Occasionally, entrepreneurs create a great social product but don’t have the resources to accrue the critical mass of users necessary to demonstrate its worth. MixApp by Square Products Corp., a free web service in which songs can be played to everyone in a chat room simultaneously, has developed a small but dedicated user base who love to share and talk about music with friends.

However, MixApp is in danger of folding if it doesn’t receive funding or a surge of donations to pay for operational costs and development of a better way to onboard members of different social clusters.

Music listening in the physical world always had a synchronous social component until the popularization of headphones and mobile devices. Friends would attend concerts together or play records for each other while discussing what they heard. Yet most online music services separate these actions, playing songs to individuals without offering discussion mechanisms, like Pandora, or with asynchronous mechanisms, like Last.fm or Soundcloud.

MixApp ports the natural desire to say “did you hear that? I love that part” into an online environment where friends can respond, “you’re right, that was awesome. Thanks for sharing”, in real time. Development of a downloadable client version of MixApp formally began in 2007. It switched into a AJAX-powered, browser-based service in May 2010. Square Product Corp has now spent its initial friends and family funding but has been scraping by thanks to user donations.

When users visit MixApp, they see a facepile of friends who already use the service, and login through Facebook Connect. They can join any listening room with at least one friend in it or start their own room and distribute its unique URL to invite friends. Users queue songs to the room’s playlist by uploading mp3s or adding YouTube links. Everyone in the room hears the current song at the same time and can participate in the chat, edit the playlist, and manipulate their individual volume controls.

Early usage stats are promising. Those logging in four days or more a month average 35 hours on site per month — more than the average user spends on Facebook. Roughly half the service’s monthly active users average over 19 hours of listening a month. If combined with an AJAX-friendly advertising network, this type of prolonged usage could translate into significant monetization potential. The site could also serve as a recorded music-focused alternative to Ustream for musicians. MixApp has conducted successful listening parties for album releases and focus groups for artists looking for feedback on their works-in-progress.

But the synchronous experience of MixApp creates obstacles to growth. Since a user’s friends must be using MixApp at the same time as them to get the true value, it’s difficult to retain the first users from any social cluster. The MixApp team says a notification system for alerting friends when a user logs in and a room for users without friends online are two things they’d like to develop given more resources. Some users have been resistant to the exclusive use of Facebook Connect for login, so MixApp plans to add Twitter, email, and OpenSocial registration options.

Discovering, discussing, and listening to music with friends is a fundamentally enjoyable experience. MixApp has developed the technology to span this experience across physical divides. If it can attain the funding and stickyness necessary to survive, MixApp could redefine how we consume music.

With an up-to-$750 million acquisition of Playdom by Disney, an up-to-$400 million acquisition of Playfish by Electronic Arts, the acquisition of Tapulous by Disney, and hundreds of millions of dollars in venture investments, virtual goods are impacting businesses across the media landscape. Virtual goods, and the companies that create them, may be bringing the largest disruption entertainment, communication, and e-commerce infrastructure businesses have seen in years.

Inside Network is proud to announce the release today of a new original research report by Justin Smith and Charles Hudson that presents a comprehensive examination of the size and future of the virtual goods market in the United States, entitled Inside Virtual Goods: The US Virtual Goods Market 2010 – 2011. This is Inside Network’s second annual edition of the US Virtual Good Market report. The big picture? The US virtual goods market will reach $2.1 billion overall in 2011.

Where will the virtual goods market go in 2011 and what are the biggest opportunities left unclaimed? How will existing players fare as Facebook continues to reshape the social gaming landscape, and larger and more sophisticated players enter the market? Inside Virtual Goods: The US Virtual Goods Market 2010 – 2011 provides deeper insight into monetization, development, and the key questions facing the space in 2011 than you’ll find anywhere else.

Get the Annual Membership Get Annual Membership (Includes Report + 3 Additional Quarterly Issues): $2,495 OR Buy Single Report: $995

About the Report

Inside Virtual Goods is a new report researched and created 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 a research phase spanning the last few months, co-authors Justin Smith and Charles Hudson 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 2010 and 2011.

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 one of the biggest stories of 2010. 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. 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 2011.
4. Console Games – The console market is one of the most interesting new areas where microtransactions are beginning to establish a meaningful foothold in the market. Our study looks at the key opportunities and challenges facing this emerging space going into 2011.
5. Mobile Games – Mobile application developers that have been early adopters of the free-to-play model are now seeing significant growth in 2010. Our study breaks down the key opportunities and challenges facing this emerging space going into 2011.

