01 April, 2012



Gabriel Leydon foresees the “true dominance” of mobile games coming (interview)

Posted: 01 Apr 2012 08:00 AM PDT

Gabriel Leydon is  a true believer in mobile games. With more than a billion mobile users, the chief executive of Addmired (which last week changed its name to Machine Zone) Leydon thinks that the mobile game opportunity is a huge one. Machine Zone has created a series of hardcore massively multiplayer online games such as Original Gangstaz, iMob 2 and Global War. These games are free-to-play titles that generate revenue via virtual goods, and all three of those are among the top 50 top-grossing iPhone apps.

Sunnyvale, Calif.-based Machine Zone announced that it had raised $8 million in a second round of funding from Menlo Ventures. Shervin Pishevar, former chief executive of SGN and partner at Menlo Ventures, is joining Machine Zone’s board. Pishevar himself said in an interview that very few mobile game companies have the chops to take the business to the next level in competition with huge companies such as Zynga and Electronic Arts, but he believes Ledydon can do so.

The company has gone through some big pivots. Addmired debuted as a Y Combinator startup in 2008 with a Hot-or-Not style social network dating app. But it pivoted to become one of the first free-to-play mobile game companies and now has rebranded itself as a serious game company with 40 million downloads. We caught up with Leydon, who will be one of the chairmen for the user acquisition topic of our VentureBeat Mobile Summit, for an interview and here is an edited transcript of our conversation.

GamesBeat: It is very interesting to get Shervin Pishevar on your board, as he was around at the dawn of the smartphone game busines.

Gabriel Leydon: Absolutely. He was right there with us at the beginning of the iPhone. He’s the only VC in mobile gaming with more experience than us.

GamesBeat: How far did that connection go back for you?

Leydon: A long time. When we made iMob, he was busy making Mafia: Respect and Retaliation. Which came out about two or three months after iMob. So we’ve been talking with each other since way back then. But we didn’t really connect until last summer.

GamesBeat: The name change, why did you do that?

Leydon: When we launched, we were a dating app. We did this big huge dating app (AddHer) on Myspace. And nobody was ever happy with the name, because it was not about what we became. By the time we hired everybody who works here now, they all wondered “What does that name mean? Why are we called Addmired when we’re making Original Gangstaz?” You know? We’re making all these adult-themed crime games and war simulators. We just kept it because we never did any press. We’re doing press now, so we thought, “Okay, since we’re finally coming out of develop mode, it’s our last chance to change the name to what we always wanted.” So we just did it.

GamesBeat: So Machine Zone just sounds a lot more game-like I guess?

Leydon: Yeah.

GamesBeat: How many people do you have now?

Leydon: We are 66 people currently.

GamesBeat: And how many downloads?

Leydon: I think it’s somewhere around 40 million by now. But that’s over a very long time. We were the first free-to-play guys for a while. We were January of ’09. You know Storm8? The reason they called their game iMobsters was because we had iMob. We were there a very long time ago. A different world. When we launched iMob I think there were less than 20 free role-playing games. None of them were online. We were the first online game.

GamesBeat: So you’ve been copied for a long time, then.

Leydon: Absolutely. We’ve been setting trends in the App Store for a really long time. Even the idea of incentivized downloads, how that works, came from iMob. We’ve been quietly innovating in the space. With the friend codes, we were the first to do invite by location. We did that three years ago. If you were near somebody else, via GPS, you could invite people to your mob. So we’ve been doing a lot of stuff for a long time. We just haven’t been taking credit for it. We were very small. And we decided last summer that it was time to go all the way.

GamesBeat: We’ve been tracking user acquisitions costs and it looks like they dipped back down again in January.

Leydon: Well, I actually disagree. It just went back up [Eidtor's note: Leydon is correct for February]. It’s higher than it’s ever been, period. What’s funny is, the question is, what happens when it goes too high? Well, that already happened like three weeks ago. It’s happening right now. It’s not a question of when it’s going to happen, it’s already happening.

