Understanding the Pieces of the Social Game Monetization Chain

[Editor’s Note: This is a guest post by Dan Taylor of social game monetization services company Fatfoogoo. He examines the different kinds of services currently available to game developers.]

With the dramatic rise of free-to-play and social gaming over the past year, a range of services companies to help developers and operators of these games monetize their product. And while many of these providers offer a range of services, it’s easy to forget that each one has its own unique way of providing the right solution for the right game. Which brings us to the most pressing question – which solution is right for which game? Obviously, this is something that must be decided by the developers themselves, and no one single product will deliver the be-all-end-all solution for each and every product on the market. With this in mind, it’s important to evaluate where decisions might be coming from, and how a game developer arrives at this situation.

The value chain of many social/free-to-play games can be summarized in 5 unique phases:

  • Idea
  • Balance
  • Goods/Currency
  • Payments
  • Commissions

Idea: At the very top of this chain is the game idea itself. This is the fundamental building block of everything else that will follow. Developers with a game idea will first evaluate the revenue potential of the game. Can it gain stickiness? Does it serve a niche audience? Does this audience already have something meeting it’s needs (i.e. competition)? If so, what can we do to improve on this want? And perhaps most importantly – can we monetize it?

Balance: Once a game idea itself has been fleshed out, the next phase of the value chain is game balancing. This is where developers will begin defining crucial monetization factors. Virtual economies function just like real world economies, with factors such as supply and demand, inflation, etc. must be factored in to equate a pricing structure that will both remain balanced and fair within the game, provide developers with a decent return for their efforts, and remain attractive to the end user, i.e. cost vs. value. In addition to these variables, developers must also factor in limited offers and promotions that will incentivize users to either play or purchase more, while at the same time, maintaining the delicate balance of their virtual economy.

Goods/Currency: Now that the developer has set pricing points, they’ve now to find a way for users to make purchases within the game. It’s at this point in the value chain that virtual currencies make their appearance. It seems as though each game has its own nomenclature, whether coinz, tokenz, gcash, etc., they’re all doing the same thing in providing end users with a currency that can be then used to purchase items. This phase of the chain also includes the introduction of specific purchase prices of the various virtual goods/items to be sold within the game.

Payments: At this phase of the value chain, developers are essentially done with the ‘virtual’ part of the business, and now have to build the bridge to the ‘real world’ money. It’s during this phase where payments factor in. Payments to the developer can either come from a separate company providing an offer service (see below), or directly from the end user themselves. When developers choose to receive payment directly, there are a number of ‘real world’ financial considerations to be factored in, including credit card fraud, charge backs, taxation, and much more. Developers must manage how they’ll be aggregating these payments. If they have chosen a service provider to handle this for them so that they may continue development on their product and not get hung up in economic red-tape, do they want a branded or white label payment service?