Archive for the ‘Online games business’ Category

March 22, 2011 | Nicholas Lovell

A free-to-play game is fundamentally different from a traditional game.

It no longer seeks to charge every user the same amount of money for the same experience (a business model that is rooted in the atoms-based world where differentiating between customers was prohibitively expensive.


Instead, a successful free-to-play game follows the rule of zero-one-one-hundred

Zero, one, one hundred

A free-to-play game:

  • Enables a player to play the game for ever, for free, and gives them a good – even a great experience while doing it
  • It makes it easy for them to spend a dollar. Getting gamers to reach into their pocket the first time is hard. Making it as easy as possible for them to spend a tiny amount is very worthwhile
  • It lets them spend $100 per month. I’m not expecting them to spend this every month. I’m not sure that’s sustainable for many people. But in a free-to-play game, many people will only spend $1. To achieve a high ARPPU for a free-to-play game, you need have spend some people spending a lot more.

Isn’t that immoral? To push for high spenders.

My objective is to get people to be prepared to spend a day’s wages on something they love. In other walks of life, this would not be seen as unreasonable. A football fan spends that in a month. An Xbox gamer does. A dinner out with a loved one. A ticket for a concert or a show.

In the UK, a day’s wages is about £100. Is it unreasonable to think that someone who loves what you do would be happy to spend that much?

This is a fundamental change to how we think about media. If I spend £40 on Homefront and hate it. Tough. But in free-to-play, no-one is suckered into it by clever marketing. They have been playing the game, for free. They have decided that progress, or self-expression. or gifting is worth paying for. The reasons for paying will vary from person to person.

The constant is that they have chosen to pay. A wise game designer will create a range of different things for them to buy. A wiser game designer will ensure that those who love the game can spend $100 a month.


Gamesbeat – Dean Takahashi

Mobile gaming is the wide-open battleground of the entertainment industry. While Zynga dominates social games and big publishers rule console games, the global smartphone game market is still up for grabs.

Since there are potentially billions of users in this market, mobile gaming could become the largest game market of them all. Who will win it?

Smartphone games have been growing as a market since 2007, when Apple’s iPhone debuted. Tablet games have been growing since the spring of 2010, when Apple launched the iPad. Now the fastest-growing mobile market is based on devices running the Android operating system. With triggering events such as the success of Angry Birds, the hit Rovio game that has been downloaded more than 200 million times, mobile game companies are raising tens of millions of dollars. Mobile game companies have garnered significant valuations, particularly overseas.

Tim Merel, managing director at Digi-Capital, says, “The time to act is now.”

The potential of mobile games

Mobile games could be a $13 billion market in 2014, according to Merel. Mobile and online games together could be a $44 billion market, or 50 percent of the global $87 billion market in 2014. Today, mobile games are around $8 billion, a small slice of the overall game market, which is still dominated by console games, web games, and Facebook games. (IDC estimates mobile games will grow to $5 billion in a few years; Gartner says that mobile gaming was $6.7 billion, or 10 percent of the $67.4 billion game market in 2010; the estimates vary, but few doubt mobile games will have a great growth rate).

How will a huge mobile game market come about? That’s one of the questions we’ll explore at GamesBeat 2011 on Tuesday and Wednesday at the Palace Hotel in San Francisco. We’ve got 80 of the game industry’s finest minds focused on the evolution of mobile gaming. We all want to figure out how to connect the dots in mobile games.

Backlash to the hype

The cynics among us shudder at the hype. Some companies that dove in too early found there wasn’t enough water in the swimming pool. That is, the ecosystem hasn’t been fully mature in the past. It’s a market where lots of companies have tried to succeed, but very few can claim successes. For every Angry Birds, there are thousands of failures. The tale has been similar for other gaming bubbles in virtual worlds, feature cell phone games, and casual web games.

Mobile gaming nirvana isn’t here yet. Platform owners such as Apple have made changes that have disrupted the businesses of game makers, such as when Apple recently banned certain incentives for marketing games. The Android ecosystem is fragmented and not as mature when it comes to making money. And other platforms are still fairly weak in terms of a proven ability to generate revenues.

Still, it would be foolish for game companies to avoid investing in mobile games, for fear that they might get more scars. Those who invest and fail and learn are the ones that get ahead. There was a lot of chaos and friction in the early days of Facebook as well. But that eventually turned into a solid platform for making money. The mobile ecosystem is maturing as well. There is plenty of evidence to point to progress on this front. It always takes a few years of trial and error before an investment pays off.

