Managers employed by a company perform on two stages. First, they have to perform at the main stage where their act is judged on the basis of market response. Nintendo’s CEO Saturo Iwata, for example, decides over video game hardware design issues and which games get published (or not). The firm’s financial results then are a reflection of the market’s (the audience) perception of his stage performance. Secondly, managers have a backstage function where they reflect on their stage acts and look forward to future performances in interviews, investor briefings, etc. The audiences of these backstage activities contain a wider stakeholder group: investors, suppliers, colleagues, and competitors. Saturo Iwata happens to be a manager that is very self-conscious of his role backstage and actively stages and conducts this backstage activity into a performance.

What do I mean with this backstage performance precisely? Nintendo traditionally was a company that rarely let its personnel speak to the press about seemingly irrelevant issues. This closed culture is embedded in the Asian culture Nintendo takes part in and arose from the firm’s long history of being family owned and family managed. However, after Hiroshi Yamauchi’s retirement and Iwata assuming presidency of the firm, Nintendo has increasingly shared self-reflective, often non-essential, information with its key stakeholders. Financial reports have become more elaborate, investor meeting briefs are posted online and are translated into English, Iwata introduced the Iwata asks series in which he speaks with development teams about the process of game development, Nintendo Direct conferences have seen the light, and, an albeit Japanese reporter was granted access to some of the company’s key managers for the book Nintendo Magic: Winning the Videogame Wars. What is the rationale behind Iwata’s scripted (and increasingly public) backstage performance?

“Moreover, regrettably, what we prioritised in order to reach out to the new audience was a bit too far from what we prioritised for those who play games as their hobby. Consequently, we presume some people felt that the Wii was not a game system for them or they were not willing to play with the Wii even though some compelling games had been released.” – Iwata during a recent investor conference.

Self-reflection as above has two basic functions. Firstly, it creates legitimacy for Iwata and Nintendo. By reflecting on a situation that unfolded not as planned, Iwata acknowledges some of the miss-steps he made during his main stage performance act. By doing so, he shows that the people working for Nintendo are not completely ignorant or even irrational; they designed a stage script that was poorly received and on this basis they will most likely revise future stage scripts aiming for a better performance. On the basis of the firm's extant knowledge the managers strived for the highest possible performance, and they will continue to do so incorporating their newfound knowledge of audience preferences. Reflection like this should reassure investors, publishers and possibly even consumers about the capabilities of Nintendo’s managers which translates into firm legitimacy.

“As for the Nintendo 3DS, there may appear to be fewer commitments from the U.S. and the European software publishers than those of their Japanese counterparts. This is due to the different timing when they noticed that the Nintendo 3DS would surely expand widely into their markets and, thus, the different timing when they started the actual development of the Nintendo 3DS software. You will also notice a change in this situation when a richer Nintendo 3DS software line-up in the overseas markets is announced around the time of the E3 show.” - Iwata during a recent investor conference.

A second rationale for these backstage performances is signalling. With statements like these, Iwata is actively building an image of Nintendo’s desired state and its strategic intent. It is an image building performance that ought to improve the firm’s main stage performance. The big question here is, what is Iwata trying to signal, and to who? The most obvious response would be ‘Nintendo will announce greater Western publisher support for the 3DS platform at the time of the E3’. Since support from these publishers has been low so far and this could be a reason for lower than expected financial performance, this would surely satisfy investors. Western consumers would be happy with this too, however, I doubt the number of consumers that actively monitor these backstage reflections, they focus more on the main stage performance Nintendo and Iwata are putting on: games and hardware released. Actually, I think there is more behind Iwata’s statements.

Was the, shortly after the disappointing financial results reveal, leaked Rayman Legends trailer showing unrevealed Wii U functionality truly unintended?

The amount of information from Iwata's backstage performances increased from two events; (1) Nintendo’s financial downturn, and (2) the timing of new hardware introductions. With the eye on the latter, I believe that Iwata is signalling strategic intent to its competitors, and suppliers of third party software. Iwata could actually be saying something like ‘listen Western publishers, 3DS sales have picked up significantly in the EU and USA markets in the last six months, our third-party policy has loosened up and we are ready to work with you to make these products a success. Please submit your games’. Or, alternatively, ‘listen Sony, we are planning a plethora of games to be released over the next six months on the handheld market, you might consider postponing particular Vita games as their sales will be cannibalized by our products’. Clearly, events like financial downturns or new hardware releases increase the attention stakeholders are devoting to Nintendo, and Iwata is utilizing this attention carefully. It's up to analysts and stakeholders alike to be weary of the public function of managers' backstage performance and interpret what they are saying rather than blindly copying it.

