@andrewchen

Get the newsletter · 2018 essays (PDF) · Featured · Recent

Facebook and Platforms conference: Graphing Social Patterns (San Diego) recap

Back from San Diego, and back from my blogging break
I was recently at the Graphing Social Patterns conference, where the illustrious Dave McClure of 500Hats and Justin Smith of Inside Facebook invited me to be on a panel on viral marketing. Thanks again Dave and Justin!

I wanted to write down a couple high-level observations I made from the conference, and then expand on them:

  • Platforms opportunities are growing (but fragmenting)
  • Is "jumping the Facebook shark" the new "jumping the Techcrunch shark?"
  • Key verticals are starting to get defined, in particular "social gaming"
  • Monetization can support "garage entrepreneurs," but venture returns are still elusive

More below…

Platform opportunities are growing (but fragmenting). Does run-anywhere mean succeed-anywhere?
The good news is that, for app developers, the choices for where they can build new widgets/apps is increasing over time. And more choices means that there’s more demand for app developers, and the leverage moves to them versus the platforms.

The best thing that happened for Slide and RockYou, when they were confronted with a hostile MySpace regarding their initial slideshow widget was for Facebook to open up. And now that platforms have aggregated a total of 250M+ users, they are in the business of courting developers – this means app developers will be able to get more leverage in the relationship when it comes to viral marketing, monetization, data portability, and other key issues.

That said, the problem is that more choice means more fragmentation. It’s yet to be seen whether OpenSocial will provide a consistent set of APIs, or if it’ll descend into buggy and slightly incompatible containers. Anyone who’s done development trying to support both IE6, IE7, Firefox, and Safari will know what I mean when it comes to supporting slightly compatible interfaces.

In particular, while the OpenSocial API provides specifications around key areas, it’s clear developers will still have to think through each particular social network design for issues like:

  • viral channels and distribution
  • app spamminess
  • additional API extensions
  • language localization and demographics
  • audience “mindset” and usage context

After all, OpenSocial may allow apps to "run-anywhere," but not "succeed-everywhere."

I’m sure the players that will win in each specific social network will have to customize the entire app to integrate as tightly as possible into the underlying platform. In fact, this may open plenty of niches to form where the larger players (Slide/RockYou/etc) won’t pursue – net/net, this is probably great for the small teams that are just getting started

Is “jumping the Facebook shark” the new “jumping the TechCrunch shark”?
Now that apps have had significant run-time on the Facebook platform, several have shown that there’s a high-water mark for the DAU (daily active users). The reason is that a lot of companies focused on viral marketing early on, but even while they saturated the usersbase, they weren’t able to retain many of them.

Thus, when you do the math, what happens is that you have an exponential growth curve at first, which then plateaus out as you hit network saturation, and then turns into a shark fin as the bulk of your earlier users decays into nothingness. I will write much, much more on this model in a later post, and I even have an Excel spreadsheet to match!

Furthermore, it makes me wonder how much depth there is on the retention analytics side – after all, while a select group of developers have been building viral dashboards where they calculate viral factors, optimize their registration funnels, and so on, how many of them have been applying cohort analysis?

Key verticals are starting to get defined, in particular "social gaming"
There was a ton of discussion around the new "social gaming" category, and what that means. First off, the evolution of this space has been very interesting, and covered well by Jeremy Liew at Lightspeed. Ultimately, the group of Facebook developers who are working on these products are:

  • Coming from the web side of the world, not the games industry
  • Focused on games as a communication and social activity, not a 1-player experience
  • Trying out mostly asynchronous, short time-commitment game designs
  • And experimenting with monetization models beyond advertising, like virtual goods

There’s a ton of activity here, and it’ll be interesting to see how it develops, and ultimately how it bleeds out beyond Facebook.

Among the other verticals, there’s a bit of controversy as there are multiple types of apps with different characteristics, like:

  • Deep and viral
  • Deep but not viral
  • Shallow and viral
  • Shallow but not viral

I bolded "Deep but not viral" and "Shallow and viral" because it seems like many of the apps being developed are either one of the other. The guys making deep apps who are trying to deliver real utility, and some of them with actual business models, are having trouble acquiring users. This while little quick apps like "Send Hotness" and "Kiss Me" explode and acquire millions of users.

Games, of course, is interesting because they might be one of the only categories that’s both deep and viral!

Monetization can support “garage entrepreneurs” but venture returns are still elusive
Another great discussion was around the monetization path for these apps and widgets running on social networks. I’ve written about many of these issues in 5 things that make your social network monetize like crap. Here are some datapoints:

  • Plain ol’ AdSense and ad networks provide some developers with $100k+/month
  • However, very few can support more than 4-5 guys working in a garage – there aren’t venture style returns ($50MM+/year) yet
  • Currently, CPMs are in the $0.10-$0.20 range but need to get up to $1 range

And as a result, you have folks playing around with alternative monetization models:

  • Virtual items and virtual currencies
  • Co-registration, lead generation, CPA
  • Many are looking forward to Facebook payment model for e-commerce

Overall, the issues that I outlined in my previous blog still hold true. The social network environments are not great for direct response revenue, and for the branding opportunities, the agencies are still uncomfortable with the user-generated content environments.

What’s next?
Next, I’ll be catching up on my e-mail and getting some real work done ;-)

PS. Get new updates/analysis on tech and startups

I write a high-quality, weekly newsletter covering what's happening in Silicon Valley, focused on startups, marketing, and mobile.

Views expressed in “content” (including posts, podcasts, videos) linked on this website or posted in social media and other platforms (collectively, “content distribution outlets”) are my own and are not the views of AH Capital Management, L.L.C. (“a16z”) or its respective affiliates. AH Capital Management is an investment adviser registered with the Securities and Exchange Commission. Registration as an investment adviser does not imply any special skill or training. The posts are not directed to any investors or potential investors, and do not constitute an offer to sell -- or a solicitation of an offer to buy -- any securities, and may not be used or relied upon in evaluating the merits of any investment.

The content should not be construed as or relied upon in any manner as investment, legal, tax, or other advice. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment. Any projections, estimates, forecasts, targets, prospects and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Any charts provided here are for informational purposes only, and should not be relied upon when making any investment decision. Certain information contained in here has been obtained from third-party sources. While taken from sources believed to be reliable, I have not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. The content speaks only as of the date indicated.

Under no circumstances should any posts or other information provided on this website -- or on associated content distribution outlets -- be construed as an offer soliciting the purchase or sale of any security or interest in any pooled investment vehicle sponsored, discussed, or mentioned by a16z personnel. Nor should it be construed as an offer to provide investment advisory services; an offer to invest in an a16z-managed pooled investment vehicle will be made separately and only by means of the confidential offering documents of the specific pooled investment vehicles -- which should be read in their entirety, and only to those who, among other requirements, meet certain qualifications under federal securities laws. Such investors, defined as accredited investors and qualified purchasers, are generally deemed capable of evaluating the merits and risks of prospective investments and financial matters. There can be no assurances that a16z’s investment objectives will be achieved or investment strategies will be successful. Any investment in a vehicle managed by a16z involves a high degree of risk including the risk that the entire amount invested is lost. Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by a16z and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by a16z is available at https://a16z.com/investments/. Excluded from this list are investments (and certain publicly traded cryptocurrencies/ digital assets) for which the issuer has not provided permission for a16z to disclose publicly. Past results of Andreessen Horowitz’s investments, pooled investment vehicles, or investment strategies are not necessarily indicative of future results. Please see https://a16z.com/disclosures for additional important information.