Make Money Online

When it comes to revenue, some statements are not only worth thinking about, but are worth re-reading several times. The first quote came a few days ago from Eric Schmidt, CEO of Google, who said,

“Trust me that revenue is large enough to pay for all of the Android activities and a whole bunch more.”

That “whole bunch more” should lead readers to take a closer look at the mobile ad market. Of the four largest smart phone OS providers: RIM (Blackberry), Google, Apple, and Nokia, Blackberry appears to be the only one without a clear profit plan in mobile advertising. It’s no surprise then that Blackberry is looking to buy their way in, as reported in the Wall Street Journal here.

It’s old news that Google paid $750 million to acquire AdMob and that Apple scooped up Quattro Wireless Mobile for $275M. But few know that Nokia launched its own mobile network back in 2008. Although Nokia may be in the game it has not had the same smartphone success in the United States, the hottest mobile advertising market.

AdMob, acquired by Google, is currently the largest mobile ad network, estimated by International Data Corporation (IDC) to control 21 percent of the market, with Millennial Media, the apparent target of Blackberry mobile ad growth plans at 12 percent. Yahoo and Microsoft are in the game, but trail at 10 percent and 8 percent respectively.  AOL, which bought former market leader Third Screen Media in 2007, is no longer a factor.

If there is any trend, it’s that mobile advertising is less of a web portal game, and more of a mobile OS game.

One key reason that mobile OS providers are more relevant in this market is that they can change the economics of the carrier phone relationships. What if, instead of carriers paying a subsidy for phones on their networks, the carriers were paid, not once, but over and over again for the life of that phone on their network? Wouldn’t that be more attractive? That’s exactly how Google has changed the game - by sharing revenue with carriers.

This could be lucrative for carriers and could easily influence device selection and promotion. Who has the most to lose, is Nokia and RIM as they dominate smart phone unit sales, but Nokia already owns an ad network, they just have to execute. Blackberry, then, better get its act together, and soon. Not only do they risk missing out in revenue, but their distribution channel with the carriers could be negatively impacted.

To put the opportunity into perspective, I’ll close with the second quote made on CNBC’s Mad Money, where in 2008 Google CEO Eric Schmidt said that,

“Mobile computing alone will bring in more money than the company’s desktop business.”

If he meant what he was saying, Schmidt sees mobile advertising as larger than the approximately $6 billion a quarter that Google currently earns from web-based advertising. Now that’s a quote worth thinking about.

Excerpted from:
Mobile Ads: Fad Or The Next Big Revenue Opportunity?

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Jambool, creator of Social Gold and former provider of virtual currency for Facebook games and web apps, was sold to Google for a reported $70 million. This follows the trend of game and social app providers LabPixies and Slide we covered here.

In a post about the Slide acquisition, I discussed how Facebook, which originally welcomed developers in 2007 with open arms by dangling the possibility of riches, changed the game and pulled the power back in, away from developers. But why did developers originally flock there? In a blog post, Paul Allen called it the “true spirit of Wikinomics”, explaining:

“Mark Zuckerberg made three big announcements. 1) Applications can be deeply integrated with Facebook 2) Distribution of the applications will occur through the network, and 3) The business opportunity Facebook is providing will give 100% of advertising revenue (for third party applications) and 100% of transaction revenue to the application developers.”

That move had a huge impact. First Round Capital, a venture capital firm, describes this step: “By providing a clear roadmap – and business opportunity – for the widget makers, Facebook has just increased its virtual R&D budget by over $250 million dollars.” First Round correctly predicted that companies like Slide, RockYou, and other developers would enrich the user experience and likely enrich Facebook.

One such company, Jambool, took on the task of building a virtual currency business on Facebook, facilitating the buying and selling of virtual goods and services for application developers. This gained them some traction with other app developers and helped to build a growing business.

But that was the past, and now, as Facebook has grown in size and influence, it has changed the rules. Just as Slide, RockYou, and others have seen their fortunes wane as Facebook grew more powerful Jambool literally had  the rug pulled out from under them once Facebook introduced credits and negotiated deals where these credits would be the exclusive virtual currency on the site. It’s no mystery then that Jambool was snapped up by Google.  Like Slide before them, Jambool’s market valuation and market viability took a hit when Facebook changed the game, making them more likely to embrace an acquisition by Google.

This expands the Google fold to include game makers, experts in viral widgets, social advertising, expression tools, and now virtual currency. What’s next? Who else has been hurt by Facebook changing the game? What gaps need to be filled in Google’s social strategy?

