The Exporter’s Dilemma

Many companies, particularly in the game space, have failed to match their local success in international markets. Ones that believe they are particularly data-driven have often had the worst results. The biggest single contributor is that these companies experience false negatives, negative results that they then extrapolate to the opportunities outside their home market. I refer to this phenomenon as “The Exporter’s Dilemma,” as a homage to Clay Christensen’s seminal work, The Innovator’s Dilemma.


Parallels with The Innovator’s Dilemma

In The Innovator’s Dilemma, Christensen shows that successful companies have trouble innovating because they know their customers too well. Innovating is about creating products that initially appeal to a new customer, which then evolves to penetrate the existing market. Existing customers do not find the new offering compelling, thus the company believes it is not an opportunity.

Successful companies also have trouble innovating because they are successful and they have built a structure that does not support small opportunities. Thus, an innovative opportunity may only contribute one percent or less to the bottom line, and thus the company does not put any resources into growing the disruptive innovation. Instead, a small competitor takes the opportunity and grows it into a business that then undercuts the established companies existing business.

There are parallels to both these issues when building an international social games business. Great games have already optimized for the core market. A top social game team is going to be a top team because they look at the metrics for their existing players and evolve the game to generate the best metrics from those players. That could include features that will perform well or licensing IP that resonates with the players.

When the company expands internationally, features that a Frenchman might like may be unattractive to an Australian. The Frenchman might like a feature where players work together to create beautiful art, while the Australian might prefer that by cooperating you create a race course. With IP (intellectual property), some of the strongest IP in one market may not have value in other markets. While a science fiction game in the US around the Star Trek IP would have a strong fan base, the same IP would not generate any traffic or appeal in Italy.

As you keep developing the games, the divergence between your success in the home market and appeal in other markets will grow. If you are only optimizing for one market, it becomes a self-fulfilling prophesy that you are only strong in that market.

The other parallel with the Innovator’s Dilemma is how the economics and business structure could impede your growth. If you are generating a few hundred thousand dollars a day in your core market and your international revenue is $1,000/day, finance (and others) will push you to focus on your core market. They will argue the management distraction is not worth the effort. Again, this becomes self-fulfilling. Without management focus, the international markets are not going to grow concurrently with you building out new strategy for the home market. Thus the international market seems even less relevant and the decision to focus on the home market is reinforced.

The False Negative

I have written before about how important it is to avoid false negative, drawing a negative conclusion based on a negative result where the result is not necessarily indicative of the greater opportunity. This threat is particularly strong in growing internationally.

As discussed above, your game may not do well initially in foreign markets because the features are geared to your target market or your IP is meaningless to international players. This negative reaction (which may result into poor ad performance, lower monetization, less retention or all) could prompt you to believe you do not have an opportunity outside your home market. The reality is your product may be able to perform very well in target markets if you adjusted the features for those markets or swapped existing licensed IP for ones relevant to the new users.

You also may have poor international results due to weak localization. I have seen many instances of good products localized very poorly. Sometimes it is foreign products coming into the US, where the language was created by a non-national or even a machine. Often US companies do not test the foreign versions of their products, and the localizations are very poor. A weak localization breaks the experience for the player even if everything else is good (think of reading a customer service message or manual written poorly: even if the underlying information is great you leave very unhappy). It also makes players much less likely to spend (thus skewing your monetization numbers) because they will not trust a game with poor localization.

None of these negatives actually show that if you modified your product to the local market you would fail. The only way to know if your product could succeed in other markets is by creating a compelling experience for those markets.

Beware the competition

A key threat to ignoring international markets is that it could either empower your competition or create new competition. I have seen many initially small companies replicate games working in large markets by focusing on their home market initially, building the game there (both content and revenue) and then attacking the big player in its home market. As they have a protected home market, they are thus in a good position to attack as they have a steady core cash flow that they can then invest. Also, your existing competitors could penetrate foreign markets before you, leaving you to pay an expensive game of catch-up where you either need to sway their player base or get IPs from a smaller pool.

You can leverage the Exporter’s Dilemma

Once you are aware of the Exporter’s Dilemma, you can benefit by opening new markets and staying ahead of your competitors. Look at new markets as just that, new markets, not extensions of your existing market. Build out a plan to penetrate each market just as you had a roadmap to penetrate your core business. Try to lock up players and IPs before your competitors move in. The biggest companies in the world (Apple, Microsoft, EA) succeed by having international businesses, you should also.

Key takeaways

  1. The Exporter’s Dilemma shows that successful companies sometimes fail in markets outside their home territory because they expect the same results from product features and IP optimized to their home country and the initial international numbers are often not enticing enough to generate additional investment.
  2. Look at new markets as just that, new markets, not extensions of your existing market. Build out a plan to penetrate each market just as you had a roadmap to penetrate your core business.
  3. If you do not compete outside your home market, somebody else will. That will either create local competitors who will be a threat in the future or give your existing competitors a head start.

Author: Lloyd Melnick

I am GM of Chumba at VGW, where I lead the Chumba Casino team. Previously, I was Director of StarsPlay, the social gaming vertical for the Stars Group. I was also Sr Dir at Zynga's social casino (including Hit It Rich! slots, Zynga Poker and our mobile games), where I led VIP CRM efforts and arranged licensing deals. I have been a central part of the senior management team (CCO, GM and CGO) at three exits (Merscom/Playdom, Playdom/Disney and Spooky Cool/Zynga) worth over $700 million.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: