Bark Louder, Bite Harder

By Ross Avner |

There’s never been a better time to be an independent game developer—but there’s never been a harder one, either. Audiences, hungry for something new, have been devouring new games, and demand doesn’t seem to be letting up. If anything, it’s growing fast.

Both industry and traditional media outlets, somewhat understandably, have focused on the big winners—such as Supercell’s Clash of Clans, King’s Candy Crush Saga and Flappy Bird’s viral ascent. But in doing so, they have missed the stories of the traditional Indie developers—the underdogs who struggle to survive, but are often the biggest drivers of innovation in our industry.

Take Jason Fader, for instance. His studio, Iocaine, is made up of 10 people, all of whom telecommute from various cities around the world. There’s no office space, no face-to-face meetings and no congregating around the ping-pong table for a social break. Fader must keep tabs on features in development for the studio’s cross-platform game Steam Bandits: Outpost, while simultaneously keeping the big picture in mind.

Steam Bandits: Outpost

Fader’s struggle is by no means an anomaly. The good news for him—and other independent developers—is that we’re in a Golden Age of Games. The bad news is it’s still going to be a struggle, and competing against long-established publishers will require careful and conscious planning. In order to break out, struggling independent game developers will have to discover new ways to finance game development, establish and embed data-driven discovery and monetization techniques, and plan on continuously fragmenting the marketplace to ensure distribution of power.

Feast or Famine

Over the past year, the video game industry has experienced an unprecedented period of creativity and growth, largely driven by game engines and tools which are being offered at significantly reduced prices. Access to these engines and tools has broken down many of the barriers-to-entry developers previously faced, including giving them access to a cross-platform market. One of the side-effects of this is that small teams can now create great quality content, then make those games accessible to consumers almost immediately on several platforms simultaneously. This “develop once, deploy anywhere” approach is what opened up this Golden Age, allowing anyone with a vision (and the willingness to learn how to code) to create games.

New game engines such as Unity, Chukong Technologies (Cocos2d-x) and Marmalade Technologies—along with distribution channels like iOS and Steam—have opened the floodgates. Unity in particular has seen tremendous growth over the past three years, largely driven by its ability to provide a game engine and tools that developers can use to create games across 19 different platforms. The company has over 600,000 game developers using its platform each month.

The end goal, says Todd Hopper, Unity’s vice president of online services, is to democratize game development. Of course, by removing those barriers, the size of the marketplace has grown exponentially as well, which carries its own challenges. “It used to be that building a game was like climbing a mountain,” he says. “We’ve given you Unity to help you do that. However, now you get to the top of the mountain and in fact there’s another mountain you have to climb.”

Speaking of which... David O'Reilly's Mountain was built with Unity
Speaking of which… David O’Reilly’s Mountain was built with Unity

While Unity is introducing new tools to help developers climb the next “mountain,” marketplace saturation is a very real problem. And the increased presence in these new areas of big players, who can cash in on their name recognition, can stunt a developer’s growth prospects.

There’s money to be made, though—lots of it. According to AppAnnie and IHS Worldwide, people spent $16 billion on mobile game apps last year. That’s just shy of a threefold increase from 2012.

Even so, that category was dominated by a small handful of companies: Gung Ho took in $691 million through iOS and $820 million through Google Play; Supercell saw revenues of $892 million; and King revenues hit $1.88B (with 95 percent of that coming from just three games in Q4). Those three companies alone were responsible for 25 percent of all mobile game revenues. Each has deep pockets and is able, with a carefully measured Life-Time-Value, to acquire users across various networks, squeezing out smaller independent developers in the process.

That feast-or-famine landscape shows a dynamic shift from 2008—when releasing a functional and basic game was a gold rush for early indie developers (remember Tap Tap Revenge?). For the independent game developer working on a tight budget, it’s very hard to bake in a performance marketing budget to gain traction and fight those big conglomerates. And the struggle to break into the top charts can be even harder when fighting big names like Kabam and Electronic Arts. Independent game developers might be driving innovation in this industry, but the industry rarely provides guidance on how to navigate this challenging landscape.

Create Fragmentation

As markets or industries mature, consolidation takes place, resulting in fewer, larger companies. These dominant players use their sizable war chests to keep upstart competitors from threatening their market share, in the process gaining advantages that may be displayed in many forms: greater margins via economies of scale, pricing advantages, larger audiences, and cross-functional opportunities for upselling products and services.

This has, of course, taken place several times in the gaming world already. Think back a few years to when a few large publishers such as Electronic Arts, Activision, and THQ dominated the industry. Or, even more recently, when the casual games sector saw Zynga become a power player by absorbing companies like MyMiniLife (which proceeded to build FarmVille), OMGPOP and Newtoy (Words With Friends). In just 21 months, Zynga acquired over 15 studios.

Zynga's most recent big purchase? Clumsy Ninja and CSR Racing creators NaturalMotion.
Zynga’s most recent big purchase? Clumsy Ninja and CSR Racing creators NaturalMotion.

