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Owen Mahoney was bored at the Electronic Entertainment Expo (E3) this year. As the chief financial officer of Nexon, he is immersed in digital gaming — social, mobile, and online — that is much more popular in Asia. More than a decade ago, Nexon pioneered free-to-play downloadable online games in Korea. But there was very little mention of new business models and new ways to play games at E3, from Mahoney’s point of view.

Mahoney helped steer Nexon through an initial public offering that raised $1.2 billion in 2011. His company has doubled down on the massively multiplayer online game market with a majority investment in NCsoft. And it is figuring out how to spread its success in digital games through the rest of the world.

We sat down with Mahoney this week. Here’s an edited transcript of our interview.

GamesBeat: What did you think of E3?

Owen Mahoney: I found less than I hoped that was really interesting. The whole discussion of $399 versus $499 for the consoles is sort of a non-issue. People are making a lot of noise about it, but it doesn’t seem very important to the future of the industry. Whatever mistakes or tactical errors that someone makes — if they are mistakes at all, especially on a pricing decision like that — they can always reverse them later.

What matters to me is, are there a lot of fun games to be played on these new platforms? What do the new platforms provide? I saw very little that I was excited about as a consumer. It felt a lot like it did 10 years ago. We were pushing more pixels as an industry. I don’t find that particularly interesting. When I think about the games that I’m playing and that my kids are playing, it has nothing to do with all that stuff. I see more and more people playing Minecraft on their laptops sitting in front of a turned-off 60” plasma display with a console attached to it. They’re sitting there playing an online role-playing game instead, or a mobile game. I’m not sure everyone’s clued into that. When I think about the convergence that’s happening in platforms right now, I think everything’s going to get turned upside down within a couple of years.

I remember at this point in the last console cycle, there was a lot to talk about from a technology perspective. It wasn’t all about pricing. It was about much more interesting stuff.

GamesBeat: We haven’t seen much about digital gaming from the big folks. Microsoft is defending its used-game policy, but they’re not talking about putting up a whole library of games for you to access, or somehow making use of digital in a way that’s new.

Mahoney: Yeah. [Sony's] Gaikai and OnLive weren’t a discussion topic this year. We have this perspective at my company, which is informed by the world we live in, which we continue to believe is the future of North America. I don’t envy my former colleagues at EA trying to figure out how to get the consumer to spend $60 on a piece of entertainment software. That’s a hard job. You’re going to be in for tens of millions of dollars.

While all this noise is happening and all these billboards are all over and there’s all this TV advertising, there’s a few companies around the world that are very quietly picking up all the dollar bills lying around the industry.

Did you ever see the movie Moneyball? You remember the scene when all the scouts are spitting and chewing and talking about what they think of various players? Then there are two guys there, Billy Beane and his numbers guy, saying, “No, these are the stats you need to worry about.” It feels like one of those things where there’s a real disconnect in the industry between what matters for consumer fun, what matters for profitability and growth, and then what everybody’s talking about.

Again, I have these conversations sometimes and people say, “My God, I had no idea about your company’s growth and profitability.” Once again, last year we grew 25 percent year-on-year — more than $1 billion U.S. Our operating margin was more than 46 percent. When I was at EA, you couldn’t dream of 46 percent in the thick of a console cycle, much less at the transition. We’re not the only ones. Look at Tencent’s business. Lots of companies in Asia have our model. I’m not talking about casual games that explode and then go away. We’re talking about games that are consistently huge earners. It’s because of online connected synchronous multiplayer and free-to-play.

Another interesting stat comes from NCsoft, the Korean game company. We’re the biggest shareholder there now. Their game Lineage, which came out in 1996 I believe, just hit a new peak in the last month and a half. It’s still growing. That tells you a lot. Even Activision can’t imagine a game that old that’s still growing.

GamesBeat: It’s always surprising to me how many games are out there in Asia that westerners know nothing about. Puzzle & Dragons is just now finding some awareness here. Same with CrossFire.

Mahoney: CrossFire’s the number one game in China, or number two at least. Dungeon Fighter, our game, which is also up there, nobody’s heard of it here. It’s interesting. Again, what are we all in business for? We’re in it to make money by delivering fun stuff. It’s a great business. But you have to do both of those things. One defines the other. We want big audiences and to be profitable and grow. Everybody in this room would like that for their company, and a few companies around the world are doing it. Somehow, though, that’s not what we’re talking about as an industry here.

GamesBeat: How do you guys take your success and use it to expand in the west?

Mahoney: We think there’s a huge opportunity that we’re pursuing, certainly over the course of the year through the next E3. We’re taking what we know about free-to-play — which is very hard to do, and very misunderstood in the west — and combining it with great IP, great physics, great graphics, and gameplay that’s popular in the west. We already have some experience of doing this and partnering this way in the east, and we’d like to make those same combinations here.

For example, we have a very close relationship with Valve, which we think is one of the best, if not the best, western developers. We had a viewpoint several years ago as to how to makes Counter-Strike into a free-to-play game. We created Counter-Strike Online. They essentially allowed us to use the assets – the technology, the art – and make a free-to-play game out of it. It worked beautifully. It’s one of our biggest games in Korea and Japan.

We’ve picked up the FIFA Online relationship with Electronic Arts. That game originally was created with another company in Korea, where EA provided the FIFA engine while their other partner provided the front-end and handled free-to-play. The lead developer in that company was actually a former Nexon employee who’s come back to us. He started a company that we’re an investor in. It worked beautifully. Now Nexon is the publisher of that game in Korea. We want to do more of that and do it here as well. There’s a lot of great IP in the west.

The challenge for us is, great developers like Valve and EA and Crytek and so on, with their physics engines and graphics engines and so on, they’ve spent a lot of time and effort and money to develop these great games. That’s a great strength. It beats a lot of what you see in Asia. It’s not that Asia has bad graphics, but they’ve got things that work well in the west, that are very advanced. What we have is the knowledge of free-to-play.

There’s a massive misunderstanding of what free-to-play is. You play a lot of free-to-play games, especially the casual type on Facebook, they’re not free-to-play at all. They’re pay-to-play in the guise of free-to-play. What we’ve learned from experience from more than a decade ago is that if you make it impossible to progress in a game without paying, it’s not a free-to-play game at all. You alienate your users and you lose them over time. You have no longevity in the end. We have 10-year-old games that continue to grow.

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The freemium or free-to-play (F2P) business model is still new. Some early adopters have used exploits or tricks to squeeze money from their players while others created what we call a “pay-to-win” experience that practically guarantees victory if you pay money. These tactics may have generated a lot of revenue for developers, but as the market, business model, and expectations mature, players will accept them less and less. They probably won’t go away altogether, but it’s better to get ahead of the curve and start designing and executing smarter games today. Here are 5 examples of what not to do.

Make players spam their friends

I know this was a popular tactic in Facebook games, but stop gating content based on the number of “friends” someone has in the game. Actions like “friending” or “making an in-app purchase” (IAP) should complement the experience, not be a requisite. Don’t hold content back from me until I’ve recruited enough friends. My assumption was that developers understood that friend-gating content would ultimately fail on mobile; however, I’m still seeing this in new releases.

Trick people into paying and sharing

Decay or extinction mechanics are widely used in freemium gaming. Decay and delay can be natural fits depending on the theme, but players have started to dislike the extinction mechanic, and it’s becoming less popular — especially if it involves something you can create a bond with, like a pet. How popular would Hay Day be if your animals died because you didn’t log in to feed them?

Another mechanic that’s potentially a deceptive business practice is making some buttons difficult to find or press. I’ve seen games try to hide Xs so people thought they had to purchase something or grey out buttons so they believed they had to “share” on Facebook to get to the next screen. Are these tactics clever or just misleading? There’s no right answer, but it’s probably better if it doesn’t involve money. Developers have to ask themselves whether they want to increase monetization through tricks or by making an awesome game that people naturally want to share or pay money for. Personally, I would think about what seems ethical and fair to your players.

Advertise poorly

Stop using intrusive, sloppy advertising solutions. I’m looking at you, banner ads! The first argument a developer usually makes is that adding advertisement solutions will cannibalize its IAP revenue. That’s true, but only if you don’t advertise intelligently. W3i conducted a study and blogged about it. Take the screenshot at the top as an example of how to advertise well.

People who don’t intend to pay have another way of giving back to the developer. Players who want to pay will continue to since they don’t care about advertisements, anyway. However, if you obstruct their view or clutter the user interface, then you could drive all players away. That’s why I’m not a fan of the “paying to remove ads” feature. You’re spamming your players and admitting it to them. It doesn’t have to be like this.

Design rigged F2P player vs. player (PvP) games

If you’re thinking, “But all F2P PvP games are pay-to-win,” I’m here to tell you that you’re wrong. There’s paying to win, and then there’s paying for competitive advantage. Take a look at this screenshot, for example.

Attacks range from 3-12 and defenses 4-9 for grinding currency weapons, but for a premium weapon … well, you only get 112 attack and 100 defense. This game is purely stat driven, so buying this weapon clearly allows you to beat everyone else, and there’s nothing a non-paying player can do to win against these players unless they pay, too.

Now let’s look at another F2P PvP game called PlanetSide 2. It’s a first-person shooter (for PC) where you can buy different weapons and vehicle upgrades with premium currency (station cash) — or you can grind to unlock them, but it’ll take some time.

Some are more powerful, have faster/slower reload speeds, and are more accurate or have lock-on capabilities for vehicles. However, just having a higher damage output doesn’t mean you’ll automatically win a battle. It’s the same with fire rate, reload speed, or any other characteristic because these stats only complement your natural ability to play the game. But wait … there’s more.

Each gun, class, and weapon has specific upgrades that can do a magnitude of things — like reduce recoil, grant more player health, improve class abilities, and add scopes or night vision. These class or weapon upgrades can only be purchased through the secondary currency (cert points), but these points cannot be purchased. You can pay to speed up the rate of earning them, but it’ll still take some time. Why is this important? Players can pay to get the guns that match their play style, but they can’t immediately deck out their weapons or characters with enhancements. Whether you like the game or not, it’s hard to deny that they executed a really solid F2P PvP experience.

Force players to pay to continue

I recently downloaded a new game on my tablet and was enjoying the experience until I ran out of energy and money (following the tutorial, mind you) a little over a minute in. I had three quests and couldn’t complete any of them or finish any action unless I converted. Delay mechanics, choke points, friction — whatever else you may call it — are common monetization mechanics in F2P games, and I’m not here to tell you not to use them. However, the most brilliantly designed games don’t encourage the player to leave while they wait them out.

