Browse by Tag: monetization (11)
Feb 16
2010
Freemium Design Pattern: Scale Pricing with Customer Success
Lately I've been spending time thinking about freemium business models and how best to structure them to maximize conversions. I believe we are still early in our understanding of these models and to date most of the available analysis has been limited to anecdotal evidence, one-off case studies, tips & tricks, and a few early overviews of what's been tried.Despite this I think we are starting to see some interesting emerging design patterns and best practices coming together. I wanted to discuss one such design pattern, including examples of it's usage and potential limitations.
One of the segmentations that is often talked about among Chris Anderson, Eric Ries, etc. is dividing freemium plans into 3 main tiering types: time-limited, capacity-limited, and feature-limited. Canonical examples of each include 30-day trials for 37 Signals' Basecamp, storage space limitations for Dropbox, and mobile access for Remember the Milk, respectively.
One variant of capacity-limited freemium tiering that is particularly effective for products targeted at the SMB market is to scale pricing with customer success. What I mean by this is providing various premium tiers of your product that will become appropriate for your customer as they are more successful in their own business. Typically this means tying the tiers with capacity-limits that either directly reflect or proxy the customer's growth in their own user base or revenue.
What's nice about this model is that it appropriately segments your potential customers into pricing buckets by ability and often willingness to pay. Businesses that are just getting started, pre-revenue, or early in finding product\market fit can often leverage your product as part of the free tier or low priced tiers. This provides few barriers to adoption and get's them quickly onto your product. And as their business scales, they'll think twice about switching since they've already been successfully using your solution. On the other hand, larger businesses will pay against a higher tier appropriate for their level of success.
Let's take a look at 5 different products targeted at SMBs that leverage this freemium design pattern.
Mixpanel offers a sophisticated set of analytics tools that picks up where Google Analytics leaves off. It often replaces hard-to-maintain home-brew solutions that companies put together themselves. Mixpanel works by allowing you to instrument your application to track custom data points and then does all the data crunching and segmentation to present the data in an easy-to-consume fashion.
The way their pricing structure works is by pegging the monthly subscription rate to packages of tracked data points. The free package provides up to 10,000 monthly data points. The next package allows 100,000 data points for $25/mo. And so on. While the number of data points collected does depend on how many individual event types you wish to track, the biggest determinant is total number of users using your service and you'll likely only scale to a larger plan when you reach new customer segments. Thus tiering on tracked data points provides a close proxy for their customer's own success in user growth.
Recurly is a service that makes it easy for SaaS businesses to manage their customer's monthly recurring subscriptions. Since billing is not where a service wants to innovate, Recurly provides a great solution to let them take the load off of managing this part of their business.
Recurly's fee is based on number of subscriber's to the customer's business. If your business has less than 50 customers, then Recurly is free. Above that amount, the Recurly monthly subscription ranges from $28-$2,650, depending on various bucket sizes for number of customers. So their pricing structure directly reflects the user growth of their customers.
MailChimp is an e-mail marketing solution that provides e-mail list management, an html editor for designing your e-mails, and detailed email analytics.
MailChimp offers two pricing plans, one based on total mailing list subscribers and the other based on volume of e-mails sent. While one is a direct reflection of customer user growth, the other is a close proxy, thus causing the cost of using MailChimp to increase as your customer's user base continues to grow. Their free plan allows managing and sending monthly newsletters to a list of up to 500 subscribers.
UserVoice is a customer feedback solution that allows you to easily collect, aggregate, and make your user's feedback actionable.
UserVoice allows you to setup a free forum for your customers to supply their feedback. One of the biggest values that UserVoice provides is allowing users to vote on the various feature requests. And it's the number of potential voters that UserVoice divides it's various freemium plans along. Your forum gets 100 voters for free. The premium tiers then allow various numbers of additional voters. The number of voters you will need at any given time is designed to be a function of the customer's own user growth, with UserVoice even detailing that they expect on average 3-7% of your user base to become voters.
FreshBooks provides an invoicing solution for consultants, contractors, freelancers, etc. to make it simple for them to generate, send, receive payment for, and track the entire invoicing process.
FreshBooks tiers it's offering along the obvious scheme of number of clients. You get to invoice up to 3 clients for free and additional premium tiers allow various numbers of additional clients. As your business clients grow, so does the fee you pay to FreshBooks for supporting you.
Limitations
There are a variety of reasons why such a freemium scheme may not be appropriate for your product as well as additional considerations to carefully evaluate before implementing.
Customers may not be very amenable to such a pricing scheme if they did not perceive additional costs for you to offer them support for a larger customer base. But it is often the case that your own costs scale in proximity to this tiering.
At the same time your costs may end up scaling along another axis tangential to growth in customer's own users and revenue numbers and this may make it difficult to leverage this tiering scheme. But keep in mind that you should be looking at costs in aggregate over your entire customer base and not just for individual tiers.
This freemium design pattern does not remove the essential critical question in every freemium tiering scheme, which is where to divide the free and paid plans. While this design does give guidance on along what dimension to segment, you still are free to decide what capacity each plan allows. Is MailChimp giving away too much with allowing 500 free subscribers? Is FreshBooks being too restrictive by only allowing 3 free clients? These are tough questions that remain. And despite our industry's best efforts to optimize through analytics, I've seen very little effective A/B testing done along pricing tiers. The difficulty arises from significant user backlash resulting from taking away features from a free plan.
Also along these lines, if your product ends up being applicable to a wide range of organizations and business sizes, there may not be a way to easily design a free plan that allows every organization to try it out. For many user segments they may just see your service as a SaaS offering with no free level. While this may be advantageous to you overall, it does limit many of the benefits of allowing all users to start for free.
I'd love to hear your feedback on other considerations you think are important when evaluating this freemium design pattern. As well as other patterns that you think have worked well.
I also wanted to mention that I've very excited that Charles Hudson this year is putting on The Freemium Summit. As this business model and marketing strategy reaches heightened interest across consumer and business applications, the time is ripe to bring together the early implementors and thought leaders in the space to discuss these exact design patterns and overall benefits and drawbacks of freemium models.
The Freemium Summit has already put together a great set of panels with speakers including leaders from some of the products mentioned above:
- Ben Chestnut, Mailchimp
- Lance Walley, Chargify
- Isaac Hall, Recurly
- Drew Houston, Dropbox
- Peter Harrison, TripIt
http://freemiumsummit-sachin.eventbrite.com
Freemium Resources
I've also provided a list of articles that you may find helpful in thinking through your own freemium model design.
