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Understanding Social Platforms
February 2017
VC Insights
1. Overview of Social Platforms
2. Messaging
3. Private Social Networks
4. Public Social Networks
5. Enterprise Social Networks
6. Communities
7. Social Platform Metrics
8. Exits and Valuations
9. Opportunities
10.Final Remarks
Roadmap
What’s a social platform?
At Version One, we consider something to be a social
platform if the interactions on the site are driven or defined
by an underlying relationship between the participants.
Messaging Private
social
network
Public
social
network
Enterprise
social
platform
Community
Categorizing social platforms
nature of content public / private
broadcast model one-to-one / one-to-many
connections
asymmetric (follow/subscribe) /
symmetric (opt-in both sides)
nature of relationship
personal / shared interest /
worldwide connection
persistence of content permanent / ephemeral
identity real name / user name / anonymous
Success factor 1: Depth of relationships
The depth of the underlying relationships
determines how sticky an app will be.
Think not just about the size of the user base, but also the value that
particular users bring to the platform. What network effects are at play?
Success factor 2: Daily use case
Engagement is the most important metric for
social platforms, and so a daily use case is
imperative. What keeps users coming back?
Snapchat: people communicate with friends every day.
Instagram: people take photos every day.
Pinterest: People surf the web and want to bookmark things every day.
Success factor 3: Native monetization opportunity
In top platforms like Facebook, Instagram, and
Twitter, native ads that match the visual design
and user experience of the site are growing in
popularity for two reasons:
1. People don’t want to be disturbed in their social activity.
2. Ads can be targeted or personalized to drive higher conversion,
and therefore command higher ad rates.
Success factor 4: Personalization of content
The overwhelming amount of information
users receive every day means that social
platforms must deliver the most engaging and
relevant content.
Facebook uses machine learning to track users’ actions to serve posts
and content that they’re more likely to engage with. Ex. people who
click on photos will see more photos on their newsfeed.
VC Insights
1. Overview of Social Platforms
2. Messaging
3. Private Social Networks
4. Public Social Networks
5. Enterprise Social Networks
6. Communities
7. Social Platform Metrics
8. Exits and Valuations
9. Opportunities
10.Final Remarks
Roadmap
Messaging platforms are becoming the primary way we
communicate. That’s because the ubiquity of mobile
makes messaging so easy.
The market for this type of social platform remains
fragmented. It’s notoriously difficult for apps to build
effective moats and business models.
Messaging
2.5 billion people are using messaging apps today
Source
Business Insider
Three subcategories
Plain SMS/text
messaging
Basic messaging with stickers,
group chat, and other extras
New behaviors
Novel kinds of interactions and
use cases
Platform
approaches
Development environments in
their own right, rather than just
messaging services
Business models
Subscriptions
After WhatsApp abandoned this model in
2016, subscription fees seem unviable.
Ads
In 2015, Snapchat began running ads.
This is still a young market and returns
for advertisers remain uncertain.
In-app purchases
Purchases such as stickers have proven
to be lucrative for Japan-based Line.
Distribution platform
WeChat users in China can book tickets,
order dinner, schedule appointments, etc.
Distribution platform: WeChat
Source
2015 Internet Trends Report, Mary Meeker
No winner takes all…yet
We attribute market fragmentation to two factors:
1. Low network effects. While messaging apps have
high virality, the size of the user base itself doesn’t
create a moat.
2. Low switching costs. The ability to switch
between apps on mobile devices makes cross-
platform use easy.
Low switching costs: other factors
• Largely Driven by teens. Young users can be less loyal, and adopt
new services quicker.
• Smaller social graph. Leaving Facebook means leaving potentially
hundreds of friends. Leaving a messaging app may mean leaving
10–20 people you chat with, who are accessible on other apps
anyway.
• Messaging lives purely in the present. Your history on a
messaging app is far less important than on social networking
sites like Facebook, Instagram, or Twitter.
VC Insights
1. Overview of Social Platforms
2. Messaging
3. Private Social Networks
4. Public Social Networks
5. Enterprise Social Networks
6. Communities
7. Social Platform Metrics
8. Exits and Valuations
9. Opportunities
10.Final Remarks
Roadmap
These refer to apps that have standardized two-way
friending, where the connection must be accepted by both
parties.
Before the dominance of Facebook and LinkedIn, this was
once a fragmented market. Former contenders included:
Friendster, MySpace, Bebo, and Orkut.
PrivateSocialNetworks
How did Facebook win? Daily use
Relevance of content
We care what our friends,
family, and other connections
are doing, reading, and sharing.
Depth of relationships
Two-way friending ensures
users most likely have an
existing relationship and are
interested in the connection.
Virality and network effects
Successful private social networks
exhibit both virality and network effects.
Facebook spent little on marketing in its early days. Its users did
the acquisitions for it.
As Facebook grew beyond its college setting, members’ social
graphs expanded to include childhood friends, work friends, family
members, sports teammates, etc.
Business models
Ads
The ability for these networks to segment
users by interests, age, geography, and
buying habits is valuable to advertisers.
Distribution platform
Facebook delivered 41.4% of all referral
traffic to publishers in Jan 2016, beating
out Google and every other traffic source.
