Games Are Finally Becoming Multi-Channel Businesses

Most consumer industries figured out multi-channel commerce a long time ago. Games are finally catching up. 

Consider LEGO. You can buy LEGO products directly from the company through its ecommerce site or one of its branded retail stores. You can also buy them through mass-market retailers, specialty toy stores and ecommerce platforms around the world. Each of those channels reaches customers in different ways and at different points in their relationship with the brand. Some provide reach and convenience. Others give LEGO greater control over the customer experience, access to its most engaged customers or the ability to create experiences that would be difficult to reproduce through a third party.

This is simply how a mature consumer company thinks about commerce. There is no expectation that every customer should buy through the same channel, nor is the success of one channel dependent on eliminating another. The company builds a portfolio of channels and learns how to use each of them effectively.

Games have spent much of the digital era operating differently, although there are good historical reasons for that. Digital distribution removed enormous amounts of friction from our business. Instead of managing physical manufacturing, inventory, distributors and retailers across dozens of markets, a publisher could suddenly reach a global audience through a relatively small number of digital platforms. Those platforms provided distribution, discovery, identity, payments, security and access to billions of consumers. It was one of the most important advances in the history of the game business, and much of the industry’s growth over the past two decades was enabled by it.

The efficiency of that model also created a significant concentration of commerce. For many game companies, the same platform could become the place where a player discovered the game, downloaded it, paid for content and maintained much of the commercial relationship surrounding it. We became very good at building businesses inside those ecosystems because, for a long time, doing so made enormous sense.

The conditions around that model are now changing. The game industry is more mature, growth is harder to find, user acquisition has become more expensive, and discovery has become increasingly difficult as more games and content compete for attention. Regulatory and legal changes are opening platforms to alternative forms of commerce, while game companies themselves have become considerably more sophisticated in areas such as CRM, LiveOps, community, loyalty, personalization and lifetime value. At the same time, there is a growing recognition that knowing who your players are and being able to build a lasting relationship with them has strategic value well beyond the transaction itself.

Taken together, these changes are pushing games toward a model that other consumer industries have used for decades: a diversified, multi-channel approach to commerce.

From One Channel to Many

Direct-to-consumer is an important part of this transition, but I think it is more useful to view D2C within the larger evolution of the industry’s commercial architecture. A web shop gives a game company another meaningful way to serve a player, just as branded retail and ecommerce give LEGO additional ways to serve its customers alongside its retail partners.

The recent numbers suggest that this additional channel can become substantial. DoubleDown Interactive reported that direct-to-consumer revenue reached $40.5 million in the second quarter, up from $10.7 million a year earlier, and now represents 52.4% of its social casino revenue. Ten Square Games has reported that D2C accounted for 20% of its overall bookings, while off-store purchases for its long-running free-to-play game Fishing Clash had reached 33%.

The significance of those examples extends beyond the percentages themselves. They show that a commercial relationship that once flowed overwhelmingly through a single type of channel can increasingly be distributed across several. A game can continue benefiting from the enormous reach, convenience and infrastructure of a platform while developing additional commercial relationships with portions of its audience elsewhere.

That is where I believe the conversation becomes more interesting. Once a company begins thinking in terms of multiple channels, the question shifts from where a transaction should occur to which channels are best suited to different players, markets and moments in the customer relationship.

A player who downloaded a mobile game yesterday may have little reason to interact with the publisher anywhere other than the platform. The platform experience is convenient, familiar and effective. Someone who has played that same game for three years may have a very different relationship with it. That player may respond to loyalty programs, direct offers, community experiences or other benefits designed for highly engaged customers. In another market, the important distinction may be access to preferred local payment methods. On PC, the distribution environment may be different again, while another player may first encounter the game through a creator, an affiliate or a community.

A multi-channel strategy gives a company the flexibility to serve those customers differently. Mature consumer businesses have been doing this for a long time because customer segments are rarely identical and the channels used to reach them do not all need to perform the same function.

The Player Across the Channels

There is an additional implication that I think is particularly important for games. As companies add channels, they also have to become better at understanding the player moving between them.

A player might discover a game on a platform, join its Discord community, watch one of its creators, make a purchase through a web shop, contact customer support and eventually move into another title from the same company. From the player’s perspective, all of those interactions are part of a relationship with the game or the company behind it. Internally, however, they can easily appear as unrelated events spread across different systems, teams and partners.

