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How many of your MMOG’s monthly users can you get to pay? June 11, 2008

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

I recently concluded that good MMOGs can expect $1-2 per user per month from a free to play model, with Second Life as an outlier at almost $10 per user per month.

This relatively tight band of monetization masks some fairly high variability in the ratio of paying users across games and virtual worlds. From the highest to lowest, here is some data available on the web:

Second Life reports 860k residents logged in over the last 30 days, and 383k customers spending money in world in May. As you can only spend Linden dollars if you have Linden dollars, and you can only get Linden dollars by buying them or becoming a premium members, this suggests a 45% paying ratio. (Likely the ratio is lower than this as some Second Life residents may buy dollars one month but spend it over several months)

Club Penguin at acquisition reported 700k paying users and had 2.6m UU in that month according to Compete, or a 27% paying ratio.

NCSoft’s Dungeon Runners self reports a ratio of 3:1 free to paying users, or 25% paying ratio.

Jagex’s Runescape claimed 1m players paying $5/mth in May 2007 and 6m players per month in October 2007, for a 17% paying ratio.

3Rings’ Puzzle Pirates has been reported to have 30k paying users out of its 200k unique monthly users, for a 15% paying ratio.

Frankly, all of these public numbers are on the high side of the industry. An NPD survey found that:

… 91 percent of online gaming among kids ages 2 to 17 is free; of the 9 percent that pay to play, these kids are more likely to hail from higher income households. In addition, the likelihood of a child to pay for games increases along with the child’s age and time spent on gaming.

Monetizing kids is more difficult than monetizing adults since kids have more limited access to payment mechanisms (e.g. credit cards), so the overall industry ratio of paying gamers is likely higher than 9%.

Most MMOG publishers do not publish their monetization statistics, but private conversations with many publishers suggest that getting to a 10-12% monetization ratio of active users is a stretch but achievable target.

Do readers have other data that they can share?

Rupert Murdoch says 40% of all mothers in America are on MySpace June 10, 2008

Posted by jeremyliew in myspace.
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A remarkable stat from Rupert Murdoch at the D conference, as quoted in the WSJ:

MR. MOSSBERG: Does [MySpace] skew younger?

MR. MURDOCH: No. That is a very old-fashioned view. Forty-five percent of all the people who use MySpace are over 35. We have 40% of all the mothers in America on MySpace.

Second Life monetizing at 5x higher than other casual MMOGs June 10, 2008

Posted by jeremyliew in business models, games, games 2.0, gaming.

Yesterday I pulled together some analysis of monetization rates for casual MMOGs. In my analysis I estimated that Second Life was making around $1.4m/month in revenue from premium memberships and selling Linden Dollars. A number of people noted in comments that the majority of Second Life’s revenue came from land maintenance fees that I had left out of my analysis, and that Second Life’s revenue was actually far higher.

In fact last month James Au estimated that Second Life’s total revenue is around $8m/month:

There’s currently 14,597 islands, and they make an average of $1200 for the sale of each; they charge $295 per island per month for land use fees. (I say average, as island pricing has fluctuated recently.) So about $17,500,000 for the island sales, but that’s a one-time fee.

Recurring income is around $4 million/month in island land use fees. The Lindens also charge land fees on the cheaper, Linden-controlled mainland continents, and that’s maybe 30-40% of the total land mass, so say $2 million/month more. Add the island sales and commission revenue from L$/US$ transactions, plus the 92,000 Premium account holders paying $10 per month for another $2 million total a month. All that tabulated, $8 million a month gross seems like a safe (if very sloppy) guess.

I’m not a Second Lifer, and James was a long time embedded reporter in Second Life, so I’m inclined to take his estimate over mine. Another estimate from secondlifepros.com comes in to roughly the same place.

Based on this higher revenue number and the 860k residents logged in over the last 30 days, Second Life is monetizing at around $9.30 per user per month, much higher than the other casual worlds I talked about yesterday, but in band for some of the more “hardcore” free to play MMOGs that companies such as Acclaim, Aeria, OutSpark, K2 Networks and IGG are importing.

Successful MMOGs can see $1-2 in monthly ARPU June 9, 2008

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

There are not many publicly available statistics on the free-to-play industry in the western world. Here is what I found on the web for some of the popular virtual worlds and MMOGs:

Second Life

Second Life’s economic statistics are reported monthly. In May 2007, Second Life reported:

$165m Linden dollars sold by Linden Lab through the Linden Exchange in May
$127m Linden dollars paid via weekly stipends in May
860k residents logged in over the last 30 days

Since Linden pays $300 Linden dollars in weekly stipends to premium members, there are around (127m/300/ 4 weeks=) 100k premium subscribers paying $6-10/mth. Lets call that $800k in monthly revenue from premium subscribers.

Linden dollars currently exchange
at 264 Lindens to the USD, so Linden Labs made $165m/264 = $625k in currency sales.

These are the two primary sources of Linden dollars into Second Life’s economy, so Linden Labs made at least $1.4m in revenue from the 860k residents that logged in over the last 30 days, or roughly $1.70/active user.