Each section contains:

1. A brief history on the evolution and growth of this space in the US, including a description of key players.
2. Estimates on the size of the US virtual goods market in 2010 in that area.
3. A diagnosis of the key opportunities and issues facing the growth of that space, including our outlook and projections for 2011.

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

The annual subscription brings you a total of four comprehensive reports comprising months of original research. Recent reports have covered:

1. The Future of Social Gaming. Social games make up over half of the US virtual goods market. This report provided detailed coverage of exactly how this industry has managed to thrive, who its most valuable players are, and deeper insight into monetization, development, and customer acquisition than you’ll find anywhere else..
2. The Spending and Usage Patterns of the Social Gaming Audience. Who are the millions of users whose time, money, and engagement have made social games into household names and their developers into technology industry celebrities? This report presented the only independent, original research into user profiles, behaviors, and attitudes toward social games and virtual goods.

We 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

Get the Annual Membership

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.

Get Annual Membership (Includes Report + 3 Additional Quarterly Issues): $2,495

OR Buy Single Report: $995

List of Related Companies: 6waves, A Bit Lucky, Acclaim, Activision, AdParlor, Aeria Games, Amazon, Applifier, Appstrip, Artix Entertainment, Bebo, Bigpoint, Blackhawk, Boku, Boomerang Networks, Booyah, Challenge Games, CrowdStar, Digital Chocolate, Digital River, Disney, Electronic Arts, Facebook, Frogster, Gaia Online, Gala-Net, Gambit, Gameforge, GMG, Google, GratisPay, gWallet, HeyZap, Hi5, IMVU, InComm, iovation, Jagex, Kabam, Kontagent, Limasky, Lolapps, Meez, Metaplace, Microsoft, MindJolt, MySpace, News Corporation, Nexon, ngmoco, Nintendo, Offerpal Media, OMGPOP, Outspark, Papaya Mobile, PaymentPin, PayPal, PeanutLabs, Playdom, Playfirst, Playfish, PlaySpan, Rekoo, Riot Games, Rixty, RockYou, Rovio, Scoreloop, Second Life, SGN, Six Degrees Games, Slashkey, Slide, SocialGold, Sometrics, Sony, Sony (Free Realms), Sparkplay Media, SponsorPay, Sulake (Habbo Hotel), Super Rewards (Adknowledge), SupersonicAds, SurfPin, Tapulous, Tencent, TheBroth, ThreatMetrix, Three Rings (Puzzle Pirates), TokenAds, TrialPay, Turbine, Viacom (MTV), Viacom (Neopets), Viximo, WeeWorld, Wooga, ZipZapPlay, Zong, Zynga

With an up-to-$750 million acquisition of Playdom by Disney, an up-to-$400 million acquisition of Playfish by Electronic Arts, the acquisition of Tapulous by Disney, and hundreds of millions of dollars in venture investments, virtual goods are impacting businesses across the media landscape. Virtual goods, and the companies that create them, may be bringing the largest disruption entertainment, communication, and e-commerce infrastructure businesses have seen in years.

Inside Network is proud to announce a new original research report by Justin Smith and Charles Hudson that presents a comprehensive examination of the size and future of the virtual goods market in the United States, entitled Inside Virtual Goods: The US Virtual Goods Market 2010 – 2011. This is Inside Network’s second annual edition of the US Virtual Good Market report. It will be released on September 28, but is available for discount pre-order now.

Where will the virtual goods market go in 2011 and what are the biggest opportunities left unclaimed? How will existing players fare as Facebook continues to reshape the social gaming landscape, and larger and more sophisticated players enter the market? Inside Virtual Goods: The US Virtual Goods Market 2010 – 2011 provides deeper insight into monetization, development, and the key questions facing the space in 2011 than you’ll find anywhere else.

Get the Annual Membership Get Annual Membership (Includes Report + 3 Additional Quarterly Issues): $2,495 $1,995 USD* OR Buy Single Report: $995 $795 USD* * Pre-order discount ends September 27, 2010. All pre-ordered reports will be delivered on September 28, 2010.

About the Report

Inside Virtual Goods is a new report researched and created 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 a research phase spanning the last few months, co-authors Justin Smith and Charles Hudson 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 2010 and 2011.

