The Network Effect SEGA Used to Build Their New Mobile Business Strategy
Mike Evans has been working in mobile since before it was cool: He was with SEGA when his former colleague Ethan Einhorn presented Super Monkey Ball at Apple’s iPhone SDK reveal event back in March 2008.
Two years prior, when Evans first joined SEGA, the company was in a transitional period. SEGA pulled out of the video game hardware business in 2001 after their Dreamcast console didn’t gain traction, restructuring to focus on full-fledged third-party game development. Later, SEGA merged with Japanese pachinko giant Sammy in 2004. These changes, Evans tells us, gave him the chance to help re-establish SEGA as an industry leader again.
Evans started his tenure at SEGA in online marketing, where he helped the company transition their console business to digital on Xbox Live Arcade and PlayStation Network before moving on to their mobile division in 2008. When Steve Jobs came along with the vision for the iPhone in 2007, people at SEGA, including Evans, were captivated by Apple’s revolutionary mobile device. “SEGA has seen a lot of success by backing new platforms, be it through the PlayStation or the Xbox, Evans explains. “When we heard about the iPhone we were like, ‘This is a huge opportunity here.’ So we worked very closely with Apple.”
Image via YouTube
And what came out of their partnership with Apple was a mobile version of Super Monkey Ball that launched alongside the iPhone 3G and App Store, priced at $10. In the years since releasing Super Monkey Ball, things have changed. The distribution power of the iOS and Android platforms forced businesses to rethink their pricing strategy. Today, the majority of mobile games are free for this very reason—making $10 to download sound like $1 million in retrospect.
Now the chief marketing officer of mobile in western territories at SEGA, Evans has a new plan to grow the company’s mobile gaming business. In this Fyber interview, Evans walks through SEGA’s journey on mobile including Sonic Dash’s move from paid to free, the idea behind their recent ad-supported, retro gaming initiative SEGA Forever, and the network effects driving their new mobile business strategy.
Keeping up with change
The only constant in the mobile market is constant change. SEGA knows this constant change all too well. While SEGA gained some first-mover advantage with App Store launch title Super Monkey Ball and other mobile games that followed, they continued to grapple with the mobile pricing strategy puzzle.
“What’s been really interesting to see on mobile is the way business models have evolved, the way people design games has evolved, and the way we market games has evolved,” Evans says.
In March 2013, SEGA released Sonic Dash on the Apple App Store, an endless runner in the same vein as another hit title in the genre, Temple Run. Dash was originally launched as a premium title, priced at a more modest $1.99—a significantly lower price than Super Monkey Ball’s $10 price tag from 2008. However, by this time, 9 out of 10 apps in the app stores globally were free to download. Still, SEGA was asking for quite a bit for Sonic Dash from the majority of mobile users.
Closing the (Penny) Gap: A Sonic Dash case study
What SEGA, and almost any company playing in the game of mobile at the time, experienced was a phenomenon called “The Penny Gap.” According to First Round Partner Josh Kopelman, the biggest gap any software company must overcome is the gap between free and a penny. Indeed, as price goes down for a mobile game or app, demand goes up, but the relationship between the two isn’t perfectly linear. Rather, the difficulty is getting a consumer to pay upfront for a game or app, especially when most of the competition is priced at $0 in app stores.
Image via Redeye VC
Evans knew the realities of the Penny Gap all too well. “We’d actually launched Sonic Dash as a premium title, but there was one eye as well on taking this title to a free-to-play perspective,” he explains. After running a revenue forecast shortly after launch, Evans says he planned to change Sonic Dash from $1.99 to free and, in doing so, put in a rudimentary ad monetization model to extend the game’s revenue potential.
Evans successfully got Sonic Dash over the Penny Gap, witnessing firsthand the larger audience that can be reached when an app is free in the app stores. On March 29, 2013, Sonic Dash was set to free, but just for a weekend, Evans says, with its existing in-app purchases and ad monetization support for the first time. Sonic Dash raced to the #1 spot on the top overall download chart in the U.S. the weekend it went free. “We had no featuring, but we had tremendous pickup on the App Store,” Evans remarks. “We had a huge volume of downloads. And we started to make some really decent money.”
As the weekend passed, Sonic Dash remained free—this time forever. While retrofitting ad monetization post-release isn’t ideal, SEGA has adapted Dash’s game design to accommodate the ad experience. Now, mobile ads are a key revenue driver for Dash and other SEGA games. “We’ve generated a very sustainable revenue stream, and ads is a big part of what we do,” Evans says.
Reigniting SEGA’s challenger brand ethos
Evans is a gamer through and through. Since his father bought him the Atari 2600 when he was a kid, he knew his life could never really be the same again. Working at SEGA is the cherry on top. “It’s been a real dream come true,” Evans says. “I could be marketing something far more dour, but the opportunity to do this has been great.”
