Papaya Mobile’s new ad-exchange program could lure new developers to the platform (interview)

Si Shen is the chief executive and cofounder of Papaya Mobile, a mobile social gaming network based in Beijing, China. The company’s customers have more than 65 million mobile game users in a network for social game-sharing and cross-promotion. Most of those users are in the U.S., and all of them are on the fast-growing Google Android operating system.

Recently, Papaya Mobile launched AppFlood, a mobile traffic exchange that lets game developers advertise to the users of other games at no cost. The developer who shows another game to a user — and gets that user to install that new game — will get a credit. In turn, the developer can use that credit to advertise for free through other developers on the exchange. It’s a way to grow Papaya’s network, and it helps gamemakers deal with the high cost of user acquisition. By making itself useful, Papaya Mobile will become more and more critical to the developers it serves, Shen said.

We caught up with her at the recent Casual Connect game conference in Seattle. Here’s a transcript of our interview with Shen.

GamesBeat: What’s new? What are you most busy with right now?

Si Shen: We released AppFlood. It’s very interesting because you know what we do. We’re a social gaming network. But mostly we work with smaller social games, which are actually quite a small part of the market. When we’re talking to larger social game companies like TinyCo, they tend to have their own smart network for users. So they tend not to use a third-party social gaming network.

But they also came to us earlier this year, saying they are doing direct deals with developers to exchange traffic. They asked if they can do it with us. We have our own games and we have developers, so we struck a deal with a developer, and it turned out that it’s actually not very efficient to do this kind of deal, even though everybody’s doing it right now. You have to negotiate terms first, and then it took us three weeks to do the implementation. Then we could start to do the exchange. Usually it has sizable traffic back and forth for probably two weeks, and after that you don’t see much traffic. That’s because users have seen all the games already. Then you have to start to strike deals with another developer.

Then they said, “If everyone is doing this, why don’t we have a network where we can exchange traffic with each other?” We said, “OK,” since we’re making a platform and people like this idea, and there’s definitely a huge need in the Android market right now. It’s so fragmented. There’s a lot of friction. It costs a lot to buy traffic. So why don’t we just exchange traffic? A lot of people still have extra traffic. So we made this platform and released it a couple of weeks ago.

What it does is if you give one install to this network, you get one credit. If the network gives you one install, one credit gets taken away. Very simple, right? And then you collect credit. The more you have, the higher the frequency with which you’ll be shown in other people’s games. This works for a lot of non-game applications too, so we work with them, as well. When we released it, several big game developers and app developers were already signed up with us. They’re doing the integration right now. Like Pocket Gems — that’s one that already started doing it, and one that I can talk about.

Dolphin Browser — they’re going to release it very soon. There are several others that I can’t talk about yet. Casual games get a lot of traffic and a lot of credit. They can sell that in the control panel. Say I have 5,000 credits, and I want to sell it for such and such a price. If somebody likes that, they’ll say, “Sure, I’ll buy that from you,” and it’s a direct transaction. We don’t take any cut. We’re trying very hard to reduce the friction in this market. If it can benefit everybody, it will benefit the games we’re working on right now, too. Besides the initial traffic that we give from the network to these small social games, they can also get a continuous stream of traffic from the whole system.

GamesBeat: And then you eventually make money if your developers are successful.

Shen: Yeah. Everybody wins. Actually, after we released the product, we found out that people use it in another way. A lot of developers have good casual games, and they’re making high ARPPU [editor’s note: average revenue per paying user] games. Games have a different life cycle. Usually they have very popular games right now, but maybe after several months or half a year, when they have a high ARPPU game, their current games are not popular anymore.

Previously, what they were doing was selling traffic on these popular casual games. But whenever they sold it, 30 percent went to whoever runs that network. And later, when they have this high ARPPU game, they’d use the money to buy more traffic, and they’d pay 30 percent on that again. So from these two transactions, more than 50 percent came off the top. Now, what they’re doing is they use the casual games to collect all their credits. Then, using the AppFlood system, they can transfer credit around all those applications and games. They can transfer all the credit they collected to the new game that they’re going to release. Later, when they release a new game, they can drive all the traffic they need to this one game. They love doing that. A lot of people are collecting credits right now.

GamesBeat: Are they just collecting them to use at some future date?

Shen: Not exactly. It’s because those are basically installs. It’s a real install credit.

GamesBeat: So they stockpile credits and stockpile installs for the future when they need them.

Shen: Right. It’s like the system owes you this much credit. You move it to another application or game, so later, when you turn it on, then the system starts to drive traffic to this new game. From all these transactions, there’s no loss or cut that’s taken from other people. They love this idea.

GamesBeat: Is it like Tapjoy or Chartboost — something like that? Chartboost has a developer exchange going, right? But there’s a part that they do charge for.

