Games and Money (Extract)

As some Israeli start-ups are discovering, computer games are serious business

19 journeys (photo credit: )
19 journeys
(photo credit: )
Extract from an article in Issue 19, January 7, 2008 of The Jerusalem Report. For full story please subscribe to The Jerusalem Report click here to subscribe. You're behind the wheel in the middle of a hair-raising chase on a narrow road in a dense city. You catch a glimpse of a truck in the next lane with a prominent ad on one side for a local doughnut shop. Suddenly you realize it is breakfast time, and consider heading out for a doughnut. Later, in the evening you are back in the driver's seat, and this time, almost subliminally, you take in the billboard along the road that mentions the local pizzeria. Ordering some tasty slices seems like a good idea. And through it all, you've never once taken your eyes off your computer screen. The ability to seamlessly insert real-time, relevant advertisements into computer games is one of the outstanding achievements of DoubleFusion, a Jerusalem-based start-up company that is out to tap the advertising potential of the $40 billion-dollar a year computer gaming industry. It's a form of advertising that is increasingly posing a challenge to the more traditional modes of entertainment advertising, such as television and cinema. "Top-of-the-line games take several years to develop and complete. So for a long time, no one seriously considered the possibility of placing ads in them because they had to be inserted directly into the game by programmers and could not be changed later," explains Hillel Rom, co-founder and CTO of DoubleFusion. "At most, one could perhaps put in a Coca-Cola ad, because that type of brand will likely be around for some time. But a lot of advertising is time-bound and that was completely missing from games. But Rom found a way to get around this catch. "In a world in which everything is interconnected to servers, it is possible to conceive of a way to advertise in games - and suddenly a new and growing medium for the advertising market emerges." In November 2003, Ron set out to make a business out of that new market. He had studied math and computer science at the Hebrew University of Jerusalem, earned a PhD in computer vision from the University of Southern California, worked for NASA and at American companies producing tools for game developers. He later founded a company in Israel, 3DMe, which specialized in 3D animated characters for the web and mobile text messages, but it went under with the crash earlier this decade. Rom and two friends brain-stormed and came up with some 20 ideas for start-ups. They chose the in-game advertising idea, working in basements for close to a year before looking for outside investors. They found them. Today, DoubleFusion has offices in San Francisco, New York, London, Chicago and Tokyo, in addition to Jerusalem. Starting with a $1 million initial investment in 2004 and another $10 million in 2005, the company has, with further rounds of financing, raised over $26 million from blue-chip financial institutions such as Norwest Venture Partners, Accel Partners, IDG Ventures, JVP and Jerusalem Capital. Nearly half of the company's 50 worldwide staff are employed in the Jerusalem-based research and development center. Advertising to gamers is a technological and marking challenge. Inserting ads into a fast-moving, three-dimensional dynamic game is a greater technological feat than capturing an ad with the camera in a movie, Rom notes. And gamers can be picky. "Players are very sensitive to the game experience," he explains. That means that they do not readily tolerate commercial breaks or heavy banner ads as on the Internet. The content of a game is also important to take into account. An advertisement for Fanta, for example, might seem incongruous when the game being played is a fantasy war set in the Middle Ages. DoubleFusion's solution is to insert product placement ads unobtrusively into games, similar to the way this is done in films and television. "Whether you see James Bond driving a BMW or a Porsche depends on which company is paying for its products to be seen on the screen," says Rom. DoubleFusion can do the same in computer games. A billboard or a truck that is part of the backdrop of a game can display different ads. A computer soccer match can have ads inserted into the billboards along the pitch, just as in real-life televised matches. With server technology, it is possible to pinpoint the time and location at which a game is being played, so that a breakfast product is advertised in the morning and a supper product in the evening. A player in Chicago will see English-language advertisements while his counterpart in Taiwan can read Chinese ads. DoubleFusion describes itself as 'first to market and the leading independent company with dynamic, rich-media in-game advertising.' It now has several competitors, including U.S.-based companies IGN, IGA Worldgroup, and Massive Incorporated, which was purchased by Microsoft in 2006. Google, which is seemingly everywhere in the computer world, is reported to be 'eyeing' the field. "When you have competition," says Rom, "that counts as validation of an idea. If you are the only one with the idea, you might be nuts." Even with the competition, DoubleFusion is confident that the industry is growing so rapidly that there is plenty of room for many companies. "When the computer games industry was in its infancy," says Rom, "it was considered a trivial diversion for children. Those children have grown up. And they are still playing computer games. The average hard-core game player nowadays is aged 29." Games have come a long way since Donkey-Kong and Pac-Man. Today's computer games can depict sporting events in detail, rapidly closing in on live TV transmissions or immerse players in three-dimensional fantasy realms. There are evolution games, strategy games, action games, and massively multi-player on-line role-playing games. The children who played the first generation of games are now young adults with disposable incomes, which makes them a prime demographic in the eyes of