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 one of the biggest stories of 2010. We delve deeply into the trends, stats, key players, opportunities, and challenges facing the space this year and next.
2. Mobile Applications and Games – Mobile application developers that have been early adopters of the free-to-play model are now seeing significant growth in 2010. Our study breaks down the key opportunities and challenges facing this emerging space going into 2011.
3. 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.
4. 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 2011.
5. Emerging Areas: Console Games 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 key players.
2. Estimates on the size of the US virtual goods market in 2010 in that area.
3. A diagnosis of the key opportunities and issues facing the growth of that space, including our outlook and projections for 2011.

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

The annual subscription brings you a total of four comprehensive reports comprising months of original research. Recent reports have covered:

1. The Future of Social Gaming. Social games make up over half of the US virtual goods market. This report provided detailed coverage of exactly how this industry has managed to thrive, who its most valuable players are, and deeper insight into monetization, development, and customer acquisition than you’ll find anywhere else..
2. The Spending and Usage Patterns of the Social Gaming Audience. Who are the millions of users whose time, money, and engagement have made social games into household names and their developers into technology industry celebrities? This report presented the only independent, original research into user profiles, behaviors, and attitudes toward social games and virtual goods.

Although the report will not be released until Tuesday, September 28, we are offering a special pre-order discount for those who purchase now. The pre-order price of US $795 for this report or US $1,995 for a one-year subscription is now available until September 27.

We 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
  • Mobile Applications and Games
  • Emerging Areas: Consoles, Subscription MMOs
• Methodology

2. The Virtual Goods Payments Ecosystem: An Overview

• Large Payment Platforms
• Mobile Payment Providers
• Offer Providers
• Direct Payments vs Offers
• Pre-paid Cards
• The Arrival of Facebook Credits
• New Payment Providers
• Managing Fraud
• Related Companies

3. Social Networks, Applications, and Games

• Introduction
  • The Global Rise of Facebook
  • The Virtual Currency Payment Ecosystem Explosion – and Migration to Facebook Credits
  • Increased Optimization for Virtual Goods
• Social Networking Platforms Today
  • Facebook
  • MySpace
  • Twitter
  • Google
  • Others
• Significant Changes to Facebook Platform Dynamics in 2010
  • Distribution & Engagement
  • Monetization
• Social Application and Game Genres: How Do They Perform?
  • Role Playing Games and “Hardcore” Mini-MMOs
  • Simulation and City Building Games
  • Pet Games
  • Poker Games
  • Gifting Apps
  • Arcade Games
• Who’s Buying Virtual Goods?
  • Gender Breakdown
  • Age Breakdown
  • Geographic Breakdown
• How Are They Spending Money?
  • Item Type Breakdown
  • Payment Method Breakdown
• Market Size Estimate
  • Total Number of Monthly Paying Users
  • Total ARPPU Per Month
  • Total US Virtual Goods Revenues from Social Networks in 2010
  • A Quick Look at Revenues for Top Social Game Developers
• 2011 Outlook
  • Growth Rate
  • Major Risks that Could Hamper Growth
• Leading Companies

4. Casual MMOs and Virtual Worlds

• Introduction
• Demographic Breakdown
  • Gender
  • Age
• Payments
• Analyzing the Market Opportunity
  • ARPU
  • ARPPU
  • Market Size Estimate
• 2011 Outlook
  • Growth Rate
  • Key Challenges
• Leading Companies

5. Free to Play MMOs / Hardcore Games

• Introduction
  • History of free to play MMOs
  • Emergence of the free to play MMO market opportunity in the US
  • Major genres for free-to-play MMOs and hardcore games
• Analyzing the Market Opportunity
  • Total Player Base
  • ARPU
  • ARPPU
  • Payment methods
• 2011 Outlook
• Leading Companies

6. Mobile Applications and Games

• Introduction
  • History of virtual goods model in US
  • Major genres for free-to-play iPhone apps and games
• Analyzing the Market Opportunity
  • Total Player Base
  • ARPU
  • ARPPU
  • Payment methods
• 2011 Outlook
• Leading Companies

7. Emerging Areas

• Console Games
• Subscription MMOs

8. Conclusion

• Overview: 2010 Market Estimates
• Looking Ahead: 2011

9. Appendix: Company Index

Get the Annual Membership

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. Although the report will not be released until Tuesday, September 28, we are offering a special pre-order discount for those who purchase now. The pre-order price of US $795 for this report or US $1,995 for a one-year subscription is now available until September 27.

