Monday, October 3, 2011

Check it Out: Facebook Games Get Deeper Edition

I am not one to argue Farmville is not a game. I love Zynga's ability to show over 100 million people they really like to play games on line. But what about people who play other games and quickly grow bored? This market has been rumbling for a while and they seem to have found one of the first games. After receiving great reviews and feedback at E3, Liquid Entertainment and Atari's D&D: Heroes of Neverwinter made it to Facebook.

Go ahead, jump in and play. Almost 300k other people did in the first week or so . . . . .

Wednesday, August 24, 2011

Publisher Trash Talk: The Cadillac of Game Publishers Edition

EA and Activision's back and forth banter is making a lot of press - and is certainly fun to watch - but it is sadly nothing new. Those of us enjoying our formative beer imprinting years during the rise of Corona may remember the workers are pissing in Corona rumors started by US Heineken distributors and there are many other similar stories over the years. While at a car show in Pebble Beach over the weekend I came across an old Cadillac ad providing the best way to address these campaigns. In those days they did not use the press, they did not use a whisper campaign, they just talked about themselves.

In 1915, when Cadillac was establishing its reputation as the "Cadillac" of cars, it was the first to market with a V8 Engine. Packard, the major competitor, did not like this and responded by spreading rumors about reliability. The lead copywriter was frustrated by all of the misinformation in the market and tried to figure out the root of the problem. After much thought, he identified it as "The Penalty of Leadership" and sat down and dictated what would become the "Cadillac of responses" for use in the Saturday Evening Post:

In every field of human endeavour, he that is first must perpetually live in the white light of publicity. Whether the leadership be vested in a man or in a manufactured product, emulation and envy are ever at work. In art, in literature, in music, in industry, the reward and the punishment are always the same. The reward is widespread recognition; the punishment, fierce denial and detraction. When a man’s work becomes a standard for the whole world, it also becomes a target for the shafts of the envious few. If his work be mediocre, he will be left severely alone - if he achieves a masterpiece, it will set a million tongues a-wagging. Jealousy does not protrude its forked tongue at the artist who produces a commonplace painting. Whatsoever you write, or paint, or play, or sing, or build, no one will strive to surpass or to slander you unless your work be stamped with the seal of genius. Long, long after a great work or a good work has been done, those who are disappointed or envious, continue to cry out that it cannot be done. Spiteful little voices in the domain of art were raised against our own Whistler as a mountback, long after the big would had acclaimed him its greatest artistic genius. Multitudes flocked to Bayreuth to worship at the musical shrine of Wagner, while the little group of those whom he had dethroned and displaced argued angrily that he was no musician at all. The little world continued to protest that Fulton could never build a steamboat, while the big world flocked to the river banks to see his boat steam by. The leader is assailed because he is a leader, and the effort to equal him is merely added proof of that leadership. Failing to equal or to excel, the follower seeks to depreciate and to destroy - but only confirms once more the superiority of that which he strives to supplant. There is nothing new in this. It is as old as the world and as old as human passions - envy, fear, greed, ambition, and the desire to surpass. And it all avails nothing. If the leader truly leads, he remains - the leader. Master-poet, master-painter, master-workman, each in his turn is assailed, and each holds his laurels through the ages. That which is good or great makes itself known, no matter how loud the clamor of denial. That which deserves to live - lives.

The ad was a huge success. When asked why it worked, Theodore MacManus, the author had a simple reason. “The real suggestion to convey is that the man manufacturing the product is an honest man, and that the product is an honest product, to be preferred above all others.”

I know we do not talk like this any more, but its sure gets to the heart of the matter. It is really the same message Steve Jobs conveyed years later in the Think Different campaign - but with teeth and venom. He is not weighing right or wrong, or high road or low road. It is a collection words assembled to completely and articulately deflate anyone who chooses to challenge them off the playing field. If you have a product to put against my product, have at it. Otherwise, keep your mouth shut.

How much cooler, and more effective, would either side have sounded if they read this before they responded. I realize you can not use such a large collection of words in our age of sound bytes and sub 140 character strings of characters. But translated in today's terms, they could have just said "The two games are releasing within weeks of each other. We are confident the market will prove us right."

Tuesday, August 23, 2011

Gamestop: Used Games, We Just Can't Quit You Edition

After realizing my call for the destruction of Gamestop was for naught, I had to come to terms with the need to accept their business model as a fact of life - even though they are killing the geese who so lovingly innovate, fund, develop and so lovingly deliver golden eggs into their grubby, cold, clammy, unappreciative hands. I even moderated a panel with Gamestop's CEO, and kept my opinion to myself . . . mostly. But do I really have to accept their repeated efforts to persuade us their actions are good for the business. Does the crack dealer stand on the corner and say he is enhancing the junkie's lives, or does he just take their money? Gamestop senior executives do understand that if they have to keep repeating that their actions are good for the industry, they are probably not good and constant repetition will not make it so.

In a recent interview in Edge, Mike Mauler, EVP of Gamestop International said:

"I can understand the feelings," he tells us, "[but] we've sat down with developers and publishers and really gone through the data. I personally think there's a lot of benefit to the publisher.

"A great example is sequels, where there's a large percentage of people who are just not going to spend $60 every single year without being able to do something. They'll look at their shelf and see ten FIFAs, Pro Evos or Maddens.

"Being able to take the older one and do something with it in order to buy the next version is really important to consumers. That drives new sales quite a bit."

To say this is the stupidest thing I ever heard would be an insult to the memory of the pitch I heard for the sperm racing game. This whole new level of stupidity is inconsistent on it's face. He explained the data TO developers and publishers and HE personally thinks there is a benefit? He could not say the game makers see the benefit. He may as well have said he spoke with the plant in his office - or the other EVPs.

