Category Archives: Social Currency

All Currency is Social. So what’s in YOUR wallet?

I was looking up the definition of currency on Wikipedia, when I came across this line: "modern currency…is intrinsically worthless".  I'm no economist, but the info there indicated that the dollar, euro and other currencies have no value beyond the government declaring them to have value, and markets effectively betting on their future value.

So it's kind of funny that there is a distinction between hard currency (cash) and social currency (as in "net promoter value", WOM recco, blog readership or twitter followers, etc.).  Because both are effectively social constructs (for the cash, at least, since the 'Nixon Shock' ended convertibility of US dollars for gold).

But faith in institutions, like faith in people, can be fragile. 

What the hell does that have to do with marketing?

Well…

I'll go out on a limb here.  The era of the one stop shop, or agency network, or do it alone communications company – or brand, for that matter, is dead.

No brand is an island.  No agency a one-stop shop.

Brands ask for multi-year communications plans in 2010, when in 22 months between February 2005 and November 2006, YouTube went from startup to $1.65 Billion Google acquisition.  One thing you can count on is guessing wrong on the right tactics to employ in three years' time. Many of them simply don't exist yet.

So here's where the currency/social currency comes in:

Agency and brand "currency" will be a reflection of their social portfolio strategy. 

The most successful brands and agencies will be driven by a net value comprised of actual sales of goods and services + the "stored value" of their social currency (in the form of their networks of collaborators).

The key will be how quickly and effectively they can convert stored value to real value, by unlocking the power of their collaborators to achieve mutual goals. 

Darpa-network-challenge_1
DARPA's "Network Challenge" was just such a test to see test the value of networks in real world problem solving.  An MIT team used a tech-fueled "inverse pyramid" scheme to solve in nine hours a problem DARPA assumed would take significantly longer.

The trick is identifyng mutual goals.  Creating a shared vision – and shared risk.  Opportunity – and accountability.

As an agency, it's a good idea to treat partners well, and treat everyone you meet as a future collaborator.  If entire alliances are forming because you are ridiculously awful to work with, you have a serious problem.

And collaboration prevents legacy investments (or entire company acquisitions) from dictating your solutions – a dev shop full of C sharpies not so useful for your Ruby project.  A search shop with an a state-of-the-art proprietary tool yields decreasing returns once that tool gets dumped onto an overall dev list across an agency holding company.  Flash devs on iPhone/iPad?  waaa waaaa.  Or in our case, it helped to have access to the right folks when we wanted to build a robot.

Victor & Spoils promised crowdsourcing as a creative model.  Meh.  What they have done is built a seriously impressive network of freelancers.  The danger is that that network is built on unstable bonds -  bonds that consist of the promise of hard currency.  Hard currency buys you loyalty with an expiration date (the better offer). 

And while money can't buy you love, earned social currency just might.

The agencies and brands that win will build networks of shared inspiration and mutual goals.  Bonds of social currency.

Because an inspired network, a network built on passion and trust, not submission forms and "friend requests", has the power to move mountains.

Upload to Download: The future of Video?

A university consortium has developed software named "Tribbler", a peer-to-peer (P2P) file sharing service focused on video (like Joost).  What makes this one unique is how it puts the "sharing" back in "file sharing" – you earn credit to download content by uploading your own content.  Folks can also band together to share download opportunities and to increase download speeds.  No more "leeching" and "freeloading" – the terms used to refer to folks who suck down good content and provide nothing to the network in return.

According to the New Scientist article:

"David Parkes of Harvard University believes peer-to-peer will eventually replace existing methods of distributing video, including television…the BBC’s iPlayer
is built on top of a peer-to-peer network. These programs often prevent
leeching by forcing users to upload constantly, which can be a problem
for those who may be charged extra for using extra bandwidth.

"It
is clear that in the future there will be a greater variety and volume
of media to consume, requiring different ways of distributing it," says
David Hutchison, who works on alternative methods of media distribution at Lancaster University, UK."            

Virtual Goods – The Next Big Business Model

Full disclosure:  this post is my summary of a full length guest piece posted by Susan Wu on TechCrunch regarding virtual goods.  It’s an important piece to read in the context of understanding social currency

People
spend over $1.5 billion on virtual items every year.  That’s $1.5 BILLION, people.  Some examples:

