How Small Giant Games scored big with a single mobile game

Small Giant Games raised $41 million in February, making it one of the rare mobile game studios to be able to raise a large round of money in a mature mobile gaming market.

And what’s remarkable about that is the company has only a single game, Empires & Puzzles, on the market. I talked with Timo Soininen, CEO of Small Giant Games, about this in a fireside chat at the recent Casual Connect Europe event in London.

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Soininen, who formerly was the CEO of Sulake and built Habbo Hotel into an early online gaming success, said that the simple casual mechanic of a “match-3” puzzle was appealing to casual gamers, but the rest of the game’s depth also made those players want to come back for a deeper meta experience.

Soininen said the company plans to spend about $80 million on user acquisition this year, but it is also generating about $130 million for its revenue run rate (a year from now, revenue would equal approximately $130 million if current trends continue). And Small Giant Games is also working on its second team.

Here’s an edited transcript of our interview.

GamesBeat: Could you tell us more about your background?

Timo Soininen: I’m the CEO and a co-founder of Small Giant Games. I’m one of the dinosaurs of the games business. I’ve been doing this sort of thing for almost 20 years. I was CEO of Habbo Hotel. Some of you might remember that from the past. I did that for a long time. The core team at Small Giant is formed from some of the core members of Habbo. We founded the company four and a half, five years ago, but we really got going about four years ago.

We did casual games first, but that market — we literally failed. We were close to success, but we decided to kill those products pretty quickly and start looking for the big one. How could we really get that top-50 grossing game? What does it take? After a year and a half, we did it.

GamesBeat: How did you approach starting a new mobile game company in 2013? That was a time when everyone thought the market was way too crowded.

Soininen: That’s true. When we founded the company, the market was super full of games. It was getting difficult for small studios to break through. But we had a strong belief in our talent, in our core team, and we also felt — hence the name, Small Giant — that small, motivated core teams with the right tools could do gigantic things. That was our naïve belief, but we were quite serious about that. We managed to get some early funding to get us going, and then a couple years back, we changed course completely from casual games to mid-core, to go after the deeper monetization in those games.

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The fact that we had such a long experience between us–we had done a lot of social games. We were one of the pioneers in free-to-play, back in the day. We knew how to build community. That helped us understand what is critical for the long-term success of a game, making a game that would last for years.

GamesBeat: In February you raised $41 million. A lot of game studios, they may raise $2 million or so. Why did you go for so much?

Soininen: Let me give you some background first. When we built Empires and Puzzles, we started development in 2016. We were literally just 12 people, including me, and I didn’t contribute that much to actual game development. We created a pretty big game in just 11 months with 12 people. I think that’s some kind of record. We’re currently big by our own standards, 35 people, based in Helsinki.

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The reason why we were able to do such a big funding round is because we had such tremendous success. We launched the game last year, about 14 months ago. In the first 10 months we did $33 million in revenue. We turned profitable. We didn’t really need that much money in the first place. But then we accelerated to a $130 million run rate for this year, or maybe even beyond. It’s quite an amazing story. We now have 50 million downloads, 1.1 daily active users, very high engagement, retention, and monetization rates for the game. All the mathematics underneath are going super well.

Coming back to the financing round, we were in a very fortunate position. Our investors said, “We have offers on the table from potential buyers.” But we raised a very big secondary round. Everyone on the Small Giant team was allowed to sell a few shares at that point. In a way we’re de-risking our position, so now we can focus fully on building something even bigger going forward.

That was the primary reason, but secondarily, we’re in the business of performance marketing. We are a very data-oriented company. We understand forward lifetime value estimations and the payback times for those acquired users. That requires a lot of money. Last year we raised a $6 million round just to do the additional marketing. That’s worked well, but it’s good to have a war chest to be able to spend a bit more on user acquisition, and also launch new games.

GamesBeat: How much did you spend on that performance marketing?

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Soininen: To give you a ballpark number, this year — considering we’re still a very small company, 30-plus guys, we’ve spent probably $8 million on marketing. It’s a lot of money for a small team.

GamesBeat: So if someone wants to beat you, they have to come up with a good mobile game, and spend $8 million as well.

