Don't Call Them Whales: F2P Spenders and Virtual Value

[Music] cool i'm up on my box now and all of maybe 5'4 so i think i'll go ahead and get started so my talk today is don't call them whales free to play spenders and virtual value if you don't know me i'm the ceo and co-founder of congregate and if you don't know congregate it is a to start with a browser uh a web platform for browser games um on the web so uh think youtube for games we get uh just a ton of content about 1300 new games per month uh 95 000 games total across a really wide variety of genres and um this gives us a with that ton of games it gives us some interesting opportunities to do a lot of interesting research and i'm a big data geek as you will discover quickly in this talk so i think that's really fun

about most of the data in this talk will be from the web but about 18 months ago we started publishing games on mobile and we've published about 15 games in that time period now that's not sort of the reach and breadth and depth of data we have from the web but we've gotten more than 35 million installs and a bunch of titles in the top grossing so there's a lot of interesting data there too so give you concept give you i'll be using both in this talk so one of the dirty secrets of congregate is that we depend very heavily on two percent of our players in 2000 we launched our virtual goods in-app purchasing on our platform about six years ago in at the end of 2008 and since that time period 2.1 percent of accounts active have purchased virtual goods and those two percent have um buying have brought in 75 percent of the

revenue on congregate the other 25 comes from advertising and the uh and that and that split has increased over the years so in 2014 85 percent of our revenue came from virtual goods and just 15 from advertising and if you look closer it's actually much much more concentrated than that so this looks at takes a looks at our buyers from since 2008 on congregate.com and on the left hand chart it splits them out um splits all the spenders out by the amount they spent lifetime on the congregate platform so you can see that about a little more than fifty percent um have spent less than ten dollars um and about four percent four percent have spent 500 or more on the right hand side and did i get my left and right confused because that sometimes happens to these no it's right um the on the right hand side you've got the

same split looking at the percent of revenue coming from that category of buyers and the 54 who spent less than 10 represent exactly one percent of our total revenue in the last six years and the four percent of people uh who have spent 500 or more are 72 percent of our revenue so if you multiply four percent by two percent that's point one percent um of our player base is representing half of our revenue if you look at individual games it's the same story so this is the top eight grossing games on congress during 2014 looking at their revenue distribution by spender category so that same chart on the right that i looked at from the previous account if you can't read it the bright green it represents the revenue from spenders who spent more than 500 and you can see that six out of eight

games um uh get the majority of their revenue from the vast majority of their revenue from people who spent more than five hundred dollars and all eight get them the clear majority of their revenue from people who spent a hundred dollars or more on mobile the the pattern is similar um here are our top five grossing games on mobile broken out the same way the spend is a little bit more distributed for a couple of reasons one is that the games haven't been out as long and the longer that they're you're out the more that you're gonna get concentration of spend and people who are playing for a long time but the other factor is genre uh on the web our top grossing games are are pretty dominated by mmorpgs and collectible card games and on mobile um we've deliberately diversified a little bit more beyond that but if you look at the same games most of quite a few of these games we have on both web and mobile and their distribution of spend on the website and on the mobile are so

close that it's difficult to tell the charts apart fundamentally how you spend your game how people are spending in your game is going to be the is going to be the same whatever platform that you're on and with the exception of one game the vast majority of our games are getting their revenue from people are spending 100 plus or more and it's not just congregate and it's not just our games this is normal for the industry so swerve which is an analytics and a b testing platform did a report back in january of 2014 where they looked at everybody playing and spending across all of their games using their services and found that uh one and a half percent of people active that month spent and then when they broke them into deciles they found that the top 10 of spenders represented half of the revenue so 0.15 percent of active players were half the revenue a little bit more a little bit more diffused than congregate but not meaningfully different and this

is with a lot of games that didn't have where the highest thing that you could buy was 19.99 so while this is totally true of the industry it's also something that we're really uncomfortable with so uh let's see okay okay there i'm on the right slide so whenever i mentioned that our top spenders on congregate have spent 50 to 80 000 people always nearly always react with kind of this mix of um awe and horror and people gen you know a lot of there's a lot of criticism for free to play games and ethics and one of the things that they quickly jump on is the amount that the biggest spenders are spending and they start questioning are these people saying are they being uh you know our developers some kind of predator that's you know ripping money from these people and it's not just ethical concerns um people worry that free to play games are too financially dependent on just a few people so much so that zynga listed it as a

