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Merging gambling and gaming with real-money play.

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Stand Out: Brand Your Game with Audio

[font="Times"][size="2"][color="#000000"][font="Arial, Helvetica, sans-serif"][size="2"][color="#000000"][font="Arial"][size="2"]Guest Post by [/font][/color][color="#000099"][font="Arial"][size="2"]Peter Inouye[/font][/color][color="#000000"][font="Arial"][size="2"], a freelance game composer from the SF Bay Area. Peter is a musician, audiophile, and closet social gamer. You can find him on Twitter at [/font][/color][color="#000099"][font="Arial"][size="2"]@AznBanjoPlaya[/font][/color][color="#000000"][font="Arial"][size="2"].[/font][/color]

[/font][color="#000000"][font="Arial"][size="2"]Think back to the games you remember most from your childhood. Doesn't the music start to come back to you as well? And like it or not, start to loop incessantly in your head? Whenever I think of the original Legend of Zelda, Koji Kondo's renowned [/font][/color][color="#000099"][font="Arial"][size="2"]title/overworld theme[/font][/color][color="#000000"][font="Arial"][size="2"] come directly to mind and won't leave (which is OK, because it's so good I walk around town like I'm on an epic mission). Even the sounds come to mind--I loved the sound of the[/font][/color][color="#000000"] [/color][color="#000099"][font="Arial"][size="2"]sword beam[/font][/color][color="#000000"][font="Arial"][size="2"] so much that I would wander around trying to find half a heart just to get the sound back. [/font][/color]
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[color="#000000"][font="Arial"][size="2"]This, developers, is why audio is so important to your game--it is part of your game's essence.[/font][/color]
[/font][color="#000000"][font="Arial"][size="2"]Branding your game[/font][/color]
[color="#000000"][font="Arial"][size="2"]Music and sound is a big part of your game's brand and IP. It sets the mood and feel just as much as that art design you've agonized over through your development process. Is it possible to think of Angry Birds without thinking of the goofy[/font][/color][color="#000000"] [/color][color="#000099"][font="Arial"][size="2"]opening music[/font][/color][color="#000000"][font="Arial"][size="2"]? Rovio Mobile did a great job creating a complete IP package, with the music, character and art design, and even the "wheeee!" sound effects whenever a bird gets launched. Composer and sound designer Ari Pulkkinen put [/font][/color][color="#000099"][font="Arial"][size="2"]a lot of thought[/font][/color][color="#000000"][font="Arial"][size="2"] into the audio side of Angry Birds, and it paid off by becoming a huge part of the game's brand.[/font][/color]

[color="#000000"][font="Arial"][size="2"]There's a reason that so many corporations rely on [/font][/color][color="#000099"][font="Arial"][size="2"]audio logos[/font][/color][color="#000000"][font="Arial"][size="2"] as a part of their branding campaigns. Audio, especially when connected with video, really sticks with people whether they want it to or not. Probably everyone around you at this moment could recognize the five tones of the Intel audio logo ([/font][/color][color="#000099"][font="Arial"][size="2"]Blom...dun-Dun-dun-Dun[/font][/color][color="#000000"][font="Arial"][size="2"]). Audio should be built in to your brand, not just tacked on at the end. This is arguably even more important in the saturated mobile gamespace, though audio faces new challenges brought on by the mobile devices themselves.[/font][/color][color="#000000"] [/color][/font][/color][/font][font="Times"][size="2"][color="#000000"][font="Arial, Helvetica, sans-serif"][size="2"][/font][/color][/font]
[font="Times"][size="2"][color="#000000"][font="Arial, Helvetica, sans-serif"][size="2"][color="#000000"][font="Arial"][size="2"]Game audio has come full circle[/font][/color]
[color="#000000"][font="Arial"][size="2"]A GDC session this past year called "Audio Full Circle," put on by Guy Whitmore and Jeff Essex, discussed how the mobile game world has brought music and audio programming back to its old-school roots. Early NES games had minimal audio teams, primitive hardware specs, and tiny file sizes--so small that music files were composed in text editors. With the advent of the PS2, file size wasn't as much of an issue (650 MB, OMG!), and suddenly composers could use CD audio in the projects. Later, compressed audio formats like mp3 allowed hours of music within a game, paving the way to[/font][/color][color="#000000"] [/color][color="#000099"][font="Arial"][size="2"]adaptive music[/font][/color][color="#000000"][font="Arial"][size="2"] and other creative applications of music.[/font][/color]

