Category Archives: blather

VCs, Welcome to the Game Industry

After my post about how Zynga seemed to have hit peak soccer mom, news broke that their profit took a nosedive by %95 this quarter. Some may say this is the bubble bursting on social, but it’s probably not. It’s just the maturing of the social game industry.

Zynga’s active users are down by about 3 million. Growth is flat, this is true. However, Zynga has attributed their falling revenues to the lack of major releases generating new revenue. I’m likely to believe it.

This is a familiar pattern to anyone who follows the dinopubs–companies such as Take 2 have wildly gyrating stock prices due to the release patterns of tent pole games like Grand Theft Auto. With AAA console titles taking 3-5 years to develop, you can go many costly quarters without any decent revenue coming in. This is especially scary when you are spending $50 million to develop a title and $100 million to market it.

Remember the early days of social games? Think back to 2008 when Jetman was hot. It was a crude Flash action title that was probably whipped together in a weekend. SGN bought it as one of the first acquisitions in the space. Contrast that with Adventure World–a lush, rich adventure in…uh…clicking on lots of stuff to generate spam. Ok, not my cup of tea–but the amount of work put into this generation of social games is deceptively large.

Zynga has been spending a lot of money acquiring companies and massive amounts of staff. I’m sure their 2,000 or so employees aren’t sitting around filling out Netflix trial subscriptions for free FarmVille Bucks. There’s a lot of development going on. Social games are taking longer to make and fickle audiences are saturated with compelling content. Naturally, if you don’t have anything new out there your usage and revenue will drop off.

The thing is, this hit-driven pattern was part of what made games totally off-limits to investors until the social revolution. No longer can you throw a heap of money at a bunch of pizza-eating Stanford CS grads in a SOMA loft to crank out code and buy millions of users until you supernova into an acquisition by the greater fool. VCs wanted to invest in so-called ‘game factories’ but now you actually have to produce quality games and work hard for your users. Scary stuff.

I’m not quite sure the crop of VCs that heavily invested in social gaming are ready for slow growth and a revenue chart that looks more like a string of al dente spaghetti than a hockey stick. Will social gaming become as unattractive to VCs as the traditional dinopub industry is? Zynga better not delay their IPO much longer–or time it to coincide with the release of a major title.

How to Talk to Rich People

At certain times in your adventure as an entrepreneur, you may have to talk to the rich and delusional. As many you know, I advise teaming up with someone who specializes in this. Just in case you find yourself unarmed in the presence of a rich guy who is looking to invest in your start-up, here are some tips learned from observing others much better at this than I am.

Oh and, when I speak of weird rich people, I’m not talking about VCs or experienced angels. Most of these guys at least have a semblance of a process and logic behind how they operate. I’m talking about loaded dudes who know almost nothing about your business but are looking to get in on the tech bubble.

Anyway, those tips…

    Ask for something. Have a reason for the discussion. A lot of super rich dudes are just lonely. They break up their solitary existence by inviting you on their boat to have long, rambling, pointless discussions. Have an agenda and don’t be afraid to ask for what you want. Otherwise, you’ll spend hours going in circles.
    Never say no. When you reach a certain level of wealth, you stop hearing the word no. When talking with such people, disagreement is considered “resistance” and jeopardizes the progress of your conversation. You might just phrase “no” in a softer, more creative way. Unless he asks you to drown a basket of puppies or something. In that case, look for a life raft.
    There is no problem that can’t be solved with the simple application of more money. The idle rich do not want to hear about technical limitations of your product that might make their input unfeasible. Worst case, it’s an issue–but can simply be solved with more money. We know this isn’t true–after all, we build stuff. However, being realistic will paint you as a naysayer and killer of dreams. Keep the reality distortion field powered up.

For many, these talents are natural. For nerdy programmer types, talking to money men is usually a learned skill. It’s also a full-time job–you can’t develop a product yourself and raise money simultaneously. Find help.

Is Location Dying?

I was blown away by today’s announcement that Facebook is shutting down Places. A year ago, it was announced as Facebook’s Foursquare killer. Perhaps Facebook decided Foursquare wasn’t worth killing?

It’s kind of bewildering. Pundits complain that only %6 of Facebook users used Places. But %6 of 700 million users is roughly 3-4X Foursquare’s entire user base. It’s really not even about active users anyway. It’s about the reach of Places check-ins through the social graph.

Places activity is featured prominently in your newsfeed. Check-ins frequently generate comments and from non Places users. These conversations can be a valuable viral marketing tool for venues and events. Check-ins on Facebook Places are far more valuable than those of Foursquare or any of its lesser competitors due to their reach.

