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2008 Consumer Internet Predictions December 3, 2007

Posted by jeremyliew in 2008, ad networks, advertising, casual games, Consumer internet, games, gaming, mmorpg, predictions, semantic web, social media, social networks, structure, user generated content, video.
16 comments

Last year I made some predictions about the consumer internet in 2007 and they were at least directionally correct. So let me take a crack at 2008. Regular readers will not be surprised at some of my predictions as they are themes that I’ve been talking about for some time. Later in the week my colleagues will take a crack at predictions for Mobile, Infrastructure and Cleantech.

1. Social Media advertising, Online Video advertising and In-Game advertising start to become scalable.

Social media, online video and games are at early stages of development as advertising vehicles. Even more than the internet at large, a disproportionately small percentage of advertising dollars are being spent on these three media relative to time spent. Some people have even questioned if social media will be a media business at all, or online if video is a good way to monetize.

The slow start is because there are no standards yet in any of these media. If an advertiser wants to buy TV advertising across NBC, CBS, ABC and FOX, they can buy a common unit, the 30 second spot. If she wants to buy print advertising across Time, Fortune, Forbes, Newseek and Businessweek, she could similarly buy a common unit (e.g. a full page ad). But to buy across YouTube, Metacafe and Break, or across Myspace, Facebook and Bebo, or across GTA, Wild Tangent games and Pogo.com games, she needs to buy custom ad units in each property. This makes ad sales look more like business development – she is negotiating not just price, demographics and reach, but also what the actual units are. This is what makes new forms of advertising so hard. All three industries need ad unit standards to be able to scale. Otherwise they will be trapped by demands for customization.

This year, standards will start to emerge in each media. Some candidates for standards include (i) for social media; behavioral targeting, content targeting, demographic targeting or social ads, (ii) for online video; contextual targeting, overlays or pre-roll and (iii) for in game advertising; rich media or product placements. I don’t know which of these candidates will become standards, but I am confident that we will start to see growing support from both advertisers and publishers for the more successful units.

Ad networks will also gain share in each media, helping make the process of both buying and selling advertising easier.

Viewed through this lens, Facebook’s recent Beacon launch and subsequent adjustments are simply early moves towards figuring out what will be the native social media standard.

2. Structured web emerges.

The last couple of years have seen an explosion of user- generated content, across blogs, social networks, social media sites and user reviews. Previously, when most web content was created by editors, there was good structure and metadata around it. As most of the user- generated content has been unstructured, there has been an overall decrease in the level of structure, and hence a decrease in the ease with which people and computers can access and use this data.

But Meaning = Data + Structure. Search on user-generated sites has not been a great experience so far. This year we should start to see some point solutions emerge to help add structure to unstructured data, substantially improving the user experience. This will include both explicit (user-generated structure) and implicit (inferring structure from domain knowledge or user behavior) methods.

3. Games 2.0

Tens of millions of users are now using casual immersive worlds and playing MMOGs. These sites are some of the stickiest on the web, resulting in some of the highest levels of time spent per month online, and indicating that this is becoming a primary form of online communication for some users. Many of these users skew young, and if you believe that demographics is destiny, then you will expect this behavior to spread. The social aspects of these games is key to their popularity

Even more people are playing casual games online. These people often don’t have the ability to commit the time that MMOGs demand. They want to play with their friends, but instead of spending hours online together, they want to do it on their own schedule and in bite sized chunks.

These trends are likely to come together in asynchronous multiplayer games.

Other key drivers of growth for these products will include innovation in business models (free to play, ad- based and digital goods- based models) and channels (in- browser gaming, mobile, widgets).

Note – this post is cross posted to Venturebeat.

Games 2.0: Asynchronous gaming November 29, 2007

Posted by jeremyliew in asynchronous gaming, business models, casual games, facebook, game mechanics, games, games 2.0, gaming, user generated content, viral, viral marketing, web 2.0, widgets.
32 comments

I am not a hard core gamer by background; more of a casual gamer. But casual gaming is now widespread; we’re all gamers now. My interest in the area has grown out of my interest in social networks and social media. I’ve long noted the increasing application of simple game mechanics to social web sites and how this can meaningfully increase the levels and types of interactions that users have with each other and the site.

