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The Business of Social Games and Casino

How to succeed in the mobile game space by Lloyd Melnick

Month: April 2020

Winners and Losers in the entertainment space post-Coronavirus

Winners and Losers in the entertainment space post-Coronavirus

While it is impossible to predict exactly what businesses in the (broadly defined) entertainment space will benefit from Coronavirus and which are likely to fail, some basic and timeless principles help understand the likely winners and losers. There are two keys for successful entertainment company.

First, an abundance of content is the biggest revenue driver. While quality is obviously important, nobody wants to consume bad content, quantity is also critical. Content is a consumable and once it is consumed people look for more, if it is not available they will find something else. Successful operators constantly deliver new quality content to keep customers engaged.

Second, the subscription model is emerging as the dominant model in the entertainment space (not necessarily a new phenomenon, as Netflix and Amazon Prime have been around for years), growing from its existing stronghold to other parts of media. Additionally, subscriptions driven by Coronavirus are more likely to stay resilient in the aftermath of Covid19 as they will require action to cancel rather than asking people to continue making purchases.

Using this filter of abundant content or a compelling subscription model, it becomes easier to ascertain what companies and products will emerge from the Coronavirus situation in a good position.

Winners

There are likely winners that will emerge from the current situation. Those that I consider most prone to benefit include:

  • TikTok. While TikTok was already experiencing amazing growth, Coronavirus provided the rocket fuel. TikTok is a video sharing network used to create short dance, lip-sync, comedy, and talent videos. Since it relies on user-generated content, its increased traffic driven by Covid19 has led to increased content, creating a network effect that makes it an even more compelling destination for customers.
  • Houseparty. Houseparty is a social networking service that enables group video chatting through mobile and desktop apps. Since Houseparty relies on users to create content, in this case chats and virtual parties, it enjoys the same benefits as TikTok, increased use has led to increased content. Already a winner as it was acquired last month by Epic Games (Unreal, Fortnite, etc.), Houseparty is poised to grow its first party base and spread into Epic’s family of games developed using Unreal.
  • Netflix. It is hard to say the largest streaming media company can benefit further, but Netflix is likely to see a long-term benefit. With the broadest range of programming including a plethora of original programming, Netflix cemented its value to existing customers while bringing in new subscribers. One only has to hear the words Tiger King to know how Netflix has won.
  • Amazon Prime. Amazon Prime, Amazon’s streaming video service, which also includes free delivery on Amazon purchases, is likely to enjoy the same benefits as Netflix due to its abundance of content. Given its huge library of third-party content coupled with a large amount (though less compelling than Netflix) of original content, very few customers (if any) are likely to have become satiated. New subscribers are apt to continue their subscription while existing customers are less prone to churn as they have experienced the value of their Prime subscriptions.
  • Steam. Just as video streaming services with abundant content like Netflix and Amazon Prime will benefit, Steam will profit in the video gaming space. Steam describes itself as the ultimate destination for playing, discussing and creating games. Like Netflix and Amazon, it has the largest catalog of quality PC games and its library continues to grow faster than customers can consume the content. This ever-growing library will help it sustain the growth from Covid19.
  • Coursera. Electronic learning was already a sector in its ascendancy and the increasing number of people looking for options to stay busy while in lockdown or quarantine sped the adoption of this sector. Coursera has the most courses from top learning institutions and given the importance of breadth and depth of content, it is thus likely to be the biggest winner in its space.
  • Udemy. Udemy is similar to Coursera in that it is an online learning platform. Unlike Coursera, however, Udemy crowd-sources its content, allowing individuals and companies to create content. This crowd-sourcing strategy helps it offers thousands of courses on a huge variety of topics. With quantity of content paramount, Udemy is likely to benefit greatly in the aftermath of Covid19.
  • Hit Free-2-Play games. Early data has shown that Coronavirus has increased downloads almost across the board for mobile and free-to-play games but the revenue increase is more localized to the top games. This phenomenon reflects that most hit games already have a deep reservoir of content, giving players many options and incentives to spend. This growth is likely to sustain after Covid19 as the more players spend in the game, the more invested they feel and are thus less likely to churn.

Losers

While there are multiple winners in the entertainment space, Coronavirus is also likely to highlight the companies with a flawed value proposition.

