Thursday, June 7, 2007

Inside the YouTube of Games

Casual Flash games generate monthly pageviews in the hundreds of millions, but the game industry has been painfully slow
to capitalize on this massive audience—the chief exception being, which Electronic Arts acquired for about $50 million in 2001.
Today some 1.4 million “Club Pogo” subscribers pay $40/year - another
nice $50 million in annual business.

Jim Greer, former Technical Director Pogo, like EV thinks that there
is a big business to be made out of casual games, and raised a million
dollars for his new start-up, Kongregate,
which aims to be the YouTube of games, offering free, ad-supported
Flash games and an online community to increase the site’s stickiness.
After the break, Greer talks revenue model and numbers.

What’s so YouTube about Kongregate

‘YouTube for games’ is really just the attention-getter for people
who don’t know that much about the space. What we really are is a
community for web gamers and developers. Current web game sites don’t
do community right, if at all. If I beat a game on Miniclip or AddictingGames, I don’t take anything with me and can’t even see the other people who are playing it as well.

Kongregate by the numbers

Page views for March were 2.4 million. That’s up from 400K in
February. Registered users are in the low five figures - until recently
the only incentive to register was to socialize. Now that we have
persistent rewards for playing games, we’re seeing much better
registration rates. Right now we have 483 games, and they’re coming in
at a rate of 40-50 per week. Those are from 224 developers.

Leveraging Ad Revenue

The participation rate for YouTube is somewhere around 2%. That
means 98% of the users came there to view videos, not upload them. If
our participation rate is around .05%, it doesn’t really kill us. Good
games are something you play for hours. A good viral video you watch
for two minutes. So we can have a lot fewer games and have plenty of
entertainment value…

(To encourage user-generated content), most other sites pay
developers a small one-time license fee. They make a lot of money and
they don’t share it. We think we can inspire love from our developers,
both because they like our community, and because we treat them well…
By default, all developers receive 25% of the ad revenue generated from
their games… [But] it’s possible for a game to earn 25%, 35%, 40%, or
50% of ad revenue (depending on performance).

Unlike YouTube, users can’t share games on other sites and blogs
(yet), but this is something Greer believes is “less of a blockbuster
strategy than it was for video.”

All this sounds promising, but unlike other proven online
communities, making a enjoyable Flash game takes a lot more time and
talent than, say, uploading a funny video, and that barrier limits
Kongregate’s content stream. So what’s it going to take for Kongregate
to become the number one online game destination? “Much better virality
than we have right now,” says Greer. “I’m very happy with where we’ve
come in the six months since we founded the company. I think we can do
a lot in the next six to twelve.”

You can follow Kongregate’s saga on Greer’s blog.

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