The new gold rush — how game markets are born

An analysis of the birth and evolution of game development hubs

Taking a trip down memory lane, the game companies of old were of a specific ilk. Their focus was on creating unique console and video IP games and they were concentrated in two specific hubs — California (think EA and Activision Blizzard) and Japan (think Sega, Nintendo and Sony). Fast forward from the traditional game titans to 2020 and gaming powerhouses don’t necessarily look the same, nor are they bound to those specific areas, but are scattered in — sometimes surprising — hubs around the world.

In large part, this can be attributed to the arrival and evolution of mobile gaming, which has changed the face and global spread of the gaming ecosystem. Out of the new game development hubs which have sprung up, four particularly interesting ones — France, Turkey, Israel and Belarus — stand out in that they each share a similar origin story.

Historical glimpse of the hubs

France jumped into the gaming spotlight with Ubisoft, founded in 1986 by five brothers, one of whom then went on to found Gameloft in 1999. Such a strong gaming culture laid the foundations for the birth of the hyper-casual genre on mobile, with one of the early stars being Ketchapp (also founded by two brothers) which was later bought by the evangelist powerhouse Ubisoft. Then Voodoo came on the scene, and really paved the way for the ensuing explosion of casual and hyper-casual developers that entered the French gaming industry, including companies like MadBox which was the collaboration between two smaller gaming studios. According to the French Video Game Trade Association, as of October 2019, France has 1,130 gaming companies which include publishers, developers, distributors, as well as technological companies and service providers.

Although Turkey never had its own international household brands such as Ubisoft and Gameloft, it does share some similarities with France’s story. Among the early starters were Sobee, Taleworlds, Céidot and Zoetrope Interactive, followed by Lamagams and others. Once mobile gaming came on the scene, up sprung Peak Games and later on Gram Games (now owned by Zynga) with others following suit, including Masomo (sold to Miniclip) and Good Job Games, several years later. As with the French hub, increased industry knowledge spawned more creativity, and new studios began popping up: Ruby Games, Alictus, Unico Studio and Rollic have all recently emerged as frontrunners of the new generation of companies; Bigger Games, which was founded by talent from Peak and Zynga; and Dream Games studio which was founded by five former Peak Games developers.

Akin Babayigit, Co-founder of Tripledot studios, and an active angel investor in gaming, has seen the evolution of the Turkish games industry from the inside. “The explosion that we are seeing now is a result of macro trends, such as Turkey’s young population and more investment in tech, and success stories such as Gram and Peak Games that inspire many young entrepreneurs to follow suit,” explains Babayigit.

Then there’s Israel. First on the scene in the late 90s were Playtech, and 888 which, similar to the family connections in Ubisoft and Ketchapp, was founded (888) by two sets of brothers. These two casino powerhouses set the scene and created a huge amount of expertise in online gaming and user acquisition. Then a decade later entered two other giants — Plarium in the MMO space and Playtika in the mobile gaming space. Next in line was Tabtale, later becoming Crazy Labs, who were the first to crack casual gaming in Israel, followed by Moon Active several years later.

Lastly is Belarus whose story mimics that of France. Originally a mid and hard-core video game hub, the first game companies focused on war games, with companies like Wargaming taking the lead. It was when mobile gaming rose to prominence that many other companies took off, like Vizor Interactive (acquired by Playrix), Belka (acquired by Applovin), Playgendary, Easybrain (founded by the owners of Apalon who sold to IAC for $100m), Saygames, Awem and others.

Why these hubs emerged

There are both economic and social reasons for how these hubs established themselves on the global gaming map:

Cost of talent: economically and somewhat practically, the hubs have grown in regions where talent is cheaper than in the US and Japan. The ability to create the same amount and quality of content at a fraction of the cost, can be make or break for an industry where profit per unit is measured in cents, and where scale is king.

Knowledge spillovers: the Marshall-Arrow-Romer (MAR) concept of knowledge spillovers is that there is a greater exchange of ideas between employees — whether in the same or different company — when those companies are in close physical proximity to each other. The closer they are, the more likely this exchange is to happen. This notion helps explain how these industries developed so impressively.

Social capital: according to the OECD “we can think of social capital as the links, shared values and understandings in society that enable individuals and groups to trust each other and so work together”. This concept also rings true in the business world, where businesses in smaller hubs forge closer social alliances that propagate a collective learning process. This type of knowledge sharing is said to improve many areas of the business, from enhanced managerial performance, to stronger strategic alliances, and the speedier evolution of communities.

Talent breeds talent: building off from these two concepts is the idea that as an industry becomes more successful, the pool of talent increases, as does the development of new talent that they inspire. Coupled with the social capital and knowledge spillovers, the industry continues to exponentially grow and become stronger than the sum of its parts.

Bringing the above together leads to a deeper understanding of how hubs are created. In her book “Regional Advantage: Culture and Competition in Silicon Valley and Route 128”, AnnaLee Saxenian describes how certain bars, located near top high-tech companies, “served as informal recruiting centers as well as listening posts; job information flowed freely along with shop talk”. The same holds true for the gaming hubs mentioned earlier, where physical proximity and talent density led to a virtuous cycle of growth.

Cluster mentality

What creates a successful gaming hub is more than the development companies that it houses. In France, only 50% of the gaming market are game developers, with the rest composed of gametech companies supporting game creators. The same rings true in Turkey, where there are a significant number of companies that complement the core industry. Similarly in Israel, in around 2010 the adtech industry was blossoming, and as mobile game development started to take off locally, gametech companies such as Appsflyer, Soomla and ironSource entered the scene, with the two industries growing side by side.

This cluster phenomenon isn’t new. The creation of a network of specialists who support an industry can be seen in other cities around the world, such as with movies in Los Angeles, watchmaking in Switzerland, and medical professionals in Manhattan’s Upper East Side.

There are many factors that contributed to the success of the gaming hubs in France, Turkey, Israel and Belarus. The physical closeness inside of these hubs allowed for easier networking and exchange of ideas, and the social closeness led to shared learning opportunities, among others. The gaming market is set to be worth a staggering $159 billion in 2020, and the possibility of more hubs springing up is highly strong. The above factors create an interesting formula for predicting where those next successful gaming hubs are likely to be established.

Omri Halamish is in charge of Global Operations at ironSource