  • Quibi Quibi is a new streaming service focused on delivering professionally created content in 10 minute episodes. Founded by Jeffrey Katzenberg and Meg Whitman, it has raised almost $2 billion. Quibi’s lack of content spells disaster, despite what you may think of Quibi’s business model, execution or ability to raise investment. While Netflix and Amazon Prime have had years to develop original content, Quibi has had less than two years and it shows in a very non-compelling catalog. Due to its model, Quibi also needs to create six episodes (at about 10 minutes each) for every episode of original content a competitor creates (at 60 minutes each) to deliver the same value to the customer. Moreover, as both Netflix and Amazon were able to launch and grow their businesses using third party content to supplement their initial offerings (in the early days it was their initial offering) and give a broad catalog to customers, as Quibi is introducing a new format there is no third party content available. Moreover, while TikTok can generate almost unlimited crowd sourced content, Quibi has shunned this option. This lack of content spells doom for Quibi.
  • Apple Arcade and Google Stadia. Apple Arcade and Google Stadia are two streaming games services on Apple’s iOS and Google’s Android
    platforms, respectively. While both are subscription services and should thus benefit, content dooms them. Although they both offer a somewhat large number of games, they must compete with the near unlimited number of games on their own app stores. Layering on to this challenge is that most mobile games are free-to-play, you can enjoy the games without ever making a purchase, so they do not have a compelling value proposition for their subscriptions.
  • Movie theatres. One segment of the entertainment space whose existing challenges were accelerated by Coronavirus are movie theatres. Unlike streaming services like Netflix or Amazon Prime, theatres do not have a plethora of content or offer a subscription service. Thus, they are unlikely to recapture many of the customers they have lost.
  • edX. edX is an online learning platform similar to Coursera, founded by MIT and Harvard universities. Unlike Coursera, though, edX has a much more limited catalog of courses. Given the importance of content, it is likely to fall behind its more robust rivals.
  • Mediocre Free-2-Play games. The rich get richer. While the hit games are enjoying a big boost in revenue due to players staying at home, mid-tier games are not seeing a similar uplift. While their downloads have increased, it is not translating into more in-app purchases. In part, this activity is driven by the top games having a very deep pool of content, be it virtual goods, levels, battle passes, etc. Their success allows them to create even more content as content creation is resource intensive. In the aftermath of Covid19, the gap between the haves and the have not games is likely to have increased while customers who sampled games with limited content are probably done with those games.

Maybe

There is one entertainment offering that I am not willing to call a winner or loser yet, Disney+. There are mixed signal using both the content and subscription screen.

While Wall Street has lauded the initial subscriber numbers for Disney+, I am not convinced it will be a long term success. In only a few months, more than 50 million people subscribed to the service, exceeding even the most optimistic projections. Given these subscriber numbers, it is easy to assume that the service will be a long-term success approaching the value of a Netflix.

The concern, however, should be the depth and breadth of content. Unlike Netflix and Amazon Prime, Disney+’s content is limited to the Disney family (Disney, Star Wars, Marvel, National Geographic and Pixar). While this is very compelling content for many (about 50 million) initially, will it sustain? People consume content and even this large back catalog of offerings will be old to many of the 50 million in a few months or a year. Relying on first party content, will Disney be able to keep a sufficient content flow not only to appeal to new customers but keep from churning a big portion of these 50 million subscribers.

Key takeaways

  1. While streaming and digital entertainment has enjoyed a windfall from people staying at home, winners and losers will emerge in the aftermath of Covid19.
  2. The winners will be the companies that have a very deep and broad content offering (either by first party development or crowdsourcing) and leverage effectively the subscription model, while losers are likely to have limitations on their proposition.
  3. Among the likely winners are crowdsourcing champions TikTok and HouseParty as well as streaming services like Netflix, Amazon Prime, Coursera and Steam. Likely losers are Quibi, edX, Apple Arcade and Stadia who either have limited or less compelling content. The jury is still out on whether Disney will have enough content to make Disney+ a long-term winner.

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Author Lloyd MelnickPosted on April 29, 2020April 13, 2020Categories General Social Games BusinessTags Coronavirus, Covid19, Disney, Quibi, TikTok2 Comments on Winners and Losers in the entertainment space post-Coronavirus

Design + Behavioral Economics = Apple

Design + Behavioral Economics = Apple

I recently read a great book on Jony Ive (Jony Ive: The Genius Behind Apple’s Greatest Products by Leander Kahney), the designer who created most of Apple’s products, that provided insights into the keys to Apple’s success. What was particularly interesting is how much of his design philosophy was consistent with the behavioral economics and consumer behavior insights that I wrote about earlier this year after reading Rory Sutherland’s Alchemy.

