DAM Q&A With Gaia Online’s Craig Sherman
Craig Sherman, the CEO of Gaia Online, joined “the fastest-growing online hangout for teens” in May 2006 after sizing up 250 companies, looking for one that met his two criteria.DAM took a few minutes of Craig’s time to learn what those two criteria were … and to chat about what’s made it so successful.
DAM: Craig, tell me a little bit about why you took over the reins of Gaia Online.
Craig Sherman: I was at Benchmark Capital, a venture capital firm that did eBay and some other great deals over the years, working as an entrepreneur-in-residence, looking for the next big thing. My goal was to find something in the consumer space that had two criteria. It needed to be an awesome value proposition for the end-customer, meaning that if we built it, people would really come; we wouldn’t have to actively market it. Something like TiVo. And, two, something with a group of founders who have an uncanny grasp of the end-customer. In the case of Gaia, the founders were actually the end-customers because they were building the site for themselves; it just happened to resonate with millions of other people, too.
DAM: Didn’t Gaia actually start as an animé site but it seems to have moved in the direction of a social gaming site?
Sherman: Exactly. For instance, we are now the #2 forum site on the ‘Net (after Yahoo) with over a million posts a day; we had been #3 but we overtook AOL last fall. We’ve got about 2 million monthly unique visitors with well over 2 billion monthly page views. There’s about a five- or six-hour period every afternoon and evening when we typically have over 65,000 people concurrently on the site. And all of these stats are roughly three or four times higher then they were a year ago.
DAM: Pretty impressive. What’s drawing them to the site?
Sherman: The site is pretty complex but it starts to make sense after you’ve been on it a short time. You start by creating a profile, just as you do on other social networking sites, like MySpace or Facebook. And then you create an animé-type image that represents you. Having done that, you can join a club or create a club about any of your interests. For instance, we have one about Harry Potter and one about books and one about Lindsay Lohan. Inside the clubs you find people with similar interests. You can also write poetry or create art and post it. Or you can look at other peoples’ art and vote on it. You can build a house or play Flash games. Or go into our social space, which we call Towns, and just hang out with as many as 4,000 or 5,000 other people.
DAM: I gather there’s a lot of “hanging out” on the site?
Sherman: Actually, that’s the metric that has me so excited -- time spent on the site. The average person who visits Gaia spends over an hour a day, every day, on the site. So clearly there’s something about Gaia that inspires passion, right?
DAM: Are there any sort of restrictions?
Sherman: Well, you can’t come onto the site if you’re under 13; our demographic is 13 to early 20s. And we have a very robust group of over 100 volunteer moderators who make sure that our community standards remain PG-13. Anything that violates those standards is immediately taken down and you may even be forced to leave the site.
DAM: I understand that there’s also a virtual economy on Gaia.
Sherman: Yes, everything you do inside Gaia earns you gold, which is fundamentally different from the other social networks. If you post a message, complete a profile, play a game, or just shake a tree inside our virtual world, you earn gold which you can use to buy over 5,000 virtual items within about a dozen stores on the site. Many of the items can be used to trick out your avatar and make you look cooler so you can gain status within the Gaia world.
DAM: So we’re not talking about real money, right? These aren’t micro-transactions.
Sherman: No, it’s all virtual money. In addition, we have an eBay-like marketplace where you can buy stuff that’s no longer sold in our stores; so now these items are rare and have gone up in value. Or you can sell your own things that you’ve made. In that eBay-like marketplace, we do over 50,000 completed auctions a day. But, again, it’s all virtual currency.
DAM: It sounds like people keep pretty busy on your site.
Sherman: There is always something to do. For example, we have a movie theater where you can watch films with your friends. We launched with “Night Of The Living Dead” and, in the first two weeks alone, we have over a million views. More people watched “Living Dead” on Gaia than they did “Disturbia” which was the number one movie in real theaters during those two weeks. Isn’t that cool?
DAM: Let’s talk about your business model. Since your income isn’t coming from micro-transactions, where is it coming from?
Sherman: From virtual goods and sponsorships. I described the 5,000 virtual goods that you can only get with virtual gold. In addition, once a month we offer two or three collectibles, which are also virtual goods, but these cost $2.50 each in U.S. currency. And they’re only available for that month. As soon as they are no longer available, demand for them increases and they become radically more valuable. If you buy them and hold onto them, one day you may choose to sell them at one of our auctions, and then you’d get a lot of gold for them and become rich inside the Gaia world.
DAM: And so they’re paying real dollars to buy them but eventually get virtual gold if they sell them?
Sherman: That’s right. People buy them through PayPal and credit cards … but if a teen doesn’t have one of those payment mechanisms, well, we have three people internally whose only job it is to tear open the envelopes with dollar bills and change inside.
DAM: Surely someone must be selling these virtual goods on eBay and making real money on them instead of virtual gold.
Sherman: Well, we actively discourage that. But, that having been said, last fall we had one virtual item sell on eBay for $6,000.
DAM: And what was it?
Sherman: A golden halo. Which is very rare inside Gaia. I’d say it would be worth about $20 million in virtual gold on the site.
DAM: So while visitors are accumulating virtual gold, how much are you accumulating?
Sherman: I can’t say, though it’s radically higher than most people would guess [laughs]. I guess that answer isn’t too helpful, is it? But we’re not sharing revenue number right now. Sorry.
DAM: You said the rest of your revenue comes from partnerships.
Sherman: Yes. For example, I heard that we were the number one referring site on the Internet for the “Nancy Drew” movie. For the movie “Gracie,” a virtual character from the movie appeared on the site and invited visitors to watch a movie trailer, find some clues, and fill out a quiz to win a virtual item related to the movie. In this case, it was a virtual soccer ball which you could “kick” around a virtual space. During the period in which we ran the promotion, we had over one million soccer balls being kicked around the site.
DAM: How do these partnerships work?
Sherman: A company that’s interested in partnering with us would approach our partnership group and we’d evaluate whether or not their product is a good fit for our audience. Because, ultimately, the campaign has to be not only good for their brand but also a great experience for our visitors -- or else, long-term, we won’t grow. You can’t be the dominant hangout place on the Internet if your visitors don’t think you’re a cool place to hang out.
DAM: It sounds like you don’t accept every partner who approaches you. Care to share some numbers?
Sherman: Well … [laughing] … let’s just say that we’ve turned down more deals than I care to think about.
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