Category Archives: RMT/Virtual Goods

The Positives of Tough Times: Revenue Innovation at it's Finest

  • In good times, advertising dollars could be the primary revenue stream of many companies, especially in the digital media world.
  • In the tough times, advertising dollars are a revenue stream of many companies, but companies must diversify their revenues beyond ad dollars.

In these tough times, I’m excited about companies who can create new revenue streams or fine tune their existing streams.

In the video game world, game developers and publishers were selling their product on store shelves and their margins were falling fast.  One of the main reasons margins were falling is because game development costs were rising due to the next gen consoles (PS3, XBox 360, Wii).  We created IGA Worldwide to help game developers/publishers recognize new revenue sources (ad dollars).  Other people created virtual goods platforms and in-game messaging systems.  Entrepreneurship at it’s finest.

Like I said earlier, I’m excited about the new potential revenue sources that are/will be created for the digital media world.

Virtual Goods Summit Notes

It’s been almost a year since I’ve posted about virtual goods, but read Mike Gowen’s recap of the Virtual Good Summit that occurred recently.  Here are some takeaways that are extremely important:

  • Teens expressing themselves may take more to branded items as they like to align with them.
  • People creating UGC are creating their OWN branded content. Others follow their brands as the would real world ones.
  • If an item doesn’t promote status the price goes lower.
  • We’re moving more towards activity. Goods should extend activity. Wave of the future
  • Don’t just think about goods for you…think about gifting. There’s only so much you can have/wear
  • You need ~$200,000 a month of primary sales before you can get into the secondary market.
  • Secondary markets allow the trade of time and money.
  • No demand for virtual items, only demand for games, then demand within context of game.

As you can see, this was a fascinating conference.  Check out more hereClick to see pics from the event.

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Changing Video Games Forever

My friend and colleague Morty sent me an email this morning with a link to a NY Times piece on video games.   The article talks about Electronic Arts (EA) and their IP around the Battlefield franchise.

“I’ve always envied the movie industry when they put a film out in the cinema, then they go to retail with a different business model and then to pay television and then free TV,” he said. “They have the same content reaching different audiences with different models, and we could never figure out a way to do that. Now with higher broadband penetration, we can use the technology to reach a broader audience.”

This is a step in the right direction for EA because they recognize they have to make a few moves to dethrone Activision, especially after they merged with Blizzard (World of Warcraft, etc).  I’ve spoken a lot about in-game ads, virtual item sales, subscriptions, and other incremental ways to generate revenue and the game publishers who are going to win in the future are the ones who are able to successfully transition their business model.

A few players who are going to help the game publishers benefit from this change in traditional business model are PlaySpan, LiveGamer, GameWager, and IGA Worldwide.  With broadband penetration, the world is the oyster for new opportunities to monetize games.

In Zurich: Recap of Speech and Pictures

Darren Herman SpeechI took an 8 hour flight from JFK to Zurich, Switzerland to participate in a conference at the GDI Institute on digital media and my portion:  the role of video games in culture and business.  While I have history in the in-game advertising industry, I didn’t focus the presentation on this.  I tried to talk about the macro-trends in the video game industry, some of which I posted in early October on this blog.

I spoke solely on in-game advertising at the GDI Institute in 2005 and the crowd really got into it.  Lots of great questions and insights that were shared amongst the few hundred in attendance.  As I noted above, maybe 10% of the presentation this time around talked about in-game advertising but the real time was spent with trends.  In-game advertising is part of a larger trend, which is finding ways to monetize games through the use of everpresent connectivity.  With broadband connectivity being harnessed by consoles, a new ecosystem of monetization opens up (skill based wagering, in-game advertising, virtual goods, subscriptions, RMT, etc).

One of the othe rmain topics I spoke about was about video game culture.  Look at what Guitar Hero and Rockstar are doing for fans.  The Nintendo Wii as well.  Toyota’s commercial utilizing World of Warcraft like content.  Games are finally being socially accepted which is opening up a whole creative market.

