The psychology secret to Zynga’s success (now valued at $10 Billion!)

SCap_ 2011-02-23_42OK, so Facebook game maker Zynga is raising additional money at a $10 BILLION valuation. One would hope that that’s enough to make anyone’s ears prick up…

So how did they get here: By understanding something about human psychology, and then HACKING it for all its worth.

1) Addict people with SIMPLE, low learning-curve games, that 2) are social in the way you might have played certain board games in real life in the past, and that 3) have Irregular Reward Schedules (these are the most addicting forms of behavioral reinforcers, read up on your Behaviorism 101…).

THEN, 4) offer them little ways to essentially cheat in the games (making things go more smoothlyfor you), that 5) can be purchased for amounts that fall within the Impulse Purchase threshold, i.e. below the price level where your conscious mind kicks in fully and begins to wonder whether this is really a good idea, asf.

Read the following quote at least 3 times to yourself: “Zynga makes all its money selling virtual goods…Tiny amounts of money make the games progress faster.” (From Business Insider.) If you get it, you’ll know that tons of companies have been neglecting/violating the lessons therein to their considerable detriment.

I just argued yesterday that Sony is making a huge mistake by not going the $1/month route for complete/unlimited streaming music access with their new offering:

Another example that I saw just yesterday: Clever Twitter service “Buffer” ( @bufferapp ), which allows you to in essence do a bit.ly-like bookmarklet share to Twitter WITH automatic posting throttling/buffering built-in, so that your tweets are dripped out over time even though you can batch collect them all at once over, say, your morning blog reading hour:

All great, except that they are mispricing their premium levels very badly: 10 tweets in buffer, 3 tweets a day is Free. $5/month for 50 tweets in buffer, 10 tweets/day dripped, and $30/month (crazy…!?) for all unlimited is simply not going to work for them IMO. [See: http://www.bufferapp.com/pricing ]

$5/month is outside of impulse purchase range, while $1/month = Bingo! Sold! At $5, your mind is beginning to ask: Do I really need this? Is it worth it? Can I justify it directly via increased ROI? Where/how am I even going to measure this ROI?

All questions that you DON’T WANT your prospective customer asking at the entry point!! Which is exactly what Zynga has realized so brilliantly, and to such obvious success. The proof of the (psych) pudding is still in the eating… Zynga: “Would you like to improve your position in this game you are already playing for 10 cents?” – Unconscious Mind: “You bet I would.”

Which brings me to another of my pet points about successful online advertising/selling: Offer people only things which make sense in the context of what they were ALREADY doing. In this case, don’t try to offer them after shave, bracelets, or cars while they are playing Farmville, offer them something to do with Farmville!

Disclosure: I don’t play Farmville or CityVille, and have never tossed sheep or vampires at my Facebook friends. I do however study these phenomena very closely… 🙂

UPDATE: Google Changes Game For YouTube Monetization – Opportunities And Pitfalls

As I reported yesterday, Google may have just changed the game re: monetization of its massively used (but so far barely profitable) YouTube video sharing service. Get the details on how it looks here.

But what makes Google’s new "sponsored videos" feature on YouTube even more relevant is today’s news that YouTube searches now represent the second largest search engine in the world according to ComScore, ahead of both Yahoo and Microsoft’s MSN/Live! So there should be ample room for YouTube to generate profits for advertisers and in turn for itself (Silicon Alley Insider estimates that it could add $1B to Google’s bottom line).

However, as I began to lay out yesterday, there are a number of caveats that need to be kept in mind by the internet marketer looking to take advantage of this opportunity:

1) Marketing within Social Media (vs. search ads PPC) is generally tricky due to a deeply rooted differentiation by most people between social and business contexts: People don’t like them mixed, and can react very negatively if they are (read Dan Ariely’s excellent "Predictably Irrational", chapter 4 "The Cost of Social Norms").

2) So if you are going to market in any social context, you need to get the tone and the context just right, else you are not only wasting your ads, you are likely hurting your brand. The backlash may also be much stronger than in other situations, because you will be dealing with a perceived violation of social trust.

Whatever initial offer you make needs to still fit into the "friends" context somehow, or else be so targeted that the prospect truly sees your offer as a form of "friendly service", e.g. if you are offering something that would help with a social task they are about to undertake, like offering flowers at a special price if someone is surmised to be going on a date, etc. (judging from e.g. a Facebook "action" of theirs).

