“Middleware firms today tread a precarious path”

As most of the game development industry knows by now, we had two game engine companies hit with serious troubles last year.

InstantAction, which took over from GarageGames in supporting and selling the Torque engine, closed. And even though Emergent Game Technologies has been purchased by GameBase, in my opinion its fate is still a question mark in people’s minds.

I must admit that I am torn by these recent developments. On the one hand, it would be disingenuous to say that we will miss that competition. At Trinigy, we competed hard against those companies, especially Emergent. Sometimes we won. Sometimes we lost.

But it would be equally dishonest to say that we do not care about their misfortunes. There is a personal element behind the headlines that cannot be ignored. Those companies had employees who are now out of work. They had vendors who will certainly feel the sting of their loss. And, they have customers who spent a substantial amount of their development budget on those technologies, and are probably trying to figure out if they can still ship their games without the help of InstantAction or Emergent.

But there is another reason we care about their collapse – it stands as a reminder that middleware companies tread a precarious path, especially now, and that survival requires focus, close customer relationships and steady but thoughtful growth.

Growing a middleware company is challenging, especially in the face of a video games market that is evolving so rapidly. New platforms and genres, more casual and indie developers, fewer AAA titles, new business models, more middleware competition – with all of these shifts going on simultaneously, middleware providers face the increasingly demanding task of staying focused as they grow.

InstantAction and Emergent fell prey to that problem of focus. The Torque Engine was originally developed by Dynamix, and was taken over by GarageGames. Even though GarageGames developed its own titles, one of its core competencies was the Torque Engine, an engine whose pricing and proven functionality set them apart.

The Torque Engine was, in essence, a core competency. The problems seemed to have arisen when the company started developing InstantAction and shifted resources away from Torque and its large customer base, and into what it believed to be a profitable space – web games and digital distribution.

Emergent had a similar problem, only it started earlier in the company’s lifecycle. Emergent’s plan was to develop a huge development platform consisting of Emergent Metrics, Emergent Server, Emergent Gamebryo and other technologies.

To get this platform off the ground, the company took in a number of large investments. The plan failed. The company burned through cash trying to get its platform developed and launched. It re-focused efforts on its core competency – Gamebryo – but by then, it was too late.

The company cut back on its development resources, and Gamebryo’s quality – the very thing it needed to have to continue funding the company’s existence – faltered.

I know these are oversimplified explanations, but they serve to illustrate a point: the more a company tries to grow, the greater the tendency to shift development efforts to the flavor of the day in order to secure more revenue to fund that growth.

Sometimes, these shifts turn companies away from customers who made them successful in the first place. The trick is to grow without losing sight of what makes your offerings unique and your company special.

The problems get further compounded when companies turn to VCs for funding. VC money can get a company started, or help it grow, but it can also shift a company’s focus from its customers. Many of our founders learned that the hard way at their former company – Vulpine.

Vulpine took on VC money and ended up spending much of its time meeting the demands of its investors rather than its customers. Vulpine, like InstantAction, collapsed.

In 2003 we started again with Trinigy. We have grown Trinigy organically, enjoying profitability every year of our existence. Though it has had its challenges, especially in its early days, we can now say that we’re far more focused on what our customers want, not what VCs need. And that, in turn, has helped us remain focused on what makes us different from the competition.

Finally, there is the unknown; those market shifts that companies just can’t see coming. Who knew that the economy would stumble two years ago, leading to severe layoffs across the industry and a rise in self-funded game development projects that needed more cost-effective technology options. Everyone knew that mobile platforms were gaining steam, but did anyone expect them to rise so fast?

Companies can hedge against these unknowns with deep price discounts and free versions of their software, but just how long can they survive at those price points?

A better option for dealing with unknowns is staying close to customers. It seems simple, but with so many competing forces working against each other, sometimes companies lose sight of the simplest things. Customers can tell you what they’re working on and why. They can tell you about their financing models and the shifts they’re seeing in the industry. And they will most certainly tell you when you’re doing a good job or a poor one. As a result, middleware can and should shift their strategies accordingly.

The misfortunes of InstantAction and Emergent remind middleware companies that growth is good so long as it’s built on the back of core competencies and close customer contact. And it reminds game developers, as we enter 2011, to consider technology partners carefully, especially how they are funding their growth and whether that funding is taking their focus off of their customers.