Put it all on Black: A Cheat Sheet for Mobile Gaming Entrepreneurs
What we can learn from Pokemon Go and a Women in Gaming Panel
You’re seated in front of a screen staring ahead at the glowing chakra of black, red, and a smidge of green. The trackball spins around the circumference of the Roulette table as the surrounding lights flash. Gamblers around you are sweating. Your heart races with every rotation because you’ve just lost $1,100 in less than a minute, and you’ve got your last $900 riding on whether this spinning trackball will ultimately fall onto a black tile upon hitting what’s called a deflector (a small hump in the well). Odds in your favor? Less than 50%. And they haven’t gone your way the last couple major bets. You see the ball’s circular path slow down. Clink! The ball hits a deflector. It knocks into some walls. Cue the machine’s closing jingle. The ball rolls... to a stop and… “click.” BLACK. That’s a fresh $900 in your pocket. Ding ding ding - you’re back baby.
Had a phenomenal time this past weekend in Vegas with some buddies. If there’s anything that you can take from Vegas (besides a drained wallet), it’s that flashing lights, points, and risky games of chance excite the mind like nothing else. Games aren’t just for kids - we all like a good game where we can experience the journey to victory and the thrill of winning. In fact, gamblers, according to NPR journalist and psychologist Shankar Vedantam, also enjoy the excitement associated with coming close to victory, even if the actual win doesn’t materialize. The near-victory, competitive thrill, and feeling of achievement all characterize the dopamine rush we experience from game play.
Many entrepreneurs and companies in the mobile gaming space are incorporating elements of reward system behavior and psychology into tech-based products we have grown to admire. In this brief installment, we’ll discuss mobile games and their monetization. Gaming is addictive. Entrepreneurs who can learn from addictive mobile games and the acquisition space that these game developers operate in are well poised to build their own mobile games for consumption. To explore, let’s see what we can learn from smash hit Pokemon Go...
Pokemon Go: A Case Study
One of my buddies on my Vegas trip was addicted to catching virtual reality Pokemon on the app Pokemon Go, a game which encourages users to collect, battle, and evolve their Pokemon. The game was released in July 2016 by SF-based game developer Niantic (which licensed the brand semblance from Nintendo), and rose to the top of the highest grossing app chart in a matter of only 13 hours. Within the first year, the game racked up 232m users and
$832m while Niantic’s valuation hit $3.65Bn, representing a 4.4x revenue multiple. Granted, Niantic is seeing revenues from other smaller games but we’re assuming in this proxy valuation calculation that the large majority of revenue is from Pokemon Go.
Here are some lessons we can learn from the Pokemon Go story that can be applied to mobile game development more generally:
Valuation: In 2019, Niantic’s valuation multiple has not grown much - it’s $4Bn, or 4.4x revenues. Mobile game developers can use this multiple when thinking about liquidating their position and selling their games to an investor/buyer.
Social gaming: Legendary Pokemon (fancy Pokemon in the game) can require teams of players in the vicinity to band together to take down a common enemy. Game developers that include this social element to the game allow users to derive greater value from having more players participate, which boosts the potential paying base. That said, even games like Pokemon Go can do better by including a chat feature during battles and kicking back a referral bonus to players who successfully invite others to the platform.
Tapping into psychology: Collecting Pokemon - such as tough-to-catch legendary Pokemon - taps into the psychological reward system of amassing a collection of items. More research should be done here but there are other games that rely on addictive item collecting. Shop Heroes has been described on one Reddit forum as “scientifically crafted crack” and Summoners War is another one.
Monetization Metrics: My friend spends in-app money ($60 over his lifetime) on items such as the remote raid pass, which lets you participate in an adjacent arena if you’re not within the immediate vicinity to capture legendary Pokemon. In this way, Pokemon Go is a mobile game that still attracts a latent rural audience by offering up items that keep them plugged in. We also learn that the game’s ARPDAU (avg. revenue per daily active user) is $0.25 which is better than other top flight games out there (see SurveyMonkey data below). For your ARPDAU calculations, you can look at revenue in a given day / active users on that day; this is used commonly in gaming ventures. Installs and churn are other metrics listed here, but perhaps one that resonated most with me was stickiness, or DAU/MAU. If users like my friend are frequenting the app more often, they turn into your most loyal base, bringing down churn, and raising monetization potential.
Women in Gaming
I’d like to conclude with a discussion about women in gaming. I learned a lot listening in on the Wharton Women in Gaming panel (11/17/21) - including non-women related insights. Perhaps some of the most relevant takeaways: gaming couples well with other forms of entertainment like sports and music. Games can include musical jingles; and sports-based games like Madden are entirely reliant on season updates from the NFL.
It’s also important to identify companies and teams that welcome gender diversity and knock down barriers in those that don’t. Activision Blizzard’s Marketing Department is an example of a strong woman-forward group: 3 out of 4 direct reports to Kristin Connelly, VP of Global Brand Marketing, are women. In her group, she manages Overwatch, a game that features a strong female lesbian protagonist, instead of scantily clad women (as you’d recall from Grand Theft Auto and other games targeted towards straight men). One way to bolster female representation is having women in the gaming division take potential recruits out for meals (as Helen Chiang recalls about her days at Microsoft, Minecraft). This is obviously made difficult when there are few females to begin with. I think women’s associations in gaming can go far in driving that representation.
However, more needs to be done in bringing female representation into the content creation and financial sides of the house. For example, as one female expert at Playstation (who caught my attention) put it, Publisher Relations in gaming studios are “definitely boys’ clubs.” I believe this division Publisher Relations strikes up deals with publishers (similar to inhouse M&A) who disseminate the creative product of the gaming studio. Her point is well noted; perhaps the thought process around what games are selected for distribution should be gender neutral. I think diversity in any organization is important, but perhaps my hot take here is that it’s even more important in the creative studio, where lore and figures are crafted. Most likely, publisher relations agents are just looking at numbers to craft deals, without biases influencing those negotiations. It would be unfortunate to be proven wrong, but I welcome a rich debate and further studies on this topic: in gaming developer-publisher negotiations, do gender disparities have an influence on content distribution?
Mobile gaming is an interesting space. As long as entrepreneurial gaming studios are able to track metrics that define the operational value of their products, negotiate strong deals with publishers, and build in-game monetization widgets, they will have a strong chance of success. It’s important to also build a gender balanced team - for the purposes of enhanced creative judgment during production, and diversity of thought. We can do more to harness the collective wisdom of everyone when building fun-filled products for all ages.
Thanks to contributions from David Jakubowicz and the Wharton Women in Gaming Panelists.