An analysis of the opportunities, costs, risks, and realities of the social game space on Facebook. Gives an idea of what publishers and developers are really getting into when they attempt to develop social games for Facebook. Developed by Bitfold Online Games

1. Social Game Success Overview of the business cases, costs, challenges, and rewards in the social game space By Michael Turner, Managing Partner at Bitfold Online Games

2. Part 1: Market Analysis

4. Original social game IP development

5. Social game operation & monetization

7. 2 currently in development

9. What’s Unique about Social Games Game progress is tied to the player’s personal profile Players get personal ownership over their achievements and progress Players interact with their “real world” social network Players interact with family & friends instead of only other gamers. Asynchronous interaction Users are rarely on at the same time, therefore most player to player interaction is played asynchronously. Progress Limits Most games limit the amount of advancement that can be had in a session. This incentivizes users to return frequently & to pay real money when they want to speed progress.

11. Player Base: 53 million US internet users played social games in 2010, 62 million are expected to play in 2011[1]

12. Opportunity for New Developers: The userbase of the top 5 social game developers shrunk significantly in 2010, while that of small & medium developers rose. [2]

13. International Markets: International social game markets are growing, with markets like Japan earning $1.2 billion USD in virtual goods revenue in 2010[3]

14. Multiple Social Networks: Many gamers exist in social networks outside Facebook (Myspace alone boasts 30 million gamers[4]) making extra monetization outside of Facebook possibleFig. 1 Social game market revenue projections. Source: emarketer.com Fig. 2 Demographics of social gamers 2009-2010. Source gamesindustry.com

15. How does a social game make money? Revenue Sources 1. Virtual goods purchases (direct purchases & offers) 2. Advertising Virtual Goods Revenue Model A game’s virtual goods revenue potential depends maximizing the following metrics: 1. Number of Active Users 2. Percentage of paying users 3. Return per paying user Multiplying the above metrics gives a rough estimate of revenue: (Number of users)*(Percentage of paying users)*(return per paying user) = game revenue Fig. 3 Breakdown of social games revenue. Source emarketer.com Fig 4. Comparison of a successful & unsuccesful game monthly & daily active user counts. Source: appdata.com

16. Key social game performance metrics Game Performance Metrics The following metrics are key to measuring a game’s performance MAU (Monthly Active Users): Number of users active at least once in the last month DAU (Daily Active Users): Number of users active in a game on a given day DAU/MAU: Ratio of DAU to MAU in a game ARPU: Average monetary return per user Percentage Paying Users: Percentage of users who have paid Retention: Percentage of users that revisit an app within 1-6 weeks Engagement: How involved a user is. Measured by metrics like session length & number of sessions/day LTV (Lifetime Value): Lifetime amount of money a user pays in a game (CAC) %Customer Acquisition Cost: Cost required to acquire a paying customer Fig. 5 Cityville’s DAU, MAU, & DAU/MAU ratio. Source: Appdata.com Fig. 6 A sample app’s Percentage Paying Users. Source: Kontagent.com

17. Nuances of key metrics Daily vs. Monthly Active Users: DAU is often considered a more important success metric than MAU because it measures how regularly users are playing a game. Engagement: Measured by metrics such sessions/day, session length, etc. It is considered highly important to monetization because users who are returning regularly & spending lots of time in game are more likely to make a buying decision. DAU/MAU: Roughly measures how often monthly users are returning daily to play. A high DAU/MAU signals the is game engaging & well engaged users generally monetize better. Customer Acquisition Cost vs Lifetime Value It is a key goal of social games key to minimize CAC while maximizing LTV of users. Engagement is key to maximizing LTV. Fig. 5 Cityville’s DAU, MAU, & DAU/MAU ratio. Source: Appdata.com Fig. 6 A sample app’s Percentage Paying Users. Source: Kontagent.com

20. Acquiring users through advertising is expensive

22. $0.50-$3 per install (dependent on many factors)[6]