Nintendo and Sony once ruled mobile games via devices such as the Nintendo DS and the PlayStation Portable. But Apple has busted the market open with more than 200 million iOS devices sold since 2007. There are more than 425,000 iPhone apps and 100,000 native iPad apps that have been downloaded more than 15 billion times. That shows that the barriers to entry in mobile games have been lowered so that almost anyone can enter. Small developers such as Dave Castelnuovo’s Bolt Creative — maker of Pocket God — have sold millions of units. Big hits have emerged such as Tiny Wings, Talking Friends, Angry Birds, Infinity Blade and other titles. Apple has paid $2.5 billion to its developers to date.

But the competition is also nightmarish. The average revenue per app is about $5,882. That’s not enough to support the huge ecosystem of developers chasing the market, let alone big companies. Nintendo CEO Satoru Iwata (pictured holding the Nintendo 3DS) said in March that the presence of so much free and $1 software (the average mobile game price is $1.05) in the smartphone games market isn’t healthy and is a primary reason Nintendo is avoiding the market.

Trip Hawkins (pictured right), chief executive of Digital Chocolate, has also warned that the glut of games on the smartphone platforms means game developers will find it hard to make money, noting that the average revenue per game doesn’t even pay for a really good foosball table. Too much junk can ruin the market for everyone and make it hard for consumers to find the good games, resulting in a lot of bad experiences in mobile games. Today, there are 64,048 games on the App Store, including 291 new ones a day. The cost of making these games is in the tens of thousands or hundreds of thousands of dollars, a lot less than the multimillion-dollar console game budgets.

Making the right and wrong choices

By comparison, Zynga is bringing in $235 million per quarter with a base of 232 million monthly active users for its Facebook games. With 600 million users, Facebook is a smaller market than the worldwide mobile phone market. The land grab in social games took place from 2007 to 2009. The result is that Zynga has more users on Facebook than the next 15 rivals. That has positioned the company to go public, raising $1 billion or more in an offering that is expected to value Zynga at $20 billion.

That is how the market rewards companies that pioneer a new market in games and come to dominate it — at the right time. Will the same thing happen again in mobile? Social Gaming Network, which once looked more promising than Zynga in both social games and mobile games, shifted into iPhone games early on, abandoning Facebook games. That turned out to be the wrong move. MindJolt recently acquired SGN for an undisclosed price, but SGN was definitely far less valuable than Zynga by the time it sold out.

The interesting thing here is that Facebook has crushed a lot of its competition. Now both Facebook and Zynga are reaping the rewards. With mobile, Apple faces a bruising fight with Android, which has begun to win the race in terms of numbers of phone activations. The fierce competition is driving the mobile market forward at a faster pace, and that should result in a faster growing mobile games market. Android app downloads have crossed 5 billion, and there are about 40,000 games on Android now. The result is a spiral of competition, where Android and Apple are propelling each other forward at faster and faster rates.

At some point, the numbers game won’t matter. The platform that wins won’t be the one with the most apps. It will be the one with the most retention of users and the most engagement. As Bing Gordon, a partner at Kleiner Perkins Caufield & Byers, said at our last DiscoveryBeat conference, a developer’s job is not to get a first date, or a second date with a gamer. It is to get an anniversary.

The necessity of investing in the future

Some companies have invested a lot of money early to be out front in this fight. Electronic Arts bought Jamdat, a maker of games for feature cell phones, for $680 million in 2005. It used that position to ready itself for an even bigger mobile game market with the debut of smartphone games. EA now has some of the biggest grossing iPhone apps of all time, including Tetris, which has had more than 132 million paid downloads to date.

Other players that have made big investments include Gameloft, Rovio (it made 52 mobile games before Angry Birds took off), Ngmoco, Digital Chocolate, PopCap Games, Glu Mobile, GameHouse, Capcom, and Disney Mobile. Successful startups in mobile include Storm8, Pocket Gems, TinyCo, Craneball Studios, Gameview Studios (part of DeNA), Sunstorm Interactive, Backflip Studios and Outfit7.

John Carmack, one of the world’s greatest graphics experts and game designers, says that it is unquestionable that mobile gaming technology will surpass the current consoles within two years.

Distribution and discovery matter

These companies are building up user bases that can become distribution networks for future games. Recognizing that it has distribution power, TinyCo has started a $5 million fund to invest in small developers to help them launch their games. Why would a game company raise $18 million and turn around and invest $5 million in others? It is leveraging its newfound distribution power.