Facebook has stated they are opting for a new geotagging feature on pictures and posts instead of check-ins. I do like geotagging much more than check-ins, actually. I think this is one of the best features pioneered by Instagram. I’ve gone to venues because I saw something really delicious tagged at a local restaurant. I’m also more likely to geotag than check-in. Checking-in is a big statement compared to adding location information to a post. Still, can’t check-ins and geotagging all just get along?

For developers, location just got a bit trickier. Basing a game or app on check-in history has always been a bad idea. You don’t want to require a log-in for a game–a good percentage of your users will drop out upon seeing a log-in screen. However, Facebook Places offered more of an opportunity to use social check-ins in an app since it’s attached to a mass appeal social network instead of a niche app like Foursquare. Who remembers their Foursquare password?

Places was seemingly thrown out there with very few enhancements made to it over time. Maybe Facebook decided the cost to whip it into shape was just not worth the effort. After all, revenue streams from check-ins have always been suspect.

This goes to show you that even if the 800 pound gorilla decides to muscle in on your turf being focused and nimble can pay off. It was looking grim last Fall, but Foursquare vanquished the beast and has emerged unscathed with a new round of funding.

Facebook will probably use that prime area of real-estate the Places button occupied in the mobile app for a more lucrative feature. Yet, I can’t help but think they didn’t give Places a chance. The fact is, location will remain an important feature in mobile due to the very nature of the device. Facebook just can’t figure out how.

The New Era of Virality

A few weeks back I saw this post covering a lecture about the current trends in gaming by Tim Chang during GamesBeat 2011. Now, if you read a lot of VC blogs, please stop. VCs are very good about telling you what the trends are last year. You’re likely to crash your car doing too much rear-view mirror driving. In this case, during a bunch of stating the obvious, he claims we are in the “post-viral era.”

This may not be the case.

In social gaming 1.0, it was all about spam. Social game developers prided themselves on their secret knowledge of the so-called “viral expansion loop.” This black art really was no secret. Just spam Facebook newsfeeds with obnoxious ‘stories’ about lost cows and Mafia Wars riches. Whether you were selling herbal Viagra or virtual crops, the technique was the same–Shoot out millions of messages and hope that a fraction of a fraction of a percent follow through.

In the late 2000s, it seemed like the there was a fine line between social game companies and Nigerian 419 scams. Newsfeed spam from social games got so bad that Facebook shut down all the viral channels by early 2010. Except, of course, for Zynga–with whom they have a sweetheart deal. Anyway, when the spam APIs were squelched, Facebook app virality died. This was the end of Social Gaming 1.0.

In 2011, virality still lives. Turning your players into evangelists that go out and get others to play the game as a core mechanic is a tricky thing to achieve but it can be done. The best example of this is the wildly popular (among hipsters, at least) turntable.fm.

A pivot borne out of the social shopping startup, Stickybits, turntable.fm is a music sharing game where you earn points by performing as a virtual DJ. Create a playlist of tracks from turntable.fm’s immense library, or upload your own. Then, play these songs for head-nodding virtual spectators.

Is this legal? Who cares. They’ve amassed a decent chunk of users in a few short months. turntable.fm will figure that out later when the Cease-and-Desists start showing up.

The only way to earn points as a DJ is to have a lot of virtual club-goers watch your performance. Racking up tons of points requires driving lots of users to join your room and watch you spin. The more spectators you have, the more points you earn. If you read interviews with the game’s most fanatical players, you’ll see that turntable.fm has created a group of hardcore whales who put more effort into bringing in new players than your average user acquisition manager at a social gaming company.

For fanatical DJs that desire fame, glory, and enough credits to buy cool avatar gear, the drive to bring in new turntable.fm players is strong. Compared to many other social games, there is little friction to this process as players don’t have to actually play anything. Once invited, users merely have to log-in and consume free music.

The big mystery is how this game plans on monetizing its audience–but I’ve seen few social games with viral mechanics this persuasive. It’s unclear if a game you actually have to play to participate in can emulate the same model, however turntable.fm is an example all game developers should be looking closely at.

My Week with the 3DS

It’s been about a week since I got my shiny turquoise 3DS at launch. I figured I’d share some impressions of this device.

THE BAD

  • This is the most half-ass Nintendo launch in the company’s 120+ year history. This is coming from a guy that blew $179.95 on a Virtual Boy on launch day in 1995! The 3DS is just incomplete. Want to use the browser? Oh that’s coming soon. How about the app store? Oh that’s coming soon. Considering both of these features have existed on the DSi for years, I don’t see how they are absent from the 3DS.

