I will be speaking next month at Casual Connect Europe on lessons from real money that give your free to play game a competitive advantage. If you are attending the show, please come by my session.
Month: April 2018
The risk of status quo bias
One of the most dangerous, and common, biases in our decision making is status quo bias, popularized by Nobel Prize winning economist Richard Thaler. This bias in decision-making, also commonly called inertia, prompts people to prefer for things to stay the same by doing nothing or by sticking to a previous decision. This bias becomes a problem when the expected value of a change, one that may only have small transition costs, is higher than the reward for sticking with the status quo. It is also a considerable problem with big decisions, where the benefits of change could be quite substantial.
Why is there a Status Quo Bias
People do not intentionally make sub optimal decisions, so that leaves the question of why Status Quo Bias is so prevalent. First is the concept of loss aversion, people place a higher value on avoiding loss than acquiring gain. Many people would rather not lose $5 than win $10 and would not take such a bet with a 50 percent chance of either outcome, even though over time you would be much better off taking the bet. Status Quo Bias is tied to loss aversion because by diverging from the status quo, you often run the risk of losing something you currently have (even if the expected outcome is better).
Second is the concept of sunk cost. A sunk cost is a cost that has already been incurred and thus cannot be recovered. It should not enter into your decision making process because this cost will be the same regardless of outcome. You should only look at new costs you would incur versus the expected benefit, thus the ROI on the new, not total, costs. Sunk cost is intertwined with status quo bias because changing direction can negate previous investments, even if the expected outcome is better than sticking with the past decisions.
Third is the concept of commitments. Diverging from the status quo could force people to withdraw from previously made commitments. Individuals are likely to keep commitments to avoid reputation damage or cognitive dissonance. In the latter case, breaking with committed strategy would be subconsciously inconsistent with the initial commitment to the strategy or product and the reasoning that drove the commitment.
Let’s not forget politics
One other area that drives the status quo bias, particularly in a corporate setting, is politics. People are reluctant to pursue a strategy or product that breaks from existing dogma because they fear if a change they support fails it will be blamed on them while benefits from a successful shift will not be directly attributed. They are thus making a rational, albeit sub-optimal, decision not to support changes to the status quo.
When does it happen
There are many situations where Status Quo Bias leads to sub-optimal decision making. One area is product changes, particularly to a successful product, as the product managers or designers are reluctant to change something that is working even if the new option would be better. A car manufacturer may be reluctant to change the styling on a popular model even if overall tastes are changing. By not making the change, in the long run they will lose market share. A game designer may not want to change the user experience for fear of alienating current players but a new design could make the product much more appealing to new players and also generate more revenue long-term from existing customers.
Another area where Status Quo Bias has a destructive effect is on business models. In the video game industry, many successful game companies rejected the free-to-play model because they made millions, or even billions, of dollars based on their existing business model even though free-to-play was gaining share at a rapid rate. Now companies like THQ no longer exist because of Status Quo Bias.
New products are another area where Status Quo Bias leads to sub-optimal decisions. Companies may not introduce a new product because they fear it will negatively impact their existing products, even though the net impact would be positive. Conversely, a company that has invested significantly in a new product may continue to invest in it even if testing shows it will be a failure because they do not want to change the decision to pursue that product strategy.
How to avoid status quo bias
Admitting you have a problem is the first step in eliminating any bias, including Status Quo Bias. Recognizing there is a bias favoring inertia allows you to look at decisions more objectively. You should then focus on choosing the path that leads to the highest expected value, whether or not it represents a change.
- Status Quo Bias is when you make decisions to avoid change even when the change would have a positive expected value.
- People often prefer the status quo because of an aversion to losses (they overvalue losing something they already have to making a gain), sunk costs and previous commitments, while internal office politics also have a strong impact on sub-optimal decisions.
- When making decisions, you should look objectively at optimizing expected value, whether that value comes from something new or old.
It’s easier to create than steal VIPs
I, and many others, have written multiple times on how important VIPs are for free-to-play games but one area that is opaque is how do you get VIPs. In most free-to-play games, VIPs (which I define as a player who spends over $2,000 lifetime but is genre and game dependent) represent less than 0.5 percent of all players but generate 60-80 percent of revenue. It is thus critical for a game’s success to find and nurture VIPs.
