Inside Facebook

Online dating service Zoosk has just closed an additional $6 million in funding from existing investor Canaan Partners. The third round of funding will give the most popular dating application on Facebook the means to expand its offerings for users looking for someone special.

Zoosk is a free service, but makes money from premium memberships and the sale of Zoosk Coins, which allow users to purchase virtual gifts to attach to messages. Users fill out dating cards which other users use to match common interests and spark conversations and connections.

The company has nearly doubled its registered user base in the last six months, with numbers increasing from 16.5 million to 30 million users since January. As you can see below, Zoosk’s monthly active users on Facebook have ranged from 6 to 9 million in recent months. The service runs across number of social networking sites, including Facebook, MySpace, Hi5, Bebo and Friendster.

“We are thrilled to continue our partnership with Canaan Partners,” said Alex Mehr, co-founder of co-CEO of Zoosk. “This new round of financing enables us to aggressively expand our marketing efforts to introduce social dating to singles everywhere.”

Recent updates, including integrating Last.fm playlists and Netflix accounts, are giving potential daters added information about each other. This has added a new level of socialization to something as simple as selecting a movie, and shows the creativity the company is using to bring couples together through social networking.

AppData for Zoosk

Boku, a mobile payments startup that has been operating in stealth mode for the past four months, is making two major announcements this morning: It has raised $13 million from venture capital firms Benchmark Capital, Index Ventures, and Khosla Ventures, and has acquired Mobillcash and Paymo, two of the leading global mobile payments companies.

This is big news in the mobile payments space. Through its acquisitions of Mobillcash and Paymo - two companies active in monetizing Facebook applications and social games - Boku instantly becomes one of the largest players in the space, with 170 carriers on board at launch across 53 countries reaching a potential 1.6 billion customers.

With Boku’s new global mobile payments service, consumers can purchase virtual goods and virtual currency via their mobile phones. Here’s a demo of how the service looks and works:

Based in San Francisco and with offices in Europe, Asia, and Latin America, the company is being led by CEO Mark Britto, who brings 20 years of experience at Amazon, Ingenio, and FirstUSA, and a management team that includes VP of General Counsel Javier Martell, VP of Engineering Erich Ringewald, VP of Business Development Kurt Davis, Senior Director of Risk Management Martine Niejadlik, VP of Product & Marketing Ron Hirson, and General Manger James Patmore, who together come from companies like AT&T Interactive, PayPal, Apple, FICO, Google, O2, Bank of America, and eBay.

Paying via Boku will be available on partner gaming site Puzzle Pirates, as well as other merchants:

We spent some time talking with VP of Product & Marketing Ron Hirson about the future of the mobile payments space, and he walked us through some notable statistics. Hirson says the future of online payments via mobile is being driven by 1) worldwide growth of social networks, virtual goods and games, 2) the popularity of mobile apps, and 3) the large number of unbanked consumers who have mobile phones but not credit cards or bank accounts. The holy grail for mobile payments, according to Hirson? Global coverage.

Other leading companies in the space, including Zong, Daopay, and Netsize, are also racing to establish presence in the largest markets around the world. Zong, who we spoke with in depth recently, says it is focused on building direct relationships with all major carriers in developed markets first and foremost, before moving into developing markets where mobile payment companies often work with many aggregators.

Related Stories:

• Payment Industry Perspectives: Q&A with Paymo CEO Paul McGuire
• Payment Industry Perspectives: Q&A with Zong CEO David Marcus

When former Facebook CTO and VP of Engineering Adam D’Angelo left the company last May, it wasn’t clear what he would do next. Now, D’Angelo and Charlie Cheever, the former head of engineering for Facebook Platform and Facebook Connect, who also recently left the company, have founded a new startup called Alma Networks. The company is based in Palo Alto and has raised a round of seed financing.

While the two aren’t ready to talk much about what they’re doing publicly, a recent job listing from the company describes it as “a community-generated database of the trusted information that interests people most.” It goes on to say:

Some of the challenges are highly algorithmic, such as coming up with ways to organize and categorize the information effectively so that users can efficiently find what they need; others are very technical, such as working to make a web application that is complex while still being very fast; and many of the challenges are in product design, such as figuring out a way to set up and grow a healthy community and constructing intuitive interfaces for users.

