How to Avoid the Video Game Dead Pool

As the economy continues to slide, consumers are holding on to their money more tightly than ever. They want the entertainment value of online games but are reluctant to pay for it. This has put a tremendous strain on game publishers, who in the recent past have been compelled to explore ad-supported business models that offer games for free. This has helped minimize the risk of developing and marketing a game that ultimately ends up in the video game dead pool, but questions still remain whether meaningful money can be made.

The fact is, assuming that only around 2% of users convert to paying for a game following a free trial, then money is left on the table, because there are alternatives to the try-and-buy model for game marketing with which revenue can be earned from the other 98% of the traffic. These alternative business models for online games include: in-game ad model, ad-supported installer model, and the alternative-payment model.

In-game Advertising
Using computer and video games to deliver advertising is becoming an acceptable business model as big brands are testing it as a way to reach elusive markets. According to eMarketer, in-game advertising spending grew from $295 million in 2007 to $403 million in 2008—a growth rate of over 36%. By 2012, that figure should reach $650 million. Meanwhile, IGA Worldwide1 research shows that 82% of consumers feel the games are just as enjoyable with ads and 66% feel that the ads are not intrusive. Some of the top in-game advertising companies are:

1. Massive Incorporated
2. Double Fusion
3. JOGO Media
4. IGA Worldwide
5. NeoEdge Networks (casual games)

Although in-game advertising is growing, it can be difficult to execute and has a long payment cycle. For it to work, the creative must fit seamlessly with the game theme and not deter from gameplay. Additionally, users must spend considerable time playing the game for your ad revenue to build up.

Ad-Supported Installer Model
The W3i Application Network (AppNet) is a new revenue stream worth considering. AppNet is a network of companies with downloadable content—including downloadable games. A unique Windows installer, Install IQ (certified in the TRUSTe Trusted Download Program) is used during the installation process to offer the user a value-add of additional software—in categories like trialware, search, and e-commerce applications. AppNet requires minimal in-house resources, and you can start earning quickly once Install IQ is in place and new users install your games. Since users see ads only during the installation of your game, they have no interruption during gameplay. Additionally, since all of the revenue activity happens during the installation, the actual gameplay itself is not affected. For each qualified installation, the W3i partner receives from $.50 to $1.50.

Jenkat Games launched its downloadable game player in March 2009. With its success, Jenkat ramped up distribution, increasing install volume by 2,991% from its launch of individual game titles in January 2007. Malcolm Michaels, President of Jenkat Media, Inc., predicts that the company’s Jenkat Game Manager will grow to over 100,000 monthly installs by the end of 2009 fueled by W3i’s monetization capabilities. In addition, each game-manager install represents the opportunity to market and install multiple games, leading to millions of additional installations.

Alternative Payment Model
Companies like TrialPay (www.trialpay.com) offer a third option: the alternative-payment model. With TrialPay, a user can purchase your game or virtual currency by completing one advertising offer, such as subscribing to Netflix, buying jeans from Gap, or sending flowers from FTD. The advertiser pays for your game, which you then give to the user for free. Although the game is not technically “free” in this scenario inasmuch as the user must make another purchase in order to receive your game, it does represent another way to monetize those who might not otherwise pay to play your game. Playfish, one of the world’s largest and fastest growing social games companies, uses TrialPay to increase virtual currency sales. For example, in the weeks leading up to Valentine’s Day, Playfish let users get free virtual currency by sending flowers from FTD—and significantly increased sales.

Conclusion
Use creativity in your marketing plan by reviewing alternative business models. Many business models can be combined to give your bottom line an additional lift. For example, W3i’s Application Network can be layered onto other business models like trial and in-game advertising. Users respond to ads for “free” games. Why not put the power of free to work for your game while using an alternative revenue model to keep your company out of the dead pool?

Josh Fiedler, Business Development, W3i
Josh Fiedler is the Business Development Manager at W3i, a provider of integrated desktop and browser marketing solutions.  His expertise is in increasing revenue and traffic for downloadable games and utility software.

Wow! What a week. I just caught back up from a week in Seattle for Casual Connect. It was my first visit to this conference, and well, wow. Let me say, as a newcomer, it is a hard not to be star struck at first. When you are sitting at a table with a guy who developed one of your favorite games, you fight from asking “How do I get past this level?” It is hard to concentrate on the business at hand.

