In this talk we provide an overview of the market for social applications on social networks of both OpenSocial e.g. MySpace and Facebook, cover revenue and business models, and share some best practices. We provide examples of successful apps, how they effectively monetize, and show how much revenue can be generated for applications of various sizes.

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Next Session:
Building a Business with
Social Apps

3. Building a Business with Social Apps
Chewy Trewhella, Google
Gerardo Capiel, MySpace
Shawn Shen, Google
5/27/2009
Post your questions for this talk on Google Moderator:
code.google.com/events/io/questions
http://bit.ly/mCqkQ

4. Who We Are
Chewy Trewhella, Developer Advocate, Google
Shawn Shen, Developer Advocate, Google
Gerardo Capiel
Vice President, Product Management,
Open Platform, MySpace
Founder of Gydget
Co-founder of Digital Impact

5. How to Make a Million Bucks with
Social Apps!!!
Chewy Trewhella, Google
Gerardo Capiel, MySpace
Shawn Shen, Google
5/27/2009
Post your questions for this talk on Google Moderator:
code.google.com/events/io/questions
http://bit.ly/mCqkQ

6. A Developer's Profile
Some 30+ years ago when most people thought freedom of sharing
led to innovation in software, this fellow developer of ours
demanded that people should pay, and in so doing he became...

7. A Billionaire's Profile

8. Agenda
• Open for Social Business
• Social Apps Landscape
• Revenue Models for Social Apps
• Costs and Operation
• Best Practices
• Stats ($$$) and Summary

9. Open for Business
Revenue
Cost
__________
Profit
But how to get customers?

10. Open for Social Business
To get customers…
Be Social!

11. Disadvantages of a Brick 'n Mortar Business
• Lots of sales pitch
• Build one stand at a time
o Build one is fun, two is a bore, three or more a chore
• Delivery of tangible goods
A better mouse trap?
Social Apps…

12. Advantages of a Business with Social Apps
• Grow traffic on social network
o Users and friends
o Communication Channels
• Build once and use it everywhere
o Scale from 1 to 1000 servers
o OpenSocial standard

13. Agenda
• Open for Social Business
• Social Apps Landscape
• Revenues Models for Social Apps
• Costs and Operation
• Best Practices
• Stats ($$$) and Summary

14. Social Networks and Application Platforms
• Social Networks
Facebook
• Application Platforms
o OpenSocial API
o Facebook API Facebook
Developer
Platform

15. Social Apps Ecosystems
• App Developers
o Dozens of independent developers (>$1M dollars rev)
• Advertising Networks and Offer Aggregators
o Social Media, RockYou, OfferPal, SuperRewards
• Payment Providers
o PayPal, Playspan/Spare Change, Zong
• Tool Providers
o Sometrics, Kontagent

16. Social Apps by Category and $$$ (OfferPal)
• $400 Card games
• $200 MMORPG
• $175 Racing
• $150 Owning
• $100 Pets
• $75 Green
• Others

17. Mouse Hunt App: A Better Mouse Trap
• 470K MAUs
• Courtesy of HitGrab,
Inc.
• Game Play:
You are a hunter,
hired by the king to
trap the mice that
infest his kingdom.
For each mouse you
catch, you'll receive
a unique reward,
with the aim of being
the best in the land!
• What can be bought?
• Users pay real dollars?
• How to implement?

18. Agenda
• Open for Social Business
• Social Apps Landscape
• Revenues Models for Social Apps
• Costs and Operation
• Best Practices
• Stats ($$$) and Summary

19. Social App Business: Revenue Streams
• Advertising
• Virtual economy (Direct Pay & Offers)
• Branding
• Others

20. Revenue Streams: Advertising
• Display and text link ads
o CPM: Cost Per Mille (thousand)
o CPC: Cost Per Click
o CPA: Cost per Action (email/referral/affiliate purchase)
o CPI: Cost per Install (specific to installing social apps)
Banner & Skyscraper

21. Advertising: Code/Tag samples
AdSense
<script type="text/javascript"><!--
google_ad_client = "[publisher_id]";
google_ad_width = 468;
google_ad_height = 60;
google_ad_format = "468x60";
//-->
</script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script>
Right Media Exchange
<!-- BEGIN TAG - 728x90 - [publisher_id] - DO NOT MODIFY -->
<script type="text/javascript" src="http://optimizedby.rmxads.com/st?
ad_type=ad&ad_size=728x90&section=[publisher_id]"></script>
<!-- END TAG -->

22. Advertising: Challenges / Opportunities
• Challenge: Declining eCPMs ($0.10 - $2.00)
o Demand / Supply
o ROI for advertisers
o Canvas view ads ONLY for most networks
• Opportunity: Provide contextually relevant ads
o Music app => downloads, ringtones and concert tickets

23. Revenue Streams: Virtual Economy - Direct Pay
Mouse Hunt App
• Goal: Catch mice
• Virtual currency: Gold
• Virtual goods to buy
o Cheese
o Trap
• How to get Gold
o Catch mice
o From King
o Loot and trade
o Or buy gold via…

