Hey, game developers: Adding chat can help revenues soar

You probably know the game Quizup. The trivia app had a huge run in 2013, reaching and staying at the top of the charts for months. Download volume and engagement was  through the roof. But like most games, use eventually fell off — people left to go do other things when the novelty wore off. So the Quizup developer Plain Vanilla integrated chat, and it discovered something very interesting. It not only found that people stayed in the app longer because they were chatting with other users, but it also saw session frequency and games per session increase as well.

This critical insight is one that all game developers should consider when trying to improve engagement and monetization. Here’s why.

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When it comes to making money from your game, you have three basic options. You can sell it for set price (be it $1, $2, $5, and so on). You can sell virtual goods for similar prices. Or you can run ads. I guess you do have a fourth way — get a huge player base, make no money, sell for $300 million, and then fall off the face of the earth (you all remember the story of Draw Something).

Assuming that your game doesn’t have Zynga coming around to buy it any time soon, you’re probably in one of the first three buckets. Or maybe you’ve tried all of them. For most app developers, you’ve likely found that none of them work all that great.

The bulk of apps choose Option 3, and some make a nice return on ads. But if you are one of the million-plus apps that have enough users to keep it in the app stores, but not enough to make significant revenue from these people, you’re probably kinda bummed — and frustrated, too.

I’ve been there. I tried my hand at games. As a software developer, making mobile games was one of the most satisfying experiences of my career. The power of the mobile device, along with the small size and massive user potential, is both a challenge and an opportunity. But when the hard work doesn’t pay off, it can be equally maddening.

Before mobile, your options were to build for desktop and console. Many game developers experienced similar disappointment on those platforms as well, but the third monetization method, advertising, wasn’t really even an option for desktop and console games. Sure, some desktop games, particularly web-based, found their stride in advertising, but it wasn’t until mobile games that advertising became a real option for making money.

But why don’t ads work for most mobile game developers? A lot of factors are at play, so it’s hard to just give one reason. Why don’t we start by looking at the key drivers of mobile advertising revenue?

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Ads require three elements to pay out: people, impressions, and price per impression. Obviously, the more people that are playing your game, the more impressions you have and the more money you make, regardless of what your CPM is. But getting players to download your app is rough business, and it can be very expensive. Paid user acquisition on mobile only really works when you get to the point where every $1 you spend on advertising leads to $1.50 in revenue. That’s not easy.

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Moreover, most of game developers are not marketers or sales people; that’s probably what makes them so good at making games in the first place. But it also means that cost-effective user acquisition is not a core competency. The truth is, many great games never get shine like they probably deserve to just because they can’t find an audience, let alone become profitable.

The second factor is impressions, but let’s put that one on the back-burner for the moment and talk about CPM. The higher the CPM, the more money you make from the users and impressions you have. But CPMs on mobile are generally pretty poor. Yes, mobile inventory is massive and growing, but advertiser budgets are still limited, and budgets are still largely allocated to traditional mediums like Web and TV.

As demand grows, so do CPMs and mobile advertising technology is evolving rapidly. That’s all good news for developers. But relying on high CPMs for your game is not a great strategy. Certain ad units like interstitials, video, rewarded behaviors and more are pumping up CPMs into the teens, but the higher the CPM goes, the less supply there is. You can’t count on that.

So what’s left? Impressions. You actually have a lot of control over these. As I said before, the number of users drives impression volume, but you can also increase inventory through user experience and user behavior. Certain experiences lend themselves to running ads, as do certain user behaviors. Unfortunately, the act of actually playing your game is not typically aligned with increased impression volume.

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Think about it. Unless you are really clever, putting ads inside the actual gameplay is not easy; and even if you figure out a way, it’s probably going to be distracting and potentially aggravating to players. You don’t want that. You can put a fixed banner at the bottom of your game, but that sucks. It looks bad and takes up critical real estate. And most important, it never gets clicked on and thus has crummy CPMs. It’s junk, and in my opinion, this is on the way out. Do it if you want, but it’s still not the best option.

You’ve got real estate between games or levels or achievements — and dozens of companies are selling unique ad units to fit those spots. And yeh, they have high CPMs, but you’re inventory is really limited. How many interstitials can you show a user each day? One, two, maybe four or five?

You aren’t left with much, that’s the nature of games. But you may have another option.

You’ve already got happy users. Whether you have 100 daily active users, 1,000, or 10,000, you’ve got users. And if they’re coming back to play your game fairly regularly, then they’re happy users. That’s great. But once they finish playing, they’re finished, and they bail. You can’t monetize a user that isn’t in your game (sorry, nobody has built a product for that yet).

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But what if you could keep them in your app longer? What if you could give them other behaviors that engaged them beyond the gameplay? What about letting them chat with the other players in your game? Yeh, you can, and you should do this.

So back to Quizup. What they did makes total sense. By adding chat, users could play a few games, get bored, start chatting with people, get bored, play a few more games, and then go back to chatting with people. This increased overall time in app and overall retention.

They discovered what I call a “compound behavior” — that is a behavior that drives another. And it’s powerful. But even more than that, it’s a behavior that has the potential to drive significant revenue.

Remember that point I made earlier about impression volume being driven by behaviors but also user experience. Chat is both. It’s a behavior that is impression-centric and incorporates a user experience that is conducive to running ads — and native ads to boot! Running ads in chat feeds is unobtrusive and doesn’t annoy users. It also garners a pretty good clickthrough rate (roughly .5 percent to .8 percent vs. what banners get, which is closer to .1 percent). All in all, chat is the best solution I’ve found to significantly increase impression volume.

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One great thing about chat is that it’s become somewhat commoditized. You have many ways to integrate chat into your game and plenty off-the-shelf tech to do it. That makes your life easier and the path to more revenue faster. Booyah.

The ad-serving side of monetizing chat is a little more complicated, but companies are starting to do this, too. More of the big ad networks, like Mopub and Facebook, are offering “native” solutions, and more specialized ad-serving platforms, like AdColony and Sharethrough, are creating unique native ad products.

Look for partners that can help you get chat integrated quickly and work with ad networks or platforms that can fill your newfound ad impressions. With a little effort you can easily turn a game that is only making you a few hundred dollars per month into one that is generating a few thousand. You’d really be surprised.

Jeff Solomon is the cofounder of Affinity Networks.

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