General Social Games Business – The Business of Social Games and Casino

Customer analytics tips for gaming companies

While social and mobile gaming companies are generally at the cutting edge of applying analytics, I recently took an online course from Wharton on Coursera that provided some additional insights in how to best use analytics in online gaming. These takeaways range from ways to improve your UI to how to calculate LTV more accurately.

Make your players wander

One of the most interesting takeaways from the course is that efficiency is not always the desired player behavior in the online world. In traditional retail, retailers found they enjoy much higher revenue when customers wander around the store rather than quickly find what they have come for. In the studies cited, about 75 percent of movement inside a store is not required. Sixty percent of purchases are items people had no intention of buying when they went into the store. Instead retailers optimize for “jiggliness,” as people with the most jiggliness buy the most.

There are uses of this concept for online gaming and iGaming companies. Rather than optimize your lobby and UI (user interface) to ensure your players find what they are looking for, take them on a journey around your game. If it is a social casino, rather than finding the slot they know and love, expose them to some other content, they may find something they prefer.

Higher customer satisfaction may not improve profitability

While customer satisfaction is positively correlated with profitability, the relationship is not linear. Companies with a low level of customer satisfaction, referred to as the Zone of Pain, experience a strong impact on revenue when making improvements. That is, the firms with awful customer service see big benefits just moving out of the Zone of Pain.

On the high end, companies that provide great customer service and differentiate themselves with it experience positive ROI by making the experience even better. These companies are what is referred to as in the Zone of Delight. Retailers like Nordstroms, which enjoy high margins due to their customer service, see a huge impact when they find even better ways to provide a WOW experience.

When customer satisfaction is only a small part of a company’s value proposition, improvements do not necessarily have a positive return. There is a large flat region where increasing satisfaction does not increase profitability. The key takeaway is that the relationship between customer satisfaction and profitability is not linear, but starts with a Zone of Pain, then hits a sizeable flat region, and then moves to a Zone of Delight.

Correlation does not equal causation

We should all know by now that just because two variables have related movement, you cannot assume one is causing the other. I see this mistake made frequently, including by BI experts. Correlation only shows a relationship between two variables. Causation, more critically, shows that one variable produces an effect on the other variable. It is crucial to remember there are three requirements for causality:

Correlation
Temporal Antecedence. X must happen before Y.
No third factor is driving both. Need to control for other possible factors.

Use analytics for pricing

I am surprised at how often pricing strategy in mobile games (the cost of in-app purchases) or in iGaming (RTP and bet levels) is driven by competitive analysis and intuition rather than analytics. Regression, however, can be used to set optimal pricing (including for virtual goods) at the level that boosts profits. Regression can predict demand at prices that have not been tried, thus you can determine profitability for different options. As predictions can be completed for different future prices, you can then determine optimal price. Effectively, you answer the question what you can charge to make the maximum profit (and with virtually zero marginal cost for online products, can be simplified to maximum revenue).

Preparing better surveys

While market research is a less than reliable way to understand customer intent, it still provides valuable insights into your players. Surveys are a good way to learn about potential customers and are relatively low cost. Some best practices include:

- To improve reliability of surveys, test and then retest. If the results are consistent, it shows you are getting reliable results (people still may not know what they want though).
- There are multiple ways to ask questions in a survey (comparative, rank, paired comparison, Likert, continuous, etc.) and you should understand your end goal when deciding which format to use. Advantages of open-ended questions allow for a general reaction that can help interpret closed end questions and may suggest follow up questions. Closed end requires a lot of pre-testing but is easier to administer.
- Focus on drafting high quality questions. Use simple, conventional language and avoid ambiguity. Do not ask any questions more than 20 words. Most importantly, avoid leading and loaded questions (i.e. How bad a job is Lloyd doing?).
- Pay attention to sequence and layout. Start with an easy and non-threatening question. Have a smooth and logical flow. Have the questions go from general to specific. Keep the sensitive or difficult question at the end.
- The key to using surveys effectively is validity, how well it predicts variables you are interested in. If you find surveys effectively predict certain behavior, then they are an appropriate tool for predicting that variable.
- Make sure your results are generalizable to an appropriate population. You need to define clearly the population, choose a representative sample, select respondents will to be interviewed and motivate them to provide information.
- Pre-test your survey. Ensure respondents understand each question and the questions make sense.
- Collect data on non-respondents as they may be systemically different. Try to convert them to responding.

Recency is incredibly important

When looking at the future value of a customer, the three keys are how recently they made a purchase (recency), how many purchases they have made (frequency) and monetization (size of the purchase) recency is by far the best predictor of future value. Frequency is then significantly more indicative than monetization. Thus, focusing on increasing the size of a purchase (up-selling) is the least valuable strategy you can pursue to increase your customer’s lifetime value.

Include clumpiness in your LTV analysis

I wrote several weeks ago about the important of clumpiness in determining a customer’s future value so will not go into too much detail again. Clumpiness refers to the fact that people buy in bursts and that those customers could be extremely valuable. When calculating customer value and segmentation, we focus on analysing recency, frequency and monetization of the customer, as I discussed above. This analysis is based on customers making purchases in a regular pattern, i.e. coffee, diapers or milk. For certain products (and I would classify social and casino games here), customers actually monetize in bursts. Thus, you need to add C for clumpiness to your modeling.

Key takeaways

People who wander around a retail location spend more than ones who immediately find what they are looking for and retailers optimize to create this jiggliness. Online casinos and games can also build in jiggliness so players find new games and offerings rather than simply quickly go to the one they are looking to play.
While satisfaction with customer service positively impacts profitability, the relationship is not linear. Improvements have a strong impact when players are highly dissatisfied (and that is corrected) or when customers with great service make further improvements, companies in the middle often do not see a positive ROI on CS improvements.
A relationship between two variables does not show one is causing the other, to have causation there must be a relationship plus temporal antecedence plus the absence of a third variable driving both factors.

How to avoid meetings about the trivial, aka bikeshedding

I have written before on my general distaste of meetings and how they frequently destroy more value than they create, and one of the key reasons I detest meetings so much is they always seem to be about trivial things. A recent article, Why We Focus on Trivial Things: The Bikeshed Effect, explains why we gloss over important topics and focus on the trivial. Bikeshedding is a metaphor to illustrate the tendency we have to spend excessive time on trivial matters, often glossing over important ones.

What is bikeshedding and why it is a problem

Bikeshedding comes from an example by Cyril Northcote Parkinson, the father of Parkinson’s Law (tasks expand to fill the amount of time available), that explains the amount of time spent discussing an issue in an organization is inversely correlated to its actual importance. We discuss important complex issues minimally while simple, minor ones get the most attention.

