jump to navigation

Increased innovation in online marketing is driving up costs July 26, 2007

Posted by jeremyliew in advertising, business models, Consumer internet, Digital Media, Internet, media, viral, viral marketing, widgets.
6 comments

Marketers are always looking for new and innovative ways to break through the clutter and get their advertising message across. This is true across all media. In TV, some advertisers are looking beyond the 30 second spot to sponsor a whole show, do product placement and even user generated ads on TV. In print, some advertisers are looking beyond standard 4 color full page ads and have experimented with buying out a whole issue, and even scratch and sniff ads. But in traditional media, as you can tell from the links- these events are rare enough to be newsworthy.

In online, advertisers look beyond standard ad units (buttons and banners) as a matter of course. Everyone wants to do something innovative, whether it be widgets, viral video, sponsorships, takeovers or immersive campaigns.

I’ve recently seen a few examples of this increase in innovation in online creative. At Widgetcon earlier this month, one of the panels was Widget Marketing in the Media Mix, where reps from boutique online agencies Denuo + Droga5, crayon, Organic and Fleischman-Hillard discussed their views on widget marketing. One of the most telling quotes from the panel was from Chad Stoller of Organic who said, “If you can count it then it’s not innovation, it’s not new. You have to be just as creative with how you measure something, as creative as you are with your execution.”

This novelty-seeking mindset is increasingly typical of the new, online-focused, boutique agencies. They are all looking to demonstrate their creativity and thought leadership. A couple of weeks ago New York magazine had a great article about the new guerrilla ad agencies and the viral ad campaigns that they are creating. It highlights one of the most successful viral marketing campaign to date, a viral video where Marc Ecko purportedly tags Air Force One with their “Still Free” graffiti logo.

Apparently, “including media coverage” the video has had 115m impressions. Despite its “homemade” feel, the video cost nearly $400k to shoot ($150k went towards repainting an old 747 to make it look like Air Force One). That implies a CPM of around $3.50 on production costs alone – pretty good for online video advertising if these were the only costs.

The demand for new media creative talent to make these innovative campaigns has increased salaries, and hence costs, across the board:

Salaries for digital creative directors rose 60 percent nationwide in 2006, from an average of $115,000 to $185,000, according to a survey by the recruiter TalentZoo. “We’re trying to hire two people right now,” says Charles Rosen, “and we cannot find them.” Rosen is one of the co-founders of Amalgamated, which started with six people in 2003 and has just hired its 40th employee. “People who were juniors when we left Cliff Freeman, where some of us used to work, want $250,000 or $300,000 now. ”

These increased costs are not confined to the startup boutique agencies either. At GM Planworks (the division of Starcom MediaVest dedicated to managing General Motor’s $3.2bn ad spend) the number of employees has grown from around 200 in 2000 when the group was formed to about 500 today, primarily driven by the increase in people dedicated to new media. Yet GM spent only 10-15% of its ad budget online last year. The cost of online creative and production as a percentage of ad spend is much higher than it is for traditional media, in large part because of the urge to do more innovative creative executions online.

Often advertisers and agencies don’t have the in-house capabilities to even do the creative for the “something new” that they want in new media. At the Ypulse Teen Mashup conference last week, Craig Sherman (CEO of Gaia) spoke about Gaia’s recent immersive campaign for Scion which will allow Gaia users to buy Scions, trick them out and race them. It’s an exciting embedded advertising campaign, but a significant custom integration effort on Gaia’s part.

Similarly some big advertisers have started to launch widget marketing campaigns through partnering with Clearspring. But it’s been up to Clearspring to supply the professional services to make the widgets; the advertisers don’t have that skill in house.

This custom work isn’t something that only startups have to do either. Even Yahoo and AOL have teams within their ad sales groups dedicated to doing custom creative for special sponsorships and promotions that involve non standard ad units. Often this creative work isn’t charged for but is “eaten” by the portal to sell the whole advertising package.