I understand they can no longer spew the used car analogy with a straight face, but couldn't they come up with something better than the rest of the argument? The sentence seems to be missing a few words "a large percentage of people who are just not going to spend $60 every single year IF WE GIVE THEM THE OPPORTUNITY TO SPEND MUCH LESS." Isn't this like saying, no one will pay to see Transformers 3 because they just saw Transformers 2 a couple years ago? If Gamestop was not reselling these games at 10% off the very same week they come out, and less every week thereafter, consumers would be pay the USD 60. Those who won't pay will go online and download the older version on XBL or PSN, where the publisher who funded the game and took the risk can be properly compensated. Gamestop, or should I say the Mother Theresa of the game industry, is really not helping anyone by taking the old games off their hands, or capturing all the money they generate. We still get back to the fundamental fact that publishers take risk to make and market games and only get paid on the one sale, while Gamestop profits from multiple sales of the game. Each downstream used sale is one less unit sold by the publisher and therefore less revenue on the game. This impacts initial sales as well as re orders. A healthy stock of used games means Gamestop will not reorder from a publisher.

If this was the whole picture, I could stop here, but you know my posts are never this short. It is time to for Gamestop to fess up and acknowledge their real business. Relative margins reveal Gamestop's actual business to be the collection and resale of used games. New game and accessory sales revenue may equal or exceed the used game revenue, but they do not come close to matching the profit. The stock of used games is financed by the very publishers who are being harmed by the market. They put up the risk capital to make and market the game and put the unit on the shelf. Publishers receive a one time, per unit fee for putting the game into the Gamestop system and are required to pay marketing development funds to Gamestop to have posters and other promotions in store. But Gamestop does not pay for the games, customers do. Gamestop only provides credit until the games are sold. The consumers' payment covers Gamestop's initial outlay, plus a profit. Because Gamestop pays on terms, the consumers' money is in the bank before Gamestop ever makes a payment on the new game units. If the consumers do not sufficiently cover the expense, Gamestop will call on the publishers for price adjustments and protection. While this business shows a profit with no downside risk, the entire retail side is merely a highly cost effective way of funding the used game inventory. To ensure return of the games, consumers who buy a games are bombarded with offers to turn them back in for credit. Each turned in game builds the used inventory, at no cost to Gamestop. When sold, the only person receiving the benefit, is Gamestop. When I put it this way . . . . I don't want to say it sounds like laundering, but . . . . . They take a game unit a publisher should get paid for, run it though a consumer, and turn into a game unit they can sell over, and over, and over, and over without compensation to the publisher.

I feel better now.

Friday, August 12, 2011

Privacy 2.0: Google and Facebook's New Definition Edition

A while back ago I wrote a big, long rant about the lack of privacy on line. I was, and continue to be, frustrated by the non-consensual insertion of Google and Facebook’s appendages into the most personal crevices of our lives. The growth engine of Web 2.0 - are we on 3.0 yet? - is the aggregation, analysis and leverage of personal information. Web sites are able to passively collect the very same information people used to have request in person. While this collection is the most significant invasion of our privacy since the Spanish Inquisition, We are not able to use the word “privacy” to describe the action because the major benefactors of our ignorant largesse co opted the word. Kind of like when liberals rebranded “progressives.” The current rebranding campaign was launched a while back and continued in earnest at panel discussion on social media sponsored by Marie Claire magazine. Ms. Zuckerberg, sitting with Eric Schmidt and Erin Andrews, victim of cyber harassment, told the audience:

People behave a lot better when they have their real names down. … I think people hide behind anonymity and they feel like they can say whatever they want behind closed doors.'

What kind of asshole could argue with this? Certainly not the one writing this post. But who said the privacy we are concerned about relates to our relationships with others on the web? Sure, the inner bully each one of us suppressed upon graduation from high school may be seduced by the anonymity afforded by the Web, but do Facebook and Google really have to be the Web police. Cyber bullying is a crime and when committed, offenders are prosecuted - Andrews offender is in prison. We do not need them to analyze the Web’s capture of our mental phenotype, but they need us. Facebook and Google were on stage with the victim of an egregious attack to steal the very relevant definition of the word “privacy” and create a new one more favorable to them. They cannot stop the public debate over privacy, but they can certainly change the meaning of the word. Change "privacy" from the ugly reuse of your communications and clickprints and turn it into the "we are here to help make sure no one hurts you."

I learned this one in Philosophy 1 at UCLA. If you frame the argument, you win. No one in the world would advocate anonymity as a shield for bad acts, but this is not the privacy we must demand. We should all be concerned with the access, use and sale of our data by Google and Facebook. Not only are they using the data in ways we cannot imagine to influence everything from loans to job applications, but our very worldview is being shaped by the targeted provision of the search results and newsfeeds we naively believe to be objective. As Eli Pariser outlines in his book The Filter Bubble: What the Internet is Hiding From You your Facebook news feeds and you search results arrive only after they have been filtered by algorithms to determine what “you will like best.” You are not seeing your most active friends lives on Facebook or benefiting from Google’s patented “Page Rank” algorithm. You are receiving what they “think” you will like based on your profile and their determination of how to maximize click through. The gap between our perception and reality is a cloud on our worldview and since Google holds the position of the number one search site in the world, the cloud is a breach of the public trust. Their excuse – “ we are only here to make things better for you” – kind of sounds like it should be coming from a disembodied voice while we sit in a clean white room eating Soylent Green.

Of course they cannot do all of this without our consent, and they say they have it. They hide behind a EULA to say we consented and the use of the information is explained in their privacy policy. They even send us emails every time the privacy policy is changed. But if they think we read the EULA, they are on crack. Some may say it is our own fault for not reading the agreement but the thing was not written as a disclosure document, it was written as a cover your ass document for lawyers forced to defend against zealous class action lawyers. The consent language in the document is incomprehensible to a non-lawyer and a big nebulous gob of ambiguity to lawyers. EULAs are the rufis of the contract world. Facebook and Google are not the only ones who use them.

Every piece of software we use takes advantage of this legal fiction. It is even the thing you did not read but clicked agree to be able to buy stuff on iTunes. Sure software is only rented and we cannot copy, blah, blah blah, but nobody was indexing and analyzing the words I typed after I clicked on the agree tab and started using Microsoft Word. This body of contract law, which was created to protect the creators of software after the fruits of their labor were released into the world somehow morphed into a tool to extract consent to data, capture from consumers.

Can we really consent to the use of our data if the consent was not knowingly granted and the party acting on the consent had reason to know the contract was never read?

How about getting rid of the EULAs and instead, use a nice, big, bold, cigarette pack statement:


Friday, July 1, 2011

Check it Out: The Start of Something Big Edition

Incinerator Studios launched their new Playdek venture with Ascension: Chronicle of the Godslayer - much more to come soon. Don't listen to me though, I am biased, check out the five star average from the 77 ratings that came in during the first 24 hours of the launch and read the reviews in the store.

