Monday, November 9, 2009
One of the many highly useful skills I learned in Officers' course was artillery aiming. There was a lot more fun stuff I could imagine doing in any given afternoon, but there's definitely nothing like it. And when you just don't have an option (and believe me, in officers' course you don't have an option), you just give it your best shot. Pun intended.
So there I was, trying to get 155 mm cannon to hit a barrel. I don't know if you know how these things go, but artillery aiming is some simple arithmetic and a lot of art. You aim the cannon one way, then course correct the other, then again - in shrinking intervals, until you hit the target (or 50m away from it, which is considered good enough). It must have taken me 5 or 6 attempts to hit the goddamn thing - the gun crew was not a group of happy campers, nor was I. But all in all, it was a good drill, and I passed the test, and got my rank of deputy lieutenant, and mom was happy.
What the heck has this got to do with risk management and digital goods, you ask? Let me tell you exactly.
For quite some time now social games developers have been shooting way, way long. Like one esteemed group participant noted, their business model was "we'll get a lot of users, and revenue will come eventually". Can't blame them, who knew how to monetize at first? No one. They all started from in-game advertising just like big FaceBook, or by working with freemium. When offer based monetization came along, together with real currency purchase options, developers were thrilled. ARPU rocketed, revenue started flowing, and having a user base really started to mean something. You could say that if money came through the door, no one care how that happened. So the ads were shady; so there was some uninformed opting in of users to premium services; so every now and then you would lose a month's revenue because of chargebacks and churn. It was such in its beginning that people just wanted to make any money. Some, by the way, still want to do exactly that.
Suddenly, driven by a provocative blogger and a not-so-media-savvy CEO, the pendulum started to swing. And artillery-aiming-fest began for risk management and regulation in social media. BOOM! MySpace refreshes the TOS. BANG! FaceBook closes down FishVille. WHAM! Zynga shuts down offers. I'm all for calming things down, and maybe closing down offers does that. At least for a while. But shooting too short also has a risk for hitting yourself with a missed shell, and we don't want that, do we? So, after being asked a few times for my take, here are my two ideas on what's the "barrel" to be hit in this round of artillery aiming:
• Take responsibility. The one part I liked in Zynga's is "we are removing all CPA offers across zynga games until we can control their inclusion and presentation ourselves." This is a powerful statement about taking responsibility over your system. If the leader starts doing it, everyone will. Now, taking responsibility over what's displayed in your page is a lot more difficult than you'd imagine - there are ad placement, user segmentation, conversion optimization and, of course, risk management considerations to be made. As I've noted in the past, controlling fraud in ads is doable, but requires expertise that's way beyond black lists and blunt instruments. For that matter, here's a tip: when I read this excerpt from DoubleDing president, I cringe: "There was NO IP BLOCKING of any sort, beyond the normal country and fraud blocking." Come on, guys! Bad IPs are like the tooth fairy, we're way beyond that. There are no bad IPs, just bad users and bad uses. Any company that relies on IP-based blacklists and block-lists is not technically and methodologically prepared to take responsibility on its offers.
• Create new value through U2U trade. As I noted before, offer walls are different than ads because they truly have a chance of introducing new value for users. The interaction encapsulates an incentive, virtual currency, that was not there beforehand. And this value will stay there even after scams are ridden off the system, and it will increase user engagement and conversion. But when offers are under attack, there’s no better time than to explore the (seemingly) risky world of U2U. Let you users price their efforts, and be their liaison. Game economy will last, since these are way more controlled than real world economies, and because players are less sensitive for value loss. Trade will not only thrive in game but also cross-game - people collecting all Paris Hilton Chihuahuas. Stuck currency, lost forever in abandoned accounts, will be released as they are resold to new players. All of that at the cost of proper risk management? Give me a break. Game environment is one of the most controlled environments ever, allowing real time tracking of user behavior. Why aren't you going after U2U trade? No good reason but the fear of trying. And, if you don’t, you know what will happen next – illegal farmers will do this for you, earning millions in the black market (ask Blizzard. They’ve had to deal with this for a while now). And it’s, like, ding dong, this is Michael Arrington for TC, why do you have scammers ruining gameplay and reselling your stuff? And it’s back to witch hunting once again. It’s all about taking hold of your ground once again, this time proactively.
So there are two ways out of this mess, both pass in managing user behavior and interaction properly, and good old-fashioned analytics with some understanding of cutting edge risk methodology. Piece of cake, don't you think?
Well, maybe not a piece of cake. But copy this, and I promise you, you have the next bonanza.
Past posts on this topic:
Deconstructing Zynga: In-game fraud and what can we do with it
Jacob doesn't mind: Why users expect you to engage
Reconstructing Zynga: Answers to the Industry's thoughts