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Designing Social Games: Q&A With John Earner, VP Product Management at Playfish

2009-07-20T14:45:07Z

Playfish has earned its reputation as one of the leading developers of social games for Facebook, MySpace, and the iPhone by consistently producing high quality and refreshingly creative games that resonate with millions of players around the world. While a lot of developers are focused on monitoring the latest hits on the Facebook gaming charts, Playfish often takes months to develop each title. Most recently, Playfish has released Restaurant City, perhaps the best Playfish title to date, and Crazy Planets, which went live just last week.

We spoke with John Earner, VP of Product Management at Playfish, to learn more about how the company designs and builds its games.

[Inside Social Games] Thank you for taking the time to talk with us. Let’s start by taking a look at things at a high level. How do you manage the design and production processes at Playfish?

[John Earner] Our goal at Playfish is to change the way people play games. We are passionate about making fun, social experiences that everyone can enjoy. Social games are all about the emotions and interactions friends share together. The most important thing for us when designing a game is allowing friends to have a fun time together. To get that done with each new game, we are organized into small, talented studios. We have a collaborative approach. Whether it’s programmers, artists, designers, or product managers, everyone influences the game’s direction. There is an initial development phase and a live-operation phase. Once a game launches, we add player feedback and analysis into the process but we never cease to be creatively driven. We always focus on delivering a lot of value and fun to players at every point in the process and with every decision.

[ISG] How do you decide which games ideas to move forward into production?

[JE] We have a really long list of games we’d like to get around to making. Everyone in the company can contribute ideas. Having teams in three different continents really strengthens our creative process and the variety of games we are able to create.

[ISG] What does your production lifecycle look like?

[JE] With social games, the production lifecycle is continuous. It varies by game but generally takes us a few months to get to launch stage at which point the work is just beginning. We continuously enhance and update our games to keep players engaged and having fun for weeks, months, and years.

[ISG] Let’s talk about the latest Playfish game, Restaurant City. What gave you the initial idea of this social restaurant concept?

[JE] We knew we wanted to do a cooking themed game. It’s a universally appealing genre that has enjoyed a lot of success on other platforms. And the team was passionate about making the game, which is incredibly important. We started out with a game concept focused on preparation of dishes via various mini games, such as chopping up vegetables, stirring, that sort of thing (think Cooking Mama).

We added the restaurant management component to make the game more social. We decided to drop the mini games and focus on the management and expressive elements of the game based on feedback from a few early builds. That aspect really added a much more fun social experience that we enjoyed more. It also gave us more opportunity for expansion over time.

[ISG] We can see some influences from The Sims as well. What features are you planning on rolling out next?

[JE] One feature we’ll be launching very soon is the addition of drinks to the menu. Players will be able to select which drinks they serve. We are basing our list of drinks on a lot of player feedback. We have other cool features coming soon too.

[ISG] Quick aside: Why the heck can’t I put a door on my bathrooms?! Suffice to say, I’m hoping for that feature soon. It’s always bothered me.

[JE] Because social networks are all about sharing. Just kidding! It’s a technical issue that we are working on.

[ISG] {laughs} Has there been any thought as to having design elements such as the décor and uniforms play more than just the aesthetic role? And what about dishes, etc?

[JE] Upgrading your dishes will give you more points per dish served but décor is just that: for decoration. The idea is to allow players to decorate their restaurant as they see fit. It’s an expressive decision to go for a lobster shack or tiki lounge. Not a competitive one.

[ISG] So how do you usually determine what stays and what goes? What were some of the ideas that got left on the cutting room floor?

[JE] No good ideas need to be left out in a games-as-service model. We can keep updating and adding features for as long as we like. It’s just a matter of setting priorities and keeping a roadmap. We launch the game when enough of it is in place that everyone in the company is really enjoying it. When office productivity starts going down because of the game, it’s ready.

[ISG] You certainly do a tremendous amount of work post-launch based on user feedback. We have all seen the deluge of requests and suggestions that flood games like Pet Society. What’s your process for incorporating this feedback into your design cycles? Also, out of curiosity, what is the most outlandish piece of feedback/request you’ve seen?

[JE] Yeah, it’s a deluge but the outpouring of interest is gratifying. Finding the balance of what feedback to listen to is something we are continually working on. We broaden our sources of player input as much as we can to make sure we are listening to everyone. We closely follow our forums. We conduct surveys. We play our own games constantly. And we look at the data.

As for funny player feedback, there’s a lot! My favorite example is from a player on the Pet Society forums who kept making up stories about rare items you could get in the game that didn’t actually exist. But they were really good items so we would take each new idea of his and actually add it to the game.

[ISG] Many would consider the style of play from Restaurant City to be very similar to Pet Society. How similar are the audiences for each game?

[JE] We focus on the player. Each game attracts a large and distinct group of people. Both groups enjoy expressing themselves and interacting with friends, but in a different context. Both games have a promising future and both, in the grand scheme, are just getting started.

[ISG] Can you share the monthly user and ARPU/ARPPU data you’re seeing?

[JE] Pet Society has more than 12 million monthly active users (MAU’s) and celebrates its first birthday in August. Restaurant City has already attracted more than 5 million monthly active users since its launch in late March. We don’t share revenue numbers but I can tell you that Playfish is substantially profitable.

[ISG] If you had the chance to start all over with Restaurant City – or any other Playfish title for that matter – what would you do differently?

[JE] We are constantly learning and improving every facet of our business, from how to launch a game, what kinds of features are the most fun, to what business models are most effective. Our model lets us adapt and start over each week. If players love something, we do more of it. If something doesn’t work, we roll it back.

[ISG] Two more questions. Most important, what is your favorite Playfish game thus far, and why?

[JE] My favorite game is Pet Society. I like it because it looks so simple the first time you play it but becomes a huge open ended sand box once you get into it. Some people play it because you can use all the items like Lego bricks to make whatever you want. Others play it as a way to send meaningful gifts to their friends. Still others are there for the collector community. I play it as a great way to stay in touch with my Mom. For the two of us, Pets is like email, but better.

[ISG] Well, thanks again so much for talking with us. Before I let you go, are there any final thoughts you would like to share with ISG readers?

