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How BlitzFail applies to game companies

March 7, 2020

I’ve been reading this interesting article on BlitzFails – where one moment a company is a rising star and the next, they are all done:

In this post, I identify the top reasons why fast-growing startups go off the rails (or “BlitzFail”). The issues have three things in common: first, they are existential; they are capable of derailing a startup. Second, they are surprising; they tend to go undetected for awhile, then manifest suddenly. Third, they are common enough to occur across many startups.

Some of this applies to games and games companies:

Nothing can give a startup the illusion of success like negative unit economics. This occurs when a startup is selling a product for less than its variable cost.

This applies, but not right away as most games companies take time to make that first title and get it out on sale. However (in premium) once there you need to shift enough to not only make back what you’ve spent but also make money to make the next game. The recent dropping of Steam’s average income to record low levels means that most games (around 75% of them) will be selling games at, given the sales numbers they have, at less the cost to make them. By this I mean if a game cost you £100,000 to make and you’re only selling 3,000 units then they need to sell for around £50 per unit (so you’re getting like £33 net) which is clearly not going to happen. Not only that but many of the ways to fix the issue post-release (adverts, updates) cost more money putting you at risk of sunk cost fallacy.

Next point..

Churn is a well known problem but remains a time bomb for many startups because of the lag between customer acquisition and renewal.

Our issue as developers is that, for the most part, for all the time and effort we go to in the search of customers they may buy our game,but the are and remain the customer of the platform we use to distribute.

Next point..

About once or twice a decade, a macro shock affects the startup ecosystem, causing a re-evaluation of fundraising criteria. High-burn startups that are caught flat-footed are often wiped out.

So this happens in our industry more than twice a decade, new genres, new platforms, new hardware cycles, new business models. So mobile, F2P, PS4, Xbox One, Switch, Battle Royale games, Crowdfunding, MOBAs, subscription models, Steam Greenlight/Direct – all of these have up-ended the model and all within the last decade.

Phew. Making games is hard. Making money from games is also a challenge.

One of the ways we’re looking to mitigate the risk at Auroch Digital is via data, and you can help!

 

 

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