Just wondering….

Last night, I went to an SVASE talk by Geoffrey Moore of MDV. I won the iPod Touch! Thanks SurfaceInk! (Bit of funniness the talk was held at Microsoft’s campus )

He gave a work-in-progress talk on his effort to update his “Crossing the Chasm” concept.

One of the problems he faced as a VC is how to “value” a Web 2.0 company that is pre-revenue and maybe hasn’t even a clue on how to make money. How much traffic is needed to be “worth” something?

“Value” v. “Worth”

I think Geoffrey’s fundamental problem is that he confuses “value” with “worth”. I don’t believe they are the same thing.

Lets think about “value”. “Value” is an economic term. If your car was to get totaled in an accident. The insurance company determines its value and sends you a check for the car’s “value”. “Value” can be easily priced. Laws exist to help people recover stolen “valuable” property.

Compare that to “worth”. “What is your life worth?” Can you put this in terms of “value”? Can you or anyone give me a finite number for which they will let me shoot them? Probably not. No reincarnation ala WoW.

How much money (“value”) would you give to never see your significant other again? They are still alive, but you just are not allowed to communicate with them? Once again a mismatch — we think in terms of “worth” for personal (especially deep) relationships. Trying to pin an exact “value” (dollar amount) to such a thing is frustratingly impossible.

Anyone who can is probably a sociopath. (IMHO). (As a side note — this is what the courts really struggle with that makes the “big” news.)

Social network sites have no “value”

Fundamentally, I believe that all the current sites, Facebook, LinkedIn, etc. have no “value”. That is not to say that they aren’t worth anything, it’s just that they have no strong “value” to the user.

Reason #1: Does the site represent friends that will bail you out of jail?

At the meeting, I stated and I continue to believe that the absolute traffic numbers are meaningless (unless they are extremely big). What matters most is how many people that a user knows in “real-life” that they with connected using the service. By “real-life”, I mean people that the user would go do something with (movie, dinner, date, etc.) if they were near each other in the physical world. In other words, how strong is the “friendship”?

Fundamentally, does the user have any economic, strong personal tie to the other users they are “friends” with on the web site.

If the answer is no … then I don’t care how many page views a site has — it has no “value” and I believe monetizing it will be difficult.

Reason #2: Facebook and LinkedIn say they have no “value”!

Lets look at the Terms of Service for Facebook:

We reserve the right, at our sole discretion, to change, modify, add, or delete portions of these Terms of Use at any time without further notice.

It is your responsibility to regularly check the Site to determine if there have been changes to these Terms of Use and to review such changes.

Translation: Facebook can change the rules any time they want – and they can hid the change if they want.

Under Copyright:

When we receive proper Notification of Alleged Copyright Infringement as described in our Facebook Copyright Policy, we promptly remove or disable access to the allegedly infringing material and terminate the accounts of repeate[sic] infringers as described herein in accordance with the Digital Millenium Copyright Act.

Translation: If TimeWarner complains about a user – Facebook will unilaterally, without following any legal procedure or due process, destroy information that the user has entered.

Company has adopted a policy of terminating, in appropriate circumstances and at Company’s sole [italics mine] discretion, members who are deemed to be repeat infringers. Company may also at its sole discretion limit access to the Site and/or terminate the memberships of any users who infringe any intellectual property rights of others, whether or not there is any repeat infringement.

Translation: The user is completely at Facebook’s mercy.

Finally, under the Termination Clause:

The Company may terminate your membership, delete your profile and any content or information that you have posted on the Site or through any Platform Application and/or prohibit you from using or accessing the Service or the Site or any Platform Application (or any portion, aspect or feature of the Service or the Site or any Platform Application) for any reason, or no reason, at any time in its sole discretion, with or without notice, including if it believes that you are under 13, or under 18 and not in high school or college.

Translation: the user account is completely at the mercy of Facebook.

Would you or any sane person buy a car, or a home with this as the ToS?

“We, the bank, think that you are violating the DMCA therefore because TimeWarner complained we are foreclosing on your mortgage. Oh and if you are at work when we foreclose we reserve the right to throw everything into the street and have a semi run over your furniture.”

