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And do you remember Patrick Buckley who I interviewed? He came up with an idea for an iPad case. Then, he built the store to sell it, and in a few months he generated about a million dollars in sales. Well, the platform he used is Shopify. If you have an idea to sell anything, set up a store on Shopify.com because Shopify stores are designed to increase sales. Plus Shopify makes it easy to set up and manage your store, Shopify.com.
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So, go to Grasshopper.com and get a phone number that will make your company sound professional and see what it does to your business, Grasshopper.com.
Here’s the program.
Andrew Warner: Hey, everyone, I’m Andrew Warner. I’m the founder of Mixergy.com, home of the ambitious upstart. What that means is that I do interviews with entrepreneurs who build interesting, successful companies and find out what they learned about the way.
I want to hear their story because I’m fascinated by entrepreneurship, and most importantly, I want to take all of that and bring it to you, the audience, so that you can go out there and build incredible companies and come back here and do what today’s guest is doing, which is an interview about how you did it.
And, by the way, more and more I’m getting email from people all over the world who are building companies, who are saying that they’ve learned something from these interviews, who connected with past guests. I love that. That’s the point here.
So, today’s guest started his company as a class project in school, and today he says he has 2.5 million users. He’s Steve Shapiro, Founder of Digsby. Digsby lets you talk to your contacts on multiple platforms all in one place. So, if you have contacts on Gmail and Facebook and IM and Twitter and YahooMail and so many other places, you can talk to them all within Digsby, all at once.
Steve, welcome to Mixergy.
Steve Shapiro: Thanks for having me.
Andrew: So, all at once, but I can’t get this on my Mac. Now, I went as far back as articles about you from two or three years ago where people asked you, when’s the Mac version coming and you said, “I’m excited. It’s coming soon” and it’s still not out. What’s going on?
Steve: So, we have a pretty small development team. We decided to launch for one platform at a time. The code that we built is actually cross platform. I’m doing this interview from my MacBook where I have Digsby running. But, we decided that instead of releasing three half-ass products, we’d rather solidify in one platform and then expand to the others.
Unfortunately, it’s one of those things that it just feels finished. If Twitter releases an API, we need to integrate that. It releases bugs. There’s usability quirks. There’s performance issues, and we’re finally at the point where the Windows build is solid. The last release included Group Chat which was sort of the Achilles heel that was still missing within the product.
This next release that will be going out in a couple of weeks focuses on ironing out the remainder of any usability issues that we’ve been able to find with the product where people have trouble setting it up or have trouble figuring out how to find the specific feature. And once that goes out, our focus will shift very, very dramatically to finally wrapping up and releasing from Mac and Linux.
On our web page, obviously, you click the Mac icon it says, “Coming soon, give us your email address.” There’s almost a million people on that mailing list now waiting for that launch. So, we hear you loud and clear here. I wish it was yesterday, to be honest.
Andrew: You’ve got a million people on the mailing list?
Steve: Almost, 700,000.
Andrew: Wow. All right, now. I actually should have started this interview with something more inspirational and then come back and talk to this. But, since we’re already on the topic, I’ve got to ask more.
Was there a point where you created a Mac version, and you said, “It’s just not right.” Was there a point where you even got started? How far did you get?
Steve: The code is cross platform, so we write once and it runs on Windows, Mac and Linux. Each operating system has its own set of bugs, its own set of little quirks that are only operating system specific. So, we’ve been running it on all three operating systems the entire time we’ve been developing. It’s just not release ready yet. It’s not like, well, we finished Windows. Let’s go write the Mac version from scratch. It’s all the same source.
Andrew: So, why not release it buggy and start to get some feedback from the audience?
Steve: Yeah. That’s definitely going to be the goal, just get it to a somewhat releasable stage, release an alpha and get it out there. Right now, it’s not stable enough where it’ll run a few hours straight without crashing.
Andrew: Wow.
Steve: So, it’s not ready to the point where even the most ambitious alpha tester should be using it, but once this next release goes out, we’ll shift focus, get something that’s usable out the door as quickly as possible and start building on it from there.
Andrew: All right. So, I know you’ve got funding, but everything I read about you makes you sound like a scrappy entrepreneur, almost who has no funding, maybe, even took debt. And you’re looking for revenue everywhere you can, and you’re looking for opportunities to build your business wherever you can.
