A few months ago, I wrote a post on “beta” and how a sound international strategy could help offset a social game company’s risk. I just finished reading Michael Lewis’ The Big Short and it made me want to revisit the topic.
For those who have not read The Big Short, it is a great book about some Wall Street traders who took short positions (selling assets they didn’t have on the assumption the value of the asset would decrease) against sub-prime mortgages before the economic meltdown in 2008. These traders understood that the market was unsustainable and would collapse; by being short they made hundred of millions of dollars.For those interested in learning more, I strongly recommend the book. The purpose of this post, however, is how one of these lessons could be applied to a social game company’s international efforts.
As I discussed in my earlier post, by having games on different social networks in different markets, you can lower your company’s risk. What I wanted to stress after reading The Big Short is that just having your game in multiple markets does not necessarily lower your risk. In the sub-prime mortgage market, financial institutions bundled together pools of different mortgages, and because there were a bundle of different mortgages, rating agencies assumed they were all virtually risk free. In reality, almost all of these underlying mortgages moved value in the same way; changes were very highly correlated, so if one would go bad, many of them would go bad. Thus, even though there were multiple different mortgages, it was really as risky as if the financial instrument was not diversified.
It is the same when rolling out your international releases. You may think you have diversified but actually may have the same risk profile you did when you were just publishing on Facebook in English. For example, you may be on four or five social networks but most of the monetization still might be in the US (or China) or countries dependent on the US, leaving you exposed to macroeconomic shocks to the US economy. Conversely, you may be localized into seven languages but they are all on one social network, so you are still very exposed to that social network (either internally if they change their terms of service or externally if people start abandoning the network).
What I wanted to stress (or some might argue repeat): To get full value from your international strategy, you should develop a portfolio approach that minimizes your risk and maximizes your return. You should analyze opportunities with the same rigor you make greenlight decisions or craft your M&A strategy. Just putting out games on multiple networks or in different languages does not necessarily leverage all the ways you can lower risk and increase return that international markets present.