Inside Facebook

Founded by PayPal co-founder Max Levchin in 2005, Slide has become synonymous with the explosion of social network applications in recent years. Its properties and widgets, including popular applications SuperPoke, Top Friends, FunSpace, and SuperPoke Pets, reach over 155 million people per month on popular social networks like Facebook, MySpace, Bebo, Hi5, Orkut, Friendster, and Tagged. And with around 24 million monthly active users on Facebook, Slide is (and always has been) one of the largest application developers on the Facebook Platform.

However, unlike other top app developers, Slide hasn’t been rolling out many new applications over the last year. Instead, it’s been honing and optimizing its core network of properties, and spending a lot of time and energy tuning its monetization efforts.

On the advertising side, Slide has built a sales team with several staff in New York and San Francisco that has been driving the company’s premium integrations like branded SuperPokes or viral FunSpace videos. However, the company has also quietly been building its direct to consumer business, selling virtual currency and subscriptions that give users access to premium features. For example, each bar of Slide Gold costs USD $0.10 (the same exchange rate as Facebook Credits), and unlimited premium SuperPokes can be purchased for a USD $4.99 monthly subscription fee.

Just how important has Slide’s virtual goods business become? As of today, a Slide spokesperson tells us its direct-to-consumer virtual currency sales and subscriptions account for 50% of the company’s overall revenues.

Furthermore, given the increasing importance of virtual goods sales to the company - and that Levchin, CFO Kevin Freedman, and VP Strategy and Business Development Keith Rabois all share a history at PayPal - we’ve been hearing increasing rumors lately that Slide has plans to bring more parts of the payments layer in house in order to be able to exert greater control over the payment user experience. Today, Slide confirms that that is indeed the case.

“We believe it’s important to improve the system for paying for virtual goods. We are working on innovating that technology to make the experience easier for our consumers,” Lily Lin, Slide’s Director of Communications, tells Inside Facebook.

Whether or not Slide will make its payment infrastructure available to other developers remains to be seen. Slide’s Lin, however, says that that is “not the plan.”

“The focus is just for our own users,” she says.

For a company like Slide, which has 150 million users around the world yet connects with many of them through social network platform partners, taking greater control over the payments infrastructure, which is of increasing strategic importance to the company as it grows its direct to consumer sales, makes a lot of sense. Unlike smaller developers, it has the resources and experience to potentially establish direct relationships with payment processing companies instead of working with social application payment service providers like Social Gold, Spare Change, Zong, or Boku - or the social networks themselves. (Facebook recently started testing a payments program for developers, and MySpace has said it plans to do the same later this year.)

Overall, we think these are all smart moves by the company. Virtual goods sales are booming on the Facebook Platform, and Slide is in a unique position to capitalize on both the advertising and e-commerce opportunities inside Facebook. We’ll continue to track the company as things progress on both fronts throughout the year.

Back in 2002, a Wired opinion predicted that,

“Twenty years from now, the idea that someone looking for love without looking for it online will be silly, akin to skipping the card catalog to instead wander the stacks because ‘the right books are found only by accident.’ Serendipity is the hallmark of inefficient markets, and the marketplace of love, like it or not, is becoming more efficient.”

Today, seven years later, it’s no surprise that the online dating landscape has evolved far beyond traditional sites like Match.com and eHarmony that pioneered the online dating industry. People are increasingly moving to applications that leverage the identity they’ve already created inside social networks like Facebook and MySpace - not to mention mobile.

So far, we’ve already seen a number of Facebook applications focused on dating, like Zoosk, SpeedDate, and Flirtable. However, since Facebook Connect’s launch in early 2008, a handful of dating sites have brought Facebook’s social context out onto their web sites, including AreYouInterested.com, Frintro.com, SpeedDate.com, and Chemistry.com.

Let’s take a look at two of the better integrations: Are You Interested? and Frintro.

Are You Interested?

Are You Interested?, by SNAP Interactive, has integrated Facebook Connect to share lots of information with friends. Users can update their Facebook status’ directly from the site (the status update even includes a link to the site). You can also feature four random Are You Interested? users at a time by publishing them to your Wall and the News Feed.

However, within minutes of signing up on the site (before I had time to upload a photo or edit my profile information), Are You Interested sent me lots of suggested matches, leading me to wonder about their quality. That said, Are You Interested? is leading the space in terms of integrating its services across its destination site, its Facebook app, and its iPhone app.

