Who is Voodoo aka the latest French unicorn focused on hyper-casual games?
Talk #3
Ready for a long in-depth exploration on both hyper-casual games and Voodoo ? Let’s go!
1/ What happened?
Voodoo is a French start-up founded in 2013 by Alexandre Yazdi and Laurent Ritter. Voodoo is focused on hyper-casual games.
They began to become well-known after having raised $200M from Goldman Sachs in 2018 with their growth fund.
Voodoo has over 100 titles and amassed 300 million Monthly Active Users (MAU) as of January 2020.
Two weeks ago, Tencent has become a minority shareholder - a stake around 20-25% - in Voodoo in its business valued at $1.4 billion
Let’s start with an in-depth study of hyper-casual game market then we will make a deep dive on Voodoo and what make them attractive for Tencent.
2/ What are hyper-casual games?
Hyper-casual game = Forgiving & clear gameplay + satisfying physics
Gaming experience with hyper-casual games is based on simplicity, a very forgiving & clear gameplay and basic but satisfying physics. Hyper-casual game sessions last on average 2.5 min.
Flappy bird, Doodle Jump etc are some famous example of the first famous hyper-casual games released on mobile.
3 / Hyper-casual is a business model, not a genre
It may seem counter-intuitive, but hyper-casual gaming is in fact a business model, not a genre.
It is precisely its business model (on average over 95% revenue through advertising) that leads to its specific gameplay. And not the other way around.
I would define a Hyper-casual game as: any game that relies on at least 90% of its revenue from ad monetization.
In other words, it’s free to install/play with a lot of ads within the game. Very few revenues from In-App Purchases (or IAP). IAP allow to definitively ban ads. Players pay with their time when they watch an ad.
The very best games blend the ad experience and mechanics together and create fast, simple games that appeal to the broadest category of players.
To clarify for those who are not familiar with monetization in mobile games, we can distinguish 3 models in mobile games:
A. Premium: a business model very similar to the one used in PC/console games. We pay once and we have access to all game content, usually without microtransactions.
Examples: Minecraft, GTA, Assassin’s Creed etc.
B. IAP-driven: a business model based on In-App Purchases, involving mainly in-game currency, loot boxes and other extra contents. IAP’s goal is to speed up the progression of the player, it is not mandatory to pay. Progression is in general quick and rewarding at the beginning to maximize player’s retention and then the game tends to become more and more difficult without paying.
They are harder to develop than hyper-casual games because they need more efforts on game design. Developers need to find the right balance between conservative/aggressive IAP monetization to maximize LTV. If successful, the ARPU and the Retention can be huge. These types of games can be very popular for many years while hyper-casual games have very short lifecycle.
Examples: Hearthstone (by Blizzard, screenshot above). There is also Fortnite (Epic Games), Pokemon Go (Niantic) etc.
C. Ad-driven (hyper-casual): a business model based on making money at least 90% from ads. An ad banner is usually displayed throughout the entire game time and sometimes a quick ad called interstitial ad is displayed to the user. This model includes also rewarded ads, which consist of 30 second videos or interactive advertisements. In return for watching them, the player gets some resources, e.g. health or mana points, soft or hard currency.
Example: Crowd City by Voodoo
4 / History of mobile game monetization
A. 2007-2012: Premium Model domination
Fixed cost to download, no In-App Purchase (IAP) and no ads within the app to monetize.
At this time, it was the very beginning of App store with iOS/Android based devices. The target was more niche/gamer than mainstream.
It was not really optimal: Devs were losing out on players who want to spend more & some who don’t want to spend that much. Average Revenue Per Download (ARPD) was 0.99$ at this time.
B. 2012-2017: IAP-driven domination.
Freemium Pricing Model with IAP. 100% Free to play, games added IAP to increase LTV user. Thanks to IAP, developers exercised their ability to allow players to spend more money to increase LTV per user.
But in late 2017, ads monetization exploded.
C. 2018-now: Big shift happened in 2018, hyper-casual explosion driven primarily by ads monetization.
However, the IAP model is still relevant but applies to games that are generally richer in terms of content and replayability (Fortnite, Pokémon Go, Hearthstone etc.).
Hyper-casual games target in practice everyone except traditional/hard-core gamers. A big advantage of the ads revenue stream is that it bypasses the controversial 30% tax on Apple and Google stores.
The market size of hypercasual games is around $2 billion to $2.5 billion in annual revenue in 2019 and $3 billion in 2020 according to VentureBeat.
5 / Voodoo 2013 – 2018: From a gaming developer to a publisher focused on hyper-casual games
2013: Voodoo is created, they start to build a quiz game for smartphone with 2 years of hard work (2013-2015).
2014: Equity crowdfunding to finance and complete the development of their first game
2015: The public reaction with this game did not live up to the ambitions of the founders. They stopped working again on that first game.
2016: Voodoo launched Paper.io : 1st hit for the company. It’s a hyper-casual game inspired by Snake game with a Multiplayer mode with bots.
2017: The success of Voodoo has interested small game developers. Voodoo started to focus on video game publishing rather than development.
