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Rockyou founders on virality June 14, 2007

Posted by jeremyliew in facebook, social media, social networks, viral, viral marketing, web 2.0, widgets.
3 comments

Venturebeat has a great interview with Lance Tokuda and Jia Shen, the co-founders of Rockyou, on virality and Facebook. Rockyou is a Lightspeed portfolio company.

Social Media: Facebook commoditizing the social map June 13, 2007

Posted by jeremyliew in business models, Consumer internet, distribution, facebook, social media, social networks, user generated content, viral, viral marketing, web 2.0, widgets.
21 comments

Facebook is transforming a lot of social media companies right now with its platform release, and its getting a lot of well deserved coverage.

Marc Andreessen put up a good post yesterday analyzing the facebook platform . He comes up with a few interesting conclusions which I paraphrase below but you should read the whole thing.

1. (Open) Platforms always beat (closed) applications, therefore Facebook platform is a winner and an advantage over Myspace

2. Facebook did a pretty good job of it.
– Its technically sound
– Its highly viral
– Third party widget/app developers have economic freedom to keep 100% of revenues

3. If you’re not large or careful success can beget failure as usage volume overwhelms your servers

4. Underground apps are being released outside the Facebook application directory (due to issues or bottlenecks with application approval)

and they need to find an alternative way to seed their growth

On 1. and 2. I agree, but with a quibble. As Seth Goldstein points out:

In 1999 I sat down with Brad Silverberg of Ignition VC who Microsoft recruited out of Borland in the early 90’s to become the lead developer and project manager of Windows 95. Never has there been a more valuable platform. He described 3 things that platforms needed to have:

* wide distribution
* application developers making money
* good tools

Let’s test those three axioms against the preeminent platform play of our time, Google:

* Wide distribution? YES
* Application developers making money? YES (if you count all the adsense publishers)
* Good tools? YES (all the adwords and adsense self-service goodness)

Now let’s test these axioms against Facebook:

* Wide distribution? YES
* Application developers making money? NO (at least not yet, I will comment on 3rd party Facebook developers such as Slide, Rockyou, and AttentionSoft)
* Good tools? YES

Marc is right that app developers can keep 100% of the revenue that they make, but today that revenue isn’t much. As I’ve commented before, we need a standard for social network advertising, and until that standard emerges, ad revenue growth will be slower. But this will come in time, and so we can expect the Facebook platform to grow as well.

Unsurprisingly, the other big social networks (not just Myspace) have been rocked by the success of the platform and are all racing to build competitive responses.

On 3., where Marc seems to primarily base his conclusion on iLike’s experience, I side with James Hong who says:

I disagree with this. iLike’s application may have been particularly heavy, but it is not inconceivable (in fact I think it is more likely than not) that people will come up with massively popular apps that are not as machine intensive as ilike’s particular application might have been. Combine that with the fact that facebook allows advertising, and the fact that managed hosting companies exist, and i think it is quite feasible for 2 guys and an idea to scale.

Two of the companies I’m invovled in, Flixster and Rockyou, combined have four of the top twelve apps on Facebook. They have certainly worked hard to keep up with load issues, but none of them have struggled as much as iLike, partly because iLike has so many users, partly because they were already scaling outside of Facebook, and partly because their apps are lighter weight.

On 4. I think Marc overemphasizes the importance of being in the application directory. While we techcrunch readers obsess over the directory (I reload it at least once an hour when I’m at my PC!), the data I’ve seen suggests that the key drivers of virality are (i) profile virality (ii) invite virality and (iii) feed virality, with very little growth coming from the application directory at all.

However, to me, the most important part of the Facebook platform is that it commoditizes the social map. A lot of social media companies have built their value in creating a social map. For many broad based social networks, where communication and self expression are the key activities, the social map largely IS the value. When I was at AOL a few years ago and social networking was just beginning, we considered opening up the AIM friends list as an API to commoditize the social map and allow others to build on top of it (we didn’t do it in the end… sigh…). These companies are most threatened by a world of commoditized social maps.

What this forces social media companies to do is to build value on TOP of the social map. Yelp does a great job of this – the byproducts of their members communication are rated merchant reviews, information that has lasting value. For Flixster it’s movie reviews and ratings. For Rockyou, its photos. For iLike, music preferences and affinities.

Not all facebook apps build value on top of the map, and despite their virality, they are the ones that may be the most business model challenged on a standalone basis. Examples here include Slide’s Fortune Cookie, Rockyou’s “x me” and Graffiti. While these may have value for distribution or user acquisition, they don’t add much value on top of the social map, despite their popularity.

