Social & Facebook game space at a glance

Social Game Success
Overview of the business cases, costs, challenges, and rewards in the social game space
By Michael Turner, Managing Partner at Bitfold Online Games

Part 1: Market Analysis

Before We Start - Who is Bitfold?
Who are We:
Bitfold is an online game development company dedicated to developing fun & original social & MMO games.
Focus Areas:
Full cycle MMO & social game development
Original social game IP development
Social game operation & monetization
MMO & social game technology development
Team:
30+ game developers, artists, designers, and QA professionals focused on social games & MMOs
Location:
Minsk, Belarus
Social Games Portfolio:
2 original social games with 800k+ total installs
2 currently in development
Games Live on many different social networks

Why did we do this analysis?
Because the social games market can be confusing to new entrants
Because many developers & publishers have gone in with the wrong idea about how to succeed in social games & lost money
Because social games offer large potential to reach millions of users & create significant amounts of recurring revenue
Because we believe in the free & open sharing of information
Because we’ve released several social games and believe we can help shed some light on what the social games space is & what it realistically takes to succeed in it

What’s Unique about Social Games
Game progress is tied to the player’s personal profile
Players get personal ownership over their achievements and progress
Players interact with their “real world” social network
Players interact with family & friends instead of only other gamers.
Asynchronous interaction
Users are rarely on at the same time, therefore most player to player interaction is played asynchronously.
Progress Limits
Most games limit the amount of advancement that can be had in a session. This incentivizes users to return frequently & to pay real money when they want to speed progress.

The social game market at a glance
Revenues: US social game revenues were $856 million in 2010 & are projected to be $1+ billion in 2011[1]
Player Base: 53 million US internet users played social games in 2010, 62 million are expected to play in 2011[1]
Opportunity for New Developers: The userbase of the top 5 social game developers shrunk significantly in 2010, while that of small & medium developers rose. [2]
International Markets: International social game markets are growing, with markets like Japan earning $1.2 billion USD in virtual goods revenue in 2010[3]
Multiple Social Networks: Many gamers exist in social networks outside Facebook (Myspace alone boasts 30 million gamers[4]) making extra monetization outside of Facebook possible
Fig. 1 Social game market revenue projections. Source: emarketer.com
Fig. 2 Demographics of social gamers 2009-2010. Source gamesindustry.com

How does a social game make money?
Revenue Sources
1. Virtual goods purchases (direct purchases & offers)
2. Advertising
Virtual Goods Revenue Model
A game’s virtual goods revenue potential depends maximizing the following metrics:
1. Number of Active Users
2. Percentage of paying users
3. Return per paying user
Multiplying the above metrics gives a rough estimate of revenue:
(Number of users)*(Percentage of paying users)*(return per paying user) = game revenue
Fig. 3 Breakdown of social games revenue. Source emarketer.com
Fig 4. Comparison of a successful & unsuccesful game monthly & daily active user counts. Source: appdata.com

Key social game performance metrics
Game Performance Metrics
The following metrics are key to measuring a game’s performance
MAU (Monthly Active Users): Number of users active at least once in the last month
DAU (Daily Active Users): Number of users active in a game on a given day
DAU/MAU: Ratio of DAU to MAU in a game
ARPU: Average monetary return per user
Percentage Paying Users: Percentage of users who have paid
Retention: Percentage of users that revisit an app within 1-6 weeks
Engagement: How involved a user is. Measured by metrics like session length & number of sessions/day
LTV (Lifetime Value): Lifetime amount of money a user pays in a game
(CAC) %Customer Acquisition Cost: Cost required to acquire a paying customer
Fig. 5 Cityville’s DAU, MAU, & DAU/MAU ratio. Source: Appdata.com
Fig. 6 A sample app’s Percentage Paying Users. Source: Kontagent.com

