It wasn’t long ago that people questioned whether start-ups could produce big outcomes and generate superior returns in Europe. Not any more. Europe is proving to be particularly adept at creating venture-backed category leaders in the gaming space.
King.com, which is rumored to have filed for an IPO giving the company a valuation of between $5 billion and $7 billion, and Israeli gaming companies such as Plarium, Playtika and 888 have become strong global players by putting their IP on the Facebook platform.
Then there is Supercell, which just sold 51% of its shares to SoftBank and GungHo for $1.5 billion. The Finnish gaming company had the fastest revenue growth of any start-up Accel Partners has ever invested in worldwide. That is saying something given Accel’s track record — it is an investor in Facebook, Wonga, Qliktech and Rovio.
Supercell’s success can be partly attributed to its tablet-first approach. But an important ingredient is the fact that the founders all knew each other and had worked in the sector for years. Ilkka Paananen, one of six co-founders of Supercell, was the founder of Sumea, which developed games like Yo Yo Fighter which were distributed via mobile operators such as Vodafone, O2, Orange, AT&T, T-Mobile and Cingular. Sumea was sold to Digital Chocolate in 2004 and Paananen served as the acquiring company’s CEO for six years. In 2010 he quit Digital Chocolate and rounded up a team of people from gaming developers like Remedy Entertainment.
Nordeus, a fast-growing gaming company based in Belgrade that makes a social game that enables people to run their own football clubs, was also formed by tight-knit industry veterans. The founders went to school together and later worked at Microsoft together. “The first 20 people at the company were all people we knew or our friends did,” says CEO Branko Milutinović. Team loyalty runs deep, an ingredient that he and others say is missing in Silicon Valley, where people move from job to job for perks and higher salaries.
“European gaming developers work together for a lot longer” agrees Mind Candy founder Michael Acton Smith. He points out that “the core team at King.com have been going for over a decade.”
Milutinović says he believes that Europeans have another advantage: since there is a need to go global from day one they spend a lot of time and energy adapting their products to local markets. Nordeus, which has five million daily users, is available in 40 languages. And it accepts whatever payment works in local markets. In the U.S. and Canada it is PayPal. In other markets people pay via SMS message, by buying vouchers at a kiosk or via all kinds of varied credit systems, he says.
Turkey’s Peak Games also localizes: it offers both digital and mobile versions of traditional Turkish board, card and tabletop games and Western games adapted for Turkey and Arabic-speaking companies. It has 12 million daily users in Turkey and the Middle East and is growing rapidly. Its phenomenal growth puts it in the same league as some of the home runs of the tech world: it claims to have reached its first 10 million users in just 270 days, much faster than it took Twitter and Facebook to reach those numbers. The quick traction helped Peak Games, which now has about 150 employees and 50 contractors based in Turkey, Jordan and Saudi Arabia, to raise $30 million from investors that include Earlybird Venture Capital, Hummingbird Ventures, Endeavor Catalyst and an investor from the Middle East.
Both Nordeus and Peak Games report huge spikes in the number of mobile users. Peak Games’s most successful games — which are offered over both the Android and iOS platforms — already earn more than half of their revenues from mobile. Nordeus reports that mobile is growing 300% to 500%.
The danger, for any of these companies — and the reason why some investors don’t like the space — is that fans are fickle. A game that is number one on the IPad or the iPhone one week may fall out of favor the next.
Finland’s Rovio, the company behind Angry Birds, and the U.K.’s Mind Candy are trying to insulate themselves by concentrating on building the global entertainment companies of the future.
Other European gaming companies are following suit. Russia’s ZeptoLab, the maker of Cut The Rope, has extended its franchise into toys, board games, clothing and online entertainment. And Sweden’s Mojang, the maker of the popular Minecraft game, released a Lego set based on the game. It also collaborates with an online game merchandise store to sell Minecraft merchandise, such as clothing, foam pickaxes, and toys crafted to look like the creatures in the game. And, in March of this year, Mojang signed a deal with a children’s book publisher to create Minecraft posters, books, and magazines.
The parallel with Disney’s business model is apt, says Mind Candy founder Acton Smith. The difference, he explains, is that from day one, Mind Candy — and its Moshi Monsters franchise — was built with digital at the heart. After launching an album, toys, trading cards, clothing, movies and TV shows Mind Candy, which has about 85 million registered users, is focusing on building new IP. It wants to launch new brands into new demographics on new platforms, says Acton Smith. “It is a very exciting way to create longevity.”