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The Importance of Product Management for Internet Companies built on Scale
The following is from a recent post called "4 Keys to Google's Success":
The folks at Google firmly believe that the better the user experience, the more easily money will follow.
That's always the case in all businesses, but once you start to have a look at Internet businesses dependent on scale (especially infomediaries and portals in the wider sense), product management becomes paramount -- relatively more important than sales or marketing, even. Because the whole notion of a scalable Internet business is that your variable costs for each additional customer are almost nil, whereas your revenue per additional customer is stable or only slightly declining. Again, this is nothing new: software has similar economics.
But most infomediary businesses have the advantage that they do not charge their own users anyway, but they have what one could call a "secondary sales model". The service is free for the actual users, but advertisers or transaction partners pay for each user they receive from the infomediary. Thus, there is no disincentive (like each time having to pay a price) for any user to use the same infomediary service more. It's as free to him to use the service ten times a week as it is to use it only once a month.
Furthermore, how's the business model of those infomediaries usually structured? It often follows a simple formula: Revenue = no. of visitors to the site x no. of visits per visitor x conversion rate (per visit) x price (per click). Conversion rate would be the percentage of visitors to be channeled onto the infomediary's transaction partner; conversion rate equals monetization rate. And the price per click is the price tag put onto each of those customers.
So, where's the biggest leverage in that formula and how can companies pull that leverage?
- Price per click: This is something that is largely industry-driven, i.e. the prices are usually set within a certain range. However, there is the possibility for the companies to better qualify the people they send on to the transaction partners, thus increasing the transaction partners' conversion, thus increasing the value per click to the transaction partner. That's the whole logic behind "decision sites" like dooyoo that qualify visitors by channeling them through a decision chain already before sending them onto a shop. --> So, how can you better qualify your users? Improve the product to make it more likely for users to actually get where they want to go.
- Conversion rate: Conversion rate is about maximizing the percentage of people to finalize their journey through the site and successfully click on to the next one. Or put differently: It is about minimizing (a) the number of steps the user takes and (b) the number of people not going to the next step. --> Again, it's all about building a product that channels the user rapidly to his purpose and doesn't have flaws, and especially doesn't have any breakages in the process.
- No. of visitors to the site: This is mainly marketing, although product experience-influenced word-of-mouth does offer a leverage as well.
- No. of visits per visitor: This is all about the product experience. If the user liked what he was offered the last time, he comes back. And hopefully not just one time, but many times. Keep in mind what was said earlier about the service being free to the consumer.
And because all these factors are part of a multiplication term, there is huge leverage in each of them. And each one is mostly influenced by the product experience. As you can see, the by far biggest leverage of those types of businesses is in improving the product. That's why Google is so fanatic about it, and that's why every infomediation and portal company should be.
Only goes to say that for scalable Internet businesses, revenue and sales challenges are largely and very directly product challenges.