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Thursday, September 8, 2011

Making Money With Online Games

It is no secret that online games of all kinds are generating a tremendous amount of revenue for businesses. Although hard to confirm, it could be that games are the second highest source of revenue(Facebook credits) behind advertising within the Facebook environment and the highest source of revenue for individual application providers within Facebook. Online gambling has consistently posted  3 to 4 billion dollar revenue numbers per year with the numbers continuing to increase. We also see a big push to "gamify" traditional e-commerce applications to increase e-commerce revenues.

So what is this all about and why are games such an attractive way to make money on the web and in social networks?

There are a number of reasons for this phenomena with no single reason being the most important. A number of game elements come together to create an optimal environment for game revenue generation. It is also a myth that once you launch a social game or a gambling style game the money flows in. This is far from the truth with many social and gambling games missing the mark and being taken off of the market. Also, one size does not fit all. Some game elements work better then others in specific environments. A game launched in a social network has to have a social component to really make it work well. Conversely, I have seen single online slot games with no manufactured social elements generating great revenue while other slots generated very little revenue.

With this said, there are game elements that are common to most successful high revenue generating games. 

Engagement  - Games are differentiated from other Internet applications because they frequently engage the player  in an engagement that lasts more then a few minutes.  Essentially,  the consumer of the experience stays within the application longer then they normally would in other applications.  This engagement is achieved by exposing the player to a number of game mechanics.  The exact mix of game mechanics differs from game to game. However, the mechanics always have to add up to longer engagement within the game.

Community - Even in solitary play style games like slots and casino games a sense of belonging to a community is required to encourage a player to frequently return to a gaming property and to feel comfortable with contributing time and money to an online gaming operation.  This sense of community instills "trust" in the gaming operation, a common activity that can stimulate conversation among like minded players and a competitive element that encourages players to achieve recognizable milestones. Even in social games community must be cultivated to encourage players to connect with  other players in the gaming community thus growing the overall community. In many ways customer support operations play a big role in maintaining and growing communities. Addressing system problems, billing issues and game play disputes quickly and effectively is essential to maintain trust in the game platform and an indirect way to attract other players to the community.

Multiple Monetization Methods - Really profitable games have more then one source of revenue. In social networks the two primary sources of revenue are virtual currency and advertising.  In some cases games have small games included within them or on a side bar that generate revenue. When the player of the primary game becomes fatigued they have the option to play a short easy to play game.  Some game operators use a referral system to refer or up sell their players into other gaming venues. This multiple choice of revenue generating opportunities helps to increase revenue per play, decrease the risk of receiving no revenue per player and helps the game publisher understand which revenue methods work best for classes of players.  This later reason also helps game companies profile players into categories of less to most likely to contribute revenue for certain types of revenue generation offerings

Placement Of Monetization In Game - Where a monetization element is placed in game, when it appears to the player and the method of taking the transactions are critical considerations when designing a game. The opportunity for a player to contribute funds in a game should not distract the player from the game play itself. On the other hand the financial transaction should be presented in places where it is obvious that more fund contribution will enhance game play, allow a player to move to a higher levels in a game  or avoid the termination of the game. Monetization encouragement should be presented at critical places in  a game where more contribution to a game will increase the likelihood for an improved prospect of winning or winning larger prizes.

The Value Of Free Play And Ad Revenue - Many online game companies do not fully understand the value of free play in the context of game monetization. The ultimate goal of a free play option is to upgrade a player to a pay for play level,  to allow players that have pay for play fatigue an option to stay in the game community even if they are out of funds. Free play is used to keep players within the game community and defecting to another game site. Ultimately, this strategy should lead to more players transacting because the overall player pool is always increasing. 

Advertising can and should be a monetization method in free play. However, it needs to be  presented in such a way that the player does not find the advertising annoying. In this case the player will not be monetized to the full extent.  Unfortunately many gaming sites bombard free players with excessive advertising resulting in high drop out rates.  In some cases games sites do this to make the free play option so unpleasant that the player either leaves or upgrades to an advertising free pay to play level. This strategy is flawed because there is a high likelihood that the business will lose the player entirely. 

Reasons to Return To The Game - Inevitably gamers have to leave a game for a number of reasons. A good game will always have a reason for the player to return. The reasons to return to a game are varied and depend on the type of game. In a role playing game(RPG) a player always has the opportunity to reach another level. Games like Cityville or Farmville use this technique to continually draw players back to a game. Essentially  the game becomes addictive. In a gambling game the reason to return is the hope that there may be a big payout or increased play will increase the likelihood of winning. In many cases the game creates a community of players. Many players return to a game to rejoin the game community.

Measuring Progress - Players enjoy comparing (competing) themselves to others and having a means of sharing  a status with others. This is just human nature and needs to be an essential part of any successful game. A game should have leader boards, notification of players achievements, point accumulations, levels of play achieved, etc. visible to all players of the game.

