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Social Game Summit 09: Climbing toward Profitability, part II

Here is part two of Fabian Tan's report on the Social Gaming Summit 09. The first part can be found here. 

As users on social networking sites get older (according to Justin Smith over half of game players are now over 25), the game industry is focusing on a more mature audience - with more disposable income. With an average spend of $0.90-$1 per month, women over 41 spend the most money on social games.

Sebastien de Halleux, COO and co-founder of social gaming site Playfish, told the audience that his company sold 20 million virtual Christmas trees and ornaments in Pet Society. Some were paid with points earned within the game, but some were bought for $2 each. Some people spent more money for a virtual tree than for a real Christmas tree! While this may seem astounding, de Halleux sees a clear advantage to go for the fake: with friends spread around the world, a virtual tree can be seen by much more friends than a real one.

Mob Wars, a role-playing game takes in more than $1 million per month from wanna-be mafia gangsters that equip themselves and their mob (recruited real-life friends) with virtual weapons. Players earn points for new items as game progresses, but once they are attacked by an enemy, many players get emotional. They want to fight back quickly and therefore buy stronger weapons with real money.

This in-game purchase model of virtual goods is the (not so) secret next big business model in Silicon Valley aka the freemium scheme. Social games are almost always free, so that many users can start playing them, but the better items or extra features have to be paid. The underlying game mechanics are being thoroughly measured and optimized by the gaming companies.

"Metrics are a force multiplier, but you need to have something to multiply," sayd Siqi Chen from Serious Business in his presentation. By the end of 2007, Chen saw his "Friends for Sale" game grow from zero to 1 million page views/day in 4 weeks and to 6 million page views/day in 9 weeks. He is living proof of how important measuring is to optimize profits.

According to Justin Smith, a professionally managed game generates an average revenue per user (ARPU) of $0.30-$0.40 on Facebook and $0.60-$0.70 on MySpace. Top games can generate $1-2/month. Monetization platforms try to offer players the most frictionless experience and provide them with multiple options to pay by mobile phone, through money-transfer services like PayPal, by filling out sponsored surveys or by accepting offers like a Netflix subscription.

Andrew Sheppard, Executive Producer at hi5, said that his company redesigned their platform around the game portal model. They consider it very important to help the developers monetize their games with a built-in payment solution. 

Facebook on the other hand, is still only in the test phase of their virtual currency system. But with the recent integration of Facebook Connect with the iPhone and the XBox, people now can play against their Facebook friends even on mobile devices and game consoles. "This is the year of consoles getting social," according to Gareth Davis, program manager for games in Facebook’s platform marketing division. Monetization platform OfferPal has already expanded their managed offer system to the iPhone platform, and a solution for the Android platform will be the next logical step.

While all the experts acknowledge that the expansion of Facebook's platform to mobile phones and game consoles brings a huge ecosystem with it, they also know that they will all compete in a new and  challenging environment -- albeit a very large one.

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Guest blogger Fabian Tan is a German entrepreneur with a background in the mobile Internet business at Jamba and VeriSign. He recently founded the Silicon Valley-based company Fabulous Apps.

Social Gaming Summit 09: Climbing toward Profitability, part I

What's in store for social games now that every so-called platform from the iPhone to Facebook is alive with little apps that eat our time and attention and in return report back location and engagement? 

I asked an insider -- entrepreneur and Facebook developer Fabian Tan -- to report from this week's Social Gaming Summit 09 in San Francisco. Here's the first of two installments.

Multiplayer online games like Second Life have been around for years. But the game industry is increasingly focusing onto a new profitable type of game, so-called 'social games'. 

Justin Smith, founder and editor of the blogs Inside Facebook and Inside Social Games, defines social games as casual games that are "designed to be played with friends on online social platforms".
Smith was the first speaker at the second annual Social Gaming Summit this week,a conference in San Francisco where Internet companies, game companies, venture capitalists and advertisers came together to talk about the latest trends - and how to make the business more profitable.

While social platforms like Facebook or Twitter still have to show how they will ever be profitable, a new generation of gaming companies already generate good revenue on these platforms.

