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Game designers, what do you need to do to get your players to pay you? August 18, 2009

Posted by jeremyliew in flash, game design, games.
1 comment so far

Dan Cook follows up his great post on how freemium beats advertising as a business model for flash games with a second great post on how you can get your players to pay you. After discussing the historical reasons that most flash games today are such lightweight affairs, he recommends the following checklist to see if you’re building enough value in your games to get users to pay you:

Quick value checklist

  • Are you ignoring bad metrics like portal ratings?
  • Are you measuring the holy triumvirate of value: fun, retention, money?
  • Are you collecting real customer data?
  • Does your game score 4 out of 5 on the fun scale?
  • Do players return after a week?
  • Is your game design amendable to high retention play?
  • Are you iterating on your game and improving your game as measured by internal metrics?  Have you figured out the big levers that affect player experience?
  • Do you know when you are done? Do you know when you’ve reached the point where your game has proven value to your players?
  • Are you willing to bail on the game if it doesn’t show signs of improvement?

Dan recommends measuring key drivers of value such as how much fun players have at various time points (by random survey), how often players return, and how much money you make from each player (on average). He then recommends making various game design changes, or a “kill the game decision” based on these metrics.

I strongly support the idea of using metrics to fine tune game play with real live players, in much the same way that web 2.0 used metrics to fine tune user behavior. This is best practice for many social games today – Siqi and David from Serious Business and Lil Green Patch gave a talk at the Social Gaming Summit about just this topic. I think another important metric is engagement (e.g. average time spent playing the game, including multiple sessions). I believe engagement is correlated with monetization – the deeper a player is engaged with a game, the more likely they will be willing to pay. I think that this may be a better measure than retention (although I’m open to debate on this point). In many free to play games, the bulk of the money is spent in the first spike of game play, so whether they continue to return or not may not be as important as how well you hook them in the first few days that they play the game, and how addicted you can get them.

This of course leads to questions of how you can build long term engagement, which Dan also has some suggestions for:

  • Narrative, story, and cut scenes exhibit “rapid burnout”.  In other words, player see them one or twice and then are bored when they see them again.  Games that rely on such content have generally low retention metrics.  You can mitigate this by releasing new narrative content on a regular basic to keep the product ‘fresh’, but this has a high cumulative cost.
  • Linear levels or solvable puzzles also exhibit rapid burnout.  Game systems that can be completed or conquered are usually one shot activities.  You can layer additional challenges within each level, but often only expert players will be motivated to come back for a second play through.
  • Some handcrafted content like text or static images can be refreshed cheaply: The type of handcrafted content you include makes a huge difference on the slope of your increasing costs.  New text-based questions in a trivia game are relatively cheap compared to creating new God of War levels.  An hour of text-based content is likely several orders of magnitude cheaper to build.
  • Social content is low burnout: People will keep interacting with their friends for years.  Mechanics that can tap into this often have very high retention rates.  Anything that allows players to chat, share and form social identities in a community is pure gold.
  • Grinding results in burnout, but it slows the process. Techniques like leveling or purchasing upgrades can dramatically increase the length of the game for very little development and design costs.  Think of grinding as method of stretching, but not adding to your content.  Grinding techniques only delay the inevitable.  They can result in lower fun scores as people feel obligated to play, but aren’t enjoying the process of playing.  Since you want people to fall in love, such a reaction can be counter productive to your goals.
  • User generated content systems are low burnout: User generated content is ultimately a social system that encourages users to create consumable puzzles.  The puzzles themselves may be short lived, but the community of creators can thrive for decades. This solves the problem of the linearly increasing cost of more handcrafted content by apply large numbers of people working for free.
  • Algorithmic content has low burnout, but is hard to create and balance: Evergreen mechanics like Bejeweled or random map generation in Nethack keep people playing for hours.  However, they are tricky to invent and balance.
  • An example of a high retention game is one like Puzzle Pirates that has social (avatar, chat, guilds), grinding (levels) and evergreen algorithmic content (puzzles).  There is some light narrative in the form of periodic events and very little in the form of conquerable level design.  Most games have a mix of all these various types of content and successful services almost always put a portion of their reoccurring revenue towards a steady trickle of low marginal cost handcrafted content.  However, a high retention game designs tend to emphasize content with less burnout.

This would lead you to believe that (i) sandbox games (ii) user generated puzzle games and (iii) multi player games are well suited to driving long term player engagement without forcing costs to scale linearly. I’m inclined to agree.