Anyhow… after my initial impression, it was back to business.

There were two words that were frequently discussed. I was expecting them to be six and ninety-nine (the “new” price of games); and, while those were popular, the two most prevalent were mobile and friction.

Mobile

Because mobile is not currently a focus for W3i, I did not invest a lot of my time in mobile presentations at Casual Connect. However, there were some interesting tidbits that I couldn’t help but learn.

First is the idea of platform agnostic; the idea that no matter what platform you are on, you can be gaming with someone. This really rang true with the Facebook Connect presentation, a game should be able to cross from desktop to mobile seamlessly.

The second was a twist on trial ware. Rather than free trial ware, create a low-cost mobile application, get the user hooked, and upgrade them to a full-featured desktop application at a full-featured price.

Friction

Friction, however, struck a chord with me. I think that every presentation I sat in and each conversation that I had about W3i’s process, the word friction came up. Friction is not always a negative thing, because a little friction can drive the need for the game to be even greater.

The idea behind preventing friction wasn’t that friction must be avoided at all cost, but that the amount of friction must not be significant enough to dissuade the user from the game.

Business Model

Another thing I noticed at Casual Connect was that there were limited choices in how to create a revenue-generating business model. If you were one of the big aggregators like Oberon, Wild Tangent, Microsoft, Real, Big Fish, etc., you were the only way to get a game into the world. It also seemed that the predominant monetization method was for the user to pay-to-play. (Most popular numbers at Casual Connect $19.99, $9.99 and $6.99). That is not to say that there were no conversations about ad- supported games, but they seemed minimal (at least to me). Of course, there is something to be said that the model discussed is the model the industry grew on.

Other monetization possibilities

Another model that I heard about was micro transactions –everything from ads at each level to purchasing Farah’s hair for your avatar to buying seeds and land. This also led to the idea of real to virtual currency, coins of every flavor.

There were other business models as well, basically new twists on old ideas, like promotional placement within the game (much like everyone’s favorite DeLorean commercial – Back to the Future) or video pre-rolls or post-rolls, which feel just like TV commercials in a game (at least to me).

My own observation

Whether the model chosen by the games is try-and-buy, retail, or micro-licensing, the price points seem to be getting squeezed to the point where it will be imperative for game developers to supplement their revenue with additional business models to be profitable. This provides a great opportunity for a company such as W3i to work with casual game marketers. W3i can help monetize games and open up more opportunities for them to be discovered.

Whether you attended Casual Connect or not, if you are interested in a unique revenue or distribution model, drop Josh an email at josh.fiedler@w3i.com. W3i can show you a new way to increase revenue or distribution for your game.

Kristin Oberhaus, Product Manager, W3i Holdings, LLC
Kristin has over 13 years of product management experience and is a certified usability analyst. She is an avid believer in pragmatic marketing.

During a leading casual game publisher’s recent earnings call, the CFO cited that one of the primary reasons their quarterly revenue fell (Q1 2009 versus Q1 2008) was that they were generating less revenue from distributing the Google Toolbar offer with their downloads.

This is precisely the problem game publishers are faced with when having only a single offer to leverage with software recommendations from their installer, versus a marketplace of third party offers such as those provided by W3i’s Install IQ process. Had this game provider been a client of W3i’s Install IQ platform, they would have been able to recommend other offers with their downloads instead of relying solely on a Google Toolbar, and therefore closed the gap on their lost revenue from users which had now already all received the Google Toolbar offer in the prior year’s downloads.

Other companies with Windows applications should take note of this provider’s challenges, and proactively integrate with W3i before these revenue decreases show up in their quarterly financial numbers.

Today, I attempted to download from this provider to see what business models they were leveraging.

1. $9.99 Monthly Recurring Subscription – The most prominent business model is to get you to register with your credit card for a free trial to their paid membership. You have 30 days to try the membership, after which time you will be auto-billed monthly at $9.99.
   
