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Backpack was originally a personal organizer. Recently 37signals added some new features and changed the focus of Backpack to a company Intranet.

When 37Signals released more information about the changes to Backpack on their blog, the feedback wasn’t all positive it was mixed bag.

Now why would 37Signals change the focus?
Dont know? Read a previous post for a hint.

Think about it, if they change the focus of Backpack from a personal organizer to a company intranet they can charge more for it.

People will pay for a web service if it helps make them money.
A personal organizer, while useful, won’t help you make money. A tool that helps your company will.

Before the change Backpack had 3 plans, and charged either $5, $9, or $20 per month.

Take a look at their new fee schedule.

Would you pay $49, $99 or $149 for a personal organizer? Probably not. Would you pay that much if you used it as a business tool and it helped you make money?

Ofcourse.

Digg started out focusing on technology news. They had to grow so they did the obvious:

• they expanded the news section
• and they added community features.

Alot of sites add community & social networking features, even if there is no need for them. Why… because an active community increases a sites stickiness. An active community = $$$

Why expand the number of news sections?
Mainstream news = potentially larger audience. The Digg formula works just as good for non-tech news so why not try to transition from the tech niche to mainstream news.

Ok now Digg has expanded their news section and they’ve added community features. These additions have been a success. Digg is a success, so whats the problem?

• Digg has peaked. The expansion of news sections and increased community features where no brainers, those additions where inevitable. There’s no more obvious features that Digg can add that will have a large impact on its traffic.
• Plus bigger isn’t always better. I preferred the focused tech content provided by the tighter 2006 community than the current diverse content on todays Digg. That is, at this point I think that the more users Digg has the worse the quality gets.

I wouldn’t be surprised if Digg was aggressively being shopped. It looks like it peaked, what do you think?

REVERSAL- Why it may make sense not to sell Digg yet
Digg probably won’t need to raise any more money. Since Digg’s advertising partnership with Microsoft there may not be an impetus to sell.
Also if you take the point of view that generally over time the value of an asset will increase (eg real estate) it may be worth holding out for more money.

In a nutshell:

• Improve hotmail. Regardless of what it costs get Jason Fried on the job.
• Buy promising web apps, especially if they are leaders in their space. Youtube and Myspace have justified their lofty valuations. Don’t lose out on any more market leaders.
• Start Fresh. Create a new online division. Create 10 teams with a start up mentality. Get them cranking on web apps that excite them

More detail:

Savvy web users are using Gmail over hotmail. Hotmail needs a makeover. Get Jason Fried of 37signals on the job. He has mastered interface elegance and simplicity.

Jason’s first goal is to develop a new clean look and feel for hotmail. Hotmail appears old and dated. If you don’t own a web app you’ll be amazed know how many people sign up using Gmail address’s.

The new hotmail will become the hub for all of Microsoft’s new web apps. All of Microsoft’s apps should be listed on hotmail and users should be able to login with 1 click.

For under 2.5 billion Microsoft could have owned all of the following:

• Youtube 1.65 billion
• Myspace 580 million
• delicious 10-15 million
• reddit
• stumbleupon 75 million
• feedburner 100 million

That’s quite the portfolio. All for under 2.5 billion and considerably less than the 44 billion bid for Yahoo.
As a bonus you lose the bloat and redundancy that comes with a purchase of Yahoo.

While they missed the boat on these app/services they should make sure they snap up the inevitable new ones that pop up.

And how about creating some web apps on their own? Microsoft has the resources but it looks like they have lost their way.
They need to rekindle their long gone mean lean spirit. Create some autonomous teams and let them have at it.

When you have money life is easier. Its no different for companies. Microsoft has the money.

They just need a plan.
In addition, they need to execute their plan without the burden of mass that comes with a company their size.

REVERSAL: why this won’t work

Most web apps don’t make any money. There’s no point buying these apps unless they make money or unless Microsoft can turn them into loss leaders.
If Microsoft doesn’t improve its search and contextual advertising they wont be able to efficiently monetize their web apps.

Cable TV is on the decline. Look at you, you have some free time, you’re not watching Cosby show reruns, you’re on the net.

On the Decline. All networks evening news viewership.

Cable companies need a bigger presence on the web. What should they do?

One of them, lets say NBC, should build a youtube competitor. Lets call it “NewTube”.

You can’t just launch a competitor and expect it to be successful you need a differentiator. So whats so different about NewTube?

NBC should create a daily/weekly program that shows videos from “NewTube”. Now users have an incentive to post. No other video sharing application can get your clip on TV.