GamesBeat: Holy cow.

Leydon: Yeah. It’s already happened. All the stuff everybody’s talking about, when is this going to happen? It already did. As soon as Gree and Zynga started competing with each other, that’s the moment it happened. Basically, right when Gree launched Zombie Jombie, everything changed. Because Gree has a tremendous amount of money and they’re basically buying out everything right now. They’re bidding up everybody. That scenario, the shakeout you guys were talking about, you are watching it in real time.

Filed under: games, mobile

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OMGPOP CEO tweets that only employee not to transition to Zynga was the “weakest” one

Posted: 01 Apr 2012 01:28 AM PDT

OMGPOP CEO Dan Porter tweets that his former employee is a failure

Last week, GamesBeat reported that Shay Pierce was the only OMGPOP employee to decline a position with Zynga after it bought the Draw Something developer. Pierce wrote an editorial for Gamasutra in which he explained that if he were to accept a position with the Farmville creator, that he would be obligated to sign away the rights to an iOS game that he authored in his spare time. Pierce refused, writing: “I don’t have a job, but I can sleep soundly at night knowing that I’m not working for any employer with whom I strongly disagree.”

Yesterday, OMGPOP Chief Executive Officer Dan Porter shot off a few messages on Twitter in an attempt to have the last word:

“The one OMGPOP employee who turned down joining Zynga was the weakest one on the whole team,” Porter tweeted. “Selfish people make bad games. Good riddance!”

Porter didn’t stop with that. In another tweet, the CEO said, “What’s so interesting about success is the number of failures who try try to ride on your back. Shay Pierce is just one of many….” Or in other words: They see me drawing something — they hatin’.

Porter’s response to Pierce is being seen by many as petty.

In a response to Porter’s comment, PopCap Director of Editorial and Social Media Jeff Green tweeted, “Time to uninstall Draw Something!”

Notch tweets to Dan PorterGreen is not the only one with a public reaction to the CEO’s opinion on Pierce. In a reply to Porter’s “good riddance” tweet, Minecraft-creator Markus “Notch” Persson wrote, “You’re an insane idiot!”

That’s not quite the end. On March 24, Porter wrote, “Games are fun, but they can be socially relevant too. Please share this. At Draw Something, by OMGPOP & Zynga, we just added the word HOODIE.” This was apparently done as a response to the Trayvon Martin shooting in which the unarmed black teenager was shot while walking home from the store. In the wake of that tragedy, Fox News personality Geraldo Rivera infamously said that Martin’s hoodie was as much to blame for his murder as the alleged shooter. The hoodie has since become a symbol of unity for those who support Martin’s family.

While Porter is apparently attempting to engage his product in a social issue, his suggestion that people “please share this” comes across as leveraging a tragedy to promote a game.

Draw Something is one of mobile gaming’s hottest properties right now. The Pictionary-clone is reportedly earning around $250,000 in revenue every day. The OMGPOP success story was capped off when the company was purchased for $180 million (with an additional $30 million in employee retention) by the biggest name in social gaming: Zynga.

After Pierce published his editorial on Gamasutra, Business Insider published a piece from an “OMGPOP source” suggesting that before Pierce turned down Zynga, he was about to be fired. The source claimed he took long lunches and had poor coding. In an email with GamesBeat on Thrusday, Pierce attempted to clear up much of the confusion.

“I never received any indication from my manager or company that I was performing poorly and ‘about to be let go,’” Pierce told GamesBeat. “An offer of employment was extended to me, thus I assume that they must have wanted to hire me.”

Pierce also made it clear that he did not work on the Draw Something team.

All of this doesn’t help Zynga with its public persona. Many gamers and developers have accused the company of being evil, as GamesBeat has detailed here. Zynga just paid millions of dollars for someone who is calling a former employee a failure. That can’t help with that persona. Especially if the the negative response to this incident on social media is any indication.

GamesBeat has reached out to Zynga and Dan Porter himself. As of this post, we’ve yet to receive a response.

