Gaming Guru Alex St. John on Amazon, Business Models, and the Future of Casual Games

It’s always interesting when a huge player dives into an established market. Will they radically shift the dynamics and displace their competitors? Or will they be too slow to innovate, and sink to the bottom like a bloated whale? Earlier this week, when Amazon officially entered the downloadable casual games market (offering games for $9.99 or less), those questions were on the minds of many who follow the industry.

That was part of my impetus for seeking out Alex St. John, the co-founder and executive chairman of Redmond, WA-based WildTangent, and one of the most prominent gaming experts in the Seattle area. Not surprisingly, St. John had many provocative things to say, not just about Amazon but also about how the casual games business is evolving—and what companies need to do to stay ahead of the curve.

First, some context. St. John is an ex-Microsoftie who started WildTangent back in 1998. Last October, he stepped down as CEO but remains at the company. St. John says the downloadable casual games industry as we know it emerged during the last recession, in 2001-2002. Big companies like Microsoft, Yahoo, and AOL got heavily into casual gaming around five years ago, but have since stagnated or declined in that market—being displaced by smaller and more nimble game distributors and networks like WildTangent.

By comparison, Amazon entering the space may not be that big a deal. “Amazon is smaller than other players out there,” St. John says. “There’s nothing new or dramatic about the offering. Nothing bigger than Microsoft, Yahoo, or AOL.” The limiting factor, he says, is how the games are being sold. “What Amazon launched is a last-generation business model…They came to the party a little late, and the offering is generic. But they’re Amazon— they’ll sell some games.”

Amazon, which acquired casual-game developer Reflexive Entertainment back in October, undoubtedly has a different take. “Certainly there is a lot of competition, and a lot of sites out there that do a very good job, but we think we bring a lot of things,” said Greg Hart, Amazon’s vice president of video games and software, in an interview with Gamasutra. “Certainly trust, and the convenience aspects…are all elements of the shopping experience that will carry over to casual game downloads very well.”

But the question of the right business model is an interesting one. As St. John explains, the casual game business started with selling a game for $20. The average price has dropped to about $6 in the past five years, but the percentage of people who buy content has tripled. At the same time, he says, “Online you really don’t have to have such a crude business model…Now we give away free-trial games, we sell micro-currency. Another thing that’s big is advertising-sponsored free play. Even though there’s a recession going on, ads have moved to the Internet.”

And that’s where St. John sees casual games moving. WildTangent currently gets half its revenue from advertising, and half from customers paying for games—which makes the company different from other players. St. John says its sales are up 37 percent, year over year. The company’s gaming site had 13.3 million unique visitors in December 2008, a 74 percent increase over its 7.7 million unique visitors in December 2007, according to comScore Media Metrix.

“What you’re going to see in traditional casual games, the prices will get cheaper and cheaper,” St. John says. “Companies will have to learn advertising, or go out of business.”

In terms of the local scene, St. John says there was fiercer competition in the old days. Now some of the larger casual game companies—like PopCap, RealNetworks, Big Fish—are more established in their niches and tend to cooperate more than before. WildTangent sells advertising for PopCap, for example.

As for WildTangent itself, the company now has 85 employees and is focusing on growth. Some of the more popular games on its network are Fate, Dream Vacation Solitaire, Penguins!, and Cake Mania 2. During the current recession, says St. John, “A lot of noise and hubbub will go away, and we can just hunker down and do a great job on executing…We’re doing a lot of work in MMOs [massively multiplayer online games] and advertising models. We’ll grow a lot faster…Our business has grown during pretty harsh times.”

As we spoke, St. John said he was packing up his office—to move downstairs. He remains heavily involved with WildTangent, but adds, “I’m keeping my options open.”

Gregory T. Huang is Xconomy's Deputy Editor, National IT Editor, and Editor of Xconomy Boston. E-mail him at gthuang [at] Follow @gthuang

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