Is $7.5 the average cost of install from Facebook mobile app ads?

Quick back of the envelope math:

Facebook results Q3/2012 (before mobile app install ads launch)

• Mobile ads: 14% of total or $150 million (TechCrunch)
• Mobile MAU: 604 million (FB investor relations)

Facebook results Q1/2013 (investor call highlights success of mobile app install ads = big growth & revenue driver)

• Mobile ads: 30% of total or about $373.5 million (FB investor relations)
• Mobile MAU: 751 million (FB investor relations)
• Install ad results = 25 million installs driven globally though iOS App Store & Google Play store (TechCrunch)

Assuming other mobile ads grow at the same rate as the size of mobile audience: $150M * (751/604) = $186.5 million, or 50% of mobile ad revenue. Update: to be clear, this is an assumption. Non-install mobile ads could be growing a lot faster, say 30% faster than MAU, that is, grow a total 67% from Q3/2012 to Q1/2013 ($150M to $242M).

Keeping the original assumption mobile install ads grossed $187 million.

FB mobile ad CPI high end estimate = $187 million / 25 million installs = $7.5 / install

If we assume non-install ads grew 30% faster than mobile MAUs, then mobile install ads grossed $131 million.

FB mobile ad CPI low end estimate = $131 million / 25 million installs = $5.2 / install

To put this into perspective, mobile CPI from video ads (nearest in quality to FB ads) go for about $3 at volume.

Updated above: the key assumption here is the growth rate of the other mobile ads. It is possible that my estimate of 67% growth of non-install mobile ad revenue in 6 months is low, but that would mean that brand advertisers suddenly decided to really get on board with mobile ads. Facebook itself has really only been vocal about the how good results mobile app install ads are providing, which leads me to believe that the growth on non-install ads is not as strong as the takeup of install ads.

World changing entrepreneurs & companies start small

(not really back to blogging, but had a spare moment and thought to blog after a long time).

I was reading up today how Dustin Moskovitz (Facebook co-founder, now Asana founder), Peter Thiel & Max Levchin of Paypal fame et al were lamenting at Techcrunch Disrupt how the startups in the valley don’t do enough to “change the world”. I found myself nodding as well as shaking my head.

Sure, we’ve got enough of people trying to solve photo sharing. Like films (Deep Impact, Armageddon) there seems to be trends that follow-on entrepreneurs pile on. Cloning and iteration do benefit the industry, but you also want folks to working on something new and innovative. Agreed with these gentlemen there.

At the same time it boggles my mind that these awesome entrepreneurs are pooh-poohing companies that start small. Facebook started out as a hot-or-not clone called Facemash. Mark Zuckerberg gave an interview in 2005 that there probably wouldn’t be much more to be done outside of college & university audiences. Peter & Max started Paypal with a relatively small concept of beaming money from a Palm Pilot to another.

I believe world changing companies and entrepreneurs start small by necessity. When you find traction, you scale both as the company and as the entrepreneur. Dustin, Peter and Max have scaled and so have their ambitions and their point of view. I’m sure they remember exactly where they come from and how they started small, but they see “wider” now. I don’t think they are dishing the best kind of advice though. Yes, you need a vision for a big company that at best times will change the world for better, but you absolutely need to start small. Unless you already co-founded Facebook, Paypal, Genentech, AdMob, Google, … and can afford to short circuit the process (of scaling yourself as an entrepreneur & resources for your company).

Start small. Scale when you can. Work towards a big vision.

On Friends, Family and Funding

It’s hard to believe it’s been only just over 9 months from the launch of Applifier on April 25th 2010. I haven’t blogged at all during that time as I simply haven’t had the time or energy for it.

Mark Suster recently wrote an excellent article on the rollercoaster ride of entrepreneurship. I’ve been through that rollercoaster ride amped up with a few jet engines strapped to my back in those nine months. When we launched Applifier together with fellow social game publishers, I had no idea that the idea would grow to became a successful service reaching over tens of millions monthly active users. I was only trying to survive.

