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Maximizing MonetizationGDC Online 2012Emily Greer, Co-Founder & COO

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What is Kongregate?• Open platform for free browser-based games – Flash, Unity, HTML5, Java, etc.• ~200 games selling virtual goods• Revenue from ads (30%) & virtual goods (70%)• 16M monthly uniques, core gamers• Acquired by GameStop July 2010

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Select Developers

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Huge Variations in Monetization ARPU: Average Revenue per User ARPPU: Average Revenue per Paying User Size of bubble represents LTD revenue, minimum of 6 weeks

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It’s not just genre 14 different CCGs – All multiplayer – All monetizing cards/card packs – All on Kong at least 3 months, well-rated Top ARPU is still 100x the lowest

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It’s not just quality There’s little relationship between rating & ARPU (It does matter for total players, higher rated games get more promotion & word-of- mouth)

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So what gives?

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Econ 101 In perfect competition the market price is set where demand & supply are equal. Real life example: the stock market

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Imperfect Competition Perfect competition assumes that goods are homogenous, i.e. that there’s no difference buying from one supplier or another. But nobody can sell a good that’s useful in your game but you. (Ignoring gold farmers)

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Your game is a monopoly

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But I’m surrounded by competition!Yes, and the competition for player ATTENTION got sofierce that it dropped the game price to free.The market for in-game goods is separate: players arenot price-shopping packages of gold in two differentgames and deciding which to buy.

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But since players can leave yourgame/market for goods freelyyour monopoly is insecure.You’re not a cable provider orthe like who can charge highprices and provide poor serviceand the player is stuck. Playersshould be treated well and willleave if you don’t.What it does mean, though, isthat you look internally to yourgame to set prices, notexternally.

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Monopoly Revenue MaximizationMonopolies can set the price freely, decidingwhether to sell fewer units at a higher priceor more at a lower price.Marginal revenue is the change in totalrevenue from a change in price.Example: 5 units at $5 = $25 7 units at $4 = $28 Marginal Revenue = $3Total revenue is maximized where marginalrevenue = $0

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Uh, how do I figure out where MR=$0?In an econ class the professor would giveyou a formula and you’d calculate aderivative.In the real world you need to deduce itfrom trial & error: set a price, change itand see what happens

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It’s 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 drop but not enough to compensate for the change in price and total revenue increases. Gasoline is a classic example of an inelastic good.

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Now in graphs!Area of the box = total revenue

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So which are virtual goods? Mostly inelastic.

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Bloons Tower Defense 4 vs 5Immensely popular series byNinjakiwi, BTD4 introduced virtual goodsand was the first big single-player success.Sold 20 items ranging from $0.30 - $10BTD5 launched recently, selling nearly 40items from $0.60 - $100 (!) – at average of70% higher on comparable items.Results: 108% increase in ARPPU, -8% decrease in conversion, +92% ARPUPlayer freakout? Nope. Rating is slightly higher, sales on pace to 3x+ BTD4

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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

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More on demand curves…Factors that shape the demand curve: • Total players in the market • Desirability (utility) of goods for sale • Income/ability to payA demand curve is really the aggregation ofindividual player demand curves.If a market has a few people with high, inelasticdemand that can make the whole curve inelastic.

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Big Spenders are a Big DealFour 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+

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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, which makes it hard to price high, and then friction of purchase makes it hard to get enough repeat buys to drive $s up.

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What do players want?Cosmetic-only items sell poorlythough cool looks can help functionalitems sell.Real-life example: I buy a coat to keepme warm, but am willing to spendmore on one that looks good on me.Content is a tough proposition in aworld of free, only appeals to thosewho have finished game.

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Balancing advantage vs pay-2-win 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. Players want to achieve in the face of challenge, over- powered items are boring. Items can be powerful if they also require skill to use well (CCGs are great at this) and should mostly be acquirable through a very large amount of play.

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Beware of diminishing returnsBe careful in designing permanent upgrades/items as itis easy to cap the amount a player can or wants tospend.Example: selling a weapon that is effective at alltimes/parts of the game, even worse if you can only useone weapon at a time. Why buy another?Ideal: players should be able to invest continually with(close) to linear benefit – players will spend only as longas the in-game benefit is real.

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Demand curves change with time A player won’t 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.

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Commitment REALLY mattersType of Player % Buyers Avg Trx ARPPU ARPU % Players % of RevNon-Repeats 0.03% 2.10 $ 24.69 $ 0.01 43% 0%Repeats (2-9 plays) 0.40% 1.85 $ 19.61 $ 0.08 40% 3%Regs (10-49 plays) 4.68% 2.61 $ 21.35 $ 1.00 10% 12%Committed (50+ plays) 16.53% 7.03 $ 96.92 $ 16.02 7% 84%

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Gameplays before 1st Purchase

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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.

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So what can I do as a monopoly? Price differentiation by customer segmentClassic example: student & senior movie tickets.

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How should that work in games?Player stage in game is a good place to start.Have some low-priced items that are useful early- to mid-game.Have lots and lots of compelling end-game items; price those high.Don’t push too hard too early – you’re more likely to repel players than convertthem. High-priced end-game items should ideally not be available at first.

