If your App disrupts existing markets, you need funds to shake the incumbents

Apr 7

If your App disrupts existing markets, you need funds to shake the incumbents

In this podcast series we ask experienced Appreneurs for one success story and one fail. In this episode of the Mobile Engagement Podcast:

Steve Purdham from 3Rings shares 2 stories. His App we7 was sold to Tesco after building an audience of 3 million customers. They started at the same time as Spotify and he shares some of the key learnings from dealing with incumbent stakeholders and the massive money required.

His current App “3 Rings” and it links aged parents with their family via the “Internet of things”. Its genius and simple – a great example of how the future is here.

Engagement Score

We score all out interview anecdotes based on 3 axes of: acquisition, UX and retention – I’ve listed the actionable points below in TL;DR but the 3 Rings use of a simple “no-touch” power plug and hooking the entire family in as a “posse” is a great UX and retention technique.

Let us know on our Twitter account how you score it.

Transcript

The TL;DR

WE7:

  • Some eco-systems are ultra attractive to the end-users but the business model is too tough to implement
  • understand all the stakeholders in your eco-system and how to get buy-in
  • if you’re App disrupts an eco-system with effectively “cartel” characteristics be prepared to need deep-funding to play the long game.

 

3 Rings:

  • Pre-Product Market Fit – keep iterating (and stay funded) until you stop getting push back
  • providing value to an older-age group should not be patronizing.
  • All users need to feel life is simpler by using your innovation
  • The use of IoT helps create lockin for continued usage and paid subscription
  • Connecting other family members effectively creates a mini-social network. This is similar to the Tinybeans podcast lessons.

Transcript Detail

DAVID: Hi, this is David from Street Hawk. I’m talking to a man called Steve Purdham. Steve’s a multi-time entrepreneur, and I was lucky enough to work with this guy. He was CEO of a company called SurfControl. I honestly can say he’s one of the best CEOs I worked with. He’s gone on to do two things, I think, possibly at least two things, after SurfControl. One was called We7, which was a music app, and the current one is a bunch of technologies which we’re going to talk about, 3rings, which is a family-oriented safety things. So, Steve, how are you doing?

STEVE: I’m doing great. How are you, David?

DAVID: Yeah, fantastic. Tell me about 3rings first, because it’s the current thing and I’m just interested to hear where you’re at.

STEVE: Yeah, 3rings is interesting. I mean, it came about for several reasons. One is, myself and my partner and his friend, a guy called Gareth Reakes, had just sold We7 to Tesco in the UK and we were thinking, “Okay, what are we going to do next?” And, you know, I’m getting on a lot of grey hairs and my mum’s 83, and the issue of the age-wave was very prevalent at the time and very personal. So we started to look at what type of solutions could actually help families look after their ageing parents.

That was the classic beginning of a new business venture, which is 3rings. I don’t know if you had the same in Australia, but in the UK, back before mobile phones, we used to use a signal to actually know if your granny had got home or your ageing relatives actually were okay, which was using three rings. You ring the person, let the phone ring three times, and that was the signal to say I was okay. From this, even today in jokes, we use this idea to say “Give me three rings,” and that means “I’m okay” in the UK.

So we tried to take that concept and bring that over to the internet age. But the problem that we had is that ageing mums and dads in the UK, only 1 in 2 have actually got access to the internet, but basically all the time you have access to the internet, so we needed to provide a bridge between the world of non-connected mum and dads, and for the connected family. That’s basically where we got the idea from and where 3rings is going.

DAVID: Okay. So just for the listeners, I know what it is, but maybe if you could just actually say in simple terms exactly what the 3rings product is.

DAVID: Yeah. The 3rings product has now become—because as you know, when you are trying to find out a new business you go in various different directions and you hone on the one that seems to work—3rings, as it is now, is actually a plug; it’s a plug which actually has a mobile phone built into it. The way it works is basically when mum or dad makes a cup of tea in the morning or turns the television on, then that plug actually signals a cloud-based service in the sky, based upon the rules that the family sets.

For example, I expect my mum to make a cup of tea between 5:00 and 9:00 in the morning. If she does that, it sends a signal to the family saying that she’s okay. If she doesn’t do that, it sends a signal to the family that says “I haven’t seen her.” It’s as simple as that. It’s a simple way of being able to get a signal to say “I’ve seen your mum, she’s out of bed, everything’s okay.” It works exceptionally well for families.

