Just like books, music and other entertainment, the digital distribution of games direct from developers and publishers is growing rapidly while the sale of retail package goods is on a steady decline.
In fact, according to PC Gaming Alliance’s 2009 Horizons Report, from 2007 to 2009 global game sales through traditional retail channels declined from $3.3 billion to $2.4 billion. During the same time, digital sales jumped from $1.9 billion to $3.2 billion, and by 2013 are likely to be $10 billion. Within three years, it is estimated that less than 10% of worldwide PC game revenue will come via packaged, retail-distributed goods. In the Asian-Pacific region, where the greatest overall growth is occurring, retail will account for an even smaller percentage.
Still, many traditional publishers struggle with what is a necessary evolution from retail publishing to direct marketing. Business models are changing, and monetizing games suddenly requires a different skill set than it did in the past. To ensure a game’s success, it is critical to have a flexible commerce platform, strong marketing tools and analytics as well as intelligent game design for optimizing entertainment and commerce.
This historic shift for the games industry offers new opportunities and risks. While the opportunity for greater revenue and margin is attractive, the required and optional investments in infrastructure and skill set introduce new expenses and additional risk.
Many publishers understand the “free-to-play” marketing model, for example, in which incremental revenue is generated by selling items that enhance game play. But do they have the online environment ready to handle the global range of micro-payments needed for in-game commerce? Even more, do they have the necessary expertise and tools to address fraud protection, constantly evolving payment options, scalable infrastructure, foreign taxes and regulatory issues?
If a publisher’s online business is sufficiently scaled, it may indeed be cost-effective to create or acquire and operate the technology and talent necessary for monetizing and marketing games online. For most, however, it may be better to leverage the knowledge, experience and economies of scale that an e-commerce partner provides.
Of course, you need more than just a payment platform. A system must also support player account management and customer care, and a host of other elements like inventory management, offers, promotions, loyalty programs, rewards and player-to-player trading.
At the outset, instituting a customer relationship management (CRM) system that spans purchases and recurring billing is important to understanding buying habits and creating custom promotional offers that increase incremental sales. Supporting real or virtual currency is another hurdle; when accepting online payments and micro-transactions, it’s important to address the right payment types, not necessarily all of them. For example, in North America virtually all online payments are via credit card. Throughout Russia, India, Eastern Europe and many parts of the Middle East, less than 10% of all payments are completed by credit card making other payment types such as SMS and pre-paid cards essential.
In-game economies present their own hurdles—and possibilities. Is it possible to exploit the opportunities in coaching, reverse auctions and tradable assets? Can new games be effectively introduced to consumers through incentives and promotions by allowing them to exchange bought or earned currency from one game to another?
Even in the simplest of games, handling online purchases and subscriptions in scores of languages and dozens of currencies can be a significant undertaking. Global tax optimization, global customer support, constant research and development spending and operating an internal commerce platform becomes costly and often, impossible to internally scale and thus, justify.
Finally, reporting is also a critical element. From analyzing the effectiveness of acquisition and retention campaigns to maximizing average revenue per user, it’s invaluable to be able to track, report and interpret data to uncover both problems and possible new streams of income.
In order to make the most of the shift to the new world of digital distribution and online commerce, it pays to measure the risks and rewards of developing a digital, community-driven approach to game monetization in-house. It’s in this immersive eco-system—where commerce, community and connection to the consumer merge—that more and more game profits will be made, now and in the future.
Jeff Hemenway ([email protected]) is group vice president for global gaming at Digital River.
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