As an investor in Flixster and Rockyou, both highly viral Facebook and Myspace “app” and “widget” makers, I’ve been tracking closely the spread of emergent user behaviors in these social networks. One Facebook app that really caught my attention is Scrabulous, an online scrabble game that can be played asynchronously, ie players don’t all have to be online at the same time.

Online multiplayer games have long been popular at all the big casual games portals. Multiplayer gaming can be viewed as user generated content for games, one of the drivers of Games 2.0. These games typically have a “lobby” where players can meet and match up before entering into a game against each other in real time.

Making the gameplay asynchronous fits better with the “continuous partial attention” world that we increasingly live in. The reason I never became a hard core gamer is that the serial monogamy requirements (one game at a time, total dedication, long periods of gameplay coordinated with others) doesn’t mesh well with my lifestyle. Scrabulous is a better match for the “play a little bit when you have some time, at various points throughout the day” life that many of us lead. Single player casual gaming (whether Bejeweled online or Brickbreaker on the Blackberry) has been filling that need for many players. These are fun, and at least have the “high score” dynamic, but they lack the social aspect that turn based asynchronous games offer.

Asynchronous games also make it easier to play against friends. You don’t have to coordinate to be online at the same time. Playing friends makes games more fun, and gives them a social aspect (the games have context if you have an ongoing relationship with an opponent). Playing with friends also offers an opportunity for true viral growth for the game, as players invite their friends to play.

Although these turn based multi-player games (especially those derived from boardgames) have some social dynamic, they lack the breadth of social interaction of synchronous MMOGs (not just the direct social interaction, but also the perfomative aspects of gameplay) that help make them such compelling experiences. Part of the appeal of MMOGs (whether World of Warcraft or Puzzle Pirates) is knowing that you’re “in game” with thousands of other people at the same time, each of them interacting with the same universe that you are.

So what would an asynchronous massively multi-player game look like? It can’t be turn based because most players would spend most of their time waiting for someone else to move. That’s not fun. It would have to be time based instead. Players would need to make their moves against a real world clock. Games like Duels.com (swords and sandals PvP fighting game), Manager Zone (soccer manager game) and Kings of Chaos (real time strategy game) all employ this dynamic. Massively multi-player games offer even more opportunity for viral growth because a players invitation ability is unbounded by the number of seats at a board game.

This led to me think about games using the framework below:

narrow games framework

I think that we’ll see a lot more innovation in the two sections of asynchronous multiplayer and massively multiplayer games over the next few years. I’m actively interested in investing in these areas. What are the most interesting such games that you see?

Games 2.0: User generated content in games November 28, 2007

Posted by jeremyliew in business models, gaming, user generated content.
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Following on from my last post about Games 2.0, I came across a great (old) post on Lost Garden about user generated content in games. Here are some choice quotes:

Games are slowly emerging from the land of custom coding into the world of data driven, standards-based application development. I love this trend for a number of reasons including faster development, more artist involvement in the design process and increased opportunities for innovation. What is the future of user created content and how will it effect our profession?

Echoes of web 2.0…

The third generation of titles treats user content as an integral part of the game experience. User content isn’t an extra; it is how you play the game. With this shift, I would easily expect 100% of players to partake of user content.

Consider the benefits of this third generation of mod friendly games.

* The game developer provides an inspirational sketch of a game and a well stocked tool box.
* Then, over many months of player activity, the game becomes fleshed out with content that the players desire.
* Players build the majority of game content and the game developers monetize their results.

Go underpants gnomes, go.

Sounds a lot like the platform approaches of social networks…

In the end, I’m most interested in production efficiency and making money. User content is a natural answer to both of these topics. Game developers can leverage their investment in data-driven development systems to empower their game player’s creative class. The end result is games with a much longer shelf life and only a marginally more expensive development cost.

Hear hear.

Worth reading the whole thing

Meaning = Data + Structure: Inferring structure from user behavior November 19, 2007

Posted by jeremyliew in attention, data, semantic web, structure, user generated content.
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A little while ago I started a series about the structured web where I claimed that Meaning = Data + Structure. I followed up with a couple of posts on ways that structure can be added to user generated content, through user generated structure, and through inferring structure from domain knowledge. The third way that structure can be inferred is from user behavior, otherwise known as attention. As Wikipedia notes:

Attention economics is an approach to the management of information that treats human attention as a scarce commodity, and applies economic theory to solve various information management problems.

