An overview of what the social gaming market is, what revenue games are making in the space, what a social game costs, what the top developers are doing to be successful, and strategies for being successful in the space through proper social game design, good user acquisition strategies, a strong live operation + running you social game as a service, and a few other key tips.

2. Secondary English speaking networks (Bebo, Blackplanet, Tagged, etc.)

4. Let’s imagine that you have several hundred thousand to a few million dollars to invest in entering the social gaming market. What can you realistically expect out of your investment? To answer this, it’s helpful to know how much money other developers are making so that you have a reference for what your earning potential is. To establish this reference, we provide an estimate of gross revenue of the top 80 developers below.

5. Methodology for Revenue Estimation

6. In our last article published in Socialtimes, we quoted a very basic method for calculating revenue based upon the amount of daily active users (or DAU for short) that a developer has. This method is borrowed from Lisa Marino, CEO of RockYou in her presentation titled “Monetization of Social Games”. Her method of revenue approximation states that most games monetize between $10 and $30 for every 1000 DAU, and that well monetized games can earn upwards of $100 per 1000 DAU.

7. To use this method, we first take the total DAU count of each of the top 80 game developers from Appdata.com. From this we establish 5 ranges of DAU counts, pictured in Figure 1. Next, we apply Lisa’s approximation and provide revenue estimates for two developers within each range (shown in Table 1). This provides us with a general range of what social game developers are earning.

8. Please note that this revenue estimation method is very basic and only intended to provide a basic idea of social game revenues. Estimating social game revenues rigorously would require more sophisticated statistical methods and a more complete dataset than is used in our estimation.

9. Figure 1 - Number of developers that fall within various ranges of Daily Active User counts on 5/29/11

11. Source Data: Appdata.com, Revenue Estimation Method: “Monetizing Social Games”, p.11, by Lisa Marino

12. Looking at the top 80 app developers, we see DAU ranging from over 49 million at the top (Zynga) to under 150k at the bottom. Excluding Zynga, this rough approximation predicts daily earnings of $4k to $154k assuming $30/1000 DAU and daily earnings of $8k to $309k assuming $60/1000 DAU.

13. Analysis & Interpretation of the Numbers

14. Looking at these numbers we can identify the following trends

16. Zynga is the undisputed leader, they have more DAU than their 9 top competitors combined

17. Only 16 developers had DAU above 1 million. This will of course fluctuate throughout a year, but the data indicates that only a handful of developers have managed to achieve top earnings in the social market. Those that do make enough good games to place into this bracket however will earn handsomely.

18. 63 developers have achieved DAU counts over 100,000, which our approximation predicted would earn 1 million a year or more in revenue. Thus even if you only end up with 1 game that averages 100k DAU in a year, you’ll at least have several hundreds of thousands of dollars in return.

20. It depends on your will to enter the space with a smart strategy. If you take time to really understand what makes successful developers successful, try to create excellent games, create proper live operation & marketing strategies, experiment rigorously, and commit to a long-term stay in the social market, you could find yourself on the top earners. If you do anything else, you’ll likely find yourself in the lower end of the success scale or in the social deadpool entirely.

21. What are the key market players doing to be successful?

22. If anyone wants to emulate this success it’s a good idea take a look at what these companies are doing to be successful.

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25. Six of the market leaders in social gaming

26. Key Trends Among the Top 80 Successful Facebook Developers

27. To understand what top companies are doing to be successful, it is helpful to look at their performance in the market and see if there are any common trends these companies follow. By looking at the MAU, DAU of the top companies, playing their games, and examining their financial history, we notice the following trends.

28. DAU counts range from 100k DAU to 49 million DAU

29. Many successful developers have more than one game.

30. The total active userbase of most developers is gained from the combined userbases of the games they operate, but a majority of their active users come from only a few highly successful games.

32. Keys to Success

33. From these above trends, we can draw a few general conclusions about what core steps these developers are taking to create their success.

34. Creation of high quality social games that users want to play

35. The financial resources to acquire millions of users with advertising

36. Development of multiple game products.

37. Heavy experimentation with different game concepts & gameplay mechanics that has led to both failures & successes.

38. Consistent ongoing improvements to games to keep users engaged & playing

39. In short, it’s no big secret. They create good games tailored to what social networking users want to play, market them properly, and constantly improve them.

40. It’s these measures that new entrants should try to emulate. New entrants should be prepared to focus on making fun & appealing games, to support their games long-term, to experiment constantly with different game concepts and gameplay mechanics, and to create a smart strategy for user acquisition.

41. Cost

42. So, let’s assume you are ready to take on the challenge of entering the social gaming market. What kind of costs will you incur in doing so? This section provides an answer to that question.