risk in their ipo perspectives now from my perspective pretty much every business is dependent on good customers so um i don't think it's much of a risk but zynga certainly thought thought so and publicized it so to better understand what's going on here um i uh i think it makes sense to take a look at who's buying um this chart shows average revenue per user or arpu on congregate.com by the the reported age of the user at registration um or reported the birth date reported at registration in whatever age they are now so young users spend very little on average with spend rising gradually through college age rapidly increasing after they graduate and then plateauing through a middle age when disposable income is at its highest there's some weird little sharp dips at 25 and 35 and that's probably driven by people putting in

fake january 1 1980 and 1990 um birthdays because those are exactly 15 15 and uh sorry 25 and 35 years ago now the there's also an issue with people with the ages over than 57 because our registration form anchors at 1940 and everything from age 57 or older is immediately visible so probably has a high portion of people who are just putting in random ages but um just looking at the core data from 13 through 57 you can still see a really clear really clear trend um and um in terms of what's going on um you can see a little bit more of what's going on if you decompose rpoo between percentage of buyers and the average revenue per paying user or rpoo [Music] is that my computer okay um the youngest

players generally don't have a way of playing of paying and no credit cards or paypal accounts but the percent of players um who are buying rises rapidly um with age and independence so and then plateauing um through the 30s before just starting decline in the 40s um i suspect that you know people in their 40s now are kind of the first generation that grew up with video games and so familiarity and comfort with video games is a little bit lower past that age um the increase in art papu though is much more gradual and peaks in the late 40s and early fifties again ignore um most of the data from um from from age 50 up that's distorted by um the registration process um what is clear though is that spending grows first with the ability to pay and then the means to pay this chart shows uh um us disposable income by educational attainment and age and if you look at sort of the the

angle of this chart and the growth of disposable income over age it really mirrors the arpa poo growth very closely people are spending what they can afford to spend so this chart um is uh delving a little bit more granularly into our big spenders and is takes our top spent 20 spenders lifetime on congregate.com and sorts them um from youngest to oldest the youngest is 24 the oldest is 68. both the average and median age of big spenders is 40. the older big spenders all come from the u.s and western europe while the few younger spenders come from more unsorted countries the little red flag with a flower is hong kong you can also see brazil and the united arab emirates um and sweden or the or the people are the spenders who are under 30. and our customer

service team has spoken on the phone or emailed with every single person on this list both to check that there was nothing fraudulent going on and then to also help them with various uh in-game customer service issues and issues that arise when you know you spend that much money and they say that um every time they talk to them they're sort of impressed by sort of the politeness and reasonableness of all of these top 20 spenders a lot of them own their own businesses some are engineers there's a doctor with the cdc and cpas and similar these are sort of older um competent professional people the columns um also show how much they spend and then breaks it out into what what games they're spending it in so that first blue part is the their their main game um that has the most spend the red is

their second game and then there's a few more colors for other games and one of the things that you can see really clearly here is that most of these uh players are spending um most of their money on one game they may be buying in other games um but they're they're really concentrating their resources in one game this the phenomenon of a serial um big spender who's going in and dropping significant amounts of cash in game after game is really rare i think there's only sort of two maybe three people who out of this 20 who show that pattern so now i'm going to jump into a different uh um look at the data and start looking at one particular game because once you start looking at gameplay patterns it makes much more sense to look at an individual game um the next series of slides are all going to be data from tyron unleashed which is a game we publish on mobile and web from synapse games and thank you again synapse for uh once more letting me share a lot of your data

so um this chart uh it takes a little while to look through but it shows the average number of sessions per uh daily active user by the day they are in the game so from one year um in some day of install in through a year and a half in and then breaks it by the eventual spend category that they reach so if they eventually become a 500 plus spender then they're in the line in green if they've spent less less than 500 they're red non-spenders are blue and what you can see is that from day one that the biggest spenders are much much more active than anybody else in the game over their lifetime they're averaging around 20 sessions per day whereas lesser spenders are averaging around 12 and non-spenders around 5. the longer they're in the game the more it comes together but the pattern of you know big spenders are twice as active as lesser spenders

and then uh twice as active again uh from non-spenders uh is is pretty consistent and people most people who spend a long time in this game do end up spending so about by about a year in um uh two-thirds of all active players in the game um have spent um but non-spenders aren't driven out because um you know that still means a third of people uh um have have played the game for a year and a half without spending uh most of them spend um some people spend pretty quickly about 18 of people make their first purchase on the day of install and about half have made their first purchase within a week of installing the game but after that it takes a long time to go up and at a month in um 30 of the of the people who are going to purchase have not yet purchased and even six months in these these graphs are not yet