  • 3.5 hour battery life. What is this, an Atari Lynx? Poor battery life is a dealbreaker for a portable system. It won’t even last a round trip in the back seat of the SUV during a family vacation.

  • It’s ugly. I’m not talking about colors–Nintendo’s handhelds always seem have US launches with a garish palette. No matter what color you get, you’re left with a huge, hulking, decidedly unsexy piece of plastic.

    Perhaps the 3DS is designed to be easily gripped by younger hands, but this thing seems to be at least 2X bigger than it needs to be. Whether it’s fair or not, it’s being compared to the iPhone. It’s so huge, I can’t conveniently carry it around with me. Especially since I always have an iPhone in one pocket…which is another one of Nintendo’s big problems this generation.

  • The UI sucks. It’s 2011 and the 3DS needs a stylus. Seriously? I can see why they included the stylus to remain compatible with DS titles. However, for the 3DS interface to use a stylus in 2011 is unacceptable. Yeah you can tap the screen with your fingers, but they still use scroll bars, tiny soft keys, and other interface metaphors designed for stylus use.

  • It’s still using that dumb 3-slot WiFi setup screen. At least it supports WPA/PSK now (like the DSi). You still can’t use WPA/PSK with DS games that use WiFi. In addition to this, you are limited to saving 3 WiFi hotspots. You’d think someone at Nintendo would see how an Android device or iPhone handles WiFi hotspots. Why am I limited to 3? Why can’t I just add and save hotspots like any other modern device?

  • Launch titles are typically weak. Iwata complains that the iPhone is cheapening games by offering very little gameplay at small prices. Yet, many launch titles priced at $39.99 don’t give much more gameplay than free iPhone apps.

  • StreetPass is poorly implemented. Oops–I was wrong here. StreetPass does work without the cart. See this link.

THE GOOD

  • 3D is neat! Honestly, the 3D screen gives me eyestrain after about 30 minutes. I’m really not sure what to think about the after-effects. I do generally like it. Still, holding the 3DS in the right position to be in the screen’s sweet spot is a pain. This is specially evident with button masher games like Street Fighter IV where it’s near impossible to keep the machine steady while playing.

    Even in games without gimmicky camera movements and such, the 3D effect gives a nice ‘volume’ to everything. This makes the 3DS surprisingly immersive for such a small screen.

  • The 3D camera is awesome. It works very well, and has a lot of interesting settings. It would be cool if somehow Nintendo could figure out how to create a relatively cheap lenticular printer accessory. Or maybe install printers at Gamestop etc. that let you print out 3D photos for a fee.

  • The Augmented Reality games are the best I’ve ever seen. A lot of you have probably seen AR features on iPhone apps such as Yelp’s Monocle or games like Ogmento’s Paranormal Activity. The 3DS takes this to the next level with really fun and innovative use of AR. Unfortunately, you still need to use marker cards.

  • Miis have more to do. The Game Coin system (earn virtual credits by walking around with your DS via the pedometer) not only allows you to unlock content in supported games, but also play a few clever mini games with your Miis. No longer are Miis relegated to aimless wandering around the screen. They have stuff to do, including a light RPG quest built right into the 3DS desktop.

  • System-wide friend codes. I do understand Nintendo’s reliance on friend codes. It’s dangerous (and even illegal) to store personal identifying information of minors. Since the 3DS is targeted squarely at kids, friend codes give a safe way for children to play on-line games without weird strangers in the mix. Now, the 3DS uses one friend code per system instead of one per game. Also, the friend browser can be brought up during a game at any time without quitting. Nice.

CONCLUSION

The 3DS doesn’t seem ready for prime time. I’m used to it. This is the price I pay for being an early adopter. However, the fact that Apple sold more iPad 2s at twice the price (for the cheapest model) with heavy supply constraints in its launch week than Nintendo sold of the 3DS may not bode well for Nintendo.

Are they really competing for the same market share, though? Nintendo probably has the younger audience locked down–I mean, the latest Pokemon sold 2 million units during launch week in the US alone.

Oh….and speaking of Virtual Boy….I want a collection of Virtual Boy classics for the 3DS once they launch the on-line shop. Much like the limited edition Game & Watch cartridges for the DS…maybe they can somehow make these a collector’s item too. I swear, there were a few good games on the Virtual Boy!

Favorite 3DS game right now is Ghost Recon.

Oh, here’s my friend code: 4038-6014-0977

Victory

Perhaps not by the sweat of my brow, but from the changing of Google’s search algorithm, I finally beat that stock car racing guy in Google search results on my name. Mission accomplished.

