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Fireside Chat about the Business of Video Games Recap

By April 22, 2014 No Comments
Photo: Jacob Schwartz

Photo: Jacob Schwartz

LevelUp/IGDA Victoria’s last speaker was Alex Mendelev, who was kind enough to step in when Eric Jordan of DJ Arts was unable to make it. He joined us for a fireside chat about the business of video games.

Who is Alex Mendelev?

He is currently CEO of TinyMob, was previously GM of GameHouse, and before that he worked at Airborne Mobile (a content distribution company) in Montreal. At Airborne he was promoted to head of technology, decided that at age 26 he probably should not be in that position, and switched to a business role.

Alex moved to Victoria because he was looking for an excuse to move back west (his wife’s family is here), got connected with Russ Ovans, one of the founders of Backstage Games, and joined Backstage in 2009.

Why should we care about free to play?

Because 90% of the revenue on the iTunes appstore is from free to play games.

How do you make money on free to play games?

There was a talk by a Chinese developer called 7 deadly sins of social games that described how to make money by eliciting emotions in the player. Some emotions monetize better than others – for example competition/revenge can work particularly well, but depend on a close relationship between the players in competition.

The drive to complete a collection works well too. Vanity can work, but you need to offer players a compelling reason to care about having the coolest looking avatar, for example.

How ethical are free to play games? Is it douchey to let people play a little bit, then start hitting them up for cash?

The pre-pay model seems much less fair. $50-$60 is a lot to pay for a game that you can only judge by reviews, pictures, and videos when you can’t get a refund if you end up not liking the game.

Has the model changed since you started working in games? Is free to play still a good strategy for a small company?

Consumers are more aware now and more sensitive to companies dipping into their pockets early in the game.

It’s also harder to get users into your game. Average cost of user acquisition on mobile is around $2. To make money, you need to be sure you can make more than $2 per user over the lifetime of your game.

Players expect games to be extremely polished now and it’s important to handle launches carefully. If your game doesn’t grab users right away, they’ll just do something else.

What is TinyMob’s user acquisition plan?

TinyMob is planning to launch Tiny Realms in Spring 2014. They’re working very hard to create a community around the game so that players who are already engaged will help spread the word. TinyMob Games plans to augment organic growth with paid user acquisition campaigns.

What has your experience as a founder at TinyMob been like?

Much more stressful than just being an employee. Also very interesting and positive. At TinyMob, Alex does business development and marketing, Chris Hoefgen does tech, and Jamie Toghill does project management.

Will TinyMob do another round of funding post launch?

It is a possibility, they’ve had a lot of interest.

What was it like raising the first round of funding and how did you do it?

Alex showed off the art they had so far and told the story of the game, starting with local investors. It helped to have a previous exit (Backstage was bought by Real Networks for their GameHouse division).

Getting funding was mostly about telling the story of TinyMob and what they planned to do. Over 90% of their funding was local, and it all came from angel investors.

Games are hard to pitch to investors, some of them just don’t invest in games at all due to prior bad experiences.

Alex has been getting to know investors for the last 4 ½ years because his long term plan was always to start a company. Victoria is a small city and you should know all the movers and shakers.

The Victoria BC Startups meetup is a great place to meet business minded people/entrepreneurs. Trade commissioners are also very useful for introducing you to people.

Why did Alex decide to go business school after getting his comp. sci. degree?

After attempting to cofound a company with a friend who was also technical, he realized that at least one of them needed to have some business sense and it wasn’t going to be the other founder.

If we should know all the movers and shakers in Victoria, how do we find and get to know them?

If you have a compelling reason to meet with someone and ask them questions, most people will meet you at least for a coffee. Everyone goes for coffee, everyone needs to eat lunch. Linkedin is also a fantastic resource.

How useful was your business degree?

Alex’s first degree was in comp. sci and his original career goal was to become CTO of a large company. He ended up deciding he didn’t want to have to compete with brilliant recent grads when he was 50 and getting a business degree was his way to diversify, as well as allowing him to work in the part of the product lifecycle that he preferred.

Developers can get squeezed because they work in the middle of the lifecycle between inception and QA. QA is always under time pressure because they work at the end of the lifecycle, but business development people at the very beginning of the product lifecycle have the most freedom from time constraints because development doesn’t even start until their part is done.

With a major in comp. sci. and a minor in business, where should I focus?

Negotiation is especially useful, as well as being something Alex particularly enjoys, but basically any business course is useful because it’s such a different field from comp. sci.

People tend to think MBA programs are really intimidating and full of total geniuses, but they’re actually like any other program – there are a few brilliant people but most of the class is going to be people just like you.

Regarding monetization, western people seem to lean toward aesthetics and away from pay to win. Is this changing?

People do dislike pay to win because that forces them to pay to be able to compete, but people also prefer paying for items that affect their gameplay experience. About 90% of revenue will come from utility items vs items that just look cool.

What should you look for when hiring a business person?

Can you get along with them for a long time? What kind of track record do they have? Give them a test – for example, if you need someone to pitch to publishers, get them to pitch to you. If you don’t find their pitch compelling, don’t hire them.

How did you hire the first few employees at TinyMob before your funding came in?

TinyMob hired three people before they got funding. They found people who were passionate about games and were very upfront about what TinyMob could offer them.

When hiring people without necessarily having a lot of money to throw at them, think about what else you can offer them – equity, bonuses, full time, part time, being paid to develop a game by a third party.

Alex also had a question for the audience: how much interest is there in the Video Game Startup Bootcamp?

Most of the room raised their hands, which prompted a followup question:

What might stop someone from wanting to go into business making games?

Fear of losing the core of making games that people actually enjoy – having to compromise their vision to make money.

Worries about balancing making money with getting to build what you like.

A member of the audience had an especially good point about the business of games – actually shipping games is a huge pain point for developers. Taking 10 years to finish a game because you’re working at subway to barely pay your rent naturally makes people give up long before they ship. If you’re serious about people ever seeing your game, you need money.

At TinyMob Alex and his coworkers discussed whether seeing how difficult business really is would scare off potential entrepreneurs, and decided that it’s still best for people to know what they’re getting into. If you’d like to know what you’re getting into, don’t forget to sign up for the Video Game Startup Bootcamp – it’s only a couple of weeks away and it’s completely free!

Thanks again to Alex for coming to talk with us and to Chris Tihor for leading the discussion.