The game industry has never been more complicated and confusing for game developers. Besides the many technological concerns that developers face, there are also new platforms for which you can develop, different methods for structuring the business itself, various revenue models to explore, marketing strategies to consider – simply put, the business dilemmas are becoming just as vexing as the technology.
What you have to remember is that business is war, and until you decide you want to win, you will not. It’s that simple. For those of you that did not attend the recent Game Developers Conference in San Jose, you missed the visual representation of your biggest challenge: thousands and thousands of developers wanting the same thing you do: a deal. Each person with an idea, each with a plan. Each of them getting in your way. Each of them taking your piece of a diminishing development pie. How do you stop them? You can't – you have to beat them. If you can't be first, be best.
If you’re wondering what my background is, here it is. My first endeavor in the game world was with a small videogame start-up called Starpath, circa 1982 through the early months of 1984. This was during the peak of the Atari 2600’s popularity. I had the pleasure of creating, staffing and managing a field training force nationally. Over time, I became a national salesperson. Starpath's product, for those of you unfamiliar with console history, was a 64KB RAM hardware device that fit in the 2600's game slot. Starpath's games were on cassette tapes and loaded into the memory of the Supercharger in preparation for play. Some of the more memorable title names were Communist Mutants from Space, Sierra On-Line's Frogger, DragonSlayer, Escape from the MindMaster, plus eight other unique offerings. These games sold for an average of $16 at a time when Zaxxon was $60.
We had the brightest developers, the coolest graphics, the best distribution, venture-capital backing…and a failed business strategy. To be fair, it was a time when the business was starting to crest, rumor had it that Atari had oversold its platform by a significant factor, and the PC had just been introduced by IBM. The world had changed and we were trying to sell razors for $80 bucks when the market was interested in blades.
As a result, our endeavor failed. We didn't see what was happening, and as a result we didn't change our business and revenue model. However, for some time after the close of the company, the games (some marketed previously, four brand new) were sold directly to the installed base of Superchargers. From what I understand, this direct sale to the consumer went on for three or four years after Starpath’s demise. It’s proof that a captive platform, an early-adopter audience and solid game play will always hold a consumer's interest.
The moral of my story is simple: pay attention to your moment in time. Use common sense when you start to sell your product. Check the horizon: what environment-altering changes might be about to occur? Finally, and most important, understand your position in the food chain.
Have a Plan
There are only a few things you can do to attract attention. Access and persistence are two key ingredients. Partner selection and a well-planned project are next. The last part of this trifecta is also the most difficult to achieve: experience, track record and skin in the game.
To win means you have to accomplish your goals. Is your goal to become published? Is it to build the greatest game ever? Or is your goal to create and build a sustainable business and revenue model? This is a choice you must make early on. The trouble is, most of us get into this business because we are passionate about it. While this is good, once you're in, you have to make sure you aren't ignored or run over. This means you have to channel your passion, cover your weaknesses and work smart.
Here’s an example of how you can channel your passion. A client of mine, 2AM Inc., which develops and hosts massive multiplayer Internet games, is a classic example of work-as-war. The development staff is based in Israel. Their mission is to produce the most compelling community-based, customer-to-customer interactive games available today. Their business model is twofold:
- Be a development company by securing development contracts with publishers.
- Create community-based games that attract large audiences.
Their revenue model follows their business model: select publishing partners that fit the game project plan and derive advertising revenue by leveraging the customer audience. 2AM had more than 18.5 million advertising impressions with a 1.5% click-through in March 1999. How did the company do that? It's called "looking over the horizon." The company changed its business model and its approach to customers.
In The Beginning...
Before I began working with the company in 1997, the company had an audience of approximately 5,000 members participating in a pay-to-play scenario. Growth was slow. The company’s start-up money came from previous successes, private capital and an investor planning to compete in the consumer ISP arena. Revenue was derived from a monthly and annual membership fee. The hook was 30 days of free play. Convinced that their games were high quality, 2AM believed that simply having players try the service would result in purchased memberships to the service. This was during the most fluid stage of the Internet’s growth, a time when business models were being developed, tried, shelved and re-oriented.
