Social game revenue potential, costs, and the keys to being successful in the market

Breaking into the social gaming market An analysis of the potential of the social gaming market and strategies for entering it successfully. By Mike Turner – Managing Partner of Bitfold Online Games Inquiries & QuestionsPh: 217.903.5777Email: mike@bitfold.net The Social Gaming Monster LIVES! The social gaming market is without doubt the new buzz in the world of gaming. The top companies in the social market have launched games which have millions of users and million in monthly revenue. However, most of the successful companies in the space are either totally new companies like Zynga or casual gaming companies like Popcap games or King.com. Only a small handful of developers & publishers established on other gaming platforms (consoles, MMO, etc.) have had any success in the social market. Why is this? In our opinion it’s because these casual gaming companies & new upstarts have gone into the space with the exclusive intention to take risks & experiment within the space. Through extensive experimentation, these companies have learned how to make good games that social networking users want to play. Developers established in other platforms such as consoles or MMOs do not possess similar experience. They therefore have had a much harder figuring out how to make games users want to play their games and have experienced many failures in the space. In our view however, this doesn’t have to be the case. We believe that if any new entrant is able to create games that social networking users love to play and learn how to incentivize these users to keep playing & spend money, they can be successful. This article attempts to explain the keys to creating a successful long-term presence in the social gaming market. It is targeted at any developer or publisher who has had success in other markets and wants to get into social gaming. Part 1 - The social gaming market for large game companies Before entering a new space, it’s first important to determine what return is likely in the market and decide whether this return is enough to justify the risk and cost of entering it. This section tries to provide the information required to make that decision by providing the following information: Definition of the social gaming market Performance of successful social game developers and where new entrants can realistically hope to place among them The key trends among successful social game developers that make them successful The cost of entering the social market The performance of brands in social games 
How do you define the social gaming market?
Social games sometimes mean different things to different people. Most often though, it is used to describe games that are played primarily on social networking sites or games that can be played with a person’s real world social graph. The primary platforms on which these games are played are described below. Facebook With nearly 700 million registrations and 350-400 million active users monthly, it is undoubtedly the most popular social networking platform in the world. According to ALLFacebook.com, 53% of these users play Facebook games. Because of this highly active userbase and a high percentage of users in “rich” countries, it presents a great platform for gaining lots of high-monetizing users. However, in the last year, the cost of acquiring users on Facebook has risen sharply. Adparlor estimates that purchasing installs can cost anywhere from $.50 - $3 per install. Thus launching a game on Facebook often requires heavy marketing investment to gain a large number of users. Facebook – The 400 million pound gorilla in the social gaming space Other Social Networks There are many other social networks outside of Facebook. These networks fall into several categories. 
Regionally popular general social networks such as Orkut (Brazil), StudiVZ (Germany), Vkontakte (Russia), and more.
Secondary English speaking networks (Bebo, Blackplanet, Tagged, etc.)
Specialty networks focused around specialized themes such as gaming (IMVU) or Journaling (Livejournal).
Individually, each network only has around 2 million (IMVU) to 50+ million (Orkut) monthly active users a piece. Added together however, the combined active userbases add up to hundreds of millions of active users. Therefore, games that target a large number of social networks at once have the possibility to gain several tens of thousands or millions of extra active users. Among those who have ported their games to outside social networks are leading Facebook developers LOLapps, Wooga, OMGPOP, and Kixeye. Some of the popular regional social networks Mobile Social Games A growing number of mobile games are including social functionality. This social functionality varies wildly at the moment, ranging from simple leaderboards, to interaction with strangers who also have the game installed, to interaction your Facebook friends. The latter option (playing with your Facebook friends) is enabled by integrating Facebook Connect into the app. This option enables full social games of the type that would be seen on Facebook to be played on mobile. A great example of this is Smurf’s Village by Capcom. Mobile social games are still a very young market in Western countries, and at the moment there are not huge volumes of data to gauge its potential. However, as adoption of internet capable smartphone devices is currently increasing, it is a market with potential for high growth. Playfish’s “Who has the biggest brain” on the iOS 
Market Performance of the Top 80 Developers (and where you might place)
Let’s imagine that you have several hundred thousand to a few million dollars to invest in entering the social gaming market. What can you realistically expect out of your investment? To answer this, it’s helpful to know how much money other developers are making so that you have a reference for what your earning potential is. To establish this reference, we provide an estimate of gross revenue of the top 80 developers below.
Methodology for Revenue Estimation
In our last article published in Socialtimes, we quoted a very basic method for calculating revenue based upon the amount of daily active users (or DAU for short) that a developer has. This method is borrowed from Lisa Marino, CEO of RockYou in her presentation titled “Monetization of Social Games”. Her method of revenue approximation states that most games monetize between $10 and $30 for every 1000 DAU, and that well monetized games can earn upwards of $100 per 1000 DAU.
To use this method, we first take the total DAU count of each of the top 80 game developers from Appdata.com. From this we establish 5 ranges of DAU counts, pictured in Figure 1. Next, we apply Lisa’s approximation and provide revenue estimates for two developers within each range (shown in Table 1). This provides us with a general range of what social game developers are earning.
Please note that this revenue estimation method is very basic and only intended to provide a basic idea of social game revenues. Estimating social game revenues rigorously would require more sophisticated statistical methods and a more complete dataset than is used in our estimation.