Alex Iskold has a good overview of the attention economy elsewhere at ReadWriteWeb.

By watching user behavior, by inferring intent and importance from the gestures and detritus of actions taken for other purposes, you can sometimes also infer structure about unstructured data. Google does this with its PageRank algorithm, Del.icio.us uses individual bookmarking to build a structured directory to the web, and Xobni maps social networks through analysis of your emailing patterns. Behavioral targeted advertising is based on the assumption that users display their interests through the websites they visit.

Using implicit data to infer structure requires making some assumptions about what each behavior means, but it can be a useful supplement to the other two methods of inferring data. As with inferring structure from domain knowledge, it requires a well defined ontology so that people and things can be mapped against it

Would love to hear more examples of using attention data to infer structure.

Business models for apps and widgets November 16, 2007

Posted by jeremyliew in ad networks, advertising, business models, facebook, myspace, open social, platforms, self espression, social media, social networks, user generated content, widgets.
9 comments

This afternoon I spoke to the Stanford class on Creating Engaging Facebook Apps.

As I said at Web 2.0 expo, building big businesses online is hard work. While it isn’t hard to start an app company, especially as a single developer ($250k in revenue) or even to support a small team ($2.5m in revenue), it gets quite hard to scale revenues to $25m/yr.

Assuming a 5% daily active rate and 3 pageviews per visit, an app developer with a $0.50 RPM would need to get to 926m installs to get to $25m run rate. Compare that to the app with the most installs on Facebook – Slide’s Superwall which has around 20-21m installs. Clearly, broad reach app developers need to develop (i) multiple (ii) high engagement apps [ie higher active rates and pageviews/visit than these assumptions] (iii) across multiple social networks to be able to get close to this revenue target. (RPMs will likely be higher for companies with a direct sales force as well, so the target isn’t quite as high, but you get the point).

Under the same activity and pageview assumptions, an app developer with a $10 RPM would need 46m installs to get to $25m in revenue. Apps with endemic advertising opportunities can easily realize this level of RPM but will still need to be in multiple social networks to get to those levels of installs. It doesn’t make sense to limit your world to being a Facebook app. Social network platforms are avenues for distribution, and app developers should be taking advantage of all of them.

One of Lightspeed‘s portfolio companies, Rockyou, is taking the former approach. Another, Flixster, is taking the latter. Both seem to be working so far.

I also did a similar analysis for digital goods business models in the presentation. Here is a link: Stanford Facebook Class presentation

Mass customization drives online-offline hybrid business models November 12, 2007

Posted by jeremyliew in business models, Ecommerce, media, offline, start-up, startups, user generated content.
11 comments

I’ve noted in the past that some online and offline distinctions are starting to blur. Some companies are finding that the easiest way to monetize their content is to turn bits into atoms and sell the atoms – people are willing to pay for things in the real world that they would never pay for offline.

There seem to be three major approaches to combining online and offline:

1. Single order custom manufacture

Over the last ten years manufacturing processes and technology have improved to the level where it is now possible to make single items on a custom basis. This has spawned a lot of the convergence in online and offline business models.

There has been the most activity in the market for photo books, including Apple, Shutterfly, Picaboo, LuLu, Blurb, Mypublisher and many others.

Zazzle, Cafepress and Spreadshirt take a similar approach to selling custom printed T-shirts, coffee mugs, mousepads and more.

A more collaborative example is Tribbit. Tribbit mirrors offline behavior by allowing multiple users to build and “sign” a group online card, which can then get printed out and presented to the recipient – in effect a group contributed photobook.

All of these examples are focused on user generated content. But rather than using user content, Tastebook, backed by Conde Nast, lets you choose from an extensive collection of recipes to create a customized cookbook. Techcrunch says:

TasteBook is a service that lets users take their favorite recipes from partner sites (starting with Epicurious) and create printed cookbooks that are delivered to them and/or friends. Users can add their own recipes as well, and customize the book with their name and other information.

