Introduction

After recently moving on from adventures building a consumer gaming portal at Mochi Media (acquired last year for $80 MM), I’m now working on a new startup called Connected, which is a SaaS contact management solution for professionals. I decided to blog some of my thoughts based on my experience thus far with deciding on the right user acquisition channels to focus on.

When does ad buying work for SaaS businesses?

It’s a convenient belief that after you decide to build your software as a service (SaaS), Google AdWords and other networks will enable you to outsource all of your marketing efforts and focus less about user acquisition. This is not always true. Here’s a “napkin math” model to quantitatively decide whether or not ad buying is right for your startup based on reality, not guesswork.

A model for user acquisition

Paid user acquisition works for you when the following proves true

• LTV > CAC

The lifetime value (LTV) of your users should exceed the cost of acquisition (CAC) to get them in the door. As a reminder

• LTV = Expected Life x Average Revenue Per User (ARPU) x Gross Margin

In addition, for SaaS, you care quite a bit about costs and conversion rate for your funnel to trial, and from trial to paid. In specific, these look like

• CPC – cost per click to get traffic
• % trial conversion rate – users who convert to a trial of your product
• % paid conversion rate – users who convert to paid account

To estimate your cost of acquisition, you can base it off of estimates for your trial and paid conversion rates.

• CAC = CPC / (% trial x % paid)

An example of cost of acquisition

Let’s pick an example and work backwards. Let’s say you have a

• $20/monthly subscription
• 5% paid conversion rate – from trial to paid
• 10% trial conversion rate – from visits to trial

Then let’s pick a two different points for cost per click

• $0.50 CPC
• $2.50 CPC

In order to get a user at these CPC points

• CAC = CPC / (% trial x % paid)
• CAC = $0.50 / (10% x 5%) = $100
• CAC = $2.50 / (10% x 5%) = $500

In this example, it costs anywhere from $100 to $500 to get a single paying user at $20 per month. If you were trying to acquire 100 users ($2000/month), at $0.50 CPC that’s $10k ad spend, and at $2.50 it’s $50k. Drew Houston from Dropbox brought up very similar issues from his Dropbox Startup Lessons Learned presentation, where their initial search marketing test had a whopping $233-388 cost per acquisition for a $99 product!

Compare this against lifetime value

Compare this against the lifetime value of your user, or the total amount of profit you expect to receive over the user’s use of your product. This value should factor in the churn that you’re seeing from users canceling their subscription over time as well as what the payback period and working capital which you expect. Even though you might expect a user to be retained over a period of years, most startups don’t have the capital necessary to tie up their money for that long.

Let’s go back to the example above. We have the two users who cost

• $100
• $500

Assuming zero churn and zero operating costs on their $20/month subscription, you would recoup your cost on these user over a fixed period of time

• $100 / $20 = 5 months
• $500 / $20 = 25 months

In the case of second user, it would take over two years to recoup the initial $500 you spent to acquire them. You can offset this issue of working capital by setting the value at the amount of revenue you receive over a fixed period of time, or by being more aggressive with pushing them to prepay for longer periods of subscription cost upfront.

For example, what if you could get these users to pre-purchase their $20/mon subscription for $149/year? You’d be able to recoup the first user’s cost instantaneously, and get back a significant percentage of the second user’s acquisition cost.

Making the model work

The path to achieving profitability looks like making the model of having your cost of acquisition beneath your lifetime value work. You can quickly get a back of the envelope idea of whether paid acquisition is for you based on the examples and model above.

Doing this will help you determine whether or not you can profitably use ad buying as a source for getting users. You can also fine-tune your model to incorporate even more granularity such as

• virality
• traffic source
• retention
• working capital
• churn
• etc.

Trying paid acquisition on for size

Now that we have the framework down, the question is whether or not paid acquisition works for you.

If this works for you, then congratulations- you are on the path to scalable riches! If it doesn’t work, then you should think about how far off it is. Getting ad arbitrage to work out profitably is extremely sensitive to changes in the steps of your conversion funnel, as well as the source of the traffic. So if you’re not many factors off, it may make sense to spend a few months refining your funnel and trying to optimize the channel the traffic is coming from. Here’s a few things to consider-

Does the math work?

Once you launch your product and get a sense of what the conversion rates are in each step along the funnel and the churn rate, it may be that the math doesn’t work out. If you’re not too far off, then it may be worth spending time trying to make the metrics work out through landing page optimization, increasing conversion along the steps of your funnel and trying to optimize your traffic sources. However, if you’re several factors off (this is common in highly competitive markets) paid acquisition may not make sense as a strategy for you.

