CEO & Co-Founder, G5 Entertainment AB (publ)
The Future of Casual Games is on Smartphones and Tablets | Vlad SUGLOBOV
Join Vlad Suglobov for an in-depth analysis of casual games past, present and future on smartphones and tablets.
Delivered at Casual Connect Kyiv, October 2012.
For slides visit: http://casualconnect.org/lectures/bus...
Download Audio in English: http://casualconnect.org/lectures/bus...
About Vlad Suglobov
Vlad Suglobov, CEO and co-founder of G5 Entertainment AB, has stated that the company plans to spend between 17 and 22 percent of its revenue on user acquisition in any given quarter, with a goal of not exceeding 22 percent. He noted that G5's development capacity continues to grow, citing a "very strong base in Eastern Europe" that allows the company to hire developers at a "fraction of the cost" compared to some developed countries, which he described as a "tremendous advantage." Suglobov also said that the company capitalizes development costs on its balance sheet and writes them off evenly over two years after a game's release, adding that G5's games typically generate revenue "well beyond even three years." Suglobov has described the company's strategy as continuing to release four to six new games per year, testing ideas in the market to eventually produce larger successes. He characterized the success rate among new releases as "very healthy," noting that over the last 10 years, only about five games lost money, while a similar number generated "amazing returns" of hundreds of millions of dollars in revenue. He also stated that the company's target audience is women aged 35 and older, a demographic he described as "quite untypical" for a gaming company.
Transcript (40 segments)
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Vlad Suglobov0:12
Good day, good morning. Thank you for coming. My name is Vlad Suglobov, I'm CEO and co-founder of G5 Entertainment. Today we'll talk about the future of casual games on smartphones and tablets. G5 is a developer of free-to-play and casual games for smartphones and tablets, and our core business is focused on selling games for these devices. You can find our games on the App Store, Mac App Store, Google Play, Amazon App Store, and Nokia Apps.
A year ago when I presented here, I showed a slide saying we believe that by 2020, according to forecasts, there will be 10 billion so-called smart devices — tablets and smartphones — on the planet, and that this number of devices represents an enormous gaming platform that has never existed before in history. We set ourselves the goal of working only on this platform, because the future belongs to it. Let's see what happened over this year and whether things are actually going in that direction.
As it turns out, in the third quarter of 2012, for the first time in 11 years, new personal computer sales dropped 8% worldwide. In the US, the decline was 12.5%. This is unprecedented in 11 years. The question is why this is happening and why it matters for casual game developers. It's well known that buyers of new computers are buyers of computer software. People who buy games are primarily those who recently purchased a PC. When new PC sales start to stagnate and decline, it means there will be less money in the PC game market, while the number of games continues to grow. The result: less money for more games.
Let's look at why this is happening and what will happen next. If we look at what happened with smartphones during the same period, we can see that we just passed a milestone — there are now 1 billion smartphones in the world. Google is already activating nearly half a million Android devices per day. In 2012, an estimated 150 million iPhones are expected to be sold, and tablet sales — just Apple alone — will reach 100 million units. This is remarkable because two years ago, the tablet category essentially didn't exist, and selling 100 million devices per year in just two years represents an incredibly fast market change.
If you look at any chart related to how people acquire and use these devices, they all look practically exponential. In the bottom left is the chart of iPhones sold; in the top right, the number of Android devices activated per day by month. Everything points straight up, while PC sales begin to fall. If you think about it, it's not very surprising — smartphones and tablets solve the overwhelming majority of tasks that modern people used computers for: email, browsing, working with small documents, music, books, content consumption in general. Virtually all tasks most people use computers for are covered, and the computer is being pushed into a professional niche.
Even there, tablets are finding more and more applications. There was a statistic that the majority of Fortune 500 American companies are already trying or using tablets for their employees in some form. Why carry a heavy laptop when there's a light tablet? So there's a shift toward smartphones and tablets because the people who don't need to work at a computer — gamers among them — are moving to smartphones and tablets. Given the speed of these changes, you need to be looking 2-3 years ahead and start now.