- Charles Hudson: Thoughts on Free Powered Business Models and Why Time Beats Features
- Eric Ries: Three Freemium Strategies
- Andrew Chen: How to Create a Profitable Freemium Startup
- 37 Signals: The Secret to Making Money Online
- Chris Anderson: Free: The Future of a Radical Price
- Fred Wilson: The Freemium Business Model
Jan 26
2010
5 Social Platform Predictions for 2010
As many of you know, I'm a big proponent of open platforms and have spent much of my career designing, building, or leveraging open platforms and APIs. While we have seen explosive growth in social platforms over the past several years, I believe they are still very early in their history.
I wanted to put out my 5 social platform predictions for 2010, as I think we are poised to see another exciting year of innovation.
Facebook & Twitter become the social and real-time protocols of the web.
There is no doubt that Facebook and Twitter have become the de facto social and real-time platforms of the web. I'm not going to argue which service will win because I strongly believe there is room for both as they serve important and separate functions. But I think both will see the next evolution of their dominance. We've already witnessed the transition of these services from valuable end-user apps to compelling platforms serving thousands of scenarios through a strong platform ecosystem. The next leg of this evolution will be transform to ubiquitous protocols that underlie all major social and real-time scenarios across the web. We will start to think of Twitter as a micro-messaging protocol just as we think of existing communication protocols like SMS and IM. Facebook will become the universal address book protocol for connecting and sharing with everyone in our lives. The unique aspect of this transition if successful is that each of these new protocols will be owned by one dominant player. This is a scary reality that we may soon be faced with.
Facebook taxes the value creation happening on top of its platform.
Facebook has seen incredible growth in 2009, reaching over 350 million users worldwide. In addition to strong user growth, they have seen equally exciting platform growth. App growth specifically in social gaming has been coupled with strong monetization for large and small app makers alike. The platform ecosystem's aggregate revenue is rumored to have exceeded Facebook's own revenue. While Facebook has fully embraced this in order to further its priority of platform growth over platform monetization, I think we'll start to see a shift towards Facebook looking to capture more of the value being created on top of its platform. Facebook already makes a significant portion of it's advertising dollars from app developers promoting their games. And Facebook has spent much of 2009 developing it's own virtual currency platform that would provide an easy and efficient way for Facebook to tax it's app developers. Look for this to launch in 2010.
LinkedIn's professional networking platform sees significant app innovation.
LinkedIn made it's first foray into apps in Oct 2008 when it launched it's on-site InApps platform. This platform allowed third party developers to build applications on LinkedIn. However, it was a completely closed platform that was never made generally available to developers and never grew past 13 available applications. Then a year later in Nov 2009 LinkedIn finally opened up it's platform for third parties to leverage it's data on apps on their own sites. The platform is still in the early days and has many limitations, but does pave the way for real innovation leveraging the valuable professional networking data repository LinkedIn has built. With this true opening I expect to finally see significant app innovation, despite it being plagued with delays until now. But better late than never, since LinkedIn stills holds an incredibly valuable data set with tons of untapped scenarios.
API monetization becomes an important question for emerging platforms.
API monetization remains at it's infancy. While there are APIs that are currently being monetized, what the customer is typically paying for is access to a restricted data set more than anything else. This rings true for Twitter and it's monetization of it's real-time data with Google and Microsoft, with the licensing deals LinkedIn struck with various partners which leverage it's professional resume data, or Compete with it's click-stream aggregate site analytics data. We are starting to see the freemium business model apply to APIs as well, with Compete, Urban Mapping, and Whitepages offering free and paid API offerings. In 2010 we'll start to see the discussion of API business models come to the forefront and I expect to see progress across the various models.
OAuth WRAP gains popularity over the original protocol.
The OAuth protocol has been a very important specification that has resulted in true standardization of API authentication across social, media, and other APIs. This has made the task of integrating third party APIs simpler for the developer, thus allowing a developer to interact with more APIs than ever before. Yet one thing that continues to be an extremely confusing aspect of the OAuth protocol is the signature authentication process. While it is standardized in the spec, we've seen a variety of slightly different implementations that have made it difficult for developers to get started with a new API. Just take a look at the LinkedIn API forum, where much of the discussion is around this authentication process. Twitter has kept around non-OAuth based authentication to make it easy for developers to get started without having to get bogged down with the OAuth details. Yet OAuth WRAP solves this very pain point by leveraging SSL for the authentication and removing the need for the developer to manually implement the authentication step. We'll see OAuth WRAP or a variant gain traction to further ease developer pain in this space.
Related Posts
Apr 14
2009
Designing and Testing an Ad Product: 5 Lessons Learned From imeem's Audio Ads
Andrew Chen asked me to write a guest post on his blog Futuristic Play about some of my experiences monetizing music at imeem. I wanted to link it here, as I imagine many of you will enjoy reading it as well.Make sure to check out his other posts, as his blog is definitely full of very interesting insights and on my must read list for any internet entrepreneur:
Designing and Testing an Ad Product: 5 Lessons Learned From imeem's Audio Ads
Mar 24
2009
Interesting Metrics From Flash Gaming Summit
Winners from the Mochis Award Show @ Flash Gaming Summit
On Sunday I had the opportunity to attend Flash Gaming Summit, the first annual conference dedicated to flash game development organized by my fiancee Ada Chen from Mochi Media.
What's often most exciting for me about events like these is hearing different metrics tidbits from the speakers who are knee deep in the space. This conference was no exception, with a variety of different stats shared throughout the day. I've summarized some of the highlights below.
Flash Game Distribution & Advertising Market Size
Mochi Media is by far the largest flash games distribution and monetization network. They reported that they are now seeing over 100 million unique users who play games across their network each month, as well as over 1 billion monthly game plays. In addition, Mochi offers MochiAds, an advertising product allowing flash game developers to embed ads into their flash games. In 2008, MochiAds paid out over $1 million to flash game developers. While Mochi is definitely not the only distribution and monetization player in the flash gaming space, it definitely commands a healthy share of the market and thus these numbers can give you a rough sense of magnitude in the space. While the game play stats are impressive, the advertising revenue generated for developers is still modest and definitely suggests the need for alternative revenue sources like micro-transactions and virtual goods.
Ad Revenue From Portal Versus In Game
John Cooney from Armor Games provided some rough stats on the ad revenue difference from in-game ads versus ads around the game on a game portal page. John stated that the ad revenue from portal ads was at least 4x greater than the revenue from in-game ads. John attributed this large difference to a variety of drivers, including the ability to have higher quality multimedia ad units on a portal page, having 3-4 ads per page, as well as simply getting the user to play more games on your portal.
