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Ten games businesses that are blessed

By on October 20, 2010
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Last week, I wrote a post entitled Ten games businesses that are doomed.

I got a lot of feedback, much of the “you’re very brave” variety. I had to defend my reasons for posting, and I was challenged to write about 10 games businesses that excite me.

So here goes. My ten games companies that are blessed.

This is my list of companies that are doing interesting things. I expect them to be successful, or important, or I am simply applauding them for trying. Investors, gamers and pundits should be watching them.

My ten companies have a distinctly European flavour: I’m British, and Europe is what I know. If you know companies you think I should be watching from North America, Asia or anywhere, do let me know.

Like the previous list, the numbering is for convenience only. They are not ranked in order.

1. Mind Candy

Making a mass-market MMO that appeals to kids is tough. There is a lot of competition from the likes of Club Penguin and Free Realms, not to mention games on DS and traditional toys.

Mind Candy has taken this market head-on, and taken it by storm. After a rocky start (not least investing heavily in an alternate reality game, Perplex City, which didn’t set the world on fire) CEO Michael Acton Smith pivoted the business to focus on the kids market by launching Moshi Monsters.

A year ago, I blogged that Moshi Monsters had hit a tipping point and reached six million users.

The good news for Michael and his crew is that the success has continued. As the chart below shows, Moshi Monsters is rapidly heading towards 30 million registered users. (Yes, I know registered users are not a great metric, but currently it’s all I’ve got)

Moshi Monster's user growth charts

Mind Candy views the Moshi Monsters website and subgames as the heart of the brand. But it is branching out to offer its biggest fans other ways of interacting with Moshi: books, trading cards, Moshi Bandz, an iPhone app, gift pack, a magazine, toys. These are all out already or imminent.

Mind Candy is backed by Index Ventures (who were also in Playfish) and is going from strength to strength.

If anyone (including me) bemoans the death of the British games publisher, just point to Mind Candy and say “There is a great British success story.”

This one will fly, and fly.

2. Kinect

Microsoft and Sony have a problem. Nintendo tore up their playbook.

The playbook for competing in the console manufacturing space was clear:

  1. Launch a console
  2. Hope you get dominant market share
  3. If you don’t, launch a new console that is more powerful than your competitor to kickstart a new console cycle.

It worked very well until someone at Nintendo read Blue Ocean Strategy. While Microsoft and Sony fought in the bloody, shark-infested waters of high-spec consoles, Nintendo sailed in search of clear water.

They found it with the Wii, a low-spec, low-cost, profitable hardware console. As Nintendo President Satoru Iwata said:

“I could give you our technical specs, as I know you’d like that, but I won’t for a simple reason: they don’t really matter. The time when horsepower alone made all the difference is over”

Over seventy-five million units later, it looks as if Iwata-san was right.

That left Microsoft and Sony scratching their heads. How do you compete with a platform which is less advanced than their existing offerings? The playbook says launch a new platform, but consumers clearly don’t want more power – at least not in enough numbers to justify the investment.

So they decided to bring the red ocean to Nintendo.

Sony, perhaps fitting for an organisation filled with engineers, decided that it would make a Wii-mote, but better.

I think this will struggle. Making the PS3 more like a Wii might, possibly, stop a PS3 owner from buying a Wii. But that’s not the point – the real challenge now is to persuade Wii owners to buy PS3s.

Which is why I think Microsoft’s approach is better. Kinect may be ambitious. Kinect may require that you tidy your large living room before you play it. Kinect may be a hands-free innovation that arrived four years after Nintendo’s innovation.

But it is an innovation. It allows different ways of playing a game. It is, I think, squarely aimed at a younger market.

And every so often, my formal analysis gives way to gut instinct. I watched the Kinectimals video below, and I wanted to buy it for my son. (He’s only two, so he’s too young. But it won’t be long.)

Nothing has made me want a Move. Kinectimals has made me want a Kinect.

Which is why it’s on this list.

3. Applifier

What is the biggest problem facing independent developers trying to break into Facebook gaming?

Traffic.