What browser based games (flash and non flash) do readers think exhibit these qualities?

$200 off Engage – Virtual Goods, Games and Social Media conference August 10, 2009

Posted by jeremyliew in conferences, games, games 2.0, social media, virtual goods, virtual worlds.
1 comment so far

I’m speaking on the VC panel at Engage Expo next month, Sept 23-24 in San Jose. I’m on at 1pm on Wed Sept 23.

The agenda is shaping up well – I’m looking forward to the social media and virtual goods tracks especially. This conference used to be called Virtual Worlds Expo, and I think the intersection of virtual worlds and social media is particularly interesting. Zynga’s Yeoville is the best example of a port of a virtual world to a social network, but arguably games like Restaurant City, Rockyou Pets, Farmtown and Farmville are all examples of asynchronous virtual worlds with a strong single player component overlay.

If you’re thinking about attending, use the discount code SPEAPERVIP SPEAKERVIP to save $200, and if you’re sure you’re going register before Aug 14th to get the early registration rate.

Casual real time strategy games August 6, 2009

Posted by jeremyliew in game design, game mechanics, games.
3 comments

Gamasutra has a nice writeup of the game design behind Corpse Craft, a causal RTS (real time strategy) game on Whirled:

In a traditional RTS, resource gathering is largely automated (players send designated resource gathering units out to harvest materials and bring them back to base, and they do it until either they’re killed or the game is won), and it’s the combat that has to be managed. Conkling decided to invert this model in order to eliminate the need for unit micromanagement. In Corpse Craft, resource gathering is micromanaged through the match-3 game, and new units that are created behave autonomously based on a very simple set of rules.

In other words, players spend resources to create undead creatures but don’t actually control them. There’s no base to manage, and no map to explore; all of the action takes place on a single non-scrolling screen.

According to Conkling, traditional RTS games typically keep combat interesting with a simple unit ecosystem, and battles are most exciting when they’re epic and unpredictable. Corpse Craft maintains that feel through a basic rock, paper, scissors relationship between units, where each unit has an obvious strength and a weakness that can be mitigated by sending the unit onto the battlefield along with other units that offset that weakness.

“Each unit behaves predictably, which is important because they’re not under player control, but when you throw lots of units together into a battle, there are interesting and unpredictable things going on due to the huge variety of interactions between those units,” Conkling said. “Battles are emergent in the sense that there are a few basic rules that drive the combat units, and from that you get chaos, unpredictability and interesting gameplay.”

Web based casual RTS games are a very interesting genre to me because they offer so many opportunities for virtual goods based monetization. We’ve seen several MMOGs make the leap from hardcore client based games to more casual web based games and retain their ability to monetize through virtual goods, and I think RTS is the next category to make that leap. That’s why we invested in Casual Collective last year, which has developed a number of such casual RTS games including Desktop Tower Defence, Flash Element Tower Defence, The Space Game, Minions and Desktop Armarda.

Casual Connect panel on designing, balancing and managing a virtual economy August 3, 2009

Posted by jeremyliew in economics, game design, game mechanics, games, mmorpg.
2 comments

Freetoplay.biz has raw notes taken from the session on Designing, Balancing and Managing a Virtual Economy. Some good quotes include:

On inflation:

Gaia

  • did not manage economy when they started
  • want ppl to earn quickly for initial wow experience
  • down the line, someone who has been playing for months and months get really rich – what is left for them to buy?
  • need to manage these disparities correctly from the beginning
  • company has one full time economist balancing it

3 Rings

  • don’t screw up
  • mudflation – overinflation of currency is easy to introduce if you are not being rigorous about sources of attention currency
  • need to have some level of instrumentation… need to pay attention and be set to react when something goes awry
  • it is a discipline that is tough to master

On creating one time currency sinks to battle inflation:

3 Rings

  • incredible opp to take fantastic amounts of wealth and turn it into a one-time exclusive item
  • when we shut down alpha server we challenged people to throw Pieces of 8 into a hole… winning group got their name on top of a list

Gaia

  • we wanted to redo our amazon-like stores within the site, so we created a fiction inside Gaia that stores were getting shut down because of recession… asked users to help donate to help build higher quality stores… we created a concept of leaderboards… where largest donating teams got their names in lights… they felt as though they were getting status within the site

On pricing and maximizing ARPU:

Nexon

  • you want your players to spend all the money they have so they need to get another payment card, etc
  • you should offer your players lots of diff ways to spend their money
  • players are not buying 1 item at a time… they are batching… buying $10 of virtual currency at a time… so you need lots of options for purchase so people don’t have money just sitting there

2 Fish

  • i love pricing… counterintuitive in some places
  • barrier pricing… i.e. everybody wants one of the cooler cars
  • initial thought is that cars should be expensive
  • but really they should be cheaper as they are a barrier item
  • once they have a new car they can spend more on customizing it
  • think about what kind of behaviours you want and price to encourage that

Nexon

  • we actually do sell cars for $10
  • we sold 120,000 cars for $10 apiece
  • agrees re: barrier
  • but barrier for ppl in game is not 10c, but $10 for initial payment… so you need enough items to justify that
  • if you have 100 ppl playing game, what % are going to pay and how much
  • what items can you create to get to a $15 ARPU

Gaia

  • we do exactly that re: modeling an ARPU
  • interplay between getting ARPU up vs getting percent of people who pay up
  • clearly they should be complementary
  • but fascinating thing is that we are not really clear on which one matters more, we go with what is easy
  • getting dollars per player up is always easier
  • people who want to pay are willing to pay a lot of money
  • relatively easy to find small % of ppl who pay and pay
  • more interesting thing is how to get a higher percent of ppl to pay
  • that has more ramifications on long term business health
  • barrier is getting the money into the game via cc or payment card

On dual currencies and managing fraud and chargebacks:

Gaia

  • we need to be clear… if you can get your money out, then it is a big issue
  • SL has a currency where you can invest your time and get it out in real dollars
  • as soon as you do that, you can run into regulation issues, but more primarily, people will try to game the sytem… bots, farming, etc
  • if you are going to go down that path, plan on having half your dev team working on managing exploits for the next few years
  • you have then become the best target for money laundering
  • we chose not to do that… greatly simplifies life… branding decision as well – is your site a place where you can spend time and earn money? a career? or is it a fun experience where you put in your money but don’t expect to get it out

Gaia

  • ways to avoid hitting the 1% chargeback
  • not allowing you to purchase on day 1
  • maxing the amount ppl can spend in a month
  • making sure ppl can’t pull money out

3 Rings

  • we hit chargeback problems … we hadn’t switched on address verification… turned it on and problem went away
  • WoW has big chargeback isseus as people farm on stolen CCs

Fatal flaws of Flash Game Design – notes from Kongregate talk at Casual Connect July 30, 2009

Posted by jeremyliew in flash, game design, games.
2 comments

I didn’t make it up to Casual Connect this year, so have been scanning the blog writeups. It sounds like Jim and Greg from Kongregate had a great session about some of the Fatal Flaws of Flash Game Design.

Adrian Crook notes that game plays are not as long-tail as expected:

  • 1st game – 12m plays a month
  • 2nd game – 10m
  • 20th game – 2m
  • 60th game – 1m
  • Top 1% – 50% of playtime
  • Top 10% of games – 90% of playtime

This won’t be a surprise for most game designers – it turns out that quality matters!

Greg from Kongregate posted his own notes, summarized as:

#1 You’re Making a Game, Not a Homework Assignment (i.e. start with the fun in the game)

#2 Ask the People Who Matter (i.e. get strangers to play test, not just friends)

#3 “Controls, Controls, You Must Learn Controls” (i.e. no one reads the instructions so make controls intuitive)

#4 Calling Your Game Art/Hardcore Is Not an Excuse (i.e. making your game difficult to use or play is not a good idea)

#5 Start from the Bottom Up, Not the Top Down (same as #1)

#6 Focus on Your Strengths, Not Your Weaknesses – Don’t Try to do Everything (i.e. make sequels, clone your own successes, and don’t try to be all things to all people)

#7 The Player Does What’s Efficient, Not What’s Fun (so make sure the efficient way to play to win is also fun)

#8 Show That You’re Human (i.e. funny is good, and don’t kill yourself on graphics)

#9 The Final 10% is Most Important (i.e. launch the game, not the beta). This last point is worth quoting more extensively from Greg:

When your game is technically done, there’s a tremendous urge to release it immediately. It’s like finishing a book report and not wanting to proofread it. It’s done! I can turn it in! I can be finished! The light is here!

