Inside Facebook

2009 will be remembered as the year that casual gaming stormed social platforms and changed the way millions of people socialized with friends online. With an up-to-$400 million acquisition of Playfish by Electronic Arts, hundreds of millions of dollars in venture investments, and some of the highest engagement numbers that online entertainment has ever seen, social games are now impacting businesses across the media landscape. It’s become clear that there are substantial opportunities for social game developers with virtual goods revenue models, but the market is still evolving rapidly.

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That’s why I’m excited to release today a new exclusive original research report with co-author Charles Hudson in our Inside Virtual Goods series that is exclusively focused on the future of the social gaming market, entitled Inside Virtual Goods: The Future of Social Gaming 2010.

How big is the market, and where will social gaming go in 2010? How will existing players fare as Facebook shifts the social gaming landscape, and larger and more sophisticated players enter the market? Inside Virtual Goods: The Future of Social Gaming 2010 provides deeper insight into social game monetization, development, customer acquisition, and the key questions facing the space in 2010 than you’ll find anywhere else.

About the Report

Inside Virtual Goods: The Future of Social Gaming 2010 gives you an inside view of the future at this critical juncture in the intersection of social networking and online games. The big picture? We estimate that the US virtual goods market will reach $1.6 billion in 2010, and that social gaming market will contribute $835 million of that total this year.

We have compiled months of original research from dozens of top executives and entrepreneurs from all parts of the social gaming ecosystem to produce eye-opening source data and analysis that is not available anywhere else. At over 140 pages, Inside Virtual Goods: The Future of Social Gaming 2010 takes the closest look at the present state of social games and the future of what’s shaping up to be a very fundamentally strong and profitable industry.

What We Cover

1. Emerging Social Game Development and Studio Models – There is an emerging consensus around how social game developers are choosing to organize themselves for game development. How do small, medium, and large developers organize their teams? What do development cycle times for original titles and “expansion packs” look like? What is the role of testing and metrics in the development process?
2. Social Game Design and Mechanics – The emergence of a few key game genres with proven mechanics and monetization have spawned dozens of fast followers. Understand how publishers are continuing to innovate as we head into 2010.
3. Monetization Data and Payment Trends – Now that developers have proven the virtual goods model, what are ARPUs really like for different game genres? What is the lifetime value of users, and how long do players stick around? We take an in depth look at monetization methods and rates, and shed light on where payments are headed in the coming quarters. One more note on monetization – you may be wondering about everything you’ve heard about offers and alternative payments for virtual goods. We cover:
   • The offers ‘scandal’ and what will it mean going into 2010
   • Changes that advertisers and payments companies have – and haven’t – made
   • How both direct and alternate payment methods are most likely to grow or contract in the coming year.
4. Customer Acquisition and Marketing Trends – As the social gaming landscape has evolved over the past two and a half years, so have the ways that developers acquire and retain new users. How have user acquisition costs changed, and what do Facebook’s changes spell for the future of the marketing funnel? We take an in depth look at data and trends.
5. Facebook’s Platform Changes, Credits, and What’s In Store for the Future – Just when social game developers were settling in, Facebook announced major adjustments that will dramatically alter the way social games reach users through Facebook. Continued change is likely – what will it be, and how will it impact the industry? In addition, as Facebook rolls out its much-discussed Credits currency, how will monetization and the payments landscape be affected? Finally, will we see another dominant platform emerge? Our overview covers these developments, their impact on the industry, and what else is in store.

What you get

In addition to our deep dive into key aspects of the social gaming ecosystem, the report also offers extended coverage on:

• A brief history on the evolution and growth of this space in the US, including a description of all key players and how they rose to the top.
• Total social gaming market size estimates for 2010, including estimates on the “big three” developers.
• Our take on the key issues facing the growth of social gaming, including our outlook and projections for 2010.

See the full table of contents below:

Table of Contents

Appendix of Related Companies includes: 51.com, 6Waves, Activision, AddictingGames, AdNectar, AdParlor, Amazon, AOL, Apple, Atari / Cryptic Studios, BigFish Games, BigPoint, Blizzard, Boku, Boomerang Networks, Crowdstar, DeNA, DoubleDing, Digital Sky Technologies, Electronic Arts, Facebook, Firecue, Friendster, Gambit, Gameloft, Glu, GMG Entertainment, Google, GratisPay, Gree, Green Patch, gWallet, hi5, InComm, Kaixin001, Kongregate, Live Gamer, LOLapps, Microsoft, Mixi, MSN, MySpace, Nexon, ngmoco, Offerpal Media, OpenFeint, Orkut, PayPal, Peanut Labs, Playdom, Playfirst, Playfish, PlaySpan / Spare Change, Pogo, PopCap Games, QZone, Real Networks, RenRen / Xiaonei, RockYou, Serious Business, SGN, Shanda, Social Hour, Social Reach, SocialGold / Jambool, SponsorPay, Super Rewards / Adknowledge, SupersonicAds, Target, Tatto Media, Tencent, The9, TokenAds, TrialPay, Twitter, Ubisoft, Viacom, VKontakte, Yahoo, Zong, Zynga

More Data, More Actionable Insights

In 2009, social games began to show what kind of value can be created on top of social networks. 2010 will be an even more important year.