Pierce decided not to join Zynga in part because he couldn’t get a clear answer on whether he could still own the rights to his Connectrode indie game.

[Update: Porter has now apologized for his tweets. And he sent us this email explaining his actions:

"Let me share my perspective on the record. The struggle to build and support Draw Something has been an emotionally draining and hard one. Many, many employees gave everything they had to make and support this game as it took off. These are guys and gals who will never be in the press, whose name people will never know but who are the kind of folks who work at omgpop and zynga and make the magic happen. It would not have happened if it weren't for them.

When the game blows up and we have the chance of a lifetime to do something special, and one employee, who didn't work on the product, and is more about his own games then the team, jumps in the press and becomes the story, it is very hurtful to all the people who are on team.

Working at a startup and sharing the ups and downs is a very emotional and bonding experience. To survive, everyone has to care about everyone else. When I saw how all the people who actually worked on the game felt after his article it was very hurtful. Sure it's business. But when you give blood, sweat and tears on something and someone who doesn't even work on the project, and prioritizes his own games as his own professional development over the team, becomes the story it is very demoralizing. It's grandstanding and I'm sure i was overly emotional because I wasn't thinking about Shay. I was thinking about the people who don't get in the press. When I think about what the team at omgpop gave, yes I get emotional.

So was my language a little harsh in the tweet. Yes it was. But my point is that it wasn't about Shay. It was about the 41 other people who made it happen. Those are the people I would throw myself in front of the train for and those are the people I want to celebrate.

In terms of hoodie - I spent almost ten years in educational non profit. I was a public school teacher in Brooklyn. I am passionate about social issues have given almost 1/3 of my professional career to working on creating equal opportunity for folks. I was so devastated by what happened in Florida that I wanted to do something through the game which is the main platform we have at the company. I do honestly feel like it can be socially relevant. I asked folks to retweet not to promote the game but because I felt like every company with a platform should do their best to help recognize social issues and do what is right in the world. I am really lucky that I've been able to do both - work with kids directly and work in business. As such, the things I leaned working in the south Bronx, east Harlem and crown heights Brooklyn with kids are always with me." ]

Filed under: games

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Obama to sign pro-crowdfunding JOBS Act into law Thursday

Posted: 31 Mar 2012 05:10 PM PDT

A piece of legislation designed to make crowdfunding a legal option for startups will be passed into law as President Barack Obama plans to sign the JOBS Act Thursday, VentureBeat has confirmed.

The Jumpstart Our Business Startups (JOBS) Act has already successfully made its way through the U.S. Senate and the House of Representatives, with some modifications, and will allow startups raising $1 million or less to let regular Joes and Janes (read: non-accredited investors) purchase a limited amount of equity in their nascent businesses via approved portals.

The legislation also eliminates the 500-sharehoulder rule, meaning that startups can wait longer before needing to publicly report financial data to the SEC and hold off on forced public offerings.

“On Thursday, the President will sign the Jobs Act,” press deputy secretary Josh Earnest said in a press gaggle on Friday.

News of the JOBS Act imminent approval started spreading on Twitter Saturday afternoon when Aol co-founder, Revolution CEO, and JOBS Act proponent Steve Case tweeted the revelation.

The entrepreneur-friendly initiative flew through the Senate with a 73 to 26 passing vote, and the revised law passed in the House with a 380 to 41 overwhelming majority. The legislation, popular with Democratic and Republican political parties alike, was already known to be supported by the White House and President Obama.

“The JOBS Act will help revitalize an IPO market that has suffered in recent years under the weight of market volatility and one-size-fits-all regulation,” Highland Capital general partner and National Venture Capital Association chair Paul Maeder said in a previous statement. “The passage of this legislation sends a strong and welcome signal to our most promising companies that the U.S. capital markets system is open for business.”

Filed under: VentureBeat

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Why Groupon is poised for collapse

Posted: 31 Mar 2012 01:46 PM PDT

Groupon was forced to restate fourth quarter earnings, sending its stock down 6% in after-hours trading. This surprised me as much as my $2 investment in the Mega Millions jackpot not paying off.

