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The Business of Social Games and Casino

How to succeed in the mobile game space by Lloyd Melnick

Month: November 2011

My Favorite Posts

My Favorite Posts

Given the Thanksgiving Holiday, I will not be putting up a new blog post today. Instead, I went through and found my personal favorite posts (yes, pretty egotistical that I have favorites, but again, it’s my blog; I can do what I want ☺). Here goes, from the first one being the one I felt was the most insightful:

  • The Platform Challenge for Social Game Companies (post on how to optimize ROI when choosing what social networks and platforms to develop for)
  • No Winner Yet in the Social Gaming Space (although a relatively short post, I am sure we are going to continue to se a lot of leadership changes in the short- and mid-term)
  • The Need to Move Beyond Performance Marketing in Social Games
  • My Definition of Distance (a framework for social game companies to create an international strategy)
  • Collaboration Part 2 (how to use collaboration to grow your social game company)
  • The Answer to the Talent Shortage (How Social Game companies can overcome the difficulties in finding good talent)

Also, although I do not feel these were great posts, they seem to be the two people visit most:

  • Hello 519 Games, Thank You Disney (post when I left Disney for fiveonenine)
  • Melding the Real World with Social Games (post about fiveonenine’s game portfolio strategy)

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Author Lloyd MelnickPosted on November 24, 2011October 30, 2012Categories Analytics, General Social Games Business, International Issues with Social Games, Mobile Platforms, Social Games MarketingTags lloyd melnick blog favorite posts social games platforms analytics fiveonenine games 519 disney playdomLeave a comment on My Favorite Posts

Use Analytics for Good, Not Evil

When social gaming started to take off, many people in other parts of the game industry were very excited about finally having an opportunity to create a game that responded to all players’ needs. By using analytics, there was the hope that we would take feedback from the player to improve a game continuously and thus optimize the player’s experience.

Business intelligence (BI) is an incredibly powerful tool and could be used to increase the gameplay experience exponentially. Instead, most social game companies primarily use analytics and other BI tools largely to manipulate customers. Rather than trying to see what would enhance the player’s overall experience, these tools are used to determine how to get an extra $0.05 or have them send one more wall post. As the analytic tools become increasingly sophisticated, most of these new capabilities are focused on better controlling player behavior.

While there is a role for using analytics to improve areas such as monetization, the bigger opportunity is creating a more compelling, engaging and entertaining experience. If a game became increasingly compelling and enjoyable, monetization, virality and engagement would all follow (assuming it was properly constructed). Yet, we have the tail wagging the dog in that these areas are driving the evolution of the games, with little concern about the overall enjoyment of the player.

While the focus on “manipulation” may work in the short term (and please investors or stock-holders), it is not the way to grow a superior, long-term business. Very few industries—beyond the used car business, banking, US airline industry and a few others—are built around continually tricking your customers. Those that are either rely on discrete purchases where you do not need repeat customers (e.g., used car sales) or government regulation that keeps out most competitors and thus prevents new entrants that offer superior service (e.g., banking). You can trick some of the people some of the time, but consumers are not stupid and will gravitate to stores, games and services where they have a great experience. Long term, Amazon and Nordstrom outperform Overstock and Kmart. My point is simply that you should be using your analytics to create the next social gaming equivalent of Amazon, not Kmart.

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Author Lloyd MelnickPosted on November 22, 2011October 30, 2012Categories Analytics, General Social Games BusinessTags analytics gameplay social game business intelligence1 Comment on Use Analytics for Good, Not Evil

Don’t Believe Predictions

It seems that every game industry trade show has a panel about the game industry in 2, 5, 10 years (e.g., “The Social Game Industry in 2020”). I find it interesting how many people actually focus on these sessions and make decisions based on the panelists’ prognostications.

