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The Business of Social Games and Casino

How to succeed in the mobile game space by Lloyd Melnick

Tag: Subscription

Interview with Jay Powell on trends from 2020 and expectations for 2021

Interview with Jay Powell on trends from 2020 and expectations for 2021

While I hate making annual predictions, it does not keep me from asking others what they expect. I recently had the opportunity to speak with Jay Powell, arguably the most connected person in the game industry, on the key trends he saw in 2020 and what he expects this year. Jay was one of the first employees I ever hired (1998) and since then he has built relationships with thousands of game developers, publishers and tool providers. Jay at ALES 2019 - squareBelow is my conversation with

Jay:

Lloyd: You are probably the most connected person in the industry so I wanted to start by asking you what major trends or changes you saw in 2020, what were people talking about and interested in?

Jay:  That question can go one of two ways. There’s what we see at the AAA level with the Activision, Take Two, etc, then there’s the rest of the world.

Lloyd: Let’s start with the big money companies, then we’ll come back to the rest of the world.

Jay: At the AAA level we’re seeing companies (aside from Take Two) approach the streaming and subscription services with some seriousness. Stadia has stuck around, Apple has been paying guarantees for Arcade, and Microsoft has gone a fantastic job with Game Pass. These platforms are the new consoles in many ways and they can be approached for funding and distribution just like a traditional publisher. Plus, when the exclusivity ends, with some of these deals, you can still pursue more funding and distribution.

Lloyd:  Google, MS and Apple are all huge, will one of them win?

Jay: My bet is on Microsoft. The probability is still too high that Google just packs it in if they don’t get the traction they want. That’s been the primary concern with them from the beginning. Aside from the fact that they still don’t seem to understand who their customer is. Apple is under assault from multiple angles right now and Arcade is great for people with Apple devices but iOS isn’t the dominant platform in mobile.

Microsoft has built a real value with Game Pass and they’re finally out there acquiring world class studios to make it even better. Buying Bethesda was huge and I’m very interested to see who they pick up next.

Lloyd: Are the AAA devs/publishers also coming around to streaming/subscriptions?

Jay: Yes, with the exception of Take Two. Activision hasn’t fully embraced it yet, but they will. EA signed on with Microsoft (and Ubi Soft is rumored to be adding their Uplay as well) to make their subscription service part of Game Pass and the next tier of publishers (Paradox for example) already see the value in it as well.

Take Two said they don’t see streaming as a major player in 2021 but let’s face it, with GTA 5 Online, Red Dead Online and the general power of those two IPs, they don’t need it.

Lloyd: Before we leave the world of AAA, you mentioned this being the new world of consoles. What about the old world of consoles, it felt like there was more buzz with the PS5 and Series S/X than there has been for a while with a new console generation, is it a dead man’s bump or a true resurgence?

Jay: I don’t think it’s either. It’s business as usual. The pandemic has been fantastic for Nintendo and the Switch, the early adopters are still buying up XBox Series X and PS5 because that’s what they do, and Microsoft’s Series S (plus Game Pass) is a great option in the middle. We’ve got a shortage now because of the usual holiday release rush and the world went through a global pandemic, which caused supply to be even lower than usual.

Lloyd: So you don’t see the console market increasing, it’s real, it’s here but it is not entering a new growth era?

Jay: I don’t think we’re going to see Microsoft and Sony enter a new growth era with their consoles, but Nintendo’s certainly seeing one.

Animal Crossing New Horizons has sold over 26 million units this year, largely because people were home with the pandemic. All of those players now have a Switch, they’re going to be looking for new games.

Lloyd: Jumping back to the online subs/streaming, what does it mean for the non-AAA companies, how are they seeing it?

Jay: Streaming for the non-AAA companies is a mixed bag. It’s not going to be a money tree for the majority of companies for the same reason every music artist doesn’t bring in tens of millions on Spotify. The big names are always going to make more money on stream/sub services because that’s what people usually gravitate to.

That said, with Apple, Microsoft, and other companies paying guarantees to get exclusives there is a new option for a lot of developers.

Back to streaming for everyone else… Paradox has said that much of the success of Crusader Kings 3 comes from the fact that they added it to Game Pass. We’re seeing these streaming options become marketing pieces for games and many times developers and publishers are paid up front to include them.

We’re also seeing the first wave of Apple Arcade’s exclusivity agreements expire. Now we have teams who’s game (plus live content) have been fully funded but now they are free to pursue other revenue streams for those games as well.

The entire ecosystem opens up opportunities for teams that are positioned (and interested) in taking them.

Lloyd: What about Steam? That’s become the major distribution channel for non-AAA, how is this competition impacting them and thus their ability to get Indie games out?

Jay: Steam’s problem isn’t getting indie games out, it’s getting visibility for the games. More than 200 games launch every week on Steam, they aren’t having any issues releasing games.

The competition from Microsoft and Epic in particular is forcing their hand and making them change their terms for the first time in over a decade though.

Lloyd: For the better? At least better for devs?

Jay: Somewhat. Steam’s changed their terms back in 2018 but it was to the benefit of the AAA crowd, not indies.

Apple changed their’s recently to create better terms for the indies versus the AAA. It’s two reactions to two different problems. In 2018 Steam was getting pressure from Epic but their move was to try to regain the AAA releases that had left their platform. Ubi Soft have UPlay, EA had their Origin launcher, Bethesda announced they would be skipping Steam for Fallout 76, Take Two built their own launcher. Steam was losing the blockbuster games that make the bulk of their revenue.

Apple’s change came from Epic’s pressure on their revenue share and Epic’s framed their entire legal campaign as a fight for the “little guys”

Lloyd: I was always a little amused about Epic fighting for the little guy.

Jay: Epic had a hand in forcing both changes though and I don’t think they get the credit they deserve for what they’ve done.

Lloyd: I agree but not don’t think they are purely altruistic, IMHO

Outside of what we just discussed, what else were people talking about in 2020. What were the big changes (outside Covid) that grabbed their attention or worried them?

Jay:

”I was always a little amused about Epic fighting for the little guy”

– Yea, me too. But with the revenue Fortnite brings in they are the only one’s who have had the nerve (and bankroll) to do it.

and no, it’s not completely altruistic but the indie teams will take all the support they can get.

I’m not sure you can frame 2020 without Covid. It’s been a huge driving force in so many areas of our industry. Before we dive into that we need to recognize that we (as the video game industry) have been VERY fortunate this year. Covid has ransacked so many industries, companies, and families but our world has profited greatly from it. Though we may speak about the pandemic and the “good” it brought to games, it’s not a good thing and a lot of people have suffered and died. I just wanted to make that clear.

Lloyd: So true.

Jay: The big change this year was everything moving online. For the non-AAA world it has allowed developers who have never had the chance to pitch their game to publishers at GDC get the chance due to digital events. (and yes, full disclosure, I run the longest running digital conference series in the industry).

Lloyd: Has that worked?

Jay: YES.

Have people gotten deals from online conferences?

Jay: The change has forced new ways of communicating for business and marketing, as well as internal studio communication. We’ve seen new tools pop up and new opportunities as a result.

We just got the survey stats in from our most recent event and our attendees alone are forecasting millions of dollars in revenue from deals as a result of one event.

And that wasn’t even our biggest event this year. Opening communication channels with no geographic barrier of entry opens up options to developers, publishers, and tech companies across the board.

The problem is, we were flooded with these events this year and we have had a lot of “Zoom Fatigue”. Like any market, that’s going to correct itself in 2021. The traditional conference companies are learning you can’t force the same model (and revenue) from an onsite event to an online event. The smaller companies are realizing it’s harder than it looks to run these events successfully.

The advantage we’ve had with our IndieGameBusiness I events is that we got to figure out all those problems back in 2019 when we were the only one’s doing these events.

