A veteran’s view on marketing games

Industry veteran marketeer joins smartphone app startup Kwalee

From opening one of the world’s first computer stores in 1978 to writing hundreds of articles for his popular Bruce on Games blog Bruce Everiss has spent most of his lifetime looking after the needs of consumers at the very sharp end of home entertainment technology, with many great success stories along the way.

Now Bruce has joined smartphone app startup Kwalee ( http://kwalee.com/ ) in Leamington Spa. With company founder and CEO David Darling he is helping to form the core strategic management team of the business. As Chief Marketing Officer (CMO) he will be responsible for all of Kwalee’s marketing functions and has already had considerable input into defining the brand and the strategic direction of the business.

David Darling is delighted to have Bruce on board: “I have worked with Bruce extensively over many years and we have had a lot of great successes together. Bruce is an original thinker with a long history of achievement. His strategic input is based on unmatched experience and understanding, yet he is equally happy to roll his sleeves up and apply himself to the hands on graft that a start up like Kwalee entails.”

Bruce is ready for the challenge: “This must be the best job in the world for someone with my skillset, the opportunities afforded by the app market and Kwalee’s approach to it are boundless. We are seeking to positively differentiate the company and its products so as to bring our customers very special experiences. Over the coming months I look forward to like minded people joining the team, exciting times lie ahead.”

Bruce’s appointment fills just one of many key positions available as the company grows rapidly to become an interesting and exciting player in the app market.

ends

further information: press@kwalee.com

phone 01926 886506

Regular readers here will know that marketing is both a creative art and a science. This is part of what makes it both fascinating and demanding. Here is an article by Mario Alemi, Head of Research at In Numero LLC which gives an insight into the science of pricing games correctly for the market:

How many complaints have you heard about Apple destroying the video game industry? Competition is so high, prices went so down, no publisher can pay the development of a high quality video game selling at 99 cents….

But a few publishers, mainly newcomers, are making good money –which means it is possible. Here we are going to analyse market data to understand which variables make a successful application.

Application stores like App Store, Android Market or OVI have increased competition, shrunk margins, and up to a certain level cannibalised the console market. But on the other hand they have also introduced positive novelties for publishers:

* Zero distribution cost
* Huge market size
* New technologies
* More than everything: data. Publishers can monitor almost on real time the effect of price changes or, for instance, on-line ads.

Let’s then take the available data, and see how we can build a relatively simple model to forecast the success of a mobile game.

First question: when will a game appeal to customers?

1. If it’s good quality
2. If it has good visibility.

At In Numero, we monitor the Customer Satisfaction and the Web Visibility for about 4,000 applications. Let’s then plot the following chart: on the horizontal axis a number which ranks Customer Satisfaction and Web Visibility of Top Grossing games, i.e. it is “1″ for the application with highest quality and highest visibility, and on the vertical axis the Top Grossing ranking. Ideally, applications on top of the Customer Satisfaction and Web Visibility ranking should be the stars on the Top Grossing ranking. Below is the chart.
Although there is a certain correlation between the two variables, the result is not satisfactory. We could hardly predict grossing levels from this chart. But if we have a look at the table below (the five most visible iPhone applications, all with excellent customer Satisfaction) we see something strange: The price factor The two games with the lowest price, Angry Birds and Tiny Wings at $0.99, are grossing much more than the ones with higher price. We should not rush to the conclusion that publishers should always price their games at 99c, but we can plot a similar chart as above, where the index on the horizontal axis has a new factor, which “penalises” applications with a too high price: The linear fit (the straight line) in the chart above can predict better when a game with a certain “index” is going to generate revenues or not. It makes sense: between two games, both with the same visibility and quality, customers are going to buy the cheaper one. When my nine-year old nephew saw FIFA 11 priced at $5, decided to invest his little money in a $30 console version. If the iPhone was $1, he told me he would have bought both –one for the boring holiday trips, one for home.

Dynamic Pricing

The particular day (2 March 2011) data are referring to, no game was very close to launch. But we know that, for instance, Dead Space was a superstar in January, when In Numero was not yet scraping iTunes data. And still its price was well above 99c. Why did not last? Because fans of the console version, with a bigger budget than my nephew, bought the game during the first two-three weeks after the launch. After that period, the game is considered for purchase mainly by the occasional customer, who wants a simple game to play during a boring lecture, or during commuting. And this customer would just download the best and cheapest game in the top most popular games.