Many people in the game industry believed that cable television’s business model (monthly subscription) would win. Today though, many believe that there is no value in something you get for free. The requirement to compete as a publisher (although this was never was the company's goal) was to spend hundreds of thousands of marketing dollars in an arena that was under early development. But the company felt that this strategy was too risky, and that there wasn’t enough money being spent by consumers to make the venture profitable. It became apparent to management that the Internet was changing. Executives at 2AM knew that the market was coming, and they wanted to establish their company without taking any extreme risks. Simultaneously, they wanted to rise above the noise being generated by their competition.
Executives at 2AM knew the importance of embracing change when necessary, so they shifted the company’s business model. The decision was made to facilitate free play, which meant that revenue would henceforth come from advertising sales. The company also brought on a business development person (me) to focus on development partnerships in last week in May of 1998. The transition to free play began that same week.
2AM focused on advertising and publishing targets with the goal of selling ad space on its site. Meetings were secured with possible publishers and the plan began to position the company as an attractive acquisition target. Along the way, an interesting thing happened: 2AM focused on driving revenue from publishing partners, smart money, and ad revenue. With that simple and focused strategy, income improved, the company’s staff grew and the plan for becoming an acquisition target, while still in place, took a shotgun position. (A business acquaintance of mine confided in me that the only reason he took his company public was to eliminate the hassle of valuation in a merger/acquisition. Great strategy; hard work; obvious results. His value is clearly measured by share price times outstanding shares – the market capitalization of the company.)
It quickly became apparent that 2AM's ad impressions and click-through rates were growing large enough to justify hiring a professional firm to represent the company’s growing inventory and their sales. 2AM charged me with the job of locating, interviewing and selecting a firm to handle the advertising sales. While I knew of quite a few of these companies, I didn't know any that understood multiplayer online gaming. And while I can say I didn't look at every firm in the market, it was painful to find so few with interest in this growing market segment. Most firms I spoke with didn't believe this market segment warranted their attention. They either felt that the market wasn't a "real category" or it was too small for them to make any money representing. And all of these companies were strictly Internet-only advertising firms I was talking to! But they didn't want to take the risk with online gaming. I wondered what the world was coming to. Fortunately, not all advertising firms held this conservative view and I finally secured a strong company to handle ad sales.
Whether your sales force is internal, contracted or secured through a publishing relationship, it must be trained to understand your business. It is your responsibility as company management to set frequent meetings to explain the company strategy, introduce news products and make yourself available for high-level sales calls. In order to educate sales representative about your products and services and make presentations on your behalf, you have to secure their mindshare. In this regard, persistence pays off: regularly scheduled calls, visits and email contact with your sales force keeps you in front of them and maintains the pressure to keep your presence in front of the customer.
Broadcast Your Message
2AM took time to determine and craft the right company message. The company built a PowerPoint presentation to deliver this message. This ten-slide presentation could be tailored to any target: publisher, reseller, developer, or investor. One of the toughest things in business is developing and then repetitively presenting the key data points about your company and/or product. But it’s important not lose sight of the power of the presentation.
Every presentation you make should build on the past and improve based on current input. You might grow tired of hearing your own message over and over, but it’s important to keep it crisp. The person in front of you has never heard your pitch before and it has to be as exciting as your very first presentation. Remember the butterflies you had the first time? Keep them coming – they’ll keep your delivery sharp.
With the company message established, an elevator pitch was crafted for 2AM. The goal of the elevator pitch is to describe who you are, what you do and what you want in 30 seconds or less. Sure, there's more to say about your company. But if you don't sink the hook, the elevator doors will open and your next meal will walk away. Practice these presentations as often as you can. Keep it as consistent as you can. Sharpen the edge of your delivery.