Take Clash of Clans, for example. In order to improve my town hall from level two to six, it could take maybe 30 days. I can pay $5 for another builder and increase construction productivity so it only takes 20 days, or I could drop $100 (or $500) and get it now. This uses the same delay mechanics, but the game isn’t just about building a city and reinforcing defenses. That’s only half of the battle. The other half is about raiding other villages. The actual battles last minutes, and training basic armies usually takes 20 minutes or less. More advanced units obviously require more time to train, but you can be out raiding other villages almost every 20 minutes if you choose. This secondary mechanic or second core loop gives players something to do or goals to achieve while they wait for a building upgrade to complete.

Obviously, these mechanics can be the main revenue/marketing-driving mechanics of your game. I’m not here to say these will stop making you money. I’m simply saying that as a market matures, so will game design and player expectation. It’s better to start making smarter choices today so you’re not scrambling to change or squeeze the last pennies out of your game tomorrow.

If you’d like to talk about these or any other ideas, you can find me on my blog, the NativeX blog, or on Twitter.

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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The game market on mobile devices is volatile. At least, that is what we always hear. The common wisdom is that ideas that worked a year ago don’t work anymore, and the ideas that work now won’t work in six months. Apparently, someone forgot to tell that to the developers of Candy Crush Saga, Clash of Clans, and Puzzle & Dragons.

For the last several months, these three have continued to rake in massive revenues on both iOS and Android, according to market-tracking firm App Annie. In April, Candy Crush Saga was once again the most-downloaded title on each platform. It also generated the third-highest revenue for each app market.

“Over the past month, we’ve seen a few trends,” App Annie vice president of global communications Marcos Sanchez told GamesBeat. “Publishers who are employing a freemium strategy attached to in-app purchases are doing incredibly well, showing a growing sophistication in how apps are monetized. Games in the casual gaming category that have a social component have also fared well, largely because they are easy to consume, have the potential to be shared on a massive scale, and can acquire new users through major social networks such as Facebook. This trend has been reinforced by many of the top ranking games on App Annie’s Games Index, including King’s Candy Crush Saga and Supercell’s Hay Day and Clash of Clans.”

Puzzle & Dragons, while not in the top 10 for monthly downloads, was the highest-grossing game on both mobile operating systems. We reported earlier this month that the hit puzzle role-playing game is making around $3.75 million every single day, which is an enormous sum.

Clash of Clans isn’t available on Google Play, but it was the second-highest grossing game on the App Store.

All three of those titles have maintained or grown their dominate market positions since the last quarter of 2012. This reveals that the mobile gaming market heavily favors the most popular games. The rich keep getting richer while everyone else fights over the scraps.

On that front, several games popped up in the most-downloaded chart for the first time (or the first time in a while).

On Google Play, the racer Toy Truck Rally 3D from developer 3dinteger moved up 288 places to take the number four place on the top games by monthly downloads list. Platformer Manuganu had an even more impressive surge. Developer Alper Sankaya’s running game moved up over 1,000 spots and was the tenth most-downloaded game on Google Play in April.

On iOS, the big movers were Sonic Dash, Hardest Game Ever 2, and Fruit Ninja. Halfbrick Studios’ Fruit Ninja is experiencing a resurgence after falling to 431 on the most-dowloaded charts. Hardest Game Ever 2 moved up 302 places from March to April, and Sonic Dash jumped from 34 all the way to number two.

The rest of the top 10 most-downloaded titles on iOS were all new games outside of King’s Candy Crush Saga and Electronic Art’s Real Racing 3. That includes fighting game Injustice: Gods Among Us from Warner Bros. and Gameloft’s Iron Man 3 – The Official Game.

It’s interesting to note that of all these games that are acquiring the most players each month, only Candy Crush Saga and Injustice also made it on the highest-grossing chart’s top 10.

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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Kristian Segerstrale, the co-founder of social gaming firm Playfish and former executive vice president in charge of digital gaming at Electronic Arts, has joined Supercell as a member of its board. Helsinki-based Supercell is one of the hottest mobile game companies around thanks to the popularity of two hit games, Clash of Clans and Hay Day. These games are earning millions of dollars per day, and they enabled Supercell to raise $130 million at a $770 million valuation in April.

Segerstrale saw great success with Playfish, a social gaming firm on Facebook, and sold it to Electronic Arts in 2009 for more than $300 million. He eventually became the head of digital games at EA, a retail gaming giant which has been investing heavily to adapt to the new world of social, mobile, and online games. He left EA in February to return to his startup roots, and his move to the board of Supercell is the first part in that plan.

Ilkka Panaanen, chief executive of Supercell, said in a blog post, “What makes Kristian great for Supercell is his unique mix of product instinct in platform transitions and his operational experience growing companies big and small. Kristian’s track record speaks for itself….Very few individuals move as seamlessly between startups and large scale public companies as Kristian, and I would be hard pressed to find someone with a more valuable and relevant set of experiences to help us in our decision making as we navigate the challenges that lie ahead.”

At Supercell, Segerstrale said he will help the team deal with the hyper growth that the company is seeing in mobile games. We interviewed him earlier this week and this is an edited transcript.

GamesBeat: Why are you joining the board at Supercell?

Kristian Segerstrale: Initial Capital, the seed investment fund of the Playfish founders, actually led the first investment round in Supercell. We hold a significant stake. It’s natural for me, having left EA, to take up a board seat. What I’ll be focused on moving forward is helping with growth across the board. Supercell is in this amazing position right now, on the back of these successful games and an amazing set of talent across the company. They have very large ambitions. They want to build the company for the long term. Having grown a couple of startups as well as overseen matters of scale, at EA most recently, I’m hoping to contribute some of that experience in helping to guide the company through the long term, in an industry that is more dependent on more personal screens, like tablets and smartphones.

GamesBeat: This is not going to be an executive role at the company, right? You’re going to remain a board member as far as your participation goes?

Segerstrale: That’s correct. But what they’re doing is so much fun that I’m going to have a hard time keeping away.

GamesBeat: What stage are they at? What is your understanding of how big they are now and how many opportunities they have?

Segerstrale: It depends on how you measure it. They released a fairly detailed set of metrics six weeks ago. In revenue terms, in the first calendar quarter of this year, I think they made $179 million in revenue and just over $100 million in profit. It’s fairly significant. In employee terms, I don’t know what’s publicly available, but I believe they have said that they’re less than 100 people.

I just met with the company four days ago at a retreat in Barcelona. The thing that impresses me so much about them is how resourceful and mature they are for an organization that is so young. They’re being very thoughtful about their opportunities. All of their success so far is based on two games on iOS, and it’s much more focused on the Western market. Ultimately, their opportunities span Android, new games, and especially new territories in Asia.

One of the things I found impressive about Supercell is that unlike many teams in recent history, especially in Silicon Valley, they’ve been judicious about what they pursue and what they don’t. They haven’t embarked on some crazy headcount explosion. They continue to be more judicious than ever about hiring and focusing on the company’s founding principles. What Supercell is about is trying to attract the best talent and give them the creative freedom to express themselves.

GamesBeat: It’s an interesting turn of fortune for Supercell. It’s astounding that it could make so much revenue out of just two games. It has also tried it with a number of other games before. It seems to have culled its herd quite ruthlessly.

Segerstrale: That’s right. It’s a combination of having a talented set of creators as well as a thoughtful internal approach to game development and understanding of the business. Sometimes projects aren’t successful. What’s beautiful about how they operate compared to many other places I’ve seen is that they don’t have any kind of greenlight process. It’s novel. What they do is that they trust the folks that they hire to create the best product possible. Then they get it out to real players and they see if the metrics hold up with real players. If they do, it’s ready to go. If not, then they might try again from a different angle, but they’ll celebrate that mix of failure and learning. They’re very transparent about all their learnings.

In some ways, despite the team being quite young, they exhibit a very mature approach to the industry. They’re not taking success for granted. They’re almost paranoid about providing the best experiences for players, and understanding that to deliver the greatest product, you have to take creative risks. Some of them will work out and others won’t.

GamesBeat: How do you help them get into the hard part here, having something like a more regular release schedule, a broader base of hits, all the sorts of things a bigger publisher does? Rovio looks like they’ve had a hard time making the transition. It’s still very successful, but Angry Birds still looks like a one-hit wonder situation. It hasn’t followed it with something as big.

Segerstrale: I think Supercell’s north star on this is talent, trying to find the best talent and creating the best possible environment for it. I’d say that things like schedules are not as important to them. If you hold and retain the best talent and create long-lasting relationships with your players, then the quantity of game releases perhaps isn’t as important as quality.

That said, one of the things that is difficult, as you say, for any company, is how you follow such great success with additional titles. How do you make sure you keep setting the bar at a higher level? But everything I’ve seen says that the planning effort, the focus, the talent, the way that the company goes about thinking through its options moving forward, is incredibly prescient. Between the initiatives for different games and new platforms and new geographies, we’ll see some pretty exciting things this year.

GamesBeat: Do you see them operating in a way that’s very different from EA Mobile?

Segerstrale: It’s a pretty stark contrast across the board. In part, a small company will always operate differently than a big one. But I would say one of the most endearing things about Supercell is how humble everybody is here. The creators of a game like Clash of Clans that’s been so successful are still humble. They’re very ambitious, but very transparent, very interested in feedback from every direction.

In an environment where there isn’t a greenlight process–If you think about Clash of Clans and the updates and new things that happen in that game all the time, there is not an internal approval loop of any kind for that. It enables the company to move quickly, and it creates an environment that’s genuinely creatively led.

Probably the biggest point of difference, of course, is that Supercell’s studios are all in Helsinki. Everyone’s effectively in one place. They have an office here in San Francisco, but it’s more focused on marketing and acquisition and those sorts of things. It enables a flatter, faster culture.

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The mobile gaming world is getting bigger and bigger. Just take a look at Japan’s Gree, which reported revenues of $1.6 billion and has set up a huge U.S. headquarters just outside of AT&T Park in San Francisco. The company has 450 employees working in the long building, which features a cafeteria on one end and a long set of desks leading to a bunch of glass offices at the far end. They are the foot soldiers in Gree’s expansion into the U.S., where the competition is fierce but the riches are waiting. To find more developers, Gree is investing $10 million in third-party games.

Source: Dean Takahashi

The view of Giants stadium from Gree’s HQ

Within the building are hundreds of mobile game developers, headed by Naoki Aoyagi (pictured above), chief executive of Gree International, the overseas subsidiary of the Japanese parent company. Some were part of acquired companies such as Funzio, maker of games like Kingdom Age, Modern War, and Crime City. Those games have been out for months but have been steadily producing revenues in the top grossing charts on the app stores. The hope is to one day have games that generate $100 million a month in revenue.