I’d be interested in hearing from readers examples of other apps that both DO and DO NOT add value on top of the social map.

x_me is aweso_me June 1, 2007

Posted by jeremyliew in Consumer internet, distribution, facebook, Internet, social media, social networks, user generated content, viral, viral marketing, web 2.0, widgets.
3 comments

I’ve been obsessing over the Facebook platform since it launched last week. As has been extensively covered, its an incredible distribution platform for other companies. The most popular apps in the platform early on were existing companies like iLike, Rockyou (a Lightspeed company), HotorNot and Flixster (a Lightspeed company) who quickly ported their preexisting functionality to Facebook from other social media environments.

When I congratulated James Hong on HotorNot’s great growth in the platform yesterday, he responded:

We haven’t yet seen the native apps in Facebook. When they come they’ll grow even faster.

It’s taken less than 24 hours for him to be proved right. For the last 12-18 hours or so, the top recently popular app in the Facebook directory has been X me.

X Me
By Timothy Green
Tired of just poking? X me opens up a whole new world of action-based communication, for example ‘Hug Her, Slap Him, Tickle Them!’
346,696 users (15 friends) – 627 reviews

As I’ve posted about in the past, users can quickly adopt and understand new behaviors if they mirror current behaviors. It makes these new behaviors “easy to learn“. By mirroring the “poking” behavior that is well understood and native in Facebook, X Me has been able to quickly catapult to widespread adoption. The author, Tim Green, a freshman at Cambridge university, had done an outstanding job of building an incredibly viral app.

The Rockyou team was quick to spot the growth and has now brought Tim on board. Happily for them, they now have all three of the top three recently popular apps on Facebook. Congrats to both Tim and Rockyou!

Facebook most popular applications as of june 1st 2007

Social Media: Open platforms and distribution are opposite sides of the same coin May 28, 2007

Posted by jeremyliew in business models, Consumer internet, distribution, Ecommerce, Internet, media, social media, social networks, user generated content, viral, viral marketing, web 2.0, widgets.
7 comments

As I’ve said in the past, I think that distribution is the most important success factor in the early stages of any new consumer technology. Distribution used to mean getting a carriage deal done with a big portal. These days it can take a number of forms, but it always requires getting in front of potential users who may not be aware of you, and alerting them to your value proposition.

As social networks take an increasing percentage of internet users time, it’s more important than ever to factor them into a distribution strategy. Within Myspace, this has been through widget virality (one of the seven forms of virality that we’ve posted about in the past). Bebo has taken a more controlled approach, allowing select partners into their system in what looks closer to a traditional portal distribution deal.

Now, through its new platform, Facebook too can be a distribution platform. Apps are spreading in Facebook through a combination of virality from profile pages, promotion to existing user bases and position in the application directory, with iLike being the clear early winner. Happily for Lightspeed, Rock You and Flixster (both are portfolio companies) have three of the top ten apps on Facebook between them. Josh Kopelman says that Facebook’s open approach to partners has effectively increased their virtual R&D budget by around $250m, the amount invested so far into widget companies.

Another of our portfolio companies, Stylehive, is also taking the approach of opening up its platform (albeit on a smaller scale to Facebook). They are partnering with retailers and publishers, including the Gap, Shopbop, Instyle Magazine, Gen Art and others, inviting them into the Stylehive platform. These partners will be able to access Stylehive’s community as well as add a social media dimension to their commerce or content.

I think we’ll see even more communities opening themselves up as platforms over the next 12-18 months. It will be especially interesting to watch MySpace’s competitive response.

We need a standard for social network advertising April 25, 2007

Posted by jeremyliew in advertising, business models, Consumer internet, Internet, social media, social networks, start-up, startups, user generated content, viral marketing, web 2.0, widgets.
19 comments

On Monday Myspace announced the results of a research study that they commissioned, showing the effectiveness of marketing campaigns within social networks. It was widely covered. The key results were that:

— More than 40 percent of all social networkers said they use social networking sites to learn more about brands or products that they like, and 28 percent said at some point a friend has recommended a brand or product to them.
— Brands such as Adidas and Electronic Arts attributed more than 70 percent of their marketing return on investment to the “Momentum Effect,” which the researchers define as the quantifiable impact of a brand within a social network.
— Of those polled, 69 percent said they use social nets to connect with existing friends and 41 percent said they use the sites connect with family members.
— On average, social networkers spend more than seven hours per week on social networking sites, and that those hours are driving the growth of overall time spent online. More than 31 percent of online social networkers claim they spend more time on the web in general, after starting to use a social network.

The broader theme here, IMO, is that of users voluntarily affiliating themselves with brands.

