Posted tagged ‘business’

Starting a new (game) business

February 17, 2009

So, what have I learned during the five months Everyplay has been operational? What would I loved to have known before we founded the company? What would be helpful to would-be entrepreneurs? And how much could I cover in 40 minutes?

With those questions in mind I set out to share my thoughts and opinions on how to start a new game business for the good people at the Casual Connect Europe 2009 conference. I was given the prefix “Confessions” so I used Everyplay as an example case in the presentation. We are still in stealth mode, so for those of you looking to learn about what we are building, there are a few tidbits in the presentation ;-).

I had a great time giving the presentation and luckily quite a few people found it to be useful. My thanks to everybody who offered their kind words after the presentation!

confessions

I’ve included quite a few slide notes with the presentation for links to further information, interesting blogs and books. To access those, please download the presentation.

If you found the presentation useful, please share your thoughts in the comments!

P.S. Apologies for the crappy audio timings on the slidecast. After spending three hours battling with Slideshare’s buggy-beyond-belief slidecast tools, thus is the best that could be done.

Virtual Goods Summit 2008 mindmaps

December 16, 2008

vgsummit2008Before I started Everyplay I was researching the virtual goods market, and I stumbled upon the most excellent Virtual Goods Summit 2007 organized by Charles Hudson. I was glued to the panel videos (BTW, they are still relevant). The US pioneers of this market were speaking frankly, openly and insightfully. There was lot to be learned: from market data, conversion rates, ARPUs to best practices.

The Virtual Goods Summit 2008 lived up to the great expectations set up by the first event. The sessions ranged from very good to simply outstanding. The Metrics presentation by Daniel James and Andrew Chen was amazingly detailed, candid and stock full of industry leading insights. I loved when Susan Wu put the virtual good economy vendors on the hotseat. David Perry of Acclaim, Gene Hoffman of Vindicia and several other panelists really delivered on their respective panels.

However, watching 7 hours of video is not for the faint of heart and not all of the sessions were covered by bloggers. So I decided to post-humously liveblog live-mindmap the video recordings. These are not the most readable mindmaps I’ve created as I focused on capturing detail, not on distilling the gist of the panels.

What Users Want – Branded and User-Generated Virtual Goods

Making Virtual Economies Work – Lessons from the Leaders

Virtual Goods and Social Networks

Metrics for Virtual Goods Businesses: The Whirled Case Study

Generating Real Revenue from Virtual Goods

Getting Paid – Building a Dominant Payments and Billing Strategy

Do leave a comment if you found the mindmaps useful!

Virtual worlds & social games investments defy downturn in October 2008, peak in July 2008

November 18, 2008

Note: this is part 2 of  blog post on VC investments into “Online games and Related Entertainment” segment. See also part 1.

The $1,7 billion top-line figure for “online game-like entertainment” VC investments in years 2007-2008 is a stupendous figure, and more analysis is needed to make sense of it and to see trends within the huge aggregate sum. The analysis on this post focuses almost solely on the Virtual worlds, Casual MMO, social games and casual games sector, as this is the sector in which my company Everyplay operates. My earlier post on this sector was titled “$350 million invested this year“, and with latest data that figure needs to be upped to $481 million.

The doom & gloom of the past month sure to get to any entrepreneur. Luckily, there is one sector that at least can claim to be counter-cyclical (see e.g. Lazard Capital’s and John Doerr’s comments, and NPD reporting 17% year-on-year increase in video game sales in October). There is further proof as this sector attracted ten VC investments in October to the tune of $53 million. Naturally these deals have been set in motion already before the financial crisis, but it’s very encouraging to see these deals close in the face of “R.I.P Good Times“.

Contents

Key findings

July 2008 was the biggest “organic” month so far for venture capital investments into virtual worlds, casual MMOs and casual & social games to date. Altogether 11 deals were announced in July totaling $71 million. The month’s investments were led by Zynga’s $29 million and Gaia’s $11 million funding rounds. July was the biggest “organic” month in terms of deals concluded as well as the total size of deals so far. There have been months dominated by huge deals (e.g. $100 million into 9You and $83 million into Big Fish Games), but those are one-offs and need to be excluded when looking at the bigger picture.

