Andrew Chen Archives

A quote

A wise man once said:

When all you have is a hammer, everything looks like a nail

Have you heard of it? Well, it’s relevant to the current environment.

What’s our current hammer?
Oftentimes, you’ll hear the following conversation:

Nerd 1: Hey, what are you working on these days?
Nerd 2: I’m working on [insert random web project here]
Nerd 1: Are you going to put it on Facebook?

See, the funny thing about this conversation is that it DIDN’T MATTER what Nerd 2 was working on – the first guy was going to ask about Facebook one way or the other! That’s our hammer.

Sometimes this conversation actually ends with:

• Are you going to build it in Ruby on Rails?
• Is it going to have a Google Maps mashup?
• Are you buying search ads?
• Is it going to be a MySpace widget?
• etc.

Basically, whatever is hot and really hyped up, you’re going to ask just because. Not because it has any relevance, but just because it looks like a nail.

What do you really mean?
So what do people really mean when they ask, "Are you going to make a Facebook app?" I think they really mean, "What’s your approach on getting lots of people to use the site?"

There are many great answers to that question, and a Facebook app might even be a great answer – but it’s not the only answer.

Couple fun articles for reading this weekend:

• How Whole Foods uses queue management theory to speed up lines and increase revenues
• Tales of a ninth grade fund manager via Paul Kedrosky
• What fish markets teach us about the economy
• Prodigy’s end: How a top-tanked American teen tennis star is now ranked 335

BTW, my favorite quote out of the ninth grade fund manager article:

Brandon, who became interested in markets with a virtual-reality game
called Neopets and was setting up mock stock portfolios by the age of
12, wanted to start his own investment fund.

Are virtual goods teaching kids about economics and markets? :)

The Virtual Goods Summit

As I mentioned in a previous post, my firm Mohr Davidow Ventures recently sponsored the Virtual Goods Summit, which I attended. It was a great experience, and I thought I’d share my perspective as a consumer internet guy looking into the games world.

Conference summaries
Since I’m late to the party when it comes to actually blogging the proceedings, here’s a bunch of links to people who have covered it in better detail than I ever could:

• 3pointD: 1 2 3 4 5 6
• Virtual Worlds News: 1 2 3 4 5 6
• Pop PR Jots: 1 2 3 4 5 6

After reading these 3 excellent accounts of the conference, you’ll feel like you were actually there :)

Now, my impressions
First off, Charles Hudson did an amazing job putting the event together. And congrats to Dave Feinleib from Mohr Davidow Ventures and Susan Wu from Charles River Ventures for sponsoring and advising the Virtual Goods Summit. The event was truly the who’s who of anyone interested in virtual economies.

The group in the room was a relatively small one, and the number of companies making significant revenues off of virtual goods can be counted with a couple hands. It’s certainly not as ubiquitous as advertising for a business model.

Let me split my analysis along the framework of what I laid out in a previous article:

• Product
• Monetization
• User acquistion

And obviously my commentary will be shaped by the web background from which I’m from, rather than a games background. I’m primarily thinking about, how can we borrow what’s been learned in games and apply it to the Web? Rather than the other way around.

Product
Clearly, the engagement factor of these games should be much envied by anyone working on consumer products. It seems that the sessions for these products are often measured in hours, rather than minutes. The staying power of these experiences is only rivaled by the most social of web properties, like MySpace and Facebook.

Ultimately, the effectiveness of virtual goods seems to come down in the creator’s ability to create a “ladder” of progression for people as they use the product. This is something that games commonly use, but web product often do not. I previously wrote about this: Level up for features rather than freemium? Then, as the users progress from level to level, they are presented with opportunities to augment their experience with virtual items. In fact, one way to think of this process is that it creates “artificial scarcity” of features, which drives social signaling within your community. This scarcity is at the core of making virtual goods work.

One important distinction made at the conference was the difference between functional and decorative items. With decorative items, they simply change the appearance of your avatar (or as web properties refer to, your profile). You might add pants or a new hairstyle or a new color to your background. With functional goods, however, new features are added. For example in a racing game, it might be a power-up or something similar. There was a huge warning about creating functional items, however, as they can upset the balance of the game – players might revolt if you can “buy” your way into victory. In fact, some of the properties presenting at the summit only had decorative items, which still generated millions in revenue.

So from a web perspective, it seems clear that the first place to start is by doing two things:

1. First, you need “spaces” or “slots” for decorative customizations to exist
2. Also, you need to think through how progressively expose new features to the user
3. And to support the above, you need to build artificial scarcity into the system

For both issues, I believe web developers have to completely rethink their user experience. Rather than making it easy to DO something – that is, an emphasis on function and utility – instead, they must make products that emphasize a Russian Doll-like experience that unfolds new capabilities over time. And to repeat a point from earlier, the goal of this is to create scarcity which enables social signaling and value within virtual goods.

The difficulty, of course, is that the culture of the Web 2.0 world doesn’t encourage that. Instead, the culture is to pack in the features, and then make them all free and all accessible from the very beginning. The idea of requiring users to “earn” features by doing actions seems quite foreign.

Monetization
From a monetization standpoint, virtual goods still seem to be a tremendous complement for advertising. One of the most important numbers that was shared in the entire conference is that only 5-15% of your audience will ever buy virtual goods. Wow! That’s pretty interesting, and very similar to the dynamic within advertising where a small percentage (let’s say <20%) will be sold as brand advertising, and the rest will be sold as direct response and remnant. (As an aside, it was also mentioned that while the minority of users will actually buy, that the other users are just as important because they generate the “content” to be consumed by the paying players – so don’t neglect them!)

With that number in mind, a virtual goods-led monetization strategy begins to emerge. While 15% of your audience will buy virtual goods, the other 85% can be leveraged to provide indirect monetization through other means. For example, those who are time-rich rather than money-rich can be leveraged as “eyeballs” for an advertising strategy. Another angle would be to leverage the time-rich 85% to drive viral marketing, as to drive the indirect revenue producer of audience growth, while making money from the primary 15%.

In fact, it strikes me that ultimately virtual goods is a complement to advertising, not a competitive business model. The numbers indicate that it’s really rather close to subscription (and thus freemium) as a model – except that instead of buying a yearly subscription, you buy everything piecemeal to augment your experience. In fact, perhaps the way to think of it is subscription with many micro-gradients of subscription levels, rather than as a completely new model altogether.

One bundled strategy would be to use virtual goods for some percentage of the highly engaged users, and then you use advertising to monetize the other folks. In fact, I’d be quite interested to see an “ad blocker” virtual good that you either earn or buy, which turns off all the ads on the site! :)

User acquisition
But what about acquiring more users? This was definitely an area that the folks at the conference didn’t spend very much time on – it seemed that while their products were more engaging and generated more revenue, no one talked about directly applying virtual goods to user acquisition.

My guess on why that is has to do with the game industry’s traditional reliance on the retail channel to sell their goods. Thus, in order to get people onto the site, the goal is just to have great word-of-mouth that drives foot traffic to stores. While this is changing over time, particularly with casual games, the two worlds of scrappy internet direct marketing and creative game experiences have yet to meld.

That said, it’s obvious that you can use virtual goods to incent people to complete certain actions. For example, what if you had to invite a certain number of friends to get something? Or if you had to post it on your MySpace in order to receive a badge? These are all things you can do to drive more growth.

Conclusion
Ultimately, it’s clear that Web 2.0 folks can learn a lot from creating the types of incentive systems that folks in the virtual worlds industry can often do. But alas, the devil’s in the details. How often should you reward people? How do you price items? What things should you provide incentives for? These are all lessons that can only be gained by real world experience. I’d encourage everyone to learn more about the field and start reporting on their experiments!

Other posts of mine about games and virtual goods
If you want to read more…

• Web + Games = ?
• Game design tutorial at Game Developers Conference
• It’s hard to be fun and serious at the same time
• What’s broken about online dating? (from a games perspective)
  
• 10 reasons why every Web 2.0 developer should go to Virtual Goods Summit
• Development methodologies in video game design

Other than the crowd of games people, you’d be surprised by what Web 2.0 folks are speaking:

• Gaia Online, which started out as a bunch of online forums
• HotOrNot, which has virtual goods in the form of roses that you can give
• RockYou, a recent high-flying widget company
• Kongregate, a self-described "YouTube for games"
• Dogster, a pets social-networking site with virtual gifts
• LiveJournal, which has "v-gifts" that users can give each other

And of course, check out the list of attendees for a colorful bunch.

Autodesk? Motorola? eBay? And a whole ton of VCs?