This article was inspired by a research seminar by Professor Richard J Badham from Macquarie University, North Ryde Sydney at Cass Business School titled: “The Ironic Manager, The Para-Performance of Calling the Rationality Game”.

“We do not write a marketing plan, marketing doesn’t work.” – Indie developer in recent email conversation

Independent game studios have the tendency to revert from publishing partners when it comes to commercializing their games on digital distribution channels. Doing it yourself is implicitly assumed by adopting the label ‘independent’ and has certain obvious advantages such as (creative) freedom and greater revenue per unit sold. Further, with the advent of Kickstarter funded development projects, the need to work with other companies within the value chain is shrinking every day. The routes to market small firms should take to commercialize their innovations is a hotly debated issue in strategic management research. Bypassing publishers and offering your game directly to the gamer seems like a no-brainer in this digital era. However, there are some significant benefits to partnering that I will try to shed light over here. While not trying to turn my back towards the indie community, in this article I will put forward some reasons why the publishers aren’t ‘dead’ yet.

Adding value through certification and complementarities

“We have 300+ email addresses from press contacts that we can contact. Obviously, only 2% of those people react on your message, so this is not valuable.” – Indie developer in recent email conversation

Great games are being released every day, whether it’s on iOS, Android, or Facebook. What makes games successful however is the effective deployment of certain complementarities such as marketing capabilities and a solid reputation that signal to gamers the quality of the game without having to play it. With over 4,000 games submitted to the App store every month commercial success unfortunately doesn’t rely solely on whose game is the best. Consumers are confronted with huge information asymmetries in selecting the right games to download. You as a developer perfectly know the quality of your game, yet your players-to-be, or relevant gatekeepers such as reviewing media and platform owners for that matter, do not. Partnering with a reputable and/or capable publisher can be a valid way to reduce this uncertainty with the people that eventually determine the success of your game.

Perceptions of quality with prospect consumers or gatekeepers are positively influenced by the reputation of the developer/publisher. When your reputation is low, i.e. you did not have any Top 3 games before, you do wise by teaming up with a reputable partner. The positive spill-overs from your partner’s reputation work two ways. Firstly, the aforementioned consumers and gatekeepers alike see the act of partnering as an endorsement from the partner and since his/her reputation is at stake, the game must be of high quality. When your game is picked up by Chillingo, the publisher behind Angry Birds, this is a relevant pre-selection in the eyes of gamers and reviewing media. Secondly, a successful game’s reputation is transferred back to the developer since people now associate that success with the companies behind it. Positive reputational spill-over effects from a successful game can be used for subsequently (independently) commercialized games. OMGPOP is now using their reputation from the massively popular Draw Something to attract attention to some of their other, less well-known games such as Boom Friends and Puppy World.

Routes to market based on reputation and complementarities

Reputation alone won’t do the trick though. Many independent developers seem to live by the perception that, now that barriers to publishing have been eroded, established publishers don’t add value anymore. Publishers add value through their exploitative capabilities. These complementarities are embedded in strategic direction, relationships with gatekeepers and knowing how to use them effectively, a large portfolio of content through which cross-selling of content can occur, and marketing communication skills for presenting games in the best possible light. Having 300+ press contacts is a good start, however knowing how to approach and maintain relationships with these persons is what gets you good coverage. Practically, publishers enhance the chances for higher review scores; in-depth coverage by media; features by platform owners; and, a better capitalization per unit sold. With the eye on the latter it is important to involve a potential partner well before your game is finished as strategic development issues regarding business models can have a critical impact on your income.

Capturing value from sharing revenue

“We don’t work with publishers because they cannot guarantee success at all. We can consider it, but then they have to come with a very good deal!” – Indie developer in recent email conversation

Unfortunately, publishers don’t work for free. In most cases they capitalize on their reputation and complementary capabilities by demanding a revenue share anywhere between 10 and 50% and possibly want to include a cost recoupment clause in the contract. Developers often operate independently because they neglect the added value of the publisher and merely focus on the revenue they have to give up instead. Rather than being envious of the seemingly disproportionately high revenue share, developers have to take into account the additional value created by partnering: a greater chance of selling more units in addition to higher monetization per unit sold. These are valuable additions in an environment where 85% of the games don’t manage to move more than 1,500 units. What is left is a simple, albeit difficult to accurately perform prior to commercialization, calculation where the added value from partnering is offset by the loss in value appropriation per unit sold.

