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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.

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Maximizing Monetization - Casual Connect SF 2013

  1. 1. Maximizing Monetization Casual Connect SF 2013 Emily Greer, Co-Founder & COO
  2. 2. 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
  3. 3. Some of Kongregate’s Existing Developer Partners
  4. 4. Monetization is exponential
  5. 5. It’s not just genre
  6. 6. It’s not just quality
  7. 7. So what gives?
  8. 8. Econ 101 In perfect competition the market price is set where demand & supply are equal. Real life example: the stock market
  9. 9. 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)
  10. 10. Your game is a monopoly
  11. 11. But I’m 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.
  12. 12. 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.
  13. 13. 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
  14. 14. In an econ class the professor would give you a formula and you’d 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?
  15. 15. 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 increase but not enough to compensate for the change in price and total revenue increases. Gasoline is a classic example of an inelastic good.
  16. 16. Now in graphs! Area of the box = total revenue
  17. 17. So which are virtual goods? Mostly inelastic.
  18. 18. 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
  19. 19. 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
  20. 20. 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.
  21. 21. Curve  Line Linear regression doesn’t 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. I’m 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.
  22. 22. Min Price & ARPU
  23. 23. Correlation Check: Min Price & ARPU
  24. 24. Max Price & ARPU
  25. 25. Correlation Check: Max Price & ARPU
  26. 26. Low entry prices don’t even help conversion rate in any clear way Min Price & % Buyers
  27. 27. % Long-Time Players & % Buyers So what correlates with increased conversion if it isn’t price? Time in game!
  28. 28. 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
  29. 29. 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.
  30. 30. Conversion rate by lifetime plays
  31. 31. Gameplays before 1st Purchase
  32. 32. 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.
  33. 33. % Long-Time Players & ARPU
  34. 34. Correlation Check: % 100 Plays & ARPU
  35. 35. More on demand curves The shape of the game’s 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.
  36. 36. 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+
  37. 37. ARPPU & ARPU
  38. 38. Correlation Check: ARPPU & ARPU
  39. 39. Correlation Check: % Buyer & ARPU
  40. 40. Transaction Size & ARPU
  41. 41. Correlation Check: Trx Size & ARPU
  42. 42. Number of Transactions & ARPU
  43. 43. Correlation Check: Num of Trx & ARPU
  44. 44. Steady Investment FTW
  45. 45. 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.
  46. 46. 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?
  47. 47. 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-win
  48. 48. Be careful in designing permanent upgrades/items as it is easy to cap the amount a player can or wants to spend. Ideal: players should be able to invest continually with (close) to linear benefit – players will spend only as long as the in-game benefit is real. Beware of diminishing returns
  49. 49. Wartune, a very deep MMORPG from R2 Games, has over 25 categories of items for sale, with dozens of items within most of the category. No one category dominates – each adds, and raises the ceiling of spend. More is more
  50. 50. Back to monopolies In imperfect competition companies can use price differentiation by customer segment to maximize revenue. Classic example: student & senior movie tickets.
  51. 51. Well-designed upgrade paths for in-game items create natural price differentiation by allowing both power & prices to scale organically within the game. Fusing new items out of old items adds another dimension by ensuring that even low-powered items remain valuable to the player, increasing the value of extensive collections. Having systems like this on a diverse set of items extends the opportunities for purchase exponentially. Upgrade to Infinity
  52. 52. Get Lucky! Luck-based purchases add an element of excitement while again creating price differentiation – an elastic player will pay a low price once at a chance of an item they’d like, an inelastic player will keep going until they get the item they really want.
  53. 53. Dawn of the Gacha Dawn of the Dragons from 5th Planet sells “Expeditions” which award a random item with each hard currency purchase. Any one purchase is quite inexpensive ($2-$3) but it can cost $70-$100 to clear the board and get all the rare items. Expeditions drive nearly half the revenue in the game, and when you add in Chests (another chance-based item) the clear majority comes from gacha items.
  54. 54. Events & Sales Events & 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: since demand is inelastic you may just be moving sales earlier and at a lower price. The best events serve two purposes: 1. Energizing committed (inelastic) players; giving them more to do and spend on 2. Incenting non-buyers/lapsed buyers with elastic depand to spend (and keep on spending) An event that does both spikes revenue, then resets to a higher base.
  55. 55. Unleashing Tyrant Tyrant is a great CCG by Synapse Games that’s been one of Kongregate’s top games since it launched in March 2011. Retention and buyer % have always been exceptional but its ARPPU is mediocre, 70% below the average for top games. We’re publishing a new mobile version, which has given us a chance to work with Synapse to significantly revamp the monetization system.
  56. 56. Tyrant Capped On the web version cards are sold in packs like most CCGs, but strong cards are sold directly on a limited time basis. There are four levels of cards but you’re limited to one legendary per deck. Multiples of cards have limited utility. Sales are dependent on new card releases, creating spikes that fall off quickly.
  57. 57. Exponential Tyrant • Cards can only be acquired through pack purchases and drops, no direct purchases • Any card can be gained through soft currency purchases or drops • Cards are upgraded through the salvaging of inactive cards • Each card can be upgraded with escalating costs, up to 6x for top-level cards • An effective 5th tier of card rarity is created through fusing specific combos of cards Result? Early test market data shows strong retention, higher conversion, and 2X the ARPPU relative to the web version. PvP has been restructured to focus more on asynchronous combat against well-matched foes, stealing resources for card crafting, and month-long event cycles.
  58. 58. Mileage will vary! The right strategy will vary dramatically game to game based on retention and base monetization design. If retention is poor (and unfixable) then shorter-term monetization is probably the best you can do. If your audience is younger and/or poorer, demand may be more elastic. If your base monetization is capped, then events and sales may be less productive. Remember that the most important thing is to make a fun game that people really care about. Without that there’s nothing to leverage.
  59. 59. Thank you! For more talks & this data visit developers.kongregate.com For web games contact us at apps@kongregate.com If you’re interested in mobile publishing it’s mobile@kongregate.com Follow us on Twitter: @EmilyG & @KongregateDevs

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