  • Tencent
    China portal/IM service with over 250 million
    active user accounts. They generated $100 million+ in Q1 of 2007 and
    over 65% of their revenue comes from virtual goods.
  • Habbo Hotel has over 75 million registered avatars in 29 countries and 90% of their $60 million+ yearly revenue comes from virtual goods.
  • Gaia Online
    does over 50,000 person to person auctions and 1 million message board
    posts a day- making them the 3rd largest auction site and the 2nd
    largest message board on the Internet. Their average user consumes 1200
    page views a month. They employ 3 people whose sole job it is to open
    snail mail envelopes full of cash that people send in for virtual goods.
  • There’s a commonly held misperception that virtual goods are only for online gamers. Both Dogster and HotorNot
    are succeeding with a hybrid ad/virtual goods business model.
    Currently, over 40% of HotorNot’s revenue comes from virtual goods.
  • Major mainstream brands are now buying advertising in the form of virtual goods in social networks. Gaians can now purchase and pimp their virtual Scion xBs.
    Coca Cola and Tencent partnered to allow Tencent’s users to trade codes
    taken from real Coke cans for virtual objects in the Tencent network. Wangyou, a Chinese based social network, has also been extremely aggressive in experimenting with branded virtual goods.

Why do people spend real money on virtual objects? There are four major reasons:

1. Virtual objects aren’t really objects – they’re services

Virtual objects are graphical metaphors
for packaging up behaviors that people already engage in. As
James Hong from HotorNot tells it, his virtual flower service has 3
components: there’s the object itself represented by a graphical flower
icon, there’s the gesture of someone sending the flower to their online
crush, and finally, there’s the trophy effect of everyone else being
able to see that you got a flower. People on HotorNot are paying $10 to
send the object of their affection a virtual flower – which is a
staggering 3-4x what you might pay for a real flower! Of the 3
components, the two that James says are most important to his users are
the trophy effect and the meaning of the gesture itself. As the
barriers between peoples’ online and offline selves continue to erode,
this market for virtual goods is going to explode. People are going to
continue to seek out ways to show real emotional engagement online.
Virtual gifts are a particularly compelling way to package your
attention.

2. Virtual objects create real value for people

Each day, thousands of transactions take place via markets such as
eBay for virtual swords, currency, or clothing across a multitude of
virtual world environments. For people who purchase virtual items such
as swords or armor, buying these items increases the overall
satisfaction she receives from spending time in this virtual world /
online community / online game. For example, struggling along as a
level 20 character might give her 20 units of personal satisfaction per
hour, whereas progressing as a level 20 character with a very powerful
sword could confer 50 units per hour. In this case, she would be
willing to pay the equivalent of whatever amount generates an
incremental 30 units of personal satisfaction for the sword.

[Susan] is an avid player of multiplayer online games. A couple of years
ago, I spent 10 real dollars to buy 1 million gold in a game [yes, it
was legal and part of a world where real money trade is not
prohibited.] My friends mocked me and told me I was throwing money
away, so I tried to explain it to them: 1 million gold would give me 20
hours of entertainment. If I were to go to the movies, 10 real dollars
would buy me 2 hours of entertainment. Assuming that 1 hour of movie
watching entertainment gives me the same personal satisfaction as 2
hours of game playing enjoyment, I would have been willing to pay $50
in exchange for that 1 million of virtual currency. In fact, I felt
like I had gotten a bargain paying only $10!

Probably the most powerful way that virtual objects create real
value is through self expression. RockYou is now serving 150 million+
widgets a day – widgets that people put on their Facebook profiles to
differentiate themselves – much as they do in the real world with
accessories and bling.

3. The cost of buying objects can be cheaper than “earning” them

Who hasn’t heard of the Chinese gold farmers in World of Warcraft?
Typically, these farmers are young students who spend up to 12-14 hours
a day playing the game. They can then sell these goods or characters to
US based players for US dollars. The term ‘farming’ refers to the fact
that they spend hours performing the same tedious in-game action over
and over again to yield a certain payoff. This industry has arisen to
take advantage of arbitrage opportunities that result from the
disparity in opportunity costs. The Chinese farmers value their time
much less than American players. This isn’t a moral statement, it’s
just one of economic fact. While it might take both players 60 hours to
progress a character up to level 40, the opportunity cost for the
American player could be $900 (60 hours * $15/hr,) whereas the
opportunity cost for the Chinese player could be $30 (60 hours *
$.50/hr). The American player is willing to pay up to $900 for a level
40 character, creating profit opportunities for the Chinese player.

4. You can make money off of virtual objects

We were inundated with stories about Second Life’s first real estate millionaire.
Though it might seem ludicrous to spend as much money on a virtual
island you could otherwise use to purchase real acreage in the
physical world, the buyer in this case could actually be quite
financially savvy. Buying an island in this virtual world is
accompanied by the assignation of certain rights – such as mining for
other virtual assets and real estate development. The buyer could in
turn subdivide the island into multiple parcels and make a healthy
return reselling the land to other players. Of course, this type of
investment strategy requires market liquidity; that is, a sizeable and
willing market of buyers willing to pay your desired price. With the
rapid growth in number of players in virtual world environments and
burgeoning market infrastructure, market liquidity is likely to
increase with time.