Last year, the company experimented with new games and heavy advertising. It spent heavily on user acquisition, driving up costs for its rivals. And it acquired, expanded, and then shut down the OpenFeint social mobile gaming platform. While Gree started as a social network for mobile gamers in Japan, it is now driving deep into content.

And it has set up an enticing headquarters — with sofas, arcade machines, and a fancy kitchen — to recruit more developers. The goal is to recruit and retain employees in the fiercely competitive San Francisco gaming market, which is ground zero of the digital gaming revolution. The goal is to come up with a billion-dollar game and stay ahead of rivals such as DeNA, Electronic Arts, Supercell, Rovio, Zynga, and GungHo Entertainment. Gree is moving into all sorts of game genres, including the social casino slot machine business and hardcore titles like the upcoming War of Nations.

Will the company come out on top? It’s Aoyagi’s game to win or lose. We took a tour of Gree’s headquarters recently and interviewed Aoyagi there. Here’s an edited transcript of our interview.

GamesBeat: What are your priorities?

Aoyagi: We’re working on some different games. We have the existing games from Funzio (which Gree acquired for $210 million last year) — we’re upgrading the engine – and we’re also working on new stuff. War of Nations was the game we showed at the Game Developers Conference. It’s our hardcore strategy game. I think that the hardcore gaming users in the tablet market are going to be the hot topic coming up. Everybody’s working on mid-core stuff, as well as the next Clash of Clans (Supercell’s hit game, which is generating $2.4 million a day in revenue), but what we’re doing is different from the others.

GamesBeat: By “hardcore” games, do you mean games that play for a much longer time than mid-core?

Aoyagi: We still want to capture both the mid-core and hardcore. We see a lot of potential in the iPad and the Mini. Hardcore users are going to play more games on tablet. That’s our bet. Still, for the mid-core, we have games from Funzio that are doing pretty well. We can do more with those engines.

GamesBeat: So more hardcore than what Funzio does? More hardcore than mid-core?

Aoyagi: Still mid-core to hardcore. We’re also working on some casual games, casino games. Our strength, from acquiring Funzio, was more mid-core, but now we’re trying to expand on both the hardcore side and the casual side.

GamesBeat: How many of your games are created here in San Francisco?

Aoyagi: Our titles for the western market are mostly developed here at this studio. We’re working on some titles at our Vancouver studio that we set up last year, but most of them are in development here. Our portfolio studios are mostly focused on their local markets. The Korean market’s gotten pretty big now. It makes sense to focus on those local markets.

Part of that will be working with partners who fall under our partners fund, like IUGO, the developer of Knights & Dragons. That game’s climbing up the charts. It’s around 40 or 50 right now. That was a publishing deal with IUGO. We did an investment and worked together with them on the title, introducing them to monetization techniques while they developed the game.

GamesBeat: We had our mobile summit last weekend. A lot of people were talking about the Asian mobile messaging services, like Line and Kakao. WeChat may at some point add games. A lot of people have some hope that those will take off in the U.S.

Aoyagi: Yeah. That’s an interesting topic right now. In the past, social networks became a huge market for game developers. Based on what happened in Asia, that might be the next market. But still, in the western market, we don’t see those services taking hold yet. I know Kakao is trying to expand, and so is Line.

The most successful case, in terms of combining a messaging app with games, is Kakao. Line is still focusing on expanding its user base. Kakao did a great job creating a market. Most of the Google Play titles are actually on Kakao’s network. That’s pretty impressive.

GamesBeat: Yeah. The top-grossing worldwide titles are all there.

Aoyagi: Right. Puzzle & Dragons from Gung Ho, games on Kakao’s network, and WeChat, those are the three big things in Asia over the last three or six months.

Source: Dean Takahashi

Gree HQ

GamesBeat: Those platforms seem a little heavy on the taxation, though. Half of the revenues go to the platform owner.

Aoyagi: Yeah. 30 percent to the store, and then half of the 70 percent, so the developer only gets so much. But the distribution power of Kakao is pretty strong. It still makes sense for those app developers. It might limit the potential market. In the past, NTT Docomo did a great job. They only charged 10 or 15 percent, and because of that, the market expanded to an incredible size in Japan. If Google or Apple or Kakao were to do something like that – jointly, even – it would be a great thing for the ecosystem.

GamesBeat: If Puzzle & Dragons succeeded all by itself, without the help of those networks, it might change something.

Aoyagi: At the same time, we’ve seen the power of the platforms and the networks in those games. We have some games – mid-core games and casino games – where we’re building in a lot of cross-promotion. That’s been really powerful, even with a smaller number of games. If we can form those alliances, like Kakao is doing, or like ChartBoost is trying to do, that’s powerful. It can generate a lot of traffic for free.

GamesBeat: It might be nice to have the game-focused mobile messaging networks take off in the U.S., but it will take a while.

Aoyagi: Right. Or it might never happen. This market is more competitive than the others. Europeans and Americans never got into the Asian market. Only those local Asian companies had a chance to grab market share. They’re good at that combination of social networking and games in general from back 10 years and more, like Gree, DeNA, and Tencent.

GamesBeat: I didn’t hear any games stuff in the Facebook Home announcement. Did you pay much attention to that?

Aoyagi: No, I didn’t, but I should have.

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If you follow VentureBeat but don’t regularly check our GamesBeat site, here’s a list of the best video game stories we ran over the last seven days that you may have missed.

This week, Clash of Clans developer Supercell is now valued at $770 million and raised $130 million in February, Bethesda wraps up major Skyrim updates, and Disney fully embraces transmedia integration in Disney Infinity.

You’ll also find reviews for ShootMania, Cut the Rope: Time Travel, and a Threeview for BioShock Infinite, as well as our early impressions for Defiance.

News

• The DeanBeat: Defiance is inescapable transmedia that you’ll want to escape
• The Evil Within is the new survival-horror title from Resident Evil creator Mikami
• Nintendo finally releases the Circle Pad Pro for the 3DS XL in North America
• Angry Birds maker Rovio hires new exec to lead game development
• OnLive improves game-streaming performance with new optimization options
• Microsoft determined to make Xbox 360 more popular in Japan
• TimeGate loses appeal: Court orders Section 8 developer to pay $7.3M in damages
• Valued at $770M, Clash of Clans game studio Supercell raises $130M
• How Digital Chocolate teamed with Betable to launch a real-money gambling game in the U.K.
• Ex-Call of Duty team at Respawn Entertainment files for new trademark
• 2K Games is removing evidence of the XCOM shooter from the Internet
• Bethesda says farewell to more major Skyrim updates
• EA pulls the plug on 3 Facebook games

Mobile news

• Chinese ‘app store’ lets you install pirated iPhone apps — without jailbreaking
• PopCap releases Bookworm Heroes for iOS
• Hold on, mobile gaming monetization ain’t as easy as it looks
• Former Unity execs reveal cyberpunk tactics game for tablets
• With $11.3M to back it, Music Mastermind’s Zya app will turn consumers into music creators
• Papaya’s AppFlood helps developers monetize games in lucrative Chinese market
• Pocket Gems evolves from a successful developer into a mobile game publisher

Tech news

• Benchmark reveals Ouya’s aging Tegra 3 can’t keep up with newest Android phones

NPDs and future plans

• March 2013 NPD: Industry slumps another 10 percent as BioShock Infinite tops the charts
• Xbox division up big for Microsoft in Q3; Xbox Live has 46M members
• Japan’s Capcom slashes forecast and cancels games
• U.S. digital game revenues were stable in March, Superdata says

Exciting announcements

• Bethesda revealing Shinji Mikami’s horror game tomorrow: Here are the clues
• Breaking down what’s old and new in the 3DS’s upcoming lineup
• 3DS Nintendo Direct trailer roundup: Earthbound, new Link to the Past, and more
• Here’s a quick look at Yoshi’s Island for the 3DS
• Nintendo is making a new Zelda set in the A Link to the Past universe for 3DS
• The Legend of Zelda: Oracle games heading to 3DS eShop
• EarthBound coming to the Wii U Virtual Console this year
• Winged Pikmin take to the sky in the Wii U release this August
• Mario Party coming to Nintendo 3DS this winter
• Nintendo explains how it made Donkey Kong Country Returns 3D easier
• Mario & Luigi: Dream Team due out August 11

Interviews

• ‘Terminator’ actor Michael Biehn talks voicing Far Cry 3: Blood Dragon’s hero
• Signia Venture Partners’ Rick Thompson delivers the über-investor’s take on mobile gaming investments (interview)

Reviews

• Cut the Rope: Time Travel is a charmingly addictive puzzler with a few new tricks (review)
• Defiance is not your normal massively multiplayer online game (first impressions)
• Threeview: BioShock Infinite reviewed by a critic, an analyst, and an academic
• ShootMania Storm excels at shooter simplicity and customization (review)

Previews

• Disney Infinity takes shape as a huge investment in transmedia (hands-on preview)

Pieces of flair

• The uncanny similarities between the original BioShock and Infinite (gallery)
• Read+Watch+Listen: Bonus material for BioShock Infinite fans
• 10 better-than-Hollywood video game cosplayers
• Camp Minecraft: How educators use the block-building game to inspire kids to code
• Racing with friends: PS4′s DriveClub vs. PC’s Auto Club Revolution

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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Institutional Venture Partners saw so much potential in game developer Supercell that it had no qualms investing at a valuation of $770 million, according to an interview with IVP partner Sandy Miller.

Source: IVP

Sandy Miller is a board advisor

Finland’s Supercell, the maker of the popular Clash of Clans [above] and Hay Day mobile games, confirmed today it raised $130 million from IVP, Index Ventures, and Atomico. That’s one of the biggest fundings for a game startup, and this shows that the gaming landscape is changing quickly.

Just a year ago, Rovio Entertainment was the darling of mobile gaming, and it was talking about going public on the strength of its Angry Birds franchise.

Rovio reported 2012 revenues of nearly $195 million, up 101 percent from $97 million in 2011. But this year, Rovio games have fallen in the top rankings of the most popular games. Angry Birds has had more than a billion downloads, but the question dogging Rovio, as it has for every game company throughout history, is, “What have you done lately?”

Supercell is close to eclipsing Rovio’s 2012 revenues — in a single quarter. Miller said that he wasn’t concerned that Supercell is a “one-trick pony” because it has two hits in two very different categories. Clash of Clans is monetizing well among young males, while the FarmVille-like Hay Day is doing well among women.

On top of that, Miller said that Supercell functions in a different way, just like its name sounds. The founders, Ilkka Paananen and Mikko Kodisoja, are industry veterans who spent six years at another game developer, Digital Chocolate. They let the company’s teams operate in small cells. They work on projects for a long time and approve a game only when it turns out to have big potential.

