Social gaming companies "make money" by bringing in more revenue then they spend in expenses. There are several ways that they could choose to bring in revenue:
1. Charging Users to play You may have a free version as a marketing strategy to get people to pay to play. Often the pay version includes essential or desired features which are not in the free version. the costs associated with delivery and support of the free version are marketing expenses. The ration of people who upgrade to the commercial is the conversion rate and allows you to calculate an Return-on-Investment (ROI) on your marketing efforts.
2. Selling related items to users Develop a strong brand and there is an opportunity to sell associated "trickets and trash" that allow your social gammmers to proclaim their affinity for your game.
3. Selling access to the users to advertisers Advertisers are interested in access to people who will purchase their products. If your game's user fit the target market for their product, the advertisers will want to promote themselves on your platform. from website advertising, to embedded advertising or sponsorship, there is an almost unlimited number of ways for you to sell access to your users.
4. Selling information about the users to data companies Perhaps you can collect they type of information about your game's users that a data company will want to purchase. Behavioral data of users forms the foundation of many marketing and advertising reports that companies pay big money for. The data is collected somewhere.
Some of these will fit your company, your vision and values. Others may not.
Each of these have costs associated with them. these costs are the direct expenses associated with the revenue. the difference is your margin. From the margin is your company overhead, marketing, and development. If the margin is low then total revenue will need to be very high to cover the overhead/marketing/development.
Which ever combination of these potential revenue streams you choose -- that will be your business model. As you deploy your product and find people to purchase it, or advertisers to promote within it you will learn more. You will learn which of these work and which don't for your unique market segment. You will also learn which have the margin to support your continued endeavors. As you learn the model will change.
So pick one that closely matches the other games that appeal to the same market you are in-- and get building so that you have something real to work with, and not just ideas on a Q&A board!
The common business model applied in this kind of start-ups is arbitrage. you sell premium items and services that don't incur in significant additional costs for you.
A generally small part (1-3%) of your user base buy them. that's what is called conversion rate.
In brief an app generating USD30/month per 1000users is on the right track, the best apps are doing USD100/month per 1000users.
This presentation from RockYou explains it very well.
Hope it helps you.
@Tim: Business model questions are pretty related to start-ups in my opinion.
Tim's answer to Any ideas for making money with QA sites? question is valuable for me:
Other obvious answers are:It leads me some ideas:
- you have a huge set of customer that are already paying for products or services and a SE Q&A site is the cheapest overall cost. It reduces overhead so profits are higher.
- you tie it to another part of your business/site/service as a feature/way to create a community.
Thank you, Tim.