But I suppose I need to have actual content in this post or else I’ll get trounced by a bad ass 1971 Roadrunner.

Well–I did just get back from GDC. But I didn’t bother going to the actual sessions, and instead had a bunch of meetings and ate tons of awesome chinese food.

So my observations from the outside may not be so relevant.

  • Social game developers just want to be loved. Why don’t we see slot machine developers asking to be respected? Because slot machines are honest about what they are–and there’s nothing wrong with that. Some of my best friends are slot machine developers.

  • XBOX Live and PSN are extremely unattractive platforms for game developers. I rarely heard anyone starting new projects on these platforms. I don’t think it’s any coincidence that the iPad 2 announcement was made right next door during GDC. A lot of developers are starting to look at tablet gaming as sort of a hardcore subgenre in mobile that may be more direct competition for the doomed gated businesses of PSN and XBLA.

  • There’s a lot of people in the doomed gated ecosystem that block innovation to justify their own employment. A lot of people employed in gated ecosystems are simply unnecessary in 2011. Innovation on gated platforms is held back by massive organizations of people trying to justify their own employment. This is part of the reason why the incumbents are resistant to change and are being pummeled by the AppStore economy. Innovator’s dilemma at work.

I don’t know art, but I know what I like

Let’s face it, there’s a lot of bad renaissance art. I remember strolling through the exhibits at the Getty one afternoon, astounded at the quantity of generic paintings of naked Jesuses getting stabbed in the abdomen. After an hour of this, I was more interested in what was in the snack bar than what awaited me in the next hall.

Many painters of the renaissance worked on the patronage system. These artists were talented, but needed money to practice their art. The solution was to find a rich person to provide the funds–a patron. Often these were merchants, criminals, businessmen, religious leaders or a combination of these who would commission paintings to be done for a fee.

Once funding was secured, the artist was free to do his work. Well, except he had to paint what the patron wanted. And what these patrons demanded were an infinite array of pictures of naked Jesuses getting stabbed up. There’s no denying the talent involved–but a lot of these works are really boring to look at.

In a lot of ways, this is how the world of start-ups works. Unless you have created a business where you can immediately sell your product or service directly to customers, you probably need to raise money. And this money comes from investors that are often cut from the same cloth as the patrons of yore.

Investors are increasingly risk averse and travel in herds. Which means, they are a little uneasy with the concept of speculation. This is probably a big reason why the venture capital industry has a negative return over the past decade. Certainly, if you spend enough time among the herd, you may come to the conclusion that the “wisdom of crowds” is a myth.

Regardless–you have to convince the investor of the upside. Which means, in reality, your first customer in these sorts of businesses is the VC, not the actual end user. If you can convince your investor that your business is valid…well, then you can worry about that whole earning money thing once the check clears and you’ve burnt through most of it. This whole process is very anti-Lean Startup, despite the adherence to all the jargon about pivoting and MVPs.

This means you are appealing to an echo chamber of like-minded investor types. So you’re going to see a lot of similar businesses come out of the Sand Hill grist mill. The current crop of, say, photo sharing start-ups, may be the 2011 equivalent of naked Jesus getting stabbed up in an oil painting.

A few quick notes

Lately I’ve been busy infiltrating the secret cult of start-up fundraising, developing an alpha release, and watching Japanese McDonald’s commercials on YouTube. So I haven’t posted in a while. I figured I’d just drop a few notes before I do a real post (maybe before GDC).

  • Are THQ Executives and Mark Cerny reading this blog? (OK–probably not.)

  • Trade Nations is the best iOS game of 2010. If you don’t have it, you’re missing out. This is the first social game I’ve played that doesn’t feel like a pyramid scheme. Fellow mobile game pioneer Tom Hubina and his company put this out–and it does show you can teach an old dog new tricks! Not only is the game a pleasure to look at, but its social empire-building gameplay doesn’t require constant attention. I’ve easily spent more in this game than any social game ever.

  • When I first started working on “Facebook Games” in 2007, people told me I was crazy. When people say my ideas are crazy, I know I’m on to something. Now that everyone from the traditional console/PC game industry has jumped on to the social gaming tidal wave with rationalizations of varying quality, is it time to move on to the next big thing?

  • Ghostface Killah’s Apollo Kids is the best album of 2010.

I’m working on a few new ideas for blog entries. Including more insights on my adventures in raising seed capital. But I have to figure out how to phrase them in such a way that…uh…lets me continue to raise a seed round. Stay tuned!

