This article was originally published in Game Developer Magazine. It was the third in a series of business columns that I am writing for GDM.

What would the typical publishing executive do if someone came to them and said, “We’ve taken open source, 8-bit art and created a f2p, nethack-inspired MMO with permadeath. You can attain the maximum character level in just 30 minutes of play. The game currently has no means of generating revenue and can only accommodate 60 concurrent players per server. Will you work with us on it?”

That’s essentially the question posed to Spry Fox one year ago by Alex and Rob, co-creators of Wild Shadow Studios, when they presented us with an early build of Realm of the Mad God (RotMG). And I can guess what others might have said to them, because when we subsequently described the project to contacts of ours, the reaction was inevitably one of skepticism. Permadeath? In 2011? How the heck are you going to retain users? And surely you mean 600 concurrent players per server, not 60?!

A “mature” company behaving in the stereotypically mature (i.e. risk averse) manner would have passed on RotMG. Its design was unconventional and terribly hardcore. It was written in Flash and unsuitable for distribution on consoles. It was relatively expensive to operate. Its developers did not have an established pedigree in gaming. The list went on and on. Better to get behind yet another first-person shooter with slick 3D graphics and call it a day.

We (Spry Fox) had a different perspective. Here’s how we evaluated a risky project, managed that risk, and created a financial and critical success.

Alex and Rob were new to the gaming industry, but they had advanced degrees in computer science and substantial experience working on massively scalable systems at Google. They were smart, earnest and motivated, and obviously willing to buck convention. So we partnered with Wild Shadow, with the goal of refining RotMG’s design and implementing a coherent monetization plan. And, crucially, we treated the project not as a huge bet or investment that could not be allowed to fail, but as one of several experimental games in our portfolio. And as with all our other titles, we accepted — and embraced — the possibility of failure, because we do not believe that it is possible to truly innovate in any other context.

Going public early, and staying public

One technique we used to identify and fix major design issues in RotMG was to skip the “private beta” and iterate rapidly with a public audience throughout the majority of the development phase. Despite the public nature of our work, we regularly made dramatic changes to the game. Some of the changes were well-received by players; others caused riots on the RotMG forums. In each case, we did our best to explain our rationale to the game’s slowly-growing community, but we never stopped making big, public changes and observing the results. Most companies plug away at their games in secret, using (at best) highly controlled playtests to learn how to improve them. For an MMO, especially an MMO aspiring to any sort of originality, that’s an incredibly slow and taxing process. We believe that our methods were faster and more effective.

We essentially ripped the “beta” label off of RotMG when we launched it on Chrome Web Store on June 20th, 2011. Google featured RotMG on the CWS home page as well as two subpages. Shortly thereafter, the game became the subject of an ongoing series of articles on Rock Paper Shotgun, and was reviewed favorably by many other sites and individuals. The subsequent increase in traffic and publicity has been gratifying; we hope to leverage that and launch RotMG to great fanfare on many other online game portals in the months to come.

Managing ARPU

During the final phase of RotMG’s public beta, the “average user” spent approximately $1.68 per month. (There’s really no such thing as an average user; the vast majority of players spend nothing, and a very small minority spend enough to support everyone else.) Post launch, monthly ARPU has peaked at $3.40, partially because of an increase in retention, and partially because of high-value conveniences that new players tend to purchase soon after deciding they enjoy the game, like more inventory space (vaults) and the ability to use multiple characters concurrently (slots.) We expect our ARPU to eventually settle somewhere north of $2.00 but below $3.40, until we:

A) Enhance our methods of collecting revenue. With direct integration of a mobile phone payment solution, gift cards, and additional payment platforms that are locally relevant (i.e. outside the United States) we expect our ARPU to climb substantially.

B) Identify additional premium features and/or items that we can sell in RotMG without jeopardizing the spirit of the game.

C) Provide an optional subscription offering to our players, many of whom have told us that it is easier for them to sign up for a recurring billing plan than to pay piecemeal for things in a game.

We believe that a monthly ARPU of $5+ is totally achievable for a game like RotMG. That’s a heck of a lot better than selling games for 99 cents on iTunes! Our positive experience developing and commercializing RotMG is yet one more reason why we have abandoned the old world of disposable downloadable content and embraced the new (and much more satisfying) world of f2p games. The vast majority of players enjoy our content without ever paying a dime, yet we still earn more revenue than we would on XBLA, PSN, etc. What’s not to like?

And most importantly, this business model enables us to keep iterating and innovating. The Web is a huge and wonderful place where kooky ideas like RotMG can not only survive, but flourish. Technologies like Flash and HTML5, plus business models like F2P, make it entirely possible to bring original, “niche” content to millions of people.

There will always be a big market for the next derivative console game. And there will always be big publishers too risk averse to make anything other than the next derivative console game. Savvy independent developers can and should aspire to better than that.

