Research firm ThinkEquity estimates the global social gaming market to grow 21% annually from $8.2 billion last year to $14.6 billion by 2015. Growth in social gaming is attributed to the increasing penetration of mobile devices, including smartphones and tablets. According to researcher Newszoo, the smartphone gaming market is estimated to grow 19% annually over the period 2012 through 2016 to $13.9 billion.
San Francisco–based gaming company Kabam is making big waves in this market. The company was founded in 2006 by co-founders Kevin Chou, Michael Li, and Holly Liu as a sports community wanting to leverage Facebook. Soon they transformed themselves into a social gaming company that wanted to offer free-to-play core games on mobile devices and the Web through multiple platforms, including Yahoo, Kabam.com, and social networking sites like Facebook.
Kabam operates on a freemium-based model which allows players to play games free but charges a fee for premium content and virtual goods sold through their games. According to their research, an average Kabam game player plays the company’s games for more than two hours daily.
Kabam not only develops their own games, it also publishes games by third-party developers. Their popular game titles include names like the strategy game, “Kingdoms of Camelot,” which has earned more than $200 million in revenues within four years of its launch. less than four years and is one of the top ten strategy franchises of all time. Other games include “Dragons of Atlantis,” “Wartune,” a third-party game that Kabam publishes, and Hollywood-inspired games such as “The Hobbit,” “Fast & Furious 6,” and “The Godfather.”
The company does not publish detailed financials, but has disclosed that gross revenues of $180 million last year grew 70% over the year. They turned profitable during the previous year. It expects to earn more than $300 million in revenues this year. Most social games suffer from a short shelf life due to their fad value. But Kabam’s games have managed to keep users engaged for much longer as they are focused on the hard-core gaming population. Additionally, Kabam has managed to reduce its dependence on Facebook. According to market reports, they earn more than 70% of revenues from their mobile apps and their proprietary site, Kabam.com.
Kabam remains venture funded, with $125 million in funds received from Canaan Partners, Redpoint Ventures, Intel Capital, Pinnacle Ventures, Performance Equity Management and SK Telecom Ventures. Last month, it sold $38.5 million worth of its stock. Kabam’s secondary offering enabled employees to sell some of their shares to current and new investors who want to buy stock in the company. The sale valued the company at more than $700 million, compared with the $500 million it was valued at in 2011. Kabam would have released its IPO earlier, but the disastrous performance of Zynga’s IPO delayed plans for several gaming companies. But it looks like Kabam has said it will consider an IPO when the time is right.