Nuances of key metrics
Daily vs. Monthly Active Users:
DAU is often considered a more important success metric than MAU because it measures how regularly users are playing a game.
Engagement:
Measured by metrics such sessions/day, session length, etc. It is considered highly important to monetization because users who are returning regularly & spending lots of time in game are more likely to make a buying decision.
DAU/MAU:
Roughly measures how often monthly users are returning daily to play. A high DAU/MAU signals the is game engaging & well engaged users generally monetize better.
Customer Acquisition Cost vs Lifetime Value
It is a key goal of social games key to minimize CAC while maximizing LTV of users. Engagement is key to maximizing LTV.
Fig. 5 Cityville’s DAU, MAU, & DAU/MAU ratio. Source: Appdata.com
Fig. 6 A sample app’s Percentage Paying Users. Source: Kontagent.com

Social Game Revenue Potential
Calculating Revenue
Most public social game metrics are limited to historical DAU & MAU data. Using methods provided by social game developer RockYou[5], revenue estimates for several games can be created with DAU & MAU data from appdata.com.
Method Details:
1. According to RockYou, return ranges from $10-$30 per 1000 DAUs on average[5]
2. A sum of DAUs from 1/17/11 to 2/18/11 was sampled from appdata.com
3. The following equation was then used (Average return per 1000 DAUs) x(Summed DAU from 1/17-2/18/11)
Cases for both $10/1k & $30/1k DAU are used to establish revenue bounds
Results
Games with high DAU (100k+) can earn millions yearly if monetized well
Table 1: Revenue estimates of 7 popular games using RockYou’s estimates of revenue per 1000 DAU

Cost of Acquiring Users (CAC)
Balancing Advertising Costs & Revenue
Only a small percent of users pay, thus games require hundreds of thousands of users to make millions.
Acquiring users through advertising is expensive
Developers must get the lifetime value of paying users higher than the cost of user acquisition to make money
Methods & Costs of Acquiring Customers
Facebook Ads (Official Facebook Ads)
$0.50-$3 per install (dependent on many factors)[6]
Cost per 100k installs can range from $50k-$300k
Targets users based on interest which leads to high quality leads (i.e. players who return)[7]
Banner & Offers
Banners & offers via other Facebook apps
Cost: $0.10-$.60 per user[7]
Low quality leads (i.e. leads don’t often return)[7]
Viral Acquisition (Viral wall posts, Notifications)
Free! Reduces reliance on ads (and therefore cost)
Requires a large number of users to be effective
Virality is limitedon Facebook, so it is only a cost reduction measure, ad purchases are a must
Fig. 7 Optimal balance between LTV & CAC. Source: Forentrepreneurs.com
Fig. 8 Cost of user acquisition vs. quality of different ad types. Source: Adparlor.com

How Developers get Lifetime Value > CAC
Good Design
Good Gameplay: First & foremost the game must be fun & engaging in the first place. A badly designed game will never be successful.
Targeting a Niche: Targeting a niche is a good way to get dedicated players who pay.
Reduce CAC (Advertisting Costs)
Optimize ad campaign effectiveness
Monitor Metrics to gauge performance
Optimize creative appeal of ads
Optimize demographic targeted
Increasing Virality
Analyze game metrics to determine the best way to incentivize users to bring in friends
Maxime ARPU, % Paying, & LTV
Optimize gameplay & sales funnel
Determine gameplay improvements that increase retention/engagement
Determine how to balance the game & virtual goods prices to increase ARPU
Fig. 9 Optimization of the Virtual Good Sales Pipeline. Source: Kontagent.com
Fig. 10 Metrics on performance of a Facebook app advertising campaign. Source: Kontagent.com

Games – What are the popular Genres?
Management
Build something cool over time & maintain it
Ex: Farms, City, Café, Pets
Skill
Skill, card, gameshow, & board games. Users share scores.
Ex: Uno, Bejeweled, Family Fued
Arcade/Action
Engage in social combat with an arcade mechanic, build armies
Ex: Pirates, PvP Combat or RTS
Girl Games
Feminine themed management games
Ex. Fashion, Mall, etc
Sports
Social sports simulation games
Ex. Build team, play friends
RPG
RPG epics or RPG city building games
Mafia Wars Clones
Games that emulate Mafia Wars gameplay mechanics
Ex. War, Boxing, Racing

Games – Subgenres
Management & Simulation
Skill Games
Farming & City Building
Arcade Skill Games
Monster World
Monster World
Millionaire city
Bejeweled Blitz
Zuma Blitz
Gameshow
Pet Games
Family Fued
Pet Society
Happy Pets
Wheel of Fortune
Card, Gambling & Table
Business Simulation
Nightclub City
Nightclub City
Café World
Texas Hold’em Poker
Farkle