43. In social game development cost boils down to three main areas: development, marketing, and live operation. The magnitude of these costs is explained below:

44. Development: According to Zynga, each game costs $100k to $300k to make & launch.

45. Marketing: To market on Facebook, Adparlor (a leading social game advertising company) states that ads cost anywhere from $.50 per install when a game is first launched and up to $3 per install at the later stages of a game’s lifecycle. Depending on how many ads are purchased, the cost for a launch could range from several tens to hundreds of thousands of dollars.

46. Live Operation: Ongoing maintenance & content updates will require a live team. Your game will thus have a burn rate that varies depending on the size of your live team and their salary. Assuming a minimal team of 1 developer, 2 artists, 1 half time tester, and 1 marketing & monetization specialist, your live operation team would require a payment of 4.5 man months each month. Depending on where your live team is, this could cost anywhere from $12.5k (assuming $2500 average man-month cost) monthly to over $20k (assuming a $5000 average man-month cost) monthly.

48. To do the estimation, we need to make some assumptions. In this example, we will make assumptions about how many games are developed, what each game costs, how many games are successful, what DAU count constitutes a “successful game”, and what rates the successful games monetize at. These assumptions are provided below:

49. Assumed number of games: 4

50. Average daily DAU for each successful game in a year: 100k - 800k

51. Number of successful games: 1-2

52. Average development cost of each game: $180k

53. Average marketing costs of each game over 6 months: $130k

54. Live operation costs for each game over 6 months: $120k

55. Assumed monetization rates: $30/1000 DAU - $60/1000 DAU

56. Assumed revenue cut to Facebook: 30%

58. Therefore naturally, a company will want to do everything in its power to make games that can be popular.

60. Sports games (Soccer, American Football, Baseball, etc.)

61. Well known board or card games (Uno, Poker, Monopoly, Farkle, etc.)

62. Gameshows (Family Feud, The Price is Right, etc.)

63. Game IP ported from other platforms (console game IPs, hardcore games, TV shows/books, etc.)

64. Casual downloadable game IP (Hidden Object, Management, etc.)

66. Looking further outside the top 500 apps, we find several more Facebook versions of existing IPs created by large name publishers. Listed in the image below, we find 17 existing game IPs ported from other platforms to Facebook by several famous game publishers. Out of these 17 IPs has, only one has managed to get over 100k DAU. That’s a bad indication for the performance of brands & existing IPs in the social space.

67. Figure 3 – Over 17 ported game IPs, only 1 game with a DAU count over 100k

68. Why are the numbers like this? Why do gameshow, card/table, sports, and skill games do well in the social space, but IPs popular on other platforms fail? There are 3 reasons for this in our opinion.

69. Social Gamers are not Heavy Gamers: The fact is that social network users are the general internet using population of the world. They’re your parents, your spouse, your busy friends who just had two kids, not avid gamers. A lot of them are either entirely new to gaming or have been only occasional gamers in the past so they probably haven’t heard of your brands before the thus majority of users have no incentive to play them.

70. What they do have incentive to play are brands that everyone has played and knows is fun. Bejeweled, Uno, Monopoly, Family Fued, and soccer are brands that everyone knows which are fun & have lots of replay value. However, if it’s not something everyone knows and likes, your brand’s name is not too likely to bring you any great benefit.

71. Mechanics that make the IP line popular don’t fit well into Facebook: The mechanics that make many IP lines so popular on other platforms don’t work well on Facebook.

72. Brands limit the ability for a game to be unique among other high quality games: Success in the social space is about making games users want to play. When making a branded game, its gameplay mechanics & theme are restricted to what the brand permits. These brand restrictions may limit the ability for you to make innovative design decisions that will make the games more appealing to users than competing games.

73. Nightclub city vs. Ubisoft’s Party Central. Nightclub city was a highly successful party management game. When Ubisoft brought its own party management game Party Central to Facebook, it stayed true to the mechanics of their Party Planner brand, but it failed to be at all more unique or compelling than Nightclub city. Therefore, Nightclub City succeeded and Party Central failed.

74. Should you make your Existing IPs into Social Games?

75. According to the numbers, existing IPs have historically performed terribly. Therefore, our professional recommendation would be not to unless they have immense worldwide name recognition, and game mechanics that will very clearly be fun on a social network. If you have to struggle to think about how your IP will be fun for users and compete against other games of its type on Facebook, then it’s likely it won’t do either.

