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Transcript of Andreas Weigend Data Mining and E-Business: The Social Data Revolution

Stanford University, Dept. of Statistics

Andreas Weigend (www.weigend.com)

Data Mining and Electronic Business: The Social Data RevolutionSTATS 252

April 13, 2009

Class 2 Ecosystems: (Part 2 of 2)

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Andreas: All right, welcome to the second part of today’s class, Class 2 in Spring 2009. Without much ado, we have Jia Shen here, who started RockYou. He is the CTO and he is talking about how all he needed to know he learned from syphilis, or something like this, which is more or less that you have parasites in ecosystems and you have stuff like that. So, he’s going to talk about ecosystems and the social application world. Let’s welcome him.

Jia: Hey guys, cool, so what I’m going to do, and what works really well for me is that I present high level information. If you guys have any questions, just raise your hands. We can take the talk in any direction that you guys want. I definitely don’t have much data that is presented in the talk. If there is anything you want to specifically drill down on, just let me know.

This is an overview of what I do over at RockYou. RockYou is one of the leading application providers on social networks. We are pretty much the biggest on Facebook, as far as applications, as well as the advertising network that helps people monetize.

The main thing that is cool about us is that we’ve actually been pretty successful across most social networks out there, which is different from a lot of application companies that you will talk to. We are good at what we do because of the methodology we apply across the board. It’s actually effective on different social networks, across demographics, across cultural boundaries, and that kind of thing. That’s what makes us different. Our formula works that way.

The main thing is I’ll talk about what the thesis is for why we started RockYou. The basic thing is how everybody today talks about platforms. Facebook now feels like they’ve invented the concept of a platform where people actually go in and install stuff on top of it.

The real thing is it all starts with your desktop, at least in the modern-day consumer software world. The way we see things is originally, things started off with desktops. You built applications and it was a very straightforward. There was a shareware model and all sorts of things, but there was not really a way for you to actually build an application and extend it across to your friends as well as to other types of operating systems.

This is kind of where the Internet entered in. One of the big things I definitely see, and if you want to model things out and how things actually work, from a technology standpoint, a lot of things are generational. If you see PC software and that kind of thing, it’s kind of like early 1990’s where the Internet pretty much happens and spawns in the initial generation, in the late 1990’s, with Yahoo and this, specifically.

0:02:38.5 Software moves to the Internet and becomes a little bit more operating-system agnostic. People are starting to build applications like the stuff you have on your desktop. If you have finance applications, you have health, all these different type







of things where you can actually consume on the Internet. You can go to different places and you’re not specifically tied to a computer anymore.

We’re seeing kind of a third generation of that stuff today, with desktop software moving, for instance like a Google documents and that type of thing.

The model we are actually going for is taking back to a third meta level, taking applications in which you originally had on your desktop and it was extended to the web and now actually make them work across many different websites.

What happened in the second generation is all the web portals tried to make themselves very strong destination sites. You had people vying for your attention, going from Yahoo homepage to Google home, AOL, and everybody had different places where they actually thought of as their homepage. In the end, certain people provided different functionality and certain people got lazy and you just stayed with one specific site, but the good features might not all be on the same place you wanted to be on.

The thing we’ve gone with is actually trading applications that work on whatever platform that you are actually supposed to be operating on. We focus specifically on social applications, which is the stuff; social networks being the biggest thing, but it’s something you can actually apply across the board. We think initially of PayPal building on top of eBay and becoming a payment application that is applicable across any type of platform, and applying that to a lot of other different types of things like games, finance, and all that type of stuff.

The interesting thing is we’re really focused on social networks, or the applications we primarily do are a little more fun. If you look at it, we’re actually really focused on Yahoo as a platform. The types of stuff we’re looking at building there are more functional that are in the veins, for instance genealogy, finance, health, and those types of things.

What’s the opportunity and why is it something we’re actually looking at? The main thing is that social applications, as a market, is a really big place now. In 2005, out of all the top websites, any place that was actually specifically set up to be a platform, it was really only MySpace. What that means is it wasn’t really easy for you to build a third-party business on top of that site because they weren’t welcoming you. They didn’t want you to be there.

The cool thing about 2008 is that over half of the websites are actually set up either for you to build on top of them or already have open APIs for you to go and leverage. The cool part is there are all these sites that in the web 1.0 model were like “Oh, we’re going to collect all these users,” and all that type of stuff. They’re actually allowing you to build a business on top of it.

0:05:23.6 The cool part about it is the social networking world is pretty much opening up the canvass for everybody. It’s ridiculously huge. A thing a lot of people don’t necessarily







pay attention to is social networks are in the top ten or if not in the top spot for Internet rating, in each individual country.

For instance, if you look at Brazil, Orchid is the number one website there. Those types of numbers a lot of people don’t focus on too much because in the US, it’s a little bit different with Yahoo and Google still kind of sitting at the top. Social networks, as far as the percentage of traffic out there, it’s just a monster. It’s where all the users are. The cool part about that is because of Facebook and success of companies like ours, they’re opening up so people can actually build businesses on top of them.

The question is why is it important to you. This is a silly graph, but the real reason behind it is it’s so easy to acquire users. The real model, when you look at it, the reason wanted to come up with an idea, a lot of people in this room, and a lot of people I work with always wanted to start a business. The first question is how do you acquire the users.

The cool part about doing the social networking stuff is that the math for that stuff has kind of already been handled for you. There are still popular websites. For instance, the prime example I think of is Yelp. Yelp is a very strong website where you have to have your own login an all that type of stuff. If it was created today, it probably would have been created on top of Facebook.

