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Magazines and MMOs

Patrick Streppel and Rainer Markussen on Gamigo's winding road to the new frontier of free-to-play

Gamigo's entry into the games industry was almost by chance. Founded in 2001 as an online magazine, the company was offered the chance to launch Die vierte Offenbarung, the first German MMORPG. Over the next five years Gamigo launched a number of other subscription-based MMOs, before deciding to focus its entire business on publishing in 2007.

That was also the year it became clear that the subscription model was no longer a reliable source of revenue. The ascendant World of Warcraft had irrevocably altered consumer expectations, so, taking inspiration from the MMOs it licensed from Asia, Gamigo chose to concentrate on free-to-play. The timing could scarcely have been better.

In this exclusive interview, Gamigo's co-CEOs Patrick Streppel and Rainer Markussen discuss free-to-play for the hardcore market, the future of browser games, why traditional publishers will soon be their competitors, the rise and fall of the British games industry, and the next generation of console technology.

Q: Gamigo has been focused on free-to-play games since 2007, comfortably ahead of its current explosion. Has that head-start afforded you any advantages?

Patrick Streppel: I think so, and in two areas. One is how to understand how monetisation works. I always say that there are two kinds of companies in the free-to-play space: one is the German pure players like Bigpoint, which started to develop [games] by themselves. Or Travian, or Innogames; that's kind of the German model of how to sell a browser game. I wouldn't say they copied each other, but they were inspired by each other.

If you look at those games, they monetise in a different way - or used to monetise in a different way - to the Asian companies, which is the other branch. Gamigo took finished games that were already successful in Asia, and in some cases successful in the US, and in the beginning we didn't change anything. That's how we learned about this market early on.

With our self-produced titles we are trying to merge the two branches, so in a game like Cultures online you have traditional browser-game monetisation like saving time, spending a little bit of money here and there. But they also have the more Asian-style revenue streams like crafting, enchanting, and paying for increasing the probability of success.

You asked about the size of the hardcore market for free-to-play, but I would put it the other way around: I think, for the hardcore segment, free-to-play is the best business model

That is one advantage that we have, but the other is simply learning what works and what doesn't, because when we started out we couldn't ask anybody. When we tried to get experienced staff there was nobody. All of the companies were starting at zero knowledge.

We have done games that failed completely, and we learned a lot from many of those failures. Sometimes we abandoned complete genres; we're very sceptical these days about sports or racing. There are still a lot of games coming out in those genres, but we learned how difficult it is to monetise users in those areas. Then again, when we go into genres like strategy - with, for example, Jagged Alliance Online - we take as many RPG elements as we can, because we know that's where the money is.

Q: Your products are largely aimed at core gamers, but the majority of free-to-play start-ups over the last few years have focused on a more casual audience. Is the appetite for free-to-play among core gamers growing?

Patrick Streppel: I think so. We always paint it as a pyramid, right? You have the casual users on the bottom, out of which a very small percentage pay anything, and they don't pay that much. And on the very top you have the hardcore users that virtually live in the RPG and play for 3 to 5 years.

Casual companies like Zynga - and even Bigpoint, which is more casual [than Gamigo] - they certainly have a market segment, but we're going for gamers; we're going for people that monetise for a longer time. Although that demographic is smaller, we believe it is a valid business model because there is just so much money to be made with those people. And strategy-wise that's why we're going for old IPs: UFO Online, Jagged Alliance Online, even Cultures.

Rainer Markussen: You asked about the size of the hardcore market for free-to-play, but I would put it the other way around: I think, for the hardcore segment, free-to-play is the best business model. If you look at the customers we're earning money with, these are the people playing the game for ages. With a subscription fee or a retail price you wouldn't end up with the same amount. You would never ask for a subscription that is as high our average revenue per user.

For casual it may even be the other way around. It may be better to get some money on a subscription basis. There aren't too many people paying more than that anyway, and you could probably get some more money than in the item-based model.

Q: Is the core gamer more demanding of free-to-play experiences than, say, someone who plays a game like CityVille?

Patrick Streppel: In terms of quality it used to be more forgiving, and the bar is rising constantly. In a segment where we have lead-times, from licensing a product to launching it, of up to two years, that is quite challenging. Recently, we have seen that some titles have a harder time competing than they did before, and we made the decision to raise the quality bar, which means that some titles that we licensed might not be released by us.

Then, on the other hand, when we talk about better quality and 'good' quality, we're really talking about wanting to be in the top 5 of each genre. Let's take MMORPGs; there are so many games out there with good graphics, that use Unreal Engine and so on, that our new titles are now trying to reach that mark. Otherland, for example, is a free-to-play MMO with a €25 million budget; Black Prophecy has a huge budget with huge production values. But there are other genres where the quality bar isn't in graphics or production values. Jagged Alliance Online, for example, the players focus on whether the balancing is right, whether the AI works great.