Lloyd:

The change has forced new ways of communicating for business and marketing, as well as internal studio communication. We’ve seen new tools pop up and new opportunities as a result.

What are some of the new tools that have gained traction, that devs are really using (as opposed to VC backed and just getting hype)?

Jay: Zoom got the lion’s share of the spotlight because that’s what people were using pre-Covid. Now we’re seeing more video chat options opening up and the ones that existed previously such as Hangouts, Microsoft Teams, WebEx, and GoToMeeting have been forced to improve.

Slack has grown but not nearly like Discord has and both have pushed the other to innovate. Our native app at our conferences is 8×8 which isn’t nearly as popular but works amazingly well across all sorts of systems.

Now you’re seeing a growth in virtual conference software with Hopin.to, EventCombo, and others. They’re going to push companies like EventBrite to evolve.

We’re seeing new solutions pop up in VR conferences (which I’m still not sold on).

In the game industry specifically Xsolla has launched “Unconventional” which had a good test run earlier this year. Our partner MeetToMatch will be unveiling their integrated solution at our March event and we have developers coming together to create things like IWOCon.

This is IWOCon, very cool and ambitious if they pull it off – IWOCon

Lloyd: Enough of 2020 (I’m sure others would agree), what are you expecting in 2021?

Jay: I think we’ll see the fruits of a lot of the innovation that was forced on 2020 emerge next year.

In the game industry, in particular, we’re going to see online events mature as people learn how to manage them. We’ll see some (not all) of our favorite in-person events return in a hybrid form as well.

We’re going to see more attention paid to the subscription services as each platform starts acquiring high quality exclusive content.

We’re going to see a growth in markets like South America, the Middle East, and Africa because the companies there have a much easier path to the core industry. We’re going to see more of the western markets get involved with these territories for the same reason.

Lloyd: What do you mean by hybrid?

Jay: Hybrid events will be merging the on-site conferences with online versions. We’ve done this with our event that happens alongside GDC and other conferences have tested it as well. At the most basic level you allow your attendees that are physically at an event to schedule online meetings with registered attendees who aren’t. I imagine we’ll see virtual lectures and sessions as well.

Lloyd: In the emerging territories you mention, will the growth be subscription based or more traditional game sales?

Jay: Both, each market has it’s own nuances, advantages, and limitations. The most successful companies will be the ones who know what products and games fit the right audiences.

Lloyd: What else do you expect?

Jay:  We’re going to have to see a better way for developers and small to mid tier publishers to boost their discoverability (which is still the biggest hurdle for the indie market).

We’re also going to see a lot of growth in online education both through traditional colleges and universities as well as specialized segments for markets like games.

Lloyd: Hasn’t discoverability been an issue for devs since when we first met in the 1990s at Octagon Entertainment and Merscom?

Jay: If we go all the way back to our Octagon days, we dealt with 75-150 publishers globally. Now my team tracks over 700 publishers across PC, console, and mobile.

When we were running Merscom the discoverability issue came from the casual space where companies like Big Fish were launching a new game every day (and taking 70% of the revenue). Now we see far more games launched on multiple platforms. The days of “A good game will always sell” are dead and gone.

Lloyd: How do 700 publishers make money, I can’t believe 700 devs could make money, and publishers need a suite of titles?

Jay: Well we track over 4,000 developers and I’m sure there are at least 1,000 more that haven’t hit our radar yet.

The reality is that 700 publishers don’t make money, We release our publisher list every year (new one arriving in early January) and it’s a major undertaking to keep our internal database accurate. Publishers come and go quickly but you don’t need as many hits to stay in business now if you run a streamlined company.

Lloyd: I’ve already kept you longer than I was supposed to, so thanks for the great conversation. Any parting thoughts you wanted to share?

Jay: I can do this all day.

2021 is going to see a continuation of the changes we saw in 2020. The companies that survive and prosper are going to be the ones paying attention to the market around them and can adapt as needed.

Now more than ever you need to know your audience, know how to reach them, understand their pain points, and deliver them an innovative solution. That’s going to be true for everything from the games we play, to where we play them, and the tech that runs them.

Thank you Lloyd, this was fun

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Author Lloyd MelnickPosted on January 13, 2021December 31, 2020Categories General Social Games BusinessTags 2020, 2021, SubscriptionLeave a comment on Interview with Jay Powell on trends from 2020 and expectations for 2021

The Reese’s Peanut Butter Cup of game monetization models

The Reese’s Peanut Butter Cup of game monetization models

I am always on the lookout for monetization models that can augment or disrupt the gaming space and I have recently come across a hybrid one that has great potential. I think subscriptions are a great way to create recurring revenue and increased loyalty. I am also a big fan of in-game advertising, as it allows players who would not normally monetize to gain greater value from a product while delivering revenue to the creator. I also recently noted the success of hypercasual games, which has been driven by advertising.

Slide1

Recent research in the streaming space highlights an intriguing opportunity for game companies. A survey of consumers with connected televisions found that 76 percent are open to see ads in exchange for free streaming services. Additionally, 64 percent of consumers say they don’t plan to add a subscription video streaming service in the next year.

There are two very important implications of this research. The first is that while traditional subscriptions are still promising, many people are reluctant to add more subscriptions to their monthly burn. While it is still too early to understand the impact of Coronavirus, people may become even more conservative with their cash flow as they have to deal with a new economic environment. Second, rather than ask people to sign up for a regular charge, they are more likely to agree to a subscription if the cost is “free,” simply watching an advertisement(s).

Opportunities

For game companies, this peanut butter cup (the combination of subscriptions and advertising) presents multiple opportunities:

  • Create an additional subscription stream where players deliver revenue through ads. While the amount you can generate has a lower ceiling with ads, you can still build a subscription model using ads. By relying on ads rather than purchases, you also reduce customers’ barrier to signing up so you are more likely to get high pick up rate.
  • Use advertising to drive a game streaming service. While Stadia, and possibly Apple Arcade, have not gained much traction with a traditional subscription model, an ad-driven purchase model might allow them to get critical mass.
  • Leverage ad-driven subscriptions to sell flow of regular game or content release. If you are a hypercasual publisher, an ad driven subscription model can give players access to X/month games.

Ad driven subscriptions can also be integrated into different stages of your customer lifecycle or a broader subscription model. Rather than asking people to commit before they are hooked on your product, allowing players to subscribe by watching ads the first month or the first three months lowers their risk while getting them to become a subscriber. You then convert them later in the funnel to full paying subscribers.

You can also allow players who have lapsed or churned to renew their subscription by watching an ad. Thus, if they had to cancel because of cash flow issues or if they were not getting sufficient value to cover the cost, ad-driven subscriptions are an additional way to retain some revenue from these players and keep them in your ecosystem.

Challenges

While offering an ad-driven mechanic for customers to subscribe creates many options, it also presents challenges. First, one of the great benefits of subscriptions is that it gets your customers invested in the product. This makes them more committed and engaged. If they acquire the subscription by watching an ad(s), they may not be as committed to the long-term relationship. Second, to generate sufficient subscription revenue, a customer will need to watch or be exposed to multiple ads. If they are just watching ad after ad in one sitting, the value you can deliver to advertisers will be minimal. You will need to come up with creative solutions to generate enough ad revenue to justify providing a subscription. Finally, a subscription requires regular purchases, which is how subscriptions delivers reliable revenue. It is simple to bill a player regularly for their subscription and it becomes passive activity for your customer. With advertising, they will have to proactively watch ads every time the subscription renews. One potential alternative would be showing interstitial ads or ads in another frame, rather than relying on a watch-to-earn mechanic.

Figure it out

Just because nobody before Reese’s thought of a good way to combine chocolate with peanut butter did not mean it was a bad idea. It is the same with ads and subscriptions. The companies that crack the code first for merging these two monetization models are likely to see great returns.

