Add to iTunesLance Tokuda - CEO, RockYou
Introduction
On this episode of ReadWriteTalk, I talk to Lance Tokuda the CEO of RockYou. The interview is basically broken into three parts:
- An overview of how RockYou focuses on building applications, especially focusing in on building apps on the Facebook platform versus the Open Social platform
- An overview of the RockYou company
- Finally, things Lance has learned moving from an enterprise software guy to focusing on building consumer facing applications
Transcript
| Sean Ammirati: Today on ReadWrite Talk, I have Lance Tokuda, the CEO of RockYou.Lance, could you start by just giving us an overview of RockYou?
Lance Tokuda: The goal of RockYou is to create social application and our mission is to engage the entire world for social application. When you think about software, it starts off with PC and then it moves to the Web in terms of super portals like Yahoo! and Google. And now, it’s actually being syndicated across multiple portals. So actually you’ll find RockYou on Facebook, MySpace, Bebo, Hi5, Piczo, Flixster, Xanga, a number of different sites across the web. Sean Ammirati: Great! And I want to get a little bit of insight. So you’re on all of this sort of major social platforms. How are you picking where to focus your product development energies right now between MySpace, OpenSocial, Facebook, and some of these other platforms that you mentioned? Lance Tokuda: We are always focused on maximizing our reach in terms of unique users. So we’re actually the fastest growing company in the world in terms of user acquisition. |
|
| 02:07 | We basically have grown to 60 million users in about 26 months and we hope to continue that growth. Also we look at users that are more monetizable based on certain regions. So if you look at MySpace, for example, because there heavy in U.S. traffic that makes them higher rated in terms of where we are reaching.Sean Ammirati: I mean, when you think about the reach equation, I’ve had David Glazer on ReadWrite Talk a couple of weeks ago and we were talking about the ease to build on these platforms. Do you find them all about equally easy to develop applications on top of and so it’s just purely a function of reach and value of audience or is there some advantages to one platform over another that way?
Lance Tokuda: We found that OpenSocial has done a great job in helping a developers to be more efficient, so there’s only about 20% cost of porting applications across different OpenSocial networks. |
| 03:03 | So, for example, between MySpace and Hi5, there’s only about 20% overhead in supporting both. Whereas from Facebook to MySpace, there’s almost a rewrite involved.Sean Ammirati: Okay.
Lance Tokuda: We found that OpenSocial is great as far as consolidating development effort. And on the other hand, the Facebook platform is licensed by Bebo. So we tend to use it, all those applications at least twice. Sean Ammirati: And is it about 20% from Facebook to Bebo? Lance Tokuda: Yes, about there. Sean Ammirati: Okay. Lance Tokuda: But if you look at it, it almost reminds me of the gaming platform systems and we are EA where there will be supporting multiple platforms. And we’re glad that right now there are two major platforms to support versus, you know, the gaming system, you have at least three. Sean Ammirati: Sure. And so if we use this, sort of, Facebook platform and OpenSocial platform, about what percentage of your work is on the Facebook platform and what percentage on the MySpace platform right now? Lance Tokuda: A far as work is already done, a high percentage is on Facebook. That is where we invested heavily in the last eight months. If you look at where you need to invest dollars, heavily creating new assets and porting existing applications to OpenSocial platform because that’s what is launching. |
| 04:14 | Sean Ammirati: And three months from now if you were to project?Lance Tokuda: I expect a strong balance. If you look at the demographic reach of Facebook versus MySpace, they have similar U.S. penetration numbers. So they are equally important at the current time and I expect a balance overtime platform.
Sean Ammirati: Cool! That’s very helpful for, I think, people who are trying to go out and build their own app. Why do you think your applications have had such great adoption? Lance Tokuda: I believe it’s because of our focus on the demographics. So we’re fanatically focused on building applications for teens and they tend to be the most viral. So we really focused on them and they basically communicate with their friends. They’re open to sharing. And that act of sharing is really what causes virality between friends. |
| 05:06 | So because we’re focused more on that demographic versus, you know, we’re not basically — for example, Flixster is a really great app. It’s focused on movies, but its goal is not how to penetrate demographic but it’s goal is to spread movies. So they’ll get, you know, as much spread as in the movies was allowed where as we’re really focused on a demographic that has a very broad reach. And when you can get that entire demographic, then you get more penetration.Sean Ammirati: Cool! And then one of the things I’ve heard you talk about in different points in the past is this concept of a “viral loop”. Could you just give people an overview of that for people who may not be familiar with that term and how that applies to this app you’re doing at RockYou?