The investments in this sector have averaged around $20 million per month for 2007-2008. The investments into the sector continued strongly in October, which was led by $20 million funding for Oberon and $17 million funding for Playfish. The big question is what happens now. The first half of November has been very quiet on VC funding deals. It is likely that July 2008 will keep its peak month status for at least next 12-18 months, but we’ll eventually see larger months because the sector is young. New entrants will continue to flow in and the best growth companies will need further funding to reach their goals.

In the years 2007-2008 most of the VC money flowed into Virtual Worlds (39 deals, $171 million), followed quite closely by casual games and social games/apps. The average deal size at Series A is around $3-4 million, which matches the common wisdom for Series A.

The VCs investing into this sector read like the VC all star list (Benchmark, Accel, Kleiner Perkins, Draper Fisher Jurvetson, Balderton, Sequoia). Accel Partners is the top dog when considering both the number of deals and the size of deals participated in.

Investment rate

The Virtual worlds, Casual MMO and Casual & Social games sector that I’ve analysed in more detail in this post has been very attractive to VCs. The sector investments total an amazing $625 million in years 2007 and 2008 as shown in the diagram:

investment-rate

The $100 million 9You and $83 million Big Fish Games funding rounds skew the investment rate diagram a lot. By excluding them we get to a more “organic” investment rate, that has been averaging around $20 million per month in years 2007 and 2008 as shown in the diagram below:

investment-rate-excluding-9you-bfg

In this “organic investment rate” diagram there are two major peaks:

  • July 2008: 11 investments totaling $71 million, led by Zynga’s $29 million and Gaia’s $11 million funding rounds
  • October 2008: 10 investments totaling $53 million, led by Oberon’s $20 million and Playfish’ $17 million funding rounds

July 2008 shows the peak of investments with most deals and largest sum of money invested. On the face of the current market turmoil, it is very encouraging to see October 2008 to be a very strong month. One reason for October’s strong performance could be that companies are following the advice to “raise money NOW if you can”. If so, we should see a rapid drop off in investments in the coming months.  Given that November 2008 is starting to look like a dry month, this might be more true than us entrepreneurs would like it to be. Given the economic downturn I expect July 2008 to remain the biggest organic month for the next 12 months.

Most active VCs

The usual suspects populate the TOP10 lists of the most active VCs and the most heavily investing VCs. When you combine these two TOP10 lists, the most prominent VCs in this space read like the who’s who of venture capital (for comparison, see Fortune’s Midas list and Entrepreneur.com’s TOP100 early stage VC list). The diagram below shows the VC with largest fundings participated in (bars) and largest number of deals (line graph). When reading the table, please bear in mind that the investment bar graph shows the total value of deals the VC company participated in, not the actual amount a particular VC company has invested. So if two VC companies participated in a 5 M$ deal, then both companies are credited in this analysis with 5 M$ as there is no data available on how the investments are split between VC companies.

vc-company-activity

I’ve shown in the figure above also deals in the related sectors to showcase the VC company’s participation in the total $1,7 billion invested in years 2007-2008. Please note that investments in the related categories (MMORPG and technology etc) are only shown on the table above if the VC company also has made investments in the Virtual Worlds, Casual MMO, Social games and Casual games sector. Thus e.g. Providence Equity Partners that provided $300 million to Zenimax Media (MMORPG) has been omitted.

Accel Partners leads the pack when considering both the number of deals completed and the total value of deals participated in. Accel has been very active investing into developer-operators (e.g. Playfish and GameForge), but has also investments in related sectors (Mochi Media, a game advetising network and Raptr, a social network for gamers). Benchmark Capital is a close second with a large number of deals and almost as high total deal size. Benchmark has also been investing into developer-operators (e.g. Gaia, WeeWorld, Sulake, Grockit).

The figure below shows a selection of the most active VCs and their portfolio companies.

vc-portfolios

Overall it is clear that the sector has been very attractive to all of the most profilic VC funds in Silicon Valley and London. The companies that are able to attract investment from this all star cast of VCs are definitely on the top of their game.

Note: Balderton Capital is the former European office of Benchmark Capital. Certain deals may be listed under Benchmark, when they might have been done by Balderton (Benchmark Europe).

