German persistence: Europe's new casual MMOG juggernauts
You may have missed the €70m (£55m/$110m) investment in German casual MMOG developer/publisher Bigpoint in June this year because it went largely unmentioned in the specialist games press. The deal represented the single largest investment round ever achieved by a privately held European games company. Yes, the transaction was technically a buyout as the investors (GE/NBC Universal's Peacock Equity Fund and UK-based private equity company GMT) gained 70% of the company, but the fact remains that this was, by European standards, a huge deal involving a company that had largely flown under the radar of the popular and trade press.
In fact, Hamburg-based Bigpoint is at the forefront of a wave of German casual MMOG companies that have been pioneering the concept of browser-based MMOG publishing. They have begun to take European MMO gaming in a different direction to either North America or Asia (where retail or large client MMOG downloads predominate) and have provided, in the space of just 2-3 years, a significant injection of energy and capital into the stuttering indigenous German games development and publishing market.
Together with Gameforge, Travian, Innogames, Alaplaya, Frogster Interactive and Gamigo, Bigpoint has revolutionised the European MMOG market reaching unheard-of player numbers and generating unprecedented usage which dwarfs anything achieved by any of the more traditional retail-and-subscription MMOGs. Indeed Gameforge, Bigpoint and Travian not only rank in the top 10 most popular games services in Europe (source: comScore data, June 2008) along side the likes of casual giants Miniclip and Yahoo Games but Gameforge is the 7th most popular worldwide ahead of all Disney casual games and virtual world properties (including Club Penguin) and twice as big as WoW. So how have they achieved this?
Talking to a number of these companies a number of common critical success factors become apparent:
• Low barriers to entry: Their games' minimal technical requirements maximises the addressable market of computers (and therefore players) able to play them. Most of the leading German trio's games are played in a browser using Flash, Java and plain old HTML in contrast to the download-oriented Asian and NA MMOG markets. This allows them to have appeal for frustrated gamers without the money to buy the sort of PCs needed for modern retail PC games.
• Broad localisation: The low minimum hardware specification is particularly appealing to younger gamers using hand-me-down computers but especially in central and eastern European territories. Bigpoint is localised into 17 languages, Gameforge caters for 25 languages whilst Travian now operates 40 different language versions. This has enabled their services to tap into a vast base of players unable or unwilling to read or communicate in English (the default and, in most cases, only language used for most traditional MMOGs).
• Easy to play, hard to master: Most casual MMOGs offer a high level of gameplay accessibility that is rooted in the simplicity of their design and user interface. However underneath their primitive-seeming surfaces, you'll find tried-and–tested, deep and persistent multi-player role-playing, simulation and strategy gameplay that keeps players invested in their progression within the game.
• The 'Freemium' model: Most of the German titles are based around a micro-transaction revenue model that allows unlimited free play and optional virtual asset or service purchase. Contrary to popular belief, most of these assets and services are gameplay-enhancing such as single use munitions and limited duration player upgrades. Conversion of free to paying players tends to be below 3% but those that do pay can generate monthly ARPU of €10 to €20 (Bigpoint have publicly stated that their monthly average revenue per paying player is higher than that for WoW). The beauty of this model is, again, its accessibility, attracting all types of players from those only willing or able to pay a few Euros to those wanting to spend hundreds of Euros in a single month.
Should we be surprised that so many companies in a single territory have identified and seized upon the opportunity presented by casual MMOGs and, in particular, persistent browser games? In such a small industry, innovators often generate followers, something seen frequently in the UK. It is, however, strange that they have established such a commanding market position whilst also generating what in many cases have become extremely profitable businesses? Most of Bigpoint, Gameforge, Innogames and Travian's games will have been developed for less than €0.5m but can be expected to return a huge multiple of that over their lifetime. Bigpoint is expected to turn over €20m this year, nearly double last year's reported revenue whilst Gameforge boasts that it has been cashflow positive and profitable from day one, grew its revenue 350% in 2007 and is on course for 450% growth this year.
With combined active monthly users of tens of millions in Europe alone, I believe these German companies have unearthed a potential mass market gold mine rather than a short-term niche. There is still plenty of room for business model diversification and exploitation, product and service quality improvement (without taking them out of the browser), broader geographic expansion and, dare I say it, the commercial exploitation of third party brand licences. With global VCs also showing strong interest in this area, now might be the time to look continent-wards for innovative and highly profitable business models.