Liveblogging Inside Social Apps: Monetizing Social Games on Facebook: Credits …

We’re at the San Francisco Design center, blogging Inside Network’s third annual Inside Social Apps conference.

The second afternoon panel is “Monetizing Social Games on Facebook: Credits, Today and Tomorrow.” Joining moderator AJ Glasser on stage is Trial Pay co-founder and CPO Terry Angelos, Kixeye CEO Will Harbin, RockYou CEO Lisa Marino and Happy Elements Chief Product Officer Rony Wang.

The following is a paraphrased transcript of the discussion.

AJ: Facebook Credits, how’s it working out?

Will: From my stand Facebook Credits are a simple reality. Our original hypothesis was that we would see an increase in conversions when the transition to Facebook Credits happened, and that’s been the case.

Lisa: When the change happened, monetization grew, because now you control your economy in a much more focused way. From our perspective, it’s absolutely fair for Facebook to take their share, and you design around the execution, really understanding how you convert non paying users to paying users.

Terry: There are two elements to the credits platform. Facebook as a payments service, and Credits as a virtual currency. We’ve seen some developers being very happy, and some wanted to switch back to their own premium currencies, but we haven’t seen anyone upset about the 30 percent.

AJ: Will either Happy Elements or Kixeye change the way Facebook Credits are used, making them a gateway payment to your own currencies?

Rony: We see three to five times higher conversion rate after Facebook Credits. There is a lower average revenue per user, but 10 to 20 percent higher revenue. Before Facebook Credits, we had to work with the prepaid card provider. If you use Facebook Credits as the in-game currency, but most of the conversions happen from Trial Pay. If we use Facebook Payments just as the gateway, we can get the user to pay more in a single transaction.

Will: It’s to-be-determined. It’s always best to see what drives conversion. Right now, we’ve seen that sticking with Facebook Credits as the exclusive provider makes sense, but it may change with upcoming games.

AJ: What about alternate forms of monetization?

Lisa: When we started out our apps grew very fast and we did a lot of experimentation. As we’ve been working with our games, we’ve always been a pioneer in monetization and that spawned the RockYou Ad Network. For example, Zoo World generates 40 percent of its revenue through ad units. When you have paying users to converting at a rate of about 1-2 percent you need to find alternate ways of monetization.

Terry: If you look at Zynga games, it is about 6 percent monetization through ads. We think that’s an interesting trend. There’s a lot of advertisers looking to try to reach an audience through advertising – CityVille, CastleVille and FarmVille all have bigger audiences than [NBC talent show] The Voice. When you’re reaching an audience the size of the voice every week, advertising makes sense. It’s much like a TV program. In order to continue to watching Seinfeld you have to watch an ad, in order to continue playing Words With Friends you have to watch an ad.

Lisa: I’ve been frustrated with the social gaming genre for many years, because people thought that it was beyond the scope of being a media company. With that many eyeballs, let’s call a spade a spade, you’re a media company.  If you think about media companies and social game companies you have three things that are very common: they have their own content, they source their content from other companies and they all have dual monetization — they have subscription and advertising. We need to start looking at ourselves, as developers, as media companies. User acquisition is starting to skyrocket. Alternative ways of monetization are the only ways we will be able to get through this.

AJ: Response?

Rony: Less than 2 percent of our revenue comes from advertising. In Asia, there are much fewer advertisers interested in participating.

Will: We are not a media company, we’re a game company. 98 percent of our revenue comes from direct transactions. There may be companies that do well with advertising but 99 times out of 100 our monetization is through game purchases. We’re giving something specific to consumers that they want to purchase. We are not a media company, we are a game company.

AJ: Let’s talk about engagement with advertising.

Terry: How do you convince a Proctor and Gamble to spend brand dollars on a completely new medium? They may think of games as a particular segment that’s only played by teenagers. One way to overcome that hurdle is to put in a really deep, engaging experience. Users can compare two ads and choose which one they like, or play a mini-game – more opportunity with the consumer’s time. If you’re not adding value and you’re not entertaining, you’re not going to engage, but if you can create an engaging experience, you’re going to connect. If you look at what RockYou is doing, what we’re doing, there’s an element of engagement that gets users to remember the brand. It might not be right for Will’s games, but if you look at a platform like Zynga, the users are casual gamers who don’t think of themselves as a hardcore gamers, they just want entertainment.

Rony: We haven’t seen a close relationship between engagement and retention. Lots of games on Tencent have a very low retention rate, but high ARPU. Hardcore games can have very low retention but very high ARPU. This kind of game can probably get more revenue over two months than other games can make in two years.

