@ SxSW: Interview: Lance Tokuda, CEO, RockYou; Social Apps To Consolidate; A ‘Tax’ On Developers?

IMG_1117RockYou, along with rival Slide, is one of the big in the red-hot social net apps space. Huge on Facebook, the San Mateo-based company is getting set to plant a stake in the other social nets — just as soon as they roll out their various platforms, most of them based on Open Social. Following my meeting with Google’s (NSDQ: GOOG) Kevin Marks during SxSW, I got a few minutes to talk with RockYou CEO Lance Tokuda about the impact of Open Social as well as the evolution of the space. Among the business issues we discussed were his prediction of a coming consolidation wave, as well as ways big social nets can align their interests with the apps developers, so that they’re not necessarily fighting over the same ad dollars:

Multiple platforms: On the matter of porting an app from site to site: “(With) Open social, there’s about a 20 percent cost to port from one version like MySpace to Hi5″ Basically, even though the various members of Open Social use the same core operating system, so to speak, there’s still a cost to port from one to another — about 20 percent of the effort in first building the app has to be redone. On the matter of moving an app from Facebook to Open Social: “That’s a rewrite.” Not only does moving a Facebook app to Open Social require a total rewrite, but the required developer skill set is different. More after the jump.

M&A: When I asked how he saw things playing out on the business side, he predicted some consolidation in the future. “What’s going to happen is that there will be some roll-up of the space, where some of the bigger companies will start acquiring smaller apps.” When I asked specifically if RockYou could be an acquirer, he answered “that would be possible.” When I rephrased my question as: “The big companies may make purchases, and you’re a big company”, his response was, “both statements are true.” The other implication of this is that acquisitions are a reason why companies like Slide have raised such large funds — they’re, in part, war chests to buy smaller apps. Expect more acq-hires. For smaller developers, one advantage of being part of a larger app developer is that the successful companies have (or so they claim) fine tuned the ability to make an app go viral, which is obviously gold. Also, helping third parties make their apps go viral is another part of the RockYou business. Example: Working with RockYou, a CBS (NYSE: CBS) app got 18,000 installs in three days, when previously the best CBS app had received 18,000 installs over a few months.

Throwing sheep: I asked Tokuda what he made of the charge that Facebook apps are all trivial, like the iconic throwing sheep. After implying that this was the Kara Swisher question, he made no apologies about the fact that RockYou focuses on fun things for youth. Also, it means there’s no plans to do RockYou apps for linked in.

Platform dependence: The throwing sheep thing is an amusing charge, but one of the deeper concerns is whether there is now or going to be a tension between the big social nets and the successful apps developers. Facebook of course has its own advertising partners, but the most successful advertising could theoretically be on the app level, where Facebook isn’t directly profiting. “I believe that at the current time, app developers are in demand.” He cited the evolution of MySpace from being anti- to (more) pro-developer: “Over time some sort of business relationship between the application developers and the platforms will have to evolve… so it could be some kind of tax or usage fee. I could see that happening and that would be healthy… at that point, our success would be directly tied to their success.” That being said, there’s no talks on that front. Right now, all the platforms are competing for developers, so nobody’s talking about taxing developers. This is much more likely to happen when/if a single social net forms a dominant monopoly, but he suspected that the brief history of social nets — characterized by one upstart after another displacing the last one after only a brief time — is likely to repeat itself. — User adoption at MySapce et. al.: “I believe initially there will be a lower adoption, because there will be more constraints on the viral channels.” So no wild first day land grab. That being said, his presumption was that the various sites wouldn’t be imposing any particular limitations about who could get on the deck, so in that respect, RockYou will have no particular advantage over small app developers.

Promoting apps “We cross-sell our new apps on our ad network… we run house ads for our own applications.” About 30 percent of RockYou’s ad inventory is taken up by its own house ads. The rest are a combination of other app developers trying to promote themselves, as well as traditional CPA and CPM advertisers. That’s something to watch out for obviously: social app/ad networks, running ads for other apps (who can guess have a similar advertising strategy. In terms of the regular CPM/CPA based advertisers, RockYou sports a roster of media brands, including ABC, NBC, ESPN (NYSE: DIS) and IAC.

Next leg: After the traditional social nets open up, creating apps for other social services, like Yahoo (NSDQ: YHOO) Mail and GMail will be big. “Anything that runs on a social graph you can have a social application.” The biggest social graph-based applications remain email and messaging. “One day we’d like to be able to integrate our application into AIM.”

Mobile: Nothing yet: “We’ve found that mobile is more about one-to-one communications and a lot of the apps we build are about one-to-many, so it’s sort of a different model.”

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