Social gaming, powered by virtual goods, is this year’s industry to watch. If you’re involved, or are considering jumping in, Inside Virtual Goods will be one of your most important tools.

One year of original data and exclusive in-depth reports delivered on a quarterly basis is $2,495 and contains:

• A detailed overview of the current state of the industry
• Specific estimates on market size by segment
• Diagnosis of key opportunities and issues by segment

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The annual membership, which includes the report and three additional quarterly updates, is USD $2,495. Alternatively, you can just download this report for USD $995.

Last week, Facebook launched a major initiative geared towards getting users to share more information more openly. In the few days since, many people have criticized Facebook’s move as misleading, though it’s too early to tell if a significant number of users will be upset enough by the changes to complain or change their actual behavior. More broadly, however, the move reflects deeper changes in Facebook’s longer term product strategy. What were Facebook’s motivations for this “privacy” initiative, and what’s likely to happen as a result? Let’s take a look.

Facebook’s Privacy Foundations

Facebook’s privacy model has always been foundational to the trust users put in the company. While other services like MySpace have encouraged a more “open” way of sharing information and building an online identity, Facebook’s default information-sharing settings have always been relatively private. As a result, hundreds of millions of users around the world today routinely do things on Facebook that only a few years ago would be unthinkable, like parents commenting on their children’s status updates, and millions of people uploading thousands of personal photos to the Internet. Without Facebook’s historically strict privacy settings, much of what has happened over the last few years would not have been possible.

Privacy is not only foundational to the trust users put in Facebook, it’s a fundamental part of users’ conceptual models of how Facebook works. It’s what makes people feel safe sharing personal information. Many people just don’t feel comfortable putting their status updates or sonogram photos in the public Internet archive forever.

The Limitations of a Default-Private Model

However, while many people don’t want to share much information publicly online today, some do. For those people, Facebook’s historical default privacy settings did not make it the right product for them. As a result, Facebook recognized that its default-private model made it vulnerable to other services with default-public models, like Twitter. Even though only a relatively few people may want to share in a predominantly public way, many people may want to share some (arguably increasing) subset of things more openly, and many people are interested in consuming a variety of different types of public information.

In addition, the default-private model might actually slow down the spread of memes compared to more open systems (though we don’t have access to data necessary to back this up). The fundamental nature of a News Feed comprised of mostly private content makes “resharing” on Facebook a less common/normal behavior than “retweeting” on Twitter. While this dynamic keeps the content in the stream more pure, it also means that there may be fundamental limits to the amount of reshared public content that might ever come through the stream.

In other words, there are several use cases in which some users – and Facebook – would get more value out of a more open system.

This put Facebook in a tough position: if it believed that a more open system would create more overall value in the end, how could it move from a default-private model to a more open one? There was no painless way to enable even the people who would want to be more open to change their privacy settings en masse quickly. Facebook had to choose whether to let the historically private settings ride, or to make a push to get people to open up – even at the risk of losing some users’ trust.

Facebook’s Calculated Move

While Facebook’s decision to launch this openness initiative has been called a lot of things, one thing it can’t be called is thoughtless. Facebook was well aware of the implications of making this push, but ultimately felt that it was vital to its future to shift its default privacy model more toward open sharing. Facebook initially announced its intentions to put people through this “privacy transition” in July, even so much as showing a mockup at that time that looks nearly exactly like the “privacy transition wizard” that people saw last week – though with most of the options set to “Old Settings” instead of “Everyone,” as most people ended up getting.

That being said, Facebook’s decision to make the recommended privacy options for profile data like “Family and Relationships” and “Posts I Create” be set to “Everyone” – as well as its move to remove privacy controls for Gender, Current City, and Friends – were pretty aggressive by almost anyone’s standards. In particular, its decision to present users with a binary choice between “Everyone” and “Old Settings” for some privacy preferences was especially confusingly executed. Nevertheless, Facebook decided to bite the bullets of potentially significant user confusion and potentially severe loss of user trust in order to take this risk.

It’s interesting to observe how Facebook ultimately chose to delineate between fields it defaulted to “Everyone,” “Friends of Friends,” and “Friends” in the transition wizard. Those settings reflect the intended use cases Facebook’s product leadership has for the future of the service.

The Challenges of a Hybrid Public/Private Model

As Facebook has grown over the years, so has its ambitions. Today, Facebook is by far the largest social networking platform in the world, and has enabled new forms of efficient communication, advertising, and software distribution. As Facebook has mapped an increasingly larger portion of the “social graph” of human connections, it has expanded its definition of the “social graph” to include the businesses, products, brands, and services that we communicate with every day. That change fundamentally added a degree of complexity to the Facebook ecosystem, adding the new concept of asymmetric “fan” relationships between users and public profiles to the traditional concept of symmetric “friend” relationships that have existed between Facebook users since the beginning.

However, now that Facebook has chosen to push further toward the public end of the public/private hybrid system that Mark Zuckerberg envisions, it must face a more challenging and complex problem: letting users apply per-item privacy rules to each and every profile field and piece of content shared. Facebook isn’t satisfied with a mostly-private platform: it wants to be the single place where both sensitive personal information is shared and public memes spread.

