Founder Spotlight: Siqi Chen of Serious Business

You might call 26-year-old Siqi Chen an accidental entrepreneur. The UC San Diego grad didn’t intend to be his own boss; he mostly wanted to do fun things for a cool Web development company. Indeed, after logging time at startups Webmetrics and Veoh Networks, Chen joined one of hottest startups to form in 2007, the San Francisco-based semantic search startup Powerset. (Most readers will recall that Powerset was acquired by Microsoft in 2008 for $100 million.) 

Then a side venture, a Facebook game he began developing in late 2007 called “Friends for Sale,” changed his life. Almost overnight, the game became one of Facebook’s most popular applications. Suddenly Chen had enough cash in his pocket to quit Powerset, and start his own company with pal and fellow Powerset engineer Alex Le.

Today, Chen’s now two-year-old startup, Serious Business, has grown more serious than its tongue-in-cheek name implies. It is backed by $4 million from Lightspeed Venture Partners, it’s competing for an opportunity that analysts now place in the billions of dollars, and its profitable business is being threatened by aggressive startups like Zynga, Playfish, and Playdom, whose growth has far outpaced its own.

Chen just talked with me about some of those challenges, and what he makes of them.

Let’s start with the genesis of “Friends for Sale,” a Facebook game that lets you “buy and sell your friends as pets,” purchase them gifts and make them “poke” other friends. How did you decide that this might be a good idea?

We were interested in the dating space, but people don’t use Facebook to find dates; it’s just not cool. So it had to be a game. Also, we wanted to expose really attractive people in a really efficient way. We wanted to take the HotOrNot model and add twist to it by letting users buy and sell people rather than rate them. Usually, the most expensive people are the most attractive.

I thought MySpace was the place to meet new people. Why not create a MySpace app?

We viewed “Friends for Sale” as a fun, lightweight way to migrate people from interacting with their Facebook friends to meeting new friends. It’s like, ‘Siqi just bought me, so I’m going to check out what this app is about.’ But while you are playing, you can get bought by someone you don’t know [via your friends’ friends]. You can also browse for people in your community or by value, gender, or location. Once you get involved in it, the game play starts getting cooperative, and over time time, a lot of our users wind up meeting new people.

Over the past two years, you’ve grown from a two-person operation to a reasonable 30-person startup. Meanwhile, Zynga, launched around the same time, now has something like 700 employees. Does that bum you out? How can you compete?

Zynga is a learning machine. It’s sort agnostic about what products it builds as long as it can build a massive audience and monetize it. And Zynga has built a massive machine to make that possible, to see what works out there, and as long as there are new products for them to build, they’ll be successful.

We’re not as interested in single-player games that are socially distributed. You can play “Farmville” by yourself. You can play “Mafia Wars” by yourself. Our games are all about social relationships. It’s not just about a farm that you can visit every eight hours to water something.

I’m not sure I follow. Isn’t part of the appeal that users can play or farm or whatever when they have time?

Most users visit Facebook every four or eight hours, and spend five to 10 minutes checking out what’s going on. That’s why its peak usage is at lunchtime. So yes, a game has to fit into that pattern. But while “Friends for Sale” is asynchronous, it’s also more of a social utility. You might see that five of your friends have been purchased by someone you don’t know, so you go and buy them back. Or maybe people have left comments on your “Friends for Sale” wall, so you reply, which takes five minutes.

And you’re making money off the virtual currency that people are using to buy and sell each other?

Right, 90 percent of our revenue comes from virtual goods. Every time a pet gets purchased, the previous owner gets a share of the profit, as does the pet. We sell our fake currency for virtual currency. We also sell virtual goods like locks, so you can lock a pet cage if you really, really like a pet.

That sounds a little frightening. I’ve read in past reports that you have 1 million daily users. Is that still the case?

“Friends for Sale” has 900,000 daily users right now, but the number is coming back up, and we have around 5 million monthly active users.

And what’s the lifespan of a user? How old are they typically?

The upper limit seems to be increasing with every month. Second to [Zynga’s] Texas HoldEm, we’re the second oldest game in [Facebook’s 20 most popular applications]. We have new users all the time — not as much as before, but now we’re trying to keep the ones we have and doing a pretty good job of that.

How much has the game changed since you launched it?

Big and small changes happen frequently. On a given day, we might change a dozen things.

What notable changes did you make this week?

Well, [last] Friday, we launched a new button that asks users to send free “Friends for Sale” points to their friends via Facebook requests. It’s another way for our users to earn money and stay engaged, and for us to acquire new users. One is a pop-up, one is a page. We’re using different calls to action, then looking at which is most effective.

You have another popular game called “Rock Legends,” right?

Yes, “Rock Legends” has 100,000 active daily users and 1.5 million active monthly users.

Anything else in production?

Not right now. We had to kill “Happy Hour,” which was our fastest-growing app for a while but [newer] Facebook restrictions around alcoholic content caused it to be killed. Facebook wants to know users’ age and location, but many list either their age or their location but not both, so that was that.

Was that the first game you’ve had to kill?

Oh no. We have a green-lighting process and we’ve killed plenty of games both pre- and post-launch. Among the questions we ask is: what’s the core reason why someone will tell their friends about this game? Also, whatever it is, it needs to have universal appeal. No one wants to invite their friends to something offensive. And what’s the business model behind the product? Since most monetize through virtual goods, what are you selling, and why would someone buy it?

How long will you give a game, post launch?

It depends on how the metrics pan out. With all of our products, we have a roadmap of features that we think can drive certain metrics. If we’ve gone through that roadmap and nothing has worked, it’s an easy call for us to kill something. If we have a long list of things we can work on and they are slowly moving the needle, then we’ll keep working on it.

Do you have anything in the pipeline now?

Yes, and that’s where most of our resources are invested right now. I can’t really talk about it other than to say that it’s our first Flash game.

It doesn’t sound like you feel compelled to play catch-up or produce new titles with great frequency.

We’re about helping people meet new people, and we think that’s an evergreen market. Focusing on one game at a time has worked well for us in the past. It’s just not in our DNA to aggressively go after something that someone else has done or to just iterate on something that works. We’re not Zynga, but we’re pretty profitable for our size, and we’ve been pretty profitable for a long time.

Based on your experience, is there any virtual good that people won’t buy?

No, people are willing to buy anything. We’ve sold virtual flowers on another app that cost $500 and we’ve gotten dozens of people to buy them. We have a virtual knock-off of a luxury bag. It costs $100 and people have bought them. People buy them because of their price, not in spite of them.

I’ve read that that your conversion rate is 1 percent, meaning a very small number of people is buying up a whole lot of pretend pets and locks. How much has a customer spent on virtual goods?

Our number one customer has spent $75,000.

Wow. Man? Woman? You have to share some details.

It’s a semi-well-known romance novel writer.

Danielle Steele!