Key takeaways

  1. Two of the most promising business models to grow the game industry are subscriptions and advertising, so combining the two can create a unique opportunity.
  2. There are three ways game companies can leverage this opportunity: create an in-game subscription option that incorporates ads, use subscriptions to grow a streaming service or publish a flow of games that customers subscribe to via subs.
  3. Challenges include generating enough subscription revenue through ads, getting customers to feel committed and figuring out a mechanic for players to renew.

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Author Lloyd MelnickPosted on April 8, 2020March 28, 2020Categories General Social Games Business, GrowthTags advertising, monetization, SubscriptionLeave a comment on The Reese’s Peanut Butter Cup of game monetization models

Taking the subscription model to the next level

Last year, one of my most popular posts was about the subscription model and opportunities for social game companies. I recently read a book, The Membership Economy by Robbie Kellman Baxter, that provided another layer to building and launching a successful subscription model. Baxter’s work provides useful advice for creating a sustainable subscription business.
MemberShip Economy

Look at subscribers as members

Baxter’s book is not solely about subscriptions but about memberships, which can then be applied to the subscription model to make it more powerful. By looking at subscriptions as memberships, you not only generate an ongoing and stable revenue stream but also create value for your customers because membership provides recognition, stability, and convenience while connecting them. This connection is very powerful, as Maslow showed in his hierarchy of needs, after satisfying physiological needs and safety, people focus on needs of belonging and esteem before ultimately moving to self-actualization. Membership as part of a subscription helps people satisfy those needs.

Baxter writes that “membership is an attitude , an emotion. A subscription is a financial arrangement. It’s quite possible for something to be both a subscription and a membership organization…. Members love membership models because they fulfill powerful human drives — like needs for affiliation and prestige…. If you provide individuals with the infrastructure to enable them to connect and help them build behaviors that help themselves and others, there is tremendous potential to enable people to share ideas, content and physical products that otherwise might go underutilized.”

With membership, you are also less likely to churn customers. Members are committed until they cancel, the equivalent of breaking up or getting divorced. That break up is a much more emotional decision than deciding whether they want to make another purchase.

Subscriptions are about access

A key to success with subscriptions, as I discussed in my last post about the model, is to provide access as the core value rather than consumables. As Baxter writes, “too many loyalty programs are commodities, effectively just discounts for volume purchases, and don’t really create authentic loyalty or strengthen membership relationships. Don’t be that kind of loyalty program.” Subscriptions that are about discounts largely cannibalize your existing business and do not appeal to customers looking to build a long-term relationship with your product or game.

Access also takes you beyond the traditional discrete purchase model with customers, even in-app purchases (IAPs). Part of this access is access to a community of like-minded people, hopefully fans of your core offering. Access is so much bigger than ownership, and the subscription model ties customers to organizations in an ongoing relationship with an opportunity for benefits on both sides.

Given that access is probably a different value than you have focused on previously, the question becomes what do you offer subscribers. I cannot answer that question as it is different for different games and products. In the game space there are many types of access that appeals to customers, examples include:

  • Games or levels (i.e. Loyalty specific slots, hidden levels)
  • Community
  • Referral program
  • Additional bonus and side games
  • High roller features (i.e. higher MaxBet, higher limits)
  • Speeding up rewards
  • Battle Pass type features (avatars and other vanity items that show your expertise)
  • Online events (training, sneak peeks, webinars, etc)
  • Physical events for entire tiers (parties, casino visits, et al)
  • Individual physical events (personalized experiences for top tier players)
  • Additional customer service channels (phone, live chat, etc)
  • Charitable contributions

These are some examples but the key is not to offer subscribers a consumable item, you are not trying to replace an individual purchase but grant them access.

Building a strong subscription program

Programs should be tailored to your audience and product, ensuring you are creating something many of your players will enjoy. There are, however, several common steps to creating a successful program for subscribers:

  1. Member/benefit alignment. Start with research and analysis of your existing data so you understand your potential subscribers. If you are not certain a customer would love the offering if he or she knew about it, there is no point in investing in anything other than fixing the offer and figuring out whom to target.
  2. Remove frictionAnything that slows down a user’s ability to engage with the services offered, especially during the sign – up process.
  3. Provide benefits at every stage of the journey, especially immediately. Provide meaningful benefits from the moment a player enrolls (or is automatically enrolled).
  4. Make your trial period great.Rather than trying to limit what a customer gets with an initial or free trial, over deliver so they see all the benefits of subscribing. If you provide a minimal experience or create too many gates for the player, rather than convert they will get annoyed and churn.
  5. Do not overpromise Simplicity is always critical to success, including with subscriptions. If you promise too many things, customers get confused and might not be able to find the benefit that really matters to them Also, if you promise too many things, it is hard to deliver on all of them.
  6. Personalize.People value experiences differently so ensure that you provide a breadth of benefits to appeal to your addressable market. With data and machine learning, you can then surface the benefits specific subscribers would most enjoy so they get the best possible experience from the subscription. You want to personalize so your subscribers feel more connected than non-subscribers.

    Baxter writes about how Caesars Casino uses personalization with its loyalty program, “Caesars sees itself not just as a gaming company, but as an entertainment company . It segments users to provide each group with a differentiated set of benefits and offers. It uses data to determine member preferences for things like favorite wines, room locations, and hotel amenities. Management empowers frontline employees to become ‘local hosts’ who use the data to make members’ visits special. This element is critically important because too many loyalty programs don’t build relationships with members at all — they just provide discounts, thus encouraging people to join all programs across an industry just to collect the points.“

  7. Take risks As Howard Schultz, the founder of Starbucks once wrote, “whatever you do, don’t play it safe. Don’t do things the way they’ve always been done. Don’t try to fit the system. If you do what’s expected of you, you’ll never accomplish more than others expect.” Starbucks has made some major advances on traditional loyalty programs with loyalty cards that are great looking. The card is also tied to payments, reducing a major source of friction.
  8. Tie loyalty and payments together.As Starbucks shows, there is tremendous value to integrating loyalty and payment. By tying payments to the account, it eases the purchase process, thus increasing purchases.
  9. Continue to add value Players needs will evolve and your program will also need to evolve. You need to offer additional value to justify the ongoing costs of membership. As Baxter writes, “Amazon Prime is a paid membership program. Amazon’s approach has been to have members pay something so that they are more…. Amazon has systematically and thoughtfully continued to invest in layering benefits over the core offering of free two – day shipping.”

The first time subscriber experience

As discussed above, one of the critical elements in creating a loyalty program is the early user experience. According to Baxter, “onboarding done correctly dramatically reduces the number of people who sign up for trial or become full members and then cancel within the first month or two. It also increases the number of people who become long-term members. Members who participate heavily in the first few months of the membership are much ore likely to become long-term customers.”

To ease on-boarding, you need to keep the offering simple and easy to use. Provide a very straightforward experience and quickly reward your subscribers.

Also, try to turn the subscription into a two way street. In most membership organizations, the members have a responsibility to provide something — membership dues to an association or country club, content as with Snapchat or Twitter, or even just personal information as with Groupon — in exchange for access to the membership benefits. By having your customers contribute, they feel more invested in the offering and are less likely to churn. The contribution also should be very easy, let the subscriber contribute easily and quickly without having to jump through hoops. Then reward them for the contribution, to build a positive reinforcement cycle.

Determining pricing

Once you have designed your subscription program, you need to determine pricing. As with other elements of the program, remember the value of simplicity. While a program’s designer may feel multiple options allow players to find the optimal program, it actually confuses and overwhelms customers (just as retailers understand people buy more tomato sauce when there are 3-5 options rather than 30 options). In addition to simplicity, successful subscription programs are transparent. Customers need to understand clearly the value and benefits, the costs and how to cancel.

