brinking - nabeel hyatt

Speaking at Virtual Goods Summit, and a discount code

If yesterdays post interested you, you're probably a sure-fire target for the Virtual Goods Summit which is coming up next week. Last year I moderated a panel (video available) on Why Virtual Goods Matter, and this year I'll be chatting about Music as a virtual good. Last year it was a great day where they managed to get together just about everyone who had direct experience selling virtual goods, I've got high hopes this year as well.

I hope you can join, and drop me a line if you want to chat. You can save 10% on the cost of registration by using the code "NABEEL" at checkout.

Conference Website: http://www.vgsummit2008.com
Registration: http://vgsummit2008-nabeel.eventbrite.com

Casual MMOs get between 10-25% of users to pay

There's been some good number crunching going on at conferences and on the blogosphere to find out the basic economics of casual mmo / free to play companies. From a post a few months ago Jeremy Liew figured that successful MMOGs can expect around $1-2 per unique monthly user. A few of the figures from that post below:

• Club Penguin: $1.62/mthly user/mo
• Habbo: $1.30/mthly user/mo
• Runescape: $0.84/mthly user/mo
  
  others from outside that article:
• Puzzle Pirates: $1.50/mthly user/mo
• IMVU: $1.66/mthly user/mo (from GigaOM)

Those numbers are remarkably consistent across very different types of properties. Habbo hotel is so different from Runescape, one being non-combat and virtual goods based, the other being subscription and heavily combat oriented, that it's surprising to not see a massive variation between products. We certainly don't see that kind of ARPU consistency between, say, subscription based music products like Rhapsody and transaction based one's like Amazon MP3. That made me a little curious to dig in deeper.

Slicing this a different way, let's look at the ARPU of the paying userbase. From public numbers we can get that Club Penguin had 700k paying users, 2.6m Unique Users/mo, or 25% paying a $5 arpu. Runescape, also from earlier numbers, is 1m paying at 6m players/mo, that means 16.6% paying. According to an email exchange with Sulka over the weekend, Habbo says 10% of its monthly userbase is paying. And checking in with Daniel James, it looks like Puzzle Pirates has 22% of its active monthly registered playbase paying. Boiling that all together with past figures, we get:

• Club Penguin: 25% monthly uniques pay, $5/mo per paying user
• Habbo: 10% monthly players pay, $10.30/mo per paying user
• Runescape: 16.6% monthly uniques pay, $5/mo per paying user
• Puzzle Pirates: 22% monthly players pay, $7.95/mo per paying user

Ah, there's some of the disparity we'd expect. A few things to note here:

• All of these percentages seem amazingly good compared to other markets. Think about the 2% of the casual downloadable game market that pays, or a 3-5% that a lot of "penny gap" free trial web startups get.
• The relative percentages-to-arpu ratio start to suggest how you might shape a product to match your goals, but we'd need a few more samples to start to see real patterns. Throw up your numbers if you got 'em.
• One reason why Club Penguin probably gets such a high relative percentage paying is that you hit the content wall very quickly in CP when you are a non-paying user. Habbo, by contrast, has a much longer shelf life of exploring before you really need to pay up. The real interesting comparison that would help everyone build better products would be to see this comparison after a 90-day cohort. I imagine Habbo's percentage at that point would be quite similar or possibly better than CP. If any folks want to share cohort numbers we'd be happy to share as well (you know, as soon as we got being around for 90 days).

Note that some of the figures say "uniques" and some say "players" -- this is not by accident. One thing I noticed looking through the numbers was that some were counting uniques as "active players", and then others were using Compete.com/Quantcast numbers - which are "total uniques". The difference between these two can be anywhere from 20-80%, depending whether the site requires registration to play and what the bounce rate is (% of folks who hit the first page and never go further). If anyone had bounce rates for CP then we could normalize, but lacking that we'll just have to ballpark it.

Computer games drive social ties

It was a 2006 Pew Internet & American Life project that first confirmed some thoughts for me that led to Conduit, so I like to keep a close eye on what they are saying. Today they revealed a new study, this time on gaming, and here are some highlights:

• About 99% of males, 94% of females that are 12-17 play games.
• The most popular title was Guitar Hero, followed by Halo 3, Madden NFL, Solitaire, and Dance Dance Revolution. In general people played more rhythm, strategy, and action games than first-person shooters and MMOS.
• "Three quarters of teens actually play these games with other people, whether online or in person."
• Teenagers who played with other people in person did tend to be more engaged with their communities offline & online.

In general, I was impressed to see that not only is gaming absolutely ubiquitous in this age group, it is also at this point a predominantly social activity. Gaming also seemed to have no causal effect on a person's social life, but were simply a part of it. Basically, if you are social then you are more likely to be involved in school clubs, online social activities, and play games with friends. If you are already anti-social, you are more inclined to play single player. But there was no correlation between hours of play and type of play.

More interesting stuff I'm sure, let me know if you find anything.

