Browser based

Gaming 2020
by: WildTangent CEO
Alex St. John
Date: Aug. 2008
1
“Man cannot discover new oceans unless he has the
courage to lose sight of the shore.”
Taking Fun Seriously
by: Alex St. John, Eric Engstrom, & Craig Eisler
Date: 11/18/1994
• Connectivity will be one of the most powerful and compelling
revolutions in gaming. Most games are isolationist. Certain types
of fantasy and escapism are private things, but there are many
forms of escapism that are social. Competition and explorations are
more fun with real people. The number one selling console games
are one-on-one combat between two or more real players. The
number one selling PC game DOOM, is most fun when it is
networked.
• Connectivity combined with other technologies may fundamentally
change the business model of the game industry from writing $50
throw away applications, to building vast extensible server based
game universes for many players. Multiplayer games could be
bigger business on the set-top than on demand video if enabled.
• Social interaction also offers broader appeal in game play.
Explorative, multiplayer universes are likely to me more appealing
to women then traditional stand alone conflict driven titles.
April 2008
3
Browser Based
Miniclip,
Kongregate,
etc.
Jagex, Artix, Club
Penguins, MapleStory,
ClubPogo, etc.
Free
Browser limits game
production values
precluding premium
pricing for content
Paid
RealArcade, WildTangent,
BigFishGames
Requirement of a
client precludes
advertising as a
payment solution
Requires Client
WOW, City of
Heroes, Valve
Steam,
Lineage,
Miniclip,
Kongregate,
etc.
Jagex, Artix,
Club
Penguins,
MapleStory,
ClubPogo, etc.
•Ad-Supported
•Browser based
•Low production values
•Highly Viral
•Low monetization/Customer
•High margin $$ ( 65% - 100% )
•Low cost infrastructure
•Large Audiences
•Kids
RealArcade,
WildTangent,
BigFishGames
WOW, City of
Heroes,
Lineage,
•Paid
•Client Based
•High production values
•Marketing Intensive
•Distribution Channel Dependant
•Lower margin $$ ( 33%-65% )
•Infrastructure Intensive
•Smaller Premium Audiences
•Adults
As the production values of browser based games improves, the business models
for browser based and downloadable games are converging.
Browser Based
Miniclip,
Kongregate,
etc.
•Ad-Supported
•Browser based
•Low production values
•Highly Viral
•Low monetization/Customer
•High margin $$ ( 65% - 100% )
•Low cost infrastructure
•Large Audiences
•Kids
Jagex, Artix,
Club
Penguins,
MapleStory,
ClubPogo, etc.
Requires Client
RealArcade,
WildTangent,
BigFishGames
Opportunity
for new
platforms
WOW, City of
Heroes,
Lineage,
Steam
•Paid
•Client Based
•High production values
•Marketing Intensive
•Distribution Channel Dependant
•Lower margin $$ ( 33%-65% )
•Infrastructure Intensive
•Smaller Premium Audiences
•Adults
Browser Based
Miniclip,
Kongregate,
etc.
Jagex, Artix, Club
Penguins, MapleStory,
ClubPogo, etc.
Free
Browser limits game
production values
precluding premium
pricing for content
Paid
RealArcade, WildTangent,
BigFishGames
Not an opportunity
because advertising
can’t support the
marketing and
infrastructure costs
associated with client
dependant games
WOW, City of
Heroes,
Lineage,
Requires Client
Browser Based
Miniclip,
Kongregate,
etc.
Jagex, Artix, Club
Penguins, MapleStory,
ClubPogo, etc.
Free
Huge opportunity
because this space has
the viral marketing
benefits and low cost of
browser based gaming
+ the monetization
potential of premium
gaming
Paid
RealArcade, WildTangent,
BigFishGames
Not an opportunity
because advertising
can’t support the
marketing and
infrastructure costs
associated with client
dependant games
WOW, City of
Heroes,
Lineage,
Requires Client
Browser Based
Miniclip,
Kongregate,
etc.
Jagex, Artix, Club
Penguins, MapleStory,
ClubPogo, etc.
Free
This Quadrant is
expanding rapidly
driven by increasing
consumer bandwidth
and increasingly
powerful browsers
Paid
RealArcade, WildTangent,
BigFishGames
Not an opportunity
because advertising
can’t support the
marketing and
infrastructure costs
associated with client
dependant games
WOW, City of
Heroes,
Lineage,
Requires Client
Browser Based
Miniclip,
Kongregate,
etc.
Jagex, Artix, Club
Penguins, MapleStory,
ClubPogo, etc.
Free
Zynga, PlayFish,
Playdom
Paid
RealArcade, WildTangent,
BigFishGames
Not an opportunity
because advertising
can’t support the
marketing and
infrastructure costs
associated with client
dependant games
WOW, City of
Heroes,
Lineage,
Requires Client
Browser Based
Miniclip,
Kongregate,
etc.
Jagex, Artix, Club
Penguins, MapleStory,
ClubPogo, etc.
Free
Gambling and
Casino Games
(21b WW, 6b US,
125b by 2015)
Zynga, PlayFish,
Playdom
Paid
RealArcade, WildTangent,
BigFishGames
Not an opportunity
because advertising
can’t support the
marketing and
infrastructure costs
associated with client
dependant games
WOW, City of
Heroes,
Lineage,
Requires Client
Strategy
• The platform opportunity lies with “next
generation” Monetization, Virtual goods
markets and Community infrastructure
• It will be driven by well executed content
targeting growth in premium browser based
gaming
• Whomever learns how to deliver all the play
consumers want in exchange for all the value
they are worth first wins
Key Observations
• Rapid growth in “social media gaming” has been taking
place since 1995
• Microcurrency based games completely dominate the
online gaming economy
• Gambling style play mechanics completely dominate the
online gaming economy
• “Viralness“ has generally spread via kids who don’t have
credit cards to play premium content
• Game design, marketing, support, testing and monetization
model have converged, they can’t be separated.
