Virtual Goods Summit 2008
Moderator: Mark Wallace (Wello Horld)
Panellist: John Hwang (RockYou)
Panellist: David King ((Lil) Green Patch)
Panellist: Shervin Pishevar (Social Gaming Network)
Panellist: Andrew Trader (Zynga)
Shervin and Andrew continued to be as cagey at this conference as they have been at all the other conferences (e.g. GDC) over the past year or so. In the light of their secrecy - even when appearing on a public panel (hey, guys - if you're asked to appear on a panel at a conference, what do you expect? Of *course* people are going to want to ask you interesting and probing questions! If you don't intend to answer them, howabout you just decline to speak on the panel?) - we can only guess at their motivations.
Some of their comments suggest, variously, that their current status and success are not rosy, and that they either have some worrying naivety in fundamentals of online games and online communities - or that they're pursusing deliberate campaigns of misdirection of their competitors. Personally, given the secrecy and apparent lack of interest in being part of the usually open and sharing community of worldwide game-developers, I side with the latter.
RockYou came out looking a lot more open and honest by comparison.
My commentary in [square brackets]. This is not a literal transcription, I've elided, ommitted, and expanded things for clarity.
Wello Horld (WH) - How big is the market?
Lil Green Patch (LGP) - market size estimates - it's really hard for us to judge.
Social Gaming Network (SGN) - we've done a little over 120m goods exchanged. [???]
Zynga (Z) - we look aspirationally at Nexon's MapleStory, the volume of VG that they do.
WH - Where are we in terms of the market?
Z - They have to be items that users find valuable. e.g. WhyVille, from a demo standpoint it mirrors FaceBook, 200,000 active users, 4 or 5 thousand dollars a day in revenue. 50/50 male/female, 2/3 international (non USA).
LGP - 6 or 7 years ago virtual flowers were being sold on Hot-or-Not, so we're optimistic that it's been shown already that this is strong; this is not just coming from FB.
RockYou (RY) - it's definitely in the mainstream in other countries, maybe not so much in the USA.
WH - what kind of ARPUs are you seeing?
[had to be asked 3 times to get answers, particularly from Zynga and SGN, who've been very cagey on this all year]
Z - there's disadvantages to being on a SN, because the networks control the users. So .. fraud and cheating become much bigger problems, because the operator is indirected (can't get hold of enough per-user metadata to be able to make good decisions on whether a transaction is probably fraudulent or not).
Herein LIES A GREAT OPPORTUNITY (subtle hint) .. FB and other platforms should become a payment-processing provider, since they can leverage the control they do have.
SGN - the future for all of us lies in exploring stand-alone sites
[and here you see it: this is how they could destroy traditional online games, by growing out of their fast, lean, rich SN existence into traditional places for online games.
But only if they have some revenues to prop them up, which makes the continued refusal to talk about ARPU rates interesting for their non-SN equivalents to mull over]
WH - do you see people coming in and getting engaged and staying ... or leaving?
LGP - we added media and experiences that if you don't login for a while, you miss out on loads of unique stuff.
Z - in YoVille we enabled trading so that users can buy and sell stuff to each other, which is remarkably powerful for building community. That's done a couple of things:
1. It encourages them to buy stuff, because of secondary market [partly refuting Susan Wu's opinion this morning that the residual value in VGs won't increase volume of primary market]
2. It also leads to limited-number items appreciating over time, allowing for speculative trading
[speculative trading is a particularly powerful market driver - ask any Economist - and it's great for an operator as it represents revenue from non-users that should cost you almost nothing to service]
SGN - some things in FluffFriends have appreciated to values of hundreds of dollars each. You should focus on the core community, and give what they want, while realising that often what they ask for isn't actually what they want.
[c.f. Richard Bartle's rant about how "game players are NOT professional game designers; they don't know what they want, but believe they do" from last year]
WH - what's happening in FB and other SN's, is just what's happening in typical online games. In that context, we know the average life of a user is a little under a year. Do you see different numbers?
[well ... kind-of. Actually, that might be an average, but usually the medians are either a lot less - 4-6 months - or a lot more - 1.5-2.5 years]
Z - those estimates feel very high.
We found scores of users who found that the slot machines were tilted slightly towards the user, so they made bots and hit them with huge volumes to play the odds. Those weren't cheats, just power users, and it's really hard sometimes to tell the difference between cheaters and simply good players.
[this seemed to be that he was trying to make a point about the different types of users, and how it's hard to distinguish between them. Or, in the context of the refusal to talk about ARPUs, you might think this was a simple attempt to evade the question ]
RY - we aim to have a fine balance between charging money, and giving players advantage for paying
[I thought the USA-based SN-gaming companies were redressing the mistakes of mainstream online USA companies that have cost them a lot of their competitiveness in the Free to Play arena, but maybe not. Give up the fairness argument!]
We see double-digit, $30/$40 [he revised this to $20/$30 when pushed by other panellists] per thousand daily actives. I've seen up to 75, but we don't see them that high.
[hooray for Rock You for actually saying anything about their monetization and user figures!]
SGN - it's really healthy, but we're not disclosing
[Shervin was particularly firm and insistent (almost aggressive) on this point. To be honest, I'm getting fed up of seeing him (and Andrew, usually) choosing to give panel talks at industry events and being like this. Off the top of my head, such steadfast refusal to be public about figures usually means they're bad, no?]
