We’re here live at the iGames Summit in San Francisco. It should be a great event for iPhone game developers interested in learning more about design and monetization.

Here are our live notes from the kickoff panel discussion – Lessons Learned: Why iPhone Games Work – including:

• Neil Young, ngmoco
• Andrew Lacy, Tapulous
• Steve Demeter, Demiforce LLC (Trism)
• Keith Lee, Booyah
• Moderator: Ken Gullicksen, Morgenthaler Ventures

Ken Gullicksen: What’s working? It the iPhone a replacement for the Ninendo DS, casual games, both? What’s resonating in the marketplace?

Nail Young: What’s interesting about the iPhone is it touches all different types of customers. Mobile gaming normally means short types of game play. What isn’t immediately apparent is how people are playing with the device in longer play sessions. The avarage play session for Mazefinger is 8 minutes, for Orlando it’s 22 minutes, and the average user play 10.5 times. It’s a lot like handheld gaming, and that to us is something that’s really exciting because it speaks to deeper engagement and thus more opportunity to monetize the experience.

Steve Demeter: Being an indie shop, by nature we’re going to build games focused on shorter play sessions. We make a game every couple months.

Ken Gullicksen: What’s working now in monetization, and where does that go? How do you monetize in different ways?

Andrew Lacy: We’re lucky because we make music based games and the iPhone is both a gaming platform and a music player. It’s not that much a stretch for our players to buy a paid extension of the free version of the game. Thinks are still shaking out, and Apple has done an incredible job accomplishing so much so quickly, but everyone in the room could name 5 things they want to be able to do better. The announcement 2 days ago signals that Apple is moving in that direction.

Keith Lee: Our goal is to hit the top of the charts, and we haven’t seen a ton of falloff from free to paid apps.

Ken Gullickson: How does virality happen in this world? How does promotion happen? Is there a role for publishers, or does the app store handle all of that for you?

Neil Young: The app store is awesome – it provides a frictionless distribution mechanism right in your pocket. It’s just like Walmart or Best Buy. Really the role of the publisher from the marketing standpoint is to figure out how to get their software to stand out above the noise. We do PR activity ahead of releases, a growing relationship with a core set of influential customers, and probably most powerful is the cross promotion within our games. The app store is going to continue to develop over time, and that’s going to be super exciting for the entire ecosystem. You’re still going to have 25,000 – 40,000 apps a year being released into that ecosystem and being able to target people you have relationships with (either customers or points relationship) might be one of the ways marketing can happen in that space. When we localize our apps in French, Spanish, Japanese, etc, QA, there are a set of services that are valuable to developers but also to customers.

Steve Demeter: I agree with everything you said, but nothing you said was fun. I had so much fun writing Trism, and I looked at it like I was marketing it entirely virally. If you have an idea that can be easily conveyed in 10-30 seconds, you’ve got yourself a hit. I told my friends, and that’s it – I didn’t do marketing, and I think a lot of guys out there doing iPhone games have jobs and are wondering what will happen if this hits. Most guys don’t want to raise venture money, they want to have fun with it.

Andrew Lacy: For me, I think the analogy is the Facebook world. One of my employees created an app the first week the Facebook Platform launched and has something like several million uniques within a month. Now, Playfish has 100 employees and has the same amount of uniques. I do think those kinds of hits are going to become more and more rare. We’re professionalizing because we know that’s what our competition is doing. The state of the art is improving.

Neil Young: One of the great things that’s happening in all this is the birth of new development talent. At the end of the day, you also need people not just who are good at Objective C but who also understand how to build things correctly for the device. We deeply admire Nintendo because they’re deeply aware of the capacities of their hardware and design with that in mind. The iPhone is a unique device, there are things for gaming in this device that have never been thought of before – your contacts list, network connection, media. It’s going to be exciting to see where it goes from here.

Ken Gullicksen: How much of that is happening in bigger companies? Is this a minor brand extension to them, or do they have people that get it?

Andrew Lacy: All of these guys are looking at this world, and are developing for the iPhone. It’s such a different device, and to some degree the big studios are hampered by that – you can’t just roll your title out to 100 mobile devices or you’ll get the lowest common denominator. People focused on the iPhone do have an opportunity to focus on what makes the device unique.

