The earliest casual games were actually Java web games in the late 90's, but they faded due to lack of business model and lack of broadband, while Real Networks (NASDAQ: RNWK) and Shockwave (NASDAQ: Via-B) introduced the downloadable game $20 try-before-you buy model which then drove the casual market to its current billion dollar + status. So what changed, and why do I continue to harp on web gaming as the future (not "present") of casual gaming, even though Gamezebo CEO Joel Brodie points out here that the revenue model is not there yet for web games?
The answer can be found in the seminal business book Innovators Dilemma: Why Great Companies Fail by Clayton Christensen. The note card summary is that large, established companies focus on incremental improvements to their products because that's what their customers are asking for - e.g. casual game consumers want better graphics, better sound, deeper gameplay, etc. to justify purchasing a game for $20 in the midst of a content glut. However, Christensen points out that what often happens is that a newer, related technology comes along which eventually "disrupts" the status quo, even if it satisfies only a small group of consumers in the beginning since it then evolves far faster, creates new business models along the way, and eventually takes over the bulk of the sector while the established players focus on their core products, even as they stop growing. In this case, it's clearly web gaming vs downloadable games.
As recent as 2-3 years ago, web games were considered fit only for children or young men who would mindlessly play a wide array of cheaply made games created by a 1-2 people on a weekend. Java had faded from the scene in 2D gaming, and the rise of Flash had started to enable small teams to make somewhat fun, short games. There was no real business model around the games outside of some lame ads, most of the creators did it for free or for the publicity, and there were a few pioneering web gaming portals, such as New Grounds, Mini-clip and Addicting Games. Many downloadable games didn't even have web versions, and it was not really considered a true gaming category, at least now when compared to mobile, console, handheld, PC, etc.
So what happened in the last 2-3 years? Flash continued to improve its feature set, and the number of Flash programmers increased dramatically around the world. As broadband adoption similarly increased on a global basis, it helped downloadable game sales, but more importantly, it made it much easier to get easily into web games, which were simultaneously increasing their production values. The original web game portals grew massively, with Addicting Games now easily worth more than the entire $200M purchase price for AtomShockwave, and Miniclip ranks among the top 200 most popular websites in the world. And the Internet ad market surged globally, with the acknowledgment that gaming was now an equal media partner to music, movies and TV. Plus investors started to take notice of the amazing success Electronic Arts has had with Pogo, a primarily online games destination for 35+ yr-old women.
The next steps are obvious, and have been repeated in every new phase of the video game market. Flash games are going to get better and better as the programmers and their tools evolve, starting to deliver handheld-like quality experiences in 2008 - see Fancy Pants Adventure or Ocean Explorer. Now that the advertising/pre-roll market is so strong for web games since they perform so well, the game developers are understandably asking to be paid, whether its a flat fee for them to make some minor game changes for a distribution partner, or whether it's for a share of the advertising revenue they are generating. And the player demographics are expanding broadly as the quality and type of games expand.
And new gaming sites and services are popping up to serve this fast-growing sector.
- Mochi Ads - has quickly emerged as the leading default flash game ad network, showing up in almost every flash game I see. Although few developers will see a lot of money from Mochi in the short run, its one more revenue source than they had 2 years ago.
- FlashGameLicense.com - crudely built, but fast growing site which matches flash game developers and sites which want to feature their games - probably adds 10 games a day and is starting to facilitate a fair number of transactions
- Kongregate - introduced a community feature set on top of the basic flash games, including chat, badges, reviews, and a transparent ad revenue share for developers - keenly male and loyal audience
- Meez Games - couldn't go without recognizing our contributions in providing a curated set of high quality web games for a broad audience, with 3rd party developer features including Meez avatar insertion, ability to earn virtual currency, and integration into popular social media sites like Facebook, Perfspot and Friendster.
- Zynga - emerged recently as a popular social-media based set of multiplayer classic games such as Poker and Blackjack - now opening up to 3rd party developers
There are many more key players that I'm sure I've forgotten to mention, but the predictable pattern is clear - web gaming will grow quickly, take market share, and drive a huge amount of value in the marketplace. The current leaders in downloadable games would do well to recognize the emerging power of this sector, and at least take advantage of it to help market their downloadable games, as I have posted about here and here.