Figure 1 - Number of developers that fall within various ranges of Daily Active User counts on 5/29/11
Source Data: Appdata.com
DeveloperDAU RangeAppsMAUDAUDaily Revenue ($30/1k DAU)Daily Revenue ($60/1k DAU)Zynga49m+55236,222,07149,228,307$1,476,849$2,953,698Electronic Arts2.5m-5m4032,282,8255,159,914$154,797$309,595Digital Chocolate2.5m-5m1516,308,6582,946,905$88,407$176,814Crowdstar1m-2.5m2024,831,5372,369,497$71,085$142,170LOLapps1m-2.5m2106,289,2551,017,628$30,529$61,058Kabam500k-1m127,211,224967,913$29,037$58,075iWin500k-1m12,922,686520,162$15,605$31,210Broken Bulb Studios100k-500k63,218,719432,658$12,980$25,959TallTree Games100k-500k41,819,848132,818$3,985$7,969 
Table 1- Revenue estimates based on the number of daily active users each developer has
Source Data: Appdata.com, Revenue Estimation Method: “Monetizing Social Games”, p.11, by Lisa Marino
Looking at the top 80 app developers, we see DAU ranging from over 49 million at the top (Zynga) to under 150k at the bottom. Excluding Zynga, this rough approximation predicts daily earnings of $4k to $154k assuming $30/1000 DAU and daily earnings of $8k to $309k assuming $60/1000 DAU.
Analysis & Interpretation of the Numbers
Looking at these numbers we can identify the following trends

Zynga is the undisputed leader, they have more DAU than their 9 top competitors combined
Only 16 developers had DAU above 1 million. This will of course fluctuate throughout a year, but the data indicates that only a handful of developers have managed to achieve top earnings in the social market. Those that do make enough good games to place into this bracket however will earn handsomely.
63 developers have achieved DAU counts over 100,000, which our approximation predicted would earn 1 million a year or more in revenue. Thus even if you only end up with 1 game that averages 100k DAU in a year, you’ll at least have several hundreds of thousands of dollars in return.
By looking at the differences between $30/1000 DAU and $60/1000 DAU, we see that if games are well monetized, game revenues can be very high.
Overall, we see that a lot of developers are achieving moderate success, and the few that have immensely popular games are achieving earnings in the tens of millions. 
Where can you Expect to Place?
It depends on your will to enter the space with a smart strategy. If you take time to really understand what makes successful developers successful, try to create excellent games, create proper live operation & marketing strategies, experiment rigorously, and commit to a long-term stay in the social market, you could find yourself on the top earners. If you do anything else, you’ll likely find yourself in the lower end of the success scale or in the social deadpool entirely.
What are the key market players doing to be successful?
If anyone wants to emulate this success it’s a good idea take a look at what these companies are doing to be successful.
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Six of the market leaders in social gaming
Key Trends Among the Top 80 Successful Facebook Developers
To understand what top companies are doing to be successful, it is helpful to look at their performance in the market and see if there are any common trends these companies follow. By looking at the MAU, DAU of the top companies, playing their games, and examining their financial history, we notice the following trends.
DAU counts range from 100k DAU to 49 million DAU
Many successful developers have more than one game.
The total active userbase of most developers is gained from the combined userbases of the games they operate, but a majority of their active users come from only a few highly successful games.
In most developer’s portfolios, there are several games which have mediocre performance or are complete failures.
Figure 2 – A view of 6 of the 40 top developer’s list of games. In this we see points 2-4 illustrated. 
Developers with multiple games cross-promote their other games. This allows these developers to pass users which have stopped playing one game to another, allowing them to retain that user.
Wooga’s game bar, where all of their other games are shown. 
New features & content are added to the successful games constantly (usually daily or weekly)
Updated content in Nightclub City 
A large percentage of the top developers have had either heavy capital investment or pre-existing operating capital with which to develop & market with.
Keys to Success
From these above trends, we can draw a few general conclusions about what core steps these developers are taking to create their success.
Creation of high quality social games that users want to play
The financial resources to acquire millions of users with advertising
Development of multiple game products.
Heavy experimentation with different game concepts & gameplay mechanics that has led to both failures & successes.
Consistent ongoing improvements to games to keep users engaged & playing
In short, it’s no big secret. They create good games tailored to what social networking users want to play, market them properly, and constantly improve them.
It’s these measures that new entrants should try to emulate. New entrants should be prepared to focus on making fun & appealing games, to support their games long-term, to experiment constantly with different game concepts and gameplay mechanics, and to create a smart strategy for user acquisition.
Cost
So, let’s assume you are ready to take on the challenge of entering the social gaming market. What kind of costs will you incur in doing so? This section provides an answer to that question.
In social game development cost boils down to three main areas: development, marketing, and live operation. The magnitude of these costs is explained below:
Development: According to Zynga, each game costs $100k to $300k to make & launch.
Marketing: To market on Facebook, Adparlor (a leading social game advertising company) states that ads cost anywhere from $.50 per install when a game is first launched and up to $3 per install at the later stages of a game’s lifecycle. Depending on how many ads are purchased, the cost for a launch could range from several tens to hundreds of thousands of dollars.
