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Social gaming is a tactic not a category March 25, 2009

Posted by jeremyliew in business models, games, games 2.0, gaming, social games, social gaming, viral, viral marketing, virtual goods.
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I’ve been blogging a lot about social games over the past couple of years and have been a big proponent of the space. However, over the last few months I’ve started to question whether social gaming is a separate category at all. I now believe that the true category is free to play gaming, and that social gaming is simply a tactic (albeit a very important and differentiating tactic) within this category. Although I’ve been saying this in private a fair bit recently, I brought it up at the VC panel at Gamesbeat yesterday and I hear that it caused a bit of a stir. Rather than being quoted out of context in 140 characters, I thought it would be helpful to explain how I came to this view.

At the most basic level, free to play games (with a digital goods or subscription upsell model) need to focus on only two metrics, Lifetime Player Value (LPV) and Player Acquisition Cost (PAC). If LPV > PAC then you’ve got a business. If not, you don’t. This applies to flash MMOs, virtual worlds, facebook games, asynchronous text based MMOs, client downloadable games, myspace games and a whole host of other games, with the key unifying element being the business model, and the importance of those two statistics, LPV and PAC.

The term “social gaming” has been used in two main, and related, ways. I think that both of these definitions are potentially limiting. The first has been to describe games that are played (and spread) on social networks. The second has been to describe games that spread virally, with a PAC of zero because current players invite new players with a K factor above 1.

Let’s start with games played on social networks. This is a terrific distribution tactic as open platforms and distribution are opposite sides of the same coin, and as I’ve said in the past, in the early stages of a new category distribution is the key driver of success. Free to play gaming is certainly in it’s early stages, with many games having to create demand versus simply fulfilling demand. But there is no reason why these games have to be limited to only social networks, and indeed companies like SGN and Zynga have already started to port their games to other platforms including the iPhone and the open web. Social networks offer an easy starting point for new free to play games because of the large concentration of potential players, but there is no reason for free to play games to stop at social networks.

Now lets address viral growth for games. Obviously, this is a wonderful characteristic. It is the cheapest possible channel for player acquisition as with a PAC of zero, you can make money at any level of LPV. However, once again, there is no reason to limit your player acquisition channels to viral growth. You should acquire new players through any channel where your PAC < LPV. For some game developers this is a religious issue; viral is best and nothing else is acceptable. I disagree with such a fundamentalist approach. If your LPV is high enough to allow you to buy users through advertising, distribution deals, search marketing or any other channel, then you should. Mark Pincus, the CEO of Zynga, has been preaching this approach since early 2008. Here is an excerpt from my blog post from the social games panel that I moderated at the Graphing Social Patterns conference in March 2008:

We next talked about how social games can grow. Viral growth has obviously been the key driver of growth up to this point for all the panelists. Shervin noted that they had seen a strong positive correlation between App Rating and rate of viral growth – high quality games spread faster. Mark talked about the importance of supporting a game with advertising, especially at launch.

One reason that Zynga is the largest social gaming company today is that they have been able to afford to promote their games on both Facebook and Myspace, and have done so aggressively.

Obviously, building social factors into games is increasingly important. Multiplayer is the “user generated content” of games, and social interaction is a key part of that. Furthermore, even if your K factor is less than one, it can be a very important force multiplier on your player acquisition. Buying one player if your K factor is 0.8 means that you will generate 5 new players, and this can dramatically average down your PAC, even if it doesn’t take it all the way down to zero.

In conclusion then, I find the term “social gaming” to be limiting. The best publishers and developers of free to play games will make frequent use of social gaming tactics, but they will not refuse to go beyond social networks and viral channels to grow to their full potential.

I’d be interested to hear what you think.

Comments»

1. martinsz - March 25, 2009

For me a true social game is a game that incorporates the social graph of its users into the game play, such as Parking Wars. I know this is a vague definition. In this respect I agree that social gaming is not a category because a game could use the social graph more or less so it is just an online game within a social network, such as Texas Holdem Poker, or a social game, such as Sell-A-Friend.

I think the two other definitions – social networks / viral growth – are problematic. Social games require a social graph. However, the social graph does not only exist in social networks, but also in virtual worlds, instant messenger etc. So a social game could also be built on top of an instant messenger. And viral growth is just a consequence of a game that benefits from the social graph. So the first is the prerequisite, the second the consequence.

2. Jens Begemann, CEO wooga - March 25, 2009

Very interesting post and I think you have a good point here.

But I believe there is a key aspect that makes great social games a category:
Playing with your friends as an integral part of the game play.

Unfortunately many “social games” see the social features just as a way to spread virally fast – the games would also work as single player games or if you play on the open web with strangers.