In Parkinson’s example, an executive management team has three issues on its agenda

Build a $10 million nuclear power plant
Build a $350 bike shed
Allocate a $21/year coffee budget

Rather than focus the conversation on the big project, the power plant, the team runs through that proposal quickly. In Parkinson’s example, “[i]t’s too advanced for anyone to really dig into the details, and most of the members don’t know much about the topic in the first place. One member who does is unsure how to explain it to the others. Another member proposes a redesigned proposal, but it seems like such a huge task that the rest of the committee decline to consider it.”

When the conversation moves to the bike shed, it heats up. Everyone on the team is comfortable expressing thoughts on it. They all know what a bike shed looks like. They have different ideas on the material to use for the roof and potential small cost savings. The team spends more time discussing the bike shed than the $10 million nuclear power plant.

Finally, the team ends up spending the most time talking about the coffee budget. With coffee, everyone on the team is an authority. Each person knows about coffee and has a strong sense of cost and value. At the end of the meeting, they have spent more time discussing the coffee budget than the bike shed or the power plant combined. As they say in the post, “everyone walks away feeling satisfied, having contributed to the conversation.”

There are two critical issues caused by bikeshedding:

Not enough time is spent discussing the power plant and the critical issues related to it. This decision potentially alters the trajectory of the company and a mistake could cost a lot of money or be fatal to the firm. By not looking at the details, even a small misstep can have a big impact.
Even taking away the opportunity cost, wasting time talking about a cheap coffee plant or bike shed is likely to cost more in the value of time than any gain. Assuming each executive is well compensated, the value of their time spent talking about coffee is likely to run in the thousands of dollars.

Why do we have bikeshedding

Given the absurdity (and uncanny truth) of the above example, it begs the question how does this happen (and we have all seen it happen). According to the post, “the more people will have an opinion on it and thus more to say about it. When something is outside of our circle of competence, like a nuclear power plant, we don’t even try to articulate an opinion. But when something is just about comprehensible to us, even if we don’t have anything of genuine value to add, we feel compelled to say something, lest we look stupid. What idiot doesn’t have anything to say about a bike shed? Everyone wants to show that they know about the topic at hand and have something to contribute.”

During meetings, we reward people simply for expressing an opinion rather than for having put in the time and work to develop the judgment. Most importantly, people should focus on contributing when you have something valuable to add that would result in a better decision.

How to mitigate bikeshedding

Once you acknowledge the problem of bikeshedding, there are several steps you can take to avoid the issue and spend the appropriate time each issue demands:

Have a clear purpose. Successful meetings need to have a clear and well defined purpose. Specificity is central to having a purpose and conveying it.
Invite the right people. Only invite people who can contribute to the discussion or are needed for execution of the decision. If the purpose is to discuss the nuclear power plant, this purpose will make it clear who should and should not be in the meeting. As the post points out, “the most informed opinions are most relevant. This is one reason why big meetings with lots of people present, most of whom don’t need to be there, are such a waste of time in organizations. Everyone wants to participate, but not everyone has anything meaningful to contribute.”
Appoint a decision maker. To reach the best outcome, you need a designated decision maker. First, it avoids forcing a consensus when there should be a black and white winner, a compromise is not always better than an extreme option. Also, it is often impossible to reach a consensus when nobody is in charge. The discussion just drags on and on.
Have the decision maker set clear parameters. With one person in change, they can decide in advance how much importance to accord to the issue (for instance, by estimating how much its success or failure could help or harm the company’s bottom line). They can set a time limit for the discussion to create urgency. And they can end the meeting by verifying that it has indeed achieved its purpose.

By implementing these steps, you can help your company focus its efforts on finding solutions to the most intractable and important problems and let picking the right type of coffee to someone else.

Key takeaways

Bikeshedding is the tendency we have to spend excessive time on trivial matters in meetings, often glossing over important ones.
Bikeshedding is damaging because it wastes very valuable time and, more importantly, leads to insufficient discussion of important issues.
To avoid bikeshedding, set a clear purpose for all meetings (and eliminate conversations about other issues), only invite necessary people, appoint a decision maker and have the decision maker set clear parameters for the meeting.

Behavioral Economics Tips for Gaming Companies

I recently completed an online course that featured two of my heroes of Behavioral Economics, Oglivy Vice Chairman Rory Sutherland and Duke Professor Dan Ariely, and it included many takeaways that can be applied to gaming companies (social gaming and iGaming). Consumer psychology is changing marketing and product development more than technology so understanding the core principles of behavioral economics is vital to growth, and survival. While I recommend taking the full course (especially the case studies there), below are some of the learnings that would be useful to game companies.

Avoid information or choice overload

A key lesson of behavioral economics is that less choice often drives better results. People can only consciously process a small amount of the information coming in, thus options rich in choice can be too much stimulation. When the number of choices increases, our ability to make a decision decreases.

This issue is clear on a test run in a US grocery store. There was a famous experiment where one group of consumers in a super market had 24 jams available while the other had six. The people exposed to 24 options sampled more but actually bought fewer items. If you are not a big jam eater, another way to visualize the issue is to think of driving into an empty parking lot; with so many choices you have no idea where to park and will probably spend more time driving around than if there were two open spots.

This phenomenon is referred to as choice overload, where the number of choices diminishes sales. For game companies, this issue can translate into how many options to offer in the cashier or how many slot machines to make available when a player first enters your game. The key is more is often not better for your customers or your revenue.

Avoiding choice overload with smart choice architecture

When you are building and optimizing your product, you need to focus on the choice architecture, how you frame and present different options to elicit a desired response. There are several ways to provide the right option for your player while optimizing the choice architecture. One is to consider chunking. In 1956, George Miller found that 7 +/- 2 was the magic number that people could remember. People can recall between 5 and 9 pieces of info in working memory. Thus, rather than giving your customers more than this magic number of choices, create subsets so once they make one decision they can then decide between another seven options. In a game, rather than showing five virtual swords, five virtual arrows, five virtual shields and five virtual loot boxes, offer the customer the choice between swords, arrows, shields or loot boxes. Once they click on one of those, and then show them the five sub-options. Also keep in mind the chunking needs to be meaningful, if you instead sort them by color, people are unlikely to find options they are willing to purchase.

Another technique in optimizing choice architecture is allowing players the freedom to make choice. By affirming someone’s freedom, we can actually make him feel more confident of his decision. To encourage someone to do something, a counter-intuitive response may be to remind them that they are free not to make the purchase.

While there is a magic number, there is no perfect choice architecture for every scenario and product. Hypothesis and testing is critical here. Never stop testing and improving as people will react differently to choices depending on the product, the platform, where they are in the product, etc.

Anchoring is a key driver in perception of cost

Another useful tool for improving performance is anchoring. Anchoring occurs when initial exposure to a number or option serves as a reference point and influences future decisions and purchases. The anchor price, even if a random number, becomes part of a decision set. Once we make a decision about a particular number, that decision stays with us. You then compare other options to the starting point.

