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How social games can retain their best players May 30, 2008

Posted by jeremyliew in game mechanics, games, games 2.0, gaming, social games, social gaming.

I’ve posted previously about how important it is to retain users of social apps, and offered up an excel model for daily average users that is based on work done originally by Andrew Chen.

One of the reasons that I like social games so much is that the level of engagement and ongoing retention is much higher than in other types of social network apps. As the Developer Analytics team noted in their presentation at Interplay last week:

Social Gaming is HOT: Compared to Messaging apps (3x page view multiple) and Dating apps (20x multiple), social gaming apps are seeing, on average, a 50x multiple compared to other categories.

In other words, messaging apps average 3 pageviews per visitor, dating apps average 20 pageviews per visitor and gaming apps average 50 pageviews per visitor. As Charles and Jing noted in their presentation, this means that while we’ve always known that gamers prefer gaming to sex, now we know how much they prefer gaming to sex – 2.5 x!

However, many social games have started to encounter the endgame problem. Their best players have “leveled up” a long way, have earned all the money they can, and are starting to get bored. But no game wants to lose its best players. Massively had a relevant article recently about the same phenomenon in MMOGs that is worth reading:

Congratulations! You’ve hit level 70 (or whatever max level is in your favorite game), and you’re officially a badass. For many players, this is a goal they’ve been striving towards for months — even years in some cases. The feeling of having that first max level character is immensely invigorating. It’s like putting the finishing touches on a long-term project or getting to the last page of a monstrous novel. What an accomplishment! However, after basking in the glow of your newly maxed out character for a few days, you quickly realize you have a small problem: What do you do with yourself now?

It suggests some common solutions that game developers should note:

  • PvP [combat arenas]
    Unique Titles/Achievements
    Collecting Rare Items
    Anti- Grief Patrol [protecting new players from being killed by more experienced players]
    Developing Trade/Crafting skills
    Playing the “market”
  • Many of these endgames are inherently social in nature, marking either public recognition, cooperation or interaction with other players.

    The meta point here is that most MMOGs have built an end-game to keep their best players engaged after they have topped out on the standard game. This end-game often relies on different game dynamics to the original game. I have seen few social games build such an end-game yet, although this is actually much easier to do for a web based games since it doesn’t actually have to be built until you have end-stage players. Do readers know of some good examples?

    What happens to a startup if the founder dies? May 28, 2008

    Posted by jeremyliew in founders, start-up, startup, startups.
    1 comment so far

    Paul Kedrosky points to a paper by Hans Hvide asking, “What happens to a startup if the founder dies?“:

    I analyze the causal effect of the founder for firms in their infancy by using variation in the occurrence of founder death. Both cross-sectional and within-firm estimates suggest that founder death has only a slight effect on firm performance, as measured by firm survival, profitability, or growth. I interpret this as the founder being substitutable even in a firm’s infancy and that the main function of the founder is to discover new opportunities and setting up the firm rather than managing it.

    Or as Paul sums it up:

    Hey, What if the Founder Gets Hit By a Bus? Nada

    It is hard to reconcile this research with our our investment experience; we have found that strong founding teams matter a great deal. In fact, we specifically include as part of Lightspeed‘s stated mission “to partner with exceptional entrepreneurs “.

    Digging deeper into the research paper sheds some light into the potential areas of disconnect. Hvide’s research is based solely on a set of 6,800 companies started in Norway between 1996 and 2003. Of these, only 40 were information technology companies where the founder died. These two facts may be two reasons that the conclusions from Hvide’s research are not broadly applicable to the sorts of company in which we typically invest.

    At least Hvide’s research gives comfort to VCs who invest in non tech Norwegian startups founded by unhealthy or risk taking entrepreneurs. Unfortunately, or perhaps fortunately, Lighstpeed isn’t such a VC firm!

    Nexon’s Maplestory sold $30m of digital goods in the US in 2007 May 27, 2008

    Posted by jeremyliew in digital goods, games, games 2.0, gaming, mmorpg, virtual goods.

    The WSJ had an article on Friday about Nexon and the virtual goods model. Not new news to most readers of this blog but some good information nuggests in the article:

    Prepaid cards used to buy Nexon game items are now the second best-selling entertainment gift card at Target Corp. stores in the U.S., after cards for Apple Inc.’s iTunes Store, Target says…

    Nexon’s biggest hit in the U.S. so far is MapleStory, an online role-playing game popular with teenagers in which players assume the identities of warriors, magicians and thieves and collectively fight monsters. The game has 85 million users globally, of which 5.9 million are registered in the U.S. Last year players world-wide bought more than 1.3 million articles of clothing and more than one million hair makeovers for their MapleStory characters. Nexon’s U.S. revenue last year more than tripled to $29.3 million from $8.5 million the prior year.

