I saw a good friend of mine who is very smart and I respect very much - he still finds the time to talk with me though. He told me he likes my blog, but asked a question he said he hoped would not offend me. "Do you write your blog for yourself on in the hopes of gaining an audience? Because if you write them for an audience, you really should have a point." I may be paraphrasing a bit, but it came out like that in my mind. It was kind of a funny question because I never really thought about writing for anyone else. My blog is completely self indulgent and admittedly, often only finds entertainment or genius at the point of creation. The blog is actually a permanent record of the thoughts I find fascinating, and often the expression is only intelligible to me.
Along the same lines, when Ken Rutkowski asked me to speak to his METal International group, I was honored, and excited by the opportunity to entertain - myself. Because the only thing I like more than reading what I write, is listening to myself talk. He asked me to talk about the game business. I spoke about history, evolution, transmedia, gamification, sponsorship, cable, set top boxes, meeting Steve Jobs and a bunch more. This talk is nothing like a TED talk in that it is 3 times longer, and 100 times less change the worldy. But it is entertaining to me.
Last week I read an article about the US Department of Agriculture's decision to parachute poison mice into treetops to kill tree snakes in Guam. The tree snakes killed all of the birds on the island and the USDA is concerned the snakes may be able to migrate to Hawaii. This reminiscent of all of the times a species was introduced to wipe out another, and it went terribly wrong. The article moved through a series of curiously inappropriate connections in my mind and got me thinking about digital object sales. I cannot tell you why, but I a promise you it is much more of a curse than a blessing. Our perception of digital objects and willingness to pay for them is evolving much more quickly than our understanding of the impact of the market and I am afraid they will get a foothold in our world before we know how to control them. Oh yeah, don't worry about the poison, it is Tylenol which is just as useful for killing black tree snakes as it is for killing a headache.
Remember when it was really nutty to think someone would pay money to buy an game object? If you don't have to remember and still think buying a digital t shirt to put on your avatar is kind of lame, keep reading, you are proving my point. We are evolving, and it is a good thing. DVD racks are ugly and building book shelves is surprisingly expensive.
In law school they taught me ownership is not a single right. It is more like a bundle of sticks. One stick represents possession, another the right to modify, another the right to collect revenue, and so on. The aggregate is infinitely divisible and definable by contract. We used to think the possession of a physical object was the paramount attribute of ownership. No, even you don't think that way anymore. The digital era changed us.
If you think back in the dark recesses of your minds to the pre-kindle and pre-iPod days we devoted space in our house to collections of analog bits. Records, CDs, DVDs and books were all displayed in the common areas. We were buying the ability to access the content whenever we pleased, but also created and satisfied and secondary, and often primary need to display. Your collection became an indicia of taste. You may have even been driven to put books or DVDs out you never read or watched and hidden others to avoid the notion your taste may be odd or worse yet, mainstream. You may think I am talking about porn, but I was thinking Grease - record and DVD, Bee Gees and Abba. Digital access changed all that and is in the process of changing it more.
Devices like the iPod and the Kindle provided us with the access to the content we wanted and sharable playlists and friend notifications from applications like Spotify and Pandora allow us to display our good taste to people who would have had to come to our home or read our t shirts in the past. Now we know the only sticks we really need from the bundle are access and display, not physical possession - and this is changing everything. The evolution of a mindset based on holding physical embodiments of our media (or as George Carlin called it "stuff") to one of access to utility is driving growth of the digital object market at exponential rates.
The concept of physical possession separated from ownership is not new. We applied it for years to the two most expensive purchases most people ever make in their lives, our homes and our cars. I have possession of my home. I can do whatever I want with it and invite whomever I please to access it. I can also block anyone I please from access. Feels a lot like ownership. But my ownership is represented and dependent upon some analog bits in a file cabinet in a city called Norwalk, California. I have never been to Norwalk, California. But if anyone questions my ownership, or I want to sell my home, I need to put a new piece of paper, with my signature verified by an independent third party, in a different file in Norwalk, California. I have possession and apparent ownership, but I do not have possession of the indicia of ownership. The same can be said of my car. I have the right to use and possess, but the actual indicia of ownership is on some analog bits somewhere in Sacramento, California. Since the dawn of property ownership, we accepted possession as something separate from indicia of ownership. The digital model is simply a reversal of the model.
If I am playing League of Legends, I am able to buy skins, champions and other objects that will appear to other players in the game. The objects I buy have no impact on my power or abilities in the game. In the early days this sounded strange to non players - ok maybe it still sounds strange today - but the migration to accept a digital champion in place of an action figure is no different than having music on an iPod instead of on my shelf. Like my music collection, I have utility of my objects in the game, so I get to enjoy looking at objects that please me. Also like my music collection, I receive a social benefit by the display of status associated with the object ownership. Like a house or a car - in reverse - the object exists on a far away server, probably not in Norwalk or Sacramento, but indicia of ownership resides with me. It actually makes more sense.
This evolution which started with music and is spreading like wildfire through the universe of games. In 2002 The New York Times saw the ability tell digital objects as newsworthy. Those wacky gamers were willing to pay money for a collection of words in a game called Gemstone. But the practice was not limited to Gemstone and what started as an underground market quickly grew into an accepted practice and then even started to be woven into the fabric of certain games. It is not stopping there. Zynga took the people who unknowingly accepted the music "purchased" from the iTunes store as fungible with CDs and got to pay for digital objects in their games, thereby paving the way for broad acceptance of microtransactions. So broad, the purchase of game objects, many persistent, is the not only acceptable, but the leading method for profiting from mobile and on line games. This leads to a concern I raised in a post five years ago which remains unanswered.