3) While YouTube is overtly the least directly social (compared to say Facebook, etc.) and instead more entertainment oriented, the social aspect of sending/receiving video clip links to/from your friends is still clearly there. So to stay in tune with the viewer/prospect, you still need to get the CONTEXT just right:

If the search keyword (or individual video for that matter) is an entertainment vehicle first-and-foremost, then offer them more (hopefully related) ENTERTAINMENT products, NOT shoes or cars or deodorant. This goes for pre- or post-roll ads as well by the way, which prospects tend to gladly view IF they have something to do with the actual video content requested.

With more educational keywords/videos, there may be more latitude to offer things, though they still need to be related and represent a LOGICAL follow-up, else your sponsored video will get largely ignored/filtered out by the prospect just like most other ads (even though, as I said yesterday, Google appears to be embedding the ads very discretely, so that they don’t scream "ad" vis-a-vis the other video content).

So the formula would be, create videos that are highly relevant to your keywords, while also being disruptive enough to get attention.

Google Changed The Game For YouTube Monetization Today

In my view, Google just changed the game today regarding monetization of its massively used (but so far barely profitable) YouTube video sharing service. Get the details on what it will look like in this CNET article about it here.

In a word, Google is starting a new "sponsored videos" feature on YouTube that will follow their well proven keyword/Pay-per-click (PPC) model, only now with videos instead of the familiar (and mostly ignored) Adsense text ads. This should be a great opportunity for those internet marketers already further along with their video efforts.

It should be pretty cheap to bid on the YouTube keywords at first, due to limited competition on them (the barrier to reasonably well-produced, well-converting video is still high, a lot higher at least than for text/image websites), and the click-through rates should be high because the videos blend right in as just more video content.

Note that the appearance of the still screen shot shown for the video before play will be crucial to attracting extra attention (like a well-done display ad). But in principle, nothing about this form of "ad" will make it so that YouTube viewers will mentally block them out – which usually happens even unconsciously after a short while, because the "ads" are, well, videos, the same thing that the user was looking for in the first place.

But if done right, it can be the equivalent of an advertorial, a marketers dream…

An important caveat applies here: You want to be sure to get the context right, i.e. deliver a video that will be perceived as relevant, or even value-added to the user’s keyword search. Else you will garner exponentially negative brand equity, as users will feel betrayed.

Again, I’d say Google just changed the game today as far as their ability to monetize YouTube is concerned (which was pretty poor so far), but it also should be a great avenue for internet marketers: Instead of wasting time trying to manipulate the YouTube view rankings, or having to "viralize" the videos some other way with a high failure rate (although if you can have that built in, the effect after the initial sponsored promo phase could be multiplied!), you just buy the "in".

Of course, you’ll still have to know what you are doing in terms of direct response marketing to get prospects to convert from the video, and make the numbers work reliably for you.

Microhoo “Post-Mortem Post” – Part 4: The patient is not quite dead yet

The Micro-hoo saga has been turning uglier in the last few days, if such a thing is possible:

The three-way "negotiations" between Carl Icahn, the Yahoo board, and Microsoft turned up another non-starter offer for MSFT to cherry-pick Yahoo’s search assets, which in turn led to much finger-pointing, and general acrimony.

The result is that Icahn may now be out of the picture, and that Yahoo will survive through its August 1 shareholder meeting. Unless Microsoft comes back with a last minute complete buy-out offer at a guaranteed, cash-equivalent price that is ($29 per share would seem like the absolute minimum in this regard).

But it all seems increasingly unlikely, leaving Microsoft without a strategy, and Yahoo desperate to get past the distraction of the entire episode, and its operation back on track.

Jerry Yang is apparently begging his troops to keep working (for the second time in two months), and as I previously pointed out, for good reason. And even though we don’t hear similar exhortations form inside the Microsoft bunker, there is little doubt that Microsoft is not similarly affected:

During the entire first half of 2008, the only news out of Redmond other than the Micro-hoo botched deal attempts, has been the announcement of the "Live Search Cashback" (LSCB) attempt to sort of buy search query share using a rebate gimmick (that had failed to work before). That MSFT and some commentators touted this as a "game changer" proves the depth of their dilusion.

I have been working on a detailed post for why LSCB was such a bad idea in many (technical) ways, but the end-result is much easier to ascertain through some simple tests: I occasionally have been checking LSCB price quotes against Google search results for identical items, and the FREE(!) product listings at the top of Google Universal Search beat the LSCB prices with the "discount" (that MSFT is kind enough to hold in escrow for you for up to 2 months) MOST OF THE TIME!