Is your product in an existing market or a new market?

Intent-based paid acquisition channels like search advertising work best in an environment where users are aware of the problem and actively searching for solutions which your product meets. You can look up potential search terms and volumes through Google AdWords Traffic Estimator, including estimated average cost-per-click and monthly search volumes. If not, you can also experiment with targeting sites that reach the demographics of your users.

How much working capital do you have?

While theoretically you might be willing to pay up to the full LTV of the user, you may want to limit the amount you’re willing to pay based on a fixed time period, for example the expected value from the user over 6 months. This may be because at some point you run into working capital issues paying for users who may take years to break even.

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I’ve been so heads down working at my new startup that I’ve neglected to update my blog. Sorry guys!

A few months ago, I left Mochi Media and the world of games to start a new adventure with Connected, which provides contact management without the work. It automatically pulls in contact information from across your email, calendar and social networks and gives you the tools to proactively manage your network.

Why Connected? Because relationships are important

One of the key reasons for my original decision to join Mochi Media was because I just liked the founder and team, and could really see working with them. When I first met Mochi, they had just raised their Series A. I wouldn’t have been fortunate enough to meet them without an intro from my brother Andrew. That set the stage for the past four years. Relationships are important, and they touch every aspect of our personal and professional lives.

Our networks are global, and scattered all over the place

I’m excited about the contact management space because it’s a common problem, and only growing larger. We’re getting more and more spread out, and our networks are getting even larger through Facebook and LinkedIn.

I grew up in Seattle, went to school in Philadelphia and live in San Francisco. My network is scattered all over the globe. When you travel to another country, how do you know how to get around? Even worse, sometimes we don’t even know who we know.

Here’s a quick visual of what my global network looks like thanks to Connected.

Using information from Connected, we were able to reconnect with friends last summer from Shanghai, Beijing and Hong Kong.

It’s a painful problem to solve

Connected addresses a problem that I’ve had for a long time. In college, I kept an Excel spreadsheet of important people called Seattle contacts, and used that as a reminder for who I should have coffee with each summer. In moving down to the bay area, I had another spreadsheet with a list of companies and contacts, and data for who introduced me to who.

After I made these contact lists, I never looked at them again. They’re painful to update, and how do you stay in touch for the long term? I just added them on LinkedIn or Facebook and did my best to stay in touch.

How Connected solves these problems

We’re still early with Connected, but I’m really excited about the product. We’re focused on taking all the pain out of keeping your contacts up to date by pulling information from across email, calendar, Facebook, LinkedIn, and Twitter.

Using Connected, I can maintain a list of important people and set custom reminders to keep in touch. It also sends me custom alerts for birthdays and job changes so I’m always up to date. For travel and recruiting, I can search across my network by geography or job function. It’s built for professionals like me who care about their relationships but don’t need / can’t manage heavy-weight CRM tools.

Try Connected

Please give Connected a whirl, and let me know your thoughts! Click here to get started.

One of the challenges of early product design is creating the initial product hypothesis on what the product actually is. Internally, products tend to be more easily described as a bundle of features, but it’s difficult to convert that into an actual description. Marketing and initial product design is often the realm in which everyone has an opinion, and it’s hard to judge which one is more valid. Should this button be red or blue? Is this the right message for the user, or should we phrase it another way? The answers to the questions, however, can be very important and fundamental decisions that have profound impact on the product. As Jason Fried says, copywriting is interface design.

The natural questions that follows is, how can we take the diverse opinions and create a constructive process with which to answer them? It’s important to be able to evaluate ideas and make decisions to break the stalemate:

#1. Implement a test

One way to answer these questions is simply by testing it. Set up a landing page or bucket a certain group of users into a test group, and measure the results against the key metrics that you’re trying to drive. Doing very small variations high up on the funnel can have great results.

Pros/Cons

With this approach, it can be tempting to design by numbers. However, if you’re not getting the qualitative feedback directly from the users, you may be missing important data about the decision. For example, a correlative increase in click-through might actually indicate that your copy is misleading rather than better converting. Another consideration for this approach is how hard running the test is. Even though ideally everyone should be able to set up a test, this can create an additional hurdle for non-technical team members to advance their ideas.