Kahney’s book also showed that what many, including myself, considered good luck or timing by Apple were the result of decisions driven by Ive’s design philosophy. The iPod was not simply an MP3 player at the right time, the iPhone was not just another mobile phone that hit a nerve with customers and the iMac was not simply a pretty PC. These were all products driven by a fundamental design philosophy backed by consumer behavior principles.

iMac

While most people acknowledge Apple’s strengths, its success (one of the five largest companies in the world, valued at over $1 trillion) highlights how leveraging these principles builds value. It is impossible to replicate what Jobs and Ive did – just as an American football team cannot simply replicate what Belichek and Brady did – there are underlying principles that can help any company. These concepts are also extendable to other industries, including digital ones like iGaming and the video game sector.

Simple is better

One of the key takeaways from Alchemy was that “Less is More”, a product with less functionality is more likely to change fundamentally behavior. This belief is also at the center of Ive’s design philosophy. Kahney writes about Ive, “the process of simplification is design 101, a mind-set that every design student is taught in school. But not every student adopts it, and it’s rarely applied with the ruthless discipline practiced by Jony…. The shy boy from Chingford is happiest when the user doesn’t notice his work at all.” Ive’s philosophy is also consistent with Job’s mantra: ‘Simplicity is the ultimate sophistication.’

This philosophy drove how Ive approached design. Not only did he aim for simple design, it was the centerpiece of how Apple built products. First, Ive did not focus on making his products pretty or cool; instead the focus was on simplicity. As Ive once said, “we are not interested in design statements. We do everything we can to simplify design.”

With Ive, simplicity was not limited to how a product looked. According to Kahney, “as part of his characteristic drive to reduce and simplify, Jony wanted to reduce the number of parts and therefore the number of part-to-part joints. Previously, when IDg [Apple’s internal design group] had done a similar dismantling of an original iPhone, the team counted nearly thirty interfaces where parts meet. After the iPhone underwent a unibody makeover, the number of interfaces shrank to just five.” Apple repeated this design principle over multiple products, from laptops (starting with the MacBook Air to phones to desktop computers). In all these cases, simplicity was much more than skin deep.

The story of the iPod is a great example of how an unwavering focus on simplicity led to incredible commercial success. Before reading Kahney’s book, I thought the iPod was a combination of good timing (music going digital), a beautiful looking design and integrated software (iTunes). The reality was that the iPod was a transformational product because of Ive’s and Job’s unwavering focus on simplicity.

The iPod was a result of Jony’s simplification philosophy. Kahney writes that “it could have been just another complex MP3 player, but instead he turned it into the iconic gadget that set the design cues for later mobile devices.”

original ipod

What made the iPod successful was not cool new features but what it did not have. At the time, most electronic devices had removable batteries, meaning they needed a battery door, plus an internal wall to seal the device’s guts from the user when the battery door is opened. Jony dispensed with both, creating a tighter, smaller gadget. Ive also eliminated the on-off button, which infuriated many users (and reviewers). Instead he had the idea of pressing any button to turn the device on, and then to have it turn itself off after a period of inactivity, a stroke of minimalist genius.

On the software side, Apple acquired a third-party MP3 jukebox program for the Mac, SoundJam MP, from a small company, Casady & Greene. Apple then hired Casady & Greene’s top programmer, Jeff Robbin. Robbin’s team moved to Apple’s HQ and set about retooling SoundJam, stripping out many features to make it accessible to first-time users. Under the direction of Jobs, Robbin spent several months simplifying the program, which eventually turned into iTunes. The key to iTunes was what Robins removed from the program after it was acquired by Apple, not what features were added.

itunes

The iPod example not only shows the power of simplicity but also how hard it is. Getting rid of the on-off button took much more effort and time than simply redesigning or moving the button. Simplifying iTunes required the dedicated effort from one of the best developers in the world. What led to success, however, was Apple’s willingness to devote extraordinary resources to eliminating features and complexity rather than the natural tendency to put those resources into building more.