After opening up its platform for developers in 2007, Facebook has become the premier platform for social games. Now MySpace, Hi5 and other social networks have jumped on this wagon. The social games landscape is still emerging and experiencing its own gold rush. Many young companies are dominating the market, leaving the traditional game companies like Electronic Arts behind.

Social games live from the experience of interacting with other human beings - particularly your own friends.

Sebastien de Halleux, COO and Co-Founder of Playfish, one of the largest and fastest growing social game companies with 30 million monthly players on Facebook, pointed out: "It's a very different story if you are beaten in a game by a computer or your little sister." For de Halleux, board games rather than video games are the model for social gaming.

The industry has created a little game for almost every taste, whether they are sport fans, singles or just awfully smart guys. The German startup wooga just launched Brain Buddies, a game that lets you compete with your friends in memory, logical thinking, visual and math challenges. Make a Baby lets you raise a virtual baby with a friend, and in the Playfish game Pet Society you adopt a virtual pet. After you buy a virtual doghouse and clothes, your pet can play with the pets of your friends. But don't forget to feed your Fido with (virtual) food every day!

NEXT: Guest blogger Fabian Tan on the monetization strategies behind social games. Fabian is a German entrepreur with a background in the mobile Internet business at Jamba and VeriSign. He recently founded the Silicon Valley-based company Fabulous Apps.

The DNA of "Made in Germany," part 5: Kathy Johnson's take

Here's the next installment in my mini-series about national brand identity, to wit: What's the DNA of the phrase "Made in Germany?" I asked Kathy Johnson, one of the principals of Consort Partners, what the term means to her. 

Both she and her husband Dominic have extensive experience working with German entrepreneurs and they know their way around the Pacific Rim, so they bring a trans-Atlantic and trans-Pacific perspective to the topic. Here's what Kathy had to say:

“Made in Germany.”  For some, these words might evoke images of fast cars rocketing down the autobahn.  For others, it might mean a large frosty stein of beer served up by a blonde-haired blue-eyed maiden in a dirndl.  And for others, it may simply be a way of describing precision engineering.  

The perception, imagery and notions coupled with “Made in Germany” are indelibly linked with the overall impression, or brand, of Germany.  Thus, for me, the question of what does “Made in Germany” mean is another way of asking “what do I think about, or feel, when I think of Germany.”

A strong nation brand can do many positive things for a country.  It can increase the receptivity and perceived value of exports.  It can also attract more tourists, retain talent and increase foreign direct investment.  All of these factors greatly contribute to the financial health and well-being of a nation, so the exercise of building and sustaining a strong nation brand is not taken lightly.  

Consumers around the world know more about nation branding than they imagine, as they can define a nation in one word – the essence of the brand:  Italy = sexy, France = luxury, USA = commercialism, Switzerland = precision, Japan = technology, Britain = heritage, Germany = engineering.   We can also extend this same exercise to thinking of companies that personify the brand of a nation:  Italy = Gucci, France = Chanel, USA = McDonald's, Switzerland = Rolex, Japan = Sony, Britain = Burberry, Germany  = Mercedes.  

If we take this exercise one step further, then we could also make a generalization that the brand Mercedes is a shorthand example of what “Made in Germany” means.  But what happens when this brand-informed image faces change or challenge? Mercedes got bought by Daimler (with a less recognizable household name), and the global economy slipped into crisis and faces increasing uncertainty and volatility.  This is especially evident in the auto industry, where even stalwart Daimler has recently forecast a full year loss in 2009.

Does that mean that “Made in Germany” will absorb the same negativity and challenge?  Should we look to other brands to personify the “Made in Germany” nomenclature – perhaps something other than an auto manufacturer?  How about a solar energy company?  Or a biotech manufacturer?  Or a pharmaceutical company?

If we look at Japan in the 1950s, “Made in Japan” essentially meant cheap, flimsy goods of low quality.  Indeed, in 1945 Mr. Masoru Ibuka formed Tokyo Tsushin Kogyo with a determination to overcome this stereotype.  His mission was also buoyed by Sony’s success at manufacturing the first pocket radio. Japan gradually reversed the negative “Made in Japan” stereotype, and by the 1970s and 1980s, “Made in Japan” was a worldwide symbol of quality and technical superiority.  

