Making – or not – Millions With Social Platforms

ABL Column ThoughtsPublished February 3, 2010 at 10:44 am No Comments

Who Wants to Be a Millionaire?

Can you make millions on Facebook? Can you make millions on iPhone? Despite the enthusiasm, it might not be so easy. Here are some surprises gathered from a recent trip to Silicon Valley organized by the Mobile Internet Great Wall Club, including insights from a surprisingly successful low-key service.

Making millions with iPhone games?

By now you have probably seen a game on an iPhone. You might even have friends who consider starting a mobile gaming company. Should you quit your job and join them? Should you invest in their venture? Here is some information to give you perspective on what is depicted in many places like a new gold rush.

Though Apple does not publish app store sales numbers, the “most official” figure I came across so far is $750 mln since start . This is spread across over 3 billion downloads of 130,000 applications serving 34 million iPhones. Apple keeping 30% this is about $500 mln left for developers to share via a single sales channel: the App Store.

I know several mobile developers who released iPhone applications but most seem unable to reach profitability, even for developers getting well over 500,000 downloads, as most are free. Life is tough for them and most are developing applications for corporate clients, which pays better.

I started to wonder if the quality of games made a difference. For instance, one 3D jet fighter game named F.A.S.T. by the company SGN seemed to do well. This was until I met an independent developer who had developed… another 3D jet fighter game in 3 months just by himself. He explained that after the initial spike on the iPhone store, revenue dried out and that he was now making more money selling the entire source code for $100 each time. Is it a commodity?

During a recent trip to San Francisco meeting the top-selling iPhone game developer, the myth that a developing a great game is enough do well took another blow, but also provided valuable insights.
The company Tapulous sells the most popular game on iPhone, a music game named “Tap Tap Revenge”, in the wake of older music games such as Rock Star and the venerable Dance Dance Revolution. Their sales represent a few million dollars per month. A great number for a 20-people operation but a small one by Internet business standards, and this is the best-selling game on iPhone!

Here is some of what I learned talking with them:

First, they benefited from the best timing. They were ready when the iPhone platform launched and got tons of free marketing from Apple who was eager to promote its platform with attractive content. Today, with over 100,000 applications available, a new application gets on the store and enjoys a short peak due to the increased visibility at launch, then vanishes quietly in the sea of apps.

Second, their greatest asset is their distribution: over 25 million applications were downloaded since start, which makes it possible to push any new content with reasonable chances – and surely more than a developer only relying on the initial push from the application launch. This is very much in agreement with the difficulties faced by small developers who don’t realize this marketing issue.

Last, the two founders of the company are not game industry guys! They even see this as an advantage when operating on a disruptive platform with evolving business models.

Making millions on Facebook?

Despite the success of some, it is still far from easy. I mentioned in a previous column the cut-throat competition which leads successful games to be copied in a matter of weeks – I counted at least 6 farming games on Facebook and the largest one today was not the first to launch.

In this context, the content seems to be almost a commodity compared to the ability to reach users and the skills in operating and measuring ROI. It looks like innovation is more concentrated within those two aspects than in original content. If you plan of starting today, the bar is definitely a lot higher than a year or two ago!

Another interesting learning from meeting with Facebook directly is the fact that they show no immediate intention to increase significantly their own virtual goods and mobile revenue. This is all the more surprising as, coming from Asia, virtual goods and mobile seem the way to go. As a quick reminder, Tencent is making 90% of its revenue from users vs. 10% from ads and in Japan three social networks are listed on the stock market, two of them making well over $100 mln from mobile virtual goods.

While Facebook was explaining that their main focus is growth and reach, it was a surprise to me and the group of Chinese and Japanese mobile executives who were attending the meeting. What kind of company decides not to catch low-hanging fruits? Facebook is not a non-profit and their main revenue source is already a rather interruptive form: advertising – more so than virtual goods which would turn users into real customers instead of eyeballs retailed to advertisers.

Finding a Fortune in Fortune Telling

The most flashy service is not necessarily the most profitable. While iPhone’s Tap Tap Revenge blasts music and colors, a much lower-key service with much less users if generating a lot more profit across the ocean. What could it be?

One of the companies part of this visit to Silicon Valley was a rather unusual mobile content provider. To introduce it, let’s start with a question: do you sometimes read your horoscope? When asked if they were reading theirs, only one member of the audience gathered at Stanford University raised her hand. Would there be no market for such service? Was it a gender or age bias? Are Stanford MBAs too rational? Did the audience have to look rational in front of others? This is left to speculation.

As a side note, I received the same response when asking Berkeley MBA students about their usage of online dating, but got half of them vote positively after I introduced an original matchmaking service from China and asked if it would work in the US too.

The reason for asking about horoscopes was because one of the speakers at that event was the President of a company providing mobile horoscopes. At that point most people smile. This company named Zappallas made close to $120 mln in 2009 with only 2.5 million paying subscribers in Japan. Even more interestingly, their President explained that they figured horoscopes were one of the three categories of daily information users don’t get tired of, the other two being news and weather forecast.

The difference with horoscopes is that users volunteer accurate personal information to get their horoscope, which helped the company build incredibly refined databases. Those can be used to cross-promote content or products for their mobile commerce service. Luckily, “stars are aligned” and their user base – mostly women between 20 and 35 – happen to have, in addition to interest in their fortune, a large disposable income.

People Love Heroes

While several companies are having amazing success with either Facebook or iPhone applications, the success story we read is generally setting aside many important points in order to build a heroic image of fantastic and visionary entrepreneurs. The reality is often much less of a straight story. Inversely, a few less glamorous services are quietly doing extremely well.

Why would a company who succeeds easily take time to talk to the media? It would only attract competitors! It seems to me that two categories of companies have a special position: the first are large ones who talk to scare off and distract competitors from the real difficulties, the second are small newcomers who are surprised by their success and give out, without realizing it, valuable know-how. Unfortunately you won’t find in mainstream media companies surprised by their failure, who would give out a more accurate picture of the challenges. Next time you read a “success story”, you might give a second thought about what they share and why.

Note: This is a guest column written for the Chinese business magazine “China Electronic Business”, invested by Jack Ma of Alibaba, and IT news site Interfax. Syndication inquiries are welcome!

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