Get your game on

Sharon Wienbar got hooked on casual gaming in 2004. Her firm, Scale Venture Partners, had just invested in Glu Mobile, an online platform for downloading games to your cell phone. Wienbar liked the company because it targeted hardcore sports gamers who, everyone figured, would be obsessed with Glu Mobile’s offerings.

Instead, she noticed something funny happening. Consumers were frantically downloading not complex sports games but simple puzzlers and memory-based games like Brain Genius and Diner Dash. “Brain Genius became our biggest-selling game,” Wienbar says. “We cut back on sports games and started licensing more casual games.”

Like Wienbar, a lot of investors are now taking casual games quite seriously. The causal gaming market brings in $2.25 billion annually and is growing fast, according to a new report from the Causal Gaming Association.

Casual games are “games for the rest of us,” says Gus Tai, general partner at Trinity Ventures, who has funded casual gaming companies Hidden City, PlayFirst and Trion World Network. “These are games you can learn quickly and play quickly. These are not for teenagers with super-fast reaction times shooting up aliens. These are for people in their 30s or 40s or 50s who still want to do something that’s entertaining but not something so intensive.”

As a result, casual games have seen adoption across a broad demographic, from pre-teen boys to 76-year-old grandmothers. They attract far more users than the serious games that require hours to learn and many more to master.

“I think casual game play on the Internet is the No. 5 or 6 activity,” Tai says. “You’re talking about 75 million to 100 million uniques in the U.S. playing a casual game every month. It’s that order of magnitude.”

Another appeal to investors: Unlike Madden NFL or World of Warcraft, which cost upward of $20 million to develop, causal games can be built by two guys in the Ukraine for less than $100,000.

My 76-year-old mother-in-law in Minnesota goes online all the time to play Scrabble with my kids in the [San Francisco] Bay Area.”

Hany Nada

This has opened up the field to many game developers. “New casual gaming companies are regularly knocking on my door,” Wienbar says. “This week alone I met with four companies who all told me they’re the first to develop casual games specifically for young girls.”

Scale Venture Partners now tracks about 100 companies in the space. Some have been around for a while and are seeking later-stage funding, others have not even launched yet.

Hany Nada, managing partner at Granite Global Ventures, says he looks at nearly a dozen casual gaming opportunities a week. “The market is very intriguing, because it’s normal users who are getting into these games, not just geeks.”

Casual gaming is distinguished by its popularity among groups not normally associated with games: young girls, women and families. Tai says Hidden City draws in pre-teen girls by selling them collectible trading cards that have horses on them. Each horse can be registered on the Web, then a girl has a virtual pony she can take care of. Tai points out that Diner Dash, the best selling casual game since Tetris, resonates as much with 15-year-old girls as it does with women over 35.

Casual games have also made significant inroads in the family room. Where a family might once have sat around a board and rolled dice, they now gather for a casual game on the PC.

“It can be a family event,” says Bernie Zeisig, venture partner at VIMAC Ventures, which joined with Jefferson Partners to put $12 million into NeoEdge, a company that places advertisements in casual games. “You can take your time on a casual game, you can make it into quality time. It can be healthy interaction and we see it increasingly becoming more important for a family.”

The games even serve as a way to connect families that are dispersed. “My 76-year-old mother-in-law in Minnesota goes online all the time to play Scrabble with my kids in the [San Francisco] Bay Area,” says Nada of Granite Global.

Casual game play on the Internet is the No. 5 or 6 activity. You’re talking about 75 million to 100 million uniques in the U.S. playing a casual game every month.”

Gus Tai

The depth and breadth of the audience within reach of casual games is especially interesting to advertisers, who are largely responsible for the segment’s recent growth. “From a business standpoint, in 2002 it was hard to have a business model that made money by publishing casual games,” Tai says. “The ad market wasn’t there.”

Now advertisers realize they can reach large numbers of casual gamers and this has created an ad-based revenue model. That means casual-gaming platforms like Glu Mobile and PopCap can distribute their games for free. They make money by running ads on their sites and within the games themselves.

This is key to casual games’ appeal to advertisers. Whereas it is almost impossible to insert an ad in a serious game without annoying the user, casual games are well suited to ad placement.

“There are many periods when you finish a level and relax, and that’s when advertisements can be served up,” Tai says. “It isn’t intrusive as it is in a shoot-’em-up. You can’t pause a shoot-’em-up game, because if a bullet is about to hit you, you’re stuck.”

Advertisers’ ability to place ads—and users’ willingness to watch them—have made casual games a realistic bet for investors. In the past, when developers tried to charge by the download, it simply did not work. Most gaming platforms started out by giving consumers an hour of free play, then asking them to make a purchase. But consumers would hop from one platform to another without ever coughing up money. “If 100 people downloaded a game, only one would actually pay for it,” says Wienbar.

A batch of freshly funded startups such as Kongregate and Winster are experimenting with their own innovative revenue models.

Kongregate, which raised $5 million in series A funding from Greylock Partners, is building a social network around its games by allowing players to gain ranking points, earn awards and collect trading cards. Game developers are even encouraged to upload their games to the site for the community to play. These developers are entitled to a piece of the ad revenue associated with their games.

These types of games are very relevant to advertisers and marketers because they attract a targeted audience. Some games are even selling brand-sponsored in-world items. Consumers are willing to pay more for, say, the Nike item than the Brand X item.”

Sharon Wienbar

Winster, which raised a $1.9 million series A round led by U.S. Venture Partners, is developing online puzzles that consumers play to earn online points and prizes, such as free movie tickets.

The model that most intrigues Wienbar is casual virtual worlds. These games, such as NeoPets and Millsberry, are different from more traditional virtual worlds like Second Life and Sims Online. The graphics are simpler and more cartoon-like, so they are much cheaper to make and can be easily downloaded without any supporting software.

Despite the lack of sophistication, users still spend hours and hours playing these games. And these aren’t your typical 18- to 25-year-old males. One game called Gaia, which raised $9 million for Benchmark Capital and Redpoint Ventures, is hugely popular with teenage girls and tweeners. The game is free to play but the company makes money selling items such as “twinkles” and magic wands that give players more status and power within the game.

“These types of games are very relevant to advertisers and marketers because they attract a targeted audience,” says Wienbar, who has evaluated 20 casual virtual worlds in the last year but has yet to make an investment in one. “Some games are even selling brand-sponsored in-world items. Consumers are willing to pay more for, say, the Nike item than the Brand X item.”

Granite Global hasn’t made any new investments in the space, but Nada says his firm is close to pulling the trigger in China, where there is an even more voracious appetite for casual games. “In China they’re called ‘office games,’ because that’s where everybody plays them,” he says. “The market is earlier there, but the opportunity is huge.”

The challenge, of course, is maintaining popularity. Casual gamers can be a fickle group of customers, constantly in search of a more entertaining way to spend 20 minutes. But they are faithful to companies that continue to innovate, Tai says. “If you crack the code and you’re sticky and you have a relationship with your customers, you’re fine.”

And fine may be quite fine indeed for investors in the near future. “We see this unfolding over the next few years as a very easy, acquisition-rich sector,” says Zeisig of VIMAC. He points out that large portals and content companies are targeting casual gaming companies because they attract wide demographics, which means advertising, which means revenue.

For instance, Club Penguin, which was started by three guys in British Columbia without a dime in venture money, was sold in August to Disney in a deal that could total $700 million.

Nothing casual about that.