24. Revenue Streams: Virtual Economy (Buy Gold)
Mouse Hunt App
Industry wide
• Buy Gold via CC/PayPal $1-10 per 100 DAUs
• Or Earn Gold via… Daily Active Users
PayPal Gold!
Instant Payment Notification

25. Revenue Streams: Virtual Economy - Offers/Surveys
Mouse Hunt App
• Earn gold by filling out
o Offers
o Surveys

26. Revenue Streams: Virtual Economy (Earn Gold)
Mouse Hunt App Source: OfferPal
• Earn Gold via offers
Avg. $7.5 per 100 DAUs
Daily Active Users
OfferPal Gold!
Callback within
seconds to hours

27. Revenue Streams: Offers/Surveys (Code)
• Offer iframe
<iframe src=“http://pub.myofferpal.com/[publisher id hash]/
showoffers.action?snuid=[user_id]”
frameborder="0">
</iframe>
• Callback URL
o http://www.myserver.com/offerpal_callback.php
if( isset($_GET['snuid']) && isset($_GET['currency']) ) {
$u = $_GET['snuid'];
$q = $_GET['currency'];
$q = "update USER set gold = gold + $q WHERE u = $u";
}

28. Revenue Streams: Branding
• Branding apps
o Coca Cola on Xiaonei
o Sony/Ericsson/MTV on orkut
o Heineken on Netlog
source: Interbrand
• Branding elements/campaigns
o Purina Dog Foods in FooPets
o National Geographics in Where I’ve been
o iCue by NBC/Appssavvy for Lexus on Facebook

29. Branding App: New Year's Coca Cola

30. Branding App: FooPets & Purina
Appssavvy: "connects many of the most popular social
media applications found on Facebook, MySpace, the
iPhone...with leading brands and agencies"

31. Revenue Streams: Others
• Free/Freemium apps
o Box.net Files (LinkedIn)
o Huddle Workspace (LinkedIn)
• Premium apps for fee
o Fanbox
• Donation
o Causes
• Custom development
o Contracting and consulting
• 3rd Party versus 2nd Party Apps
o Develop container apps

32. Agenda
• Open for Social Business
• Social Apps Landscape
• Revenues Models for Social Apps
• Costs and Operation
• Best Practices
• Stats ($$$) and Summary

33. Social App Business: Cost
• Development
o Engineering, graphics, product/project management
• Hosting and Operations
o Servers, bandwidth, storage, tuning and scaling
• Marketing/Advertising
o Ad spend to grow traffic, campaign tuning and monitoring
• Community Management
o Users support and management, feature request feedback
• Others
o Sales (better ads/offers and direct)
o BizDev (e.g. rev share)
o Legal, Office, etc.

34. Cost: Development
• Development
o 1-5 developers
o 1 Product manager
o 0-1 Graphics designer
 contractor or FT
 project based
 creative commons can help
• Tips
o Keep feature sets small
o But a strong theme
o Iterate more often
o 1-3 months dev. cycle

36. Cost: Hosting and Operations
• Manage your own LAMP stack
o Lease your own servers
 ~$100/month per server (Web and DB)
o Joyent/Sun
 From free to paid (on-demand servers)
• Cloud Solutions
o Amazon EC2
 FamilyLink (~36M users on Facebook)
o Google App Engine
 BuddyPoke app: (~40M users on dozens of networks)

38. Cost: Hosting and Operations
Qualitative estimated costs
• LAMP: DIY everything
• EC2: Procure/configure servers on demand
• Google App Engine: Focus on app and we do the rest!
o Python and Java (beta)

39. code.google.com/appengine

40. Cost: Marketing/Advertising
• Advertising
o Gallery Sponsorship (CPM, CPI, Rev Share)
o App Ad Networks (e.g. Rock You, OfferPal, Social Media)
• Organic Growth
o Activity Streams
o Profiles
o Invites
o Notifications

42. Cost: Community Management
• Community Management
o Support user forums within applications
o Network itself will likely have discussion areas
o User requests to product roadmap
o Security issues
o App/game play loopholes
o Confused, malicious, novice users
• Tips: Scale by leveraging your users
o Invite power users to co-manage forums
o User Generated Content e.g. graphics, polls, quizzes

43. Other Costs: Sales and BizDev
• Ad Sales
o Best ad networks/offers
o Direct sales force
• Partnerships e.g. rev sharing
• Fixed cost e.g. office, legal
• Track and optimize e.g. tools

44. Agenda
• Open for Social Business
• Social Apps Landscape
• Revenues Models for Social Apps
• Costs and Operation
• Best Practices
• Stats, $$$, and Summary

45. Iterative Process: Monitor 3R's
• Reach
App • Retention App
Version • Revenue Version
1.0 2.0
• Reach: conversion to installs (e.g. 1-10% invites)
o Time of install
• Retention: conversion to active users (1%-40%)
o Last login tracks repeat users; Google Analytics
• Revenue: conversion to paid users (0.2-5%)
o Average Revenue Per User ($10-150/day per 1000 DAU )