But resist it. The final 10% of polish is by far the most efficient use of your time, even if it’s the most annoying and feels the least productive (since you’re changing things rather than building them).

But its importance cannot be understated. Maybe the boss on level 1 has too much health, and 40% of the people who play your game give up at that point. Five minutes of tweaking a health number could have been the best five minutes of time you ever spent in your entire life.

Don’t forget to add the little things! Having a mute button (separate for sound and music) and an intuitive save system will go a long way in making players like your game (or, more accurately, in preventing them from hating it).

Play your game. Play it again and again and again. Get others to play it. Get their feedback. Tweak, tweak, tweak. Continue polishing and ironing out bugs. Don’t be afraid to cut something out entirely if it’s not beneficial to the game – yeah, I know, you already put the work into it, but the player doesn’t care how much work you’ve put into it. If something is there that’s not fun, it simply shouldn’t be there. There is no advantage to your game being big and long purely for the sake of being big and long. Again, it’s not a homework assignment.

While I agree with this last part, I think that launching the game with good analytics built in will help you do this tweaking with real player feedback.

Erin Bell at Gamasutra has a couple more notes

Don’t Expect To Be Paid By The Hour

The Kongregate duo added: “Developers are shocked when they produce a game that they’ve been working on for four months and they only get a $1,000 or $2,000 sponsorship offer on it.”

“The thing is, no one really asked them to make this game. It’s something they did on their own, and reverse logic doesn’t really work when you try to break it down by the hour. It doesn’t matter how long you spent on the game, it’s the final product that matters.”

Don’t Equate Length With Value

A lot of developers feel like they need to have a long game, which makes sense if they’re trying to sell your game for $60 on a console, but not so much for a free Flash game, according to Kongregate.

The Several Journeys of Reemus series, for example, was a successful game on Kongregate, but most of the negative comments focused on its unnecessary length. The final level in particular, which was extremely repetitive, drove people crazy. When McClanahan asked the developer why he had made the final level so long, he said that the game would have been too short if he hadn’t.

McClanahan contrasted that example with You Have to Burn the Rope – a game that was one minute long to play, but has an average rating of 4.02 (out of 5) at Kongregate.

On this point, I hold more with Dan Cook’s view that the way to break out of the $1-2k/game mindset for Flash Games is by integrating virtual goods as the business model. Usually a players willingness to spend money on virtual goods is correlated with their level of engagement. This means short games (unless they are replayable) are unlikely to be able to get users to open their wallets. Equally, games that are long for the sake of being long (and lose the fun) are also unlikely to be able to get users to open their wallets as well. Long play sessions driven by fun are the most likely to be able to make the jump to a more lucrative virtual goods driven business model in my opinion.

Gaming business models: Freemium beats advertising July 7, 2009

Posted by jeremyliew in advertising, business models, flash, game design, games.
3 comments

Dan Cook has a great post about business models for flash game developers over at Lost Garden. He says:

Ads are a really crappy revenue source
For a recent game my friend Andre released, 2 million unique users yields around $650 from MochiAds.  This yields an Average Revenue Per User (ARPU) of only $0.000325 per user. Even when you back in the money that sponsors will pay, I still only get an ARPU of $0.0028 per user. In comparison, a MMO like Puzzle Pirates makes about $0.21 per user that reaches the landing page (and $4.20 per user that registers)
What this tells me is that other business models involving selling games on the Internet are several orders of magnitude more effective at making money from an equivalent number of customers. When your means of making money is 1/100th as efficient as money making techniques used by other developers, maybe you’ve found one big reason why developers starve when they make Flash games.

His solution?

Ask for the money

When game developers ask for money, they are usually pleasantly surprised.  Their customers give them money; in some cases, substantial amounts. I witnessed this early in my career making shareware games at Epic in the 90s and I’m seeing the same basic principles are in play with high end Flash games. Fantastic Contraption, for example, pulled in low 6 figures after only a few months on the market. That’s about 100x better than a typical flash game and in-line with many shareware or downloadable titles.

I think his conclusion is right not just for Flash game developers, but for all sorts of game developers, including MMOGs, iPhone games etc. dan runs through some steps that game developers should take to maximize their chances of being able to make a living from designing games, specific ideas about what to charge for, and responses to common objections to getting users to pay. For new or aspiring game designers, it is  worth reading the whole thing.