[color="#000000"][font="Arial"][size="2"]Now, the mobile world has brought back some of the old restrictions of the 8-bit world. We're back to small dev teams, one audio guy, minimal hardware, and small file sizes. And not only that, most users will experience all sound through a half-inch speaker. So composers once again have to get creative with their choices--a few one-minute music loops and a title theme is usually all we're offered, and few or no transitions/crossfades to lessen the CPU load. Where Koji Kondo had to think about what instruments to drop out in lieu of sound effects in Super Mario Bros., mobile composers have to come up with concise and memorable music that doesn't get too repetitive while using instruments that can actually be heard through the tiny speaker. This is the new art of mobile game music. With a single person in charge of your game's entire audio identity, finding the right talent and communicating with them properly truly impacts the quality of your game and it's brand.[/font][/color][/font][/color][/font]
[/font][font="Times"][size="2"][color="#000000"][font="Arial, Helvetica, sans-serif"][size="2"][/font][/color][/font]
[font="Times"][size="2"][color="#000000"][font="Arial, Helvetica, sans-serif"][size="2"][color="#000000"][font="Arial"][size="2"]Choosing your sound[/font][/color]
[color="#000000"][font="Arial"][size="2"]As the game designer, one of your many tasks should be to think "what should the music convey here?" You don't need to get deep into instrumentation or musical form, but having a vision of something when seeking a composer really helps. Is your game fun and quirky like Angry Birds? Or is it dark and brooding like in Rage? Do you want it to communicate a gameplay element like in Resident Evil 4, where music usually means there are enemies around? Or do you want the music to simply keep the energy up during wave after wave of enemies? Answering these questions will help you guide your composer along your vision's branding path, be it a dark and violent zombie world (Resident Evil) or a casual and comical zombie world (Zombie Farm). The music in both of these examples is key to framing the user experience and make their atmospheres significantly different even though they are both set in a zombie-ridden world.[/font][/color]

[color="#000000"][font="Arial"][size="2"]On the other hand, your composer is in charge of making the music sound awesome. And this is no easy task, especially when it comes to those short loops in mobile and social games. It's hard to walk the line between "memorable" and "repetitive"--there must be peaks and valleys in the music so it doesn't sound droning, but too much of a peak begins to stand out every time we hear it. Social games in particular have a particularly hard time with this, because most users typically spend most of their time in one environment, hearing the same one minute loop over and over. There's some great music in Playdom's Facebook game Gardens of Time, where the different instrumentations and moderate tempo changes really make the music "breathe" and actually bring me back to the game. When music is done properly, it becomes a tool for user retention by being a part of the memorable experience you are striving to create, and thus a composer is a necessity when creating a quality modern game.[/font][/color][color="#000000"] [/color][/font][/color][/font]
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[color="#000000"][font="Arial"][size="2"]Finding a composer[/font][/color][/font][/color][/font]
[font="Times"][size="2"][color="#000000"][font="Arial, Helvetica, sans-serif"][size="2"][color="#000000"][font="Arial"][size="2"]This, of course, means carefully choosing your composer and sound guy is just as important as ever. Just as you probably wouldn't hire the cheapest artist you could find, or hire a complete mismatch for your project (you probably wouldn't seek out the composer for [/font][/color][color="#000099"][font="Arial"][size="2"]Deus Ex: HR[/font][/color][color="#000000"][font="Arial"][size="2"] to do music for Farmville for both style and budgetary reasons), finding someone can be difficult. You could always license some pre-made, generic music, but then you're missing an opportunity to tie original and innovative music to your game's experience.[/font][/color]

[color="#000000"][font="Arial"][size="2"]Hopefully, you can find a composer the same way you would find any other vital contractor for your team. Go look through your Linkedin connections and groups (like [/font][/color][color="#000099"][font="Arial"][size="2"]I Make Music, I Need Music[/font][/color][color="#000000"][font="Arial"][size="2"]). Get out to those IGDA and other networking events. Even [/font][/color][color="#000099"][font="Arial"][size="2"]Reddit[/font][/color][color="#000000"][font="Arial"][size="2"] can be a great resource. And even better, ask your fellow developers who they used and what they thought. Most companies only contract out to composers anyway, so chances are they completed the project and have moved on. Once you start asking around, you'll find there's more of us out there than you thought. And hey, [/font][/color][color="#000099"][font="Arial"][size="2"]I'm usually available[/font][/color][color="#000000"][font="Arial"][size="2"]. (/shameless plug)[/font][/color]

