Mobile is Mordor. It’s Time to Sail West.
As a gamer and investor in gaming, I decided that the current games market warrants an assessment of where ‘blue oceans’ and emerging waves of opportunity lay for VC’s interested in the space. I don’t think these opportunities lay in mobile gaming anymore. When mobile user acquisition costs are as high as they are today, venture capitalists can only generate the returns they need from gaming companies with titles in the top grossing App Store and Google Play charts. With 20/20 hindsight, that means having invested in companies such as Supercell or Kabam. As of this time last year there were 1.2m iOS apps and 1.3m Android apps in the marketplace. Paid marketing to push downloads, defined through ‘Cost per install’ (CPI’s), have seen costs as high as $10 (or more) per user for certain audiences (sometimes 20%-50% cheaper on Android). Game developers hoping for organic virality are naïve, wishful thinkers. When you see a flood of licensed IP games in the market today, released in order to rise above the crowded noise, it becomes time for guys like us to board our ships and seek fortune in fresh waters. Like the Elves sailing west to the Undying Lands at the end of the Lord of the Rings Trilogy, it’s time for gaming investors to leave the Apple and Google dominated lands of Mordor and look to new platforms and paths of profit.
As a gaming studio CEO, you have a finite reservoir of marketing dollars. Dollars to fund customer acquisition, retention, post-churn analysis, and maybe customer reacquisition post churn too. You can pay the bots, water farms, and mobile ad networks for user downloads OR you could pay influencers, celebrities, talent agents, and brands in royalties, backend profit participation, or, perhaps most valuable of all, with equity in your business. It’s shifting audience, eyeballs, and attention from one glimmering light to another, that’s all. We’re seeing more of the latter in today’s mobile gaming marketplace with the appearance of more licensed IP games, however. Reskinning a game with celebrity or branded IP has become popular once again (as was the case with Facebook games in 2011). Glu Mobile’s Kim Kardashian title was a reskin of their existing game Stardom: Hollywood. Kabam’s Hobbit title was a reskin of their game Kingdoms of Camelot. The point is — once you need branded content and Hollywood reskins, it means the dancefloor is too crowded and it’s time to take the party elsewhere.
Ok, so in conclusion, I should note that I’m entirely bullish on our existing mobile game investments as there’s a lot of upside for strong teams making core games on the platform. Most of these teams are already funded by VCs or traditional game publishers, however, so there’s not much to get excited about in terms of fresh gaming deals. I’m done making new bets on traditional mobile game studios in the future. I think it’s too crowded and the current bloom of licensed IP games out there marks a mature phase in the platform and a time for gaming VC’s to look somewhere new. For me, that’s VR and eSports (and I continue to believe in the future of PC). More to come on this in a future blogpost.
p.s. Shout out to Mark Ordesky, exec producer of the LOTR trilogy, a dear friend and former boss, for inspiring the Tolkien analogy ;)