Maximizing MonetizationGDC Online 2012

Emily 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

Select Developers

ARPU: Average Revenue per User

ARPPU: Average Revenue per Paying User

Size of bubble represents LTD revenue, minimum of 6 weeks

Huge Variations in Monetization

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

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)

So what gives?

Econ 101

In perfect competition the market price is set where demand & supply are equal.

Real life example: the stock market

Imperfect CompetitionPerfect 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)

Your game is a monopoly

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.

But since players can leave your game/market for goods freely your monopoly is insecure.

You’re not a cable provider or the like who can charge high prices and provide poor service and the player is stuck. Players should be treated well and will leave if you don’t.

What it does mean, though, is that you look internally to your game to set prices, not externally.

Monopoly Revenue MaximizationMonopolies 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.

Example: 5 units at $5 = $25 7 units at $4 = $28

Marginal Revenue = $3

Total revenue is maximized where marginal revenue = $0

Uh, how do I figure out where MR=$0?

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

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.

Now in graphs!

Area of the box = total revenue

So which are virtual goods?

Mostly inelastic.

Bloons Tower Defense 4 vs 5Immensely 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 recently, selling nearly 40 items from $0.60 - $100 (!) – at average of 70% 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

Mind the dropSkyshard 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

More on demand curves…Factors that shape the demand curve:

• Total players in the market • Desirability (utility) of goods for sale• Income/ability to pay

A demand curve is really the aggregation of individual player demand curves.

If a market has a few people with high, inelastic demand that can make the whole curve inelastic.

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+

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.

What do players want?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.

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.

Beware of diminishing returns

Be careful in designing permanent upgrades/items as it is easy to cap the amount a player can or wants to spend.

Example: selling a weapon that is effective at all times/parts of the game, even worse if you can only use one 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 long as the in-game benefit is real.

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.

Type 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%

Commitment REALLY matters

Gameplays before 1st Purchase

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.

So what can I do as a monopoly?Price differentiation by customer segment

Classic example: student & senior movie tickets.

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 convert them. High-priced end-game items should ideally not be available at first.

Upgrade paths: naturally different

Upgrade paths do this naturally – prices & power can scale organically within the game.

Crystal Saga does this well. Wings and pets can be upgraded by combining with tokens (available through loot drops or sold for $0.30-$0.50). Each upgrade costs more tokens and involves more luck, scaling costs significantly with items that are cheap on their own.

Fully upgrade wings add 1000s of hit points and look cooler, too.

Experiment!Start with prices high as it’s easier to lower than to raise. You’re also setting the initial impression of value in players’ minds.

You can look to other games for ideas but don’t price around $10 just because that’s what League of Legends does.

Use promotions on individual items to test prices & elasticity – but take with a pinch of salt, as people behave differently in the face of “deals”.

Don’t abuse your powerPlayer manipulation is a short-term strategy. If they feel taken advantage of, they are more likely to leave. If they stay they will be less likely to buy again.

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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.

An apology and a make-good led to a partial recovery, but only partial – game sales are 30% lower than equivalent games.

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.

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 sales around. 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 would spiral down as customers waited for discounts.

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 gain was from people who would not otherwise have bought, and reactivated buyers were more likely to buy again. So the demand of lapsed buyers was truly elastic.

Even better for non-buyersSame test to prospects (only mailed 2x per year):

Even though the value of buyers brought on through promotion was somewhat lower on average, it’s dwarfed by the gain in 1st time sales and the increase in buyers.

Does this translate to games?Graph of this game’s sales (along with anecdotal data) suggests yes:

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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)

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 extra card. 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

Another good example can be found in Fantasy Online by Pixelated Games, an open-world MMO with cute retro graphics.

FO bonuses exclusive items on larger purchases. Items changed regularly, top package includes a monthly special item encouraging committed players to buy every month.

Results: Monthly ARPPU jumped 75% the month this was added, and stayed up.

So what about event sales?Tight communities make event sales difficult to target in core games. On the other 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)

Emphasis on event, not saleThe best events serve two purposes: 1. Energizing committed players & giving

them more to do (and spend on)2. Incenting non-buyers/lapsed buyers to

spend (and keep on spending)

An event that does both spikes revenue, then resets to a higher base.

Occasional world raids with high damage/high reward spikes spending in Dawn of the Dragons, even more when combined with currency bonuses every 1-2 months.

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Beware the event treadmillMake sure players have enough to do between large events, and enough variety in events or they become less effective.

This game had great success with large holiday-based monthly events for 18 months, but effectiveness diminished and baseline dropped.

Going to weekly events helped for a while, but those stopped working, too.

Events can juice content, not replace it.Week 1 Week 38 Week 75Week 112

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 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 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.

Finis!To learn more/find links to other talks visit dev.kongregate.com

Contact us at apps@kongregate.com

Follow me on Twitter: EmilyG