• Persistence of earned achievements and production values
drive value, community drives viralness
Nothing New Under the Sun
•
Early 1990’s: Online gambling sites take off
– By 2009 21b in revenue WW, 6b in the US, 125b by 2015
•
•
•
•
•
•
•
•
•
•
Leading casual gaming sites at Yahoo, MSN and AOL takeoff driven by online casino
advertising
1997: Ultima Online launches, by 2003 it has 250K subs
1998: Lineage (Korean UO) launches, by 2004 it has >3m playing players
1999: Club Pogo launches, by 2009 1.8m subs, 15.3m uniques
2001: Runescape launches in 2001, by 2004 it has 11m player WW and 1m subs
2002: Artix launches in by 2008 6.8m players, 32m in revenue
2006: Club Penguins launches, by 2007 12m players and 700K subs
(~50m/revenue)
2009: WOW with 12m subs generates 1.5b/yr in revenues more than all Xbox360
game sales combined
2009: Turbine LOTR switches from subs to microcurrency generating 150K/day in
microcurrency sales
2009: Chinese online game market hits 3.65b
The “Viral Equation”
Ad = (PAinitial( 1 + v )d + PAnew * [((1+v) d+1 – (1+v))/v]) + ( A(d-1)er(d-1) - A(d-1) )
•
•
•
•
•
Ad = Audience on any day
d = day number
Ainitial = initial audience introduced via marketing or distribution
Anew = new daily audience introduced via marketing and distribution
P = probability a new visitor plays the game (a measure of content
adoption friction)
• v = probability that player will entice another play to play that day
• r = retention rate or probability that a player will stop playing that
day (A negative number)
Ad = (PAinitial( 1 + v )d + PAnew * [((1+v) d+1 – (1+v))/v]) + ( A(d-1)er(d-1) - A(d-1) )
Example:
Here’s the 100 day viral audience of a game with the following play metrics:
•Ainitial = 1000
•Anew = 1000
•P = 50% (typical for web based games)
•r = -1% (Audience has an average lifetime of 100 days)
V = 1%
V = 5%
Feedback Driven Emergent Content
All player behavior is
tracked and analyzed
for content
preferences
Initial game design
includes support
for feedback driven
emergent content
An Ad server is used
to dynamically serve
new content to
players
New content is generated for
player based on measured
player preferences and optimal
monetization heuristics
The “Prophesy’s”
• Consoles are Extinct
• >50% of all gaming revenue driven by media dollars
• All “premium” games are persistent microcurrency
based MMOG’s
• The dominant gaming platform is the PC
18
Consoles Are Extinct
19
Why?
20
The market conditions that created and sustain the
console business are fading fast
During the original Xbox launch, Microsoft lost about $4 billion on the console over 4 grueling
years, never recovering those losses. Things are even worse with the Xbox 360. In its most
recent fiscal year alone the company lost $1.9 billion on the console.
What will be done to stem these losses? Well, nothing. In fact, this is business as usual in the
console business, and it's why smaller competitors have long since been run out of the
market.
-Yahoo Tech
•
•
•
•
•
•
21
The major players can’t justify the enormous losses to their
shareholders indefinitely
In 2020 the game market will be completely dominated by persistent
worlds that don’t need consoles to prevent piracy
The era of game differentiation by production values is ending
The living room is no longer the only screen in the home
Closed proprietary communities can’t keep up with free market
innovation on the Internet <<See AOL>>
The faster consoles move to online models the faster they will die
because they will disintermediate the retail channels they depend
on
Online Game distribution to
consumers and media sponsored
game play disintermediates the
retailers that sell the consoles
By 2020 this is all that will be left of the
retail business for games
22
These guys never thought it would
happen to them either
23
Why will the market be dominated by
persistent worlds?
•
WOW the most profitable game in history
–
–
•
•
•
•
Already the dominant model in the fastest growing emerging markets in Asia
Retarded in the US only because of primitive payment infrastructure which is rapidly
improving
Superior business model and distribution vehicle to traditional content
Already seeing rapid growth in a broad range of persistent world genres
–
–
–
–
–
•
24
1.2b/yr in revenue
Secured and differentiated by community
Pogo is WOW for the AARP set
Club Penguins is WOW for the under 8 crowd
Runescape and Artix are WOW for the 8+ crowd
Stardolls is WOW for the 8+ girl crowd
SecondLife if WOW for people who haven’t discovered real games yet
Properly formulated persistent world games are a market virus that can displace
dozens of traditional game sales when they find their target audience
*Tip on getting rich quick
Traditional big publishers have a NEGATIVE advantage at
producing and marketing these games, they will be forced
to BUY companies founded by innovative next generation
game studios or die
•
•
•
•
•
25
Disney  Club Penguins
EA  Pogo
NBC  Bigpoint
Sony  Monolith
etc…
The exception that proves the
rule
• The only “profitable” console is
the Wii a low-tech console based
on off the shelf components
• Nintendo took a valuable lesson
from the death of the arcade
business;
• It differentiates itself not with
superior graphics but with a new
controller
When great graphics become a commodity the
only successful games are differentiated by
their controller
26
Why is game differentiation based on
production values ending?