The quest for innovation in online advertising comes with higher production and creative costs. As the online ad industry matures, I would expect it to evolve to look more like print, TV and other more mature ad markets. In these more mature markets the majority of campaigns are more standards based and less customized, and the costs of production and creative come down as a proportion of the overall marketing budget.

I’d be interested to hear about readers’ experiences with highly customized campaigns and their costs and effectiveness.

Five lessons in viral marketing from a crowd experiment July 15, 2007

Posted by jeremyliew in advertising, Internet, self espression, social media, social networks, viral, viral marketing, web 2.0, widgets.
15 comments

I’ve been traveling a bit this week, speaking at Widgetcon on Wednesday and at Community Next on Saturday. Both panels were on the topic of viral marketing; at Widgetcon with a focus on how brands can use widgets for marketing, and at Community Next with a focus on how to measure viral campaigns.

Dave McClure moderated the panel at Community Next and conducted an interesting experiment with the audience that really encapsulates some of the key lessons of viral marketing. He seeded two memes into the audience. One person was asked to start saying “meep” repeatedly. Another group of five people were asked to put their hand onto another person. The idea was to see which memes spread furthest in the audience.

The “Meeper” juiced up the visibility of his meme by adding an element of clapping as well (“meep”, clap, “meep”, clap etc), and walking up and down the front of the stage. Initially maybe 10 people near the Meeper started to meep as well (and clap – more clapping than meeping actually) but this eventually died down as it failed to get picked up more broadly. The initial early adopters started to feel self conscious when no one followed them, and stopped meeping.

At this point, the people on stage still had no idea what the second meme was until Dave asked how many people were touching someone else. About a third of the audience, maybe 50 people, raised their hand. Although it initially lagged, the second meme had far outpenetrated the first.

Although a somewhat artificial experiment, Dave managed to demonstrate a number of the key lessons about viral marketing in a very clever way:

    1. A “high visibility” app can get quick pickup among early adopters very quickly. “High visibility” can be caused by a high invite rate, inviters who invite a lot of people on average, or simply something that is extremely visible and obvious (e.g. music on your profile page, or some guy walking up and down the stage clapping and saying meep).

    2. High visibility can cut both ways. New users who are seeking social proof can see who is adopting, and decide whether or not they are “like me”.

    3. Early adopters can also be early abandoners and not representative of the broader population. (see Josh’s classic post on the 53,651)

    4. Product matters. While a highly viral app can get distribution quickly, if the uninstall rate is high then it never gets beyond a certain size. While virality dictates the speed of growth, uninstall rate (typically a function of product quality) dictates saturation size, which in many cases is a more important business driver.

    5. It helps to start virality from a larger base. Viral marketing is a probability driven game, and if you don’t have enough initial seeds then a failure of virality from any one seed can stop all growth immediately; with more seeds you have more “shots on goal”.

A lot of the same lessons came out of the panel discussion at Widgetcon. There was a real focus on asking what should be the right metrics for measuring “success” for a widget based marketing campaign. CPM and pixel count (728×90 etc) didn’t seem to be the best way to measure and sell advertising when users voluntarily affiliated themselves with a brand. Echoing lesson #4 above (Product matters), most of the panel came back to engagement with the widget as the key metric for success. If the widget isn’t good, users won’t engage.

As the industry’s attention turns to the tactics of viral growth (whether through email, cross sell, calls to action, optimization of color, font, copy and position etc) it’s a good reminder that, as has always been the case, product matters more than marketing (whether viral or not).

Four factors determine how much a Facebook app is worth July 3, 2007

Posted by jeremyliew in advertising, business models, Consumer internet, facebook, social media, social networks, user generated content, viral, viral marketing, web 2.0.
15 comments

Many people have been asking what a facebook app is worth.

Andrew Chen at MDV says in an interview with Insidefacebook that a facebook app user is worth about 1% of a user on your website.

Read Write Web points to the acquisition of the Favorite Peeps and Extended Info apps as evidence that real value is being created and predicts that there will be more acquisitions to come.