Value creation and value appropriation from partnering

Consider the following hypothetical example. Developer X decides to independently commercialize her game. The game sells for £0.69 GBP throughout its lifecycle, grossing approximately £0.50 GBP per unit sold after platform fee deduction. The developer sells 20.000 copies, appropriating £10,000 GBP since 100% of the value created is captured by the developer. Now, in a hypothetical scenario, the developer reverses the wheel of time and decides to commercialize the game through a partnership with a publisher. The publisher is confident and promises to dedicate time and money to the project, and in returns asks for 30% of all value created. The developer now only receives £0.35 per unit sold after platform and publisher fee deductions. However, by pooling capabilities more value is created through effective publishing and reputational signalling (on top of that great game). As a result the game sells 40.000 copies grossing £20.000 GBP cumulatively. The developer appropriates £14,000 GBP, 40% more compared with the independent strategy despite a lower value captured per unit sold.

Final thoughts

These are top-level indications of how and when a publishing partner can add value to the commercialization of your game. Needless to say, there are complexities in finding the ‘right’ partner and dealing with the practical issues of revenue sharing. Notwithstanding these complexities, I believe there are solid reasons not to bypass the publishers independent developers are increasingly declaring ‘dead’, or more mildly, of little added value. We occasionally see and read about independent success stories on digital distribution channels such as Tiny Tower or Triple Town. These are fantastic games commercialized by independent development studios. However, let’s not forget that these games represent only a fraction of the total population of games available on the digital channels and that they have been marketed by teams that invested heavily in getting their commercialization complementarities on point.

May 31^st I am speaking at the London Digital Shoreditch festival. My talk ‘The Publishers are Dead?! Lessons from Digital Game Distribution’ is part of the Play Summit and will extend on the thoughts displayed above.

To those that have been following recent developments in the UK games industry, it didn’t come as a surprise; GAME Group’s filing for administration. As of yesterday, March 26th, UK’s leading retailer for video games is officially bankrupt. For months there have been ongoing rumours about the firm’s demise (see MCV UK’s GAME-file for an excellent overview). Current day’s main question is what will happen to the chain now that it slipped into administration? PricewaterhouseCooper’s Mike Jervis has been appointed as administrator and has been tasked to find a solution to the firm’s debts that pleases the majority of debt- and stockholders. In the letter below, I address to Mr. Jervis my humble opinion about what should happen to GAME. In the following days/weeks I will attempt to post more coverage on the subject.

Dear Mr Jervis; Mr Maddison,

London, March 27, 2012

It is with great interest that I have been following GAME Group’s recent developments. Now that the chain slipped into administration last Monday March 26^th, it is up to you and your team to redirect the flailing concern, readying it for a second beginning possibly with a new owner. Notwithstanding my trust in PwC as administrator or my lack of financial expertise, I write this letter to you to provide you with what I think should be the main points of focus for GAME’s turnaround. My points of advice are subdivided into operations management, strategic considerations, and financial management.

GAME is not a spoiled concern or one without prospect. In comparison to worldwide market leader and rival Gamestop Corp., GAME extracts higher margins from new hardware (8% vs. 7%) and new software (26% vs. 21%) sales.[1] These product categories make up roughly 61% of GAME’s yearly revenue. Also GAME’s store capitalization is in good condition (in most territories at least), outperforming Gamestop’s retail space. Indeed, GAME has average annual sales per store of £1,165,184, or £1,116 per square foot, compared to Gamestop’s average annual store sales of £890,982, or £636 per square foot.[2] In the past, GAME has made good use of its assets, assets it still owns today.

Rather than a cut-throat value chain or poor asset management, GAME’s problems reside with its operations. Improvements should be sought in two broad areas; overhead costs, and international operations. Recognizing high street retail’s low profit margins, GAME’s 1.75% EBIT margin is dangerously low and non-competitive compared to Gamestop’s 6.56% EBIT margin. As my data do not provide a detailed breakdown, it is difficult for me to pinpoint where exact improvements could be made. What strikes me though is the high closure rate of stores and employee lay-offs in the United Kingdom following yesterday’s administration. With £55,308 average net annual profits per store, or £46 per square feet, UK stores by far outperform GAME’s international operations which on average have an annual net loss of £31,961 per store, or £35 per square foot. Operations in GAME’s international territories show a near 1:1 operating expense ratio of 0.98. Scandinavia and Australia appear to be apparent targets for redundancies, as should be considered the strategic relevance of the Czech Republic operations.

Additionally, for purposes of market contingency and profitability, video game retailers have increasingly focussed on pre-owned trade and online market presence. It are exactly these areas where GAME’s operations could be drastically improved. Gamestop’s profit margin on pre-owned games is roughly 7% higher than to GAME’s 40% gross profit margin, resulting in a 10% discrepancy between the chains’ bottom-line product-profit mixes. Add to this GAME’s floundering, low-margin, online operations that decreased by 67% in profit 2010-2011 and one has two departments in which operational improvements will strengthen GAME’s competitive position.

