Lessons in Launching Virtual Worlds. Mistake #1: We don’t need a Marketing Budget

This is the first in a series of posts highlighting some very common mistakes made by (primarily) start-up companies launching virtual worlds and MMOs for KT&T (kids, tweens and teens).

The insight we’re going to share in this series is gleaned from over five years of consulting for and working with a wide range of companies in the sector.

When we speak with Venture Capitalists and Financiers looking into the KT&T virtual worlds and MMO space a comment we hear a lot is that the space is crowded. Indeed, looking at the Universe and Radar charts, its clear there’s a lot of companies in the market – ‘Chasing the Penguin’ as we used to call it.

However, a large majority of these companies have failed to scale and grow their userbases to critical mass levels. We define these levels on a registered account basis as being 1m, 3m, 5m and 10m. We measure these critical mass levels alongside the K-Factor (viral sign-ups as a % of paid-for) and see measurable uplifts in the K-Factor at each level. For example, once a virtual world reaches 5m registered accounts it sh0uld be seeing a ‘1 for 1′ K-Factor, meaning the world gets a viral sign-up for every paid-for sign-up.

Virtual worlds and MMOs with insufficient marketing budgets are floating around in the market and failing to ramp up. This isn’t because their worlds are boring or don’t have great games or quests – worlds are not built to be boring. It’s primarily because when initial funding was raised for the development of the world, insuffiicent funds were allocated to user acquisition. Why did this happen? Here are some reasons:

 

• Arrogance. ‘Our virtual world will be so great that we won’t need to spend much of marketing and acquisition. Sign-ups will be viral’.

 

• Ignorance. Marketing was an after-thought, only brought up and considered once the world was open beta. This mistake was typically caused when the management team was mainly technical as opposed to commercial.

And, on the topic of marketing and user acquisition, this doesn’t mean banging out a few press releases or having a stand at a conference. Do you see many kids walking around virtual world or gaming expos? No, we don’t either. User acquisition means using measurable and scaleable online channels such as gaming portals, paid-search and the like. There are many worlds using these channels to great effect.

From a CPA perspective (cost per acquisiiton) we deem worlds to be performing well on a paid-for acqusition basis if their CPA is in the $0.50 – $0.80 range. In terms of an overall starting aquistition budget, we always advise at least $750k. Then and importantly, profits from monetization need to go back into the acquisition budget (at least 50%).

And what happens when the companies don’t have a sufficient launch budget? Not much unfortunately. And then they have to go back to the market or existing investors for another funding round. This is a painful process.

In the next of this series exploring Lessons in Launching Virtual Worlds, we’ll be covering off geographical targeting and target market age ranges.

KZero Services

KZero Reports