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The Business of Social Games and Casino

How to succeed in the mobile game space by Lloyd Melnick

Tag: Green Light

What Real Money Gaming companies should learn from the problems faced by EA and Activision Blizzard

In January, I wrote a post on why Electronic Arts and Activision Blizzard’s stock had plummeted and what other game companies could learn from their challenges. While the lessons are relevant to social gaming companies, in many ways they are more germane to Real Money gaming companies, many of whom have also struggled to maintain their share prices.

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Look at the competition holistically

The first problem I identified with EA and Activision was that they focused solely on each other and other console game manufacturers when considering the competition and generating competitive responses. As Netflix stated in its shareholder letter in January, “we compete with (and lose to) Fortnite more than HBO,….When YouTube went down globally for a few minutes in October, our viewing and signups spiked for that time…There are thousands of competitors in this highly fragmented market vying to entertain consumers and low barriers to entry for those with great experiences.”

Real Money Gaming companies do not seem to have gotten the memo, they still focus primarily on each other. Most Real Money online casinos measure their competitiveness by how many games they have versus other online casinos. Sportsbets list their breadth of betting options and in-play bets versus other sports betting apps.

When the US market began to open last year, most Real Money operators looked at each other when developing their American strategy. They copied the partnerships other operators were entering into. They built similar go-to-market strategies. They took their European apps and “adapted” them for the US market.

The sole focus was outdoing their direct competitors. They did not look at how Americans consumed entertainment, how it was different than in their core markets and then build a strategy to compete with these other forms of entertainment.

The US is an example of how the Real Money operators fail to look holistically at the entertainment ecosystem and simply focus on each other. It is why margins continue to decrease and why fewer and fewer new customers enter the ecosystem. It also leaves them very vulnerable to other forms of entertainment appealing to their customers.

Franchises are not forever

The second lesson that Activision Blizzard and Electronic Arts learned the hard way is that franchises are not forever. Many of the biggest Real Money operators still rely on their existing franchise and have not built a sufficiently robust business to deal with downturns in the franchise. You can broadly define a franchise, as I would consider William Hill’s retail locations the same as Farmville, a formerly ubiquitous product that declines over time.

The Real Money space is dominated by one product companies, which leaves them particularly vulnerable to franchise erosion. Many of the operators (both large and small) rely on an individual product for success (often the product and company name are synonymous), and when that product decreases, they are in a very vulnerable position.

You need a pipeline of new products

Consistent with the above point, not only do many Real Money operators rely on one product, they do not have a green light process or plan to bring new apps to market. Often, their product development is focused on improving and optimizing their core offering. If the macro-market for that offering decreases, they do not have alternatives available to compensate.

As I wrote last month, companies need a robust green light process to identify market opportunities, particularly prospects to appeal to non-customers of the industry. Creating skins of existing products do not achieve this result; they simply provide a marketing tool and potentially nudge your product positioning. Yet very few Real Money operators launch entirely new products that have a different feature set and market appeal than their existing products.

These opportunities exist if Real Money operators will look outside of their current offering. There is no reason a Real Money sportsbook cannot offer a standalone eSports app or a Crypto sports betting solution or hypercasual sports betting games. A Real Money casino can look beyond its integrated casino to create a Live Dealer app or an app that has progression or social features. The key is for companies to assess the market opportunity, their strengths and weaknesses and create a product pipeline that will help them grow.

New products and new markets are the key to success

As the above analysis shows, Real Money gaming companies suffer the same issues as video gaming companies and firms in many industries. They lose the forest for the trees, focusing on their direct competitors and existing customers, rather than how the industry and world is evolving. These blinders leave them vulnerable as people’s preferences evolve and miss an opportunity to grow exponentially.

Key takeaways

  1. Real money operators need to avoid making the same mistakes that Electronic Arts and Activision Blizzard committed if they want their stock to be resilient.
  2. Real Money gaming companies should not simply focus on each other but realize they are competing with all entertainment companies and build products that expand their market.
  3. Real Money operators normally rely on one offering and do not have a robust product pipeline to deal with declines in their core product.