The message was heard loud and clear by flash game developers that it is going to be very difficult for them to make serious money from their games without building their own portal or partnering with existing portals (through revenue share or sponsorship agreements).
Conversion Rate of Active to Paid Players
Both Paul Preece from Casual Collective and Daniel James from Three Rings shared some interesting stats from their own games on conversion rates associated with paid players (players who purchase levels, virtual goods, etc through micro-transactions). Paul said that for their single player games, they see that 2% of their active players have converted to paid players. Keep in mind this stat is for "active players" who come back to the site regularly, not overall unique visitors. What was interesting was that for his multi-player games, 3% of active players converted to paid players, suggesting their may be some additional conversion lift from multi-player games. Daniel James echoed Paul Preece's numbers, suggesting 3-4% of Three Rings users pay as well.
The key thing they stressed was that only a very small percentage of your users end up converting, because first they need to become active users that come back and are retained by your game as well as be eager enough to pay through one of a variety of ways.
Per User Transaction Value & Lifetime Value
Daniel James went on to share that his company's Puzzle Pirates game was seeing an average transaction size of about $20, with a per user lifetime value averaging $125. This suggests that while its difficult to get people to pay, those that do pay may pay significantly.
Its thus important to ensure for that small number of users, you provide enough reasons and the ability for each user to plow a significant amount of money into the game if desired.
Leaderboards Drive More Retention
While everyone would agree that leaderboards drive additional retention of users who go on to compete with strangers or friends, Jameson Hsu from Mochi Media shared some details on exactly how much additional retention can be expected. Jameson said that they have seen leaderboards increasing retention by up to 30%.
This suggests that adding your own leaderboards or integrating with existing leaderboard platforms is often a worthwhile exercise to drive additional game play and retained users. Given that monetizing through micro-transactions typically relies on highly active users, this becomes even more important for driving lucrative monetization.
Social Games are Where the Money is at
Bret Terrill of Zynga gave a fantastic presentation enlightening flash developers on the large opportunity in social games, both in terms of traffic and monetization.
Bret mentioned that one of their social games, Mafia Wars, was getting 1.7 million daily players on Facebook. Texas Hold-em, in addition, gets over 1.5 million daily players. Bret also mentioned there were social games out there making $20-30K/day in revenue. These large numbers trump what most classic flash game developers would expect in terms of traffic and monetization.
Adam Caplan from Super Rewards, which provides payment and ad offers to fuel micro-transactions, said that they are now paying out over $10 million/month to social game developers, an equally significant figure. And Super Rewards is just one of many providers in the space.
While Bret encouraged flash developers to get into this space, he cautioned them that they won't win by simply porting their game over. They need to design their game with the right mechanics targeted at this audience, including making the game playable in 5 min chunks, appealing to user's desire for status, and focusing on reciprocity loops of gifting and social grooming.
For those of you who missed the event, you can check out the recorded sessions, event photos, tweets, or Mochis award show video.
Mar 14
2009
Optimizing Offer Providers with Sometrics Virtual Currency Manager
As more and more offer providers enter the incentivized CPA and direct payments space, there is a clear need for a way to easily test different offer providers and optimize between them.At imeem, I was responsible for evaluating, signing up, testing, and optimizing the various offer and direct payment providers that were leveraged as part of the imeem points virtual economy. I learned valuable techniques and lessons that I thought I would share with all of you as every day I see more interesting startups jumping on the virtual currency bandwagon.
Sometrics Virtual Currency Manager
In order to effectively test and optimize, you need tools to reduce the cost of performing the tests. If its painful to implement the test, record stats, and review analytics, then you'll never get around to doing it.
For optimizing offer providers, I decided to leverage Sometrics Virtual Currency Manager. At the time it was really a decision of whether to build my own custom tools in-house or to leverage their new tools. If I built the tools myself, I knew I would be writing custom
In many ways, Sometrics Virtual Currency Manager functions like your typical ad server (Google Ad Manager, OpenX, DART, etc). It allows you to drop a single Sometrics iframe tag on the page you want to render the offers. Then from within the Sometrics dashboard, you can easily add providers. To add a provider, simply make sure you have signed up and signed the terms and conditions of the offer provider, created your app or campaign within the offer providers interface, grab the iframe code that they provide, and drop it into the Sometrics dashboard. Where this gets more sophisticated than an ad server is in the implementation of the callbacks. After an offer provider calls you back to report an offer completion, you simply send a request to Sometrics servers so they can record the completion as well. You thus serve as a proxy for Sometrics collecting the data it need to provide a full picture of offer impressions to completion to revenue. Once you do get the hang of this, adding a new provider shouldn't take more than a couple of hours to have up and running.
Next you can specify the rotation frequencies of your offer providers. It makes sense to initially give them equal percentage rotation ratios or if you have been using one for awhile, give that one a higher rotation ratio as you test the others. By default you specify global rotation ratios.
After that its times to track performance. Sometrics automatically updates the dashboard every couple of hours to show you the latest impressions, offer completion, and revenue stats on a per provider and total basis. This allows you to easily see how each offer provider is performing over time and adjust frequencies as necessary. One thing to keep in mind when you are running these tests is that its best to run the tests in parallel (as opposed to one after another). You also have to run the test long enough because you will typically see a high eCPM rate the first couple of days a provider is added because this brings new fresh offers to your audience that they will quickly take advantage of. However, if you run it for at least a week, you should see that spike fade and get to a more realistic longer term performance. And that's pretty much all there is to it! Sometrics provides a quick and easy way to perform your testing.
The Sometrics Virtual Currency Manager, however, is not without its issues. It's still clearly a beta product on an early rev. For example, the dashboard doesn't automatically show you the eCPM calculation, leaving you to calculate it yourself. However, given than the target optimization metric is eCPM, this is something that should definitely be built in. In addition, Sometrics has a poor solution for allowing you to specify per country rotation ratios. You may, for example, find that one provider is working better than another provider in a certain country and wish to give the better provider a higher rotation frequency in that country. While Sometrics does provide a facility to do that, its needlessly complex to setup and requires too much configuration.
All in all though I would still recommend it as the Sometrics team assures me these issues will be addressed over time, its the best solution on the market, and in many cases will win in a cost\benefit analysis of building it yourself.
Drivers of eCPM Lift
After spending several months testing and optimizing offers, I started to formulate thoughts on the drivers of eCPM lift. I've cataloged these drivers in prioritized order in terms of greatest resulting effect on eCPMs.