Keith Lee: A lot of people ask why Blizzard isn’t making iPhone games, but they want to focus on their core areas. There are so many different opportunities and ideas as a big game developer and publisher, you always have to ask when is the right time to link an iPhone product to WoW, or should we develop new IP? It takes a lot of inertia to create a completely different group focused on the iPhone.

Ken Gullicksen: What’s the scale here? 30 million, how long until we hit 100 million iPhones and iPod Touches?

Neil Young: Well, I don’t think it’s slowing down. Virality happens when you have the device in your pocket and you show it to your friends. I don’t know when they reach 100 million units, but I think it will get there faster than the DS did.

Keith Lee: Assuming there are 30M units now, I wouldn’t be surprised if we hit 100M units by the end of next year.

Steve Demeter: I agree it’s not slowing down, and for very good reason.

Ken Gullicksen: So what are the roadblocks now? What’s holding innovation back, or is it smooth sailing?

Keith Lee: If you want to make a more complex application, the limit on the ad hoc program with 100 users makes it very difficult to test your app out at realistic loads. A lot of developers face the same sort of issue.

Andrew Lacy: What’s still a share of mind roadblock is when you think about social on the iPhone, part of the problem is that particularly outside of Silicon Valley not that many of your friends actually have one, so your ability to use social or viral networks to grow your application is a lot harder. With Tap Tap Revenge, we wanted to connect you with people you share interests with, so the question to me is how strategically important is it to be on other platforms – be it other platforms, Facebook, etc. It may not be that important when we have 200 million iPhones, but right now, social is still a problem.

Ken Gullicksen: Are any of you building for Android or other mobile platforms?

Andrew Lacy: We haven’t decided to do that as a company yet, that would mean we’d have to hire 200 people. We’re thinking about it.

Keith Lee: It’s not a matter of if but when…

Question from Audience: If your app doesn’t make it into the top 50 or top 25, how do you promote your app?

Steve Demeter: At the end of the day, being in the app store is pretty big, and that’s the lay of the land. If I was a first time app developer, would I use a publisher? Maybe. The only publisher I would maybe go with would be Neil Young, and that’s because he’s invested in by the iFund, which is Apple’s money, and they have a vested interest in making sure they succeed.

Neil Young: I don’t think we get a lot of preferential treatment because we’re an iFund company, but we’re happy to take advantage of promotional opportunities when they come around. We do the best we can to promote the device by building games that specifically take advantage of it, and my sense is that message resonates with Apple.

Keith Lee: It’s very different now than it used to be in August.

Andrew Lacy: We’ve been featured twice, and to be honest, I think being in the top 10 is really important, but word of mouth is the most important. We haven’t considered being featured the most important lever in driving sales.

Question from Audience: Is there evidence that there is institutional support within Apple to build a great games platform? Acting as a committed steward like Sony, Microsoft, Nintendo.

Neil Young: None of us can speak for Apple, so it’s hard to say. When we first came to the platform, we imaged that Apple would function like Nintendo or Sony, that they would manage it very tightly. But it became clear very quickly that they see themselves as stimulating a marketplace – much more like an operating system company and platform provider than a first party game platform company. I’ve worked on every console under the sun, and hands down by far Apple has provided the best development environment and best tools – I’m not sure they would be able to do that if they were focusing on all of these different areas. All of these APIs take a lot of time and energy, and I’m thinkful that they’re spending their time on that rather than trying to figure out how to be a game maker, which is not really in their core competency.

Question from Audience: To what extent will the iPod Touch make a competitive difference in the success of the iPhone as a gaming platform?

Andrew Lacy: It’s quite possible that Apple didn’t know they were making a gaming platform like it turned it to be – they may have thought it was going to be more about things like Urban Spoon and stumbled onto this. Their focus has shifted and now they’re really focused on games:

Editor’s Note: Why didn’t anyone answer this question more directly?

With yesterday’s announcement that Apple is launching an in-game digital goods transaction platform this summer, iPhone developers are now evaluating increasing monetization options for their apps and social games.