The first problem that a site like Yelp has to overcome is to make sure they get critical mass before they can get proper people to come in and generate content, verify their identity, and all that type of stuff. Now, it’s very easy to do.

The example is when we started this company, the story behind how we actually launched RockYou was we just created a very simple Flash slide widget. We went to a MySpace bulletin board and posted once. That was it. What happens is the users were already centralized and the demand was already there. Based off of that one single post, we got a million users within three months. That’s the story that actually started this company.

Some people will take it as a gimme that applications are a very good thing for the provider. Why is it a big deal for the social networks? Why is every social network out there saying, “Hey, I’m going to build a platform?” Nowadays, you hear anybody and everything outside of social networks; people are trying to put together the concept of platforms because they want what Facebook has. What Facebook has is they have a core site that actually has very good functionality but they have a whole ecosystem of application developers thinking of new ways to actually come in and engage their users.

0:08:25.8 We’re doing the heavy lifting for them.







The cool part about this; these are old numbers from when we were doing the widget stuff, even before we were doing applications. The moment we integrate, we actually drive traffic up. Imagine you are Beevo or Facebook before there was actually anything else to do. All you could do was write on people’s walls and just post photos. All of a sudden a huge flow of new additional functionality comes into play. That’s when people actually start to grow and use the site in ways the original creators didn’t actually think about.

This is kind of a formula that has worked over and over again. This is Beevo’s traffic when we first launched. This is Friendster’s traffic. This is the effect of what actually happened with Facebook. If you looked at Facebook’s graph of when they were actually really competing against MySpace, growth applications are when their user growth really started to take off. They actually integrated invitations outside of users within Facebook and started to see growth strongly, within the US demographic as well as with international demographics. This is something that’s been interesting because the overtaking of MySpace has really happened over the last year, really centered around the application space.

That’s the main thing. MySpace is scrambling to make their platform stronger, but they’re really far behind.

I’m going to go through the time line of what the social application spaces look like. Let me know if there is specific things you want to drill on.

Student: …

Jia: Twitter is kind of interesting. Right now, as a platform itself, it’s not really a social network yet. There is a lot of feed information and there is a lot of noise specific to it and it’s all based on status messages. There are a lot of rumors about how they want to extend that more. It depends on how they actually decide on it. If you see, for instance, how Facebook is different from MySpace, it’s how they have taken their product philosophies.

Twitter had an initial philosophy of just being a platform, not basically being a destination site. They are creating a lot of APIs for other sites to build on top of it. I think they’re going to start looking at being more of a destination site, especially with a lot of the popularity among the celebrities. Then, it might become a little more competitive in that space.

0:10:51.1 Social networking time line – what we’ve gone through is we initially started off with building widgets on top of social networks. The cool part about what’s happened since MySpace and Beevo and Friendster in 2006 or early 2007, is kind of like the launch of Facebook.

From our perspective, it’s really been kind of an evolution from the widgets. The Facebook platform was really kind of an answer for widgets on MySpace. There is







a material impact for the users, but it’s more important for what it actually means for the application providers.

What happens is it turns widget traffic into website traffic, which makes business monetization and all the other stuff that we’ve actually learned in previous iterations of the web actually make that applicable to what’s currently happening.

The basic history is that Facebook launched a platform in May of 2007. It really started to take shape. There is a lot of history associated to whether all the rules they’ve changed and how they’ve actually made it a little bit friendlier for users, and buckled down on application developers to make sure they’re not abusing the system. In general, the most important thing they did was they made sure applications had access to social graphs. Applications had the ability to message users in a long-term, specific way, and they made it relatively easy for people to actually make money off of it.

Specific rules on Facebook that actually make it different - initially from when MySpace launched was that the ability to notify users was actually a huge deal. If you look at traffic today, differentiating [0:12:37.7 unclear] from the MySpace traffic for their platform is that Facebook users don’t even uninstall applications. It’s a .1% uninstall rate, on average, and it’s pretty much nothing.

What happens is you have a lot of applications out there who have an ability to actually grow and get a large base of users. People are always questioning what’s the long-term value of the users behind that stuff. The cool part about notifications is you can always go back and re-engage the users. This is a very valuable thing.

A lot of people might be sitting on top of an application that from the early days has a million users, but nobody is using it today. If you actually come up with a proper way to engage those users, that’s something that is very powerful.

A good example of that is if you look at Facebook’s Living Social top five newsfeed event-type stuff. That’s a good example. That application has been around forever. What they’ve done is, with a new channel that’s come out, they’ve re-engaged and become the second largest application, as far as monthly actives, in the space of one month. That’s actually very interesting to indicate Facebook as a platform. It’s super strong today. It’s really looked at all the individual viral channels out there and actually tuned them with a lot of different use cases so it’s actually very useful for both application providers as well as for users. With the profile redesign, it’s not in their face, there isn’t clutter, and it’s reflective in the uninstall rate of things.

0:14:11.1 The other part of it, and I’ll talk a bit more in detail, is the advent of OpenSocial. There is a lot of talk about what is something you should focus on, what do we actually look at from a philosophical standpoint; the cool part about OpenSocial, from our standpoint as a programming and technical company, is that it’s an open source platform that we







can actually advocate and that most social networks out there use today. For us, the biggest one is MySpace and Google, but Yahoo has a platform that is a really big opportunity today, as well as what’s actually made us fairly successful in Asia on [0:14:48.6 unclear] of the world, is that OpenSocial is a single type of code base that you can implement upon. It actually works for you to create one application once and then to deploy everywhere.