Distribution of investments by company category

My sector definition encompasses virtual worlds and casual MMOs (persistent, online worlds) as well as social and casual games, which makes the category quite broad. The sub-category that clearly dominates the investments in Virtual Worlds, that has taken the biggest number of deals as well as the largest total sum. Casual games are a close second on deal size thanks to the huge investment (83 M$) into Big Fish Games.

investment-category-dollarsinvestment-category-deals

Note: Please see my category definitions to understand how companies have been grouped and important caveats to the methodology.

Social games have been funded very seriously compared to the costs it takes to develop these games. The key reason I can think for the investments of this magnitude that there is a “landgrab” going on. The development costs of social games are neglible compared to the costs of developing a full-blown virtual world or a casual MMO, so the money is going into growing the businesses thru acquisitions and erecting barriers to entry (e.g. by investing into higher game quality). The competition between Zynga and Social Games Network is looking very much like the widget wars between Slide and RockYou. That duel has recently been turned into a three party free-for-all, as PlayFish has in one years time emerged as a very serious contender. With the most recent funding from Accel Playfish has the checkbook to play ball with Zynga and Social Games Network.

Unlike Zynga and SGN, Playfish hasn’t so far purchased any third party games or developers. It’ll be interesting to see who is going to be their first acquisition target, although with several titles in TOP10 on Facebook, they aren’t probably in a huge hurry to go a buying spree.

Average deal size

The average investment size in Series A is around 3-5 M$, which is exactly as you’d expect it to be. The seed rounds are quite large (averages even close to 1 M$ in certain categories), which is probably due to the fact that only high value fundings get the press spotlight, and thus the dataset doesn’t include many of the smaller deals.

average-investment

Distribution of investments by stage

The Virtual worlds, Casual MMOs and Casual & Social games sector is a young one. The majority of deals (# of deals and value of deals) are made in the Seed and Series A phase.

The list below summaries the deals from years 2007 and 2008 (to October):

  • Seed: 13 deals, worth 12 M$
  • Series A: 42 deals, worth 249 M$
  • Series B: 16 deals, worth 128 M$
  • Series C & later: 4 deals, worth 44 M$
  • Undisclosed stage: 27 deals, worth 193 M4

Here are timeline breakouts of the investments per funding stage.

investment-timeline-stages-dollarsinvestment-timeline-stages-deals

Data spreadsheet

The data on VC investments has been collected from publicly available sources including but not limited to

The data was gathered by Jussi Laakkonen and Adam Martin.The data is most accurate for year 2008. Year 2006 and earlier years have been only covered sporadically and typically only for companies that have received follow-up funding in year 2008. The data is provided AS IS and the authors make no warranties about its accuracy.

Download the full spreadsheet with categorizations:

cc-by-nc The data is licensed under the Creative Commons Attribution, Non-Commercial license.

Summary list of VC investments

A summary list of VC investments in the Virtual worlds, Casual MMO, Social games and Casual games sector is shown below:

Date Company Invested Category
Oct-08 Playfish $17,0 Social games
Oct-08 Metaplace $6,7 Casual MMO
Oct-08 Second Interest $0,5 Virtual world
Oct-08 Kirkland North $0,2 Social games
Oct-08 Booyah $4,5 Other
Oct-08 Ray Flame Entertainment $0,8 Casual MMO
Oct-08 Oberon $20,0 Casual games
Oct-08 Farbflut Entertainment undis Casual MMO
Oct-08 MindFuse $1,0 Casual MMO
Oct-08 Taatu $2,5 Virtual world
Sep-08 Challenge Games $10,0 Casual MMO
Sep-08 Big Fish Games $83,0 Casual games
Sep-08 RobotGalaxy $5,0 Virtual world
Sep-08 Hollywood Interactive $5,0 Virtual world
Sep-08 RobotGalaxy $7,0 Virtual world
Aug-08 Nonoba $1,7 Casual games
Aug-08 LOLapps $4,5 Other
Aug-08 Webcarrz $4,0 Virtual world
Aug-08 Knowledge Adventure $5,0 Virtual world
Aug-08 Dizzywood $1,0 Virtual world
Jul-08 Challenge Games $4,5 Casual MMO
Jul-08 Zynga $29,0 Social games
Jul-08 Virtual Tweens $1,0 Virtual world
Jul-08 Monte Cristo Games $7,0 Casual MMO
Jul-08 Playfish $1,0 Social games
Jul-08 Gaia Interactive $11,0 Virtual world
Jul-08 Six Degrees Games $7,0 Casual MMO
Jul-08 Social Gaming Network $3,0 Social games
Jul-08 Young Internet $4,7 Virtual world
Jul-08 Riot Games $7,0 Casual MMO
Jul-08 Atomic Moguls $1,0 Casual MMO
Jul-08 8D World $1,0 Casual MMO
Jun-08 Erepublik $0,7 Casual MMO
Jun-08 I’m in like with you $1,5 Social games
Jun-08
Lumos Labs $3,0 Other
May-08 Social Gaming Network $15,0 Social games
May-08
Grockit $8,0 Other
May-08
Caspian Learning $2,8 Other
Apr-08 Serious Business Inc $4,0 Social games
Apr-08 Kongregate $3,0 Casual games
Apr-08 Northworks undis Casual games
Apr-08 Club Cooee undis Virtual world
Apr-08 Akoha $2,0 Other
Apr-08 Metaversum several m€ Virtual world
Apr-08
Nurien Software $15,0 Virtual world
Apr-08
Bunchball $4,0 Social games
Apr-08
Play Hard Sports $5,0 Casual MMO
Apr-08
Numedeon $1,0 Virtual world
Apr-08
Eximion Undis Casual games
Mar-08
Hangout Industries $6,0 Virtual world
Mar-08
Playfish $3,0 Social games
Mar-08
9You $100,0 Other
Mar-08
Simmersion Holdings $1,9 Virtual world
Mar-08
Chapatiz $0,5 Virtual world
Mar-08
EveryScape $7,0 Virtual world
Mar-08
Fluid Entertainment $3,2 Virtual world
Mar-08
Gamook $1,5 Casual games
Mar-08
Handipoints $0,8 Virtual world
Mar-08
Alamofire $2,0 Social games
Mar-08 PopJax $4,7 Casual games
Feb-08 Dizzywood $1,0 Virtual world
Feb-08 Sparkplay Media $4,3 Casual MMO
Feb-08 Flowplay $3,7 Casual MMO
Feb-08 Atomic Moguls $1,0 Casual MMO
Feb-08 RocketOn $5,0 Other
Jan-08 C3L3B Digital $3,0 Virtual world
Jan-08 Zynga $10,0 Social games
Jan-08 Rebel Monkey $1,0 Casual MMO
Dec-07 Playfirst $16,5 Casual games
Dec-07 WildTangent $20,0 Casual games
Nov-07 Hidden City Games $15,0 Virtual world
Nov-07 Zweitgeist undis Other
Nov-07 Apaja Online $2,3 Casual games
Oct-07 Numedeon Undis Virtual world
Oct-07 Star in Me Undis Virtual world
Oct-07 GameLayers $0,5 Other
Sep-07 Emote $8,0 Casual games
Sep-07 Watercooler $4,0 Other
Sep-07 RocketOn $0,8 Social games
Aug-07 Spill Group undis Casual games
Aug-07 GameForge undis Casual MMO
Aug-07 Kongregate $5,0 Casual games
Aug-07 D2C $6,0 Casual games
Aug-07 Conduit Labs $5,5 Social games
Aug-07 Doppelganger $11,0 Virtual world
Jul-07
Weblo $3,2 Casual MMO
Jul-07
Grockit $2,7 Other
Jul-07 Geewa $2,0 Casual games
Jul-07 WatAgame $4,0 Virtual world
Jul-07 Three Rings $3,5 Casual MMO
Jun-07 Metaversum several m€ Virtual world
May-07 Frenzoo undis Virtual world
May-07 Multiverse $4,2 Virtual world
May-07 Avaloop Undis Virtual world
May-07 World Golf Tour several m$ Casual MMO
May-07 Two Way Media $10,6 Other
Mar-07 Kongregate $1,0 Casual games
Mar-07 Flowplay $0,5 Casual MMO
Mar-07 Gaia Interactive $12,0 Virtual world
Feb-07 Zweitgeist $0,6 Other
Feb-07 Virtual Air Guitar $0,2 Casual games
Feb-07 Doppelganger $5,0 Virtual world
Dec-06 Metaplace $5,0 Casual MMO
Dec-06 D2C $1,5 Casual games
Nov-06 WatAgame Undis Virtual world
Nov-06 Bunchball $2,0 Social games
Oct-06 Mind Candy $7,4 Virtual world
Aug-06 WildTangent $13,0 Casual games
Jul-06 Sulake $8,0 Virtual world
Jun-06 Stardoll $6,0 Virtual world
Jun-06 WeeWorld $15,5 Virtual world
Feb-06 Stardoll $4,0 Virtual world
Dec-05 Doppelganger $8,5 Virtual world
May-05 WeeWorld $5,5 Virtual world
Apr-05 Doppelganger $2,5 Virtual world
Jan-05 Big Fish Games $8,7 Casual games
Jan-05 Sulake $24,0 Virtual world
? Sulake undis Virtual world
May-04 WildTangent $16,5 Casual games