Reason #3: A user cannot sue to get their Facebook account back

To my knowledge, there has never been a successful case that has argued the economic value of a facebook account. There have however been successful cases arguing the “value” of domain names. Until a Facebook account is recognized as having a legal recognized economic value in the law and in front of a judge, it has no “value”. The irony is that the company lawyers in an attempt to protect Facebook the company from liability are in fact devaluing Facebook the experience.

Reason #4: Facebook,etc has not asked the users to assign a “value”

Yes, I know viralness demands things be free. And yes I know that Facebook (and Myspace) spend hours pimping their profile. And time is certainly valuable. But did the user regard that time as valuable? Maybe they were just going to watch TV, or pick their nose?

If I go to Monster.com and I spend the time pimping my resume, I am doing it to get a better job. My monster.com profile has direct, expected, economic value – even though I haven’t paid for it. (“My next job will be $10K more per year.”)

LinkedIn is better off than Facebook and Myspace in this regards. People pimp and get connections in LinkedIn for a direct expected economic payoff.

Reason #5: A user has no standing in bankruptcy court

If revver.com goes out of business and shuts the doors, do I, as a user, have the same rights in bankruptcy court to get back copies of my videos that I uploaded. If a company rented an expresso machine to revver, that company would have rights in the bankruptcy court system to retrieve their property. Until users have equivalent rights – it is really hard to be “valuable”.

Suggestions to the VC community

For all the reasons above – only foolish users trust internet companies with anything of economic “value” — therefore in general most of what web companies offer is “value”-less!

The VC community can and should change this.

1. Get the lawyers out of the way. Say and support in ToS that a Facebook, linkedIn, etc. account has real economic value.
2. Use language that makes a user’s account their property – i.e. can sue if they are deprived of their account.
3. Don’t unilaterally obey DMCA takedown requests. Insist on court orders and due process because otherwise the service (Facebook, LinkedIn) is depriving the user of something of economic “value”.
4. Establish a due process procedure. Create a “court” of dedicated users that will help arbitrate.
5. When shutting down a company — go the extra mile and start establishing a precedent that the users’ data has economic value and attempt to return in some manner their “valuable” goods.
6. Don’t claim ownership of user-entered content. Ask for permission to use it.

Some thoughts on how to judge the “value” of a site:

1. Does virtual actions translate into real-world actions? (Dates, meetings, things of economic value being exchanged)
2. Does the user identify with and defend the site?
3. Does the site defend the users? (Does the love go both ways?)

[Update: From Wired that further supports this contention. I guess Wine Therapy was not "valuable"]

Angela Strange
BayPartners
(VC firm)

They have a fund targeted at social networking applications, not just facebook applications.

(Once again notes will be edited as time permits)

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300 million fund
looking to fund applications that are built on f8 or other social media.

Do you really need money?
Don’t raise the money if you don’t need it.

Raise the minimum needed, trauche the money only take the money in chucks as needed. So if the money is not needed, then equity for later trauches is not given away.

if you’re going to raise then get more than just capital.

criteria
-clarity of your thoughts and ideas. ( need idea in the first 2 sentences ) if need 2 pages, then hard for her to understand reason for product.

entre/team
* strong tech prowess mainly, being able to execute.
prioir track record or indications of potential for first-time

* idea uniqueness/ differentiations/competition/depth — provocative

* business model /sustainability

most interested in apps that may start on f8 but can go outside of f8.

traction ( if already launch)

evidence of high level of engagement/ or growth rates.

for example: may be privacy apps might be

are there any applications that should wait until api matures — as/ no go for it now! Look at any productive apps that could work with f8.

as) there is a market for more utilitatarian apps — like classroom wiki

jury is out on if there is going be any market for utilitarian apps.

communication, shopping or service where you know who you are / connected.

bay partners:

* app
* amazon free hosting/data services
* post lauch services (marketting services)
* not taking board seats

for apps already launched:

1 app with 10 million users is more valuable than 10 apps with 100K users each — pretty easy to get to 100K users and then it dies off — but 10m users is much harder to do.

