Posts Tagged ‘business models’

This week at Electronic Arts – more action than Medal of Honor

Friday, June 19th, 2009

To say that there were just a few things happening at EA this week would be just shy of an understatement.  Not only did now former COO John Pleasants more or less lay out EA’s plan to get back to the top of the gaming heap, but they’ve also stepped things up a bit by publicly posting a job ad for a “User Experience Designer”.  Oh, and shortly after Pleasants’ interview (literally his last day), he left EA to become the new CEO of Playdom.  Right.  Let’s get started.

john_pleasantsOn Wednesday, paidContent.org ran a very informative and interesting interview between reporter Tameka Kee and at the time EA COO John Pleasants.  Kee’s interview focuses mainly on what EA’s up to in regards to the strong push to an online component to their latest games, citing The Sims 3 as a prime example.  Pleasants admits that EA is, “…creating a live service across a portfolio of titles, with some social aspects and a variety of business models, including micro-transactions and subscriptions.”

Speaking to the social aspect of gaming Pleasants gives a strong nod to free-to-play/microtransaction supported gaming studios such as Playfish and Zynga, and states, “we’re in investment mode, and we’ll be announcing deals with companies that will be of note sometime in the near future.”  To this end, it’s also come to the light of day (although nearly half a month old now), that EA recently posted a job listing for a “User Experience Designer” that can “lead the design and prototyping of applications for online games, community features and e-commerce transactions” for a “new social gaming platform.”  Read: we need someone with experience in building social networks, communities AND has microtransaction experience.  To be honest, that sounds more like three jobs in one, but then again, I’m no staffing director.  This new developer would be ‘the man’ to drive the reigns at EA’s Ontario, Canada based Waterloo studio.  Looks like Margaret Wallace’s predictions on some of the old school giants investing in social gaming is right on the money.

Ok, fine and dandy, the world at EA is looking bright and shiny.

But hold the phone – what what?  John Pleasants has been named the CEO of Playdom.  Say wha now?

They say hindsight is 20/20, but if you read the interview that Pleasants did with Dean Takahashi from VentureBeat with this knowledge now in hand, you might be able to detect just a splash of animosity tossed in there.  Such statements such as, “Yeah, he tells me what to do and I do it.” In regards to his working relationship with CEO John Riccitiello, and “I don’t want to sound like I’m countering my boss. But I think quality is an overused word for a dynamic equation.  Trends are changing. You have to have quality, following the right trends. You have to make quality stuff, but it can’t be in a category that is disappearing or becoming a niche. John has been vocal about saying that our marketing didn’t work well. We didn’t manufacture hits. To make a hit, you have to both make the right thing through high product quality and also hit the market in the right way.”  Sir, it not only sounds like, but in fact, is, a direct counter to your bosses’ statements.

Perhaps there is in fact no bad blood going on here, but you’ve got to admit, the timing and the nuanced phrases are remarkably suspect.  With Playdom reporting numbers close to $10 million per quarter via microtransaction sales, it looks like Pleasants just made quite a wise move.  His departure only hails a continued mass exodus of top EA execs, but then again, former EA exec, John Schappert who left to go work with microsoft, is now heading back to NoCal to replace Pleasants.  Need a road map by now?  Me too.

While EA’s clearly trying to head in the right direction with casual gaming, social networking, and microtransactions, the question remains,can the behemoth get it together in time and can they really deliver what we want, before we know we want it?

 

New data suggests In-Game Advertising spend will reach $1 bn by 2014

Wednesday, May 27th, 2009

A new report released by Screen Digest suggests that the growing gaming market is “impossible for brands to ignore.” The study, titled “In-Game Advertising: Market Assessment and Forecasts to 2014,” makes the claim that the relevance of gaming as a medium will make it an attractive commodity to ad buyers.

“Dynamic in-game advertising offers brands the same accountability as other digital platforms but in a more controlled environment than social display media and through a more standardized value chain than mobile advertising,” says Vincent Letang, Screen Digest Senior Analyst for Advertising. “Like online video pre-rolls, in-game advertising fills a gap in online branding, bringing familiar formats such as virtual billboards and TV ads into the gaming experience.”

To be fair, the report does acknowledge a recent “softness” in the in game advertising spend, but goes on to list a number of advantages the medium has over other delivery systems, concentrating on the increased opportunity to communicate with varied demographic groups that are increasingly hard to reach via other media (I’m looking at you TV).  The Screen Digest report points to key examples from eBay, Nike, and naturally includes the Barack Obama campaign.

The data for this report was mined from a number of clients from a leading global media investment management firm GroupM.