[color="#000000"][font="Arial"][size="2"]If you're on a tight budget with limited time like most indie developers, at least consider trying out[/font][/color][color="#000000"] [/color][color="#000099"][font="Arial"][size="2"]AudioDraft[/font][/color][color="#000000"][font="Arial"][size="2"]. It's essentially 99Designs for music, where you write a proposal, put up a few hundred bucks as a prize, and watch the numerous entries come in. As the contest creator, you get the giant end of the bargaining stick, with nominal fees and many different options to choose from. Personally, I enter AudioDraft contests as a fun way to expand my portfolio into different musical genres, and many upcoming composers use the service hone their skills. Figuring out exactly what the developer wants from a simple design brief is an art in itself, and best learned through experience.[/font][/color][/font][/color][/font]
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[color="#000000"][font="Arial"][size="2"]Becoming Memorable[/font][/color]
[color="#000000"][font="Arial"][size="2"]While outside doing yardwork the other day, some tune came back into my head, and I couldn't place it. After a half hour or so of singing it to myself, I finally realized it was the level music from iOS game ZombieSmash--written by my colleague [/font][/color][color="#000099"][font="Arial"][size="2"]Chris Huelsbeck[/font][/color][color="#000000"][font="Arial"][size="2"]. This was a game that I had bought and played for only a couple days before it faded into the rest of my 200+ installed apps. But the music pulled me back in, for a little while anyway--and just long enough to hit the next content update. [/font][/color]

[color="#000000"][font="Arial"][size="2"]Isn't a memorable experience the purpose for all of the time, energy, and thought you've put into every aspect of your game? Music is a large part of this experience, creating the atmosphere of the game world before the player even leaves the start menu. In today's mobile market, a game needs a good brand to stand out from the crowd, and your audio identity will help to create one. So find a composer, and go make your game memorable--and maybe you'll create something as recognizable as Angry Birds. Wheeeee![/font][/color]
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Why Zynga's Profits Plummeted

[font="Times"][size="2"][color="#000000"][font="Arial, Helvetica, sans-serif"][size="2"][color="#000000"][font="Arial"][size="2"] [/font][/color][/font][/color][/font]
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[font="Times"][size="2"][color="#000000"][font="Arial, Helvetica, sans-serif"][size="2"][color="#000000"][font="Arial"][size="2"]Gamasutra dropped a [/font][/color][color="#000099"][font="Arial"][size="2"]bombshell report[/font][/color][color="#000000"][font="Arial"][size="2"] on Monday that Zynga, just ahead of their planned IPO, had reported a 95% drop in their year-over-year profits from $27.2 million to $1.3 million. The social gaming juggernaut continued to lose momentum in all major categories: its total revenues grew only 15% last quarter versus 24% in the previous quarter. Its virtual goods sales and ad revenues were down 4% from the prior quarter, and their total daily active user count across all games also dropped 4% from 62 million to 59 million. Has Zynga lost the interest of its users, or are market trends eroding Zynga's core revenue streams?[/font][/color]

[color="#000000"][font="Arial"][size="2"]This question prompted lively debate amovsang the tech and gaming communities. [/font][/color][color="#000099"][font="Arial"][size="2"]GamePro[/font][/color][color="#000000"][font="Arial"][size="2"] reported that Zynga attributed its decline in profits to some factors that did not necessarily indicate trouble. For one, in 2011 Zynga did not launch a new game before Empires and Allies, which was launched March 31st, so they claim to have not yet fully realized the revenue from that game. Second, they blame higher than normal spending on hiring, acquisitions, and international growth. Third, supporters point to the loss of Zynga's "free" viral marketing when Facebook enacted new policies to combat spam. And last but not least, there is Facebook's decision to force all developers to adopt its Facebook Credits payments system and the associated 30% tax. [/font][/color]

