Futuristic Play by @Andrew_Chen

2009 conference schedule for the digital media industry

Andrew Chen — Mon, 05 Jan 2009 15:00:40 +0000

The 2009 conference season begins
Happy new year! Recently, Jason Oberfest of MySpace put together a great resource of a bunch of digital media tech conferences. I added a couple ad-related conferences, and he agreed to graciously share.

Is this list complete?
Of course this list isn’t complete at all. If there’s anything missing in the list, please leave a link in the comments!

The digital media conference list (so far):

Demos and General Technology

Platforms, apps, and widgets

Online Advertising events

Gaming

Finance and Business

Web 2.0 Summit
All Things D
EconSM
MIT Emerging Technologies Conference
Goldman Sachs Internet Conference
Fortune Brainstorm Conf

UPDATED: added a couple games and search ones, courtesy reminders from Jameson Hsu, Joe Ludwig, Lee Clancy, Wallen’s, Niki Scevak and Jonathan Mendez. Thanks!

Will be in Seattle on Jan 8th and 9th

Andrew Chen — Sun, 04 Jan 2009 05:21:28 +0000

Still on blog vacation - hopefully not for long
Sorry for the lack of posts guys - still semi on blog vacation

Anyway, I will be in Seattle on the 8th and 9th of January - if anyone wants to meet up while I’m there, here’s where I’m going to be:

8th: Downtown Seattle (free after 5:30pm)
9th: Downtown Bellevue (free after 5:30pm)

If I get any interest, I’ll set up drinks or meet people for coffee or something. Let me know, just shoot me an email at voodoo [at] gmail.

See you there!

Freemium business model case study: AdultFriendFinder ARPU, churn, and conversion rates

Andrew Chen — Mon, 29 Dec 2008 15:00:05 +0000

A case study for the Freemium business model
There’s been a lot written about the Freemium model over the years, particularly from Fred Wilson at AVC. Here’a couple articles I’ll recommend on the topic:

Anyway, given the great interest in direct monetization due to the economy, I decided to write a post on the topic as well, focusing on AdultFriendFinder, which has recently released a bunch of great data.

AdultFriendFinder files for IPO
Recently, the holding company FriendFinder Networks, Inc., the owner of AdultFriendFinder (and Penthouse), filed to go public. As such, they released a Form S-1 where they go through many of their overall business metrics - you can read the full SEC documents here.

OK, it’s a lot more boring than you might expect from an adult-oriented conglomerate. It’ll put you to sleep.

There’s a ton of data in the S-1, but I’ll just summarize some of the most interesting stuff related to acquisition, monetization, and retention of the customerbase…

FriendFinder’s business metrics
First off, there’s some good definitions for how they think about their business - everyone who is thinking about direct monetization of their customers should be familiar with all the terms below:

Visitors. Visitors are users who visit our websites but do not necessarily register. Visitors come to our websites through a number of channels, including by being directed from affiliate websites, keyword searches through standard search engines and by word of mouth.
Members. Members are users who complete a free registration form on one of our websites by giving basic identification information and submitting their e-mail address. Members are able to complete their personal profile and access our searchable database of members but do not have the same full access rights as subscribers.
Subscribers. Subscribers are members who purchase daily, three-day, weekly, monthly, quarterly, annual or lifetime subscriptions for one or more of our websites. Subscribers have full access to our websites and may access special features including premium content.
Paid Users. Paid users are members who purchase products or services on a paid-by-usage basis.
Average Monthly Net Revenue per Subscriber. Average revenue per subscriber, or ARPU, is calculated by dividing net revenue for the period by the average number of subscribers in the period.
Churn. Churn is calculated by dividing terminations of subscriptions during the period by the total number of subscribers at the beginning of that period.

And in fact, you can think of Visitors, Members, and Subscribers/Paid Users as a funnel that they manage to extract revenue. Then you combine that with the ARPU and Churn to get an understanding of monetization and retention, respectively.

