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Wednesday 6 July 2011

Zynga's ARPU doubling? Not quite

Apparently today the pundits and analysts around have come up to reviewing Zynga's ARPU figures from their S-1 filing (Inside Social Games, Eric von Coelin). Something seemed fishy in these calculations, and since I'm home for a day, I had the opportunity to review the filing figures on a computer, rather than just a tablet. Yep, people, you're comparing apples to oranges. Zynga's monetization rate is improving, but it's nowhere as dramatic as you're making it look. Did you already forget, they defer revenue? You can't compare GAAP deferred revenue to non-deferred DAU/MAU figures! Use the bookings data instead.

This is what the S-1 filing states about the difference:

"Bookings is a non-GAAP financial measure that we define as the total amount of revenue from the sale of virtual goods in our online games and from advertising that would have been recognized in a period if we recognized all revenue immediately at the time of the sale. We record the sale of virtual goods as deferred revenue and then recognize that revenue over the estimated average life of the purchased virtual goods or as the virtual goods are consumed. Advertising revenue consisting of certain branded virtual goods and sponsorships is also deferred and recognized over the estimated average life of the branded virtual good, similar to online game revenue. Bookings is calculated as revenue recognized in a period plus the change in deferred revenue during the period. For additional discussion of the estimated average life of virtual goods, see the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Revenue Recognition.”

Zynga is of the opinion that bookings more accurately represents their current sales activities, and I fully agree. After all, this is not subscription business we're talking of! If you're as hard-core geek about these things as I tend to be, the description of when a booking turns into revenue is discussed on pages 62-63 of the filing: 

"Durable virtual goods, such as tractors in FarmVille, represent virtual goods that are accessible to the player over an extended period of time. We recognize revenue from the sale of durable virtual goods ratably over the estimated average playing period of paying players for the applicable game, which represents our best estimate of the average life of our durable virtual goods"

That deferring means that during periods of rapid growth, ARPU monetization appears to decline, while on the other hand periods of flat or declining traffic would seem to improve ARPU, due to the recognition of earlier deferred revenue against current, not earlier userbase. 

With these covered, what are the actual sales figures? The average daily Bookings to DAU rate is somewhat higher than the Revenue to DAU rate, at $0.051 (B) in Q1 of this year vs $0.042 (R). Both seem to have plateau'd on that level since growing from a year-ago $0.030 (B) / $0.017 (R). Respectable, but not earth-shattering -- and the growth, while impressive, isn't quite "more than doubled".

Thursday 14 January 2010

Technology factors to watch during 2010

Last week I posted a brief review of 2009 here, but didn't go much into predictions for 2010. I won't try to predict anything detailed now either, but here's a few things I think will be interesting to monitor over the year. And no, tablet computing isn't on the list. For fairly obvious reasons, this is focused on areas impacting social games. As a further assist, I've underlined the parts most resembling conclusions or predictions.


Social networks and virtual worlds interoperability

As more and more business transforms to use Internet as a core function, the customers of these businesses are faced with a proliferation of proprietary identification mechanisms that has already gotten out of hand. It is not uncommon today to have to manage 20-30 different userid/password pairs that are in regular use, from banks to e-commerce to social networks. At the same time, identity theft is a growing problem, no doubt in large part because of the minimum-security methods of identification.

Social networks today are a significant contributor to this problem. Each collects and presents information about its users that contribute to the rise of identity theft while having their own authorization mechanisms in a silo of low-trustworthy identification methods. The users, on the other hand, perceive little incentive to manage their passwords in a secure fashion. Account hijacking and impersonation is a major problem area to each vendor. The low trust level of individual account data also leads to a low relative value of owning a large user database.

A technology solution, OpenID is emerging and taking hold in a form of an industry-accepted standard for exchanging identity data between an ID provider and a vendor in need of a verified id for their customer. A few of current backers of the standard in the picture on the right. However, changing the practices of the largest businesses has barely begun and no consumer shift can yet be seen – as is typical for such “undercurrent” trends.