CTR for apps have not been very good.

earlier losers: anything too complex, so if you think it is a little complex it is probably 10x too complex.

building private social network: for boating enthusiasists.

for apps that have launched value the users $1 – $20/ active user.

convertible note: “caps” — $100K with $1m “cap” then bay partners get 10% when the next round is funded (no matter how much is valuation at that time.)

“cap” with no conversion — the next round investors will call and bay partners will say well we won’t want to participate at 10million but we will participate at $5million because other wise the initial 100K invested will be wiped out.
“equal participation (in next round)” is better than First rights.

Presenter:

Sometrics (missing card right now)

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Claim to give better data on who the best users are.

social metrics – sometrics

more than just traffic
– impressions, uniques, visits … go deeper.

only 10 friends but converts 10 friends — they will have metrics based on action.

some limitations becuse of f8 TOS.

So application could change based on time of day. One of sometric customers didn’t know spread of sex / age distribution.

sometric will also look at location.

sometric is anonymizing and hashing and aggregate the data.

f8 touch points -where in f8 wall, feeds, email, profile wide/narrow, request invite

can’t measure unless pings over to canvas pages.

Users engagement
– Power users — certain actions indicate power users.
2 different power users : influencder – can drive application installs and drive back to canvas page.
in future sometrics will configure and define app

80% case from average user or power users —
average user or power users — who has greater influence?

applications can be able to take the application dates

active users daily/yesterday active change %.

type of users:
power users
participant
viewer (lurker)

rock you — aggressively uses notifications for first few days. but then turns it off once uptake is above a certain level.

Presenter:
Mike Sego
Fluff-Friends

Fastest growing “pets” application on facebook.

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(Notes will be edited as time permits)

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Secret to success is being “cute” — emotional connection

Pushing information into newsfeed runs risk of flooding newsfeed with too much information.

First Feature added is increasing number of fluff friends. There is the point of diminishing returns. Going from 1->2 friends is interesting. 26->27 is less interesting.

Part of being cute is that each fluff friends has a story and “cute”.

gifts less interesting at 500 gifts than in beginning.

people join together and have petting groups.

100% of growth was friends seeing fluff friends on profile not newsfeed from growth.

added petting and naming fluff friend.

“Pet Me” — would say “looks like you don’t have ff… would you like to install”

He knows because when f8 api was broken and not having warning dialog pop-up… saw lower growth when f8 api was broke.

The wall is more compelling features of f8

“Don’t poke me … do something useful pet my ff” i

implemented cute verion of tracksor… because you see who petted your friend and when.

Petting is core to experience.

What ff is not:

pokemon – (cock fighting for little warriors?)
pokemon requires lots of enginerring effort.
f8 takes things that are very popular on internet and creates walled events.

gmail is losing market-share to facebook mail!

f8 groups -
f8 photo is crippled version compared to flickr.
just need to hit core features and will be successful on f8
“what are you doing?” is what f8 is all about.
so if you focus on how that question

ff is LAMP ( but Mike Sego – is java developer works on gmail )

social interaction is at the core.

added different features that increase would

As released features — add Moods 2.0 different moods for different ff so people would go to see other ff.

using transparent png (yech) css rendering is really hard because f8 rips up. so he has to hack up css for each browser.

Bubble – people would be having conversation with their ff talking to each other.

added food — released 2 a week … leveled off at 35 foods.. would cost friend.

food is gifting “costs money” — ltewright version of gifting… but found that most people feed their own ff’s not others.

ff had problem with how to earn money — How can I design the next feature to make previous feature

you have 7 seconds to return result to f8 — “Try again”

Using one-on-one hosting … had to shift from shared server to dedicated hosting

LAMP ( mem_cache apc — for mysql )

Added habitats – once again made previous features work better. Biggest feature — huge uptake.

786 different images on the shared vm server.

Using fb photo for the foods. but didn’t upload 786 photos because no way to programmatically load photos.

but this is great because fb

ff starting tacking

merchandising….
goodstorm — lower quality
zazzle — higher quality and will ship international

but only sold 400 shirts.

