Playing a Different Game

Greetings, game industry.

I’m coming to you with some good news to share. At the end of this year, I will be moving into a board member role as my co-founder Patrick Moberg takes over as CEO. Patrick and I started working together 5 years ago, evolving his minimalist game into a product, and eventually a company. During that time, well over one hundred million people have played our games and we’ve assembled one of the most creative teams in the industry. We raised investment capital from an all-star group of investors — and have done more uncomfortable photo shoots with Dots plastered all over our bodies than I’d care to remember.

Time Inc. article, June 2015

Yet, at the end of the day, we made a mark on the game industry and, in the process, raised awareness around the role design can play in building a successful company. Our studio is profitable and scaling. Still, an inconvenient question looms over us: What’s next?

The answer isn’t as simple as some may think. “Just launch another game!” is certainly something I’ve heard many times over, and, if all other variables in the industry were constant, I might agree. But they’re not. Yes, we will launch more games, and we have some exciting prospects on the horizon. But the number of mobile games released per day has grown exponentially since we started the company and the bar has risen dramatically over the years — not just from a gameplay perspective, but also from the underlying game systems that drive retention, conversion, and virality.

Another reason simply launching another game isn’t the answer, is user acquisition and paid marketing. Not only have the costs to drive an install risen, there is tremendous sophistication behind the industry’s best performance marketers. None of this is to say the opportunity is limited. In fact, it’s quite the opposite. There is huge opportunity in the marketplace right now. Mobile gaming alone will reach $46 billion (about the size of the worldwide film and movie industry) this year. When you win in mobile gaming today, you win big — and I very much believe Dots is well positioned in that effort. That said, we want to do more.

As game developers, we face heavy competition on content, and, as advertisers, we now compete against the world’s largest brands — gaming or otherwise — in the ad auctions which the industry relies on for driving downloads. The result? Ever-increasing costs per install (CPI). A diminishing game of arbitrage, where Apple and Google take 30% off the top and developers are left trying to pay Facebook as little as possible to obtain an install, in hopes they can retain a portion after their marketing costs. From that remainder, they (and we) must pay all other operating expenses including staff, rent, and royalties when applicable.

In the early days of mobile gaming, the auctions lacked competition, which meant exceptionally low CPIs relative to the amount developers were able to monetize. On top of low marketing costs, there was a scarcity of quality content. This benefited early developers like ourselves who could survive on strong virality and word-of-mouth promotions. During the heyday, market leaders like Rovio and King produced wildly-profitable mega-hit titles like Angry Birds and Candy Crush which amassed billions of downloads. Now, quality installs in the US are 50–100x more expensive than they were several years ago, which has created a much more challenging environment for developers trying monetize players and recoup marketing costs.

In most cases, this approach leads to a sub-par player experience which is optimized for revenue alone. While a handful of studios do make their money back on marketing, very few can scale profitably through marketing efforts alone. Given this dynamic we and the rest of the industry face, I’m insanely proud of the work the team at Dots has done to scale profitably. By the end of this year, our studio will have generated nearly $100 million in gross revenue with a profit margin that now exceeds incumbent public gaming companies like Zynga. But, we didn’t start this company to be the best at arbitrage.

Dots development studio in the Meatpacking District, NYC (Photo: Nicole Franzen)

So when we think back to the original question, “What’s next?” we need to dig deeper. We need to go beyond simply “launch another game.” We want Dots to help shape the future of the gaming industry — and to do that, we need the most creative people working on their most passionate projects, with enough patience to let new markets, platforms, and business models form. We fundamentally believe that the right product, released at the right time, will produce the type of scale the early mobile game studios experienced. The answer may lie in another free-to-play casual puzzle game with a unique game mechanic, like Two Dots. Or perhaps a digital-physical hybrid experience. Or, more likely, it’s something we haven’t yet imagined.

Annual team retreat

When I stepped back to think about our original goals, Patrick was the best person I could think of to take on this task. He is passionate about creating success in this industry long term and has a unique ability to learn from the past without trying to chase it. He also has tremendous patience and persistence — the only ingredients common to virtually every successful game studio. Finally, Patrick is a great leader that continues to inspire me and the rest of studio.

Building Dots into a game studio that reaches so many people around the world has been the most professionally rewarding experience of my life. I’m thrilled to continue supporting Patrick and the company on the board, and I can’t wait to experience our future creations. As for me, I plan to stay close to the game industry and spend more time investing in Europe. I hope you’ll stay tuned for future updates.

This story is published in Noteworthy, where 10,000+ readers come every day to learn about the people & ideas shaping the products we love.

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Dots sound studio (Photo: Nicole Franzen)

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Partner at Lightspeed, Co-founder at Katch

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