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Social Game Marketing presentation for SGS
I am in the middle of preparing my presentation for the Social Gaming Summit next week in Berlin, and wanted to pass on the highlights. Back in November, I wrote about the need to move beyond performance marketing, and I do not see a reason to repeat myself here (or to cut and paste), but the overall theme was that as the cost of performance increased, social game companies needed to develop robust marketing strategies so they could acquire players at a reasonable cost. I went on to discuss why you should create a full launch plan to ensure a successful launch. So I repeated myself a little but now I will go into some of the new elements I will be discussing next week.
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Microsoft’s Nook investment is huge for the social game industry
Microsoft’s $300 million initial investment in Barnes & Noble’s Nook unit is arguably the biggest news to hit the social game industry this year. Just last week, I was saying to some colleagues that there have not been any major developments in our sector recently. That changed yesterday. Over the next five years, Microsoft has committed to a total investment of $605 million in Barnes & Noble’s Nook, making it a bigger deal than Disney’s acquisition of Playdom in 2010.
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Job Opportunities at FiveOneNine Games
We are currently recruiting for multiple positions. If you or any associates are interested in joining one of the fastest-growing social game companies, please have them check out our Resumator Job Board.
Thoughts from Mobile World Congress
I wanted to pass on my thoughts from my first Mobile World Congress. A few things this week particularly struck me.
The mobile sector is much larger than the game sector
As I mentioned, this is my first Mobile World Congress and I was expecting something comparable to E3 or GDC. What I got instead is a tradeshow an order of magnitude larger. Without looking at “official” numbers from either show (and I don’t much credence in those numbers), MWC is probably 2-5 times larger in terms of attendees and probably 10X larger in terms of floor space. This shows that mobile industry is huge (GSMA estimates a US$3.5 trillion mobile industry by 2020), dwarfing the game industry. Takeaway: The sheer size of the mobile space will make it a key, if not the key, future platform for social games (sorry Facebook and Google +).
The big buzz word is “cloud”
Cloud solutions are the greatest driver of buzz and activity in the mobile space. It was hard to go more than ten meters without seeing a service or product tied to the mobile cloud. It was by far the most talked about new “technology.” It was so prevalent I could swear I saw at the snack stand cloud donuts and coke cloud zero. Takeaway: Say cloud at least ten times during your next investor pitch.
The dead buzz phrase is “augmented reality”
While the cloud was everywhere, augmented reality generated virtually no interest. I think at the entire show, spanning eight halls, I saw at most three exhibits that even touched augmented reality. Takeaway: If you are seeking investment based on an augmented reality offering or building a product around it, pivot as soon as possible.
Microsoft and Nokia are giving Windows Mobile a fighting chance
I have always been a fan of Windows Mobile and love my Samsung Focus Flash, so I probably am a little biased but it is clear here that Microsoft and Nokia are throwing their substantial resources at making Windows a relevant mobile platform (and keeping Nokia a relevant handset manufacturer). Not only does Nokia have the largest exhibit at the show with presentation after presentation but you can’t go two feet without seeing a banner for a Windows Phone device. That said, almost everyone I talked to is dubious at best about the chances of Windows Phone becoming a relevant platform. I have not met a company yet making money on the platform. More importantly, Nokia’s decision to position its phone with a 41 megapixel (the Lumia 9000) at the forefront of its MWC publicity campaign shows a lack of understanding of the smartphone market. Virtually no consumer wants a phone with that powerful a camera, they want apps.Takeway: Keep Windows Phone on your radar but don’t bet the company on it.
Facebook is not the force in the mobile space
Given Facebook’s expected valuation and the fact it had two key executives speak at Mobile World Congress, I expected Facebook to be more top of mind and incorporated in other offerings. Instead, it was virtually non-existent. You can argue that since it did not exhibit here its presence was muted but Apple did not have an official presence and iOS was omnipresent. Takeaway: Do not assume Facebook will be as dominant in the mobile world as it is in the web world. For social game companies, you may need to find new ways to make your games social and generate virality.
The tablet market will become increasingly fragmented
The number of tablet offerings is exploding, with different features, sizes and form factors. Although none will probably come close to overtaking Apple individually, I expect they will continue to erode the iPad’s share. It reminds me of an interesting theme from Chris Anderson’s book The Long Tail, the big hit initially will never be replicated (while people always predict that if X sold 1 million units, the next X will sell two million) because there will be more niche offerings that have strong appeal to certain sectors. I have seen this in the game space repeatedly, with Bejeweled in the casual sector and Farmville in the social space (yes, I know Cityville had more DAU, but that was inflated by marketing and my guess is never approached Farmville’s profitability). Takeaway: If you are developing social games for tablets, at some point it is not going to make sense only to focus on the iPad despite the costs of optimizing for multiple devices and OSs.