Tools

If you’re focused on marketing copy or testing a simple value proposition, one free solution to this is Google Website Optimizer which lets you test completely different pages or do multivariate tests of multiple page elements. Optimizely is another useful tool geared toward providing non-technical ways to test landing pages. If you’re looking for deeper analysis like funnels, there are many tools like Kissmetrics, Mixpanel and Kontagent available.

#2. Conduct live user testing

A second approach is to speak directly to potential customers and show them the interface or ask them questions to test the different hypotheses. A version of this might range from from conducting a survey, posting on your community forums, screencasting with Skype, or all the way to visiting someone at their home or place of work.

Pros/Cons

The benefits of live usertesting is that it allows you to unearth information and responses through interaction with users. Watching and engaging with users can be insightful. However, generating live usertests can be quite expensive in terms of time or money to determine the answers to qualitative questions. In addition, you run into the problem of sample bias. Depending on the nature of your business, the user sets which you receive may not necessarily be representative of your audience.

Tools

There’s some simple ways to put this into practice. The first version is taking your customer email list and emailing them. A similar option is posting a Craigslist ad that leads to a Wufoo survey form. Present a quick message about your product and what type of user you’d like to see respond (with a time commitment), and then push them into a Wufoo survey which asks qualifying questions to determine whether or not they’re a candidate for you. After that, you’ve got a list of potential customers to interview in-person or on the phone.

The second version that I use and recommend is Usertesting.com. They provide a great service where you select the type of user you’d like to interview, provide a list of tasks and essay questions, and connect you with the user for a small fee. In exchange, you receive a short essay answers to these questions and a video screencast of your user completing the tasks and verbally answering the questions in their native browser environment. This is super important for consumer web because you can see the experience of your product on their browser in their home environment. The benefit of this approach is that it’s incredibly easy. However, the drawback is that it’s a less interactive audience and these users are potentially less representative of your actual userbase.

#3. Create a customer advocate group

The third way that I’d suggest answering these questions is by creating a customer advocate group. Ideally, this is a group which is composed of the top customers or potential customers of your product which everyone in the company agrees is the real customer. For a B2B company with 20% of the customers providing 80% of the revenue, this would be the council of your 20%. For a consumer company, this may be some of your highest ARPU users or top posters.

Pros/Cons

Creating a customer advocate group can have the benefit of removing the problem of the vocal minority. These are the engaged users who may complain the loudest, but aren’t necessarily representative of your top users. It can also be a great way to establish and cultivate great relationships with your top customers.

The idea of a customer advocate group is particularly powerful because it dispels the argument that “This isn’t representative of our customer base” when the answers surfaced aren’t convenient to the product direction. By creating this group, you have a very targeted and accessible set of users to run these qualitative questions through. Once this group is established, it should be pretty easy to get them on the phone, email them a few paragraphs, or even throw together a few Balsamiq mockups to show them. I think creating this is the preferred and ideal method, but it takes more work on the front end to set up.

One potential downside to this method is that customer advocate groups do need to be maintained. You should constantly be asking, Is this group currently representative of the customer we are targeting? As your product or customer group evolves, it’s important to regularly revisit this question and redefine or augment the group.

Tools

If you have an existing customer base, find a way to get to the set of top emails that you agree as a team represent your customers to contact them. A great way to do this is to ask for an interview or even create a more formal program for them to be involved. If you don’t have an existing customer list, scour your network, Google Blogsearch or Twitter and look for the most knowledgable and potentially representative group of users for your product.

5 Ways NOT To Make Product Design Decisions

I’ll close by thinking through five ways not to make product design decisions.

• Don’t copy what competitor X is doing, but make the effort to understand what or why they’re doing it.
• Don’t make decisions in a silo. Have conversations with your customers and have a clear reason why you’re doing it.
• Beware of the loudest voice in the room, because the strongest opinion might not be the right one.
• Avoid creating “maybe useful” product features.
• Don’t forget to talk to your support or community staff. Pay attention to those who are closest to the action.

Thanks for reading!

If you’re not familiar with it, Cloudstock is a small event offshoot off of the larger Salesforce.com Dreamforce conference designed to bring developers and cloud technologies together.

Meet our project: connectme.cc

The premise behind connectme.cc is simple. Send your business card with one text.

Even though we’re living in this world with social networks and online profiles, many of the existing applications are dependent on both people having something common installed. Unfortunately the assumption that you’re both on the same network isn’t reliable, so most networking reduces to the business card. The business card is the lowest common denominator way to share information. The problem is that there’s only so much information that you can cram onto one small business card.