Frintro

Frintro, one of this year’s 2009 fbFund winners, is the first dating site built entirely on Facebook Connect. Despite a heavy integration with Connect, the Frintro approach is a lot less visible to your friends. On the homepage, Frintro assures users that: “NOTHING you do on Frintro will be published back to Facebook.”

Using Connect, the site gives users visibility to friends of friends - the second degree of the social graph. If you’re single, you can request that your friends give you introductions to their friends; or if you want to play matchmaker, you can forward your friends’ profiles to other friends or make direct introductions between friends. The individuals involved will get Facebook Requests without any public attention directed toward them - no status updates or Wall posts involved. You can learn more about Frintro features here.

Conclusion

The value of Facebook Connect on dating sites is pretty much the same as it is on any other site: an easy login, real identity, bringing your friends along with you, and publishing content back to Facebook. Facebook’s social graph could make it a lot easier for people to sign up to dating sites, learn more authentic information about potential dates, and be introduced to more interesting people. It also offers dating sites the chance to acquire customers through viral content that users can share with their friends.

The tricky part, though, is that when it comes to dating, people are often shy and opt for more personal privacy. Dating sites that use Facebook Connect to populate user profiles or involve trusted friends in the matchmaking process must make a commitment to respect the privacy of their users to succeed in the long run.

“So get in there while you can, because early next year [2003], our instant-messaging client will have video capability. Technology marches on, thank goodness,” the Wired Magazine article concludes. In 2009, technology has marched on to bring the social graph to dating sites. We’re looking forward to seeing how big of an impact these new services make.

This morning I gave the opening presentation at the Social Gaming Summit, discussing an overview of the major platforms, players, and monetization stats in the social gaming industry. For those interested in checking out the slides, they are embedded below.

Topics covered: Facebook, Facebook Connect, iPhone, MySpace, Hi5, Twitter, Monetization, ARPUs on Facebook and MySpace, IP, copycats.

Zynga, itself being sued by Mob Wars creator Psycho Monkey for IP issues regarding the Zynga title Mafia Wars, has now filed suit against other leading rival Playdom for misuse of the mark “Mafia Wars” in ads it is running for its popular game, Mobsters…

>> Read More at Inside Social Games

This morning, as the fbFund REV summer incubator is still just getting under way, we bring our attention to 2009 fbFund winner NutshellMail, a website that updates you on what’s going on within your social networks in simple email digest form that can be delivered however frequently you’d like. We recently spoke with co-founders (or, in their words Co-Chief Nuts), David Lyman and Mark Schmulen, who shared with us why they started NutshellMail and their plans for the summer and beyond.

Inside Facebook: What problem does NutshellMail solve?

We enable our users to stay engaged in conversation and online activity without being distracted. With Facebook, it’s easy to get annoyed of email notifications and most of them remain unread. By consolidating activity on Facebook – and even Twitter, MySpace, LinkedIn - we deliver email digests to users when and how often they want them. As a consequence, our email open rates are high.

The focus of our service is taking information from Facebook and delivering it to people who don’t want to be logging onto Facebook.com all the time to check updates. These days, people use email clients not only to manage email messages, but also for calendaring, contacts, etc. Email has become the central hub for managing life, and we’re filling the hole of managing one’s social networks. The fact remains that email is still the killer app; and with NutshellMail, you can see friend requests, group invites, the News Feed stream, and even like or comment on content all through the context of email.

What types of Facebook users would find NutshellMail valuable?

We listened to users and friends and found that people want to be part of the Facebook conversation, but don’t want it to control their lives. NutshellMail allows you to manage communications on Facebook on your own terms, doesn’t create clutter, and delivers updates to you in a visual way. NutshellMail can also drive traffic back to Facebook’s site.

We’re bridging the gap between social networking activity and the email inbox. There are different types of users that NutshellMail appeals to, but it’s particularly useful for people who belong to multiple social networks, including Facebook, and have trouble staying on top of them. They want to stay highly engaged without getting flooded with too many email notifications. Over half of are users have Facebook linked to their NutshellMail accounts.

A NutshellMail email digest:

What is the process new users go through to get started on NutshellMail?

The first step is to select which social networks you want to integrate with. The second step is to determine how frequently you want to receive digests – from every hour to once a week. The last step is which enter the email address you would like the digest to be delivered to. You can integrate with Facebook directly through our Facebook app as well.

NutshellMail’s Facebook app:

Customizing how often you want email digests delivered to you:

What were you both doing prior to NutshellMail?

David: Mark and I went to UPenn together; and after graduating, I went to Houston to work for Accenture.