DAVID: All right, very good. So because this is a mobile podcast, when you say that it’s a signal, you mean that it’s actually something that’s arriving at the mobile phones of the other family members.

STEVE: It could be the mobile phones. I mean, it is classic internet communication. You can actually have an email connection, you can have a push notification on the phone, you can have an SMS, you can have a call; it depends on what’s right for you as an individual and what you would respond to, as opposed to just getting lots of messages.

DAVID: Right. Okay, very good. So you say it’s working well. It’s something that’s just started to be rolled out in the UK?

STEVE: Yes. Just started rolling out in the UK but it’s working well. Because as I said at the beginning, my personal situation is my mum’s 83 and she’s been the test pilot for this for many, many, many months.

DAVID: She’s made a lot of cups of tea.

STEVE: Oh, she has, bless her. But just to show how it works and how seriously it works, is that about four weeks ago, we got a notification at 9:00 in the morning that she hadn’t made a cup of tea this particular morning. We rang her up and said, “Hi, mum, how are you doing?” She’s lying in bed, unable to move. Despite the fact that she has the phone next to the bed and she has one of the emergency buttons just in case anything like this happens, she didn’t use any of those. She just lay in bed because she didn’t want to be a burden, which is one of the classic challenges of the older generation. It was only because the plug had noticed that she hadn’t made a cup of tea that the family knew, and basically she had three compression fractures in the base of the spine as it turned out.

DAVID: Oh, wow.

STEVE: It was the plug that gave us that hedge of information, which even though we contact our mum on a daily basis, because of life as it is, it could have been anytime randomly on that day and it could have been as late as 10:00 in the evening, and she would still be in there, bless her heart, and we had the phone that actually set the alarm.

DAVID: I think it’s really interesting, this idea of not leaving it up to the person to actually put their hand up because we do know that’s a really common thing that they don’t want to be a bother.

STEVE: That’s right. With it being a plug that just goes into the wall and connects to the kettle or the TV, it becomes non-invasive because mum actually forgets it’s there. But it’s just that passive safety net that just helps the families get over the fact that life is busy and they worry about their mum and dad, and this is just a simple way of being able to keep everybody on track.

DAVID: Your day just gets really full and so you find the time to reach them, whereas this kind of signal’s really handy, it just gives you a status update.

STEVE: Absolutely. And it’s amazing what status update does to people. I mean, my brother who lives many, many hundreds of miles away from the mum; you know, he’s the classic son that rings every two or three months when he remembers. Since we’ve had this type of thing and he’s been getting the prompts on a regular basis, he switched now to ringing mum at least once a week, which is an amazing transition, just because of getting that little status update saying “mum’s okay today”, “mum’s okay today”.

DAVID: That’s great. That’s really good to hear. It’s almost like the way Facebook sort of brought people who’ve been to school together; they’re becoming part of your life as well too.

STEVE: Yeah, absolutely. I mean, they’re always a part of our lives, but sometimes you need that little reminder, which is quite good.

DAVID: Yeah, it is. So is it too early to say whether you’ve actually learnt much about that? Have you had any kind of wins or fails along the way with this?

STEVE: Well, actually the fails is something that we’ve already had. I mean, because we started, interesting enough, I said early on that we got to the point where 3rings is now the smart plug, and actually it goes beyond the smart plug if you’re looking at it from a technical point of view.

The real powerhouse is the platform that sits there, because in the world of the Internet of Things where we’re expecting 50 billion things to be connected to the internet by 2020, really the plug is just one area of providing sensor data. The platform is the powerhouse because the platform is really saying, “Well, I can take a signal from anything.” With internet, things that are coming through, things like “Nests”, smoke alarms, thermostats, there are different things, even like the weather station, we will see that there’s a capacity to take sensor data from multiple things that just happen to be in the house, which will allow us to actually protect mum and dad more and more.

But coming back to the point of failure, we started by not putting anything into the house. You know, we said, “What’s the minimum way we can actually get this working?” We started in using the phone, as per the old “three rings” idea. So we had a little bit of a failure with that because of emotion. We weren’t expecting the emotional pushback by mum and the family of the fear of using an automated phone service on the fact that that might reduce the family calling.

