Designing For Monetization: How To Apply THE Key Metric In Social Gaming
The last several quarters have brought amazing new dynamics to the social gaming scene. Companies are reportedly making more money and hit games are growing faster than even the most bullish pundits could have predicted a year ago. Exciting times. As part of my ongoing exploration of social gaming success factors, I took a crack at exploring how metrics are being applied to shape social game design. Comments, feedback, razzing, and tweets to @sbergel are welcome. Onward -
Social games are now almost universally based on the virtual goods model which was pioneered by free-to-play (F2P) game operators in Asia. While all F2P profitability metrics discussions have traditionally boiled down to revenue measurements revolving around Average Revenue Per User (ARPU) per n grouping (cohort/entry vector/day/week/month/year/lifetime), almost never will companies actually release these figures. As a proxy therefore, various usage metrics - peak concurrent users and total registrations being the most common - are often employed from the outside to gain insight into the fortunes of a given game. Even these proxy numbers can be a bit murky however as they are self reported and usually released for PR/IR reasons. In other words, you typically only hear the good stuff and are left to read tea leaves based on fragmented and/or incomplete data.
In the case of social games however, the social networks themselves publish usage metrics resulting in greater transparency across the ecosystem. While the the actual metrics from each of the major networks are different, Myspace’s lifetime installs figures can be converted to Facebook’s Daily Active Users (DAU) and Monthly Active Users (MAU) with some elbow grease and educated guesswork. DAU is the one to watch. It has emerged as the key metric in determining the popularity and potential of a social game. The most primary reason for this is that active players drive all downstream value in a F2P game be it on a social network or off. Active players are the ones who invite friends (read: drive virality), consume content (read: drive in-game metrics), socialize the game (read: create community), and buy things in-game (read: drive monetization). Additionally, by looking at DAU versus MAU over time, one can quickly get a sense of how well a game retains its users. This is a heuristic hack but, it is useful in getting a rough benchmark of engagement rates. More on that in a sec.
Given its importance, it should come as no surprise that social game developers are constantly and rapidly experimenting with new ways to increase DAU counts. These range from unabashed operant conditioning hooks like daily point awards to viral gift invites and ever more creative feed story variants. The hands-down new hotness in DAU stimulation however are core game mechanics built on endless feedback loops aimed at getting the player to recursively schedule follow-on play sessions. MC Escher eat your heart out.
Getting back to the money however, it bears remembering that usage metrics are proxies. A high DAU/MAU ratio is simply an indicator of potential. It demonstrates that the game is compelling and can successfully drive engagement but it does not speak directly to sales or earnings. Monetizing engagement is very much a function of game design and the perception of value that it creates among players. There are no silver bullets or cookie-cutter solutions here - monetization is unique snowflake land. While best practices are constantly being honed, they are not universally applicable across all game designs. For example, functional items are sometimes said to drive higher conversion rates than cosmetic ones. But, that dynamic is highly dependent on the game, its audience, and the social motivations it generates. PvP game? The best sales are indeed likely to be status-oriented and come from items that give players an advantage in beating the snot out of each other…and bragging about it afterward. Virtual world? The hot items could very well be more cosmetic in nature and yet serve the very real purpose of signaling identity to others. Other factors potentially driving conversion to pay include the demographics of the audience, the depth of their commitment to the game, game economy balance, item merchandising, payment methods, and how well the game leverages social artifacts to activate key emotions like joy, guilt, nurturing, revenge, gratitude, pride, etc.
Moreover, allowing players to buy social or functional advantage can be tricky business. This is particularly true in high DAU communities which are by definition extremely active and engaged - these players are invested in the game and therefore highly opinionated and emotional. Introducing or tweaking the item sales structure in a well-balanced game and/or large community can result in anger and frustration in the player community if it upends their expectations or invalidates the investment they have made in the game. Here be dragons.
While social games are indeed operated as a service and able to be constantly optimized and updated, there is a delicate balance to be struck between speed to initial launch, audience development, optimization, and monetization. I would argue that games should contain at least the seeds of a robust monetization scheme at launch which is capable of maturing as the game grows. Ideally, the core thesis of which would have been validated with actual data from a series of A/B tests which enable insight into at least a notional Life Time Value and arbitrage point per player. Only then does it really make sense to go for scale. Otherwise, one risks being saddled with a rapidly growing cost structure, an untested revenue stream, and potential audience development time bomb.
Ahem. Let me rephrase that last bit. Only then does it make sense to go for scale if the priority is maximizing near-term revenue and retaining the player base. There is of course a case to be made for building a traffic empire as fast as possible. This is riskier but, with enough runway cash on hand, there are scenarios where designing for monetization might reasonably take a back seat to aggressively redlining a game’s DAU. For, in the right hands, the traffic itself can have sizeable cross-promotional value. To the degree it can be done successfully, shifting players from game to game is potentially cheaper than acquiring them from scratch on a per title basis. At some point the eyeballs have to be converted to cash but, with a large enough portfolio of games, you do get more times at bat. Still, this is a high wire act to be performed only by those with the financial resources for big bet trial and error. Your mileage may vary.
-Shanti
Click here to tweet this post
RELATED POSTS
That is a gargantuan increase over the 
