Game On…

Game On…

I haven’t been much of a gamer since Game Boy and the days of Street Fighter on Super Nintendo (with the exception of snake and a few must have mobile games of the late 90s/early 2000s). It was not until about two years ago when I first started doing “informal due diligence” on a few gaming companies (i.e. playing games for work) that my interest was piqued once again. I have, of course, been involved in the iPhone game frenzy and am constantly downloading new ones almost daily. However, it was not until last week that I moved up a level…I discovered a popular MMO, Mafia Wars.

While we know that the concept of social gaming and MMORPGs have been around for awhile, and while WoW putting a stake in the ground for the current generation of MMOs, new platforms and networks are bringing down barriers and catapulting multiplayer gaming into a new phase of social gaming and casual MMOs. Location based technology in iPhone gaming apps, Facebook games leveraging your network, and even a few Twitter interactive games are populating the virtual world.

While new platforms, delivery methods, and networks are evolving, new business models are not evolving at the same pace. We constantly look at new gaming companies whether it is game development, game publishing, game tools, or some sort of hybrid. Most of the developers and publishers follow the traditional model reliant on a single or a few games that hit or miss, and raising venture capital is always a bitter challenge. Even building a PC based free to play MMO that requires large capital investment to develop is not the best strategy.

If a game has established some success, raising growth capital is more achievable. There are very few gaming companies that have raised capital based on an idea especially with the traditional console model. Regardless if it’s delivered on the console, PC , or browser, the game concept and model have to be somewhat proven making these types better candidates for growth equity versus seed. Low cost development, low cost customer acquisition, and high lifetime value is the difficult conundrum with gaming. However, because of online communities, new platforms, somewhat nontraditional strategies, this triad while rare is no longer hogwash.

For some of Zynga’s games, they just put the pieces together by taking somewhat proven games and leveraging already established networks such as Facebook and MySpace that they just need to tap into. Another model that I came across was a new online game publisher that had a lead and marketing engine, which was their secret sauce. Thus, they were leveraging proven games and rapidly publishing while using other tools to drive traffic, capture leads, convert gamers, and develop loyalty from its players—essentially efficiently and effectively building a network. Of course, another great model is being the platform where developers publishers their games like Kongregate. Yet, only a few of these different models that pose a higher probability of a successful investment return exist and it’s unclear how many can employ the models.

While the proliferation of online, mobile, and social games continues, few will provide large returns to investors. That said, game developers will continue to plug away and new models will emerge. Enough said on this topic and off to use my mafia for a bank heist…