Get Annual Membership (Includes Report + 3 Additional Quarterly Issues): $2,495 $1,995 USD*

OR Buy Single Report: $995 $795 USD*

When Dave Kerpen and his wife Carrie founded TheKBuzz in New York back in 2007, the idea was to build a company around word of mouth marketing, he tells us. Then Facebook came into the picture. Since, the company has expanded to Boston and Chicago without any outside funding, changed its name to Likeable earlier this year and set its sights on providing brands with customer service solutions on Facebook.

We spoke to Kerpen as part of our ongoing series of Page mangement profiles. Earlier this year the company changed its name to Likeable. The name change came partly as a result of Facebook’s new Like button, but mostly because Kerpen tells us he wanted the name to reflect global brands.

The Like button goes beyond Facebook, he says, “The way Google organized the web around links, Facebook is reorganizing the entire web around Like. So, to me, Likeable is not just literal, it’s also figurative: Companies need to be more likeable to win.”

Inside Facebook: What products and services does your company provide to clients using Facebook? What types of clients are you aiming to reach?

Dave Kerpen: We are a truly a full service social media company – part consulting firm, part marketing agency, and part tech startup – providing Facebook strategy, consulting, training and execution. (This includes) fan Page, tab, and application design and execution, and Facebook ad creative, buying, and reporting. I believe that the best way to communicate with our fans is to update the stream, we are making sure our clients are communicating with their fans at least once a day. The service I’m most excited about is our Facebook Stream Management for which we develop and distribute engaging content for our clients and respond to comments and questions from fans. We work with a very wide variety of clients, from big brands such as 1-800-Flowers.com, Verizon FiOS and Neutrogena to categories such as consumer products, retailers, credit unions, travel bureaus, hospitals, nonprofits, government agencies and authors.

IFB: Can you share some highlights of how your company has helped clients meet their goals using Facebook?

DK: Last year we drove over 100,000 fans to a 50% increase in sales on “Free Chill Zone Day,” an event created entirely on Facebook. 1-800-Flowers.com has over 10 times as many fans as their competitors and was the first company to sell products directly on the Facebook platform. We’ve helped many thousands of New Yorkers quit smoking (5,300 Likes and 1,300 e-patches sent) and have safer sex using Facebook (12,800 Likes). And The Pampered Chef launched on July 14; it’s organic, no advertisements and the virtual gift app already has about 2,000 users and the Page has 49,000.

IFB: Overall, can you share metrics on the scope of your business?

DK: We were the first marcom agency in the world to have 10,000 fans on Facebook, a goal we accomplished recently. Since our founding in 2007, we have had solid triple-digit growth for three straight years. I believe that the [ed. third-party Facebook] brand business can grow over time to a $50 million business and the local business can grow to a $500 million business.

IFB: What metrics do you use to determine the success of a given campaign?

DK: Every client has different objectives, so it’s really important to define the metrics of success at the outset of work in conjunction with their objectives. Some clients care most about fans, others web traffic, others sales data, and others awareness and buzz.

IFB: What have been your biggest challenges building on Facebook platform? What mistakes have you made and learned from there?

DK: The biggest challenges are definitely how quickly Facebook changes and grows – because this affects planning significantly. For instance, when we saw that tab widths were due to change, we began designing narrower tabs for clients, and when those widths didn’t actually change for many months, a few clients were disappointed. We’ve learned to be very flexible and fast-moving, to keep up with Facebook – a worthy challenge for sure. We haven’t focused as much on tech as other players and, because of that, it’s not easy to fail.

IFB: Beyond your own efforts, what Facebook changes have noticeably helped your company?

DK: The number one change that helped was when Facebook introduced its current Page product in 2008 – which is a million times better than the original Page product for business they had, which didn’t even feed into streams. Before the Page product the way to promote a brand on Facebook was really just apps. The Page allowed brands, and those helping brands like Likeable, to really focus on building the fan base and communicating with customers. Their self-serve advertising platform has also gotten better and better, and we’ve been able to leverage its keyword targeting for clients of all sizes.

IFB: On the other hand, has Facebook made any recent changes that have noticeably hurt your company?

