Why Alibaba Is Betting $120 Million on Kabam (Q&A)
Kabam / Dragons of Atlantis
Kabam has notched some big hits in the free-to-play gaming world, including four games that have grossed more than $100 million. But as COO Kent Wakeford explained in a recent interview, it has almost no footprint in Asia.
He believes the “geographic walls” in gaming are falling, and it seems Alibaba agrees. The Chinese Internet giant said last month that it would invest $120 million in the San Francisco-based studio, valuing Kabam at more than $1 billion.
In this edited Q&A with Re/code, Wakeford also discussed the challenges of breaking into Asia and broader free-to-play trends — including new platforms.
Re/code: Where are Kabam’s players today?
Kent Wakeford: Historically, 45 percent of our revenue has been North America, 40 percent has been Western Europe, and the remaining 15 percent scattered across Eastern Europe, Latin America and a very small percentage in Asia. We built a very strong business in just those markets. But Asia is the world’s largest base of handsets, of smartphones and tablets. It is the largest revenue for gaming revenue, much larger than North America, and it is growing at a much faster rate. It’s clear we need to be there, but there’s a level of complexity in Asia. We need to culturalize the games, localize the games, change the game balance and so on. The other challenge, which is unique to China, is the fragmentation of the Android app store
Because there are something like 300 different app stores there, right?
Here, we have Google Play and we have Apple. You spend a lot of time, you work with them and you get featured. There, you have fragmentation in stores and in payment platforms like Alipay. You also have things like SMS payments, very small 10-cent payments that are popular in China for certain types of games. That’s different from what we do here.
What will Alibaba be able to do to help with those challenges?
They have one of the broadest distribution footprints in China. They understand the culture and what consumers are looking for, and they own Alipay, so that’s payments. And there’s a knowledge there of other payments and what are the best practices. And then there are SDKs, so Alibaba will help us integrate with other app stores across the board, not just their own. Then there’s the investment side, which aligns them financially with us.
How will you measure whether what you’re going to be doing in Asia works? How will you know if you’ve cracked the nut?
We plan to take the entry into China slowly and methodically, to get it right. The first product we’re doing that on is Lord of the Rings. We chose that game because our research on game genres showed that there’s a big audience for that kind of game, battle-card games, in China. And the theme and IP, the Lord of the Rings movies, have a big fan base in China. We’ll look at it the way we do here — bring consumers into the game, keep them playing for a very long time, and then hopefully paying. We’ll look at games just the same way we look at them in any market. Now, there may be differences, but we’ll learn what the differences are. One area we don’t have any data on [in China] is user behavior within the game. Where do they spend money, what mechanics do they spend more time on?
What are the biggest changes you see happening right now in free-to-play game design?
The first thing is, you look at the overall change in the market and how free-to-play has become the accepted business model in our space …
Would you ever make a game that’s not free-to-play?
No. We’ve always been a free-to-play games company. [Paid games] are a single-digit percentage of top apps in the Apple store. There’s very significant acceptance of this business model. Breaking down the geographic walls is another big trend, whether it’s Asian games coming West, Western games going to Asia, or games from Europe being accepted everywhere. And the other mega-trend is the ascendance of Android. You’re starting to see revenue from publishers where even a year ago you heard two-to-one or three-to-one [Apple-to-Android revenue ratios]. I think those lines are getting closer and closer.
There’s also a lot more variety in the types of devices games are played on. Do you think of Kabam’s games as being ideal on a larger screen, for instance?
We’re looking at higher-end devices first, because that’s where you’re going to optimize the “wow” factor. But we make sure that our games are playable on any size mobile device. As we push fidelity and graphics, and maybe this is a personal thing, it becomes exciting to see more of that.
What about set-top boxes like Android TV, Amazon’s Fire TV and Apple TV? Is that interesting to you?
It’s very interesting from a disruption perspective. You look at games like our Marvel game, you look at Moonrise, they’d be just amazing on a big screen. But then you have to get into the business model. Free-to-play requires the ability to get a lot of players into a game, and then a small percentage will pay. You have to solve payments. And the last part is content updating, for treating games as a live service. How do you make that happen on the TV?
Well, on the payments front, Amazon already has everyone’s credit card numbers …
Amazon’s a great example. I think there’s still a couple kinks in how this works as a business model, but they could do it.
You said there’s a growing acceptance of free-to-play among developers and publishers, but there are still some people who say they like buying a game once and not having to think about getting charged again and again. Do you hear that sort of sentiment from your customers?
What free-to-play has done is make great content available to hundreds of millions of people. That’s such a phenomenal change that, for the gaming industry as a whole, it’s tremendously beneficial. You look around the concept of free-to-play, and to use a general industry stat, 95 percent of people play for free. We have a very long player retention time, and that says to me, hey, they’re getting a lot of value out of what they’re doing. There will always be a vocal minority to anything. And when you open up to hundreds of millions of people, the vocal minority becomes a much smaller minority.