You can definitely tell this space is heating up :) Perhaps people will start looking at this as a serious alternative or compliment to the ad-centric model that exists today.

Here’s a good link showing some of the Alexa ranks for Seattle’s startup companies.

You’ll note that there’s only 6 companies that are 10,000 and over on Alexa rank.

Why is 10,000 an important number? Well, it’s pretty fuzzy, but generally 10k is a good rule of thumb for sites over a million pageviews a day. 30 million pageviews/month isn’t even a major site – after all, many sites do billions per day.

What’s the reason why these sites are sucking so much on adoption? Looking through the bunch, it seems like while they are good products, they aren’t great at virally promoting themselves. We’re talking about the various ruthless ways you can acquire users.

Looking through these, only a couple make extensive use of widgets: iLike, and Snapvine are the big ones. (As an aside, Snapvine is undercounted because they have mostly widget distribution, but have millions of widgets out on MySpace and others). And furthermore, I don’t see any folks that are doing the ruthless things that Tagged.com does to acquire users.

The only guess I have is that Seattle doesn’t have a cottage industry of entrepreneurs who have been working on getting things viral the way that the Bay Area does? Or perhaps someone else has other ideas?

I recently found a great blog called Inside Facebook – the two founders, Jon and Justin, are really nice guys too. I definitely recommend you check out the blog.

Anyway, they recently had a great post called "I have 250,000 users, now what?" The blog is about a widget maker who’s gotten 400k users on Facebook, and who doesn’t know how to make money off of it. For a standard internet site, 400k is a GREAT number. There have been many internet sites that have had VC investments for quite a high valuation (over $10MM) with that sort of metric.

In fact, if he had a normal destination site, he could put on AdSense and pretty much guarantee himself a CPM of something like 30 cents to a dollar per thousand pageviews, which would probably look something like a couple thousand bucks a month, probably. Problem is, he doesn’t have an standard website where he can slot ad units – instead, he has something a couple inches by a couple inches, where it’s difficult to place ads.

So question is, how do you make money off Facebook apps? How much is a Facebook user worth, anyway?

Is brand advertising an option? Here’s the challenges
But in the case of Craig Ulliot, he has a distinct problem: How do you monetize a very small piece of real estate on the Facebook profile?

First off, brand advertising (selling at a high CPM) is basically not an option. Why?

• Selling to brand agencies requires relationships, time, and money
• Brand advertisers are unlikely to buy such a small piece of real estate
• It’s hard to fit a big, interesting ad on the widget

This is not to say it can’t be done – I can imagine a "Sponsored by Expedia" there, but it’s take some real effort to get to something like that.

Here are the direct response options
Then on the direct response side, getting people to click and convert is hard:

• Facebook is a high-frequency/sticky site that has very low clickthrough rates (<<0.1%)
• Facebook doesn’t capture "intent" – viewing a map doesn’t mean you’re ready to travel
• The best way to get people to buy is to move them OFF the site to convert, and Facebook doesn’t like that

So even in the case where you get a lot of pageviews, the aggregate CPMs will be terrible. But I suppose it’s better than nothing.

What does widget advertising really need to take off?
My guess is that someone has to move forward with a large direct response ad network that can deliver relevant ads in a very very small ad unit that is easily embedded into the widgets. Google should follow on all the widget hype by having a simple ad that lacks anything but the bare essentials on text, and then aggregate enough traffic to make it interesting.

Another option would be for some sort of deeper integration to happen as hooks to another widget. For example, I could imagine a company (let’s say Apple) creating their own widget. If you as Mr. Travel Widget, when installed, would try to convince the user to also install an Apple widget, I think that’d be an interesting model. Basically tag-along widgets which advertisers pay some amount for every user that is brought along.

Here’s the original.

I guest blogged on my friend Noah Brier’s blog while he was out traveling, and wrote the article below. I included it in its entirety, except for my bio. In general, Noah is a great NYC-based marketing guy, and I’d encourage you to check out his blog.

Guest blog by Andrew Chen, who also writes at Futuristic Play.

Are you a Web 2.0 startup founder? Many of the skills required to make a "typical" Web 2.0 company are becoming more and more well-defined. So let’s talk about what it takes, and rate your skillset and knowledge.

Read on if:

1. You are building a consumer-facing site that…
2. … acquires users virally and…
3. … is free to use, and …
4. … makes money through advertising.

With that in mind, I present the W2SAT – the Web 2.0 Startup Aptitude Test – a collection of rough questions about the consumer internet space – it should help you identify the areas you know really well, and the abilities you might want to develop further. This test is really for potential founders of Web 2.0 startups, and is not a general knowledge test for how often you read Techcrunch :)

One caveat: This test is for fun :) And in fact, even if you have a low score in areas, the real test is how well you adapt and learn.

With those excuses in place, please answer the following questions:

The Web 2.0 Startup Aptitude Test

1. Can you make something useful?

• Do you build websites and/or write code?
• Have you gone through a full cycle of creating and shipping a product?
• Do you know how to launch a simple, core experience in less than a month?
• Are you exposed to new company ideas every day through blogs, people, etc.?
• Have you interviewed users and/or conducted usability tests to iterate on concepts?

2. Can you get users?

• Have you bought users through advertising before?
• Do you know how to optimize signup landing pages?
• Do you have the relationships to get your company into major blogs and publications?
• Have you employed organic user acquisition tactics successfully? (viral/SEO/etc.)
• Do you know what metrics to use to measure retention, stickiness, viral, etc?

3. Can you make money?

• Have you used AdSense/YPN/etc to monetize a site?
• Do you know the difference between CPM, CPC, and CPA?
• When you have a free+subscriptions model, do you know a typical subscription %?
• Do you know the typical CPM for social media sites?
• Have you ever sold a sponsorship deal to another company?

4. Can you handle all the business overhead?

• Have you ever incorporated a company?
• Do you have a mentor that has already done what you aim to do?
• Have you sold or partnered with another business before?
• Have you ever interviewed, hired, or managed people?
• Have you ever persuaded anyone to invest in a company?

Great! Keeping track?

So where are you?

• 0-4 points: You might be great in one area, or be an early generalist – try to learn faster!
• 5-9 points: You might be a first-time entrepreneur – here’s a great opportunity to partner with someone with complementary strengths
• 10-14 points: Awesome sweet spot – you know what you know, and also know what you don’t know. You’d be a great co-founder or early employee. Email me! (voodoo [at] gmail [dot] com)
• 15+ points: Stop reading this blog, you aren’t learning anything :)

Again, wherever you are, it’s a starting point. In particular, it’s a good way to learn what you are good at, and potentially find someone else who is good at the other stuff.

What profile are you?
Let’s do some analysis. There are a couple typical profiles of people out there that you might fit in:

Independent consultant/designer/programmer:
If you’re a independent player, you are probably quite good on managing your own little small business building products, so you’ll be strong on part 1 and 4. Sometimes you won’t have to worry about getting users or making money through ads, since you’re not working on your own products, so 2 and 3 will be weaker.

People with big company resumes:
Big company folks might be great at products, managing overhead, and making money, but because they are tapping into existing cash cows, the actual traffic acquisition process can be difficult. So part 1 might be pretty good (although somewhat overspecialized or abstracted), part 2 will be pretty weak, and part 3 and 4 might be reasonably good.

MBAs with banking/consulting backgrounds:
Without operational experience, a "pure" business guy might have a hard time. In particular, although they might have great relationships, be very polished, and be good at business development, the other skills can be lacking. So typically part 1 and 2 might be pretty weak, with making money possibly higher, and part 4 the highest.

Typical startup employees:
Depending on the stage of the startup, an employee at an early company might be pretty balanced across all 4 parts. The reason is that they see a little bit of everything, which is great. This is probably the best training to do your own startup, IMHO.

Students and future entreprenurs
In the case of people who are still learning, the only thing you might have a great grasp on it part 1. You might be building a lot of useful things, and/or reading a ton of blogs, but without thinking too much about distribution and the business side of things. This is a GREAT start, and if you have enough years ahead of you, it’ll be a short while before you master all the other skills.

Thanks!
If you’ve read this far, thank you! :) And thanks to Noah for inviting me to write a blog. If you want to reach out to me, feel free to write me at voodoo [at] gmail [dot] com. I also have a blog at http://andrewchen.typepad.com.

