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loukerner

The Second Internet

by loukerner on January 25, 2012

While I thoroughly enjoyed my time as a Wall Street analyst, compliance issues hampered my ability to blog on SecondShares.  Now that I’m back angel investing, I look forward to sharing thoughts and analysis on the social and mobile companies I refer to as “Second Internet” companies.  Just as first internet companies disrupted the offline leaders (e.g. Amazon v Walmart), Second Internet companies that are BORN social, will disrupt incumbent firs internet leaders.  I first outlined my thesis in the only real deep thought piece I wrote “The Second Internet“, I have continued to evolve the thesis in a deck I also call “The Second Internet“.  While the deck is meant to be given live (which I love doing, as it’s such a fun dynamic topic to discuss), a lot of value can be derived by reviewing the slides.   Enjoy the deck, share it, and I look forward to future posts.

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The Facebook auction that took place on Wednesday cleared at a price of $31.25, flat versus last week, and implying a value of $77.2 billion.

Facebook had traded at its high of $31.50 for four straight weeks, beginning on March 9th, before moving down slightly.  The high price of $31.50 implied a value of $77.8 billion.

Figure 1: Facebook Shares Trading at $31.25, Implying a Value of Just over $77 BN

Source: Company data, Wedbush Securities, Inc.


 

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Guest Post by Todd Marks, CEO viaPlace

Historically, games were always a social activity.  This began to shift in the 1970s, when arcade games became prevalent and with the introduction of PCs and game consoles, game play became a largely an individual experience.

Today, powered by technology advances and prevalence of social websites like Facebook, digital gaming is reintroducing the social experience into gaming and masses are embracing the shift.  AdWeek’s Mike Shields recently posited that the widespread adoption of social gaming is behind the demise of the soap opera, noting, “When Zynga… arrived on the scene in 2007, both All My Children and One Life to Live were averaging a 1.9 rating among women 25-54.  By 2011 the two shows were averaging 1.3 and 1.4 ratings respectively in that key viewer group. The drop is even steeper for other demographics.”

The newest trend is that digital social gaming allows users to digitize traditional games from the physical world and enhance the social nature of the games by leveraging mobile devices.

Our company, viaPlace, has built a framework to deliver Location Based Services, Augmented Reality, and Social Gaming to mobile applications.  We recently released “TAG”, a game of elimination that has traditionally been played across college campuses using low-tech devices like water guns. Players compete to find and “tag” assassination targets until there is only one player remaining. viaPlace transformed “TAG” into a high-tech game leveraging mobile devices using their digital cameras for the “tag shot.”

Within the game, players also utilize the foursquare check-in API to broadcast their current location at set intervals to help assassins hone in on their targets.  However, this is not just used to seek out potential Targets to “tag.”  By using a Game Wall that aggregates all player activity, locations and comments, TAG increases social engagement across all players both within the game, and in the real world.

 

Figure 1: Smartphone Usage Leading to a Revolution in Social Gaming

Source: viaPlace

 

The thirst for social mobile gaming is evident in the growing popularity of mobile games and of the platforms that support them.

Flurry, a mobile application analytics engine, reported in February that 26 million unique users play social mobile games more than 25 minutes a day on average.

 

Figure 2: Games Dominate iPad Apps

Source: Flurry

 

Additionally, mobile gaming networks such as OpenFeint enhance mobile games by providing social components via leaderboards and connecting gamers over the Internet.  Last month the network surpassed 73 million registered users, adding new users at a rate of over 4 million per month.  The company currently has over 4,000 combined titles for iPhone and Android including some of the best-selling mobile games of all time, such as Rovio’s Angry Birds which alone recently crossed 100 million downloads.

The biggest reason social gaming has leapt to mobile platforms is because the technology is finally there to support it, providing a better experience than the previous platforms.  Smartphones, in addition to mobile Internet connectivity, now include capabilities such as Augmented Reality, Location Based Services, Near Field Communication, Face Time Communication and Gyroscopic Everything, which have opened the door to a host of newer and cooler games users can play.   Eric Schmidt, Google’s former CEO, recently pointed out that Smartphone utilities are “Augmenting Humanity” with global mobile traffic growing 260% in 2010.

– Guest Post by Todd Marks, CEO viaPlace

 

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From the time we began tracking the social gaming sector in April 2010, the three largest developers in terms of aggregate MAUS have remained at the top.  Zynga has extended its lead growing users 7% since we began tracking in April 2010.  We also note, two weeks ago, John Schappert, left his position as COO of Electronic Arts to join Zynga.  Schappert had been at EA since June 2009.

