Given my post on Tuesday, I thought the post today on Inside Social Games confirmed many of my thoughts about the increasing influence of brands:
Events over the last weeks are showing that there is a tremendous opportunity for brands and IP from other media to make a major impact in social gaming. In fact, when we were pivoting Merscom from casual to social games, there was a strong belief from Zynga down that there was no value to IP in the social gaming space.
Properties Prove Their Value
In the past few weeks, entertainment properties have clearly shown they have a place in social gaming. After 20+ social game launches, Ubi Soft had its first real success, The Smurfs & Co, which exceeded 1.3 million DAU with no Facebook advertising. More recently, the Dirty Dancing game (based on the Lionsgate IP) has been in the top-10 of fastest growing Facebook apps almost every week since its launch. The most interesting, and telling, development is Zynga’s decision to use the Indiana Jones name with Adventure World. As Zynga never makes an arbitrary decision, its data shows that using an IP such as this has a positive ROI. This phenomenon began with the first real success using a TV IP, AETN Lifetime’s Pawn Stars game. This Facebook game was able to break the top-50 with a brilliant cross promotional game tied to the TV show in lieu of Facebook ads.
How to Choose a Property
Succeeding with a brand is much more than just throwing a property on a social game. Our industry is not like the packaged software/game space, where a well-known property gets somebody to buy a boxed product in Walmart. Instead, in social gaming, the property helps elevate the game over the noise and get people to try it and hopefully enhances the gameplay experience; it does not guarantee revenue.
About five years ago at Merscom, we were able to become a top-5 casual game publisher even though our resources were much more limited (we had less cash ) than our competition by leveraging strong entertainment brands. Many of the lessons I learned during this period are applicable to social gaming, so here is how I recommend you evaluate properties:
1. Strength of the Property While a big property can have a huge impact on a social game, there are literally millions of properties available and many will have no impact on the success of a game. An old television series or movie is not likely to prompt people to click (unless, like Dirty Dancing, it has a strong relationship with loyal fans). The same can be said for many cable tv series as you are already starting at a much lower point than broadcast tv (the broadcast television networks – CBS, Fox, ABC and NBC – have orders of magnitude more viewers than even popular cable networks).
2. Demographic of the Property You need to make sure the show is popular with the demographic you plan on targeting. A show or movie that you love may not be particularly attractive for the core social gaming demographic. At Merscom, when we were using IP for casual games, our target market was 30+ women. The IP that had the most success for us was based on the Lifetime networks shows (particularly Blood Ties). It was not properties based on the type of television or movies I normally watched.
With social games, this decision is an even bigger issue. A key element of a game’s success is the ability to acquire users through Facebook ads. The costs of these ads vary dramatically based on the target demographic. Thus, if you license a property that targets 25 year old men (the costliest demographic), such as Two and a Half Men, it may cost you more than twice as much as it would to promote a game that targets older women. You need to license a property that will enhance your user acquisition strategy, not provide an additional hurdle.
3. Marketing Commitment of the Licensor In addition to the strength of the property, the Licensor’s ability and commitment to promote the title is very important. The costs of acquiring users on Facebook (and mobile social) continues to increase, so a major benefit you are getting in licensing an entertainment property is a low-cost way to acquire fans of that property. If the media company is simply looking to give you rights and then get a check without any effort on their part, there is very little value to the IP. Instead, you should look at the license (or different deal structure) as an integrated opportunity to get a property and promotion through the partner’s consumer touch points (TV, web, retail, other consumer goods, etc.). The inspired campaign I mentioned earlier that AETN Lifetime used to promote Pawn Stars (cross promotion between the game, on air with the television series and through the website) is the perfect example of how you would want your media partner to help you build an audience for your game.
4. How Well the Property Translates into a Game Even if a property does well on the above three criteria, it needs to extend naturally into a game. The recent Big Bang Theory social game is a great example of what not to do. Although it is too early to have definitive data, I will go on record as saying it will fail. I am not making this claim because of the property, it is a very popular show from a network that has enormous power with social gaming’s core demographic. But the property just does not work as a social game, thus the game (Mystic Warlord’s of Ka’a) has virtually nothing to do with why people like the show. The properties that do best as games are ones that allow developers to extend the experience to the game, not just slap it on as a marketing tool.