at um a hundred percent people are still making their first purchase even um people who are going to go on to spend 500 or more as you would expect the biggest spenders do spend a little bit earlier and a little bit faster than lesser spenders but there's not really a big difference people are a lot of big spenders are taking their time before they make their first purchase and they're spending gradually over time so this um breaks all of the spenders um out into deciles by their by um they're the average amount that they've spent um and the and then looks at their spending um by time in the game and you can see especially the first and second deciles that their investment in the game is really really gradual they're spending kind of the same amount every month steadily it's a little hard to see what some of the lower deciles are doing here just because the top ones are so big um but um so here in this next slide i'm taking away

the top two and you can see that that gradual investment um is still happening uh just at a slightly less steep um angle and with a lower amount the only groups that don't sort of rise significantly over time are the bottom deciles where people are spending 20 or less and most of those are just making you know kind of one purchase and done so how do you spend five thousand dollars in a game um now i'm going to look at one individual case of a big spender this big spender is a 40 year old california californian whose primary game is an action rpg it's single player in a social environment with a lot of skill based leveling and multiple class paths that give them a strong feeling of progress there's guilds and multiplayer pvp internments that they participate in and they play four to six days a week um play have played more than a thousand times lifetime and they play and spend um in other

games but ninety percent of money and time is going into the just this one game so you can see that that fits the sort of you know prototypical stereotype of the big spenders um that we've talked talked about to this point um what do they actually spend on so they spent in 2014 they spent about 7 500 uh uh 2200 on consumables 1800 for skill upgrades some miscellaneous things and then the bulk of their money going towards um multiplayer competitive multiplayer tournaments guild wars pvp that kind of thing um so a little bit more about this big spender it's me and a little bit more about this big spender i'm not spending it on a game i'm spending it on figure skating uh so uh how does that work well uh believe it or not there's actually an amazing parallel

between um the structure of competitive figure skating and a game uh it's this has been the structure for the us figure skating association since like 60 years 70 years but they they may as well have invented gamification so um it's a single-player sport in a social environment um so individual sport done in a shared session so i skate at the yerba buena rink that's kind of right on top of the conference center right now with other people um who i get to know well and become friends with uh if this makes me slightly cooler one of them is occasionally brian boytano who is a very nice guy uh there's skill-based leveling multiple class pass um so um there's five different classes in which you compete um um and can test up and level up um i'm progressing along the moves in the field basic skills tests as well as singles

freestyle and i am i've tested through three levels on moves in the field and on two levels on freestyle and working to level up on both um and i do this by learning new skills um achievements um and then testing in the test session so um say example might be a sit spin or a flip jump or something like that um there's guilds and co-op multiplayer so i'm a member of the skating club of san fran san francisco i'm also a member of a synchronized skating team and believe me there's nothing cool about that that's the uh picture of me and that like red sequin vest with like something really strange in my hair that's my synchronized skating team um there's also ice dance and pairs but i don't do that um and there's a competitive multiplayer so there's frequent competitions organized by age level and mode and points are also tallied for clubs and ranks and that pressure is actually very real

and very significant and is the reason why in that picture there to the right i'm dressed like a b-52 our we were hosting a competition at my rink and the rink manager wanted um all of the good skaters to compete in as many events as possible so we would earn more points and um she made me um do this group routine in this particular outfit um and the good news is that though that we did win that trophy and she was happy so uh so what you know i gave all these sort of um game equivalents to my spending so um the consumables was my ice time so um just going to my daily session um costs about 11 i do that almost every day and that adds up the skilled upgrades are my private lessons um i take a one thirty five dollar half hour lesson every week that ends up being about eight hundred eighteen hundred dollars a year um there's some miscellaneous costs for equipment and costumes

but the big bulk of money is going to competition fees and travel to get to competitions and even with 7 500 i definitely haven't hit my max spend i'm actually participating in relatively few competitions because i have to travel so much for congregate already and while i'm naturally thrifty i'm happy to spend this money i love skating enough that a 10 increase in my skills is worth 10x the cost when i make this comparison people will just often dismiss it as being fundamentally different because skating is exercise i can resell ice skates uh etc skating is good for my health but you can see here that most of my spend is going to skill progression and competition and that's exactly the thing same things that you spend on in game nothing well except for the actual ice time nothing that's listed here has any refi resale value or does any good for my health even the equipment is really services