Subscription revenue
While its basic membership is free,
LinkedIn sells premium subscriptions to
businesses looking for talent solutions.
VC Insights
1. Overview of Social Platforms
2. Messaging
3. Private Social Networks
4. Public Social Networks
5. Enterprise Social Networks
6. Communities
7. Social Platform Metrics
8. Exits and Valuations
9. Opportunities
10.Final Remarks
Roadmap
These refer to apps that have an asymmetrical
follow model, where you can follow someone else
without them following you back.
Examples: Twitter, Instagram, Figure 1*, Vine,
YouTube, Twitch, and Wattpad*
PublicSocialNetworks
*Version One portfolio companies
Network effects and the 1% rule
1% of users create the content
9% engage with that content
90% just consume the content
Not every new user brings the same value to the site (i.e. celebrities
may draw others to the platform with their influence and popularity).
Successful public social network companies offer an experience
that makes it as easy and rewarding as possible to get involved.
Public social networks as new media
Twitter’s live stream and Snapchat’s
Live Stories are early examples of
how people will watch and interact
with live events in the near future.
We expect to see social platforms move deeper into
premium-grade content streaming. What makes this
trend compelling is that social platforms know much
more about their users than traditional media and
broadcast companies ever have.
Find a high value niche use case.
If you’re building a public (peer-to-peer) network, you’ll
need to find a use case that has a high enough value
to drive usage by early adopters.
People today know of Waze as a traffic
app. But Waze’s original use case was
helping people avoid speeding tickets by
sharing speed trap/radar detectors.
Business models
Native ads
These work best in niche networks where
advertisers know the targeted audience.
Pre-roll ads
Watching just 3 secs of pre-roll ads can
improve ad recall and brand awareness.*
Tipping/
Micro-donations
This can become an important revenue
stream where there’s a strong connection
between content creator and consumer.
Source
*Nielsen, published by Local Solutions
VC Insights
1. Overview of Social Platforms
2. Messaging
3. Private Social Networks
4. Public Social Networks
5. Enterprise Social Networks
6. Communities
7. Social Platform Metrics
8. Exits and Valuations
9. Opportunities
10.Final Remarks
Roadmap
These refer to social software used in enterprise
contexts. The core principle is that a more connected
company is a more productive and effective company.
Examples: Slack, HipChat, Yammer, Jive, TigerText,
GitHub, Facebook at Work
EnterpriseSocialNetworking
A tough nut to crack
Source
Harvard Business Review
Consumerization of enterprise technology
Consumer smartphones and apps have changed our
expectations for what software can be.
Lacklustre enterprises products have pushed
employees to bring personal devices and
apps to work, gradually entrenching into day-
to-day workflow.
To reach scale enterprise apps need to attain
the blessing of traditional gatekeepers (e.g.
IT) and address concerns like security, data
ownership and portability, and support.
Network effects in enterprise platforms
User familiarity contributes to
a platform’s staying power.
If your business partners and vendors
use Solution A, you’ll need a very
compelling reason to use Solution B.
Rise of Slack
Twenty months after its February 2014
launch, Slack had more than 1.7 million
users. A truly bottom-up phenomenon,
its growth was almost entirely fuelled
by referrals.
The company is evolving from tool to
platform, having launched an App
Directory and working with developers
to make product integrations part of
their core product.
Business models
Fee per user,
per month
More appropriate for products that follow
the top-down sales approach, this model
is often adopted by traditional SaaS
tools.
Freemium
This model makes it as easy as possible
for users to sign up and get started, then
convinces them to upgrade. It’s been an
effective choice for Slack.
VC Insights
1. Overview of Social Platforms
2. Messaging
3. Private Social Networks
4. Public Social Networks
5. Enterprise Social Networks
6. Communities
7. Social Platform Metrics
8. Exits and Valuations
9. Opportunities
10.Final Remarks
Roadmap
Online communities are held together by people who hold
common interests and who don’t typically have pre-
existing relationships offline. They are also
characteristically one-to-many relationships.
Examples: Reddit (news), Last.fm (music), Goodreads
(books), Flixter (movies), Overtime (sports)
Communities
Why do people join?
• They share similar interests with the community.
• They want to contribute to the community.
• They benefit from the community — for example,
by gaining a sense of belonging or finding content
of interest.
Highly verticalized
Online communities provide outlets for specific
aspects of your life. There is typically little cross-
pollination between communities.
People are attracted to communities for the content.
Relevance and depth take precedence.
Utilitarian
90-9-1 Rule Applies
As with public social networks, not all community
members interact in the same way or create the
same value.
1% contribute a lot (initiate topics, share content, etc.)
9% contribute a little (interact with posted content)
90% are lurkers
The chicken or the egg?
How do you convince people to
visit, join, create, and invest
their time when your
community is new and there’s
not a lot happening?
You can seed initial content.
Reddit posted links through
profiles it created in the early
days to give the appearance of
popularity.
It’s risky business.
When Reddit fired Victoria Taylor, who
coordinated Ask Me Anything (AMA), more
than a hundred subreddits shut down in
protest.
A community can be an integral part of
members’ lives and identities. Changes are
rarely taken lightly.