• Great graphics and sound will be a cheap commodity
• The ability to author higher production values using new
technology has exponential cost and diminishing returns
• High production values are in direct conflict with electronic
distribution
• High production values are in direct conflict with enabling
increasingly dynamic communities
• This is the era of content differentiation by community
27
Evidence that the console business is starting to look
like the dead arcade business
•
•
•
•
28
Xbox 360
Nintendo Wii
PlayStation 3
Hardware Sales
Annual 2007
4.62 million
6.29 million
2.56 million
Best Selling Console Games of December 2007
1) Call of Duty 4: Modern Warfare - Xbox 360 - Activision - 1.47 Million Copies Sold
2) Super Mario Galaxy - Nintendo Wii - Nintendo - 1.40 Million Copies Sold
3) Guitar Hero III: Legends of Rock - PS2 - Activision - 1.25 Million Copies Sold
4) Wii Play With Remote - Nintendo Wii - Nintendo - 1.08 Million Copies Sold
5) Assassin's Creed - Xbox 360 - Ubisoft - 893,700 Copies Sold
6) Halo 3 - Xbox 360 - Microsoft - 742,700 Copies Sold
7) Brain Age 2: More Training In Minutes - Nintendo DS - Nintendo - 659,500 Copies Sold
8) Madden NFL 08 - PS2 - Electronic Arts - 655,200 Copies Sold
9) Guitar Hero III: Legends of Rock - Xbox 360 - Activision - 624,600 Copies Sold
10) Mario & Sonic At The Olympic Games - Nintendo Wii - Sega - 613,000 Copies Sold
The Rise of PC Gaming
• Electronic distribution will eliminate many of the user experience
problems associated with PC Gaming
– Configuration/installation obstacles
•
•
•
•
Most PC’s will be fantastic gaming platforms
All kids will have a PC laptop for school
Media dollars on the PC will make PC content free
Game Developers and Publishers won’t need to share revenue with
a console maker to reach their audience and monetize their games
online
• Nearly 100% of console gamers are ALSO PC gamers
• According to Nielson the Average console gamer spends more time
playing PC games
29
The “living room” isn’t where it
used to be
• Screens are a commodity
• >60% of all PCs sold are laptops
• Peak laptop buying is during the summer back
to school period
• A growing percentage of console gamers play
on their own TV’s in their bedroom
• Kids are mobile gamers, they are no longer
anchored to the living room
30
Games Become
“Broadcast Media”
The invention of television enabled
video to evolve from static purchased
media to advertising and subscription
supported media broadcast on demand
into consumer homes
Games are transforming from static purchased
media to advertising, and subscription
supported broadcast media
31
Cable TV Network Model
32
WildTangent Game Network
33
Advertising will become a payment type for premium
games!
$25
Retail Price of a Game
=
$0
Captureable Revenue
Perceived Value of a Game
34
$25
Tokenomic Arithmetic
=
35
Things we used to believe in that we
think are silly now
36
Things we will realize are silly that we
believe in now
It fundamentally changes the economics of the game industry...fundamentally changes it. On a per-unit basis,
you are talking about $2 to $3 per box sold. That's not revenue; it's contribution, it's profit: $2 to $3 of profit.
Mitch Davis
CEO Massive
“Is it just me or is that really, really offensive offensive? Especially
with the game cost being the same?”
-One of hundreds of forum posts protesting in-game ads in BF2
37
Emergent Content
Definition:
Game content that is computer OR user
generated dynamically in response to a
players gaming behavior or content
preferences
Examples of Emergent Content
•
Quake
– Playing real-time multiplayer games ensure that in-game opponent behavior is
constantly varying in real-time in reaction to the player
•
WOW (Or any MMOG)
– Any multiplayer game is an example of emergent user generated content that
has a well established track record of increasing a games popularity and
longevity
•
Diablo/Fate
– Emergent level generation gives these games bottomless content which
dramatically extends their lifespan not to mention dramatically reducing their
production costs by making heavy re-use of assets
•
RTS’s like Age of Empires, Starcraft
– Unpredictable situations and play emerges when many simple AI driven
characters interact to produce complex environments and behaviors
•
Sims
– Like RTS games structures and units following simple AI rules combine to
produce unpredictable and complex environments
Success of Emergence
• Games based on Emergent content have
proven themselves to have the greatest
franchise longevity, addictiveness and
monetary value in the game industry.
• Yet the emergent content found in all known
examples of emergent play lacks a very
powerful property.
Feedback
A human game designer
creates a game with fixed
emergent properties based on
their best instincts about what
a large audience will consider
fun
Consumer enjoys
game within the
limits of the
emergent
properties
defined by the
designer
Consumer moves on to a new
game, while the original game
designer gets some feedback
which may be incorporated
into a future emergent game
design
Emergent game design supporting a very broad range of user chosen
play mechanics is what gives MMOG’s their enormous addictiveness
and long life spans, yet even the most successful MMOG’s fail to
harness one of the most powerful feature of emergence.
Feedback Driven Emergent Content
All player behavior is
tracked and analyzed
for content
preferences
Initial game design
includes support
for feedback driven
emergent content
An Ad server is used
to dynamically serve
new content to
players
New content is generated for
player based on measured
player preferences and optimal
monetization heuristics
Examples of “Feedback Driven”
Emergent Content
• Game difficulty adapted dynamically to keep player
engaged
• Multiplayer opponents chosen dynamically to keep
player engaged
• Parental control levels set dynamically based on player
age and gender demographic data
• Quests and awards chosen dynamically based on
measured player behavior
• Game “pacing” and variations in play mechanics driven
by measured player behavior
• Game music and appearance adapted to player
demographics
Feedback Driven Monetization Strategy
WildTangent WildCoins a proven example of this model
• Ad server tracking and content serving is used
to detect;
– Level of player engagement with content
– Optimal monetization mix of advertising and paid
play
– Optimal price points for play
– Optimal sponsors for play
• System can deliver all the play each consumer
wants in exchange for all the value each
consumer is worth
Better than an MMOG
• MMOG’s deliver enormous variability in play via community
at the cost of requiring enormous authoring, hosting and
customer support infrastructure.
• The “freedoms” of each player in MMOG game design must
be highly limited to enable players to constructively
generate new content while preventing them from spoiling
other players fun. This balance requires introducing a large
number play constraints and a high level of human
supervision of play.