23. Cost per 100k installs can range from $50k-$300k

24. Targets users based on interest which leads to high quality leads (i.e. players who return)[7]

25. Banner & Offers

26. Banners & offers via other Facebook apps

27. Cost: $0.10-$.60 per user[7]

28. Low quality leads (i.e. leads don’t often return)[7]

29. Viral Acquisition (Viral wall posts, Notifications)

30. Free! Reduces reliance on ads (and therefore cost)

31. Requires a large number of users to be effective

32. Virality is limitedon Facebook, so it is only a cost reduction measure, ad purchases are a mustFig. 7 Optimal balance between LTV & CAC. Source: Forentrepreneurs.com Fig. 8 Cost of user acquisition vs. quality of different ad types. Source: Adparlor.com

35. Monitor Metrics to gauge performance

36. Optimize creative appeal of ads

37. Optimize demographic targeted

38. Increasing Virality

40. Determine gameplay improvements that increase retention/engagement

41. Determine how to balance the game & virtual goods prices to increase ARPUFig. 9 Optimization of the Virtual Good Sales Pipeline. Source: Kontagent.com Fig. 10 Metrics on performance of a Facebook app advertising campaign. Source: Kontagent.com

42. Games – What are the popular Genres? Management Build something cool over time & maintain it Ex: Farms, City, Café, Pets Skill Skill, card, gameshow, & board games. Users share scores. Ex: Uno, Bejeweled, Family Fued Arcade/Action Engage in social combat with an arcade mechanic, build armies Ex: Pirates, PvP Combat or RTS Girl Games Feminine themed management games Ex. Fashion, Mall, etc Sports Social sports simulation games Ex. Build team, play friends RPG RPG epics or RPG city building games Mafia Wars Clones Games that emulate Mafia Wars gameplay mechanics Ex. War, Boxing, Racing

43. Games – Subgenres Management & Simulation Skill Games Farming & City Building Arcade Skill Games Monster World Monster World Millionaire city Bejeweled Blitz Zuma Blitz Gameshow Pet Games Family Fued Pet Society Happy Pets Wheel of Fortune Card, Gambling & Table Business Simulation Nightclub City Nightclub City Café World Texas Hold’em Poker Farkle

44. Games – Subgenres Action/Arcade Mafia Wars Clones Combat Simulations RealtimePvP Arcade & RTS MMA Pro Fighter World War Wild Ones Backyard Monsters Miscellaneous Simulations Turn-Based Battle Ninja Saga Street Racing Jersey Shore Monster Galaxy RPG Girl Games City Building Adventure Mall World It Girl Castle Age Kingdoms of Camelot Mall World It girl

45. Games – What genres are successful? Analysis of the top 300 apps Shown below is a table of the top 300 apps on 2/18/11 classified by genre & measured for number of games in each genre & total DAU & MAU in each genre Table 2. Top 300 English language games by genre, measured by number of games, DAU, MAU, & DAU/MAU

46. Games – What genres are successful? Fig. 11. Breakdown of number of games by DAU count in each genre . Source: Appdata.com Fig. 12. Total DAU of all games in each by Genre on 2/18/2011. Data Source: Appdata.com Fig. 13. Average DAU/Game by genre: Data Source: Appdata.com

47. Games – What genres are successful? Results 1. Management games are the most numerous & have the most DAU 2. Skill games are 2nd in place & have high DAU/MAU 3. Arcade & girl games show decent potential as niches 4. RPG games & mafia wars clones have the lowest performance

48. Games – Branded Games on Facebook Types of brands & existing IP on Facebook Brands that developers have adapted to Facebook fall into 5 major categories listed below Popular Skill Games (Zuma, Bejeweled, etc.) Card & Table Games (ex. Uno, Mahjong) Gameshow(ex. Family Fued, Wheel of Fortune) Existing Game IPs (ex. Asteroids (Atari), Settlers (Ubisoft) MMO Games (ex. Evony, Habbo Hotel) Sports (ex. Madden NFL, EA Soccer)

