I've stayed pretty "mum" (am I spelling that right?) on the whole goko/ISP debate.
I guess if I leave a few comments here on just one of the thousand threads it will slip by relatively unnoticed. For those who care:
(FWIW by background is Marketing. Trained at P&G, then completed an MBA and joined a global consulting firm (doing more marketing - mainly in telecom), then switched to online to run loyalty and database marketing for one of the big online travel companies. Left there about two years ago and now I run on- and off-line marketing for a company that helps people find homes/care for their aging parents. I know a lot of you have complained about marketing tactics designed to make more money... Well, in done cases, that's what I do. You know how hard it is to cancel your phone service? Depending what country you live in, I designed that system... I also help segment custter bases, so if you don't have money, I can still get you to pay something (while not taking away my profit on the people willing to spend more)
With that as a lead-in...
My opinion is Jay is not trying to maximize revenue at all. I met the guy, and I think he couldn't care less about the money. RGG is just him and his wife - there are no shareholders. They live in New Mexico where his most expensive hobby is volunteering to help people fly other people's air balloons. When I spoke with him about revenue oppornunities for his brand portfolio (just casually, as it's something I tend to naturally go to when I meet someone... I think I did the same thing when I came here and saw Theory's website - my first instinct is increasing monetization...) he wasn't very interested.
What he was interested in was getting people to play more games in casual settings. (he also has very little interest in competitive play: he thinks it takes the fun out of gaming. He understands that some people like it, and he's willing to do done stuff in it - like the championship he sponsored the last couple of years, but he definitely doesn't want to encourage it)
He liked Goko for one key reason:
They promised to allow Dominion to be played on a graphical interface across all browsers (html5). And they weren't going to do a zynga-style monetization (ie pay to win). A lot of companies asked him to make online dominion, but they were either iPad-only or trying to do something Zynga-like.
His choice of Goko had nothing to do with money and whether elite players had already purchased the physical game, etc.
From Goko's side:
I've worked at Venture-backed companies (well, one. And I know guys on the VC side, and others working for these companies). If I understand it right (and I have done zero research to verify this), goko received about $8m in funding. Which is what is called "Series A" funding. It likely means the investors took about 25% of the company with that check. Which means the company is valued at about $24m. The VC guys generally want a 4x return on their capital for a "successful" exit (at this point I'll bet they would be happy to get their money back. I say that not aggressively, just that enough had gone wrong, and VCs are used to 90% of their Series A companies not making it). So an original goal was likely about a $100M valuation. And the timing for that is (hoped) to be about 5 years.
There are four ways to get a $100M valuation:
1- have about $50m in revenue, $5m in profit. Be growing fast. Say ~20%/year
2- same as above, but $10m in profit, growing slowly.
3- have no profit, but say $100m in revenue, and a path to showing profit in the future
4- have no profit or revenue (!), but have millions of users (this is how companies like Instagram or Facebook in thr old days got their valuations)
The other reason Goko needs revenue is what is called "the runway". They have $8m in cash. Then they start spending it. Say they hire a bunch of developers at $100k per year, and they hire 10 of them. Then throw on an executive team of 5 people (CEO, CIO, CFO, CMO, maybe one other guy) each making say $150k (real upside is in stock of the company dies well). Then throw in a physical office, equipment, and hosting, etc. say it all comes to $2.5m/year.
So if they bring in zero revenue (going for plan 4 above say- just get users!), then they have a little over three years before they run out of cash.
If they can get some revenue in the meantime, that lets them extend their runway.
As a start-up you want a long runway, because things will not work. Your initial plan for making money will almost definitely fail- and you will have to come up with something else. It's why most VCs say they (at least in Series A) bet on the people, not the product - since their is a good chance the product won't make it...
Goko has been going for about two years now (I think? They tried to launch last summer. I think they made pitches to the game companies the year before?) and they likely kept spend low before they signed with the game companies. So they likely have another year or so of runway left - unless they can extend it.
Their first shot at doing that is getting people to pay for Dominion.
The problem is that they only take money from Goko Dominion. They have no incentive to get more people buying the physical copies. So any strategy effects of getting people playing online are irrelivant to them.