• Feedback driven emergent games have the bottomless
content variability of an MMOG without the game design
constraints, authoring costs, hosting infrastructure and
support costs associated with an MMOG.
Tokenomics
by: WildTangent CEO
Alex St. John
46
Maximizing Revenue From Games
• The business of selling games has long been
constrained by extreme inefficiency in
capturing the value of “Play”
• The market has no idea how to value or price
“play” ensuring that the only certainty a game
marketer can have is that the price of their
game is nearly always WRONG
47
The “Inefficient Market” For Games
Retail Price of a Game
$25
Potential Revenue
Physical COGs for boxed retail game packaging
$0
Perceived Value of a Game
48
$25
The “Inefficient Market” For Games
$25
Retail Price of a Game
This is the minimum price a game can
be sold at regardless of its real value to
cover physical COGS
Potential Revenue
Physical COGs for boxed retail game packaging
$0
Perceived Value of a Game
49
$25
The “Inefficient Market” For Games
A game can only be sold when the
consumers “perceived value” of the
game is greater than its actual price
Retail Price of a Game
$25
Potential Revenue
Physical COGs for boxed retail game packaging
$0
Perceived Value of a Game
50
$25
The “Inefficient Market” For Games
$25
Revenue is maximized when a games
price exactly matches the consumers
perceived value
Retail Price of a Game
$13.47
Potential Revenue
Physical COGs for boxed retail game packaging
$0
Perceived Value of a Game
51
$25
The “Inefficient Market” For Games
$25
Most consumers don’t place the
same “value” on a game, ensuring
that any fixed price is wrong for
MOST potential buyers
Retail Price of a Game
$13.47
Potential Revenue
Physical COGs for boxed retail game packaging
$0
Perceived Value of a Game
52
$25
How does the market solve efficient pricing
problems for other products?
• Haggling
– Works best for a high value item like a house or a car
• Auctions
– Works best for products with intrinsic value and scarcity like
gold and antiques
• Passive Negotiation
– Works best for low COG commodity products like toothpaste
and shampoo who’s principal value is “intangible” like how it
tastes or how entertaining it is.
– Works with media
53
BINGO!
Games are a form of digital media that carry an
artificially high COGs associated with their
packaging and anti-piracy measures
The ability to Maximize revenue for games is
intrinsically limited by the constraints
imposed by their distribution and DRM
model!
54
How Does “Passive Negotiation” Work
•
•
•
•
55
Supermarkets enable consumers to “Choose”
the maximum price they are willing to pay for
toothpaste (A low COG commodity) by selling a
broad variety of products with differing features
Consumers “choose” the toothpaste features
they are willing to pay the highest premium for
Each flavor, size, packaging configuration and
“feature” of toothpaste is created to enable
consumers to find their personal rationale for
paying $4.00 for a .20 cent tube of paste.
Coupons are a mechanism for identifying
consumers who can’t afford to pay a premium
for toothpaste by making them exchange their
time for value
Enabling “Passive Negotiation” For
Games
1. Reduce COGs to nothing by moving to
downloadable distribution and online DRM
instead of physical DRM
2. Electronically package games into smaller
consumable units of entertainment
3. Remove internet imposed “payment
friction” with advertising
56
How do you “package” games in
smaller units of entertainment?
Traditional games and applications are sold in large
premium chunks of value that are difficult to monetize
efficiently.
WildTangent uses it’s unique
DRM platform to “chop” any
game or application into small
consumable “Sessions” of
value
Once packaged in a per/session DRM model, games or applications can be sold
on a per use basis or made free sponsored by advertising
57
Tokenomics 101!
Questions most publishers don’t know the answer to;
1. What % of the people who “consider” buying a product in
retail actually purchases it?
2. What % of the people who buy a game actually finish it?
3. How often and for how long do consumers play a game
before moving on?
The Answers that might surprise them;
1. 1%-2%
2. < 10%
3. 2 months for an average of 34 sessions of play
58
In other words…
1. The potential audience for your game is 50X-100X it’s retail
size if you gave it away free
2. The actual value of a $60 console game to its typical buyer is
$60/34 sessions = $1.77/session
3. If the games potential audience is 100X greater by making it
free then the games value is $1.77/100 = 1.8 cents/session
across it’s potential FREE audience
If an advertiser were willing to pay 1.8 cents/session or
1.8*1000 = an $18 CPM to sponsor each session of play the
game would make the SAME revenue given away for FREE as
if it has been sold at its full retail price of $60 to 1% of its
potential playing audience…
$18 is the typical CPM value of a standard
300x250 Flash video ad
59
Another Example
1. A typical WOW player pays $13/mo for a subscription to the
game
2. WOW players play 10-20 sessions/mo over a 10 month period
generating a $130 LTV
3. If WOW charged its players $1.30 per play session they would
generate the same revenue as they get from charging a
subscription
4. If WOW were free it might have 50X more players
5. Thus it’s potential free value per session is 2.6 cents
6. In other words WOW would make as much money if it were
free supported on a per session basis by a $26 CPM ad unit as
it is being sold on a subscription basis
What if most of WOW’s paying subscribers would still pay for a
subscription even if the game were free?
60
The Gaming
“Value Continuum”
Large, high cost, high
production value, premium
console games
Small, low cost, low
production value
Flash games
•Easily distributed electronically
•Easily monetized with advertising
•Intrinsic retail value < packaging COGs
•Size and value an obstacle to electronic
distribution
•Best monetized via cash retail transactions
•Intrinsic retail value > packaging COGs
Surprising Observation:
When distribution and packaging COGs
are excluded free flash games and high
production value console games have
about the same per session value!
