Are Platform Game Lobbies the Next Social Graph?

When speaking with the larger social gaming companies and asking why mobile hasn’t been a focus (to date), the response is interesting and a validation of how fragmented the mobile device and platform landscape is. Typically, the answer is something along the lines of “…we launch an average Facebook game and we make $3M per month, we launch a hit mobile game and we make $1M per month…” – not withstanding the higher COGS with mobile because of the greater R&D costs.

A hit game on Facebook is potentially $6M+ per month (or more) and you’d be hard-pressed to find any mobile game in history that has made those kinds of dollars – I can’t think of any unless you amortized Jamdat’s acquisition of Blue Lava Wireless for the mobile Tetris license in 05 :) In any case, the reason for such a discrepancy in revenue potential is for a single reason: the size and availability of the social graph. Sure, mobile may also have greater challenges with billing but the opposite could be argued with one-click micro-transactions on iPhone and each of the platforms, operators and OEMs all caching credit cards. And yes, many mobile social games and applications have integrated with Facebook Connect but unfortunately it’s too late with the initial viral land-grab being inhibited by a new set of Facebook rules oriented around preserving the personal nature of the Facebook Wall. As one colleague over lunch put it the other day, “…Facebook is constraining the virality of new applications by introducing more and more rules whereas mobile is just finally opening-up…”

Welcome game lobbies such as the iPhone Game Center and WinMo7′s integration with Xbox. Note, I did smirk when these were first announced earlier this year – does anyone remember companies like M7 Networks which powered Sprint Game Lobby? Sprint used to mandate that each mobile J2ME game had to include the game lobby libraries to allow users to post high-scores and potentially enable head-to-head gaming. This was a grand vision but really was only the first phase – take the Sprint Game Lobby and integrate today’s viral and notification mechanics and you have the next social graph.

Little has been released about the mechanics of the new game lobbies but assuming that users can opt-into the game lobby and buddy lists can be created than a new social graph has formed. Mobile social games can then tap this social graph not to differently to how they tap the Facebook social graph using Facebook Connect. Although this social graph may be smaller (eg not Facebook’s 500M+ users but rather 50M+ iPhones or 10M+ WinMo7 est.), the reward may be greater with potentially very open virality and notification rules. Whereas social games on Facebook now rely on cross-promotion and advertising, mobile social games may be more akin to Facebook 1.0 where the Wall is saturated with application and game notifications (or SPAM to others). And as long as the platforms can continue to focus on a write-once, run anywhere paradigm (eg one way by maintaining screen geometry etc as I mentioned in a previous Venturebeat article), then this social graph will continue to expand. Couple this with the cached micro-transaction capability of mobile and you now have your next land-grab. Facebook revenue potential is going flat and mobile is about to explode!

Now assuming that publishers continue to build iPhone, Android and others, will the interoperable game lobby exist? If so, then we will have the largest potential social graph ever that is more personal than any Facebook experience through a PC.

Looking forward to playing with these game lobbies once released and selfishly hyped to be able to see my Xbox avatar on WinMo7!

Lessons Learned in Monetization

Earlier this week, at the excellent MobileBeat conference, I moderated the “Lessons Learned in Monetization” panel – thank you Matthaus.

Before jumping into the summary, quick plug, I did a guest post last week for Venturebeat on “How Can Phone Makers Differnetiate in Mobile 2.0 World” – let me know your feedback.

Ok, onto the panel, we had a fantastic group, Steven Goh from Mig33, Lee Linden from Tapjoy, Juggs Ravalia from SPB Software, Sam Altman from Loopt and Chris Phenner from Thumbplay.

Covered a bunch of topics, here is my brief summary in order:

Sam mentioned that Loopt early-on (and maybe even now?) is selling data bundles with prepaid operators (eg Boost Mobile). Interesting concept, in that prepaid operators need to incentive data packs whereas post-paid operators want you to take the unlimited data pack and then of course not use it!

