Kabam’s No. 2 exec explores the ins-and-outs of monetizing mobile games

The top companies make it look easy, but monetizing mobile games is a complicated beast. One of those that has managed to do this well so far — moving from social games on Facebook to mobile games on iOS and Android — is San Francisco’s Kabam.

In just five years, it has grown to more than 900 employees, and it recently raised $120 million from China’s Internet giant, Alibaba, in a deal that valued Kabam at more than $1 billion. Kabam said the company is targeting $500 million in revenues, compared to $360 million in 2013. Part of the way it will do that is by creating more games based on movie intellectual properties. The Hobbit: Kingdoms of Middle-earth has generated more than $100 million in revenue for Kabam, and it is working on properties such as The Hunger Games and Fast and Furious.

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That kind of growth doesn’t happen for most mobile game companies. So we talked with chief operating officer Kent Wakeford in an onstage interview at the Game Monetization USA Summit in San Francisco recently. We covered the ins-and-outs of how to think about mobile monetization for game developers, and we also talked about the differences between the Asian free-to-play mobile gaming market and the West. Here’s an edited transcript of our interview with Wakeford.

GamesBeat: Kabam is known for strong game monetization. This is how you get to 900 employees, right? What’s the matrix of things that a game developer must pay attention to in developing games with high monetization?

Kent Wakeford: When you think about a matrix of areas that we look at, it starts with, what game do you want to make? What genre are you going after? The genre has a lot to do with getting monetization into the game. Then, going to the development stage, on the monetization we could talk a lot about system design and how you think about that. That could follow into distribution and marketing and how that impacts ultimate revenue per install. We’re in the business of games as a service, of course. Running games and the live operation of games becomes critical. When we think about games we think about those four key areas. Each one plays an important role.

GamesBeat: There are optimal game genres. Could you talk about that?

Wakeford: As you think about the games you want to make, think about the genres you want to develop—genres have a lot to do with the ultimate lifetime value (LTV). In North America and Europe, strategy games have the highest revenue per install of any genre. Something like $3.98 per install. That’s a lot of revenue per player, so there’s a lot of strategy games out there. Second is RPG at about $3.82. Then you drop down to casino, which is a long way behind.

Strategy games tend to have the lowest number of installs, though. The highest number of installs comes in action games, like infinite runners. Those games tend to have a revenue per install of about 25 cents. It’s a trade-off. When you think about a game, you want to think about the monetization side, but also the customer acquisition side. Action games have much wider appeal.

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GamesBeat: With less revenue from in-app purchases, that’s why you see a lot of advertisements in action games.

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Wakeford: Exactly right. Now, I mentioned North America and Europe. Asia is very different. In Asia, the number one genre from a revenue perspective is RPG. Revenue per install is $7.92. That’s almost twice the leading genre in the U.S. Second is strategy, but that drops down fairly significantly, and the third, surprisingly, is sports.

As you think about what genre you want to go after, you want to think about geography and competition. Have that as part of your initial plan.

GamesBeat: What about game development and monetization?

Wakeford: Now that you’ve picked the genre you want to go after, you start building a great game. There’s a lot of different components that go into that. There’s the gameplay itself – great, amazing gameplay that wows consumers and is a lot of fun. But we’re mainly talking about monetization. On the monetization side, though, you want to focus on, first, the system design. You want a system design that is deeply linked to your core gameplay loops. You want to make sure there’s clear early-stage gameplay made, and then even more important is your elder gameplay, making sure the elder gameplay loop is tied to monetization.

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Equally important to that system design is the inclusion of social mechanics and social play. What I mean is, think about guilds. Think about alliances. Think about game environments that create competition and motivate people to want to spend so they can be better than someone else. Think about group dynamics. If you’re in an alliance, your alliance is going to want to get you to play, or they’ll kick you out. You’re encouraged to play and engage and potentially spend depending on who you are and what you’re doing.

GamesBeat: How do you look at distribution and marketing impacting monetization?

Wakeford: Similar to where I started with understanding genre by geography, distribution is an extension of that piece. With any game, you can look the geographies and understand if consumers in different geos will spend on the type of game you’re building.

We have a really fun, exciting game in beta now and launching soon, our Marvel game, Marvel: Contest of Champions. We launched it in Canada, Sweden, and Denmark. If you study action games in general, they under-index in Sweden and Denmark and over-index in Canada. So we launched the games in those regions, and we saw three times difference in the LTVs for the respective player bases.

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As you think about your marketing and distribution — where to put capital, where to emphasize with the platforms and get featuring — think about where your players will spend, where they will engage, where you can really help the LTVs. The data’s out there. As you think about where you’re putting your capital and your resources in terms of localization, map it to where consumers are willing to engage with your game.

