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The casual games market is booming, generating over $2.25 billion in yearly revenue despite virtually no brick-and-mortar representation or advertising and marketing costs. But is this market rewarding for investors? For VCs interested in this space, here’s rundown of how it works.

A casual game is defined as a stand-alone entertainment software title that is digitally distributed by one or many “portals,” or independently owned Internet retail sites. Casual games typically operate under a try-before-you-buy business model –- the downloads allow players to play for a set period of time (usually 60 minutes) before shutting down. If the player wishes to continue playing, they must pay the retail price, which they can do electronically from inside the program, instantly unlocking the game for unlimited play. The average rate of purchase to play is lower than 1 percent, and games that convert higher than 2 percent are considered “hits.” The largest market for these games is women ages 30-60, a significant departure from the standard computer games market.

Development costs

The development cost of a casual game typically hovers somewhere around $100,000. That money goes into paying developers, including artists, programmers, game designers, project managers and audio engineers, as well as the developer’s overhead. This investment usually pays for between eight and 12 months of work. Of course, there are ways to reduce costs. In recent years, many developers have outsourced art and coding to companies overseas, in places like Eastern Europe, India or China. But such a move needs to be carefully managed, as many outsourced games are shipped with little quality control, often sporting poor or confusing English.

The primary profit center for casual games is online retail. Games in the genre retail for $19.99, minus retailer discounts and incentives. Since conversion rates for a casual game usually linger below 1 percent, the only profitable games are hits – mid-level successes rarely recoup their development costs. Causal games are not a high-margin business. Because the market involves so many middlemen, the final slice of the pie that makes it to developers is usually quite small.

Investing

Investment in casual game development can come in two forms: as a publisher or as a development partner. Each carries its own risks and rewards. Typically most VC investment in the casual games industry goes to the publisher, and most of the major publishers (including PlayFirst, Big Fish and iWin) were founded with VC money. Publishers then contract with individual developers to create games, paying them an up-front amount as well as a percentage of sales. Once the game is completed, publishers then distribute the game to portals and handle receivables from those portals. Most of the major publishers also maintain portals of their own, retailing both titles they publish as well as other games.

VC money does not, of course, guarantee a hit game. PlayFirst is the best example of using venture capital to successful ends, commissioning Gamelab (where I currently work) to develop their first set of titles, including the very successful Diner Dash. But another Playfirst-commission title we developed, Subway Scramble, didn’t do nearly as well.

Recently, a few studios have worked with VCs on the development side and then self-published the resultant games. This method eliminates the publisher’s revenue share, meaning more of the total income goes to the developer. Studios that have followed this method are typically more established in the marketplace, with at least one successful title under their belts. However, the lion’s share of the game’s sale price still goes to the portals and distributors, and recoupment can be slow.

Revenue streams

Developers and publishers depend on the revenue from hit games to subsidize their output, and there is still no dependable method to predict which games will be hits. With an average of one new game getting released every weekday, the market is already becoming saturated. Because development time is relatively short, a successful game will see its mechanics and theme copied and cloned within six months to a year of being released. So while the development cost of a casual game is low compared to a standard PC or console title, the chance of a single title turning a profit is also reduced.

Secondary revenue streams from casual games include advertiser-supported, “free-to-play” versions, which are generating a higher revenue-per-download rate than purchased games, as well as boxed
physical retail copies (usually handled through another third-party distributor) and ports of the game to other devices, including mobile phones and portable gaming consoles. Because casual games are
typically small in file size, with simple input mechanics, they make this transition more easily than complex PC games.

Investing in the casual games market is much like investing in any content market – dependent on a large number of unpredictable forces. There are proven marketing and content models that are exploitable, but the saturation of the market with products slavishly following those models steadily reduces their effectiveness. For a VC, the best bet is to work with an established developer with a strong, marketable idea and keep costs low. Anything else is way too risky for a market this crowded and volatile.

Written by K. Thor Jensen, who’s worked in the games industry for nearly 10 years and is currently an associate producer for Gamelab.

