'Candy Crush' Was a Blockbuster; Can King Digital Capitalize?

Riccardo Zacconi is the co-founder and CEO of King Digital Entertainment, the video game company that quickly established itself as the world’s leading maker of casual games for mobile devices after the sensational success of its game “Candy Crush Saga.” He’s faced with the central question of whether and how to scale the company through an astronomical period of growth. Jeffrey Rayport discusses whether a single creative studio can scale to manage a portfolio of almost 200 games.

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Kenny: If you're familiar with "Bubblegum Troll," "Misty," "Odus," and "Mr. Yeti," and you know the difference between "Biscuit Bungalow" and "Marshmallow Mountains," you might be one of the 300 million or so monthly active players of "Candy Crush Saga," Activision's blockbuster mobile gaming app. According to mobile analytics firm Flurry, US consumers spend up to five hours per day on their mobile devices and 11 percent of that time is devoted to gaming. That translates to just over one billion hours of gaming each month. Nearly two-thirds of the population play video games but unlike console-based games, which skew decidedly young and male, the majority of mobile gamers are women, spanning generations from Gen X to Baby Boomers. Oh and by the way, they're the same group that controls two-thirds of consumer spending in American households.

So, just what does it take to capture the devotion of a fickle fan base in this fiercely competitive industry? Today, we'll hear from professor Jeffrey Rayport about his case study, King Digital Entertainment. I'm your host Brian Kenny and you're listening to Cold Call.

Kenny: Jeffrey Rayport is an expert in online media and eCommerce with a focus on new business opportunities enabled by emerging digital technologies. He's also on the faculty here at Harvard Business School. Jeffrey, thanks for joining us.

Rayport: Thank you for having me, Brian.

Kenny: I am going to admit off the bat that I am not a mobile gamer. But I do observe people everywhere I go, staring at their phones. It doesn't matter what they're doing. They could be crossing the street, driving, they're staring at their phones and I suspect many of them may be playing games of one kind or another. Are you a mobile gamer?

Rayport: I'm definitely not a mobile gamer. I don't fit the demographic at all.

Kenny: I enjoyed the case a lot and it did prompt me to download "Candy Crush Saga," just so I could be a little more informed about that game. Can you tell us who's the protagonist in this case and what's on their mind?

Rayport: The protagonist is a very interesting Italian guy named Riccardo Zacconi, who lives in London, is an expat there, who started the company there almost 15 years ago as a company called Midasplayer. Midasplayer evolved in its early years on the brink of bankruptcy to become King Digital Entertainment. King Digital Entertainment, as you just said, was an interesting attempt to create games but in a very different world from the one you just described. Meaning it started in that first generation of web portals 15 years ago, moved onto the social networks for the rise of, first, MySpace and then Facebook. It ultimately made the pivot to the mobile space, to mobile casual gaming, which is where it developed the blockbuster "Candy Crush," which put the company on the map.

Kenny: Mobile casual gaming is the term that they use for this [gaming market segment.] What prompted you to write the case?

Rayport: I met Riccardo Zacconi in the context of a tech founder's conference that meets in London every year called Founders Forum. He was a guy who'd been at it for some time, had clearly captured lightening in a bottle. And maybe the most dramatic thing was it was hard not to know him. That was the time that King Digital Entertainment went public in London; it was the largest tech IPO in history for that financial market. It was a controversial IPO because it traded down on the very day it debuted. At the same time, it established between a $6 and $7 billion market cap for the company in a space that very few people understood.

Kenny: Online casual gaming—this is a pretty fierce business.

Rayport: Very fierce, and in a way it's a business that would appear from the outside to defy all economic logic. What I mean by that is that the gaming industry is huge. It's a $100 billion global industry today, which to put that in perspective is about five times the size of Hollywood as an industry. It's a massive industry but it's driven by companies likes Activision, Blizzard, and Electronic Arts, who are so-called game publishers. Game publishers make big, expensive editions that used to be sold as shrink-wrapped software off shelves.

Now, they're obviously digital downloads. But they were designed to be played on either consoles like Xbox, Sony PlayStation, or Nintendo, or to be played on PCs. The idea that you could establish a casual gaming franchise, let alone casual mobile, was entirely counter intuitive to the industry for a very important business reason.