OpenID will allow consumers to use fewer, higher-security ids over the universe of their preferred services, which in turn will allow these services a new level of transparent interoperability in combining data from each other in near-automatic, personalized mash-ups via the APIs each vendor can expose to trusted users with less fear of opening holes for account hijacking.


Browsers vs desktops: what's the target for entertainment software?

Here's a rough sketch of competing technology streams in terms of two primary factors – ease of access versus the rich experience of high-performance software. “Browser wars” are starting again, and with the improved engines behind Safari 4, Firefox 4, IE 8 and Google Chrome, a lot of the kind of functionalitywe're used to thinking belongs to native software or at best browser plugins like Flash, Java or Silverlight will be available straight in the browser. This for sure includes high-performance application code, rich 2D vector and pixel graphics, video streams and access to new information like location-sensing. The plugins will most likely be stronger at 3D graphics and synchronized audio and at advanced input mechanisms like using webcams for gesture-based control. Invariably, especially the new input capabilities will also bring with them new security and privacy concerns which will not be fully resolved within the next 2-3 years.

While 3D as a technology will be available to browser-based applications, this doesn't mean the web will turn to represent everything as a virtual copy of the physical world. Instead, it's best use will be as a tool for accelerating and enhancing other UI and presentation concepts – think iTunes CoverFlow. For social interaction experiences, a 3-degrees-freedom pure 3D representation will remain a confusing solution, and other presentations such as axonometric “camera in the corner” concepts will remain more accessible. Naturally, they can (but don't necessarily need to) be rendered using 3D tech.


Increased computing capabilities will change economies of scale

The history of the “computer revolution” has been about automation changing economies of scale to enable entirely new types of business. Lately we've seen this eg by Google AdWords enabling small businesses to advertise and/or publish ads without marketing departments or involvement of agencies.

The same trend is continuing in the form of computing capacity becoming a utility in Cloud Computing, extreme amounts of storage becoming available in costs which allow terabytes of storage to organizations of almost any size and budget, and most importantly, developing data mining, search and discovery algorithms that enable organizations to utilize data which used to be impossible to analyze as automated business practices. Unfortunately, the same capabilities are available for criminals as well.

Areas in which this is happening as we speak:

  • further types and spread of self-service advertising, better targeting, availability of media
  • automated heuristics-based detection of risky customers, automated moderation
  • computer-vision based user interfaces which require nothing more than a webcam
  • ever increasing size of botnets, and the use of them for game exploits, money laundering, identity theft and surveillance

The escalation of large-scale threats have raised the need for industry-wide groups for exchanging information and best practices between organizations regarding the security relevant information such as new threats, customer risk rating, identification of targeted and organized crime.


Software development, efficiencies, bottlenecks, resources

Commercial software development tools and methods experience a significant shift roughly once every decade. The last such shift was the mainstreaming of RAD/IDE-based, virtual-machine oriented tools and the rise of Web and open source in the 90s, and now those two rising themes are increasingly mainstream while “convergent”, cross-platform applications which depend on the availability of always-on Internet are emerging. As before, it's not driven by technological possibility, but by the richness and availability of high-quality development tools with which more than just the “rocket-scientist” superstars can create new applications.

The skills which are going to be in short supply are those for designing applications which can smoothly interface to the rest of the cloud of applications in this emerging category. Web-accessible APIs, the security design of those APIs, efficient utilization of services from non-associated, even competing companies, and friction-free interfaces for end users of these web-native applications is the challenge.

In this world, the traditional IT outsourcing houses won't be able to serve as a safety valve for resources as they're necessarily still focused on serving the last and current mainstream. In their place, we must consider the availability of open source solutions not just as a method for reducing licensing cost, but as the “extra developer” used to reduce time-to-market. And as with any such relationship, it must be nurtured. In the case of open source, that requires participation and contribution back to the further development of that enabling infrastructure as the cost of outsourcing the majority of the work to the community.