DAVID: Oh, okay, yes.

STEVE: And what’s been quite interesting is we launched the phone service a year ago, and then very quickly found it wasn’t going to get any traction. We launched the 3rings plug only a couple of weeks ago and we probably sold more devices and had more signups and had more users active in the last two weeks than we did in the whole year of driving the 3rings concept with the phone. That’s been interesting for us.

DAVID: So it’s proof that failures do lead to wins.

STEVE: Well, proof that failures can lead to wins if you don’t give up, really. It’s the classic technical pivot. But what’s interesting is the core of the platform, as I said earlier on, is proven to be exceptionally powerful and it’s taught us to understand really about emotion, and this particular marketplace has a very strong driver into why people will do something or why they won’t. So, for instance, anything that looks to be a badge of infirmity for mum will not get across the door, anything that looks like it’s actually spying on mum will not get across the door, so it has to be done in a way that is accepted by both the family and the mum and dad.

DAVID: Yeah. So you could have rolled out a camera-type solution. A plug for a friend of mine who runs a company called Homeboy, where they actually have these wireless cameras and they have a similar concept of a posse. Basically a family or a group of people can be members of a posse, so at home you could have a family actually have the mobile phones get a signal when there’s some sort of camera event. But by the same token, if you had one of their Homeboy cameras at work, then workmates can be the posse for the work type thing. In that situation, that’s fine. But in this situation, you can’t plug a camera in mum’s home because you’re spying on her, she wants to have her own privacy and her own life.

STEVE: Absolutely. You kind of forget the fact that people who are over 70-75, they are fiercely independent and they don’t want to be a burden. But at the same time, they’re also realising that, you know, things take a little longer and they do need a little bit more assistance than they had before. Getting that balance right is actually quite difficult, and so looking at not so much the failure but the learning point, you know, the phone service didn’t come up to the criteria of being able to manage the emotional aspect of it. That’s where the plug would have been something that somebody can hold and something that feels that it’s non-invasive. The excitement factor and the buzz about it at the moment in the UK is phenomenal.

DAVID: Yeah, it’s great. I guess taking the other extreme from a camera could be is you could have actually had like a button that sits in the kitchen and they have to press the button, but that’s equally intrusive in a different way, that they would have to remember to do it and it would never actually get off the ground because you have to retrain people to do that. So that wouldn’t be a good solution.

STEVE: That’s right. If you think of the example of my mum lying in bed, you know, having something that is active and where you can press the emergency button is important, but actually having a safety net that says we don’t rely on mum doing other than her normal daily actions like making a cup of tea or turning the TV on.

DAVID: It made me chuckle so much when I saw that the use case was around a British cup of tea; it was just hilarious. It’s so perfectly sort of embedded, and that’s the value of Internet of Things that basically the embedding of that particular device nobody has to change anything about their daily routine. You’ve used the Internet of Things to actually just align with that, which is I guess similar to what the Fitbits of the world are doing with health and stuff like that.

STEVE: That’s right. It’s, you know, more than those; it’s the move to the Internet of Things is really about a move to sensor-driven data and a lot of the data that’s going to be around, you know, once you start to analyse that, it can be analysed in many, many different ways. We are choosing to analyse in case of protecting senior citizens and getting the family involved with that. I think, you know, I’m very optimistic about how things will go in the coming five or ten years. The fact that we’ve developed the plug is just really the starting point to show that the whole system can actually work, but the reality is more and more devices will surround my ageing parents and relatives that will allow services like 3rings to really come to the forefront in the coming years.

DAVID: Yeah, I agree. All right, so it would be good to check in with you in a couple of months to just explore what other learnings you’ve had with that particular product.

STEVE: Yeah.

DAVID: So if we move on to We7 or WE7 – I’m not sure of the correct pronunciation.

STEVE: We7.

DAVID: Okay. So you said you sold that off to Tesco?

STEVE: Yeah.

DAVID: Tell us a little bit about what happened with that particular platform, as my understanding was basically music that was delivered to your mobile phone.

