AppNation Digital Chocolate keynote

 April 27, 2011, AppNation, San Francisco—Trip Hawkins founder of Digital Chocolate talked about the requirements for high-volume games on various platforms. His company has successfully introduced over 100 different award-winning games and has over 10 M on-line users.

The key to new games is to look at the disruptive nature of new technologies. The new digital consumers are driving the decline of the packaged goods media for browser-based, social apps stores. The traditional value chain is collapsing as people forego the unnecessary tasks of going to the WalMart to buy a game. The old-school suppliers have limited distribution and created high barriers to entry by only using a small set of supply channels and staying with physical media.

The new game player is looking for free and trial versions of new games to evaluate. They are looking at other sources of content than the big-box stores and are changing the way they think about spending money for any games. Here is where the disruption comes in. new companies are finding new customers who want to have a simple and convenient way to access games. They are also getting turned-off by the decreasing quality of the existing media and its channels.

The desire for convenience is easily shown by comparing movies. People used to go out to the theater to watch a movie. About the time that movies started to cost $5, the VHS player appeared on the market. People found that it was easier and cheaper to rent a video and the delay from theater to home release gave them a chance to get some evaluations of the movie before going out to rent it. Now, people want to see the movie at home on Netflix.

In the same way, digital downloads are displacing packaged goods. The advent of iTunes, MMO, and streaming capabilities has changed the equations and adds the choice of interactive or passive to the mix of game characteristics. The spread and diversity of potential platforms is also driving “gamification”, the conversion of ordinary tasks into components of a game.

The growing mobility of platforms is another change. Multimedia capabilities of the latest smart phones now means that the user is no longer tied to his TV through the Nintendo console, but can access and play games anywhere. Nintendo Wii users especially are a part of a growing population that is looking for fun and social interactions rather than high-end hardware performance.

The game industry is becoming more global. Social games allow people to check-in and check-out of the play at any time from any where in the world. Excepting for time differences, users want to see how players in another part of the planet are doing on the same game. The social and global aspects of on-line games brings back some of the missing communities’ activities. The quality of social life affects your health. Social needs increase as the villages disappear. With social-type games, the village is no longer lost, but is located everywhere on the planet.

As the revenues for consoles drops, the casual games like Guitar Hero and Wii Sports migrate to other platforms. One challenge for the game developers is that the casual gamers want free-to-play or trial versions before they will buy any game. They also like the capabilities of virtual goods and the ability to convert those virtual goods to real dollars.

In this new environment, game quality is more important than branding. Even though you are not paying very much for any game, you don’t want it to crash your system or stall while waiting for a buffer in the cloud to fill up. The idea of virtual goods also engenders the concept of the “super fan” or migrating whale. These people will spend more time and money on accessories and accruements than the average player and will be a type of community leader.

The social aspects of the games are enhanced by the increasing volume of the social networks and these networks actually help to increase the size of the markets. The large size of the social markets is the primary indicator of the size of the overall market. Although not all of the social network users play games, the number of people in the social networks far exceeds the number of owners of the consoles.

As the games move from consoles to other platforms, the need for interoperability goes up. Cross platform interoperability allows more globalization, as users with different platforms can easily interact. When games are interoperable across platforms, the players’ behavior changes and the number of users can increase by a factor of 100.

Globalization is not just for the players. Global development with best practices allows a developer to get the best and brightest where ever they live. This globalization also encourages cultural correctness, so a game is indeed acceptable anywhere it is played.

All the developments are for naught if you don’t have a way to analyze the users and their details. Good analytics enable the developer or distributor to understand the detailed demographics of the users and specific attributes of a particular gamming community. This information also helps to identify the migrating whales and let you track and interact with them, so they can help you to improve your offerings.

The greatest issue for apps developers is discovery. Distribution is working with fixed assets like shelf space. Discovery uses search, browsers, and viral marketing to help the users find your content. For example, Docomo invented the apps store concept in ’99. they became the “smart pipe” and linked to separate servers to integrate services and other functions into the phone bill.

But a browser beats any apps store. In the long run, it offers convenience and social connections to users and already exists in many peoples’ lives. The browser remains the number one source for content. The new tablets are moving towards full browsers and other mobile devices and TV will be the next to feature browser capabilities. The combination of WiFi and a browser provides all the connectivity anyone needs.

The biggest properties—Facebook, Google, Amazon, Netflix—all use cloud provisioning and their main connections are through the browser. Browsers are open, free, and democratic, they don’t require any changes in business terms. They allow media to use targeted traffic activities and make cross promotion easy. Websites, software tools and even the browsers can be updated directly through the cloud.

One way to determine platform viability is to count users on that platform. PC and browsers have over 2 B users. Mobile devices have over 4 B users. The mobile market is moving from iOS to Android, so a developer has to consider long-term platform volumes when making new apps.

Here is a quick look at some of the market incumbents. Apple has marketing and design under their control and has a massive apps store. The apps store is closed to non-Apple approved apps and the platforms have crippled browsers, they don’t work with Flash and other software. The Apple apps store does not have any first party games, just programs from outside developers. One question is how viable is HTML5 going to be for web properties going forward?

Facebook is the viral champion and is growing faster than any other Web property. They lack merchandising and curation capabilities and are open to cloning and other trademark issues. Just because they host games, they are not a game platform. They have a high failure rate for games so developers have to carefully evaluate their use models. In addition, they have supply chain management problems with respect to external developers. Their platform is an open graph.

Google is disruptive to Apple because it is browser centric. They, however, lack a frictionless payment system and don’t offer easy ways to download titles.

The disruptive aspects of Apple, Google, and Facebook are changing the nature of on-line software, even though they may be less convenient, private, safe, and portable than some of the alternative sites. The alternatives, on the other hand can only offer the same old stuff with higher risk. The fragmented markets are ripe for further disruption through innovation.

The solution for developers is to design for social media. You have to focus on getting functions to the users, plus have some type of virtual goods. Study the markets and play your competitors offerings for free. Design for cross-platform functionality but consider being “swipey” for Apple platforms, “tappy” for Android platforms, and “clicky” for Facebook. Target your users and go deeper through the capabilities in the browser and look for true freedom.

The regions of the world have many differences. Facebook is strong in the US and Europe, but not in Asia. Japan has mostly feature phones rather than smart phones, but is starting to move to foreign platforms from Apple and Android. China has a strong MMO market, but is only for local use.

More disruption is coming from the social media, browsers, and smart phones. Hardware is moving towards Android and a browser and the primary OS and platforms are becoming more browser centric. Consoles are a “theatrical” niche for home TV functions and are focused on the serious gamers. The Web is the cross platform vehicle for most markets.

Some of the issues going forward are the choice of target platform. Only the browser is agnostic, but the conflict over Flash or HTML5 will be around for a while. Developers need to find ways to enhance the discovery processes and retention depends upon quality and originality. Monetization is important so the games must be designed for virtual goods acquisition and exchange.

Long term, developers have to be original and good while getting the business model right. To be successful, you need to find partners with common goals and find ways to work around the publishing issues. Collaborate with others and design for cross-platform functionality. Most important, be realistic and humble.