2018: Arrival of Alexander Shea in charge of publishing and developer relations. Voodoo started to structure a Publishing Agreement to work with developers. Developers make the game itself and Voodoo provided them with their publishing and ads expertise to maximize the odds of making their game successful. Voodoo raised $200m from Goldman Sachs growth fund.
6/ Voodoo 2018-2020: Diversification beyond hyper-casual, new studios and development of more engaging titles
2018-2020: Voodoo is the leader in hyper-casual game publishing in 2018 (around 25% market share) alongside other Ketchapp (acquired by Ubisoft). In 2020, Voodoo has now 12% market share.
This decrease is not necessarily a failure. Voodoo made strategic move to open new studios(Berlin, Istanbul, Montreal) beyond hyper-casual while still being a publisher of hyper-casual game by maintaining their relationships with third-party studios, they don’t necessarily retreat but they want to grow its potential market, this can also signal the hyper-casual market as a whole is not that lucrative in the long run. They want to develop games with more retention and IAP, some call them hybrid-casual games because of this mix.
In addition to the classic retention rate, the Sticky factor is a quick & easy KPI to evaluate engagement of players. It’s just the MAU/DAU ratio, which shows us how cohorts of players enter the game and how often do they do it on a monthly basis. The higher the percentage, the greater the players’ engagement.
7 / How Voodoo became a leader?
A. Fast execution to build a winning prototype
B. Daily focus on monetization – CAC, DARPU, LTV.
C. Automate execution as much as possible from game testing to creative
D. Use A/B testing only for big changes (wildy different art styles, core mechanics and difficulty)
According to Alexander Shea, Head of Publishing at Voodoo, a competitive hyper-casual game should have:
1. D1 Retention > 45% (45% of retention at day one after publishing on App store)
2. D7 Retention > 17%
3. CPI = Ads spending / Install < $0.25
If theses 3 conditions are completed, Voodoo pays the developer with a bonus of $20k and if the game reach break-even within 2 months post-launch, the developer receives $180k.
Last but not least, Voodoo is competitive because of their ability to scale an ecosystem of games as a Publisher to build cross-advertising - i.e putting ads on each Voodoo’s game to play another Voodoo’s game. Indeed, hyper-casual games have a big churn rate (i.e. Day 1 churn > 40% is frequent) so being able to convert the player to play another Voodoo game before he deletes the app is an advantage to increase LTV.
8 / Why is Tencent interested?
For Voodoo, the Tencent deal is a passport to reach the APAC market. As of 2020, APAC is 50% of the overall gaming industry. There is a big growth potential.
China is already a key market for Voodoo, which generated €360 million ($428 million) in revenue last year. The company has a total of 3.7 billion downloads on iOS and Android, with 25% of its installs coming from APAC.
China contributes 7.5% of downloadsbut Voodoo’s games are not available yet on Android in China because Google's app store is blocked in China. So being able to team up with Tencent would help a lot their ability to publish in the multiple third-party Android stores specific to China.
For Tencent, Voodoo’s games could be embedded within the WeChat messenger app, which itself has the ability to launch seamlessly light games that can reach over 1 billion users.
In addition, all Voodoo’s games already comply with the Chinese regulatory constraints on violence in video games and games monetized via ads do not require a license in China. This investment in Voodoo appears to be a convenient opportunity to acquire the know-how of hyper-casual games.
Voodoo is now planning to open an office in China.
9 / Ad Monetization must get smarter and more native
While the synergies with Tencent for Voodoo look very promising, hyper-casuals’ formula is not yet sustainable for several reasons:
A. A lot of players know how to block ads by enabling airplane mode or disabling cellular data + Wi-Fi. Many comments on the AppStore explains the process.
B. Apps to block ads are free and more and more known on both iOS and Android devices.
C. Increasing player’s fatigue for hyper-casual games due to 30-second commercials that interfere with immersion
D. The majority of comments on the AppStore either explain the process to block ads or complain about the ads. Monetization needs to be refined.
The biggest issue in the genre isn’t the game itself, it’s the monetization system which is at least 90% based on ads within the games. Theses adds don’t allow for smoothness or rewarding transitions to have a great game experience. Ad networks will get smarter but they need to work with game developers to build a better ad tech for this use case.
I am convinced that ads’ integration in games will improve over time.
In terms of best practices for ads monetization, some publishers have noticed that best conversions come from playable ads since they encourage the user to enjoy the time away from the main game.
On top of that, Apple is getting stricter and stricter on data management. In a few weeks, Apple’s new iOS 14 was supposed to allow users to easily deny IDFA (Identifier for Advertisers) tracking. This would have significantly limited Voodoo’s User Acquisition and revenue on iOS.
Good news, yesterday Apple finally took into account the speeches of developers (especially hyper-casual/ad-driven game publishers) who warned of a lack of time to prepare. Apple has confirmed the postponement of this feature until the beginning of next year.
10/ Conclusion
Voodoo is competitive because of their ability to scale an ecosystem of games as a Publisher to build cross-advertising.
For developers and publishers, the key to develop sustainable mobile games is to diversify more revenue stream with even more native ads but also IAP. In practice, a game whose monetization is at least 90% based on ads gives a poorer experience due to repetitive interferences than a game whose revenues are more equitably distributed between ads and IAP.