What if there was a better way to share your contact information with others?

A novel solution to solve this problem is the iPhone app Bump. But when was the last time we used Bump? The biggest issue with Bump is that it requires both individuals to have the application installed.

Instead, connectme.cc uses a simple push method to reduce the friction of sharing your information. After signing up to create your virtual card, you can send that card to anyone you want via their phone number, email or Twitter handle.

You text connectme.cc’s number with the other person’s cellphone, email or Twitter account. Right after you text the app, the recipient will receive a text, email or tweet with a link to your virtual card.

Lessons learned from designing connectme.cc

This was my first hackathon, and I wanted to share quick thoughts on the experience of creating connectme.cc:

Timeboxing is a great way to reduce an idea down to its essence

We had a lot of great ideas on what to build, but the constraint of creating a one-day project helped us refine these ideas to simple values. We set 3 rules:

• Achievable within 24 hours
• Useful enough that we would use it
• Uses one of the APIs included in the conference

The interesting thing was that many of our ideas failed the second constraint, which is products that we would use. Instead, they tended to fall more into the class of technical toys. It’s great to prove that we were able to complete something with an API, but difficult to explain how we’d use it. We finally decided on the idea of connectme.cc because it’s a simple idea with clear usefulness.

It’s better to be positive about ideas than to reject them

Once we generated a great list of ideas, we went from brainstorming to the evaluation phase. One observation from this process is that it’s way better to call out the ideas you like rather than the ones that you don’t. Rejecting ideas seems to diminish our creative momentum and slow us down.

It’s important to change the question from “Is it a feasible idea?” to “Is this a useful idea?” It was easy to reject many ideas because they were too big, rather than because they were useful and interesting. If you dig deep enough into an interesting idea and what makes it interesting, you can start refining it into a minimum viable product.

Simplicity takes work

Creating simple and easy to use experiences is a lot of work. In my experience, products often benefit far more from what you take out than the functionality that you add. Making the whole user flow functional and simple to use was a big challenge and just about as much work as the technical implementation.

After we decided to work on the idea of connectme.cc, we set up a basic user scenario that we’d want the user to work through. We spent quite a bit of time discussing how to make this simple. We were able to reduce the user sign-up from four screens to just two, but creating even the simple user flow, front page and messaging was a significant amount of the work involved in putting this app out.

Conclusion

I had a lot of fun working on this weekend hack! Getting a fun little product like connectme.cc out is a great exercise of trying to be creative within constraints. Try it out and tell us what you think!

One of the key early decisions to game design or creating a virtual currency platform is designing the price and exchange rate of virtual currency. Unfortunately after it’s been released, it’s also one of the most difficult to change, because the change impacts the userbase and economy of the system as a whole. So if you’re starting out, how do you decide how to price your virtual currency?

Three Types of Virtual Currency

To answer this question, I started by looking across a broad swath of popular social games, social networks, and some MMOs and virtual worlds. Currency is typically used in three different forms across these games:

Attention Currency – currency earned by taking actions on the website and rewarding engagement. For example, Gaia Online’s Gold Pieces are earned by posting in forums and playing in games. This is roughly analogous to currency earned as a function of time.

Secondary Currency – paid currency in addition to attention currency which is tied to cash value. This is typically added as a way to control economic inflation.  For example, in Playfish’s Restaurant City you earn both attention currency as coins as well have the ability to buy exclusive items through Playfish Cash.

Transaction Currency – currency tied purely to making transactions that can be used in multiple contexts and often transcends a single application or website. For example, this is Facebook’s Credits system.

Virtual Currency Pricing Today

With data from 57 applications and sites, I attempted to normalize the pricing structure of these games by taking the small cash purchase amount (usually $2-$5) and determining how many units of the virtual currency could be purchased with $1 USD, and then examining the distribution.

Looking across this dataset, it’s clear that attention currencies have a huge range of comparison relative to secondary and transaction currencies. I’d think through some questions first in determining how to price your currency.

• When and how are your users presented with the currency?
• What is the price range of goods which you expect to sell?
• How well should the user understand the value of the currency?

You should consider how to price your currency based on how the customer first sees it. For engagement-oriented attention currency, users are first presented with the currency when they’re earning it as payment for their actions. For secondary and transaction currencies, users first see the currency when they are making a purchase decision and seeing the price. Because of this, attention currencies should probably be on the high range and secondary and transaction currencies should be smaller numbers.