[JE] We’ve recently launched a new game: Crazy Planets. Check it out!

Why Zynga Is Worried about Playfish

2009-07-19T17:57:18Z

When I wrote my BusinessWeek column on Zynga a while back, every venture capitalist in the Valley told me that Playdom was the company’s biggest competitor.

After all, it competes game-to-game, with similar mob-style and poker games, and was said to be doing the same revenues as Zynga with much higher profitability. (As my column pointed out, Zynga’s revenues are more like double Playdom’s—and since I’ve heard the discrepancy is even greater.)

As you’d expect Zynga’s CEO Mark Pincus pooh-poohed Playdom as any sort of threat. But tellingly, he said the company he was worried about was UK-based Playfish. So, while I was across the pond, I decided to see what the fuss was about and sat down with Playfish’s founder and CEO Kristian Segerstrale. I came away convinced this was one of the hottest companies to watch in the UK. Here are five reasons why.

1. Not “The UK Zynga.” Playfish is very much running its own race in this market, and this may be a case where distance from the Valley is actually healthy. It doesn’t try to compete on specific games with Playdom, SGN, and Zynga. For instance, it doesn’t have a mob game, the most popular genre right now, and it doesn’t have a poker game, Zynga’s top earner. “That’s such short term thinking,” Segerstrale said. “Something is wrong if your route to success is copying competitors’ games.”

2. Platform Development Doesn’t Have to Mean Half-Ass Development. Playfish is not about building a game in a week or so and throwing it up on Facebook. Playfish spends six months to a year designing a game, and they’ve only produced seven of them. While everyone else talks up how quickly and cheaply you can build a game on social networks, Playfish still employs the same artistic discipline of a console game with a Wii-like look and feel. The plus with platforms like Facebook and the iPhone isn’t speed to market for Playfish, it’s easier distribution and greater social engagement.

3. Traction. The painstaking design process appears to be a hit. Every one of Playfish’s games has been a top ten hit on Facebook. Across all platforms, those seven games have yielded 100 million installs and 30 million monthly uniques, says Segerstrale. Playfish pays “practically nothing” for customer acquisition and makes money through virtual goods, ads and premium versions of games.

Playfish is profitable and hasn’t spent a dime of its recent $17 million funding round. That’s gotta be some top line given Playfish has 200 employees across several offices. In fact, TechCrunch Europe’s Mike Butcher speculated that Playfish could be the $1 million-dollar-a-month Facebook app maker, back in September 2008. It certainly puts the company in an enviable position given the paucity of venture funds in the UK.

4. Proximity to the Valley Insiders via Investors. While Playfish enjoys distance from the one-ups-man-ship or developer poaching of SGN, Playdom and Zynga, it’s connected into the Valley where it counts. One of its main investors is Accel—also one of the main backers of Facebook. Yes, that matters. (See Sequoia Capital-backed Google’s purchase of Sequoia Capital-backed YouTube.)

5. Segerstrale Knows Games. This is the fuzziest one, but also probably the most important. As a CEO, Segerstrale comes to this industry from a different point of view than Pincus. Pincus has said he was never really much of a gamer—Segerstrale on the other hand has loved games since he was three years old playing Pong with his older brother. He always got a visceral rush from playing, especially with other people. So he’s spent much of his career working towards two goals: Decoding what makes a game “fun” and deconstructing the concept of a “gamer” so games are just something everyone plays.

His first attempt was at mobile, thinking that with phones in every pocket, everyone would essentially have a game console. Indeed, the company he cofounded, Glu Mobile, went on to a successful IPO. But gaming was still a niche activity on phones. There were too many barriers set up by the telcos and it wasn’t as easy for people to find and download games. Facebook turned out to be a much greater platform for this kind of democratization of gaming because users could market games to one another.

Segerstrale’s macro theory is that we’re in the first shift of a move from physical games and goods to digital ones, and from games as a product to games as a service. It’s a theory that seems right-on to me. For one thing, we already saw it with the transition from enterprise software to software as a service. For another, sales of console games are down 20% year-over-year according to NPD, while comScore says social gaming is up 20% year-over-year. It’s nice to see a CEO who can articulate not only a product vision, but a clear industry vision.

All the positives above aside, I’m still not convinced that Segerstrale will succeed in his mission to democratize games. I still mainly use Facebook as a way to connect with friends, not to build virtual restaurants and I don’t necessarily see that changing. In fact, Facebook has so de-emphasized apps in its new all-feed iteration, I spent nearly an hour trying to find a listing of games, before someone finally told me it was on the throw-away bottom bar of the profile page. And by emphasizing the social stickiness of a game, there’s a chicken-and-egg risk that the games are boring for people who don’t have enough friends already playing.

But these are execution risks and every promising startup has them. When it comes to business model, financing, vision and product, Playfish is certainly a formidable competitor to Zynga. With hundreds of millions in real dollars already swarming around social gaming, this will be fun space to watch.

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Kristian Segerstrale

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Zynga

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Mark Pincus

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Facebook Nabs New Payments Director from Google

2009-06-29T17:22:44Z

The Facebook Platform payments and monetization ecosystem continues to grow rapidly this year, and recently, Facebook has been getting more involved. A few weeks ago, Facebook started testing integration of its own virtual currency with Platform applications, and last week Facebook enabled payment support in 14 new currencies.

Now, we’ve learned that Facebook recently hired Prashant Fuloria, formerly a Director of Product Management at Google where he worked on Google Checkout amongst various other projects during his six year stint, as the new Director of Product Management responsible for Facebook payments. Highly regarded by colleagues, Fuloria left Google and started at Facebook last month.

With Fuloria’s hiring, the march of former Googlers two exits up the 101 to Facebook continues. At one point, nearly 10% of Facebook employees came from Google. Just a couple of weeks ago, Greg Badros, who headed up the AdSense engineering team for several years at Google, joined Facebook as a Director of Engineering.

