Thursday, July 31, 2008

How to Price Virtual Goods: Anchor Pricing and Free Gifts

With the flurry of virtual goods soon to come to market in the gaming space, the question consistently raised to me by gaming folks is: how do I set a price for a virtual item?

My stock answer: as high as possible.  After all, the value of a virtual item in the eyes of a consumers is established by price as much as by the quality of its graphical representation (i.e. no cares about Susan Kare).  So now, I'll tell you why I think you need to price things as high as possible (i.e. as much as the top 1% of consumers will pay - after all that's where most of your revenue will come from, anyway - just ask Mike Sego of (fluff) friends or Daniel James of Three Rings.)

Anchor Pricing

It's all about anchor pricing.  An anchor price is the price we expect to pay for something in a particular category.  For example, I expect to pay around $1.50 for a cup of black tea.  This morning, I paid $4.10 for a cup of black tea and I felt ripped off even though it was supposedly premium tea.

For most American consumers, virtual items are an entirely new category and therefore have no anchor price.  As an industry, we have the opportunity to establish them, here's what the blog Neuromarketing says about setting anchor prices for a new category:

"The more interesting challenge is how to deal with new products for which consumers have no clearly established anchor price. Ariely’s research (from the book Predictably Irrational which I recommend - Bret) shows that anchor pricing for such products is quite fungible, and marketers would do well to avoid inadvertently establishing a low anchor price. If a higher anchor price can be established, then offers involving lower prices will be attractive to consumers. Apple’s iPhone marketing has done a good job of using anchor pricing to keep demand strong. When they first released the iPhone, it was at a price of $499 to $599, establishing the initial anchor for what the unique product should cost. To the chagrin of early adopters, they dropped the price by $200 after only a few months - creating an apparent bargain and stimulating more sales. When they introduced the iPhone 3G, pricing was as low as $199, and they sold a million phones in three days.

There are many reasons why marketers start with a high price initially. One big one is to work the demand curve, i.e., get a high price from the portion of the market willing to pay that much before dropping the price to reach a larger number of customers. A key benefit of this strategy for new products, though, is that a high anchor price is established in the minds of customers, making each subsequent reduction a bigger bargain."

A decent argument for starting your prices high.  But unfortunately when it comes the category of virtual gifts on Facebook you have some history with which to contend.

Free Gifts on Facebook

When your virtual items live on Facebook, two anchor prices may affect consumer perception: One dollar and FREE.

Facebook charges one dollar for their virtual gifts, and for many Facebook users this was their introduction to virtual goods as a category.  Of course, then Free Gifts, with their motto "Gifts should be free" came along and established free as the anchor prices for virtual gifts.  Other apps followed, and now millions of free gifts are exchanged on Facebook.

But a virtual goods strategy on Facebook expects users to pay for the same thing they were used to giving for free.  Crap!  Before we all descend with torches upon Zach Allia (the creator of Free Gifts who now works at SGN), keep the following in mind:

Fortunately, as I stated earlier, the value of a virtual item is established by price.  When giving a gift, a consumer will generally opt for a gift with a perceived value that mirrors the value that person has for the relationship.  For Xmas, you give your girlfriend a Kate Spade purse, while you give you second cousin a discounted Kwanzaa card...if he's lucky.

The key to pulling virtual gifts away from the free price point is to make the price point egregiously clear to the gift recipient and anyone who sees it on their profile.  It may be crass to leave the price tag on a gift, but with a virtual good how else can someone know if the picture of a teddy bear is worth one dollar or ten dollars?

Of course, the problem arises when a two very similar teddy bear pictures are priced vastly differently by two different app makers.  This problem doesn't arise when you control the economy as in virtual worlds like Habbo Hotel or Whirled.  However, in an open economy like Facebook where prices for a virtual item can be set by anyone with a little PHP knowledge and access to Google Images, the maintaining higher prices is pretty impossible.

It's my speculation that the need to maintain artificial (non-market determined) prices will be the most powerful reason for social games company to establish their own destination site using Facebook Connect to leverage the social graph, but maintaining their own context where they can control their virtual economies.

And if that doesn't work, we can always sell Zach Allia's body parts, at a healthy markup, of course.

Wednesday, July 30, 2008

New Head of Worldwide Game Studios For Sony Recognizes the Social/Casual Gaming Trend

Shu Yoshida from an interview with Dean Takahashi on VentureBeat:

We see trends toward casual and social gaming. Like SingStar, Guitar Hero, and the Nintendo Wii. All of those are bringing in more consumers to games. That’s great. Including the Nintendo DS handheld. The gamers might stay there because such games are fun. But they also might leave and stash the console in the closet until next Christmas. The whole industry has an opportunity to cater to the new audience that hasn’t played before.