Play to people’s habits

A second takeaway, again consistent with Alchemy, is the importance of building something for how people behave, not just what they need. As Sutherland pointed out, not only is the logical and rational path not necessarily optimal, it is also not the one our customers might be pursuing. Before Apple, one of Ive’s biggest successes was designing the TX2 pen for a Japanese company. Jony’s innovation was to put something on a pen that was purely there to fiddle with. The pen’s design was not just about shape, but also there was an emotional side to it. The pen immediately became the owner’s prize possession, something people always wanted to play with. As Kahney writes, this “‘fiddle-factor’ notion may have seemed trivial to some, but the incorporation of the ball and clip transformed the pen into something special.”

tx2

Ive’s unusual pen anticipated built the kind of allegiance that later Ive-designed products at Apple would inspire. The handle on the iMac shows Ive’s understanding of non-traditional consumer behavior. It is not for carrying the iMac around, but to build a bond with the consumer by encouraging them to touch it. Kahney says, “it was an important but almost intangible innovation that would change the way people interacted with computers.”

imac

Be bold

Another lesson in Apple’s success is to be bold. While people often feel it is less risky to iterate on proven design, the opposite is true. I once wrote it is less risky to pursue a Blue Ocean strategy than a Red Ocean one, as the latter places you in the middle of intense competition. In Alchemy, Sutherland also points out Logic does not necessarily lead to great, in many ways it drives you to average. The same is true of design, everyone is looking at making incremental improvements and your “new” design is likely to look like 20 of your competitors.

Ive and Jobs philosophy of simplification led to a need to make bold breaks from the past. The iMac was the first legacy-free computer. Apple ditched ADB, SCSI and serial ports, and included only Ethernet, infrared and USB. Apple also abandoned the floppy drive. These choices, particularly abandoning the floppy, generated intense criticism but were consistent with Ive’s and Job’s philosophy. If they were afraid of criticism, however, the iMac would not have disrupted the space.

Just as simplicity is not easy, neither is going legacy free when Apple designed the iPhone. Rather than improving on a Nokia or Motorola design, Ive and Jobs started from scratch. Kahney writes, “Apple attorney Harold McElhinny would describe the immense amount of work the project required. ‘It required an entirely new hardware system … It required an entirely new user interface and that interface had to become completely intuitive.’ He also said Apple took a huge leap of faith moving into a new product category. ‘Think about the risk. They were a successful computer company. They were a successful music company. And they were about to enter a field that was dominated by giants … Apple had absolutely no name in the [phone] field. No credibility….The arrival of the iPhone at Macworld was the culmination of more than two and half years of intense hardship, learning and dedication to bring it to market. As one Apple executive summed it up, ‘Everything was a struggle. Every. Single. Thing was a struggle for the entire two-and-a-half years.’”

Part of not just iterating involves focusing on the new experience, not other elements of the product. With the iPhone, Ivy and his team designed the phone without ever seeing the operating system. They initially worked with a blank screen and later, a picture of the interface with cryptic mock icons. Likewise, the software engineers never got to see the prototype hardware.

Start with the user

When applying behavioral economics, you learn that market research is often as unreliable as other data. As well as not always acting rationally, people often do not know what they prefer. Ive’s approach was consistent, as Kahney writes, “’we don’t do focus groups–that is the job of the designer,’ said Jony. ‘It’s unfair to ask people who don’t have a sense of the opportunities of tomorrow from the context of today to design.’….Jony was interested in getting things right and fit for a purpose. He was completely interested in humanizing technology.”

The iMac is a great example of this principle in practice. The machine did not revolve around chip speed or market share but Jony built it by focusing on how do people want to feel about it and what part of our minds should it occupy.

At Apple, designers focused on imagining objects that did not exist and bring them to life. Part of what they had to envision was defining the experience that a customer has when they touch and feel an Apple product, from the materials to the textures to the colors.

For Ive, the first step in creating a product was developing the design story. He did not feel he was building a product but instead was building the user’s perceptions and meaning of the product. According to Jon Fortt of the San Jose Mercury News, “Apple’s focus on the needs of the consumer made the iMac a hit. ‘What made the original iMac cool was not its color or shape. It was Apple’s demonstrated willingness to open the possibilities of Internet computing to an audience that had been ignored by the brainiacs who design PCs.’”

The focus was not on legacy but on the customer and how the user would feel about the device. Ivy once said, ‘when we are at these early stages in design, when we’re trying to establish some of the primary goals–often we’ll talk about the story for the product–we’re talking about perception. We’re talking about how you feel about the product, not in a physical sense, but in a perceptual sense.’