OK Go with point #3
Finally, here’s point 3 of a multi-post series on the question, "How can you fool VCs into thinking you have traction?" Here are links to older posts:

• Introduction
• Widget pageviews versus destination site pageviews
• Automatic page refreshing
• "Standards" and metrics like date ranges
• Counting hits versus pageviews versus ad impressions
• Search engine marketing
• SEO and page proliferation
• TechCrunch and other one-time traffic spikes

"Standards" and metrics like date ranges
Today, we’re going to talk about manipulating standards and metrics – in fact, let me roll in hits versus pageviews and ad impressions, since it’s all part of a similar issue. Basically this sleight of hand has to do with the fact that people treat $0.99 as much cheaper than $1 when they are both only a cent off. So if you pick the right metrics to measure yourself by, you can get a big boost in credibility.

Here’s what you say
When someone asks you what kind of traction you’re seeing, say something like this:

"Since we started public beta, we’ve served over 300 million ad impressions on the site"

I also love "peak" numbers or "run rate" info:

"We currently have a peak run-rate of 240 million pageviews"

This sounds great right? It’s actually more complicated than that.

What’s weird with these stats?
Even though they are a bunch of equivalent numbers, people really perceive the bigger numbers a lot differently than the smaller ones.

What’s misleading?
People don’t have a good sense of the ratios
to translate between these numbers – some numbers sound bigger than they really are!

What’s a typical set of ratios? Every site is different, but these would all be reasonable:

• 1 registered user = 10 unique users
• 1 user = 10 pageviews
• 1 pageview = 2 ad impressions
• 1 pageview = 10 hits (or transactions)
• 1 dollar = 1000 ad impressions

What this means is that rather than giving a number like 500k registered users, you could in fact give a number closer to 500k x 10 x 10 x 2 = 100 million pageviews. And if your site is growing 20% a month, growing 500k users 20% a month is a lot less impressive sounding than 100 million pageviews growing 20% a month.

Even worse is giving someone a dollar amount for your advertising. 100 million pageviews doesn’t sound so great when it’s monetizing at $1 CPM or less.

Another way to compound this is by giving big numbers based on non-fixed time intervals. For example:

• "We’re hitting a run-rate of 100 million pageviews"
• "Our peak run-rate is 200 million pageviews"

This also includes what I wrote about earlier with "Since we did X, we got Y." It’s very confusing what these numbers entail. If you wanted a great peak run-rate number, just take the HIGHEST number of pageviews you’ve ever had in ANY time interval – let’s say the 10 minutes right after you get a Techcrunch spike, and multiply that out to a month. You’d get a ridiculous number.

How do you figure out the truth?
It’s hard to figure this stuff out, but ultimately you want to heavily bound the problem. Rather than waiting for them to spit out a crazy metric, instead you should ask a very specific question:

"In the last month, what did your analytics tell you in terms of # of pageviews to the site?"

Asking a question like that, and not accepting a cryptic number, will give you the best chance at understanding what’s really happening on their site.

Ideally, you want to be able to open up their metrics and understand:

• How long is the average session length?
• How many unique users come to the site per month?
• How many pageviews did the site receive?
• How many ads are on each site?
• What’s the average CPM of the site?

The trick, of course, is understanding what typical metrics might look like for each of these.

The best case scenario is when you’re doing something a little weird and not a typical consumer internet site. For example, if you have a publisher ad network, you’d roll up a bunch of stats from sites you really don’t own or control. Or just disclose certain stats (like peak stats) but not the rest.

Apples to apples comparisons of user counts
Saw an interesting article in my hometown paper, the Seattle PI: iLike surpasses six million users.

They are great guys, and I am very bullish on their growth prospects especially given Last.fm’s early exit from the space. That said, I want to point out the fact that by adding apples to apples user counts from both organic on-site numbers and also off-site numbers from Facebook, the PI is really confusing the two.

Ultimately, counting pageviews or unique users from widgets is a great way to fool VCs into thinking you have traction when you really don’t. This is just something to be aware of, as companies get more and more traction on social networking sites.

Add on to this drawing or make your own at Sketchfu!

I found an entertaining craigslist posting today for a room in Nob Hill. It does the usual thing in terms of describing the place, but then it says:

Please bring a “resume” with the following information:

– age

– job/company

– college graduated

– town you grew up in

– current city you live in

– why you are moving from your current residence

– what you do with your free time

– frequency at home

An attached photo helps put a face with a name after the open house.

Also please include myspace, friendster, or facebook url. If your site is protected, then please un-protect it.

Somehow, while the "resume" seems invasive, the inclusion of a full social network profile seems even more so?

The PayPal alumi’s viral successes
Just came on this article in the YC News front page, called A Gold-Plated VC’s Billion-Dollar Secrets. I’d encourage you to read it, even though the title is completely at odds with the guy who they’re covering. (Think humble, not gold-plated!)

Anyway, there’s a great analysis about viral marketing and the fact there’s actually several variations of it these days. Broadly speaking, you have two categories:

1. Viral branding
2. Viral action

Let me explain the two categories below.

Viral branding
Most people, when they talk about viral marketing, are in fact talking about viral branding. That’s the philosophy of:

Do something REALLY cool and people will tell all their friends.

In the article, they explain it like this:

"Many people think the word "viral" is interchangeable with "word of
mouth"–implying that the product or service is so good that people are
compelled to talk it up with their friends."

Here are some examples:

• Subservient chicken
• Virtual bartender
• Sith Sense
• etc.

Another variation of this is the types of things people do on their blogs, where they try to write something genuine or interesting, or attention-whoring or controversial, and people pass it around to all their friends.

This is really great, and has its place. In fact, whole books have been written about it, like Purple Cow. In fact, books like Tipping Point are also really about it. So if you find yourself reading books about "breaking through the noise" and "identifying influencers" and other soft-skill marketing strategies, then you are reading about the viral branding industry. Another good way to benchmark this is how many of the examples are based on off-line word-of-mouth examples versus interactive media.

Viral action
There’s another segment of viral marketing that is really about direct response marketing. That is, the entire focus of the PRODUCT (not marketing, but deep down into the product) is getting more people to use it. That means you are ultimately focused on one issue only:

Do something that’s REALLY easy to spread to other people

In this case, you are focused more on the mechanism of viral transmission than you are the content of what you are transmitting. For many products, this means you are making it highly efficient to take over their communications media to spread your message.

This is the quote from the article:

"Word of mouth is when I tell you to shop on Zappos because I think the
service is great," explains Botha. "It becomes viral when you have to
be ‘in the system’ to use it. For example I can post a video on YouTube
but then you would need to go to the site in order to see it."

What are examples of this?

• Plaxo taking over your Outlook and making it easy to spam 50 people at once
• YouTube giving you the code to easily copy-and-paste videos to other sites
• Slide asking for your social network credentials to make it easy to embed slideshows

In these cases, they are not simply depending on making something really cool to have you spread it. They are making it automatic, something built into the product rather than as a marketing afterthought.

Furthemore, you end up focusing more on metrics than in the branding case. You end up measuring and optimizing things like:

• Sources of traffic
• Landing page views
• % of users that register
• % of users that send out invites
• # of invites sent out, per user on average
• % of invites delivered successfully
• % of invites read by users
• # of virally added users, per user on average

And of course, you’d want to A/B test the hell out of each step of the way.

The viral equation?
Obviously, one cannot live without the other. It makes me think that there’s a very short checklist of things you need to do in order to make your site viral:

1. Make it EFFICIENT to spread your site
2. Give people an INCENTIVE to send it to their friends
3. Have a GREAT product that keeps people around spreading it through time

I think these are the 3 things you need to create an enduring viral site… just don’t get too sucked into the branding / soft-side of it without addressing the stuff around your product.

Want more blog entries?
Here’s a couple other relevant blogs on the topic:

• How do you apply metrics to Web 2.0 sites?
• Cracking the code – analyzing viral strategies
• Adwords is not enough for consumer success on the web
• 10 strategies to ruthlessly acquire users

Enjoy!

No real traction among any of the players in the last year:

Perhaps the core mechanic of the site is broken? People just don’t feel like bookmarking lots of stuff?

Go check your analytics right now!
When’s the last time you checked your analytics? If you’re serious about getting a site up and going, you should be glancing at it every day, and doing a deep dive every couple days. In fact, if you haven’t do it right now. If you’re a Google user, go to Visitors (on the left side), Visitor Loyalty, and then Length of Visit. You might see something similar to the diagram above – a bimodal distribution split between newbies that mostly leave your site, and people that stay on to use it. Note that the latter is often returning users, but also users that get hooked on the first try.

You have 10 seconds to catch someone’s attention
If you are driving a lot of new traffic to your site, you’ll often see a graph like the one above – in my case, the vast majority of the traffic is coming through Google organic and paid clicks. People either opt into your site or out of your site within the first 10 seconds. They’ll show up, glance at a couple headlines and head out, or if they like you, they might continue on and you’ll keep them for upwards of a couple minutes.

