Thursday, September 20, 2007

Is 1% Conversion Rate a problem?

GameDaily Biz had an interesting (and unfortunately difficult to read) article today on the Conversion Rate within the casual games industry being too low.

I've written before at length on Gamasutra on going beyond Conversion Rate to increase sales, and I don't want to repeat that discussion here, but I do want to consider the numbers from the GameDaily article, which if representative of the casual games market are interesting, and not in the way that the writer expected.

The article puts forth the common thought that free demo downloads, when connected to a low conversion rate are a threat to the industry.
Consumers are willing to play the free trials and very occasionally buy a game. But for this industry to be really big, gamers will need to more regularly purchase new downloads...

Here is the data that is used to support the point quoted above.
1 - 20% of Internet users between 12-64 downloaded a game last year
2 - 8% of Internet users between 12-64 downloaded a try before you buy game
3 - 64% of that 8% bought a minimum of one game last year
4 - 32 % said they were likely or very likely to buy one game in the coming year
5 - Conversion ratio is estimated to be 1-2%
(unfortunately a games sold / person breakdown isn't given)

I'm a big fan of "Try before you buy" game downloads. I believe it opens up the games to more people, which increases sales. I believe increasing sales is more important than increasing conversion. I think of it like a Lemonade stand. If I have a stand on my street the number of lemonades I will sell per passerby will be much higher than the number that I would have per passerby if my lemonade was on a shelf in Walmart (my neighborhood knows me and are predisposed towards me, most Walmart shoppers don't go there for lemonade). However, being in Walmart stores across the country will sell more of my lemonade than I could ever do on my street! As your audience becomes wider and less targeted, CR goes down. However, that pales in the face of how many more sales you can achieve with an expanded audience.

So a couple of points/questions to consider.
- 64% of an audience purchasing games is a fantastic number!
- If they hadn't had Try Before You Buy downloads, would 64% of the audience have bought a game?
- Considering all the numbers reported above, what number would you try to increase first in order to increase sales?

For me, I expect conversion ratio (CR) to continue to decrease. I expect CR to continue to go down as casual games gain audience. CR is definitely something to try and work on increasing, but it isn't the number that intrigues me most out of the report.

64% is a number that intrigues me. When people use the 1% CR, they often state that 99% of the customers aren't paying. According to the article, only 36% of the customers aren't buying games. Most of the customers are buying at least one game. By trying to increase CR, you're really trying to increase the number of games sold per customer, which is a great goal, but with 64% of the audience already buying games, it's not likely to increase the number of paying customers very much.

8% is the number I would focus on increasing. If 20% download games, but only 8% download try before you buy games, there is a lot of potential market available. 8% is a low number with a lot of room for growth. It may be easier to get that number to 9% than it would be to get your already paying audience to buy more games per download.

What would have been really interesting would have been the number of game purchases per customer and the frequency of purchases. I do agree there may be room for growth there. However, the numbers in the article don't give us any information in that regards, which can only leave us guessing as to the potential for multiple game sales in increasing the market size.

For the casual games market to get really big I believe it needs what every other market needs. More customers! Increasing that 8% to 9% will definitely increase customers, and more customers would definitely make the casual games market bigger :).

4 comments:

jcottier said...

What is your point about subscribtion. My guess is that subscribtion is beneficial for growing the market. Obviously, as a dev it hurt to get even less per sale but globaly it must "force" people to buy more games in the long run. I wish, new games were release at full price and goes into "discount" only after few weeks. This way we will have the best of both worlds.

JC

Russell Carroll said...

Subscription sells more games, but the question is does it make you more money. All the data I've seen says it makes a lot more money as it makes consumers buy more games. However, all that data is a short term analysis.

I don't know if anyone has done a 'lifetime' look at the customer. Do they get burned out and leave games? Do they buy even more games over the long term b/c they are wholly addicted? It would be an interesting study.

As far as releasing at full price, I think the developer can control some of that. This last year we've seen developers release their game first on Reflexive because we haven't had any discounting programs. After selling it on Reflexive for a month at full price, developers have released the games on the other distribution portals based on how much the portals discount, ending with the portals that discount the most.

I think it is an interesting approach (especially since I work at Reflexive). It might be worth forcing the issue if you really think you will maximize money by starting at a high price and working from there. I don't know that anyone can show yet that such an approach is the best one financially, but it is at the very least very intriguing ;).

ngoo said...

Heh, 1% CR?

I run a site which use Reflexive affiliate program and I have 0.19% Conversion Rate, I would be VERY happy if I get 1% CR. Russell, what is an average CR for affiliates at Reflexive, if that isn't some secret?

Cheers

Amber Salm said...

Interesting article. It helped me to learn about some great ways to work on this factor so as to improve it. Thanks for this useful information.
increase conversion rates