Futuristic Play by Andrew Chen

Recession + Advertising = ?

Useful article from Advertising Age called "Recession Hits: What It Means for the Ad Biz":

Merrill Lynch last week became the first major U.S. investment bank to declare the U.S. economy in recession. Two days later, Goldman Sachs jumped in, predicting that the economy would enter recession during 2008, if it wasn't there already. [snip]

So in order to find out what that means for the marketing world, Ad Age asked leading industry executives what they think a recession means for the business in 2008.

Their reply: It might not hurt in the short-term, but if things don't tick up, gird yourself for a tough 2009.

Worth reading.

Interesting graph on Second Life usage

Trends within Second Life
The full article is on Massively here, which is a great news site on MMOGs. (I originally saw this article in Charles Hudson's Google shares, thanks Charles!)

The article goes on to summarize a number of trends within Second Life:

Total signups increased by 529,224 (4.73%) in December compared to a growth of 605,095 (5.72%) in November. New-user retention to 90 days is still about 10% according to Linden Lab, having apparently remained more or less unchanged over the last 12 months.

Overall age demographics continue to trend towards us crusty oldies. 74.17% of the population is 25 years and older - a slight gain from November, and the older users spend far more time in Second Life than younger users with those over 44 years old continuing to be the heaviest users on average, and teens and under-25's spending the least time.

Definitely worth reading.

What's the right activity metric?
Over time, the # of registered users has become a pretty meaningless metric to me - I mean, big is good, but given that some sites can generate users but churn them right away, it's not so useful. Similarly, the proliferation of Facebook apps and MySpace sites makes it so that large numbers of "uniques" can be generated without effort also, but these users are not worth the same as the others.

Peak concurrency is something I read a lot about in the MMOG world, yet it seems very much rooted on capacity planning :) It is certainly a different view though, and one that has its usefulness.

Probably worth writing another blog post one day, about different user activity metrics...

Dear lazyweb, Recommendations for designers?

Dear blog readers,

If you have recommendations for designers (particularly in SF), please e-mail me at: voodoo [at] gmail.

And of course, if you want to introduce yourself for any reason, shoot me an e-mail anytime ;-) I try to respond to every one...

Thank you!

Overheard at dinner last night...

Amusing observation overheard at dinner last night:

"PlentyOfFish? If I hear about another ugly website that hits millions of users, I'm going to lose hope for good design"

:)

Another point that will stay with me is one of the folks there saying that he'll avoid designing consumer websites with glitter, hearts, etc., by never making websites for the mainstream audience. Very perceptive and consistent, imho - it's the folks that want to design for the masses, but force an unappealing top-down aesthetic that I get annoyed by.

Not everything can be free!

Will people pay for anything on the internet?
A recent article on GigaOm:  O2 Offers Napster For Free! Big Question - What will people pay for in the future? with the quote:

It is our contention that in the future, we will only pay for broadband access. Voice, Video or whatever is going to become part of the “access” offering.

There's been a similar discussion revolving around PlentyOfFish.com, which is turning online dating from a paid subscription model, to a free ads-supported model.

However, a colleague of mine Basem Nayfeh once remarked, "It doesn't make sense for everything on the internet to be free and ad-supported - SOMEONE has to pay the bills!" (And note that Basem is the CTO of one of the largest and most well-funded ad startups in the world right now)

Let's dive into why he says that...

Are you a free site? Or not?
One of the key drivers of Web 2.0 is that the sites you are building are likely free, and ad-supported. This is great in theory, since customers like things that are free. However, imagine a world where EVERY internet site is free and has advertising revenues. In that world, every site would be buying traffic from every other site, and because it's not a frictionless exchange, money would be lost from the system and revenues would eventually go to zero.

As a result, the only way to prop up a system where it's just ad-supported companies buying from ad-supported companies, you need a bunch of external money like venture capital. But then you'd just end up with the Facebook installs ecosystem (haha! Just kidding Mark!)

So it's pretty clear that you need some amount of external money flowing into the ad buying, and thus, let's look at what an old guy thinks: Newton's Third Law, which relates to online advertising (I swear!):

To every action force there is an equal, but opposite, reaction force

I cite this because the same holds true in online advertising - Newton did not say this by the way:

For every online advertisement, there is a publisher and there's a buyer

and thus its corollary:

For every free ad-supported site, there's some number of transactional sites that support it

And in fact, this statement probably goes even deeper down into the "type" of advertising inventory that's growing on a site. For example, even if there's a lot of advertisers willing to buy car/truck/bus ads, if there's not enough ad inventory being produced by online publishers that fits into that, then that creates an imbalance as well.

The big question
So as a web entrepreneur, you have to ask yourself a Big Question. In the long run, are you a:

• Free, ad-supported site (an "Ad publisher")
• Or a paid site that buys to get clicks (an "Ad buyer")

Do you know the answer to that? Sometimes it's not immediately obvious.

