With the rise of mobile gaming on smartphones and tablets leading many to predict the death of the console, the race is on for new entrants to find a business model that can turn candy-crazed monsters, angry birds and banana-seeking monkeys into revenue and big profits.
The pie to be split among the winners is huge. The mobile games market will be worth $16.8 billion in 2015, almost double 2011’s figure, according to a report published last year by technology consultancy Gartner.
While premium models show promise, most games developers are betting on the freemium model – you get a taste for free but pay if you want the full experience or to buy virtual goods. Alternatively, you can play for free and pay if you want the ads to disappear.
Much depends on the audience. “With our demographics you can’t market through Facebook, Twitter, or email,” says Dublin Web Summit speaker Dylan Collins, chairman of Fight My Monster, an online game targeting kids under 13 that launched last year and is closing in on 2 million users. The game can be played for free but paying users gain access to special features. “We rely on word of month, literally kids on playgrounds talking to each other. It’s also difficult because the parents are paying for everything.”
While start-ups are still fine-tuning their business models European gaming companies have been particularly adept at monetizing, say investors. Two of the most popular games on the iPhone – Angry Birds and Cut the Rope — were created here and Europe has also given rise to global stars like Moshi Monsters, Wooga, King.dom, Playfish and Gameforge.
A new generation of young companies is scaling very quickly. Take the case of Finnish game developer Supercell, which raised $12 million in funding in May of last year for its social gaming business. Accel Partners, an investor in Rovio and Gameforge, led the round and Klaas Kersting, founder of Gameforge and chief executive of Flaregames, also participated. Supercell “went from zero to revenues compatible with a company about to IPO in just four months,” notes Max Niederhofer, a partner at Accel Partners. “These companies are growing so big so quickly,” he says. “Ten million users is the new one million users.”
As new forms of gaming catch on, traditional players like Electronic Arts are embracing new models. The company has bought several companies in the social and mobile space, including London-based social gaming developer Playfish, UK mobile games publisher Chillingo, and PopCap.
EA says it isn’t worried about the death of the console. The future is less about which device people will use and more about the actual content, says Peter Parmenter, Head of New Platforms & Director. Worldwide OEM for EA. With people expecting to be able to play their games anywhere, anytime, the choice of device will vary, with phones used for the “quick fix” and tablets, consoles or PCs for longer periods of play.
While just a few years ago it seemed a given that consoles and computers would continue to be the choice of hardcore gamers, in the last year the rise of the tablet has put even that into doubt.
“In four or five years your iPad very likely will have enough processing power to replace large devices like the PC or Xbox,” says Aman Ghei, an associate at Accel Partners in London who sits on the board of Supercell and works closely with several smaller mobile games companies. What’s more, “developers will make more money from their game on the iPad than on the iPhone because people are willing to pay more on the iPad than on the iPhone,” he says. “The iPhone is snacking and the iPad is more like dinner. Usually people will pay more for dinner than for snacks.”
It is no wonder, then, that traditional players like EA and new entrants alike are now designing games for multiple devices. For example, EA SPORTS FIFA 12, a best-selling sports videogame launched last year across 12 platforms; so far, it has registered more than 86 million players worldwide.
ZeptoLab co-founder and technical director Efim Voinov, (pictured here with his twin brother), contends that the technology gap between consoles and mobile devices will continue to diminish as the freemium model fuels competition that leads to better mobile games.
Reaping Revenues from Physical World Goods
One interesting trend is how digital games are reaping revenues from goods in the physical world. Like many of its competitors, Fight My Monster has turned to selling physical goods to add to its revenue stream. The developers recently signed a deal with Striker Entertainment, the company that helped Angry Birds creator Rovio roll out a variety of merchandise.
Moshi Monsters, a virtual pet and social networking game with 65 million users created by Mind Candy, founded by Michael Acton Smith, a scheduled speaker at the Dublin Web Summit, has been particularly successful in the offline world. It makes money selling toys, membership and trading cards; publishes a kids' magazine in the UK; and has even released an album.
ZeptoLab, maker of Cut the Rope, is another game developer with a thriving business in stuffed animals and other gadgets. The company also has a free digital Cut the Rope comic book that helps build brand awareness.
While that model now seems to be the norm, Kiip, a California-based start-up, has come up with an interesting twist on bridging the on-line and off-line worlds. It offers coupons for offline rewards when users pass a level on a game, such as running five miles, or reach “a moment of happiness,” as Brian Wong, the co-founder and CEO, puts it. Kiip in July received $11 million in funding from Relay Ventures, bringing the total raised so far to $15.5 million.
“Whenever there are massive amounts of eyeballs there is opportunity for advertising,” says Wong, 21, a Canadian who moved to California after finishing university at the age of 18.
Gaming is no exception. “Companies had just brought banner ads over from larger digital platforms,” says Wong, a scheduled Dublin Web Summit speaker. “With all the tech developed by the human race the only thing people could think to do was take a billboard and shrink it to tiny screen and put it on the phone.”
The idea behind Kiip is to give people a reward in the way of a coupon at the time that an advertisement is normally shown. Users do not do anything; the coupon just pops up and if redeemed Kiip and the developer share a payment from the business accepting the coupon, which in turn gets a new customer. Kiip is on 500 apps for iOS and Android devices and has signed up large retailers including Starbucks and Best Buy.
Kiip’s approach is proof that there are plenty of ways to redeem value from digital gaming. In the race to find new business models the game is clearly not over yet.
– Jennifer L. Schenker contributed reporting to this article