• General consensus amongst the group was that prepaid content or virtual goods cards sold in retail was not worth the investment. Note Zynga recently announced virtual goods cards in 7-11 stores for Farmville.
• Lee (and the larger group) felt that the future would be some combination of free or premium apps with in-app purchases (eg virtual goods) as opposed to a subscription model which has been mostly unavailable and maybe even traditional advertising since the dollars are so small although the rumblings are that iAd is incredibly profitable, if you can get it.
• Not surprisingly, general consensus amongst the panelists and the audience was that regardless of the app, you need to test multiple price-points for any in-app purchases or virtual goods and offer items at all price-points to catpure each kinds of user.
• Steve made an interesting comment about the general commoditzation of operators in emerging markets do to dual-SIM phones. I hadn’t thought of this previously but it makes absolute sense and validates the forthcoming switch in business model that I detailed in Item #11 in my previous VB article. FYI, if you are not familiar with dual-SIM phones, there is an explanation here.
• At this stage, the audience started (and quickly ended) a debate about open versus closed gardens. As I saw at the Uplinq conference a few weeks ago, there are some developers that prefer the closed garden model as opposed to the democratized app store. Of course, most of these developers were inside the garden previously and had that key carrier relationship.
• Sam made an interesting analogy; CPC (cost per click) is for the web but CPC on mobile is CPV (cost per visit) given the location capability of the device. This isn’t the first time I’ve heard of this concept and I know some of the check-in and AR (augmented reality) companies like Layar have been exploring new ad units and click-thru concepts.
• Juggs mentioned that SPB has looked at ad-supported models and other mobile 2.0 type billing methods but still believe and has data to show that it’s existing premium application and B2B business to OEMs and operators are a much more sigifnicant revenue line. Juggs also mentioned that he doesn’t believe his audience would react favorably to mobile advertising and that he has no plans to try mobile advertising (as a publisher).
• I asked Chris with Thumbplay questions about the crazy PSMS return rates. If you are not aware, as mentioned in this post, ATT was seeing upwards of a 25% return rate on PSMS campaigns – insane! Chris called the activities “criminal” and blamed much of the problems to affilites who game; this doesn’t surprise me considering the amount of PPC (pay-per-click) arbitrage that exists.
• Not clear from my notes but I asked Steve about the roll of psychology in gifting. Mig33 allows for gifting within the social network; Steve validated that gifting has been exploding on his service. As an FYI, CyWorld based in Korea, has seen half the country buy a virtual goods gift.
• Lee talked about incentivized downloads, also known as PPD (pay-per-download). PPD is absolutely continuing to grow and IMO, as shared with many others, PPD is what made in-app advertising more lucrative since ads could finally be measuered (eg direct response), since they led to a digital ecommerce transaction.
• Speaking to Chris on the buy-side of advertising, Chris mentioned that they perform 10s of advertising tests within 48 hours as part of their on-going optimizations of keywords, ad units, metrics and so forth. Chris mentioned he’s heard of some advertisers doing upwards of 1000s of tests in short sprints – talk about multi-variate testing!
• On the topic of PSMS versus credit cards, I believe it was an audience member who said in trying both, that he never received a single sale via credit card due to the huge drop off at the credit card entry page. Andy from Billing Revolution quickly responded with some incredible stats demonstrating the success of credit card entry when the workflow is streamlined.
• Sam, not surprisingly, talked about the use of location to create location history to then draw behaviorial data to offer more targeted advertising. Loopt refers to this as the LifeGraph.
• On the topic of offers, an audience participant from OfferMobi mentioned they have tested some mobile offers and that there has been some success but there is still not enough data on OfferPal or TrialPay type offers to draw any conclusions.

Those were my brief notes; to all the panel participants, if I’m missing or misstating any data, feel free to comment below.

Is the Killer App the App Store?

In 2000, I was (for fun) building WAP pages for simple casual games. By design, casual games tended to be 3 minute games since the thought was that the mobile device was an on-the-go experience and thus users would play games while standing in line or waiting at the dentist’s office whereas today the majority of mobile phone use is actually at the home.

Anyways, later that year, when I was working at Cellmania on operator WAP stores, we had aggregated 15K WAP applications, half of which were probably casual games and the other half were a mix of simple apps. As expected, a majority of the games and apps were long-tail developers and few stood out of the pack but all of which were still downloaded and helped fufill the minutes of micro-bordeom each day.

Fast forward to today, and things haven’t changed much. Yes, instead of WAP applications, we have native applications and instead of 15K apps, we have 200K apps. Games are still being designed for a 3-5 minute experience and the long-tail of apps still tend to be independents with few standing apart in the store but all of which are getting downloads and some use.

One big difference though has been on the metrics of success. Whereas in 2000, WAP applications and later J2ME games could either be premium or free, today we have premium , ad-supported and free with ad-supported probably making up the majority of the app market. Obviously with ad monetization, impressions become the key statistic for revenue and thus the new Daily Active User (DAU) stat has become quite important which leads me to my question, what is the killer app or what is the app that will drive a high DAU?