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Upgrade paths: naturally differentUpgrade paths do this naturally – prices &power can scale organically within the game.Crystal Saga does this well. Wings and pets canbe upgraded by combining with tokens(available through loot drops or sold for $0.30-$0.50). Each upgrade costs more tokens andinvolves more luck, scaling costs significantlywith items that are cheap on their own.Fully upgrade wings add 1000s of hit points andlook cooler, too.

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Experiment!Start with prices high as it’s easier to lower thanto raise. You’re also setting the initial impressionof value in players’ minds.You can look to other games for ideas but don’tprice around $10 just because that’s whatLeague of Legends does.Use promotions on individual items to test prices& elasticity – but take with a pinch of salt, aspeople behave differently in the face of “deals”.

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Don’t abuse your powerPlayer manipulation is a short-term strategy. If they feel taken advantage of, they aremore likely to leave. If they stay they will be less likely to buy again. This game had a strong start, then added a manipulative/deceptive monetization mechanism that drove a huge spike in sales in weeks 15-16. But a combo of bugs & resentment led to a player revolt soon after.Week 10Week 31 Week 1 Week 4 Week 7Week 13Week 16Week 19Week 22Week 25Week 28Week 34Week 37Week 40Week 43 An apology and a make-good led to a partial recovery, but only partial – game sales are 30% lower than equivalent games.

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Riding the rocket Promotions & sales are very, very powerful – players react emotionally as well as rationally, can drive huge (5x) spikes in revenue. But powerful things can also be destructive.

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Cautionary tale from…catalogs?Typical 3-month test, 250k recent buyers in each group:We’d see a strong spike in demand but usually we were just moving salesaround. The stronger the spike, the bigger the following dip.Even though buyers responded to the promotion demand wasn’t truly elastic.Repeat promotions would become less and less effective and base sales wouldspiral down as customers waited for discounts.

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So are promotions bad? No.Same test to lapsed buyers:Same spike on the promotion, but less of a down on future sales – most of the gainwas from people who would not otherwise have bought, and reactivated buyerswere more likely to buy again. So the demand of lapsed buyers was truly elastic.

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Even better for non-buyersSame test to prospects (only mailed 2x per year):Even though the value of buyers brought on through promotion was somewhatlower on average, it’s dwarfed by the gain in 1st time sales and the increase inbuyers.

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Week 1 Week 3 Week 5 Week 7 Week 9Week 11Week 13Week 15Week 17Week 19Week 21Week 23Week 25Week 27Week 29Week 31Week 33 Graph of this game’s sales (along with anecdotal data) suggests yes:Week 35Week 37Week 39 Does this translate to games?Week 41Week 43Week 45

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Maximizing PromotionsTo get the most of out promotions you need to design them very carefully.Things to focus on:• Customer segments have very different price elasticity: target accordingly• Transactions are relatively rare: increase their size (bonus for volume buys)• Related: increase value rather lowering price (buy one, get one > 50% off)

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An elite 1st-time buyer offerGreat example of a lot of those principles in Tyrant, a CCG by Synapse Games“Elite” membership gets you $20 worth of paid currency for $10 plus an extracard. Big value bonuses targeted at non-buyers, mid-level price point, positive“elite” branding.Results: exceptional conversion to paid, 86% of buyers have bought Elite

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Another good example can be found in Fantasy Online by Pixelated Games, anopen-world MMO with cute retro graphics.FO bonuses exclusive items on larger purchases. Items changed regularly, toppackage includes a monthly special item encouraging committed players to buyevery month.Results: Monthly ARPPU jumped 75% the month this was added, and stayed up.

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So what about event sales?Tight communities make event sales difficult to target in core games. On theother hand communities can strengthen a sale they get excited about, fence-sitters more likely to convert if others are talking about it.Additional concerns with periodic events:• How quickly will players use what you’re selling?• Players get trained to wait for sales: be unpredictable• Related: don’t let your company become addicted to big promotions (this is hard)

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Emphasis on event, not saleThe best events serve two purposes:1. Energizing committed players & giving Dawn of the Dragons Sales them more to do (and spend on)2. Incenting non-buyers/lapsed buyers to spend (and keep on spending)An event that does both spikesrevenue, then resets to a higher base.Occasional world raids with highdamage/high reward spikes spending inDawn of the Dragons, even more whencombined with currency bonuses every 1-2months.

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Beware the event treadmillMake sure players have enough to dobetween large events, and enough varietyin events or they become less effective.This game had great success with largeholiday-based monthly events for 18months, but effectiveness diminished andbaseline dropped. Week 1 Week 12 Week 23 Week 34 Week 45 Week 56 Week 67 Week 78 Week 89 Week 100 Week 111 Week 122 Week 133Going to weekly events helped for awhile, but those stopped working, too.Events can juice content, not replace it.

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Mileage will vary!The right strategy will vary dramatically game to game based on retention andbase monetization design.If retention is poor (and unfixable) then shorter-term monetization is probablythe best bet.If your audience is younger and/or poorer, demand will be more elastic.If your base monetization is capped, then events and sales may be lessproductive.Remember that the most important thing is to make a fun game that peoplereally care about. Without that there’s nothing to leverage.

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Finis!To learn more/find links to other talks visit dev.kongregate.comContact us at apps@kongregate.comFollow me on Twitter: EmilyG