The counterforce against consolidation is fragmentation—the disruption that keeps an industry alive, evenly distributing market share and power. It’s impossible to consolidate an industry as long as there is innovation disrupting traditional conventions. Indie game developers are puncturing the cloth of the established companies that once controlled the bulk of the industry’s market share. (Need proof? Last year, Minecraft outsold Disney’s Infinity.) As a result, console makers are heavily courting indie developers, knowing that innovation will come from them, not the larger studios (who are less willing to risk capital on new IPs).

Fragmentation’s not isolated to content alone. Even the traditional business model for game engines has been disrupted. Three of the leading engine providers are fighting for the attention of indie developers. Epic Games has made Unreal Engine 4 available to anyone for $19 per month (plus a small percentage of each game sold), while Crytek has made its own CryEngine available for a monthly subscription of $10 per month. Both moves bring two highly regarded engines closer to Unity’s model of offering free technology for all developers.

Creative Financing

Kickstarter has been an incredible tool for independent game developers in its short history, funding over 4,500 projects with total donations exceeding $100 million. It is the most visible opportunity in the marketplace for a developer to obtain financial backing without relinquishing any creative control on their game.

Crowdfunding isn’t the only way to go, though. There are, for example, potential funding opportunities in partnering with Fortune 1000 companies. Apple and Starbucks have a joint partnership through which they plan game releases for Starbucks Digital Network—a promotional program Starbucks offers at its stores nationwide.

Starbucks isn’t alone in this newfound interest in game content. Everyone from automotive companies (such as BMW and Honda) to public institutions like the University of Wisconsin are incorporating applications into their products or educational cycles. These organizations are looking for creative ways to expose their brands and attract new audiences.

Whitaker Trebellas Polymer was Starbucks Pick of the Week in early 2014
Whitaker Trebella’s Polymer was Starbucks Pick of the Week in early 2014

Traditional toymakers are another avenue to explore. Video game consoles, mobile phones and tablets have begun to eat into their market over the past 10 years, with sales falling from $22.9 billion to $21.7 billion, according to TD Monthly (a number that would have been significantly worse were it not for the resurgence of Lego). In 2013, though, Hasbro acquired a 70 percent stake in mobile game creator Backflip Studios for $112 million. Will others follow? Certainly, this is an indicator that traditional businesses are looking to get into digital games in more meaningful ways. Even peripheral game-experience providers, such as Intel or Jawbone, are looking to seed the marketplace with new technologies.

Jason Wishnov is one of the beneficiaries of this trend. The 28-year old owner of Iridium Studios, whose game is called There Came an Echo, has office space, four full-time employees, three part-timers—and plenty of caffeine to get him through the day. His ambition is to release his game on Steam, Xbox One, and PS4 this October with a one-time purchase of $15.

He had originally planned to fund the game solely through Kickstarter—and managed to raise $115,000 through the service. Midway through that campaign, though, he got a call from Intel’s Perceptual Computing Group, which asked him to meet for lunch. Wishnov, thinking he might score some hardware to assist with development, agreed. What he ended up with, though, was much better.

The group instead offered to fund his studio in exchange for using Intel technology. It took 10 more months to seal the deal, but when all was said and done, Intel more than doubled the funding raised on Kickstarter. In exchange, Iridium agreed to support Intel’s Perceptual Computing technology platform and provide feedback on Intel’s developer tools. Best of all, Intel’s investment did not give it an equity position in the company or its planned product, leaving Wishnov with complete creative control.

There Came An Echo: Kickstarter concept art
There Came An Echo: Kickstarter concept art

Intel has been progressively investing and sponsoring various technologies for over a decade. However, they are hardly alone. Microsoft is also on the hunt for innovative developers to participate in various programs. One of these is the Microsoft Accelerator program where indie developer startups undergo a three-month boot camp of sorts for developing in the cloud. Other game accelerator programs can be found in many regions, from Canada’s Execution Labs to the Netherlands’ GameOn to many more in Asia.

In an environment where it’s becoming harder and harder to differentiate game products, it’s worth reaching out to new and up-and-coming technology providers. Exploring opportunities with deep-pocketed organizations—whether in advance of or in conjunction with game development—could be a boon to cash-strapped developers.

Iterate with Big Data

Daniel Bernstein is a renaissance man of sorts. His time in the games industry spans two decades, starting when he founded and sold Sandlot Games—creator of the popular CakeMania and Tradewinds franchises—to Digital Chocolate.

Bernstein is a soup-to-nuts individual wearing many hats: artistic director, musician, coder, artist, marketer, not to mention the other traditional roles he plays while running a business. These days, Bernstein is leading UpTap, makers of Galactic Skater, a mobile game built on proprietary engine technology that gathers deep user analytics. Within a few days of the game’s launch, Bernstein and his team were able to learn more about their players than Sandlot ever did throughout CakeMania’s entire lifespan.

“It can be a bit overwhelming looking at thousands of data sets at once,” he says. “But at the end of the day, you’re always looking to optimize the two most important top-level metrics: retention and monetization. It’s like a seesaw, with monetization on one side and retention on other, and you are turning the levers to get the perfect equilibrium, increasing features to increase ARPDAU [Average Revenue Per Daily Active User] and retention.”