While the “transition tool” that Facebook chose to roll out will effectively enable those who want to share more openly to do so en masse quickly, it also comes with some built-in problems. First, it will inevitably lead some people to inadvertently grant public access to content they intended to be private. That could lead to losses in user trust. Second, it creates an intrinsically more complicated privacy model, putting the burden on users both to construct a robust framework for sharing different types of information on Facebook, and to remember who they’ve allowed to see what. That could lead to user confusion, and fear of the unknown.

The transition tool Facebook implemented will likely lead to more users understanding their privacy settings better, and choosing the settings that are right for them. But both of these problems could cost Facebook in terms of its own engagement and virality numbers. The question is, if so, how much?

Grappling with Facebook’s Motivations

A fair question to ask at this point is: Was this openness initiative by Facebook either 1) evil, or 2) stupid? Most of the arguments out there that say Facebook’s move was one or the other (or both) conclude that Facebook’s ultimate motivation behind this initiative was to get more traffic through search. These arguments usually assume that Facebook is misleading a sufficient number of users to make the wrong choices about their privacy settings through the clever design of the “privacy transition wizard.”

Ultimately, those that believe that this move was evil or stupid must also believe either one of two things: 1) That Facebook has more to gain through increased openness than it has to lose through decreased user trust, and the company is intentionally and aggressively choosing to pursue this new open strategy despite the problems it might produce for users, or 2) That Facebook doesn’t understand its users and has made a short-sighted product decision. Let’s look more at each of these.

We would be cautious before running with the claim that Facebook is ready to abandon privacy wholesale. First, any material losses in user trust as a result of these changes will have a greater and longer lasting negative impact on Facebook than any gains it can realize through accelerated openness in the short term. Facebook’s privacy model is fundamental to users’ conceptual models of how Facebook works, and if enough users lose trust in Facebook’s privacy, that could cripple it forever. So much of the deep identity that lives within Facebook is verified through social interactions between real friends and family. Without privacy, many of these interactions would never happen. Over time, this would drastically weaken users’ ties to Facebook as a reliable place to share information, the signal-to-noise ratio in the News Feed would plummet, and the only people left sharing on Facebook would eventually be those comfortable sharing without privacy (i.e. like those who user Twitter today). That would open the door for another service which provided a privacy model more like what Facebook started with.

The contrarian view to this argument is more or less based around the thesis that people are on the whole becoming more open with what used to generally be regarded as “private” information – as has generally been the case over the past few years – and that Facebook is ahead of the curve on these changing patterns of global culture and values. This is a debate worth having, and Facebook has commented on the question as much as to say that it believes this is happening. Many smart entrepreneurs believe this to varying degrees, though no service has been able to accomplish as much as Facebook has (with its relatively private settings) to date.

If this does indeed become the case, it is possible that Facebook may be willing to increasingly sacrifice its legacy of privacy, at least partially, for a future of openness. But at the end of the day, we fundamentally believe that there will always be some information that most people just don’t want to share publicly, that Facebook believes that too, and that Facebook will take the steps to preserve that trust if this move ends up causing bigger problems than the company thought. Ultimately, Facebook’s willingness to sacrifice some users’ trust for a future of more openness may not only be due to the fundamental challenges of virality of public content in a mostly-private system, but also due to how well Facebook thinks it can monetize a stream of generally-private data compared to a stream that contains more types of public information, like marketing and news.

The possibility that Facebook has made an over-aggressive product decision due to over-infatuation with more open services, however, is a more plausible option. Facebook has shown, as recently as a few months ago with its launch of the “real-time” stream as the default News Feed, followed by its decision a few months later to go back to the algorithmic News Feed, that it is capable of making suboptimal product decisions due to intense feelings about services like Twitter, yet is also willing to correct them relatively soon afterward when sufficient feedback is in. Despite its investment in data-mining resources and user studies, Facebook’s largest product decisions are generally driven by the visions of those at the top. This had led to a variety of bold initiatives over the years, from the News Feed to Beacon to the Facebook Platform, with a wide range of results. If it turns out that Facebook is wrong about this move, I’d expect them to make similar course corrections in this case as well – even if it means reincarnating its fundamental vision in a new form, like the way Facebook Connect launched a year after Beacon.

Moving Forward

How will all of this play out over the next couple of months, and the next couple of years?

While we may see an uprising of protest movements in the coming weeks, it’s also entirely possible that Facebook’s approach won’t actually cause widespread problems, and that most users will be able to navigate their privacy settings as they intend to. In addition, it’s even possible that not as many users will choose to make their data public as Facebook may have hoped – if that is the case, Facebook could take further steps to encourage or force more user data to be public in the near future.

The most likely result of all of this is somewhere in the middle: some users will open up their privacy settings willingly, and others will do so inadvertently. We assume that Facebook optimized these consequences across a variety of product designs it considered and tested before choosing to go down this path. If Facebook has made a significant miscalculation here, then we’re likely to see substantial numbers of users discovering these problems over the upcoming days, weeks, and months. If that happens, those users will likely change the way they use Facebook – either by publishing less information there, or using it less altogether.