On the one hand we want the consumer to accept the purchase of the game object, as they do the purchase of a song from the iTunes store, or a coffee cup in the real world. On the other, we are not ready to give them enough of the stick. They are missing the access to relevant information pertaining to value stick. The rights and remedies side of digital object ownership is lagging distantly behind the willingness to exchange value to own them. In the original post I wrote:
My corporations professor, Hugh Friedman, taught us how difficult it is to actually spot a security, but he gave us the definition contained in the United States Code. "SECURITIES - An investment in an enterprise with the expectation of profit from the efforts of other people." Here is another definition I found on line: "Securities are documents that merely represent an interest or a right in something else; they are not consumed or used in the same way as traditional consumer goods. Government regulation of consumer goods attempts to protect consumers from dangerous articles, misleading advertising, or illegal pricing practices. Securities laws, on the other hand, attempt to ensure that investors have an informed, accurate idea of the type of interest they are purchasing and its value." The definition is intentionally broad and is meant to apply to a lot of things, to protect a lot of people. Interests in condominiums, farm animals, land and oil rights, have all been determined to be securities. The definition is the foundation of the Securities Act of 1933, sometimes called the "truth in securities law" and the Securities and Exchange Act of 1934, which established the Securities and Exchange Commission and sets out filing requirements and trading regulation. Both were established in response to the events leading to the stock market collapse of 1929. Prior to these acts, anyone could sell stock to anyone and there were no reporting obligations or restrictions on insider trading or proxy solicitations. In other words, it was a lot like buying and selling game objects today.
We know a share of General Motors is a security. General Motors must comply with certain reporting requirements to maintain its right to allow ownership interests to be exchanged in the public market. While I may not be buying my game object with the expectation of profit - although many do - the price I am willing to pay is based on the information available to me at the time of payment. Factors like scarcity, utility, restrictions and duration of use are all material in my decision and willingness to pay. Most significantly, whether the game be in existence tomorrow.
Last month Zynga shut down 12 apps. One of them Petville, still had one million monthly active users, and before at one point had 43 million. The value of every object purchased evaporated, without warning, overnight. How many people were still purchasing digital objects after Zynga knew the game was going to be shut down? I am not pointing my finger only at Zynga, Star Wars Galaxies sold objects right up until the game was shut down. Shutting down a game is simply a fact of life. Not letting consumers know it will happen is not.
These issues are very exciting . . . . for lawyers. It is kind of like a full employment act because very hard issues mean a lot of work to resolve which means funding for childrens' college educations. This is the second post in a row that I leave without an answer. I throw it out there because I want to raise the issue and let people know we may be getting ahead of ourselves - again.
SSH . . . . . . . . . . . . . . h ! ! !
"All ye, The People of the United States: his Excellency, the
PRESIDENT!" This greeting may be heard all over the country, in the
not-far-distant future, and not on a phonograph either, if Mr. Paul Calhoun's
dream comes true. His idea is to link up all the larger cities and towns by
radio with the powerful transcontinental government wireless station at
Arlington, near Washington, so that when the President makes a speech before
Congress or even his inaugural address, all
the people can hear it, instead of a select few gathered within ordinary
hearing distance of the speaker as has been the case in the past.
UPDATE 03/01/13
Two very important updates this week and I am too lazy to integrate them and rewrite. I don't think anyone wants to see a redline version of my blog either.
First, it appears Google may be thinking the same way as I am. Some coders found what looks some code to be used for a youtube pay service. Even though some people from Google's domain hit my blog, I don't think I gave them the idea. I hear there are some smart people over there.
The second one is this new TED video from Amanda Palmer. It is hugely relevant, not just because she is good, but she talking about the consumers' willingness to pay for content when asked.
Online video is creating a larger audience than any
other form of media or communication in the history of the world. However, the leading lights of this
industry are shoe horning the television sponsorship model into the business
and does not seem to work. Despite the audience’s scale, revenue generated from
sponsorship is not even high enough be considered a rounding error on a margin
of error for a basic cable network.
In this video from DLD, Maker Studio’s chairman Ynon
Kreiz pointed out that the,185 hours of London Olympic broadcast on television US in primetime generated
67% of NBC’s total revenue and the 5300 hours via digital platform that
generated only 7% of the revenue (If you skip to the marker you can see the part I am talking about, but the whole thing is worthwhile)
These companies can argue the inequities of sponsors
paying more the people “maybe” watching something like The Daily Show on
television than the same broadcast on line where we know who and how many are
watching, or the empty inventory in the on line Lance Armstrong interview
relative to record ad rates on OWN, but while they do this – and logically and
in a vacuum they may be right – they are merely singing in a Greek Chorus to
shield themselves from reality. Even though the television audience is
shrinking, sponsors see it as growing in value. Morgan Stanley, as reported by
Busines Insider noted as television viewership goes down, CPMs go up. A 50% decline in viewership since
2002 led to only a 6 to 7% decline in revenue. At the same time, Comscore indicated that despite the
ability to target, on line suffered from perhaps a higher percentage of wasted
ads. In the “U.S. Digital
Future in Focus report 2013” Comscore pointed out that even though 6 trillion ads were
served last year “research showed that an average of
3 in 10 ads are never rendered in-vie, leading to significant waste, weaker
campaign performance and a glut of poor-performing inventory that imbalances
the supply-and-demand equation and depresses CPMs. This should not be a surprise when you consider the very
existence of sponsor supported television relies on the existence of friction
and online video success only succeeds without it. Rather than continuing to fight this uphill battle, on line should stop ignoring the unique attributes of the web, and look how it enables distributors and content creators to finally charge the right side of the equation – the viewers.
A little under five years ago I wrote why I thought on line video was going down the wrong road. While I may have overdone it a bit on
the ARG stuff Nikki Finke made me look smarter in hindsight because she cut it
out when she ran it on Deadline. The point is made here:
Our agency friends further exacerbate their problems with a continued
reliance on a dying model, ad supported television. The sites are sponsor
supported. If cable fragmentation hurt network sales and cable is not
worthwhile from a revenue standpoint, what do you think web fragmentation will
do? Yet, even though none of these applications have shown a significant
return, they still rely on sponsors. The widget guys show a myriad of
additional revenue streams. They are able to sell digital objects, upgrades,
added utility and a ton more things of value to the community. Oh yeah, and
eventually, access to their channels to the Hollywood guys.
If the agencies want to
profit from the new opportunities, they have to stop thinking evolution and
more revolution. Television is a solo experience. A show can build an audience,
but it does not build a connected community, and with very few exceptions, the
community has no impact on the show. The audience watches, and then shares
around the water cooler the next day. The web is about community. Real time
community. I can feel impotent in real life, I don't need my computer tell me I
have to sit and listen to what someone else has to say. My computer empowers me
and let's me join in, my entertainment should as well.
