Friday, September 26, 2014

’Ello Ello

There is a new social network in town: Ello. ’Ello Ello!

I’ve noticed enough people in my Facebook list joining Ello that I would definitely say it’s “trending.” And it turns out it was started by the guy who makes those nerdy-edgy plastic figurines you’ve probably seen on some programmer’s desk: Kidrobot.

I plan to give it a whirl as soon as somebody invites me in. Yes, that means Ello is trying to limit its growth rate by being invitation-only and limiting the number of invitations people get. It’s an old trick but it probably works, even if (sorry) it’s no longer cool to having a pocket full of invites.

Ello says that you are not a product.

But I see a few problems that lie in store for Ello.

1. Exponential Growth

Sooner or later they have to stop rationing invitations, and then since they are the buzz-child of the moment their growth will explode.

This is a really, really hard thing to handle even if you have a lot of money and great connections in the relevant nerd circles.

The normal way to deal with this is to take on venture funding so you can hire the experts and build up the infrastructure. But as soon as you take VC money you have somebody who can veto your Manifesto.

Now, a smart VC will let them burn money and follow their Manifesto and hope for an Instragram Moment, when Facebook fears all the cool kids will be on Ello and thus buys them for billions of dollars.

Either way, I don’t think there is a way to fund a conventional social network (which this is) without taking investment, and if they do then sooner or later they will sell out.

2. Scope Creep vs. Focus

Ello’s business model, such as it is, basically amounts to scope creep. I think they are seriously underestimating how hard it will be to just keep their minimalist feature set intact and usable at scale. If they want to add a bunch of features at the same time, that’s great, but then who’s going to keep the lights on?

In that sense it sounds like they want to be Craigslist — a lifestyle business that “goes viral” — but running a social network is a lot harder and more expensive than running Craig’s little apartments-and-prostitution site.

They also will need serious apps for iOS, Android and Windows Mobile. The iOS and Android apps are at least on their official feature backlog. Maybe Microsoft will write the Windows Mobile app for them.

In the best case you might have a group of talented programmers and designers who are willing to quit their jobs and work full-time for a year or two for equity. But sooner or later (most likely sooner) people need to get paid, and Ello needs real talent in two very high-end disciplines: mobile app engineering and scalability.

Again this comes down to the VC question. Ello has already taken a small seed investment, according to Crunchbase. But it’s not enough to buy full-time engineers, and until they can hire people they will have to choose between growth and features. Or perhaps I should say I hope they are smart enough to realize it’s one or the other.

3. Financial Sustainability

If by some miracle they manage to avoid the VC trap, how are they supposed to make money?

So far they talk about selling “premium features” but can you really operate a big social network on subscription revenue, with most of your users not paying anything? With server farms and a bunch of engineers who get market pay because they have to do the boring work? With a legal department that’s not going to be little pro-bono junior Lessigs?

I don’t buy it, not for a second. Even if enough of my friends went on Ello to make it worth splitting my activity into two networks (“cool” Ello vs “dull” Facebook) and even if I would pay $50/year for the service, I don’t think anybody else I know in Budapest would pay for it. Say that’s 200 people, now you have revenue of 25c/user/year, with which you can buy exactly nothing. I’m sure the “premium conversion” rate would be higher in the Bay Area but globally I don’t think 0.5% sounds pessimistic at all.

To put it another way: I don’t think Facebook is an ad platform because Zuckerberg is Evil, I think Facebook is an ad platform because there’s no other way to pay for a full-scale social network with all the features people want. That they’re very very good at being an ad platform, and utterly craven about their users’ privacy, accounts for their huge profits; but without ads per se I don’t think they could keep the blinkenlights on.

When the founder says things like “data is cheap” you have to wonder whether he’s been exposed to real-world, large-scale data-management problems. Of course the physical and virtual infrastructure required to launch a startup is much, much cheaper than it was back in 2004, but engineering talent is more expensive and a lot of the problems are vastly more complex. And sooner or later you have to scale up.

Never Say Never

Of course there is nothing new about these problems, just as there is nothing new about making the Anti-Facebook. But that’s no reason to not try.

I personally think the Next Big Social Thing will be less centralized, if only because Facebook sits in social networks where Google sits in web search: behind a massive capital-intensive barrier to entry, namely its server farms. To a lesser extent there is also the network effect on Facebook, but I think that’s easier to break than it seems. The rush of people wanting to try Ello points to the depth of dissatisfaction with Facebook; I would expect any reasonably convincing Anti-Facebook would benefit from that.

To be clear: if I were the Ello people I’d take this buzz and run as fast and far as I could with it. I’d get half a billion dollars in venture capital and make every investor sign off on my utterly unproved business model. I’d use the successful obstinance of Mark Zuckerberg as my template. I’d build a war chest big enough to run Ello according to my chosen principles for years and years and figure that sooner or later I’ll either figure out how to make money at it or find good money to chase the bad.

In today’s Silicon Valley investment climate I would even be a little surprised if they didn’t build a preposterously large war chest. And if they really could force their investors to sign on to the Manifesto, returns & exits be damned, then that would solve all three of the problems I metnioned above.

While I’m more than a little sceptical about their long-term prospects, maybe it doesn’t matter.

Maybe Ello is the next Facebook. Maybe Ello is the Anti-Facebook. Maybe Ello lives forever. Maybe it’s better to switch social networks every few years anyway.

I wish them the best. I know they will go through a lot of pain when they have to scale, but the very fact that it looks like they will have to scale puts them at the head of the pack.

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