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 :).

What does the selling of GarageGames mean to Indie?

I was going to finally post my thoughts on last week's NPD numbers today, but the IAC acquisition of GarageGames being made public pushes me to another topic as Independent Games have been so near to my heart for so long.

There is no question that GarageGames was near the heart of the most recent Indie revolution. The release of Torque seemed to put game-making within the grasp of anyone who desired to do so, while the release of Think Tanks and Marble Blast showed that great games could be made using it.

However, since that initial push, there has been a lot of silence. Of course Torque has been made to help people create XBLA games and was more recently ported to Wii, but GarageGames has only partially succeeded in helping change the way games are made and played.

XBLA is not the future of Torque. The developer experience and game quality requirement puts XBLA beyond the reach of 99.9% of Torque users and would-be users.

So what is next for Torque?

What is not next is the PC downloadable sector. Honestly, I believe GarageGames misstepped in that regard. While they did a great job at helping people make games, they did a horrible job in helping people sell those games. Without a market on the PC, the more savvy developers moved on. Without a market on the PC, current mainstream developers weren't as enticed to quite their day jobs and follow their dream. GarageGames made it easier to make a game, but game developers knew they had to eat, and no market had been created to sell Indie downloadable games.

Consider this question, "where do you buy indie games?"

The 'umm' that probably starts your answer is really the biggest problem that has faced indie games, and it has only grown worse over time. (with apologies to Manifesto)

GarageGames did have a game store, but it was clearly not the key point of the GG site. It was an afterthought, and that made it irrelevant.

I remember at IndieGamesCon in 2005 eating dinner with Jeff Tunnell and Jay Moore and making an impassioned argument for creating a game store. Something like 'Out of the Garage.' My reasoning? There wasn't anywhere to get Indie games on the internet. Casual games were harnessing their market, but indies were still for sale from many spread out sites without any cohesion. That lack of cohesion meant no market, no market meant no money, no money meant the best indie developers moving onto greener pastures.

And move they did. Most of the biggest indie developers moved either to casual games or to console games. The quality of Indie games available on PC decreased, and today, I think we have a situation where, for the 99.9% of indies, there is little possibility of making a go of it.

Josh Williams, in the blog about the IAC purchase stated: "we've never had the resources at hand to fundamentally change the game and carve out new space that'd really help developers be successful."

I agree with the general idea, but disagree with one point. They did have the resources, and in-fact were one of the few companies that could have done something to create an indie games market. I think the GreatGamesExperiment is proof of the resources and ability when the desire is behind it. What GarageGames didn't do was fully appreciate the importance of selling games to their future. They wanted to create the technology and let the developers create the market. That didn't work. 5 Years later there is no Indie marketplace, in fact there is less of a downloadable Indie market than there was when they started.

I think in retrospect the approach would have been something like:
1 - create great technology
2 - create games on that technology
3 - create a great community driven website store to sell the games
4 - release the games on casual portals, and then later steam and gametap to maximize awareness and drive customers back to the game store
5 - publish other people's games on the game store and create great add-ons for the great games that you'd already made
6 - improve the technology
7 - make new games on that technology
8 - repeat 4-7 multiple times

(my assessment is that GG got off to a great start doing 1 and 2, skipped 3, started to do 4 and then changed directions , dabbled with 5, worked on 6, didn't deliver on 7 and was ready to try a different approach by 8)

The move with IAC is all about creating a market for Independent developers. In creating a web-based games console, GG is attacking the heart of the matter. Will it work? That's hard to say. Certainly every indie who is hoping to make a financial go of things should be paying close attention. Potentially GarageGames is doing just what it needs to in order to create a market for Indie developers to sell their wares and make a living on the dream.

Currently for indies wanting to live their dream of making the games they want to and being paid to do it there are few options.

1 - Consoles - (XBLA requires more funding than most indies have, WiiWare is untested waters, PSN requires a personal invitation)
2 - Casual Portals - (This may require changing the game to better fit a market that you aren't familiar with, plus, many indies don't consider themselves indie when they have to take direction [which is a bad approach, but it is a common sentiment])
3 - Create a market for your game from scratch

Those options are pretty bleak. I know of very few businessmen who would dare take on option 3 (and very few indies have succeeded at it). Option 1 requires some experience and typically a lot of financing, but it is certainly a good option for indies, it may be the best one currently available. Option 2 is a low-cost, low-experience option, but it may not allow for development on your own terms.

Getting back to the first question, what does the IAC acquisition of GG mean?
It means they will still help with option 1, and they are going to work on creating a here-to-fore non-existent option 4...

...which sounds just like what was said 5 years ago when GG was formed!
However, the big difference now is that GG may have the finances and experience to make it happen.

As I've watched the indie revolution of 5 years ago slip away into dreams of what might have been, I'm hopeful that this new approach will create the indie market that the last one missed.

Marketing Indie Games > 2007 IGS/GDC session

A video of my marketing session from this year's Independent Games Summit (as part of the GDC) has just been posted up at GameSetWatch. It's also embedded below for easy viewing.

I was really excited for the chance to speak at the IGS and right around minute 10 you'll see me jump on a subject that I really wanted people to think about.