According to Baxter, the optimal number of subscription options is three, and this number is consistent with consumer behavior research. Baxter writes, “Most people prefer to have multiple options, that three is the right number of choices, and that the majority prefers the middle option.” You can then layer a la carte services on to these three options (as satellite TV companies frequently do).

These a la carte options allow customers to personalize their experience while not creating confusion (they also can be introduced once the subscriber is comfortable with the core offering). According to Baxter, “À la carte services are out-of-the-ordinary services members do not require on an ongoing basis — for example, a one-time indexing of your content, or an on-boarding fee, or a health audit at the gym. A mistake many organizations make is to put this type of one-time service into a higher-level, ongoing pricing tier.” Ancillary products can also be offered on an a la carte basis, such as headsets for Skype or exercise shorts sold by fitness centers.

Also look at offering different subscription terms. SurveyMonkey found that annual subscribers were more loyal customers than monthly payers. They were committed to the platform and used it in multiple ways. While you may have three tiers, you can also offer monthly and annual subscriptions or fewer tiers but vary the length. The key, though, is keep it simple and easy to understand for subscribers.

Change your thinking

Once your pricing is determined, you then need to change your company’s culture to support a successful subscription business. The subscription model relies on long-term customer retention and thus the entire organization needs to be focused on retention rather than discrete purchases.

This new attitude needs not only to be reflected in the product but also with your marketing and customer support (CS) teams. According to Baxter, “marketing is more than campaigns — it’s about focusing on the market. This is always true, but especially in the Membership Economy, where retention matters more than acquisition. Marketing should ensure that the offerings the organizations create meet the ongoing requirements of the target buyers and that those prospective buyers know about the benefits of the offering, sign up, and become loyal….Good marketing is honest. Sometimes people have the idea that good marketing is about tricking people into buying things they don’t need. Not only is this approach unethical, but in the Membership Economy, with the need for ongoing relationships, it simply doesn’t work.”

In addition to marketing, your customer support team needs to become agents for your subscribers. At its core, CS in a subscription model needs to focus on building loyalty, not reducing anger. Baxter writes, “In an ownership economy business, the support staff’s goal is to minimize customer anger. In the Membership Economy, the goal is to maximize loyalty …Their task is to help callers use the product — more effectively, more efficiently — so that they will be increasingly loyal.” Wwhen you launch your program, ensure all your customer facing teams are focused on retaining your customers.

KPIs, analysis and avoiding churn

The final key to a successful subscription program is measuring the right metrics and using them to prevent churn. There are several elements of churn to monitor:

  • Passive churn. Passive churn is the number of subscribers who churn by not updating their payment method. This churn is a good indicator of problems with your payment platform. To mitigate this situation, give good customers the benefit of the doubt when there is a payment problem (which requires knowing who your best customers are) and reach out to them (phone or their preferred communication platform) to update the information while not suspending service in the interim.
  • Active churn. Active churn is when a subscriber proactively decides to cancel. Minimizing active churn requires understanding the reasons someone might want to cancel and creating options and incentives for them to stay (while not forcing the to stay). Below are some areas that Baxter recommends you review to determine the root cause of active churn:
    1. Date cohorts. Measure elapsed time from the day they signed up to see if certain things happen after a certain fixed time.
    2. Utilization cohorts. Do people tend to cancel after a certain amount of time of low usage or engagement?
    3. Original lead source cohorts. Do certain ads or partnerships bring in subscribers who behave differently from established members

Once you measure and understand your churn, there are several ways to reduce it. You need to build a system that makes leaving a difficult decision to make. You do this by ensuring people are using your product regularly and are very engaged. People are more likely to perceive value in memberships that they use frequently and for extended durations, so many subscription companies devotedly track visits and lengths of visits of members.

Subscribers are also more reluctant to cancel memberships when they have achieved status, customized their experience, scheduled regular activities, or built personal spaces. Finally, Baxter points out that if “someone simply wants to stop paying , offering a free subscription — something that allows the member to remain part of the family — is a best practice.”

Key takeaways

  • Treat your subscription service as a membership service. By looking at subscriptions as memberships, you not only generate an ongoing and stable revenue stream but also create value for your customers because membership provides recognition, stability, and convenience for your players while connecting them.
  • The core value to subscribers from the subscription should be additional access, features or games or community not available to non-subscribers.
  • Focus on the early experience. Onboarding done correctly dramatically reduces the number of people who sign up for trial or become full members and then cancel within the first month or two.

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Author Lloyd MelnickPosted on January 7, 2020January 7, 2020Categories Analytics, General Social Games BusinessTags Subscription3 Comments on Taking the subscription model to the next level

Lifetime Value Part 28: Why you are probably under allocating resources to Live Services

Lifetime Value Part 28:  Why you are probably under allocating resources to Live Services

Last month, I wrote a post about how many game companies do not dedicate enough resources to retention. Another area that most game companies, other than the top mobile gaming companies, are also under allocate resources to is live services. The live services team, however, largely drives success in the gaming space. A strong live services team is a key part to having an LTV that justifies marketing (and thus growth).

During the MAU conference in April, there was an interesting session on why the top social casinos were successful. The speakers were from the leading social casino publishers, Playtika, Zynga and Play Studios. All of them credited live services as the key to their success, with one attributing 80 percent of their success to live services. Also, if you look at the recent surge in Zynga’s stock price, it is largely driven by the performance of recent acquisitions. Zynga’s ability to improve the live services at these studios is the key driver of this positive performance.

What are live services

The textbook description of live services are changes that are made to a game or app that do not require a new build (development work). Live services product managers are focused on optimizing retention or monetization KPIs, rather than the PMs or designers driving new content or features.

There are many types of live services initiatives, ranging from optimizations to full programs. Some that have strong impact include:
Slide2

  1. In-game events. In many mobile games, you will see daily or weekly (sometimes hourly) special events, such as a one-day race to the top. The event may include a special leaderboard for players who get the most combinations or kill the most of a certain type of enemy in a specified period. These events serve multiple purposes. They create a sense of excitement outside the core game loop. They provide a reason for players to replay a level or a machine. They drive more engagement as players compete to get higher on a leaderboard. They provide variation, a way of introducing new content without having to build more content. Events are one of the strongest drivers of both retention and monetization KPIs in the gaming space.
  2. Economy optimization. A key to keeping a free-to-play game successful long-term is managing the economy, an incredibly complex task. Managing the economy of a social game (or real money poker) is very similar to what Jay Powell, Chair of the Federal Reserve or Mark Carney, Governor of the Bank of England, must manage. Powell and Carney must regularly adjust interest rates, quantitative easing (asset purchases), reserve requirements, borrowing levels, etc. to manage inflation, demand, unemployment and the asset (stock) markets. If Powell or Carney gets it wrong, inflation could get out of control, unemployment could rise or asset prices (stocks and real estate) could plummet.Slide1

    It is the same in games. The Live Services team must ensure that the in-game economy stays in sync and is a good experience for all players while encouraging spend (keeping up the value of assets). They need to ensure prices for goods or bets in a casino are at a price level that gives players a fair return on their investment and keeps them engaged. They need to build a balance between the main and premium currencies. They need to ensure the spin speed of a slot creates a good experience without draining a player’s wallet. They need to guarantee that a new player has a good experience but elder players are still having fun. All of these initiatives are connected and a failure in one area could create the gaming equivalent of Venezuela.