Where am I going with this question actually? I’m listening to this, and I’m saying, there’s so many questions that I’ve got in there. Now, what was the original question that I was getting at?
The question is this. I know where I was going. I was going to find out if you’re monetizing that list. You’ve got almost a million people who are Mac and Linux fans. Are you sending any ads to them?
Steve: No, no, nothing to them. They are on a mailing list, and the only mail they will receive is the day that we launch.
Andrew: OK. All right. Let’s go back and find out how you started this. So, it started as a class project? Did we just lose the connection? Sorry. So, I was asking. Did it start as a class project?
Steve: Yeah. Just to step back, I grew up in Brooklyn, New York. I moved up to Rochester to do my undergrad at RAT, computer interaction. In my senior year I was Student Government President. Luckily, it happened to be the year that RAT was doing its 10 year strategic plan, and I got to sit on the Steering Committee for that, along with the President, the Provost, several VPs, Deans, et cetera.
And it was amazing to me to see a committee overlook five subcommittees and 20 little committees below that and have 400 or 500 people come together and make one document that will run an institution for the next decade. And I started to really fall in love with the business that’s behind technology.
So, I stuck around to do my own MBA, and part of the curriculum was to do a classic entrepreneurship. And the entire thing was focused around putting together a business plan, and Digsby happened to be my class project.
So, at the end of the semester I pulled out the Rolodex, started contacting everyone I know, and through a connection of a connection of a connection pitched it to a couple of angel investors and closed an angel around it. So, that’s how it got started.
Luckily, RIT was a school where most of the bachelor degree programs were five years. So, every single student is required
where thousands of very talented developers came for co-op positions. So, we started by hiring a team of
.
Andrew: Let’s hold up here. Let’s take a little bit at a time. First of all, RIT is Rochester Institute of Technology.
Steve: Yeah.
Andrew: And you went to Rochester Institute of Technology because- what did you want to do afterwards?
Steve: I mean, I knew I loved software. So,
I definitely wanted to do usability and product design and development. So, that was the original goal.
Andrew: Was it because you wanted to be an entrepreneur in this space? Did you look at all these guys who were building companies and say to yourself, I want to build something like that. If it takes software, then that’s what I’ll go and learn.
Steve: No, I fell in love with software at a younger age and sort of over time developed the fact that I wanted to be an entrepreneur. It’s one of those things where, obviously, it’s a huge risk, and I decided that I wanted to do it right out of college before you have a mortgage and kids and those other things. I figured it was a now or never kind of thing, so while I was taking entrepreneurship courses, definitely with the intent to pursue whatever project I developed there.
Andrew: Did you develop any businesses before this one?
Steve: No, no, first company, first job out of college.
Andrew: Oh, got out. Not even as a kid, you didn’t develop any kind of software that you hoped to sell and it didn’t go anywhere or, maybe, one that did go somewhere?
Steve: Oh, random side projects but mostly for fun and not so much for profit at that age.
Andrew: OK. What did you envision yourself doing in the future?
Steve: Exactly what I’m doing right now.
Andrew: So, you did imagine that you would start some kind of company and it would probably be in software, and you’d be that scrappy entrepreneur.
Steve: Yep, for sure.
Andrew: The angel fund, the angel round, how much came in?
Steve: It’s an amount that we never disclose. It’s two angel investors in New York City, private investors.
Andrew: How did you connect with them?
Steve: My sister put me in touch with her ex-boyfriend, who put me in touch with his best friend, and that’s how the chain goes.
Andrew: And were they professional investors?
Steve: They’re professional serial entrepreneurs. And in that, they’re always interested in new companies. So, neither one of them has a background in software, but they both have a background in starting a multitude of businesses. So, we interested them. The timing, they thought was right because this was right around when Facebook was starting to take off.
So, even to the average person, they were able to see that there’s a future in this sort of a medium for communicating online.
Andrew: Who are they? What are their companies? Who are they? What companies do they run?
Steve: One of them has a number of packaging companies, and one of them has a number of apparel companies.
Andrew: Oh, packaging and apparel? So, they’re not software entrepreneurs, are they?
Steve: No, not at all.
Andrew: Wow. Not Internet entrepreneurs, not anyone in this space.
Steve: Just two savvy business people.
Andrew: Are you the first Internet entrepreneur that they backed?
Steve: I’m not 100 percent sure, actually. So, I’m not going to speculate.
Andrew: OK. How many pitches did you have to make before you found the right guys to pitch to?
