Earlier this week, game giant EA announced the acquisition of social game developer Playfish in a deal valued up to $400 million, that we first reported on a few weeks ago. The move was a watershed event in the young history of the social gaming space, marking the first major acquisition of a leading social gaming company by a large developer/publisher.
Kevin Comolli has been on the board of Playfish since the middle of last year, when Accel led Playfish’s $17 million Series B round along with Index Ventures. Accel is also, of course, an early investor in Facebook, where the firm’s Jim Breyer sits on the board. We spoke with Comolli about the investment and the future of social gaming.
Justin Smith: Does the thesis that led you to invest in Playfish still hold today?
Kevin Comolli: We got interested in online gaming a few years ago. We were attracted to Europe because it didn’t have the same console penetration that the US did, and we really thought there were some good opportunities in both online and social games. A lot of people entering the market are coming through online games.
When we originally met Kristian he was working with Glu Mobile at the time, and we got excited about his vision for Playfish. Ultimately, though, Playfish is a content play. What distinguishes them from others in the space who have really strong internet backgrounds is that they also come from a great gaming pedigree.
Today, the industry is still very much emerging, and very dynamic. There is still a lot of room for innovation, and there are a lot of platforms. Facebook has been the dominant platform to date, but mobile is just starting to grow.
JS: How are social gaming companies like Playfish being valued?
KC: It’s a combination of using comparable financial metrics, and strategic premiums. Part of EA’s interest is their need to move online, and onto social platforms, and sooner rather than later. There’s a strategic premium because you’re not only paying for the existing titles and pipeline, but for the team. You’re really buying into a platform of people and talent that you can really leverage.
So ultimately it’s really not formulaic. You have to take a lot of objective and subjective issues into account. The team, the scalability of the team, their track record, the user numbers, the monetization numbers. Companies like Playfish in a very hot space don’t get traditional valuation metrics.
JS: What is your view on the state of the payments ecosystem right now?
KC: It’s an incredibly fragmented industry. Gameforge has something like 90 payment providers around the world. You go from scratch cards in one country to premium SMS in another, like Russia, where the carrier fees can be 70%, to PayPal. There will be a combination of innovation and consolidation.
However, despite all the inefficiencies in the ecosystem, it’s encouraging to see that good games are still monetizing and we’re still making progress. There are interesting companies with interesting metrics even with all this friction.
JS: What do you think role of advertising will be in monetizing social games in 2-3 years?
KC: That’s a tough question; it’s still evolving a lot. Playfish experimented with advertising early on but quickly pivoted to almost entire reliance on microtransactions and in-game purchases. Gameforge is also totally microtransaction based. So for us, it’s been very much a virtual goods driven monetization model. Having said that, it would be foolish for me to think that advertising would not play a very large role going forward, partly in game, and partly through clever non-scammy techniques.
JS: Any final reflections?
KC: The idea of spending $30 million, $40 million, $50 million on a game, putting it on a truck to Wal-mart or Best Buy, and not knowing who your player is, is all kind of flawed. The emergence of the Playfishes and Gameforges of the world is exciting, but the industry still has long way to go. Playfish is all about the quality of the team and the quality of the games.