Silicon Valley's Greatest Opportunity? Better Marketing

It's crazy how time flies.  In October of last year I marked my 6 year anniversary in Silicon Valley.  It's been quite a ride and I've been privileged to see and be part of some pretty amazing things:  the booming of the app economy, the explosion in Android adoption,  the growth of mobile gaming, and the launch of Google playjust to name a few.  

Like many, I'm perpetually amazed at the level of energy, innovation, drive and creativity here. I've lived in 11 countries and actively worked in 7 of them and I don't think it's a solely an American thing to claim that there is no place like the Valley.  There just isn't.  The unique mix of energy, technology, capital, innovation and cultures simply doesn't exist anywhere else.  It's what makes this place so unique and dynamic.

But the Valley has its dark sides and its own challenges as a recent article in The Economist points out.  Success and financial gain aside, one that's very rarely talked about but is becoming more widely acknowledged is the lack of focus on marketing.  I'm constantly surprised by how little focus there is on marketing at many companies - both big and small.  Many marketers will agree: For all the innovation in the Valley, marketing if often under utilized, misunderstood or de-prioritized as part of the business.  

Why?

To appreciate the answer you have to first understand what the role of traditional marketing is.  Philip Kotler, a professor at Northwestern considered by many as one of the gurus of marketing defines it as follows:

"Marketing is the science and art of exploring, creating, and delivering value to satisfy the needs of a target market at a profit. Marketing identifies unfulfilled needs and desires. It defines, measures and quantifies the size of the identifiedmarket and the profit potential."

Sadly, marketing is often misunderstood or under appreciated in the Valley.  Ask many founders and even VC's and they will tell you marketing is about PR, advertising or "growth hacking."   

As a marketer with 20 years experience I've developed a thick skin and don't take this personally.  I remember being at Google several years ago in a staff meeting when a product manager proclaimed "marketing could go home and we really wouldn't feel the difference on the revenue side."  When you're Google and your app is pre-installed on every Android handset that comes to market it's easy to feel that way but sadly that didn't help the usage of that particular app. As a matter of fact, never has Google's marketing spend nor the size of its marketing team been larger than it is today.  

But let's get back to our earlier definition of marketing for a minute.  Another famous marketer, E. Jerome McCarthey developed what's widely known today as the 4-P's of classical marketing.  For the uninitiated these are Product, Place, Price and Promotion.  

This is also where things get really tricky in the Valley.  Product in technology is usually owned by product management / engineering team (and in early-staged companies by the CEO / founders).  Place, more commonly known as distribution, is usually owned by business development and sales. Price is owned by sales.  Which leaves marketers with...you guessed it "Promotion."  More commonly known as advertising or growth hacking here (cough cough).

Now I'm not saying marketing should own all of the above.    The complexities and skill sets needed are too great and you're not going to change the culture in which tech companies operate.  However, not having marketing deeply involved in all these aspects of the business can result in products not fit for market, brand erosion, and reduced profitability.  

Let's look at each of these in turn.

Product.  All too often I've seen startups fail because founders build cool tech in search of a market.  This happens because you have incredibly smart technical teams that love to build cool things but aren't close enough to consumers or customers to understand what problem they're actually solving or whether those people actually even need this technology (Google Glass anyone?).  The other day I met with a serial entrepreneur who showed me his "Instagram for VR."  I looked at it and was like "Cool.  Eventually, there will be a market for that but not now.  There simply isn't enough of an installed base and capturing and sharing content hasn't been established in VR.  You're at least 3 years too early."  

Another problem you get when marketing isn't involved in product is "feature creep".  I often see great products crammed with tons of cool features.  But the truth is that what makes products like Whatsapp, Instagram or Snapchat great isn't all the cool features. It's that they actually solve a real problem and do it simply.  Argentineans have a saying which is "A preuba de boludos."  Translated into gringospeak as "idiot proof."  Too often products (whether B2B or B2C) are too complicated, lack clear tutorials or onboarding and/or don't directly address a particular need.  The result:  cool tech with no clear market and possibly wasted VC dollars.  Building a successful product is about thinking about the long term.  Improving and adding features as consumer needs evolve over time. However, at the onset you have to solve 1 problem and do it freakin well!  

How Marketing can help Product

The key to nailing product-market fit and avoiding feature creep is having product teams and marketing work together from product concept through launch.  Don't build a product, throw it over the wall and expect marketing to "acquire users."  What's worked for me is what I simply call D2; the "dynamic duo".  This duo is a PM (product manager) and PMM (product marketing manager) who develop the product together from the onset.  While the PM develops PRD's (product requirement docs) and works with engineering to build, test and iterate on the product, the PMM's role is to look at the market, consumers and competition and ensure that 1.) We're solving a real pressing need 2).  We can differentiate against what's out there currently and 3). We can make money doing that.  Good PMM's are both technical enough to understand how products are built but also business savvy enough to understand the economics of the business and where there is an opening to position the product uniquely to have a competitive advantage.  This structure worked for me both in games (studio heads + PMM's) and even at Google (PM's +PMM's). Once the product is ready, PMM's will also work to develop all the necessary assets, brand materials and tools to bring the product to market.  In larger organizations they will then hand this off to consumer marketing teams that handle acquisition and retention while in smaller orgs they may even handle this themselves.  Often the PMM will also run market research and work with the PM to do client interviews, qualitative research and focus groups to more deeply understand consumer needs and how the product can meet these needs.  It's usually a win-win scenario where PM's and PMM's both own the product and the P&L and have clear responsibilities to ensure everybody wins.  Likewise, if things fail they both take the rap ;)

Place.  More commonly known as distribution.  Distribution can make or break a product.  Regardless of whether it's hardware or software.  You can have the best product in the world but if you're competitor has a slightly weaker product but is more widely available you're probably going to lose.  When I worked at Pepsi in the 90's (yes, totally dating myself) one of the big reasons why Coke kicked our ass wasn't advertising (Actually Pepsi's advertising is better than Coke's - I'm biased like that) but because they have way better distribution.  The joke in the industry is that you can find Coke more easily around the world than drinkable water.  Sadly, that's also statistically true.  

