Archive for the ‘ Monetization ’ Category

Zynga’s new CEO

Don MattrickTo quote GamesIndustry:

Don Mattrick’s jump from Xbox chief to Zynga CEO left many observers stunned this week.

Why would he make this move? And what exactly does this mean for Zynga’s future?

For one, I’m not stunned in the slightest. After Andrew Mason “left” Groupon, it was only a matter of time (one quarter) for Mark Pincus to move on.

I’m always surprised when observers are stunned when someone goes from a division that has experienced its zenith to a company that is in its nadir. Makes no sense to a salary man but it’s great for a person with a career.

Daniel Kahneman explained this lazy thinking process that assumes unlimited growth (or unfathomable depths) in Thinking, Fast and Slow. There’s a much simpler “truth”: you sell the highs, you buy the lows.

Zynga is at its lowest, Don is interested in buying. Xbox has seen its dominance shaken with E3 fiasco, he’s selling it as quickly as possible.

Sometimes, it is that simple.

The real question is… how do you mix oil and water.

You had Mark Pincus confess he cut every corner and broke every business rule to ensure revenue, i.e. he focused on the short term with total disregard to long-term consequences. Now these consequences are upon Zynga.

Don had his success with Xbox precisely because Microsoft’s deep pockets allowed him the luxury of long-term decision-making. He built strong game franchises exclusive to Xbox and he also priced the Xbox aggressively and always cut the price before the competition had the chance to do so.

I’m not sure you can mix the two approaches but one thing is certain, Zynga can’t go any lower. So it must go up.


Tech bubbles

David Cummings is looking for ways to justify the prospects for growth in tech. That’s in response to comments that there’s a bubble in tech.

I’d say perspectives (or potential) and bubbles are not the same thing. So here’s my response (below):

I was looking for a good definition of a tech bubble myself. Here’s the best I found so far.

Traditionally, bubbles need to components: easy credit and an inflatable asset that can be used as security to get more credit. This describes well the bubble phenomenon: from the first bubble in France (the Mississippi Company) to the latest housing bubble that burst in 2008.

So what parts of tech are bubbly these days?

Here and there, you can see bubbly activity. For example, we might focus on the 170M dollar investment in Supercell on the strength of their #1 position in the appstore (best monetizing game, at rate of 2M/day).

How does Supercell spend the money? Let’s speculate a bit. They could invest them in direct marketing and paywalls. In 6 months, they could be raking in 5M a day and ask for 250M at a much, much higher valuation. The question (thanks, Zynga) is how sustainable these games are.

But is this a bubble?

First, it’s definitely not wide-spread. Second, product usage and revenues are a pretty good indicator that a company is doing something right. Although they can be viewed as an inflatable asset, you’d be hard-pressed to find an alternative measure of company progress and success.

So, no, there isn’t a bubble.

Zynga: the Clone Wars

As a follow-up to Stupid Money, an illustrated history of Zynga games and their origins. It is only fitting that these images were compiled by Forbes (albeit in two pages).

Farm Town vs Farmville

Mob Wars vs Mafia Wars

Restaurant City vs Cafe World

Tiny Tower vs Dream Heights

Gardens of Time vs Hidden Chronicles

Bingo Blitz vs Zynga Bingo

The Sims Social vs The Ville


Stupid money

The death of subscription MMOs has been profecized a lot, especially since SWTOR announced it’s transition to F2P.

The explanations mostly focused on things like insufficient content to justify ongoing monthly fees or the competition from subscription-free MMOs like Guild Wars 2.

The real reason, however, is simple. There’s only so much stupid money to burn on making carbon copies of World of Warcraft. Between the demise of 38 Studios which burned 150 million and the 300 million spent on SWTOR, even the stupidest money has no more illusions about making a killing on MMOs.

Enter social and mobile games!

A full 57% of all investment in 2011 went into social gaming and 30% went to mobile games. So what is the result of this overspending?

One result is that copying games is rampant. If it has worked for Zynga, it surely works for startups that have been funded to the hilt. Case in point: Tiny Company ripping off Dragonvale in a way that is very Zynga-esque. They copied all the game mechanics and interfaces but replaced the dragons with monsters, so they are not sued for copyright infringement. FYI, monsters are still hatched from eggs, apparently this was something they couldn’t replace.

So instead of copying WoW at anywhere between 100 and 300 million a pop, stupid money is now betting on copying casual games for only a couple of millions each. Is it the smart thing to do? It’s probably smarter than copying WoW, that’s for sure.

Facebook’s downhill slide

Facebook has been a great story and as human beings we often fall in love with great stories (like Casablanca or The Godfather).

The problem comes when people invest in companies buying a piece of this great story. Unlike watching The Godfather for a n-th time, where the story remains the same, watching Facebook’s shares continue to slide is like seeing Michael Corleone being gunned down by Sollozzo and McCluskey, instead of the other way round.

What happens now? Is Fredo taking over the Corleone falmily.

Without further confusion courtesy of the inappropriate Godfather analogy, I’d like to share this excellent quote from Clemenza, I mean Sharyl Sandberg, Facebook’s COO:

Ms. Sandberg said it would take more time for marketers to figure out Facebook. “It took a long time for the TV market for advertising to be understood,” she told analysts. “We are still in the learning curve.”

