The Name Of The “Game” Is Engagement

August 9, 2010

Future brand loyalist or virtual goods buyer?

Introduction

Social gaming start-ups are a hot commodity these days.  In the past 12 months, Playfish was acquired by Electronic Arts and Playdom (more recently) was acquired by Disney.  Zynga, which remains independent, has a valuation that’s reported to be as high as $5B.  I expect that CrowdStar, another independent gaming start-up, will be acquired before 2010 closes.

These gaming companies provide “free to play” games on the web and on smartphones.  They then sell virtual goods (within the games) so users can achieve an elevation in status (e.g. a sharper sword, more crop for the farm, designer sunglasses to replace your generic pair, etc.).

Sustainable Growth Can Be Challenging

These gaming start-ups have attractive attributes:

  1. Ability to generate hundreds of millions in revenue (in some cases, more)
  2. High growth rates in users, revenue
  3. High profit margins, since the “cost of goods” (for virtual goods) is virtually zero

While it’s hard to argue with the results that these start-ups are turning in, I wonder if we might be in a mini-gaming-bubble, in terms of current valuations and the potential of sustainable, long term growth.

Social games can be similar to the recording and film industries.  Success depends on the blockbuster hit.  Over time, it becomes more and more challenging to consistently produce the blockbusters, especially in the face of growing competition.  Today, Facebook serves as a great “record label” for the gaming companies.  It provides a marketing vehicle that you can’t find anywhere else – “distribution” to its 500+ MM “listeners” (users).

The gaming companies know, however, that they can’t put all their eggs in the Facebook basket – hence, the plans from Zynga to launch their own Zynga Live platform (as one example).  The gaming companies need their blockbuster hits to turn into self-standing brands (e.g. FarmVille), which then relies on a variety of distribution vehicles.

We know that consumers can be fickle, however.  Recall the progression of “hot social network”, from Friendster to MySpace to Twitter/Facebook.  Games will have a related challenge.  FarmVille is not going to be the #1 game forever, which means that Zynga is already figuring out the “next FarmVille”.

I believe there will be a short list of winners in a market that will be increasingly fierce.  In addition, I wonder if over the long term, the rate of virtual goods purchasing is sustainable – or whether it will continue to grow over the long term.

A New Game in Town?

One of the challenges of the virtual goods model is the funding source. Revenue growth is dependent on fickle consumers, who could love your game one day and move on to another game the next day.  And yes, I realize that part of good game design is to build in the hooks to create user loyalty.

That being said, what about services whose funding source comes from brands that want to reach consumers?  The bills in their “wallet” are of higher denominations than the $1’s and $5’s that consumers use to purchase virtual goods.  In addition, “brands are already brands”, which mean that they have a pre-existing following from consumers.

Foursquare

Consider Foursquare.  Some consider it a “location based service”.  I view Foursquare as an engagement platform that’s built on top of a location based system.  In fact, Foursquare has a loyalty program that generated successful outcomes for Starbucks, Ben & Jerry’s, Whole Foods and many others.

The Foursquare business model is both powerful and scalable: powerful in its use of technology (e.g. location based check-ins) and scalable in leveraging existing brands (e.g. Starbucks) for the consumer following and activity.

Location based technology is great, but the long term success of Foursquare is more about the engagement and loyalty programs it facilitates for brands, based on the applicable and available technology of the day.

Nitro Participation Engine from Bunchball

Keep your eye on the Nitro Participation Engine from Bunchball – a Silicon Valley start-up who counts NBC, Warner Brothers and Victoria’s Secret as clients.  The Nitro engine “drives participation using Gamification”, which means that any brand can easily add gaming elements to their web site(s) – and then leverage the Nitro engine to track user actions, points, status and leaderboard. In addition, brands can use Nitro to deploy and sell virtual goods.

What This Could Mean

I think we could be witnessing a transformation of the advertising industry.  If the 90’s and the 00’s were about banner ads and paid search, this coming decade could be about engagement and loyalty platforms.

Foursquare, Bunchball and others have much to gain – if they can tap into a small percentage of the $100+B spent on advertising annually, they’ll make their investors very happy.