So far, that has worked. Supercell grossed $100 million in 2012 and $179 million in the first quarter of 2013, Forbes said. Net income, after expenses and Apple’s 30 percent cut, was $104 million in Q1. Daily revenue is now at $2.4 million and is on a revenue run-rate — if the games stay as hot as they are — of $800 million for 2013. Supercell gets 8.5 million daily players who play an average of 10 times a day.

But the question is: How long it will last?

There’s a risk in investing in a mobile game company that has to compete against hundreds of thousands of rivals. But Miller said that mobile game companies are the most interesting category for investments because it is a category where the number of new players is still exploding.

“In the other segments, it’s all about stealing market share from somebody else,” Miller said. “We like to invest where the growth is. In mobile, it is a much more open playing field. You can have other companies being successful without impacting Supercell’s success. We are late-stage investors and look for companies where they have most of their growth ahead of them.”

Mobile and tablet games accounted for 80 percent of the investments in games in the first quarter, according to investment bank Digi-Capital. That compares to just 30 percent a year ago and 5 percent the year before that. Founded in 2011, Supercell had the foresight to focus on tablet gaming.

IVP, a late-stage venture capital investor, hasn’t invested in many other game deals. But it has chosen wisely. The firm was an early investor in both Zynga and Ngmoco. Zynga went public, and Ngmoco was acquired by DeNA for up to $400 million.

This deal gave liquidity to the founders, and it was also equitably spread out across the whole employee base, Miller said. He said he regarded it as a fair valuation, considering how fast the company is growing.

“We saw the trends, and we got the deal done quickly,” Miller said. “They had their choice of investors.”

Miller also believes that a lot more hits are coming in mobile gaming. He believes Supercell itself has a strong pipeline of upcoming titles.

“The usage of games on smartphones is increasing,” he said. “Games are the biggest category by far, and it is increasing its share. That really bodes well. Supercell will have more hits, but others will have attractive games, too.”

Sandy Miller image credit/IVP

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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U.S. digital game sales in March grew to $875 million, up 2.9 percent from a year ago. The data reflect a growth in mobile and a weakness in social networking games.

Market researcher SuperData said the digital games category — which includes mobile, social, and online games — was stable in March, up 1.1 percent from February.

The social gaming segment revenues were $124 million, and the number of monthly active social gamers in the U.S. dropped below 200 million for the first time in a year. That’s a decline of more than 10 million monthly active users. SuperData said that signifies the departure of less-committed players as both conversion rates (from free play to paid play) and average revenue per playing user were both up in the category.

“EA’s retirement of SimCity Social and Playfish, which it initially had acquired for almost $400 million in 2009, emphasizes the loss of interest in the space by major publishers,” SuperData said. “Despite a mostly static leaderboard, Facebook insists that it remains a healthy ecosystem, evidenced by the payouts to smaller and medium-sized developers.”

Meanwhile, mobile game revenues in the U.S. were up 7 percent in March at $157 million. The average conversion rate was 5.34 percent, though the attention span of mobile gamers weakened.

“Supercell dominated the U.S. mobile games market in March, with both Clash of Clans and Hay Day among the top grossing mobile titles,” Supercell said. “EA’s The Simpsons: Tapped Out appears to be on its way out of the top charts, as the dream of mobile casino titles like Big Fish Casino to claim one of the coveted top three spots is becoming more tangible.”

Free-to-play massively multiplayer online games saw an increase of three million players in March, and overall revenues in that category grew to $195 million. Part of the reason was the success of three mech-battle games — Meteor Entertainment’s Hawken [above] and Infinite Game Publishing’s MechWarrior Online.

The pay-to-play MMO segment lost an estimated 289,000 subscribers in March, but revenues remained stable at $86 million. A further seasonal decline is expected in April.

In downloadable content on the PC and consoles, revenue was stable at $312 million versus February. Compared to the same month a year ago, DLC revenues grew 19 percent.

SuperData captures information on 2 million paying online gamers. 

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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Confirming previous rumors, Supercell raised $130 million in funding in February that valued the company at $770 million, according to an article in Forbes.

For a game company, that’s a huge take, and this shows just how ambitious the Finnish firm is. Supercell is riding high on the success of Clash of Clans, a fantasy-strategy game that is addictive and monetizes remarkably well.

The Forbes story asks if Supercell is the “fastest-growing game company ever.” Supercell’s competition, Puzzle & Dragons creator GungHo Entertainment in Japan, would probably qualify as one of the fastest-growing game companies ever. But the fact remains that both are the darlings of the moment in mobile, as Rovio (another Finnish company) was (and some may argue still is) with its hit franchise, Angry Birds.

On the strength of two games, Clash of Clans and Hay Day (which both came out in the summer for iOS devices), Supercell grossed $100 million in 2012 and $179 million in the first quarter of 2013, Forbes said. Net income, after expenses and Apple’s 30 percent cut, was $104 million in Q1. Daily revenue is now at $2.4 million and is on a revenue run-rate — if the games stay as hot as they are — of $800 million for 2013. Supercell gets 8.5 million daily players who play an average of 10 times a day.

Index Ventures invested $52.5 million of the $130 million funding into Supercell, with participation by Institutional Venture Partners and Atomico. All shareholders, including Accel Partners, sold 16.7 percent of their holdings to the new investors. (See our interview with IVP’s Sandy Miller here).

Supercell CEO Ilkka Paananen admitted in an interview with Forbes that the round was not entirely necessary, that it was more of an opportunity to give shareholders a quick payout as both a “thank you” for hard work and to shrug off any pressure to go public. Supercell’s plan is to become something like the Pixar of mobile games.

Supercell previously raised $12 million from Accel in 2011, at a $52.3 million valuation. The company was founded by Paananen and Mikko Kodisoja, who sold another startup, Sumea, in 2004 for $18 million in cash and stock to Digital Chocolate. They stayed for six years before leaving to start Supercell. They focused on making iOS games.

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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Mobile games have come to dominate investment in new game companies, according to a report compiled by investment bank Digi-Capital on first-quarter investments.

Digital games (or “connected games,” as Digi-Capital calls them) continue to grow as a category in both mobile and online, with the highest rate of investment happening in high-engagement mobile and tablet games. Mobile and tablet accounted for more than 80 percent of value of game industry investments.

Source: Digi-Capital

Q1 game investments are mostly in mobile

“The top line is that there is a significant connected games investment gap, despite strong underlying growth, exits, and returns,” said Tim Merel, managing director at Digi-Capital, which tracks the game market and handles investment banking for the sector. “It’s something we’re looking at very closely.

Rumors of big investments are circulating. Supercell, maker of Clash of Clans (pictured above)  is reportedly raising more than $100 million at an $800 million valuation.

Merel said that the game investment market has stabilized at levels that are similar to 2012, after a dramatic 56 percent decline from 2011 levels. Investments are happening in mobile/tablet games, enabling technology (such as game middleware), and gamification. Game mergers and acquisitions were robust in the first quarter, non-U.S. acquirers accounting for six of the top 10 game M&A deals this year.

Overall, despite the decline in console game sales, Merel is optimistic for the overall sector. Game revenues are expected to grow to $83 billion in 2016, with 55 percent of that, or $48 billion, coming from mobile and online games.

Q1 2013 investment in games grew 35 percent by value to $191M and declined 4 percent in the number of transactions (40). By value, mobile/tablet game companies dominated with 65 percent share of all game investments in Q1. Enabling technology and gamification accounted for 24 percent. In terms of the number of deals, mobile and tablet game companies were 38 percent, with enabling technology and gamification at 35 percent.
The average transaction size increased 35 percent to $7.3 million. By contrast, average transaction sizes declined last year. Digi-Capital reported that game M&A was above $4 billion in 2012. On a pro-rata basis, Q1 M&A declined slightly by 7 percent in value to $973 million. It grew 33 percent in volume to 28 transactions. Console, PC, mobile/tablet, and massively multiplayer online games accounted for most of the M&A transactions by volume, with average transaction value falling 30 percent for M&A deals to $34.7 million.

Merel figures that game companies are on a two-year cycle for initial public offerings, with the last major IPOs happening in 2011. A fresh round might happen again in 2014, he believes.

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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July 9-10, 2013
San Francisco, CA

Tickets On Sale Now

Jan Beckers is founder and CEO of HitFox Group.

Monetization is survival.

If free-to-play game publishers have made it to the top of the app stores’ grossing charts, it’s for one good reason: Monetizing efficiently was not a choice. Indeed, the free-to-play business model forced publishers to develop and implement the mechanics allowing for successful monetization right from the start.

The good news is, in the process they developed some great practices for the mobile industry as a whole.

As competition continues to heat up in the mobile space, with close to 800,000 apps available on the App Store and as many on Google Play, here’s how all app marketers can learn from them.

Changing the Game

Free-to-play has revolutionized the monetization model in gaming by charging players based on their willingness to pay, instead of displaying one set price for all. Indeed, through a dynamic pricing scheme for in-app purchase items, free-to-play has enabled game publishers to monetize the whole of the price/demand curve.

By removing the lower price limit and allowing a vast majority of users to play the game entirely for free, it has triggered two positive effects:  On the one hand, it enabled the generation of high volumes of players, and on the other, it made it possible to monetize part of the long tail of users, either because they are ready to pay smaller amounts, or by showing them ad offers.

By removing the upper price limit, it also made it possible for the most committed players to spend an unlimited amount of money in the game, therefore unleashing an enormous monetization potential. Aeria Games, for example, the publisher of the card-battle game Monster Paradise, recently reported that its ARPPU (Average Revenue Per Paying User) had seen peaks of $90 and above over the holiday season.

Understanding mobile

The most striking realization of Free-to-Play’s potential on mobile is the rise of mid-core games, such as Supercell’s Clash of Clans (which is reported to make $1 million a day, along with the company’s other title, Hay Day). The success of the mid-core genre stands as a strong example of how mobile audiences should be approached: by addressing as many users as possible, but also by understanding and taking advantage of the great variety of mobile usage patterns.

Whether your app is used a couple minutes here and there, 30 minutes during the daily commute, or the whole weekend long, it should be structured in a way that offers (at least) the value that every user expects from it.

Learning from the challenges of free

The free-to-play model, while offering a whole new perspective on monetization, also brought along some major challenges.

First, acquiring users was no longer synonymous with monetizing them. For players to be converted into payers, they also had to be retained and engaged. So publishers had to develop a thorough understanding of the behaviors and usage patterns at play within their game. This was achieved through the implementation of in-app analytics.

For instance, Struan Robertson of NaturalMotion, the successful publisher of free-to-play hits MyHorse and CSR Racing, explained that you should spend time each day looking at your dashboard of stats.

