May 23, 2008

Notes from Interplay

I went up to the little Interplay conference yesterday, so I thought I’d post a few notes.

The Future of Social Gaming

This panel had guys from Kongregate and Meebo (two companies I actually like) and guys from SGN and Xynga (companies I’m not sold on yet). Of the last two, they get a fair amount of Facebook traffic (some of which is organic and some of which they’ve merely bought). From what I heard, the two hate each other… but both of them had their diplomatic hats on and mentioned that creating a genre (social games) was more important than any one company.

I found one thing the Xynga guy said pretty funny: “Every couple of months, the networks ratchet it up and make it harder to be viral.” In my mind, what he’s basically saying is that every couple of months the networks make it harder to spam users. If the content is good, and it really stands on its own, you don’t need spam for it to go viral. That he’s bemoaning the anti-spam filters lead me to believe that they’re a little lacking in substance. By building a single, large game channel, though, they’re essentially cutting Facebook out of the regulation picture. Once their install base is high enough, they can actually just spam within their current users to drive eyeballs to their new apps.

10 Ways to Monetize Social Applications

I didn’t notice on the agenda that this was a “sponsored panel.” It could’ve been called “10 Ways to integrate OfferPal into your Facebook Application.” They quoted some pretty obscene eCPMs (>$200), before later revealing that was only from the actual “complete an offer” page that 5% of the users visited. I have no doubt that this sort of thing works for teenagers (or anyone without a credit card), but these things are the sleeziest types of offers in my opinion. Unless I was designing an application purely to make a buck, I don’t think I could stomach their system from a user-experience point of view (and I’ve actually got a couple of ideas that would work perfectly for it). The funniest thing about their presentation was how many people got up and left right in the middle of it (as soon as it became apparent that it was a sales pitch)–it was really like rats fleeing a sinking ship.

The State of Social Games

This was one of the more interesting talks, in that at least Developer Analytics had some data to share. After crunching a number of applications, they boiled pageviews per daily active user into some pretty interesting numbers:

  • Messaging Apps (Wall, Poke, etc) generate 3 page views per DAU
  • Dating Apps generate 20 page views per DAU
  • Social Gaming Apps generate 50 page views per DA

They basically saw only a handful of monetization channels for social games: digital goods, virtual currency, microtransactions, and CPA type offers. They estimated that a successful app in today’s market generates around $40 per 1,000 DAU per month.

Funding the Social Gaming Sphere

This was a panel of three venture capitalists (Accel, Lightspeed, Hit Forge). The moderator was a bit of a pain, but there was some interesting info. One of them mentioned that current apps are seeing about $0.50 per DAU per month (right in line with Developer Analytics’ estimates). The biggest way to make money, they suggested, was to let the guys who can spend $1000/month spend that much and let the guys who can’t afford $0.25/month play for free. In America, though, gamers have been VERY resistant to letting players pay for a competitive advantage–essentially limiting the market to purely cosmetic items (i.e. Pimp My Avatar). They also made a noteworthy distinction that Social Games are not just multiplayer games. With multiplayer games, you are willing to play with anyone. With social games, part of the fun is derived from playing with people you actually have relationships with.

Jeremy Liew of Lightspeed mentioned that they look at applications that see a total of around 100 million minutes of engagement per month. I don’t have any actual stats on Filler’s average playtime, but I’d peg it conservatively at 5 minutes. It’s well into its long tail by now, and averaging around 10,000 views a day. Doing some basic math, 10k views/day * 30 days * 5 minutes per user… that’s about 1.5 million minutes of engagement per month. Flash games and social games are different in that flash doesn’t serve up multiple page views (or create meaningful interactions between friends… yet), but I think it’s worthwhile to compare the two. There has been huge inflation in sponsorship costs over the last year or so (basically since MochiAds hit), but the money tossed around for flash games is still nowhere near what some of these social apps are getting. I see the difference in the two, but I don’t see the difference as being THAT huge–both are essentially diversions. I think the money for flash games will continue to rise while the money paid for social apps will decline over the next year or two.

They also mentioned a few criteria for apps (or really, the developers behind the apps) who might get venture funding:

  • Applications that are user content-driven (and therefore inherently more viral)
  • Applications developed by someone with a portfolio of hits
  • Applications which hit a stable niche (i.e. Poker) and own that niche

The question that they didn’t really answer, though, is why any of these applications need venture capital at all. Most of the apps have next-to-nil production budgets, and those that become hits are likely profitable already. Without any sort of cash burn to deal with, I don’t really see the need to give up part of your company for VC money–unless, perhaps, you want to quit your day job and do app development full time (I doubt a VC would invest in someone who wanted to keep doing development on nights & weekends).

Building a Successful Business

The founder of PlayFish gave a great talk on how they’ve been so successful so far. I hadn’t heard of them, but after seeing their apps and hearing about their processes, I think these guys are going to make a mint. Essentially their core value proposition is that they want to elevate the overall quality of Social Games to a level on par with a Nintendo DS or Wii title. He gave five bullet points on how to build a successful business:

1) Think Like a CFO (i.e. you should plan with the bottom line in mind, not what’s necessarily the most “creative”). This will allow you to manage risk and learn how to manufacture hits over time. 2) Create Great Product. By this, he meant be the #1 or #2 in your competitive field, as this will create exponentially higher value in the long run. I agree with his sentiment, but I’m not entirely sure it works for Flash Games (where there’s a new #1 or #2 every week). 3) Kill Product. Learn to pull the plug when something isn’t going the right way, and never look at that as a failure. Make bold decisions if necessary and don’t look back. 4) Build Platform. Develop and document your tools and processes. Not only will this improve efficiency, you’ll actually have an artifact repository that creates “enterprise value” (i.e. something that can be sold to someone else). 5) Budgets Increase. Plan ahead that the budgets will always increase.

Advertising and Marketing on Social Games

This was a panel on in-game advertising featuring DoubleFusion (I think… I was grabbing a Coke when they said the first guy’s name), OfferPal, NeoEdge, EA, and MochiMedia. Perhaps because I was already so familiar with the space, I didn’t take much away from this panel. The NeoEdge guy spoke most of the time, but the lady from OfferPal jumped in as often as possible to reiterate her sales pitch (”We have FIVE PhDs working to make you money!”). Everyone on the panel was fairly subdued, but she looked a little out of place. Not to sound sexist, but she would’ve fit in better as one of those hosts on QVC or some other home shopping network–just a little too overdressed and just a little too eager to sell you something.

Microtransactions and Virtual Goods

I didn’t really learn anything from this one, but it was interesting to hear the guys from Friends For Sale and Packrat talk about various problems they’ve had to deal with in regards to cheating, inflation, etc… The panel moderator made very sure to explain the concept of monetary faucets and sinks SEVERAL times (though I’m sure the crowd was probably familiar with the idea already).

All in all, the conference started out kind of slow but ended with a few nuggets of information. A friend of mine who’s interested in entering the space has been to a few of these things in the last couple of months and said most of the info has already been mentioned at other conferences. Their was an open bar afterwards, so I at least got to feel like my $100 was well spent.