Online, this is a relatively new forms of advertising. It gets instantiated in various ways – from “friending” Scion on Myspace to choosing an “American Idol” theme for your Rockyou slideshow to Photobucket‘s Spiderman skin that got them briefly blocked on Myspace. (NB Rockyou is a Lightspeed portfolio company)

Offline it’s the Nascar jacket or the Firefox T-shirt – not only does it advertise a brand, but users PAY for the privilege of doing so.

As always, when you see offline analogues to online behavior, it’s a good sign. But as I have blogged in the past, new forms of advertising are hard until standards emerge.

What the industry really needs is for the social media players to get together with the IAB and create some standards for “user affiliation” ad units. The widget makers (Youtube, Rockyou, Photobucket, Slide, Clearspring, Widgetbox etc) and the smaller social networks (led by Freewebs as this Washington Post story notes) are already trying to do this, but until Bebo, Myspace, Facebook and the big portals (AIM Pages, Microsoft’s Live Spaces, Yahoo 360, Orkut etc) get on board, it will be hard to get enough attention from the marketers who must also agree to the standard setting process. These big players, who already have relationships with advertisers, must start the conversation.

The IAB has been getting more activist of late, and it would be great to see them take the lead here as well. Their board is dominated by representatives from the big online and offline media companies, and they will need to lead the standard setting. (I’m looking at YOU Michael Barrett!)

Standards will be good for the whole industry. The sooner we get standards, the sooner social media/user affiliation marketing can go from being a custom business development deal every single time, to a line item in the spreadsheet of every media buyer at every agency.

UPDATE: Michael Barrett (Chief Revenue Office of FIM/Myspace) responds in comments

Seven Ways to GO VIRAL March 2, 2007

Posted by ravimhatre in Consumer internet, Internet, social networks, start-up, startups, user generated content, VC, Venture Capital, viral, viral marketing, web 2.0, widgets.
23 comments

Viral marketing has evolved from word of mouth to a much more scientific endeavor in the online world. Based on my previous posts and some additional thinking about the subject I’ve defined seven mechanisms that companies have used to successfully “go viral” in the past.

1) Communication. Same side positive network effects have driven virality for companies like AIM, Skype, Facebook, MySpace and even Fax Machines. Since you can’t communicate with others who have the tool until you get it, virality works very well. (I’ve listed Facebook and MySpace as communications tools and not self expression communities because I believe it is the Wall/Comments that drives a lot of the virality and high PVs of these sites)

2) Email invitations. Make it easy for your users to invite all of their friends. Make it hard for them not to. Tagged, Hi5 and Flixster (LSVP portfollio company) do this extremely well.

3) Widgetopia. Reid Hoffman refers to this as “invading a community”. Rockyou (a LSVP Portfolio company), Slide, Photobucket, Snapvine and others have done a great job here. Increased penetration in an existing community makes it more likely that a new user will see one of your widgets and want to get something similar. Increasing returns to scale means that the big get bigger faster.

4) Platforms. Cross side positive network effects as Jeremy posted about a couple of weeks ago can also create virality as groups on both sides of the platform flock to the greatest numbers of the other group. Ebay is the best example of this.

5) User Generated Authority. User generated content can result in high levels of traffic from organic search. This can result in more user generated content and the virtuous cycle continues. Wikipedia and Yelp are probably the best examples of this. We’ve been seeing similar behaviour at a smaller scale at Stylehive (a LSVP Portfolio company)

6) Everyone’s favorite topic. Quiz based content that tells the user about themselves (and often compares them to other people) has worked to drive virality in the past. Tickle, Quizilla, Classmates, Friend Reunited/Genes Reunited all saw big growth by getting users to input some data and gave them information about themselves (whether it be an IQ test, which sort of Superhero you are, or contact info on old friends).

7) Pay me. There have been several businesses that successfully grew by paying both new and inviting users. The economics can make this more difficult for media models than commerce models. However, it can drive a lot of new adoption, and did for AllAdvantage and Paypal.

Just about every site that has gone truly viral has employed at least one of these tactics, and sometimes several. I don’t have a detailed understanding of Netvibe‘s growth at this point and it doesn’t appear to fit into any of these categories. If you can think of companies that don’t fit these models, or other approaches that have also worked, please note them in comments!

Great analysis of digital goods/gifting February 14, 2007

Posted by jeremyliew in Consumer internet, Ecommerce, Internet, social networks, startups, user generated content, viral, viral marketing, web 2.0.
2 comments

Great post from Dana Boyd about the new digital gifts that Facebook released recently. After ranting randomly about rampant commercialism, she gets to the good stuff; analyzing gift giving dynamics (self worth, scarcity, levels of value, reciprocity, importance of timing) and how Facebook’s release measures up to that (spoiler – not very well). Well worth reading.