GamesBeat: You mentioned Marvel. You also have the Hobbit and Fast & Furious. Licensed intellectual property seems like a great way to monetize and reduce your user acquisition costs.

Wakeford: Kabam has a long history of building licensed IP. The Hobbit is a good example. What we’ve found is that the biggest impact of licensed IP is on the customer acquisition side, getting a more effective CPI. You get a lot more organic traffic, better search engine optimization in the app stores, more people coming into the game. You can spend the marketing dollars more efficiently because there’s already brand awareness.

As far as monetization, when you find the true fans of an IP, they will engage. They will engage and play and spend and get their friends to spend. There’s a core group of players who you’ll see overindex in terms of monetization. But the key benefit of licensed IP is much more on the acquisition side.

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GamesBeat: The last part you mentioned was live operations impacting monetization. This seems like the fun part, where you’re trying lots of new things and turning some knobs and doing events. It’s an area that can be a little more creative as far as impacting monetization.

Wakeford: You’re right. When we think about building games, we think about when the game launches as the beginning. We’ve done a lot of work. We’ve figured out a genre. We’ve gone through the data and optimized and tweaked the game. But when we go live, that’s the beginning.

If you think about, there are two core areas we focus on when the games are live from a development perspective. One is new content and systems creation. The other is what we refer to as “live ops” — tournaments, specials, discounts, packaging goods.

I can’t emphasize enough how important the investment of new content and new systems into a game can be. We’re all in this industry with our average revenue per paying user (ARPPU) curves and the degradation that goes along with the curves. You can change the slope of your curve by adding the right system design. Thinking about what’s happening in your game — are people hoarding resources? Create a drain for those resources and a system that enables that drain.

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Thinking about game systems, and there are great examples out there — I’ll use Supercell’s Clash of Clans. They’ve done so much right. If you look at the LTV curve and degradation curve, you see changes. You see a change when they launched clan-versus-clan combat. From that day on, they were making more money per user across the board. It’s that kind of big shift that, if you get it right and invest in that system design, you’ll see a sustained increase in monetization.

On the live ops — tournaments, events — that’s an art and science in itself, and critically important. It tends to be much shorter-term, with things like holidays and special events. You usually get a smaller blip in revenue growth, and then it’ll go back down to a steady state. But also important with tournaments and the like is thinking about, are you investing in the right way? Are you really engaging your userbase to play, creating that competitive spirit that will get people to pay?

GamesBeat: You have some easy knobs to turn here as well — beginner packages and the like?

Wakeford: As you think about live operations, there are some easy wins as you’re kicking off a game. Beginner packages are very helpful. The best practices out there in games show that once consumers are starting to engage in your game, incentivizing them and getting them habituated to spend, giving them a beginner package so they can spend for the first time and know that experience, is very beneficial. Make sure that once they have the currency and they’re spending, they get something tangible and feel a reward for their spend.

Other things you see that are relatively easy – how do you position payments? You have your $5.99 package and your $19.99 package. Are consumers getting that much more from the second package? Are they incentivized to go for the larger spend and get much more value? That’s another area where you can easily bring people to spend a little bit more if they get a lot more value. You habituate that behavior.

GamesBeat: The Hobbit is two years old. It’s great to see this last movie coming very soon. You have an update today with Lake-town. Can you talk about that?

Wakeford: As you say, the new movie is coming out, and a big part of the new movie is Lake-town. The dragon is coming and you have to defend against it. Tying to a film with licensed IP, you want to have content that ties to the IP, that’s timed to the drum beats of the film or TV show or whatever you’re doing. That’s easy stuff.

More important, going back to what we were talking before, the harder kind of update to do is understanding what is happening in the game itself. The Hobbit is two years old. Players have risen in the ranks and accumulated huge amounts of wealth and power and might and everything else. The key question for us is, these individuals who’ve been on top of the leaderboards forever, they don’t want to play anymore because they don’t want to lose being number one. The real question is, how do we encourage them and create another system that will get these big players to engage and go back to fighting? As you think about what happens in your game, as games are two years old and three years old, what are the core systems you need to build to create the behavior that you want in the game?

GamesBeat: I thought it was interesting that in your first number of cities — by your fourth city, you have to actually buy a deed in order to get that. You could try to earn it, but it would take a long time and a good deal of luck. In today’s update, you’re giving away a city. It’s changing the monetization. It seems that you’re thinking of something else producing the monetization for you now.

Wakeford: What we’re seeing is a little bit of a shift. With this city, with Lake-town, if we can get all of the players into this new city, instead of just a subset that pays for it, can we get all of them to start competing there? Can we get them all into the city, build up everything within the city, and then get the alliances to compete? We believe that if we get all of our players engaged, the monetization will come through the inherent system of competition in the game. That’ll generate more money than just selling deeds to the city.

GamesBeat: I bet a dragon’s going to come and burn down my city.

Wakeford: That might very well be the case.

