This document discusses strategies for content creators to increase the lifetime value of customers in the mobile gaming industry. It notes that user acquisition costs are often higher than lifetime user value due to the competitive mobile app market. It then provides several tactics for improving monetization and retention through optimized freemium models, paid apps, branded games, and potentially real-money gaming, though that option faces regulatory hurdles. It predicts larger publishers will gain ground and there may be industry consolidation as user acquisition costs rise. Throughout, it emphasizes the importance of prioritizing fun over optimization metrics.

1. When Your User Cost is Higher
Than Your LTV:
New Market Opportunities for
Content Creators to Increase Life
Time Value of Customers
William Volk, CCO PlayScreen
Sunday, July 28, 13

2. 2
But First, A Joke ...
Perhaps you have seen this story?
Game Programmer Quits Job To Sell Street Food,
Doubles Salary
First reported by Tencent, an unnamed game
programmer in Shenzhen, Guangdong province left his
job in the video games industry and took up a cart to
sell "shaobing" on the street.
Sunday, July 28, 13

3. 2
But First, A Joke ...
In related news, his customers began
demanding FREE FOOD ... with only
2% opting to make DLC (deliciously
loadable content) purchases for
condiments and spices.
Sunday, July 28, 13

4. The Evolution of the Game Industry
1982 Avalon Hill Controller
$30 for 48KB of Code and Graphics
Now we ship megabytes and hope some people pay
us a few pennies a day
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5. Freemium: How we got into this situation
Understanding where we’ve been helps us know
where we’re going.
Box games, Consoles, Mobile(B.A.)
and App Stores.
(B.A., Before Apple)
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6. Freemium (Free to Play) Dominates
• If you could PAY players to download games, i.e.
NEGATIVE PRICES, publishers would do that
• In fact, many do
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7. The Key Insight about Free To Play
(Cost Per Install is NOT Cost Per User)
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8. Don’t get fooled by CPI
• Facebook Mobile Ad Campaign: CPI = 63¢!
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9. Don’t get fooled by CPI
• Must be Poor Retention? Right??
• Lesson? Conversion is NOT Retention
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10. Why is it so expensive to acquire users?
• Expectations of app riches drives investment
• Excess demand for ad inventory drives CPI
• Market can’t support the number of apps released
• 50% of app revenue is going to 0.1% of all apps
• Ad profits reach 100% in some cases
• In Contrast, the NES
• 785 carts, USA and PAL
• Supply of games restricted
• Quality controlled
• High prices, high profit
• App Stores - Open, No Barriers,
and Brutally Competitive
... be careful of what you wish for
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11. What can you do to get better conversion?
• Optimize advertising for
CPU not CPI
• Pay Per Engagement
Model (CPE)
• Creative that only attracts
the audience you want
• Use co-promotion channels
(Chartboost etc.)
• Increase Daily Revenue
(6¢ per user in that
example, break even
would be 60¢!!!)
• Ship 4.5+ Star Apps
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12. Tactic: Improve F2P Game Revenue
• Example: Candy Crush Saga
• Life Model: Buy lives or earn with social activities
• Chapters: Pay to advance, or ask friends for tickets
• Moves: “So close to advancing?” buy 5 extra moves
• Consumable Power-Ups and durable ‘$$Charms$$’
• The Map: Discernible game progress
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13. Tactic: Improve F2P Game Revenue
• Example: Crickler 2
• Consumption Model - Play A
Puzzle, Use A Credit
• One Free Hint a Minute
• Impatient? Buy Hints
• Earn credits by watching
videos
• Reduce CPU via co-
promotions
• Create ‘topical’ puzzles to
drive consumption
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14. Tactic: Improve F2P Game Revenue
• Provide Alternative Payment Methods
• Offers - Native-X/Tapjoy
• Social Activity for Credits
• Although revenue/transaction is small, more players
use this than IAP ... acts as a retention tool
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15. What’s Wrong With Freemium?
• Only a small number of players are payers
• “Social casino games average a conversion rate
between 2% and 3.5% in the U.S. depending on the
sub-genre.” - Social Casino Gaming Report 2012
• Many social games are dependent on whales
• App bubble creates eyeball-driven publishers
driving acquisition costs above lifetime value
• What Can Go Wrong? Bombcats, Punch Quest
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16. Is there a backlash against Freemium?
• Typical Story: From CBC News, July 23, 2013
$3,000 iTunes bill stun mom
“To make a long story short, it was not fraudulent activity
or criminal activity that I thought was happening from
the U.K.; it was actually my seven-year-old sons who
were playing a game while I was gone called Clash of
Clans,” Marner said.
“The $3,000, $5,000, $10,000 bills, people are really
going to complain about that when they show up,
because it's pretty noticeable on your credit card
statement,” said Fewer, who is the director of the
Canadian Internet Policy and Public Interest Clinic.
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17. Strategy: Ship Paid And Pray
Small developers may be better off just forgoing
‘freemium’ and aiming for niche hits
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18. Strategy: Ship Paid And Pray
• This can work
• But odds are, it won’t
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19. Strategy: Ship Branded Paid Games
• Example: Leisure Suit Larry Rebooted
• Sucessfully launch (and actually ship) a ’80’s classic
• Ship at $4.99 (higher costs for PC/Mac)
• Hit iOS 100 Top Grossing in less than a week
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20. Strategy: Ship Branded Paid Games
• What works?
• Name Brand Ports
• Niche apps (Bocce)
• Adventure Games
• Mid-Core Games
• Awesome Game
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21. Strategy: Higher Revenue Freemium Games
And that just might be Real Money Gaming (RMG)
(Monthly Revenue Per Paying Player)
(Source: SuperData Research)
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7Thomas Allen, (212) 761-3356, thomas.allen@morganstanley.com
Key differences and similarities between social gaming and real money online gambling
Source: SuperData Research, H2 Gambling Capital, Morgan Stanley Research
2012e Social gaming
Social
gambling
Paying social
gambling
Online
gambling
Player base (m) 799 173 3.2 49
Market size (US$m) $7,952 $1,704 $1,704 $35,058
ARPU (US$) $10 $10 $538 $716
M O R G A N S T A N L E Y R E S E A R C H
3Thomas Allen, (212) 761-3356, thomas.allen@morganstanley.com
Social Gambling is $1.7 billion industry, <5% of Online Gambling
US$390.5bn
US$35.0bn
US$1.7bn
Total Global Gambling Digital Online Gambling Social Gambling
Source: H2 Gambling Capital, SuperData Research, Morgan Stanley Research
Sunday, July 28, 13