You might be wondering why a studio as focused on independence as ours would choose to work with a publisher. Here, in no particular order, are the reasons:

• Our games have reached millions of users, but never concurrently. We have constantly worried about our ability to scale without major service interruptions or other related problems. Our fans are our lifeblood and we do not want to let them down. Playdom, unlike us, has grown and managed many games with massive concurrent user populations. We are grateful for the opportunity to learn from them and lean on them.
• The social gaming market is the most hyper-competitive environment that we have ever worked in. Successful games are cloned with lightning speed and the clones frequently outperform the original. Yes, we could raise a bunch of capital and use it to spend our way to higher user counts, but raising capital takes time and, having never managed a major user acquisition campaign, it is safe to assume that we’d probably spend our marketing dollars inefficiently. Playdom, on the other hand, is in a position to not only cross promote Triple Town to its many existing players, but to help us advertise the game in an effective manner.
• Playdom, unlike many other publishers, offered us a fair deal pure and simple. They did not treat us like creative-but-helpless indies to be mercilessly exploited. They treated us with respect. It was also clear from day one that they were totally in love with the game. We’re pretty sure that some of the execs at Playdom play Triple Town much, much more than we do!
• We want to create great original games. We do not wish to spend our time creating a massive company with a huge operational arm, with all the overhead that entails. So, we will retain complete creative control of Triple Town on Facebook while Playdom takes care of the many important operational and marketing responsibilities that Spry Fox is not well positioned to manage.
• Playdom has made some very advanced tools available for us which will make it substantially easier to analyze activity on Triple Town, to connect with our players, to do AB tests, etc. We could theoretically have built and/or acquired all this from third parties but even in a best case scenario, it would have been neither easy nor cheap, and we would not have had Playdom’s advice as we leverage those tools and grow Triple Town in general. We are not so egotistical as to think we have nothing to learn from one of the biggest players in this market.

So that’s the story. As always, you can expect to hear updates from us as to how it goes. :-)

-Dave & Danc

October has been an insane month for Spry Fox. First we launched Triple Town. Then we launched Steambirds: Survival, mobile edition. Now I’m pleased to announce the launch of our latest original game, Panda Poet for the Web, a total remake of our original Kindle game which was released in 2010!

For a limited time, Panda Poet is available exclusively on our website and the Chrome Web Store.

The Kindle version of Panda Poet is a single-player word puzzle game, but the Web-based version is focused on asychronous multiplayer, and the core gameplay mechanic has been completely revamped to accomodate that. The quickest description of the new Panda Poet is “Scrabble meets Go.” It is a battle for territory between two players, and words are your weapons.

Panda Poet is also our first HTML5 game, which is an interesting experiment for us. We’re looking forward to seeing how we can leverage some of the big platforms that have recently begun to emphasize HTML5 games and comparing the traffic they drive to the traffic provided by Flash game portals, our traditional bread and butter. And we’re curious to see how browser compatability issues affect our retention, if at all. One thing’s for sure: its exciting to fire up the browser on my phone and play Panda Poet on it without any major issues. :-)

As always, we’ve launched what we consider to be the “minimum viable product” and we expect to keep improving the game over time. Four months from now, Panda Poet will look very different. And of course, we plan to put it on social networks and mobile devices, so there is a huge amount of work to be done.

The current business model is simple: Pay $2.99 to disable advertisements and enable the option to play on a 9×9 board in addition to default 7×7 board. My guess is that this won’t be enough to provide the kind of ARPU we are shooting for, but it will hopefully provided a decent baseline that we can build off of. Of course, we expect to generate some revenue from the advertisements itself, but it is hard to imagine that being very significant unless Panda Poet becomes a monster hit. That’s just not something anyone can bet on.

So anyway, please check out Panda Poet and let me know what you think! I will post an update in a few months on the game’s performance. (Speaking of, I’m overdue for an update on our other games. I’ll try to post something in a few weeks.)

(1) What are your current thoughts on Xbox Live Arcade and how it has evolved as a platform for developers? What about your thoughts on how it should evolve? Please be very specific.

What’s interesting about Xbox LIVE Arcade is that, other than from a content perspective, it doesn’t seem to have evolved very much over the past several years. What I mean by that is the *games* have changed, but the platform itself has changed very little by comparison.

XBLA started out as a place for “bite-sized” and retro games; the kinds of titles that would typically have a $250k development budget. Today some developers are spending $2m+ on their XBLA games and Microsoft has very clearly sent the signal to the market that it is looking for “bigger, better” titles. So that’s a pretty big shift.