Here are some signs you might be better off as an ad buyer:

• It's hard to get traffic :)
• People don't use your site every day
• People use it only when they are "in-market" for some number of weeks
  • (Dating, shopping, researching homes, researching schools, etc.)
• It's hard to get people to come back for multiple sessions
• People spend a lot of money in your category
• It's unlikely people want to tell their friends about your site, or that their friends are unlikely to be "in-market" at the same time

Similarly, these are signs that you are better off as an Ad publisher:

• It's easy to get lots of viral traffic
• People use your site all the time, all year around
• People don't spend much money in your category, or there are lots of competitors
• There's no "point" in using the site - sometimes it's time-wasting activity like entertainment

Where's the gray area?
Obviously there's a lot of gray area for this - in many ways, I'm sure that PlentyOfFish is as much a communications site as a dating site. Or the same as MySpace. Similarly, for shopping or music or photos, a lot of these sites are as much social entertainment experiences as much as they are transactional experiences. That's why you have transactional sites like Shutterfly, but also ad-supported sites like Flickr.

So for each entrepreneur's business, it's worthwhile to evaluate it in different ways - but please keep in mind, just because your competitors charge money, it doesn't mean you can go free and succeed. Because not everything on the internet can be free :)

10 signs you're a product fanatic

Are you a product fanatic?
If you are, you might recognize yourself in the following:

• 10. You think MySpace is soooo ugly
• 9. You only use the best products:
  • Macbook Pro
  • Mac OS X
  • Firefox
  • Gmail
  • Google Maps
  • Facebook
• 8. You never use the popular products:
  • Dell
  • Windows
  • IE
  • Yahoo Mail
  • Mapquest
  • MySpace
• 7. You try out new sites and judge them based on their features and functionality
• 6. You assess a site's quality based on if it's written in Ruby versus Java
• 5. You like things simple, functional, and uncluttered - cuz what else would you want?
• 4. You think your startup's "secret sauce" is in the technology, or platform, or programming language (LISP!)
• 3. You don't require users to give you their emails, because it's not what you'd want as a user
• 2. You say things like, "Just build something people want"
• 1. You secretly worship Steve Jobs :-)

Do any of those sound like you? Maybe it's not even that secret that you worship Steve Jobs?

 I confess that I personally fulfill many of the characteristics above, for better or worse. And I see significant dangers in becoming too fanatical about product, for the following reasons:

Product fanaticism != User fanaticism
An overfocus on product - meaning the features and functionality, or the underlying technology - can cause friction with motivations from the user. The reason is that product people often feel a great urge to be "product artists" and experiment with new features and interactions, when it's not what users want.

In many cases, users want to do things that don't mess with your view of the world. They want to make things look like Geocities, and muck everything up. They want you to take a bunch of existing products and mush them together, not make a single high-quality product. And the visual aesthetic they respond to changes whether they are teens or moms in the midwest, or seniors, and sometimes the Googley thing to do isn't the right thing to do.

Product fanaticism overlooks innovations in other places
People who are overly focused on the product may overlook opportunities in innovate in other places than the product. This might be a create new way to make money (subscriptions versus virtual goods versus whatever), or maybe a novel method of distribution. Or you might focus completely on features, but ignore the metrics and analytics you need to drive them.

Would product fanatics have invented Wal-Mart, or Microsoft? Some of you wouldn't WANT to invent these businesses, even if you could. The reason is that both of these businesses are big, ugly, non-product-driven businesses, and that's why everyone makes fun of them. But they work because they've completely locked the distribution channels, can essentially charge whatever they want, and are great businesses.

If your goal as an entrepreneur is to be successful, it pays to be open to such innovations. What is the Wal-Mart version of your business? What's something that's boring, execution-oriented, but could be an industry changer? Think about it.

Product fanaticism can lead to beautiful, empty websites
And the final danger of all of this: It takes a lot of effort and resources to get a website off the ground - you need people, financing, and distribution strategy, technology, hackers, etc. If the focus becomes to ONLY focus on "build something people want" then that attention is taken from the other, critical areas. Now in many cases, it doesn't matter, because you don't need to figure out your financing structure right away. But you probably DO need to put appropriate thought into the business model, your distribution strategy, and all that other good stuff.

Otherwise, you'll end up like a lot of the websites that show up on Techcrunch - cool ideas, maybe even good implementations, but ultimately, you get the traffic spike followed by nothing.

So given the choice between the extremes, which one would you pick?

1. Beautiful, innovative website that no one uses
2. Ugly, copy-cat website that lots of people use

If you'd rather have #2, then you might want to think about taking some known user mechanics that people already love - thus reducing your risk there - and instead innovating in something other than product.

Have fun!

