Last week, our SF Game Monetization meetup group hosted its second speaker event, Maximize Your Virtual Goods Revenue. We had over 150 people attend to socialize and watch three awesome speakers share what they’ve learned about game monetization. Check out each speaker’s presentation below:

YuChiang Cheng – Founder & CEO of WGT

YuChiang Cheng is the co-founder of WGT (World Golf Tour), the #1 online golf game with a community of millions of online players, making it the largest golf website in the world. Prior to WGT, YuChiang served on the executive team at WagerWorks, launching Virgin Games, World Poker Tour and Hard Rock Casino. WagerWorks was acquired by IGT for $90 million in 2005.

In his presentation, YuChiang shared the pros and cons of working with large, established brands and licensing their IP for your game. This is a great primer for anyone looking into IP for your game so that you can maximize your return on investment, negotiate appropriately and avoid the potential pitfalls of a licensing deal.

Josh Burns – Associate Director, Products at 6Waves

Josh is a Associate Director, Products for 6waves, the largest global publisher of independent games on Facebook, iOS, and Android. Josh has worked with developers on more than 50+ games across Facebook, iOS, and Android to provide game advisory, including Kingdoms of Camelot, Ravenwood Fair and Mall World. Prior to joining 6waves in early 2010, Josh held a hybrid market research, analytics and product management role at Electronic Arts.

In his talk, Josh shared his learnings from working with some of the top social games of the last 5 years on their monetization and virality strategies. With 50 slides and 11 Best Practices, this deck is a great playbook of tactics for any free-to-play game.

Max Skibinsky – Founder of Hive7 (Sold to Playdom)

Max Skibinsky is serial entrepreneur, angel investor & start-up mentor for past 17 years in Silicon Valley. He bootstrapped his first consulting startup over decade ago working with clients such as Netscape, AOL, and Electronic Arts. He founded Hive7, one of the very first social gaming companies, which produced first Facebook MMOG Knighthood that grew over 6 million players. In 2010 Hive7 was sold to Playdom/Disney. Most recently, Max co-founded mobile e-commerce startup Inporia that secured investments from Y-Combinator, Ron Conway, NEA, Clearstone & 500 Startups.

Max’s presentation, Color of Money, talks about the psychology behind game monetization and what really drives the user’s intent to purchase. When a player’s emotions are involved (such as their investment in a character, or their desire for revenge against a foe), they have a much stronger incentive to pay.

It’s becoming clear that casino games are the next big social game genre.

Take a look at the image above, provided by Kontagent. Casino games are surpassing farm games as the darlings of social networks: The growth of monthly active users (MAUs) for farm games is slowing, while that of social casino games is generating higher revenues – seven times, according to Kontagent – than the casual games category.

Furthermore, with downward pressure on Facebook’s stock from their falling revenues, it’s become increasingly likely that they will soon allow real-money gambling on their platform. Couple that with evidence that legislation may open up parts of the US market to online gambling, and you have a perfect storm forming that game developers would be foolish to ignore.

The smart gambling companies have already made their moves into the social space. With IGT‘s purchase of Double Down Interactive and Caesar‘s purchase of Playtika, gambling companies have snapped up the two largest existing social casino games. The savviest social game companies aren’t far behind them, with multiple companies creating their own casino games and Zynga aggressively moving into real-money gaming.

The threat comes from both sides. Social game companies have intricate knowledge of social game mechanics and their existing user bases. They can also “flip on” real-money play in their existing games and be a huge threat. Gambling companies can afford to spend hundreds of dollars per player to acquire users, and they are experts in capturing and retaining whales. They can bring massive war chests and marketing knowledge to any fight.

So game companies, if social gambling games are the new battlefield, how do you plan on win the war? Arming yourself with the right tools can make the difference between victory and defeat.

Analytics
In wartime, information is power. Going into this fight without analytics is like flying blind through enemy territory. You want the equivalent of the USSSN. When your company’s future is on the line, you want the best analytics available on your side so you can make the most informed decisions possible. Analytics is something that gambling companies are already experts on, but only within the context of gambling-only websites. You have the upper hand on Facebook and mobile platforms, for now. Leverage that as much as possible now to get the most distance between you and the invading force.

