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How to succeed in the mobile game space by Lloyd Melnick

Tag: free to play

Finally, a new approach to monetization in free-to-play games

I am excited that the latest gaming phenomenon, Fortnite, is not only a hit game because of its content but also because it has brought a unique monetization mechanic to the mass market. For over ten years, people have been optimizing the free-to-play model, improving monetization primarily through in-app purchases. We have all talked about finding new or additional revenue mechanics but there have been no dramatic changes. Many companies have gotten better at getting players to pay more (or more players to pay) but nobody had changed the paradigm. Yet, as I have written many times, the real opportunity for growth is to find a blue ocean, do something your competitors are not.

Why Epic

Epic Games has overcome this challenge with Fortnite, creating a monetization mechanic previously seen only in niche titles. Initially, I have to admit I was particularly surprised this innovation came from Epic, as I frequently wrote that traditional game companies ( most recently Nintendo) could not succeed in the mobile space because they were too wedded to the old monetization model of discrete purchases. Epic is definitely a company that has benefitted mightily from the old model, from Unreal to Gears of War to their other hits, they have made billions of dollars from selling great games in pretty boxes. Now, though, they have disrupted the free-to-play space.

In retrospect, it is not that surprising that innovation did not come from a mobile game company. Just as traditional game companies could not embrace the free-to-play model fully, the “what are now” traditional free-to-play company cannot discard their in-app purchase (IAP) optimization strategy fully. Thus, Epic, which did not have the IAP optimization baggage, could look holistically at the opportunity and come up with a new approach.

What Epic did

Fortnite’s Battle Pass system is a unique approach to drive monetization that is showing great results. According to a recent article by Adam Telfer and Joseph Kim, Fortnite has generated $126 million in revenue, including $5.3 million mobile revenue in its first 10 days.

The Battle Pass is a mechanic that avoids pay to win (spending to get a competitive advantage over other players) but finds a way to get players to pay significantly for cosmetic benefits. Traditional thinking in free-to-play is that cosmetic accessories (avatars, skins, emotes, etc.) can only generate limited incremental revenue. With Fortnite, however, they have made the cosmetics the only way to show success and progression, so players are motivated to acquire (and show off) more and better items, and subsequently monetize to get the great cosmetics.

Battle Passes are largely a challenges mechanic, and even in traditional IAP games challenges are a proven monetization mechanic. They are a great way to drive player activity, guide them to specific activities and provide a sense of completion. It’s not surprising that the evolution from challenge systems to Battle Passes yields a new monetization mechanic.

Slide1

The first key element is that there is not a leveling or stats system. Thus, you cannot show others how skilled you are by pointing out you are level 5,274. Instead, status is conveyed by how great your cosmetics are. The more, and better, cosmetics, implicitly the better Fortnite player you are.

The second key element is the Battle Pass, a series of challenges to earn cosmetics. The Battle Pass is a series of challenges with each one providing cosmetic rewards.

The third key to the Battle Pass is offering multiple paths. In addition to the free path is a premium path that provides significantly more rewards. Epic is also very loose in providing rewards for the premium path, players feel they are getting an incredible value.

Fourth, each Battle Pass only lasts a season. Each of these seasons has its own cosmetics, so if you miss a season you never get them. This creates an incentive for the player to play each Battle Pass so they do not miss any content forever.

Fifth, and a key difference with traditional IAP models, players can pay to skip ahead in tiers. Since tiers are not levels, players are not actually paying to win anything, just to get to higher value cosmetics.

Sixth, if you fail at a challenge, you need to start the entire path again unless you monetize. Critically, if you die during a challenge (which happens to most players of Fortnite), you have to start at the beginning of the challenge. Thus, there is a strong incentive not to lose your progress (and plays to people’s loss aversion). People do not want to start from zero repeatedly.

How you can use Battle Passes

Battle passes effectively change monetization from the core game loop to the challenge mechanic. By eliminating levels and points, you can move monetization from interrupting gameplay to super-charging it. Challenges work in many genres but the Battle Pass takes it to the next level. Zynga credits much of its current success with Zynga Poker to challenges. Virtually any PvP game, and even some single player games, can integrate a challenge system. The key to success though will be recentering monetization on this system rather than the traditional IAP model, making it the source of showing progression and providing a VIP path.

Key takeaways

  • Fortnite is one of the biggest gaming successes ever, and it is being driven by a monetization system previously not seen in mass market free-to-play games, Battle Passes.
  • Battle Passes allow players to earn cosmetic rewards, which have a high value because they are the only way players can show progress in Fortnite.
  • By centering your monetization on a challenge system, you can develop a similar mechanic as Battle Passes.

