Focus On: Elkware

Mobile gaming, anyone working in the sector will be only too keen to tell you, is a market on the move. It's a sector of the games industry that's finally starting to realise its potential, they'll claim; an area where the early promise is being fulfilled at last, and where growth is going to be exponential in the coming years. People working in mobile gaming have always been optimists - a cynic might suggest that they'd have to be - but in the last eighteen months, enthusiasm in the sector has skyrocketed as the economic and financial indicators finally began to fall in line with the optimistic predictions of the industry.

Even so, true mobile success stories are thin on the ground. Despite the fact that (some) mobile developers, publishers and operators are finally selling games to consumers in decent numbers, for many this is only the start of a slow climb out of the red - and with millions of pounds of investment cash to earn back before any real profits can be realised, a huge number of games are going to have to be sold before we can label the mobile gaming sector as a whole as successful.

It's somewhat surprising, then, to come across a mobile company with a real success story to tell - one which isn't propped up by venture capital millions, or tempered by the specture of corporate finance loans. German mobile developer elkware has just such a story, though. Set to celebrate its tenth anniversary in November, the company employs around fifty staff, has the largest catalogue of J2ME mobile games in the world, opened an office in the USA last year and one in the UK this week - and has achieved its entire growth through organic means. No added colourings, preservatives, or financing.

Organic Gaming

"It's funded by the founders - computer nerds!" laughs Jens Lauritzson, elkware's new UK country manager, when we ask about the company's background. "It started out ten years ago when they were in school. I don't think there's a penny of venture capital. It started as a virtual setup. Jan [Andreson, the company's MD] told me that the only investment they did in the first couple of years - I think they were at high school, these guys are quite young - was that they got their parents to spend some money on broadband connections, and they communicated with those."

Basement coding to international empire stories like that are meant to have died out in the 1980s, but apparently nobody told elkware's founders. The company started out doing Java titles for the PC in 1997, and moved over exclusively to mobile development in 2000 - having seen that this was the direction which Java development would take.

"Starting small we established relationships with some very important clients for whom we did a lot of project work," explains managing director Jan Andreson. "We tried to keep the running costs as low as possible and steadily built up a good financial buffer. This proved to be a sound strategy for when we decided to move into the mobile games sector in 2000. Since revenues in 2000 / 2001 through mobile games were very minimal, that financial buffer was very handy."

"They have been very careful with the way they've invested their money," agrees Lauritzson. "The offices... If you come to the offices, it's like an old oil refinery. Head office building is just.. It's pretty awful, actually [laughs]! But it's cost-efficient, and they get room for all of these 50 people."

And the secret to elkware's success, according to Andreson? "All four founders are still on board, after 10 years and through thick and thin. We have different opinions on many issues, but our strength is to agree to one solution and then everybody in the company follows it 100%."

Going Overseas

Lauritzson has been working with elkware for around four years, originally coming across the company in his former role at a mobile content aggregator. "We found that with elkware, there was something extra," he reminisces, "they had something that no-one else had, of the developers that we represented. It took them three, four years to develop in a fantastic way - they had maybe five games when I first got to know them, and four or five years down the line now, they have seventy titles, and they have operator deals with whoever you want to mention."

Developing the company into markets overseas was a logical step, but the company approached the US market cautiously. "They've been careful, and I think that's really why they have waited," says Lauritzson. "The US market is a big investment, and a lot of companies fail just because of taking on the US. But they've done very well over there, and now the obvious next step was the UK."

The caution which has allowed elkware to grow organically may even have been over-applied in this case, Andreson comments. "The US market is a tough market, because there are basically just five big operators for 250 million people," he explains. "There is no segmentation like in Europe, so competition is very high. And, to be honest, our move into the US market in Summer 2003 was probably a little late, so now we are fighting to gain market share."

Late or not, elkware is doing quite well with its US venture. " I think they're not far from cash-flow break even [in the USA]," Lauritzson tells us. "Of course, it costs a bit of money to set up in the US, and if you have to depend on the operators to generate the numbers, it takes a while before you get in there, but they've done very well with the operators there. I think they're not far away from turning around and generating some profit for the group."

With the US business firmly established, and the Far East ruled out ("we've kept a few of our distribution channels in Asia," Lauritzson says, "but it's a very tough market - you need local representation in China, and if you want to be a legal player, it's difficult to even cover license fees with the retail price"), the opening of a UK office was a logical next step - which is where Jens, who will head up the UK operation, comes in.

Brittania rules the Airwaves

"The UK is one of the most important markets," says Lauritzson firmly. "It's the most competitive market after the USA, I would say. Germany is a big market as well, but generally speaking they have different kinds of games that do well, and I think elkware has experienced that - having Jamba's best-seller, which is not selling at all in the UK."

"You need to know which games will do well here, and I think in general terms the US and the UK are more similar in terms of how games are perceived and what people like," he continues. "But the UK is a tougher market than the US, I would say, for mobile games right now."

That's not just because of the huge amount of competition in the UK market and the smaller margins offered for games (UK operators pay about 50 per cent net to the game developer, while in the USA this figure can be as high as 80 per cent), but also because the UK market is much more demanding in terms of game quality, Lauritzson explains. Whereas in the USA the brands are vital, in the UK, quality is a key issue.

"I think we see that more and more," he says. "To take a recent example, I was asked to help Sorent get Driver into T-Mobile, and T-Mobile didn't rate the game - they just said, 'we don't think it's good enough'. Driver is pretty big - in terms of brand and marketing push, you couldn't ask for more, but they still didn't want to have the game."