However, a backlash began where some Americans were distrustful of Japan, so the Japanese began to address this issue with names like Canon, Panasonic, and Honda, to appear more Western.  By the time the bubble burst in 1991, Japan’s image was fracturing.  Was it modern and Westernized, or was it ancient and traditional?  Was it Mitsubishi and Isuzu, or was it Canon and Honda?  Tourism floundered. Foreign direct investment shriveled.  “Made in Japan” to some meant leading-edge technology and to others it meant leading-edge rip off. 

Now more than ever, in our world of connectedness – when we  can Facebook, Twitter, YouTube, or Google our way into the daily lives of friends, strangers, celebrities, corporations and board rooms around the world, it’s important to actively promote a strong national image, which in turn solidifies what “Made in…” means.  

And while the older generations may have imagined Germany as the studious straight-A student who isn’t a whole lot of fun but is a brilliant engineer; the new generation seems to have a completely different idea of what Germany looks like, feels like, stands for and produces. 

And now back to the original question… What does “Made in Germany” mean to me?  I envision bold creativity and originality born out of individuals who are challenging the status quo, of brave entrepreneurs who push aside judgment and fear of failure to launch new companies, products and ideas in the face of skeptics and antagonists, and of earth-friendly, sustainable approaches to life and living.  And, yes, I do think of that frosty stein of beer too, preferably accompanied by a crusty, salty brez’n (pretzel). 

The DNA of "Made in Germany," part 4: Miko Matsumura´s take

"Made in Germany" is a wide and varied term. So far, we have covered sextants, roller pens, cars, the entrepreneurial spirit, and green building standards. I am happy about the following reflection of the identity of a national brand by Miko Matsumura, whose company was acquired by German Software AG. He has quite an original take on the long-term view woven into the term "Made in Germany."

I was made in the United States, my own DNA was "made in Japan". It's accidental that I can comment on "Made in Germany." My silicon valley startup company, INFRAVIO, was acquired by webMethods... which was again acquired by Darmstadt based Software AG, all within the span of a single year. Made in Germany reflects a powerful way of thinking about the passage of time. This time concept applies to both the process through which raw materials of any kind are transformed into products but also value of long-lasting relationships and experience.

Software AG just announced its 40 year anniversary on May 30th. Its founder Peter Schnell made software that is still in use by thousands of large organizations in 70 countries around the world. I recently travelled to Brasilia to visit Banco do Brasil, one of these long-term customers. This forms a baseline expectation of what "reliable" software is -- software that can last the duration of the working lifetime of a person...and beyond.

This feeling is made deeper by a conversation I had with Hans-Christoph Rohland, the operational lead of our R&D unit. He spoke about the architecture and evolveability of software--and how quality is defined by both the expectations and experiences of the user. This understanding carries with it the interconnectedness of the maker, the thing made and the user through a relationship that can stand the ravages of time.

I think of what Paul Saffo said about how "Made in Germany" affects makers as well as users. There is a powerful link between the makers and how things are made. I once asked Karl-Heinz Streibich, the CEO of Software AG about his ten-year plan to turn our company into a 1 billion Euro software giant... as an American, I was greatly puzzled by a CEO who could make statements about anything beyond next quarter, let alone ten years. He said that by having your own plan, you prevent any outsider from measuring your performance -- and you know where you are by your own map.

This map is supported by longer-term employment contracts and expectations, as well as the presence of the German Works Council (Betriebsrat / labor union) on the Supervisory Board. This kind of longevity builds experience, wisdom and long-lasting relationships into the social fabric of the company. Our Founder runs the Software AG Foundation, which is a large socially responsible foundation that owns 27% of the company and thereby extends those relationships into the broader world community.

All of these behaviors speak to a long view of creation that American companies just don't seem to be able to attain.

I'll be the first to admit that my view of the totality of "Made in Germany" is very limited. I know there are many German companies that may be very different. But I wanted to reflect on the most striking aspects of my limited journey to understand the quality and value of what's being made here.