49. Games – Success of Branded Games Brand Success on Facebook The table to the right compares the success of various brand types in terms of DAU & MAU Results: 1. Skill, Gameshow, Sports & Card/Table brands have large userbases (with some games over 1m DAU) 2. Most of the successful brands are household names 3. MMO, Casual, & ‘hardcore’ game IPs adapted to Facebook from other gaming platforms have not managed to gain large userbases Conclusions Brands that are household names do best Facebook gamers are very diverse in gender & age. Thus brands that everyone knows are the most likely to interest millions of people. Game IPs from other platforms perform badly Many game IPs lose their brand strength in the social space for 2 main reasons. 1) The gameplay mechanics that make many game IP brands successful don’t work well on social networks 2) Since social gamers are so diverse, a majority of social gamers don’t know titles from other platforms Good game design matters the most A game’s success in the social space depends much more on good design & uniqueness than brand Table 3 – Total DAU & MAU of all games in each brand category. Source Data: appdata.com Performance of existing IPs from other gaming platforms on Facebook Fig .14 – The combined DAU count of eight separate Ubisoft IPs ported to Facebook is less than 170k Fig. 15 - Atari’s Asteroids Online & Sony’s PoxNora have each gained less than 1000 DAU

50. Gamer Demographics Demographic Targeting Design Any game’s ability to capture users and make money will depend on how well it appeals to the demographic it targets. Therefore a game should be designed with its demographic in mind. Targeting Developers should use in-game metrics platforms to determine what demographic s make up the largest segments of active and paying users so that they can: Target ADS towards that demographic to bring more players Focus gameplay mechanics & content to better engage & monetize these key demographics Age: 13 Age: 13 Age: 65 Age: 65 Age: 13 Age: 13 Age: 65 Age: 65 Age: 13 Age: 13 Age: 65 Age: 65 Monetizeable Demographics Microtransactions Microtransaction revenue mostly comes from users with the capability to pay, which is generally males & females ranging from 20-65, with females being the larger overall paying audience of social games. Age: 13 Age: 13 Age: 65 Age: 65 Fig. 16 – Gender & age of players of several popular Facebook games in Dec 2010 Source: Datagenetics.com[8]

51. Developers at a glance Table 4 – List of number of Apps, DAU, & MAU of top 25 game developers on Facebook. Data Source: Appdata.com

53. Many medium size developers gain most of their active users from their 2-3 most popular games, indicating that a well designed, well supported game is worth a lot.

54. Over 50% of the top 45 game developers have DAU counts of 750k or above. For the developers that have monetized their games well, this likely means many millions per year in revenue.

55. Many of the top 45 game developers are new game companies or casual game companies.Fig 18 – Number of developers in the top 45 Facebook game developers whose top 3 games account for more than %70 of their DAU. Source Data: appdata.com Fig 19 – Top 45 Facebook Game Developers grouped by DAU count. Source Data: appdata.com

56. Growth Potential for New Developers Growth potential for medium & small developers According to insidesocialgames.com (a leading social app analysis site) data has show that overall, social games overall have been experiencing a shrinking number of DAU[2]. However, it was found that when performance data from the top 5 developers was excluded, games actually showed growth in the number of DAU over the last year and that much of the loss came from the largest games on Facebook like Farmville[2]. This indicates that for developers willing to invest proper resources, the opportunity still exists to capture decent market share. Fig. 20– DAU Growth of all top 250 Facebook Games Fig. 21– DAU Growth of Facebook Games ranked 26-175