We had a fantastic discussion about this last night (as I was trying not to fall asleep due to timezone differences) and really enjoyed meeting a lot of new people.  Had lunch today with a gentleman I met last night and we discussed the presentation further.

For those of you who want to see some pictures of Zurich, I posted some in my Flickr gallery.

An Insiders Look at the Video Game Industry

The video game industry is going through some monumental changes and I thought I’d shed some light on them from the inside. With that said, I decided to whip up a presentation that looks at many of the different areas of the industry including many of the trends that are occuring.

The presentation is geared towards the following:

  • If you work at a media co. looking to acquire in this sector
  • If you work at an ad agency or brand trying to make sense of the video game space
  • If you’re a game publisher and looking to expand your product line and features
  • If you’re a game publisher trying to make sense of the macro industry trends
  • If you’re an investor, trying to figure out which are of the industry is hot

Please note that I purposely left out IGA Worldwide, a company that I co-founded a few years back. The reason why I left the company out of the presentation is that some readers would think that I made the presentation solely to hype the company. I tried to be as company-agnostic as possible, to give readers a non-biased view on the games industry.

I welcome all commentary and criticism. Please leave a comment on the blog or shoot me an email. I promise to respond to each comment individually.

I think we’re in an extremely exciting time with Halo 3 bringing in $170M on the first day, Areae launching Metaplace, and Habbo & Tencent proving out the virtual goods model. Who said games aren’t fun? :)

The presentation is below, and hosted on slideshare (if you’d like to view it there):

 

 

Business (Game) Idea: Social Stock Market

Maybe I’m listening to the likes of Howard Lindzon, Pip Coburn too much or Sherri is rubbing off on me (her career), but I’ve been watching the equities market much more in-depth lately.  Am I ready to become a trader?  No.  Would I ever want to be?  Probably not.  However, I think I have a neat idea for a game/business that I would love to see done.

The game would be simply titled:  Short or Long.  Much like Hot or Not, [where you are shown an image and you’re told to rate it 1-10], here, you would see the financial performance of a company (Google Finance snapshot), and would either click “Short” or “Long.”

After you click your answer (Short or Long), you would see aggregate information for each particular company, and if the companies name were withheld (just showing financial performance), it would show the actual company.

If you allow users to register accounts, you can chart their performance and benchmark them against their peers.  If you have a certain peer group (a high school class studying the stock market, your office, your buddies, etc), you can compete against each other.  If you really wanted to get tricky, you can short/long over time and specify a date.  Maybe even throw options into this (my uncle Bob has been showing me this tricky world) mix.

Revenue?  Oh yes, it’s a business.  Charge $10 for 100 trades ($0.10/trade) or more.  By doing this, it disables spammers to hype stocks as it becomes costly to do so.  I would love to see some sort of virtual goods model mixed into this as well, though I need to put some more thought into this.

Just my two cents – I like the idea and it’s less than half baked at this point, but would love to hear feedback.

IAC Moves into Video Games (Analysis)

I read a fascinating analysis of IAC (InterActiveCorp) this evening and wanted to share my view.  First, please read the article written by Sramana Mitra entitled Web 3.0 & IAC.

IAC holds more than 60 online properties and someone could easily mistake it for a VC with a well-diversified portfolio of Internet properties. When some of these properties start “exiting” the portfolio, they seem to be able to get much better visibility and valuation. We have already seen how Expedia has performed over the past one year after being spun off from IAC. The question is, should IAC club together more of its synergistic properties and take them public separately, while maintaining a holding company status? As it stands, IAC seems to be losing focus as well as operational efficiency, and in trying to do so many things at once, it is not doing any of them very well.

The profitability of the company is remarkably low, and that is reflected in its relatively low market cap of $8 Billion, against a 2006 revenue of $6.2 Billion.

One area where IAC can innovate within is the video game arena.  I believe that IAC can grab a leadership position by working independently of any one particular video game publisher but doing business with all of them.  There are different ways to play within the games industry including both long tail and hit-driven models, subscription, virtual goods, and retail sales models.  IAC certainly has the resource to get behind such an initiative and they are currently on their way into venturing into the market.

