what powers the tectonic shifts that create these earthquakes? Distribution and conversion. Success or failure for internet businesses is dependent on these two metrics.

Distribution is how businesses acquire new customers. Conversion measures how successful a business is at optimizing the user experience to achieve specific goals

Every few years within the consumer ecosystem, new waves of distribution open. Businesses experiment with and exploit these emerging distribution channels, and then these avenues of growth become crowded and far less attractive for new entrants.

Google, Facebook, and Amazon serve as a triopoly that dominates online advertising. The three accounted for 90% of US digital advertising in 2020, up from 80% in 2019.

Most companies that have reached mass scale without substantial paid acquisition are messaging companies that are inherently viral, such as Whatsapp, Snap, Discord.

distribution alone is not enough. Distribution without conversion is like being eight feet-tall on the basketball court but missing every layup.

Monetization is the end result, whereas conversion is a business’ never ending art and process of deepening and optimizing engagement.

Startup founders often fetishize monetization, when really, the focus should be conversion.

Distribution tactics:

1. Virality via social proof

Social proof is a well-observed consumer behavior where people mirror the actions of others in an attempt to reflect correct behavior for a given situation.

we trust in groups of people and friends, and want to emulate behavior that we feel is validated by others.

2. The Etsy Effect

Driving discovery is one of the hardest parts of building an audience of engaged consumers, as consumers are often tempted to only engage with the original seller that referred them

If users understand that they can be discovered on the platform, it drives loyalty to the platform and creates brand equity.

3. Influencers enable disintermediation of the social media superpowers

By tapping into the audiences of influencers, which serve as a highly fragmented distribution channel with more opportunity for exploitation. It is not trivial to scale influencer marketing, but the upside of low cost customer acquisition is usually worth the hard work.

Gymshark became the brand for those interested in working out like those influencers. Celebrity influence + social proof = one of the fastest-growing fitness brands in history.

The less mature a platform, the more opportunity for low cost distribution hacks. We encourage companies to constantly experiment with newer less crowded platforms

4. New platforms

New platforms = new opportunities. There are two different flavors of new platforms: 1) mega platform shifts, and 2) breakout individual platforms that aggregate consumer eyeballs and become new distribution channels.

For the past 10 years, we’ve been in the Internet broadband paradigm, with no new mega platform shifts. It is possible we are on the cusp of experiencing another mega shift. It isn’t yet clear, but new platforms could include IOT or voice devices like Amazon Alexa, autonomous or connected vehicles, and blockchain technology

These mega platform shifts give rise to new distribution opportunities as well as net new business opportunities. Analogous to consumer earthquakes, these shifts are few and far in between and less predictable.

Just as Zynga piggybacked on Facebook, startups should exploit emerging platforms’ features for distribution.

5. Group purchasing

GPOs (group purchasing organizations) allow organizations to pool their purchasing volume to negotiate discounts.

users are incentivized to share deals with their networks to secure discounts, while merchants benefit from streamlined supply chains and aggregated deliveries.

6. Niche markets unlock massive markets

By building for niche, often underserved communities, startups can create world-class experiences that “wow” a specific vertical and spurs liquidity and organic growth (word of mouth is free!)

There is a growing belief among investors that most Reddit communities with at least tens of thousands of members have the potential to be turned into a discrete product. We tend to agree.

7. Standing on the shoulder of giants

some startups can find opportunities to exploit a wide variety of large incumbent platforms for cheaper distribution. Often, this strategy works best when there is some sort of privileged relationship with the giant platform.

there is risk of platform dependency. However, in many cases, if the company is able to grow quickly enough, that platform dependency grows irrelevant; as the company generates cash flows, it can dedicate resources to other customer acquisition engines

8. First order irrational, second order rational (h/t Chris Paik)

the idea that a company can disrupt a market by doing something that seems completely irrational at face value but has some second order result that is extremely beneficial to the company and creates an exceptional business model.

The key is how well and how long a company can take advantage of the “irrational” move, and being one of the first to take advantage of the strategy.

9. FOMO and the Velvet Rope

FOMO is a powerful social motivator, especially in a world where it is increasingly easy to observe the behavior of your social network on social media. Companies are successfully leveraging FOMO by limiting early usage

The invite system is a powerful use of FOMO since it implicitly leverages social proof; invite systems demonstrate to potential users that their friend is using a product.

Conversion tactics 2.0

1. A/B testing

2. Auctions

Auctions play into the human desire to compete for scarce goods and resources.

Auctions create a highly engaging experience by combining competition with the incentive for users to constantly observe the behavior of others in order to make buy/not buy decisions.

3. Entertainment as conversion

Many successful livestream experiences include some element of gamification or surprise

4. Community-driven conversion

Users share a live, synchronous experience that they can then share with other users—this increases the motivation to start and stay highly engaged during classes.

Monthly users are grouped into small cohorts that work through course materials together in a synchronous and asynchronous month-long experience, sharing updates, feedback, and support with one another.

5. Gamification

Implementing gamification strategies in non-game settings can be powerful. Components of gamification include points and badges, leaderboards, meaningful stories/narratives, avatars, and teammates.

6. Gambling psychology

Almost every well-known consumer social feed leverages the concept of gambling; when users refresh, they get a whole new set of content, which is the equivalent of spinning again on a slot machine.

7. Scarcity

Scarcity is a subset of FOMO, and is also a well-worn conversion strategy.