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Using Prosper and Mechanical Turk to figure out if people who are shifty look shifty March 19, 2009

Posted by jeremyliew in user generated content, web 2.0.
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The Economist has another fascinating article about face. Specifically, about physiognomy – the idea that the way you look is a reflection of your character.

In particular, it describes research done by at Rice University to see if people could identify people who were bad credit risks by the way they look. They looked at 6,821 loan applications on Prosper. They asked 25 Mechanical Turk workers to assess each of the potential borrowers’s likelihood to repay a $100 loan. Here is what they found:

Their first finding was that the assessments of trustworthiness, and of likelihood to repay a loan, that were made by Mechanical Turk workers did indeed correlate with potential borrowers’ credit ratings based on their credit history. That continued to be so when the other variables, from beauty to race to obesity, were controlled for statistically. Shifty physiognomy, it seems, is independent of these things.

That shiftiness was also recognised by those whose money was actually at stake. People flagged as untrustworthy by the Mechanical Turks were less likely than others to be offered a loan at all. To have the same chance of getting one as those deemed most trustworthy they were required to pay an interest rate that was, on average, 1.82 percentage points higher, even when the effects of historical creditworthiness were statistically eliminated.

So it takes two web 2.0 services to tell you that many people who look shifty are indeed shifty.

Next weeks games conferences March 18, 2009

Posted by jeremyliew in conferences, games, games 2.0, gaming.
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GDC is next week, and still focused on console and AAA PC games. I’m speaking at a couple of satellite gaming conferences that are more focused on online gaming, my area of investment interest.

On Sunday March 22nd I’m moderating an 11am panel on Marketing and Distributing Flash Games at the Flash Gaming Summit. Unfortunately this conference is already sold out.

On Tuesday March 24th I’m speaking on an 8:45am panel of VCs who invest in games at GamesBeat. Tickets are still available and you can use the discount code GBfriendVB to get a 15% discount.

If you’re at either conference, come say hi.

Youtube to do $500m in revenue in 2009? March 16, 2009

Posted by jeremyliew in advertising, video.
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Today in an article about Tim Armstrong’s departure from Google, the WSJ offhandedly says:

But advertisers mostly haven’t committed a large amount of ad dollars to these emerging areas. YouTube, for example, will account for only roughly 3% of Google’s net revenue this year, or $500 million, estimated Youssef Squali, an analyst at Jefferies & Co.

That Youtube revenue estimate is far higher than other estimates I’ve seen. In November, Screen Digest provocatively claimed that Hulu would catch Youtube in revenues in 2009, but at the much lower level of $180m. Said the FT:

Neither company breaks out its advertising revenues but Arash Amel, analyst at Screen Digest, forecasts that in 2008 YouTube will generate about $100m in the US, compared with about $70m at Hulu. Next year both sites will generate about $180m in the US, he says. YouTube currently earns around half of its revenues in the US, while Hulu has not yet launched internationally.

I suspect the $500m estimate of Youtube’s 2009 revenue is way too high, especially in light of the current advertising recession. What do readers think?

How many user reviews is enough, and how many are too many? March 16, 2009

Posted by jeremyliew in Ecommerce, user generated content.
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The Economist in their latest technology quarterly review look at how user reviews stimulate ecommerce.

They find that once you have about 20 reviews of a product, you start to see increases in sales conversion rates:

The sheer volume of reviews makes far more difference, according to Google’s analysis of clicks and sales referrals. “Single digits didn’t seem to move the needle at all,” says Mr McAteer. “It wasn’t enough to get people comfortable with making that purchase decision.” But after about 20 reviews of a product are posted, “We start to see more reviews—it starts to accelerate,” says Sam Decker, the chief marketing officer of Bazaarvoice, a firm that powers review systems for online retailers.