Here is a better description than I could write:

Ascension: Chronicle of the Godslayer, is the first officially licensed deck building card game for iOS. Play alone or with friends to battle against the Fallen One for honor and victory. Conceived and designed by three Magic: The Gathering tournament players, Ascension will provide hours of engaging and strategic game play for enthusiast and experienced gamers alike.
For millennia, the world of Vigil has been isolated and protected from other realms. Now, the barrier between dimensions is failing, and Samael, the Fallen God, has returned with his army of Monsters from the beyond! You are one of the few warriors capable of facing this threat and defending your world, but you cannot do it alone! You must summon powerful Heroes and Constructs to aid you in your battles. The player who gains the most Honor Points will lead his army to defeat the Fallen One and earn the title of Godslayer!


Full asynchronous support for multiplayer online games
Play against multiple A.I. opponents using varied strategies
Play against others with “pass and play” multiplayer
Introductory tutorial to teach you how to play
Enhanced visual optimization for iPhone 4 and iPad using high resolution graphics designed for the retina display
Maintain and save multiple games

Recruit Heroes and Constructs to bolster your deck
Defeat Monsters for Honor and rewards
Automatic cleanup, shuffling and scoring
Universal App – play Ascension on iPhone 3Gs, iPhone 4, iPad, iPad 2, iPod Touch 3, or iPod Touch 4 for a single low price
1st officially licensed deck building game for iPhone and iPad
Over 50 beautifully detailed cards, hand drawn by Eric Sabee
Version: 1.0
Platform: iOS Universal App

Sunday, June 19, 2011

Microsoft Goes Hollywood: Sequels Are Never As Good As The Original Edition

Our business is growing more like Hollywood every day. Budgets go up and publishers, like studio executives before them, rely more and more on established franchises to hedge their bets. We are just as used to seeing things like Transformers 2 and 3 or Hangover 2 as we are to the ensuing debate over whether the sequel is as good as the original. But this time Microsoft has gone just too far. In fact, so far, there is no need for a debate.

For those of you who do not remember, just before the launch of the 360, Microsoft invented J Allard

and he was good.

I can't help watching the interview and wanting to buy a 360 all over again. But J left and Microsoft decided to make the sequel.

C'mon guys . . . J worked, but can't you come up with something new?

Friday, March 18, 2011

THQ Defends the Homefront: Life Imitating Art Edition

Despite massive investments on the front end, most publishers abandon recently released boxed titles, leaving to fend for themselves like orphans in Dickens' London. Can anyone point to support for Ride from Activision, or Saboteur from EA after launch. Even Mercenaries 2 was left flapping in the wind. But THQ either picked something up during the development of Homefront - thank you John Milius - or chose this time to display the massive set of balls tucked away in the closet for so many years.

As I wrote a couple days ago, the company took an unfair valuation hit due to the compounding effect of a low Metashitic score coupled with an overzealous gaming press. The press ignored the downward trend of the entire industry for the days leading up to the decline and slammed THQ, leading to uncertainty in the financial market. Those guys in mainstream somehow believe the game journalists are experts and use their drivel to provide advice to their clients. The problem is exacerbated by the publisher silence endemic to boxed game release. For a nano second it looked like it might be business at usual at THQ. The press reported the low Metashitic score, and the company was silent. Then the press gleefully reported price cuts at Walmart and Amazon - bite the hand that feeds you much? Then, with the responsiveness of a protective parent, THQ immediately went on the offensive citing first day sales of 375k units. Knowing the nature of the gaming press, THQ took it direct to the world. Mainstream outlets like USA Today and Forbes printed the real story and questioned Metashitic. Unlike the apparently biased James Brightman of Industry Gamers who feels a strange compulsion to add unsupported personal negative commentary to every positive statement, these outlets reported THQ's statements and statements from the company, and analyst reports, shockingly, as analyst reports without commentary. THQ further stuck back regarding the price reductions indicating they were one day only and not an attempt at inventory clearance.

With a strong air campaign in effect, THQ put boots on the ground. Danny Bilson led the charge with his announcement of the need to add servers for multiplayer. He has been touting multiplayer all along and judging by the server access and forums, people seem to like it. I would like to think THQ did not have their hand in it, but in stark contrast to their own review Joystiq posted a curiously positive metareview with each excerpt nailing the THQ multiplayer talking points. I would like to think Joystiq is independent and they did it on their own, but it was posted the same day as a bunch of other THQ posts which give it the feel of coming out of a press call. Anyone who remembers the initially negative reviews of COD: Modern Warfare 2's single player knows multiplayer is the key to longevity for a shooter and THQ is wise to make it a focus of the fight.

I am not going to defend Homefront as the greatest title ever made. There is no question it is a waffle product. Fully baked and hints of greatness in some spots, raw in others and burned in a few more. The title, the sales, the quality and the longevity are completely irrelevant The question the financial community should be asking is not how the critics like it, but whether it will sell. THQ set a realistic goal for break even and a number of analysts are confident they will hit the goal. The message to take away from the launch is there is a new THQ. THQ can now stand proudly as the shining publisher on the hill that supports its developers and stands proudly behind its own product, even after it is out the door. While the gaming press does not have the ability to sense the humiliation of being so completely wrong and change, THQ gained credibility in the eyes of the consumers, Wall Street and the mainstream.

Wednesday, March 16, 2011

Metacritic Attacks on the Homefront: Call to Arms Edition

Metacritic is an intrinsically flawed concept based on a corrupt ecosystem. It would not be an issue of the game business, like film, music, television and everything else tracked by Metacritic ignored the numbers. I have never seen a film’s failure supported by a headline pointing to Metacritic. Nor have I seen the film press trumpeting the unthinkable number one position at the US box office of Battle: Los Angeles despite its score of 37 – a number which would get any game development executive fired. Why then, do all of the major game news outlets report THQ’s lost 26% of its market value yesterday because Homefront got a 71 – unless you look at the sidebar which says it got a 72, or PS3 which got a 75. Using this logic, we must also conclude the most recent add on DLC for Call of Duty: Black Ops did not sell well because it scored an anemic 78. and we should be stumped by Take Two’s decline despite the 88 achieved by Top Spin 4 on the same day as Homefront. Maybe this is because even Metacritic acknowledges the score does not influence sales. Ironically, and as suggested on this very blog months ago, the same site reported NPD finally acknowledged the company does not really know how many games are being sold. The industry is able to acknowledge NPD is flawed and acceptance of the numbers caused harm. NPD finally admitted we cannot use hindsight to determine how many units are sold. When will be able to acknowledge Metacritic cannot use foresight either?

