Understanding the Pieces of the Social Game Monetization Chain

[Editor's Note: This is a guest post by Dan Taylor of social game monetization services company Fatfoogoo. He examines the different kinds of services currently available to game developers.]

With the dramatic rise of free-to-play and social gaming over the past year, a range of services companies to help developers and operators of these games monetize their product. And while many of these providers offer a range of services, it’s easy to forget that each one has its own unique way of providing the right solution for the right game. Which brings us to the most pressing question – which solution is right for which game? Obviously, this is something that must be decided by the developers themselves, and no one single product will deliver the be-all-end-all solution for each and every product on the market. With this in mind, it’s important to evaluate where decisions might be coming from, and how a game developer arrives at this situation.

The value chain of many social/free-to-play games can be summarized in 5 unique phases:

  • Idea
  • Balance
  • Goods/Currency
  • Payments
  • Commissions

Idea: At the very top of this chain is the game idea itself. This is the fundamental building block of everything else that will follow. Developers with a game idea will first evaluate the revenue potential of the game. Can it gain stickiness? Does it serve a niche audience? Does this audience already have something meeting it’s needs (i.e. competition)? If so, what can we do to improve on this want? And perhaps most importantly – can we monetize it?

Balance: Once a game idea itself has been fleshed out, the next phase of the value chain is game balancing. This is where developers will begin defining crucial monetization factors. Virtual economies function just like real world economies, with factors such as supply and demand, inflation, etc. must be factored in to equate a pricing structure that will both remain balanced and fair within the game, provide developers with a decent return for their efforts, and remain attractive to the end user, i.e. cost vs. value. In addition to these variables, developers must also factor in limited offers and promotions that will incentivize users to either play or purchase more, while at the same time, maintaining the delicate balance of their virtual economy.

Goods/Currency: Now that the developer has set pricing points, they’ve now to find a way for users to make purchases within the game. It’s at this point in the value chain that virtual currencies make their appearance. It seems as though each game has its own nomenclature, whether coinz, tokenz, gcash, etc., they’re all doing the same thing in providing end users with a currency that can be then used to purchase items. This phase of the chain also includes the introduction of specific purchase prices of the various virtual goods/items to be sold within the game.

Payments: At this phase of the value chain, developers are essentially done with the ‘virtual’ part of the business, and now have to build the bridge to the ‘real world’ money. It’s during this phase where payments factor in. Payments to the developer can either come from a separate company providing an offer service (see below), or directly from the end user themselves. When developers choose to receive payment directly, there are a number of ‘real world’ financial considerations to be factored in, including credit card fraud, charge backs, taxation, and much more. Developers must manage how they’ll be aggregating these payments. If they have chosen a service provider to handle this for them so that they may continue development on their product and not get hung up in economic red-tape, do they want a branded or white label payment service?

Commissions: Finally, based on the success of the above 4 factors, game developers might find themselves in the position to renegotiate deals that have been in effect since the games’ launch. Again, this is highly dependent upon the title’s success and associated volume, not only of active users, but also profits derived from sales of virtual goods.

Three Unique Service Providers

Now that developers have a clear picture as to how a game will come to life, and how it will be monetized, it’s time to move on to choosing a specific partner. In the social/free-to-play gaming field, there are three unique forms of monetization: offer companies, payment service providers, and technology firms. Each has its own area of specialization, and game developers can mix and match from each provider, some offering only a niche option, while others can provide everything but the kitchen sink.

Offer Companies

Offer companies could be seen as the ‘bare bones’ solution, in so much as they only offer one form of monetization – that which arrives via a third party. Examples of offer companies would include Offerpal, SuperRewards, Boomerang Networks, Gratispay or Sponsorpay. This form of monetization focuses only on offering special offers, say an online survey to be filled out in exchange for some form of virtual currency. Offers are an important revenue factor as it helps monetize the portion of users that are not willing to spend real money on their virtual goods and currency purchases. One side effect of employing offers as a form of monetization is that game developers will be sending players out to a third party, and thereby losing the game branded experience. Offer companies clearly brand themselves, and it’s here where the actual interaction between player and the monetization business model takes place. This type of monetization for developers only fills one part of the value chain.

Payment Service Providers

Payment service providers offer game developers different pieces of the value chain, but due to their nature do not completely fulfill it. Examples of payment service providers include Chase PaymentTech, NetGiro, and Global Collect. These firms offer developers a direct integration of payment methods, i.e. there’s no sending players out to a separate location to make the transaction, and then re-routing them back into the game. By using a payment service provider, game developers can keep players in-house and thereby potentially increase game stickiness as well as ‘time on site’ or ‘time in-game’. While offer companies build their brand by maintaining their own identity throughout the transaction, payment service providers can offer developers a white label solution, making the technology appear as their own, or remain self branded. While payment service providers are specialized financial transaction experts, as with offer companies, they are strong in the ad-broker business, and offer game developers are only a part of the value chain but do not complete it.

Technology Providers

Some developers also choose to work with technology providers, such as Playspan, Live Gamer and fatfoogoo. While each one of these providers have their own unique set of solutions, essentially, they allow game developers to do what they do best – develop games. Technology companies provide developers with a service that addresses each piece of the value chain. Many of these companies have deals with selected payment service providers, thereby ensuring financial excellence, as well as offering solutions for game balancing, virtual goods/items store management, virtual currency wallets, detailed analytics and reporting features, and user management. These providers free up developers to focus on game development, marketing, and how to balance their game as it grows with the provided tools.

Dan Taylor currently authors the industry news column at fatfoogoo, and works on a wide variety of projects both in and outside of the gaming industry. Fatfoogoo is the leading provider of digital commerce ecosystems for online games, social networks and virtual worlds. Offering both pre-configured and fully customizable solutions, fatfoogoo’s technology provides for both publisher-to-player and player-to-player financial interactions.

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