[color="#000000"][font="Arial"][size="2"]While all of these things could eat into Zynga's profits, they don't explain why their daily active user (DAU) numbers are starting to drop. A former Zynga employee responded to [/font][/color][color="#000099"][font="Arial"][size="2"]a Hacker News thread[/font][/color][color="#000000"][font="Arial"][size="2"] about this topic by highlighting the many market trends that are eating away at Zynga's core business: massively successful Facebook games. The commentator believed that the [/font][/color][color="#000099"][font="Arial"][size="2"]decline of Facebook's web traffic[/font][/color][color="#000000"][font="Arial"][size="2"] was a key component of this trend; however, this decline has since been [/font][/color][color="#000099"][font="Arial"][size="2"]challenged by multiple ratings agencies[/font][/color][color="#000000"][font="Arial"][size="2"]. Furthermore, many argue that the users that are leaving Facebook are the least engaged users, while Zynga's hardcore daily players are certainly some of the most engaged. [/font][/color]

[color="#000000"][font="Arial"][size="2"]The commentator also argues that Zynga's games are higher quality than ever, and they are in the process of creating titles that appeal to [/font][/color][color="#000099"][font="Arial"][size="2"]midcore[/font][/color][color="#000000"][font="Arial"][size="2"] and [/font][/color][color="#000099"][font="Arial"][size="2"]hardcore[/font][/color][color="#000000"][font="Arial"][size="2"] audiences. Alongside these efforts, Zynga is going to great lengths to secure partnerships with major brands, including [/font][/color][color="#000099"][font="Arial"][size="2"]Lady Gaga[/font][/color][color="#000000"][font="Arial"][size="2"], [/font][/color][color="#000099"][font="Arial"][size="2"]American Express[/font][/color][color="#000000"][font="Arial"][size="2"], and [/font][/color][color="#000099"][font="Arial"][size="2"]Capital One[/font][/color][color="#000000"][font="Arial"][size="2"]. However, even with with all of the work that Zynga is putting into increasing the quality of their user experience, they have still sold less virtual goods and are losing their most valuable players. So what's the missing piece of the puzzle?[/font][/color]

[color="#000000"][font="Arial"][size="2"]Virtual rewards don't engage and entice players like they used to. [/font][/color]

[color="#000000"][font="Arial"][size="2"]And why should they? Players are paying real money for something with no actual value, and they can never get that money back. The gimmick has lost its novelty, especially as virtual goods have [/font][/color][color="#000099"][font="Arial"][size="2"]become a commodity[/font][/color][color="#000000"][font="Arial"][size="2"] across games of all skill levels and platforms. As games start to [/font][/color][color="#000099"][font="Arial"][size="2"]merge the virtual and physical worlds[/font][/color][color="#000000"][font="Arial"][size="2"] and become [/font][/color][color="#000099"][font="Arial"][size="2"]integrated with every aspect of our lives[/font][/color][color="#000000"][font="Arial"][size="2"], why would users still be interested in a virtual sword that is literally worthless? [/font][/color]

[color="#000000"][font="Arial"][size="2"]The future of gaming is in the real world, and the future of play is with real money. Providing a tangible reward for the real time, money, and effort that players put into a game will make games more engaging and fun. Players will find it much more appealing to be able to play for and [/font][/color][color="#000000"][font="Arial"][size="2"]win[/font][/color][color="#000000"][font="Arial"][size="2"] real-money that they can cash out, turning their favorite game into a lucrative hobby. [/font][/color][font="Arial"] [/font]





Betable HTML5 Hackathon Contest: Win a trip to Vegas and up to $10,000!

[font="Times"][size="2"][color="#000000"][font="Arial, Helvetica, sans-serif"][size="2"][color="#000099"][font="Arial"][size="2"]Betable[/font][/color][color="#000000"][font="Arial"][size="2"] is proud to announce it's sponsorship of the [/font][/color][color="#000099"][font="Arial"][size="2"]Hackathon at the HTML5 Developers Conference[/font][/color][color="#000000"][font="Arial"][size="2"] hosted by the Silicon Valley Independent Game Developers Association. The Hackathon is this weekend, and open to all developers interested in building apps on this budding platform. If you haven't already, you can [/font][/color][color="#000099"][font="Arial"][size="2"]sign up here[/font][/color][color="#000000"][font="Arial"][size="2"].[/font][/color]

[color="#000000"][font="Arial"][size="2"]In addition to our sponsorship, Betable is also hosting a contest for HTML5 game developers! To be entered into our contest, all you need to do is develop a game that incorporates Betable's API to include real-money gambling into the game. The game does not have to be a dedicated gambling game like a slot machine or scratcher; in fact, we look forward to seeing what cool new ideas you come up with for applying real-money gambling mechanics to games. Also, you are welcome to enter both Hackathon contests by building a Betable app on [/font][/color][color="#000099"][font="Arial"][size="2"]Spaceport[/font][/color][color="#000000"][font="Arial"][size="2"]. In fact, we encourage you to do so![/font][/color]