Funnel metrics
And in fact, they list some of the key conversion rates between each of these numbers:

Visitors: 59 million uniques worldwide
Members: 4 million new member registrations (on 270 million members total)
Subscribers*: 900k paying subscribers
ARPU: $19.06 per paying subscriber/paid user
Revenue per member**: $0.95 per member
Churn: 18% month over month

*New subs/month number is not in the S-1, but is derived from the fact they have been about level on total # of subscribers, yet with 20% churn, so to make that up they must be adding a little over 200k to stay even.

**Revenue divided by new members (rather than subscribers)

So let’s try to figure out what their funnel %s look like. One complication is that the FriendFinder S-1 gives total members and new members within a month, but doesn’t give “active members.” At the minimum, it should be 6% since 4 million new members on 59M unique visitors yields 6%, but you might imagine it would be closer to 15%, which is closer to an industry standard.

Here’s a couple ranges, based on the above assumption:

Visitors -> Members: 6-15%
Members -> Subs: 10-22%
Subs -> Renewing Sub: ~80%
Revenue per member: $0.48-$0.95

You can compare this to Free-to-play games and Casual MMOGs via these blog posts from Jeremy Liew and Nabeel Hyatt, although you should note that their definition of ARPU is calculated from actives rather than subscribers, so you should use my above “Revenue per member” number of $0.95 rather than the substantially higher $19.06 per paying subscriber. Anyway, you’ll see that it’s actually not much different!

It shouldn’t be surprising that all of these freemium models, after careful optimization, come out at roughly the same numbers.

Acquisition
I also want to highlight a couple interesting points about how FriendFinder acquires their customers:

Marketing Affiliates. Our marketing affiliates are companies that operate websites that market our services on their websites. These affiliates direct visitor traffic to our websites by using our technology to place banners or links on their websites to one or more of our websites. As of September 30, 2008, we had over 110,000 participants in our marketing affiliate program from which we derive a substantial portion of our new members and approximately 44% of our revenue. For the nine months ended September 30, 2008, we made payments to marketing affiliates of over $46.4 million.

[also, in a separate section...]

In addition, for over 10,000 of our affiliates, we maintain private label websites that provide a seamless, turnkey outsourced solution using our technology platform for social networking and live interactive video websites. These websites have the look and feel of the affiliate’s website with the affiliate’s logo and website name but are operated by us. Users who click through the affiliate’s website are tagged with the affiliate’s identifier that tracks the user to calculate the payment due to the affiliate. Private labeling allows our affiliates to preserve their brand while generating revenue for us.

There’s also a block of text on the extent to which they spend money on Search Engine Marketing:

We rely on both algorithmic and purchased search results, as well as advertising on other internet websites, to direct a substantial share of visitors to our websites and to direct traffic to the advertiser customers we serve. If these internet search websites modify or terminate their relationship with us or we are outbid by our competitors for purchased listings, meaning that our competitors pay a higher price to be listed above us in a list of search results, traffic to our websites could decline.

How much do they spend on SEM? Turns out it’s over $50MM per year:

The largest single selling and marketing expense item for Various were “ad buy” expenses which amounted to $54.8 million and $55.3 million for the 2007 period and the year ended December 31, 2006, respectively, the cost of purchasing key word searches from major search engines, together with expenses related to associated personnel.

This means that between their affiliate payments and SEM, they are spending around $100MM buying traffic!

Conclusion
There’s other neat info in the S-1 about their chargeback rate, the split in revenues between their magazine side (Penthouse) versus AdultFriendFinder, and also the breakdown of all the smaller demographics they service. For example, did you know that they also run a bunch BigChurch.com for Christian singles?

Anyway, there’s lots of fun information in there - if you find something fun in there, let me know and I’ll update this blog post to reflect it.

As always, comments and questions are welcome!

Twitter links (while still on blog vacation!)

Andrew Chen — Thu, 18 Dec 2008 07:39:05 +0000

I’m still on blog vacation but I figured I would reblog the links I’ve posted to my twitter account over the last week or two. You can follow me on Twitter if you like these! Many are work unrelated.

