Conan's Newsletter No. 19

Rich Barton's playbook for consumer repeatability; From sales-led to product-led and how it changed everything; How Visa makes money;

Happy New Year! The eventful year 2020 has finally passed, and I wish everyone a prosperous and healthy 2021! Here are some articles for this week:

  1. Making Uncommon Knowledge Common (20 minutes). Rich Barton has founded three $1B+ consumer companies (Expedia, Zillow, and Glassdoor). The key to Barton's repeated successes is owning demand, whose importance has been popularized by Ben Thompson's many essays (e.g., Demand Aggregation Theory). This blog summarizes the 4-stage playbook that Barton used:

    1. Stage 1: Kick-off Data Content Loops of 1) Create high-quality data source → 2) Attract consumers to use the data → 3) Turn consumers to contributors to enrich data → back to 1). For example, Zillow makes the house data that was only available to real estate brokers to be accessible to anyone. The high-quality data attracts many potential buyers/sellers to Zillow, and they eventually become data contributors. 

    2. Stage 2: Search Engine Optimization (SEO). All of Rich Barton's companies have primarily used Search (and word of mouth) as their acquisition channel. Barton makes his websites huge SEO land grabs by creating high-quality content from authoritative sources and user-generated data.

    3. Stage 3: Becoming a Trusted Brand.  Becoming a trusted brand builds its own network effects. Consistently building this reputation increases people's trust in them and makes them a go-to destination.

    4. Stage 4: Saturation and Sequencing. When the demand for Data Content loops saturates, you need to weigh in other scalable demand generation loops to carry the torch forward.

  2. From sales-led to product-led and how it changed everything (20 minutes). Ashton Rankin from Vidyard shared the company's journey from sales-led growth to product-led growth.  

    1. To make the switch, they first need to answer the following two questions.: 1) freemium or trial? 2) limit features or usage in the freemium offer? 

    2. Their challenges: 

      1. They faced pushback from the sales team because they already had some notable success selling to larger enterprises with the sales-driven model. 

      2. Besides, they have to redesign products and transform engineering team structure to focus more on self-serve features.

    3. Their discoveries:

      1. Large enterprise organizations want to try products before making their decision.

      2. A product that allows users to learn how to use them on their own is a requirement for product-led growth.

  3. How Visa makes money (16 minutes) is a great article that describes Visa’s revenue sources, which could be summarized as: 

    1. A) Service fees. Visa charges a percentage of the transaction amount as service fees. In 2018, the service fee was, on average, about 0.11% of every transaction ($8.9 billion service fees on $8.1 trillion of network spend).

    2. B) Data processing fees. It is a fixed/flat fee per transaction for settling transactions and transferring funds between banks. In 2018, the data processing fee was $0.07 per transaction ($9 billion data processing fees on 124 billion transactions)

    3. C) Cross-border fees. Visa charges additional fees for cross-border transactions. In 2018, Visa's cross-border revenue was $7.2 billion. 

    4. Visa’s business model has the following characteristics:

      1.  High fixed costs create a high entry barrier for later comers, so Visa could grow with very little investment.

      2. Because the incremental cost of processing a transaction is virtually zero, the operating margin keeps increasing as the company processes more transactions (the margin was 65% in 2018). 

      3. The revenue grows as long as the economy grows, making it a de-facto tax.

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