FT: Game plan keeps it simple

Game plan keeps it simple

By Bob Sherwood

Published: August 26 2008 19:23 | Last updated: August 26 2008 19:23

Type the word “games” into Google and top of the resulting list of 1.44bn hits comes Miniclip.com. That is a sign of the popularity among internet users that this London-based company has achieved since starting up on a budget of £40,000 ($73,000, €50,000) seven years ago.

The internet may now be awash with free and user-generated content, but such concepts were much more radical when Rob Small and Tihan Presbie set out to create an internet company from a flat near London’s financial centre in St Katherine’s Dock in 2001.

They were pioneers of the “casual gaming” sector at a time when most were concentrating on complex computer games. It is a move that looks far-sighted given that the idea was conceived before the era of widespread broadband access. Moreover, in creating revenue streams that mix advertising, licensing characters and subscription, they broke away from the industry’s conventional model of charging for games.

Miniclip.com now offers 600 games on its website, the vast majority of which are free to play, and the company claims 43m unique users a month. Even Mr Small seems staggered by the reach of his company.

“I find it boggling when I look at our statistics programmes and there are people accessing Miniclip on Christmas Island,” he says.

The basis of the business is to provide simple, intuitive games that users can play instantly, typically for short periods during breaks in their day. These are not the preserve of teenagers – older net surfers enjoy their puzzle, satirical and political games.

Though neither of the founders were programmers, Mr Small says he was a die-hard games enthusiast. Mr Presbie, then a City futures trader, had seen the boom in Nasdaq shares and was keen to launch an internet company.

Their original business plan was slightly deficient in detail. But Mr Small, 32, chief executive, says the idea was to build the brand through creating content that appealed to the young internet generation, and worry about ways to capitalise on it later.

At first, the pair had not intended the focus to be games – hence the name Miniclip, which allowed for video clips. They scored a surprise hit with their first clip: a video of Mr Presbie dancing in a kitchen which Mr Small altered digitally to superimpose the head of George W. Bush. The resulting game, Dancing Bush, became a huge hit, and is still popular on the site today.

The company, which was set up with £40,000 of the founders’ own funds, quickly attracted advertising. Mr Small says the Miniclip brand has been built without a marketing blitz. “We have never paid for advertising, ever,” he says.

Why Miniclip.com spurned the venture capitalists

Unlike many growing businesses, Miniclip.com has never had a problem convincing venture capitalists and private equity houses to invest in it. The only snag is that the company does not want their money.

“We get lots of calls from VCs and private equity companies,” says Rob Small, co-founder. “The more you say no, the more it seems to encourage them.

“A lot of businesses seem afraid to turn down that kind of money. But we have never needed their money....I am a firm believer that if you have someone else involved in your business they will be hanging on your coat tails and you can’t just change direction in the blink of an eye.”

At 32, Mr Small insists he has no desire for a lucrative exit.

“I think we are just about to hit a bit of a growth curve. Why would I want to jump ship at this point?”

After launching the business with just £40,000 capital, Mr Small and co-founder Tihan Presbie own the company between them, split 85 per cent to 15 per cent in Mr Presbie’s favour.

Why is Mr Small’s stake so much smaller? “He put in more of the £40,000 than I did.”

What the company has done is to encourage others to distribute their games on its site. This has helped both to build the brand and to remove some of the headaches of fighting piracy – a big problem for many media companies.

Another distinguishing factor, says Mr Small, was to treat the internet as an entirely different medium. “A lot of other companies use content designed for TV and use the web as another broadcast channel. But we design our content differently. The games have small file sizes and are intuitive to play so users don’t have to jump through hoop after hoop.”

Their strategy to keep users coming back is fresh content, which means publishing a couple of new games a week and nurturing a large network of developers.

“We have to keep up with the trends, before our competitors have even noticed them,” Mr Small adds. “It’s about being nimble and getting content out quickly and keeping up with things like topical political situations. The big media companies just can’t do that.”

To achieve this, Miniclip adopts some unusual employment practices. As well as the developers based in its London office, which employs about 50 people, the company uses a network of 300 developers in 50 different countries.

“These are guys in bedrooms,” he says. “Some of them leave school and come to us with a game. We order 10 games, they get their mates together and suddenly they’ve got a business.”

The London offices of Miniclip, somewhat incongruously located in the jewellery mecca of Hatton Garden, reflect the cool, young feel of the company. Along with a pool table, beer fridge, games consoles and constant rock music, toy guns litter the office. During a break in filming the FT.com video, Mr Small is showered with a hail of foam bullets from a plastic machine gun. You don’t see that in many City institutions.

But the trading figures are serious enough. Debt-free and relying on organic growth, Miniclip has been profitable for six of its seven years. Turnover last year was about £20m, and is forecast to rise to £25m for 2008. Mr Small says net profits are about 32 per cent of turnover. The Sunday Times Rich List this year valued the 85 per cent stake of Mr Presbie, who now has a strategic role and lives in New Zealand, at £234m.

The focus today is on driving the company’s revenue streams. The most obvious income generator is advertising. Though the market is notoriously volatile, Mr Small says Miniclip is a good platform for advertisers because they know the content is controlled and safe.

Miniclip is also taking equity in third-party games that it hosts on its site which it hopes will prove lucrative. Club Penguin, an online virtual world for children which was available through Miniclip, was recently purchased by Walt Disney for a possible $700m fee.

Miniclip is currently building its own subscription-based games and exploring deals to license its games characters to toy companies. Mr Small says large games companies are taking notice. “We get calls from [companies such as] EA... Now we are on the phone talking about strategic deals.”

It has also developed seven games for mobile phones and is excited about a new genre of “advergames” after working for companies including BP, Gillette and Unilever. “A lot of blue-chip companies have realised this is a fantastic way to develop their brand.”

With so many potential deals on the horizon, Mr Small says the company must now develop a more sophisticated structure. He has recruited a new chief operating officer, employed more managers and created distinct departments for finance, marketing, graphics and game development.

It might be time for Miniclip.com to grow up. Yet Mr Small is determined to retain the flexibility and fun that has defined his company.

Copyright The Financial Times Limited 2008