D’Angelo and Cheever aren’t the only former Facebook exec-lead engineer pair to go into business together in recent months. Last October, Facebook co-founder Dustin Moskovitz and lead engineer Justin Rosenstein left to start an enterprise productivity software company that’s still operating quietly.

Back in January, Facebook CEO Mark Zuckerberg announced leadership changes on the Facebook Platform team that included Mike Vernal taking over for Cheever as head of Facebook Platform and Connect engineering. At the time, Zuckerberg said Cheever would be moving over to work on “more new initiatives.” Vernal was a core member of the team that built and launched Facebook Connect last year.

Facebook has just announced the winners of the 2009 fbFund competition - 18 startups and two non-profits - who will also be invited to participate in the fbFund REV 2009 summer incubator program at Facebook’s offices in Palo Alto.

While Facebook has not yet announced specific details on equity investments, Cat Lee of the Facebook Platform team says in total winners will receive over US $500,000 in funding (excluding the two non-profits, who cannot receive funding under current fbFund rules). But without further ado, here are the winners:

18 Startups

• Frintro: Find friends of friends to date…or play matchmaker! If you’re single, you can search your friends’ friends and ask for intros. If you’re taken, you can set friends up. Friends of friends are the best people to date. It’s social dating via friendly intros.
• Funji: Funji is an avatar-based social networking app for the iPhone and iPod touch, satisfying users’ desire to express themselves and communicate with others in a fun, creative way. The team has over five years of experience in the mobile market in both South Korea and the US.
• Gameyola: Gameyola is a distribution and monetization platform for casual Flash games. Flash games currently monetize poorly, but Gameyola solves this problem by providing Flash developers tools to sell virtual goods and to acquire users through social channels.
• Life360 (private beta): From keeping track of your kids, to protecting your identity and getting back your lost stuff, Life360 is the place you go to keep your family safe, secure, and prepared for daily life.
• MyChurch.org: Churches create their own social networks on MyChurch.org. They extend their community between Sundays with tools to connect and engage their members. Over 30,000 church congregations are represented on MyChurch.org.
• Navify: Navify is a visual encyclopedia that combines Wikipedia articles with images, videos, and comments. It is the only general encyclopedia that allows you to listen to music videos, watch movie trailers, and browse news and celebrity photo galleries.
• Nutshell Mail: Simplify the way you manage Facebook and other social networks. NutshellMail consolidates activity from all your accounts into a single email digest delivered on your schedule. Don’t let email alerts clutter your inbox. Get informed, not interrupted. Get the Nut!
• Networked Blogs: Bring your blog to Facebook, and Facebook to your blog. Pull your feed to your profile and business pages, add widgets to promote your network, and read the news from blogs you follow on the largest community of bloggers and blog lovers on Facebook.
• Paradise Paintball 3D: Paradise Paintball is the first game developed on Cmune’s next-generation social gaming platform. It is the first casual 3D multiplayer FPS game on Facebook, Apple Dashboard and Mac & PC. Play with up to 8 friends and buy virtual items to enhance the gameplay.
• Photos I Like: Photos I Like is a digital media sharing and discovery site emphasizing lightweight social content, self-expression, and communities.
• RentMineOnline: Combines the success of resident referral programs with the power of social networks. Residents refer their community to friends through social networks like Facebook, and email to earn rewards and live with friends.’
• RunMyErrand: RUNmyERRAND is a social networking inspired web and mobile marketplace that provides people and businesses an easy and trusted way to get everyday tasks done in their own hyperlocal community.
  
• RunThere: RunThere is a social-networking service for runners and cyclists. Users can map and measure their favorite routes (no GPS required), keep a running/biking log, and find athletes and routes nearby.
• Sortuv: Sortuv lets you start with something you like, and discover more. Instead of searching for a “great restaurant” just say what you mean: “Find me a place sortuv like Spago in Seattle”. Check us out on the Web, on the iPhone, and on Facebook.
• TravelBrain/GeckoGo: Travel Brain by GeckoGo helps you track (and show off!) your travels, share experiences with others, and discover new places to visit. Learn from the knowledge of over 600,000 travelers, and get expert guide info from our Bradt Travel Guides partnership.
• Weardrobe (private beta): Weardrobe is a fashion-focused community for discovering different ways to wear clothing. Weardrobe provides a platform for people to share reviews of their own clothing, post photos of their looks, catalog their closet and search for style inspiration.
• Workstir: Workstir is a community that connects users with trustworthy local service providers. Anyone can post a job and choose a provider with confidence by browsing their past reviews. For businesses, Workstir provides a wealth of jobs in their area of expertise.
• Worldly Developments (private beta): Worldly Developments is building online services that will help you connect with the people, places and events in your local community. Its first product makes it a snap to plan, promote, and communicate around group activities.

