A lot of gamers and analysts are skeptical about the phenomenal growth of social gaming and liken it to the dot com bubble of the 90. Mind Candy CEO Michael Acton Smith disagrees with them and believes that there is clear difference between social gaming companies like PlayFish and the ones of the dot com era.
"The reason Club Penguin and Playfish went for such multiples is because they are profitable businesses generating substantial revenue," he said at a party held by Mind Candy to celebrate reaching 15 million registered users in its rapidly-growing online kids game Moshi Monsters. "I was involved in the first dot.com boom back in the 1990s and companies were valued at crazy amounts on multiples of users. This time it's multiples of revenue and that is not bubble - that is solid hard fact. So I think we've got a long way to go."
Acton noted that virtual goods business "in the far east" is generating more than $5 billion annually and that the biggest online gaming companies are valued in the billions of dollars.
"Why on earth are you not seeing that in the West? We're seeing huge amounts of growth and we're still in the very early days," he asked.
"This free-to-play model is incredibly powerful; players can sign up and pay for as much as they want either through micro-transactions or through a subscription," Acton pointed out before adding that "there are no costs involved because it's all digital content. So we welcome with open arms new players signing up and if one per cent sign up to pay - great. If 10 per cent or 20 per cent sign up - even better. And for these games, because they're so, relatively, cheap to run, you only need a couple of per cent to pay for it to be wildly profitable."
"It's a really amazing business. We have gross margins of about 90 percent. We deal directly with the end consumer. There's no retailers, there's no distributors, there's no money paid to be listed in a store - all these things the traditional boxed videogame industry suffers. It's an incredibly wonderful, efficient business and it's working very well for us so far."