Then, as the cost of acquiring users kept soaring, it became vital for game publishers to know at which price they could buy additional players in order to remain profitable. Sho Masuda, the VP of user acquisition at Japanese publisher Gree, reported that the company used the large amount of data collected over time to forecast what the value of an install for a particular game is going to be.

Finally, quality of players can vary greatly across the traffic sources employed for user acquisition. This in turn strongly enforced the need to accurately track in-app user activity to determine which sources perform best so you can fine-tune the ad spend and optimize the marketing budgets.

Calling all app marketers

To make the most out of their monetization potential — even if survival is not immediately at stake — all app marketers can benefit from the lessons of free:

1. Understand, consider and engage all your users.
2. Unleash the monetization potential of your biggest fans.
3. Understand and take advantage of mobile behaviors and usage patterns through in-app analytics.
4. Continuously track your promotion channels’ performance and optimize your advertising spend.

Game on!

photo credit: E-Plus Gruppe Fotostream via photopin cc

Last week at the Game Developers Conference, Unity Technologies scored a trifecta, with deals announced that will deliver the company’s cross-platform game development engine to and optimized for the Sony PlayStation 4, Qualcomm’s Snapdragon mobile platform, and Facebook. That shows how the company has become as a kind of ambassador, linking those major platform owners with the 1.5 million game developers who are using the company’s Unity 3D game engine.

Games that are coded with Unity’s engine can run pretty much anywhere, from the Nintendo Wii U to iOS and Android mobile devices. And as the number of platforms spreads, Unity is growing up and posing a threat to the high-end triple-A game engines such as Crytek’s CryEngine and Epic Games’ Unreal Engine.

In our interview at the GDC, Helgason showed a demo for beautiful sci-fi racer The Chase that demonstrated that Unity games are marching upward in quality. It has a large environment, atmospheric effects, and other cool 3D graphics features. A few years ago, Unity-based games on social and mobile platforms were unimpressive when it came to graphics. Now it is getting hard to tell them apart from triple-A console titles, Helgason said. With more than 250 employees, Unity is moving fast to close the gap with its high-end rivals.

Unity hasn’t announced a deal with Microsoft for its next-generation console yet, but the new console era is young. And if that happens, Unity’s encirclement plan will be complete. And Helgason says indie game developers will be the winners.

Here’s a transcript of our interview with Helgason.

GamesBeat: You had a very important Sony announcement.

David Helgason: Yeah, and the Qualcomm one this morning. We’re going from strength to strength. It’s come to the point where everyone wants to work with us. The Sony announcement was in the works for a while. Maybe it was obvious that we would be on that platform. But it’s still exciting that Sony wanted to embrace us in a big way.

The details are yet to be forthcoming, but everyone expects these platforms to be more open. They’ve made it clear that they want to embrace indie developers and smaller developers and more creative work. Unity is the paragon there.

GamesBeat: How do you address some of their concerns? Do you sell them on the goodness of openness?

Helgason: I don’t think we have to. If you look at the mobile ecosystems, most of the hits — including hits that are making a lot of money — are coming from small teams. Everyone assumes that Clash of Clans is probably the number one grossing mobile game in the West. They were probably 30 people when they launched it. Rovio is a big company now, but they were just 20 when they launched Angry Birds. So much value is coming from these small teams. The big companies recognize that these games are incredibly compelling. With Unity, small teams can build something quite formidable.

GamesBeat: But I also expect to see some fear among platform owners that allowing too many games on the platform could dilute it.

Helgason: In the end, it will be Sony curating the platforms. They’ve not announced how they will do that, so it’s not my place to tell the world how it’s going to happen. We just expect that there will be more openness than there has been before. They’ve made that clear.

GamesBeat: The quality of the games has also been going up.

Helgason: Yes. The stuff that’s built with Unity is taking leaps and bounds. You probably saw Dead Trigger. Have you seen Dead Trigger 2? It was shown at [the Consumer Electronics Show]. Madfinger is one of our bigger, more important customers. They’ve been partnering with Nvidia on that. It looks incredible.

We’ve been adding features to make that easier for everyone. We have a demo here called The Chase, a thing we’ve been building — it’s a work in progress — to show off mobile capabilities in Unity. It has skin shading. You can slow it down and see what’s going on. 250,000 polygons per frame. That’s around 6 million polygons per second, with great effects. That’s as much as you’d be doing on PC or console. This is just something we’ve cooked up in the lab, but our customers are doing work that’s equally impressive.

GamesBeat: How close do you think you are to console quality or PC quality there?

Helgason: It’s not so much Unity. It’s whether the devices are ready. The devices are getting there. This is an iPad 4, the newest one, about half a year old. We have no insight beyond the rumor mill, but there will obviously be a new device this year, and it’ll be ridiculously powerful. That’s the only thing holding us back. Of course, this year the consoles are taking another leap forward. They’ll have a few more years where they’re significantly ahead of mobile, but mobile is iterating so fast.

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The mobile revolution is on the minds of everybody at the Game Developers Conference (GDC). It is happening faster than anyone expected, and it came into sharp focus this week as Japan’s telecom giant SoftBank announced it would pay $265 million to acquire additional shares in GungHo Online Entertainment, the maker of the runaway mobile gaming hit Puzzle & Dragons. That game was made by six people over the course of a year.

SoftBank, run by tech empire builder Masayoshi Son, will own about 40 percent of GungHo Entertainment, up from 33.6 percent. But the stunning fact is that GungHo is now valued at around $5 billion, up from just $300 million about five months ago. What could have possibly made GungHo so much more valuable in such a short time, and is it possible that this game will generate $1 billion in revenues more quickly than the upcoming Battlefield 4 from Electronic Arts? Probably so, and that tells us more about the bifurcations in the video game business today.

Whether you believe the hype about mobile or not, you can’t avoid a conversation on the topic at GDC, which is drawing an estimated 23,000 game developers to San Francisco this week. Roughly half of the attendees at the show are now indie game developers, and they all dream of striking it big with games like Puzzle & Dragons. Asked why the game took off, Kazuki Morishita, chief executive of GungHo, said, “Luck.” Seriously, though, Morishita and his team carefully crafted the title until that had something that was simple and worked.

Puzzle & Dragons is the top-grossing app in the world today on Apple’s iTunes App Store and Google Play thanks to its incredible success on iOS in Japan. The game took off without much help. But in Asia, mobile messaging networks such as Line, Kakao, and We Chat are taking off like crazy. People are downloading lots of games via the mobile messaging networks, which add a social layer on top of Android in markets such as China, Japan, and Korea. Puzzle & Dragons, which combines a hardcore role-playing game and casual “Bejeweled-like” gameplay, has more than 10 million downloads in Japan and is monetizing far better than other titles. The company is generating an estimated $86 million a month, or roughly $2.5 million in revenues per day. In a word, that’s insane.

You could think of Puzzle & Dragons as an anomaly, the strange winner of a lottery where hundreds of thousands of mobile games are competing for the attention of gamers. But it is not alone. Finland’s Supercell has scored big time with Clash of Clans, a role-playing game that is bringing in an estimated $1.4 million a day. It is no wonder that other big digital game companies — Kixeye, Kabam, and Wargaming — are rushing into mobile games. Supercell is rumored to be raising a round of more than $100 million at a valuation of more than $800 million.

Compare what is going on in mobile with the traditional business. Battlefield 4, a hardcore PC and next-generation console game that EA announced this week at GDC with the release of a spectacularly movie-like trailer, represents the pinnacle of what veteran game developers can achieve. EA has hundreds of people working on the title, which includes lifelike human graphics and pulse-pounding sound. The title is at the high-end of the triple-A spectrum in terms of quality, but it may have a tougher time reaching $1 billion in sales than Puzzle & Dragons. After all, the best-selling first-person shooter game Call of Duty can generate $1 billion in revenues in a couple of weeks. EA has yet to knock that title off its throne.

Those who don’t succeed in making a transition to this new world of gaming are being left behind. THQ and Atari have gone bankrupt. Many console game studios are closing. It is no surprise that EA is in the midst of a change in chief executive officer and that traditional Japanese console game maker Square Enix also lost its CEO this week. EA has about $4 billion in revenue, but among Western game companies, it is a leader in digital games. Interestingly, China’s Tencent, a leading Internet company, also has about $4 billion in revenues related to games. With around $55 billion in market value, Tencent is far bigger than its Western rivals, and it is likely to keep on growing. Companies like it are expanding and will pay dearly to break into the business. Last year, Tencent bought 40 percent of hardcore game maker Epic Games at a valuation of about $825 million. It’s so strange that Epic is worth a fraction of GungHo, and it is probably on par in value with a company like Supercell.

By comparison, Puzzle & Dragons is a relatively simple title built by a small team. It came from a company that was struggling, and it faced tough opposition from some very large competitors. GungHo has a bigger game in mobile today than EA, Zynga, Disney, Gree, and DeNA. David Helgason, the chief executive of game engine maker Unity Technologies, said in an interview that that is a sign that indie developers are going to be successful for a long time to come on mobile platforms even as the major brands storm the platform.

If mobile keeps on gaining momentum, the choice for developers is going to become easier and easier in terms of where to place their bets. Developers vote on the future based on their platform choices. About 58 percent of developers plan to release their next games on mobile platforms such as smartphones and tablets. Only about 49 percent are planning to release their next games on PCs, and around 13 percent intend to release on consoles.

These figures are going to become more interesting going forward as the number of mobile devices climbs into the billions. But acquiring or investing in these small mobile companies at the height of their success is a risky matter. Zynga, for instance, acquired OMGPOP last year for hundreds of millions of dollars only to see its smash hit, Draw Something, come crashing down in the rankings as the fad that drove the game ran out of gas. Mobile games are golden if they can continue to stay at the top of the charts for a long time, but they can lose their value as quickly as they earned it.

Anil Dharni, an executive at Gree, told GamesBeat that you have to invest in titles and franchises that you believe will be around a decade from now. In the meantime, the whole industry is still just beginning to discover what works and what doesn’t. One executive at GDC told me that one of the tests for whether a game will have lasting power as a franchise is whether or not it has a strong community behind it. If it does, then it will be hard for challengers to take on a game that has a grip on a strong base of fans.

GungHo’s title hasn’t been around long enough for us to know if it has that kind of community. So purchasing a company like that has its risks. Buyers beware.

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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Supercell has scored such a big hit with its Clash of Clans mobile game that it is in the midst of raising more than $100 million at an $800 million valuation, according to people familiar with the matter.

The deal, if confirmed, shows just how hot a company can be if it scores a major hit in mobile games. Clash of Clans has been generating about $1.4 million a day, and Supercell’s FarmVille knock-off Hay Day has also been a big hit.

While TechCrunch reported the news, GamesBeat has independently confirmed the funding activity with multiple sources at the Game Developers Conference in San Francisco. Those sources spoke on condition of anonymity and did not have precise details on the deal. We’ve asked Helsinki, Finland-based Supercell for comment.