There are other, more prevalent, strategic considerations. To my understanding, GAME’s general management has not fully grasped the implications from some of the industry’s interrelated risks; seasonality; cyclical hardware development; and, the advent of digital distribution. It was not until February last year that former CEO Mr Shepherd explicated strategic intent to deal with the ‘issue’ of digital distribution by reformulating the Group’s strategy.[3] Current generation video game consoles have been equipped with digital storefronts since late 2005. In the latest Financial Earnings report there is ample mentioning of market conform representation of digital sales in GAME’s product group; 10%. GAME’s main vendors, publishers like EA and Activision, rely over 30% on digital revenues in their product mix. Not to mention all-digital new entrants in the mobile and social gaming spheres like Zynga and Rovio. GAME’s 27% year on year increase in digital sales pales before Gamestop’s 61% who is actively pursuing market share in this segment through acquisitions and store modifications.

GAME’s pre-owned trade and online business segments are strategic areas with which the concern can solidify its competitive positioning towards vendors and the risks associated with retail operations in an era of digitization. Increased emphasis on digital content from both traditional vendors and new entrants in social and mobile gaming would not only align GAME with expected market trends for the near future that predict an uptake in digital market segments (27% in Europe for 2012) and decline in physical goods (-6% in Europe for 2012), it will further help to reduce the firm’s skewed and cyclical earning patterns which contributed in part to GAME’s financial struggles. A longer than expected console cycle and disappointing Q4 sales are hard blows to take for a company that relies for 58% of its yearly profits on the Christmas period.[4] Digital initiatives will help to ‘equalize’ GAME’s profit pattern, and hereby strengthen its strategic sustainability and financial solvency.

Finally, rather than equalizing the Group’s income pattern through careful risk management, GAME has been imprudent in its debt-to-equity management, even further amplifying the concern’s miseries. While not failing to recognize the positive amplification of earnings from a high debt-to-equity ratio, general management has been careless in (not) anticipating the vicious financial circle caused by poor earnings and a high debt-equity ratio (1.06 in 2010-2011). GAME’s short term financial perspective is candidate for improvement too; an organization operating in a volatile business should not have current liabilities nearly equalling its current assets which include an inventory composite of ‘highly perishable goods’. Notwithstanding structural differences in strategic direction and operating costs between GAME and Gamestop, to my best knowledge it is this risk seeking financial strategy that put GAME in the position it is in now.

Bankruptcies are not necessarily a bad thing to all actors involved. Rather than piece-by-piece disposal of GAME’s assets, the company is worth more as a streamlined but complete entity. Provided with a fresh strategic perspective and a leaner operations management, the GAME Group is worth more than its closing market cap of £8.30 million without doubt, making it an attractive acquisition target for the likes of OpCapita, Gamestop, or even RBS. Having said that, GAME, GAME’s assets, and a fair share of its personnel deserve to rebound through a going concern acquisition. Indeed, I agree with your perception that in the United Kingdom there is room for a specialist retailer for video games.

With kind regards,

Joost Rietveld
PhD candidate in Strategy and consultant for Strategy Guide UK

Hi!

I am having a break from writing about video game events and news as I am currently in China and rather disconnected from the world of games. The reason for visiting China is teaching a course in marketing at an international business school; a research seminar on my work on video games at the Nottingham University in Ningbo; and, seeing some of the country. Upon return half March I will turn my attention to the blog again.

Take care.

An event like this is a good indicator of where the industry is at, and more importantly, where it is heading. Last year’s focal topics were whether or not to go freemium, what to do with location based services, and which platforms to embrace. This year’s event showed deeper signs of maturing as speakers were presented more forward-looking plans and showed concern with external adoption from both consumers and businesses alike. Of special interest were discussions around design convergence that have greater console-like experiences; the role of games in mobile transmedia; and the introduction of key performance indicators for stimulating transparency.

Design convergence

An unscheduled but welcomed panel discussion explored what makes a quality social mobile game. Henrique Olifers, former studio director at Playfish and founder of the social games studio Bossa Studios, offered interesting insights. Across the board, a psychological and emotional drive to play a game is what defines quality, regardless of platform or genre. This intrinsic motivation leads to “thinking about the game while not playing it”. It is exactly this drive that makes players coming back to their favourite games.

The methods used in social games are rather simple. A game like Farmville offers little narrative background and its retention techniques, such as harvesting crop, are not particularly fine-grained. The sophistication found in console games is not required since social mobile games cater to an audience of non-game players who are looking for low entry barriers to play. This audience however, is becoming increasingly acquainted with games and with this increased knowledge comes higher thresholds. As a consequence, the panel foresees an “arms race” in technical, narrative and game-play design advancements. With marketing expenditures already rapidly increasing, the social games ecosystem will not be unlike its console counterparts in the near future.