Anchoring is used in many situations and businesses. In a restaurant, by having an expensive menu option (i.e. lobster) it makes the other options seem cheap, even though they may be more expensive than you originally were prepared to spend. In the gaming world, if you offer a $1,000 package on your purchase page, while few might buy it, it makes the $50 option look very cheap.

One other element of anchoring is that it is hard to move from free to a cost. We say to ourselves I have been willing to pay zero, I am anchored to zero, so anything above zero does not fit with my historical view of not willing to pay. This is particularly important when we introduce new products to market as it will make it hard to change the price later.

Decoy and middle action

Recently, I wrote about the decoy effect, another pricing strategy based on behavioral psychology. The decoy effect is used when pricing products, adding a third option that drives customers to the most expensive or profitable option. A phenomenon called asymmetric dominance causes customers to change their preference between two options when a third option is presented. The decoy effect is also driven by choice overload, as customers who face many options will adapt by reducing the number of criteria they use for choosing.

What drives the decoy effect is that people derive value not from the intrinsic utility they get from a product but how it compares. Value comes from comparison, if we create comparison, customers will use it, otherwise they will create their own. The simple contrast allows for relativity to show up and point to the option that looks better to something in the set. For example, if you go to Walmart for a TV and there is one option that is $200 and another that is $500, you probably will see if the latter is worth an extra $300. However, if there is also a TV that costs $1,000 but is virtually the same as the $500, you are likely to buy the $500 because it feels like such a bargain, as you are effectively a $1,000 TV. This is a very powerful tool when presenting options to your customers.

Game companies can use the decoy effect when presenting options for in-app purchases. By bundling a high priced virtual good with many other items but not charging for the other items, then putting that bundle next to the virtual good only option, the high priced option appears as a bargain.

We hate uncertainty

Another useful lesson from behavioral economics is that people hate uncertainty. Questions without answers cause fear and kill the user experience and sales, uncertainty is a customer experience killer. Before worrying about motivating your customers, think about the questions and concerns they have and answer them in the first place.

One issues that increases uncertainty (and thus likelihood to lose a sale or customer) is a situation where the customer has missing or incomplete information. Their fears and concerns are not answered. They might not know what happens after they enter their email address or send you their banking information. This uncertainty makes it much more difficult for you to elicit the desired response.

Netflix shows how reducing uncertainty and risk can lead to billions of dollars. The most important message on Netflix’s landing page is not about features, it is the option to cancel anytime. Netflix then sends a reminder email before the free trial ends so the customer can cancel, which answers your uncertainties. This emphasis allows customers to go through the whole process on autopilot rather than full alert. One of the keys to Uber’s success is customers knowing where the car is and expected arrival time, which has proven more important than the car arriving quickly or even price.

Personally, I have found that during the pandemic lockdown, I stopped ordering from local shops that did not provide updates on delivery and kept ordering from the ones who told me when to expect the order. In retrospect, that knowledge (lack of uncertainty) was a much stronger factor than speed of delivery, price or even quality.

Another area of uncertainty that is often neglected is in pricing. Many companies are not very transparent in their pricing, you may not know the cost of a conference or purchase until you click the buy button. What these companies do not realize is that people assume prices are higher than they actually are and may abandon the potential purchase before learning that the price is acceptable.

Other ways game companies can reduce uncertainty include

Your customers must understand how they can do what they want to do.
Map the uncertainties and remove them. Give explanations on why you are asking questions or need information.
Tell people how others have gotten through the process, if others have succeeded customers will experience less uncertainty and feel a reduced risk.

Make it seem easy

As well as reducing uncertainty, you need to minimize perceived effort. Making something easy is different than making it feel easy. Keep in mind that people also equate effort with time, so you should focus on reducing the time people expect to complete a task (purchase, registration, verification, etc) as a proxy for difficulty.

The key is perception. The perceived effort is not about what your customer has to do but how difficult they think it will be to accomplish. To highlight the difference between perception and reality, during the course it was pointed out that if you ask your customers how difficult an action is to undertake, the objective effort only accounts for 1/3 of their answer, 2/3 comes from how your customers feel.

You also not only want to make the desired action easy for your customer, you want them to see it as the easiest option available. There are three ways to make a task seem easy:

Structure. Our mind works in structures, we seek patterns. That’s why and how we understand information. Bring structure into everything you are telling your customers.
Language. Avoid toxic words like have to, must, need, it’s required, which make the customer feel it is difficult. Replace these words with ones like easy, quick and short.
Chunking progress. Seeing the progress is extremely motivating. Chunk the process into small and easy steps and highlight the process.

Reducing friction helps with both ease and uncertainty

Reducing friction is one of the best ways to generate desired behavior. Friction is the blockers that a person needs to go through to complete an action. When making a purchase, it could be entering an email address, credit card number and then setting up an account. The more friction, the more likely the customer will quit before completing the action. Each element of friction increases abandonment rates.

In the course, they use Best Buy (a US retailer) as an example. Best Buy ran a test for its online site to allow people to purchase without setting up an account, what they called Express Checkout. Adding this option increased Best Buy’s revenue $300 million in one year. The cost in lost data was also less than expected, over 60 percent of people still set up accounts (showing that reducing friction early often leads to people completing the same actions later).

The Best Buy example shows that the solution to reducing friction can be eliminating something. Removing a step in the process can be very effective to increase conversion. When designing a process, question what information
is absolutely critical to collect along the process. Part of the design process should be minimizing the subtle cognitive load you placing on your customer.

There are several other ways to reduce friction:

Pre-fill information so your customer does not have to fill out every field (or preferably any fields).
Look at pre-existing behavior (paving the cow path). It is easier to design for behavior that is already occurring and not ask your customers to change what they are doing.
Bundle new behavior with existing actions. Observe existing behavior, possibly things happening at the same time of the year, and bundle it with the desired action.

People need to feel they are treated fairly

Another element of perception important to driving behavior is the perception of fairness. When we evaluate products, we do not just evaluate what we received but evaluate the effort that went into it. If we feel the effort is higher, we are willing to pay a higher price.

People make decisions in context, in large part deciding what is fair. Rather than base a willingness to pay on the value or utility consumers are getting, fairness changes how we evaluate something and how much we are willing to pay. It is why consultants write large reports and why Steve Jobs spent so much time talking about the details on Apple products, letting customers feel it was fair to pay more for Apple products because of all the extra work to build it. We evaluate things based on effort, not on value. It is one of the weaknesses of online companies, especially online gaming companies, where it is difficult to judge the effort the company puts behind the product. If you are doing something magical for people but do not show them, they are less likely to pay a fair price (or monetize at all).

