Stupid money

The death of subscription MMOs has been profecized a lot, especially since SWTOR announced it’s transition to F2P.

The explanations mostly focused on things like insufficient content to justify ongoing monthly fees or the competition from subscription-free MMOs like Guild Wars 2.

The real reason, however, is simple. There’s only so much stupid money to burn on making carbon copies of World of Warcraft. Between the demise of 38 Studios which burned 150 million and the 300 million spent on SWTOR, even the stupidest money has no more illusions about making a killing on MMOs.

Enter social and mobile games!

A full 57% of all investment in 2011 went into social gaming and 30% went to mobile games. So what is the result of this overspending?

One result is that copying games is rampant. If it has worked for Zynga, it surely works for startups that have been funded to the hilt. Case in point: Tiny Company ripping off Dragonvale in a way that is very Zynga-esque. They copied all the game mechanics and interfaces but replaced the dragons with monsters, so they are not sued for copyright infringement. FYI, monsters are still hatched from eggs, apparently this was something they couldn’t replace.

So instead of copying WoW at anywhere between 100 and 300 million a pop, stupid money is now betting on copying casual games for only a couple of millions each. Is it the smart thing to do? It’s probably smarter than copying WoW, that’s for sure.

Facebook’s downhill slide

Facebook has been a great story and as human beings we often fall in love with great stories (like Casablanca or The Godfather).

The problem comes when people invest in companies buying a piece of this great story. Unlike watching The Godfather for a n-th time, where the story remains the same, watching Facebook’s shares continue to slide is like seeing Michael Corleone being gunned down by Sollozzo and McCluskey, instead of the other way round.

What happens now? Is Fredo taking over the Corleone falmily.

Without further confusion courtesy of the inappropriate Godfather analogy, I’d like to share this excellent quote from Clemenza, I mean Sharyl Sandberg, Facebook’s COO:

Ms. Sandberg said it would take more time for marketers to figure out Facebook. “It took a long time for the TV market for advertising to be understood,” she told analysts. “We are still in the learning curve.”

Of course, Shotgun Sheryl is right. She basically admits Facebook ads have an abysmally low ROI and it’s up to the marketers to ascend the learning curve. Not to dissect her comment too much but any analogy with TV advertising screams “brand” advertising that doesn’t (necessarily) translate into sales. Also, marketers embraced Google’s search ads and Facebook ads are remarkably similar, except when it comes to results.

The truth is the only ones currently able to monetize Facebook’s users are Zynga and we know how (not) well they are doing lately. Bingo games and more gambling apps will follow.

SWTOR free, WoW loses a million

If you follow the news, you already know that SWTOR will become free-to-play in a month and that WoW has lost another million subscribers (down to 9 million globally).

The funny bit comes from Michael Pachter, a consultant and game industry pundit, who projects some amazing stats for this brave new world for no-subscriptions.

Ultimately, Pachter believes that Star Wars now has the potential to “attract at least 10 million MAUs indefinitely, with upside to perhaps 50 million.” He added, “Thus, we believe that contribution from the model shift could be significant for years to come.”

Yes, just imagine 10 million Jedi fighting against 40 million Sith. The force [of imagination] is strong with this one.

Twitter advertising

Seth Godin has an excellent post about how Twitter can align better with the interests of its users. In short, this basically means turning it into a paid service like HBO and rejecting advertisers:

If [Twitter] relentlessly sell the attention of their users, they will have a misalignment as they maximize profit. The advertisers will want ever more attention, and the users will want to avoid those interruptions the advertisers are paying for. Tension will keep rising as users feel trapped by a medium with few substitutes that begins to charge an ever higher tax in the form of attention wasted.

I think that actually, Twitter don’t have much of a choice. Facebook gets away with the most terrible ROI in the industry by putting ads that no one pays much attention to.

However, I have tested both Facebook advertising and Twitter advertising (via SponsoredTweets). Facebook cannot drive much traffic to your site but at least it gets your page LIKED on a regular basis. Some users will check your site eventually, even if you have to pay for a sponsored story.