Sounds like he's hedging his bets. And the fact that he name-checks Guitar Hero and the Wii as social or even casual games, suggests that Sony is still focused completely on consoles and not the online free-to-play model. Which makes sense, since as he states in the interview, his core job is to promote their platforms, Playstation and Playstation Network.

I'm not going to be expecting anything from Sony any time soon. I'm still waiting on Home, their virtual world for Playstation owners, that they announced two years ago.

Tuesday, July 29, 2008

Scrabulous Voluntarily Withdraws from U.S. and Canadian Market

For most people following the space, you probably have heard that Scrabulous voluntarily withdrew from the U.S and Canadian market. However, they are still up and and running elsewhere in the world.

Hasbro, the North American licensee of the Scrabble IP (intellectual property) filed a copyright and trademark lawsuit against Scrabulous last week (July 24th), as well as issuing a DMCA takedown notice to Facebook.

As far as I'm aware, this is the first time a DMCA takedown notice being issued to Facebook, which is a significant move. Frankly, there's as much copyright violation on Facebook as there has been on Youtube. App developers appropriate IP constantly, whether it's borrowing images from Winnie the Pooh to send as gifts, or building an app around a full-on Nintendo classic game emulator. Having said that, I doubt we'll see on onslaught of takedown notices. Right now, small developers don't earn enough money to be worth the lawsuit. however, once Disney and Nintendo decide to enter the social app space, if they ever do, then I'd hate to be the guy who build my business on their IP. Especially on Disney's IP, they are notoriously hard-nosed about protecting their IP.

ADDENDUM: Hasbro issued the initial takedown notice on January 16th. They also issued a takedown notice for Bogglific, a Boggle clone, which was promptly taken down. It appears Facebook took no action regarding the takedown notice.

Now We Can Find Out Who Plays Social Games

One of the core questions I've had about the social games space is who plays them. Is it mostly North Americans or mostly the rest of the world? This question matters a lot if you monetize via advertising. North American (and British) eyeballs are worth significantly more than those of the rest of the world.

Since Scrabulous is only withdrawing their North American presence, any users their game retains will be from elsewhere. Whether or not Scrabulous is a proxy for all social games will be something I'll explore in a week or two, once the difference between their current DAU and the future DAU is clear.

For those of you keeping track: the DAU as of yesterday: 438,000. Check back next week, and we'll see how they did.

Monday, July 21, 2008

Where's the Social Gaming Chart? And why I, and many others, focus on Facebook too much

I decided to make the Social Gaming Chart a monthly feature. Mainly, because not enough interesting things were happening biweekly (and because I forgot to compile the data on Thursday, mea culpa.)

I often feel that games on Facebook get an undue amount of attention by bloggers. I thought about why I spent so much time covering it, while giving interesting developments in the wider web the short shrift. And I realized, it's because there is a leaderboard.

Duh. Any game designer could have told me that had I thought to ask. This is not an essay about the power of a leaderboard, so all I'll say about it is that Playfish's current design model is based around adding a leaderboard to a single-player casual game and look how well they're doing.

Of course, the reason that they're a leaderboard available at all is because Facebook releases the data on all its applications, giving us a reliable and (relatively) unfiltered view of individual successes in context of their peers. Apples to Apples.

On the larger web, we have to rely on data gathered secondhand by Hitwise, Comscore, Compete, Quantcast, and Alexa. None completely reliable, often challenged by companies (who then refuse to share their internal numbers), smaller sites are overlooked, and so we can can only paint an opaque picture. And worse for those companies, we don't have a reliable leaderboard, so bloggers talk about them less.

One of my favorite conference speakers, and I am hardly alone, is Daniel James, CEO of Three Rings. Because he shares his data. Entire business plans are built on the data he shares. If more online game companies were more forthcoming about their traffic, then they'd get a lot more ink and goodwill. Though I doubt blogger goodwill is worth much, and I doubt you can amortize it. (Yes, a financial statements joke. First and last hopefully.)

So kids, if you want to raise your profile as an industry be liberal with your data. I'll be happy to publish it.

Here's a list of charts from other branches of the games industry:
Casual Downloadable games -
PC/Console Games -
Mobile Games - coming soon. Story here.
MMOS - nothing. (
Virtual Worlds - Kzero is using Alexa data which is the most unreliable of all sources, IMHO.
Flash games - Hey Jameson, Mochi should totally do this. You guys have the data.
Social games (off Facebook) - nothing worthwhile
Casual Games portal - nothing (data aggregated with parent company data)
Casual MMOs - nothing
Other online games - nothing

Let me know if I forgot anything.