For the past two years, Facebook has been consistently shutting down the viral channels, trying to shift companies efforts from viral marketing to spending cash on Facebook ads. The existing large players – Zynga, Playfish, Playdom, 6 Waves et al. – can cross-promote between their games. But where does that leave independent startups trying to break onto the platform.

Enter Applifier.

Applifier logo

Founded by serial entrepreneur Jussi Laakkonen, Applifier brings the cross-promotional strength of a Zynga to the independent developer.

Applifier currently boasts 100 games, reaching 55 million monthly players. It operates a walled garden policy at the moment, because, as Jussi puts it:

“A core goal of Applifier is to ensure that the games found on the cross promo bar are of high quality and that the user experience is consistent. For these reasons we are keeping the network invite-only for the time being. We are always looking at ways to expand the network because a great selection of games makes it more appealing for the players, so I want to encourage independent social game developers who have quality games that are growing to get in touch with us!”

The revenue model for Applifier is still not clear, and I don’t care. Applifier fills a clear market need; developers I know who have worked with it have been very positive; and Jussi has the right entrepreneurial spirit.

Applifier is definitely one to watch.

4. Zenimax

Regular readers might be spitting their coffee out right about now.

“A traditional publisher?” “One that releases games ‘when they’re ready’?” “A small publisher in the era of blockbusters?”

Yep. Zenimax is all of those things, and I still think it is going to do very well.

This has required a certain amount of mind-changing on my part. I have been very focused on the new type of games – social, persistent, free-to-play – and was convinced that AAA development was in real trouble. I have now refined that view.

AAA development will survive. There will just be fewer players, making bigger titles, with more larger budgets and wider audiences.

Just like Zenimax does.

The company now has an enviable studio of household names (amongst gamers) under its umbrella. These include:

It owns Bethesda Softworks, id Software and Arkane Studios. In short, Zenimax has become an independent powerhouse. To extend a movie analogy, it has perhaps become a Miramax, a purveyor of high-quality, mature-rated, independent games.

The movie analogy makes sense. Many of Zenimax’s board members come from the movie industry and its associated advisers. The company intentionally makes high-quality, blockbuster titles, with little that is derivative or simply annual iterations of a franchise. It has raised $300 million in 2007 from Providence Equity Partners, a major investor in the media industry, in October 2007. It raised a further $150 million from Providence in October 2010. 

Even more reassuringly, from my point of view, the use of proceeds in the second tranche of investment did not include the terrifying phrase “to finance massively multiplayer online games (MMOGs)”.

So I see Zenimax as an independent “studio”, modelled on the great film studios and with executives at the helm who understand how that model works, backed with nearly half a billion dollars of firepower from an investment fund with $22 billion under management, that owns three highly respected development studios and four global games brands, all wrapped up with an appetite for strategic acquisitions and producing high-quality content.

If that isn’t the type of company that ought to flourish in the new AAA market, I don’t know what is.

5. Red Lynx

Red Lynx logo

Red Lynx are the Finnish developers of XBLA hit Trials HD. A “self-publishing” sensation (although technically the game is published by Microsoft Games Studios), Trials HD has achieved sales of over one million units in just over a year on the market.

Outspoken (albeit softly-spoken) CEO Tero Virtala has been open about Red Lynx’s operations. He has revealed sales data that many keep secret; he has admitted to leaking the code for Trials HD to torrent sites, albeit with key online functionality stripped out; he even admits to being a management consultant at PwC before taking over as CEO in 2002.

The reason that Red Lynx is in this list is because it has been a start-up success. The company has experimented in many different areas; it has released over 100 games on platforms including the web, N-gage, iPhone, mobile devices in general, PC, Mac, NDS, PSP, interactive TV, and XBLA.

In short, it has innovated, experimented, pivoted and finally alighted on a development and publishing strategy that works for it. It is developing new games and new downloadable content for its existing content.

Red Lynx is just the kind of developer that I expect to thrive now that the games industry is fragmenting into three.

6. Ankama

if ever there was a company that had got “transmedia” right, it is Ankama.