Live Operation: Ongoing maintenance & content updates will require a live team. Your game will thus have a burn rate that varies depending on the size of your live team and their salary. Assuming a minimal team of 1 developer, 2 artists, 1 half time tester, and 1 marketing & monetization specialist, your live operation team would require a payment of 4.5 man months each month. Depending on where your live team is, this could cost anywhere from $12.5k (assuming $2500 average man-month cost) monthly to over $20k (assuming a $5000 average man-month cost) monthly.
Totals:
DevelopmentInitial MarketingLive Operation (4 months)Total Cost of a Game Launch$100k-$300k$50k-$200k$12.5k-$22.5k+$175.5k-$522.5k Table 2 – An estimate of total social game development & launch costs The Cost of a Product Line 
As illustrated above, many companies launch multiple games within short time periods. This is generally done both to experiment with different designs and to establish a network of related games that users can migrate between. For first time entrants, launching multiple games in the first year can be a good strategy as it will let you test the waters with different gameplay mechanics and themes. An estimation of what such a strategy would cost is done below.
To do the estimation, we need to make some assumptions. In this example, we will make assumptions about how many games are developed, what each game costs, how many games are successful, what DAU count constitutes a “successful game”, and what rates the successful games monetize at. These assumptions are provided below:
Assumed number of games: 4
Average daily DAU for each successful game in a year: 100k - 800k
Number of successful games: 1-2
Average development cost of each game: $180k
Average marketing costs of each game over 6 months: $130k
Live operation costs for each game over 6 months: $120k
Assumed monetization rates: $30/1000 DAU - $60/1000 DAU
Assumed revenue cut to Facebook: 30%
Total costs for launch & operation of 4 gamesYearly revenue assuming 25% successYearly revenue assuming 50% success$1.96 million$770k - $12.3 million$1.54 million - $24.5 million
Table 3 – An estimate of the range of success possible 
From these rough estimates, we see that if games are only mediocre successes, losses will likely be incurred. However, if a few games become very popular, it can be an outstanding new revenue source for a new entrant that will allow them to establish themselves even further into the social game market.
Therefore naturally, a company will want to do everything in its power to make games that can be popular.
How do brands & existing IPs perform in the social space?
Developers successful in other gaming markets have several successful IP lines that are tried and true. Therefore, these IPs are their best bet for a success in the social space right? Well, according to the numbers, maybe not. Before launching brands into the social space, it’s good to look at how brands perform in this space. To answer this question, we performed an analysis of the performance of branded games in the top 500 apps on Facebook in March 2011. The results of this analysis are explained below. We broke brands down into the following categories. 
Casual skill game IP (Bejeweled, Bubble Pop, etc.)
Sports games (Soccer, American Football, Baseball, etc.)
Well known board or card games (Uno, Poker, Monopoly, Farkle, etc.)
Gameshows (Family Feud, The Price is Right, etc.)
Game IP ported from other platforms (console game IPs, hardcore games, TV shows/books, etc.)
Casual downloadable game IP (Hidden Object, Management, etc.)
MMO Games
The following table shows the performance of each of these genres. Brand Success in the top 500 appsGenre# of Games DAUMAUTop 3 Games Skill Games 35,272,779 16,672,291 Bejeweled, Zuma, TetrisCard & Table 132,295,94414,380,942Mahjong, Uno, Farkle Gameshows31,320,920 6,739,290 Family Fued, Wheel of Fortune, Price is rightSports 3992,929 7,743,459 EA Soccer, Madden Football, Bola MMO Games2342,812 3,303,946 Habbo Hotel, Evony Game IP, Casual Downloadable PC2276,128 2071679Diner Dash, Oregon TrailGame IP, Other 1376,183 2,107,363 CSI Crime City Table 4 – An analysis of brands on Facebook out of the top 500 apps on 3/21/2011 
Doing the math on the number in this table, we see that out of all of the brands listed above, existing IPs ported from other gaming platforms such as PC downloadable, console, and MMO account for only 12% of the DAU in the top branded games.
Looking further outside the top 500 apps, we find several more Facebook versions of existing IPs created by large name publishers. Listed in the image below, we find 17 existing game IPs ported from other platforms to Facebook by several famous game publishers. Out of these 17 IPs has, only one has managed to get over 100k DAU. That’s a bad indication for the performance of brands & existing IPs in the social space.
Figure 3 – Over 17 ported game IPs, only 1 game with a DAU count over 100k
Why are the numbers like this? Why do gameshow, card/table, sports, and skill games do well in the social space, but IPs popular on other platforms fail? There are 3 reasons for this in our opinion.
Social Gamers are not Heavy Gamers: The fact is that social network users are the general internet using population of the world. They’re your parents, your spouse, your busy friends who just had two kids, not avid gamers. A lot of them are either entirely new to gaming or have been only occasional gamers in the past so they probably haven’t heard of your brands before the thus majority of users have no incentive to play them.
What they do have incentive to play are brands that everyone has played and knows is fun. Bejeweled, Uno, Monopoly, Family Fued, and soccer are brands that everyone knows which are fun & have lots of replay value. However, if it’s not something everyone knows and likes, your brand’s name is not too likely to bring you any great benefit.
Mechanics that make the IP line popular don’t fit well into Facebook: The mechanics that make many IP lines so popular on other platforms don’t work well on Facebook.
Brands limit the ability for a game to be unique among other high quality games: Success in the social space is about making games users want to play. When making a branded game, its gameplay mechanics & theme are restricted to what the brand permits. These brand restrictions may limit the ability for you to make innovative design decisions that will make the games more appealing to users than competing games.