“Wars” style social games placed in context of other web based massively single player games June 19, 2009

Posted by jeremyliew in games, games 2.0, social games, social gaming.
2 comments

Worlds In Motion plays Mafia Wars and compares it to other web based massively single player games, including ForumWarz, Kingdom of Loathing and Urban Dead:

There are plenty of other MSOs … but the successful ones all have some attributes in common:

–All are based on stats, money, loot, rank, and clans or guilds
–The best extent to which players can communicate with each other is through messages, forums, or chat, all of which don’t occur “in game”
–All require alternative and creative revenue streams, and must be free to play. Methods include microtransactions, merchandising, and donation requests
–Actions or turns are limited so as to reduce server loads and costs. Some regenerate slowly every few minutes, others simple reset every 24 hours
–Must have interesting or popular content, especially if merchandising is a revenue model
–They generally prohibit multiple character creation
-They encourage player-banding by heavily rewarding group associations in order to recruit new players to expand the player base and sustain merchandise sales.

This last point is ironic, since these are essentially single player games, but it forges communities based around the culture of the game. In the case of Mafia Wars, that culture is Facebook, which partially explains why player interaction is limited.

Quests are the new grind in social games, and that is why they are a good idea June 1, 2009

Posted by jeremyliew in game design, games, games 2.0, mmorpg, social games.
10 comments

The first generation of MMOG apps on social networks rely heavily on level advancement as motivation for players to keep playing. In the Mob Wars/Mobsters/Mafia Wars genre, the grind is driven by doing jobs to gain money and experience, and hence to level up.

We’re starting to see the introduction of quests into the social network based MMOGs as a way of alleviating the boredom that can set in with a primarily level advancement based game dynamic. But this can lead to a different sort of grind. There are a couple of good recent posts that are worth reading for people building MMOGs on the social networks that look at “quests as the new grind” in World of Warcraft, Lord of the Rings Online and other MMOGs.

Wolfshead first raised this topic last August when he wrote about the unintended consequences of quest based MMOs, primarily that:

* MMOGs become much more single player experiences
* There is a loss of community
* When the quests run out, players find themselves at a loss for what to do

His post is much more eloquent and considered than this summary and is worth reading when you have some time. He bemoans that the addition of rails (via quests) dimishes replayability. He revisited and updated his thoughts on the topic in March.

Over at Brighthub, Michael Hartman agrees with Wolfshead and says that quest based MMOGs are anti-group, repetitive and immersion disrupting. He says that quests change games into simple to-do lists.

Psycochild examines the grind in light of these perspectives and finds something to like about the grind of questing. Firstly, repetition is not inherently a bad characteristic of games. As he points out:

…games are all about repetition. Playing a simple game of Klondike Solitaire is pretty much all about repetition: looking for place to play a card, flipping over more cards, finding more places to play cards, eventually trying to win. Boring, right? Except people are eager to point out that solitaire is likely the most played games in Windows.

The truth is that most games are about repetition, even offline and non-computer games. Games usually have a set of rules that intentionally limit the options in the game. Klondike wouldn’t really be much of a game if you could just go through the piles and pick out the cards you need. So, you apply the rules repeatedly in the game to reach the eventual goal. From this perspective, “repetitive” describes 95% of games out there.

Secondly, he describes ways that the negative aspects of grinding can be mitigated through game design:

* Encourage players to do varied things
* Discourage boring behavior
* Provide alternative gameplay
* Encourage socialization

His post gives more detail on each of these points.

Ultimately, I think that we’ll see a lot more quest based game design in social games. Wolfshead sees World of Warcraft as the epitome of the quest based grind and says in his updated post:

It’s evident that WoW was designed to attract non-MMO gamers all along. Here are a few points that demonstrate this:

the simplicity of the interface (as noted by one of the interviewers)
the focus of quests for herding the player into new areas
the lack of challenge in the enemy encounters
the story revealed to players via the quests

In retrospect it’s almost as if WoW was designed to be one big tutorial for gamers new to MMOs. A MMO so easy and attractive that it’s greatest strength would always be in attracting new players (defined in industry parlance as “churn”).

Yet here we are 5 years later and all is not well. Eventually new MMO gamers become veteran gamers.

He is right from the point of view of an veteran gamer. But WoW is the biggest commercial success that the MMOG genre has ever had and indeed the biggest commercial success that the game industry has ever had. It succeeded precisely because it could entice new players, non-MMO gamers.

