2013 may be noted as the year that free-to-play mobile gaming matured from adolescence. The abundant optimism enshrouding the industry at the end of 2012 dissipated somewhat over the course of the year, revealing harsh and sobering realities: while the market’s top developers emerged as billion dollar companies and set new high watermarks for the revenue potential of hit games, they also raised the table stakes for participating.
Significant marketing costs mean that small studios are not only at an incredible disadvantage relative to larger (and better funded) studios, they may be priced out of the market entirely. And the commoditization of mobile analytics platforms, along with the maturation of the mobile advertising space, means that inefficiencies (and thus opportunities for small studios to create and exploit competitive advantages) are being rapidly stamped out. Freemium mobile games development is becoming a function of three things: money, time, and talent, all of which favor large, established developers.
An enormous amount of money is needed to develop and market a mobile game; a recent GamesBrief discussion pegged the cost of launching (development and marketing) a game capable of reaching the higher ranks of a platform’s Top Grossing chart at around $1MM. Few studios have access to this level of capital; VC investment into freemium mobile gaming companies slowed substantially in 2013 and isn’t likely to pick up in 2014. A number of mobile gaming publishers have emerged to fill the capital void, but most publishing agreements generally only cover marketing costs – leaving the studio to shoulder the upfront costs of development. This dynamic self-selects for games that are quick to develop, lack depth, and are unlikely to become hits.
Related to money (but also somewhat oblique to it) is time. Very few hit games become hits quickly; rather, they are soft-launched and improved upon in iterations for months, increasing the total length of the development cycle. This isn’t a design choice, it’s a necessity: launch marketing campaigns (which can represent up to half of the cost of developing a mobile game) are put into jeopardy if a game’s retention and monetization metrics have not been certified in the crucible of the app store.
And this necessity – the elongated development cycle that includes months of soft launch testing, tweaking, and polishing – is a luxury that only the most patient, self-assured, and credible developers can afford. Small upstart studios with dwindling bank accounts don’t have time; heavily funded studios with impatient investors don’t have time; developers launching games through a publisher overseeing a portfolio of tens or even hundreds of games don’t have time. Time is a luxury only developers with impeccable track records and deep pockets enjoy.
And lastly, access to talent is perhaps the most profound impediment to creating successful mobile free-to-play games. Talent, in this sense, means not only the people directly involved in creating games – artists, product designers, programmers, etc. – but also the people involved with managing services, as free-to-play games are. Assembling the full team needed to develop, launch, and manage a free-to-play game is a difficult balancing and pacing act for a small studio: user acquisition specialists and data analysts are only needed by the time of soft launch, but hiring them can take months; marketing needs are very difficult to forecast and thus marketing teams can’t (or, rather, shouldn’t) be scaled up quickly until a studio is managing a portfolio of games; expensive data and analysis platforms only make economic sense once a studio’s revenues reach a certain point, but they’re needed from the point of launch; etc.
These problems create a vicious cycle: a small studio outsources all elements of operating a free-to-play game that aren’t directly related to game development but then never builds core competencies in those areas, creating a dependency on third-party services and tools that inhibit the studio’s ability to grow.
But even if a studio were able to expertly time the gauntlet of building out a full team capable of developing and managing a free-to-play game (read: service), experts with deep and relevant experience in many roles are in incredibly short supply. How many PMs have launched a successful (Top 20 grossing) free-to-play game? How many user acquisition specialists have experience in marketing free-to-play games, specifically? How many mobile product managers have a deep understanding of the freemium paradigm? And how many of these people across this expertise spectrum are currently unemployed or seeking a new job – at the same time?
But 2014 does offer glimmers of hope for small studios, especially if their ambitions are less lofty than reaching the upper echelons of the App Store’s Top Grossing chart. Plain Vanilla and Dirtybit recently proved that strong virality can be an inexpensive yet satisfactory substitute for aggressive user acquisition campaigns in assembling a large user base. And ZeptoLab, with Cut the Rope 2, proved that – with considerable featuring – a well-produced paid game can still perform well in the Top Grossing charts.
That said, here are five pithy predictions for mobile gaming in 2014:
- VC investment into mobile gaming companies will remain well below 2011 levels, but M&A in 2014 will continue to increase, spurred on by the growth and importance of Asian markets;
- Public companies: Zynga, dogged by declining MAUs and bookings but with $1.2BN in current assets on its balance sheet, will acquire a high-profile studio. GLU, having beaten estimates in Q3 2013 as a result of its success with Deer Hunter 2014, will achieve similar results with its upcoming Eternity Warriors 3, which has been live in Canada since early November;
- Further consolidation will take place in the mobile metrics-as-a-service and analytics space (following the merger of PlayHaven and Kontagent), as the largest platform operators, such as Facebook and Amazon, continue the push to commingle analytics with their platform environments;
- Increased marketing costs. The concentrated success of a handful of apps, as well as the shift of marketing budgets from desktop to mobile, will continue to drive prices up;
- At least one IPO in the space, as growth in Asia and durable, provable monetization strategies restore investor confidence.
(See last year’s predictions for 2013 here: 2013 Predictions for Mobile Gaming)