Applications – these are probably numbers you guys have seen, but applications are pretty big. What that means is that if you look, today, over 95% of all Facebook users have an application installed. The cool thing for us, for instance, Super Wall being an application that’s used and installed on almost 70% of all users. We actually have the ability to access API demographic information on the entire user base of Facebook. The amount of information that you can actually grab from that and do clever thing, like targeting or creating proper advertisements, or making your CTRs on your viral channels better. It’s there. It’s gigantic. People are always saying Facebook’s valuation is whatever; you can easily say the application platform is a significant percentage of that.

What that means, from a model of the space for us, is that if all of these sites actually allow applications to build on top of it, then the application space is at least 65% penetration on all the major sites on the Alexa rating for specific countries or in the world. Did you have a question?

Student: …

Jia: Into the real time newsfeed stuff? It gets better. The main thing is that Facebook is still figuring out but the good and bad thing is that you’re always going to have to maintain what’s actually good and bad. Especially with this new thing, newsfeed deliverability went up a good deal, pretty much certain applications went up to 100%, which was a very big deal for people. Because of that, you could actually start tuning those numbers. You had more people going through the system.

Living Social is growing by about 500,000 users a day, or something ridiculous like that. That’s a one-off, but these opportunities are specifically out there.

Student: …

Jia: There are definitely sets of users out there. I can go into notifications a great deal. Notifications, as an engine itself, is actually probably the most powerful thing out there because you can build up this viral momentum that goes along with it . There are a set of people who turn off notifications. The cool part about it is you can block that stuff; you can detect that the user has turned off your notifications.

0:17:47.3 Whenever you build an application on any type of social graph, you want to start tagging users for specific meta information. One is that this person is just adverse to any type of viral message. Let’s not message him ever again. That actually has a strong







reflection into the allocation you have on social networks so that’s very important. We look at people who have blocked notifications, people who have uninstalled specific applications, and those are all actually very important information that really increases your CTRs and really lowers your spam rate.

The main thing I was saying is that applications can be viewed as websites now. What that means is if you look at what’s happened in web 1.0, this is kind of the basic look of how many websites actually have been created in a specific period of time. This is what web 1.0 looked like. After ten years there is a logarithmic graph of about 70 million websites out there.

The cool part about what’s happening now in the web 2.0, and the application space on Facebook specifically, is it’s actually growing at a faster rate. What that means, as well, from a monetization standpoint, is that it actually is a much better opportunity. Going back to my Yelp example, when you want to build something, a lot of people ask whether Facebook is still a good place to build it. My answer is really if you want to build a business, it’s better to build it on top of a platform that has already acquired the users than to try to build a destination site by yourself.

Student: …

Jia: Two hundred million users is a lot of users. It’s more than the actual US entire population, or China’s for that. It really depends on what you want to do with it. Our goal is actually to acquire all those users across all the platforms. The interesting thing is I look at everything as a big pie. Somebody has already got the whole pie and I’m actually able to build on top of it.

There is that part and the other part is that your stuff just grows a lot faster. There is no debate over that. If anybody here has tried to go through and build destination sites, going through email registration, email deliverability of stuff; going through and getting that type of traffic and building the momentum for that type of stuff is just a lot of work.

Web 2.0 application growth is much easier to make money on applications to grow on applications, etc.

0:20:38.6 These are some of the stats we look at. I know it’s really small. Facebook, MySpace, and platforms in general are really healthy. To go back to your question, if you look at what we’re doing here, we’re doing 14.1 million uniques, globally, per day. If you look at our monthlies we’re doing about 120 million. The growth path that is really interesting is this is where it’s not that much work if you are building on top of a platform. We’re kind of cruising along with the social networking group. Facebook’s graph is proportionate to ours. They’re at 200 million so we’re about 60% of what their traffic looks like. If they continue to grow and other platforms continue to grow, it’s actually a very healthy thing to go and leverage.







What I have here is also showing two applications. The interesting thing is a lot of people talk about how Facebook is really hard to grow on. I was talking to someone in class, earlier; we’re still doing applications without promotions that are doing about 100 thousand new users a day. This is before the newsfeed type of stuff.

If you go into [0:21:47.3 unclear] properly, there is actually huge amounts of opportunity and all sorts of different places where you can actually go and focus on stuff.

Stickers is basically an application on MySpace. It’s growing as fast as MySpace possibly can. I will give an overview of all the different platforms in a bit, if you want.

These are all the social networks. You can ask about specific ones you care about, but in general, Facebook is obviously the one that is dominating globally. It’s doing well in the US, which is good for monetization. Branded ad sales, general advertising CPMs are higher than anywhere else in the world, and growth is really nice here. All the viral channels there are actually set up for individual types of use cases. If you look at other social networks where they have a viral channel, they call them different things, but they actually accomplish the same stuff. Facebook has much better use cases for it.

MySpace – the previous dominating social network of the US is only big in the US. They have a lot of international sites. They’ve done joint venture in Japan. They have a China one, a Korea one, and a lot of sub sites in Europe. It’s only big in the US. The interesting thing, at least right now, is it’s actually looking at steadily declining traffic. It’s kind of a tossup of what you want to do there.

The reason why it’s still a big deal for the application space is that users actually monetize a lot easier on MySpace. If you do games, [0:23:20.7 unclear] on MySpace is about double what it is on Facebook. It’s about double there but funny enough, it’s about four times harder to grow. It depends on what you can do there.

hi5 is, in my opinion, a Hispanic-speaking social network, where there are basically Spanish-speaking users. They actually have a decent amount of US-based traffic, so if you look, in the LA area and Miami, there are a lot of hi5 users. The main thing is it is rapidly declining in traffic and they’re redesigning their platform for virtual goods stuff. They’re really focusing on games. They have a lot of stuff coming out that might be interesting for international monetization but if you’re interested in US traffic, it’s not the place to go.