The company was originally founded in 2001 as a web agency. In 2003, they launched Flash-based MMO Dofus as a beta version. By April 2010, the company had 30 million paying players, 250,000 peak concurrent users and estimated revenues of €40 million.

Dofus logo

Ankama has expanded Dofus into many different media:

“Anthony Roux, our creative director and co-founder, is a very passionate creator and wanted to expand the universe of Dofus using various media. The idea was always to tell a different part of the story, i.e. to explore the life a specific character, or a different part of the universe, meaning that the story is not told again in a different way, but the universe actually expands with each new media.”

The transmedia expansion includes magazines, comics, events (where 20-30,000 Dofus fans attend) and further games. I understand that each expansion has to be profitable on its own merits.

Ankama, like Jagex and CCP, has been independent, created its own world and created a massively successful video game that few core gamers even know about.

If for no other reason, that makes Ankama one to watch.

7. Chillingo

Chillingo logo

Putting Chillingo on this list so soon after ngMoco was acquired for $400 million may reek of opportunism.

Well, yes, indeed there is some of that. But this British publisher of iPhone games has had some real successes.

Angry Birds logo

Not just Angry Birds, by any measure a fly away success.

Not just Cut the Rope.

But seven #1 games in the past two years, many of which are powered by the Crystal SDK, providing social features and cross-promotion that help drive traffic.

I had feared that Chillingo’s success with Angry Birds was more luck than judgement, and that it was really Rovio’s success. (Rovio is the developer of Angry Birds). But the opportunity to use Crystal to cross-promote titles (in the same way that Applifier does for Facebook games) is at the heart of Chillingo’s value. Seven #1s and the recent success of Cut the Rope are evidence of this value.

I’m not sure where I think Chillingo should go next. But with ngMoco out of the market, and the other big iPhone publishers being inhouse (like EA Mobile) or public (like Gameloft), I would have thought that a number of buyers are eyeing the company.

8. Inensu

Inensu logo

I’m going out on a limb here, since I don’t even know what Inensu does.

But I do know that if you take the mother of Singstar (Paulina Bozek), take her through an intense learning experience at Atari and then give her own startup to focus on “the next generation of social games for web and mobile” something exciting is likely to happen. And it’s going to happen in the areas of music and fashion (my guess is that something game-like is involved there too).

Sure, this is not based on analysis. Inensu is not in this list based on facts and stats. But a lot of investing is about backing people, and backing your gut. My gut tells me I should watch Inensu closely.

(Oh, and their webpage says that they are hiring).

9. iPad

When I wrote my notes, this was looking like a wildcard view. Me, the arch-proponent of “open” and an Apple anti-fanboi, putting forward the iPad as a platform to watch.

In that time:

So now it turns out that the iPad is one of the most successful pieces of consumer hardware ever invented and Apple is about the largest company on the planet, with a market capitalisation in the mid $200-billion range, up 100-fold since Steve Jobs returned in 1997.

Talk about a comeback.

I think that the iPad is here to stay – as a browsing device, as a gaming device, as a game-changer.

I wonder when we’ll see the first investment in an iPad-only games developer.

10. Activision

Activision logo

It may not seem like a big deal to put Activision on this list to you. But to me, it’s a huge decision, and the most substantial reversal of opinion I’ve made in a long time.

For the past two years I have been cheerleading Electronic Arts for grasping the nettle of reducing headcount, investing in social games and turning the supertanker around to navigate the waters of the new games industry.

I’ve been down on Activision because it doesn’t seem to care. It’s been fixated on boxed product games. It has been resting on the laurels of the world’s largest subscription MMO (World of Warcraft, for those asleep at the back). It’s been milking its franchises on an annual basis and having the occasional massive spat with its development talent.

But I’ve changed my mind.

I’ve changed my mind because, if you buy my argument that the industry is splitting into blockbuster AAA franchises (like movies) and persistent, free to play, online worlds (like television), you don’t need to be good at both. Excelling at one business type is more than enough to be successful.

After all, Sony Pictures does fine without a television station.