STEVE: Yeah, it was music delivered to you over the internet, whatever that was, whatever device you’ve got, whether it be a PC or mobile device or tablet or whatever it may be. It was just a streaming service which allowed you to say, “I want to listen to David Bowie, Life on Mars,” you could listen to that. The beauty about technology and the internet technology was it would allow any music to be played by anybody anywhere in the world, and the simple concept behind We7—the same with Spotify, and only recently this week, artists have got together and actually launched a new service called Title—is that the demands and the desire to listen to music wherever you are is there.

It makes total logical sense that if you could actually attach a small amount of financial benefit to each song that’s listened to across the whole world that you could actually have a really, really successful business and then you realise that the music industry is not like any other industry on the planet. The economics of the music industry is fundamentally flawed and is irrationally seductive. So, you know, there are not many businesses that I’m aware of that you can get to a billion dollars’ worth of revenue—for example, that’s where Spotify will be this year, and also in America, Pandora with the stream radio service—and lose $200 million, you know.

DAVID: [Laughs] Right.

STEVE: It’s one of those wonderful businesses. I see the music industry really as one of those places that everybody tends to head towards once they’re successful in one way or another, because it’s so emotionally exciting.

DAVID: Yes. Everybody’s attracted to it.

STEVE: Yeah. So We7 to me was like the business equivalent of climbing (Mount) Everest. We knew it was going to be difficult. Nobody wanted to do it because the music industry record labels who own the copyright fundamentally didn’t want change. And although they have changed over the years and are a little bit more receptive, you know, trying to get the contract out to them.. but trying to get the contract out to them that actually had an economic value into them. You knew you’re going to struggle but at the same time you also knew that if you get to the summit, the view is going to be spectacular.

DAVID: Right.

STEVE: So it was one of those I would class the music industry as a score draw. I mean, many people have gone to the music industry and lost everything. We7 did tremendously well in the UK with 3 million users listening to the service on a monthly basis. But to get to the point where it was all about scale, it’s actually how big could you become and how quickly, and that’s going to involve many, many hundreds of millions of dollars’ worth of investments.

DAVID: What was your business model to the consumer?

STEVE: To the consumer, the consumer’s actually fairly straightforward. It was either free to listen to music, but if you listen to music free, then like a radio service where adverts were actually in to dispose within the music, exactly like the commercial radio environment, or you could actually pay for a subscription and that will get rid of the ads.

DAVID: Oh, so it sounds like Spotify to me. I’m a Spotify subscriber.

STEVE: I mean, you got to bear in mind that We7 and Spotify launched in the UK exactly at the same time.

DAVID: Right.

STEVE: So we were trailblazing at a point in time. It became literally the only difference between us and Spotify and others that were there was actually the amount of investment that you could put into the business. Spotify probably had $400, maybe $500 million worth of investment come into them to generate a loss-making business.

DAVID: Yup. That’s incredible. So you were saying that Spotify had brought in, I think, $500 million in investment. Was that because there were US investors at that stage, or was there British money on that or what?

STEVE: It was money from all over the world actually. I mean, it’s money in the early days. We brought in money to We7 which were in the small millions. They were bringing it in the tens of millions of dollars and they spent it very effectively and done exceptionally well. They created a very high value-based business. But this is probably more the example, the actual fundamentals of the music industry, has broken from an economic point of view. You’ve got the consumer who loves the music and wants to consume music, but at the same time you got the industry that wants to control the pricing structures. The two don’t match together at this moment in time.

I think the music world believed that they can’t keep on controlling it. The model has to be found; the model has to be found at scale. I think Spotify had done better than anybody to actually do that, and we did exceptionally well in the UK, but at the end of the day, it’s that balancing act: Do you really want to throw a large amount of money into a business where the economics is fundamentally flawed?

DAVID: So was it the Spotify, or any kind of investment, was the majority of the investment actually going into the contractual relationship you had with the publishers?

STEVE: Yeah, the publishers and the record labels. To actually get the audience, you needed the right music, and the right music is owned by the three major record labels on the planet, and that makes it a very difficult proposition.

DAVID: Right. Okay. So looking at the wins and the fails in the We7 from a mobile perspective, if you can kind of tease that particular path out, was there a particular win that stands out for you in terms of your mobile usage and so on?

STEVE: Yeah. I mean, hitting 3 million people in the UK using the service was phenomenal, especially in the time period that we had. Getting contracts with the record labels with access to great music was also a tremendous win, especially from an organisation that hadn’t existed, you know, and the record labels were rightly skeptical of here is yet another internet digital company who is going to come and naturally save the world.

