The most exciting mobile gaming company you’ve never heard of
Kabam, the San Francisco mobile gaming company, has all the wrong things going for it.
Its 33-year-old founder and CEO, Kevin Chou, is neither an arrogant new college graduate nor a high-profile former big-company executive. The company’s core customers are gamers, not housewives, giving Kabam a certain dog-bites-man quality about it. And its fortunes aren’t tied to any one social media platform, such as Facebook, which means that members of the press do not use Kabam an example of any single goliath’s rise, fall, or re-birth.
The narrative’s simplicity is rather refreshing.
Still, the “free-to-play” gaming company — all of whose games are initially free to users — is ringing up explosive, balanced growth in a new field where it is one of the major players. “Four years ago, we were 25 people above a dim sum restaurant,” Chou says. “Today we have 700 people worldwide.” Half of them are in San Francisco. The others are spread out in offices in Austin, Beijing, Seoul, Vancouver, and Berlin.
This geographic diversity is key, because while the ethos of what used to quaintly be called “videogames” is universal, the adoption of them is overwhelmingly local. From Kabam’s Berlin office, the company “localizes” all its games (save for the Korean market) by translating them into 16 different languages and making cultural adjustments that please local users. (South Korea, with a population of 60 million, has an equal number of mobile gamers as the U.S., Chou says, which is why it gets its own localization studio.)
Privately held and venture-capital backed Kabam has three distinct businesses. One is to create its own games, like Kingdoms of Camelot. The second is to co-produce with big Hollywood studios. It is responsible for The Hobbit game, which Kabam developed for and financed with Warner Bros., producer of the Hobbit and Lord of the Rings films. (Warner Bros. head Kevin Tsujihara recently joined the Kabam board, and the film studio invested in the company — an investment that sits on the balance sheet of Warner Bros., Chou says, as opposed Time Warner. Fortune’s publisher, Time Inc., is a subsidiary of Time Warner (TWX).) Between its own games and co-productions, Kabam has developed 11 games. Production costs average about $5 million, and much of the designing, coding, animation, and engineering takes place at its 250-person studio in Beijing.
The company’s third of line business shows its dexterity. It has started a unit to develop and publish games in the U.S. for non-U.S. game developers, especially in China. “We cross-market those games with ours,” after translating and localizing them for the U.S. market, Chou says.
Kabam’s take on mobile games is distinct in a complex gaming world that includes major releases for dedicated gaming consoles to simple games targeted at Facebook (FB) users. Kabam’s games cost nothing to download, but the company makes money by selling users in-game tools like swords and armor and “consumables” like food and drink. Kabam identifies its area of focus as “core” games — that is, relatively complex games with narratives and increasing levels of difficulty. Nearly all of the action happens on smartphones and tablets. The approach contrasts with Zynga’s (ZNGA) focus on “casual” games that were designed to be popular in the desktop web era. “Our average player plays for two hours a day,” Chou says. As a result, he says, some of the company’s top-performing games remain at peak revenue, particularly Kingdoms of Camelot, a four-year-old franchise.
Kabam takes 30 forms of payment, with iTunes (AAPL) and Google Wallet (GOOG) commanding the largest share. Game makers need to be nimble. Two years ago, Kabam’s entire business was on Facebook, Chou says. Today, 70% comes from iOS, Android and Amazon (AMZN).
Given such volatility in the marketplace, it is no surprise that Kabam has faced multiple challenges over its seven-year life. It stumbled through four distinct “pivots,” not including its latest: from social network, to Facebook sports community, to sports fantasy gaming, and mobile games on Facebook.
Chou is something of a localized product himself. The son of immigrants from Taiwan, he grew up in suburban L.A. before heading to the University of California at Berkeley (where Kabam recently purchased the naming rights to the field for the school’s football stadium) and then served stints as an investment banker, tech-company executive, and venture capitalist on the way to founding Kabam seven years ago.
He says the company will record revenues of more than $325 million this year and is profitable, the result of the buying habits of rabid gamers, including a handful of well-tended power-users who rack up payments in the tens of thousands of dollars per year. With customers like that, Kabam may never be a household name. So long as its business model continues to translate into cash, the company won’t mind.