Great Facebook application review

The great blog Inside Social Games has put up a glowing review of Citypixel Spaces – our brand new Facebook application. Here are a few great lines from it…

“Citypixel – 8 Bits of Awesomeness”

“Part The Sims, part Lego, pure awesomeness”

Read the whole review here. Also, be sure to Digg the article here.

Citypixel.com launches Facebook app

After a long period in development, the virtual world citypixel.com has launched its Facebook application. Check it out here.

The Facebook application allows users to…
– Show off their virtual spaces to all of their Facebook friends
– Invite their Facebook friends to become citypixel.com users
– Interact with their friend’s apartments by rating them and visiting with their avatar
– Buy and send virtual gifts to their friends
– Through paypal, buy extra ‘pixels’ (virtual currency)

Citypixel.com has 30k users and the FBA already has 400 users, so we’ll see what happens.

Social media sponsorship roundup

Further onto my earlier post, here are some more sponsorship deals, unfortunately no deal sizes:

1. Stardoll signs sponsorship deal around Nim movie – Featuring environments from the film and virtual items
2. Coca Cola launches avatar-based Facebook application – I wonder if they outsourced the development of this app
3. Habbo/Paramount licensing deal – Not all that new, but one of the most interesting I think. Talent/Literary agency WMA brokered this deal apparently

Social media sponsorship roundup

I’ve been searching for information on how much social app companies are getting from sponsorship deals with marketers. This is what I’ve found so far:

1. Buddy Media is apparently getting an average of $100k per campaigns for their “advergames” on Facebook
2. Gaia Online is getting $100k to $200k for 1 month sponsorship deals, but are also now seeing deals in the 6 figures.

Has anyone found details on what other social media startups are getting for sponsorship deals?

Interview with RockYou CEO

Here is an interesting interview with the CEO of social app developer RockYou, Lance Tokuda.
– He estimates there is a 20% costs to porting from one OpenSocial site to another. Porting from FBA to Opensocial requires a rewrite
– Believes that consolidation will be coming soon, with many of the big app companies raising warchests
-About 30 percent of RockYou’s ad inventory is taken up by its own house ads
– After the traditional social nets open up, creating apps for other social services, like Yahoo (NSDQ: YHOO) Mail and GMail will be big.

How open is too open

Rueben Steiger, CEO of Virtual world ad agency specialist Millions of Us, gave a talk during GDC and Gamasutra had a recap. He says the reason that virtual worlds have had initial success is due to the lack of rules and openness, the user defines the fun, not a game designer. However, hybrids with more traditional game mechanics are “probably a lot more mass market friendly.”

I think he’s right, casual users will appreciate the openess that a virtual world can offer, but they want to be told what to do. They want goals and missions. They don’t want to always have to make their own fun. Second Life is a good example of being too open and not offering enough goal oriented content. SL has yet to reach mass market adoption and have even seen their growth plateau recently.

Virtual goods market size

I thought I’d take another stab at estimating the market size for virtual goods. The size of the market can be determined using the following formula:

Virtual goods market = Potential users x Yearly user spend x Penetration

Below I’ve gone through each variable and made estimates for 2006, 2007 and 2012.

Potential users
The easiest figure to use for this would be the total number social network users, as Bear Sterns released a research report (in 08/07) that had projected and historical figures. Generally social networks and virtual worlds will be where users buy  virtual goods and most likely if you’re a virtual world user, you’re also a social networking user, so there is no need to double count. There could be other sites that will offer virtual goods, but they’ll most likely be “social media” related, and it’s not clear exactly what BS has defined as “social networks”, so its best to make it simplified and just use their numbers.

Potential users:
2006 = 382m
2007 = 573m
2012 = 914m

Penetration
Andrew Chen has a good post on his blog recapping the Virtual Goods Summit during June of 2007. One of his take aways was that only 5-15% of users will ever buy virtual goods (Darren Herman commented that he thinks this % will  actually increase over time). Unlike potential users, there isn’t a source for penetration figures. In 2006, we know that the market was roughly $1.5bn (this has been often quoted but I’m not sure of the original source, I assume its from the Virtual goods summit), if we assume penetration of 7%, it results in yearly user spend of $54, which might make sense. I’ve assumed an increase on 1% a year as virtual commerce gains acceptance.

Penetration:
2006 = 7%
2007 = 8%
2012 = 13%

Yearly user spend
As mentioned in Penetration, in 2006 we’re assuming the average yearly user spend was $54 or $4.5/month. This is lower than the big virtual worlds (Maple Story: $7, Habbo Hotel: $15-20) but considering Facebook charges only $1 for virtual items than $4.5 might be right. Also, Club Penguin charges users $6/month which validates that some users are willing to spend that amount every month. I’ve assumed small yearly increases.

