Let's Go Play

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Venture capital business plans

The Venture Capital News blog recently reported on the changing games industry. Game and virtual world investments soared to $885 million in 2008, but the picture is likely to be a mixed one this year. Games are one of the few industries still growing at retail (13 percent in January), and online games are still a hotbed of entrepreneurial activity.
Tim Chang, a principal at Norwest Venture Partners to get his take on those questions.

Chang is is a principal at Norwest Venture partners where he focuses on digital media, mobile, and Asia Pacific investments. He’s been involved in venture capital for more than a decade, both at Norwest, which he joined in 2006, and at Gabriel Venture Partners.

Chang said that the parts of the game market that are cooling off include the in-game advertising market. In-game ad company Massive, which inserts ads into scenery in games (in billboards, for example), scored big in 2006 when Microsoft bought it for an estimated $400 million. That started a stampede toward in-game ads, culminating with Google eventually buying Adscape and entering the in-game ad market last year for casual games. While that market is still going strong, investment in such companies is tapering off, as it settles into a bigger market with players such as Microsoft’s Massive, Google, Double Fusion and IGA Worldwide.

By contrast, one sector that’s still in its peak hype cycle is social games. Players in this category include Social Gaming Network, Zynga and Playfish. Other hot categories include mobile payments for games, virtual goods, and what Chang calls white-label engines that fulfill functions such as software-as-a service for virtual worlds. Still other hot areas include engines that make it possible to play games with high-quality 3-D graphics on web browsers. Companies in that category include Unity and InstantAction.

In an era of worldwide economic crisis it is hard to believe that venture capital business plans based on game playing are doing so well. Perhaps this is a lesson for our times: Take your mind off your troubles and go gaming.