The rest of them are kind of a quick summary. Orchid is big in Brazil. It used to be big in India, but Facebook has taken over there. Friendster is pretty much all southeast Asia, the Philippines, Malaysia, Singapore, but they have a tight hold there. Beevo is in the UK, but Facebook is starting to flush them out entirely.

0:24:40.0 [Jia Nai] takes us to the China social network. China actually has a very interesting ecosystem for social network. [Jia Nai] is the largest as far as the school user-base, but they actually have a lot of different social networks based on the types of users. They







have white collar social networks, and all this type of stuff. It’s kind of sporadic and sometimes you can’t really trust the stats out there.

Mixi is an interesting thing for RockYou. It’s the largest Japanese social network. They’re actually launching a big, OpenSocial platform, if you are looking at places to build. It’s actually something that is going to come out during the summer. It’s pretty interesting as far as monetization because they’re going to be the first OpenSocial platform with mobile integration. You will build your application and it will be visible entirely on mobile as well because 65% of the users only browse the site on their phones.

That’s pretty much that. Do you have any questions up to this point, otherwise, I was going into an overview of OpenSocial. I could drive down more into the Facebook side of things if you are curious about what is effective for the different channels.

Student: …

Jia: Integrated payment system would be huge. The ones that it already exists on, like Jia Nai, it actually increases conversion rates like 3-4 fold. The amount of money you can actually make on there is a really big deal. This is along the lines of what might come out on iPhone 3.0, with the micropayment stuff. It could actually make writing applications on there very interesting. It would outweigh lack of growth in specific platforms.

Student: …

Jia: We originally targeted all of Facebook users. For a good period of time, we started to target just US users. The interesting thing that came out of that is the way you go and do that is not specifically by how you do ads on targeting. It’s by behavior of your application. US users, based off of our results, they are a lot more savvy about how they use applications. You want to take out certain types of user flows and all that type of stuff, and actually significantly impacted users’ impressions of the application, and how often they actually came back to the application. Measuring engagement by demographic is actually really important for us.

Student: …

Jia: Yes and no, the application looks slightly different for different users.

Student:

0:27:39.3

Jia: The age group actually represents exactly what Facebook represents. For instance, now that there are a lot of older people coming on, it is an exact slice of it. Our users in general are more female, though, from a demographic standpoint because in general, we’ve always aimed our applications more there. Fundamentally, they share more, they







express more to their friends. That type of stuff has been a lot more effective. Guys are more careful what they share with other people.

Student:

Jia: There are three major models but the two most accessible to people are the AdSense of ads, like doing advertising like they’re talking about. The other is a lot of fanfare about virtual goods. Virtual goods area a huge source of revenue within the application space. There are specific companies, like Zinga, that are actually making rumors about $50-60 million annually on users, specifically like that.

The model is very different on how you actually design the application. The obvious ones are games and then things that aren’t games. Beyond that actually is things that are more tuned towards monetization definitely neglect the growth side of things. If you see the model of a lot of the large game companies, like the Mafia Wars and the Poker games; their only form of growth is user acquisition. They just pay for advertising because each user, let’s say in our pool, like $4 so they’re like, “Okay, acquiring the user for $.50 is not a big deal,” because the math should work out.

Actually the cool part about it is you can look at virtual goods as a vertical of applications, but more importantly, it should be something that is part of almost every application that you work on. When I talk about that, it’s not just application website, or whatever type of social thing you are going to build. The virtual incentive stuff is a system that is very important to actually become familiar with.

The easiest example of that, which is illegal on Facebook now, is the concept of incentivized invites. You had Friends for Sale come in for a talk and their largest spread of growth was because you invite five friends and each friend gets you another 500 coins in the game. Everybody did it. I did it. Every day, I’d just invite the same guys over and over again. It’s a really brutal method go use to grow, but if you actually do it in a more clever way, which is what we’ve done on a lot of our applications, it’s actually important for growth and for monetization. It’s something you want to go and tune for.

An example of what we do today, instead, for instance is on Super Pets. We don’t ask incentivize users to invite other people, but we promote people to actually have more interaction with each other. You build a community and say the more you do actions with other users, the more coins you earn. That actually triggers people to interact with the application a lot more. It’s a way of generating a lot more usage. Based on that, you can still actually monetize off of it. Virtual goods is humongous. There are entire companies making money off it.

0:31:47.5

Student:







Jia: That is something I’ve given a lot of thought about, actually. The funny thing is that people really neglected the desktop because everybody is kind of in this whole virtualization craze. The desktop stuff is actually really powerful. In the end, you are beginning to see people are going back to the concept of bars at the top. I think people are going to start moving back to thinking about toolbar types of stuff, at least [0:32:24.2 unclear] type of notifications thing.

The main thing is that when people were designing applications previously, for desktops, they were really things like in web 1.0, of capturing the user. “I want to build these gigantic suites of applications and all they’re going to do is spend time on my application.” In reality, with the modern generation, everything is ADD. You’re doing fifteen things at once. You are waiting for notifications to pop up before you actually go and interact with stuff.

I definitely believe desktop software is going to be an important extension for the social stuff. I don’t think anybody is thinking about it. As far as what Google [0:33:03.8 unclear] and those types of things, they’re not that interesting yet. If you know anything about the Google spec, it’s more about the gadgets as opposed to the OpenSocial side of the spec. This means it doesn’t have anything social to it.

Just like with iGoogle, when you are creating a widget, you’re actually only consuming it yourself. The growth ratio for that is very low. When you are actually viewing, it’s like, “Oh, I’m looking at my financial stuff,” but none of your friends care about what your financial stuff is. They’re not going to have growth for that. As an extension as a viral channel, it’s kind of good.

