The WSJ had an interesting article last week about how some consumer electronics companies were working to reduce return rates:

The U.S. electronics industry last year spent about $13.8 billion to re-box, restock and resell returned products, according to a study by technology consultant Accenture Ltd. Especially galling to manufacturers is that many returns are preventable: Only about 5% of returns were because a product was truly defective. Instead, most consumers give up on products for other reasons, such as the device being too confusing to use, the study found.

Return rates are even higher in apparel and shoe retailing than in electronics; in some cases return rates are in the 20-30% range.

The good news is that companies are addressing returns in consumer friendly ways, rather than by trying to penalize consumers. One great example is Sony:

Sony Corp. has taken a different approach with some of its products that makes it harder for consumers to bring them back. The company in 2006 added an option allowing consumers to engrave their name or other message on a Vaio computer. It expanded the program to its digital cameras last year. Sony says the program was started to let customers personalize products, but a side benefit for Sony is that engraved products can be returned only because of defects or other reasons that are the company’s fault.

Return rates on engraved Sony Vaios are negligible, compared with about 5% for non-engraved PCs, the company says, saving more than $1 million so far. “I have a feeling that people are understanding the condition that you can’t return it,” Mr. Abary says. “But also once they have engraved it, they feel like it’s a part of them.”

I thought that this was a very clever approach.

Bret Terrill has an interesting post using Compete stats to look at the effectiveness of the Zynga and SGN game networks in cross promoting traffic through their game bars that is worth a read.

Reader of this blog will know that I have a high degree of interest in Social Games. There are a couple of social gaming conferences coming up in the next couple of months.

The first is Interplay which is being held on May 22nd at the Kabuki Hotel in San Francisco. It specifically is focused on games being played on social networks. Some of the topics that the conference plans to address include:

How will the companies in this space turn their momentum into sustainable business models?
How will the social network platforms react if and when they do?
The virtual economies represent large opportunities, but how does one exploit them, and what role can advertising play?

I’ll be speaking at the conference so hope to meet some readers there. Click here for a 25% discount to attend Interplay.

The second is the Social Gaming Summit which Lightspeed is sponsoring and that I am helping to organize with Charles Hudson and David Sachs. It isn’t until June 13th, so I’ll post more about that next week.

Siqi Chen, CEO of Serious Business (publisher of the Friends for Sale game), pointed me to an excellent white paper on the money supply impacts on an online economy recently.

It notes that in most games, players control the rate at which new cash is introduced into the economy. To avoid hyper-inflation, it recommends four steps:

Consumables are important in creating new Cash – If large amounts of new cash can be created without consumables, then there is no economic brake on cash creation.

Players set the prices of Consumable – This is the other side of the coin, since only player set prices can legitimately respond to changes in the money supply. Attempting to do this programmatically in such a diverse economy as a typical MMO is to invite failure. National governments have not been able to do this.

Fixed drains need to be in place – This provides a mechanism to remove a Crafter who is economically irrational from the business game, as well as to provide equilibrium in prices and money supply. Thus a regular fixed cash fee for doing business is required, and set by the game.

Variable Drains via percentage commission of the sale need to be in place – This provides a damper that mitigates wild swings in the money supply. Fictionally Sales commissions provide this damper. The percentage is set by the game, on Facility Type basis.

People building social games should read the whole thing.

iPhone users browse the web on their phones far more than the users of other phones. According to the NY Times, over Christmas 2007, Google got more traffic from iPhones than from any other type of phone, despite the iPhone’s small market share:

The data is striking because the iPhone, an Apple product, accounts for just 2 percent of smartphones worldwide, according to IDC, a market research firm. Phones powered by Symbian make up 63 percent of the worldwide smartphone market, while those powered by Microsoft’s Windows Mobile have 11 percent and those running the BlackBerry system have 10 percent.

Info World notes:

The key to the iPhone’s success is the fact that it provides a unified, full browser experience, said Neil MacDonald, a Gartner analyst. By comparison, Windows Mobile is a fractured platform, with separate PDA and smartphone versions, as well as a version of the browser that doesn’t support full HTML.

But at the same time we have an increase in full web browsing on the phone, web pages are getting bigger. Much bigger. The average web page tripled in size since 2003. Why? WebsiteOptimization.com says:

Web 2.0 technologies such as Ajax certainly contribute to the increase in the number of objects per page, as well as the growth in JavaScript file size. Dynamically generated sites from content management systems are typically not as optimized as hand-tuned sites, and often carry over site-wide CSS, JavaScript, and page components to every page on a site.

As broadband becomes more widespread web designers have created more elaborate designs, assuming that a large proportion of their audience is on broadband, or ignoring dial-up users entirely.

Even iPhone users will acknowledge that visiting big web pages, especially those incorporating rich user interactions, can be a frustrating experience. Yet most pundits agree that web usage is only going to increase on mobile devices, despite the triple constraints of slower connections, slower processors and smaller form factors.

I’d be curious to hear what readers think will happen as these two trends collide.

