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Max Levchin on how social networks can build good developer platforms January 30, 2008

Posted by jeremyliew in facebook, game design, platforms, social networks.
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Max has a good post on what levers a social network can pull to attract and incent a “well behaved” base of app developers to their platform. Summarizing (my words) he says:

1. Let app developers make money, get famous or learn something
2. Have consistent and fairly applied rules
3. Provide some guidelines for “winning” and be thoughtful about what they are (basically what metrics do you make available and how do you rank apps as people will compete to be on the top of these lists)
4. Offer meaningful distribution (ie be big, and open the viral channels so that apps can spread)
5. “Reward” good and well behaved app developers

Max is a smart guy and I agree with his thoughts. Facebook has done a decent job against this list (although the consistency has been variable). Read the whole thing.

As an aside, it looks like Max is doing a lot of reading about game design. I wonder if this means that Slide will be launching Facebook games shortly, to compete with SocialGN and Zynga?

High prices can increase perception of value January 29, 2008

Posted by jeremyliew in digital goods, framing, signalling, virtual goods.
7 comments

A recent study by Stanford and Caltech found that increasing the perceived price of a bottle of wine increased the ACTUAL and perceived enjoyment that tasters derived from drinking the wine:

According to researchers at the Stanford Graduate School of Business and the California Institute of Technology, if a person is told he or she is tasting two different wines—and that one costs $5 and the other $45 when they are, in fact, the same wine—the part of the brain that experiences pleasure will become more active when the drinker thinks he or she is enjoying the more expensive vintage…

The study

The researchers recruited 11 male Caltech graduate students who said they liked and occasionally drank red wine. The subjects were told that they would be trying five different Cabernet Sauvignons, identified by price, to study the effect of sampling time on flavor. In fact, only three wines were used—two were given twice. The first wine was identified by its real bottle price of $5 and by a fake $45 price tag. The second wine was marked with its actual $90 price and by a fictitious $10 tag. The third wine, which was used to distract the participants, was marked with its correct $35 price. A tasteless water was also given in between wine samples to rinse the subjects’ mouths. The wines were given in random order, and the students were asked to focus on flavor and how much they enjoyed each sample.

Results

The participants said they could taste five different wines, even though there were only three, and added that the wines identified as more expensive tasted better. The researchers found that an increase in the perceived price of a wine did lead to increased activity in the mOFC because of an associated increase in taste expectation.

The ability of “framing” to impact perceived value is consistent with the signalling function of digital virtual goods in the gifting use case.

Three use cases for virtual goods January 28, 2008

Posted by jeremyliew in communication, mmorpg, self espression, social games, social gaming, social media, social networks, virtual goods, virtual worlds.
16 comments

Last week I estimated that Facebook is doing up to $15m in revenue per year from its digital gifts business. I noted that there are three use cases for digital goods. I thought that it might be useful to go into each of those use cases in more detail.

Digital Gifts

Facebook, HotorNot. Live Journal and Dogster are all examples of companies that have rolled out virtual gifts that members can send each other.

Virtual gifts are most effective in the context of communications, especially high volume communications environments where it can be difficult to get attention. By paying real money for a virtual gift, the sender of a message signals that they are more eager than most others to be heard. As James Hong has noted:

The utility gained from this is one of SIGNALING. What is it you are trying to signal? In the case of HOTorNOT’s virtual flowers, one is trying to signal extraordinary levels of interest. A user on the site can say “yes i’m interested” to every other person on the site because it costs nothing (but time) to click “yes” on people’s profiles. However, it is presumed that money IS a limited resource. By spending money in order to purchase a flower, becaues the # of flowers I can afford is finite, it signals to the recipient that S/he is very very EXTRA special. So we chose to price the flowers high…

So basically, because they’re so expensive and less people are willing to send them is what makes someone who RECEIVES them DIFFERENTIATED. The flowers have REAL value to the receipient [sic], and therefore real value to the sender who is gonna get props for sending them…

We found, last time we ran the numbers, that sending flowers increased the likelihood of a “double match” on our system by 4x.. meaning as a signal, they are well received and really work.