76. The exceptions are:

77. If your IP is extremely well known and/or has casual mechanics that have high replay value.

79. In the above section we painted a picture of the costs, potential returns, and success strategies being used by developers in the social gaming market. In this section we aim to explain what strategies and best practices that a publisher or established developer can use to succeed in the social gaming market.

80. Covered are the following areas:

81. Your main risks

82. How to create successful products

83. Live operation, marketing, user acquisition, and monetization strategies

84. Creating a good team and structuring a proper development process

85. Strategies for reducing costs

87. The game didn’t have appeal to the targeted demographic

88. The game was not better or more unique than competing games

89. The game was fun for a short time, but had little replay value

90. The game was just not that fun

91. A game fails because of excessive technical problems

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95. Management, Action, Skill Games, Girl Games, and more! Which genre can you fill?

96. In general, when creating a social game, you want to ensure that it:

97. Targets a specific genre and user demographic (preferably an underserved one)

98. Provides a unique experience among other games in that genre

99. Is extremely fun!

100. Has core gameplay that will be addicting to the audience that plays that genre and provides STRONG incentives for them to return over & over again

101. Has social mechanics that are appropriate for the targeted audience

102. Ensure you design pipelines for user retention and engagement into the game

104. For instance, if you are targeting a genre that serves 18-45 year old men, the gameplay mechanics might be more action focused and social mechanics more competition or combat based. If you’re targeting a genre that serves 25-65 year old women, gameplay might be more light-hearted and have social mechanics based on cooperation & showing off.

107. Determine what niches you’ll be good at filling: Once you’ve determined what the niches are, try to figure out what niche you think your company can fill. For instance, Popcap games chose to do skill games, and Kabam chose to do RPG & adventure games. What are you good at?

108. Hire a designer, or design consultant: Hiring someone who has had experience designing and running social games can help you a lot in figuring how to create gameplay mechanics that will engage users and incentivize them to pay.

109. Get pitches from developers: Put a call out to third party social game developers for concepts. A lot of developers have concepts or game demos waiting to be green-lighted, and you may find some gems among these!

111. The difficulty to this strategy is that it’s quite complex to make and launch online multiple games, so it’s likely not feasible to launch them all at once. This can be solved by spreading out the launches of your games over the course of a year. This will give you time to apply lessons learned to your future games and provide time for you to setup a proper live operations team.

113. Publish games from other developers

114. One route that many large developers such as Playdom and 6waves take to increase their overall userbase is to find games from independent developers to publish. Often these developers will have finished games, but not enough resources to publish or market them properly. If you do manage to find a good game, this can save you the money you’d otherwise invest in development and reduce risk by having an already proven concept in hand. Additionally, you may be able to bring on a competent development team to help run your live operations or to develop great new original games.

116. This section explains what is required to run a live social game and presents strategies for being successful in doing it.

117. 3a) Live Operation

118. Social games are 24/7 online services. Operating this service is what makes money

119. So let’s say you have made a great game that users love and want to play. This is excellent news, but to monetize it and keep it alive, you will need to run a proper live operation. When running a game, developers generally have a pre-engineered funnel which they direct users through to monetize them (which is often composed of several smaller funnels). This funnel is visualized below with some of the key factors affecting each phase.

120. User AcquisitionMarketing to gain installsViral user acquisition (wall posts, notifications, etc.)

121. User RetentionLoad time & initial play experienceAddictiveness/replay valueTargeted the right demographic?Fix issues hurting retention

122. MonetizationIncentives to buyItems & pricingTarget best monetizing groups

123. + Lifetime value+ K Factor (virality)- User acquisition cost

124. EngagementNew features & contentSocial featuresUser LeavesTotal Lifetime Value

125. Figure 4 – Simple example of a game monetization funnel

127. Lower Marketing Costs: Tweak your marketing campaigns to lower the cost of user acquisition as far as possible by determining what demographics to target & what ads work best.

128. Improve Retention: Improve the game’s ability to retain new users & existing users by determining what incentivizes users to stay and what makes them leave.

129. Increase Engagement: Determine what new gameplay and social features will keep users playing long-term and refine your engagement and viral funnels.

131. New Content & Features: When your game is launched, new content and gameplay features will help provide a fresh experience to players and keep them interested.

133. Effectively gaining, retaining, and monetizing users is no easy task if you’ve never done it before. Having specialists with experience in these areas on your team will allow you to make smart decisions for user acquisition and monetization.