2 Non-profits

• Samasource: Sama is Sanskrit for “equal” – Samasource finds and trains reliable QA professionals to test Facebook apps with a user-friendly interface that lives on the Platform. With Samasource, developers lower costs, reduce poverty, and improve their applications.
• Vittana: Vittana enables you to lend directly to students in the developing world, $25 at a time. Our mission is to bring student loans to the developing world through the power of person-to-person microlending.

Summer Incubator Program in Palo Alto

fbFund’s 2009 REV incubator program, which is being organized by Dave McClure, will offer winners the chance to come together in Palo Alto and work under the mentorship of advisors from the fbFund Developer Advisory Council and Facebook.

“Already planned are sessions with speakers from our fbFund Advisory Council, business luminaries, and our Facebook Platform team focused on everything from operating lean startups and metrics for success to marketing and monetization. The days will be packed with opportunities to get together, learn from one another, brainstorm and iterate on applications and business models,” Lee says.

Because the investments this round are in the seed range, participants will be encouraged to explore further financing opportunities at the end of the summer. All of the startups will get the chance to pitch to angel investors and VCs as the incubator program winds down in late August. In addition, Facebook says it is dropping the right of first refusal on further financing from the fbFund terms.

Over 400 applications were submitted for fbFund financing in this round. Facebook invited over 20 of the fbFund council advisors and investors to help review, rate, and select the finalists.

As a member of the developer advisory council, I was really impressed by all of the innovative applications and websites being built. Congrats to all the fbFund 2009 winners!

On the heels of rumors of a possible investment this weekend, Facebook has just announced this morning that it has indeed raised a $200 million round of financing from Russian Internet investment firm Digital Sky Technologies. DST will receive 1.96% equity stake in the company in the form of preferred stock at a valuation of $10 billion.

In addition, DST plans to purchase “at least” $100 million of Facebook common stock from existing stockholders that would give current and former employees a chance to cash out some of their vested shares. DST will not get a seat on the Facebook board of directors.

“This investment demonstrates Facebook’s ongoing success at creating a global network for people to share and connect,” says Facebook CEO Mark Zuckerberg.  “We’ve worked hard to bring more than 200 million people – 70 percent outside of the U.S. – onto Facebook to share with friends, family and co-workers.  A number of firms approached us, but DST stood out because of the global perspective they bring – backed up by the impressive growth and financial achievements of their internet investments.  We’re looking forward to working with the DST team.”

DST is a large Internet holding company in Russia and eastern Europe. The company estimates that its portfolio companies, including Mail.ru, Forticom and vKontakte, cover 70% of all page views in the Russian speaking Internet.

DST CEO Yuri Milner was previously CEO of Mail.ru, the most highly-trafficked website in Russia. Milner’s partners are Gregory Finger, previously head of the Moscow office of NCH, a large hedge fund, and Alexander Tamas, previously co-head of internet and software coverage in EMEA for Goldman Sachs.

“Our investment experience in other regions reveals the tremendous value social networking companies create as they redefine how people communicate and interact,” said Yuri Milner, chief executive of DST.  “By every important metric – user growth and engagement, technological innovation and financial performance – Facebook is on a similar trajectory, though on a much more global scale.  We’re delighted to invest in Facebook, Mark and his management team as they make the world more open and connected.”

Facebook CEO Mark Zuckerberg has been characterizing recent financing rumors as preliminary in public comments as recently as last week, when he told the Reuters Global Technology Summit, “If there’s an investment to be done on very good terms, we will consider it if for no other reason than to have more buffer if we want to do something in the future.”

The $200 million investment from DST brings Facebook’s total debt and equity financing raised to date to at least $640 million. In addition to the $200 million announced today, Facebook raised $240 million from Microsoft in 2007 as part of a preferred equity investment and strategic alliance that valued the company at $15 billion, $100 million investment from Chinese billionare Li Ka-Shing in early 2008, $100 million loan from TriplePoint in May 2008, and an undisclosed investment by Germany’s Samwer brothers early last year.

