You are in:
Love can’t buy you money
Don’t be seduced by the awesome user base of Facebook, warns Barnaby Page: profitable e-gaming requires more than sheer numbers
The silly-money valuation attributed to Facebook in its recent IPO – equivalent to the combined GDPs of more than a quarter of the world’s countries – has focused attention on the $104bn question: playing a central role in the lives of squillions of consumers is great, but how do you turn that into revenue?
And this is an issue not only for Facebook itself, but for casino operators looking to social media as their route into e-gaming, too. While there is undoubtedly much mileage in using social as a promotional tool, encouraging first and return visits to land-based venues, monetising social games is a much trickier proposition.
Superficially, the numbers seem attractive. For example, the DoubleDown Casino that International Game Technology (IGT) operates through Facebook is attracting 5.4m gamers a month. But the social world is one where it is very easy to be blinded by the biggest figures and to miss the more important ones.
Consider, for example, the situation of Zynga, the pre-eminent provider of games on Facebook. Although Poker, Blackjack and Bingo are the only applications among its suite of 30-odd to replicate real-world gaming, the firm’s experience in trying to monetise the likes of its hugely popular CityVille is illustrative of the challenges that will face casino operators on the Facebook platform too.
In the first quarter, Zynga earned $321m in revenue, and served 182m monthly unique players. On a monthly basis, then, that’s about 60 cents per player: the kind of figure that has most businesses giving up in despair. However, when we look at people who actually paid to participate in Zynga games (not to join, but to improve their chances), the figure shrinks to 3.5m, or a little over $30 per individual per month. Most “customers” are spending nothing, a very few are spending a healthy amount.
Conversely, take Zynga’s costs for the quarter, which (excluding R&D) came to $220m. On the crude – and erroneous, but it’ll do for back-of-the-envelope illustrative purposes – basis that costs are allocated exactly equally among customers, that means Zynga is spending more than $70m a month on supporting players who don’t contribute a penny to revenue.
This is a typical calculus for social games firms, and the lesson it carries is that not that the business model is insane, but that we can’t just apply the offline model when it comes to social. Virtually everybody who walks into a bricks-and-mortar casino will spend some money there. Hardly anyone who clicks into the Facebook equivalent will do so.
It may make more sense, then, to consider the cash eaten up by servicing non-paying players as a kind of marketing spend. That is certainly more reasonable than thinking of every online customer as equivalent to an offline one, or hoping to convert them all.
Of course, that will change to an extent if – or when – real-money gaming comes to social media, a prospect that is made much more likely by the recent decision of the US federal government to step back from regulating e-gaming.
In the case of Facebook itself (because where social is concerned Facebook is still really all that matters), the most plausible model for monetising its vast user base is to become a transactional platform, taking a tiny slice of sales made by third parties to the consumers which frequent it so loyally; and so it is likely to encourage real-money play once the thorny regulatory issues are sorted. However, users will almost certainly continue to expect free play to be available too.
Smart operators recognise this. For example, DEQ Systems has recently worked with Talisman Group to bring its EZ Baccarat to Facebook. Commented DEQ’s President and CEO Earle G. Hall: “This is the first critical step for DEQ’s table game line of products to be operating in the Internet and mobile segments of the gaming market. The next step is to extend the free social gaming app to the different proprietary mobile app platforms and prepare the way for revenue-generating play.”
Others are looking to alternative business models. The new RocketFrog gaming offer on Facebook, for instance, includes free-play Poker, Blackjack and slots with real prizes, funded through an advertising model. A different advertiser each day provides prizes such as movie tickets or music, and brands the entire gaming experience for that day.
“Traditional online casinos on Facebook are potentially approaching an inflection point, primarily due to a lack of invention or evolution from the traditional business model. Unlike these apps, RocketFrog’s core strategy is not based upon making players feel inferior about their bankroll in order to drive sales of virtual currency,” said the firm’s spokesman Matt Clark.
“RocketFrog will expand the social gaming community to include many new players who couldn’t fathom the idea of playing for nothing, but are ecstatic about the chance to play for gift cards from top brands or a ticket to the movies.”
Whether RocketFrog can really attract enough players to generate a level of advertising income that will eliminate the need for player revenue remains to be seen. Selling advertising is generally a tougher proposition than it seems and while some advertisers do welcome an unusual opportunity that helps them cut through the clutter, many others are conservative and take the view that nobody ever got fired for buying Google AdWords.
But what the approaches of both RocketFrog and DEQ, along with many others, show is that when it comes to social gaming, the huge headline figures on their own have nothing to do with revenue.