Mobile transmedia

The advent of linkages between mobile games and non-game properties or real-life brands was a recurring subject during the conference and seen as good business practice. Interesting insights came from Ray Sharma from XMG Studios, Canada’s second largest development studio. While cross (mobile) platform endeavours were the topic of last year’s discussion, Sharma was looking ahead by exploring cross-media, or transmedia, strategies. XMG’s mobile game for the somewhat forgotten animated TV series ‘Inspector Gadget’ spun-off a range of side products including best-selling ringtones, up to the point where the game “reinvigorated the TV series”. Indeed, a new season of the series is currently in the making.

Sharma took this transmedia perspective one step further by drawing the analogy of the mobile phone being a remote control, or hub, for various interrelated mobile media. XMG’s pinnacle of this approach is the recently released Totally Amp’d, the first interactive sitcom for smartphones and tablets. Spread over ten episodes, the player follows a group of teens on their road to stardom and while doing so the player decides on the content of the teens’ video clips, records tracks in a karaoke studio, and decides what the stars-to-be should wear.

Transmedia efforts are pretentious to say the least, and require a lot of coordination between companies with various specialities. Furthermore, like any pioneering or innovative service, profits are far from given. Having said that, if these efforts do work out, the return on investment is likely to be very high

Increasing transparency

The first two topics, convergence with console experiences and cross pollination with other media industries, point towards increasing maturity for the mobile games industry. The console games industry is dealing with signs of decline, whereas signs of growth in mobile abound. For example, 15% of last December’s retail shopping activity in the UK came from mobile. In spite of these staggering figures for the mobile games industry to enjoy greater recognition from consumers and businesses the industry needs more established metrics on effectiveness and quality.

Michael Schade CEO of successful advergaming studio Fishlabs highlighted the importance of generally recognized measures of effectiveness. Brands and other media might still be reluctant to partner with mobile games studios since there is little knowledge on what constitutes success and how to measure it. The same applies to measures of quality. While there are many analytics to be used, there still is “not a lot of knowledge on analytics”. According to the previously mentioned panel on quality, mobile games are in need for a unified key performance indicator of quality (like Metacritic for console games). Whether this is done through retention, featured by the platform owner, or daily active users, institutionalizing such metrics will help amplifying the success stories and leads to an ever bigger market opportunity.

Thanks to the kind people of Osney Media and Gaming Business Review for making my attendance possible. Onto next year’s event!

This article is co-published on Gaming Business Review, you can find it here.

Chris Deering: Sony (Computer Entertainment) EU's former CEO

Last week I had the pleasure of attending a talk by long-time Sony (Computer Entertainment) Europe CEO Chris Deering. At the London Business School Marketing Club, the industry veteran elaborated on how Sony gained foothold in the video game console industry and ultimately became the market leader. Deering, at Sony EU from 1995 – 2005, explained how organization design, a strategy of ‘platform play’, and beer are key to becoming a dominant player in today’s disrupted and expanded market.

What drove Sony’s success for PlayStation?

From an organizational design point of view, Deering deployed a mentality of putting the consumer first. Additionally, ‘politics’ was not accepted within the organization; employees at all levels were empowered to make a difference. This meant that overhead was kept to a minimum resulting in a $250 million cost reduction and a flat organization chart where people knew each other. While Deering rigidly kept an eye on the costs by personally signing off all requests for new hires (or not), he invested in employee morale by regularly organizing company-sponsored drinks under the mantra “beer is the answer”. Business gets done as people from different departments talk more easily to each other over a drink in an informal setting.

Deering noted the following advancements over competitors Nintendo and Sega. At the time of the PSone, processing power was still an obstacle for translating creativity into game design. Increasing the count of polygons and introducing CD quality sound meant a significant increase in technical abilities. By switching from cartridges to CDs for storing data, Sony reduced inventory risks for third party publishers. CDs could be produced in smaller batches and brought to market quicker compared to cartridges. This advancement tied in with a philosophy of aggressive cultivation of third party titles. Not having game development capabilities in-house, Sony was keen on establishing favourable relationships with third party publishers. This resulted in a rather different mentality towards third parties compared to Nintendo’s inbound looking mentality.

Sony was also particularly keen on its marketing endeavours. For the PSone Deering used a strategy of audience expansion and distribution ubiquity. In other words, people that had never bought a console before, young adults aged 18-34, were targeted to buy the device available in as many points of sale as possible. Sony backed its targeting strategy with edgy marketing campaigns such as the Society Against PlayStation (S.A.P.S.) commercials that portrayed the console’s recalcitrant image. Lastly, Sony paced a number of platform exclusive games that catered to the new target audience providing further incentive to choose Sony’s console.