My post focused on the content, not the
business structure. Admittedly, I did not even
think to write it at the time. I just
thought charging the customer followed logically. I wish I could say I am the first person to disclose this
concept to you, but sadly, I am not. I am merely cribbing from other businesses that work. Many executed before me – not the first
time I talked about something while others actually did it – and I do not
understand why more of it is not happening on the web. Netflix, HBO and Sirius radio prove the model, but are not the only places consumers
are showing a willingness to pay directly for content. FreddieW generated
800 million views on his youtube channel.
If his revenue looks anything like Psy’s from Gangham Style, this
massive audience may have put him well into the “thousandaire” status. But when he asked his viewers to
pay for content directly, they gave him over $800,000 on kickstarter. In ad sales terms, he got an $80 CPM
for something that does not exist.
The HBO audience made it even more clear last year when a fan took it
upon himself to create takemymoneyhbo.com. Within 48 hours 163,673 people voiced their
willingness to pay for a streaming service. HBO did point out that Techcrunch’s assessement of why HBO
should not do it makes sense, but the evidence of consumer willingness shows it is not
wrong for a non legacy content library to pursue the model – hello Netflix. It’s time to remove the middleman and go
direct to the audience who will pay more and drive better content.
My cursory research revealed the range for the highest
CPM content on line is video at $11 to $25 (I know incentive video can be much
higher, but it is also very limited). Just for the fun of it, let’s look at
revenue from Netflix on the basis of their revenue generated per thousand. Measured in clumps, they have a
CPM of $8,000. This means a Google
channel must serve 2,650,000 video ads in a month to equal the revenue
generated by 1 thousand Netflix viewers.
This may not sound soooo bad until you realize this means over
10,000,000 videos when you factor in Comscore’s recent data indicating only 23%
of on line videos carried video ads. That’s not all.
Again, looking to the most favorable data, the highest percentage of audience
indicating they watch video ads often or all the time, at 47%, is on youtube. Factor this in and 20,000,000 videos
must be served in a month to equal the revenue prepaid each month by each
thousand Netflix customers. Even as the market grows, the scale needed requires
content to be diluted to the lowest common denominator, the antithesis of the
web’s promise. I chose Netflix because it is easy, but
we can look at any number of pure subscription, or pay as you go – iTunes-
content companies on and off line as examples of consumers’ willingness to pay
for content.
Instead of accepting these facts, both content and the medium are bending to the force of
over USD188.5 billion spent annually on video broadcast on
television. The mistake is made in the assumption the dollars are being spent on content, they are not, they spent on viewers.
Let’s walk through this logically. Television networks love friction. The industry’s midwive was the need to stand up to change the channel. Ad agencies thought their business was over when the remote control came into play. And time shifting with VCR’s, forget about it. Friction serves the business model. This because NBC, CBS and ABC’s “product” is viewer and the customer is the sponsor. The content is the capital expenditure used to build the product. Friction helps to build the product and create inventory for the customer. The web is about a lack of friction. The friction equivalent of an eyelash on an asphalt road can be the difference between success and failure. The web carries no need to set a recording, start an appointed time, or change a channel. The content is always there. Advertising pre roll, registration, pay walls are all friction that drive traffic lower. The consumer is no longer captive. The new reduced friction empowers the consumers and allows us to shift from being a product into being the purchasers of a product. Content and curation are the product and the customer is the viewer- ust like Netflix, HBO and Showtime. So why are continuing to treat the audience as the product rather than the customer?
When we look at the value chain for content on television, it is kind of a wonder it lasts. The sponsors are funding, and thereby selecting the content. Networks act as arbiters between consumer taste and sponsor willingness to pay. Networks commission the most audience appealing, least offensive to a sponsor content and sell the audience to sponsors. Consumers choose what they like, but they select from the lowest common denominator pabulum supported by sponsors (DIGRESSION ALERT: For something really interesting, take a look at episode 1 of Black Mirror to see a dramatization of a television news service which was not able to broadcast a newsworthy video readily available on the web). We see no better evidence of the disconnect than the quality shift when content itself is the product. On networks like HBO, or cable channels covering deficits on foreign sales, we see shows capturing the country’s attention in meaningful ways. Breaking Bad, The Sopranos, Mad Men and Downton Abbey all came from a model where the show is the product. The show has to be good enough to appeal to foreign markets, rather than good enough to appeal to sponsors at an up front and a large audience each week.
The current model did not “evolve” to the web, it was bolted on without significant change from television. This is more than strange when we consider the web is a model of efficiency because it removed friction from both sides of the equation, and the television model gained its power from inefficiency and friction. The advertising unit model grew from radio in the 1920’s,
into television in the 1950’s – with government help – and was twisted and crammed on to the web. In reality, if just a few
attributes of the web were around in the 1920’s, we would never be here.
Ad units exist because radio’s pioneers could not figure
out how to charge the customer directly.
By the time television arrived and was able to do it, the horse was out
of the barn. In the early ‘20s the user base was growing like a weed and no one
knew how to pay for content. The first sponsored show happened years
earlier in 1916, when a Westinghouse assistant chief engineer started playing
phonograph records over the radio.
He ran out of records and called Hamilton Music Store to get more. They agreed to supply him with records
if he would tell the audience where he got the records. Despite a willingness of advertisers to buy the audience most of the content was funded by hardware manufacturers. They knew people buy the hardware for what it does, not what it is. Steve Jobs did knew this when he commoditized content to sell enough hardware to build the most valuable company in the history of the world. Then
Commerce Secretary, Herbert Hoover said “It
is inconceivable that we should allow so great a possibility for service to be
drowned in advertising chatter" The problem was troubling enough for
Radio Broadcast, the most prominent trade magazine of the day, ran a contest to figure out who would
pay for radio. The winner was to be selected by a
prestigious panel of industry luminaries.
The request rings strikingly relevant t some 90 years later:
WHO IS TO PAY FORBROADCASTING AND HOW?A Contest Opened by RADIO BROADCASTin which a prize of $500 is offered
What We Want
A workable plan which shall take into account
the problems in present radio broadcasting and propose a practical solution.
