Social Apps and the Gaming Industry
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1 1 Social Apps and the Gaming Industry Commerical opportunities for 2012
2 2 Overview Organisations operating in the Gaming Industry - look out! 2012 has some surprises in store for you! With different policies and legal opinion affecting all geographical market s social media opportunities plus the now ever-increasing competition most organisation need to be more creative than just using Google Adwords, a mouth-watering bonus scheme and the all too familiar accountancy led efficient tax structure. With new markets, trends and changing consumer attitudes shaping the gaming industry in 2011, it is now possible to see how a social media strategy can work for all types of gaming organisations. This White Paper looks at how to address Social Apps as a tool to be used by gaming organisations. We have drawn upon our own research conducted during November and December 2011, in which we gained quantitative and qualitative responses from professionals within the gaming industry. As well as this we have also used publicly available research and reliable sources of market information such as Keynote and Mintel market reports. This Paper covers the following areas: o Social Apps: the basics o Consumer engagement o Competitive Differentiation o Retention and Life-time Value o Return On Investment o The Legalities and Policies relevant to the gaming sector o Mobile Social Gaming
3 3 gaming has been transformed from a lonely, individually-played activity, to a universal social experience that can be shared with family and friends. - Aliya Zaidi, Social Trends for 2011 econsultancy Social Apps: the basics Social gaming results from the combination of social networks and online gaming and it refers to gaming online that involves interactive elements or content sharing between peers. Social apps are web-based games that allow social gaming to occur. In general they are features such as; profile building, making friends, exchanging messages and gifts and other player-friendly options. Texas Hold em is a good example where if we start with traditional online poker, then add gifting, rewards, invites, profile building and an emphasis on community and friends, suddenly we have a new, exciting and interactive version.
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5 5 With the recession causing many marketing budgets to be slashed, the opportunity presented by social media was compelling, mainly due to the relatively low cost of development and implementation. Another cost-efficient benefit is the ability to target a vast audience with varied demographics all under the roof of the same app However the distinguishable feature of the social app industry consists of generating real money from virtual goods, services and even sometimes just to access the gameplay for enjoyment purposes. Social games within networks are free to play and rely mostly on virtual good purchases. This means that the most frequent users can potentially deposit significant amounts whilst first time users can initially discover the game for free and at some point could in the future choose to make a small payment in order to have access to a special game feature or upgrade to the next level. Many social gamers gift each other using credits they have either earned through gameplay or bought online. Social apps have been so successful because of easy-to-use software simplicity and the viral nature of friend brings friend within a social network environment. It is serving these specific needs that is at the core of all successful social apps. Over the course of 2011 the market has quickly become saturated with new social app developments that can satisfy needs that customers never even knew they had. This is because suddenly customers could engage with their favourite brands on a deeper level changing the relationship permanently. The brands that have had the most success through social apps have clearly identified what customer needs they need to satisfy through the app
6 6 for the future it is imperative that gaming companies start to understand their customers changing needs, gaming habits and identify the gaps, especially as the market grows. What is it that gaming customers now demand from organisations? We know that customers now demand mobile play mobile and tabletbrowsing statistics are now finally increasing at huge rates but what other needs could be satisfied beyond playing roulette on the bus home? As we move into a more social era the opportunities for creativity will separate the men from the boys in the gaming world. As 97% of our respondents were already engaged with Facebook and 53% anticipating an increase in activity on this channel over the next 12 months, this White Paper will gave additional focus to the opportunities for social app development on this platform. Consumer engagement From our research, 80% of our respondents indicated that engaging with customers was one of their key objectives for social media. The engagement of social apps, on a two-way basis, brings a new dynamic to the role of gaming and one that traditional online gaming brands need to understand. There are different ways that organisation s within the gaming and gambling industry can use social apps; o Advergaming for campaign promotion & brand awareness o Light engagement to reach new markets o Heavy engagement for brand value & revenue
7 7 Advergaming Social apps and games can be considered as Advergaming, depending on the type of app that you develop. If an app is developed around the traditional concept of gaming, i.e. Facebook Roulette then it is straight social gaming. However, if you design an app around the brand itself i.e. if Party Gaming were to create a Design your own Party Casino room app then you are heading into advergaming. This is a new technique being used by marketers to socially engage customers with your brand and, if done well, can have enough appeal to create viral distribution. With certain restrictions placed on gambling companies that engage with Facebook this can be an ideal way of using a video game to advertise a product or brand. The growth of the internet has seen Advergames proliferate; now becoming one of the most important aspects of brand media planning. Light engagement Reaching new markets and retaining them is one of the most important strategies to utilise, due to the huge user base that social and mobile networks gives organisations access to. In consideration of this, there is potential within the soft/novelty gaming market for brands to remain ethical and gain awareness. If you enter into this area then it should not be with the sole objective or creating revenue (note: Facebook will take a 30% cut of all revenue generated through in-app virtual currency sales. Apple do the same with all App related purchases). Gaming brand Paddy Power are already leading the way with bets such as FHM Sexiest Woman 2012, Pope Specials, Celebrity Big Brother and more relevant but still novel bets like First team to have a player in a sex scandal. Crowdpark are another example of a company trying to utilise this social betting business model, they have avoided gambling restrictions by using a virtual currency for every bet so that players compete for fun and not real money.
