MySpace Moves Into Social Gaming

MySpace recently announced that it would begin to use online gaming as a way to grow the social network.  Since being passed in overall users last year by Facebook, the company has looked for ways to re-invigorate its brand.  Let’s think about its strategy in some depth.

MySpace had a head start on Facebook, having launched a year earlier, and immediately seized upon music and video sharing as its core content following the demise of Napster.  The demographic of MySpace users has always been young, and probably skewed even younger when Facebook began gathering momentum.  MySpace allows far more customization of its user pages, which may have backfired somewhat, because many user pages are crowded, with many clashing colors and hard-to-read text.  Not to mention that it can take about 45 seconds to find the bottom of some MySpace pages.

The bigger problem is that there isn’t nearly as much to do on MySpace.  Facebook decided early on that outside applications should become the centerpiece of its site, and allowed its users to do the heavy lifting by creating applications such as games, polls, quizzes, even virtual worlds.  This strategy has been highly successful, as there are some individual apps that have 250,000 concurrent users during peak traffic hours.  All of these applications show where one user stands in relation to his friends (leader boards, quiz results, money accumulated) and all allow comments, which further encourages usage.

It is not too late for MySpace to jump into social gaming.  For starters, most of the applications on Facebook can be syndicated over to MySpace fairly easily.  Also, MySpace users tend to be younger, and therefore more likely to occupy their time playing games and taking quizzes.   There is a huge built-in audience that is currently untapped, and introducing this new content could easily spur rapid new growth.  Of course, the youth factor could be a small negative in social gaming, as 14 year olds are less likely to create interactive games than adults, but unlikely to derail the train.  Most importantly, Facebook has so far failed to monetize its advantage in user eyeballs.  Facebook is still 100% supported by advertising, and there are more opportunities for “Facebook support” companies like Zynga to make money than for Facebook itself.  If MySpace can figure out a way to generate a significant percentage of its revenue from social gaming, it could propel the site back into the lead.

MySpace is likely to succeed with its social gaming strategy regardless of the exact direction it goes.  The audience is too big and they are hungry for more to do when they are on the site.  The eyeballs are there and will grow in number; the real trick will be to structure deals designed to bring in maximum revenue.

I’m a fan…I think…

Recently I went to Facebook to research one of my favorite restaurant chains. My first task – become a fan. I was surprised when I looked them up to find I was already a fan.  Currently I’m a fan of five brands, but could only remember two without looking. (I also suffer a recall deficit when it comes to the many groups I’ve joined.)

As a user experience consultant who works with marketers, I often find myself defending consumers’ desires to avoid the barrage of unwanted messages and self-serving interactions that marketers dream up in an attempt to gain exposure. So, I’m perplexed that marketers are not doing more with consumers who have given their brand “permission” on Facebook to engage in a conversation. I admit that I’m too overwhelmed by the sheer volume of messages to always notice when my selected brands are on my feed. However, aren’t marketers are supposed to be experts at rising above the noise? While consumers might be missing out on a conversation they willingly started; ultimately, it’s the brand that loses out on the missed opportunity.

From a consumer perspective, what is the opportunity?

1. Engage me. A Facebook fan list is like a mailing list of your top customers – its value is measured by what you do with it. I hate junk mail, but when its mail from a brand I like, I want to check it out. If I like the message, I’ll tell others.
2. Honor my opinion. I don’t expect you to do everything I say, but I do expect you to ask and to respect my response. If all you ever have to offer is a one-sided conversation or a lame deal, I’ll lose interest quickly.
3. Acknowledge my loyalty. Discounts and offers are great, but what is even better is the feeling that my loyalty is reciprocated with added attention. Deals end with the promotion deadline, but relationships are lasting.
4. Make it fun. I’m choosing to spend my free time here. Advice is nice, but it’s the entertainment that keeps me coming back. To be an ongoing presence, you’ve got to be a part of the fun.

Are you a brand whose fan base is left standing at the click of “Become a fan”? If so, your social presence will be relegated to status of a one-time opinion poll. For brands that choose to leverage the power of social networks, the promise is a voice through the voice of the customer. It’s a natural result of giving fans what they really want – something they’ll remember and share.

The Amazon – Zappos Deal

In case you hadn’t heard, online retail leader Amazon agreed to purchase Zappos last week for 10 million AMZN shares that gave the deal a total value of about $850 million.  Zappos has been one of the early leaders in using social media (especially Twitter) to bring attention to its brand and boost the top line to about $1 billion as of last year.  Amazon has less experience with social media and saw the Zappos deal as a way to leverage social media across all $20 billion of its revenue.

