Editor’s note: Tadhg Kelly is a games industry consultant, freelance designer and the creator of leading design blog What Games Are. You can follow him on Twitter here.
Here’s a question for all you would-be investors in game companies:
Suppose two studios approach you. Studio A has a strategy centered around making a big play on one game. It plans to take your investment and use it to make that game as best it can and find success. Studio B has a different idea. It plans to make many small games, build a platform and ecosystem between them and see which works. Then to accelerate what works to success.
Studio A’s model is a deep bet on a single property. Studio B’s model is a broad bet across the market. Which should you choose? Let me ask the question another way:
Suppose two technology startups approach you. Startup A has a strategy centered around making a big play on one product. It plans to take your investment and use it to make that product as best it can and find success. Startup B has a different idea. It plans to make many small products, build a platform and ecosystem between them and see which works. Then to accelerate what works to success.
Which is the smarter investment? You invest in Startup A because it has focus whereas Startup B does not. Startup A may well scale into operating multiple products one day, but early focus on a killer product is key. Startup B, on the other hand, is putting the cart before the horse. It will make a dozen crappy products, all of which will fail.
Here’s the thing. The second question is obvious for most tech investors. They’ll always answer A. And yet (in my experience at least) when it comes to startups working in gaming, investor types tend to prefer answer B. But they are absolutely dead wrong.
I’ve written this article to explain why.
Games Are Not “Content”
I’m not saying that games aren’t risky investments. Of course they are. They’re probably riskier than most tech investments because they rely more on the virtues of creativity and entertainment, two factors that are historically difficult to predict. Of course you might need that extra level of reassurance, that prototype or plan that explains how the game is to be developed in parts rather than all at once. Or that assurance that you have some great talent on the team who will bring the thing home. I get that.
What I am saying, on the other hand, is that tech investment communities (by which I mean the Valley, more traditional financiers and their various clones) harbor a mental image about games that tends to equate them to content. They see games on the same shelves as books, movies and music, and draw a line. Content expires. Content rarely has deep value. Content is often freer than it used to be. Content is an end-product with no opportunity to build one of Peter Thiel’s monopolistic platforms.
And what I’m saying is that that image is wrong. Of course games are entertainment but they are also platforms, often monopolistic platforms. Increasingly so as the lines between online/offline, retail/service, single/multiplayer continue to blur. Over the years there have been numerous attempts to bring content-style financing to games but it has never worked. Games require a kind of development that isn’t the same as the content model. They’re usually much more like technology products. Every serious games business is not trying to build a game and then disband (like a movie). It’s there to build 1, 2, 5, 10, 20 or 100 versions of the same game. Ad infinitum.
Granted that isn’t the ambition of every game developer. Many indies, for example, relish starting over and always build new things in the manner of artists. However scalable games businesses are all built on the idea of making re-playable fun engines that will perpetuate. Just like Microsoft does with Windows or Oracle does. Far from investing in them along the publishing model, you should be investing in them as you would startups.
Startups and Studios
In any platform business the model is to build a great product, attract great users, drive great loyalty and then figure out a growth and revenue strategy from that. That’s Uber, AirBnB, Tinder, Facebook, Skype, Twitter, Snapchat and Google. But that’s also Minecraft, EVE Online, The Walking Dead, Moshi Monsters, League of Legends, Clash of Clans, Football Manager, Madden, Angry Birds, Magic: The Gathering, Game of War and many more.
Actually it’s the general path to success for most studios – whether independent or as part of a larger company. Making a game is just as hard as making a product. With products the mechanics (what an app is supposed to do) are generally straight forward and the question becomes about whether the experience of using them is right. In games there’s also the added dimension of whether the mechanics are fun, which can take a lot of experimentation to figure out. Focus is the key. And distraction from focus is bad.
This is why studios generally work on the same game year in, year out, selling to the same customers, growing their audience and raking in billions of dollars doing it. Just like Facebook keeps working on making Facebook better, Mojang keeps working on making Minecraft better, listening to its community, adding features and fixing bugs. Bungie keeps working on making Destiny better CCP keeps working on making EVE Online better. And so on.
Granted some companies later go on to develop several franchises as publishers (like Activision, Nintendo or Glu, say). Similarly some are blessed by circumstance to make a big grab across a number of areas before it becomes clogged or expensive (Zynga, BigPoint). And in the Asian market some operators like Tencent have such a monopoly lock and a low quality expectation from players that being broad works. However that doesn’t mean it’ll work for any startup studio today. Far from it.