Final note: Going to be at Casual Connect all week if anyone wants to chat. bret_terrill at yahoo dot com.

Thursday, July 17, 2008

Looking to hire? Fantastic Game Industry Salary Data

I know a lot of social games people come from the web world, now you can see how the other half lives.

Christer Ericson compiled a very thorough table of game programmer salaries by datamining the H-1B tax database. Additionally, he covered other data sources as well. Amazingly valuable.

Zynga Strikes Biz Dev Gold

Zynga recently announced that they hired two new executives. Normally, I don't cover things like executive hires, and I never publish press releases. I'm loathe to publish news if I can't add any value to the story with my analysis. Besides, if you are interested in news-oriented coverage, you don't need me. Justin Smith's Inside Social Games does a great job of covering news as it comes out.

However in this case, I'm more than happy to cover it. Why? Because I think Hugh de Loayza, Zynga's new vice-president of business development is awesome. I met him at Interplay, a few months ago and I found him to be a warm, thoughtful human being, and one of the reasons I wrote my post: Why I Love Being in the Games Industry. To be a good biz dev guy, you have to enjoy talking to people. But to be a great biz dev guy, you have to been unalloyed, to allow your humanness to be shared by others. Most of us don't. Hugh does. Zynga is very lucky to have him.

Boy, now it's going to be totally awkward if I run into him at Casual Connect next week.

Here's the press release. They also hired an executive from Yahoo, which seems to be a trend recently. :)

San Francisco – July 16, 2008 – Zynga Game Network ( ), the largest social gaming company on Facebook, MySpace and other social networks, announced today two additions to its leadership team. Scott Derringer joins Zynga as vice president of product management and Hugh de Loayza joins as vice president of business development. Derringer will be responsible for developing online games and product evolution and will report to CEO Mark Pincus. De Loayza will be responsible for developer relations, mergers and acquisitions and licensing opportunities and will report to Andrew Trader, executive vice president of sales and business development.

Derringer joins Zynga from Yahoo! Inc., where he served as senior director of product management. At Yahoo!, he played a key role in developing the company’s community strategy and overhauling Yahoo! Groups, one of the company’s largest community properties. Prior to Yahoo!, Derringer was a co-founder at Creation Chamber, a technology solutions provider, where he also served as vice president of product management and development. He has also held product management positions at Carpoint, Egreetings, and Excite, focusing on developing online community and ecommerce services.

De Loayza is a games industry veteran having served as senior director of business development for Oberon Media building partnerships with EA/POGO, United Online, Verizon, ATT, Hewlett Packard and Hasbro. Prior to Oberon, de Loayza was the director of content development for and responsible for launching the Pogo ToGo downloadable games business as well as managing production for He started working in the industry at Sony Online Entertainment where he produced Jeopardy! Online, Wheel of Fortune Online and The Dating Game online.

“We are excited about the leadership position we have built in social gaming and look forward to driving innovation,” said Pincus. “Scott will play a key role in building a world class product organization and developing next generation social games. Hugh brings deep game industry DNA and will drive Zynga’s partnership, network and acquisition strategy.”

About Zynga Game Network Inc.

Zynga Game Network Inc. (
) is the largest and most popular social game network. Zynga games are found on Facebook, MySpace, Bebo, Hi5 and Friendster and include Texas Hold’em Poker, Blackjack, Scramble, Word Twist, Mafia Wars and Triumph. The company is funded by Union Square Ventures, Foundry Group, Avalon Ventures and The Pilot Group, as well as leading individual investors Reid Hoffman and Peter Thiel. Zynga is headquartered at the Chip Factory in San Francisco.

# # #

Thursday, July 10, 2008

Early Adopters like Games

Techcrunch posted a list of the most popular apps in the Iphone Apps store from the first few hours of use.

In the paid app category, five of the top ten apps are games.

I suddenly want an Iphone.

Learn How to Connect with the Core Social Gaming Demographic: Teens

Build something you'd use yourself is the worst advice anyone ever gave to developers. We're not normal. The average person does not know what an algorithm is (which is why Ask's marketing attack on Google, "The algorithm is not your friend" was a colossal moronic waste of money - I say this as an IAC shareholder). The average person has no opinion on Ruby vs. PhP. The average person reads celebrity blogs and watches reality TV shows. And sports.

I feel that a lot of people out here in Silicon Valley have no clue about the people who use their products, especially teenagers. I've hear one too many times from developers in their mid-twenties claiming that teenagers need to be protected from racy content. Which is retarded if you have any recollection of being a teenager. I mean, seriously, were you thinking about anything besides sex. Didn't you stay up late to watch Skinemax? Did you want to be protected from "racy" content?