Whereas EA and Activision are able to charge a lot of money for that big game, "Call of Duty," "Halo," big hits like those, mobile casual games are free. And they're not only free but you can ... move up through every single level in the game without ever spending a dime. This idea that you take a high commitment product with a big upfront retail purchase price and turn it into freeware--which is designed to be infosnacking entertainment, as the lingo goes--using smartphones, mobile devices... That defies economic logic for the simple reason that the industry looked at that and said, "I get it. You get viral uptake for a hit game. What I don't get is how you could build a profit model?"

Kenny: So how do they make money?

Rayport: A lot of people in the online space talk about the freemium model, in which you build very, very large audiences of free users and you offer them ... an opportunity to upgrade to some kind of pro version. This allows you to get either more memory or more functionality or a more robust version of the streaming offer as a software service. The question becomes for that pro version, what does a pro version look like in a mobile and casual space?

In this industry, freemium is called freeto play. Literally, you are free to use and sample and consume the entire product. But if you want certain benefits associated with play, either up level your presence in the game, buy more game time, acquire enhancements--these are weapons in these oriented games—it's just an advantage in game play that you're acquiring. You spend money inside the game.

So, King has this fascinating model where, as you said at the outset, 300 million people play Candy Crush every month. Roughly speaking about half a billion play King's games. King has a portfolio of 180 mobile casual games. Daily active users showing up in a 24 hour time period between 200 and 250 million for all of King's games. The issue then becomes, if you've got a quarter billion people showing up, playing free, how do you convert some percentage of them based on a high level of game engagement such that they want to access additional benefits inside the gaming environment and spend hard dollars against that?

Kenny: King found interesting ways to do this. I want to go back to the topic of women being sort of the anthesis to the console of these games, which is mostly young men. These games have really found an audience of women that like to play them and are enthusiastic participants. How did King take advantage of that?

Rayport: In effect, King did what we talk about in our classrooms, which is that one way to compete in business is go figure out who the rival firms are and outdo them. But maybe the clever way to do it is actually find competitive white space in the market and go dominate it. King essentially recognized that when games moved from web portals originally to social platforms, to mobile devices, what was happening was that the audience composition on the mobile platform would be fundamentally different. And it would be fundamentally different from the world of PCs and consoles. They in effect developed a new market by making these games sufficiently magnetic for people wanting to play only a few minutes a day in short bursts...

"Maybe the clever way to do it is actually find competitive white space in the market and go dominate it"

This was not high commitment appointment television. It was actually, "I'm waiting for a bus. I'm getting on a train. I'm standing in the grocery line. I've got 45 seconds where I can play a game like this." It turned out that the people who had that interstitial time in great abundance was a middle aged female audience, owning smartphones and looking for ways to fill in those gaps in their lives with interesting, challenging, stimulating activity.

Kenny: And there was obviously a sufficient level of addictiveness to these games, where you could shut it off and go right back to where you left off.

Rayport: Yes. Riccardo described these games as easy to play but hard to master. They appeal to certain aspirational tendencies in players, which was that it wasn't just enough to be entertained. Everyone wants to go somewhere in the course of any experience and usually it's up and to the right. It's greater mastery but the greater mastery did not come easily.

Kenny: The rapid growth that King experienced was astonishing to read about. I'm just curious, what kind of a leader is able to help an organization scale to that extent? What were some of the challenges they encountered along the way?

Rayport: We framed the case around the question of should he sell the company to Activision? and, spoiler alert, he did sell the company. The price tag was $6 billion dollars. It was a munificent exit and there's some tension around that because many people would look at a multi-billion dollar exit and say, "Well, isn't it pretty obvious that the answer's going to be yes?"

On the other hand, the tech world is filled with examples and counter examples of companies that either sold just in the nick of time before their valuation imploded, or sold too early. Think a YouTube to Google in 2006 for $1.7 billion. If YouTube were a standalone media company today, it'd be worth about $70 billion. Think about Instagram, the sale to Facebook for about a billion dollars. Standalone today, $35, $40 billion market cap company. So, question here was, could Riccardo continue to scale this company as effectively as he had done through this astronomical pace of growth? Or was it now the time in effect to take some chips off the table?

Kenny: How do you land on a Candy Crush, I guess. That's the other question that's addressed in the case is, how many ideas do you have to generate to get to that one, that's going to have the magic ingredient that Candy Crush had?

Rayport: Well, it is an absolutely great question, maybe the critical question. My first attraction to this business was the fact that, by anyone's standard definition, this is a creative business. Gaming, like Hollywood, belongs in the creative industries. So, the question whenever you're trying to do creativity at scale is that perhaps very business school-like query: Can you industrialize creative processes? Can you engineer art? Can you take creative people and produce more or less predictable outcomes, meaning create a hit machine like the Warner Studio's system in the 1930s and 40s, or the focus on sequels of blockbusters in Hollywood today?