Attention to detail

Another key to Apple’s success is the attention to detail that Ive gave to design. His colleagues said, “whatever he did was never quite enough; he was always looking to improve the design….The level of finish was what was always amazing about his work relative to others. Others were and are capable of the conceptual thought and creativity but very few capable of that level of finish….The differences from one [of Ive’s] model to the next were subtle, but the step-by-step evolution betrayed Jony’s drive to thoroughly explore his ideas and get it right. Building scores of models and prototypes would become another trademark in his career at Apple.”

While many designers would focus on the visuals, Ive worried just as much about the guts of his designs. When people disassembled models he created, they found the inside of the models included the components. Ive had even worked out the thickness of the parts and how they would be manufactured in an injection moulder. Thus, when his designs moved to production, Apple could fulfill the vision without having to modify them to work.

The importance of attention to detail is reflected in how Jobs and Ive responded to impending bankruptcy. As Kahney quotes an Apple employee at the time, “you would have thought that, when what stands between you and bankruptcy is some money, your focus would be on making some money, but that was not [Steve Jobs’s] preoccupation. His observation was that the products weren’t good enough and his resolve was, ‘We need to make better products.’” The focus on making the perfect product is what Apple rode from near bankruptcy to near world domination.

Needs to encompass everything

Related to the focus on attention to detail was a focus on design encompassing everything, not simply the visual. I was amazed that Ive’s high-powered design team (and Jobs) would put the same effort in a product’s packaging as the actual product. Kahney writes, “boxes may seem trivial, but Jony’s team felt that unpacking a product greatly influenced the all-important first impressions. ‘Steve and I spend a lot of time on the packaging,’ Jony said then. ‘I love the process of unpacking something. You design a ritual of unpacking to make the product feel special. Packaging can be theater, it can create a story.’”

The iPod was Apple’s first product where Ive applied his design genius to packaging. The result was an elaborate box that cradled the iPod like a piece of jewelry. This packaging was an integral part of the iPod’s success and Apple’s transformation.

packaging

Ive and his design team also focused on the insides of a product, normally the responsibility of engineers. When designing the iMac, the original solutions the team came up with pushed the boundaries of traditional manufacturing.

Ive also almost singlehandedly redefined how high-end laptops are manufactured. Kahney explains, “Jony was proud of the PowerBook’s construction, and dismantled one for his 2003 Designer of the Year exhibition at the Design Museum. ‘We took [it] to pieces so you can see our preoccupation with a part of the product that you’ll never see,’ Jony said. ‘I think–I hope–there’s an inherent beauty in the internal architecture of the product and the way we’re fabricating the product: laser-welding different gauges of aluminum together and so on….Jony went on to explain the manufacture of the MacBook Air, Apple’s new razor-thin laptop. Instead of taking multiple sheets of metal and layering them, the new process began with a thick block of metal and, in a reversal of the old process, produced a frame by removing material rather than by adding it. Multiple parts were replaced by just one–hence the name unibody.”

Lessons for iGaming and video game companies

Slide1

When I started reading Jony Ive: The Genius Behind Apple’s Greatest Products by Leander Kahney, I thought it would be an interesting book with a few tidbits I could apply in the casino space. Instead, almost everything that made Ive, Jobs and Apple great can help both iGaming and social casino companies:

  1. Simple is better. Most gaming companies focus on adding features and content to grow, while the opposite may generate more success. Look at what you can take out to give the player a better, more directed, experience.
  2. Play to people’s habits. People do not always act logically. Rather than assuming they will, look at how they actually behave and test different (sometimes illogical) approaches.
  3. Be bold. Rather than trying to do what everyone else is doing a little bit better (which they are all trying to do), try a new and unique approach.
  4. Start with the user. Design your product by understanding how your customer will enjoy and use it.
  5. Attention to detail. Do not settle for good enough, make sure every element, even the smallest, are as great as you can build.
  6. Encompass everything. Focus on everything, not just the look but the underlying architecture, customer service and all the parts of your product.

If we learn from Ive and Jobs, we can create new and better products despite how competitive the casino space is.

Key takeaways

  • Steve Jobs, and his design guru, Jony Ive, turned Apple into one of the world’s most valuable companies because of an unwavering commitment to design.
  • Their design philosophy focused on simplicity, the greatest Apple products came from eliminating features and complexity while stream-lining performance.
  • Other keys to Apple’s design success are a focus on how the customer will experience the product, not asking customers but understanding customers, making bold decisions rather than evolutionary ones, a focus on detail and including all elements of the product in the design process.