Over at Valleywag, a Facebook Application Developer complains that no matter what an app is worth, it’s no longer worth the effort to develop apps for Facebook now that virality has been turned down.

Marc Andreessen counters, says its only been five f______ weeks since the platform launched, the best is still to come.

Charlie O’Donnell at Oddcast concurs, he says to app developers “Facebook doesn’t owe you a business model” – you still have to figure that out on your own, and points out that the customer acquisition is a pretty big benefit. As I’ve blogged about in the past, open platforms and distribution are two sides of the same coin.

This discussion is all useful qualitatively. However, it’s also helpful to take a “first principles” look at how to quantitatively value the user of a facebook app. I’m going to assume a media business model for now, although some digital goods facebook apps have been launched as well. I know of at least three companies with apps generating over 100m PV/month across their user base (not widget impressions), so there does seem to be the potential to build media businesses off of the Facebook platform. Lets take a look at how we can calculate value:

    Value of a Facebook app user

    = RPM x lifetime “pageviews” generated by user and subsequent invitees

    = RPM x lifetime “pageviews” generated by user x virality factor

    = RPM x “pageviews” per user per month / monthly churn rate x virality factor

(note that I use the term pageviews although they are really iframe views; the important factor is that the app developer can insert an IAB standard ad unit. )

So value goes up as RPM goes up. RPM goes up depending on how targeted your traffic is; whether you’ve got endemic advertisers, demographically targeted users or just broad reach.

Similarly, value goes up as PV/user/month goes up. This argues that apps with high ongoing engagement (ie some aspect of ongoing utility) will be more valuable. Some apps (including some of the most popular ones such as Top Friends and Horoscope) don’t generate very many pageviews at all because all the value is delivered in the widget on the profile page, so few iframe pageviews get delivered. These fall mostly into the self expression or communication categories. Apps such as iLike on the other hand, generate a lot of ongoing engagement and PVs.

Value goes down as monthly churn goes up
. One of the factors that reduces churn and increases “stickiness” of an app is how much “archive” value is built on top of the app. The more you commit to adding information to an app, the stickier that app will become. Pets is a great example of this – as you “level up” your pet and get more equipment for it, you become less and less likely to get rid of it. Fortune Cookie is an example of an app where there is little archive value and its easy to either switch out to a new app or get rid of it altogether.

Finally, value goes up as virality goes up. Although Facebook has turned down the virality of apps recently, certain apps, primarily those with a communication and self expression component, tend to be more viral in nature. Lance and Jia of Rockyou (a Lightspeed portfolio company) did a good interview with Venturewire where they talked about how to get viral on Facebook.

All Facebook apps are not created equal on these four dimensions. If you’re building a Facebook app, it’s worth while thinking about your app using this framework to figure out how important it can be to your business. I’d love to hear from developers of Facebook apps to hear what they think about this framework, and how their app measures up against it.

Facebook App users have 5 apps installed on average. June 27, 2007

Posted by jeremyliew in facebook, platforms, social media, social networks, viral, widgets.
2 comments

Facebook apps continue to proliferate, but there is a strong “long tail” effect to their adoption. Below is a graph of the number of users of the top 100 apps as of 4pm on June 26th according to appsaholic.

Facebook Apps

While much attention has been focused on top apps like iLike and Top Friends, there are only 20 apps over 1 million users in the directory, 53 over 100k users and and 145 over 10k users.

In aggregate, the top 100 apps have 63.5m users. Given that the 100th app, LOLcats, has 22k users, and even accounting for apps not yet in the directory, its likely that no more than 70m apps have been installed so far.

A recent WSJ article says:

Already all the activity has helped Facebook grow to 27 million active users from 24 million before the platform launch, with more than half using at least one of the new services, Facebook says.

So if there are 13.5m Facebook users with at least one app, then a Facebook user with at least one app has around 5 (~70m/13.5m) apps installed on average. There is likely a long tail distribution to this statistic as well, with many users with just one app installed (likely Top Friends given that it has 7m users) and some “application sluts” with 12 or more.