Nightclub city vs. Ubisoft’s Party Central. Nightclub city was a highly successful party management game. When Ubisoft brought its own party management game Party Central to Facebook, it stayed true to the mechanics of their Party Planner brand, but it failed to be at all more unique or compelling than Nightclub city. Therefore, Nightclub City succeeded and Party Central failed.
Should you make your Existing IPs into Social Games?
According to the numbers, existing IPs have historically performed terribly. Therefore, our professional recommendation would be not to unless they have immense worldwide name recognition, and game mechanics that will very clearly be fun on a social network. If you have to struggle to think about how your IP will be fun for users and compete against other games of its type on Facebook, then it’s likely it won’t do either.
The exceptions are:
If your IP is extremely well known and/or has casual mechanics that have high replay value.
Your IP can fill some a niche on Facebook better than its competitors.
If you are intent on bringing a brand to the space, you must make the gameplay more unique and fun than other games competing for the demographics you’re targeting! IP recognition alone won’t cut it. 
Part 2 - Strategies for Success
In the above section we painted a picture of the costs, potential returns, and success strategies being used by developers in the social gaming market. In this section we aim to explain what strategies and best practices that a publisher or established developer can use to succeed in the social gaming market.
Covered are the following areas:
Your main risks
How to create successful products
Live operation, marketing, user acquisition, and monetization strategies
Creating a good team and structuring a proper development process
Strategies for reducing costs
Your main risks
When looking at strategies for establishing yourself in the social games market, it is helpful to first take a look at the risks developers commonly face. A game fails because the concept or game design is not good 
Sometimes users simply don’t like a game. Many games have been launched and marketed heavily, only to lose their entire userbase within a few months. Generally the causes of this include:
The game didn’t have appeal to the targeted demographic
The game was not better or more unique than competing games
The game was fun for a short time, but had little replay value
The game was just not that fun
A game fails because of excessive technical problems
A game is fun and users enjoy it, but heavy technical problems interrupt users’ gameplay experiences and end up causing a mass exodus of users.
Development cost goes over budget or over schedule 
Development of a game takes several months more than expected, tying up resources, going over budget, and overall clogging your pipeline.
Losing a lot of money to marketing 
A large marketing campaign is launched to promote a new game, but the game is not fun or has technical issues, and several tens or hundreds of thousands are lost on marketing.
The third party developer chosen to build a game doesn’t perform well 
The developer selected is low-quality, or doesn’t meet the creative vision of your game and their mistakes are costly to reverse.
Your production process is slow and clunky 
A social gamer’s interest is hard to capture and maintain and there are a lot of good games out there. When things go wrong in a game (users don’t like specific features, critical bugs appear) users will start leaving the game quickly. If your process isn’t setup to deliver fixes & new features fast to improve user experience, then it will be impossible to stop a mass exodus of users.
Creating a successful product line
Games live or die based upon their ability to interest a large amount of social networking users & inspire them to come back repeatedly. This section gives strategies for creating a line of games that can interest users and retain a large userbase over a long period of time. Target a specific genre & demographic, and make a GOOD game for it 
There are a variety of game genres on Facebook that have successful games in them. They include management games, skill games, girl games, action games, RPGs and more. Each caters to a different target audience. Some will target women 25-65, while others will target men 18-40. If you intend to create successful games, then your biggest key to success will be to target a SPECIFIC GENRE and focus on making FUN and UNIQUE games for it!
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Management, Action, Skill Games, Girl Games, and more! Which genre can you fill?
In general, when creating a social game, you want to ensure that it:
Targets a specific genre and user demographic (preferably an underserved one)
Provides a unique experience among other games in that genre
Is extremely fun!
Has core gameplay that will be addicting to the audience that plays that genre and provides STRONG incentives for them to return over & over again
Has social mechanics that are appropriate for the targeted audience
Ensure you design pipelines for user retention and engagement into the game

For instance, if you are targeting a genre that serves 18-45 year old men, the gameplay mechanics might be more action focused and social mechanics more competition or combat based. If you’re targeting a genre that serves 25-65 year old women, gameplay might be more light-hearted and have social mechanics based on cooperation & showing off.
In the current social game market, there are several niches that are currently underfilled and have room for growth such as arcade, RTS, and skill games. Our advice is to select niches you feel you can fill well, and do your best to create one or more great games for them.
Most existing IP won’t be successful in the social game space 
This sounds like an arrogant claim, but as stated in the performance analysis of existing IP above, most existing IPs that have been brought to Facebook have failed. The reason is that most IPs don’t have name recognition among social gamers nor mechanics that port well to social networks. Because of this, they often end up providing a lackluster experience to users, and who wants to play a lackluster game when there are so many other good ones out there?
The exceptions are 
If your IP is extremely well known and/or has casual mechanics that have high replay value.
Your IP can fill some underserved niche on Facebook better than its competitors.
Other than these two exceptions however, porting your brands will most likely not compete well in the market and result in lost money. Focus first on making games that are unique and fun among other games in existing social game genres, and second on brands. If you do bring a brand to the space, you must do all you can to target a specific demographic, and make it an experience more fun & unique among other games competing for attention. How to create new IPs Many developers entering the social space will have the issue of needing to create new IPs for it. For companies used to other platforms, creation of new IPs that can do well in the social space can be quite challenging. Here are a few guidelines for how to create them: 
Understand where the niches are: Study appdata.com, and figure from top 100 games, what you think the niches are. Once you’ve determined what the niches are, determine which games are performing and try to determine why they’re performing. From this you will get an idea of why successful games are successful in their genre and give you an idea what you must do to compete against them. This is a very eye opening exercise, so make it a task!