Student:

Jia: I don’t think Google has a master plan, but they’re building all the right parts for it. Kind of like the whole being able to do a single sign-on method that actually authenticates and grabs all types of source information is actually where the power is at. That’s kind of where between the lines; there is a big war on whose social graph is better. Google is trying to push their Google ID; I don’t even remember the names of these things anymore. Facebook Connect, that is where the power is at.

Once you actually buy into that, you actually have that prepackaged into a desktop of some sort, and then it actually becomes very powerful. You actually have desktop applications that publish into the live feed of things, and vice versa. That’s actually very interesting.

Student:

0:35:04.2

Jia: Facebook pages? Yes, we’ve done work to support it, which the previous iterations were really kind of a pain in the ass because they didn’t really think about it too much. It







comes down to the traffic that goes to Facebook pages. Right now, it’s still very interesting. It hasn’t gone beyond – they renamed things from my Fan Pages or whatever, to these Google pages. The only things that drive a lot of traffic –the traffic sources are all from the destination sites of the brands themselves. I take it back; one thing I’ve actually been seeing interestingly enough, is that pages in the recent weeks have become a little more powerful, especially with the feed integration. They’re actually using the pages as individual personas that can be published to their entire user base. That is something that is pretty powerful, now, but it’s a recent thing. I’m not sure they actually thought about it, but using that type [0:36:03.7 unclear] might be very interesting.

Building applications inside of the pages themselves, for users to go interact, I haven’t seen a great use of that yet, as a distribution method for somebody who owns the pages as something that you could leverage.

This is not as important. I was just talking about what OpenSocial is but you guys probably know what OpenSocial is, right? I’m going to go with “yes”.

Andreas: Take your time because we haven’t really talked about it yet.

Jia: Okay, I’ll talk about it a little bit without boring you guys too much. The main thing is Facebook obviously has this platform where you have canvassed pages, and your viral channels. You have access to social graph. Those are the three interesting characteristics of a platform.

OpenSocial has kind of made the Java version of that so you can write it there and actually deploy it several different places. The cool thing about it is it’s something that has actually been adopted by a lot of people and it’s actually evolving standards, which has been very good.

A primary example is that MySpace, without OpenSocial, would never have built a platform in time. They’re not a technology company. Google wrote most of it for them and it’s the only reason MySpace actually has a platform today. It’s continuing to evolve.

A good example is when OpenSocial first came out, it didn’t have a concept of offline processing, which when you get more advanced into application development, it’s very important. Most of the stuff that you are going to do when you are going to notify the users, or trying to farm for information to properly target, you want to do that offline. You don’t want to do that when the user is there because it makes the application very slow. They didn’t have that type of support.

0:38:00.4 The cool part is the standard is constantly evolving. Along with the standard, is actually something called Shindig. Shindig is an implementation of the standard. For instance, let’s say you have your own website. You want to do OpenSocial. You can actually go and download a version of Shindig, install it, implement the API hooks, but







generally you have a platform already that can actually serve canvass pages, take REST API calls, and do all that type of stuff.

That’s actually what’s made it very straightforward for MySpace, and a good example is just a few weeks ago, I’m convincing the Korean social network, Cyworld, to implement OpenSocial. It’s very easy when I say, “There is already an open implementation out there, and you can go ahead and do that.”

The reason why OpenSocial is important is because it represents a gigantic user base. Facebook only has 200 million users. If you look at Yahoo, for instance, it is 500 million monthly actives. That’s kind of a user base that is super interesting. One of the interesting characteristics of social networks is they’re all different. None of you probably think of Yahoo as a social network but one of the things they’re actually trying to do is put their entire large user base, for instance Yahoo Mail being one of the most stickiest user bases, and cohesively blend them together with all their user bases and create a social graph that is interesting. It’s a different social graph than Facebook.

Today, Facebook is actually growing among the older demographic, but it’s still mostly about people with friends. The interesting thing we’re kind of looking at is that Yahoo can actually be a social network that represents more family because a lot of people are in an older demographic, already have families, and we’re specifically looking at soccer moms. That is an interesting social graph that could create a lot of interesting applications and have a lot of growth associated to it.

There are a lot of different use cases. The hard part for you is not the technology side, but figuring out what the right applications are to build. That’s pretty much what I think about what the current application space is.

Student: …

Jia: I’m not sure; probably not. They’re pretty much kicking ass. The social graph war is actually the really interesting one. The whole application space and all that other type of stuff, that is kind of like sugar on top. You become literally the authentication of the web, that’s pretty awesome. It’s always kind of weird for me, for instance, why sites like Digg and all these other guys are like, “Sure, we’ll just let people authenticate with Facebook,” because they fundamentally lose the access to the users. They use a lot of power that they originally had. That’s really the big war.

0:40:49.9 There is not a real big competitor today. OpenID, nobody uses that. It’s too hard to use. Google has a good implementation but they don’t actually have a strong social graph to go and leverage for people. Until somebody goes, for instance, if Yahoo adopted the Google ID stuff, that would actually be a little bit more interesting. For everybody in this room, Facebook Connect is really the way to go. I love it. It’s just a little scary







because they’re pretty much going to take over everything, as far as information goes.

Student: …

Jia: Google thinks of it as a standard war. The way I think about it is kind of like it’s – it’s scary because it’s a question of who owns the web at that point. Imagine if you started authenticating into Yahoo with Facebook Connect, that’s a big deal. It’s a lot of convenience, but then Facebook literally owns the user information across the web. That’s kind of scary.