Betting mechanics
When you’re fighting tooth and nail for market share, those who use the best tactics have an inherent advantage. That’s why optimizing the betting mechanics in your social gambling game is key to victory. If your opponent is converting better than you are or keeping players more engaged, you’re going to be fighting an uphill battle for eyeballs and dollars. Instead, you should follow Blitzoo’s lead by using A/B testing recorded by robust analytics to continuously optimize your betting mechanics.

Real money
In any battle, resources are the key to victory. The two key resources for any game company are players and money, and they have become increasingly fluid with the advent of the freemium game model and modern distribution platforms. This makes real-money gaming the ultimate weapon: real-money casino games earn more than $300 per player per month. Real-money monetization is so powerful because with it, you have more ammunition that you can use to build games, acquire more players, and retain your most valuable players over the long term. Without it, you will always be outgunned by those that are using real-money gaming mechanics.

With a new battleground set to define the future of the social gaming space, you may need anywhere from one to all of these tools to succeed. Good luck, soldier.

Image from TechCrunch

TechCrunch just posted an article titled “How’s the Gold Rush Panning Out? 70% of Mobile App Users Pay Little Or Nothing, Study Says”. This implies that with only 30% of users ever paying for apps at all, a game developer’s potential success for the ever-popular freemium mobile game is much more limited than many think. Backing this up is an Ars Technica article from 10 days prior, which reported that “iOS app success is a ‘lottery’: 60% (or more) of developers don’t break even”. So not only are most players not paying, but most developers aren’t making enough off of the ones that do to break even.

This is a huge problem for more than 60% of iOS game developers, but it’s really a problem for every game developer in the ecosystem. The game developers that are breaking even still wish they could get that 70% of non-paying users to pony up, even for a couple dollars. The problem is motivating players to pay, something that is at the crux of every monetization method out there. Yet with 70% of people playing for free, I think it’s safe to say that they don’t work as well as game companies would like.

This is where real-money gaming could spark the next Gold Rush in gaming. Real-money gaming is the idea that players can gamble on the gameplay outcomes of their favorite social and mobile games. This gives non-paying game players incentive to buy in because they could potentially win real money while playing their favorite games. Unlike other monetization methods that force game developers to sacrifice user experience, real-money play will make the game fun and engaging. Excited by the prospect of “playing for keeps”, we foresee real-money gaming converting more free players to paying players and monetizing more effectively than existing methods.

The app store “Gold Rush” might not have panned out, but the real-money Gold Rush is just beginning.

Whoa. Just a couple months ago, Zynga was cautiously musing that social games and gambling could join forces to make more money. Now Dean Takahashi is saying that real online gambling and social games are on a collision course. What a difference a few months makes.

Don’t get me wrong, Dean is correct. He’s got some great quotes in his article, including:

“Social gaming is obviously the coming thing and in some sense it has already arrived,” said Simon Burridge, chief executive of Virgin Games, speaking on a panel. “Social gaming meets [real gambling] is the high ground of the future.”

Jim Ryan, co-chief executive of Bwin.party Digital Entertainment, said of the online gambling companies, “As an industry we have missed the ball. Bingo is easy. That is the one and only social game that our industry has gotten right.” He noted that social game companies such as Zynga have amassed huge audiences in the meantime.

Malcolm Graham, chief executive of online gambling firm PKR, agreed. He said, “We have all missed the opportunity to build tournament-style gambling games (for no real-money betting) on Facebook. But in the next 12 months to 18 months, our gambling industry will move onto Facebook.”

Uh oh. The gambling industry has woken from their slumber and realized that pretty soon the social gambling boat is going to leave without them. The smart players have already started making moves into the space, such as IGT’s purchase of Double Down Interactive and Caesar’s purchase of Playtika. Companies that are further behind are now struggling to catch up. With rumors swirling that Facebook is preparing to roll out gambling in the UK, it seems like only a matter of time before social gambling is a reality.