DK: The addition of Community Pages. It’s definitely made my clients very concerned, without a way yet for brands to manage or respond. You can imagine that if a client of mine spends big money on their Facebook presence, one thing we do is respond to every complaint on behalf of our clients on their fan Pages, so to then know that the Community Pages are potentially an aggregation of customer complains, the brand has no power to respond. It’s a frustrating situation but I’m sure Facebook will have a solution to this in the near future.

IFB: If you could ask Facebook to make a single change, what would it be?

DK: I’d like Pages and the people who represent them to be able to respond to posts on Community Pages. I’d also like to see the homepage ad buying process and value derived from homepage ads more closely resemble that of the self-serve ad platform. I’m confident that a Facebook team that includes Sheryl Sandberg, the woman behind Google’s genius AdWords product, will make that happen.

IFB: How does your work on Facebook relate to your work on other platforms?

DK: We are a full-service social media agency. So while Facebook, now with over 500 million users, is the obvious first part of any solution, we often work with Twitter, Foursquare, YouTube, LinkedIn, niche social networks and blogs to meet our clients’ goals. We will work on whatever platform the client needs and usually integrate our clients’ Facebook presence with whatever other social networks we’re using. It has to be all about each individual client’s objectives , so sometimes, smaller niche social networks will come into play, too. Twitter is currently the best tool for customer service, for example; if Facebook changes their own Community Pages, who knows, but for now customer service is best handled on Twitter. I am trying to build a company that meets its clients’ needs in terms of using social media to create more likeable organizations. I don’t want to just rely on Facebook, but the truth is Facebook is not going anywhere, so it’s a large part of what we do.

IFB: Do you have any specific plans that you can share?

DK: We’re currently building Likeable Index, a measurement of how socially active, responsive and likeable brands are online, and also the Likeable Local Platform, a scalable education, training and execution solution for small businesses to leverage Facebook and other social networks. Those are the biggies – but in the meantime, we want to continue providing our clients on Facebook with the best service in the business each day.

Buddy Media is a New York-based company that’s been helping brands take advantage of their social media presence since Facebook opened the platform in 2007.

The idea was to assist companies with establishing themselves on Facebook. “We didn’t know how we were going to do it, but we wanted to participate,” founder and chief executive Mike Lazerow tells us. “You basically could build on top of Facebook and reach consumers directly, rather than dealing with the traditional gatekeepers of the web.”

At the time, Facebook had about 30 million monthly active users — 470 million or so later, Buddy Media has a solid and growing business. Check out our interview with Lazerow, below, for lots of key details on its experiences to date, and its plans for the future.

Note that the company also does work on Twitter, MySpace and iPhone platforms, but has focused its energies on Facebook by offering primarily larger companies, brands and agencies a content management system that includes an application library, as well as publishing and analytics tools. Some notable clients include Anheuser Busch, Southwest Airlines, the NHL, L’Oreal and TJ Maxx.

It has raised $10 million from a variety of investors, including Peter Thiel, Ron Conway, Mark Pincus, Softbank Capital and the European Founders Fund, among several others.

Inside Facebook: What products and services does your company provide to clients using Facebook? What types of clients are you aiming to reach?

Mike Lazerow: The business is a software as a service platform, any company can subscribe or license it to help them manage their Facebook presence. Buddy Media is more of an enterprise player, versus custom app shops or the small business players. Our strongest categories are CPG (consumer packaged goods), travel (Four Seasons, Starwood Hotels & Resorts, Delta Airlines, Southwest Airlines), tech (Samsung) and fashion (L’Oreal, Diane Von Furstenberg, TJ Maxx, Marshall’s).

IFB: Can you share some highlights of how your company has helped clients meet their goals using Facebook?

ML: Summit Entertainment (“Twilight”) is a company that we started with that had very few fans. Through Wall posts and managing of very creative ad promotions on our platform they’ve gone from 4.5 milllion to about 7 million Likes since January — which has been one of our biggest fan growths. On the retail side, Redbox, we started working with them in January and they had about 400,000 Likes, or fans. They are now one of the largest in their space with 1.1 million Likes without a lot of marketing, mostly just content management. +Global (more here) lets companies scale their Facebook presence by geo-targeting by language or country, whether it’s one Page in one country or 1,000 Pages in 100 countries. According to our clients we’ve cut over 80% of the cost out of the equation.

IFB: Overall, can you share metrics on the scope of your business?