I was going to talk a little bit about the monetization stuff. We talked about virtual good a little bit, but the interesting thing is there is a tough question as far as advertising that goes in the social networking space. Everybody knows about Microsoft investing $1.5 billion, or whatever, into Facebook, and then Google signing a large advertising deal, which I don’t think they renewed with MySpace, to reserve their advertising; in the end, Facebook and MySpace combined have more advertising inventory than Yahoo does. What does that mean? People actually can’t monetize that traffic. If that were the case, Facebook should be gigantic. Yahoo is actually monetizing at $1 or $1.5 CPMs across their entire blended traffic, Facebook is not seeing that. They’re seeing far below that.

This is kind of the interesting thing about looking at where social applications actually fit in, at least, how we see how the traffic actually works out. The cool part that Google knows very well is that they know how to do high contacts. They know how to do targeting. Looking at the blog page that you’re on or whatever, you’re actually able to target that information fairly well. They can actually blend the CPMs pretty well with that.

Whereas, that traffic doesn’t work on social networks. Take out applications and look at Facebook before; all you had were kind of things like status messages and wall posts that didn’t have specific context that allowed you to advertise to, and then photos. Photos are kind of the bane for advertising. You can’t target crap on that. CPMs on social networks are always really bad.

The interesting thing is social applications, like RockYou or whatever, actually kind of bring those two worlds together. What does that mean? I compare us all to Yahoo because I still respect them as a business. They represent a well-blended advertising model. They’re very similar to us, for instance the Super bowl; they have applications that are really big on reach. Yahoo Homepage; a lot of people go there but they have really bad CPMs on there. They actually can’t target it. You don’t know what type of users are going there, typically. You don’t have that much information on them, and what they do is they typically go there and then go somewhere else.

0:44:16.8 The way that Yahoo works is they go to specific sites that are actually far more targeted. That’s why they actually have so many verticals. They have the movie







site, finance, autos; all those things are actually considered different types of verticals, which fundamentally actually grab a lot higher CPMs.

Let’s look specifically at autos. It allows you to do performance marketing, which is your local car dealership will actually buy ads saying, “I’m looking for people who are looking for a specific type of car,” search terms, and all that type of stuff. That stuff works in an auto site. It doesn’t work nearly as well on a Yahoo Homepage. That’s kind of the long tail of traffic. You have a lot of page views and a large portion of traffic that go to that type because there is a lot more volume there.

The other side is more the branded route. Imagine you are a GMC or a Toyota. You want to go buy specific types of advertising. You go and say, “I want to buy auto to inventory”. That is a pretty straightforward buy. You don’t buy Yahoo Homepage. You go buy Yahoo Auto.

The cool thing about applications is they actually start to bring that in. What I’m always preaching is that applications is really taking what we had in web 1.0 and extending it across different types of platforms and different types of containers. You can create an auto application, in our case, Speed Racing, and put that into Facebook, in to MySpace, into Yahoo, and that actually becomes a type of page view inventory that becomes very targetable. You can actually sell it for high CPMs. You can actually sell it for branded ad sales, and you can do a lot more interesting stuff because it’s actually auto targeted in that specific way.

That’s kind of the pitch. That was kind of a no-brainer example. This is kind of a Sweeney Todd, Johnny Depp movie from a couple of years back. You see that banner ad at the top. We’ve all seen banner ads. A lot of people have kind of ad blindness and you just don’t click on that stuff. When you run a test on just that banner itself, it has a specific type of click through rate. Immediately, when you actually put it in a context, for instance in our case, we had a Johnny Depp quiz. It’s kind of an easy example. It really makes the click through rate and performance of this type of advertising go through the roof.

A blunt example was it literally had 65 times the click through rate for that type of advertising banner. When you fill out that type of inventory, you actually make decent amounts of money. This is something that Facebook is trying to figure out. They haven’t really created a lot of targetable inventory so they’re actually kind of fuddling with all that stuff on the right side. They’re trying to create sponsored gifts Beyond that, they don’t actually have those individual niche sites, which is something that Yahoo has and something that MySpace has because they’re entirely focused on monetization.

0:46:59.9 That’s why applications are interesting from the advertising standpoint . The virtual goods stuff is a different story, all together. When you create applications, you actually create a lot of creative points in which you can actually go and monetize, just using advertising and using a RockYou advertising network, we’re actually







able to figure that type of stuff out. That’s why we actually have higher CPMs on applications than you do on the social networks themselves.

Cool, that’s all I have. Do you have any more questions?

Student: …

Jia: For banner ads? Yes, it’s pretty good. You’re approaching 1%, right? One out of a hundred, and let’s say a lot of types of these performance ads are looking for CPA. They’re looking for somebody to actually come through and installing. You get paid for that click through, like $5. Per 1000 impressions, that’s a lot.

Andreas: I think it’s a good question because in the bigger universe, if you are only interested in 1% of what you’re being shown, it’s not a very big number.

Jia: For advertising it is.

Andreas: [0:48:13.6 unclear] which just shows us there is a huge space to improve advertising.

Jia: Sure

Andreas: If I introduce you to 100 people and you are interested in 1 of them, you will probably not trust my introductions very much.

Jia: Yes, that’s a good way to look at it. In general advertising CTR rates, that’s actually pretty good.

Student: …

Jia: When you talk about advertising, it’s really based off of the traffic that you do. One of the things that I think you guys – are you guys doing an ad tuning exercise? Have you guys ever played with AdSense? It’s really easy to sign up for one. The first exercise you’ll ever run through is, “Okay, there’s this concept of CPMs or ECPMs.” You’re like, “Okay, I’m making $5 CPMs, so I’ll just come up with ways to make more page views. I’ll create all these things, reload pages, or whatever. I should make more money.” That’s not specifically true.