The same is true in tech.  You have to be where your customers are and even where they aren't.  The more consumers see you the more brand "recall" you have (ie. the first brand they think about when they are considering a purchase). Twitter and Facebook aren't massive just because of their product and virality. They are successful because you "see" them everywhere.  They are distributed by 100,000's of 3rd party brands on their websites, apps and in the press.  In effect, their ubiquity is a reflection of their distribution.  It's the power of being everywhere.   Coke and Pepsi have enjoyed a duopoly in the soft drink market since the 1890's mostly due to distribution not just advertising.  

How Marketing helps distribution

The key to unlocking distribution is to identify all your possible distribution channels: ie, where are users / clients going to find my product and figure out how to market to each based on their own, unique characteristics.  Once you establish the different channels or partners you have then marketing usually works with your BD teams to develop channel marketing plans.  That's marketing-speak for marketing programs specifically tailored to the needs of that channel.  Here's an example.  When I ran Google Play marketing, one of our programs was called "Comes with Google Play."  It was a program targeting handset vendors and carriers where we provided them with programs, assets and tools to communicate to users that Android devices came with Google play content.  The goal was to ensure that consumers considering Android wouldn't buy an iPhone because Android lacked content.  So we developed the program to provide those channel partners with assets and programs to help carry that message to prospective users.  We even had a partner marketing team who helped push the program to partners and provide them with the framework for brand approvals to communicate this to end users.  

One of the best known programs of that sort was Intel's famous Intel Inside campaign (developed in 1995).  Not only did it help users understand what a processor was and why it mattered but, more importantly it told users why they should only consider PC's running with Intel processors.

Price - show me da money!

Usually the domain of sales or senior management effective pricing can dramatically increase profitability, extend product life cycles and destroy competition.  

Getting pricing wrong can also have dramatic consequences on your sales.  In 2011 Blackberry introduced their first tablet: The Playbook.  Aside from having a terrible name which had nothing to do with the product (they had virtually no games or entertainment content and were targeting business owners) they priced the device initially at $499 to $699 which was the same price as the market leader: the iPad.  The result was a dismal flop.  It should have been intuitive.  After all why would I buy an inferior product, with less content at the same price from a company with little expertise in tablets?  Blackberry's fall from grace had many contributing factors but a large one was marketing or the lack thereof.  

The other two things to consider when thinking about pricing are your business model and your product life cycle.

One of the biggest challenges when I started working in mobile gaming back in 2005 was that we were effectively asking consumers to fork over 4-5$ to experience something they had never experienced before.  Consumers, especially when considering new products and services, often are hesitant to shell out money for something they've never experienced.  At glu mobile we solved that by providing Try-b4-u-buy versions of our java games.  Years later, this eventually morphed into free-2-play games which is now the standard and has helped turbo charge the entire industry.  For years what held the mobile industry gaming back wasn't just shitty distribution (yes that's you Verizon, T-mobile and Vodafone) but bad pricing.  Once games became free to play, a big reason not to download them suddenly melted away and the market exploded.  Today free to play games account for the vast majority of revenue on both the App Store and Google Play.

Another way to juice up adoption and sales and maximize profits is life cycle optimization.  This is commonly done in many traditional industries from consumer electronics to fashion and cars.  It can and should be used in software as well.  The simple notion is that as a product ages and a replacement approaches you should gradually decrease price to extract additional value.  In 2007-2008 we had amazing success at Glu in Europe by doing this.  Once mobile games had been on the market for six months, we would reduce the price and 1-2 months before a sequel we would reduce the price yet again.  In this way we were was able to capture users who wouldn't pay full price while also seeding awareness for the next title.  The console gaming industry has also seen some success doing this.  

Marketing and pricing

Let's go back to our dynamic duo - D2.  Ideally, both the PM and PMM who own your product should have a pricing strategy not just for launch but for the entire duration of the lifecycle of the product before you launch it.   This pricing strategy should reflect the competitive landscape, the introduction of new features (and whether your going to charge for them) and the planned obsolesce of a product to pave way for a new one.  In the Valley not only do teams spend too little time on pricing (often finishing a product without even figuring out whether to charge for it or not) but they often will either underprice a product (our competitor charges X so we should charge X) or fail to identify features that should justify higher pricing.  Pricing is important not only for profitability but also as an indicator of perceived brand value / strength.  

Let's say your positioning your firm as the "market leader" in X space (who doesn't?).  What does it say if your pricing is the same as everyone else's?  It says you don't have enough confidence to charge more for it.  If you don't have enough confidence to charge more for it than is it really better than what's out there?  It might be but that's what your customers are going to be left asking.

Marketing teams need to be assessing how sales and volumes change over time as a function of pricing.  They should be looking at one-off sales promotions targeting specific times of the year and they should be planning price reductions when products are being phased out and pricing increases when products ad valuable features.  Lastly, if you're selling physical products your marketing teams should be working with sales to identify opportunities to price discriminate according to different channels.  Ever notice how a can of Coke (or Pepsi) costs more in a restaurant than in a gas station?  There's a reason for that.

Last but not least Promotion (aka Advertising, Growth Hacking, UA)

Congratulations.  If you've actually read this far and didn't realize what other things marketing can help you with you may have actually learned something ;)

Yes, it's true.  Advertising does remain a core function of the marketing team. But here's the catch: Advertising isn't as effective as it used to be - particularly among millennials.  Why?  There's simply too much noise and too many fragmented channels to market through.  Too many ads, too little time coupled with consumers and clients who are sometimes a bit lazy and usually irrational (if you don't buy this read Dan Ariely's book "Predictably Irrational").  Consumers are filtering out all the noise and are basing purchasing decisions based on other things (friends, the latest fads, what they've used before, the first thing that comes to mind etc.).   Even Google admitted last year that possibly up to 50% of Adwords clicks are accidental.    On the B2B side, many customers are saying that they are actually more into buying products and services from companies who they trust and who "help" them with their business.  The translation in B2B is a greater focus on content marketing and developing materials that actually teach customers something that helps their business as opposed to trying to sell them something.  Content marketing is on the rise and an increasing number of marketers are finding that this is the friendliest path of least resistance to building relationships that eventually translate into greater sales and longer retention.  A great article in Adweek captures why content marketing is on the rise and some of the trends we're seeing.  