The speed of these changes is actually staggering. The first billion smartphones were sold over 16 years. To reach that milestone took 16 years. The next billion is expected in just 2 years. The speed at which users worldwide are adopting smartphone and tablet technology — iOS and Android — is unprecedented in the history of technology. This change is happening faster than the PC revolution, faster than the internet, faster than even the spread of social networks. We're talking about enormous changes happening in the next 2-3 years, and we'll enter the so-called post-PC era — the era of technology after personal computers.
I think that any developer who wants to be successful in 2-3 years needs to move there now. Considering the production cycle and the time it takes to make a game — if you're starting to make a game now and still plan to make it for PC first, that's a good chance of missing the boat on mobile platforms.
Another confirmation of these changes can be seen in the stock charts of well-known, large companies like Zynga and Facebook. Their stock charts over this year show a decline of 60-70% in value. Why? Both companies seem to have great user growth — the whole world plays their games or uses their social network. Why are investors so negative? The answer is simple: both companies are heavily dependent on the PC market, and all their business is concentrated on PC. They haven't proven they can achieve similar results on mobile, and investors already see the downward trend in PCs. Investors always look for upward trends and want to invest in what will grow.
For example, if EA were public, their stock chart would likely look similar this year. A large percentage of their business is concentrated on PC, and the PC situation is such that fewer computers are being sold. They need to move to mobile platforms, which is apparently why they devote so much attention to mobile in their presentations. In the new mobile economy, there are many more competitors, and it's harder to be a dominant force. This is actually great — those who dominated on PC for years have grown unaccustomed to competition.
Now let's look at what happened as an indicator with G5 Entertainment's stock price. As you may know, we're a public company — we listed in Stockholm in 2006. Fluctuations always happen — a bit up, a bit down, especially during turbulent times on financial markets like this year with the Eurozone threatening to collapse, US elections, budget issues. But overall, plus 1.3% over three years. Why? Why do these great big companies go down while we go up? Again, because we focus exclusively on mobile platforms, and investors expect growth from this segment. Statistics show this segment is growing while PC is declining. We're simply in the right and fastest-growing part of the market.
While our competitors continued telling everyone we were small and not worth working with, we were actually growing at these rates, earning tens of millions of dollars on iOS and Android, and paying out millions to developers. Naturally, those who started working with us earlier received more. If you're a developer, what matters isn't the size of your publisher but how much they can earn per game. You want to maximize your income. It depends on the game — there are hits, average games, and unsuccessful games. It's important to properly adapt games to mobile platforms. If you make usability mistakes, mobile platforms are very unforgiving.
We wanted to compare revenue per game and turned to the data that our competitors love to use in their presentations. They told us that in July, per game on iPad, we earned 67% more than Big Fish, and 143% more per game on iPhone, on average. Some games sell better, some worse, but the trend is roughly the same.
This is a sad slide — or rather, it's sad for some. You have a better chance of earning on an iOS game with us. But there's another important point: while our competitors go around saying there's no money on Android and you can't earn there, we've already earned millions of dollars there, and developers received good royalties from Android sales. There's Google Play, Amazon App Store — you can earn money there. The statistics shown here can be verified by going to Google Play and looking at game downloads, because Google Play shows this information. On average, our downloads are 10 times greater than Big Fish's, and this translates into money.
It's known that monetization on Android is lower than on iOS — roughly half the conversion — but why give up 50% additional profit? There's no reason. Moreover, the platform is developing so dynamically. So hurry up and earn money on Android with us. In under three years of active work in this market, we've established partnerships with more than 80 companies, including the best studios in the world and the most popular brands. Here's the list on screen in alphabetical order.
I want to say that I believe we've brought back or even reintroduced competition into the casual game ecosystem, which had been largely absent for some time. We're now seeing conditions for the best developers improving before our eyes as a result of competition — advances are growing, royalties are growing. Competition is very good. It's a sign that the industry will develop, that it won't become insular and cornered. It's a sign that it will reach the mass market. Without competition, there's only one path: stagnation, low royalties, lack of innovation — what we've seen for a long time. That's a dead end.