  3. Purchase package optimization. Related to optimizing the economy, the live services tem must ensure continuously players are getting appropriate value for their purchases. If packages are priced incorrectly, a customer might not get sufficient value when they make a purchase (for example, five minutes of gameplay rather than one hour) and thus become less likely to make future purchases. Conversely, they may get so much value that they never have a need to make additional purchases.
  4. Challenges. One of the most engaging features in games are challenges. Challenges are usually offered on a daily or weekly basis, helping direct gameplay. They are useful for keeping players engaged, encouraging them to test new content or features or play more. The live services team should create effective challenges and structure them (rewards, timing, amount of effort required, etc.) to optimize the impact on KPIs.
  5. Sales and promotions. Just as in the retail space, sales and promotions are a valuable driver of monetization. If not structured properly by the live services team, the sales could end up cannibalizing purchases or negatively impacting the economy. When done well, they encourage higher sustained revenue.
  6. Subscriptions As I have written recently, subscriptions are a great opportunity for game companies. Managing the pricing and options available for the subscription model sits with the live services team.

This list is a subset of some of the projects that are driven by a good live services team. Strong live services product managers will proactively identify other areas of optimization that will improve retention and monetization.

While I previously said that the live services team drives improvements that do not require development work, that is often the case in theory only. Many games are not architectured in a way that these changes can be made without development, especially older products. The need for development work should not be a line in the sand on whether these initiatives are pursued by the live services team, the benefits of launching events or optimizing the economy persist regardless of any need for development. Additionally, most successful live services teams also impact the product development efforts, for example ensuring the pricing of a new feature enhances the existing product.

Where’s the love

Just like it’s cousin retention marketing, many companies do not allocate sufficient resources (financial and people) to live services. Most of the resources end up going to product development instead. This allocation occurs because the development side is on the face of it easier to measure and sexier. A new feature under development might have a projected impact of a 2% lift on revenue after six months of development. That 2 percent uplift would be incorporated in the financial projections and when the feature launches and the revenue accelerates, everyone is taken to dinner. The PM who designed the feature can then create a Powerpoint that they use to brag to their colleagues.

Live services is not as glamorous. Economy improvements might improve revenue 0.5% every month but over the course of the month, not overnight. The live services PM probably won’t be taken out to dinner for the 0.5% increase (especially as it does not happen overnight but gradually over the month) over a given month. Over the same six months that it took to develop the larger feature, however, the economy improvements generate over 3 percent uplift (assuming the improvement is compounded monthly), a 50 percent larger increase than the new feature. Additionally, it does not require the development resources (and costs) that the new feature absorbed.

The other factor inhibiting allocation of sufficient resources to live services is the cross over with marketing. Many of the live services activities described above fall under marketing at some game companies. As marketing is often focused on acquisition, it is not prioritized on the marketing team’s agenda. Even when it is, live services need to be integrated with the core game experience to succeed. The expertise to design and optimize live services is usually more consistent with Product Managers than Marketing Managers.

Live services is critical to managing your LTV

I have written many times about lifetime value (LTV), and as I have said before it is the lifeblood of any app or game. Products are successful when their LTV is greater than the cost of acquiring a new user (CPI), only when this happens can a company afford to market. Without marketing, products eventually wither and die. Most companies, particularly in the social gaming space, are fighting a perpetual battle to find acquisition channels where LTV is great than CPI. Live services drives continuous improvement of LTV, thus allowing products that would otherwise not justify acquisition thrive. It is often the big difference between the game companies that can maintain their franchises (see Words with Friends, Slotomania, Clash of Clans, etc) to the ones that rise and then burn out.

Key takeaways

  • Live services is the key to the success of the largest mobile game companies (Supercell, Zynga, etc.) but it is an area often over under resourced at other companies.
  • Live services projects include in-game events, economy and purchase package optimization, sales, challenges and subscriptions.
  • Live services often get fewer resources than product development because a new feature that takes six months to develop and generates a two percent revenue uplift is sexier and easier to visualize (and put in a P&L) than improvements that add 0.5 percent a month, though the latter leads to a 50 percent bigger impact.

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Author Lloyd MelnickPosted on October 15, 2019October 16, 2019Categories General Social Games Business, Lloyd's favorite posts, LTV, Social CasinoTags challenges, IAP, Live services, Subscription1 Comment on Lifetime Value Part 28: Why you are probably under allocating resources to Live Services

Guest appearance on Deconstructor of Fun

Guest appearance on Deconstructor of Fun

Had the pleasure of being on Deconstructor of Fun podcast earlier this week to discuss the subscription business model as well as some other timely topics for the game industry. If you want to learn more about the subscription model (or developments at some game companies, listen to the podcast here.

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Author Lloyd MelnickPosted on September 25, 2019September 24, 2019Categories General Social Games BusinessTags deconstructor of fun, podcast, Subscription1 Comment on Guest appearance on Deconstructor of Fun

Subscriptions: The new weapon in the game monetization arsenal

Subscriptions:  The new weapon in the game monetization arsenal

People in the game industry are continually asking about “a new business model” but they usually want new monetization techniques (ie. gatcha mechanic, piggy bank, etc.). Now, however, there is a real opportunity to disrupt the industry with a new model, subscriptions. I have been in the games industry since 1993 and in that time there have only been two new models, try-before-you-buy and free-to-play. Subscriptions may usher in the next era of gaming.

Try-before-you-buy was introduced in the early 2000s and perfected by Big Fish Games, who released via download a game every day that was free for the first hour and then the player would have the option of purchasing the full game. While the model did not have a huge impact on the traditional game companies (who were selling their product for a fixed cost in retail), it was blue ocean as it brought an entirely new demographic into gaming. For the first time, gaming was not dominated by teen age boys playing in their parents’ basements (or 30 year old boys playing in their parents’ basements) but saw an influx of female players, particularly older women.

Early in the 2010s the gaming industry experienced its greatest disruption. Free-to-play gaming gained traction in the US (and Europe) after dominating Asian markets. In this model, games were truly free and over 90 percent of the players would never spend a penny. The games, however, were built to get the most engaged players to spend to improve or speed up their gaming experience, and many of these players would spend tens or even hundreds of thousands of dollars in their favorite games. Social gaming companies, led by Zynga, gained millions of daily players, pulling them from other gaming or entertainment companies.

Free-to-play was truly disruptive. Household names like Atari, Acclaim and THQ (which had earlier reached over $1 billion in sales) went bankrupt. Zynga saw its valuation reach over $10 billion. Disney and Electronic Arts both spent hundreds of thousands of dollars to acquire companies in the space. The concepts behind free-to-play have grown to shape the video game space, even those old-school companies that still monetize with an upfront purchase use in-game monetization to drive their revenue growth.

Given the impact of free-to-play and the millionaires it, everyone has been looking for the next disruptive business model. Based on how other industries are evolving, subscriptions are likely to be the next disruptive model in the game industry,

How subscriptions are changing the world

While Asia provided a clue that free-to-play would disrupt Western video game markets, developments in other industries show the likelihood that subscriptions will emerge as a disruptive force. The largest retailer in the world (by market cap), Amazon, uses its Prime subscription service to lock in customers. Salesforce.com, the most important company in the enterprise software space, eschewed the high fixed fee model for a subscription model that left its established competitors in the dust. Adobe, the largest provider of graphics software, abandoned its old business model to move to a subscription model and is now valued at $135 billion. Netflix, the second most important entertainment company in the world (nobody is beating Disney for a while), gained its position with a subscription model. Even Disney is betting its future on subscriptions with Disney Plus.

Enabling this shift is a change in people’s attitude. Ten years ago, people would not pay for digital content and overall wanted to own things. People did not pay for music (remember Napster). People would buy a DVD or CD, even if they would only experience it once. The examples above (and the hundreds I left out) show that attitudes have shifted. Millions of people are willing to pay Spotify money every month without owning a song. According to the Reuters Institute, in the United States, the proportion of people ages eighteen to twenty-four paying for online news leaped from 4 percent in 2016 to 18 percent in 2017. Attitudes have clearly shifted.

