Lessons from Zynga's distress: It's tough to stay on top of online gaming pile

Look at Appdata.com's leader board for developers and you wouldn't guess that the company at the top, Zynga Inc, has just announced a major job cut. Zynga has 171,611,835 monthly average users, well ahead of its nearest rival, King.

But it is a tough task staying at the top of the online gaming pile. It is a task that bleeds many companies. Those with deep pockets can sustain this for longer; others call it quits much earlier, often at a terrible cost.

Big gaming companies typically have to spend upwards of $2 per new user and sustain their bases. This is crucial because, as Annie Mathew, Director, Alliances and Business Development, BlackBerry, says: "Games are perishable commodities and users get bored."

A good example is Angry Birds, which after leading the charts for a long time is now finding it difficult to break into even the top 25 online games in any country.

So there is constant need for new games and new players. If you are a company with a million or more monthly average users, you have to spend that much more to sustain them. Some companies move on and try to make newer games, which they hope will be successful. Others, try and keep their games on top, using huge marketing budgets. The money is usually spent on ads that pop up in popular games of the day, asking users to try out another game.

But how much to spend on marketing is a dilemma for most gaming companies.

Abhijit Jaypal, Founder and CEO of Synqua Games, says he has not spent on marketing. Synqua Games has garnered over 35 million downloads for its games. "It could be a risky proposition, especially if you don't have a property which has a predictable life cycle and income stream," he says.

The idea is to get at least 50 per cent return on each dollar spent on customer acquisition. This means that if you are spending $5 on a customer, you have to ensure that he ends up spending at least $7.5 on the game. That is often a tough task.

BingoBash, arguably the most successful game to come out of India, has a user acquisition cost upwards of $2. But then Bash Gaming has a 'fremium' model which ensures that they make much more from these new players.

To retain player interest, the games have to constantly evolve as well. So companies are learning the importance of engineering games which are strong on data analytics.

Rajesh Rao, one of the veterans of the Indian gaming industry, says the development of a game only starts the moment it is published. "The inputs from data analysis are used to constantly improve and tweak the game. Earlier, features of a game were decided on hunches, but now big data has taken the hunch out of development," says the founder and CEO of Dhruva Interactive, India's oldest game studio.

While there are tools that let you access the data, it is tougher to find the data that is relevant to you. Many Indian developers are working on creating tools that filter just the data they need.

Another dilemma that has gripped gaming companies is whether to publish under a large banner or go direct to the app store. With Apple and Google's stores opening up, the dependence on larger publishers is also coming down. An example being Chillingo, which doesn't devote much time even if a game hasn't been able to capture attention in the first week or so.

Industry veteran Alok Kejriwal of Games2Win says the viral quality of app stores is enough to make a game successful. Rohith Bhat, CEO of Udupi-based Robosoft says self-publishing might be the way to go.

"There is no one clear answer. Getting a good publisher for your game is as difficult as publishing the game on your own. The decision on whether to go with a publisher or self-publish needs to be taken well in advance as the publisher wants to have a lot of say in the way the game is tweaked and positioned," he says. "Since we have been in this space for a long time now, we like to self-publish our titles ourselves."

Robosoft has had more than 25 million free downloads and over 2 million paid downloads till date.

But is it a good idea to bank just on self-published games?

Biren Ghose, country head of Technicolor India, says small companies must realise that their primary dependence is on revenues and that they should think twice before putting all their eggs in the single basket of self-publishing. "Successful start-ups are those which can find anchors that meet their cost and fuel their growth... It requires a quantum change to be able to successfully create and publish original games. To those shifting focus I would say don't throw out what brings in cash before the new line of business takes wing."

There have also been efforts to create good Indian publishing companies. While Rajesh Rao is setting up a $5 million incubator fund to discover and mentor new developers, Jayont R. Sharma's Mumbai-based Milestone Interactive Group has started handpicking Indian games for publishing at a global scale.

"The smaller companies and developers are left with no moneys after development. This is when you need to be spending as much on marketing as development," says Sharma.

But Kejriwal of Games2Win says that companies need to the get the game right before they start looking at the business model.