Negotiated Rev Share. The most important driver of eCPM lift turned out to be not product related at all. It was simply your ability to negotiate a better revenue split between you and the offer provider. I've seen the split be anywhere from 50 - 90% net to publisher. By running a performance test across multiple providers, it puts you in a much better position to negotiate higher payouts from each of the providers who are looking to win your business.
Direct Payment Options. While the percentage of completed offers coming from direct payments may not be that high, the total revenue coming from direct payments tends to be fairly meaningful. Thus the number and quality of available options has a material effect on eCPMs. It's important to look at both credit card providers (Paypal, direct credit cards, etc) as well as mobile providers (Zong, Mobillcash, Paymo).
Front Page Offer Optimization. While it turns out that a lot of the offer providers in the end have a lot of the same offers, most users will never see the bulk of offers. Most users only see the first page offers or the first page of each categorized section of offers (free, popular, mobile, etc). Because of this, its very important that the offers shown on the front page are appropriately targeted and fresh. Some offer providers are much better and much more sophisticated at this than others.
Offer Wall Latency. We've had issues with some offer providers that had latency issues with loading their iframe. Users on social networks are jumpy and will quickly bounce if the offers don't show up immediately. This resulted in significant loss in eCPMs for certain providers. Just as Amazon and Google have found, latency costs real dollars.
International Offers. The mix of offers available for the countries that your users are in is important. This is an obvious one. The thing that is somewhat surprising is how low this is on the list of drivers. There are definitely noticeable differences in the number of available offers on a per country basis between offer providers. But it turns out that all international monetization is often a fraction of US monetization. Thus even significant percentage increases in international monetization ends up being much less meaningful on a total revenue basis. This obviously depends on your mix of international countries and thus your mileage may vary.
Offer Landing Page. There are ways of enhancing the completion rates of offers (which tend to be very low). One enhancement that some offer providers did is put the resulting landing page for a specific offer in an iframe and place a small toolbar at the top explaining exactly what needs to be done to complete the offer. I saw a meaningful increase in offer completion rates from offer providers that did this.
I hope that provides some valuable techniques for optimizing your own virtual currency offer and direct payment providers. Check out my related posts below for more thoughts on the space.
Related Posts
Mar 06
2009
Lessons Learned from imeem
Before moving on to a new phase in my career, I always like to reflect on the previous experience and put together key takeaways that I can leverage in the next opportunity.It's that time again as this past Wednesday was my last day at imeem. As some of you know, imeem acquired Anywhere.FM at the end of 2007. Since then I've helped to migrate Anywhere.FM, develop the imeem Media Platform, and contribute to a variety of monetization projects. But now I'm eager to move on to the next adventure :)
Since I have a blog this time around, I thought I would share my lessons learned from imeem with all of you.
Content Matters. Having interesting or exclusive content is a great source of traffic. imeem's decision to allow user uploaded content has definitely helped it obtain valuable SEO for hard to find tracks. People who really want access to a specific song will go wherever they need to in order to find it. imeem's ability to get exclusive content like the Britney Spears' Circus pre-release album definitely resulted in a nice bump in traffic as well.
Creating a Community. While many people would say developing a web 2.0 UGC site is easy because users contribute significant content, it's actually a lot of work to harvest the desired community. It requires staff to police user-contributed content, answer questions\moderate forums, contribute\manage editorial content, encourage appropriate behavior, and so on. In order to scale, it's important to automate as much as possible and allow users to help manage the community themselves.
Conversion Funnel Optimization. Don't underestimate drop-off rates resulting from adding an extra click in a flow. There are lots of flows that can be optimized simply by removing extraneous pages or reducing non-essential exit paths. It's worth re-looking at all your important conversion funnels to see if you can further optimize (sign up, contributing UGC, sharing, purchase events, premium account sign up, etc).
A/B Testing. Everyone knows that A/B testing is a good idea and they should do it. Yet still so few people do. And why is that? It's because A/B testing is hard and the tools often used to perform it are limited. However, if you take the time to either build or use an existing great A/B testing framework, the cost of A/B testing goes down significantly and becomes easier to do on a regular basis. Investing in A/B testing tools is hugely useful, especially for optimizing monetization for sites where small gains have huge effects due to volume. (There's likely a startup opportunity to provide better A/B testing tools that let you look at the full effect of variations over time).
Widgets. While allowing widgets to be embedded on third party sites significantly extends your reach and can be a huge opportunity for building your brand, the amount of traffic that converts to destination site users is often minimal and the ability to monetize widget traffic is still dismal. When developing widgets, one needs to think very carefully about the actual benefits for the site and exactly how much functionality to expose in the widgets versus reserving for only the destination site.
Using an API Internally. Building an external API is a great discipline for even improving the quality of internal API methods. It forces you to think through good design, re-usability, and creating common usage metaphors. All things you should be thinking about for internal APIs. Speed to market for imeem's own apps has significantly increased with the creation of our external APIs. The audio and video flash players, the imeem Uploader, the VIP player, MySpace\Hi5 apps, and the mobile app were all built on top of these APIs.
Evangelizing a Platform. While getting large well-known companies to use your developer platform provides great case studies that will help you convince other developers to jump on board, you have to trade this off with the fact that large companies take a long time to decide whether to engage as well as a long time to build. For each large integration, you could probably get 3-5 small integrations up and running.
Focus on Monetization. Very few music startups have focused on monetization. There is still a lot of novel business models that should be tried in the music space. Instead startups have focused on building compelling products without much care to the business model. There is room for innovation in the music space if people are willing to tinker with music business models as well.
Competing with Free. It's very difficult to compete with free. Users have come to expect free music streaming from the days of Napster and BitTorrent. And now there are plenty of free music streaming services (either illegal or legally ad-supported) and continue to propel user's expectation to pay nothing for music consumption. It's very difficult to aggressively advertise or charge users without fear of user's flocking to the competition, which just gives it all away. The one nice thing about the recession is that it has forced imeem's competitors to more aggressively monetize in order to stay afloat\get funding and therefore allows imeem to follow suit without fear of losing traffic.
Media and Entertainment Monetization. It's tough to monetize media and entertainment properties through advertising, lead gen, or affiliate revenue. This is because users are there for socializing and consuming content and have very little purchase intent. While they do share a vertical interest in music, associated music commerce opportunities are limited either because of the small margin the publisher gets working with partners for digital downloads and ringtones or because the providers for concert tickets and merchandise are still not aggregated well or lack established affiliate programs. (There's likely another startup opportunity in an aggregated music merchandise storefront and affiliate program).
Direct Sales. Having a direct sales team is expensive. Not only do you need sales reps, but you need sales planning support, post sales production support, and trafficking support. It may make more sense to outsource direct sales to rep firms in the early days of a startup's life.