The key to understand advertising is simple:  advertising is a process and a journey.  I've often used a framework to help explain this journey: ALTR. Awareness, Likability, Trial, Repeat.  

Before a consumer is going to buy your product they have to have heard of it. Once they've heard of it they need to "like it" or accept it as part of their consideration set among other products they might buy.  Third, they have to try it.  They may buy it or try it but that doesn't mean they will stick to it.  The rule of thumb among marketers is that a customer you already have is always worth significantly more than a new one you have to acquire.  That's why many VC's are placing so much emphasis on retention.  Acquiring a user on Facebook at $5-7 is one thing but loosing 92% of them after 30 days is another.  

What your marketing team should be doing in regards to advertising

Good marketers will develop advertising strategies that capitalize on each stage of the consumer journey as outlined above.  Successful marketing strategies will have different messaging, different creative applications and different advertising channels depending on the goals at each phase.  Each step of the process should be measured and evaluated based on its own metrics.  For example, awareness should be measured in terms of aided versus unaided brand awareness, visits to your website, shares, posts etc.  Trial can be measured in terms of the number of consumers / clients that tried your product and the duration during which they used it while retention is a function of how long a consumer continues to pay for and use your product.  

Different advertising strategies need to employed depending where in the consumer journey you're targeting users.  Billboards or display ads may be good for awareness but not for trial.  Re-targeting is effective for consumers already considering your product but not for those already using it.  Blog posts, white papers and webinars are only effective if the content is tailored to the right audience at the right point in their customer journey.  If you're writing posts on your product features and expecting leads than you're simply wasting keystrokes.  

The good news in all this?  There's still a ton to do to improve tech marketing in the Valley.  As a marketer, I'm excited and optimistic about marketing's prospects.  The Valley is in many ways building the future of consumer and enterprise products across many different industries.  Better marketing will result in better products, targeting the right audiences, with the right message, at the right price available wherever those consumers expect the product to be available. It's a good time to be a marketer in the Valley (if you have a thick skin) and never before has marketing been more important both for the top of the funnel as well as for the bottom.  Marketers should embrace this opportunity while CEO's and VC's should encourage both their marketing and product teams to work more closely together before they actually launch their products.  Firms, clients and investors will be much better of for it.  

Mad Mork

Zynga: is it a good investment?

In December 2013 I started a games studio with 3 co-founders.  I shut down the studio and gave the money back to the investors 7 months later.  There were many reasons for this but part of the reason was that there was little to no appetite for VC money going into games start-ups in the US.  Given Zynga's past few years and King's IPO it's understandable.  That said, investment in gaming companies in Asia continues to go from strength to strength.  Funplus was acquired this year for nearly $1billion by Zhongjii Holdings while companies like Nexon, Tencent and Netease continue to pump money into early stage gaming companies. Ironically, Funplus, started by Andy Zain in 2010 was profitable by 2011 and actually built it's business on the back of four games, one of which was strikingly similar to Zynga's Farmville.

I've been in gaming since 2005 and was part of Glu's (GLUU) European management team when the company went public in 2007.  Much has changed since then including the rise of iOS and Android and the decline of Nokia and Blackberry.  More importantly, the death of carrier distribution and the rise of platform app stores completely changed the distribution landscape and democratized distribution for thousands of game developers.  Now, instead of walking up the yellow brick road and begging the Wizard of Vodafone or Verizon to publish your games you simply upload your games to Google Play and the App Store and hit publish (with the exception of China where you need to work with multiple local app stores like Tencent, Baidu and others for Android).  Coupled with social media, offer walls, Facebook ads, an overwhelming number of tracking / analytics solutions and some smart PR you can build a decent business like never before.  Better yet, with the advent of in app billing which allows developers to make their games free and only charge users for micro transactions, game developers removed a major barrier to entry which was the carriers' insistence on fixed price points.

All this is good and bad news for developers.  It depends on which side of the fence you're on as a developer or as an investor.  But what does this mean if you're Zynga?

Well the good news is that games are not the risky investment it used to be.  Many say that games are like the movie business in that they are hits driven.  While that's certainly true for high budget console games like Destiny it's no longer completely the case for mobile.  Mobile games and mobile games development has become much like software development overall and has now become more like Games as a Service (GAS for those who like interesting acronyms).  GAS means that a games developer can develop a game, put it on one of the app stores and conduct extensive beta testing until they achieve or come close to achieving the monetization metrics they need to maximize the value of the game.  This means that Zynga can generate a fair amount of valuable consumer data by launching a game in a limited number markets, iterating on it and improving the games' features while holding back valuable marketing dollars until the game is fully tested and where it needs to be.  Even once a game is launched, its developer can continue to make tweaks and changes to the game over time while even introducing new levels, characters and items to keep retention rates high and reduce churn.  Zynga certainly benefits from this model and as long as the games they make aren't complete flops they can continue to iterate on them over time and improve their retention metrics even once the game is commercially live.

Zynga also benefits from its size and resources in several different ways. First, it's position as a top developer gives it clout with the app stores.  It's able to negotiate premium placement for its titles (much like Looney Tunes' featured visibility on Google play currently), get access to early API's from Apple and Google and even get included in some of Google and Apple's marketing.