In fact, you could imagine that in 10 seconds, the user’s not doing much except for answering two questions:

1. "What the heck is this?"
2. "Is this for me?"

So the better you are able to help them answer these two questions, the more likely you will be to catch and keep them as a user.

5 ways to CONFUSE users and get them to LEAVE
Here are a couple great ways to do exactly what you don’t want:

1. Presenting a portal as your front page
2. Use lots of marketing speak
3. Write everything in long-form text
4. Make them register to do anything
5. Treat every user the same

Okay, don’t do any of those. What do you want to do instead?

So the opposite of this, of course would be to:

1. Present a simple initial interface – just convey the idea as quickly as possible
2. Speak in their language, not your own
3. Using pictures, video, and flash can be great! Just don’t overdo it
4. Make it easy for them to get a taste without registering – give them progressive opportunities to trust your brand
5. Target users differently depending on how they entered the site. If through search, then try to get them to the right content. If through a friend, show a picture of their friend and other friends.

Remember: you have 10 seconds!

Vu-ja-de
IDEO has a great concept which they call the opposite of Deja-Vu. Deja-Vu is the process of seeing something for the second time (or thinking you are). Vu-ja-de is seeing something again, for the first time.

Check out your site, or your blog, or your Web 2.0 website, and guess what a user would do in the first 10 seconds. Then improve it until you can convey the simple idea quickly.

See you at the Summit!
I’ve joined the Virtual Goods Summit as a Conference Advisor, but it doesn’t mean much. Really, Charles Hudson is a total badass and he’s doing an amazing job putting a great program together. The conference is sponsored by Mohr Davidow Ventures, the VC firm where I work.

Top 10
But let me make the argument of why every Web 2.0 designer should attend the Virtual Goods Summit:

1. Virtual goods is growing to a multi-billion dollar market that you want to be part of
2. Web 2.0 needs more ways to make money other than AdSense
3. WTF? Is Second Life’s $1.5MM in transactions in the last 24 hours for real??
4. In-browser games communities and "fun" Web 2.0 properties are on a collision course
5. Learn about a bunch of growing properties you may not have heard of before
6. Duh: Pirates
   
7. You could learn from the game design world to build more hilarious/engaging Web 2.0 sites
8. Virtual goods is better than advertising for Web 2.0 social sites
9. Give users choice: feature-by-feature, customization-by-customization, through virtual goods
10. I’ll be going :) E-mail me if you want to meet up before or afterwards

Here’s the signup page

Interested in more?
Here are some previous articles I’ve written about the intersection of virtual goods, games, and Web 2.0:

• Forget advertising – is virtual goods the killer revenue model for Web 2.0?
• Level up for features instead of freemium?
• Game design tutorial at the Game Developers Conference
• What’s broken with online dating? (from a game design perspective)
• Web + Games = ?

Do we need another social network?
A recent Valleywag article asks whether UnitedDogs.com, a social network for dogs and cats, is "a social network too far." I heard a similar question earlier this week, when I heard a senior VC ask, "Do we need another social network?" I think it’s time to stop asking this question.

Ultimately, the point of contention can be reduced to your view of social networks:

1. Are social networks a simply new "product category?" Meaning, there are email sites, shopping sites, and now, a new category of "social networking sites?"
2. Or, alternatively, are social networks a "design principle" that spans across product categories?

I’d argue vehemently that social networks are #2. That is, given enough time, our label for "social sites" or "social network sites" or "web 2.0" will simply mean "website." The reason is that social software is part of a larger trend of read/write web. Just as many website incorporated ideas like comments, or forums, or even navigation bars, I believe the advantages of having extended profiles that represent social relationships will be on nearly every site.

Does the world need another dog website?
So when you ask, does the world need another social network (for dogs?) the real question to ask is, does the world need another dog website? To me, that’s sorta like asking, "does the world need another piece of software?" The answer is almost always yes ;-)

(This is with the caveat that the world needing something doesn’t mean it’ll be a billion dollar company, or it’ll get to 50 million users, and so on)

The big paradigm challenges for Web 2.0
If you’re with me so far, and something that’s moderately difficult today (building out a social network) turns into something trivial and ubiquitous, what are the problems that remain?

• Lots of fragmented data about individuals and their social relationships
• Lots of fragmented support of applications AKA widgets
• Lots of fragmented authentication data like logins, passwords, and other info
• Lots of fragmented websites where it’s hard to find the best information
• And most importantly, on top of this, the big players (like MySpace/Facebook) aren’t incented to make this interoperability work

Of course, this is not much different than where we are today – in the desktop and Web 1.0 world, we have a million logins, dozens of different applications that don’t work together, we use Google to sift for information across a zillion sites, and we accept all of this.

That said, whoever can make the leap of where the Web will be in the next paradigm will go, and solve these big problems, will be the next Bill Gates ;)

Related aside: I’m curious why none of the social networks has actually widgetized themselves and syndicated them to other sites. They are definitely very "walled garden," even Facebook, and want to retain all the traffic inside of themselves. Another way to approach this is for Facebook or MySpace or one of the big players to add all of the Facebook functionality to their sites, but the data is kept on Facebook servers. That’d be a pretty disruptive thing if you felt you could control the gateways for social communication between many different websites.

Quantitative approaches to social media
Two great blogs recently on borrowing concepts from the pay-per-click optimization world and applying them to social media sites: How about landing pages for the social media visitor? and also Optimizing social media landing pages.

When I refer to these approaches, I generally refer to a broad set of optimization techniques that advertisers use to make sure the traffic they are paying translates into sales. One example of this is Google’s free Website Optimizer tool, which you can use to optimize things like layout, headlines, copy, form placement, etc.

Multivariate regression testing as an example
For example, you could imagine having an invite page for visitors to virally add their friends. Which headline is the best?

• Don’t be lonely, add your friends!
• Example your network! Invite friends!
• You have 10 free invitations for friends
• Import your addressbook in 30 seconds

It’s hard to tell. And then when you add in 5 different pictures, 5 different explanations of the site, and 5 different color schemes, all of a sudden you have hundreds of different combinations. Well, turns out through multivariate testing you can end up testing just a couple variations and then it’ll automatically predict (and test) the best combination of the hundreds.

People in the paid advertising space use these techniques because when you’re paying $1 per click (or a $1000 CPM), you try to optimize every opportunity.

Multivariate testing example
Check out this solid example of multivariate testing:

http://dkm.com/

You’ll see slight different content, with lots of different combinations of other things.

How to apply hard metrics to social media
Ultimately, it seems like what you want to do is to pick a couple key "transactional" moments that you want to optimize. That could be things like:

• Page where the user creates media
• Page where the user votes or comments
• Page where the user invites their friends
• Page where the user fills out their profile
• Page where the user shares out their widget

That is, a bunch of pages where the users aren’t doing the core mechanic of browsing from peer item to peer item. (Like video to video, or person to person). In these moments where people are about to invite friends, you want to figure out the exact right wording to get the person to spread the site virally.

These are the pages where you are most likely to apply these page optimization techniques.

Viral growth dashboard
Also, in a previous blog I had written about 10 different strategies to acquire users. In these cases, you want to build out pipelines and track the metrics around how people are progressing down the goals you want them to accomplish. Here are some possible metrics you’d want to measure:

• Sources of traffic
• Landing page views
• % of users that register
• % of users that send out invites
• # of invites sent out, per user on average
• % of invites delivered successfully
• % of invites read by users
• # of virally added users, per user on average

Or, alternatively, for widgets:

• # of widgets outside
• # of widget impressions
• % CTR of widgets
• Signup conversion rate
• [other viral metrics]

You might also want to track overall growth rate, the viral coefficient, etc.

If you don’t watch these numbers, they’re unlikely to grow…

Check out the leaderboard here

The stats so far
I love it – the online ad market is going crazy right now. Here’s the blow-by-blow so far:

1. First, Google buys Doubleclick for $3.1B
2. Then, Right Media goes for $680MM to Yahoo
3. Even AOL gets into it, buying mobile ad network Third Screen Media
4. And today, WPP buys 24/7 Real Media for $649MM

This means that about $4.4B in transactions in the last month. Wow. That’s incredible.

Recall that AOL also owns Advertising.com for $435MM back in 2004, and Yahoo paid $1.6B for Overture back in the day. There’s a couple other big acquisitions floating around this that I’m missing.