Image credits: playfirst.com, bigfishgames.com, and iwin.com.

Last weekend, despite poor reviews, Resident Evil: Extinction dominated the U.S. box office, opening with an impressive $24 million take. That makes it the third hit entry in the Resident Evil franchise, and something even rarer: one of few successful video game-to-theatrical movie adaptations.

There’s been about 20 or so of those in the last 10 years, but by my count, only five* have done well in theaters: The three featuring Milla Jovovich battling zombies, the first Tomb Raider movie with Angelina Jolie, and just squeaking in, the survival-horror pic Silent Hill.

According to movie tracker Box Office Mojo, all of them have grossed at least twice their production budget, roughly the point when movies start to break even. That gives us enough data points to establish several rules of thumb for producers who want to develop future game adaptations:

1 - Develop a property with themes/elements similar to a currently successful movie genre

This attracts an existing audience otherwise unfamiliar with the underlying game. The first Tomb Raider offered fantastic globe-trotting action-adventure, comparable to the James Bond and The Mummy movies, among other recent hits. The Resident Evil trilogy and Silent Hill have strong horror elements, a genre that’s come back into vogue recently with hits like The Ring, Saw, Land of the Dead etc. Like the popular Underworld movies, the Evil movies are also strong on stylized goth-futuristic action.

2 - Feature a hot babe protagonist

A double treat for the teen-to-early-20s demographic, which makes up most of the audience during a Hollywood movie’s opening weekend: The guys are eager to go for the babe ogling, while their otherwise reluctant female dates are slightly more willing than usual to come along because at least there’s a tough chick kicking butt on-screen.

3 - Keep the budget low

Most of these hits were made for $50 million or less, highly economical by Hollywood standards. Tomb Raider’s budget was $115 million, but that’s still on the low side for an action movie. (And thanks to Paramount’s creative financing, the studio only put up $7 million of its own money to make it.)

Like everything in Hollywood, of course, these rules don’t guarantee profitability (the second Tomb Raider sputtered.) More importantly, none of these movies were anywhere close to becoming blockbusters, defined as grossing over $200 million domestically. (By far the most successful of the five with a $130 million U.S. take, the first Tomb Raider, hardly counts.) This showcases the painful reality that video games simply don’t have the wide appeal to compete in the truly mass market with Hollywood tent poles like Spider-Man and Pirates of the Caribbean. At best, game movies only work as niche operations.

Which brings us to Halo. Unless its underlying IP is drastically changed, a Halo movie would have none of these three qualities. I can’t think of a sci-fi military action movie doing well since 1986’s Aliens, and whose hero was Sigourney Weaver, not a faceless dude in bulky armor. (More worrying, the comparable Doom adaptation with The Rock recently bombed.) Despite this, the announcement that Peter “Lord of the Rings” Jackson is producing a Halo adaptation (with an estimated $135 million-plus budget) has sent squeals of excitement throughout the hardcore gamer community, easily making it the most anticipated adaptation yet. Microsoft (MSFT) seems to be consciously stoking this excitement with live-action commercials and footage promoting Halo 3. And while I’m a Halo fan myself, this seems like a disaster in the making. The Halo games haven’t even made Xbox the leading console. What makes Microsoft think a Halo movie will do any better?

*Not counting the successful Pokemon movies, which are based on a multi-platform franchise (TV, collectible cards, etc.) and aimed at kids; or direct-to-DVD movies, which operate on a different revenue model; or adaptations directed by the irksome Uwe Boll, whose movies bomb in theaters, but do well for their German investors, since they take advantage of the country’s questionable tax write-off policies.

Zhong Guan Village, Beijing - Last year, a mysterious YouTube video purported to demo a Chinese Second Life called HiPiHi (pronounced “high-pee-high”) stormed the virtual world blogosphere. But with little English language commentary to go on, metaverse experts like Raph Koster were left to wildly speculate.