But there are a few social games that only work, because they take advantage of the social graph. – Their fun comes from the fact that you play with or against your friends.

Btw: This is not limited to PCs – social games fit perfectly to the iPhone and other mobile devices.

3. Austin Hill - March 25, 2009

Hi Jeremy,

Sorry to have missed you yesterday at GamesBeat. I agree with both you & Mark Pincus.

On the business model, distribution channels and metrics for the game I agree with your post that LPV & PAC are the main drivers and they apply equally to MMPGs, iPhone games, Games in Social Networks etc.

Where I think Mark was making a point was that the type of games that fit within the social games category (that he is advocating) are entirely different from traditional games. The content, business strategy and use of game mechanics for a social game need to be completely different from a traditional game for it to be successful.

Sudoku or Chess on a social network isn’t a social game unless it’s been designed to leverage the social graph in it’s game play, rewards & distribution.

Whether this is just a collection of business tactics to make social distribution models work for your game, or is a new category of gaming because of the different types of games & mechanics you use to become successful is probably just a semantic argument.

Is Zygna’s Texas-Hold-Em just a Poker game using social tactics & distribution platforms to be successful? Or is a social-gaming version of Texas-Hold-Em the more successful category of poker games? Semantics IMHO.

4. Tadhg Kelly - March 25, 2009

You’re right in so far as all gaming on the Internet is a balance of acquisition versus lifetime (assuming that lifetime is revenue generating). You could leve the same baseline accusation about virtual worlds and massive multiplayer games that they’re really just the same thing fundamentally speaking.

But overall you’re wrong. You’re short-changing the use of a player’s social graph for game mechanic purposes. If you look at the various successful social games on Facebook at the moment, they have an emerging different feel and focus than most casual arenas.

The reason is the graph. A social has access to a user’s friend graph, which a regular f2p games does not. Good social games are using that leverage for more than just viral distribution: There’s value to being able to play with your friends, there are more social styles of play that that enables psychologically that you don’t get with Flash game portals (where user to user contact is minimal) or massive multiplayer games (where user to user contact is significant but mostly with users with whom you have no prior social attachment).

That graph opens up the possibility of a different kind of game design for a different social setting. To be honest I’m surprised that you don’t see that.

5. Social gaming is a tactic not a category « Lightspeed Venture … | GIT Fourm - March 25, 2009

[...] here to read the rest: Social gaming is a tactic not a category « Lightspeed Venture … advertising, business-models, games, gaming, search, social, social-games, social-gaming, [...]

6. Topics about Games » Archive » Social gaming is a tactic not a category « Lightspeed Venture … - March 25, 2009

[...] jeremyliew placed an observative post today on Social gaming is a tactic not a category « Lightspeed Venture …Here’s a quick excerptThe best publishers and developers of free to play games will make frequent use of social gaming tactics, but they will not refuse to go beyond social networks and viral channels to grow to their full potential. … [...]

7. Thomas Swalla - March 25, 2009

Great post, and I completely agree that social features are simply becoming features and functionality of any gaming business that strives for 2 things: 1. Getting viral so that CPA/CAC/PAC when blended with paid sources is lower than LTV 2. Engagement/Enrichment is high so that churn rates are reduced and thus LTV continue to grow. However I beleive success (liquidity event at a price that gives investors “suitable” IRR) is a complete function of truly understanding the userbase and demographic well enough to create content that is genuinely “valued” over time such that they continue to give their wallet/$ to that content. Most social factors are completely commoditized at this point and are no longer add value but rather a necessary component in the game/world/environment. Thus an ability to keep creating enriching content that people value enough to continue part ways with their money combined an overhead expense that isn’t variable to the amount of content that is continually produced is where true scale and great models take off.

8. Lynch - April 8, 2009

Not only a game, but also can be some applications in these platform. Even a little like a SAAS platform. For one day, Facebook/Myspace become a dominant in online social society, person will understand social app more easy. But even nowadays, social app is more easy to generate money than social platform. You can distribute your application to many platform not only facebook/myspace, any palce with traffic/user is open for the application. So the only concern is the low entry for these players. how to build their competitive advantage is the main challedges for the.

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[...] is a great example of a company that has managed to decipher the business model of online social gaming. After thousands of A/B tests and experiments, Zynga finally found a [...]

10. Tour d’horizon des social games | Marketing Virtuel - January 6, 2011

[...] différents articles très intéressants (What Exactly are Social Games?, What Is Social Gaming, Social gaming is a tactic not a category et Qu’est-ce qu’un Social game ?) mais les définitions proposées ne me conviennent [...]


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