Everyplay (as our company was known then) was at the brink of death with a only a few months of cashflow left. Out of that desperation came the idea to try cross-promotion across small and medium sized publishers. It was the opportune time and we executed. But it would have not worked without the trust and support of our launch members. I’m incredibly thankful for their support, guidance and help.

Thank you Nabeel, Daniel, Raph, Jason, Keith, James, Stan, Moo, Luke, Rex, Magnus and Johan.

Applifier was founded to work for publishers. It is a privilege to work for so many great companies and see their games succeed.

Come mid-summer 2010 we were running on fumes. Money was nearly gone. Applifier was taking off like a rocket. Kamu Town, our game, languished. I had an obvious, but a very difficult decision to make. The vision I had crafted and promised to our team had not realized. We weren’t going to make it with games. The hardest day arrived when I had to face the facts, stop all game development and layoff good friends from the company. We ended up drinking and being merry the same night and parted ways with a ton of respect for everybody. I didn’t stop working for my former employees until I found them new employment at great companies like Rovio and Digital Chocolate. Personally one of the coolest things that Applifier has made possible is that I was able recruit back one of the guys I had had to lay off. Makes me smile.

Thank you Matti, Jussi and Pekka for believing in my vision and going the extra mile. It was a privilege to work on Kamu Town with you.

At the same time Applifier was growing explosively, but were a total nobody. An unknown, obscure Finnish startup trying to raise money in the Valley and not even knowing who to talk to. I had some ideas of investors I should try and reach, but I didn’t know them. Fortunately many great friends believed in us and put their reputation on the line to introduce us to the right people.

Thank you Paul, Wili, Jyri, Brett, Frank, Pekka, Josh, Taneli, Jukka.

Those warm intros opened the doors and our traction kept the doors open. We were up to around 30M MAU in reach in just a few months, but at the same also nearly out of cash. Applifier was delivering great results to its publishers, so our graphs continued to go up and to the right. If anything, that moves things forward in a funding round. It sounds cliché, but it is absolutely true.

The saying is that a Valley investor won’t invest into a company to whose office he can’t drive to. To my surprise I found that to be untrue. We pitched nearly 40 seed investors and only one outright turned us down because we aren’t a Delaware corporation. Everybody else was ok as long as the legal & tax impact of investing into Finland were known and the CEO would move over to the valley. (yes, that’s were I’m headed)

Traction was definitely the thing that helped investor to get over the “Where in the world is Finland?” issue. The cross-promo model worked and our publishers got great results from using Applifier. The technology worked extremely well too, but only because Matti and Jalmari, our technical co-founders, totally outdelivered re-writing Applifier’s systems several times over and working days and nights to keep up with the amazing load.

Thank you Matti and Jalmari. I couldn’t have found more competent and outstanding technical co-founders.

We were fortunate to meet several great investors, many of whom went out of their way to help us. The decision who to bring on board was not a trivial one. We were “getting married”, but unlike a marriage, there would be no option for a divorce. In the end our decision came down to choosing investors who were entrepreneurs themselves and whose own investors were entrepreneurs.

It’s great to have MHS Capital, PROfounders and Lifeline on board. These seed funds’ own investors are all successful entrepreneurs. It’s been an absolute privilege for me to talk with Ali Partovi (who backs MHS Capital), one of the founders of Link Exchange, who were the true pioneers of the cross-promotion model in the pre-Google days. So much in common with the businesses even if they are separated by over 15 years. Jyri, David and Lars are all successful entrepreneurs with huge domain expertise. Mark at MHS Capital, Sean & Rogan at PROfounders, Petteri, Timo, Jarkko and Ilkka at Lifeline all think and act like entrepreneurs.

Tekes, the Finnish funding agency for technology and innovation, has supported our R&D efforts since day 1. We are thrilled to join their Young Innovative Companies and show that fast growth, international startups can be created in Finland just as well as anywhere in the world.

Thank you Mark, Sean, Rogan, Jyri, David, Lars and Pauli for backing our vision.