At the end of the day, users will vote with their feet. This was a relatively aggressive move by Facebook to encourage people to open up, and while it will cause some problems for Facebook, Facebook is also acutely aware of the possible outcomes, and is monitoring the results of these changes with a fine toothed comb. If they don’t like what they see, they’ll change course. We’ll of course be monitoring all of the available gauges on Facebook’s traffic and engagement as well.

Ultimately, Facebook is trying to achieve something very difficult: create a system for sharing information that works for both private communication and public publishing, all in one place. While Facebook is in position to serve a variety of users’ needs, it will not be able to be all things to all people.

We have written in recent months of Facebook’s growth in Southeast Asia. As we near the beginning of 2010, that trend does not appear to be slowing down. Throughout much of the region (except in China, of course, where Facebook is blocked), usage continues to rise. Some countries have seen incredible growth – Taiwan, for example, has added 5 million new monthly active Facebook users in the last 6 months alone – nearly 25% of the country’s total population.

What’s driving this growth? Increasingly, we’re seeing more users adopt Facebook in order to – you guessed it – play games. But not just any games – in many cases, games built by the growing number of Asian developers and publishers deploying titles on the Facebook Platform.

Taiwan is an interesting case study. Six months ago, very few people were using Facebook in Taiwan (under 400,000, according to our Global Monitor report). Today, that number stands at over 5.4 million (!). Developers in the region say that nearly everyone joined Facebook in order to play games like Happy Harvest, published by 6 waves, Pet Society, and Restaurant City. We’ve heard reports of local restaurants giving out Facebook Happy Harvest coins to customers who eat there. There are relatively advanced systems for distributing virtual currency already in place, and these are migrating to Facebook quickly as well.

Increasingly, we’ve been hearing stories of Chinese development shops being recruited to build (or license) their games for Facebook – even though very few people in China can actually access the site. These developers started off building apps for Xiaonei, Kaixin, QQ, or others, but because of the “guanxi” business culture that makes it harder for developers to strike business deals with platforms, more Chinese developers are increasingly turning their attention to Facebook. These developers see more opportunity to build on an open platform like Facebook than face the often-brutal business terms offered by the Chinese platforms if they become popular. As a result, there is increasing demand for talent to build and port Facebook games in the region.

But people joining Facebook in order to play games are using Facebook differently than those elsewhere. Often times, users join Facebook for the sole purpose of playing “social” games – not sharing authentic information with their friends. As a result, we’re hearing about many cases of players adding thousands of Facebook friends who they don’t know in real life, just in order to play Facebook games with them. These users post less photos and less meaningful status updates, because they’re not using Facebook for communication with their real life friends as much.

That could mean mixed things for Facebook going forward. Obviously, Facebook is happy to be growing throughout Asia, where it competes not only with local social platforms, but also heavily with Yahoo, MSN, Orkut, and Friendster, which are popular in different parts of the region.

But fundamentally, Facebook has always articulated its value proposition as a more efficient way to share information in a trusted way. Personal data shared by Facebook users is what makes the News Feed – the core of Facebook’s information distribution system – so compelling to hundreds of millions of people. In cases in which the News Feed is filled with content from random gaming friends, it’s quite possible that Facebook could see much lower retention rates from its core features over time, instead more heavily relying on games to drive engagement and growth. If that were to indeed be the case on a wide scale, that could present some tensions for Facebook’s core product design – and business – over time.

More In-Depth Resources from Inside Network:

• Inside Virtual Goods: The US Virtual Goods Market 2009 – 2010
• The Facebook Marketing Bible: 50+ Ways to Market Your Brand, Company, Product, or Service Inside Facebook
• Inside Facebook’s Best & Worst Facebook Marketing 2009
• The Facebook Global Monitor: Tracking Facebook in Global Markets

Yahoo announced that it will be making Facebook Connect a deeply-integrated part of its site earlier this week. The move surprised some people, because Yahoo itself has historically been the largest social site on the web. By relying on third parties like Facebook for key social features, like friend relationships, the company has now more narrowly defined itself as a content publisher.

But we should get ready for another big Facebook Connect integration, industry sources tell us: MySpace is planning to make it a key part of the site, rolling out a number of Connect features in the first part of 2010. In addition to relying on its own “social graph” of user relationships, MySpace will use the graphs from other sites. — Facebook’s social graph is currently the most reflective of people’s real-life relationships, so apparently it will soon be a significant part of MySpace.

Facebook Connect lets third party web sites access Facebook user data and site features, like sharing activity from other sites to its news feed home page — the idea is that Connect helps other sites get more social, and drives traffic between them and Facebook. For MySpace, as with any other web site, integration with Connect does not necessarily mean there is any special business relationship with Facebook.

Still, the MySpace move might seem even more surprising than Yahoo’s, given that Facebook and MySpace have been big rivals in the past. But the new MySpace management team, led by former Facebook executive Owen Van Natta, has in recent months described its vision as being about “social entertainment,” meaning content like music, videos and games. In September, the company took a step further into integrating third-party sharing services, providing two-way sync with Twitter, so you can tweet from MySpace and or update your MySpace status from Twitter.

Like Yahoo — and AOL, for that matter — the News Corp.-owned company has decided that it is not in the business of providing user identities. Facebook is a friend now, not an enemy. Or perhaps “frenemy.”