Second, its financial and human resources allows it go much deeper into marketing then most smaller developers.  Why is this important?  Developers today have literally dozens if not hundreds of different sources of inventory to buy media from to promote their games.  Each of these needs to be integrated, tested, tracked and measured.  Larger companies like Zynga have entire User Acquisition (UA) teams dedicated to doing just this.  For the smaller developer, every new source of inventory means integrating a new software development kit, testing their game, launching, measuring and tracking that source.  Scaling to more then a dozen or so sources simply isn't achievable.  For Zynga it still is.  More importantly, Zynga has the marketing firepower to get its games noticed.  This is becoming more important given the overwhelming number of games available on both platforms.  With merchandising space being so limited, the only way to get noticed is to use marketing and acquire users (unless your game is highly viral in which case you can rely on consumers to push the game for you - which is rare).  The cost per install (CPI) to get users has also been rising as more developers compete for limited, high quality inventory to get users.  The effect here is to weed out smaller developers who have less resources and consolidate the power of larger developers like Zynga who have the firepower to acquire users over time.  This kind of marketing power actually becomes a self fulfilling prophecy since acquiring more users actually drives the game up the rankings which generates more visibility and users generating more downloads.

Finally, Zynga has the advantage of localization and distribution.  Gaming is a global business and in some markets consumers will not play games that are not adapted and/or localized for that market.  The most obvious cases are markets like China, Japan, Korea or Russia.  Zynga has both the resources to fully localize and adapt their titles if they wish and also the distribution agreements to guarantee widespread distribution in those markets (this is particularly key in China which has at least a dozen high profile Android app stores which compete for consumers' attention though Tencent, is by far, the largest).

So do all these advantages make Zynga a good investment?  Well, the answer is maybe ;) Though Zynga has many of the advantages listed above it still needs the essential ingredient which matters most:  a good product which monetizes well!

To this extent, last weeks release of the the Warner Brothers (WB) title Looney Tunes was a step in the right direction.  Was it enough to warrant a 13% rise in the stock? Sadly, no. While some analyst mentioned Looney Tunes' initial downloads, consumer reviews and rank in top free apps that doesn't tell the whole story.

I spent a few hours playing the game and found it polished, fun to play and ease to play.  Looney Tunes is a WB themed endless runner game where consumers can play a variety of different characters like Bugs Bunny that run along a continuous stretch of road to collect coins, carrots and other times with the goal of trying to reach the characters' home at the end of the road.  On the way they need to leap over various obstacles, avoid classic enemy characters and accumulate a minimum number of special items.  The games' graphics, controls and sound are all really smooth and the level design is well done and engaging.  Also as endless runner games go, they did a really good job at keeping new levels fresh with new characters, special items and fresh gameplay.

That said here are the problems I have with it.  First, endless runner games are a pretty competitive genre with the likes of titles like Temple Run, Despicable Me and Subway Surfers being pretty established in that category.  Though Looney Tunes gives them a fair run for their money and in many ways offers better gameplay and a stronger brand (with the exception of Despicable me) endless runner games suffer from another problem:  their gameplay and audience.  These games, like most of Zynga's historical franchises, target casual gamers and though they have mass appeal (read installs / users) they monetize only a small percentage of their base: typically 1-2% of users.  In addition, the average revenue per user (ARPU in industry terms) also tends to be fairly low.

Low monetization is the second issue I have with these particular types of games: the small percentage of consumers who pay implies a significant base of users are needed for the model to work.  Of the three games mentioned above for example, only Subway Surfers even appears in the top 100 grossing games (the chart that really matters) on Google play (#90 in the US).  That's despite it having amassed in the range of 100-500M installs which puts it as one of the most popular games among Android users.

The third issue I have with Zynga's choice of brand. Zynga chose to license Looney Tunes from Warner Brothers to develop the game. When I was part of the European launch committee at glu back in 2006-2008 we choose to avoid brands like this for Europe and EMEA because they didn't resonate well enough with international audiences.  While Looney Tunes might be a decent, if slightly old brand, in the US, the international audience will be far smaller compared to a much stronger, more culturally relevant brand like Despicable Me.  

In addition, since the title is licensed from WB, Zynga will likely be paying at least 15-20% of net revenues (after app store revenue share) to the the license holder.  Meaning that if Apple and Google take 30% Zynga has lost 50% of revenue right off the top (before factoring in marketing costs) before they see any money at all.  So essentially Zynga doesn't see margin benefits of having developed their own IP like a Subway Surfers but also will limit its reach by using a weaker brand with less relevant appeal.   

Don Mattrick's choice of licensed IP so far appears patchy at best.  My fear as an investor is that exactly the same thing will happen when they release Tiger Woods.  Golf is a niche sport particularly in video games which was one of the reasons EA discontinued the franchise on console (aside from how tarnished the Tiger Woods brand had become in recent years).  That said, I launched Tiger Woods golf on mobile back in 2005 while at i-play and the genre lends itself really well to mobile though monetization is still a question mark for me.  Can Zynga do better on  mobile with it?  I guess we'll have to see.

So where does that leave me in terms of Zynga?  The answer is cautiously optimistic.  Clearly they have many of the advantages I listed above and have the potential to make very good titles.  However, to consider this as a serious investment I would want to see three things:

First, a move to more hardcore games which involve higher, more sophisticated gameplay and development costs but also which require a far smaller, more engaged user base to monetize (since a higher % will monetize vs. casual titles).

Second, a focus on developing compelling own IP which can be built into stronger brands that are both more profitable but also have the potential for brand extensions over time and finally, a focus on developing games that will appeal to an international audience.  With mobile games growth slowing in the US but still on fire in Asia, Zynga continues to be too US focused in my opinion in terms of the games it's making for mobile.  Next year the Chinese games market will surpass the US in terms of size for mobile gaming and Japan is already 2x the size of the US market for Google play. Zynga needs to wake up to the reality that it operates in a global market place and either find / develop brands that are more international in nature or develop studio capacity to develop additional games targeting large, key international markets (in the way that rival Gameloft does).  It's currently Beta testing its Empires and Allies franchise for mobile.  Hopefully this title can address some of these issues and give Zynga shareholders a real reason to celebrate a 10% rise in the stock.