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Author Lloyd MelnickPosted on May 15, 2018May 13, 2018Categories General Social Games BusinessTags Battle Pass, epic games, Fortnite, free to play, monetization2 Comments on Finally, a new approach to monetization in free-to-play games

Nintendo admits mistake

Last year, I wrote about why Nintendo failed with Super Mario Run, its first 1st party mobile title. The key was that they did not understand the mobile game ecosystem and how to manage player lifetime value. At the time, I ran into significant criticism that the product was a failure, given the millions of downloads and that maybe Nintendo had a goal other than revenue.

Nintendo admitted last week, however, that Super Mario Run did not meet its expectation.

While it is always nice to be proven correct, the most interesting element of Nintendo’s announcement suggests to me they still do not understand the mobile gaming world. The article also quotes a Nintendo official as saying “Heroes [their free to play product] is an outlier. We honestly prefer the Super Mario Run model.”

As I wrote last year, free to play is the most effective way to maximize player engagement. This not only derives the most monetary value from the game (i.e. you make the most money), it gives you a long window to engage with your customer and further that relationship.

Like other traditional game companies before it, Nintendo seems destined to flail outside of its existing channels, that is its proprietary consoles. The free to play world offers challenges that these game companies do not understand and are unwilling to accept.

Key takeaways

  • Nintendo stated publicly they were disappointed in the performance of Super Mario Run, their first mobile game.
  • Despite this disappointment, they still have not embraced free to play
  • They are likely to consider under-performing in mobile as it is very challenging for older companies to understand and embrace the mobile free to play ecosystem

super-mario-run-new1

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Author Lloyd MelnickPosted on March 27, 2017Categories General Social Games Business, Social Games MarketingTags free to play, nintendo, Super Mario RunLeave a comment on Nintendo admits mistake

Why Super Mario Run was destined to fail: Lifetime Value Part 24

I am surprised that people are surprised about the lack of success for Super Mario Run from Nintendo. While I do not claim that I can predict the future, and this time of year I scoff at everyone’s predictions because if the so-called experts actually could foresee develops they would be much wealthier than they are, in January 2012 I laid out the reasons traditional gaming companies were unlikely to succeed in the free to play space . The reasons I stated nearly five years ago were also the headwinds that doomed Super Mario Run.

super-mario-run

Different businesses

As I wrote then, the biggest challenge traditional game companies face when moving to a free-to-play model (at the time it was more Facebook than mobile) is that they are different businesses. Old school game companies, be it Nintendo or EA to Take2, are skilled at creating a great product that someone buys, enjoys and finishes. Free-to-play companies are creating a service (hence the now relatively old term software as a service), something that customers use over time and becomes part of their life (like Netflix or Amazon Prime).

Building and running a service requires a different skill set than building a great game. The former needs

  • Analysts to look at customer behavior and suggest changes to continually improve the product
  • Product managers to create new features and elements that keep existing players engaged and ensure strong elder gameplay for the most committed players
  • User acquisition specialists who not only can bring in new players but can reactivate the most valuable players
  • CRM experts who can communicate with existing players both inside and outside of the product through multiple channels to increase their engagement and loyalty.

Conversely, traditional game companies succeed with a very different skill set

  • Great game designers who can create a fantastic experience, though usually of a limited nature
  • Marketing gurus who can get people to purchase a product
  • Distribution experts who can ensure the product is placed prominently in front of potential customers.

I have no privileged information in how Nintendo structured its Super Mario Run team but based on the product and how they are managing it, I would bet the focused more on the skills needed by traditional game companies than those creating a free-to-play game service experience. The game clearly has great designers and their promotion by Apple shows they still know how to manage channels.

They do not understand free-to-play LTV

What they are lacking is an understanding of free-to-play economics, primarily how to optimize player lifetime value. I have written way too many times about customer lifetime value (even wrote a book on it) but it is still a concept that traditional game companies like Nintendo fail to grasp. In summary, lifetime value is the monetary value to your company of a new player and it is a function of monetization (how much they spend), retention (how long they remain a customer) and virality (how many other customers they bring in).

In the traditional game space, this equation is quite easy. For Nintendo, LTV is largely how much a payer pays for a DS and Wii game. It does increase by downloadable content (DLC), whether they buy additional Nintendo products and if they encourage friends to buy but it is largely driven by that retail purchase of a game.