We then introduce a new factor, which penalises products far from launch, depending from the price. Or: if a publisher launches a fantastic game at $9.99, it would sell well during the first weeks, but then revenues would go down unless the price is reduced. (For a better understanding, try this simulation). Here is the chart: It is hardly visible by eye, but the average error on prediction has been reduced by more than 15%. After launch, prices have to go down. Not in the same way on all platform: where a game on the iPhone must approach $0.99 after a while, a game on the iPad can be priced higher, because customers recognise a higher value to the product.

Conclusions

The model can be developed further, considering the relative size of the market for each particular game, the distribution of the value given by customers to that game, and the distribution of prices for a certain segment –being the most expensive in a group of very similar games is not the best recipe for high revenues. But what should be clear, is that no “right price” exists –only a series of right prices. On the fast digital market, prices must be dynamic and value based.

As predicted here smartphones have grown exponentially in usage so that they are now the dominant internet device for large swathes of the world’s population. Certainly their arrival has acted as the mechanism that has facilitated the uprisings in the Arab world. And of course mobile phones are the most used video gaming devices on earth by a substantial margin.

Many many years ago (in 1978) I opened one of the first computer stores in the world, Microdigital in Liverpool. I sold Apple computers and even visited the then rather small Apple facility in Cupertino, California where I was offered the UK distributorship. So I have been a follower of Apple since most people didn’t even know that they existed. And I saw them grow to become the dominant supplier of personal computers in the world, until Bill Gates came along and destroyed their party, relegating Apple to the role of bit player.

Apple’s weakness then was that they designed and made the computer and they also designed and made the operating system. They lived inside a patent and copyright protected walled garden. Then Microsoft came along with an operating system (which was not as good as the Apple one) that any manufacturer could use on their computers. So suddenly Apple were competing against lots of hardware companies, each of whom was also competing against the others. And Apple lost, principally because they were vastly too expensive compared to the Microsoft based computers which had prices honed in the furnace of competition.

And now we see history repeating itself. But this time they are being destroyed by Brin and Page. Once again Apple has created a walled garden with their iPhone and iPad devices, once again they came to dominate the market and once again competition between lots of manufacturers using an operating system from a third party is destroying their business model. Currently the iPhone is the sixth best selling smartphone in the UK, the top five all use the Android operating system. But the reason they are beating Apple is not because Android is better, it is because Android phones are cheaper, honed in the furnace of competition.

Apple aren’t going to die just yet, the upcoming iPad 2 and the next iPhone will sell well off pure momentum. But the writing is on the wall, unless they radically change their business model Apple will soon fall back to become, at best, a niche player. Exactly as they did with personal computers.

Which brings us neatly to Nokia. Throughout the short history of the mobile phone they have been the number one dominant supplier of handsets by giving the customer what the customer wanted. But when it came to smartphones they lost their way completely. They too went for a walled garden with two different proprietory operating systems (Symbian and Maemo). And they thought that smartphones were for “business” and not for people. So their market share collapsed.

Now they are in crisis mode and with new management in place have made one of the most stupid strategic decisions I have ever seen. Quite simply they have chosen Microsoft as strategic partner for their smartphone operating system. Now I am not saying that there is anything wrong with Windows Phone 7, it is just that it is extremely strange for a hardware manufacturer to lock their future into that of a piece of software from another company. Nokia would be far better off being operating system agnostic. They should offer their customers a choice of operating system, then they would be back at what they used to be good at, giving the customer what the customer wants.

So I can’t see Nokia competing with the likes of HTC, who do as I suggest and back all the main horses, which means they are guaranteed to win. With the Microsoft alliance Nokia are pretty much removing their ability to compete on level terms with other hardware manufacturers. It does not look good.

The eternal problem of selling a video game as a stand alone package is that it can and will be stolen. If people think that they can get away with stealing then they will, so the level of theft can easily reach the high nineties in percentage terms. In other words often very few users of your product are actually paying for the work that you have done.

The way round this is alternative business models, so the customer is forced to pay in a different way. These can include online games with a monthly fee, pay per play, sale of in game items, advertising or sponsorship, etc etc. All these and more are being used successfully and the industry continues to experiment in order to find viable ways to be rewarded for their work.

When I was Head of Corporate Affairs at Codemasters working for the Chairman, Jim Darling, we were fully aware of the blight of software theft on the business and often discussed ways round it. One idea was online gambling, where we made money from people betting within the game. After analysis we concluded that the level of expertise and investment needed was too big a risk when we were heavily geared up for the conventional gaming business model.

