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The death of the portal

By on July 28, 2010
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With the news that GameSpot has acquired Kongregate, I thought it was time to put forward my thoughts on why portals are vastly less relevant than they were four years ago.

It’s a brief extract from How to Publish a Game and it’s included in the two sample chapters I give away for free. Apologies if you have read it already.

Traditional games portals have been hit by a perfect storm. They used to offer developers one of the only routes to market and had access to a key revenue streams – advertising – that developers were rarely able to get for themselves.

The global recession hit those revenues hard but it masked a much deeper malaise: developers don’t need portals any more.

  • Developers don’t need their distribution, which was very expensive: Kongregate, for example, takes up to 75% of the revenue from a game (see p. 86 – I’ve added this below) whereas Facebook offers free distribution (although this may rise to 30% if Facebook Credits become mandatory, which is looking increasingly likely).
  • Developers don’t need their sales force. Advertising is no longer the primary revenue stream for free to play games; virtual goods are. Portals don’t help increase this revenue, unlike with advertising. Worse, they try to take a share of it.
  • Developers do need their financing. Unfortunately, portals rarely offer it.

If I were an independent developer, looking to launch a game on the web, I would choose Facebook over a portal every time.

Portals need to do something radical to increase their value to developers or they will go out of business fast.

* * *

Extract on how Kongregate remunerates developers

Flash game portal Kongregate pays developers up to 50% of the advertising revenue as follows:

  • 25% of all ad revenue generated from their games as standard
  • 15% if the game is exclusive to Kongregate
  • 10% if the game includes Kongregate’s API for leaderboards and challenges

Or to put it another way, Kongregate takes up to 75% of the revenue of a developer’s game. Let me show you what that means for an independent developer .

Revenue from an ad-funded Flash game

Kongregate revenue share with developers

These figures are not particularly attractive. Even a wildly successful game, getting 1 million plays a month, which would be a huge achievement, would only generate £1,500 a month in revenue for the developer. Of course, these assumptions might be flawed:

  • There might be than two ads displayed per game play session
  • The CPM of £1.00 might be low (although in my experience, they are falling, not rising)
  • The portal might offer more than 25% of the advertising revenue to the developer

It is no wonder that many Flash developers seem to just churn out games as quickly as possible. They need volume and a back catalogue to have any chance of paying the bills.

Kongregate also offers monthly contests for its top rated games. But with a top prize of $1,500 and thousands of games on the site, these are unlikely to make a difference to any but the smallest development teams.

About Nicholas Lovell

Nicholas is the founder of Gamesbrief, a blog dedicated to the business of games. It aims to be informative, authoritative and above all helpful to developers grappling with business strategy. He is the author of a growing list of books about making money in the games industry and other digital media, including How to Publish a Game and Design Rules for Free-to-Play Games, and Penguin-published title The Curve:
  • I totally agree that ad revenue is unrelieable. Adblockers are not the primary problem: it’s the fickle nature of the market.

    There is a reason that the majority of games on Facebook are funded by virtual goods. That, I think, is the most sustainable business model.

  • Hello Tim,

    I think that the answer is that you do have to spend money on advertising. This can be within the reach of a small developer.
    The easiest explanation may be here:

    But the core point is that if you have good retention rates, conversion rates and average spend, you can easily afford marketing.

    I would spend your effort on improving those figures. Acquiring users is the second phase.

  • Kenneth Gould

    I go to Kongregate and see games I want to play right on the front page. I go to Facebook and… hear absolutely nothing about the game. Sure Facebook may offer more revenue back to the developers, but how does the Developer get enough players if getting the game out there will cost them advertising money?

    Either way, the massive presence of AdBlocking software gets in the way of ad revenue being reliable. Mochi Ads seems to be the only real way to get money from ads from ad-blockers, as much as I despise them.

  • Pingback: 10 Games Businesses That Are Doomed | Kotaku Australia()

  • Tim

    The question I have is how do you attract an audience on FB? As a small developer, I can’t afford advertising, and otherwise it sounds like I have to rely on viral-ity of the game to spread it. Wall posts, etc. may help, but it doesn’t sound much different that just putting on a website.

  • Otavio Silva

    The only thing that a portal offers better than facebook or any social network is the 0 cost to host your games which can be come quite expensive when publishing your game in FB or Orkut