Also, you should make a decision about your currency based on your intended item price range because it sets the minimum and (loosely) maximum price ranges available in your economy.

An example of this was when Facebook adjusted the value of Facebook Credits in May 2009, changing the pricing from $1:100 to $1:10 credits:

We want to make sure that even the smallest amount of credits is meaningful. Now by accumulating as little as 10 credits, you can buy a gift to add more significance to a friend’s birthday, celebrate a special occasion or simply have fun.

At the time, Facebook was running tests on physical goods such as a $50 bouquet gift for a friend’s birthday. Rather than pricing it at 5,000 credits, 500 is much simpler pricing. The credits price also indicates the lowest bound of the smallest transaction you are willing to allow within your ecosystem. With a $1:10 ratio, the smallest transaction Facebook will process is $0.10 instead of $0.01.

Well what about secondary vs transaction currencies? Secondary currencies tend to be tied to virtual goods, which means they can be flexible in their pricing. The games using secondary currencies are largely closed economies without the ability to exchange currency or cash it out. Because of this, 89% of the secondary currencies had incentives to purchase larger currency amounts at a better exchange rate and obfuscating the true price you’re paying for the good.

In comparison, transaction currencies did not offer incentives. Their purpose is to ease payment friction in for small payments across multiple merchants. Since users are purely funding transactional currency to purchase items later across multiple contexts, this type of currency tends to be more straightforward in doing the math with fewer attempts to obfuscate the rates.

Conclusion

Ultimately, I think that you need to heavily consider the context in which a user first becomes aware of the currency, whether earning it or seeing it in the store. Dual currency systems are particularly valuable because items with two prices (free attention currency vs paid secondary currency) sets two contexts to the value the item. The user can either invest their time or money to get the item. You need to consider your long-term pricing structure on what items you plan to sell, and whether or not you allow money to be exchanged or used across multiple properties. And finally, you also need to consider all of this up-front because it can be costly and difficult to reset this after release!

*Appendix: Dataset

Attention Currencies (24): Bowling Buddies, Sorority Life, YoVille Coins, Fishville Coins, Minigolf Party, Restaurant City, Farmville Farm Coins, Happy Aquarium Coins, Poker Rivals Poker Chips, Petville Coins, Happy Island Coins, Tiki Farm Shells, Gangster City Money, Tiki Resort Shells, Treasure Isle Coins, Wild Ones Coins, My Empire Coins, Hotel City Coins, Frontierville Frontier Coins, Pirates! AHOY Coins, Car Town Coins, It Girl, MyYearbook LunchMoney, Bejeweled Blitz (FB)

Secondary Currencies (27): Maplestory, YoVille YoCash, Pet Society, Fishville Sand Dollars, Farmville Farm Cash, Crazy Planets, Country Story, Happy Aquarium Pearls, Treasure Isle Island Cash, Frontierville Horseshoes, Gaia Online Gaia Cash, Car Town, Habbo Coins, gPotato, Dragon Wars, Fashion Wars, Street Racing, Vampire Wars, Friends for Sale, City of Wonder Gold, Social City, Market Street, Wild Ones Treats, Bola Melon Cash, Sorority Life Brownie Points, Millionaire City Gold Bars, Petville Cash

Transaction Currencies (6): hi5, Facebook, Xbox 360 Live, Spare Change, SocialGold, Playfish Cash

To start off, the web can’t seem to decide whether or not gamification is a real word. Wikipedia deleted the word from its index and since then it’s reappeared again. There also seems to be a disagreement about whether it’s spelled gamification vs. gameification, and it looks like a pretty even heat. Trying to decide by the number of Google search results shows 33,100 results for the former and 46,600 results for the latter.

The term gamification also seems to inspire some vehement dislike.

On a related thread, there’s a disagreement about whether or not gamification is even a legitimate topic or even the right word. There’s a discussion on whether or not it’s actually just badgeification or pointsification. Whatever the semantics, it seems at least the concept of game mechanics is here to stay. This particular debate seems to be a narrower interpretation of gamification as simply adding as simply inserting a points/badge system on top of everything.

Then finally, imho one of the most interesting and polarizing discussions on gamification is whether or not gamification in products is actually a good thing. After all, why put a game into a non-game context? It seems to me that the advice on whether or not to gamify your product stems from a fear that the result of gamification is a thin veneer of game mechanics slapped onto your products and service. The logical conclusion here is that products must still create underlying value and content, and game mechanics have to make sense in the context of the product.

