The big news in the world of tech acquisition may be Facebook’s $1 billion acquisition of Instagram. But startups that make games are more interested in a deal that happened back in March: Zynga’s $210 million purchase of OMGPop, the company behind Draw Something. For entrepreneurs in the gaming field, being bought by Zynga is the new exit strategy.
As frantically as technology giants like Facebook and Google have been flashing their cash to buy startups, big-game companies have been even busier. Zynga bought 22 companies in 2010 and 2011, and plans to increase its acquisition pace in the years ahead. That’s good news if you’re a gaming startup. Zynga has $1.8 billion in cash and is eager to spend it.
So who is going to get a piece of that Zynga bling? We asked Eric Johnson, who runs LA-based ad agency Ignited and has an initiative called Ignited Labs, which invests in startups focused on gaming and entertainment. He says game makers that want to attract Zynga’s attention need three things: They need talent, they need to be mobile and they need to be social. Additionally, they need to be quick on their feet because they have a lot of competition.
Don’t Beat 'Em, Join 'Em
“Among my social-gaming friends, the mindset is not to be the next Zynga; the mindset is to sell to Zynga,” Johnson says. “There are not so many companies with that kind of capital on hand. So the general sentiment is to build and sell. And do it again and again.”
In this race, nothing succeeds like success. Game makers with a track record of wins get the most attention and investment. “There’s a small group of people in this business who know how to create hits and people tend to bet on those same groups,” Johnson says.
But in the gaming industry there is always room for surprises. (A smash hit based on farming? Who woulda thunk it?) And it’s easy and cheap in this field to slingshot a game into the market and see if it crushes a pig.
Still, there are a few important trends to keep in mind. Johnson says mobile is a “mandatory requirement” and mobile games should be functional across all smartphone platforms. Highlighting the move to mobile, CrowdStar, creator of popular Facebook games like Happy Aquarium and the “Girl” series (Social Girl, It Girl, Top Girl, etc.), said a few days ago that it will stop making games for Facebook. Though the company earned 90% of its 2011 revenue from Facebook, CEO Peter Relan predicted it will make 90% of its revenue in 2013 from mobile.
Especially attractive to mobile gamers are “fun in-and-out games,” Johnson says, games like Angry Birds. Immersive, 50-hour-a-week games are attracting an increasingly limited audience - and companies that make them are drawing limited interest from acquirers. “You see these quick-hit games get snapped up by acquirers,” Johnson says. “Teams that can make these games are very attractive.”
Another thing a game maker needs is social expertise. And that means not only a keen understanding of how to work on top of Facebook, “but also an ability to tap into whatever the next big thing is,” Johnson says. “Can you do something with Pinterest? Or can you do games on Twitter around 140 characters in a compelling fashion? If you nail that you become uniquely appealing to someone with a big amount of money.”
Be Ready to Pivot
Build fast, build cheap, test online and pivot quickly if you’re on the wrong track, Johnson advises his gaming companies.
“I see more startups being formed and more getting acquired. There’s a whole new entrepreneurial class and games are a natural for this new young entrepreneurial class. Unknowns can find the next big thing, build a lucrative business around one game and get acquired.”