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Lloyd Melnick General Social Games Business Leave a comment April 9, 2019March 20, 2019 3 Minutes

Building an analytic-driven greenlight process

Launching new products is vital for the continued success of any game company but surprisingly few have a robust process for prioritizing projects. For a successful game company, new games provide an avenue for growth, as existing games will eventually plateau. Moreover, they mitigate the risk that your current successful game starts to decline.

For a young company or one still trying to make it into the top-tier, new games are even more critical. They provide a mechanism for disrupting the top-10, a new offering that can place you among the top game companies. Without a successful new product, you cannot become a successful company.

While the importance of new games is clear, it is surprising how few companies devote sufficient resources or put much process behind greenlighting projects with the highest ROI. Some of the most metrics driven companies do not use analytics when deciding on new games; they instead count on the intuition of a small circle of executives (or one person). Others start projects without any form of prioritisation. In the worst case, some do not even start new games and have nothing available when their existing products decline.

These companies are not only leaving money on the table, but potentially putting their survival at risk. Everyone has limited resources and by putting resources in the wrong projects, you may miss out on the games needed to survive and thrive.

The game industry in many ways resembles Major League Baseball in Moneyball. Management “knew” what made a good baseball player and used their intuition when building their baseball teams. The entire sport was disrupted when Billy Beane used analytics rather than intuition to build a winning team, with less resources than his competitors.

Since entering the game industry in 1993, and almost always managing limited resources, I have focused on refining the greenlight process so it drives highest ROI. Using lessons from Moneyball, I have identified three steps that lead to optimizing the ROI from new game projects. While you will still have failures (even Billy Beane drafts some busts), you will increase the odds of creating a successful product.

Step 1: Market Data

To determine your new product priorities, you first need to have a deep understanding of your market. A common mistake is to look at the market too high level or focus on your own experiences. In the former case, assume you are a social slots developer. It provides no value to know the gaming market is expected to grow 15 percent next year or even that social casino will grow an average of 8 percent every year for the next five years (both numbers are examples, not actual projections). This type of data is not actionable, it does not help you find market opportunities.

Focusing on your own experience is potentially very misleading. You may have had one product do very well. This experience could create a bias (availability bias) that there is a great opportunity in the market segment where you have done well. The reality might be you filled a niche or provided a superior alternative to the existing top competitor but that there is a very small addressable market and you already dominate it. You will also not see the biggest opportunities in the industry, another company might have launched a comparable product and seen 5X the growth by being in another market segment. If you focus on your experience, you will miss finding the biggest opportunities.

Instead, the best way to look at the market is to focus on your sub-sector, for example social casino, and understand what companies have done well and what companies have underperformed in the past twelve months. The graphic below from an Eilers presentation shows a better way to look at market data:

market data

Using the data above, you would then see what companies grew their market share and where it shrunk. The key to this step in the green light process is to analyse the data to understand where market opportunities exist. In the chart above, Product Madness went from Other to 7 percent share. You then dive deeper and learn that the growth was largely due to their pioneering progressive jackpots, so that feature then represents an opportunity. Conversely, DoubleDown dropped from 12 percent to 9 percent share, so it suggests you should deprioritize building a product that is comparable to DoubleDown’s casino.

Step 2: Blue Ocean

While it is important to understand the market, it is more important to determine Blue Ocean opportunities. The market data, by definition, only shows what you and your competition are doing. Thus, any new products based on this data will be launched into a competitive environment. Moreover, other companies are doing the same analysis, increasing competition in the areas that you have identified.

As I wrote last week, the bigger opportunity is to identify non-customers and bring them into the market. This Blue Ocean strategy has higher returns than focusing on creating a better product than your competitors for an existing market segment.