DAVID: [Laughs] Right, so true. In terms of the architecture of the solution from a mobile development perspective, were you kind of like pre-buffering songs and things like that?

STEVE: The answer is yes, but also you had issues with the technical way of implementing streaming. It had all sorts of contractual problems because of the rules of where a unit of music actually exists, and if it actually gets moved around, for example, like we would call it buffering, to actually make the experience really seamless for the consumer, a music contract would call that a download and that would shift the pricing policy. So you had to be exceptionally careful on how you implemented things, not just suddenly find instead of paying one price, you’re paying a hundred times that price.

DAVID: Is that because the user’s skipping through a song and it looks like a download on one end and it’s actually nothing on the other end, on the consumer end.

STEVE: Yeah, that type of thing. But it was just the lack of technical knowledge by the music industry of actually how these things work. They would then try to apply the old models of, well, if it’s a download, it’s $0.99, and it it’s a stream, it’s $0.01, and there’s nothing in-between. Whether it was a non-demand track versus a random track, again, a different economics is associated with it. So it was quite fun and games. I wouldn’t say it was a success or a fail; it was just a maze to actually navigate through. Really it was a brilliant time, but it did end up being who’s got the deepest pockets and who’s got access to the biggest investment to actually create value.

DAVID: Right, okay. I heard at one stage, I was actually sitting in this talk and it was an exec from Pandora, and they said, “Well, we figured out exactly what makes an engaged user for us, and it was that they played three songs and they shared something with their friends.” Is there anything that you kind of identified in terms of what was an activated or engaged user?

STEVE: I think with music, what you’d find is people that have two ways of using it. They use it in the internet way of “I’ve got an itch that I want to scratch, so I just want to jump in randomly, listen to a song or part of a song and then jump out because something’s activated”. Or you had the traditional radio model, which was “just feed me music that I like”. Those two models created different types of users, and you have to service both of them to be successful.

DAVID: Right, okay. So did you have particular strategies to treating those guys differently, like did you interact with them or maybe suggest? I’m always amazed at how good Spotify is with its recommendations, like it says about lunchtime playlist, when it’s lunchtime in my time zone and things like that.

STEVE: Yeah, you had to do all those strategies, I mean, the strategy of balancing out what you would like. The concept of having access to 16-20 million songs at your fingertips is, in theory, brilliant, but actually most people can’t be bothered to keep on feeding the juke box with the dimes to actually get the song that they want. It’s being able to spot and allow you to jump in when you want to, but allow you to go into an ultimate mode. We spend a lot of time, a lot of people do spend a lot of time actually working out the algorithms that fed you with the music that would surprise you, knowing what you would like and actually working out “well, if you like that, you’re probably going to like that”. That’s where the wisdom of the crowds, the wisdom of professionals, and things like that, work really well.

DAVID: Yeah. So that seemed to be one of the things that, you know, in the early days—Last.fm was one and Pandora to some extent—you’d start off with Joy Division or the Buzzcocks and you’d end up with Culture Club. [Laughs]

STEVE: Yeah.

DAVID: Wasn’t exactly the most perfect algorithm, whereas Spotify came along and had much more of a focus, or at least in my impression, from a curated playlist, and so I trusted the human algorithm instead.

STEVE: Yeah. That was one of the things that we found. It was quite often, the core of what was good for one person was actually probably very similar to the core of somewhere else. So, you know, although we did have a lot of algorithmic technology which actually provided the choices of songs, a lot of the core “seeds” were actually done by good curators, and that was important.

DAVID: Yeah, it makes perfect sense. Algorithms are good but you got to spend a lot of time on them, when a human can actually just tell you straight out, “We’re going to follow this family tree.” [Laughs]

STEVE: Yeah, absolutely. What was interesting was we had at one point 50 million songs but 92% of people would listen to no more than 3-4% of the actual songs in the database, because in reality the songs that people wanted were the songs that they were aware of and they knew and they loved, and that’s a much smaller number than most people think.

DAVID: Yes, I agree. That makes perfect sense. Of course, I’m the guy that actually wants the really obscure stuff. [Laughs]

STEVE: Yeah, there’s always the guy that wants obscure stuff.

