Should An Online Game Operator License Or Build Games?

Online game operators frequently have to make a decision to license or to build games. To a certain degree this decision is similar to a buy versus build decision for any software product or service. However, there are some unique characteristics associated with operating online games that make the decision to license versus build more challenging for an online game operator.

Should All Games Look And Play The Same? - Each game development team will have its own way of developing games that impact the look, feel and mechanics of a game. If an operator plans on licensing games from a number of different vendors it is important to understand what the players tolerance is for differences in game interfaces and mechanics. If the operator develops their own games this becomes less of issue because the operator can control and influence the game experience.

Do The Games Have To Be Integrated Into Social Networking And Social Media Properties? - Social mediums such as Facebook, Twitter, Bebo, MySpace and Hi5 are becoming platforms for game delivery. It is no longer adequate to solely have a web site as a landing page and entry point into a game experience. An operator has to have a presence on social media platforms to reach optimal market share. This places a demand on game suppliers and operators to provide games in social media environments and on web sites.

Thin(web 2.0) Versus Thick Game Clients - It used to be conventional wisdom that an operator had to have a downloadable game client to provide a player with the visual and game play mechanics sophisticated enough to address the demands of players. With the proliferation of Web 2.0, advanced graphic develop tools and full featured web browsers the gap between thick and thin game clients is closing making it possible to provide the same graphic and mechanical experience through a browser. The need to support both thick and thin client game clients needs to be taken into consideration when deciding on the platform of chose. Social Networks are especially sensitive to the need to support thin clients and make it difficult to integrate thick clients into their environments.

Game Platform - Games require a platform to operate on. A platform provides payment processing, reporting, interfaces(api's) to internal and external programs, security, data storage, ad serving, age/location/identity, server side processing, community and social networking features.

When an operator licenses or builds a game system the platform is a much larger and more sophisticated then an the individual games that run on the platform. When an operator "buys into" or builds their own games they are committing to a game platform. Supporting a range of games requires a sophisticated and flexible platform to deliver a wide array of game content.

Development Team - Online games are developed by teams of developers, engineers, project manager and product managers. The teams use certain program languages, API standards, databases, architecture and messaging systems.

Building games is non-trivial and requires a sophisticated technical and managerial staff. Despite the expense and sophistication of a development team, having a development provides an operator with the flexibility to build games and a platform that meets the immediate and ever changing needs of the organization. It also allows the operator to be less dependent on outside resources.

IT Infrastructure/Cloud Computing -Game platforms run on hardware that has to be hosted somewhere. The hosting requires a staff to manage the operation regardless of the hosting environment. Cloud computing has become a new option for game operators obviating the need for hardware purchases. However, the move to cloud computing is not necessarily a good fit for game platform hosting. If a game platform has extreme CPU utilization spikes, rapid increase in storage, inter server communication, database architecture issues and API calls to systems outside the cloud it could rule out the cloud. The important point is to recognize that hosting is a large part of game platform operation that either the vendor or the operator will have to tackle and manage.

Time To Market -Operators are frequently under pressure to get a platform and or games up and running quickly. The pressure to accomplish this goal can have a significant impact an operator's decision to license versus build. There is no single path that will optimally get an operator to market faster. However, there are long term implications to either decision that should be taken into consideration in concert with the decision to get to marker quickly. In some cases the short term goal of getting to market quickly could have negative long term consequences for the organization.

Market Differentiation - It is difficult to differentiate a game property if you are licensing games. There is certainly a way to mix and match games or provide different incentives and promotions to set an operator apart. However, in the end the games you are licencing are the same games that are available to other licensees.

Flexibility And Control - There is an operational and philosophical question that an operator needs to answer before embarking on the license versus build decision. How much control and flexibility do you need to have over your game product offering? This decision is not made out of context without consideration of the other items I have mentioned. However, a decision to license versus build has long term implications in respect to the operators ability to react and move quickly to changing market conditions.

Conclusion - The decision to license versus build games is a complex decision requiring an operator to consider many factors and to avoid the temptation to react to a short term objective that may have long term consequences. Once an operator commits to a certain course it is difficult to change. The decision should be well-thought out evaluating the pros and cons of the decision and the impact on the long term health and welfare of the business.

My experience working with Pay For Play and Free Play gaming sites has shown how important a Free Play offering is for the success of a Pay for Play gaming model that requires a player to transact via a credit card payment. There is a symbiotic relationship between models that require payment and those that do not. In a perfect world a gaming operator would actively support both.

The illustration below represents a classic marketing funnel report starting with the initial visit of a potential player to a Pay for Play site driven by various marketing programs.

The illustration represents the consistent drop off of acquired traffic as the potential player begins to be confronted with credit card ultimatums.

Fear and apprehension of depositing money via a credit card transaction over the web is high. Even for traditional E-commerce businesses establishing trust is necessary before a person will relinquish funds from their credit card and commit to a transaction. In the case of a gaming operation this apprehension is even greater because there are no physical goods associated with a transaction and there is no guarantee that the money deposited and the experience provided will result in an equal amount of value being returned. This psychological chasm requires a business strategy that builds player confidence in the operator’s property to the extent that the player will become convinced that a deposit will be reimbursed in the the event that no play is executed or the game experience is fun and fair leading to the prospect that the player can win cash.

I learned this lesson the hard way when I launched a subscription gaming model in the UK, without a Free Play option. The fall off due to a credit card requirement was on average 50%. That means that 50% of all people that made it through the initial introduction steps got to the credit card page and then dropped off. This part of the funnel drop off was the most dramatic of any other drop off through the funnel. To avoid this part of funnel drop off an operator should create an intermediary state that lets a player experience the gaming proposition before they must commit to a credit card transaction.

A Free Play offering is a great way to improve the funnel drop off and to introduce the player to the game property. It provides a non-committal step that gives a potential Pay for Play player play time without pressure to transact immediately. It gives the player a low risk opportunity to enjoy game play and to build trust in the operator’s ability to handle transactions properly.

The Free Play pool is much larger than the credit card pool without free play. This is very important because it provides a Pay for Play operator more opportunity to convert a higher number of players into Pay for Play players. A well integrated Free Play and for Pay for Play environment is critical for a “high” conversion rate. Players should be able to see the benefits of playing for money while playing for free. The Free Play and Pay for Play should be tightly integrated giving players the opportunity to move back and forth from Free Play to Pay For Play. The ability to move freely between the two models should be easily understood. The marketing department should leverage the Free Play option by promoting it in marketing programs.

Free Play also becomes a great retention tool allowing Pay For Play Players to stay on an operator’s property when they do not have the money to transact, they get fatigued or they are unavailable to play regularly. When they do have money and time to transact they can move back into Pay For Play Status. This way the operator does not lose the player when they are not able to Pay For Play.

Free Play is a great way for new players to learn the game and for all players to play more casually and with less stress. It can become fun and give the player an opportunity to try out strategies that they would not attempt in a Pay for Play environment.

The Free Play option should be engaging, have lots of players participating and be fun. Retaining Free Players in important. It is difficult to determine a general rule for when someone might become a Pay for Play player. This means that a Pay for Play operator should not trivialize the Free Play experience. It should be taken as seriously as the Pay for Play option. You never know when a Free Play is going to convert.

You can generate revenue from Free Players through Advertizing and potentially by selling Free Play leads that are not likely to convert to the operators Pay for Play business models. This revenue source can be used to embellish the Free Play experience to make it good enough to play frequently but not so good that is competes with the Pay for Play experience.

In conclusion, Free Play allows a Pay for Play operator to acquire more customers that a pure Pay For Play property. Free Play can also be used to retain players extending the lifetime value a player.