Salaries and compensation are one area where the perception of fairness is obvious. People who receive a high salary but then learn a co-worker is getting more compensation or has gotten a bonus often would look to find a new job or be dissatisfied because they feel they are not being treated fairly, even if their compensation is high. Conversely, employers will often make offers (either higher or lower) to candidates based not on the value the person would deliver or what they expect to pay for the position, but based on what the candidate earned at their current or previous jobs. They feel it is fair to pay candidates based on what they were earning, not on the value they will be delivering.

In terms of selling virtual products, the perception of fairness is often an issue. To many outside the industry, it feels that virtual currency or virtual items are created without any effort, thus it is hard for people to rationalize a purchasing decision. For an online gaming company, one way to mitigate this situation is through your communications. Use social media to take players behind the scenes. Let them see how many people are putting their lives into creating a great game for them.

Do unto others

Reciprocity is another powerful tool often neglected, particularly in marketing. People are much more likely to perform an action if they feel you took the first step. In the course, they discuss a test where they provided customers an unsolicited gift. The test group that received the gift had a much higher conversion rate as customers felt a need to return the favor.

There are several techniques to benefit from reciprocity. To make reciprocity more powerful it should be unexpected, personal and valuable. Order is also very important, you have to say what you are giving first and after that ask for something. It is a technique you should not overuse, you do not want your customers to feel manipulated.

In a social game, you may find that giving your players a free, valuable, gift generates more purchases than a traditional offer. Rather than feeling sold at, they appreciate the gift and are compelled to make a purchase.

The power of loss aversion

One of the strongest drivers of behavior is loss aversion. People are much more sensitive to losses than gains, people are generally 2X to 2.5X more sensitive to losses than gains. That is, the opportunity for gain needs to be more than twice as big as what a player would lose to be a preferred option.

There are several powerful applications of loss aversion:

Tell your customers what they would lose if they do not take desired behavior, the fear of the loss (including the lost opportunity) can be the strongest motivation.
Rather than telling people to do something or make a purchase, position the item you want them to purchase as they already own it and have to claim it. If they don’t activate it, they will lose it.
Reframe message from possibility of gaining to how your player would lose something.
Make your customers picture what it would be like to own the product, have them dream about what it would be like and they will not want to give up the dream.
Highlight progress, so they do not want to lose what they have done .

Social proof is one of your most powerful weapons

Social proof is conveying to your customers that others, particularly their friends, are doing something you want them to do. People have a tendency to be influenced by what others do and how they behave. In situations of uncertainty, telling people how others have acted is a strong indicator of what your customers should do.

There are several ways to optimize the effectiveness of social proof. You do not want to be too obvious or superficial, saying 9 out of 10 did something is likely to backfire as it feels like an old commercial. Instead, try to say what the majority does. Also personalize the social proof, make it as close as possible to the person you are communicating with. People are more influenced by others similar to you.

I recently experienced the power of social proof. A friend published a blog post reviewing four World War 2 books and I ordered one as a present for my son. I realized how powerful social proof was after my order as I did not read expert reviews or even see which ones had the best rating on Amazon, I made a purchasing decision based on one person’s non-expert opinion because he was a friend.

Also, avoid social proof in some situation. Do not say how many people are not doing something. It will make your customers questions that maybe they should also abstain. In a social game, you would not want to say 90 percent of players missed the opportunity to win this jackpot, do not be one of those losers. What the player will think is that if 90 percent did not take up the offer, why should they opt for it.

Grab attention with personalization

It is critical that you focus on grabbing your players attention, making things salient. We love the sound of our name; our brain activates differently when we hear our name. Personalization cuts through the clutter and makes communications relevant to us. If you can use someone’s name or make something unique and authentic for them, it will more likely succeed or cause conversion.

Building further on salience and personalization is the concept of idiosyncratic fit, as we see the world relatively, not absolutely. Idiosyncratic fit is the feeling that you enjoy a unique advantage in achieving a goal or completing a task. Consider what your players have already invested, how can you use this information to make them feel they have a benefit to others. In a game, you can give certain rewards to people for having played a certain amount of days or reached a level, ensuring they know they are getting this unique benefit because of things they have already done. This advantage will motivate them to keep purchasing or otherwise engaging.

Create defaults

Defaults are powerful as they help people avoid thinking. If people can avoid thinking, they will. Once you set up the desired action as a default or expected option, they are more likely to perform the activity. Restaurants make wine the default over cocktails (they make more on it) by providing a wine list instead of cocktail list and putting wine glasses on table, thus ordering wine is the default.

In a game, when asking players if they want to receive offers as part of the registration option, pre-check that field. When giving purchase options, test pre-checking the package you are hoping they purchase.

Free is one of your most powerful, and dangerous, tools

Free is much more than another price point. Free is not $0.05 less than $0.05, but is an incredibly powerful motivator. Free makes us think there is no risk (playing to the uncertainty principle) for a given choice. It is very attractive. If yu want people to test a new subscription option, give them a free week or month or year, it will be hard to say no.

The downside of free is that you anchor your customers at that price point.
Moving to free is very tempting, moving away from free is very difficult.
If you sell it for free, people might assume the quality justifies the price.

Test everything and early

One of the most important underlying principles of behavioral economics is that people do not know, and thus cannot tell you, what their preferences are. They do not know what they want until they experience it. Henry Ford said people would have asked for a faster horse. Steve Jobs never used market research on products like the iPod or iPad. Taking what customers say at face value can lead to disastrously wrong choices or limit your creative options. Instead, put your resources into testing.

While many, particularly Product Managers in San Francisco, believe AB testing is a recent phenomenon, it has been used by marketing companies for over 80 years. One of the reasons it has lasted and grown is that it provides clear and actionable results. In contrast, market research is very risky, as it does not show how people will react. People are not intentionally dishonest but are largely strangers to themselves and do not realize what drives their behavior. AB testing (and multi-armed bandit tests) allows you to see how people will react in practice, not theory.

It is both easier and more effective to apply principles of behavioral economics early in the product’s lifecycle. Rather than force your game out, test how people will react when you apply different principles of behavioral economics. Do not build your game based on assumptions how people will respond but instead test it.

If you test something and it works, then test the opposite. You might find that actually works as well or even better as people do not act predictably or linearly. Never stop testing, always look for something better.

Key takeaways

A key lesson of behavioral economics is that less choice often drives better results. When the number of choices increases, our ability to make a decision decreases.
Consumers hate uncertainty. Questions without answers cause fear and kills the experience and sales, it is a customer experience killer.
Use AB and multi-armed bandit tests help you understand how your players will react in the context of your game, market research conversely might provide bad information as people do not know what they want.

Lifetime Value Part 29: Increasing Retention

I have written many times about LTV (customer lifetime value) being the lifeblood for a successful business, as a new customer has to have a higher LTV than the cost of acquiring the customer, and how retention is the biggest driver of LTV. Given the importance of retention, a recent article by Google’s Adam Carpenter, Why the first ten minutes are crucial if you want to keep players coming back , provides great guidance on what to measure and then improve to have the most impact on improving retention.