Was it Asian vaporeware attempting to cash in on a Western fad? Or something bigger than that? And if it really was a user-created world like Second Life, how could it succeed in the land of the Great Firewall? To get those answers, I did the only sensible thing: I flew to Beijing to see it for myself.

Actually, it was a touch less dramatic than that. I’m already in China, in part, to speak about Second Life at the excellent multi-city Get It Louder arts festival. As it turned out, Xu Hui, HiPiHi’s founder and CEO, was on a follow-up panel. Afterward, he invited me to stop by the office, located in Beijing’s high-tech district (Microsoft’s campus is visible through the haze from the main office windows), for a look. We were joined by Zhang Anding, Hipihi’s young policy director. What follows are my notes from that meeting (with some details quite possibly lost or gained in the translation.)

Dare to Compare

For a Second Life user, the most striking thing about HiPiHi is how similar its interface is – reverse-engineered is probably the more accurate term. (This despite the fact that Second Life’s confusing user interface is easily its weakest selling point.) Xu said he conceived of the basic idea before even knowing about Second Life, but it’s abundantly clear he and his team have modeled a lot of HiPiHi on it. Like Second Life, content is streamed from the networked HiPiHi servers — which comprise the world — to users’ computers.

Residents can shape their environment with a library of prefab, customizable artifacts (furniture, homes, etc.), or for the more ambitious, in an atomistic creation system that very much resembles Second Life’s tool chest. (Albeit without a scripting system, though Xu’s team promised one will be available in October, when HiPiHi is slated to be launched) The 16,000 or so beta users/testers are drawn from the Chinese regions, but Xu said English and Japanese versions will launch later this year.

At the same time, some of the graphic elements in the demo I saw are already superior to Second Life, such as dynamic water reflection, and a considerably more lush and varied environment. The singular feature that distinguishes Second Life from all other MMOs so far is that subscribers retain the underlying IP rights to their creations — and here, too, HiPiHi will compete.

Xu told me he is working with Creative Commons China to create a CC-licensing system for user creations in time for HiPiHi’s commercial launch. (”Virtual world property is very suited to CC,” Zhang noted.) If delivered, this would be another advantage over Second Life, for while CC founder Lawrence Lessig was instrumental to Second Life’s evolution, Linden Lab’s promises to implement Creative Commons licensing in their tools remain unfulfilled. Putting the Chinese in “Chinese Second Life”

Where HiPiHi differs from Second Life the most is that it reflects the Chinese culture. The name itself is in part a play on “pihi,” Chinese for “innocent child,” while the three i’s are meant to resemble the Chinese ideogram for society.

In HiPiHi’s orientation area, red banners drape the entrance — meant to half-humorously resemble Communist Party-style propaganda — newbies are urged to “Build a harmonious world,” and so on.

Xu’s team also intends HiPiHi to be a self-consistent world, with fixed time zones and an existing map. In Chinese culture, said Zhang, “People cannot do the same things God did.” In Second Life, meanwhile, individual landowners can set the local time to whatever they choose, and the world grows haphazardly as new swathes of land are added.

Xu told me he conceived the system in 2005 after founding a successful ecommerce site. He didn’t have any previous virtual world experience; he just wanted to change the Web from a 2D medium into an “experience center.” His ecommerce background will come in handy when introducing revenue models into HiPiHi. Buying virtual land (as with Second Life) will be one option; other possibilities include real-world advertising and an Adsense-style ad strip, running alongside in-world search queries.

Since it’s located in China, the most obvious concerns center on the government’s regulation of Internet content. Xu said cybersex in HiPiHi will be OK, as long as it’s done in private; political talk on the other hand, will be prohibited. To do this, Xu will run user chat through a keyword-filtering system derived from China’s Great Firewall. Zhang said the beta users are already voluntarily watching what they say.

“It’s self-censorship,” he offered. “They know what kind of words will be very dangerous.” But while you can’t type, for example, “Falun Gong” in chat, you’ll probably be able to game the filter by creatively misspelling the banned meditation sect. And the filter, the HiPiHi team acknowledged, won’t be able to block non-textual acts of dissent — say, protesters wearing user-made Falun Gong T-shirts.