See the full table with details for this sector.

Category definitions

Much of the analysis done in this blog post is based on assigning companies to the categories. The companies are assigned to categories subjectively and only using publicly available info (i.e. no research has been done into actual user experience to validate the companies’ claims). Category assignment has been done solely by Jussi Laakkonen and doesn’t represent the opinions of Adam Martin. The categorization part is the weakest and most subjective part of my analysis, so you should take it with a ton of salt.

The categorization uses the terms Virtual worlds, Casual MMO, Social games and Casual games as defined loosely below:

Virtual world

  • free form play, not a lot of rules
  • large scale multiplayer, concurrent
  • some sense of world/place (e.g. rooms, gathering areas)
  • avatars
  • persistent world
  • typical example: Habbo Hotel, Second Life

Casual MMO

  • gameplay with defined ruleset
  • shorter sessions, more accessible than full-fledged MMORPG
  • more mainstream topics (e.g. sports, dance) than typical MMORPG
  • large scale multiplayer, concurrent or asynch
  • some sense of world/place (e.g. rooms, gathering areas)
  • avatars
  • persistent world
  • typical example: Maple Story, World Tour Golf

Social game

  • gameplay with defined ruleset
  • asynch multiplayer or small scale concurrent multiplayer
  • utilizes social graph and/or only available on a SocNet
  • limited or no use of avatars
  • typically persistent world
  • typical example: Friend for Sale, Who has the biggest brain

Casual game

  • gameplay with defined ruleset
  • single player or very limited asynch/concurrent multiplayer
  • no use of social graph
  • no use of avatars
  • non-persistent world (with the exception of leaderboards)
  • typical example: Bejeweled, Desktop Tower Defense

What this helpful? Where to dig in?

If you found this data and analysis to be helpful, feel free to shout out in the comments ;-). Also I’d be happy to hear about ideas on further analysis on the data. Any corrections (errors, omissions etc) are more than welcome!

$1,7 billion invested into Online Games and Related Entertainment in years 2007-2008

November 17, 2008

Note: This is Part 1 of a two part post. Part 2 with detailed analysis is also available. Cross-posted also at T=Machine.

Roughly a month ago I published a list of $350 million invested in year 2008 into virtual worlds, casual MMOs, and casual & social games. The blog post got a lot of coverage when it was published and Adam Martin of T=Machine contributed to the discussion and posted his own list which had a lot of European deals. We decided that the right thing to do would be to put those lists together. I also continued to search for further data and uncovered more deals from e.g. Avista Partners’ monthly video game briefing. I wanted to also see what the total “game-like” segment looked like, so I expanded my criteria to include core gaming MMORPGs, relevant technology providers and ecosystem players (e.g. payment processors). When I had all the data in and summed it up, I was totally and utterly amazed at the massive scale of investments.

Investments total $1,7 billion in years 2007-2008

The Online games and Related Entertainment segment has amassed a truly astounding $1,7 billion of VC investments in years 2007-2008. Of this staggering figure $625 million was invested into the “Virtual Worlds, Casual MMO, Social games and Casual games” sector, $712 million was invested into core gaming MMORPG sector and a further $326 million into related companies (e.g. technology and payment providers).

The diagram below shows the distribution of investments over the years 2007-2008 and the three sectors:

total-category

The $712 million invested into MMORPG developers/publishers reflects the high cost to play in this space. The cost of the development of a Triple A core gaming MMORPG starts at $50 million, but can easily skyrocket. The reason these high risk investments continue to be made are the 11 million subscribers of World of Warcraft. WoW’s revenues in year 2007 were $1100 million of which $517 million was pure profit. The lackluster success of recent entrants such as Age of Conan and Warhammer Online underlines how risky taking on WoW is, but despite this the lure of WoW-scale profits will definitely continue to draw entrants.