I've written about Metacritic way too much already, but I just can not stop doing it. Just when I think the site has stretched credulity to the limit, it goes further – and the press buys it. I wrote about the inherent lack of integrity,t he questionable scores that do not get corrected and the critics, who are somehow, but not directly, related to the scores. I find myself having to do it again. I am not going to try to defend Homefront, but once again, it leads to questions about the system itself. The Metacritic score is more a function of THQ’s poor management of the critics , marketing budget and the consumer than the game itself. Little things, like the company’s failure to release a demo removed the core gamers’ ability to make a decision on their own and forced reliance on those who actually had an opportunity to play the game – the critics . The critics who give the scores must be nurtured, supported, provided information and in some cases, publications must be bought. If the words of the critics about the publications themselves are not enough to solidify the point, gamers need only look to the correlation of exclusive covers and game scores. Cover exclusives are secured months before a game is ready to actually be put on the cover. Is there any possible way the magazine with all the game ads in it can know the game will get a 9 out of 10 when it secures the exclusive? So how does it always happen? How about those great big site ads on the sites with the high scores? These are the only the obvious ones. This corrupt system is then passed through an admittedly bias filter to provide a gentle butterfly’s kiss of influence on a Metacritic score.

If we accept the most recent high scores on Metacritic we would conclude XBL/PSN games are better than boxed product. Not only do the new ones score disproportionately higher than boxed product, old games, when released on XBL/PSN seem to age like fine wine. Homefront's lower scores mentioned dated gameplay, but then I noticed the re release of Beyond Good & Evil scored an 85, only two points lower than the score it received when it was first released eight years ago. Of course the sites selected by Metacritic were different than the ones selected for Homefront.

I became curious as to how an eight-year-old game with refreshed graphics is able to outscore Dragon Age II. Sure, a classic is always a classic and if you are looking for a game with a girl, a pig and a camera, nothing else could compare, but in this day of immediate gratification and ever improving interaction, but when bits of old games are maligned, how does the entire assembly retain its rating? So I clicked through to the reviews. I usually start with the highest and lowest scores. The highest was a perfect 100. As in the past, Metacritic gave the score to a bunch of words without a number. If no score is given Metacritic gives one based on what the company believes to be the tone of the review. Unfortunately, I could not determine whether Metacritic was right because the review was written in Greek and there was no translation on the page. Really, I cannot make this stuff up. Google's translate application gave me this:

The gaming industry is a little more time passes quickly, but it is the same or even more relentless and without grief. The Oblivion is not slow to come, and a masterpiece may just within months of its release, becoming a "classic creation" of those who, as usual, nobody has played.

I guess that could be a perfect score – on some planet. I do not have all the data In front of me, but I am going to go out on a limb and say the Greek game market is not one of the world’s largest. Moving further out, I would venture to guess the portion of the audience influenced by game reviews written in Greek is neither the majority nor the most influential. Why is this review given the highest score and included in the computation despite its outlier status?

How and why do we take this site seriously and why are we not up in arms when the completely arbitrary score, purporting to be an aggregation of an irrelevant and corrupt ecosystem can remove a quarter of the value of a company in a day? This is no less than an attack on our business. An attack on THQ is an attack on the advances in the eyes of Wall Street made by EA, Take Two, Activision and every other company in our industry. When will we mature enough to know a rising tide lifts all boats? EA and Activision both stood up this week to finally point out the fiction perpetrated by NPD for all these years. Isn’t it time we did the same to Metacritic?

Monday, March 14, 2011

In Defense of Console?: The Sky Is Not Falling Edition

Before I get started I have to say a word about priorities The first quarter is always a tough one. Products, trade shows and return to work always conspire to make this period a difficult time to prioritize our lives. Last week I was smacked in the face by the deaths of two people well before they were done living. They both spent extended periods of time fighting disease, so the deaths were not a surprise, but nothing can prepare kids who are still kids bury their parents, or parents to bury their child. It is the wrong order of things. I hope no one reading this has to see these things around you, and especially not coming in pairs in a single week. Then we were all struck by the incomprehensible tragedy in Japan. With all of our friends and colleagues in our business tragedies that seem so distant when they happen in other parts of the world, suddenly strike very close to home. At the risk of sounding overly dramatic, I must put down in text that as much as we get wound up in what we do and how important our business is, we are just making games. Games can inspire, entertain, illuminate, educate and a whole bunch of other great things, but at the end of the day, we are not curing cancer - yet, and we are not bringing world peace - yet, so I took a few moments today to remember my priorities.

The big news coming out of GDC seems to be the attack of the mobile device. Stories seem to fall into two camps. People with vested interests in the devices or the games say the days of the Microsoft/Sony/Nintendo triumvirate are over and people on the console side of the world who look at iOS/Android games as a horrible virus, threatening to infect the hearts and minds of gamers and developers alike. Of course journalists continue to the stoke the fire, like James Brightman of who seems to be losing faith in the console business model. Everyone assumes the two markets are some horrible combination of cannibalistic and mutually exclusive. They are neither.

I may be relying once again on my brilliant grasp of the obvious and therefore cannot fault others for missing the parallels, but we have seen this same scenario play itself out in every other form of media. iOS, Android and digital distribution are not new media or even new games, they are new distribution channels. Media will adapt and specialize just as stage plays turned into movies and movies turned into sitcoms, but right now, they are just removing friction between game makers and customers. Whether we are talking about the impact of printed books on storytelling or DVDs to film, over the entire history of media expanded distribution expands the opportunity for content creators. But no one sees it immediately. Every time a new format is introduced the old formats feel threatened. Film was perceived as a threat to live performance, but a walk down Broadway or London's West End proves the concern to be overblown. Similarly, television was perceived as certain death for film, DVDs for theatrical release and even the remote control to sponsored television. In each case, the market only expanded - and we are seeing it in games.