So I really think it comes down to the genre, but yes, it is becoming less and less forgiving if a title is not polished. And the other thing is service after the game has been launched: how fast customer support reacts, how good the events are, how the game reacts to players. That's also becoming more and more important, and it's an area where we want to focus and increase.

Q: With Cultures Online you took a step towards producing your own games. Is that a big part of your future strategy?

Patrick Streppel: From a licensing perspective, we are looking at what genres, what scenarios, would each market need in our opinion, and then we check if we can get those from Asia or anywhere else as a finished, high-quality product. If we can't, we evaluate whether we can develop the game ourselves.

Q: So self-produced games will remain in the minority, then.

Rainer Markussen: Not necessarily in the minority, but our first choice will be to find a game that is already finished and just has to be localised. In our opinion, if the price is reasonable, it's the better alternative.

Q: Historically, Gamigo has dealt with mainly client-based games, but many of the games added recently are browser-based. Is that just down to what was available at the time, or is there something more to that shift?

Rainer Markussen: It's our target group. We really focus on core gamers, and in the past it was necessary to have a client game for the amount of content and depth and so on and so on. But as [browser] technology gets better and better it isn't necessary for all of our games to have a client. The distribution with browser games is easier.

I think the question about browser technology will become less and less important. In two years we don't ask that question any more

Patrick Streppel: I think the technology question will become less and less important. In two or three years we will not ask that question, maybe with even cloud gaming coming into play. I mean, Unity essentially is a client that is run out of a plug-in and that is streaming content, or with games like Last Chaos and Fiesta Online we are using external technologies like SpawnApps to bring them into the browser. So I think it's all converging, and in two years we don't ask that question any more.

Q: How far are we from free-to-play browser or client games that achieve parity with what's on consoles?

Patrick Streppel: If you look at Otherland, which is a free-to-play title, I believe that Unreal Engine allows us to get a similar quality to a console game - on the current generation. Interestingly, every time we try to up the graphics quality, like with Black Prophecy, we also found out the two main factors against it: one is download size, or with a browser game the loading for streaming the assets; the other is that a lot of our players don't have state-of-the-art PCs, so even with Otherland we start to get users saying, 'look, this will never run on my PC'. So we're more focused on lowering the graphic requirement and allowing people to downscale than upping it more and more.

Q: Is the common understanding of what a 'AAA game' is being challenged by this sort of thing? You might argue that Black Prophecy offers a AAA experience, yet it's free-to-play client game.

Patrick Streppel: I'd say it's the same as the current ratings going on with European bonds, right? [laughs] What is really AAA, and when do you downgrade? I think it's fuzzy, and it's getting more and more fuzzy. We believe that graphics are important for user acquisition, but it's not important to keep users in an MMO. The free-to-play world is more about balancing, more about features, about gameplay depth.

Q: Free-to-play is now a point of great interest among more traditional game publishers, but so far companies like EA and Ubisoft have been more focused on smartphones and social networks than the browser. Is that going to change?

Rainer Markussen: Certainly, they will try it, and they will have to try it, because if you look at core gamers - as we already said - this is the right business model for that customer. I'm from the editorial and publishing space. I was responsible for Computer Bild Spiele magazine and also the website, and there were always discussions about whether we could give our content away for free. Those discussions are also taking place within these big gaming companies, but it's a major step to give up the $150 million you'd get for a retail game for a bet that you will get more from free-to-play. This is a long, long internal discussion, and that makes it difficult.

The other thing that makes it difficult for them is that it looks a little bit the same, having a retail game and having a free-to-play game, but in detail it's different. It's not so easy just because you have a good IP, and a good studio, and knowledge of classic game publishing. They will suffer from time to time just by making mistakes that a pure free-to-play company would never make, or made already years ago. It's not so easy, but they will come.

Patrick Streppel: I'm responsible for production here, and I spend most of my time, because we work with developers who have done retail titles, educating them about free-to-play. You might think it's about 'should we put this item at price A or B?' No, it starts at the very beginning. This is so core and so important, and most of the game designers working in those studios don't have that mind-set.

They are focused on making a fun game - of course fun is important for free-to-play, but they are not focused on how to design the game so it gets challenging enough to get 5 per cent of users spending money, and how to design the game so that it is possible, in theory, to spend an unlimited amount of money. Most games are really designed so people can spend $100. I say, "No, no, no, people should be able to spend $10,000, $100,000 into this game." It's going to be a small amount, it's not necessary, but that's how it works.