How, for example, are the restrictions now imposed by the music copyright law
to be adjusted to the peculiar conditions of broadcasting? How is the complex
radio patent situation to be unsnarled so that broadcasting may develop? Should
broadcasting stations be allowed to advertise?
These
are some of the questions involved and subjects which must receive careful
attention in an intelligent answer to the problem which is the title of this
contest.
The winner, H.D. Kellogg, Jr. of Haverford Pennsylvania
received $500 for his suggestion that consumers should pay a tax based on the
power of the hardware purchased and a newly formed arm of the government would
administer the fund. Even though this remains the model for the BBC, this is America and we did not want the government involved. Instead, for lack of a better idea the ad unit took over. By the 1950’s when television started to take off, the ad
sales market was accepted by the public, and more importantly, very large. Zenith found out the hard way in
1951. The company started
tests of its “Phonevision” subscription based television service. Sure it was cumbersome, but the system
failed under government lobbying from movie theater owners and advertising
interests, not the friction in the system. If the model was viable, it would not have needed government intervention to survive.
Maybe I am completely wrong. It would not be the first time, I did tell Steve Jobs the iMac would not work. But even assuming I am wrong, The Makers, Machinimas and Google
channels of the world are still bringing knives to the gun fight. Jeff Bewkes made the point painfullyobvious at last year’s ignition conference. He said the investments from the new companies are cute and
welcomed them to the kiddie table.
Google is doubling down this year and will spend USD 200 million on content
this year. A huge
amount of capital to spend in a non-leveragable high-risk business, but it gains
perspective only when we consider Time Warner spent USD 5 billion on content last
year. They had to because
content creation is expensive. The
money goes not only into the content you see, but content you do not see. Development is more expensive than
production and it takes a lot of it to deliver the cream to the audience. The online club may not be scared by the size of the investment, but they should realize that
Time Warner’s investment is not only justified by the other release channels,
but comprises the lion’s share of content sponsors and consumers are willing to
pay for on line. When we consider the ownership of Hulu, Cinemanow, HBO and
even the 60 Minutes mobile app, when they want to distribute their content,
they go direct. Even giving the
new guys the benefit of the doubt, the old guard wins. They speak with the hubris of a disruptive actor, but the model is not disruptive, it
simply a new distribution channel.
People seem to love lists, so I am going to put in a
list of a handful of truisms we should all accept. Since they do not change,
let’s call them immutable rules.
1)
Television is one direction (passive)
2)
Online is bi directional (interactive)
3)
Sponsors pay distribution channels for large
collections of captive demographics who will watch an ad
4)
Online thrives on specialized content to small
sociographics of viewers who hate ads and will do anything, including spending
money, to skip them when possible
5)
Every successful online venture is based on
adapting quickly to audience analytics
6)
Linear content is not tunable.
For those of you wondering when I am going to get to
games, or as some would say, the only thing I know anything about, let me do it
now. For those of you not
interested in games, let me just take a moment to blow your mind. This year Telltale Games created a game
with appeal to a television audience.
The Walking Dead game is somewhat limited when it comes to
interactivity, but there is a strong story line and its accessibility does not dissuade
traditional game players from getting involved or from validating it with more
than its fair share of awards.
More importantly, by leveraging the unique attributes of the web with
high quality content, consumers paid to play the game. According to Forbes 8.5 million of them paid an aggregate of USD 40 million or in ad talk, a USD
4,705 CPM. This is even more
stunning when we consider 11 million people watch the show in US when it runs
on television. That is a higher
tie ratio than NASCAR.
I wish I could conclude this piece with a disclosure of
the perfect on line business model.
I can’t. If I could I would do it and not spend all this time
writing. However, I hope I can get
smarter people than me to start exploring proven alternative business models
away from traditional ad unit sales.
The game industry uses events, subscription, velvet rope, previews, in
app purchasing and freemium models, among others to generate scalable
businesses from content in an interactive environment. Deep down in my heart I know one
or more of these is the answer. We just have to focus on the medium.
In a culture like ours, long accustomed to splitting and
dividing all things as a means of control, it is sometimes a bit of a shock to
be reminded that, in operational and practical fact, the medium is the message.
This is merely to say that the personal and social consequences of any medium-
that is, of any extensions of ourselves - result from the new scale that is
introduced into our affairs by each extension of ourselves, or by a new
technology. . . The electric light
escapes attention as a communication medium just because it has no “content.”
And this makes it an invaluable instance of how people fail to study media at
all. For it is not till the
electric light is used to spell out some brand name that it is I noticed as a
medium. Than it is not the light,
but the “content” . . . that is noticed. Marshall McLuhan
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It is encouraging to know the likelihood of breakout success in the app store is over 100 times better than the likelihood of winning the Powerball lottery. Unfortunately based on the sheer volume of apps in the store, it is still in the million to one range. Fortunately, unlike Powerball, we can increase the likelihood of success by charting. The top ten apps are easy to find and can build enough momentum to get millions of downloads. In this freemium world of ours, millions of free downloads means tens, maybe hundreds of thousand paying players. Most developers cross promote to their base, or use services like Appoday or Freeappaday to achieve the necessary velocity to crack the charts. But apparently, it is not the only path to success. Maura Thompson used a different method. She targeted a market with a large pent up demand and built an app for them - wanna be dentists.
You want to be a dentist? Ok, here is your chance! Dozens of Dental Surgery are waiting for you!
In this COOL Virtual Dental Surgery game you will have lots of fun drilling teeth, filling cavities, and using your dental skills to solve lots of dental dilemmas. hit the road and travel cross-country to lots of destinations, meeting new people and their mouths . . .
Yes, that really is the game's description. Now don't get me wrong. I've got nothing against dentists. My grandfather was a dentist and so is one my favorite uncles. But this is the first time I ever saw the words COOL, dental surgery and game all collected into a single sentence. This could come off as sour grapes. The good Maura Thompson found success where so many others did not, but I like to think this rant was ignited by bigger issues in the app store. Success is determined by discoverability and Discoverability is broken. Developers are playing playing a game with unknown rules and outcomes doled out from a slot at the bottom of a very, very black box.