61
Reformulating the Game Business for
Maximum Revenues
Retail Price of a Game
$25
Potential Revenue
Physical COGs for boxed retail game packaging
$0
Perceived Value of a Game
62
$25
Step # 1:
Eliminate COGs by moving to digital distribution
$25
Retail Price of a Game
Removing COGs
eliminates a barrier
to capturing the full
value of play and the
barriers to organic
distribution
Potential Revenue
$0
$25
Perceived Value of a Game
63
Step # 1:
Eliminate COGs by moving to digital distribution
$25
Retail Price of a Game
*Note: Many consumers place
value in the physical packaging
associated with a game. Online
this value can be captured as an
up sell after a customer has
been acquired, rather than
acting as a barrier to an initial
transaction
Up sell to physical
goods from a
digital sale
Potential Revenue
$0
$25
Perceived Value of a Game
64
Step # 2:
Release a Trial-to-Buy Demo
Trial-to-buy
price set at
$20
$25
Retail Price of a Game
Revenue
captured for all
consumers who
value the game >
$20
Potential Revenue
$0
$25
Perceived Value of a Game
65
Step # 3:
Calculate actual per/session play value
Demo Players = 10,000
% that convert to purchase @ $20 = 1%
Avg. sessions played per buyer = 35
Session value of game = $20/35 = $.57
Session value per player = $.57*1% = $.0057
CPM value of game = $.0057*1000 = $5.70 CPM
Retail Price of a Game
$25
99% of trial
audience values
game < $20
1% of trial
audience values
game > $20
Revenue
captured for all
consumers who
value the game >
$20
Potential Revenue
$0
$25
Perceived Value of a Game
66
Step # 3:
Almost any initial trial price will produce the same result
$25
Retail Price of a Game
Demo Players = 10,000
% that convert to purchase @ $15 = 1.33%
Avg. sessions played per buyer = 35
Session value of game = $15/35 = $.43
Session value per player = $.43*1.33% = $.0057
CPM value of game = $.0057*1000 = $5.70 CPM
98.7% of trial
audience values
game < $15
1.3% of trial
audience values
game > $15
Revenue
captured for all
consumers who
value the game >
$15
Potential Revenue
$0
$25
Perceived Value of a Game
67
Step # 4:
Calculate Optimal Real World Pricing
$25
Per/session retail prices < $1.00 perceived as “negligible” by consumer
Real World Session pricing: $.57  $.99
Retail Price of a Game
Advertisers value play > the free playing audience on average
Real World Advertiser pricing: $5.70CPM  $20CPM sold with 55%-65% efficiency
Captured Revenue
$0
$25
Perceived Value of a Game
68
Flexibility carries a premium
Consumers and advertisers place
additional value in being able to
purchase play on demand rather
than in bulk
Retail Price of a Game
$25
Captured Revenue
$0
$25
Perceived Value of a Game
69
Step #5:
Release game online in a “WildCoin” business model
70
Consumer Choices
Purchase game
directly for $20
Earn free play by
consuming advertising
Purchase Play using
WildCoin Tokens on a
per session basis
71
Where Digital Distribution Fails
The Fish Ladder of Doom
$ $ $
$
$ $
~1% of users who successfully download and install a game,
buy it
Payment Barrier:
Most game consumers especially minors do not have a
means of making an online payment.
50% of consumers who initiate a credit card transaction
can’t or don’t complete it
Download Barrier:
Consumers cancel downloads at a rate
of 70%/5min they have to wait for a
download to complete
72
Where Digital Distribution Fails
Smoothing the Fish Ladder
$ $ $
$
$ $
Advertising functions as an
alternative currency for those who
can’t/won’t pay for play
• Use of a download manager increases
download success rate 2x-3x
• Aggressive use of compression technology
• Try to break game into an initial download
of < 50Mb and a background download during
play of the remainder
73
What is a “Session”
• A “session” gives consumers UNLIMTED access to a game
for as long as they want to play
• A session ends when the consumer voluntarily closes the
game or stops playing for > 45 minutes
• Sessions are priced based on the “perceived value” of the
game
• Games with “low value” cost fewer WildCoins/session than
games with higher value
• The “perceived value” of a game can be measured by its
conversion rate in retail
74
The Magic of WildCoins
WildCoins creates both the lowest price point
and the highest premium for game play at the
same time
75
The Magic of WildCoins
• WildCoins enables greater pricing flexibility
• Better tools for targeting specific offers to specific
audiences
• Enables better payment solutions
– Can be sold in physical retail for cash
– Advertisers can distribute them
– Can be packaged into a variety of credit card based offerings
• Creates enormous efficiency for maximizing the full value
of a game
• Can be used as an in-game currency for purchasing virtual
goods
76
Pricing a Game Session
Try-to-buy conversion rates across hundreds of
downloadable games and millions of players
77
Typical Play Session Ranges
Average Sessions Per Owned User
300
250
Typical session
behavior for a top
converting game
(1.5% - 3%)
200
Average Sessions Per Owned User
150
100
50
0
78
Poly. (Average Sessions Per Owned
User)
Typical session
behavior for a
poorly
converting
game
< .25%
Typical Session Values
Session Value
$3.00
Median Session Value
.36 cents
$2.50
$2.00
Session Value
$1.50
$1.00
Expon. (Session Value)
Best selling games
Worst selling
games
$0.50
$-
Counter intuitively best selling games have the lowest session value because their
high replay value exceeds their high conversion rate
79
Session CPM Value to Advertisers
CPM Value
$25.00
$20.00
$15.00
High conversion games have a relatively
high CPM value/session
Median CPM session value for a
downloadable game?