[color="#000000"][font="Arial"][size="2"]So other than the piles of money that you can make from real-money gambling games, what prizes do we have in store for you? We're glad you asked. [/font][/color]

[color="#000000"][font="Arial"][size="2"]The winner of the Betable HTML5 Hackathon Contest will receive:[/font][/color] [color="#000000"][font="Arial"][size="2"]A two night weekend trip to Las Vegas and...[/font][/color][color="#000000"][font="Arial"][size="2"]Early entry into [/font][/color][color="#000000"][font="Arial"][size="2"]The Prospector's Fund by Betable[/font][/color][color="#000000"][font="Arial"][size="2"], which includes...[/font][/color] [color="#000000"][font="Arial"][size="2"]Working capital of up to $10,000, including backing for you to be the house.[/font][/color] [color="#000000"][font="Arial"][size="2"]A plug-and-play solution that covers payment processing, fraud prevention and player legal compliance checks required for gambling.[/font][/color] [color="#000000"][font="Arial"][size="2"]Exemption from Revenue Share Requirement for the first 6 months that your game is live, meaning you keep 100% of your gambling revenue.[/font][/color][color="#000000"][font="Arial"][size="2"]We are looking forward to meeting you all this weekend seeing what you come up with. Good luck![/font][/color][/font][/color][/font]




Zynga "appeals to the same psychology as gambling"

This post first appeared on our blog.

[font="Times"][size="2"][color="#000000"][font="Arial, Helvetica, sans-serif"][size="2"]We found a very interesting interview on today with analytics expert Jeff Tseng, who argues that Zynga leverages behavioral psychology to make its players addicted to their games.

[font="Georgia,"]When users log into Facebook each day, they don't think that they are entering a gambling arena. When they jump into FarmVille, they don't see it as a virtual slot machine. But ask Jeff Tseng, the co-founder and CEO of user analytics firm Kontagent, and he will tell you that casino gambling and Zynga gaming aren't all that different.[/font]

Jeff has hit an interesting insight here, which is something that people noticed about Zynga's Farmville. It wasn't that Farmville was some kind of miracle hit, it was that Zynga intelligently designed their game around new game mechanics and iterated on those mechanics to make them more effective. They didn't necessarily design a game that was 'more fun', in fact it's impossible to play Farmville for hours at a time without spending in-game currency on Energy. Instead, they designed a game that hooked people in and then kept them coming back, and combined this with aggressive built-in viral marketing that incentivized users to share the game with their friends.

He also makes the argument that Zynga is "an analytics company with kind of a game company wrapped around it". I have to agree, but I don't think this is what sets them apart. From my time at Lookout, I can tell you that this is a trend that has entered every facet of the tech industry. From marketing to coding, next generation companies all leverage new technology to get a competitive edge, and much of it is based around "spreadsheets" like Jeff said. Psychology, not analytics, has given Zynga the competitive edge that lead to its domination of the social gaming market.





The Problem With Virtual Goods

[/font][/color][/color][color="#595959"][size="2"][color="#000000"][font="Arial"][size="2"]Making a business out of a game is hard work. It takes great design, unique mechanics, creative marketing and some serious dedication to build a successful game. Turning this successful game into a business requires all of the above, plus a large amount of users that are willing to give you their money. And, if you want to give away access to your game or app for free, as many game makers now do, you will need an even larger number of total users to derive your paid user base from.[/font][/color][/color]
[/font][color="#000000"][font="Arial"][size="2"]Today, virtual goods have become a common way to monetize a game, and while it may have become a very lucrative business for early comers like Zynga, it is not a good business to be in now. If you look at Zynga as an example of a successful virtual goods-based game company, the outlook is pretty grim for an up-and-coming game developer. Even before the 30% Facebook Credits tax, Zynga only makes an average revenue per user (ARPU) of approximately $1.21 because only a small percentage of their total users actually pony up their hard-earned cash. [/font][/color][color="#000000"][font="Arial"][size="2"]Zynga's business is only possible because of their tremendous scale[/font][/color][color="#000000"][font="Arial"][size="2"], and many of the methods that they used to reach that scale are no longer available. Some methods are subject to first-mover advantage, such as Zynga's first successful game, Texas Hold'em Poker (aka Zynga Poker), which was the first poker game on Facebook and gave them huge group of users to market to for future games. Other methods are no longer available, in the case of the aggressive Facebook messaging tactics that Zynga employed early on that are no longer allowed by Facebook. [/font][/color]