Dental Surgery was released on November 20 of this year and ascended to the number 1 position in the app store shortly thereafter. I first noticed it on the 30th. It was kind of funny at the time and I thought someone at Apple was awake enough to see the game's position and do something about it. While I could be completely mistaken, the 3960 1 star reviews relative to 898 1 stars could indicate something is amiss. If Maura Thompson figured out how to game the app store, moved the app to number 1 for days and no one at Apple cared, there is a problem - and I want to meet her. If Maura Thompson legitimately built an app thousands felt compelled to download, but a vast majority found it to be . . . in the words of Tiger75 "is a piece of crap!" there is a problem. Either way [I am waiting in silence as I hold my microphone out over the audience]
Let's first take a look at gaming the system. Everyone respects the rogue who takes it to the man. The person who provides solace to everyone who is not Supercell and Rovio by climbing to the top of App Mountain and planting a flag for the independents. We rally around him - or in this case her - and celebrate the victory while defending her from Apple's attack for the game played on the system.
Then the attack is followed by what should by now be called a "Mitnick," the offer to join the company. "How about you trade in that thar black hat for a white one?" But if this is not happening. Where is the Posse? If the number one position is the result of impropriety and Apple fails to react, the chart may soon become as useful as results 3 through 42,000,000 on a google search. Arguably they are useful if you are interested in finding out how a "hot nude lesbians waiting to meet you" corresponds to the search you did for an LED light bulb, but they are hardly going to help you find the the light bulb. Just as Google continues a glacial paced shift from useful to useless, Apple's only source of discovery may be commencing a migration.
But let's redirect and give Apple the benefit of the doubt. This post was typed on a Macbook Air and there are three iPhones, four iPads and countless Macs and iPods in my home. I bought all this equipment because I trust Apple. I continue to buy because I like the ecosystem. It works, and it is quality. This post was inspired three years ago by the attacks on Apple's walled garden approach.
Contrary to [Jason] Calacanis’ opinion, Jobs is not a dictator. We elected him with our dollars and put him up for confidence votes regularly. If he doesn’t listen, we can vote him out. We’ve done it before. Throughout the nineties, with no Uncle Steve and no network of developers, Apple suffered. And even though Uncle Steve is not always right – the Cube launch – at least Uncle Steve 2.0 reacts quickly – the Cube death. He reacts to the market. When it comes to the iTunes and the app store, Uncle Steve is more Frederick Law Olmstead to New York’s Central Park, than Michelangelo to the Sistine Chapel. He built a garden and invited the world to plant seeds. Like Central Park the form is established but the content will change. Also like Central Park, some content just doesn’t fit and has to be rejected or pruned. So far, it seems Jobs is the guy to do it.
Jobs 2.0’s decisions are driven by long-term concerns over viability and stability of the platform. Do you think it was easy for him to allow an investment from Microsoft when he got back to the company It was an important decision that supported the continued relevance of the platform. Do you really need more proof?
So, here is the dirty little secret. It’s not [Douglas] Rushkoff’s disclosure that Apple is really evil, it is Apple is out to make a profit. At the present time, a walled garden is the best thing for the company. It will continue to operate in the best interest of its consumers, and its long-term viability. If there is conflict between the two, it will favor the company. Some of these decisions may include keeping competitive products off the platform for purely competitive or strategic reasons, but right now and fortunately, consumers have alternatives. If Apple goes too far, it could be 1992 all over again. I won't wait for the thank you card to the game industry for telling them what to do.
I supported Apple's approach because those of us old enough to remember the first run of "Mork and Mindy" remember Atari's crash. The game industry exists today because platform owners, starting with Nintendo, make sure content released on the platform is good. Atari users had so many bad purchase experiences when choosing from a very crowded market, they simply stopped buying. We see a flavor of this in the Android market today which is only a fraction of iOS sales. Before the stories of his ouster from Apple, the press covered Scott Forstall as the guy who told Steve Jobs the app store should be open. Jobs originally wanted it closed because he knew he had to give all consumers an Apple experience on their Apple product. It is not really clear which side originated the walled garden, but it worked. As Ronald Reagan said before me "trust, but verify."
We see in cases like the recent maps issue where Apple decided their own maps were not ready for prime time and highlighted other map applications in the store. Apple will intervene and provide guidance if an app is not up to snuff. Apple's decision to select and monitor content suggests the consumer can be comfortable enough to download, but Dental Surgery indicates otherwise.
Wait dear reader, before you jump down my throat and tell me Apple should not make decisions based on content. First they ban the dentists, then it is morticians and taxidermists and where does the madness end? No one will be safe. Don't worry, I am on board with you. If the App is just not my taste or subjectively weak in the game play department but the market likes it - let it live. I can't figure out what is going on in Rage of Bahamut, but you will never see me call for it to be yanked from the store. Is anyone going to support the original Madden Football beating Deer Hunter as a paragon of quality game play? But Dental Surgery is not just subjectively bad. According to the one stars, it is riddled with freeze bugs and lacking instructions. So the consumers who download this game can't play because it doesn't work and even if it did work, they would not know how. How does this stay on top?
Apple's undertaking is monstrously large. While Microsoft, Sony and Nintendo deal with hundreds of games a year, Apple must deal with hundreds of thousands. Too much diligence creates anger in developers and hunger in consumers. Not enough means bad apps fall in the hands of consumers. There is a happy medium. Apple responded immediately to complaints generated by Capcom's Smurf Village and called for revisions in the game and revisions in the app store to prevent abuse of unwary consumers. Just like Kotaku's description of Google's shoot first, ask questions later treatment of financial anomalies, If Apple hopes to maintain consumer trust, it must respond anomalies in the charts. Unlike initial review, it would not a herculean task to assign a single person the responsibility of downloading and using the top ten free apps - especially the ones remaining in the charts for a week.
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Sometimes I even amaze myself. I was looking back at an old post - less narcissistic than googling myself but more than tweeting and thinking someone cares - and found this genius vision of the future. If I did this a few hundred years ago I would have been revered for magical powers - or killed as a witch.
This post
was written about three and a half years ago but shows an uncanny, crystal clear vision of the digital and mobile game world - or another statement of the obvious. You be the judge.