Mark: I worked in investment banking at JPMorgan. David and I went to middle school, high school, and college together, and our fathers grew up on the same street in Louisiana. Fast forward, and we’re still best friends and starting a company together. NutshellMail was conceived in college; and since then, we’ve put together a top-notch team.

What’s on the agenda for this summer’s incubator program?

This summer we’ll be working on making the NutshellMail experience more customizable and deciding which additional features to add. As of today, our Facebook implementation provides users with updates on new messages, friend requests, pokes, birthdays, group/event invitations (which you can then add to your calendar), the stream, and status updates.

Do you have plans to go mobile?

Facebook apps for iPhones and BlackBerries are limited in their capabilities, but we’re exploring the idea of using various mobile apps. Most financial institutions don’t permit their employees to access email or social networking sites at work; employees aren’t allowed to integrate personal email or third-party apps on their work phones, so many have purchased a second phone for this reason. This shows you how important it is for people to have access to personal email and social networks throughout the day.

For companies with strict Internet browsing rules, what has the reaction to your product been?

We’ve talked to companies and received positive feedback. One idea for a future revenue stream is building enterprise applications that give companies the means to maintain network security, while still giving employees the Facebook experience the want.

Thanks, David and Mark. Any final thoughts?

Not enough people know about us yet. We’re a free solution that makes life more productive, organized, and engaged.

As we continue our in depth look at leaders the Facebook Platform monetization ecosystem, today we turn our attention to Offerpal Media, one of the largest players in the space. After raising $15 million earlier this year from D. E. Shaw Ventures, InterWest Partners, and North Bridge Venture Partners, the company has been expanding its efforts to help developers monetize their social apps and games through the company’s offer network and virtual currency platform.

Offerpal works with many Facebook app developers, and is led by Anu Shukla, Founder and CEO, Mitch Liu, Co-founder and Vice President, Naghi Prasad, VP Engineering and Operations, and Bill Lonergan, CFO. We recently spoke with Shukla about recent developments in the Facebook payments space and the company’s approach to monetization.

Inside Facebook: Anu, what is Offerpal’s role in the virtual economy?

Anu Shukla: Offerpal is a monetization platform for applications and websites with virtual currencies, digital goods, or subscription-based services. We launched in October of 2007 and entered the space because we initially built an app for Facebook and MySpace and integrated virtual currency, but then focused on building out a monetization platform.

How would you compare user behavior between social networks and standalone sites?

We focus half of our efforts on social networking based apps and half on standalone games and websites. On social networks, we’ve seen a big influx of new users - whereas on standalone sites, it’s the same user base again and again. On social networks, new apps are being launched all the time, and the old ones die. Apps grow virally, but users also lose interest faster.

What trends are you seeing around users and their payment method choices?

It depends on what type of app you’re dealing with, whether users are younger or older, female or male, and how much time they have on their hands. Users who don’t have much time tend to use cash payment methods. In Europe, mobile payments are more popular. Incentivized offers are used less, proportionally speaking. For example, 30 percent of revenue may come from cash payments, and 70 percent from other payment methods, such as offers – but this breakdown changes depending on the population at hand.

As an optimization platform, how does Offerpal optimize the experience for the different players you work with?

We have 3,000 offers in our system and add 100 new ones every day. We optimize our offers based on individual preferences and target the exact type of user, which optimizes revenue for our publishers. The publisher wants to maximize earnings and provide a good customer experience; the consumer wants to do something that s/he is interested in. We have a scalable rule-based optimization engine that’s based on the inclusion/exclusion of particular audiences, proprietary algorithms, and collaborative filtering at the individual consumer level.

From our perspective, all relationships are really important and make our business model work. The advertiser pays; consumers buy; and publishers attract consumers. The right match between the three ensures that the advertiser is seeing quality results, the publisher is maximizing revenue, and the consumer is finding offers relevant. We work extensively with advertisers, as well as publishers who can then turn their attention to the games themselves while we focus on monetization efforts and customer service.

And, what about your transaction model?

When a user completes a transaction, the advertiser pays us, and we share that amount with the publisher. Revenue share is negotiated on a case-by-case basis.

How is your partnership with IMVU going?

IMVU is a premier avatar-based site, and its tight integration with Offerpal has been quite successful. IMVU is one of our premier clients, and we hope to continue the partnership for many years to come. IMVU has done a great integration, as well as Real World and Mobsters. We have a team in house that helps publishers find the right integration.

The virtual economy in international markets in Asia, for example, is exploding. Are we seeing signs in the U.S. in that direction?

