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Ad standards starting to work for online video; social media next? August 19, 2008

Posted by jeremyliew in advertising, social media, social networks, video.
3 comments

For a long time I’ve been calling for standards in social media advertising. Today if an advertiser wants to make a social media buy across multiple social sites, they will need to build different creative for each of the different social media advertising products on each of the major companies, Facebook, MySpace, Bebo, Rockyou, Slide etc.

Until recently, online video has faced the same problem. But in May the IAB approved new online video advertising standards.

Two studies have shown a positive impact from the establishment of the standards. Reports Wired:

Riddled with inconsistencies, video advertising has been a difficult marketplace to tap into. Advertisers are often forced to tailor creative for each video ad purchase, which is a big turnoff to advertisers looking to make big buys. Meanwhile, long, poorly formatted ads lead to a high rate of attrition by alienating viewers.

In May, the Interactive Advertising Bureau implemented standards to help streamline video advertising. Today, Break Media, an entertainment community for men, and Panache, a video advertising delivery-platform, released a study showing high rates of success with video ads since the standards went into effect.

Over an 11-week period, the study tested the success of the four standard formats for in-stream video advertising established by the Interactive Advertising Bureau: pre-roll, interactive pre-roll, non-overlay ads and overlay ads. Tracking advertisements for three large corporations — Honda, T-Mobile, and truTV — the study found that viewers had a high tolerance for pre-roll and overlay ads.

All of the four formats had extremely high click through rates. Completion rates for 15-second pre-roll ads were 87 percent, and 77 percent viewed videos with overlay ads for at least 15 seconds.

“Getting major advertisers major advertisers to move and turn into video advertising is going to take time,” says Panache CEO Steve Robinson. But he is enthusiastic about the new standards: “now you can just do the creative and know that it works.”

NewTeeVee notes another positive study:

Meanwhile, in a study of 100 campaigns and nearly 65 million impressions, Tremor Media measured 80 percent completion rates for both 15- and 30-second pre-roll ads. While the study’s size makes it more significant, Tremor did not look at click-through rates. Tremor said it actually saw slightly higher completion rates for 30-second ads than 15-second ones, attributing viewer willingness to watch longer ads to their placement next to high-quality content.

For Social Media to be a business we’ll need to see similar standards for social media advertising. This is why I think AOL buying Bebo is good for the industry. With AOL joining Fox as major media companies with a “dog in the fight”, hopefully we’ll move more quickly towards standards for social media advertising.

When can paying people become counterproductive? August 11, 2008

Posted by jeremyliew in business models, game design, game mechanics, games, mmorpg, social media, user generated content.
5 comments

I’ve posted in the past about how points can be used to drive user behavior.
Last week the Washington Post explored when play becomes work, and talked about some of the downsides of using rewards systems:

More than three decades ago, Edward Deci, a social and personality psychologist at the University of Rochester, found the first experimental evidence of a phenomenon with wide relevance to the way most Americans conduct their personal, professional and social lives.

Deci tracked a bunch of college students who were solving puzzles for fun. He divided them into two groups. One group was allowed to keep solving puzzles as before. People in the other were offered a small financial reward for each puzzle they solved.

The psychologist later evaluated the volunteers: He found that people given a financial incentive were now less interested in solving puzzles on their own time. Although these people had earlier been just as eager as those in the other group, offering an external incentive seemed to kill their internal drive.

The implication for social media and user generated content businesses is that creators create for love, not money, and that paying them with money may in fact be counterproductive. Instead, creators want adulation.

One interesting counterpoint might be the gold farmers inside World of Warcraft. When people play MMOGs for money, do they still play for fun? Anecdotally, it appears that they do. So when do rewards work and when are they counter productive?

But rewards and punishments are not always counterproductive, Benabou said. He drew a distinction between mundane tasks and those that carry meaning for people. In the first case, Benabou argued, rewards and punishments work exactly the way economists predict: They get people to do things.

External rewards and punishments are counterproductive when it comes to activities that are meaningful — tasks that telegraph something about a person’s intellectual abilities, generosity, courage or values. People will voluntarily perform intellectually arduous work, for example, because it gives them pleasure to solve a puzzle or win a game of wits.