like skate sharpening and my locker and my larger point here is that games are hobbies and people spend a lot on their hobbies so example would be like a weekly golfer could easily spend ten thousand dollars a year on green fee greens fees and golf clubs lessons going to the driving range um somebody's an amateur guitarist while they might not spend much day to day um the few that i've known tend to obsess about collecting guitars and um you know we'll go visit shops that have guitars that they like um that they can't afford just to sort of touch and see them and usually end up spending more than they um really want to on guitars uh going to eat in restaurants adds up very quickly if you do it weekly especially in san francisco um and baseball fans season tickets a visit to spring training that can be you know 5 000 between them pretty quickly even something like you know your aunt does like quilting materials

get expensive pretty quickly and it's nicer to use nice materials so people spend on that a really good sewing machine is going to cost five thousand dollars and if you're doing it all the time you're gonna want that even something that um seems like it would be really cheap um relatively like um like running somebody who becomes a competitive runner is likely to start spending money um you you know you're gonna go through shoes pretty quickly and at 150 a pop you can spend 500 on shoes and clothes um quite easily especially once you start competing race fees and travel to races it adds up just the way my figure skating does so how did i get started on this path and i think looking at sort of the long-term pattern of my spin kind of explains a lot about sort of the psychology um and how things work so um i started skating in two back in 2004 looking for an alternative exercise uh immediately

fell in love started taking group lessons and my bought skates and in 2005 and early 2006 my spend was accelerating um then in june of 2006 me and my brother and i started congregate and suddenly i had neither money nor time we were going without salaries and so there's about a two-year period where i was barely skating and barely spending at all things stabilized um by 2009 and i went back to sort of the trend line that i'd been on before in 2010 we sold congregate to gamestop and i used some of that money to buy custom skates um and then they're made by the same people who make them for brian boitano so again they're very cool um and i'm still using those um from five years ago so um uh it's it was a good investment so um and then i started competing um and joined the sync team it jumped a lot last year when i went to compete at my first nationals it was in

massachusetts in april i'm probably the only person who has ever combined a trip to pax east and adult skating nationals um and and this year coming year i expect that i'm going to spend even more um i think you know i'm guesstimating somewhere around twelve thousand dollars um uh when i turned 40 last year my family gave me a really really lovely gift of a trip to the dorothy hamill uh fantasy skate camp um it was awesome um and i'm likely to go back and spend a week you know with great coaches skating for um um a week again and i can see um i could really easily see spending you know say twenty thousand dollars in a year um if i did both adult nationals and the big international competition in germany um work with a choreographer do things like that so i don't know that i would do that sort of regularly but i can very much see that happening and and feel that it would be rational um you know the choices that i'm making here may seem a little unusual

um but they've been gradual thoughtful investments um put to something that i love i'd rather spend money on figure skating than almost anything else so i'm lucky enough to have the means um and disposable income to put towards skating um especially as i don't have kids but that's not true of all skaters or all gamers here's a friend that i skate with on facebook posting about her decision not to go to nationals this year um because her husband has lost her job and they need to to budget and save and she's she's saving but she's putting you know the money goes to the mortgage first and then health care and then she's saving for her nephew's wedding um but she's still finding enough you know money in the budget to to skate and take lessons and sort of do the base case um and then several other people are chiming in about their decision making again deciding it was too expensive to go to nationals so the point here is that even avid fans

are making rational thoughtful decisions about how they're spending now not every skater or gamer is making their spending decisions um totally rationally and within their budget there's always a spectrum of human behavior in any group and there's always going to be some people who are trying to fit fill unmet emotional needs in unhealthy ways but we don't blame department stores for the occasional compulsive shopper and we shouldn't blame either figure skating or games um for the occasional compulsive spender and it's not just figure skating and it's not just games other industries have similar dynamics for example the music industry so if you start with a base of radio which is a really mass audience and streaming and piracy um most artists are getting very little money from

um from these sources um but they're getting a lot of exposure um um to a broad audience um in the hope that a smaller percentage of them are going to go on and buy either a physical or digital copy um of um of their music um and that and then from there a smaller percentage of than that is going to go on and buy a ticket to go to a concert um and maybe buy a t-shirt um and then there's going to be um in the last few years as the amount of revenue from amount of people buying um physical and digital copies of music has gone down with piracy and streaming um artists are getting more clever about putting together packages vip packages to sell sort of expensive experiences to their very highest fans so what you see there is that overall millions of people may be seeing listening to an artist's music but the artist's revenue is heavily