Games – Subgenres
Action/Arcade
Mafia Wars Clones
Combat Simulations
RealtimePvP Arcade & RTS
MMA Pro Fighter
World War
Wild Ones
Backyard Monsters
Miscellaneous Simulations
Turn-Based Battle
Ninja Saga
Street Racing
Jersey Shore
Monster Galaxy
RPG
Girl Games
City Building
Adventure
Mall World
It Girl
Castle Age
Kingdoms of Camelot
Mall World
It girl

Games – What genres are successful?
Analysis of the top 300 apps
Shown below is a table of the top 300 apps on 2/18/11 classified by genre & measured for number of games in each genre & total DAU & MAU in each genre
Table 2. Top 300 English language games by genre, measured by number of games, DAU, MAU, & DAU/MAU

Fig. 11. Breakdown of number of games by DAU count in each genre . Source: Appdata.com
Fig. 12. Total DAU of all games in each by Genre on 2/18/2011. Data Source: Appdata.com
Fig. 13. Average DAU/Game by genre: Data Source: Appdata.com

Results
1. Management games are the most numerous & have the most DAU
2. Skill games are 2nd in place & have high DAU/MAU
3. Arcade & girl games show decent potential as niches
4. RPG games & mafia wars clones have the lowest performance

Games – Branded Games on Facebook
Types of brands & existing IP on Facebook
Brands that developers have adapted to Facebook fall into 5 major categories listed below
Popular Skill Games (Zuma, Bejeweled, etc.)
Card & Table Games (ex. Uno, Mahjong)
Gameshow(ex. Family Fued, Wheel of Fortune)
Existing Game IPs (ex. Asteroids (Atari), Settlers (Ubisoft)
MMO Games (ex. Evony, Habbo Hotel)
Sports
(ex. Madden NFL, EA Soccer)

Games – Success of Branded Games
Brand Success on Facebook
The table to the right compares the success of various brand types in terms of DAU & MAU
Results:
1. Skill, Gameshow, Sports & Card/Table brands have large userbases (with some games over 1m DAU)
2. Most of the successful brands are household names
3. MMO, Casual, & ‘hardcore’ game IPs adapted to Facebook from other gaming platforms have not managed to gain large userbases
Conclusions
Brands that are household names do best
Facebook gamers are very diverse in gender & age. Thus brands that everyone knows are the most likely to interest millions of people.
Game IPs from other platforms perform badly
Many game IPs lose their brand strength in the social space for 2 main reasons.
1) The gameplay mechanics that make many game IP brands successful don’t work well on social networks
2) Since social gamers are so diverse, a majority of social gamers don’t know titles from other platforms
Good game design matters the most
A game’s success in the social space depends much more on good design & uniqueness than brand
Table 3 – Total DAU & MAU of all games in each brand category. Source Data: appdata.com
Performance of existing IPs from other gaming platforms on Facebook
Fig .14 – The combined DAU count of eight separate Ubisoft IPs ported to Facebook is less than 170k
Fig. 15 - Atari’s Asteroids Online & Sony’s PoxNora have each gained less than 1000 DAU

Gamer Demographics
Demographic Targeting
Design
Any game’s ability to capture users and make money will depend on how well it appeals to the demographic it targets. Therefore a game should be designed with its demographic in mind.
Targeting
Developers should use in-game metrics platforms to determine what demographic s make up the largest segments of active and paying users so that they can:
Target ADS towards that demographic to bring more players
Focus gameplay mechanics & content to better engage & monetize these key demographics
Age: 13
Age: 13
Age: 65
Age: 65
Age: 13
Age: 13
Age: 65
Age: 65
Age: 13
Age: 13
Age: 65
Age: 65
Monetizeable Demographics
Microtransactions
Microtransaction revenue mostly comes from users with the capability to pay, which is generally males & females ranging from 20-65, with females being the larger overall paying audience of social games.
Age: 13
Age: 13
Age: 65
Age: 65
Fig. 16 – Gender & age of players of several popular Facebook games in Dec 2010 Source: Datagenetics.com[8]

