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Maximizing Monetization in Free to Play Games


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Maximizing Monetization in Free to Play Games

  1. 1. Maximizing Monetization GDC Online 2012 Emily Greer, Co-Founder & COO
  2. 2. What is Kongregate? • Open platform for free browser-based games – Flash, Unity, HTML5, Java, etc. • ~200 games selling virtual goods • Revenue from ads (30%) & virtual goods (70%) • 16M monthly uniques, core gamers • Acquired by GameStop July 2010
  3. 3. Select Developers
  4. 4. Huge Variations in Monetization ARPU: Average Revenue per User ARPPU: Average Revenue per Paying User Size of bubble represents LTD revenue, minimum of 6 weeks
  5. 5. It’s not just genre 14 different CCGs – All multiplayer – All monetizing cards/card packs – All on Kong at least 3 months, well-rated Top ARPU is still 100x the lowest
  6. 6. It’s not just quality There’s little relationship between rating & ARPU (It does matter for total players, higher rated games get more promotion & word-of- mouth)
  7. 7. So what gives?
  8. 8. Econ 101 In perfect competition the market price is set where demand & supply are equal. Real life example: the stock market
  9. 9. Imperfect Competition Perfect competition assumes that goods are homogenous, i.e. that there’s no difference buying from one supplier or another. But nobody can sell a good that’s useful in your game but you. (Ignoring gold farmers)
  10. 10. Your game is a monopoly
  11. 11. But I’m surrounded by competition! Yes, and the competition for player ATTENTION got so fierce that it dropped the game price to free. The market for in-game goods is separate: players are not price-shopping packages of gold in two different games and deciding which to buy.
  12. 12. But since players can leave your game/market for goods freely your monopoly is insecure. You’re not a cable provider or the like who can charge high prices and provide poor service and the player is stuck. Players should be treated well and will leave if you don’t. What it does mean, though, is that you look internally to your game to set prices, not externally.
  13. 13. Monopoly Revenue Maximization Monopolies can set the price freely, deciding whether to sell fewer units at a higher price or more at a lower price. Marginal revenue is the change in total revenue from a change in price. Example: 5 units at $5 = $25 7 units at $4 = $28 Marginal Revenue = $3 Total revenue is maximized where marginal revenue = $0
  14. 14. Uh, how do I figure out where MR=$0? In an econ class the professor would give you a formula and you’d calculate a derivative. In the real world you need to deduce it from trial & error: set a price, change it and see what happens
  15. 15. It’s all about elasticity When a good is elastic, quantity decreases rapidly with a price increase and total revenue drops. When a good is inelastic, quantity decreases slightly with a price drop but not enough to compensate for the change in price and total revenue increases. Gasoline is a classic example of an inelastic good.
  16. 16. Now in graphs! Area of the box = total revenue
  17. 17. So which are virtual goods? Mostly inelastic.
  18. 18. Bloons Tower Defense 4 vs 5 Immensely popular series by Ninjakiwi, BTD4 introduced virtual goods and was the first big single-player success. Sold 20 items ranging from $0.30 - $10 BTD5 launched recently, selling nearly 40 items from $0.60 - $100 (!) – at average of 70% higher on comparable items. Results: 108% increase in ARPPU, -8% decrease in conversion, +92% ARPU Player freakout? Nope. Rating is slightly higher, sales on pace to 3x+ BTD4
  19. 19. Mind the drop Skyshard Heroes is a competitive kingdom- builder with a steampunk theme from Synapse games. They A/B tested dropping the price of their heroes 40% on cohorts of new users, expecting that it would help conversion. Results: +21% in conversion but -25% in total revenue
  20. 20. More on demand curves… Factors that shape the demand curve: • Total players in the market • Desirability (utility) of goods for sale • Income/ability to pay A demand curve is really the aggregation of individual player demand curves. If a market has a few people with high, inelastic demand that can make the whole curve inelastic.
  21. 21. Big Spenders are a Big Deal Four of the top five games get the majority of revenue from those spending $500+ Every top ten game gets the majority of revenue from players spending $100+
  22. 22. What do players want? Permanent Upgrades! Items that give real and permanent advantage in the game. Permanent Upgrades > Consumables & Convenience > Cosmetic Items & Content Consumables tend to be in the 10- 30% range of sales. Impermanence reduces the value to the player, which makes it hard to price high, and then friction of purchase makes it hard to get enough repeat buys to drive $s up.
  23. 23. What do players want? Cosmetic-only items sell poorly though cool looks can help functional items sell. Real-life example: I buy a coat to keep me warm, but am willing to spend more on one that looks good on me. Content is a tough proposition in a world of free, only appeals to those who have finished game.
  24. 24. Balancing advantage vs pay-2-win If powerful items sell, a winning item will sell even better! Maybe temporarily, but if you break your game players will lose interest and leave, even those buying wins. Players want to achieve in the face of challenge, over- powered items are boring. Items can be powerful if they also require skill to use well (CCGs are great at this) and should mostly be acquirable through a very large amount of play.