“Games are proven recession-beaters,” opened Adam Smith, Futures Director at GroupM. “There are many ways in which advertising can help evolve business models for video games and we have only just begun to explore that potential. Given gaming is now a mainstream leisure interest, in-game deserves the same consideration as mobile and social media.”

And the icing on this ‘ooo…good news cake?’ – the Screen Digest Report concludes, “a combination of audience media habits and the unique advantages of dynamic in-game advertising” will drive this spending spree. It is estimated that by 2014 dynamic in-game ads will represent about 1.5 per cent of all global spending on digital advertising.”

So the question begs to be asked, who’s got it right here?  With predictions like this, one would think that In-game advertising is THE spot to be right now, but let’s not forget about Microsoft’s recent slash and burn of their own Massive Inc. (ok, it wasn’t quite as bad as initial reports….but still), and IGA’s plea for either an injection of cash, or a buyer.  We haven’t heard much from Double Fusion lately, the other, other white meat, but remember, back around the beginning of the year they added Media and Advertising vet Jana Friedman to the staff, and moved Monika Madrid up to the VP of Biz Dev chair.  If Screen Digest has got it right, has Microsoft made a terrible mistake?  Will we see a ramp up of smaller independent in-game advertising firms that specifically target helping similar independent game firms increase their monetization via the medium?  Only time will tell, but obviously, there are two very differing opinions here.

 

How microtransactions have the potential to generate more revenue than subscriptions

Wednesday, October 8th, 2008

The world of online gaming has come a long way since it’s early inception.  We’ve all read articles in the New York Times, Cnet, and VentureBeat, but when Dan Miller, a Senior Economist on the Joint Economic Committee in the U.S. Congress writes up an article regarding free-to-play vs. subscription based fees, I for one sit up and listen.

Dan wrote an outstanding take on RMT (Real Money Transactions) vs. Subscription models last week.  Thankfully, this guy (probably) spends more time reading Law papers than most of us, and happened upon a paper written by Richard S. Eisert and S. Gregory Boyd titled “Virtual Property – Business Models and Pitfalls”.  It originally appeared in the September 2008 issue of The Metropolitan Corporate Counsel.  Both Eisert and Boyd are attorneys at Davis & Gilbert LLP.

Miller is quick to point out that a large majority of the paper is centered around (virtual) property rights issues, Eisert and Boyd make a few statements that are HIGHLY note worthy in the free-to-play/microtransaction industry:

“… traditional subscription models and even advertising are relatively blunt instruments for monetizing online worlds. Both of these methods tend to assign the same value to every customer. A subscription charges a customer a monthly or annual cost and advertising pays per user or per view at a set cost. But, people do not value goods this way. Each person places a different value or ‘willingness to pay’ to be a part of an online community. RMT helps companies extract that value.” (emphasis added)

They then continue on to explain the benefits of RMT if used correctly:

“… RMT allows game companies to satisfy that need and extract appropriate value as well by ‘fine tuning’ the price point so that each user pays the price the service is worth to him individually.”

Doing what he does best, Miller went on to break it down in everyday terms that not just an economist can understand.  He’s prepared two graphs for us illustrating a player’s willingness to pay.  Based on a flat rate subscription plan, this graph makes it clear to see that subscription based plans are losing money, quite literally, on both ends.  Miller charts out two unique types of players: Those that simply find the game (subscription) far too costly, and those that are willing to pay even more to enjoy their gaming experience.

This second graph shows the same willingness to pay curve, but cuts the flat rate out revealing an increasing scale of willingness to play AND revenue across the board.

Dan does carry on in the comments section of this article concluding that the graphs are meant only as a picture perfect world hypothetical situation.  It’s a duly noted fact that the willingness to pay curve will actually have a much steeper curve at the left side, as there is bound to be a large percentage of players that are simply unwilling to pay a cent, and therefore using up resources without paying for them, making those that do pay cover the costs for all.

In pure economic theory, these graphs make a clear cut case for free-to-play games supported by microtransactions.  Granted, you’ve got to take into account 1001 variables, but at it’s heart, I believe Miller’s principles to be sound and make a solid case for microtransaction based gaming.

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Consoles expected to generate $8 billion by 2013

Friday, September 5th, 2008

Our friends over at Parks Associates have recently released some more outstanding research and predictions regarding the gaming industry.  Their most recent report: Connected Consoles: Gaming, Media, and Beyond predicts that gaming console revenues will reach a staggering $8 billion by the year 2013.

Parks Associates predicts that revenue streams from digital video distribution (think Xbox/Netflix), downloadable games and content, virtual worlds and avatar-based microtransactions, multiplayer gaming services, and dynamic in-game advertising will account for these numbers.