We don’t have too many specific details on what the Connect integration will look like, although our sources described it as being “everywhere,” with some News Corp. managers apparently “shocked” by how deep it is.

We assume that MySpace will pepper various parts of its site, like MySpace Music, with Facebook sharing buttons so users can put content into Facebook news feeds and profiles. The bigger question is what will happen to the parts of MySpace that are about identity, not necessarily content — users’ lists of MySpace friends, the MySpace email service, etc. Perhaps there will be a tool that will make it easy to find your Facebook friends who are also on MySpace?

The two companies loosely suggested that something was in the works in October — although they both downplayed the significance when we asked about it then. “Hypothetically speaking, as nothing has been formally arranged yet, MySpace could become a Facebook Connect partner – which would allow people to share content they liked from MySpace with their Facebook network,” Facebook chief operating officer Sheryl Sandberg told The Telegraph.

And, here’s what Van Natta told the publication: “We are in talks with Facebook, and other sites, about how we could partner with them. Partnerships are going to be a big part of our strategy moving forward as a lot of value can be derived from them. Facebook is about core communications with your friendship network, whereas MySpace is about congregating around popular content with people who share your interests.”

The Identity Wars Continue

There are bigger implications with the move, as well. Who are the other big identity platforms left out there? Twitter, arguably, is one, although the service seems to be most popular with people who want to publicly broadcast information. While some people use the service to share their real lives, Facebook’s closed network seems to be what most social service users prefer for in terms of networking with real-life friends.

There’s also Microsoft and Google. Microsoft is a strategic investor in Facebook, so we imagine the company will continue to make Facebook a key part of any social identity features it rolls out, versus trying to compete against its investment. Google, on the other hand, has been working hard to provide alternatives to Facebook, most recently integrating Twitter into Friend Connect, the web-wide identity and sharing service that it has developed to rival Facebook Connect. But Friend Connect hasn’t been getting as much distribution as Facebook Connect, especially with major online publishers like television networks and movie web sites.

Google has also been busy building out its universal profiles. This feature, which lets you see your identities across Google properties and other sites, is the closest thing the company currently has to a social network (besides Orkut, a smaller social network that the company has not made a focus). And Google has notably been putting these profiles in search results — a clearly competitive move against Facebook.

With Yahoo and MySpace punting on identity, 2010 will see Facebook and Google more directly pitted against each other than ever before.

As the virtual goods market continues to grow in the US – nearly doubling this year to just over $1 billion, according to our recently released Inside Virtual Goods research report – more attention is being paid to one of the more intriguing sectors of the virtual goods payment ecosystem: offers. Offers, a form of incentivized lead generation for performance marketers, are a popular alternative payment method for a variety of free-to-play online games, and currently play a role in the monetization of many social games through virtual currency microtransactions. How does it work? Basically, players are incentivized by developers to take advertiser offers with in-game virtual currency that they can then use to progress through the game.

One of the main issues that many people are still trying to wrap their head around is the sustainability of the offers space. Given concerns over quality of both the offers themselves and the leads they generate, are offers really going to be a meaningful method of social game monetization in the long term?

Quality has been and always will be an issue in any performance-based marketplace. Why? Because actors on both sides – advertisers and users – are trying to optimize for their own goals. And as you may expect, based on the history of the world, some people are always willing to be tricky to make an extra buck. That’s why the companies that operate performance marketing platforms have to keep both sides in check. If either side of the system – users or advertisers – act fraudulently, the system stops working. This is why Google has large efforts and teams devoted to managing both click fraud and landing page quality…

> Continue reading at Inside Social Games

It’s not clear how many Facebook users make their status updates publicly available, but for those who do, Microsoft has struck a data partnership to presumably index them in its Bing search engine more efficiently. So if you’re a Facebook user who has chosen the “everyone” option for your updates from within the site’s privacy settings page, you’re about to get some more exposure.

Bing will also include Twitter updates, AllThingsD reports, and both deals will be announced at the Web 2.0 conference today in San Francisco by Qi Lu, president of Microsoft’s Online Services Division. [Update: Lu has since confirmed both deals]. The deal isn’t expected to go live for weeks. It’s not clear if any money is changing hands. Twitter has also been in talks with Google about a direct-data deal for months, but Facebook is also apparently in discussions with Google about including public status updates, the report says.

Facebook had this when we asked for confirmation: “We don’t comment on speculation. Later today, COO Sheryl Sandberg and VP of Engineering Mike Schroepfer will be speaking at Web 2.0 at which time they will be available to answer questions regarding Facebook.”

The company has previously said that its 300 million-some users generate  “more than 40 million status updates each day.” It’s not clear how many of these updates are publicly available — the default is that they’re not.

The report adds another interesting note at the end: “Facebook will provide users with a numbers of new tools” for making their updates publicly accessible.

The company has already been moving in this direction. Mark Zuckerberg told us in March that Facebook is pushing more towards a hybrid private-public model for information-sharing on the site, around when the company introduced new features for making various pieces of profile data more public. Then, in June, the company announced it was testing a new “publisher” that included a more obvious option for making status updates public. Then, in August, it rolled out a new, real-time search interface on the site.

