The Gong Show

Rob Kalin, the CEO of Etsy, wrote a long post detailing the latest financing with Accel and the plans for the future of the site. It’s a great read for anyone interested in Etsy.

Some numbers on Etsy pulled from Rob’s post:

Now, thirty-three months [after Etsy's initial launch], Etsy is a company with fifty employees, a community with over 650,000 members, and a marketplace with over 120,000 sellers in 127 different countries.

… that’s “hello” in Korean. I’m practicing because if Time Warner’s new test trials in metered bandwidth for consumer actually gains traction, then I’m moving to Seoul. A garbage collector in a small village in South Korea has better and cheaper internet access than most Google employees.

Metered bandwidth… pfft… I haven’t had a non-buffet internet model since AOL 3.0.

Charlie hit the nail on the head. EOM.

I just added a new application I’m testing to my Facebook profile. That’s a very common occurance these days, so my Facebook profile is a bit of a mess. After added the latest application, when I went to check out my profile, I found a big message from Facebook.

The gist of the message was that I had a lot of junk (43 apps) on my profile, and they recommended I remove some of it. I appreciate that they’re trying to be helpful, but I this totally felt like a classic TV-sitcom mother nagging her child to clean a messy room. Part of me expected Facebook to threaten to ground me for a week ;) Check out the “nag” message below:

Apple announced that iPod Touch users will have to pay $20 for a software update to their devices in order to get Maps, Stocks, Weather, Notes, and Mail applications. That pricing choice set my mind spinning about the various choices companies have when pricing software: price based on competition, price based on cost of goods sold, and price based on value to the end-user.

Competition: Apple doesn’t have any competition for software on the iPod Touch because they are the sole provider of iPod software (sure, a user could pay for jailbreak apps on an iPod Touch, but that’s not real competition in my book because of the hurdles to jailbreaking an iPod Touch are too high). So, Apple can’t establish a price based on the competition’s pricing because there is not competition.

Cost of Goods Sold: The cost required to bring these new applications to the iPod Touch are negligible. The fixed cost was the cost of porting the applications and packaging them in an installable firmware update. These new applications already exist on the iPhone and they work perfectly fine on the iPod Touch as compiled. In fact, if you jailbreak and iPhone and iPod Touch, you can install an SSH client on both devices and send the applications from the iPhone to the iPod Touch, where they will work perfectly fine. So, had little (if any) work to do in porting these new applications to run on the iPod Touch. So, the fixed costs are small. The marginal costs are even smaller. It’s the cost of sending each consumer the update over the internet. That’s a fraction of a penny per user. There are some other costs associated with an upgrade that are baked into the costs of goods sold such as customer support, but again, the incremental costs here are negligible. So, if Apple decided to price the iPod Touch new applications on a multiple of cost of goods sold, then that multiple would be absurdly high.

Value to End-User: Instead, Apple chose to price the software update based on value to the end user. Some marketing guy at Apple likely did a survey of current users to determine the amount of money customers would be willing to pay for the added functionality the new applications provided. Then, they picked a price based on the results of the survey.

Pricing based on value to the end-user may seem smart; and it’s certainly the optimal choice when it comes to the bottom line for a company (assuming value is not less than COGS). But, this practice leaves a bitter taste in the mouth’s of tech-savvy customers. There’s the usual griping from early adopters out on the blogs regarding this $20 upgrade tax. And, I’m sure consumers that received an iPod Touch for Christmas will be dismayed at the thought that their device is already outdated after being in their possession for less than a month.

Web services typically set pricing based on value, and I think this is often a mistake that undermines the intelligence of their customers. For example, nearly every service that offers domain mapping (the ability to user your own personal domain name on a hosted web service) charges for this luxury. This is charge is entirely margin for the web service, as there is low fixed cost and zero marginal cost associated with enabling domain mapping. There’s nothing special about the domain mapping feature that makes it more expensive than any other feature to build, but there’s a high perceived valued to the end-user for domain mapping, so web services price domain mapping based on value.

I think this is a mistake because mapping a domain to a web service is one of the highest levels of engagement I can think of. If you’re willing to put up with DNS configuration screens in order to customize your experience with a web service, that’s great for the web services because they gain a passionate user. Tumblr offers domain mapping for free, and I think they are absolutely right to do so. A large percentage of their customers take advantage of this feature, and it helps Tumblr generate a terrific userbase that evangelize on their behalf.

I think, based on the costs associated with this Apple software upgrade, Apple should be giving it away for free. If nothing else, Apple certainly shouldn’t be penalizing their early adopters.

Union Square Ventures just announced an investment in the Zynga game network.

I appreciate Zynga for a number of reasons, but the most important reason is the simplicity of the investment thesis. Consumers love browser-based casual games. About this time last year, when you look at the top 20 websites on a “Time Spent” basis you find that Pogo (a casual gaming site) ranks #7, which is better than Amazon, Craigslist, and YouTube. So, casual games are huge.

But, one drawback of existing casual gaming networks is that they don’t make it easy to play with your real friends. Playing Chess against strangers on Yahoo is ok, but the conversation is usually limited to “gg” and “u2″ (translates to “good game” and “you too” for those inexperienced with acronyms in casual gaming). It’s not as fun as playing against your real friends where you can hold a side conversation as you play, or, if you’re competitive, you would actually care about the outcome of the game because there are real world social implications (aka bragging rights at stake).

Enter Zynga and social gaming. Zynga leverages the social graph you have already built in order to let you play games with your real friends online. No need to re-friend everyone or spam your friends with emails. If you and your friends are on any of the major social networks, you’re good to go.

Furthermore, Zynga alleviates the “now what?” factor that comes with most social networks. We’ve all experienced it… we sign up for a social network, add all our friends, and then wonder: “ok, I’m all setup… now what?” The answer to “now what?” is “go sink your friend’s battleship.”

More analysis from Fred at USV.com, and Brad Stone write a nice piece on Zynga in the NYT.