Microsoft didn’t start day one by committing to a dozen different software and OS applications any more than Apple started by making a computer, tablet, phone, music player and television streamer all at once. You would think that would be self-evident for games too, yet for some reason investors don’t get it. They choose B.
What Happens To Studio B
I’ve had a front row seat on the Studio B situation on more than one occasion. I’ve seen several well-funded companies built on this model expire. Tragically so, indeed, because the people involved were great. But still they had the wrong model. Here’s why they fail:
Studio Bs tend to spend a lot of money on back-end technology and tools for products that they intend to work on one day. They tend to have a meta-pitch, like an innovative technology that they plan to leverage across all of their games and become the leaders in a space they imagine will exist. They say “we’re not just making a game, we’re changing gaming”, which is a noble goal. But in almost every case what happens is they become architecture astronauts.
Their core technology, y’see, is generally built pre-product and so its requirements are fuzzy. It’s over-engineered, and in turn becomes a constraint preventing innovation on the products (the games). Whereas a small indie can chop and change their product quickly in response to player feedback, an architecture-obsessed Studio B often ends up spending an inordinate amount of time explaining why things can’t be done without breaking everything. So if things are going wrong they are unable to change course without massive pain. Sometimes not at all. And their core tech eventually needs to be pivoted anyway as actual requirements eventually intrude.
So Studio B’s games are never as lean as they appear to be, always under-specced and take way too long to get to a basic playable state or meaningfully iterate to find their fun. And this is why they suck. Furthermore this is why Studio B’s typically become clone-makers. Realizing that it’s taking too long to make products or see meaningful change in them, they almost always end up rationalizing that what they need to do is carbon-copy something else. And that means they make shitty clones with zero prospect of gaining loyal fans. It’s a vicious yet inevitable circle.
Even more than in the tech world, in the games world acquiring and inspiring loyal fans is essential. The audience is the key asset that every studio builds, not the technology. No audience, no customers, no free marketing channel, no revenue, no next release and next release and next release. Not realizing that is how you spend a lot of money and then go out of business.
Players in all markets expect the games they invest their time into to not be half-assed. Whether casual or core, indie or casino, it’s the same. The axes that define “assed” vary from sector to sector but the principle is the same. Nobody likes a boring mealy-mouthed game. If you want your players to talk to their friends about the great game they’re playing, for example, it can’t just be a rip-off of something else.
Furthermore it’s much harder to kill a product once it’s underway than it is to greenlight it in the first place. Tech investors already know this to be true in the world of startups. Once a startup scales to a certain level it will get into other product areas (like Google with maps, docs, mail and so on). People will be hired, offices rented, operating costs inflate and management too. But that has to happen at the right time, generally not at the beginning of a company’s life, otherwise the startup risks being half-committed to a bunch of products that are never likely to work well. But said startups always promise that they will one day.
The exact same thing is true for games studios. Once you’ve got multiple games on the go it’s difficult to can any one of them. Every team working on every game believes that their’s is The One, and will rationalize that until the end of time. The question becomes whether each game needs some extra investment to find its way, whether each is only half way to its potential, and the fear of failing at answering that question only intensifies. So Studio Bs end up like any bad software company juggling a variety of failing projects and never deciding to kill any of them.
Studio B, in other words, is a well-intentioned money pit.
The Real Value
I’ve seen plenty of investors get very excited by that story that Angry Birds only cost $140k to make and that Zynga built the first version of FarmVille in two months, and worked with several CEOs who come to believe that solving how to make games for half that cost in 10% of the time is their number one priority. They often use the analogy of low-hanging fruit, of easy wins and analytics as a way to success. They tell that story so much that they eventually become believers, but it leads to a tragic end.
Making games isn’t panning for gold. I know there are a couple of examples of studios that did sort of do it that way and found success, but it far more commonly fails. Instead making games is like building a service. It takes focus and diligence. I also know that sometimes that has resulted in over-bloated studios on ego trips that end up spending $100m and going nowhere. But that story is not the norm. Most of the time when talented studios are given the right conditions for success (focus, enough budget, time) they go on to make great things.
So, wonderful investor types, do you now understand? The next time someone comes to you with a proposal that promises a broad strategy and lots of low hanging fruit, pause and think. Do they have a game plan that starts with a real audience? Is whatever core tech underpinning their strategy real? Do they have a tangible plan for getting their first million users that doesn’t start with buying a lot of installs? Are they making something deep?
If no, pass. Invest in Studio A instead.