According to Appdata, at one point Cityville hit a high of over 101 million monthly average users. This is over 10 times the sales of a blockbuster console game, just about 10 times the size of Warcraft and 5 times the purported life to date sales of Grand Theft Auto 4. Rovio is reporting similar numbers with Angry Birds. These titles are reaching and converting tens of millions of new consumers our industry never reached before. These consumers never knew they liked games, and they are finding they do. We joke about the crack model, but it works. They will get hooked on iOS and a chunk of them will move to mid core on the PC and a chunk of them will chase the high right onto the console. We already saw this with the Kinect. I remember a time not too long ago when a platform was considered to have achieved critical mass if it did 1 million units the first holiday season. Kinect has done 10 million to date and these are not core gamers. Social games core audience of middle age women and Kinect’s target marketing on places like Oprah are no coincidence. Consumers already accepted the up sell, all we need to do is convert them to game buyers.

I used this quote about half a year ago, before Call of Duty: Black Ops and Red Dead Redemption, when these same people were saying the console business was dead and I pointed out it why it is not. It comes from an investor in Avatar explaining why he went ahead and invested a film would not earn out unless it was among the biggest films of all time.

“I was really impressed by their understanding of the business, that there is so much competition these days for people’s leisure time that you have to create something you won’t find on TV, on computer games, the Internet, to draw audiences into the theater,” [Avatar Investor] Clayton says. “This wasn’t purely a creative process for them, like it is with some producers. Jon and Jim absolutely understood the need to cater to audience tastes.”

We have an expanding audience of gamers - I hate use the word "gamer" someone who plays games is no more a "gamer" than someone who watches television is a "televisioner" or a movie lover is "movier" after this sentence, let's stop using it - If we want them to use a 3DS, NGP or console, all we have to do is give them an experience they cannot have on an iPhone. While NGP is moving dangerously close to the iPhone model and thereby begging the consumer question, “Why?,” Nintendo’s hardware telegraphs a different gaming experience. iOS and Android eliminated inefficiency, but so far, they have not made games better and even though Angry Birds sells well – amazingly well – we have not seen a platform defining game. To date they prove games are fun and people are willing to play them if we do not require them to leave their homes and pay USD 60. They did impact our ability to sell some handheld games, but their major impact on the dedicated market is eliminating the ability to sell crap. Before iOS, if Nintendo did not sell games for a dollar, they did not happen. Now Nintendo does not control the whole market. When Iwata-san or Reggie Fils Amie talk about the threat of casual, it should be music to consumers’ ears. What they call a threat, consumers call competition and it translates to better games. Now Nintendo and all other third party publishers must earn the premium dollars they are charging. We are already seeing it on console.

As the film business matured and downstream revenue and amortization opportunities emerged we saw the introduction of the blockbuster turn into the requirement of the blockbuster. If you want to see a return on your film, you are either making Transformers, or Paranormal Activity. We are getting to exactly the same place in games. The good news is the market responded and is turning out high quality, blockbuster product that cannot be played on anything but a console. Last week I watched my son play Killzone, with the Move controller and peripheral - until I stole it and started playing myself. We could not have this experience on an iPhone. Sure this is for core consumers, but anyone in the business will tell you, we sell into the core first and then expand the market toward the mainstream. The iOS/Android market is dramatically and exponentially expanding this secondary market. To really see the vibrancy of the market, we need not look to Killzone and peripheral driven games, just look at the player minutes in Black Ops or pent up demand for Dragon Age II. But no one will argue that making blockbuster games is hard, expensive and risky.

In his article, Mr. Brightman believes it is so hard we should quit making them and focus on the obscenely profitable model enjoyed by Angry birds. Mr. Brightman is absolutely correct. Paying USD 140,000 for a game that returns USD 70 million is much better than paying USD 20 million plus for a game requiring 2 million units with an average sale price of USD 60 to break even. He could say the same about the television model in which The Simpsons producers an entire season for a fraction of the cost of a tentpole film and goes into its sixth or seventh or twelfth syndication run generating tens of billions of dollars is a better model than the film business where a tentpole film needs multiple release windows to generate a much smaller return. But Mr. Brightman has only provided half of the equation. I am waiting for the follow up article telling us how choose Angry Birds as the game to pursue out of the other 99,999 being started right now, or instead of the 51 games built by Rovio prior to Angry Birds. Hollywood will pay big money to be able to extrapolate the model into television in film so they can start to know which of the 95% of the television pilots should not be made. It is very easy to focus on the profitable title after the fact. But in markets where half, or less than half of the product makes most of the profit, it is impossible to figure out which half not to pursue. Fortunately, the casual market helps out here as well.

Blockbuster games require large investment, making publishers risk averse. They tend to relay on proven forecastable formulas, quickly leading to clichés. Consumer fatigue sets it in as originality wanes. While it is ill advised to introduce disruptive game play in a USD 40 million game, as the CEO of Rovio pointed out to Venturebeat as he argued console games are dying, iOS game allow for innovation (is it worth pointing out to Mr. Vesterbacka that iOS is in fact a console and he pays 30% more to Apple as a percentage of revenue than we do to Sony or Microsoft and even Android is a platform in the sense Google approves the apps for ads and keeps over 100% more of the revenue than Microsoft or Sony?). In fact, it is brainless not to take a risk in an iOS/Android game and short sighted not to try in a downloadable. Many original game ideas will fail – and that is the beauty. Once again, we have a market where identification of failure costs tens or low hundreds of thousands of dollars, rather than tens of millions. as we just saw with the investment in Rovio, investors and publishers can start to look at successful games and pay the “I did not have to pay for failure” premium to acquire games and the companies who make them.

Rather than looking at the casual market as a blanket threat, we should look at it as a return to the old days. More consumers coming to the market. More opportunity to test new game ideas. More downstream revenue windows and more amortization opportunities to support larger investment and hedge risk.

