Do you know any female friends who are obsessed with designer brands or designer sample sales? If you do, then it’s not difficult to understand why Gilt Groupe and other flash sales or private sales sites are so successful. Why is Gilt so golden? Gilt’s CEO, Susan Lyne, explained:

“Gilt was going to solve a problem for a lot of women I knew. How do we shop for things we love when we really can’t get out to shop the sales, the good sales, the sample sale?”

and…

…there’s no store in the world that could change its entire inventory in a night. We do that every night. Customers know they’ll see something new tomorrow.

When talking about the rise of non-tech focus web startups, besides Groupon, everyone pay attention to the success of flash sales sites, like Gilt, HauteLook, Rue La La, ideeli…etc, as they are extremely profitable. Founded in 2007, Gilt Groupe reportedly had US$25 million in sales in its first year, posted another US$170 million in 2009 (a stunning figure for a start-up), and planned to double that amount in 2010!

During its most recent round of venture capital financing, the company was valued at $400 million. And not surprisingly, with this tremendous growth rate, Gilt is planning for an IPO in a year or two.

Invitation only shopping

Inspired by a highly successful French company called Vente Privée, which sells fashion overstock, Kevin Ryan, former CEO of DoubleClick, decided to bring the same business model to the US in 2007.

His company sells high fashion at prices around 50 to 70 percent off retail. Access is invite-only, limited to friends of the Gilt community, although everyone can get an account if you ask for an invite. Their sales are announced by email a week ahead of time with most of them lasting 36 hours or until everything is sold. According to New York Magazine:

During the hour after its weekday sales kick off, between noon and 1 pm…its site is visited by an average of roughly 100,000 shoppers. For that time, it might as well be the most crowded store in New York.

Gilt is simply a viral-marketing phenomenon because they don’t really have to advertise. Instead it gets referral through users’ personal networks and offers incentives (e.g. $25 credit) to current members to invite their friends to join their community. Result: more than 2 million members and growing rapidly.

High sell through rates

Also, the site’s members are ideal for designer brands because most of them are female, young and high income. According to New York Magazine:

At a department store, a designer’s sell-through rates—the proportion of inventory that is actually purchased—might be around 65 percent over a twelve-week season, but on Gilt, several designers told me, sell-through rates can top 90 percent. Its customers buy everything.

Savior for young designers during recession

From the beginning, the company’s greatest challenge was going to be getting enough merchandise at such a low price level. Many brands worried that lowering prices will hurt their images.

And then recession came in late 2008. People predicted that a deep recession would mean the death of demand for luxuries; however, Gilt has thrived amid challenges.

As incomes tightened during recession, the fashion brands was left with a large amount of inventory. Gilt took the opportunity to suck up all those extra goods, saving a lot of young fashion designers from going out of business.

According to their CEO:

If a designer believes in six items and thinks they’re going to be really big, we’ll agree to take x number as a minimum but we’ll agree to take as many as y. If they can sell the difference at full price, fantastic. If they can’t, we’re going to buy them.

In this difficult times, Gilt offered a quick way to generate some cash flow for these young high fashion brands which operate as small businesses without their own warehouses or factory outlets.

Help designers make more money

However, besides liquidation, why would designers use Gilt if they can’t make any money?

In order to help designers make more money, the site allows members to place orders at the beginning of the seasons, purchasing items that haven’t become overstock yet. In this way, the cost per item will go down because of the increased volume which means that the designer can make more money overall.

Moreover, Gilt is demanding designers to make exclusive lines just for the site. There is a secret in the fashion industry that nobody wants to talk about – designers actually make low quality clothing specifically for sale at outlet malls, which means you could never see those items at retail. Basically, they are planned overstock, helping designers to make an extremely high margins.

Gilt wants to use the same model to expand its inventory. According to their CEO, 35 to 40 percent of Gilt’s women’s apparel will be acquired through this channel this year. Of course, Gilt nor the designers want to let the buyers know which items were made exclusive for the site because they are usually lower in quality.

Sustainability problem

Although the site is wildly successful now, their CEO believes:

This is an easy business to start; it’s a really hard business to scale.

Why? Because there is only so much surplus product in the world. As the company expands and competitors come in, it will be harder for them to get enough pipeline and maintain the quality of their deals.