While I was galloping around the world and obsessing over Applifier’s offering, the one person that kept things going at Applifier HQ and provided a steady hand to everything was Pekka, our fourth co-founder. Pekka and I go ways back as we’ve together run ASSEMBLY the largest Finnish computer festival since early 1990s.

Thank you Pekka, for being a friend and a co-founder for close to 20 years now.

During the fall of 2010 we’ve built up our team and have had incredible success in recruiting awesome folks whose work is now starting show through our feature launches like retargeting, our new network for web games and several cool things that will launch in the near future.

Thank you Teemu, AT, Antti, Garo, Pekka, Tuomas, Mika, Eemu, Juho and Reina.

This rollercoaster ride has been a thrill, but combining it with a family of two young kids makes for a busier life than I could have ever imagined. The understanding, support and love my wife Eija has given me over these months is beyond words. That she would resign her own job and relocate to a foreign country that she has never been to is simply amazing and humbling to me.

Thank you Eija for your love and support.

I’m privileged to be on this journey and work with so many talented people, work for awesome publishers and have the advice and support of people I respect.

Applifier is the creation of everybody involved. Thank you.

Why we didn’t apply to Seedcamp or running a startup in your 30s

Seedcamp is an amazing program for European startups. The best and brightest of European startups compete for a spot in the Seedcamp week in London. The week is stock full of amazing workshops, tutorials, hands-on training and perhaps most importantly world class networking with European and US serial entrepreneurs, investors and deal makers. If you are chosen as a winner the Seedcamp organizers (The Accelerator Group) will invest €50 000 at a quite rational valuation.

Sounds perfect for any startup. So why didn’t Everyplay apply to Seedcamp? Double why as I even participated as a mentor in the Seedcamp Helsingborg event?

The truth is yes, I really wanted to apply because I love the concept, but it is was made impossible by the “extended Seedcamp concept“. The main use for that invested €50 000 is to bring the core members of the startup team to London for three months to take the company further. By applying to Seedcamp you agree to this.

Let’s just stop there for a moment. This works perfectly for 20-somethings that don’t have obligations to anybody but themselves and who can just pack a suitcase and go. It also requires that your core team is quite small, so that you can get your whole core team over to London.

The concept fails when you or any core member of your team is married, has kids or in general has a life outside of the company. It also fails if you can’t bring all core team members over to London as otherwise you are totally impairing your company’s progress at a very sensitive stage by splitting the team into two (one part staying at home base and another part in London).

Everyplay’s core team has several people who are over 30 year old, are married and have kids. Packing up our lives and moving to London for three months isn’t an option, so we had to pass on Seedcamp. To be fair, this is not dig on Seedcamp. They are just doing the same as Y Combinator is doing in the States.

However, it is interesting to think about this selection criteria in the light of research results reported by TechCrunch that the average founder of a high-growth company launched his venture at age 40. I believe Seedcamp is limiting itself unnecessarily with this “move to London for three months” requirement.

(CC) by tibchris on Flickr

Seedcamp aside, the bigger question is how can one succeed as an entrepreneur in a high tech startup and have a family life. Steve Blank recently posted about how he and his wife managed to stick together and raise their kids while going thru a couple startups. My own experiences and arrangements are very much like his.

The reality is that it feels like running two startups in parallel. It is physically, mentally and emotionally taxing, but also immensely rewarding. At the risk of sounding corny, seeing things thru a child’s eyes is eye opening. Being a parent is a monumental, continous learning experience. It does sound just like running startup =) and I actually do think that having an entrepreneurial mindset really helps in parenting.

I like to compare running a startup to having kids as both bring with them higher emotional highs and lower lows at a lot faster pace than before. With that in mind, it is easy to justify Seedcamp’s and Y Combinator’s selection criteria  – less hassle, just focus on the startup. But with age comes victories, mistakes, experience, and possibly even expertise and insight. To quote a recent post on Both Sides of the Table, one of my favourite VC blogs:

“Good judgment comes from experience,

but experience comes from bad judgment“

The finalists for this year’s Seedcamp were announced today. Congratulations and best of luck to everyone!

I wish I could have been there too.