The details suggest that Supercell has sold 15 percent to 20 percent of the company for a value at around $800 million. That would amount to $120 million to $160 million.

TechCrunch said that Institutional Venture Partners, Atomico, and Index Ventures are the new investors. Those investors apparently have confidence that Supercell’s team of veteran mobile game designers have cracked the nut on producing addictive free-to-play games that move to the top of the charts and — in contrast to many other mobile titles out there — monetize at above average rates.

With its current revenue generation, Supercell’s hit game could generate more than $300 million for the company in 2013, assuming it stays hot. The deal is happening in the context of a new optimism around mobile games. SoftBank earlier this week invested $265 million in GungHo Entertainment, a Japanese game creator that published the hit title Puzzle & Dragons. Another free-to-play gamemaker, Kabam, has had big hits in mobile lately. The company said last week that its Kingdoms of Camelot franchise has generated more than $200 million in revenues over its lifetime, in no small part due to mobile game revenues.

While those companies are doing well, getting a hit in mobile sometime seems like winning the lottery. Traditional game companies are pursuing the mobile market aggressively, but they’re finding it is not a cake walk. Electronic Arts and Square Enix have both lost their top executive in the past couple of weeks.

Supercell was founded two years ago by Ilkka Paananen, who previously created the feature-phone game developers Sumea and sold it to Digital Chocolate. He also led Digital Chocolate’s Finland studio for a few years. Accel invested $12 million in 2011.

The challenge for Supercell will be whether it can continue its hit-making machine. Its close-by neighbor, Rovio, created more than 50 mobile games before it came upon Angry Birds, which has been downloaded more than 1 billion times. But Clash of Clans at Supercell was built by five employees and is now maintained by ten. Overall, Supercell has 90 employees.

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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With over 20 billion games downloaded across all smart phone and tablet platforms in 2012, the mobile gaming market is shifting inexorably away from dedicated handheld consoles.

Statistics released today by analytics site App Annie and market research firm International Data Corporation (IDC) showed that total game spending on the iOS App Store and Google Play eclipsed that on dedicated handheld consoles during fourth quarter of 2012.

Apple led this dominance, helped by a growth in Google Play gaming revenue, particularly in Japan and South Korea. Around 60 percent of purchases of Google Play games came from the Asia-Pacific region that period.

Despite business models that are vastly different, Nintendo and Apple, when viewed in isolation, actually matched each other for sales pretty closely. “While the most popular games and their business models are quite distinct, Nintendo and Apple were surprisingly close in terms of aggregate consumer spend on game software in the fourth quarter of 2012,” said Lewis Ward, IDC’s gaming research manager, via press release.

Nintendo dominated the list of top five grossing dedicated handheld games, with key titles like Pokémon Black/White Version 2 (DS) and New Super Mario Bros 2. (3DS). Sony’s PlayStation Vita and PSP consoles had a limited share of the packaged game market, with Nintendo shipments topping Sony’s by a ratio of nearly 3 to 1.

All 2012′s top grossing games on iOS and Google Play (listed below) were free-to-play titles supported by in-app purchases. All the top-grossing dedicated handheld titles were full-priced boxed (or boxed plus digital) releases.

While the game is a long way from over for dedicated handheld consoles, both Sony and Nintendo are surely taking notes on this shift in mobile gaming spending patterns.

iOS App Store

1. Clash of Clans Supercell (Finland)

2. Puzzles & Dragons GungHo Online (Japan)

3. Hay Day Supercell (Finland)

4. Kingdoms of Camelot: Battle for the North Kabam, (U.S.)

5. The Simpsons: Tapped Out Electronic Arts (U.S.)

Google Play

1. Puzzles & Dragons GungHo Online (Japan)

2. DragonFlight for Kakao NextFloor (South Korea)

3. Anipang for Kakao SUNDAYTOZ (South Korea)

4. GREE GREE (Japan)

5. I Love Coffee for Kakao PATISTUDIO (South Korea)

Dedicated handhelds

1. Pokémon Black/White Version 2, DS, Game Freak (Japan)

2. New Super Mario Bros. 2 3DS, Nintendo (Japan)

3. Animal Crossing: New Leaf 3DS, Nintendo (Japan)

4. Super Mario 3D Land 3DS, Nintendo (Japan)

5. Mario Kart 7 3DS, Nintendo (Japan)

[Report images via App Annie]

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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For part one of the discussion, click here.

Game designers may not care about it, but acquiring users is still one of the most difficult tasks in launching a free-to-play mobile game. The problem is that a new game will compete with 132,000 other active titles on Apple’s iTunes App Store. Advertising can help it stand out, but as ad costs rise, the risks are very real that a company may pay more to get new users than it can generate a return on.

If a company pays $3 each to get 100 users, it would be outstanding if 10 percent of them convert into paying players. To get a return on the advertising outlay, those players have to generate $30 over the lifetime of the game (a stat known as lifetime value). It can’t take forever to get those users, either.

In the real world, the problem is that some companies are paying $8 to acquire a user. And mobile marketing firm Fiksu says that the cost of user acquisition rose 21 percent from November to December. At the Casual Connect Europe event, I moderated a session about the tips and tricks of user acquisition.

It’s no wonder that some companies are searching for alternatives to getting their games discovered. Some of those alternatives are shifty. Tapjoy found that out when Apple cracked down on its incentivized installs in 2011, and many turned to Android as a result. Last year, as Gree entered the U.S. market and bid up the cost of user acquisition dramatically, developers longed to be featured. Gree was accustomed to paying much more — $15 a user and advertising on TV — to get lucrative Japanese players. But in the rest of the world, consumers aren’t yet as crazy about paying for games. Alternatives have to be found, even for the likes of Gree. But the pressure on costs is rising as more brands move into the market without worrying about user acquisition costs.

Our panelists included Jussi Laakkonen (pictured far right), the chief executive of cross-promotion firm Applifier; Stefan Bielau (second from right), a freelance mobile consultant; Erlend Christoffersen (third from right), the head of user acquisition at mobile gamemaker Supercell; Eric Seufert (pictured third from left), who’s in charge of marketing and user acquisition at Helsinki’s Grey Area Labs, the publisher of Shadow Cities; Gilad Rotem (pictured second from left), the head of sales and product for InGaming; and Billy Shipp (pictured far left), the vice president of growth at Iddiction, the creator of the App-o-Day promotion platform.

Here’s an edited transcript of our conversation. They brought home the point that everyone should think about solving the tough problem of user acquisition.

Takahashi: Is there something you want to see the platform owners do to help with discovery? And what are they going to actually fail to do that you’ll have to undertake yourselves in some way?

Laakkonen: Apple and Google have to do social better. People I like, people who know me — why can’t I see recommendations from these people? The App Store already knows all this information. They don’t even need the voice channel. They already know my information. I was so excited when Facebook and Apple became buddies. I thought I’d be able to actually see what my friends were playing. Is there a way for me to say, “Show me what someone’s playing?” No.

Seufert: Just give me an application where, if I touch down in Hamburg or Mexico City, I get some stuff to do here. Based on the location, it could be something like contact data or the relation to my friends.

Schipp: I think it’s not anything the platform operators are going to fail to do. You have to realize that app store search is broken by design. Because the app store’s discovery is broken, because it’s very hard to find apps, these platform operators control the means of disseminating apps. Everyone hopes to get featured by Apple or Google, right? That’s the holy grail. That solves all your user acquisition problems. So how do you get featured by Apple or Google? Well, you visit Apple or Google, and they tell you what direction to take your app in. They want to curate the app stores so they can set the tone of the app store, what kind of apps are being sold. If you’re trying to go against that force, you’re not going to see any return. Maybe if you were to go around it, using services like Jussi’s or other innovative ways of sourcing users. But if you try to go head to head with the dynamics of the app stores, you’re not going to do anything but waste money.

Rotem: I would like to see pay-per-click on the app stores. I don’t know why it hasn’t happened yet. Facebook has recently launched sponsored search.

Takahashi: Can you explain what pay-per-click is?

Rotem: You all know how the ad words work on Google. You search for something, and then you see an ad related to what you searched. It’s not available yet in Google Play or in the App Store, but I’m sure we’ll see it very soon. At least I hope so.

Takahashi: What predictions do you have about user acquisition going forward?

Laakkonen: I’m going to reiterate what I said a few times. I think that there remains a gap with mobile and social. We won’t succeed by stuffing the Facebook news feed with every second story being a sponsored app. We won’t succeed with a pop-up five minutes into a game. We won’t succeed with spam in your gameplay. Authentic, social word-of-mouth referral is the one way that we have. We have a brand, and we will find a way. That will happen. Afterwards, third parties … who knows?

Christofferson: I have a prediction, which is that I hope we’ll see the same kind of established practices in the mobile space that we see in the dev space, when it comes to tracking and transparency and standardization. I’d love to see more standardization, letting us share the work of our user acquisition team, focusing on acquiring the most daily users and figuring out a way to track people, whether it’s user IDs or MAC addresses.

Seufert: I think Jussi’s totally right. The good news is, Supercell already set a precedent. They did that with asynchronous multiplayer. In Clash of Clans, I can join a multiplayer game with my real-life friends. That’s an element of game design that’s not the kind of strategy you can tack on to any game’s development. You have to design a game around that. I think synchronous multiplayer will be the next big thing that iterates on what we consider user acquisition. When you have this compulsion to play with your real-life friends in real time, and it’s free, the reality is that you could bring in 10, 12, 15 users per user acquired. That reduces the cost of the effective CPIs to the point where I can acquire a user for $10 dollars because I know he’ll bring 10 friends in.

Rotem: Obviously, I see a shift in the user acquisition base. It isn’t about CPIs. You hardly see it in other industries or other forms of marketing. We come from online gambling. No one there will pay you to just bring in a person to play the game. They will pay you if that person’s spent money or a certain amount of money. They’ll pay a revenue share. If there’s a risk, it’s completely on the developer side. Somewhere in the middle is forming a partnership between the marketer and the developer.

Schipp: I agree with Eric. It starts with a great product — great product design — to lower your effective cost of install. Some of the things we know about the future marketplace is that there are going to be more devices and there are going to be more users. That’s going to create new fragments in the market as different providers crop up and they each grab a different piece of that market. The ability to then sort through all that data and find the right partners, the ones that actually work and deliver results, is going to become more and more important and more and more challenging. Tools that help people do that are going to be the valuable ones in the future.

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Game designers may not care about it, but acquiring users is still one of the most difficult tasks in launching a free-to-play mobile game. The problem is that a new game will compete with 132,000 other active titles on Apple’s iTunes App Store. Advertising can help it stand out, but as ad costs rise, the risks are very real that a company may pay more to get new users than it can generate a return on.