Steve: You wouldn’t believe me if I told you.
Andrew: Tell me.
Steve: One.
Andrew: Oh, one. So, you got right in front of these people from a friend of a friend, a relative of a cousin who you get in there. You make your pitch. They like it. They’re ready.
Steve: Yeah, a six hour meeting and a handshake.
Andrew: Can you give me a sense of the size that you raised? Are we talking about under a hundred thousand? Are we talking about a million dollars?
Steve: Closer to the second number.
Andrew: Closer to a million dollars is what you raised, all in one shot, first time entrepreneur raised from the first pitch that you made.
Steve: It’s, like I said, you wouldn’t believe me if I told you.
Andrew: So, how did you get in front of these people? How did you get in front of the right people?
Steve: I think part of it is luck. You start reaching out to a whole bunch of people. You get up one morning and you decide, what else are you going send? What websites are you going to visit, and it just happens to work out the way it works out.
Andrew: What do you mean? You’re reaching out to a friend of a friend. Was it that you knew that there was a friend in mind that had a contact who was investing, or was it just kind of random?
Steve: It was a little of both. Obviously, he’s a serial entrepreneur. So, it seemed like a logical connection to reach out to. I had no idea whether he was investing at the time or not. So, it just worked out that way.
Andrew: Why did you decide to raise any money at all instead of build it by yourself with a couple of friends?
Steve: That’s a good question. I thought that myself, with a background in computer
, I could certainly do a lot of the usability stuff, interface design, project management. But, I’m not a software developer, and it’s a very large project in terms of development. You support 18 different protocols, so it wasn’t something that I was able to strap together one or two programmer guys and get this done.
We’re a team of seven. It took us two years to develop the product, so it’s hard to convince a friend to go out on a limb with you. It’s one thing for an entrepreneur. They sort of feel like they need to do it, but for a software developer friend who just wants to graduate and go out and get a job, to convince him to write code for two years or something that may have zero users on day one, depending on how it turns out, it’s definitely a tough pitch to make.
The other aspect of it is because they’ve never done this before, money’s one side of it. But, obviously, the advice that comes from having the right investors on board is priceless.
Andrew: So, two years from the time you launched to the time you released the first version?
Steve: Yep.
Andrew: Wow. By the way, I’m recovering what the questions are now. I’m finally starting to fire off the questions after that stumble. You’re a listener. You’re a viewer.
Steve: Yep.
Andrew: You’ve seen my past interviews. Have you ever seen me stumble in the middle of an interview? And if you have, what do you think as a listener you’re saying? What do you say to yourself about the professionalism of this interview?
Steve: Well, listen, you interview people who you don’t know about on very, very diverse topics. Something will always catch up on it. I’m sure if you go back to your past interviews there’s always things that surprise you about every story. So, I wouldn’t think anything poorly of you.
Andrew: I would be like, the guy’s got terrible lighting. He just fumbled a question. I’ve got to get out of here. I’m going to watch some cats. Cats are phenomenal.
Steve: Oh, you don’t give yourself enough credit.
Andrew: Well, actually I’m glad that you say that. The problem is that there’s just so much frigging stuff here on my screen that I want to ask you about. Maybe, what I need to do is do an interview where I just wrap this or, maybe, do no research on you and say, “Hey, you know Digsby. Friends have it on their computers. Some day, I’m going to have it on my computer when it’s for Mac. What do I need to ask?”
All right. Let’s go back to your story, not about me. Two years, that’s a long time to take to build a product, and it disconnects some entrepreneurs from their customers. Did you find any of that happen to you?
Steve: Well, I think there were two things to our advantage. One is that we were all customers of the product. I think it’s interesting that originally we were targeting this college age students who have IM running in the background all the time. They have their college email account. They have their personal email account.
This was right around when Google released Google Talk. So, if you’re a Gmail user, now all of a sudden you’re using that. So, we saw that this was a problem that we had. So, I think when you’re building a product for yourself, it’s a lot easier to anticipate the needs of a user and hope that there’s more people out there that are like you that have the same needs and the same problems.
The other part of it is that because we’re in Rochester, there’s obvious disadvantages to that. I’ve got to travel to the West Coast for meetings and all that stuff, but on the flip side of it, being outside of that echo chamber, I’m not chasing the latest piece of hype on a day-to-day basis. It’s actually very helpful. We are on a university campus. Our office is in the university incubator, so we’ve got plenty of friends and potential users to chat with about the product all the time.