Retaining new installs is arguably the most important driver for whether your product succeeds or fails. As Carpenter says, “retention is the primary metric, since if you can retain your new players, you can always figure out how to make money. If you can’t retain any players, you have no ability to make money.”

The metric to focus on is your day 2 retention (D2). According to Google’s data, median day 2 retention (number of users active on the day after they installed your game divided by the number of installs in your cohort) is 38 percent, while exceeding 46 percent puts your product in the top quartile (3/4 of all products would be doing worse than you if hit this target). Conversely, if your D2 is 22 percent, then 78 percent of the players you pay to acquire do not come back the next day. It is very hard to justify marketing spend if 78 percent is wasted.

What you should be looking at

While the amount of time a player spends in your game after they install it is important, the critical factor is the first ten minutes. If you divide Carpenter’s data by performance, the strongest games (top quartile) average Day 2 retention of 52 percent, with 22 percent returning the next day with virtually no gameplay the first day and then seeing D2 steadily increase with each successive minute played (see chart below). The second quartile has a similar curve but starts at a lower point. The key, though, is the impact from the first ten minutes.

The first ten minutes

In Carpenter’s analysis, performance is driven by how quickly in the first ten minutes you lose players. For games in the top quartile, retention starts out good and steadily improves. In the second quartile, retention is essentially flat across the first minute and a half, and then begins to increase steadily. In the third quartile, retention is largely flat for the first four minutes, then increases but more slowly than highly performing games. In the lowest quartile, retention declines in the first two minutes and does not start to improve until the fifth minute.

These early patterns have a strong impact on players. The worst apps lose 46 percent of their new installs by the fifth minute and this number increases to 58 percent by minute ten (so in less than ten minutes you have less than half the players you have spent money acquiring). The top games, however, only lose 17 percent of players by the fifth minute and 24 percent within ten minutes (retaining more than twice as many players as the lowest group).

How to improve your situation

Once you understand the importance of the first ten minutes, you need to focus on improving this performance. Carpenter explain this as avoiding retention flats and gorges. “The first pattern is called the ‘Flats’. This anti-pattern shows largely flat retention for up to 10 minutes, with the percentages only rising meaningfully after the 5th to 10th minute. The second is the ‘Gorge’, whereby retention appears to drop minute by minute for the first five minutes or so, and then begins to rise again.”

Once you review your data, you can understand if you are suffering flats or gorges. To alter the curves, you can then:

Improve loading times. Evaluate your loading times, keeping in mind new players are particularly sensitive to long loading times (they are have not yet decided they want to wait). In my experience, even a fraction of a second will surprisingly have a bigger impact than many sexy features.
Avoid large secondary download. You may improve loading times by creating a long secondary download but the impact can be equally damaging. Players, particularly those on a poor wireless connection, may abandon your game.
Make the lobby intuitive. Allow players to find quickly the action (and the action they want) in the game. If you are using a tutorial, ensure a smooth transition from the tutorial to where your player wants to go.
Enhance or eliminate the tutorial. Speaking of tutorials, they are largely a reason to leave a game; rather than enjoying the product customers are being sent to school. See if you really need a tutorial and, if you do, how you can make it more fun.
Do not overload player with promotions. Your goal on D1 is to get your player back on D2, monetization is a bonus on top of this goal. If the player returns, you will have many opportunities to monetize them. Do not sacrifice D2 retention by distracting players with sales and offers, have them focus on enjoying the game. I prefer to have none or at most one monetization promotion on day one.

By focusing on a quick, fun experience, you are more likely to get your customer to return on Day 2. As the Google data shows, if you get them back the next day, you will enjoy greater long-term success. By increasing this one KPI, you will experience a disproportionate positive impact on your LTV.

Key takeaways

Retention is the strongest driver of LTV and data from Google shows the most important retention KPI is the amount of players who return on day 2 after installing your game.
The strongest driver of D2 retention is how many minutes your customers stay/play within the first ten minutes of starting the app.
To improve retention between the first and second days, make the early experience faster and more fun by improving load times (while reducing secondary loading), making your lobby intuitive, and not distracting your player with a bad tutorial or promotions.

Taste, why creating a beautiful product is a key to success

In the gaming world, we often deconstruct design into a set of data and AB tests to create products and features that will resonate with players. Design is sometimes even considered a bad word, implying that we are not data driven. Yet, companies like Apple (who I wrote about a few of weeks ago), have shown that valuing design highly can lead to billions in revenue. Additionally, I have seen many data driven companies where Product Managers create compelling beautiful PowerPoint presentations while share prices drop because customers do not flock to their products.

At the heart of the contempt of design is a feeling that it is based on taste and that taste is entirely subjective. Thus, the logic goes that there is no way to design for taste. A great blog post by Paul Graham, Taste for Makers, however, not only points out this thinking is false but also how designers can create beautiful products. To drive home that taste is not a subjective exercise, Graham mentions that, “[m]athematicians call good work ‘beautiful,’ and so, either now or in the past, have scientists, engineers, musicians, architects, designers, writers, and painters. Is it just a coincidence that they used the same word, or is there some overlap in what they meant? If there is an overlap, can we use one field’s discoveries about beauty to help us in another?”

Graham then breaks down the elements designers need to focus on to create something beautiful, something will be truly tasteful. If taste were entirely subjective a van Gogh would have no more value than a van Lloyd. Graham writes, “[s]aying that taste is just personal preference is a good way to prevent disputes. The trouble is, it’s not true. You feel this when you start to design things….[I]f your job is to design things, and there is no such thing as beauty, then there is no way to get better at your job. If taste is just personal preference, then everyone’s is already perfect: you like whatever you like, and that’s it.”

By looking into what is, and is not, appealing to people’s tastes, how design has evolved and what designs have failed, there are thirteen concept from Graham that can help guide good design. By following these principles, you are most likely to design a beautiful product.

Good design is simple

The first key to good design is the same as the one that led to Apple’s success, a simple design is better than a complex one. Again, using mathematics to show that good design is not a subjective exercise, Graham points out that shorter math proofs are generally better.

While it seems like it would be easy to create a simple design, it is actually more difficult. It feels like extra work to create something ornate, to add features to a product or even to paint more objects in a picture. In practice, though, it is easier to create more mindlessly or not make difficult decisions on what people truly value than taking the time to understand what people want and eliminating what will be superfluous. Graham writes, “when you’re forced to be simple, you’re forced to face the real problem. When you can’t deliver ornament, you have to deliver substance.”

Good design is timeless

If you focus on designing a product that is “timeless,” by definition you are trying to create the best product design, not one that will be surpassed. Again, if you look at mathematics, a proof is timeless unless it includes a mistake.

Focusing on timelessness avoids falling for trends that are currently popular but short lived. Trends change over time and as Graham writes, “if you can make something that will still look good far into the future, then its appeal must derive more from merit and less from [trends].”