8 8 Bet Tycoon brings live betting to Facebook. Here friends can challenge each other to bet with virtual currency on a huge range of real-time events. Each new bet is a chance to move up in the ranks and show off to everyone on Facebook. Players can even make up their own bets and markets, allowing them to bet against each other on just about anything. Crowdpark s patent-pending Dynamic Betting technology generates live, real-time experiences. Players can join, change or leave a bet at any time similar to the stockmarket If we look at the other trends that could see social apps impacting on future engagement then it s important to mention the US market. With trends leaning towards the eventual legalisation of online wagering in the US, this already huge market will see fast accelerated growth. Just look at Caesars Entertainment Corporation s purchase of social game developer Playtika for between $80m and $90m (USD) in May 2011 a truly astonishing deal based on the fact that Playtika is just a small development company without a positive cash flow. Many commented that this deal was true evidence of how important social media platforms will be for traditional online and offline gaming companies. An integrated online and social marketing strategy could be the difference between being one of the market leaders or a brand left clutching at straws. It is important that brands looking to capitalise on the opening of the US market start their social media communications as early as possible in order to start to build brand awareness with their potential new customers, the easiest way to do this without encroaching on current legislation is through social and mobile channels. Considering that the majority of the new online US gamblers will be inexperienced, apps that help educate whilst at the same time engage, will be the easiest way of retaining first-time users. Other markets, where gaming is experiencing growth, include India and Latin America forecasted to reach around $5.6 billion by 2015 in a report from Price Waterhouse Cooper titled Global Gaming Outlook: The casino and online gaming market to PWC is predicting
9 9 that the Asian-Pacific market is going to see something like five percent annual growth over the next five years, making it the biggest gaming market on the planet. According to the report, the Asian market is likely to surpass the American market to encompass a full 43 percent of the world s total gambling spending. If you are going to develop social apps to tap into these emerging trends then you need to consider more than just language. The more successful apps look at the culture, lifestyle and attitudes within their localised markets, you can read more about that in our section on differentiation. For all light engagement your social app needs to have a few features; be highly creative, entertaining, engaging, satisfy a low level need, have social sharing mechanisms and be quick and easy to engage with. Heavy engagement This is where you start to consider the different game mechanisms and communication strategies at an entirely inclusive level. If an organisation is looking to use social media as one of their core strategies for generating revenue (whether directly or indirectly) then you need to dig much deeper than out-of-the-box-creativity. Creating more meaningful relationships is a bigger challenge within the gaming industry due to the high levels of competition, ease with which customers can switch to other brands and general burn out with different games and gambling.
10 10 Dependant on the type of app, engagement can come from; o o o o o Generating a more personal relationship with your customers through personification of your brand Allowing your customers to develop a more personal relationship with each other through the social app Giving your users ownership of your brand by giving them a voice for future brand/app developments Allowing users to be rewarded for their loyalty Providing a high quality experience that satisfies the needs of your users. Although this White Paper could explore the different methods of higher engagement in more depth, we have decided to embark upon further research into this area and research another Paper at a later date. All apps can be developed for higher engagement but it must be focussed around a key objective before development work even begins, that way all marketing communications, PR and gameplay measurement around the app can be focussed on achieving that objective. Zynga s Texas Hold em Poker is a clear winner in the gaming industry in terms of heavy engagement. It will be interesting to see how this game is impacted if Facebook do decided to move into the igaming market, which it is rumoured they will do at some point. Competitive differentiation You can work out where your customers are OR where your non-customers are. Do you use social apps for differentiation within the same market or go after a whole new market? With 63% of our respondents believing that there would be a benefit for their organisation of developing an app for Facebook and 46% saying that they are responding to increasingly saturated markets by looking to differentiate their brand this section entitled Competitive differentiation shall look at how organisations in the gaming industry can use social apps for differentiation.