More importantly, I think it is very dangerous to listen to these panels for anything more than the entertainment value. One of the basic laws of nature is that nobody can predict the future. From Bill Gates to Warren Buffett to Stephen Hawking, even the best minds are no better at consistently predicting the future than a group of apes. Some people will get lucky but that does not make them brilliant nor more likely to be right in the future. You can see this trend in almost any industry, from the financial (where the “top” analysts and fund managers are no more likely to beat the market than a random sampling of stocks) to retail (where top retailers repeatedly miss new trends) to gaming (What panelist five years ago predicted the rise of social gaming? I know I did not). Continue reading “Don’t Believe Predictions”

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Author Lloyd MelnickPosted on November 18, 2011October 30, 2012Categories General Social Games BusinessTags social gaming industry roi portfolio strategyLeave a comment on Don’t Believe Predictions

A Few Thoughts from the Social Gaming Summit

After a day and a half at the Social Gaming Summit, there were a few interesting takeaways that I wanted to share.

Opportunities Remain on Facebook

As I wrote a few months ago (my blog post), it is far too early to call the battle for supremacy in the social gaming space over. Julien Codorniou of Facebook made a great point in that of the top-4 Facebook game companies today (by MAU), two were not significant players at this time last year. Wooga (#3) was just gaining momentum while King.com (#4) did not release its first Facebook game until earlier this year. These company’s phenomenal success points to the opportunities existing in the space, where you can effectively go from 0 to top-5 in a matter of months.

Kiip is Cool

The best presentation I heard was from Brian Wong of Kiip. He, and Kiip, really get at the core of what advertisers need moving forward and it was quite interesting to see how social games can deliver on this. I had never heard Brian speak before and he was also one of the best presenters I ever came across. Made me want to work with Kiip just because I felt regardless of their offering he would make it a success.

HTML5 is Divisive

One of the more interesting side-shows here is the debate over HTML5. Several veterans, including the aforementioned Julien Codorniou, argue vehemently that HTML5 is the future and that we all should be using now or we are going to miss the next big thing. Others argue that it is a mess right now and not to even look at it for another year or so. For me, I am not convinced either way but will be devoting a lot of attention to HTML5 to see if it is right for fiveonenine.

A lot of other interesting presentations and takeaways but I think these three items are what I will remember most from my short trip to London.

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Author Lloyd MelnickPosted on November 15, 2011November 15, 2011Categories General Social Games Business, Social Games MarketingTags Brian Wong kiip julien codorniou social gaming summit facebook king.com wooga2 Comments on A Few Thoughts from the Social Gaming Summit

Creating a Marketing Plan

On Tuesday, I blogged ( post on The Need to Move Beyond Performance Marketing ) that social game companies needed to create robust marketing strategies rather than rely solely on performance marketing. Today, I wanted to elaborate a little on what needs to go into the marketing strategy.

Although this may sound a little like Marketing 101, social game companies should look at product launches the same way virtual any other company that sells to consumers does. This process starts by creating a robust launch plan for every game. Although this sounds simples, in my 20+ years in the game industry, more times than not I have seen companies focus on marketing only after the a product launches, if at all.

The first step is to create a full launch plan for each game, preferably six months before launch but no later than three months before the scheduled launch date. I am not going to go into details here about how to write a launch plan as there are many great templates available online. The key, though, is for the launch plan to include the three components needed for success: pre-launch, launch, and post-launch.

In the pre-launch phase, the company needs to Research and Plan. Research includes consumer testing and customer feedback. With consumer testing, I am not referring to the testing that the product development team is doing to optimize usability, retention, etc. Consumer testing in the launch plan should be tied to the marketing aspects of the product, what features will resonate with customers, what name will be most effective, what demographics respond best to the game, etc. There are multiple ways to test, from mock ads and surveys on Facebook to focus groups. The other type of research that should be done in the pre-launch phase is consumer input. Examples of this would be speaking to your customers through forums or direct contact about features they would like to see, what would get them to monetize, etc. The planning phase is also critical prior to launch and should encompass the steps that need to be taken to an effective launch and when (i.e. what needs to be done launch minus 4 months, launch minus three months, etc), what resources will be needed (i.e. cash, people, agencies) and what are the goals (are you aiming for 1 million DAU, $100k/day in revenue or a different metric). If you do not know your goals, it is impossible to measure success.

