End of Growth for Startups?
In my last blog (Distribution: The Best Tech Business), I talked about the importance of distribution. Well, it's getting more and more difficult. It has been a good ride so far. The time to get to the first 50 million users has been getting shorter (this is old news):
Would this time reduce forever?
Let me draw a quick example from broadcast space. The television broadcast viewership kept on increasing from TV's inception. In 1983, the last episode of the television show M*A*S*H was watched by 105.9 million. For the next 27 years, this remained the most-watched broadcast in the US. Only in 2010, Super Bowl XLIV broke the record, only marginally. Today the most-watched broadcast is Super Bowl XLIX (2015 edition) with a viewership of 114.4 million. Just 8% more than the M*A*S*H (Finale) in 1983.
Have we reached that inflection point for the apps?
It’s not just the tough macroeconomic drivers (read my blog End of economic growth?') that's introducing the headwinds. Amongst other aspects, the choking of customer acquisition channels is presenting a big challenge for growth. The days of relying on organic traffic, paid advertising or even email are going away for startups:
- It all started with Email marketing and banner adds on Yahoo back in the 90s
- As Google and Facebook came, the early explorers hacked growth through them. E.g. Shaun Parker helped Spotify through Facebook’s free passages to hyper-growth.
- But eventually, the marketers crowded every channel. Choking it and making it more expensive to get through.
- Facebook started scaling back some of the more aggressive organic growth features amid privacy concerns. #CambridgeAnalyticaScandal.
- Even WhatsApp in India recently announced that it will restrict forwards to a maximum of 5. Although WhatsApp is not much of a marketing channel, it just illustrates the chokes put on the spread.
- The rising cost of Google and Facebook marketing putting pressure on CAC and hence the business model. And they often are celebrated when their costs are merely “stable” instead of rising.
- The age-old Email marketing is yet available, albeit with minuscule conversion rate. But it is less susceptible to the changes in the algorithm by the platforms. I expect businesses will yet again turn to emails. Of course, GDPR will create challenges.
So if you are a large company or a startup, you will have to figure a way out of this. The larger companies might be able to garner budgets to pay likes of Facebook and Google for growth. But for smaller companies, the days of relying on organic traffic, paid advertising or even email are going away.
Does this mean that we will see much fewer hyper-growth success stories? How do we get around this?