What should a developer who still makes PC games do while PC sales decline? I'll tell you what we did. The advice is simple: don't waste time on PC. If you're developing games now, develop them directly for tablets and smartphones. Don't listen to what PC portals say — they have their own agenda and need to survive in this changing situation. Don't get distracted by streaming.
You need to take your successful PC games and port them to iOS and Android, earn money there, and use that money to diversify — sell through Steam, Mac App Store, use iOS as a reference platform for new products, pick your best franchises and turn them into free-to-play format, which I'll discuss more later. And definitely do this on all platforms — tablets and smartphones.
Regarding streaming — some say streaming is the future and a revolution, but there's a problem: streaming will never work on iOS because why would Apple allow third-party app stores into their App Store? It's hard to imagine the Amazon App Store being there. I looked at an existing app that allows streaming of casual games on Android — after half a year or a year it has 10,000 to 50,000 downloads. Many of our individual games have 1 to 5 million downloads in the same timeframe. If 10,000 people subscribed at $8 per month, that's about $800 per month for 100 games in the initial package. They promise to increase to 1,000 games soon, meaning $80 or $160 per game. I'm not sure developers need to earn even less for their work.
Moreover, if you look at the history of game streaming attempts — two companies tried this. One went bankrupt, the other was bought by Sony, likely just to shut it down. For large 3D games, streaming still makes some sense — you wouldn't carry a PlayStation with you. But for casual games, there's no such problem because devices are becoming more powerful and can run any game. Streaming requires excellent internet bandwidth. If it's good, you can just download the game; if it's poor, downloading is much less painful than playing with constant connection interruptions. This service doesn't solve a real problem — it's an attempt to create a walled garden with unclear potential and even cheaper games that you can download for free on Google Play anyway. Why would anyone use it?
When choosing streaming, it's important to pick opportunities that will bring money, not to get distracted by dead-end paths. So what can you expect from transitioning from PC to tablets and smartphones? Here's the best example from our own experience, and it doesn't cancel the fact that you need to make very good games and understand how to do it well.
We started making PC games and already made this transition. Here's the chronicle: we had a PC game that sold for several years on all PC portals including the largest ones. Over those years it earned this amount. We ported it to iOS and Android — it sold for much less time but earned many times more than on PC. Then we reworked it into free-to-play format and again increased sales several times over a shorter period. If you're a good developer with good games and good potential, you can make this transition and achieve the same results.
If you don't do this now and just say you're fine on PC and there's still money there — the problem is that when the money runs out, it will be too late. And given the decreasing amount of money on the market, you'll likely have to work much harder for much less money.
Now about free-to-play and its potential. The game VirtuaChick was released in September 2010 in premium casual format. It became a top-10 earner in rich countries, achieving several million downloads and earning over a million dollars — a successful project. We converted it to free-to-play, releasing it about a year ago, and it entered the top 10 earning games in 103 countries. In 45 countries it became the number one earning game. It earned the same million dollars in just a couple of months, and the first million downloads came very quickly.
If you compare the two versions side by side, as if both started selling on the same day, you can see that free-to-play sales don't drop as steeply. In any casual game, there's an initial peak then sales decline. A free-to-play game can be maintained and developed, keeping sales at the same level over a long period. The maximum monthly revenue actually came around the 11th or 12th month of sales. That's the long-term potential of free-to-play games.
If you compare the positions achieved with very popular games in the same genre, you can see that we surpassed, for example, RollerCoaster Typhoon in terms of positions reached. So be bold — the fact that you don't have a super-popular brand that millions have already played doesn't mean you can't achieve what popular brands have on the App Store. It's still a very young market, and you can enter with original products and earn a lot of money from them.