46. Tuning Communication Channels
App Communication Channels App
V1.0 V2.0
• Communication Channels
o DO NOT spam users
o A/B testing for invites, notifications and activity stream/feed
 Use dynamic text
 Keep curiosity factor in mind
 Make them timely and relevant e.g. birthday calendar

47. Tuning: A/B Testing Example
22% Conversion:
"I just sent you a secret gift! I know you will love it. I will give
you a hint, it is {food.hint_description}"
8% Conversion:
"John is hungry. Are you hungry?"
Source: Kontagent

48. Tuning: A/B Testing with Ads/Offers
Source: Sometrics Virtual Currency Manager

49. Provide Social Context for Engagement
App Social Context App
Version Version
1.0 2.0
• Use game design pattern to provide context
o Leaderboard, leveling up, points system
o Locked items, daily unlocking code

50. Users/Friends for Product Roadmap
App App
Version User & Friends Version
1.0 2.0
"At Playdom,...we don’t assume what they will or
won’t like; instead we look to them to actively
enhance our games...we listen, really listen, to
them. If our players don’t like something, we phase
it out. And we give them more of what they want. It’s
that simple."
Courtesy of Playdom

51. Agenda
• Open for Social Business
• Social Apps Landscape
• Revenues Models for Social Apps
• Costs and Operation
• Best Practices
• Stats, $$$, and Summary

52. Market Size in $$$
o Annual revenue $500-700M (estimated)
o Top 10 app developers ~65% (estimated)
o Revenue split (estimated)
 Ads 20%
 Virtual Economy 70%
 Direct Pay 40%
 Offers 30%
 Others 10%
What’s new in OpenSocial about virtual economy model?

53. OpenSocial Virtual Currency API (5/15)
http://code.google.com/p/opensocial-virtual-currency/

54. CyWorld Supports OpenSocial (5/14)
- #Users: 27M (59% of South Korean)
- Community Revenue (virtual items): $16M for Q1, ’09
- Virtual goods:
- Minihompy (mini home page)
- Gift shops
- Miniroom
- Story room

55. CyWorld: One of the Seven Virtual Wonders?!

56. Sample App #1: 10K Daily Active Users
Avg Publisher Payout: $75/day per 1,000 DAU (Source: Offerpal)
• Revenue
o Daily ($25/1000 DAU) x 10K = $250
o Annual: $91.2K
• Cost
o Hosting: server@$200/month
o Annual: $2.4K
• Gross Profit
o Annual:
$88.8K
Good for 1-person team?!

57. Sample App #2: 100K DAUs
• Revenue
o Daily ($25/1000 DAU) x 100K = $2.5K
oAnnual: $912K
• Cost
o Hosting: servers@$5000/month
oAnnual: $60K
• Gross Profit
o Annual: $852K
• Expense
o Annual: $202K
• Operating Profit
$650K
Good enough to staff a team of 5+ developers

58. Sample App #3: 1M DAUs
• Revenue
o Daily ($25/1000 DAU) x 1000K = $25K
o Annual: $9.13M
• Cost
o Hosting: servers@$20K/month
o Annual: $0.23M
• Gross Profit
o Annual: $8.9M
• Expense
o Annual: $1.9M
• Operating Profit
$7M
Good enough to staff a team of 20-40 developers

59. Social Apps Market in Perspectives
Annual Daily Annual Revenue
Revenue Active per DAU
Users
Social Apps $500-700M 50-70M
(estimated)
$5-12
Huge growth last 2 years
Yahoo $7,200M 130-160M
Public data: $45-55
Google Finance
Alexa
Google $21,800M 160-200M
Public data: $100-135
Google Finance
Alexa

60. One More Example App: Mobsters

61. Summary
• Business Opportunity with Social Apps
• Landscape, Revenues, Costs, Best Practices
• Dollars and Sense
+ =$

62. Attributions
Images from Flickr under Creative Commons
http://www.flickr.com/photos/niallkennedy/78844524/
http://www.flickr.com/photos/maubrowncow/2508026764/
http://www.flickr.com/photos/tsevis/2279253649/
http://www.flickr.com/photos/gettheshot/1047513424/
Mouse Hunt, courtesy of HitGrab Inc.
RockYou SuperPets, courtesy of RockYou
Quote from Playdom, courtesy of Playdom

63. Q&A
Resources and links
Google Code
http://code.google.com
OpenSocial APIs
http://code.google.com/apis/opensocial/
OpenSocial.org
http://www.opensocial.org/
Google App Engine
http://code.google.com/appengine/
Post your questions for this talk on Google Moderator:
code.google.com/events/io/questions
or
http://bit.ly/mCqkQ

64. How are we doing?
Share your thoughts on the content and speakers!
Complete the session evaluation form on your
computer or mobile device at: haveasec.com/io
Next Session:
Developing on O3D: A View
From the Trenches