References

A definition of disintermediation: http://en.wikipedia.org/wiki/Disintermediation

Appendix A: Specific recommendations for medium to large casual game developers

It makes good strategic sense to make a major investment in services offerings that go beyond dabbling with user accounts and simple achievement systems.

• Purchase or hire a small MMO team as the core of a cross functional team of web, game devs and MMO experts. A partnership is possible; though the greatest benefits will come from bring the knowledge in-house.
• Build an online game molded after titles like Puzzle Pirates. Use existing flagship games as the core mechanics. Be sure to include persistent material goods, persistent player identities, robust communication systems, and game supported social structures.
• Start transitioning the web team over to a team capable of supporting a live game. This means hiring more community support personnel and game masters.
• Create portal versions of popular games that lead players back to your online game. Turn portals into a marketing channel for your community.
• Start tracking customer lifetime value and building game systems to increase this metric, either by increasing retention or creating offerings that let passionate players spend more.

Appendix B: Why lifetime customer value matters

I've briefly mentioned above that lifetime customer value is a useful metric for a business. Here's a little exercise. Note that the numbers are hideously simplified for the sake of illustration.

Strategy A: Cash now, please

You release one game. You give up 50% of its sales to the portal and sell 1000 copies at $20 a pop. You make $10,000. You pay $10,000 to the portal. You get no customer information.

10 games, each selling 1000 copies, will net you $100,000 in revenue.

Strategy B: Customer information, please

You release one game. You give up 70% of its sales to the portal and sell 1000 copies at $20 a pop. You make $6,000 and the portal gets $14,000. However, now you also direct the customers back to your online service. You know their names, their email addresses, how long they've played your game and which activities in the games they seem to have enjoyed.

The next time you release a game, you contact the customer directly through your service. Of those, 10% purchase directly, giving you 100 sales and making you $2000 up front. That 10% might seem high, but you aren't selling to strangers. These are people that know and like your products. You've made them happy before; they play your games every day. It is the difference between asking for money from a random stranger on the street and asking for money from your good friend.

You also use the portal again, and gain another 1000 customers and another $6000. Now you've made a total of $8000 on your second game where you only made $6000 on your first title.

Following this logic, by the 10^th game, you'll have revenues of $150,000, with $60,000 coming from the portal sales and $90,000 coming from direct sales. By focusing on a close relationship with your customers instead of the easy money, you've made 50% more.

Lifetime customer value

Early on, you paid the portal $14,000 to acquire 1000 customers. However, for each subsequent game that you released, those customers paid you $2000. Over the course of 10 games, they paid you $20,000. That's a profit of $6000 over your initial acquisition costs. Focusing on lifetime customer value helps you make difficult decisions early on in order to reap superior profitability later.