amazon – The Business of Social Games and Casino

How to avoid misleading data, aka Fake Analytics

Someone I respect recently posted an article from a news source that I also respect, but the article actually highlighted how data can mislead, either intentionally or not. An article on the Guardian.com, Amazon Prime Video’s growth outpaces Netflix in UK, tells the story of how Prime Video is growing at a faster rate than Netflix. The sub-title stresses that, “cross-promotion to Amazon shoppers and new on-demand series rank it top in 2017.”

The article goes on to point out several reasons why Amazon is top in 2017:

New series of the Grand Tour and Transparent are fueling growth
Hefty cross promotion of Prime Video to regular Amazon shoppers is also contributing
Prime Video increased its subscribers to 4.3 million in 2017, representing 41% year-on-year growth
Netflix only grew 25% in the same period.

If you stopped reading the article there, and who reads an article until the end these days, you would think Amazon is doing a great job in the video market and Netflix should be very worried. If you worked at Amazon and get a similar report from your analytics team, you might high-five the head of Amazon Prime in the UK. If you were at Netflix and got a similar report from your analytics team, you might panic a little and divert resources to the UK.

The problem is that although the data is accurate it is misleading. The key figure is that Netflix added 1.6 million new subscribers in 2017, while Amazon added 1.3 million new subscribers for Prime Video in the UK. Thus Netflix actually extended its lead over Amazon by 300,000 customers in 2017. Netflix is in 8.2 million UK households (at the end of 2017), versus 3 million for Amazon.

How different would the story have been if the headline was Netflix extends lead by another 300,000. How different would the reception be at Amazon and Netflix respective headquarters if their analytics team presented data in this way.

The mistake

The mistake in this case (and I will be generous and assume the Guardian was not click-baiting) is comparing growth rates (or any other rates) while neglecting the size of the relative base. It would be the same in football if you looked at Messi’s goal scoring versus a second year player. The latter may be scoring twice as many goals as he did as a rookie while Messi may have been flat or added a few. Thus the young player is growing his goal scoring 100% while Messi is adding only a few percent to his lifetime numbers. That does not mean that the second year player is either having as good a season as Messi or closing the gap.

The same happens in the mobile game world. Your slot game may be growing 100% month on month while Slotomania is growing 10% (not real numbers), but because their base is so high they are adding millions in revenue while you are still not profitable.

The key is only comparing trends when you are comparing apples to apples. Trends mean something if you are looking at two products or companies of comparable size in the same stage of their lifecycle. Looking at two auto companies who launched an SUV the same year in the same market makes sense, comparing growth rates of two automakers, one who is new and has no dealer network with one that has been around 100 years is worthless.

The answer

You need to look deeper into the numbers. Look at the absolute numbers. Look at the pricing. Look at the target market. Look at percent usage (in the Amazon case, how engaged are Prime users who may have bought it just to get free shipping versus Netflix users). The key to using data effectively is look deeply at the data and understand what is driving the results. You also need to make sure your analytics team does the same. It is very easy to make conclusions based on obvious trends. Avoid superficial analysis and, more importantly, superficial conclusions.

Key takeaways

A recent article implied Amazon Prime Video was doing better than Netflix in the UK as it grew 41% versus 25% by Netflix.
The article is misleading as Netflix actually added 300,000 more customers than Amazon. This obfuscation shows how data can mislead if you focus on trends but are not comparing comparable companies or products.
The key to using data effectively is look deeply at the data and understand what is driving the results.

The big opportunity in gaming (and tech) that nobody is talking about

While everyone in the game industry always seems to be chasing the next big thing, what looks like the next big thing is actually being neglected by most game companies. Game companies are quick to chase what they think will be hot, be it a new platform, a new genre or these days VR (virtual reality) and AR (augmented reality).

The problem with this strategy is that it rarely creates a competitive advantage, as not only are you creating games for this technology but your competitors are too. Rather than creating a new marketplace, you are shifting the battlefield.

VR (and to a degree AR) is a great example of this situation. Everywhere I look, I see people talking about how it will change gaming and trying to pick the winning hardware, with the foregone conclusion that it will change the face of gaming. Additionally, virtually everyone has now started VR or AR projects, either full scale development or tests.

I am still undecided whether VR will redefine gaming or have an equivalent impact as 3D did on television but am surprised that people are neglecting an evolving technology that is more likely to be adopted by the mainstream and have a greater impact on games, voice recognition.

