Major video game retailer GameStop, which does a significant share of its business on the second-hand market, has long promised it will stay ahead of the curve in the industry's shift to digital. Today, the company took a step in demonstrating that, announcing it's buying social gaming and indie game community Kongregate.
Kongregate is a free-to-play site that lets indie and social game designers host their Flash games -- and even monetize them via an application platform that enables indie developers to implement a virtual transactions model. It's home to over 10 million users a month, the company says.
It also offers social features like profiles, leaderboards, achievements and communication interfaces for players, who collectively spend 23 million hours on the site. The company's even begun going mobile, recently inking a deal with Adobe to bring its Flash titles to the Android platform.
According to GameStop, this all ties very well into the company's digital strategy, its "commitment to become the gaming aggregator of choice," and serves its existing core gamer userbase.
"Combining Kongregate’s expansive catalogue of games with our well known consumer brand, powerful marketing and strong customer relationships, means that even more gamers will be able to enjoy their games anytime, anywhere and on any device," says GameStop president Tony Bartel. The company did not disclose terms of the acquisition.
Jim Greer co-founded Kongregate in 2007 with his sister Emily; the company has since picked up $9 million in three funding rounds from backers like LinkedIn founder Reid Hoffman, Amazon CEO Jeff Bezos, and Greylock Partners. As of today, Greer says more than 8,500 developers operate some 30,000 games on the service. "Our community will only be enhanced with GameStop’s close relationship with millions of passionate gamers," he says.
Kongregate generates one-third of its revenue through microtransactions and virtual goods sales, with advertising and sponsorships from brands including Xbox, 2K Sports, Axe and Frito Lay making up the rest. Developers using microtransactions get 70 percent of revenues after they recoup their advance.
In March of this year, the company told Gamasutra that its revenues were rising 30 percent each month, and in April Greer stated the company would be profitable in 2010 even factoring in the revenue-share with developers.
Retailers like GameStop have been challenged to find creative ways to participate in digital games' increasing share of the market. The company has traditionally depended on packaged goods sales -- and revenues from its used game trade-in model whereby it buys used games from players for cash or credit, and then re-sells them at a higher price, yet one still lower than a new package. But rather than view digital as an enemy, GameStop has taken recent steps to make online part of its strategy.
I think this is a superb move by Gamestop, Kongregate is fast becoming a staple in the casual gaming world, not just for players, but developers as well.
I just hope they understand what Kongregate is about, and use their corporate power to provide even more incentives for developers to put their games up on the site.
As Gamestop doesn't really own any of the content they sell they'd be hard pressed to survive in an all-digital future.
What they are essentially doing is becoming the "Big Fish Games" for a more core market. Big Fish publishes, distributes games from developers on their portal but they also own their own brands as well as development teams. Gamestop is essentially going to become a content provider as well as a retailer.
To me, it's crystal clear what I think they will do with this acquisition. So I'll call my predictions here: They desire it for the well established player base, and is already linked to several free-to-play microtransaction game and will begin to introduce new features such as a distribution center similar to Steam. They'll leave everything else as is, but will probably add some more sophistication to the advertisement and indie support theme (contests and whatnot). I don't think Kongregate's early implementation of the Kredit system is very mature or a source of major income for anyone involved.
Also, I'd be willing to bet they'll expand beyond "flash only games". That's pretty limited as it stands.
Kongregate is a casual flash gaming portal, very different from the PC download on demand portals like Steam or Direct2Drive. What they would want with a flash game portal/publisher is beyond me. Maybe they mistakenly think that this crowd overlaps with their core market and they can sell into them with subscriptions and micro transactions (the way publishers are moving forward to combat used game sales) but that is way off. Kongregate doesn't have the technological backbone like Steam or D2D and it would take millions to build one from scratch, if they could take shares from the market leader which is unlikely.
I guess that's the point, they aren't buying the tech, they are buying access to a well established player base of 10 million that fits squarely in their target demographics.
IMO, Kongregate is the best gaming portal site out there, which is surprising -- not because Kongregate is so good, but because the other portal sites are so bad. Kongregate has a simple intuitive layout that makes it easy to find games and have key features such as "sorting from highest rated to lowest rated" which is strangely absent on other sites and not exactly rocket science.
I just hope they understand what Kongregate is about, and use their corporate power to provide even more incentives for developers to put their games up on the site.
As Gamestop doesn't really own any of the content they sell they'd be hard pressed to survive in an all-digital future.
What they are essentially doing is becoming the "Big Fish Games" for a more core market. Big Fish publishes, distributes games from developers on their portal but they also own their own brands as well as development teams. Gamestop is essentially going to become a content provider as well as a retailer.
It will be interesting to see how this works for Gamestop. There is not a lot of overlap between content provider and retailer.
Also, I'd be willing to bet they'll expand beyond "flash only games". That's pretty limited as it stands.
IMO, Kongregate is the best gaming portal site out there, which is surprising -- not because Kongregate is so good, but because the other portal sites are so bad. Kongregate has a simple intuitive layout that makes it easy to find games and have key features such as "sorting from highest rated to lowest rated" which is strangely absent on other sites and not exactly rocket science.