This suggests that there is still a lot of room for growth for apps on the Facebook platform.

Top four multi-app companies on Facebook June 21, 2007

Posted by jeremyliew in Consumer internet, facebook, user generated content, viral, web 2.0, widgets.
17 comments

It’s becoming fashionable to question Facebook’s importance recently. Its so “first half of June”. But I’m still young, naive and in love.

At least four companies have really made a big “multi app” push into Facebook; Hot Or Not, Rockyou (Rockyou is a Lightspeed company), Slide and Trakzor.

Its hard to get complete data on all the apps that these companies have built as many are not listed in the app directory, and many are listed as having been created by employees names, rather than by the company, but here is at least a partial list, sorted by number of users and color coded by parent company:

Top app companies on Facebook color coded

Word doc with URL’s is below if you’d like to download it

Multi app companies on Facebook

I know that this is incomplete both by apps, and by companies with multiple apps. Reader comments, corrections and updates very welcome

Rockyou founders on virality June 14, 2007

Posted by jeremyliew in facebook, social media, social networks, viral, viral marketing, web 2.0, widgets.
3 comments

Venturebeat has a great interview with Lance Tokuda and Jia Shen, the co-founders of Rockyou, on virality and Facebook. Rockyou is a Lightspeed portfolio company.

Social Media: Facebook commoditizing the social map June 13, 2007

Posted by jeremyliew in business models, Consumer internet, distribution, facebook, social media, social networks, user generated content, viral, viral marketing, web 2.0, widgets.
21 comments

Facebook is transforming a lot of social media companies right now with its platform release, and its getting a lot of well deserved coverage.

Marc Andreessen put up a good post yesterday analyzing the facebook platform . He comes up with a few interesting conclusions which I paraphrase below but you should read the whole thing.

1. (Open) Platforms always beat (closed) applications, therefore Facebook platform is a winner and an advantage over Myspace

2. Facebook did a pretty good job of it.
– Its technically sound
– Its highly viral
– Third party widget/app developers have economic freedom to keep 100% of revenues

3. If you’re not large or careful success can beget failure as usage volume overwhelms your servers

4. Underground apps are being released outside the Facebook application directory (due to issues or bottlenecks with application approval)

and they need to find an alternative way to seed their growth

On 1. and 2. I agree, but with a quibble. As Seth Goldstein points out:

In 1999 I sat down with Brad Silverberg of Ignition VC who Microsoft recruited out of Borland in the early 90’s to become the lead developer and project manager of Windows 95. Never has there been a more valuable platform. He described 3 things that platforms needed to have:

* wide distribution
* application developers making money
* good tools

Let’s test those three axioms against the preeminent platform play of our time, Google:

* Wide distribution? YES
* Application developers making money? YES (if you count all the adsense publishers)
* Good tools? YES (all the adwords and adsense self-service goodness)

Now let’s test these axioms against Facebook:

* Wide distribution? YES
* Application developers making money? NO (at least not yet, I will comment on 3rd party Facebook developers such as Slide, Rockyou, and AttentionSoft)
* Good tools? YES

Marc is right that app developers can keep 100% of the revenue that they make, but today that revenue isn’t much. As I’ve commented before, we need a standard for social network advertising, and until that standard emerges, ad revenue growth will be slower. But this will come in time, and so we can expect the Facebook platform to grow as well.

Unsurprisingly, the other big social networks (not just Myspace) have been rocked by the success of the platform and are all racing to build competitive responses.

On 3., where Marc seems to primarily base his conclusion on iLike’s experience, I side with James Hong who says:

I disagree with this. iLike’s application may have been particularly heavy, but it is not inconceivable (in fact I think it is more likely than not) that people will come up with massively popular apps that are not as machine intensive as ilike’s particular application might have been. Combine that with the fact that facebook allows advertising, and the fact that managed hosting companies exist, and i think it is quite feasible for 2 guys and an idea to scale.