Dana Boyd also points out that gifting opens up the opportunity for reciprocation:

Gifts are part of status play. As such, there are critical elements about gift giving that must be taken into consideration. For example, it’s critical to know who gifted who first. You need to know this because it showcases consideration. Look closely at comments on MySpace and you’ll see that timing matters; there’s no timing on Facebook so you can’t see who gifted who first and who reciprocated. Upon receipt of a gift, one is often required to reciprocate. To handle being second, people up the ante in reciprocating. The second person gives something that is worth more than the first. This requires having the ability to offer more; offering two of something isn’t really the right answer – you want to offer something of more value.

This communications context for gifting underscores our finding that holiday themed facebook gifts sold 5x better than average facebook gifts. Holiday gifts come with a built in message. Getting a Santa Hat as a virtual gift is much easier to understand than getting a beach ball as a virtual gift.

Self Expression

Social network users love to personalize their profile pages, whether they be MySpace users, Bebo Users, Orkut users, yes, even Facebook users! Many web sites and virtual worlds have found that users are willing to pay to personalize their web representations, as evidenced by Gaia, Habbo Hotel, Meez, CyWorld, Second Life, Tencent and many more. These are businesses that in some cases are making tens, even hundreds of millions of dollars in revenue by selling virtual goods to personalize virtual avatars, apartments/hompies and the like. As Fred Stutzman notes:

In the SL and Cyworld model, the motivations are built on very sound logic. People like to buy stuff for themselves that makes them look cool. Since online identity is primarily about the representation of self, people will pay to differentiate themselves.

This is not so different from the real world, as evidenced by the continued growth of the luxury goods industries (including apparel, jewelry, luxury cars, watches etc).

Increased Functionality

The third common use case for digital goods is for users to buy increased functionality or power. This is ften within the context of a game. As Susan Wu noted on Techcrunch:

Each day, thousands of transactions take place via markets such as eBay for virtual swords, currency, or clothing across a multitude of virtual world environments. For people who purchase virtual items such as swords or armor, buying these items increases the overall satisfaction she receives from spending time in this virtual world / online community / online game. For example, struggling along as a level 20 character might give her 20 units of personal satisfaction per hour, whereas progressing as a level 20 character with a very powerful sword could confer 50 units per hour. In this case, she would be willing to pay the equivalent of whatever amount generates an incremental 30 units of personal satisfaction for the sword.

I’m an avid player of multiplayer online games. A couple of years ago, I spent 10 real dollars to buy 1 million gold in a game [yes, it was legal and part of a world where real money trade is not prohibited.] My friends mocked me and told me I was throwing money away, so I tried to explain it to them: 1 million gold would give me 20 hours of entertainment. If I were to go to the movies, 10 real dollars would buy me 2 hours of entertainment. Assuming that 1 hour of movie watching entertainment gives me the same personal satisfaction as 2 hours of game playing enjoyment, I would have been willing to pay $50 in exchange for that 1 million of virtual currency. In fact, I felt like I had gotten a bargain paying only $10!

Buying gold, or RMT as it is known in the gaming world, exists for just about all MMOGs, whether sanctioned by the game or not, and has spawned businesses such as IGE and Sparter.

Maintaining Scarcity

One key to the success of digital goods business models is to maintain the scarcity of the digital goods. Since digital goods are digital, they cost nothing to copy. Free copies of digital goods would reduce demand for paying for the same item. In a closed system, it is easier to maintain scarcity. The company controls the supply of all digital goods completely.

In an open system, the situation gets more complex. If users (or app developers) can create content that can be injected into the system (whether it be a website, a profile page, a virtual world or whatever) then this can readily blur the lines for self expression and virtual gift type digital goods. If it is easy, or even possible, for users to mimic digital goods, and if this creates confusion or uncertainty about which goods are “premium”, then digital goods can become devalued. To some extent, this has happened in Facebook, where free gifts applications have proliferated. This has probably dampened the sales of Facebook’s digital goods.