The same amount of money spent on SponsoredTweets resulted in a quite a few clicks (as advertisers are paid by the click) but the percent of people who actually signed up for Riftforge was an abysmal 0.2. Yes, 2 in a thousand visitors. Compared to AdWords, which gets 20% conversion, this is 100 times worse.

I’ve seen some anedoctal evidence from book authors appearing on TV saying they got their celeb friends to post a link to the book (Amazon). Celebs with 1,000,000+ followers posted the link and all this noise resulted in a single purchase. Probably the celeb friend buying it via their own link!

So Twitter better offer a premium service to users because advertisers will get burned in no time. Of course, this is no secret in Twitter HQ, which explains why they haven’t rolled out mass ads yet.

P.S. If we view Zynga as a media-entertainment company (which in a sense it is), Seth might find it the perfect example of misaligning the interests of company and users in an attempt to maximize profits. If HBO was following Zynga’s example, it will go free to watch, giving you the first X minutes of any show for free and the longer you watch it (or the more episodes you’ve seen), the higher the price for the last X minutes of the show. Prices of $50 for the last 5 minutes will be frowned upon by the general public but some “whales” will actually pay them!

Zynga games sustainable or not?

Tobolds is one of the few gaming blogs by a non-industry professional that I follow. It provides a pretty good perspective on how non-cliched and different every hardcore gamer is.

Yesterday, he discussed whether Zynga games and MMOs like WoW fail to deliver a payoff at the end, a thesis proposed by Professor Castronova, a self-proclaimed “leading scholar in the field of online game studies and an expert on the societies of virtual worlds”. In short, the Professor says that Zynga’s stock decline comes from a game design that is based solely on grind with little or no payoff at the end. In his view, this makes Zynga games unsustainable in the long-term.

Although I agree with some of the points about the gameplay, I don’t agree with the conclusions. Tobold doesn’t agree either but he claims Zynga games offers small payoffs along the way and that gamers who have played MMOs have become used to “the road is the reward” mentality.

I think they both miss something that isn’t immediately obvious because it’s not a general rule, it’s what I’d arrogantly call “the rule of huge populations”.

If you’ve read Daniel Kahneman’s book Thinking, Fast and Slow, you’d remember the “rule of small sample sizes”. It goes like this. Do you know that a small rural community in NC has the highest rate of testicular cancer? How do you explain that? Most people will start telling a story how the remoteness of the community prevents them from getting regular examinations, or how the area is poluted, or there’s a cancerogenic agent in their water supply, etc. Then he will reverse the example, because in another rural community nearby the cancer rate is almost zero, 100 times lower than the national average. Why is that? You might have guessed that this is the rule of small sample sizes. Even a few incidents lead to a very skewed distribution, especially when compared to a “national” average.

So back to Zynga and the rule of huge populations. The rule of huge populations states that in every population there are fringe “communities” who display attitudes and behaviors that very different from the rest of the population. In a normal-sized population, it is economically difficult to “exploit” these fringe segments effectively because they are so small – 2 or 3% of the population, sometimes even less.

However, in a population of 300 million Zynga users (and 700+ million FB users), you can definitely make a fortune focusing on a small but profitable minority. Dilbert strips usually refer to it as the 5% of the people who are rich and stupid:

Zynga calls them “whales” – the 1-2% that actually spend tens or hundreds of dollars on virtual items. The other 98% play for free (both Professor Castronova and Tobold focus on the 98% and who could blame them?).

So who are these whales that support Zynga? The term whale itself is borrowed from gambling which should give you one hint. The other is dropped casually by Eric Schiermeyer (co-founder of Zynga) who admits:

[he] has helped addict millions of people to dopamine, a neurochemical that has been shown to be released by pleasurable activities, including video game playing, but also is understood to play a major role in the cycle of addiction.

In short, Zynga targets people whose compulsive personalities are especially vulnerable to the kinds of “rewards” Zynga gameplay offers. The Professor, Tobold, you, me – we are just noise on Zynga’s radar. We are no different than a grandma with a pocket full of $50 in coins that enters a Las Vegas casino.