Anyway, here we go:

Richard Dawkins and Derren Brown talk about “psychics” - fun set of videos: http://bit.ly/XTbB
on-the-ground report of the startup scene given the recessionary environment from an ex-googler: http://bit.ly/BWKv
presentation zen: nice lil video, shot all on cell phone, wins awards: http://bit.ly/6sVJ
Will Freemium save Web 2.0? http://tinyurl.com/6p5ejq
programming language that looks like cooking recipies: http://www.dangermouse.net/esoteric/chef.html
mobile CPMs collapsing, says AdAge: http://tinyurl.com/6p8d8j
obama logos that weren’t chosen, some are still quite good! http://tinyurl.com/5c4bsj
emarketer predicts down revenue year for myspace and facebook in 2009, 585M and $210M respectively: http://bit.ly/UVDj
michael lewis (author liar’s poker) on jobs versus callings and a decimated wall st: http://bit.ly/zV8s
hilarious basketball trick shot competition where lebron james loses: http://tinyurl.com/3qrtcg
this kind of blog post makes me happy i’m not at msft: http://tinyurl.com/5so6ok
New Malcolm Gladwell article: How do we hire when we can’t tell who’s right for the job? http://bit.ly/wm29
great article on why there isn’t more transparency in the leadgen market: http://bit.ly/YB41
watch a genetic algorithm try to evolve a car in flash, traverse the land without red circles touching the ground: http://bit.ly/fLgb
creative! 3-d dominos sandbox: http://drawminos.com/
comic: mostly i use facebook to send cutesy, useless gifts that require people to install apps that email them spam http://bit.ly/xEff
funny video - chickens stop rabbit from fighting: http://tinyurl.com/2m5227

Taking a quick blog vacation…

Andrew Chen — Mon, 01 Dec 2008 08:31:26 +0000

BRB!

Here are some of the partially-written drafts I have saved in my Wordpress account - no promises on whether or not I’ll finish them though

Forget about user engagement - just focus on retention!
Launching new product features: Metrics for internal distribution
The Joel Test for data-driven decisions
Do data-driven models lead to uninspired products?
Are websites really better than desktop apps for user acquisition?
The social gaming business 101: Lifetime value, cost per acquisition, player retention and lifetime value
5 key factors for increasing retention metrics
Dual currencies in virtual economies
Elements of every virtual items-based social game
How to calculate an ARPU and why it’s important
5 common objections to making data-driven decisions
“Yet another ad network?” Why the future of advertising points at more networks, not less
Are you building features that no one will use?
“OMG I’VE JUMPED THE SHARK”: 10 things to do after the TechCrunch crowd has moved on
Learning about retention metrics from retail and catalog marketers
Designing social networks: Real friends versus online friends
Social gaming and BBS door games: Learning from past casual asynchronous games
Why “launching” is old and busted

See you guys in a couple weeks…

Video up from Virtual Goods Summit, Metrics for Virtual Goods Businesses: The Whirled Case Study

Andrew Chen — Mon, 17 Nov 2008 18:54:41 +0000

Virtual Goods Summit videos are up!
Charles Hudson was kind enough to post all the videos from the Virtual Goods Summit from earlier this year, you can see all the videos here.

The talk that Daniel James (of Three Rings fame) and myself gave is embedded below.

Here’s the outline of the content we covered:

Metrics for Virtual Goods

Key metrics
- What is Whirled?
- What is Puzzle Pirates?
- Puzzle Pirates Metrics
What factors drive LTV?
- User acquisition metrics
- Factors that drive acquisition cost
- Dashboard for user acquisition
Customer retention metrics
- Factors that drive revisit rate
- Whirled retention cohort %s
Virtual Economy overview
- Dashboard for a virtual economy
- Lots of graphs
Billing payment breakdown
- Billing fraud
Questions and answers

Enjoy!

How to calculate cost-per-acquisition for startups relying on freemium, subscription, or virtual items biz models

Andrew Chen — Mon, 17 Nov 2008 15:30:22 +0000

Buying ads make sense for direct monetizing products
When it comes to products that directly monetize their audience using subscription, ecommerce, virtual items, etc., it can make a lot of sense to rely on advertising as a distribution channel. The reason for although there are 100s of millions of internet users, only a small fraction (usually <1%) will be in-market for your services at any given time. As a result, you are looking to acquire these users, and only these users, and everyone else is considered wasted energy.

