The studio behind Legendary: Game of Heroes is offering its sophisticated in-house user acquisition platform to other game developers to help them grow their games. Along with the tools, N3twork is also planning to invest tens of millions of dollars in scaling other publishers’ apps that meet their partnership criteria … without taking an ownership position or equity. (Full disclosure: Ne3twork is a client of a company I consult for, Singular.)
Look at Clash of Clans or Candy Crush Saga, or just about any other big game on the top grossing charts: they generate hundreds of millions and even billions of dollars in cash flow. Fortnite is an outlier, of course, but it made Epic Games $3 billion just in 2018 alone.
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“There’s almost no other investment that can generate the kind of risk-adjusted rate of return that a hit mobile app can,” says N3twork head of platform Eric Seufert.
The offering is a suite of four products that address what Seufert sees as the core challenges of scaling mobile apps: marketing data management, ad creative creation, ad campaign management, and ongoing optimization of campaigns. The suite includes predictive analytics for performance modeling, automated video ad building, programmatic ad campaign creation and optimization, plus real-time ROI tracking.
The most interesting component, however, is not the technology.
It’s the business model.
App developers apply to the program. If N3twork thinks your game is a good fit, they’ll run some performance marketing on your app — paying for it themselves — and share the results with you. Clearly, N3twork wants to ensure that any apps they market has the appeal and monetization capacity to justify massive investment.
Finally, if your app looks good, they’ll hammer out a partnership agreement with you to invest hundreds of thousands to tens of millions in scaling your game.
I asked Seufert about the growth platform: how it works, how N3twork tested it, and what he sees in the future of games.
Koetsier: First off: how would you characterize this new growth platform?
Seufert: The N3TWORK Scale Platform is a partnership program that we are launching to use our proprietary user acquisition technology stack to help third party developers grow their apps. The underlying technology platform, which I have been running since I joined N3TWORK through the acquisition of my own company, Agamemnon, allowed us to spend tens of millions of dollars on paid media in 2018 just to promote our hit game, Legendary: Game of Heroes.
N3TWORK as a company is anchored by commitments to two really important ideas: our values and culture, which we take very seriously and which guide everything we do, and hiring the absolute best people. We eventually plan to launch our user acquisition tech platform as a stand-alone SaaS product, but we decided that the N3TWORK Scale Platform partnership approach is a better way to launch this business: we get to partner closely with developers and not only give them access to our technology, but also to our in-house marketing expertise and capital. We think this partnership program sets developers up for success in a way that mere access to the technology platform wouldn’t.
Koetsier: This is pretty different than what we’ve seen before in terms of solutions to help mobile app publishers scale. Where do you contextualize this historically among those tools?
Seufert: What makes the N3TWORK Scale Platform unique is that it’s fundamentally a technology offering. We are partnering with developers and promoting their apps using technology that we have developed that we feel gives us (and them) a distinct competitive advantage through marketing efficiency.
We’re not trying to throw a bunch of different services like QA, product development advice, press relations, etc. at developers with this. We’re really clear about what we offer: scale. We want to work with developers who are maniacal about product and think building out expensive user acquisition infrastructure and teams is ancillary to their core focus.
Koetsier: You’ve got six components, basically: performance data aggregation, predictive analytics, automated creative creation, creative testing, ad placement bid automation, and cash flow forecasting. Is that everything a mobile publisher needs to grow?
Seufert: [Except for] money, which we also provide.
But joking aside, we also aggregate all of the more core ad tech components that marketers need, like analytics, and we utilize our partners’ tools for other things that wouldn’t make sense to build out in-house, like running campaign attribution and cost aggregation through Singular.
But all of this is really in the background and shouldn’t be visible to developers unless they want it to be. The N3TWORK Scale Platform is an end-to-end solution; the developer focuses completely on their product and we handle marketing completely.
Koetsier: This is a classic build-what-I-need solution … you built it to help grow N3twork’s own games. Talk about the success it created/enabled, and how critical it was to that success.
Seufert: Our suite helped us spend tens of millions of dollars on performance marketing in 2018 with the shortest payback windows that I’ve personally ever seen at a mobile gaming company, which is pretty remarkable given the very core nature of Legendary: Game of Heroes. We saw about a 25% decrease in acquisition costs once we started scaling using our infrastructure, which is incredible because Legendary is a niche game that you’d expect to experience consistent increases in per-user acquisition costs over time as the addressable audience gets saturated.