The distribution power is what the game developers need in order to stand out from the nightmarish competition. How to get your game discovered in a sea of content is still an unsolved problem. The problem of discovery gave rise to mobile social networks such as OpenFeint, which offer tools to socialize a game with achievements, leaderboards, and friend competitions. In Japan, DeNA became a billion-dollar company because tens of millions of Japanese phone users used DeNA’s Mobage network to find games.

But in the U.S., the mobile social networks have not yet become billion-dollar companies. Still, the potential is there. That is why DeNA, benefiting from its strong base in Japan, was able to buy Ngmoco for $403 million. That seemed like an extravagant price to pay for Ngmoco, but DeNA saw a chance to become a worldwide global player in mobile social networks. Gree, DeNA’s rival in Japan, had to step up on the global stage as well and it acquired OpenFeint for $104 million. Ngmoco’s Neil Young believes that the billion-dollar companies will be created in the mobile social network space in the next couple of years because of the discovery problem.

Beyond the mobile social networks, all sorts of supporting companies are attacking the discovery issue. Tapjoy is promoting games through its own powerful marketing networks. Applifier is adapting its Facebook promotion bar to mobile. Getjar is offering strategic placement in its app store to promote games. Even American Express, Paypal, Zong, Visa and other payment companies will get in on the act, finding ways to eliminate the friction in paying for mobile games so an ever-wider audience can enjoy them.

The investment juggernaut

Game companies raised $1.05 billion in 2010, up 58 percent from a year earlier. Only four of the top 20 companies on that list last year were mobile companies. This year, Zynga alone could raise more than $1 billion in one fell swoop with its expected initial public offering.

But now we’re seeing investors who are embracing mobile-first strategies, where game companies lead with mobile games. The momentum of this investment into mobile is clearly growing.

TinyCo raised $18 million. Digital Chocolate raised $12 million. Pocket Gems raised $5 million. Rovio raised $42 million. The investors are also getting more interesting: Accel Partners, Kleiner Perkins, Sequoia Capital and Marc Andreessen are all moving into the market. Storm8 hasn’t raised money, but it is generating considerable revenue, having recently reported its first $1 million revenue day.

This heavy investment is aiding and abetting a talent migration, as veteran game developers see more opportunity in mobile games and other digital arts. Jordan Weisman, who has made every kind of game imaginable from the Mech Warrior series to alternate reality games, recently started his own new mobile and social games startup, Harebrained Schemes. The Seattle company is creating Crimson, an iPhone game as the first game to be published by Bungie — maker of the Halo series of games — under its brand new Bungie Aerospace third-party publishing division. Asked why he did this, Weisman said that he’s old and doesn’t have too many more games left to make. The idea of taking a few years to work on one game just isn’t attractive to him; but the short cycles of mobile games changes that clock for him. Lured by the chance of riches or similar ambitions, there’s a whole generation of talent migrating to mobile games now.

Free-to-play paves the way

Free-to-play gaming has helped pave the way for a real business model in mobile games. Apple introduced in-app purchases — the ability to buy something such as a virtual good without leaving an app — in the fall of 2009. Google introduced in-app purchases this summer. On the App Store, about 65 percent of the revenue from the top-grossing games now comes from free-to-play games, according to mobile analytics firm Flurry. Back in January, only 39 percent of the revenue from the top 100 games were free-to-play. Separately, Xyologic reported in March that 40 percent of game downloads were free-to-play games.

That has drawn bigger companies such as Zynga, which recently launched CityVille Hometown on the iPhone. Last year, Zynga paid $53.3 million to acquire mobile game maker Newtoy, creator of Words With Friends, a hit Scrabble-like game. Zynga is acquiring mobile game companies regularly now, and it has 11 games on mobile phones.

But for every endorsement of the mobile game market, there is a setback. Apple wounded its own market in April when it abruptly cut off pay-per-install marketing, where developers paid marketers such as Tapjoy to offer incentives to users to install other apps. Apple felt that developers were buying their way onto the top 25 lists. That’s driving companies such as Storm8 to expand on Android. The effect is that it has become harder to launch new games which go on to be a top hit, said Matthaus Krzykowski, founder of app store search firm Xyologic and a frequent VentureBeat contributor.

The path to the future

But there’s hope that mobile games will become a great market. Nielsen Research says that games continue to be the most popular category for apps. About 93 percent of app downloaders are willing to pay for games that they play. On average, mobile gamers play 7.8 hours a month, while iPhone users in particular play 14.7 hours a month. In Japan and Europe, mobile game usage is huge, and it is growing in the U.S. A survey by PopCap said a third of U.S. and U.K. adults have played a mobile game in the past month.