Determine what niches you’ll be good at filling: Once you’ve determined what the niches are, try to figure out what niche you think your company can fill. For instance, Popcap games chose to do skill games, and Kabam chose to do RPG & adventure games. What are you good at?
Hire a designer, or design consultant: Hiring someone who has had experience designing and running social games can help you a lot in figuring how to create gameplay mechanics that will engage users and incentivize them to pay.
Get pitches from developers: Put a call out to third party social game developers for concepts. A lot of developers have concepts or game demos waiting to be green-lighted, and you may find some gems among these!
Create a concept pool & select the ones you think will work best: Once you have a team in-house creating concepts and are getting a satisfactory amount from 3rd party developers, you can then create a pool of concepts. Once you have a satisfactory number, you can review them and greenlight the ones you feel are best.
Launch multiple games 
Most developers on Facebook have not gained success with just one game. Rather, they’ve experimented with several games and gained hits out of a select few. By launching multiple games, you will be able to experiment with multiple concepts to learn what works, increase the chances of overall success, and increase the total number of users you are reaching.
The difficulty to this strategy is that it’s quite complex to make and launch online multiple games, so it’s likely not feasible to launch them all at once. This can be solved by spreading out the launches of your games over the course of a year. This will give you time to apply lessons learned to your future games and provide time for you to setup a proper live operations team.

Publish games from other developers
One route that many large developers such as Playdom and 6waves take to increase their overall userbase is to find games from independent developers to publish. Often these developers will have finished games, but not enough resources to publish or market them properly. If you do manage to find a good game, this can save you the money you’d otherwise invest in development and reduce risk by having an already proven concept in hand. Additionally, you may be able to bring on a competent development team to help run your live operations or to develop great new original games.
Pantheon by independent developer Diamplay who admits: “In the absence of a publisher, we haven’t been able to spread our game because of our limited marketing resources, so we’re currently seeking one.”
Be prepared for multiple products, long-term experimentation, and long-term operation Success in the social space is largely discovered (yes, discovered) through experimentation. Many of the developers successful today have experimented with many game concepts and have spent years refining their product and live operation strategy. It’s only through this that they’ve learned how to make successes. This is a way of life in social games, and you need to be prepared for it. Of course experimentation can be expensive, but doing so over several games amounts to far less than the cost of a console game, and the cost can be kept down by being smart about how you implement your development and live operation strategies. 
Live Operation, User Acquisition, and Monetization Strategies
This section explains what is required to run a live social game and presents strategies for being successful in doing it.
3a) Live Operation
Social games are 24/7 online services. Operating this service is what makes money
So let’s say you have made a great game that users love and want to play. This is excellent news, but to monetize it and keep it alive, you will need to run a proper live operation. When running a game, developers generally have a pre-engineered funnel which they direct users through to monetize them (which is often composed of several smaller funnels). This funnel is visualized below with some of the key factors affecting each phase.
User AcquisitionMarketing to gain installsViral user acquisition (wall posts, notifications, etc.)
User RetentionLoad time & initial play experienceAddictiveness/replay valueTargeted the right demographic?Fix issues hurting retention
MonetizationIncentives to buyItems & pricingTarget best monetizing groups
+ Lifetime value+ K Factor (virality)- User acquisition cost
EngagementNew features & contentSocial featuresUser LeavesTotal Lifetime Value
Figure 4 – Simple example of a game monetization funnel
To make this monetization pipeline work in your game, it’s important to realize that a social game is a 24/7 online service that you’re providing to users. This service will have multiple components such as the gameplay itself, the in-game store & payment system, the game’s social components, etc. that users will be accessing daily. There will be things users like, things they dislike, and critical technical issues that they will have. You need to understand what experience your users are having with your entire service as a whole and then do your best to solve problems and optimize user experience. By understanding user experience and optimizing it, you will be able to increase the number of users that successfully move through the monetization pipeline.
Use metrics to understand everything about your game A major part of optimizing your game’s monetization will be to understand how your game is performing and what users like and dislike. For this, a metrics platform is essential. Metrics platforms such as Kontagent (http://kontagent.com) or Mixpanel (http://mixpanel.com) monitor your game’s data and provide easily readable statistics on its performance. Metrics measured include key performance indicators which measure critical overall metrics such as financial performance, player retention, etc. (such as DAU, Average Return Per User, Paying User Conversion Rate, etc.) and metrics that measure user behavior in game such as entry events, exit events, popularity of items, and popularity of social features. Kontagent’s social game metrics platform, an excellent tool (http://kontagent.com) With these metrics tools, you are able to understand how your game is performing overall and understand where improvements need to be made. You can then introduce small changes (new content, new features, fixes) and measure which changes improve the game’s key performance indicators. Through this gradual process, you are able to improve your game in the following areas: 
Kill Major Issues: Fix Issues (payment flaws, unnoticed bugs, long load times, etc.)
Lower Marketing Costs: Tweak your marketing campaigns to lower the cost of user acquisition as far as possible by determining what demographics to target & what ads work best.
