The Online Gaming Ecosystem

The online gaming space is evolving quickly. The speed and sophistication of this evolution is being fueled by an emerging ecosystem that rewards companies and games that take full advantage of it and punishes those that do not. The success of this ecosystem is manifest in the large and ever growing player numbers associated with online games.

The online gaming ecosystem is no different from its biological equivalents. It contains a hierarchical food chain, participants and intertwined environments. It fosters complex interactions between feeders, food sources and climates. Success in the ecosystem requires recognition of the rules of the ecosystem and adaptation to the ever changing nature of the ecosystem. There are winners (survivors) and losers (extinction) in the game ecosystem. Those that do not take full advantage of the system cease to exist or become marginalized. Those that do take take advantage dominate and consume ever more resources within the ecosystem.

There are a number elements contained and interacting in the ecosystem.

Players - Players are consumers of the game experience and act as monetizing (fuel) agents.

Games - Games are the honey that keeps players engaged and inclined to invite other players to participate.

Game Platform - Game platforms are micro environments within the larger ecosystem that attract large numbers of players to locations within the ecosystem.

Social Media - Social media is the communication mechanism that players use to communicate amongst themselves. It is also a communication mechanism facilitating communication between game providers and players.

Social Networks - Social networks and social media are closely allied. Social networks act as connection, invitation and retention tools for players, game platforms and individual games.

Free Play- Free Play has traditionally been used by game providers to entice and expose players to games. In the emerging ecosystem free play is primarily used as a tool to acquire and retain players.

Virtual Currency/Virtual Goods (Micro -Transaction) - Virtual Currency has become a means to fueling (monetize) and funding the ecosystem with relatively small micro-transactions.

Macro-Transaction (Gambling) - Macro Transactions are traditionally associated with gambling. These transactions are relatively high stake transactions.

E-mail - E-mail is old school but still a vital way to stay in contact with the game community, maintain a relationship with players, up-sell players and acquire new players.

Affiliate Programs - Another old style marketing tool that has survived and acts as a means of creating alliances between companies for the purpose of attracting players to a game experience.

Referrals - To a large degree referrals have been replaced by social networks. They survive (barely) because in a few cases financial incentives do garner players.

Ad Networks - These environments foster both monetization and promotion of games. The Ad monetization us usually found in the free play zone.

Working Capital - Working capital is also a fuel to grow large game networks. The sheer size of successful gaming communities requires sophisticated game platforms to hold the players. Working capital is required to build and maintain the gaming infrastructure. This is especially important in the early growth phase of the game platform.

Regulations - This is the voodoo (threat) of the gaming world. Regulations are frequently ambiguous, subject to interpretation, ever changing and unclear putting into question if a game is or is not legal. Despite the sometime confused and questionable effects of regulation they need to be respected because the consequences of ignoring them could be devastating to an online game business.

The game ecosystem has become an important force because it is changing the rules on how to grow online gaming communities. More importantly the "business" of online games is becoming "big" business. It is no longer the domain of relatively obscure and self contained MMOG economies. Games have gone mainstream and are attracting serious player numbers and revenues.

Social networks and social media are two parts of the ecosystem that have radically changed the gaming landscape. However, these are not the only elements that have changed the ecosystem. The definition of a game has expanded resulting in greater number of games and game styles to play. The virtual currency/goods purchase and exchange trade has created a new monetization mechanism. Its low transaction cost lowers the barrier for players to engage in gaming financial transactions.

Acquisition/Retention Changes - The ecosystem has changed the way players are acquired and retained. In the old days Ads, affiliate programs, email and referrals where the primary means of acquiring players. Retention was the domain of the game experience. The slide below illustrates how games are now embedded within social media and social networks. Acquiring and retaining players requires a player to pass through the social networks and social media rings of the ecosystem. Without these outer rings of support game communities would not be growing at the same rate.

The illustration below shows how the ecosystem also helps to move players laterally in both the acquisition and retention directions. The free play component becomes very important in the ecosystem. Free play is a great entry point for players and also contributes to the higher retention rate. Easy and free is a comfortable place to hang out, play games and socialize with your friends. It also acts as a good transition stage to micro-transactions. This transaction state is one of the reasons the new online game offerings are generating so much revenue.