This dislike of gamification as an idea actually reminds me Chris Hecker’s GDC talk “Achievements Considered Harmful?” where he questions whether or not the proliferation of extrinsic motivators such as achievements and rewards (hello Zynga) are actually hurting games.

Like I said in my earlier post, the concept of gamification is not new. The term is new, but the idea of incentivizing customers through reward and loyalty programs has been around for a long time. Gamification is simply another lense with which to examine customer engagement. The distinction here is that we’re not talking about actually making products into games here, but how we can incorporate elements from game design into products to make them more engaging.

What do you think? Is gamification just a buzzword, or a real topic that is here to stay?

Gamification Related Blog Post Round-Up

• Why Both Intrinsic and Extrinsic Motivators Matter in Gamification
• A Short Post About Gameification
• Can’t play, won’t play
• Biography of Gamification Thought Leaders
• Gamification Design
• The Degamification of Everything, Including Games, Please
• Investors look beyond games to the ‘game-ification’ of life
• Gamify.org has a whole daily round up series on gameification
• A short rant about games, play and storytelling
• Reporters’ Roundtable: How game mechanics are infecting everything
• H Plus: Turning Work into Play with Online Games
• Gamification = b*llsh$t
• Game on for ecommerce: What ecommerce can learn from game design
• Does Your Startup Really Need Those Game Mechanics?
• Why You Should NOT Integrate Game Mechanics Into Your Service
• Research Communities 101: Is Gamification the Cure to Boredom?

Gamification Companies

• Badgeville
• BigDoor
• Bunchball
• iActionable
• Mojo
• OneTrueFan

Gamification is a new vocabulary word lately, and there’s even a summit about it. What is the definition of gamification? The word gamification is used to describe companies integrating game mechanics into their non-gaming product or service to drive user engagement. These companies are “gamifying” their products and services by adding light game mechanics on top of them.

What does that actually look like? While the term is relatively new, the tactics aren’t and have already been in play for quite some time. Here are some examples of gamification in action.

Real World Examples of Gamification

Collecting Friends on Facebook and Twitter, and the LinkedIn LION Phenomenon (Game Mechanic: Collection)

Facebook, Twitter and LinkedIn are great examples of users who are collecting a list of friends, or thumbnails of friends. Twitter is a particularly good example, putting the number prominently at the top and picture collection of all the people you’ve follow at the bottom.

My Twitter (@adachen)

For LinkedIn, the desire to collect people has created the peculiar phenomenon of LinkedIn LIONs. LIONs are “Linked In Open Networkers,” individuals who are open to connecting with people whom they have had no prior business relationship with. This is a somewhat unintended result, since LinkedIn would naturally want to keep social graphs accurate and this goes against that. These LIONs have even evolved to create a website complete with leaderboard (TopLinked 50 Leaderboard) for the top LIONs.

Collecting Badges in Foursquare (Game Mechanic: Collection, Achievement)

Foursquare is both a way to collect and record locations that you’ve visited, but has layered on mayorship and badge collection. Through Foursquare, checking in the most in the last month for a restaurant can make you mayor of that location. A contender for the position can trigger a competition for mayorship. Foursquare also allows their users to unlock badges based on their check-in activity.

One clever facet of badge collection is that they are not linked to particular places, but instead particular types of places. The Gym Rat badge, for example, can be earned by checking in 10x a month at any gym, not just one gym. This creates a common language and context for people to relate with one another, regardless of whether they are next-door neighbors or across the nation from one another.

Leveling Up in My Starbucks Rewards (Game Mechanic: Points, Achievement, Leveling, Rewards)

Starbucks has a rewards program called My Starbucks Rewards. Basically, it starts with a Starbucks gift card pre-loaded with cash, but the game mechanics kick in as soon as you’ve registered your card. After registration, Starbucks shows a progress bar and points in the form of stars to track your progress. Stars are earned for every purchase with your registered Starbucks card.

Once you’ve earned 5 stars, you advance to the Green level. This level rewards you with free refills on coffee and tea, free syrups and milks, and access to select trial offers. Get to 30 stars, and you get a free drink for every 15 cards and a personalized gold card.

Earning Points in My Coke Rewards (Game Mechanic: Points, Collection, Rewards)

My Coke Rewards is a rewards and loyalty program for consumers of Coca Cola products. Each product has a unique alphanumeric code printed on the label, and these codes can be collected and redeemed at the website for points. The points from the codes can be redeemed for sweepstakes entries and rewards like electronics and retailers.