salesmen, marketers and advertising executives. According to statistics gathered by PricewaterhouseCoopers, one of the Big Four accounting firms, the computer games industry generated $27 billion in 2005 and is expected to reach an annual level of $46 billion in 2010. So games are a serious business. The success of the industry has not bypassed Israel. In the last five years, an estimated $90 million has been invested in dozens of Israeli computer-game related start-ups. The Digital Games Research Association (DIGRA), an international group promoting research and training related to games, formed an Israeli chapter this year. But while Israel has a solid worldwide reputation for developing innovative software, the country is not a leader in the computer game industry. "Games require a different skills set from that used in standard business or Internet software development," says Guy Bendov, CEO of Journeys, an Tel Aviv-based "casual social on-line game" start-up. "A game, in its totality, is a complex creation. It requires, all at once, advanced technology, in both the software and the hardware processors, and a high level of graphics. But it also needs to excite, to relate to feelings. It has to be experiential, with all that that implies about art and philosophy. It must have a story, just like a film. And it needs, like all business propositions, to sell. This combination of technology and creativity is very demanding," says Bendov, who has 16 years experience as the founder, president and CEO of high-tech companies in the interactive entertainment technologies market. "For success in this industry you need education and a culture of people who are interested in the field, money, and talented individuals," he says. "There is certainly no lack of talent in Israel. And there is interest and a budding culture of enthusiasts. "But talent is insufficient without the right training, and for games there is a need for a unique educational framework that combines the computer technology with the other aspects of creating a successful game" continues Bendov. "For a long time institutions of higher learning, in Israel and abroad, were wary of teaching 'games,' because the field had a reputation of being 'not serious' compared to the standard computer science courses. But with time, and with the undeniable business success of the field, that too has been changing. There is an emerging field of study in universities called 'game-ology,' with students studying it quite diligently. Beit Berl [Israel's largest academic college] and the Interdisciplinary Center in Herzliya are now offering courses in game-ology." Dr Hanan Gazit, who founded the Israeli chapter of DIGRA, points out that Israelis are often project managers and consultants for games production companies overseas. But that is not enough to launch a full domestic industry. Until recently, money to fund Israeli start-ups in the field was often not available. Israeli investors quickly appraised potentials in the personal computing and web spheres when those were hot, but overlooked media-based high-tech applications. "That has changed in the past two years, given the explosive worldwide success of interactive media and social computing. Now those fields are 'in,'" says Bendov, "and there are serious efforts in Israel to fund game content and platform start-ups." In-game advertising, one of the hot new fields, is expected to supplant more traditional advertising modes - especially among young consumers. Nielsen media research, which is the industry giant in the field of metrics for television advertisement, recently decided that there is a sufficiently important emerging market in games to develop a ratings service devoted entirely to in-game advertising. In his office at DoubleFusion in the Malha Technology Park in Jerusalem, Rom pulls up graphs and statistics to buttress his points. Surveys indicate 42 percent of the general population are watching less TV than in the past, and cinema viewing has dropped 17 percent. A whopping 70 percent of consumers 'media multitask', meaning that they may at any given time have several media sources operating simultaneously, and 65 percent 'actively' strive to avoid television ads. Another promising new game market, particularly for Israeli start-ups, are casual games. "Triple-A games are painstakingly developed by large staffs of corporations over years, incorporating the latest word in graphics and complex story lines. As a result, the end-consumer pays a premium for the game software," explains Bendov. "Casual games, in contrast, can be quickly produced by small, independent groups and are typically delivered on-line or via mobile phones. A casual game can suddenly rise in popularity following a fad, or disappear." Bendov views the age of casual games as ushering in new opportunities for Israeli companies. "Triple-A games can require investments of $20-$30 million per game. That is why that market has typically been controlled by a small number of well-backed companies in the U.S. and is a very tough market to penetrate. Casual game initiatives, which have a lot more in common with the web and mobile applications industries, have enabled European and Asian game developers to enter the market. Israelis have a similar opportunity now." But that doesn't make it easy to succeed. "The rule for a successful casual game is that it needs to be easy to learn but not easy to master, because you want to keep the players hooked and challenged. Otherwise they can easily turn to yet another readily available casual game," says Bendov, whose own game, Journeys, which takes the player on 'journeys through a virtual world,' is expected to debut in mid-2008. Bendov is active in the Israeli games portal as part of an effort to give young Israeli game developers a place to gain knowledge and information on the industry. "We need to do that now," he says, "so that in five years time we won't be asking why Israel hasn't managed to be a leader in this growing industry." Extract from an article in Issue 19, January 7, 2008 of The Jerusalem Report. For full story please subscribe to The Jerusalem Report click here to subscribe