The big news in the social gaming space this week is that Facebook and Zynga have significantly changed their relationship. Two years ago, Zynga entered into a “special” agreement with Facebook that gave both companies exclusive privileges in exchange for special treatment. While Zynga’s stock has taken a much bigger hit than Facebook’s after this announcement, this new relationship will impact the changing social game ecosystem and the risks Facebook faces.
The Impact on Zynga
The key change that will negatively impact Zynga is that Zynga now must abide by Facebook’s Terms of Service (ToS). In the original agreement, Facebook gave Zynga the ability to bypass certain Facebook requirements, primarily related to cross-promotion and viral calls. Zynga will now have to follow the same policies other Facebook game developers face, primarily stopping its ability to promote games on Zynga.com or mobile from within its Facebook games. Continue reading
I have written several times how social game companies need to improve their marketing to encompass more than performance advertising (ads purchased on a CPC or CPI basis). It is frustrating that old school companies like Ford and Unilever are so much better at leveraging their community and social media for brand building than many companies whose products live on social media.
A recent article in the MIT Sloan Management Review, Enhancing Relationships With Customers Through Online Brand Communities, does a wonderful job of showing what strategies companies (e.g., social game companies) can use to build their business through communication with players. In the article, the authors research showed that effective communication would improve customer confidence, which in turn should lead to higher sales (especially in a free-to-play environment). The article showed four ways companies can improve the quality of communications with their customers. Continue reading
Although this is by no means a prediction based on any scientific data, I am already seeing big trends this holiday gift season that will impact game companies significantly. By talking to my children and their friends, visiting major retailers and getting virtually every online retailers newsletter, it is becoming clear there will be some big winners and losers this holiday season that also show how the industry will continue to evolve.
Nintendo and Microsoft look like the losers
I expect two companies that I respect greatly, Microsoft and Nintendo, to have poor Q4 product introductions. Unlike the iPad and some of the Android tablets, nobody is advertising or discussing the Surface. Although Microsoft has set up stands at malls and is leveraging retailers that normally sell PCs, most consumers who are in the market for a tablet are deciding between the iPad or the Kindle Fire (at least the people I spoke with). Retailers are drawing traffic by selling cut-price Android tablets (normally under $100),showing that they believe consumers will go out of their way to buy such a tablet (say what you want about traditional retailers, but they still understand their customers very well). Worse for Microsoft, the Surface is not even on people’s radar; outside of Microsoft ads I have not heard it mentioned once. Continue reading
A recent article in The Economist, “Corporate Burlesque,” reminded me of the benefits of open-book management and how social media companies can use it to improve performance. The article discussed the advantages share the company’s financial information with employees to devise scorecards and other tools that show staff how their individual efforts help profitability.
Benefits of open financials
The article highlights several advantages of open-book financials that potentially improve your company’s performance. Continue reading
Last week, GREE released its financials for the Q1 2013 fiscal year. GREE generated revenue of $466.7 million for the quarter, representing an annual run rate of over $1.8 billion. GREE also had a profit for the quarter of $111.5 million, which extrapolates to about $450 million in yearly profits. I am not a professional (or even amateur) stock analyst, so rather than predict—or try to predict—GREE’s future performance, I will highlight its impact on other social and mobile game companies.
The numbers showed GREE’s dependence upon the Japanese market. Unlike DeNA, which I wrote about a few weeks ago, GREE does not yet have a major success in North America (outside of the Funzio games it acquired). It does, however, have significant costs in its efforts to grow internationally. GREE’s cost of sales increased 123 percent year-over-year, which GREE attributed to its aggressive international expansion.
GREE’s financial results overall were not nearly as strong as DeNA’s but a much more positive sign for the industry than Zynga’s results. They reinforce you can generate high revenue (a $1.8 billion run rate in sales is not bad) and profitability by primarily selling virtual goods. They also show how one or two hits in a portfolio of over 50 games can move you from good to great (Rage of Bahamut probably accounts for most of the difference between DeNA and GREE) and are the difference between success and failure in global expansion. Next quarter, the results may be the inverse and probably would not make one company better than the other. Overall, though, it is great to see multiple social gaming companies with strong revenue and profitability.
