Up and down the online game value chain

It’s well known that online games have been shortening the value chain, threatening the roles of middlemen such as publishers, distributors and retailers, and enabling developers to get in direct contact with players. However, as some very interesting discussions pointed out a few months ago, acquiring users (call it marketing, or traffic acquisition) is hard and expensive, which lends considerable power to other actors in the chain, such as:

• Digital distribution sites, like Steam
• Platform managers
• Aggregators, like Miniclip
• Community and media websites
• Ad networks
• SEO-savvy “gateway” portals (MMO lists, etc)

Channels like these have grown greatly in influence, and the conditions of working with the most prominent ones are becoming increasingly expensive (some of the biggest aggregators now ask for either lots of cash, or equity).

Since bringing a user in can end up taking quite a large part of that user’s LTV in your service, it’s not really surprising to see game developers/operators trying to cut these costs by becoming or investing in media themselves, as Dofus’ developer Ankama is currently doing — they just announced that they’ve bought a minority stake in French website Gameblog (link in French) after investing in print media company HP/MP, web TV outlet Nolife and their own games magazine, IG Magazine.

Meanwhile, many websites that command a lot of traffic are moving further down the value chain. Some are getting into affiliation, which is the raison d’etre of portals such as MMOLife‘s. Others are entering into channeling deals: sevengames (an arm of media group ProSieben in Germany) has gone this route, as has Bigpoint, offering client-based games by GOA and Gamigo, and more recently, Free Realms. Portals Buffed and MMOABC are getting into game publishing, while German site Gamona and Romanian portal Computergames.ro are becoming distribution channels for payment codes and mobile payments.

As time passes, it will be interesting to see the barriers between the different steps in the chain begin to blur. Some links will move up while others move down. How long before properties commanding huge amounts of traffic start buying developers, or the other way round? How far will the integration go? Please don’t hesitate to share your thoughts in the comments.