As we continue our look at the Facebook Platform monetization ecosystem, today we turn our attention to Sometrics, a social analytics and monetization platform that helps developers optimize across advertising and offer networks. We recently spoke with Sometrics CEO Ian Swanson about his view of the monetization landscape on the Facebook Platform and Sometrics’ approach to the market.

Inside Facebook: Thanks for your time, Ian. Can you start by giving our readers some background on how Sometrics began?

Ian Swanson: Our business started as an advertising solution for banner advertisements. In June 2008, we started talking to publishers on MySpace and found out that the majority of revenue, 95 percent, was coming from direct payments and offers, and only five percent was coming from banner ads. We asked: Can we target offers and optimize offer networks? And so we started building a solution by the end of July 2008, ran the first test of users in December, and launched a beta version in March.

Who are the main players in your business?

At the bottom of the chain are the 2,200 publishers, or game developers, who we work with. Above them come a dozen offer networks such as Gambit, Super Rewards, Offerpal, PayByCash, etc. Then come the 2,400 different advertisers. Sometrics works directly with publishers to help them optimize across dozens of offer networks. We’ve built a few products, many of which are free. Developers on Facebook, MySpace, and large multiplayer games use our products.

What process does Sometrics go through to optimize across offer networks?

We work directly with publishers. Say the publisher comes to us with four different offer networks - we help them optimize across them. We plug in the codes that these offer networks provide, and our system outputs one optimization code. Using our central dashboard, the publisher can make changes that affect revenue growth. Our dashboard truly affects revenues: our publishers have seen a 10 to 15 percent revenue lift.

What are some demographic trends that you’ve noticed across different online platforms?

It’s well known that the demographic on MySpace is younger, and we tend to see more completions on MySpace. With Facebook, we see more paying completions (e.g., Netflix). There are more offer completions on MySpace, but each completion has a lesser payout; thus, higher conversion rates on Facebook have greater value.

How will Facebook’s entry into virtual currency affect your company?

It’s a smart move by Facebook and good for the economy as it will bring more validation. We look at Facebook as one method of payment. There will still be a need for solutions like Sometrics that manage different payment solutions. For example, developers can use our services to get central statistics on how any payment method is working.

What’s your competition looking like in today’s market, and what’s the business opportunity abroad?

No one is doing offer optimization for third parties. In terms of offer management, a lot of companies are still trying to directly compete with offer networks. The international market is thriving, it’s big. Korea has a multi-billion dollar industry. In China, social networking sites have adapted much sooner to a virtual currency system, and the results have been tremendous.

Thanks again, Ian. Any final thoughts?

Our standpoint is that it’s important to have a diversification of offer networks if publishers are using offers as a way to make money. Our solution proves that it’s advantageous to use multiple offer networks. We have the numbers to back it up.

To date, Facebook’s 200 million active users upload about 850 million photos and eight million videos per month, according to the company. While most users don’t consider the burdens of hosting that much information, Facebook’s leaders and investors surely are, if a report from Data Center Knowledge provides any indication of how much it costs to run the site.

According to the analysis, Facebook spends between $20 million to $25 million alone on the space that houses its servers. That figure does not include the cost of equipment (mostly servers) used to host the data.

DCK’s estimate will further fuel speculation about the rate at which Facebook is spending its cash, which has led the company to seek additional financing. The site was able to make its estimate because Facebook leases the data center space; it doesn’t own it. Facebook’s data center landlords (Digital Realty Trust and DuPont Fabros) made the information public through quarterly earnings statements and SEC filings that DCK obtained.

The $25 million price tag includes Facebook’s main data center spaces in Silicon Valley (where it has two), Virginia and Santa Clara, Calif. More established technology heavyweights Google and Microsoft own their main data center properties. What’s perhaps more striking about the report is that the estimate doesn’t account for all of Facebook’s back-end costs:

[The report] doesn’t include Facebook’s investments in server and storage hardware, which is substantial. Some reports say the company spent $30 million on servers in 2007 and another $60 million in 2009. There’s also the cost of electricity to power the servers, which is not included in the data center lease.

