Bird is the Word

Angry Birds is all the rage. Or, at least it was, until an 8th grader from Utah whipped up “Bubble Ball” from the confines of a public library in a little over a month’s time, had it ready for downloads at Apple’s app store by the end of 2010 and, by midway through January, Robert Nay’s game turned into the most popular free download Apple had to offer, knocking highly addictive Birds from its perch.

Now, predicts one partner at a well-known venture capital firm, Nay—who’s still about two years shy of being legally eligible to operate a motor vehicle—will find himself fending off term sheets from VCs looking to buy his knack for game design (the partner declined to be identified, it remains to be seen whether his team will seek out Nay). This year, he won’t be alone.

The mobile gaming business is poised to be one of the hottest VC investment spaces in 2011. Countless VCs have pushed capital to app developers worldwide. Everything is looking up for the industry—the development of the Nintendo Wii brought more non-traditional players into the gaming space, which has in turn benefited mobile app developers. Production costs have come down, bandwidth is always growing, smartphones and tablets continue to gain market share and the games are becoming increasingly sophisticated (and, hand-in-hand, addictive). Virtual goods have enjoyed increasing—even rampant—growth among a broadening consumer base and distribution platforms for mobile games continue to grow.

It’s coming at a great time for strategics, as well. Game developers have faced slumping paydays at the register for two years running—so in October 2010, when Electronic Arts snapped up Chillingo, the publisher of Angry Birds, the $20 million deal set the company up for an opportunity to expand its revenue base into more online and mobile shoppers’ territory (Angry Birds, owned by Rovio Mobile, was not part of the package). Look for more game makers to try to expand their points-of-sale with similar deals this year.

Just as there is an exponentially growing base of apps for gaming consumers to choose from, the number of platforms for these games continues to grow at a fast rate.

Sony’s Playstation Phone—half PSP, half smartphone—is anticipated soon, as are a litany of titles for the popular gaming platform. The Windows Phone 7 will serve as the company’s mobile platform for games; already the device has 5,500 apps and Windows is coordinating with dozens of developers (the iPhone, however, has more than 300,000 apps).

What matters most, perhaps, are price points: where smartphone consumers were paying as much as $600 just a few years back to get iPhones, devices’ retail prices have fallen as options continue to abound. The average kid Nay’s age wasn’t packing a phone with a browser and gaming capabilities in 2007—no more, though.

Younger gamers on a budget—specifically: their parents’—translate into revenue opportunities for free app developers, says Paul Grim, general partner with Sunbridge Partners, a VC that makes mobile games investments.

“In-game advertising is only now growing,” he tells peHUB, although developers are still finding some eager buyers among gamers willing to pay a premium to dodge banner ads.

The broader the free app’s acceptance (listen up, young Mr. Nay), the greater the likelihood of an advertising windfall. And, as more Bubble Balls and Angry Birds emerge from the massive and growing field of developers, those that produce hits will see long-term offers lined up like one a prominent VC partner suggested the junior-high Utah app whiz should expect.

“As games become more sophisticated, you’re going to see people betting on more seasoned teams,” Grim says. “It’s such a hits-driven business.”

Bird may be the word for some time, then.