The thing that's fascinating about this company was that they started in a small market. But a market as you know Brian is ripe with talent for building gaming companies, which is Scandinavia and this case in Stockholm. But the minute they began to grow from five to 10 to 15, 20 gaming franchises, the question is could a single creative studio actually scale to manage a portfolio of 180 games, especially when one of them is a mammoth hit like Candy Crush?

What the company demonstrated is that there are certain hotspots around the world that have a finite amount of human talent. Literally, a finite number of people who even if you could hire everyone with game-creating talent or the kind of creativity that goes into an entertainment business like this, you'd actually max out the market. What they discovered was that, first in Stockholm, then in Malmo, London, Barcelona, Berlin, Seattle and Singapore, they basically moved to a massively parallel processing system of game studios, operating side-by-side in different theaters of the world.

They're essentially running the experiments that your question implied. Meaning, if you got 80 to 90 people in seven different studios in every time zone of the world, working in parallel to come up with new ideas, and you have an environment in which half a billion human beings show up every month to play your games. By introducing that audience to new games, engaging in cross promotion, awareness building, fueling virality among players, you have a massive base of, in a sense, human factors that you experiment to tell you whether an idea has legs or it doesn't.

In a way for us the biggest insight here was, one, this industrialization of creativity and the parallel processing that the multiple game studios implied. But the other is that nothing this company does is based on right-brain intuition. So much as everything is measurable. Everything is susceptible to analysis. Everything is in effect, a data analytics challenge to identify that one winner out of a 1,000 losers and put resources behind that game.

Kenny: I assume you met with Riccardo in the writing of this case?

Rayport: We met with him several times in London.

Kenny: What is his leadership style? What is he like?

Rayport: The fascinating thing is that he's an immensely analytic guy. I mean, he has an MBA. Before becoming an entrepreneur he was a consultant. Interestingly, every single person across 15 or 20 top executive leadership jobs ... there is not a single one of those executive leaders who doesn't have a background in economics, control, accounting, analytics, consulting, including Sebastian Knutsson who is the Chief Creative Officer at King.

Kenny: It's not what you'd expect from a company that has a game called Candy Crush Saga.

Rayport: Not at all. And you could then argue that these guys are brilliant at building addictions for this new-to-gaming audience of female gamers because they are like all of the big tech platforms in Silicon Valley. They've taken an intensely analytic approach to optimizing game play and game experience to build addiction with these properties over time.

Kenny: Yeah. Yeah. Have you discussed the case in class?

"They've taken an intensely analytic approach to optimizing game play and game experience to build addiction with these properties over time"

Rayport: We have done it in class. We've done it with groups of alums. Actually, I was recently talking to a group of 150 alums at an HBS gathering in Berlin, which was fascinating.

Kenny: What kind of reaction you get? I'm interested actually in how MBA students think about this case versus how executives in the executive education program or alumni program might think about?

Rayport: Well, it's certainly true, whether we're dealing in my experience, we're dealing with MBA students or executives. The first, the knee jerk reaction to this is, how could this business be so valuable and by the way, because it's free to play, how do I convince myself through analysis of the case that there's actually a business story here at all? It is a remarkable thing to think about Activision writing a $6 billion check for this business. To put that number in perspective, that's 50 percent more than Disney paid for Lucasfilm, which owns the Star Wars franchise.

Kenny: It's amazing.

Rayport: It's an amazing achievement in terms of the creation of value. But the thing that is fascinating and I guess has become the crux of the discussions with both students and executives is the realization that what drives this model is that a very small percentage of those hundreds of millions of free-to-play players do convert to paying customers. The number is between 3 and 4 percent from the data we were able to glean in putting the case study together. The mind blowing thing is that of those 4 percent of the 500 million who've converted into paying customers, they spend on average $17.32 a month inside the game.

Understanding that has been a source of great fascination, especially for the MBA audiences because the question is, all right, what ultimately controls both revenue, productivity, and profitability in the business? What percentage across a total vast population base of humans who were engaged, at what rate do you convert them to paying users and how long can you keep them around in that high engagement mode?

Kenny: I think I'm going to have to start playing online casual games. I've got to get involved in this now.

Rayport: I'm on my way to becoming addicted. I just can't claim that I'm there yet.

Kenny: There we go. Jeffrey, thank you so much for joining us today.