Two of the companies I’m invovled in, Flixster and Rockyou, combined have four of the top twelve apps on Facebook. They have certainly worked hard to keep up with load issues, but none of them have struggled as much as iLike, partly because iLike has so many users, partly because they were already scaling outside of Facebook, and partly because their apps are lighter weight.

On 4. I think Marc overemphasizes the importance of being in the application directory. While we techcrunch readers obsess over the directory (I reload it at least once an hour when I’m at my PC!), the data I’ve seen suggests that the key drivers of virality are (i) profile virality (ii) invite virality and (iii) feed virality, with very little growth coming from the application directory at all.

However, to me, the most important part of the Facebook platform is that it commoditizes the social map. A lot of social media companies have built their value in creating a social map. For many broad based social networks, where communication and self expression are the key activities, the social map largely IS the value. When I was at AOL a few years ago and social networking was just beginning, we considered opening up the AIM friends list as an API to commoditize the social map and allow others to build on top of it (we didn’t do it in the end… sigh…). These companies are most threatened by a world of commoditized social maps.

What this forces social media companies to do is to build value on TOP of the social map. Yelp does a great job of this – the byproducts of their members communication are rated merchant reviews, information that has lasting value. For Flixster it’s movie reviews and ratings. For Rockyou, its photos. For iLike, music preferences and affinities.

Not all facebook apps build value on top of the map, and despite their virality, they are the ones that may be the most business model challenged on a standalone basis. Examples here include Slide’s Fortune Cookie, Rockyou’s “x me” and Graffiti. While these may have value for distribution or user acquisition, they don’t add much value on top of the social map, despite their popularity.

I’d be interested in hearing from readers examples of other apps that both DO and DO NOT add value on top of the social map.

x_me is aweso_me June 1, 2007

Posted by jeremyliew in Consumer internet, distribution, facebook, Internet, social media, social networks, user generated content, viral, viral marketing, web 2.0, widgets.
3 comments

I’ve been obsessing over the Facebook platform since it launched last week. As has been extensively covered, its an incredible distribution platform for other companies. The most popular apps in the platform early on were existing companies like iLike, Rockyou (a Lightspeed company), HotorNot and Flixster (a Lightspeed company) who quickly ported their preexisting functionality to Facebook from other social media environments.

When I congratulated James Hong on HotorNot’s great growth in the platform yesterday, he responded:

We haven’t yet seen the native apps in Facebook. When they come they’ll grow even faster.

It’s taken less than 24 hours for him to be proved right. For the last 12-18 hours or so, the top recently popular app in the Facebook directory has been X me.

X Me
By Timothy Green
Tired of just poking? X me opens up a whole new world of action-based communication, for example ‘Hug Her, Slap Him, Tickle Them!’
346,696 users (15 friends) – 627 reviews

As I’ve posted about in the past, users can quickly adopt and understand new behaviors if they mirror current behaviors. It makes these new behaviors “easy to learn“. By mirroring the “poking” behavior that is well understood and native in Facebook, X Me has been able to quickly catapult to widespread adoption. The author, Tim Green, a freshman at Cambridge university, had done an outstanding job of building an incredibly viral app.

The Rockyou team was quick to spot the growth and has now brought Tim on board. Happily for them, they now have all three of the top three recently popular apps on Facebook. Congrats to both Tim and Rockyou!

Facebook most popular applications as of june 1st 2007

Social Media: Open platforms and distribution are opposite sides of the same coin May 28, 2007

Posted by jeremyliew in business models, Consumer internet, distribution, Ecommerce, Internet, media, social media, social networks, user generated content, viral, viral marketing, web 2.0, widgets.
7 comments

As I’ve said in the past, I think that distribution is the most important success factor in the early stages of any new consumer technology. Distribution used to mean getting a carriage deal done with a big portal. These days it can take a number of forms, but it always requires getting in front of potential users who may not be aware of you, and alerting them to your value proposition.