The social networks offer an opportunity for a huge number of non-MMO gamers (indeed people who would not consider themselves gamers at all) to be converted into MMO gamers. The social games so far have raced to far higher player numbers than any MMOG has in the past, precisely because they have gotten non-gamers to play. As a result, quests will be a very important component of game design on social networks for some time to come. It will be a long time before these new gamers become veteran gamers and become dissatisfied with quests.

Some game design considerations for a free form eldergame May 21, 2009

Posted by jeremyliew in game design, game mechanics, games.
1 comment so far

Last month I posted about Bartle’s thoughts on how to build an eldergame, principally, to allow for free form play following the Eve model.

Jame Portnow recently posted in GameSetWatch about some of the elements of game design that you should bear in mind when thinking about such a free form world, or as he describes it, a single server MMOG. It’s long but worth the read.

If onling gaming is growing so fast, why are the companies not valued more highly? May 6, 2009

Posted by jeremyliew in games, games 2.0, gaming.
20 comments

Asia is significantly ahead of the US in the development of the free to play MMOG market. If China’s market is an indication, the future certainly looks bright. Says GamesIndustry.biz:

China’s online games market will exceed USD 5.5 billion by 2012, according to Pearl Research, which estimated that the market grew more than 63 per cent to USD 2.8 billion in 2008.

The study, entitled “Games Market in China”, reported that six online game operators, including Tencent, Changyou, The9, Netease, Shanda and Giant each brought in more than USD 200 million in revenue last year.

Peak concurrent user rates are phenomonal, especially when you consider that free to play MMO publishers in the west consider a game successful if they get more than 50k PCUs:

China’s most popular online games were named, with Netease’s Fantasy Westward Journey leading the pack at 1.8 million peak concurrent users, followed by Giant’s Zhengtu Online at 1.5 million.

Tencent’s Dungeon and Fighter hit 1.2 million concurrent users, while Blizzard’s World of Warcraft, operated in the region by The9, came in at 1 million users.

But a rising tide does not raise all boats. 70% of Chinese Gaming companies are operating at a loss according to iResearch Consulting Group:

There are about 200 online games in the Chinese market presently, said insiders. But only several developers can make a profit on their games, such as NetEase.com, Inc. (NASDAQ: NTES), Shanda Interactive Entertainment Ltd. (NASDAQ: SNDA) and The9 Ltd. (NASDAQ: NCTY).

Such estimates may stun those people who believe that the business generates huge profits. But from analysts’ points of view, the huge profits, if existing, have been killed by costs on human resources, hardware, promotion and after-services firstly.

T2 Entertainment Co., Ltd., a Chinese online game operator, invested about CNY 30 million in the South Korean game Freestyle before the open beta testing in China, including over USD 1 million on the operating rights and CNY 20 million on promotion.

Besides, the R&D of an ordinary three-dimension online game often costs CNY 10 million, insiders said, adding that of ten online games, only one is profitable.

Because of the hit driven nature of gaming, if the cost of a “shot on goal” is high (as the examples above suggest) then most launched games will not be profitable. Also each game is a “project” with an end-of-life, rather than having ongoing enterprise value. Some hits have the ability to build sequels, but in many cases a company that created a hit game in the past doesn’t have a guarantee that their next game will be a hit.

As a result, some of the nominally successful online games companies are not that highly valued. Shanda, NetEase, Changyou and Giant are all valued at over a billion dollars. However The9, noted above, currently has negative enterprise value. (See Avista Partner’s video game industry April Briefing – page 6 for online games.) This means that The9 is valued by the market at less than the amount of net cash that they have. (The9 recently lost it’s World of Warcraft license in China to NetEase. WoW represents 75% of The9’s revenue and they have not had a true hit of their own outside of WoW.)

The9 is an extreme case, but in general the median multiple for the online gaming category is just 7.0x 2008 EBITDA. Even for the four online gaming companies with more than a billion dollars in market cap noted above, 2008 EBITDA multiples average just 10x. Given the high growth rate of this industry, that is a surprisingly low multiple. As an online MMOG typically has a 4-6 year life, there isn’t much credit being given for companies being able to launch new hit games.

These relatively low multiple are being driven by three factors:

1) High cost to launch a new game
2) Low number of new games launched each year
3) Low probability of each game being a “hit”

In order to unlock the much higher multiples that a market growing as fast as online gaming should allow, companies will need to figure out a way to address one or more of these factors. I think a few of the free to play “social gaming” companies that are starting to figure out how to do this

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