Good design solves the right problem

To create a beautiful design, you have to first understand what user problem it solves. Prior to finding an eloquent solution, you should ensure you are solving the right or underlying problem. As Graham writes, “[i]n software, an intractable problem can usually be replaced by an equivalent one that’s easy to solve. Physics progressed faster as the problem became predicting observable behavior, instead of reconciling it with scripture.”

If you look at bad design, it is often the result of solving the wrong problem. Why did Stadia fail, not because of its UI or UX but because it solved a problem that very few customers experienced (access to virtually unlimited content).

Graham uses the example of the stove top to illustrate the importance of solving the problem rather than designing in a vacuum. According to Graham, “the typical stove has four burners arranged in a square, and a dial to control each. How do you arrange the dials? The simplest answer is to put them in a row. But this is a simple answer to the wrong question. The dials are for humans to use, and if you put them in a row, the unlucky human will have to stop and think each time about which dial matches which burner. Better to arrange the dials in a square like the burners.”

Good design is suggestive

Rather than proscribing every step a customer takes, a great design will help customers envision how to use the product. Going back to mathematics, a proof that becomes the basis for new work is more beautiful than one that does not lead to future discoveries. Graham highlights several other examples, “In architecture and design, this principle means that a building or object should let you use it how you want: a good building, for example, will serve as a backdrop for whatever life people want to lead in it, instead of making them live as if they were executing a program written by the architect. In software, it means you should give users a few basic elements that they can combine as they wish.”

If you look at the most successful design driven company of all time, Apple, you see this principle in practice. The iPhone was not great because its UI or design was limited, instead it let people use it the way they wanted to. It even let external companies (App developers) integrate with the design, something that would not have been possible (or at least as broad) if it was a very prescribed interfact. Apple products are not great because it is clear and easy how to do everything, I still have to Google functionality occasionally for my iPad and Mac, but they encourage consumers to explore the product and push it to its boundaries.

Good design is often slightly funny

Products that do not take themselves too seriously are more likely to be considered beautiful designs. Graham writes, “[t]o have a sense of humor is to be strong: to keep one’s sense of humor is to shrug off misfortunes, and to lose one’s sense of humor is to be wounded by them. And so the mark– or at least the prerogative– of strength is not to take oneself too seriously.”

The value of humor is often seen in movies (using movies as I can’t think of a funny mathematics proof). Marvel movies generally outperform those about DC characters, not because the superheroes are more famous or the special effects are better but because they incorporate humor into the stories.

Good design is hard

Design cannot be an afterthought but instead needs sufficient resources to create something beautiful. As form should follow function, if function is hard enough, form is forced to follow it, because there is no effort to spare for error. In math, difficult proofs require ingenious solutions that do not happen overnight. Graham writes, “[i]n art, the highest place has traditionally been given to paintings of people. There is something to this tradition, and not just because pictures of faces get to press buttons in our brains that other pictures don’t. We are so good at looking at faces that we force anyone who draws them to work hard to satisfy us. If you draw a tree and you change the angle of a branch five degrees, no one will know. When you change the angle of someone’s eye five degrees, people notice.”

While design is hard, you should not pursue difficulty for its own. There is beneficial pain and unnecessary pain. Graham explains, “[y]ou want the kind of pain you get from going running, not the kind you get from stepping on a nail.”

Good design looks easy

While good design is hard, it should appear easy to users. A mathematician might create brilliant proofs through months or years of hard work but the great ones will appear as if they created the proof overnight while reading the morning newspaper. Some of the best inventions are ones where we ask ourselves why we did not think of them previously. The great athlete looks like they are barely exerting themself while they are actually probably training 100+ hours/week.

In design what looks easy comes from practice. The more you train yourself, the more your subconscious handles the basic tasks freeing your mind on creating beautiful.

Good design uses symmetry

Symmetry is a powerful tool in helping achieve simplicity. There are two types of symmetry, repetition and recursion. Recursion is defining a problem in terms of itself. The reflection in a mirror of a mirror is recursive: the reflected mirror is reflecting its own image and doing so indefinitely. In math and engineering, recursion, especially, is a big win. Inductive proofs are wonderfully short.

While you do not want to use symmetry to replace original thought, it is a powerful design principle that can create both striking and very understandable designs. As the user only has to learn a concept ones, using it in a repetitive or recursive manner becomes easy for the customer.

Good design resembles nature

By designing to resemble nature, you are capturing both what people already know and what nature may have taken centuries to perfect. As Graham writes, “[i]t’s not cheating to copy.” Using ideas from nature in your design allows you to build on proven schemes.

Good design is redesign

One key to success, not only in design but in most areas of product development and marketing, is iterate, iterate, iterate. Most books are barely readable the first time the author puts pen to paper but are the result of painstaking editing. The best games have gone through months of prototyping, user testing and feedback. It is the same with design.

Part of the iteration process is abandoning some, or most, of the earlier design. As Graham writes, “[i]t’s rare to get things right the first time. Experts expect to throw away some early work. They plan for plans to change. It takes confidence to throw work away. You have to be able to think, there’s more where that came from….Mistakes are natural. Instead of treating them as disasters, make them easy to acknowledge and easy to fix. ”

Good design can copy

Starting with a good existing design will often lead to a more beautiful design. While I did write that a key to the most innovative creators is don’t copy, that concept is not counter to beautiful design copying existing design. Creating a beautiful design is not about creating an innovative design; it is about creating a product that beautifully solves the right problem. Thus, if you base your design on something that has already approached solving the problem, it frees you up to solve it even better.

If the beauty of your design is about how to solve the problem, then you have a responsibility to incorporate existing best practices. Graham writes, “I think the greatest masters go on to achieve a kind of selflessness. They just want to get the right answer, and if part of the right answer has already been discovered by someone else, that’s no reason not to use it. They’re confident enough to take from anyone without feeling that their own vision will be lost in the process.”

Good design happens in chunks

Beautiful design does not have to come from just one designer. A team or group of designers can sometimes create a better design than just one brilliant designer. While Jony Ive is often credited with Apple’s design success, the key to Apple’s successes was creating an Industrial Design Group, under Ive, with some of the best designers in the world. They would collaborate on projects, often focusing on different elements, in creating products that captured the world’s attention and hearts.

Good design is often daring

The most successful designs and new products are ones that required the champion to be daring. Apple would not have created the iPhone or iPad if they wanted a safe solution, they would have just improved on existing devices. Amazon would not have created a billion dollar business if they had tried to create a better bookstore. Graham writes, “at every period of history, people have believed things that were just ridiculous, and believed them so strongly that you risked ostracism or even violence by saying otherwise…. Today’s experimental error is tomorrow’s new theory. If you want to discover great new things, then instead of turning a blind eye to the places where conventional wisdom and truth don’t quite meet, you should pay particular attention to them.”