Mad Mork

Branding 101 for Start-ups

According to recent forecasts, advertising spend will exceed over $50billion in 2015 with the fastest growth coming from mobile.  With that marketers, particularly start-ups, face a daunting challenge:  how to reach users with a compelling message and cut through all the noise.

Today at the Yodlee Interactive bootcamp, I had a chance to share some learnings with aspiring fintech entrepreneurs and take them on a journey about branding.  What is branding?  Why is it important?  what kind of benefits can it bring my company? and more importantly:

How do I get started building a brand?  What's the process and who is involved?  Below is a short preso which attempts to answer some of these questions.  Make sure to download the file and check the slide notes which is where all the detail is.  I hope it helps you!




Download Here

stay Mad, stay foolish,

Mad Mork

Google's Next Opportunity Could Spell Serious Competition for Facebook on Mobile

As I mulled over Google's (GOOG) Q2 earnings a few weeks ago I couldn't help but think that Google is still missing a huge opportunity:  helping more developers get discovered on the Google play store.

Ask any mobile app developer today what their biggest problem is and they will probably say two things:

1.  Make more money on Android
2.  Get their app discovered on the Play store

Apps have become big business for Google.  Android's +Sundar Pichai claimed that it had paid out over $5 billion to developers over the past 12 months.  Some back-of-the-envelope analysis coupled with folks I spoke with estimate that the play store will pull in between 3.5 - 4 billion dollars this year in topline revenue.  Not bad.

Impressive numbers but in reality - Google is still scratching the surface.

When it comes to discovery on Android the solution basically boils down to one thing: Facebook (FB). Every single developer I talk to, including those in our portfolio here at Signia Venture Partners, will tell you that Facebook is the biggest, most important and most expensive source of app installs they have.

The problem with Facebook ads though is that as Facebook's targeting and quality has improved, larger players like King.com (KING), Supercell, Machine Zone, Zynga (ZNGA) and others have gobbled up inventory driving up the cost of installs to levels that simply exceed the Lifetime Value of Users (LTV) for most developers. While the cost per install on Facebook today is somewhere between $3-$4 per install, in September of last year, for example, one of our companies saw CPI go north of $5 which simply wasn't sustainable for their business model.  In fact, according to data released by Superdata, between 2012 to December 2013 the CPI has gone from $1.30 to $4.36; an increase of 288%!

(source: Superdata)

The solution: the industry needs more sources of quality inventory to help bring down prices.  But while some industry watchers think Twitter (TWTR) might have the solution it's actually Google that's sitting on a goldmine: the Play store itself.

Before I joined Google in 2011, I ran marketing for a venture-backed alternative app store called GetJar (acquired this year by Sungy Mobile: GOMO).  GetJar provided an alternative to then Android market by allowing developers to distribute apps to consumers via its mobile web store.  So how did it make money?  Through advertising on the app store itself.  GetJar has an ad-based solution where it allowed developers to bid for actual placement across the store.  Developers could bid for installs by OS, handset and country and a high enough bid coupled with the apps quality score would get them featured in one of several listings either on the home page or across one of the other pages in the store (these appeared in the store as a "sponsored" listings - see below).  If a consumer then clicked on the ad and installed the app, the developer would pay GetJar the value of its bid.

(Source: GetJar homepage on mobile)

The whole model functions much like say... Adwords actually.  So imagine if Google actually added an advertising solution to the play store itself allowing developers to bid for visibility and installs directly on the store front?  What could the economics look like on the revenue side?

For starters, at GetJar about 8% of our downloads were monetizable (back in 2011) - that is we were able to get paid for those installs.  Now GetJar didn't have Google play's scale so lets say Play is only able to sell 4% of their installs. If we assume play downloads are somewhere around 2.9 billion per month (45% more downloads than IOS which is roughly tracking at 2b / month according to Statista) then we're talking about 116M downloads per month.  If we take the median CPI for Android downloads globally according to +Chartboost of around $1.10 then we're talking a high margin ads business worth an additional $1.5B a year in revenue.  Better yet, the cost side of running this business would probably be small for Google.  The existing sales team and ad ops team that currently sells Admob and other mobile search inventory would probably manage this business and 100% of the traffic comes from the store itself (so no traffic acquisition cost (TAC).

More importantly, everybody gains from this.  Developers gain a new, lower cost traffic source for their installs.  Consumers win by discovering new apps / games and other content promoted by the content owners that they might not find otherwise and Google unlocks an additional high growth, high profit revenue stream.

The only possible losers - Facebook (FB), Twitter and nearly every other app install service / ad network out there.  So what is Google waiting for? Well there are a number of reasons why they haven't taken this on.  First, it's a question of focus.  Google has been scaling at an incredible rate and has also been very busy continuously launching new verticals internationally.  Books, Movies and Music continue to expand abroad and this is surely taking up a lot of their resources.  They are also constantly working on improving payments and stability for users which requires resources if they are going to keep users happy.  Second, their could be anti-competitive reasons.  It's well known that over 90% of their business is from games.  These same game developers acquire traffic from many different sources.  Launching an ads business might be good for developers and users but it would negatively affect folks like Chartboost, Fiksu, Twitter and even Facebook.  This could be seen badly by regulators and those affected would likely cry foul.  Finally, there is always going to be the user to keep in mind.  Users might react badly to ads being injected into the store front.  Likewise, they might think Google is using their data to promote certain apps to them which, though it might be welcome by some users, would have privacy zealots running to man the barricades.

So Google must have its reasons for not launching this type of a service to date.  However, given the natural consumer and developer need I think it's more a question of "when" not "if" Google plans to launch a service like this.  The opportunity is simply too obvious to be missed.