The next phase of the launch plan is Launch. Key elements here are when and where, the promotional plan and customer support. First, the marketing team needs to work with the development team to determine optimal timing for launch. This may come as a surprise to most social gaming companies, but the best time to launch is not 30 minutes after the game is considered stable. Instead, the company should think strategically when would be the most effective time to launch and then coordinate development and marketing to build a successful launch. Part of this consideration will be whether to launch a robust product or a minimum desirable product. With the latter, you can get to market quicker and adjust but you are also more likely to have a game that initially does not satisfy your best customers as long as you would need to. When planning the launch, you also want to avoid launching when your largest competitors plan launches. For the same reason a studio would not release a kid’s movie the same weekend that Disney launches Cars 3, you do not want to launch your big social title around the launch of Castleville. You also need to decide where you are going to launch (and when tied to where). Do you launch initially in the United States or do you launch day 1 in fifteen languages to avoid clones coming to those markets before you do? Do you launch first in Indonesia or Turkey to get early customer data with lower user acquisitions costs so you can adjust your product and marketing mix or do you hit the US hard? These are all questions that need to be answered in the marketing plan.

Once these questions are addressed, you need to determine the media mix. As I wrote about multiple times, it is important not to rely entirely on performance ads. Instead, you should look at the same media options that other entertainment and consumer goods brands use. These options include television, web, social media (there are many ways to advertise beyond Facebook ads, including building campaigns around Twitter, Tumblr and Facebook pages and groups) and even print. This is far from an exhaustive list and also an opportunity for companies to be creative (rather than the lazy approach of just programming 500 Facebook ads).

Finally is the post-launch phase, where the key aspects are Measure, Analyze and Adjust. While these terms are probably familiar to most social game companies, the key here is to use them in regard to the marketing plan rather than product development. Social game companies should use analytics as religiously to measure the ROI of each aspect of its marketing campaign as they are in measuring game performance. Although more traditional advertising channels are more difficult to measure than Facebook ads, they are measurable. If you run television advertising, you can measure performance at the time of the ad versus three hours later (or performance where the ad is shown versus another region). With any type of marketing, there are ways to measure it, it just requires a little more work from your analytics team. Once the ROI of the various components are determined, you then must continually adjust your marketing mix to optimize performance and continue growing your player base.

As I mentioned Tuesday, I will be speaking on this topic Monday at the Social Gaming Summit in London. Although I may not be able to blog regularly next week, I will put up some further thoughts on marketing social games as soon as I can as well as my takeaways from the Summit.

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Author Lloyd MelnickPosted on November 10, 2011November 10, 2011Categories General Social Games Business, Social Games MarketingTags social game marketing planning4 Comments on Creating a Marketing Plan

The Need to Move Beyond Performance Marketing in Social Games

Next week, I am speaking at the Social Gaming Summit in London about moving Beyond Performance Marketing. I wanted to share the driving principle as I think it is quite important for everyone in the social game industry, from small start-ups to the largest players.

There are several reasons why relying on performance marketing (Facebook ads) is untenable for social game companies. First, the cost of Facebook ads for social games in the US increased 300% in less than two years. In January, 2010, the median CPC for a Facebook ad was about $0.50. In April of this year (the most recent data that I have), that number increased to $1.50, with several spikes where ads cost almost $2.50. This number is almost certain to continue increasing at a rapid rate, as Facebook ad budgets are projected to rise from $2.1 billion today to $8.3 billion by 2015. With budgets increasing at this rate and the cost of Facebook ads based on a bidding system, the increased demand (without an increase in supply) has to increase the cost of ads. Given that ARPDAU (average revenue per daily active user) is not rising at anything close to this rate, it will become impossible for most social games to justify spending significantly more on ads. Finally, for several Facebook games there just is not anyone left on Facebook to advertise to. Some of the major players have spent so much promoting their games through Facebook ads that all potential customers on Facebook are numb to the ads, they have either played the game or never will.