“If I pay my kids to do their homework, I am saying, ‘You will get this if you do your homework,’ but I am also saying, ‘Homework is not likely to have intrinsic rewards,’ ” Benabou said. To the extent that a child is doing homework because he or she enjoys the challenge, or wants to demonstrate intelligence and diligence, the homework has meaning beyond the task itself, and Benabou predicts that offering a reward will backfire.

In most cases when it comes to user generated content, the creators do consider their work to be meaningful. So pay attention to how you pay them attention.

MySpace sees strong brand advertising growth August 6, 2008

Posted by jeremyliew in advertising, myspace, social media.
2 comments

Paid Content summarizes some key comments from the NewsCorp earnings call yesterday:

— On MySpace: “We’re actually quite pleased with the momentum at MySpace… (for Q1) we’re pacing well against internal expectations.” He noted a “dramatic” increase in branded display advertising, with several categories up over 100 percent year over year. Other points: hypertargeting campaigns are seeing doubled CPMs and advertisers are increasingly interested in branding campaigns for the MySpace.com homepage. Outlook: “Key thing I’d say… we believe that we are still in a scale game business.” Meaning: The company will continue to invest heavily. “Our expectation is that we will continue to grow our margins in the FIM business in 09.” Costs will grow, but margins will too.

Further evidence that social media is a business.

Other tidbits about the rest of NewsCorps business and FIM at Paid Content.

Is Social Media a business? July 29, 2008

Posted by jeremyliew in advertising, business models, social media, social networks.
10 comments

I am a fan and subscriber to the paper version of Technology Review, but was disappointed in their cover story in the current edition, where Bryant Urstadt looks at the current state of the social network sector and concludes that social networking is not a business (free registration required). The article essentially looks at CPMs in the current business (which are low), concludes that revenues are low relative to traffic, and it might all just be a fad.

I have to admit to being biased about social media, but I think that the author’s lack of knowledge in this area (he typically writes for Rolling Stone and Harper’s) really shows. As examples of how poorly social networking sites are doing he proffers four pieces of evidence:

1. MySpace will fall $100m short of its revenue predictions this year. This means that it will only do $650m in revenue and only grow revenue by 100% according to Goldman Sachs.

2. Facebook will only do $50m in EBITDA this year.

3. Ning won’t tell him their revenue

4. CPMs for social media sites are lower than that of Technology Review

Maybe I’m a glass half full kind of guy, but I’d call the first two pieces of evidence pretty promising! The third is hardly surprising as very few private companies want their revenues to be publicly disclosed. And the fourth is a completely specious argument; I’m sure that the Technology Review’s website’s traffic is tiny and that its ads are bundled with that of the print publication, so any sort of comparison is meaningless.

That being said, MySpace and Facebook are far and away the two most successful social media sites at monetizing so far. It is fair to say that click through rates and CPMs are low relative to other forms of online media. The author thinks that targeting is the answer to raise CPMs. I think that is part of the answer, but I don’t think it is the whole answer. It is certainly the answer for social media apps like Flixster (a Lightspeed portfolio company) and Dogster, both of which offer a very targeted audience to endemic advertisers. In these cases, CPMs are not in the sub $1 range, but are comparable to other internet media sites with similarly targeted traffic, often in the single digit or low double digit range.

For the social games category of apps, likely the answer is free to play games with virtual goods models. This is the direction that the rest of the gaming industry appears to be moving towards, and social games are a subset of that trend.

For the vast majority of broad reach social media sites though, I think that the answer lies in a new ad standard for social media. The thing that differentiates social media sites from other forms of online media is not just user generated content, it is also that users are willing to affiliate themselves with brands. This takes many forms, from friending Scion on Myspace to putting a Natasha Bedingfield style on your Rockyou photo slideshow, to buying one of your Top Friends a Vitamin Water. These willing user affiliations/endorsements of brands are clearly valuable to marketers of those brands. Right now though, these deals are being negotiated on a one off basis; they look more like business development deals than selling ads off of a rate card. It will take a while for the social media industry to establish standards for selling this incredibly valuable inventory to brands, but I suspect that this will happen over the next 12-36 months.