Mobile internet

With the launch of iPhone, the use of Web content and 3rd party applications on mobile devices has multiplied compared to previous smart phone generations. This is due to two factors: the familiarity and productivity of Apple's developer tools for the iPhone, and the straightforward App Store for the end-users. Moreover, the wide base of the applications is primarily because of the former, as proven by the wide availability of unauthorized applications already before the launch of iPhone 2.0 and the App Store. Nokia's failure to create such an applications market despite the functionality available on S60 phones for years before the iPhone launch proves this – it was not the features of the device, but the development tools and application distribution platform were the primary factor.

The launch of Google's Android will further accelerate this development. Current Android-based devices lack the polish of iPhone, and the stability gained from years of experience of Nokia devices, yet the availability of development tools will supercharge this market, and the next couple of years will see accelerated development and polish cycle from all parties. At the moment, it's impossible to call the winner on this race, though.

Sunday 8 November 2009

Nice going for Bobba Bar -

What a fun end of the week! Bobba Bar, our virtual world app for mobiles just launched this Thursday on iPhone having been available (in a slightly different form) for Nokia S60 devices for a few months. Four days later it's (at least in Finland where I'm looking at it) the top social networking app (ahead of Facebook, Skype and others) and the 3rd highest ranked free app in general. Great launch performance! Get yours from, or if you don't have a compatible phone, check out the Facebook group for Bobba Bar. Oh, and post here or in Facebook where you see Bobba in your local App Store listings!

Sunday 1 November 2009

Habbo, soon ten years old, still the leader

According to Nic Mitham at KZero, Habbo was the fastest growing virtual world for another quarter. Thanks, Nic! One thing though:

Although it’s the Grand-Daddy of the sector, Habbo continues to show dominance in the virtual worlds sector from a user acquisition perspective

Grand-daddy? Sheesh, Habbo hasn't even got to its pre-teen years, let alone have kids! Lets talk about that another ten years later :) Seriously though, Mobiles Disco, which preceded Habbo by a few months is now ten years old. I'm thinking we should relaunch the Disco..

Thursday 20 November 2008

High-profile shutdowns and low-profile major updates...

Quite a day for negative articles on Google. I counted 10 articles on Lively shutting down, with the usual suspects gloating and cheering from the sidelines. Won't be joining that crowd, it's never fun to see someone's work being thrown out the window. I did want to relate that to a bigger picture, though.

This certainly won't be the last shutdown among the 100+ virtual worlds projects under work right now, and I wouldn't be surprised at all to see even higher-profile projects being canceled, either in the current financial bloodbath which curely will kill even some companies which 6 months earlier were entirely viable operations, or in the year to come when the business fails to materialize. Money's still being thrown in to the game at pretty amazing rate, and there's just not enough experience to go around to make all these projects work.

And that's because at the end of the day, this business is not about the brand, the IP, the coolest technology, or even the best user experience. Instead, this is about being able to nurture a community, co-operate with it to develop something which no one knows where it will ultimately end up at, and to be on the pulse of what's going on, every minute of every day. I know it's easy to forget that, with the allure of focusing on the superficial, easy to analyze product features, APIs, and so on.

We've certainly learned that the hard way ourselves - it's not like we've always kept our eye on the ball either. Still, you only need to be right most of the time, listen carefully, and not miss where you need to correct yourself. It's now been roughly a year since we launched a significant refresh to Habbo that put the service on the track its been on since, after what can be described only as a pretty horrible summer 2007 for us.

That was 12 months and 11 upgrades ago, though. Yesterday we launched what's internally called release 28 of Habbo in UK. The most exciting features of it haven't yet been turned on, as we're preparing yet another global roll-out to begin next week. This is an important release to us, possibly as important as the one made a year ago, as it'll change the economic and reward models of the community forever. I hope we got it right on this one. If we did, it's going to be an amazing Xmas, for us and for all the Habbos. If not, well, then we'll need to scramble a bit to make it fun anyhow. But that's what we're good at.

Sunday 16 November 2008

Chris Anderson on freemium conversion

Chris Anderson, author of The Long Tail, uses free-to-play web games as a case study on conversion rates for freemium products. I wrote about the conversion and monetization rates in this world two months ago as a followup to my GCDC presentation from last summer. I can't really think of a better example of freemium model than Habbo - a freely accessible service with high engagement and a large audience really gets to utilize and showcase the model at its very peak. The only thing missing is even easier micropayment models. We'd love to use the iTunes store for selling Habbo items, for example.

