Thursday, May 1, 2008

Bezos Bets Big on Kongregate

Today, indie Web gaming site Kongregate announced it has secured a $3 million investment from Bezos Expeditions -- the personal investment arm of Jeff Bezos, chairman and founder of The site was founded in 2006 and, while currently in development, is creating an online hub for players and game developers to meet up, play games, and operate together as a community.

Kongregate wraps user-submitted Flash games with community features, serving as a gathering place for users to play great web-based games alongside their friends. Anyone can add games to Kongregate's library, giving talented game developers the recognition and compensation they deserve. Kongregate shares microtransaction and advertising revenue with contributing developers, who retain the full rights to their games.

Kongregate is positioning itself as an aggregator of content in the casual gaming market. With a monthly growth rate of more than 25%, Kongregate is on track to reach more than 10 million unique visitors by the end of 2008. Kongregate CEO Jim Greer exclusively announces the investment on AlwaysOn....

Our friends across the pond at StrategyEye put together the following analysis of the deal:

STRATEGYEYE VIEWPOINT: Could Kongregate consolidate the casual gaming market?

Kongregate has secured further funding from investors including Jeff Bezos, supplementing USD6m raised in previous seed and early stage rounds of funding. The ad-supported casual gaming and in-game advertising sphere is a growing business with accelerating venture capital investment and acquisitions by larger players. Kongregate has established itself as a competitive entrant in the casual-gaming and user-generated gaming market for the following reasons:

Firstly, Kongregate is positioning itself as an aggregator of content in the casual gaming market. The site provides games developers and users with one portal solution in a casual gaming market which is increasingly becoming overpopulated making it difficult for both developers and users to know which way to turn. The Casual Gaming Association estimates that the global casual games market is worth USD2.25bn and is growing at a rate of 20% per year.

Secondly, the company has managed to gain the confidence of many games developers with its business model and strategy, and now has over 4200 games on its platform. Whilst attracting developers can be a challenge for startups in a saturated market, Kongregate has become popular for several reasons:

• Advertising revenue share deals of between 25% and 50% for developers.

• Offers a range of alternative revenue streams including premium games
upgrade fees, and micro-transactions driven revenue on games. While
advertising revenues rely on traffic, alternative streams aim to
supplement this by generating extra revenues from the most loyal users.

• Enables the developer to maintain exclusive rights to the games.

• The business model balances the level of monetisation of developers'
work versus the level of promotional independence the developers hold.
This is represented by a self-sponsoring mechanism that enables developers
to offer a trial version of a game on the platform and a full version both
on the platform and on the developers' personal page.

• Has concentrated on streamlining development processes and elevating
the quality of flash games through sponsorship (Premiere Development Program).

Finally, the company differentiates its consumer offering with a wide range of interactive features: users can create profiles that they can adorn with achievement, chat whilst playing, the community rates games and this is encouraged via redeemable award programmes.

In relation to all the above, StrategyEye believes that Kongregate has a solid business model that follows the likes of YouTube, Digg and other user-generated content. However, the company faces the thorny issue of maintaining the current relationship with developers (and therefore its business model) as well as ensuring that content is democratically managed. Recent history, in fact, teaches us that management of user generated content can become tricky at times and, if managed poorly, could lead to a major backlash (see Digg).

While Kongregate's future success is not a certainty, the company has made significant advances to becoming a much-needed aggregator in the casual gaming market by establishing a crucial relationship with developers, and the traffic is beginning to follow.

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