Developers at a glance
Table 4 – List of number of Apps, DAU, & MAU of top 25 game developers on Facebook. Data Source: Appdata.com

Developers at a glance – key trends
Fig 17 – Relative DAU Share of top 5 Facebook game developers vs. trailing 40 developers. Source Data: appdata.com
Developer Analysis
On this page is an analysis of key trends noticed from analyzing the DAU & MAU of each the top 45 Facebook game developers & their top 3 games on March 7, 2010
Key trends
A few developers hold a majority of social gaming users, but smaller ones are still able to capture millions
Many medium size developers gain most of their active users from their 2-3 most popular games, indicating that a well designed, well supported game is worth a lot.
Over 50% of the top 45 game developers have DAU counts of 750k or above. For the developers that have monetized their games well, this likely means many millions per year in revenue.
Many of the top 45 game developers are new game companies or casual game companies.
Fig 18 – Number of developers in the top 45 Facebook game developers whose top 3 games account for more than %70 of their DAU. Source Data: appdata.com
Fig 19 – Top 45 Facebook Game Developers grouped by DAU count. Source Data: appdata.com

Growth Potential for New Developers
Growth potential for medium & small developers
According to insidesocialgames.com (a leading social app analysis site) data has show that overall, social games overall have been experiencing a shrinking number of DAU[2].
However, it was found that when performance data from the top 5 developers was excluded, games actually showed growth in the number of DAU over the last year and that much of the loss came from the largest games on Facebook like Farmville[2]. This indicates that for developers willing to invest proper resources, the opportunity still exists to capture decent market share.
Fig. 20– DAU Growth of all top 250 Facebook Games
Fig. 21– DAU Growth of Facebook Games ranked 26-175

Games - Conclusions
Revenue Potential
Social games make money through advertising & virtual goods
Games with hundreds of thousands of DAU have potential to make millions
Game profits must outweigh high advertising costs to be profitable
Demographics
The target demographic should be kept in mind during the design process
Developers should monitor their metrics to determine who to best advertise to & optimize their game for
Existing Developers
A few developers hold a majority of users, but overall the userbases for small & medium developer’s games grew from 2010-2011
Many developers get most of their users from 1 or 2 big hits
Several developers have multiple game IPs to increase revenue & gain free cross-promotional advertising of their other games
Successful Genres
Management & Skill Games are the most popular genres, but niches exist in other genres
Brand Success
Brands that are household names (Bejeweled, Uno, Family Fued, etc.) and have casual gameplay mechanics have the highest chance of seeing success on account of their brands
Most game IP adapted to Facebook from other gaming platforms (PC, MMO, Console, etc.) has done poorly
GOOD GAME DESIGN IS ESSENTIAL!
Metrics
DAU is considered more important than MAU because it’s a better measure of engagement
Engagement is key to monetization

Part 2: Production

Social Game Development Essentials
Development Time
3-6 months to beta[9][10]
Technology Required
Front-End Flash Engines
Simple to implement, but reduces cost & time to market if developer has suitable engines pre-existing
Back-End Server Technology
A server technology that supports 100k+ concurrent user requests, has robust data backups, & is tied into Facebook’s social graph is required
Metrics Technology
A good metrics tool is crucial to monetizing a game. Technology should measure in-game events, key monetization KPIs, sales statistics, & should be capable of A/B testing
Costs
Development:
Zynga states that most social games take from $100k-$300k to create & launch[9][10]
Marketing:
Marketing costs usually range from $.50-$3 an install [6][7]. Often initial marketing costs range from 50-100% ($50k-$300k) of the development budget for initial marketing costs . Be prepared to spend a lot on marketing for Facebook games.
Live Operation:
In our experience, live teams can cost anywhere from $12k/month to $40k/month depending on the team & level of ongoing content and gameplay changes needed
Team Composition
In our experience, a typical social game development team should include 2-3 server developers, 2-3 flash developers, 4-5 artists, a QA lead, a designer (& product owner), and a scrum master

Development Process of a Social Game
Iteration Results
Perfomance Enhancements
Better Engagement/Retention
Reduced CAC
Increased ARPU & Conversion
Increased User LTV
Post Release Development (Perpetual)