Direct Digital Goods Sales

While developers have been hacking their way to in-game purchases already – primarily through the form of buying paid versions of the same game that come with differing amounts of virtual currency – Apple’s new “In-App Purchase” platform will make buying levels, add-ons, currency, and other content easier than ever. Users must only approve a purchase prompt and the bill goes directly to their iTunes account; meanwhile, developers keep 70% of the total purchase price.

This is great news for developers large and small alike. Top iPhone social game developers like SGN and Zynga have been developing user pay models from the beginning and should be well positioned to take advantage of the new payment APIs. (Apple still doesn’t currently allow other payment services to be integrated in iPhone apps.)

However, developers are already increasingly exploring additional monetization models to maximize app revenues.

Incentivized Virtual Currency

One such model that has proven quite successful on social networks like Facebook and MySpace is incentivized virtual currency. Super Rewards and Offerpal Media, two of the leaders in the space, have recently launched similar programs for iPhone app developers. The user experience is somewhat similar: inside the game, players can choose to participate in a variety of free offers; when they do, the advertiser reports it back and (usually within 15 minutes) the player is credited with virtual currency in the game. At left, you can see what a sample offer looks like in the iPhone game Loot Wars from Super Rewards.

It’s still early, but we expect incentivized virtual currency to become a very powerful way for developers to monetize their the iPhone apps.

Mobile Advertising

Developers are also increasingly using mobile advertising networks that specialize in delivering inventory targeted by geography and device. Mobile ad networks like AdMob and Greystripe have recently been increasing their focus on iPhone app and game developers specifically, given the explosion in app use.

Recently, AdMob told Inside Social Games that it now has 800 iPhone apps in its network, primarily in games and entertainment. AdMob’s Mike Fyall said games is currently one of the higest performing categories in terms of CPA ads leading players to download other apps.

“A lot of people are driving traffic to free apps, then upselling the paid apps,” Fyall says. “Ads perform well at natural transition points, like right after players have found what they’re looking for.”

Greystripe has also launched rich media Flash ads for iPhone apps.

Conclusion

While social game developers on the iPhone have always reported fantastic engagement levels, the number of ways developers are able to monetize that engagement is only increasing. With all of the opportunities for integration with friends through Facebook Connect for the iPhone, it’s never been a more exciting time to be building social games on the iPhone.

This was originally presented as a speech to the Social Games Meetup on February 24th

When it comes to making money on your games one thing that can easily gets forgotten is the user’s experience. It’s easy to forget about the individual perspective of you customer when you’re focused on the large scale metrics that define your ability to part a user from their money as a group.

It’s no one’s fault. It’s a natural outcome of the way internet transactions work. There’s no longer anyone left interacting with individual customers anymore, beyond the payment screen and the occasional irate phone call. And because the virtual experience is a faceless transaction we end up with cold euphemisms like “conversion” and “monetization”. After all the last thing we want our users to think is that we’re going to ask them to spend their actual money. The might figure out we’re actually trying to sell them something.

But guess what? They already know!

Buying things isn’t supposed to be bad. There’s actually a word we can use to describe a positive purchase experience. We call it shopping, as in “I wanna go shopping.” Sure, there are some people who never like buying stuff. There’s also some people who don’t like playing games, but none of those people are really a potential sale, so they can be ignored. Our customers are, by definition, people who are willing to buy things, and we’re okay with that, because it makes the economy go. And no matter how bad things gets there are still plenty of people who want to buy stuff. Especially if they understand that they’re getting something valuable.

But shopping is about more than just the simple act of purchasing things. It can be an emotional experience. In fact we even have a special phrase to describe the people go shopping entirely without ever spending a dime. We call that experience “Window Shopping”, and it doesn’t mean they’re buying windows. It’s a way to understand that there are good feelings that someone can get simply by basking in the idea of owning something. If you have something you’ve bought with great joy, only to have it end up unopened or unused on our shelves, you know firsthand that the visualization can often be more powerful than actually owning an object.

In order to sell virtual goods to people, to get them to buy something that doesn’t actually exist, what they need to be sold on is the idea of the value of an experience they haven’t had yet. Your product is the concept of what’s going to happen even before that something has actually happened.