ML: Across the platform we have 80-90 million total connections, fans, Likers. It’s not unusual for our clients to have 10% of all their Facebook fans engage them on a monthly basis. We now have 75 agencies, primarily advertising agencies and public relations firms, that actually use a white label version of our platform; we let (them) do most of the creative work. Buddy Media is growing by over 50% quarter-by-quarter in terms of revenue. We’re on track to do probably over $20 million this year. We have 85 employees in New York, New York.

IFB: What metrics do you use to determine the success of a given campaign?

ML: Typically we look at client success through APIs that we can set up on our platform, which lets you track fan growth, user engagement and activation. It’s very hard ROI metrics tied to their campaign: How many people signed up for a sweepstakes, we got 300,000 people to redeem the coupons, how many people bought from a retailer, how many people signed up for a test drive? So, if you set up the dashboard correctly, everyone can be on the same page in terms of what they’re trying to accomplish.

IFB: What have been your biggest challenges building on Facebook platform? What mistakes have you made and learned from there?

ML: I think the biggest challenge for everyone working on the platform is keeping up with the changes Facebook is making. Every week there are minor changes — things open up, things close down, how you handle notifications, how you handle publishing, how you handle user data. Facebook is basically building the airplane as they’re flying it. You realize that you can’t have projects that last three months and then launch, because the platform changed. The mistakes that we’ve made have been in building things that we’ve had to rebuild because Facebook has changed. So, now the way we build our products is very open, very modular because, now we don’t need to change our entire platform — we just have to change a part of it. The changes also pose the biggest opportunities.

IFB: Beyond your own efforts, what Facebook changes have noticeably helped your company?

ML: The number one change was the opening up of Facebook Pages. That was an important change that sent our company into orbit because every company, all of a sudden, needed to manage those Pages and they didn’t have people sitting around, necessarily, who knew FBML and Javascript. The change that has recently really helped our clients and our business is the introduction of the Open Graph. The idea that a company’s web site can also be social is enormous. It’s what I call a branded viral loop, it’s basically free traffic. The other major change I think that Facebook has made is they’ve recommitted to the user experience by cleaning up the ecosystem a lot, and ultimately, that helps everyone but it also helps brand that want to be in a clean environment.

IFB: On the other hand, has Facebook made any recent changes that have noticeably hurt your company?

ML: We’ve been in the business long enough with Facebook that changes aren’t good or bad, they just are changes and we basically evolve and make changes.

IFB: If you could ask Facebook to make a single change, what would it be?

ML: I think the ability to geo-target your Wall posts through third-party platforms would be amazing. The ability to target content on a more granular level through Facebook Pages would be great, whether it’s by interest or by profile data so if someone comes into a Facebook Page it would be great to show local offers on the tab. The one thing they shouldn’t change is the commitment to the user experience.

IFB: How does your work on Facebook relate to your work on other platforms?

ML: There’s no other property other than Facebook that has the scale, the reach, the stickiness globally that Facebook has (so it) ties into a lot of different stuff that you’re doing digitally. We integrate with Twitter so if you’re doing stuff on Twitter, you could very easily link to your Facebook Pages. If you’re on YouTube, you can use that content on your Facebook Wall and Facebook tabs. Most importantly, Buddy Media has been very active in linking your web site to Facebook, and Facebook to your web site. And then the last kind of area which I think it’s really important for our clients is, how does their email system and their current CRM (customer relationship management) system interface with Facebook. So, having it all work together in a way that works for the company is much more important than, “What’s your Twitter strategy?”

IFB: Do you have any specific plans that you can share?

ML: One of the areas we are most excited about right now is social commerce. We’re going to continue to roll out our +Global offering, which includes more granular targeting of content. Starwood hotels is a great example, (the company) doesn’t care about China as just one country, they care about China as a series of cities they do business in. +Global is a Facebook management system right now at its core, but as Facebook goes to 1 billion users, it’s really a web-wide content management system. There’s no reason why it just stays within Facebook. As Facebook infuses itself to other websites, we will also be able to control third-party web sites and other microsites. We’re going to broaden our reach significantly there.

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.

Get the Annual Membership Get Annual Membership (Includes Report + 3 Additional Quarterly Issues): $2,495 OR Buy Single Report: $995

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

Get The Annual Membership

Get Annual Membership (Includes Report + 3 Additional Quarterly Issues): $2,495

OR Buy Single Report: $995

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.