Fuloria has his work cut out for him as he oversees the development, testing, and wider launch of Facebook payments services over the next several months. While Facebook only accepts credit card payments today, it is likely to expand its payments tests in the future, as the company seeks to monetize users across geographies and demographic profiles. Managing the integration of payments methods and systems into the Facebook experience is an increasingly important challenge for the company as it seeks to create a new, substantial direct-to-consumer revenue stream in a market that is known for its high operational costs, major fraud challenges, and international complexity.

Several companies have already launched major efforts to help developers accept payments from Facebook users - including mobile payment providers Zong and Boku, integrated credit card payment enabler Social Gold, and a variety of others - not to mention Paypal, Amazon, and Google Checkout. Even large developers like Slide are now building their own payment platforms. The Facebook Platform payments ecosystem has gotten crowded in the two years since the Platform launched - a good sign of its overall health.

Facebook opted for Platform growth over monetization in 2008, but it appears to be increasingly focused on building out its payment platform in 2009. We’ll let you know as Facebook’s monetization efforts continue to develop - though we somehow doubt they’ll include Google Checkout any time soon.

MagicJack Will Top $100 Million In Sales This Year

2009-06-26T19:55:00Z

Here's a recession winner: MagicJack, the super-cheap Internet phone gadget, is flying off the shelves. And parent company YMax Communications, founded by telecom veteran Daniel Borislow, is raking in big money.

MagicJack works by hooking a standard home phone up to an Internet calling service via a $40 USB jack, which sells via stores like Best Buy, RadioShack, and Walgreen's. It lets you place and receive unlimited phone calls over the company's Internet phone network for $20 a year. (First year free.)

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VIDEO INTERVIEW: MMORPG eRepublik's Alexis Bonte

2009-06-26T22:00:00Z

After selling Last Minute to Travelocity, Alexis Bonte developed an obsession with Sid Meier's strategy game Civilization. Bonte played so often, that his wife began to complain. He jokes that he partnered with George Lemnaru to started eRepublik Labs and the eRepublik game in order to satiate his gaming appetite through work. The company officially launched in time to win the 2007 Le Web awards.

eRepublik is a multi-player online strategy game where members interact as citizens of one of 60 countries. More than 125,000 active users sign in on a daily basis to work, join the military, form political parties, launch newspapers and in some cases, wage wars. Just last week the Iranian president was impeached. Meanwhile, last month Russia was invaded and Indonesian users hosted the game's largest real-world meet up.

Sponsor

At the business level, the company raised a 2 million Euro round of funding. The new capital will help its 30 employees improve game play and expand into new arenas.

In the near future Bonte plans on launching citizen ads. He explains, "We have 100 million impressions per month, but if you're in a virtual world you don't want to see adverts for Coca Cola." Bonte plans on allowing citizens to use eRepublik currency (gold) to pay to advertise for their political parties or businesses.

"Every month we have an election." He says, "Imagine you're running the democratic party for your country, you're going to use some of your gold to advertise to win the election."

While the gold can be earned during gameplay or bought with real money, buying gold is restricted to certain times and amounts. This is to ensure that eRepublik remains a strategy game rather than a shopping experience.

"Once we develop the product further," says Bonte, "We can expand into new territory as a platform for new gaming experiences." Similar to competitor Gameforge, eRepublik Labs expects to roll out additional MMORPGs in the future. ReadWriteWeb was there in Madrid to talk to Bonte about his company.

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Social Gaming Summit: The Platform Holders Speak

2009-06-26T15:59:19Z

To find out what's required for a successful social gaming platform, the 2009 Social Gaming Summit brought together four panelists from four of the biggest social networks, including Facebook, to find out what they consider to be the key to their platforms and the success of social gaming. The discussion took place after a panel of social game-makers, including Zynga and Playfish reps, debated making games for social networks. It included Jason Oberfest of MySpace, Gareth Davis of Facebook, Andrew Sheppard of Hi5, and James Liu of Chinese company OPI -- which operates the Xiaonei social network. The panel was moderated by Michael Arrington of TechCrunch. The discussion was particularly relevant to game developers because, with games such as Restaurant City and Farm Town grabbing millions of unique users on social networks -- users that can then be monetized using microtransactions -- it's an increasingly fertile area for game creators to play in. The Foundation of a Platform The first question is probably the most relevant -- and easily the most basic: "What is needed for a successful gaming platform?" Davis addressed the question in light of Facebook's area of superiority: "I think it all starts with audience. The larger the audience, the more successful the platform." But to access that audience, APIs are also required, and to protect that audience, policies from the platform holder are also important, he says. Davis also proposed another Facebook advantage: its reliance on a real-world identity. Sheppard, appealing to developers on behalf of the U.S.-based and increasingly gaming-focused Hi5 -- which is much more popular in Latin America than its home territory -- suggested three key elements: "You have to be able to deliver the audience to the games that people care about. You have to make the business sustainable. Our payment solutions, or third-party payment solutions, are critical to the mix." The audience was then asked if implementing an in-house, official payment system such as Hi5's solution is necessary for gaming to take off on a platform. Few raised their hands, to apparent surprise from Sheppard. Said Davis, "We don't believe that a Facebook payment system would be something that would help the ecosystem. The ecosystem is doing fine." However, Sheppard countered, "Companies have had great success monetizing audiences that people in the U.S. aren't even considering," using its localization and payment tools. Of course, MySpace allows ambiguous or anonymous identities -- and as Oberfest said, what's required is merely tech and policies which "allow natural user behavior to occur;" giving users the freedom to play what they what they want to, how and when they want to, is the key. To that end, Hi5 monitors clickthrough rates on games and advertisements in an effort to cut down on spam -- low clickthrough implies spam problems. Facebook Connect: The Next Big Thing? Unsurprisingly, Davis began to turn the panel into a platform to promote Facebook Connect, a solution the company has implemented which allows outside applications to draw on Facebook account data and publish updates to users' pages. This will be implemented on Xbox 360 and Nintendo DSi this fall, and is already in iPhone titles. To that end, Davis believes in the power of "multi-device gaming." "If I have an iPhone and you're on Facebook, we can game together," he said. "I think E3 was very much an inflection point for me... Not just Xbox and DSi Facebook Connect technology... I think we are seeing a lot of talent transition from the traditional games industry to the social games industry. "The second thing is that the console companies really get social now," he continued. "I think this really changes everything. I think we're at the beginning and it's going to take a few years. There's a lot to learn as both industries converge, and they're both complimentary." When quizzed about what titles show this advanced learning from console companies, Davis demurred. "It's still very early and I don't think any of these projects are announced, but I'm very impressed," he explained. Davis said such projects from big game companies are "fundamentally social" and take advantage of the "multi-device" paradigm. He later described the future of games as "device-based and hooked into a social network," and it's clear that iPhone and Xbox 360 are both "devices" in this context. Sheppard, instead, turned the discussion to one of the most basic concepts: fun. He said, "We're now focusing on fun and defining the social graph around that. It's an important nuance but it's a very key thing to call out. Specifically, when you're focused on fun, real-world identities are less relevant. It's more focused on aspirational identities" -- a concept with which online gamers will all be familiar, but one which is in direct contrast to Facebook's fundamental paradigm. However, Oberfest, despite MySpace's semi-anonymity, said, "There's no doubt that authenticity in relationships drives engagement in [social networking] games." What We Might Learn From China James Liu works for Oak Pacific Interactive, a very large Chinese internet company that owns the social network Xiaonei -- which, with over 40 million users, is often compared to Facebook. "China is a very unique market in the world," he observed. In the view of OPI's chairman Joe Chen, as quoted by Liu, "Communities are becoming more gaming-like, and games are becoming more community-like." To that end, said Liu, "One of the things we do differently from any of the companies in this panel. We're one of the very few companies in the world who has a social gaming platform and close to 400 people dedicated to MMO development in-house." This MMO is integrated directly into the social network via API. Other concepts OPI works with are more familiar to U.S. social networking companies, though the situation is slightly different in that the company itself operates the games. OPI monitors user behavior and suggests new games in the users' newsfeed, and its user base is also integrated across multiple OPI platforms; none of the U.S. companies currently operate multiple networks. One notable observation Liu made was about the reading material the OPI engineers have by their desks. "These guys are [engineering] PhDs from top-notch schools, but they study economy right now," as well as psychology, he said: all the better to understand and motivate user behavior in social networks.

