Money Games: The Middleware Opportunity

The games middleware market

Now let's look at companies in the different middleware sectors, with a particular focus on those serving online and mobile games companies. It is worth keeping in mind that some sectors and companies overlap strongly with others.

Development

Unity Technologies is the sort of company that most people think of when you say games middleware. David Helgason and his strong team make a proprietary 3D content development solution called Unity, which is an integrated development environment intended to make it easier and cheaper for content developers to create and deploy 3D content for online, mobile and console games and virtual worlds. Unity based content is deployed via the web to supported browsers and devices such as PC, Mac, Wii and iOS/Android platforms. Competitors include Adobe Director, Dassault's 3DVIA Virtools, GarageGames' Torque and Conitec's Gamestudio. The company is backed by Sequoia amongst others, and given the company's potential and Sequoia's track record, this looks like a pretty smart investment.

Monetisation

Some see this space as the holy grail of games middleware, helping developers to make money out of online and mobile games. Having survived the "scamville" episode of late 2009, the monetisation space seems to be thriving.

Jambool (now owned by Google) operates the virtual goods monetisation platform Social Gold, which enables online game and virtual world developers to create and manage white-labeled virtual currency for in-app payments and analytics. Vikas Reza and Reza Hussein leveraged their significant experience in the payments space at Amazon, so had a real head start when they launched Social Gold in 2008. Backed with $6 million investment by Charles River, Madrona and Bay Partners, investors made a tidy return when Jambool was acquired by Google in Q3 2010 (for what TechCrunch reported as around $70 million). Competitors include Playspan, LiveGamer, Radium One/Social's gWallet and SponsorPay

Analytics

Analytics are something that no self-respecting online or mobile games developer can do without. Even a brilliant veteran game developer like Steve Meretsky (now at Playdom), will tell you how detailed analysis of every element of social games strongly informs social game design to focus on how best to acquire, develop and retain players.

So it's no surprise that companies like Kontangent are on investors' minds, as investment in analytics in data rich environments can be a great way to make money (just ask Bloomberg's Michael Bloomberg or SAS's Jim Goodnight). Kontangent is a social analytics platform for application developers, delivering social behavioral analysis and data visualisation "analytics as a service" for social application developers and platforms such as Perfect World, PopCap, EA and BigFish. They also analyse big numbers: 1,000+ social applications, 100M+ monthly active users ("MAU") and 10,000+ messages per second. Founded by Jeff Tseng and Albert Lai, Kontagent has received backing of around $6 million from ALTOS, Maverick and Facebook.

Optimisation

Optimisation services optimise games performance across multiple platforms, and have often been provided by teams rather than tools in the past. There are now some interesting software solution plays, one of which I met at GDC last month.

Umbra Software provides performance optimisation middleware that cuts down CPU and GPU processing time by optimizing rendering, content streaming, AI and game logic. By determining what is visible and what is not, the load can be taken off everything else to increase frame rates. So far the technology is used by Bioware, Sony, CCP, Unity and ArenaNet, and this class of tools can only increase in value as online and mobile games become increasingly complex and demanding.

Delivery

Online and mobile games can generate high and "spiky" player volumes, particularly where played across regions and countries where peak playing times either overlap or leave large quiet periods in player volume. As player volumes can also accelerate rapidly when a game goes viral, particularly for social games, ensuring that games are hosted securely, reliably and in a scalable way becomes particularly important. While many companies still manage their own hosting, cloud based serving has become an important part of how connected games companies operate.

Amazon Web Services (AWS) provides an infrastructure web services platform in the cloud for many businesses including games, delivering on-demand back-end servers and services which are spun up or down based on realtime demand. So from a flexibility and pricing point of view, the model fits well with how the market itself works. Used by companies like Playfish, AWS is carving out a valuable position in the global games market. Competitors include companies like Rackspace, Google and Microsoft, although their offerings differ somewhat.

Marketing/distribution

Online and mobile games marketing and distribution are provided by many different companies, from Facebook, Apple's App Store/Game Center, Bigfish, Spil Games and literally thousands of other distribution channels. Managing this complexity can be extremely challenging for games companies to handle internally (although some like Bigpoint seem to manage pretty well), so companies like Tapjoy and Flurry have emerged to fill the gap. Many companies are working hard in the space, so it will be interesting to see how those independent of the primary distribution or development platforms position themselves in the long term.

Amongst other things, Tapjoy acts as a distribution platform for social games, mobile games, MMOs, and virtual worlds, with games companies paying for the promotion of their games through Tapjoy's network. Having changed significantly since what was Offerpal acquired Tapjoy, clients like DeNA, Zynga, Disney and Glu work with the company in a valuable part of the market where the network effect should only improve margins as it grows. As a truly scalable business model, you can see why Interwest, North Bridge and D.E. Shaw invested $21 million in January 2011.