brinking - nabeel hyatt

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.

Echo Nest, it's like S3 for music tools

The Echo Nest is a damn cool company. Last week David Rusenko of Weebly wrote some nice thoughts on Loudcrowd on his blog (thanks David!). That led me to read some of his older posts, including one on Echo Nest. I don't know how I missed the announcement from the Echo Nest about their music intelligence APIs, considering how much we've been doing with music lately, but I'm making up for it here. Using thisismyjam I built this quick mix:

While that demo alone is probably enough to get you into some startup contests, there is a lot more going on here. Echo Nest is taking a platform approach, building a bevy of music-based APIs available to anyone trying to create new music tools for the web. You can watch some of the other demos they built (don't miss the "More Cowbell" demo) by watching the video from their launch at Demo a few weeks ago:

Oh, and don't miss David's thisismyjam mix, and his excellent blog..

When have you released too early?

(The following is consolidated notes from the talk at the Startup meetup put on by the YCombinator folks, which I found to be a very enjoyable event and hope they put on again soon)

Conduit Labs had the longest incubation period (eg. no outside users) of any of the dozen or so product launches that I've been a part of in my still relatively early career in startups. Although we still erred on the side of releasing as early as possible, this long incubation period left me with a couple of thoughts on the old mantra of releasing early and often.

Suffice to say that you have likely heard that releasing early and often is a good idea. I first read this in writing somewhere in the mid 90s in The Cathedral and the Bazaar, and still believe it is perhaps one of the more eloquent explanations of why it is important. Eric Raymond described Linus treating his users as co-developers with a voice in the growth of the product. Or has he put it,

"keeping his hacker/users constantly stimulated and rewarded - stimulated by the prospect of having an ego-satisfying piece of the action, rewarded by the sight of constant (even daily) improvement in their work."

But I think there is an equally important reason for releasing early that folks don't talk about very often, namely the effect of positive user feedback on the culture of your development team.

The best way I can explain this is to tell a short anecdote about Mark Spitz (which seemed relevant considering the recent Olympics). Spitz went into the 1968 Olympics holding 10 world records in swimming, so think of him in the Larry and Sergey world of talent. After brashly predicting he would win ten golds, he messed up the start of his very first swim which caused him to finish dead last. This killed his confidence leading to him getting "just" two golds.

After bombing at the '68 Olympics, Spitz got gold in his first event at the '72 Munich games. As he tells it, this early win lifted his confidence and was the catalyst for him to go on take seven gold medals, a record that stood for 36 years until Michael Phelps just broke it. This is the relative importance of that first release of your product, and points to the problems that can arise in taking an early release too casually. Positive feedback loops snowball, but so do negative feedback loops. And a world class group of start-up talent, on the order of Spitz, can get derailed for years or even permanently if they mess up that first release.

Startups, like most things, are a head game. It's best you set the culture of your company up for success.

Paul Graham cites these twin problems in his essay, The 18 Mistakes that Kill a Startup, where his #8 is about launching to slow, and #9 is about launching too fast. We hear a bunch about not launching too slow, and maybe not enough about making sure the first step out is going to be a solid one. It is indeed important, even critical, to allow yourself the ability to "fail quickly" so you can move on and improve the product. But a complete failure (no traction, no positive feedback, no real way for users to engage and understand your service) is not only bad for self esteem, it gives them nothing to attach to and build from.

This is just a friendly bit of counter-pressure to the constant drum beat of releasing early. All startups are riddled with failures, so you can't be afraid of releasing because of failure. But if there is a great instinct I constantly see in entrepreneurs it's the ability to look at the primordial goo of an early product and see the little nugget that is working well enough to sprout 100 new ideas. I'll talk a little more about what it means to see that bit next week.

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)

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.

Big Fish Games steps into Casual MMOs big time

Congrats! The news is out that Seattle-based casual MMO Thinglefin has been acquired by casual games publisher Big Fish Games. Thinglefin was founded early this year by Asheron's Call Lead Designer Toby Ragaini, Jeremy Friesen and Ryan O’Rourke. Big Fish is a casual games publisher, and their President Jeremy Lewis runs it as one of those quiet companies that kicks ass month after month without having to scream about it at every conference.

They are still in stealth mode, but are working on a web-based casual MMO that obviously Big Fish thought highly of. With the huge number of casual MMOs in development right now, getting distribution is key to rise above the noise. With combination of the development team at Thinglefin, and the distribution muscle of casual games publisher Big Fish, they should be someone to closely watch.