Andrew: So, you got funding. You’re in business. What’s the first thing you do?
Steve: In what sense? After we launched, or just when we . . .
Andrew: Just when . . . you got the funding. What do you do with that money? Do you first call up all of your past girl friends and say, “Hey, why did you break up with me? I just got a million dollars, day one.”
Steve: No, no, not at all. But I called my current girl friend who was then a fiancee and now a wife and told her how the interview went. I said we need to sit down and talk about this. This was a pretty big move. It’s going to be a very time consuming thing for a number of years. So, I wanted to make sure that we were all on the same page on this one.
And then, I met with the school. They said there was space available in the incubator for us to rent, contacted the co-op office, put up some job descriptions and we were coding a month and a half later.
Andrew: A month and a half later? How many guys do you have coding?
Steve: The total team is seven people. It’s mostly developers. There’s a system admin for the website, and we have one person who manages PR and community management. It’s like the Twitter account, Facebook and all that stuff.
Andrew: What about that first month? How many people did you get in?
Steve: The very first month it was myself and four developers, and then we expanded out from there.
Andrew: How was it to work with four developers on a brand new project? What was the coordination like?
Steve: It was very cool. We do this semester after semester for all of our class projects, so it was just that on a larger scale. I think it was interesting to all of us because it was a new experience for the entire team. It was as much a learning experience for me as it was for them.
Now, I never had experience managing a project like this. I didn’t know what SVN was or what track was or all the tools of the trade for managing a massive repository like this. So, you rely on everybody’s expertise and hope that you have a team that fills all the necessary gaps in terms of what needs to be done.
Andrew: OK. So, you guys get together. What’s the first thing that you code up?
Steve: We didn’t code up anything at first. At first, we wanted to decide on what language we wanted to develop in, and the goal was to be able to develop as quickly as possible and to make sure, obviously, that you have fun developing. You don’t want to be in assembly code 12 hours a day for the next X number of years.
We knew that we wanted it to be a cross platform project eventually, so we needed to find a GUI library that would be conducive to that and program language that would be easy to do that. We spend a couple of weeks researching, playing around and doing basic mockups.
We ended up settling on Python as the development language which is not a very traditional choice for software projects. But, it ended up working very well because we interfaced with so many protocols, and it makes it a lot easier to do a lot of the stuff that Digsby does. We chose WX widgets or WX Python as the GUI library because it’s cross platform for that reason.
Once we started tackling the actual development a couple of weeks later, we started by implementing OSCAR which is the protocol that runs IM, and that’s because this was the IM protocol that we all use more than any other. So, we thought it would be a pretty decent place to start.
Andrew: OK. When you built this out, was there a version that you had that you built over the two years that you had to scrap and say, “We’ve got to start over. This isn’t the right way.”
Steve: Not the entire product, but certain pieces of it. So, the earlier code was the worst code, and then we got better at structuring, preparing for the future and thinking forward in terms of what we might want to change in the future. So, towards the end of the development we end up rewriting OSCAR completely, using what we all learned along the way.
Andrew: How long into the project did you have to do that?
Steve: This is probably . . . I don’t recall specifically, maybe, a year into it or so.
Andrew: OK.
Steve: Once we had the entire framework down for how everybody would list the work and how it would interact with all the protocols and how the info box for email and social network accounts would work and how all of that would interact. To be honest, the product evolves quite a bit along the way. So, it’s not just rewriting pieces of it plus it’s changing the fundamental the product
itself.
Andrew: Sorry we’re losing the connection here a bit. I’m sorry we lost the connection.
Steve: Am I back now?
Andrew: Yeah, we’re back. Hey, so I’m also doing the math here in my head. Actually, I’ll do the math lots of different ways on my screen. Basically, I’m figuring you’ve got developers at $75,000 a year. Since they’re young guys, five of them, that’s $375,000. Overall costs for developers are, maybe, $400,000 a year. Does that sound about right?
Steve: It’s an estimate.
Andrew: It’s an estimate. Were there other expenses that went into it?
Steve: A few servers, rent, some bandwidth costs. It’s primarily salary-based expenses. As a software product, there aren’t legitimately large scale in costs here.
Andrew: So, after two years of that, did you need to raise another round?
Steve: No, before the round ran out, we ended up becoming cash deposited.