Monetizing Across Multiple Games - In an ideal world a game operator will have multiple game offerings. Many of the big game publishers in Facebook run multiple games. They constantly cross sell players to other games in their portfolio. The added games will help monetization in a number of ways. The obvious one is that once a player is acquired you can generate revenue from a number of games. The less obvious reason is that a player can become bored with a game and needs to be constantly stimulate by new games. If additional games are not added then the player will leave and perhaps not return.

Games Advertising/Branding - I can not think of a better place to advertise or obtain brand awareness for your product or company then in online games. The simple reason is that the players spend so much time in a game environments. Brands will pay a tremendous amount of money  for this exposure. I am surprised that gambling operators do not take more advantage of this form of revenue generation in their games. Some of the larger social game publishers are heavily sought after by big brands because the brands understand that some games give them sustained exposure to large number of players.

Hierarchical Pricing Structures - Having different pricing packages based on a game, type of game, access to games, etc, is a good way to extract a higher revenue per player. You see this often with an entry level fee and a premium offering. Game publishers could easily increase the number of levels in games beyond 2 and increase their revenue because players frequently do not have binary coin in decision points.  

Player Profiling - Player profiling has become a critical part of many gaming operations. Sophisticated business intelligence systems are being used to determine when players are likely  to transact, how often they will transact and how much they will contribute to a gaming operation. Essentially, knowing the customers has been raised to a new level because players are inadvertently giving game platform providers information about their game play behavior and themselves. Combining this information with player profile information volunteered by the player and the players social networking connections results in targeted acquisition  and up-sell programs that increase the spend per player.

Clearly, online games have become a good  source of revenue for game publishers. However, not all game publishers are fully optimizing their games sites to take advantage of the revenue opportunities. E-Commerce sites will continue to be intrigued by the value of game mechanics in their applications for good reasons.  The continued popularity of games will drive companies wishing to brand themselves and their products to spend money on games as a way to get there products and services recognized resulting in additional revenue sources for game publishers. Given the creative nature of games there are still many opportunities to launch successful games. We may see the addition of more ways to monetize games given their popularity opening the door to new game development, new venues and higher revenue.  

Interplay of games on mobile devices, on the web and within social networks still has a long way to go offering creative opportunities  for new entrants in the space and even more opportunity to generate revenue. 

Just having a game in Facebook does not guarantee high revenues.  Games have to be interesting enough to support all of the mentioned features and they have to be engaging enough to attract high numbers of players. In the Facebook environment we are talking about millions of concurrent players if only single monetization methods are employed. If more monetization methods are used fewer players are required.. In gambling style games the total amount of players can be smaller becomes of higher transaction amounts. However, retention features are critical to maintain adequate income to support a game.

In all game environments a steady flow of new games should and will be introduced as businesses and governments realize the value proposition of games.  This means that competition will intensify and player expectations will be higher resulting in the demand for more interesting games, more variety and better ways to entice players to part with funds to play games.

 Kevin Flood is the CEO of Gameinlane, Inc. Kevin writes extensively about online games and their impact and integration into iGaming and E-commerce environments. Kevin is a frequent speaker at online game events and conferences in Asia, Europe and the US. Kevin and his Gameinlane team are currently working with online gambling, social gaming and e-commerce companies integrating social gaming with online gaming operations and integrate game mechanics into e-commerce applications.   



Kevin Flood said...

Jacques Ledisco • Casino and card games are the top free Android downloads.
Mobile Betting News publishes a monthly report on casino & betting apps.

Mobile Gaming Trends: Popularity, Pricing and Monetization 26 July 2011
Hendrik Koekkoek/Distimo

The latest Distimo Publication covers the Apple App Store for iPad, Apple App Store for iPhone, Apple Mac App Store, BlackBerry App World, GetJar, Google Android Market, Nokia Ovi Store, Palm App Catalog, and Windows Phone 7 Marketplace in the United States for June 2011.
The major findings are:

• The average selling price of games declined by 28% over the last year, while the revenue generated by the most successful freemium games increased tenfold during this period in the Apple App Store for iPhone.
• The presence of virtual currencies within games is one of the main reasons behind the popularity and monetization success of in-app purchases. 35% of the 300 most popular free games in June use some sort of virtual currencies to monetize in the Apple App Store for iPhone.
• Looking at the 300 most popular paid for applications, 72% of downloads are generated by games while the remaining 28% of downloads are generated by applications other than games in the Apple App Store for iPhone.
• The total revenue generated by top grossing games increased by 79% year-on-year in the Apple App Store for iPhone.

The among the most popular free games, Full Deck Solitaire, by GRL Games ranked No. 1 on the iPhone.
Mahjong, by Byterun Entertainment, ranked 4th.
Texas Poker - Pokerist, by KAMAGAMES LTD, ranked 8th.
For the Android, Live Hold’em Poker Pro, by Dragonplay, continued lead all free games.

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locusplay said...

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