“Broadband connectivity, now a common feature for game consoles, is a key enabler for new business models,” said Yuanzhe (Michael) Cai, Director of Broadband and Gaming, Parks Associates. “Among the different online revenue opportunities, digital video distribution and downloadable games and content are the most promising.”

The reports goes a step further to reveal that among the “big three” console leaders (Xbox, PS3, and Wii), Microsoft currently dominates the online content and service market, but Sony and Nintendo are making strong headway into the field as they ramp up their base of connected customers and diversify monetization models.

“Led by Microsoft’s success in Xbox Live, all three console makers are dreaming up many innovative offerings to entice console households to get connected and spend more money,” Cai said.
In addition to top findings on the current state of console play, Parks Associates study even goes a step further and analyzes new console related capabilities, services, and business models.  These new models include: online multiplayer gaming, virtual worlds, dynamic in-game advertising, and digital delivery.  The study outlines the impact of game consoles on other industries and forecasts revenue growth and market share.

To hear more from Yuanzhe ‘Michael’ Cai, be sure to attend his session “Games of Tomorrow and the Future of MMOGs”  at the Digital Media Wire’s NY Games Conference on September 26th.

 

Fraud and how MMO’s are dealing with it

Saturday, August 16th, 2008

As the MMO industry continues to develop and grow, sadly some of the ‘darker’ aspects of economies rear their ugly head.  Credit Card fraud has become an increasingly hot topic of debate, with a number of specialist firms engaged in spotting, reacting to, and deterring future fraud in the MMO world.

Chargebacks from fraudulent credit cards are a growing problem for MMO publishers.  Chargebacks are the process by which credit card sales are refuted by the holder of the credit card.  Gamesutra recently sat down with Gene Hoffman, Chairman and CEO of Vindicia, a billing an fraud management company for a Q&A about the state of fraud in the MMO industry.  Hoffman’s views prove to be very interesting:

…. micro-transactions do seem to work fine in, say, Korea!

Gene Hoffman: Americans love “all you can eat”. Even the mobile phone companies have really evolved to all you can eat. We always challenge people to name the bill they get every month or year that isn’t in actuality all you can eat.

Outside of government granted monopolies, most people know what they are going to pay. That said, using a base plus metering can make a lot of sense. It allows you to then offer more subscription tiers that allow your best customers to pay you a higher base and less variable – again much like the plans and pricing that the mobile industry has evolved.

do you have any response to the MMOG Business Models: Cancel That Subscription! article we recently ran?

Gene Hoffman: Business model flexibility is the key issue for all the various games, and the dynamics of the game itself should drive pricing strategies. When game developers are approaching a more casual market it certainly makes sense to give more access and time to get buy-in and adoption.

It follows something we tell lots of our clients, which is “don’t be afraid of giving away what is free to you to acquire more customers and keep them longer.”

That said, we think that it is better to give people larger doses of time to create a base subscription service using tools like “payment method required free trials” and then stack additional micro-payments on a base of something more like a $5 per time period price. We see a lot of game developers and other merchants being too shy about the value of their game which leads them to under-price.

As virtual economies and the games they serve continue to evolve, so will the criminals trying to fraud the publishers.  Luckily though, through articles and interviews with industry experts like Hoffmann, we all benefit by increasing the visibility of security features on the backend that must be closely monitored and continually improved.  At fatfoogoo we’ve tested, developed, and are continually improving and updating our fraud detection methods, thereby giving the publisher one less thing to worry about.

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70% of Games Lose Money, microtransactions can recoup costs

Wednesday, August 13th, 2008

Former Sony executive Chris Deering recently stated at the Edinburgh Interactive Festival that only three in ten games will ever make enough money to break even, much less see a profit.

Kicking off this week’s Festival, Deering delivered his keynote and served up some juicy predictions for the gaming industry.  Based on his findings and correlations drawn from Screen Digest and other industry sources, Deering expects that by 2011, there will be 2.5 Bn potential gamers worldwide.  Traditional gaming platforms such as the DS, Wii and PS3 are expected to have a base of 500m by 2011, with alternative mobile platforms and gaming PCs splitting the remains with a billion users each.

Looking at the numbers, Deering warned that “traditional revenue sources will not be sufficient to fund games development” and as the market grows, studios must seek alternative revenue sources now in order to avoid becoming obsolete.

Citing the growth of new players to the market; mobile network carriers, cable, satellite, and DSL providers all working towards a ‘competitive array’, this competition is only going to get stiffer.

“Something is going to have to be there to make up the difference,” he said, citing a “creative use of hybrid online/offline advertising revenue models” as one key way to succeed. “These business models must be explored.”