Improve Retention: Improve the game’s ability to retain new users & existing users by determining what incentivizes users to stay and what makes them leave.
Increase Engagement: Determine what new gameplay and social features will keep users playing long-term and refine your engagement and viral funnels.
Improve Conversion & Return Per User: Determine what gameplay mechanics, content, item pricing, and payment options will incentivize users to pay.
Engagement is crucial The term “engagement” when applied to a social game generally is meant to qualify a game’s ability to incentivize users to play the game a lot. When users play a lot, they are much more likely to spend money and invite friends other friends to be active in a game. Therefore, a developer must take steps to keep engagement consistently high throughout a game’s lifetime. In engaging the user, there are three critical steps: 
Initial Design: You want your game by design to inspire a user to want to play a lot, and this is where a lot of games fail. How to do this is dependent on the type of game you’re building, but it should be a top consideration in the design process.
New Content & Features: When your game is launched, new content and gameplay features will help provide a fresh experience to players and keep them interested.
Engagement Funnels: You want to direct users while they play the game through guided series of events which guide them to take specific actions that get them deeper into the gameplay (i.e. in a realtime strategy game, you might guide users on how best to attack their neighbors!). Having these at appropriate points in the game will help to keep your users playing.
Part of an engagement funnel in Backyard Monsters that guides a user towards building a base & attack fleet of monsters – fun! Make Constant Content and Feature Updates That Add New Depth to Your Game When users play a social game, they will get a certain entertainment value out of it. However, after a while, they will get tired of the same experience and move on. As you run your game, you will want to evolve it such that even users that have been playing for a long time can feel like they’re having new experiences. An excellent example of this is Mafia Wars (as shown below). Mafia Wars - From one city + basic missions & properties (2008) to over 5 countries, new gameplay, & tons of new content (2011) 
Hire appropriate specialists for user acquisition, metrics, and monetization
Effectively gaining, retaining, and monetizing users is no easy task if you’ve never done it before. Having specialists with experience in these areas on your team will allow you to make smart decisions for user acquisition and monetization.
It’s important to note that these specialists don’t need to be stuck to one role. If you only have a small team and need everyone to be somewhat entrepreneurial, you can have these experts fill multiple roles such as design or production also. Having their expertise in multiple parts of the pipeline is likely to improve the quality of decisions made in these processes greatly.
Have partners manage parts of the live operation you’re not good at 
In running a social game as a service, there are a lot of different components to be managed and most new entrants don’t have the expertise to manage them all correctly. One option for overcoming these shortcomings is to partner with companies that have the competencies you lack.
Examples include:
Ad firms that can manage your marketing campaigns and keep the cost down
Developers that can help manage live operation and monetization
Technology partners that help you solve complicated back-end issues
Distribution partners that help you reach international audiences
3b) Marketing & User Acquisition
User acquisition on Facebook is challenging. There are many developers who are attempting to acquire users via Facebook marketing, but are having troubl
Reduce marketing costs with limited betas
Marketing on Facebook is expensive, with costs ranging from $0.50-$3 per install. With such high advertising costs, you don’t want to spend a huge amount of money on marketing until you’re confident the game can perform well. To gauge initial performance, it is a wise idea to run a beta first. To execute this beta, you can gain users by investing a small amount of money in Facebook ads to acquire a few thousand users. Make sure when you do this to target your target demographic.
After players initially install your application, the following metrics will give you an idea of its performance.
Weekly retention rate: What percentage of users are retained in the first week, and what is the week to week retention rate following that?
Demographics: What are the age, locations, and genders of those who are paying & playing?
Conversion & Monetization: What percentage of users are paying, what events cause them to convert, and what rates do they monetize at?
Actions: What are the key actions & features that users love. What (if any) features are tied to users exiting the game & not returning?
Figure 5 – A sample graph of various game’s week to week retention rates. If yours is high, you’ve got a lot to be happy about.
Once you’ve monitored these metrics, you will have an idea of your game’s retention and monetization as well as data on how users play the game. If your game has a great retention rate and other positive performance indicators, you can give the greenlight to a larger marketing effort. However, if your retention is bad during this period then it implies your game doesn’t inspire users to come back & needs fixing or is fatally flawed on a fundamental level. In this situation it’s best to introduce changes to fix this immediately and try a further small beta to gauge if your changes worked. If this fixes your retention & other performance indicators, you can consider a larger marketing campaign. If not, you should consider focusing your efforts on other products.
Target specific demographics & experiment with multiple ad variants
When buying ads for your game, Facebook will allow you to target specific age groups, genders, and locations with specific parameters. Thus, to lower the cost per click of your ads as low as possible, you want to focus on the demographics you think are most likely to play your games in your genre, and try multiple ad variants to see which ones are most effective. Many tools are available for monitoring performance of social game ads, so it’s wise to employ one of these tools to track the efficiency of your campaign
Virality is not dead! It’s just hard to achieve. Use unique tactics to spread your app virally
Initially when buying ads, the cost of user acquisition can be as low as $0.10. If every user played your game faithfully, this would equate to a fairly low cost of user acquisition. However, generally games only retain a certain percentage of users that install the game. Thus, if your retention rate is only 1 out of 5, your true cost of users acquisition is $.50 per user, which is fairly expensive, and this cost will only increase as your app continues to run, so it’s helpful to have some virality working to your advantage.