Andrew: Oh, really? OK. All right. So, you launched. What happens day one after all this time of building it and waiting for the audience to see it?
Steve: Day one, we got press from Mashable, LifeHacker and a lot of other places. We started seeing users come in by the thousands. We were extremely ecstatic, and the blog post announcing the release of it was getting comments, like, this doesn’t work right. It’s using too much RAM. I can’t connect at work because I connect through a proxy and it was hard to connect to the Internet through a proxy service. We completely forgot to load in proxy support.
We started realizing what’s wrong, what’s not functioning correctly. And we started rapidly iterating as quickly as we can and pushing out new releases. Luckily, we built an auto update system into the product. So, as soon as we had fixes ready to go, we’d flip a switch and next time you turned on Digsby it gets the latest release. So, in hindsight that’s definitely a very, very good move.
Andrew: In hindsight, would it have been better to launch sooner and, maybe, have fewer platforms that you work with?
Steve: It’s hard to say. There’s no way to know what would have happened if you had gone down a different path. So, it’s very difficult to say. We started with Facebook and MySpace support on the social network sites, put in a link that got added after the fact. So, it’s not like Digsby was this feature that was as complete as it currently is.
It’s tough to say. It’s one of those things where if a product fails, then you think, oh, I could have done this or I could have done that. And you never really know how any of that would have turned out. And if it succeeds, you say, hey, I wouldn’t have done it any other way.
Andrew: OK. Was there any big mistakes that you’ve made that you look back on and say, man, what was I thinking or I learned a lot from that. That was huge.
Steve: I think that the biggest thing is just estimating how long things take and how difficult the scope of various pieces of the projects are. I definitely underestimated how long it would take us to build this out and launch it. So, it’s one of those things where along the way you get better and better
. It’s tough to guess before you tackle a project exactly how long it will take.
Andrew: What platforms did you work with on day one? The connection is breaking up. I’m sorry. Yeah, we lost the connection there for a moment, but we’re back. What platforms did you work with on day one?
Steve: From the IM side, if I remember correctly, it was AIM, My SQL, MS, Yahoo, Google Talk and Jabber. For social networks it was Facebook and MySpace, and for email it was HotMail, YahooMail, Gmail, PopMail.
Andrew: Oh, wow. And was Mego around at the time?
Steve: It was around, yeah. It actually launched while we were in the middle of our development process.
Andrew: So, how did that influence your developing, seeing Mego which does IM only but does it on the web?
Steve: It really didn’t have a significant influence. Obviously, we’re both players in the same space, but we see it as a product that fulfills a different use case. I myself use Mego when I’m at an Internet cafe and I need to hop on and chat with someone. Or if I’m at the school library and I’m unable to install software.
I think it’s one of those things where people have been claiming that everything is moving to the web and software is dead. That claim has been around for a decade, and it’s true for some products but not for others. I think that for IM specifically the user experience that you get with a desktop application is very difficult to replicate with a web-based product.
So, we think it solves different
. Digsby solves one, Mego solves another.
.
Andrew: Sorry about the bad connection, but we’ll just keep working with it. Sorry?
Steve: It’s Wi-Fi from his jet. That’s why it’s not working too well.
Andrew: Yeah. I’m on my jet here. I can’t get good Wi-Fi up here. So, for example, well, can you give us an example of what wouldn’t work well if this was a web-based app instead of a desktop app?
Steve: I think if you look at the social network component, you can do it. You can put Facebook and Twitter feeds into a Mego.com or a Mego.IM. But, I think that the utility of it is very, very different.
As a desktop application, Digsby is something that runs in the background for people all day long. I’m losing it. Am I coming in OK?
Andrew: Yeah.
Steve: OK. Digsby is something that people keep running on their desktop all day long. So, it serves, not as a social network aggregator but more as a notifier. So, it’s the fact that it will run in the background all day long and give you a pop up when somebody sends you a message on Facebook or when someone writes on your wall.
That’s something that you can’t recreate with a web page. With a web page, if you do social aggregation, then you’re basically convincing people to go to SocialAggregator.com versus Facebook.com when I want to go practically and go and get my Facebook feed.
With Digsby, because it’s a desktop application that runs in the background all day, it serves more as a notifier that just lets you know what things happen. We’re not trying to replace your Facebook experience. We’re just trying to make it easier to keep track of all this stuff. So, it’s a different user experience.