To look for Blue Ocean opportunities, you first need to create a Strategy Canvas. This canvas shows the features existing companies use to compete. You can use it to create a strategy profile that is distinctive from the competition by adding new features to compete on, eliminating some, raising others while reducing some. Below is a hypothetical example of a canvas you would create if you were with Aristocrat’s Product Madness team and looking at a new initiative (you can create these canvases at the Blue Ocean Academy website):
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Once you have a strategy canvas, the next phase to building new product ideas is to understand what the canvas shows you should adjust. First, consider what you will add to the product to appeal to non-customers, by both increasing current features and including entirely new attributes.

As you will see above, to compete in a different market space, you first need to reduce (focus less) on some features you and your competitors consider important. Even more challenging, but more critical, is determining what features you will no longer compete on, the ones you will eliminate.

The reduce and eliminate element is as important as deciding what to add or increase and it is much more difficult. Many companies make the mistake of just adding to their product, feature creep. This results in a bloated product that ends up appealing to nobody. It often makes costs too high to justify the new product. It takes discipline to reduce and eliminate but that is the key to building a successful Blue Ocean product.

Step 3: Ideas and Analysis

Once you have completed the first two steps, you integrate the results to prioritize your greenlight process and create a compelling product roadmap. The key is taking the information you have gleaned from the market, the analysis you have done on non-customers (Blue Ocean) and an introspection of your capabilities and combine it to understand your company’s best opportunities.

First, create a SWOT (strength/weakness/opportunity/threat] analysis. Strengths and weaknesses are focused on your company, so it is important to be objective and look at where your company is better or worse than competitors. Opportunities and threats largely comes from the first Steps (market and Blue Ocean analysis), how is the market evolving, why are companies are experiencing growth or declines and what products potentially appeal to non-customers. Below is a sample SWOT analysis:

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Following the SWOT analysis, you then brainstorm game ideas that take advantage of your strength and the opportunities while mitigating your weaknesses. There are many great articles on ideation and brainstorming and I will not try to cover it here. At the end of this phase you will have a list of potential products.

The final part of Step 3 is analysing these options to prioritize what products to move forward developing. Without this analysis, all you have are a lot of “good” ideas that different people want to move forward with. To prioritize these opportunities, create a SMART spreadsheet analysis. SMART is an acronym for a Simplified Multi-Attribute Rating Technique.

To create a smart analysis, you first think of all the attributes that impact whether a game will be successful. You start with the meta-categories like virality, retention, monetization, etc., and then identify the sub-attributes in each meta-category (virality could be word of mouth and community). You then weigh each of these sub-attributes on how much they contribute to the overall success of the product, with the total weight equalling 100%. An attribute related to retention could have a weight of 30 percent or a less important attribute like triggers could be 3 percent. You then create a row for each product and give it a score on every attribute from 1 to 10. You multiply that score by the weight of the attribute and sum them up for each product. The products with the highest score(s) should be greenlit while those with a low score should be abandoned. Below is a sample SMART spreadsheet:
smart analysis

The SMART analysis is indispensible as it gives you a prioritized list of projects.

A strong greenlight process will create a strong product pipeline

A good greenlight process is critical to long-term success. It ensures you will have a steady stream of products to gain market share and replace your declining products. After an analysis of industry dynamics and opportunities to bring new customers into the industry, you need to synthesize that information into actionable insights. Creating a SWOT analysis and then SMART spreadsheet allows you to create a prioritized list of projects to focus your development efforts.

Key takeaways

  • Launching new games is critical for continued success but very few companies have a strong analytic process for prioritizing projects. By implementing a good framework, you can ensure your team is dedicated to the projects with the highest potential ROI.
  • The first two steps to a good greenlight process are understanding the market and uncovering opportunities to turn non-customers into customers. To understand the market, you should look at what competitors are enjoying success and which ones are lagging, then explore why. To identify opportunities to turn non-customers into customers, look at how you can change what the industry competes in by adding, increasing, reducing and eliminating attributes. It takes discipline to reduce and eliminate but that is the key to building a successful Blue Ocean product.
  • Once you have a list of potential projects from the industry analysis and review of non-customers, create a weighted spreadsheet (SMART analysis) that weighs the critical success factors and score each product. The products with the highest scores are the ones you should greenlight.

