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Andrew Patterson finds a local company winning in the world of video gaming, acquiring its offshore partner, and delivering to a huge international audience

Posted in Business
See video

By Andrew Patterson

Computer gaming has become big business globally as anyone who has followed the success of games such as Angry Birds produced by Rovio in Finland knows only too well.

In New Zealand too, fledgling game developers are getting in on the action with the industry growing by almost 50% annually according to one recent survey of developers.

Auckland based Kaiparasoft, which has seen one of its games, Bloons, played by the equivalent of the entire population of China is a good example of the possibilities that exist within this sector both now and in the future.

Last month it took its first steps outside of NZ acquiring its development co-partner Digital Goldfish based in Dundee, Scotland almost doubling its staff count to 35.

Founded in 2006 by brothers Chris and Stephen Harris, the business has quickly grown to become one of the country’s leading games developers and has been responsible for putting New Zealand on the global gaming map with its aptly titled creation Ninja Kiwi.

Domestic revenues account for less than 1% of the company’s turnover, which it doesn’t disclose, but daily revenues in excess of $300 - $400,000 are not uncommon amongst some of the world’s leading games companies.

Early success

Chris Harris says the business grew out of his brother’s interest in the online space. “Stephen had wanted to develop a business on the web and following the completion of his diploma in games design that seemed to be the logical area to focus our efforts.”

“Initially we did some fairly optimistic and, I’d have to say, rather naïve projections about how quickly the business would grow, but we were able to develop it into a full time business after just six months.”

However, it was the early success of a game called Bloons in 2007, which pits a monkey with a dart against a bunch of balloons, which gave the start-up business some real momentum.

The game was quickly picked up by social network Digg, giving it rapid exposure to a global online audience. In the first week it had been played over three million times and is now well on the way towards hitting the 2 billion mark.

“A lot of the success of Bloons was our ability to port it to the iphone with the help of a business in Scotland called Digital Goldfish which we have recently acquired.”

“They initially contacted us to undertake the porting process in return for splitting the revenue.”

“Bloons actually did so well that it got to number 2 in the paid apps store in the U.S.”

However, like any business, there are no guarantees of success in gaming and it’s the gamers themselves who have the ultimate say as to whether a game succeeds or fails.

So what then is the essence of a successful game? “In some ways it’s a bit like the movie industry. You can hire the best talent and the best director but the movie itself can still flop. It’s always a gamble.”

“It’s really the same in the games industry. You apply your best talent to something you think people will enjoy and sometimes it works and sometimes it doesn’t.”

Smart phones accelerating global growth

The real catalyst for the growth in online gaming in recent years has been the huge take up in smart phones. “Web and mobile gaming is effectively coming together and being consumed more and more on both devices. Now we’re seeing quite a bit of convergence with companies like Walt Disney also making mobile games as well.”

Think of the average gamer and you typically picture a young teenage male playing away on the computer in his bedroom. In fact the average age of gamers these days is over 30 and they’re just as likely to be female as male.

The popularity of games such as Angry Birds, which has perhaps done to gaming what the ipod did for music, has also increased the appeal of gaming to a wider audience and broadened the demographic of gamers.

Developed in Finland by a couple of former students from Helsinki’s University of Technology, Angry Birds was released in 2009 and since then has spawned an industry all of its own. Rovio, the company responsible for its creation, raised $42 million in venture capital funding last year as well as announcing in May this year the one billionth download of the game. One estimate has Angry Birds being responsible for up to 20% of Facebook’s revenues while the company recently announced plans to establish a new franchise that will create a range of children’s playground equipment Chris Harris says Rovio is s a good example of how to manage your IP correctly.

“I’m not too sure if there’s something unique in the water in Finland! They’ve managed to create two major games studios. As well as Rovio, there’s Supercell which has also been incredibly successful in developing games for mobiles.”

“There’s certainly no reason why NZ couldn’t follow the lead of countries like Finland, though I’m not sure if there has been some form of government assistance available that has perhaps helped to accelerate the growth of the sector.”

“If you look at revenue per employee for some of these businesses the numbers are just astronomical.”

“In order to make it work what you need is a high concentration of bright young minds in one place to really grow the sector a bit like what Silicon Valley has achieved.”

One of the problems the sector faces is being taken seriously by a generation unfamiliar with both its scale and its inner workings. A young teen announcing that he or she wants to become a game developer is, more often than not, likely to be dissuaded from their career choice by parents who don’t consider it a real job.

“I think there’s an issue in the first world with parents who think they have an idea about what constitutes a ‘proper’ job and gaming unfortunately doesn’t fit into that category. Whereas, in less developed economies it’s simply about getting ahead. So your parents are going to be a lot more supportive of doing whatever it takes to get a good paying job, that’s all that really matters.”

Business Model

A number of different revenue strategies and business models are employed by games developers. “We’ve always been focused on growing revenue so we could expand the company and grow our next project. Some companies simply focus on growing users and then try and figure out a way to make money out of their audience, a bit like Twitter and Facebook have done.”

“My brother and I have taken a conservative approach to funding the business. We wanted to be able to comfortably afford to pay the next employee. I don’t want to hire someone and at the back of my mind worry about the fact that I might have to let them go in 12 months.”

“We have a variety of revenue streams. Ninja Kiwi has advertising on the site so you get to play the games for free. Then there are other games where you can purchase items that improve the player experience. Finally, there are the mobile gaming revenue streams which include free apps where it is monetised through the purchase of in-game currency.”

Chris Harris says that while the value of mobile gaming is extraordinary, so are people’s expectations of the games and the prices that they’re willing to pay.

“It can be quite a strange dichotomy. You put 6-8 years development into a game and you get comments from people asking why they should have to pay for it when they can get some other similar game for free. But then there are others who tell you they paid $60 for a game and they think yours is better even though its only $3. So there’s this strange state of flux when it comes to pricing.”