The biggest deals of venture funding in MMORPG sector were:

The biggest deals of venture funding in the Virtual Worlds, Casual MMO, Social and Casual games sector were:

Detailed analysis of this sector is available in Part 2 of this post.

Finally, the biggest VC fundings in the Other related sector were:

The data

The data on VC investments has been collected from publicly available sources including but not limited to

The data was gathered by Jussi Laakkonen and Adam Martin. The data is most accurate for year 2008. Year 2006 and earlier years have been only covered sporadically and typically only for companies that have received follow-up funding in years 2007-2008. The data is provided AS IS and the authors make no warranties or guarantees about its accuracy.

Download the spreadsheet:

Note: a spreadsheet with categorizations is available in Part 2.

cc-by-nc The data is licensed under the Creative Commons Attribution, Non-Commercial license.

The analysis – tomorrow

A deeper analysis of the VC activity in this segment is available in Part 2 of this blog post. My analysis focuses on the Virtual Worlds, Casual MMO, Social and Casual games sector, as this is the sector in which my company Everyplay operates. Topics covered on Part 2 include:

  • Monthly investment rates (peak months, current activity)
  • Most active VCs uncovered
  • Analysis on investments on company categories, deals stages and deal sizes
  • Updated data spreadsheet with company categorizations (subjectively assigned)

Customer development or why 9/10 startups fail

November 13, 2008

/disapprove by striatic at Flickr

/disapprove by striatic at Flickr (CC)

Why do startups fail? Is it for the ambitious technology that simply couldn’t be built? Is it for the lack of capital? Or is it because nobody wanted to buy what the company was offering?

According to Steve Blank, a lecturer at Stanford and a serial entrepreneur, 9 out of 10 startups fail from the lack of customers. Put more simply, nobody wanted to buy what they were making. Or as Marc Andresseen puts it, the companies never got to product/market fit. The difference between a successful startup and a failed startup is that the successful ones get out of the office and talk to the customers, study them, the market, competitors and by doing so validate everyone of their guesses (product, customer, market, channel, pricing, competition, positioning and so on) until they know exactly what they are offering and how to turn it into a successful business.

Isn’t this common sense? Isn’t absolutely vital that the top management of the startup intuitively understands what the customers are willing to pay for?

So why don’t we all have a process for developing all that customer insight? Why don’t we all have that process running next to the product development process? I don’t know why, but luckily Steve Blank is helping us to correct this fatal mistake. He offers the Customer Development Process, an iterative process running side by side with the product development process.

customer-development-overviewFrom Steve Blank’s Customer Development presentation at Slideshare.

I found about Steve’s work thru Eric Ries (he is the former CTO of IMVU). I’ve been an avid follower of his blog Startup Lessons Learned. IMVU was one of the first companies to implement the Customer Development Process and you can say they did it with great success as IMVU now claims over 20 million registered users and over a million dollars sold each month in virtual goods trade. Eric has also been contributing to the development of Steve’s process, and his diagram shown below nicely highlights the symbiotic relationship of these two vital processes:

customer-development

From Eric Ries’ Customer Development Engineering presentation at Slideshare

I really like Eric’s diagram because he calls it like it is: in a startup, the problem we are trying to solve is unknown (we have a visions, which by definition are imaginary or even hallucinatory) and our solution is as well unknown. Until we have customers on a mass scale paying us with honest-to-god money, we simply do not know what those customers really want. Best confront this truth and do something about it. That is what Customer Development is really about.

I’m halfway thru Steve’s self-published book The Four Steps to the Epiphany, which is an excellent book if you give it the time and love it deserves. It is also a book sorely in need of a good publisher (it deserves to be re-published) and a great editor to turn it from a raw diamond into the jewel it really is. Personally the book and the Customer Development Process is a godsent as it directly applicable to the situation I and my company are at this very moment (early stage venture). I’m working thru the book, doing the exercises, applying the learnings and I feel confident that our business will be a lot better for it.