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Author Lloyd MelnickPosted on April 22, 2020April 6, 2020Categories General Social Games Business, General Tech Business, Lloyd's favorite posts, Social CasinoTags Apple, Consumer behavior, jony ive, Product design, simplicity2 Comments on Design + Behavioral Economics = Apple

Finding Blue Ocean opportunities in gaming in the post-Covid19 world

Finding Blue Ocean opportunities in gaming in the post-Covid19 world

Rather than trying to predict when the pandemic will end or the final impact, which is impossible, now is the time to start planning for business opportunities in the aftermath of Coronavirus. I have never been a big fan of predictions, if anyone could predict the future or even trends their income would dwarf Warren Buffet’s, rather it is often an exercise in confirmation bias (remembering our correct predictions) or vanity. A recurring theme, however, of this blog has been the benefits of pursuing Blue Ocean strategy, an approach that has a higher expected return than traditional strategy. While not predicting when the current crisis will end or what the world will look like after it, it is smart to begin planning your economic future.

If you are fortunate enough to experience growth or even stability during the current crisis or are one of the many unfortunate to be furloughed or made redundant during this time, in both scenarios it is important to start preparing your next steps as the world exits the Covid19 situation. A recent article on Forbes, There Will Be Blue Ocean’s Everywhere Post Pandemic by Bob Zukis, reminded me how you should juxtapose Blue Ocean strategy with planning for the aftermath of Covid19. After the pandemic, the often-rare Blue Oceans will be abundant. Anticipating these Blue Oceans and building a strategy to leverage them could result in not only financial stability but big future successes.

Key principles of Blue Ocean Strategy

Before determining how to apply Blue Ocean strategy, it is important to understand the key fundamentals of this approach. First, Blue Ocean is all about turning non-customers into customers, rather than competing for the same customer. By pursuing a Blue Ocean strategy, you create an uncontested market space and make the competition irrelevant. Rather than taking market share, you are creating markets.

Second, developing and implementing a blue ocean strategy involves four crucial actions: eliminate, raise, reduce and create. These are changes to your existing product or a way a market segment is approached. To pursue a Blue Ocean strategy targeting the real money online casino space, for example:

  • the first step would be to eliminate. As online players are generally more focused on the underlying gaming mechanic, you might eliminate dealers.
  • The next step is raise, that is increase something in the product so it appeals more to this segment. Since casino players are looking for slots, you may launch with 500 different slot machines, more than any land-based casino.
  • The third step is to reduce. In this example, since you have a lower cost base, you can probably reduce the amount of each players bet (hold or RTP) that you keep.
  • Finally, you need to create, that is add in new functionality for the target audience. If you are creating products for online casino players, maybe you would add in social features that would replace some of the tertiary benefits they get from going to a land-based casino, like a chat function.

If you try to build a Blue Ocean strategy and fail to include these four steps, you will not end up with a true Blue Ocean plan and competitors will quickly eat into any success you experience.

Blue Ocean, gaming and Coronavirus

Covid19 will create an unprecedented plethora of Blue Ocean opportunities, including in the gaming space. Zukis wrote, “rarely do blue oceans appear out of nowhere in business. But they’ll be splashing up everywhere post-pandemic…. When they’ve appeared lately, they can often be more like blue lakes than oceans, and extreme competition from other fishers can quickly turn the lake red.”

You need to understand how the ecosystem will evolve after the pandemic, particularly online. Zukis says, “[the] digital operating system is what will help them find these oceans and navigate the journey safely.” That is, the way people consume and companies deliver content will change. The competitive landscape will also evolve due to the pandemic. While it is impossible to predict the post-pandemic situation, there are several variables to consider and questions to ask when anticipating where the new Blue Oceans will be both for iGaming and social casino (but this can be extended to virtually any space):