In any case, Wu said these restrictions will only be a hurdle for Chinese users. Different parts of the HiPiHi world will be confined to the Chinese, while U.S. and Japanese users will have their worlds on local servers hosted within each respective country and generally restricted to their respective parts of the globe.

Second Life vs. HiPiHi In the end, the competition between Second Life and HiPiHi may not be head-to-head. Xu said he’s already talking with Linden Lab about ways to create interoperability between their worlds, so users can move their identities and their content between both. Still, in terms of eyeballs and an Asian sector Linden Lab desperately wants to penetrate (UNCLEAR), the worlds will still likely clash for attention.

Can HiPiHi compete on those terms? As a platform it seems — other than some of the graphics — considerably less robust than Second Life, even during Second Life’s 2003 beta period, when it was without a scripting or commerce system. And I’m very skeptical those features can be implemented in time for HiPiHi’s promised October lunch.

But here’s the thing: HiPiHi only has to partially succeed to eclipse Second Life. Millions of Chinese already play in online worlds (5 million in World of Warcraft alone), and it would take just a small percentage of this existing market to overshadow Second Life’s 500,000 currently active users. Zhang described a group of beta testers who are deeply committed to growing the community and supporting new users, which reminds me of Second Life in its own beta period.

Perhaps the greater danger with HiPiHi is doing too well — Chinese “gold farmers” created their own cottage industry of acquiring and selling precious virtual items in WoW, and a local MMO favorite will be hard for them to resist. (Xu seemed concerned about how the government will treat HiPiHi’s currency once it’s introduced. After “QQ dollars” became a Chinese phenomenon, the government stepped in.)

But even more than the HiPiHi tour, it’s a tour through China’s culturally dynamic cities that makes me see the system’s potential. While the country’s tech industry thrives, its arts and creative scene is also growing, with Shanghai’s 50 Moganshan Road and Beijing’s 798 teeming with studios showcasing ambitious and often cleverly subversive works. Before joining HiPiHi, Zhang composed the hypnotic soundtrack to “i.Mirror”, a gorgeous and moving machinima created in Second Life and recently featured at the prestigious Venice Biennale. It’s directed by Cao Fei, an internationally renowned member of China’s arts vanguard. Young Chinese like Fei are already exploring online worlds as a creative medium, and many are sure to try a local version that caters to them.

Then there’s the country itself. China’s city streets are a constant swarm of people moving beneath skylines of skyscrapers. The weather has been a staggeringly humid 90 degrees each day of my visit, and in Beijing’s canopy of sun-obscuring smog, there’s not a single patch of blue. In a place like this, an online world of open spaces, clear lakes, and leisurely community — largely accessible in air-conditioned Internet cafes — will probably seem less like casual entertainment than an irresistible value proposition.

Photos by Jennifer Schlegel

The attention surrounding MMOs (massively multiplayer online worlds) has never been greater. But it’s not just role playing games along for the ride; non-game, avatar-driven virtual communities are just as popular, if not by more, and we’re not just talking Second Life here.

So in an effort to cut through the hype and glean some context, here are the most popular MMOs in terms of active users or subscribers, based on publicly available data. These titles may or may not be games, but the medium has expanded far beyond Tolkienesque fantasy worlds. They all are Mac-friendly/Web-based with exception of Guild Wars.

1. World of Warcraft, released 2004 - 8.5 million subscribers. While Habbo is giving Blizzard a run, the numbers generally support WoW as the biggest MMO in the world. Important qualification, though: only 4 million are based in the West and monthly subscribers, while its 4 million Chinese players only pay roughly 4 cents an hour to play it in Internet cafes.

2. Habbo Hotel, released 2000 - 7.5 million active users. The Finland-based “social game” MMO popular with teens and growing fast. Look out, Horde!

