Futuristic Play by @Andrew_Chen

The 2009 conference season begins
Happy new year! Recently, Jason Oberfest of MySpace put together a great resource of a bunch of digital media tech conferences. I added a couple ad-related conferences, and he agreed to graciously share.

Is this list complete?
Of course this list isn’t complete at all. If there’s anything missing in the list, please leave a link in the comments!

The digital media conference list (so far):

Demos and General Technology

• SXSW
• Startonomics
• Under the Radar
• The Crunchies
• Foocamp (invite only)
• AlwaysOn
• TechCrunch 50
• Web 2.0 Expo
• DEMO
• Le Web (Europe)
• The Next Web Conference (Europe)
• Lift (Europe)

Platforms, apps, and widgets

• Graphing Social Patterns
• Google Campfire
• Widget Summit
• SNAP Summit

Online Advertising events

• Advertising Week
• OMMA
• MIXX
• DMA
• Ad:Tech
• Search Engine Strategies
• Search Marketing Expo
• Pubcon
• Affiliate Summit
• eMetrics

Gaming

• Game Developers Conference
• Virtual Goods Summit
• Interplay
• Casual Connect
• Flash Gaming Summit
• LOGIN
• Engage! Expo

Finance and Business

• Web 2.0 Summit
• All Things D
• EconSM
• MIT Emerging Technologies Conference
• Goldman Sachs Internet Conference
• Fortune Brainstorm Conf

UPDATED: added a couple games and search ones, courtesy reminders from Jameson Hsu, Joe Ludwig, Lee Clancy, Wallen’s, and Jonathan Mendez. Thanks!

Still on blog vacation - hopefully not for long
Sorry for the lack of posts guys - still semi on blog vacation

Anyway, I will be in Seattle on the 8th and 9th of January - if anyone wants to meet up while I’m there, here’s where I’m going to be:

• 8th: Downtown Seattle (free after 5:30pm)
• 9th: Downtown Bellevue (free after 5:30pm)

If I get any interest, I’ll set up drinks or meet people for coffee or something. Let me know, just shoot me an email at voodoo [at] gmail.

See you there!

A case study for the Freemium business model
There’s been a lot written about the Freemium model over the years, particularly from Fred Wilson at AVC. Here’a couple articles I’ll recommend on the topic:

• Fred Wilson: My Favorite Business Model
• Sean O’Malley: Will Freemium save Web 2.0?

Anyway, given the great interest in direct monetization due to the economy, I decided to write a post on the topic as well, focusing on AdultFriendFinder, which has recently released a bunch of great data.

AdultFriendFinder files for IPO
Recently, the holding company FriendFinder Networks, Inc., the owner of AdultFriendFinder (and Penthouse), filed to go public. As such, they released a Form S-1 where they go through many of their overall business metrics - you can read the full SEC documents here.

OK, it’s a lot more boring than you might expect from an adult-oriented conglomerate. It’ll put you to sleep.

There’s a ton of data in the S-1, but I’ll just summarize some of the most interesting stuff related to acquisition, monetization, and retention of the customerbase…

FriendFinder’s business metrics
First off, there’s some good definitions for how they think about their business - everyone who is thinking about direct monetization of their customers should be familiar with all the terms below:

• Visitors. Visitors are users who visit our websites but do not necessarily register. Visitors come to our websites through a number of channels, including by being directed from affiliate websites, keyword searches through standard search engines and by word of mouth.
• Members. Members are users who complete a free registration form on one of our websites by giving basic identification information and submitting their e-mail address. Members are able to complete their personal profile and access our searchable database of members but do not have the same full access rights as subscribers.
• Subscribers. Subscribers are members who purchase daily, three-day, weekly, monthly, quarterly, annual or lifetime subscriptions for one or more of our websites. Subscribers have full access to our websites and may access special features including premium content.
• Paid Users. Paid users are members who purchase products or services on a paid-by-usage basis.
• Average Monthly Net Revenue per Subscriber. Average revenue per subscriber, or ARPU, is calculated by dividing net revenue for the period by the average number of subscribers in the period.
• Churn. Churn is calculated by dividing terminations of subscriptions during the period by the total number of subscribers at the beginning of that period.

And in fact, you can think of Visitors, Members, and Subscribers/Paid Users as a funnel that they manage to extract revenue. Then you combine that with the ARPU and Churn to get an understanding of monetization and retention, respectively.

Funnel metrics
And in fact, they list some of the key conversion rates between each of these numbers:

• Visitors: 59 million uniques worldwide
• Members: 4 million new member registrations (on 270 million members total)
• Subscribers*: 900k paying subscribers
• ARPU: $19.06 per paying subscriber/paid user
• Revenue per member**: $0.95 per member
• Churn: 18% month over month

*New subs/month number is not in the S-1, but is derived from the fact they have been about level on total # of subscribers, yet with 20% churn, so to make that up they must be adding a little over 200k to stay even.

**Revenue divided by new members (rather than subscribers)

So let’s try to figure out what their funnel %s look like. One complication is that the FriendFinder S-1 gives total members and new members within a month, but doesn’t give “active members.” At the minimum, it should be 6% since 4 million new members on 59M unique visitors yields 6%, but you might imagine it would be closer to 15%, which is closer to an industry standard.

Here’s a couple ranges, based on the above assumption:

• Visitors -> Members: 6-15%
• Members -> Subs: 10-22%
• Subs -> Renewing Sub: ~80%
• Revenue per member: $0.48-$0.95

You can compare this to Free-to-play games and Casual MMOGs via these blog posts from Jeremy Liew and Nabeel Hyatt, although you should note that their definition of ARPU is calculated from actives rather than subscribers, so you should use my above “Revenue per member” number of $0.95 rather than the substantially higher $19.06 per paying subscriber. Anyway, you’ll see that it’s actually not much different!