  1. Competition. Many companies may not survive the pandemic. If land based casinos contract significantly, not only would that create land-based opportunities but also may open up other areas that these casinos dominated.
  2. Regulatory. Will governments, particularly in US states, loosen online gaming regulations to create jobs or generate tax revenue to help pay the huge debt they are building.
  3. Online collaboration. Will people be more likely to replace business meetings and social get togethers with their virtual equivalents, continuing to use products like Zoom and Houseparty.
  4. Advertising. With the economic disruption caused by Covid19, the cost of advertising should change (potentially long-term if certain industries do not rebound), new channels will emerge while other channels will disappear.
  5. Openness to digital Will people, especially older people, be more likely to replace land-based activities with digital content. In the gaming space, will people who previously only would gamble on a physical machine now be open to or even prefer playing digitally.
  6. Economic situation. Will the world or individual countries rebound quickly or suffer a prolonged downturn. Will the economic shift the importance of certain markets.
  7. Spend patterns. Will people be more conservative in their spend after the huge economic disruption; as Depression era people always felt a need to keep a strong cash reserve. Conversely, will people spend more easily because they had not spent for months.
  8. WFH. Companies may decide it is more efficient to let employees continue to work from home or people may decide they prefer WFH than going into an office.
  9. Investment. Will it be easier to raise funds from VC or Angels, will new investment sources appear or will funds dry up.
  10. New digital platforms. Will crowd-sourced apps and services like TikTok and HouseParty evolve to become dominant platforms and new ways to reach customers or will new providers like Disney+ and Quibi become the path to reach players.
  11. Conferences. Rather than visiting conferences, people may prefer to attend virtual conferences. This can lead to fewer conferences or more virtual ones.
  12. Travel. Will people revert to past travel patterns, travel more to make up for time spent at home or travel less because fears have increased.
  13. International trade. Will it become easier or harder to operate across borders.
  14. Commercial real estate. Rents may plummet if retailers are unable to reopen or more companies move to working from home.

By looking at the above variables and then integrating them with the eliminate/raise/reduce/create framework, not only will Blue Ocean opportunities appear but you will appreciate how to pursue them.

Anticipate the competition and move forward

One consideration that is often neglected when building a Blue Ocean Strategy is anticipating the competition and this issue is particularly relevant now. In the post-Covid19 environment, this factor will be even more important as you are not looking for new opportunities in a vacuum; there are hundreds, if not thousands, of other people also thinking about what to do next. They may be forced into the situation because their company has gone out of business or they lost their job or may be looking to accelerate momentum they gained from being in the right place at the right time.

When evaluating your Blue Ocean options, realize that the most obvious ones are likely to be pursued by others. Thus, that beautiful Blue Ocean on your screen may be full of blood before you even get there. That is why it is critical to follow the Blue Ocean framework painstakingly, truly focus on what you can eliminate/raise/reduce/create, and ensure you reach the optimal option. While any new initiative may fail, if you follow this strategy you have the best chance of seeing an outsized return.

Key takeaways

  • Blue Ocean strategy historically has a much higher ROI than pursing a Red Ocean approach and Covid19 will create an plethora of Blue Ocean opportunities.
  • A Blue Ocean strategy is one where you avoid the competition rather than trying to beat them; you do this by eliminating/raising/reducing/creating features.
  • You also need to anticipate what others will do, avoid the obvious as it won’t be a Blue Ocean if five others get there first.

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Author Lloyd MelnickPosted on April 15, 2020April 12, 2020Categories blue ocean strategy, General Social Games Business, General Tech Business, Social CasinoTags blue ocean, blue ocean strategy, Coronavirus, Covid191 Comment on Finding Blue Ocean opportunities in gaming in the post-Covid19 world

The Reese’s Peanut Butter Cup of game monetization models

The Reese’s Peanut Butter Cup of game monetization models

I am always on the lookout for monetization models that can augment or disrupt the gaming space and I have recently come across a hybrid one that has great potential. I think subscriptions are a great way to create recurring revenue and increased loyalty. I am also a big fan of in-game advertising, as it allows players who would not normally monetize to gain greater value from a product while delivering revenue to the creator. I also recently noted the success of hypercasual games, which has been driven by advertising.

Slide1

Recent research in the streaming space highlights an intriguing opportunity for game companies. A survey of consumers with connected televisions found that 76 percent are open to see ads in exchange for free streaming services. Additionally, 64 percent of consumers say they don’t plan to add a subscription video streaming service in the next year.

There are two very important implications of this research. The first is that while traditional subscriptions are still promising, many people are reluctant to add more subscriptions to their monthly burn. While it is still too early to understand the impact of Coronavirus, people may become even more conservative with their cash flow as they have to deal with a new economic environment. Second, rather than ask people to sign up for a regular charge, they are more likely to agree to a subscription if the cost is “free,” simply watching an advertisement(s).