Uh, what’s happening? And how does this fit into Web 2.0?
Unlike the YouTube or Skype deal, where all the bloggers are also the consumers, the ad marketplace is far more complex. It’s much less straightforward to understand what’s happening other than a bunch of money being exchanged between big companies.

So let’s start at the beginning with a history lesson:

Back in the day, you had 3 basic players:

• Internet publishers (Aggregate eyeballs to sell ads against)
• Advertisers and agencies (Companies that want to buy the eyeballs)
• Ad networks (that aggregated websites and advertisers)

Publishers and ad networks were pretty distinct because if you were a big publisher, you’d cut deals yourself. If you were small, then you’d go to one of the many ad networks out there that would sell the ads for you. They stayed separate and advertisers interacted with them differently.

Channel conflict, and the 145 billion dollar mistake
Let’s talk about Overture, the company that mainstreamed pay-per-click marketing. Early in their history, they decided that they were going to be an ad network and NOT a publisher. Back then, it was thought that you had to be either one or the other.

The idea is that if they operated Overture.com and got a lot of consumer traction, larger search engines wouldn’t want to work with them. So instead, they worked through their publisher channels and relegated Overture.com to a tiny piece of their strategy.

As they grew, eventually their partners realized they were writing very big checks – $500MM or more per year – to Overture, and they grew nervous. Eventually, they threatened to pull the plug on the traffic and build it in house, and one of Overture’s customers, Yahoo, bought them.

Again, the concern over the "OR" question – to be an ad network OR a publisher – has to do with channel conflict. If you competed with your clients, it’d be impossible in the long run to maintain those deals. So they chose one over the other.

Google, on the other hand, chose to be an "AND." They both operated a search engine as well as supplying ads to partner search engines, the biggest one being AOL. It turned out that this type of "co-opetition" or "frenemy" relationship was OK in the online ad world! Who would have known?

Turns out this mistake cost Overture $145B in opportunity cost – they were sold for $1.6 and Google is worth about $146.7B today. Whoops.

The jump ball that is Web 2.0
Web 2.0 is a big swath of territory, comprising millions of sites and hundreds of billions of impressions. And of course, all the features that are powering these ad impressions are given away for free. Anybody that supplies the revenue to all of these companies have tremendous leverage – thus leading to the idea of an "advertising platform."

Now that everyone in advertising knows that it’s OK to both partner and compete, it’s game on.

This means that WPP, a large brand agency that buys from publishers will also operate an ad network that pays publishers. Huh??

This means that RightMedia, a neutral ad exchange that buys and sells ad inventory across many portals, will be operated by one of their customers.

This also means that Google, which pays publishers ad revenue in exchange for real estate on their pages will also operate an enterprise software product that serves ads – which today, charges the publishers money for their services.

So net/net, you can imagine dollars flowing into the online ad ecosystem, circling around a couple times, and then coming back to the company that spent it in the first place. In this ecosystem, the notion of buyer and seller is antiquated. Instead, everyone’s just a partner that you might compete with at 9AM, but then will be your best friend at 1PM.

Totally weird, right?

Competition is good for the publisher (That’s you!)
If you’re operating a Web 2.0 site, this is all good for you. The more players there are, and the more competition you have to buy your ad inventory, the better. Although the ad market is consolidating, it is doing so in a way that many many multi-billion dollar businesses are getting involved – they won’t all buy each other, so you won’t have to worry about a total Microsoft-like consolidation happening.

In particular, I’m very excited to see WPP play into the market in such an unconventional way. By buying 24/7, they are saying that they won’t just be a brand advertising agency, and might instead look at being more of an intermediary. I’m curious how all the other big agencies will respond.

Either way, if all else fails, we can just move to virtual goods :)

The breath-taking numbers
First, let’s start with the numbers:

• Habbo Hotel generates $77MM in 2006 (Source)
• Club Penguin generates $65MM in 2007 (Source)
• Second Life exchanges $1.MM in the last 24 hours (Source)
• IMVU, Puzzle Pirates, and Stardoll are all doing very well also

These numbers are pretty exciting because they are NOT advertising dollars, but rather people directly purchasing merchandise on website.

Why do ads suck in Web 2.0?
The truth is, most Web 2.0 firms that use Google AdSense or any other ad network typically has a bad experience. When you display contextual ads to people who are browsing for hot girls, you are going against the flow. Ads don’t support what people go to social networking sites for.

Ads on people on MySpace are like coupons at a night club.

Because of this, it’s well documented that the CPMs for social networking sites are quite bad. Clickthrough rates are very low – in the case of Facebook, you’re talking about 0.04%, or 4 clicks in 10,000 impressions. Compare that to Google, which is delivering upwards of 300X the CTR.

Why do virtual goods work in community sites?
Ultimately, virtual goods complement the experience people are looking for in social networking sites. It lets them personalize their online identities more, whether their identities are represented by a profile page or an avatar. Virtual goods can also be exchanged or sold, which complements the idea of gifting or other social expressions.

Virtual goods in social sites is like dressing up or buying someone a drink at a night club

Because virtual goods go with the flow, in terms of what users want and expect, it makes it easier to monetize groups of people. Anyone who gets into an MMO will end up picking up some virtual goods, and by investing themselves, it’ll seem natural to spend money.

Where do virtual goods belong in Web 2.0?
Clearly, virtual goods can belong in Web 2.0 in one form or another. After all, MySpace or Facebook could charge points for profile customizations, and you earn those points through actions (like participating in the community) and/or by paying up. Facebook is already trying the virtual goods model, but that’s just about icons on the page. I think a better example is Gaia Online, which has done a great job turning a forum website into a full-blown virtual universe.

The really fascinating part about this model is that it support communities, rather than being something that interferes with the user experience. Go with the flow, and money will follow.

My prediction is that these in-browser casual games and online communities will start to converge over time, and you’ll start to see Web 2.0 sites start incorporating numerous game mechanics, goal structures, and rich avatar systems.

See you all at Virtual Goods 2007 :)

Need a solid business idea?
I’ve recently been asked by a couple people who don’t have solid business ideas that they want to work with. In fact, maybe they have something fun and entertaining, but they don’t know how to shift it into a model that works.

For all those folks out there, here’s the blog for you. Here’s a template for how to find a good business concept quickly, using many analogies that are already out there.

Before jumping into this, here are a couple older, related posts that I’d encourage you to read:

• Is Facebook killing dating sites?
• Revenue implications of non-sticky sites
• Eyeballs versus Revenue: What should startups focus on?

Proven transactional models are everywhere
When the Web 1.0 bubble collapsed, some of the only companies left standing were "transactional" sites that weren’t dependent on advertising. You could see them everywhere:

• Retail (Amazon, Buy, etc)
• Travel (Expedia, Travelocity, etc)
• Dating (Match, eHarmony, etc)
• Jobs (Dice, Monster, CareerBuilder, etc)

Even these days, you’re seeing an entirely new generation of companies focused on tickets, like StubHub, or advertising networks like RightMedia. All of these businesses are real money machines.

How categories have matured, and the battle over users
The only concern for most of these companies, as they scale up, is that their proven business models end up stagnating as other competitors enter the market. Because it’s very hard for most of these companies to develop relationships with customers, they end up in a lead generation knife fight.

This means their growth and/or margins whittle down as they engage in ever-competitive user acquisition battles.

Here’s some numbers:

The U.S. online dating industry is expected to climb 9 percent
year-over-year with revenues of $516 million in 2005 coming from
consumer subscriptions alone, said Nate Elliott, an analyst at Jupiter
Research. That’s slower than the 19 percent growth in 2004. And when
compared with a 77 percent jump in 2003, the latest revenue trends seem
cause for real concern. (Source)

Online corporate sales will climb
to $37 billion. In spite of those numbers, the US online travel market
is maturing and growth is slowing down. (Source)

In fact, one of my favorite blogs, Jeremy Liew from Lightspeed Ventures, recently wrote an article on the deterioration of margins within the lead generation industry. (Think online education, insurance, car quotes, etc.)

Where can social media companies fit in?
Given that the real leverage point within these transactional industries is user acquisition, I’ve come to believe that you can apply social media techniques to build solid businesses that are upstream from the transactions.

The advantages of Web 2.0 sites over the transactional sites are:

• Viral, organic growth in traffic, versus paid user acquisition
• Sticky traffic that can be converted to transactional, versus one-time user visits
• Upstream position from several mature sites means "auction" dynamics

I think the first two are pretty obvious, but let me explain the third one: If you built a site that everyone would visit before they went onto the job sites (for example, a professional social network), then you can "funnel" users to the transactional sites. In fact, you could do one of the following:

• Auction the user off to the highest bidder
• Auction the user off MULTIPLE times, like to the three highest bidders

The latter case is pretty interesting, since if you are able to establish those dynamics, you will have a stable place relative to your downstream partners. They won’t be able to pay as much as you can to acquire a user, since obviously Monster would never sell one of their users to CareerBuilder.