Global reach

The very nature of online gaming gives it a phenomenal global reach so developers can be located anywhere they have access to the internet and often their local domestic market is only a small fraction of their revenues. “We have a reasonably small reach in NZ due to the size of our population. The vast bulk of our customers are in the US, Canada and the UK.”

South Korea has unofficially become the global capital of the online gaming world where you can actually turn professional and if you’re not actually playing the games yourself you can watch games being played on one of the numerous 24 hour TV channels devoted exclusively to live coverage of gamers pitting their skills against one another.

While Kaiparasoft believes it has already completed most of its growth potential in this country, it sees plenty of future growth internationally. “We have several mobile projects we really want to get completed in the next year. We’re also still very focused on aspects of our web development.”

“We plan to do a lot of cross pollination of our staff between NZ and Scotland. It’s really important for us that everybody feels part of the same team.”

As to how the next generation of potential staff recruits should be educated, Chris Harris says schools face a real dilemma. “The problem for schools is that you need people teaching ICT who are deeply in love with the industry and right up with the play because otherwise you end up with information that is considered old. In this business info can be considered ‘old’ after just three weeks, things are moving that quickly.”

“Allowing kids to self-direct technology based projects and then facilitate that learning is probably the best approach.”

“Recently I read a piece that suggested in the next decade everyone will need to know some basic programming skills such as PHP and I can’t even do that myself but I’d really like my kids to learn those skills even if they don’t end up as computer programmers.”

“We’re fast moving to a society where you have a real advantage if you do have those skills and a disadvantage if you don’t.”

KEY FACTS

Sector: Online Gaming / Technology
Founded: 2006
Staff: 35 (NZ: 20 / Scotland: 15)
Turnover: Not disclosed
Annual growth rate: 70%
Biggest market: USA
Fastest growing market: USA
Domestic / Export sales split: 1% / 99%
International offices: Scotland
Profitable: Yes
Recent Highlight: Acquisition of Digital Goldfish in November this year. Bloons TDS reaching #2 in all paid app downloads in USA
Ownership: Private

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NOTE: This is the final column in this series for 2012. It will return in late January 2013.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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8 Comments

This is the sort of

This is the sort of enterprise worth investing in.

Woah steady there Ralph -

Woah steady there Ralph - check out this quick article...
http://www.smartplanet.com/blog/bulletin/the-app-economys-1-percent/7726
80 percent of developers don’t make enough from their apps to start a standalone business and 59 percent of apps don’t generate enough revenue to break even on development costs.

And as Zygna have discovered recently - the app market can be pretty a pretty fickle road from rags to riches to rags again. Good on the boys above for doing well, but like a lot of things with the web, it's often just down to luck more than anything else.
 
 

I have been a shareholder in

I have been a shareholder in three such small IT businesses and none of them has ever made less than 50% ROI over a time frame of over 15 years.
 
Businesses just like this one.
 
You can stand on the sidelines and plead luck if you choose but I chose to dive right in.

Only those who risk going to

Only those who risk going to far can possibily find out how far they can go.
T.S. Eliot

'Domestic revenues account

'Domestic revenues account for less than 1% of the company’s turnover, which it doesn’t disclose, but daily revenues in excess of $300 - $400,000 are not uncommon amongst some of the world’s leading games companies.'
 
If I may say so Andrew, having domestic revenues accounting for less than 1%, of an undisclosed turnover, and then comparing that to daily revenues of leading games companies, which clearly these guys are not, doesn't actually tell us anything, does it?
 
I would run a country mile from any one using the term:
'We plan to do a lot of cross pollination of our staff'
 
 

Yeah I'm not the most

Yeah I'm not the most confident person on camera and the annoying thing about video is you  don't get to edit yourself. My reference to the cross pollination was that we have two teams working thousands of kilometres apart with a pretty unfriendly timezone difference. The cross pollination, which perhaps to you is a bit buzzwordy, is the trading of staff between the two studios so we can build the relationships between teh staff a bit better and share ideas an methods of working.
As far as running a mile away I'm not sure what you're running from :)

yup Chris enjoyed the

yup Chris enjoyed the interview, having invested in development of a coupla IT apps myself , have found it to be fairly uphill to begin with and in both cases needing changes to be made in terms of marketers or concept sellers if you like.
 You can have a great idea, develop it's potential and watch it fall on it's face because differing values and or progress stages can mean expectations and timelines not shared by developers and investors become destructive influences.
 Although not in the gamer field, I agree that timing, a little luck, can be the difference between winning or just being a starter.
 Good for you, all the best with the next stage.
looking seriously at a development currently for energy auditing.( no pun intended) as in
 

device that measures and reports on the energy use in a building.  Traditionally, the energy audit has been the domain of consultants and engineers who are both highly trained and expensive. The NRGYZR is a cost effective way of getting this critical energy information and does so far more accurately than the 'clipboard & calculator' method employed by an auditor.

 

The device is ideal for high energy users wishing to understand where their inefficiencies are and how best to address them. This has become a high priority issue for many organisations as they are starting to suffer the impact of escalating energy costs.  In addition to this the implementation of the carbon tax and other government initiatives like the mandatory disclosure of energy use are all applying pressure to improve.  

 

 aroused my interest as I had been whining on for a while why no one had yet developed one ...and hey presto...!

Not critical of your video

Not critical of your video interview performance at all, I didn't watch it, but read the article.
 
I'm afraid I am in the 'first world parent' category, and therefore am old enough to have an healthy aversion to undisclosed revenues and buzzwords, not to mention seeing childrens faces glued to their mobile phones, paying for, and wasting thier time, playing games.