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.

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.

Facebook recently celebrated its 200 millionth active user. Interestingly, according to Facebook, only 300,000 of those users are in China – a small figure considering the fact that China is the most populous country in the world and home to 300 million Internet users.

Western social networks have watched as their Chinese counterparts gained momentum over the last several years. Below, Inside Facebook’s Jessica Lee provides an introductory overview of the social networking scene in China, shedding light on the obvious question: Why hasn’t Facebook grown more in China?

1. China’s Anonymous Internet Culture

The Bulletin Board System (BBS) has had a huge influence in shaping how China’s Internet users interact with each other on the Web. BBS’s are traditional discussion forums that are run by individuals, companies, and government organizations on a variety of topics ranging from shopping to current affairs. In a ReadWriteWeb post last year on the BBS phenomenon in China, registered BBS accounts were said to have reached 3 billion: users typically have multiple accounts, most of which are anonymous.

80 percent of Chinese sites still administer their own BBS’s today, bringing in a total of 1.6 billion page views and 10 million comments each day. Examples of BBS’s can be found on the People’s Daily, a government-run daily newspaper, Sina, the leading infotainment web portal in China, and the blogs of Chinese celebrities such as actress Jinglei Xu. The BBS community is characterized by its topic-centered and anonymous nature – two traits that have set an expectation around how Internet users in China feel comfortable sharing information with each other, challenging Facebook’s goal to be a platform that’s focused on real identities (not anonymous nicknames).

This preference for anonymity makes sense given harsh Internet censorship in China that holds users accountable for the content they publish, especially when it comes to political opinions that may not be in line with the government’s. In this sense, establishing a real online identity does seem to be a luxury of sorts that’s more feasible in free market economies like the US.

2. China’s “Guanxi” Business Culture

Local Chinese companies are market leaders in the social networking space because they know how to navigate the entrepreneurial landscape in China. China is still at a stage of development in which entrepreneurs are more often copying ideas than innovating on their own – Intellectual Property laws remain weak.

Moreover, while many Chinese social networking sites claim to be open platforms, they don’t offer a level playing field when it comes to building an open ecosystem for the developer community. The concept of guanxi, referring to the social and political connections that make doing business in China easier for certain influential individuals or parties, is at work. Without knowing the right contacts, developers may not get the visibility that they would normally expect in an open platform system.

For Facebook and its application developers, this means that the innovation process in general, and in particular application development, is highly competitive and vulnerable to copycat developers who can replicate ideas in a cheaper, faster manner.

The following table briefly describes four of the leading social networking sites in China, using data from TechCrunch and Alexa, a Web intelligence site:

3. China’s Mature Virtual Goods Economy

Chinese social networking sites are surprisingly lucrative, generating the majority of their revenues from virtual goods as opposed to online advertising. In a recent market analysis on Chinese social networks, TechCrunch points out that Chinese spending on online ads is expected to be $1.7 billion in 2009 (four percent of total online ad spending). The US, by contrast, is expected to spend 15 times this amount. Relying less on online ads, Chinese sites earn the bulk of their money through virtual goods.

Targeting these small, but high-volume user payments has proven to be a resilient revenue strategy, given the cut in online ad spending companies are facing in today’s economy. +8*, an Internet consultancy in China, Japan, and Korea, predicts that while the US market for virtual goods is approximately $200 million, China’s online gaming market is around $3 billion. Although this market is both attractive and tempting, and Facebook has recently launched its own virtual currency system, the company may not be ready and may never be willing to position itself as a commercial marketplace, given its people-focused mission.

4. Different Social Applications & Games Popular in China

Social applications and games designed to give users a “virtual” experience outside of their daily reality may be more likely to succeed in China. Data from the Chinese app-tracking site AppLeap indicates that out of the top five performing apps on Xiaonei (as measured by application value in RMB), most of them pertain to the outdoors, either growing gardens or maintaining ranches.

1. 开心农场 (Happy Farm): 4.3 million RMB
2. 开心农民 (Happy Farmer): 1.4 million RMB
3. 阳光牧场 (Sunny Ranch): 0.8 million RMB

The concept behind these apps is similar: users maintain their own personal gardens, growing flowers, fruits, and vegetables and accumulating virtual currency along the way. Users can also visit their friends’ gardens and steal produce from them.

