200 redundancies in one day: Are the wheels coming off free-to-play?

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Two announcements today suggest that companies embracing free-to-play business models may have over-extended themselves and are having to cut back. But the key question is whether this is a sensible restructuring of rapidly growing business or a more fundamental issue with the free-to-play business model.

RockYou today announced (or rather will announce) that it will reduce headcount by about 100 people. Some of that comes from selling developer Playdemic back to its founders, and 40 staff will make that transition. But a further 56 jobs are being made redundant, which will reduce RockYou to a headcount of about 90.

CEO Lisa Marino told Inside Social Games:

“We don’t need 200 people to be a success. We got away from running RockYou as a business and we relied very heavily on the creative side of the house. What we learned this year was that was a bad strategy. Cloudforest is a perfect example. We spent an awful lot developing that game and ultimately — as a power user — I couldn’t figure out how to spend more than $10 in it. It’s a beautiful frickin’ game, but it doesn’t monetize. If we can’t have a game that’s both really good and profitable, that doesn’t count as a good game to RockYou.”

Meanwhile in Germany, Gameforge announces that it has reduced headcount by 100 people as well, with departures including CEO Christoph Gerlinger. In contrast to Lisa Marino, Gameforge’s reasons for the restructuring are a masterpiece of corporate waffle:

“Through a more efficient organisational structure, we can optimise our use of resources and great potential for further growth increase. This will strengthen our long term position in the dynamic market for online games.”

Is this the beginning of the end for free-to-play?

There are likely to be two major interpretations of this news.

The first, mainly driven by the nay-sayers who hate the free-to-play business model, is that this is the inevitable realisation by customers that free-to-play games are shallow experiences that rapidly pall and these redundancies are coming as venture capitalists lose enthusiasm for the sector, as consumers stop spending and as traditional paid-for games resume their ascendancy.

The other interpretation is that this is the inevitable readjustment of businesses that having been growing rapidly and relentlessly for years. Even the best CEO will make the wrong hires as a business expands and create new divisions or teams that are not critical to the core business. A regular pruning is necessary to create a strong business, and that’s just what is happening here.

So which is it?

I’ve worked with a number of startups which have been able to use an external pressure to justify significant layoffs. Every time, the underlying company has emerged stronger, refocused on its core mission and having eliminated the hires which were wrong for the company, either because the people weren’t good or, more often in my personal experience, that they were just the wrong people for what the company needed at the moment.

Gameforge is likely to be being groomed for an IPO, and may be trying to optimise for profitability rather than growth. The same may be true for RockYou. Either way, an aggressive restructuring can lead to a much stronger company, not a weaker one.

Of course, businesses that are going bust also often make savage cutbacks…

My view is that free-to-play is transitioning from being a new, untested and exciting opportunity into a mature, well-understood business. As this happens, companies will move from experimentation to execution, from searching for a business model to executing on it.

This will change the nature of the people and teams that you need. My current best guess is that these changes at Rockyou and Gameforge are symptomatic of this transition from startup to establishment, not of a deeper malaise in free-to-play.

Note: I’m still running the Job Loss Tracker on GAMESbrief, mainly through the excellent work of Kyle Ackerman. Check it out if you are feeling in a downbeat frame of mind.

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