Apple's App Store Powers the Universal Touring Machine

Selling one billion apps in roughly eight months is one thing -- and it has received plenty of coverage (I did a backgrounder in an interview today for Deutschlandradio's weekly Breitband tech show (you'll find the interview's MP3 here). 

The truly amazing fact is that almost every player, hardware vendor to carrier, is now copying the app store's infinitely customizable device approach. As with the trinity of iPod/music downloads/the iTunes store, Apple did not invent the pieces, but was the first to put them together ingeniously well. For a glimpse into the company's deep understanding of consumer-friendly design as a kind of derivative repackaging, check out my brand eins analysis that dealt with the iPod's genesis.

What's next? Everything we send and sense. I call them user-generated universal touring machines.

Apple's lead is hard to catch up to. Most mobile developers write for the iPhone/iPod platform by now, and once they can access the dock and other parts of the devices' brains come July, the attraction will only increase. Turning a headset into a noise sensor or plugging in any kind of peripheral that feeds biometric data into an app is a dream come true. It hasn't really worked since Handspring tried it with the Visor for geeks and students. 

The Swiss knife approach exerts a powerful network effect that competitors such as perennially lagging copycat Microsoft or RIM and even Google's Android will have to contend with. Already, the appeal of these two devices has transcended the original intent. They have become universal music/entertainment/communication centers. Their embedded system is only one thing: each user's individual interests.

It's fascinating to me to see that the fastest growing category of apps are e-books. Forget the single-trick pony called Kindle with its East German design esthetics and retro black and white screen. Amazon hedged its bets when they bought Lexcycle, makers of the Stanza e-reader app this week. 

Sooner rather than later Apple will have touch tablets and other ultraportable devices that put today's primitive netbooks to shame, and the Swiss knife model will be in full bloom. Just look at the SF Chronicle piece today about how iPhones/iPods have become babysitting devices. Take them with you and you can entertain, calm or creatively engage your infant or child. Try that with a Kindle, and you know why that single-use model is a dead end!

Innovation @ Work -- It's All a Game!

As I pointed out in a recent piece in The Economist, companies large and small are luring employees into innovation and ideation exercises built around prediction markets which at times resemble online games. There's more going on in this space than the article allowed to describe, so here is some additional information about interesting players. 

Yes, I know, crowdsourcing has become a well-worn buzzword among innovation experts who recommend it as a panacea for all sorts of creative bottlenecks within organizations. Harnessing the so-called "wisdom of the many" allegedly leads to better, faster and more original results than bringing in the consultants. It's a claim that has been hard to prove since it requires tracking a crop of ideas until a few innovations finally show up in the market.

A growing number of companies of various sizes and industries, ranging from postal carriers to big pharmaceutical manufacturers, are now putting the concept of collaborative innovation to the test. They have dumped their quaint suggestion boxes in favor of turnkey solutions for internal crowdsourcing that often resemble online games. Not only does this approach make it easier to engage employees, it is also sitting well with the coming wave of “millennials” entering the workforce – a demographic cohort reared on a diet of social networks, ubiquitous access, and incessant messaging.

California-based Spigit is one such upstart that powers innovation marketplaces from IBM and Wal-Mart’s Sam’s Club to Southwest Airlines. The firm builds hosted prediction markets where any company can let their staff wager on promising ideas, and it recently began renting its service through the on-demand software provider Salesforce.com. Cofounder and CEO Paul Pluschkell told me that employees will submit more ideas, spend more time discussing and rating them if they are drawn into a game where the individual cubicle dweller stands to gain reputation and even financial rewards.

The right type of remuneration, however, is a contentious issue among crowdsourcing proponents. Bring cash into the ideation game, and the social aspect of collaboration falls victim to fierce competition, according to the purists. The minds behind the Swiss company Cassiber, for instance, believe that transparent rankings and leader boards provide plenty of incentives in the innovation management systems they are running for customers such as Siemens Building Technologies and supermarket chain Safeway. The key to success, they believe, is an ideally streamlined funnel to let ideas filter up from the staff to the boss so they can evolve into commercially viable innovations.