The reasons for Groupon's restatement were higher refund reserves and weakness in internal controls. These are issues I've repeatedly discussed. I raised them directly with Groupon PR in September (back when they still would speak to me) and I was assured that refunds weren't an issue for Groupon.

I also spoke with a former Groupon salesperson who claimed he was fired because he raised concerns about poor internal systems that didn't track deals correctly and complaints about poor risk management when it comes to running deals.

So what's happening at the coupon company?

Well, for starters, it's not a coupon company nor a marketing company. At its core, Groupon's U.S. business is a receivables factoring business, as I wrote last year. They give loans to small businesses at a very steep rate (the price of the discount plus Groupon's commission). They get the money to fund these loans from credit card companies such as Chase Paymentech. Groupon is essentially a sub-prime lender that does zero risk assessment. And as word continues to spread about what a terrible deal running a Groupon is for many categories of businesses, the ones that will choose to run Groupons are the ones that are the most desperate. For U.S. based businesses, the only time I can definitely recommend running a Groupon is if it is otherwise going to go out of business.

Another factor is that Groupon is selling bigger and bigger deals and many of these have requirements for use. Some deals have medical qualifications. The former salesperson told me about Groupons for a procedure called "cool sculpting". In this procedure, fat is frozen off the body. In order to get the treatment, patients must be medically qualified. But Groupon has no way of medically qualifying purchasers and will sell it to anyone. When they go to the doctor and find out that they aren't eligible, they call Groupon for a refund. If this is several months later, after Groupon has paid out the entirety of what it owes the provider, this can mean a refund loss for Groupon.

Travel is another risky category for Groupon. Unlike Expedia, Travelocity, Priceline, Jetsetter and nearly every other major travel provider, Groupon does not require consumers to pick their dates and confirm availability at the time of purchase. When a consumer finds he can't use his Groupon months later, he calls for a refund. Groupon also hides material restrictions on travel deals, something I pointed out in September and Groupon still hasn't rectified.

Because these are higher ticket items that cost hundreds or thousands of dollars, consumers are more likely to ask for a refund than on lower ticket items. In the short term, it means a revenue boost to Groupon, which the company needs as its once torrid growth cools. In the long term, it means refund losses.

The "Groupon Promise" is another risk factor. It's an overly broad promise designed to allay consumers' concern about using Groupons. Because it is so broad, it results in higher refund rates than would otherwise be the case.

Yet another concern is that Groupon does not track how much outstanding Groupon "debt" there is. No one in the world can tell you how many and how much Groupon value is outstanding. Unlike typical gift card sales, Groupon books revenue immediately and then does not show the Groupons on its balance sheet. By my estimates, Groupon has between $500 and $750 million in liabilities that it doesn't show on its balance sheet.

In theory, Groupon's exposure to that risk is covered by its refund reserves — but we don't know the size of those reserves. And as yesterday's restatement shows, the company’s calculated them poorly. Unless Groupon begins to do risk assessment on deals before they run, changes its payout terms to businesses, or drastically changes its refund policies, I expect refund rates to continue to rise. If they do any of those things, I expect revenue declines because it will make running Groupons less attractive to businesses and buying Groupons less attractive to consumers.

Groupon has also worked hard to hide its refund rates. While going through its S-1 process last year, Groupon continually revised its accounting. At one point, I discovered a way to calculate the company’s refund rates and found they had likely increased more than 40% year-over-year. In the next amendment to its S-1, Groupon changed its accounting again to bury that data.

Investors should also be concerned about the fact that Groupon's lockup should end in early May, releasing a lot more shares onto the market. I wouldn't be surprised to see Groupon trading in single digits after that and heading to zero within the next 36 months. Groupon's best bet is if it can acquire its way into a sustainable business model; I'm doubtful that will happen considering the companies it has purchased to date.

