110799

Big Fish Games bets on cloud delivery, real-money games

Top casual gaming publisher owes its success by catering to an underserved market of women

Entrepreneur interview by Steven Loeb
April 27, 2013
Short URL: http://vator.tv/n/2ee9

Over the past decade or so, the Internet has brought gaming to the masses. People who want to play games no longer have to go to a store, buy an expensive console and pay $50 for each game. Now the games can come directly to them, and games are cheaper, accordingly.

In turn, the market has become over saturated with easily accessible games. So,with so many companies out there, all trying to develop games to compete for the same batch of users, how does one company rise above the rest and make itself stand out?

Simple: find an underserved section of that community, a group that is being ignored by the bigger companies, and cater to them. In the case of Big Fish Games, that turned out to be women.

"Women are an underserved demographic," Paul Thelen, founder and CEO of Big Fish Games, told me in an interview. "While men are oversaturated."

(Note: Thelen will be one of the keynotes at our Splash LA event on the evening of May 30 at the famed and swanky Hollywood Roosevelt hotel. As always, our Splash keynotes share their lessons learned from the challenges they face building their startups. Register to get your Spring Sale tickets!) 

In fact, the company's success among women has been so overwhelming that Thelen says no other gaming company can even come close to besting them in the demographic. Around 90% of its four million PC users, and six million mobile users, are women, aged 25 to 75.

Big Fish Games dominates the market due to its exclusive deals with developers, which has allowed it to secure the majority of the casual games that cater to women. Some 60% of its games come from exclusive deals with third parties, Thelen told me. Plus, he said, the other companies simply are not as good at attracting female gamers because "they have no good content."

Focusing on women has been a bright spot for Big Fish Games, which was founded in 2002, and now employes 700 people in four other offices: Oakland, CA; Vancouver, Canada; Cork, Ireland; and Luxembourg. The Seattle-based company posted $220 million in bookings last year up 20% from 2011.

The difference between bookings and revenue is that revenue is actual money that came in, while bookings includes money that may be deferred into the future.

"The difference in bookings to revenue are due to free-to-play games having a deferred revenue component.  Given that prior to 2012 we had no Free-to-play games, comparing year-to-year revenue is not an accurate comparison given the changing nature of our business," Thelen said, adding the vast majority of bookings that came in last year was recognized as revenue.

So, while the company doesn't disclose revenue, Thelen says the vast majority of bookings hit as revenue in 2012, with the fastest growing segment being mobile. Only 10% of the company's revenue came from mobile a year and a half ago, and now that number is up to 30%.

With its hold on the female gaming community seeminly impenetrable at this point, what does Big Fish see coming up as the next big thing?

The gaming industry is in a huge state of transition, Thelen said. There is rapid distruption going on, with it moving from PC to mobile, from "free to play" games to "pay to progress" games, where users have to pay to get further inside otherwise free games.

What Big Fish is betting on, he said, is cloud delivery, which makes it so that its games can be delivered via interactive video onto any device. And, based on the types of games Big Fish is known for, they have a leg up over other types of games.

"Core games are hard to deliver that way," Thelen said, "virtualization can be slow, and for fast paced games if there is any kind of latency is it automatically obvious."

But because the games offered by Big Fish are more casual, and slower, it is not as noticable. Big Fish offers a cloud subscription for $7.99 a month, and has already virtualized 200 games, and is offering a new game every day. These games are offered on PC, Android and Roku, but have so far not been approved for iOS.

By allowing users to play its games on any device, Big Fish's goal is "to become the Netflix for iOS," he said.

In addition to cloud delivery, the other big opportunity opening up is real-money gaming, which Big Fish launched last year,

In March, the company purchased Self Aware Games, and its parent company, Social Concepts. The company made a game called Card Ace: Casino, which was subquently renamed Big Fish Casino. That game became available in the United Kingdom in August, the first time that a real-money gambling mobile game was made available in the App Store.

One of Big Fish's biggest competitors, Zynga, recently followed suit, launching its own gambling games in th U.K. in April. The company has also been attempting to bring real-money gaming to the U.S., filing paperwork with the state of Nevada in December that was the first step toward getting a gaming license in the state.

"It might be a while before real-money gaming comes to the U.S.," Thelen said, but Big Fish will take advantage of the opportunity once it does.

When I asked him how he felt about Zynga's extremely close relationship with Facebook, which was recently broken up, Thelen seemed much less enthusiastic about that aspect of online gaming

One thing that Thelen does not seen in Big Fish's future is to be as closely tied to a social network as Zynga was to Facebook.

"For an independent studio, with aspirations to be bigger, it can have its advantages," he said. "But, ultimately, a social network like Facebook cares more about its own best interests and not the interests of your studio."

In the case of Zynga, he said, once Facebook realized that its users were "less than pleased" about getting automatic posts from its games on their newsfeeds, it clamped down. And this hurt Zynga, since they had what amounted to free advertisements taken away. And that happened because the interests of the network overshadowed the interests of a third party.

"It is dangerous in the long term."

Other revenue streams  

In addition to its cloud delivery, Big Fish also offers a Club Model, with 3,000 PC games for sale. Users can play an hour for free, and then buy it. They can pay a fee of $6.99 to get one free game, and then 30% off all future games.

One million users choose the club model, while three million users stream individual games on PC, Thelen said. Overall, the company boasts four million users on PC, and six million on mobile.

With all that success, the next question becomes, will the company be going public any time soon? 

Interestingly, the company had actually been planning on going public a few years ago, Thelen said, which is what caused him to step down from his role as CEO in 2006, in favor of Goldman Sachs managing director Jeremy Lewis.

"We were less focused on product at the time, and we were thinking of doing an IPO, which required a different skillset," he said. "We were looking for initial investments."

That is why the company, which had been bootstrapped since 2002, raised two rounds of funding: an $8.7 million angel round in 2006, and an $83.3 million series A in 2008.

But the plans to go public changed with the "Zynga IPO disaster," he said, which the company felt had soured the market on online gaming companies. When Big Fish scrapped its plans for an IPO, and decided to focus on product again, Thelen stepped back into his old role, returning as CEO in April 2012.

Though he doesn't believe the company is profitable enough at this point to go public, it could happen in the next year or two, perhaps by  2014, especially with the growth the company has been seeing lately, Thelen said.

"It is something we will always consider."

(Thelen will be one of the keynotes at our Splash LA event on the evening of May 30 at the famed and swanky Hollywood Roosevelt hotel. As always, our Splash keynotes share their lessons learned from the challenges they face building their startups. Register to get your Spring Sale tickets!) 

(Image source: http://www.happy-mothering.com)


Related companies, investors and entrepreneurs

11684
Big Fish Games
Startup/Business
Description: Founded in 2002, Big Fish is the leading online marketplace for premium casual games.  Through its proprietary, data driven platform...
3915
Zynga
Startup/Business
Description: Zynga is the largest social gaming company with 8.5 million daily users and 45 million monthly users.  Zynga’s games are avail...
Bio: Founder, Chairman and Chief Strategy Officer of Big Fish Games. He has an MBA from Stanford University and a Bachelor of Scienc...

Related news