And that's just teenage boys. The development community is overwhelming male. Most guys didn't understand teenage girls when they were in high school, and they understand them less now.

And yet, if you're developing on Facebook, your core audience is teenage girls (if you want a viral app, that is).

Teen girls are more willing to send invites. If your game connects with them, then you can have a serious (business) hit on your hands. Boys are more likely to install an app if they received an invite from a girl.

So get to know your users. For app developers, that's teens. Read Ypulse. Read Danah Boyd.

The Ypulse! conference is in San Fran next week focused on trends among teens. They have three sessions focused on teens and casual games.

Ypulse was nice enough to offer a 10% discount code for the conference. So go here and use "BRET" to get the discount.

Do it quick, online registration ends tomorrow.

Wednesday, July 9, 2008

Name It! and the potential of player-generated content in social games

A couple days ago I mentioned that SGN had launched a new game and that I was going to write about it. Well, today is the the day.

The game, Name It, is a port of Scattergories, the party game where you get a list of ten categories and a letter of the alphabet, and you have to think of a word for each category and starts with that letter, in less than a minute. If I butchered that explanation, check out Wikipedia for a more detailed explanation.

However, unlike Scattergories, new categories can be added to Name It by players. Scattergories has 192 categories, Name It, in its second week since launch, has over a thousand, ranging from lunch meat to porn stars. Of course, when you let anybody add categories, you end up with a lot of crap, which is why Wikipedia has admins. Name It is in desperate need of admins. Categories such as "abcdef", and "!!!" bruise the playing experience. They don't kill it, though, the core gameplay is still fun even if you happen on a bad category.

Putting the management problems aside, allowing players to generate the game content is a Holy Grail of the gaming industry. Content creation is the most labor intensive and costly part of game production. Imagine if World of Warcraft could outsource their content creation to its players. Blizzard, the company behind WoW, would save 10s of millions of dollars a year. I believe that's what Raph Koster's company, Areae is trying to accomplish with Metaplace, an MMOG created by the players.

Social gaming offers a very fertile environment for player-generated games, particularly if you can tap into the desire for players to create content for their friends. The early Facebook app, Quizzes, did this very well, and was extremely popular.

User-generated trivia has also done well on social networks. Thousands of people have created movie trivia quizzes on Flixster's very popular Movies app. Off Facebook, the U.S. version of Cyworld has incorporated the trivia creation engine from the site and seen a marked increase in engagement. I believe strongly that a user-generated trivia app could succeed quite well on Facebook, in fact, it was the last project we were working on at Tenuki before I shut down the company. By we, I should say Brett Harris, an awesome developer who recently started blogging about developing for Facebook and single-handedly built Tenuki Trivia.

SGN is calling Name It a wiki-game, borrowing the moniker from wikis under the premise that the content is user-generated. What really intrigues me is the potential to apply user-generated content to machine learning. Yes, I just went all geeky on you.

I'll explain. Categorization is difficult for computers. Try the example of a chair. Chairs come in countless shapes and sizes and yet you know instantly a chair when you see one. Computers can't. Chairness has to be defined for them. They are provided the schema for a chair and then they apply this schema to objects and determine if the object matches the schema of a chair.

A game like Name It provides the possibility of creating thousands of schema that can be used to teach computer how to recognize countless objects, for free. That's making games useful. If you're interested in this geeky aspect of games, check out the work of Luis von Ahn, creator of the CAPTCHA, among other things.

That's all, folks!

Monday, July 7, 2008

Social Gaming Chart: Bored, yet?


Wow, this chart going to get boring soon, same ten games, slightly difference order.

That in itself is interesting. Apparently, no new game that has been released in the last few weeks has gotten enough traction to reach the top of the charts.

The big boys, SGN and Zynga, have been extremely quiet. Neither have released any new games that have entered my radar (on Facebook, at least). Sorry, except one. SGN did release a game similar to the party game Scattergories that I think has interesting possibilities (probably post about it soon).

Meanwhile, (Lil) Green Patch has risen to be the third most popular game on Facebook. And I'm still not completely convinced its a game. I suspect they are retaining users better since that added an arcade of Flash games to their app. Included is the game Bloons which has been shown to be crazy popular in just about every place it pops up.

Mob Wars also saw pretty amazing growth. 14% in 2 weeks. I predict that Mob Wars will reach #3 sooner than later. However, I don't see Friends For Sale! or Owned leaving the top slots any time soon.

