Category: General Social Games Business

Jay Powell’s blog post on the perils of working with some publishers

Last year I blogged about developers needing to choose a publisher carefully. This post shows that devs still need to be careful.

Jay Powell

Gamezebo recently posted an open letter from several studios about the horrific relationship they have endured with Mamba Games. I’m not going to post the entirety of it here but basically the publisher sold their rights where they were not legally allowed to do so and has failed to pay or even report the sales back to several studios. This is a breach of contract in the worst way and unfortunately many developers just throw up their hands and say “What can we do about it? We can’t afford to sue them”. Many times they’re right but I like the way they have chosen to handle the situation.

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Physical virtual goods prove their value to game publishers

Activision’s earnings announcement yesterday shows how attractive successfully conquering the physical virtual goods market is. On November 27, I blogged that Activision would be the big winner Q4 2012 on the strength of the Skylanders franchise and its reliance on a new business model, selling physical versions of virtual goods. I elaborated on that post earlier this month, commenting that the emergence of the Physical Virtual Goods monetization model was one of the most exciting developments in the gaming space in years .

Today, Activision’s stock rose 14 percent because earnings tripled from the fourth quarter last year (in a period in which overall video games sales slumped). Net income increased 257.58 percent to $354 million in the quarter versus a net gain of $99 million in the year-earlier quarter. Revenue rose 25.66 percent to $1.77 billion from the year-earlier quarter (unfortunately, some of that is due to my family).

This report affirms my belief that physical virtual goods are an incredible opportunity. While I do not advocate trying to copy exactly what Activision has done (I believe in blue oceans, not fast following), there are many elements in this space (e.g., product type, demographic) that represent incredible opportunities for game companies.

Lifetime Value Part 5: Moneyball and LTV

I have written several times about Moneyball and many times about customer lifetime value (LTV), so I wanted to bring the two together. Moneyball was the Michael Lewis book turned into a successful film about Billy Beane and how he made the Oakland A’s competitive by relying on analytics over intuition (for more detail, please see Lessons from Moneyball for the Social Game Industry and Moneyball Strikes Again). The same principles that help the Oakland A’s compete effectively could help social game companies compete, even against better financed firms. The same phenomenon holds with LTV, in which many of the metrics people focus on do not have maximum impact on long-term success.

Runs = LTV

LTV serves the same role in your business as runs do in baseball. Beane and his analysts realized that the success of a baseball team comes down to scoring more runs than your opponent. They thus reverse-engineered the game and its players into what contributed to scoring runs and what contributed to preventing runs. They then used their resources that maximized the delta between runs scored by the A’s and runs that they allowed. Continue reading “Lifetime Value Part 5: Moneyball and LTV”

Talk on LTV and Monetization

I will be speaking today at 11 at Groundwork Labs, the Durham-based technology accelerator, on why companies in any industry need to focus on LTV, the primary levers and its impact on success. Anyone interested and in the area is free to come by. Much of the discussion has been covered previously in this blog, but feel free to check out the presentation on Slideshare:

Groundworks presentation on monetization and ltv from Lloyd Melnick

Using probability to build a game portfolio likely to succeed

One of the biggest challenges for a social or mobile game company is managing the challenges of an industry that is hit-driven. Understanding the laws of probability is a good step in overcoming this hurdle. Since the beginning of time, game companies have been struggling with the hit-driven nature of our industry. Although new markets and technologies (e.g., casual, social, and mobile games) held out the promise of not being as hit-driven, they all ended up having a few titles drive the majority of revenue. The number I use is that 25 percent of games will break even or make a profit after launch (without accounting for development expense); this means that there’s a 75 percent failure rate. (I have heard estimates that as many as 90 percent of game projects fail and I would not argue strongly against that number, but for the sake of analysis I will use a success rate of 25 percent.)

The argument for taking a portfolio approach

Basic probability theory shows the importance of having multiple independent game projects to improve your company’s chance of success (more on independence later). By using probability, the benefits of taking a portfolio approach become clear. Continue reading “Using probability to build a game portfolio likely to succeed”

Lifetime Value Part 4: The role of retention in LTV and how to impact it

Retention is one of three components that you use to determine LTV (lifetime value of a customer) and in many ways most important to the success of a product (and the most difficult to improve significantly after launch). Three weeks ago, I wrote about the central importance of lifetime value (LTV) to the success of your game and your company. This week I want to discuss retention, its importance and how you can improve it.

How to define retention

Retention is how often players play your game and thus, also, how long they remain active players. As with all the LTV metrics, different companies use different measures of retention to determine lifetime value.

There are several components of retention for you to track and roll into your LTV formula. Continue reading “Lifetime Value Part 4: The role of retention in LTV and how to impact it”

Accounting issues tied to crowd-funding

This is a great post on GamesBrief about accounting issues tied to crowd-funding (as a site note, I highly recommend you follow GamesBrief). I have written before about how crowd-funding is increasingly important, especially in the games space. Although the post is focused primarily on the UK (and accounting is different in every country), it highlights some universal issues everyone should be aware of regarding crowd-funding.

Facebook’s importance, or lack thereof, for social gaming

I have been reluctant to join the bandwagon of people declaring Facebook dead, either overall or as a social gaming platform, but I have gotten to the point where I have lost confidence in Facebook. It has been fashionable since Facebook’s IPO to say the platform was in trouble because of the shift to mobile. In the game space, the anti-Facebook crowd got started even earlier, suggesting the only wise course for social game companies was to develop for mobile platforms instead of Facebook. I was reluctant to join this chorus, given the incredible user numbers Facebook has and the revenue that some games were still generating on Facebook (which dwarfed comparable mobile games). However, I have been rethinking my position.

Continue reading “Facebook’s importance, or lack thereof, for social gaming”

Lifetime Value Part 3: Monetization’s role in LTV and how to impact it

Monetization is one of three components that you use to determine LTV (lifetime value of a customer) and is the one that is the easiest to improve. Two weeks ago, I wrote about the central importance of lifetime value to the success of your game and your company. This week I want to discuss monetization, its importance and how you can improve it.

How to define monetization

Monetization at its core is how much money an average player spends in your game. As with the other two components of LTV, there are different facets of monetization that you can use to create a more accurate calculation. With all monetization measurements, you need to incorporate all revenue, including revenue that does not come from in-app purchases (e.g., advertising revenue, subscription revenue) to get a true picture of monetization and LTV.

The primary metric for monetization is ARPDAU (average revenue per daily active user) but there are several other metrics that together can help you get a more robust LTV calculation. Continue reading “Lifetime Value Part 3: Monetization’s role in LTV and how to impact it”

Great financial tool for tracking against plan and re-forecasting

This is a tool that was recommended to me and I plan to start using immediately. Recommend for anyone who seriously wants to manage their business and cash flow. Thanks to Kirk Owen for recommending it to me.

VC Waves

Today I faced a choice. Should I go out and enjoy the beautiful weather and waves and go for a surf or should I blog about my favorite financial reporting tool? Seems like a pathetic question for a surfer to ask, or maybe this financial reporting tool is really that great. I’ll settle for an answer of “both”.

The tool in question is the Waterfall Chart. It’s a way to compare actual results across time periods (months or quarters usually) against your original Plan of Record, as well as forecasts you made along the way as more information became available. It packs a ton of information into a concise format, and provides management and Board members quick answers to the following important questions:

1. How are we doing against plan? Against what we thought last time we reforecast?

2. Where are we most likely to end up at the end…

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Runs = LTV

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The argument for taking a portfolio approach

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How to define retention

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How to define monetization

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