Here is part two of Fabian Tan's report on the Social Gaming Summit 09. The first part can be found here.
As users on social networking sites get older (according to Justin Smith over half of game players are now over 25), the game industry is focusing on a more mature audience - with more disposable income. With an average spend of $0.90-$1 per month, women over 41 spend the most money on social games.
Sebastien de Halleux, COO and co-founder of social gaming site Playfish, told the audience that his company sold 20 million virtual Christmas trees and ornaments in Pet Society. Some were paid with points earned within the game, but some were bought for $2 each. Some people spent more money for a virtual tree than for a real Christmas tree! While this may seem astounding, de Halleux sees a clear advantage to go for the fake: with friends spread around the world, a virtual tree can be seen by much more friends than a real one.
Mob Wars, a role-playing game takes in more than $1 million per month from wanna-be mafia gangsters that equip themselves and their mob (recruited real-life friends) with virtual weapons. Players earn points for new items as game progresses, but once they are attacked by an enemy, many players get emotional. They want to fight back quickly and therefore buy stronger weapons with real money.
This in-game purchase model of virtual goods is the (not so) secret next big business model in Silicon Valley aka the freemium scheme. Social games are almost always free, so that many users can start playing them, but the better items or extra features have to be paid. The underlying game mechanics are being thoroughly measured and optimized by the gaming companies.
"Metrics are a force multiplier, but you need to have something to multiply," sayd Siqi Chen from Serious Business in his presentation. By the end of 2007, Chen saw his "Friends for Sale" game grow from zero to 1 million page views/day in 4 weeks and to 6 million page views/day in 9 weeks. He is living proof of how important measuring is to optimize profits.
According to Justin Smith, a professionally managed game generates an average revenue per user (ARPU) of $0.30-$0.40 on Facebook and $0.60-$0.70 on MySpace. Top games can generate $1-2/month. Monetization platforms try to offer players the most frictionless experience and provide them with multiple options to pay by mobile phone, through money-transfer services like PayPal, by filling out sponsored surveys or by accepting offers like a Netflix subscription.
Andrew Sheppard, Executive Producer at hi5, said that his company redesigned their platform around the game portal model. They consider it very important to help the developers monetize their games with a built-in payment solution.
Facebook on the other hand, is still only in the test phase of their virtual currency system. But with the recent integration of Facebook Connect with the iPhone and the XBox, people now can play against their Facebook friends even on mobile devices and game consoles. "This is the year of consoles getting social," according to Gareth Davis, program manager for games in Facebook’s platform marketing division. Monetization platform OfferPal has already expanded their managed offer system to the iPhone platform, and a solution for the Android platform will be the next logical step.
While all the experts acknowledge that the expansion of Facebook's platform to mobile phones and game consoles brings a huge ecosystem with it, they also know that they will all compete in a new and challenging environment -- albeit a very large one.
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Guest blogger Fabian Tan is a German entrepreneur with a background in the mobile Internet business at Jamba and VeriSign. He recently founded the Silicon Valley-based company Fabulous Apps.