11 11 Typically, land-based and online gambling organisations target a similar customer and offer a similar game and experience, so gaining differentiation with the traditional online gaming world methods is difficult. Due to having social gaming giants with high levels of competition such as Zynga, Playdom, EA etc it is difficult for new entrants in the core market of English speaking countries. So, gaming organisations need to draw upon the strengths of their brand associations and trends to develop something that is untouchable and not in direct competition with others. Differentiate through your platform choice Work out where your customers are, even though Facebook may seem like the obvious platform for a social app you may find that actually more of your target customers are using Android phones and therefore you are better investing your resources in this area. Especially as you can always link back to Facebook with Facebook Connect at a later date. By not following the crowd and being very specific in how you understand the culture of your chosen platform you can achieve differentiation through the approach that you use. Google+ is predicted to be a growing gaming platform and yet not many developers are utilising this channel as yet so in turn this provides the opportunity for first-mover advantage. Alternatively a cross-platform strategy is where you can develop your social games in parallel for Facebook and MySpace for example. Dependant on whether you want to localize your gaming strategy it is possible to target the countries where Facebook does not yet dominate. An example of this would be Brazil, where Orkut has a strong leadership position, or Hi5 which has strength in Latin America and is looking to attract top developers.
12 12 Differentiation through creativity The easiest way for gaming organisations to look at social apps is to create an app version of their current products i.e. chat poker dating. There are other elements that gambling brands need to look at and consider integrating into a social app for their brands. - Story-telling i.e. an app that progresses through levels requiring the attainment of different virtual goods and gets users involved in a particular story line such as a Bond film - Virtual gaming: creating a different visual environment for users to play standard casino type games - Changing the reward mechanisms of games: i.e. instead of the focus of poker being to either win with a great hand or win through a bluff how can it be changed to have new ways of winning - Social apps can be developed to incorporate the use of other social channels i.e. YouTube, Twitter, Google Places (especially for land-based operators) in order to engage new customers Differentiate through your target market How can gaming organisations adapt their current products to suit a new target audience? Social apps developed for social networks and those developed purely for mobile both have the potential to reach out to pretty much any demographic and psychographic market available. All of these markets want to be social and they want to engage with each other and with brands at the same time. Gambling and gaming tends to focus on competition, drawing upon the psychological desire to progress, beat others and win something for yourself. Taking these desires into account there are many different types of apps that could be developed whether you want to monetize them or not. Past and current trends have brought new demographics such as the older generation and more women into the typical gaming market. Below are a couple of examples just to give you an idea of how a brand can target new audiences with traditional concepts. Young Males: Develop a car-racing app where you can race anyone else who is currently playing the app either as 1-on-1 or in groups. Users then bet virtual currency on which you think will win a perfect example of bringing together video gaming with online gaming.
13 13 Young females: Develop a chat poker dating game where users must win hands in order to gain introduction points, the more introduction points the longer they can socialise with the men they choose. With many women becoming familiar with the concept of poker due to Zynga s Texas Hold em and the current growth of online dating, this could bring a more tangible benefit to its audience, as well as retaining the desire to win.
14 14 Retention & Life-time Value A report by econsultancy found that out of 211 companies, 51 found that social media impacted on their business objectives by giving them better customer retention. The great thing about social apps is the enormous level of engagement. This means that once you have engaged a customer with your core brand. i.e. Hurrahs & WSOP brings you Slotomania, it is then very easy to gain engagement with free apps and social games. Retention has always been core to gambling companies marketing objectives but with new markets opening up and the competition becoming fierce, it will be those using social apps for retention that find they can gain an advantage. Social apps bring in not just an individual but their friends as well, by creating relationships within a social app it makes it much more difficult to leave. Social games have different mechanics involved to ensure retention is core to the game or app i.e. a storyline, ownership, daily bonuses, missed opportunities, play frequency, etc. This is great if your focus is on encouraging players to become your avid fans and convert into your virtual goods revenue model. However social apps have so much more potential to help retain customers with an organisations current offering, i.e. online real-money gaming website or land-based physical location. Customer Relationship Management (CRM) The CRM possibilities with social apps go far beyond the limitations found for both online and land-based organisations. Real-time interaction between an organisation s voice and their customers means that problem solving, customer support and relationship building conversation can happen 24/7. Customer s needs are changing; they have less patience for or phone communication and instead want to have their queries solved immediately, as proven through the importance of push and pull live help within traditional online gaming. If as a brand you can provide this you start to develop relationships of trust with your customers and trust converts into loyalty. The personification of a brand is also proven to boost engagement and revenue as long as it is managed correctly. Social media communication channels allows for risk management as any negative feedback can be dealt with immediately in a very open and honest way. By keeping things transparent you increase trust and because you can answer one person s comment before hundreds more ask the same thing, you can cut down on the need for human resources whilst still containing bad press.
