Flashback to 2006: How Kongregate Started

A little over 2 years ago, a new startup went into private alpha. Here’s one (of many) announcements about it:

On 9/18/06, Jim Greer wrote:
>
> Hi all –
>
> I want to announce my soon-to-launch Flash game startup to this list – I’m
> looking for game developers and players. The site takes games uploaded by
> indie developers and puts them into a rich community framework with
> persistent rewards, metagames, collectible items, chat, etc. Game
> developers
> make up to 50% of the revenue we get from rich media ads and
> microtransactions.
>
> Basically we’re building a community around web games. When I say
> “community”, I don’t just mean chat and profiles. It’s more like turning
> individual web games into something that have some of the addictive
> qualities of an MMO. For those of you who play World of Warcraft – what
> keeps you playing after you get a little bored with the quest that you’re
> working on? I think it’s things like this:
>
> – you are about to level up
> – you are about to earn some rare item
> – your friend is coming online in a minute and you said you’d quest with
> them
>
> Basically it boils down to: you’ve got goals that go beyond a single play
> session, and you’re online so everyone you play with can see/admire your
> progress. We have analogues for all of those rewards.
>
> So what we’re creating is a game portal with:
>
> – chat
> – profiles
> – challenges and collectible items
> – microtransactions for premium features
> – leagues
> – loyalty points for rating games, suggesting features, etc
> – rich media ads
>
> As I said, we’re making money off rich media ads and splitting that. We’re
> also opening up the microtransaction API so developers can charge for
> premium content in their own games (extra levels, gameplay modes, etc) —
> we’ll take a much smaller cut of that revenue.
>
> We’re launching a private alpha version in a couple of weeks – if you’re
> interested in participating you can email me. Preference will be given to
> those who have games to upload! Initially, our usage will be low so the
> revenue share won’t be significant – to make up for that we’ll be having
> cash prizes for Game of the Week and Game of the Month.
>
> Also, we’re hiring developers to help us make our own games, as well as
> extend the API feature set. The first game we’re making is a collectible
> card game, played online – you win the cards by completing challenges in
> user-uploaded games.
>
>
> Jim Greer
> jim
> Company: http://kongregate.com
> Blog: http://jimonwebgames.com

Kong has delivered on all of this … except “microtransactions” and “leagues”. Although … that blog didn’t quite work out: it’s now a blank WordPress blog, installed March 2008 by the looks of things.

Missing features

Kong at the moment is monetized purely through advertising, which is interesting both because they have relatively low user figures to be an ad-driven site, and because most people seem more interested in the other (non-advertising) forms of F2P revenue: item-sales, fremium/premium subscriptions, etc.

On the userbase front, I’ve been wondering about it for a while: their PCU/ ACU (peak concurrent online / average concurrent online) figures are, I would have thought, “fatally” low for an advertising-driven site. The highest I’ve ever seen was around 20,000 users online at once, and a thread on the forums asking people the highest they’d ever seen topped out – so far – at 22,827.

Balancing that out, clearly there’s a very high percentage of return visitors, and high frequency per visitor. I know that other games, such as Runescape, managed to be hugely profitable on similar numbers of users, but that was a long time ago. With the increased competition for advertising these days among web companies, I’d have thought that was much harder. Even if advertising is easier and richer these days (financial crises aside), we’re only talking about $1million a year revenues. Kong has taken on almost $10 million of angel / VC funding to date, which is a *lot* of money when you look at the kinds of return on investment those people expect to receive.

Going back to the choice of revenue stream, let’s revist the original features Jim mentioned, and see how they stack up:

> – chat
> – rich media ads

These are derivative and trivial to add to any Flash-games portal. Who cares.

> – profiles
> – challenges and collectible items
> – microtransactions for premium features
> – leagues
> – loyalty points for rating games, suggesting features, etc

… whereas these are all high-engagement items. None of them work without getting the individual users to create an account on the site, and to keep logging in each time they come back. Most game portals are specifically targetted at being ultra-low engagement: no barrier to entry, no signup, no “hoops”; just play. For other portals to add these services would be tricky from the marketing / conceptual product viewpoint.

Several of them – particularly “challenges”, “microtransactions”, and “profiles” – are also technically challenging, requiring a lot of infrastructure (either server back-ends, or user-interface front-ends).

So, although Kong hasn’t yet added two of those high-engagement items, it’s got most of them. That strongly suggests it would be a great candidate for adding a more active form of monetization, as opposed to the current, purely passive, one (advertising).

And that would be a good potential justification for how they got so much external invesment (although personally I believe it also has a lot to do with a clever disruptive play to put the big games portals like Miniclip completely out of business within 3-5 years).