Rayport: Brian, it's been a real pleasure.

Kenny: I'm your host Brian Kenny and you've been listening to Cold Call.

Transcription edited for length and clarity. Interview recorded January 9, 2018.

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Kenny: If you're familiar with "Bubblegum Troll," "Misty," "Odus," and "Mr. Yeti," and you know the difference between "Biscuit Bungalow" and "Marshmallow Mountains," you might be one of the 300 million or so monthly active players of "Candy Crush Saga," Activision's blockbuster mobile gaming app. According to mobile analytics firm Flurry, US consumers spend up to five hours per day on their mobile devices and 11 percent of that time is devoted to gaming. That translates to just over one billion hours of gaming each month. Nearly two-thirds of the population play video games but unlike console-based games, which skew decidedly young and male, the majority of mobile gamers are women, spanning generations from Gen X to Baby Boomers. Oh and by the way, they're the same group that controls two-thirds of consumer spending in American households.

So, just what does it take to capture the devotion of a fickle fan base in this fiercely competitive industry? Today, we'll hear from professor Jeffrey Rayport about his case study, King Digital Entertainment. I'm your host Brian Kenny and you're listening to Cold Call.

Kenny: Jeffrey Rayport is an expert in online media and eCommerce with a focus on new business opportunities enabled by emerging digital technologies. He's also on the faculty here at Harvard Business School. Jeffrey, thanks for joining us.

Rayport: Thank you for having me, Brian.

Kenny: I am going to admit off the bat that I am not a mobile gamer. But I do observe people everywhere I go, staring at their phones. It doesn't matter what they're doing. They could be crossing the street, driving, they're staring at their phones and I suspect many of them may be playing games of one kind or another. Are you a mobile gamer?

Rayport: I'm definitely not a mobile gamer. I don't fit the demographic at all.

Kenny: I enjoyed the case a lot and it did prompt me to download "Candy Crush Saga," just so I could be a little more informed about that game. Can you tell us who's the protagonist in this case and what's on their mind?

Rayport: The protagonist is a very interesting Italian guy named Riccardo Zacconi, who lives in London, is an expat there, who started the company there almost 15 years ago as a company called Midasplayer. Midasplayer evolved in its early years on the brink of bankruptcy to become King Digital Entertainment. King Digital Entertainment, as you just said, was an interesting attempt to create games but in a very different world from the one you just described. Meaning it started in that first generation of web portals 15 years ago, moved onto the social networks for the rise of, first, MySpace and then Facebook. It ultimately made the pivot to the mobile space, to mobile casual gaming, which is where it developed the blockbuster "Candy Crush," which put the company on the map.

Kenny: Mobile casual gaming is the term that they use for this [gaming market segment.] What prompted you to write the case?

Rayport: I met Riccardo Zacconi in the context of a tech founder's conference that meets in London every year called Founders Forum. He was a guy who'd been at it for some time, had clearly captured lightening in a bottle. And maybe the most dramatic thing was it was hard not to know him. That was the time that King Digital Entertainment went public in London; it was the largest tech IPO in history for that financial market. It was a controversial IPO because it traded down on the very day it debuted. At the same time, it established between a $6 and $7 billion market cap for the company in a space that very few people understood.

Kenny: Online casual gaming—this is a pretty fierce business.

Rayport: Very fierce, and in a way it's a business that would appear from the outside to defy all economic logic. What I mean by that is that the gaming industry is huge. It's a $100 billion global industry today, which to put that in perspective is about five times the size of Hollywood as an industry. It's a massive industry but it's driven by companies likes Activision, Blizzard, and Electronic Arts, who are so-called game publishers. Game publishers make big, expensive editions that used to be sold as shrink-wrapped software off shelves.

Now, they're obviously digital downloads. But they were designed to be played on either consoles like Xbox, Sony PlayStation, or Nintendo, or to be played on PCs. The idea that you could establish a casual gaming franchise, let alone casual mobile, was entirely counter intuitive to the industry for a very important business reason.

Whereas EA and Activision are able to charge a lot of money for that big game, "Call of Duty," "Halo," big hits like those, mobile casual games are free. And they're not only free but you can ... move up through every single level in the game without ever spending a dime. This idea that you take a high commitment product with a big upfront retail purchase price and turn it into freeware--which is designed to be infosnacking entertainment, as the lingo goes--using smartphones, mobile devices... That defies economic logic for the simple reason that the industry looked at that and said, "I get it. You get viral uptake for a hit game. What I don't get is how you could build a profit model?"