Focus on the right social applications
Of course, no one wants to do a social network about jobs, or insurance. Instead, you have to focus on high-interest mass market topics that are upstream to them. For example:

• Retail-> Celebrity gossip and fashion (like PerezHilton)
• Dating -> Hanging out (like MySpace)
• Jobs -> Professional contacts (like LinkedIn)

In each of these cases, you end up with more daily traffic, more unique users, but fewer % of people who are "transacting" at any given time. The idea, of course, is to build a large enough user base that you can a large absolute number of people who are in the transaction stage.

In conclusion, this is a quick way of brainstorming a bunch of interesting social applications that have solid revenue potential. Just look at any transaction that people make over time – be it services, or big ticket items like cars or real estate. Each one of these transactions should have a larger social application to tie them together upstream. By using viral growth techniques, paid advertising, and sticky content, you can engineer a lead generation machine that throws off actual revenue.

Encyclopedia of viral marketing strategies
I’ve recently been thinking more about viral strategies, and how they get implemented. I’ve been trying out a couple different sites that have gotten a lot of traction in the last year, to figure out why. After some analysis, it strikes me that there are some things that are obvious to understand, and some things which are not.

Explicit communication is obvious
When you go to a site and they ask you to embed a widget, or import your address book, or something similar, it’s obvious to list out these hooks. For the most part, they focus on two sets of actions:

• Assuming control of a communications platform (email, MySpace, IM, etc.)
• Making it easy for the user to spread it (widgets, URLs, Digg this,etc.)

The first case is automatic, yet most of the time they need you to log into an existing service, or download a client software that will do the importing automatically. Either way, it’s pretty clear.

Optimization isn’t obvious
When you see LinkedIn having an orange button for "Add to your network," it’s unclear what other variations that they tried to make the process successful. Was it:

• The placement of the button?
• The color of the button?
• The fact it’s a button, not a form?
• The fact it’s "Add to your network" rather than "Add a friend?"

It may be that in the universe of thousands of permutations, they are using the most optimal configuration. Yet you’d never know unless you were able to duplicate the same page layout, product, and audience. This makes these types of optimizations very hard to analyze.

Same for landing pages and action pages, where it’s critical for some stage of the "user funnel" to be optimized. You’d never know what kind of work they put in to change the title of the page by 10 characters.

Bootstrapping isn’t obvious
Another difficult part to understand is how some of these sites bootstrap their viral processes. Obviously, you have to start somewhere. So how widely did they start? Who did they initially court? How were they able to identify likely viral candidates?

For example:

• Buying millions of e-mail addresses and bootstrapping using email marketing (MySpace)
• Sending to all of your friends in your address book (HotOrNot)
• Acquiring advertising media across ad networks (several dating sites)

Obviously in the case of social networks, where you start has a lot to do with where you end. If you start in India, you end up with a lot of international traffic. Figuring out how to break past the first 50k or so users in a targeted demographic is critically important.

Viral growth is a requirement for consumer web success
Every web entrepreneur should be a student of organic, viral growth. Even though I’ve worked in the online advertising industry for the last few years, I’m humbled by the numbers that a well-designed viral site like Tagged can put up. These stats are HUGE, and they are only getting bigger.

Google AdWords is not enough
It’s convenient to assume that you can outsource all of your marketing out to Google, and buy lots of AdWords. Or let’s say you’re ambitious enough to want to buy from ad networks, or other ad sources. This is a myth.

The largest sites ultimately cannot be bought through online ads. To achieve 50 million users via Google Adwords, let’s work backwards:

• 50 million users
• 500 million uniques that land on your page (with 10% registering)
• 50 billion ads with a 1% clickthrough rate

Let’s pick a range of CPMs, from $0.50 to $2:

• At the low end, $0.50 CPM means $25 million in ad spend
• At the high end, $2 CPM means $100 million

These are obviously impossible numbers to achieve just using ad spend. The only way to solve this is to make sure that every user you bring in brings their 10 friends. Then, when you spend a targeted $10k at the beginning of your site’s existence, you can get the momentum going quickly.

Design viral into your product, not into your marketing strategy
A lot of people would claim that once you have a product, you can design a “viral” strategy around it. Do you really believe that designing a word-of-mouth strategy for a music CD is the same thing as a product like Plaxo or LinkedIn? The answer’s no. The truth is, you have think about how viral fits into your site at the beginning.

Let’s talk about how most people think of viral…

When users see the product, this is what seems to happen:

1. User sees the product
2. User tries the product
3. If user likes product, make it easy to tell their friends
4. Word of mouth spreads
5. New users try the product
6. … and so on

Let me say that this is a very old-fashioned way of looking at viral product use, because it’s inherently tied to an assumption that people have to go through a full cycle of evaluation before they spread the word. What’s another way?

How to SHORT-CIRCUIT the viral process

Instead of thinking that viral is something that’s tacked onto the end of your user experience, instead think about how it could get integrated into your user process. In fact, the earlier, the better. You want to make it so that in TRYING the product, they spread it to their friends.

Ideally, the funnel looks like:

1. User sees the product
2. User tells all their friends to use the product
3. User tries the product
4. [Site propagates regardless of whether or not the user likes it]

Then regardless of whether or not the user tries the product, or if they like the product, or if they get off their lazy asses to tell their friends, the deed of propagating the site is already complete.

How do you do this? Let’s take Tagged as an example – click here to try out the site. Or try Flixster, another site that’s gotten incredible traction lately. As soon as they sign in, they are trying to import your Gmail/Hotmail/Y! contacts. They make it an integral part of the user experience.

Or take a look at something like Plaxo, whose entire existence is about asserting control over your communications hub, thus making the viral effect even better.

By spreading the site at the earliest possible moment in the experience, you’re not at the whim of the user to act outside of his/her normal processes.

Too annoying? Or too ruthless?
Some might say that they hate the fact that these processes exist, and that they might be too ruthless or even immoral. These points are definitely worth debating. I certainly believe that if you’re able to create a engaging user experience, adding these techniques to the front-end isn’t bad.

If you believe that:

• Ruby on Rails makes development easier
• Product creation is cheaper
• Infrastructure is cheap

… then the corollary is that there’s more competition. Breaking out of the noise in any way possible, even if ruthless, will be a key technique for success in the Web 2.0 world.

If you’re interested in a high-level listing of different user acquisition methods, check out an earlier blog I wrote on the subject called 10 obvious ways to ruthlessly acquire users.

Check it out, I actually drew these:

Go to Sketchfu if you want to check out others…

This is the 3rd article in a multi-part blog. Here are quick links to Part 1 and Part 2.

Today, we’re going to talk about using automatic page refreshing and other navigational tools to generate extra pageviews for every user, whether or not they are really using the site.

Here’s what you say
When people ask you for what kind of traction you have, this is what you say:

"Last month, we got 30 million pageviews – and wow were people engaged. We had an average of 40 pages per session!"

These are great numbers, particularly the engagement factor of many pageviews in the session. These are the kind of stats VCs are looking for when they think about the scarcity of attention. This is particularly true when you show them the hockey stick that’s driven by all these sticky pageviews.

If you need an example of why VCs value stickiness, just check out the excellent blog from First Round Capital on the subject, called "Catch and Release Business Models". Basically, their view is that more pageviews per session is a proxy for more passionate users, which means more viral, and better growth, etc.

What’s weird with these stats?
Of course, these stats could look great on paper, but in fact they be caused by a number of negative factors which have been documented in the past, particularly two:

1. Inefficiently designed navigation that causes pageviews
   (See the MySpace analysis, called "The Click Factory")
2. Automatic page refreshes which generate garbage pageviews
   (See the analysis on Drudge report in Valleywag)

In both of these cases, users are NOT more engaged, yet generate garbage pageviews that are hard or impossible to monetize. So while a simplistic analysis would just multiple the 30 million pageviews by a comparable CPM, the smart money would figure out how sticky or wasteful the pageviews are, and discount it accordingly.

The second problem of automatic page refreshes is a particular problem for news sites, where it’s gray-line justifiable. Oftentimes, this encourages people to stretch it a little further than they need.