Sunday, February 27, 2011

Googles Pimp Hand is Strong: The Dirty Little Secret Behind App Revenue

I wrote this about a year ago because I did not like the commoditization of content going on in the iTunes store. As games creators started to build for the store, I saw the train and I saw the wall. I just did not know how much track was in between. There seems to be a false sense of creator liberation, leaving the indentured servitude of the evil publishing overlords for a life of rainbows, unicorns and green fields of "direct" publishing and direct contact with the audience . However, as I pointed out over a year ago, the iTunes store is not the haven for creator profitability, it is really an aggregation of stuff large enough to create a compelling argument for the purchase of a high margin piece of hardware. This picture is not so pretty, but it looks like the work of Ansel Adams relative to Google's impact. Through Google's admob's division's domination of the app market on both iOS and Android systems, Google has turned game developers from indentured servants to whores.

Today's game maker is indeed selling directly in a meaningful way for the first time since about 1994, but they are receiving only USD .70 to USD 7.00 per unit sold. App development is running anywhere from tens of thousands of dollars to over a million for things like Infinity Blade, with most of the top selling apps falling in the USD 200,000 to USD 400,000 range - or about the same as the last time developers sold directly in a meaningful way. Some may argue the market is larger, but this pricing scenario certainly does not make for the robust market console and PC games enjoyed when the budgets were at those levels and publishers were taking anywhere from USD 39.95 to USD 99.95 per unit sold. Our audience was indeed smaller, but the budget for the first Tomb Raider was within the range of today's apps and generated over USD 200 million - and it was not the only PlayStation game performing at that level. Many will be quick to point out the lack of COGS, but they just also acknowledge, all the customer acquisition costs remain, and are exacerbated by a much more crowded market. I am not alone the only one to recognize the shortcomings of the sale model, in fact, most developers see it and either skip sale altogether, or relegate it to a second revenue stream through by making an ad supported model of their apps available.

A survey of the top app developers reveals advertising as the major source of revenue. On Android, it is the only source of revenue. Google, through admob, dominates both iOS and Android ad sales. Android developers who lament Google's failure to provide an iTunes like presence for aggregation and sale of apps, fail to realize Google has no incentive to do so. While the developer who put time, tears and sweat into an app sees a game or great work of staggering genius custom designed to unseat Angry Birds and bring joy to greater masses of humanity of than any other product in the history of mankind, Google sees only filler. Like television executives, the content between and around the ads and the people who make them are a necessary impediment to business they begrudgingly deal with. Google joined Apple in an even stronger effort to commoditize content.

In his recent book, "The War for Late Night: When Leno Went Early and Television Went Crazy," Bill Carter recounts a meeting Lorne Michaels, iconic producer of Saturday Night Live, had with the head of NBC when he was about to resign his role as producer. Irwin Seglestein, the executive in charge of creative listened to Michaels lay out the idealistic reasons he had to resign before Seglestein explained:

When you leave, the show will get worse. But not all of a sudden- gradually. And it will take the audience a while to figure that out. Maybe two, maybe three years And when it gets to be, you know, awful, and the audience has abandoned it, then we will cancel it. And the show will be gone, but we will still be here, because we're the network and we are eternal. If you ready your contract closely, it says that the show is to be ninety minutes in length. It is to cost X. That's the budget. Nowhere in that do we ever say that it has to be good. And if you are so robotic and driven that you feel the pressure to push yourself in that way to make it good, don't come to us and say you've been treated unfairly, because you're trying trying hard to make it good and we're getting in your way. Becasue at no point did we ask for it to be good. That you're neurotic is a bonus to us. Our job is to lie, cheat and steal - and your job is to the show.

Google's mission is to sell ads. They do not care what the ads go into. If a sponsor does not like a certain type of app, no big deal - to Google - they move on to something else. They have hundreds of thousands to pick from and Google will always be there. The developer, on the other hand, put in sweat equity, incurred opportunity cost and maybe even their own money to get the thing up and running. Even a relatively big developer like Rovio, which built over 50 games before Angry Birds does not have the portfolio or agility of Google. Mobile encourages a high click through, commanding a relatively high cpm. The only thing Google needs are placeholders to prevent the ads from being served into black screens. They do not want your game, they want your audience. In fact, they want the opposite of your game. They want new stuff. They want your game while it is new, and then, like the network, they effectively cancel it and want a new game, thereby leading to an inevitable churn in the app market. For Google churn is good. For an app developer, it is death. Because if Google, far and away the leading ad provider decides it does not want to fill the inventory on your app, you may as well pack it up and go home. This begs the question, if Google is providing your main revenue stream, and the players receive your product for free, who is your customer and what are you selling them? I say it is Google and your product is eyeballs.

App providers rushing into the ad supported market who say their product is a game are no different than dot com guys who were going to get rich selling dollar bills for ninety-nine cents. If most of your games are being given away for free, they are not your product. You are monetizing the network of eyeballs created by the free distribution of the game. You sell those eyeballs to Google. Google will continue to buy those eyeballs, if they are happy with your app. You may get millions of downloads of a free porn viewer for Android, but your customer, Google will not be happy and will not pay for your eyeballs. In this regard, Google's pimp hand is strong. The choice of the app developer is to cater to Google, or hope they can sell enough apps to support their business. While the direct sales model may be stressed by pricing in the iTunes store, there is some light at the end of the tunnel in the form of digital objects and the growth of freemium games.

In this scenario, an app creator shifts the Google focus, and with it the designation of customer and product from Google and eyeballs to gamers and the app itself. Unlike the box it, ship it, on to the next days of console games, purveyors of these apps are building living breathing products and responding directly to their customers' voracious appetite for content. Development costs are often as high or higher after launch as during initial development, but the payoff is a long and healthy revenue stream. Today this remains a much more "roast duck or no dinner market" than the finger twitchy ad driven app games, but hopefully this market will grow enough to allow a migration back to the good old days of indentured servitude and commodity pricing of the iTunes store.

Sunday, February 20, 2011

The Stupidity of Crowds and The Wisdom of Aspergers: Death of Innovation in America

A few posts ago I promised to write about metrics based design. The kind of stuff going on inside the social game companies who like to listen to the crowds over the designers. I was thinking and thinking and then I realized that even though it just does not feel right to me, I am a “suit,” not a game designer and I am not going to figure it out. But it led to me to think about a bigger issue. The power of the Internet and growth of social network brings an increased focus to the "Wisdom of Crowds." I've fallen for it too, writing about the hive mind and how quickly a group can come together to solve a given problem. It is easy to be seduced by the aggregated brilliance. I mean after all, how can you question the resource responsible for contributions like Metacritic, Cheez Whiz and Abba?

