Pony in the Pile

This week’s Interact 2008 conferencemad men 2.png — all things interactive media — began upbeat enough, with Ted Leonsis‘s inspirational keynote signaling an ‘anything’s possible, mix-and-mashup’ world of opportunity where entrepreneurs can offer (and perhaps find) fulfillment by providing one of the five keys to self-actualization: relationships, community, self-expression, giving back, or pursuing a higher calling.

But then, the sky began to darken.

With each successive speaker and panel, the mood turned increasingly somber, until by the end of the afternoon — terrabanged by the announcement of the failed bailout and a Dow plummeting 777 points — somber turned to sober . . . and the ad/marketing audience lit out to quench the condition at Happy Hour.

Actually, Leonsis foreshadowed the day’s drama with his own sobering statement: “Today, a marketing person needs to be a mathematician,” and not the English major that he was. Everyone knew exactly what he meant, of course. It’s about metrics, and testing, and deliverables that can be measured — a theme echoed several times during the day. Google VP of Search Product and UX Marissa Mayer talked about nuanced A/B testing, where reducing spacing a single pixel-width — or bathing paid search in a field of yellow rather than blue — resulted in 20% to 40% more click-throughs. Launchbox Digital‘s Sean Greene had asked the panel he was moderating on ‘The Evolution of Advertising Models’ what the near-term effects of the dismal economy would be on ad spending, and the unanimous response was “a shift to what’s measureable” (hopefully, social ads in search of the elusive ‘engage’ metric won’t be left twisting in the wind).

You could almost feel the room heave a collective sigh: “We know, we know — we need to bone up on this technical widgified social media stuff.”

But there was little letup. Avenue A/Razorfish‘s Joe Crump was nearly morose, acknowledging (in a talk aptly titled ‘Digital Darwinism’) that not only is the rate of change of technology overwhelming, but current org charts are woefully ill equipped to deal with it in creative organizations. By early afternoon, Adobe evangelist Duane Nickull and Clearspring CEO Hooman Radfar had applied a thick coat of glaze discussing SOA (tell the truth: did you know that it stands for Service Oriented Architecture?) and widget distribution strategies. Finally, the afternoon wrapped with a panel presenting a glass-half-empty outlook for interactive media employment that could be summed up as a grey-hair lament something like: “We need to hire more whiz kids that understand this stuff . . . but they’re a dickens to manage.”

Good thing we entrepreneurs are optimists. Why, there must be a pony in this pile!

The great words of someone famous come to mind: Out of adversity comes opportunity (or is it creativity?). Either way, there’s a dislocation, a discontinuity, a gap that begs for a solution. Here, the gap is agencies’ and marketing departments’ inability to keep up with technology of social media. So might be the solution?

Maybe training.

Maybe analytics tools or services.

Maybe app-building for hire.

Now, Crump shouldn’t actually be complaining — of Avenue A/Razorfish’s 500 employees, 200 are technical. But I’m not sure any of the best and the brightest (you know who you are) want to bury themselves in an agency with a salary and long hours.

So what’s the entrepreneurial play here?

Although VCs have historically shied away from service businesses — the multiples were usually far greater in product businesses — that scenario has changed. And in fact, it could solve several problems at once. If you’re dismayed that VCs want you to recite your revenue model (even though, like me, you expect you’ll figure it out once users have embraced you), there could be an alternative to raising money altogether: How about getting paid for what you love to do (and do well)? If in the course of providing your service, you’re also building a product, or developing some intellectual property (IP), then you’re in fact building equity in a service business.

I wrote about BuddyMedia creating ‘branded’ Facebook apps (They actually received funding from Bay Partners and others), and they’re a good example of ‘filling the gap’ for big agencies. But a better example may be Set Consulting. President/founder Jared Goralnick is passionate about productivity, and Set gets paid to improve clients’ productivity. But in the course of doing his work, Goralnick also built a product — AwayFind — aimed at avoiding ‘email bankruptcy.’ Voila! . . . a cashflow business, with an equity kicker.

And no VC. Ironically, when you get that combination working for you — and you really don’t need the money — is when the VCs come a-knockin.’

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What's a Social App Developer to do?

To Mike Lazerow, CEO of new-age ad agency BuddyMedia, Facebook is the future. Big brands trying to reach the world’s 500,000,000 social network members are ringing his phone off the hook, because his firm has the skills to create branded apps — what he calls ‘the new ad unit.’ But what might they bode for us ‘pureplay’ app developers?

For most, not good. First of all, BuddyMedia, Context Optional, and a few others are blazing this trail because traditional ads — display and links — don’t work, which is why (as we all know) there’s beaucoup excess inventory and CPMs are in the crapper. Second, consider this: branded apps are all about engaging users, and those 250,000 active users playing Rundezvous (the game BuddyMedia built on behalf of New Balance) are, uh, not on your app.

Third, what they’re doing contributes more to the overall signal-to-noise problem than you might expect. Not so much that they’re adding to the 32,000+ Facebook apps anywhere near what 400,000+ registered developers are piling on each day, but because each branded app media program includes buying engagement — Lazerow averages $1/user to get them to show up. (Oh, you hadn’t planned on spending $100k to seed your app?)

Finally, it stands to reason that these guys will get better at what they do. Since Rundezvous players earn ‘AceBucks’ redeemable for actual (not virtual) running shoes, a whopping 57% of users came back at least nine times. BuddyMedia developed a Facebook version of InStyle magazine’s Hollywood Hair Makeover — an app that lets you swap your face with a celebrity’s, so you can see how you’d look in their hairstyle — which had negligible traffic on InStyle’s website.

Hollywood hair.png

At O’Reilly’s Web 2.0 Expo in New York this week, Lazerow provided Makeover’s latest Facebook stats:

➢ 185,000 installs in 6 weeks

➢ average time on app: almost 7 minutes

➢ 47% of total user base has returned to the app more than 25 times

➢ the average user tried 3 hairstyles

Some pretty decent numbers. And, unlike traditional ad campaigns, this one hints at something that just could be perennial. (Women were even printing out the results and taking them to their hairdressers.) Dang, if there were a second-order viral component to it (more than than just telling your friends), it could kill.

So what’s a social app developer to do?

Well, it still starts with building a great app with true viral attributes, getting it up, testing, tweaking — nothing’s changed there. But if it’s revenue you’re after (duh), time for some new creative thinking. We’re working several angles for our startup, CHALLENJ, a social gaming utility (under construction). Here are two — maybe one fits what you’ve got.

1. Can’t beat ‘em, join ‘em. If you’ve got a themed game, why not pull a BuddyMedia? Get your own advertiser, and turn it into a branded app. (Try to think of it as a sponsorship . . . rather than selling out.) This, of course, would be easier if you’ve already launched and are putting up some respectable numbers.

2. Market your engine. Less applicable to most maybe, but what we’re working on is something has some underlying functionality that’s not only useful for us, but would be useful to BuddyMedia and their ilk. Without going into detail, it’s analogous to, say, a polling app, or better yet, the functionality of social-debate platform CreateDebate.

Where there’s a will, there’s a way. At the Social Gaming Summit in San Francisco this past June, Acclaim Games‘ Chief Creative Officer Dave Perry cited 29 business models for games.

There is still success to be had — and money to be made — if you’re creative. Time is not on our side, however. With apps that enable non-programmers to build apps now emerging — lolapps recently raised $4.5M to do just that — it’s only going to get noisier out there.

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