Israel’s Biggest Gaming Firm Scores a Deal With Sony

Crazy Labs has found success in ‘bathroom games’ for hyper-casual users – and now it's arrived in Hollywood

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Sagi Schliesser, Elinor Schops and Guy Tomer of Crazy Labs in their Tel Aviv office, November 21, 2019.
Sagi Schliesser, Elinor Schops and Guy Tomer of Crazy Labs in their Tel Aviv office, November 21, 2019.Credit: Ofer Vaknin

In another week, when Dwayne “The Rock” Johnson and Jack Black are coming down the red carpet in Los Angeles to mark the premier of their new movie “Jumanji: The Next Level,” two Israelis won’t be far behind them – Sagi Schliesser and Elinor Schops.

The CEO and vice president for business development, respectively, at Crazy Labs are not exactly household names in Israel. But in the gaming world their company is the biggest gaming startup in Israel. Recently they signed a cooperation agreement with Sony Pictures to develop mobile games tied to the company’s movies, including the latest version of “Charlie’s Angels.”

“We’re now in a business where there’s no such thing as delays – we have to come out when the film does. Sony’s two movies are coming out one right after the other, which is a real challenge for us,” says Schliesser. “Sony is talking about the character constantly. The Rock even called us recently from a tattoo parlor and sent a picture of his latest tattoos so that we can add them to his character in the game.”

Crazy Labs, a developer and distributor of mobile games, has grown at a 50% annual rate over the last two years and expects to end 2019 with close to $100 million in revenues. The company says it has been profitable since 2012.

It has raised $13.5 million from venture capital funds Magma and Vintage and the investment arm of the U.S. company Qualcom. Crazy Labs employs 230 people, 70 of them in offices at Ramat Ha’Hayal and the rest in Macedonia, China, Bulgaria, Germany, Poland and Ukraine.

Crazy Labs was founded nine years ago as TabTale. It was the same time that Apple’s iPad debuted, but Crazy Labs’ founders – Schliesser, Oran Kushnir and Nir Bejerano – discovered that there were no games or apps for their children in Apple’s App Store. With background not just in computer science but also psychology and education they opened a studio to create game apps and interactive books for children.

Four years later, the company’s most popular game was Baby Heros, a version of the Japanese digital pet game Tamagotchi, except that the child user is responsible for a baby as it grows up. Baby Heroes had 50 million downloads.

The company was launching 10 applications a week , and at any given time the developers and game designers it employed were working on 30 new apps at the same time – including digital coloring pages, music lessons and children’s songs.

The rapid release of new apps was critical for reaching its young audience, who often lose interest in a game or app after a short time and want to move on to another. By the time the company decided to leave the segment, it had developed some 500 apps.

The number of downloads was impressive but the apps were free and not producing any revenues for TabTale. Advertising for children is subject to strict regulations all over the world and children don’t have credit cards. Monetization was a big problem.

As a result, the company pivoted to games for older users, in particular the segment known as “hyper-casual” games that can be developed quickly and cheaply and are played in stages.

“I call them ‘bathroom games,’” says Schliesser. “Anytime someone has five minutes and nothing to do with them you can finish another stage. We saw that people were excited and that we could connect to the market with a world of games for the masses.” He adds that the games don’t rely on visual violence and in the few that involve guns and shooting, the violence isn’t explicit.

Two weeks ago, the company decided to drop its last association with the children’s segment of the market and changed its name to Crazy Labs. Today, the company has three divisions. The oldest develops original games. Its biggest success to date has been Run Sausage Run!, in which the hotdog hero must overcome obstacles to escape a kitchen.

The second unit is in licensing – developing games for big corporate clients. In addition to Sony, Crazy Labs works with Zag Animation, which develops programs for the Nickelodeon and Disney television networks. Among its games for Zag is Ladybug, which is based on a Zag series, that has been downloaded 75 million times and generated revenues of $10 million.

Its third unit distributes games for other, smaller companies that don’t have the resources to reach the market. Among its success stories is Amaze, a game that won 40 million downloads. “Two developers from Belorussia came to us with a good game. We helped them improve it and get it into the stores. Today they’re millionaires,” says Guy Tomer, CrazyLabs vice president of operations.

Crazy Labs revenue model is freemium – the games are free to download but if a user wants to advance with them he has to pay to acquire new characters and equipment. The company also generates revenues from advertising that appears on the games and in the last year has begun offering paid subscription for more sophisticated games that award benefits to players.

The company is Israel’s biggest in the mobile games segment, meaning smartphones and tablets. According to Sensor Tower, Crazy Labs was 10th in the world among apps companies, in the same league as Facebook and Google, and No. 5 among gaming companies. This year it’s expected to register 500 million downloads.

Crazy Labs’ biggest competitors in the casual segment are Vodoo, which last year raised a reported $200 million from Goldman Sachs, and Wooga, which was bought last year by the Israeli company Playtika for $100 million.

The Israeli games industry is young but growing. In the past leading companies like 888 and Playtika were focused on casino games. Figures prepared by Startup Nation Central for TheMarker show there are about 270 gaming startups in Israel, up from 170 two years ago. The biggest segment (28% of companies) is social gaming, which include casino games. But the fastest growing segment is children’s games, which account for about a quarter of Israeli companies.

Globally, the gaming business is huge. The market research firm Newzoo estimates that more than 2.5 billion people play games daily. The industry is forecast to grow 9% annually and reach revenues in 2022 of $196 billion. Mobile accounts for 45% of the market in revenue terms. The downside is that user tastes shift rapidly and the market is volatile.

“In 2009-10, when we were trying to raise capital, nearly all the American funds told us that we’re not a tech company,” recalls Schliesser. “Over the year Israeli investors said it was impossible to set up a consumer company here because of the distance from the main market where the users are. Magma, the first fund to invest in [the navigation app] Waze, thought differently.”

The company was focused on becoming profitable from the outset. “Companies like Uber and WeWork are monsters, which only think about growing and raising money to grow even more,” he says.

Schliesser attributes Crazy Labs’ success to its targeting casual gaming, in contrast to big-budget gaming companies like Fortnite and League of Legends whose production costs can run into the hundreds of millions of dollars.

“Hyper-casual is where the money is. You can’t compete with Electronic Arts, Zynga or King,who have big, high-cost games “ he says, referring, respectively, to the makers Sims, Farmville and Candy Crush. “In hyper-casual you can do it and the [app] stores love it because it lures a lot of developers to them.”

Meanwhile, however, a dispute among the founders cast a shadow on the company for years and led one of the founders, Kushnir, to file a 35 million shekel ($10 million) suit against the other founders and the board on the grounds that he had been thrown out of the business in May 2017. Crazy Labs says the suit, which is still in court, is groundless and aimed at hurting the company.

Asked whether Crazy Labs is up for sale, Schliesser responds that talks are always taking place but for now there has been no serious offer put on the table.

“It’s an industry of consolidation [mergers]. Right now we’re enjoying what we’re doing – it’s one industry that’s fun to work in,” he says. “Before we decide to sell we’ll give it some serious thought. When we look at the world ranking, alongside each game appears the flag of the country where it was developed. When we see the Israeli flag representing us, that has a value to us.”