First, the most heartfelt thing about App.net I've read all week. Thank you, Pete. :-)


Continuing with my examination of viable business models for App.net, I think it's worthwhile to examine the questions of value and price. Pricing a product—one-time good or ongoing service—is one of the hardest things to do in business. Price too high and you turn away customers who feel the product isn't worth that much; price too low and you leave money on the table—you fail to capture customer surplus, the positive differential between what a customer would pay and what you charge.

Pricing is even harder for pure online services because the reflexive amount users are willing to pay is zero, which is why advertising is the dominant revenue model: a multi-sided market where users face no price barrier while advertisers pay to reach them seems like a win-win-win. In practice, of course, the need to deliver value to the paying customers—some would say the "true" customers, the advertisers—so as to generate revenue tends to eventually worsen the service for users. Providers face incentives to cater to their paying customers at the expense of their non-paying customers to the precise extent of its non-paying customers' tolerance for inconvenience/degradation without quitting the service. "If you're not paying for the product, you are the product," yadda yadda.

App.net sought to avoid precisely that situation by being a service for which its users pay directly. The problem is, what value do they get in return? That question has never been succinctly answered.

With price as a barrier and value unclear, adoption failed to see explosive growth (some would say any significant growth), which compounded the value problem because social networks become more useful the more users they have and the more likely it is that your friends or people and organizations you find interesting are on them.

Non-Linearity of Value

Product value is not uniform, however. Different traits are more or less important to different people. For certain classes of product, that can make consumption an all-or-nothing proposition. In the case of App.net, however, the "product" is actually a product suite, and different users may be willing to pay different amounts for different components of the suite, depending on perceived utility or consumption.

For instance, App.net offers file storage and a uniform API for accessing it from different client applications. That could have been broken out as a distinct upsell, a nominal amount of storage and monthly consumption offered for free and higher tiers and permanent archival storage available for staggered premiums (the Dropbox model, if you will).

Most users would probably be adequately serviced by the free tier, but with well calibrated operational efficiencies and the right pricing tiers, those users who demand more would more than pay for the comparatively minimal use of the rest.

New Developer Incentives

As a quick aside, and piggy-backing on the SNAAS (shout out to Jamie Smyth!) ideas I discussed in my previous piece, an application integrating with the "Core ADN" social network could, at the user's behest, request file storage or other services on a one-time or ongoing basis, which could drive a premium transaction. That is, perhaps I don't post enough original images to Alpha to need more than the free tier of storage, but I'm a Favd fiend or Sunlit superuser. Favd/Sunlit could present me with a form to request additional, dedicated storage (which would require my authorization on App.net); for having driven that transaction, App.net could return a portion of my storage subscription to the requesting app, so that social applications developers have an incentive to rely on App.net's various infrastructure services, especially with the death of the existing Developer Incentive Program.

Explosive Isn't the Only Way to Grow

The consensus position of the Apple-Web-Design Internet Celebrity caucus (they like to call themselves "tech" writers, but nearly to a man know nothing beyond front end user-interfacing technologies and the au courant companies that peddle them) is that App.net "failed" because it never attained explosive growth. Hilarious. Explosive growth is an anomaly.

Yes, it is characteristic of the successful social networks we've seen so far, but precisely because of the alignment of incentives I discussed earlier. When your business is advertising, gathering the largest number of eyeballs as quickly as possible is imperative; and when your valuation is based on projections about your ability to gather and sell more eyeballs, modest growth is cause for alarm. cf. Twitter.

It should be noted that we haven't seen an explosive-growth network sustain itself long-term. Previous explosive-growth networks declined just as rapidly—MySpace, Friendster—and the persistent narrative about Facebook is that Zuckerberg realizes this and is throwing billions at the wall to see what sticks (WhatsApp? Instagram? is SnapChat next?) to avoid being usurped, particularly by mobile apps.

But a slow, steady-growth network? One that users are convinced enough of the value to pay for? That's virgin territory. The fatalistic attitude about App.net disappoints me because all we have is the failure of one model, caveated by poor marketing in both the senses of research to determine market need/fit and messaging to mobilize potential customers. There are still more models to explore, more approaches to try out.

Pivot!

Yep, I'm calling for a "pivot" from App.net. And not even a classic Silicon Valley VC pivot, where a company changes from selling a "revolutionary peripheral to enable scent distribution via the web" to offering customized laundry services or something like that. No, I'm simply calling for App.net to tweak its product mix, revisit its pricing scale, refine its message and relaunch.

This is just getting fun!