Andrew: I saw that. It’s a cool little bubble that pops up. It lets you see what people have written on your wall and what they’ve chatted with you on the instant messaging program. Instead of having to click that bubble to go back to the app, you can just respond right within that bubble, and then they’d go away.
Steve: Yeah. So, if someone writes on your wall, you can comment on it and like right from the pop up. If the IM window’s out of focus, in those scenarios you would get a pop up notification and you can reply right from the bubble, also. So, that’s definitely one of the most loved features.
Andrew: You must have a ton of these pop ups coming up as you work. How do you deal with it?
Steve: Oh, I turn them off.
Andrew: You do?
Steve: Yeah. No, I have some on. I have the social networking ones off. I have the alerts ones on, so when I get a message on Facebook or a direct message on Twitter, those are on. But, for random time line stuff, I keep the pop ups off, and I’ll just click the Facebook
whenever I feel like it. But, it’s one of those things where it can help, if you turn it on full blast, then obviously it can overload as well.
Andrew: Jess in the audience is saying that there are browser extensions that you can use, like the Gmail notifier that would allow pop ups. Have you considered that?
Steve: For sure. But when you close the browser, that goes away.
Andrew: Right. Here’s something else that I’ve seen. This is what I was talking about earlier when I was fumbling that question and I said you’re a scrappy entrepreneur. I see the way that you’re monetizing the hell out of this app, or, at least, you have over the years.
You’ve had programs that would . . . I think you partnered up with Distributed Processing that can take up to 75 percent of computing power. You’ve had LifeHacker called Crapware, BigShop, SmartShopper and so on. To me, I think that’s pretty interesting. I think it’s actually the right thing to do when you’re an entrepreneur. You want to see how far can you take advertising without pissing people off.
Well, where did you start? What was the first thing that you added to your installation? I want to know how you got there, and then I want to know what it really is not what the bloggers are saying.
Steve: Sure. So, we had launched. We had built up a user base. At this point I think we had 500,000 users, and the angel round was running low. So, you’re at a point where you either raise more funding or become profitable. Because of the low burn rate nature of a business like this, we felt that hey, we’re big enough user-based wise that we should be able to become profitable.
So, we partnered with a company called W3i that has an installer called Install IQ, and we use their installer which wraps around ours and that shows offers during the installation. We instantly became very profitable, but the installer showed five or six offers during installation. So, it wasn’t the best user experience.
And then, that’s what sort of caused the LifeHacker that I think you’re referring to. The other aspect of it is because it wasn’t our installer we didn’t have full control over what check boxes are shown or not shown.
For example, something like Plura, it’s something that ideally we’d want to ask the user during installation, hey, do you want this on or off while your computer is fully idle or do you want to use some of your resources? It’s optional. Because it wasn’t our installer, the check boxes were added to the installation going into preferences and turn it off if you didn’t want it which most people obviously don’t do.
So, we became profitable, and we got some negative feedback from users. So, we ended up pulling that installer, going back to our original installer and sort of replacing that one revenue model with a variety of less aggressive ones to remain cash flow positive.
Andrew: Which ones did you shift to?
Steve: So, we shifted to an installer that we built where it shows one offer during installation, instead of five or six. But, we have a pool of potential offers that it shows, based on the geography of the user, what other apps they have installed.
So, for example, if you have Outlook installed, we’ll show you an ad for Zogny. It figures out what it thinks is the highest monetizing offer. So, in just optimizing from five offers to one really high quality one, and also obviously cutting out the middle man, since now we have direct deals with all of these products, we were able to almost replace that revenue stream. Obviously, not to a hundred percent, but it was significant enough where it contributed to the bottom line. But at the same time, it was a good user experience as well.
Andrew: Where is the rest of the revenue coming from? Is it just revenue from the installation process?
Steve: No, we still work with Plura. So, that’s one of them. We also ask you to set your home page and default search engine to Google Power Digsby search. That’s obviously one that keeps dozens and dozens, if not hundreds of companies afloat. Search is probably the best revenue model in the entire Internet. So, everybody tries to get into it in one way or another.
Besides that, we show trending news articles at the top of people’s social network feeds that are powered by OneRide. Some of those are sponsored listings. Again, users can turn those off as well. That’s the bulk of it.
Andrew: And Plura is what? What does it mean that it’s Distributed Computer Processing?
Steve: In terms of how the entire thing works?