Do VCs Take The Summer Off? Entrepreneurs Say Yes. Data Says No.

2009-06-26T15:07:47Z

With July 4th approaching, the unofficial summer is about to begin. In almost every board meeting with portfolio companies and other entrepreneurs who are raising money, I’m hearing the same refrain: “My VCs are about to shut down for the summer.” Phone calls and emails won’t get returned, partners meetings won’t be held, and you might as well put your head down and build your company as best you can and then show up after Labor Day rather than wasting time knocking on VC doors.

I admit this is only my 7th summer as a VC, so I’m still new to this thing, but I just don’t get it. I still work during the summer. My partners work all summer. My co-investors and their firms seem to be working all summer. And even when I’m on vacation at the end of August, if there’s a board meeting, a financing or a crisis, I’m available to my CEOs. So are all the other VCs I know in the industry. When I switched from being an entrepreneur to becoming a VC, I remember my friend and mentor Ted Dintersmith telling me: “Jeff, take as much time off as you can in before you start off, because when you’re a VC, you’re never really ‘off.’ There’s always some crisis in the portfolio, a transaction that needs to get done, a personnel issue that needs attention.”

It got me wondering what the data showed on this topic. If the urban legend was true that VCs took the summer off, you would expect Q3 deals to be meaningfully lower than other quarters in the year. So I looked at the NVCA funding data by quarter (www.nvca.org). The quarterly chart was revealing - I saw no discernable quarterly pattern. In fact, in each of the four years betwen 2005-2008, an eerily precise 25% of deals were closed in Q3 (25.0%, 24.6%, 25.1% and 25.0%, respectively)!

Some may argue that the quarterly data is misleading because Q3 covers September and many of these deals get closed after Labor Day. But this argument seems specious given that all the hard work on both sides happens 30-60 days before a deal is closed, when the VC does their due diligence and term sheets are negotiated. Rather than rejecting this counter argument prima facie, I decided to dig deeper. So I looked at our own data at Flybridge Capital Partners and did a more micro seasonality analysis.

We have closed 42 new deals since we started the firm 7+ years ago. Guess which month was our largest in terms of number and capital? August, with 9 new deals closed! December was second and July was third. So much for taking the summer off. Looking at the follow-on investments and new deals in aggregate (nearly 120 transactions), our data shows that December was the most active month and August second. So much for that theory.

I’d be curious to hear what other VCs and entrepreneurs experience on this dimension, but I have to say that the data suggests the urban legend is false. VCs simply do not take the summer off and aspiring entrepreneurs can get plenty of deals done, all else being equal.

Jeff is a partner with Boston-based VC firm Flybridge Capital Partners. Read his past posts here.

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Twitter Drives a Lot of Traffic to Media Sites, but Doesn't Bring a Lot of Customers to Online Retailers

2009-06-24T18:23:09Z

According to the latest data from Hitwise about Twitter users in the UK, Twitter has become an important source of traffic for entertainment sites, other social networks, and news and media sites, but compared to other social networks, Twitter only sends a small amount of traffic to online retailers. Hitwise's Robin Goad also points out that Twitter is now the 30th biggest source of traffic in the UK and accounts for 1 out of every 350 visits to a typical web site in the UK.

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According to this data, just over half of Twitter's traffic (55.9%) goes to "content-driven" sites like blogs, news, other social networks, and entertainment sites. In contrast only about 9.5% of all of Twitter's visitors go to "transactional web sites" in the travel, business, finance, and online retail categories. For Facebook, this number is 14.7% in the UK, and for Google searches it's over 30%.

At first glance, these numbers for Twitter look a bit low, but after looking at how people use Twitter, these numbers do make a lot of sense. According to another recent study from the Conference Board, the top reasons for people to tweet are "connect with friends (42%), update their status (29%) and look for news (26%)." The study also found that two out of three Twitter users use the service to interact with friends.

It is also interesting to note that another recent study from the NPD Group found that Twitter users are more likely to buy music than non-Twitter users. Chances are that this is also related to the demographic makeup of Twitters user base which tends to skew a bit older, but it also clearly shows why Twitter could be such a valuable source of traffic for retail sites.