 

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Lloyd Melnick Analytics, blue ocean strategy, General Social Games Business, Lloyd's favorite posts, Social Casino 2 Comments February 26, 2019April 11, 2020 7 Minutes

Why Activision and EA have dropped over 40 percent

Both Electronic Arts and Activision have plummeted more than 40 percent from their 2018 heights and the underlying causes provide important lessons for other game companies. An article in Barrons, Electronic Arts and Activision Are Struggling to Survive a Fortnite World, highlights the key causes.
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Look at the competition holistically

Many companies are focused on the competition but they fail to define the competition properly. While your direct competition can have the biggest short term impact by increasing marketing or adding a new feature, your entire business can be disrupted by a company that you did not realize is a competitor.

Netflix views Hulu and Amazon Prime as their primary competitors, and then the broadcast and cable networks. It was, however, Fortnite from Epic that had the biggest impact on Netflix last quarter as consumers shifted their entertainment focus from television to the massively popular game. The failure of Netflix to anticipate this competition from a non-traditional competitor has left them unable to respond promptly, adding more scripted content does not negate the appeal of a game like Fortnite.

As the article shows, it was not just Netflix who misread the competition, as it was a key driver for EA and Activision’s decline. These companies were focused on each other (as well as the other console games coming to market) and did not anticipate a free to play gaming changing the ecosystem so dramatically.

Outside of gaming, we have seen this phenomenon repeatedly, from the classic horse buggy companies that went bankrupt as they did not realize the impact of automobiles to the decline of retailers who were slow to respond to online shopping. Blockbuster focused on Hollywood Video and mom and pop video stores before realizing that Netflix was the real threat, realizing too late. In the 1990s, GM and Ford and Chrysler were so focused on competing with each other they all faced bankruptcy when Asian manufacturers gutted their market with a new breed of high mileage vehicles. Dell and Compaq were so fixated on providing better PCs at a more competitive price that they are now afterthoughts to Apple and Samsung.

The game and iGaming space is littered with similar examples. The THQs and Acclaims did not consider free to play a competitor until it was too late. Many land-based sportsbooks did not consider online a threat until they saw their businesses disintegrate. When Sega was looking at building the next Dreamcast, they focused on Nintendo and Sony, not Microsoft.

The lesson is the true threat to your business is not the competitors you recognize as competitors, but companies who provide an offering that your customers can use to replace yours, even if it is a very different product. By not realizing who your potential competitors are, you will not be positioned to retain your customers when they shift.

Franchises are not forever

The article points out how underperforming franchises have also negatively impacted Activision and EA. Destiny was one of Activision’s cornerstone franchises and as soon as Destiny 2 showed the franchise was in decline, the stock fell 12 percent.

Destiny is not the only example of a declining franchise pulling down its stock. When Zynga went public in 2011, Farmville and Zynga Poker helped drive a share price to over $12. As both “franchises” slipped, Zynga has struggled to remain relevant, with a share price about 65 percent lower than at its peak.

These examples show that franchises do not continue indefinitely on their own. You need to work at maintaining and growing them by keeping up with current customer needs, as well as anticipating shifts in the market place.

It also shows a growth strategy focused on acquiring franchises runs the risk of overpaying and failing. Almost by definition, you are buying at a peak because it is only a franchise when it is doing very well (then it is defined is a declining product). If the acquirer cannot grow the franchise, their large investment (and franchises do not come cheap) can crumble.

You need a pipeline of new products

The third lesson from the fall of EA and Activision is the need for a robust product pipeline. Given the risks of franchises declining, you need to have new products ready to replace them. As an analyst wrote in the Barron’s article, “the main issue [for Activision Blizzard] is an underperforming pipeline of games.” In EA’s case, the poor performance of its Battlefield franchise has left it with little to drive growth. Both EA and Activision have built their business by refreshing franchises, so when those fail, they have nothing to fall back on.

