Boxed products are no longer the gaming industry's backbone. Social gaming on the likes of Facebook and MySpace is where a lot of money can be made
"Don't leave money on the table; don't let anyone leave the table."
As the gaming industry becomes increasingly high-profile, and as investors train their sights on the seemingly huge amounts of money to be made from gaming, there is still an enormous number of potential pitfalls for would-be game designers, developers, and distributors. Already, evolution has seen some business models fall by the wayside as being inappropriate or misguided. Here, then, is an incomplete, sure-to-be-outdated-itself list of ways to make money from games, particularly those games that fall into the "social" category, and which don't require the tremendous upfront investments of traditional console-based video games.
Social gaming is sometimes called "asynchronous" gaming, which essentially means players take turns. People who want to play games have busy lives, or maybe they even live in different time zones. Regardless, with a well-designed turn-based game, you can keep them happily engaged whenever they have time to spare. NPD Group puts retail sales of video games for the "mature" adult audience at 15% market share; 85% of sales go to everyone else. Social games fit nicely into that "everyone" space and provide a potentially massive market if monetized effectively.
Time was that bricks-and-mortar stores selling physical, boxed product were the backbone of the games industry. Then online retail came along and superseded traditional stores in importance. But already, the long-term future of the games industry is digital, and will not include physical media at all. Consoles and even handhelds connect online and the hardware makers such as Nintendo (7974.T), Microsoft (MSFT), and Sony (SNE) have all launched their own online game stores. So as soon as Internet access has reached the necessary level of penetration and reliability, media such as DVDs and cartridges will be obsolete. For those looking to design, produce, or distribute games, this is a significant shift. The involvement of players such as Facebook, Google (GOOG), MySpace (NWS), and Apple (AAPL) provides an even more compelling reason to view the social space as a serious business opportunity (BusinessWeek.com, 8/11/08).
In the social games space, investors initially focused on drawing in massive numbers of players. "We have 17 million installs!" developers shouted happily. But soon, thanks to data from tracking companies such as Adonomics.com, it became clear that only 1% of those who installed a game would actually stick around to play it. At press time, Adonomics reckoned the popular Facebook game Vampires had been installed nearly 9 million times, and yet has only 87,570 active players. (Facebook, for its part, says the game has more than 1 million users.) But whether the drop-off rate is 90% or 99%, something is clearly wrong with the business model.
So investments switched to the games that people return to on a regular basis. That's worked for a while, but even with traffic, many games run at a loss because they rely on advertising to fund the experience. So now, the focus is entirely on revenue: "How much money are you making? Who cares if you have a million users if you are losing money each month?"
Thirty-Three Moneymaking Ideas
The following list of potential business models for gaming looks at all aspects of the industry. From designing and producing trialware, which allows players to play a restricted version of a game for free in order to try to upsell the full version, to selling episodic entertainment and expansion packs, there are numerous innovative and interesting business models that are applicable to creating a successful, moneymaking game. Some, such as individual microtransactions, might seem incredibly tiny in scope, yet can have a huge impact if scaled effectively. Others tap into the current trend toward social networking, by bringing the real world and real people (who marketers just love) into a gaming's virtual environment. The good news is that many of these ideas can be applied at the same time.
Take a look at this slide show of 33 ways to make money from games.