This is where multi-channel commerce begins to intersect with a much larger question about how game companies govern the player relationship. The ability to recognize an engaged customer, understand that customer’s history and create a coherent experience across multiple touchpoints becomes increasingly valuable as the number of channels grows.

Other consumer industries have spent years building capabilities around this problem. They developed CRM systems, loyalty programs, customer segmentation, attribution models and increasingly sophisticated ways of connecting online and offline commerce because the economics justified understanding the customer across the entire relationship. Games are now reaching a similar stage of maturity.

That does not mean every player needs to be pulled into a direct relationship or that every transaction needs to occur on infrastructure controlled by the publisher. There will continue to be customers who prefer the convenience of platforms, just as there are consumers who will always prefer buying LEGO at a retailer rather than visiting a LEGO store or ordering from LEGO.com. A diversified commercial model works precisely because it can accommodate those different preferences.

Commerce as a Business Architecture

This broader view of commerce is one of the reasons Commerce became one of the Five Pillars in Durable Advantage. Over the years, I have seen commerce in games discussed primarily through the lenses of monetization and payments. Those are obviously important, but as I researched the book I became increasingly interested in the larger system around them.

Every game business has an architecture through which economic value moves between the company and its players. Platforms are part of that architecture. Direct commerce can be part of it. Depending on the business, it can also include retail, marketplaces, alternative payment methods, subscriptions, loyalty programs, creators, affiliates and other channels that connect customers with the product.

The composition of that architecture affects more than revenue. It affects margin, customer access, data, pricing flexibility, geographic reach, resilience and the company’s ability to respond when market conditions change. It also determines how dependent the business is on any individual route to its customers.

One of the questions I pose in Durable Advantage is: If your largest platform partner changed its terms tomorrow, what would break?

I like that question because it is useful regardless of how good the relationship with that platform happens to be today. Platforms have created enormous value for the game industry and will continue to play an essential role in distribution, discovery, commerce and convenience. At the same time, any business that depends overwhelmingly on a single route to market inherits the economics, rules and strategic decisions of that channel.

A company with several healthy channels has more choices. It can reach different customer segments in different ways, experiment with new commercial models, respond to changes in regulation or platform policy and develop a deeper understanding of its most valuable customers. Over time, that optionality becomes part of the durability of the business.

Building the Multi-Channel Game Company

The next stage of this transition may prove considerably harder than opening web shops or adding payment options. As additional channels become meaningful, game companies have to learn how to operate them as parts of one commercial system.

Attribution becomes more complicated when a player is acquired in one place and ultimately transacts somewhere else. Marketing needs to understand the value it is creating across channels. LiveOps and merchandising need to coordinate offers without creating confusing or conflicting experiences. CRM needs a coherent understanding of the player, while product, commerce, community and customer support all need enough shared context to recognize that they are serving the same person.

This is a familiar challenge in other industries. As consumer businesses added retail, ecommerce, marketplaces, mobile, loyalty programs and other channels, they eventually discovered that simply operating more storefronts was not enough. The real advantage came from learning how those channels could work together around the customer.

I think games are now entering a similar period. The simplicity of concentrated digital distribution served this industry extremely well, but the forces shaping the business today are creating both the opportunity and the need for a more diversified approach. Regulation is creating more commercial flexibility. Discovery and user acquisition are making customer relationships more valuable. Better technology is making it possible to understand players across more touchpoints. A maturing industry is also placing greater emphasis on margin, efficiency, retention and lifetime value.

The result is likely to be a game business that looks increasingly familiar when compared with other mature consumer industries. Platforms will remain important. Direct commerce will continue to grow. Creators, communities, affiliates, marketplaces and other channels will play different roles depending on the game, geography and customer segment. The companies that develop the ability to orchestrate those channels will have more ways to reach players, more ways to understand them and more options when the environment inevitably changes.

For me, that is the larger story behind the growth of D2C in games. We are beginning to move beyond an era in which one dominant channel could define most of the commercial relationship with a player. The game industry is learning how to build businesses across multiple channels, just as other consumer industries did before us.

It is another sign that the business of games is growing up.