Voodoo, the French gaming company, raised an estimated $200MM in funding from Goldman Sachs’ private equity arm in May 2018. At the time, Voodoo had effectively displaced Ketchapp, one of the originators of the hypercasual genre, on the Top Downloaded charts: after being acquired by Ubisoft in 2016, Ketchapp simply stopped producing top downloaded games. As of this writing, Voodoo has nine games in the Top 100 downloaded charts to Ketchapp’s 0.
But Voodoo doesn’t own the hypercasual games genre to the degree it once did: competition from SayGames, Lion Studios, Good Job Games, et al has splintered market share across multiple publishers. And while the market for hypercasual games very well may be the entire smartphone owning population of the world, the appetite for mobile ad inventory in these games isn’t as extensive. I outline below three reasons why I believe the hypercasual games genre has peaked, with Voodoo’s $200MM fund raise in May 2018 serving as the high water mark for the category.
Fast follow has become too fast
With Unity and now #NoCode tools like Apponboard’s Buildbox, a hypercasual game can be designed, built, and deployed within a matter of days. And while this has always been the case, what has been brought to the market in the surge of the hypercasual games genre is a programmatic approach to finding and quickly cloning the best performing hypercasual games. Tools like SensorTower, AppAnnie, and to some degree, the Facebook Ads Library allow advertisers to scan live ads to see where their competitors are allocating budget; through automation, advertisers can follow the deployment of new ads, estimate spend on them, and quickly clone concepts that are deemed to have been promoted by their competitors from testing into a wider release*.
Competitive intelligence is important across the entire gaming market, but the turnaround times with hypercasual game development mean that effective market attention is essentially the only competitive advantage that a hypercasual gaming studio needs: the games themselves are commodities, ad monetization is straightforward to optimize, especially with in-app header bidding solutions that bring unified auctions to each impression, and marketing for hypercasual games tends to not require much targeting or audience development since these games aren’t successful if they don’t appeal to huge, broad audiences**.
But with these games so easy to clone and deploy, and with expertise in competitive intelligence the only barrier to market entry, will the market become so splintered that valuations plummet for even the largest hypercasual publishers?
Ad networks (and Facebook, via its audience network) love hypercasual game studios because they bring new games to market multiple times per month (in some cases, per week). The most successful of these games — the ones that perform the best in a testing phase — are promoted via cross promotion and paid advertising and quickly acquire very high DAU, meaning a very large amount of new inventory is available for them to sell. Ad networks very much prefer new inventory — that is, inventory in new apps — to old inventory because new inventory is of unknown value, hasn’t been vetted by advertisers, and thus must be explored: the ad network must fill that inventory with advertisers’ ads and charge them on a CPM basis to test if the placements convert.
Of course, hypercasual games generally perform very poorly for almost all advertisers, and as soon as advertisers have visibility into what this new inventory from a newly-launched game is worth to them, they very quickly blacklist (stop advertising in) that site (the specific game) and no longer buy inventory from it. But that doesn’t necessarily impact the hypercasual gaming studio’s revenue, as it will launch another game the next week that must likewise be explored and the advertiser will again have to blacklist it. This game of whack-a-mole is the business model of hypercasual: to continuously publish new titles that very quickly aggregate large DAU-bases and sell that inventory at a premium because it is new.
And while the best advertisers now blanket-blacklist hypercasual studios, hypercasual advertisers themselves do not. It’s impossible to know what the extent of this is, but the hypercasual games market does feel propped up by internecine traffic trading: hypercasual studios buying traffic from other hypercasual games and hoping that they can monetize it for more money than it was purchased. But given the point above, this market inefficiency can’t last forever: once the market becomes splintered enough and the tools that publishers use to optimize advertising placements are commoditized enough, these arbitrage opportunities will evaporate.
As somewhat of a corollary to the second point, the growth of programmatic media buying on mobile is bringing a level of transparency to mobile user acquisition that is inimical to the hypercasual category, which generally relies on advertising revenue exclusively as a monetization mechanic.
With programmatic, advertisers don’t buy traffic on a cohort basis but rather target specific users for whom they have historical monetization data. Some of these users exist in hypercasual games, to be sure, but as an infinitesimally small proportion of the overall user base, the entirety of which hypercasual studios are now able to monetize via the dynamic described above.
What’s worse than being blacklisted? Being ignored completely because the best, highest-monetizing users simply don’t play your games. As mobile user acquisition increasingly shifts to more transparent and user-based targeting for non-SAN traffic, hypercasual games might simply become irrelevant.
*One anecdote on this point: a few weeks ago, a debate raged in the Mobile Dev Memo Slack about why Voodoo keeps so many (more than 5,000 at the time of this writing) ads live on Facebook at any given point in time. Some hypotheses were proposed, such as that keeping ads live but with little spend retains those ads’ performance coefficients and allows budgets to be increased later without entering the learning phase. But another plausible explanation is that these live ads serve as disinformation: since Facebook doesn’t reveal how much money is being spent on any given ad, keeping all ads live, with some on minimal levels of daily spend, prevents competitors from knowing which games Voodoo is actively promoting.
**In considering whether there is room for the hypercasual games market to expand, it’s instructive to look at how the largest hypercasual gaming companies are investing their money. Voodoo specifically is building new studios to focus on genres outside of hypercasual gaming, with the most recent being in Montreal. Creating new studios to specialize in games that sit outside of the company’s core competency is a massively risky strategy — and one that, historically, has not performed well.