While there are many utility apps and games that fit the bill, the one missing piece are offers – the trend where users don’t pay directly for points, credits, or virtual goods directly, but instead they do tasks, trial products, or spend money on other things that get them what they want.

The two most obvious candidates in this space are OfferPal, which was flying high until the scamville problem we covered here and the choice by Facebook to use TrialPay and PeanutLabs for their offers. This dramatically cut OfferPal’s profile and instantly cast doubt on how big they could become, and now, with a reduced valuation but solid technology implementation, Google could pick them up and round out their portfolio. However, while OfferPal is one obvious choice, Google could also choose TrialPay – a successful, and less controversial, but smaller provider in the offer space. If Google was willing to be aggressive, they could buy TrialPay, which is the favored integration partner for Facebook and currently the main provider of offers that yield Facebook credits. Such a move, at the right time, could not only give Google a solid technology and team, but also temporarily disrupt Facebook’s ability to leverage offers for credits.

Google is building an army of technology,  social tools, and people to challenge Facebook’s dominance in social media. While it has successfully executed on many technologies, it’s only now buying the companies with the traction, experience, and the mindset to put the social back in Google. The only remaining questions are around their ability to they integrate the recently acquired companies and if/how they will move into the offers market.

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In a previous post I discussed how I thought Twitter was a good tool for businesses.

It turns out that I was underestimating the enterprising drive of Twitter and now Foursquare users. In June of 2009, there was much talk about how a Twitter user suspected his tweets lead to a robbery of his house. Such robberies are possible since the user’s home address is still publicly available via the domain registration of one of his web sites.

I often wondered when (not if) someone one would create a service to highlight the risky behavior of announcing that you weren’t at home. Fast forward to February 2010, and someone finally did it. PleaseRobMe.com is live. The site blatantly looks like a satire, and the creators explain that they made the site to point out the folly of people’s actions. Unfortunately, the information on the site appears legit (you can search Foursquare and Twitter to see the source of the updates), showing people broadcasting that they are away from home. Finding home addresses are not so difficult to find: simply try this search to get a list of people’s addresses, and then you simply need to watch people’s status.

While the Twitter user mentioned in the start of this post has a business, the information people are revealing create the wrong kinds of opportunities. Making it easy for criminals to find and rob you is not the fault of the service, but it does reveal that common sense doesn’t keep up with the new social media technology.

So I end this post with a thought. What are the business model opportunities here?

a) Businesses marketing on Twitter and Foursquare announcing special hours and and ‘on-the-road’ promotions?
b) Businesses offering to catch and correct users who self-reveal risky information?
c) Criminals who are looking for an easier time casing homes?
d) Writers who point out risky behaviors?
e) Other

Please comment, especially if you are one of those who likes to reveal that they are not home.

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Satirical Please Rob Me May Point to Business Model for Twitter and Foursquare Users

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Ok so I can’t, but apparently some web loyalty firms are able to. Some at least are starting to change their business model as pressure mounts from Congress due to consumer complaints. As of January 8th, 2010, your 16 digit credit card number is now required to enroll in loyalty programs from Affinion or so says a press release from U.S. Senate Committee on Commerce, Science, and Transportation.

Why is that news? Previously loyalty programs like Affinion and Vertrue, Webloyalty, etc only needed your email address to charge a subscription to your credit card through the post-transaction pages of retailers such as Priceline, VistaPrint, Intelius, Buy.com and others. Called post-transaction marketing it is a way for loyalty programs to get consumers to agree to offers that appeared free but usually were tied to monthly subscriptions. Often the consumer would unknowingly “opt-in” to being charged by checking a box at the end of the shopping cart process. That’s when the retailer would pass the card information and subscription “request” to the loyalty program.

In a related article on Dow Jones, both Vertrue and Webloyalty admit they exceed the law’s requirements by increasing enrollment requirements in their programs in order to charge users – from just an email (early last year) to an email and the last 4 digits of your credit card (late last year).

Yes, you heard that right, as recently as of last November, as I was writing about the offers and scams, loyalty programs were exploiting their own version, and were helping firms rake in millions by charging users $10 to $20 a month for subscriptions they ‘agreed to’ without entering their credit card numbers. I mentioned the $1.4 billion extracted by these loyalty systems before, keeping up on the issue really shows how tricky, persuasive, and well engineering these programs are. Per the Senate document (pdf), approximately 30 to 35 million users were entangled into these schemes, or roughly the equivalent of 1 in every 10 Americans was suckered into these programs.