Why HeyZap Coins and Mochi Coins fall short

Recently both HeyZap and Mochi Media launched virtual goods platforms for Flash games. In short they allow players to purchase game items with hard currency. Want to kill zombies more effectively? Buy this $0,05/600 Mochi coins double-barrel shotgun! With virtual goods being the “new advertising” as far as internet business models go, why does this effort fall short? Jussi, we thought you loved virtual goods!

Oh yes, I still love virtual goods. There is nothing wrong with the basic premise of the service offered by HeyZap and Mochi Media, but plenty of issues with trying to monetize primarily single player Flash game experiences. It’s the classic “If a tree falls in the forest, and nobody is there to see it, does it really fall” problem. I can buy a better shotgun, but without other players, my friends and my rivals , what is the point? Why would I bling out my virtual house if my friend’s can visit? Is there anybody to listen when I boast about my exploits? Is there anybody to best? Anybody to share this experience with?

Due to the nature of the games they serve HeyZap and Mochi Media are currently limited to effectively selling you “cheat codes“. It’s a hollow experience without the social context offered by persistent multiplayer games (e.g. MMOs or social games), and I don’t expect this to save Flash games developers. In HeyZap’s and Mochi Media’s shoes I’d be investing heavily into providing the tools to let Flash developers create these persistent multiplayer experiences (Nonoba is doing it). However, as a Flash developer I wouldn’t wait – I’d jump ship to social games this instant (massive & free distribution, social context, paying customers = the win).

Further reading

• VERN: Why people buy virtual goods?
• Virtual Goods Insider: Five reasons why people send virtual gifts
• Viximo: Top 3 reasons people buy virtual goods
• Daniel Cook: A Flash Love Letter

Mentoring at Mini-Seedcamp at Helsingborg on 5th of May

Seedcamp is a catalyst for European startups. The main event is a week long bootcamp for handful of pre-qualified European startups in London. Fellow Finnish start-up Scred was selected to participate last fall. I chatted with Kristoffer from Scred after the event and he was very impressed about the learnings they were able to take away from the event.

So I was definitely excited when I got invited to act as a mentor at one of the Mini-Seedcamps being held across Europe. Karri and the crew at the ever-so-fantastic Arctic Startup blog recommended me to the Swedish organizers of the Helsingborg event held on 5th of May and I jumped at the chance to participate.

The Mini-Seedcamp mentors are VCs and serial entrepreneurs including Daniel Blomquist from Creandum, Hjalmar Winbladh from Rebtel and Thomas Weilby Knudsen from Northcap Partners.  And yours truly. It’s an interesting situation to be a mentor when we are down in the trenches at Everyplay (with nothing public to show yet). I can’t offer recent “here’s how I’ve succeeded” type of lessons. Instead I can offer “here ‘s what I think works” and “this is how we are doing it”. There are definitely war stories and lessons learned in how Everyplay got off the ground, the 17+ years spent as entrepreneur in running ASSEMBLY (6000+ participants every year, over 200 person volunteer workforce) and the parallels between pitching video games to game publishers and pitching startups to VCs.

I expect to learn at least as much from being a mentor as the startups can learn from the successes and follies I’ve encountered on my road to Mini-Seedcamp at Helsingborg.

Twitter for the geographically-challenged outsiders

To continue on my previous post on how to survive 8727km from the Silicon Valley, here are a couple of practical tips on how to get the most out of Twitter.

Search for relevant keywords

Twitter’s Advanced Search is great tool for finding interesting people and topics serendipitously. Define the keywords you are interested in, run the search  and subscribe to the RSS feed. My search terms are “Jussi Laakkonen”, “social games”, “casual games”, “funware” and “virtual goods”. See who tweet about the topics you are interested in and what the discussion is.

Trawl thru the following lists

This tip comes from @mitch_olson of Small Worlds, who trawled thru my following list to find new people to follow. If you find an interesting person to follow, check out who they follow to find more interesting folks.

Add yourself to WeFollow

Simply tweet “@wefollow #yourtag #yourtag #yourtag” to classify yourself to make yourself more foundable. First, checkout the most popular tags on WeFollow. To find more interesting people to follow check the WeFollow lists on the tags you classify yourself with.