What you want to do is based off the type of traffic you have, Google system will actually go and analyze and figure out what actually works. It’s kind of like your performance varies from day to day.

0:49:21.7 For instance games, they have horrible CPMs. If you look at Mafia Wars, they have great stats from the fact that per user they spend twenty minutes on the application. They load 150 page views. That’s actually bad. Your highest CPMs come from your initial page views, like your first four page views are the best. The rest is what people would consider remnant. Monetizing that stuff is ridiculously hard. There are companies that specialize in that.







Student: …

Jia: Yes, the stuff we’ve been looking at, like I said, we’ve been targeting the concept of soccer moms. That’s actually stuff that’s actually worked in the past. The stuff we’re looking at is photo sharing, family tree types of stuff, and stuff that has actually worked with those demographics.

[0:50:18.8 unclear] you have to look at is, for instance, Café Mom. You can actually go and figure out what is actually big for that demographic. One site that has always been a good resource for us is Quadcast. Quadcast has a lot of demographic information there, where you can actually see where people are visiting, different types of traffic. HitWise has a blog that is pretty good, too.

Student:

Jia: Google’s most powerful when you’re doing search for stuff, but also the AdSense stuff, which is actually more applicable to Facebook because it’s when you’re actually viewing sites. It’s actually when you’re going to consume information. You are like, “I’m reading a blog about how to race cars”. That targets you in that way, whereas when you do the interest type of stuff, it’s not necessarily contextual to what you’re actually doing, and behaving like at that very moment.

Facebook definitely allows you to do targeting for people’s interest, and that’s the most effective stuff they have, but it’s not nearly as powerful as search is. Search is, “This is exactly why I’m on the web at this very moment.” It’s all about attention.

Andreas: Are there any other questions? Any advice you have for the class? I have similar questions I asked Linus beforehand, which were five questions.

1. What has changed in the last three years?

2. What has not changed in the last three years?

3. What will we have in three years?

4. What advice do you have for them?

5. What would you have done differently?

Jia: I can only remember the first two.

0:52:23.8

Andreas: All right, what has not changed in the last three years?







Jia: What has not changed in the last three years? Honestly, monetization hasn’t really changed that much. There is not really interesting monetization changes, as far as the advertising.

Andreas: Virtual games?

Jia: That’s why I say specifically advertising. Virtual game stuff is still not that new. It’s actually been rampantly successful in Asia. That’s why QQ is a billion dollar company and so is Cyworld. That stuff has been around for ten years, a little less than ten years, but they’re very successful models in worlds that advertising isn’t as successful in. Advertising doesn’t work in Asia and virtual goods is what is huge. Monetization actually hasn’t changed, specifically for the web. You see the whole recession crunch; all the companies are bulking down and what they’re doing is switching to an advertising model. There is nothing interesting yet.

Andreas: Actually, I was the first to invest in Jia Nai. [0:53:24.5 unclear], I met him and he was just an impressive guy, how he measured everything he was doing.

Jia: [0:53:30.5 unclear] the numbers guys.

Andreas: I was very lucky to meet him at that stage. The second question is what has changed?

Jia: What has changed is the evolution of the social graph war is actually very interesting to me. I didn’t see this one coming. I saw like a lot of large social networks coming up here and there, but the whole concept of people actually taking the application platforms and actually growing them offsite, and actually using that to leverage as a single authentication system where you’re actually not just doing applications within the walled garden, which is what everybody really freaked out about before; actually making it the brand that actually revolves around the web as far as personal identity, that’s a big deal. That’s actually a very big change where I think social networks aren’t necessarily prepared to battle Facebook on it indefinitely, definitely not the old companies – AOL, Microsoft, and Yahoo; they have nothing against that right now. That’s a very interesting game changer.

Andreas: And where will we be three years from now? What do you think we’ll have or not have then?

Jia: What do I think we’ll have then? That’s a tough one. I don’t think that much will change in three years, actually. I don’t want it to happen, but I think MySpace is going to disappear soon. Then, I think that Facebook is going to dominate much of the western world as far as social networking goes. We’ll really have to see where this whole Twitter thing goes.

0:55:06.2 Twitter is relevant a lot as rapid growth right now, but things that grow extremely fast like that are have characteristics of likely disappearing quickly. It’s really a question of how they actually play out the next year. It’s really interesting about what they’re going to do,







whether they want to make themselves a destination site and how they actually play the landscape between the Facebook and MySpaces of the world. In the end, they could be the powerful next tool, but it still kind of lacks the stickiness of a destination site.

Andreas: The last two questions before we actually tell people what we’re doing in the remaining part of the course, are what would you have done differently, and what advice would you give them?

Jia: Up to this point as a business?

Andreas: As a person, business, RockYou, whichever aspect you want to pick.

Jia: If I knew the future, I would have grown the company a lot faster. What we did is I’m a fairly conservative guy. We never went out for ridiculous amounts of funding until we thought we were going to be really big. We took things one step at a time so if we knew stuff would be this big, you’d just go out and land grab like crazy. You’d go and build anything and everything under the sun and so be it. It would have been good.

Andreas: And advice?

Jia: The main advice is this is kind of thing I give everybody, as far as from a tuning perspective; don’t wait on stuff. What we’ve always done is we’ve always known what to cut, as far as the fat. You can’t say we’re great at building really long-term applications, but we really know how to make stuff grow really fast. The first and foremost to be able to do that stuff is know how to tune and know how to measure stuff at a really rapid interval. Then, based on that, build stuff out really fast.