Using these principles in creating games

Design is critical to creating great products. To have long-term success and build a competitive position, you are going to need beautiful products that reflect great taste, not simply a lot of data and optimization. Creating beauty, however, is not easy. If you follow the steps above, however, you improve your chances of creating the next hit product.

Key takeaways

While many game and tech companies focus on data and testing to create product, the key to building a game-changing product is beautiful design (see Apple) that represent great taste.
At the core of creating a beautiful product is simplicity and timeliness, rather than focusing on making something pretty focus on solving the user’s true problem.
Another key to creating beautiful products is understanding it will not be easy, great design is very difficult and requires painstaking work and iteration.

Understanding the decoy effect

Mastering consumer behavior, and your own decision making progress, is an invaluable skill and the decoy effect has an important impact on both consumer behavior and your own decisions. A post, The decoy effect: How you are influenced to choose without really knowing it on the Conversation blog, written by Gary Mortimer, deconstructs the decoy effect into its key elements. The decoy effect is primarily used in product pricing, with companies using it to drive users to a more expensive or profitable alternative.

A restaurant example helps illustrate the decoy effect. The restaurant may offer two dishes. One is a hamburger, side and drink for $5. The second is a double burger, two sides and large drink for $10. You would mentally make some calculation of their relative value but it is not clear that the more expensive option is a better value. You would decide if doubling everything worth it?

Using the decoy effect, the restaurant might offer those two options but add a third one, a double burger, one side and a regular drink for $9. For $4 more than the $5 option, you are getting a bigger burger. But for just one dollar more, you get the bigger burger plus an extra side and a larger drink. Thus the $10 option looks like an incredible bargain. In reality, it is no better a bargain than the $5 meal when you had two options, but now because of the decoy effect most people would select the $10 meal.

Asymmetric dominance effect

Customers change their preference between two options when a third option is presented, a phenomenon called asymmetric dominance. This effect suggests a decoy is priced to make one of the other options much more attractive. The decoy option is dominated in terms of perceived value (quantity, quality, extra features and so on). Companies do not price the decoy to generate sales but to nudge customers towards the target selection.

In the blog post, the author discusses the first time academics identified and showed through experimentation the decoy effect. “These findings were, in marketing terms, revolutionary. They challenged established doctrines – known as the “similarity heuristic” and the “regularity condition” – that a new product will take away market share from an existing product and cannot increase the probability of a customer choosing the original product.”

Choice overload

The decoy effect is enabled by another phenomenon, choice overload. As customers face many options, the further options increase anxiety and hinder decision-making. Customers then adapt by reducing the number of criteria they use for choosing, maybe using price and volume to decide on the best value. Mortimer writes, “through manipulating these key choice attributes, a decoy steers you in a particular direction while giving you the feeling you are making a rational, informed choice.”

Using the decoy effect for good

While the decoy effect can be abused to drive consumers to over-priced options, it can also be used to highlight the value of an option that is in both the provider’s and customer’s best interest. Mortimer quotes research by Dan Ariely that looked at three subscription offers from the Economist, which he replicated for the Australian newspaper:

In this scenario, customers could receive either a digital version of the newspaper, a digital version plus the weekend edition or digital plus the printed version. The cost of digital only was the same as digital plus weekend. In this case, the decoy effect highlights the value of the mid-price option rather than driving customers to the most expensive option.

Conclusion

The decoy effect is a powerful tool in driving consumer decisions. When you are deciding between options, rather than look at the relative value of each option directly compared with the others, understand the value to you and make the optimal choice for yourself. When creating options for your customers, consider using the decoy effect to highlight the benefits of options that your customers are more likely to prefer rather than tricking them into the wrong purchase.

Key takeaways

The decoy effect is used when pricing products, adding a third option that drives customers to the most expensive or profitable option
A phenomenon called asymmetric dominance causes customers to change their preference between two options when a third option is presented.
The decoy effect is enabled by another phenomenon, choice overload, as customers who face many options will adapt by reducing the number of criteria they use for choosing.

Consolidate your gains (if you have them)

While many companies and business are struggling to survive the Covid19 pandemic, some businesses and industries have been fortunate to see a boost. Mobile gaming, social casino and iGaming as well as many other online businesses (from Zoom to HouseParty to Netflix) have experienced extraordinary results due to more people being stuck at home and many land-based businesses closed. In particular, social casino companies have experienced about a 20 percent uplift in revenue (even higher in the social poker space), while many online real money casinos and poker companies have seen record revenue (including Stars Group, Evolution Gaming
and Flutter ).

If you have been fortunate enough to benefit financially (I think all of us would trade it for a return to normal and an end to the suffering people are experiencing) from the pandemic, now is the time to think about your next steps, in particular, what you need to do to lock in the gains. There are three routes lucky companies can go

1. Consolidate the gains. Many gaming companies are seeing an unprecedented number of new players and players spending at higher levels. You can take steps that when the world returns to normal you retain these incremental players and help them sustain their new monetization level.
2. Enjoy it while it lasts. The increase in users and revenue for gaming companies has largely come at little or negative (due to lower marketing expense) incremental expense, thus directly impacting net profit. Companies can use this profit to pay down debt or increase dividends to shareholders (investors, founders, etc.) and other stakeholders (i.e. employees).
3. Assume it will continue. Some companies might treat the improvement as less of a windfall but more of a new normal internally driven rather than created by the pandemic.

You probably guessed from the title of this post my recommendation is that now is the time to lock in as much of the gains as possible. This pandemic is (hopefully) a once in a lifetime event, companies that can but do not leverage their good fortune will look back in 12-18 months and deeply regret missing the opportunity to move to the next level.

While it could be tempting to pull as much of the incremental profit out of the company, especially in businesses that have struggled, it creates a short-term rush that will leave you in no better position than you were six months ago. Three years from now, five years from now, ten years from now, the utility gained by pulling out the revenue will be forgotten rather than having created a business worth multiple multiples of what it is currently worth.

In the past, I have seen people use extraordinary experiences (the financial crisis, 9/11, etc.,) as an excuse for poor performance while attributing any benefits to the underlying business. Executives may want to take credit for a 20-50 percent uplift, but just as executives at EasyJet and Virgin Australia did not suddenly become stupid overnight, it’s important to realize your product did not suddenly become great and will maintain its momentum post-pandemic.

Locking in the gains

While you can argue the gains are temporary, it is a choice rather than an eventuality. As a believer in online gaming, I am confident that with the appropriate actions you can maintain much of your current success. Brett Nowak, founder and CEO of Liquid & Grit and arguably the pre-eminent expert on the social casino space, recently pointed out that mobile and social gaming is probably the best entertainment value in the world. For $5 or $10 a month (or even zero) you can enjoy a game for tens or hundreds of hours. Compare that to the cost of going to a movie or a concert or sporting event or even buying a book and the utility of your spend is tremendous. What the pandemic has done is exposed millions of people to this incredible entertainment value.

