Coloring A Red Ocean Blue: Gaming Reinvented
From Blue to Bloody Sea
When Apple first opened the App Store in 2008, it was followed by two distinct waves of developers seeking to cash in on the opportunities at hand. The resulting gold rush had several interesting causes and effects. Overall, the ‘blue ocean’ frontier was soon bloodied with too much competition on one hand and few games that lived up to their promise on the other, creating a ‘red ocean’ effect in the marketplace.
This overcrowded sea of options gave rise to a significant challenge for developers to differentiate their brands — and an even bigger challenge to monetize their games and remain competitive. Even the first pioneers who were wildly successful in the outset would inevitably experience the challenges that come with an overcrowded marketplace. As a result, the games need to work harder to get noticed through all the noise. In this midst of this red ocean, the art of customer acquisition became even more challenging and allusive.
The Gold Rushes
Let’s take a brief look at the history of mobile gaming to get a clear perspective on the challenges that occurred and the adjustments the marketplace made to solve them.
One problem that has remained almost insurmountable for small and medium sized game developers has been the rise of their Customer Acquisition Costs (CAC). When Apple launched the App Store, within 10 days they had over 10 million downloads. Developers with just average quality games would get hundreds of thousands of downloads with little advertising or social media marketing. Their success was enabled simply because there was high demand and limited supply. This allowed the first wave of developers to charge users for each game downloaded.
Once word got out, the next wave of developers flooded in for their share of the gold. This gave rise to a new wave of largely self-taught developers with little experience or expertise in creating games. They rushed their games to market as quickly as possible with little regard for quality or proper game mechanics. As a result, it became increasingly difficult for users to sort the good games from the bad without first purchasing them. Also, smartphones back then had limited space, so users didn’t want to pay for potentially mediocre games they would soon have to delete to make room for good ones.
Land of the Free
This second surge led to the first major change in the way games were architected and marketed. It was called the FREEMIUM model. Good developers knew that for users to recognize their game’s quality, they had to give it away. Developers started offering a free test drive, allowing users to download and try a game out without requiring a purchase.
But this method created a new challenge. How do you monetize a free game? Developers were incentivized, not only to build better games but to design innovative mechanics into the game that would allow for monetization. They incorporated what is now referred to as an in-app purchase. The shift in paradigms solved a major issue for users and developers. Now good games with better game mechanics could sell in-app purchases repeatedly due to their high consumability. For the next phase of growth in mobile gaming, the vast number of higher-quality games and larger pool of users gave birth to a new wave of success stories. Below are just 3 of the countless success stories:
Angry Birds
Few people know that Angry Birds developer Rovio had previously developed 51 games in their 5-year history — all completely unsuccessful. These three guys were almost out of money when they decided to make one last effort. The result was Angry Birds — bringing in over 3 billion downloads with millions of dollars of merchandise sold. Now, it even has its own blockbuster movie. Rovio recently became a publicly traded company valued at over $1 billion.
Draw Something
Similar to Pictionary and developed by OMG Pop, Draw Something was probably OMG’s last ditch effort as they were on the verge of bankruptcy with only $1000 in their bank account when they published the game. Draw Something went viral immediately and had over 11 million daily users and 3 billion total drawings within 6 weeks. In the 7th week, the company was purchased by industry giant, Xynga, for $200 million.
Temple Run
Released in 2011 as one of the first games with an endless runner format, Temple Run was developed by a husband and wife team under the name Imangi Studios. The game started off as a $1 to download but when they transitioned to a FREEMIUM model, the game instantly generated revenue over 5 times greater than the initial release. Imangi Studios has since released other titles in the Temple Run series, including two titles in partnership with Disney. Temple Run games have been downloaded over 3 billion times with over 54,000 years of total game play.
An Old Challenge Returns
The Mobile Gaming Gold Rush continues to this day, however, as mammoth companies have come into the fray, the most recent burst in mobile gaming has created some pain points for independent game developers. Even those with previous success stories are being squeezed by a staggering increase in their Customer Acquisition Costs (CACs). The marketplace is now so overcrowded that users and developers alike can’t find each other.
Giant corporations flooding the space with hundreds of millions in advertising dollars are spiking CACs. According to New Zoo’s 2017 Global Gaming Report, it currently, costs $2.90 to get just one high-quality download. Consider that it takes over 400 downloads to get one paying customer and you can see why independent developers can no longer survive in a FREEMIUM marketplace. Developers have been forced to exploit a gamer’s social contacts with clever game mechanics and social sharing mechanisms, constantly lighting up their friends’ Facebook notifications.
Where’s the Reward?
In the current model, gamers aren’t monetarily compensated for helping a developer market their product. Gamers are incentivized to share all their contacts but to what end? They wind up annoying their friends with constant game notifications, making it increasingly harder for a developer to get new users. Some developers have turned to in-game ads in a desperate attempt to monetize the game. This approach not only hinders the gaming experience but also typically generates very little revenue for the developer.
The New Model
What if we could create a collaborative global community (platform) for both developers and gamers to work together as partners — a platform where developers would bring their content and gamers would be rewarded for bringing their social contacts into play? What if we could create a platform that transforms how games are experienced with a more competitive and interactive eco-system. If we could enhance the gaming experience, we could change the revenue model, enabling customers and developers to share in the revenues for helping to expand the community.
In one fell swoop, all problems inherent in the current marketplace would be overcome. Developers would have a destination where they could refresh and relaunch existing games in a social gaming eco-system that would all-but eliminate the need for an advertising budget. Gamers would have a destination where they can play high-quality games, competing with friends for prizes AND get paid for referring their social connections to the community.
A New Frontier
Until now, subscription models in the gaming space have only been successful in the console gaming segment (Xbox, Playstation, etc.). This success was the result of the gamer’s ability to compete against other users.
Game Loot Network’s revolutionary customer acquisition model offers something entirely new; a marketing model that pays the acquisition costs directly to the gamer, and ONLY after the revenue is generated. Given the choice of making minor tweaks to the current model or pioneering a new one, we opted for the blue ocean approach. Because sometimes the successful path to success isn’t the trail you follow — but the one you blaze.
Watch for next week’s blog as we announce and outline the most exciting evolution of our company to date as we enter 2018. I promise, you will not be disappointed.
Lance Baker
President & Founder, Game Loot Network