On the flip-side, of course, this is the hidden downside of heavily AJAX-y sites that do everything very efficiently. Realize that early on in the process, a site like that might be decreasing their overall pageviews by close to 50%. That’ll generate a huge hit to the startup’s valuation. It’s advantageous for everyone to be educated on this topic, and the pluses and minuses.

How do you figure out the truth?
To understand if these numbers are being inflated, you really have to break down the source of the pageviews on the site. You should ask:

"When users come to your site and expend 40 pages per session, break down what is happening on the 40 pages. What pages are spent on the automatically refreshing news page, versus commenting, versus other activities on the site?"

You typically want to make sure you are separating engagement from the stickiness of the site. Some of this stuff cannot be faked. For example, here are questions that go directly to stickiness:

• How many users come back every day? Every 2 days? Every week? Every month?
• How long do you retain users over time?
• What percentage of your registered userbase is active?
• How many friends do most people have? How many articles do your users forward on?

If you ask these questions, you’ll get much more information on how people use the site, rather than relying on a simple metric like pageviews/session. You’ll also get a good understanding of how well they can interpret past their metrics into the behavior of the users, and why the users are acting different ways.

Onwards…
In my next article, I’ll be covering how people fiddle around with the definitions and standards around pageviews, uniques, and other numbers to inflate their numbers. Stay tuned!

I’ll be back in Seattle next week, from the afternoon of the 17th to the evening of the 20th – let me know if anyone wants to meet up.

I’ve been an avid fan of incorporating game mechanics into web applications. One very interesting thing that happens in games is that oftentimes, “features” are withheld from the user until they do certain actions to unlock them.

The best example is Zelda, where you originally start out as a boy without anything to do other than run around. Soon enough you get a quest, which involves navigating the cavesw. Do it successfully, and you pick up a wooden sword. Then you take another quest where you use the sword to defeat a small monster, and they give you a small shield. Do another quest, and you get a big sword, and then a big shield, then a boomerang, and so on.

There are multiple advantages to having a system like this:

• The interface starts simple, then gets more complex as you progress
• It gives the player direction and goals, which builds engagements
• It makes you feel good as you play, since you get rewards along the way!

So here’s a question – why don’t web products incorporate this functionality. Everyone is familiar with freemium models – that is, make it free for most people, but in exchange for the advanced features, make people pay for the package.

Here’s a twist: Unlock the features everytime the user engages with your site more. If they comment, upload pictures/videos, or do whatever you want to do with the site, reward them with more functionality.

This way, you’re trading engagement/pageviews for functionality, and particularly in the UGC world where you’re trying to get people more active, this is a big win/win.

Any great examples of this idea in action? Would love to hear some.

In my last blog, I argued that that web stats are often meaningless, and can be used to fool people (in particular VCs) into thinking that you have traction when you really don’t.

In this first blog, I’m going to talk about Widget pageviews versus destination site pageviews.

Here’s what you say
When people ask you what kind of traction you have, this is what you say:

"Last month, we got 30 million pageviews and 5 million unique users."

These are great numbers! You can then show them a graph that looks like a hockey stick, and have people multiplying CPMs by the pageviews to get big revenue numbers.

The reason why this argument is so incredibly compelling is that it’s easy to think that big numbers equals big traction. Between that and showing them a hockey stick graph, it’s easy to get seduced into thinking you have a huge company right away.

What’s weird with these stats?
Although these numbers can look great on paper, they represent a potential landmine for people who aren’t doing their math.

What’s misleading?
Ultimately, a widget pageview is not the same as a pageview on your site.

When you tell someone that you have 30 million pageviews on your site, it’s valuable for a number of reasons:

• It shows that users are engaged with your property
• You own real estate on your property where you can place ads
• Normal "comps" to calculate value, like multiplying against a CPM or calculating a $/user value, all sounds great

The problem is that for a widget site, you have the opposite reaction:

• Users may not be engaged with YOUR property, they are engaged with MySpace’s
• You don’t own any real estate to place ads – and if you did, they might cut you off
• You can’t multiple the pageview numbers by standard revenue multiples, since the pageviews and users may not really be yours in the first place

That sucks! That means that the % of users that exist in widget form may never be monetized – or if it is, it will be at a substantial discount to your CPMs. For more on widgets ad impressions, I wrote a previous blog on the topic called "Widgets = Ad Networks".

How do you figure out the truth?
To avoid being seduced by the huge numbers, just ask the simple question:

How much of the 30 million in traffic comes from widget pageviews versus pageviews on your destination site?

If you get them to answer that breakdown, then you can ask a couple follow-on questions to show that you get how widgets fit into their marketing strategy:

• How well are you retaining users on your destination site? How often are they coming back?
• Where are the widgets placed? Are you concentrated on one partner? (uh oh!)
• How much of your destination site traffic comes through links on your widget?
• What happens if your widgets all go away? Does your destination site still survive?
• What are the CPMs on your destination site?
• Do you have ads on your widget? If not, do you plan to? How will the underlying platform respond to you monetizing their traffic?

Ask these questions, and you’ll figure out how dependent they are on their potentially hostile partners. Furthermore, you’ll figure out a bunch on how smart they are about "quality of traffic" and the difference in monetization rates between their destination sites and their widget business.

Conclusion
Overall, this is a very effective way to fool people into thinking you have a lot more traction than you really have. A lot of social networking sites have between 50-150 pageviews PER SESSION. If you can pass these pageviews off as your own, you are probably going to inflate your valuation by 3-5x. Pretty sweet.

My friend John Richmond sends me this link: Tripbase Alpha. As I noted in my previous blog, "What’s broken with online travel" there seems to be a misalignment in consumer goals (aspiration, entertainment, etc.) and travel sites (logistics, etc.). Tripbase tries to solve it using a slider bar – interesting attempt, for sure.

The ad is absolutely NSFW (Not Safe for Work / Wife) but I recently stumbled on it while looking at some web logs and was immediately impressed.

This is the most impressive ad unit I’ve seen in a long time, for a number of reasons. Perhaps it’s not so surprising that the adult industry is pioneering this, as they also helped invent affiliate marketing and pay per click.

Don’t click if your boss is peering over your shoulder

Basically this is what they do:

• Take a pic of a semi-naked girl holding a sign
• Look up the browser’s IP address
• Map the IP to the city where the user belongs
• Write the city name into the picture
• Incorporate it within context, in my case "Palo Alto rules!"

All of this done on a dedicated landing page versus a banner ad.

I’ve often seen geo-targeted ads that are transparent about the targeting in Adult Friend Finder’s case, where they show girls’ profiles and the name of your city underneath the profile. (As if they are available to you, when in fact they are fake pictures of girls)

Hopefully this was a fun break from your work :)

In the Web 2.0 world, people love to quote user numbers, whether they are 50k or 50 million. These numbers are incredibly valuable, as they drive press buzz and even venture capital valuations!

Web statistics are often meaningless
At Revenue Science, a company that taught me everything I know about advertising and much more, I helped strike a deal with Nielsen which got me a bunch of deep understanding about measurement on the web. The truth of it is, there are deep nuances in the way that people use and quote statistics on the web, particularly when it comes to issues like "unique users" and "pageviews" and "sessions," which are terms without standard definitions. I recently wrote about Alexa, which goes into some of these issues, which you can read: Are you misusing Alexa numbers? (probably)

Lies, damned lies, and web statistics
In the current Web 2.0 market, you can pretty much say the following:

User Traction = $$$

I guarantee that if you have 100k users, are showing some growth, you can raise venture money right now.  And in fact, your page stats will serve as the "comp" to value your company. Thus, it becomes very important to understand how to represent your site’s statistics – failing to do so will cost you real money.

Future blogs on this topic
Just off of a quick brainstorm, I have a couple ideas for what I want to write about. They are included at the end of this blog. In analyzing each technique, I’ll try to answer the following questions:

1. How does this technique help you bend the rules?
2. What should the stats really be?
3. How do you ask the right questions to see past the distortion?

I will write about the following techniques:

• Widget pageviews versus destination site pageviews
• Automatic page refreshing
• "Standards" and metrics like date ranges
• Counting hits versus pageviews versus ad impressions
• Search engine marketing
• SEO and page proliferation
• TechCrunch and other one-time traffic spikes

I’ll write the first one before Monday.

Shoot me a note at voodoo [at] gmail [dot] com if you think I’m missing any interesting techniques, or if you have questions or comments.

Check out the Alexa graph here.

First guess that comes to mind is that they started removing all the porn :) Anyone know for sure??

UPDATE: Crazy. After some research, I found this on Wikipedia..