Given the importance of VIPs, many think the road to success is stealing VIPs from competitors. This technique works in land based casinos, to a degree, and some other industries, but should not form the foundation of your efforts. If you are focused on winning competitors’ VIPs, you are likely to fail in the long term. You will be disappointed in the number of VIPs you can steal and will find that overall your game is deficient. Instead, you need to focus on creating VIPs, as that will ensure long-term success.
Why you should not rely on stealing VIPs
There are many techniques to woo competitors’ VIPs in social games but they yield surprisingly disappointing results. You can recruit competitors’ VIP hosts, troll VIP forums, target players based on their level in competitors’ games, etc. Surprisingly, however, this strategy fails to have a higher ROI than traditional user acquisition, where you cast a wide net.
VIPs love the game they are already playing
The first reason that it is very challenging to win over VIPs is that, by definition, they love the game they are currently spending in. They are VIPs because they are highly engaged and thus willing to spend liberally. If they were not happy with your competitor’s game, they would not be spending large sums of money there. A typical new product has to be 9 times better than an existing product to win over a customer. A VIP is going to be even more committed to the existing product, so your game will need to be 10X or 20X better to prompt the VIP switch. It also has to be better in areas the VIP cares about because their needs are already served with their current game.
All games are different
Unlike with some businesses, all mobile and social games are different. While players and developers often lament the copycat nature of the industry, there are no identical products in the market. It may just be a different theme or user interface, but there is a difference between games. In social slots games, everyone has different slot machines. In match-3 games, there are different themes and animations even in games that are largely the same.
Some other industries, where VIP “stealing” is easier, do not have this differentiation. In land-based casinos, most high-end casinos have the same slot machines. With department stores, most stores targeting the affluent will carry Gucci. Thus, a VIP at an MGM casino is likely to go to the casino for a game they can play at Caesars or a customer at Nordstrom can find the same product at Nieman Marcus. Conversely, it you love the slots in Hit It Rich!, you cannot play them in Heart of Vegas.
Your spender is not my spender
One thing that has surprised me in the mobile game space is that a spender in one game probably will not spend in another. I have been part of or around multiple initiatives in major mobile gaming companies to move spenders and VIPs to other products. Sometimes we have tried because the games were being phased out or we thought they would continue spending in the existing game and start spending the new game. All of these efforts have failed. They have not failed due to cannibalization but almost always there has been no correlation between spend in one game and spend in other games.
This surprising result is probably due to the reasons a person monetizes in a particular game. As discussed above, someone will spend in a game because they really love that game. They are not spending to spend, they are spending to enjoy. Thus, they are no more likely to fall in love with the new game than any other (non-spending) player.
How you should build your VIP base
If winning over VIPs will not drive your VIP revenue, you need to create your own VIPs. Having a strong VIP base is critical to a successful game, and like most things that drive success; it requires hard work. These efforts range from developing products focused on fostering VIPs, treating your VIPs right and acquiring players most likely to become VIPs.
Building products to create VIPs
People become VIPs because they love your game, so you have to create a product with something for them to love. If your game is a weak copy of the market leader, why should they spend in an inferior lookalike (unless you are competing on price, which does not work in mobile gaming). Instead, you need to give players something unique so the 0.5 percent who could become VIPs has something to fall in love with. Give players unique content that they cannot find anywhere else, if you are in social casino, that means slot machines that are unlike your competitors.
Also, give them features that reward a huge commitment. Love is mutual, and if you are asking for their commitment you must reciprocate. Rather than having some superficial features that get boring after a few hours or days of gameplay, make very deep features that only a few players may ever get through but gives those few VIPs an incredibly deep and fulfilling experience.
Create an in-game VIP program that shows VIPs they are important and advancing. Airlines were the first to roll out frequent flyer programs; you need to have a program focused on rewarding your top players. A few months ago, I wrote about how to create a top in-product VIP program and the key is creating compelling differentiated benefits and experiences.