GamesBeat: We promised Asia, so we should talk about Asia here. Kabam has a presence in the West, but you’ve also expanded into Asia.

Wakeford: Let me put this in the context of Kabam. Kabam has done a great job in North America and Europe. We’ve started to dabble in Russia and Australia and some other areas. Asia is the key frontier to go after. I say that for everyone in this room.

I read a recent study that said in 2013, in China, there were 358 million mobile game players. In the U.S. there are 161 million. In Japan there are 50 million. China represents almost two times as many game players as the U.S. and Japan combined as of last year. The mobile game market in China is growing. By 2018 it’ll reach $28.3 billion. That is bigger than the game markets of the U.S. and Europe combined. We make games for smartphones and tablets. The install volume of devices in China is going to grow to 1.9 billion by 2018. That’s as big as the rest of the world. Six times larger than the U.S.

If you’re making mobile product, you have to be thinking about the largest market. We spent a lot of time saying, “Great, there’s this giant opportunity in front of us. Which is really frickin’ hard to figure out. So how do we go about it?”

Fortunately, as a larger company, we took a different path. We spent a lot of time in China, talked to all the big players there, and ended up consummating an investment and strategic partnership with Alibaba. Alibaba ended up investing $120 million in Kabam in a strategic partnership to distribute our games throughout China. It took a long time, a lot of work, but the end result of going after Alibaba and building that relationship was, we know there’s a lot to learn about Asia and China in particular. We wanted to accelerate that learning process as quickly as we could with a strategic partner.

GamesBeat: What are some of the challenges in Asia? What’s the hard part about moving to that market?

Wakeford: I don’t know if many people here have spent a lot of time looking at the market in China, but the entire ecosystem there is different from the U.S., in every aspect. People often talk about the fact that in the west there are two app stores, while in China there are 300. That’s a lot to figure out. Carrier billing is also critically important. There’s a whole new social ecosystem and social graph, not Facebook. If you want to layer a social graph into your game, you have a completely different one to tie into. If you’re going to advertise in your game, there’s an entire ecosystem – the equivalent of ChartBoost out here – in China. If you’re going to buy media and support your game, you have new companies to buy media from, and where are you pointing it to? You have 300 app stores. How do you think about creating your awareness, the buzz, and the distribution and marketing for your game? And that’s just at the ecosystem level.

Then there are about six areas you have to think about as it relates specifically to a game or mobile product in China. The first is culturalization. Kind of a weird buzzword people talk about, but it’s real. You have to think about culturalizing your product for this market. Localization is one piece of it, getting the language right. That’s easy. Then there’s art, the visual representation of the characters. Some artwork and some characters will translate easily, but some won’t. For our games, like Kingdoms of Camelot, an Arthurian legend doesn’t necessarily resonate with a Chinese consumer. It should be Three Kingdoms, right? You might have to do something radical in terms of changing your art style and approach.

Another issue is UI. I don’t know if many people here have played a lot of Chinese games, but the UI is so different. There are buttons everywhere! Things fly out of the buttons! They’re big and they flash and it’s all over the place. But that’s what the consumers like. They engage with it. It makes them excited. There’s this thrill of playing just from the UI itself. How do you capture that? If you don’t, you won’t get much engagement.

Another area that blew me away was the tutorial for games. We think about tutorials as a way to get people in the game with enough information to drop them right in there and playing. That’s not how it works in China. China likes very, very long tutorials – tapping buttons, leveling up, getting big rewards and this sense of accomplishment and fulfillment at every step of the way. Instead of getting someone in your game and playing right at level one, you may have someone starting at level five.

Payment through SMS is really important in China. It’s also important once you get into India. Very small amounts. We’re talking about five to 20 cents per day, but very quick purchases. Think about the file size of the game in your tech requirements. Optimal file size for a more casual game in China is 50 megs. When you to core and multiplayer you can go to 150 megs, but that’s it. That’s the cap. When we’re launching games here, we have high-fidelity graphics, lots of pixels, lots of animation, up to 300 or 400 megs. That doesn’t play well in China. You have to think about your resolution size. Think about device type. There are hundreds of different Android devices in China. From a device QA perspective you have a lot more to think about.

For live operations, you have to make sure to do all your events in local languages. Have events that are relevant to those languages. Think about customer service. There’s an expectation as far as customer service in China that the VIPs get treated like a high-roller in Vegas. You can call someone up on the phone and talk to them, or they’ll reach out to you if you’re spending a lot of money in their game. The expectation of consumers in Asia, and especially China, is very different from what we have here.

GamesBeat: You’ve brought up enough differences that my question would be, why don’t you just do a totally different game for China?