Conclusion

While this report isn’t foolproof, it makes some educated guesses about just how much money it takes to support Facebook’s operations. Soon, Facebook may need more capital in order to keep things moving - be it through an IPO or additional funding.

Each week we are hearing new rumors of term sheets Facebook is seeing. While Facebook says it is open to having conversations with interested parties, the company also insists it doesn’t need to raise money any time soon.

Just last week, Facebook CEO Mark Zuckerberg told the Reuters Global Technology Summit, “If there’s an investment to be done on very good terms, we will consider it if for no other reason than to have more buffer if we want to do something in the future.”

The latest rumor this week comes from the Wall Street Journal’s Jessica Vascellero, who says that Russian investment group Digital Sky Technologies recently submitted an offer for $200 million of Facebook preferred stock at a $10 billion valuation. The company also offered to buy between $100-$150 million in employee common stock at a $6.5 billion valuation as part of the deal. Last week, TechCrunch reported that Facebook turned down another $200 million offer at an $8 billion valuation from an unnamed source.

Facebook won’t comment on the rumors. However, Zuckerberg has publicly characterized all of the conversations as preliminary.

“Some of the rumblings that people are reporting on, are just different conversations that have happened, but there’s really nothing new to talk about there,” Zuckerberg told Reuters.

Nevertheless, the Facebook investment rumor mill has been gaining steam in recent months. As the company matures (revenues are said to be expected to surpass $500 million this year), interest in the company from larger investors and investment banks certainly seems to be increasing.

Check out the top headlines and insights this week from Inside Social Games:

Monday, May 18

• WonderHill Raises $7 Million, Building “Wholesome” Social Games
• Pet Society Expands to PetSociety.com with Facebook Connect

Tuesday, May 19

• Playdom Launches Poker Palace on hi5, Integrates hi5 Coins
• Some Social Games Have Facebook Pages With Over a Million Fans
• Leaf Trombone is an “MMMG” that’s Turning iPhones to Brass Worldwide
• Twitter – Now With Dating?

Wednesday, May 20

• Girl Wars on the iPhone is “Mobsters in Dresses”
• SGN Bringing Dogfighting to the iPhone

Thursday, May 21

• Acclaim Partners with Peanut Labs to Monetize its MMORPGs
• Girls in Tech Holding Panel on Casual & Social Games Next Thursday

Friday, May 22

• Funji Launches Avatar-Based Social Networking App for the iPhone
• Compare People - What Do You Think of Your Friends?

As we continue our look at the Facebook Platform payments ecosystem, today we turn our attention to AdParlor, a full service social network ad agency that operates its own virtual currency monetization platform and social ad network. We recently spoke with AdParlor CEO Hussein Fazal about his view of the payments landscape on the Facebook Platform and AdParlor’s approach to the market.

Inside Facebook: Why did AdParlor make the transition from traditional online advertising to offers and direct payments for virtual currency?

Hussein Fazal: Feedback from application developers told us that banner advertising was making up only 5 to 20 percent of overall revenue, whereas the rest was coming from offer walls and direct payments. Virtual currency is doing so well, but keep in mind that not all applications are suited for it. There are applications out there that do in fact make a majority of their revenues from banner advertising.

We started in the ad network space and are still focused on growth within this space; however, we have also brought on dedicated individuals to grow our virtual currency and wall offer piece. When it comes to revenue potential, the offer wall outperforms the ad network. Right now the ad network piece is a larger portion of the business because we’ve been doing it for over a year, but virtual currency will take over at some point. Given the fact that we started in the ad network space, we had relationships with all the major app developers.

How would you compare your business across different platforms and countries?

AdParlor primarily focuses on Facebook and MySpace - that’s where most of the transactions are. In terms of banner advertising, we’re on most of the social networks, but the focus is on Facebook and MySpace for virtual currency monetization.

There’s not much disposable income in some countries where social networks are strong. In Malaysia and the Philippines, it’s difficult to monetize because there’s not much willingness to spend. The Chinese market and some of the other Asian markets are a bit different because they have massive populations that have enough disposable income, and are comfortable playing games with built-in virtual currency such as RPG’s. It’s difficult for us to get into the Asian market because of the language barrier and the difficulty of building relationships with strategic players in those local markets.

Who are the key players in your value chain and what value does AdParlor deliver to each?

