ACQUISITION VS RETENTION
towards existing players and improve churn rates don’t manage to become Rockets, and remain at the Running-in-Place stage, experiencing low or negative growth after a short ramp-up period.
Healthy Grown-Ups: These are companies with a
five-year CAGR between 20% and 60% and that have been around for over 7 years. These companies usually possess significant market share in their respective industries and have managed to continually acquire new players while keeping retention rates high. In our sample, the typical Healthy Grown-Ups derive 60% to 80% of their revenue from existing players, and 70% of them had over 70% of revenue coming from existing players. The success of these companies can be attributed
to their low churn rates and high “new-to-active” player conversion rates. The average churn rate in this segment was 60% lower than the sample churn rate average. When companies reach a significant volume of active users, the churn rate becomes a critical factor in maintaining growth, because player churn rates can easily overtake new player acquisition rates. These companies have also optimized their player acquisition processes and are bringing in the right kinds of players, keeping “new-to-active” conversions well above their industry averages.
phase. A new, growing company must remember to nurture its new players, and bear in mind that driving 90% of revenue from new players could be a red flag. Our research further suggests that for gaming operators, this can be an ongoing concern even past the growth stage. Many operators cater to niche markets, where players are prone to new player behavior even if they repeat their business because the frequency of engagement is inherently low. Operators should be aware of this predicament and try to incite their existing players to increase engagement by varying product lines and offers within the niche where possible. 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. For operators, this sometimes requires spinning out into new brands to bring in new blood, especially if the original brand can no longer attract new players. Rebranding offerings for new target audiences by rethinking key attributes that affect these audiences may afford a path to the hearts of new audiences and new generations, creating a far healthier revenue mix.
Old Cash Cows: Like the Running-in-Place group,
Old Cash Cows show stagnated growth or declining revenues over the past three to five years, with a five year CAGR equal to or lower than 2%. However, they differ significantly in their player revenue mix and cause of stagnation. The typical Old Cash Cow in our sample derives 90% or more of its revenue from existing players. While on the surface this appears to indicate healthy, recurring revenue, the fact is that even the most loyal players eventually churn or reduce their spend levels and that churn levels of these companies are usually lower than the average. An old player base is therefore highly risky: even if these companies are still making a lot of money, sooner or later they get the reputation (true or not) of being non-innovative or outdated. And with a limited number of new players joining, the road to declining revenue may be short.
Conclusion There are several typical new:existing player
revenue ratios that online operators should be aware of as they grow their business, and these ratios depend highly on the specific company’s growth
56 OCTOBER 2016
Finally, identifying the new:existing player revenue mix is only the tip of the iceberg as far as a company’s growth strategy is concerned. Two companies with the same revenue mix may tell very different stories and drive growth in very different ways. A quick example might be two companies that both derive 75% of revenue from existing players. One might be acquiring many new players and converting only a small portion of them to active and loyal players, while the other may choose a more focused acquisition strategy, acquiring a smaller number of new players, but turning a larger portion of them into loyal, long-time players. 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.
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