The actual full report is here. (via BBC NEWS)

Harvard panel on non-competes and the example of Turbine

I wasn't able to make the event at Harvard about non-competition agreements recently due to my second kid being born, but wanted to share Scott Kirsner's coverage of the event:

Harvard prof. Lee Fleming said that people and ideas move from states that enforce non-competes to states that don’t (think California.) His research has found that non-competes squelch employee mobility by about 20 percent, and 30 percent for experts in a given field. Fleming asked whether non-competes might stifle the reallocation of the best people to the best business opportunities.

A great example of this effect just came to my attention. It turns out that Turbine has been trying to introduce new non-competes. Now, I haven't actually seen the agreements but apparently they have some clauses saying you are not to work for a gaming company within 100 miles (or something like that). Many of the professions in game development are industry specific (level designer anyone?) which essentially means that once an employee has worked at Turbine he is almost guaranteed to move away from Boston for his next job.

This is particularly ridiculous in Turbine's case, since just recently an employee left for Harmonix then thought better of it after a few months and returned to Turbine. With their new non-compete agreement this would never happen, as the person would have likely left Boston altogether and simply taken a different job wherever they had moved. Turbine is poisoning their own pond out of fear instead of building the company from strength.

What makes a Social Game, a social game?

It's been a little frustrating to watch as the term Social Gaming is being applied to practically everything on a social network - so much so that even single player games on Facebook are now "social games." The folks at GigaOm have been pinging me about writing an editorial for a while, and this topic seemed worth starting a wider dialog about, so here it is:

What makes games social? (GigaOm)

Are online games going to kill themselves at retail?

Yesterday Raph Koster posted the photo on the right of a full rack of Target gift cards for online games, from Puzzle Pirates to Zwinky. That led Jeremy Liew to talk about the power of gift cards to allow young players who do not have credit cards to pay for virtual goods. And while I share Jeremy's enthusiasm that gift cards are an excellent monetization method, I am also worried about what it means for the next wave of online gaming startups.

It's no secret that monetization is one of the areas where virtual worlds and gaming can teach a thing or two to the web folks. From Maplestory gift cards to Rock Band tracks, consumers have shown they are willing and able to pay for digital gaming content. Even if the techniques are unique, including everything from virtual goods, gifting, dual-currency (time & cash) based economies, and level-based subscriptions, the culture is one of paying for playing. Which is good for those of us trying to keep the lights on.

Despite this willingness, virtual goods still have the penny gap. It is never easy to get someone, especially a teenager, to type in a credit card online. Which is why walking down a Target or CVS nowadays means easily finding cards hawking virtual 8bit furniture from Habbo, virtual DKNY gear from Stardoll, or a new sword for Nexon's Maple Story.

RE-INTRODUCING THE RETAIL PROBLEM

In all, there are now over 25 digital content cards being sold at retail. I've been tracking this and that's over double what it was six months ago. That means that at least a dozen online communities, and probably a dozen more in the next six months, are going to be submitting themselves to the vagaries of the retail shelf-space business. That's a business the online web folks have little to no experience in, and one that a lot of traditional gaming vets were excited to get out of.

This is creating a funnel problem that every creator or player should be a little worried about. It means that anyone can create an online game, but there is going to be scarcity around who can make money at it. Big media companies, communities that are already at critical mass, and big-hype start-ups get shelf space - while the next big thing in a garage doesn't get a shot in hell at monetizing.

In was a long hard slog at Ambient Devices getting our products into everywhere from Radioshack to the Museum of Modern Art store. It was even harder keeping them there despite strong sales as the hot new thing came out. That background will serve Conduit well when the time comes, but I'm still worried about what it will do the overall market. The last thing any of us wants to see is for monetization to be only held to the precious few so that everyone else is forced to go to completely free. That could collapse the market for everyone.

THE TARGET: THE ONLINE GIFT CARD?

How do you allow for monetization through retail to help with the credit card problem, but without introducing the shelf space problem that could hurt everyone? Perhaps there needs to be a standard

Innovation Economy's Cool Companies

As a writer for the Globe, Wired, Fast Company, etc, Scott Kirsner gets asked what the "cool" companies around these parts are quite often. It's a common question I get as well, and I'm glad he took the time to give his off the cuff list based on the simple criteria:

- Is the company working on something important, or at least fun?
- If you worked there, would you put people to sleep explaining what you do?

Tim Rowe notes that 16% of the companies have been located at CIC, five are game companies, at least five has strong ties to the MIT Media Lab, and probably a bunch are somehow linked to Lotus. I note a distinct lack of wireless companies.

See the list here.

Real life, what would Metacritic say?

Game design is being applied to all manner of online life these days, from former game designers Catarina Fake and Stewart Butterfield designing Flickr, to Amy Jo Kim's talk on bringing the mechanics to the web, to Eric Marcoullier's MyBlogLog, to Jane McGonigal's great keynote at SXSW this year about how games are better than real life.

So with that in mind, and tongue firmly in cheek, Boing Boing tagged a piece from Metafilter that reviewed real life as a MMORPG. Remember being told to put down mario bros and go play Outside?