    With $30m in US sales and 6m US registered users, assuming a 20% “active player” rate and 10% “buyer rate”, that implies an ARPU of $20/mth which sounds about right and is consistent with number we’ve seen from games in Asia. It sounds like the US will be following very similar models of virtual goods monetization that we’ve seen in Asia.

    San Jose Mercury on social games May 26, 2008

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

    Scott Haris has a good article today on social games in the San Jose Mercury that captures the essence of the new category for those who are not familiar with it. He interviewed the CEOs of many of the leading lights in the category, as well as one of the dimmer venture capitalists. Worth a quick read.

    Slowing growth in online media impacting bigger companies May 23, 2008

    Posted by jeremyliew in advertising, Internet, startups.
    1 comment so far

    Bill Morrison, the internet analyst for investment bank ThinkPanmure put out an interesting report today that is worth reading for people in the online media space. He concludes:

    1Q08 was, in our opinion, one of the worst fundamental quarters for publicly-traded online media companies in several years. Roughly 66% of the companies we cover missed expectations or lowered their outlook. We believe online media is in the midst of a cyclical downturn, yet 75% of the companies we cover need to accelerate growth to meet the consensus estimates this year. That is highly unlikely given macro headwinds, in our view… Within advertising, we favor names with minimal CPM exposure such as GOOG, RATE, and MCHX.

    This sounds gloomy, and is consistent with other recent announcements such as eMarketer lowering their forecasts for 2008 online ad spend and Pubmatic finding lower CPM rates in their latest survey.

    It is important to note though that large companies and small companies face very different situations. As Pubmatic notes:

    The PubMatic AdPrice Index revealed surprising weakness in monetization for the vast majority of Web sites. Large Web sites fared the worst while small Web sites managed to maintain their monetization rates. eCPMs for large Web sites (more than 100 million page views per month) dropped dramatically by 52 percent from 38 cents in March to 18 cents April. Medium Web sites (1 million to 100 million page views per month) were nearly flat, with monetization dropping from 34 cents in March to 33 cents in April. Small Web sites managed to improve their monetization, increasing from $1.18 in March to $1.29 in April.

    EMarketer’s report still projects 23% growth in 2008 online ad spend, and ThinkPanmure notes that growth for the public internet companies is slowing, not stopping.

    online media growth rates

    There is no doubt in my mind that a slowing economy is impacting advertising spend. However, the shift of advertising to follow time spent is continuing to drive growth in online media. The trend is our friend.

    Furthermore, for startups, micro issues (such as whether the new sales person in Detroit started in Q2 or Q4) will continue to have far greater impact on making this years revenue goals than any macro factors will. Startups should not look at the woes of the publicly traded online media companies as their own fate.

    Ecommerce, financial services and automotive industries lead 2007 online ad spend May 22, 2008

    Posted by jeremyliew in advertising.
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    The IAB just came out with their 2007 internet advertising revenue report, concluding that internet advertising totaled $21.2bn in 2007, up 26% over 2006. The primary industry categories are shown below:

    Interent Ad Revenues By Industry

    The IAB further breaks down “consumer related” into subcategories:

    Consumer Ad Revenues By Subcategory

    Entertainment encompasses movies, music and TV, while leisure encompasses travel, hotel and hospitality.

    I find it easier to consider all of these categories and subcategories on a single graph:

    Overall Categories Of Internet Ad Revenue

    This shows that the top three categories for online advertising are retail (ecommerce), financial services and automotive. These are full year numbers for 2007, so they show little change over 2006, notwithstanding the ongoing credit crunch and slowing housing market, which might have been expected to lower the proportion of financial services advertising. All categories of online advertising appear to be growth with the market.

    The full IAB report breaks down 2007 online advertising revenue further by ad format, industry concentration and pricing model and is worth reading.

    Monetizing MMOG players without creditcards through retail May 21, 2008

    Posted by jeremyliew in business models, digital goods, games, games 2.0, gaming, mmorpg, virtual goods.

    Raph’s latest post says that there is a market glut of MMOGs, but most of them will survive. In passing, he shows a picture that is worth a thousand words:

    MMOG cards at Target

    … here is the rack of game cards available at Target — snapped this weekend, and strongly reminiscent, finally, of similar shots I have taken in Korea, Japan, and China. For years, there was no such rack in the US. Then it was just a couple of cards, and only at some checkouts. Now it gets a rack right between the TV box sets and the top pop albums (you can see REM’s latest CD there, abandoned on the top shelf).

    Besides the cards you maybe expect to see, like Club Penguin, WoW, and Zwinky, there’s also a large stack of ‘em for gPotato games (Flyff, Shot Online, etc) And Acclaim, which make their living by bringing over games from Korea. There’s WildTangent cards, and the Gaia cards are almost sold out. The diversity is interesting, as is the lack of cards for most of the core gamer MMORPGs. The strong presence of the often-marginalized Korean games is telling.