What this situation suggests is that companies need to find other ways of attracting and re-engaging players. The first step is for social game companies to create a robust launch and marketing strategy that encompasses not only performance marketing but a complete marketing mix. Given that almost every other industry – including other parts of the entertainment and gaming space – pursue a comprehensive marketing plan, it is logical that social gaming companies also evolve their customer acquisition strategies. Later this month, I will post some suggestions on ways to build out your marketing strategy.

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Author Lloyd MelnickPosted on November 8, 2011June 11, 2012Categories General Social Games Business, Lloyd's favorite posts, Social Games MarketingTags social gaming summit marketing social games5 Comments on The Need to Move Beyond Performance Marketing in Social Games

The Effects of the Imminent Zynga IPO

Given that most analysts are predicting Zynga’s IPO this month, I wanted to express my thoughts on how it will impact the overall social game ecosystem, as I think the effects will be profound and far-reaching. I am not going to comment on the valuation issues, there are much more sophisticated analysts who have spent hundreds, if not thousands, of hours reviewing the S-1 offering and underlying financials. Instead, I will examine how it could affect other companies in the space

Less M&A Activity

First, we are going to see much less M&A in the space. Although Zynga has not publicly said the IPO would change its acquisition strategy, realistically they are likely to slow the pace of acquisitions. At the current stage of its business, acquisitions are an important part of building the story to investors to justify the valuation they will go public at. Although they will be sitting on more cash after the IPO, they will no longer be creating a story for investors. Instead, they will be focused on improving their core business to satisfy the investment community. We have seen similar cycles with other companies following acquisitions or IPOs, most notably Playdom following its acquisition by Disney. Although companies with unique IPs or strong technology will still be in demand, the second and third tier social game companies, who have benefitted from Zynga’s need to acquire talent, will no longer be in play.

More Realistic Valuations

With less acquisitions, valuations are likely to fall for many social game companies. To use a sports example, you can compare Zynga to the New York Yankees. When they are interested in a player or potentially interested (the agent can convince someone the Yankees will be a bidder), the terms the player gets goes up exponentially. If the Yankees declare they are not a bidder, it costs the players millions of dollars. We are going to see the same in our space. Without Zynga bidding or used as a stalking horse, many early stage companies are not going to see valuations that others have experienced the last couple of years. The days of a social mobile start-up with mediocre games being able to claim a $1 billion valuation will be a distant memory.

Performance tied to Traditional Metrics

Related to the lower valuations, we will see valuations based much more on traditional financial measures. With Zynga, there will be clear, public metrics that other companies can be compared to. While both EA and Disney have social media groups and are publicly traded, their social game revenue and profitability is not clearly spelled out nor is their effect on the stock value measurable. By contrast, Zynga is a pure play social gaming company. As soon as it goes public, it will have clear price to earnings and price to revenue multiples that will then be used to value other social game companies. Moreover, as a public company, these metrics should represent a premium over a privately held company, so they will provide a ceiling for valuing other social game companies. Again, the days of a social mobile start-up with mediocre games being able to claim a $1 billion valuation will be a distant memory.

The Far-Reaching Impact

Much of my analysis has been tied to how the IPO will affect valuation and opportunities for sale by social game companies, but there will also be a cascade effect on the entire industry. As valuations shrink and acquisitions slow, there will be less capital coming into the industry. Thus, companies will have to focus on profitability and not growth. We are already seeing this to a degree, yesterday’s news about RockYou cutting staff to increase profitability (http://www.insidesocialgames.com/2011/11/02/rockyou-cuts-54-of-staff-shelves-cloudforest-spins-out-playdemic-drives-up-arpu-on-zoo-world-2/) is indicative of what many companies will need to do. Not only will they have less capital available to pursue less- or non-profitable businesses but with valuation tied closer to traditional metrics there will be more of a focus on improving profitability. Thus, we are likely to see more rationalization, fewer projects by companies with a focus on the ones with the highest ROI and also a need to get more done with less people.