On the application developer side, the value for app developers is that they don’t need to worry about going to hundreds of different offer providers, managing payouts, seeing what works and what doesn’t, and handling user complaints. By going through AdParlor, given our volume, we can negotiate better rates when it comes to completing offers. Developers can focus on building applications. We help monetize.

In the same way, the offer provider has no interest in going to each app developer and would rather go to aggregators like us that can draw users from different types of applications. We work with around 30 offer providers, 10 of which we work closely with. They provide us with best offers at highest payouts.

In addition, we partner with payment platforms, including Zong and Social Gold. We’re also looking at something pretty interesting right now, which is bringing landline companies into the value chain. Users can buy virtual currency by billing to their landline bills.

Can you walk us through the transaction process, from the end user to the advertiser?

Users see an offer in an application asking them to complete a survey in return for, say 10 credits. They click on the survey and complete it through AdParlor. The survey provider then pays AdParlor a certain amount, say $5 dollars per survey. We pass on a portion of that to the application developer, ranging from 70 to 90 percent, sometimes higher if the developer is pushing a high amount of volume. Based on the amount we pass on, that’s how many credits get passed on to the user.

From the user’s perspective, what’s the psychology of purchasing virtual currency?

You would be surprised how many people are willing to fill out surveys in exchange for virtual currency. Let’s say a user is playing Bingo on Facebook on a Monday afternoon. See it as entertainment. Just as people pay money to play video games, when they run out of credits, they’ll pay for more to continue playing. It’s like a cost of entertainment.

Are offers really aligned with users’ interests?

All the offers aren’t useless - they add value. For example, an offer may require you to signup for a DVD club for $1 dollar. In return, you get seven DVDs. For someone who is interested in movie services anyway and is looking to get credits to play Bingo, it’s a win-win situation. Every offer is different.

I imagine payment fraud is a problem you have to deal with?

It does happen that users put in stolen credit cards and fake addresses and phone numbers. In this case, a chargeback occurs. When offer providers finds out, they’re not going to pay. We go back to the application developer and reverse the transaction. If developers are thorough enough, they’ll make additional callbacks and take the credits back from users; however, if they’ve already sent it, there’s not much more you can do. That said, the level of scamming isn’t high.

Fraud gets caught at the top of chain: the offer provider may see that 10,000 surveys were completed in one second. We also have checks in place along the way: if the IP address points to a location that doesn’t match the postal code, that also raises a red flag.

So, it’s confirmed that Facebook is launching its own virtual currency test for applications. Thoughts?

Obviously Facebook is in an advantageous position. But at the end of the day, Facebook is another competitor – a big competitor, but that doesn’t mean other virtual currency or offer payment platforms won’t exist. We’re not anxious or excited, but it’s something to keep eye on. It’s going to be interesting to see how Facebook’s virtual currency test rolls out, and if the company decides to go with a full-fledged offer wall, what kind of offers it would have. With all the volume of user information it has, Facebook could do some really interesting stuff. For example, if someone wrote a Wall post about a Britney Spears concert they want to attend, Facebook might be able to use that info within an application to offer you a 10 percent discount to the upcoming Britney Spears concert.

In this economy, how are advertisers changing how they do online advertising?

That’s interesting. Before the recession, large brands were okay spending money on branded banner advertisements. Now they’re hesitant and looking for guaranteed results. From the ad network side, brands are shifting from CPM to CPA models: they don’t care how many times an ad is seen; they want to pay only if users sign up, so a lot of money is shifting from branding to actual action.

How’s your company doing from a financial perspective?

We’re profitable and doing quite well.

Where will the payment space go from here?

The key is to make all payment options available to users, whether it’s via credit card, mobile phone, or landlines. I don’t know if there will be much innovation in terms of payment, but Spare Change has an interesting model: users buy Spare Change credit and exchange this credit with whatever virtual currency there is within an application. The benefit of this is that if users play with five to 10 gaming applications, they can buy 1000 Spare Change credits and use them across apps.

Thanks for your time, Hussein. Any final comments you’d like to make to our readers?

The fact that we come from both the ad network and virtual currency sides means that we have a lot of relationships in place with advertisers and offer providers. AdParlor brings interesting and exclusive offers to the table. If an application developer wants to integrate with an offer wall, our self service system will get them set up in half an hour.