concentrated in the 12 percent who spend 20 to 500 to go to concerts and buy merchandise and even within that it's probably concentrate on the repeat concert goers who are maybe traveling to get there the people who buy every album even the bad ones um and then again the people who are buying vip packages i'm showing a screenshot here from one that you two is doing that's fifteen hundred dollars um for a ticket to the concert um a hotel room and premium premium accent premium access to merchandise um um to where you can spend again um and just the possibility of a drawing um where you might get to meet the band um so like a really low percentage chance that you might be anywhere near the band and that's fifteen hundred dollars and again it's a little closer to home as well um in terms of the concentration so if you look at console games um the dynamics are more similar than you would expect so gamestop um our parent company uh uh is a very hefty percentage of the us

market for video games and they were they've reported publicly that 20 of their customers are members of power-up rewards which is their loyalty database and 70 percent uh but the 70 of their revenue is coming from those 20 of uh of customers who are loyalty members and even within that um it's more densely packed so um there's two tiers of power up rewards membership there's the free one um where you just kind of give over your information and you get an immediate discount and you can you're earning points that you can potentially redeem for things in their in their loyalty store and then there's a pro version which costs 15 and gets you a copy of game informer magazine larger discounts and double the points as you would imagine anybody who's going to spend 15 on a on a membership is a really good customer and so the people in the basic free tier on average buy from gamestop three times a year spend 160

um the people in the pro by uh 10 times on average and spend 570 dollars and that's just their spend on within gamestop they're probably spending on steam and other places now the number uh the breakout um between um uh basic and pro on power-up members is not a public number but you can make a guess that it's gotta be you know less than ten percent of the gamestop audience and somewhere in the forty to fifty percent range of total revenue so uh if this kind of distribution and this kind of setup is totally normal why are we so uncomfortable with big spenders and free to play games so uncomfortable that we quickly jump to mental illness and bad behavior by game on on the game developers part to explain it so i think there's several reasons um one is data before free to play we really

we really didn't know how much people were spending it was scattered across multiple sources and those sources were generally retailers and platform holders until recently i doubt that the retailers themselves knew i worked in data analysis and marketing for several retail companies before we started congregate and though we used to at that time we knew almost everything about customers who were buying through catalogs and web but if we looked at if we wanted any data from the store it was always just anonymous transaction data and there's no way to figure out who was purchasing again and again an individual store manager might know who their big customer was big customers were and what they were spending on average but it took loyalty programs which really took off in the last 10 years or so for people at the retail level to really understand and collect this kind of data and even once they had it you know they were probably reasonably comfortable with it um because this kind of concentration is

normal um regardless of what you sell um i have a funny story about um larry ellison from a previous company that i probably shouldn't tell publicly but if you ever catch me not at a podium i will tell you what it is so um reason two um is that spend is more concentrated and you know we should be honest about that um uh it's more concentrated and the biggest spending spenders are spending more so this table shows off uh the dynamics of mobile and web markets uh starting with a base case of a paid mobile app um these numbers are all made up so you know don't read too closely into them um but i think but um you know i have enough data that i feel like these are pretty plausible as sort of you know above median cases but sort of way below actual the the real successes in the current mobile market it's really

hard to get much of anyone to buy a game and there's just too much free content when you go free installs can explode but conversion goes down and lives in a relatively narrow range so so what ends up mattering is not is whether um players keep keep playing and keep spending and drive the average amount spent up and that's why free to play is generating more revenue than paid it's not because more people are getting into your game and having a chance to convert generally you're going to have fewer buyers than you would have otherwise and but i think people think that that's what the dynamic is that you know you're getting more people in who might buy um uh the total number of people is buying is almost certainly going down because the more casually interested um are not going to pay unless they have to um it's the reason that total revenue is up is because the most invested players um who in a paid world spent the same as ever as as everyone else um are now have their spend uncapped um

so some people who would have uh spent before enjoy the game for free and the most investment invested spend much more than they would have essentially subsidizing a free experience for everybody else reason three is that we don't value digital games very highly um so i've put together a chart again with some good numbers um from mpd and some really really shitty numbers um um for paid pc games that are um somewhat made up but somewhat plausible after talking to um pc developers so take it with a grain of salt but the the range of prices um and sort of the the general dynamics of total market size are probably pretty accurate so um console games have better graphics and more content to play through than most pc games or um definitely most mobile games but the average player only only plays a small portion of that content

