This article, written by AJ Glasser was first published on Inside Network on July 13, 2011.
Late yesterday at GamesBeat in San Francisco, game company accelerator YetiZen led a panel with top social and mobile game investors on the evolving dynamic of funding in the space. Norwest Venture Partners’ Tim Chang, Digi-Capital Managing Director Tim Merel and TinyCo CEO Suli Ali characterize an industry that’s both converging and expanding on a global scale.
“[Developers] need to think globally from day one,” says Merel. As an investor, he looks for developers that either offer a portfolio of existing games or that already have access to various channels in different countries. These companies have proven traction and very likely also have plans for multiple revenue streams beyond in-game virtual goods sales. He describes the potential behind Rovio’s Angry Birds, which now has a line of t-shirts and stuffed animals generating revenues in addition to actual paid downloads of the game. He also describes the nature of game concepts that can succeed in international markets versus those that have limited appeal due to cultural association; like the various Chinese multiplayer games based on the Three Kingdoms historical period that fail to find traction with Western audiences.
“There is a danger of false positives,” warns Chang. He talks about how many developers create a “red herring” for investors by basing annual revenue expectations on peak traffic months when there are no guarantees that the developer can retain those users, let alone monetize them. This is especially true of copycat games or developers that reskin their original game without investing resources into distribution channels.
Ali was particularly critical of copycat games as well, saying that scale comes from a game’s theme or virality or production quality. He looks for teams that understand both the business of games and the actual fun behind games. He also sees much greater potential in mobile versus social because the nature of mobile phones more closely resembles handheld consoles like the PlayStation Portable or Nintendo DS — things that core gamers are used to. Ali thinks that there’s tremendous potential for developers targeting this segment on mobile, as well as targeting the female audience.
As for the future of the market beyond global expansion, each panelist agrees that developers have to find a way of being on multiple platforms while still maintaining the same product so that players can access their games at any time from any device.
Chang gets more specific by describing some areas where he expects to see new ideas emerging. He sees the social and mobile markets narrowing daily active users bases to create higher average revenue per DAU. He describes a possible “mid-core” market for games emerging on mobile, likening it to Kabam’s success with Kingdoms of Camelot on Facebook. He also predicts that as HTML5 matures, the Asian massively multiplayer freemium games previously limited to download clients may find a new audience. On mobile, he sees potential in music games and gamification of health and fitness.
More interestingly, Chang speculates that the youth gaming market will take off, especially on tablets — he asks if anyone has ever seen a screaming baby quieted by having an iPad shoved in its hands. He also points out that despite all motions toward cross-platform cross-promotion that developers have been making recently, nobody has yet figured out how to trigger an app install based on a Facebook news feed story. That would be some serious scalability.