   To cancel the trial membership, I was instructed to call their 800 number and provide my account number. I wasn’t too enthused that I could register online but was required to make a phone call to cancel. However, the customer support rep was immediately available and didn’t make life too difficult. Overall, I was pleased with their customer support.
2. Display Ads On Website – After subscribing to the free trial credit card subscription, you can then browse their catalog of online and downloadable games. The website has numerous banner ads on display which help them in generating revenues.
3. 60 Minute Try Before You Buy Downloads – Even with a membership I was still encouraged to download 60 minute trials of various game titles.
4. Toolbar and Other Software Recommendations – The first downloadable trial game came with Google offers including a Toolbar and Desktop Search option.

The Google Toolbar, when first opened, spawned an alert offering to change my default search as well as enable PageRank, further driving value to Google.

I tried downloading additional trial games and only one additional software recommendation, for Google’s Chrome Browser, was offered.

This demonstrates that even today the company has not yet diversified its dependence on Google’s very limited number of offers to be leveraged by their software recommendations.

Ryan Weber, Vice President of Corporate Strategy and Co-Founder, W3i, LLC
Entrepreneur and pioneer of Internet marketing focusing on increasing revenue and distribution for digital downloads.

By offering your online games for free, you can increase revenue. Sound like an irony? If 2% of your users actually convert to paying for your game with a trial offer, you left money on the table. You can earn revenue from a larger portion of your traffic by re-thinking your offer. There are alternatives to the try-and-buy model for game marketing.

As the economy continues to slide, consumers are holding on to their money. They want the entertainment value of online games, but they don’t want to pay for them. Alternative business models allow you to offer your games for free, removing some of the risk of development and marketing. Don’t end up in the video game dead pool—in the past five years almost 100 game developers and publishers have gone out of business.

Alternative business models for online games include: in-game ad model, ad-supported installer model, and the alternative-payment model.

In-game advertising is becoming an acceptable business model as big brands are testing it as a way to reach elusive markets. In-game advertising spending was $295 million in 2007 and projected to grow to $650 million in 2012. IGA Worldwide research showed 82% of consumers feel the games are just as enjoyable with ads and 66% feel that the ads are not intrusive. The top in-game advertising companies are:

1. Massive Incorporated
2. Double Fusion
3. JOGO Media
4. IGA Worldwide
5. NeoEdge Networks (casual games)

Although in-game advertising is growing, it can be difficult to execute and has a long payment cycle. For it to work, the creative must fit seamlessly with the game theme and not deter from game play. Additionally, users must spend considerable time playing the game for your ad revenue to build up.

An second alternative is the ad-supported installation model. The W3i Download Network (WDN) is a new revenue stream worth considering. WDN is a network of companies with downloadable content—including downloadable games. A unique Windows installer, Install IQ (certified in the TRUSTe Trusted Download Program), is used during the installation process to offer the user a value-add of additional software—like the Yahoo! Toolbar or the WeatherBug weather widget. WDN requires minimal in-house resources, and you can start earning quickly once Install IQ is in place and new users install your games. The user only sees ads during the installation of your game so they have no interruption during game play. Additionally, since all of the revenue activity happens during the installation, the actual game play itself is not impacted.

A third option is the alternative-payment model–companies like Trialpay. With Trialpay, a user can purchase your game by completing one advertising offer. TrialPay can boost sales from your current traffic by giving your customers an alternative way to pay. This has its drawbacks as the user must commit to another offer before he/she receives your game; therefore, it is not technically “free”.

Use creativity in your marketing plan by reviewing alternative business models. You can earn significant revenue by promoting your game for “free” while earning revenue from an alternative source.

About the Author:
Josh Fiedler is the Business Development Manager at W3i, a provider of integrated desktop and browser marketing solutions. His expertise is in increasing revenue and traffic for downloadable games and utility software.

About W3i:
W3i, owner of Freeze.com, delivers proven, integrated desktop and browser marketing solutions.  With solutions tested and optimized on over 200 million installs–currently 4.2 million installs monthly, W3i can increase revenue and traffic for downloadable software, applications and digital content or provide a receptive consumer base for customized, targeted distribution programs.  W3i’s solutions utilize Install IQ, a proprietary Windows installation system and download manager developed by W3i. Install IQ is the first installation system to be certified in the TRUSTe Trusted Download Program.  To learn more about W3i, visit www.W3i.com.

Contact:
Deborah Manthei
Director of Marketing Communications
320-257-7571
deborah.manthei@W3i.com