Myspace has never seen a digital goods model take off because the completely open profiles make it impossible to differentiate a paid digital good from a free copy. Both end up being a .swf file or an image, with no ability to differentiate. This may be one of the reasons that CareBadges (a MySpace widget bought by donating to a cause) had difficulty achieving real scale in MySpace.

Even in a closed system, if there is uncertainty about whether a digital good is free or not, this can inhibit the sale of digital goods. Demarcation lines between free and premium need to be clear, consistent, and obvious to even a new user to sustain the value of premium digital goods.

Increased functionality is one area where this demarcation is easy to maintain because this is typically an area that is within complete control of the website or virtual world.

As systems grow, the number of digital goods in circulation can rapidly grow as well. This can slow the demand for further digital goods purchases as longer tenured users decide that they have “enough” self expression or increased functionality. Good system designers will create “sinks” for digital goods to maintain a continued demand for digital goods from even long tenure users. These can include wear and tear on digital goods (Cyworld furniture gets worn as it is sold, HotOrNot flowers die over time), or risks of virtual goods being destroyed when they are upgraded (ZT Online).

I’d be interested to hear from social media and social game designers building digital goods business models to see if they have comments on this taxonomy or examples of successes and failures of digital goods models.

Facebook digital gifts worth around $15m/year January 23, 2008

Posted by jeremyliew in 3423228, digital goods, facebook, gifts, virtual goods.
33 comments

Although Facebook has primarily focused its monetization efforts on advertising, it has also experimented with digital goods. There are three typical use cases for digital goods; (i) increased functionality (ii) self expression and (iii) communication. Facebook’s Gifts fall into the third category, whereby a particular communication is emphasized because a gift has a price associated with it, thereby creating some scarcity value.

Facebook creates a certain fixed number of each type of gift. When the number remaining for any particular gift drops below 100,000, Facebook displays the number left. The most common size runs are 100,000 and 1,000,000 but they range as high as 10,000,000 and as low as 15,000.

We noted the number of available gifts of each type over a seven week period to be able to better understand the sales rate of digital gifts. Excluding free gifts, we found that the average number of sales per week for a gift was 846. Since there were 322 gifts available for sale when we completed our last survey (Jan 8th), that implies that Facebook is selling just over 270k digital gifts per week. At $1 per gift, that implies an annual run rate of just under $15m. Facebook sometimes allows users to pre pay for gifts at a discount if you buy multiple gifts, so this number may be slightly lower.

The top four fastest selling gifts were the only four free gifts, all sponsored by an advertiser. On average these gifts were given at a rate of over 150k/week. This is a rate almost 200x faster than the regular Facebook gifts and speaks to the penny gap.

Holiday themed gifts (e.g. Santa hat, eggnog, Happy New Year!) dominated the list of top selling paid gifts, averaging 4,755 sales per week. Romantic gifts (e.g. “Be Mine” cookie, chocolates in a box) also sell better than average. This reinforces the use case of communication as these gifts all have a clear communication overtone, relative to gifts without a clear message (e.g. an espresso bean, a beach ball or a lemon).

WordPress doesn’t let me upload excel spreadsheets, so a .pdf is available below.

Facebook gifts analysis

I suspect that as we see more social games emerge on Facebook we will see digital goods that take advantage of the other two use cases, increased functionality and self expression.

NOTE: I updated this estimate in September 2008 and concluded that Facebook was on a run rate to sell $35M in digital gifts.

Porn only 6% of search terms January 22, 2008

Posted by jeremyliew in Search.
6 comments

Rich Skrenta shows an analysis of AOL Search terms broken down by category:

Entertainment 12.60%
Shopping 10.21%
Porn 7.19%
URL 6.78%
Research 6.77%
Misspellings 6.53%
Places 6.13%
Business 6.07%
Health 5.99%
News&Society 5.85%
Computing 5.38%
Orgs&Inst 4.46%
Home&Garden 3.82%
Autos 3.46%
Sports 3.30%
Travel 3.09%
Games 2.38%
Personal Fin 1.63%
Holidays 1.63%
Other 15.69%

Interestingly enough, both Shopping and Entertainment show significantly more search volume than porn. I guess we want our ipods and Britney gossip more often than dirty pictures.