The crowd wisdom concept did not start inside Zynga. It is attributed to Sir Francis Galton who held a contest at a county fair to guess the weight of a cow. While the guesses of livestock experts varied widely, and none were close, the average of the 1000 guesses came within a single pound. The same experiment has been repeated over and over with people guessing the number of jelly beans in a jar and any number of random objects in equally random containers. This should give us unwavering certainty in a crowd’s ability to determine “average.” Crowds are really good at averages and lowest common denominator. Unfortunately, their power and scale make them even better at quashing new ideas, and innovation. The Japanese say "the nail that sticks up gets pounded down." While crowds can be helpful in addressing issues, they suck when it comes to framing it and we cannot confuse the power to determine mediocrity with the ability to innovate. Innovation happens on the edges of the bell curve. Crowds are the big bubble in the middle. You know, the objects of politicians and television network’s pandering.

Innovation must be strong. We like to use the word “disruptive” a lot. The crowd is a vicious predator of innovation. Crowds ostracize our greatest innovators, the people whose work advanced humanity. When Francesco Redi started his experiments, science “knew” maggots spontaneously generated from decaying meat. Abiogenisis was a known fact since the time of Aristotle. The proof was easy and obvious. Set a piece of meat on a table and few days later there were maggots. Reddi did not believe it, so he put meat in covered jars as well as uncovered jars and proved them wrong. The heretic became the hero, or in Einstein’s words, “to punish [him] for [his] contempt for authority, fate made [him] an authority.” The same can be said for Copernicus, Galileo, Newton, Darwin, Einstein, Pasteur, Salk and Stiglitz. Pioneers of silly ideas like the Earth revolving around the sun or injecting disease from cows to cause immunity. They all made great contributions by not listening to the crowd and today, we remember their names and benefit from their conviction. You would think an educated world would spot this pattern and accept ideas from the edges, but it does not. Even though today’s scientists are no longer subject to death or imprisonment, excommunication remains a fact of life.

I first heard about the phenomenon in a lecture by Nobel Laureate Kary Mullis. Well. . . it wasn't really a lecture, it was kind of a lunch on the beach because Kary loved to surf and if people wanted to hear what he had to say, we had to go to the beach. A group of guys in suits sat at the USCD sponsored event on Wind and Sea beach in La Jolla. Kary told the story about a paper he wrote about AIDS. He started his research paper with the phrase "HIV causes AIDS." As a scientist he needed to find support for every statement, so he started to look for the study supporting the conclusion, and the only thing he could find was a CDC memo written by a non-scientist. It was a statement, not a conclusion and it was completely unsupported. Worse yet, Kary’s research disclosed cases of AIDS with no detectable HIV. When he started to ask about them, the AIDS community got very upset. Undeterred, Kary hypothesized AIDS is made up of tens or thousands of viruses, only a few are visible by current technology. He saw an HIV correlation, but no causation. He theorized AIDS was caused by a pooling of viruses, visible and invisible, through sexual contact into a giant toxic cocktail. In other words, he engaged in the scientific method. He established a hypothesis and published it to be tested. As you can find on the Wiki page about Kary, he gets the “red flag” argument: “Medical and scientific consensus rejects such statements as disproven.” The hypocrisy of the statement would be funny if it did not suck the oxygen out of every alternative theory. The support for these statements and others according the crowd sourced authority is “Confronting AIDS: Update 1988” from the Institute of Medicine of the U.S. National Academy of Sciences. But their argument is based on consensus, not proof:

New information about HIV infection and its apidemiology has emerged either not confirm or alter earlier impressions of the disease. One question that has been resolved is the causative agent of AIDS. HIV and AIDS have been so thoroughly linked in time, place, and population group as to eliminate doubt that the virus produces the disease. The committee believes that the evidence that HIV causes AIDS is scientifically conclusive.

Another report, from the National Institute of Allergy and Infectious Disease applied the Koch postulates to determine whether HIV caused AIDS. The postulates were developed in the 19th century as tests to prove a link between putative pathogenic agents and disease. But even in this report cited as conclusive evidence, the support for the third postulate -transfer of the suspected pathogen to an uninfected host, man or animal, produces the disease in that host – is given as “the polymerase chain (PCR) and other sophisticated molecular techniques have enabled researchers to document the presence of HIV genes in virtually all patients with AIDS, as well as in individuals in earlier stages of HIV disease.” I am not going to address the irony of the reference to the test Kary invented being used to undermine his credibility because the focus should be on the word “virtually.” This means some AIDS patients do not have HIV. Why attack the person who questions why? The purported support is not based on science, it is demanding faith in consensus. No matter how many wrong people agree upon the same wrong thing, it remains wrong. While Kary’s theory made logical sense, in light of the knowledge, or lack of knowledge available in the early nineties, it was too late. The research community latched on to the idea of HIV causing AIDS and research dollars were only available to studies pursuing the HIV/AIDS link. In fact, the pull was so strong; cancer researchers were reframing their cancer studies as AIDS research into Kaposi's Sarcoma and other cancers common to AIDS patients. As a result, AIDS research since the eighties has deviated little from the HIV connection. The very definition of AIDS has evolved from a syndrome to a disease defined by the occurrence of HIV.

I don’t know whether HIV causes AIDS or whether AIDS is a syndrome or a disease. I do know that after the billions of dollars spent in a single direction we are yet to find a cure or vaccine against a disease that’s been killing people since the early eighties. Sure, we can point to prolonged lives for HIV positive people, but if Kary and others are correct, they never would have developed AIDS in the first place. What would be wrong with allowing a couple of Galileos to have a look in a different direction? When no one has an answer, are the pursuit of alternative theories and the consensus theory mutually exclusive?

