1 Jul 2021

Monetize Your Start-up with Machine Learning

Yash Patel

General Partner

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By Yash Patel, Telstra Ventures

 

I’m going to let you in on a little-known secret. 

If you want to grow or monetize your start-up, look at the companies that leverage a gaming mindset. The next Uber or Snapchat might look like a game studio, employing the best user acquisition, retention, and revenue strategies learned from the gaming industry. The broader game industry has become more prominent than the movie and music industries combined. The world’s 2.7 billion gamers will spend $159.3 Billion on games in 2020; the market will surpass $200 Billion by 2023.

The new economy is beginning to adopt a gaming mindset. And it’s leveraging data science strategies, Machine Learning (ML), and Artificial Intelligence (AI) to do so. 

 

The data science of user acquisition.

The beauty of gaming is that it is multi-dimensional. You can be a Tetris player, a bubble shooter, or Solitaire player one day, and a Nascar racing driver, NBA player, or Fortnite player the next. The diversity in the types of games that are out there is endless. And it’s no longer just ‘hardcore gamers’ and teenagers playing. They’re people like my wife and my older neighbors across the road. They play mobile games or stream on Twitch. That’s why the user acquisition space is so significant – you can acquire users at a very granular level and then serve them with highly targeted ads and content in a very authentic way.

 

There’s a massive economy and market built around user acquisition.

How would a company attempt to acquire a customer in the physical world? They might put up a billboard or an ad in a high-traffic area to reach a broad, potential audience. How would you get that same audience in the gaming world? 

There’s ample opportunity to link a physical identity with a potential customer’s same digital identity. The way to do this is through data science. If you log in via Facebook or Google into a game or online platform, then you can identify who that person is. Some stochastic models provide insights around user demographics that we want to acquire, retain, and ultimately monetize. However – just because you know my identity on Facebook doesn’t mean that I will react the same way you expect me to. That is where the data science and A/B testing to understand user behavior is so important.

 

How do you acquire the right user and the right place at the right time?

It involves programmatic ad network integration, attribution models, and a ton of data collection and analysis. This helps you understand how to complement your customer acquisition efforts and make sure that they’re more effective over time. Then you can identify where that user is – perhaps it is in the East Bay of the San Francisco Bay Area. These data insights highlight strong retention characteristics and revenue opportunities, so you double down your user acquisition spend. There’s a ton of ad testing done with gaming companies, and testing begins to get automated. 

 

Retention through machine learning 

The retention piece is fascinating because it ties very closely with the best product management and design practices in gaming. Companies like Airbnb use heatmap analytics within their product to decide what feature they should roll out next, based on how customers are using the product or which buttons they click on the most. The critical part here is understanding why people click on particular buttons and user flows that then lead to ideal outcomes – like in-app purchases or viewing an ad.

Machine learning helps figure out why, when, and how users interact with a specific game and then optimize for it. The machine learning aspect is critical to attracting the attention of potential investors. 

 

Monetization 

How you monetize is only truly useful when you know who you’re acquiring. Once you identify a user with a high value based on data analysis and machine learning, you can work with that user to ultimately optimize the product experience. For example, when you understand user behavior and preference, you can determine which ad the user should get, when, or which in-app virtual item or subscription plan to present for purchase.

 

Monetize in an authentic way

There are many ways to monetize your app through ads via Google, Facebook, Unity, etc. But increasingly, we’re seeing alternative ways to monetize in a more authentic way. Offering cash prizes in gaming competitions help to drive an uptick in retention and engagement and allows developers to take a cut of each transaction. Today, being a professional gamer can be lucrative, with gaming competitions held worldwide and tens of thousands to millions of dollars up for grabs as prizes. The prize pool for a Dota 2 tournament, for example, reached over USD 34 million.

We even saw the International Olympic Committee explore ways to include eSports in the Olympic Movement.

 

Who has a Gaming mindset today?

FitOn, a recent investment of Telstra Ventures, is an LA-based startup that gamifies personal fitness through social workouts with celebrity trainers. During lockdown 2020, FitOn grew 200% in workouts, sign-ups, and friends exercising together. Members racked up 60 million workout minutes in May alone. FitOn has also signed a global partnership with Weight Watchers to promote the wellness app across its five million+ subscribers.

Another one is the Canadian start-up Snapcommerce, a company in our portfolio. They have a data science team that has developed an AI chatbot and only sells hotel rooms through messaging platforms like Facebook Messenger, WhatsApp, and SMS. They’re using data science to automate the critical function of A/B testing around user engagement and acquisition. The data and analytics they produce around click-through rates, geographies, and insights into user demographics and retention statistics are phenomenal. They are among the fastest-growing companies in our portfolio. 

Competitive mobile games maker Skillz and online gaming platform, Mobile Premier League – both in our portfolio – are growing.

Like most gaming companies, Skillz’s revenue has boomed due to COVID-19, with people turning to games during lockdowns. Skillz’s platform can turn any mobile game on iOS or Android into one where users can play with friends or strangers for cash, prizes, or points. 

 

Where to next?

Game publishers are architecting very complex, intelligent systems. They’re doing this to reach new users and acquire them across digital platforms, engage and retain them. Then they can monetize them all at scale with very low latency and in a very authentic way. 

 

We see the rest of the world adopting a gaming mindset. 

Whether you’re a fitness, retail, airline, investor, or bank – you need to establish a robust digital experience. You’ll also likely need a mobile experience and app.  Architect your back-end infrastructure and your front end-user experience in a way that, frankly, gaming companies have perfected.