Kenny: So how do they make money?

Rayport: A lot of people in the online space talk about the freemium model, in which you build very, very large audiences of free users and you offer them ... an opportunity to upgrade to some kind of pro version. This allows you to get either more memory or more functionality or a more robust version of the streaming offer as a software service. The question becomes for that pro version, what does a pro version look like in a mobile and casual space?

In this industry, freemium is called freeto play. Literally, you are free to use and sample and consume the entire product. But if you want certain benefits associated with play, either up level your presence in the game, buy more game time, acquire enhancements--these are weapons in these oriented games—it's just an advantage in game play that you're acquiring. You spend money inside the game.

So, King has this fascinating model where, as you said at the outset, 300 million people play Candy Crush every month. Roughly speaking about half a billion play King's games. King has a portfolio of 180 mobile casual games. Daily active users showing up in a 24 hour time period between 200 and 250 million for all of King's games. The issue then becomes, if you've got a quarter billion people showing up, playing free, how do you convert some percentage of them based on a high level of game engagement such that they want to access additional benefits inside the gaming environment and spend hard dollars against that?

Kenny: King found interesting ways to do this. I want to go back to the topic of women being sort of the anthesis to the console of these games, which is mostly young men. These games have really found an audience of women that like to play them and are enthusiastic participants. How did King take advantage of that?

Rayport: In effect, King did what we talk about in our classrooms, which is that one way to compete in business is go figure out who the rival firms are and outdo them. But maybe the clever way to do it is actually find competitive white space in the market and go dominate it. King essentially recognized that when games moved from web portals originally to social platforms, to mobile devices, what was happening was that the audience composition on the mobile platform would be fundamentally different. And it would be fundamentally different from the world of PCs and consoles. They in effect developed a new market by making these games sufficiently magnetic for people wanting to play only a few minutes a day in short bursts...

"Maybe the clever way to do it is actually find competitive white space in the market and go dominate it"

This was not high commitment appointment television. It was actually, "I'm waiting for a bus. I'm getting on a train. I'm standing in the grocery line. I've got 45 seconds where I can play a game like this." It turned out that the people who had that interstitial time in great abundance was a middle aged female audience, owning smartphones and looking for ways to fill in those gaps in their lives with interesting, challenging, stimulating activity.

Kenny: And there was obviously a sufficient level of addictiveness to these games, where you could shut it off and go right back to where you left off.

Rayport: Yes. Riccardo described these games as easy to play but hard to master. They appeal to certain aspirational tendencies in players, which was that it wasn't just enough to be entertained. Everyone wants to go somewhere in the course of any experience and usually it's up and to the right. It's greater mastery but the greater mastery did not come easily.

Kenny: The rapid growth that King experienced was astonishing to read about. I'm just curious, what kind of a leader is able to help an organization scale to that extent? What were some of the challenges they encountered along the way?

Rayport: We framed the case around the question of should he sell the company to Activision? and, spoiler alert, he did sell the company. The price tag was $6 billion dollars. It was a munificent exit and there's some tension around that because many people would look at a multi-billion dollar exit and say, "Well, isn't it pretty obvious that the answer's going to be yes?"

On the other hand, the tech world is filled with examples and counter examples of companies that either sold just in the nick of time before their valuation imploded, or sold too early. Think a YouTube to Google in 2006 for $1.7 billion. If YouTube were a standalone media company today, it'd be worth about $70 billion. Think about Instagram, the sale to Facebook for about a billion dollars. Standalone today, $35, $40 billion market cap company. So, question here was, could Riccardo continue to scale this company as effectively as he had done through this astronomical pace of growth? Or was it now the time in effect to take some chips off the table?

Kenny: How do you land on a Candy Crush, I guess. That's the other question that's addressed in the case is, how many ideas do you have to generate to get to that one, that's going to have the magic ingredient that Candy Crush had?

Rayport: Well, it is an absolutely great question, maybe the critical question. My first attraction to this business was the fact that, by anyone's standard definition, this is a creative business. Gaming, like Hollywood, belongs in the creative industries. So, the question whenever you're trying to do creativity at scale is that perhaps very business school-like query: Can you industrialize creative processes? Can you engineer art? Can you take creative people and produce more or less predictable outcomes, meaning create a hit machine like the Warner Studio's system in the 1930s and 40s, or the focus on sequels of blockbusters in Hollywood today?