So, the basic math around this is as follows:

• $1.4 billion in receipts
• 30 million users affected minimum
• approximately $46 per person went to these programs.

Since the amount of post-sale transactions typically fell in the $10 to $20 range, that means on average, users paid into these programs for  2 to 5 months.

There are some lessons that I’ve extracted from learning about this, and maybe one of them will helpful.

1. You can be charged by just entering your email into a post-transaction offer. It’s legal, and it’s been happening for a while.
2. Read the fine print,  better yet, exercise extreme caution when presented by a post-transaction offer. I’ll skip/cancel them all myself, thank you.
3. Check your credit card statements religiously, since #1 (above) is not illegal, you can and may be charged at anytime.

But even as you try to protect yourselves, be aware that the post-transaction marketing firms are lobbying congress to protect their industry and maintain their wealth-building status quo. At stake are over $1B in revenue, and the senate report lists 19 companies making over $10 million and another 72 making over $1 million.  Money that comes from the pockets of you and I.

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Once Upon a Time I Could Charge Your Credit Card Using Your Email

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In the last post I provided some background on offers and the confusion they may cause. I also pointed out the potential for scams. In this article, I’ll put a little more focus into the complexity of the offer systems and show another example of how confusing offers could lead to complaints.  For the sake of this argument, the values used in my examples are chosen for effect and are not accurate for any specific offer system.

Previously I described an offer for a free Walmart gift card.  The offer awards 21 points for participation in and promises to earn you a $1,000 Walmart gift card as well.  But what are the economics behind the offer?  How is it fiscally viable for a free survey or trial to result in you getting 21 points that would actually cost you $5 to purchase? In this case, it seems too good to be true, and it is. There are two views of the systems. First, the positive view: cost of acquisition.

In this model, when a company knows it typically takes $3 in direct and indirect advertising to acquire a customer they might decide to spend an amount less than $3 to acquire a new customer. For example, an offer may yield a $9 a month subscription to Netflix, at say a $2 cost of acquisition, and a subscriber who may or may not use the service. Typically, the offer would yield a trial customer, costing Netflix $2 in marketing, plus the gross operating costs to support that subscription, but no continuing subscription. For illustrative purposes, let’s say the trial included four discs, sent and returned, at a cash flow cost of $0.80 per disc (due to an estimated cost of $0.40 shipping each way for each disc) for a total of $3.20. The non-converting trial user cost is then $5.20 (or $2 + $3.20). Again, these numbers are estimates that may be off, but have some anchor to the real costs of the offer.

Then, there’s the negative view of the system in which advertisers get fleeced and users get scammed.

This model is comprised of two components: in point A, users take offers with no intention of spending any money with the advertisers, and (B) unknowing users sign-up for subscriptions without intending to. To illustrate point A, I encourage users to briefly visit the sites mafiawarstrategy.com or their sister site mobsterstrategy.com, both which cater to players of mafia/mobster games by Zynga, mentioned in the first part of this series, and Playdom, another large social gaming company. On these sites, and sites like them, you can find instructions on how to pick and choose offers, which offers are free, which offers to avoid due to spam, and how to manage your offers to insure you don’t get charged a penny.

My favorite part of the posts at these sites is that they carefully explain how to spot and avoid confusing offers that may never result in points. Worried about getting scammed? Well, these sites tell you what proof you need to get your points, the minimum actions needed to get your points, and what happens if you don’t do enough or don’t have proof. Be warned that you can’t access the content of these articles unless you do an offer. Of course, I make no guarantees on the quality of the offer that you’ll be shown.  And you should know that the ad network for the sites claims that publishers are paid $1 per action/offer completed.

So if you’re ready, go here. An image of the page you’ll see is below:

Note the phrasing on the page from the ad network: “These DO NOT require credit cards or trial signup offers”. Remember this screen for later in this article. If you click through or at least believe what I’m saying, you’ve already noticed that the article is all about getting points for free and not sending any money to the advertisers.

Now, on to point B and the risk users run for getting scammed. Let’s start by looking at the ‘free survey’ selections.

When you choose the IQ quiz you’re given a series of questions. The two images below  display the survey start and the first question. The IQ quiz seems harmless enough, and even better, I’m promised 21 points for answering a few simple questions.