2. Small order custom manufacture

Occasionally, one of the problems that can occur with single item custom manufacture is that the processes used for single items can result in lower quality. This is definitely true of T-shirts – many of the custom T-shirt sellers mentioned above have an “iron on” quality to them. The only way to make a high quality T-shirt with a silk screened print at a reasonable cost is make a batch.

Threadless takes this approach to it’s T-shirts. They have done a great job of building a community online, soliciting T-shirt designs, winnowing out the best designs for production through community input, and making batches of these shirts. This way they keep quality up, keep costs under control, and minimize inventory risk by selecting only to make T-shirts that are likely to sell out.

JPG Magazine takes a similar approach to the issues of its magazine. JPG is a physical magazine focused on photography. It solicits all its photos and articles online and its online community helps determine what gets printed. In a world where a new magazine launch can cost $40m before breaking even, JPG got to profitability at vastly smaller scale. A sister magazine focused on travel, Everywhere, has its first publication on Nov 27th.

3. Tying an online experience to an offline purchase

Whereas many of these companies start with an online experience and drive to an offline transaction, Webkinz starts with the offline transaction, and drives to an online experience. They have been able to draw synergies from their online casual immersive world and their physical plush toys and have sold millions of their toys to date. Barbie has had similar success with it’s online casual immersive world Barbie Girls which hit 3 million users in the first 60 days.

Another example is Hidden City, which was recently funded for a a horse themed trading card game aimed at little girls; each card unlocks a digital horse avatar online that girls can play with. The founder was behind the megahit trading card games Pokemon and Magic: The Gathering; he is clearly evolving with the industry as casual gaming moves online.

Conclusion

I expect more innovation in this area of combining online and offline business models. I am actively interested in meeting companies taking this approach. Let me know if you know of more!

Meaning = Data + Structure October 22, 2007

Posted by jeremyliew in data, meaning, semantic web, structure, user generated content.
20 comments

Through Techcrunch, I saw the video “Information R/evolution” embedded below (5minutes, worth watching):

The video’s key message is that when information is stored digitally instead of in a material world, then our assumptions about how to get to information, and how information gets to us, are substantially disrupted, allowing for high quality (and quantity) user generated, organized, curated and disseminated content.

It’s an entertaining video and spot on. However, I think it glosses over one key point about make information truly useful. User generated content, often unstructured, can be very hard to navigate and search through. Adding structure makes the data vastly more meaningful.

Search engines are the best example of how adding structure (a search index) to an unstructured data set (the list of all websites) makes the dataset more useful. Whether that structure is established by link popularity (as Google and all modern search engines do) or by human editors (as Yahoo started out) affects the size and quality of the structure, but even a rudimentary structure built by humans is better than no structure at all.

Social networks are another great example of how adding structure (a social graph) to an unstructured data set (personal home pages) improves the data’s usefulness. There were plenty of successful examples of personal home pages and people directories in the late 90s , including Tripod and AOL’s People Connect, but none of them had the high levels of user engagement that MySpace, Facebook, Bebo and the current generation of social networks have.

One of the key themes of Web 2.0 has been the rise of user generated content. Often this content has been largely unstructured. Unstructured data is hard to navigate by search – you need to rely on the text, and that can be misleading.

Take one of my favorite websites, Yelp, as an example. If I do a search for diabetes near 94111, I get one relevant result (i.e. a doctor) in the top 10 – the rest of the results range from tattoo parlors to ice cream parlors, auto repair to sake stores. All contain the word “diabetes” in a review, some humorously, others incidentally.

This isn’t a one off either; try baseball mitt, TV repair or shotgun. In every case, the search terms show up in the text of the review, which is the best that you can hope for with unstructured data.

Recently I’ve started to become intrigued in companies who are adding structure to unstructured data. There seem to be at least three broad approaches to this problem:

1. User generated structure
2. Inferring structure from knowledge of the domain
3. Inferring structure from user behavior.

I’m not smart enough to know if this is the semantic web or web 3.0, or even if the labels are meaningful. But I do know that finding ways to add or infer structure from data is going to improve the user experience, and that is always something worth watching for.

I’m going to explore the three broad approaches that I’ve seen in subsequent posts, but would love to hear reader’s thoughts on this topic.

I’ve found this post on the structured web by Alex Iskold to be very helpful in thinking about this topic.