International Monetization. It's very difficult to monetize traffic outside of the US and a few key markets (UK, Canada, etc). Ad spend in most other countries is still very low since their online ad markets are still nascent. Oftentimes it is probably a better use of time trying to improve US monetization or trying to attract additional US traffic as opposed to trying to optimize international monetization. (I smell a startup opportunity for anyone who can crack international monetization).
Users Willingness to Pay. I was surprised that users are actually willing to pay for online services. Obviously conversion rates are very very low. But it was surprising to me to learn that people were willing to pay at all - anywhere from $3/mo - $100/year for imeem's VIP subscription service. The features were really around convenience. Not even access to content. People will pay for quality products.
Online Audio Ads. Online audio ads are a promising area for innovation and monetization. There is still $21B being spent on offline audio ads and there is clearly an opportunity to move some of those dollars online. No one is aggressively innovating with the right ad unit. Most are simply re-purposing offline audio ads online.
Incentivized CPA Offers. Incentivized CPA offers can be used to monetize a variety of digital goods even outside of the social gaming space. However, the highest eCPMs seen thus far are still in their use in social gaming.
Music Licensing. It's very difficult to get on-demand streaming deals done with all four major labels. And this doesn't even include indie content. Even if you get the deals, you are looking at a large upfront payment to each label, giving up equity, plus a rev share or per-stream fee. The labels have not been looking to give the deals to everyone either, instead focusing on making some large bets.
Value of Data. Every site of any interesting size has a wealth of data. It's important to know exactly what data is tracked and available and to mine it wherever appropriate. All too often this valuable data goes unleveraged. On the other extreme, many believe that the ultimate business model lies in selling data. For those who believe this though, I think it's tougher than one thinks to monetize data itself. But there are many valuable insights that can be gained by mining it for product improvements and getting a better insight into your audience.
Don't Believe Everything You Read. It's interesting being on the inside of a large web property with many eyes watching it. Since I had the inside scoop, I knew that many times imeem was written about, the reporters simply got it wrong. Either because of misinformation, not really understanding the service, or some rumor that someone else started. Because of this, I've become much more critical of what I read online in the tech press and look much more closely at their stated sources of information.
Feb 20
2009
Monetize Online Music with Audio Ads
Despite the over 200 music startups that launched in 2008, I am disappointed with the lack of startup innovation in the space. While many of them definitely nailed building something people want, most failed to make something people will buy. When developing a startup, figuring out a viable business model is as important as producing a compelling product. And unfortunately there was little in the way of innovation in business models in the music space.This is an even more pronounced issue in music, where content licenses are owned by an oligopoly of four highly litigious record labels. The labels have been eager to shut down or sue a variety of music startups, including Muxtape, Songbeat, Seeqpod, Project Playlist, and others. Yet what the labels are struggling most with is recouping lost revenue from the 45% drop in CD sales since their peak in 2000. What they are most desperate for is not a large settlement, but a new sustainable revenue stream. What they need are startup partners seeking to help them generate new commercial value with their content and through relationships between artists and fans.
There are a few notable exceptions who did focus on business model innovation. LaLa, for one, introduced a new a la carte on-demand streaming pricing model, charging users 10 cents per track for unlimited on-demand streaming. Sure one could argue that there are already too many free alternatives for on-demand streaming and thus there is a significant uphill battle for LaLa to gain traction. But LaLa is focusing on trying to build a compelling enough user experience with a clean playback experience that would be worth paying for. And at the same time, it's still to be seen whether the existing fully ad-supported music streaming services are going to be profitable businesses. To be sure, LaLa is far from a success, but at least it went out on a limb and tried something new.
However, the most interesting potential bright spot in online music monetization is monetizing time spent listening through online audio ads. While the online audio ad market is still nascent, the offline radio advertising market is still a $21B industry. The time is now for these dollars to move online in a meaningful away.
There have been various attempts at developing the online audio advertising space to date. Unfortunately early attempts were limited in success. Some have tried to bring the same offline radio ad spots from broadcast radio to online music streaming services. These are your typical 30-60 second national brand ads, like Geico car insurance ads. The attractiveness of this format is that it is much easier to convince ad agencies to take their existing audio creative and do a test buy online. For broadcast agencies, it is exciting to finally have access to actual impression data. To them it is a novel concept to actually know exactly how many people viewed their ad spots, since in the offline world much of the metrics are based on sampling. Yet this traditional radio ad format is completely inappropriate to the web world, where oftentimes users choose to move to online music services to get away from these long obnoxious ads.
What is needed in the online music space is an entirely new audio ad format that is appropriate for the medium. Just as how the online video space has developed its own unique format - the video ticker overlay ad unit - a similar new ad format needs to be developed to adjust to user behavior and expectations regarding online music.
And that's exactly what we are finally starting to see happen. imeem, for one, is serving a unique 5-8 second audio ad spot at a low frequency with a companion medium rectangle (300x250) banner that takes over the player during ad playback. Pandora just introduced 15 second audio ad spots with an initial frequency of one spot every 2 hours. TrueAnthem has developed an 8 second audio spot with a companion banner played at a frequency of once per session. Jingle Networks, which provides a free 411 voice service, has been serving 10-12 second audio spots from both national advertisers and geo-targeted local advertisers. They have had no trouble filling their inventory and have even launched a complete voice ad network to allow the insertion of in-call audio ads for other services.
There are several existing online audio ad networks already out there, including Ronning Lipset Radio and TargetSpot, which recently merged to create the largest online audio network. Unfortunately a lot of the units they carry tend to be the longer more traditional 30 second ads. This month Google announced that they would be shutting down their broadcast radio advertising business that Google has pursued since its acquisition of dMarc Broadcasting in 2006. While many picked up on that news, I think the most interesting piece is that Google also said that they are going to now actively pursue online streaming audio ads. I'm excited to see Google enter this space and I hope they bring with them advertisers willing to try shorter and more innovative formats, even if it means Google or someone else taking on the challenge of producing this new custom audio creative. This is exactly what VideoEgg had to do in the early days to get advertisers to embrace the video ticker overlay.
Early data suggests that in-stream audio ads have higher CTRs and greater brand recall than traditional online banner ads and can be minimally detrimental to site usage when done tastefully with shorter audio spots at low frequencies. Instead of seeing yet another slick AJAX interface for creating and sharing music playlists, we need more entrepreneurs to optimize the audio ad format to figure out the right set of parameters to make this work. Whoever does that may be able save the music industry and line their pockets all at once.
