How can I make money? Who will pay?

This question is top of mind for every entrepreneur who starts a new business and every developer who has written a game for the Internet or mobile phones. The business model can be quite daunting for a game development company  that has yet to become a recognized brand and command the power to negotiate favorable distribution deals.

Console games

The nature of console gaming has changed irrevocably with the introduction of the Wii, although there are several popular titles available currently for the Xbox and the Sony Playstation also. The cost of entry and the risk for developing console games is very high for new entrants; the large software game publishers own the distribution channel and keep a sizeable chunk of any profits. Since the past couple of years, the market focus for gaming has shifted away from PCs and proprietary consoles to the Internet and mobile phones.

Internet games

Internet gaming has become a global social phenomenon thanks to the popularity of social networks, particularly Facebook, the subsequent growth of Orkut, and of late, Hi5. The Internet games are typically far simpler than their console counterparts so the cost of entry for a developer is low. However, the games are distributed through game portals such as Yahoo games, which is the 800 pound gorilla, Zenga, which promotes its games on social networks, and Zapak. These portals usually purchase the game outright for a few hundred dollars and host it as their branded product. There are other portals that sell games on the Internet and share the revenue with the developer. Of late, public consumer packaged goods companies e.g., Coca Cola, and retailers such as Wal mart have also been purchasing and hosting games on their sites to drive traffic.

Mobile phone games

The mobile phone is an emerging gaming platform thanks to the growth of the web-enabled phones and smart phones. The games have to be customized for these resource-constrained environments since their screen sizes are small and the amount of processing power and memory are limited. The cell phone carriers, e.g., Vodafone, T-Mobile, AT&T, Apple have a stranglehold on the distribution channel, since games can only be downloaded through their networks on to the phone. The revenue share can be very steep starting at 30% in Apple’s case to as high as 80% for the carriers.  

The business problem

The question then is how does a game developer make money from his invention? What are the revenue models that work consistently and return significant profit margins to the developer?

What do you think?

jgc

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