But then you look at the platform and you have to ask, what has Microsoft done to keep pace with and support these bigger, more ambitious titles that it’s been asking developers for? It’s not much easier for a player to *find* XBLA games on the Xbox than it was when the 360 first launched (many would argue that it’s actually harder now.) To my knowledge, the platform still doesn’t support some basic merchandising techniques, like product bundling for example. LIVE Avatars were widely panned by hardcore game developers when they were first announced, but at least they were *something* new that developers could work with; then Microsoft basically forgot about them for a few years. The platform has become progressively more competitive for developers, yet its evolution — especially from a retailing perspective — has essentially been stalled for years. Not a great recipe for success, and one that I know frustrates a lot of very smart and passionate folks who work at Microsoft.

(2) With other platforms such as Steam and iOS having much lower barriers to entry, does Xbox Live Arcade have too high a barrier in an increasingly competitive market for talented indie developers?

XBLA’s 1st party group has had a high barrier to entry for years now. And back when a slot on the platform was considered a “golden ticket”, it didn’t matter. You were practically guaranteed to turn a profit if you released a decent game on the platform. If that was still the case — if the platform were even *remotely* as reliably profitable for developers as it once was — the fact that its 1st party group has a high barrier to entry simply wouldn’t matter. For that matter, if the platform was still reliably converting at least a small number of indies into overnight (and very wealthy) sensations, that might still be enough to inspire developers to hurl themselves at the gates. But the problem today is that we’re not hearing those boom stories anymore. Maybe they’re still happening, and they just aren’t getting talked about. I don’t know. But it’s bad for Microsoft. They need those inspirational stories to be told loudly and told often. Otherwise, there’s just no reason for a developer to put up with the uncertainty and the hassle commonly associated with the platform.

(3) What digital marketplaces are currently the most promising … and the least promising … and why? Please be very specific.

My business partner Danc and I have been saying for years that the most promising digital platform is very simply the open Web. There are hundreds of web-based gaming portals hungry for good content, ranging from relatively small sites to bigger players like Armor Games, Kongregate, Chrome Web Store, etc. That market is in many ways the best of all worlds; fragmented enough to prevent any given player from exerting undue control over developers, and yet unified by common technologies and conventions (i.e. Flash, and soon HTML5) that make it very easy to work across portals. This isn’t a theory: we’ve gotten games like Steambirds, Bunni and Realm of the Mad God in front of huge populations of players while spending zero dollars on any sort of tranditional marketing or advertising.

Unfortunately, some web-based portals (particularly some of the largest ones) seem to be stuck in the stone ages. They haven’t embraced f2p monetization systems yet. They still treat developers like unimportant distributors of disposable content. Those portals will change or die. The market is rapidly passing them by.

I’m also very excited about Steam, not only because its a well-built and well-managed platform, but because Valve has consistently exhibited developer-friendly tendencies. No surprise, given that in many ways Valve is still first and foremost an independent developer themselves! What Valve’s competitors may perceive as a quaint or even foolish respect for indies is in fact one of Valve’s greatest strengths, and one that I hope they maintain for many years to come.

I don’t know which platform I’d call the “least promising.” But for whatever its worth, Spry Fox has seven games currently in development; five are web-based f2p games, and two are mobile f2p games. No console games, and no games of any kind that require an up-front payment. That tells you what we think is worth focusing on.

(4) Since the question we want our story to answer for our developer audience is “what platform should you go to and what should you be aware of,” please tell me what developers should be looking for in a platform … and which platforms have those elements. What are your recommendations?

Whenever someone asks me a question like this, I tend to react very cautiously. The problem is that the game platform landscape tends to evolve radically over short periods of time. What you should be “looking for” today is not necessarily what you should be “looking for” tomorrow. The best advice I can give a developer is not “focus on the platform doing X, Y or Z” but instead “don’t become wedded to any single platform!” The former can get you in trouble.

That said, there are a small number of things worth keeping in mind about platforms. It’s always worth understanding their lifecycle patterns (for the sake of brevity, I’ll simply reference my old Gamasutra article on the subject.) And its obviously better to be focused on a developer-friendly platform. The challenge there is that platforms can (and often do) quickly evolve from developer-friendly to unfriendly the moment they achieve any sort of superior position in the market. Companies with a developer-friendly culture are less likely to cross over to the dark side, but it still happens.

Additionally (and obviously, given my previous statements) I’m personally focusing on platforms that have embraced f2p games or are on the verge of doing so. F2P is poised to become the dominant business model in our industry and I have little interest in mucking about with platforms that aren’t prepared to support that. Learning how to make good F2P games is hard, and I’d rather not waste time putting effort into old business models that are rapidly decreasing in relevance.

(5) In your opinion, to be successful, should developers be creating the kind of games they want to create … or develop to suit the marketplace they’re targeting?