SEGA Forever is the culmination of over a decade of learning experiences at the company for Evans. The project, as Evans describes it, is aimed at “democratizing” retro gaming by bringing back two decades’ worth of games from SEGA’s back catalog to mobile app stores, spanning titles from their first gaming console, the SG-1000, to their last, the Dreamcast. “The project really came about out of a desire to relive and to reconnect with some of those childhood experiences,” he says. “A way to share them with other people, and a way to preserve the past.” And he adds: “My vision was really to change how the world plays, rediscovers, and shares classic gaming experiences.”
Evans’s vision is bold—but if there’s one thing SEGA is known for, it’s being bold. He tells us that he always looks back at previous SEGA marketing campaigns to see what had been done before by past employees. One theme he wanted to revive in order to market SEGA Forever: the company’s challenger brand ethos. In the annals of video game history, what comes to mind almost more than anything was the battle in the 1990s between SEGA and Nintendo—with SEGA playing the market disruptor. There’s even a Hollywood film coming out called Console Wars, chronicling the fierce rivalry in the ’90s between the two.
SEGA Forever, however, represents more than just an opportunity for the company to bring back their classic titles across a myriad of IPs, including Sonic, Streets of Rage, Golden Axe, and many more. Underpinning SEGA Forever is a new strategy for the company’s entire mobile gaming business—one built on network effects.
Underpinning SEGA Forever is a new strategy for the company’s entire mobile gaming business—one built on network effects.
The three pillars
So what is a network effect? In essence, a network effect occurs when a product or service becomes more valuable to its existing customers as more people use it. The network effect driving SEGA’s new mobile strategy is built around three “pillars,” Evans describes.
SEGA Forever, as he defines it, is the first of the three pillars to a new mobile strategy for the gaming giant. In a winner-takes-all economy such as the mobile app stores, a large network of users represents a lot of power. SEGA plans to release a SEGA Forever game for free on the app stores from their back catalog of nearly 1,000 first-party games every few weeks. By releasing a new SEGA Forever title on a regular basis, SEGA can capture a potentially large and powerful audience.
Most companies that apply a network effect use an ad monetization model to keep their product or service free while generating a decent revenue stream to fuel growth. Evans, learning from his Sonic Dash experience, decided to release SEGA Forever games for free, monetizing them with mobile ads across a variety of ad formats, including rewarded video.
Network expansion and monetization
Alongside building a stable revenue stream, the first pillar (SEGA Forever) is about network generation, audience profiling, and understanding the relative strength of the classic IPs on mobile. The second pillar expands on the network, as SEGA strives for critical mass and builds on the monetization potential. “The quantitative research we collect from SEGA Forever helps define the pipeline for the second pillar,” Evans explains. “The vision is to build simple IP-based experiences which closely aligns with our audience’s mobile gaming preferences for strong cross promotion affinity. Designed from the ground up for mobile, they use a combination of rewarded ads and in-app purchases to enhance network monetization.”
With over 2 million apps in both the Apple App Store and Google Play, there aren’t many areas of the app stores that have gone unclaimed. One plot of uncontested land was branded idle games. “I was interested in growth areas of the app stores with low brand penetration, broad appeal, and midcore monetization potential,” Evans says. “SEGA has a wealth of IP. The tricky part is understanding elasticity, how fans’ gaming tastes have matured, and carrying through the core attitude of the brand into a reimaged gaming experience.”
Those idle games for Evans’s second pillar turned into 2017 releases Crazy Taxi Gazillionaire and WWE Tap Mania. Like many games in the idle space, both titles feature hybrid business models with in-app purchases as well as rewarded video ads (Read how Futureplay Games built a company around rewarded video). Through the SEGA Forever titles, SEGA can encourage those players to download their higher revenue-generating idlers—staying locked-in to SEGA’s network.
Top grossing bets
Ranking, and maintaining, a mobile game in the top grossing chart is no trivial matter in today’s mobile landscape. Many of the apps in the grossing charts have been there for quite a while, building an audience over many years. Top studios pour a significant amount of money in paid mobile user acquisition as well to solidify their positioning.
This is where SEGA’s first two pillars of their new strategy will eventually pay dividends. For SEGA’s third pillar, Evans sees it as their area to make bets on IAP-driven F2P titles. “We can take traffic generated from the first two pillars, send some of that traffic, and support the third pillar, even though UA will absolutely be a part of the picture,” Evans says. Despite user acquisition costs continuing to rise, SEGA Forever and their branded idle games are their way of taking control of marketing costs and improving margins.
Mobile app stores, even close to 10 years on, still present tremendous opportunity for SEGA. Evans has proven he can think outside of the box to gain an advantage. SEGA Forever and the company’s latest mobile strategy built on network effects may just be Evans and SEGA’s best yet.