While the need for a pipeline of new products (for any industry) seems obvious, it requires a commitment, and not just money. This commitment often feels unnecessary when franchises are driving growth and revenue. Even if a company is willing to invest in new products, if they do not have a commitment from on top, it will still fail as their best people (marketing, tech, design, etc.) will be working on the existing franchise products. In a competitive industry (and every industry these days), your B team is not going to beat other companies who are focused on winning with new products.

What Activision and EA teach us

Rather than feeling sorry for Activision Blizzard and Electronic Arts (they are still valued at over $25+ billion each), you can learn from them to avoid the dramatic declines they have faced recently. Most importantly, when looking at the ecosystem and your customers, realize that customers are not simply deciding between you and your closest competitor, they are looking at the best use of their time. For a game company, that means not worrying about competing games (primarily), but Netflix, music, movies and other form of entertainment. You may create a better product than your competitor to find there is a much smaller market for both of you.

As you are anticipating your customers’ needs, you also need to anticipate they will be different, so you cannot rely on today’s franchises. You need a stream of new products that anticipate their new expectations.

Key takeaways

  • Activision and Electronic Arts shares have fallen more than 40 percent in the past twelve months, driven by a combination of misjudging the competition, relying on franchises and having a weak product pipeline.
  • When surveying and reacting to the competition, you must look beyond the direct competition and understand who else could take your customers.
  • While franchises are important revenue sources, you need to nurture them and have alternatives as they eventually will degrade.

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Lloyd Melnick General Social Games Business 1 Comment January 19, 2019January 19, 2019 4 Minutes

How to balance your publishing or development portfolio

Most investors know that to optimize the expected value and risk of their financial portfolio they need the right mix of domestic and international stocks, bonds and cash. Many game companies, however, fail to heed the core principals of diversification when building their portfolios and deciding what projects to green light. Ironically, very successful companies often amplify this mistake by replicating (i.e. cloning) their hit.

Mistake 1: Copying your hit

The most common mistake successful game companies make is re-skinning or cloning their biggest game. The logic behind this decision is that it is quite difficult to create a hit game so copy what you know. Most frequently, however, the clone fails to reach expectations and the company is left relying on the original hit.

The flaw in this strategy, leading to a negative result, is that the new product appeals to users who are already highly engaged with your company. Since the existing product is a success, players are not looking for an alternative. They already love what they have, why give them the same thing in a different wrapper. I recently wrote about how challenging it is to steal VIP customers from a competitor because they already love the product, it is just as difficult to steal them from yourself.

In the social casino space, you often see this mistake by companies that have a hit slots product, just change the feel of the casino, keep the same slots, and then the new product does not perform as well as the original.

Mistake 2: Appealing to the exact same market

If you base your new product on one of your existing products, you will appeal to the same customers. By appealing to the same users, you are not expanding your potential market but can only increase your share of wallet.

Again, using the social casino space as an example, there are different types of slots players. If your existing game is appealing to players who enjoy land based casinos, rather than creating another product for this target market you can build off of your success by creating a product that appeals to recreational online-only players. Thus, you can still monetize the land-based players with your core product, and increase monetization by improving that game, but you open up a new market.

Mistake 3: You are not creating a blue ocean opportunity

The core of the issue in creating a copy of an existing product is you are not creating a blue ocean opportunity, that is moving to a market space where the competition is not relevant. I have written frequently about Blue Ocean strategy, and rather than repeat it the key is that you have a higher ROI by pursuing a blue ocean strategy than competing in a red (bloody competitive) market.