That’s not to say everything is rosy at Activision. The Infinity Ward spat didn’t help. The Guitar Hero franchise may be stalling. World of Warcraft is going strong but will soon face tough competition from The Old Republic and Guild Wars 2.  either of which might snaffle enough users to dent profitability.

But I no longer think that Activision is strategically doomed. They are doing what they now how to do: outspending the competition on development and marketing to have a dominant position in blockbuster, AAA games.

And that is a sustainable, long-term business.

11. nDreams & 12. Channelflip

I chose not to put nDreams and Channelflip in the list because I have equity or advisory roles with both these companies. But I do think they are ones to watch. Both were featured in the 2010 Guardian Tech Media Invest 100 as companies who have demonstrated  “innovation and creativity over the past year”.

nDreams logo

nDreams makes games and virtual goods on platforms ranging from PlayStation Home to the web to Facebook and the iPhone. The company launched the first alternate reality game on PlayStation Home, Xi, is currently running an ARG starring Lewis Hamilton and funded by Reebok and has, quietly, become a very successful publisher of virtual goods and virtual spaces in PlayStation Home.

Channelflip logo

Channelflip is trying to change the way we consume television on the web. It produces made-for-the web TV shows, funded by advertisers, like David Mitchell’s Soapbox and Harry Hill’s Little Internet Show.

Both are very exciting, but I left them of the list to avoid accusations of conflict (and, of course, Channelflip is not a games company).

Conclusion

So there you have it. Ten companies that are blessed, or ones to watch, or whatever you  want to call it. Who have I missed? Who doesn’t deserve to be in here?

Let me know.

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: thecurveonline.com
  • Daniel Kromand

    btw, I am having problems loading older pages on the blog. Page 2 loads the same stories as p1…

  • Daniel Kromand

    It is not that they need to grow their share, as long as they keep following the growth of the domestic market.

  • Daniel Kromand

    I think what Antitrust is saying (in Internet-rage language) is that it does seem odd to both refrain from including two companies on a list and giving them the numbers 11 & 12…

  • I think some Chinese companies definitely merit being on this list. Tencent is so successful I wonder how much further it can go, though…

  • Daniel Kromand

    I noticed your geographical caveat at the beginning, but I think that Tencent deserves a place on the list. They are expanding enormously in China with a mixture of smart business models, aggressive marketing and -well- “inspired” product development. Currently they seem capable of developing and maintaining a #1 spot in the Chinese market. No small feat.
    Other than that, great list!

  • Er, it is serious piece, and it is published. I’m still not sure I understand your point.

  • antitrust

    If this were a serious peice or actually published it would count as publicity.

  • Actually, I was specifically talking about the iPad.

    I think that the AppStore is amazing. But most people have agreed it’s amazing for a while.

    The iPad, on the other hand, looked like it didn’t know what it was: a big phoneless phone? a laptop without a keyboard?

    And nope, it turns out to have kickstarted an entirely new category (not invented – they existed before, but Apple made them desirable), which is why it’s on the list.

  • Is it naive to put my own pet projects on the list? Not sure I understand why it would be.

    Anyway, it’s my blog, so I can put them on the list if I want to.

  • antitrust

    So putting your two pet projects ON THE END OF THE LIST makes all the difference to avoiding a conflict of interest does it? I hope it really is your enthusiasm for them which causes such naivety.

  • I believe in Kinect, but I have doubts in the current form as an add on for the Xbox.
    I think this could work better as an integral part of a TV. If MS can sort that out it will be a different ballgame for sure.

    Also I think that MS would be better off dropping the ‘xbox’ title and just stik to ‘360’
    That is frinedlier, rounder and opens up a wider audience (who are now not buying into something ‘techy’that starts with XBOX)

    And fot #9 iPad; i’d reckon you mean Appstore? as I think it’s not about the iPad here, the appstore for iPad/Pod/Phone/?next? is that’s what it’s about?

  • Pingback: Anti-Doom: And Now The Blessed Companies | Rock, Paper, Shotgun()

  • Thanks, Markus. If only all my predictions came true so quickly.

  • I hope you make the next one too. Good luck.

  • Very scared about the Zenimax MMO, but you never know, it might work.