As social networks take an increasing percentage of internet users time, it’s more important than ever to factor them into a distribution strategy. Within Myspace, this has been through widget virality (one of the seven forms of virality that we’ve posted about in the past). Bebo has taken a more controlled approach, allowing select partners into their system in what looks closer to a traditional portal distribution deal.

Now, through its new platform, Facebook too can be a distribution platform. Apps are spreading in Facebook through a combination of virality from profile pages, promotion to existing user bases and position in the application directory, with iLike being the clear early winner. Happily for Lightspeed, Rock You and Flixster (both are portfolio companies) have three of the top ten apps on Facebook between them. Josh Kopelman says that Facebook’s open approach to partners has effectively increased their virtual R&D budget by around $250m, the amount invested so far into widget companies.

Another of our portfolio companies, Stylehive, is also taking the approach of opening up its platform (albeit on a smaller scale to Facebook). They are partnering with retailers and publishers, including the Gap, Shopbop, Instyle Magazine, Gen Art and others, inviting them into the Stylehive platform. These partners will be able to access Stylehive’s community as well as add a social media dimension to their commerce or content.

I think we’ll see even more communities opening themselves up as platforms over the next 12-18 months. It will be especially interesting to watch MySpace’s competitive response.

Seven Ways to GO VIRAL March 2, 2007

Posted by ravimhatre in Consumer internet, Internet, social networks, start-up, startups, user generated content, VC, Venture Capital, viral, viral marketing, web 2.0, widgets.
23 comments

Viral marketing has evolved from word of mouth to a much more scientific endeavor in the online world. Based on my previous posts and some additional thinking about the subject I’ve defined seven mechanisms that companies have used to successfully “go viral” in the past.

1) Communication. Same side positive network effects have driven virality for companies like AIM, Skype, Facebook, MySpace and even Fax Machines. Since you can’t communicate with others who have the tool until you get it, virality works very well. (I’ve listed Facebook and MySpace as communications tools and not self expression communities because I believe it is the Wall/Comments that drives a lot of the virality and high PVs of these sites)

2) Email invitations. Make it easy for your users to invite all of their friends. Make it hard for them not to. Tagged, Hi5 and Flixster (LSVP portfollio company) do this extremely well.

3) Widgetopia. Reid Hoffman refers to this as “invading a community”. Rockyou (a LSVP Portfolio company), Slide, Photobucket, Snapvine and others have done a great job here. Increased penetration in an existing community makes it more likely that a new user will see one of your widgets and want to get something similar. Increasing returns to scale means that the big get bigger faster.

4) Platforms. Cross side positive network effects as Jeremy posted about a couple of weeks ago can also create virality as groups on both sides of the platform flock to the greatest numbers of the other group. Ebay is the best example of this.

5) User Generated Authority. User generated content can result in high levels of traffic from organic search. This can result in more user generated content and the virtuous cycle continues. Wikipedia and Yelp are probably the best examples of this. We’ve been seeing similar behaviour at a smaller scale at Stylehive (a LSVP Portfolio company)

6) Everyone’s favorite topic. Quiz based content that tells the user about themselves (and often compares them to other people) has worked to drive virality in the past. Tickle, Quizilla, Classmates, Friend Reunited/Genes Reunited all saw big growth by getting users to input some data and gave them information about themselves (whether it be an IQ test, which sort of Superhero you are, or contact info on old friends).

7) Pay me. There have been several businesses that successfully grew by paying both new and inviting users. The economics can make this more difficult for media models than commerce models. However, it can drive a lot of new adoption, and did for AllAdvantage and Paypal.

Just about every site that has gone truly viral has employed at least one of these tactics, and sometimes several. I don’t have a detailed understanding of Netvibe‘s growth at this point and it doesn’t appear to fit into any of these categories. If you can think of companies that don’t fit these models, or other approaches that have also worked, please note them in comments!

Follow

Get every new post delivered to your Inbox.

Join 30 other followers