Blue Ocean strategy is incompatible with cloning your existing product because a new product needs to fulfill four criteria to create a blue ocean:

  1. Raise. You need to raise some of the elements of value you are currently competing on.
  2. Eliminate. You need to eliminate some features or aspects that you compete on.
  3. Add. You must add new features or attributes that other products do not have.
  4. Reduce. You have to reduce some of the features that the industry relies on.

By definition, if you are copying an existing product you are not doing any, let alone all, of these changes needed to move into a space where the competition is non-existent.

Mistake 4: No new VIPs

VIPs are the lifeblood of a successful mobile game. Less than one percent of players normally drive over 80 percent of revenue, thus it is critical to have a strong VIP base for a game to be successful. When you re-skin or clone an existing game, it becomes virtually impossible to build a strong new VIP base. Your existing VIPs already love the old product, hence why they are VIPs, so they have no reason to move (and you probably have no benefit in moving them). New customers were already exposed to the same mechanics in the existing product and chose not to become VIPs, thus it is very unlikely the new product will generate a different reaction.

What you should do

The easy part of the game industry is recommending what not to do, the challenge is how do you grow your product base. There are many different ways to run a good green light process, assess market conditions, etc., and that is not the purpose of this post (please see my post on how to create a mobile gaming hit). Instead, I recommend you build out a strong green light process that looks at the market, the competition, your strengths and gaps in the market and build your product strategy from there. If you already have a hit product, rather than start from scratch, see how you can leverage key elements of that product to expand into a different segment of the market or create an entirely new space.

Key takeaways

  • While it is tempting to try to replicate your successful product by re-skinning or cloning it, such a strategy is likely to fail as it will not expand your market.
  • Cloning a product is the inverse of pursuing a Blue Ocean strategy (which requires focusing on four core elements: Eliminate, Raise, Add, Reduce), and Blue Ocean generates a higher long-term ROI that traditional strategy.
  • If you have a hit, rather than start from scratch see how you can leverage key elements of that product to expand into a different segment of the market or create an entirely new space.

Cloning

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Lloyd Melnick General Social Games Business, Social Casino Leave a comment May 1, 2018April 30, 2018 4 Minutes

How to create a mobile gaming hit

One of the greatest challenges game companies face is the green light process, even for the most successful companies. Game developers continuously struggle with the question of how to create a hit and where should they allocate their development resources. the most successful game companies struggle with this challenge, even if they have told investors they have a magic formula. When I first started in social gaming, Playdom, Playfish, Crowdstar and Zynga were the dominant companies. Now, if you know any of those companies outside of Zynga you get a gold star, none of them were able to replicate their hits of 6 or 7 years ago (and Zynga has also found it a challenge). Hits define success in the mobile game space, so finding the right formula is a critical issue.

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I recently read an article, Space Ape: Chasing a genre-defining hit that describes an approach worth attempting. In the article, Space Ape, a mobile developer generating over $50 million in annual revenue, discusses its strategy to move from publishing solid titles to creating hit games. Space Ape has realized that simply replicating existing successful games and adding some minor improvements can generating solid performance but is not enough to create a hit.

Do not rely on market analytics

The first key is that you cannot use market data to predict the next hit. By its nature, market data is backward looking and can only tell you what has already been successful. It can help you create a good copy of a successful genre but will not tell you what will be the next genre defining product.

User testing and focus groups suffer the same fate. They can tell you what customers already like and dislike, maybe even what they think they will like, but customers will not think of new genres or understand what will appeal to them until they actually experience it. Apple’s success is a great example of this concept, as people never knew they would want an iPad until they actually had an iPad.

From pipeline to funnel

The key for Space Ape, and what I think should be replicated, has been moving from a production pipeline to a production funnel. In the production pipeline, a company will agonize over what product to make, and then spend considerable time refining the concept and developing the game. Effectively taking one product from concept to launch.

What Space Ape is now doing is creating hundreds of ideas for games, pouring them to the top of the funnel, with only a few making it out of the funnel. They allow their teams to move freely between designing, prototyping and developing a proof of concept.