If a company pays $3 each to get 100 users, it would be outstanding if 10 percent of them convert into paying players. To get a return on the advertising outlay, those players have to generate $30 over the lifetime of the game (a stat known as lifetime value). It can’t take forever to get those users, either.

In the real world, the problem is that some companies are paying $8 to acquire a user. And mobile marketing firm Fiksu says that the cost of user acquisition rose 21 percent from November to December. At the Casual Connect Europe event, I moderated a session about the tips and tricks of user acquisition.

It’s no wonder that some companies are searching for alternatives to getting their games discovered. Some of those alternatives are shifty. Tapjoy found that out when Apple cracked down on its incentivized installs in 2011, and many turned to Android as a result. Last year, as Gree entered the U.S. market and bid up the cost of user acquisition dramatically, developers longed to be featured. Gree was accustomed to paying much more — $15 a user and advertising on TV — to get lucrative Japanese players. But in the rest of the world, consumers aren’t yet as crazy about paying for games. Alternatives have to be found, even for the likes of Gree. But the pressure on costs is rising as more brands move into the market without worrying about user acquisition costs.

Our panelists included Jussi Laakkonen (pictured far right), the chief executive of cross-promotion firm Applifier; Stefan Bielau (second from right), a freelance mobile consultant; Erlend Christoffersen (third from right), the head of user acquisition at mobile gamemaker Supercell; Eric Seufert (pictured third from left), who’s in charge of marketing and user acquisition at Helsinki’s Grey Area Labs, the publisher of Shadow Cities; Gilad Rotem (pictured second from left), the head of sales and product for InGaming; and Billy Shipp (pictured far left), the vice president of growth at Iddiction, the creator of the App-o-Day promotion platform.

Here’s an edited transcript of our conversation. They brought home the point that everyone should think about solving the tough problem of user acquisition.

Takahashi: Stefan, can you talk a bit more about some of the history here in user acquisition? What has worked in the past, and what is working now?

Bielau: The old craze was around incentivized installs — pay-per-click spends on mobile advertisement. Nowadays, the market has opened up a few more opportunities. Facebook came around with the App Center. You find a lot more performance-based models, breaking down your acquisition target to a cost per install, or deeper, to cost per acquisition. Those possibilities weren’t available two years ago. A lot has happened to open up the field for user acquisition. Stuff like mobile search engine optimization becomes more and more important due to the fact that the App Store is so crowded. That can still be triggered by some outside factors to improve your ranking position. I would say localization plays more and more into the marketing part. Before you saw games localization just amounting to translation work. Nowadays — you just gave the example of Japan — it’s important to know the local market when it comes to mobile app marketing.

Takahashi: Erlend, you’re fairly new here in user acquisition, with Supercell coming up with a big hit game, Clash of Clans. It almost seems like you guys wouldn’t need to spend money on user acquisition at all.

Christofferson: For Supercell, it’s all about the problem of building a great game. Only when you see that from your retention and engagement metrics that you’ve got in there — that’s when you can start thinking about marketing. We focus on creating engaged users. We believe an engaged user is more likely to tell his friends about our games, and more likely to monetize.

Takahashi: How do you go about choosing things like an ad network?

Christofferson: What’s important for us in choosing a network to work with is user experience and transparency and tracking. User experience and transparency go hand in hand. It’s important for us to know exactly where our games are promoted and how to share that through the user experience. Tracking is important: making sure that we have all the data we need and that it’s reliable. Preferably, we can see it broken down so we can then optimize a formula to find those most highly engaged users.

Takahashi: Jussi, why don’t you talk about paid versus non-paid user acquisition?

Laakkonen: The new way for games coverage, like everyone says, is a friend showing another friend a game. “Hey, you have to play this.” That’s the best way for a consumer to find a game. You want to have that happen, but you need to delve into paid acquisition, which is very different in the social and mobile markets.

The social market on Facebook exploded, all on the back of viral acquisition. Seeing what your friends play, whether it’s spam or whether it’s authentic. Facebook shut down spammy ways for acquiring users. Whereas [with] mobile, you started by taking out your phone and showing your friend.

I think mobile is actually relatively sophisticated nowadays in paid acquisition. There are people who can help you arrange your campaigns. There are supply-side platforms that help mediate those campaigns. The one thing we have not cracked yet in mobile is the social angle. Not the Facebook-style spam that we all hate, and we’re still kind of afraid of. Every time we add an app on Facebook, we’re like, “Will this game spam me?” It’s always a question. But that’s something that still remains to be cracked. Is there a way where I don’t need to pull out my phone, but I’m somehow able to share and compete with my friends? We’re working to revolutionize the way people do that.

Takahashi: Can you talk about Everyplay for us?

Laakkonen: We do videos of game replays that people can share with friends. Seeing the game, actually seeing what the game is, it inspires some emotion. “Hey, I’m having a great time with this. It’s a fantastic game.” What we’re trying to do with Everyplay is to replicate that moment. We record the gameplay as it happens into a video container. You don’t have to think about it. It just happens. Then they can share it. Like if they had a great fight in Clash of Clans or a great race in a racing game, they can share that in their networks. We see that when a share happens on Facebook, 12 percent of the people who see that replay, on average, immediately go and download the game. Twelve percent is a really good when you think about conversion rate.

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Mobile gaming is hitting its renaissance. In both the Google Play and Apple iTunes app stores, the percentage of money spent on games out of the total amount spent on apps is increasing, according to analytics firm App Annie, which released the data this week at the Mobile Gaming USA East event in New York.

The gaming industry and mobile device makers alike are putting their hopes in mobile games as the rocket to vast profits. While smartphone and tablet revenues are a small slice of the overall game market, the growth rates based on data from December are gathering momentum. Evidence collected by App Annie in December suggests that mobile gaming nirvana is not so far away.

The iOS app store continues to generate five times more revenue from games than Google Play, but Google Play is growing. In fact, in South Korea, the money spent on games is almost entirely on Google Play. In Japan, iOS is significantly bigger than Google Play. Apple generates more game revenue than Google Play in the United Kingdom, China, Australia, Canada, German, France, Russia, and Italy. Still, Google Play earns a higher percentage of its revenue from games compared to the Apple iOS app store.

“What was very telling was that December was the biggest increase we have ever seen for iOS, driven by device sales and promotions,” said Oliver Lo, vice president of marketing at App Annie, in an interview with GamesBeat.

Google Play gaming grows

For games, the top three countries generating revenue in the Google Play store are Japan, South Korea, and the U.S. Together, they drove about three-fourths of the Google Play games revenue in December, said Lo.

These three countries also spend a higher percentage of app money on games than any other country. In data from the month of December, South Korea’s Google Play app revenues are 95 percent based on games. Japan’s Google Play app revenues are about 88 percent based on games, and the figure for the U.S. is 76 percent.

With Google Play, the percentage app downloads from games ranges from mid-20 percent to low-40 percent figures. Arcade, action, and casual games make up close to two-thirds of game revenue. Other popular categories in descending order are brain and puzzle games, cards and casino, sports, and racing. South Korea and Japan skew toward brain, puzzle, and casual games. In the U.S. and Australia, the more popular categories are card and casino games.

Japanese gamers are big spenders. With Google Play, Japan has the highest games revenue-to-download ratio by far. As a category, cards and casino games have a high revenue-to-download ratio.

On Google Play, the top app publishers in December in terms of downloads were Facebook, NHN, Rovio, Google, and GO Launcher. Japanese and South Korean game publishers dominate the revenue rankings for Google Play. The top revenue producers worldwide were NHN, DeNA, GungHo Online, Gree, and Colopl.

For games, the top revenue generators on Google Play in December were GungHo Online’s Puzzle & Dragons, DragonFlight for Kakao by NextFloor, NHN’s Line Pope, Anipang for Kakao by Sundaytoz, and a casual title from Patistudio. Of these top five, all were from Japan and South Korea.

“We’re seeing reverse globalization, where Japanese and Korean companies are dominating the store,” Lo said.

In the U.S., the top revenue generators among games on Google Play were DeNA’s Rage of Bahamut, DeNA’s Blood Brothers, Ateam’s Dark Summoner, Playtika’s Slotomania, and Dragonplay’s Slot City.

iOS app store gaming stats

App Annie found that the U.S. and Japan contributed over half of the total revenue for the iOS app store in December. Asian countries lead the way in percent of revenue coming from games on the iOS app store. China has more than 80 percent of its iOS app store revenue coming from games. It is followed by Japan, Macau, Singapore, and Canada.

Japan has the highest games revenue-to-download ratio on the iOS app store, followed by Switzerland, Australia, and Singapore. As a category, card games have the highest revenue-to-download ratio in the iOS app store, followed by role-playing games, casino games, and strategy games.

Apple’s store is still the cream of the crop, earning 350 percent more revenue than Google Play, and growing more in absolute dollar figures than the upstart Android store.

On iOS, Apple and Google are the top app store publishers in downloads during December. They were followed by EA, which had 958 apps, Rovio, which had 28 apps, and Disney, with 199 apps. But in revenue, EA was No. 1 in December, followed by Supercell, the Finnish publisher of Clash of Clans. It was followed by Gameloft, Gree, and GungHo Online. The rest of the top ten included Zynga, Kabam, NHN, Square Enix, and Rovio.

When it comes to games alone, Clash of Clans was the top worldwide revenue producer on iOS  for each month in the fourth quarter. It remained No. 1 in December, followed by EA’s The Simpsons: Tapped Out, Puzzle & Dragons by Japan’s GungHo Online, Supercell’s Hay Day, and King.com’s Candy Crush Saga.

And in the U.S., the top revenue generators among games in the iOS app store were Supercell’s Clash of Titans, EA’s The Simpsons: Tapped Out, Supercell’s Hay Day, Backflip Studios’ DragonVale, and Kabam’s Kingdoms of Camelot: Battle for the North.

Putting mobile gaming in perspective

The amount of money associated with mobile apps is still relatively small. Electronic Arts reported $1.2 billion in revenues in the last three months of the year. But mobile games accounted for only $100 million of that amount. That was up 18 percent from a year ago. And EA said that  EA said that The Simpsons: Tapped Out was a top-grossing game on iOS in the quarter, generating $23 million in digital revenue. By comparison, a top hit on the consoles can generate hundreds of millions of dollars in sales.

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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Unless your new idea has the legacy of a game that begins with “Mech” and ends with “Warrior,” launching a triple-A quality, online-only, multiplayer-only mech combat shooter for PC may sound like crazy talk these days. But that’s exactly what developer Adhesive Games is doing with Hawken, now in open beta.