But need much higher quality

“I want a Liger…”

support cost — message bombing – trying to campaign on getting new features added (

was getting 300 emails a day — started to managing issues with FAQ. FAQ slowed down because link to find developer link.
make effort

facebook forum is useless.. no topics in forums.

so forums are offloaded. but 10000 registered users – 2000000 ff install but acts.

ff-users going to forum add value to the ff-ecosystem.

A lot of people wanted to fighting… (like pokemon)

did not want to do RPG-like things.

didn’t want to compete EA (Mike Sego used to work for EA on Sims)
single player – no p2p
multiplayer -async (works in f8 — no sync communication available)
multiplayer – sync ( much harder on f8 )
massively single player — you are not waiting on anyone else but what they do effects you.

fluff(Race)
number of fluffs per hours.

communities:
* self-expression
* and racing community….power lovers of ff.

—–

Choice not diverseify because that would say is he done. So chose not to.

has not looked at uninstall numbers.

super actives <5% but they really drive the

you can’t uninstall your ff (because that would be abandoning your ff — so sad )

can’t sell transfer

this middle-age woman whent around every day to pet 100 friends ff.
80% woman — early college

can’t pet a ff more than 5 secs. prevents scriptting but does not alienate hard core users.

fluff-book — is the high page view.

** only now added invites **

hit servers …

trying to stay constant relative to number of f8 users.

monetation will come when f8 makes it happen.

Held 20 Oct 2007.

This batch of notes is not mine, so it will probably not be edited too much.

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Presenter:
Eric Yieh
RockYou

- Facebook, is 7x more viral than bebo. because of there
- superwall, Xme, zombies/vampires,
- Facebook has: profile, profile action, feed, requests, emails, notifications, wall.
- Should use all of the facebook api, some work better than others
- Rock You also provides an API to the super wall
- Having multiple apps lets you cross advertise, and have one app use the other app.
- Buy advertising to seed various different social networks with your app.
- Viral success factors: simplicity ( does the user get it immediately, keep invites really short), novelty ( has the user seen this invite before?, be the first with your kind of app), social persuasion (reciprocity, ego boost, “your friends will like you better if you install this app”), fun ( most people go to facebook for entertainment rather than work, not too many utility applications).
- rockyou and slide are the heavy hitters in the widget space.
- Must use the social network of facebook, people who wouldn’t otherwise
- “to get an app over 1 million users you must advertise”
- “it will have to hit a bnuch of people in the same high-school before the app spreads to the whole network”
- facebook invites only go out to the direct friends of a particular user.
- Invites are now limited to 10 invites
- FBML invites are not very good, need to have a very strong call to action.
- Want to make it easy to send invites (pre-set the invite text).
- maybe can monetize without having people install an app.
- you have a canvas page that people don’t need to install an app for, this lets you monetize your canvas page. (it’s just like an html page on the web)
- Create applications that require users to communicate.
- Hard part, need to balance uesr acquisition and engagement
– if you send a person to an invite page, they may not use your app.

- which ad network to use?
– pricing
– quality of the ads
– fill rate/campaign size
– want optimization features that let you tweak which ads are displayed
– channel tuning (let you not advertise for competitors)

- rock you has an ad network as well.

- CPI 0.50, cost per install, advertising. i.e. you pay 50 cents per user who installs you
- you need to monetize your app in some other way than selling installs.

- People will need to advertise to launch your app…
- In some cases people have built a small viral app to drive people back to their “real” site.
- advertisements in the middle of the screen are much better than top flier ads

- bebo focussed in UK, dont have a dev platform yet.

- flash autoplay will be allowed.

- should tie your apps across all of the big platforms.
- news feed and mini-feed are both very effective.
- facebook doesn’t let you store user data for more than 24 hours… can only store theire user ids.
- Eric says that you need to do internal studies to figure out what kind of demographic gives you.
- monetization: peanut lab.
- clickthrough rates on facebook are low.
- as soon as a click takes you outside the site, the user closes the window because they don’t want to leave facebook.

- maybe myspace will allow unlimited invites.

- rockyou doesn’t care about their destination web site…. they care more about how many users they have on various social networks.