These engagement platforms can move from brand impressions (90’s) to brand engagements – where the engagements are longer lasting and more valuable than a click on a paid search ad.  They’re more participatory and can result in immediate purchases (e.g. the latte that someone just purchased at Starbucks).  In addition and perhaps more importantly, they enhance loyalty between consumers and brands, which is great for the long term.

Of course, sustainable growth is a challenge with any technology. Engagement platforms will face their own challenges as they see adoption grow.  Consumers will only be able to participate in so many engagement or loyalty programs.  That being said, consumers are taking batting practice right now – the first inning has yet to start.  Enjoy the ballgame!

I’ve now managed to speak enough.  Leave a comment below to share your thoughts on this topic.

Related Links

  1. ClickZ article (by Christopher Heine) on brand engagement featuring Booyah, Loopt, Brightkite, Gowalla and Stickybits
  2. “Foursquare’s Future Slowly Takes Shape“, by Om Malik of GigaOM
  3. “Social-media games: Badges or badgering?“, by Caroline McCarthy of CNET

4 Comments | Social Gaming | Tagged: , , , , , , , , , , , , , , , , , , , | Permalink
Posted by Dennis Shiao

Virtual Events 101: Tips For Selecting A Virtual Event Platform

April 22, 2010

Disclosure: I work for a virtual event platform vendor (InXpo).

The increase in demand for virtual events brings with it a common question: “Which virtual event platform should I select?“.  Some clients find a vendor and stick with them – others will end up doing business with all the major platform vendors.  My preference would be to find a long-term partner and stick with them, as changing vendors can be painful for all involved.

For me, selecting a virtual event platform comes down to six P’s: People, Platform, Production, Price, Process and Partners

People

While virtual events encompass a wide range of innovative technologies, we’re very much a services industry today.  This is never more true than on a client’s very first virtual event on a given platform – that first event is all about the platform vendor’s team working closely with the client to jointly achieve the client’s overall goals (and produce a great show, event or community).

In this model (in which that platform vendor handles 75-100% of the production activities), the customer experience is entirely defined by the services (and service level) provided by the vendor.  Providing an extraordinary level of customer care requires that the vendors’ company culture be built around servicing the customer – in a manner similar to how Nordstrom, Disney and Zappos have done it.

Of course, a great customer experience is ultimately delivered by individuals, which means that vendors with the right people, the right knowledge and the right experience really make a difference.  And that spans the entire spectrum, from Client Services to Development to Marketing to Finance to Legal – all departments in a company end up “touching” the customer in some way.

When considering a particular platform, I suggest you request a profile of the team (i.e. the individuals) behind the vendor’s services – and if you’re far enough in the sales pipeline, information on the specific individuals who will be assigned to your account.  Similarly, when speaking to other clients of the vendor, be sure to ask about the type of customer experience they received.

Platform

Now that we’ve covered the services piece, the underlying technology comes next.  The evolution of our industry will see a shift from 80% vendor-producing events (today) to 80% client-self-producing events in a few years.  As that shift unfolds, the industry will move away a bit from its services focus – technology then becomes a critical factor, with nothing more important that the technology to enable the self-servicing itself.

The first challenge you’ll face is that platform comparison is entirely qualitative today – there are no quantitative measurements on the technology (yet), like you have with computer hardware (e.g. megahertz, FLOPS, etc.).  While there are key quantitative metrics (e.g. %-availability, peak simultaneous users supported, etc.) – today, the claims are just that – with no independent, third party verification.

Given this, you’ll have to rely on other companies who have been clients of the platforms – try to find a company if your industry (even a competitor) who has produced an event similar in scope to your’s.  For instance, if you’re doing a virtual product launch in the pharmaceutical industry, try to find similar customer references – you’ll receive better and more direct insights than if you speak to a technology company who did a virtual sales kick-off meeting on the same platform.

I base my platform criteria around the following:

Flexibility – You want the ability to shape and mold the platform in a way that suits your unique requirements – this may include seamless integration of third party technologies or it may mean customization of features or layout that suit your unique needs.

Reliability – The platform must be available when you need it – and that includes everything from the event environment itself, to the registration system, to the reporting system, to the email system.

Scalability – The ability to scale up to tens of thousands of simultaneous users (if your event requires it).

