Most, if not all, social game companies are missing their greatest source of value. While companies struggle to add $0.01 to ARPDAU, there is an opportunity to exponentially increase the revenue from your player base. And it is an opportunity not unique to social game companies but one many technology companies should explore.
The real value many social game companies have is their player graph and relationships. A player graph is the understanding, on an individual level, of your players’ preferences, decisions and behaviors. Once you figure out how to leverage this information, your revenue from in-app purchases or advertising is a footnote. I remember years ago (2009 to be exact) speaking with a partner at the VC firm Andreessen Horowitz, then an investor in Zynga, who told me that even if Zynga’s players stopped spending entirely the company would be worth over a billion dollars (this was pre-IPO) due to its network of players.
The ability to monetize these players with in-app purchases has since turned into a mixed blessing, as it has blinded many companies to their greatest potential source of value. As many companies generated millions or even billions of dollars in revenue through in-app purchases and thus focused on optimizing revenue from each player, they lost the urgency to harness the true value of their players to optimize their company’s value.
Uber, an example of where the real value is not the obvious
The realization that game company’s are neglecting their biggest potential source of revenue actually started with a conversation with an Uber driver. For those not familiar with Uber, it is an app that allows you to call a taxi or black car in cities across the world, and pay via the app. In our conversation, the driver commented that Uber was not a transportation company but was actually a technology company. More importantly, Uber was recently valued at $3.5 billion.
Combining the driver’s comment and the $3.5 valuation, I realized that Uber’s value was not as a taxi company or a technology company but probably because of its customer graph. Uber knows at a personal level what millions—and soon billions—of people do every day. It knows when they go to work, what type of restaurants they like, how often they eat out, approximately how much they spend when they eat out (public info price range of a restaurant), what attractions are popular, what is trending, when they travel, etc. Eventually, they will be able to deliver goods and services to people before the person knows they want it. They will be able to shift people’s preferences subtly, maybe offering a discount on a ride to Bloomingdales versus Nordstroms. Think of how they can leverage this information rather than just taking a share of your taxi fare.
Facebook led the way
It is the same principle that made Facebook worth over $110 billion. Facebook did not focus on maximizing how much a user spent every session. Instead, it focused on getting as much data as possible from each user and their connections, a.k.a., “The Social Graph.” Once it had this data, it was able to create an incredibly powerful advertising channel and a gaming platform that transformed the entertainment industry. The data was worth orders of magnitude more than they could have generated from selling directly to its users.
You can be Facebook or Uber
Social game companies have the same opportunities Facebook did or Uber does. You have massive amounts of data on your players. You see how they react in different situations. You understand many of their preferences. You can determine when they have time to play or have to work. The company that understands how to harness this data is the one that will be worth billions.