March 24, 2011

69) Zynga – is its Facebook dependency good or bad?

危 wēi  danger

More and more often startups are built with a total dependency on a third party, for example on external platforms such as Facebook, Twitter, Google Apps or iTunes.  The allure of access to a sales channel, rich data and potential customers is obvious but surely that dependency creates huge risk?  What if the external platform changes its approach or decides to develop its own version of the startup?  What if the platform decides that it will no longer support third-parts apps as Twitter did last week.   Zynga, the social gaming company, is an interesting example – it has been valued at over $10bn – surely this is crazy given its complete dependency on Facebook?

机 jī opportunity

I was inspired a few weeks by an article on Techcrunch.  The article categorizes dependencies as symbiotic or parasitic.  Parasitic dependencies are problematic, increasing the chance of the third party taking a hostile approach but symbiotic dependencies, in which both parties derive a benefit, pose less of a risk.

By this definition I think Zynga’s dependency on Facebook remains symbiotic.  Facebook has benefitted because games such as Farmville enrichen the Facebook’s user’s experience – currently over half of FB users play Zynga games, increasing their average time on site considerably.  In addition, Facebook Credits are integrated into all Zynga games (for which Facebook takes a cut of 30%) and the company is reportedly the largest advertiser on Facebook, spending millions a year to drive new installs.

In return, Zynga has benefitted by leveraging the rapidly growing FB community, successfully harnessing FB tools such as user news feeds to promote game updates.  It’s hard to imagine that Zynga would have grown its user base for CityVille within a week of launch to over 3 million at the end of last year without FB.  Given this symbiotic dependency, Facebook’s growth rate and estimates of it making $630m this year, Zynga’s valuation seems more reasonable.

It is also worth pointing out that none of this has stopped Zynga building a Plan-B, if only to improve its negotiating power with FB.  For example it began requiring email addresses from users (enabling it to contact them outside FB) and buying mobile application companies – including Newtoy (creator of Words With Friends and Chess With Friends) last year and New York developer Area/Code last month.

In the case of Twitter it seems ruthless for them to close down so many apps, after all those 3rd party clients helped create behaviors that now make Twitter so valuable: @ mentions, direct messages, re-Tweets and so on (none of which were Twitter’s idea originally).  But, those app’s were effectively in direct competition with Twitter, placing their own advertising and pulling users away from Twitters own platform – a parasitic dependency.  Twitter’s rationale as outlined in this developer forum explains this and the message is clear – if you’re going to develop apps make them symbiotic…

How About…

  • Considering who your business might be dependent upon?
  • If you do have dependencies can you make them symbiotic rather than parasitic?
  • And how can you plan for the worst?

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October 11, 2010

62) diaspora* and Kickstarter

危 wēi  danger

Four students at New York University’s Courant Institute of Mathematical Sciences listened to a lecture on cloud computing and privacy and began to worry about relinquishing ownership of their data to Facebook and other social networks.  They believed that they should retain all of their personal data, after all once you give up control initially you effectively lose the option to regain control over it permanently.   The students believed that they could build a distributed social networking service to overcome this which they called diaspora*. Users would set up their own server (or “seed”) to host content; seeds would then interact to share status updates, photographs and other social data.  The team wanted to test whether anyone else shared its concerns and to raise $10k seed capital to build the product.  Surely the inexperienced team would struggle to get the idea off the ground without giving up huge amounts of equity?  And how would they test demand more broadly than just in their close social groups?

机 jī opportunity

Instead of testing the idea with potential users in face to face discussions and tapping into angel funding the team decided to place a request for funding on Kickstarter, a platform that enables crowd-funding of creative projects.  The team set their goal at $10k, recorded a video outlining why the project was important to them and explained what donors would receive in exchange for any backing.  For example, those that pledged $25 or more would receive “a CD, note, a bunch of cool diaspora stickers, and an awesome diaspora t-shirt!”.  As with all Kickstarter projects no equity was offered in exchange for funding (conveniently reducing the need for financial regulation of the Kickstarter platform) and the project had to be fully funded before its time expired or no money changes hands. diaspora* was fully funded within 12 days and within a few weeks the team had received pledges of over $200,000 from over 6500 backers.

Here’s the Kickstarter widget for the Diaspora project:

The team had proven that their product had appeal and had raised 20 times the capital they had aimed for without giving up a single percent of equity. diaspora* is now in build: a developer preview was released on the 15 September 2010 and a consumer alpha is planned for October 2010.

This approach is developing into a business model itself – just look at American Idol or X-Factor (read more in my article here).

How About…

  • Crowd-funding new ideas – testing demand and perhaps eliminating the need to give up equity?

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August 2, 2010

Why I think OpenIDEO is important

This is a break from my usual blog post format but today is a special day: we’re launching OpenIDEO – a platform designed to bring people together to solve problems for social good. Here’s a quick intro video (those of you that know me may recognise the voice):

I’ve been thinking about and developing this opportunity for a few years and thought I’d jot down a quick personal perspective on why I think it’s important.

Collaboration works. Cities have always been hotbeds of innovation.  Why?  Because high population densities bring together minds and enable collaboration.  Solitary inventors deliver, but the world is getting too complex for individuals to make breakthroughs at the societal level as frequently.

vs  

Take helicopter design: although Leonardo Da Vinci had a good go at designing a whole ‘helicopter’ in the 1480s no individual on the planet would be able to design and build a groundbreaking one today from scratch.  I don’t imagine there’s even an individual that could design and build all of the electronic systems. Today, most breakthroughs require collaboration.

Collaboration works between similar individuals: 1+1 = 2.5. But we have learnt through our work that collaboration works even better between diverse individuals (whether the differences stem from culture, experience, knowledge, approach or all of the above): 1+1 = 3. Diversity of perspectives drives better results.

And it doesn’t need to be ‘physical’ anymore. In the past collaboration has generally required physical meetings, it’s still arguably the most effective approach.  But technology is providing new means to meet and collaborate virtually, for example social networks (including Twitter, Facebook and LinkedIn) provide us all with new tools for collaboration.  Harnessing technology will be essential for impactful collaborations in the future, particularly since we know that diversity is important.

When companies choose to prevent employees from using social networks (usually to keep them focused) I wonder if they’ve thought through downsides – not least that they may be preventing their employees from developing these new collaboration muscles.

And we care. Although voter numbers are dwindling, consumer and citizen engagement around brands and local politics is increasing – partly because these are the areas where we believe we can have impact. This is likely to increase – particularly after a period where we have all been forced to reassess our values (the economic meltdown) and because technology is offering us all greater power to affect that change.

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So, with these big trends in mind, we built a technology platform to enable diverse people to collaborate in solving problems for social good.  We hope that it makes a difference.

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