Billion-dollar franchises share something in common -- they're driven by what Playfish head Sebastien de Halleux calls "Monetization 1.0." He defines that as a model where "the best you can do is really move and count units, whether they're cinema tickets or video game boxes."
Creating those boxed hits is very risky, of course, requiring ever-increasing investments. "Invariably, in monetization 1.0, even the best-designed product is doomed to be replaced by another product and therefore see its revenue quickly fall off," de Halleux notes. The result is ever-upscaling product launches become a company's only way of staying in business.
"This is a world that many of you are familiar with and many of you are transitioning from -- I certainly had to transition from that world," he says. Playfish developed popular Facebook titles like Pet Society and Word Challenge before being acquired by Electronic Arts about a year ago. Perhaps interest in that transition explains why so many attendees packed the room and lined the wall at Playspan's Monetization Forum at GDC Online, hoping to learn more about different business models amid the industry's digital shift from the developer.
"Increasingly most of our games have components at the very least that are either add-ons, a streaming addition to the existing client or fully run as services," de Halleux continues. It's key, he says, to view what was once a contained product as a service, as a component of the ongoing climate shift in business models. What was physical is digital; what was product becomes service, what was once solitary is now social. In the face of that change, the business model shifts from dollars up-front to dollars ongoing.
"Why should you care? Because the opportunity is massive," says de Halleux. Games have much more of the media-consuming audience left to address -- those familiar with digital video rentals, streaming movies, mobile content and downloadable music at low price points. Transitioning their monetization strategy will lead the way, he says.
New platforms and delivery channels also help push a broader audience. "That really is the great growth opportunity for our industry overall, and that's really why monetization 2.0 is important," he says.
It involves a new development model, too: invest a little up-front, nurture a product slowly, and then build it out over time, creating attainable curves in audience growth that then lead to revenue growth. One's first product can be used as incremental revenue support as well as a way to gain feedback from users that can lead to the development of the next product, rather than the traditional model that sees teams and tech often virtually rebuilt from scratch after every launch.
"It's nice to know that you're not betting your whole business again on the next big MMO hit versus trying to get incremental revenue that way," says de Halleux.
It's in this breeding ground that the next billion-dollar game franchise will be born, de Halleux asserts, rather than on the retail shelves where Grand Theft Auto and World of Warcraft found their fortunes. A game with 100 million monthly active users monetizing at around 80 cents per player could achieve it, and the number of users can be lower if they monetize at a higher rate.
100 million users might sound like an intimidating number, but when there are 250 million players on Facebook a month -- as part of an even larger picture of 1.8 billion web users -- "it's not a huge marketshare" to aim for, de Halleux suggests.
"Winning games will have to create their own demand," he says. The farm simulators and pet raising games have effectively created their own industry on Facebook, and there's still much more to explore, he continues. Facebook games have only begun to scratch the surface of "emotions that have been driving people toward purchasing items on a regular basis for a very long time."
Hardcore gamers will happily spend well over $10 per month on their favorite game. "What we also know is that casual gamers... are happy to spend between $1 and $10 per month." In the long term, however, average revenue per user per month is well below a dollar for most companies, and might be "well below a cent" for the innumerable smaller companies and games searching for success on Facebook.
On the other hand, for example, there's the new Ultimate Player Pack in Electronic Arts' Madden, which costs $18. "When we talk about microtransactions, it doesn't just mean a few cents; it can be quite expensive," he points out. "Players find real value in this and can identify, can understand the value of that purchase."
Good monetization starts with high-quality experiences, de Halleux stresses. Players "only pay if you convince them that there is a good reason to do so." From there, it's important to address global audiences locally, so that residents of one country don't feel like they're missing out on content those in another region can access.
Players should have as many payment options as possible, with minimal friction, de Halleux suggests. "This elusive one-click experience that was so hard to create for physical commerce needs to happen for virtual commerce."
"It's a very exciting time to be developing games," he concludes.