Jez San OBE

However one major figure in British video gaming who was in the same position did take the risk and that was Jez San and he has explained much of this in an interview he did for this blog. In it he says “Trust is everything!  The honesty and compliance issues surrounding online gambling are a huge obstacle for a computer game or video game company entering the gambling market.  in computer games we simply accept that there are cheats and try to avoid them.  in online gambling we simply cant allow cheating of any kind.”

His online gaming company, PKR, is a huge success.

There are two kinds of gambling online. Some games, like roulette, the player plays against the house. This is a pure percentages game with the odds slightly in favour of the house so that over time they always win. The second kind of gambling is a multiplayer game where the players play against each other, such as poker, here the house makes their money out of taking a small percentage of the winnings, known as the rake.

Online poker has a huge advantage over real world poker in that it has very low operating costs, all you need is space on a server. Whereas real world poker requires a building with all the associated overheads which are very difficult to finance with a rake. This, and the fact that it more a skill than a chance game, have made online poker extremely popular. If you want to increase your skill there are even online poker schools.

Some people have moral scruples about gambling. I look at this two ways, firstly that it is just video gaming monetised in a different way. Secondly that people only have so much leisure time in which to spend their money doing what they enjoy. Gambling is very enjoyable so why shouldn’t people be allowed to spend their money doing it if they want to? The only problem comes with the minuscule minority who become addicted with bad social consequences. But there are plenty of other addictions, some of which are much worse.

One problem the online gambling industry has is that the main companies involved are not American, obviously the people who govern America, who are very trade concious, didn’t like this. So it is no surprise that online gambling is banned there. Which is pretty abusive of the state, taking away their citizens’ freedoms. It also dampens the business model when the largest market is officially closed. Of course Americans who want to get round the silly restraints can do so very easily. An Antiguan credit card sorts the money and it is easy to hide behind a proxy server when online.

Which brings us to an interesting facet of online gambling. As an industry it is very new, far newer than the video game industry. So their marketing is fairly unsophisticated and their communications even more so. They obviously have issues with stakeholders, just as the video games industry did with the issue of violence, for example. But the video games industry engaged with government, and other stakeholders, worldwide to explain their case. The online gambling industry seems to be a long way behind with this sort of engagement.

It will be interesting to see how much, in future, the video game and the online gambling industries move together. One thing that may ease the process is when individuals, at all levels, move between the two. This way the culture, practices and technical knowledge will be on a two way street.

After nearly 30 years the unholy Wintel alliance is over. Microsoft have finally realised that there are other processors in the world and have embraced the ARM chip. Superficially this is because ARM processors are far better suited to mobile devices than Intel processors, which is why they feature in portable gaming devices. But there is far more to it than that. Vastly more ARM processors are made every day than Intel processors and they are very easily embedded into other chips and into all sorts of devices. With this move we have the possibility of Microsoft software running on anything with a screen, which these days is a lot of things. Initially Microsoft will go for the low hanging fruit but you can see that the potential for mission creep is immense.

There is lots of bad news in video game retail with many shops now closing and the retail companies in big trouble, something predicted a long time ago on here. I really don’t see any future role for a bricks and mortar video game retailer. Currently they are kept afloat by secondhand sales but this has incensed the publishers who are doing everything in their power to destroy this business model. Supermarkets will continue to sell gaming products for far longer because of the impulse purchase of putting a game into your trolley and because their overheads can be amortized across many thousands of product lines.

Android smartphone sales have caught up with iPhone sales. Another inevitability forecast on here. Apple are in trouble, they are a marketing company who sell a customer experience whilst lagging behind on the technology. Their late adoption of OLED displays and the lack of camera in the iPad being just a couple of examples. Now they have lots of manufacturers marketing Android products, which are often better specified, competing against them. The time has come for a massive technical upgrade of their entire mobile product range. And they need to be more price competitive too.

Just 43 file sharing websites have 53 billion visits per year between them in 2010. If people can steal and get away with it then mostly they will. As a result many industries, from music to porn, are in tatters. Now, with eReaders, the book industry is headed the same way. In the games industry we are lucky because consoles are fairly effective anti piracy dongles and because server based games are too complex for the casual thief to copy. But the lesson must be that if you are going to develop any game it is essential that you have the means to prevent it being stolen by the masses, because if you don’t you are wasting your time.

Games in education. I have beaten the drum about this on here. The fundamental gaming model makes video gaming the perfect educational tool, far better than teachers who are flawed as a mechanism in many ways. The classroom  is outdated and at long last more people in key positions are starting to realise it. Expect to hear a lot more about this in the coming year.