From our side, we can help by offering good terms for publishing your game, providing financing, sharing experience and best practices, explaining what works and what doesn't. Localization into 12 languages as standard for games we release, QA across all platforms to ensure no bugs remain, cross-platform technology if needed, and we'll publish the game. We'll show it to all our users — millions of active monthly users and over 80 million total downloads to date on both platforms. We can very effectively deliver news about new games to our user base, and we'll help maximize your revenue across all platforms.
If you have questions or collaboration proposals, you can ask now or contact our licensing team at the email shown — they'll be happy to answer and explain everything in more detail.
[Applause]
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Audience Member25:57
Thank you. Russian or English? Please tell us — what is your opinion about Windows 8 and what will happen with it?
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Vlad Suglobov26:07
The question was about Windows 8 — what we think will happen. Nobody knows exactly what will happen, but the situation for Microsoft is that they really need it to succeed, because signals that sales are declining are bad for them. It's very important that it works out, which suggests they'll do everything to make it happen. On the other hand, their previous efforts had a couple of false starts, so there's also skepticism about whether they'll succeed. They also need to restructure their ideology — after so many years working with personal computers, tablets are somewhat different in terms of apps and philosophy. So let's see — that's all I can say at this point.
We don't do anything particularly special. Our main promotion philosophy is to deliver maximum information about new releases to existing users. That first-month spike is natural for any release on smartphones and tablets, especially when a game is promoted by Apple and appears in the new games section. The main information push happens in the first month, so this spike is normal.
The real challenge is not letting that spike fade and maintaining sales at a medium or high level over a long period, because the real money isn't made in the first month. Games on tablets and smartphones can sell for 2-3 years. We see games we released 2-3 years ago still selling and earning money — they've long recouped their costs and continue generating revenue. The most important thing is creating that long tail of sales. In the long term, this is very necessary, I think, for developers as well.
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Audience Member29:16
Vlad, what free-to-play genres are expected or perhaps already have statistics showing the highest profit?
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Vlad Suglobov29:28
I think this question is easy to answer yourself — just go to the current top-grossing charts on iTunes and see what's there. The situation changes quickly. It's been proven that simulators can't earn a lot of money. Casino games are gaining very strong popularity now. There are successful arcade examples in free-to-play that earn a lot of money. I think virtually any genre can be successfully realized in free-to-play. There's always risk with new genres since the monetization approach hasn't been found yet — it may require iteration until the right combination of incentives is discovered. But the potential of free-to-play as a business model for almost all genres is enormous. This needs to be explored because you can hit the jackpot being one of the first.
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Audience Member31:15
[Question about transitioning to free-to-play]
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Vlad Suglobov31:18
If giving general advice, it depends on your readiness to do this. The ideal scenario is if you can leverage a game that was popular in another format and you know it has addictive game mechanics, users love it, and you already have a base of people who would gladly download a sequel that could be free-to-play. This worked very well for us — when we converted our successful casual game to free-to-play, we immediately got a very large audience playing it. That first-month spike is partly explained by the existing user base happily starting to play the free-to-play version. So if you do it this way, you have much greater chances of success than if, without experience making a successful game, you simply decide to make free-to-play and try to create a hit from scratch — that may not be so simple.
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Audience Member33:00
Vlad, for publishing on Google Play, did you use any special protection mechanisms for your games, in the context of piracy and everything else?
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Vlad Suglobov33:08
No, we didn't actually use any. The thing is, monetization on Google Play happens through volume — the traffic you can get there is very high, downloads are very numerous, and our approach was based on impulse purchases — where it's easier for someone to buy at a given moment because they enjoy the game than to seek ways to pirate it. The rule applies here that people who pirate games most likely wouldn't have paid for them anyway. The losses from piracy are hard to evaluate, and it's not clear they actually exist.
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Moderator34:04
Any other questions? Okay, well you said everybody has an agenda, right? So in this case I have an agenda as well. On the third day, tomorrow, when typically nobody shows up for these presentations, we have a whole day put together related to building and supporting free games and services.