Deering giving his presentation at LBS

A new environment.

15 years later the video games industry is faced with “massive disruption as well as expansion”. The advent of Facebook for social games and smart phones for mobile games has created a new environment. Indeed, some of the advantages with which Sony made its victorious entrance in the industry have been rendered obsolete. In digital distribution there is no inventory to be managed and thus no risk to be reduced. Technology is still a driving factor for innovation in games design, but not as much of a deal breaker as it was before. Rather than platform exclusivity, gamers now benefit if they can access and play content across devices. Additionally, free trial from demos or freemium business models in games explodes early uptake but also accelerates defection. In short, the risk factors for platforms have intensified over the last years.

Having said that, Deering states that a strategy of ‘platform play’ can still very well work today. Platform owners remain having opportunities to be the value chain leaders, but they should look for new directions to deploy ‘platform plays’. Platforms based on a single controller but multiple screens; platforms around currencies; platforms for decision point optimization (mentions Tapjoy); streaming platforms advocating trial (mentions Gaikai); and, recommendation platforms all have potential to become dominant players in their value chains. Deering mentions the Kindle Fire as a candidate dominant platform owner for the near future.

However, Deering concludes his analysis that at the end of the day, company DNA still very much is a key performance indicator for success. In other words, “beer still is the answer”!

>>An interesting read on Deering’s impressive CV and personal background was published at MCV in the ‘MCV legends’ series<<

In a relatively short timeframe gamification turned into a proper movement. The official blog; a full-fledged book; a summit; and many (self-)proclaimed experts are advocating the use of game mechanics in non-game settings. Gamification can be seen as the logical next step in the diffusion of games as it commoditises games by making them part of the marketer’s toolkit without her actually having to design games. Is the rapid rise of the phenomenon at hand legit, or is gamification a bubble soon to go burst?

At this week’s London Business School’s Marketing Club, this question was answered by Professor in Game Design Richard Bartle. Professor Bartle has a proven track record in games being the spiritual father of the first Virtual World, MUD (1978), and reputable author on the subject of games design. Bartle concluded his presentation on the note that Gamification is a bubble that will eventually burst. Why won’t gamification become ubiquitous in the next five years?

More often than once, gamification rather is 'pointsification'. That is, gamification fails to deliver a game-like experience (something you can lose at) but rather exclusively offers extrinsic rewards for aspired behaviour. Where games offer extrinsic rewards for something that the player already perceives as fun (intrinsic reward), in gamification the receipt of the reward itself ought to be fun (or valuable). As in most cases, if the reward is not valuable or fun, it is not a reward. This is an insight that will eventually dawn on consumers, and when this happens they will feel deceived and abandon gamification practices.  This is precisely the reason why marketers should realise that gamification is short-lived and might even lead to legal and ethical consequences.

Professor Bartle made it abundantly clear that gamification is different from serious games, or advergames, where actual games are used for stimulating functional behaviour. Besides the short term financial gains and notable success cases, gamification will ready those non-gamers left for playing games. This is good news for skilled advergaming studios like Sticky Studios and Media Monks who are trained in creating game experiences around brand-messages. Rather than repetitive behaviour with no real reward, brand messages should be reflected in fun game-play leading to real-life behaviour.

>> Professor Bartle’s slides for a similar presentation held at a Gamification workshop in Shoreditch can be found here.

In the current era of digitization, an organization can no longer afford to produce products that do not meet brand promises. Almost two billion people worldwide are connected through the Internet, and stories from one side of the globe can reach the other side almost instantaneously. Also, communication nowadays is far more reliable than when we were still sending letters to each other through the mail. Once a consumer has posted something on his/her weblog or on Twitter it will stay there and will remain accessible and findable. This ‘forces’ organizations and brands to be more truthful in what they communicate (‘walk your talk’ and ‘practice what you preach’).

To support organizations and brands I have defined five generic brand objectives that need to be pursued by any organization in their marketing efforts. I have come to these objectives through reading, doing research, attending marketing events, and by conducting interviews in the course of the last five years. The five brand objectives are:

1. Be Real
2. Behave Righteously
3. Remain Remarkable
4. Remain Relevant
5. Reward Relationships

Be Real

To become distinguishable as an organization you should know: who you are; how to go about things; and, what you are (or could become) really good at. In terms of branding this relates to brand identity, brand personality, and key competences respectively. Reputation (actions in the past) greatly determines the authenticity of your brand since current actions will always be compared to actions in the past. Joseph Pine describes brands that excelled in this area in his book ‘Authenticity’.