Best virtual worlds roundup I've seen

Check out Kzero's chart compiling virtual worlds currently in existence, ones that are planned, and current traffic. It's sliced up by targeted demographic. Seriously, best (and best looking) compilation of this data, I've seen.

Wednesday, July 2, 2008

What It Feels Like to Be Acquired by Barry Diller

Every once in a while I check out one of the blogs that Google Reader recommends (usually when I'm procrastinating). Tonight I found Jeff Tunnell's blog, Make It Big In Games. He was one of the founders of GarageGames, the company that provides tools to make it easy for indie developers to create games.

Anyway, IAC, Barry Diller's company, acquired GarageGames last year. I've never read a behind-the-scenes take on being acquired. Thought it was worth sharing for all you kids who hope to have the bald-head bull god named Barry smile down upon you.

Recent News of Interest to Social Gaming geeks

Playfish gets a million dollar bridge loan from Accel Partners. I'm assuming they want to expand faster than they had initially planned. That brings their total funding to 4 million.

Hi5 buys app developer, PixVerse. First I've heard of a socnet buying an app developer. It's interesting, because I assume Hi5 is going to integrate features from PixVerse apps directly into their site. It's a reverse on the old saw I keep hearing about how developing for Facebook is risky because if the feature is any good, Facebook will just copy it. In this case, developing good features led to an acquisition. Maybe, Facebook will acquire Slide. Kidding.

In similar news, a Chinese game development company, Giant, buys a stake in China's biggest social network, The article compares it to EA buying a stake in Facebook. With the enormous success of games on Facebook, and the success of QQ Games on the Tencent QQ IM platform, it's a brilliant move for a games company to get access to a social networking platform.
Guaranteed CPMs for Facebook devs! Potentially, $0.40 CPM. Perhaps Packrat should finally start running banners on those hundreds of millions of pageviews they get every month.

Neopets founders creating a casual MMO. The creative muscle behind Neopets in its early years, Adam Powell and Donna Williams, started a company called Meteor Games to build a non-Flash based MMO. Here's the description:

Meteor will likely have a free version to entice gamers and charge $5 to $10 a month for access to the full world. The company will likely also create a virtual goods model where it can charge for certain items. Williams said the world will combine an MMO, casual game play, and social networking.
Yes, not Flash-based. I hope they don't opt for a downloadable client, for their sakes.

Tuesday, July 1, 2008

Who's the most Engaging?: Top Gaming Sites Ranked by Average Time Spent

Yesterday, I compiled a list of socnets courtesy of new Ranked Lists Feature. Today, it's something nearer and dearer to our hearts: gaming sites. Some of these sites you may not be familiar with, so I added a brief description.

If you don't see a site listed, it's because it didn't make it into Compete's top 200 sites by total time spent.

Game Sites Listed by Average Time Spent (May 2008)
1. 819.77 (casual games + social networking features. Part of EA)
2. Gaiaonline: 318.45 (forums + avatars + games + social networking features)
3. Neopets: 198.66 (games + avatars + virtual world -kinda. Part of MTVnetworks)
4. 169.91 (skill games)
5. Worldwinner: 168.25 (skill games)
6. 120.72 (casual games)
7. 115.46 (casual games, virtual world - kinda. Part of General Mills)
8. 102.80 (casual games)
9. BigFishgames: 94.79 (casual games)
10. 82.66 (casual games. Part of MTVnetworks)
11. Iwon: 55.51 (casual games + sweepstakes. Part of IAC)
12. Club Penguin: 54.51 (kids virtual world. Part of Disney)
13. 45.35 (kids educational games)
14. Miniclip: 42.55 (Flash games)
15. Webkinz: 42.38 (kids virtual world)
16. Addicting Games: 29.91 (Flash games)
17. 17.03 (hard-core games news. Part of Fox)

Looking at this list, the first thing I thought of is a quote from Andrew Pedersen, GM of in a presentation he gave at Casual Connect last year, which is from memory some I'm probably mangling it.

Games are the honey, but community is the glue.
The top three sites on this list have extremely deep community features. However, it looks like money can be nearly as powerful of a draw since skill gaming sites are 4 and 5, so I'll coin a new aphorism.

Game are the honey, but they're not paying me enough at this stupid job, so I better earn some money on your site, dammit!

Not as catchy.

I will also note the absence of hard-core games, that's not due to any lack of addictiveness on their part, in fact, hard-core game are generally more addictive, but they are accessed through a downloadable client and not through a web browser.

Also, it's interesting to note that Fox doesn't have more of a present in casual games. Perhaps, they might be a potential acquirer down the line.