Why subscriptions work

Subscriptions have succeeded because they better align customers with providers than other business models. Rather than the linear model of selling a product to a customer, the subscription model creates a dynamic where the company to please constantly its customers. As Tien Tzuo says in Subscribed, “companies that know what their customers want, and how they want it, will succeed over companies that spend a lot of time and effort creating a product they think is a good idea, then spend equal amounts of time and effort trying to persuade people to buy it.”

Further driving the success of the subscription model are the benefits it has for the provider. Subscriptions allow companies to start the month (or year) with a guaranteed base of business. Rather than having to estimate how many units you will sell, you look at your subscriber base and can accurately forecast your revenue. This stability allows companies to market aggressively, invest in new content, etc., as they can predict cash flow.

The subscription model also aligns companies with their customers. As Tzuo writes, “instead of thinking about reseller margins and unit sales, [companies are] thinking about subscriber bases and engagement rates.” Companies driven by a subscription model have direct ongoing relationships with their customers. They no longer have to segment customers, they now have individual subscribers. With the industry leaders (Amazon, Netflix, etc), every subscriber has their own home page, their own activity history, their own red flags, their own algorithmically derived suggestions, their own unique experiences. And thanks to subscriber IDs, all the boring transactional point-of-sale processes disappeared. As companies can never be too close to their customers, subscriptions create the loop that makes customer intimacy a reality.

Will subscriptions work in the game industry

Now that we agree that subscriptions are a great opportunity overall, will they work in the game industry. First, many game companies already are using this model. According to a great blog post by Google, they have seen global growth in game subscriptions of 70 percent year over year. Second, it is working. According to the post, game companies that have integrated subscriptions experience 20 percent higher retention. They also have seen higher overall monetization. Finally, subscriptions offset risk in developing and launching new content. According to Tzuo, “regardless of whether a show is successful or not, investing in sharp new content helps Netflix to both (a) attract new subscribers and (b) extend the lifetime of its current subscribers. Those shows don’t go away! Together, they’re increasing the overall value of the portfolio. They are instrumental in driving down customer acquisition costs (as more subscribers sign up) and increasing subscriber lifetime value (as more subscribers stick around for longer).”

How you should implement subscriptions in games

While subscriptions are an exciting opportunity, success with the model will come down to execution. Just as hundreds (or thousands) of game companies failed to implement successfully free-to-play, succeeding with subscriptions is more difficult than adding another package to your purchase page. There are several core concepts in building a product that leverages subscriptions.

Slide1

Subscriptions need to be about access

The biggest challenge, and most common mistake, game companies face is what to provide for the subscription fee. The easy answer is virtual currency, after all it is what customers are willing to pay for with in-app purchases. The easy answer is wrong. As stated in the Google post, “it’s important to move away from the mindset that subscriptions are just an auto-renewal mechanism for discounted IAP. Instead, subscriptions need to be thought of as offering highly-retentive long-term access to content, rather than the one-time situational purchase of content offered by IAP.”

Successful subscriptions are about giving players access to content and special benefits, access that can be gained or lost. In a social casino, it could be access to new slots or unique table games. In a game like Archero, it could be access to special levels or powers. The benefits could also be exclusive tournaments, special avatars or unique in-game events. The key, though, is not limiting (or even relying) on giving players virtual or premium currency but access to a premium experience.

Keep it simple

One of the core principles in creating successful products is to focus on simplicity, which is often very complex to do, and subscriptions are one area where it is easy to fall into the complexity trap. Companies with very successful subscription offerings have very few options.

If you offer customers too many options, it is likely to overwhelm them and preclude them from choosing any of the options. This concept of cognitive load is critical to the success of many products, from games like slots to apps like Uber. Given that the human brain consumers 20 percent of the body’s energy but only is 2 percent of the body’s mass, it is important to understand that people will subconsciously work to reduce the amount of energy the brain is using.

Cognitive load is how much info people are processing at any one time. Cognitive load is tied to working memory, the more information in that short-term memory the higher the cognitive load. As cognitive load increases, consumers are less likely to make a purchasing decision.

With subscriptions, this is directly tied to the offerings. If a player has different options ranging from the term of the subscription, monthly costs, benefits levels, they are likely to choose none. For example, you might offer people a month-to-month, 3-month-, 6-month or 1-year plan, with pricing at $4.99, $9.99, $19.99 and $49.99, each with different benefits. Rather than the player finding the one that optimizes their utility (to use an economist term, or makes them happiest, to use a human term), they are more likely to shut off and just pass on the offerings.

Instead, offer them one or two (at most) options. It can be a regular subscription or a premium one (additional benefits) or a short-term plan and an annual plan. You do not see Netflix offering ten different types of subscriptions. The key is make it very easy for the player to understand the value and choose between the two plans and whether or not to subscribe.

Keep it honest

One of the reasons subscriptions took so long to be commonly accepted is that until recently they were part of a sleazy industry. Companies would trick customers into signing up for a subscription, then make it very difficult to cancel the subscription. They might let you sign up easily, then require you to call them to cancel at a call center open one hour a week every second week. Even then, the agent you spoke to would do everything humanly possible to keep you from cancelling, creating an awful experience. These practices soured people overall on signing up for subscriptions. With social media and sites like TrustPilot, word quickly gets out of deceptive subscription tactics.

Preventing customers from leaving or tricking them into subscribing is not only unethical, it is bad business. One of the fundamental values that subscriptions create for a business is the connection with the customer. It forces the company to ensure every month it is creating value for the customer and that is why the customer renews or maintains the subscription. Everyone on the product team looks at new content and features and judges whether it will help retain customers and bring in new subscribers. While scamming customers may bring short term gain, it is the customer connection that subscriptions create that leads to great companies like Amazon, Netflix, Spotify, etc.

The best companies use subscriptions to improve their underlying business. Tien Tzuo writes in Subscribed that “the smart [companies] realize that if they really want to retain their subscribers, they need to focus on building a great service, without relying on lame tricks like hiding the cancel button.…Make it easy for customers to leave if they want to. You can certainly ask them why they’re leaving, or try to win them back, but don’t get in their way—the digital equivalent of blocking the exit with a hulking security guard. When you build subscriptions into your game, let customer value drive the offering rather than tricks on keeping customers from cancelling.

Build a loop

A successful subscription plan should be tied to engagement in the underlying game. The more a customer plays the game, the higher the value of the subscription. According to the Google post, “in mobile games’ subscriptions design, some offer a booster or bonus points, to reinforce the action of ‘play.’ Some create a durable good, such as a permanent building or character, that levels up as a player remains a subscriber for a longer period of time. In these cases, the desired action is “continue to subscribe.” In other cases, subscribers get bonus premium items, currency or points to reinforce the action of in-app purchases.

Looking outside the game industry, airlines have done a good job of creating a loop around their frequent flier programs. With frequent flier programs, members improve their status by flying more or buying expensive tickets, such as business class. According to the Google post, “the ‘earn’ criteria here — flying or spending — is precisely the desired customer actions that the airlines want to reinforce.”

Evolve benefits

Another important element of a successful subscription program is that benefits evolve. According to Google, “as the players invest more in the game, whether it’s with their time, skills, or other IAP, the subscription benefit also compounds.” Thus, the player can unlock more sophisticated content or new challenges that would not have been relevant for them earlier in their experience.

Celebrate VIPs

VIPs are the core of virtually any social game’s success. Most free-to-play games generate 60-90 percent of their revenue from the top 1 or 2 percent of players. Many product managers have avoided subscription programs because of concern on how it would impact VIPs. If a player can subscribe to a VIP program for a fixed sum, the concern is that would put a cap on how much the VIP would spend in the game.

