This is part of a series on Extreme University and the first group of graduates from the Summer 2009 program (part 1: Assetize).

Uken Games is a social game developer based in Toronto. They build “highly addictive” social games on large social platforms including Facebook, Myspace, and iPhone. Their first game, Superheroes Alliance, has 50K active monthly users.

Founders

Founded by Mark Lampert and Chris Ye (Facebook). They are young developers and business school grads. Mark was one of the developers behind Twisted Trick-or-Treating and Twisted Gifts that are gifting applications that ran promotional campaigns for Nestle through the Halloween and Christmas holiday seasons where users could gift one another mini Kit Kats or a box of Turtles.

Market

“In 2009, an estimated $400 million to $600 million will be spent on virtual goods in the United States, and $5.5 billion globally, according to Brian Balfour, founder of Viximo. U.S. virtual goods spending was likely less than half that in 2008, and between $25 million and $50 million in 2007, Balfour said.” – San Francisco Business Times

The opportunity behind social games and virtual goods is clear and doubling each year. “Mochi Media co-founder Jameson Hsu, reports that the company’s new virtual goods are earning at 10 to 20 times the rate of advertising” as reported by Virtual World News.

Competition

The competition in the social gaming space is high but given the extremely high rate of growth in the industry and the number of users who are just beginning to play games on social networks, competition is less of a factor. Because the games are generally free to play, users often play numerous games at a time, which expands the size of the entire market. The top competitors include Zynga, Playdom, Playfish, Serious Business, Hive7, and LOLapps.

Zynga, Playdom, and Playfish are each very large, having user bases in the tens of millions across numerous games. Even so, they are all growing at tremendous rates. Zynga is rumoured to generate $200M in revenue by the end of the year according to a recent Inside Facebook article.

Product

Their first game, Superheroes Alliance, has 50K monthly active users on Facebook. In the game, users create a Superhero alter ego to complete missions, customize their super powers, hire sidekicks, and start rivalries with other superheroes. It’s free to play but for those users who want that slight edge and great customizability, they can purchase compelling virtual items (through a virtual currency) in the form of rare sidekicks/vehicles, special powerups, and bonuses.

Business Model

They generate 100% of their revenues through virtual good sales without any reliance on advertising. 80% those virtual good sales are direct, meaning customers pay with their credit cards or PayPal accounts. The remaining 20% comes in the form of CPA (cost-per-action) offers such as filling out a survey or signing up for a service like Netflix.

Barriers to Entry

Uken Games is an execution play. They have built a successful gaming platform that leverages key content concepts (superheroes) and social gaming and reputation. The ability to attract, engage and entertain users is core to their business.

• Intellectual property
  There is nothing that indicates that there is any intellectual property protection for Uken Games. Intellectual property protections are not required to build a successful execution company. The uniqueness of the gaming platform and the ability to quickly adapt the platform for new markets will help Uken Games adjust course and launch new games rapidly.
• Customer loyalty
  A large 50k monthly audience of players is great. Metrics around user signup, retention, attention and engagement would be very interesting to see. It would also be interesting to understand the conversion rates for users sharing with friends. The “addictive nature” of these games puts customer loyalty at the centre of the design and measures of Uken Games.
• Network effect
  It’s a social game where you play your friends. Network effect is based on enjoyment and value to include new friends in the interaction. It is key to the success of Uken Games as a platform. SuperheroesAlliance is a great first game, the question of moving existing users to new games and continuing to attract new users will leverage the network effects of social media.
• Sunk costs
  Traditional games are expensive to build. However, Uken Games has built a skinnable version game engine that has abstracted the interactions between users and allows them to build new games using new metaphors. It will be interesting to see how long the current platform remains relevant with users.
• Research and development
  Uken Games currently has new games in development, which they plan to launch by early October. They are also working to support other platforms including Myspace and iPhone so that their games can be accessed through more channels. Leveraging existing social networks along with mobility platforms offers an interesting method for longer engagement and new social interactions.

Summary

The Uken Games team report that “Superheroes has already officially been banned from 3 offices during work hours due to its highly addictive nature”. As Uken launches more titles, the founders hope to see that number go up. It will be interesting to see more game titles on more platforms.