© The Financial Times Ltd 2014 FT and 'Financial Times' are trademarks of The Financial Times Ltd.
March 23, 2014 3:02 pm
On a sunny spring morning in San Francisco, thousands of gamer geeks huddle together in a dark room, all fretting over when to deploy the lollipop hammer.
Hundreds of millions of players are familiar with the lollipop hammer in the mobile game Candy Crush Saga, which is capable of crushing any of the sweets in the puzzle. But few players understand quite why they find crushing a jelly bean with the lollipop hammer so satisfying – which is the secret this standing-room-only audience at the Game Developers Conference is here to learn.
“At the peak of frustration, offer a way to relieve it,” counsels Nicole Lazzaro, the game designer and interaction researcher who runs XEODesign. Thus the sense of gratification from unleashing the pink hammer.
Frustration, she explains, is one of the four emotions that every casual game must elicit, along with curiosity, desire and amusement. “Neuroscience teaches us that emotions help us to focus our attention and to remember.”
This may seem like over-analysis of the allure of “casual” games, which few people play for more than five minutes at a time. But for the developers in attendance hoping to create the next Candy Crush , this is not frivolous stuff. The company behind Candy Crush, King Digital Entertainment, made 78 per cent of its $2bn in customer expenditure last year from the game.
King will become the hero of these aspiring game makers when it lists on the New York Stock Exchange this week. Its justification for a valuation of up to $7.6bn, largely on the back of the success of just one game, rests on its claim that it has discovered the “secret sauce” to creating yet more Candy Crush-style hits.
“We believe we have a repeatable and scalable game development process that is unparalleled in our industry,” King said in its prospectus to potential investors.
This development process – a blend of creativity, programming prowess and perhaps a little bottled lightning – will be familiar to Hollywood producers, songwriters and novelists in the established media industries.
Yet for investors in the newly hot market of mobile gaming, the question is whether creating a hit-driven yet sustainable business is truly a science. As with playing Candy Crush itself, it can sometimes be hard to tell how much of its success is skill and how much is down to pure luck.
“It’s very similar to movie studios. There are movie studios that have been around for 60-plus years that still can’t manufacture blockbusters. They can still screw up,” says Thorbjörn Warin, chief marketing officer of Grand Cru, a Finnish game studio that raised $11m last year.
The most frequent comparison made in debates about the King IPO is Zynga, another digital game maker that promised Wall Street it had found a data-driven formula for lucrative popularity. But its success was tied to Facebook when gamers’ attention was shifting to mobile, and suddenly Zynga’s luck ran out. Its stock price remains at little over half 2011’s IPO price and a third of its 2012 peak.
King’s advocates say that it designs its games with more finesse than Zynga used with FarmVille or Mafia Wars.
As its reach grew to 93m daily players, Candy Crush struck a cultural nerve, like a popular television show.
But if designing the game is where creative talents let rip, keeping players engaged for months is where the science comes in. “You can’t design fun on a spreadsheet,” says Ilkka Paananen, chief executive of Supercell, the game maker valued at $3bn last year. “Once you’ve found something that is fun then you can actually make it better by just looking at the data and analysing it.”
To keep players interested, game designers constantly tweak and fine-tune their games. If too many players are turning off at a particular point, they add something new to make it more exciting. Tasks are made easier or harder, while tools can be made more or less expensive to keep players hooked.
Data about the smallest nuances of players’ habits and responses is invaluable, says Petri Järvilehto, a co-founder of the Finnish-American company Seriously and one of the creators of Angry Birds. But only up to a point. “Data: you can think of it like the speedometer of your car. Knowing how fast you are going is immensely useful,” he says. “But you can’t use it to set the direction. So you have to let the creative drive the direction but validate it with data.”
King argues that it has mastered such data analysis. Its highly tuned marketing machine – into which it pumped more than $300m last year – runs thousands of online advertising campaigns every day in what it says is a “highly granular and data-driven way”. It can also use its beachhead in Candy Crush to promote new titles. Not everyone agrees this is possible – Angry Birds maker Rovio has failed to launch new franchises despite its huge installed base – but there are signs that this is working for King.
“They have three top 10 hits right now,” says Tero Kuittinen, a Finnish mobile analyst with Alekstra. “The problem is that their second hit might be 10 times smaller but that’s only because the first one [Candy Crush] is so abnormally enormous.”
Others say that, far from producing one original idea after another, King’s other titles are too similar to Candy Crush, suggesting that the company has cracked one kind of game that players could soon tire of. “It took years and years for them to get to where they are and they have perfected that for this generation,” says Omar Hamoui, a mobile investor at Sequoia Capital, backers of WhatsApp Messenger. “But these aren’t 10-year generations, they are two-year generations.”
. . .
The business model of mobile gaming has already shifted significantly within the short life of the iPhone. Three years ago a paid-for mobile game such as Angry Birds would have been tested extensively and then released in as near to perfect state as possible.