Detail Cost Estimate (Development)
Detail Estimate (Pre-Release  Beta)
To the right are two tables that show the typical team arrangements & costs estimates for development of a social game.
A man month cost range is established between offshore rates (~$3500/month) and US/EU rates (~$6500/month)
Table 5 – Development cost estimation for both a large scale & small scale Facebook game

Post-Release: Live Team
Live Team Duties
Almost all social games in the market have teams of developers & artists maintaining them. Below are the typical duties of a live operation team

Post Release: Monetization
Game Monetization Pipeline
1. User Acquisition
Good design (Attracts users to play)
Marketing Campaigns
User acquisition via viral posts
2. Engagement & Retention:
Base game mechanics should natrually encourage repeat visits & long sessions
Optimize gameplay & content using metrics & A/B to determine what content & features increase engagement & retention
Constantly add new content to keep interest
3. Optimize Monetization (ARPU & % Paying)
Frequent opportunities to buy credits
Active sales (recommending items based on an individual user’s play patterns)
Easy payments methods
Determine which demographic pays the most & target those users in ad campaigns
Fig. 22 – Social Game Monetization Pipeline. Source: Kontagent.com
Fig. 23 – Monetization through a game’s lifecycle. Source: Kontagent.com

Live Operation: Cost Estimates
Live Team Cost
The table to the right illustrates the amount of resources needed to run a basic live team & cost ranges depending on developers chosen.
Additionally it illustrates the rough focus of each phase, with the first being major balancing of the game.
Table 6 – Estimated Month by month development costs for a live team team for a 6 month timeframe
Marketing
The graph to the bottom right shows a graph of marketing expenditures over 6 months and the resulting DAU (assuming a sufficiently engaging game) based on an assumed rate of $1 per install
Table 7 – Estimated month by month marketing costs for a social game for a 6 month timeframe

Live Operation: Cost vs. Revenue
Revenue Projections
Extending the numbers from the previous slide 6 more months, a yearly projection is created. It’s notable that the graph on the left which assumes climbing user return yields significantly more income. This shows the importance of using metrics to continually lower CAC, & improve engagement, retention, & sales pipelines
Weeks
Weeks
Fig 23 – 1 year income assuming rising return per 1000 DAU
Fig 24 – 1 year income assuming flat return of $25/1000 DAU
Weeks
Weeks
Fig 26 – DAU, costs & income assuming flat return of $25/1000 DAU
Fig 25 – DAU, costs & income assuming a rising return per 1000 DAU

Risks
Business & design
Gamers don’t like the game or the game gains a low # of users
Spend special effort to create a engaging design upfront
Target a niche
Run a closed beta or only spend a small initial amount on marketing to gauge whether the game will be a big failure or has possibility for success before spending a large amount of marketing dollars to .
Don’t depend on only one game, launch multiple titles
Advertising becomes prohibitively expensive
Run viral marketing campaigns prior to launch
Increase virality
Use metrics to understand where your highest quality users come from & focus efforts on those channels
Initial balance issues or bugs scare away initial users
Run a closed beta to work crucial issues out
Game monetizes badly
Use metrics to improve monetization
Don’t let this happen to you!!! Be realistic about what works on Facebook & make a good game!!
Assuming $1/install
$100k for 100k users
Assuming $1/install
$100k LOST!
Fig 27 – MAU count post release of a Facebook game released by a major publisher. Source Data: DeveloperAnalytics.com
Live Operations
Servers crash & lose player data
Create a robust concurrent backup system

How to select a social game developer
There are thousands of companies claiming they can develop social games. Here are a few best practices for how to choose them.
Experience & Process
Choose a developer with 2 or more social games built
Ensure they have skilled production management & developers with networking & flash experience
Use of GOOD agile software development & quality assurance methods in-house is A MUST!
Experience monetizing games is a BIG plus
Staff in-house dedicated to marketing, monetization, or metrics is also a BIG plus
Ensure the developer can demonstrate firm understanding of the following
How to design a social game for monetization
Understanding of live operation
Understanding of the monetization pipeline on Facebook
How to use social game metrics to improve game’s monetization pipeline
Ensure when the developer engages in the creative process:
They submit a game design that will work on social networks & is targeted towards a specific demographic
Have a good plan for how to monetize the game & sales funnels
Addresses how the game is unique & mechanics will drive engagement & retention
Ensure the developer has the following technology
A server engine & extendable flash front end that has been used in published social games
Is already tied into social networks & can publish ton them easily