With its restatement, Groupon said that its guidance for the first quarter remained the same as earlier. Given that its lockup should end shortly before it reports first quarter results, I would take that assessment with a mine full of salt.

Rocky Agrawal is an analyst focused on the intersection of local, social and mobile. He is a principal analyst at reDesign mobile. Previously, he launched local and mobile products for Microsoft and AOL. He blogs at http://blog.agrawals.org; and tweets at @rakeshlobster.

[Top image credit: Losevsky Pavel/Shutterstock]

Filed under: VentureBeat

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Meet Virgin Volcanic: A vehicle for journeying to the center of the Earth

Posted: 31 Mar 2012 01:19 PM PDT

Screw space travel, the next big thing in world exploration is way hotter.

Sir Richard Branson and Virgin have today announced Virgin Volcanic, a vehicle that will take three people to the molten lava core of active volcanos.

The corkscrew-shaped vessel, named VVS1, will dive deep into the earth’s core beginning in 2015 and start with trips to the five most active valances in the world: Etna, Stromboli, Yasur, Ambrym, and Tinakula. Branson, a self-professed “Volcanaut,” will be joined by celebrity pals Tom Hanks, Will.i.am, Seth Green, Arnold Schwarzenegger, Stephen Hawking, and Barbara Kopple on the first few volcanic expeditions.

“A window seat for a journey to the liquid core of our home planet would be a bargain at twice the price,” Hanks said.

Sounds like one hot ride, right? But before you start pinching your pennies — a deposit alone will set you back 100 million of them — and packing your bags (what does one wear when journeying to the earth’s core?), let us take a little commercial break and remind you that the Virgin Volcanic is being introduced on the eve of April 1.

Sorry sojourner, this volcanic craft is as real as Google’s 8-bit Maps cartridge for NES.

Kudos to Virgin, though, as the brand has smartly gone with a strong social push of the Vigin Volcanic hoax on Facebook, Twitter, and Google+. Branson, himself, is tweeting up a storm about the launch. One might even go so far as to call the campaign — wait for it — groundbreaking.

Filed under: VentureBeat

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Apple’s Siri sued again

Posted: 31 Mar 2012 12:36 PM PDT

Siri is such a sad disappointment to some iPhone 4S buyers that the voice-activated virtual assistant now finds herself a defendant in yet another class action suit.

Tuesday, plaintiff David Jones filed suit against Apple in a Los Angeles U.S. District Court for spreading “false and deceptive representations” of Siri’s skill-set, as first reported by the Los Angeles Times.

“Apple’s deceptive commercials diverge greatly from the actual functionality and operation of the Siri feature as experienced by Plaintiff and fellow consumers,” the suit argues. “For example, in many of Apple’s television commercials, consumers are shown using Siri to make appointments, find restaurants, and even to learn the guitar chords to classic rock songs. In its advertisements, Apple depicts these tasks as easily accomplished ‘just by asking’ Siri.”

Alas, for Jones, these tasks were not as easy as he had envisioned. The suit is asking for damages, in the form of monetary compensation of course, for Jones and fellow deceived iPhone 4S owners.

Siri, not the perfect assistant by any means, is labeled as a beta offering by Apple and has received mixed reviews from her millions of masters. A small 55 percent majority are happy with her virtual assistance, according to a third-party survey, but few are using the feature to its advertised potential.

Like Jones, Frank M. Fazio felt so slighted by Siri that he filed a class action complaint against Apple, making Siri the scapegoat in two lawsuits against Apple’s iPhone money-making machine (read: obvious target).

I asked Siri why she was so disappointing, but the topic was of zero interest to her. “We were talking about you, not me,” Siri told me.

Photo credit: willsan/Flickr

Filed under: mobile, VentureBeat

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As tablet usage grows, can publishers evolve fast enough?

Posted: 31 Mar 2012 10:03 AM PDT

As the buzz around the new iPad launch continues, both traditional and online publishers are "caught between the gravitational pull of the legacy tradition and the need to chart a faster digital course." That was a key finding in a recent Pew Research Center study on the state of the publishing industry.