Now, all “freemium” games – which charge nothing to download and play but hope to nudge keen players to pay for extras and power-ups – are released in beta mode, allowing them to be tested in small markets such as Canada, Australia or Finland. “The launch is only the beginning and then you keep building and building,” Mr Järvilehto says. “The interesting part about it is that it’s almost like doing live focus testing with an audience of tens of thousands or almost millions sometimes.”
A company such as Supercell issues updates every few weeks for Clash of Clans, a medieval combat game, and Hay Day, based on a farm. These range from the mundane – introducing a new donkey in Hay Day or wintry scenery in Clash of Clans – to the more fundamental, such as adding a social element where players can band together. It works: leaked figures show that Supercell had almost 30m daily users in February.
“It’s almost like building a hobby rather than building a game,” says Mr Järvilehto. “We want to build an experience that keeps the players engaged for more than two days in a row but for very long durations.”
At the heart of how these games make money are a few simple ideas or “mechanics”. One of the most powerful is time limitations. In Candy Crush, players are only given five lives and it takes 30 minutes – or a dollar or two – to get a new one.
But getting the balance right is tricky. “I had to stop playing it because it infuriated me,” Mr Warin says of Candy Crush. “There were so many levels that I was close to finishing but for one, two or three moves. It’s proved that it’s good for people to fail early on in the game. People get enraged: that drives monetisation.”
However, games that push players to pay too early or too often can annoy their customers, a criticism frequently levelled at Zynga. “At some point, players get mad at the game for the monetisation events,” says Ms Lazzaro. “A lot of it is driving an addiction mechanic and not necessarily providing a lot of benefit to the player.”
Another ingredient of success is social networking: to encourage players to compete or at the very least co-operate with friends. In Candy Crush, getting beyond level 35 (out of 530) requires money, logging into Facebook and asking a friend for help, or waiting several days. Many choose a combination of all three.
“I started by waiting, thinking I couldn’t spend money on a stupid game,” says one well-paid executive of a Swedish industrial company. “But it gnawed away at me until I gave in. I paid a little bit of money, and then some more. I even asked my Facebook friends for help.”
Mobile game designers talk endlessly about the “core loop” of a game. This is the fundamental process at the heart of a game that the player will repeat over and over. In Hay Day, players first plant crops, before harvesting them, using them to feed animals or start making products, collect the products, sell them and then buy more animals or equipment.
Wooga, the Berlin-based makers of Jelly Splash, another popular cartoony mobile puzzler, found that pacing the difficulty of its levels was crucial to retaining players – and making some pay.
The trick, Wooga’s developers say, is to make the player believe that there is more skill involved than there really is – so it feels more like a simpler version of chess even if it is actually little more sophisticated than a slot machine.
Even as some developers perfect these techniques, others argue that the rules of the game are about to change. “We at Pocket Gems believe that mobile gaming as we currently know it is going to be dead in a couple of years,” says Ben Liu, the developer’s chief executive, as games become more technically complex.
The industry is watching to see how the King IPO performs. Some moan that the valuation – at about 4.2 times last year’s revenues at the top of its pricing range, far below the likes of Facebook or Twitter – is too low.
But one veteran European games designer says he is deeply worried about King’s dependence on Candy Crush. “I see so many similarities with Zynga. For the industry, it would be so damaging to have another botched IPO,” he says.
The mobile games sector might have worked out how to manipulate the emotions of its players but it is still looking for a formula that will win over Wall Street.
Revenue: On the hunt for whales
It takes a surprisingly small number of gamers to make big bucks for the likes of King Digital Entertainment. Free mobile games such as Candy Crush Saga make money when a small number of players opt to pay to advance more quickly.
King says that across all its games, about 4 per cent of its monthly unique users buy “power-ups”, or extra lives. Those people, on average, spend about $17 a month.
But those figures do not tell the whole story. An even smaller portion of players can sometimes spend thousands of dollars, often to maintain their status at the top of a game’s rankings.
While most in-app purchases are small – $5 or less – the top 10 per cent of paying users provide half of the income in a typical game, analytics service Swrve found in a study of tens of millions of users across its network of customers.
As in casinos, these people are known in the mobile games business as “whales”, and they are both lucrative and a concern for many in the industry.
In one of the most extreme examples, The New York Times interviewed George Yao, the former top-ranking player on Supercell’s Clash of Clans, who at one point was taking five iPads wrapped in plastic bags into the shower with him so that none of his accounts became inactive.
Asked about the likes of Mr Yao, Supercell chief executive Ilkka Paananen says: “You could say that about every type of entertainment. [But] I agree with you: I don’t think you should devote your life to playing games.”
A few minutes previously, however, he had described the secret of making so much money with games: “You need to create a game that people play for years, not months, and those people have to play it a lot . . . nine or 10 times a day.”
Chasing whales presents its own risks for developers. Casual players might be scared off the game entirely if they see that others are spending $50 on a virtual item, while people who spend time rather than money on a game can be angered when others simply buy their way to victory.
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