There is no correct answer to that question. Different developers have different goals. Someone who is primarily interested in games for their artistic and expressive qualities may have little interest in profiting from their work, and that’s wonderful. The world needs artists who are willing to make profit a secondary (or non-existent) motive for themselves. That said, if you’re not independently wealthy, not supported by grants or academic institutions, and depend on your games for your livelihood, then yes, its probably a good idea to pay attention to the demands of the marketplace that you are targeting. To be clear, that doesn’t mean “copy whatever seems to be working.” That simply puts you in the same boat as thousands of other developers and increases the likelihood that your games will go unnoticed, unless they happen to have a massive marketing budget behind them…

(6) Has Steam become the platform of choice for developers? What sort of lifespan is it going through? And could it soon become too choked to compete?

Steam is an increasingly popular platform, especially for indies who want to make polished hardcore games but who are frustrated with the constraints and hassles associated with consoles. It has many great things going for it. But as long as Steam is a platform that serves millions (or even tens of millions) of people, it is likely to be very hit-driven. You rarely tend to see a huge number of niche successes outside of super-massive open platforms like the Web. This isn’t a knock against Steam or Valve by any means: I suspect they’ll manage their continuing growth better than many other companies have. And hopefully they will continue to invest significant effort into promoting niche content and building platform tools that help players find that content as easily as possible (something the console manufacturers have utterly failed to do, by the way.) If so, there’s a good chance they will remain a favorite of independent developers for a long time to come!

(7) Anything else you’d like to add (especially in the way of advice for developers trying to decide which platform to target)?

I really want to emphasize this one more time: don’t put all your eggs in one basket. There is no holy grail of platforms. No perfect portal that will meet all your needs for years to come. Life just isn’t that easy.

This article was originally published in Game Developer Magazine. It was the first in a series of business columns that I am writing for GDM.

Ask anyone over the age of 30 how many times they’ve had to “learn something the hard way.” Most people can’t count that high. Businesses are just like people in this regard: they need to experiment in order to gather the data that will enable executives to make informed decisions. And experimenting often means failing.

Despite this, most game publishers and developers are profoundly averse to experimentation and risk. “Little” mistakes, like failed prototypes, are not embraced. “Big” mistakes, like failed attempts to capitalize on new markets, are assiduously avoided until those new markets “prove” themselves, by which point it is deemed necessary to spend a fortune acquiring a successful competitor.

Dan Ariely, the author of “Predictably Irrational”, has noted that there’s plenty of research to explain this behavior. In his own words: “Experiments require short-term losses for long-term gains. Companies (and people) are notoriously bad at making those trade-offs.” Put another way: short-term risk aversion is a major psychological handicap for businesses… one worth recognizing and confronting.

The big acquisition: a misguided risk management model

Case in point: EA’s $300m to $400m acquisition of Facebook game developer Playfish. Whether EA paid a fair price for Playfish is probably irrelevant. The company had decided that it needed to get into the social gaming space, and Playfish was a good option (not to mention comparatively cheap, relative to Playdom and Zynga.) The more interesting question is: should this acquisition have been necessary?

The first social games that really took off generally cost less than $100k to initially develop. EA could have funded *ten* independent, tiny social gaming studios working on such games, empowered them to experiment with new business strategies and game designs, and it would have cost a tiny fraction of Playfish’s acquisition price. Assuming roughly $2m in cost per studio, that’s about 1/20th the price of Playfish. And don’t forget that unlike other publishers, EA already had a pool of experienced casual game developers within its Pogo group that it could have tapped to seed this initiative. So why didn’t EA do that?

Some might argue that it was impossible to know social gaming would become so popular, and thus that it was worth investing in. So let’s say that for every emergent opportunity on par with social gaming, another four that look similarly appealing turn out to be complete duds. Now the price of attempting to create the next Playfish has increased by 5x. Which, by my admittedly rough estimate, still means it would have cost 1/4th the price of acquiring Playfish.

I don’t mean to pick on EA; in many ways, it has been one of the most forward-thinking publishers in recent years. I’m trying to illustrate the fact that, contrary to popular wisdom, it may not be more cost-effective for publishers to acquire innovative companies than it is to actually innovate. And when you consider the fact that many research studies have demonstrated that somewhere between 50% to 80% of all big acquisitions end up being viewed as failures for the acquiring entity, it becomes clear that growth-by-acquisition is *not* a low-risk strategy.

The other justification I hear for M&A spending sprees is that internal innovation is simply too hard for big companies. They can’t hire the right people. They can’t adapt their development processes. And worst of all, they can’t protect innovative teams from the politics and bureaucracy that tend to doom groundbreaking projects. These are unquestionably major challenges that I don’t mean to trivialize. And yet, given the astronomical cost of recent high-profile acquisitions, and given the odds that those acquisitions will look bad in hindsight, it’s time to reevaluate the cons of organic growth.

A different approach to innovation: applying portfolio theory to concepts and development teams

So what’s the best way to encourage internal innovation? Here’s my take. (Also, note Kim Pallister’s lecture on the same subject at the IGDA Leadership Forum.)