UPDATE: Several comments note that I have ignored the bulk of Second Life’s revenue which is derived from land maintenance. An updated analysis is here.

Club Penguin

When Club Penguin was bought by Disney in August 2007, it was reported to have 12m registered users and 700k paying users. As the monthly charge for paying subscribers is $6, this suggests monthly revenues of around $4.2m. Compete reported 2.6m UU to Club Penguin in that month. Dividing these two numbers we get around $1.62/active user (where an active user is defined as a unique user in that month).

Habbo Hotel

At AGDC in September of 2007, Habbo Hotel‘s lead designer, Sulka Haro gave some statistics on Habbo Hotel’s usage:

Habbo Hotel has approximately 7.5m unique players per month globally — nipping at the heels of World of Warcraft. In the seven years since the game launched, 80 million accounts have been created. Globally, the game typically has 100,000 concurrent users playing at one time.

Furthermore, Habbo was estimated to do $77m in revenue in 2006. In the middle of 2006, Habbo had around 53m accounts. Assuming a similar ratio of monthly players to total accounts in mid 2006 to what Habbo has today, that suggests that there were around 5m unique players per month at that time. Dividing $77m by 12 months by 5m unique players suggests about $1.30 in revenue per active users.


Finally, Jagex’s Runescape claimed 1m players paying $5/mth in May 2007 and 6m players per month in October 2007. That suggest $5m/mth in revenues from 6m players, or around $0.84 in revenue per active user.

In summary then we have:

Second Life: $1.70/mthly user/mth UPDATE: Should be $9.30/mthly user/mth
Club Penguin: $1.62/mthly user/mth
Habbo: $1.30/mthly user/mth
Runescape: $0.84/mthly user/mth

The average across these four is $1.40/mthly user/mth*. UPDATE: excluding Second Life, should be $1.25/mthly user/mth.

Having spoken to many other MMOGs and virtual worlds on a private basis, this estimate seems to be a good gauge for what a well performing MMOG can aspire to from a free to play business model.

Do readers have any datapoints that they can add to this survey?

* Note that this is based on monthly users. Many MMOGs calcuate their average revenue per user (ARPU) based on Peak Concurrent Users. On this basis, ARPU can be more than an order of magnitude higher than the $1.40 guideline.

Social Gaming pwns the industry June 6, 2008

Posted by jeremyliew in games, games 2.0, gaming, social games, social gaming.
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I have a guest post on Techcrunch about social gaming that covers some of the trends I’ve blogged about here as well. Check it out.

Looking to raise capital? Send an executive summary. June 4, 2008

Posted by jeremyliew in start-up, startup, startups, VC, Venture Capital.

Rick Segal’s (a VC in Canada) recent post made me smile with recognition:

It’s around 2a in Toronto, midnight here in Edmonton. 260 summaries, plans, ideas, and virtual napkins are staring at me with an evil grin.

It can feel like it is hard to get a VC’s attention. I’d like to think that it isn’t because we’re bad people, and it isn’t because we’re lazy people. But we do get pitched a lot, and the ambient noise level is high. The quote above goes some way to explaining why a VC can’t give an hour to every entrepreneur who wants to meet. So what is the best way to break through the noise?

I agree with Venture Hacks’ advice on what to send an investor when they say:

Summary: An introduction captures an investor’s attention, but a great elevator pitch [executive summary] gets a meeting. The major components of the pitch are traction, product, and team.

Venture hacks goes on to advise on what not to send an investor, and I agree again:

Summary: Don’t send long business plans to investors. Don’t ask for NDAs. Don’t share information that must remain confidential.

So how do you write a good executive summary that can break through the noise? Garage.com has an excellent summary (italics mine):

The job of the executive summary is to sell, not to describe.

The executive summary is often your initial face to a potential investor, so it is critically important that you create the right first impression. Contrary to the advice in articles on the topic, you do not need to explain the entire business plan in 250 words. You need to convey its essence, and its energy. You have about 30 seconds to grab an investor’s interest. You want to be clear and compelling.

Garage.com breaks down the 9 elements of a good executive summary as follows:

1. The Grab
2. The Problem
3. The Solution
4. The Opportunity
5. Your Competitive Advantage
6. The Model
7. The Team
8. The Promise
9. The Ask

If you’re looking to raise capital, I suggest that you read the whole thing.

Implications of “Convenience Beats Quality” June 2, 2008

Posted by jeremyliew in Consumer internet, distribution, product management.
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Fred Wilson says that convenience beats quality. In his post he is talking about video and photography. The amazing story of the limited featured Flip Camera, which captured 13% share of the video camera market in its first year on sale, bears testimony to this truism.

I think this maxim, that convenience beats quality, is true not just for video and photography, but also for most consumer internet services. It is one of the reasons that many of the apps that have been most successful on Facebook have been lightweight “just for fun” apps:

Some corollaries of this are:

1. The best product is neither necessary nor sufficient
2. Distribution can be more important than functionality
3. Lightweight interactions beat more involved interactions
4. Defaults matter as many people won’t change them
5. Use implicit information whenever you can to avoid asking users for data.

Do readers agree that convenience beats quality? If so, what are other corollaries?