That "pull" was highlighted by Paul Rossi, the Managing Director and Executive Vice President of the Americas for The Economist at a recent digital publishing conference. Asked by the moderator, "What keeps you up at night?" he answered, "What worries me is the flurry of excitement over an iPad giveaway and there are a pile of The Economist magazines outside on the table."

But in the recent Pew Research Center study, the outlook of publishers is troubling. Executives were hesitant to risk change due to "cultural inertia," which makes adapting quickly to new technology advancements difficult. "Some of those we talked to seem frustrated and even uncertain about how to proceed," said Tom Rosenstiel, Director of the project. "But we also found signs that, if you can break out of old cultural patterns, there is another way." The question is, are publishers ready to explore the new territory of tablets?

The tablet is here to stay: it’s time to adapt

For publishers, the tablet is a game changer. It's a mobile device that has a form-factor big enough to deliver truly engaging experiences that can be monetized in new ways. IDC projects that there will be over 106 million tablets shipped in 2012, up from its previous forecast of nearly 88 million. In a recent report from Rhythm New Media, full-page display ads on tablets have a 21 percent engagement rate compared to a 9.4 percent engagement rate on the same ad unit on smartphones. Clearly, these are promising signals that the tablet, after many false starts over the years, is finally ready for prime time.

While publishers are waking up to the opportunity, they are slow to capitalize on this burgeoning new channel, in great part because of two reasons. First, they are daunted by the complexity of delivering their content to tablets that requires a completely different content curation and engagement strategy than for the Web or smartphones. And second, publishers are concerned that mobile advertising on the tablet might negatively impact CPMs.

Today marks an important inflection point. If publishers fail to move quickly enough, or create flat experiences that fail to take advantage of the inherently interactive nature of mobile devices, then they are putting their businesses at risk.

Embrace evolution: tablets require a new approach

It's seductive to think that publishing on a tablet is easy. Hypothetically, all content publishers would need to do is extend their existing publications and deliver them onto a tablet as they appear in print. And, online publishers might be tempted to create heavy apps that dynamically query and deliver content from their existing content management system. Both approaches fall short.

What publishers need to deliver is, in the words of Paul Rossi, "print plus" — a tablet experience that combine the dynamic and interactive capabilities of the web with a print-like elegance and sophistication. At this point, there are several tablet apps that demonstrate the power of "print plus" such as The Economist, Zappos Magazine, The New York Times, PopSugar, Wired, and Tweek from IndiaTimes.

The payoff: Greater engagement and monetization

Consumers are often spending more time reading publications on their tablets (or searching for apps that are not created yet) than with the print edition, which bodes well for incremental advertising sales. While more digital advertising networks are offering mobile extensions, publishers still think about the web-based model of traditional banner ads that don't take advantage of a tablets' valuable real estate and uniquely "lean back" experience.

For example, The W Magazine, a property of Conde Nast, has evolved their engagement and advertising strategy, as evidenced in their recently launched tablet app–The Daily W. Each month, they work with an exclusive sponsor, such as Calvin Klein or Michael Kors, to deliver a beautifully branded rich-media experience persistently available throughout the app. And, it doesn't feel like an ad–but an exclusive video. By moving beyond traditional banner ads, publishers can create immersive and engaging experiences that are well monetized.

Publishers can thrive in the next era of tablets

The savvy content publishers are smart to understand that tablets are not a threat, but an amazing opportunity to extend the their business and engage more deeply with readers while creating new monetization models. Now is the time for the industry to make an evolutionary leap forward.

PJ Gurumohan is CEO and co-founder of GENWI, which focuses on cloud publishing for mobile. He manages the overall strategy and operations, with an emphasis on growing the brand and business. He has held various engineering and market analyst positions at IBM, Arizona Tech. Enterprise, and US Airways.

Photo Devindra Hardawar/VentureBeat

Filed under: media, mobile, VentureBeat

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