Interactive tools, which made their debut on the Web, lead the way in making crowdsourcing schemes as efficient as possible. New systems such as Cassiber’s go beyond the common browser form. Employees can text their suggestions into the digital hopper and even phone in ideas, which a speech recognition engine then transcribes. It also automatically extracts key concepts from the submissions and clusters them into related topics, so managers don’t have to manually go through hundreds of entries and attached comments. This is no trivial problem as large innovation management systems can encompass upwards of 150,000 users. Automated sorting and sifting stands to increase the chances of surfacing valuable ideas, which would otherwise languish in spreadsheets or other silos.

How then does an enterprise measure whether these ongoing brainstorming exercises are worth the investment or just a time-consuming distraction for its staff? Pfizer’s research and development arm provides one case study. It has been running a crowdsourcing system powered by Imaginatik for its 11,000 scientists since early 2006. The pharmaceutical firm has held 150 idea competitions or “challenges,” which yielded 15,000 tightly focused ideas, the company’s innovation manager Robin Spencer told me. “Ask serious, clear questions in an open, easy-to-use electronic medium, and anyone can and will participate.” The average participation rate of 1-2 percent may sound low, he admits, but the total of 2,900 authors still engaged more sharp minds than any gathering could.

Beyond the plain browser interface for Ph.D.s awaits a whole range of new tools which will make idea generation and innovation management more appealing to the Net generation. The tech consensus is that anyone born after 1980 expects collaborative tools at work to provide suggestions and feedback and to connect across and beyond the company hierarchy.

 

Imaginatik’s founder Mark Turrell, who has spent the past ten years refining innovation management systems like the one at Pfizer, believes that future employees will demand to game an orderly system and that executives better listen. “They want to be amused and entertained. If a more chaotic setting makes you money, you should do it.”

There is a catch, though. Companies that want to tap into this creativity have to weigh communication and interface design expectations from staff in their twenties against regulations to protect intellectual property, as well as against securities and labor laws or the sensitivities of participants who want only partial disclosure.

Thanks to new turnkey solutions it looks as if organizations will be able to have it both ways. For the youthful front-end, they can borrow tools from the world of games such as infinitely customizable dashboards, earning the next level of access by slaying an idea challenge, or letting an impromptu expert group take the shape of a warrior guild. Spigit has already made the leap and lets customers install leader boards of their most successful idea pickers in the virtual world of Second Life. It can't be belong before inventive employees can also earn part of their salary in an "idea world" on the other side of the screen.

TechCrunch50 -- What Sticks?

We all know a person cannot be in two places at the same time, so while I was reporting on DEMO Fall last week, I asked German serial entrepreneur Joerg Lamprecht, who is currently the CEO of social search start-up Qitera, to cover the event and take a reporter's look at the TechCrunch50 show which was held at the same time in San Francisco. It was an exercise for both of us -- what do writers do, and how do web founders see other founders present on stage? I wanted to know from Joerg: What struck him as odd, what looked interesting to him?

Here are his thoughts:

52 start-ups from a pool of over 1,000 were chosen to present their company in front of a panel of experts. Thousands of people from all over the world in the audience were waiting for the panel of experts to provide instant feedback -- especially on how to monetize the ideas. TC50 is the Silicon Valley version of “American Idol,” the search for the next superstar in a Hollywood-like atmosphere. Appearances from Ashton Kutcher and parties featuring Lindsay Lohan’s girlfriend, Samantha Ronson created a social media vibe.

“Old economy” superstars like Peter Thiel or Myspace CEO Chris Wolfe appeared together with the “face” of  Google, Marissa Meyer, in a show featuring Blah Girls.com or Yammer, a Twitter clone for the workplace. 

Surely the most entertaining start-up came from Japan. Tonchidot, a social tagging mobile application, presented by the CEO Takahito Iguchi, who  delivered a funny presentation, repeatedly imploring the audience to “Look up, don’t look down!” He didn't answer a single question from the panelists or the audience, but encouraged Tim O’Reilly not to loose his imagination. Hollywood has arrived in Silicon Valley.

Among those with a business model was Expensify.com, a credit card proxy to spend and manage online payments more easily, especially in corporate environments. Kind of nice to share expense reports before they “finally” show up on your private credit card. It's also remarkable that last year’s winner, mint.com, also claims to help people better manage their money.