As a result, diversification is crucial to the future of the company. Before their IPO, they have to prove that their model is able to work outside of just female luxury fashion products. At this moment, Gilt has expanded into multiple categories like men, children, gifts and travel deals.

Conclusion

As legendary angel investor, Ron Conways, recently said on TechCrunch:

Flash marketing, or social commerce, startups like Gilt Groupe and Groupon have “come out of nowhere” and are revolutionizing ecommerce. In three years, he says, you won’t think about Walmart, Target and Amazon when you think about ecommerce. You’ll think about this whole new wave of companies doing flash marketing.

To put it another way, we are witnessing a fundamental and systematical changes taking place in the way products are bought and sold online.

Finally, the success of Gilt has taught an important lesson that happy customers is everything. Why? Not sure if you have noticed, Gilt’s website actually doesn’t apply any Web 2.0 features, SEO tricks or SEM strategies. They just work hard to deliver a simple brand promise – you come every day and it’s new every day. Result: a huge community of loyal customers.

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If you have never heard of Groupon recently, you probably are not working in the tech industry because it is all over the blogosphere. After all, growing from zero to US$1.35 billion valuation in 18 months is pretty AMAZING.

So what are their secret weapons? What are they doing right? How are they gaining customers at such a rate? Let’s take a look.

Crystal Clear Value Proposition

Groupon’s goal is clear: help introduce people to your business. Each coupon on the site has a predetermined minimum. If not enough people sign up for the deal to take effect, neither Groupon nor the business makes any money. Groupon makes money by getting a cut of these promotions from the retailers.

According to Jeremy Liew from Lightspeed Venture Partners, Groupon went from around US$100,000 in revenue in Jan 2009 to around US$10 million in revenue in Jan 2010 – a 100X increase in just twelve months.

When many retailers are struggling to survive in this economy, Groupon has become their savior. According to Andrew Mason, Groupon’s founder and CEO, nearly all of their deals have succeeded so far. And there is currently a 120 deals waiting list in Chicago alone. As you can tell, Groupon uses collective buying to create a win-win for local businesses and their customers. No wonder so many merchants are eager to participate.

Built Virality inside the Product

Since each deal is only good for one day, it creates a sense of urgency for the users and make them feel excited.

Obviously, users want to make sure the minimum is hit. What can they do? Tell their friends. Groupon takes that social component to the next level through Facebook Connect and Twitter, inviting a user’s entire network to get in on the deal.

Their user acquisition costs? Zero.

Groupon also invested a lot resources on customer service, from our help line to quick online response to customer issues. So customers are happy and continue to help Groupon reach new heights.

Alternative to Traditional Advertising for Local Businesses

Andrew wants people to treat Groupon like “a city guide that offers promotions“. He wants to help people have fun in the city and save money using the tremendous power of group buying.

In order to do so, they have to work with retailers to create attractive deals. Like the founder said:

We help businesses navigate the new world of social media and Internet marketing in an approachable, creative way. An appearance on Groupon validates these businesses as a cool part of their community.

For local business owners, Groupon has become an alternative to traditional advertising, where they pay up front and hope for the best. In this new platform, these promotions are like a whole new form of local advertising, where merchants only have to pay for REAL result.

Moreover, because of those unbelievable prices, customers will purchase something they’ve always wanted to try but never had the chance, bringing a flood of new customers to local businesses, at least some of them will hopefully get hooked and become loyal clients eventually.

Negative Working Capital

In accounting:

Working Capital = Current Assets – Current Liabilities

It is the amount of money that a business needs to stay in business. According to Business Insider:

Some businesses have negative working capital: they get money from sales before they pay suppliers.

For companies like Walmart and Amazon, they actually need no working capital because they negotiate deals in such a way that they only pay for things after 1-3 months. Most of the time, the stuff they buy is long sold by then. And people who go to Walmart to buy stuff will pay immediately, which means that Walmart is actually sitting on a pile of cash that it really does not need. So they can pay their debt slowly or use the extra cash for investment.

These businesses basically are financed by their customers. Negative working capital is a tremendous thing to have in a business. Apparently, Groupon has a large negative working capital (4 million Groupons have now been sold already). They first charge users upfront, take a cut and pay merchants back later. This is one of the reasons why Groupon is such a great business.

What’s your opinion? What makes Groupon such an attractive investment to VC? Let us know in the comment area.