Most developers shun the portals as bad for them, but few take advantage of the portals. When a game goes on a game portal (ie - Real Arcade, MSN Games, etc.) the percentage that the developer receives is typically below 40%. Developers are notably frustrated as they don't think they are getting fair value for their work. However, no place offers the opportunity for selling like a portal. Sure you can sell a game from your own website, but it's the difference between selling lemonade at a stand on your street and selling it at Walmart. Even if you pocket 1% of the money at Walmart the volume means you make 1000% more.

However, there is another side to this. Whenever a game is on a portal, the player sees the developer name. Portals work hard to keep from losing their customers and won't allow developers to put links to their own websites in the games, but that shouldn't stop developers from stealing customers from the portals.

It starts by trying to do so. Developers should put something in the game that makes customers go look for them. I use the example in my session of Ricochet Lost Worlds. It tells players that they can download more levels from the Internet.

When the player goes and looks on the Internet for these levels, he ends up at the Ricochet home page.

That's just one of many approaches of abusing the portals. So many developers get angry at the portals, but very few get smart. When your game is going before thousands of eyeballs, you can turn those eyeballs back towards your own website.

Enjoy the session! (again for many!)

And I again recommend acting on the ideas. My brother did, and I hope to report his numbers from doing so. (maybe next IGS?) Traffic to his own website has gone through the roof, and because he had planned on that traffic, he selling to them and keeping them around for his next project. Steal traffic anywhere you can! Don't roll over, take your 30% and decide it's a hopeless situation out of your hands. It's only out of your hands if you don't act.

Will Halo 3 sell more Xbox 360s?

Halo 3 is a big deal.

It is the franchise that people identify (for better and worse) with Microsoft's game console. It is increasingly recognizable and creates tremendous buzz for Microsoft.

But, does it sell hardware?

Everyone is quick to answer 'yes.' Games sell hardware.

While that is true in a broad sense, I'd suggest that the answer of whether or not Halo 3 will sell consoles isn't quite so easy.

Let's consider Halo 2 as something of a case study. How many more Xbox consoles sold in the US the month Halo 2 was launched (November 2004) compared to the previous November? (2003)

Remember the US lifetime sales of the Xbox were 14.5 million units.

Do you have your number?

Was the number around 218,000 units?
If you think that is a big number, it isn't. It's about 1.5% of the total sales of the Xbox.

So let's extend out to October and December. Certainly it drove sales in other months. Right?
So what are your numbers for those months (the plus or minus).

October +41,000
December -78000

In fact, if you consider the year following the release of Halo 2 (Nov 04 - Oct 05) 8 of the 12 months sold less Xbox units than the same period a year earlier. When you put all those months together you come up with this startling fact:

The Xbox sold half a million less consoles the 12 months after Halo 2 was released than it did the 12 months before Halo 2 was released.

Stop and think about that for just a couple of minutes.

Did Halo 2 sell more Xbox units?

I still believe the answer is 'yes.' However, I think most of those sales happened before the released of Halo 2, and the total number was less than a million additional consoles sold.

Why didn't Halo 2 sell more consoles? After all, 7 million copies of Halo 2 were sold in the first year after its release (notably 3.4 million Xbox units were sold in that same time period).

Halo 2 served an audience that already owned the Xbox. The Xbox was known for having games like Halo. The audience that wanted Halo, for the most part, already owned the Xbox. The Xbox catered very well to the FPS and TPS audiences. The size of that niche certainly could be questioned.

So, let's end the case study. How does it apply to Halo 3? Will history repeat itself?
Every analyst and gamer thinks Halo 3 is likely to be a game changer that gives the 360 a boost to the top of the hardware sales charts.

I don't think so. With the high profile shooter Gears of Wars on the system and many buyers having already bought with the expectation of Halo 3, I think Microsoft already has a good hand on the shooter audience.

My expectation?

September +100k (was 260k in '06, around 360k in '07 sounds probably high, but reasonable)
October +100k (was 220k in '06, so I've got it at 320k in '07)

Notably, if the 360 sells 400k a month it would quickly be seen as the top Next-Gen console in the US. 300k isn't 400k, but it is much better than the sub-200k that the 360 has sold from March-July of '07.

However, I don't expect the sales numbers to stay at +100k for more than a couple of months, and selling an additional 200k of units is insignificant in the long-run. So my end result? Halo 3 makes little difference to 360 console sales due to it catering to an audience that I believe the 360 already owns.

So for a fun aside, what do I think is required to sell consoles?
Variety!
That doesn't mean having a lot of different games. You can have a variety of trash and it is still trash.

The next-gen consoles need variety in good games.

Guitar Hero is more important to the Xbox than Halo 3. The Xbox 360 already has plenty of good shooters, and there are plenty more coming. Another great shooter, I believe, has very little impact on the overall sales numbers.

Guitar Hero expands the audience by having another great game type on the 360. Unfortunately, since Guitar Hero isn't an exclusive, it doesn't help the 360 any more than it helps any other console, but it is a powerful sales helper on every console.

I'm always interested to see the NPD numbers and to make corrections to my own understanding of the gaming industry. The September numbers should be particularly interesting. I'll come back with some estimates for that month in a few weeks.