    One of the challenges in monetizing MMOGs through virtual goods in the US has always been finding a way to sell them to young players who don’t have credit cards. Gaia even employs 3 people whose sole job it is to open snail mail envelopes full of cash that people send in for virtual goods.

    Pre paid cards at retail are an excellent way to monetize this audience. I have heard from a number of MMOG companies that they have seen a substantial increase in both ARPU and velocity of spending since releasing these cards. Watch this space.

    Getting player culture right is important to MMOGs and social media sites May 20, 2008

    Posted by jeremyliew in culture, game design, game mechanics, games, games 2.0, mmorpg, social media, social networks.

    Massively has a summary of the panel discussion from ION last week that gave a five year forecast for MMOs. Lots of interesting predictions from the panel, but the quote that really struck me was:

    The number one reason people leave games are basically f*ckwads. While this comment generated laughter from the audience, it also made them all nod in agreement. Erik Bethke points out that if players were given the right social structure and tools, then they might be able to clean up the f*ckwads themselves. Scott Jennings offers the epiphany that, “We really are in the feudal ages with MMOs.” Which is very much true. I’m of the opinion that both methodologies are going to see use and that they both have their place.

    Crass, but this is very true. Too many of Bartle’s “Killer” player type can really destroy a game’s community.

    Player behavior is undoubtedly influenced by game mechanics. But it can also be heavily influenced by the dominant culture that new players encounter when they first enter the game. New players take their cues from the environment that they first see, and from the reactions that their behavior elicits from the rest of the community.

    I am reminded of one of Lightspeed‘s portfolio companies, Stylehive. Stylehive is a social shopping website where users use a social bookmarking tool to contribute interesting clothing, jewelry, shoes or furniture into the site. Think of it as a user generated Lucky Magazine. They could contribute anything that they want into the Hive – news stories, pictures of exotic travel destinations, even porn. But they don’t. The reason is culture. New users of Stylehive quickly learn the norms – what behavior is applauded and what behavior is ignored.

    MMO Game designers and social media sites should think about how to expose new users/players to the sort of model behavior that they want users to emulate, and how to build feedback loops into the system so that users can self police undesirable behavior.

    Hi5 platform stats May 16, 2008

    Posted by jeremyliew in facebook, hi5, platforms, social networks.
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    Hi5 launched its developer platform at the end of March, opening up access to its 80m+ registered users. It is a top 20 traffic site globally, although not as popular in the US.

    Unlike other platforms, Hi5 does not publish a ranked application directory, so it has been hard to get real data on how quickly apps have penetrated the user base. Because Hi5 launched with viral channels open, penetration has been as fast as Facebook’s platform launch in the first 45 days, if not faster. Inside Facebook reports on some stats as to just how quick penetration has been – stats I have not seen elsewhere:

    Hi5 Platform Totals

    * 617 applications
    * 1 million total daily installs
    * 14 apps have been installed on more than 1 million profiles
    * 6.5 million total daily canvas page views
    * 9 apps with more than 10 million total canvas page views so far

    Amongst Active Users

    * 3.7 apps on average
    * 52% have at least one app
    * Max apps installed by any one user is 23

    Hi5’s user base is primarily international, and anecdotal evidence from Facebook developers suggests that international users are more willing to install apps than US users. This may have influenced Hi5’s fast start out of the gate, despite repeated instability in their platform. (Facebook’s platform was equally unstable at launch, and still suffers outages from time to time).

    While it may prove to be harder to monetize the Hi5 international user base through advertising in the short term, we may well see alternative monetization models emerge. Note slide 48 in Ben Joffe’s excellent comparison of social network business models between the US and Asia.

    Would love to hear any data from readers on how their apps have performed on Hi5.

    More on designing in-game economies May 15, 2008

    Posted by jeremyliew in economics, game design, game mechanics, games, games 2.0, gaming, social games, social gaming.
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    Gamasutra summarizes a panel discussion at ION today about designing games with gold farmers in mind. I recently noted some of the challenges of dealing with in game inflation when designing games. This panel deals with some other game design challenges when you have a virtual economy:

    On the topic of the need to plan an economy before the community develops its own, Big Fish Games’ Toby Ragaini pointed to Asheron’s Call as an example: “In Asheron’s Call, they made money weigh something, so rich people couldn’t carry their money around. So players came up with their own exchange for a small, lightweight item (shards). Everyone traded based on these items.”

    Habbo Hotel developer Sulake Corporation’s CTO Osma Ahvenlampi noted, “In Habbo, at first they made the currency non-tradable, but players were trading everything else. They finally decided it would make it easier for everyone concerned and made bags of gold etc. When that happened, it reduced eBay transactions because it was easier and more trusted by players to do it internally.”

    Many social games developers are taking an iterative approach to their game design. In general this is a great approach. It allows developers to quickly react to what your players like about their game. However, virtual economy design is one aspect that deserves a substantial amount of design work up front. Neglecting it can create a situation where success begets failure because the economy gets out of control and ruins the “fun” for your best players.