Four Implications of the Changing Economics of the Games Industry

Four Implications of the Changing Economics of the Games Industry

The changing economics of the games industry have certainly given many of us food for thought over the past few years. It may be something of an over-simplification, but we’ve seen a gradual move from selling a ‘physical’ artifact (well - it was in a box) for $50 to the current situation, in which the majority of games are offered for free to mobile and tablet users and we attempt to monetize those players in-game.

That process has happened so rapidly that we're still coming to terms with the implications. Many of us are doing the same things we did 10 years ago and expecting the same results, but I would humbly suggest that isn’t going to cut it any more.

With that in mind, let’s take a (quick) look at four ways in which we need to adjust our thinking:

1. Installs <> Customers

Such a simple statement - but with so many implications. In the free-to-play world, perhaps 3 or 4% of installs become paying customers. But we still adopt the habits that come with believing the install is the single most important event in the customer lifecycle.

Think on it this way: do you incentivise acquisition channels by install, or actual purchase? Do you use the phrase ‘acquisition channel’ (as I just did) to describe an organization that sends you installs that in the vast majority of cases do not become customers? Do you still spend the vast majority of your marketing budget on installs - or on converting those installs into paying customers?

If these questions seem far fetched or unrealistic - consider how online retailers incentivize affiliates. They don’t pay for traffic (which is what an install is), they pay for conversion. We’ll have to make the same leap.

2. ‘In-app’ Marketing Takes Centre Stage

If installs <> customers, and indeed only 3 or 4% actually convert to the latter state, then it doesn’t take a rocket scientist to figure out that we have to start working those numbers. Our players are not customers, they are what used to be called - sometime back in the 90s - ‘eyeballs’. And our challenge, just like it is for any online retailer, is to get those eyeballs to buy.

What that doesn’t mean is creating a store of in-app purchases and hoping the odd player finds it and decides to part with some real money. It means an ongoing, concerted effort to change user behavior. To borrow from the online world again (we have a lot to learn) - it means targeted campaigns with specific objectives around changing user behavior. One obvious example would be increasing conversion, by (for example) offering engaged but non-monetizing users time-limited but very generous offers on real money buy-ins.

Retaining and converting players is a marketing challenge, and will require all the traditional techniques of marketing to be brought to bear.

3. User Experience Is Key

In any environment in which we are looking to turn users of a free service into revenue, retention is vitally important. This is fairly well understood, but I would argue it’s still not entirely in the ‘DNA’ of the games industry. As noted above, we’re still not so many years ago from the ‘fire and forget’ model in which - let’s be honest - how long a user played the game wasn’t really a KPI.

So whilst we agree retention matters, we aren’t necessarily taking the necessary steps to do something about it. Retention is all about user experience. If the game is too boring, or it is unclear what to do, most players will be lost within less than an hour of active playing time. On that basis getting that early experience right is paramount.

What do online businesses do in this area? Two things stand out. Firstly, they test. Rather than assume that they’ve come up with the best solution, they demand to know what works in the real world, with real users. Adopting that approach, they are continuously tweaking and optimizing UX in order to improve retention. And that process never ends.

Secondly (although, to be fair, not universally) they personalize. They ensure that - to a degree - the experience each user has is different, more in tune with their needs. This isn’t particularly tough to do, but in the mobile or tablet games space, it’s very much a fledgling science. If we’re to crack the retention puzzle, that will have to change.

4. Creativity Alone Is No Longer Enough

Last, but possibly most controversially, is the question of how this approach conflicts with the creative view of the games industry. Much of what I have described and discussed is an anathema to what we might call the ‘creative’ view of the games industry. It smacks of data-driven design, of using analytics to make decisions that in turn reduce the significance and importance of the art of game design.

Nothing could be further from the truth.

Most successful businesses are ultimately built on awesome product. Without it, you have nothing. But whilst creativity is necessary, it is not sufficient. In fact nothing is more upsetting than creating an awesome free-to-play game (objectively awesome - measured by installs and word-of-mouth) that doesn’t deliver revenue.

The techniques and approaches above - in-app marketing, testing, UX optimization and so on, are designed to ensure you deliver ROI on the creative effort that is involved in game development. They cannot replace it, any more than a smart marketing campaign for a restaurant can replace the need to hire a top quality chef. But they help the game designer (or chef) reap the full rewards of his or her work.

But what should be obvious is that you need to design in a way that allows these techniques to work. Monetization cannot be bolted on, but nor need it be implemented in a cynical and transparent way. The winners in the free-to-play games space will be the organizations that adopt the revenue generating methods of the online space without compromising the quality of their product.