Valuing LTV: Beyond Monetization

Meet Bob.

Bob is a game developer, creating his first mobile title, Angry Hedgehogs, aptly named after his love of the adorable (yet surprisingly ferocious) creatures. Armed with his laptop and creativity, Bob embarks on a quest to create the most successful game of all time.

After months of hard work, Bob publishes his game and anxiously monitors its performance. Success! His early fans can’t get enough of the cuddly hedgehogs. However, Bob’s leaving a lot on the table by not maximizing the LTV of his early fans.

lifetime value

LTV is ultimately a function of Value and Engagement.  First, and most important is engagement.  If the game sucks, players will bail and no amount of lipstick will make your pig pretty.

There are several techniques for increasing engagement and central to this is making sure the core gameplay is solid (improving engagement and managing player lifecycle will be covered in a future post).

Alright Bob, we know your fans love your hedgehogs.  Way to engage!  Now let’s talk Value…

lifetime value components

Value – the business side of gaming

The hustle of building and maintaining a fun game often results in the unintended consequence of neglecting the business side of gaming.  While many create games simply for the love, lets face it, we all want (or need) to make money.  That said, Value isn’t simply measured in dollars.  Players generate Value in several ways.

Virality – the friendly kind

Gaming is inherently a social activity and mobile game players more so than ever, love to share and discover games with friends.  How many times have you whipped out your mobile device to share your latest addiction?

Each player has the potential to drive new user adoption through face-to-face recommendations, online word-of-mouth, or more formal viral loops.  These socialites often re-engage existing and churned players through these organic notifications.

Marketplace Exposure – mobile gaming is like High School

Love it or hate it, apps often fly or die by their App Store/Play Store popularity.  After all, this is the primary destination of discovery for the majority of players.

Rankings drive free exposure and organic installs, providing ancillary Value for each new install.  Consistent exposure is key to driving long-term organic installs.

Reviews, and more so ratings, influence user’s likelihood of tapping the install button.  The more 5-star player ratings, the higher conversion and ultimately lower acquisition costs for paid user acquisition (UA).

User-Generated Content (UGC) and Community – the meta-game

New, fresh content is key to keeping an engaged user base; however, this is typically the most costly investment for game creators.  Games that support UGC not only benefit from “free” content but also create a meta-game that extends the life of their game, particularly for the most engaged, elder players.

Community interaction in forums, leaderboard rankings, and multiplayer/co-op experiences also contribute to Value creation.  Although a player may never provide Value in other areas, their participation in multiplayer matches helps ensure players always have competition to quickly match up against and provides social proof that other are playing the game.  It’s keeping up with the Jones, gaming style.

Loyalty – for the love of it

The most successful gaming companies build a brand with a loyal following and although it may take 51 failures before they strike gold, leveraging loyal fans makes success in future titles that much easier.

Players with brand affinity are more likely to download new titles from cross-promotions, while window-shopping in the App Store, or through other channels.  It also opens up additional monetization channels such as merchandising and cross-media expansion.

Loyal players tend to associate themselves with brands they love, promoting them on their sleeve or through online channels.  They also thirst for behind-the-scenes info and sneak-peeks of new content or titles, often signing up for newsletters and other communication channels for future re-engagement.

Feedback – ingredient #1

Flying blind usually isn’t a good idea and neither is building a game without feedback.  Usability studies and playtesting are typically part of the early game development process but feedback can also be captured from daily usage to provide insights and ideas on how to improve the game.

Explicit feedback is provided through support emails, social network posts, forums, reviews, and in-game surveys.  As creative and experienced as one may be, some of the best ideas come from players.

Arguably more important is understanding what your players actually do through implicit feedback.  User behavior analytics (when are my players churning?  what content is selling?) and crash reports (which devices and OS’ are experiencing issues?) provide empirical data on areas of improvement.  Each player can contribute but statistical significance is required before making any strong conclusions.

Monetization – show me the money

Of course the most obvious component of Value is direct monetization.

Direct payments through in-app purchases (IAP), “premium” game purchases, and pay-to-play transactions is the ideal type of monetization.  Influencing a non-paying player to pull out their wallet increases their likelihood of spending in the future and becoming an invested, engaged player.

Advertising monetizes the 95%+ of players that never drop a dime through banner or interstitial ads; embedded cross-promotions; and integrated brand advertising.  Ads have the potential to turn players away and ultimately have a negative effect.  Those that generate the highest Value per interaction are contextual and the least disruptive to the user experience.

Looking Forward – competing in a maturing market

Clearly Bob has a lot of work to do.  LTV-maximization is increasingly important as the industry becomes more sophisticated.  Those that take a  holistic approach to generating Value across various dimensions will create a healthier relationship with their players and remain competitive in this increasingly freemium-dominated market.

Stay tuned for the next post in the series as we discuss specific strategies for maximizing Value and Engagement.  I’d love to get your feedback and thoughts on the topic in the comments below or drop me a line at @rrhoover.

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  1. Quora - trackback on September 5, 2012 at 12:41 am

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