The next illustration shows the monetization ladder that has developed within the ecosystem. The revenue per player is relatively low for free players. However, if you effectively move players up the ladder from micro transaction to macro transactions you will experience maximum revenue realization from your player pool. The key is not to view players as only free players, micro-transactions or macro-transactions. Any player can and will become part of each group. In the new ecosystem they are encouraged to do so for the purpose of retention. Why completely loss a player from the system just because on a given day they are not interested in transacting at the high or lower levels?

The slide also illustrated that despite the relatively low number of macro-transactions in the system their overall revenue contribution is high. This makes perfect sense if you have had any experience operating a gambling model.

The complexity of the ecosystem is what makes it work effectively. It provides a number of options and states for players. It does not have a single goal of only getting the maximum amount of revenue per player or have the most players in the game. It supports all of these goals. Certainly game operators can have offerings that do not include all of the elements of the ecosystem and be successful. However The game businesses that combine and manage all of the elements in a coordinate manner will be the big winners.

The emerging online gaming ecosystem does present challenges for traditional macro-transaction game operators that have done so well monetizing players with relatively small gaming communities. Regulation makes it difficult for them to access and retain players through social networks. However, social mediums such as Twitter and Youtube are still open to them if they position themselves correctly. Also, some existing large social gaming properties have demonstrated clever way to move players acquired in social networks over to macro-transaction models (this is a topic for a future blog). The risk for macro-transaction operators if they do not participate in the ecosystem is marginalization outside the system and within their own communities.

In conclusion, the games have begun so to speak. A relatively complex gaming ecosystem is emerging and evolving giving rise to very large gaming communities with significant revenues. There is still plenty of room for evolution and experimentation. However, as the larger social networks such as Facebook begin to dominate the social network space and social game sites like Tencent create large inventories of games and players it will become harder survive in the ecosystem. On the positive side the evolving concept of a game and the likely emergence of new social networking models will change the ecosystem equilibrium and offer opportunities for lessor known and new social gaming operators.

Asian iGaming Conference Macau 2010 - I will be making a presentation on the Online Gaming Ecosystem on February 23rd. If you would like to view the presentation it cane be accessed at:
http://bit.ly/AsianiGamingPres

The Power Of Your Existing Players

The importance of existing players in the effort to acquire new players dawned on me when I was operating an online bingo and casual subscription game site in the UK. We had launched our site without a player referral program and decided to initiate a program three months after the launch. I expected the referral program to generate a certain amount of new players. The program was not meeting my expectations so I asked our customer service organization to conduct a random survey of our existing player base to understand why they were not referring more players.

I was surprised by the results. With few exceptions the survey revealed that our existing players had been referring other players well before we began our official pay for referrals program. The players that liked our site and content voluntarily invited their friends and family to join our site without any thought of monetary consideration.

I dug deeper and had our customer service organization ask more questions about why they decided to voluntarily refer other players.

1.) We like your game content.
2.) We like the diversity of games.
3.) We like the responsiveness of your customer support organization.
4.) We like your quick payment of prizes.

The conclusion from this early experiment resulted in the development of a philosophy that "The Best Customers Are The Ones You Already Have". This appears to be an obvious concept but it never ceases to amaze me how it is completely ignored or rendered subservient in most online game marketing efforts. Marketing organizations typically focus on acquiring new customers through all kinds of clever advertising, referral networks, SEO web site modifications, banner ads, business partnerships, etc. The budgets for these efforts in some cases are extraordinary.

The success of Friendster and eventually Facebook, Bebo, Hi5 in growing large communities based on the common practice of exploiting existing users of a system and applications further reinforces the importance 0f existing customers or players as marketers. The phenomena of online properties of all kinds growing large user bases with nothing more then the ability to invite other people to the site or with unique content is a great lesson for new and existing game sites.

