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.

AdAge has a good article today about how AOL has been attacking web publishing where it notes:

In the heady days of early 2000, the megamerger of AOL and Time Warner heralded the web-based future of publishing. It would create a digital platform for Time Inc., the biggest, most-prestigious magazine group in the world.

Needless to say, that didn’t pan out, and here’s where it gets ironic. Just as Time Warner is unwinding that mistake, AOL is figuring out the future of magazine publishing on the web. And it’s doing so without Time Warner’s content assets.

The model goes something like this: Find a vertical with an audience attractive to advertisers, brand it (Daily Finance, Asylum, Lemondrop, Politics Daily), hire five to seven people to run it and plug in AOL’s traffic fire hose. Repeat.

This reminded me a little bit of the continual tension in media companies caused by serving two  constituents  – readers and advertisers. AOL has clearly discovered one path to repeatable success, which is to start with the needs of advertisers. This is emphasizing the “media” part of new media.

The new media companies that are doing the best in this recession have taken a similar approach. Companies like CafeMom, Flixster (a Lightspeed portfolio company) and Glam have focused on creating highly valuable inventory for endemic advertisers, and on building excellence in sales execution.

In contrast, some other startups have focused on the “new” part of new media. They have often created incredible compelling experiences for users, and have generated impressive traffic. But their monetization ability has lagged; sometimes due to creating inventory that is hard to sell,  sometimes because the startu’ps culture is not inimical to ad sales.

Here in Silicon Value there can be a tendency to overemphasize product and technology and underemphasize ad sales.  Advertising revenue often scales with ad sales people. Yet I have seen some startups that have been disappointed with their revenue growth but have >10%  of their employees focused on revenue.

Like AOL, new media companies should remember that they are also media companies, and organize themselves appropriately. This can include doing things like:

- Building traffic with a consideration for your ability to package and sell it to advertisers

- Placing significant company and senior management attention on revenue. This can mean up to 30-50% of employees working on revenue generating activities

- Adding advertising sales expertise and contacts to the management team

- Being flexible about tradeoffs between advertiser needs and user needs

Many new media companies based outside of Silicon Valley (especially those in New York) grasp this innately.

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For more in this vein read two prior posts;  on the preeminent importance for sales excellence in ad networks, and on the three ways to build an online media business to $50m in revenue.

I moderated two panels at the Social Gaming Summit 2009 today. The first was about building social games at scale and featured the CEOs/COOs of the top three social game companies; Mark Pincus of Zynga, John Pleasants of Playdom and Sebastien de Halleux of Playfish.

Gamasutra has an excellent writeup of the panel. Inside Social Games also liveblogged the panel.

Second panel was about social games “in the wild” – i.e. off of social networks. Andrew Bussey of Challenge Games, Daniel James of 3Rings, Matt Mihaly of Sparkplay and Jim Greer of Kongregate were the panelists. I haven’t see a writeup yet, but some notable paraphrased quotes from the converation include:

- Many games on social networks not actually social. Players playing alone, together. Interaction not really with friends but with a “cardboard cutout of a friend”.

- Many MMOGs have much higher degree of true social interaction between players than Facebook games. “Playing” with your friends vs Making friends with the people you play with.

- Facebook games the “gateway drug” for the rest of the gaming industry, attracting players who would not consider themselves gamers. Destination game sites draw a harder core player

- “Manipulating users to spam their friends” is less powerful and effective than building a game experience that users will willingly tell their friends about

- All this being said, games companies built on social networks have seen phenomenal growth that far outstrips growth of game companies built on the open web.

I may have gotten some of these wrong, but I was moderating to it was hard to take good notes. If anyone has seen a good writeup please link in comments

Also Siqi Chen, CEO of Lightspeed portfolio company Serious Business, gave an excellent presentation on metrics for social games with David King of lil green patch that shared a lot of live data from their games and was very insightful.

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.

A couple of years ago I posted about how improving copy is an easy way to increase user interaction. Bokardo recently posted on a similar topic, about how microcopy can improve your user interface:

Microcopy is extremely contextual…that’s why it’s so valuable. It answers a very specific question people have and speaks to their concerns right on the spot. And because its so contextual, microcopy isn’t always obvious. Sometimes you have to hunt to find the right words. (or create an error notification service like I did) How to discover these hurdles? Talk to people! Why aren’t they adopting your software? What concerns do they have? What are they worried about? Successful salesmen know the power of these small turns of phrase. They have an arsenal of them for every situation.

Here are some other examples:

• When signing up for a newsletter, say “this low-volume newsletter”
• When people add their emails, say “we hate spam as much as you do”
• When subscribing for something free, say “you can always unsubscribe at any time”
• When selling an paid-for web application, be sure to let people know if you have a free trial.
• When storing customer’s information, say “You can export your information at any time”
• If offering optional account creation, say “If you create an account, you’ll be able to track your package”

All of these microcopy examples have one thing in common: they help to alleviate concerns of would-be customers. They help to reduce commitment by speaking directly to the thoughts in people’s heads. That’s why this copy can be so short yet so powerful.