*UPDATE: One of our readers asked what caused the visit jump from a hundred thousand or so to 2 million in mid 2009.

*ANSWER: Good question! Groupon originally operated only in Chicago, New York City, Boston, Washington, D.C., Los Angeles, and San Francisco. They started to launch to other cities in mid 2009, like Atlanta, Denver, Dallas, San Diego, Phoenix and Seattle…etc, more than 20 cities by the end of 2009.

*CORRECTION: Oops! It seems my answer is not correct. Andrew, the founder of Groupon, just told us the real answer in the comment section. “mid-2009 traffic jump: we used to be groupon.thepoint.com; that’s when we changed to groupon.com”. Thanks a lot, Andrew!

**UPDATE 2: One of our readers asked how Groupon has managed to distance themselves from the pack.

**ANSWER: And he got the answer from Andrew directly on Twitter! His answer, “customer service, copywriting, etc… all the little things you put time into when you care about more than making a quick buck”.

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It seems that the rise of social networking and open source technology has helped level the playing field for startups outside Silicon Valley. As noticed by Jeremy Liew from Lightspeed Venture Partners, majority of the current fastest growth web companies, which have grown revenues over US$1 million per month within 12-18 months of launch, are from outside the bay area and many of them are focus on creative business model rather than technology innovation.

Some of these “hot” companies are:

• Playfish (London)
• Gilt (NY)
• HauteLook (LA)
• RueLaLa (Boston)
• Groupon (Chicago)
• Living Social (DC)
• Lifelock (AZ)
• Cash4Gold (FL)
• Shoedazzle (LA)
• TheLadders (NY)

Most of these companies represent what Josh Kopelman called “the future of eCommerce” (e.g. flash sales, local deals, group buying & subscription businesses). They have invested a lot of resources in marketing, sales, customer services and merchandizing. While technology is an important part, it is not the core to the success of their companies.

Lesson: technology is only part of the equation to be successful on the web.

In future posts, we will find out how some of these companies achieve such a tremendous growth.

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Early last year, Tim O’Reilly boldly predicted that the Kindle could be gone within two or three years. After the iPad announcement today, it seems that his words will soon become reality.

With the same 9.7″ display size and similar prices, it’s hard to believe anyone would pick Kindle DX ahead of Apple iPad. And the biggest weakness of Kindle is the file format. Amazon forced publishers to user their own file format which can be read on Kindle only. Basically, all your books will be locked to Amazon which is the single point of purchase.

Tim O’Reilly believes:

what Amazon seems to have missed is the important role that “free” played in the success of the iPod. People didn’t populate their iPods solely with music purchased from Apple. It was easy for them to “rip” their own CDs into the standard mp3 file format and load their entire music collection onto the device.

On the other hand, iPad is using the ePub format, the open format from the International Digital Publishing Forum which is supported by a lot of e-book readers.

In this way, Apple can play the same game with their new iBooks Store. Although there is no easy way to “rip” a book, customers can load some of their own epub-based e-books purchased from other vendors onto the iPad. So no single bookstore will take over the e-book world.

According to Paul Aiken, executive director of the Authors Guild:

Amazon is selling e-books at a loss in order to spur Kindle sales – it sells books for $10, but pays publishers more than $10 per copy. But once Amazon gets control of the market, it will be free to impose price reductions – to force publishers to reduce their e-book rates to less than $9.99.

I am sure publishers don’t want to see that happening.

Although Amazon is the pioneer in this category, it seems they still haven’t found the best way to sell digital contents effectively. They should know that if books are not shareable and controlled by one vendor, the marketplace for books will be diminished eventually.

Both Amazon and Apple want to become the nation’s largest e-book retailer. Both of them have revolutionized their own markets with amazing innovations. Who will win this battle at last? While Amazon is the leader now, I am sure Apple will catch up soon, very soon.

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This guest post was written by Bob Reiss (@bobsreiss), the author of Bootstrapping 101. Bob has been involved in 16 start-up companies. He is a graduate of Columbia University and Harvard Business School. His company R&R/Valdawn was named to the INC 500 list of America’s fastest growing companies three years in a row. Two of his companies have been the subjects of Harvard Business School cases. He is a frequent speaker to Entrepreneurship classes at many of the major business schools. He has written an earlier book on Entrepreneurship called Low Risk High Reward.