First: given the perils of internal bureaucracy, new teams should be spun up in separate locations and treated as wholly independent studios, while still benefiting from certain shared resources like legal counsel and financial services. They should be tasked with seizing an opportunity but be given the flexibility to attack that opportunity however they wish, even if that means stumbling through a few relatively inexpensive failures. And they should be kept small, as in four to six people. It doesn’t take an army to experiment in most emerging games markets.

Second: the initiative needs protection from the top. Otherwise, the mini-studios will be cannibalized the instant a “more important” project comes along. It is not beneath a CEO or senior vice president to make this a priority… no less than deciding to greenlight a half-a-billion-dollar acquisition.

Third: the initiative needs to be overseen by a small group of people who understand that they are managing a portfolio of high-risk investments. It is not only likely, but a given that a significant percentage of those investments will not pan out. In other words, preventing failure is not the key goal. Supporting promising new experiments and helping the mini-studios share learnings with each other is the goal.

This issue is not only relevant to large companies. Indie developers may not have EA’s resources, but that doesn’t mean they can’t adopt a portfolio strategy. My studio, Spry Fox, amounts to just 18 people in total when you include partners and contractors. But as of the time of this writing, we have five F2P games in simultaneous development, with five completely independent, tiny teams working on them. Each team is experimenting with original game designs and/or new business strategies, and each team is fully aware that the experiments they are conducting may not ultimately be successful.

It is possible that all our projects will fail. But if we succeed, we’ll have accomplished what very few large companies in our industry have been able to accomplish: a true portfolio process for developing innovative, original IP within new markets. I look forward to sharing the results of our efforts, be they successful or not, in my upcoming columns.

In the meantime, I invite you to ask yourself a question the next time you’re weighing the pros/cons of conducting a business or game design experiment: are you focused on all the ways the experiment could go wrong, or are you focused on how to make the experiment as efficient and educational as possible?

For a long while now, the video game industry has had a very simplistic definition of a “good customer” and a “bad customer.” A good customer is someone who pays you $60 for your game (and better yet, pre-orders it.) A bad customer is someone who buys a used copy of your game or worse, pirates it. The problem is, this worldview ignores a variety of important factors and doesn’t translate very well to the digital markets that most indies are focused on.

Tell me which of these people is the best customer:

• Customer A: pays 99 cents for a copy of your game immediately after launch, gives it a 1-star rating for some trivial reason and deletes it forever.
• Customer B: pays 99 cents for a copy of your game, gives it a 5-star rating and even tweets regularly about it, but is such a toxic presence in the forums and/or in-game that she drives other customers away.
• Customer C: pays 99 cents for a copy of your game and enjoys it, but never rates it and does nothing to promote it.
• Customer D: pirates your game and regularly tweets about how awesome it is to her hundreds of followers. She also eagerly and politely answers the questions of newbies who visit your forums and happily beta tests your new games.

Customer C might have seemed more attractive at a $60 price point, but at 99 cents she isn’t generating much profit for a game’s developer. When reaching the top of the charts means everything (as it tends to in digital markets) I’d rather have help reaching critical mass than have another 99 cents in my pocket. Sorry, 70 cents after the platform’s cut. (Five more of those sales and I’ve got myself a latte!)

But there’s a bigger question: why are you even trying to sell your game in the first place? When piracy rates are sky-high and even big companies like Ngmoco have turned to F2P as their saving grace, why bet on being the next Angry Birds when the odds are way more likely that you’ll be the next corpse on the pile of well-intentioned indie devs?

The F2P world does a brilliant job of forcing developers to focus on the true definition of “good customer.” You stop worrying about landing that 99 cent sale up front and start worrying about what matters:

• Is this person going to eventually convert into a paying customer? If not,
• Is this person going to effectively evangelize my game to other people? (i.e. are they essentially free advertising.) If not,
• Is this person going to be a positive presence inside and/or outside the game, helping to keep it alive and healthy if not grow?

Only someone who fails all three of those tests might be a bad customer.

Today we launched Steambirds: Survival (SB:S), the first true sequel to the original Steambirds. It’s essentially “Steambirds meets ‘Horde Mode’ from Gears of War” — your goal is to fight off ever-growing waves of enemies for as long as you can manage. Aside from this central conceit, the key differences between SB:S and the original SB are:

• In SB:S, you can choose from 24 planes, all of which need to be unlocked, and nearly all of which have very distinct characteristics which heavily impact your play style.
• In SB:S, when enemies are shot down, they leave a collectible powerup where they crash. Judiciously deciding when to collect these (and how to use them) is key to your survival.
• In SB:S, there are microtransactions. Seven of the twenty-four planes in the game can only be unlocked with cash. One of the twenty-four planes is unlocked for free, if you create an account and sign up for our newsletter.