When asked why farming apps are so popular and highly capitalized in China, one young professional in Nanjing told Inside Facebook, “In China, we don’t grow up with spacious areas like many of our peers in the US, so there’s a greater desire for us to want to own our own land and maintain our own gardens even if they’re only virtual. In a virtual world, you can do things you’re not allowed to do in everyday life, like stealing carrots from your friends!”

The leading Facebook apps are deeply expressive and relational (Living Social, Causes, Super Wall), whereas the top apps on Chinese social networking sites provide users with virtual spaces that they don’t have real-world access to.

Above: Buying seeds to plant in my virtual garden on Kaixin

5. China’s Entertainment-focused Youth

The 300 million Internet users in China are young. TechCrunch also reports that 67% are under 29 years old, and 35% are teenagers. Another report by Nanjing Marketing Group notes that in 2008, China surpassed the United States in total number of Internet users.

Contrary to popular thought, China’s Internet users don’t just come from the rising urban middle class: in 2008, 87 million were from rural areas. In terms of gender, the male-to-female ratio in urban areas is representative of the general urban population; however, it’s disproportionately higher in rural areas. In addition, the number of Internet users with a college education fell in 2008. This, combined with the popularity of Internet cafes, encourages an Internet culture of entertainment (e.g., online gaming and chatting).

Internet cafes have taken off in China not only because many Internet users don’t have access to computers with high-speed broadband connections, but also because it’s a space where users feel a sense of camaraderie with friends – and strangers. In addition, Internet cafes are affordable and free from parental supervision. With such a young entertainment-oriented group, Facebook’s social utility, which prides itself on connecting people and allowing them to share in honest, open ways, may not be the first thing on the minds of Chinese youth.

Conclusion

With these facts in mind, it’s not surprising that US-based Internet giants like Facebook face significant challenges penetrating the Chinese market. As Facebook eyes China, it must consider a whole set of questions, including: how to meet the demands of young Internet users in China who are entertainment focused and value anonymity and virtual escape; and how to monetize its platform alongside a transitioning command economy without compromising its identity as a social utility that gives people the tools to bring their real personalities and lives with them online.

In what is the first Facebook Connect integration we’ve seen on YouTube (or any other Google-owned property for that matter), Coca-Cola Europe just recently launched a new “social interactive music show” called Green Eyed World. Interestingly, YouTube has significantly demoted the placement of the the standard comments module and replaced it with a very prominent Facebook Connect integration.

The show is about a 23 year old singer from London who is selected to go to New York City to pursue her dreams of becoming a music star. Once users log in through Facebook Connect, they can leave comments and votes to influence her decisions, and see a stream of their friends’ comments and votes as well.

“This interaction between YouTube and Facebook is the first of its kind,” Google’s Benjamin Faes, Head of YouTube & Display for Europe, Middle East and Africa, said in a release. “We are creating a new technology implementation with these platforms. At any time during Green Eyed World, viewers can comment or vote, creating a live dialogue between themselves, their friends and the hero. The video pauses, and a small window pops up where the interaction can take place quickly and easily”

As we’ve documented before, content producers are finding that Facebook Connect can increase the authenticity of user comments and community. Users logging in with their real identities are less likely to leave lower quality comments as commonly happens on YouTube, which is especially valuable in the case of branded content.

In addition, Facebook Connect’s ability to share content back into users’ profiles and their friends’ news feeds can be a powerful driver of traffic. Facebook sent more traffic to Perez Hilton than Google did in January, and video sites are currently some of the most popular Facebook Connect integrations.

Despite the fact that Google founded the OpenSocial movement and is building its own competing product in Google Friend Connect, YouTube opened up and partnered with Facebook for the Coke integration. While the companies still have some unresolved questions about the way Google Friend Connect itself works with Facebook, the presence of Facebook Connect on YouTube is part of a bigger initiative on YouTube’s part to be more flexible with content partners and brands, and is a good sign for Facebook Connect.

As Liz Gannes over at NewTeeVee writes, “YouTube is showing increasing flexibility about what partners and sponsors can do on its pages, allowing CBS and ESPN to embed their video players of choice on its pages. Enabling Facebook Connect more broadly could be a very effective and appealing next step.”

Green Eyed World is directed by Tony Valenzuela, who previously worked on “America’s Next Top Model,” “CSI: Miami,” and “The Closer.” It is being produced by Austria-based FFP.