135. Examples include:

136. Ad firms that can manage your marketing campaigns and keep the cost down

137. Developers that can help manage live operation and monetization

138. Technology partners that help you solve complicated back-end issues

139. Distribution partners that help you reach international audiences

140. 3b) Marketing & User Acquisition

141. User acquisition on Facebook is challenging. There are many developers who are attempting to acquire users via Facebook marketing, but are having troubl

142. Reduce marketing costs with limited betas

143. Marketing on Facebook is expensive, with costs ranging from $0.50-$3 per install. With such high advertising costs, you don’t want to spend a huge amount of money on marketing until you’re confident the game can perform well. To gauge initial performance, it is a wise idea to run a beta first. To execute this beta, you can gain users by investing a small amount of money in Facebook ads to acquire a few thousand users. Make sure when you do this to target your target demographic.

144. After players initially install your application, the following metrics will give you an idea of its performance.

145. Weekly retention rate: What percentage of users are retained in the first week, and what is the week to week retention rate following that?

146. Demographics: What are the age, locations, and genders of those who are paying & playing?

147. Conversion & Monetization: What percentage of users are paying, what events cause them to convert, and what rates do they monetize at?

148. Actions: What are the key actions & features that users love. What (if any) features are tied to users exiting the game & not returning?

149. Figure 5 – A sample graph of various game’s week to week retention rates. If yours is high, you’ve got a lot to be happy about.

150. Once you’ve monitored these metrics, you will have an idea of your game’s retention and monetization as well as data on how users play the game. If your game has a great retention rate and other positive performance indicators, you can give the greenlight to a larger marketing effort. However, if your retention is bad during this period then it implies your game doesn’t inspire users to come back & needs fixing or is fatally flawed on a fundamental level. In this situation it’s best to introduce changes to fix this immediately and try a further small beta to gauge if your changes worked. If this fixes your retention & other performance indicators, you can consider a larger marketing campaign. If not, you should consider focusing your efforts on other products.

151. Target specific demographics & experiment with multiple ad variants

152. When buying ads for your game, Facebook will allow you to target specific age groups, genders, and locations with specific parameters. Thus, to lower the cost per click of your ads as low as possible, you want to focus on the demographics you think are most likely to play your games in your genre, and try multiple ad variants to see which ones are most effective. Many tools are available for monitoring performance of social game ads, so it’s wise to employ one of these tools to track the efficiency of your campaign

153. Virality is not dead! It’s just hard to achieve. Use unique tactics to spread your app virally

154. Initially when buying ads, the cost of user acquisition can be as low as $0.10. If every user played your game faithfully, this would equate to a fairly low cost of user acquisition. However, generally games only retain a certain percentage of users that install the game. Thus, if your retention rate is only 1 out of 5, your true cost of users acquisition is $.50 per user, which is fairly expensive, and this cost will only increase as your app continues to run, so it’s helpful to have some virality working to your advantage.

155. Back in the days of rampant notifications on Facebook (roughly 2008 to early 2010), it was much easier to spread an app via viral means. Today these notifications are long gone and trying to acquire users virally only through Facebook’s viral channels is quite difficult. K factors (virality coefficients) are often far below 1, with 0.1 or below being typical numbers for many developers. Thus it’s been commonly stated that “virality is dead”, but this isn’t true, it’s just hard.

156. What’s required these days to get a good viral coefficient is to be smart about how you achieve virality. Some of the most popular approaches to this include

157. Small Facebook games & apps for the purpose of driving traffic to the main app

158. Games on flash portals that send users to the Facebook game.

159. Clever video marketing

160. If you can make a combination of cheap or free viral marketing tools like this, you can significantly reduce the cost of user acquisition.

161. Partner with a marketing firm

162. Specialist social marketing firms like Adparlor (http://adparlor.com) help social game companies focus their campaigns as efficiently as possible. Often these firms offer both tools to help you focus and monitor your campaigns and services focused on lowering your cost per click for your target demographics as low as possible. Assuming you have a good game, partnering with these firms can lower your cost of user acquisition and help you create more focused marketing campaigns.

164. Integration with several networks can be somewhat of a difficult task. It requires integrating into each network’s specific API & rules, each region’s currency, and contextualizing content. To help deal with this difficulty, there are social game distribution companies such as APPWalk (http://Appwalk.net) that provide both porting tools and services to port and operate your games on outside social networks. Partnering with these firms to help you take your games outside of Facebook can help you gain access to extra markets other developers don’t have.

165. APPwalk can port your games and help you optimize them for each social network (http://appwalk.net)

166. 3c) Marketing & User Acquisition

167. Having several funnels in place is a good idea

168. When users play your game, you will want to nudge them to complete specific event chains (called funnels) which guide them towards coming back later, making viral posts, getting deeper into gameplay, or monetizing. This can be done by creating specific event chains triggered at natural points in the gameplay. As you operate your game, you can gauge the performance of these funnels at driving users towards retention, engagement, virality, and ultimately monetization. Over time you want to test to tweak your funnels via testing to be as effective as possible towards achieving their goals.