“We don’t want it to be this one-off game that people play for a while and then stop. We want it to be something that people get invested in and play continually.” That’s what Hawken producer Jason Hughes told me recently in an interview. He continued, “We’re not really able to do that outside of free-to-play.”

I sit in the faded blue seat of my commuter train looking, no doubt to the passengers across from me, dumbfounded at the screen in my hands. I’d just spent some of my elixir and gold upgrading various support structures in Clash of Clans, a free-to-play iOS title. Upon tapping these moves into execution, a timer notification pops up. It reads 14 minutes and 59 seconds. Really? 15 minutes?

Free-to-play, though, doesn’t always conjure up positive thoughts. It’s a design philosophy where the rules are rigged to encourage the impatient to fork over money to circumvent needlessly long and contrived wait periods.

Don’t just take my word. Games critic-cum-developer Tim Rogers wrote a dissertation on the subject just more than a year ago, aptly titled, “Who Killed Video Games?: A Ghost Story,” and his examination of Electronic Arts’ The Sims Social goes into maddening mathematical detail describing how the “monetization strategy” preys on the compulsive among us. Veteran games critic Tom Chick most recently found the same recipe in Campus Life, another free-to-play iOS title, and called it the “banality of evil.”

Despite all this, free-to-play is only growing in popularity among developers. Over the years, we’ve continually asked whether the business model is The Future of Gaming. What I’ve witnessed so far can’t be all that’s possible, and I wanted to learn more. I’d also been playing a lot of Hawken and quite enjoying myself. Adhesive was obviously doing something differently. That’s when I reached out to Hughes.

A reader had encouraged me to try Clans after my scathing review of Middle Manager of Justice, developer Double Fine’s foray into free-to-play. Like Middle Manager, Clans is intent on me waiting. Maybe it won’t be so bad. 15 minutes had been about the upper limit of such timers in Middle Manager. I’ll sit tight. I won’t reach my destination for about another half hour, anyway.

The most glaring issue with free-to-play design is that the game tells me when I have to stop playing by use of timers. Whether that’s an energy bar refilling or an explicit countdown, the effect is the same: When I’m out of actions, I have to wait. And so, I might as well shut it down and go do something else for a while.

Hawken has no such thing. Instead, you have to earn experience (that levels up your mech and unlocks optimization points) and “Hawken credits” (that you use to buy equipment and new classes) through regular play. You may be grinding, but you’re still playing. You’re not waiting.

That comes with its own issues. Right now, items you can buy with Hawken credits (or “Meteor credits,” which are space bucks you trade real-world money for) are purchased on a per mech basis. So if you already bought a machine gun turret for your Berserker, don’t be surprised when your Grenadier can’t use it.

Still, Hughes and team are adamant that they “certainly don’t want it to feel like a grind.” And the reason for the current setup is as much technical as it is philosophical. “It does take some engineering with the way that our inventory system works,” he told me about allowing purchased items to be available to any mech class you own, both present and future. More than that, though, Adhesive wants the items “to have value so that if you’re getting a machine gun turret, it’s because you want a machine gun turret, not because it’s just available.”

This philosophy extends to the system of unlocking mech classes through play. “We want to encourage people to become more attached to them like they’re something of value,” Hughes told me. “It’s something that you use in battle quite often. You customize it the way that you want,” he continued.

Clans finally tells me that my new buildings are ready to go. I still have plenty of resources to upgrade them further, and doing so will let me hold even more gold and elixir that I can then spend on bigger and better things. And I want bigger and better things. I tap my screen, and the notification pop ups again. This time it reads 29 minutes and 59 seconds.

When I upgrade next, the timer reads 60 minutes. Then 2 hours. Then 4 hours. Then 1 day.

When I started playing Hawken back in mid-December, I felt that I was progressing very slowly. As I wrote in my preview, I’d spent a week accumulating Hawken credits to purchase a new class, yet I’d only amassed less than a third of the necessary funds.

This is something that Adhesive has a keen eye on at all times. “One of the things that we’re adjusting is the actual curve. We felt that for the last five levels, the grind was too steep.” By shifting around the points necessary to reach levels without subtracting from the total points required to max out a class, the team hypothesizes that players will “feel like they’re progressing at a better rate.”

If that still seems too slow, though, you can always buy one of two booster packs that double the buildup of either experience points or Hawken credits. That might seem like a cash grab, and skeptical players wouldn’t be wrong to raise an eyebrow if progression started to feel like a drag. Hughes assured me that this always a concern of Adhesive and that the team is constantly monitoring the situation.

When balancing the rate of progression, Hughes told me, “We start from before the boost is even there.” Then, looking at data collected from the alpha and closed beta testing, Adhesive applied its method: “How much experience points and how much Hawken credits are people earning over the course of an hour? How much are they earning per match? At what rate is that stuff being earned? We base the progression on that.”

All the while, Clans wants me to buy gems, which I can use to buy builders, which is the only unit in the game that can create new buildings or upgrade existing buildings. A builder is occupied while the timer for his current job counts down. He can only do one thing at a time. But I have a lot of things that need building and upgrading. Way more than the two builders I’m given at the start can handle.

The kicker: I can only buy gems with real-world cash. For the low, low price of $4.99, I can have enough gems to purchase a single builder.

“We don’t want it to be pay-to-win.” Hughes told me. “Pay-to-win is very — that’s a term that comes up a lot, and I think games are getting better at getting over that prejudice.”

That’s the key to making this whole business model successful. You don’t want to feel like rich players can walk all over you. Adhesive is well aware. “We need to make sure that you will not gain an advantage over players by just dropping down a few bucks,” Hughes said bluntly.

Helping Hawken jump this hurdle is Adhesive’s intention to make a game of skill. Piloting a mech is as visceral as it is delicate. You need quick reactions and top-notch spatial awareness. You need to be able to target enemies while boost-dodging incoming fire. You need to know how to employ items and abilities effectively and in what situations. You need to know when to push forward and assault and when to fall back and repair. You need to know how to work with a team to secure a common objective. This isn’t just moving a bunch of numbers around.

Still, Adhesive is working on balancing low- and high-level mechs in combat, as Hughes told me “that’s always something we’ll probably be evaluating.” While Hughes rightly pointed out that choosing items “doesn’t necessarily give a competitive advantage,” optimization points are another matter. These let you increase your mech’s baseline effectiveness in offense, defense, and movement categories, allowing you to adjust things like reload time, dodge speed, fuel use, or raw damage. All of that gives an obvious lead over competitors who have not leveled as highly.

This is an inherent problem of persistent progression unlocks, popularized in multiplayer environments by first-person shooters such as Call of Duty and Halo. Certainly, I understand the power-growth appeal that comes with such a system, but the result is that competitors aren’t starting on a level-playing field from the beginning of a match.

In the end, Adhesive is ready to tackle free-to-play head-on from a hardcore-gaming perspective, and the developer is doing so in an atypical way. Hawken is an evolving project, Hughes told me. “The more people involve themselves with Hawken, the better game that it can be over time. We’ll support the game as long as people want to play it, and we’ve got some good stuff coming up on the horizon.”

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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This story was contributed by Eric Seufert of mobile game developer Grey Area Labs.

Retention is the foundation of the free-to-play model. If retention metrics don’t hold, a free-to-play title won’t make money. Conceptually, this makes sense: Lifetime Customer Value is a function of time spent in-game (lifetime) and money spent in-game (value), and most users won’t do the latter until they’ve invested some minimum amount of time into it.

The problem with retention metrics is that they can’t be easily “fixed” through development iteration. Retention is a proxy for fun, and fun is binary: A game is either fun or it isn’t. Short of being able to quickly fix retention, a developer is well served by understanding why her game is bleeding users. This article will identify three reasons why your free-to-play users aren’t coming back.

Source: Supercell

Supercell’s Clash of Clans combines elements of real-time strategy with asynchronous player-versus-player gameplay to create a unique gaming experience.

You don’t communicate quality

Some free-to-play developers think a user’s scarcest resource is money, which is a mistake. If a user is playing your game on an iPhone, iPad, or a high-end Android device, she has disposable income to spend on entertainment. A user’s scarcest resource is her time, and if you don’t communicate to her that your product is of the highest quality and worthy of that investment from the very first game session, she’ll delete it.

Your game needs a “quality hook” — something that allows the user to immediately discern that it was professionally built and not the product of a few crates of Mountain Dew and three weekends in a basement. Most of the time, this is done through graphics that have been obsessively perfected, but it can also take other forms: realistic physics, a new gameplay format, or elements of the real world convincingly and authentically integrated into gameplay.

You don’t give the impression of deep gameplay

Back to the scarcity of time: When I download a new game, I won’t invest any time into it unless I think it’ll provide me with entertainment for months to come. If your game doesn’t give the impression of a long lifetime of rich gameplay, a user won’t take a gamble on it. Free-to-play gamers are looking for a relationship, not a one-night stand.

Players will see the potential to play a game for months or even years through a geometric pricing curve and an extensive product catalogue. The worst way to communicate deep gameplay is by not having anything but renewables or one-off upgrades. Users want to return to good games, but they want to feel that their time is being rewarded with new, ever-richer experiences. Free-to-play gamers won’t give your game the benefit of the doubt – deep gameplay must be communicated early and acutely.

Source: Kabam

Kabam’s Kingdoms of Camelot appeals specifically to hardcore players with its complicated tech trees and intensive resource-management mechanics.

Your game is trying too hard to appeal to everyone

Gamers have distinct tastes, and there’s a big difference between a farm simulator and a shooter. Stuffing gameplay elements from every genre into your game won’t endear you to all gamers; it will merely obfuscate the value proposition to your target demographic and make your game look schizophrenic.

The best games focus on a single core gameplay mechanic and build a rich experience around that. If a player can’t quickly ascertain your game’s core experience without being distracted by multiple gimmicks, then she won’t play it again. Players need to understand what exactly they’re getting good at through progressing in your game: Are they becoming more accurate at shooting? Are they improving their timing in fighting? Are they becoming shrewder in their command of in-game resources? If this progression isn’t clear, players will have a hard time becoming engaged with your game.

Conclusion

Free-to-play gamers aren’t to be taken for granted; the fact that a title is free doesn’t mean players will tolerate bland, uninspired gameplay from it. When your game is first launched by a player, it is competing not only for her time but also with every other free-to-play game that she could download almost instantly.

Low day-one retention indicates a failure to communicate the points outlined above, but it also indicates that players, for any number of other reasons, simply don’t like your game. And short of a glowing recommendation from a close friend, that perception is almost impossible to reverse.

Eric Seufert is the head of marketing and user acquisition at Grey Area Labs, the Helsinki-based mobile developer behind Shadow Cities. He blogs regularly at ufert.se.

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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