5. Deal terms While deal terms are important in any deal you do, and any licensing deal, they take on a greater importance in social gaming. Rather than just affecting total profitability, the deal terms can actually be the difference between a successful game and one that never gets traction. If the revenue share (royalty) to the Licensor is too high, it becomes impossible to promote the game. Most social game companies will buy performance advertising (i.e. Facebook ads) until the cost of these ads exceeds the lifetime value (LTV) of a new user. The lifetime value is a function of virality, retention and revenue per user. If a large part of that revenue is going to the Licensor, it drops LTV. The greater the revenue that goes to the Licensor, the higher the impact on LTV. Thus, if the deal is too “rich” towards the Licensor, you may never be able to justify promoting the game and it will never gain critical mass.
I have always believed that entertainment properties represent a great opportunity for social game developers and my convictions are stronger now than ever. That said, the recent successes of properties in our space will probably lead to everyone pursuing these properties and hundreds of branded social games in the not too distant future. Thus, to be successful, rather than licensing mediocre IP number 101, be judicious (and patient) in the property you select, negotiate a fair but not unreasonable deal and create a great game. At least that way you are putting the odds in your favor.
The news last week about Netflix losing a much greater number of subscribers than anticipated reminded me of how arrogance can undermine any company, including the high fliers (present and future) in the social gaming space. Let’s start with the Neflix case. With NetFlix, almost everyone outside the company foresaw the ferocity of the negative reaction to its new pricing strategy. Nor was this reaction really a secret once the new pricing was public, Facebook, Twitter and traditional news sites were rife with stories about how unhappy Netflix customers were. Yet Netflix felt subscriber losses would be minor and people would forget quickly about their anger. Although they may still claim that they anticipated the level of customer loss, it’s obviously not the case. The company has lost more than 40 percent of its value since making the pricing move, very few companies actively trying to destroy more than a quarter of its shareholder’s equity. Moreover, if they really felt it was unavoidable, they would of better prepared the market for the losses, as markets dislike surprises more than they dislike losses.
So how did Netflix make this major miscalculation? It happened because within Netflix management confused high customer satisfaction with loyalty. Users loved Netflix because they were getting a good product at a good value. They did not love Netflix because of the pretty red envelopes or the neat logo. Thus, when the value proposition changed, people had no reason not to look elsewhere and did. Again, something that was obvious to outsiders immediately when the new pricing was announced was completely missed by the people making the decision, destroying billions of dollars in value and potentially weakening NetFlix’s market share where it will never recover what it previously had.
What is particularly interesting is that last week there was another piece of business news that reflected the same phenomenon. Research in Motion (RIM), the maker of the Blackberry, also missed significantly its projections, particularly on its Playbook tablet. RIM, like Netflix, dominated its market for years and had a huge level of customer loyalty. Even when Apple came out with a phone consumers loved, RIM both publicly and privately felt it would never lose its core market, business users. They did not look closely at the merits of the Blackberry line against the iPhone, they seemingly just felt that their customers were to loyal to ever switch. When they launched their first tablet, they did not put out a product that had either a feature or price advantage to Apple, but again felt they would succeed because Blackberry users would buy anything they tried to sell. WRONG. Again, consumers showed they are loyal to a good product and a fair price, but when that equation is broken they will switch.
One last point is that this phenomenon did not start (or end) last week. The history of business is littered with once-great companies that failed to deliver continuously a stream of superior products and found themselves fall from greatness to mediocrity and often to bankruptcy. Just to name a few, Sony with the PS2 to PS3 (on the B2B side, they treated developers awfully when they were on top of the world and on the consumer side they put out a product that was not priced competitively), General Motors from its heyday to its transition to Government Motors, Real Networks when it saw a dominant position in the casual gaming market collapse, Sears when almost every family shopped there rather than a store that ended in mart, and on and on and on. All of these companies believed they had a lock on the consumer and could continually erode the value proposition (or fail to deliver the higher value competitors were).
The social gaming space is evolving in a way that it will be very easy for companies to make the same mistake. A lot of the high flying companies now feel they own their customers. Coupled with a strong desire to make their numbers look better, this belief often translates into eroding the consumer’s value proposition. I am saying this on the web side of social gaming (Facebook as well as European and Russian social networks) and even on mobile social gaming, which has only been around awhile. If you are at one of those companies, beware, as you can destroy your relationship much faster than it took to build it. If you are at one of the fast growing companies also beware, when you get to that dominant position, remember what got you there and treat your users accordingly. It’s not only good for them, it is the only way to thrive.
For a space that is considered the cutting edge of innovation, social game companies are missing two of the biggest trends in the entertainment and online spaces. There are no major social games that allow players to create and share content. And despite Facebook’s efforts, there really is no crowd sourcing or popularity measures that help people find social games.