  • Lionheart1986

    I don’t think Activision is doing well, nor do I think Kinect is “blessed” (because it’s too early to say it’s doing well.?

    Activision’s core franchises have either been very stagnant or are in serious decline. Guitar Hero will be gone probably by next years end, and the pressure will be on for the COD franchise. Black Ops needs to outperform MW2, and if it does we can see it sticking around for a few more years, unless some solid competition comes in the form other superior first person offerings Brink looks promising, maybe Bungie if they do a FPS, same goes for Respawn, the guys who started it all not just with COD, but Medal of Honor too).

    But I think Activision is feeling the pressure, and there are no new franchises to take the reins if COD falls too. Unless COD evolves too, and gives gamers something innovative and different, it is going to fall, fast and hard. The Blizzard side has nothing to worry about, and honestly that is always going to be the reason why Activision stays a float. Old Republic looks great, but EA needs to seriously put some WOW money behind it if they want to take down the competition fast.

    And Kinect…looks like a hot mess. Yes the tech seems promising and different, and it gives you a different way to play, but essentially it gives you a different way to play Wii games. Kinectimals seems cute and great for kids: who don’t have Nintendogs already. Dance Central is going to be the star of the lineup, but it’s not going to be a system seller. I’m looking forward to playing that game but every time I see a Microsoft “demo” or “event party” for it I feel disgusted. Also there is some heavy withholding of the truth with Kinect promotions, and that’s going to bite them in the butt once word of mouth is spread. 3 people playing at a time in Dance Central? No, you can’t, it only picks up one person. Six feet of space between you, and surrounding you in the living room? Oh, you didn’t hear? And btw that affordable 4GB bundle you got? Good luck having that last more than a few XBLA games or some DLC. Hell, two-three demos and time to go to the store and buy a new HDD.

    Also it is way too expensive for every market they are trying to get at. Because even current Xbox owners have to buy one of the new Xboxes to play the damn thing. So will it be a success? Fat chance I think.

    But only time will tell. Nice blog though.

  • Markus Kettner
  • MEE

    Dance Central is going to blow Kinect up. Def Jam Rap Star is going to be huge too. Both will have crazy amounts of videos on YouTube; virality that will likely put Minecraft to shame and then some.

    Move is Wii.

    None of this is the real expansion of the market and audience that gaming is in dire, dire need of to make it truly socially, culturally relevant and put it in the place that it’s destined to be.

  • Ankama also announced 2 full feature animation movies on their franchise. That complements their existing animated TV show (1st season ended and starting the second starting this year).

    Zenimax has a AAA MMO in development as well at Zenimax Online to complement the studios you listed. That’s a very interesting one to think about.

    And I think went crazy with their Kinect plans and they wont reach their target – even with their 500 M USD marketing budget for North America only.
    Kinect 2 might work though (same way Xbox sucked but paved the way for the 360).

  • Interesting list. I hope we make the next one! Moshi is well deserved for the reasons you describe.

    The Applifier business model is to ‘charge’ a small percentage of clicks and then resell these clicks to members of the network, btw.

  • Anonymous

    Kinnectimals looks like solid software to me, I’ve plenty of time for Frontier. But asides from the price it’s also an extension of the virtual pet concept that’s been done before, at least more than Wii Sports had been and nothing like as viral (People won’t be having Kinnectimals parties/evenings in, I’ll venture).

  • Activision? Really? They’re coasting on a raft of franchises and are alienating their players with Bobby Kotick’s “Games aren’t about fun” attitude.

    I’ve been looking forward to Diablo 3 for years but am now resolved not to buy it because I find the company that makes it abhorrent.Yes its a business and yes they’re in it to make money, but their cynicism is galling, disheartening, and in the wake of the recent lawsuits and bans against Starcraft 2 single player cheaters, frankly disgusting.

    Their customers are nothing but money producers to them, their staff nothing but wage slaves, and their outlook on the medium as a whole as being ‘all about the money’ is a sad indication of what happens to any creative industry once the suits are put in charge.

    If Activision don’t ditch Kotick and perform an EA style about turn in their attitude to their customers, staff, and the medium, they are the ones that are doomed.