Brands are still important to the UK, of course. "In the beginning [the operators] were just 'oh yeah, you have some good games, let's take them', now it's about how many handsets you can support, what kind of quality the game is, and of course, if it's a branded title; how much money and marketing they need to put behind the title for it to sell," says Lauritzson.

"The strategy that we're pursuing now, apart from opening offices in the UK and the US, is to look at what licenses will help us sell more games - there are a lot of licenses that people are spending crazy money on, brands that don't really have anything to do with gaming, and I doubt that they'll get that money back," he continues.

"You have to be clever, because the way the operator is looking at the product is that they're selling games at five pounds, three pounds, or maybe one pound fifty; that's all you have to play with! You're not setting the price, they're deciding what price you're going to sell it at. So if you're spending millions on a fantastic license, you can still only sell it at five quid! So you really need to think about what licenses you acquire."

Local Flavour

The licenses which elkware has acquired for its launch into the UK are certainly an unusual lot. The company now owns the rights to create mobile entertainment based on boy-band Blue (huge in the teenage girl market, or so we're told) and on glamour models Pamela Anderson and Katie "Jordan" Price (both huge in a rather different area). It's not clear what exactly elkware is planning to do with the licenses, but it's worth noting that the company's catalogue does include a small range of adult titles - including the silicon-spotting Breast Quest and magnificently named Arkanoid clone Chicks With Bricks. Is there really a market for the mobile equivalent of, er, 'foreign art films'?

"Sex always sells," says Andreson in response. "And yes there is a definitive market for adult content. Maybe more as in easy casual games instead of complex games. We will even continue to extend this range, with some famous brands soon. But very probably we will not brand them specifically with the elkware brand."

All of elkware's development is done in Germany, so whatever happens to Blue, Jordan and Pammy on mobile handsets will be decided there. The UK office, Lauritzson explains, is purely a sales operation. "Just sales," he confirms. "Knocking on doors, that's what we're going to do! With the UK, you have to be here to be able to get any exposure. I've worked in the mobile games trade for the last - well, since it started really, with WAP online games four years ago - and you know, you've got to be here, constantly knocking on operator's doors, otherwise it's just not going to work."

"To get a chance to distribute anything you've got to have the contract, and to get a contract with an operator could take twelve months," he continues. "Now, I'm a lucky person because they've already done that work! Elkware has contracts with all the operators. So now it's about defining which titles we should push. When we first started talking about the contract, it was titles that are not so big right now, so we need to redefine and look at what we've got, which games we want to push right now; and also at some of the branded titles and licenses that we've acquired recently."

"There are other strategies as well to cover handsets, trying to cover each operator's handset roadmap and cover all of those handsets. You want to take advantage of the operator's marketing push, and they're going to push new handsets, so if you don't have games for those handsets you're not going to be pushed. Today I saw T-Mobile's minimum handset support criteria, and it was a bloody long list of handsets you need to support, even to get a chance - [without that] they wouldn't even consider you."

Pole Position

Lauritzson hopes that the impact of the UK office will become apparent by the end of the year - with the single biggest task for him being arranging with operators to have elkware's titles featured heavily in their line-ups. "After six months you'll probably start seeing some results of having local representation, because it takes a while," he says. "I was just talking to Orange the other day, and they have their launch schedules already planned until September. Even though elkware has a contract with all the titles listed in the contract, there's nothing specifically put in the launch schedule."

"So it will take some time to get there - you need to start knocking on those doors and define the titles that you want to launch with the operators. That's going to take probably three months; and then they're happy to see something launched after the next three months. We already have quite a good catalogue out there that generates quite a lot, but I think that we can probably double the sales in the next three months, if we're lucky."

That work is entirely about positioning, he says, because the market for mobile games is quite different to the traditional games market. "The way people buy mobile games is completely different to all other games, because often the first time, you don't have many friends who have tried that game, so you try it based on the packaging - depending on how it's packaged and how it's positioned. If it has a cool title, even, you may try it - it's cheap, it's only three to five pounds, so what? You may try it."

"Games don't tend to have a track record in the market and therefore it's all about positioning on the operator portal," he concludes. "If you're on the Game of the Week on Vodafone Live in the UK, and compare that with being a generally good game in the Top Ten, you'll have three times higher download volume, because everybody wants to try the game of the week."

Guerrilla Portals

This factor severely limits what companies can do to market their mobile games, Lauritzson admits. "I think everyone is hoping that the operator channel is going to be less and less important," he says, "because it's such a hassle, basically, to get your games out there. I would hope that the more independent portals will get more and more exposure. However, mobile operators always want to lock everything down, and they want to keep their subscribers to themselves. It's very difficult for new players to break in."

Andreson agrees with that assessment, outlining a picture of the future of the mobile market where operators play a far less central role. "We will definitely see games for core gamers splitting away from casual games and getting more expensive," he says. "But the casual market is much more important in the mobile sector than it is for PC and console. And in the end (Iââ'¬—¢ll estimate in round about 6-10 years) the network operators will just be access providers like T-Online or AOL and maybe they will still do the billing. But the operator WAP portals will lose importance because either they will open up the market place (like in the iMode model) or users will go to other service providers like Jamba or Zed."

In the nearer future, however, Andreson would be happy just to see the market continuing to grow and develop as it is now. "Five years in mobile gaming is like 20 years in traditional computer gaming market. elkware could be bigger than EA by then," he smiles. "But in the short term, that is one-two years, I hope that the market continues to develop the way it is currently doing. After the consolidation phase, which has just started, I hope elkware will still be around and delivering good mobile games. My wishes are that in two years everybody in the industry is still as positive as they are now. It is really fun to work in the mobile gaming area."