social games – The Business of Social Games and Casino

Blue Ocean Opportunities in the Red Ocean of Social Casino

For those of you who were not at Casual Connect and missed my talk on Blue Ocean opportunities in social casino and why they are the best path forward, below is a copy of my deck. The key takeaways are

Social casino is one of the bloodiest of red oceans, with excellent well-financed companies competing ferociously. The best path to success is to take a Blue Ocean approach.
Blue Ocean is all about turning non-customers into customers, rather than competing for the same customer.
You do this by looking at what you can remove from the existing product offering, what you can add, what you can increase and what you can reduce. This leads to a new offering that appeals to new users.

The full presentation can be seen here:

My top ten summer posts

For those of you who foolishly decided to take a vacation this summer rather than stay at home and read my blog, I wanted to summarize what I feel were my top ten posts this summer (and below will also summarize the rests of my posts since I am sure you will want to catch up on all of them). Continue reading “My top ten summer posts”

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”

Lifetime Value Part 9: Uncertainty and LTV

The key to using customer lifetime value (LTV) effectively is the understanding that it is a prediction, not a value. In my previous eight posts on LTV, I stressed the importance of LTV to the success of your game and company and the key components in determining LTV. After reading Nate Silver’s The Signal and the Noise, I realized that it is crucial to understand that LTV is a prediction and suffers the same risk as other predictions (e.g., elections, weather, sports scores).

The Uncertainty Principle

Many people mistakenly believe (and I may have inadvertently implied this in a previous post), that LTV is an exact function of virality, monetization and retention. It implies you put those variables into a formula and get out a number that shows precisely how much a player is worth. That would be the case if you did it with historical information after five years and then calculated how much that player had been worth to you. However, you are calculating how much the player will be worth, which is inherently different because you are predicting their future value.

The uncertainty principle, a key tenet of quantum mechanics (as popularized by Stephen Hawking), postulates that perfect predictions are impossible if the universe itself is random. Since you cannot have a perfect prediction, your LTV cannot be a distinctly quantified value. You are predicting future events (how much the player will monetize, how viral they will be and how long they will stay in your game) based on the available data. Your LTV model is a simplification of the world the player is in; you are looking at several variables but you cannot look at everything (e.g., chance of war, plague, everyone switching to Blackberry devices). In effect, your LTV calculation is very similar to a sportscaster’s estimate of how many home runs Albert Pujols will hit or a weatherman’s prediction on the likelihood of a hurricane to hit Cape Hatteras. Continue reading “Lifetime Value Part 9: Uncertainty and LTV”

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Mail order catalogs

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How deep to probe

What assets to use

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The Uncertainty Principle

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Runs = LTV

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The argument for taking a portfolio approach

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How to define retention

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Nintendo and Microsoft look like the losers

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