Now, as you advance to the last quiz question, you get used to quickly clicking answers and never scrolling down. The questions are simple and nicely framed and there is no need to look below the frame of the quiz.  Once you reach the last screen, below, by rushing through the ten easy questions you’re faced with an innocuous phone number entry box and the prompt: “Enter your phone to get your results”.

The blackboard frame in the picture provides a psychological cue to stay focused on the quiz and NOT scroll down to the bottom of the page. So if you don’t scroll down and just enter your phone number, you would have just subscribed to a $4.99/month mobile phone service (see the small print). If you don’t enter your phone number, you would still have completed the survey, right? The only reason to enter your phone number was to get the results. Now, if you try to exit the survey, another page pops up trying to entice you to do another survey:

And if you close that, you end up on the article where you started, but the blocking overlay has changed:

You completed the offer by taking the “no credit card/no trial” quiz, but you did not take the final step to get your results and subscribe to the $4.99 monthly service. By the letter of the offer, you should have earned a reward; access to the article, or your 21 game points.

But the reality of the situation is that the ad network has to pay the publisher, so unless the user subscribes there’s no money to sponsor the offer. Users need to pay somehow, and these offers depend on people not reading the fine print and not scrolling down the page.

So what just happened? A user wasted his time, did not get his points, and the advertiser got nothing since the user failed to subscribe. And even if the user did subscribe they would likely unsubscribe immediately, as instructed by the article behind the offer wall.

Confused? Most people are. These offers have lead to various tech magazines citing revenues over $300 million for these types of offers, while related reward offers have been cited at $1.4 billion in a recent senate report.

So with 100 million teens and tweens looking for a leg up as well as ‘points’ to help them in games, do you really believe that they all read the fine print? Or that they will be able to find the fine print in an easy and non-confusing manner? It doesn’t take a high IQ to figure out the answer to those questions. And that’s somthing the scammers will try to take to the bank.

Excerpt from:
Virtual Goods, Offers, and Scams: Part 2

Search Engine Keywords:

• trial offers with free walmart gift card

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In a win for micropayments, World of Goo, a top 10 PC game for January this year and popular seller on WiiWare, the Wii game store, was sold in an experiment to see what people would pay for their popular game by giving them the option to choose what to pay for the game.

The “Pay-What-You-Want” sale marked the 1 year release of the game, so admittedly the game was not at the peak of the sales cycle and was likely in the hands of the users who really wanted the software. Also important is that the publisher reports piracy of the game close to 90%. Even so, the experiment provides some insight into pricing models for games and possibly content sold online.

What did people pay when they had the chance? 57,000 people paid an average of $2.03 for the game during the promotion. That’s a quick $110,000+ sales for a one week experiment, but that doesn’t tell the whole story.

Due to transaction fees, all sales less than $0.30 meant that the publisher received nothing from the sale. Since nearly 17,000 people paid $0.01, with another 6500 paying from $0.02 to $0.99, it’s likely at least one-third or more of sales were unprofitable.

The publisher also took a survey to determine why people were paying what they paid. The largest responses fell into two categories: paying what buyers could afford and supporting the model. More specifically, nearly 23% of respondents said that they chose the “price” they paid based on what they could afford, and just over 22% paid just to support the pay-what-you-want model. More importantly, only a touch over 5% responded that they paid what they thought the game was worth. Twice as many or 11% reported that they were “cheap bastards”, at least they were honest.

The sales figures, piracy rate, and survey lead me to a few obvious and non-obvious take aways:

1. Buyers appreciated the option to choose what to pay, so much so that any mental transaction costs of paying $0.01 were overcome.

2. The price users are willing to pay to has much less to do with perceived value than affordability.

3. Sales experiments, even a year after a game release, can lead to a healthy bump in revenue when done right.

This suggests to me (feel free to argue with me on this) that the $0.99 and $1.99 micropayment sized price points for apps on the Apple App Store and others may be driving huge sales simply because of affordability. If I’m right, where is your $0.99 app?

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I watched a micropayment related joke pass around twitter, and I was both amused and offended. The tweet?

“Just so you guys know — I’m switching to micropayments, because [REST OF JOKE CURRENTLY LOCKED. PLEASE INSERT ONE DOLLAR.]” (via @aedison)

Why was I amused?

The implied sentiment is appropriate given the discussion of paywalls for journalism. Heck, even @charlesarthur the technology editor at The Guardian joined in. Rumors and outright statements about charging for blog or news content have been circulating from several media outlets. Rupert Murdoch stated that all of his newspaper properties would start charging for access to their websites. The Financial Times is leaning in the same direction.

