Cashing in on the 98% – Canadian mobile game maker grapples with business model

It was the best puzzle game since Tetris – at least, that’s what Gamerizon Studio Inc. president and CEO Alex Sakiz thought of Quantz. The 3D puzzle game was supposed to launch his Montreal-based gaming firm to success, but it didn’t work out.

“We were disappointed, but what can you do?” he tells the crowd of gaming industry developers and investors at Toronto’s GameON: Finance conference. “We had a good cry about it, and then we moved on.”

Gamerizon turned its attention to developing games for the iPhone and four months later Chop Chop Ninja was released. It worked. The simple, finger-swiping, 2D side-scrolling game play won over players in droves and was catapaulted to the coveted top spots in Apple’s App Store.

Gameplay footage from Chop Chop Ninja, a Gamerizon game.

But it didn’t take long before sales started to taper off and Chop Chop Ninja looked like it would only enjoy a flash-in-the-pan success. Determined to find a business model that would work for his gaming company, Sakiz sought help. He wasn’t just up against waning player interest – but a fiercly competitive market where increasingly more free content is flooding mobile app stores, causing fewer consumers to pay for content. Sakiz would need how to figure out not only how to keep the two per cent of paying mobile gamers hooked, he’d have to figure out how to monetize the other 98 per cent not willing to fork over the dough.

Talent key to attact investors

“The challenges behind pay-to-play are increasing,” acknowledges Bram Sugarman, an associate at OMERS Ventures, which is making investments in digital content publishers. Gaming companies can look like a “terrible investment,” he says, because of the difficulty extracting money from users and the stiff competition faced in the app stores.

Still, some gaming companies are meeting OMERS qualifications for investment. The firm looks for two main pillars. The first is “the best entrepreneurs, talented people that have done this before,” Sugarman says. The second is potential for mass market growth within five to 15 years.

With both mobile content and casual gaming markets poised for growth by most analysts watching the industry (a recent Distimo study estimated the mobile gaming industry would reach $8 billion in revenue this year and $11.4 billion by 2015, for example) Gamerizon has that second pillar as a given. It’s first pillar, according to CEO Sakiz, comes from founding brothers Martin and Robert Lizee.

“We’re incredibly lucky to have these guys on board,” he says. “If we didn’t have them as founders, they’d probably have gone to a big company like EA.”

But before Gamerizon would attact the big investors it wanted, it would need to push past the lull in sales on Chop Chop Ninja. To do so, Sakiz employed a risky gambit that an advisor suggested – remove the price from the game for a single day and allow users to download it free of charge. The theory was it would cause a huge downloads spike, which would come back down after the game was no longer free, but still remain at an elevated rate of sales than before the free promotion. The gamers who snapped up the free download would advertise for Gamerizon via word-of-mouth.

The gambit worked. Over a five-day period of free availability, Chop Chop Ninja was downloaded 1 million times. After that, sales continued at triple the level they’d been at previously.

“To this day, most companies now do business with a free app a day model,” Sakiz says, pointing to the OpenFeint app as one example. “That was a novel way to deal with the situation.”

Sakiz didn’t stop there. He saw the casual gaming industry being analagous to the television industry. While big movie productions could count on direct sales to big-ticket items to make money, similar to mega-hit console video games like Call of Duty, television shows had to group short content lengths into a series to be economically viable. It was about frequency of content rather than relying on one big title.

“Casual gaming and television both cannot rely on direct sales,” he says. “They must rely on other sources of revenue.”

So Gamerizon began releasing a slew of Chop Chop-branded games. Today, gamers can buy Chop Chop Runner, Chop Chop Tennis, Chop Chop Soccer, Chop Chop Hockey, Chop Chop Caveman, Chop Chop Kicker, Chop Chop Rocket and Chop Chop Slicer. The original Ninja game has been downloaded more than 3.4 million times.

After the successful series of games, Gamerizon won funding from iNovia and Vanedge Capital in the amount of $5 million. A relief to Sakiz, and an added pressure.

“We were happy that we were right in believe what we were doing had value,” Sakiz says. “Now we have people who have invested money, so we’d better be sure to deliver what they want out of this.”

Creating value from the 98 per cent

Still, Gamerizon is just cashing in on the two per cent of gamers actually willing to pay for content. That leaves 98 per cent of the market that hasn’t been tapped.

“They are one of the very few companies that have actually achieved scale on mobile,” says Albert Lai, CEO of Big Viking Games out of London, Ont. “It seems like the direction they are going is to monetize unpaid users, through merchandizing and television.”

Lai, a seasoned mobile applications entrepreneur with a portfolio that includes social analytics platform Kontagent, put Gamerizon on his radar after its recent fundraising round. He sees the firmm as succeeding at monetizing a small percentage of users, and getting quite a bit of money from those users over time. But he’s skeptical if a merchandising plan can work for any mobile app that’s less of a phenomenon than Angry Birds.

But Sakiz won’t detail what his plans are to monetize the 98 per cent. He’ll only say that he’s not going to “take money out of their wallets directly” and that he’s going use the freemium model for future games. Freemium is a term coined to describe apps or services that are free to download, but cost money for premium features that users might want once they are hooked. It’s a model becoming more popular since Apple allowed for in-app purchases on the iOS platform.

“The longer you spend time on something, the more likely you are going to spend another $1 or $2 to enjoy it further,” the CEO says.

Through it all, Sakiz still hasn’t given up on the 3D puzzle game that Gamerizon started with. He’ll eventually return to Quantz, he says. The game is available for $12 on the Gamerizon Web site.

“There’s pieces of genius to that game,” he says. “Deep down there’s something so unique that it’s worth rediscovering.”

It’ll be bigger than Tetris yet.

Brian JacksonBrian Jackson is the Associate Editor at ITBusiness.ca. Follow him on Twitter, read his blog, and check out the IT Business Facebook Page.

Share on LinkedIn Share with Google+
More Articles