$1.00
CPM Value
Log. (CPM Value)
$10.00
$5.00
$-
80
Trial Length vs Conversion
81
The Crazy Playtime Games
Game Title
inwordzdeluxe
ancientseal
qbz
blasterball2drm3
escapefrom
piratesoftreasureisland
blasterball2remix
geneforge2
newspaperpuzzlechallenge
cinematycoon
82
Avg free playtime to upsell
18.24
7.91
7.67
6.54
6.44
6.10
5.98
5.25
4.71
4.41
The Myth’s of dynamic In-game
advertising
1. In-game ads can add $1-$2 in profit to a
retail title
2. In-game ads “improve the games realism”
3. In-game advertising will be a way to reach
console gamers
4. In-game ads will be a multi-billion dollar
business
83
Myth #1:
In-game ads can add $1-$2 in profit to a retail title
Only 17% of gamers give game advertising an absolute “no-no.”
Nearly 40% highly disagree with the statement “including
advertisements in a game will always have negative impact on my
gaming experience”
-Parks Associates
Electronic Entertainment in the Digital Home: Game Advertising
2Q 2007
84
Myth #1:
In-game ads can add $1-$2 in profit to a retail title
1.
2.
3.
4.
5.
6.
If 17% of consumers WILL NOT buy a game because they don’t
like in-game advertising it will reduce the retail revenue for the
game by 17% or $8.50 for a $50 title
In-game ads sell for roughly $20-$40 CPMs (the same as a simple
clickable prestitial video)
Inventory sell-through is 65% efficient
Average sessions of play for a retail game are ~35
35*40/1000*%65 = $.45 - $.91 in possible incremental revenue
Overall value of In-game advertising to a $50 retail title: $8.50+$.091 = -$7.59
Conclusion:
It’s a BAD Idea!
85
Myth #2:
In-game ads “improve the games realism”
20% of gamers agree with the statement that in-game ads are
okay if they visually enhance the game
-Parks Associates
Electronic Entertainment in the Digital Home: Game Advertising
2Q 2007
• In other words 80% of gamers DO NOT agree that in-game
ads visually enhance the game
• Dynamic ads will always look out of place
– Game art even in “realistic” games is highly stylized
– Real world photographs in a game breaks visual continuity with
the rest of the games “less realistic” graphics
86
Consumer Comments on
In-Game ads in Retail Games
“Ugh :( Just when I was thinking that the BF2142 that I wrote
about a couple of times with the ads in it might not be that bad I
saw a post with a shot of an in-game ad.”
“Is it just me or is that really, really offensive offensive?
Especially with the game running on the same engine as BF2 and
the cost being the same?”
“I am 100% against DYNAMIC advertising. Unlike static ads, this
spyware (which is fast becoming the norm in games) uses your
machine and your bandwidth, both of which YOU pay for and
OWN, to monitor your session and upload ads directed at you
based on the info collected. This is business being conducted for
revenue and it's being done so on your property.
Whether this collected info is personal or not is irrelevant, the
practice is unethical in principal. Your pc and your connection do
not belong to them.”
87
Myth #3:
In-game advertising will be a way to reach console gamers
PC Online Gamers
North America, 2001-2012
90
Console Online Gamers
North America, 2001-2012
90
PC Light
80
80
Moderate PC
70
Console Light
Moderate Console
70
Hard-core PC
60
60
50
50
40
40
30
30
20
20
10
10
0
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Hard-core Console
Most consoles WILL NOT be online!
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: DFC Intelligence Online Game Market Forecasts, 2007
88
Myth #3:
In-game advertising will be a way to reach console gamers
Console gamers spend MORE TIME gaming on the PC!
Playing games is the #1 online activity
Time Spent Gaming On Various Platforms
Source: Stanford Institute for the Quantitative Study of Society, May 2006.
89
Myth #4:
In-game ads will be a multi-billion dollar business
• In-game ads detract from a games perceived value
• Enough consumers DO NOT like in-game advertising in retail games
to make adding them a poor business proposition
• Most consoles WILL NOT be online soon and most game play time is
spent on the PC
• In-game ads are difficult and expensive to integrate effectively in
most games
• In-game ads have a lower CPM value than a simple prestitial video
played during a game launch
Conclusion:
In-game ads in retail titles represents a niche opportunity for
generating advertising dollars around gaming
90
Where does in-game advertising work?
Free, online distributed PC games
• Making a retail game free increases its potential
audience 50X-100X larger
• Advertising economics work when the game is free
because the growth in audience volume causes the
advertising value of the game to exceed its retail
value
• Consumers understand that “Free” comes with
compromises
• See how “Free” changes the Myth 1: Math
91
Myth #1:
In-game ads can add $1-$2 in profit to a retail title
1.
2.
3.
4.
5.
6.
7.
If 17% of consumers DO NOT buy a game because they don’t like
in-game advertising it will reduce the retail revenue for the game
by 17% or $8.50 for a $50 title
In-game ads sell for roughly $20-$40 CPMs (the same as a simple
clickable prestitial video)
Inventory sell-through is 65% efficient
Average sessions of play for a retail game are ~35
Making the game free increases its audience 50X-100X
$35*100*$40/1000*%65 = $91 (Range is $23-$91)
$91 > $50!
Conclusion:
In-game ads + FREE can be a GREAT Idea!
92
Where Retail Distribution Fails
The Retail Fish Ladder of Doom
1%
$ $ $
$
$ $
99%
$60 retail price
Physical COGs
93
Relationship with the customer is
lost once the game is sold, there
is little opportunity to link this
game sale to a future game sale
to this customer. Retail games
that DO NOT suffer this flaw like
MMOG’s average $130 per
customer
Tokenomics and the “Korean Model” Game
What is a “Korean Model” Game?