The Smartphone Wars are Over: The War for Share of Time Has Begun

Watching the Google IO keynote today was a bit like watching a steamroller: the stats just kept coming and Android's unstoppable march continued.

While by some measure Android's global smartphone share is near or above 80% here were another set of jaw-dropping stats shared by Android / Chrome head +Sundar Pichai

1 billion 30 day active users on Android devices.  315M devices shipped running Android in Q4 2013 and 62% of tablets shipped in 2013 were running Android.

The last stat will surprise some who thought iPad still continued to have a safe lead in tablets (though they still do in terms of tablet-specific content).  When coupled with a surging number of OEM's embracing Android , the increase in computing power and the drop in customer retail prices Android saw a particular surge in developing countries in Asia where cheap Android tablets can now be had for under $60.  More importantly, Sundar shared that over $5 billion had been paid out to developers in the past 12 months - a 2.5x increase over 2012.

Some will argue Apple still wins where it counts: profit per device (or actually the fact that they are nearly the only OEM to be profitable save for Samsung) and the overall revenue of the App store and the fact that Apple's out payments to developers is probably x2 Android's.

So what?

Google isn't in the hardware business and -with the exception of Nexus / Chromebooks - never really has been.  Nexus were always considered reference devices.  A signpost to OEM partners of how to best implement Android on their devices and a showcase for Google's services.  Programs like Nexus were even eventually rolled out to other OEM's who developed limited edition stock Android versions of their flagship devices given how popular Nexus devices were among developers.  Today Android took another step forward with Android One, a Nexus like program to standardize the experience of Android to lower-end devices in the market.  A first OEM, Micromax, has already announced a sub $100 device using One targeting developing markets. As for Chromebooks, they continue to dominate online sales of laptops (as seen on Amazon) and as Google Docs now advance to allow for actual editing of Office docs on mobile devices (announced yesterday), they will make more inroads in schools and enterprises.

The truth is that the smartphone wars are over.  Google's strategy of providing an open and free OS and rallying the Open Handset Alliance to one standard (however fragmented at times) has worked beautifully.  Every subsequent generation of Android has not only been better then the last but also gained more share more quickly than it's predecessor.  Kit Kat (Android 4.4) now commands 13.6% share of Android devices according to Google while devices running Android 4.0 or higher now account for nearly 85% of all active Android devices globally.  It's important to caveat here that this data doesn't include data from China since Chinese Android devices typically don't carry Google's suite of services and don't check into their servers but still  - the reduction in fragmentation compared to two years ago has been enormous.

So where does Google go from here?  They take a page from the Cola wars of the 80's - 90's.  Back in the days when I worked at Pepsi, when Coke realized they weren't going to gain much more share of the Cola market globally what did they do?  They went for share of stomach.  They looked for ways they could provide more of their products to users as part of their overall diet not just in terms of their carbonated soda consumption.  So if you're Android / Google what's the strategy?

I call it Share of Time.

And Google IO scored a near perfect 10 on that note.  While Google announced a slew of improvements to Android including a preview of the new OS codenamed "L" the most interesting aspects of IO today for me were two things:

1.  Android's march beyond smartphones / tablets
2.  The accelerating integration of Google Services - especially between Chrome and Android

Keys to the first point were Androidwear, Android TV and Android Auto.  But it's not the fact that three of these initiatives were launched in one day that matters.  It's the way they were launched.  In the valley, one of the jokes among start-ups pitching VC's for money is to say: "Don't pitch a product, pitch a platform.  If it has the word 'platform' in it they're much more likely to invest." This is exactly what Google did yesterday. As opposed to Apple, Google's focus continues to be launching platforms at scale and all three of these initiatives reflected that.  Google's strategy for Wear, TV and Auto is essentially the same as it was for Android for smartphones: build an open, free platform for developers and form an Open Alliance of global partners to help drive the marketing of these services.  More importantly, since all these platforms run on Android, the development of applications and/or extending applications using API's to run from one environment to another is becoming increasingly easy.  Take for example Androidwear.  Google announced that if you have both a wearable and Android smartphone that when you download an app that has a wearable equivalent for your watch that this app will automatically be downloaded to your wearable device.  Better still, it will be automatically updated each time the app receives a new update from the developer.  

What really matters though is the fact you'll be using a whole lot more of Google then you did before.  How often have you had a text message only not to be able to make that call or send an email due to lack of battery?  Or how often have you avoided checking your smartphone in a meeting for fear of being rude?  Now you can use your watch (and be a bit less rude).  On the car side how many of us have hammered our steering wheel at the frustration of expensive but poorly designed in-car GPS systems (my hands remain bruised to this day)? How often have you wished you could just ask your car to play the same playlist that you have on your phone or computer? Or check what movies are playing at a nearby movie theater, buy tickets and navigate to the theatre?  With Android Auto you'll now be able to do just that.

Which brings me to my second point:  the acceleration of integration of Google services across Android.  Nowhere was this more apparent than with Google Now.  Nearly every demo yesterday showed a contextual use of Google Now across each of Google's platforms.  In the case of Android TV the user made a voice search looking for Oscar-nominated movies from 2002 to have a list pop up on the big screen with a list of movies available for purchase through Google play.  In the case of Android Auto the demo featured the user asking for the opening hours of a museum and then navigating to it. Google's strategy here is clear: Google Now is becoming the center of the user's universe to find the information they need while other Google services enable them to act on that search result.  In the meantime, as Google increases the number of touch points it has with us in our daily lives, it learns more about our needs and provides ever better search results and more refined targeting for advertisers based on context.

But Google's integration didn't end with Google Now.  As expected, Android TV will now integrate Chrome's "casting" technology so that users with an Android TV can seamlessly cast the content of their devices directly to their TV's without the need for an external dongle.  Nowhere will this be more interesting than for games.   As the demo showed yesterday, not only does your device become a portable console, but you can even play multi-player games with others across devices.  If you combine this with the sky-rocketing cost of console game development and the fact that the new generation of consoles is still nascent, Microsoft, Sony and Nintendo have cause to worry.