Monetization headaches

Adding microtransactions to SB:S proved to be non-trivial. To understand why, you need to understand our distribution strategy. We’re excited about Flash because it opens up such a huge audience to our games. Part of that huge audience comes from the hundreds of Flash gaming portals who will happily host and promote your game for free, without any negotiation or formal arrangement needed, in exchange for the opportunity to monetize the game via their own site’s advertising system. Normally, all you get in return (aside from exposure) is a prominent link (or links) in the game to other websites of your choosing. But we wanted more than that – we wanted to monetize content inside the game, no matter where it was hosted. That turned out to be a huge pain in the butt.

If you’re a relatively small company like Spry Fox, there’s no way you’re going to implement your own secure billing solution for microtransaction-based games. You’re going to use a 3rd party solution like Mochi, Social Gold, Facebook Credits, etc. Unfortunately, none of these solutions support a virally-distributed game (Social Gold has been promising support for ages, but they haven’t delivered on those promises and it isn’t clear when they will, if ever.) After wasting quite a lot of time trying to identify a solution that would work, we finally settled on Gamersafe, which is run by the same people who run FlashGameLicense (FGL) , a well-established auction site for flash games. Chris Hughes, one of the co-founders of FGL, worked directly with us to implement Gamersafe in SB:S and has been a huge help, in general.

Many flash game portals will happily host Gamersafe-enabled games (especially since Gamersafe pays them a small percentage of all microtransaction revenue generated by the game.) However, some of the very largest flash game portals will not accept a Gamersafe-enabled game, sometimes because they have their own microtransaction system they want you to use, and sometimes because they simply don’t want a third party API for currency or achievements to be active within their portal, which is not too surprising. In such cases, we’ve decided to either integrate the portal’s own currency system if that is an option, or to insist on a very prominent link back to Steambirds.com (the link appears instead of the cash-only planes in the game.)

A prominent out-link may seem like a trivial thing, but it is not. Large portals don’t like it when the games they host feature prominent out-links, and will often insist that such links be removed. But as a Flash game developer, you have to ask yourself: why are you creating games? To eke out a modest income cranking out disposable content? To be perpetually firewalled from your fans? That’s just not a sustainable business model.

Encouraging conversion

Because we just launched SB:S today, I have no idea what our conversion rate (free user to paying user) will look like, but I promise to post something about this in the future. What I can tell you is that we’re not expecting much – 0.5% would be a real win in my book. The reason for my “low” expectations is this: SB:S is a completely single player game, so we’re missing many of the social hooks one would typically employ to encourage purchase. Additionally, while I think SB:S is an incredibly fun and extremely replayable game, it isn’t particularly “deep,” and that’s going to impact our retention, which will ultimately impact our conversion rate.

That said, there are still things we could theoretically do to nudge the conversion rate upwards, and we’ve done them. Here are some examples:

• Instead of having eight awesome cash-only planes, we have seven awesome cash-only planes and one awesome plane that you get for free if you simply register a Gamersafe account and our newsletter. This removes one of the major barriers to purchase: the annoying task of giving us your username, password and email address. It’s all totally optional, of course.
• Some of the coolest planes in the game must be earned with a very large amount of unpaid currency (aka “copper.”) But you can earn those cool planes more quickly if you fly other planes with a high “copper bonus”, which is simply a multiplier that is applied to all the copper you earn during a mission. There are free planes with a high copper bonus — you just need to work your way up to them, and then you can use those planes to unlock the more expensive ones. But if you’re in a hurry, you can purchase a plane with a really high copper bonus straightaways. Or, if you don’t mind spending a bit more cash, you can pay to unlock every plane in one fell swoop.
• It’s important to note that because this a single player game, and because every plane has its own leaderboard, unlocking planes for cash confers absolutely no competitive advantage on paying players – it simply enables them to progress through the game faster and/or experience more gameplay variety sooner.

I hope this insight into the business thinking behind SB:S has been useful to you. If so, you can return the favor by checking out the game and better still, tweeting about it, posting an update to Facebook, etc. :-)

This week is a big milestone for Spry Fox; we released the first independently-developed game for the Kindle, which we called “Triple Town.” Our playtesters have described Triple Town as, among other things, “the Civilization of Match-3 games”, which is both flattering and terrifying. :-)

Danc has written a nice post about the design philosophy behind the game. If you own a Kindle 2, Kindle DX or Kindle 3 you can purchase Triple Town directly from Amazon.com.