It shouldn’t be surprising that all of these freemium models, after careful optimization, come out at roughly the same numbers.

Acquisition
I also want to highlight a couple interesting points about how FriendFinder acquires their customers:

Marketing Affiliates. Our marketing affiliates are companies that operate websites that market our services on their websites. These affiliates direct visitor traffic to our websites by using our technology to place banners or links on their websites to one or more of our websites. As of September 30, 2008, we had over 110,000 participants in our marketing affiliate program from which we derive a substantial portion of our new members and approximately 44% of our revenue. For the nine months ended September 30, 2008, we made payments to marketing affiliates of over $46.4 million.

[also, in a separate section...]

In addition, for over 10,000 of our affiliates, we maintain private label websites that provide a seamless, turnkey outsourced solution using our technology platform for social networking and live interactive video websites. These websites have the look and feel of the affiliate’s website with the affiliate’s logo and website name but are operated by us. Users who click through the affiliate’s website are tagged with the affiliate’s identifier that tracks the user to calculate the payment due to the affiliate. Private labeling allows our affiliates to preserve their brand while generating revenue for us.

There’s also a block of text on the extent to which they spend money on Search Engine Marketing:

We rely on both algorithmic and purchased search results, as well as advertising on other internet websites, to direct a substantial share of visitors to our websites and to direct traffic to the advertiser customers we serve. If these internet search websites modify or terminate their relationship with us or we are outbid by our competitors for purchased listings, meaning that our competitors pay a higher price to be listed above us in a list of search results, traffic to our websites could decline.

How much do they spend on SEM? Turns out it’s over $50MM per year:

The largest single selling and marketing expense item for Various were “ad buy” expenses which amounted to $54.8 million and $55.3 million for the 2007 period and the year ended December 31, 2006, respectively, the cost of purchasing key word searches from major search engines, together with expenses related to associated personnel.

This means that between their affiliate payments and SEM, they are spending around $100MM buying traffic!

Conclusion
There’s other neat info in the S-1 about their chargeback rate, the split in revenues between their magazine side (Penthouse) versus AdultFriendFinder, and also the breakdown of all the smaller demographics they service. For example, did you know that they also run a bunch BigChurch.com for Christian singles?

Anyway, there’s lots of fun information in there - if you find something fun in there, let me know and I’ll update this blog post to reflect it.

As always, comments and questions are welcome!

I’m still on blog vacation but I figured I would reblog the links I’ve posted to my twitter account over the last week or two. You can follow me on Twitter if you like these! Many are work unrelated.

Anyway, here we go:

• Richard Dawkins and Derren Brown talk about “psychics” - fun set of videos: http://bit.ly/XTbB
• on-the-ground report of the startup scene given the recessionary environment from an ex-googler: http://bit.ly/BWKv
• presentation zen: nice lil video, shot all on cell phone, wins awards: http://bit.ly/6sVJ
• Will Freemium save Web 2.0? http://tinyurl.com/6p5ejq
• programming language that looks like cooking recipies: http://www.dangermouse.net/esoteric/chef.html
• mobile CPMs collapsing, says AdAge: http://tinyurl.com/6p8d8j
• obama logos that weren’t chosen, some are still quite good! http://tinyurl.com/5c4bsj
• emarketer predicts down revenue year for myspace and facebook in 2009, 585M and $210M respectively: http://bit.ly/UVDj
• michael lewis (author liar’s poker) on jobs versus callings and a decimated wall st: http://bit.ly/zV8s
• hilarious basketball trick shot competition where lebron james loses: http://tinyurl.com/3qrtcg
• this kind of blog post makes me happy i’m not at msft: http://tinyurl.com/5so6ok
• New Malcolm Gladwell article: How do we hire when we can’t tell who’s right for the job? http://bit.ly/wm29
• great article on why there isn’t more transparency in the leadgen market: http://bit.ly/YB41
• watch a genetic algorithm try to evolve a car in flash, traverse the land without red circles touching the ground: http://bit.ly/fLgb
• creative! 3-d dominos sandbox: http://drawminos.com/
• comic: mostly i use facebook to send cutesy, useless gifts that require people to install apps that email them spam http://bit.ly/xEff
• funny video - chickens stop rabbit from fighting: http://tinyurl.com/2m5227

BRB!

Here are some of the partially-written drafts I have saved in my Wordpress account - no promises on whether or not I’ll finish them though

• Forget about user engagement - just focus on retention!
• Launching new product features: Metrics for internal distribution
• The Joel Test for data-driven decisions
• Do data-driven models lead to uninspired products?
• Are websites really better than desktop apps for user acquisition?
• The social gaming business 101: Lifetime value, cost per acquisition, player retention and lifetime value
• 5 key factors for increasing retention metrics
• Dual currencies in virtual economies
• Elements of every virtual items-based social game
• How to calculate an ARPU and why it’s important
• 5 common objections to making data-driven decisions
• “Yet another ad network?” Why the future of advertising points at more networks, not less
• Are you building features that no one will use?
• “OMG I’VE JUMPED THE SHARK”: 10 things to do after the TechCrunch crowd has moved on
• Learning about retention metrics from retail and catalog marketers
• Designing social networks: Real friends versus online friends
• Social gaming and BBS door games: Learning from past casual asynchronous games
• Why “launching” is old and busted

See you guys in a couple weeks…