Deering went on to cover areas and trends that he believes will sustain a 2.5bn person market.  On the development end these include WiFi, lighting and voice recognition, massive game worlds, cinema-real presentations.  On the player end; microtransactions and in game advertising topped Deerings list.  He also covered user generated and user enhanced games.

Perhaps planting a new seed, Deering also went on to unfold his vision of another potential revenue source; gaming.  “Gambling will become a source of development funding,” said Deering. “Perhaps not directly, but this area can provide some sources of income which eventually be directed back to the developer.”

Prior to his appointment as president of Sony Europe, Deering served as the head of Sony Computer Entertainment Europe during the launch of the original PlayStation, PlayStation 2 and PSP, which gave him significant knowledge of Sony’s internal and external development strategies. He resigned from Sony in 2005.

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Wicked Interactive launching Korean free to play titles in North America

Tuesday, August 12th, 2008

More and more North American publishers are beginning to realize the benefits of free to play, micro transaction or ad supported business models in the North American market.

Venturebeat’s Dean Takahashi reported yesterday on Wicked Interactive, a Toronto, Canada based company that will shortly be launching new free to play titles in the North American market.  Wicked Interactive will publishing a number of popular, free, ad-supported games from South Korean online game publisher Yedang Online.  Wicked’s chief executive, Stanley Yu said that his company has private funding from angels and institutions, and has 15 staff members.  Prior to Wicked, Yu served as the head of TrekLogic, a Canadian information technology outsourcing firm.

Wicked plans on publishing three of Yedang’s top titles; “PristonTale”, “Priston Tale 2”, and “Ace Online”.  Priston Tale 2 already has 1.5 million registered users in Asia, and was developed over 4 years at a cost of $10 million.  While Yu acknowledges this growing competition in the free to play market, his hope is that Wicked will differentiate itself from others by delivering high quality free to play titles.

While Yedang’s most popular game “Audition,” a dance title with over 100 million registered users worldwide will not be in Wicked’s lineup, Yu said that the company is working on additional licensing agreements over the next few years.  To put Audition in perspective, one of the world’s most popular MMO titles, World of Warcraft, has just over 10 million subscribed users.

Wicked and company face a growing number of competitors, with Outspark’s growing catalogue of free to play titles, along with OGPlanet importing and modifying popular Korean titles for the US market.

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Paul Thelen presents Big Fish findings on casual gamer profiles and the casual game industry

Monday, July 28th, 2008

At least week’s Casual Connect Seattle, Big Fish Chairman and CSO Paul Thelen presenting some outstanding data regarding the casual gaming market.

The outline to Mr. Thelen’s presentation reads:

The terms “Casual Games” and “Casual Gamer” are very broad terms that mean different things to virtually everyone involved in this area of the overall games industry. The complexity of defining casual games is due to the evolutionary and revolutionary changes that occur each year and the diversity of products and services, breadth of consumption methods and wide variety of business models that have emerged. In this keynote address, Paul Thelen presents the results of new study performed by Big Fish Games, in collaboration with NPD Group, of the US games industry with an emphasis on the casual gamer. The study profiles distinct casual segments of the market and the resulting business opportunities as well as comparing and contrasting these casual segments with the traditional core games market.

Some of Big Fish’s findings include:

Segmenting gamers into two buckets is misleading

Combining Casual and Core gamers, there are 14 distinct segments

This business is complex

  • 14 customer segments
  • 17 Platforms
      PC, Mac, Mobile Phone, Touch Phone, PDA , Xbox 360, XBLA, Playstation 2/3, PSP, Wii, Gameboy, DS, WiWare, IPTV, In-flight entertainment, Basic Browser, Social Networks
  • 10 business models
      Pay-per-day, Try-and-buy, Multi-game subscription to won, Multi-game subscription to rent, Advertising supported, Advergames, Micro-transaction item sales, Single game subscription, Skill game wagering, Bricks and Mortar sales

With this massive amount of data, Big Fish and NDP have clearly presented us with a picture of complexity.  14 different customer segments to contend with.  17 different platforms for you and your developers to wrangle with.  10 different business models, all having their own merits.  Getting your game off the ground and to market is complex enough.  Why not take one worry right off the list?  How are we going to monetize the game?  Simple.  If you’re heading towards the growing trend of micro transaction based, free to play games, you’ve landed in the right spot.

fatfoogoo is a full service provider and offers you a turn-key solution to operate a marketplace including payment, clearing, settlement and in-voicing; all within your game’s environment.  fatfoogoo does what we do best: monetize your game, allowing you and your team more time to focus on what’s important, the game itself.

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