In many ways, it is probably a good thing that brands are still trying to figure out how to best utilize Twitter. If brands want to make good use of Twitter - which, for many would mean driving traffic to their sites - they have to become part of the community. We would love for Twitter to find a viable business model so that the service can stay afloat even as it grows, but in the end, most of us use it as a personal communications medium and unless brands can find a way to become part of that in an authentic, non-creepy way, they won't be able to profit from Twitter's rapid growth - and maybe that's a good thing, too.

Discuss

Adam Caplan, Super Reward’s President, Speaking at Social Gaming Summit 2009

2009-06-23T00:31:47Z

Social Gaming Summit 2009

Don’t miss this one day event focused on the intersection of games and the social web, happening on Tuesday, June 23rd at the Nikko Hotel in San Francisco!

Be sure to attend the ”Monetization Infrastructure for Social Games” panel taking place at 1:15pm where Adam Caplan, President of Super Rewards, will share his expertise and industry insights on monetizing social games.

Adam is the President of Super Rewards and a renowned Internet/digital media executive advising companies across the broader online media space with operational experience in the performance advertising and social media/gaming sectors. Prior to joining Super Rewards, Adam was the Founder & CEO of a startup in the social network/gaming space, as well as an investment banker with Morgan Stanley for eleven years, heading the emerging internet/new media corporate finance team in New York. Adam has significant experience advising companies in the sector with public and private financing as well as strategic m&a advice and he is considered an expert and thought leader within the social media gaming space.

New hybrids on the way from BMW, Toyota

2009-06-23T01:08:00Z

Blogs report on the BMW 755ih and the Toyota Supra hybrid sports car.

Social Gaming Gets Litigious: Zynga Sues Playdom Over Mafia Wars Ads

2009-06-22T21:49:54Z

The social gaming boom has resulted in a legal spat between two of its biggest players: Zynga is suing rival Playdom over the way Playdom is advertising one of its games. Zynga claims that Playdom is misleading players with ads that compare its Mobsters to Zynga’s Mafia Wars game; it wants Playdom to take down the ads, pay damages—and even run new ads that make the distinction between the two games (and companies) clear. Silicontap.com first reported on the filing, which we’ve embedded after the jump.

Neither company responded to requests for comment, but details from the filing show why this is about much more than just ad copy: Zynga claims that it’s losing out on traffic—and ultimately revenues—because Playdom’s Mobsters ads are luring people that might otherwise be playing Mafia Wars. And since companies like Zynga and Playdom need scale (in the millions of users) if they want to make money from virtual goods sales and performance ads, any player attrition or churn could have a significant negative impact on the bottom line.

Playdom, which recently brought in EA and Ticketmaster vet John Pleasants as its CEO, was founded in early 2008; the company hasn’t raised funding yet. Zynga was founded in 2007 and has raised about $39 million from backers like Union Square Ventures, Kleiner Perkins Caufield & Byers and Foundry Group.

Zynga Lawsuit

Google Brain Drain: OpenSocial Guy Kevin Marks Leaves

2009-06-22T21:00:00Z

Kevin Marks, one of Google's (GOOG) most visible employees, is leaving the company. Is he perhaps going to Twitter or Facebook?

Marks worked on the company's Social Graph API, OpenSocial, Orkut, Google Profiles, and other social projects. None of them have made the company any significant money, but the idea is that some could someday.

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Report: Goldman Sachs On Pace for Record Bonuses

2009-06-22T18:39:05Z

NEW YORK (Reuters) - Goldman Sachs Group Inc is on pace to make record bonus payouts after a robust first half, the Guardian newspaper reported on Sunday.

Goldman staff in London were briefed on the outlook and told they could look forward to the bonus hikes if the company registers its most profitable year ever, the report said.

The surge in projected profit can be attributed to a lack of competition and increased revenue from trading foreign currency, bonds and fixed-income products, the newspaper said, citing insiders at the firm.

Bonuses have been a point of contention between the Obama administration and Wall Street, which last fall endured a credit crisis that paralyzed the financial markets. The U.S. Treasury responded with the Troubled Asset Relief Program, which made $700 billion in loans available to banks.

Goldman Sachs received $10 billion from TARP, which it repaid last week.

In letters to lawmakers last week, Goldman CEO Lloyd Blankfein said the firm is obligated to “ensure that compensation reflects the true performance of the firm and motivates proper behavior.”

A Goldman Sachs spokesman in New York was not immediately available to comment on Monday.

(Reporting by Steve Eder; editing by John Wallace)

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Slide Reports Growing Virtual Goods Sales

2009-06-22T14:12:04Z

While social app start-up Slide's 2009 ad revenue is falling, the company has disclosed to the San Francisco Business Times that sales of virtual goods have increased to the point where the company's revenue stream is now split evenly between the two sources of income. Slide launched its virtual goods range last year, selling habitat images for virtual pets and virtual drinks that can be sent to friends as gifts. Slide's core product is essentially software for creating relatively sophisticated photo slideshows that can be embedded into social networking sites.

Based on the growth of its virtual goods sales this year, Slide stated that it would be investing primarily in growing that stream of revenue in the future. The company's next major goal is building out technology that would allow for one-click purchases of virtual items, to encourage more impulse purchasing. Slide is not currently profitable but hopes that growing its virtual goods businesses will get the company to that point. Despite this the company is growing despite the down economy, adding over 28 new employees during 2009 to bring total headcount to an impressive 114.

Slide accepted a $50 million venture capital investment in January of 2008, at a valuation of $550 million. According to ComScore the site served 133.8 million unique monthly visitors in April. Most of that impressive monthly traffic comes from outside of the United States, though. While most ad agencies are uninterested in reaching international users, all that's required to monetize a foreign user through virtual goods is appropriate payment technology. Since most international users don't have credit cards, this often makes support for technologies like mobile payment and prepaid cards more important.

