O Publisher, Where Art Thou?
Blue Fang's Scott Triola on why traditional publishers have failed to capitalise on Facebook
In this exclusive editorial for GamesIndustry.biz, Blue Fang Games' COO Scott Triola asks why traditional game publishers have failed to capitalise on the success of Facebook as a gaming platform, and looks at the working methods that need overhaul and the challenges faced to make the 350 million users of the social network a viable market for the big box publishers.
Over the past two years, about the same amount of time it takes to make a standard next-gen videogame, Facebook has added roughly 350 million active users and become one of the most disruptive forces in the history of the gaming industry. The top ten Facebook game developers currently combine for nearly 600 million monthly active users (MAU) and are commanding staggering valuations ranging from $260 million for Playdom to a brain exploding $1.5 - $3 billion for Zynga. Facebook has truly brought ďsocialĒ gaming to the global masses and whether or not you believe Facebook is here to stay, there is no arguing that the gaming landscape has been forever altered by its success.
Hundreds of millions of players. Hundreds of millions of dollars in (rumored) annual revenue. Billions of dollars in valuation. And how much of this staggering gaming value has been created by the traditional game publishers? None, zero, nada, zilch. Not a single dollar of this Facebook value has been created by Activision, EA (no, buying Playfish does not count), Ubisoft, Take-Two or any other top game publisher. How is this even possible?
I have heard and read many rationalisations by very smart people about why the big guys have yet to get in on the Facebook action. Phrases like "still assessing the situation", "weíre in a bubble", and "in the long run the proven gaming brands will win out" come to mind. All I can say in response to such statements is "check the scoreboard". Publishers can prognosticate and speculate all they want, but as we sit here today they have allowed Facebook upstarts to kick open the door, take their milk money and eat their lunch.
At this point, you may be wondering who I am to call out game publishers on a collective whim that would make Pedro Cerrano proud. Iím the COO of Blue Fang Games, an independent game developer that has made a business out of making family games with leading publishers for over ten years. This past year, we saw what was going on in the games business and self-funded a small talented team that developed and launched a top quality Facebook game, Zoo Kingdom, in just under three months. You can play it right now on Facebook here. I also work closely with our publishing partners on our PC and console titles and my first job in the industry was as a product manager at Atari, so I have lived on both sides of the fence. I donít claim to be much smarter or more knowledgeable about this industry than others, but I do know this Ė in less than three months, for a budget that probably wouldnít cover the Red Bull expense incurred in making Modern Warfare 2, we were able to go live with a top quality game on Facebook. Succeed or fail, weíre in the game and weíre learning, improving and creating new value every day. Again, check the scoreboard.
The point here is not to cast the publishers as the bad guys or attack the competence or skills of the individuals who work within them. I know first hand that there are many smart, hard working, talented people within these companies that are similarly critical (if not more so) of their own organisationís ability to anticipate and execute on new opportunities. Iím also not making the argument that the traditional game space is going away by any stretch. Heck, the under 13 demographic, which makes up a huge portion of Blue Fangís customers base isnít even on Facebook (or at least isnít supposed to be). The question I am exploring here is why havenít these multi-billion dollar publishers with thousands of talented employees been able to build their internal capabilities to dominate, or even compete in, the Facebook landscape?
Itís Hard to Reach For the Stars When You Are Getting Punched in the Gut
2009 was a tough year for the gaming industry. It was the year we learned our videogames were not recession proof and we really took it on the chin. Sales were down, stock values were down and layoffs were up. We were all trying to get our respective houses in order to weather the latest and perhaps greatest storm our industry has collectively faced. In times like these, companies must expend so much energy and attention on shoring up their existing business that there is often no organisational bandwidth or political capital to pursue new but "unproven" opportunities like Facebook.
When the going gets tough, it is also time to restructure. Publishers have been engaged in a seemingly endless game of corporate musical chairs that has key decision makers leaving and entering new and existing roles. Itís no big secret that during times of transition it is hard to get decisions made and the preferred course of action is often to keep your head down rather than risk getting it cut off. It is times like these that words like "realign the business" and "focus on core strengths" tend to come out in force. What these terms usually mean is that no decisions are being made and everyone is afraid of getting fired so nothing is getting doneÖcheck back in a few weeks. I have no doubt many Facebook initiatives were casualties of organisational upheaval and that countless "Facebook Next Steps" memos weep quietly in the "I told you so" folder of now defunct email accounts.
