Zynga of Russia That Doesn’t Want to Be Zynga Weighs IPO
Just as Game Insight LLC’s sales were taking off in 2010, the fledgling company lost access to most of its customers. That turned out to be a good thing.
After Chumachenko quit to set up Game Insight the next year, members of Mail.ru’s social networks Odnoklassniki and My World flocked to its games. Mail.ru soon cut off Chumachenko’s titles, saying she had created them with Astrum’s computer code.
While the dispute was never litigated and Chumachenko denies Mail.ru’s assertions, she says the spat accelerated her push away from social network games into mobile just as consumers were shifting to tablets and smartphones.
With mobile devices, “a totally new market emerged and it demanded new games,” Chumachenko said in her Moscow office, where the walls are covered with sketches of characters from games. “As new opportunities arise, we will adapt.”
Game Insight has since won more than 100 million users with offerings such as clue-finding adventure Mystery Manor and city- builder Paradise Island. With games tailored for mobile devices, the Russian company is growing faster than U.S. rival Zynga Inc. (ZNGA) Sales may reach $100 million this year, up from $40 million in 2011, and if that pace continues, Chumachenko said she is considering an initial public offering in 2014 or 2015.
To stay on her growth trajectory, Chumachenko needs to continue developing new titles. Downloads of Game Insight’s existing offerings fell 10 percent in September from a month earlier, according to researcher Xyologic. That’s reminiscent of troubles that have pushed Zynga’s stock down by 75 percent since its $1 billion initial public offering in December.
Today, Zynga rose 1.7 percent to $2.39 as of 9:40 a.m. in New York.
In an effort to keep sales pumping, Game Insight has introduced seven new offerings since September. And by year-end, Chumachenko says, she will start selling games from other developers, though that risks loss of control over quality.
The number of smartphones in use globally surpassed 1 billion in the third quarter and will double by 2015, according to researcher Strategy Analytics. Shipments of tablets are predicted to gain 65 percent to 117 million units this year, market watcher IDC reports.
“Before app stores were invented, there were a few big game launches every year, game makers would pour millions of euros into a blockbuster and hope consumers liked it,” said Thomas Husson, an analyst at researcher Forrester. “Now you can distribute games more broadly at a cheaper cost.”
The U.S., where Game Insight employs five people at a new office in San Francisco, has become Game Insight’s biggest market, accounting for 39 percent of sales between August and October. Russia, home to almost all of the company’s 400 or so employees work, accounted for 17 percent.
Game Insight is also expanding across the globe, with titles available in 18 languages. As it grows, the 34-year-old founder is using lessons learned during six years at theater school to help her localize the company’s offerings.
“For Brazil, we will draw football stadiums in the background and add carnival quests. For India there will be Bollywood music,” said Chumachenko, who says she spends several hours daily playing her games and those of rivals. “It’s not enough just to translate. The game needs to be adapted for each market.”
While comparisons with Zynga are inevitable -- Julien Codorniou, who heads Facebook’s game partnerships in Europe, has called Game Insight the “Zynga of Russia” -- Chumachenko says they’re off the mark since her company was quicker to spot the opportunity in mobile. “Zynga isn’t an example for us,” she said.
Zynga, the biggest maker of social games and the dominant developer of titles for Facebook Inc. (FB), has seen its greatest success with offerings such as FarmVille played on desktop computers. With sales slowing, Zynga is cutting 5 percent of its staff, shutting offices and dropping more than a dozen titles.
Mark Pincus, who founded Zynga in 2007, last month vowed to increase mobile offerings after acknowledging that the company had failed to meet growth expectations because the market had shifted to mobile. Zynga may increase sales by 4.7 percent this year from 2011, according to analyst estimates compiled by Bloomberg.
Igor Matsanyuk, a co-founder of Astrum who earned about $100 million from selling his stake in Mail.ru, agrees that Game Insight is no Zynga. The Russian company’s focus on the fast- growing mobile segment, he said, prompted his IMI.VC fund to invest, despite his concerns about the hit-driven nature of the game business.
“When I quit Mail.ru, I pledged never to invest in games again,” said Matsanyuk, who declined to disclose his stake in the company. “One game may be a huge success and what then?” With Game Insight, he said, “I was investing in mobile applications -- not games.”
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