Heiko Hubertz, CEO and founder of Bigpoint, says that if you want to business in America as a European company, the time to do it is "right now."
Hubertz began his keynote discussion of the differences between the European and American online game markets by citing some numbers. For instance, online games generate 46 percent of all internet traffic, he says.
And while in 2009, 23.5 million games were sold in boxes in the U.S., in the same year, 21.3 million PC games were downloaded in that territory.
He also cited analyst statements which indicate that the global video game software market will grow from $46.5 billion in 2009 to $64.9 billion by the end of 2013, and that online gaming revenue will account for 38 percent of that, at over $24 billion.
"The big issue for traditional developers is that they have to get their return on investment in the first two months," he says. "Is there not an easier way to success? Yes." Hubertz used FarmVille
by way of example, with its development budget of under $100,000, and its over $100 million in revenue.
Big Money In Social
He calls Facebook, with its more than 500 million users as of July 2010 "the biggest gaming market in the world." Social games generated an estimated $825 million in the U.S. alone in 2009, but "is this really sustainable?" he asks. "The most popular games on Facebook are losing players every day." The games are getting old, and the players are getting bored, he says. Now, "you have to spend more than $1 already to get a new user on Facebook [games]. And ARPU is around $1," which means making money as a new company is quite difficult.
On top of that, "whatever Facebook is doing, that affects what you can do," he reminds us. "If you think about Playdom, they were just acquired for $500 million by Disney, but this company is not profitable yet. Now that they've done an exclusive deal for Facebook credits [which take 30 percent of the revenue], I would like to see how this company can ever become profitable."
Mobile gaming devices are dominating the console games market, he says. After people buy the iPad or iPhone, 23 percent of people are no longer willing to buy a game console, a study showed. $1 billion has been paid out to developers, but when you average that across 225,000 total apps, even taking into account the free games, that's not a very high average return. "From my point of view, this market has already crashed," says Hubertz. "You can't make money if you have to sell your game for 99 cents or something like that."
Talking about browser games, Hubertz referred to what he calls the "magic 10." Ten percent of users generate 80 percent of your revenue. The most revenue you're generating out of people is around $100/month. Most users spend less than $2-5. But the power users spend $100 or more. "How can you convert users up from the $2-5 segment, to the $100 segment? This is what your designers have to think about," he says.
From the views on your page, only 10 percent register. Then only 10 percent of them are active, then only 10 percent of those people pay, and only 10 percent of them are heavy payers. "This is the biggest problem I've seen in online games so far. How do you convert these users?"
What is a measure for a successful game? "At Bigpoint, we stop any game that's generating $100,000 or less," he says. "Because these games are not profitable." If you have a revenue of $100,000, your average revenue per paying user is $10. There will be around 10,000 paying users then out of an active userbase of 100,000, out of 10 million visitors to the page. He says that then your cost per lead is $1, and average cost per paying user is $100. Your total cost will be $1 million per month, for a loss of $900,000.
"I didn't incorporate any viral effects," he says, but "if you have to spend marketing dollars, you will not be profitable with a $100,000 product. All these numbers [only apply] if this is your first game. If you have a big portal and you have these users already, you don't have to spend as much money."
So with all this doom and gloom, what is the future? All of them combined, he says, from browser to console to social. "If you combine all these features and develop cross-platform games, you will be more successful."
Bigpoint's first answer to cross-platform development is Toon Racer
, a comical kart racer that's launching in two to three months. "This game works on all different platforms that you can imagine at the moment," he says, referring to iPad, browser, PlayStation 3, and so forth. "It took us around a year to develop that game, and it took under a half million dollars," he said.
Europe Versus America
"There are only existing two markets in America," says Hubertz. "The console market and the Facebook market." The biggest players in online games are from Europe, he says, referring to Playfish, Bigpoint, Gameforge, Jagex, and Unity. And yet, Zynga is bigger than all of them. "Zynga is generating more revenue than all the [other] companies combined," and is growing faster than them too. Americans are dominating the social game space. "Why are Americans so much stronger?" he asks. "Because they only have one language, one government, one law, and they have much easier access to capital."
Europe is too fractured to be as successful, he says. "Most of those [European companies] just started in their own country. And their countries are much smaller." They start growing in their own country, and in a place like China, that's a great market, but starting in Germany for example is a very small portion of the world.
If you want to enter the social or free-to-play markets, Americans have only four payment solutions to deal with. With those, you can monetize over 90 percent of the potential audience. But in Europe there are measures more. "We at Bigpoint we have over 100 payment solutions," he says, "and we need them to be able to even allow payment in about 80 percent of the market."
Americans want multiplayer action games, he says, while Europeans care more about strategy and solo games. So to succeed in America, you need 3D. Bigpoint uses Unity as the main platform, but warns of the potential cost. "With Unity, you have to pay a percentage of your revenue," he says. "You pay for the lifetime of your game, you give money to these guys. Even if this technology is great, we have to be very careful."
Bigpoint's Lessons From The U.S.
"The first thing is hire local heroes," he says. "Hire only Americans. I'm the only German who works there, the rest are all Americans." He also cautions of audience mismatch, so developers should be prepared to change everything. "Most of our games that were very successful in the rest of the world were not successful in America," said Hubertz.
Using well-known IP helps to break into new markets, though, and helps with player retention. "The big problem we have is the churn rate," plus losing 90 percent of players after registration. With a well-known IP, players already know the characters, and the story to some extent, so are more invested from the onset.
Though America is powerful in the social space, "the browser games market is dominated by foreigners," says Hubertz. Evony, Runescape,
they're all published by Europeans or Asians. But in order to succeed you have to "act as a local company," he says. "Be in San Francisco, and nowhere else in the U.S. Everyone is in San Francisco." And if you want success in the U.S., you should develop games for the U.S. only, not for worldwide. "Do casual, or hardcore 3D. Nothing in between. Nothing else is successful."
"If you want to do it, do it now," Hubertz summed up. "Not in a month, not in the future, do it now. Otherwise you will not have any chance to survive."
In a statement to Gamasutra, Unity addressed some of Hubertz's commments in the following statement:
"Heiko Hubertz refers in his [talk] to a revenue percentage he 'has' to pay. This is somewhat inaccurate; BigPoint are making use of a custom extension to Unity, called Asset Caching, designed and implemented to minimize the bandwidth cost of large studio's like Hubertz's.
Basically, it's a special option we've developed to allow large projects to optimize the delivery of large titles to an online audience. For every penny that BigPoint is paying Unity, they are saving more in bandwidth.
Using this feature is completely optional; it's not something you have to use. There is not and will never be any forced royalties associated with Unity games. This separate feature license is optional and one can opt out of it anytime – and naturally continue to develop and deploy Unity games just fine without it."]