Why Trutap was decimated and what can we learn from it ..

trutap.JPG

Update: See part two of this post Lessons from Trutap: Part two – Do we need a Zopa like funding model for the Mobile data industry?

Update: This post won the Carnival of the Mobilists post of the week

Trutap is a London based start-up founded by Doug Richards best known as a former Dragon on the BBC’s Dragon’s Den programme.. It can be classed as ‘Mobile aggregator for web services’ and in that sense competes with many others like Nimbuzz . This week, Techcrunch reports of a severe scale back at Trutap and calls it’s headcount ‘decimated’

Here are my thoughts on Trutap’s status

I can summarise my thinking as follows:

a) Trutap’s woes are not a reflection of the whole sector. The issues are specific to this company

b) A social network is rarely a business model in itself as I said in a blog long ago called Salt pepper and social networking. Social networking can be ‘free’ like salt and pepper. But you must have the ‘coffee’ i.e. something you charge for. Else you are ‘toast’ – to extend the coffee analogy.

c) 250,000 users is not a milestone .. It is a Tombstone ..(Trutap has 250,000 users after 14M funding)

d) Competitors can arise from across the stack. Conceptually many people can compete with the same service – some of whom are already entrenched players with large social networks or Operators or Device manufacturers. In that sense – a ‘me too’ service with little market differentiation cannot survive. The converged address book is the Holy Grail for mobile social networking. But many companies can do that – for example Vodafone with it’s Zyb acquisition. You don’t need Trutap for that

e) Technology is not the only issue. Specifically, Java technology has some limitations in relation to social networking (there are exceptions to this as I explain below). It is not such a great deal when the app can run on lots of handsets. The mobile web already does that! Any ‘extra’ added by Java is a fragmentation i.e. not common across the user base globally. Also, you cant make changes fast enough and propagate them seamlessly across the network. That’s why flirtomatic started with Java and then abandoned it to go to mobile web alone and are doing very well. Not so with Trutap sadly.

f) What should Trutap have done? – That’s a good question .. see thoughts below

Firstly, lets see what Trutap had going for it

a) Doug Richards and his halo effect

b) A PR agency who continued to contact many people including bloggers and did get good coverage including the Telegraph, FT, Guardian, The Independent etc

c) Other media coverage ex TechCrunch40 finalist from 2007

d) A large, experienced team

e) A functionally and visually impressive application in it’s final incarnation

f) Raised a total funding of $14.5M

However, Let us put this also in context

The Mobile aggregator for web services category is not the same as Mobile social networks – but it competes with this well established category

The mobile social networks category is one of the hottest sectors in mobility today with some very impressive companies with large global user bases. I have asked for latest numbers but the ballpark from memory is Mig 33 18 million users, Mocospace 10 million users, Itsmy 6 million users, Flirtomatic 5 million users, Peperonity 6-7 million users

In that sense, Trutap’s ‘milestone’ of 250,000 users is not a milestone at all ..

These companies continue to grow and release impressive functionality across their significant user base. For example Itsmy shows impressive stats, flirtomatic continues to be innovative From virtual red roses to virtual boob jobs? – Flirtomatic shows how to make money in social networking and make money -

Peperonity has a new web interface and mig 33 have a new version and added functionality (pdf)

These are all competitors for Trutap and they have a strong barrier to entry i.e. people normally do not switch social networks since all their friends are already there!

The second problem is: Social networking is not an end in itself.

Nokia released an impressive social media phone (N97) . So did Three with INQ1.

But by the ‘coffee’ analogy above – these companies are selling something more (devices) in return for free services(social networking). Also, companies who already have a large social network can leverage that. Coming late in the space, Trutap has no such advantage.

Finally, what about the emphasis on Java? Lets put the numbers in perspective. 14 million dollars for 250,000 users. That compares to the worst of the dot com era at 56$ / user. What is lacking here is network effects.

In contrast, a site like flirtomatic(based on mobile web) is designed for network effects and rapid changes. See how they quickly leverage for Feb 29 with special offers . Itsmy and Peperonity are also based on the mobile web and leverage the same network effects.

The exception is Mig33 which is based on Java – but then Mig33 has a business model based on VOIP calling and in that sense, the community aggregation works well i.e. Mig33 is a service designed to attract IM users and then leverage the IP calling(which is a paid service).

So, Mig33 is designed from the start with the VOIP calling ‘coffee’ which serves both it’s users and itself. Network effects are important but as is the calling functionality(which needs Java)

Thus, in my view Trutap was never destined to succeed since it is never clear what exactly it stands for.

I also never understood it’s branding. All the others have a clear brand proposition(itsmy is your own ‘space’; flirtomatic is mobile flirting and so on).

What exactly is Trutap?

The real question is; being a follower(and lets face it – that’s what it was .. ) .. what could Trutap have done? One thing is sure – it is all the more imperative that it had to have a focus being a follower

Instead of trying to go head on with established companies in this space(who have a barrier to entry/switching cost), Trutap should have tried to position itself as a category leader in a sub category. My favourite marketing books are by Al Reis and Jack Trout – especially their positioning books. Their logic goes that instead of trying to be the first in a category if you are a follower – you are better of being first in a SUBcategory and dominating that subcategory. Be the market leader in a Lite beer rather than the market leader in the whole beer category – for instance

The solution is to truly understand the competitive positioning, seek network effects, build in a revenue model from the start and serve a category of users. The technology is an afterthought when it comes to social networking and certainly it is best to avoid something that hinders the network effects. Don’t think like a consumer electronics company. Think of the phone as primarily a communication device.