Treating your VIPs right
The second critical element in building a strong VIP base is to have an effective VIP host program. VIPs are very valuable (hence the V in VIP) and you need to treat them properly. Many game companies have treated a player who never spends exactly the same as someone who spends thousands. The cost, however, of losing someone who is a great customer is huge so the ROI on investing in keeping this player is also very high. A good VIP host program will proactively deal with its top customers, ensuring they are happy and anticipating problems before they arise.
Spend to reactivate
If someone loved your game at one point, there are likely still elements of the product they love. Rather than focusing on bringing in new players, also focus on bringing back your VIPs. If you have good VIP hosts, one of their priorities should be to bring back players. Spending part of your user acquisition budget to reacquire churned VIPs is likely to generate higher returns than hunting for new ones. Adding features or content that your VIPs wanted, and then letting those who left know what you now have, is often a better investment than creating generic new features.
Acquiring players who will become VIPs
Finally, although you are not likely to grow your VIP base through acquiring competitors’ VIPs, you can still increase the likelihood that your user acquisition will find future VIPs. You need first to recognize what it is about your game that VIPs love. I have found it very helpful to understand what is your North Star metric, the metric that indicates if a player will become a VIP (i.e. makes three purchases in their first seven days). You can then optimize your paid user acquisition on players that achieve this North Star metric, even moving to a CPA model where you only pay (though pay much more) for players who perform this action(s). You can also run lookalike campaigns that target players who look like your VIPs. Unlike targeting players who look like VIPs of competitors, your VIPs love something in your game and if you find similar players, there is a high likelihood they will also love it.
It’s not easy but it is worth it
There is no silver bullet in building your VIP base but it is critical for your success. Regardless of your available funds, you cannot just go out and buy your competitor’s VIPs. Instead, you need to focus your business on creating a VIP receptive product. From the product development to your marketing, you need to create a holistic experience that appeals to the customers who will drive your business.
- VIPs, less than 0.5% of all of your players, will drive 60-80 percent of revenue for a typical social game, so it is critical you have a strong VIP base.
- It is virtually impossible to build VIP base by wooing your competitor’s VIPs as they already love the competitive product and thus will probably not like yours better.
- You should focus on building a game that gives people something unique, something they can love, so they will become VIPs.
How to create a mobile gaming hit
One of the greatest challenges game companies face is the green light process, even for the most successful companies. Game developers continuously struggle with the question of how to create a hit and where should they allocate their development resources. the most successful game companies struggle with this challenge, even if they have told investors they have a magic formula. When I first started in social gaming, Playdom, Playfish, Crowdstar and Zynga were the dominant companies. Now, if you know any of those companies outside of Zynga you get a gold star, none of them were able to replicate their hits of 6 or 7 years ago (and Zynga has also found it a challenge). Hits define success in the mobile game space, so finding the right formula is a critical issue.
I recently read an article, Space Ape: Chasing a genre-defining hit that describes an approach worth attempting. In the article, Space Ape, a mobile developer generating over $50 million in annual revenue, discusses its strategy to move from publishing solid titles to creating hit games. Space Ape has realized that simply replicating existing successful games and adding some minor improvements can generating solid performance but is not enough to create a hit.
Do not rely on market analytics
The first key is that you cannot use market data to predict the next hit. By its nature, market data is backward looking and can only tell you what has already been successful. It can help you create a good copy of a successful genre but will not tell you what will be the next genre defining product.
User testing and focus groups suffer the same fate. They can tell you what customers already like and dislike, maybe even what they think they will like, but customers will not think of new genres or understand what will appeal to them until they actually experience it. Apple’s success is a great example of this concept, as people never knew they would want an iPad until they actually had an iPad.
From pipeline to funnel
The key for Space Ape, and what I think should be replicated, has been moving from a production pipeline to a production funnel. In the production pipeline, a company will agonize over what product to make, and then spend considerable time refining the concept and developing the game. Effectively taking one product from concept to launch.
What Space Ape is now doing is creating hundreds of ideas for games, pouring them to the top of the funnel, with only a few making it out of the funnel. They allow their teams to move freely between designing, prototyping and developing a proof of concept.
Avoid sunk costs influencing decisions
Most importantly to Space Ape, the team can kill an idea easily, despite how many resources have been invested into the idea. This point is critical; as I have seen many game companies (including projects I have led) continue to invest in games primarily because of the investment already made. Sunk cost, a cost that has already been incurred and cannot be covered, should never be considered when deciding whether to proceed. Instead you should focus on the future investment needed and the expected return on that investment. The sunk cost is gone and no longer should matter.
