Scott Silverman is a familiar name and face in e-commerce, having served as executive director of Shop.org for over a decade. During his tenure, his focus was developing digital ways to sell tangible things. In his new role as co-founder and VP Marketing of Ifeelgoods.com, Silverman's focus will be on a newer trend in e-commerce: virtual goods, including digital rewards and incentives.
Nothing to sneeze at, given it's estimated some $1.6 billion will be spent by consumers this year on social games such as FarmVille and Mafia Wars. So we caught up with Silverman to discuss his new company - and a just-announced deal with Facebook.
Let's start with the basics. Why did you leave Shop.org? Why now, and why virtual goods?
At Shop.org I was surrounded by innovation, entrepreneurs and new ideas. I've always been fascinated by what I consider disruptive businesses or disruptive technologies, and the Internet is full of examples of those. I had a relationship with Michael Amar, the CEO of Ifeelgoods. Through that, he invited me to be a part of this.
First, I had to learn about virtual goods. I was initially suspicious. I haven't been a participant in a lot of these games. Trying to get my head around, “OK, well, if this whole idea is to offer virtual goods from these social games to retail customers, I need to understand there's people playing these games and it's not teenagers.” Since then, every piece of research I've read, it's just more impressive – you know, one is more impressive after the other.
Some things really stood out. One is there's 200 million people who are playing these social games each month, and the average age of a person playing them is a 43 year old woman with children. Clearly, there's a big overlap in online buyers and people who are playing social games. So once I got comfortable with that, I began to see some of the people that were part of this organization as advisors and investors, some of the team members that Michael was recruiting. It just became an opportunity that I couldn't pass up.
Plus, it's targeted at retailers, so I'm really able to take advantage of all the relationships I built over my years at Shop.org.
Explain more about how this ties in with retailers given it's virtual, but perhaps a little less virtual than imaginary beer and flowers and some of the things Facebook users are used to seeing.
I'll give a hypothetical. You go to Retailer X's web page, and there's a promotion there. It might say, "Buy two pairs of jeans and save $20," or something like that. A virtual goods incentive would be, "Buy two pairs of jeans and get 20 free Facebook credits." Each Facebook credit is worth 10 cents, so the cost to the retailer is $2, or 20% off of an order that might be $50-$60. But 20 feels like a pretty significant number to consumers, and they're still really trying to understand exactly what these Facebook credits mean. We believe that'll have a high perceive value to consumers, and it will help drive them to make that purchase.
Explain what you can do with a Facebook credit.
Facebook expects a third of their revenue will come from Facebook credits in 2011. They've partnered with hundreds of social games so your Facebook credits can be converted into currency for these different games that you can use to move up a level or buy a different item. You could use them from FarmVille to Sorority Life. Go to Facebook/credits, and you'll see a list of over 100 social games that accept Facebook credits as currency.
Those of us who've been around for a while have seen this online already. I'm thinking specifically of when Second Life was hot and Linden dollars were literally selling for real money on eBay. What differentiates virtual goods now from virtual goods just a few years ago, when they had real life value but then petered out?
The main difference is where virtual goods are used. Previously, they were used in Second Life, which was mostly anonymous. We know what that can turn into: a lot of inappropriate behavior that won't appeal to the mass market. There are 63 million people playing FarmVille. They're not anonymous because Facebook isn't anonymous. So, you're playing with people who you know and like and trust. Family members, friends, they're your neighbors in your virtual farm.
If virtual goods are used in a virtual society people are uncomfortable with, it made sense that they petered out. This is very different because there's no anonymity involved.
I'd add to that that Second Life wasn't so easy to use.
Right, it was a huge file to download. It required a lot of computer power. It was slow. These [new] publishers are really smart. They're employing a lot of interesting game mechanics to keep people engaged or addicted. They make the game mechanics more important than the actual experience or graphics. There are pretty simple graphics for a lot of these games. It's the idea of what the game is bringing to you that's more important.
Explain your new deal with Facebook.
We've been accepted into a beta program Facebook has called their App to User program. The main intent is to provide liquidity for Facebook credits. That's kind of a mouthful. Essentially, it really means we'll be the first company that can allow retailers to use Facebook credits as an incentive for their online stores. They could use them as an incentive for a purchase, like the example of buying jeans for Facebook credits. They can use Facebook credits within their display advertising outside of their stores to help increase their conversion and the click-through rates on advertising.
Then there's a whole other area we call micro-incentives we're pretty excited about. You have actions on a web site like asking customers to refer a friend, or sign up for a newsletter, or maybe you want them to vote on their favorite outfit. These types of actions lead people through a retailer's conversion funnel. Up to now, retailers could make them appealing, but they really didn't have any incentives they could attach to them. How do you find something that might be 10, 20, or 30 cents? If it's a physical good, that's too expensive to fulfill, and you have to deal with the inventory. What's it gonna be, a pack of gum? It just doesn't feel all that important to a consumer.
The idea of one, two, or three Facebook credits for doing something really simple on a web site could be very interesting for customers. They also know these credits will accumulate into their account that they can use for all these games. They're very versatile.
Going backwards, you spent a long time at the helm of Shop.org. What would you characterize as your proudest achievement there?
The proudest achievement is a very personal one: the creation of the Ray M. Greenly Scholarship Fund. Ray was a member of the Shop.org team who passed away from lung cancer in 2005. The same year, we coined the term "Cyber Monday," which became huge. It's almost a household name at this point.
We came up with the idea of an online mall because we had the foresight to buy the CyberMonday.com domain. We partnered with a company called Mall Networks, and it became a big affiliate site. Now it has over 600 merchants, and Shop.org has raised almost $1.5 million [in scholarship money] in four years. There's so much opportunity to use that money to help build a curriculum that's very e-commerce-focused to provide opportunities for students pursing careers in e-commerce.
What was the most surprising or innovative change you saw in digital retail in this past decade?
I'd would say it's user-generated content and how the Internet has accelerated incorporating the voice of the customer into the shopping experience. Customer ratings and reviews are the best example, but we're beginning to see social media play a big role in this as well; people clicking the "Like" button and being able to really understand what your friends like. With user-generated content you're able to tap into the whole group of customers at a particular retailer and get their point of view, not just hear what the retailer has to say. The Internet really accelerated the insertion of the customer voice and your circle of friends into the buying process.
And that buying process now involves things that are virtual rather than tangible and physical.
That's a huge trend right now. It's bigger than Ifeelgoods, this idea of digital music, digital books. People are becoming much more accustomed to the idea of things being virtual and getting things delivered digitally.