User Generated Content
Rarely a day goes by without seeing a major user generated content initiative, from Super Bowl commercials created by consumers to the explosive growth of Quora, yet this trend has been virtually non-existent in the social gaming space. Ironically, it is easy to find ways that consumers could create content that would elevate these games. Players are often frustrated at the lack of new content once they have been playing a game for months or even weeks. Why not allow the community to create new content that is then used to keep the game fresh. There are great amateur artists who could create new building or even crops for a Cityville. I am sure there are also players who would love to create hidden object scenes for a game like Gardens of Time. Not only would you get fresh content, you would content that he game team has not even thought of. A game with user generated content would take on a life of its own.
User generated content is an even more attractive option to compliment a social game company’s international strategy. What better way to make a game feel more French than allowing French players to create local content. International versions of many social games reflect the biases and stereotypes of foreign countries often found in the Bay Area, be it sticking a “bag-ett” in a French game or making a Kalashnikov the only local content for a Russian version. Instead, allowing local players to customize the game creates a local game for each market, one that almost certainly will be more viral and monetize better.
People are increasingly using different measures of popularity to make their choices, in entertainment, dining, purchasing, pretty much all aspects of life. Millions focus on top-reviewed restaurants on Yelp to pick a dining establishment, Amazon.com’s best seller list to find new books, trending Twitter topics to get their news, etc. As Bloomberg Businessweek pointed out in its 15 August issue, while there is no accounting for taste, the data can be helpful and even inspiring. Yet in social games, players cannot easily follow these trends. Seriously, players are not going to go to AppData to see the latest numbers. And Facebook does a terrible job of showing people what gams are hot, though they have tried a few times. The game companies are no better. If you are a fan of a Wooga game, can you easily find out which is their biggest game, not really.
This is another opportunity that takes on increased importance internationally. While foreign consumers often have different tastes, they usually like to use the performance of a product in one place to help them decide if it could be interesting. A movie that has failed in the US is much less likely to get traction in Poland, regardless of the merits of the film.
Overall, user generated content and better measures of popularity are fantastic opportunities for social game companies that can increase revenue and traffic significantly.
I recently finished reading a great book on building a company that leverages collaboration, Collaboration: How Leaders Avoid the Traps, Create Unity, and Reap Big Results by Morten Hansen and wanted to write about a few ideas that are relevant to social game companies (as well as almost every other company).
Hansen’s book provided several key concepts. First is the idea of disciplined collaboration. The key take away from this concept is that not all collaboration is good; it must generate results greater than people or teams working individually. Just collaborating for collaboration’s sake (as shown by regular useless meetings, conference calls with many participants who do not add or derive value or travel between locations just to meet but not advance a plan) is as bad as or worse than not collaborating at all. Collaboration should be used to generate value for the company, not as a checkbox. As Hansen points out, good collaborators know when to collaborate, when not to, and are willing and able to execute the selected project.
Analytics can also be applied to deciding when to collaborate. People should launch a collaboration project only if the net value of collaboration is more than the return minus both opportunity costs and collaboration costs. Hansen calls this the net value of collaboration premium. Mathematically, it is written as: Collaboration premium = return on project – opportunity costs (what the person could have done individually) – collaboration cost (travel, conferencing, etc.).
Hiring for Collaboration
Hansen’s book also provides some great principles for leaders to implement collaboration throughout their organization. The first and most important is hiring the right people. As discussed above, effective collaboration is disciplined collaboration, and you must hire the right people for this strategy. No matter how effective, you do not want lone stars. It is impossible to create a culture of collaboration when you allow some contributors to work individually. Even if they do a great job, it undermines the concept of evaluating all opportunities as to whether or not collaboration is beneficial. Moreover, it sends the message to others that collaboration is not necessary for career success.
Conversely, you also do not want to hire “butterflies.” Butterflies are those who flutter from person to person spending all of their time collaborating. This type of employees ends up wasting hours and days of their co-workers time, time that may be better spent on individual projects or other collaborations. When building your team, what you want is neither lone stars nor butterflies, but disciplined collaborators who collaborate effectively when it is needed.
Leading for Collaboration
The book also provides some great guidance for leading collaboratively. It is the leader who sets the tone for the organization. If you do not lead for collaboration, expecting collaboration from your team is wishful thinking. To lead for collaboration, you need to
• Set a unifying mission. If everyone knows their mission, it is much easier for them to see the benefits of collaboration
• Provoke a common value for teamwork. You, and the organization as a whole, should reward disciplined collaboration (and punish lone stars and butterflies). Hansen provides a lot of detail on how to coordinate compensation with collaboration and I will not over-simplify it here. I recommend you read the book to see what techniques you can use to create this value throughout the company
• Speak the language of collaboration. As anyone who has been in a leadership position knows, there is nothing more important to your employees than your actions. If you evangelize collaboration and do it yourself, that will have a stronger effect on your organization than anything else could
Although my blog is focused on the social gaming space, the above lessons and practices are valuable to any company. In social gaming, however, the market evolves so quickly that collaboration is a huge tool for maintaining a competitive advantage.
