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An epic win for gaming

Zynga’s share price seems to indicate that the gaming industry is down to its final life.  Yet, many recent rounds of venture funding have gone to gaming companies.  Is there some kind of curse that devalues Facebook’s friends or do the venture capitalists have some sort of cheat?  The answer likely combes back to my basic thesis of the difference between a conecpt’s value and a company’s value-add.

Gaming as a concept has an essential value, which psychologists and behavioral economists alike have begun to note.  Jan McGonigal has the idea that through gaming, peole can become their best selves.  A well-designed game provides a challenge to the player within the upper limit of the player’s skill set.  Unlike in life, gaming provides feedback directly  connected to actions: its easy to recognize a good or bad choice and then learn.  Games also provide the promise of rewards at various levels, such as a skill gained.    With the ability to learn and potential for reward, games can motivate improvement.  The feedback helps the player make better decisions, a history of past rewards provides an easy way to track progress already made, and the player believes in the promise of a greater reward.  Unlike life, time spent and hard work done will bring a reward.  That games can become addictive shows two essential features of humanity: people respond to incentives but, unlike the seal who claps for fish, people want to improve.

Companies have begun to recognize the value of gaming: some provide game-like features as a value-add to their already existing product, others provide a value-add to the central gaming concept.

For example, blogging on WordPress is not much of a game, but the site congratualtes each new post and sets goals (challenges) for completion and tracks the progress.  The perennially popular Starbucks app with mobile payments operates in a similar way: with every purchase the customer receives a virtual star.  The app tracks the stars already earned and those needed to receive the next reward.  The reward system motivates further purchase because the customer gains a benefit in addition to their cup of coffee.  The gaming component adds value to Starbucks in a manner similar to free wifi and comfy chairs.

Zynga’s value-add seems to be finding trendy games and delivering them to an audience through an easily accessible platform: Facebook.  Zynga fits well with the “snack-gaming” trend, where smartphones and tablets allow people to play a quick game, like AngryBirds of FarmVille.  Zynga provides the games to the gamer for free and develops in-game goods available for purchase, which provides some revenue.

While Zynga provides value-add from a distribution aspect, its overall model seems incongruous with the greater market.  In the gaming world, as in the grocery aisle, there are very many snacks available.  While the price of a mobile game may deter some snack consumers when Zynga provides for free, the great multitude of mobile games suggests a perfectly competitive market.

Part of the virtue of a game like FarmVille, one of Zynga’s most popular games, as oppossed to World of Warcrat, is the former’s low committment threshold, its “snack factor.”  People, thoughm who only want a snack rarely pay for a full meal.  A hot-dog vendor would not also supply a five-course meal and expect that the latter would cover the costs.  Such a business decision fundamentally misunderstands the customer.  Likewise, a gamer who expects to play while waiting in line for a hot -dog at a baseball game in unlikely to make a FarmVille purchase.  Zynga’s revenue expectations are incompatible with its consumers.

Other games though, have the kind of fully functioning economy that does provide revenue.  In “Second Life,” where gamers create an avatar with a life: friends, possessions, etc. people make in-game purchases and Linden dollars, the in-game currency, floats against the USD.  In Blizzard Entertainments gaming portfolio, which includes World of Warcraft and the Diablo games, a market gor in-game goods actually developed independently of game creators.  A spontaneous market offers the strongest proof that demand for in-game goods does exist, in some games.

The difference essentailly comes down to immersion.  In games like those mentioned above, the players enter another world.  Fellow players become dynamic characters and success requires committment and  willingness to accept challenges.  The popularity of such games suggests that at least for some people, fun comes not only from immediate satisfaction but from working towards achieving a goal.  Such are the games that add value to the gaming concept, where value is an engaging, transformative experience

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