Parks Associates Blog

Friday, November 16, 2007

AOL Revamping Games.com

It takes a bit of time for AOL to fully integrate Games.com, which it acquired two years ago from Atari, into its media system. It was not until this week did they announce that they are going to revamp Games.com with a focus on the navigation structure and design scheme. Also AOL will add 20 new titles to Games.com's repository including the popular Bingo and Multiplayer Solitaire. The end result: Games.com looks exactly like AOL Games site.

AOL has one goal, or maybe two wrapped in one, as far as casual gaming goes: to get consumers in front of ad-supported games and up-sell premium versions. Currently, AOL Games’ revenue is split nearly 50/50 between ad sales and premium game purchases. The company believes ad revenue can grow further if it has proper content for ad-supported, Web-based, impulse style gaming. For example, AOL remains a strong proponent of instant-access Web demos and is looking at additional methods to drive traffic to the Games channel. Therefore, it is encouraging developers to provide both full version games and Web demos to capitalize on the immediate gratification ability of casual games. It believes immediate access of casual titles will be instrumental in moving users from free Web games to full-price downloads.


More importantly, we believe the revamp of Games.com is not only a gesture to echo AOL's overall advertising strategy, but will be critical to sustain AOL's top line growth as casual gaming is so popular among Internet users. The logic is that Games.com ranks close to 5000 by Alexa in terms of daily traffic, similar to Realnetworks' RealArcade in November 2007. RealArcade raked in $86.2 million in 2006. So if we assume an equal base and a nominal growth rate of 13% (AOL ad business' growth rate in Q3 2007), then what Games.com probably can contribute is in the range of $80-$100 million in the year of 2007. Consider AOL had $330 million of ad revenue in Q3 2007, the impact of Games.com will be nonnegligible.

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