Sadly, VCs don’t get that logic.

It is hard to stand before a VC and tell them that you intend to dominate a SUB-category(niche) – even when it makes perfect business sense. VCs want you to dominate the world and all its present (and future!) categories!

For that matter, it is hard to say that you are a follower .. which often you are.

No amounts of Dragon logic can change this .. I see it as a blindspot in the VC model and it’s obsession for growth at all costs which by extension, ignores sub-categories and seeks to view customers as one homogenous mass especially when there are clear market leaders.

Maybe the recession will change that.

So, to conclude – I think the true issue lies with the VC funded business model and it’s positioning – and that the service would have worked had it been positioned better.

I hope everyone involved with this company does well ultimately.

See part two of this post Lessons from Trutap: Part two – Do we need a Zopa like funding model for the Mobile data industry?

I also found the following comments useful from the techcrunch article by Mike Butcher about Trutap and I agree with them ..

Paul Golding

Out of 250K users, it would be interesting to know what the active use is. I suspect very low, as in less than 1%. Unfortunately, anyone trying to build a community of users based on a downloadable mobile app is going to have problems for the foreseeable future. Apps like this need to be always on, which is a major problem with today’s mobile phones. It will be interesting to see how well 3 UK’s INQ1 does in terms of active usage of the social apps, which are built in.

lLuke Jansse – December 1st, 2008 at 7:03 pm PST

You are kidding aren’t you? To me this is a great example of things done the wrong way. I reckon what happened was:

1. pick a hot area (social networking) within a hot sector (mobile)

2. get impressive people on board

3. get money because of 1, and 2 (don’t worry, you don’t need a profitable business model or good company fundamentals

3. hire lots of people with the money you raise (remember to pocket some too!)

4. fire them all again when it turns out the company doesn’t work and you don’t have any more money to pay what are probably over-inflated salaries anyway.

These companies need to be left to die. OR fight their way out of it.

tomas – December 1st, 2008 at 1:06 pm PST

Its sad. I am surprised, they have only 250000 users and they had investment.

All companies doing mobile apps will have difficult times. I myself have developed mobile app/platform for multiplayer games, we got about 160000 users, but its not a business and its hard to sell the as the whole project.

See part two of this post Lessons from Trutap: Part two – Do we need a Zopa like funding model for the Mobile data industry?

Comments

  1. Scott says:

    There are a lot of hard truths in this article but there is also a sense of putting the boot in. Who does the article benefit? Does it provide any lessons for future entrepreneurs? Possibly, but that can probably be summed up in one phrase: stay in the browser rather than a client. Aside from that, it just shows the value of hindsight. Quite often there is very little difference between a success and a failure. We should applaud the entrepreneurship and encourage them to try something else with this time’s learnings on board.

  2. Ajit Jaokar says:

    Scott
    It is the VC model I question. Like many people, I wonder how(and why) some companies get funded. I dont equate this with entrepreneurship. I see entrepreneurship as the ‘finding a need and fulfilling it’ for revenue. Thats the quetion here i.e. often VCs ignore that simple truth. See also this article from Paul Graham
    Could VC be a Casualty of the Recession?
    http://www.paulgraham.com/divergence.html. which was deemed ‘too controvertial’ to publish initially – and which says ‘I’ve detected this “investors aren’t worth the trouble” vibe ..’ There is some truth in this! kind rgds Aj

  3. Scott says:

    The Paul Graham article is very good indeed and makes excellent points for potential entrepreneurs. There is indeed truth in it.
    I think you’d have to acknowledge on reflection that your original post spends too little time on this VC angle if you were trying to shine a light on it and too much time criticising the effort made by a small company struggling to find a business model for their talent.
    One of the cultural disadvantages we have in Europe is the fear of failure. By all means, encourage a different funding model but do it in a way which applauds hard work, effort and the belief of those at the cutting edge. It is always easier to be critical. It will be blatantly obvious to the Trutap team their limitations but we should be encouraging them to try again, learning from the mistakes made this time around.
    I hope you agree

  4. Ajit Jaokar says:

    Thanks Scott. I agree. My goal was not to talk of trutap(except in terms of the positioning i.e. the Reis and trout angle) but more to talk about why certain businesses make sense on their own but not as vc funded(and even now its not very easy to articulate this). i.e. assume you had no investor at all – then you would try to find a specific segment and serve that segment. the VC model almost rules it out although it makes practical sense becuse VCs want you to grow fast, grow very big (mainly for the exit). So, in doing so – there is a contradiction between a real business model that suits a customer vs a model that suits the VC. even now this is not very clear but I hope close enough! thanjs for your feedback!

  5. As part of the team at Trutap, I obviously disagree with much of your analysis, but I’m with you on your questionning of the VC model. I’ve commented on Tom Hume’s post (http://www.tomhume.org/2008/12/thoughts-on-the-demise-of-trutap.html) to that effect.
    There’s a decent product review of Trutap, which also touches on some of the misconceptions around our aims and achievements, here:
    http://www.mobileindustryreview.com/2008/12/trutap_-_mjelly_mobile_20_service_of_the_week.html

  6. Ajit Jaokar says:

    thanks. see Part two of this post
    Lessons from Trutap: Part two – Do we need a Zopa like funding model for the Mobile data industry?
    http://opengardensblog.futuretext.com/archives/2008/12/lessons_from_tr.html