While Slide's core business is still the virtual slideshow technology, the company has expanded into other types of apps. Its SuperPoke! premium subscription service allows users to send virtual gestures to each other, essentially virtual gifts consisting of an unusual action like "throwing sheep." In April 2008 it introduces SuperPoke! Pets, which added a virtual pet game option to the app. The virtual pets draw about 5 to 7 million users per month, mostly female. Another extension app targeted at men is expected to debut next month. Slide also maintains a Top Friends app with a Top Dollars option that lets users buy virtual gifts for friends.

Best Reference Check Strategy Ever

2009-06-21T17:35:53Z

In an excerpt from his book Hiring Smart, Pierre Mornell reveals the best reference check strategy I've heard of. It's fast and tip toes around the liability issues: ask a person's references to call you back if the person was outstanding.

Call references at what you assume will be their lunchtime--you want to reach an assistant or voice mail. If it's voice mail, leave a simple message. If it's an assistant, be sure that he or she understands the last sentence of your message. You say: "Jane Jones is a candidate for (the position) in our company. Your name has been given as a reference. Please call me back if the candidate was outstanding." The results are both immediate and revealing. If the candidate is outstanding, I guarantee that people will respond quickly and want to help. Take such a response as a green light. Proceed to the next level by checking out the individual. However, if only 2 or 3 of the 10 references selected by the candidate return your call, this message is also loud and clear. And yet - No derogatory information has been shared. No libelous statements have been made. No confidences or laws have been broken.

Brilliant. Mornell also advises you to ask the candidate beforehand, "What am I likely to hear -- positive and negative -- when I call your references?"

###

Elsewhere in the article, Mornell suggests saying "We have about five more minutes..." before closing the interview. This will prompt a last-minute, crucial disclosure or statement from the candidate:

Pay attention when the candidate says, "By the way...," "Oh, one more thing...," and "I almost forgot...," which means, "This is the most important thing I'm going to say." In my psychiatry practice, I always announced when we were coming to the end of an hour, both as the timekeeper and because I knew there was another patient in my waiting room. Men and women invariably say something that's really important at this point, regardless of the time we've already spent together.

Match.com Success Rates published.

2009-06-21T17:23:20Z

Match.com has released their 2009 success rates here

http://www.iacadvertising.com/pdf/Match%20Overview%20One%20Sheet.pdf Or Here

56 million first emails sent per year
132 million winks sent per year
12 couples got married or engaged today thanks to Match.com
Users go on 6 million dates each year. ( ya right)
1 in 1369 dates leads to marriage on match.com (6 million / (12*365))
Match.com makes 1 Million dollars a day from subscription revenues.
That is $83,000 in subscription revenue for every marriage that comes out of the site.

Eharmony also has public stats.

http://www.eharmony.com/advertising/singles

118 couples a day get married or engaged.
eHarmony obtains 12-15K new users every day
full audience turnover every 6.5 months!

Does anyone have any links to studies etc that show how many marriages are produced by dating sites ?

AdSense: The (Weak) Elephant in the Room

2009-06-20T17:00:27Z

A few years ago, we spoke of the "AdSense Economy." It was so simple. Create a website, slap on an AdSense widget, and voila: "Insta-biz." Wow! Who knew business could be so simple? AdSense was proof of Google's genius, having grown into a multi-billion dollar business in only a few years after its launch in 2003. Google's search business continues to grow in dominance, and the company's apps business is putting a serious dent in Microsoft's franchise.

But cracks are appearing in AdSense. AdSense is 30% of Google's revenue, so this matters. Any weakness in AdSense is important for Google's investors as well as advertisers, publishers, users, and entrepreneurs.

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Three Constituents Who Need to Be Kept Happy

AdSense was a runaway success because it met the needs of online publishers, advertisers, and users all at once:

Publishers could get revenue simply by pasting a widget on their website.
Advertisers could extend their performance-based search-driven advertising, which they already knew and liked, across the Web.
Users began to see ads that actually made sense in the context of what they were reading, and many of the ads came from smaller advertisers whose products and services would not have otherwise reached them.

But each of these constituents is starting to see problems with AdSense. Let's start with publishers.

Publishers

BtoB Magazine published an article on June 5th titled "Declining revenue has publishers rethinking Google AdSense." It quotes many B2B publishers who echo the conclusion that revenue from AdSense is no longer meaningful to them, that it does not "move the needle." This is less a reflection of AdSense's decline than the fact that traditional publishers have gotten smarter about how to sell advertising online. They have had to. Print is in decline, and the Internet is their only hope. Getting some "spare change" from AdSense may have been okay in the past, but they need a lot more now. Plenty of good alternatives exist on other advertising networks, and publishers are getting a lot smarter, too, about selling directly to their consumers.

Who cares about traditional B2B publishers that are migrating online, you say? What about those big native-online publishers? Well, Facebook just hired the guy who masterminded AdSense, but don't expect too see AdSense ads there. Rupert Murdoch wouldn't like to be thrown scraps of revenue for MySpace with a partner that makes all the rules. And one couldn't imagine Twitter pasting AdSense ads on its network. What large online publisher could get a meaningful amount of its revenue from AdSense?

Back in around 2006, all you needed to do to get VC funding was build a website that got user traction. "What about revenue?" they'd ask. "AdSense," you'd say. "Okay, then, here's the term sheet." Anybody try that with a VC lately?

Ah, so it's all about the long tail, right? Yes, a lone blogger has few other options. Everything else takes too much effort. They are not making a living from it, so they are satisfied with "spare change." Many of the alternatives to AdSense seem rather scammy, along the lines of, "Make a lot of money working from home." Google is well respected as a brand, and everyone knows what they'll be getting from AdSense. Don't they?

Actually, most people don't know one very important part of the deal: the percentage of the revenue that the publisher gets. You can parse the data from Google's financial filings in aggregate. But knowing its percentage in aggregate does not matter to a publisher. Google may be giving a great deal to a large publisher with clout. What do you, the little guy, get? You may know how much Google is paying you for the clicks that you generate, but do you know how much the advertisers are paying for those clicks? If you get $100, did advertisers have to pay Google $200? Did you get 50%? Was it only 10%? Maybe Google sold the clicks you generated for $1,000, and you got 10% of it? How would that feel?