There’s a lot of video out there, people want to show it, they want an audience. That’s one of the reasons they post to Youtube in the first place. They know youtube has a massive audience compared to the second best video sharing site (whatever that is).
Give people a chance to have their content on TV and that changes the game.

REVERSAL: why this wont work

• There’s not enough incentive. Being on TV is no big deal. Maybe people wont care to have their clips on TV
• Not that many people will watch a show of video clips on TV
• Youtube is so far ahead that it cant be caught.

What do you think?

1. Improve your search results. Heres a quote from Satya Nadella, corporate vice president of Microsoft’s search and advertising platform group. “The crux of our problem is how do we get existing searchers to use it [Microsoft search] more”. Is Microsoft that out of touch?

Its search division should be concentrating on providing more relevant search results period.

The live.com search results… suck; I rarely find what I’m looking for.

If the search results improved then people would naturally gravitate toward Microsoft live search.

For the user there is no cost involved from switching from Google search to another search engine. If Microsoft provided a better search engine then people would use it over Google.

This should be the number 1 priority of Microsoft’s online division: Improve their search engine so that it provides more relevant results. These results must be equal or better then Google’s.

Microsoft can get away with having equal results because their search bar is more ubiquitous than Google’s.

2. Grab Google by the jugular. Google is Microsoft’s biggest rival in the online space.

Google derives a very large chunk of its revenue from advertising.

In the second quarter Google earned about 3.8 billion in revenue, of that only 30 million didn’t come from advertising.

So Google’s revenues are vulnerable since they aren’t diversified.

Google’s revenues come from ‘adwords’ [displaying ads on Google’s network of sites] and adsense [put ads on other content providers sites and sharing the revenue].

Microsoft needs to attack adsense. Consider adsense a loss leader and give 100% of the cost per click revenue to the content provider. Google gives around 60-80% of the cost per click to the content provider.

Ok, but content providers still wont switch to Microsoft version of adsense because 100% of the Microsoft’s cost per click will in almost all cases be smaller than 60-80% of Google’s cost per click. Microsoft doesn’t have the inventory of ads to generate higher CPC rates.

So before they take on adsense they really need to increase their inventory of ads and take on Google adwords. And how can they realistically compete against adwords? Well they cant unless Microsoft improves their search results.

See #1 above. Its crucial that Microsoft improve its search. If their search improves to googlesque standards then other aspects of their online business will fall into place, as opposed to their current situation of looking busy without making real progress.

So Kevin Rose just unveiled his latest web app: Pownce. Based on his past success Pownce immediately gets picked up by Techcrunch, and ofcourse makes the frontpage of Digg with 1600+ diggs. Lets not forget the trickle down effect as the rest of the blogs pick up on this story.This is immediate and free traffic to Pownce. Isnt it nice to have a rush of traffic the instant your app launches. Every web app developer would pay large coin to get this type of advertising and coverage.

Now Im not debating whether a web app should get reviewed based solely upon the past success of its founders. Im illustrating that a web app *WILL* get reviewed based upon the past success of its founders.

Pownce began as Leah’s project. Clearly it would not have received the initial instant press without Kevin’s name behind this.

If you’re developing a web app keep the following in mind: For your web app there is very little middle ground between failure and success. That is, either your web app will be a bitter failure, or it will exceed even your lofty expectations. If you build a successful web application your next project will have an immediate leg up on other web apps because of the free advertising you will receive based upon your past success. So if you can cross this chasm congratulations you’re a made man. Things get easier not harder, your app should get instant press and funding.

There are pros and cons to every language and framework. We’ve already heard alot about the positives of Ruby on Rails, here are some cons. These comments were made by Alex P. a twitter developer.

All the convenience methods and syntactical sugar that
makes Rails such a pleasure for coders ends up being absolutely
punishing, performance-wise. Once you hit a certain threshold of
traffic, either you need to strip out all the costly neat stuff that
Rails does for you (RJS, ActiveRecord, ActiveSupport, etc.) or move
the slow parts of your application out of Rails, or both.It’s also worth mentioning that there shouldn’t be doubt in anybody’s
mind at this point that Ruby itself is slow. It’s great that people
are hard at work on faster implementations of the language, but right
now, it’s tough. If you’re looking to deploy a big web application
and you’re language-agnostic, realize that the same operation in Ruby
will take less time in Python. All of us working on Twitter are big
Ruby fans, but I think it’s worth being frank that this isn’t one of
those relativistic language issues. Ruby is slow.

These comments shouldnt discourage people from using Ruby On Rails, when your as popular as Twitter every language and framework is going to run into problems. However, its always good to stay informed and know about the issues other developers are facing.
Read the whole interview via radicalbehavior