15 15 Many of Zynga s social apps have extremely good methods for CRM. All of their apps have community forums, FAQ s, live help through their Facebook pages and some also use communication. The social aspect of these games means that more users are willing to help other users and get involved within these forums. You can have the best app on your chosen social media platform, but if users come across barriers that they can t get past then they will lose interest fast, especially as there are so many alternatives to choose from. Market Research The social infrastructure of apps allows for lots of conversation to occur, which can be monitored by different subject areas and topics by a communications team. Conversations can then be tracked and analysed, using new measures such as buzz, impact, sentiment and equity. The result is that organisations can review what their users are saying, whether that is the app itself or anything positive or negative that the brand might have done. The huge benefit of this is the ability to continually adapt your social app for the good of your users, it also means that you can find out which parts of the app create the most excitement this kind of market research is invaluable as a tool for future developments.
16 16 In addition to conversation based around a social app, by engaging customers with a brand through social or mobile you can also find out what brand buzz is being generated. This information can be used to develop campaigns to promote your brand outside of the social app i.e. finding out what customers are saying about your casino and then creating TV campaigns that match the needs that you have identified. However the main benefit of this conversation is so that products can be continually improved based on what core users want, this way you continue to satisfy their needs and not give them a reason leave.
17 17 Return On Investment If a gaming brand is looking to create a social app then it needs to decide on key objectives from the outset. Brand building and cross promotion is one thing but specifically looking for a direct return on investment is another. Apple will take a 30% cut of all revenue from products within their App Store and likewise Facebook charge 30% on their credits so either way you re looking at a hefty pay out. So it s worth taking the time to identify objectives and examine the revenue model options. Freemium model Apps can also indirectly generate revenue through the increases in brand awareness and engagement that drive users to the real-money platforms. Many organisations will choose this route as it involves less development costs and is a more campaign based strategy to achieve an objective. The majority of apps are structured around a freemium model, where only the players who are really engaged and want to progress quickly will pay for virtual goods. It is unlikely that a subscription model will ever really compete with this; in fact many subscription led apps have failed already. The entire multi-billion dollar social gaming industry is built upon monetizing only 1-5% of the user base. In other words, 95-99% of the users will not pay anything for the product, and that is considered acceptable! Virtual goods is an extremely valuable market topping $1bn in 2011 and predicted to grow to $4.6bn in 2016, demonstrating the strength of adoption that is forecasted for consumers. Virtual goods can range from buying Facebook Credits to buying a t-shirt for a virtual avatar it is these virtual currencies that have allowed for gambling to occur already within Facebook. In-game Advertising (Advergaming from a different perspective) One emerging feature is in-game advertising. Instead of buying in-game banners, corporations turn to building brand awareness by partnering with developers. Due to the high levels of engagement that many apps acquire it can be a great way of monetizing without ruining or cheapening your own brand. For example if you developed your own poker app, the back of the playing cards could be used to advertise a specific brand like Jack Daniels. The thing to be wary of with in-game advertising is that your brand message does not become fragmented and instead you partner with brands that will enhance your own brand values.
18 18 Peer-to-Peer Another new and growing trend is peer-to-peer (P2P) gaming. As it encapsulates the values of social perfectly it is expected that more apps will be developed to exploit the potential of this area. Women are more likely to engage in this type of gaming as it is seen as being less risky, less addictive and more entertainment based. The value of P2P gaming comes from engaging non-users with brands and driving revenue through a new gaming concept. Because these mobile social apps have little restrictions there is the opportunity for gambling companies to start to bring in more novelty betting/gaming apps and seize the opportunity of attracting the growing audience of P2P gamblers. Legalities and Policies relevant to the gaming sector This section will cover some of the policies and suggested legalities that are expected for It was announced in September 2011 that Facebook are relaxing their online advertising rules for gaming brands such as online poker sites and casinos. The new rules mean that gambling brands (only those outside of the US) will be able to target consumers, provided that they are aimed at consumers over 18 s in countries that allow gambling. UK Gambling companies are amongst 18 other markets, outside of the US, that are now allowed to launch non-gambling apps. Prior to this update, gambling brands were allowed to have a page but were limited to four posts per week that had to be screened by Facebook before being posted. Apps that are developed for Facebook, such as a poker/bingo/casino must make it clear through their branding, or through the name of the app that the app is a fun only game. These apps are not allowed to link in any way to gambling sites, nor can any earnings within the app be cashed out, including being converted into credit that may be used the gamble online or at a casino. Interestingly and according to egaming Review, Facebook is engaged in exploratory talks with a number of operators such as Gamesys, 888 Holdings and PokerStars to open its platform to real-money online gambling, maybe even as soon as in the first quarter of When this would happen, how players would verify their age and identity, which payment solutions Facebook plans to deploy for handling realmoney play, or any details around the revenue split between Facebook and gaming operators, are all aspects that appear to be still very