Back in the days of rampant notifications on Facebook (roughly 2008 to early 2010), it was much easier to spread an app via viral means. Today these notifications are long gone and trying to acquire users virally only through Facebook’s viral channels is quite difficult. K factors (virality coefficients) are often far below 1, with 0.1 or below being typical numbers for many developers. Thus it’s been commonly stated that “virality is dead”, but this isn’t true, it’s just hard.
What’s required these days to get a good viral coefficient is to be smart about how you achieve virality. Some of the most popular approaches to this include
Small Facebook games & apps for the purpose of driving traffic to the main app
Games on flash portals that send users to the Facebook game.
Clever video marketing
If you can make a combination of cheap or free viral marketing tools like this, you can significantly reduce the cost of user acquisition.
Partner with a marketing firm
Specialist social marketing firms like Adparlor (http://adparlor.com) help social game companies focus their campaigns as efficiently as possible. Often these firms offer both tools to help you focus and monitor your campaigns and services focused on lowering your cost per click for your target demographics as low as possible. Assuming you have a good game, partnering with these firms can lower your cost of user acquisition and help you create more focused marketing campaigns.
Adparlor helps you acquire users smartly and for less money (http://adparlor.com)
Launch on other networks 
There are many social networks outside of Facebook that combined represent hundreds of millions of extra active users. Many of these networks possess users that monetize just as well as Facebook, have less saturation, better viral channels, and lower advertising costs than Facebook. Additionally, since many of these networks are hungry for game content, they provide developers that port to their network generous free promotion packages that allow their games to get boosts of several tens to hundreds of thousands of free users. So for a developer willing to make the effort to port outside of Facebook, there is a rich market with hundreds of millions extra users waiting. Playdom states that roughly 35% of their social game revenues come from networks outside Facebook.
Integration with several networks can be somewhat of a difficult task. It requires integrating into each network’s specific API & rules, each region’s currency, and contextualizing content. To help deal with this difficulty, there are social game distribution companies such as APPWalk (http://Appwalk.net) that provide both porting tools and services to port and operate your games on outside social networks. Partnering with these firms to help you take your games outside of Facebook can help you gain access to extra markets other developers don’t have.
APPwalk can port your games and help you optimize them for each social network (http://appwalk.net)
3c) Marketing & User Acquisition
Having several funnels in place is a good idea
When users play your game, you will want to nudge them to complete specific event chains (called funnels) which guide them towards coming back later, making viral posts, getting deeper into gameplay, or monetizing. This can be done by creating specific event chains triggered at natural points in the gameplay. As you operate your game, you can gauge the performance of these funnels at driving users towards retention, engagement, virality, and ultimately monetization. Over time you want to test to tweak your funnels via testing to be as effective as possible towards achieving their goals.
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Figure 6 – An example (provided by Kontagent) of a retention funnel. Note that in this example, the user is using Kontagent to monitor the funnel’s performance.
Pay close attention to what events trigger player monetization
When running a game, you may begin to notice that at a certain point in a player’s advancement or at certain events, users frequently convert. You want to take note of these and try to understand what incentivizes users to buy certain items at certain points in their advancement or at certain events. From this you can understand how to create further incentives or events that increase monetization.
Treat virtual products like actual merchandise
When a retailer sells items in a store, they track performance of those various items, and expand those product lines that have high sales. Your virtual items will be no different! You will need to study what virtual items sell and what users are using them for. In this case, it’s useful to use extensive use of A/B testing to test different items against each other to see which has higher performance. From this you can make smart decisions about how to tweak & expand your products so as to provide the most desirable items for users. Additionally it’s good to experiment a lot with the price points of your products to see if it drives any extra monetization.
Nightclub city found that a steampunk theme (which they called ‘gaslight’) was popular among users. Thus they expanded the number of steampunk themed items available.
Focus on making payment as smooth of a process as possible for US & international users
Making your payment process smooth may seem like a no-brainer, but in reality, a lot of games fail at this point through either overly complicated payment processes or a lack of viable payment options for users. To avoid this, you can take the following steps.
Provide as many payment options as you can (offers, paypal, etc.), not everyone has a credit card
If you’re targeting international users, ensure proper international payment options are available
International users will be paying in different currencies, thus an item priced $0.50 in the USA would appear as 1.39 zlotys to a Polish user. This looks weird, so you want to adjust your currencies to be at prices that make sense to your international users.
Put options to pay all over your game! Don’t make users always have to navigate to the store.
Make use of payment solution providers. There is a huge selection of companies that provide monetization tools & services such as Trialpay, Superewards, or Playspan that help you create better payment options, storefronts, and monetization incentives.
Development Strategies
This section focuses on how to structure your social game development pipeline so that you can efficiently create games and have a strong process and technical back-end to support them.
How to select a developer
If you’re planning to do your development with third party developers, you should be quite careful about who you select. If you fail to do proper due diligence, you could end up with a failed product and lots of wasted money before the game even launches. First & foremost, it’s best to select developers who have created their own social games before as these developers have had the firsthand experience of building and monetizing games.
Additionally you want to do significant due diligence on the following areas
Social game specific experience & skillset
Internal development process
Social game technology & skills
The specific RFP response or concept submitted
The table below provides a basic checklist on which to judge developers on. The more of these that end up being checked, the better.
