Serious Business: 90% Of Revenue Comes From Virtual Goods

This week Jeremy Liew of Lightspeed Venture Partners (Liew will be speaking at our upcoming Engage! Expo taking place next month in New York City) posted an interview conducted by ThinkEquity gaming analyst Atul Bagga with the CEO of social game firm Serious Business, Siqi Chen. In the interview, Chen states that fully 90% of Serious Business's revenue is generated by sale of virtual goods in its published apps, which include major Facebook titles like Friends For Sale. Most of the company's virtual goods buyers are concentrated in the US, France, and Vietnam. 

Chen described the typical demographics of a Friends For Sale user as a Western person between 25 and 35 years of age. Of the company's virtual goods revenues, fully 90% are generated by direct sales of goods to users. Only 10% of its revenue is generated by offer-based or other indirect payment means. The 10% of the company's revenue not generated by virtual goods sales comes from brand advertising deals struck with companies like AppSavvy and AdNectar. 

According to Chen, his company strives to get its revenue generation as close to 100% direct payments as possible. Ad offers are included largely so that international users without credit cards have a way of paying for goods. Chen says that while ad offers may boost conversion, developers get less revenue from ad offer users than they do users who pay directly. While advertising was once a major part of Serious Business's revenue stream, Chen says that the company now wants to focus on direct payments instead. 

Chen concedes that ARPU is lower in social games than it is in more immersive MMORPGs, but feels the viral nature of social gaming allows sheer volume of users to make a major difference. While the conversion rate in Friends For Sale is only 1%, Chen says that some users are willing to spend thousands or even tens of thousands of dollars on the app. He says that ARPU for Friends For Sale works out to about $.45, simply because the app has so many users. 

When asked about his attitude toward Facebook Credits, Chen's tone is ambivalent. He says he's taking a wait-and-see approach to see if it takes off. The 30% revenue share that Facebook takes from a Credits transaction is much higher than that taken by other payment services, but some developers believe that Facebook's trusted name may boost conversion rates high enough to offset that. 

According to Chen, Serious Business employes 32 people– up from 20 a quarter ago, thanks to aggressive hiring. He states that the company is currently profitable. The company's next goal is to develop a breakout hit that can help grow the entire company, the way Mafia Wars grew Zynga and Pet Society grew Playfish. 

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