When you think about the joke, it’s silly that people would charge for news or news blogs, but potentially even sillier to charge for microblogs and tweets.

Why would I be offended?

The current discussion around micropayments is yet another round in a series of  micropayments debates and discussions. This time it’s literally micropayments 3.0, and it is a little offensive to see the same old arguments and jokes about micropayment pros and cons popping up without any reference to the previous analysis and commentary.

Not only did my colleagues and I debate and discuss those same issues for micropayments 2.0, but we had to revisit, clarify, and rehash the debates that arose during the micropayments 1.0.  Each time there were academics that developed equations and user models about the mental transaction costs, usability issues, massive transaction volume requirements, reader commitment development, engagement development, pre-pay vs. post-pay issues, banked vs. unbanked considerations, and more. All of those are valid issues and worthy of debate; however at the end of the day, the real proof is in the pudding. Micropayments didn’t work for many, but did micropayments work for anyone?

The BitPass team and I can definitely say “Yes”: micropayments work for the right type of company and content. We had customers in many content verticals and analyzed the buying patterns and demographics of users and the selling and conversion patters of merchants. The simplest answer to what sold was exclusive content from trusted merchants.  When there was no exclusivity, users went elsewhere to find the content for free. When the users trusted a merchant and knew ahead of time the quality of the content, they were willing to pay for it.

The butt of the joke

Would I pay for the answer from any “joe” on twitter? No, but I might pay to get @aedison’s punch line since her content is generally good and I trust her to deliver some quality. This leads me to the other popular category  at BitPass: entertainment. People tend to pay for entertainment if it’s exclusive, if they respected the content creator, and if they thought the content creator would benefit from their payment.

All joking aside, I hope that the media companies keep in mind their products’ appeal and audience while they consider whether micropayments are feasible within their market.

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Micropayment for a Twitter Joke?

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A wise person once told me that if something wasn’t worth paying for, you didn’t have a business model to build on.  I don’t think he was really choosing a side, but instead he was telling me to focus on value building, as value leads to revenues. This brings me to the discussion I keep seeing around the free vs. paid content debate.

Does free = fail? Or is free a key part of any marketing strategy?

The topic of “free” is in fashion now due to Chris Anderson’s (editor of Wired) book Free: The Future of a Radical Price that just hit the shelves. Malcom Gladwell, of “Tipping Point” fame has chimed in, in the New Yorker, and the Techdirt teams have their own debate about the value of YouTube, the bandwidth black hole, as a free service, here.

What is the Purpose of Free?

While I do believe that free doesn’t guarantee you success, it has some very attractive properties worth looking at. Powell’s Books has an excellent summary here of Anderson’s book pointing out the six key categories of free that he identifies. From the Powell’s Books’ summary:

• Freemium: Free Web software and services, and some content, to users of the basic version. (Think Flickr and the $25-a-year Flickr Pro.)
• Advertising: Free content, services, and software to an audience that advertisers will pay to reach.
• Cross-subsidies: Give away any product that entices customers to pay for something else. Example: It’s a free second-gen Wii But only if you buy the deluxe version of Rock Band.
• Zero marginal cost: Anything that can be distributed without an appreciable cost to anyone, like online music.
• Labor exchange: Performing tasks to gain access to free sites and services.
• Gift economy: From Freecycle (free secondhand goods) to Wikipedia, money isn’t the only motivator.”

On one level, these points seem like common sense and represent tried and true marketing tactics for struggling musicians, artists, videographers, affiliate marketers, and business people in general. Who here hasn’t heard of the phrases “prove yourself”, “build some credit”, or “develop an audience” mentioned over and over again? Nothing is really free, as business types often give free advice, create comps, or do some pro-bono work in order to land a deal, develop a relationship, or generate fans.  What’s key about the six categories above is that Anderson lays out a foundation and framework for leveraging free for business.

A Free Model

To put matters into perspective, I’ll add another layer of discussion based on Malcom Gladwell’s piece. In his New Yorker article, Gladwell digs into Anderson’s YouTube analysis that it costs $0.25 cents to stream 1 hour of video to a user this year. In his book Gladwell sites a Credit Suisse estimate that YouTube will lose close to $500 million this year for that “free” service.

