Investments in Game Companies and the Monetization of Online Games
There are several proven models for monetizing online games that are used around the world today. One is a “subscription” model, which means that players sign up for a subscription and pay a fixed monthly fee to the game provider. The advantage for the game operator is planning security through long-term subscriptions. In the past, this model was very successful, but today it is only the optimal solution for a few online games. Another model is “pay-per-download”, where the player pays in advance, but without knowing whether he likes the game. Much more successful today is the “free-to-play model”. A large portion of players no longer want to sign up for a long-term subscription or pay a large amount up front, but rather test the game first. If you like it, you can improve your own game experience in free-to-play games by buying new items (for example, equipment for your own spaceship). These “microtransactions” range from a few cents to virtual premium items that can cost several figures in euros. Good revenues can be made from these small transactions, as the number of players of popular online games can reach into the millions.
It is clear to every game developer that successful titles in the future will not be able to avoid at least the core principles of this monetization model. Europe, and Germany in particular, is taking a pioneering role. German game companies were early adopters of the free-to-play model and have a knowledge advantage over international providers in terms of what works and what doesn’t. In 2012, we observed that the market for online games is more fiercely contested than ever due to the market entry of international competitors.
Players today have a huge choice and can choose from a variety of games in almost any genre (for example, farm simulations). Last year, this heralded a consolidation phase. Large providers of free-to-play games have had to lay off employees and discontinue game titles. However, this is not due to the free-to-play business model, which continues to function excellently, but is due to increasing competitive pressure. Increasing competitive pressure makes it ever more important to find and occupy niches. Farbflut Entertainment does this very successfully, for example, with the free-to-play online games “Pennergame” and “Jailbirds”. These game titles strike a chord with gamers with their socially critical approach and are characterized by above-average player loyalty. The upcoming update of Pennergame to version 2.0 will bring a lot of improvements and will convince new fans of the game. MobileBits has also already achieved over one million downloads with the title “SoulCraft”, solely through viral effects. We see great potential for the future here.
Our extensive search for new investments in the games industry has given us a wealth of experience in VC and games investments. In 2012, iVentureCapital examined over 300 games companies, comprehensively evaluated 60 companies, and invested in seven companies with up to seven-figure sums each. There were certainly more “good ideas” than the seven we ultimately invested in. Unfortunately, many young entrepreneurs tend to be technologically playful without considering economic aspects. Therefore, we place particular emphasis on having a mature business model with either a clear strategy for monetization or a willingness to work it out together. A good idea and a viable business model alone are also not enough: we require an excellent and committed team, a prototype with demonstrable quality and initial successes (KPIs), as well as a realistic plan to reach break-even within two to three years.
We offer not only financing, but also experience in building successful (Internet) businesses. Young games start-ups in particular need to focus on implementing the core of an idea. A clear strategy for monetization therefore receives less attention than necessary in some cases. Our support in various areas such as reach generation, conversion & retention of players, marketing and monetization of games, joint presence at events, SEO and SEM, billing or even administrative support such as recruiting and accounting is therefore gladly accepted. — Synergy effects with other portfolio companies are also specifically promoted. For example, at our next portfolio meeting, the topic of “monetization” will be discussed in depth and constructive approaches will be sought. All game developers in our portfolio benefit from the cooperation with the Performance Games Network ‘TrafficCaptain’, which we founded and which supports user generation. We have not yet completed an exit. I think game developers quickly realize that we act more as entrepreneurs and less as classic investors.
The games industry is one of the most innovative industries of all. At the same time, the industry is home to many nerds and free spirits. These are also needed to develop new exciting game ideas, but carry the risk that the corresponding funding is not considered enough. To minimize this risk and help them succeed, we support games startups with their strategies and business models.