Andrew: Yeah.
Steve: Plura saw that there are tons of companies out there that need lots and lots of computing power. And it’s expensive to rent from data centers owned by Sun and IBM. And there are millions of computers sitting there idle all day. So, the prospect here is that we can turn the Digsby user base into a massive computing cluster, and then they work with companies to rent out that computing power.
How the implementation works is that if you turn it on, you can set, using a slider, what percentage of the CPU you wanted to use. It’ll never turn on if you’re using your computer. So, if there’s any keyboard or mouse usage, it will always stay off.
And then, if you decided to turn it on, after your computer’s been idle for five minutes, it’ll flip on. It’ll run within a Java virtual machine, so it’s perfectly Sandbox processed. It has no access to your hard drive or anything about your computer. It’s just this totally separate process, and it’ll go out and get a piece of data and spend a few minutes processing it and then send back the results. And then, the computers put that all back together and solve most computing problems.
As soon as you move your keyboard or mouse, the process instantly dies so that it never affects your use of the computer. It only turns on computers that are part of a white list of ISPs that don’t have bandwidths. So, if you’re on an ISP that charges per megabyte or how much bandwidth you get on a monthly basis, it’ll never run on your machine.
Andrew: It’s a clever way to bring in revenue.
Steve: Yeah. We thought what was cool about it is it’s completely unintrusive. Rather than charge somebody or clutter the product with ads, you can do something like this. To us, being tech savvy and understanding how it works, it’s a no-brainer.
Unfortunately, some of the rumors that you would get on the blogs is that we’re stealing your CPU power, or we’ve spyware on you or anything like that. The difficulty is that it’s a complex model that the average user will have difficulty understanding, just because how many people know how grid computing works and distributed computing.
So, it’s got pros in that it’s the most unintrusive revenue model we can think of, but cons in the sense that conveying that to users can be very difficult. Most people won’t read your blog and your change log and read your Wiki and figure out how all this stuff works. So, it’s got plusses and minuses.
Andrew: What about that one blogger that said, “In order to adjust the settings, users have to go to the support Digsby menu item. And no one’s going to think that’s where the settings would be for something like this.”
Steve:
Andrew: Sorry. The connection is dropping out here. We’re going to come back in a moment. OK.
Steve:
Andrew: Sorry. Can you start that answer again?
Steve: Yeah, yeah, yeah. It was placed in a part of the GUI that supports Digsby, and there was a list of ways that you can support us. So, for example, I’ll set your home page to Google Power Digsby search or follow some Twitter. One of them is from Distributed Computing. It’s definitely a misplaced option and one of the changes that we’ll move . . .
Andrew: A misplaced option? I’m imagining this, saying how do we get people to just give this a shot before they have a knee jerk reaction and start to delete this or remove this option? The way we can do it is by not making it so obvious and so in your face. We’ll put it behind the support Digsby menu item. Not as many people are going to go back there. We’ll try it there, and then we’ll figure out what happens later.
Steve: See, when you do that, that’s how you end up with the miscommunication that ends up occurring. And once we started getting feedback from users, saying hey, this was hard to find, and it’s a check box. It’s a singular check box that’s not descriptive. I’m not sure what this does.
They’re moving into the Preferences window. It includes a paragraph that describes exactly how it works. It gives people extensive options after so many minutes of idle time, how many percentages of the CPU et cetera. And obviously, that makes it much more visible to the users. The key is that you want to make it visible but also try to educate them on what it is that you’re exposing instead of making just a check box that says, you can use my CPU.
Andrew: How monetizable is a Mac user or a Linux user? Do you have these kinds of options with them?
Steve: Because it’s a Java process, the Plura would run on all the machines and any ads within the product like the one RightStuff is there. Typically, installer bundling isn’t as common on Mac and Linux installations, so you would lose that revenue stream. But, everything else would remain intact.
Andrew: OK. Rochester, why Rochester?
Steve: Because I love the snow.
Andrew: Do you? But there’s snow in other places.
Steve: No, I’m kidding, I’m kidding. I didn’t like the snow. I’m growing to love it. I started skiing. It’s a phenomenal CS school. It’s a phenomenal IT school. If you look it up in terms of rankings, it’s one of the best computer science schools out there. So, I came just for the reputation.
Andrew: Let’s see. There’s a question here from Jesse in the audience. Any revenue share potential of any magnitude possible with the end user? So, doesn’t it make sense to give the user a percentage of the revenue that you’re making from them?