A good moderation policy and culture of
civility must be established early on.
Business models
Ads
Advertising is the core revenue source for
online communities since they serve up a
targeted audience for advertisers.
Scaling through ads, however, is hard.
Distribution platform
Online communities can be powerful
platforms for content distribution and
commerce. User content can offer
inspiration, while the community itself
offers social validation and
recommendations.
VC Insights
1. Overview of Social Platforms
2. Messaging
3. Private Social Networks
4. Public Social Networks
5. Enterprise Social Networks
6. Communities
7. Social Platform Metrics
8. Exits and Valuations
9. Opportunities
10.Final Remarks
Roadmap
We created a KPI dashboard for social platforms to help you
evaluate how the business is performing. You can access
the social platform KPI template via the Google Doc here.
The dashboard is divided into three main areas:
• High-level metrics
• Measuring engagement by content
• Measuring engagement by relationships
SocialPlatformMetrics
KPI dashboard
Source
Google spreadsheet, Version One KPI dashboard
High-level metrics
Daily active users
(DAU)
The number of unique users who engage
with the product in the past 24 hours.
Monthly active users
(MAU)
The number of unique users who have
engaged with the product within the
previous 30 days.
DAU/MAU
The “stickiness” ratio that tells you what
% of your monthly active users come
back on a daily basis.
High-level metrics: DAU/MAU
This metric is critical since there’s a big difference
between users who are slightly active vs. those who are
really active.
A DAU/MAU of 50% tells you that the average user is
engaged 15 out of 30 day of the month.
You want this number to be above 30–40% to have a
highly engaged platform.
High-level metrics: Total users
Total Users = New Users + Returning Users
• New users: Self-explanatory
• Returning users: Retained users + Resurrected users
• Retained users: Active users this cycle who were also active last cycle
• Resurrected users: Active users this cycle who weren't active in the
previous cycle
From here, you can calculate % new users, % retained users, and %
resurrected users relative to the total number of active users.You can
also compute growth in these categories to see how effective your
growth, engagement, and re-engagement campaigns are.
High-level metrics: Total churned users
Total Churned Users = New Churned Users + Old Churned Users
• New churned users: Inactive users in the current cycle who
were active in the previous cycle
• Old churned users: Inactive users from the previous cycle(s)
who continue to be inactive in this cycle
• Knowing the number of users that have churned allows you to
calculate your churn rate.
Churn Rate = # of users churned at the end of the time period / #
of total users at the beginning of the time period.
High-level metrics: Cohort analysis
After we understand
engagement and churn, we
can perform a cohort
analysis, which breaks
users into related groups
that share common
characteristics or
experiences within a
timespan. This example is
catered to SaaS but is
conceptually relevant to
social platforms.
Source
Christoph Janz, published by Andrew Chen
High-level metrics: Visualize your data
Another great way to
understand your data is to
visualize it. Jonathan Hsu
wrote about how he and
his team at Social + Capital
perform due diligence and
shared a helpful “growth
accounting” graph that
summarizes most of the
data previously discussed.
Source
Jonathan Hsu on Medium
High-level metrics
Also track:
• Track customer acquisition cost (CAC), how much
and what percentage is organic versus paid
• Net promoter score (NPS)
• Lifetime value (LTV)
• Average revenue per user (ARPU)
Engagement by content
Defining engagement on your platform
With social platforms, you need to dive deeper into
your users to understand not just the total volume,
but also the quality of users and user content.
Create a list of actions that a user can perform. We
provide some examples on the next slide.
Engagement by content
• Account created: When a user creates an account
• Account verified: When a user’s account is successfully verified
• Profile created: When a user creates a profile
• Profile completed: When a user completes his/her profile
• Connection made: When a user accepts a friend request, or when a
user follows another user who follows him/her back
• Group created: When a user creates a group
• Membership requested: When a user asks to join a group
• Membership granted / group joined: When a user successfully joins a
group
…and so on!
Engagement by content
Framework of engagement
Now you can create a framework
of engagement, a pyramid
diagram that organizes a user’s
behavior. At the top, place the
activity that you determine to be
a sign of someone who is most
engaged with your product…
Source
Version One engagement pyramid
Engagement by content
Framework of engagement
…Next, consider other activities
that your users can perform and
place them in order from what
requires the most energy to what
is easiest. You are identifying the
highest level of user engagement
and can devote resources to
achieve that outcome.
Source
Version One engagement pyramid
Engagement by content
Build your engagement dashboard
The next step is to understand how “healthy” your
engagement is. From the previous list, you can build
a content engagement dashboard similar to what we
did or high-level metrics.
For instance, on a monthly basis, you can tally all the
“positive actions.” Let’s use images as our example.
Engagement by content
Source
Google spreadsheet, Version One KPI dashboard
Engagement by connections
Depth of relationships matter and can be tracked.
We feel that stickiness is not only a function of common
interests, but also the depth of relationships on the
platform. This is probably one reason why anonymous
social networks have not scaled in the past (e.g. Secret).
The next slide gives examples of relationship metrics.