The Brain Drain
The strongest and smartest advocates for Facebook among publishers are aggressively pursuing this opportunity as we speak, creating huge value in the space. They just arenít pursuing it at the behest of the traditional publishers. Companies like Zynga, Playdom and RockYou! are able to woo smart and ambitious individuals by offering some very enticing things including:
- Significant equity (with potential upside!)
- Accountability AND responsibility (imagine that)
- Ability to focus efforts on the external opportunity versus on the internal bureaucracy
- Opportunity to shape an organisation versus be shaped by one
The people that are leaving the traditional game publishers to pursue these new opportunities are precisely the people these publishers would otherwise need to recognise and capitalise on these opportunities. The exodus of even one key person can severely impair an organisationís ability to act and this continues to happen across our industry.
Organisational Momentum (or lack thereof)
In the amount of time it takes to sign a traditional game development deal (6-9 months), an effective online team can develop and launch 2-3 new games on Facebook. In that same timeframe, FarmVille went from not existing to having more active users than Twitter. In a world with Facebook, publishers take far too long to make decisions and far, far too long to move to action once a decision is made.
Organisational delay is inherent to most large organisations, even the most successful ones, and Iím not solely singling out game publishers for this. In our industry, however, the negative consequences of this delay are exacerbated due the supersonic rate of change on Facebook and other online and mobile platforms. Moving to action typically requires the consent of multiple stakeholders across multiple areas with often competing priorities and incentives. It can take a lot of time and effort to run the approval gauntlet and a positive outcome is far from guaranteed. In many cases, the champions of a new opportunity make a rational individual decision that the personal effort and political capital required to attempt to push something through just isnít worth it. I am sure this has been the cause of death for many Facebook initiatives over the past year or two.
In addition to the typical organisational delay, Facebook poses an additional challenge in that it is not necessarily clear what internal group should own this platform. Facebook does not fit neatly into the traditional categories our industry has been built on. Is Facebook "casual" gaming, "online" gaming, "social" gaming, "mass market" gaming, "family" gaming or deserving of a new category all-together? By not clearly fitting into an existing organisational structure, delay has only been increased as internal turf battles have played themselves out for the rights to own this new space.
The DDIY (Donít Do It Yourself) Mentality
Why build when you can buy? EA recently acknowledged the value of Facebook and their own internal shortcomings in this area when they purchased Playfish for $300m plus a $100m earn out. By the end of 2010 you will see more deals like this as publishers scramble to gain a foothold on Facebook and other mobile and online platforms. Under the circumstances, these may be viewed as "good deals" for the publishers, but one has to ask why they have to pay such premiums for capabilities they should have been able to build internally and for a fraction of the expense.
Letís get back to the Playfish acquisition. I think EA overpaid, but I donít take the position that this was a bad deal for EA. EA gains instant access to 52 million MAU, Playfishís rumored $50m annual revenue and a Facebook developer that will be able to bring EAís gaming brands to millions of players on this platform. EA stands a good chance of getting a decent return on this investment. This return, however, pales in comparison to the return they could have gotten if they had invested a modest amount in Facebook (less than the $21m in funding Playfish secured prior to being acquired) and built their own capabilities. The bottom line is that they, as well as every other publisher, have been unsuccessful creating these capabilities internally and are now forced to pay premiums to acquire these teams. Even then, history would suggest that these publishers stand a good change of destroying the very capabilities they pay top dollar for.
Time to Wrap it UpÖ
Undoubtedly one can find more reasons to explain why the traditional game publishers are late to the Facebook party and the specifics vary from publisher to publisher. I have no doubt that by the end of this year, every publisher will be bringing its major gaming IPs to Facebook and other online and mobile platforms. They may be able to buy their way into the competition, but their inaction to-date has allowed a new class of competitors to gain a substantial foothold in the gaming industry and they will continue to be a force to be reckoned with. Itíll be fun to see it all play outÖbut in this race I think the hares are going to make a whole bunch of money before the tortoises catch, or more likely buy them.