But what does this mean for the social game industry? Unfortunately, it means that massive companies with equally massive marketing budgets are lumbering into town. The good news is that these are large, slow-moving companies with little knowledge of modern social game mechanics, though the similarities between social games and casino games could shorten the learning curve. The bad news is that the average gambling player is worth over $300 per month, so these guys are packing big guns when it comes to user acquisition and retention. Competing with that kind of a budget is going to be downright hard. And after multiple swooning love letters back and forth, it seems inevitable that Zynga and Wynn will team up to offer real-money gambling in legal jurisdictions. This means social game developers can’t count on their industry know-how to protect them, even in the short term.

So what can social game companies do? Well, operating exclusively in the US will keep you safe for the time being. But, now that The Wire Act has been modified, multiple states are throwing their hats into the ring to offer legalized online gambling, including big markets like Florida, California, New Jersey. According to the VentureBeat article, Jim Ryan expects that online gambling will be largely legal in the US by 2014. That means that hiding in the US is not a good business plan.

Instead, social game companies should do what they have always done best: adapt. There’s a number of avenues this could take:

1) Mobile

Frankly, mobile is likely to befuddle many gambling operators for some time, but the smart gambling companies are already making big moves into the space. Given that most smaller social game companies have already turned their attention away from Facebook, I’m guessing this is a good idea anyways.

2) Younger audiences

Social game companies could target their games for a younger audience, which gambling companies are legally obligated to avoid. This doesn’t have to mean anything sleazy, just that you make more kid-oriented games or go into a specific, younger vertical like educational games. However, children under 18 only make up 5% of money spent on social games, which is rather limiting.

3) Offer real-money gaming

Social game companies can compete with gambling companies on their own turf: by offering real-money gaming in their social games. In this strategy, social game companies have the advantage. They understand their players and what drives them to purchase or play better than anyone, and they can leverage this knowledge to onboard them into lucrative real-money gaming. However, most social game companies haven’t done this already because gambling licenses are tremendously difficult and expensive to acquire.

That’s where we come in (what, you didn’t think I wrote this for fun, did you? ). With Betable, you can offer real-money gaming to your players without the hassle of getting a gambling license and get back to what you’re good at: making awesome games.

Either way, brace yourselves, because gambling is coming. The question is how you will respond.

Food and beer will be served in our gorgeous new Mission event location at 6:00pm, followed by three expert speaker presentations at 7pm. Each speaker will present for 20-25 minutes, allowing 5 minutes for Q&A. After the event, drinks and more networking will be on tap until 9pm.

Schedule

6:00 – Food, Drinks, and Networking

7:00 – “Leveraging Branded Virtual Goods”
YuChiang Cheng, Founder of WGT

7:30 – “Tactics for Maximizing Your Virtual Goods Revenue”
Josh Burns, Associate Director, Products at 6Waves

8:00 – “The Color of Money”
Max Skibinsky, Founder of Inporia, Hive7 (acquired by Playdom)

8:30 – More Drinks and Networking

9:00 – Wrap Up

YuChiang Cheng – Founder & CEO of WGT

YuChiang Cheng is the co-founder of WGT (World Golf Tour), the #1 online golf game with a community of millions of online players, making it the largest golf website in the world. Prior to WGT, YuChiang served on the executive team at WagerWorks, launching Virgin Games, World Poker Tour and Hard Rock Casino.  WagerWorks was acquired by IGT for $90 million in 2005.
Josh Burns – Associate Director, Products at 6Waves

Josh is a Associate Director, Products for 6waves, the largest global publisher of independent games on Facebook, iOS, and Android. Josh has worked with developers on more than 50+ games across Facebook, iOS, and Android to provide game advisory, including Kingdoms of Camelot, Ravenwood Fair and Mall World. Prior to joining 6waves in early 2010, Josh held a hybrid market research, analytics and product management role at Electronic Arts.
Max Skibinsky – Founder of Inporia. Formerly founded Hive7 (acquired by Playdom)

Max Skibinsky is serial entrepreneur, angel investor & start-up mentor for past 17 years in Silicon Valley. He bootstrapped his first consulting startup over decade ago working with clients such as Netscape, AOL, and Electronic Arts. He founded Hive7, one of the very first social gaming companies, which produced first Facebook MMOG Knighthood that grew over 6 million players. In 2010 Hive7 was sold to Playdom/Disney. Most recently, Max co-founded mobile e-commerce startup Inporia that secured investments from Y-Combinator, Ron Conway, NEA, Clearstone & 500 Startups.