Lance Tokuda: The basic viral loop is someone will install an application and either on install or through engaging with the application, they’ll invite other users to trial the application. They’ll invite maybe X friends and Y percentage of those friends were actually install the application themselves. |
| 06:06 | So x times y is greater than one. Then what happens is every time someone installs an app, they’ll invite, you know, maybe 10 friends and maybe one. Maybe two in ten will actually install the app. When that viral loop is greater than one, then you actually get free user acquisition. So the interesting thing about Web 2.0 is that a lot of sites that are growing actually get a viral loop going and they get free user acquisitions. And then it’s what you do with these user acquisitions that makes your business.Sean Ammirati: Right. So that’s a great overview. One of the things you mentioned on a VentureBeat interview you did, I think, last year at some point is you talked about how the Facebook viral flow is very different than other social networks because of the news feed, the mini-feed, and the invite request.
Lance Tokuda: Yes. Sean Ammirati: So one of the things I’m curious about is now that OpenSocial has these activity streams and Facebook has changed some of their policies, do you still see a very different viral flow in your Facebook applications than you do in your OpenSocial applications? |
| 07:10 | Lance Tokuda: OpenSocial hasn’t really launched at full blast, except on Bebo. And currently, Facebook is more viral than Bebo. But we believe that, for example, when Hi5 first launches, it will be more viral than Facebook is today. So really it’s all in flux and it depends on different policies and different networks. In the end, though, we actually believe that the applications people want, they’ll get you exposed to them over time and you’ll end up with applications that you wanted on your profile.Sean Ammirati: Sure. Why do you think when social network launches, there will be more viral than Facebook?
Lance Tokuda: Our understanding of where Hi5 is as far as their launch is that they’ll have basic activity feed and they’ll have a viral channel for invites. And that will be in a place that a user can, you know, see the invites and consume them. |
| 08:01 | And because it’s brand new, we believe that the adoption rate will be very high at least on the initial launch. You know, basically, the rate at which people click you on things would decrease over time, but you always start at usually the highest rate and the decay afterwards.Sean Ammirati: What’s the decay you saw on Facebook, for example?
Lance Tokuda: Over a period of maybe six months, the click-through might be cut in half on things like invites and it all depends on the call to action. So we have some calls to action where the, you know, acceptance were still up over 20%. But in some cases, we have under 20%. Sean Ammirati: Yeah. And MySpace has been public for about a week now, right? Lance Tokuda: Yes. Sean Ammirati: So what are you seeing in terms of your MySpace applications at this point? Lance Tokuda: Basically a soft launch. So what’s going to happen is that maybe about a month from now that I can open a viral channel which will allow you to connect with another user, with a friend. And that’s when we expect the platform can actually start growing. Right now, it’s more just a pure self-expression launch and there is no virality about it. |
| 09:07 | Sean Ammirati: Okay. Okay.Lance Tokuda: Expect it about a month, it will be more viral.
Sean Ammirati: Interesting. I don’t think I realized that. Cool! So that’s, sort of, a really good background for people who are maybe interested in building applications. Let’s talk a little bit more about RockYou, though. Talk about your business model. How do you make money? Lance Tokuda: Yes. So the specific detail that can get you a lot more detail about maybe a month. Sean Ammirati: Okay. Lance Tokuda: At a high level, the click-through rates for RockYou ads are about four times greater than the average social network and about three times greater than the web as a whole. So application pages tend to get higher click-through rates than most photo browsing page views, which is what, you know, most of the social network page views are. But because of that 4x greater click-through rate we are able to either run better campaigns and potentially monetize at a higher CPM rate which is what we have seen so far. |
| 10:04 | Sean Ammirati: I saw an interview on YouTube via FaceReviews. You’re getting like $10 CPMs. Is that still the case?Lance Tokuda: Our best pages are our cross sell pages are taking about maybe $7 CPM versus 10.