Tablet games are likely to take the market in a new direction. Companies such as OnLive are streaming high-quality PC games onto tablets such as the iPad 2. With game-streaming, the power of the hardware for the mobile device doesn’t matter. Games are stored and executed in a distant server, and video is sent down to the user’s machine, which can display the video whether it running on a PC or a tablet or, eventually, a smartphone.

Rob Wyatt, chief scientist of game-streaming firm Otoy, believes that game streaming could make consoles obsolete, allowing devices of any kind to run high-quality games. Cloud-based games will require good wireless connections to keep the two-way stream from being interrupted, but that technology is in the works. Steve Perlman at OnLive is working on something called Dido that will have virtually unlimited bandwidth for delivering high-speed data to wireless users. It sounds crazy, but OnLive itself seemed crazy two years ago. Now it works.

Meanwhile, many game companies are beginning to adapt online web games so they run on tablets, with routines added to support touchscreen or accelerometer controls. The tablet market may be an even bigger free-for-all, as both smartphone game makers and PC/console/web game makers can target the platform.

Sony and Nintendo, meanwhile, are doubling down on their investments in mobile games at the high end to make sure that Apple and Android devices don’t steal their high-value customers. Nintendo launched glasses-free 3D viewing on the 3DS in March, and Sony is preparing to launch the PlayStation Vita handheld with console-like graphics this fall. Nintendo’s Iwata insists that the company won’t be doing smartphone games.

HTML5 vs Native apps

Another factor that will affect the future of mobile games is HTML5, the new lingua franca for mobile and web apps that allows a game written in the format to run on a variety of platforms and devices. Digital Chocolate’s Hawkins believes that the arrival of HTML5-based mobile browsers will set game companies free from the restrictions of app stores.

HTML5 games run fairly slowly right now, so native apps, or those designed to run on specific devices, perform the fastest. But that could change over time as developers learn how to fine-tune their games.The latest approach to doing this is the “hybrid app,” which is a native app that runs all of its components in a browser. The fastest games must still be coded in native formats, but that could change. The game engine makers and other tool makers may figure out how to make cross-platform games.

With games running in the browser, users won’t be dependent entirely on purchasing apps from app stores, which take a 30 percent cut. That would complete the revolution that began with the creation of the app store concept, which bypassed the gatekeeper carriers who previously had control over which apps were available for purchase. When the app store owners lose control themselves, content will be free. And that, Hawkins argues, will lead to a $100 billion game industry.

article from July 2011

Behaviour Interactive CEO Remi Racine believes that a single game is changing the mobile market, and it’s not the one that most people think.

Speaking to from the company’s Montreal studio, Racine singled out Beeline Interactive’s controversial Smurf’s Village as both the most innovative and profitable mobile game on release.

“Everybody is talking about Angry Birds, but the game, to me, that is changing the market is Smurfs’ Village,” he said. “Smurfs’ Village is outstanding.”

“I’d be curious to see who is making the most money between Angry Birds and Smurfs’ Village. When you look at the charts it’s always among the top three of four grossing games of the last seven or eight months. It’s always there. Angry Birds is in the top ten, but Smurf is in the top three. It’s amazing.”

Smurfs’ Village is free to download, but features an in-app purchasing system that allows players to spend large sums of money on “smurfberries”, the in-game currency, in just a few clicks. The cheapest quantity of smurfberries costs £2.99, more than most apps, while a “wheelbarrow” is priced at £34.99.

Beeline Interactive, a subsidiary of Capcom, came under scrutiny earlier this year after the Washington Post broke the story of an 8-year old girl, Madison Kay, who unwittingly spent $1,400 on smurfberries.

The child’s mother, Stephanie Kay, accused the game of “preying on children”, prompting US congressman Edward Markey to write a letter to the Federal Trade Commission. The FTC responded by promising that it would, “look closely at the current industry practice with respect to the marketing and delivery of these types of applications.”

Following numerous complaints from angry parents, Apple placed a warning on the game’s iTunes listing. Beeline Interactive also introduced a cap on in-game purchases in May, limiting players to 5 transactions every 15 minutes.

Racine declined to comment on whether Behaviour Interactive had a similar game to Smurfs’ Village in development, but claimed that the freemium model will eventually become the dominant pricing structure in the mobile sector.

“About 30 or 40 percent of the top grossing games are freemium based,” he said. “It’s the new way.”

Fantastic views from Tim Merel on the video games business

We are entering a world where the games market is fundamentally splitting in two, like the media market of a decade ago. Back then what we now call “old media” scoffed at “new media” upstarts for giving away content, bizarre business practices, and products and services that made no sense to the wise old birds. “They’ll destroy more value than they’ll create,” was the mantra.

