Scoring Big: What Indie Game Developers Can Teach Us About Startup Success and Failure
May 15, 2015
A powerful little boomlet rocked mobile gaming earlier this year in the form of a simple but painfully challenging iphone game called “Flappy Bird”. The game, coded by a young Vietnamese programmer in one weekend, went spectacularly viral and quickly earned the young creator $50k per day in ad revenue. A short time later, he took the game down with an apology it it’s place, much to the shock of gamers worldwide. The developer, Dong Nguyen, recently told Rolling Stone magazine why he felt he had to take the site down.
Flappy Bird is a colorful story among several that point to a booming mobile game market. On Superbowl Sunday Kate Upton emerged from a hot tub selling Game of War (you can look at the considerable production expense deployed here). GOW and two other mobile games spent a whopping $16 million advertising games you can play on your phone. The first paragraph of this article in Medium offers an eye-popping roundup of stats regarding the mobile game market if numbers are your thing.
Enter Quora
The Flappy Bird phenomenon naturally sparked the imagination of potential entrepreneurs of all types, leading to questions like this recently posted to Quora.com:
“What are some IOS / Android app store success stories from independent developers?”
I read the question like this:
“If I make a mobile game of my own, how big can I score?”
Pek Pongpaet, a mobile app developer himself, lays out iTunes store statistics in the most up-voted response (slightly reformatted for clarity):
The Numbers
- Apps in the iTunes Store: 1.2 Million
- Avg Cost of Building an App: $6,000*
- Avg Revenue: 4,000**
- $2,000 Estimated average Loss per App
*(a study polled 96 developers) **(all apps in the market)
Imagine you’re a Risk Taker and want to invest your time and money in an affordable venture. These numbers are simple and sober. And helpful. Where would you go from here?
Risk Takers
I’ve been around Risk Takers for over sixteen years now. I’ve worked for them, consulted them, and embarked on a startup of my own during the dotcom boom years (a streaming radio and music blog called groovengine). My current company, Pixel Engine, operates much like a bootstrapped startup. I’ve learned a lot along the way about faith, optimism, dedication, and the scope of human motives that drive a person to sweat the risk and pain of a startup venture.
From this, I’ve seen two general types of Risk Takers: the Treasure Hunter and the Optimist.
The Treasure Hunter is wowed by the biggest hits and the potential to make exorbitant amounts of money. We all have a bit of the Treasure Hunter impulse. It’s human nature.
The Optimist has it too, but goes through some lengths to measure things before acting.
The Treasure Hunter is a jumper. The Optimist is a Looker, then a jumper.
The Treasure Hunter
The Treasure Hunter swings into action when they hear stories of great, fast wealth, but their motivation is steeply front-loaded: very strong in the beginning, eventually hits a wall of real startup hardships, then gradually drifts downward until their willpower finally hits it’s expiration date. I refer to their motivation as having a “shelf-life”. Venture Captilists and some Angel Investors have a highly-attuned radar for this type, but they’re still a force and cause interesting dilemmas. Google Ventures learned this lesson recently with the failed startup Secret.
The Optimist
The Optimist, on the other hand, sees market potential and does some objective analysis to see if there is potential market success to be found.
What’s the real path to success in this market, no fairy tales?
The Optimist knows there is nothing wrong with treasure hunting as long as the hunter understands the probability of finding treasure. The Optimist also knows that if you’re working on long odds, you’re better off maximizing the number of Treasure Hunts. This is how venture capital works. VCs invest in a portfolio of companies understanding that most of them won’t fly. But if all goes well at least one will strike it big (VCs call them “unicorns”) and fund all of the other ventures. This is central to the plan.
Companies also do this with their products. Rovio, maker of the massive best-seller “Angry Birds”, did this with their games. They had ten relatively low-profile games before they struck gold with birds, pigs and sligshots. Y Combinator, an accelerator of very early stage startups, has funded 600 ideas. Their big hits (AirBnB, Dropbox, Reddit) fund the hold thing.
To The Games
Let’s pick up where our fictional Optimist might begin to think about the mobile game market as a potential investment of time and money, after looking at the numbers in the first part of this article (The Treasure Hunter is already off and running).
The Optimist pulls out a cocktail napkin and pen. The first thing he writes on the upper corner is the 80/20. He assumes, in this case, that 20% of the apps generate 80% of the revenue. This implies that 80% of the apps are losing more than $2k.
A Treasure Hunter might be discouraged here. Upon realizing costs may not be recouped so easily, a bit of risk aversion might kick in. But here we’re looking at an Optimist…
The Optimist will want to estimate his odds against app developers with realistic expectations about the effort required to develop strong revenue from an app. To do that, he needs to eliminate some noise and estimate the real number of serious competitors in the market. This estimate will surely be, let’s say, fuzzy, but it really just needs to be in the right direction to get a better overall picture of the market.
He writes the following on top of the cockatil napkin and bullets some assumptions about the mobile app market (not just games - we don’t have those stats handy):
“Assume The Mobile App Market Has These Qualities…”
- Estimate: 30 Million apps are student projects, pure junk efforts, orphans (0-1 stars, no one’s home), silly copycats of more successful apps, the maker died, etc. Let’s weed them out of the numbers.
- 10 Million apps are business-to-business and don’t have a revenue component (i.e., no treasure - Pixel Engine has built these). Let’s weed them out too.
There are 1.2 Million apps in the market. If we’re right, we can assume 40 Million apps really aren’t in our competitive universe.
That means there are 800k “serious” apps in the market.
$4.8 Billion Annual Revenue / 800k “serious apps” = $6,000.
Wow, look at that, costs equal Revenue! On average, in this new world, serious efforts on average break even.
This is where the optimism kicks in. The Optimist might think: “If I properly estimate the work needed to compete in this market - conceive of a useful app, code it to a good experience, market it with some guerrilla methods - I can increase my odds and perhaps do better than break even.”
He might go on to read articles about the work required to make and measure growth like this other article on Medium.
How Many, How Much, How Long?
The Optimist proceeds and thinks about the right investment of time and money required to manage risk properly. One app is too risky. The first app is a learning experience. It will inform the next app and the next. But the odds of success increase all the way up to the nth game. How about ten?
The Optimist concludes they need a $60k investment in money and/or time to code a portfolio of ten apps. That seems about right. He has enough savings to drop $60k on a personal startup venture, and he’ll probably know where things are going after $30k is in the hole. Maybe he’ll call it “Retro Games” and design it around the Nintendo games he played as a kid like Dong Nguyen did. That would make it fun and worthwhile.
Now What? Do We Do It?
Now that the Optimist has sketched an industry that may be favorable to breaking even for serious participants with some fuzzy numbers, he can assess the intrinsic benefits. He might think, “I may be wrong, but I think there’s a market there and besides, it would be…”
- Educational,
- fun and,
- could pan out to a solid new company.
Let’s Go
He throws back the last of his martini, resolves to take it up with his significant other before diving into this brave new world, then crushes and tosses the cocktail napkin over his shoulder.
And bounces off the head of a man hunched over a laptop dreaming big dreams.