Note that the freemium model is a variation on this concept - where you acquire a large base of “casual users” that stick around, and you slowly convert some % of them to subscribers. You can think of it as vertically integrating your distribution, and instead of spending money to buy ads, instead you are spending money to support this large base of free users.

Run an ad-supported consumer internet app? You better understand ad-buying too
These days, it’s simple to think that advertising is about placing javascript code on a page, and seeing what numbers AdSense gives back to you. Instead of thinking about it that way, publishers would do their customers (their advertisers) a great service by understanding what it means for ad inventory to perform or not perform. They should really understand how advertisers analyze their cost-per-acquisition so that the publisher can better service them - that’s at the heart of indirect monetization. If you’re not selling directly yourself, you’re helping someone else sell.

CPA, the common currency of user acquisition
The first step is to understand your user acquisition funnel, from start to end. Although there are many ways to price things, be it CPM, CPC, or CPA, the key is that it all rolls back to how much it costs you to have a registered user. You need this cost-per-acquisition number to be lower than the lifetime value number, and what you have left is profit (before cost of infrastructure, etc).

So you want to build something that looks like this:

Source	Ads bought	CTR	Clicks	Signup %	Upload pic	Users	Cost	CPA
Google	1M	0.50%	5,000	20%	50%	500	$ 5,000.00	$ 10.00
Ad.com	20M	0.10%	20,000	10%	50%	1000	$ 20,000.00	$ 20.00

The above is an example of two traffic sources, Google and Advertising.com (the latter being an ad network), as well as clickthrough rates, signup %s, and the cost per acquisition.

A couple important notes on the above:

the SOURCE of your traffic is the most important segmentation - make sure you track acquisition and LTV numbers, since you often get vastly different numbers depending on where you are buying ads
you want to break down your funnel into as small of steps that make sense, from the clicks into the signup page into any intermediate profile forms and then the final registered numbers. Your funnel may be larger or smaller
Google might charge you CPC and Ad.com might charge you CPM, but you have to normalize that back into how much it costs you to acquire a registered account. In a CPC model, you don’t care about the CTR much since you don’t pay for impressions that don’t result in clicks, whereas you do care about CPMs
the only difference between a good CPA and a bad CPA is whether it’s above or below your customer LTV
In addition to tracking source of traffic, you may also want to track important factors like what campaign it was in, what creative it corresponded to, the banner ad size, and other things that might affect CPA. The last thing you want is a variation that is very unprofitable, but is obscured by being grouped together
You may also want to group all your marketing channels into the above, including email, partnerships, blog traffic, viral invites, etc. Obviously for stuff that’s free traffic, the CPA is infinity, but it’s good to know what kinds of funnel %s the other traffic throws off, for comparison’s sake

Got all that? Good

What factors influence ad performance?
The second thing worth considering is what factors actually influence GOOD numbers for CPAs versus what numbers are generally bad.

I made a quick, anecdotal table below to enumerate some of the factors:

Type	Options	Importance
Source of traffic	Ad networks, publishers	++
Cost model	CPM, CPC, CPA	+
User requirements	Install, browser plug-in, Flash	+++++
Audience and theme	Horizontal vs vertical	++
Funnel design	Landing page, length, fields	+++
Viral marketing	Facebook, Opensocial, email	+++++
A/B testing process	None, homegrown, Google	+++++

A couple additional notes:

As mentioned previously, the source of traffic is very important - you should dedicate a significant amount of time buying lots of different kinds of traffic to see what works
Cost model is something you should be able to normalize into CPA and mostly ignore, except for cashflow and risk reasons
User requirements can be a huge issue - if you are forcing users to download, that will kill your CPA. Similarly, asking a demographic that doesn’t have credit cards for their credit number can kill you. Make sure that you understand your audience and that your funnel is optimized for them
Audience Theme revolves around the concept that strongly themed products are often quite vertical in nature, which causes a large % of users to reject the product. For example, a site for teens obsessed with vampires is much narrower than a web email site. The narrower the theme is, the harder it is to find appropriate ad inventory to buy
Funnel design and A/B testing is key - definitely worth investing in
Similarly, for those who can find a viral angle in their product, that can be a huge benefit as well. It has the capability to create order-of-magnitude decreases in the CPA, which can be the difference between profitability and bankruptcy! But this also has issues if your product is not widely appealing enough, since virality depends on a horizontal offering to work

If you have questions or comments, feel free to leave a message!