Maybe we’ll have an opportunity to look at it later; our biggest investment internally is a real time stat system. It’s super easy, super stupid, but it allows you to count stuff really fast. When we push stuff out, we can actually see how it’s changing immediately. Systems evolve and we’re able to do targeting and bucketing. Initially, all you need to do is have something that can count in real time.

Andreas: One of the great things Linus Young said was that it took him six hours to build the app and six weeks to build the metrics.

Jia: Yeah, our main thing is we’re designed to build stuff really fast. We can pump out an application, that’s in high production quality, and scalable to 200 million users, really quickly because that’s what we’re designed for. Our backend is set up for that. Our metrics are set up for that and it all revolves around rapid development processes.

Andreas: It’s interesting to see the parallels between two different perspectives. Are there any quick remarks from the students? If not, thank you Jai, for coming.

0:58:34.9 What I want to do in the last seven minutes is to briefly take you through what we’re doing in the rest of the quarter.







I have put it up as simple, basically one-word descriptive for the classes. I’ll tell you a little bit more here. Last class was about the introduction and we talked about the PHAME framework. Today, we focused on ecosystems and platforms, with two wonderful cases. In the next class, we’ll talk about data.

The question is primarily about data about yourselves. I will give you a thought experiment. If all the data that you ever thought about was collected, everything you looked at, who made you turn your head, and so on; case one is if only you alive could ever make those data show up again, case two is if it was really securely password protected, three is if the FBI or whoever could break into it. How would that change your behavior? Ultimately, only those things that change behavior matter.

We will go to reasons why people share what is the purpose, what type of data do we share. I will put up a Google forum to ask some questions before class, so we have something to start off with.

I will then talk about the value of data. For me, this means primarily social data. I will talk about Rapleaf, Auren Hoffman’s company. Do any of you know anybody at UnboundTech, by any chance, in Palo Alto? If not, I’ll try to see whether one of them might be interested in coming. It is about the business data, reputation data, authentication, pseudonyms, cost of cheap pseudonyms and stuff like that.

This is all pushing toward understanding decision making. For that, I have one special project for those of you who have taken Ron Howard’s Decision Theory class. There were a couple people last class; if you can come up to me after class today, I want you to do a little presentation of maybe half an hour, to the class. I know the fellow over there took it. Who else was taking it? Can I get a show of hands? Who else took Ron Howard’s class? Where you learned about flipping probabilities.

The thing I wanted to teach to the others in the class is if you can associate a cost with everything, like the cost of an unsubscribe, that’s something we really did at Amazon. If somebody has a call to customer service, what is the cost if that doesn’t get resolved? What’s the cost or benefit if it gets resolved? I want us to have an economics framework around this. This might be more than we get done in next class.

1:01:23.0 Point number four is I teach a little bit about social network analysis. It’s called random graphs, like the random distribution and stuff like that. I will probably have both Gina Bianchini from Ning and Reed Hoffman; they both said they would come. I’m not sure whether I can get them at the same time. And Christian Wiklund, who runs Scout, which is a dating company, which should be a fun conversation of people. Particularly Reed, he’s an amazingly smart person. We will see how they think about social networks and where they’re going. These are all different ones from Facebook, which you’ll get to know quite well via your first homework.







The fifth class will be bread and butter for me, which will be recommender systems. The key message I will get across there is that removing recommender systems from this old notion of being transaction based, where we just know what people do at the end of something, to having much richer interaction data, to move upstream in the decision making, to measuring context so that the situation somebody is in, whether it’s through is status update, having richer data from their mobile phone, and of course, through social recommendations.

I decided, given what your feedback was – by the way, thank you very much for your rich feedback. I was very impressed by how you concentrated and you did a super job. We spent how many hours, six people each four hours on Saturday, looking through them and condensing what we actually want. It was very clear that visualization is one of the topics we do want. I will probably have [1:03:08.0 unclear] in design coming in. I’m looking at Many Eyes. Somebody posted it also on www.socialdatarevolution.com, to make sure we have a good class on visualization. It’s not the art part, but it’s a tool part that I’m going to emphasize. Remember, the surface structure and deep structure.

I will do a class on instrumenting the world. I probably will have one of the key people from Twitter come, Nick Callen, who I worked with as a consultant at a couple of companies. I will also have the CEO of Twine come, who is Nova Spivak, who has a lot to say about Twitter. We will also talk about Twine a little bit.

We will do one class on mobile data because I personally think that mobile data, meaning geo-location data, situation data, meta data we can have for communication, plus the mobile platform is something that is very close to my heart, and very close to what data mining e-business will be about.

I would like to do one class on health data, medical information data. There, my perspective is it’s not just about whether Microsoft standard or Google standard will make a difference, but how do we get people to actually collect a lot of data about themselves. Fitbit is an example. I’m trying to talk to Fitbit to get everybody in class a Fitbit so we can start collecting data about whether we sleep enough, whether we walk enough, or whatever.

Somewhere, I need to fit into class a beautiful lecture by Cynthia Dwork, maybe half an hour or forty-five minutes, on privacy preserving data mining and why it doesn’t work, and I’ve also talked to a friend of mine who went to Stanford with me, Fred von Lohmann, who is senior staff attorney at the Electronic Frontier Foundation, sort of the right, political direction, to share with us some ideas about what’s happening, from his perspective, with peoples’ data.

1:05:08.8 Partly because I have a few guest speakers, I have not made the exact mapping to the dates, because these people are all busy, like you are, but that is the spectrum of what I want to do with you in the rest of the quarter. Are there any questions?





http://www.socialdatarevolution.com/



If there are not questions, then thank you for coming and I’ll see you next Monday, as usual, at 2:15. Thank you so much. Bye-bye.





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