I met Toby about a year ago as he was starting up Thinglefin, and he was nice enough to give me a couple-hour headstart in announcing their VC funding to the blogosphere. I will claim my very insignificant part in all of this, as I introduced Toby and Jeremy a few months back. Clearly, they got along. :)

Excitement versus confidence

There is one word to explain how I feel after spending the last week in San Fran: Excited.

After feeding on all the unbridled positive energy around here it makes me feel like we are building the best thing in the world, that will take over everything, and that we can do anything. The mixture of youth, positive ideas, and support of each other makes you feel like you can't lose. It's an awesome feeling to have that level of enthusiasm.

However, I worry a little about entrepreneurs who can get wrapped up in all the positive energy in the valley and what it might do to them. I'll be heading back to Boston with a raised level of confidence, but I also know that is not necessarily the best feeling to always have.

Excitement is incredibly important to keep you from thinking too small, to reach for big ideas and believe in them. But confidence can lead to trusting your direction so much you miss the train passing you by (or headed right for you).

• Confidence presents well to one person, excitement spreads.
• Confidence is sure, excitement is creative.
• Confidence leads to pushing your ideas, excitement leads to listening to how others can help your idea.

I have no right to be confident. Relatively few people really care about what we are building right now, no one has used it, and we have a lot to prove. But there is a huge opportunity out there, and I'm excited to see if we can pull it off.

NY Times writes about Virtual Goods and misses the entire industry

The NY Times did a piece on virtual goods, only it's actually just another damn piece about Second Life. I posted before about why Second Life gets so much coverage, but this is really going far past that point. This is a piece focused on the buying and selling of virtual items, yet there is no mention of Maplestory, Habbo, or even Facebook and Hot or Not. For the press to remain ignorant of this being an industry and not simply a single product is now journalistic irresponsibility and they should be ashamed.

This is a member of the mainstream press that has not even managed to type "virtual goods" into Google. If they did, they would see the first three stories currently point to:

1) Sony getting into the game.
2) Susan Wu's article on Techcrunch about Virtual Goods being the next big business model for the web.
3) A link to the friggin' Virtual Goods conference, which would have mentioned all the above companies and many more.

Instead we get a completely miopic puff piece about one person selling crap on Second Life. No context of how this might effect the reader as they navigate their digital lives. No background on the history of virtual transactions, their popularity in Asia, or the fact that the #2 prepaid content card in Target behind iTunes is the Nexon card. Not even a brief mention of the RMT market, despite the fact that there was piece on it in the (much better quality) NY Times Magazine a few weeks ago.

This is not a love affair with Second Life, this is journalism that is abdicating its responsibility to inform the public. This is the same as talking about the future of Blackberry's stock and neglecting to mention the iPhone or Google Phone. Or talking about the social networking phenomena and only focusing on one teenager on MySpace without even hinting that their might be an entire industry of competitors. Just to be clear, this was an article in the New York Times Business section.

This is lazyness that borders on a lie.

[Note: The original title of this article was, "Idiots at NY Times write about virtual goods and miss the entire industry." After calming down a bit I felt that the use of idiots warranted a personal attack, which wasn't really my intent. I have left the rest of the article exactly as it was, as I think it accurately captures how viscerally I feel about this issue.]

8 Snapshots of Austin GDC '07

Virtual Worlds News has good liveblogging coverage of the talks at the Austin Game Developers Conference, including the panel I was on, Startup Lessons from Recent Online Games (audio is available here, for a fee). There's also stuff at Gamasutra and Raph's site. AGDC didn't have many overall themes, other than it feeling a bit like a bunch of MMO folks trying to ignore the social web crowd in their midst. So instead of a summary I'll do the same thing I did for GDC and give some snapshots of the last couple days.

On how teenagers live their lives online, and take that for granted.

"Fourteen year-olds playing our game were born in 1994, they've never not known the Internet. Pictures of them as a fetus could have been posted online before they were even born." - Sulka Haro (Habbo Hotel)

On user generated content, player control, and the feeling a player can effect the world.

"It turns out that a sense of autonomy is the single strongest relationship to sustained subscriptions [in an MMOG]." - Scott Rigby (Immersyve, Inc.)

On the dangers of not paying attention to the small percentage of hackers.

"Hacking is like a drug. If your whole guild is using it, you'll be pressured to use it too. Then, once our users try a hack tool they actually find it hard to get back into the game." - Minho Kim (Nexon America)