In terms of the traditional target age content metrics, Outside is remarkably high in sex, violence and challenges to traditional values, despite the strong child-focussed marketing it receives. Many would go so far as to say that for a child to develop the ability to cope with Outside is essential, as long as the harm incurred is not too debilitating. Children injured playing Outside are usually comforted by parents, and soon encouraged to go Outside again; this leads to the conclusion that somehow Outside has escaped any and all of the usual moralizing that surrounds the videogaming industry. One might say that Outside gets a free pass from the Jack Thompsons of this world...

Other players choose to focus on accumulation of personal abilities, the variety of which greatly exceeds the capacity of any individual to accumulate; again, the game requires players to engage in years of grinding to achieve any notable standard with a skill or ability. Players are issued abilities and characteristics largely at random, and it is entirely possible for a player to be nerfed beyond any reasonable expectation of being able to play the game, or to be buffed to the point where anything he or she does is markedly easier. Unfortunately over time, player abilities tend to degrade, unless significant effort is made to keep skills up. This reviewer cannot emphasise this enough: Outside requires a huge time investment to build up player abilities, exceeding any other massively multiplayer game on the market by some three orders of magnitude.

Players are encouraged to focus on social interaction, which can be engaged in in a variety of ways. In fact it's extraordinarily difficult to solo anything whatsoever in Outside, apart from basic skill and knowledge accumulation quests. One of the major forms of social interaction in the game is based largely around the addition of new players to Outside, and is both complex and, in comparison to the storyline-driven romance quests of, say, Baldur's Gate or Mass Effect, they are immensely difficult. Dedicated players of Outside, however, report that the romance quests are among the most rewarding the game has to offer.

(from Boing Boing)

 

Rock Band music sales close to early iPod music sales

If you care about music, and therefore whether that business will survive, there was some pretty amazing news from Rock Band this week that didn't get the attention it deserved. MTV mentioned that Rock Band had sold 6 million downloadable tracks in its first four months of sales. And while that roughly $10-20m in additional revenue is nothing that will alter parent company Viacom's stock, the finer numbers compare favorably to the early days of iPod.

First, let's keep in mind the state of the music business. People are pirating music like crazy, and consumers that were screaming about .99 cent DRM'd tracks six months ago are screaming about the high price of .89 cent non-DRM'd tracks today. If you want evidence at how much the music industry has changed in the last 24 months, just look at Rcrd Lbl, or the deals that Last.Fm and iMeem struck with the labels. The labels expect most of their money from those deals to come from a split of ad revenue. Which is to say they expect the incremental revenue of each track to hit zero pretty soon.

So on that backdrop, Rock Band is selling totally DRM'd tracks, locked to a single platform, at between $.99 and $2.99 each. And their attach rate considering all that is amazing. For comparison:

Five years ago on April 23rd, 2003 the iTunes Music Store launched:

• 200,000 songs in catalog (source)
• 977,000 iPods in market (source)
• 3.5m songs/Mo avg sales in first year (source, etc)

Four months (or so) ago Rock Band was released:

• 70 songs in catalog
• 1.1m Rock Band games' in market (as of January) (source)
• 1.5m/Mo avg sales in first four months (source)

The data isn't perfect: the Rock Band sales numbers are not up to date, we're not even talking Guitar Hero DLC, and the iPod had been on sale for over a year before the Music Store came online, giving it a big advantage. However, even with those caveats it is clear that people are willing to pay for more depth in their music experience, the same way they have shown a willingness to still pay for concerts. No, Rock Band isn't likely to be the next iPod, the early numbers are still off substantially from the iPod (see below). But selling active music experiences shows signs of being the growth opportunity for the industry. Which led one industry analyst to say:

"In 10 years people are going to look at idly listening to music the same way as we look at watching a TV show in black and white," said Geoff Keighley, co-chair of the Game Critics Awards that named Rock Band the best game of the industry's annual trade show in July.

Snapshots of GDC '08 & the presentation on social gaming

Facebook/Social gaming talk was packed.. bubbleicious.

After the jump is the presentation from the packed Social Gaming panel at the Game Developers Summit. It's full of good stats thanks to working with a great set of panelists. I also spoke on a panel on Friday, and Adam was nice enough to liveblog, Raising Venture Financing for your Startup.

And lastly, just as I've done previously, some of the memorably moments from the past week: 

Joking about their success in selling Reindeer poop last holiday season.

"If people say shit don't sell, then just make a virtual version." -- Sulka Haro (Sulake/Habbo)

On creating new MMOs.

"No IPs, they saddle a company down. We look at our company as being perfect for creating new products. We don't want to saddle ourselves with up to five+ years with someone else's ideas." -- Min Ho Kim (Nexon).

On why sharded communities may never get proper economies.

"Our free-market economy only worked when we went over approximately 50,000 players." -- Eyjolfur Gudmundsson (CCP/Eve Online)

On how to simultaneously reduce flaming and monetize it.

"We charge $1 for a shout that everyone, on every server, can see what you say. Then we charge $2 to reply back, and $4 to reply again. It becomes one big game of revenge." -- Alex Xu (Giant) for their Chinese MMO, ZT Online. Yeah.. the guys that are IPOing.

(Presentation from Monday's talk is after the jump.)