Once we get to the other side, we will realize the USD 59.95 price point, and even the USD 49.95 were not carved in stone by the finger of the almighty. They are an industry created construct, which continues to drive us to make USD 20 million “Fields of Dreams.” In this insidious cycle, the consumer demands a certain amount of gameplay for their dollar and we supply it. Perhaps in this new world we will be able to build games of all sizes at various price points. Without inventory we can shift prices up and down and all around until we determine the proper price for each type of game. Really, Gabe Newell says its ok. We can take risks again. New mechanics and gameplay can be released in smaller versions or even to limited large scale beta groups to see if we are on the right track before putting in the second USD 15 to 17 million. We can even capture the long tail currently exploited by Gamestop in their bargain bin.
I don’t know if I’ve seen the future or if the revolution will even happen in time to rescue the industry as we know it. I do know we can’t be so ignorant as to believe we are immune to the reconfiguration of the markets for every other form of media. If we don’t choose to be proactive in the change, it will be done for us and we won’t be happy.
I pride myself on my “brilliant grasp of the obvious.”But sometimes concepts bathed in divine
light before my eyes are hidden to the entire world leaving me sitting like the
solitary school-boy laughing to himself in a corner while the world doesn’t
know why.My gift tells me Zynga is in a good
place.
For those of you who feel I put too many words to my
thoughts on this blog, this time I will get to the point before I digress.Even though you cannot swing a dead cat
without hitting a Zynga naysayer, show me one person in the business who would
not give their left nut – women included – to be in Zynga’s position
today.Lots of these well
intentioned but sadly misguided folks are offering advice and statements about
what should be done, and I will certainly start listening, as soon as one of them shows me the 2
plus billion dollar company (Zynga’s current “depressed” value) with 60 million
people a day checking in that they built. They can
all provide input from high towers about directional changes and missed
opportunities revealed by hindsight, but it is just not useful.My old boss at Eidos, Charles Cornwall
was an investment banker who said making games, like any other form of
entertainment, is about distribution and access to capital. He then accessed both and grew a
company from nothing to the second largest publisher in the world and a billion
dollar market cap in a little over 2 years. The fundamentals of the business
have not changed and Zynga has more of both than any other company in the business
and perhaps, than any game company in history.
No one is going to say Zynga has not hit a dry patch
relative to the massive growth it enjoyed early on, but remember when
Activision, the largest game publisher in the world, went through a prepackaged
bankruptcy and emerged with less money and a lower valuation than Zynga has
today?Historically, publishers gained access to fixed distribution
channels through relationships with third parties who owned them.These could be retailers and at one point,
middle men like GTI.The
publisher owned the content and the relationship with the retailer, but the
connection to the consumer was only as strong as the retailer’s tie to its
customer. We hardly ever found out
who purchased the product.Zynga knows who buys it and they touch more of them.
Let’s put Zynga’s
audience in perspective relative to other media.In two and a half days the company is visited by the number
of people who saw this year’s number one movie, The Avengers, globally, during
it’s entire box office run.Wait,
before you point out these people paid for the film and do not pay for Zynga
games, compare it to the multi billion-dollar television market.The final episode of MASH, the
most watched television show in US history had 50 million viewers.The average daily viewership of all four US television networks combined ranges between only 40 and 50 million per night. This is a powerful distribution channel for games and in a
world of on demand movies and time shifting of media and disappearing print
media making it impossible to know which media to buy, it is a powerful channel
in the media world as well.Zynga’s customer acquisition numbers to
grow this audience are well reported, but now that it is there, the cost to
reach this number of people is very low.All the company has to do is make a hit.This gets us to the money part of the truism.
One of the first examples I use to show the differences
between the film production and video games is the different meanings
attributed to the word “development.”I explain how in film, the word means working on a
concept to see if the studio can come up with a shooting script and cast.During this time one person is
working and no commitments are made to production.Games, I explain, are the polar opposite.“Development” means we are making
something.A team of people
is working and a product will be completed and released.While this paints a clear picture for the uninitiated, it is not
an entirely accurate description of the business when I worked at a publisher
and it is not an accurate reflection of Zynga.The hyper accurate analysis of the term reveals they are
exactly the same process.
We knew how much product we could push into a channel and
sell through regardless of what was in the box.In the short term, if we did not exceed the number, we knew
our “development” of new IP was covered.In the long term, if we abused the consumer by putting shit in the box,
we lost our brand and therefore, our channel.If the product sales exceeded expectations, we made
sequels.If not, we moved on to
the next new IP.The
market for console is much different now, but not for Zynga.By virtue of its audience
size and infrastructure, Zynga is able to build out concepts, test them,
determine revenue potential and tune, move forward or kill all before it incurs
major expense.Publishers like Acclaim and Midway are
gone because they ran out of money to develop products. With 1.4 billion dollars in the bank,
they can do a lot of building, testing and tuning.Only a meticulously executed strategic focus on hit
avoidance could cause the company to burn through its pile of cash and build
something worth while.
I do not know Zynga’s specific plans, and while this bothers
a lot of folks actively writing about the subject, I am not bothered.If you were trying to find success in a
highly competitive market, would you telegraph your next move?However, the company announced it
will be looking more toward the core market (code words for increasing the
percentage of whales), looking at mobile and preparing for a potential change
in legislation which could make gambling legal. I understand why gamers attack.The industry hates to see anyone succeed and if a company
breaks out and starts minting money a chorus forms to sing about why the winner
is “not really a game” or “missing the point” or just a bunch of assholes.Unless of course you are EA and then you are either
management who is angry about the number of employees who moved over to Zynga
or one of the remaining employees who is upset to be standing on the sideline
while all the other kids got picked. I can even understand why the mainstream is on the attack.I mean, the only thing more popular
than building heroes and putting them on giant pedestals is tearing them
down.It is kind of the American
thing to do.All those
people who missed out on the opportunity to make money while the company was
private, can hold themselves out as the smart ones who never got in. But c’mon on folks.If Zynga does well, we all do well.If Zynga does poorly, the
financial world hates games again and we return to the tiny incestuous world we
are trying to escape. Let’s give
the company some breathing room and watch the folks who built the company to
where it is put it back on a growth path.
