"Digital distribution is on everyone's lips" - that's the claim of GamersGate CEO Theodore Bergquist, whose company has seen huge growth last year, and even bigger growth this year.
Here he explains where that growth has come from, how digital distribution will develop over the next couple of years - and what that spells for the future of bricks-and-mortar retailers.
Q: How has business been for GamersGate in the past year?
Theodore Bergquist: Oh the past twelve months have been crazy. We grew more than 100 per cent last year, both in terms of revenue and in the amount of new customers and titles on the site. We haven't done any marketing campaigns - it's been growing organically, and maybe that's the most amazing thing. If you have a large community, and a lot of traffic already, you should capitalise on that, but we've been growing without doing anything.
And the goals for this year are the same - January has come out extremely strong, and I think we'll have at least 100-200 per cent growth this year as well.
Q: That's a pretty positive message in the current economic climate - what do you attribute that growth to, is it word-of-mouth?
Theodore Bergquist: Yes, I think it is. We only buy key words on Google to a very limited amount of dollar spend, so what we see on forums, it's pretty much word-of-mouth. People introduce each other to GamersGate, and tell their friends about it - it's mainly word-of-mouth so far I'd say.
Q: Historically GamersGate was part of Paradox Interactive - do you still maintain that relationship?
Theodore Bergquist: Yes, it's both ways. GamersGate is a completely separate entity with separate management, budget, goals and so on, but it did start as a project under Paradox because their community demanded some downloading services, because they couldn't buy the games.
The first traffic came from the Paradox community, and they're still into GamersGate, but as we grow their relative size is getting smaller. Certainly there are fans still buying Paradox games on GamersGate though.
Q: Paradox develops very specific types of games, which are well-respected within their genre - and its customer base is very loyal as a result. What percentage of your business now comes via Paradox games?
Theodore Bergquist: Well, today - it's changing fast but it's less than half, maybe 25 per cent maximum. It's changing as we take on more games and new partners, and new traffic as well.
Q: What's involved in the decision process in taking on new partners and titles - what are your criteria for featuring games on GamersGate?
Theodore Bergquist: Well basically we have only one criterion, and that's that the games that are out there should work, should be completed and not buggy. But aside from that we welcome anyone, and in fact the guys behind GamersGate came from a small developer and publisher - and we kind of like that.
We like the indies, the small guys, but as a commercial portal we have respect for and want to work with the bug guys as well. We would never say no to a publisher because they were too small - never, ever. Rather the opposite, we'll welcome them and do whatever we can to get their games out there.
Q: GamersGate seems to have a good reputation for championing indie developments. Jenova Chen recently told GamesIndustry.biz that he believes the industry is entering an "era of independence" - I guess that's something you'd welcome too, a greater sense of democracy in game development?
Theodore Bergquist: Absolutely - if you look at the long tail with GamersGate, each month we sell at least one of 85-90 per cent of our catalogue. If you combine all the games selling just one unit, they're on the top ten list - and you can't get that kind of selection in a retail store because it's only the top ten, plus a few genre games.
We have close to 1000 games now, and the long tail and size of our catalogue really matters. It can be lucrative for a small publisher only to sell like 100 games on GamersGate, but they'd never be able to be profitable by shipping 100 units into stores.
Q: Obviously you split titles into genres, but as you add more, isn't it harder for users to discover games new to them? There's a visibility issue?
Theodore Bergquist: Yes, you're absolutely right, and the only way to solve that is a better search function and more intelligent recommendations - you bought this, other people also bought that, and so on.
We're working on quite advance functions for that, and I think that's necessary as we grow, absolutely.
Q: Digital distribution and their platforms seem to have taken on a new prominence in the past year - obviously broadband speed and penetration and speed continues to increase over time, but what else would you attribute that to?
Theodore Bergquist: Well, on the publishing and business side it's very much about revenues and risk. The risk a publisher takes to get a game online is nothing compared to printing, and warehouse costs, and goods return - so obviously it's a key driver, the incremental revenue they get from downloads compared to retail.
Most of the download portals today have the same kind of deal, and it's almost double the revenues for the publishers compared to boxed product.
That's on the business side. On the consumer side I think it's two things - one that I've already mentioned, that's the catalogue, and the ability to pick and choose the game you want, not the games that retail has decided you should like.
And the other thing is the services around a product - the patches, the forums, the match-making - all those kinds of extra services around the game which we can give to gamers. We can make sure they always have the latest version of the game, we can connect them with other gamers, and once the consumer gets used to that, and understands the benefits, it will really change fast.
We can see that change now - that's why we're growing fast.
Q: You say you're expecting up to 200 per cent growth this year - that's extremely encouraging. Is it something relatively unique to GamersGate, or is that happening across digital distribution companies overall?
Theodore Bergquist: Well, when I talk to all the publishers - both small, and really, really, big - digital distribution is on everyone's lips. Obviously some publishers are really ready to take these steps, while others aren't. Some still see digital distribution as something awkward, and they don't really know what to do with it, while some are really professional and they have it as a main strategy.
But I don't think the key change will come until all of the big publishers decide to push the button, and whether it'll happen this year or next, I'm not sure - but I think it's that kind of time frame we're talking about.
Q: Is digital distribution is a huge threat for traditional retailers?
Theodore Bergquist: Absolutely, it's the biggest threat they can have. Look at the music industry, look at 2006 when iTunes went from not being in the top six of sellers - in the same year in December it was top three, and the following year number one.
I think digital distribution is absolutely the biggest threat they can ever have.
Q: And will bricks-and-mortar survive, or does it face extinction?
Theodore Bergquist: If you ask me, I think not. I think they'll get better on the hardware side, selling hardware together with games. But if it's games only, then no way - I can't see it. I've been in e-commerce since 1996 and I haven't seen a goods business model better than this. It's so pure online in its nature - I can't really see how a traditional retailer can survive, unless they decide to go online themselves.
Q: The digital distribution space is becoming pretty competitive - who do you look at and admire yourselves?
Theodore Bergquist: Well, for me there are only two other players really that we feel are our competitors. Steam is obviously number one, and Direct2Drive is number two. Of those two, I think Steam is doing a really good job, but what I don't like is the mentality of locking customers in with a heavy client, needing to be hard-coded.
I don't believe in that concept - I believe in an open-ended customer-friendly solution. But apart from that, they've done a reasonable job, no doubt about it.
Q: Talking of clients - GamersGate recently abandoned that policy. Why the change now?
Theodore Bergquist: Well, that's the solution we always wanted, but when we started GamersGate the technology and the knowledge of how to do it wasn't really ready. We've been working with the idea for a very long time, and it's now that we've managed to solve it in a way that's consumer-friendly.
I can't really see why you'd want a client if you can skip it, and it's really got to be about what gamers want, not what I want.
Q: And that's one of the main things that sets you aside from people like Steam?
Theodore Bergquist: That's obviously one major thing, but also I feel we focus on titles and a large catalogue from the indies.
Theodore Bergquist is the CEO of GamersGate. Interview by Phil Elliott.