By Shauli Rozen (*)

What’s the right balance of New vs. Existing Players for online gaming operators?

Shauli Rozen, Head of Strategic Services for Optimove, is a tech and data expert, consultant and business leader, specializing in creating business value through data-driven marketing and monetization strategies. His previous positions include Director of Strategy at Amdocs and Management Consultant with the Boston Consulting Group, where he advised senior management of Fortune 500 companies. Shauli holds a bachelor’s degree in computer science and an MBA from the Wharton Business School in the University of Pennsylvania.

Israel 
| 08/06/2016

There are several typical new:existing player revenue ratios that operators should be aware of as they grow their business, as these ratios are often a good signal on the overall health or growth stage of their business. A new, growing company must remember to nurture its new players, but bear in mind that driving 90% of revenue from new players could be a red flag. On the other hand, mature, solid companies should constantly refresh their player base and keep in mind that an “old player base” that is responsible for more than 90% of revenues may predict a business slowdown.

We turned to Optimove’s player database, covering more than 100 brands in a variety of growth stages, to examine the possible correlation between a company’s growth and success rates and its new:existing player ratio. We limited the research to companies more than five years old and with more than $10M of annual revenue. To assess each company’s state of affairs, we used a combination of top-line factors that included year-over-year growth during the past three years and five-year CAGR (Compounded Annual Growth Rate). We then identified clusters of companies with a similar player revenue mix that also share core attributes such as years in business, growth stage, conversion rates, retention rates, churn rates and changes in Customer Lifetime Value over time. 

Our research revealed four groups of companies, which we named Running-in-Place, Rockets, Healthy Grown-Ups and Old Cash Cows.

"Running in Place" are companies with great marketing that continually acquire new players, which means you would expect them to be able to grow quite quickly. However, our data shows that when 90% of a company’s revenue comes from new players, it is a signal that the company is not successful in turning those players into active, valuable players. These companies experience churn rates 100% higher than our sample average. Therefore, while continuously working hard on acquiring new players, the companies in this group stand still in terms of growth and do not ramp up. This is especially problematic for gaming operators in today's wild competition for users.

What do operators who find themselves in this situation need to consider?

This situation can usually be attributed to one of two things: either the company is not acquiring the right kind of new players, or the company is not doing an adequate job of converting those new recruits into ongoing, active users. In many cases it is both. By investing in retaining even a small portion of new players, Running-in-Place companies will slowly but surely build a stronger core player base that can help turn them into Rockets. 

Operators should aim to be a Rocket! These are companies with annual growth of more than 50% for the last five years and a five-year CAGR of over 100%. These companies are usually relatively early in their growth cycle and have been around for less than seven years. While Rockets have a player revenue mix that tilts towards new players, all the Rockets in our sample derive at least 30% of their annual revenues from existing players, and 80% of them derive about 50% of their revenues from existing players. Rockets in our sample managed to retain their acquired players and experience churn rates 50% lower than the sample average. 

Is this a tangible goal? 

The reality is that startups that don’t shift their mix towards existing players and improve churn rates don’t manage to become Rockets, and they remain at the Running-in-Place stage, experiencing low or negative growth after a short ramp-up period. In the end, it’s up to each online gaming operator to decide for itself how much investment to pour into new user acquisition versus nurturing player relationships. But using the data above, operators can tell whether their business has a healthy mix of new versus existing players or if it needs to focus more on one segment over the other.

By Shauli Rozen

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