GameStop Acquires Kongregate

By Alicia Ashby On July 27, 2010 · Leave a Comment

Video game retailer GameStop has acquired the online game portal Kongregate for an undisclosed sum, according to Kongregate CEO Jim Greer. Co-founder Greer will continue to control the day-to-day operations of Kongregate along with his sister and co-founder Emily Greer. Kongregate will become a wholly owned subsidiary of GameStop, giving the brick-and-mortar games industry giant a much-needed toehold in the browser-based gaming market.

"We've had other companies interested in Kongregate in the past, but what we really liked about GameStop was the degree they really get what we're doing, and value it for what it is," said Jim Greer in a video statement about the sale that was posted to Kongregate's Web site in order to explain the acquisition to site users. "They don't want to turn Kongregate into something else – they want to help us make it bigger and throw their resources behind it."

Greer will report directly to GameStop CEO Paul Raines. In addition to its browser-based Web portal, Kongregate is working on a Flash-based site that will be compatible with Android mobile handsets. Kongregate publishes games developed by over 8500 independent developers, many of them producing games with teams of only one or two persons involved. Kongregate serves about 10 million monthly active users who spend over 23 million hours per month at the site.

Although terms of the deal were not disclosed, the Associated Press is reporting that Kongregate's price tag was probably between $12 million and $40 million. Kongregate raised $9 million through three rounds of investment before the sale, with investors including Jeff Bezos, Reid Hoffman, and David Sze. Analyst Michael Pachter believes the acquisition is meant to turn GameStop's Web site into a gaming platform as well as a games distribution channel.

That is a major move for GameStop, which generates most of its revenue through second-hand sales of games published as packaged goods. Kongregate hosts over 30,000 games as of this writing, with more games always on the way from small and independent developers. Kongregate uses achievements, social networking features, leaderboards, and community features to drive high engagement with core gamers.

About one-third of Kongregate's revenue is generated by microtransactions, even though the company has only offered games featuring virtual goods since earlier this year. Advertising and brand sponsorships round out the rest of Kongregate's revenue. Kongregate takes a 30% cut of all microtransactions in its game, similar to iTunes, and expects to become profitable later this year. The deal between GameStop and Kongregate is expected to close on August 1.

GameStop also owns and operates Jolt Online, the developer behind the Legends of Zork freemium online game. Jolt's latest game is Gangsta Zombies, a Facebook game that lets players become zombie gangsters. To promote Gangsta Zombies, GameStop locations are handing out promotional prepaid virtual currency cards. GameStop will later sell the prepaid cards in $10 denominations, with a code redeemable for a special in-game virtual good included.