Avoid sunk costs influencing decisions

Most importantly to Space Ape, the team can kill an idea easily, despite how many resources have been invested into the idea. This point is critical; as I have seen many game companies (including projects I have led) continue to invest in games primarily because of the investment already made. Sunk cost, a cost that has already been incurred and cannot be covered, should never be considered when deciding whether to proceed. Instead you should focus on the future investment needed and the expected return on that investment. The sunk cost is gone and no longer should matter.

Structure appropriately

To support the production funnel, Space Ape has restructured its team. Previously, 25 percent of the company focused on the production pipeline, developing new games, while 75 percent focused on maintaining its live games. Now 75 percent of the work force is focused on developing a genre defining hit, while 25 percent support existing products.

By putting sufficient resources behind the production funnel, they can generate hundreds of ideas, prototype a good percentage, pushing the promising ones to proof of concept and then developing the top ones that survive. This process ensures that many different concepts get fleshed out and they not need guess what will be a hit.

The ratio of resources focused on live games versus new development depends on your company’s situation. If you already have one or more of these genre-defining hits (i.e. King or Supercell), you should continue to put sufficient resources behind your hits to generate billions of dollars in value. Conversely, if none of your games are doing much, why keep any resources focused on them (remember sunk costs). What is critical is that you have enough people dedicated to the production funnel so you can have a plethora of ideas, prototype a high percentage of them and take the promising ones to proof of concept.

What success looks like

Moving from a production pipeline to a production funnel is a big decision, it requires significantly more resources, and you may consider it a risk. Given the carnage you see almost weekly in the mobile game industry, however, it is more of a risk to manage new product development the traditional way.

Key takeaways

  • Creating a hit game is critical to success, even for company’s already with a hit, but it is one of the most difficult challenges you face.
  • The key is moving from a production pipeline, deciding what game to create and then building it, to a production funnel, generating hundreds of ideas, prototyping some and taking the best to concept and then market.
  • To support a product pipeline, you need to structure your company to support it and ensure you allocate sufficient resources to drive many ideas through the funnel.

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Lloyd Melnick General Social Games Business 1 Comment April 10, 2018March 4, 2018 4 Minutes

Bayes’ Theorem Part 3: Making the best green light decisions

The last couple of weeks, I wrote about how Bayes’ Rule is the strongest tool for making good business decisions. In this post, I will address one of the most important decision and how Bayes’ Rule can help, deciding what games or products to green light. In the game space, the green light decision is when a company decides whether or not to fund fully a project and put it into production. Some companies have a highly defined process, while others rely on intuition. The lessons of Moneyball already say who is going to win between those using a process and analytics and those using intuition, so I am going to focus this post on how to apply Bayes’ Theorem so you apply the right data. Although I am focusing the post on green lighting game projects, it can be applied to any new product.

Greenlight

One of the most common green light mistakes I have seen in the game industry is companies deciding on the merits of a game primarily based on how much fun the demo or prototype is. Related to this, they look at how the features of the demo/prototype compare with competitors and if it has enough competitive advantages they move forward. With the latter approach, you may feel you are looking at the opportunity very analytically but you are actually neglecting the most important data points.

Bayes’ Rule shows that often the best information for decision making is most likely the data from all previous game releases. As I wrote about last month, Bayes’ Theorem is a rigorous method for interpreting evidence in the context of previous experience or knowledge. Bayes’ Theorem transforms the probabilities that look useful (but are often not), into probabilities that are useful. It is important to note that it is not a matter of conjecture; by definition a theorem is a mathematical statement has been proven true. Denying Bayes’ Theorem is like denying the theory of relativity. Continue reading “Bayes’ Theorem Part 3: Making the best green light decisions” →

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Lloyd Melnick Bayes' Theorem, General Social Games Business 1 Comment February 6, 2014February 13, 2014 4 Minutes

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.

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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 the GM of VGW’s Chumba Casino and on the Board of Directors of Murka Games and Luckbox.

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by Lloyd Melnick

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