Here’s more on those “new tools,” from TechCrunch:

Facebook is creating privacy controls, we’ve learned, that will allow users to set even previously public status updates to private, meaning search engines will be prohibited from indexing the content. It won’t be perfect, since anything published on the Internet is often spread far and wide. But it may allow users to hide previously public data to some extent.

Meanwhile, status updates are already available via Facebook’s “live stream” API, which Microsoft has already integrated into its Live.com site. Bing, of course, is also integrated into Facebook’s main site, as its web search engine.

So, given what we already know about Facebook’s search plans, and its history of cutting deals with strategic investor Microsoft (see: Xbox, banner ads, etc.) perhaps the most interesting part of this report is that Facebook is talking to Google.

While virtual goods have been driving revenues in Asia and Europe for years, 2009 will be remembered as the year virtual goods-based businesses began to scale in the United States. Virtual goods may be bringing the largest disruption entertainment, communication, and e-commerce infrastructure companies have seen for a long time.

That’s why I’m excited to announce today a new in-depth research report with partner/co-author Charles Hudson that is exclusively focused on the size and future of the virtual goods market in the United States, entitled Inside Virtual Goods: The US Virtual Goods Market, 2009 – 2010. It is being released for the first time this morning. The big picture? We estimate the total 2009 US virtual goods opportunity at just over $1 billion.

Purchase this report Buy PDF: $995 USD OR Buy PDF + 1 Year of Quarterly Updates: $1,995 USD

About the Report

Inside Virtual Goods is a new report designed specifically for entrepreneurs, investors, and analysts interested in the growth of this exciting new category of online commerce that is fueling the growth of games-as-a-service businesses. During our research over the last several months, Charles and I have spoken with dozens of executives and entrepreneurs from all parts of the ecosystem in order to form what we believe are the most detailed estimates, analyses, and predictions for 2009 and 2010.

We focused and organized the report around the following areas:

1. Social Networks, Applications, and Games - The explosion of the virtual goods market on social networks is in our view one of the biggest stories of 2009. We delve deeply into the trends, stats, key players, opportunities, and challenges facing the space this year and next.
2. Casual MMOs and Virtual Worlds - Virtual worlds and casual MMOs continue to grow as a meaningful share of the virtual goods opportunity in the United States. Our study breaks down the key drivers for success in this segment, trends in monetization and engagement, and the prospects for the future.
3. Hardcore MMOs and Free-to-Play Online Games – Developers in the MMO / MMORPG space have been among the earliest adopters of the free-to-play model. We explore why free-to-play MMOs are succeeding, revenue and user trends, and the key issues facing this space as we head into 2010.
4. Emerging Areas: Consoles, iPhone, and Subscription MMOs- As the virtual goods business model becomes more well understood, it is beginning to show up in new and interesting areas of the games and entertainment landscape. We highlight a few of the more promising areas where virtual goods are emerging as a promising opportunity.

Each section contains:

1. A brief history on the evolution and growth of this space in the US, including a description of all key players.
2. Estimates on the size of the US virtual goods market in 2009 in that area.
3. A diagnosis of the key opportunities and issues facing the growth of that space, including our outlook and projections for 2010.

In addition, prior to delving more deeply into each market segment, we’ve provided an overview of the emerging payments ecosystem that is growing to serve these new businesses. Traditional e-commerce infrastructure providers only offer a partial solution, and the virtual goods payments layer is currently in a major state of flux. In the report, we describe the variety of solutions that have been brought to market to date, and the key challenges facing the industry from a payments perspective as a whole.

For more details, check out the full table of contents below.

The price of the report is US $995. In addition, we will be releasing quarterly research and updates on key developments in the space. A one-year subscription is now available for US $1,995.

Charles and I are looking forward to continuing to cover the evolution of the space over the coming year. We look forward to hearing from you!

Table of Contents

Buy Now

The price of the report is US $995. In addition, we will be releasing quarterly research and updates on key developments in the space. A one-year subscription is available for US $1,995.

Purchase this report

Buy PDF: $995 USD

OR Buy PDF + 1 Year of Quarterly Updates: $1,995 USD

List of Related Companies: Acclaim, Activision, AdParlor, Aeria Games, Amazon, Artix Entertainment, Bebo (AOL), Boku, Boomerang Networks, Challenge Games, Electronic Arts, Facebook, Fatfoogoo, Firecue, Frogster, Gaia Online, Gala-Net, Gambit, Google, GratisPay, Green Patch, gWallet, Hi5, IMVU, iovation, Jagex, Kontagent, Meez, Metaplace, Microsoft, MySpace, Nexon, Nintendo, Offerpal Media, Outspark, PaymentPin, PayPal, PeanutLabs, Playdom, Playfish, PlaySpan, Rekoo, Riot Games, RockYou!, Second Life, Serious Business, SGN, Six Degrees Games, Slashkey, Slide, SocialGold, Sometrics, Sony, Sony (Free Realms), SponsorPay, Sulake (Habbo Hotel), Super Rewards, SupersonicAds, SurfPin, TheBroth, ThreatMetrix, Three Rings (Puzzle Pirates), TokenAds, TrialPay, Turbine, Twofish, Viacom (MTV), Viacom (Neopets), Viximo, WeeWorld, Zong, Zynga

While virtual goods have been driving revenues in Asia and Europe for years, 2009 will be remembered as the year virtual goods-based businesses began to scale in the United States. Virtual goods may be bringing the largest disruption entertainment, communication, and e-commerce infrastructure companies have seen for a long time.