• Free online distributed multiplayer game
• Monetized by in-game currency via
microtransactions
• Payments typically made via;
– Cash
– Mobile billing
– Credit/Debit
94
Tokenomics and the “Korean Model” Game
Why “Korean Model” Games work in Asia
• Micro currency payments work in Asia because;
– Use of Internet cafes is prevalent
– Mobile billing common
– Payment cards are sold in retail for cash
• Access to very high bandwidth is ubiquitous
– Enabling downloaded games to have the same production values as
retail games
– Eliminating the initial COGs barrier associated with physical
distribution
• High piracy rates of single player games eliminates that
market as a competitive alternative
95
Tokenomics and the “Korean Model” Game
Why “Korean Model” Games Struggle in the West
•
Micro payment infrastructure non-existent
–
–
–
–
•
Mobile billing difficult
Low use of Internet cafes
Few examples of retail cards available for cash
12-17 year olds, the most common players, don’t have credit cards
Broadband not “broad” enough for downloadable production values to match
retail quality
– Download cancellation rates are 70% for every 5 minutes a user has to wait for a
download to complete
•
•
Low piracy = high competition from other types of games
Successful examples of “Korean Model” like games in the West are illustrative of
the obstacles
– Runescape
– Club Penguins
96
Tokenomics and the “Korean Model” Game
Using Tokenomics to bring “Korean Model”
Games to the West
1. Replace micro-currency payments with
advertising
2. Allow advertisers to sponsor MMOG play on
a per/session basis
3. Distribute large game clients via PC OEM’s
97
Anatomy of WildCoins
WildCoins is an entirely new and unique business model in
gaming that inherits its strength and versatility from earlier
less sophisticated models
•
•
•
•
98
Try & Buy
“Book of the month club” style subscriptions
Free ad supported gameplay
Microcurrency based MMOG communities
WildCoin “Symmetry”
The power and elegance of WildCoins derives from their
ability to “unify” earlier less versatile business models.
For the purposes of negotiating contracts, calculating revenue
shares and pricing games it helps to be able to “translate”
between other more familiar gaming business models and
WildCoins.
The following slides are designed to illustrate how to translate
between familiar gaming business models and WildCoins
99
Breaking down the WildCoin
Model
Try & Buy
Consumer gets a “free game trial”, usually 60 minutes of sample play, before being required to
purchase
• Strengths
– Familiar consumer purchasing model
– Reduces support costs and returns because consumers don’t buy games that
don’t work and that they don’t already enjoy
• Weaknesses
– Doesn’t drive repeat purchases
– Games are sold in large, relatively expensive units of value
– Difficult to monetize with anything but monolithic credit card based
transactions
– Limits viral marketing because non-payers are excluded from the game and
are therefore less likely to tell others to try it
100
Breaking down the WildCoin
Model
Try & Buy
=
60 minute free trial
is replaced by ;
$20 purchase of full game
Monolithic purchasing choice
Per game rev guarantees
WildCoins
Free game sessions
is replaced by ;
.50 purchase of unlimited
game sessions
is replaced by ;
Incremental purchasing as
game is consumed*
are replaced by ;
Per session rev guarantees
Advantages:
•
Average session length for a game is 45 minutes, however sessions can be sponsored by advertisers meaning that each “free” session
can generate .14/session in ad dollars. The amount of “Free” can be controlled per game with an ad server to better match a specific
games upsell properties to a specific consumer. Since a session is “unlimited” the consumer is in a known state of satisfaction when
they end a session voluntarily and are presented with an upsell message.
•
Incremental purchasing separates the consumers choice to buy from their ability to pay because the ”perceived” price of the purchase
of a session is zero. It also creates the opportunity to get more $$ from consumers who value a game more highly and get paid
something by consumers who might otherwise pay nothing.
*Incremental purchasing is not fully implemented today forcing consumers to choose between Try & Buy or per session purchasing with no
simple path to full ownership from WC’s today
101
Breaking down the WildCoin
Model
BMC
“Book of the Month Club”
Consumer subscribes to the right to purchase 1 game/mo at a significant discount. Both
RealArcade and Bigfish Games support variations on this model.
• Strengths
– Familiar consumer purchasing model
– Breakage
– Establishes a persistent billing relationship with the consumer
• Weaknesses
– Games are sold in large, relatively expensive units of value
– Difficult to monetize with anything but monolithic credit card based
transactions
102
Breaking down the WildCoin
Model
BMC
1 game/mo
Breakage occurs when
game credits go unspent
=
WildCoins
is replaced by ;
X sessions/mo across all
games in catalog*
Breakage occurs when
WC’s go unspent**
Advantages:
•
•
•
•
Very versatile pricing models designed to target very specific consumer behaviors become possible. WildCoins can be sold in
discounted subscriptions which are the session based analog of the BMC model or sold in packs which are the session based equivalent
to the Try & Buy model for whole games.
Breakage is controllable on a fine scale
Pricing of a broad category of content types in a single service becomes practical. BMC only works well for light single player games
which all share a similar “perceived value”. Tokens enable more targeted pricing across a catalog of content with widely varying price
and cost considerations such as enthusiast games and MMOG’s.
Selling a generic virtual currency in retail becomes practical
*Incremental purchasing is not fully implemented today which means that there is no WC path for consumers who WANT to own whole games
to buy them with WildCoins.
**RealArcade breakage happens if a game isn’t consumed in any given month, BF breakage occurs when total game credits go unspent
making them more analogous to WC breakage which also does not occur in 30 day increments.
103
Breaking down the WildCoin
Model
Advertiser sponsored free play
Consumer views an ad before or during game play in exchange for free play
• Strengths
– Consumers get games for free
– No purchase barrier to monetization
– Revenue/user closely corresponds to game value for low value games
• Weaknesses
– Does not work well for “high value” premium games
– Requires significant investment in advertising sales force and infrastructure
– More volatile revenues
104
Tokenomic Arithmetic
WildCoins… the “spooky” currency
WildCoins are actually a blend of two different currencies with different prices. There is a retail currency that
consumers pay a premium for and an advertising currency that is sold to sponsors at a discount to the
retail currency and given away free. Although the consumer “perceives” that a WildCoin is always worth
about .25 cents, the currencies real value can vary wildly by as much as two orders of magnitude between
it’s paid value and what an advertiser paid for them.