His company’s research shows that visitors are more reluctant to buy until a product attracts a reasonable number of reviews and picks up momentum. In a test with Kingston, a maker of computer memory, Bazaarvoice collected reviews of Kingston products from the firm’s website and syndicated them to the website of Office Depot, a retailer. As a result there were more than ten reviews per product, compared with one or two for competitors’ offerings. The result was a “drastically” higher conversion rate, which extended even to other Kingston products that lacked the additional reviews.

Even if some reviews were negative, sales still increase:

Online retailers have generally been reluctant to allow users to leave comments, says John McAteer, Google’s retail industry director, who runs shopping.google.com, the internet giant’s comparison-shopping site. But a handful of bad reviews, it seems, are worth having. “No one trusts all positive reviews,” he says. So a small proportion of negative comments—“just enough to acknowledge that the product couldn’t be perfect”—can actually make an item more attractive to prospective buyers.

However, some books on Amazon now have thousands of reviews, more than enough for a potential buyer to draw an overall conclusion. So why do people continue to write new reviews for these products, even years afterwards?

Mr Shirky suggests that in many cases, writing a review is more like writing fan mail (or hate mail) for a product, and the people who post them do not really expect it to be read.

Whereas new people continue to write reviews long after a book is published, blog comments have quite a different set of behaviors.

“You can probably have a decent discussion until you get to about 350 comments,” says Markos Moulitsas, the founder of Daily Kos, a popular left-leaning political site. But after that, he says, “most outside people will stay away from the thread, and further growth will come from people already inside that thread carrying forth a discussion, debate, or argument.” Such discussion threads are more of a conversation, and the page they inhabit usually has a limited lifespan during which people continue to post—unlike the Amazon pages for the “Harry Potter” books, which continue to attract reviews even today, years after the books’ publication.

Part of this is because the “pivot” of user engagement for a review is the product, whereas the “pivot” of user engagement for a blog is the conversation thread. Since the product is evergreen to new users, it will continue to attract reviews. But a stale conversation in the comments to an old post is unlikely to draw in new comment. It is usually clear that the other debaters have moved on from the conversation, and there is little incentive to speak to an empty room. Knowing what’s the right primary pivot for your social media drives a lot of design decisions.

This is reinforced by design; many blogs alert you to new comments if you’ve commented on a blog post; almost no ecommerce stores alert you to new reviews of products that you have reviewed. As a result, blog comments turn into conversations between engaged participants whereas product reviews. As always, behavior and culture are a function of UI.

More insights on Facebook, Twitter and Myspace from danah boyd March 15, 2009

Posted by jeremyliew in Uncategorized.
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danah boyd recely gave a talk at the Microsoft Research Tech Fest on her research on social media titled “Social Media is here to stay … now what?“. Most interesting to me were her insights into how youth and adults use the various social sites (Facebook, Twitter, Myspace etc) differently. I’ve bolded some of the sections that I thought were most insightful

Let’s now turn our attention to youth for a moment. As many of you know, youth played a central role in the rise of some social media. Now, many adults have jumped in, but what they are doing there is often very different than what young people are doing. This showcases the ways in which some tools are used differently by different groups.

For American teenagers, social network sites became a social hangout space, not unlike the malls in which I grew up or the dance halls of yesteryears. This was a place to gather with friends from school and church when in-person encounters were not viable. Unlike many adults, teenagers were never really networking. They were socializing in pre-exiting groups.

Social network sites became critically important to them because this was where they sat and gossiped, jockeyed for status, and functioned as digital flaneurs. They used these tools to see and be seen. Those using MySpace put great effort into decorating their profile and fleshing out their “About Me” section. The features and functionality of Facebook were fundamentally different, but virtual pets and quizzes served similar self-expression purposes on Facebook.

Teen conversations may appear completely irrational, or pointless at best. “Yo, wazzup?” “Not much, how you?” may not seem like much to an outsider, but this is a form of social grooming. It’s a way of checking in, confirming friendships, and negotiating social waters.