Shen: Chartboost is actually quite different. Sometimes people ask us, “What’s the difference?” Chartboost has a direct exchange tool, which is what I was talking about before. If I want to strike a deal with you, I use the Chartboost tool so we can do it 1-to-1. But after we’re done, I have to find another person and strike a deal with them. It’s basically 1-to-1. It’s not a network.

So Chartboost’s idea is that people use their tools — the direct exchange tools — for free. But at the end of the day, they won’t be able to get enough traffic, or they won’t be able to exchange all of their traffic, so they turn to Chartboost’s ad network. It’s very similar to AdMob or Tapjoy. It’s an incentivized ad network. So very similar to Tapjoy. From that, Chartboost is taking a cut.

[Chartboost’s Maria Alegre corrected the record. She said Charboost is not incentivizing users. It is not doing only direct deals but is also a network; and she says that Chartboost has enough traffic with 2 billion user sessions a month.]

So they’re totally different from what we’re doing. Although I’m exchanging with everybody, I have a blacklist. I can say, “I only want to exchange with these people.” By doing that, we can essentially enable 1-to-1 exchanges. You can just blacklist all the others. Say I struck a deal with you, but we’re plugged in on AppFlood. We can just blacklist everyone else and have each other left. Then we’re doing a direct exchange. I can turn that on or toff whenever I want. It’s very convenient. We didn’t even know people would do it like that. For instance, we have several Scandinavian developers, and they usually just exchange traffic with each other. So what they do is they’re going to use AppFlood, and they blacklist all the others. They’ve formed a little cluster, and they only exchange traffic within the cluster.

GamesBeat: It’s interesting, but it’s also complicated. I keep thinking about how complicated this business gets overall.

Shen: People are exchanging traffic, anyway.

GamesBeat: And it’s all because they don’t want to spend this money on marketing or third-party marketing services.

Shen: It’s expensive, yeah. People aren’t making a lot of money on Android.

GamesBeat: What winds up being — out of all the things you guys offer — the way you make most of your money? Is it still just helping people socialize their games?

Shen: Yeah. It’s in line with what we were doing. We are still doing the social part. It’s basically just another arm of what we’re doing. It’s connected because if a social game comes to us, they’ll use both. The Social SDK and AppFlood SDK. Or if someone just comes for Social SDK and they’ve heard about AppFlood, they’ll say, “Oh, this is a good idea. We’ll do it.” The other thing we’re going to do is…because we have more information about users — their social information — through Papaya…we can do much better targeting based on the social graph for AppFlood. AppFlood is just launched, so it still needs to pick up. But after that — after we have the scale — we’ll start to do more social targeting. Which is a core competence we have, and most of the others don’t. We have the data.

GamesBeat: Is that where you still compete — directly against Flurry and all those guys?

Shen: Yeah. In terms of the business model, we’re different because we’re not taking a cut. It’s more of an exchange. If I talked to a developer, they could consider AppFlood as an alternative to the ad networks. We’re trying to get rid of the middlemen.

GamesBeat: Developers don’t want to have to keep paying 30 percent on top of 30 percent?

Shen: After three transactions, you don’t have much left.

GamesBeat: So it’s, what, 65 million or so in your gamer social network? That’s the number?

Shen: Yeah.

GamesBeat: How has that grown over time?

Shen: It’s very interesting. It’s growing together with our games. The games have their ups and downs. Whenever they have a lot of traffic or they get featured, then we start to have a lot of new users. But if they’re just flat, then we grow slower. But still, it’s growing.

GamesBeat: Do you eventually get something good out of the relationships with bigger game developers — Pocket Gems and all that? How does that pay off for you down the road?

Shen: Well, if they join AppFlood or help us to grow AppFlood very quickly, that helps us and benefits the smaller social developers we’re working with. Usually it’ll be hard for them to cut direct deals with someone like Pocket Gems. But now they’re just exchanging traffic with them. For social games, you can find out that there’s only a very small fraction of people — users — who are paying a lot of money. They’re the main stream of your revenue. For the rest of your users, you can always just exchange them out and get some more users through the exchange system. Otherwise, for smaller companies, they probably don’t have a very big marketing budget to buy from Tapjoy or AdMob. We talk to a lot of people about this project, and everybody loves it. They’re all saying that we have to grow very big so they can benefit from it.

GamesBeat: Where’s the biggest opportunity for that now? Is it still China, or is it other places?

Shen: We didn’t even release it yet in China. We’ve only released it for the U.S. and western European countries, where most of our developers are.

GamesBeat: Will you do more of this in China, then, or not?

Shen: We’ll be doing it in China later. We launched in the U.S. first, and then we’ll do China. And the next step will be iOS. There’s a need for this in the iOS market, too. The reason we chose to focus on Android is because we’re very familiar with this market. We talk to everybody. It’s easier for us to do that first.