completion rates on even the the best games on console tend to be around 30 i believe um well some mobile mobile and pc games are quite short you know monument valley is pretty darn short for example the delta between play times is likely a lot less than the delta in price uh is a new console game really worth four to five times the average pc game 20 to 25 times the average paid mobile game you know i'm biased because i'm in that space but i don't really think so um and the other thing is again these numbers are rough but the market size of each of these genres are not genre's platforms marches roughly in step with the average sales price of a game um though in theory mobile and pc pc should be larger than console games because um there are platforms that have much broader reach everybody almost everybody has a computer almost everybody has a smartphone so why is price mattering more than the

number of possible players and that's because i believe demand for games is fundamentally inelastic so what inelastic means is that when the price drops the total amount sold increases but not enough to to account to make up for the drop in price so total revenue is lower and i know you're thinking okay that doesn't make any sense at all if that's true why do pc game developers make so much more when they're part of steam sales and humble bundle clearly price is dropping and their revenue is going up but when you think about it that's what's going on is a sale and a special event and they're getting a lot more promotion if you drop the price um without um giving them a lot more attention and putting a perception in the mind of the player that they're getting this amazing limited time deal

the revenue wouldn't for these games wouldn't go up at that same price they would go down um steam sales help draw more people into into play pc games which it which increases the sale for that category overall and exposes consumers to a lot broader range of games and developers which overall is really good for the industry but it's probably mostly cannibalizing revenue that would otherwise have gone to console so pricing studies have consistently shown that we make our decisions based on our perceived sense of value rather than price alone and interestingly price itself is a signal of of a value to most of us so we assume that if the price being charged is higher the item must be better so um if you see a higher priced wine your default assumption is that it's better wine you don't have really any way to know that but the price is giving you that signal if you go into a drugstore and you see a brand name like a leave right next to the walgreens

naproxen sodium those are exactly the same things and yet people and this includes me have a tendency to go reach over and buy the aleve because it must be better because it's more expensive but it's really the same thing so on mobile we have anchored our perception of value really low so we're all familiar with the terrible race to the bottom on paid game pricing that happened on ios a few years back there was no retail or platform who cared about the total sales to organize and control price wars and the going price for games was quickly pushed down in 99 cents games that you can play for many hours are priced at at or below a cup of coffee or the cost of renting a movie that lasts 90 minutes

a few games can come in at higher prices like minecraft or final fantasy tactics when their value has been anchored high on another platform and prices are slowly creeping up again um 3.99 is more common 4.99 is more common but for paid games to be viable for for for more developers prices need to rise a lot among other things that so that sale events can be more meaningful a 99 drop um maybe 50 on a dollar 99 game but it's not gonna get a lot of people excited so that's why you know free to play is so strong in the mobile market free to play games set their own value in a free-to-play game nobody can sell a good that's useful except you which makes your game a little monopoly it's an insecure monopoly though because the player can leave at any time and if you piss them off by um pricing things in real weird and aggressive ways they are likely to leave there's no point price shopping um uh packages of gold between games or the value of any kind of premium

currency um the other game's items have no meaning in the game that you're playing the more compelling and engaging the game the more the players care about their status and progress the high and the higher the value of the goods in the game become to the player and the higher you can set your prices which comes to the next reason why i that i think is affecting our perception of big spenders which is that we don't value virtual goods our brains easily pin value on physical options physical objects sorry um part of the reason console games have been able to continue to anchor their value high relative to digital versions is that disk but that disk has been a tiny percentage of the cost of selling a console game for a very long time it's the devil the development it's the retail share it's the marketing that's what's driving the cost up on just about everything um but even out of context physical goods um are always perceived

as having value but out of context of playing a game virtual items have no meaning they're incredibly abstract and therefore it's almost import impossible for us to value something that we've never interacted with and never imagined a physical good we we always assume it has a value because it all it had a cost to produce so i think this is a a large part of the success of skylanders for example is that it bridges that gap between physical and virtual value so a parent can go into a store and buy something that looks like something that they understand and give it to their child who then converts it into a virtual item that has a lot more meaning to them so um another example is that spending five to ten thousand dollars on a specialized pc gaming rig um that improves your skill and your competitiveness in a highly competitive game like um league of legends um can easily cost