Yes, we’re seeing all the signs of that. Social networks are rushing to add virtual currency; and games and virtual worlds are being developed/created to generate income/revenue from virtual currencies. Virtual currency is here to stay.

Now that Facebook has launched its alpha “Pay with Facebook” test, what’s your reaction?

I think it’s going to open up the number of people who will participate in transactions. The net effect will be that more people are willing to buy virtual goods, subscription services, and digital goods on Facebook because they are familiar with the brand. This will add more people to the mix. The user base will expand, which is great for publishers and for us.

How is Offerpal doing financially?

Financially, we’re bucking the trends, which is not surprising. In a recession, the industry that expands the most is entertainment, and we’re seeing the effects of that. Combined with the fact that engagement on and growth of social networks are both increasing, we’re riding on these positive trends, and are on an upswing.

Can you share any statistics with us on the percentage breakdown of your revenues across certain regions?

Sure - here is what we’re seeing:

70% North America
17% Europe
7% Asia
2% Middle East
2% South America
1% Africa1% Central America

Thanks Anu! Do you have any last comments you’d like to share with our readers?

There’s no reason why micro-transactions won’t be as pervasive as evidenced in Korea and China. China’s Tencent QQ almost got regulated by the Bank of China because its virtual currency was so liquid!  And also, we’ve seen the positive benefits of businesses that are initiating loyalty points programs such as frequent flier miles. Virtual currency is the equivalent of that for gaming and social networking worlds.

As we continue our in depth look at leaders the Facebook Platform payments ecosystem, today we turn our attention to Social Gold, a virtual currency monetization, payment, and analytics service for social apps and games from Jambool.

We recently spoke with Jambool co-founder Vikas Gupta (formerly of the core Amazon Payments team, along with several Jambool colleagues) about the opportunities he sees inside Facebook apps and games, and the approach Jambool is taking to help developers monetize.

Inside Facebook: Vikas, what does Social Gold do in a sentence or two?

Vikas Gupta: Social Gold is a virtual economy platform that provides developers with an API to create their own virtual currency, and monetize it with our in-game payments platform. The virtual currency that developers create runs on our back end infrastructure that provides detailed virtual economy analytics for free. We also recently released our Subscriptions API to a few partners and will be opening it up to others shortly. It enables developers to sign up users for recurring billing through the same Social Gold in-app payments experience.

In terms of analytics and helping developers manage their virtual economies, what are signs of a healthy virtual economy?

As with all economies, we measure transaction volume to understand the health of an economy. To that end, we balance sources (creating money) and sinks (spending money). When sources are greater than sinks, inflation happens. In this situation, this means that users aren’t given enough ways to spend virtual currency, so the game must inject ways of spending into the system via free currency, offers, etc.

The virtual economy is most popular in the gaming context, but to what extent can it be applied elsewhere?

It’s not just games that are looking at virtual currency: organizations have had loyalty programs for a while now – frequent flier miles for example – and many are seeing virtual currency as an extension of that and introducing game mechanics into their programs. In the case of frequent flier miles, a source occurs when passengers take fights and thus earn miles; a sink occurs when they then redeem those miles. And when sinks happen, the cost the airline incurs is much lower than the perceived value of those miles for the user. Switching back to gaming, the gap between the real cost of virtual goods and the perceived value is even wider.

How are your revenues currently breaking down across platform and geographies?

By platform, we do more than 95% of our business on Facebook and MySpace, and more than 75% on Facebook alone. By country, our top countries with paying users are the US, UK, Canada, France, Germany, and Australia. The US accounts for about 70% of revenues, followed by about 10% from the UK.

How do your ARPUs break down across countries?

We can’t break it down by country right now, but at a high level our average user monthly spend tends to be about $30, with some users spending over $1000 a month. This average is across paying users, not all users. Almost all of the users with large payments come from US or western Europe.

Some people still find it hard to believe that so many people are willing to spend real money on virtual goods. How would you respond to them?

Two points: 1) If you take a step back, when you step inside an arcade, you must first buy tokens. It’s the same concept in a virtual world where users pay $10 dollars for 10 points. They are really getting five hours, let’s say, of playtime. It’s basic entertainment. If consumers are willing to watch a movie, why should I not be willing to pay for an online game? Virtual currency isn’t a new way to pay for stuff – it’s a way to entertain yourself. 2) In the real world, why do we collect postcards? Younger generations may not understand why we do so. When I add virtual books to my virtual bookshelf, the emotion that goes into them are the same that I put into real books. Ten years ago, we listened to CDs; now we buy songs online. People have always wanted to share, but up until recently, the technology wasn’t there to enable it.