To support the production funnel, Space Ape has restructured its team. Previously, 25 percent of the company focused on the production pipeline, developing new games, while 75 percent focused on maintaining its live games. Now 75 percent of the work force is focused on developing a genre defining hit, while 25 percent support existing products.
By putting sufficient resources behind the production funnel, they can generate hundreds of ideas, prototype a good percentage, pushing the promising ones to proof of concept and then developing the top ones that survive. This process ensures that many different concepts get fleshed out and they not need guess what will be a hit.
The ratio of resources focused on live games versus new development depends on your company’s situation. If you already have one or more of these genre-defining hits (i.e. King or Supercell), you should continue to put sufficient resources behind your hits to generate billions of dollars in value. Conversely, if none of your games are doing much, why keep any resources focused on them (remember sunk costs). What is critical is that you have enough people dedicated to the production funnel so you can have a plethora of ideas, prototype a high percentage of them and take the promising ones to proof of concept.
What success looks like
Moving from a production pipeline to a production funnel is a big decision, it requires significantly more resources, and you may consider it a risk. Given the carnage you see almost weekly in the mobile game industry, however, it is more of a risk to manage new product development the traditional way.
- Creating a hit game is critical to success, even for company’s already with a hit, but it is one of the most difficult challenges you face.
- The key is moving from a production pipeline, deciding what game to create and then building it, to a production funnel, generating hundreds of ideas, prototyping some and taking the best to concept and then market.
- To support a product pipeline, you need to structure your company to support it and ensure you allocate sufficient resources to drive many ideas through the funnel.
Using color to drive growth
My team was recently working on a new product and one of the issues that came up was what color scheme would generate the best results. Rather than rely on our (great) designers and team’s overall understanding of the market, we looked into the literature of consumer behavior and the research on what behavior different colors generated. Reinforcing the value of spending time on your color choices is research that shows 90 percent of snap judgments on products can be based on color. While there is no magic formula (unfortunately make everything dark blue or yellow is not a silver bullet), you can apply consumer behavior to leverage your color choices.
Color and branding
The first area we looked to leverage color was in our branding, ensuring our logo and app icon generated a strong positive response from players. A good article on Entrepreneur, The Psychology of Color, explained that you initially need to ensure your choice of colors is considered appropriate for your product. What would be effective in a bar is very different than the colors you should use for a funeral home. Customers decide a brand’s personality largely by its color scheme. The colors also make the brand more or less recognizable (IBM is defined as Big Blue), and people prefer recognizable brands.
Color choices also can create a unique visual identity. This helps to differentiate the brand and make it more memorable.
The key to choosing the right colors for your brand are using ones that convey the personality you want people to associate with your brand. If it is excitement, colors like red and yellow generate that response. If it is trust, you are best going with a lighter shade of blue. Colors also mean different things in different contexts (green can be environmentally friendly or related to money).
Color and gender
You also need to tailor your color scheme to the gender of your target customer. Blue is popular with both genders while purple is the most polarizing (loved by women and disliked by men). In general, men prefer bold colors while women prefer softer colors. Men are also more amenable to shades of colors as their favorites (colors with black added) while women prefer tints of colors (colors with white added).
Color and conversions
The true impact of color on conversion (making sales) is that you should use color to make an item or monetization opportunity jump out. A red “Buy Now “ button is likely to work great on a predominantly green and blue page but not work as well as a green button on a page with a lot of red. The key is using color to highlight what you want users to consider purchasing. You should use color to leverage the isolate effect.
Think about color
The key to this article is that color is important on multiple levels to your business and should not be an afterthought. The right color choices will create the brand identity you are looking for, appeal to your target market and make customers more likely to purchase.
- Color is a very strong determinant of consumer behavior and you should spend time to make color choices with your brand, logo and product that drive the behavior you are seeking.
- Color scheme needs to be consistent with your brand, creating the brand personality you are trying to build.
- The key to driving conversions is using color to isolate the elements that will drive purchases, less important than the actual color choices is using colors that do not appear elsewhere on the page or app.