Eric Ries does a great job of distilling the essence of the book in his blog post What is customer development? Here’s a quick summary from Eric, slightly tweaked by me:

  1. Get out of the building. Very few startups fail for lack of technology. They almost always fail for lack of customers.
  2. Theory of market types. Existing market, re-segmented market, new market: a theory that helps explain why different startups face wildly different challenges and time horizons.
  3. Finding a market for the product as specified. Find the minimum feature set required to get early customers.
  4. Phases of product & company growth. The book takes its name from Steve’s theory of the four stages of growth any startup goes through: Customer Discovery, Customer Validation, Customer Creation and Scale the Company
  5. Learning and iterating vs. linear execution. Applying iterative & agile practices to the whole business, not just product development

steve-blank-video1

The next step after Eric’s blog is to grab a hot cup of a coffee and sit down to watch Steve’s presentation at Stanford University’s Entrepreneurship course.

As an entrepreneur finding something this profound and useful exactly at the time you need it is absolute, pure gold. I’m putting what I’m learning from this to practice and I strongly believe our startup will be a lot more successful if we are able to apply the customer development process. If you are running a startup or bringing products to market, you owe it to yourself and your company to give this some serious thought.

Further resources

Learn more (many of items listed are from SKMurphy’s blog):

If you find further resources for Customer Development, please let everybody know at the comments.

Games at the Parliament

October 15, 2008

Neogames, The Association of Finnish Game Developers and FIGMA hosted an overview event on the Finnish games industry for the Members of the Parliament today. I had the privilege to participate, to talk about the origins of the Finnish game industry and the challenges it faces and naturally demo FlatOut to members of the parliament.

Riku Olkkonen from FIGMA and KooPee Hiltunen from Neogames gave an introduction of the industry:

  • In the year 2007 the Finnish game studios’ revenues totaled roughly 80 M€ and a total of 60 studios employed roughly 1000 persons in Finland and a further 300 abroad
  • In the year 2007 approximately 2,4 million game products were sold in Finland, which is the same figures as the number of people who went to movie theaters to watch movies
  • Only 4% of games sold were classified as for people at least 18 years old, while games rated for ages 3+ up amounted to over half of all games. Finland uses the pan-European PEGI ratings system.
  • Lack of education was highlighted as the key issue slowing the industry’s growth in Finland. Roughly 20-40 people graduate every year while the industry would employ around 150 people every year

There were a number of questions from the members of parliament including how piracy affects the industry (lots on PC, not really on consoles) and if the broadcasters/media houses interest in delivering content over multiple devices for one license fee affects games like it does movies or music (it doesn’t as games are tied to the hardware they run on).

Naturally, we had the time to also play! We had the Finnish-made FlatOut Ultimate Carnage from Bugbear, Golf: Tee It Up! from Housemarque and Reset Generations from Red Lynx on display as well as Wii Fit, Guitar Hero 3 and Grand Theft Auto 4. Member of parliament Eero Lehti made a very happy camper after he told me that he owns and plays FlatOut Ultimate Carnage. YEAH!

Wii Fit proved easily to be the most popular game at the event, with almost everybody wanting to try it. Pertti ‘Veltto’ Virtanen who had previously coached ski jumpers found himself very much at home playing Wii Fit’s ski jump as you can see below.

Guitar Hero 3 was also very popular. In addition to the members of parliament playing, I also challenged Housemarque’s Ilari Kuittinen to a couple fun matches (it was very close, so we need a re-match!). Rock’n’roll is very much alive even at the house of parliament ;-).

Overall it was a great opportunity for the industry to share information with key decisions makers in a fun and engaging way. Props to Riku Olkkonen and Koopee Hiltunen for organizing the event!

WOW epic mounts vs. Friends for sale

October 12, 2008

The game industry used to be packaged goods industry. We spent anything between six months to several years in product development mode trying to guess what the customers would want to buy, what we could do better than our competitors do, building technology, tools and content. When all was done, the ready game was shipped to the manufacturing plant and out would pour truckloads of shrink wrapped boxes ready to be hoisted on the shelves of GameStop, EBGames or at Amazon’s virtual shelfs.

For all its technological and media breakthrus, the games industry in the 1990s was following a business model borrowed from cereal manufacturers. We even didn’t have the long tail of movies , which have first box office sales, then pay-per-view TV, then premium channels, hotel channels, DVD sales, network TV, soundtracks… Well, you get the picture. All we had was a a couple of months to get the game sold at brick’n’mortar stores, and if we were lucky, the store would restock our title. The luckiest titles could see a release as a Bestseller title a year or two later at a discounted price.

