The Facebook hardcore

The Facebook hardcore
Nick Gibson

By Nick Gibson

June 14th 2011 at 1:00PM

Is there proof of a core appetite for Facebook gaming? Games Investor Consulting's Nick Gibson examines the issue...

This month, I’m returning to our series of profiles of games companies achieving great commercial success with innovative and rule-breaking business strategies.

This time US social network games company Kabam comes under the spotlight, a studio that has grown phenomenally fast targeting what many have considered a non-existent and non-viable audience: hardcore Facebook gamers.

A few months back we analysed opportunities in hardcore social network games development, arguing this was a sizeable but under-served market.

Kabam recognised this potential as early as 2009, taking a significantly risky but highly prescient gamble to move away from nurturing mass-market sports communities online and into niche browser-based
strategy games.

ON THE MONEY

A superficial glance at their changing user base would suggest it was a disaster. Before the 2009 launch of its first strategy title, Kingdoms of Camelot, Kabam – then called Watercooler – had 25 employees and its sports communities peaked at 26 million monthly active users.

Fifteen months later and with the sports communities now largely gone, it has a quarter of the number of monthly users (7.2m MAU).

Such a decline would be the kiss of death for many social games companies but Kabam now has 16 times the number of employees (over 400 and still growing).

What makes Kabam special is that this remarkable headcount growth has been underpinned by equally strong revenue growth, with the company remaining profitable throughout this hiring spree.

Like most top social network games companies, Kabam wisely took advantage of the VC interest in all things social to raise around $40m in three rounds, giving it a war chest to acquire and invest in new teams and games. These funding rounds graphically demonstrate the benefits of its strategic volte-face. Its valuation rose from $20m in October 2009 to reportedly a few hundred million dollars just 13 months later.

So how has Kabam achieved such a meteoric rise? Put simply, it has deliberately gone after an unfashionable audience largely ignored by other social network games companies, creating video games specifically for them, and nurturing a community around them.

Where the average age of social network gamers overall is early-mid 40s, and a comfortable majority are female, 70 per cent of Kabam’s user base are male and aged 18-to-35. This demographic plays more (Kabam’s average session lengths are a multiple of Zynga’s) and, most importantly of all, pays more (Kabam boasts that its monetisation is market leading).

Kabam has borrowed the best of multiple worlds: the heavily localised browser-based gameplay appeal of off-Facebook games like Travian; the viral propagation features of Facebook games like FarmVille; the commercial benefits of the aggressive freemium microtransaction business models used by companies such as Aeria Games.

WHEN IN ROME

The result is a portfolio of games offering deep, collaborative and competitive gameplay based on common hardcore strategy themes – fantasy or ancient Rome for example – whose communities are richly cultivated through regular content updates and special events.

The games generate revenue through microtransactions which are used to buy largely gameplay-enhancing and frustration-reducing items and services.

Premium cosmetic items are comparatively limited and Kabam makes use of lucky dip sinks – such as randomised item purchases – an increasingly common, if blatantly commercial, technique used by games companies to inject gambling elements into their game.

Unlike most Facebook games developers, Kabam caters extensively to international users and most of its recent new users have come from outside the USA.

Interestingly, despite the success of its formula, Kabam sees its future increasingly lying outside of Facebook: on other social networks, mobile devices, its standalone portal and eventually console. Kabam’s new IP plans therefore now revolve around developing multiple SKUs and the resulting business model (and audience) diversification will clearly present it with a new set of risks to overcome.

Kabam’s success to date teaches us multiple lessons although two stand out for me. Firstly, developers should not be afraid to take a dramatic new strategic direction if the new direction has sound commercial footing.

Secondly, a contrarian point of view is not necessarily an incorrect point of view; if you think there is an untapped market out there, why not go for it and prove everyone wrong? Kabam certainly did.