Of the developers, Wooga has made the most significant increases, growing another 25% from last month and ascending to the fourth spot powered by the success of Bubble Island, Monster World, and Diamond Dash.

Figure 1: Change in MAUs Since April 2010 for the Top 10 Facebook Game Developers

Source: Wedbush Securities,  appdata

Of the top ten titles, Zynga has developed seven with its Cityville capturing almost twice as many active users as the number two title, Zynga’s Farmville.

Figure 2: Zynga Boasts 7 of top 10 Gaming Titles

Source: Wedbush Securities, appdata

 

Another notable occurrence in the Facebook app ecosystem is the emergence of the dating app by Badoo as the second biggest application on the Facebook platform, with over 57 million monthly active users (MAUs).  When Badoo ascended to the number two spot last month, passing Farmville in terms of MAUs, it became the first time in over a year that Zynga apps didn’t control the top two spots.

Badoo was on a trajectory to likely surpass Cityville and become Facebook’s largest app had Facebook not worked with Badoo to alter some of the more viral elements of the app.

 

Figure 3: Badoo Dominates Non-Gaming Apps

Source: appdata

 

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RENREN IPO 30 TIMES OVERSUBSCRIBED

On Wednesday May 4, China-based social networking company Renren IPO’d to raise almost $750 million.  The IPO was priced at the high end of the range at $14 ($12 to $14), after the price range was revised 30% higher a week earlier due to high demand.

 

Renren’s net revenues were $76.5 million in 2010, up 64% from $46.7 million in 2009 and up from $13.8 million in 2008.  Renren had a net loss in 2010 of $64.1 million, down from $70.1 million in 2009.  The IPO valued Renren at $5.5 billion, or 67 times 2010 net revenues (Goldman Sachs-Facebook funding was priced at 25 times estimated 2010 revenues), and we estimate that the IPO pricing valued Renren between 20 to 25 times 2012 revenues.

 

The Renren book was 30 times oversubscribed, and even after the resignation of the head of the audit committee and revision of its unique user numbers leading up to the offering, the book held together with very few accounts dropping out.  Based on the tremendous amount of demand, the allocations had to be limited to many accounts.  We note that 3 to 4 times covered is typically considered a good deal and recent Chinese IPOs have been 10x covered

 

Money has poured into Chinese Internet companies as the country is currently adding 10 million Internet users every month to a current Internet user base of 457 million (still only 34% penetration).  In addition to this massive user base, China’s online advertising market is growing rapidly with estimates that it will triple to almost $13 billion by 2014 (roughly 14% of the global online revenue estimate).  In addition to the growing digital advertising opportunity, China’s social gaming market is thriving with an estimated gamer population in excess of 300 million, producing revenue of $4 billion (roughly double the U.S. market).

 

Figure 1: China’s Online Ad Market Expected to Triple by 2014

Source: Renren via Mashable

 

Figure 2: Chinese Second Internet Landscape — Chinese Internet Companies & Their U.S. Counterparts

Source: Ogilvy

 

 

 

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Sponsored Stories – You’re the “Mad Men” now

May 10, 2011

Share Guest Post by Erik Ober, Founder & CEO Booshaka In January, Facebook quietly released what might become the most innovative and effective advertising product of all time — Sponsored Stories.  The new ad unit converts a user’s activity, such as “Liking” a page or using an app, into an interactive sidebar placement that can [...]

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Facebook Advertising Embracing the Second Internet Ethos

May 10, 2011

Share FACEBOOK DOMINATES DISPLAY ADS & INNOVATES PRODUCT TO REFLECT 2nd INTERNET ETHOS The Unilever campaign is an example of brands increasing experimentation with and utilization of social media.  This migration to social media platforms is reflected in Facebook’s sizable market share gains in display advertising impressions, with comScore reporting that in Q1 2011, Facebook [...]

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OBL Death & Royal Wedding Mark High Points for Social Media, Advertisers Take Notice

May 10, 2011

Share SOCIAL MEDIA BREAKS THE NEWS; AUDIENCE FLOCKS & ADVERTISERS TAKE NOTICE Last Monday at 10:25 PM EST, Keith Urbahn, a former aide to Donald Rumsfeld, tweeted: Figure 1: The Tweet Read ‘Round The World Source: Twitter From 10:45 PM – 2:20 AM EST, 27.9 million tweets were generated, breaking the record for the highest [...]

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Mayor of Jinnah Road, Abbottabad

May 4, 2011

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