Facebook and the Grim Reaper

When my grandmother died last year we found a bunch of obituaries clipped from the newspaper that she had been collecting for a long time. It seems that a popular hobby for anyone over 55 is finding out which one of their friends kicked the bucket by scanning the obituaries section in the local paper every morning.

Let’s take a look at how this is going to work in the social media era. Right now, I’m sure you have a bunch of obnoxious friends in your Facebook newsfeed that post unnecessary updates on their back pain, runny nose viscosity, flu symptoms, or general complaints about life’s health annoyances.

Depending on how old you are, flash forward a few decades. Soon, you’ll be able to watch all your friends dying in realtime. Their daily updates about how they still have a headache from this weekend’s bender will turn into white blood cell counts from their latest cancer screening or how many months the doctor has given them to live.

You’ll get hourly updates from the deathly ill that you barely even know. That chick you sat next to you once in 5th grade that friended you 25 years ago but never sent you even so much as a poke will be filling up your feed with the progress of her brain tumor three times a day.

You’ll stop complaining about app spam from Facebook games. I’m sure most will wax nostalgic about the glory days of Lost Duck wall posts from Farmville when Facebook is filled with death and mayhem.

At least when my grandmother clipped notices out of the obituary section she had to go looking for them. She wasn’t constantly barraged with a stream of updates on everyone’s final hours.

In fact, I’ve heard this complaint already from older folks that use Facebook. Maybe our propensity for whining will be a permanent barrier to social media’s adoption by the Social Security set.

Then again, the variable reinforcement of constant death updates might be an addictive pastime for those already into clipping obituaries. Hmm–maybe I just came up with a new startup idea.

How will console game development survive in 2015?

With AAA game profitability making publishers nervous, are Sony and Microsoft really going to release next-generation consoles in 2013 that are 4X as powerful and 10X more expensive to develop for as happens every successive generation? While I’d love to see what such hardware looks like, the numbers just don’t add up.

I remember the good old days of the mid-to-late ‘90s when a sub $2 million budget was considered mighty healthy. With those numbers, you could sell 250k copies of a PlayStation title and live to fight another day. Today, the AAA market is so broken that if you sell 2 million copies, the game is considered a failure and your studio will likely be shut down. With games costing as much as $50 million to develop and over $100 million to market (on the extreme end), the stakes are high.

The thing is, as a gadget nerd I shed a tear to think we’re stuck with what we’ve got. I want cool new technology. Yeah the XBOX 360 is great, but it’s 5 years old now. I want the new hotness. But there’s no real magic bullet to solving production costs. Middleware, slave labor camps, and pretending everyone has a job and laying them off every time a game ships have all been tried to no avail.

Perhaps the newer consoles need to iterate on the business model to make developing for new hardware more attractive by discovering new revenue sources. As we’ve already discussed, console manufacturers’ doomed gatekeeping efforts keep innovation at bay. Publishers are not allowed to find new sources of revenue unless explicitly told to do so by the platform mother ship. You are ordered to spend 10s of millions of dollars to put a game in a box and watch it die.

A lot of what keeps new business models from breaking out on consoles is the reliance on retail. Digital distribution is great–we’ve seen it revolutionize the game industry on Facebook and mobile phones. But it hasn’t really taken hold on consoles yet for AAA releases. I believe part of the reason is because retailers will not support a machine where they don’t make any money off of game sales. Why sell a PS4 when your customers are never going to return to your store to buy physical discs? It’s going to get ugly–Just look at some of the tantrums thrown over the PSP Go.

Maybe the next generation of consoles should be sold like cell phones. You buy a XBOX 720 at a subsidized discount. This puts in you into a 2 year service contract for a premium XBOX Live subscription where you can digitally rent AAA titles with an option to buy and play f2p microtransaction games as well. To keep the retailer happy, every store that sells a console gets a cut of the customer’s subscription fee.

Huge swaths of the US have spotty bandwidth, so a streaming digital media console isn’t going to work for everyone. Whatever machines Sony and Microsoft are cooking up will probably still have to have traditional disc based media as another option. Especially Sony–considering minor patches to PS3 games take hours to download for no apparent reason.

Perhaps next generation technology will focus more on streaming content than cutting edge techniques in 3D graphics. You can already see examples of what I mean in Blizzard’s streaming World of Warcraft client. You can start playing before it’s finished downloading. And yeah–I’ve played both OnLive and Gaikai, but I’m not a fan. They are both too laggy and have too many streaming video artifacts.

Ultimately, this post is useless. There’s probably developers right now already working on this next-generation hardware in some way–so they already know what the upcoming solution looks like. Still, I needed to keep the blog updated in a futile attempt to unseat that stock car racing guy from my egosurfing search results.