Production

As you become a steady producer of virtual events (e.g. 1-2 events per year to start, growing to 5-10+ events per year), you’ll likely want to shift production from the vendor’s team to your’s.  In doing so, you’ll take on more control over the timing and delivery – and, save on cost (to the vendor – obviously, you need to staff appropriately to make this shift occur).

Keeping this eventual path in mind, you’ll want to select a vendor with strong “self service” capabilities.  The capabilities should allow you to create unique experiences – with the growth of virtual events, it serves you no good if your event looks identical to your competitors’ events. The platform should allow you the highest level of customization directly without custom development.

Any virtual event platform can create a highly unique experience – but if that’s accomplished via custom development, then the model is not scalable and repeatable – and you’ll end up paying the vendor dearly (on the custom development costs).

Price

As with all purchasing decisions, price is always a key factor – you likely have a budget in place (either set by yourself or your management) and ultimately, the vendor’s price needs to fit your budget.  However, pricing should be a secondary focus – first make sure you have the right vendor on people, platform, production, etc. – then, for those who “make the cut”, determine which ones fit into your budget.

If you’re willing to make an investment beyond a single event, most vendors are open to negotiating volume discounts, based on the size of your commitment.  Be sure to ask the vendor about event costs if/when you shift production to your own team.  You may be pleasantly surprised.  Lastly, think twice if your selected vendor has a price that’s significantly lower than the rest of the pack.  Sure, they may be very incented to get your business, just make sure you don’t “get what you pay for” – use those customer references to ensure the vendor can meet your key requirements capably.

Process

“Process” goes back to my first point about “People” and the production of your very first event.  It’s critical that the vendor have an established process for getting you from the starting line to the finish line – it should be based around project management best practices, while being flexible enough to adapt to unexpected developments or changes.  In fact, the vendor ought to show you a project planning template or timeline, so ask them for a sample to see their “execution lifecycle”.

In addition, give higher marks to those vendors who have successfully produced virtual events in your market – they’ll be able to take their learnings from the prior events and apply them to your’s – the process will be based on prior learnings and the vendor already has a sense for how the event execution process will unfold.

Partners

Most virtual event platform vendors provide a somewhat specialized offering: the virtual event technology (and production) itself.  The vendors then rely on a set of partner companies to fill in the gaps (e.g. A/V, streaming, experiential marketing, strategy consulting, etc.).  Do you need an “agency” to manage your overall event experience creation and execution?  Or, are you planning to do hundreds of on-site video captures and want the resulting footage streamed within your virtual event?

Determine your entire set of needs, then review the vendors for their own capabilities – along with whom they’ve partnered with.  Chances are that by combining the vendor and its partners, you’ll have a comprehensive solution to suit all of your needs.  Find out from the vendor whether all the “books” run through them (e.g. general contractor model) or whether you should make separate arrangements with the individual partners.

Conclusion

Like any other major purchasing decision, selecting a virtual event platform vendor (and partner) can be a daunting task.  A vendor with strong grades on the six P’s will serve you well.  What other selection criteria have you used?

Related Links

  1. Browse the Virtual Events 101 Index Page
  2. Download the eBook, “Virtual Events: Ready, Set, Go“

Note: I invite you to connect with me on .

3 Comments | Virtual Tradeshows (VTS) | Tagged: , , , , , , , , , , , , , , , , , | Permalink
Posted by Dennis Shiao

Hey Kids! I’ve Got a Virtual World For You

January 14, 2009

As a parent, their existence is virtually unavoidable – the online companion to a kid-themed product.  A Reuters article (published by MSNBC) titled “Disney’s Penguin spreads its wings globally“, describes Disney’s ambitious plans with its Club Penguin virtual world.  Operating out of Sao Paolo, Disney will launch the first non-English version of Club Penguin in Brazil.  There are additional plans to launch in other Latin American countries and France.  Forget the climactic limitations of the species – penguins will now be spanning the globe.

