The mobile ad tech is going through a lot of changes, with consolidation leading the way. NativeX, Inneractive, HeyZap, AdColony, Nexage, Avocarrot and many more were acquired during the past 2 years, and it seems this is only the beginning. The mobile ad tech is transforming, and only those with superior technology or size will survive.
Interestingly enough, the mobile gaming arena is going through similar changes. Recently, we have been witnessing quite a few gaming studios being bought by larger ones. Since both arenas are heavily related, could these two phenomenons be connected as well? Let’s take a deeper look into both.
Ad Tech VS Gaming
For the ad tech world, reasons for the era of consolidation are quite visible – with Facebook and Google ruling the mobile ad space, it leaves less space for a flourishing mobile ad network industry. As differentiation is limited and as ad networks invest a lot in both manpower and infrastructure, profitability is limited making technology the key focus for growth. Without a winning technological product that can provide additional value for mobile advertisers, the battle for market share for most networks is already lost. Add that to reluctance of publishers to add multiple monetization solutions and SDK’s (in addition to other 3rd party SDK’s, like analytics, push notifications etc) and the picture becomes very clear. It’s the survival of the fittest or the biggest. Usually, consolidation will result in uniting both sides’ technologies into a one cohesive, large platform, which is superior by size and by the variety of services it provides.
Moving on to the mobile gaming industry, you see quite a different picture. True, mobile games are also fiercely dominated by a small amount of studios, but there’s still a lot of room for others to grow. The mobile gaming market is still growing, set to reach about 50% of the entire game market by 2020. The challenge in mobile games is not technology, but product. In mobile games, product is king, but ultimately, having one, two or five kings does not mean you can’t have more. Hundreds of thousands of game studios are releasing top quality games from all genres to the Appstore and Google Play. The challenge for those game developers is not the game, but distribution.
“The struggle is real”
With both app stores containing close to 2M apps or more, it’s pretty evident that discovery is now the biggest problem for game developers worldwide. When there are just too many products on the shelf, the struggle of being noticed takes its toll. High marketing budgets are needed to make games noticed and produce installs by the masses, and most game studios cannot afford those amounts anymore.
On the other side of things, these game studios hold game products that can diversify premium game publishers’ portfolio. In many cases, this is a win-win situation for both parties. That seems to be the case for many acquisitions, including the recent acquisition of Plumbee by GSN, TinyCo by SGN and the recent acquisition of Forgmind by Supercell. All acquiring companies gain diversity, strength in the app stores and the ability to target a much bigger audience. The acquired companies gain a premium marketing power which cannot be granted by any other means, other than investors.
And here lies another difference between consolidation in both industries – the outcome for both parties. Wherein advertising bigger is stronger and there’s no room for 2 competing monetization solutions, the game industry takes a different approach. With the understanding of the acquired studios qualities and advantages, most acquiring studios prefer to keep the acquired studios independent. This leaves the small studios with independence and game focus that can lead to great games, while the bigger studio focuses its efforts on publishing and marketing.
As Forgomind’s founder, Johannes Vuorinen wrote last week when he notified the public about joining forces with Supercell: …“our new games are also being developed by small and effective teams of three to five people. Continuing to operate independently means also that our games will very much continue to be Frogmind games with their own unique DNA.” Expanding a portfolio while keeping multiple studios’ independence is also reflected in the latest acquisition of Ketchapp by Ubisoft. Tier 1 mobile game publishers are aiming for a stronger hold of the mobile market and this unique type M&A’s seems to be the right strategy for most.
There are, of course other types of consolidations in the both industries, especially when it comes to the ivy league of acquisitions. A good example is the acquisition of Supercell by Tencent a few months ago. Another one is Israeli based Playtika who was bought by another Chinese group from the hands of Caesars. The Chinese, it seems, are leading the way in the acquisition era in all departments.
What does the future hold? More of the same. As size becomes increasingly more important in both the ad network and the mobile gaming industry and as marketing costs continue to rise – consolidation will remain a good option for smaller companies with good products.