I expect ComScores due out this week to tell the tale that Live Search Cashback has caused nary a blip on the search share radar screen. Even Microsoft seems to not be talking about it anymore…

During the same time frame, Google has had major announcements regarding their OpenSocial, GoogleGears, Google App Engine, and Google Android (Google’s mobile phone) software kits, all the while honing their core search and search ad serve in the background. Even Yahoo recently announced a relatively substantial opening up of their search toolkit to developers for third-party applications.

Back to Yahoo’s Serious Issues

Continue reading “Microhoo “Post-Mortem Post” – Part 4: The patient is not quite dead yet”

Microhoo “Post-Mortem Post” – Part 3: Delusions of Scale

The ups and downs of the Micro-hoo saga continue unabated, with renewed Carl Icahn intrigue being the flavor of the week. The noose that irate shareholders have been verbally tying around Jerry Yang’s neck seems to be getting tighter all the time.

But this time even usually stalwart Micro-hoo cheerleader Michael Arrington of TechCrunch is saying that Microsoft may be going too far in its Machiavellian machinations to want to feast on Yahoo’s carcass.

Meanwhile David Kirkpatrick, senior editor of Fortune Magazine, argues that Microsoft will inevitably buy Yahoo, making the case that it has gotten personal for Redmond ever since Google wrested the crown of perceived "greatest and most powerful tech company" away from them.

But in arguing that Microsoft desperately needs Yahoo’s scale, Kirkpatrick falls into the same "scale will solve things" thought trap that is deluding Microsoft, and plenty of commentators throughout the blogosphere in both posts and comments as well.

Currently Google’s monetization advantage vs. Yahoo (confirmed, and likely similar vs. MSN/Live Search), that comes from their focused execution is somewhere around 50-100%. And it has NOTHING to do with "scale".

It has everything to do with the advertisers being able to afford higher average bids due to higher average conversions. Period.

Conversion is the only thing that ultimately matters to an advertiser. Scale is a straw-man. If YHOO or MSFT had equal or better conversion numbers for the same keywords, then advertisers would jump on that. The individual advertiser could care less about the total query share numbers, or total number of clicks, they only care about their ads converting when they are being shown and clicked on.

If you mail a direct response ad, do you care what total percentage of the region or nation that mailing list reaches? No way. You care about the conversion numbers, because if an ad doesn’t convert you can’t long afford to mail/run it. In search ads, if you fail to convert the clicks you get, as a small business you can be bankrupt before you know it. It’s that simple.

The total volume of searches or even clicks for a keyword on Google, Yahoo, or MSN/Live has little or nothing to do with it. It’s simply that at lower conversion rates on Yahoo or MSN/Live, advertisers have a harder time making the economics work for them.

Steve Ballmer should change his tune at the next Microsoft company meeting:

Conversion, conversion, conversion…

Continue reading “Microhoo “Post-Mortem Post” – Part 3: Delusions of Scale”

Microhoo: The “Post-Mortem Post” – Part 2

OK, this isn’t the post I meant to write, but the (pseudo-)developments are simply happening too fast to catch one’s breath.

Today, Microsoft apparently walked away from a Yahoo deal more thoroughly than they previously had, which in itself makes little sense and proves how much Ballmer and Co. have kept themselves in suspended animation during this ongoing saga.

Now, as far as Yahoo was concerned, we knew that they wouldn’t get a lot done given the continued wheeling and dealing by billionaire investor Carl Icahn. Despite Jerry Yang’s pleading with the troops to keep their noses to the grindstone, there is simply no way that Yahoo has not been deeply affected:

I was at Sprint in a former life at the time when the proposed merger with WorldCom was going on, which ultimately, and it turns out mercifully, was blocked by the DOJ. And I can tell you from that experience that very little of substance beyond basic maintenance mode happened inside Sprint for well over 6 months.

All eyes, minds, and water-cooler conversations were cued on the proposed deal and its ramifications. And that was under relatively amicable circumstances mind you.

So, with the pronouncements by MSFT today, Yahoo’s stock taking a big hit, and Yahoo in turn announcing that a deal to outsource search ad serves to Google may be happening as soon as today, someone might be tempted to say: The nightmare is over.

Or Is It?

Despite all of the "titillation", the Icahn back-and-forths, the rumor, the innuendo, and the inflated/bruised egos, let’s take a step back and look at the fundamentals of this:

Continue reading “Microhoo: The “Post-Mortem Post” – Part 2″