As a supplement to Danc’s post, I thought you might like to know our business rationale for creating Triple Town. It shouldn’t surprise long-time readers of this blog that I’m always on the look-out for platforms in the “uncertain beginnings” phase that may soon enter “early glory”. The Kindle seemed like just such a platform. Let’s break that down:

1. Platform prospects

First and most important question: is there a reason to believe the platform has a good chance of becoming a viable ecosystem for its first wave of game developers? Looking at the Kindle, I saw a platform with a reasonable number of users (Amazon will not release ownership statistics, but I’ve been guessing that there are currently at least 2m+ active content-enabled devices out there, based on publicly available information. I could definitely be wrong about that, but hopefully not by too wide a margin on the downside.)

More importantly, I saw a platform with users who are inclined and encouraged to purchase large quantities of digital content at relatively healthy prices. And given Amazon’s merchandising expertise, I hoped that unlike on so many other platforms (Wiiware springs to mind as a sad example), Kindle games would get plenty of visibility and Kindle developers would have reasonable marketing tools made available to them.

2. Content supply

Secondly: what is the supply of high-quality content likely to look like when the platform first launches? Will it be an overwhelming flood or a small trickle? The latter is what creates a supply-demand imbalance during the “early glory” phase, and which ultimately leads to strong returns for early developers. The Kindle was an interesting case in this regard. While I’d imagine that software developer interest in the Kindle is quite high in general, when I personally asked a large number of my friends in the game industry, “are you planning to develop a game for the Kindle,” the answer was always either “no” or “you can make games for the Kindle?” Furthermore, I didn’t see much Kindle-related news in the game industry press or at game industry conferences. To me, that indicated a potentially-unappreciated market opportunity.

3. Investment threshold

Unfortunately, even when both the conditions above hold true, there is no guarantee that the emerging platform will ultimately prove viable. Any number of issues — ranging from mismanagement of the platform, to unanticipated technology problems, to rotten luck — could cause the ecosystem to be less viable than you might hope. Consequently, the third major condition of a good “uncertain beginnings” investment opportunity is simply: can I dip my toe in the water with a project of relatively small scope? If entering the market requires a huge expense, it probably doesn’t make sense for most independent game developers. But Daniel and I were confident that we could create a great game that we were proud of in a reasonable period of time, with a reasonably small team. And so we did.

Conclusion

Of course, it certainly didn’t hurt that both Spry Fox and Amazon are based in the greater Seattle area. Knowing that I could easily meet the platform managers in person if they were interested in our company or our game was a nice bonus. That said, I wouldn’t call location one of our key investment criteria.

Anyway, long story short, we decided to give the Kindle a shot. I am very grateful to the people at Amazon for their decision to release Triple Town as one of the first games on the Kindle, and look forward to seeing how this grand experiment turns out. :-)

One of the things holding back the evolution of F2P gaming in the West is the understandable discomfort that many Western designers feel about the “aggressive” monetization strategies employed by Asian game developers. For the purposes of this post, I’m defining “aggressive” as the sale of items that impact gameplay and/or speed up a player’s progress, in addition to other, less controversial premium features like aesthetic items and account personalization.

To many developers, the idea of designing a game to be anything other than “fun” is heretical (they may also fear the possibility of offending sensitive players.) Consequently, they either ignore the F2P business model or attempt to create games with relatively tame revenue-generating systems; for example, focusing on the sale of items with aesthetic benefit only, or roping off a portion of the game and hoping enough players voluntarily pay for access.

The irony of these fears should not be lost on anyone who was designing games thirty years ago. Classic arcade titles were explicitly designed to eat quarters over brief, regular intervals, and people of all ages still put up with it. By comparison, modern F2P games are positively generous to players!

All this is why, up until the social game explosion, we heard of so few financially-successful F2P games in the West. The social gaming companies get a lot of credit for leveraging Facebook and for rediscovering the market potential of asynchronous gameplay, but they deserve equally as much credit for realizing that people in the West are not culturally predisposed to hating any game with an aggressive monetization model. As with everything in life, context matters.

Understanding the impact of conversion rates and ARPPU

Why is it worthwhile to at least consider the merits of designing a game with a more aggressive monetization model? It all comes down to conversion rates. The average Western F2P game is lucky to convert 5% of active users to paying users. At the low end, you get 1% conversion rates, which is where games like Farmville and Mafia Wars tend to sit. Some very rare games reach 20% or better, but to hit that level you generally need a fair bit of luck, an incredibly powerful brand and/or an intensely loyal niche audience. Bottom line: if you’re only going to convert 5% of your active users to paying users, you want to give those people every opportunity to pay you! Many of them will be delighted to do so if you handle the situation appropriately.

I’ve asked many F2P game developers to share their monthly ARPPU ( “average revenue per paying user”) statistics. Several have obliged in confidence, so I can’t share specific data points, but I can share averages. From my limited research, it seems that a game with a more aggressive monetization model and a loyal, niche userbase can hope to generate $50 per paying user per month, on average. (The term “average” is somewhat misleading — most users might pay $5 a month, while a small percentage of wealthier players might pay hundreds.) Obviously, these dollar figures will vary from game to game, depending on design, but they’re a useful generalization for the purposes of this post.