This is one chapter in Bootstrapping 101. For the introduction and table of contents, please click here.

Competition for customers in most industries is extremely intense. This is exacerbated if the customer is a large one and your product is not particularly unique or patent protected. Your customers are also in a high pitched battle with their competitors. This can be seen in your everyday life. Look at the competition in cars, retail stores, food stores, homes, computers, music, etc., for your dollar. This extends into the industrial sector and personal services.

Here are some non-cash ideas to help  you better compete.

Exclusives

If you have any type of new or unique product and no money to promote it, think of offering a key/large customer an exclusive. The exclusive can be for 30 days to a year with a performance clause for a time specified renewal. When we were in the game business, we would introduce a new game to the leading department store in each major city. We sold them on an exclusive basis for 30 to 60 days in return for their running an ad for our product at their expense. Your exclusive could be narrowed down to a particular channel. For instance, I  know of companies that gave Amazon.com an exclusive for all internet selling in return for them giving special promotional pushes for the product. Examples are running 2-day sales or pop-up ads when customers look at a related product (i.e., a wine game when a customer searches for one of their 9,000 wine books).

You could simply give an exclusive to a large retailer for buying it and putting it in all their stores: Radio Shack with 6,000 plus stores, Costco with 400+ stores, Wal-Mart with 3,000+ stores, etc. Exclusives can get you immediate orders, free ads, better position, earlier pay terms, earlier orders, etc. The result is more credibility, more cash, and brand building at no cost.

Better Service

Contrary to popular opinion, most purchasing is not based on the lowest price. Service is a key component in many buying decisions and can take many forms: shorter turnaround in shipping than competitors, customer training on your product features and how to use or sell it, friendly and knowledgeable people manning your phones, customer friendly website, dealing with problems quickly and fairly, admitting, correcting, and paying for mistakes.

One of the key factors of our success in the watch business was our service and special offers. The business was mature, highly competitive, and a me-too industry. We entered the industry with a unique novelty approach that featured artwork on the face and a rotating disk with art as the second hand. For instance, our most successful watch was a cute cat with a rotating mouse going around the dial that the cat always just missed catching. These watches were easy for competitors to copy. However, we copyrighted each design and consistently earned money from infringers. We offered two elements that propelled our success.

1. Special exclusive designs for a low minimum of 200 watches with no premium cost to the buyer. This was in contrast to large watch manufacturers who asked for a minimum of 10,000 watches. We accomplished our low minimum by working closely with a small Chinese factory, by using standardized parts, and by our willingness to break even on these orders. We knew the profit would come on the re-orders. Our low minimum allowed us to break into the world of Disney, selling to their retail stores, theme parks, and catalog division. All three wanted exclusive merchandise that could only be bought through them. Our small minimums allowed them to test all their ideas without paying a price for mistakes. We were rewarded with large quantity orders for the watches that tested well. We also rewarded small customers who supported our line with periodic exclusive designs. The result was loyalty and increased business.
2. Quick turnaround. This was and is increasingly a key component for small business success and survival. It reduces your cash commitment to inventory and likewise for your customer. It also reduces risk. You need to give a lot of attention and thought on how to realize quick turnaround. We analyzed every component used in a watch and the delivery or manufacturing time of each. We discovered the bottleneck in time replenishment was the unique printed dial on each watch. Every other component was easily available and in stock from many suppliers in China. Fortunately for us, the printed dial was a very low cost component. So we took chances and built up inventories of dials on watches we projected would sell well. The dials cost $.05 each; but in our pricing, we figured it at a $ .20 cost. This gave us the cushion for discarding unused dials.

   We shipped all our watches from China to a public warehouse in Long Island without boxes, which were printed in the U.S. Air freight is a widely competitive business, particularly between UPS and FedEx. Therefore, we eventually flew watches in for $.17 each. We also discovered that the processing of shipments through customs varied greatly by which city they entered. The net result was that we could get watch reorders within two weeks of the order while our competitors’ lead time was generally two months. This was a tremendous plus for us with our customers and reduced our cash needs.

Special Terms

Cash strapped businesses with high profit margins should seriously consider additional discounts for immediate or quick payment.

Toy manufacturers usually ship most of their products in the fall. To plan production, particularly with overseas manufacturing, they need orders early in the year. So they successfully offer a special early buy discount to their customers.