Zappos has been around for 10 years and has grown steadily, from $8 million in 2001 to $70 million in 2003 all the way to $1 billion.  The company has received $49 million of venture funding since inception, $35 million of it from Sequoia Capital, and turned profitable in 2006.  Zappo’s earnings over the last 12 months have been about $50 million, making this deal .85x revenue and about 17x earnings.  While these numbers both seem extreme at first (revenue multiple too low and earnings multiple too high), shoe retailers have net margins of only 4-5%, and value is created primarily by running the company extremely efficiently, which Zappos has done for years.

It is clear that Zappos got a good deal – 17x earnings is very high even for a rapidly growing tech company, never mind a shoe retailer that has been around for more than a decade – and its social media prowess was an important aspect in Jeff Bezos’ decision to buy out its competitor.  Sequioa invested its two rounds in 2004 and 2005, so in five years they made a gain nearly ten times their initial investments.

The lesson here is very clear:  Companies that embrace social media marketing techniques and execute them well, will grow more quickly and be worth more at sale than those that do not.

The Web in Numbers: The Rise of Social Media

75 Billion YouTube videos…Facebook bigger than Brazil…These numbers are mind-boggling.

Breaking Down The Social Media Universe

There is an increasing amount of attention being paid to the revenue side social media.  The sites that have attracted the most eyeballs over the last 15 years have (not coincidentally) also been the sites that gave the user the most valuable experience for free.  Yahoo’s access to the world, Google’s search prowess, Napster’s rich repository of music, YouTube’s millions of videos, Facebook’s endless gamut of games and activities, and many other popular sites, have all come without a price tag for the user.  But “eyeball companies” have found it difficult to turn billions of hours of engagement into billions of dollars of revenue.  Google is the obvious exception – it has mastered paid search and turned the company into a cash machine.  But all of them have had to rely on advertising on the sites to pay the bills and to make money.  As the web has turned into a far more social experience for users, it has become imperative for every company to have some sort of strategy to take advantage of this new dynamic.

I see the social media world containing three very broad categories of companies.  Each has enormous revenue potential with proper execution.

Social Platforms  (Facebook, MySpace, LinkedIn, Classmates, YouTube, etc)

These companies are where the consumer eyeballs actually reside.  These are the sites that rank very highly in number of page views and minutes.  Some of them have millions of concurrent users, and hundreds of millions of accounts.  The business model for these sites has always been to get the eyeballs first, then sign up advertisers quickly.  Since the ads can be tailored to the information supplied by users in their profiles, there are good chances of getting high numbers of clickthroughs.   There are limitations, however; advertisers will only pay so much, and there is not a great deal of room on many of these sites for quality advertisements.  So until the eyeball companies can shift the majority of their revenue away from ads, they will be limited in their ability to grow.

Social Satellites (Zynga, MegaPlayer, etc)

These companies are a very loose amalgamation of companies doing all sorts of things related to social media, but they have several things in common.  They charge their customers for a value-added service they provide, they create, enhance, or improve content on existing social media sites, and they are very focused on experiences and user engagement.  These firms want to sell their services (in some cases these are virtual goods) to paying clients who see the value in social media for either personal or business reasons.  Satellite companies are the ones who add the meat to the loose framework provided by the social media sites.  Their revenue will depend on their ability to bring a great deal of added value to their customers.  This revenue is only limited by the number of paying customers and clients (marketing budgets or discretionary income)

Big Brands (GE, Coca-Cola, Procter and Gamble, etc)

These companies are the ones with existing products and marketing dollars.  They need new ways to market to their customers, and they need to keep pace with rapidly changing consumer behavior.   They have the most to gain in the long run, assuming they adjust their marketing to where their customers are.  It is incredibly inexpensive to build a powerful marketing campaign around social media, and there are ample opportunities to convert fans of the brand into a virtual sales force.  Small investments in social media can and will result in very large returns via an increased customer base.  Several studies have shown that well-executed social media campaigns have produced ROI far higher than any other form of marketing.  These companies have the best opportunity to make the most money in the long run.

I will explore each of these three types of companies in greater detail in future blog posts.

10 Ways Social Media is Changing

Social media is morphing into a holistic experience that speaks to people’s social needs in new ways. If you are focusing on the next generation of social media, here are 10 areas you’ll need to take into consideration.