That information can be used to greatly improve a game, though. And innovating around user data is the calling card of some of today’s biggest gaming companies, including King and Wargaming. With data in hand, UpTap spent several months iterating and tweaking the game, ultimately spending more time on adjustments than it did on the game’s launch version, ultimately increasing ARPDAU by three times of its original launch metrics.

Galactic Skater

Indie game developers may not have gotten into this business to double as data scientists, but that skill is becoming an essential part of today’s gaming world. The days of simply shipping a title and moving on to the next one are long antiquated. Today’s successful companies not only make fun games, but they know how to do data analysis, think regularly about marketing, form business relationships to assist with distribution and promotion, and manage a game’s lifecycle much more thoroughly than their predecessors.

“If you can’t support your promotion ongoing, you’re dead in the water,” says Jeff Narlinger, founder and CEO of Avocoder, makers of Toasty Boy and Kelso’s Quest. “You have to be in the Top 10 to really have a shot, and you have to stay there. Your actual game design is so critical in mobile, where you have to come up with highly effective monetization designs to cover soaring user acquisition prices—and  figure out how to fund it in the meantime as you obtain those whales.”

The Ongoing Evolution of Free-to-Play

Not surprisingly, consumers prefer free apps. But free doesn’t pay the bills for game-makers, which has given birth to some unique business solutions.

Free-to-play might have established itself as the dominant model of the games industry a few years ago, but it was really just the latest evolutionary step in a fairly old model dating back nearly two decades. Early on, free-to-play games coming out of South Korea were 100 percent free, but often times the servers were congested and active gamers paid for uncongested server access. In late 1990’s, successful web-based games such as Neopets, Runescape and Maplestory offered micro-transactions instead of a server-based access model and the free-to-play industry was born.

The problem today for developers? Player conversion is still a significant challenge.

“Now that consumers are trained to consume free content, you put any monetization in front of them and they will turn off your app and start another one,” says Bernstein. “Unless you have a game that has become a phenomenon like Candy Crush, most people play for free and grind.”

While free-to-play will likely remain dominant for the foreseeable future, it will eventually subside as the revenues it generates for companies begin to dissipate. That could come for many possible reasons. Cost of acquisition may become unaffordable. Users may simply grow tired of it. Or game consumption may be driven to other platforms that lend themselves to something different.

New financial models are already being explored. Amazon’s Mobile Associates API, for example, enables in-app purchases of physical goods, creating an environment where in-game currency can be translated into both virtual and real-world merchandise. Imagine a game that is free—and free of micro-transactions. Instead, monetization occurs when users want to collect physical representations of characters they unlock and purchase those collectibles from Amazon (or another online retailer).

Ticket to Ride is using Amazon's Mobile API to sell physical versions of the board game to digital players
Ticket to Ride is using Amazon’s Mobile Associates API to sell physical versions of the board game to digital players

While the free-to-play model may be financially sound, there’s a growing camp of developers who feel it negatively disrupts game play. “iOS and Android games are like trail mix,” says Wishnov. “Do I enjoy trail mix? Yes. Can you make money selling trail mix? Sure. But I don’t want to make trail mix, I want to make dinner. My goal isn’t to nickel-and-dime cash out of players. It’s to make something meaningful that players remember long after they’ve ceased playing.”

Fader and his team at Iocaine say they are absolutely against allowing the free-to-play model to drive advancement of Steam Bandits: Outpost. Instead, the studio plans to monetize the game by offering its players purchasable vanity items, such as outfits for their characters. It’s a model that’s similar to Peter Molyneux’s “invest to play” concept, which theorizes that users who spend hours on a specific game will eventually purchase these sorts of in-game items.

Wishov’s not a big fan of micro-transactions, either. It’s a model, he notes, that would never work on big brand games like Super Mario Bros. “Games that are $50 to $60 deserve to be that price,” he says. “When you have in-app purchases, the things you offer should be cosmetic—unlocking new content—but should never give people who are willing to pay a competitive advantage over those who don’t. [Gaming today] is not about skill anymore. It’s about how much money I can spend to get ahead. League of Legends wouldn’t have survived if it was structured like that.”

Barking and Biting

There’s no denying the importance of independent game developers in today’s gaming world. The passion, creativity and freshness they bring to the industry is crucial in attracting new players and retaining the interest of long-time ones.

But it’s about a lot more than just making a fun game today. Successful developers need to be more organized than ever—and more creative when it comes to finding sources of capital—both initial funding and ongoing monetization of their games. They need to be data scientists. And they need to have an eye toward all of the coming trends.

It may not be what they signed up for, but it’s the only way to stand out in an increasingly crowded market. And it’s the only way to provide the fragmentation that this games marketplace so desperately needs.

This article first appeared in Summer 2014 edition of Casual Connect magazine.

Ross Avner is the principal and strategist for consultancy firm Point A2B where he advises companies on digital media,  product development and distribution, and business strategy. Ross is the former Head of Yahoo! Games and has been part of the games industry for 15 years in both startup and corporate roles. You can follow Ross on Twitter @rossavner and write him directly at [email protected]

Featured Image Credit: Rebecca Zhang

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