Would you like to share any thoughts or impressions on Facebook’s early payment system tests?

We see Facebook Credits as a virtual currency/prepaid value system. It’s a good development because it will familiarize a large user base with the concept of virtual currency and cause users to feel more in tune with the virtual economy.

As the economy is lagging, companies based on gaming and virtual transactions are seeing promising growth. How about Social Gold?

Social Gold launched in September 2007, and monthly volume is up more than 10 times since October 2008. Month-to-month growth has been around 20 to 30 percent, with both the number of paying users and repeat users growing.

What are some inefficiencies that you’re seeing in the virtual goods economy? Where will we go from here?

A) There are a lot of players in the virtual goods space, but also a lot of noise in the market. What will happen over the next year is that some noise will get sorted out. B) By default, gaming draws a diverse audience – both in terms of international reach and age (from teenagers to 60 year olds) – and right now, players in the space aren’t necessarily focused on any specific segment. C) How users pay for games will also change. Subscriptions are another form of payment that could become more prevalent; and in general, more payment tools need to become available.

Thanks for your time Vikas!

It’s been a long time coming, but Facebook has finally passed MySpace in terms of total US uniques, according to comScore. In May, comScore reported 70.28 million US uniques for Facebook (up 97% year over year), compared to 70.26 million for MySpace (down 5% year over year).

By contrast, Compete reported 82.9 million US uniques to www.facebook.com in May, while Facebook itself reported 64 million monthly active users in the US during the month. The comScore numbers come out to 4% monthly US audience growth for Facebook in May, while the Compete numbers show 8%. Facebook’s self-reported numbers showed 5% growth. Here’s the full comScore chart:

Social Networking: May 2009 vs. May 2008

Source: comScore Media Metrix

The contrast from this time one year ago is incredible. In May 2008, MySpace was more than twice as big as Facebook, and Twitter was barely a blip on the radar. Today, Facebook is in the lead, MySpace is slightly down, and Twitter’s reach has grown by almost 2700%.

Meanwhile, HitWise also reported today that Facebook’s overall share of Internet visits is up from 2.9% of all visits in the beginning of May to 3.6% when the Facebook username floodgates opened on Saturday.

The TNT television network turned their coverage of sporting events social recently, inviting fans to log on through Facebook, MySpace and Twitter to watch recent NBA games and NASCAR races online. In order to give users the option to plug into all three services, TNT used the Gigya Socialize widget, which integrates all three services into a single stream.

Of the three services, the most users logged into Facebook. However, though fewer people were logging in through MySpace, they were sending the most messages, accounting for as much as 53% of chatter during the NBA games and 44% during the NASCAR race.

Here’s how the numbers broke down:

Nascar on TNT (Pocono 500) Users:
MySpace: 27%
Facebook: 54%
Twitter: 19%

Nascar on TNT (Pocono 500) Messages:
MySpace: 44%
Facebook: 37%
Twitter: 18%

NBA Eastern Conference Finals Users (average of all games):
MySpace: 40%
Facebook: 48%
Twitter: 12%

NBA Eastern Conference Finals Messages (average of all games):
MySpace: 53%
Facebook: 35%
Twitter: 12%

Turner Networks, which owns and operates TNT, also implmented a major partnership with Facebook before and during coverage of the Presidential Inauguration on CNN.com, and more recently during the NBA All-Star Game. By adding MySpace and Twitter, the network has obviously opened up the service to more users. More importantly, MySpace users, especially those logging in for the NASCAR race, have sparked more chatter, which is what the Gigya service is intended to enable.

May stats are out from Compete, and the web analytics company says US traffic to Facebook’s main consumer website increased by 8% during the month to 82.9 million uniques. For those keeping track at home, that’s back up from Facebook’s “dip” to 4.6% monthly growth in April after growing by 11% in March.

Traffic to Facebook Connect-enabled sites increased 14% in May to 65 million US uniques after growing by a whopping 40% in April.

By contrast, however, Twitter was flat for the quarter in terms of reach. The site registered 19.7 million uniques for the month, up 1% from last month. Twitter’s audience grew by nearly 40% from March to April, so it’s surprising to see that curve flatten off rather quickly. MySpace traffic held at 56.9 million uniques for May, up 2% from April.

Twitter’s US audience growth decreased to 1% in May, according to Compete

Overall, 8% US audience growth (6.1 million incremental US uniques) to 82.9 million is an impressive clip for Facebook at this stage. Over 40% of the US internet population is now logging into Facebook each month.