/100
The WildCoin illusion works as long as the game has virtually no cost to deliver. It fails for games that have
significant delivery or service costs such as large download games and MMOG’s because real costs narrow the gap
between the games perceived value and its actual cost to deliver
105
Tokenomic Arithmetic
Disentangling Spooky Currency
“Spooky” currency works best when the cost of delivering a game experience online is negligible. To deal with
situations in which WildCoins are to be used for games that have significant real costs the games WildCoin
session needs to be priced in terms of the sessions ACTUAL value/cost, while ad sponsored sessions for
the game are limited to ads who’s real CPM is sufficient to cover the cost of delivering the game.
The “Retail” WC Pool contains all the consumer
purchased WC’s spent during a given period.
The value of any coin in the pool is equal to the
average value of the all the coins in the pool
106
The “Advertising” WC Pool contains all the
dollars advertisers are willing to spend to
sponsor play during a given time period. The
pool is stack ranked to serve the highest CPM
value ads first and the lowest value ads last.
Tokenomic Arithmetic
A 22 cent session is equivalent
to a $220 CPM premium. The
ad server should only serve ads
into this session that exceed
this minimum CPM threshold.
If no ads meet the
requirements for this game, no
sponsored session is offered
If the average value of a paid WC is
18 cents and the minimum session
price is 22 cents, then the game has a
real WC value of at least 2 WC’s
Guaranteeing a “minimum” session value effectively
excludes advertising from games whose “real” costs
exceed the value of advertiser sponsored free play.
107
Tokenomic Arithmetic
Casual Game Pricing With WildCoins
A full retail copy of Bejweled sells for $20, it has a 1% conversion probability and the average Bejweled buyer
plays the game 100 times before tiring of it.
The “Value” of a single session of Bejweled to the average “paying” player is $20/100 = 20 cents. Hence the
“correct” retail price for a session of Bejweled is 1 WildCoin (< 25 cents)
The advertising value of a single session of Bejweled is it’s paid session value divided by it’s conversion rate or
20 cents* 1% = .2 cents/session.
Thus if you play a $2 CPM ad in front of every session of Bejweled it will generate as much revenue as selling
the whole game for $20 to 1% of the audience.
108
Tokenomic Arithmetic
=
109
Tokenomic Arithmetic
Enthusiast Game Pricing With WildCoins
A full retail copy of GTA sells for $60, has a 1% conversion probability, gets played 100 times before the consumer tires
of it and costs $5 to deliver initially
The “Value” of a single session of GTA to the average “paying” player is ($60 + $5)/100 = 65 cents. Hence the “correct”
retail price for a session of GTA is 3 WildCoins (< 75 cents)
The advertising value of a single session of GTA is (60 cents + $5)*1% = 5.6 cents/session or a $56 CPM
Thus if you play a $56 CPM ad in front of every session of GTA it will generate as much revenue as selling the whole
game for $60 and cover its cost of delivery.
*Note that in this example you have to recoup $5 from 100% of the players + $60 from the 1% that are buyers = $560
110
Tokenomic Arithmetic
MMOG Pricing With WildCoins
A copy of WOW costs $5 to deliver online and has a $2/mo service cost per user account generated. It has a $15/mo
subscription price and a 1% conversion rate. The average WOW player plays 20 times/mo
The “price” of a single session of WOW to the average “paying” player is ($15 + $5 + $2)/20 = 85 cents (assuming you
want to try to recoup all COGS)
The advertising value of a single session of WOW is ($15/20 + $5 + $2/20)*1% = 5.9 cents/session or a $59 CPM
Thus if you play a $59 CPM ad in front of every session of WOW it will generate as much revenue as selling a $15/mo
subscription to 1% of the free playing audience with all costs associated with delivering and hosting the game
recovered from the free audience.
111
WildCoin Symmetries
Try & Buy
Advertising
sponsored free
play
Microcurrency
based MMOG’s
112
“Book of the
Month Club”
BMC
Measuring the “value” of game
ownership
There are several “features” of a game that consumers subconsciously assign “value” to including;
•
Ownership
•
Community
•
Persistence
•
Recognition
•
Production values
•
Accessibility
•
Etc..
Efficiently identifying where a games optimal point of conversion is and what “feature” is driving conversion is
important to recognizing the maximum revenue for a given game and consumer.
Breath
freshening!
113
Tarter
Control!
Pricing “Rent  Ownership”
When a consumer pays WildCoins for a session of a game they are “theoretically” placing value in the flexibility
of WC pricing that allows them to pay only as much for gameplay as they are enjoying. This flexibility
carries a premium
The “idea” behind allowing consumers to use WildCoins as a means of paying incrementally for a game is that
at some point in enjoying a game some consumers will transition from valuing the flexibility per/session
pricing affords to valuing ownership of the game more highly.
In theory the sense of investment the consumer gets from playing a game over several sessions with WildCoins
may translate into a willingness to pay a premium for ownership of a game they have not completed.
?
Flexibility
114
Ownership
Pricing “Rent  Ownership”
• The Goal
– Capture the maximum value from a game by maximizing the $$
a consumer places on flexibility vs ownership
– Recognizing that some consumers may exclusively value
flexibility or ownership, establish the optimal point and price of
conversion between the two value propositions
The optimal point of conversion
from trial play to purchase occurs
at $24 after 5 paid sessions of play
in this example. With audience
loss factored in the optimal
conversion point is the same but
yields a total of $20
$30.00
$25.00
$20.00
Cummulative Session
price
$15.00
Remaining purchase
value
Yield
$10.00
Audience loss
included
$5.00
$1
115
3
5
7
9 11 13 15 17 19 21
Online Consumer
Fish Ladder of efficient monetization
Full Retail game
purchase
Paid WildCoin
session play
Free Ad
sponsored Play
116
Persistent
subscription
billing relationship