Hotornot.com were probably the first in the US to experiment with digital gifting, James Hong also blogged about it recently in context of the LiveJournal release of digital flowers.

Update: Read James Hong’s reactions to Dana’s post here

A play about success in consumer technology, in three acts February 6, 2007

Posted by jeremyliew in Consumer internet, Ecommerce, Lead gen, Search, social networks, startups, user generated content, viral, viral marketing, web 2.0, widgets.
11 comments

I’ve previously posted on the importance of distribution during the initial phase of a startups life. To be more accurate, I think that distribution is the most important factor for a consumer facing company competing in a new category.

However, I think that this is just the first act of a three act play, with a different factor being critical to success in each act.

ACT ONE: DISTRIBUTION

To summarize the earlier post; early in a category’s lifecycle, users don’t recognize that they have a particular need/problem. They don’t recognize that a category exists and so there is no demand pull. If even your own mother doesn’t know what it is you do; ESPECIALLY if your own mother doesn’t know what it is you do, then you likely face this problem!

Having the best product is neither necessary nor sufficient. Having a decent product is good enough.

You need to get to users as they won’t get to you. Hence the importance of distribution. Read the original post for flavors of distribution and how to get them, plus examples.

ACT TWO: PRODUCT

Over time, categories become established in the minds of consumers. In the case of online travel agencies it took about 3-5 years. In the case of user generated video, it took only 12-18 months. Consumers start to understand who the competitors are in an industry. If switching costs are low (as they are in both online travel agencies and user generated video), users often sample the offerings from multiple competitors. At this stage, assuming that you have done enough to get into the consideration set, product and user experience matters a lot. Distribution has become the ante, and the companies that win will win on the best product.

Having the best product means much more than having the most checks in a feature comparison matrix. It goes far beyond the technology. It can mean having the best prices, the best selection/range, the best customer service or the best community. In the early days of online travel Travelocity won on distribution through its deals with AOL and Yahoo! But once the category became established in people’s minds, Expedia slowly took market share from Travelocity on the back of a better overall user experience, one important factor being better pricing (mostly hotel pricing). [Update: Note comments below from Rich Barton, founding CEO of Expedia, on his view of why Expedia overtook Travelocity.]

Similarly, many user generated video sites claim better features than Youtube, yet Youtube never lost its lead because it had the biggest range of content (and the biggest audience for people looking to upload videos). As technologists we can fall into the trap of defining “best product” too narrowly, but our customers are not technologists and they look at the whole experience.

ACT THREE: BRANDING

As a category continues to mature, it becomes harder to maintain product differentiation. There are some exceptions; when there are positive network effects an early leader like Ebay or Youtube can often hold their leads. But if the advantages built in Act Two stem from technology, process or supply advantages, these often get whittled away as competitors copy, innovate and partner to make up lost ground. At this stage of a category’s evolution, branding is the most important factor and product has become the ante once again. (Note that I distinguish here between branding and marketing. Online marketing that is more direct response (CPC or CPA) in nature is really more a form of distribution.)

Google is sometimes presented as the canonical example of the best technology winning over time. However, as I mention in the post on distribution, Google‘s traffic only really started to climb after its distribution deals with Y! and AOL. It really did pull away from the other search engines on the basis of its better product during Act Two. But today, its not at all clear that its search results are that much better than anyone elses.

When I was at AOL a couple of years ago, we used to test search relevance from multiple engines by taking the results from all the major search engines, stripping all branding and UI, and showing the lists to users who scored the quality of the search returns. The results were surprising – all the search engines were very close to each other in relevance, with variations as to who was “best” from month to month and search term to search term. Interestingly enough, when you put the branding and UI back in, the users always rated
Google as having the best search results.

Google‘s dominant brand is now what enables it to hold and grow its search market share. And in mature categories such as online travel, you see the big players compete purely on branding ads.

In some categories, branding never matters and we never reach Act three. If your users are unlikely to transaction with you more than once (say you sell rowing machines or curio cabinets) then your category will likely never develop beyond Act One. But if you’re in a category with repeat users, whether books, DVD rentals, online auctions, or shoes, branding matters.

CONCLUSION

Distribution, product and branding, all are critical but at different times. Making sure you focus on the right factor at the right stage in the evolution of your category can help you make sure you’re fighting the next war, not the last one.