Right now they ate hoping beyond hope that when iso goes down tomorrow they see a huge jump in sales. The entire exec team will be looking at sales on an hour-by-hour basis. If its not a HUGE jump, they will continue to hope for a week or two (some sort of delayed impact as people build up to the idea of paying). Even if they just get a jump in users that will help them sleep a little more at night. They have models that try to calculate what % of free users will eventually buy.
They will start crunching the "new" numbers to see how far it extends their runway.
When the runway runs out. (and it almost always does) one of four things happen:
1- they launch a Series B - they have proven out enough of their model that someone (sometimes the original investors) is willing to give turn more money. Usually at a higher valuation (say $50m), since there is less risk at this point
2- they have enough cash coming in that they never hit the end of the runway (maybe they have to cut costs to do this - my understanding is goko did one round of cuts already, do they saw this coming
3- they sell the company for what they can get for it and return some $s to the investors
4- they close up shop
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So. Enough with the economics lesson.
My opinion is that Jay made a mistake. Not a terrible one, but a mistake non the less. By splitting the incentives between the online and offline businesses it decreases the size of the entire pie.
This is a great article to read about a game company that tried to maximize COMBINED on and offline sales:
http://penny-arcade.com/report/editorial-article/days-of-wonder-ceo-explains-how-ipad-ticket-to-ride-boosted-sales-of-the-reThe key learning there is that by under-pricing online (which has a zero marginal cost) you can dramatically drive offline sales. It makes sense with games. People hate learning the rules of games- except when a friend (an evangelist) teaches them or they learn easily online.
The one part of goko that will work for RGG is that base Dominon is free, and there are tutorials, and that it's graphical and pretty for the casual user. That will help get people introduced to the game.
The bad parts is that by reducing, even slightly, the rabid fans that this site+isotropic produced it will reduce the number of evangelists that introduce the game to others.
To use my own experience:
Since I started playing on Iso and reading stuff here (about a year ago) I've spoken (and my girlfriend who indulges me in my hobby has shared widely with others) to hundreds of people about Dominion, why it's different than other games (since until Innovation I don't really play games), etc.
Of those people I know at least a dozen have gone out and purchased all of the expansions (most don't play online at all). And I know at least three of those (since they told me) have shared the game with friends who have gone on to buy all the expansions.
If a complete Dominion collection costs about $250, that's at least $5000 in revenue I've indirectly generated for RGG in the past year (well, less than that because the retailer/distributor has a mark-up, but you get the idea).
Like a lot of top players, I won't be playing on Goko.
Andvits definitely not due to price (I bought the entire Dominion collection after playing one afternoon of the base set , then finding isotropic and playing some solo games in a different afternoon).
I won't be there because:
1- I tried it and I don't like the interface. Funny as I'm not a UI guy at all, but it doesn't have the "oh. One more game." feeling that I get on iso. Each game is just a little bit longer, and feels like its a little bit more of a "decision" to play
2- the other top players aren't there. I tend to do things in extremes (hense buy all the expansions at once. I flew to Detroit with a weeks notice for a chance to qualify for the US Championships, etc. someday I can tell you what I did after I saw the movie 8-Mile...)
A big reason I play on Iso is to challenge myself against the best in the world. For a number of reasons (including the two I have, but likely others, like the ridiculously high price point) most of the top players aren't on there. And won't be.
I will definitely buy Guilds when it comes out. And I'll still introduce friends to the game. But I know myself and my level of interest will sag.
It's unlikely that I will make RGG $5000 next year like I did this year.
That said, I'm very interested how this all plays out.
The hard part is measuring what didn't happen - what would offline sales have been if Goko hadn't come along? Or if RGG had developed a $2 iPad version?
Really hard to say.
I think Dominion sales will continue to increase (it's a viral product that you need to teach other people, so it's still early in it's life cycle). I think Goko is going to have a very hard time getting to $1m in sales let alone the $5m in profit they need. But I think they can avoid going under.
It wouldn't surprise me if they shifted their focus (a year from now I think their games will be offered as subscriptions at $5 a month or less).
I'll even bet RGG extends their licence at the renewal point (since revenue will be >$0 and there in nothing else to compare it to)
Ok. My one and only (if extremely long) post on the topic.
Have fun on Goko tomorrow!
I'll check in and see when someone shares the number of players in the lobby!
Ed
Author
Topic: The Future of Isotropic (Read 49596 times)