Andrew Chen Archives

Subscribe · Featured · Recent · The Cold Start Problem 📘
Dear readers, I have moved to Substack and I will be writing here from now on:
In the meantime, I will leave up for posterity. Enjoy!

Ignore Cougars, Follow the Money: 3 social gaming tips for monetizing younger users

Welcome to part two of a series of articles from Gambit, a microtransactions platform – you can read the first post here. In the last article, we discussed the average revenues earned from various demographics, and this article touches on implications in product strategy. The author, Susan Su (@susanfsu), is a writer, marketer, and Stanford alum who’s currently at Gambit Payments. Please comment with any questions, and enjoy! –Andrew

Susan Su Profile Photo 80x80

Ignore Cougars, Follow the Money: 3 social gaming tips for monetizing younger users
by Susan Su, Gambit Payments

Lately, we’ve all heard a lot about the middle-aged housewife. She’s an adult, she’s got disposable income and a couple of credit cards, probably even a PayPal account. In her leisure time, she sits at home and plays social games with her Facebook friends, possibly instead of going out to a movie. She buys virtual goods with real money while you fill your Olympic-sized swimming pool with gold coins.

This is a great bedtime story to fall asleep to, but would you feel so relaxed if you knew you were leaving millions of dollars on the table?

Age is only one factor
In a previous post, we looked at user age as a factor in a game’s overall revenue. We took a bird’s eye view of average revenue per paying user (ARPPU) by age and transaction volume, and saw that older users – the middle-aged housewife (or husband) – brought in ARPPUs that were 2 or 3 times as much as ARPPUs for younger users. Because of low transaction volumes, however, older users represented little more than a tiny speck of total revenues across the developers in the dataset. It became clear that age data – and even ARPPUs – meant little without the context of volume.

On the other end of the ARPPU spectrum, younger users delivered ARPPUs that were fairly unsexy and unvarying, ranging from $2.58 for 16 and 17 year olds to $3.07 for users aged 20 to 29. However, users aged 14 to 29 together make up 91.5% of the total userbase for the virtual goods industry.

A $2.58 ARPPU doesn’t look so bad when you’re selling to millions of users. The massive transaction volumes associated with teens and 20-somethings aligns directly with this group’s share of total revenue across a sample of nearly 2 million virtual goods users. How massive? Over 93%. That is, users in their teens and twenties bring in over 93% of all revenue seen across all games, for all developers in the sample. Even though ARPPUs are consistently modest, transaction volume – and with it, total revenues – are jaw-dropping.

Younger users are cheap, plentiful, and worth your attention.

Percent Total Rev By Age
Given these figures, what’s a developer to do?

For starters, don’t ignore your younger users. It’s true that there will always be transaction and ARPPU variation based on the game you’re building, what you’re interested in, and what resources you have available, but it’s clear that younger users are still the major players across the board. There are hordes of them, and they’re eager to engage in lots of transactions.

Get Them Young: 3 tips to monetize younger users

1. Think volume. Look for the users who are transacting the most, and then make sure you understand exactly who they are (and how they might be changing). For example, today your revenue may be driven by a massive group of teenagers, but what will happen when those teens become 20-somethings? In this series, we explored this question by age, but you’ll also want to think about geography, language, and gender. ‘Think volume’ means:

  • Mind your game. If your product is subpar, you shouldn’t expect amazing volumes or revenues, no matter how much you…
  • Focus on growing traffic through virality. How can you make your game even more social, more addictive, and more spreadable?
  • Get users to complete. Users are 3 times as likely to make additonal payments if they’ve completed at least one offer.

2. Hold on to your users. People of all ages get tired of games easily. The last thing you need is a poor user experience to push users over the edge and straight into the database of a competitor. Do certain offers just rankle your userbase (leading to poor conversions, bountiful complaints, and churn)? While your payments solution’s algorithms will help you find the best offers for your users, there are always going to be a couple that just don’t perform. ‘Hold on to your users’ means:

  • Pick out and remove underperforming offers, either individually or by offer category, and address customer complaints. For example, ‘adult’ offers may not work well if your game’s users are primarily 13-17 year olds.
  • Diversify your product(s). How can you enrich a single game to be more complex and engaging? How can you offer more complementary games so when a user defects, she defects to another game in your suite?

3. Keep your eye on empty spaces. Yes, Facebook is huge. Yes, Zynga is dominating. But, growth potential is everywhere still. As more users of all ages sign up for their first Facebook accounts, more people pour into the virtual economy. As Facebook grows in locales outside the U.S., so do the games and apps that inhabit its ecosystem. As users get tired of specific games, they’ll start looking for other places to spend their time and money. They’ll probably invite their friends, too. ‘Keep your eye on empty spaces’ means:

  • Don’t make a play just because someone else is making bank off of it (for now). Today’s leaders got there because they kept their eyes on empty spaces and filled them, quickly.
  • Look for under-monetized user groups. How well is your game doing with young males? Can you work in a way for more of these users to complete their first offer (and open the door to additional payments)?

These should be your main considerations:

What does the growth trajectory look like for young users? How many of these users are already playing games, and how many more aren’t? The online casual games industry is still young and has plenty of room for growth.