My view is that the YouTube “free experiment” deserves much more credit than what Gladwell has given. I’ll propose a simple model to get the brain juices flowing:

If the average YouTube clip is 1 minute, and it takes seven views to make a habit, or seven minutes of video, the streaming cost for acquiring that customer is 7/60*$0.25 = ~$0.03. So how many opportunities can you name where you could acquire a customer at $0.03 for an “eyeball” acquisition and seven  minutes of attention?

If that user spends 70 minutes in a month on YouTube, then it costs <$0.30 for that user for that month and the equivalent of 70 potential impressions. IF, and only IF, the goal was revenue by advertising, a CPM of $10 over those 70 impressions would represent $0.70 gross.  By leveraging YouTube’s brand equity as the Internet’s default video provider, its “free service” could easily be modified into an ad platform without degrading the user experience. Even in my simple model YouTube might break even.

Leveraging Free

As it turns out, YouTube is on track to do just that according to the Financial Times.

So YouTube appears far from the $500 million in losses that Gladwell cites, but then what?  The free video service provides a cross-subsidy to the main Google cash cow, search, while providing the largest searchable video inventory and yet another mechanism to connect with and develop relationships with armies of advertisers.

In this case, the YouTube free service has not only shown value to uploaders, viewers, advertisers on a direct basis, but has also helped solidify Google’s place in video while providing value to Google’s existing advertising base and shareholders.

So is Free the Perfect Business Model?

I would say “no”. Despite YouTube’s apparent profitability, its position as an industry standard really does skew the equation. However I’d add that “free” should be a key tactic in your marketing arsenal that, if leveraged correctly, can have several real revenue and strategic upsides when truly applied with a revenue motive.

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Free – the Perfect Business Model?

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Farming gold is expected to become a big enough problem that China has banned gold farming. What? Who farms gold?

For those unfamiliar with this hidden economy, “gold farming” is a term that refers to performing tasks that allow you to level up in games. Such “farming” includes actually digging for gold, building characters for sale, lurking to kill players who regenerate in the same place, and other actions which may save time and effort for would be game players.

There is a sizable business in MMORPGs for gold farming especially in World of Warcraft. One report suggests gold farming is worth between $200M and $1B in real money. Yes, it’s a virtual good story, and there are hundreds of companies, mostly in poor areas and third-world countries, who “farm gold” to sell to buyers in the US and other western countries.

While this may sound enterprising, the buying and selling of characters, goods, and services in the real world for virtual world benefit, could have dire consequences – at least the Chinese government believes so.  From the official press release:

“Since 2007, virtual money trading has drawn official attention, with the government demanding tighter controls as such trading became an avenue for gambling and illicit trade.”

Can these virtual economies with virtual goods be such a big deal? Is there really that much criminal behavior around it?

The Chinese government thinks so and is attempting regulation through their Ministry of Commerce. From my own experiences I agree there is a high potential for illicit activity. Back in 2004, I personally saw enough fraudulent activity attempts at buying, selling, and trading virtual currency vehicles, my employer at the time, BitPass, put a high security watch and filter on one of the retailers of the Lineage MMORPG cards for one overseas partner who was using BitPass as a micropayment instrument. To them, at the time, micropayments really did add up to a genuine source of income.

I recommend you read the press release and the earlier discussion on virtual goods, if you have the chance. There’s a potentially enormous volume of transactions in China alone for virtual goods and online payments, big enough that the Chinese government has noticed and taken action.

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China Bans Gold Farming

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Offerpal and IMVU have announced they are teaming up to monetize virtual chat rooms. While many people will grasp the potential of where this is leading, many more will question if this is a micro-windfall or a future of mega bucks. I believe that the answer is mega bucks, but with a caveat.

Way back in 1999 when working for Communities.com, we had virtual worlds for avatar chat, both in 2D and 3D with 3D audio. These products, The Palace and Onlive! had passionate users that not only created props (wearable/usable objects), avatars + their clothes, but also rooms & worlds. There was no way to pay for such things back then, but human innovation was not to be stopped. It turned out that users turned to eBay to list and sell in-world items, and the commerce mechanism of choice was PayPal.

Money was being made even then, and with virtual worlds sprouting up in niches to serve anyone who wants one, it’s another wild west ripe with revenue potential. We had top notch developers and web gurus at Communities.com, and our data showed some pretty obsessive dress-up and self-branding behavior that continues to be mimicked in the MySpace and physical worlds. Likewise, my experience in identity development and communities over the past 10 years suggests that this behavior should be expected and will not stop. Based on these few tidbits, the question isn’t if money will be made, but how much and by whom.