Will: To see monetization around 50 cents, a dollar or two dollars it really comes down to core game mechanics and no amount of blasting the consumer with media will get you there. Our core value to build a game that we love and we think our users will love. We don’t do optimization for monetization within games. Users in our game spend money to speed up time. There’s a lot of other elements that can help with monetization like real time synchronous gameplay. You see in real time what another player is doing to your base in Battle Pirates, and you can either wait to rebuild or you can go after them right away.  For us monetization isn’t another layer, it’s built into the game.

AJ: So you monetize revenge?

Will: We monetize revenge.

Lisa: I monetize cute animals. We break out the engagement by different user actions, because different users require different engagement. We’re incredibly deliberate about how we treat different users. We have whales that we’ve monetized through advertising. It’s about giving users the tools to collect either through buying items or grinding through ads.

AJ: How can TrialPay integrate with these types of developers — do you look to make those types of engagements with the game itself and what the brand offers?

Terry: We’re running lots of pet videos on Pet Society today, but you can’t always do that. You’re going to have a great response if you can monetize a game with advertising that matches the content. Finding ways to target to the right demographic is what we focus on, and that’s very similar to how TV ads work — just because I’m watching Modern Family, it’s hard to discern what I like. You have to get that right. What we’ve seen some developers do is large scale advertising — for example Lady Gaga’s FarmVille campaign.  That must have been very expense. I don’t know how often you’ll see campaigns like that. What we focus on is repeatable engagement.

Lisa: Totally agree. Our incentive add unit gets very different performance in our owned and operated properties than in our partner’s games because there is a different depth of integration into the overall gameplay. The commitment and integration of that particular unit, regardless of content, is what generates results — the performance is night and day.

Terry: We have to work very hard as a third party to get the same level of engagement as a third party. We have in-game icons that enable the user to watch a video — we customize them to fit within each game. If you A/B test the giant banner that takes over the whole screen will always win. How do you develop an ad platform that is opt-in, sustainable, and effective? We do this by surfacing ads only when it’s relevant, so that when a user sees an icon, it’s more likely to result in engagement, and once the ad is clicked, the icon disappears.

AJ: What types of monetization are your users going to tolerate? Are they more receptive to some types of monetization than others?

Will: Our users respond to functional items. They decorate with blood, not bananas or palm trees. The market dictates what kind of spending they’ll do and I don’t think we’ve found that limit yet. It really comes down to user acceptance and what they’ll tolerate.  We’ve seen games in China that have hit $4 average revenue per daily active user. It’s a new concept in the US — most of our audience is used to spending $50 to $60 and putting a game in the tray, but some of our users have found that this method works better for them. None of our items are exclusive to paying users. I’ve spent over $200,000 of free currency within a game, and I get my ass handed to me daily by other users (who haven’t paid as much).

Rony: For us, the bottom line is that the paying user should not ruin the non-paying user in games. In our games, we pay a lot of attention to the balance, so that the paying users don’t gain a huge advantage.

AJ: What’s the most you’ve spent on a game?

Lisa: In CityVille $200, our game $250 — if I decide to play, I’m a paying user. You’ll get me for at least $50.

Will: I’ve played League of Legends, but I don’t want to tell you how much I’ve paid.

Terry: 3-figures.

AJ: In one game?

Terry: I’m obviously one of the cheapskates.

Rony: I spent $500 in one day, in a browser based game in China. I pay for revenge.

Audience question: What are your thoughts on advertising competitors in your own games?

Lisa: I do it all day long. You don’t want to give up your paying users, but for the users who aren’t paying, you want to monetize them in some way. We want to be a good player in the ecosystem, but also to grow the number of eyeballs. Thinking through how to treat paying vs. non-paying is an issue for every developer to address prior to entering the ecosystem.

AJ: Can I expect to see you monetize differently across different platforms?

Lisa: We monetize on mobile as well as Facebook, but the behavior is very similar.

Will: I don’t think your behavior intelligence changes across platforms. The game informs the monetization, not the platform, the platform is a canvas.

Audience Question: I’ve been told the amount of money people pay for virtual goods is inversely proportional to their IQ. Is that true?

Lisa: Not at all true. Some of the best monetizing games on Facebook are gambling, skill-based games slots and bingo and they monetize at a very high rate. If you’re looking at a Sims game, the ARPU is likely to be much lower than for a skill-based game about a 4 to 8 cents. I think you can can easily get to 8 to 10 cents in ARPU but only if you’ve built the economy right.