And if the reality of their experience ends up matching or exceeding those expectations you’ll have them coming back for more. That’s the real value proposition: offer people a potential experience that’s so good they won’t want to refuse it. Bridging the gap between expectation and experience is a fundamental part of good gameplay. Make that same dynamic start to work in your marketing and you’re one step closer to integrating shopping directly into the gaming experience.

Want a good example of someone who’s already using this formula with great success? Take a look at Amazon. When you visit their store online and search through their goods, your experience is entirely virtual. There’s nothing real happening until that moment you click on the buy button and have them mail the item to you. It’s a transformative moment, but on some level every completed transaction is transformative. Something is yours now.

That’s why Amazon is willing to let their other users tell you much more than you think you want to know about the potential experience you’re going to have. Ultimately it’s what’s happening in your own imagination that gets you to buy it.

For better or worse, that’s what virtual goods and currency need to sell: the experience. You’re telling your user all about what they’re going to get from these virtual goods after they’ve bought them. It’s all good and well to show them that virtual guitar, gun, sword, hat, but you also need to let them know what it’s going to do in your application if you want a significant number of them to actually buy it. You don’t have to guarantee that experience, but to be successful you have to explain what you’re promising and then deliver on it most of the time.

The downloadable songs for Rock Band do this perfectly. The message is clear: “You’re going to get to rock out to this song”. You can imagine exactly what it’s going to be like to play the “No Doubt” song even before you strum a single note on your fake plastic guitar, partly because the music is already in your head, and partly because you’re already familiar with what the game does. But that particular song is a discrete unit of experience, and the price is right.

That’s also a reason why the X-Wars games have worked for selling virtual goods; The experience is so simple you can’t miss the value equation. Buying this clearly means you get to do more of that that. The fact that the user consumes those virtual goods is even better, but that’s a different topic.

Like great retail stores used to be, like Amazon is now, if you want people to buy virtual goods then you need to clearly communicate to them that this is a new form of “shopping”. Show them a valuable chunk of experience worth owning, and make it positive experience and you’ll fire the imagination of your customer. Do that, and they’ll be begging to give you their money.

Andrew Mayer is a Social Gaming and User Experience Consultant with over seventeen years of experience in the games industry.

Today at the iPhone OS 3.0 preview event, Apple announced a new “In-App Purchase” platform for iPhone app and game developers to sell digital goods and subscriptions inside their apps.

As expected, Apple will control the experience and users will be billed through the iTunes store. Apple said the new APIs from the updated SDK will go live sometime this “summer.”

“Some developers have come to us and talked about other models they’d like to use. Like subscriptions. A place where you could renew that sub in the app. Some game devs have wanted to be able to sell new levels from within an app. There are many examples of that, like e-books. Like a bookstore built into an app. We supporting these new models in what we call In-App Purchase,” Scott Forstall, SVP of iPhone Software, said today at the preview event.

Here’s how it looks:

Forstall said, like with the regular app store, developers can select the price of digital goods in their games and will keep 70% of the revenues, which will be paid monthly.

Photos courtesy Engadget

Now, iPhone app developers have not had any simple way to sell digital goods or subscriptions inside their apps. Those that wanted to sell virtual currency had to refer users to purchase “premium versions” of their apps, that came with virtual currency.

Will Apple open up the payments market on the iPhone for other providers to participate? Many top iPhone app developers that we’ve spoken with don’t expect them to any time soon. For now, however, developers will be very happy to be able to start selling digital goods easily inside their iPhone games.

It wasn’t long ago that we looked at new games coming out for Twitter. Now, more more Twitter based games coming down the pipe – it is a wonder that workplace productivity hasn’t reached a standstill.

Today, we’ve found two new Twitter games that are extraordinarily simple but somewhat reminiscent of a radio contest that has you listening all day for a jingle signaling to call in.

The first game is dubbed TwitBrain. In order to play, simply follow @TwitBrain and you will receive around three math calculations per hour. The object of the game is to be the first one to reply with the correct answer. In doing so, you earn one point towards the goal of entering the leaderboards.