58. Games with hundreds of thousands of DAU have potential to make millions

61. Many developers get most of their users from 1 or 2 big hits

63. Most game IP adapted to Facebook from other gaming platforms (PC, MMO, Console, etc.) has done poorly

66. Social Game Development Essentials Development Time 3-6 months to beta[9][10] Technology Required Front-End Flash Engines Simple to implement, but reduces cost & time to market if developer has suitable engines pre-existing Back-End Server Technology A server technology that supports 100k+ concurrent user requests, has robust data backups, & is tied into Facebook’s social graph is required Metrics Technology A good metrics tool is crucial to monetizing a game. Technology should measure in-game events, key monetization KPIs, sales statistics, & should be capable of A/B testing Costs Development: Zynga states that most social games take from $100k-$300k to create & launch[9][10] Marketing: Marketing costs usually range from $.50-$3 an install [6][7]. Often initial marketing costs range from 50-100% ($50k-$300k) of the development budget for initial marketing costs . Be prepared to spend a lot on marketing for Facebook games. Live Operation: In our experience, live teams can cost anywhere from $12k/month to $40k/month depending on the team & level of ongoing content and gameplay changes needed Team Composition In our experience, a typical social game development team should include 2-3 server developers, 2-3 flash developers, 4-5 artists, a QA lead, a designer (& product owner), and a scrum master

68. Reduced CAC

69. Increased ARPU & Conversion

70. Increased User LTVPost Release Development (Perpetual)

71. Detail Cost Estimate (Development) Detail Estimate (Pre-Release  Beta) To the right are two tables that show the typical team arrangements & costs estimates for development of a social game. A man month cost range is established between offshore rates (~$3500/month) and US/EU rates (~$6500/month) Table 5 – Development cost estimation for both a large scale & small scale Facebook game

72. Post-Release: Live Team Live Team Duties Almost all social games in the market have teams of developers & artists maintaining them. Below are the typical duties of a live operation team

74. Marketing Campaigns

76. Optimize gameplay & content using metrics & A/B to determine what content & features increase engagement & retention

78. Active sales (recommending items based on an individual user’s play patterns)

79. Easy payments methods

80. Determine which demographic pays the most & target those users in ad campaignsFig. 22 – Social Game Monetization Pipeline. Source: Kontagent.com Fig. 23 – Monetization through a game’s lifecycle. Source: Kontagent.com

81. Live Operation: Cost Estimates Live Team Cost The table to the right illustrates the amount of resources needed to run a basic live team & cost ranges depending on developers chosen. Additionally it illustrates the rough focus of each phase, with the first being major balancing of the game. Table 6 – Estimated Month by month development costs for a live team team for a 6 month timeframe Marketing The graph to the bottom right shows a graph of marketing expenditures over 6 months and the resulting DAU (assuming a sufficiently engaging game) based on an assumed rate of $1 per install Table 7 – Estimated month by month marketing costs for a social game for a 6 month timeframe

82. Live Operation: Cost vs. Revenue Revenue Projections Extending the numbers from the previous slide 6 more months, a yearly projection is created. It’s notable that the graph on the left which assumes climbing user return yields significantly more income. This shows the importance of using metrics to continually lower CAC, & improve engagement, retention, & sales pipelines Weeks Weeks Fig 23 – 1 year income assuming rising return per 1000 DAU Fig 24 – 1 year income assuming flat return of $25/1000 DAU Weeks Weeks Fig 26 – DAU, costs & income assuming flat return of $25/1000 DAU Fig 25 – DAU, costs & income assuming a rising return per 1000 DAU

84. Target a niche

85. Run a closed beta or only spend a small initial amount on marketing to gauge whether the game will be a big failure or has possibility for success before spending a large amount of marketing dollars to .

87. Increase virality

88. Use metrics to understand where your highest quality users come from & focus efforts on those channels

89. Initial balance issues or bugs scare away initial users

90. Run a closed beta to work crucial issues out

91. Game monetizes badly

94. Ensure they have skilled production management & developers with networking & flash experience

95. Use of GOOD agile software development & quality assurance methods in-house is A MUST!

96. Experience monetizing games is a BIG plus

98. Understanding of live operation

99. Understanding of the monetization pipeline on Facebook

101. Have a good plan for how to monetize the game & sales funnels

104. Thank you! Thank you for Your time! Contact Info Developer Mike Turner Bitfold LLC Managing Partner mike@bitfold.net D: 217.903.5777 C: 224.430.1877 Representation Ed Dille CEO Fog Studios eddille@fogstudios.com