Soininen: Exactly. Plus they have to understand the analytics and the dark arts of performance marketing, which is a very important aspect of the whole equation.

GamesBeat: As far as the investment you made, what sets you apart? What part of the analytics is important?

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Soininen: I’ve been doing a lot of different things. I’ve been an advisor to other game companies in the past as well. Most game companies are really good at three things. The first one is obviously game design, then game development and the technology related to that, and creative design, the art side of things. Most game companies are focused on that, and that’s it.

The problem is that in today’s world, if you don’t deeply understand analytics, you have no chance to survive in the long term. We decided to build our own analytics system from the ground up, because we felt that it was such an important part of our life. It’s the beating heart of what we need to understand.

GamesBeat: Many companies will argue that they don’t need to build that on their own. They can use other solutions that are out there.

Soininen: That’s a good point. Obviously you can get going with external tools. It’s more important to understand the numbers and how the model works. But the other part, which is related to understanding analytics and how you can use them, is that — how do you do performance marketing profitably? How do you put $1 in and get $1.20 or more back? It’s learning that whole conversion funnel optimization. How do you create conversion, do app store conversion, do icon optimization, and so on? It’s doing that in a very systematic, tested way. If you can’t do that today, chances are you’re not going to survive.

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The other aspect of that, what I’ve seen at many game companies, is how you do business modeling. How do you actually create a business model and put the mathematics in place so you’re able to execute around that? And when it comes to the financing part, how do you get enough money to execute that business model? Then you have to add live operations, which is critical, especially in the mid-core games. You keep the game fresh — every day, every week. And last, but not least, community nurturing and customer support.

In a way I would say it’s all about mastering the full stack of the company, if you like. You have to tick all of those boxes, if you really want to get to the place where we are at the moment. It’s possible, but it’s pretty hard.

GamesBeat: Tell us more about Empires and Puzzles.

Soininen: Empires and Puzzles is something we call — it’s essentially a very approachable mid-core RPG game. We have this insider notion that you have casual games, which are very easy to approach, and then deeper mid-core games, and these two things are starting to converge. You have hundreds of millions of very advanced casual players who’d like to go a bit deeper, and at the same time we have many very successful mid-core games that are incredibly difficult to play and understand for a new player coming in.

We thought, “Wait a minute, can we bridge these two worlds?” We wanted to create a game that would be the first RPG both groups could play. That’s how the game came to be at least positioning-wise, but then our guys came up with a brilliant idea in our game jam sessions. For some reason, nobody had thought to combine the match-three mechanic with a twist like sending army troopers instead of popping jellies. We combined that with a base-building component, as well as the hero collection and training component, plus PvP, PvE, alliance wars, everything.

It’s a big blender. You keep adding ingredients and press the button, and out comes a good game. Of course, it’s a horrible risk that when you press that blender button, something really bad might come out. But our guys did a really good job at mastering the UI and doing the onboarding, as a result of rigorous testing.

GamesBeat: What have you noticed as far as where the early pickup was and how the audience for the game developed?

Soininen: The early days were really interesting. With our first game, we spent way too long thinking about it internally. We had a bar set this high in terms of graphics, which in the end doesn’t really matter at all. With Empires and Puzzles we went into our first live tests after two weeks of development. We had a really crappy version of the game. We borrowed some graphics from other games, put this version together, and went in front of some test players.

A lot of test players are paid to play for 15 minutes, and sometimes after 10 minutes they’ll ask you, “Do I really have to keep playing this piece of crap?” But with Empires and Puzzles, almost all of the players were ready to play not just 15 minutes, but 30 minutes or 40 minutes, even with a game that didn’t look that good. They were looking through all the components. “Oh, there’s base-building here too.” It proved that we had something interesting here.

Then we started really systematic testing. Every week we tested a build with consumers. We plugged in our analytics and started—we went live after three or four months of development and started getting real data. The unthinkable happened. Every time we saw a problem and fixed it, the numbers went up. By the time we were launching, we knew we had a really good game in terms of retention and monetization. But we didn’t know how to market. That was the most difficult part, to get the marketing part right — the right creatives, that kind of stuff.

GamesBeat: How did your experience with Habbo Hotel and your other earlier projects affect your strategy?

