In its second-largest acquisition, Amazon buys the company for $970 million.
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My Game Space is rooted in Big Fish executives’ realization in 2005 that they were spending a lot of money each month to acquire new customers. “It was getting increasingly difficult to get a healthy return on every dollar spent. We were approaching a plateau where one dollar spent only returned one dollar,” Thelen says.
Big Fish was mesmerized by the success of social networking sites such as MySpace and YouTube. “They were really taking off with almost no money spent as far as generating traffic,” Thelen says. But after conducting surveys and focus groups, Big Fish executives were surprised to find their Internet--literate customers had a different view of social networking from adolescents and college students who like to see their own pictures online. “Almost 0% of our users participate in MySpace and YouTube. In our demographic, 75% are over age 35 and 75% are female. They are not the MySpace crowd,” Thelen says.
Big Fish customers said they like keeping in touch with their friends and sharing their passion for casual video games, however, so the company decided to establish an online forum for exchanging such information. The project took 14 months to develop and since September, more than 250,000 customers have created their own online sites. And they have invited more than 1.3 million new customers to Big Fish Games, Thelen adds, more than half of whom came in March and April.
Analyze this investment
The company’s foray into social networking results from its business model. “Big Fish has a hardcore focus on analytics-based marketing,” Thelen says. “Every month we have 15 or 20 different ways to spend money, then once we’ve invested in some we analyze how the projects returned on the investment. If they produce, we expand them aggressively. If not, we either change them or cut them out completely.”
Big Fish also pays My Game Space customers for referring friends to the site and has an -affiliate or distribution partner plan for customers with their own web sites. Under the patent-pending program, individual customers and those with web sites can earn rewards such as free games or a 25% payment to themselves or a designated charity. When Big Fish realized some of the biggest reward payouts were going to customers using My Game Space as a pseudo web site, they developed new technology to exploit the opportunity.
Big Fish developed tools including XML feeds and turnkey game web sites that affiliates can easily deploy to get a game site on their URL, Thelen says. For its efforts, the last step-downloading or buying-goes through Big Fish and the company captures the customer information. The e-retailer then pays the site owner who generated the referral.
The program appeals to partners for several reasons. For one, the referral fees continue as long as a partner’s referred customer continues to buy games from Big Fish, as opposed to many affiliate programs that run for a set period of time, Thelen says.
A sound model
The company’s ability to pay such a high bounty is unprecedented, Thelen contends, and stems from its high gross margins. Thelen attributes high margins to Big Fish’s sales volume from customers who average 10 game purchases a year compared to the industry norm of 1.8. High-quality, reasonably priced games help keep customers coming back, which is critical to growth. “You can’t grow 180% a year with new customers alone. You have to retain many of them and we are very good at retaining customers and partners,” he says.
Big Fish Games has plans for new products this year, such as free games for price-sensitive customers. Other plans are under wraps. The 2007 financial outlook? Sunny, Thelen says. “Looking forward, the model is sound. The trick is acquiring new customers,” he says.