Found Business Models

I found Cultivated Play, an essay about Farmville and why it works, absolutely fascinating.

I’ve never been a fan of games on Facebook, even when all they involved were throwing sheep or biting someone. So, I’m dimly aware of Farmville and its ilk, but never really cared to know how they worked.

Photo by Alex Osterwalder from Flickr used under Creative Commons

After reading Cultivated Play, which outlines how to play, as well as why the gameplay is successful, I’m keenly interested in the social games, not to play, but to study.

The basic reason Farmville works so well is that obligates your friends and addicts them too, like zombies.

This is brilliant.

The social obligation aspect of Facebook manifests itself in what I call the “you hang up first” behavior on posts, usually punctuated with multiple LOLs.

Coincidentally, I hear my wife right now apologizing on the phone for not being on Facebook lately and not reading all the posts, like it’s work or something. Social obligation is an extremely powerful motivator among friends and family.

The brilliance of Farmville is that they’ve turned social obligation into cash, lots of it. You could argue that they’ve done a better job of monetizing Facebook users than Facebook has. I’m sure this has something to do with the current spat Facebook and Farmville producer Zynga are having about Facebook Credits.

Anyway, I love found business models like this.I call this a found business model because I can’t imagine anyone in a position to fund a startup would throw money at this business model. I also can’t imagine anyone starting a company with this explicit business model.

Can you imagine the pitch?

VC: What’s your business plan?

Entrepreneur: We’re going to create Facebook games and get users to pay for them.

VC: OK, how?

Entrepreneur: We’ll essentially shame everyone into playing a game; let’s say it’s managing a virtual farm. If they don’t play, they risk being ostracized by their friends and families, hurt feelings will ensue, you know the drill. They’ll play first because they’re obligated, but eventually, the game will stick. We’ll offer virtual goods that they can buy to improve their virtual farms. All it takes is a player 0, and we’ll be printing money.

VC: Pass. Pass. Pass. Oh and GTFO. No, I mean it. Seriously.

Obviously, now the model works because Zynga and others have created it, but in 2007, how crazy would that have sounded? At the time, Facebook’s platform was brand-new, and they had only 30 million users, give or take a few million, which is now a rounding error for them.

The intertubes is still a fledging place for business, and I can only think of two, tried and true ways to make money online.

  1. Sell something, a good or service, doesn’t matter.
  2. Run ads and take a piece of the action.

That first one is pretty broad and could apply to what I’m calling found business models. I guess I’d characterize the difference thusly: Amazon sells books online. Zynga sells virtual goods to social network users. See the difference?

Found business models are really interesting to me, and they’re all over the place lately.

Look no further than Twitter, whose business model was the subject of years of rampant speculation and lots of digital ink. What’s the first way they make money?

They sell firehose access to tweets to Bing and Google.

Who saw that coming? You don’t really think Evan (@ev) and Biz (@biz) pitched Jack Dorsey (@jack) that idea back in 2006. Even the sharpest, most forward-thinking VC would cringe at that pitch.

Found business models grow out of the Field of Dreams philosophy of interwebs, which I’m just realizing is a pretty sweet pun, considering Farmville.

This is both awesome and keep-you-up-at-night frightening because it flies in the face of decades of traditional business school teaching. It’s the long tail of business models. It’s edge-in, populism at work. It’s exciting to watch and interesting, if you’re into that sort of thing.

I should mention that relationships matter more than business models, e.g. Evan and Biz were known quantities to Jack Dorsey. They had past success with Blogger, so I’m sure they got a pass. Imagine how they’ll do after Twitter.

Anyway, just as with Enterprise 2.0, the best interwebs business models haven’t been discovered. Yet.

Thoughts? Find the comments.

AboutJake

a.k.a.:jkuramot

12 comments

  1. As you know, I've been waiting to hear your thoughts on this essay. While you didn't mention Liszkiewicz's negative connotations regarding Farmville (he used the term “sociopathic” to describe Zynga), you did touch upon the very interesting motivators that Zynga and similar companies are employing. In that regard, one other item deserves mention; as Liszkiewicz notes, Zynga doesn't make its money from the social obligations, but makes its money from people who play Farmville but don't want to play Farmville. As the essay notes:

    “Farmville allows users to spend their in-game profits on decorations, animals, buildings, and even bigger plots of land. So users are rewarded for their work. Of course, people can sidestep the harvesting process entirely by spending real money to purchase in-game items. This is the major source of revenue for Zynga, the company that produces Farmville. Zynga is currently on pace to make over three hundred million dollars in revenue this year, largely off of in-game micro-transactions….Clearly, even people who play Farmville want to avoid playing Farmville.”