five to ten thousand dollars and it's fundamentally the same as spending five to ten thousand dollars on um um skills and other things that um in a virtual game that would improve your competitiveness um but i bet you all find it a lot easier to contemplate and and accept if you walked into this room you're much more likely to say wow then what were you thinking um but uh um if they'd if the same person had spent that same money in game um you would be a little bit more concerned um for the person who's spending in game these items have context and they have equal value and just because you haven't experienced it doesn't make it less valid um so reason five is that i don't think we value games equally with other hobbies here's a lovely anti-gay men um a slightly misogynistic quote from ray bradbury along that topic um and we don't value it not only with

other hobbies or even other forms of entertainment a few weeks ago i was looking for a comprehensive history of games going back to ancient times and i was surprised to find that that one does not appear to have been written most universities have entire departments devoted to studying literature film and theater with virtually nothing about games but we've been playing games back to thousands of years bc and playing and spending just as much time on them and yet we don't we don't give them sort of any credence in an intellectual way games are a waste of time um games are for kids um games aren't art all of those things are sort of this sort of backbeat of of culture uh it's not hard for me to talk about my obsession with figure skating with non-skaters people generally think that it's kind of quirky and charming that i even that i care about something that uh um is a little strange caring about sports even unusual sports where you're wearing sequins and makeup and play music is broadly

accepted but if it were a game that i was spending that much money on i think i'd be more defensive especially with non-gamers the bias against games is so insidious that even within the in industry we've internalized enough that we question someone with means spending tens of thousands of dollars on a game especially when you combine it with the low value we place on mobile and pc games and especially virtual goods and so people jump to explanations like mental illness or evil games manipulating players when the real explanation is that they are rational wealthy people who are dedicated fans of a particular game and investing in their progress in it um so please don't call them whales call them hobbyists call them super fans call them something else to call them whales is to dehumanize them to talk of catching them suggests that that they're blundering into your neck or somebody else's neck rather than choosing to spend their time

and money in a game and if we as developers don't respect our players and the value that we create who will so um thank you uh thanks uh a lot of people helped me with this talk so thank you to them um i will post um this talk and i posted most of the other ones that i've done um and other ones from congregate people on our blog um we've got a booth in the expo this time so if you'd like to talk to us um um please stop by there but i'm happy to talk to people um afterwards you can follow me on twitter at emily g and congregate devs and i'm happy to take some questions now thank you hi i did have one question um every example you used for hobbies uh-huh um the cost of the individual items for the hobbies is clear

so if you go to the sporting goods store you know exactly what the cost is of your skates you know uh you go to gamestop you know exactly what the cost of call of duty is do you feel that it changes uh the model when there's an obfuscation of cost where you're using hard currency or gotcha where it becomes much much harder to know what the actual value is of the things that you're purchasing um i don't think it uh i don't think it changes it that much um for one thing most of these spenders are sort of very rational careful optimizers ubisoft did a good talk last year where they did a lot of sort of social science research into their biggest spenders in one particular game and found out that they were you know very careful um um thoughtful people who are maximizing certain things um it makes the um with gacha boxes the individual result of a particular poll may be uncertain um but the the sort of total value of

what you um are likely to get um at the end of it um is pretty clear um and people who are spending that much are thinking it through um and you know i would say that you know when i got into figure skating i had no idea how much i would spend and even the first time going into nationals there were all sorts of sort of hidden and unexpected costs where i had to you know suddenly pay for um warm-up time and other things i think you know every time you're making a choice you're looking at it um um on the face of it and while you may you may be playing a gotcha box with the intention of get getting one particular item if the game is doing it right then every time you pull it you're getting something that you value so um you should be feeling like i got a good deal with this gotcha pull even if i didn't get what i wanted i think um that sort of framework of how

we think about designing free-to-play um is actually part of sort of the the humanized idea of spenders and spending that um if we're thinking about everybody as sort of rational and thoughtful um then we should be thinking about how they feel immediately about purchasing and um and doing it in a way where they it feels right every time i'm not saying that that's exactly what's happening in every game but for somebody to keep spending again and again and again they must be feeling that they're getting a good value what about the variable ratio reinforcement and like you know that's a hook that does keep people going because it's it's a compelling feature that's hard to step away from it's you know that's what makes video slots works alone and the top five of the top games in the top 25 are straight up so what i would say is you're buying an experience if you're enjoying that experience then you're getting the value of it so i don't think saying something