On the other hand, a F2P game that limits itself to flat subscription revenue and/or non-functional items is generally more likely to fall somewhere between $5 and $10 per paying user per month. You can expect the F2P equivalent of WoW (whatever that is) to do better than this, and you might expect a game that is largely focused on aesthetics to do better as well, but again, this is a useful generalization for most F2P games.

Different customers have different needs

Why is there such a big discrepancy between these types of F2P games? Basically: different customers have different needs. A game with a more diverse array of offerings is going to satisfy more people and earn more cash in the process, especially if it doesn’t arbitrarily cap the amount a loyal customer can pay. Some customers don’t have much spare time and are willing to pay for things that accelerate their progress. Some customers are mainly interested in making themselves or their surroundings more attractive. Some customers want anything that improves their social status. Etc. Customer XYZ might be willing to spend only $1 on aesthetic items, but $100 per month on functional items. Customer ABC may be the opposite. Every person is different.

There are other nuances to this issue. For example, the monetization strategies that convince a newly-active user to become a paying user may differ from the strategies that convince an old paying user to become an active payer once again. For example, imagine a game in which upgrading your avatar is an important (but costly) means of distinguishing yourself from newbs. A player might be willing to pay for the privilege of updating her avatar and distinguishing herself from newbs, but she only needs to do that once. How do you convince her to resume paying you? The answer, as before, comes down to having a diverse array of offerings that appeal to different kinds of players.

HappyFunTime: a fictional case study

To help put this in context, I’ve invented a fictional F2P game called “HappyFunTime”. You can play HappyFunTime forever without paying a dime (in other words, this is not one of those games that restricts most of its content to paying users.) HappyFunTime’s servers accommodate 2,500 active users per month. Each server costs $80 per month and eats approximately $120 in bandwidth per month. These fees consume a fixed percentage of HappyFunTime’s profit for every 2,500 active users, unlike payment processing fees (i.e. Facebook’s 30% rev share on credits) which are only incurred with paying users. There are other costs that scale with active users (for example, community moderation) but those costs don’t scale linearly, so I’m ignoring them for now.

If HappyFunTime combines subscriptions, aesthetic items, functional items, progress accelerators, etc, it can hope to generate $6,250 in revenue per server per month. That’s 125 paying users (5% of 2,500) paying $50 per month on average. Subtract 35% for all costs other than servers/bandwidth, and subtract $200 for server/bandwidth, and you get $3,863 in profit per server per month.

• This is a niche game, so we’ll assume just 50k active users. That nets us a total monthly profit of $77,260. Not bad for a niche game that converts only 5% of its players to paying customers!
• Server/bandwidth costs are eating just 3.2% of revenue in this scenario.

Now, for argument’s sake, let’s say that if HappyFunTime incorporates a flat subscription and non-functional items alone, it converts *twice* as many users to paying users. (In reality, I believe it would convert fewer players because it addresses fewer needs, but let’s run with this scenario.) HappyFunTime can now hope to generate $1,875 in revenue per server per month. That’s 250 paying users, paying $7.50 per month on average. Subtract 35% for all costs other than servers/bandwidth, and subtract $200 for server/bandwidth, and you get $1,019 in profit per server per month.

• 50k active users nets us a total monthly profit of $20,380; approximately 1/4th of the profit in the previous scenario (or just 1/8th the profit with an equivalent conversion rate of 5%.)
• Server/bandwidth costs are eating 10.7% of revenue in this scenario (or a whopping 21.4% with an equivalent conversion rate of 5%.)

In summary: because so few players actually pay anything for F2P games, the less aggressively you offer opportunities for paying users to support you, the less likely you are to be successful. And while it is possible to imagine a game that accomplishes this without selling functional items, progress accelerators, etc, that’s a hard feat to pull off.

Enough about money, what about ethics?

Some of you may still be thinking, “this still doesn’t seem ethical.” I can only respond to this by sharing how I feel. In my opinion, if the average person can enjoy playing a game for free, forever, without paying a dime, not only is the game’s design “ethical”, it’s practically charitable compared to the arcade games of the past. Or, for that matter, compared to $60 console games (given that I only have a few hours to play any given game, I frequently resent paying $60 for a bunch of content I neither need nor want.)

For that matter, I consider even the more aggressive monetization schemes in F2P games to be *far* preferable to the old TV model. Forcing me to watch 10 minutes of advertising for every 20 minutes of content feels abusive (if not akin to brainwashing.) I much prefer the opt-in monetization systems of F2P games.

Ultimately, ethical questions like this are highly subjective, and I neither expect nor wish to convince anyone of my opinion. This is how I feel about the work that I’m personally doing. Your mileage may vary.