Meetings were set and tradeshows were attended with the intention of delivering the company's message and securing new business. Developing a business partner was always an important focus. That partner could be a publisher entering into a contractual relationship with 2AM, or simply a customer visiting the site to play. In either case, you have to go for the close, to ask for the order.
Make your communication tools consistent with your message and your product. The tools at your disposal should include:
- Press releases, which can be delivered either directly from your company or through a professional public relations firm.
- A hard copy and email brochure that parallels the information presented on your website or game box.
- A price list or sales sheet listing your product’s specifications, features and benefits.
- Customer and partner testimonials about your company and/or product.
You must be persistent in delivering your company’s message. 2AM selected websites with the best customer fit and began advertising on them. A toughly negotiated ad placement campaign was created with a limited ad budget, with the purpose of driving gamers to the 2AM site.
Simultaneously, publishing partners were selected and the contact and access campaign began. When trying to strike up partnerships, make sure you are speaking with a decision maker, not a gatekeeper. Verify early in the conversation what the individual's job title and position is. If you don't ask, you won't know what the chain of command is within a company. Ask what the organization chart looks like and ask the person where the spending and contract authority level is on their org chart. If you can't get high enough, contract with someone that can, or ask your contact what it takes to proceed to the next level. Ask the person on the phone who their boss is. Ask how decisions are made inside the company. Once the target list of individuals at various companies was complete, calls were made, meetings set and agendas created.
Once at the meeting, you’re in "discovery mode". You should try to learn as much about your potential partners as you can. What is their business and revenue model? What does their release horizon look like? If you are meeting with a CD-ROM company, ask what their online plans are, or vice-versa. Who are their distribution partners? How do they work with developers? Do they have a project waiting for a team or technology? Or do they want fresh projects from outside the company? Many companies want to develop a particular product brand or game category, and as a result they’re very interested in hearing how your game concepts can strengthen and extend their brands or categories. Ask what it takes to earn their business.
You must have skin in the game. The phrase "skin in the game" simply means that you have as much, or more, to lose if your project fails than your partner does. To set the stage in the meeting, start off by discussing the companies and teams you have worked with. Talk about platforms and technologies you have worked with and currently use. To be taken seriously, you must have a working demo, a team with experience, your own money or all of the above. No one funds from a concept paper or a one sheet. In a few rare circumstances, an individual or team that has a track record from here to there and back again can land a deal this way, but you shouldn’t expect to be that exception.
Economies of scale and its associated efficiencies means that certain tasks are best outsourced. This fact is to every developer’s advantage. It means that game publishers often need third-party developers. They can't afford to miss the next big hit, and as a result they are constantly on the hunt for opportunities and in competition with other publishers to secure the next hit. Your advantage is your plan, track record and access. These assets go a long way to make investors interested in you. If you lack these significant assets, there are other ways to attract money. Friends and family money is probably the most common – and most dangerous. The emotional commitment is hard on both parties.
For first-time developers, you will be lucky to get published. Earning a dime from the effort may be secondary. Your goals will determine your need for money. If you have a big plan, you will probably need big money. Just remember that whoever funds you initially will want to know the value proposition for their investment, what your exit strategy is, and what return on the investment you will offer.
Produce What the Customer Wants
Many product creators build products and then seek customers to sell them to. This is not the wisest strategy. Research and good gut instincts are critical to developing a game or game service that people will purchase. Today’s business models make the actual purchase of a product less relevant (e.g., you could follow the model of selling advertising revenue instead of selling play time), but that only changes to whom and what you are selling. It is far easier to produce a product or service someone has contracted you to provide than finding a buyer for something you feel is valuable.
Finally, remember that there is no magic involved with game development – it all comes down to simple hard work. You have to understand your business. You have to ask questions that will give you answers. You have to have a solid business model. You have to be better, faster and more persistent than your competitor. You have to ask about your competitor. You have to deliver. You have to earn the business.