an element that makes it more enjoyable for you to play and enjoyable to spend that's making the game into a spend is part of the entertainment of what you're doing and we should trust that that is that the person is making that decision um and enjoying it at that level again as i mentioned spend tends to be extremely even across time periods um which you know shows that you know people are having sort of controlled reactions um and think thinking thoughtfully about what they're do you spending it makes a moral difference for the games that purposefully try to get those really top-end spenders to make more purchases like psychological things in the game sort of try to pinch them in and try to just almost force them to buy something to continue for those really high-end spenders um i think the games that do that are driving away they're big spenders um

i think that um uh the feeling of being forced to do something is sort of one of the most unpleasant uh unpleasant ways that you can go about monetizing um and uh that games that do that are probably um actually don't have the highest number of spenders like you want positive incentives like competition um um uh and um and and to um to drive spending i don't think pinch like pinch points are not a terror from my perspective not a terribly effective way of monetizing and not really directed at um big spenders i think pinch points tend to be about getting five dollars from everybody like you get to a certain point and now we're gonna get that first five dollars or you can leave and as you saw you know somebody spending five dollars or ten dollars once um doesn't add up to very much in the long term and so i think that kind of monetization um is a mistake

i was wondering if any of your data shows that if a similar genre of game was introduced into your market if there was a siphoning of spending towards that new game or if uh there was some sort of loyalty to a game that was already invested that people are investing in um there's intense loyalty um uh the so when we started you know we have this broad platform where we're advertising a lot of games and when we first started having games be successful one of our concerns was um if we show somebody another game are we going to just cannibalize sales and move them across and what we find is that you know our sales have kind of increased really steadily over the years because people find the games that they really care about and they spend in those and they stay in those um and it's relatively rare to sort of shake them from that loyalty again you saw that in that big spender data that most people had one game that they they

spent on um the situation where that's not true um is where uh you know a game isn't being supported um and sort of the content um has gotten is new content isn't being released um the sort of the event cycle has died there's not any new features at that point there is a vulnerable point where if a good new game and that same genre comes in then you will see sort of a bunch of people jump over but generally if somebody is spending um especially spending a significant amount in the game they're not leaving thank you thanks emily great talk um so you mentioned that in the games you have the the ability to really anchor um your own prices um but as we see more and more games of the same genre coming out with the same types of purchases going on do you think that's going to put at risk that that like the competition can now anchor the price say of like your hero or something um i think it may do it may influence it

for that first purchase um and certainly i think it's we've seen it most in card games where cards are amongst the easiest things to sort of understand buying and to compare so um you know we'll see card games that come out that are pricing cards that you know more like seven and ten dollars and then they'll be the complaint no so magic prices it at this etcetera um but those games still do well essentially um what happens is then you know if you're if you're price comparing um you probably you know you're already probably not um loving the game um and by the time that you have spent more time in it um again you know you value that card more um than that other game um i think i do think that it's important to keep um sort of um prices there's sort of like a a careful happy band between um high enough that you're not just sort of kind of giving away money because um you know things are um

sort of inelastic but you also don't want it you never want the player to feel that they're being taken advantage of or that they're being um they're not getting good value and that's what you should always concentrate on is that feeling of value um and you probably want to keep things more at like you know 15 or 20 dollars to spend but you get a lot of stuff and you feel really great like to me that's how it should be working cool thank you so lovely talk thank you um i am curious it i i suspect i know where you're headed with this but your thoughts on the paid incentive advertising such as some of the services that the the mobile publisher i was with would use and whether you think that's a good concept from the advertisers standpoint is opposed from the company making revenue um no i i think well executed they're great um i think it's important to design them in ways that they're not competing um directly with what you would actually spend in-app purchase on um we've done we've done some a b tests and seen where

um if we made our offers more prominent overall and they did we'd see an increase in offer revenue and then a total decrease but i don't think it has to be that way one great example is our most recent game adventure capitalist um i don't know if you've played that game um but most of the the in-app purchases are sort of speed-ups of you know 3x permanent speed-ups um but you can get a a full a 2x 4-hour speed up just by watching an ad um and i go into that game and it's just part of sort of the optimization that i do every time is that i watch an ad i'm really happy to see it we get a lot of lots of complaints from um from players saying oh my ads aren't working because i really like the system but at the same time we're seeing really good results on the in-app purchases so i think um you know if designed well they're very complementary um but it is important to think about you know sort of the relative value of one ad versus something somebody spending um two or three dollars

thank you great uh it's three o'clock so i have to get down anyway you