The Voice Recognition landscape

Many strong, and forward looking, companies are making major pushes into voice recognition. In the VR world, the battle between Facebook (Oculus Rift), Sony (Playstation VR), Samsung (Gear VR), Microsoft (HoloLens) and HTC (Vive) has generated excitement and helped push the technology forward.

The battle is no less pronounced in the area of voice recognition. Apple was the first company with a major initiative, when it added Siri to its devices. Apple acquired Siri Inc in 2010 and released its first devices with Siri in 2012. Since then it has been a staple of all new products.

Microsoft was the second major technology company to make voice recognition a key part of its mobile product strategy, with its Cortana intelligent personal assistant. Cortana was first shown in 2014 and is now integrating not only in Microsoft’s mobile products but has been added to Windows 10 as well as new products for both Android and iOS.

The latest entrant in the field is Alexa, Amazon’s voice recognition personal assistant. Alexa is available on the Amazon Echo speaker and voice command device, originally offered to some Amazon customers in June 2015. Amazon has now expanded the Alexa offering to the Tap wireless speaker and Echo Dot.

The first big thing

A Forrester analyst recently said, “The Echo is a sleeper hit.” While Siri and Cortana benefitted Apple and Microsoft, the success of Alexa points to the opportunity for all tech companies, particularly game companies, with voice recognition. According to an article in the New York Times, The Echo from Amazon Brims with Groundbreaking Promise, Alexa is on a path to become Amazon’s next $1 billion business. Understating this demand is the fact that while the Echo sells for $180 on Amazon, because of supply shortages the same product sells for $200-$300 on eBay.

The article points out that the Echo is evolving from a device with fixed functionality (like the original iPhone where people initially used it as a phone) to a platform with unlimited functionality. “But the Echo has a way of sneaking into your routines. When Alexa reorders popcorn for you, or calls an Uber car for you, when your children start asking Alexa to add Popsicles to the grocery list, you start to want pretty much everything else in life to be Alexa-enabled, too.”

Amazon has also started to turn the Echo into the center of a new ecosystem, again like Apple did with the iPhone. Many developers are using the technology to create voice-controlled apps for the device, or skills, as Amazon calls them. There are now more than 300 skills for the Echo, from the trivial — there is one to make Alexa produce rude body sounds on command — to the pretty handy. Other tech companies, like Nest, are also making their products compatible with the Echo. Alexa can control Internet-connected lights, home thermostats and a variety of other devices.

The parallels between the opportunities with Smartphones and now with Alexa are impossible to ignore. From demand exceeding supply to developers creating a myriad of applications that even Amazon does not anticipate, it is hard to argue against voice recognition having the same impact as Apple’s iPhone.

Why voice recognition will become ubiquitious

Not only does the data (the sales and third party applications) point to Alexa’s success, but the dynamics of the opportunity also show why it is a much more powerful force than the current hot technologies.

First, voice is already how almost everyone prefers to communicate. It’s what people learn from the day they are born. It is already how people give commands and they react in emergencies (if you are in the passenger seat of a car and see another car about to hit your vehicle, you do not email the driver, you scream). Rather than asking people to change the way they behave, voice recognition amplifies this power.

Second, the equipment is also natural. Very few people wear a headset from birth (except maybe in some science fictions stories). Most people even find those little cardboard 3D glasses you use at cinemas annoying as they are not what users are used to. Echo, and now Tap, masquerade as speakers that just sit in a room and then you talk naturally. The key here is that you do not do anything differently than your instincts tell you to behave.

Third, this is closer to a mature technology than some of the hot ones (i.e. VR). As mentioned above, Siri launched four years ago and in those years the technology continues to be refined. It is now much more natural, you can talk to Echo as you would talk to your mate. It is also much quicker, rather than waiting seconds (which again is unnatural as you usually do not have to wait ten seconds for a friend to respond), new voice recognition can process and act as quickly as a human.

Overall, the beauty of voice recognition is what keeps it from being the sexy new thing. It feels natural, just an extension of what people are already doing (communicating to each other by voice). You cannot create viral YouTube videos of somebody talking in their living room to a speaker like you can by creating a 3D universe. My philosophy, though, is that the strongest opportunities are usually the least sexy. Rather than invest in a MySpace or Ouya, I always prefer to invest in a Waste Management type company, where people have a clear need that is being solved.