In February, Gaia announced that it would be using its current virtual world user base to launch a casual MMOG. Virtual World News has an interesting interview that gives more details about the Gaia MMOG:

Beyond the virtual world background for the casual mmo, Georgeson also highlights the fact that Gaia offers more variety in its gameplay than some other MMOGs. Locations will behave differently according to the number of people present, monsters will spawn in different ways, and a wider variety of scripts, he says, create a sensation of spontaneity.

Also, there’s golf.

“One of the other things I’m particularly proud of is that a lot of MMOs have the same experience where you go or no matter what you’ve done for how many people are in the area,” said Georgeson. “It’s a big treadmill of killing monsters and getting loot. We still have that, but we also have aboveground game like golf that people can play even if there’s a battle raging around them.”

Although the kids/teens based MMOG world is getting increasingly crowded, especially as the media companies like Disney and Nickelodean launch new games, I think Gaia’s new game will likely be a success. As Virtual Worlds News notes:

Gaia Online is described as a virtual world and a forum, which makes it seem more open-ended and unformed that it actually easy. There’s actually already a fairly extensive guild system, roleplaying community, and narrative built into the world, though. It’s just not always readily apparent.

Gaia has held many scripted special events in the past that brush right up to the edge of becoming an MMOG. They already have an avid user base that has created and customized avatars, an in-world economy, and a digital goods business model. They also have an expertise in creating fun gameplay. Adding in levels, skills, quests and powerful virtual items is a small step for them to take.

I’ll be watching their launch in the summer with great interest!

The NY Times magazine this weekend notes that Flickr has developed its own ideas about beauty in photos, very different from the art-school aesthetic.

People don’t upload to the Web words and images they had fashioned apart from the Web; they fashion their stuff specifically for online platforms and audiences.

Consider photography. As art-school photographers continue to shoot on film, embrace chiaroscuro and resist prettiness, a competing style of picture has been steadily refined online: the Flickr photograph. … amid the more than two billion images that currently circulate on the site, the most distinctive offerings, admired by the site’s members and talent scouts alike, are digital images that “pop” with the signature tulip colors of Canon digital cameras.

While pretty and even cute, these images are also often surreal and prurient, evoking the unsettling paintings of de Chirico and Balthus, in which individual parts are beautiful and formally rendered, but something is not quite right over all. Flickr’s creamy fantasy pictures, many of them “erotic” (rather than sexy) portraits that have been forcibly manipulated with digital tricks, stand in contrast to the rawer and grainier 35-millimeter photography that’s still canonized by august institutions like the International Center of Photography.

Blogs too have developed their own unique writing style, different from the writing of newspapers or magazines, and often influenced by the dictates of SEO best practices, headline focused RSS readers and the short attention span of web readers. Writing has become more like advertising copy, with no room for a surprise ending as the reader may never get to it. It becomes all about the attention catching lead.

Online video is another clear example of how the medium has changed best practices. As Comscore’s recent video data shows, short form videos such as those on Youtube and MySpace completely dominate the longer form videos from ABC.com, Viacom, Disney and the other TV networks.

Even music is starting to change - Rolling Stone recently noted that songs are now written to sound good in compressed MP3 format and on small speakers, rather than being optimized for absolute sound quality.

These changes are not for the better or for the worse, but they are further evidence that the web is not just a distribution channel for other forms of media, but a new medium in its own right, with its own best practices, use cases and aesthetics.

Today we announced a $4m investment in Serious Business. Their social game, Friends For Sale, has become a top ten app on Facebook since it launched in November. I am very excited about working with Siqi and Alex and the rest of the team.

While there are a lot of games on the social network platforms now, many have game mechanics that have been ported from another medium. I think Siqi and Alex have developed the first game dynamic that is native to social networks. As I’ve mentioned before, social games differ from merely multiplayer games in that social context has an impact on the game play and enjoyment. I believe that the Serious Business team has a deep understanding of how to create these social games, and we’ll see more such games coming from them in the future.

Venturebeat has a good description of the first game:

Here’s how it works. You join Friends For Sale and receive a starter war chest of several thousand dollars of the company’s virtual currency, as well as a valuation of how much you’re worth. Then you see a list of all your Facebook friends who have added the application, along with their selling price, and you can start buying them up. Price is determined like in any market, by bidders — so if you’re competing against others to buy a particular friend, you’ll have to keep raising your bid in order to maintain ownership.

When you sell a friend, you get to keep half the profit. The other half goes to the person getting bought. You can also make money by doing things like inviting more friends to the application. You earn $2,000 for every four hours that you’re logged in, and $1,000 for every friend you invite. And when somebody buys you, your value increases.

What’s the point of owning a friend, besides making virtual money on their eventual sale? Well, you can buy them gifts, or you can use them to “poke” other friends.

So really, this game is a mask for deeper social intentions. Let’s say you’re a high school student and you want to show a classmate that you have a romantic interest them — buy them and give them a gift on Friends For Sale. Or lets say you want to attract the interest of a prominent entrepreneur and angel investor like early Googler Georges Harik. Buy him, if you can afford it: He’s my most expensive Facebook friend, worth more than half a million dollars in the app’s virtual currency (pictured, above; thankfully, he’s already an investor in VentureBeat).