Feb 15
2009
9 Startups to Help You Build Your Virtual Economy
So are you thinking about adding a virtual economy to your app or website? The great news is there are a variety of startups out there waiting to help you!Incentivized CPA Offers and Direct Payments
Over the last two years more than a half dozen partners have emerged to supply publishers with offers and direct payment options to fuel cash flows into their virtual economy. Most partners in the space offer both a set of direct payment options as well as a large selection of offers.
When deciding on partners to integrate with, there are a variety of considerations to think about. Each partner offers a different revenue share, so its important to negotiate to ensure you are getting the lion share of the revenue. I have seen the rev split be anywhere from 50% - 90% net to the publisher. Keep in mind that it may make sense to separate the rev split for offers vs. direct payments, as its often very easy for a publisher to sign up direct payment providers like PayPal, Amazon, Zong, etc themselves and as such, the offer providers aren't justified in taking much of an additional cut on the transaction.
Another very important consideration is the breadth of offers that are available from the provider. Providers have a mix of both hard offers (requiring a credit card or purchase) and soft offers. You want to make sure that your partners have a diverse mix both in terms of types of offers but especially in terms of availability of offers per country. You'll find that some partners are stronger in certain international countries than others. In general though you should expect international monetization to be significantly lower than the US, as availability of offers are limited outside of the large ad markets (US, UK, Canada, etc).
When it comes to direct payments, the direct payment options and country coverage are both very important. Most partners integrate with PayPal or other credit card options as well as mobile payment options. The mobile payments space is still nascent and no one yet has coverage of mobile payments in all countries. So you'll want to ensure the partner you go with has mobile payment coverage in the countries that are most important to you.
Let's take a look at the players in this space:
Offerpal Media, founded in June 2007, is the most well known managed offer provider, supporting 2.5 million completed offers per month across hundreds of apps and websites. Offerpal is a full service provider, offering a variety of direct payment options (Paypal, Amazon, Mobillcash, and Ultimate Game Card) as well as a diverse selection of offers.
Offerpal makes it easy for any publisher to integrate, offering a complete self service platform as well as a dedicated business development and technical staff ready to assist you in your implementation. Offerpal has also sought to establish thought leadership in the space, putting together great articles for publishers as well as events to help publishers learn from each other's success.
Super Rewards is definitely Offerpal's fiercest competitor, launching their product publicly in December 2007. They are aggressive about winning your business and have obtained a lot of high profile Facebook and MySpace applications on their platform. They are definitely worth a look.
Gambit is a fairly new entrant in the space. Built by a group of developers who originally used the technology to monetize their own Facebook sports related applications, they have recently made the same technology available to any third party application.
Being small gives them the agility to innovate on a daily basis. I've made suggestions to them to improve their offering and have been amazed to see them implemented immediately and carefully tuned to optimize conversions. I've already seen their eCPMs start to surpass that of the more established players.
Most offer providers obtain their offers from large CPA ad networks. Several of these CPA ad networks realized that they themselves could get into the business of providing a managed offer product. PayBuyPartner is one such product brought to you by CPA Storm.
The attractiveness of working with them is that it cuts out a middleman which should theoretically result in higher returns. However, they are focused on both offer acquisition as well as offer optimization, which may spread their efforts thin.
SocialCash is another offer provider built by Gratis Internet, one of the largest CPA ad networks. Gratis Internet was even the CPA ad network that brought us the most notorious of incentivized cpa offers: free ipods!
However, they have recently launched a new ad product called Headliners, which has resulted in them de-emphasizing their virtual currency PointCash product. While SocialCash may make sense if you are interested in offers in international countries where they are strong, I would suggest avoiding them as a general solution as they will likely no longer be innovating on this product.
TrialPay, founded in 2006, has a long history of providing qualified offers from prominent merchants. With the growth of virtual currencies, TrialPay has adapted their system to work in the virtual currency environment. There solution isn't quite as plug-and-play as some of the others, but definitely worth looking at for their offer selection.
Peanut Labs originally built Xuqa, a social network that has taken off in Turkey. When ads weren't working, Xuqa introduced a successful virtual currency called peanuts. Peanut Labs is now offering this same monetization platform to third party developers.
Peanut Labs specializes in quality market research surveys, which are often the best type of soft offer. Peanut Labs also has built an impressive selection of direct payment options that differentiates them from other players in the space.
Offer Provider Optimization
Given that there are already so many different offer providers and more coming, a solution is needed to easily A/B test them to select which work best for your site in each country. This should be done for both offers and direct payment options. Since every offer provider will tell you that they are confident they are better than their competition, the only way to know for sure is to test and find out!
Sometrics is the first to build a virtual currency manager product that makes it easy to test multiple offer providers and specify rotation ratios for each provider. They have done a good job encouraging developers to get the most out of offer providers. This product is still in its infancy and not without its limitations, but its a great start at a product specifically designed to address this very real need.
I hope to see others enter this emerging space.
Virtual Economy Optimization
In addition to optimizing the offers and direct payment options, its important for publishers to carefully monitor and tune their virtual economy. For example, a publisher needs to look at available sources (ways of acquiring currency) and sinks (ways of spending currency) to ensure they are appropriately balanced. By graphing currency acquired and currency spent over time, a publisher can ensure that the graphs are aligned. If, for example, the currency spent dips compared to currency acquired, a publisher needs to introduce new valuable virtual items available for purchase or generally increase the price of their goods to keep their users hungry for currency.
SocialGold by Jambool is a great virtual currency analytics product to help you easily monitor your virtual economy, study price elasticity, and generally tune your virtual currency. Through simple instrumentation of your application, you get access to easily understandable graphs and tables overviewing the performance of your economy. In addition, SocialGold provides a wide selection of direct payment options across both credit card and mobile alternatives. Definitely worth checking out as well.
Additional Opportunities
Beyond these existing startups, there are still additional opportunities for startups to build tools to help support the virtual currency ecosystem. With the continued growth in both usage and revenue from social games and virtual economies it's a valuable startup opportunity.
One area ripe for innovation is merchandising of virtual items in social games. Every social game has some form of store where users can spend their virtual goods. This has effectively made every social game an etailer. However, social game developers are not well versed in the best ways to merchandise items in their storefront, on deciding how to feature the most valuable items, on suggesting related items, managing shopping costs, order histories, etc. And it's not necessarily something developers want to focus on when there is enough to deal with in developing the core game mechanics of their experience. It provides an opportunity for a partner to provide expertise in retail to the social games arena.
I expect in 2009 we will see continued growth throughout the virtual currency ecosystem. Got a new product in this space? Let me know!