Of course, if numbers aren’t your game (no pun intended), you could always take a crack at BeatMyTweet by following @BeatMyTweet. As vulgar as it might sound, it certainly isn’t what you might be thinking. This simple game has the exact same mechanic as TwitBrain, but rather than sending out math questions, it sends out garbled bunches of letters with the sole objective to be one of the first ten people to decipher it. As with the prior example, being the first (or one of the first in this case) earns you points and ranks you up higher within the game’s ranking system.

Granted, these two games aren’t incredibly sophisticated, but they are fun to play around with from time to time. They show where games on Twitter are going, and aren’t trying to be a ground breaking beacon of new game play. These Twitter games are meant to be fun, and there certainly is nothing wrong with that.

It was a big weekend for the social gaming world at SXSW, with the launch of Facebook Connect for iPhone. Several top developers launched Facebook Connect support in their iPhone games, including Tapulous, Zynga, and SGN, who released a new iPhone and iPod Touch title, Agency Wars, and integrated Facebook Connect with its hit Wii-like title iBowl.

Playfish also made a big launch announcement – Who Has The Biggest Brain? is now available on both the iPhone and iPod Touch. The company, one of the top social game developers on Facebook with over 26 million active monthly users across its portfolio, has kept the core dynamics of the game while optimizing for the iPhone interface.

These modifications take advantage of Apple‘s Multi-Touch user interface, but veterans of the game should find everything else to be quite familiar. It’s fully integrated with Facebook Connect, allowing friends to play together across platforms.

“Bringing Who Has The Biggest Brain? to iPhone and iPod touch is a natural extension of our mission to change the way the world plays games by creating experiences that are more social and connected,” says Kristian Segerstrale, CEO of Playfish. “In addition to Facebook and other social utilities, we believe iPhone and iPod touch represent the next generation of entertainment platforms.”

Players can currently purchase Who Has The Biggest Brain? For $4.99 at the Apple App Store.

Just moments after Facebook’s Dave Morin announced the launch of Facebook Connect for the iPhone this weekend at SXSW, SGN CEO Shervin Pishevar took the stage to announce the launch of a new titles called Agency Wars that includes Facebook Connect for both the iPhone and the iPod Touch.

The game is described as a massively multiplayer title like another recent SGN release, Mafia: Respect and Retaliation.

In Agency Wars, players find themselves taking the role of the slick and suave spy (okay, maybe not James Bond, but you get the idea), allowing them to join any of a number of international agencies such as the CIA or MI6.

Of particular interest, however, is that Agency Wars allows players to play in joint missions with friends via Facebook Connect against other agencies. Moreover, the game utilizes location based missions (like Mafia: R&R), allowing players to play with and help nearby friends progress through the game.

In addition to the Agency Wars release, SGN also announced that Facebook Connect is also now available for iBowl, its largest iPhone title with 5 million players. This game, for those that may not remember, is one of the suite of Wii-like sports titles that makes direct use of the iPhone and iPod Touch’s built in accelerometer to allow users to play by using an actual bowling motion (including the force and curve of your bowl).

The launch of Facebook Connect will definitely enrich the element of live competition between players. Now, iPhone or iPod Touch owners can actually compete as teams and share scores directly through their Facebook feed. We’ll be watching our News Feed closely!

This morning at SXSW in Austin, Facebook Senior Platform Manager Dave Morin announced the official launch of Facebook Connect for iPhone. With Facebook Connect, iPhone users will be able to easily connect with Facebook friends through iPhone apps & games.

Participating in the launch announcement today were some of the biggest social game developers on both the Facebook Platform and iPhone:

• SGN announced the launch of Agency Wars, a new game with Facebook Connect support, as well as an iBowl update with Connect support
• Playfish announced the launch of Who Has the Biggest Brain on the iPhone, with Facebook Connect support, with 2 more titles coming soon – Geo Challenge and Word Challenge
• Zynga announced official Facebook Connect support in Live Poker
• Tapulous announced Facebook Connect support for Tap Tap Revenge
• Flixster announced Facebook Connect support for the Flixster movies app
• As did Urban Spoon, Binary Game, Whrrl, and more

In other words, it was a big launch event. While a couple of iPhone apps from SGN and Zynga have authenticated through Facebook Connect via the web in the past, this is the first native iPhone app support ever. Facebook Connect for the iPhone has the potential to transform the way iPhone games are designed and shared, and could provide a new and more authentic way for apps to spread and climb the iPhone app charts.

