Social Game Monetization: New Channels to Show You the Money

[Editor’s note: Vijay Chittoor is CEO of Mertado, a startup that offers real-world merchandise within social games. He was previously director of product management at Kosmix, and worked as a consultant for McKinsey.]

By all estimates, U.S. social gaming revenues are growing robustly and are expected to reach $1.25 billion by 2011. However, individual game developers still monetize an average of only one to three percent of their audience through virtual goods.

As a result, alternative monetization techniques have been developed for non-paying users — primarily advertisements and promotions linked to virtual currency (including offers, surveys, cross-promoting other apps, etc.). But these have historically come at the expense of reduced user engagement.

All of these traditional methods involve clicking on an ad or an offer to go to a third party website or app, taking users away from the game experience. The best offers have a conversion rate of around five percent, i.e. 95 percent of offer clicks take users away from the game without adding to revenues.

How can game developers enhance their monetization beyond direct payments without losing their users? A few recent solutions have started bridging the gap between game engagement and monetization. These solutions not only keep the user within the game, but also add to engagement by speaking the language of the game:

  • Branded virtual goods: McDonald’s recently sponsored Farmville’s first branded farm, which users could simply click to earn virtual currency. This provided instant gratification for the user, great branding for McDonald’s and, most importantly, a great new way for Farmville to engage and monetize its user base. A report by Viximo shows that branded virtual goods are currently a small fraction of game revenues, but projects the number will grow to $150 million in 2013. Not only do branded virtual goods attract 10 times the click-through rates of non-branded goods, they are also proven to increase brand awareness and purchase intent. Companies like Virtual Greats, Viximo and Playspan are starting to distribute these branded virtual goods inside games.  I see a couple of different forms of branded virtual goods today:

1.      Branded goods linked to real-world items: Some marketers are looking to drive sales through virtual goods, and to do so they often link the virtual good to the purchase of a real world item. In another deal, 7-Eleven partnered with Zynga to offer branded virtual goods that get unlocked after users make a purchase at a retail location.  Another example is Old Navy’s recent Black Friday integration with Crowdstar’s It-Girl.

2.      Branded goods linked to brand awareness: Other marketers are not looking for increased brand awareness instead of sales, and in this case, the branded good is not directly linked to any purchase. An example is the McDonald’s farm mentioned above, or Volvo’s campaign around the use of virtual goods to create a “naughty” branding for the newly launched S60.

  • Videos: Branded video content, distributed through offerings like RockYou’s Deal of the Day, is another form of brand advertising that can be particularly effective in monetizing games. The key idea behind these is to deliver the ad message though a video that can be embedded within the game, instead of taking users to a landing page outside the game.
  • Contests within a game: While one way of increasing monetization is to get more users to become direct paying customers, an attractive alternative is to get the current set of paying customers to engage and spend more. BringIt’s platform for running contests within a game aims to do precisely that, acting as an additional currency sink inside the game. The entire contest experience is delivered in-game, and the contests can even act as a hook to bring users back to the game.

It’s clear that this trend toward monetizing games without taking the user away from the experience will eventually be paramount in successful social game monetization strategies.