Engagement by connections
Source
Google spreadsheet, Version One KPI dashboard
Engagement by connections
Our thesis is that social platforms are sticky due to
two things:
• Unique, user-generated content
• Strong underlying relationships between users
Viral Coefficent (K)
The viral coefficient tells you the number of new
users that each existing user brings in. A viral
coefficient of 10 means that on average, each current
user brings 10 new users to your platform.
K=i*c
i= Average number of invites sent by each customer.
c= Percent conversion of each invite (e.g.if one of five invitees convert to a
new user, then c=0.2).
Viral Coefficent (K)
For viral growth K must be greater than one.
Also consider your Viral Cycle Time, which is how quickly users
sign up, send out invites, and convert others.
The bottom line:
1. Increase the number of invites sent out
2. Improve the conversion rate for those invites
3. Shorten the time needed for new users to use the platform,
and send out their round of invites.
VC Insights
1. Overview of Social Platforms
2. Messaging
3. Private Social Networks
4. Public Social Networks
5. Enterprise Social Networks
6. Communities
7. Social Platform Metrics
8. Exits and Valuations
9. Opportunities
10.Final Remarks
Roadmap
Social exits generally happen earlier than
marketplaces and SaaS exits. When social
networks hit it big, they can become huge
IPOs. However, only LinkedIn, Facebook, and
Twitter have achieved this in North America.
ExitsandValuations
Largest social exits in history
Source
CB Insights
Mergers and acquisitions
Aggressive M & A activity has led to heavy consolidation
over the years. Facebook and Twitter each have made
over 50 acquisitions.
This is driven by the desire for synergy. If a social network
buys another one, it can instantly introduce a new app to
its user base and accelerate growth.
This is what Facebook has done with Instagram and
Twitter with Periscope.
Valuing social networks
Valuing startups is tricky business.
Mahesh Vellanki looks at equity per user in the next table
(with fictitious Company X at the bottom).
If the fictional company is more like LinkedIn, Facebook, or
Snapchat, then it would be valued well over the billion
dollar mark. But if it’s more similar to Cheetah Mobile or
Weibo at the lower end, its valuation would be around a
couple of hundred million dollars.
Equity per user
Source
Mahesh VC, Redpoint Ventures
Retention/engagement
Given the broad range we see in the previous slide,
we can look at a platform’s retention or engagement.
To be considered highly engaging, the DAU/MAU or
“stickiness ratio” needs to be above 30–40%. We can
also examine user engagement by content, actions,
and underlying connections covered previously.
Monetization potential
When we think about monetization potential on
social platforms, we’re looking at two things:
• Purchasing power of the user group
• Potential to engage users with ads
VC Insights
1. Overview of Social Platforms
2. Messaging
3. Private Social Networks
4. Public Social Networks
5. Enterprise Social Networks
6. Communities
7. Social Platform Metrics
8. Exits and Valuations
9. Opportunities
10.Final Remarks
Roadmap
Strong network effects in social networks make it
hard to unseat incumbents. That said, there is still
opportunities for companies to:
• Ride out the original wave through vertical niches
• Build on the current wave of messaging as a
platform/conversational UI
• Jump on brand new social waves
Opportunities
Ride out the old wave
Seek new or under-represented verticals
Niche sites can cater toward specific interests,
locales, and professions. A vertical approach might
succeed if:
1. The underlying market is big enough
2. There isn’t already a social network catering to
the specific user group. Ex. our portfolio company
Figure 1 found an opening in Healthcare.
Build on the current wave
Messaging as a platform
It’s hot. In China, WeChat users get movie tickets,
check their bank statements, reserve hotel rooms,
and schedule doctor’s appointments through the
“messaging” app. But a dominant messaging app
hasn’t yet emerged in North America.
Build on the current wave
The key question is:
When is messaging the
optimal way of getting
things done?
Source
Screen grab from Trim
Create a new wave
Social AR and VR
The emergence of augmented reality (AR) and virtual
reality (VR) will likely change how we interact with
others. Facebook and other companies are
aggressively pursuing AR/VR technology.
It remains to be seen which native social behaviors
on AR/VR will become the next big thing.
Create a new wave
Blockchain technology and social
We expect to see big investments in developing
cyptographic tokens as a new form of digital
currency, with the potential to redefine online identity.
Wider use of cryptotokens may open up ways of
supporting user content, purchasing virtual goods,
and more.
Create a new wave
Passive social
In a world of passive social, contextual social
products will pop in and out of our daily lives,
automatically sharing aspects of what we’re going
and where we are, with implications for new
products and forms of advertising.
VC Insights
1. Overview of Social Platforms
2. Messaging
3. Private Social Networks
4. Public Social Networks
5. Enterprise Social Networks
6. Communities
7. Social Platform Metrics
8. Exits and Valuations
9. Opportunities
10.Final Remarks
Roadmap
At Version One, we’ve invested in social network
companies that we believe leverage strong network
effects. These include Abstract, Edmodo, Figure 1, Shift
Messenger, and Wattpad.
With each company, we’re learning more about social
network success strategies. We’re excited to be active
investors in this space and are looking forward to the
journey ahead.
FinalRemarks
Understanding Social Platforms
February 2017
Thanksforreading!