Facebook boasts 300 million active users, with almost a third of these in the U.S. Since the entire population of the United States is just over 300 million, that means approximately half of all U.S. internet users, or a third of the entire U.S. population, are on Facebook.* Facebook counts 70% of users as having ‘engaged with a Platform application,’ meaning that most users have loaded an app of some sort at some point in their Facebook time. Judging by the impressive monthly active uniques the biggest developers are enjoying (51MM for Zynga’s Farmville alone), it seems that games have already taken off on the network. With all this, is there still room to grow?

Yes. Here’s why:

  • Facebook has saturated the U.S. market, but that doesn’t mean every Facebook user is playing a game. Yet.
  • The U.S. isn’t the only country in the world, either. In terms of Facebook traffic growth rates, the U.S. doesn’t even make it into the top 10. As other economies (real and virtual) catch up, markets around the world should start looking more and more promising for developers looking to monetize.
  • People get tired of games. One developer’s churn is another developer’s new user.

As mentioned above, younger users contribute the lion’s share of total revenue for virtual transactions – for now. However, Facebook reports that the 35 and up group is their fastest growing demographic, so will we see this shift reflected in game usage and monetization too? Probably. But until the older users reach critical mass on the network, would you rather be competing hard for the same handful of housewives or slyly going for the many younger users at lower ARPPUs and massively higher transaction volumes?

Changing ARPPUs
Do ARPPUs change as users get older? Will your 15 year old user be worth more after she turns 18, gets a better job, and starts opting for direct payment over offers? We know that the typical 18 year old makes you more money than the typical 15 year old, so from this we might guess that it will pay off to hold onto that user as she ages.

15 $2.65
18 $2.92
22 $2.82
25 $2.99
29 $3.33

Older users
Should you try to grow your older userbase? As just mentioned, Facebook’s fastest-growing demographic is the 35 and up set. While actively trying to acquire these users (over others) may divert your resources in ways you can’t afford, it’s likely that your game will indirectly absorb the benefits of Facebook’s demographic growth anyway. If everyone else is focusing on winning the middle-aged housewife segment, would you be better off stealthily (and expertly) acquiring the forgotten younger users? Try it. Measure it. Report back.

In parting, don’t buy into a ‘must do’ (eg. housewives) just because it’s popular today. Popularity doesn’t mean it’s wrong, but it does probably mean that lots of other developers are out there thinking the same thing as you. Instead, look at the data and focus your work where the greatest opportunity currently blossoms. Right now, that’s users who are in their teens and mid-20s.

If you’ve been targeting and you’re seeing interesting results, please share in the comments. What’s worked for you, and what would you do if you were a new developer just entering the marketing today?

For specific questions on data or resources, you can contact Susan here or follow her on Twitter at @susanfsu.

Want more articles?
If you liked this post, please subscribe or follow me on Twitter. You can also find more essays here.

* has great stats and visualizations on Facebook traffic and growth.

PS. Get new updates/analysis on tech and startups

I write a high-quality, weekly newsletter covering what's happening in Silicon Valley, focused on startups, marketing, and mobile.

Views expressed in “content” (including posts, podcasts, videos) linked on this website or posted in social media and other platforms (collectively, “content distribution outlets”) are my own and are not the views of AH Capital Management, L.L.C. (“a16z”) or its respective affiliates. AH Capital Management is an investment adviser registered with the Securities and Exchange Commission. Registration as an investment adviser does not imply any special skill or training. The posts are not directed to any investors or potential investors, and do not constitute an offer to sell -- or a solicitation of an offer to buy -- any securities, and may not be used or relied upon in evaluating the merits of any investment.

The content should not be construed as or relied upon in any manner as investment, legal, tax, or other advice. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment. Any projections, estimates, forecasts, targets, prospects and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Any charts provided here are for informational purposes only, and should not be relied upon when making any investment decision. Certain information contained in here has been obtained from third-party sources. While taken from sources believed to be reliable, I have not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. The content speaks only as of the date indicated.

Under no circumstances should any posts or other information provided on this website -- or on associated content distribution outlets -- be construed as an offer soliciting the purchase or sale of any security or interest in any pooled investment vehicle sponsored, discussed, or mentioned by a16z personnel. Nor should it be construed as an offer to provide investment advisory services; an offer to invest in an a16z-managed pooled investment vehicle will be made separately and only by means of the confidential offering documents of the specific pooled investment vehicles -- which should be read in their entirety, and only to those who, among other requirements, meet certain qualifications under federal securities laws. Such investors, defined as accredited investors and qualified purchasers, are generally deemed capable of evaluating the merits and risks of prospective investments and financial matters. There can be no assurances that a16z’s investment objectives will be achieved or investment strategies will be successful. Any investment in a vehicle managed by a16z involves a high degree of risk including the risk that the entire amount invested is lost. Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by a16z and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by a16z is available at Excluded from this list are investments for which the issuer has not provided permission for a16z to disclose publicly as well as unannounced investments in publicly traded digital assets. Past results of Andreessen Horowitz’s investments, pooled investment vehicles, or investment strategies are not necessarily indicative of future results. Please see for additional important information.