There is an interesting parallel to search advertising here. In 2000, search inventory was monetized like every other form of online inventory, through banner ads. It wasn’t until Overture, and later Google, adopted the text ad-CPC standard that the distinctive thing about search inventory, user intent, was appropriately monetized. This created a new category of advertising that is now larger than banner advertising. Although some might disagree, I believe that a similar opportunity will eventually be unlocked by social media once the right ad unit standards emerge

In the interim though, targeting and scale go a long way. As Myspace has shown, $650m here, $650m there, and pretty soon, you’re talking about real money!

How to design a reputation system for your social media site or social game June 30, 2008

Posted by jeremyliew in game design, game mechanics, reputation, social games, social gaming, social media.
7 comments

Bokardo has an interesting interview with Bryce Glass of Yahoo, about Yahoo’s social design pattern for reputation. Building reputation systems can really help drive high quality engagement on a social media site, but is also fraught with danger and unintended consequences if not done thoughtfully:

What are the biggest hurdles in designing for reputation?

I think it’s probably the number and variety of unintended consequences that little design decisions can have further down the line. I’m fond of the article—so I cite it a lot—but Ben Brown, who founded the dating site Consumating, has a great blog-post about the ‘ill-fated points system’ that they used for that site, and the variety of… um… less-than-ideal behaviors that those incentives gave rise to. Early on, Slashdot struggled with many of these same issues, and they’ve re-jiggered their comment karma system several times through the years.

A big hurdle—and if you can solve this, you’re halfway there to having a well-designed and effective reputation system—is appropriately marrying the incentives that you offer your users to the appropriate set of goals that you have for your community. You want to be sure that you’re rewarding folks for behaving like good citizens, and not just rewarding them for no good reason. (Or for vague and misguided reasons like “to keep them engaged” or “so we can have a leaderboard.”)

Earlier this year, Glass gave a presentation on designing your reputation system at the IA summit outlining eleven different reputation systems:

    > Named Levels
    > Numbered Levels
    > Identifying Labels
    > Points
    > Collectible Achievements
    > Leaderboard
    > Top X
    > Temporal Awards
    > Statistical Evidence
    > Peer Testimonials
    > User to User Awards

and how to select between them depending on questions including:

    > What are your business goals? [Engagement? Promote a specific feature? Acknowledge top contributors? Increase content quality? User Retention?]
    > What community spirit do you want to encourage? [Caring? Collaborative? Cordial? Competitive? Combative?] More detail on the competitive spectrum in Yahoo’s Design Pattern Library.
    > What motivates your community members?
    > Which entities will accrue reputation? [People? Things? Collections of Things?]
    > Which inputs will you pay attention to?
    > How transparent should the rules be? [More transparency is more likely to affect behavior]

He also notes that reputations should always decay over time to prevent a log jam at the top that can discourage new members and make a community appear stagnant.

Yahoo has done a nice job of categorizing some of the various reputation systems available to social architects and how to think through choosing one. I would highly recommend reading the interview and presentation and reviewing the material in the design library.

Getting player culture right is important to MMOGs and social media sites May 20, 2008

Posted by jeremyliew in culture, game design, game mechanics, games, games 2.0, mmorpg, social media, social networks.
2 comments

Massively has a summary of the panel discussion from ION last week that gave a five year forecast for MMOs. Lots of interesting predictions from the panel, but the quote that really struck me was:

The number one reason people leave games are basically f*ckwads. While this comment generated laughter from the audience, it also made them all nod in agreement. Erik Bethke points out that if players were given the right social structure and tools, then they might be able to clean up the f*ckwads themselves. Scott Jennings offers the epiphany that, “We really are in the feudal ages with MMOs.” Which is very much true. I’m of the opinion that both methodologies are going to see use and that they both have their place.

Crass, but this is very true. Too many of Bartle’s “Killer” player type can really destroy a game’s community.

Player behavior is undoubtedly influenced by game mechanics. But it can also be heavily influenced by the dominant culture that new players encounter when they first enter the game. New players take their cues from the environment that they first see, and from the reactions that their behavior elicits from the rest of the community.