Angela Tran Kingyens
@atkingyens
angela@versionone.vc
@bwertz
boris@versionone.vc
Boris Wertz

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Understanding Social Platforms by Version One Ventures

  • 2. VC Insights 1. Overview of Social Platforms 2. Messaging 3. Private Social Networks 4. Public Social Networks 5. Enterprise Social Networks 6. Communities 7. Social Platform Metrics 8. Exits and Valuations 9. Opportunities 10.Final Remarks Roadmap
  • 3. What’s a social platform? At Version One, we consider something to be a social platform if the interactions on the site are driven or defined by an underlying relationship between the participants. Messaging Private social network Public social network Enterprise social platform Community
  • 4. Categorizing social platforms nature of content public / private broadcast model one-to-one / one-to-many connections asymmetric (follow/subscribe) / symmetric (opt-in both sides) nature of relationship personal / shared interest / worldwide connection persistence of content permanent / ephemeral identity real name / user name / anonymous
  • 5. Success factor 1: Depth of relationships The depth of the underlying relationships determines how sticky an app will be. Think not just about the size of the user base, but also the value that particular users bring to the platform. What network effects are at play?
  • 6. Success factor 2: Daily use case Engagement is the most important metric for social platforms, and so a daily use case is imperative. What keeps users coming back? Snapchat: people communicate with friends every day. Instagram: people take photos every day. Pinterest: People surf the web and want to bookmark things every day.
  • 7. Success factor 3: Native monetization opportunity In top platforms like Facebook, Instagram, and Twitter, native ads that match the visual design and user experience of the site are growing in popularity for two reasons: 1. People don’t want to be disturbed in their social activity. 2. Ads can be targeted or personalized to drive higher conversion, and therefore command higher ad rates.
  • 8. Success factor 4: Personalization of content The overwhelming amount of information users receive every day means that social platforms must deliver the most engaging and relevant content. Facebook uses machine learning to track users’ actions to serve posts and content that they’re more likely to engage with. Ex. people who click on photos will see more photos on their newsfeed.
  • 9. VC Insights 1. Overview of Social Platforms 2. Messaging 3. Private Social Networks 4. Public Social Networks 5. Enterprise Social Networks 6. Communities 7. Social Platform Metrics 8. Exits and Valuations 9. Opportunities 10.Final Remarks Roadmap
  • 10. Messaging platforms are becoming the primary way we communicate. That’s because the ubiquity of mobile makes messaging so easy. The market for this type of social platform remains fragmented. It’s notoriously difficult for apps to build effective moats and business models. Messaging
  • 11. 2.5 billion people are using messaging apps today Source Business Insider
  • 12. Three subcategories Plain SMS/text messaging Basic messaging with stickers, group chat, and other extras New behaviors Novel kinds of interactions and use cases Platform approaches Development environments in their own right, rather than just messaging services
  • 13. Business models Subscriptions After WhatsApp abandoned this model in 2016, subscription fees seem unviable. Ads In 2015, Snapchat began running ads. This is still a young market and returns for advertisers remain uncertain. In-app purchases Purchases such as stickers have proven to be lucrative for Japan-based Line. Distribution platform WeChat users in China can book tickets, order dinner, schedule appointments, etc.
  • 14. Distribution platform: WeChat Source 2015 Internet Trends Report, Mary Meeker
  • 15. No winner takes all…yet We attribute market fragmentation to two factors: 1. Low network effects. While messaging apps have high virality, the size of the user base itself doesn’t create a moat. 2. Low switching costs. The ability to switch between apps on mobile devices makes cross- platform use easy.
  • 16. Low switching costs: other factors • Largely Driven by teens. Young users can be less loyal, and adopt new services quicker. • Smaller social graph. Leaving Facebook means leaving potentially hundreds of friends. Leaving a messaging app may mean leaving 10–20 people you chat with, who are accessible on other apps anyway. • Messaging lives purely in the present. Your history on a messaging app is far less important than on social networking sites like Facebook, Instagram, or Twitter.
  • 17. VC Insights 1. Overview of Social Platforms 2. Messaging 3. Private Social Networks 4. Public Social Networks 5. Enterprise Social Networks 6. Communities 7. Social Platform Metrics 8. Exits and Valuations 9. Opportunities 10.Final Remarks Roadmap
  • 18. These refer to apps that have standardized two-way friending, where the connection must be accepted by both parties. Before the dominance of Facebook and LinkedIn, this was once a fragmented market. Former contenders included: Friendster, MySpace, Bebo, and Orkut. PrivateSocialNetworks
  • 19. How did Facebook win? Daily use Relevance of content We care what our friends, family, and other connections are doing, reading, and sharing. Depth of relationships Two-way friending ensures users most likely have an existing relationship and are interested in the connection.
  • 20. Virality and network effects Successful private social networks exhibit both virality and network effects. Facebook spent little on marketing in its early days. Its users did the acquisitions for it. As Facebook grew beyond its college setting, members’ social graphs expanded to include childhood friends, work friends, family members, sports teammates, etc.