Soininen: There were two things. Obviously, back in the day, life was very different. It was before the app stores, before Google Play. Most of the things we learned were how not do it – how to scale up a company without creating too many layers and making ourselves slow.

At Small Giant we have this notion of ultra efficiency in everything we do. That’s one of the key learnings from the early days. We had hyper growth. It was more important to hire people than to really understand what we were doing. We were just making good games slow. The right decisions didn’t get made. We decided to avoid all of that. We wanted to keep the team size to the absolute minimum. Cost can be an issue, but it’s mostly that too much communication overhead kills companies. The more people you have, the more communication you need. If you have a focused team of five or six guys who know that they’re doing, they can iterate incredibly quickly. That’s what we did.

GamesBeat: You started in the shadow of Supercell. How, as a one-game company, can you challenge some of the bigger mobile game companies? Especially when they can spend many times your $80 million.

Soininen: Luckily, it’s not that simple for anyone in today’s world. We’ve had a pretty incredible rise in the charts, enough to challenge a lot of the big boys. We’ve reached number-one-grossing positions in 24 markets around the world. In Russia we’ve been number one many times in gross. We’ve been in the top 10 in 77 markets. We’ve been in the top 100 in 124 markets. We’ve actually challenged a lot of the big games and taken their positions.

It’s all about focus and understanding the funnel and being efficient. But it’s true that Supercell has been a tremendous role model in our country. It’s a very close community. We know a lot of people and we can get a lot of inspiring help from these guys. It’s a pretty friendly community.

GamesBeat: Why do you favor doing original games over brands?

Soininen: That was an easy decision for us. First, working with a third-party IP will slow you down tremendously. It’s just the nature of the beast. If you have all kinds of approvals, if you have all these conversations with IP holders—sometimes you’re just at the mercy of someone’s approval of certain things, even if they may not understand anything about games. Slowing down is a very important part.

Second, the revenue share mechanics related to that automatically mean that if you grow big, you have to give a lot of your profit away to someone else. I don’t think that equation really works. And then the third aspect is that if you have a team that’s capable of creating a new IP—the companies that are successful at doing that are significantly more valuable than the ones that are just using a third party’s IP. They’re at the mercy of others, if you like.

Perhaps as a last point—there’s been a lot of discussion about how a big IP will help you cut your user acquisition costs dramatically. I think there’s a bit of truth to that, but it’s easy to fool yourself. If you really know performance marketing, and if you’re able to master the channels and the whole package, the difference is definitely not worth the expense.

GamesBeat: What are your future plans?

Soininen: We honestly feel that we’ve only scratched the surface with Empires and Puzzles. We have an extremely strong road map for the game. We’re launching something we’re calling season two with a new saga map, a lot of new heroes, and new game modes very soon. We have weekly and monthly events happening. We haven’t launched in any of the big markets in Asia yet. We have a lot of things to do with that game, and we think it has a long future ahead.

We’ve also started to work on game number two. Hopefully we’ll have something to say about that very soon. But that’s really it.

GamesBeat: Do you think you’ll have to do something different with Empires and Puzzles in Asia?

Soininen: That’s why we’ve been very slow to move there. China, Japan, and Korea are really big, critical markets, but almost none of the western developers have succeeded there. You can spend millions of dollars and all of your energy and time customizing something that may or may not end up having a chance there at all. That’s why we’ve been very cautious, taking a gradual approach to see how things unfold.

We’ve always been very focused on what are the most impactful things we can do today and this week. We haven’t really steered away from that. China is super lucrative, but with a small team—once you start focusing on China, that road map delivery, the one thing you can focus on yourself, will be hurt. That’s how we think about it.

GamesBeat: What’s your view of the larger mobile gaming market in the future?

Soininen: We see that the market is still growing tremendously. The big shift, at least from our point of view, is that the casual game is acquiring a lot more of the meta and the depth and the social features of mid-core. These games are becoming, rather than short-term snippets, more like hobbies for people. That’s a clear trend.

We’re banking on that. All of our games are structurally very deep, while still remaining easily approachable. We’re very keen on looking at casual games and making our onboarding systems work as easily as possible, while still having a deep metagame.

GamesBeat: What do you think of other emerging platforms?