Facebook is not the be all of social networking as the success of Quora and Chatroulette have proven. As social networking and games often end up being the same thing this is pretty important. If someone bright was creating a Facebook replacement they could come up with a far better product. Just look at how clunky Facebook is with video, for instance. And how limited the forums are within it for making new friends.

I thought that with the way things are going in the video game industry just now it would be good to give one person’s view as to what is going so badly wrong.

Just two years ago the game industry seemed to be booming, rapidly growing sales, lots of new titles, exciting leaps in technology, popular new platforms. It looked like the place to be. Then look at it now, moribund, going nowhere and , frankly, pretty boring. So what has gone wrong? Well the fact is that during the boom far too many products made a loss and for the last few years far too many games publishers have run at a loss (we all know who they are) and this is mostly down to the sheer ineptitude of many of the people who run the industry. There are plenty of customers out there with plenty of money who want to spend it on interactive entertainment but our industry has failed to give them compelling reasons to spend it.

So let’s look at what is causing the problems.

Platform proliferation. Not so long ago if you were a game developer you made games for the Playstation/ Playstation 2. That was the market. An occasional PC title added a little bit to the mix, but the real market was with Sony. So business models were easy, put about 20 fairly gifted people together for 18 months and you had a good chance of actually making a profit. Now there are more than a dozen viable, thriving, gaming platforms. So knowing where and when to apply assets has taken a lot of skill and that skill has been conspicuously absent.

Barriers to entry. In the Playstation/Playstation 2 days the barriers to entry were just perfect. It cost a handful of millions to develop a game. This was sufficient barrier to keep the hordes out but it was low enough to make risks acceptable. Now the barriers to entry are either too high or too low. To make a profitable hit for current generation platforms now takes a £100 million plus punt and there are not that many people with the balls and skill to do this. At the other extreme iPhone and Android games can very easily be made for a few thousand pounds, so anyone can and is putting products on these platforms. There is such a plethora of titles that it is difficult to stand out and attract custom. This dichotomy of high and low development costs has really caught out most of the world’s well known game publishers, they have not known how to deal with it.

Poor development tools. The way we make games is still very primitive, between the creative talent and the finished product there is just far too much mindless, repetitive slog. This really needs to be fixed if we are to go forwards with ever more powerful platforms. The number of man hours that the development process consumes can be radically reduced.

Industry pathetically slow at going online. The customers have been well ahead of the industry here, many big name publishers are trailing two years behind what the market is really doing. Video gaming is no longer about cardboard boxes in retailers, it is about interactive online entertainment. Just read the gaming forums and see what the real customers are doing in the real world. I could name names here, but there is no need, the spectacular failures are very evident.

Microsoft’s pricing policy. This is an epic fail. Sony with PS3 made a platform that was too expensive to manufacture and Sony as a company was on the ropes. Microsoft, with the Xbox 360 had a platform that was cheap and elegant to make, and they had the riches of Croesus to invest in it. They could have, should have, taken the market by the scruff of the neck and driven it. Instead they have dilly dallied around with no obvious purpose. The prime example of this is their pricing policy on the console. This has always been far too high. It is too high today. We are in a razors/razorblades market here, what is important is getting volumes of platforms out there, whatever the cost. The proven mechanism is price elasticity of demand and Microsoft have failed to use it, they just haven’t had the drive to break out and become mass market.

Sitting round waiting for saviours. The big platform manufacturers and most of the big publishers are equally guilty here. “Just wait till we have 3D and everything will be OK” or “Just wait till we have a gesture interface and everything will be OK”. This really, really doesn’t work, if you are not making a profit out of what the customer is actually buying today then you have made some big mistakes.

I could go on, but you get the idea. Now I thought I would highlight two people who have massively outperformed the herd by having the brains to see what is going on and the balls to do something about it. The first is Bobby Kotick at Activision. He saw clearly that the console market was going to consist of two sorts of games, blockbuster and loss makers. When so many chose the latter he chose the former. A small number of huge hits with no distractions allowed has proven him right time after time. Secondly Kristian Segerstråle, who has been absolutely on the button at making money from where the market actually is, I have heard him almost angry at the stupidity he saw all around him in the industry.

The really frightening thing is that both of these guys quite openly said what they were doing and why, yet so much of the game industry management thought they knew better, ignored them and then made massive losses.

http://www.bruceonshaving.com/

I have started an completely new blog and it has absolutely nothing to do with video games. It is Bruceonshaving.com.

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