  25. 25. Beware of diminishing returns Be careful in designing permanent upgrades/items as it is easy to cap the amount a player can or wants to spend. Example: selling a weapon that is effective at all times/parts of the game, even worse if you can only use one weapon at a time. Why buy another? Ideal: players should be able to invest continually with (close) to linear benefit – players will spend only as long as the in-game benefit is real.
  26. 26. Demand curves change with time A player won’t desire goods from your game until they care about their status & progress in the game. The longer someone spends playing a game the greater their investment and emotional attachment, and therefore their willingness to spend. Demand goes up, price elasticity down.
  27. 27. Commitment REALLY matters Type of Player % Buyers Avg Trx ARPPU ARPU % Players % of Rev Non-Repeats 0.03% 2.10 $ 24.69 $ 0.01 43% 0% Repeats (2-9 plays) 0.40% 1.85 $ 19.61 $ 0.08 40% 3% Regs (10-49 plays) 4.68% 2.61 $ 21.35 $ 1.00 10% 12% Committed (50+ plays) 16.53% 7.03 $ 96.92 $ 16.02 7% 84%
  28. 28. Gameplays before 1st Purchase
  29. 29. Retention = Security The more time a player invests in a game, the more they value their status and progress, the higher the switching costs to another game/hobby become.
  30. 30. So what can I do as a monopoly? Price differentiation by customer segment Classic example: student & senior movie tickets.
  31. 31. How should that work in games? Player stage in game is a good place to start. Have some low-priced items that are useful early- to mid-game. Have lots and lots of compelling end-game items; price those high. Don’t push too hard too early – you’re more likely to repel players than convert them. High-priced end-game items should ideally not be available at first.
  32. 32. Upgrade paths: naturally different Upgrade paths do this naturally – prices & power can scale organically within the game. Crystal Saga does this well. Wings and pets can be upgraded by combining with tokens (available through loot drops or sold for $0.30- $0.50). Each upgrade costs more tokens and involves more luck, scaling costs significantly with items that are cheap on their own. Fully upgrade wings add 1000s of hit points and look cooler, too.
  33. 33. Experiment! Start with prices high as it’s easier to lower than to raise. You’re also setting the initial impression of value in players’ minds. You can look to other games for ideas but don’t price around $10 just because that’s what League of Legends does. Use promotions on individual items to test prices & elasticity – but take with a pinch of salt, as people behave differently in the face of “deals”.
  34. 34. Don’t abuse your power Player manipulation is a short-term strategy. If they feel taken advantage of, they are more likely to leave. If they stay they will be less likely to buy again. This game had a strong start, then added a manipulative/deceptive monetization mechanism that drove a huge spike in sales in weeks 15-16. But a combo of bugs & resentment led to a player revolt soon after. Week 10 Week 31 Week 1 Week 4 Week 7 Week 13 Week 16 Week 19 Week 22 Week 25 Week 28 Week 34 Week 37 Week 40 Week 43 An apology and a make-good led to a partial recovery, but only partial – game sales are 30% lower than equivalent games.
  35. 35. Riding the rocket Promotions & sales are very, very powerful – players react emotionally as well as rationally, can drive huge (5x) spikes in revenue. But powerful things can also be destructive.
  36. 36. Cautionary tale from…catalogs? Typical 3-month test, 250k recent buyers in each group: We’d see a strong spike in demand but usually we were just moving sales around. The stronger the spike, the bigger the following dip. Even though buyers responded to the promotion demand wasn’t truly elastic. Repeat promotions would become less and less effective and base sales would spiral down as customers waited for discounts.
  37. 37. So are promotions bad? No. Same test to lapsed buyers: Same spike on the promotion, but less of a down on future sales – most of the gain was from people who would not otherwise have bought, and reactivated buyers were more likely to buy again. So the demand of lapsed buyers was truly elastic.
  38. 38. Even better for non-buyers Same test to prospects (only mailed 2x per year): Even though the value of buyers brought on through promotion was somewhat lower on average, it’s dwarfed by the gain in 1st time sales and the increase in buyers.
  39. 39. Week 1 Week 3 Week 5 Week 7 Week 9 Week 11 Week 13 Week 15 Week 17 Week 19 Week 21 Week 23 Week 25 Week 27 Week 29 Week 31 Week 33 Graph of this game’s sales (along with anecdotal data) suggests yes: Week 35 Week 37 Week 39 Does this translate to games? Week 41 Week 43 Week 45
  40. 40. Maximizing Promotions To get the most of out promotions you need to design them very carefully. Things to focus on: • Customer segments have very different price elasticity: target accordingly • Transactions are relatively rare: increase their size (bonus for volume buys) • Related: increase value rather lowering price (buy one, get one > 50% off)
  41. 41. An elite 1st-time buyer offer Great example of a lot of those principles in Tyrant, a CCG by Synapse Games “Elite” membership gets you $20 worth of paid currency for $10 plus an extra card. Big value bonuses targeted at non-buyers, mid-level price point, positive “elite” branding. Results: exceptional conversion to paid, 86% of buyers have bought Elite
  42. 42. Another good example can be found in Fantasy Online by Pixelated Games, an open-world MMO with cute retro graphics. FO bonuses exclusive items on larger purchases. Items changed regularly, top package includes a monthly special item encouraging committed players to buy every month. Results: Monthly ARPPU jumped 75% the month this was added, and stayed up.