- Rockyou assumes that all of their users are teenagers and build for the teenage market, whether or not they are teenagers. This is because when people are on facebook, they’re not looking for productivity, they’re looking to hang out with their friends.

- Thinks that the movie studios etc. will build viral facebook apps to advertise new movies soon, instead of having a fancy website.
- “Who can do better than george bush”
- Rock you sold a resident evil branded version of zombies on facebook to sony, and sony’s going to buy again.
- rockyou has relationships with various advertising firms
- anything that distracts from the invite flow will reduce installs of an app.
- advertisers are targeting younger users on the social networks.
- Each platform is building their “own version of the internet”.
– which means that people will rebuild the internet inside each platform. So take the most popular apps from the web and rebuild them inside the platform to make money.
- Make sure to track ROI on a campaign.
- what’s the “hover over” rate.
- branded advertisers are more concerned about the messaging (the layout, the look and feel etc.) rather than necessarily the click through rate.

Presenter:

Blake Commagere
Founder, VP of Engineering & CMO
Mogad, Inc.

Create the Vampire App for Facebook platform. Also work heavily on the Causes Facebook application.

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(Notes are raw and unedited, editing will occur as I get the chance!)

most people are using f8 for communications not business.

internet generations are much smaller than regular generations

english majors can do html
internet dating is casual to the kids today.
First porno, was probably digital.
70% are 18-35 f8 users

what people want has not changed in 5000 years but the manifestation

for example, don’t assume users are asexual.

for example, the wall — fundemental desire is validation – to feel important.

for example, friend count when friend count meaningful. (i.e. not 30K friends but 35 friends v. 50 friends)

social aspect of wall-to-wall communication : “john, lets have coffee” the public aspect of advertising that john and bob increased wall count. And john got validation by bob ask

wall is ordered by date with most recent — implecit ranking because Mike is cooler than Karl because Karl’s post is older (below) Mike’s wall post.

flirting happens with posts on wall posts

if a female posts on males’s wall — if a male other user posts above her. she is far less like to post again than if another female is posting.

for example in real -life if have female friend that is talking to another male. a male is likely to go up and talk to female just because ‘competition’

(from audience : f8 user) -
if she just met a guy in class – she would go to his facebook wall to see what kind of competition she has.

over 30% of profile views on linkedin profiles are to self — and this is just a resume.

having a girlfriend is important on f8

30% more like to get use apps if they have pimped their profile.

sales people try to create social obligation — that is why they send xmas cards.

blake — was lead developer on “Causes” (“Yellow bracelet” campaign was a way to self-identify with Lance armstrong) tried to do application with “Care badges” was unsuccessful in myspace but myspace shutdown widget spreading)

causes only exists in f8 — people do care about charities — “I donated $20 to a charity” 20-something don’t have time that they did in college and dont have money either to donate. But donating to causes is self-expression.

Users are “selfish”

(vampires – kicking around idea of creating that did nothing but spread — but not have any other value — i.e. but convert the act of inviting — make the advantage of inviting a core feature — makes it more viral)

anti-example : the quote applications .. no real benefit to inviting someone.

f8 poke — is not flirt — its a hey what’s up. I think someone is flirting with me because they are poking more frequency. “Do I poke them back right away, or do I wait — a day to say that I am cool and hip and I have lots of people poke back.) This is a friend validation. If they don’t get poked back, it says something.

If I post on your wall and you don’t– “oh you are private message’d from now on.”

voyear-istic measureable to see how flacky you are.

f8 photos are inferior to flickr but tagging in f8 automatically notifies your friends.

people look for their own photos first. and then the attractive people. People want to see themselfs

message has 2 barriers — the sender has to decide to send the app. The actual barrier is to the recieptant to accpt. You want them to feel cool.

People do things to benefit themselves first, their family/friends and lastly their community.

“Useful” apps run the risk of being boring.

f8 is not designed to get work done.

Causes has grown… but needed bizdev team and engineers — did a lot of work with companies. established relationship with just-give online charity and guidestar – to validate non-profits.

application, engagement, monetization. ( iterate with users get immediate feedback ) — right now