This is the key thing with companies like EA and Ubisoft; they have production experience, but designing the games that way is very different. For them to do it organically would be quite difficult... I think those companies have to buy companies like us or our competitors to get that knowledge externally, because internally it just takes too long to build.

Q: Are you concerned about the impact the arrival of these companies could have?

Rainer Markussen: Well, apart from classic gaming companies coming into the market, even with just our existing players there is a necessity for us to get more professional in terms of user acquisition and retention. The times in the past where we could say, "here's a product, the people will find it, and it will be successful," they are gone.

We already have to be more detailed and very, very nitty-gritty about where to get the right customers, and what we'll have to pay per customer, and so on. And that's getting more and more expensive without the classic game companies. That's why we say that customer service is getting more important. It doesn't matter if the big guys are ready to step into the market or not. We have to work on this anyway.

Patrick Streppel: There's this idea that the internet is limitless, and there's an endless amount of users. A lot of our developers are saying, "Hey, why don't we just do this game ourselves. It's so easy to run servers, and to use Google." But in fact it's not. We're getting to a point where we see that the market for core free-to-play MMOs is indeed limited; the people who want to play this kind of content are already playing something, the barriers to entry are getting higher and higher, and even on Google the amount of advertising space is limited. And so on, and so on.

So we're going from the cowboy days, where everyone could just put a game out, back to the point where, as Rainer said, being professional is very, very important. Also, the hit-and-miss is also there, so for an independent developer to do one or two titles it would be very hard to have a success. If they are VC funded and the VCs have made ten investments like that, fine. Would I bet my personal money on that? No.

I think the strength of the German industry at this point is borne out of desperation. I'm sorry, no offence, but I think in the UK the current situation was borne out of hubris

Q: Gamigo is just one of a number of German free-to-play companies that are growing rapidly at the moment, but is the future of the industry secure? I come from the UK, where the industry has taken a major hit over the last few years, and many have claimed that a lack of government support was a catalyst for that. Are you looking for that sort of support?

Patrick Streppel: I think the strength of the German industry at this point is borne out of desperation. I'm sorry, no offence, but I think in the UK the current situation was borne out of hubris. A lot of console games, big productions, were done in the UK, and when we got started with free-to-play I talked to a lot of developers there - starting from Rebellion over to...well, a lot of companies that are out of business these days. And all of them said, 'we're not looking at free-to-play. It's not our quality standard. It's not where the money is. We don't believe in it.'

In Germany it was the other way around. The German developers didn't know about free-to-play, but they were not getting console deals because there is no big German console publisher. American companies don't really like to work with us, we don't have the experience, we're not getting dev kits, and so on. So the German industry missed the console bandwagon, and as single-platform PC projects were not in demand any more the developers were desperate. They were open to everything else, including free-to-play, and I think that's the important thing.

It's the same with companies like Gameforge and Travian. Now they are all publishers, but they all started off with one product that nobody else wanted to do, and that product became successful.

Q: We've seen a lot of small companies spring up after the closure of the larger UK studios like Black Rock, Realtime Worlds and Bizarre Creations, but it hasn't been proven what that AAA console experience really means for social, mobile and free-to-play development.

Rainer Markussen: It will take some time.

Patrick Streppel: The only advantage is that I do believe that free-to-play will make its way to consoles, just as its making its way to iPhone and iPad. That's where the experience of these console teams will come back into play... so that's where the UK industry can have a second coming.

The problem with consoles, in my opinion, is, first, communication: do people really chat in console MMOs? How do you form a community? The second thing is the processes: if a company like Sony or Microsoft asks you to approve every single freaking patch separately in the US and Europe with a lead time of 72 hours, it's not possible for an MMO. You have to update weekly, you have to react fast, and sometimes they even force you so they run your servers. No.

There's a lot of restrictions still, but I do believe that mid and long-term those platforms offer a lot of opportunities.

Q: Are we going to see that from the next generation of consoles?

Patrick Streppel: The next generation for sure. The question is how much they open up the current generation. There have been trials, and Sony is definitely more open, but there are also still a lot of hurdles.

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Latest comments (2)

Teut Weidemann Consultant Online Games, Ubisoft Germany9 years ago
"This is the key thing with companies like EA and Ubisoft; they have production experience, but designing the games that way is very different. For them to do it organically would be quite difficult... I think those companies have to buy companies like us or our competitors to get that knowledge externally, because internally it just takes too long to build."

Ah, maybe thats why Ubosft won 3x Best Browsergame of the year with Settlers Online :)
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William Usher Assistant Editor, Cinema Blend9 years ago
Great interview.

It's obvious these guys understand their market and they have great products to back up that their business model.

I'm definitely interested to see how well something like Otherland does in such a crowded market, especially given that it's unlike anything else out there right now.
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