3. RuneScape, released 2001 - 5 million active users. A Java-based MMORPG operated by Jagex Ltd. with over nine million active free accounts. Boasts one million paying customers. Fancy that.

4. Club Penguin, released 2006 - 4 million active users. MMO for the kiddies developed by New Horizon Interactive. The game shares similarities with other social environments like Habbo Hotel.

5. Webkinz, released 2005 - 3.8 million active users. Here’s a novel idea: create beanie baby like stuffed animals, assign them a unique ID, then create an MMO portal in which kids can spend even more time using your product. When kids graduate from Club Penguin, they go to Webkinz (or so I’m told.)

6. Gaia Online, released 2003 - 2 million active users. Not quite an MMO, not quite a social site, but founder Derek Liu has openly stated the networks desire to focus on social gaming. Forums make up 30% of the current site activity.

7. Guild Wars, released 2005 - 2 million active users. Another MMORPG made by the popular NCsoft out of South Korea. No Mac love here, but a lot of active users.

8. Puzzle Pirates, released 2003 - 1.5 million active users. Published by Ubisoft and developed by indy king Three Rings, Puzzle Pirates merges casual games with a rising interest in pirate culture. Puffy shirt aside, it’s working like a charm.

9. Lineage I/II, released 1998 - 1 million subscribers. Published by South Koreas NCsoft, Lineage was once the most popular MMO of its day. At one point total active users peaked at 3 million. A Western release in 2002 mostly fizzled.

10. Second Life, released 2003 - 500,000 active users. No introduction needed here. Created by Linden Labs, this virtual world features a rabid fan base, inflated numbers, a high influx of corporate doppelgangers, and lots of digital genitals. First life optional.

Other popular MMOs are sure to exist, particularly new-comers and non-localized Asian games that are sure to grow. Also, this list reflects popularity alone, not necessarily revenue models, though World of Warcraft is performing well on both counts.

For all intents and purposes, the most popular MMOs represent an estimated 50-75% of the total MMO market (30-60 million active users.) Is that enough attention to justify MMO’s recent surge of attention? Maybe not all of the hype, but definitely a large portion of it. And who wouldn’t want a piece of Blizzard’s reoccurring pie or another revenue model with a similar install base?

Interestingly, however, it’s apparent that no single business model is winning out. Subscriptions work well for MMORPG games like WoW that are more akin to crack cocaine than mere entertainment. But what about other non-game MMOs? How will companies bank on consumer attention in those areas? One thing’s for certain: with all the popularity surrounding MMOs several new business models are sure to flourish in the coming years, as it’s not just about games anymore.

*Of Western origin or with a localized presence here. “Active users” based on most recent monthly log-in figures when available. Subscriber numbers are not necessarily a reflection of active users. Figures compiled from Wikipedia (excluding, to the best of my knowledge, free trials, beta users, and web visitors without accounts.) Virtual Worlds News also referenced; Habbo figures taken from company spokeswoman, Second Life figures from most recent published stats. Special attention was given to notable MMOs in terms of where they stack up when looking at the numbers in addition to their popularity and/or high profile (i.e. Second Life.) Amendments and additions welcome.

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Someone recently asked me how the game industry lost the attention war. Paradoxically, interactive entertainment has never been more popular or lucrative, but the game industry— narrowly defined here as the major consoles and game publishers— is now, with one notable exception, but a sliver in a much larger interactive entertainment pie. Why? There’s a simple explanation, but first consider this recent litany failure.

• Milestones of an Industry On the Road to Irrelevance
• Inside an Insular Industry
• A Future Business of Games Without a Single Industry

Milestones of an Industry On the Road to Irrelevance

• EA in Crisis: The industry’s largest publisher defenestrates their chief executive, citing sequel-itis, then drastically scales back its profit estimates, citing a failure to develop enough titles for the Wii.

• Nichification of the Next Gen Console: Xbox 360 eclipses Playstation 3, sending Sony into a tumult. But that conflict belies a more crucial truth: this generation, the console war is actually a duel between midgets. Selling in the low millions, each has little chance of reaching anything near the PS2’s truly massive installed base.