Yearly user spend:
2006 = $4.5 x 12 = 54
2007 = $5 x 12 = $60
2012 = $7.3 x 12 = $87

Virtual goods market estimates
Using the variables above, the market estimates are:

2006 = $1.5bn
2007 = $2.7bn (90% growth
2012 = $10.3bn (07-12 CAGR: 30%)

Also posted at citypixel.com

Business, casual gaming

What you need to know about casual gaming:

1. Fast growing market – Casual gaming is worth $2.2bn, and growing fast – growth rate estimated at 20%
2. Investors are getting in – Rebel Monkey ($1m), Alamofire ($2m), Zynga ($10m), C3L3B ($3m), PlayFirst ($26.5m), Doof ($??), Outspark ($11m) to name just a few
3. Social gaming – Currently this means casual games that integrate with social networks, but virtual worlds are also starting to integrate with casual games (ie. Flowplay and something citypixel.com is looking at). Inside Facebook has a good rundownof the top Facebook game developers. One interesting take away is that the daily active user ratios for these gaming apps are much higher compared to other apps, 10-20% vs. 4-5%.
4. Widening demographics – The San Jose Mercury News reported that women in their 30s and 40s are behind the casual gaming boom – apparently women account for 74% of paying customers. The NY Times just ran an article on how the “growth in the now $18 billion gaming market is in simple, user-friendly experiences that families and friends can enjoy together.”
5. Big game publishers are taking notice – EA has started a division called EA Blueprint. The group will be led by former EA Los Angeles general manager Neil Young and artist and creative director Alan Yu. Products will include brand extensions of existing EA games in addition to original IP. The EA Blueprint games will reportedly focus on social networking platforms, such as Facebook. Apparently CAA is involved somehow.
6. Monetisation – Current focus is on in-game advertising. CPMs are difficult to judge, Jeremy Liew posted awhile back that Wild Tangent was getting an eCPM of $150, but this was a mix of revenue from both premium and advertising driven games. Venturebeat interviewed Zynga and they were talking about CPMs of $0.10. Awhile back Google bought an in-game ad network so apparently they are getting into this space.
7. Guys who know what they are talking about – Jeremy Liew, of Lightspeed Partners and Andew Chen

Also posted at citypixel.com’s blog.

VC 101

There are some great sites out there that help you understand how to work with VCs, the top 3 in my book are the following:

1. The Funded– Great resource when researching VCs. You can search based on funding level, geography, how quickly they fund and also on how they are rated by entrepreneurs. Reading the comments left by other entrepreneurs is fascinating and full of tips, they’ll tell you which partners to approach and who to avoid. 
2. Venture Hacks – From getting an introduction and making your first pitch, to term sheet negotiations, this site gives you step-by-step instructions.
3. Get Venture – Another great guide to raising venture capital written by Mark Peter Davis, an intern at DFJ Gotham Ventures. Just found this one and have been reading it non stop, basically everything thing you need to know about VCs

Virtual world biz model – Advertising CPMs

In my last post I looked at some of the assumptions behind estimated virtual good revenue for a virtual world. Next I’m going to look at traditional advertising revenue, ie. simple banner ads. This is excluding the more interesting and exciting possibilities of interactive marketing campaigns and branding.

The cost of advertising is often measured using CPM, or cost per mille. For banner advertising, this is the cost per thousand impressions. The CPMs for Internet advertising are much lower then other medium, to put it in perspective, in 2006, Internet advertising had a CPM of $3.50 while Network TV had $21.75, Magazines $16.60 and Newspapers $18.69. Below are some Internet CPM forecasts from JPM Morgan.

In-game advertising 
According to in-game advertising network IGA CEO Justin Townsend, virtual networks are too small for these kind of ads, 

these are mainly creatively-driven environments and frankly not open to advertising. And if they are, it’s hard to get one set of advertising standards defined through all the different virtual world companies. If you wanted to provide ads into virtual worlds, it would be one-off bespoke, as opposed to aggregating ten virtual worlds together and providing a decent amount of reach to consumers.”

This is true for the most part, but as the industry develops and ad sizes are standardised, this will change. To determine what sort of CPMs virtual worlds might get you need to look at its closest comparable. Current in-game CPMs might be one comparable, I’ve heard some reports of CPMs at $20, and Sony’s new game Pain is offering advertising at a CPM of $30. I think the current in-game CPM rates are probably higher than what you’d expect in a virtual world as there is more control over ad placement and where the users attention is directed. Also, currently the investory level for in-gaming is low, once more and more games include advertising, and potentially virtual worlds, I would expect CPMs to fall.

Social network CPMs 
Another comparable might be social networks, the similiarity being the access to detailed user infomation and that people are using them to interact with other people, but in the case of virtual worlds, in a much more immersive way. These are lower than the average online CPMs (JPMorgan estimates $3.31 in ’07), Techdirt explains why,

Ads work on Google because people are looking for information. They do a search, and if the advertisement shows information that helps with the query, that makes everyone happy. However, when it comes to a social network, usage is quite different. People aren’t looking for information about products — they’re looking to communicate with friends. In that environment, ads are seen as an intrusion — which is the exact opposite of ads in a search world.

Reports vary quite a bit on actual social network CPMs, here is a round up: Facebook (according to Bear Sterns research, $0.88 blended CPM, but prime CPM up to $10), MySpace ($0.10 – $3.00), Flux ($1.50), Friendster ($0.04).

Virtual world CPMs 
Will future virtual world CPMs be somewhere in between? In-game CPMs are high right now, but as it becomes more common, there isn’t going to be enough demand, and CPMs will fall. Unlike online advertising, in-game advertising isn’t going to attract the same array of verticals. If using for forecasts, I would be conservative and assume that virtual world CPMs will be closer to social networks.

Also posted at Citypixel’s blog.