Opportunities

For game companies, this peanut butter cup (the combination of subscriptions and advertising) presents multiple opportunities:

  • Create an additional subscription stream where players deliver revenue through ads. While the amount you can generate has a lower ceiling with ads, you can still build a subscription model using ads. By relying on ads rather than purchases, you also reduce customers’ barrier to signing up so you are more likely to get high pick up rate.
  • Use advertising to drive a game streaming service. While Stadia, and possibly Apple Arcade, have not gained much traction with a traditional subscription model, an ad-driven purchase model might allow them to get critical mass.
  • Leverage ad-driven subscriptions to sell flow of regular game or content release. If you are a hypercasual publisher, an ad driven subscription model can give players access to X/month games.

Ad driven subscriptions can also be integrated into different stages of your customer lifecycle or a broader subscription model. Rather than asking people to commit before they are hooked on your product, allowing players to subscribe by watching ads the first month or the first three months lowers their risk while getting them to become a subscriber. You then convert them later in the funnel to full paying subscribers.

You can also allow players who have lapsed or churned to renew their subscription by watching an ad. Thus, if they had to cancel because of cash flow issues or if they were not getting sufficient value to cover the cost, ad-driven subscriptions are an additional way to retain some revenue from these players and keep them in your ecosystem.

Challenges

While offering an ad-driven mechanic for customers to subscribe creates many options, it also presents challenges. First, one of the great benefits of subscriptions is that it gets your customers invested in the product. This makes them more committed and engaged. If they acquire the subscription by watching an ad(s), they may not be as committed to the long-term relationship. Second, to generate sufficient subscription revenue, a customer will need to watch or be exposed to multiple ads. If they are just watching ad after ad in one sitting, the value you can deliver to advertisers will be minimal. You will need to come up with creative solutions to generate enough ad revenue to justify providing a subscription. Finally, a subscription requires regular purchases, which is how subscriptions delivers reliable revenue. It is simple to bill a player regularly for their subscription and it becomes passive activity for your customer. With advertising, they will have to proactively watch ads every time the subscription renews. One potential alternative would be showing interstitial ads or ads in another frame, rather than relying on a watch-to-earn mechanic.

Figure it out

Just because nobody before Reese’s thought of a good way to combine chocolate with peanut butter did not mean it was a bad idea. It is the same with ads and subscriptions. The companies that crack the code first for merging these two monetization models are likely to see great returns.

Key takeaways

  1. Two of the most promising business models to grow the game industry are subscriptions and advertising, so combining the two can create a unique opportunity.
  2. There are three ways game companies can leverage this opportunity: create an in-game subscription option that incorporates ads, use subscriptions to grow a streaming service or publish a flow of games that customers subscribe to via subs.
  3. Challenges include generating enough subscription revenue through ads, getting customers to feel committed and figuring out a mechanic for players to renew.

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Author Lloyd MelnickPosted on April 8, 2020March 28, 2020Categories General Social Games Business, GrowthTags advertising, monetization, SubscriptionLeave a comment on The Reese’s Peanut Butter Cup of game monetization models

Podcast on Working from Home during the Coronavirus situation

Podcast on Working from Home during the Coronavirus situation

If you are interested in issues related to working from home and missed my appearance Wednesday on IndieGameBusiness yesterday, the podcast is available here.

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Author Lloyd MelnickPosted on April 2, 2020April 2, 2020Categories General Social Games Business, General Tech BusinessTags podcast, Work from homeLeave a comment on Podcast on Working from Home during the Coronavirus situation

Live conversation on getting the most of Working from Home

Live conversation on getting the most of Working from Home

Excited to be a guest today (Wednesday, 1 April) at 1200 noon EST on the IndieGameBusiness podcast to discuss how you can survive, and thrive, while working from home. If you are free, tune in and ask some questions. It can be watched live on Mixer, Twitch, YouTube, LinkedIN, and Facebook.

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Author Lloyd MelnickPosted on April 1, 2020March 31, 2020Categories General Social Games Business, General Tech BusinessTags Work from homeLeave a comment on Live conversation on getting the most of Working from Home

Get my book on LTV

The definitive book on customer lifetime value, Understanding the Predictable, is now available in both print and Kindle formats on Amazon.

Understanding the Predictable delves into the world of Customer Lifetime Value (LTV), a metric that shows how much each customer is worth to your business. By understanding this metric, you can predict how changes to your product will impact the value of each customer. You will also learn how to apply this simple yet powerful method of predictive analytics to optimize your marketing and user acquisition.

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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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