Some obvious apps include maps, browser, address book and so forth. At first, I didn’t think voice was a killer app but now I can’t live without voice input on my phone, I use it for local search all the time. As I start thinking about what apps that I have I downloaded that I would consider killer apps, I’m often stuck – it’s not that I haven’t downloaded 100s, if not 1000s of apps, it’s just that I can’t think of any apps that I use everyday beyond some of the most obvious (eg Facebook, Yelp, Twitter, Pandora etc). Some less obvious exceptions for me are note-taking, voice recording, misc utilities such as a file manager and a slew of games but as are most people with games, I am very fickle (and thus why the mobile gaming folks see 70%+ return rates on Android’s one-click return button :)

In trying to answer this question, I thought of a different approach – what are consumers asking for. When I was at Kodak Mobile, I spent significant time in mobile phone shops watching what people would ask for when they came into the store to buy a phone. Interestingly, at the time, they would often ask, how many megapixels was the cameraphone and if it supported Bluetooth. Ironically, some of these folks had never owned a digital camera before and didn’t even know what Bluetooth was but they knew they had have it.

Today, when you walk into the phone store, it’s quite a different set of questions. Gone are the megapixel wars and Bluetooth has become pervasive – now, they ask if the phone can do Facebook or if it has games or if it connects to their favorite website – they are asking if the phone has apps. My Dad the other day asked for a very specific app. He wanted a calculator on his phone, something that seems quite “boring” but given that he’s a math professor (and not a techie!), it’d prove quiet useful for his occupation. For him, that’s his DAU app and for others it’s a different app.

Whether it be to fufill micro-bordeom with casual games or finding apps that connect to your favorite services, the killer app is not the app itself, the killer app is the app store (and I’m sure all the OEMs and operators realize this). Let’s just hope we don’t kill outselves with fragmentation.

What Platforms Should I Build For?

FYI – Re-posting this since my server had crashed and this was between a backup.
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At a recent dinner with a number of friends from the mobile gaming industry, I validated that iPhone was the #1 platform in terms of revenue but what’s interesting is what the rest of the platform stack looks like in the US – in order of revenue rank:

1. iPhone
2. Blackberry
3. BREW
4. J2ME
5. Android

One of the game publishers said iPhone was doing 7X Blackberry which was their #2. Note, in the BB App World, apps are often listed upwards of $20. Also interesting to see Android at the bottom of the list but I fully expect that to climb especially as more Android based devices are launched later this year assuming we don’t have massive app store fragmentation on the platform. That being said, I also hear Android has the highest return rate, near 75% for some developers given how seamless the process is to return an application (clicking a button rather than having to make a phone call).

BREW is still a big money-maker and several X more than J2ME even though it’s basically a Verizon-only proposition – this story hasn’t changed from 01. The contrarian move would be to double-down on BREW given that so many developers are focused on the high-end. Also interesting is that S60 and Windows Mobile are not on the map but again, I fully expect that to change once the Ovi store is in full-force and the Windows Marketplace is up and running.

To Operator or to Not to Operator

At CTIA last week, I helped lead a session on “Making Money” at WIP JAM run by my friend, the mobile machine, Caroline Lewko. Anyways, a couple interesting notes came out of our discussion that I want to share – the question is whether I partner with an operator to distribute my application?

This simple table actually represents quite a bit of learnings. The most controversial row is volume – app stores have definitely made it a lot easier to achieve millions of installs but most developers still get stuck in the 100s of K of installs.

Most interesting is with revenue, many of my friends at many of the large mobile game publishers are struggling with the iPhone and other “democratized” app stores. The problem is, with carriers, they have guaranteed revenue since they have guaranteed placement – with the app store, there is no guarantee, they could spend 3 months of dev time, money on licenses and not achieve an ROI. This high-risk distribution avenue doesn’t immediately suit well for the traditional “tight margin” mobile game publishers.

And as you would expect, working with operators takes a lot longer (and a lot more money) than most people imagine. Most of this is because of the painful requirement of having to port to all their phones – I fully expect this to change since there has been increased focus on the high-end.

One final note, sort of the VC pain, how many mobile companies do you know that make millions a year that do not require operator partnerships (very few) – that’s why I’m an industry fan of the lifestyle business.