The companies that will benefit long-term are the ones that can turn this short-term boost into a long-term behavior change for the new customers. There are two elements you need to focus on. The first is retaining your new customers, keeping them from abandoning your game when casinos open or they are no longer spending 24 hours at home. The second element is keeping your players’ monetization at the higher levels. By focusing on these two areas, you can set a new, higher, floor for your product and continue growing.

Retaining your new customers

The best way to retain the influx of players is by reinforcing to them the great entertainment they are getting so they have less desire to return to the cinema or casino. There are multiple actions you can take to retain these players:

Expose them to all that is great. Most entertainment alternatives cannot offer the breadth and depth that a game provides. If the player, however, only sees a small part of your offering, they have no idea what they are missing. Run promotions where you open for a limited time elder-play levels, slot machines that they would not normally have access to or powers and weapons normally available for senior players.
Treat them like they expect to be treated. While online gaming provides a great value, often our customer facing teams are less mature than other industries. I have written many times about the importance of creating a WOW experience for your players but with new customers who are used to WOW experiences at their casino or favorite restaurant, it is even more important. Now is the time to double down on giving a great experience, especially to the players likely to become VIPs, who may be used to red carpet VIP treatment at casinos or in other parts of their lives. Match the experience they would get if they go back to their normal haunts.
Focus on the meta-game. Social games are great at creating an environment that encourages players to come back regularly. Features like progression, daily bonuses, locking mechanics, piggy banks, etc., create incentives and habits for players to return regularly. These features often promote loss aversion in players or make it a matter of prestige to return, so focusing on building a compelling set of retention features will help prevent churn of your new players.
In-game loyalty. Now is the time to improve or add a loyalty system to your game (think airline frequent flyer program). By definition, a good loyalty program increases the loyalty of the customer. Loyalty programs increase the cost the player feels when leaving, making them less likely to churn. Loyalty programs also help form habits that make your game part of their daily activity.
Invest in marketing. Now is the best time to invest in marketing to acquire new players, even though many have cut their marketing budgets. Given the damage some industries have faced, overall advertising has decreased, thus cutting the costs most gaming companies face for new users (supply and demand). Instead of acquiring the same number of players you had planned to but at a lower cost, you can use these savings to invest in additional marketing to grow faster than you had projected.
Hire the best. While your company may come through the pandemic unscathed or better, unfortunately many others are not. This situation provides a unique opportunity to bring in talent that can take you to the next level that normally would never be available. Even if you do not have an immediate need, consider accelerating your people growth now.

Maintain customers’ monetization

While retaining players is always a challenge, maintaining monetization is much more straightforward. In addition to keeping the new users who have discovered your offering due to being locked in their homes, you want to give them a reason to keep their spend at current levels. The “secret” is giving people value. If you give your customers great entertainment for every dollar they spend, they will learn that your game is a better investment than alternatives. There are several steps you can take to reinforce this understanding

- Don’t price gouge. Some companies, especially those that consider the pandemic a short-term opportunity, are tempted to use the current situation to extract as much as possible from players. While it could boost short-term profits, it is likely to leave players less satisfied and thus more likely to revert to other options as the lockdowns ease.
- Provide more value. Rather than squeezing players, now is the time to be more generous (you can afford it with the increased revenue). Ensure that they get more hours of gameplay, more exciting virtual goods, etc., from the purchases they make now. This action will reinforce in their mind the great entertainment value your game is compared with other entertainment products.
- Conduct great promotions and giveaways. As the pandemic recedes, launch an aggressive calendar of sales promotions as well as giveaways to keep customers engaged at previous levels. Again, be generous as the goal is not to get a short-term boost but to reinforce what a great product you have and then keep these players engaged at current levels for months and years.
- Predict VIPs. Most iGaming and social game companies have learned the value of VIPs, as it drives profitability in the space. Many of your new customers who eventually would become VIPs, however, have not had time to achieve the criteria that would qualify them for VIP treatment. Loosen your criteria so that you can capture future VIPs and give them exceptional treatment that they will not want to lose. This treatment is particularly critical in the iGaming and social casino space where they will probably have a host waiting for them at their land based casino when it reopens.

It’s up to you

The current Covid19 crisis means it is not business as usual. If your business is one of the few companies actually benefitting, do not make the mistake of missing a once in a lifetime opportunity to go to the next level. Now is the time to do everything you can to retain your new customers and give them a reason to keep monetization at new levels.

Key takeaways

While most of the economy is suffering right now, some online companies, particularly in the iGaming and social gaming space, are benefiting. These lucky games need to lock in these gains rather than miss a once in a lifetime opportunity.
To consolidate gains, companies need to minimize churn from this new cohort of players and provide customers a reason to maintain their new monetization levels.
Some of the most effective ways to retain these new customers include exposing them to the full product, introducing a loyalty program, enhancing meta-features and providing great customer service.

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

While streaming and digital entertainment has enjoyed a windfall from people staying at home, winners and losers will emerge in the aftermath of Covid19.
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.
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.

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.

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.”

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.

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.”

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.”

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.

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

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:

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.
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.
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.
Start with the user. Design your product by understanding how your customer will enjoy and use it.
Attention to detail. Do not settle for good enough, make sure every element, even the smallest, are as great as you can build.
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.

Make your players wander

Higher customer satisfaction may not improve profitability

Correlation does not equal causation

Use analytics for pricing

Preparing better surveys

Recency is incredibly important

Include clumpiness in your LTV analysis

Key takeaways

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What is bikeshedding and why it is a problem

Why do we have bikeshedding

How to mitigate bikeshedding

Key takeaways

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Avoid information or choice overload

Avoiding choice overload with smart choice architecture

Anchoring is a key driver in perception of cost

Decoy and middle action

We hate uncertainty

Make it seem easy

Reducing friction helps with both ease and uncertainty

People need to feel they are treated fairly

Do unto others

The power of loss aversion

Social proof is one of your most powerful weapons

Grab attention with personalization

Create defaults

Free is one of your most powerful, and dangerous, tools

Test everything and early

Key takeaways

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What you should be looking at

The first ten minutes

How to improve your situation

Key takeaways

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Good design is simple

Good design is timeless

Good design solves the right problem

Good design is suggestive

Good design is often slightly funny

Good design is hard

Good design looks easy

Good design uses symmetry

Good design resembles nature

Good design is redesign

Good design can copy

Good design happens in chunks

Good design is often daring

Using these principles in creating games

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Asymmetric dominance effect

Choice overload

Using the decoy effect for good

Conclusion

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Locking in the gains

Retaining your new customers

Maintain customers’ monetization

It’s up to you

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Winners

Losers

Maybe

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Simple is better