DAVID: Well, it has blown my mind that Spotify and Google Play seem to have the most obscure things that, you know, you tend to sort of go and type in something that you just can’t believe they have, so they’ve done an incredible job with the labels to extract that stuff out. I’m not quite sure, for obscure stuff, would they actually go out and pay a lot of money up front for something that’s bizarre, or do they just ultimately negotiate a pay-per-play type thing?

STEVE: What’s interesting is that you’ve got the three record labels which actually have the majority of songs that most people want to listen to, and then you have the rest which is actually held under independent labels or actually under large amounts of licensed catalogues. Basically you have an exercise of music collection; there are just teams of people going through, trying to find distributors, like I order in the States or whoever, already have access to catalogues of hundreds of thousands, if not millions, of tracks. It’s just a thing over time, you know, we started in 2008 with about 14 songs.

DAVID: [Laughs] You’ve got to start somewhere – that’s your MVP!

STEVE: Yeah. So we had 14 songs, and as long as people wanted one of those 14 songs, it was brilliant.

DAVID: That’s the Henry Ford approach.

STEVE: Yeah. But it took 18 months to get the major record labels onboard, and that jumped us up to around about a million songs, and then it started to become a trickle in a way and then eventually suddenly we had 50 million songs. But, again, people do like the obscurity and we had songs which included symphonies by farting and things like that in the database. You could get some very, very strange things, but at the same time that surprised people that it was there. But, again, the majority of songs that were listened to was a very small percentage.

DAVID: Yeah. So it’s novel that it actually wasn’t your core value in terms of the average way you’re going to monetise the business.

STEVE: And you might think you’re actually stretching, being surprised that they had that particular song, but that’s probably not surprising because the number of songs that you can probably think of that you want to ask about is a much smaller number than the totality of songs on the planet.

DAVID: Yeah, that’s so true. All right, that’s great. So tell us about the big fail in that particular thing. Obviously you’ve talked about funding. Funding is one particular thing that if you’re in arms race where it’s possibly a winner-takes-all game, then funding’s a big deal. But is there anything else from a business perspective that you sort of want to share as a big fail?

STEVE: The big one for me on that was not being able to actually get through to an economic model that would actually work and be accepted by the music industry. I think there are economic models that could work exceptionally well but it needed the industry to relax about them. And then even after God knows how long, you know, 14 years since [30:48] first came on the scene, they’re still not fully relaxed, but they’ve gone a long way. To be fair, they had their own particular demons and restrictions that stopped them really being truly accepting of an internet world and internet model.

DAVID: Yeah, from an entrepreneur’s perspective, I guess what you’re saying is that if you’re an entrepreneur and you think you’re going to go into disrupting a particular industry, then that’s fine, but just be prepared that the incumbents are going to try and maintain the status quo as much as possible.

STEVE: Yeah. That’s a great way of putting it. I said exactly that. They knew they were in a house that was burning down but at the same time they didn’t really want to get out of the fire. [Laughs]

DAVID: Yeah. An example of that is next week I’m interviewing one of these taxi automation companies, not Uber but somebody who enable taxi drivers to get things themselves. I know that the taxi industry’s stakeholders have done everything to try and stop those companies. So there’s a lot of those things out there but the existing stakeholders, the incumbents, are really going to use every bit of power they possibly got to make things not change.

STEVE: In the music industry, you have that very definite concentration of the songs that people want to listen to are actually managed and controlled by effectively three organisations. It makes it very, very difficult when the consumer who is desperate for access to the music which is an unusual phenomenon, they wanted what you had and they wanted to listen to it. But trying to get those two together was a very difficult proposition.

DAVID: Yeah.

STEVE: The music industry did really well, to be fair on them. They get beat up a lot but they were struggling with where they were and where they want to get to.

DAVID: All right. Okay, well, that’s great. I really appreciate these fantastic insights in there, and you’re very brave to take on that particular thing. I hope things work out really well with 3rings and that we’d get a chance to come back to you in a couple of months and learn what more you’ve discovered on the mobile side.

STEVE: I would always love to talk to you, David, you know that. So, you know, have a great one and enjoy life.

DAVID: Thank you very much, mate. Take care.

STEVE: All the best.

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