I am reminded of one of Lightspeed‘s portfolio companies, Stylehive. Stylehive is a social shopping website where users use a social bookmarking tool to contribute interesting clothing, jewelry, shoes or furniture into the site. Think of it as a user generated Lucky Magazine. They could contribute anything that they want into the Hive – news stories, pictures of exotic travel destinations, even porn. But they don’t. The reason is culture. New users of Stylehive quickly learn the norms – what behavior is applauded and what behavior is ignored.

MMO Game designers and social media sites should think about how to expose new users/players to the sort of model behavior that they want users to emulate, and how to build feedback loops into the system so that users can self police undesirable behavior.

We’re excited to invest in Serious Business/Friends For Sale! April 26, 2008

Posted by jeremyliew in social games, social gaming, social media, social networks, VC, Venture Capital.
Tags: ,
8 comments

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.

Speaking on Games 2.0 at Web 2.0 Expo on Friday April 20, 2008

Posted by jeremyliew in gaming, social media, web 2.0.
Tags: , , ,
2 comments

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!

Special events in MMOG and virtual worlds drive usage March 26, 2008

Posted by jeremyliew in facebook, game design, social games, social gaming, social media, social networks, virtual worlds.
3 comments

There are a couple of nice wrap-up articles on the Easter themed special events in MMOGs and Virtual worlds that took place over the weekend.

Massively surveys MMOG events in World of Warcraft, Lineage 2, Final Fantasty XI, Lord of the Rings Online and Second Life, noting:

Seasonal events are often the most popular in-game events in many of today’s MMOs. But each game’s designers have to find a way to slip these real world celebrations into the lore and mechanics of their persistent worlds.


Izzy Neis covers Easter events in kids online worlds
, including Club Penguin, Buildabearville, Moshi Monsters and Nicktropolis. She says:

Perhaps I’m just picky, but I honestly think you cannot have a healthy, uber-strong sense of citizenship in your youth-based virtual worlds WITHOUT acknowledging real world excitement. I am consistently impressed by the thriving movement of the community in Club Penguin– they’re very good about giving their users the tools to play, instead of dictating to the users the play. Kids are actually forming their own civilization under the eyes of the moderators & site runners

My friends at Gaia tell me that they see a massive bump in usage during their theme events. As an example, last years invasion of vampires into Gaia on Halloween brought the site down several times during the event.

I think this idea of creating special events around real world events is incredibly powerful. It introduces the shared social context that the players and users of the MMOG/Virtual world which helps shape and condition responses to events. Facebook gifting spikes around the holidays for exactly the same reason; users import conventions and context from the real world.

I’m interested to hear anecdotes and specific data that readers can share about the success of tying in world events to real world events.

An excellent excel model of viral growth March 10, 2008

Posted by jeremyliew in business models, churn, models, retention, social media, viral, viral marketing.
7 comments

Last week Andrew Chen wrote an excellent post about the growth and potential decay of viral apps. Rather than just focusing on the elements of viral growth, Andrew also took into account the declining likelihood of an accepted invitation as you saturate a population, and the impact of churn. He provided a useful model to social media founders who are trying to estimate their growth, and what can go wrong when a viral app “jumps the shark”:

shark fin

He notes:

* Early on, the growth of the curve is carried by the invitations
* However, over time the invitations start to slow down as you hit network saturation
* The retention coefficient affects your system by creating a “lagging indicator” on your acquisition – if you have good retention, even as your invites slow down, you won’t feel it as much
* If your retention sucks, then look out: The new invites can’t sustain the growth, and you end up with a rather dire “shark fin.”

I think this is a very useful model, but that it doesn’t quite predict what we typically see in real life. Rather than dropping to zero, failed viral apps typically hover at a steady level much lower than their peak. Since Andrew made the model available under “copyleft”, I made a small edit to his model. Rather than treating churn as a constant percentage of users in each time period, I treated it on a cohort level, with a higher churn rate in the early periods and lower churn as time goes on. This is similar to the churn profiles seen for subscriptions businesses such as AOL’s ISP business. (I was at AOL from 2002-2005 as SVP of Corporate Development, and then as GM of Netscape.) This model better matches active user graphs that we typically see for failed viral apps.

churn by cohort

If you’re interested, the model is available for download here. Viral growth assumptions are in the yellow cells on the “viral acquisition” tab and churn assumptions and output are on the “user retention” tab.