Feb 05
2009
Incorporating Virtual Currencies in Non-Gaming Sites
2008 saw an explosion in virtual currencies and their associated virtual goods all across the internet. With Facebook social game Mob Wars suspected of making a million dollars a month and Zynga rumored to have made $50 million in revenue in 2008 off of its social and iPhone games, companies are seeing real revenue from this burgeoning monetization model. Even other indie social game developers like Mobsters and Lil Green Patch who also monetize virtual currencies have seen huge success with 13M users on MySpace and 5.9M monthly active users on Facebook, respectively. To top it off, over $580 million was invested in virtual goods related startups in 2008.While social games is the newest category of apps monetizing virtual currencies, MMOs like World of Warcraft and Second Life have had vibrant virtual economics for years. In addition, casual MMos like Gaia Online, Habbo, and IMVU have also built thriving currencies.
Yet the most recent trend that is fascinating to me is the incorporation of virtual currencies in non-gaming sites. As growth in the online advertising market continues to deteriorate, sites are seeking alternate forms of monetization to wane their dependence off ads. Many eye the robust gaming virtual currency revenue stream and are eager to expand its success into non-gaming environments. With Facebook itself estimated to have made $30-$40 million from its virtual gifts, many others hope to imitate and expand upon such early success.
Given this, I decided to put together a quick case study of five of the most interesting virtual currencies in non-gaming sites today.
myYearbook, a teen oriented social network founded by two high school students in 2005 with now over 4.4M US uniques, is a popular destination for socializing, meeting new people, and entertaining yourself.
myYearbook has incorporated their "lunch money" virtual currency into every aspect of their experience. Even when a new user first creates an account, they are awarded lunch money for simply uploading a profile picture and inviting their friends to join. Wherever possible, myYearbook attempts to offer you additional lunch money for additional activity across the site. By getting high scores in flash games on the site, you are awarded lunch money. For winning popularity battles, you are granted additional lunch money. myYearbook has even built their own rendition of Friends for Sale called Owned. Users acquire points through the game but also spend points to purchase their friends. You can also acquire points through various offers as well as direct payment options ranging from credit card, to mobile payments, to PayPal.
Once you have acquired lunch money, you have a variety of ways to spend your currency. In addition to buying your friends in the Owned game, you can purchase additional top friends slots to showcase your friends on your profile. You can also purchase a pimped out mp3 player and more songs for your playlist. Or battle super votes to ensure you win battles or support your friends. They have even built a Causes application, allowing you to contribute lunch money toward world causes like hunger, global warning, save the rain forest, and more. myYearbook then converts your contributed lunch money into hard cash that they contribute to the appropriate charities.
Heysan is a mobile web-based IM aggregator allowing users to easily connect to MSN, AIM, ICQ, Yahoo, and Gtalk on the go from their phone.
Similar to myYearbook, Heysan initially offers up "coins" for simply joining the service and inviting your friends. Heysan also provides additional coins for performing actions on the site that they want to encourage, including daily sign-in, validating your phone number for SMS notifications, or filling out your profile. You can also get additional coins through various offers and direct payments.
What's cool about Heysan is how you can spend your coins. They can be used to get exclusive emoticons, new buddy icons, wallpapers, photo backgrounds, background colors, profile font colors, friend gifts, feature profiles, and more.
Scrapblog is the easiest way to create stunning multimedia online and print scrap books. With over 2 million registered users, media partnerships with Disney, Discovery, and Photobucket, and a newly raised round of $4 million, Scrapblog is poised for success.
Scrapblog has traditionally monetized through printing and sponsored promotions. However, they have recently introduced the Scrapblog Marketplace, which allows you to purchase premium content for your scrap book with Scrapbook "credits" that are purchased with a credit card.
These credits are used to purchase anything from new backgrounds to specially made stickers for your scrapblog. A variety of premium designers have put together an expansive selection of exclusive content for your scrap booking needs.
Dogster is the premier social network for a man's best friend. Showcase your own animal, browse your friends dogs, and check out the half a million dogs already captured on the site.
Dogster has monetized through advertising sold through their own direct sales team targeting the $42B pet industry as well as a premium subscription service for $20/year that provides benefits including the ability to upload more pictures, photo captions, ad-free browsing, and more.
In addition, Dogster has monetized through its own virtual currency, known as zealies. Dogster provides a variety of free ways to acquire zealies. You get some when you join. If you give them more info about yourself, they'll award you more. Sometimes you get them from games and other times they give them away for holidays. They try to rotate a variety of free ways of acquiring zealies. You can also acquire zealies by purchasing them at a rate of 20 zealies for $5 through Paypal. Users can additionally get monthly zealies through the paid subscription service.
Zealies are then used to purchase a variety of gifts for dogs across the site. Gifts include rosettes, which are one-month lasting ribbons you can give to your favorite dogs to recognize them. Then there are a variety of holiday related gifts. They even have sponsored gifts, including a recent Febreeze branded collar that was given away for free and paid for by the advertiser.
Mahalo recently launched Mahalo Answers, a Q&A service similar to Yahoo and Google Answers.
The interesting twist for this service is that besides users answering questions for free, the question asker can also offers Mahalo Dollars to the best answerer. This Mahalo Dollars virtual currency can be funded through PayPal. The question asker then awards the tip to the best answer. The users who receive Mahalo Dollars can convert it back to real cash after they reach a minimum amount of tips and after Mahalo takes it 25% cut.
Mahalo has also created a points system, allowing people to acquire points for answering questions well and adding friends. As a user acquires points, they progress through multiple belt levels, with higher belts designating that you are more of an expert in the community.
Resources
Jan 31
2009
Monetize the Twitter API
Silicon Alley Insider recently announced The Create a Twitter Revenue Model contest. I decided to throw together an entry and today SAI has picked it as one of the finalists. So I thought I would write a blog post summarizing my submission.Thinking about business models for Twitter is always a fun exercise. I see Twitter as the epitome of web 2.0 - a sticky communication app with few differentiated user segments, minimal expressed interest, and no purchase intent. I always joke that if you can successfully monetize Twitter, then you can monetize anything :)
There are many different ways to think about monetizing Twitter. The ones that have been frequently discussed include a freemium subscription plan for power users or commercial users, inserting sponsored ads as tweets, or other forms of advertising. While these may eventually be successful strategies for Twitter, I decided to take a different approach.
