MySpace founder Chris DeWolfe has a system to de-risk game development

By Michael Carney , written on June 3, 2013

From The News Desk

While many game developers are searching for lightning in a bottle in the form of a single hit game that catches on among consumers, SGN founder and CEO Chris DeWolfe – the former co-founder of a little company called MySpace – thinks that his Los Angeles based company has developed a system, and an all-star team, that removes much of the uncertainty from this process.

As brash as this sounds, the fact that the company is operating profitably and recently crossed $50 million in annual revenue – having doubled its income annually for the last three years – suggests that there may be something to his claims. The company also recently surpassed 300 million installations across mobile and social platforms, and is adding more than 200,000 new installs daily.

Today, SGN announced the addition of a number of senior hires from the likes of Zynga, Storm 8, LucasArts and Playtika to help accelerate this impressive growth. The hires include former Zynga art director Lauren Wong, former Zynga Sr. Artist Jamaica Dyer, former Playtika Head of User Acquisition, Adam Jaffe, former Storm 8 Sr. Game Designer Mike Chera, and former LucasArts Senior UI/UX Artists Nicholas Bourges. Collectively, this team has worked on titles including Farmville, Treasure Isle, Bingo!, Splinter Cell, and Your Shape 2, among others, across multiple platforms. The company now has 80 employees across Los Angeles, San Francisco, and Buenos Aires.

Part of DeWolfe’s strategy is to develop each title for iOS, Android, Facebook, and HTML5 (web) simultaneously, relying on proprietary technology the company built to reduce the need to duplicate efforts for each platform. Similar strategies are employed by other large modern game developers like Zynga and LA’s Scopely.

The real magic, however, comes in the way SGN acquires its users, according to its CEO. DeWolfe believes that a custom mobile ad-tech platform built by his team gives SGN the ability to acquire only the most profitable and highly-engaged customers, giving it a competitive advantage over others in the industry.

Claims like this are difficult to substantiate, and DeWolfe was cautious to reveal too much. He did say that the platform is based loosely on a product from Ad-X, but that it has been heavily modified and combined with other tools to allow the company to go beyond basic cohort analysis. The result, he believes, is better ad-targeting and more efficient media spending.

SGN operates each of its games as if they were their own independent company, although ones with the benefit of additional resources available from the mothership. Early on, each operates like a startup with a minimal staff and resources. When a new game is ready for market testing, it’s UI, UX, and game mechanics go through a final review by SGN’s senior developers and artists, before being shipped out.

SGN focuses on developing evergreen games which can be successfully cross-promoted among its hundreds of millions of users, meaning they share similar target audiences and gameplay experiences. As a game finds traction in the market, DeWolfe sets specific KPIs and benchmarks at which its team is doubled in size – something that may happen multiple times within a game’s life.

“We like to think of our games as services,” DeWolfe says.

DeWolfe believes that the ideal model for a game developer is to operate between four and eight successful titles – SGN currently has four that he describes as “working,” including Bingo Blingo, Panda Jam, Jewels of the Amazon, and Bubble Atlantis. “Although we’ve seen several companies make tons of money with just one or two games, it’s too risky in my opinion. And I don’t see 10 or 12 titles being sustainable,” the CEO says.

One thing you won’t see SGN do is publish third-party games. “The economics just aren’t there when there are that many hands reaching into the pot,” DeWolfe says, referring to the content creator, the publisher, and the platform operator, such as Apple or Google. “There’s a reason you’ve seen Zynga and others back away from that strategy. Publishing your own games is just more profitable.”

SGN has, however, been an active acquirer, picking up several small development shops with proven talent but insufficient funding or revenue to keep the lights on. Not all such deals have been announced publicly, but DeWolfe says that the most recent was a San Diego company that it added in the last few weeks. SGN itself is the product of DeWolfe’s acquisition of two companies in 2011, one in Los Angeles under the same name, and a second in Buenos Aires, featuring what he describes as a rockstar development team, both of which were merged into his existing Mindjolt game development studio.

DeWolfe raised a total of $27 million to get SGN (initially MindJolt) off the ground, from backers that include Austin Ventures, TomorrowVentures, Greylock Partners, Founders Fund, Novak Biddle Venture Partners, Columbia Capital, Bezos Expeditions, Felicis Ventures, and Lars Hinrichs. He co-founded the game developer with his MySpace co-founders Aber Whitcomb, currently SGN's CTO and Colin Digiaro – Digario has since moved on to work on a stealth new venture in the mobile ad-tech space – and President Josh Yguado.

More than 60 percent of SGN’s current user base comes from the English-speaking world of the US, Canada, the UK, and Australia, skewing female to a similar extent. Like most other profitable developers, its revenue is derived today 90 percent from virtual goods purchased in-app, and just 10 percent from advertising – two years ago this ratio was inverted with 80 percent driven by advertising. The company also began laying the ground work to expand into the real money gaming vertical through a partnership with Betable, but has not yet devoted significant resources to this category.

In the gaming industry, like with all content businesses, success can be fleeting with consumers often quick to move on from one hit game to the next. Any company that can truly develop a system to reliably producing hit games, or at least reduce the risk along the way, would have a major leg up on the competition. It’s rarely that simple though. With its growing size – both in employees and in existing user base – SGN has an advantage over most indie developers. But in order to continue its growth path, DeWolfe will need to continue fighting for top talent, effectively identifying new users, and, above all else, creating compelling content. Beyond that, it’s simple.