Thursday 16 October 2008

Splitting the virtual worlds market to segments

IMVU founder Eric Ries commented on Virtual Goods Summit and suggested that virtual worlds can be divvied up along three axes of UGC/first-party, subscription/pay-for-stuff, and economy/gameplay focus. This is certainly one good way of thinking about the focus decisions needed when designing and developing a product in this market, but personally, I think this model, along with others I've seen and played with myself, suffers from a few key weaknesses that arise from the need to simplify things. I'm not saying the model can't help put things in order, just that there's more to finding the right solutions than this. Lets go with the great blogger tradition of point-for-point response.

UGC vs first-party

It's amazing Sulka didn't comment on this: UGC is not just about letting users upload pictures or items to a world. More to the point, Habbo certainly is not first-party content focused. Yes, all our furni is designed and developed by our own teams, and we don't enable user uploads. But at the same time, over 90% of all of the activities in Habbo emerge from the community - users take what we've made, and do their own things with it. Most of what's going on, we had no idea would happen.

Eric says IMVU's efforts to enable UGC dwarf those to create their own first-party catalog. Well, so do ours, despite his classification of Habbo being first-party content focused. Every feature, every furni, every activity, every news item receives more thought on "how do we support users to go to their own directions here?" than "what do we want this to be about?". Plus the significant fraction of our work that has absolute no effort to produce content attached to it, and is fully focused on player activities.

Lets just use the old, tired LEGO analogy here. How much of LEGO is first-party content? Just enough to get the imagination of the players going so they can create something of their own. Anything more would be too much, and this applies to any VW that can call itself "social" - and none that isn't social isn't going to be interesting. Trying to make a useful UGC split for any purpose other than copyright infringement monitoring is a red herring, and even for that one purpose it's not very likely to be useful due to other moderation requirements.

Subscription or pay-for-stuff

This is one of the stronger arguments, if only just because those are the business models the industry has latched on to. They're certainly not the only possibilities though, nor are they alternatives to each other. Eric's points about the strenghts and weaknesses are good - but you can benefit from both at the same time, and support the weaknesses of one model with the strenghts of the other. This is certainly an area where we have a lot of experience, over 8 years of it, and I don't think we've gotten very far yet..

Economy or gameplay

Eric used the word "merchandising" instead of economy, and I think that's the crucial over-simplification that leads to thinking that pay-for-stuff games and worlds are just about cross-selling opportunities best left to a competent marketing department to handle. I'm wondering whether he's simplifying the choice to make it easier to explain, or purposefully misleading someone on what's crucial to think about, or whether our friends at IMVU simply haven't realized this yet: the first-hand sales are a small fraction of the total trade in an item-based game, and the gameplay balance is just as critical here as it is in a game built out of designer-created quests and gameplay mechanics. What's more, because its emergent behaviour, it's nearly impossible to predict, and very difficult to measure, model and understand. Yet that's exactly what's required in order to succeed.

I hope that explains why I choose to call it economy-driven rather than merchandising.

PS. Browsing around Eric's blog a bit further, this article is a gem

Wednesday 9 July 2008

Virtual worlds looked lively today

This turned out to be quite a day for virtual worlds' publicity, with both Google's Lively and Vivaty Scenes launching (congrats to both), and Second Life annoucing an interop with OpenSim together with IBM. All of that is great, and validates the concept of web-based, interoperable virtual worlds supporting and interacting with other web content (and vice versa), and supports our own thoughts nicely. There's plenty of room here for more players! I'd love to write more on this, but with my last work week before summer vacations keeping me quite busy right now, I'm afraid I don't have the energy to put my thoughts down to a publishable shape. Perhaps later, though. I'm sure I will have a lot of interesting discussion about the whole scene in GCDC next month, as well. Look me up if you're reading this and plan to be there!

(oh yeah, sorry about the horrible pun in the title)