• Wii Victorious: At its E3 2006 debut, fanboys praise the Wii for its innovation, but because it lacks HDTV and hardcore gamer titles, dismiss it as a sideshow to PS3-versus-360. Instead, the Wii vastly outsells both and becomes a disruptive technology, forecast to eventually reside in nearly 1 of 3 homes.

• Rise of Non-Game Virtual Worlds: World of Warcraft premieres in 2004 and three years later, retains an uncontested monopoly on the fantasy MMO. The industry keeps churning out fantasy MMOs—all of which fail in comparison. Meanwhile, a slew of non-fantasy online worlds— Gaia Online, Club Penguin, Second Life, and more— attract millions of users, extensive media coverage, and investment dollars. None of them are produced by the game industry—which, after developing virtual worlds for some 20 years, represents a spectacular missed opportunity.

• Casual, Web-Based Games Rising: Dozens of free game sites like New Grounds and MiniClip rank in Alexa’s top 1000, attracting millions of casual players, especially women. Few have any relation to the game industry. Among the only fantasy MMOs to succeed post-WoW is the Web-based RuneScape—once again, not from a major publisher.

Inside an Insular Industry

Why is all this happening? The unifying explanation can’t be conveyed by strict business analysis, for it goes to a deeply rooted corporate culture: The game industry is Hollywood for Lost Boys.

It’s a business comprised almost entirely of young gamer dudes, serving an audience of young gamer dudes, covered by a gaming press of young gamer dudes, all of whom are only interested in creating, playing, and covering games that interest young gamer dudes—which they believe to be the pinnacle of entertainment. (For a cruelly accurate, street-level sketch of its oblivious insularity, read this excerpt from Smart Bomb, or immodestly, my own report from E3 2001.)

So of course EA would under-develop for the Wii: its low res graphics aren’t appealing to Lost Boys. Of course the industry would be slow to grasp the Wii’s disruptive power and fixate on the 360-versus-PS3 sideshow, since both can run the Hollywood-worthy epics like Halo 3 and Gears of War they’re interested in.

Of course they’d fail to capitalize on the rise of Flash-driven casual games, which appeal to women and older gamers. Of course they’d keep churning out fantasy MMOs they like, and ignore the rise of non-game virtual worlds, which they don’t. (As Will Wright once told me, developers are hobbled by a “moviemaker wannabe” streak: “You know: ‘Well, George Lucas made his world — here’s my world!’”)

And of course they’d be indifferent to user-created worlds like Second Life: the idea that amateur-produced content might provide a new and in many ways superior experience to traditional MMOs is entirely alien to them. Their peevishly incurious reaction is pretty much what you’d have got from a movie producer in the 90s, if you told him that film and TV would soon start losing their audience to a video clip site featuring stupid dog tricks and a dancing bald guy.

A Future Business of Games Without a Single Industry

Can the industry regain the attention? Not as it exists now, not without brutal changes to its gamer-centric culture. A few publishers, notably Ubisoft, are trying to steer their corporate ship out of Lost Boy territory, developing more Wii titles, more games for families and casual players. So the PS3 and the 360 will continue underselling, and as more publishers shift their dollars to the Wii, become even more niche.

As traditional MMOs besides WoW go extinct, user-created online worlds will thrive, and budget-conscious game studios will turn to Multiverse, Areae, Second Life, and other open platforms. Individual developers willing to make do with a little less geek glamor in exchange for more independence will leave the industry, and follow after the Flash-enabled success of games like Desktop Tower Defense.

After speaking at this year’s Game Developer’s Conference, venture capitalist and tech visionary Joi Ito described an industry steadfastly ignorant of the changing world outside, “making the same mistakes that the content guys have been making since the beginning of networked computers. They ALWAYS over-estimate the importance of the content and vastly underestimate the desire of users/people to communicate with each other and share.”

