Getting Users to Pay is Top Social Games Challenge, Playdom CEO Says

SEATTLE -- Even with hundreds of millions of Internet users playing daily, the social games industry will be in trouble if it can’t up the percentage of users paying for premium features and services, Playdom CEO John Pleasants told the Casual Connect conference here Tuesday. The West is lagging Asian markets, where savvy companies have convinced users to buy subscriptions or make microtransactions, he said. Facebook may be the industry’s best hope with its Credits program, Pleasants said, while acknowledging the leverage that the massive social network has over game makers.

Best known for its popular MySpace game Mobsters, Playdom realized in 2009 it had to focus more resources on other platforms, Pleasants said. Its sequel Mobsters 2 was a “giant brick” whose flop forced the company to develop more centralized services and support, partly through the cloud, and create autonomous product teams that can develop their own games while using its central “hub,” he said: Now a 500-person company, Playdom’s philosophy has become “a thousand flowers blooming."

"Technology is going to have to lead the way” if game makers want their products today to look like “child’s play in two or three years,” meaning more centralization and cloud elements, Pleasants said: Social games are “scratching the surface” of experiences that truly bring players together, rather than simply getting new users on the cheap. He estimated the average game development project would take an extra two months going forward so that each game launch makes a good first impression, and told companies they need to tailor experiences for each platform. Echoing the common distinction between “real friends” and “Facebook friends,” Pleasants said the industry was in the early stages of “game friends,” in which users develop regular in-game relationships with strangers, as games increasingly adopted “synchronous” elements.

As the industry grows to a projected $5 billion by 2015, game makers will have to continue innovating to keep users engaged, Pleasants said, showing a graph of falling gameplay per Playdom user over several months: “Obviously the idea of fatigue kicks in.” Retaining players is crucial for “virality,” or word-of-mouth marketing for games, he said: 90 percent of viral invites to Playdom games come from the most engaged users. Even when gameplay falls off, games can keep a “long tail” of users, he said, pointing to a “sustainable core audience” after six months for Playdom’s Sorority Life.

About 1 to 2 percent of social game players are paying for extra features and services, a figure that’s remained flat to the puzzlement of the industry, Pleasants said. Such “whale math” means about 40 percent of users are responsible for 80 percent of revenue. Even with 300 million daily average users in the West, game companies aren’t coming close to the paid conversion rates in Asia, where Japan does particularly well with mobile payments and China excels in microtransactions for Web play, Pleasants said.

Playdom projects that paid conversion in the West will rise to 2 to 4 percent by 2012, a good trend, and for certain games, 10 percent is feasible, Pleasants said. Playdom games tend to offer users a “bucket” of virtual money with which to buy in-game goods and services, but also let them make individual purchases for a specific item without stored credits, to drive “impulse purchases,” he said. It’s experimenting with sponsorships but doesn’t plan to offer subscriptions, a model used most successfully by Blizzard’s World of Warcraft, he said.

The “biggest bet” for payments is Facebook Credits, which should become a “real liquidity driver” in the system after the kinks are worked out, Pleasants said. Players with stored value on a platform have much higher conversion rates when prompted to buy a service or virtual goods, he said, a phenomenon demonstrated years ago through PayPal.

The threat of Facebook changing the rules and revenue share for game makers, after they've build substantial audiences on the platform, is minimal because games are the most obvious use for Credits right now, Pleasants told an audience member. Other platforms don’t want to get a reputation for being unfriendly and losing games to competitors, he said. “It would be hubris … to think that we're going to go build a social network” to hedge its bets with other platforms: While Playdom.com could be more tailored to gamers, it will continue directing users to other platforms.

More immediate challenges for game companies include figuring out the right “segmentation” among the millions of players, Pleasants said: “It does feel like our industry is kind of homogenous,” pitching the same games to diverse audiences instead of developing each game for a different audience, such as romance or mystery titles. Making it worse for independent developers, the hundreds of thousands of applications on Facebook make it difficult for them to find an audience. Playdom is struggling with where to assign resources as it looks for clues on which of its games will be the next hit, he said.

Apple is paving the way for social games to work better on mobile platforms, Pleasants said: “Mobile is making our growth rates look silly right now.” Craig Dos Santos, head of mobile gaming for Playdom, said the company is working on developing mobile versions of its games: So far they haven’t “cannibalized” the desktop browser versions.