TextAmerica recently (January 1, 2007) went all-pay, as they had announced they would do in the past (see links below). All the moblogs and content from free users who did not choose to pay the $99 fee were removed. Oddly, the $99 fee was described only as keeping the moblog paid for available until November 2007, with no mention of what would happen at that time.

Pretty amazing that while everyone and their mother goes to an free with advertising model to gain big traffic numbers and big valuations, TextAmerica goes the other way. There’s probably a big hole in the market left after this – I spent some more time looking for other moblogging sites and there doesn’t seem to be a close competitor.

My colleague at MDV, Dave Feinleib and good friend Noah Kagan have created a hilarious widget:

Try it out!

Here’s a quick shoutout for a Digg for Developers site, called DZone.

I’ve been turned off by the proliferation of “mass interest” articles for funny pictures, politics, HowTo, and other posts at places like Reddit, Digg, etc. It seems like the material always evolves from the alpha geek material (technical, long-form stuff) to time-wasters.

Also, my friend Ilya told me about the site – he’s visiting me from Waterloo, and attending CHI. If you haven’t subscribed to his blog, check out some of the great work he’s done in Ruby – it’s a must for geeks:

• Decision trees in Ruby
• Dissecting the Netflix dataset
• Recommendation system in Ruby

Interesting blog from the creator of PlentyOfFish, a free internet site:: Rapid Decline of the Dating Industry..

As I mentioned in a previous post, What’s broken about online dating, the perfect social site (that HAPPENS to be a superset of dating features) would have:

• Remove the “dating” label from the site, but make it more about hanging out and being social.
• Make a very long ladder of interactions for people, from winking to poking to giving gifts to asking questions to open ended messaging.
• Give people an excuse to hang out OTHER than dating – be it casual games, chat, watching videos, etc.
• Set them up for dating success, even if you’re not a dating site: Provide mixed gender balances in chat rooms, or group people by location and age, etc.

It’s interested to see that Facebook is a site that’s been able to incorporate real-life relationships that are local, and also has a great gender ratio on the site. I could see them being the dating hub for their core audience.

That said, I’m still a little confused on Markus’s observations – after all, the core demographic that uses dating sites tends to skew a little older. In principle, Facebook shouldn’t take away this audience. Perhaps because PlentyOfFish is free, they attracted a young crowd, which does take away from his audience.

How online dating fits into online marketing
Online dating has become much more of a marketing arbitrage game where the competition happens not on product features, but more on who’s better at buying media. Because the audience is pretty transient – staying on the site for a month or two or three, but then taking off, you end up with an unstable base.

As mentioned in a previous article about what happens with sites that aren’t sticky, it will be fascinating to see whether or not the entire industry caves through the sticky social networking sites putting up “Dating” tabs or applications within the site. That way, they get the advantage of getting a massive audience for free, giving them stuff to do other than the core dating app, and potentially getting the same type of revenue stream.

Or perhaps, as Markus notes, these sites won’t have to add ANY features but will end up hurting the online dating industry anyway.

I’m having fun attending CHI 2007, which is an academic conference on Human Computer Interaction. More blogging later…

Great article on the common Rule of Thumb for social media sites: 1% create, 9% comment, and 90% are just lurkers. What are the real numbers? Read here.

This is a solid discussion piece for anyone who’s designing for community-based web applications.

Funnel of interaction
On a related topic, I’ve generally thought of it more that you have a "funnel of interaction" for what you can ask users to do. That means that for every reader comment, there’ll be 100 people who vote on a poll. And for every person that votes on a poll, you’ll have 100 people who view the article. And so on.

Here’s an example of things that are easy to get people to do, to hard things:

1. Grokking your idea or reading about your site
2. Most people will look at a page on your site
3. Clicking from one page to another
4. Clicking on a button or voting
5. Adding a comment or short free-form text input
6. Filling out a multiple input form
7. Creating an input based on multi-page thing
8. Downloading and installing an application

In fact, sites that require you to install something right away to use the site end up fighting an uphill battle. What you want instead is to let people participate on any level they choose, and to let them progress to higher and higher levels of commitment at their own leisure.

That’s why I’m a big fan of sites that:

• Don’t require registration to be useful
• Don’t require application downloads
• Reward you for participating, even if you’re not a content producer

Just a couple random thoughts on the interaction thing.

I had previously written about How do you find a badass co-founder? If you haven’t read the article, or don’t remember at all, I encourage you to back up and spend 5 minutes to read it.

Today, I wanted to extend those comments further, now that I’ve put in more thought to the subject.

So I want to return my description before of a good co-founder:

Complimentary in skills, but cut from the same cloth in attitude and culture

Now interestingly enough, this sort of assumes that YOU are a good founder. In fact, you may not be, and when I define it in a relative way like above, it doesn’t mean much. So let’s return to some of the same factors that make people good founders.

The minimum bar for anybody
In general, there are a couple things I look for within people, regardless of whether or not they are technical or business-y or whatever. Here’s a quick list of attributes:

• Super smart
• Hungry and scrappy (cheap!!!)
• Honest and direct (no passive aggressive people allowed)
• Doesn’t want to be famous (this creates incentive misalignment)
• Assertive and is a natural leader

If you don’t have these in spades, I’m generally uninterested. Obviously these are completely arbitrary, and you’ll want to come up with your own list, but these are some of my prioritizations.

Founders versus executives
Ultimately, there’s a central conflict of what you want out of a founder, whether they are business-y or technical in nature. In general, you want people who are great at execution early on, and who are very hands on with their business. These are great entrepreneurs. The problem is that as time goes on, even when you start raising money, you start to need a different skillset. Usually these skills are more soft skills, and people-oriented in nature. Some folks suck at this, and can’t scale. Here’s what you want in a technical person, when you first start out:

Super hacker

• Really scrappy, fast coder
• Super smart
• Only needs pizza and coke to survive

But at the same time, as the company grows, then you need the same person to grow up into something else:

CTO

• Really scrappy leader of people
• Super smart, and also super communicative
• Only needs pizza and coke to survive

It may be clear to some people that these skillsets often are inversely correlated. Oftentimes, the failure to evolve one skillset into the other leads to founders getting shuffled aside. The truth of it is, as the company grows (even to a state where VCs need to be pitched), people skills become very important, and being assertive and having leadership becomes very important.

What about the business guys?
I’m not letting the business folks off the hook either. Early on, having business guys are very awkward IMHO. You don’t really need Sales or Finance functions, since the early focus is on Marketing and Product. Thus, you’re looking for someone early on who can be a product jack-of-all-trades:

Super product guy

• Defines product, market, and customers
• Jack-all-trades on finance/legal/incorporation and other random bits
• Great at outbound work (customers/investors/etc)
• Might throw in some time on product design and code
• Great at selling ice to Eskimos

Another way to say this is that early on, the job of the business guy is to support the technical guy and help him figure out what to build. Anything other than that is often superfluous. But after a while, you need something else:

CEO

• Leads through company vision
• Puts together team of great executives
• Great at outbound work (customers/investors/etc)
• Hands over all product to product teams
• Great at selling ice to Eskimos

This is also very hard for the early startup CEO, because they are often the initial product manager while the company is a one-product (or in fact, one-feature) company. But once you get past that point, the power becomes much more indirect, and it’s very hard for some people to let go.

Is he Mr. Right? or Mr. Right now?
It’s often very very tempting to just gather your friends and have a bunch of people have at it. The problem is, you end up with one or two strong people, followed by a hanger-on. That’s not what you want.

That’s not to say that working with friends is a bad idea – in fact, you really want someone you can trust, but make sure the skills are there too.

Instead of trying to finding someone who just happens to code well, but could never scale, I think it behooves any strong founder to look at the team they’re building around them and ask, is this a A team, or am I putting together a B or C team just because that’s all I have access to? And if it’s the latter, it probably makes sense to reset, go meet a bunch of people, and start over. Remember:

Giving an incompetent friend/acquaintance 50% of the company and then working them out later is NOT an option.

Questions to ask
So when you’re evaluating your co-founder, I’d ask the following questions of yourself:

• Who are your other choices? (If none, go find some)
• Given a list of X people, where do they sit in terms of skill level? (Hopefully at the top)
• Where are the holes in their skills? (Hopefully they are well-understood)
• How well will they scale as the company gets bigger?
• Would you trust them with direct reports? Would you trust them as CEO?
• Who’s someone you want to impress? Would you let them do a 1:1 with your co-founder?
• Could you imagine reporting to them?

I’d ask these questions carefully, and figure out if they make sense for the people you’re selecting.

Next time, I’ll expand more on the topic of interviewing potential co-founders, and/or add some specifics on where to meet these guys (if you haven’t already).