In the announcement, Offerpal explains they have been able to offer to publishers around $75 per 1,000 daily active users they bring to the application (see link above) and expect similar results with IMVU.  I calculate that if IMVU’s five million uniques per month came ONLY once each month, the revenue would be $375,000 to IMVU, assuming Offerpal’s numbers turn out. If Offerpal takes 20% it would yield them $75,000 a month.

So is the caveat that the world owner, IMVU, makes the big bucks? Partially. Another caveat I see is patent trolls waiting to leap into this market. At Communities.com, we had five patents covering secure distributed objects; necessary evils to protect technical innovation.  But this mean that secure distributed objects could be a true scarcity in the communities economies – a one of a kind signed poster from Taylor Swift could literally be one of a kind, with a certificate of authenticity. So as the monetization of virtual worlds moves forward, I’m waiting for those patents and current patent owners, to re-emerge and extract their take from the virtual world economy.

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Virtual Chat Room Monetization: Micro-windfall or mega bucks?

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Could Affiliate commissions per phone call generated be a reality soon? RingRevenue recently completed a $3.5 Million round of series A financing and has partnered with Commission Junction to offer this service to CJ Advertisers.

“Pay-per-call marketing represents an enormous opportunity because 90% of the $300 billion a year U.S. advertising market is still offline,” said Mark Suster, partner at GRP Partners. “RingRevenue’s platform brings the visibility of online ad tracking to that much larger offline market.”

This is a development worth keeping your eyes on.  Market research has shown that for every $1 spent offline there is an additional $6 spent offline.  It would be interesting if merchant landing pages that display prominent phone numbers (often a red flag for affiliates as a merchant worth avoiding) started to dynamically replace those phone numbers with affiliate trackable numbers to provide per-call commissions to those affiliates based on the average revenue per call of the company.  I think it would still be difficult to 100% accurately track the commission per sale of these calls, but I guess with the right technology that prevents human error on the back end, this could be possible too.  If we get that and a solid way to track the brick and mortar traffic, then affiliates might actually be compensated for all the transactions they are responsible for generating.

In a time where the industry if focused a lot about “attribution” and looking for ways to devalye the last-click, I think it’s important to keep in mind the other non-trackable sales that are not being attributed to your affiliate partners.

What does everyone else think?

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Affiliate Commission-Per-Call?

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There’s a new affiliate on the prowl, and it means serious business – at least for itself. TweetBucks has come up with a great business model to leverage Twitter to make itself money. Marketers who use TweetBucks “make 70% of the affiliate commissions every time a click on your shortened link results in a sale” (quoted from the TweetBucks site). If you use their ad system, you also get a cut of the CPM from the ads, too.

Who’s the winner here? TweetBucks, definitely. Let’s do some simple math with the following simplified assumptions.

• 1 million users
• Average affiliate product price $20
• Affiliate fee 10%
• 1 Unit sales per affiliate per month

Under these simplistic numbers, the cash flow would look like:

• $20M total sales/month
• $2 M affiliate revenue/month

Applying TweetBuck’s 30%, yields Tweetbucks $600,000/month.

I’m hoping someone who has used the service will comment and include more details from a user perspective. At first glance it looks like a great model for TweetBucks. That 30% comes from TweetBucks being a “super affiliate” where they sign-on as affiliates for all the products and issue revenue checks based on everyone using their affiliate links.

Why wouldn’t you instead sign up as an affiliate and get your 100%? Well that’s the beauty of their system. They do the work for you – signing up for all the affiliate programs, providing the link shortener/converter, and you don’t need a website or need to update your HTML or optimize your affiliate products. It’s a decent tradeoff if you don’t already have a system to use your affiliate links on Twitter.

So if you want to try affiliate marketing and have a user base, TweetBucks may be an easy way to get started with some potential for supplemental income.

With TweetBucks, Twitter again shows that it has potential for business, but like all business uses of Twitter, it has serious potential to generate spam and annoy the users that depend on it for relevant and timely information. It will be curious to see if TweetBucks can provide a real value to businesses through the affiliate channel or if it will becomes an automated weapon of Twitter spam and a bane to normal Twitter users.

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TweetBucks: Good for business or good for Twitter abuse?

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After reading Guy Kawasaki’s article on Twitter as a Twool and mulling over attention diva Jason Calacanis’ search for more fame on Twitter, it reality has finally sunk in that Twitter really is useful for businesses. If you have customers, products, or trade in your personal fame as a source of income, then social media can really be a leverage/broadcast point for your business.