Click here to RSVP. We will see you there!

These same methodologies and principles can be applied to game development, drastically shortening the time it takes for you to learn if players actually enjoy your game. In an in-depth look published on Gamasutra, I show how game development can benefit from the Lean Startup approach.

These numbers surprised me, especially since online sports betting is illegal in the US. Even with that limitation, over $55,000 is wagered on every NFL game! This gives us some insight into the potential size of an online US sports betting market if it was legalized and regulated by the US. My apologies for the poor quality pictures, but I also copied the data below.

Average bet volume per game

• MLB: $13,000
• NBA: $9,500
• NCAA Men’s Basketball: $6,000
• NCAA Football: $19,500
• NFL: $57,000
• NHL: $4,500

This chart was very interesting to me, because it’s a proxy for the audience’s interest in each sport over time. With sports NCAA Basketball, you can see a clear crescendo and climax as the season moves into the playoffs and March Madness. After the season concludes, almost no betting occurs until the next season starts up again. From this graph, you can also see baseball’s dominance over the summer months, clearly reigning supreme as the Great American Pastime.

Using the chart above, I made some rough estimations of the bet volume of each sport on a month-by-month basis below. From this data, I was also able to determine a rough estimate of the bet volume per sport per year. MLB takes the top spot with $38.2m bets in 2011, followed by NCAA Men’s Basketball at $25.5m and the NFL at $16.6m. Check out the full stats below.

Bet volume per year

• MLB: $38.2m
• NBA: $10.8m
• NCAA Men’s Basketball: $25.5m
• NCAA Football: $15.9m
• NFL: $16.6m
• NHL: $7.3m

Bet volume per month

• MLB
• January: -
• February: $0.1m
• March: $2.5m
• April: $5.9m
• May: $5.9m
• June: $5.8m
• July: $5.8m
• August: $6.7m
• September: $4.0m
• October: $1.5m
• November: -
• December: -
• NBA
• January: $2.5m
• February: $1.9m
• March: $2.5m
• April: $2.1m
• May: $0.8m
• June: $0.2m
• July: -
• August: -
• September: -
• October: -
• November: -
• December: $0.8m
• NCAA Men’s Basketball
• January: $5.2m
• February: $5.7m
• March: $6.8m
• April: $2.1m
• May: -
• June: -
• July: -
• August: -
• September: -
• October: -
• November: $2.0m
• December: $3.7m
• NCAA Football
• January: $1.2m
• February: -
• March: -
• April: -
• May: -
• June: -
• July: -
• August: -
• September: $3.6m
• October: $5.3m
• November: $4.0m
• December: $1.8m
• NFL
• January: $2.2m
• February: $0.2m
• March: -
• April: -
• May: -
• June: -
• July: -
• August: $0.2m
• September: $2.5m
• October: $4.8m
• November: $3.4m
• December: $3.3m
• NHL
• January: $0.9m
• February: $0.8m
• March: $0.8m
• April: $0.9m
• May: $0.3m
• June: $0.2m
• July: -
• August: -
• September: -
• October: $1.3m
• November: $1.1m
• December: $1.0m

Those are the words of Ben and Merrick, the pair that won Betable’s contest at the iOSDevCamp hackathon last fall. Ben and Merrick host the Port Forward Podcast blog and documented their journey in their latest audio. You can listen in here:

Port Forward Podcast – Betable.com Trip to Vegas

Some other choice quotes from the podcast:
“If you ever thought you were going to make a really cool gambling app, Betable is the perfect interface and API.”