InstantAction was setup by IAC and has been underway/underwraps for months.  They are buying their way into the games market by acquiring Torque (GarageGames) recently and looks like they are enabling game developers to use their engine to monetize their games (give out the tools and monetization assets to anyone and let IAC monetize their games…. and take a % of the action).  Should be interesting to see what IAC does here… and if the above is correct, InstantAction will probably be a solid standalone company.

Just remember:  subscriptions, virtual goods, in-game advertising, are all emerging ways of monetizing games.  Some do much better than others depending on the type of game/environment/gamer, but if used correctly, could do extremely well for the game publisher/developer.  I am assuming IAC understands this and is building for the future.

I Was Shot This Morning

Bang! howdyWell, virtually that is.  Over the past few months, I’ve been trying to broaden the types of video games that I play to learn more about gaming overall, and I stumbled upon Bang! Howdy, by the team over at Three Rings.  All I can say is, wow.

In my About section, I list one of my favorite video games of all time as Oregon Trail.  Think of Bang! Howdy as the next version of Oregon Trail with incredible graphics and gameplay.  After it’s 5-1o minute install (download), I was up and playing and some of my colleagues in the office joined me through the interactive tutorials.

In March of 2007, CEO of Three Rings, Daniel James gave an interview with GigaGamez talking about the growth of the company.  By July 2006, Three Rings was doing about $300k per month of revenue, combining subscription and in-game items/currency.   They forecast a 100% increase for 2007 which would put this independent developer on a nice trajectory.

I can see why so many people love these games… they are fairly easy to learn (not master) and addictive!

Disney & Club Penguin

For those of you who do not have kids or nieces/nephews to play with, you probably aren’t too aware of Club Penguin.  However, if you are aware of Club Penguin, you’re probably ultra-aware of the role it plays in your childrens lives.

This week, Disney announced that it completed the sale of Club Penguin for $700M, a price tag that wowed many folks, but when you dig deep into the financials, it only represented a 10x earnings and 5x revenues.  Umair over at Bubblegeneration Strategy Lab, a blogger that I read as often as he posts has a great writeup of the deal.

The argument he poses around this deal is not that of the terms and dealpoints, but around the strategy.  He believes that the acquisition of Club Penguin by Disney does nothing for the brand as it’s current IP (Mickey Mouse, etc) are dying a slow death.  I personally could see Disney opening up “Club Penguin” in the theme park by offering themed rides and areas, but to an extent, I also agree with Umair.  Certainly read his post to learn his rationale as I don’t do it justice.

Something else I really fancy from his posting is:

Secondly, this deal validates, to an extent, the virtual goods revenue model, and puts it squarely in the spotlight.

With the Virtual Goods Summit haven taken place about a month and a half ago and Sparter gaining some momentum, there is a spotlight on this industry and it’s only going to grow.  Disney surely sees this opportunity and has acquired hundreds of thousands of members who purchase virtual goods… recognizing that the lifetime value of a gamer is significant and they’ve only just begun cracking the surface.

Power of Gaming: MapleStory

Fox 11 Los Angeles did a 3 minute clip regarding an emerging game, MapleStory, which focuses on how gamers are in a craze about the game. Some gamers are spending $50/week in virtual items for the game and others are stealing money from their folks credit cards to pay for new goods.

Take a peak at the clip and would love to hear some comments. There is no doubt that the gaming industry is in a state of flux and the lifetime value of a gamer is much higher than the traditional retail price of a video game.

 

I believe that the winners in the video game industry are going to be the publishers/developers who adapt their models to meet these new opportunities.  Which publishers will be able to do so?  Which will not?

I’ve reiterated the same comment over the past few years which is that the video game industry is going thru a renaissance that the music industry is currently in.  The traditional ways of monetizing your assets are changing and you need to do new things to keep up with gamers.  If I played the stock markets more often (unlike other friends and family members), I’d put some skin in the game on publishers who are going to retool their business to account for these new opportunities.

 

EA and Activision have publicly come out and stated that they want to pursue these new revenue opportunities.  Behind the scenes, we know that many others are as well.