Anyone who has opened up the iOS app store over the last six months would have seen Supercell dominating the top grossing charts, and not just in western markets, also the much more mature and competitive Asian markets like China, Japan, and Korea, where free-to-play games are nothing new. For Supercell’s founders Ilkka and Mikko and their team to achieve this with a game that is yet to be localised and is still just in English is nothing short of remarkable.
Interestingly, we do not invest in many games developers, even though the gaming industry is in the middle of a major disruption, driven by smartphone and tablets, and also the globalisation of platforms enabling the most successful companies to compete in all markets. In fact Supercell is only our third investment in this space, out of nearly 60 investments overall. There are 1000’s of great games, and no shortage of quality developers, so why have we been so cautious? And why do we think Supercell is different?
There have been some structural issues, for example in the US developers have a significantly higher cost base than in Europe and Asia. Furthermore, we see less focus on the quality of IP, and more on heavy analytics, which we fundamentally believe is the wrong approach in what is an inherently creative industry. In the mature Asian market, several major players have started to be dis-intermediated driven by the emergence of the iOS and Android platforms on a global scale. The style of the most successful games is still quite localised, and whilst there have been a few success stories with games localised for Europe and the US, we do not yet believe the IP is ready to reach a global mass market.
In Europe, where we have been most active with investments in both Supercell and Rovio, there is more mobile talent and confidence to innovate, both factors being crucial to long-term success. Also we believe Europe has seen the most success in creating brands, not just the obvious consumer brands like Angry Birds, but also the company’s brand, telling a story as to why working at somewhere like Supercell is second to no one.
Both sides of a brand are important, and over time the very best companies build brand equity on both sides, often not at the same point in time. We believe that Ilkka, Supercell’s CEO, and his team will be able to hire the best talent, not just in Finland, or Europe, but from anywhere in the world, making it more likely that they will develop great games for years to come. After all, developing games is still, and will forever be, a hit-driven business, although one where the most creative and innovative are most likely to succeed in the long run.
Atomico also focuses on investing in brands and products that have global potential. The reason for Supercell’s success in Asia, despite their games being in English, requires some local knowledge, as a game like Clash of Clans is actually already built with Asian gaming-mechanics in mind. You can lose both troops and currency when you battle; it is not a ‘win win’ battle like so many of the more casual western social games. When you layer upon this the fact that iOS and Android penetration is booming in both Japan and China, as is monetization on these platforms, you have a lot of potential.
Next is Supercell’s ability to innovate, across both UI, as demonstrated with Hay Day, and also in bringing true multi-player to the iOS ecosystem, as demonstrated by Clash of Clans – both innovations that make their games extremely fun. It is no secret that we live in a world where features and ideas are copied with ever-increasing speed, however it is nearly always materially better to be the innovator, as opposed to the copier. It means you are always at least six months ahead of the competition.
Finally, we cannot ignore the incredible financial progress that Supercell has made making it one of the fastest growing profitable companies of all time, grossing $100m in 2012 and already $179m in the first quarter of 2013, of which $104m was profit. Yet it has kept its culture intact, not a trivial matter. With this success and growth they will face similar challenges to many other companies, both from the games industry and beyond, especially in areas like recruitment. However it is clear that their business model does not require thousands of people to execute, so they will expand carefully, and will ensure the right amount of resources are kept on existing games in order to keep improving the customer’s experience. Supercell has great people throughout the company, and crucially we believe the founders have the right approach for scaling the team at the right pace in order to keep their culture intact.
We look forward to working with Ilkka and the wider Supercell team to build a great and long-lasting company, and especially in helping them continue their expansion into Asia.