Inside the YouTube of Games

Casual Flash games generate monthly pageviews in the hundreds of millions, but the game industry has been painfully slow to capitalize on this massive audience—the chief exception being, which Electronic Arts acquired for about $50 million in 2001. Today some 1.4 million “Club Pogo” subscribers pay $40/year – another nice $50 million in annual business.

Jim Greer, former Technical Director at Pogo, like EA thinks that there is a big business to be made out of casual games, and raised a million dollars for his new start-up, Kongregate, which aims to be the YouTube of games, offering free, ad-supported Flash games and an online community to increase the site’s stickiness. After the break, Greer talks revenue model and numbers.

What’s so YouTube about Kongregate

‘YouTube for games’ is really just the attention-getter for people who don’t know that much about the space. What we really are is a community for web gamers and developers. Current web game sites don’t do community right, if at all. If I beat a game on Miniclip or AddictingGames, I don’t take anything with me and can’t even see the other people who are playing it as well.

Kongregate by the numbers

Page views for March were 2.4 million. That’s up from 400K in February. Registered users are in the low five figures – until recently the only incentive to register was to socialize. Now that we have persistent rewards for playing games, we’re seeing much better registration rates. Right now we have 483 games, and they’re coming in at a rate of 40-50 per week. Those are from 224 developers.

Leveraging Ad Revenue

The participation rate for YouTube is somewhere around 2%. That means 98% of the users came there to view videos, not upload them. If our participation rate is around .05%, it doesn’t really kill us. Good games are something you play for hours. A good viral video you watch for two minutes. So we can have a lot fewer games and have plenty of entertainment value…

(To encourage user-generated content), most other sites pay developers a small one-time license fee. They make a lot of money and they don’t share it. We think we can inspire love from our developers, both because they like our community, and because we treat them well… By default, all developers receive 25% of the ad revenue generated from their games… [But] it’s possible for a game to earn 25%, 35%, 40%, or 50% of ad revenue (depending on performance).

Unlike YouTube, users can’t share games on other sites and blogs (yet), but this is something Greer believes is “less of a blockbuster strategy than it was for video.”

All this sounds promising, but unlike other proven online communities, making a enjoyable Flash game takes a lot more time and talent than, say, uploading a funny video, and that barrier limits Kongregate’s content stream. So what’s it going to take for Kongregate to become the number one online game destination? “Much better virality than we have right now,” says Greer. “I’m very happy with where we’ve come in the six months since we founded the company. I think we can do a lot in the next six to twelve.”

You can follow Kongregate’s saga on Greer’s blog.