As a brand it is important to know your strengths (key competences), but to know your weaknesses is even more essential. As you will probably not get everything right, it is essential to put emphasis on the right things. This will help to clarify your positioning in the market. You can then communicate your position in the form of a brand promise or pay-off to the outside world. For instance: “BrandNewGame – Directing Playfulness”. I value being honest and direct to my clients (to create trust and respect), and I care to define the best possible strategy using digital means to accomplish the client’s goals, mostly using games or game-mechanics.

Behave Righteously

You can no longer get away with selling nonsense to your clients and consumers. If you do, the (digital) consumer will correct your behaviour publicly. Rik Riezebos defines righteous brands as ‘personality brands’. These are brands that meet their promises through internal competence and do not promise more than they can deliver. It is also important to be consistent in running the business (actions). An organization or brand will thus build a recognizable reputation, which in turn, will form the basis for brand loyalty and recommendations (conversational management).

Model for brand positioning (click to enlarge)

Righteous behaviour further involves management of expectations. The guiding principle is: never promise more than you can do, and do more than you promise. Indeed, under-promise, but over-deliver.  To be able to behave righteously it is important to have a vision of the future and to define a pathway to that future (mission, targets, and strategy). Also define what competences are required and how your current identity and brand culture can contribute to a described mission. Subsequently, this needs to be incorporated in the positioning and proposition.

Remain Remarkable

To be remarkable as a brand means the brand needs to stand out from other brands. If the brand is not distinguishable from others, the brand will become interchangeable and surely, that cannot be your objective. Correct positioning means, conquering a unique position amongst competitors in the market place. A brand can acquire a unique market position through its identity, culture, strategy, core competences, but also by offering a unique proposition. It is remarkable though that many brands do not seem to want to distinguish themselves but often just copy what their competitors do. This seems odd because firstly copying means lagging behind and secondly, it actually makes the brand more indistinguishable from others and therefore weakens the brand’s positioning. When the consumer finds it harder to distinguish one brand from another, brands become interchangeable and they will tend to go for the cheapest product. Low prices mean bad profit margins and eventually the complete business will be brought down in an attempt to achieve continued growth and therefore profitability.

How a brand can become remarkable by clearly focusing on one of the items in the marketing mix. Such focus is illustrated by looking at the following five brands. Every single one of them excels in one area of the proposition and is therefore unique.

Product: Apple (specifically in the area of user friendliness and functionality)
Price: Easy Company (easyJet and other propositions)
Place: Coca-Cola (focuses on an extremely sophisticated distribution strategy)
Personnel: United Airlines or Zappos (thanks to employees uniquely service driven)
Promotion: Red Bull (if you can actually put up entrance fees to a branded event and people actually come to the event you are doing a great job)
Planet: Innocent Drinks (sustainability and transparency are their core values)

Despite the fact that these brands seem to do more than just this right, their marketing focus revolves around one core element in the marketing mix.

Remain Relevant

Whether a brand is perceived as relevant or not is actually a consumer decision and is strongly context related. However, relevance is defined by the following factors:

1. Correct offer
2. Correct timing
3. Correct place
4. Correct context

To achieve relevance means we should be aware of what the decision maker or consumer is doing at the time we intrude his working environment or privacy with our brand message. Normally a consumer does not voluntarily choose to communicate with a brand, except when the consumer visits a shop or a website to find a solution to a problem, or to play a branded game. Digital means are very well suited to match the brand’s products with the target group, especially because there is the possibility to interact with the consumer (and therefore to measure any data). It could all start with a question…

To achieve a high score, a brand needs to enter into a continuous dialogue with the client or consumer and, although there are already several media available (such as LinkedIn or Facebook), organizations and brands are still lagging behind. The most important thing is not only to address the client or consumer when you want something of him, but consistently and regularly with customized content (news, information, images, questions) to keep the dialogue and mutual bonding alive. For the objectives to remain remarkable and relevant, companies need to innovate by having this continuous dialogue with the consumer. It is actually through the consumer that insights on product use and new consumer needs will emerge. Complaints, for example, can be a breeding ground for innovation as most innovative products are the result of dissatisfaction with the current situation.

Reward Relationships

It sounds so obvious but there are only a few brands that consistently reward their customers for their brand loyalty. Strangely enough, brands often invest in new customers by enticing them through completely branch-foreign products (a plasma screen when buying a car or a navigation system with the purchase of a digital TV or broadband Internet), but these rewards fail to create customer loyalty or customer satisfaction. If you want to achieve brand loyalty you must not only captivate the consumer continuously but you must also continue to reward him/her for his/her loyalty. In games, the reward system is a crucial part of the gameplay. Usually rewards are given in the form of points, premiums, and increasingly in the form of ‘badges’ or ‘achievements’ that can be subsequently shared with digital contacts on, for instance, Facebook.