    I'm still pondering the ramifications of this. The AppsLab blog and others have talked about satisfying users, about ease of use, etc., but if you think about it, none of these items guarantees that you'll make money. You make money by having a service that people HAVE to buy, even if they don't WANT to buy it. Whether it's Farmville implements, tax preparation services, pooper scooper services, or whatever, we hold our nose and pay for the stuff even if we don't want to do so.

  2. Make no mistake Zynga makes its money off social obligations, and players want to play. Farmville hooks players this way and keeps them playing the same way. He's missing the point with that particular statement, probably b/c he hasn't played a game like that.

    The gameplay is deviously crafted to make it difficult and time-consuming, things that traditional up-front cost games would never do. Like any good game, however, it's addictive. To avoid the work, you pay.

    So, you play b/c someone guilted you into it. You keep playing for that reason too b/c success is tied to social interactions. It's also a game, so you want to do well. Therefore, you'll pay to ease the burden. It's really paying for a shortcut.

    My Town uses the same mechanics, which are common for free games I've seen lately, i.e. you have to collect rent laboriously for your properties, taking valuable time. It's a pain. You can pay to do it quickly. Payments are small, so they're not a big deal, at least not on a per transaction basis.

    The players who pay want to play so there's an addictive quality to it. At a certain point, you reach an effort invested decision. I've put all this time into Farmville, partially b/c I'm obligated, so why not pay to make it easier?

    This is why I mention a Player 0 b/c Farmville only has to hook a percentage of people to be successful. Network effects ensure its spread, like a virus. Some are immune, others mildly so, others not at all. It's a lot like a pandemic.

  3. Oh and thanks for being patient and waiting for my thoughts. This post started out as two, but I'm feeling lazy. I know you covered Farmville somewhere, but I lost where. Share the link?

  4. “…he hasn't played a game like that…” Am I missing something? He says right in the essay he was dragged into it by his mom.

    But I guess it will be cool when this is combined with participatory democracy and you can just pay someone to vote for you.

    I'm not sure I agree it's a found business model, I think this is just another example of how the free market system stimulates people to devise systems ahead of the necessary ethical and regulatory mechanisms. Just like high frequency stock trading (“you didn't mean billions?”), MS-DOS on PC's, IBM leasing, Standard Oil, Ponzi… I think you are confusing a description of a low-probability event (hitting a business home-run through semi-random empirical development and lucky timing) with a model (a description of a replicable set of business rules). It's like saying, if you gamble, you will win. I bet the truth of that is not only skewed, but can be well defined mathematically. It would be illuminating to know how many Zyngalikes bite the dust.

  5. Oh, right. I guess the sentence “even people who play Farmville want to avoid playing Farmville” struck me as wrong. He doesn't say whether he has paid to avoid the drudgery, does he? Can't recall. Anyway, Zynga has done well converted the socially obligated into real players.

    Social gaming is a found business model for the interwebs. Somehow, I doubt any of the examples you mention were considered during founding meetings when they talked about the business plan.

    Sure, there are parallels in history, and yes, Zynga is selling a service. So, that's not new, but this twist feels new to the interwebs, which is where I'm watching new business models grow. Make sense?

  6. Interesting, have to give the essay a read when I have time. I have several friends who were totally addicted to Farmville a while ago and fought to get rid of it (they finally did luckily). Don't think they spent any real money on it, though, or then they are too shamed to admit that.

    Time to form Farmvillers Anonymous (how exactly would that work on Facebook, anyway)?

    On the topic of virtual goods, I have been semi-following news on Habbo Hotel, the visual chat environment mostly used by teens. You can decorate your own “hotel room” by buying furniture with real-world money. Why anyone would ever do that is beyond me, but there you have it – AFAIK the furniture is just eye candy. 80-90% of users use just the free service, and the rest spend on average 10 euros per month – seems like the standard freemium distribution. Was there any mention on how many people pay for Farmville? Does the game element add to the lure?

  7. Sure, like I said, at its base, this is a sell goods/services business model, of which freemium is a submodel. I don't know how virtual goods companies get funded though b/c I'm with you on why anyone would spend money on virtual hotel furniture or virtual corn.

    We live in strange times.

    I can't find any stats on how many players actually pay, and I doubt Zynga has released that. Interestingly, the the removal of app notifications has crippled social games, and now with Credits, Facebook is really crushing game publishers. Going to be an interesting ride.

  8. Sure, like I said, at its base, this is a sell goods/services business model, of which freemium is a submodel. I don't know how virtual goods companies get funded though b/c I'm with you on why anyone would spend money on virtual hotel furniture or virtual corn.

    We live in strange times.

    I can't find any stats on how many players actually pay, and I doubt Zynga has released that. Interestingly, the the removal of app notifications has crippled social games, and now with Credits, Facebook is really crushing game publishers. Going to be an interesting ride.

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