And we are seeing a 10% increase in 7-day revenue using our dynamic content tool, which matches users with the content they’re most likely to enjoy based on various personal features.
The end result of this is that we close the LTV/CAC gap much more quickly than we otherwise would, which unlocks a substantial amount of incremental marketing spend.
Koetsier: What you’re building goes beyond tools, though. You’re actually providing cash to app makers to market their games. Talk about that model a bit, and why you chose it.
Seufert: We see the partnership program as a waypoint on the path to ultimately releasing our platform as a SaaS tool. But even for developers who can make great use of our tools, it can be slow and painful to scale on the basis of monthly profit re-investment.
And the opportunity cost of sitting idle when a game or travel app or dating app or whatever can be profitably grown is high: there’s almost no other investment that can generate the kind of risk-adjusted rate of return that a hit mobile app can, and the market reacts to outlier performance quickly. If you can amass a large user base on a product that monetizes well, you’re better off doing it very, very rapidly than in a slow, measured way just because good ideas get replicated almost instantaneously, at which point market entry and acquisition costs become prohibitively expensive.
Of course, the other marketing budget fundraising option available to developers is to sell equity, which is ultimately is the most expensive way to finance marketing if a product is successful.
So we see the partnership program as a great way of helping developers to scale their apps quickly without needing to give up equity in their businesses. Capital is an indispensable ingredient to success on mobile. There simply isn’t any way to systematically grow an app to appreciable scale on mobile that doesn’t involve paid marketing; paid user acquisition is the growth engine of any app. People get hung up on exceptional cases where an app took off because of virality, or they read way too much into app store optimization and organic discovery case studies, but if you look at the highest-grossing apps on the app store, that list has quite a bit of crossover with the list of companies spending the most money on paid media.
Koetsier: The industry is always changing, of course. Some are monetizing off Google Play for instance. What do you see as the major change factors in the next 1-2 years for mobile games?
Seufert: I’ve written pretty extensively about what I believe the next generation of app stores will look like as well as how the app economy has changed with the proliferation of new business models. The unifying theme behind a lot of the changes we’ve seen in the past 12-24 months is simply that a tremendous amount of value is being unlocked on mobile now despite the fact that mobile is a mature consumer technology category — it’s not an emerging force taking root anymore, it’s ubiquitous and very competitive. And yet an order of magnitude more value will be generated in the next 5 years from apps than was generated in the 2010-2015 timeframe, when mobile was the ascendent category of the technology zeitgeist.
For games specifically, the core mechanics of games are diversifying in ways that blur the lines between traditional video games with discrete characters, quests, narratives, achievements, progress, etc. and general models of interaction that can be productized to manifest what I called in my book Freemium Economics the 3 Cs of engagement: collaboration, communication, and competition.
Look at Trivia HQ: it’s a game, but it doesn’t look like Super Mario Brothers or Angry Birds or Clash of Clans. Ditto TikTok, or a lot of the apps from Voodoo Games, or Hooked. As monetization strategies and norms expand beyond the directly transactional IAP form, as they have with ads-monetized games and subscriptions, then more space is created for new and innovative game mechanics to be created that aren’t dependent on IAP-focused user behaviors.
So there’s a lot of excitement left to come in mobile, and by abstracting away the user acquisition infrastructure for developers in a way that isn’t dissimilar to how Amazon abstracted away the server management infrastructure for developers with AWS, we can play an important role in that value creation. I genuinely believe that user acquisition shouldn’t be something that a consumer product company should have to spend resources on: those companies should be exclusively, obsessively focused on building great, delightful products for their users.
Koetsier: You find an app that’s working really well, you go for it, and you invest in it … what level of investment in growth are we talking about here?
Seufert: We evaluate performance on the basis of return-on-ad-spend, and we’re dedicated a lot of time to building models that allow us to be very surgical with customer lifetime value projection. If we are able to spend profitably on an app, going back to the idea of opportunity cost and market timing, there would be no reason to not spend as much as possible on it.
In terms of putting a number to that, we spent many millions of dollars per month on Legendary over 2018 and wouldn’t hesitate to do that with partners’ apps so long as that scale was sustainable and profitable.
Koetsier: Thank you for your time!