The thing that's fascinating about this company was that they started in a small market. But a market as you know Brian is ripe with talent for building gaming companies, which is Scandinavia and this case in Stockholm. But the minute they began to grow from five to 10 to 15, 20 gaming franchises, the question is could a single creative studio actually scale to manage a portfolio of 180 games, especially when one of them is a mammoth hit like Candy Crush?

What the company demonstrated is that there are certain hotspots around the world that have a finite amount of human talent. Literally, a finite number of people who even if you could hire everyone with game-creating talent or the kind of creativity that goes into an entertainment business like this, you'd actually max out the market. What they discovered was that, first in Stockholm, then in Malmo, London, Barcelona, Berlin, Seattle and Singapore, they basically moved to a massively parallel processing system of game studios, operating side-by-side in different theaters of the world.

They're essentially running the experiments that your question implied. Meaning, if you got 80 to 90 people in seven different studios in every time zone of the world, working in parallel to come up with new ideas, and you have an environment in which half a billion human beings show up every month to play your games. By introducing that audience to new games, engaging in cross promotion, awareness building, fueling virality among players, you have a massive base of, in a sense, human factors that you experiment to tell you whether an idea has legs or it doesn't.

In a way for us the biggest insight here was, one, this industrialization of creativity and the parallel processing that the multiple game studios implied. But the other is that nothing this company does is based on right-brain intuition. So much as everything is measurable. Everything is susceptible to analysis. Everything is in effect, a data analytics challenge to identify that one winner out of a 1,000 losers and put resources behind that game.

Kenny: I assume you met with Riccardo in the writing of this case?

Rayport: We met with him several times in London.

Kenny: What is his leadership style? What is he like?

Rayport: The fascinating thing is that he's an immensely analytic guy. I mean, he has an MBA. Before becoming an entrepreneur he was a consultant. Interestingly, every single person across 15 or 20 top executive leadership jobs ... there is not a single one of those executive leaders who doesn't have a background in economics, control, accounting, analytics, consulting, including Sebastian Knutsson who is the Chief Creative Officer at King.

Kenny: It's not what you'd expect from a company that has a game called Candy Crush Saga.

Rayport: Not at all. And you could then argue that these guys are brilliant at building addictions for this new-to-gaming audience of female gamers because they are like all of the big tech platforms in Silicon Valley. They've taken an intensely analytic approach to optimizing game play and game experience to build addiction with these properties over time.

Kenny: Yeah. Yeah. Have you discussed the case in class?

"They've taken an intensely analytic approach to optimizing game play and game experience to build addiction with these properties over time"

Rayport: We have done it in class. We've done it with groups of alums. Actually, I was recently talking to a group of 150 alums at an HBS gathering in Berlin, which was fascinating.

Kenny: What kind of reaction you get? I'm interested actually in how MBA students think about this case versus how executives in the executive education program or alumni program might think about?

Rayport: Well, it's certainly true, whether we're dealing in my experience, we're dealing with MBA students or executives. The first, the knee jerk reaction to this is, how could this business be so valuable and by the way, because it's free to play, how do I convince myself through analysis of the case that there's actually a business story here at all? It is a remarkable thing to think about Activision writing a $6 billion check for this business. To put that number in perspective, that's 50 percent more than Disney paid for Lucasfilm, which owns the Star Wars franchise.

Kenny: It's amazing.

Rayport: It's an amazing achievement in terms of the creation of value. But the thing that is fascinating and I guess has become the crux of the discussions with both students and executives is the realization that what drives this model is that a very small percentage of those hundreds of millions of free-to-play players do convert to paying customers. The number is between 3 and 4 percent from the data we were able to glean in putting the case study together. The mind blowing thing is that of those 4 percent of the 500 million who've converted into paying customers, they spend on average $17.32 a month inside the game.

Understanding that has been a source of great fascination, especially for the MBA audiences because the question is, all right, what ultimately controls both revenue, productivity, and profitability in the business? What percentage across a total vast population base of humans who were engaged, at what rate do you convert them to paying users and how long can you keep them around in that high engagement mode?

Kenny: I think I'm going to have to start playing online casual games. I've got to get involved in this now.

Rayport: I'm on my way to becoming addicted. I just can't claim that I'm there yet.

Kenny: There we go. Jeffrey, thank you so much for joining us today.

Rayport: Brian, it's been a real pleasure.

Kenny: I'm your host Brian Kenny and you've been listening to Cold Call.

Transcription edited for length and clarity. Interview recorded January 9, 2018.

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