The Portal Bubble

This post originally appeared on the old site on October 13, 2004.  It's still true today, except the bubble has gotten bigger.

Dan MacDonald has written his impressions of the IndieGamesCon last weekend.  Mostly it was about how the people from the major gaming portals acted.

Last year, before the bubble really started to take off, the portal people were apparently helpful and interesting.

First a little background, last year there were a number of producers from the various channels, Shockwave, Real, etc. They were really nice guys, they were more then happy to take a look at your game give you advice on how to improve it so that it would sell better to their audiences etc. They seemed like normal human beings.

This year it was different.

This year, the mass market / casual games space is big business. PlayFirst was there, having just come off a first round of funding totaling 4 million. Of course PopCap was there with their millions, the dude from popcap was wearing clothes that had to have cost more then my car. (my ´89 firebird cost about $1700 and this guy was close). Basically there is this major shift in how things work for the mass market space. Distribution channels like Real, Shockwave, yahoo games, MSN etc. are tired of the overhead of dealing with hundreds of indie developers to get games. Not only that they are giving away less and less in terms of royalties, where it was once 40-50% for developers it´s now down around 20% and will continue to drop as the players get bigger and the developers loose leverage.

So now there are new portals and they are looking and acting more and more like retail publishers.

The general feeling I was getting from members of the panel was "hey guys, we are the gatekeepers now, time to bend over and take it." Gate keepers to what you might ask? well the mass market as they would describe it. Games like Zuma, feeding frenzy, or bejeweled that appeal to the majority of "casual gamers" out there.

This article has generated a lot of discussion on the IndieGamer.com discussion board. 

Primarily, there is a fear that the portals will become just like retail publishers. Royalty rates will continue to drop and eventually independent game companies will become totally dependent on the portals to survive (see Why Pyrogon Failed for how this can happen).

However, as long as game developers do not put themselves into a position of dependence on the portals, this simply cannot happen.

The reason it cannot happen is that there is a fundamental difference between retail publishers and the online portals. Retail publishers (and their distributors) control access to the space in retail stores. This space is limited in supply and it is also very expensive to fill. It takes a lot of resources to get software product into retail stores. A small number of companies can control this space because of the high barriers of entry. Now, it is certainly possible for new companies to come along and get their product into stores (in fact it happens often), but it is difficult. It takes a lot of work and a lot of financial resources.

Online portals, on the other hand, only control space on their own web sites. This space is not limited and it is not expensive to create your own web site and compete with them. All they really have, when you come right down to it, is internet traffic. They have customers coming to their site.

But internet traffic is extremely fickle. Think of the sites that were big with internet traffic in 1999. How many of those are around today? Not many. Internet traffic comes and goes quickly. People only come to your site and come back if there is something interesting there. The portals only have traffic and customers as long as people are finding interesting games there. Once a person buys a game from a portal and it turns out not to be as good as they were expecting, that traffic is gone. In the end it will come down to the portals having to have good products with good customer service in order to keep the customers coming back.

What is going to happen to these portals is the same thing that happened in the internet bubble in 1999-2000. Things are going to look great and the market will look like it will expand forever, and then suddenly it won't. The weak companies will get hit first and a lot of the portals will fail. The market for these games will crash and when it is finally over only those who have the best games and the best business strategy will survive. Those developers who are dependent on the portals alone for their income will find themselves in a world of hurt.

I have nothing against the portals and wish them luck, but I'm not going to get dependent on them. I have one game (Pretty Good Solitaire) on one portal (Real), so I get a small amount of money from them. But I still make far more from my own site (in fact I also make far more from retail publishers), so that portals are only a tiny fraction of my income. I'd put my games up on other portals if a deal came along (as the car dealerships say, no reasonable offer will be refused), but again I'm not going to get dependent on portal income. In the end, the best sales are always the sales from your own web site. Developers should be spending most of their time trying to increase traffic and sales to their own sites. Bringing traffic to your own site is still not that difficult or that expensive and a good game with a well designed site will bring in visitors and make money.

Comments

[Winter Wolves Games]

I agree with you completely. For the kind of games I made so far I really never had the opportunity to use portals, but I would just consider a good side income, but not my main source of revenue.
I want to keep full control on my life :)