Not terribly exciting is it.

Luckily broadband entered into the picture in late 1990s, and became prevalent in the early 2000s. Games could be delivered electronically as downloads, but a lot more importantly, games could be online services. MMOs like Lineage, Everquest and finally World of Warcraft (11 million users at last count) came to the market and attracted millions. Virtual worlds like Habbo Hotel (108 million registered, 9,5 million monthly users), casual MMOs like Maple Story and social playing sites like Stardoll (20 million registered users) appealed to audiences outside of the traditional gamer market.

But there’s no hiding the trouble.

PC single player market is dying

Max Payne, multi-million seller in early 2000s. Best known as a PC game, but sold vastly more on PS2.

Max Payne, multi-million seller in 2001 & 2003. Best known as a PC game, but already five years ago sold vastly more on consoles, especially on PS2.

As a mainstream market the PC single player market is dying. The main culprits are rampant piracy and the success of video game consoles. The situation is so bad, that releasing a PC version simultaneously to a console version of a game, you are pretty much guaranteed to loose out on a lot of sales. The PC version will be pirated typically before the game is available at retail, and many console gamers will get the pirated PC version and forgo buying the console version. We can argue the reasons, but the proof is indisputable. Game publishers are increasingly postponing the PC versions or cutting them completely, even if the added cost of developing a PC version can be relatively low.

You can still succeed with PC single player titles targeted at niche audiences (e.g. hard core strategy games). Downloadable PC casual games (see e.g. Big Fish Games) are doing quite well and The Sims are also doing quite well. The reason is simple: their demographic is less likely to pirate the game and increasingly these titles use some kind of online persistence to add fun to the game and prevent piracy.

PC online market is thriving

The solution to this PC problem is clearly evident. All PC titles need some type of online persistence and preferably online multiplayer support. It doesn’t have to be a full fledged MMO. You can start with relatively simple things like

  • Leaderboards, cups, challenges
  • Shared content
  • Shared actions (something I do has some effect on your gameplay)

Full-on, persistent world, massively multiplayer environments naturally are most resistant to piracy as well provide highly compelling reasons to play. WoW having 11 million great reasons (=users) going for it.

Core vs. social & casual markets

The core gaming market (PC single player, MMO, console games) is huge market. Its revenues from the vast majority of the $37 billion global games software sales (year 2007). This market is predicted to grow steadily at around 10% compounded average growth rate. The revenues are huge, but the audience size isn’t nearly as impressive when compared to what the social and casual gaming segments have been able to attract is just a few years.

Casual games, to which I include also casual console games like Guitar Hero, Singstar, Wii Sports, Brain Training and the like, sell in overall in the billions of dollars, and are the industry’s primary growth driver. It’s been two years since the launch of Nintendo Wii, and it still selling out. Guitar Hero launched a huge music game segment, that almost single handedly raised Activision as the world’s second largest games publisher (after merging with Vivendi’s game unit, the combined Activision-Blizzard is now neck and neck with Electronic Arts). These titles have expanded the definition of games, made the much more socially acceptable, and attracted millions after millions of new players. They’ve converted diehard opponents of digital games into fun-loving players. I can overstate how amazing this has been.

At the same time social games on social networks like Facebook and MySpace are the second largest category after “just for fun” apps like Funwall and Superpoke. These simple, addictive and often outrageously viral games attract at best over million monthly average users. The monetization has been primarily advertisement based, but new Cost Per Action (CPA) methods (Offerpal, Super rewards) as well as the sales of virtual goods are starting to make a difference. It has been claimed that Mob Wars is the best monetizing game application on Facebook and allegedly makes over $20 000 a day, which would mean well over a one million US dollars in yearly revenues.

I’ve tried to summarize my thinking about the core, casual and social markets in the diagram below as well as make some predictions on where the market is headed.

Please note that the diagram is a generalization and I’ve purposefully omitted all figures. You should take it is an opinion, not as a market research data.

Presentation

I did a 20 minute presentation on this topic recently at the Mindtrek conference. You can find my slides at Slideshare along with an audio track.

I blogged earlier about the excellent panel that followed the three presentations in the “Business of playing together” track.

So, what do you think? Is the PC single player market as doomed as I think it is? Are there going to be big returns on the huge investments VCs are making in the market as we speak?


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