Conversation with Joost van Dreunen
- "Companies that continue to rely on the old model as it changes before our eyes, unless they change their ways and invest in the future, those companies will eventually die off. No two ways about it." -- Peter Moore of EA
- "Global market for virtual goods will exceed $100 billion by the end of this decade." -- Trip Hawkins of Digital Chocolate
- There is a shift from the $60 retail box to $0.99 apps and the free-to-play model. The proliferation of Facebook and mobile has caused this trend. The audience is much larger and distribution is much higher on these platforms.
- Looking at a line graph depicting market value, Zynga is doing well above Activision and EA. THQ trails far behind and is about to be delisted.
- Is there a big difference between boxed retail and digital games' profit models? Jess says that the boxed retail model is not necessarily bad, nor are digital games irrevocably better. Digital games are still a very hit-driven industry. Digital distribution is not an amazing end-all panacea. For every one developer who released an app by himself and made $100,000, there are 300 other developers who tried the same thing and failed.
- Revenue models for casual/social games include advertisements and sponsorships, microtransactions, sometimes subscriptions but those are slower and more rare, and sometimes the purchase model.
- The company structure has to change to develop social games. In the case of Arkadium, the company had to shift thinking to a direct-to-consumer basis and build a games-as-service model. They added an analytics department because they needed to look at numbers and react to data at a minute-to-minute level. They added a monetization/revenue team whose job is to balance economies and think of ways to optimize user spending. The culture of the entire company changed to include thinking about numbers and metrics (ARPU, DAU/MAU, etc.)
- Core games business is still a good business, but there's just a bigger barrier of entry for developers.
- Majority of the revenue of a free-to-play game comes from certain players who pay a significant amount of money for items, much more than $60. The amounts they are willing to pay for can be shocking even to social/casual developers.
- Many social/casual games are not so different from gambling. DragonVale is basically two slot machines masked in a world with cute dragons. Many online games have inherent design elements of gambling.
- Getting the most out of a game relies on analytical data. You can make a mediocre game much better with the correct analytics. However, data won't make a bad game good, so it's still important to design a good game first.
- When your company makes a monumental shift from one audience to another, from one distribution platform to another, you must realize that it takes more time and money than you would expect it to. Large companies can often stumble when they make these shifts. "Once you make the decision to go there, you need to go there."
- Arkadium is not a first mover. They don't put all their eggs in one basket or go all in on one market. They see where the market is going first.
- EA and Zynga follow the innovation through acquisition model. EA bought Playfish and pretty much drove it down to the ground. They launched one game, Sims Social, but didn't release enough content afterwards to keep the audience engaged.
- Zynga was able to scale before "Facebook went down." But they also would acquire studios with any successful property such as OMGPop. They need to bring killer apps to their audience to keep them engaged.
- Talent is very important in game design, but sometimes, designers just need to luck out. OMGPop went through 5 iterations of Draw Something before it became a success.
- The difference between the web and mobile is everything. For Draw Something, drawing with the mouse wasn't fun, but with touch, it was intuitive, engaging, and attracted the audience that it has now.
- Angry Birds is a great merchandising and licensing property. It has great character designs in which the aesthetics lent itself easily to merchandising. The birds has simple shapes and were bright and colorful. They were very appealing to kids, who really drive the licensing business. The majority of licensing is in things for kids like shirts, toys, bed sheets, pajamas, etc.
- Merchandising broadens your IP with consumers, but it's hard. It's like buying two lottery tickets instead of one. You need to have IP that is merchandisable.
- There are companies now that specialize in merchandising to very narrow niches. For example, they would make a jacket from Resident Evil and sell it for $1,000. Their revenue model revolves around small volume of sales, but high dollar amount per sale.
- Casual games are aimed at the common denominator. Is it worth moving this to a niche audience? Generally, no. Only a small percentage of the audience (1-8%) monetizes, so you really need a big audience to make money.
- In many cases, games are not reinventing the wheel. Zynga's 'ville games are just SimCity, Draw Something is Pictionary, Words With Friends is Scrabble. It is difficult to bring consumers interesting and exciting ideas, which is a problem that the industry is currently facing.
- Discoverability of your game is everything. An app developer without a contact at Apple to get their game featured at the AppStore is like a retail box developer without a deal with Walmart to have their game on their shelves. There is little chance of success if you're not featured in the AppStore.
- How do you move from games-as-product to games-as-service model? Games-as-service was a model pioneered in Korea by Nexon, mostly as a counterbalance to the piracy in Asia. They treat game content as episodic and it is a more involved process than the traditional model.
Question and Answer
- What do you do with non-paying users? Free users are costly since they take up server space or network capacity. Make them watch a video ad and make the money back from advertisement. The ad model can be difficult because you need a big enough audience to make money. You also need to put ads early in the game rather than later. Users would complain if they suddenly started getting ads after being used to not seeing them. You may also leverage these users for virality.
- Is Kickstarter changing the rules of publishing games? What impact will it have on the development ecosystem? For Kickstarter campaigns to be successful, it needs studios that have a pre-existing install base like Double Fine or games with an avid fanbase like Wasteland. The Kickstarter craze is an interesting phenomenon, but it won't overturn the traditional publisher model. In addition, none of these funded game have come to market yet. Will they actually be good games? Will the developers be able to deliver on their promise? The role of the publisher is to make sure the developers are able to meet the promises to the consumers.
- What are sponsorships? For the Facebook version of Cooking Mama, Ragu approached Arkadium about using the brand for one of its minigames. It made sense for a food-based brand to be incorporated into a food-based game. Good advertisement is not evil.
- Some players, who are completely opposed to ever paying for the game, are not so offended by taking 30 seconds to watch a video ad and getting something out of it.
- Would there be any more cases like thatgamecompany and their three-game deal with Sony? Publishers run on risk-based management. If presented with a unorthodox game idea like Spore, they need an established successful team to counter balance the risk in the game design like Will Wright's team. Publishers like 6waves make deals where they take a percentage cut for games that are already almost finished and they don't have to fund development. To make a publishing deal for development, you need to have a good track record of making money.
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