How to make a cool $2MM+ with a sparkle pony
This morning Blizzard announced the online sale of a new “celestial steed” for use in WoW. These mounts cost $25 (on top of the retail price plus $15 monthly subscription). So in a world of free games and virtual items selling for a dollar or two, how popular could a $25 sparkly flying pony be?
Well, the queue for their purchase was at least up to over 91,000 people waiting in the queue. When I took a screen shot, it had fallen to “only” about 85,000.
90,000 X $25 = $2,250,000.
In one day. From one item. In a game that isn’t free to play anyway.
Something tells me we really, really haven’t mapped the extent of the market for fast, frictionless sales of online goods — “objects” that have a low cost of creation and essentially no cost of duplication. Even 90,000+ times.
A snapshot of the queue on the Blizzard store.
Tags: revenue, sparkle pony, virtual item, WoW
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Online Alchemy 
April 16, 2010 at 8:35 am
Lets not forget how much time and money they have both A) put into making this customer base and B) gotten out of this golden egg laying goose already. Sure they just need to slap a cool item in game and sell it and they have a license to print money, but only because they have such a loyal and large fan base already. Too many people see these kinds of posts and go “Heck, I can make a pretty pony, I should make $2MM!” Sure. But make sure you have a successful game with a large fan base to inject that pretty pony into. 🙂
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April 16, 2010 at 9:14 am
Very true. My intent wasn’t to say how easy it is to make money with sparkly ponies, but the point out the incredible power of this sort of thing in an established for-pay game.
Consider too what this says about the lifetime earning potential of a successful online game vs. a successful retail-only game. DLC is becoming a much larger factor there too of course, but this kind of success is astounding (as someone pointed out on another site, this was just the first day, and only North America – the pony invasion hasn’t hit elsewhere or likely peaked here yet).
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May 10, 2010 at 11:47 pm
Hi, Mike.
We ran out of commenting space over at TN, so I thought I’d move this conversation over to your blog. your last comment
There’s an article about the consolidation in the Financial Times dated May 9th entitled “Social gaming industry consolidates” (this link may or may not work since FT.com is mostly a pay site)
It expresses precisely what I was describing; specifically, that the high cost of getting one’s game noticed incentivizes start ups to seek their own acquisition rather than trying to compete.
You said there are no barriers to entry, and in the sense of niche gaming you’re probably right. But as for the high-dollar explosively growing system of social gaming on facebook, there are clearly barriers high enough to keep most start-ups that aren’t runaway successes from making it on their own. In and of itself, this doesn’t mean that revenues from RMT-based social games are about to hit a plateau (though I think profits will), but there’s plenty of theory and empirical evidence from other industries to suggest that if success is highly dependent on exploiting network externalities, then there isn’t room for a lot of competitors (cf QWERTY keyboard, AC power transmission, highway planning, and any other product that depends on everyone using the exact same thing to accomplish dissimilar goals). Facebook is in a much more powerful position then I think you give credit; it is well-run, innovative, and unlikely to lose its seat as the social network of choice for years to come. I also think you may overestimate the incentive most people have to move to another network because of nitpicking issues with facebook, just like others may overestimate players’ willingness to leave WoW over the Celestial Steed. For these reasons, facebook is in a position to command premium fees from services that use its virtual real estate to attract customers.
I don’t think there’s anything in your OP that’s wrong, or an incorrect interpretation of the facts. But just because transactions in and of themselves are costless doesn’t mean that the demand for said transactions is accessible to just any organization.
Like you said, there will be a lot of consolidation in social gaming. But for that same reason, there is not much competition in that industry: it is highly oligopolistic, naturally so, and moving to be still less competitive. The tail is not fat, and is becoming thinner. Whence comes evolutionary ideas when the best talent is paid by Zynga, Facebook, EA, etc? Most of the time, it will come from those very properties, and it will serve their interests first.
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May 11, 2010 at 7:39 am
Isaac, thanks for moving the discussion back here. I wasn’t able to read the FT article unfortunately, but I wonder about the “high cost” that it talks about. It’s true that social games budgets are often in the $1M range now, which is hardly pocket change. But compared to $20M or more for any other kind of game, it’s much more attainable.
Also, I think we’re seeing an expected generation of “flip it” companies — once a few large players are in place, others who are aiming at a quick acquisition build up their company for fast acquisition. There’s nothing at all wrong with that; it leads to good liquidity events for all concerned. But it’s also not the only exit in this case – the disintermediation of revenues means that profit sharing for small companies can be a viable source of ongoing liquidity, in effect creating a new form of business somewhere between the traditional categories of “lifestyle” and “built for acquisition.”
It’s not at all clear to me that “network externalities” lead to single-winner scenarios in this case: I believe social games as a market are much more like TV shows, cars, jeans, or other similar goods: there may be those companies that are market dominant, but they do not squeeze out the rest of the market players.