The phenomenon ‘Four-square’ on the iPhone is geared towards collecting points by checking in at physical locations with the final goal of becoming the ‘mayor’ of a specific location such as a club or a restaurant. It is actually no more and no less than being a ‘regular customer’, the difference being in the digital recording of the visits through a software program. If that particular club also rewards the consumer with a drink on the house when bringing in his four friends, nothing has changed much compared to some ten years ago. Indeed, in my student years I used to visit the same bar regularly and, often, after the fourth round of drinks, the barman of the establishment would give us a free round of drinks.

In short: We should all consider becoming humans again that appreciate relationships and helping each other out a bit… You buy my game – I give you a wonderful experience… It should always be a win-win situation; it needs to feel righteous like the rules of any game – clear and consistent!

More about Bart
Twitter: @BartHufen
Blog: www.gamingandbranding.com
Download the book: www.brandnewplayground.com

• 800M+ Monthly Active Users (MAU) on Facebook
• 500M+ Daily Active Users (DAU) on Facebook
• 350M+ Mobile users on Facebook (growing rapidly)
• 200M+ MAU Social game players on Facebook (it’s stagnating)
• 100M+ Native iOS iPhone Facebook users
• 10M+ Native iOS iPad Facebook users
• To arrive at 1M MAU costs in the “hundreds of thousands” in terms of acquisition costs
• $60 Average Live Time Value (LTV) industry standard
• 600M+ connected devices by 2014
• 2014 When digital overtakes physical distribution revenues

[BONUS] Huge acquisition fees for social gaming companies that start with ‘P’ [/BONUS]

(Source: Evolve Conference)

In many ways the world of online gambling is a unique beast. It generates revenues in the tens of billions of dollars each year, yet it has only really been in existence for the last 15 years, with the first substantial online sites emerging in the mid-to-late 1990s. While the basic core of the online gambling business remains the same – offering people the chance to play poker, blackjack games, and bet on sports from the comfort of their home – the industry has already seen several major changes during its brief lifespan, with plenty more on the way.

The novelty of simply being able to gamble online was enough to draw customers in the early days of the industry. However, sites soon found themselves under pressure to differentiate their offerings. Some chose to focus on certain niches, such as PokerStars sticking solely to poker and avoiding the temptation to expand into casino games, while others including PartyPoker went the opposite route, eventually expanding to offer a full range of sports betting, casino, and bingo products.

Legislation of the market

The passage of the Unlawful Internet Gambling Enforcement Act (UIGEA) in the US in 2006 had major repercussions on the industry as a whole, with many operators finding their largest market and majority of revenues shut off virtually overnight. Despite many casualties, the online industry as a whole emerged stronger after the passage of the UIGEA, with a renewed emphasis on more efficient advertising and marketing efforts, as well as renewed interest in growing markets like Europe and Asia.

The European market over the last two years has seen an increase in the involvement of countries on a national level with online gambling, with the French and Italian governments stepping in to regulate online gambling. Other countries including Spain and Greece have adopted a similar model, with governments not only raking in a share of tax revenue from the online gambling sites who receive licenses to operate within these countries, but also exerting greater control as to what types of games and stakes are available.

Regulation on a national level has been met with mixed success so far; the French government has publicly stated it has been disappointed with tax revenues generated from online gambling as it failed to see an expected uptick in demand. Both Italy and France control the number of licenses issued to online gambling companies, enabling them to cap the overall supply, yet both countries have struggled to generate increased demand amongst gamblers. Other perspectives hold that the demand is still very much in-tact, however due to challenging tax demands and complex regulations, the market has failed to grow to its full potential.

Transition into social gaming

On the game development side, more and more online casinos are rolling out mobile apps for use on iPhones, iPads, and Android devices. Apple and Google, nevertheless, remain wary about approving apps that can be used to gamble for real money. The tide appears to be heading in that eventual direction though, with strong demand from gamblers who want to access their favourite poker, casino, and sports betting games from their mobile devices.

Social gambling apps remain strongly divided between games for play chips, such as Zynga Poker, and apps from online gambling operators like bwin that let customers play for real money. The former category still outnumbers the latter, but this is primarily due to Apple and Google’s reluctance to approve apps for real money wagering; many online operators such as PokerStars and PartyPoker have publicly stated that the only reason they don’t currently offer more mobile apps is the difficulty in getting them approved for distribution in the App Store or Android Market.