To Google and its investors (more about them later) this ability to simply turn a lever and get a bigger percentage of revenue is marvelous. Who would not want that kind of pricing power? But to your average publisher, it seems to violate one of the most basic rules of business: knowing the terms of the deal, knowing who gets what.

The long tail is also where the problem of click fraud is most serious. To protect it, Google will (quite rightly) sue publishers who scam the system. But now publishers are suing back, and winning. This is ugly stuff.

In another murky corner of the Internet are "made for AdSense" sites that scrape other publishers to generate ad clicks. This is also considered click fraud.

So, the long tail looks rather like fishing in a murky bottom, full of nasty catches, and hardly a bright future for a great company like Google.

Advertisers

Hang on. Get real, you say. None of this matters because Google sells more advertising than any other company, and that's all that matters, right? Publishers, big and small, will take whatever Google gives them because Google has advertisers locked up.

Yes, that is true in search. Neither Yahoo nor Microsoft, nor any of the myriad of search startups, has made a dent in search advertising. AdWords reigns supreme.

Not so fast, though. First, some perspective. Traditional brand-based advertising is still bigger than search advertising, which is why Google bought DoubleClick. But the current excitement and creativity is centered on social media advertising, and Google is not a player in that game (yet). So, search is only one part of the ad market.

More importantly, AdSense clicks are converted differently than clicks on Google's search page. Getting people to talk about this on the record is hard. Off the record, many advertisers/marketers and ad agencies will tell you that those conversions are not the same.

Conversions matter. Clicks are only the first step in the process of earning revenue. Conversions, either directly into revenue or into something deeper in the conversion funnel, such as a free trial, are what advertisers care about.

Logically, an AdSense click wouldn't convert as well as a click on Google's search page. That ingredient of direct intention on the part of the user is missing. Some advertisers may not be savvy about tracking conversions and will therefore pay the same for both types of clicks. But Google can hardly rely on dumb advertisers for its growth strategy.

Advertisers will pay less for AdSense clicks, then. This could cause AdSense revenue to decline (more on that later). Or instead, Google might "dial back" the percentage it pays out to publishers, which would almost certainly spur the system's decline in a vicious cycle. Smart publisher and smart advertisers would desert AdSense, leaving Google to profit by mediating between dumb publishers and dumb advertisers. Not a good long-term strategy.

And then there is the "brand safety" issue. The keyword approach to contextual relevance can create those ugly mismatches that you occasionally see. You know, like when you see an ad for kitchen knives while reading an article about a vicious stabbing? Readers are only faintly upset or annoyed by it when they notice it, but advertisers consider it a major issue. This is the kind of thing that keeps brand-builders up at night.

Weaker conversions and brand safety issues in search-based advertising will only fuel the excitement and creativity in social media advertising. Is AdSense simply a bottom-fishing volume game?

Why is it hard to get advertisers and their agencies to talk about this on the record? Martin Sorrel, founder and CEO of WPP (the world's largest advertising agency) speaks of Google as a "frenemy." Actually, now he has renamed it a "froe." WPP buys $850 million worth of ads per year from Google, which would normally give WPP a lot of clout with media firms. Yet Google also disintermediates ad agencies. One just buys AdWords ads directly from Google.

The relationship between advertisers and Google is delicate, one that would not be helped by advertisers speaking to journalists on the record about weaknesses in one part of Google's services. Advertisers with clout prefer to negotiate behind closed doors.

Users

The most important person in the AdSense eco-system is the user. As long as the user is clicking and buying, all is well. Publishers and advertisers will both be happy. Users may be buying less now, but that is a simple cyclical issue: we are in a consumer recession. When the economy recovers, AdSense will recover.

Well, maybe. There are three reasons to doubt this:

Ad blindness. Advertisers are in an arms race for attention, leading them to produce ever more creative ads, in turn leading users to tune out those bland, familiar old AdSense ads all the more.
Social media alternatives. People trust other people more than they trust ads. That is why Ad-land is channeling its creativity into inserting its brands into their conversations.
Declining relevance. Users who do not get what they want from clicks will stop clicking. If they don't see AdSense ads on high-quality websites, and if the ads they do see are not relevant to what they are thinking about at the time, they won't click.

Google's Investors

Let's jump to Google's Q1 2009 results. The headline was that Google's revenue grew 6% (compared to the same quarter a year prior) to $5.51 billion. We can break that down as follows:

Revenue from Google websites grew by 9% to $3.70 billion,
Revenue from Google's partner sites, also known as network revenue or AdSense revenue, fell 3% to $1.64 billion.

According to the numbers, not all is well with AdSense. Still, a 3% decline does not sound like much; it would raise questions only with a fast-track company such as Google. Maybe this is simply the effect of the recession.

But maybe it is an early sign of a fundamental weakness in AdSense. With AdSense making up about 30% of Google's revenue, such a sign is big enough to matter. This should be a serious concern for investors. If I owned Google stock, I would be looking very hard at network revenues in Q2. Network effects can lead to explosive, hockey-stick-like growth on the way up... and falling-off-a-cliff declines on the way down. When all three constituents (publishers, advertisers, and users) were getting great value from AdSense, revenue exploded. If all three suddenly lost interest, that virtuous cycle of growth could turn into a vicious cycle of decline.

Judging from its actions, Google management fully understands the issue. Follow the money. Look at what Google is acquiring. Its two biggest acquisitions have been:

DoubleClick, which it purchased for $3.1 billion, allowing Google to diversify from search-based advertising, so that it could have more clout with advertisers;
YouTube, which it purchased for $1.65 billion, allowing it to lock up the fastest-growing inventory, video.

Look at the websites and services Google invests in. It plays to control inventory so that it doesn't have to depend on publishers, and so that it has better control over relevancy matching. Some of this has gotten a few publishers riled enough for them to go on record, particularly when their services lie directly in Google's path.

So, don't feel sorry for Google. It's taking care of the AdSense problem. We'll have to see, though, whether investors buy that story. Investor reaction to Google's Q2 report will be interesting.