This is the exact post I put up in January of this year. I could say nothing has to do with my being lazy, but I would be lying. I am proud the post Jeff Bezos' announcements today made the post almost as relevant today as it was the day I wrote it, and perhaps I am showing off, but it has really been a long time since I wrote a new post and this is a good way to get started again.
By now I am sure Walter Isaacson's report of Steve Jobs feelings about Android is news to no one. At one point during the interviews leading up to the greatest retelling of the monomyth since Luke Skywalker, Jobs said:
I will spend my last dying breath if I need to, and I will spend every penny of Apple's $40bn in the bank, to right this wrong," . . . . I'm going to destroy Android, because it's a stolen product. I'm willing to go thermonuclear war on this.
The timing of that last breath relative to the life of Android is also news to no one. What I have not seen is the realization that Google may have stolen the frame, but Amazon stole the art. And while the media continues to report on the Amazon vs. Apple battle for the bedtime and reclining market, the real battle is Amazon vs. Google. The success of Amazon’s Android running Kindle Fire and focus on the Apple battle masks Amazon’s role as the new standard bearer in Steve Jobs’ war against Google which may well have cause Google to be hoist with its own petard.
Apple never hid its focus on what products can do, rather than providing tech specs. In fact, from the day he returned to Apple, Jobs talked about it to anyone who would listen. The message was clear in the first iMac commercial telling people they were two steps away from getting on the Internet,
At the same time, Dell, the world's largest computer maker, Dell, was running a commercial showing an astronaut floating in space. Twelve years later, Palm still didn’t get it when they launched an iPhone competitor by showing people dancing in a field,
and Motorola was no better with their iPhone killer introduction looking more like a teaser for a Michael Bay film than a phone.
Jobs vision for Apple was not at all curious, but it was certainly curious that no other technology company copied him - until now - and Amazon copied it all.
Apple did a ton of things right to make the iPad work, but the most important was ensuring the quality of the user experience by building and guarding its own ecosystem. Unlike Google, Apple makes sure there was only one type of hardware, running one flavor OS. Then it built a wall around its beautiful garden.
Ensuring the user experience is so important, Apple takes great steps to protect its garden from the detritus left by foreign bodies. It entered into license agreements for distribution of broad swaths of content and committed to review and approve every single piece of software introduced into the garden and even acquired an ad service to make sure the commercials inside the products accepted into the garden would be up to Apple standards. The result, is the single largest homogenous technology base in the industry. Oh yeah - one more thing – Apple has everyone's credit card number.
Amazon was hitting its stride at the time Steve Jobs returned to Apple, and Jeff Bezos also knew success depends on customer service. The company started to provide customer service when it was easy. It only had to deliver the right product on time, and have a customer support phone number. Just like Apple’s simply providing a computer that worked, Bezos simply gave customers what they ordered. At the time, both concepts were revolutionary. Like Steve Jobs, Jeff Bezos did not stop after the easy parts. Just as Jobs famously made sure the parts of the products on the inside are as beautiful as the outside, Bezos invested vast amounts into building unseen technology to magically enhance the user experience – even in ways the consumer never noticed. By doing so, he built a massive user base into a massive company. Oh yeah- one more thing- Amazon has everyone’s credit card number.
Lots of tablets launched last year, but Amazon and Apple were the only ones to launch tablets with clear paths to doing things – and they are the only successful players in the market. It is also no coincidence both tablets are neutered relative to most of the others on the market. Techies think everyone wants to customize and program their shiny little noisemakers, but Apple was the first to identify that just like in video games, the perception of freedom is much more important than freedom itself. Steve Wozniak said it best when I asked him whether he thought the iPhone was a modern version of the Newton (little known bit of trivia – Jonathon Ive designed the Newton 110) and he said
No, the Newton learned you, you learn the iPhone.
Any game designer will tell you that giving a player too much freedom will make them bored. Players must be led in a way they do not know they are being led. That is why Amazon and Apple would make great game designers. While the two companies pursued the same consumer, in the same manner, they attacked the market from completely different directions.
At its very core- no pun intended, - Apple is a hardware company and Amazon is a retailer. This is important because their decisions will be made to maximize revenue in their core businesses.
Some may say Apple is more than hardware, but the company, like Sony used to do and Nike does with shoes, makes its money on selling hardware at higher margins than any other computer company. Jobs always said the software hardware relationship was critical to making the best products, but, for the most part, the software, is not sold on its own and most software businesses within Apple are small relative to hardware sales. In laying the groundwork to launch media devices Apple successfully commoditized music, television, film and game content and gave it to the consumer, so the company could make its profits on the hardware. Jobs compared the company to BMW and if you look at the product lives and update cycles, they are not dissimilar. “I am going to sell you the greatest thing the world has ever seen, and then I am going to show you why it is inferior to my new greatest thing the world has ever seen.”
Amazon is a software company and it is slowly but surely turning its retail products into software. Unlike Apple, hardware only exists to facilitate the software transactions. The company built more software than any other retailer on the planet, but like Apple they don’t sell it. All of the coding goes into an invisible infrastructure with a public appearance that is charitably described as "dated" – but in the case of Amazon this is its strength, not a weakness. With many, if not most of the same content relationships as Apple, the company sells streams as well as downloads. However, Amazon makes its money on the content sales. The company looked to its first hardware device years ago as a lost leader to enable increased engagement with consumers, and higher margins on content sales. In determining what people want in a device, Apple found people did not always need the power of a computer. So it looked at computers, pared them down to the most common uses, put them on a tablet and sold them at a great margin. Amazon realized people did not need all of the expensive stuff built into an iPad, so it pared its tablet down to the most common uses, and priced it slightly below cost. In doing so, Amazon commoditized the tablet. Amazon did not steal the concept of selling digital media into their own hardware, and the first Kindle actually launched well before the iPad. But it did steal, the concept of content over hardware. Every other company was trying to make a better table than Apple, and some did. Amazon was the first to realize they could launch a worse tablet, so long as consumers were able to easily do the things they like most. Choices are limited, but they are limited to what people want. They want this stuff so much, they bought a million Kindle Fires a week. This story plays out like John Woo directed it. Apple is underpricing Amazon on the content, while Amazon is underpricing Apple on the hardware – unless you look just out of frame at the bigger gun Amazon is pointing at Google.