Sean Ammirati: Okay. Lance Tokuda: Lower but we are taking about seven. Sean Ammirati: So is decay a little bit or did I just mishear you on that interview before? Lance Tokuda: It’s probably decay since that time. Sean Ammirati: Okay. And what percentage of this ad revenue is coming from other applications versus maybe advertisers that are promoting things outside of social networks completely? Lance Tokuda: We’ve got a large base now. So we’ve actually run through the system cost-per-click deals, cost-per-CPM deals and CPA deal in terms of what we’ll cover for registration and also cost-per-install deals. So we’ve run through the whole mix and different campaigns have different effective CPMs, but what the ad server has done is optimize a cost-effective CPM of any ad format and serve the best performing ad. |
| 11:06 | Sean Ammirati: Okay.Lance Tokuda: We’ve seen all of those different formats at one time or another will be the top performers.
Sean Ammirati: Really? Lance Tokuda: Yes. Over an extended period of time, I do believe that the CPM deals will be from the brand for the major brands will be the best performing because that’s where you can get $5 CPM in inventory. Sean Ammirati: I actually would have assumed that cost per install is, right now, it just seems like there’s a lot of activity where people are trying to get users. But that’s actually encouraging because… Lance Tokuda: And the nature of our inventory, but the best performing when it’s available is probably CPM. That’s again $5 banners. Sean Ammirati: Okay. So, Lance, you drew the analogy earlier to Electronic Arts. Can you talk a little bit about where you see yourself going in the long-term? What do you think are your long-term exit strategy is? Lance Tokuda: My long-term vision, I basically envision us as Electronic Arts of social applications. |
| 12:02 | So if you look at where EA is, they basically are the number one game developer in the world and we expect to be the number one social app developer in the world and we expect to get every major social platform from OpenSocial on MySpace, Orkut, Hi5 all the way to Gmail, Yahoo! Mail. Every one that’s ever used Yahoo! Mail or received a message from someone with Yahoo! Mail can potentially be a RockYou user in the next 18 months.Sean Ammirati: So picking up on that a little bit, do you think there’ll be more platforms you’ll be building on top of like OpenSocial and Facebook or do you think those two will end up continuing to gather more and more of these properties or a little of both?
Lance Tokuda: From what we’ve seen, it looks like OpenSocial and Facebook will be the two primary platforms. Because the major mail services which represent another 250 million users, they both committed to OpenSocial. So I expect that if Microsoft jumps in, especially if they buy Yahoo!, they would go on OpenSocial also. |
| 13:04 | Sean Ammirati: Okay. And then I guess if you think about Electronic Arts, I know a lot of their business is obviously talent acquisition as well in terms of the people who are creating these. What is the talent market for these social app developers like right now?Lance Tokuda: In terms of acquiring applications?
Sean Ammirati: I guess that’s the question, is do you do it by acquiring applications? Do you do it by hiring talented people out of school? It seems like you’re trying to develop a hits-driven business here, right? So how do you find the people that create those hits for you? Lance Tokuda: Oh, what’s the greatest thing is that there are already 18,000 applications available on Facebook. So there are 18,000 people out there on that order of magnitude trained to develop these applications. So the talent pool is actually substantial. On top that anyone that knows PHP and JavaScript can initially develop on the platform. And as far as OpenSocial, it’s really JavaScript. |
| 14:01 | So we need some basic tools and anyone with maybe a month of training can actually develop on new platforms.Sean Ammirati: So are you hiring kids right out of school and giving them that month of training or hiring engineers or are you buying applications or do you think that there’s a network plan? How do you end up becoming Electronic Arts, I guess, of social applications?