Opportunities For Entrepreneurs, New Venture Intermediaries

If AdSense is in decline, that leaves open a big market for entrepreneurs. Publishing is not a winner-take-all market. Google will not control all online inventory. Advertisers and their agencies like choice. And users click on whatever is relevant.

We see two plays in this environment:

Match relevance. Match relevance means parsing content to deliver more relevant ads. This is easy to say and hard to do. A lot of smart semantic tech ventures are focusing on this problem. This is smarter use of search technology than Quixotic tilting at Google's search bar dominance.
Connecting CPM to CPA. This is another hard problem to solve but promises a huge payoff for the winner. Publishers like selling CPM (cost per mille): it is easy for them, and the burden of performing lies with the advertiser. Advertisers, on the other hand, like CPA (cost per action or acquisition): it is easy for them, and the burden of performing lies with the publisher. Both parties look at the CPC (cost per click), because that is trackable from both sides of the transaction. But CPC is just a proxy for what each really wants: CPM and CPA, respectively. Any venture that brings publishers and advertisers together with a deal that satisfies the needs of both will do very well. There is a huge opportunity here. High-quality websites that really engage with their audience will certainly do well by CPA metrics, but the solution will have to be really easy to implement.

What Do You See?

Please give us your feedback. And if possible, tell us your vantage point: publisher, advertiser or new venture intermediary.

Discuss

Thing Labs to Launch New Twitter App In Coming Weeks

2009-06-19T23:31:11Z

Jason Shellen, founder of Thing Labs, the startup formerly known as Plinky, is keeping details about its new social media product tightly under wraps — except to say that initially it will only work in conjunction with Twitter. While other application developers focus their attention on multiple social network sites, Thing Labs decided to develop its latest application for the API friends and fellow ex-Googlers Biz Stone and Evan Williams created.

Thing Labs is primarily familiar with the Twitter API via the friendships of Shellen and VP of Technology Chris Wetherell with Stone and Williams, so it seemed natural to start building its new application on that platform first. Wetherell, a former senior software engineer at Google, even spent a few months working on projects at Twitter after he left the search giant earlier this year.

“Chris and I have been using Twitter for about three years now — we were in the first group of users.” Shellen said. “We’re big fans and believers in Twitter as a platform and it’s a great place to invest our time.”

The upcoming release of this new social media product — which is expected to launch in a few weeks — was also the impetus behind Thing Labs’ name change. Shellen’s startup was originally named after its first social media product, Plinky. Launched six months ago, Plinky is a web application that prompts users to answer a question — topics run the gamut from movies to travel — and lets them to post their answers on Facebook, Twitter or blogs.

Shellen said the Thing Labs’ social media application will roll out in a few weeks. In addition to Wetherell, who joined the company a few ~~months~~ weeks ago, Dolapo Falola is leaving a senior engineering position with Google and will join the startup in July, making Thing Labs a popular destination for the growing network of ex-Googlers.

Market research you can use: Keep informed about Cloud Computing and IT Infrastructure. Learn more »

“Wars” style social games placed in context of other web based massively single player games

2009-06-19T14:58:32Z

Worlds In Motion plays Mafia Wars and compares it to other web based massively single player games, including ForumWarz, Kingdom of Loathing and Urban Dead:

There are plenty of other MSOs … but the successful ones all have some attributes in common:

–All are based on stats, money, loot, rank, and clans or guilds
–The best extent to which players can communicate with each other is through messages, forums, or chat, all of which don’t occur “in game”
–All require alternative and creative revenue streams, and must be free to play. Methods include microtransactions, merchandising, and donation requests
–Actions or turns are limited so as to reduce server loads and costs. Some regenerate slowly every few minutes, others simple reset every 24 hours
–Must have interesting or popular content, especially if merchandising is a revenue model
–They generally prohibit multiple character creation
-They encourage player-banding by heavily rewarding group associations in order to recruit new players to expand the player base and sustain merchandise sales.

This last point is ironic, since these are essentially single player games, but it forges communities based around the culture of the game. In the case of Mafia Wars, that culture is Facebook, which partially explains why player interaction is limited.

Big Picture Customer Development Revisited

2009-06-19T01:43:19Z

Working with four startups at the same time has steepened my customer development learning curve (and also explains why it has been a month since my last update). To help balance the load, I’ve brought on a conversion designer and a researcher; we’re finally firing on all cylinders.

Our customer development goal with every startup essentially boils down to a race to be able to focus on growing the business. But in order to avoid wasting effort and money on tactical growth drivers, the following steps need to be completed first:

Validate the product/service is gratifying a reasonable percentage of users.
Create a value proposition that will attract the right type of users and pull them through the conversion funnel to gratification (and ultimately a transaction).
Eliminate friction from the conversion funnel.
Fine tune a business model that supports scalable customer acquisition channels.

If these steps have been executed well it is relatively easy to grow a sustainable business. But many startups skip these steps and jump right into trying to grow the business – making their job much harder or even impossible. Some will get lucky, but most will fail.

Given the importance of getting customer development right, I’m certain that eventually most startups will contract a specialist to help them navigate the challenges of this pre-scale phase. I’m often asked how I plan to expand 12in6 to help more startups. Most people are surprised when I tell them I don’t have a desire to expand the business. I really enjoy being able to work hands on with two new startups per quarter. If I built a large team to fill the current void of specialists, I’d be too busy managing the team. This would mean less time learning how to improve my customer development approach.

As I explained in my last post, I’m now validating that a startup’s product is gratifying users before I commit to working with them. While I love to hear from as many funded startups as possible, I can barely scratch the surface of the number of startups that need help. If I don’t have the capacity to help you, here are a few others that specialize in customer development: (I haven’t dug into their approach enough to be able to endorse them, but I encourage you to check them out)

Brant Cooper (San Diego)
Rajiv Kapoor (New York)
Sean Murphy (SF Bay Area)

If you are specializing in customer development or know someone else that you can recommend, please add names/recommendations in the comments. The main things to consider when evaluating a specialist is their track record building successful companies. And be sure to check references (especially around chemistry with the team).

I have been sharing discoveries on Twitter (follow me @ http://twitter.com/seanellis) and hopefully I’ll resume regular blog posts next week (after I get back from a short vacation in Hawaii).