[color="#000000"][font="Arial"][size="2"]The chance of a company recreating Zynga's success in the social gaming market is made even slimmer by the tremendous advantages of scale that Zynga enjoys, especially when [/font][/color][color="#000099"][color=#595959][font="Arial"][size="2"]Facebook helps Zynga[/font][/color][/color][size=2] meet monthly unique user targets for its games. Due to the low average revenue per user (ARPU) of many social games, game studios with small player bases are severely limited in their ability to scale their game and their business. It is difficult for studios to grow their user base through marketing efforts because the cost of user acquisition is so high relative to their value, especially in the short term. And it is difficult to produce a game of comparable quality to the social gaming giants with a small staff. Last but not least, the virtual goods-based games space is over-saturated with thousands of companies chasing the same user base.
[font="inherit"][font="Arial, Helvetica, sans-serif"][size="3"][font="Arial"][size="2"]Instead, game studios should look for new ways to monetize their games. One method that already generates incredible revenue from each user (up to 300X more than virtual goods per player per month) is real-money play, and a new category of gaming is being created that combines the best aspects of real-money gambling and social gaming. This new category called Social Gambling Games ("SGG") will disrupt both the gaming industry, where ARPU is typically very low, and the gambling industry, where many of the popular game mechanics are in need of socialization. We believe that the next Zynga will come out of the unclaimed Social Gambling Game space, and that the companies that are early to this space will have the same first mover advantage that lead to Zynga's success within social gaming 1.0.[/font][/font][/font]
[/font][font="Arial, Helvetica, sans-serif"][size="2"][font="Arial"][size="2"]The top game companies in each of the existing major markets and platforms are in the chart above, but none are currently looking at Social Gambling Games. In our next blog post, we will show you how you can create the first great Social Gambling Game and dominate this new space. Betable is working on developing a platform for legally integrating real-money play into Social Gambling Games, and we believe that it will help game developers monetize more effectively and in a more engaging way. To stay informed and [/font][/font][font="Arial, Helvetica, sans-serif"][size="2"][font="Arial"][size="2"]get early access[/font][/font][font="Arial, Helvetica, sans-serif"][size="2"][font="Arial"][size="2"], [/font][/font][font="Arial"][size="2"]subscribe[/font][font="Arial, Helvetica, sans-serif"][size="2"][font="Arial"][size="2"] to our blog and follow [/font][/font][font="Arial"][size="2"]@betable[/font][font="Arial, Helvetica, sans-serif"][size="2"][font="Arial"][size="2"] on Twitter today.[/font][/font]
[font="inherit"][font="Arial, Helvetica, sans-serif"][size="2"][size="3"][font="Arial"] [/font][/font][/font]
[font="inherit"][font="Arial, Helvetica, sans-serif"][size="2"][size="3"][font="Arial"][size="2"]Sources: [/font][font="Arial"][size="2"]Zynga S-1[/font][font="inherit"][size="3"][font="Arial"][size="2"], ZookyWorld (for cartoon), SimonMainwaring (for image)[/font][/font][/font][/font]

[font="inherit"][font="Arial, Helvetica, sans-serif"][size="2"][size="3"][font="inherit"][size="3"][font="Arial"][size="2"]Originally posted on Betable's blog under the title: The Problem With Virtual Goods[/font][/font][/font][/font]




Why Zynga Is Leaving Money On The Table

[color="#808080"]Originally posted on our company blog under the title: Why Zynga Is Leaving Money On The Table[/color]

[font=Arial][size="5"]Why Zynga Is Leaving Money On The Table[/font]
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[color="#595959"][size="2"][font="inherit"][size="3"][color="#000000"][font="Arial"][size="2"]Zynga's revenue is expected to almost double from $597.5M to $942M in 2011, which according to Zynga's S-1 filing is partly the basis of its $15-20[/font][/color][color="#000000"][font="Arial"][size="2"]Billion[/font][/color][color="#000000"][font="Arial"][size="2"] valuation, but the truth is, Zynga isn't making nearly as much money as it could. In fact, I would go as far as to say that it's chump change compared to the revenues it could generate with real-money gaming.[/font][/color][/font]