So the question is not whether Zynga loses 100 million users in the next 12 months. They can well afford to lose the 250 million that don’t spend a buck on Zynga’s virtual items. The short-term question is whether the compulsive 2% can be retained effectively. I believe Zynga will do an OK job in the short term with new flashy games that offer the same gameplay in a different setting.

The question determining Zynga’s long-term sustainability is whether they can still make the “rule of huge populations” work if the population naturally contracts because of general fatigue with the gameplay they offer. Their costs have been rising dramatically, and it’s not unforeseeable that they’ll need at least 200 million hooked on The Ville, so they attract enough of the 2% whales to make a profit.

If we take a look at Las Vegas, America’s playground, and draw a comparison to Zynga, the world’s virtual playground, Zynga still has a long way to go before it achieves the Las Vegas metrics, mainly the average gambling budget per visitor:

Annual visitors to Las Vegas, in millions – 36.7
Percentage of visitors who say they come to Vegas mainly to gamble – 5
Percent of visitors who end up gambling during their stay – 87
Hours per day average visitor spends gambling – 3.9
Average gambling budget per trip, in dollars – 559

However, with their plans for virtual casinos launching in 2013, they are definitely counting on new offering new attractions to the “dopamine junkies”.

Zynga’s fall from grace

Now, Zynga’s stock is not the only taking a nose dive following disappointing Q2 results (Apple disappointed analysts too, failing to impress for the first time since 2003).

However, there’s a notable difference – Apple saw sluggish sales of iPhones (probably in anticipation of iPhone 5) that were not offset by more iPads, iMacs, etc. Zynga, on the other hand, has experienced no growth (apart form its acquisition of OMGPop) and although revenues grew a notch, expenses grew faster:

Faced with a dismal quarter, Zynga lowered its outlook for the year on Wednesday, citing game delays, reduced expectations for “Draw Something” and what it called a “more challenging environment on the Facebook Web platform.”

Comments made by Zynga founders (this time it’s Eric Schiermeyer, not Marc Pincus) are not mitigating the crisis at hand. On the contrary, they are further alienating whoever has any good will left. Eric Schiermeyer publicly acknowledged Zynga games are little more than a Skinner box, you know the one where mice press a lever to get random rewards.

Of course, games are not that great of a Skinner box, compared to say real-money gambling. So guess where Zynga is headed next? That’s right (quote courtesy of VB):

Mark Pincus, chief executive of Zynga, said in a conference call with analysts today that the company will launch its first real-money online gambling poker game in the first half of 2013. The game will likely be launched outside the U.S., since real-money online gambling is still illegal in the vast majority of states.

Sources of Inspiration, part I

When it comes to fantasy unit design, I find three constant sources of inspiration:

  1. Historic – that is the most obvious and often works flawlessly. Make your choice from Varangians to Teutons to Tartars. The big downside is avoiding cliches and meeting the player expectations. For example, making Teutons to be light-armored archers will surprise your players a lot!
  2. Word combos – sometimes a cool word combo will trigger associations for a unit design. Most often, I’ll keep the coolness for the name itself and the description will twist it a bit around. For example, the Gutrippers are one of Riftforge’s elite assassin battalions. However, the description states that they started as kitchen help before moving on to active duty (but the nickname remained).
  3. Music - for a long time, I’ve only focused on cool names and here rock and heavy metal come in handy. From the Ironmaidens to the Blackhearts (Joan Jett’s band) to Harvesters of Sorrow. Unfortunately, I have a problem with all of these – they are too literal, so the direct association breaks the immersion.

So music is relegated to inspiration about LOOKS!

Yes, punk rock becomes tribal, black leather becomes cultist/savages, and disco… Well, I’m still processing disco but it’s hard to top disco when it comes to flamboyancy, so it shouldn’t be hard to place it with a highly-individualistic race.

Exercise One: Here’s an over-the-top punk-rock-new-wave band from the 80s, see if you can find a place for it in your game design.

Now tell me you’ve already thought about putting a ripped pantyhose on the face of a character. No? Well, now you know it looks great. For the record, I first heard Sigue Sigue Sputnik in Ferris Bueller’s Day Off, so sometimes it takes 20+ years of movie watching experience to pull off a single unit.

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