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170. Figure 6 – An example (provided by Kontagent) of a retention funnel. Note that in this example, the user is using Kontagent to monitor the funnel’s performance.

171. Pay close attention to what events trigger player monetization

172. When running a game, you may begin to notice that at a certain point in a player’s advancement or at certain events, users frequently convert. You want to take note of these and try to understand what incentivizes users to buy certain items at certain points in their advancement or at certain events. From this you can understand how to create further incentives or events that increase monetization.

173. Treat virtual products like actual merchandise

174. When a retailer sells items in a store, they track performance of those various items, and expand those product lines that have high sales. Your virtual items will be no different! You will need to study what virtual items sell and what users are using them for. In this case, it’s useful to use extensive use of A/B testing to test different items against each other to see which has higher performance. From this you can make smart decisions about how to tweak & expand your products so as to provide the most desirable items for users. Additionally it’s good to experiment a lot with the price points of your products to see if it drives any extra monetization.

175. Nightclub city found that a steampunk theme (which they called ‘gaslight’) was popular among users. Thus they expanded the number of steampunk themed items available.

176. Focus on making payment as smooth of a process as possible for US & international users

177. Making your payment process smooth may seem like a no-brainer, but in reality, a lot of games fail at this point through either overly complicated payment processes or a lack of viable payment options for users. To avoid this, you can take the following steps.

178. Provide as many payment options as you can (offers, paypal, etc.), not everyone has a credit card

179. If you’re targeting international users, ensure proper international payment options are available

180. International users will be paying in different currencies, thus an item priced $0.50 in the USA would appear as 1.39 zlotys to a Polish user. This looks weird, so you want to adjust your currencies to be at prices that make sense to your international users.

181. Put options to pay all over your game! Don’t make users always have to navigate to the store.

182. Make use of payment solution providers. There is a huge selection of companies that provide monetization tools & services such as Trialpay, Superewards, or Playspan that help you create better payment options, storefronts, and monetization incentives.

183. Development Strategies

184. This section focuses on how to structure your social game development pipeline so that you can efficiently create games and have a strong process and technical back-end to support them.

185. How to select a developer

186. If you’re planning to do your development with third party developers, you should be quite careful about who you select. If you fail to do proper due diligence, you could end up with a failed product and lots of wasted money before the game even launches. First & foremost, it’s best to select developers who have created their own social games before as these developers have had the firsthand experience of building and monetizing games.

187. Additionally you want to do significant due diligence on the following areas

188. Social game specific experience & skillset

189. Internal development process

190. Social game technology & skills

191. The specific RFP response or concept submitted

193. Currencies, payment processing, and most anything related to payment

195. In online games, bugs & gameplay issues have a horrible effect on user retention and can often be the sole reason a game fails. You want to make sure that you & all of the developers you select outline a rigorous QA process and stick to it. If you’re a publisher, hire or use an internal QA resource with experience in online games to outline QA standards for all developers & internal teams to conform to. Again, YOU WILL BE IN HORRIBLE PAIN WITHOUT A GOOD QA PROCESS!

196. Have an awesome agile process

197. Since social games are an online service, they need to be serviced very quickly when things are wrong. They also have the need for quick content & feature iterations based upon feedback from metrics. Therefore, it’s very essential to have an internal process which accommodates quick changes based on changing information. Using an agile process such as XP, Scrum, or Kanban religiously will help you do that.

199. License other developer’s games. Licensing a well-done game with decent metrics avoids you having to pay for development costs.

200. Make sure that your designs are targeted at niches. Bad games fail. Don’t make a game without making it fun, unique, and well-positioned among competitors. You’ll lose your money otherwise (and why do that?).

202. Make marketing very targeted towards the type of users who play your games, don’t waste your time on users who probably won’t

203. There are many ways to market that are focused on simply getting eyeballs to your games. The problem is that many of these users won’t bother playing your game, and thus you’ll have wasted your money. Stick to your core demographic.

204. Hire specialists to handle all live operation disciplines including marketing, engagement/retention/monetization/metric, and technical specialists. They may cost upfront, but will save lots of money in the long run!

205. In areas you don’t have expertise (payment processing, marketing, etc.) make use of the services & tools of partner companies who do!

207. Select only the most capable developers

209. Treat live operation like a service, and get all of the tools, team members, and partners on board you need to handle it successfully when your game launches

210. Make your development process agile, quality assured, and filled with competent developersEnjoy the game making!<br />