Obviously today Twitter is not monetizing and therefore has no revenue. Yet the interesting thing is the Twitter ecosystem is definitely monetizing. We have desktop clients like Twitterriffic ($14.95) and Blogo ($25). We have a variety of iPhone clients available, including Tweetie ($2.99), Summizer ($2.99), Twittelator Pro ($4.99), and Tweetsville ($3.99). In addition, there are several companies already inserting ads as Tweets, including Twittad and Be-a-Magpie. The ecosystem has already seen StockTwits and TweetDeck raise funding and two acquisitions with Summize and Twhirl.
My approach to revenue then is for Twitter to monetize the channel that is already generating revenue for the ecosystem by monetizing the Twitter API that all these applications are built on top of. By introducing a premium Twitter Developer Program, Twitter can start to share in and encourage the profits that third party developers are making on top of the Twitter platform.
There have already been a variety of successfully monetized APIs, including:
Microsoft Parter Program & Certified for Windows
Microsoft has always had a long tradition of providing a partner program offering to developers who build on their various platforms. These programs provide developer tools, marketing support, and access to premium support. In addition, the Certified for Windows program charges every app for this badge that ensures customer trust.
PayPal Developer Central
PayPal's API for third party publishers to accept transactons and payments monetizes every transaction by taking a variable percentage.
iPhone Developer Program
Apple requires all developers that want to publish to the App Store to join the iPhone Developer Program. At $99-$299 per developer with over 15K applications, that's a several million dollar opportunity.
Facebook Platform's Application Verification Program
Facebook Platform’s Application Verification Program provides developers with a badge to encourage user trust of the app, increased distribution allocations for all viral channels, and an advertising credit. At $375/app/yr and over 48K apps, that’s tens of millions in annual revenue.
What would a Twitter Developer Program look like? Here are the suggested program benefits:
| Benefit | Details |
| Commercial Use | Only applications that have registered for the developer program will be allowed to use the Twitter API for commercial use (ex: charging for your app, advertising in your app). Non-commercial use will always be free. |
| Twitter App Directory | As part of launching this program, Twitter will launch a full app directory that allows any app developer to add their Twitter mashup for easy app discovery by twitter users.
Developer’s who are part of the developer program will be eligible to apply for the certified app program to get a badge to increase trust with users and will also receive premium placement in the app directory. |
| Increased Rate Limits | Developer program participants will have increased client rate limits (currently 100 requests/hr) and developer rate limits (currently 20,000 requests/hr) to improve user and developer experience. |
| Technical Support | Program participants will have priority access to developer technical support to support their application development. |
| Access to Firehose API | A premium developer program will be offered for those key partners that need access to the proverbial “firehose” that gives them access to all non-protected tweets. (This would only be available as part of a higher priced Twitter Developer Program, not in the standard plan). |
One thing to be careful of in charging for access to a platform is to ensure that doing so does not stem innovation on the platform. That's why access to the Twitter API should always be available for free for anyone to tinker. This program simply provides value add for those building commercial businesses on top of the platform.
For more details on proposed pricing, size of opportunity, and FAQ, check out the full presentation embedded below:
Jan 25
2009
Make Something People Will Buy
Y Combinator is famous for its well known motto "Make Something People Want." This very simple statement serves as a guiding principle for a startup, helping to focus it on this core goal early on: to ensure that its product provides compelling value to its target audience. It also de-emphasizes many secondary issues that, while important, are not likely to be an early cause of failure for a startup. I'm a big fan of the motto and use it myself as a quick filter for all the startup ideas I evaluate.Yet the economic recession that we are in the middle of poses new challenges. While it hit in the financial and real estate sectors first, it is undeniable that it will have a lasting effect on all sectors of our global economy.
For the startup community, the most immediate ramifications have been difficulty in raising funding. Many angel investors have significantly cut back their investing. VC dollars have dropped 33% in Q4 08 alone. And for those who can obtain funding, lower valuations, down rounds, and 3X liquidation preferences are back.
At the same time, consumer confidence is down. Unemployment is at all time highs and only increasing. This has resulted in consumer spending being down across the board. With the drop in spending comes the slashing of advertising budgets.
The days of eyeball companies are also gone. No longer can you hope to build a service, drive significant traffic, and be acquired by one of the tech giants. Google, Microsoft, and Yahoo have all announced layoffs and project closures. Everyone knows that acquisitions in 2009 with be far fewer than those in the previous years.
Despite painting this landscape of doom and gloom, I still believe now is a great time to start a company. It simply requires a tighter lens through which to evaluate startup opportunities. A lens that takes into account the challenges of raising funding and early acquisitions and instead focuses on achieving cash-flow positive, ramen profitability, and self sustainability.
And hence I come to my own corollary to the YC motto: "Make Something People Will Buy".
Let me first address how this relates to the original motto. If you think about what this means, it fully encompasses the original statement. In order to make something people will buy, you first have to make something people want. But now making something people want is a necessary, but insufficient condition. You have to take it to the next level and make something people find compelling enough to buy.
This most definitely makes the issue of business model and monetization a first order problem. Instead of taking the tack that this can be addressed later, it forces you to consider this with the initial problem definition. With this paradigm you'll find yourself, as I do, thinking as much about ARPU and TAM as UX and traction.
Many who first come across this will assume it implies freemium, e-commerce, and subscription business models. And it definitely emphasizes these direct monetization opportunities as well as the now growing virtual currency and virtual goods space. As we won't see much growth in online advertising in 2009, charging your users directly for your service will become a much more popular model. We have already seen Sprout, Jott, and others abandoning their free applications in favor of simply providing their paid products.
Yet I by no means intend for this mantra to rule out indirect methods of monetization. It simply requires that if you do plan on leveraging indirect monetization models, you think through the entire conversion funnel of how your app will eventually result in a purchase event. So instead of simply planning on slapping on text and banner ads on your site from your favorite ad network and monetizing page views, you have to think through exactly how your site aggregates a qualified audience, purchase intent, or vertical interest that can be leveraged for commercial value.
We've seen a lot of innovation in the last 5 years on product, but limited innovation on the monetization front. I hope with the current flight to revenue, quality, and sustainable businesses, we start to see real creativity in the business models and monetization methods that drive web businesses.
I find myself going through the mental exercise to challenge myself to think through how Facebook and Twitter, the stars of 2008, could develop a revolutionary monetization strategy as Google once did with its AdWords and AdSense products. And I'm sure you'll see me writing more on my blog about my thoughts on monetization.
So I challenge you to go forth, try this new lens, and make something people will buy.
My name is Sachin Rekhi and I'm an entrepreneur, product guy, and software engineer based in San Francisco.
I'm also Founder & CEO of Connected.
I'm also Founder & CEO of Connected.