Well, welcome back to the future.

Today’s games market is fundamentally splitting into “Value” and “Volume” markets, both by sector and geography. The two-speed market this is creating may have more rapid and profound effects on the games market than it did on the media market, with meteoric rises for some and slow going for others.

Let’s start by defining what we mean by “Value” and “Volume.”


  • Users: thousands to tens of millions
  • ARPU (Average Revenue per User): $-$$$
  • Costs: $ millions to tens of millions
  • Operating profit: negative to 20%+
  • Growth rates: negative to <10%
  • Business model: unit sales, subscriptions, virtual goods


  • Users: thousands to hundreds of millions
  • ARPU: ¢ – $$
  • Costs: $ tens of thousands to millions
  • Operating profit: negative to 60%
  • Growth rates: negative to 20%-100%+
  • Business model: unit sales, free, virtual goods, ads

Please note that these are not hard and fast rules, so there will be exceptions (such as World of Warcraft in Retail MMO when we get to sectors). But as a way of thinking about how the games market is dividing and what it means, they are useful rules of thumb.

In terms of thinking about where each games market sectors fits, here’s a starter:

Value sectors

  • Pure console
  • Retail MMO

Volume sectors

  • Social online
  • Casual online
  • Mobile
  • Social-mobile
  • Browser-based MMO

This categorization may be relatively uncontroversial, but the geographic divide possibly less so. Please note that for geography we are discussing user markets, not necessarily developer markets. Companies from any geographic location can succeed in other geographic markets, such as Zynga (US) and Rovio (Finland) globally.

Value geography

  • North America

Volume geographies

  • China
  • India
  • Brazil

Mixed Value/Volume geographies

  • Europe
  • Japan
  • South Korea

Put all that together, and you get the “Big V.”

The Big V

The eagle eyed will have spotted the small categorizations in brackets under Value (large long-term niche) and Volume (mass market growth) in the Big V chart above. If there is genuine controversy in this world view, it is probably here. So let’s explore.

Our forecasts are that online and mobile games should grow total video games market size to $87B and take 50% revenue share at $44B. The historically strong pure console sector is flat to down.

Our forecasts are that Asia Pacific and Europe should take 90% revenue share for online and mobile games (China 49%, Europe 17%, Japan 14%, South Korea 11% in 2014). North America remains important.

The drivers of this growing and changing world are socio-demographic and cultural, as well as technological. The most concrete statistics are socio-demographic, for which we’ll look at China as an example.

In 2010 China had 29% internet penetration, with around 382M users. So more Chinese internet users than the entire US population. China is forecast to reach 56% internet penetration (754M users) by 2015, or more than twice the US population, with the bulk of Chinese games played in internet cafes and on mobile phones. So while ARPU for gamers in China is much lower than America, the huge volumes enable Chinese online/mobile games companies to use incredibly efficient business models to deliver 50%-60% operating margins. To give a sense of scale, China’s Tencent generates up to 20M peak concurrent users, or roughly the population of Australia playing a Tencent game as you read these words.

China and the various online/mobile games sectors are the poster children for the Volume market, and fit the “mass market growth” description well.

For the Value side of the divide, the US and console markets are good examples.

The US population is stable, so remains a large market. The console market is flat to down, and despite recent and anticipated hardware launches we are unsure that this trend will change. Yet gamer ARPU in the US is much higher than China, and good console titles still sell for high prices at retail (even if increasingly bought online or with digital downloads). So the US and the console markets remain great games markets.

Yet compared to countries like China, the US is no longer the leading games Volume market in terms of gamer population. Even compared to Europe, the US is smaller by volume. When it comes to the console market, volumes, revenues and profits across the industry are generally trending down despite blockbusters like Call of Duty.

So in global terms, these markets look like they may become large long-term niches. Still great places to operate, valuable, capable of producing great games companies and great games, but generally not on the same scale or with the same growth rates and profitability as the Volume markets. Some of these Value markets are trying to transform themselves into Volume markets, and they may succeed in doing so despite the challenges. As before, this is not absolute and there should be many exceptions.

Recent games investment, acquisitions and public company valuations (see the June transaction update of our Global Video Games Investment Review 2011 for the data) indicate that investors may be taking a similar view.

So what does this mean for your games company investment?

Whether you agree with this world view or not (and it’s certainly open to interpretation and discussion), the underlying trends are what they are. They can’t be ignored, so you may as well embrace them.