The numbers add up to 118.96%, presumably because some search terms fall into more than one category. Representing each category on a percentile basis out of 118.96%, and organizing them into broader groups, we see that a little over a quarter of searches have some commercial component (in red below), a little under a quarter are entertainment (blue) or information (pink) related, with navigation and other making up the rest.
Searches by type

EA launches free to play MMO for Western users January 21, 2008

Posted by jeremyliew in business models, digital goods, games, games 2.0, gaming.
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Although EA has experimented with free to play MMOs in Korea before, Battlefield Heroes, being launched this summer, is its first free to play MMO aimed at a western market. They will be employing a digital goods model to monetize. With EA now joining Sony and other big western game publishers to employ this model, it is starting to look pretty mainstream. Battlefied Heroes will be more casual than previous incarnations in the franchise. NY Times notes about EA’s Korean launch, FIFA:

E.A.’s most recent experiment with free online games began two years ago in South Korea, the world’s most fervent gaming culture. In 2006, the company introduced a free version of its FIFA soccer game there, and Gerhard Florin, E.A.’s executive vice president for publishing in the Americas and Europe, said it has signed up more than five million Korean users and generates more than $1 million in monthly in-game sales.

Players can pay not only for decorative items like shoes and jerseys but also for boosts in their players’ speed, agility and accuracy. Mr. Florin said that while most users do not buy anything, a sizable minority ends up spending $15 to $20 a month.

17 internet games design principles January 17, 2008

Posted by jeremyliew in game design, game mechanics, games, games 2.0, gaming.
3 comments

Recently I posted XEO Design’s thoughts on what makes games fun. Also useful from them are some thoughts on internet game design principles:

1. Easy to Learn, Lifetime to Master
2. Simple obvious controls and rules that are easy to master
3. Allow players to discover controls and goals through simple exploration.
4. Provide clear, immediate, and meaningful feedback.
5. Offer clear and obvious short term and long term goals.
6. Players should be able to succeed in the first 10 minutes or earlier.
7. Support short session times of 10-15 minutes as well as longer.
8. Offer consistent controls and labels.
9. Vary the type of challenges so play does not become routine.
10. Support multiple player styles such as Bartle’s 4 types: Achievers, Explorers, Socializers, and Player Killers.
11. Offer more than a high score as a reward, make gameplay intrinsically rewarding.
12. Offer community/social features such as high score boards, in-game chat, and message boards.
13. Use audio feedback and sound effects to increase excitement and make interaction more real.
14. Include the option to turn audio off, so games can be played anywhere.
15. Test all aspects of the Player’s experience with real users.
16. Adjust spacing between play and reward to keep players motivated and to imply progress.
17. Remember a player’s high score at least between consecutive games, allow them to save it, or otherwise show player progress between games

A great laundry list to keep in mind for people building social games on the Facebook platform and elsewhere.

Game Design Fundamentals January 16, 2008

Posted by jeremyliew in game design, game mechanics, games, gaming.
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Raph Koster has a couple of posts on game Design Fundamentals on the Metaplace blog.

The first post notes:

The first thing to understand is that games are made out of games. A large game is actually composed of minigames. Even a small game is built out of very simple small games. The smallest games are ones that are so simple and stupid, you can’t lose. You can think of this as “game atoms,” if you like.

and gives three pieces of advice (summarized here – far more detail in the original post):

Advice #1: Design one game at a time (with each game having 4 components: input; model; feedback and mastery)

Advice #2: make sure the controls match up well to what the player is attempting to do.

Advice #3: make sure the player can actually learn from the feedback you give them.

The second post notes:

The fun comes from the mastery process. But what the player is mastering is the model. All games are mathematical models of something. We often speak, for example, of Chess being like war (we actually speak of lots of games as being like war!).

and gives three more pieces of advice:

Advice #4: try to stop thinking about what your game looks like, for a moment, and think about what it is actually modeling:

..(ask) yourself the following questions about your game atom:

* Do you have to prepare for the challenge?

