Maximizing Monetization - Casual Connect SF 2013

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A deep dive into the economics in free to play games, why monetization is exponential, and how to get it right.

Transcript of Maximizing Monetization - Casual Connect SF 2013

  • Maximizing Monetization Casual Connect SF 2013 Emily Greer, Co-Founder & COO
  • A little Kong background Open platform for free browser-based games Flash, Unity, HTML5, Java, etc. 15M monthly uniques, core gamers ~300 games selling virtual goods Revenue from ads (15%) & virtual goods (85%) Now a mobile publisher of free-to-play games, first titles launching globally August 2013
  • Some of Kongregates Existing Developer Partners
  • Monetization is exponential
  • Its not just genre
  • Its not just quality
  • So what gives?
  • Econ 101 In perfect competition the market price is set where demand & supply are equal. Real life example: the stock market
  • Imperfect Competition Perfect competition assumes that goods are homogenous, i.e. that theres no difference buying from one supplier or another. But nobody can sell a good thats useful in your game but you. (Ignoring gold farmers)
  • Your game is a monopoly
  • But Im surrounded by competition! Yes, and the competition for player ATTENTION got so fierce that it dropped the game price to free. The market for in-game goods is separate: players are not price-shopping packages of gold in two different games and deciding which to buy.
  • Since players can leave your game/market for goods freely your monopoly is (very) insecure. What it does mean, though, is that you look internally to your game to set prices, not externally.
  • Monopolies can set the price freely, deciding whether to sell fewer units at a higher price or more at a lower price. Marginal revenue is the change in total revenue from a change in price. Monopoly Revenue Maximization Example: 5 units at $5 = $25 7 units at $4 = $28 Marginal Revenue = $3 Total revenue is maximized where marginal revenue = $0
  • In an econ class the professor would give you a formula and youd calculate a derivative. In the real world you need to deduce it from trial & error: set a price, change it and see what happens Uh, how do I figure out where MR=$0?
  • Its all about elasticity When a good is elastic, quantity decreases rapidly with a price increase and total revenue drops. When a good is inelastic, quantity decreases slightly with a price increase but not enough to compensate for the change in price and total revenue increases. Gasoline is a classic example of an inelastic good.
  • Now in graphs! Area of the box = total revenue
  • So which are virtual goods? Mostly inelastic.
  • Immensely popular series by Ninjakiwi, BTD4 introduced virtual goods and was the first big single-player success. Sold 20 items ranging from $0.30 - $10 BTD5 launched last year, selling nearly 40 items from $0.60 - $100 on average 70% higher on comparable items. Bloons Tower Defense 4 vs 5 Results: 92% increase in ARPPU, -1% decrease in conversion, +88% ARPU Player freakout? Nope. Rating is slightly higher, revenue much higher than BTD4
  • Mind the drop Skyshard Heroes is a competitive kingdom-builder with a steampunk theme from Synapse games. They A/B tested dropping the price of their heroes 40% on cohorts of new users, expecting that it would help conversion. Results: +21% in conversion but -25% in total revenue
  • Quick Math Break Linear regression is a standard statistical method for modeling the relationship of two variables. The trendline through a scatterplot is the predicted value of variable y given that value for x the farther the points are from the line, the less predictive x is of y. That error is measured with by the R2 value, where 0 is no relationship and 1 is perfect correlation.
  • Curve Line Linear regression doesnt work very well with exponential functions because they are curves, not lines. But because power curves are scale invariate you can safely transform them to a linear relationship by taking the logarithm of the values. Im going to be using this technique a fair amount to look at correlations between monetization variables. The Richter Scale is a logarithmic scale of an exponential function, earthquakes.
  • Min Price & ARPU
  • Correlation Check: Min Price & ARPU
  • Max Price & ARPU
  • Correlation Check: Max Price & ARPU
  • Low entry prices dont even help conversion rate in any clear way Min Price & % Buyers
  • % Long-Time Players & % Buyers So what correlates with increased conversion if it isnt price? Time in game!
  • More on demand curves A demand curve is really the aggregation of individual player demand curves. Factors that shape the individual demand curves: Desirability (utility) of goods for sale Income/ability to pay
  • Demand curves change with time A player wont desire goods from your game until they care about their status & progress in the game. The longer someone spends playing a game the greater their investment and emotional attachment, and therefore their willingness to spend. Demand goes up, price elasticity down.
  • Conversion rate by lifetime plays
  • Gameplays before 1st Purchase
  • Retention = Security The more time a player invests in a game, the more they value their status and progress, the higher the switching costs to another game/hobby become.
  • % Long-Time Players & ARPU
  • Correlation Check: % 100 Plays & ARPU
  • More on demand curves The shape of the games aggregate demand curve is determined by: Total players in the market The shape of the individual demand curves, weighted by their total demand If a market has a few people with high, inelastic demand that can make the whole curve inelastic.
  • Big Spenders are a Big Deal Four of the top five games get the majority of revenue from those spending $500+ Every top ten game gets the majority of revenue from players spending $100+
  • ARPPU & ARPU
  • Correlation Check: ARPPU & ARPU
  • Correlation Check: % Buyer & ARPU
  • Transaction Size & ARPU
  • Correlation Check: Trx Size & ARPU
  • Number of Transactions & ARPU
  • Correlation Check: Num of Trx & ARPU
  • Steady Investment FTW
  • So what do players want? Permanent Upgrades! Items that give real and permanent advantage in the game. Permanent Upgrades > Consumables & Convenience > Cosmetic Items & Content Consumables tend to be in the 10-30% range of sales. Impermanence reduces the value to the player it feels like money dripping away rather than a sound investment.
  • Cosmetic-only items sell poorly though cool looks can help functional items sell. Real-life example: I buy a coat to keep me warm, but am willing to spend more on one that looks good on me. Content is a tough proposition in a world of free, only appeals to those who have finished game. What do players want?
  • If powerful items sell, a winning item will sell even better! Maybe temporarily, but if you break your game players will lose interest and leave, even those buying wins. Items can be powerful if they also require skill to use well and are acquirable through a very large amount of play. Balancing advantage vs pay-2