I have lamented several times on this blog that social game company do not use analytics enough outside of monitoring and improving the actual games and monetization. I thought it might be useful if I posted some suggestions on other areas where game companies could apply analytics.
Marketing (non-performance). Social game companies are famous for how well they use analytics to optimize their performance marketing campaigns, i.e. Facebook ads. Despite ad budgets that rival those of FMCG (fast moving consumer goods) companies, however, social game companies have a very unsophisticated approach to traditional marketing (if they are even pursuing these opportunities); a billboard does not a marketing campaign make.
There are many analytic tools available, starting with SAS, which allow companies to optimize their marketing investment. They help direct resources to the appropriate marketing channels and adjust the deployment based on results. These tools also allow for near perfect execution of campaigns by using predictive analysis to put the right offer or messaging to the precise customer at the correct time. They help companies adapt instantly to customer interactions, making adjustments in real time between different marketing platforms. These tools work across television, print, web (banner), outdoors, PR and all marketing tools, allowing social game companies to create marketing campaigns as or more efficient than performance marketing alone. As it is getting more difficult (and costly) to acquire Facebook users with Facebook ads alone, creating an analytics driven marketing program is necessary for social game companies to grow.
Growth opportunities. Analytics are also a fantastic tool for evaluating growth opportunities. With all the data that social game companies already acquire, they can then mine this data to find opportunities others have missed. There are multiple tools that allow game companies to use this data for forecasting profitability of new initiatives. New products, new markets, new platforms, etc can all be evaluated analytically and ROI estimated rather than having strategic direction come from the last person standing after an eight hour Board meeting.
Intra-company. Finally, analytics are a great way to align everyone in a game company with a common interest. By making player data available to everyone, the data can drive all business decisions. If your company tracks, measures and shares results across all channels and business units the data provides the tool to optimize decision making. In addition, providing this data allows for a consistent customer experience (for example, between a Facebook game and a social mobile app) and multichannel marketing with a single view of the customer across all marketing and business functions.
I have not tried to create an exhaustive list of how you can be using analytics to drive growth, but I wanted to touch on some key areas and get people thinking that analytics is not just for improving monetization 5 percent in a month. At its best, it provides a competitive advantage when applied across the organization.
My pet peeve this week (and it wouldn’t be a good week if I didn’t have something to complain about) is how many people (entrepreneurs, VC, executive management, etc.) reference “Blue Ocean” without understanding the key concepts (and value) behind it. I have found the book Blue Ocean Strategy by W Chan Kim the most useful business book I have ever read (the most enjoyable was Dan Ariely’s Predictably Irrational).
Developing and implementing a blue ocean strategy involves four crucial actions: eliminate, raise, reduce and create. These are changes to your existing product or a way a market segment is approached. To put it in the context of social gaming (hence, the title of this blog), let’s say you found a market segment you considered underserved, for example teen agers. To pursue a blue ocean strategy targeting this segment
- the first step would be to eliminate. As teenagers are generally more tech savvy than typical social gamers, you might eliminate tutorials.
- The next step is raise, that is increase something in the product so it appeals more to this segment. Since teens are more comfortable with traditional gaming, you might increase the Player vs Player (PvP) elements and add IP that is popular for teens.
- The third step is to reduce. In this example, since you are increasing the use of IP, you can probably reduce your performance marketing (Facebook) ad spend.
- Finally, you need to create, that is add in new functionality for the target audience. If you are creating products for the teen market, maybe you would add in chat and music features, since they are both quite important to this market.
Above is how you should attack a potential opportunity to create an effective blue ocean strategy. Unfortunately, what most companies and investors think of when they refer to a blue ocean, is finding a market where there is not competition. The problem with this simplification is that you usually create an offering that is easy for others to compete with (hence, turning it quickly into a red ocean) or one that your competition beats you to (there are other issues also too but I don’t want to overly bore you).
There are no shortcuts when developing strategy. Taking the simple or fastest way will usually lead to an undefendable position or just failure. If you do take the time and energy, however, to go through the steps to create a real blue ocean, you are on the path to become the next Zynga (which did it in the gaming space) or Spotify (which did it in the music space).
Today, I thought it would be interesting if I posted a conversation with one of the people I most respect in the social game industry, Johannes Kreibohm. He brings a different perspective and insight into the global opportunities for social game developers. Johannes is the founder and CEO of Plinga, a German based publisher of social games across multiple social networks. I have worked extensively with Johannes and find him one of the most thoughtful and energetic leaders in the industry.