That’s why I’m excited to announce today a new in-depth research report with partner/co-author Charles Hudson that is exclusively focused on the size and future of the virtual goods market in the United States, entitled Inside Virtual Goods: The US Virtual Goods Market, 2009 – 2010. It will be released next Wednesday, October 14, but is available for discount pre-order now.

Purchase this report Buy PDF: $995 $695 USD* OR Buy PDF + 1 Year of Quarterly Updates: $1,995 $1,395 USD* * Pre-order discount ends October 13, 2009. All pre-ordered reports will be delivered on October 14, 2009.

About the Report

Inside Virtual Goods is a new report designed specifically for entrepreneurs, investors, and analysts interested in the growth of this exciting new category of online commerce that is fueling the growth of games-as-a-service businesses. During our research over the last several months, Charles and I have spoken with dozens of executives and entrepreneurs from all parts of the ecosystem in order to form what we believe are the most detailed estimates, analyses, and predictions for 2009 and 2010.

We focused and organized the report around the following areas:

1. Social Networks, Applications, and Games - The explosion of the virtual goods market on social networks is in our view one of the biggest stories of 2009. We delve deeply into the trends, stats, key players, opportunities, and challenges facing the space this year and next.
2. Casual MMOs and Virtual Worlds - Virtual worlds and casual MMOs continue to grow as a meaningful share of the virtual goods opportunity in the United States. Our study breaks down the key drivers for success in this segment, trends in monetization and engagement, and the prospects for the future.
3. Hardcore MMOs and Free-to-Play Online Games – Developers in the MMO / MMORPG space have been among the earliest adopters of the free-to-play model. We explore why free-to-play MMOs are succeeding, revenue and user trends, and the key issues facing this space as we head into 2010.
4. Emerging Areas: Consoles, iPhone, and Subscription MMOs- As the virtual goods business model becomes more well understood, it is beginning to show up in new and interesting areas of the games and entertainment landscape. We highlight a few of the more promising areas where virtual goods are emerging as a promising opportunity.

Each section contains:

1. A brief history on the evolution and growth of this space in the US, including a description of all key players.
2. Estimates on the size of the US virtual goods market in 2009 in that area.
3. A diagnosis of the key opportunities and issues facing the growth of that space, including our outlook and projections for 2010.

In addition, prior to delving more deeply into each market segment, we’ve provided an overview of the emerging payments ecosystem that is growing to serve these new businesses. Traditional e-commerce infrastructure providers only offer a partial solution, and the virtual goods payments layer is currently in a major state of flux. In the report, we describe the variety of solutions that have been brought to market to date, and the key challenges facing the industry from a payments perspective as a whole.

For more details, check out the full table of contents below.

Although the report will not be released until next Wednesday, October 14, we are offering a special pre-order discount for those who purchase now. The pre-order price of US $695 is available now until next Tuesday, at which point the price will go to US $995.

In addition, we will be releasing quarterly research and updates on key developments in the space. A one-year subscription is now available for US $1,395 until next Tuesday, at which point the price will go to US $1,995.

Charles and I are looking forward to continuing to cover the evolution of the space over the coming year. We look forward to hearing from you!

Table of Contents

1. Introduction

• How We Got Here: A Brief History of Virtual Goods Worldwide
• Defining Terms
  • Registered users
  • Active users
  • Average revenue per user (ARPU)
  • Average revenue per paying user (ARPPU)
  • How do different developers manage their businesses?
• Growing Virtual Goods Markets in the US
  • Social Networks, Applications, and Games
  • Casual MMOs and Virtual Worlds
  • Hardcore MMOs and Free to Play Games
  • Emerging Areas: Consoles, iPhone, Subscription MMOs
• Methodology

2. The Virtual Goods Payments Ecosystem: An Overview

Buy Now

Although the report will not be released until next Wednesday, October 14, we are offering a special pre-order discount for those who purchase now. The pre-order price of US $695 is available now until next Tuesday, at which point the price will go to US $995.

In addition, Inside Virtual Goods will be releasing quarterly research and updates on key developments in the space. A one-year subscription is now available for US $1,395 until next Tuesday, at which point the price will go to US $1,995.

Purchase this report

Buy PDF: $995 $695 USD*

OR Buy PDF + 1 Year of Quarterly Updates: $1,995 $1,395 USD*

* Pre-order discount ends October 13, 2009. All pre-ordered reports will be delivered on October 14, 2009.

The Google-led Android mobile operating system is getting a new Facebook application today, according to a number of Android-focused blogs. Facebook has been planning a mobile-themed event for this evening, so it appears word got out early. While I’m not currently seeing the app in the Android Market app store, screenshots (including the ones you see here) are already public. Update: You can find it on Facebook here, although it still isn’t showing up in the Market.

Facebook has confirmed the launch of the new app with us. Here’s what the official blurb about the app says, according to Android Guys:

Facebook for Android™ makes it easy to stay connected and share information with friends. You can share status updates from your home screen, check out your news feed, look at your friends’ walls and user info. Share photos from your phone and can even look up up to 125 friends’ phone numbers from the home screen.