Many companies offer volume discounts or rebates. They spell out the discount earned at various volume levels. These discounts can be achieved as you reach the level or can be rebated at the end of the year. This encourages your customers to place more of their business with you rather than sharing with other suppliers.

Private Label

Many products lend themselves to be made under the customer’s label rather than your brand. The disadvantage to you is you don’t build your brand, and margins are usually lower. The advantages are you don’t need to maintain back up inventory, your order lead times are better, and you should get your payments quicker.

Your entire business should always be customer oriented. Special offers are particularly effective in building your relationship with a customer and does not drain your cash.

This is one chapter in Bootstrapping 101. For the introduction and table of contents, please click here.

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“The Mind Reader“, Steve McCallion from Ziba Design, recently wrote a series of great posts about Consumer Experience on Fast Company Magazine.

Steve argues that entrepreneurs are always looking for a silver bullet or killer app but forget that orchestration can also create significant value to their customers. According to Steve:

In an orchestration it’s the collection of things that create value, not necessarily the things themselves. It’s not the individual notes in the song, but the collection of those notes. When creating meaningful experiences, it is often this orchestration that is the primary source of value creation.

By innovating the user experience using a “metaphor”, a collection of products and services together can help your business win in a competitive market. Steve believes:

A metaphor creates value by transferring associations from a previous experience to a new one. It functions as shorthand to help people understand the offering and what it means in their lives.

So how can you use “metaphor” as the silver bullet or competitive advantage for your company?

Steve gaves us some good examples in the offline world. These companies redefined their respective categories by leveraging the power of metaphor to create a meaningful experience for their customers.

A lot of the products selling in these companies are obvious and shared by other competitors (may be except for Apple). However, orchestrating the obvious around a metaphor helped them become winners in their industries.

Can we do the same on the web? I think so. Below are a few examples of online businesses which understand the power of metaphor.

Do you know any other web businesses using the power of metaphor? Let me know in the comment area. Thanks!

I find this idea very similar to the concept of “Those little ladders in your head” in the classic marketing book – “Positioning” by Al Ries and Jack Trout.

The authors believe our mind will reject new idea that is new and different. It accepts only that new information which matches its prior knowledge or experience. To put it another way, if your product is truly new, you should look into the mind of the potential customers to see what mental images already exist and then select one you can tie your product/company into. Using a metaphor is a good way to do so.

Did you pay too much attention to find a silver bullet or create a killer app for your company? Have you make your business meaningful to your potential customers using the power of metaphor? Never ignore the obvious.

Photo source: steve xavier @Flickr

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Just read an excellent article on McKinsey Quarterly called, “Managing beyond Web 2.0” by Donna Hoffman from the University of California, Riverside.

According to Donna, today’s customers have become both producers and consumers of their own content and services. People are more interested in reading other consumers’ experiences than the advertising messages promoted by your marketers.

While many giant corporations choose to ignore this phenomenon, smaller companies should learn how to take advantage of it. It is true that these Web 2.0 “conversations” are full of noise and difficult to track. Yet if you can become good at managing and monitoring these new consumers’ online behavior, it will be your new competitive advantage.

In order to do that, Professor Hoffman suggested companies to use the LEAD (listen, experiment, apply, develop) model, a management strategy developed by the Sloan Center for Internet Retailing for Web 2.0 and beyond.

Let’s look at what online applications can better prepare your companies to utilize this effective model.

Listen (Monitor)

Consider the tweet below as an example:

If a Sprint customer service representative saw this message and helped this customer to solve his problem, this could be a strong boost to their PR. Consequently, monitoring and analyzing customers’ conversation can be a early-warning system for your company.

If you choose to ignore customers’ opinions these days, it is not unusual to see negative comments about your company all over Twitter, YouTube, Blog posts, and even mainstream media.

This reminds me the latest saga between TechCrunch and Twitter. I wonder how much the TechCrunch’s brand was hurt by this unfortunate event.

To avoid this happen to your company, below are some useful tools for monitoring social media:

1) Viralheat (link)

Position: Affordable social media measurement product

Platforms: Nearly 30 video sites, the web and Twitter

Features: Real-time stream of topic mentions between blogs and websites. Delivering analytics that help you optimize your company’s outreach and engagement on social media platforms. Daily email alerts…etc.