As a starting point, ask yourself some simple questions. Depending on your answers, you may start thinking differently about how to invest, plan and operate to take advantage of the brave new world.

  1. Users: are your games aiming at thousands, millions or hundreds of millions of users?
  2. ARPU: do you measure ARPU in cents or dollars?
  3. Costs: do you think of game development and user acquisition costs in thousands or millions, and do you have the right cost/revenue model for your markets?
  4. Operating profit: can your business be flexed to deliver super-profits?
  5. Growth rates: could your business deliver 20%-100%+ annual revenue growth?
  6. Business model: what revenue sources are most important for your games — unit sales, subscriptions, virtual goods (currency/items), ads?
  7. Geography: can your games operate across geographies and cultures, or are they domestically specific?
  8. Platforms: are your games platform specific, or can they operate across sectors?
  9. Value to Volume transition: what can you achieve in Value markets as they transform towards Volume, and how does that compare to what you can deliver in existing Volume markets?
  10. Scalability: are you building a genuine business platform with scale advantages, or a series of hits?
  11. Exit: can you become a “must-buy” for one of the major players in either Value or Volume markets, and what does that look like?

There are many more questions you could ask yourself, but deciding whether you are a Value or a Volume player (and keep in mind it is becoming increasingly difficult to be both) may have a profound impact on the future of your games business investment from valuation, investment, strategic and operational perspectives

Interesting article from

Nicholas Lovell:

Earlier this week, I gave a lecture to 25 students on a game design course. I asked them to put their hands up if they had bought a CD this year. Not one person put up their hand. I have a two year old son. We don’t own any DVDs of Bob the Builder or Chuggington, because we can get access to enough of his favourite programme of the moment via the BBC iPlayer. I consider myself a core gamer (at least I did until I had the aformentioned son), but I haven’t bought a single game so far this year. Instead I’ve been playing freemium games such as Stronghold Kingdoms, Cityville and Millionaire City.
These datapoints, while anecdotal, are symptomatic of a fundamental change sweeping through all the media industries. As we transition from atoms (CDS, DVDs, books) to bits (MP3s, streamed movies, ebooks), the cost of making one more copy falls to zero. The original costs of content creation remain broadly the same, but distribution costs trend towards zero.
That means that charging a premium – and possibly any price at all – for that content becomes harder.

It is harder because brands realise that when distribution costs are zero, they can fund and seed content that is high quality and far-reaching. Barclaycard invested a six figure sum, perhaps as much as €250,000, into the creation of Waterslide Extreme, which took the premise of their television advertisements and turned it into an iPhone game. Over 10 million downloads later, the brand is happy and millions of consumers have had a high-quality, free experience.
It is harder because companies are taking advantage of close-to-free distribution to develop new business models. Zynga has a secondary market valuation of $7 billion based on a business model of allowing users to play their games entirely for free, but with the opportunity to spend money on virtual goods or faster progress in the game. ngMoco and Playfish, both of which sold for around $400  million last year, allow users to play their games for free on the iPhone and Facebook respectively. These companies are developing new business models predicated on giving basic access to their content for free.
It is harder because once DRM is broken (which it always will be), pirates can distribute your content for free.
In short, when people with motivations different from yours – whether they be pirates, competitors with different business models or brands, push their prices down to zero – it will be very difficult to compete.
It won’t be possible to charge for basic access to content
So much so that, on a ten year view, I don’t believe it will be possible to charge for basic access to content at all. We will all expect to have access to all the music, all the books, all the television and all the games that we could ever want. Sure, someone could invest in content and tell me that I can’t have it unless I pay. But there will be so many alternatives, both legal and illegal, that the model of paying access will be close to impossible to sustain.
On the other hand, content creators will still need to be paid, and there has never been a better time to be a content creator. I am much less positive about the future of content distributors such as publishers though. In my next column, I will look at the things that consumers will pay for if they won’t pay for access. Things like self-expression, status, emotional connections and achievement. The trick will be working out how to harness the power of the Internet to distribute your content for free and still find a way to persuade consumers to pay you enough to pay for its creation in the first place.
Now excuse me, I got a Kindle for my birthday yesterday, and I’m off to download Great Expectations and The Wind in the Willows.
For nothing.

A great and useful gaming metrics A-Z!

Source: Justin Johnson, chief technical officer of game analytics firm Playmetrix

Gaming metrics is still a young field of analysis with a multitude of approaches taken by service providers and developers/publishers alike. Even so, the world of gaming metrics comes with its own panoply of terms, definitions and acronyms. Many of these terms have roots in internet marketing although some are from further removed fields – for example K-Factor is a term borrowed from Virology.