  • 21. Business models Ads The ability for these networks to segment users by interests, age, geography, and buying habits is valuable to advertisers. Distribution platform Facebook delivered 41.4% of all referral traffic to publishers in Jan 2016, beating out Google and every other traffic source. Subscription revenue While its basic membership is free, LinkedIn sells premium subscriptions to businesses looking for talent solutions.
  • 22. VC Insights 1. Overview of Social Platforms 2. Messaging 3. Private Social Networks 4. Public Social Networks 5. Enterprise Social Networks 6. Communities 7. Social Platform Metrics 8. Exits and Valuations 9. Opportunities 10.Final Remarks Roadmap
  • 23. These refer to apps that have an asymmetrical follow model, where you can follow someone else without them following you back. Examples: Twitter, Instagram, Figure 1*, Vine, YouTube, Twitch, and Wattpad* PublicSocialNetworks *Version One portfolio companies
  • 24. Network effects and the 1% rule 1% of users create the content 9% engage with that content 90% just consume the content Not every new user brings the same value to the site (i.e. celebrities may draw others to the platform with their influence and popularity). Successful public social network companies offer an experience that makes it as easy and rewarding as possible to get involved.
  • 25. Public social networks as new media Twitter’s live stream and Snapchat’s Live Stories are early examples of how people will watch and interact with live events in the near future. We expect to see social platforms move deeper into premium-grade content streaming. What makes this trend compelling is that social platforms know much more about their users than traditional media and broadcast companies ever have.
  • 26. Find a high value niche use case. If you’re building a public (peer-to-peer) network, you’ll need to find a use case that has a high enough value to drive usage by early adopters. People today know of Waze as a traffic app. But Waze’s original use case was helping people avoid speeding tickets by sharing speed trap/radar detectors.
  • 27. Business models Native ads These work best in niche networks where advertisers know the targeted audience. Pre-roll ads Watching just 3 secs of pre-roll ads can improve ad recall and brand awareness.* Tipping/ Micro-donations This can become an important revenue stream where there’s a strong connection between content creator and consumer. Source *Nielsen, published by Local Solutions
  • 28. VC Insights 1. Overview of Social Platforms 2. Messaging 3. Private Social Networks 4. Public Social Networks 5. Enterprise Social Networks 6. Communities 7. Social Platform Metrics 8. Exits and Valuations 9. Opportunities 10.Final Remarks Roadmap
  • 29. These refer to social software used in enterprise contexts. The core principle is that a more connected company is a more productive and effective company. Examples: Slack, HipChat, Yammer, Jive, TigerText, GitHub, Facebook at Work EnterpriseSocialNetworking
  • 30. A tough nut to crack Source Harvard Business Review
  • 31. Consumerization of enterprise technology Consumer smartphones and apps have changed our expectations for what software can be. Lacklustre enterprises products have pushed employees to bring personal devices and apps to work, gradually entrenching into day- to-day workflow. To reach scale enterprise apps need to attain the blessing of traditional gatekeepers (e.g. IT) and address concerns like security, data ownership and portability, and support.
  • 32. Network effects in enterprise platforms User familiarity contributes to a platform’s staying power. If your business partners and vendors use Solution A, you’ll need a very compelling reason to use Solution B.
  • 33. Rise of Slack Twenty months after its February 2014 launch, Slack had more than 1.7 million users. A truly bottom-up phenomenon, its growth was almost entirely fuelled by referrals. The company is evolving from tool to platform, having launched an App Directory and working with developers to make product integrations part of their core product.
  • 34. Business models Fee per user, per month More appropriate for products that follow the top-down sales approach, this model is often adopted by traditional SaaS tools. Freemium This model makes it as easy as possible for users to sign up and get started, then convinces them to upgrade. It’s been an effective choice for Slack.
  • 35. VC Insights 1. Overview of Social Platforms 2. Messaging 3. Private Social Networks 4. Public Social Networks 5. Enterprise Social Networks 6. Communities 7. Social Platform Metrics 8. Exits and Valuations 9. Opportunities 10.Final Remarks Roadmap
  • 36. Online communities are held together by people who hold common interests and who don’t typically have pre- existing relationships offline. They are also characteristically one-to-many relationships. Examples: Reddit (news), Last.fm (music), Goodreads (books), Flixter (movies), Overtime (sports) Communities
  • 37. Why do people join? • They share similar interests with the community. • They want to contribute to the community. • They benefit from the community — for example, by gaining a sense of belonging or finding content of interest.
  • 38. Highly verticalized Online communities provide outlets for specific aspects of your life. There is typically little cross- pollination between communities.
  • 39. People are attracted to communities for the content. Relevance and depth take precedence. Utilitarian
  • 40. 90-9-1 Rule Applies As with public social networks, not all community members interact in the same way or create the same value. 1% contribute a lot (initiate topics, share content, etc.) 9% contribute a little (interact with posted content) 90% are lurkers
  • 41. The chicken or the egg? How do you convince people to visit, join, create, and invest their time when your community is new and there’s not a lot happening? You can seed initial content. Reddit posted links through profiles it created in the early days to give the appearance of popularity.
  • 42. It’s risky business. When Reddit fired Victoria Taylor, who coordinated Ask Me Anything (AMA), more than a hundred subreddits shut down in protest. A community can be an integral part of members’ lives and identities. Changes are rarely taken lightly. A good moderation policy and culture of civility must be established early on.