Of course, Shotgun Sheryl is right. She basically admits Facebook ads have an abysmally low ROI and it’s up to the marketers to ascend the learning curve. Not to dissect her comment too much but any analogy with TV advertising screams “brand” advertising that doesn’t (necessarily) translate into sales. Also, marketers embraced Google’s search ads and Facebook ads are remarkably similar, except when it comes to results.

The truth is the only ones currently able to monetize Facebook’s users are Zynga and we know how (not) well they are doing lately. Bingo games and more gambling apps will follow.

Update: Social in the enterprise is another matter – see SharePoint with Jabber.

SWTOR free, WoW loses a million

If you follow the news, you already know that SWTOR will become free-to-play in a month and that WoW has lost another million subscribers (down to 9 million globally).

The funny bit comes from Michael Pachter, a consultant and game industry pundit, who projects some amazing stats for this brave new world for no-subscriptions.

Ultimately, Pachter believes that Star Wars now has the potential to “attract at least 10 million MAUs indefinitely, with upside to perhaps 50 million.” He added, “Thus, we believe that contribution from the model shift could be significant for years to come.”

Yes, just imagine 10 million Jedi fighting against 40 million Sith. The force [of imagination] is strong with this one.

Zynga games sustainable or not?

Tobolds is one of the few gaming blogs by a non-industry professional that I follow. It provides a pretty good perspective on how non-cliched and different every hardcore gamer is.

Yesterday, he discussed whether Zynga games and MMOs like WoW fail to deliver a payoff at the end, a thesis proposed by Professor Castronova, a self-proclaimed “leading scholar in the field of online game studies and an expert on the societies of virtual worlds”. In short, the Professor says that Zynga’s stock decline comes from a game design that is based solely on grind with little or no payoff at the end. In his view, this makes Zynga games unsustainable in the long-term.

Although I agree with some of the points about the gameplay, I don’t agree with the conclusions. Tobold doesn’t agree either but he claims Zynga games offers small payoffs along the way and that gamers who have played MMOs have become used to “the road is the reward” mentality.

I think they both miss something that isn’t immediately obvious because it’s not a general rule, it’s what I’d arrogantly call “the rule of huge populations”.

If you’ve read Daniel Kahneman’s book Thinking, Fast and Slow, you’d remember the “rule of small sample sizes”. It goes like this. Do you know that a small rural community in NC has the highest rate of testicular cancer? How do you explain that? Most people will start telling a story how the remoteness of the community prevents them from getting regular examinations, or how the area is poluted, or there’s a cancerogenic agent in their water supply, etc. Then he will reverse the example, because in another rural community nearby the cancer rate is almost zero, 100 times lower than the national average. Why is that? You might have guessed that this is the rule of small sample sizes. Even a few incidents lead to a very skewed distribution, especially when compared to a “national” average.

So back to Zynga and the rule of huge populations. The rule of huge populations states that in every population there are fringe “communities” who display attitudes and behaviors that very different from the rest of the population. In a normal-sized population, it is economically difficult to “exploit” these fringe segments effectively because they are so small – 2 or 3% of the population, sometimes even less.

However, in a population of 300 million Zynga users (and 700+ million FB users), you can definitely make a fortune focusing on a small but profitable minority. Dilbert strips usually refer to it as the 5% of the people who are rich and stupid:

Zynga calls them “whales” – the 1-2% that actually spend tens or hundreds of dollars on virtual items. The other 98% play for free (both Professor Castronova and Tobold focus on the 98% and who could blame them?).

So who are these whales that support Zynga? The term whale itself is borrowed from gambling which should give you one hint. The other is dropped casually by Eric Schiermeyer (co-founder of Zynga) who admits:

[he] has helped addict millions of people to dopamine, a neurochemical that has been shown to be released by pleasurable activities, including video game playing, but also is understood to play a major role in the cycle of addiction.

In short, Zynga targets people whose compulsive personalities are especially vulnerable to the kinds of “rewards” Zynga gameplay offers. The Professor, Tobold, you, me – we are just noise on Zynga’s radar. We are no different than a grandma with a pocket full of $50 in coins that enters a Las Vegas casino.

So the question is not whether Zynga loses 100 million users in the next 12 months. They can well afford to lose the 250 million that don’t spend a buck on Zynga’s virtual items. The short-term question is whether the compulsive 2% can be retained effectively. I believe Zynga will do an OK job in the short term with new flashy games that offer the same gameplay in a different setting.

The question determining Zynga’s long-term sustainability is whether they can still make the “rule of huge populations” work if the population naturally contracts because of general fatigue with the gameplay they offer. Their costs have been rising dramatically, and it’s not unforeseeable that they’ll need at least 200 million hooked on The Ville, so they attract enough of the 2% whales to make a profit.

If we take a look at Las Vegas, America’s playground, and draw a comparison to Zynga, the world’s virtual playground, Zynga still has a long way to go before it achieves the Las Vegas metrics, mainly the average gambling budget per visitor:

Annual visitors to Las Vegas, in millions – 36.7
Percentage of visitors who say they come to Vegas mainly to gamble – 5
Percent of visitors who end up gambling during their stay – 87
Hours per day average visitor spends gambling – 3.9
Average gambling budget per trip, in dollars – 559

However, with their plans for virtual casinos launching in 2013, they are definitely counting on new offering new attractions to the “dopamine junkies”.