Games are entertaining and are inherently viral if the right game content and community features are available. Leverage those attributes. If you are not growing your player base naturally through a voluntary invite and referral network then something is wrong with your property. Do not just throw more money at the marketing budget!!

Ask Yourself These Questions:

1.) Is your content interesting and fun?
2.) Do you have enough game content?
3.) How do your players communicate and collaborate?
4.) What are players saying about you?
5.) Are your competitors growing their player base organically?
6.) Are you refreshing content on a regular basis?
7.) What is the reputation of your customer service organization?

In my own experience with the Bingo site I was happy to know that I was getting organic growth from voluntary referrals. However, I was still not happy with total growth. I had my customer service organization asked more questions of my players.

1.) Your games are great but we want more games. We want lots of different games.
2.) We have no way to connect with other players or invite them to your site.
3.) FREE PLAY matters! My friends are nervous about having to pay right away for your service can you have a free play option.
4.) I do not know how I am doing relative to other players.
5.) I want to challenge others in game play.

If you look at this list it has nothing to do with a lack of visibility on the web. It has everything to do with the product and the interest of players to be entertained and to engage in a community that shares their common interest in gaming.

In conclusion, gaming oriented sites face challenges and have unique advantages that other online properties do not. Existing players are you best source of information about your property and if properly managed will help to grow your player base without the need for overly aggressive marketing.

Optimizing Pay for Play Conversion

In a recent blog I discussed the benefits of using Free Play as a tool to avoid the dreaded credit card fall off problem and to create a retention pool that allowed fatigued Pay for Play players to continue with a game property in the Free Play pool. Another option is to offer a lower risk Pay for Play product that bridges the gap between a Free Play and a Pay for Play offering. Certainly providing a Free Play and Pay for Play product combination is powerful and preferential to a pure Pay for Play offering. However, the step from Free Play to Pay for Play can be too steep for some players. To minimize the risk and perceived player trepidation associated with a Pay for Play offering a lower entry fee option should be considered. This could be in the form of a mirco-transaction for a single game, table, tournament, etc. Or it could be a flat fee payed for a fixed game access period.

A possible critique of this strategy focuses on the lower revenue per customer for Free Play or Micro/Subscription transactions. Certainly this is true but it leaves out the fact that the pool of players interested in playing for free and for a lower committed monetary amount is higher. The illustration below attempts to show that these pool size differentials can be dramatic leading to a nice revenue stream from the two lower risks options. This approach should also take into account the higher conversion rate to Pay for Play and the retention value of these other models. If you combine all of these factors into the cost of acquisition you will find that this triad approach results in a superior return of marketing budget invested.

The other advantage of this combined revenue model approach lies in the conversion overlap of the three transaction models. The illustration below shows that the overlap of the micro/subscription model with Pay to Play players is higher then the overlap of Free Players and Pay for Play players. This makes sense because people that have never transacted or frequently Play for Free have a higher likelihood of staying put as opposed to players that have monetarily transacted in some fashion. This phenomena suggests that offering an intermediary transaction is very important to monetize players in a Pay for Play model. In fact the Play for Free model is growing exponentially and virally through the proliferation of social networks. These social networked players are playing and inviting their friends to play in extraordinarily high numbers. However, a bridge to get these players over to a higher yielding Pay for Play model is required to take full advantage of these ever growing pool of players.

An operator can partner with other operators that offer complementary game proposition. Each of them could focus on a market segment and exchange players. However, this should be a temporary solution unless legal constraints necessitate branding and operator distinctions. Branding is important and brand switching can be confusing for a player. A player would most likely want to stick with one brand and stay within one property.

In conclusion, the online gaming world is evolving quickly with the concept of a game is changing with the total numbers of players increasing rapidly. Many of these players are playing for free, casually and enjoying it. The size and comfort level of this Free Play pool is significant and should be used to build player confidence and retention in a Pay for Play site. The transition from Free Play to Pay for Play can be made more effective if an intermediary, lower risk/reward offering is made available to players. It is preferential that this combination of different experiences and transaction models be provided under a single brand umbrella.

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.