This concern leads back to the first point on subscription design, that is should be about access, not a replacement for existing purchases. Thus, the subscription plan might give the VIP access to slots they would love to play but not chips to play those slots.

When thinking about your VIPs, do not forget they are already VIPs. If someone is spending significantly in your game, do not try to take another $5 or $10 from them every month. Instead, turn the subscription into a celebration of their VIP status. Give them a free subscription, the goodwill will be worth much more than the short term revenue you would generate from forcing your VIP to purchase a subscription.

Use subscriptions to drive acquisition and convert players

In addition to driving monetization and engagement, subscriptions are a great way of increasing retention they are also a strong acquisition tool and powerful CRM element early in the product life cycle. First, an offer of a one or three month complimentary subscription can entice a potential customer not only to try your game but invest time to learn about your product.

Second, subscriptions can help convert players into customers of in-app purchases. They provide a way to let players see and test the spectrum of in-app offerings. According to Google, “Scopely’s game Wheel of Fortune frames its subscriptions offer as an all-access pass. These subscriptions feature exclusive rewards that a potential buyer would want in addition to a sales discount. Surfaced right after the first-time user experience (FTUE), with benefits such as ‘more energy, this subscription aims to increase these new buyers’ in-game engagement, and cultivate a habit of playing regularly and investing in their future gameplay.”

Third, subscriptions can increase virality, helping your existing users bring in new customers. Campaigns that let your subscribers give free months to their friends, and get free months themselves, are very effective at driving new user acquisition. For example, a promotion where a player can gift a new player three free months, and get a free month for every new player who signs up, helps you acquire players with the only cost being the lost subscription revenue of your advocate.

Making subscriptions a reality

Rather than being a follower, future successful game companies will push forward with subscriptions and help disrupt the industry, not react to the disruption. By focusing on execution and building a strong subscription offering, it is likely we will see the next Netflix or Spotify.

Key takeaways

  • Many industries are evolving from a discrete purchase model to a subscription model. From retail (Amazon) to music (Spotify) to entertainment (Netflix) to enterprise software (Salesforce.com), the subscription model is redefining winners and losers. The game industry will eventually succumb to the same forces.
  • To create a successful subscription program, the offering needs to center around providing customers with unique access and benefits, not replicating what they get when making in-app purchases.
  • Successful subscriptions also need to build an honest relationship with players, provide simple options, create a loop where subscribers enjoy more benefits by playing more, appeals to new potential customers and rewards your VIPs.

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Author Lloyd MelnickPosted on September 17, 2019September 15, 2019Categories General Social Games Business, General Tech Business, Lloyd's favorite posts, Social Casino, Social Games MarketingTags IAP, monetization, Subscription, vip4 Comments on Subscriptions: The new weapon in the game monetization arsenal

Social Casino Outlook for 2019

Social Casino Outlook for 2019

As I write virtually every year at this time, I cannot predict the future, nor do I think ANYONE else can. While the Mary Meekers, Elon Musks, Bill Gateses, etc., will often come up with insights of how the economy and world will evolve, if you review their predictions you will find they are wrong as often as they are correct.

December, however, is a useful time to reflect on the key trends from 2018 that are likely to extend into 2019, impacting opportunities for those in the mobile and gaming space.

Slide1

Two emerging revenue models will become much more important

While in-app purchases (IAP)will continue to drive revenue for social casino and social games, two other revenue sources will grow in importance.

  1. Advertising revenue.While advertising revenue already been the primary revenue source for many social games, it still represents only a small percentage of total social game revenue and many applications. In 2019, I expect advertising to become more important for all apps, particularly social casino. If done correctly, watch to earn videos do not cannibalize IAP revenue from spenders and creates revenue from the 95+ percent who do not monetize. Not only do ads not cannibalize IAP revenue, it often increases it by improving engagement and retention.

    Additionally, as customer growth in many social gaming verticals stagnates, particularly social casino, it will be increasingly important to generate additional revenue from existing players. Advertising will provide incremental revenue that complements the other product initiatives and allows companies to cast a wider net in their user acquisition activities.

  2. Subscriptions become another revenue option. While advertising will grow as a revenue source for social casino and social games, subscriptions will make an even greater impact. The subscription model has worked very well in Asia, it is a large part Tencent is valued at over $350 billion, but has not made a big difference in the mobile gaming space in the west (US and Europe). It is also the key to Netflix’s success and arguably Amazon’s (see Amazon Prime). Mobile game companies are finally understanding how to incorporate subscriptions in their business models, rather than just throwing them out there as an additional in-app purchase. The strength of subscriptions throughout the economy suggest it can become as important or even more important than IAPs eventually for social games.

Hypercasual will prove it is not a fad

The biggest development in social gaming in 2018 was the rise of hypercasual games, which now make up more than 50 percent of all mobile downloads. They have also dominated the M&A scene, with Zynga buying Gram Games for $250 million, Goldman Sachs investing $200 million in Voodoo as well as multiple smaller deals. Hypercasual games typically have a single mechanic and a single goal, yet reaching a high score can be very difficult. Effectively the core game loop is very straightforward, do one thing, get rewarded (so you can try again) and keep repeating to get a higher score.

In 2019, I expect the hypercasual segment to mature. By mature, I do not see lower growth but a more professional approach. Companies will no longer succeed by throwing a lot of products at the market. Instead, the industry will fragment, with different companies focusing on specific demographics or gameplay mechanics. I also expect you will see higher product values, while a $25k hypercasual game can be a huge success now, competition will raise the bar. UIUX will improve as will technical stability (today’s hypercasual games remind me of Facebook games from 2012, while games crashing are part of the experience). The increase in quality will eventually drive out the small and independent developers (except for the best and the brightest) but will result in better consumer experiences.

Convergence of Real Money Gaming and Social Casino will accelerate

With both Real Money gaming and social casino becoming increasingly competitive, they will lean more heavily on each other to capture best practices and improve their businesses. Social casinos are great at progression and social mechanics and these features will increasingly find their way into real money gaming, where just adding games no longer will be enough for success. On the social side, with the ability to grow the social slots market seemingly coming to an end, social casinos will take more gaming mechanics (sports betting, live dealer, virtual sports) from real money and adapt them to the social space.

Also, real money online gaming companies will get over their phobia that social gaming is cannibalistic and realize what their land based brethren discovered years ago, the two businesses are complimentary and increase the size of the pie. Social gaming provides the trigger for players to want to play roulette or slots and can also prove a great brand building opportunity. Partnerships similar to MGM’s relationship with Play Studios (where MyVegas and Play Studio’s other games share MGM’s rewards program) will extend into the real money space. As the US real money market emerges, real money operators will be increasingly anxious to partner with social casino companies to access their players.

Social casino consolidation

With user growth slowing in the social casino space, the top companies have to look elsewhere to grow their businesses. They have proven quite adept at increasing revenue from existing users, leading to unbroken annual growth for the past ten years that is likely to continue for at least another few years. But growing revenue per user has its limits, and the owners of the top social casino companies are demanding even more growth. While companies have had mixed (i.e. disappointing) results purchasing small players, the major casinos are driving growth by acquiring the other big boys. Late 2017, Aristocrat purchased Big Fish for about $1 billion. DoubleU also acquired DoubleDown Casino for over $800 million. These two deals have created the number 2 and number 3 social casino companies and I expect this trend to accelerate in 2019 as there will be limited other options for rapid growth.

Return to blogging

One prediction I can be 100 percent confident in is that I will be blogging more in 2019. While the real world got in the way of my blogging in 2018, there are many topics I plan to cover in 2019. I also look forward to any ideas from my friends and followers on topics you would like to see me discuss.