So in the short term, nothing will change for most of them; occasional tent pole hits like Halo 3 will soothe their cloistered delusions. They’ll keep ignoring non-traditional gamers, Web 2.0, and the user-created revolution, assuming like Hollywood that their core product has enough global appeal to get them through the latest media revolution.

And that will be their final disastrous turn. Because unlike the real Hollywood, there are only so many Lost Boys in the world willing to pay attention to them for so long.

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So here’s a couple ways to a create successful game online: a), Find an investor who’s crazy enough to give you millions of dollars, or b), Put it on a distribution network and hope you get enough customers willing to buy it as a download.

Then there’s c), Make a Flash mini-game, let people play it for free, and watch the ad revenue pour in when the site gets 20 million pageviews a month. That’s the option Paul Preece took with his phenomenally popular Desktop Tower Defense, and though he has no professional experience with game development, the Visual Basic programmer is now making, by his estimate, high four figures monthly for his ferociously viral little game.

As such, it’s an ideal case study for an often-overlooked revenue model for online games, one that developers and investors would do well to learn from. Working with a low budget on a game designed for maximum stickiness, a small team of developers can create a single title which earns thousands yearly— or in Preece’s case, close to six figures.

After the break, Preece explains some of the secrets to Tower’s success.

Take a Well-Known Genre, Make It Better

There are numerous “Tower Defense”-style games with the same premise—stop a horde of monsters by building a variety of defense towers. “I have been mulling over doing a proper ‘mazing’ Tower Defense for a year or so,” Preece says, “but I felt that the learning curve for Flash was too great. Then a good friend of mine created the successful Flash Element Tower Defense, and when I chatted to him about his experience… it suddenly seemed much less difficult than I had thought it was.” [His specific inspiration was a mini-game from one of Blizzard’s classic real-time strategy titles: “The basic map layout was based on Autumn Tower Defense, which was one of my favorite Warcraft III TDs.”] Though most of these games are fantasy-oriented, Preece gave his version a quirkier, more cartoonish feel, and added a number of elements that made it more viral— particularly a group-based ranking system which encourages competition between friends and co-workers.

Promote through Web Aggregation Sites

“I didn’t do any promotion of the game beyond sticking it on StumbleUpon.com,” Preece tells me. “It gave the game a slow start for a week or so— which was good to weed out the bugs. Then it got ‘picked up’ by a few large game sites, then Digg and then I-am-bored.com. When DTD got Dugg the first time, the server overloaded and I realized that it was becoming popular game.”

How popular? “I am unsure as to the number of unique visitors,” he says. “My logs show 4 million visitors and 20 million page views for April. The game itself has had 9 million plays during April (excluding older versions).”

Debuting in March, his site, http://www.handdrawngames.com, is already among Alexa’s top ten thousand sites.

Profit Through Ad Revenue and Keep the Budget Low

DTD’s main revenue source is AdSense, but with its avalanche of popularity, advertisers have approached Preece directly, leading to “Affiliate deals, sponsorship, custom versions for other companies etc. The last two are in the pipeline but I thought I’d add them in at a low level.”

Preece’s main expense is running the server. “Hosting fees are negligible,” he says, “at $130 per month. But I am getting very close to the 1200GB bandwidth allocation!” That plus “the continuous supply of late night Red Bull” comprise the bulk of Desktop’s budget.

“I do feel that with a little more market place knowledge I could make a good living from DTD until it stops being popular,” Preece e-mails me. “With less popular games I would probably need two-three on the go every month to make a good living. That would equate to releasing a game every month which I think is doable.”

But what’s that odd voice you hear, when you win the game? “It comes from a children’s cartoon I grew up with in the UK called ‘Ivor The Engine’,” Preece explains. “It was about a Welsh train, which is where the accent comes from.” But keeping the budget low is his main consideration. So, he adds, “I have removed it in the next version for bandwidth reasons.”

Update, 5/28: Added Preece’s acknowledgement of Warcraft III as an inspiration for DTD.

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