Soininen: The VR wars haven’t been fought yet. Nobody really knows who or what is going to prevail in terms of platforms. We’re not interested in VR at all. That’s not our core competence. Sometime in the future we might think about it, but right now it’s completely off the map.

AR shows some promise, but the challenge is now, after Pokemon Go, which completely dominates that space—there are going to be so many copycats. My fear is that that model was only perfect for Pokemon. New games that mimic that, I think they’re going to have a very hard time. But it’ll be interesting to see what are the new use cases or new gameplay modes that take AR to a new place.

GamesBeat: The Google Maps API looks interesting for those applications.

Soininen: Yeah, but I’m thinking more about game concepts. What is it that you do with AR? A lot of games are using AR as a technology gimmick. What really takes that to a new place? But from a volume perspective, it’s clear that for at least the next two years, more traditional games are dominating.

Audience: You mentioned the base-building aspect of your game, and other gameplay modes. In your testing, how do you go about making sure it takes the right amount of time for your players to get from start to end of a process like that?

Soininen: We have our own testing system that we use to simulate progress and make sure that balancing works. Of course a lot of things on the balance side are continually being adjusted. But I think the game is getting so complex that it’s difficult to get in just one person’s head. We have to automate a lot of routines and see how things play out. Again, that’s an important aspect to master. Coming back to metrics or analytics, you have to understand progression times. You have to understand what features people are actually using, and how that links to their overall performance.

Audience: When you’re doing that testing, how much do you think about changing your game? If you wanted to change the speed of progression, is that something you’re able to do once the game is live?

Soininen: Absolutely. Basically everything is a parameter for us. We can do tweaks and take features on and off. But so far we haven’t needed a lot of that. The original game blueprint has worked very nicely. It’s been more just tweaking around that. But we’ll be adding more game modes. We introduced alliance wars a couple of months ago, which was very well-received by players. The important thing around this is that you have to have a deep dialogue with your top players and the whole community. We’re super active on our forum sites and we listen to our players.

Audience: You talked about going to Asia and some of the issues you had to face. Can you talk more about that?

Soininen: Maybe not issues exactly, but the fact of the matter is that almost none of the western developers have made it to the big time there. The markets are inherently different, especially the mid-core segment, which is super popular in Korea and China and Japan. If you compare the mechanics and how the games work, they’re quite different. They’re much more aggressive in terms of monetization, almost brutal at times. There’s no free-to-play in those games, almost. You have to change the aesthetics and other things so it doesn’t feel too western, too alienating. There are a lot of considerations.

When it comes to China, if you ask 10 people you’ll get 100 opinions. It’s very difficult to decide who you trust. You have the added complication of setting up servers inside the Chinese firewalls and acquiring government operating licenses. Sometimes even making sure you get your money out of China, minor details like that. It’s quite complicated.

Japan and Korea, from a technical point of view, you don’t have those considerations, but from a cultural point of view you have a lot of other issues. The marketing budgets, the importance of television—if you really want to go to the top, you have to be on TV. That’s a big investment level all of a sudden.

Audience: You talked about building your analytics system from scratch. If there’s a concern that that’s not a core competence for a game company, how do you consider different analytics solutions?

Soininen: Obviously in the early days we had to use external systems, because we didn’t have the time or the bandwidth to otherwise. It’s funny. When we were building Empires and Puzzles, we probably had even less time. But the big insight for us—we tested a couple of external platforms, and either they were too cumbersome or they weren’t reliable. Our belief, which was maybe crazy at the time, was that this is such an important area of the business that we have to be able to rely on it 100 percent. We have to be able to tweak it in a matter of hours, not weeks or months, to add a new feature. Now we’re in a position where we can deploy a new analysis or report in a matter of hours. We’re using only internal tools, which makes us very special.

We had the notion that this wasn’t a core competence, but—I suppose we’re a bit lucky. Dean asked about our background. Back in the Habbo days, some of the guys had already developed these kinds of systems. We already had some in-house capabilities. We knew they would have to be involved in all kinds of integrations. They created our core systems pretty quickly. It comes back to the quality of the team. If you have people with the capability, I recommend doing it.

Disclosure: Casual Connect paid my way to London. Our coverage remains objective.