Travel Leaderboards in Tripit.com (Game Mechanic: Competition, Collection)

Tripit.com is actually one of my favorite services. I love how simple it is to forward my trip itinerary to an email, and  instantly gain access to a clean itinerary on my iPhone. Tripit also allows you to connect with other users of the service. One fun way they’ve gamified their site is by introducing travel leaderboards and personal statistics.

Through the travel leaderboards, I can not only collect my own record of travel achievements, but see how I compare against my friends. As you can see, not doing so good compared to other jetsetters.

Gifting membership through Netflix (Game Mechanic: Gifting)

Part of Netflix‘s user acquisition strategy is the free trial and then converting the trial users into paid subscribers. They occasionally send out emails inviting their existing subscribers to invite their friends and family.

Source: hackingnetflix.com

Cleverly, these free trials are described as a gift to treat your friends and family, while they are basically an invite to trial the service.

Personalization and Self Expression through NIKEiD (Game Mechanic: Personalization, Self Expression)

While many retailers take advantage of limited edition and designer edition shoes to allow consumers outlets for personality and self-expression, NIKE has take it one step further with their NIKEiD shoes. NIKE allows full personalization through their ability to create on-demand customized shoes for each person. Through their NIKEiD site, you can fully customize the colors, materials, sizing, and fit of your very own special Nike shoes and they will ship it just for you.

In Conclusion

The practice of gamification is commonplace and well-practiced. My pile of rewards cards shows that companies have been on to the idea of motivating users through points, levels and status for a long time.

However, while many of these companies have been using these strategies for a while, they are likely not thinking of this consciously as gamification.Viewing these tactics through the lens of game mechanics and psychology prompts deeper analysis around effectiveness and engagement. Are they optimizing the virality of gift invitations, or figuring out how to tune their rewards systems to be fun? There’s a lot of psychology and science underpinning why basic game mechanics can be so effective in motivating consumers to engage. Hopefully, as gamification becomes more mainstream, the result is that products will be more fun and engaging!

Any big examples I missed? How are you thinking about gamifying your product?

Smartphone Game Trends

• Consumers are changing in their behavior from portable games (DS) to iPhone
• On iPhone, 1% of games are on iPhone (in a pie with portable and console) but they claim 5% of revenue share.

Issues with Android

• Install base for Android is almost equal to iPhone, but Android users don’t behave like iPhone users
• Android users don’t use apps as much vs iPhone, with fewer sessions
• Games is a significantly less popular category
• Fragmentation is a problem
• No in-app monetization
• Lack of consumer credit cards
• 24 hour no questions asked return policy is an issue

Etc.

• Apple does a great job of monetizing each user. Monetization per user per year: $18 for Google, $14 for Apple, $6 for Yahoo, Microsoft $4, Facebook $3, Twitter <$1

• Space has shifted a lot, only in 2010 is the first time mobile hardware has been good enough to support games.
• Developers want businesses and not just a great operating system. They need the full spectrum of device and OS, broadband, consumer base and one-click purchase.
• The mobile space has evolved from ship & forget to a service model with updates.
• Developers are in a great and bad spot since there is significant investment in apps, but the low barrier to entry creates a moshpit effect.
• Mobile business models include free2play, microtransactions, ad revenues, premium, trial to pay.
• There was a great slide on this, I hope he posts this, but Flurry has an estimate of the promotion cost and approximate installs to reach top spots on the app store. Barring any typos in my notes his estimates have the Free games #1 spot worth approximately 130-250k installs, and costing $100-450k promotion. For paid #1 spot, it’s 25-30k installs, and 50-150k promotion cost.

Other misc soundbites notes from the summit

• On mobile vs social: mobile games see 50% of players playing daily, higher monetization per active user than web social games. – Jason Oberfest from Ngmoco
• New Toy is making $1mm+ per month on Words with Friends.
• Analytics: There are plenty of good 3rd party services are definitely out there. What is missing today is good crossplatform analytics on games.
• On Social: The more friends people have, the more engaged they are — the longer they play, the more often they play. – papaya games
• On freemium: Using a freemium game instead of an upfront payment model increases audience/players by 10x
• Playfirst has generated $1 million in new sales via cross promotion in their existing applications