LGP - if you look at Google's core business it's microtransactions already, from the start. I think most of the web is about moving from major publishing models with editors and so on to "let a thousand flowers bloom".
Z - YoVille has so many items now that we're looking at merchandising best practices as pointers.
SGN - we're looking at doing the reverse of WebKinz, real world goods that are tied from online virtual items.
[that's very interesting; on the one hand, it'll be very interesting to see digital VG items mirroring back into real-world items in a recursive kind of way.
On the other hand, it's even more interesting that one of the two most famous SN-based gaming companies is trying such a variety of product/monetization diversification so early in their company existence.
I'm beginning to wonder if this signals a strategic plan of "get out of SN gaming as fast as we possibly can, leveraging our assets in that arena to kick-start businesses outside of Facebook that are actually viable from a revenue perspective"]
WH - what about iPhone stuff?
SGN - with iGolf, we've reached 2m downloads, and we're looking at updating the games in future to make them more and more social over time.
Z - it's great, but there's even more opportunity for it to be an SN platform, because all your address book is there, etc. Will be interesting if/when Apple takes it more in that direction.
[and because it's a personal communicator ... a phone ]
WH - where can SN's change and help you?
SGN - get a payment system integrated at the SN level. No more filling out PayPal forms, separate logins, etc - get it all seamless in one system.
RY - yeah, that's the main thing - ways of being able to monetize on the SN. We've also noticed that users on the SN often don't want to sign up to yet another account. Sharing the revenue with the SN, everyone wins.
Z - and fraud is a very big deal. All of the payment-processors still make it very difficult, with lots of overhead and difficulty to get payment up and running for yourself.
WH - what worked for you in the early days, what you would say to newcomers trying to leverage SN's to break through into success?
SGN - I think the SN's can do a much better job at the discovery process. Ways for users to find entertaining stuff to do. Leveraging stuff about using your friends as a recommendation channel, etc.
[I think there's a massive opportunity here, but of course it needs access to rich interconnectedness data for the individual user accounts]
Z - with YoVille it was all about the fact that the users could do self-expression that made users want to share with their friends. Our users decided early on to hold beauty pageants.
LGP - I think it's still pretty much wide-open. There was a lot of things tried early on, some of which was really abusive of the users, and that's been cleaned out now.
Z - actually I think the barriers to entry are rising really quickly, because of increased expected production quality, depth of content, application complexity, so I think it's actually getting really harder for newcomers.
RY - so what he's saying is don't compete with us, just come and sign with Zynga instead
[score 1 to RockYou there for the second time in this panel for standing up to the Zynga/SGN hegemony ]
SGN - you can still make 5k/10k/15k a month as an independent FB developer, and we need to have indie developers, so that's good, and people should carry on doing that. We're a network, so we want to work with indie developers and have them alive.
[they're both sounding very like early mainstream games publishers: cagey, self-focussed (this is not a bad thing, unless you are a developer working with them), and telling developers to do all the innovation - and risk! - for them]
Q: [I couldn't hear this question, no mike, panel moderator didn't repeat question. Answer was very non-specific, most panellists declined to answer]
Q: cognitive process that users go through at point of purchase?
Z - We try to give users twenty different colours, and 5 different styles, because users are being declarative (this is who I am) and also aspirational (this is who I want to become)
SGN - self-expression is a key component of people wanting to get items and then do unique things, like a user writing a 65-page children's book based on FluffFriends. It's shocking and exciting the derived fanfiction stuff they make around the game.
So for those people, they'll buy a lot, but they need to get that moment of inspiration right at the start to get them to decide to become part of this.
RY - you can often bring them back to thinking about the realworld parallels, like everyone wants to drive a Ferrari, etc.
Q: pros/cons using real dollars as currency vs virtual currencies?
RY - analogy: when you were a kid, going to an arcade, once you change your dollars for coins, you lose track of how much you're spending, so spending is easier. Like in Vegas the use of chips rather than money so that you lose track of total spending.
Q: why hasn't secondary market exploded on FB the way it has in mainstream Virtual Worlds (VWs)?
[my guess: VW's have real value, FB games have practically no value by comparison]
LGP - I think it's just early stages, it'll happen over the next few years
Z - it makes sense that it hasn't happened right out of the gate, because if our motivation is to generate revenues, then the user-to-user transactions doesn't generate direct revenues so it's not something we're going to focus on.
It's important, but because it adds depth to the game, and creates community.
[...except that it's generally well known now for 10+ year that the secondary market occurs independently of whether an operator tries to build it. c.f. Christopher Donahue (Live Gamer) saying earlier today that "if you don't build it, someone else will".
So, this was a pretty amazing statement from Zynga. That kind of thinking - "doesn't generate direct revenues, so it's not something we're going to focus on", is exactly the approach that mainstream MMO publishers got slated for for most of the last decade (and appear to have gradually realised was a dumb mistake and are now correcting)
I wonder if Zynga really believes this, and is happily ignoring the history of the MMO market, or if they're saying this in order to misdirect their competitors (bearing in mind the audience was probably full of wannabe-competitors)]
Q: what about retention rates, and what you do on new platforms when you move to them?
LGP - if we had to choose between keeping existing users super-engaged, or acquiring new users we'd go for keeping the existing ones.