Don't miss
  • 1,973
  • 5,500
  • 5,705
  • 114

Online game design: which of the three business models will work for you?

By on September 16, 2009

Do you really understand the business model of your online game? Are you focusing on it with laser-like precision? If not, you may be wasting time and money on dead-end strategies.

A recent article on Venturebeat got me thinking about how to grow your games business. Eric Ries argues that there are three drivers of growth, and you have to pick one (The full article is worth reading.

The three categories are:

  • Virality
  • Monetization
  • Stickiness

and Eric argues that a startup needs to know which of the three are his bread-and-butter.

Virality

Virality works when there is a benefit to a user in having their friends use the product. Skype was viral, since early adopters couldn’t speak to their friends for free without encouraging their friends to register for the service in a virtuous spiral of cheap customer acquisition.

Farmville is a great example of a game that makes inviting friends into the game something that is hugely beneficial to a player. (See Six secrets of Farmville’s success – and 33 million people agree).

Viral games don’t need to worry about monetization. If you build a big enough audience, you can find ways to make money from them. Focus on having great designers who analyze what makes the game fun and viral, and keep tweaking to get to the biggest number of users as fast as possible.

Monetization

Some products monetize really well. World of Warcraft generates over a $1 billion in year in revenues. Blizzard can afford to spend a huge amount on customer acquisition given the regular subscription revenue that flows from each new user.

Games that focus on monetization, and do it better than their competitors, can afford to invest heavily in marketing. The key is to know the LifeTime Value (LTV) of your customers really well. If cost per acquisition (CPA) is less than LTV, you have a business that is growing profitably; if CPA > LTV, you’re in trouble.

A games developer depending on monetization needs to start hiring analysts and stats grads pronto. Endless tweaks to drive up conversion rates is the name of the game, and that won’t happen without data.

Stickiness

Eric also refers to this as addictiveness and gives the example of ebay as a site which relied on getting people hooked on it.

Games are in a great position here, with decades of experience of creating “just one more go” hooks or the life-consuming gameplay of titles like Civilization or Championship Manager.

Bejewelled Blitz, currently riding at #9 in the Facebook games charts with nearly 7 million users, is a prime example. There are few viral hooks to the game but it has nailed the “just more go” feeling perfectly.

Bejewelled Blitz

So which one should I pick?

Any of them.

Seriously.

There is no “right” business model. Make games that you want to make and that you believe fulfil a market demand.

But once you’ve got a rough idea of the game, decide whether you’re going to focus on virality, monetization or stickiness. It will help you with key design decisions and enable you to recruit the right people to make your game a profitable success.

About Nicholas Lovell

Nicholas is the founder of Gamesbrief, a blog dedicated to the business of games. It aims to be informative, authoritative and above all helpful to developers grappling with business strategy. He is the author of a growing list of books about making money in the games industry and other digital media, including How to Publish a Game and Design Rules for Free-to-Play Games, and Penguin-published title The Curve: thecurveonline.com
  • DianeLagrange

    Cool article. I am suspicious on the need to pick one : in the end, you can't have sustained virality without stickiness, and if you want to monetize, it's generally better to think of it early enough to integrate it in your game design.

  • http://twitter.com/nicholaslovell Nicholas Lovell

    I agree entirely Diane, but very few companies can execute on all three simultaneously. I think that the best strategy is to know how you are going to achieve each one, but identify early on which of the 3 will be your core competence, and focus the lion's share of your attention and resources on that one.

  • http://www.alanodea.com alanodea

    My problem with these drivers is that two are marketing/funnel optimisation functions i.e virality and stickyness and one is the core fucntion of a business model that results from getting customers through your marketing funnel and making them stick. To my mind the comparatative dimensions should really be more direct, viral and word of mouth which is to me much more useful side by side comparision to work off. Monitisation would simimilarly have sub groups like subscription, digital goods, trail version so you can stack up and compare like for like. In the world of online games all companies have to focus on virailty, stickyness and monitisations so I agree with Diane compnaies have to focus on all three if you don't your not a business. Good post and discussion guys. If were going to core competencies then its much more relevant to be focusing on the type of monitisation the types of marketing you use.

  • http://twitter.com/nicholaslovell Nicholas Lovell

    I agree at one level Alan, it makes sense over time to track all of those things.

    But at a more basic level, the three different ideas should permeate your entire business. Ebay was not viral (although it may have thought it was), nor was it the best monetiser. But once it drew people in, they stayed, and ebay grew *the largest network of buyers and sellers on the web*. And that was its focus.

    Wherease Skype was focused on persuading each user to invite *their* friends. Size/stickiness were important, but the core tools and functionality that were added were focused on virality.

    And similarly, if you are in a landgrab battle and monetize well, you can outspend the competition. So you must spend, and sacrifice margin, to secure the end game.

    All three matter, yes. But when you identify which of the three is *most* important to your ultimate success, it will inform all of your tactical decisions. And make you succeed faster.

  • DianeLagrange

    Cool article. I am suspicious on the need to pick one : in the end, you can't have sustained virality without stickiness, and if you want to monetize, it's generally better to think of it early enough to integrate it in your game design.

  • http://www.gamesbrief.com Nicholas Lovell

    I agree entirely Diane, but very few companies can execute on all three simultaneously. I think that the best strategy is to know how you are going to achieve each one, but identify early on which of the 3 will be your core competence, and focus the lion's share of your attention and resources on that one.

  • http://www.alanodea.com alanodea

    My problem with these drivers is that two are marketing/funnel optimisation functions i.e virality and stickyness and one is the core fucntion of a business model that results from getting customers through your marketing funnel and making them stick. To my mind the comparatative dimensions should really be more direct, viral and word of mouth which is to me much more useful side by side comparision to work off. Monitisation would simimilarly have sub groups like subscription, digital goods, trail version so you can stack up and compare like for like. In the world of online games all companies have to focus on virailty, stickyness and monitisations so I agree with Diane compnaies have to focus on all three if you don't your not a business. Good post and discussion guys. If were going to core competencies then its much more relevant to be focusing on the type of monitisation the types of marketing you use.

  • http://www.gamesbrief.com Nicholas Lovell

    I agree at one level Alan, it makes sense over time to track all of those things.

    But at a more basic level, the three different ideas should permeate your entire business. Ebay was not viral (although it may have thought it was), nor was it the best monetiser. But once it drew people in, they stayed, and ebay grew *the largest network of buyers and sellers on the web*. And that was its focus.

    Wherease Skype was focused on persuading each user to invite *their* friends. Size/stickiness were important, but the core tools and functionality that were added were focused on virality.

    And similarly, if you are in a landgrab battle and monetize well, you can outspend the competition. So you must spend, and sacrifice margin, to secure the end game.

    All three matter, yes. But when you identify which of the three is *most* important to your ultimate success, it will inform all of your tactical decisions. And make you succeed faster.

  • lilianhutan

    It all comes down to creativity and hard-work, especially in this business, where originality is such a key factor. I for one would promote my product by making a whole week of free game downloads to get people's attention at first. But what matters most is the idea in the very beginning, and after that how much you can work for developing it.

  • http://www.gamesbrief.com Nicholas Lovell

    Not sure I agree with you about originality.
    Biggest launch of 2009: Modern Warfare 2, the latest sequel in a franchise
    Biggest launch of 2008: GTA IV, the latest sequel in a franchise
    Biggest game right now: Farmville, the fourth entrant to a competitive “farming on Facebook” genre

    I think that there is much more than originality, and in fact, originality can sometimes work against you: see Okami, Ico, etc