Adults have approached Facebook in very different ways. Adults are not hanging out on Facebook. They are more likely to respond to status messages than start a conversation on someone’s wall (unless it’s their birthday of course). Adults aren’t really decorating their profiles or making sure that their About Me’s are up-to-date. Adults, far more than teens, are using Facebook for its intended purpose as a social utility. For example, it is a tool for communicating with the past.

Adults may giggle about having run-ins with mates from high school, but underneath it all, many of them are curious. This isn’t that different than the school reunion. We all poo-poo the reunion, but secretly, we really want to know what happened to Bobbi Sue. Nowhere is this dynamic more visible than in the recent “25 Things” phenomena. While teens have been filling out personality quizzes since the dawn of social media, most adults only went through this phase once, as a newbie when they felt as though they really needed to forward the chain letter to 10 friends or else. The “25 Things” phenomenon took me by surprise until I started thinking about the intended audience. Teenagers craft quizzes for themselves and their friends. Adults are crafting them to show-off to people from the past and connect the dots between different audiences as a way of coping with the awkwardness of collapsed contexts.

Social media continues to be age-graded. Right now, Twitter is all the rage, but are kids using it? For the most part, no. It’s not the act of creating and sharing social nuggets that’s the issue. Teens are actively using Facebook status update, MySpace bulletins, and IM away messages to share their views on the day and their mood of the moment. So why not Twitter? While it’s possible to make Twitter “private,” the culture of Twitter is all about participation in a large public square. From the digerati seeking widespread attention to the politically minded hoping to appear on CNN, many are leveraging Twitter to be part of a broad dialogue. Teens are much more motivated to talk only with their friends and they learned a harsh lesson with social network sites. Even if they are just trying to talk to their friends, those who hold power over them are going to access everything they wrote if it’s in public. While the ethos among teens is “public by default, private when necessary,” many are learning that it’s just not worth it to have a worrying mother obsess over every mood you seek to convey. This dynamic showcases how social factors are key to the adoption of new forms of social media.

The NY Times Magazine has an article this Sunday, “Growing up on Facebook” that reaffirms danah’s point that adults use Facebook (and other social media) for reconnecting with their past:

Ever since I signed up a couple of months ago, I have felt thrust into a perpetual episode of “This Is Your Life” (complete with commercials). “Friends” from nursery school have resurfaced, as well as high-school teachers (including the one who pinned me to a wall during a graduation party and slurred, “You’re not much to look at now, but when you’re 30 you’re gonna be terrific”). I have reconnected with the brother of a friend who was killed; rediscovered college chums and colleagues from my early days in New York. I am by turns amused, touched and horrified by these gentle breezes and icy blasts from the past.
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All of which is possible because I actually have one — a past, that is. As do most people my age, and apparently, we’re digging its excavation: there was an estimated 276 percent increase in Facebook users ages 35-54 during the last six months of 2008, bringing their total to almost seven million. Still, that number is dwarfed by the nearly 25 million users under 25. That gives me pause. They can’t be doing what we’re doing, right? What do they have to look back on?

Even a cursory glance at Myspace and Facebook pages of young people show that they have an entirely different use case;the “grooming” of existing social relationships that danah talks about.

Which categories of advertiser are still buying online media? March 10, 2009

Posted by jeremyliew in advertising, Internet, recession.
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More from James Mitchell’s presentation last week:

Checks with large online buyers confirm the obvious – that discretionary and some lending-oriented financial verticals remain weak. Also, we do not forecast a speedy recovery of the auto sector, though comments from overseas manufacturers are encouraging, with brands such as Audi planning to double its online ad budget this year, despite sales trends.

Also encouraging are announcements from players in the hardest-hit verticals moving all ad spending online. For example, Century 21 Real Estate recently committed to moving 100% of its national ad campaigns to the Internet.

Surprisingly, financial categories such as insurance, refinancing, and deposit accounts remain strong, as financial institutions seek to raise capital and take share in fee-based businesses.

