Ngmoco Raises $25M Third Round, Makes Small Acquisitions, Plans More Free-to-Play iPhone Games

Top iPhone/iPod touch game developer Ngmoco closed a $25 million third round of funding, the company announced yesterday. It has also acquired smaller developer Freeverse, and the game Charadium. The new money comes from Institutional Venture Partners, and existing investors Kleiner Perkins, Maples Investments and Norwest Venture Partners, with the total raised coming to nearly $41 million.

San Francisco-based Ngmoco has had many popular games since it started in 2008, but it has been pushing hard to offer free-to-play virtual goods since Apple made the option available to developers last fall. The model, which has proven itself in the Western world for social gaming companies on Facebook and other social networks, allows developers to distribute their games for free, then make money from the portion of those users who buy virtual goods or other features that cost money.

While we haven’t heard reliable estimates of the revenue Ngmoco is bringing in, it says free-to-play titles including Eliminate Pro, Touch Pets Dogs and Epic Wars have been downloaded more than 12.5 million times; these titles have sometimes made Apple’s app charts in its iTunes App Store. Touch Pets had “its biggest revenue day” yet, last weekend, founder and chief executive Neil Young tells TechCrunch. The new funding will help it “amass enough scale” to “get away from the pack” of other iPhone game developers.

We sat down with Young earlier this month for an in-depth interview on the company’s future plans, and he explained the value of going free-to-play within Apple’s iTunes App Store in more detail:

The beauty of free to play games is you disconnect your revenue model from [the App Store] chart position. It’s important to get as many people as you can into the game, for sure, but you’re not making money only when the game is in the charts. That’s the difference from the paid side –- there, if you’re not in the top 100, you’re not making money. In the top 50, even. On a free to play game, it’s really about usage. Once you’ve got a customer, they could theoretically stay with you forever and pay you forever. You’ve changed your monetization from being in the chart to maintaining a relationship with a customer. That also means you get to think differently about the way you design, about how the games get into people’s hands, how you treat your customers.

The company makes money from around 2% of its users using this model, he says. It plans to put out 20 new games this year, and its next two titles, We Rule and GodFinger, are both designed around free-to-play features.

Freeverse offers paid apps like Skee-Ball, Flick Bowling, and Moto Chaser, but Young says it will also move to free-to-play, and push out a large number of new games this year, too. Ngmoco also recently purchased pictionary-style game Charadium from On5, according to TechCrunch — we reviewed the game last week, coincidentally — and it will also make that paid title free-to-play.

Ngmoco is also competing against a few other companies in offering a platform for third-party game developers, called Plus+, that includes social and virtual goods features. Young says the company plans to offer a software development kit (SDK) for Plus+ so developers can more easily access it.