We are also likely to see a greater emphasis on using external vendors for functions previously done internally. Rather than building a large (and costly) BI or UA team, many companies are more likely to reduce this expense by relying on third party vendors like Mixpanel, Kontagent, TBG, etc. Thus, they will have more control over their costs and potentially create stronger multiples.

With this rationalization, there is also likely to be a greater pool of talent available. I have already noticed on Facebook and LinkedIn that there are more people currently in “transition.” This trend is likely to accelerate as companies downsize or even close as they cannot raise more capital. Thus, the situation earlier this year where it was nearly impossible to find social game professionals is likely to become a more robust market place for personnel, helping the smart, fast growing companies get good talent.

Overall, the Zynga IPO is likely to change the entire social gaming landscape. It will have impact from the individual developers and contractors to the medium and large size companies and into the investment community. My guess is that this impact will happen faster than people expect and by early 2012 the industry will look very different than it does today.

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Author Lloyd MelnickPosted on November 3, 2011November 3, 2011Categories General Social Games Business, Social Games MarketingTags zynga ipo effects on social game industry M&A8 Comments on The Effects of the Imminent Zynga IPO

Melding the Real World with Social Games

One topic that is close to my heart is the opportunity for social game companies to bring the real world into social games to increase their relevancy and entertainment value. In fact, I believe so strongly in it that it was one of the main reasons I accepted the opportunity to lead fiveonenine games.

I think the best way to describe the opportunity of melding the real world with social gaming is to look at how it transformed prime time television entertainment. In the past, most people watched scripted television shows (sit coms, crime show procedurals, etc.) during prime time viewing periods (8-11 PM). Now only a small part of the market is entertained by this “fictional” programming, instead people watch

  • Reality TV showing “real” families (Real Housewives of …)
  • Do-it-yourself and home improvement television (HGTV, Extreme Home Makeover, etc)
  • News that is more entertainment than pedagogical (O’reilly, Jon Stewart, Hannity, etc)
  • Exploring real mysteries and criminal cases (Nancy Grace, Greta van Susternen, etc)
  • Dramatization of real political issues (National Geographic’s Border Wars, Discovery’s Surviving the Cut, etc.)
  • Nature and the world around us (Animal Planet shows, National Geographic, etc)
  • Understanding of unique people and challenges they face (Hoarders, Deadliest Catch, etc)
  • Shows that appeal to people’s interests and hobbies (Food Network, Travel Channel, etc)

Although not an exhaustive list, the bullets above show how the real world has come to dominate how people consumer television entertainment now.

The opportunity for social game companies is to use this style of content to create more compelling social games. Scripted entertainment is often superficial and does not connect with viewers the way real life does. A fictional, cartoonish city like Cityville does not create the same bond with a player that creating their home town would.

Integrating the real world with games does not mean giving up fun or entertainment value, most of the shows listed above are as “entertaining” as your typical sitcom, more so because people can connect to them in an earnest way. Same for games. By integrating real world content, you can create a more engaging, compelling, enlightening experience than just asking a player to click on a “collection” for fifteen minutes. This is a huge opportunity we are tackling at fiveonenine games and I think it could be interesting for developers everywhere to help build our industry.

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Author Lloyd MelnickPosted on November 1, 2011November 3, 2011Categories General Social Games Business, International Issues with Social Games, Social Games MarketingTags social games fiveonenine real world non fiction1 Comment on Melding the Real World with Social Games

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Lloyd Melnick

This is Lloyd Melnick’s personal blog.  All views and opinions expressed on this website are mine alone and do not represent those of people, institutions or organizations that I may or may not be associated with in professional or personal capacity.

I am a serial builder of businesses (senior leadership on three exits worth over $700 million), successful in big (Disney, Stars Group/PokerStars, Zynga) and small companies (Merscom, Spooky Cool Labs) with over 20 years experience in the gaming and casino space.  Currently, I am on the Board of Directors of Murka and GM of VGW’s Chumba Casino

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