Also, education and books categories have been growing recently, with textbook retailers and continuing-education institutions such as the University of Phoenix seeking to capture counter-cyclical demand.

Mitchell also identified travel as a potential area of weakness as airlines cut back capacity. However, he noted that there is a lot of hotel inventory currently in development that would come online over the next two years. These new hotels and resorts would likely drive travel advertising to recover.

One other area that Mitchell noted may change in the future was pharmaceutical spending. While this has been holding up very well so far, he noted that some changes that the Obama administration is contemplating may limit pharmaceutical companies ability to advertise their products.

Other attendees noted entertainment advertising (particularly movies), advocacy advertising (political issue based advertising) and CPG (consumer packaged goods) as areas that are showing continued strength, and “green” as an area that could potentially show weakness.

Long term future still bright for online advertising March 8, 2009

Posted by jeremyliew in advertising, Internet, recession.
11 comments

James Mitchell, lead internet analyst for Goldman Sachs, presented to a group of around 100 internet and mobile media company CEOs that Lightspeed pulled together last week.

There is clearly near term gloom. Goldman is projecting internet advertising revenue to be flat in 2009 in the US, and to see just 4% growth world wide. However, Mitchell showed that there is still plenty of long term headroom for growth in the internet advertising market. He pointed out that in the US, internet advertising represents around 8% of all advertising today, and this could as much as double over time:

Experience overseas leads us to believe that as Internet penetration, broadband penetration, smartphones and mobile access, and general comfort with the Internet grow, so too will online advertising as a percentage of total advertising.

For example: Online advertising is 17% of total advertising in Korea, with search comprising 11% and display & other making up 6%. Korea reached 50% broadband penetration in 2001, when search advertising that year was about 2% of the total ad market. The US took until 2005 to reach those levels.

Similarly, in the UK, online advertising is 13% of total advertising. In the US, online was only about 8% of the total at the end of 2008. We believe that the US and UK will catch up with Korea, and that the rest of the world will gradually converge with developed Internet economies.

Further, we believe that the transition to online will occur more quickly in developing markets such as China, as advertisers “leapfrog” traditional forms of advertising and begin advertising solely or primarily online.

Search and Display internet advertising as % of total: US vs Korea

Search and Display internet advertising as % of total: US vs Korea

He speculated that online advertising share of all advertising could reach as high as 23% if a scalable advertising solution for social media could be found.

Clearly, the companies that make it through to the other side of this advertising recession will have plenty of growth left ahead of them.

Almost as many down rounds as up rounds in December 2008 March 4, 2009

Posted by jeremyliew in recession, VC, Venture Capital.
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Fenwick and West analyzed 128 venture financings completed in q4 2008 for companies headquartered in the bay area and found that there has been a significant increase in the proportion of down rounds, with this trend accelerating:

“During the fourth quarter, up rounds exceeded down rounds 54% to 33% with 13% flat, the lowest amount by which up rounds exceeded down rounds since the third quarter of 2004,” said Barry Kramer, partner in the firm and co-author of the survey.

“Perhaps more ominously,” he said, “down rounds increased each month through the quarter, and for December 2008, 45% of all financings were down rounds, compared to 48% up and 7% flat.”

Note that bolding – almost as many down rounds as up rounds in december! Additionally, they found that in q4:

  • 21% of B rounds were down rounds
    43% of C rounds were down rounds
    22% of D rounds were down rounds
  • It’s hard to tell how many data points go into these numbers, but the proportion of series C down rounds is especially notable. This may indicate that in the past couple of years a high proportion of B rounds were overpriced. A round pricing has historically been fairly consistent across the last 10 years, which may explain why there are fewer B down rounds.

    It is worth reading Fenwick’s full survey as it gives good data on the frequency of many other important venture financing terms such as particpating preferred, full ratchet dilution, multiple liquidation preferences etc.