Micro-transactions and Social Gaming Adoption

If you do not subscribe to eMarketer.com, you should.  They always have nice data points such as the two charts below.






These two data points are very important trends because it helps justify what many people are writing about which is that micro-transactions and social networking games are here to stay.  Why are these facts important?

First, Social Networking Gamers are getting younger.  This is very important because it means that social networking games are becoming a broader audience.  The majority of social network gamers are older women.  Though some companies like Kabaam focus on male social network gamers, the majority of companies fail in that market.  The fact that younger gamers are playing social networking games versus mobile games (the traditional stronghold of young gamers) shows that as these gamers grow-up.  The core social networking gamer will also expand beyond its current market.  The male oriented social networking market will grow and become more viable.  The great part is that the current generation of youth will have access to social networking games not just by computer but also by tablets and smart phones!  That means that social networking games will become even more ubiquitous.  Of coarse, as I wrote previously, social networking games also need to evolve into higher end games which we are starting to see with the games being released during the 2nd half of 2011.

Second, the main method of monetization for social networking games is no longer advertising or trial offers.  Some game companies do succeed in creating advertising partnerships and in-game branding but banner adds are no longer as profitable as they were before as user tracking and ROI analysis has become more accurate.  Trial offers have become a negative source of income as users and especially adults find these payment options very untrustworthy.  Fortunately, micro-transactions are a viable source of revenue.  Right now, whales are the main source of revenue, but as the micro-transaction graphic suggest.  Micro-transactions are growing and become a widely accepted form of payment.  When I first started working on a micro-transaction game company in the US in 2005/2006, many people doubted that users would be willing to do this.  Now it seems like everyone is questioning why people still offer subscriptions.  Micro-transactions are growing every year and micro-transaction acceptance is almost universal.

Social networking gamers will grow and they will be able to pay with micro-transactions, but people must remember that console games and subscription based online games will still succeed.  These "premium" game markets will exist in the premium market, but the majority of the population will migrate to social network games or other forms of free-2-play games which are powered by micro-transactions.

What is the big deal with Kindle Fire?

The last week and a half the news has been filled with Kindle Fire and Barnes and Noble's equivalent.  Because the Nook nook only allows 1GB of storage for non-Barnes and Noble bought apps and the fact that most websites and reviewers have noted that the Kindle Fire is superior, I will ignore the Nook for now.

The most important thing for me to consider is how important is the Kindle Fire to the gaming industry?

The most interesting facts that have been reported the last week in the 1/2 are as follows:

• Ipad is now considered the #1 most requested / wanted gaming platform for kids per Nielson.
• By the end of 2011, iOS and Android based gaming revenue will surpass portable game revenue (ie DS, PSP, etc...)
• iOS and Android games have or will soon surpass mobile game sales.
• Developers support development for the Kindle Fire because of its low purchase price and current demand.
• According to surveys, Kindle Fire has the 2nd highest purchase intent after the Ipad and Ipad users are considering switching to the Kindle Fire.
• Users who are intending to purchase a table in the next year find the Kindle Fire a better option than an Android based Tablet.

Based on all these facts, the Kindle Fire has the potential to be a strong player in the portable gaming market.   Since tablets are being adopted by adults and now by children alike, they will be here to stay.  In fact, once they become powerful enough, they will probably replace netbooks and laptops.  Remember watching those sci-fi movies or shows where people used very thin tablets to do computing, that maybe coming in 5-6 years.

What will determine a platforms viability is content, which is why the support from developers is essentials.  With game companies already making products for the Kindle and other developers also expressing support.  Content will probably not be an issue.  Also, Kindle already gets content from Amazon's expansive book deals.  Kindle Fire, like the Ipad, also offers web browsing and other features.

At $199, Kindle Fire has a very low price point that will probably fall in less than a year.  This makes it a perfect medium to be adopted by the mass consumer.    For the gaming marketing, $99 and $199 is considered the ideal price points for a console to go mainstream.  Since Kindle Fire is not just a portable console, but can be used for many other things.  This gives it added utility.