  43. 43. So what about event sales? Tight communities make event sales difficult to target in core games. On the other hand communities can strengthen a sale they get excited about, fence- sitters more likely to convert if others are talking about it. Additional concerns with periodic events: • How quickly will players use what you’re selling? • Players get trained to wait for sales: be unpredictable • Related: don’t let your company become addicted to big promotions (this is hard)
  44. 44. Emphasis on event, not sale The best events serve two purposes: 1. Energizing committed players & giving Dawn of the Dragons Sales them more to do (and spend on) 2. Incenting non-buyers/lapsed buyers to spend (and keep on spending) An event that does both spikes revenue, then resets to a higher base. Occasional world raids with high damage/high reward spikes spending in Dawn of the Dragons, even more when combined with currency bonuses every 1-2 months.
  45. 45. Beware the event treadmill Make sure players have enough to do between large events, and enough variety in events or they become less effective. This game had great success with large holiday-based monthly events for 18 months, but effectiveness diminished and baseline dropped. Week 1 Week 12 Week 23 Week 34 Week 45 Week 56 Week 67 Week 78 Week 89 Week 100 Week 111 Week 122 Week 133 Going to weekly events helped for a while, but those stopped working, too. Events can juice content, not replace it.
  46. 46. Mileage will vary! The right strategy will vary dramatically game to game based on retention and base monetization design. If retention is poor (and unfixable) then shorter-term monetization is probably the best bet. If your audience is younger and/or poorer, demand will be more elastic. If your base monetization is capped, then events and sales may be less productive. Remember that the most important thing is to make a fun game that people really care about. Without that there’s nothing to leverage.
  47. 47. Finis! To learn more/find links to other talks visit Contact us at Follow me on Twitter: EmilyG

Editor's Notes

  • We just launched our first downloadable game
  • The advantage of having a platform is that we can do cross-game comparisons across a wide set of games (Eastern & Western, big companies & small studios, MMOs & social games) to better understand what drives game success
  • Huge differences in monetization, ARPUs ranging from $0.01 - $2.50, ARPPU from $5-$200+ Some of the difference can be explained away by single-player vs multiplayer, genre, quality of game, etc.
  • Rating isn’t a perfect gauge of game quality but it reflects polish & base fun level quite well, higher-rated games will get promoted more/have more players
  • For that I’m going to step back and look at the base economics at play (warning, I nearly went to grad school in Econ before starting Kongregate so I may geek out a little here).
  • negative slope means qty demanded goes up as price goes downpositive slope means qty supplied goes up with pricePrices stabilize where marginal revenue = marginal cost
  • I don’t care (or even know) who I’m buying a stock from, but it doesn’t matter if another game has an awesome sword to buy, it doesn’t work in the game that I’m playing.
  • No one else can sell
  • No one else can sell
  • You are not a cable provider who can have high prices, terrible service, and everything else that we associate with monopolies.
  • Marginal revenue is the additional revenue
  • Ask audience which they think. Inelastic demand feels really unintuitive, feels like price should matter.
  • Not a lot of games do real A/B testing but there are some good natural tests/anecdotal evidence. Majority of their revenue comes from items $10 and higher.
  • Inelastic demand feels really unintuitive – price feels like it really should matter. But if you look into the demand curve and what drives it, it’s easier to understand what’s going on.
  • Chart splits out buyers from the top 5 games on Kongregate by lifetime spend
  • Consumables can also leave the player feeling nickel-and-dimed. But there’s a spectrum on consumables – a speed-up early in the game may just be a convenience, but later in the game in a PvP situation could improve your offensive or defensive position.
  • Spenders tend to be older than non-spenders (avg age 26 vs 21 site-wide) and big spenders to be even older – avg age 37, often in 40s and 50s. Soft & hard currency combos balance prices for the time-rich vs cash-rich.
  • Top 10 games on Kongregate
  • Median # of gameplays before 1st purchase is 6 for single-player games, 23 for multiplayer games. More than 1/3 of buyers in multiplayer games played the game at least 50 times before buying anything.
  • I’m not going to go into retention much here, check out previous talks
  • We unlock our $250 and $500 package after player buys the $100 package and passes a fraud screen but still more revenue than $5 or $10 packages.
  • Upgrade paths aren’t natural in all games, but there is usually some technique that works. In CCGs for example you can price rare and very rare cards quite high. In other games you might price items for guilds/guild competition quite high.
  • Before starting Kongregate I spent many years in catalog marketing, which is actually a lot more similar than you would think. We had a big database of buyers and did tons of long-term A/B cohort testing on promotions, things like 10-15% off, free shipping, sale sections.
  • In the end we used occasional, varied promotions (2-3X per year) to lower-performing customer segments and rigorously protected our best buyers from any form of discount.
  • .
  • Largest pack should probably be higher – maxes at $55, should probably be more like $100.
  • Large, asynchronous games like Farmville can probably block their big spenders from seeing discount messages but in any game with live chat/PvP and active forums word is going to get around.