Amazon Associates stats for this blog

Andrew Chen — Mon, 17 Nov 2008 08:04:20 +0000

Man it’s tough to make money with affiliate sales There’s definitely been a bump since I posted my books list, but nothing fancy.

This is why I’m always amused when I get pitched blog widgets that are supposed to help me make money - none of it is ever substantial enough to be worthwhile purely for monetization. The value from writing this blog is all in super soft social capital.

	Items Shipped	Revenue	Referral Fees
Earnings Report Totals January 1, 2007 to November 15, 2008
Total Amazon.com Items Shipped	77	$1,674.52	$84.26
Total Third Party Items Shipped	11	$151.50	$8.18
Total Items Shipped	88	$1,826.02	$92.44
Total Items Returned	0	$0.00	$0.00
Total Refunds	0	$0.00	$0.00
TOTAL REFERRAL FEES	88	$1,826.02	$92.44

The Secret History of Silicon Valley (next Thurs, Nov 20)

Andrew Chen — Tue, 11 Nov 2008 18:50:41 +0000

Talk coming up next week
Steve Blank, a professor at Stanford and serial entrepreneur of 8 startup companies, is giving a revised version of his talk, The Secret History of Silicon Valley. The YouTube video of the talk is embedded above, and an additional 1/3 of new material will be added. There’s also a lot more material in Stanford’s Entrepreneurship Corner, which I’d encourage you to check out aswell.

Also, if you haven’t read Steve’s book, The Four Steps to the Epiphany, I’d encourage you to do so. There’s a lot of great stuff in there that is more or less the product development methodology that I follow.

Anyway, here are some additional details on the event - see you there!

DATE & TIME
Thursday, November 20, 2008

12 p.m. - Bring your lunch and enjoy a lecture with CHM friends and family. Beverages will be provided.

LOCATION
1401 N. Shoreline Boulevard
Mountain View, CA 94043
Directions

REGISTRATION
Register Now

ABSTRACT OF TALK
While Silicon Valley is responsible for the wealth of millions of people, not many are familiar with its long and complex history. Unbeknownst to even the most seasoned inhabitant or observer, Silicon Valley, Northern California’s peninsula, was shaped by many forces.

Join renowned serial entrepreneur, Steve Blank, as he provides an overview on the secret history of Silicon Valley and how the Valley got its start. Much like the startups that have made Silicon Valley famous, the Valley began in a strikingly similar formula.

Hear the story of how two major events – WWII and the Cold War – and one Stanford professor set the stage for the creation and explosive growth of entrepreneurship in Silicon Valley. In true startup form, the world was forever changed when the CIA and the National Security Agency acted as venture capitalists for this first wave of entrepreneurship. Learn about the key players and the series of events that contributed to this dramatic and important piece of the emergence of this world renowned technology mecca.

List of essays from this blog is now up to date!

Andrew Chen — Tue, 11 Nov 2008 15:00:00 +0000

I recently went through and updated the list of essays on this blog - it’s now all up to date. As always, you can view them from my blog by clicking the Essays link at the top.

For the lazy folks, here’s the complete list, current as of today:

Viral marketing and user acquisition

For web entrepreneurs, growing your userbase is a key challenge, alongside product development and financing. These posts emphasize a quantitative approach to getting traction and growing users.

Engagement and product design

Using principles from game design and analysis of consumer behavior, these essays cover the process of creating experiences your customers will love.

Online advertising and social network monetization

Social web product have unique characteristics as it applies to online advertising. These posts cover some of the issues around key topics such as CPM rates, behavioral data, ad revenue modeling, etc.

Metrics

Without metrics, web entrepreneurs are just flying blind. These essays cover some of the organization and development issues around instituting a metrics system - what to measure, in what order, and how to implement them.

Media and games

Traditional media, including TV, music, games, and movies are at a crossroads. Here are some thoughts on how the industry is changing and evolving.

Entrepreneurship and startup life in San Francisco

Just a couple thoughts on things I’ve encountered while arriving in SF.