Kindle Fire has the support, usability, price, and distribution reach (tons of people use Amazon.com right?!) to be a strong #2 player for tablets.  It maybe the Android equivalent to the iOS on smart phones for Tablets.   Unlike the Android, whose market place was not very strong in the beginning, Amazon's awesome marketplace will make selling games and other apps very easy right off in the beginning.

Remember what everyone says, once someone says that a platform has arrived, you just missed the boat.  Kindle Fire is in its infancy and maybe a great partner to break into the portable gaming market with.






ADDITIONAL NEWS FROM MOBILE BEAT:

http://venturebeat.com/2011/12/02/kindle-fire-ships-3m/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+Venturebeat+%28VentureBeat%29

Kindle Fire ships over 3M units, may already be no. 2 tablet after iPad

December 2, 2011 | Sean Ludwig

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Amazon’s ultra-cheap Kindle Fire has already shipped between 3 and 4 million units. Combined with news of excellent Black Friday sales last week, the Fire may already be the number two tablet after the Apple iPad.
As far back as August, analysts have predicted that a less expensive, Amazon-made alternative to the iPad could sell up to 5 million units before the end of the year. Amazon appears to be making those predictions a reality with its Kindle Fire, which retails at $199 and can be used to read e-books, browse the web, play casual games and download content like movies and TV shows. If it sells more than 5 million units, the Fire would be the best-selling Android-based tablet in the world, beating high-profile tablets from Samsung and Motorola.
The 3-to-4 million Kindle Fire unit shipping estimate comes courtesy of Digitimes. Citing unnamed sources, the report says Quanta — Amazon’s manufacturer — has already shipped up to 4 million units and will likely have 5 million shipped before the end of 2011.
The Kindle Fire launched Nov. 15 and features a 7-inch screen with 1024 x 600 resolution, a TI OMAP4 dual-core processor and 8GB of on-board storage. The tablet offers applications from Netflix, Facebook, Rovio, Electronic Arts, PopCap and more, which likely fueled adoption.
The Kindle Fire’s two largest competitors are the iPad, which retails for a minimum $499, and the Barnes & Noble Nook Tablet, which runs for $249. The iPad does a whole lot more than the Kindle Fire, but because it costs at least $300 more, penny-pinching consumers may decide they can do without those extra features. The Nook Tablet offers better base specs and performance than the Kindle Fire, but it lacks a content ecosystem of movies, TV shows and music to download.

Are Subscription Based MMO's Dead?

With World of Warcraft losing 800K subs the last quarter and over 1.3M the last 2 quarters, a lot of people are writing that subscription based MMO's are dead.  Some are touting that Star Wars:  The Old Republic will be the last large subscription based MMO.

Warhammer 40K: The Dark Millennium noted that they will be using different business models based on the region but will still use subscription in the west.  Blizzard's next MMO, Titan, and Elder Scrolls Online may still be subscription based.  These games may switch to a Free2Play model but as I noted earlier there are a lot of factors that must be considered.

A good case study would for the possible direction of the market is the Korean Online market.  Over 10 years ago, Korea was only dominated by subscription games such as Legend of Mir, Mu, Lineage, and Ragnarok.  Because of the highly competitive nature of the market and the extreme costs of development, new MMORPGs were unable to gain any traction.  In order to survive, publishers started created extended open beta programs.  These are different than US beta programs in that these games were basically live versus just restricted to a select number of customers.  These allowed Publishers to showcase their game and try to make users tied to their game before they started charging a subscription.  Players were not wiped, but to continue playing their character they had to pay a subscription.  Soon all publishers adopted this strategy, but this actually hurt the overall market.  Players started just moving from beta to beta now that they constantly got free access to new games every couple months.

Soon the Free2Play market developed as game companies turned to Free2Play models to monetize and retain players.  The market started to divide as between Free2Play games and MMORPGs which is what is happening in the US.  Free2Play game have different cost dynamics that Subscription based MMOs so both have their own niche and continue today.  Korea's top 20 game list is always dominated by Free2Play games but LineageII, World of Warcraft, and Tera are still strong subscription based games.  Rift also just got a publishing deal in Korea showing how subscription based models are still doing well in Korea.  I believe this will be the case in the West for a few more years.

