1.
Maximizing Monetization
Casual Connect SF 2013
Emily Greer, Co-Founder & COO

2.
A little Kong background
• Open platform for free browser-based games
– Flash, Unity, HTML5, Java, etc.
• 15M monthly uniques, core gamers
• ~300 games selling virtual goods
• Revenue from ads (15%) & virtual goods (85%)
• Now a mobile publisher of free-to-play games,
first titles launching globally August 2013

3.
Some of Kongregate’s Existing Developer Partners

4.
Monetization is exponential

5.
It’s not just genre

6.
It’s not just quality

7.
So what gives?

8.
Econ 101
In perfect competition the market
price is set where demand & supply
are equal.
Real life example: the stock market

9.
Imperfect Competition
Perfect competition assumes that
goods are homogenous, i.e. that
there’s no difference buying from
one supplier or another.
But nobody can sell a good that’s
useful in your game but you.
(Ignoring gold farmers)

10.
Your game is a monopoly

11.
But I’m surrounded by competition!
Yes, and the competition for player
ATTENTION got so fierce that it dropped the
game price to free.
The market for in-game goods is separate:
players are not price-shopping packages of
gold in two different games and deciding
which to buy.

12.
Since players can leave your
game/market for goods freely
your monopoly is (very)
insecure.
What it does mean, though, is
that you look internally to your
game to set prices, not
externally.

13.
Monopolies can set the price freely, deciding whether to sell fewer units at a higher
price or more at a lower price.
Marginal revenue is the change in total revenue from a change in price.
Monopoly Revenue Maximization
Example: 5 units at $5 = $25
7 units at $4 = $28
Marginal Revenue = $3
Total revenue is maximized where marginal
revenue = $0

14.
In an econ class the professor would give you
a formula and you’d calculate a derivative.
In the real world you need to deduce it from
trial & error: set a price, change it and see
what happens
Uh, how do I figure out where MR=$0?

15.
It’s all about elasticity
When a good is elastic, quantity decreases rapidly
with a price increase and total revenue drops.
When a good is inelastic, quantity decreases slightly
with a price increase but not enough to compensate
for the change in price and total revenue increases.
Gasoline is a classic example of an inelastic good.

16.
Now in graphs!
Area of the box = total revenue

17.
So which are virtual goods?
Mostly inelastic.

18.
Immensely popular series by Ninjakiwi,
BTD4 introduced virtual goods and was the
first big single-player success. Sold 20 items
ranging from $0.30 - $10
BTD5 launched last year, selling nearly 40
items from $0.60 - $100 – on average 70%
higher on comparable items.
Bloons Tower Defense 4 vs 5
Results: 92% increase in ARPPU, -1% decrease in conversion, +88% ARPU
Player freakout? Nope. Rating is slightly higher, revenue much higher than BTD4

19.
Mind the drop
Skyshard Heroes is a competitive
kingdom-builder with a steampunk
theme from Synapse games.
They A/B tested dropping the price of
their heroes 40% on cohorts of new
users, expecting that it would help
conversion.
Results: +21% in conversion but -25%
in total revenue

20.
Quick Math Break
Linear regression is a standard statistical method for modeling the relationship of
two variables.
The trendline through a scatterplot is the predicted value of variable y given that
value for x – the farther the points are from the line, the less predictive x is of y.
That error is measured with by the R2 value, where 0 is no relationship and 1 is
perfect correlation.

21.
Curve  Line
Linear regression doesn’t work
very well with exponential
functions because they are
curves, not lines.
But because power curves are
scale invariate you can safely
transform them to a linear
relationship by taking the
logarithm of the values.
I’m going to be using this
technique a fair amount to
look at correlations between
monetization variables.
The Richter Scale is a logarithmic scale of an
exponential function, earthquakes.

22.
Min Price & ARPU

23.
Correlation Check: Min Price & ARPU

24.
Max Price & ARPU

25.
Correlation Check: Max Price & ARPU

26.
Low entry prices don’t even help conversion rate in any clear way
Min Price & % Buyers

27.
% Long-Time Players & % Buyers
So what correlates with increased conversion if it isn’t price? Time in game!

28.
More on demand curves
A demand curve is really the aggregation of individual player demand curves.
Factors that shape the individual demand curves:
• Desirability (utility) of goods for sale
• Income/ability to pay

29.
Demand curves change with time
A player won’t desire goods from your game
until they care about their status & progress
in the game.
The longer someone spends playing a game
the greater their investment and emotional
attachment, and therefore their willingness
to spend.
Demand goes up, price elasticity down.

30.
Conversion rate by lifetime plays

31.
Gameplays before 1st Purchase

32.
Retention = Security
The more time a player invests in a
game, the more they value their
status and progress, the higher the
switching costs to another
game/hobby become.

33.
% Long-Time Players & ARPU

34.
Correlation Check: % 100 Plays & ARPU

35.
More on demand curves
The shape of the game’s aggregate demand curve is determined by:
• Total players in the market
• The shape of the individual demand curves, weighted by their total
demand
If a market has a few people with high, inelastic demand that can make the whole
curve inelastic.