…where prep includes prior moves? …and you can prep in multiple ways?

* Does the topology of the space matter?

…does the topology change?

* Is there a core verb for the challenge?

…can it be modified by content?

* Can you use different abilities on it?

…will you have to in order to succeed?

* Is there skill to using the ability?

…or is this a basic UI action?

* Are there multiple success states?

…with no bottomfeeding? …and a cost to failure?

Advice #5: check this list for every goal, every objective, every button press, every action a user can take, every decision they make.

Advice #6: watch others play your game – you’ll quickly see where you didn’t provide enough feedback, or where they can’t figure out the underlying model. (ie Prototype and iterate)

Budding social game designers should read both posts.

What games work best on Facebook? January 15, 2008

Posted by jeremyliew in asynchronous gaming, casual games, facebook, game design, game mechanics, games, games 2.0, gaming, platforms, social networks.
16 comments

Three good blog posts recently about games on Facebook.

Brian Green talks to a developer with two games, one casual and one hardcore, and based on that concludes that hardcore games do better:

I suspect the reason is because people still enjoy a good game, even if it has “hardcore” aspects like direct, zero-sum competition. Even though the party game was less confrontational, it probably didn’t include as many engaging elements as the first game. So, more people played and stuck with the game.

What he is really saying though seems to be that good games are better than bad games. Matt Mihaly checks the list of Facebook games with most daily users and finds that the top ten are all casual games, and notes that:

…good games on FB are as much about communication and/or self-expression as they are about gameplay.

I completely agree. As Matt notes in his post, there have been two paths to success for Facebook games. One has been to build lightweight “proto-games” that spread virally on the back of self expression or communicaiton. The other has been to build true games with complex and engaging game dynamics. These games do not grow as rapidly, but they do draw much higher daily engagement rates.

Nabeel Hyatt extends the analysis to compare multiplayer games to singleplayer games on Facebook.

Facebook games vs apps engagement

He finds that:

Multiplayer social games such as Warbook and Scrabulous average 11.4% active daily users, a good 30% higher than the average top Facebook app (8.01%). I’m sure if we could actually get engagement, attention, and retention metrics we’d see the same trend. This combined with the relatively high percentage of games represented in the top 25 applications (7 games) would suggest that there is simply a lack of quality, socially-focused games on Facebook.

I wholeheartedly agree with Matt and Nabeel. I think that over the next few months there will be a number of exciting social, multiplayer casual games with good gameplay dynamics built on Facebook and the other social networks as they open up. Teams comprising of experienced game designers and experienced social media/viral marketing experts will be best positioned to create these games. I am actively interested in hearing from such teams.

It is no accident that Typhoid Mary was a woman January 14, 2008

Posted by jeremyliew in social games, social gaming, social media, social networks.
6 comments

There is increasing evidence to suggest that in the consumer internet, females serve much better than males in spreading the viral growth of social media, social networks and social games

The most recent Pew Internet report on Teens and Social Media notes that:

Girls continue to dominate most elements of content creation. Some 35% of all teen girls blog, compared with 20% of online boys, and 54% of wired girls post photos online compared with 40% of online boys.

This is certainly consistent with the demographics of the major social networks, widget platforms and social media sites. Quantast shows that more than half of the users of these sites to be female with the exception of Digg. (Quantcast does not show a gender breakdown of Slide.)

female % of social networks

I recently spoke to the people who run a popular social network and they shared some of their stats with me:

1) In 2007, 56% of total signups were female.

2) Females are 33% more likely to invite friends than are males.

3) Females are 10% more likely to respond to an invite from a female vs. a male.

4) Males are 50% more likely to respond to an invite from a female vs. a male.

It is easy to see that in social networks, social media, and social gaming, where viral marketing is a going to be a key driver of user acquisition, it will be important to build a product that is attractive to women. This has certain implications for the themes and genres of these sites and games. Some of the current crop of Facebook games may be more “female friendly” (e.g. Fluff Friends) than others (e.g. Duels) and these may have better success in growing virally.