GaaS 101: Why User Forecasting is Better than Unit Forecasting
Games are becoming services and game studios and publishers that once were product companies have to learn to operate as a service. You should consider starting this transformation by changing your revenue forecast from a unit forecast to a user forecast.¹
Unit forecasts are traditional “price * quantity” forecasts. For example, you will sell 100 units at $5 a unit and make $500. In this model, you have two questions to answer: “How many units?” and “What is the average price per unit?” Unit volume forecasting is a function of demand, which you can approach from a historical,² comparable,³ installed base⁴ or a market share perspective.⁵ Good unit forecasts will do all four and then apply subjective judgement based on the quality of the game and general sales environment at the time of release.
However, for Games-as-a-Service (GaaS), there are only three business models: ads, subscriptions and transactions. All three start with the number of customers you have during any reporting period. In March of 2020, how many eyeballs will you have to sell to advertisers? How many subscribers will you have? What will your MAU (monthly active users) be and what percentage of them will buy an add-on?
You have three questions to answer with user forecasting: 1) how many new customers will I acquire?, 2) how many will I lose?, and 3) how much money can I make per user?
The mental shift from forecasting units to forecasting users is the heart of GaaS. It requires a new set of metrics (active users, churn or retention rates, customer lifetime value, average revenue per paying user (ARPPU), etc.) and focuses executive producers and product managers on retaining and acquiring players.
Putting the “user in the middle” changes a studio’s charter from “make a great game every couple of years,” to “ship experiences every week that engage, retain and convert players.” Your product and design leaders think more about the ongoing player experience and service quality improves.
Matt McCloskey believes that art and entertainment are intrinsically good for society and helps creatives make money. He has over 20 years experience in e-commerce, video games and video (AT&T, Xbox, Halo, Twitch).
[1] Why start a massive business transformation with a revenue forecast? Isn’t that super granular? Great companies start with customer needs, product design, market assessment, industry insight and getting great people on the bus. Revenue forecasting is what happens after we innovative and deliver the magic, right?
This is a product mentality. It is especially prevalent in the creative industries where the assumption is that the creatives make the magic, sales and marketing sell the magic, and then finance counts the money, in that order. The thinking goes that violation of this natural sequence will result in business failure, or much, much worse, mediocre art.
In a service mentality, you still need great features and value, don’t get me wrong. And you don’t want the business folks telling the creatives what to make — that does lead to mediocrity. But the pace of service releases, the changing dynamics of what folks need, and the “rule of the arrow” mean that product management needs to deeply understand the entire business model from release to money. Starting with money and working backwards is a great way to document and communicate your business so that product and creatives can make magic that sells.
[2] For a historical approach, you need history to look at, which you will only have if your game is in a franchise. How many units did you sell last time?
[3] Looking at comparable titles is similar to how your real estate agent will price your house. If you have good historical and third party sales data, you can look at those numbers by geography (how were sales in the US vs. Australia?), platform (console vs. PC) and seasonality (how much do games sell in March vs. November?). For many games, unit forecasting based on historical and comparable title sales, maybe viewed by multiple dimensions (geo, platform, seasonality) is as far as it goes.
[4] For console titles a lot of folks look at attach rates to consoles because it is viewed as a limiting factor to the market opportunity. How many console units are there, if there are only three units, you obviously can’t sell more than three units of the game assuming a 100% attach rate. “Socket” attach rate is important when you think demand for your game might outstrip the installed base. However, once there are more than 10M units of a console in the market, it is no longer a sales limitations for all but the biggest titles. With 10M+ sockets, demand for your title will be met before you run out of sockets.
[5] Market share forecasting is a when you estimate the total amount of software sales expected during the release window for your game and guess how much of that pie your game will take. A good methodology for doing that is to model how much of the pie the top selling games take. For example, if the number one game during the holiday on PS4 takes 35% of the total software sales for the month of December, and that title has always been GTA, Call of Duty or Fortnite, then you ask yourself, “will my title take the number one spot over these titles?” If not, you look at the number 2 spot, ask the same question, and so on until you find the ranked sales slot you are comfortable with.
