• The Beauty of Annoying Apps

    annoying appsEarlier this week, I stopped at the Palo Alto offices of General Catalyst Partners, an East Coast heavyweight that’s been politely muscling its way into more West Coast startups since planting a flag in the Bay Area in late 2010. One of those companies is Snapchat, the popular mobile messaging startup, and one of the investors I sat down with was Niko Bonatsos, who first brought Snapchat to General Catalyst’s attention. Among other things, we discussed why Snapchat’s most popular feature is no longer “snaps.” Our conversation has been edited for length.

    Snapchat users appear to be less and less interested in the company’s “ephemeral” features. Is that a concern?

    It’s the same thing that happens with other software products. When they get started, they’re very simple. Over time, their user base diversifies. So with Snapchat’s newest release, you can basically do a live video chat with others on Snapchat rather than one message at a time. And that’s fantastic. In the past, Snapchat was the icebreaker; now you can do much more. It’s still probably the fastest-growing app out there.

    What early signals do you look for when it comes to non-transactional products like Snapchat?

    If there’s anything that people are talking about in online communities, or if in reviews of apps, you see polarizing reviews, these are good signals.

    When you’re controversial, it fuels word of mouth, which also gets amplified by the media. Back in the early days, for example, Snapchat was perceived as the ultimate tool [for lascivious] texting; it wasn’t true, because 75 percent of the user base was girls. But the media picked it up. Later, Facebook launched Poke, which was characterized as a Snapchat killer. Most people didn’t know Snapchat [at that point], and they looked it up and downloaded it. Controversy is great when it comes to building a brand and acquiring users for zero marketing spend. Obviously, you have to graduate from one controversy to another, or three to six months later there’s fatigue, but it can be controversy because of behavior, content, or because your product annoys people.

    So investors should be looking for annoying apps.

    Yes. With Snapchat, a lot of parents were very annoyed with it. With [anonymous messaging app] Yik Yak, a lot of schools and parents were annoyed. With [the mobile dating app] Tinder, people were telling their friends, “There’s an amazing app where I can check out girls and if I like them and they like me back, maybe we can start chatting and hook up later.” Meanwhile, older people were like, “This is terrible. What are young people doing these days?”

    Secret and Whisper, apps where people share confessions and gossip anonymously, are controversial and, to some, annoying.

    But their word of mouth isn’t as strong. Things don’t spread quickly from one community to another. Secret hasn’t managed to break out of its techie, Silicon Valley roots. You can see that it has something like 100,000 Android downloads. It launched on Android [in mid-May], but for a company that has raised so much money and been so [buzzed about], you’d expect some more.

    I’m also a little hung up by the names Secret and Whisper. How many secrets do you have, really? Maybe one a day? Three times a week? I get the value proposition of the product; it’s like a Twitter parody account. But most content is, “My girlfriend just broke up with me,” or “I hate my boss.” It’s heartbreaking and after a couple of weeks, you don’t want to go back.

    Before I go, what’s one last trend you’re seeing?

    How fast we’ve gone from single apps to portfolios of apps. Google now has 150 apps between iOS and Android. Facebook has about 40. The world basically saw what happened in China, where companies like Tencent [the Chinese Internet company] now have [hundreds of] apps and do a lot of cross promotion and [essentially] game the app store. Mobility into the top 100 has become much harder for early-stage startups as a result, and if you aren’t in the top 100 app [download rankings], no one can find you. That’s the opportunity and the challenge.

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  • Same Companies, Different Impressions

    OLYMPUS DIGITAL CAMERAVenture capitalists are a lucky lot. Their work is prestigious, the pay can be exceptional, and they’re educated daily by smart entrepreneurs.

    One job hazard, however, is missed opportunities. For example, many in Silicon Valley passed on Uber, one of the fastest-growing companies on the planet. (To his credit, Uber’s hard-charging CEO, Travis Kalanick, appears to have talked to everyone before the company raised its first round.)

    You might wonder now how so many investors missed Uber’s potential, but the reality is that finding the Next New Thing is a lot harder than it looks. Indeed, last week at the “demo day” of the incubator program AngelPad in San Francisco, one could find many savvy investors making radically different calculations about the same companies.

    PeopleGoal, a New York-based startup whose performance management software aims to wring the best out of employees, captured the attention of Josh Breinlinger, a venture partner at Sigma West who was among the earliest employees of the freelance marketplace ODesk. “That’s one of two that really stood out to me,” he said after the companies’ presentations.

    Hiveary, an infrastructure monitoring platform, and TapFwd, a big data mobile ad platform, were more interesting to Niko Bonatsos, a principal at General Catalyst Partners who said he liked the technology behind both, as well as that both seemed like they were addressing “real problems in hot markets.” Of Hiveary, in particular, Bonatsos said, “If you talk to enterprise [software developers and IT departments who collaborate to speed the deployment of new applications and services], they will describe that they need a solution for this problem.”

    Meanwhile, Paintzen, a marketplace for home and office painting, stood out the most to Manu Kumar, the founder of the seed-stage venture firm K9 Ventures, one of the earliest investors in the ride-share service Lyft. “It just feels like an industry that’s ripe for disruption,” said Kumar, who especially liked the team’s argument that it can eventually expand into other verticals, including flooring, cabinets, and windows. “If they can go after those other areas, they can scale,” said Kumar.

    Breinlinger made the same point separately. “If Paintzen can do the same thing they’ve done for painting for other home services, I think it becomes really interesting,” he said.

    But Bonatsos was less impressed with Paintzen. “It sounds interesting. They make [arranging a paint job] very easy. I don’t know how big the market is, though. It’s one and done; it’s not frequency. How often do you paint your house?”

    Asked about the other verticals that Paintzen wants to pursue, Bonatsos said that “to me, that’s not a good sign” that Paintzen is pursuing a big-enough market from the get-go. “The numbers [the founders] gave out – [a] $10 billion [market] for painting in the top metro areas. Well, let’s say they capture $1 billion out of the $10 billion, and their piece is 30 percent. It’s a $300 million market for them. That’s interesting,” said Bonatsos, “But it’s not like, ‘Oh, my God.’”

    (For a full tearsheet of AngelPad’s newest batch of startups, click here.)

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