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How To Compare Online Gaming Businesses

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How To Compare Online Gaming Businesses

March 3, 2008 Article Start Page 1 of 4 Next
 

[When MMOs all had monthly subscriptions, comparing financial health was much easier. But, as CDC Games' Ron Williams usefully explains, metrics for online games are a lot more complex than that for today's microtransaction and ad-supported titles.]

Several metrics to track the general financial performance of a PC-based online game are easy to come by. However, there are different business models for every game genre and until a game has significant profits, it is very difficult to understand the financial potential of a game. More importantly, determining if a game is being managed to its full potential by the game operator is even less clear.

In particular it seems there is little ability to compare how well one online game in a specific genre compares to any other game -- even a sequel to a game operated by the same company. What are some of the most useful monthly metrics for understanding how well an online game is being operated by management?

This model is of particular interest to me because I head up the U.S. division of CDC Games, is one of the market leaders of online and mobile games in China with more than 120 million registered users. The company pioneered the "free-to-play, pay-for-merchandise" online games model in China with Yulgang and launched the first free-to-play, pay for items FPS (first person shooter) game in China with Special Force - and is now expanding to the West with games like Lunia.

To understand how well management is driving users to the game, converting precious marketing resources to paying customers, and keeping possible subscribers happy, there are several data points to track.

The key metrics to trend month-to-month, and more importantly the handful of metrics that can be compared across game genres, game operators, and online game business models are: the total number of unique visitors (UV) to the game's web home page each month, average marketing cost per unique visitor on a monthly basis, the total number of registered users (RU) for the game, the number of new registered users gained each month, percentage of unique visitors that convert to new registered users of the game each month, average marketing cost per registered users on a monthly basis, number of new RUs that convert to new paying users (PUs) of the game each month, the average marketing cost for new paying users on a monthly basis, and the total number of paying users for the game.

Total monthly unique visitors (UVs) are seen as key indicators of the value of websites that generate advertising revenue on their content. With advertising revenue still a minor part of most gaming companies' income statements, why is it important to understand the trend of unique visitors for a free to play, subscription, or micro-transaction based online game?

Any web-based business with aspirations to earn revenue is, at the end of the day, following a very simple formula: find something someone wants to pay money for that can be sold online (content), get customers to look at the content, and then convert viewers of the content to content buyers.

This is Google's, Yahoo's, eBay's, Amazon's, and every for profit online game operator's business model. Most of the best web-based business models are 100 percent digital -- the entire transaction from marketing to consumption of the content is all done online.

An online game is just online content that you need to market in order to sell. The number of potential customers you can drive to the game's website either through word of mouth or through marketing spend is the key driver of sales, just like any other online business. The UV trend line is the best indicator of sales potential of a game.

Additionally, if the same formula for determining unique visitors is used -- there are a few debated methods out there -- it is very easy to compare how well one game is attracting potential customers versus another. In fact, unique visitors can be compared across entirely different web businesses, which gives investors that ability to see where an online game stacks up against the best business on the web.

If you looked at a chart of the top 100 for profit websites ranked by total monthly unique visitors, you will quickly see that there is a very strong correlation between number of unique visitors and web-based revenue and even market capitalization (for those sites that are public).

Of course any web site with a large monthly unique visitor metric also has significant potential to sell ads, market merchandise, and most importantly be a major portal in the move to digital convergence now underway.

 


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