Take the driver's seat on web stats, don't be a passive observer

What kind of web analytics package are you running?
Chances are, if you run a site, the only analytics you're running is Google Analytics, or something equivalent. For most high-level traffic analysis, it's Good Enough, but for anything else, it Sucks Bad.

The reason is that for most entrepreneurs, they have a small # of issues they care about, when it comes to their traffic:

• Is their site growing?
• Are users sticking to the site?

Problem is, beyond this high-level view, the underlying DRIVERS of these statistics aren't available. The goal is not just to passively observe what's going on in your site, but to understand the underlying variables enough to make changes and see what happens.

For example, let's take a look at viral marketing metrics...

Are female users more viral?
Jeremy Liew recently wrote about the observed phenomenon that female users are more viral:

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

1) In 2007, 56% of total signups were female.
2) Females are 33% more likely to invite friends than are males.
3) Females are 10% more likely to respond to an invite from a female vs. a male.
4) Males are 50% more likely to respond to an invite from a female vs. a male.

Definitely interesting stuff.

And it reminds you that if your business is based on viral marketing, and you don't know who in your system is likely to be viral, it's impossible to optimize for increasing your distribution. And that sucks.

Build custom integration to dig one level deeper
What you really want to do is to dig one level deeper in your traffic analytics so that you can start to make changes to the underlying levers. After all, you're tracking this information not as a passive-activity, but as a way to adjust and optimize your business, right?

If you're a video site, it's not enough to just track pageviews - instead, you want to know how many comments are being left for each video. Or how many videos are being watched in a session. Or the difference in these stats between users that churn out, versus users and stick around. Or how many friends an average user has. These are all super-important metrics.

This is all the more important when you are dealing with ads. After all, a pageview is not a pageview, depending on whether it's US versus international, whether it's the 50th ad a user has seen or if it's the 1st, and so on. The most specific your goal is (monetization versus growth versus retention), the more you want to tie your statistics to user-centric stats versus the generic stuff that's available in any analytics report.

Hot off the presses! Scrapbooking scandal!

Continuing from my previous post "Do you ever say, 'MySpace is soooo ugly'" that touched on scrapbooking, I was amused to read about the following scrapbooking scandal that's been compared to the baseball steriods scandal:

Scrapbooking bloggers called it "Hall of Fame-Gate," naming it the top scrapbooking scandal of 2007. They compared it to the performance-enhancing-drug controversies involving major league baseball player Barry Bonds and Olympic track star Marion Jones. Someone wrote that Contes was as polarizing a figure as Martha Stewart.

The rest of the article has some interesting tidbits about the motivations behind scrapbooking, which, as I argued before, has a lot of the same hallmarks of the "self-expression" driven MySpace profiles:

The edgier scrapbookers thought of it as an outlet -- much like keeping a diary -- in which they expressed political views, decorated pages of their poetry or paid tribute to television shows like "Project Runway," using torn and faded materials not guaranteed to last long enough for their grandchildren to see.

... and, another data point on the market size of all of this:

As popularity soared, scrapbooking -- in all its forms -- exploded into a $2.6-billion industry where enthusiasts young and old, conservative and radical, grudgingly put aside differences to compete in national contests, attend global conventions, build blogs, join chat rooms, create online portfolios, and view YouTube and other online instructional videos.

[snip]

In 1987, Rhonda Anderson of St. Cloud, Minn., co-founded Creative Memories, a company that aimed to take scrapbooking to people of all backgrounds. Creative Memories now has 90,000 consultants who sell the company's products in stores, online and in classes they teach in 12 countries. The company earned $300 million in 2005, and slightly less in 2006 because many people shifted to computer programs to create digital albums, a niche the company is now expanding.

Definitely worth reading the article if you're interested in the industry.

Congrats to Jared and friends at WeGame

My friend Jared Kim recently launched his company: WeGame Launches As YouTube For Gamers.

I'm a huge fan of Jared and what he's doing - definitely worth checking out. It's a great exercise in taking a vertical stripe of content/audience which has tons of monetization potential, and building deep hooks into it to generate something high-value and proprietary. Classic "crossing the chasm" material for WeGame to then enter into many other strategic areas.

Congrats to Jared, Naval, and the rest of the team!

How does internet ad spend compare to other media?

As far as overall advertising goes, Internet at 8.7% of ad dollars, whereas TV (local+network+cable) is almost 75%.

There are two ways to look at this:

• Wow, look how far online advertising can grow!

Or:

• Look how insignificant online ads are compared to other media!

It's really a combination of the two - it's true that both online ads has a lot of headroom, but when it comes to ad agencies, the total amount of spend going towards this medium is still small compared to everything else.

This is part of the reason why even if you have an awesome website with lots of branding opportunities, it can be hard to move the needle and get agencies interested unless you have massive scale. It's definitely something to keep in mind if you are building a social media site with no direct commercial intent in order to attract direct response advertisers.

PS. MarketingCharts.com is a pretty awesome site to grab numbers like these!