36.
Big Spenders are a Big Deal
Four of the top five games get the majority of revenue from those spending $500+
Every top ten game gets the majority of revenue from players spending $100+

37.
ARPPU & ARPU

38.
Correlation Check: ARPPU & ARPU

39.
Correlation Check: % Buyer & ARPU

40.
Transaction Size & ARPU

41.
Correlation Check: Trx Size & ARPU

42.
Number of Transactions & ARPU

43.
Correlation Check: Num of Trx & ARPU

44.
Steady Investment FTW

45.
So what do players want?
Permanent Upgrades! Items that give real and permanent advantage in the game.
Permanent Upgrades > Consumables & Convenience > Cosmetic Items & Content
Consumables tend to be in the
10-30% range of sales.
Impermanence reduces the
value to the player – it feels
like money dripping away
rather than a sound
investment.

46.
Cosmetic-only items sell poorly though
cool looks can help functional items sell.
Real-life example: I buy a coat to keep me
warm, but am willing to spend more on
one that looks good on me.
Content is a tough proposition in a world
of free, only appeals to those who have
finished game.
What do players want?

47.
If powerful items sell, a winning item will
sell even better!
Maybe temporarily, but if you break your
game players will lose interest and leave,
even those buying wins.
Items can be powerful if they also require
skill to use well and are acquirable
through a very large amount of play.
Balancing advantage vs pay-2-win

48.
Be careful in designing permanent
upgrades/items as it is easy to cap the
amount a player can or wants to spend.
Ideal: players should be able to invest
continually with (close) to linear benefit –
players will spend only as long as the in-game
benefit is real.
Beware of diminishing returns

49.
Wartune, a very deep MMORPG from R2 Games, has over 25 categories of items
for sale, with dozens of items within most of the category. No one category
dominates – each adds, and raises the ceiling of spend.
More is more

50.
Back to monopolies
In imperfect competition companies can use price differentiation by customer
segment to maximize revenue.
Classic example: student & senior movie tickets.

51.
Well-designed upgrade paths for in-game
items create natural price differentiation by
allowing both power & prices to scale
organically within the game.
Fusing new items out of old items adds
another dimension by ensuring that even
low-powered items remain valuable to the
player, increasing the value of extensive
collections.
Having systems like this on a diverse set of
items extends the opportunities for
purchase exponentially.
Upgrade to Infinity

52.
Get Lucky!
Luck-based purchases add an element of
excitement while again creating price
differentiation – an elastic player will pay a
low price once at a chance of an item they’d
like, an inelastic player will keep going until
they get the item they really want.

53.
Dawn of the Gacha
Dawn of the Dragons from 5th
Planet sells “Expeditions” which
award a random item with each
hard currency purchase.
Any one purchase is quite
inexpensive ($2-$3) but it can
cost $70-$100 to clear the board
and get all the rare items.
Expeditions drive nearly half the
revenue in the game, and when
you add in Chests (another
chance-based item) the clear
majority comes from gacha items.

54.
Events & Sales
Events & sales are very, very powerful – players react
emotionally as well as rationally, can drive huge (5x)
spikes in revenue.
But powerful things can also be destructive: since
demand is inelastic you may just be moving sales
earlier and at a lower price.
The best events serve two purposes:
1. Energizing committed (inelastic) players; giving them more to do and spend on
2. Incenting non-buyers/lapsed buyers with elastic depand to spend (and keep on
spending)
An event that does both spikes revenue, then resets to a higher base.

55.
Unleashing Tyrant
Tyrant is a great CCG by Synapse
Games that’s been one of
Kongregate’s top games since it
launched in March 2011.
Retention and buyer % have
always been exceptional but its
ARPPU is mediocre, 70% below
the average for top games.
We’re publishing a new mobile
version, which has given us a
chance to work with Synapse to
significantly revamp the
monetization system.

56.
Tyrant Capped
On the web version cards
are sold in packs like most
CCGs, but strong cards are
sold directly on a limited
time basis.
There are four levels of
cards but you’re limited to
one legendary per deck.
Multiples of cards have
limited utility.
Sales are dependent on new
card releases, creating
spikes that fall off quickly.

57.
Exponential Tyrant
• Cards can only be acquired through pack
purchases and drops, no direct purchases
• Any card can be gained through soft currency
purchases or drops
• Cards are upgraded through the salvaging of
inactive cards
• Each card can be upgraded with escalating
costs, up to 6x for top-level cards
• An effective 5th tier of card rarity is created
through fusing specific combos of cards
Result? Early test market data shows strong retention, higher conversion, and 2X the
ARPPU relative to the web version.
PvP has been restructured to focus more on asynchronous combat against well-matched
foes, stealing resources for card crafting, and month-long event cycles.

58.
Mileage will vary!
The right strategy will vary dramatically game to game based on retention and
base monetization design.
If retention is poor (and unfixable) then shorter-term monetization is probably
the best you can do.
If your audience is younger and/or poorer, demand may be more elastic.
If your base monetization is capped, then events and sales may be less
productive.
Remember that the most important thing is to make a fun game that people
really care about. Without that there’s nothing to leverage.

59.
Thank you!
For more talks & this data visit developers.kongregate.com
For web games contact us at apps@kongregate.com
If you’re interested in mobile publishing it’s mobile@kongregate.com
Follow us on Twitter: @EmilyG & @KongregateDevs