms as the big scary challenger. Given Google’s success over the past several years in other arenas, it’s surprising they haven’t taken the #1 spot here as well.

It’s a testament to inertia. Not inertia in any negative sense, like laziness or user ignorance. Rather, inertia as a reflection of human sensibilities and value systems. Something called the “9X problem“.

Harvard professor John Gourville put forth the idea of the 9X problem. The gist of his thesis: “a mismatch of 9 to 1 between what innovators think consumers want and what consumers actually want.” The mathematical term “9X” actually does have a little math behind it. And that math is key to understanding the 9X issue.

First part of the 9X equation is based on our comfort with what we have. Things we already know, things that we have invested time in learning and using, have a high psychological value for us. They satisfy some need. We’ve learned their strengths, and live with their weaknesses. When we compare something new to something we already have, we tend to overweight the value of what we already have by 3X. It’s a little scary to give up what you know.

Second part of the 9X equation is based on our natural skepticism about claims made for new things. This probably resonates for most of us. I know I tend to dismiss most commercials and advertisements. This is a healthy trait of people – otherwise we’d all be getting duped left and right. But it also means that we underweight the value of features for something new by a factor of 3X.

Multiplied together, this gives us the 9X factor.

This is powerful stuff. It means new things really have to deliver healthy gains in benefits. Some examples of “9X masters” come to mind. Google was such a leap forward in search relative to its competitors: very relevant results, clean interface. Apple’s iPod just blew the doors off other music players in so many ways. Honda’s reliability and fuel efficiency were miles ahead of Detroit in the 1980s and 90s.

But there are plenty of other cases where good products failed to dislodge incumbents. Supposedly, many other search engines have attained search results parity with Google. I wouldn’t know…I still use Google exclusively. And so do many others.

So there’s the 9X problem. It’s actually a really interesting concept. If you’re doing a startup, can you do in it a way that does not force someone to give up an existing “thing” they like? That way, you only have to deal with the 3X new product benefits underweighting problem?

9X is really about inertia. MyYahoo fulfills a personalized homepage need: news, email, stocks, sports, weather, etc. iGoogle, Netvibes and others have really nifty options for their pages. But have they delivered 9X the value?

The key is to hook your users. Once you get them, it’s hard to lose them. On that note, how about adding my little blog to your RSS reader? You can remove it any time you want… 😉