In this article are common terms and acronyms in use along with a description that will shed light on what they are and what they mean.


An event is a discreet record of activity logged by the game and usually sent to a remote analytics system, in our case the Playmetrix collector server network. Examples of an event could be when a player starts or finishes a game (session events), upgrades inventory items, gets a reward or enters a particular game area or level. A metric analysis system can then digest these events – usually in their millions – and produce meaningful time series visual data in the form of charts and tabled reports.


Uniques are a useful term for talking about events when it only matters that the event happens at all – the frequency of the event is not significant. For example, if we ask the question ‘how many players turned up today?’ it doesn’t matter whether a particular player played once or several times. We’ll just treat the fact that they turned up at least once as a unique count. Another example might be ‘how many players played the haunted house level this week?’ A particular player may have played that level several times during the week but we only want to count that once.


DAU is an acronym for Daily Active Users. It is the unique number of players that played your game in a 24 hour period. It doesn’t matter if a particular player plays your game several times in this period – their attendance is counted only once. A graphed visualisation of this metric gives a good indication of daily activity. At Playmetrix we use a variation where the ‘U’ stands for ‘Uniques’ rather than ‘Users’ and we generate this metric for all known events.


WAU is an acronym for Weekly Active Users. It’s calculated in exactly the same way as the DAU except the time period is now 7 days rather than 24 hours. Interestingly, the metric is not as commonly used as DAU and MAU, although obtaining visibility on a 7 day period is useful in practice.


MAU is an acronym for Monthly Active Users. This metric also is calculated in the same way as DAU and WAU except that the period is now 30 days. A 30 day period is a good mid-term range for viewing metric data and making decisions based on subsequent analysis. With this metric you’re now recording whether a player attends at least once in the month. As with DAU, at Playmetrix we use a variation where the ‘U’ stands for ‘Uniques’ rather than Users and we generate this metric for all known events. That means we can produce an MAU graph for a specific game event rather than player attendance alone.


This is a ratio calculated by dividing the DAU by the MAU. Converted to a percentage, it answers the question ‘what percentage of my monthly players turn up each day?’ For example, given a MAU of 600,000 and a DAU of 30,000 gives 0.05, that’s 5 per cent of the total monthly players turning up each day. The target values for this metric can be fairly subjective but top Facebook games look to hit 25 per cent and higher. It’s been cited that reaching 15 per cent is one of the indicators that the game is ‘sticky’, has a low enough churn rate and is viable for increasing advertising spend. At 15 per cent plus, the game will hold onto players long enough to ensure healthy growth with low attrition.


The Average Revenue Per User is calculated by dividing total revenue by the total number of players. Seems simple enough but it becomes interesting when you have a section of your player base that doesn’t pay anything – for example the players joining a freemium game, or those that are on a free trial period. The ARPU gives you an idea of the revenue generated by your entire player base, apportioned to each player, and may be reported using time periods. For example, what was our ARPU last month? What’s our ARPU so far this year?


We may be interested in finding out the revenue generated from each paying player and this is where the Average Revenue Per Paying User metric comes into play. This is calculated by dividing total revenues by the number of paying players. Unlike the ARPU calculation, we ignore the free and trial players in this calculation as they don’t contribute directly to revenue.


Lifetime value of a player refers to the amount of revenue attributed to an on-going relationship with a player. That is, given a single player, how much have they spent with us from the time they first played our game? A prime use of this metric is in calculating what our acquisition costs are in relation to it. For example, if the LTV is significantly lower than our customer acquisition cost then we have a problem! In this case we’re not earning enough revenue from customers to account for the acquisition spend in obtaining them in the first place. The LTV can be calculated as: Monthly ARPU x Lifetime of player in months. We can integrate K-Factor using a first order approximation to give the LNV (Lifetime Network Value) which takes into account the other players that a player may invite via viral channels: 1 / (1-k) x Monthly ARPU x Lifetime of player in months where ‘k’ is the K-Factor (see below).


K-Factor is a measure of virality for applications/games that utilise viral methods for player acquisition.  Given a customer base (C), number of invites sent (S) and % of invites accepted (A), K is calculated as (S x A) / C.  If K is lower than 1 then your player acquisition is decreasing exponentially, a value of 1 implies steady state and K of greater than 1 indicates exponential player acquisition.


Duration refers to a time between game events – often ‘start’ and ‘end’ event types. It is used to answer questions of the nature ‘how long did the player do x for?’ For example, ‘how long did it take the player to complete level 5?’ or ‘how long did it take for the player to get the reward after purchasing an item?’ Measuring player behavioural durations indicates whether players are acting within the timelines that we expect them to.