Steve: I’m not sure. I’ve had discussions about this, not with Digsby in particular, but just with startups in general with a number of entrepreneurs. It’s tough because you think in that scenario that, hey, you’re incentivizing the user and they feel like they’re getting something out of it. But with products like Digsby and Facebook and the majority of Internet products, they’d say, the revenue you earn on a per user basis is very, very small.
The only way these companies become massively profitable is by achieving on a large scale. So, if you earn, for example, Facebook. The last rumors I heard were that they were going to make a billion dollars or something like that this year. There’s 500 million users. That means they’re earning two dollars per user.
So, if they kick you back 25 percent of their revenue, which is a pretty large kickback on a percentage basis, they’re going to pay you 50 cents a year to be a Facebook user. It sounds great and in theory, but when you go through the numbers what’s the user really getting out of 50 cents? Just the credit card transaction is going to eat all that apart.
So, it’s an interesting thought. I’m not sure what the user would really get out of it in scenarios like this, you know.
Andrew: Yeah. I’ve seen a few people try it. In fact, it feels like every wave of companies or every time there’s a new trend, somebody tried to make the user revenue version of that.
I’m having such a hard day expressing myself today. What I’m saying is every once in a while there’s a company that starts to do that, and they all inevitably fail. It just doesn’t work, unfortunately. So, the best way to reward users is with virtual currency as Justin in the audience is suggesting by just giving them a great experience.
Steve: Yeah. They think the key is I think more than anything users would appreciate it if you would take that additional revenue and spend it on people would then interact with the users and gather feedback and more developers will help improve the product.
Andrew: Are you guys still cash flow positive?
Steve: Yep.
Andrew: When did you guys turn that corner?
Steve: It’s over a year ago at this point.
Andrew: OK. And so, no need for outside funding any more, just continue to build the business off of cash flow.
Steve: Yeah. We’ve got a great product. Now, we have a diverse set of revenue models. The next step is obviously scaling that as far as we can take it. With that obviously, now that we’re to that phase Mac and Linux are critical there because obviously that would help us grow tremendously. And also potentially working with strategic
Andrew: The connection just keeps working against us today. Why don’t I ask this? What’s the next revenue model, and we’ll leave it there.
Steve: The next revenue model?
Andrew: Didn’t you say you had a couple of new revenue ideas?
Steve: Yeah. We’re tinkering with placing one ad within Digsby. I think we might test that out within the next couple of releases. It’ll be at the bottom of the IM window, but in the spirit of how we’ve implemented all of our revenue models so far, it’ll be optional. So, the user can go into the Preferences and say, “turn off the ads.”
It’s not something that’s traditional. You’re never going to
. There’s a very loyal user base, and our users want to see the project through
. I think a large number of people will choose to keep them on just because they know that, hey, this is going to help Digsby development. It’ll help them expand their team. This will help them make a better product. This’ll help them get Mac and Linux out the door more quickly.
Andrew: Yeah. And you know what? I’m never really bothered by advertising. I can’t imagine that there are people who see the ad who say, “I can’t use this any more. I’ve got to go find an alternative because this ad is driving me nuts.”
Steve: From my experience generally speaking, it’s the people who are product purists, which is generally anti-ads or they just want to see the product remain as pure as possible. They see it as clutter. They want minimalist interfaces, but at the same time I think those are the people who will be clicking on the ads anyway.
So, in theory, the way we’ve been tossing this around the office is from things I’ve read, totally the 80/20 rule applies to advertising as well in the sense that 80 percent of clicks come from 20 percent of the users. So, if you make the ads optional, the people who are likely to turn them off, are going to be the ones that never click on them anyway.
So, in turn, you’re going to end up increasing your own click-through rate which might mean you can garner higher ad rates from the ad networks you work with. That’s the theory. We’ll see how it works out when we test this out in a few weeks.
Andrew: All right. Let’s leave it there since the Internet cooperated for that last question. I don’t want to screw it up. We’ll leave it there. If people want to connect with you, what’s a good place for them to connect with you?
Steve: Steve@Digsby.com would be the best way to reach me.
Andrew: All right. And I’m Andrew Warner. I’ll see you guys on Mixergy.com. Come back to the site and give me your feedback. Thanks for doing the interview.
Steve: Thanks for having me. Take care
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