When Disney acquired Club Penguin in 2007, one may have thought that the strategy was around product/brand integration of Disney properties (and characters) with the Club Penguin world and audience.  While that possibility still exists, it seems Disney is looking to Club Penguin as a full-fledged brand in its own right.  Accordinng to the article:

Within two years of launch, Penguin claimed more than 12 million registered users, of which about 900,000 were premium subscribers typically paying $5.95-$6.95 per month for access to additional features and virtual collectibles.

If I’m doing my math right, 900K subscribers paying $6.50 a month (taking the midpoint of the prices quoted) amounts to $70.2MM in revenue per year (wow).  And here’s a clear sign of Disney’s plan to grow Club Penguin as its own brand:

Over the past year, Disney has been busy taking some of its most popular licenses, such as “Pirates of the Caribbean,” “Cars” and Tinkerbell and creating virtual worlds around them.

But with Penguin, that strategy has been somewhat reversed, giving the property the chance to leverage Disney’s retail muscle. The recent launch of a toy line includes plush versions of popular characters, a set of figurines as well as an Igloo Playset. The brand was also extended into the lucrative game field with the introduction of “Club Penguin: Elite Penguin Force” for the Nintendo DS.

So if you’re a parent paying for that premium subscription, the next thing your child will be asking for is the Igloo Playset, along with the Club Penguin game for her Nintendo DS.  Or, she’ll be asking you to buy the Nintendo DS so that she can attain Elite Penguin Force status!  Also mentioned in the article is a related, kid-themed virtual world, Webkinz:

Of course merchandising is not new in virtual worlds and has already proven to be far more than a branding play. Toronto-based Ganz is estimated to be earning more than $100 million annually from collectible plush toys and accessories kids buy that allow them to unlock virtual goods online at Webkinz World.

I’ve found Webkinz model to be quite interesting, as they’ve reversed the traditional marketing flow.  Instead of online promotions to drive product sales in the physical world, Webkinz employs small stuffed animals as a physical world “footprint” to drive kids (and their parents) online.  So the physical “product” is sort of a loss leader (or, promotion) to generate online memberships, where the online world is the true end game.

And once you’re in-world at Webkinz World, there’s lots to do (and buy) – collect KinzCash, play online games, collect Gems to exchange at the Curio Shop, etc.  Then there are additional toys that tie in to the world, called W-Plus Items (e.g. bookmarks, charms, body spray, lip gloss, etc.).  There’s also trading cards and a recently launched Webkinz eStore, where one can make purchases of virtual goods.  All in all, it’s not surprising that Ganz (parent company of Webkinz) generates $100MM per year.

By launching an online presence, toy makers seem to have the following goals:

  1. Commerce (including subscriptions)
  2. Branding
  3. Both!

With Club Penguin and Webkinz, the clear focus is on commerce – but keep in mind that once you’ve established a strong footprint and audience, you will have opportunities for branding – imagine subtle tie-ins within Club Penguin to other Disney properties (including exclusive offers for Club Penguin members).  On the branding (microsite) side, I checked some toy brands (off the top of my head) and found the following:

  1. Cabbage Patch Kids – Flash-based microsite.  If the original Cabbage Patch product launched today, I’m nearly certain they would have developed a full-blown virtual world
  2. BarbieGirls Virtual World – This looks to be branding focused – but may have related commerce
  3. Beanie Babies 2.0 – Flash-based microsite
  4. Playtime in Ponyville – Microsite for the My Little Pony franchise

One notable exception – a quick search did not turn up any microsite or virtual world for the Leapfrog franchise.  Perhaps that’s in the works for 2009!  Anyway, as a parent who has enabled/used some of these sites at home (for my child, of course!), I see them as a powerful branding vehicle that builds customer loyalty and (potentially) spurs product sales (both in the virtual and real worlds).

I compare the microsite to banner advertising – but instead of having your creative agency design your next Flash banner ad, spend a little more and have them build out a Flash microsite.  Then, your destination becomes your “advertising” and instead of trying to reach your audience across the web, you find that your audience comes to find you.  This is much more efficient than running a large amount of banner impressions and television commercials.  Your microsite fulfills the advertising concept of “frequency and reach”.

And that’s a wrap for now – my daughter needs this computer to access Playtime in Ponyville.

2 Comments | Virtual Worlds | Tagged: , , , , , , | Permalink
Posted by Dennis Shiao

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