Clients: Include Coca-Cola, Tivo, U.S. State Department, Weber Shandwick, Nokia, Hilton Hotels, HP, and Microsoft.

Cost: Starting at $9.99 per month

2) Peashoot (link)

Position: Quick & easy way to manage social media campaigns. Clean and simple user interface.

Platforms: Twitter only

Features: Audience Builder automatically follows people on Twitter who are relevant to you or your company. Measure ROI – tracking how much of your website’s sales are generated from you posting links on Twitter. Set & track campaign’s goals. URL Shortening. Real-time Click Map. Google Analytics Integration…etc.

Clients: Include Tokyo Art Beat and 24seven.

Cost: Starting at $17 per month

3) Scout Labs (link)

Position: Designed for Agencies. Finding signals in the noise of social media to help teams build better products and stronger customer relationships.

Platforms: Blogs, forums, social networks, image-sharing sites, video-sharing sites and Twitter

Features: Persistent searches for your monitored keywords. A collaborative space for you and your extended team (unlimted users). Monitor important Tweets, blogs, photos and videos all in one place. Sentiment analysis – assessing the tone of a post. Get support from a live human via email or phone…etc.

Clients: Include Netflix, razorfish, Zippo, loopt, StubHub, eBay, AKQA…etc

Cost: Starting at $99 per month

4) Other Alternatives

For larger corporations, you can consider Omniture and Buddy Media as well. If you only want to find out what people are saying on Facebook only, try Facebook Lexicon. Looking for a simple & free monitoring service in the beginning? Google Alerts would be your best choice.

Experiment

After getting all this information, you have to run some tests to find out the meaning behind it. Since there are not any best practices in the market yet, the only way to do this is through good old-fashioned “trial and error“. However, Professor Hoffman also reminded us that:

Unless you have Web 2.0 experts on your team, stick with small experiments, since big ones can fail badly.

The goal of experiment is to engage with your newly empowered customers. If you see a blog about your company, make friend with the blogger. When someone talks about your brand on Twitter, follow that user letting him/her know that your company is on Twitter, too. If you think your targeted audience is on Facebook, go make a Facebook Page to start the conversation with your fans.

To achieve greater customer awareness and brand engagement, you should create your company’s own social channels to foster communication between you and the users. Below are a few site helping you to do so:

1) WordPress (link)

Why: Creating a company’s blog has become the most basic and essential way to communicate with your customers nowadays and WordPress is the best blogging tool.

Benefits: Highest quality. Huge community around this product. Large amount of widgets and add-ons. Integrated stats system. The world’s best comment and trackback spam technology.

Clients: CNN’s Political Ticker; Dow Jones’ All Things D; Time Inc’s The Page; People Magazine’s Style Watch; and many more.

Cost: Free

2) Ning (link)

Why: Fast and easy way to create your own social network, a 100% company-controlled community.

Benefits: Allow you to create features such as photos, videos, chat, discussions, and groups; Customized visual design and themes…etc.

Clients: CNN’s Political Ticker; Dow Jones’ All Things D; Time Inc’s The Page; People Magazine’s Style Watch; and many more.

Cost: Free (not include Premium Support)

3) UserVoice (link)

Why: Capturing feedback and ideas across your whole customer base with ease. Help you turn customer feedback into action.

Benefits: Seamless integration with your brand experience, with the popular “feedback” button on the side and single sign-on system. Analytic tools. Private forum…etc.

Clients: MySpace, Sitepoint, Sun Microsystems, zynga, cafepress…etc.

Cost: Starting at $19 per month with Free basic account.

4) Widgetbox (link)

Why: Turn your content into widgets. Help you reach new users across the web.

Benefits: Support for rich media. Feed-based content makes it easy for your users to stay up to date. Simple to build. Work on multiple platforms…etc.

Clients: Perez Hilton, PopSugar, CNN, Dunkin Donuts…etc.

Cost: Starting at $3.99 per month with Free basic account.

5) Other Alternatives

If your company is selling physical products, make sure you have listed your products on social-shopping sites, such as Polyvore, Kaboodle, Stylehive, StyleFeeder and ThisNext. These are good places to find out users’ comments about your products as well. Looking for more users’ feedback? Try blippr.