  • 43. Business models Ads Advertising is the core revenue source for online communities since they serve up a targeted audience for advertisers. Scaling through ads, however, is hard. Distribution platform Online communities can be powerful platforms for content distribution and commerce. User content can offer inspiration, while the community itself offers social validation and recommendations.
  • 44. VC Insights 1. Overview of Social Platforms 2. Messaging 3. Private Social Networks 4. Public Social Networks 5. Enterprise Social Networks 6. Communities 7. Social Platform Metrics 8. Exits and Valuations 9. Opportunities 10.Final Remarks Roadmap
  • 45. We created a KPI dashboard for social platforms to help you evaluate how the business is performing. You can access the social platform KPI template via the Google Doc here. The dashboard is divided into three main areas: • High-level metrics • Measuring engagement by content • Measuring engagement by relationships SocialPlatformMetrics
  • 46. KPI dashboard Source Google spreadsheet, Version One KPI dashboard
  • 47. High-level metrics Daily active users (DAU) The number of unique users who engage with the product in the past 24 hours. Monthly active users (MAU) The number of unique users who have engaged with the product within the previous 30 days. DAU/MAU The “stickiness” ratio that tells you what % of your monthly active users come back on a daily basis.
  • 48. High-level metrics: DAU/MAU This metric is critical since there’s a big difference between users who are slightly active vs. those who are really active. A DAU/MAU of 50% tells you that the average user is engaged 15 out of 30 day of the month. You want this number to be above 30–40% to have a highly engaged platform.
  • 49. High-level metrics: Total users Total Users = New Users + Returning Users • New users: Self-explanatory • Returning users: Retained users + Resurrected users • Retained users: Active users this cycle who were also active last cycle • Resurrected users: Active users this cycle who weren't active in the previous cycle From here, you can calculate % new users, % retained users, and % resurrected users relative to the total number of active users.You can also compute growth in these categories to see how effective your growth, engagement, and re-engagement campaigns are.
  • 50. High-level metrics: Total churned users Total Churned Users = New Churned Users + Old Churned Users • New churned users: Inactive users in the current cycle who were active in the previous cycle • Old churned users: Inactive users from the previous cycle(s) who continue to be inactive in this cycle • Knowing the number of users that have churned allows you to calculate your churn rate. Churn Rate = # of users churned at the end of the time period / # of total users at the beginning of the time period.
  • 51. High-level metrics: Cohort analysis After we understand engagement and churn, we can perform a cohort analysis, which breaks users into related groups that share common characteristics or experiences within a timespan. This example is catered to SaaS but is conceptually relevant to social platforms. Source Christoph Janz, published by Andrew Chen
  • 52. High-level metrics: Visualize your data Another great way to understand your data is to visualize it. Jonathan Hsu wrote about how he and his team at Social + Capital perform due diligence and shared a helpful “growth accounting” graph that summarizes most of the data previously discussed. Source Jonathan Hsu on Medium
  • 53. High-level metrics Also track: • Track customer acquisition cost (CAC), how much and what percentage is organic versus paid • Net promoter score (NPS) • Lifetime value (LTV) • Average revenue per user (ARPU)
  • 54. Engagement by content Defining engagement on your platform With social platforms, you need to dive deeper into your users to understand not just the total volume, but also the quality of users and user content. Create a list of actions that a user can perform. We provide some examples on the next slide.
  • 55. Engagement by content • Account created: When a user creates an account • Account verified: When a user’s account is successfully verified • Profile created: When a user creates a profile • Profile completed: When a user completes his/her profile • Connection made: When a user accepts a friend request, or when a user follows another user who follows him/her back • Group created: When a user creates a group • Membership requested: When a user asks to join a group • Membership granted / group joined: When a user successfully joins a group …and so on!
  • 56. Engagement by content Framework of engagement Now you can create a framework of engagement, a pyramid diagram that organizes a user’s behavior. At the top, place the activity that you determine to be a sign of someone who is most engaged with your product… Source Version One engagement pyramid
  • 57. Engagement by content Framework of engagement …Next, consider other activities that your users can perform and place them in order from what requires the most energy to what is easiest. You are identifying the highest level of user engagement and can devote resources to achieve that outcome. Source Version One engagement pyramid
  • 58. Engagement by content Build your engagement dashboard The next step is to understand how “healthy” your engagement is. From the previous list, you can build a content engagement dashboard similar to what we did or high-level metrics. For instance, on a monthly basis, you can tally all the “positive actions.” Let’s use images as our example.
  • 59. Engagement by content Source Google spreadsheet, Version One KPI dashboard
  • 60. Engagement by connections Depth of relationships matter and can be tracked. We feel that stickiness is not only a function of common interests, but also the depth of relationships on the platform. This is probably one reason why anonymous social networks have not scaled in the past (e.g. Secret). The next slide gives examples of relationship metrics.