How PR Can Help Startups

• SEO: Getting links from news outlets can significantly help generate inbound links from top-tier publications and help your company move up the search engine rankings.
• Credibility: Many startups get initial coverage from news outlets and having articles in search results helps establish credibility to potential consumers. Many small companies also use the logos linking to the articles on their website for the “As seen on” sell.
• Business Development: If you can get coverage from a targeted outlet, this can be a great source for business development from readers that see a good fit with your business.
• User Acquisition: If your business requires network effects or is solving a relevant and compelling consumer need, PR can in some cases be a great avenue for user acquisition through targeted media outlets. Mint.com or BillShrink trying to get news coverage during an economic recession are great examples of relevant news for journalists to write about. The key is to ensure that the media outlets that you seek out target your actual user base. Unfortunately many startups end up targeting the tech press, which in many cases is not your target customer or doesn’t expand your reach beyond the audience which you already likely have strong penetration.
• Investment: If you’re an early-stage startup seeking funding, getting coverage in one of the mainstream tech blog can be a great starting point for meeting investors and regular news posts can be a proof point to establish credibility.

Four Questions To Ask Yourself Before Hiring a PR Firm

How do you decide whether or not you can go down that path? Here are some considerations to think through.

Do you have the resources?

PR firms cannot be effective without significant level of executive sponsorship within the company. I’ve met PR firms that are unwilling to work with startups unless they have an executive as a day-to-day contact. Without visibility into product roadmap, deal pipeline, shifts in company priority and goals, your PR firm is operating blind and cannot be effective as a strategic partner. If you treat them like an outsourced vendor, they’ll perform that way. Also, PR teams often require significant rampup to understand your product, your customers and your space especially in many of the fuzzy developing markets that startups operate in. If you don’t have someone at your company who is committed and capable of managing this relationship, it can be very hard to make it effective.

Do you have a story to tell?

PR is a way to establish your brand and credibility to the external community and centered around outbound communication with the rest of the world. Make sure you have a story worth telling to the rest of the world, and do not expect magic. If you don’t have relevant, interesting news or a willingness to share data that people want to hear about, no one will write about you no matter how hard your PR firm pitches.

Do your goals match with the channel?

You can basically consider PR as another channel for your marketing team to use, focused on outbound brand building activities. It’s a long lead cycle, and pays off by market awareness, business development inquiries and your general “perception” in the space. If the primary focus and expectation is on transactions, generating revenue and other channels, it may not necessarily be the right fit (although there are exceptions to this). Consider carefully what you’re hoping to get and make sure that matches to the channel.

Do you have the right agency?

Agencies typically specialize in certain company sizes and industries. Many agencies have specialized rolodexes where they focus on a specific industry and have close relationships with journalists in those trades. It may be a difficult fit if you’re outside of their standard range, since they’ll be establishing relationships for the first time as opposed to existing relationships. It may also increase the cost of ramping them up to your product. The easiest way to assess this is whether they have related (but not competitive) companies within their portfolio, and then looking at what press they’ve secured for them. Size can also be a consideration – the larger agencies might be focused on their large accounts, so your small business might not be the most important to them.

Maslow’s hierarchy was introduced in the 1940′s as a concept that people are motivated to satisfy basic needs before they build up to other needs. The lower level of the pyramid is built off of hygiene needs, such as health, food, water and sleep. After those conditions are satisfied, people’s needs progress up the five levels to emphasize psychological and social needs.

Levels of Maslow’s Hierarchy

1. Self-actualizing needs – fulfillment of your true potential
2. Esteem needs – personal worth, achievement, social recognition
3. Social needs – belonging, love, affection
4. Security needs – safety, survival, security
5. Psychological needs – water, air, food, sleep

Game Mechanics and Maslow’s Hierarchy

The higher levels of this hierarchy seem to map to commonly discussed game mechanics. Level 3, social needs, loosely correlates to ideas around social grooming and reciprocity (gifts), competition, and loyalty. Esteem needs, level 2, has strong correlations to achievement, progression, status, leveling and ranking.

For the top-level, self-actualization, this is the role of grand narrative and storyline in games. This is the deeper purpose of games, and what Jane McGonical in her TED talk (transcript here) refers to as epic meaning. I’ll loosely quote her:

Gamers love to be attached to awe-inspiring missions to human planetary-scale stories. [...] Gamers are super-empowered hopeful individuals. These are people who believe that they are individually capable of changing the world.

By immersing themselves in the reality and story of games, gamers are living and fulfilling their greater destinies as kings, gods and saviors to achieve an epic meaning.

When we play games, are we virtually reaching for self-actualization?