Apply

After you have learned the users’ online behavior, you need to optimize your web site and content so that they can be shared on every social media sites. Also, you need to have analytical tools to track the results of your experiments.

You may want to try some of the following tools:

1) ShareThis (link)

Why: Simply click the ShareThis button for instant sharing on every social media sites.

Benefits: Work on multiple platforms. Strong reporting and analytics. Find out what people are sharing and how. Learn more about your traffic and where your content is going…etc.

Cost: Free

2) Google Website Optimizer (link)

Why: Test and optimize site content and design. Quickly and easily increase revenue and ROI.

Benefits: A/B split & multivariable testing. Intuitive graphical reporting interface. Required minimal IT support, giving you greater control, flexibility, and speed. Increase your site effectiveness and visitor satisfaction…etc.

Cost: Free

3) Mixpanel (link)

Why: Improve company by tracking how users engage with your website in real-time

Benefits: Real-time analytics, Funnel analytics, Visitor retention, Custom event tracking, API to get data out…etc.

Cost: Volume pricing with Free low volume account.

4) Other Alternatives

If your content is good and relevant to the users, you should submit your content to social news sites, such as Digg, Stumble Upon, Reddit, and Mixx. If you want a simple shorten URL tracking tool, try Su.pr and Bit.ly.

Develop

Today’s web strategy is much more than a simple company’s web site. There are so many tools helping you to integrate social media into your marketing campaign. Google paid ads may be good for ROI; however, they can’t create greater brand engagement.

Advertising was a one-way communication. In Web 2.0 era, advertising should be interactive marketing programs generating conversation with customers.

If you don’t have social media experts in your team, it is hard to create this kind of marketing campaign yourself. Below companies may be able to help you:

1) Buddy Media – App-vertisements (link)

Why: Develop cross-platform, engaging and viral social application to promote your brand.

Benefits: Drive unprecedented loyalty and exposure of your brand…etc.

Clients: FedEx, InStyle, HBO, Busch, intel, SeaWorld…etc.

2) Medialets (link)

Why: Specialized in mobile ads. Take advantage of the iPhone’s accelerometer to add motion to advertising.

Benefits: Bring together voice, interactivity, video, and text in your ads. Typical iPhone users are social influencers apt to share experiences with peers. They are highly engaged trendsetters as well.

Clients: Levi’s Dockers…etc.

3) Other Successful Examples

Hang in there Jack – brilliant social media marketing campaign using Twitter, TV, Facebook, Blog, YouTube, Widgets…etc. In addition, viral videos, such as Evian Roller Babies, could be very effective, too

Conclusion

Like Professor Hoffman said:

Bottom line: by focusing on the fundamental aspects of the consumers’ online behavior— not just current best practices—companies will be better prepared when Web 2.0+ morphs into Web 3.0 and beyond.

If you want to learn more about latest management strategies on the web, I strongly encourage you to follow Professor Hoffman and @MckQuarterly on Twitter.

Photo source: caffeina @Flickr

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This post is inspired by the webcast of Jamse Hong at Mixergy.com. This video interview is about how James Hong and his co-founder, Jim Young, bootstrapped HOTorNOT to over $5 million in annual profits. If you are into entrepreneurship, definitely check it out. You will learn a lot from it.

During the interview, James mentioned that a lot of social networking related sites, such as Facebook, MySpace, Slide, Digg…etc, using “User-Selected Content” to increase user engagement. Not sure if James coined the term himself, but I couldn’t find much information about this topic. So I decided to do some research on it.

(Update: James told me on twitter that the term “User-Selected Content” is actually coined by him. Thanks James!)

What is User-Selected Content?

User-Selected Content basically is a feature inside a user-generated content or social networking site. Using this feature, the users don’t have to create the content themselves. They just have to choose from a library of content in order to create an event between members easily and quickly.

Benefits

It drops the bar for what it takes to generate user content for someone else to view. It encourages more interaction and conversation between users. Like James said, the easier to do, the more it’s going to happen.

Content and conversation are still two of the most important things on the web today. So if you want to grow your business, you better understand how your competitors are taking advantages of this feature.

Below are 5 examples of sites using User-Selected Content:

1. Facebook

In the early days, everyone loved to POKE each other on Facebook. You poke your friends and they will usually poke you back. Sometimes you don’t really know why you want to poke your friends but it is fun, it is an interaction and it is an easy way to get in touch with friends.