Here’s how the first games with Facebook Connect for iPhone live look:

Who Has the Biggest Brain for iPhone (Playfish)

Who Has the Biggest Brain for iPhone, users can connect through their Facebook account and continue playing Playfish’s classic game on their iPhone anywhere there’s an internet connection.

Agency Wars (SGN)

SGN’s new Agency Wars lets players see when their friends are live online and interact with them in real time.

Binary Game

We’ll be staying on top of the development of iPhone games built with Facebook Connect closely in the coming weeks and months!

A new game called Geopolitics combines interesting concepts from MMO and Strategy games, but unclear game mechanics still leave something to be desired.

Geopolitics plays and looks like a very old school RTS – you are presented with a world that has scattered resources about it. Centered on your screen is your “village” in which you must enter and start constructing buildings as you would in any other strategy game. When not building, players gather resources by clicking on nodes and sending workers to gather from there while on the world map.

In fact, while on the world map you can scroll around to see all the other villages owned by other players (though it is easy to lose sight of your own town, making it unbelievably annoying to find it again). You can even form diplomatic missions towards them, but honestly, what fun is that? It’s much more entertaining to attack (hence the strategy aspect), but of course attacking also means enemies, and seeing as how this is an MMO of sorts, the game basically becomes an strategy free-for-all. However, when we get past building, confusion sets in.

Along with attacking, the majority of the buttons on the world menu have no explanation whatsoever. In fact, that’s the number one problem with Geopolitics: Other than building structures, it’s hard to figure out what or how to do anything. This issue of confusion is compounded by the fact that there are dozens of different features in this game such as the trading of goods via markets, incoming troop reports, outgoing war, and more still. It is just far too much to swallow, and the player ends up learning through trial and error.

The fastest way to turn a player off to any game is to put them into a situation where they feel overwhelmed. Luckily, this game seems rather slow paced so there is no sense of urgency, but there is also so much information to figure out, that the player just decides they have something better to do. They logged on to the game to play a game and be entertained, not to spend time figuring out the subtle nuisances that have been hidden by the designers.

Geopolitics is not a bad idea, but even the greatest idea can be considered madness if not communicated effectively, and the case here is a serious lack in communication. The game just doesn’t teach the player much at all about the game beyond building up the town, and leaves most of it to trial and error. One should never assume that a player will know how to do something, nor that they will “figure it out.” When it comes to starting a new game, they want, and need, to be told exactly what to do.

In a recent post on Gamasutra, David Chang, EVP of Business Development and Marketing for GamesCampus, explains why he thinks “free to play” games need to be rebranded as “MTG” – or Micro Transaction Games. Why? Because calling games free to play “generates a lot of unnecessary cynicism and calls our product quality into question.”

Chang draws a parallel with how the primary function of Google, searching the web, is free to any user. Both can charge for various premium services (for Google it would be something like paid search and for a game, virtual goods). “In both situations, people receive a valuable service – free search or a free game experience,” says Chang.

Despite the logical comparison, Chang believes that one of the biggest cause for the stigma is a matter of branding; stating that the term “MTGs (Micro-Transaction Games)” would be a far better label. Immediately upon rebranding, there would no longer that preconceived notion of “what is wrong with it?” However, in order to be dubbed an MTG certain prerequisites are required:

• No purchase to download/play
• No level/content cap beyond what is needed to play
• Monetized by virtual goods sales (at least partially)

Of course, virtual good sales are not the only workable business model for an “MTG”. In the article, Chang also touches on the models that can also work for this growing genre, but more importantly, what will not work.

His chief example is content caps, stating, “People end up investing time and emotionally connecting with a game only to find out that if they want to continue, they need an admission fee… you will lose most players at the pay-gate.” This certainly churns some food for thought, as there are a number of “free-to-play” titles that are guilty of this, and the damage to the game’s community from said player lose dramatically hurts the game as a whole.

Overall, however, most free titles are moving in the right direction regarding their business models. “Now is the time,” says Chang, referring to the growing virtual goods business model. “We should be looking at re-branding from free to play, to instead being known as micro-transaction service providers.”