A session starts when the player starts to play the game and finishes when they decide to do something else. Sessions tell you how frequently a player plays your game (three times a day, six times a month etc) and by measuring the duration of sessions we can work out the average time that they spend playing the game in any given period. Sessions give a very useful high level metric for game activity and engagement. The end of session is usually marked by a period of event sending inactivity. For example, if a game hasn’t sent any events for the last 30 minutes then we can assume that the session has ended. This has the effect of quantizing session durations. Only if the game has a persistent socket connection to the metric servers is it possible to detect precise session end times upon disconnect but as most metric systems are REST based, that is they send simple web requests to log events, this is usually not the case.


One of the main reasons for using metrics is to refine your game to deliver better entertainment to players. As an entertainment experience your game should have high level objectives that you wish the player to fulfill. The purpose or objectives of the game can be design related (‘we want our players to finish all levels/build a city/make friends’) and they can also be financial (‘we want the player to buy virtual goods after finishing level 1’ or ‘we want the player to subscribe after a free trial’). Either way, you’re wanting your players to convert from one state to another, from inexperienced to experienced, from free to paying etc. That’s a conversion.


A funnel is a multi-stepped filter where a given number of units (often a unit is a player in game metrics) start out at the first step and are then filtered away in subsequent steps. Each step is illustrated in the funnel graph along with the number of players that make it to each step. The number of players associated with each step can also be shown as a percentage – either a percentage of the whole or the percentage of players from the last funnel step. Each funnel step can be specified with appropriate filtering logic leading to a final conversion figure at the last step. For example, we may have 543,343 players at the top of the funnel but only 12,000 are present at the last step yielding a 2.2per cent conversion. A funnel may be set up to show conversion for financial game transaction event or they may be set up to show pure game play conversions. For example, ‘how many people got to level 10 (1st Step), then how many bought the big gun (2nd Step) and then finally how many
went on to kill the end of level boss (3rd Step).

Cohort Analysis

A cohort is defined as a group of players who share common attributes. Cohort analysis provides the ability to track the churn/attrition rate of these players. Cohort charts are often represented as a two dimensional matrix showing a time period split into smaller division along each axis. The cells of the matrix contain the player count. For example, a row of the Cohort chart for a six week period, split into weeks, will show the player counts at week one through week six.  The player count will decrease in each column cell along the row showing our attrition rate from the count at week one. The next row will show week two to week six, the next will show one week three to week six and so on. A Cohort chart gives detailed figures on player attrition although in Playmetrix we can calculate Cohort analysis for any given custom event, not just attendance. This allows the measurement of game feature adoption and repeat play.

Split Testing

Sometimes called multi-variant testing or A/B testing (although we might be splitting on A,B,C and D!), Split Testing is a feature optimising technique. It’s implemented by randomly providing the player with a differing version of a particular feature and then measuring the effectiveness of that version. It may be purely cosmetic – for example one kind of button style against another – or it may be a split on player interface features or even deeper game mechanics. The important thing is that the effectiveness of each variant is measured and, at some point in the future, based on effectiveness, a split can be chosen as the surviving eature/version. Applied effectively, this technique allows a game or app to be continuously refined
according to majority player tastes and preferences.

Customer acquisition is one of the biggest challenges on Facebook.

Since Facebook shut down the flow of viral customers (or, as some call it, stopped the wall spam), companies have had to spend significant money on acquiring new users. Some reports suggest that Zynga is spending $100 million a year on Facebook marketing. (According to Raf Keustermans, former marketing director of Playfish).

But if you’re modelling a social game on Facebook, how much should you put in for customer acquisition?

Dallas Snell, co-founder and head of development at Richard Garriott’s Portalarium has an answer. He told AdAge:

“Last year, Mr. Snell said he could buy an ad for 15 cents to 20 cents a click, but now, those same ads are costing as much as $2 a click — and not getting much action. In the first six months of his game release, Mr. Snell said Portalarium spent around $50,000 on Facebook advertising.”

That’s $2 CPC, not per customer. So if you are only managing to convert 10% of clicks to players, your CPA is $20. And then you need to convert those people to payers…

(Interestingly, on the third page of the article, Dallas says that he spends $1 per paying customer on Facebook. Impressive, given the numbers above)

It’s pretty tough out there. If you need to spend that much money on marketing, you better have a good retention and monetisation strategy.

Otherwise, you’ll be pouring marketing money into a bottomless pit.

Source: Nicholas Lovell