  • 61. Engagement by connections Source Google spreadsheet, Version One KPI dashboard
  • 62. Engagement by connections Our thesis is that social platforms are sticky due to two things: • Unique, user-generated content • Strong underlying relationships between users
  • 63. Viral Coefficent (K) The viral coefficient tells you the number of new users that each existing user brings in. A viral coefficient of 10 means that on average, each current user brings 10 new users to your platform. K=i*c i= Average number of invites sent by each customer. c= Percent conversion of each invite (e.g.if one of five invitees convert to a new user, then c=0.2).
  • 64. Viral Coefficent (K) For viral growth K must be greater than one. Also consider your Viral Cycle Time, which is how quickly users sign up, send out invites, and convert others. The bottom line: 1. Increase the number of invites sent out 2. Improve the conversion rate for those invites 3. Shorten the time needed for new users to use the platform, and send out their round of invites.
  • 65. VC Insights 1. Overview of Social Platforms 2. Messaging 3. Private Social Networks 4. Public Social Networks 5. Enterprise Social Networks 6. Communities 7. Social Platform Metrics 8. Exits and Valuations 9. Opportunities 10.Final Remarks Roadmap
  • 66. Social exits generally happen earlier than marketplaces and SaaS exits. When social networks hit it big, they can become huge IPOs. However, only LinkedIn, Facebook, and Twitter have achieved this in North America. ExitsandValuations
  • 67. Largest social exits in history Source CB Insights
  • 68. Mergers and acquisitions Aggressive M & A activity has led to heavy consolidation over the years. Facebook and Twitter each have made over 50 acquisitions. This is driven by the desire for synergy. If a social network buys another one, it can instantly introduce a new app to its user base and accelerate growth. This is what Facebook has done with Instagram and Twitter with Periscope.
  • 69. Valuing social networks Valuing startups is tricky business. Mahesh Vellanki looks at equity per user in the next table (with fictitious Company X at the bottom). If the fictional company is more like LinkedIn, Facebook, or Snapchat, then it would be valued well over the billion dollar mark. But if it’s more similar to Cheetah Mobile or Weibo at the lower end, its valuation would be around a couple of hundred million dollars.
  • 70. Equity per user Source Mahesh VC, Redpoint Ventures
  • 71. Retention/engagement Given the broad range we see in the previous slide, we can look at a platform’s retention or engagement. To be considered highly engaging, the DAU/MAU or “stickiness ratio” needs to be above 30–40%. We can also examine user engagement by content, actions, and underlying connections covered previously.
  • 72. Monetization potential When we think about monetization potential on social platforms, we’re looking at two things: • Purchasing power of the user group • Potential to engage users with ads
  • 73. VC Insights 1. Overview of Social Platforms 2. Messaging 3. Private Social Networks 4. Public Social Networks 5. Enterprise Social Networks 6. Communities 7. Social Platform Metrics 8. Exits and Valuations 9. Opportunities 10.Final Remarks Roadmap
  • 74. Strong network effects in social networks make it hard to unseat incumbents. That said, there is still opportunities for companies to: • Ride out the original wave through vertical niches • Build on the current wave of messaging as a platform/conversational UI • Jump on brand new social waves Opportunities
  • 75. Ride out the old wave Seek new or under-represented verticals Niche sites can cater toward specific interests, locales, and professions. A vertical approach might succeed if: 1. The underlying market is big enough 2. There isn’t already a social network catering to the specific user group. Ex. our portfolio company Figure 1 found an opening in Healthcare.
  • 76. Build on the current wave Messaging as a platform It’s hot. In China, WeChat users get movie tickets, check their bank statements, reserve hotel rooms, and schedule doctor’s appointments through the “messaging” app. But a dominant messaging app hasn’t yet emerged in North America.
  • 77. Build on the current wave The key question is: When is messaging the optimal way of getting things done? Source Screen grab from Trim
  • 78. Create a new wave Social AR and VR The emergence of augmented reality (AR) and virtual reality (VR) will likely change how we interact with others. Facebook and other companies are aggressively pursuing AR/VR technology. It remains to be seen which native social behaviors on AR/VR will become the next big thing.
  • 79. Create a new wave Blockchain technology and social We expect to see big investments in developing cyptographic tokens as a new form of digital currency, with the potential to redefine online identity. Wider use of cryptotokens may open up ways of supporting user content, purchasing virtual goods, and more.
  • 80. Create a new wave Passive social In a world of passive social, contextual social products will pop in and out of our daily lives, automatically sharing aspects of what we’re going and where we are, with implications for new products and forms of advertising.
  • 81. VC Insights 1. Overview of Social Platforms 2. Messaging 3. Private Social Networks 4. Public Social Networks 5. Enterprise Social Networks 6. Communities 7. Social Platform Metrics 8. Exits and Valuations 9. Opportunities 10.Final Remarks Roadmap
  • 82. At Version One, we’ve invested in social network companies that we believe leverage strong network effects. These include Abstract, Edmodo, Figure 1, Shift Messenger, and Wattpad. With each company, we’re learning more about social network success strategies. We’re excited to be active investors in this space and are looking forward to the journey ahead. FinalRemarks
  • 83. Understanding Social Platforms February 2017 Thanksforreading! Angela Tran Kingyens @atkingyens angela@versionone.vc @bwertz boris@versionone.vc Boris Wertz