When I was at Google and +Sundar Pichai  took over as head of Android / Chrome one of the things I was most excited about was better integration and cooperation between the two teams.  We began to see the fruits of that collaboration in earnest yesterday.  In L for example, Google showed how open tabs on Android devices now appear more as "cards" along with open apps on the device so that users can more easily flip through their tabs without having to return to the Chrome browser each time.  More importantly, Sundar also showed a demo of Android apps now running on Chromebooks.  This was a natural progression that reflects the reality of app usage.  Users are spending more time on their phones than on their PC's (Chrome usage grew 10x in the past year to over 300M mobile monthly users) and even on phones app usage officially passed mobile web usage in terms of time spent earlier this year.

So in conclusion, Google is really after Share of Time.  They are leveraging their success and formula for Android to move beyond phones / desktops to the other areas of our lives where we spend a significant amount of time: our cars and our living rooms.  By tightly integrating multiple services across ever more daily touch points they are going to be able to understand more about us, provide us more contextual and immediate services while providing advertisers with more precise targeting data.  Even the most ardent critic would be hard pressed not to acknowledge what they pulled off yesterday.  They have the vision for how to use technology to make the world's information more universally accessible.  More importantly, they're executing on it.

Licensing a brand for your mobile game? Some things to consider

I was at the Login Conference in San Francisco the other day and had the chance to listen to +Henry Oh from Animoca give a great talk about IP licensing for mobile games. Henry had some great points I wanted to share and elaborate on that I think all developers considering IP licensing should really take note of as well as add some of my own.  A few other experts worth seeking advice on include +Greg Suarez and +Steph Ansari who led all our IP licensing efforts when I was at glu eons ago.

One of the first things to consider is why do you want to license a particular brand?  Is it a particular target audience you want to reach?  Are you looking to build the profile of your studio by associating yourself to a particular IP holder or brand? Are you trying to build awareness with platform holders who you think won't notice you without a brand being attached to your game? Do you think you can leverage the marketing of the IP holder to give your game a boost?

These are all critical questions you should be asking yourself since they are fundamental to the success of your game.  Let's look at them in order:

1.  Audience:  Different audiences react and engage differently with different brands.  If you're looking to reach the affluent hardcore male gamer 25-32 (middle/ upper middle class) in the US market certain properties won't resonate as well as others.  Halo may work well while a property like Doom might be too old.  That said if you were targeting veteran, old school gamers 32-45 years of age, Doom might be a great choice. Understanding your audience and what brands resonate with them is the first step to choosing the right brand.  I recommend really doing some research and also asking IP holders to share their own research and demographic profiles to see how their brand resonates with.

2.  Company Profile:  There is sometimes the belief that getting a big movie brand or licensed property will do wonders for your image.  When mobile gaming was in its infancy and carriers and platforms wanted strong brands to drive consumer interest that was partially true.  Today with over 120M Americans playing games the market is already fairly mass market so the need to use brands to drive user engagement is less true than it used to be.  In addition, using big brands can have two drawbacks as well.  Sometimes it creates an expectation on the behalf of the user which the product doesn't live up to.  On the flip side some platform holders have become weary of certain games (particularly movie tie-ins) where the pressure to get the game out in parallel to the movie creates an average or even disappointing product for users.  The reality is that users and platform owners want the best, highest quality product; period.  Slapping a brand on the game only heightens that expectation so living up to it is critical.

3. Awareness with platform holders:  Though having the rights to a big brand might help get a meeting with Apple or Google's marketing team keep two things in mind:  First the brand should be relevant and very mass market.  Picking up the license to something that was big 5-10 years ago has far less impact than something that's either about to come out or can be released to coincide with the release of the digital movie in the store.  Few titles by themselves generate meaningful downloads for Apple and Google at this point (they simply have too much scale) though some generate meaningful revenues (Clash of Clans, Puzzles and Dragons, Despicable Me).  Platform holders are interested in brands that really cut through the noise and hopefully provide a tie-in to other content that can be promoted in parallel (book, movie, album).

4. Marketing:  Always the Achilles heel of most developers.  The expectation by platform holders will be that if you're bringing a big brand to their platform you'll also have negotiated solid marketing support for the game.  That would be one reason they would feature you and co-promote your title.  It's really key to discuss this with IP holders at the contract stage and get a firm commitment from them to co-market the game on your behalf.  This is easier with titles that are launching in conjunction with a movie or book since the IP holder has a vested interest in driving exposure of the property overall.  Otherwise it's extremely challenging.  Things you can request / negotiate that typically are doable:  1.  Mention in any press releases related to the broader property.  2.  Mention in any below the line marketing (email) the IP holder is doing for the property.  3.  Mentions on the IP holders' social channels. 4.  Introduction to other licensing partners the IP holder may have to investigate co-marketing opportunities with them (think cereals, soft drinks, chocolates, plush toys etc.).  In some cases IP holders will actually organize mini events to get all the licensees together to foment cross promotions.  These things typically don't cost the IP holder anything and should be fairly straightforward.  Other things you can try to negotiate which are typically harder: 1.   A link / badge on all outbound marketing material that promotes your game - magazine ads, online, mobile, email. and even billboards.  Years ago when we launched Fast and Furious Universal agreed to have a small call to action on their billboards in London for the game.  This type of marketing is sure to generate interest among platform owners.  2.  Unique promotional items to be used with partners.  For example, if you're doing a movie game you could request signed merchandise from the cast to give away as promo items.  You could then run a social competition on Facebook or G+ with Apple or Google.  3.  In person appearances / interviews.  This is really tough to do but when I was at Google play we were able to secure an interview with Spielberg for Lincoln over a live hangout with fans.  This hangout was then broadcast using ABC's Jumbotron in Times Square.  Again, this type of deal is very challenging to do but if your marketing team is good you can try to negotiate these types of marketing activities up front with IP holders.  I would typically even have these conversations with IP holders at contract stage so you can set expectations.  If IP owners are lukewarm or non-committal you should really consider whether to develop their game at all since you'll loose a key leverage.