From the Zynga POV you could say that everyone else is a niche player. OTOH if those niches are sufficient to sustain many small to medium-size developers, what’s wrong with that? Such niches have rarely been available before, but in this case the technology, product development, revenue, and market size all work together to make these possible. IMO this is a new configuration rarely seen in the past.
You said: Like you said, there will be a lot of consolidation in social gaming. But for that same reason, there is not much competition in that industry: it is highly oligopolistic, naturally so, and moving to be still less competitive. The tail is not fat, and is becoming thinner.
Do you have any data to support that? Every time I look at the numbers on AppData or DeveloperAnalytics, the tail seems to be growing fatter, not thinner. For example, the top 94 FB games listed on AppData now have over 1M MAU, and the top 154 have over 500K MAU. Both numbers continue to grow — even as the numbers at the very top flatten or drop (e.g., Farmville has gone from 85M to 76M MAU).
Whence comes evolutionary ideas when the best talent is paid by Zynga, Facebook, EA, etc?
I’m not sure what makes you think those companies employ all the best talent. There are a lot of good people working for them, certainly, but the idea that they have a lock on the best talent or the best ideas has never been true, and is less true today than ever.
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May 12, 2010 at 10:07 am
Nothing. I’m just thinking Zynga and the other top players will be interested in entering niches through acquisitions. Niches in social gaming PROBABLY means higher concentration of players willing to pay for virtual goods and services, which means higher revenues per person.
>> Do you have any data to support [the position that social gaming is highly oligopolistic, naturally so, and moving to be still less competitive].
My instinct is not to ask what the distribution of users across games is, but rather users across developers. Since this is a higher level of aggregation than the one you posted here , then it will necessarily have a much thinner tail. But I did run some numbers based on that aggregation.
I only pulled from the developers in the top 80 of MAU. ( link to data ). Of those, the top five (along with their percentage of total MAU) are:
Zynga 38.48% (valued at about 4.6 billion)
Electronic Arts 9.10%
RockYou! 8.30%
CrowdStar 6.75%
Playdom 6.15% (valued at about 260 million)
, for 68% of MAUs concentrated in the top five. (95.5% is concentrated within the top fifty). If we can understand the ‘standard’ Pareto distribution as one which reflects the 80-20 rule, then the distribution of MAUs amongst developers is thinner in the tail than the ‘average’ distribution, since 80% of MAUs are concentrated in roughly 16% of developers games (less if I had included all 200 some developers on AppData).
But even this is misleading, since a user =/= revenue. What we need to know is how users distribute their time and money across the games they ‘use’. The FT article suggests that Zynga is valued at about 4.6 billion dollars. If we assumed value scaled one-to-one with MAU (it isn’t, but let’s say), then the company with the 80th most used game (Mob Wars, as chance would have it) would have a value of 13 million dollars. I think, however, this is an overestimate (on average, anyway, for developers around rank 80. This also follows from the estimate of Playfish’s valuation of 260 million, which isn’t reflect of its share of MAUs when compared with Zynga). All this leads me to conclude that Zynga is probably even more dominant than MAUs suggests.
>> what makes you think those companies employ all the best talent
It doesn’t employ ALL of it, but it can afford to pay talent very well, and emerging talent may find it less risky to seek employment with a major developer rather than strike out on its own with such a formidable competitor already in the field.
Finally, so what? Well, economic theory and empirical evidence suggests that in these circumstances, where revenues are concentrated in the hands of few companies, you will see less money invested in innovation, developing new tools, and so forth, and more money spent on advertising and outdoing your competitors through lobbying efforts (as examples).
That is to say, it’s NOT all that different (IMHO) from other industries.
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May 12, 2010 at 10:08 am
(Missing top part of that last comment):
Sorry the link doesn’t work. If your local library carries copies of the Financial Times, the article appears on May 10th’s edition on page 13. One relevant passage “…[Facebook has] stopped letting games send updates to users… To launch a successful game, companies must either promote it from within existing hit titles, or spend heavily advertising on Facebook.”
>> if those niches are sufficient to sustain many small to medium-size developers, what’s wrong with that?
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May 12, 2010 at 11:30 am
68% of MAUs in the top 5, and 95% in the top 50 seems about right to me. Maybe it’s a glass half full or empty situation: compared to how things are in traditional games, this is great. Now at least small developers have a chance, without having to be beholden to one of the top 5 monsters.
Also, I’d be very careful of judging anything based on company valuations here; this tends to have at least as much to do with how much money they’ve raised as it does their actual revenue. The multiples are always slippery numbers.
From the FT you quoted: “…[Facebook has] stopped letting games send updates to users… To launch a successful game, companies must either promote it from within existing hit titles, or spend heavily advertising on Facebook.”
Maybe. First, spending “heavily” on FB is still not at all the same as spending heavily in the shotgun arena of traditional game magazines. Second, saying those are the only two alternatives, even for FB games, shows a lack of imagination. See my post on Ugly Viral vs. Pretty Viral.
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