This experience is evident in how Nintendo approached Super Mario Run. The product is built so that the free element is a teaser to get a $10 purchase. It is not built to create a long-term relationship between players and the game, where they return (and often spend) daily for months or years (no exaggeration, take a look at Mobile Strike or Clash of Clans or most of the games on the top grossing charts). They are still focused on the discrete purchase, selling the razor and not the blades.

This approached doomed Super Mario Run (and by the doomed, I meant compared to expectations and potential, as it will still generate millions), even if they were seeing more traction getting the initial $10 purchase. In the world of free-to-play, $10 is largely an irrelevant transaction. Supercell was acquired by Tencent for $8.6 billion because players are spending hundreds or thousands of dollars in the game. By focusing on the first ten dollars, Nintendo missed where the bulk of free to play revenue comes from and largely capped what most players would have to spend. Thus, a player who Nintendo could have built a relationship with that would generate $20,000 is now spending $10 and moving back to a Supercell or King or Zynga game.

Core game companies will continue to flail in the free-to-play business

I said it almost five years ago and it has largely held true, traditional game companies won’t succeed in free to play. Since I wrote that article a handful of game companies have seen some free-to-play success (most notable Hearthstone) or acquired respectable free-to-play businesses but most have either failed or gone bankrupt. We still have not seen EA turn their core games (FIFA, Madden, Battlefield) into free-to-play franchises. There is nothing from Microsoft or Sony on any mobile chart. Take2, not a player in the mobile space. You get the point. It’s no longer a question of when the core game companies will successfully move into free to play (and mobile) but when they will just give up (and investors will stop expecting it) and focus on what they understand.

Key takeaways

  1. The failure of Super Mario Run by Nintendo was very predictable, as traditional game companies face many structural issues in creating free to play mobile apps.
  2. The biggest hurdle is their team structure, as they are built to create a product and not run a successful service.
  3. Core game companies also do not truly understand free to play economics, that customer lifetime value is driven by long-term retention and monetization and not a discrete purchase.

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Author Lloyd MelnickPosted on December 24, 2016Categories General Social Games Business, Lloyd's favorite posts, LTV, Mobile Platforms, Social Games MarketingTags customer lifetime value, free to play, lifetime value, LTV, mobile, nintendo, Super Mario Run10 Comments on Why Super Mario Run was destined to fail: Lifetime Value Part 24

Why app toys fail and Skylanders soar

The Wall Street Journal reported that more than 90 percent of app toys fail around the same time Activision announced that Skylanders’ sales exceeded $500 million. Among the failed app toys were Barbie Dolls and Hot Wheels cars with special conductors to control games on a tablet from Hasbro, Disney’s Cars AppMates, and a version of the Game of Life from Hasbro in which players spin a wheel on an iPad rather than a physical wheel. Yet, Activision’s physical virtual goods continue to sell incredibly well, driving Activision’s profitability. This interesting juxtaposition of news shows the value of using the equivalent of in-app purchases rather than the business models designed around retailing, distribution and manufacturing processes from the last century.

Disney AppMates

What is wrong with App Toys?

The biggest problem with app toys is that the toy makers are simply trying to move the same product to a new platform. The toy companies do not understand what creates compelling experiences on tablets (or consoles or phones, for that matter). Instead, they are replicating the same experience people have with the physical goods in the virtual world, which is not what consumers are looking for. They are competing with (thousands of) native games and products that are created to meet customers’ needs. It becomes obvious why the app toys cannot compete. Continue reading “Why app toys fail and Skylanders soar”

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Author Lloyd MelnickPosted on February 19, 2013February 25, 2013Categories General Social Games Business, LTVTags app toys, free to play, monetization, physical virtual goods, SkylandersLeave a comment on Why app toys fail and Skylanders soar

Get my book on LTV

The definitive book on customer lifetime value, Understanding the Predictable, is now available in both print and Kindle formats on Amazon.

Understanding the Predictable delves into the world of Customer Lifetime Value (LTV), a metric that shows how much each customer is worth to your business. By understanding this metric, you can predict how changes to your product will impact the value of each customer. You will also learn how to apply this simple yet powerful method of predictive analytics to optimize your marketing and user acquisition.

For more information, click here

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Lloyd Melnick

This is Lloyd Melnick’s personal blog.  All views and opinions expressed on this website are mine alone and do not represent those of people, institutions or organizations that I may or may not be associated with in professional or personal capacity.

I am a serial builder of businesses (senior leadership on three exits worth over $700 million), successful in big (Disney, Stars Group/PokerStars, Zynga) and small companies (Merscom, Spooky Cool Labs) with over 20 years experience in the gaming and casino space.  Currently, I am on the Board of Directors of Murka and GM of VGW’s Chumba Casino

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