The mobile industry is more global than the game industry
I am amazed at how international Mobile World Congress is, much more so than the traditional game industry. On a bus, I was chatting with someone from Gambia, and I have run into people from everywhere, including Nigeria, Egypt, Israel, Malaysia, New Zealand, UAE and scores of other countries. You might think this is because I am at a European show, but I have been to Gamescon (and previously Games Convention), Milia, Tokyo Game Show, ECTS, Casual Connect, etc., and none of these shows had the same breadth of nationalities; they usually were dominated by two or three markets. There is also buzz that the smartphone market will become increasingly important in emerging markets once there is a $50 product. Takeaway: While international markets have always been a great opportunity for social game companies (the original topic of this blog), it is even more important in the mobile social gaming space. Rather than potentially being 50% of your revenue, eventually I could see non-US revenue exceeding 75 percent.
Gambling and Social Gaming
One of the more interesting developments in the social gaming space is the buzz around gambling. There are rumors and “hints” that the US government at some point will weaken or remove the restrictions on online gambling. I give credence to these rumors for three reasons
- Zynga’s stock initially broke through its IPO price because of rumors it might move into gambling (the stock subsequently rose because of the projected Facebook valuation). I still believe in the efficient market so do not think the stock would of moved so much if there was no basis to the rumors
- Caesar’s acquired Playtika for over $150 million. There are few companies that understand the US legal environment for gambling better than Caesar’s and they would not have spent $150 million just to sell virtual goods
- IGT spent over $500 million for DoubleDown. IGT is the leading manufacturer of gaming (gambling) machines, so like Caesar’s has a great feel for the regulatory environment. And, as above, I doubt they have much interest in the social space without real gambling
The impact of legalized online gambling on the social gaming industry is a little gray. Some of my closest friends, who I strongly respect and are often right, feel it could destroy the non-gambling part of our industry. They believe a Zynga move to gambling and other big players pouring billions into gambling social games would overwhelm the social game ecosystem. Consumers would then equate social games to gambling games and those who are not interested in a gambling experience would feel there is nothing for them in the social space.
I have more positive expectations on the impact of legalized gambling on the social game space. First, I do believe it will draw Zynga’s attention as well as that of some other existing social game companies. I do not see EA or Disney going down that route but many of the others, especially some of the struggling second tier players, are likely to pursue it as a possible panacea. This move will decrease the glut of quality games available to players seeking a traditional social gaming experience (I do not think these players will be scared away by Casinoville), allowing the remaining social game companies to launch and run games in a less competitive environment. Also, with less competition for these players (and I am assuming they are primarily different users than those who will play gambling titles), the cost of performance marketing to these players should stabilize or even fall.
Second, as I mentioned in several other posts, the valuation of social game companies will be largely contingent on the metrics of the industry leaders. As we saw, even the hint of gambling had a strong positive impact on Zynga’s valuation. I also remember the huge valuations of the UK based online gambling companies prior to the US crackdown. If Zynga and other social gaming companies enter the gambling space and start experiencing great revenue growth and strong valuations, it will positively impact the valuations across our industry (and access to capital).
My guess is that it is still awhile away before online gambling is legalized again in the US, especially in an election year, but for the three reasons outlined above I do think it will happen. I also feel it will end up being a great boon for our industry, even those companies not involved in the gambling side.
Meeting at Upcoming Trade Shows
Casual Connect Hamburg
If you are planning on going to Casual Connect next month in Hamburg, our VP Creative, Sarah Daniels, will be there and she would love to meet with any studios either developing in social or looking to evolve from casual to social (especially hidden object developers). Just email me at lloyd.melnick@fiveoneninegames.com and I will put you together.
Mobile World Congress
If you or anyone from your company is going to Mobile World Congress at the end of next month in Barcelona and would like to discuss mobile social opportunities with me, please send me an email (again, lloyd.melnick@fiveoneninegames.com).
No Post Today, Thanks SOPA
Instead of my normal weekly post, today I will be honoring the SOPA blackout. For more information, please go to Electronic Frontier Foundation
What I Expect in 2012
I recently wrote about how little I believe “expert” predictions of the future and how stupid I think it is for people to follow them. So, of course, I felt it was appropriate for me to now give my predictions for 2012 Actually, I still feel predictions are not worth the paper they are written on and if I (or anyone) could predict the future we would go public this week and be worth billions. But by looking just at 2012, I think you can extrapolate some current trends to anticipate how the upcoming year will shake out.
You will see more cross-platform
Regardless of the institutional hurdles to creating social games that work across platforms (Facebook and iOS for example) the huge value it provides to players will drive a solution. By the end of next year, more and more games will be enjoyable wherever they player might be playing.
A new social gaming genre will emerge
This is an argument that Facebook has been making since at least this summer and I totally agree. There are a lot of great gameplay mechanics that are not yet available on social. Just like Playdom created a huge new space in social with Gardens of Time, someone will create a hit by finding a way to bring a proven mechanic to social.