“When I first heard about it, I was skeptical because I didn’t know there was such a thing.. a gambling or wagering API. I was like whoa, you can do that? It’s pretty cool.”

“If you took the Betable API and made a droopl module, someone with a horse racing or gambling website could plug it it… that would be pure gold.”

Sounds like these two had an awesome trip! Congrats again on winning the Betable prize at last year’s iOSDevCamp!

Note: The views of Ben & Merrick on the PortForward Podcast do not reflect the views of Betable or its holding companies.

A rapidly growing market
It’s no secret that there’s been a ton of interest in social casino games in the past 6 months. Two social casino game companies, Playtika and DoubleDown, were recently purchased at massive, 9-figure valuations. Everyone from EA to Zynga are getting in on what is expected to be the next hot social game genre. Kontagent also commented that their fastest-growing customer segment has been social and mobile casino games. But what does this all mean for game developers looking to get into the space?

First of all, if you’re not sitting on a pile of cash, don’t bother looking at Facebook. The viral channels that made Facebook a great platform for indie game developers are dead, says Dave. While this is true for Facebook in particular, competition in the social casino games genre has driven up CPA prices on all platforms. You should expect to be at war from day 1. Many newcomers are looking at cross-platform development solutions so they can spread their eggs across multiple baskets.

When being born into wartime, it’s important to pick your beachhead early. For poker, skill-based and sports-based games, Dave recommends targeting a young male audience. For slots and other chance-based games, the audience remains primarily older females (typically 65% of slot players are female according to Dave) but is starting to drift closer to an even gender ratio. This drift is due to the changing nature of how slots are presented to the player: men can try the game for free, play for home, and play online. These changes make slots-type games more appealing to a broader audience.

Furthermore, these changes make casino-style games more appealing to a broader audience across the board. If you look at the difference in growth curves between FarmVille style games and social casino games, casino games show more consistent, wider growth curves. This shows that casino games keep players engaged longer and are less reliant on a huge launch for success.

Lastly, Dave warned social game developers that real-money gambling games are going to be launched in many if not all major platforms in the next year. Facebook is already looking into allowing real-money gambling in the UK, and the few mobile gambling apps that already inhabit the Apple and Google app stores are experiencing meteoric growth. Real-money gambling games are going to be tough to compete against because these companies can afford a much higher CPA than virtual currency game developers. However, real-money gambling companies come from a world where each player is a paying player, and aren’t as familiar with the freemium model. If you’re intelligent with your user acquisition and optimize your free-to-paid conversion, you can compete with these giants.. for now.

SlotSpot Case Study: Build, learn, iterate
Blitzoo built SlotSpot in just 6 weeks with a single-minded focus on a Minimum Viable Product, or MVP. The game had no friends bar (a staple of Facebook games), no quests, no gifts, no achievements, and only 3 slot machines to play. The game did have levels and XP, but there was no reward for levelling up. Instead, Blitzoo focused on cranking out new features each week to fill in the gaps in their product. By cultivating customer feedback via their Facebook page, they were able to quickly prioritize the most important features on their product roadmap. Then, through live A/B testing of their game, they were able to test these assumptions about what features the audience was really interested in. All in all, Blitzoo used Eric Ries’ Lean Startup methodology to impressive effect with their first social game (more on this in a later post).

When building his MVP product, Dave highlighted the importance of analytics and metrics. You need metrics for every piece of the game business:

User Acquisition. You need to segment your inbound users and see which creative, which demographics and which countries converted most effectively.

Free-to-paid Conversion. Which trigger got players to purchase? Which offer got that finicky player to finally buy? What creative was most effective?

Game Balance. What is the average session length? How many spins does it take until they are out of money? How does this change as they level up?

Player Temperature. This was Blitzoo’s own measure of positive vs. negative player feedback.

As you are building your game, you should always be asking yourself: what do I need to know? The answer will help you determine the metrics that are most important to your business.