Other coverage is in Techcrunch, and Inside Facebook.

Some people have asked for the introductory slides from my talk today at Web 2.0 Expo about Games 2.0. These slides were just for scene setting and the bulk of the time was spent in panel discussion and case studies for the various elements outlined in the presentation. None the less, here it is.

2008-web-2dot0-presentation-games-2dot0-ac-changes-v2

UPDATE:

Ben Vandgrift liveblogged the session. Since there is no way to link to just this post on his blog, I am quoting it here without any changes or edits (although note that my name is spelled Jeremy LIEW!)

{w2e fri session 1: games 2.0 (@11:56)}

jeremy lieu @ lightspeed venture partners

we’re talking about the future of game development and game types with web 2.0.

panelists:

lots of things have changed in the web—mostly the variability of cost. these changes are tricking to the web industry.

aaa games can cost upwards of $30M. marketing driven by print and media advertising. building is about levels, and monetization is through box sales.

changes parallel the web industry.

small agile teams can get in-browser games out quickly.

(really want this slide .. don’t want to record it here.)

web games are multiplayer—not ai driven. no level design. &c.

some numbers:

halo3 $30M, yielded $700M.

powerchallenge < $8m. 1M players.

friends for sale < $1m. 7m players.

marketing:

$30M marketing dollars, 10M copies sold, 90% through retail.

the rest—facebook.

aaa game sales declines over time.

social games are backward—they grow over time.

one of the critical issues for multiplayer games online is asynchronous play.

online gaming revenue: $3.8B 2006, $5.3B in 2007, more in 2008, and growing.

panelists:

seqi chen (serious business)

johann christiansen (power challenge)

shervin pishevar (social games network)

mark pincus (zynger)

warbook—developed in two months by two people.

there have been improvements in play since launch, since it’s server hosted. just launched a sequel.

johann started in 2001, started text-based, added graphics over time.

how import are graphics, given their expense?

not important in management games.

launching early with a text-based game: profitable from the first year. management games develop a loyal user base.

variablized content?

mark: launched scramble as a live game, competition in real time. maxed out at 20K daily active users. spent three months reworking the game to be asynchronous. several tries before it reached a tipping point. thought asynchronous was a bad idea initially.

they come back to an asynchronous play because it’s your turn. there is a social obligation. the live game, though, represents 1/3 of daily users.

seqi: not turn based, but is asynchronous. (friends for sale). success about creating a game where social relationships are embedded into the game.

there is some value in unstructured asynchronicity.

johann: the social aspects of games are critical.

shervin: (gaming graph v. social graph). the emotional connection between people who know each other is quite valuable.

(think about a word scramble type game with continuous scoring.)

a very high accept rate on invitation is key to viral growth.

ghost racer: example of something too hard, yielding a high dropoff rate. ideally, a game should be easy, spreadable, with incentives for invitation.

six or seven months to 1M daily actives for popular web games. the important metrics are how things are being used. example: buying drinks for someone at the table at texas holdem. 250,000 drinks bought a day, for this little side feature.

(some discussion about funding of ventures.)

?: how to do something additional to viral.

mark: games are not naturally viral. other mechanisms have to be employed, and repeat usage has to be focused on. the ad rates you can buy traffic from are ridiculously low. networks from zynga are open to any new game developers.

shervin: ad-sharing is critical to cross-promotion. gaming bars, who’s playing what. one-click to go play. an independent channel from facebook. combined reach through SGN is 100M users.

seqi: (re crosspromotion) since they have one app, not so much cross-promotion. forced virality v. virality via game mechanic.

?: what are people willing to pay for?

digital goods, personal branding

?: real-money trading? digital goods?

shervin: a discussion on selling warbook gold. freegifts = largest virtual goods e-tailer.

mark: there is a direct line relationship between engagement and monetization.

?: social gaming and mobile phones?

they’re on the way.

?: $ for 1000 players / day? rate?

difficult answer. 4% monetized. few people getting north of 10%.

?: demographic information?

ffs: 60% female. 50% 20-25. 4th largest norway, big in saudi arabia.

power challenge: 90% male, 18-19 avg age.

texttwirl, etc: 60% women

warbook: 70% male

scramble: female and u.s.

texas holdem: make and foreign.

?:how important are incentives, like hint points?

word scavenger hunt.

Apologies for having gone dark on the blog for the last two weeks - I was out on vacation. However, I’m back in the saddle now, in time for the Web 2.0 expo this week. I’ll be around the conference at Moscone West much of the week, and in particular am speaking on “Games 2.0” on Friday at 11am.

I’ll give some of my thoughts on how the games industry is undergoing the same forces of change that led to web 2.0, and discuss this with an illustrious panel of entrepreneurs working in this area: Siqi Chen of Serious Business (Friends for Sale), Mark Pincus of Zynga Games, Shervin Pishevar of Social Games Network and Johan Christensen of Power Challenge.

It should be a great session, both for people in the games industry, and for those in the web industry. There is much to learn from game mechanics that are more broadly applicable to social media sites. I hope to see you there!