Lloyd Please tell me a little about the history of Plinga, when you started it and what was your vision?
Johannes: Plinga was founded in 2009 and is based in Berlin, Germany. We were super excited by the stellar growth some of the US based social gaming companies were experiencing and wanted to create a company that could clearly shape this new social gaming industry. Given the fact that most of the early market entrants had their focus on either English speaking markets or on Asian markets we got started to establish a European leader in social gaming.
Lloyd: Who was your main investor and what was it that appealed to them about your plan?
Johannes: Plinga is backed by Rocket Internet, one of the most successful European early stage investors (further investments include Zalando, Groupon, eDarling) with deep knowledge in the area of online games (early investor in Bigpoint). We all agreed that social gaming was about to revolutionize the online games industry and that Plinga could significantly improve the gaming experience for European users. It has been a top priority for us from day one to offer high quality content, truly localized for European users.
Lloyd: What are the biggest differences between what you originally thought Plinga would be doing and how the company has evolved?
Johannes: We’ve experimented with several approaches towards content sourcing (mainly creation of own IP vs licensing) and content distribution (single-platform vs multi-platform) and have evolved into a leading publishing company with a broad multi-platform strategy. Today, we are live with 35+ games on 25+ social networks and game portals, in Europe and beyond.
Lloyd: What do you think is different about being based in Germany as opposed to California?
Johannes: On a macro level the startup ecosystem in California is certainly unrivaled; there is more capital available for startups, and the pool of talents is larger than anywhere else. But, US based internet companies tend to have a US-centric approach in growing their businesses (at least in the early years of existance) and this leaves room for competitors with distinctive local knowledge. For our very business Berlin has turned out to be a ‚close to ideal location‘. The city is well recognized being one of Europe’s tech start-up capitals and is by far the most international city in Germany. This setting clearly helped us to recruit top talents from around the world: In just 20 months, Plinga has grown to a staff of 80, from 15 different countries. Being based in Germany also helped us to establish deep relationships with our distribution partners, European social networks and game portals. And, being based right in between the US and Asia, where most of our content partners are located, is also helpful in our day-to-day communication with partner companies around the world.
Lloyd: What opportunities do you see for social game companies in Germany and overall in Europe?
Johannes: The social games market will continue to grow, in Germany and overall in Europe. As the market matures and quality of games increases, I expect growth opportunities to be best for companies, which offer truly localized games tailored to their specific target audiences. If developers decide to deploy on a number of networks and game portals then they have to make sure the game is adapted accordingly.
Lloyd. I noticed you have multiple titles in the top-10 on most of the social networks where you are active, how have you been able to achieve this success on different networks?
Johannes: Content really matters: We try to only add the best social games to our portfolio. Moreover, we invest heavily in support functions to increase user loyalty. At the end of the day, our users should know it’s worth trying a new Plinga game; the game will be of high quality and their concerns are being taken care of. And, last but not least, there are network effects: It is obviously easier to make a new game successful if you can promote this game within an existing user base, and it is more fun to play a social game for a single user, if more friends join the game quickly. Basically, new users get more and more valuable if you have multiple games in your portfolio.
Lloyd: Overall, what type of opportunities do you see off of Facebook?
Johannes: Publishing on multiple platforms has been and will be core to Plinga’s strategy. We believe social games will be played all across the web and they will be big on social networks – Facebook, but also local social networks – and with growing importance also on other web portals.
Lloyd: What do you find the biggest differences between these social networks and Facebook?
Johannes: Each social network is to some extent unique and differences between local networks (also among each other) and Facebook are huge: User demo, viral channels, user acquisition channels, competition among game developers, platform APIs, revenue share for developers, payment fees just to name a few.
For those who know me or regularly read my blog, you know I feel that marketing social games should not be limited to performance advertising (e.g., ads on social networks). I actually plan on discussing the marketing topic in further detail in the weeks to come. Today, however, I wanted to talk about how analytics are still the foundation of a successful international social media marketing strategy. In fact, there is a better opportunity to gain competitive advantage through analytics with traditional marketing than performance marketing. Continue reading “Analytics beyond the norm”
One thing that constantly perplexes me is how little social game companies leverage social media. Even though the games are obviously delivered on social networks and the internal game features leverage what makes social networks so powerful, outside of the product their social media marketing and product development strategy is usually light years behind old-school companies like Ford and GM. Yes, the game companies run social media ads. But if you look at their fan pages, Twitter streams and other social media elements, their efforts are normally very superficial. Continue reading “Social Media Marketing Strategy”