Then there was a Brazilian start-up called iCents.net that integrates micropayment links to deliver premium content. Think of it as microsubscriptions in little sips to avoid buying annual or monthly plans, but still get a segment of the freemium market. Let’s see if the web crowd likes micropayments for content after years of freeloading.  

DEMO Fall 08 -- What Sticks?

The big DEMO Fall vs. TechCrunch50 shoot-out is over and only a few start-ups or new products are really worth mentioning. Closed Twitter for companies, Facebook for the dead, eco-labeling for consumer products, profitsharing among developer teams on the fly, GarageBand for the masses with a royalty function, e-learning as a layering cake for any type of media, carpooling for the iPhone. And plenty of web sites not worth remembering.

The very positive bottom line is this: In spite of the housing slump, the stock market slump, the banking troubles, Silicon Valley's entrepreneurs and their colleagues around the world keep churning out interesting ideas. Many of the 120+ companies that presented in San Diego and San Francisco are me-toos or are nice little functions rather than stand-alone solutions we've all been waiting for. Yet every idea counts and might make its way into a product or service in due time. Think of promordial soup bubbling on the West Coast.

For a wrap-up of what was rolled out in San Diego, head over to my story on the MIT Technology Review Deutschland website. There are a few new concepts that stand out among the many dead-pool candidates. 

My favorite is a hardware play which has been ten years in the making. Plastic Logic is a British company that will give the clunky Amazon Kindle with its East German design esthetic a run for its money. Their factory for thin plastic displays will open in Dresden next week to churn out the yet unnamed, super-thin e-reader. In look and feel it might as well be an Apple product: 8.5 x 11 form factor, under 400 grams light, as thin as magazine, silver frame, B&W touch-screen, USB and Bluetooth connection, with WiFi to come, a single button. The reader will support all common file formats, as the firm's Steven Glass told me. But instead describing it, just watch this video and judge for yourself.

Plugging the Cubicle into the World -- Notes on Office 2.0

What stood out at this year´s Office 2.0 conference? To my mind, it wasn't the several dozen small vendors who are peddling their piecemeal solutions to collaborate, schedule meetings and so forth. What mattered were the big names at the event, the people from behemoths such as GE, who made a compelling case that Web2.0 is thriving within large, multinational organizations. GE has built his Support Central platform in-house and shied away from plugging any external solutions into its social media empire. It's a matter of scale, cost and security. 

Then there are players such as Sun Microsystems, once at the forefront of corporate blogging. Sun now is building out an on-demand social learning exchange which looks like a cross between Facebook and YouTube. Not only can its employees upload documents, they can now record their own rants, musings and lessons for the team or the whole world to see. How did that sales guy close the deal -- details at 5! Others can subscribe to these channels on their handheld devices, so even manuals and how-to guides for technicians become dynamic and social. 

Plus, Sun plans to use this education bazaar as part of its future performance reviews, what the program's head Charles Beckham calls "community equity" -- the more you post, the larger your audience, the more links you gather, the higher your review will turn out. Hermits need not apply anymore -- which is a strange notion for a tech company. Don't these guys rely on reclusive brains here and there? I'm worried that mandatory chatting and sharing is a bit too much. 

My round-up in German ran on the MIT Tech Review's site.

Office 2.0 -- bringing Web2.0 into the enterprise

Right after Labor Day, the mad merry-go-round of tech conferences starts up again. The first one to hit San Francisco was Office 2.0, organized by tech whirlwind Ismael Ghalimi. 

It's a two-day event bringing together start-ups and larger vendors who want to sell companies of all sizes on the promise of Web 2.0 technologies. This time, plenty of serious names were there, talking about their in-house experience and experiments -- ranging from the US Army to GE and Wachovia Bank. It seems that sharing, collaborating, posting on wikis and blogs let people network their way out of the cubicle. 

I'll post more on the nuggests of wisdom from Office 2.0 later, but here's Ismael in a quick video, explaining why this rather small gathering matters at least as much as the TC50 hype-fest coming up next week.