Retrospective

It would be intellectually dishonest if I wrote about my expectations for 2019 without reviewing how my picks for 2018 did. So how did I do last year:

  • The convergence of micro-segmentation, AI and machine learning to create extreme personalization. In 2018, the social casino industry continued to experience strong growth despite flat user numbers. The key driver for this growth has been better personalization and segmentation, the successful companies are tailoring promotions and sales for individual users. If anything, I expect this trend to accelerate in 2019 as companies actually understand what they are doing with machine learning and AI.
  • Voice recognition. While it has not had a big impact on the social casino space, voice driven devices continue to gain ground with Google and Apple joining Amazon promoting voice heavily. I expect in 2019 game companies will figure out how to combine the growth of voice with gaming products.
  • Big change in social casino. I will call this one a slight miss as the space has not evolved dramatically. Stars Group did release the first social casino games, PokerStars Play and Jackpot Poker, with Live Dealer but overall the industry did not change much from 2017. I still expect an innovative company will change the market in 2019.
  • Devices and platforms will become less important. I will admit to a miss here, the ecosystem still revolves around Apple and Google.
  • Dual devices. Another slight miss here. Dual devices have become a reality but they have not significantly impacted the game space.
  • Big players will enter free to play, and fail. This was a big miss and indicative of a sea change but one I am very happy about. After years of social casino and mobile gaming overall being the shiny thing and companies make stupid investments to get into the space, the business has rationalized. Companies are now looking at the competitive situation and financials before moving into the space, leading to a much more rational environment.
  • Privacy. BOOM, did I get this one correct. As someone who personally does not worry too much about my online privacy, privacy became the story of 2018. While privacy concerns will not go away in 2019, I think the concerns will ebb as people understand how to control what they share. The days of aggressively compiling and sharing user data, however, are gone and those companies that still act in a rogue way put their whole business at risk.

See you in 2019, have a great year.

Key takeaways

  1. 2019 should see the emergence of two additional revenue streams for social casino and social games, subscriptions and advertising.
  2. Hypercasual will prove to have legs, remaining a dominant genre in gaming
  3. Real money gaming will borrow more from social casino in 2019 while social casino operators will try game mechanics popular in real money.

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Author Lloyd MelnickPosted on December 31, 2018December 29, 2018Categories General Social Games Business, General Tech Business, Social CasinoTags advertising, hypercasual, Live Dealer, Mergers and Acquisition, Subscription, Virtual Sports1 Comment on Social Casino Outlook for 2019

Subscriptions 3.0

Although most of my success is with the traditional free-to-play (F2P) in-app purchase business model, the big opportunity will be on layering additional monetization on this model. One old model that I think represents a great opportunity for casual games is the subscription model, a model that pre-dates online gaming. A recent article on Alist, Subscriptions Reborn for Gaming, does a good job summarizing the history and pointing to the future of the subscription model.

Subscriptions in gaming in days past

First, it’s important to note that the subscription model is not new to gaming. The rise of MMORPGs, think World of Warcraft or Everquest, was driven by subscription revenue. At it’s peak (2010), World of Warcraft had over 10 million subscribers (most at over $20 per month).

The importance of subscriptions, however, subsided with the growth of in-app purchases. Most MMORPGs moved to a mixed or purely F2P model. Now. World of Warcraft is the only major product that is largely subscription based, and it offers free play up to level 20.

Other online entertainment have gone the opposite way

While gaming has moved away from subscriptions, it is increasingly important for other online businesses. Amazon Prime, Amazon’s streaming media and free delivery service, with over 50 million US subscribers and about 80 million worldwide. Music has evolved from selling albums or singles to subscription services like Spotify and Pandora. DVDs sales have plummeted while Netflix now has over 80 million subscribers. Thus, in other entertainment spaces, the subscription model is driving revenue now.

Subscriptions in gaming now

While not many games are offering subscriptions, yet, many gamers are already subscribing. Microsoft and Sony both have tens of millions of subscribers to Xbox Live and Playstation Network, respectively, for access to multi-player gaming and new, free games. Electronic Arts is seeing success with its Origin Access subscription service, which for about $4/month gives players access to classic EA games as well as new games before other customers.

The opportunity for subscriptions in gaming

While there is clearly a demand for game subscriptions, one hurdle that remains is Apple’s restriction on iOS subscriptions. With Apple, to offer an “auto-renewable subscription,” that is a subscription that automatically renews rather than asking the customer to purchase it again after a set period of time, you must provide a product that cannot be used up over time, what they call a non-consumable. A consumable could be an hour-long experience point boost in a game app. On the other hand, a non-consumable could take the form of an unlocking a theme, since it could be restored again later.

If you assume that Apple will not change its policy soon, you should not create separate strategies for Android and Apple given the importance of the iOS platform, instead build a subscription model that works for both. While there is no set of best practices yet in the mobile space for leveraging the subscription model, I suggest following the plan below to test this model

  1. Look at micro-subscription, small monthly amounts. $0.99 or $1.99 is not a large burden on players but not only will it generate revenue but will get them further invested in your product.
  2. Consider multiple subscription tiers. $0.99 for the silver subscription, $4.99 for the gold. This provides opportunities for your most engaged players to get the most benefit but is also accessible for all players.
  3. If you have an in-game VIP or loyalty program, offer subscriptions for players to move up or stay at a certain level. I would pay $10/month to retain my Platinum Status on American Airlines, let other people buy into status (plus it puts a monetary reward on it for players who earned it).
  4. Decide whether it is a company wide subscription (like EA’s Origin Access) or if it is game specific. The former obviously makes sense only if you have, or plan to have, a broad range of titles.
  5. Decide what to include in the subscriptions but always test. Different options include early access to new content or games, discount on purchases (which also may include IAP monetization), special avatars or themes or a regular XP boost. The benefits are game/company specific but should be broad enough to ensure a majority of players would see value.

As the model evolves, it will be interesting to see what does and does not resonate with players. By watching the space, you can learn best practices and build from there.

Slide1

Try it

While the subscription model is unproven in casual games and there is no defined model on how to do it right, you should still try it. It is increasingly difficult to monetize mobile apps, or at least monetize at a level that covers your acquisition costs. By adding subscriptions, you may find a secret to increasing lifetime value and thus enabling growth.

Key takeaways

  • Gamers have responded to the subscriptions model since MMORPGs, though it lost favor to in-app purchases recently.
  • Other areas on online entertainment – music, film, video – are driven by the subscription model.
  • Subscriptions represent an opportunity, though currently unproven, to increase revenue and customer lifetime value.

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Author Lloyd MelnickPosted on May 18, 2016May 1, 2016Categories General Social Games Business, Mobile PlatformsTags in-app purchases, monetization, Subscription1 Comment on Subscriptions 3.0

Turning your customers into your venture capital

John Mullins
John Mullins

Raising capital to finance growth for game and tech companies is one of the important responsibilities a leader will havem=, and to do it successfully you must realize it is not just about getting money in the bank. My post last week about Hasbro’s acquisition of Backflip Studios highlighted how smart cash management enabled the Backflip management team to capitalize on the opportunity with Hasbro (and make out quite well for themselves) largely because they did not receive significant investment. Had they taken a large investment at a high valuation, they most likely would not of been able to work with Hasbro. A recent Harvard Business Review article, Use Customer Cash to Finance Your Start-Up by John Mullins highlights the success many tech companies are having building a business through their customers’—not investors’—cash.

The Airbnb story

Airbnb is a great example of a company relying on customer cash to finance growth, allowing it to reach a point at which it was valued at over $1 billion when it did raise venture capital. Continue reading “Turning your customers into your venture capital”

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Author Lloyd MelnickPosted on July 18, 2013August 19, 2013Categories General Social Games BusinessTags Airbnb, Deposit, Financing, John Mullins, Matchmaker, Scarcity, Standardize and Resell, Subscription3 Comments on Turning your customers into your venture capital

Get my book on LTV

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

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