Tips and Advice

In-House vs. Outsourced Tech Platforms in Mobile Games

in house vs. outsourced tech platforms

The gaming industry is notorious for having a strong NIH syndrome. In mobile games there is more openness for external solutions compared to previous gaming ecosystems. You can even find super successful companies like Supercell who outsource almost everything and are able to keep very lean while on the other hand companies like Wooga who even keep their ad-tech platforms in-house.

What not to outsource

The rule of thumb for outsourcing is that you don’t want to outsource the core functions of the company. This is obviously different from one company to another but in the gaming space almost all successful companies keep in-house is the game backend and BI. There is no lack of services offering BAAS (backend as a service), Game servers and off-the-shelf analytics solutions but there is a strong concenseus among the top tier companies that these should be kept in-house. The situation is different with two types of companies:

  • Companies like Ketchapp are focused on super casual games that don’t have a backend
  • Gaming startups sometimes make short term compromises and outsource components that they are later on hoping to internalize

Outsource your ad-tech platforms

On the other side of the spectrum – the ad-tech platforms are mostly outsourced. Even if you look at top tier companies it’s hard to find companies who built technologies around measurement, optimization and placement of ads. Here are some examples:

  • Attribution platform – most gaming companies outsources to Appsflyer, Kochava, Adjust or Tune
  • Ad Mediation – there are many solutions in the market and only a few companies built their own
  • Ad revenue traceback – companies were not able to build platforms to attribute ad revenue to the user level

Consider the TCO – total cost of ownership

One of the aspects that companies often miss when it comes to in-house development is the on-going maintenance costs. In a typical scenario the vendor will pitch his product and will present a price of $5,000/month. The VP of engineering will say – I can build this in a month. Obiously, the price of 1 month of engineer work should be considered but there is actually a lot more:

  • The alternative cost of the engineer should be considered – if you are delaying a feature that could be worth $50,000 than the price is actually more than just the engineer salary
  • The full overhead – The G&A expenses are correlated to the number of people in the company
  • Maintenance cost – bugs, responding to changes in the industry, upgrades, …
  • Hosting costs can ramp up quickly in ad-tech products
  • Dev-ops costs
Once you add up all of these, most likely that the price the vendor will be the lower one compared to the in-house option.

The hidden price in ad-network sponsored products

One area where companies fail to perform an accurate cost analysis is the area of ad-mediation. In this area there are companies who use in-house solution and others get a ‘free’ one from an ad-network. Here, the price of the ‘free’ product is actually a lot bigger than a paid product would have cost. One of the secrets of the ad-networks is that they are the ones deciding how much to pay the publisher, it’s very easy for them to withold 10% as a cost for the mediation. The publisher will never know. Now imagine a company with $10M in annual revenues. You have 2 options:
  • Get a free service (it actuall costs $1M/year)
  • Develop in-house
Most companies will choose the free service and only a few will build an in-house solution. However, in this case, the price of outsourcing is actually much higher compared to in-house.

Recap

The dicision to build or buy in the gaming space has two main aspects:

  • Know what is the core of your company and keep that in-house
  • Consider all costs including total cost of ownership and the hidden cost of ‘free’ gifts from ad-networks
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One Comment

  1. Mike Jobes

    March 16, 2017 at 8:10 am

    I prefer going for in-house games development reason being if game will be developed in-house you will be able to know the progress.

    Reply

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