Supercell’s challenge

Supercell’s CEO Ilkka Paananen published an open letter / annual outlook that had some fantastic and honest discussions of his company and its products. I don’t know if gamers would care too much, but as a fellow game developer, I loved it, and had some points to comment.

Before I dive in, a meta recap of Supercell – thanks to Finnish financial reporting rules, it has had to file annual reports and thus its performance has been in the public’s view. I cobbled together the below graph using a bunch of news reports over the past years:


The narrative is pretty straightforward: after truly explosive business growth during 2012-2015, Supercell has gone into a period of decline. At the same time, the company has steadily added headcount, showing it is confident in its long-term future. (By all accounts it is still a very light-asset company, having less than 300 full-time employees. Just for comparison – Blizzard pulled in $2B in revenue in 2017 as well, and its headcount is easily 10x Supercell’s.)

Back to the letter: the thing that struck me was in discussing the business operations, how much focus was related to China:

One of the really big steps we took in 2018 was that we decided to start building a game studio in our Shanghai, China office. In the early days of Supercell, I thought that we would always be a single studio company – just to keep things simple. But I changed my mind when I got to know the Chinese games industry better. I admire how the best developers in China think about social game play and also how much new quality content they bring their players every month. There is definitely a lot us Western developers can learn. Our goal with this new studio is exactly the same as with our studio in Helsinki: create games for the global market, games that are played for years and remembered forever. We feel like this is a unique opportunity to bring together the best of two different worlds.

And then later:

One of our goals this year is to get better at creating more content for our players. This is a more interesting challenge to us than you might think. On one hand, we like our small team sizes because we believe that is one of the reasons we’ve been able to produce innovative games with fun core gameplay. On the other hand, there is only so much content a small group of people can do, no matter how talented they are or how hard they work. Anyway, we’ve concluded that this is something that we need to get better at. How do we keep the small team sizes that are so important for innovation, while getting much better at serving you, our players, with more content? We have now made the first few steps to improve this. One, we’ve partnered with some talented external studios who will be helping us to build more and better content. Two, we have invested more into tools & technology that will help us create content more efficiently. And three, we have slightly grown the size of the live teams (but only the live game teams) to be able to serve all of you better. What all of this means for a game like Brawl Stars, for example, is more brawlers, more skins and more environments being added more frequently.

China wasn’t mentioned in the two paragraphs above, but IMO was an essential driver of the underlying business challenge facing Supercell. When Mr. Paananen wrote “I admire how the best developers in China think about social game play and also how much new quality content they bring their players every month,” I do believe this was not just paying lip service to his Chinese competitors, but an actual admission.

Chinese developers work crazy hard (“996”), are not afraid to throw bodies at problems (some of the biggest mobile games in China often have dev + live teams of 300-500 people), and the industry has spawned a sophisticated production eco-system. What’s most noticeable is the clear production quality upgrade that I’ve talked about in the past, which is funded by a maturing value chain of outsourcing shops and specialized vendors. This enables Chinese games to afford to engage players with a seemingly endless stream of content at free or low price-points – gameplay modes, cosmetic items, quality upgrades to legacy content etc.

In the face of this, Supercell’s games, despite often having superior & innovative gameplay, just look like demos; and the aggressive monetization of power ironically becomes a particular point of frustration for Chinese players. I say ironic – as Chinese players have no qualms monetizing for power, it is the transparent design, limited by content shallowness, that players complain about.

Thus, Mr. Paananen’s comments about trying to strategically tackle content production, while maintaining the company’s small size (and the benefits that comes with being small). In my view this is not a nice-to-have initiative – if Supercell wants its games to succeed in China, which it seems to, this is a strategic imperative. Otherwise, Supercell games will be confined to a niche audience in China (and the business outlook limited), as it cannot retain the mass audience due to losing the content war to its Chinese market peers. If Supercell can achieve a breakthrough here – it will be the kind of boost it needs to reclaim growth.