As Henry mentioned, lots of other factors go into determining a successful branded game launch and a good and fair contract.  When negotiating these deals keep in a mind a few other points:

1.  Timing:  Does the game release happen in parallel or after a major event related to the IP.  Timing has an impact on development milestones and will impact quality.  As mentioned above timing can be key to securing great marketing support as well so make sure you pay close attention to this and time your launch accordingly

2.  Economics:  Pay careful attention to deal terms.  Many IP holders will demand a minimum guarantee which is sometimes recoupable against future sales as well as a royalty on sales.  I would avoid up front guarantees if at all possible and try to keep royalties under 30%.  In addition if you have to give an up front payment make sure that it is recoupable against future sales and not on top of the royalty rate you need to pay.  You're already sharing the brunt of the burden and risk by developing the game so you should minimize further payments that could suck up valuable cash you'll need elsewhere in your business

3.  Geographic distribution rights:  I would always negotiate global rights where possible.  In particular I would make sure you at least have rights to cover Apple and Google's top markets (you can typically get this data from the likes of +App Annie and Distimo).  Make sure you at least get the US, EFIGS, Korea, Japan and China (for iOS).

4.   Creative control: I would try to get as much visibility up front on who has creative control and at what point you have to share the beta and alpha versions of your game (or even the early script for that matter).  You need to know very clearly who has control over what and how many people are involved in this process.  Typically the fewer people and organizations involved the better.  The last thing you want / need is for the movie studio to say one thing but the family / author who developed the book or franchise to say something else.  Establishing clear owners, milestones and responsibilities is key to getting a quality product out on time and on budget.

5.  Platforms:  Be forward thinking when negotiating this.  I remember when I was a glu we failed to sometimes negotiate or secure rights to certain platforms because we didn't think they were relevant.  This can really come back to bite you in the a@! if you're not careful.  Always negotiate the key platforms first and give yourself the option to develop on future platforms as well.  Who knows, Ouya might not be relevant now but in 18 months it could be very relevant in emerging markets.

Anyway, hope this helps and good hunting.  Whatever you do if you build a great quality product you should always do well regardless of whether you're using somebody else's brand.  Who knows, that next big brand might even be yours...

Mad Mork

Why Google's Play Store will eventually trump the App Store - Ads

A lot has been written this past year about how Android's Google Play store is catching up to the App store.  Certainly, a lot of the numbers seem to bolster this claim.  The Google play store boasts in excess of 1 million apps to date which is slightly ahead or an par with Apple (though the number of tablet based apps is far less than IOS and continues to present a challenge).  In addition, Play has launched music, movies, books, magazines across a number of major markets in the past year and matched IOS in games with the launch of its Play games service (though no numbers have been disclosed to give us an idea of how many games have integrated the service nor the current number of users).  More importantly, Google has been smart to capitalize on its digital content platform beyond simply consumer facing content.  At Google IO they announced the launch of Google Play for Education which will allow educators and IT administrators to essentially use a version of the play store built for education to provision students using Android tablets with apps, books and other materials.  More recently they also released Textbooks to allows students to buy their textbooks online (the backs and shoulders of many will be thankful)

But I believe more is yet to come...

The biggest challenge for content owners / creators continues to be discovery.   Though services like Play Games will help developers find new ways to promote their content to a more targeted audience while search and better merchandising help users find new content, the truth remains that as more content becomes available it necessarily becomes more and more challenging for consumers to find what they want.  Let me use my own situation this morning as an example.

Here's a screenshot of what I saw today on the home page of Apps when I opened Play on my laptop.

So what's wrong with this picture?  Well for starters, I don't really give much of a damn about Fantasy Football and don't, no matter how many companies they buy, ever use Yahoo! services so right off the batt 1/4th of the recommended list doesn't really interest to me.  Last I checked I also haven't been in school for about 13 years so the entire row of "Back to School" apps goes down the drain as far as I'm concerned.  Scrolling down the page I was also presented with a "Keep in Touch" section which, though cool, presented 4 apps I had already installed.  I'm not sure the value of reminding me about stuff I already have to be honest but understand the challenges around merchandising content for a mass market audience.

The problem here: relevance and lack of customization.  Luckily, Google has both the tools and brains to fix this and in my opinion (yes, obviously I'm biased) in a better way than Apple.

When I was a GetJar, our whole reason for being was to offer developers the chance to better reach consumers by allowing them to bid for targeted placement across our app store.  Developers could bid for placement to get heightened visibility and depending on their bid and the relevance of the ad and level of interest they would get featured in premium placements across the store which helped drive downloads of their apps (sounds familiar?)

So it would seem that Google could easily solve the discovery problem in part by introducing an Adwords style system directly into Google play. Introducing ads into Google play would:

1.  Enable developers to have some control over the effectiveness of their ad dollars by bidding for placement directly where consumers happen to be.

2.  Provide a level playing field where developers would compete / bid against each other for placement.  Successful placement would depend not just on the level of the bid but also on relevance and also consumer interest (as measured by the click through rate the developers app has received to date).

3.  Better monetize the play store with a product (ads) which is far more profitable for Google than content. (I can see Google's CFO +Patrick Pichette smiling already)

4.  Provide Google play with a unique differentiator against the Apple App store by giving developers much more control over their ability to market their content to consumers

5.  Provide Google's ad sales team with a unique, highly differentiated product targeting a highly prized audience of Android users (minus those in China of course...(sigh)).  +Jason Spero rejoice!

So it would seem like a no brainer coming from the company that pioneered online ads that this would solve a lot of problems both for consumers, developers and the folks on the Play team.  So when will we see ads in Google play?  

who knows...but surely the obviousness of the opportunity hasn't been lost of the folks in Mountain View.  Stay tuned ;)

MM