Subscription based models will eventually fade if the following factors occur:

• Free2Play MMORPG content is just as good as Subscription MMORPG content.  Subscription based MMORPG content costs more than 50M-150M to develop.  The PC hardware requirements and online service requirements are also very high which make the audience limited and the costs of hosting Free players too expensive.  A lot of successful Free2Play converted MMORPG games that have profitable operation models but will take a long time to recoup their original development and investment costs.
• The barriers to playing premium subscription based MMORPGs disappear.  By barriers, I am referring to any fiction that prevents players from entering the game.  This includes costs of a box.  Either, players pay $20-50 to be able to access the game early or downloading the game is just free.   The other major barrier is the time and effort it takes to download a premium MMORPG.  With the lowering costs of bandwidth and the increasing speeds of bandwidth, this may be a mute point in 1-2 years.   For a Free2Play game to succeed, the hurdles to trying it must be close to zero.
• Free2Play monetization strategies are adopted by designers of Premium MMORPG games.  Current, Premium MMORPG games are not normally designed to maximize the monetization of Free Players as most designers believe that buying gold or selling items that effect gameplay will ruin the game.  These are actually some of the best selling items in some Free2Play games.

Subscription based models will continue to be viable for the next few years but as the market evolves and technology changes. Subscription based models may become obsolete but that will not be for a few more years.

Converting Subscription MMOs to Free2Play MMOs

Over the last few months, City of Heroes:  Freedom, Lego Universe, DC Online, Lineage II and yet to be release Neverwinter Nights (by Cryptic) have all announced that they will be converting from a Subscription Model to a Free2Play Model.

DC Online noted that in 2 days they had an increase of 200K subscribers while Lego Universe announced they will be shutting down.  Previous MMOs that have converted to this model also had a mix of success and failures.  The most successful conversions have been Dungeons and Dragons Online and Lord of The Rings Online which are both run Turbine.  The majority of other games that have undergone this conversion have failed.

What separates the winners from the loser?  The most important thing to note is that converting form Subscription to Free2Play is not a panacea.  It will not fix your game if your game inherently is not very good.   Developers need to take a deep look inside to see if a game is not doing well because it is fundamentally flawed or if having a subscription is causing too much friction.  If the game is fundamentally flawed, what changes need to be made to make it "fun"?  Switching to Free2Play can help give your now improved game a 2nd life because players can now experience the "new and improved" content with no blockers.  Free players can then help evangelize your game, but if the game is not very fun, these free players will just help spread negativity about the game.  If the game is fun but is not superior to an older competitor, going free might give the game the edge to overcome your competition.  In a market where you need to steal market share, going free will allow players your competitors products try your game for free.  Playing for free will helpfully help "hook" these players and thereby increase your usage and revenue.

Going Free2Play is just half the battle.  What made Dungeon and Dragons Online and Lord of the Rings Online successful is because they spent a lot of time redesigning the game and testing the F2P model in the context of their game before fully converting.  Converting to Free2Play is not just simply adding a free component monetized by a combination of area fees or micro-content.  Converting to Free2Play means adding a frictionless in game payment system, adjusting the economy to account for free versus paid items, developing a complex and dynamic business model, creating natural friction that not only increases micro-transaction purchases but does not lead to so much friction that causes free players to quit, and developing a more streamlined registration to login system.  Working on Free2Play games, one of the biggest hurdles one faces is just having a player register and download a client.  You will experience drop off from these steps so they need to be optimized.

As Mike Morhime noted in an interview with Eurogamer.net, Free2Play is not for everyone and subscription is optimal for games like WoW and Star Wars: The Old Republic.  The game you develop must be developed with the business model in mind.  Converting from one model to another means you need to change fundamental aspects of your game.

Some things to also note is that you need to adjust your costs per user to account for free users if you convert from subscription to Free2Play.  Your Customer Service, Billing, and Server Infrastructure all need to be adjusted.

ADDITIONAL NOTES:
Lineage II and Star Trek will both be going F2P.