I’ve been looking for an example with positive results to show how social media can pay dividends. I finally found one worth discussing.

Advertising Age has a short, but solid case study/article that should be required reading for marketers interested in the potential power of social media. In case you don’t have the time, here’s a quick summary and analysis of their point.

Basics: Two small businesses user Twitter to develop their follower list. They announce time limited, tracked offers to their followers who get a discount or freebie if they come in and prove they are following the business on Twitter. In the article, Naked Pizza reported that a Twitter specific promotion accounted for 15%  of business the day of the promotion. Done.

The key to this success lies in the adoption of sound choices by companies interested in functioning in the fluid and interactive world Twitter operates in.  These implementation choices include:

• Advertise their twitter account at the store and encourage followers
• Provide clear value to followers – in this case discounts and freebie
• Require ‘proof’ – in order to avoid the coupon photocopy disaster of KFC while increasing the virality of WOM online
• Setting up tracking mechanism to allow attribution to their campaigns

Nicely done. There are other tips in the article worth noting – especially how not to just shout at customers over a twitter broadcast. I encourage checking out the article yourself, it’s well worth exploring.

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Twitter Proves Its Value for Small Business

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Spare Change, the self-described “first and largest micro-payments system for social networks” will be acquired by PlaySpan, which monetizes virtual worlds, online games, and social networks and gonna be a micro-transaction party.

While the acquisition may seem to be an odd move since the companies are processing around $80 million in combined transactions, the truth is the market is much bigger than the two of them combined.

To understand why this is a smart move, consider several related market news items:

• iTunes apps store records 1 billionth download
• Habbo records $74 million in real revenues
• Chinese Internet giant, Tencent makes nearly $800 million on virtual goods (see Internet value added services line)
• EA’s free video games pull in > $1.6 million a month in microtransactions

With that much money moving around, how do micropayment startups like PlaySpan and Spare Change compete? By pooling interest and leveraging each other’s strengths.

So money can be made, no, is being made in social networks, games, online, and mobile – all places where PlaySpan and Spare Change do have a shot. And now, with their resources combined, they have a better shot at competing.

Having virtual goods does not equal micropayments, nor does having one, the other, or both guarantee any success. The question is can PlaySpan continue to capitalize on people’s interests in virtual goods/games? The key is, as with each of success cases above, the virtual good, game or service provided must be one people are willing to pay for.  This is how companies like PlaySpan can cash in by facilitating the transactions for the virtual good, game or service and capitalize on this growing market.

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A new kind of micropayment is apparently getting traction, through the site Swoopo, where users pay $0.75 each time they bid for an auction item. That’s right; you pay $0.75 for the entertainment pleasure of bidding, regardless if you win. VentureBeat reminded me of Swoopo in their recent article.

The basic idea is both brilliant and evil at the same time. On Swoopo the microbid price  increases in increments of $0.15 meaning an item can be bid up from $1 to $1.15 to $1.30 to $1.45, etc; each bid increase incurs a micropayment of $0.75. When an item is bid up the minimum microbid amount, for each $1 in bids the company running the auction has made over six times $0.75, or more than $4.50. If an item increases $10 in price this way the company makes $50. So if that Nintendo DS you want increases in price from $1 to $31 in increments of $0.15, the company has taken in $150.

Think about that for a second. It would hurt to have bid 10 times in that auction, pay the $7.50 in bidding fees, and still lose.

Think about that again – would you stop bidding and lose your investment, or would you keep bidding to try to win that one item? Pretty evil.

That’s also where the brilliance is. As soon as someone bids they’ve lost money unless they win the auction. And by win, I mean they’ve probably paid another $15 to $30 to win the right to buy the item for the final price. Since there’s only one winner, it could easily feed into spending more in another attempt to win an auction. To make it more attractive, think about how it looks to drive by visitors – Wiis won for $50, DS won for $30, PS3s won for $100. There’s potential for huge profit margin on bigger ticket items. Almost sounds like printing money.

Is this a smart way to spend your money bargain hunting? Is it really entertainment, as the spokespeople claim in the Venturebeat article? I’ll avoid Swoopo, but I’m compelled to watch how they are able to tap into the basic human need to win, not lose money, and get a good bargain.

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Is Pricey New Micropayment Site Worth the Shopping Entertainment?

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