  • I agree entirely that MS has missed the point about Nintendo’s strategy by bringing red ocean to the Wii, rather than looking fore real “blue oceans”.

    I wonder if Kinectimals will be the Wii Sport equivalent. But the really problem, no doubt, is the whole combo is too bloody expensive.

  • Anonymous

    Interesting that you put Kinnect on there. If you had written this last year, I’d have agreed with you. Watching the project come into life over the last few months I’m no longer so sure. To paraphrase Sean Malstrom, it’s the right strategy seemingly hampered by poor execution.

    Malstrom distinguished Move & Kinnect by respectively penning them as a “defensive” and “offensive” co-options of Nintendo’s disruptive (motion control) strategy.

    Move is defensive because, like you say, it might prevent a PS3 owner buying a Wii or possibly entice someone with neither to plump for the HD console if they value the other things it offers. What I don’t think it’ll do is attract in any significant numbers the new consumers who flocked to Nintendo because, well, they might as well just buy or keep the much cheaper Wii. It’s merely defending the traditional segment of Playstation customers (which to Sony’s earlier credit of course does comprise of those who bought into Buzz, Sing Star, Eyetoy et al) and limiting the damage on the downstream side.

    Kinnect on the other hand initially showed the potential to do something new. Much like touch screen devices have enabled some great games based on innovation around input. It was aggressive because the technology could potentially allow for games that Nintendo could not replicate. Though diminished, it still does in theory.

    However, the execution from the outside appears to have gone rather badly and in my opinion, partly why Bach has gone. It is horrifically expensive considering who it actually needs to attract and as a result, the marketing appears confused. Much of what was promising shown at E3 2009 hasn’t materialised. The launch software, one or two exceptions asides strikes me as underwhelming and the price will certainly hamper the likes of Dance Central and Kinnectimals. Being closer to a new console launch than a new peripheral, it appears to have had it’s issues during development which hasn’t made life easy for developers. Regardless, I’m especially disappointed from a first party perspective given they’ve got talent like Molyneux enthused about it’s potential and Rare working on it full time. They should have been able to show Nintendo style leadership here.

    (I’ll ignore for the time being question marks over how it’ll perform in the living room because the Wii had exactly the same thing but it’s certainly far from guaranteed they will similarly dissipate when it’s out.)

    None of the above would matter much (perhaps even the price) if the right software was available. The Wii was successful not because of the motion controls but because of Wii Sports and later Wii Fit. They became phenomenons in their own right. Someone, somewhere maybe has it within them to make an equivalent for Kinnect but up till now have been hampered in doing so.

    My feeling is that sales will fade away after an initial solid start and that next year we’ll be told is “the real year of Kinnect” when things are cheaper, the tools more mature and capabilities better understood. This should mean better games become available. You could certainly argue that the 360 (or most new consoles) had a similar modest start.

    But where Wii was competing in a blue ocean, Kinnect will be in a red one and thus even harder to create a phenomenon like Wii Sports. Without one however, I don’t think it’ll move the needle. Next year is going to be about tablets and the 3DS as it is. In time, I think it’ll be seen as a missed opportunity and this is with my relatively positive view of controller-less gaming! There are plenty of people who think that flawed from the start.

    Agree with the above comment however, in that it’s certainly one of the more interesting things to watch.

  • Anonymous

    I agree that Move is not going to shift PS3s, but I’m equally doubtful that Kinect is going to move 360s with a wider audience. The Microsoft branding is so heavily invested at the other end of the market that I feel they will find it very difficult to break it.

    Remember, they need to persuade mass market players (many of who already have Wiis) to buy both a 360 and a Kinect. I just don’t see them doing good numbers for this with a souped up EyeToy. Of course, it does look to be significantly better than the EyeToy ever was. 🙂 And I’m prepared to be wrong.

    It’ll be interesting to see what happens.

  • Matthew Hill (Specialmove)

    Thanks for posting – here’s hoping this gets just as much attention as the “doomed” post ! Agree on most of the names here and will research the ones that are new to me.