22. Strategy: Real Money Gaming
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23. Strategy: Real Money Gaming
• Not so fast
• Legal in Europe
• USA lags at this time
• Licensing requirements
• CPU is expensive (no surprise)
• Need to geo-fence
• Apple approving apps, Google is not
• Experienced companies dominate market
• PokerStars, BWIN, Betfair, 888, William Hill
• Harder than it looks. RMG is NOT a Social Casino
• All players are paying, not just the whales
• Deep understanding of casino games a requirement
• Zynga: RMG Poker NOT the same app
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24. Strategy: Real Money Gaming
• Get your own license
• Will take months.
• Expensive
• Keep more of the revenue
• Pick a licensing partner (Betable, Cashbet etc.)
• Give up a good portion of revenue
• Get to market faster
• Have an understanding of the market
• Either way - execution matters
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25. Predictions
• Traditional Publishing
model gains ground
• There will be a “land
rush” into RMG
• The large video game
publishers will ship
branded games
• There will be a shakeout
on mobile
• Apple has and will make
it more costly for
independents
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26. Final Rant: FUN MATTERS!
"Men have become the tools of their tools" -
Thoreau
The day Excel became a more important tool for
development than art and coding was the day game
creation nosedived into being mostly garbage.
The game world will find its balance again one day,
but it will take time before we realize the essential
truth:
Thoroughly optimized garbage is still garbage.
(Inspired by a marketing rant created by Tom Cunniff)
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