[font="inherit"][size="3"][color="#000000"][font="Arial"][size="2"]Zynga derives its entire revenue stream from the sale of virtual goods or the exchange of virtual goods for affiliate services. This new monetization method has rocked the gaming industry, and the titans of yesteryear are frantically trying to play catch-up by launching their own free-to-play games of all genres. And with good reason: the virtual goods market is expected to increase 40% in 2011 to $2.1B. Yet with users becoming more willing to invest their hard-earned cash into games, Zynga is still leaving a lot of money on the table.[/font][/color][/font]

[font="inherit"][size="3"][color="#000000"][font="Arial"][size="2"]One big reason why users are willing to trade real money for virtual rewards is touched on by Jesse Schell in his [/font][/color][color="#000099"][font="Arial"][size="2"]DICE talk[/font][/color][color="#000000"][font="Arial"][size="2"]. He believes that users logically feel like they are already invested in a free game because they have put so much time into it, so they are more likely to spend real money on their progress in the game. This famously addictive cycle helped Zynga create a multi-billion dollar empire, but even games that have been expertly monetized through these methods only brings in an average revenue per user (ARPU) of approximately $1.00#.[/font][/color][/font]

[font="inherit"][size="3"][color="#000000"][font="Arial"][size="2"]While an ARPU of $1.00 was good enough to help Zynga grow into a mega-company with hundreds of millions of users, it won't be good enough for the next generation of innovative game studios. These studios don't have a new, untapped revenue source to drive their growth and are fighting at a disadvantage against the mega-companies for the existing streams. A new, engaging source of revenue would help small studios stay competitive and grow their user base. Unfortunately, there hasn't been a major new game revenue stream to take off in the gaming space since virtual goods. What new revenue stream will spark the next evolution in game monetization?[/font][/color][/font]

[font="inherit"][size="3"][color="#000000"][font="Arial"][size="2"]The most probable game changer is [/font][/color][color="#000000"][font="Arial"][size="2"]real-money play[/font][/color][color="#000000"][font="Arial"][size="2"], or specifically the ability for users to 'buy in' for real money as they do now, bet that money on game outcomes, and then 'cash out' their winnings, which is NOT something they can currently do. This opportunity merges gambling and gaming, and would create an entirely new massive revenue stream for game developers. As Andrew Chen highlighted in his [/font][/color][color="#000099"][font="Arial"][size="2"]blog post about gambling vs. gaming[/font][/color][color="#000000"][font="Arial"][size="2"], gambling games' average revenue per user (ARPU) numbers are significantly (?50x) higher than the ARPUs of the best virtual goods-based games. Also, gambling players have a much higher [/font][/color][color="#000099"][font="Arial"][size="2"]customer lifetime value[/font][/color][color="#000000"][font="Arial"][size="2"]than gaming players, and developers do not need to constantly create new content to keep them interested. Now that's something that Zynga and smaller studios can get excited about.[/font][/color][/font]

[font="inherit"][size="3"][color="#000000"][font="Arial"][size="2"]So why hasn't anyone broken into this space yet? For the majority of studios, the cost of pursuing this revenue stream is far too high. Acquiring a gambling license, which must be done outside of the United States, requires a tremendously large investment of both time (?18 months) and money (?$1M including all associated costs) that the majority of studios cannot afford. Game studios are usually much better off investing their limited resources into the virtual goods channel because those will monetize immediately, although relatively poorly. A mega-company like Zynga can afford the investments necessary to acquire the license, but they face serious legal hurdles, possible corporate restructuring and branding issues in order to do so. Even so, it may be worth the effort in the long term, but in the meantime, it leaves a serious market opportunity for a small game company to build games around real-money play.[/font][/color][/font]

[font="inherit"][size="3"][color="#000000"][font="Arial"][size="2"]It is safe to say that the next multi-billion dollar gaming company won't be built by copying Zynga. It will be forged out of new game mechanics and revenue streams that engage the user more than ever before. And what is more engaging than a chance to win real money? All game studios need is a way to overcome the tremendous pain, time and expense of acquiring gambling licenses, which is where [/font][/color][color="#000099"][font="Arial"][size="2"]Betable[/font][/color][color="#000000"][font="Arial"][size="2"] comes in. Stay tuned.[/font][/color][/font]




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