Amazon has always seemed to enjoy a good fight.
It faced down long-established booksellers in 1994, expanded that fight to big box retailers a few years later – and, in 2011, it took on Apple and Google with the launch of the Kindle Fire tablet. Now it has its eye on the mobile gaming market – and to win this fight, it will need to take its gloves off.
The Kindle Fire is already a decent gaming device. 70% of all users play games on it – with ARPU’s that are higher than Google Play and neck-to-neck with Apple. But there’s room to grow. And while Amazon might be behind to the gaming world, Microsoft was also a latecomer in the console space – and it went on to be a leader.
In fact, Amazon appears to be following a trail similar to the one Microsoft blazed, using a three-pronged strategy: Implement a top-down approach; invest in the necessary talent; and create a developer friendly ecosystem and platform.
Top-down Company Initiative
Being a latecomer to a market isn’t cheap. That’s something Microsoft realized early on – calculating the Xbox division could expect to lose $2 billion before it turned profitable.
But one of the concept’s biggest supporters was Bill Gates – who agreed to take the initial hit for the long-term vision. That proved critical in getting Xbox off the ground.
Bill Gates and The Rock introduce the original Xbox at CES 2001
Amazon’s CEO Jeff Bezos hasn’t been publicly vocal about Amazon’s games strategy. Industry insiders note that Bezos is a regular player of casual games Angry Birds and Words with Friends. And, through his personal investment company Bezos Expeditions, he has quietly put money into consumer-facing game companies SGN and Kongregate.
According to sources, the company’s game product initiatives carry his direct buy-in as well as support from other high-ranking executives. Amazon understands the importance of games as a critical form of content – just like books and videos – on its Kindle devices and the company is incorporating it as part of its long-term strategy.
Amazon, like Microsoft, has deep pockets and is able to absorb losses on its path to profitability. Loss leaders are nothing new at Amazon. The company’s Prime Instant Video service – a Netflix competitor available free to subscribers of its Amazon Prime program – is not considered profitable, but the company makes up that loss with increased purchases from Prime members. That’s an approach that could work well in gaming.
Developer Ecosystem: From Development to Item Fulfillment
High level support is good, but it’s also important to create a developer friendly platform – one that encourages game makers to build exclusive content for your product. And this is an area where Amazon can surpass Microsoft’s success.
Amazon is leveraging Amazon Web Services (AWS – its cloud computing division) to provide small game studios a way to succeed quickly via low cost services (such as providing servers and scaling based on success and needs). It also has enabled an easy way to download its various SDKs for creating content to Amazon’s Appstore.
“Many of the most successful and fastest-growing start-ups build and scale their businesses on AWS, including Airbnb, Pinterest and SmugMug,” says a company spokesperson. “One of the reasons these start-ups overwhelmingly stay on AWS as they grow is that they actually save more money on AWS as they scale. Instead of buying, owning and maintaining their own data centers and servers, organizations can now acquire technology such as compute power, storage, databases and other services on an as-needed basis.”
Of course, Amazon is hardly alone in providing great developer tools. In fact, the company is still in catch-up mode with Apple, Google and even Facebook – and it hasn’t enabled a unique offering that will get developers to bet on Amazon with more fervor.
To overcome this, Amazon needs to play to its strengths – specifically, its potential for living room dominance and its unique business model.
There’s value in having games playable not just on the go, but on the TV in a simple manner. Online publication VG247 reports Amazon will launch a dedicated games and entertainment device in 2014. The company has existing relationships with TV manufacturers and could leverage those partnerships to include its gaming technology inside TVs – avoiding the costs and hassle of creating its own hardware.
Where Amazon is truly taking things to a new level, though, is by using its long standing business model to enrich developers – specifically its “Mobile Associates API,” which enables in-app purchasing for physical goods. This enables a business model where in-game currency can be translated into both virtual and real-world goods.
This is a unique competitive advantage – one that Apple, Google and Microsoft cannot readily copy. And it’s one that could have developers flocking to Amazon. There’s an amazing opportunity to reward gamers, creating great loyalty among the customer base.
Amazon needs a Halo of its own
The third component to a successful long term gaming strategy is having titles that can only be played on your system. Amazon’s own efforts in game creation have been failures – a Facebook game Living Classics that has been shut down and mobile game Air Patriot that fizzled after two brief weeks of success in November 2012 – but this could open the door for another page from the Microsoft playbook: Buying your way in.
The original Xbox team knew it needed to give players a reason to buy their system. PS2 owners weren’t going to buy another console when they could play new games on one they already owned – even if the graphics were slightly better. To turn heads, Microsoft acquired Bungie – which went on to create the Halo franchise. A slew of other acquisitions followed.
Put simply: Amazon needs a Halo of its own.
According to industry developers, Amazon Game Studios is trying to create first party “Hero Games” – titles that are unique, innovative and can captivate an audience – and, more importantly, can only be played on a Kindle Fire. So far, it hasn’t come close. But the company is quietly amassing an army of game industry professionals to execute this strategy. However, Amazon has stopped short of following Microsoft’s lead here – and it needs to rethink that approach. The way to kickstart the Kindle Fire’s gaming presence is to acquire a few great casual game studios.
The list of possible targets is a long one, but here are a few worth considering. Telltale Games, which made The Walking Dead, would be a coup. Fireproof Games, makers of the incredible puzzle game The Room would also turn heads. And Halfbrick Games, creators of Fruit Ninja and Jetpack Joyride, have shown an ability to create several successful franchises
While this approach is costly, it’s the only way to truly ensure the Kindle Fire gets “Hero Games” and ensure the success of Amazon as a gaming leader. It is very likely Amazon will move in this direction of acquiring studios to boost Amazon Game Studios content.
Amazon may be sliding into the gaming business quietly – but it won’t be long before it makes a big splash. Developers who are willing to bet on the company today could be greatly rewarded down the road. This games industry giant may be quiet – but it’s very much awake and active – and it’s only going to get bigger.
Ross Avner is the principal and strategist for consultancy firm Point A2B, where he advises companies on digital media, game products, and business development. Ross is the former GM of Yahoo! Games and has been part of the games industry for over 12 years in both startup and corporate roles. You can follow Ross on Twitter @rossavner and write him directly at [email protected]point-a2b.com. This article originally appeared on LinkedIn, and has been reprinted here with the author’s permission.