By using this feature, you don’t have to write anything to let your friends know that you are thinking about them. You don’t have to call them and you don’t have to think about what to say beforehand. Just have to click “poke’.

Later on, a lot of applications, such as SuperPoke!, Hug Me, Free Gifts…etc, and Facebook’s feature, such as Like it and Become a fan, are also using the same concept to promote activities between users on Facebook.

2. Slide

The popular Slideshow by Slide is another great example of using User-Selected Content. Members just have to choose pictures from their own computers and upload them. The site will then help you make a beautiful photo slideshow that you can showoff to your friends on Facebook, MySpace, Bebo, Friendster…etc.

The users can choose from a library of preset designs or choose their own styles, themes, music, background and special effects. Just to make their photos look nicer. If you ask people to create this kind of photo slideshow in Adobe Flash? It will takes days, weeks or even worst; most people will just give up. Without these widgets, all the content you can see on MySpace will be text and static photos. You think young kids will stay on such a boring site for a long time? I don’t think so.

3. Polyvore

Polyvore may be an under the radar startup. Yet if you check out their traffic in the past few years and their management team, you will be AMAZED.

I will say their whole site is 100% based on User-Selected Content. Their users can mix & match products from their favorite stores and brands, making their pages like a scrapbook. So the community members are able to find out the latest hot trends, brands, and celebrity styles.

Their easy to use, drag and drop editor helps people create sets composed of individual images. After that member can publish and share their creative and stylish sets with friends and the Polyvore community. Just think about this, the users just have to pick from some pre-upload and pre-edited images in order to participate in the community. They don’t have to search for the product images on the web and they don’t have to edit the pictures in Photoshop. The site has already done it for them. Everyone has an equal chance to make a unique and beautiful set of images. You know how long does it take just to clear the background of a product photo? No wonder their members are so passion about this site. What a brilliant use of User-Selected Content!

4. Last.fm

Besides fashion industry, User-Selected Content can be used in the music businesses, too. Last.fm is a music service, acquired by CBS for US$280m in 2007, that lets users discover new music they like, based on the music they already listen to. In other words, the site will learn what music their users love.

Using a music recommendation software called “Scrobbler”, Last.fm builds a detailed profile of each user’s musical taste by recording every songs the user have listened to, either on the streamed radio stations, the user’s computer or portable music devices.

Therefore, this “Scrobbler” application is the core portion of their User-Selected Content feature. Scrobbling a song means that when you listen to it, the name of the song is sent to Last.fm and added to your music profile. You can shift a song’s ranking on the site just by listening to it on your own computer. Just like what you would normally do. Users never have to change their habit or preference. Moreover, that particular song will be recommended to other users and they will know that you have listened to it. As a result, the site automatically connect you to other community members who like what you like.

Simple and easy! You listen to a song, the User-Selected Content, and the site will tell you which members have similar style and musical taste. So you can easily start a conversation with them because you already know what they love.

5. Club Penguin

Believe it or not, every action on Club Penguin is User-Selected Content. That’s right. You won’t be able to send a customized message to your friends or upload any content to the site. Members have to select conversation phrases from a pre-defined list. Club Penguin calls this the “Ultimate Safe Chat” mode. In this way, the children could never reveal their personal information and there won’t be any inappropriate talk.

Despite this limitation, the company has created many communication methods so that their members can play and talk with each other with ease. For example, you can send a postcard to other members if you want to tell them they are your best friends. Or players can express their feelings with emoticons, such as a happy face, a sad face, angry face, winking…etc. If you don’t know what to say sometimes, you can simply throw a snowball to others or choose the dancing action to draw attention.

Not interested in such a site? Me neither. However, the rapid growth of Club Penguin, with over 12 million user accounts, suggests that it has already achieved considerable success. With such a targeted audience and safe environment, it’s no surprise that the company was purchased by The Walt Disney Company in August 2007 for the sum of US$350 million.

Conclusion

So do you believe in the power of User-Selected Content yet? If you want to increase user engagement, make sure you have created features that make it quick and easy to facilitate dialogue between users just by pointing and clicking. Yes, make it so easy that a cavemen could do it.

Photo source: dreaminhealey, zen, Dan Eriksson, calperniaaddams @Flickr

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