Re-tweet and see who re-tweet you

Re-tweeting is about sharing something valuable. You are doing a service to the person who you are retweeting as well as to the people who follow you. See who re-tweet you for more interesting people.

See who they are conversing with

Often you follow a particular person, and they are chatting away with @ replies with  somebody you are not yet following . See who that other is, perhaps she will be worth a follow.

Establish a tweeting style & reinforce it at your profile

I personally use Twitter for business and tend not to share personal stuff or tweet funny jokes. Your followers will expect consistentency, so when they check your profile, they’ll decide at an instant if they want to follow you or not.  Your latest ten tweets and secondarily your 160 char description play a huge role on who follow you.

Check before you follow

The corollary to the above is to check the profile before you follow someone. I’m picky about who I follow people to avoid cluttering my stream (if only Tweetdeck had a longer backlog of tweets ;-)).

Hashtags

Hashtags make some sense out of Twitter, especially during conferences like SXSW. Tweetdeck nicely supports hashtags by integrating to the Twitter Search. It’s a godsend for tracking topics especially when I’m 7-10 timezones away and top discussions take place in the middle of the night (for me).

Tweetdeck

Some prefer Thwirl, but Tweetdeck is the way to go ;-)

Read Guy’s advice

Guy Kawasaki has further advice on How to use twitter as twool.

If you have more advice for geographically-challenged Twitter users, please share it in the comments!

Virtual Goods Summit 2008 mindmaps

Before 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

• Mindmap (MindMeister, view online)
  
• Mindmap (PDF download)
• Liveblog (Adam Martin at Free2Play.Biz)

Making Virtual Economies Work – Lessons from the Leaders

• Mindmap (MindMeister, view online)
  
• Mindmap (PDF download)
• Liveblog (Adam Martin at Free2Play.Biz)

Virtual Goods and Social Networks

• Mindmap (MindMeister, view online)
  
• Mindmap (PDF download)
• Liveblog (Adam Martin at Free2Play.Biz)

Metrics for Virtual Goods Businesses: The Whirled Case Study

• Slides (Flickr)
• Mindmap (MindMeister, view online)
  
• Mindmap (PDF download)

Generating Real Revenue from Virtual Goods

• Mindmap (MindMeister, view online)
  
• Mindmap (PDF download)

Getting Paid – Building a Dominant Payments and Billing Strategy

• Mindmap (MindMeister, view online)
  
• Mindmap (PDF download)

Do leave a comment if you found the mindmaps useful!

Virtual worlds & social games investments defy downturn in October 2008, peak in July 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
• Investment rate averages at $20 million a month
• Most active VCs – an all star pack led by Accel Partners
• Distribution of investments by company category – Virtual Worlds attracted most money
• Average deal size – Series A averages at $3-5 million
• Distribution of investments by deal stage
• Data spreadsheet
• Summary list of VC deals
• Category definitions

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:

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:

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.

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.

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.

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.

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.

Data spreadsheet

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

• VentureBeat
• PaidContent
• Virtual World’s Management
• Avista Partner’s video game briefing
• TechCrunch
• CrunchBase

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:

• Excel format
• CSV format
• HTML format

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

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:

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:

• $300 million: Zenimax Media
• $175 million: Shanda Interactive Entertainment
• $30+70 million: Trion World Network
• $49 million: Realtime Worlds (which also received $31 million in Dec 2006)
• $40 million: Turbine

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

• $100 million: 9You
• $83 million: Big Fish Games
• $29 million: Zynga
• $24 million: Sulake
• $20 million: Oberon

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

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

• $24 million: Live Gamer
• $17 million: GameDuell
• $16 million: K2 Network
• $15,5 million: In2Games
• $14,4 million: Ukash

The data

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

• VentureBeat
• PaidContent
• Virtual World’s Management
• Avista Partners’ video game briefing
• TechCrunch
• CrunchBase

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:

• Excel format
• CSV format
• HTML format

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

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)