Lance Tokuda: Yes. So we definitely hire out of school and we also hire most experienced people too. And we have basically someone hiring full-time and then we also look at acquisitions at some point. Sean Ammirati: Have you done any acquisitions yet? Lance Tokuda: Nothing that we want to speak about. Sean Ammirati: Okay. And so let’s just change gears one more time here. One more question I guess on that. How many people are at RockYou at this point? Lance Tokuda: About 35. Sean Ammirati: Okay. Cool! And then let’s just, kind of, change gears one more time for the third part of this interview. |
| 15:04 | And I’d like to just have you, kind of, start by giving your background and then just, sort of, personal reflections at somebody leading one of these companies in the social networking space. So can you start giving us a quick sense what your background is before you started RockYou?Lance Tokuda: I started at enterprise software. The first company I think was Resumix. I was Employee 4 and it was purchased by HotJobs and then Yahoo! And the second one is called Documagic. I was Employee 3. It got acquired by JetFax, which became efax.com. On the day it became efax, the stock jumps from $3 a share to $20 per share.
And then I got my PhD at the University of Texas in Computer Science. And I missed the entire Web 1.0 space. So I went back and did more enterprise software at Open Harbor and that was the fastest growing company in the bay area in 2003, also in 2004. And then I did a consumer company which was basically called Iconix and their focus was on email download. |
| 16:01 | But what about the people who don’t want to download anything in this new generation of web users? So we thought what do people want to do. And that’s how we came up with the idea for RockYou.Sean Ammirati: Cool! And so in your background as an enterprise software, what’s the surprised you most in this sort of rapid growth as one of this huge consumer-facing software companies?
Lance Tokuda: The thing that is the most pleasant surprise was that I didn’t need a marketing and sales team to grow company. I essentially grow the company through a great product. So we just focused only on product and we hired a lot of engineers. We still haven’t have a single person in the marketing and consider the marketing person. Sean Ammirati: Really? Lance Tokuda: Viral marketing. Sean Ammirati: Wow! Lance Tokuda: Vanessa is great as far as, you know, our PR. Sean Ammirati: Sure. Lance Tokuda: But I don’t have anyone in-house that does marketing. Sean Ammirati: Right. Vanessa’s the PR contact. So I imagine some of your engineers still do a bit of marketing, but what are the things you, kind of, have learned to focus on from a marketing or a product virality perspective? |
| 17:05 | Lance Tokuda: From product perspective, the biggest thing is focusing on the agility. So if you look, for example, use Google analytics to tune your application, you get maybe reports on a one-day scale and that’s too slow for the space. So, literally, everyone who is good at this builds custom analytics that allows to tune on a finer grading scale. In our case, that’s a five-minute scale. So, literally, we tune our application on a five-minute scale and improve them in almost real time.Sean Ammirati: Okay. And in terms of the applications that you’ve built, any application that shocked you in terms of its popularity?
Lance Tokuda: Well SuperWall was, you know, we thought this would be the biggest application at Facebook. And that’s what ended up being as far as installs. So really what we’ve done is that we take concepts and then do users studies on them. And what we found is that in line with the user study results, that’s how applications tend to perform. |
| 18:01 | Sean Ammirati: So what do you ask in a user study?Lance Tokuda: We ask them how do they like the concept and we especially to compare to other concepts that have either succeeded or failed.
Sean Ammirati: Are they like paper prototypes or are they actually working applications you’re testing? Lance Tokuda: Yeah. That’s toward the specifics of how we do our users studies, so that’s more proprietary. Sean Ammirati: Okay. That’s fine. Right. But basically, from your user studies, you’re able to project pretty accurately how popular applications are going to be? Lance Tokuda: That is correct. Sean Ammirati: Okay. People who come up with the games or the applications, are those your engineers as well or do you have somebody else coming up with the game or the application concept? Lance Tokuda: Yeah. We have a product management team and the basic thing we use is we read every issue of Cosmo Girl. [Pause] Cosmo Girl is a magazine. Sean Ammirati: Yeah. Lance Tokuda: And that basically inspires us on what people look for. Sean Ammirati: Seriously? Lance Tokuda: Yes. So I read through Cosmo Girl more than any CEO. Sean Ammirati: That is … [Laughter]. That is amazing! And a great note to end on, Lance thanks very much for joining me today. |