GamesBeat: User acquisition costs aren’t as crazy in Android, then?

Shen: [They’re] crazy in terms of the kind of money that you have to pay for each user versus the kind of money you can make from each user. The difference is quite big.

GamesBeat: And the raw cost of iOS is higher, but you can also make more money off of iOS users. Gabe Leydon from Machine Zone was on our user acquisition panel at GamesBeat, and he was saying that Android is more like the haven for everybody to go into now because the user acquisition costs are low. But you don’t make as much money. So there’s not exactly a perfect haven.

Shen: Yeah. Especially, there are a lot of people who have a lot of traffic. Very small developers…they might get a lot of traffic. They usually just use AdMob or Flurry when they’re trying to monetize, and they tell me the fill rate is very low and the conversion rate is very low. They said, “We have millions of daily active users, but we don’t make much money.” They’re like, “We could sell direct deals to people who wanted to buy, but we don’t have a big biz dev department that can help us go out and sell.” So they love our system because that means we’re their biz dev department, and we’re not charging them anything for it.

GamesBeat: Is Google fixing any of the problems they have with the platform still?

Shen: We’re talking to Google constantly. They’re always saying, “Yeah, we have a very small team, we have so many other priorities….” They’re making some changes on the user interface and to some of the rules — like lines for people so they know where the directions are. But honestly, I don’t think they’re doing anything that’s really effective yet.

GamesBeat: So it starts with having not enough paying users, or people with a wallet history? Apple’s advantage is all the iTunes accounts.

Shen: Yeah. They’re still trying to push in-app purchase. But it’s still not very strict — as strict as Apple. For Apple, you have to use Apple’s billing, either for paid applications or in-app purchase. Versus for Google. For bigger developers, they require them to do it, but for smaller developers, they haven’t gotten to talk to everyone yet. I know a lot of smaller developers are still using PayPal. Or regular Google Checkout, where you don’t have to pay the 30 percent. Although it might be a good thing for the developers, in the end, users might be very confused because there are so many different ways for you to pay. You need a credit card. Sometimes you need accounts; sometimes you don’t. Sometimes you need some different type of account. It’s just a lot of friction for people trying to pay.

GamesBeat: Not too much changing.

Shen: Oh, yeah. They don’t have very consistent guidelines for developers, either. Sometimes they contact us, and they’ll say, “Okay, we want to feature this game and your SDK, but we don’t like this part of your SDK, so change it.” Then we change it, and for the next game — after a month — they came back and said, “Oh, we’re going to feature another game, and we found this thing….” And “this thing” is what they told us to fix a month earlier. They said, “We want you to change it back.” Okay…. What are we supposed to do?

GamesBeat: With just the raw number of users going up, though, that’s a good thing.

Shen: Especially in China, they’re growing like crazy. More and more local manufacturers have come up with very cheap Android phones. It gives a lot of fragmentation to the market, too, though. We have to test our applications in many more…very low-end systems. They might have very strange problems.

GamesBeat: What else is coming? What do you see in the short-term that helps or changes things? Will iOS 6 do anything that’s interesting?

Shen: I saw a lot of innovation in the market, but I haven’t seen anybody that’s a real market leader yet. People don’t like the fact that several big players in the gaming market are trying to dominate the market through buying users at a ridiculous price. It’s inflating the whole market.

GamesBeat: Especially iOS, with whatever Gree is doing there. Gree’s games aren’t doing as well as DeNA’s. The first ones. And they still bought up everything, anyway. I don’t know how that situation changes because they’re both trying to push strategic platforms. They think it will pay off in the future, but they don’t care what they’re spending per game because they’ve got a billion dollars in cash coming from Japan.

Shen: In terms of platform, if I were them, I would focus more on the product and the retention of users — the stickiness of users. It doesn’t seem to be their focus right now. I would be worried, if I saw things like that. We actually went back and tried to revamp all the details of the product. It’s very interesting because when we went back, we found out that games are a very interesting type of content. It’s not generated by users. It’s generated by developers, but users are consuming it. So if you’re talking about forming a social network around it, is there anything that’s really generated by users that’s very expressive? So that it can promote or help users to generate all kinds of interaction? Do games have this kind of nature that can help you form a tight social network?

We don’t know because we’re always challenging ourselves. Based on the behavior that we see from our users — the retention rate and the stickiness of our users — Papaya is definitely doing better than the other two platforms. And then we found out that users usually stay and start to do something else. It doesn’t have to be totally related to games. Previously, they made friends through exchanging some gifts and giving gifts to people. Then they started to do all kinds of interaction. They’re asking for it.