19 19 much unclear. However should this happen we could see gambling gaining an even more socially acceptable image which opens up doors for engaging with new customers directly on Facebook. The UK government s rising taxes on gambling have caused a number of betting companies to move overseas however, the Government recently announced that it plans to change the law regarding remote gambling. This will mean that all operators that sell into the British market will be required to obtain a licence from the UK Gambling Commission, including overseas businesses, meaning a likely negative impact on profits, so there needs to be a switch before the market become even more difficult to compete in yet another reason to support a social media strategy. Mobile-Social Gaming The launch of the Apple s iphone in 2007, and the introduction of a range of Android phones, the ipad in 2010 and other tablet devices since, has seen a massive increase in mobile browsing traffic and various mobile gaming and betting apps being created. Mobile gaming and remote gambling is a fast-expanding area of the betting and gaming market, with a survey undertaken by the UK Gambling Commission revealing that 10.7% of adults has participated in at least one form of remote gambling in the 4 weeks ending March (1) Online casino Betfair, announced that it took more than 1bn in bets from mobile devices in the previous financial year up by 122% from Paddy Power launched its new Bet and Watch application in time for Royal Ascot which allowed customers to watch live action from Royal Ascot if they bet 1 or more on any of the races. Mobile and social gaming seem to be bound to grow with a significant overlap. As Internet usage rapidly shifts to mobile devices, regular players now expect to have a seamless experience enabling them to keep on playing when they are on the move. The real challenge for developers is to be able to launch a high quality mobile adaptation of their games for the leading mobile operating systems as fast as possible after the launch of the PC version, which requires experience in mobile environment and best in class development processes. Mobile gambling has the potential to tap into the live-betting markets for sports. This will become especially important as the 2012 London Olympics draw closer and a new wave of non-gamblers get caught up in patriotism and try new games. In addition to that, in football there
20 20 is the 2012 European Championships, which tends to encourage more passive gamblers to make wagers. The entire area of soft gaming provides huge opportunities for gaming organisations to attract a new user base in 2012 especially for mobile apps. Summary The biggest challenge of all may be staying committed to producing new Facebook games while the fast-growing smartphone market is beckoning. The mobile market is still missing social elements and the sheer scale of Facebook, however there is no doubt now that after years of promises that mobile is the next thing, we are now certainly seeing the drive to mobile internet. If a brand can master both strategies of mobile and social, then exciting things are possible. So far social gaming and social apps have seen such explosive yet robust growth purely from adaptations of existing games and marketing concepts. In order to gain significant and solid growth for the future companies need to be able to make the most of the new features within Facebook and other social networks, with new types of interactions between players and game plays designed from scratch for the new social user. Brands that are already established in the gaming industry have an opportunity to be creative and develop apps in order to engage differently. Whether it s a social game or mobile app that is developed, it should be looked upon as an on-going, live and interactive product, not a launch and forget it game this is a common mistake many are currently making. The need to drive customers from one game to the next exists because players exhaust the content of one game and you ll lose them unless they immediately see another game (or level) that they want to play. The development of a social app concept is more than possible with the wealth of analytics software now available and the use of social CRM for market research. The gaming industry looks set to face some exciting opportunities in Some operators might see these opportunities as threats so it s really important that a strategy is established, or as an absolute minimum the subject must be discussed in detail. Social apps will undoubtedly achieve a number of objectives, but only with a clear focus, strong management and fixed strategy.
21 21 Disclaimer. This research paper is based on information available to the public and other sources deemed reliable. No representation or warranty (expressed or implied) is made as to, and no reliance should be placed on, the fairness, accuracy or completeness of the information contained herein and, accordingly, none of Think Managements officers or employees accepts any liability whatsoever arising directly or indirectly from the use of this document. Social Mediation is a social media agency service provided by Think Management Limited. For full details visit socialmediation.com or call References: 1. Betting and Gaming 2011, Keynote 2. Value of Social Marketing, Feb 2010, econsultancy 3. Social Gaming Trends for 2011, econsultancy 4. Social Gaming Research Report, June 2011, Clipperton 5. A journey in social media, 2008, EMC 6. Social Media Marketing, 2010, Keynote 7. Online Gaming and Betting 2011, Mintel 8. Maximise Social Brand Management, 2011, Jive 9. Global Gaming Outlook, 2012, Price Waterhouse Coopers
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