Citations & Sources
1. "US Social Gaming Marketing to Surpass $1 Billion in 2011." eMarketer.com. January 12, 2011.
eMarketer Inc. Date of Access: February 18, 2011. <http://www.emarketer.com/PressRelease.aspx?R=1008173>.
2. Chris Morrison. "An In-Depth Look at the Social Gaming Industry’s Performance and Prospects on Facebook" insidesocialgames.com. January 24th 2010.
Inside Network Inc. Date of Access: February 18, 2011 <http://www.insidesocialgames.com/2011/01/24/an-in-depth-look-at-the-social-gaming-industry%E2%80%99s-performance-and-prospects-on-facebook>.
3. Dr. Serkan Toto. "How Big is Japan’s Social Gaming Market?." serkantoto.com. February 20th, 2011.
Dr. Serkan Toto - Japan Web Consulting & Research. Date of Access: February 24th, 2011. <http://www.serkantoto.com/2011/02/20/japan-social-gaming-market-stats/>.
4. Eric Eldon. "MySpace Adds More Viral Platform Features, Reports Positive Early Results." Insidesocialgames.com. September 16th, 2010.
Inside Network Inc. Date of Access: ebruary 16th, 2011 <http://www.insidesocialgames.com/2010/09/16/myspace-adds-more-viral-platform-features-reports-positive-early-results/>.
5. Lisa Marino. "Monetizing Social Games." www. March, 2010. RockYou, Inc. Date of Access: February 16th, 2011. <http://www.slideshare.net/shayrockyou/monetizing-social-games-rockyou-at-gdc>.
6. Hussein Fazad. "Facebook Ads and the rising cost of user acquisition" insidesocialgames.com. January 18th, 2011.
Inside Network Inc. Date of Access: February 16th, 2011 <http://www.insidesocialgames.com/2011/01/18/facebook-ads-and-the-rising-cost-of-user-acquisition/>.
7. Adparlor Inc.. "Purchasing Facebook Application Installs: Everything you need to know." www.adparlor.com. June, 2010. AdParlor, Inc. Date of Access: February 17th, 2011. http://www.adparlor.com/Docs/Purchasing%20Facebook%20Application%20Installs%20-%20Everything%20you%20need%20to%20know.pdf
8. DataGenetics Inc. "Facebook Casual Gamer Demographics." Datagenetics.com. December 12th, 2010.
DataGenetics Inc. Date of Access: February 18th, 2010. <http://www.datagenetics.com/blog/december12010/index.html>.
9. Wanda Meloni. "The Ups and Downs." gamingbusinessreview.com. January 2010. M2 Publishing Inc. Date of Access: Febuary 17th 2011. <http://www.gamingbusinessreview.com/theupsanddowns.htm>
10. Brian Reynolds. "The Social Game Tipping Point." gdcvault.com. March 2011. Zynga Inc. Date of Access: March 4th, 2011. <www.gdcvault.com/play/1011894/The-Social-Gaming-Tipping>
11. Albert Lai. "A.R. M Metrics Framework: Se7en Deadly Social Game Metrics." slideshare.net. January 2011. Kontagent Inc. Date of Access: February 15th, 2011. <http://www.slideshare.net/kontagent/kontagent-top-7-deadly-arms-metrics-for-social-games>
Special thanks to Inside Network, Rockyou, Adparlor, Datagenetics, Kontagent, Dr. Serkan Toto, DeveloperAnalytics.com, & Zynga for freely sharing your data & business conclusions with the open market!

Thank you!
Thank you for Your time!
Contact Info
Developer
Mike Turner
Bitfold LLC
Managing Partner
mike@bitfold.net
D: 217.903.5777
C: 224.430.1877
Representation
Ed Dille
CEO
Fog Studios
eddille@fogstudios.com

Social & Facebook game space at a glance

by Bitfold on Mar 25, 2011

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Social & Facebook game space at a glance — Presentation Transcript

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