I'm a game developer, have built a profitable but small studio and I wouldn't invest a cent of my money into a game company I didn't have control over. The risks of developing a game are:
* Technical. Modern games of the retail console variety are incredibly complex pieces of technology. I would not be surprised if building an MMO was comparable to designing a car in terms of engineering effort expended. If your schedule slips, you need to rework major pieces of code just so your engine is no longer dated.
* Artistic/Creative. The game world needs to be interesting, believable and engaging. Asset production is very expensive. Let your schedule slip, and it will all feel dated.
* Gameplay. The game needs to be fun! This is much, much harder than it looks.
* Market. Distribution is incredibly hard, and even very good games often fly under the radar. Is your game the genre of the month? Is
it fun enough that everyone talks about it? etc
Very rarely is someone great at all 4. I'm reasonably good at #1 & #3 and hopeless at #2, and average at #4.If you manage to somehow succeed at all four points, then you have a game that makes essentially a one time income of $x (it's spread out over a few years, but it spikes high and rapidly diminishes). Hopefully you made a profit!
And that's per game. All you need to do is mess up your next game (for instance by being too ambitious and letting your success get to your head), and you're bankrupt. The trouble is that you're essentially engineering new products each year or two. There's none of that nice, slow maturation of product and increased customer base you may get if you make, eg, bug tracking or database software, operating systems etc. Each release is potentially a very big, maybe-the-company-won't-survive flop.
There are a lot of companies that are established enough that they can survive on their fan base and income, but they're the exception, not the rule. I admire every one of them.
> There's none of that nice, slow maturation of product and increased customer base you may get if you make, eg, bug tracking or database software, operating systems etc. Each release is potentially a very big, maybe-the-company-won't-survive flop.
What you're saying is that "VCs shouldn't invest in studio based game companies" and I think you're right. There are other development models that do not have the same schedule/single-release problems. Free to play is the first that comes to mind, just looking around at the facebook scene (where games are launched and often fall flat until someone iterates and finds the right spark, only to then watch their game blow up). Another example would be WoW. They did a lot of things right at launch but if you look at the product today it really shines from the years of public iteration it's been able to go through.
Unfortunately those development models really don't work for boxed retail console games today, so there are lots of valid reasons to work in a studio model.
Exactly why I didn't want to start a game studio. Once I understood the economics of selling games, I figured it was better to make a platform or tools for game making than starting an actual studio.
I agree about the initial risks - they are probably equivilant for a startup making a webapp versus a startup making a game - what I'm saying is that the position you find yourself in as a game developer after getting traction for your first product is much worse.
With a webapp you can build a company around that traction and potentially get acquired without developing another product. With a game studio, you then have to make the next game, and past success isn't nearly a guarantee of future performance. You can do sequels, but even this isn't bullet proof.
As other commenters pointed out, there are exceptions within the marketplace. And if you're doing a gaming startup that's where you want to be.
The social elements of the game should lend themselves well to the existing social structure of Facebook.
The technical and artistic requirements are much lower.
The game would probably not be fun as a standalone. The fun comes from competition and cooperation with your friends on social platforms. The game should be structured to reward persistence over skill. Doing easy and menial tasks over and over is much more fun when you're competing with your buddies.
* Technical. Modern games of the retail console variety are incredibly complex pieces of technology. I would not be surprised if building an MMO was comparable to designing a car in terms of engineering effort expended. If your schedule slips, you need to rework major pieces of code just so your engine is no longer dated.
* Artistic/Creative. The game world needs to be interesting, believable and engaging. Asset production is very expensive. Let your schedule slip, and it will all feel dated.
* Gameplay. The game needs to be fun! This is much, much harder than it looks.
* Market. Distribution is incredibly hard, and even very good games often fly under the radar. Is your game the genre of the month? Is it fun enough that everyone talks about it? etc
Very rarely is someone great at all 4. I'm reasonably good at #1 & #3 and hopeless at #2, and average at #4.If you manage to somehow succeed at all four points, then you have a game that makes essentially a one time income of $x (it's spread out over a few years, but it spikes high and rapidly diminishes). Hopefully you made a profit!
And that's per game. All you need to do is mess up your next game (for instance by being too ambitious and letting your success get to your head), and you're bankrupt. The trouble is that you're essentially engineering new products each year or two. There's none of that nice, slow maturation of product and increased customer base you may get if you make, eg, bug tracking or database software, operating systems etc. Each release is potentially a very big, maybe-the-company-won't-survive flop.
There are a lot of companies that are established enough that they can survive on their fan base and income, but they're the exception, not the rule. I admire every one of them.