What it means for games

Neglecting the emergence of voice recognition for a game company would be akin to neglecting the emergence of mobile as a gaming platform after Apple launched the iPhone, and we see how that turned out for many one-time great Facebook game companies. Rather than control your experience with a keyboard, game controller or even gesture controls, the next generation of gamers is likely to want to control their experience with voice. Why click on a slot machine when you can just say spin. Why go onto a monetization page and purchase a currency package when you can simply say “buy 1 million chips”. The gaming experience will become more natural and fluid. Most importantly, customers will start abandoning products and games that are not voice controlled for ones that are.

Key takeaways

The biggest paradigm shift that will hit the game industry is voice recognition, not VR, AR or any new platform.
Voice recognition is already exploding, with Amazon’s Echo its surprise hit with some predicting it is Amazon’s next billion dollar product.
Games that leverage voice recognition early will be the big winners while companies that miss this shift will join those that missed the shift to mobile.

Lifetime Value Part 19: Applications of LTV in different business types

As this is my nineteenth post about customer lifetime value (LTV), I obviously think it is very important, but I wanted to take some time to provide examples of how it can impact almost any business. Even if the examples do not cover your initiative, they will hopefully help you see how understanding, marketing and designing for LTV is crucial to any company’s success. Examples range from tech companies to business types that have been around longer than the United States. The breadth of companies that LTV is critical for shows its central importance.

Mail order catalogs

Catalog companies, from the days of Sears and Montgomery Ward, to the current heavyweights like Restoration Hardware and Crate & Barrel, have always needed a deep understanding of LTV to succeed.

With the cost of printing and mailing catalogs, these merchants need an LTV higher than the shipping/printing costs. Thus, they have to first understand different customer segments (e.g., location/postal code, sex, age) and only send catalogs to those people who will have a higher LTV. If they sent their catalog to everyone, the average LTV would decline and make their efforts unprofitable. In addition to understanding the LTVs of each segment they have to optimize along the three key LTV variables: Retention, monetization and virality. If a person reads through the catalog once, makes an order and never picks up the catalog again, it is hard for their value to be higher than the costs of shipping them the catalog. If they, however, keep the catalog and place ten orders in a six-month period, the LTV is likely to exceed to costs of sending them a catalog. Monetization is also critical. If they love the catalog, keep it on the coffee table, but never make a purchase, the merchant loses. Even if they make very small purchases the merchant proposal loses. Successful direct marketing companies succeed by getting larger shares of wallet from their customers. Finally, virality is important even for a non-digital good. If the person shows the catalog to ten family members or friends (who have an equal potential to buy), then the costs of sending a catalog are effectively one tenth as you are reaching 10X people. Continue reading “Lifetime Value Part 19: Applications of LTV in different business types”

The empty chair and how it can make your business succeed

I recently read about techniques Amazon CEO’s Jeff Bezos uses to create a great customer experience and one has really stuck with me as a brilliant way to get the whole organization focused on creating a product users love. It is something I am planning to replicate and it can help any company create products that delight users and get them to switch from competitors.

According to the article, even during the fledgling days of Amazon, Bezos worked hard to establish the philosophy of a company that obsesses over their customers from top to bottom. An overwhelming figure that used to always set the tone of his meetings was “the empty chair.” From the first days of Amazon, Bezos brought an empty chair into meetings and informed his top executives that they should consider that seat occupied by their customer, “the most important person in the room.” Throughout these meetings, a different weight was held on all decisions as the invisible but clear presence of the customer was always considered.

Multiple benefits to the empty chair

There are at least three benefits of Bezos’ empty chair strategy:

First, features and new products are evaluated through the customer’s perspective. Think of all the products that have come to market, particularly technology products, that did not have a clear value to customers.
Second, it keeps you from putting in features that are not in your customer’s or player’s interest. If people would be embarrassed to discuss a feature or new product openly in front of a real customer, there is a problem with that feature. Products that work against the customer will fail immediately or be replaced by a product consistent with the user’s interests, over time there are no secrets in product design.
Third, if the product is an improvement or substitute for an existing good, the empty chair forces you to understand if you are creating enough unique value to prompt the user to switch. By having the customer in the room, you need to consider whether that customer would use your product and why they would switch to it from their current product. Given that a product must be 5 or 9 times better to get someone to switch, you can use the empty chair to determine if and how your new offering is that much better.

Continue reading “The empty chair and how it can make your business succeed”

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The mistake

The answer

Key takeaways

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The Voice Recognition landscape

The first big thing

Why voice recognition will become ubiquitious

What it means for games

Key takeaways

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Mail order catalogs

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Multiple benefits to the empty chair

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The Amazon example

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