Wakeford: As we’ve talked about before, as you think about system design, for some of our great games it’s really good. A good example of success in China would be Plants Vs. Zombies 2. You look at that game and you compare, side by side, the game here and the game in China, the UI is completely different. The characters are different. The environments are different. They integrated payment through SMS, which is different. The amounts you pay are different. But fundamentally it’s the same game. And you get that brand halo, even if on some levels it’s a radically different game.

In EA’s case they bet on a great game design, culturalized it in the right way for China, and it’s one of those key games — by the way, there aren’t that many of these. Western games only account for 16 percent of the market in China. There aren’t that many breakout successes. But EA’s Plants Vs. Zombies 2 is a good one, and there are some other examples. The games I’m focused on really getting right are the ones that have that kind of outsized return.

GamesBeat: So you can have a game that’s a global hit, that works well in China and works well here?

Wakeford: I believe you can. Clash is a good example. It’s a big success. They haven’t quite made it all the way up the charts in China, but they’ve had good success, and in Japan as well. You see it happening the other way, with some of the Asian games having a lot of success – Rage of Bahamut and some of the other card battle games. I do think there’s a global cross-pollination happening, with more Asian games rising up the charts in the U.S. We’ll start to see the emergence of truly global games, but those games will have a level of culturalization for different markets.

Question: You mentioned LTV. How quickly and accurately can you predict LTV for your games after launch? Can you share any best practices?

Wakeford: Predicting LTV is both art and science. We can look at it as early as a seven-day ARPPU. We’ve created a predictive model to project out a LTV. Now, there’s a wide variance. At 30 days, 60 days, 90 days you can have a much better predictive model about the decay of the long-term ARPPU (LTARPPU) curve.

But where the big shift comes in is, what do you do after the game launches? You can have a lot of predictive data at day 60, 90, or 120, but if you invest in system design that changes the LTARPPU curve, your LTV could now be 20 or 30 percent higher. Conversely, if you really screw up the game — if you throw in a bug or launch something that upsets consumers, your LTV could swing the other way. You can get to a predictive model and have things that are directionally correct, but ultimately the live operation of the game is going to have the biggest impact on the ultimate outcome.

Question: The gentleman from Atari talked about a big black hole in games as far serving women 35 and older. I’m wondering about your thoughts as far the genre that could serve that demographic.

Wakeford: If you look at demographics, casino skews older and skews more toward women. A lot of social games as well. Zynga did very well skewing more toward women and 35+. There’s a very big genre that goes after that demographic. Now, has it been optimized for that demographic? Are there areas people could invest more? I’m sure there are. But that sector has proven to be highly engaged and that’s willing to be very social. That’s led to a lot of success for Zynga and others.

Question: For a company like Kabam that’s done so well with first-party productions, why do you have a third-party publishing program, and how do you manage to reconcile tying effort and resources to third-party publishing with first-party products? How does that weigh out for you?

Wakeford: Let me start with the second question — how do we manage time and resources? The way we organize the company to deal with that is, we have two completely separate P&Ls, P&L ownership, capital, and budget that go into each one. First-party and third-party teams are both responsible for delivering results and they have capital to use. They’re not tapping into each other’s marketing budgets or teams or anything else. They’re run independently with their own goals to achieve.

To the first question, as we looked at the company and what we’d invested in, a lot of what we’d invested in were structural items that go across. For a marketing infrastructure, we have the ability to intake hundreds of distribution channels and understand how to optimize across them. We have a BI system that allows us to understand everything that happens within a game. We have cross-promotion tools that sit across all our games. We have reward programs that sit across all our games. We have localization teams across the world, customer support in all different languages. We have live operations teams that run events in local languages in six countries.

As we looked at that infrastructure, we had the capacity to put a lot more product than just our own into these pipes that we’d created. That’s why we’ve had some great success. It’s been beneficial to our partners, being able to leverage an investment we made at scale for companies that couldn’t otherwise make that same investment.

GamesBeat: You have a fair amount of West-to-Asia and Asia-to-West happening there at this point.

Wakeford: That was another area that we looked at strategically. As a publishing group, where do we want to focus? A lot of great games are coming out of Asia. Let’s focus and put a lot of emphasis on Asia – partly so we could understand the market, but also because of amazing free-to-play game developers. The quality of a lot of their games, especially RPGs, is sensational. Bringing those games west has been very interesting.

Question: You talked about genres, but you didn’t talk as much about demographics. Is there a reason for that?

Wakeford: I was keeping it high at a genre level, as opposed to going to the next level, which is demographics. For us as a company, we make core games for gamers. Our demographic tends to skew more male, tends to be more in the 18-35 traditional gamer demographic. Most of the genres we look at are in that demographic range.

Now, there are games that clearly hit other demographics. We mentioned that black hole. Women love simulation games, slots, casino, the puzzle genre. It’s a completely different demographic and player base with different monetization characteristics. The organic users you can bring into those games are much higher than in the more core genres, though.