I have written several times about the great opportunities for mobile games in emerging markets, particularly some of the lesser known markets such as Vietnam and Nigeria. A recent article in the McKinsey Quarterly, “Act like a hero: How to sell in emerging markets,” did a great job of describing how companies can actually turn these opportunities into profits. Although these opportunities are incredibly exciting, it takes significant effort and the backing of your whole company to penetrate international markets, let alone emerging markets. If your company is at the point where it can focus on building its sales outside the home market, the following steps are a great roadmap to success.
How to succeed in emerging markets
The key to success in emerging markets is realizing the consumer is different and then understanding these differences. What works in the US, Japan or the EU probably will not work in an emerging market, and trying to force that product or strategy can cause a false negative (a perception that there is no opportunity when there really is one). There are three imperatives to accelerate growth in emerging markets: Continue reading
Everyone probably already knows the clear winner of last week’s US election, it was a resounding victory for analytics over “intuition” and “expertise.” New York Time blogger Nate Silver, who uses statistical models to analyze polling and economic data, correctly projected which candidate would win each of the fifty states (and District of Columbia). Conversely, not one expert (often referred to as pundit) came close to predictably as accurately, the election. Moreover, many missed by a huge margin while mocking Silver before the election. This is the second consecutive Presidential election where Silver was uncannily accurate (he predicted 49 states correctly in 2008), showing he was not just lucky. As you may have noticed, I have long been a fan of Silver’s and incorporated his RSS feed into this blog over a year ago.
Silver and Moneyball
What happened in the political arena mirrors the lessons from Michael Lewis’ Moneyball that I have written about several times (my original Moneyball post and my follow-on when the Oakland A’s made the playoffs). Continue reading
Earlier this week, the Japanese-based social mobile game company DeNA announced its results and the numbers show that great opportunities still exist in the social gaming space. I have written several times about the importance of DeNA (and its Japanese competitor, GREE) in the social gaming ecosystem, in particular that they are better industry bellwethers than Zynga. DeNA is best known in the US as the parent company of ngmoco:), which it acquired in 2010 for $400 million.
DeNA’s results for the quarter that ended in September show the health of the social gaming and free-to-play business. For the quarter, DeNA generated $627 million in revenue and $254 million in profits. At that run rate, DeNA would see about $2.5 billion in revenue and $1 billion in profits for a twelve month (one year) period. The quarterly numbers also show a 45 percent increase in revenue and 38 percent increase in profits over the same period from the previous year.
The other interesting result in DeNA’s report was the revenue per daily active user (ARPDAU) it is generating from some of its titles in the US and Europe. Continue reading
After reading some of the work on market design by Alvin Roth and Lloyd Shapley that earned them the Nobel Prize in Economics this year, I realized it has some implications for those of us in the start-up and social media/gaming space. In particular, the underlying research on market design could help make raising capital more efficient.
It is interesting to understand the underlying principles of market design that Roth and Shapley helped explain. According to the theory, there are many markets that operate where the assumption of perfect competition is not satisfied. There are many goods that are individual and heterogeneous, whereby the market for each type of good becomes very thin. A great example is tech and social media start-ups. Each company is different and there is not a direct trade-off between investing in company A and company B, as each has a different management team, concept, etc.
If a worker is hired by Employer A but would have preferred to work for Employer B, who also would have liked to hire this worker (but did not), then there are unexploited gains from trade. If employer B had hired the worker, both of them would have been better off. Shapley, in research with David Gale, defined a pairing to be stable if no such unexploited gains from trade exist. Continue reading
Over the past year, I have blogged several times on the importance of creating a robust go-to-market strategy and marketing plan for social games. A recent experience with some great advertising reminded me of a key ingredient necessary for an effective advertising program: a good product that delivers what you are advertising.