For example, we did some optimization on how the picture search worked on our search network. It turns out that in the past three weeks, the number of pictures uploaded each day tripled. People have this need. We have teenagers on our network, or young moms on our network, and they have the need to express themselves. They spend a lot of time on their cell phones. They play games, but at the same time, they want to share something. And it doesn’t have to be related to games. We are actually doing a lot of research and analysis on the profile and behavior of users, and trying to see how to generate that so that they always want to come back. Even if someday they get bored with one specific game, they still come back to the network.

GamesBeat: Is there a point, still, to having separate networks? I think Gree was saying it’s trying to do one universal worldwide network.

Shen: For China, yes. First of all, it’s a social network, but it’s not like a social network for people who you know in the real world. It’s for strangers. We’ve made it very open, so that if you want yourself to be seen by a lot of people, you can go to different circles and write different things and share different things with strangers. In that situation, if the language is different, it’s going to be very hard to control. People won’t like it. They don’t want to see Chinese characters all over the circles they go to every day.

The other thing is that we also provide distribution for games. In China, Google Play is not available. In the U.S., we would always direct people to Google Play for whatever games that are doing promotion or trying to distribute themselves. In China, we have to direct them to all kinds of different local stores — whatever they want to go to or that’s available on their cell phones. There are so many different points that we have to customize for China. The billing is another thing. Because there’s no Google Play, you have to integrate all kinds of local billing for the Chinese application. We integrated China Mobile’s billing, which is the largest carrier, and that’s very complicated. This is pretty technical, but they don’t even have callback in their SDK.

We have to work with them to implement the callback, so that they know this user actually paid. They can give it back to us, and we give people their virtual currency. All these details…we just can’t afford to put all of these into the English version. That’s why we have separate networks. China isn’t like the U.S. In the U.S., as a foreigner, you can be quite successful, but in China you have to have this local relationship. It takes many years to build those kinds of things, so that you can get billing channels and all those other relationships set up. I think it’ll take some time for them to learn how to do things in China.

GamesBeat: They were talking about some benefits of a universal network. You can have people playing 24 hours today. If somebody wants to find somebody to play with, it’s not so hard.

Shen: As long as they don’t have to communicate.

GamesBeat: Yeah. [Laughs] They supposedly saw lots of communication between Portuguese in Portugal and Portuguese-speaking people in Brazil. So they had that happening….

Shen: We run an English network, and we found out that American users would not just talk to whoever speaks English. The cultural differences are still there. The Brazilian users tend to be very active. For most European users, they think the Brazilian users are too active. They don’t like the way they act or the kind of content they share on the network. So we tend to be quite sensitive or cautious when we’re trying to see what kind of behavior we should encourage on our network. If the interaction among the users isn’t a lot, it makes sense for you to put everybody together. If, for us, the amount of interaction is too much…. For now, it’s probably not a good idea to put everybody on one platform.

GamesBeat: They seem to be more excited about carriers coming in and trying to take the App Store back from Apple…. [Laughs] I don’t know how Verizon’s going to accomplish that, or AT&T or whatever, but they seem to want to align with that kind of effort.

Shen: Personally, because I work with a lot of carriers, too…I can’t say who, but we used to work with a carrier in the U.S., one of the largest. For almost a year, they were trying to build something like a social network, and they were trying to get help from us. I think my conclusion is that the way that they run their business, and the expertise they have about this market, is not going to be good enough in the next several years. Not if they want to take the App Store or Google Play’s position right now.

GamesBeat: They lost their monopoly and they want it back…. [Laughs]

Shen: I don’t know if they’re the best people to do that or not. Previously, because of the technology limitations, they had the advantage as far as controlling their users. Now they don’t.

GamesBeat: I guess maybe their hope would be that there’s so many stores in China, so we could make more stores here possible, as well.

Shen: Amazon is definitely making some noise. I think it’s actually better to have a couple of good stores instead of just one. If there’s only one, there’s only…. It’s like Apple, right, with their monopoly? For developers, there just isn’t too much space. If there are people competing with each other, then that’s good. But it shouldn’t be too fragmented.

GamesBeat: No matter how good those stores get, though, they probably still don’t threaten your piece of the pie.

Shen: No.

GamesBeat: Because they don’t specialize in games?

Shen: Right. And they don’t specialize in social. Now, we also facilitate cross-promotion, which is something that they’re not doing, either. As a discovery channel for the developers, we’re trying to complement the App Store.

GamesBeat: So what else is in the works in the near future for you?

Shen: AppFlood is the focus for us right now. We have to make it better and make it big very quickly. As I mentioned, iOS is definitely the next step. We hope to start to work with more non-game applications, too. It doesn’t have to be games that exchange traffic with us. And then, as I mentioned, a combination of the social stuff and the traffic exchange stuff. That’s going to be interesting, too.