Investment and M&A activity will decrease
I mentioned in several blog posts that post-Zynga IPO, investors and potential acquirers will look differently at social gaming company. Valuations will be based less on a company’s potential and more on how its numbers compare with Zynga (i.e. comparable price-revenue ratios). As a lot of companies do not have the numbers to justify a deal, the type of dumb money deals we have seen the past few years will dry up.
There will be industry consolidation
With less money out there, companies that do not have a strong business model won’t survive. They won’t be able to finance themselves through cash flow and won’t be able to raise new capital. Overall, this will be great for the industry, as the remaining companies will be the ones with strong management, a good business concept and ability to execute.
International will become a key revenue driver
This started as a blog about international opportunities for social game companies and in the past year I have seen that many firms in the space are starting to realize the same thing. While the US social market, both mobile and Facebook, is increasingly saturated, many European and Latin American markets are still wide open. The competition is lower and in some cases the revenue potential per user is higher. With the cost of user acquisition ever increasing in the US, social game companies will also have no choice but to look elsewhere for new players. Also, as companies scramble to maintain their growth, in 2012 they will find Europe and other foreign markets the low hanging fruit.
But Greece and others will default and everyone will feel it
Since this is about predictions, I would bet Mitt Romney $10,000 that Greece defaults; and its affects will be felt by social gaming companies. First, it will further drive down the value of the Euro, depressing current state EU revenue. It will also have a strong effect on the buying power of the countries that default, though most of these (and I predict defaults by Greece, Italy, Spain, Portugal and Ireland all in 2012) do not generate significant revenue for most social game companies.
Windows Mobile will become a viable social platform
Regardless of what happens in the US with Windows Mobile, it will be a winner in Europe. With Nokia’s launch of its line of Windows Mobile phones, the platform will become a viable contender given Nokia’s reach and reputation in Europe. Given the issues with monetizing Android, I actually expect revenue opportunities on Windows Mobile to exceed Android (on the mobile, not tablet, space) next year. Also, if you haven’t played around with a Windows phone, it is actually a great opportunity system. Given MS and Nokia’s muscle, I just can’t see it fail (and Microsoft did not pay me to say that). I think revenue wise Windows Mobile will be more important to social companies than Android.
Kindle Fire will become a key mobile platform
This is not really much of a prediction given the initial sales numbers (over 3 million sold in a few weeks), but Fire is getting a large installed base of people willing to pay for content. And Amazon is as good, or better, than Apple at creating a customer experience that moves people to monetization.
Traditional marketing will become more important
Another topic I have discussed on this blog and at trade shows is how performance marketing will no longer be the only, or preferred, way to acquire users. With the cost of performance marketing increasing and sophisticated entertainment companies entering the social game space, more publishers will see the benefits of a traditional marketing mix to grow games.
Undifferentiated companies will fade away
As I mentioned earlier, it will be increasingly difficult to raise money in 2012. Thus, the companies who are just doing what other social game companies are doing, but not as well, will not survive. They will have no way of acquiring users and even if they get people to their games, they will not be able to retain (or monetize) the players.
Two new companies will break the top-10
One of the things I most strongly believe is that the top-5 and top-10 on Facebook is still very dynamic and that innovative, well-run companies can still make the top-10. Who last year would of predicted that Wooga and King.com would be in the top-5 (okay, probably Jens from Wooga but who else)? While the copycat companies will have trouble getting any traction, a few companies that approach the space from a different angle will see considerable success.
And one non-social gaming prediction that I feel I need to include
A Republican will win the White House
This is a nod to my belief in analytics over gut, not any personal inclinations. If you look at the current US economic metrics and compare that with virtually any previous election, it bodes very, very poorly for the incumbent. While a lot of pundits argue that this year will be different because of the Republican field or the antipathy to Congress, I always feel it is very, very hard to disagree with the numbers. We’ll see.
Happy holidays to everyone!
Goodbye, Mr. Jobs
Rather than reiterating what has been written elsewhere, I wanted to post my thoughts on Steve Job’s impact. I am far from an Apple-phile, I have always pushed for DOS and Windows over Mac, did not have my first iPod until I was given one about three years ago and thought the iPhone did not have a chance in the crowded mobile market, but I believe Steve Jobs was arguably the most important person of the last ten years.
Not only did he turn around Apple (to put it mildly), but he saved the US tech industry. Unlike the other tech leaders, Apples products caused excitement throughout the country (and arguable the world). Not to diminish the contributions of the Facebooks and Oracles of the world, but what Steve Jobs built at Apple captures the imagination of entrepreneurs and business leaders and individuals throughout the world. This excitement translated into an energy in the Bay area that drove and continues to drive a confidence and dynamism that is created billions of dollars in market cap, thousands of new companies and tens of thousands of jobs. Steve Jobs did not only turnaround Apple, but is largely responsible for one of the few bright spots in the world economy, the robust tech sector.
The Business of Social Games and Casino 