Don’t be deceived by the size of microcopy. It can make or break an interface.

Writing good copy may not feel as heroic as implementing a huge new code base, but it can often by just as effective in increasing user interaction.

Internet Retailer shares a bunch of interesting ecommerce stats from the E-tailing group. Notable for me is the conversion rate for retailers in 2009:

Conversion Rate: % of retailers
<1%: 4%

1-3%: 44%

3-5%: 21%

5-8%: 17%

8-20%:

9% >20%: 1%

Don’t know: 6%

NY Times has a really interesting article about who buys extended warranties:

The study reported that consumers are far likelier to buy warranties for products they consider enjoyable (like iPods) than for dull products (like landline phones), simply because, dollar for dollar, they value the fun products more. Therefore, they would be more upset at the prospect of losing them.

The study also found that people with lower incomes are more likely to buy such warranties, because they know they cannot afford to replace the products.

It also notes that many consumer advocacy groups consider extended warranties to be a bad deal. Interesting research.

Fascinating study in the Harvard Business Review about twitter. It looks at 300,000 users and covers differences in behavior between men and women, # of followers and # following. But most interestingly, it looks at usage:

Twitter’s usage patterns are also very different from a typical on-line social network. A typical Twitter user contributes very rarely. Among Twitter users, the median number of lifetime tweets per user is one. This translates into over half of Twitter users tweeting less than once every 74 days.

At the same time there is a small contingent of users who are very active. Specifically, the top 10% of prolific Twitter users accounted for over 90% of tweets. On a typical online social network, the top 10% of users account for 30% of all production… This implies that Twitter’s resembles more of a one-way, one-to-many publishing service more than a two-way, peer-to-peer communication network.

The fact that half of twitterers have tweeted once or less, and that 75% of twitterers have tweeted four times or less is quite astonishing. It is consistent with Nielsen’s finding that 60% of Twitter users don’t come back the next month.

With Facebook apps we have sometimes seen amazing growth driven by virality, followed by a dip towards a more sustainable level of usage. When you are viral, a good portion of unique users are going to the site to sign up for the first time. But if they don’t stick, then you can see a “shark fin” shaped curve, as Andrew Chen has posted about in the past.

Twitter is not just another Facebook app. Unlike many of the “flash in the pan” apps, Twitter is a verb, and has entered the popular consciousness. The very high usage of the top users (90% of tweets from 10% of users) also suggests a different model. But it will be interesting to see how twitter usage continues to grow over the next few months

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.

In the device form factor wars, the mobile phone has emerged as the unquestioned winner.  It’s always on and always on you.  There are more mobile phone users than PC users and the market is not close to saturation.

Given how essential the Web has become to our lives (both work and play), it makes sense for people to be able to access the Web on their phones.   It also makes sense for anyone with a website today to want to reach you via your mobile phone in addition to the PC.  We use our phone to access data at times and locations that are complementary to when and where we use our PC. . .meaning more opportunities for the publisher to serve up clicks, commerce, query results, videos and ads.

To that end, we invested in Skyfire about a year ago.  Skyfire has a simple mission – to bring the PC web to your phone at speeds that rival your desktop experience.  Since the launch of the first beta last year, Skyfire has consistently improved user experience as well as speed of browsing while increasing device coverage.  Today, Skyfire announced the availability of version 1.0 for Windows Mobile and Symbian as well as their future plans to support Blackberry.

Skyfire has a unique architecture that is focused on providing the best user experience possible.  They move the complexity of processing the web page to their servers providing unparalleled capabilities to the mobile phone. User can enjoy Flash 10, Silverlight 2.0, Windows Media, Quicktime, complex AJAX, all out of the box.  Skyfire supports all that while loading pages at desktop speeds.

More broadly, Skyfire is on the forefront of  where mobile and cloud computing intersect. . .a trend that we think will be quite deep and create opportunities for a variety of other mobile startups as well.

Since opening up the beta to the public 5 months ago, more than 1 million people have installed the browser. What’s more is that Skyfire users tend to do very similar things on their phones as they do on their PCs – Lots of social web, lots of video, news and e-commerce.

To see a video, click here http://www.skyfire.com/product/demo/

While Skyfire is highly focused on the end user experience, the technology has unique benefits to mobile operators as well.  As operators try to grow ARPU by increasing data revenue, Skyfire enables them to do so while saving more than 70% bandwidth compared to traditional browsers.  That translates into savings for operators and end users and helps operators combat their well documented challenges that have come with the explosive growth in mobile data.

Needless to say, I am very excited about this space, Skyfire’s position and its accelerating momentum.

If you’d like to try Skyfire on your Windows or Nokia phone for yourself to see what the experience is about,  go to get.skyfire.com on your PC or phone browser.