We’re excited to invest in Flixster! February 1, 2007

Posted by jeremyliew in Consumer internet, social networks, startups, user generated content, Venture Capital, viral, viral marketing, web 2.0, widgets.
6 comments

Well we were hoping not to announce our investment in Flixster until they got a PR firm engaged, but Mike Arrington at Techcrunch has his sources and broke the news tonight.

We’re very excited to partner with Joe and Saran (the two founders) and the rest of the team. They have built an amazing user generated content site around movies, including ratings, reviews, actor pages, trivia quizes, movie compatability tests and tons of other stuff. Traffic growth has been truly viral and the site has grown from nothing a year ago to very meaningful pageviews per month from users all over the world. They’ve done a great job of applying social networking and viral best practices to engineer this growth.

As we’ve posted in the past, we’re big believers that this year social networking becomes a feature, a mechanism used to incent users to create content that will be of broad interest to many other users. We think that this is most interesting around verticals with endemic advertising opportunities. Web based advertisers still pay a premium for content related to their product (vs buying demographics or broad reach). As movie studios follow their audiences online they will be marketing more on the web, and movie related content will continue to draw premium CPMs, just as it does for Moviefone, Yahoo Movies, etc. Flixster fits right into this model.

Having the best product; neither necessary nor sufficient January 23, 2007

Posted by jeremyliew in Consumer internet, Digital Media, startups, video, viral, viral marketing, web 2.0, widgets.
11 comments

I’ve been thinking a bit more about how consumers adopt “new” products online recently, in part because of a couple of recent posts I wrote in reaction to rumors of a Safari browser for Windows and questions on the value of widgets. What struck me is that very often, the “best” products don’t win majority market share. Many claim that Firefox is a “better browser” than IE, and I’ve lost count of the number of times I saw a pitch from a video sharing site last year that claimed to be “feature for feature, far superior to Youtube“. Yet IE and Youtube dominate their markets. And the same is true in so many categories.

Cynics might attribute this to bad luck or my favorite, user stupidity (because its always good to have contempt for your customers), but often there is a pattern at work. In a new consumer market, the winners win on distribution.

In a new consumer technology market, users don’t yet recognize that the category exists. They don’t recognize that they have a problem, so they are not going out looking for a solution. They’re not issuing RFPs, they aren’t even compiling shortlists of possible vendors. They are stumbling on solutions by accident. And that is why distribution is key in a new market.

Lets take an example; online travel. The early market share winner was Travelocity/Preview Travel. They won that early market share on the back of distribution deals with Yahoo! and AOL. In the late 90s, most internet users didn’t even realize that they could book travel online. But they were actively using portals, and through the “travel channel” on the big portals, they stumbled across the online travel agencies and started booking online.

Google is another example. It was a “better search” product when it launched in 1998, acknowledged among the Digerati. But it wasn’t until it struck its distribution deals with Yahoo! in 2000 and then AOL in 2002 that it really started to get used widely. Before users were exposed to Google through their portals, they didn’t know that better search existed.

Product is of course important. Your product can’t be actively bad. If Travelocity’s booking engine didn’t work, or if Google’s PageRank didn’t produce more relevant results at that time, then users would not have come back. But they needed distribution to be found in the first place.

Updating to 2007, the same principles apply. But whereas portals were the only path to distribution in Web 1.0, today social networks offer another way to reach internet users. But now the “discovery” process is a little different. Take embedded online video. A year ago, users didn’t understand that this was a category, they didn’t realize that they wanted to embed videos in their profile pages. But when they saw an embedded video on a friends profile, they could say “Hmm, I want one of those”, click through and get one for themselves. Now the category is established in users’ minds, and brands have been established. But earlier, “distribution” was what drove growth.

Social networks offer a different challenge than portals. Whereas you could get distribution by doing a single business development deal with a portal, on social networks, you need to convince each individual user that you’re worthy enough to keep. But as you get more penetrated into the community, a new user is more likely to run into you and try you. So scale matters and it is a virtuous circle – the more share you get the more likely a new user is to stumble on you as a provider. Going up against an “incumbent”, even with a “better” product, can get very hard. Distribution and adoption end up meaning almost the same thing. This is why Rockyou and Slide are the number one and number two fastest growing widget makers in social networks, and why VCs pay so much attention to “traction” and so little to the fact that its easy to replicate the features of these widgets.

The other web 2.0 distribution mechanism is virality. Users inviting users is the other way that a user can get exposed to a new product – solving a problem that they didn’t even know that they had. Ravi has posted on this a couple of times so I won’t go into it again.

So the next time you build an absolute killer product in a new consumer category, don’t stop there. Unless you’ve got a plan to get new users exposed to your new product, your efforts may be for naught.