SlotSpot Case Study: Maximizing revenue
When looking to maximize your revenue, the first step you should take is to identify your high value players. For the social casino genre, there are two types of high value players: whales and evangelists. Whales are the players that spend the most, typically spending over 10x more than the typical ARPPU rate of your game. These players can spend over $1,000 per game and make up a substantial portion of your game’s revenue. Evangelists are players that love your game. They invite their friends, are active on forums, and give you valuable feedback. Catering to these two groups is of utmost importance for any social casino game.

To appeal to these high value customers, you should segment them internally via your analytics and present them with unique offers. You should also track their playing habits and retention so that you can optimize your game to keep these players around. When dealing with their support or feature requests, take a little more time to write a custom response. Small tweaks like these can create the best experience for these players and keep them coming back.

Your second step when maximizing revenue is a no brainer: maximize your revenue from all of your players. Run A/B Tests and experiments on players, using the Lean Startup as a framework. Notice how in the graph above, the revenue spikes get larger and larger. This is because the A/B tests are improving the promotions’ effectiveness over time.

When running these experiments, be sure to segment each test by player type, whether it’s a whale, evangelist, first-time buyer or someone who has never purchased. Dave says that 90% of players on Facebook never pay, 5% will typically pay, and 5% will maybe pay. The key to maximizing the amount of players that do pay is by running these experiments. Test different offers, such as coin bundles, sales or referral promotions, to see which copy performs better. Be sure you test one thing with each test: the copy, the collateral, or the offer itself. However, never test yourself into having only one “optimal” offer. Dave’s advice is that a variety of offers always performs better than one “best” offer. Also, be sure to vary your delivery method of the offers, whether it’s from an interstitial ad, a banner ad, or an in-game graphic.

SlotSpot Case Study: Analytics as an immune system
The last key use for analytics is as an early warning system for bugs or problems with your game. Use your analytics tool to track errors, customer service requests, ARPPU, free-to-paid conversion, virality, average bet size, and anything else that is a mission-critical function of the game. If any of these numbers spike or drop dramatically, your canary is dead and it’s time to troubleshoot the coal mine. For example, Blitzoo had a problem where their overall revenue suddenly dropped. From their analytics, they could see that they had seen a significant increase in free-to-paid conversion rate, but an even larger decrease in ARPPU. It turned out that a promotion created by their marketing team was too aggressive, and undercut their price significantly. Once the error was spotted, fixing it was simple and the situation was resolved (damn it, marketing! ).

Mobile: The Next Frontier
To conclude his presentation, Dave talked about Blitzoo’s upcoming transition to mobile and how they planned to adapt SlotSpot to the new space. He reiterated analytics’ importance on mobile because there are even more factors to a mobile player than a social player. There is no “single solution” for social sharing on mobile like there is on Facebook, so you need to incorporate and track a variety of them. Also, customer acquisition is done on a per-deal basis rather than run all through Facebook, so there’s a lot of segmentation there as well. Finally, customer onboarding is incredibly important to building a successful game on mobile and A/B tests are the key to optimizing your initial onboarding flow.

Dave pointed out that you simply cannot port a social network game to a mobile platform and expect the same results. For one, there’s a much shorter session length: mobile players spend 3 minutes per session on average while social players can spend up to 20 minutes. This requires a complete overhaul of game balance and the willingness to take an ax to your feature set. Offers are responded to differently on mobile, so you will need to start your in-game marketing testing all over again. Lastly, engagement is king on mobile. It’s much harder to keep players engaged with a mobile game and re-engage players that have been lost. Making all of these adjustments has been key to Blitzoo’s preparation for the mobile launch of their SlotSpots app.

Wrapping up
Thanks again to Blitzoo and Kontagent for throwing a great webinar. I’d recommend getting on their webinar circuit by signing up for their mailing list, each one I attend keeps getting better.

The social casino space is on fire right now, and one can only expect the fire to spread to mobile. If you’re looking to get into this space, move quickly and buckle up, because it’s about to take off. And while you’re busy fending off incumbents, trying to keep distance from the newcomer nipping at your heels, and avoiding the real-money giants, you might want to look into Betable. We’re the first and only platform that lets you add real-money gambling to games, and it might be the weapon you need to win in the social casino game space.