ProcessSocial Game ExperienceTechnologyRFP ProcessImplements an agile methodology (Scrum, XP, Kanban, etc.) well Has built and run a social game before Has an existing social game engine & server Submits a good design targeted towards a specific demographic Skilled management (producers, CTO, tech leads, creative) Has done a good job of monetizing games in the past Has flash/flex experience Excellent monetization & sales funnel presented Has an airtight quality assurance setup Experience with social game metrics and metrics tools Has HTML 5 experience Engagement & retention strategies are good Can they show you a typical production process for a social game? Experience designing original social game concepts Has requisite server skills (Java, SQL, Scala, etc.) Includes tools for managing virtual items & economy + integration with metrics tools Experience in marketing on Facebook Back-end & front end technical proposal is good Table 5 – A brief due diligence checklist for selecting a social game developer 
Create a unified back-end technology suite that you can manage live operation of all games with
When running a live operation of several games, it’s optimal to be able to have single a system which allows you to manage the services common amongst all of your games. If your resources permit, you want the following to be managed by a central tool 
Metrics and A/B testing for all games
Currencies, payment processing, and most anything related to payment
Virtual item management & storefronts
Often, if games are already built, it can be a difficult process to integrate it into a back-end platform. Therefore, it’s wise in the beginning to create such a platform and make it a requirement for games built by your team or developers you contract to integrate into it. This will cost some money upfront, but save you lots of money in overhead in the long-run. Have live operations delegated to specific capable teams One mistake a lot of developers have made is to spread out live operation amongst too many separate development teams. The reason for this is that developers often have varying skill at live operation and some are much better than others. Thus, some games might perform rather poorly just due to mismanagement by the developer and not by quality of the game. If you can build a live operation team in-house, this is excellent and it’s a good idea to shift live operation to them, but if not, you want to select a few key partners (specific developers probably) to handle live operation of most games. Additionally make sure there’s a clear delegation of tasks. If the various partners or developers involved have joint control over things or are working on the same tasks, it can be a recipe for duplicated efforts and wasted time and money. Make sure everyone involved has clear control of & responsibility for their individual area. 
Have an airtight quality assurance process, regression test EVERYTHING!
In online games, bugs & gameplay issues have a horrible effect on user retention and can often be the sole reason a game fails. You want to make sure that you & all of the developers you select outline a rigorous QA process and stick to it. If you’re a publisher, hire or use an internal QA resource with experience in online games to outline QA standards for all developers & internal teams to conform to. Again, YOU WILL BE IN HORRIBLE PAIN WITHOUT A GOOD QA PROCESS!
Have an awesome agile process
Since social games are an online service, they need to be serviced very quickly when things are wrong. They also have the need for quick content & feature iterations based upon feedback from metrics. Therefore, it’s very essential to have an internal process which accommodates quick changes based on changing information. Using an agile process such as XP, Scrum, or Kanban religiously will help you do that.
Keeping Costs Down
Eeek! That’s a lot of money being talked about in all the above sections, what can we do to keep our spending down?! Suggestions are below. Product Strategy 
Consider higher revenue shares with developers. If you are building games with developers, they will often charge you a set man-month cost for their resources. However, many will often drop this price significantly for a larger revenue share. Thus, if you have limited resources, this can be a good way to lower your development cost.
License other developer’s games. Licensing a well-done game with decent metrics avoids you having to pay for development costs.
Make sure that your designs are targeted at niches. Bad games fail. Don’t make a game without making it fun, unique, and well-positioned among competitors. You’ll lose your money otherwise (and why do that?).
Use skilled offshore teams, or reasonably priced US or EU teams. Offshore teams price reasonably, and these days, there are a lot of very smart, very inspired offshore teams. Additionally, there are smaller groups of US & EU teams who are willing to be reasonable about costs.
Live Operation 
Run betas first before spending large amounts on marketing
Make marketing very targeted towards the type of users who play your games, don’t waste your time on users who probably won’t
There are many ways to market that are focused on simply getting eyeballs to your games. The problem is that many of these users won’t bother playing your game, and thus you’ll have wasted your money. Stick to your core demographic.
Hire specialists to handle all live operation disciplines including marketing, engagement/retention/monetization/metric, and technical specialists. They may cost upfront, but will save lots of money in the long run!
In areas you don’t have expertise (payment processing, marketing, etc.) make use of the services & tools of partner companies who do!
Give your live operations to specific teams
Technical 
Create rigorous QA standards
Select only the most capable developers
Have a good agile proess.
Conclusion If you’re a social game publisher or established developer and you’d like to go into the social space, you have some road ahead of you, but this should not discourage you. Making a strong effort to break into the market costs much less than a console or MMO game development process, and is much quicker to provide return. Also, many of your competitors are now getting into the market, and soon, they will have extra market penetration that you don’t, so if you are going to act, the time to act is soon. And if you do act, here are the key points that we think are crucial for everyone to keep in mind: 
Focus first and foremost on making fun games that provide unique experiences towards a targeted niche
Treat live operation like a service, and get all of the tools, team members, and partners on board you need to handle it successfully when your game launches
Make your development process agile, quality assured, and filled with competent developers
Enjoy the game making!

Social game revenue potential, costs, and the keys to being successful in the market

by Bitfold on Jul 22, 2011

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Social game revenue potential, costs, and the keys to being successful in the market — Document Transcript