We’ll be taking a closer look at it tonight.

Rumors have been going around for months about a Facebook-Android app; some have wondered about the partnership given the competitive positions of Google and Facebook.

Meanwhile, Facebook has also been upping its mobile effort. Last week, it released Facebook Connect for mobile web services — and soon, apps. Through Connect, third parties will be able to access user data from Facebook and enable two-way interactions so users can communicate back to the site. At least one third party, social game developer Playfish, has had their own, unofficial implementation of Connect for months.

Facebook has also been building apps for a wide variety of phones and operating systems, including for Nokia’s N97 and the extremely popular iPhone application.

As this year’s fbFund REV finalists get ready for demo day, we sat down with Leo and Sirin Hochberg, founders of RunThere.com. RunThere is a Facebook Connect enabled website for casual runners to route their favorite runs and log runs online in a more social context. Users can publish content to Facebook and create group runs for friends to join in on. Below, Leo and Sirin share some background on RunThere, new and upcoming features, and lessons learned from the fbFund experience.

Leo and Sirin, when and how did you come up with RunThere?

The idea of RunThere has been around for much longer than the company itself. The idea came about because we just wanted to know how far we were running and how we could track that online. This was in 2003 before Google Maps and before Microsoft thought maps were important. People should be able to know how far they’re running without spending money on downloading software or GPS.

During graduate school, I learned how to program and started working on RunThere after graduation. Collectively, Sirin and I have worked at Loopt and Zazzle. RunThere began as a side project. Once in a while, we could come back to it, check our users, and add features. Every time when we considered putting the project to rest, someone would send us feedback saying he/she loved the site – and we thought, there’s something here.

Who is in your target market, and what trends have you seen in user growth?

Our target user is the casual runner who enjoys the social aspect of running. In the U.S., there are roughly 36 million runners, the majority of which run less than 100 times a year. We don’t want people to be intimidated by the idea of a hardcore runner. Right now, our users tend to be on the older side and are not necessarily Facebook users. The majority of our users are in the U.S. and Canada. Twenty five percent of our users are in Canada. In terms of gender, our users are split about half and half.

After applying to fbFund, everything accelerated in terms of development. User growth has been faster than before, partly because we’ve been focusing more on the user experience. On average, 20 to 30 people signup per day. On a good day, usually when we get coverage on blogs and people are tweeting about us, around 50 people have signed up. Some of our users have around 300 runs logged. To get in the top 15 leaderboard, you need 700 miles. Six to seven of our users have more than 1,000 miles logged.

How is RunThere leveraging Facebook’s social graph and APIs?

We spent a week implementing Facebook Connect on our site, and we’re still tweaking how we want to use the News Feed. So far, we’ve noticed the content our users are publishing to Facebook is generating a significant amount of comments. Users are sharing their runs on Facebook, and their friends are motivating them via comments. However, one problem with Connect is that sites are generating content for Facebook, but Facebook users don’t necessarily come to your site as a result. About ten percent of our users login with Facebook Connect.

What are RunThere’s latest features and/or any features you’re considering for the future?

We recently added a featured called Group Run. This feature allows you to draw a route and invite your friends to join you on your run and is great for people who are looking to run with other people, say if they’re training for a marathon or are a part of a running club.

People often ask if we have GPS or mobile integrations, and we don’t have them yet, but they are coming. We want to branch out into the mobile space and develop iPhone, Android, Palm, and Blackberry applications soon. In the future, we’re thinking about adding features that help users track the calories that they’ve burned in the process of running. We also want to add a gaming component: for example, users can send one another virtual trophies, taunt with virtual donuts and couch potatoes, and encourage with virtual water bottles, socks, running shoes, etc.

How does RunThere use Google Maps to allow users to route their runs?

Our maps are Google Maps that define location by latitude and longitude, so users can interact with a real map as opposed to an image of a map. By far, it’s the most widely used map API and is really friendly to developers. Google Maps keeps improving and ads new features. With the Google Earth plugin, you can preview marathons in a 3D flyover view. It’s fantastic.

What kinds of challenges does RunThere face as a location-based product for the running community?

You can imagine the privacy issues that come with our site. Coming from Loopt, we’re very sensitive to location privacy issues, so we’re working on letting users customize privacy settings, such as hiding routes.

We get fulfillment from knowing that our product encourages people to get healthy. Users go for a run in the real world. Although RunThere is an online site, in order to use the product, users have to get away from their computers. The challenge is that, unlike with games, it doesn’t make sense for users to login to our site ten times a day. We hope to increase engagement.

What are you thinking in terms of monetizing your site?

One plan that we have to monetize is to build a tool for the personal training marketplace. Personal trainers must effectively keep track of their customers. fbFund really encouraged to think of RunThere as a business.

As fbFund wraps up, how has your experience this summer been?

The work environment at fbFund was perfect for us because we’ve been able to interact with a lot of teams that are working on different projects. Whenever we have a problem, we collaborate with other teams. We’ve had great networking opportunities, too.

Thanks for your time today. What takeaways will you leave with from fbFund?

One takeaway from fbFund is the importance of iterating fast. When you have an idea, put out a live version that barely works, knowing that you can improve it later and learn from the usage data you get and improve.