Saturday, December 15, 2012

The Digital Game Monetization Summit has an article about the business side of gaming, especially as it relates to the mobile market. Here are some excerpts I thought were quite interesting:

“If you look at what people successfully did on Facebook or the early days of mobile, a lot of it was about cheap user acquisition through the spammy virality that Facebook allowed for a while, or manipulations of the terms of service from Apple or Google on the mobile side. That's gone away,” said Greg Richardson, CEO of Rumble Entertainment. “Of the $50 billion that was spent worldwide last year on games, less than 10 percent was spent on casual content. These companies were really smart around analytics and monetization and very light in terms of product and content creation. I'm not sure any of those things are particularly sustainable. The future lies in going into the larger part of the market which is people that self-identify as gamers, and where the user acquisition and long-term value creation comes from making great games.”

Whether it's simply the cream rising to the top or a forward look at long term profits, its a bold statement for a CEO take long term sustainability over short term profits, especially in the mobile market which has had a very 'easy come, easy go' mentality.

Another panel took on the subject of online gambling, or “real-money gaming” as it is more politely termed, and what that market will offer in the future. At the moment it's already a $35 billion market, so it's no wonder that companies like Zynga are very interested in moving into it. The legal status is changing, as states are moving to allow real-money gaming. Delaware already allows most anything, according to the panelists, and Nevada is next up. Putting the games online means easy access for anyone. Will this open up the demographics to new players? George Zaloom, CEO of GoPlay, was blunt. “They have to. The typical Vegas operator is concerned about their traditional customer base, which ranges between the ages of 50 and 75. They see the traditional social gamer as this young mom who's sophisticated, who's technology savvy, and likes to play games. If they can migrate that customer from being a free-to-play player and bring them into their real-money space, that's a new way to save their business.” The difficulty ahead for Zynga is that large, well-funded casinos and operators like IGT are aiming for this market, and they're not about to just hand it over to Zynga without a fight.

This disturbs me on a basic level. Gaming is already shown in a fairly negative light to the public and non-gamers. To have gaming associated with gambling brings in sorts of unsavory practices and likely will mean regulation.

“I was in mobile advertising, I understood user acquisition, I understand all the price points, and the truth is, it's a shitty industry,” Bhardwaj said. “It really is. The first harsh reality is: CPIs [Cost Per Install] are only going to go up. You think they're high now? It's going to be just like gas prices. Right now, average CPIs in the industry on the weekends are over $2, $3. There have been previous weekends where I've seen major players bid upwards of $10 per install. This will only go up for two reasons: new entrants, and cash influx from Asia. There are a lot of great companies in Asia who've been doing great games in Japan, China, and Korea, who now want entry into the US. Next you're going to see the influx of real-money gambling apps. The LTVs [Life Time Value} of those customers are hundreds and hundreds of dollars, 10x, 20x higher than anything you see in even the greatest mobile games. I would assume by the end of Q2 next year you're going to see average CPIs above $5.” 

I don't pay as much attention as I should to mobile gaming and so I had to look up what CPI actually means. Here's the definition:

You pay per install to drive downloads. Downloads drive ranking. Ranking drives organic downloads. This is especially important in the iPhone app store because it is so hard to gain visibility without being ranked highly.

Here is how it works:
  • Let’s say you make a Snow Skiing app (my favorite sport) and need downloads
  • You get set up an account with Tapjoy
  • You install their SDK in your app (the most common way to track installs)
  • You fund your account and you are ready to go
  • Tapjoy has many many app developers that offer  virtual currency in their apps
  • For example, if a user plays a poker app and runs out of chips, they could be encouraged to download apps to earn more chips
  • The user can look at a listing of apps (often called an offer wall) showing how many poker chips they can earn per download
  • If they download your Snow Skiing app, maybe they get 100 poker chips
  • Once the user downloads and installs your app, the SDK in your app notifies Tapjoy of an install
  • You pay Tapjoy per install
  • Tapjoy pays the poker app company a piece of the money you paid them
  • Ideally you, Tapjoy, the poker app company, and the user are all happy

According to NPD's Anita Frazier, one-third of gamers in the US have played free-to-play games. About 15 percent are aware of free-to-play games but have never played, and about 8 percent of the players have paid for items in free-to-play games. The first month is crucial to paying; if a player hasn't paid in that time, they are unlikely to spend money later on. Localizing your strategies for different countries is important; one example given was the $60 tank in World of Tanks. When the game was brought to China, local advisers suggested making the tank gold, and charging $100 for it; the result was that sales were even higher for that tank than in Russia. Generally, there seems to be strong growth in Eastern Europe and Latin America, and developers are looking for ways to take advantage of that. Working with local experts is crucial to success, the panelists advised, so find people who really understand local markets to help maximize your game's potential.

I've never seen an actual statistic on F2P from a standpoint of how gamers spend or don't spend money.

DFC Intelligence analyst David Cole moderated a panel on in-game advertising, wondering if the time is right for advertising to make serious inroads into providing revenue for developers. Many free-to-play games monetize just a few percent of their players; can ads help monetize the rest? While there has been some success with video ads, especially when players are given a choice to opt-in in order to gain access to a game or rewards, it's not a universal solution. For one thing, there's not a huge inventory of ads available; advertisers have yet to fully embrace the medium of games. Mobile games are even more problematic. Still, panelists felt that we're likely to see more ads in and around games, especially as companies like Zynga and work to generate more revenue from the huge numbers of players. Greg Mills, VP of marketing for Goko, said “I do think Zynga will soon start doing pre-roll ads for users who virally don't invite a lot of new people,” Mills said. “If you look at the number of impressions that would generate, it would be huge. It's going to start with the large companies that have a massive audience, then it will trickle down.”

Sadly, it was inevitable. Still if companies can get revenue from non-paying customers, the experience is likely to be better as a whole for all.

Finally, Emily Greer, COO and co-founder of Kongregate, provided a look at some of Kongregate's top games. Greer noted that while many developers think of consumables as being the best type of virtual item, consumables only account for some 10-30 percent of sales. The best items from a developer's standpoint - that is, the ones that generate the most revenue - offer some permanent capability, Greer said.

Appearance. Appearance. Appearance. Humans aren't necessarily the deepest of animals. We love appearances. We are visual creatures, the more developers cater to this, the more money comes rolling in.

Kongregate's data shows the importance of the steady player. “The other thing that's really important, besides big spenders, is commitment really matters,” Greer said. “We divide our player base on a game into four categories: Non-repeats, players who come into a game once and bail; repeats who play a game between 2 and 9 times; regulars who play between 10 and 49 times, and the committed players who play 50 or more times. For the top ten games, the 7 percent who are committed are 87 percent of the revenue.”

Any avid gamer could tell you that. It was the difference from the Wii and the PS3 and 360. Attach rate for games. The console with the highest total of avid gamers (the Xbox 360) had the highest attach rate this generation. The Wii, although it sold the most consoles, had the lowest attach rate of the Big Three.

All in all, its a very informative look at the business side of the gaming industry.

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