If you are reading these words, you just spent a whole bunch of time reading gaseous belch about why content and access to content are more important than hardware in the tablet world but nothing about Amazon fighting Google. This is where it all comes together. The consumer only cares about content and the providers and creators of content care about getting paid for content. Payment depends on the size of the installed based and the ability to settle a transaction. Because there is no single source of content and Google is still asking nicely for people to put their credit card data into a Google Wallet, no one really gets paid for selling content on Android. The only money made, even on apps like Angry Birds, is through advertising – and for obvious reasons, Google is just fine with that. But before a content provider decides to release an application for free and support it long enough to grow a base large enough to generate significant revenue, it has to run on Android. Therein lies the rub.
Unlike Apple with its single OS and device, Android has a variety of flavors and devices and they are not all the same. Deployment on Android reminds many of the bad old days of PC development because applications must be tested across many platforms and configurations. Kindle Fire to the rescue. By building the Kindle Fire on a customized layer of Android version 2.3, (Gingerbread) and then selling it to 14 million people, Amazon created the second largest homogenous base of users in the tablet world and by far the largest homogenous base of Android users and the only one with a built in payment method. This should be a big win for Google. Just like IBM carried Microsoft's OS to the world like a virulent, pestilent disease, the Kindle Fire is spreading Android over iOS and finally making it worthwhile for developers to invest time in apps. Right? Not really. Amazon is giving consumers a better reason to shun the higher functioning, newer, pricier Google Android devices in favor of the neutered, smaller tablet running a two generation old OS. All in all, this turns into a big plus for Apple. Apple will continue to make BMW's and Amazon will make Chevy's. The market needs both. A Chevy does what a BMW does - gets you from home to work and back again with the occasional trip to see a movie - and for its real world uses, performance is identical. But people buy BMWs for a few added bells and whistles and all those things they will never do with the car, but can. And of course the prestige associated with telling the world you paid more for your car than a comparable Chevy.
I could argue Amazon is killing Android, but it is not. Google is killing Android. Even though Google is touting the virtues of Android 4.0 (Ice Cream Sandwich), it continues down the same path as earlier versions. Specifically, it will not run on all prior hardware devices, it is will not be universally deployed, and it will be operating on a number disparate hardware platforms. No matter how much Google says it is the same, the hardware will cause variation in performance that impacts the applications. The decision for content providers looking at developing for a disparate base with no payment method vs developing for a large homogenous Kindle Fire base with a built in payment method and promotional channel is very easy.
Begging the question, without the quality applications, can Google grow 4.0 as quickly or successfully as Amazon grows the Kindle Fire? With Kindle serving as a gateway drug to iPad's and slowing Google's march, I have to think Steve Jobs is smiling somewhere.
I love this kind of story. Some anonymous source on a website told the world the next PlayStation will be called "Orbis" and that it will not play used games. As some random guy with a blog, I would expect me to write something about this - I did not - but why are all of these "professionals" weighing on speculation and being so very, very wrong in the speculation layered on top of speculation. While the only basis for validating the speculation is the memorialization of the thought in a series of letters comprising words on a page, the analysts feel the compulsion to comment. The very, very sad part is their commentary betrays them and shows why they are so often so very, very wrong. They see the wall, they see the train tracks, but the do not realize they are sitting on an airplane.
Michael Pachter of Wedbush, David Cole of DFC Intelligence and Lewis Ward of IDC all focus on a recent announcement suggesting PS4 - they say it is called Orbis but if Sony caught on to Microsoft's game in the last round they are giving different code names and feature sets to everyone so they know who leaks details - will not allow the play of used games. Their grasp to this nugget like rats to the flotsam of a sinking ship points them to impact on Gamestop. This is a valid concern. One half of Gamestop's business is the resale of used games. The focus may be well placed, but the conclusion ignores even the speculative facts put out in the original post.
If you then decide to trade that disc in, the pre-owned customer picking it up will be limited in what they can do. While our sources were unclear on how exactly the pre-owned customer side of things would work, it's believed used games will be limited to a trial mode or some other form of content restriction, with consumers having to pay a fee to unlock/register the full game.
Used games are not blocked, they are limited. Fellas, this is not a whole lot different than what is going on today. There is a long list of the most popular games on the market that only allow full use to the first player. This article suggests the paywall - or repay wall - will simply be moved closer to the beginning of the game. Analyzing this point would also lead to a conclusion of potential benefit for Gamestop and the publishers. If the games are limited utility, the value, and therefore the price goes down. However, no one said they are useless. The games are still low cost demos and entry points for consumers. If there is enough value on this side of the repay wall, consumers may pay twenty dollars for the limited use disk. If they like the game, they pay another 20, or micro transactions, to the publisher, and everyone makes money. Used revenue per disk will go down for Gamestop, but volume could increase significantly as it did when the price of home video was reduced from $99 to $59 to $20 and to $5. The only potential users are the console manufacturers who will not make the fee on the manufacture of the shiny disk, but this could be made up on transaction fees for the downloads.
The weird thing about the focus on the used games half of Gamestop's revenue is the failure to consider the much larger and much more significant threat. If these consoles go to direct downloads or cloud based gaming Gamestop will lose revenue from the sale of the shiny disks and lose the access to the inventory of used games. Seeing as Gamestop's entire business may in fact be built around consumer funding of their used game inventory, every download game is a double impact on Gamestop revenue. Gamestop's CEO, Paul Raines, is a very smart guy. He supports Gamestop's relevance by saying digital is further out than we think. Storage is simply not there to collect all of the games we want to play. Unfortunately, cloud computing and access may make storage irrelevant and console manufacturers would be short sighted to ignore the rest of the world and not take advantage of the technology - of course this would not be the first time. Paul knows this and is driving the company in the direction of digital. They do have a long, long way to go, but there is a world where a retailer offers stellar service, enhanced value and in exchange generates high revenue per square retail foot selling things that are all available on line and a transaction fee for downloads. Today we call it the Apple Store. Gamestop just has to figure out how to get there. The analysts have to figure out how to analyze.
