William Volk is the CCO of PlayScreen, bringing over 25 years of leadership experience from the video game industry to the company.

Volk began his career in 1979, on the launch team of the computer game division of Avalon Hill.

It used to be simpler. Design it, build it, ship it, profit. My first game shipped in 1980 and I earned 75c for every box sold. Simple.

That was pretty much the video game model all the way to 2008, and still holds true for most of the video game consoles. Of course only a few games are successes every year, while most don't make a profit at all.

The exception to the paid model was web based games, which were often ad-based – typically banner ads.

I can recall $12 eCPM (effective cost per mille, $12 per 1000 impressions) for banner ads in web-based iPhone games in 2008 and early 2009. Nice stuff.

I also recall how the value of those banner ads tumbled to pennies per 1000 impressions. Things change.

Development

Then came the app stores and digital distribution. Initially, things were pretty much the same. You get the app onto the store, get the word out, and wait for the monthly financial reports.

Maybe you did a 'lite' app that was free, as a way of advertising the paid version. Maybe you were clever, (like ngmoco), and shipped a 'paid' app for free to build an audience for the paid apps.

Or maybe you did ad-based stuff, relying on volume to drive impressions and earn revenue.

Then came in-app payments – you make the game free and have stuff you could buy in the game. This freemium model drove Facebook games such as Farmville and online Poker and has, of course, become the dominant monetisation mechanic on mobile.

At the time of writing, eight of the top ten grossing iPhone apps make use of the freemium model.

Let me count the ways

Of course, freemium works well for games with consumables – chips in poker, for example, or credits for puzzles – and it obviously works extremely well in games where in-app purchases allow you to accelerate your progress.

But freemium isn't the perfect fit for every title.

So why would you not go with freemium? Well, let's list the reasons:

1. Your simple game doesn't 'need' purchased items.


2. You're willing to ship it as a paid app. This is harder to market, but it's a simple model that can work.


3. You're competing against games that don't have in-app purchases, except for one that turns off advertising and perhaps other goodies.

Well, the third reason is where we we're at with Word Carnivale. We really do believe we have a better 'find the word' game than rivals such as Scramble with Friends or Ruzzle.


Word Carnivale

For instance, in Word Carnivale the letters are balloons that pop when you find a word, changing the game play-field and creating quite a different game experience.

Face it

But we have to accept this ad-supported reality. We are in competition with two highly popular ad-supported games.

Unless a miracle occurs, we're going to have to match that price, which is to say, free.

So how does this work in practice? Can you make money doing this? Here's what has to happen.

1. You need ad partners that can provide you with inventory (is there an ad you can show when you need to) at a good eCPM.


2. Ads have to be integrated into the game in a way that does not anger the users. However, offering an in-app purchase to turn off ads (and add additional game features) is a common practice.


3. Ads have to appear in some reasonable ratio to game play, so you earn sufficient revenue to make the game economics work.


4. Players have to play the game. A small but important detail.

So let's do the maths. Say you manage to get interstitial ads – full screen ads that users have to click past – and you show them after each game round is played. Say there are typically two rounds in a game.

Revenue per ad shown = eCPM/1000. So if our eCPM is $5, for example, that is half a cent per view, and a revenue per game of 1¢.

Okay, so how many games is your average daily player playing a day? Let's say it's two games a day. That gives us an Average Revenue Per User (ARPU) for the day of 2c, and a monthly ARPU of 60c.

Then how long do you keep users? Here's where it gets complex. Ideally your users are inviting their friends, and if they stay around for a few months, you're golden.

Lifetime Value is typically calculated as: Value = ARPU * (1 / CHURN), where churn is the percentage of players you lose every month.

Creating decent lifetime value isn't easy – it typically requires an ongoing developer commitment and continuous improvement to the game.

In our example above, if we had a churn of 20 percent, the lifetime value of a player would be $3.That sounds great, since with care you can drive downloads for as little as $1.00 per, but that's a fatal assumption, since only a fraction of users become daily players.

The k-factor

You have to be creative regarding how you bring in users, and you need that 'K-factor' (how many users does a player invite), in order to grow your app's userbase.

So ads may not be sufficient and you'll want to make that in-app purchase attractive. Beyond just turning off ads, the smarter publishers are providing desirable features that are part of that package.

For example, one thing we quickly realised is that the common annoyance in social games is finding someone to play with. Even games with 10 million downloads can take longer than a minute to assign you to a 'Random Opponent.'

Making this worse is the fact that you often have to wait for that player to make their move.

An opportunity in disguise

So what can you do? You can offer single player, but then you lose that desirable K-factor. Single player is often included as part of the in-app purchase to remove ads, though.

Typical comments you'll find on the App Store reviews for social apps are:

• I just wish you could play against yourself instead of finding someone to play against.


• I would be playing all day and all night if I could...but I can't cause I have to find new people to play and wait for my turn.


• I hate waiting for people to play their turn!!!! I wanna play!!!


• Why do we have to wait for an opponent to accept the game before we can start?

Well, our solution is the recently launched 'Instant Opponent' system. This enables all Word Carnivale players to start a game and play their turn within seconds, at any time of the day.

It's a complex piece of engineering, only possible because we had two years with our real time poker game and the cloud middleware that can deal with the demand created.

But it provides instant player gratification while retaining that K-factor. In the mobile gaming landscape, responding to player needs is key, and even the old boxed game business is changing.

Listen to your players, respond to their feedback and you stand a chance of generating meaningful lifetime value.
To find out more about PlayScreen and Word Carnivale, take a look at the company's website, or follow the PlayScreen Twitter for constantly-updated information.