Through the control of dollars, consensus rules every area of science. I found this really neat website with all different ways to visualize complex data sets. The site displayed this image addressing the scientific consensus around human caused global warming. The image powerfully displays the consensus counter argument against new ideas. In this case, climate change. It kind of gives you and idea of what it is like to be the guy with the alternative hypothesis. "All the cool kids say your wrong." Reliance on consensus must be seen as a red flag in any argument.Sometimes, we get battling armies of scientists from both sides as if the volume of scientists in agreement make a difference. Science is beautiful because no matter how many people believe something to be a certainty, it only takes one person to prove them wrong. It is true 90 percent of published climate scientists surveyed believe in "human caused" global warming. But, as Richard Lindzen, one of 11 scientists responsible for the oft cited 2001 National Academy of Sciences report on Climate change said:

But--and I cannot stress this enough--we are not in a position to confidently attribute past climate change to carbon dioxide or to forecast what the climate will be in the future. That is to say, contrary to media impressions, agreement with the three basic statements tells us almost nothing relevant to policy discussions.

Like Mullis, Lindzen, despite acknowledged brilliance, years of research and peer reviewed support often carries the word “naysayer” when his name appears in print. But he is right. The agreement is characterized as “human caused warming” because they do not agree carbon is the cause and they do not even agree with the pace of warming. In the presence of such great uncertainty and cataclysmic peril, unsupported facts get mixed in with scientific data, and when spun around and repeated enough, they become "true." Just as in the case of the AIDS infrastructure rising from an unsupported fact, in its 2007 the IPCC included a similarly unsupported statement that the glaciers in the Himalayas would melt entirely by 2035. The finding came from a popular British magazine, not from peer reviewed literature. Even though it was unsupported the statement provided a much needed visual to a cause in need of public support and understanding. All of the focus on carbon created a financial, scientific and political industry around management and reduction of carbon, which is suffocating any other analysis or efforts in the area of climate studies. In reality, our climate system is one of the most complex systems we will encounter in our lifetime. Carbon may be the cause, or it may be something we cannot even see or comprehend.

The truth is, we just do not know and the pursuit of a carbon-based solution may be pushing a solution deeper into the future. More significantly, the research and propaganda are leading the public to believe that if we change enough light bulbs and drive enough Priuses, things will get better. Unfortunately, this is sadly untrue.

If the scientists claiming carbon is the major contributor to warming are correct, we are too late. Reduction to zero will not impact the warming trend during our lifetime or likely even our children’s. If the carbon folks are right, the planet is getting warmer and reducing carbon will not help. If the carbon folks are wrong, the planet is still getting warmer and this will not be the first time. We are only parasites to an Earth to an uncaring Earth.

This picture is Edwards Air Force Base desert just outside Los Angeles. It is built on “Lake” Rodgers. The climate changed and this lake, along with the arid farmland a world away in the Sahara disappeared. When the lake dried the shrimp living in the lake burrowed into the ground and waited for rain. It only happens every 25 years or so, but when it rains, they came out. There were no climatoligists around to talk about warming and no scientists theorizing on how to stop it. The shrimp adapted to the hotter, drier climate, and the people adapted. Why aren’t we looking to do the same? There is no reason to stop the carbon research or to be more conscious of the footprint we make, but should the efforts toward living in a changed world be dwarfed so greatly by the hundreds of billions and perhaps trillions of dollars going into carbon reduction? How about some of those dollars going to living in a warmer world? Some more can go to relocating those folks who are losing their entire countries in the Pacific?

So who are the crazy ones? When the crowds are so vocal, a special superpower is often used to fight against them. The very people who are shunned by the crowd for being different are the ones who move us forward. Fortunately, people with these powers have been walking around for years. They were described by a guy named Hans Asperger:

"for success in science or art, a dash of autism is essential. The essential ingredient may be an ability to turn away from the everyday world, from the simply practical and to rethink a subject with originality so as to create in new untrodden ways with all abilities canalized into the one specialty." (Asperger 1979, p.49.)

Einstein agreed when he said “A foolish faith in authority is the worst enemy of truth.”

Asperger defined a syndrome characterized in part by an inability to understand peer pressure or be political - one half of the wonder twin power that makes people with Aspergers so valuable in the face of mob rule. The very attributes causing them to be shunned from the crowd are accompanied by the power to ignore the crowd. The other half is the ability to recognize patterns others do not and focus on details while unable to see the big picture. When those powers touch in a person who is willing to spend long hours alone in a lab or in front of a computer, you get very different, and often great results. It should be no surprise then that in his book Asperger’s and Self Esteem: Insight and Hope through Famous Role Models. Norm Ledgin, claimed Marie Curie, Albert Einstein and Mozart all had Aspergers – his earlier book, Diagnosing Jefferson, described why Thomas Jefferson likely had it. Others have added Shakespeare, Jane Austen, Darwin, Galileo, Picasso, Benjamin Franklin, Margaret Mead, Aristotle and Bill Gates to the list of contributors aided by Aspergers, and according to Wired Magazine, a growing chunk of Silicon Valley.

It is irresponsible to believe everyone diagnosed with Aspergers or some other spectrum disorder is going to change the world., But social media is elevating metrics over innovation and connecting and amplifying the voice of the status quo, and by extension the march toward mediocrity. We should all aspire to embrace a little Aspergers into our every day thought. Some times lowest common denominator is not the answer.

Thursday, February 17, 2011

Egyptian Uprising, The Game: The Gamification of a Revolution Edition

This morning we woke to news of President Obama heading to San Francisco to meet with these guys:

*John Doerr, Partner, Kleiner Perkins Caufield & Byers

*Carol Bartz, President and CEO, Yahoo!

*John Chambers, CEO and Chairman, Cisco Systems

*Dick Costolo, CEO, Twitter

*Larry Ellison, Co-Founder and CEO, Oracle

*Reed Hastings, CEO, NetFlix

*John Hennessy, President, Stanford University

*Steve Jobs, Chairman and CEO, Apple

*Art Levinson, Chairman and former CEO, Genentech

*Eric Schmidt, Chairman and CEO, Google

*Steve Westly, Managing Partner and Founder, The Westly Group

*Mark Zuckerberg, Founder, President, and CEO, Facebook

They say he is going to talk about spurring innovation and the economy, but coming on the heels of the Tunisian and Egyptian uprising and with growing unrest throughout the Middle East, I would hope he is talking about something else. These are the leaders of the tools used to bring down the Egyptian Government. On the one hand let's hope he is trying to figure out what happened in the interest of protecting his own job. Tea Parties are one thing, but. . . . On the other hand, is the uprising proof of the superior efficacy of digital tools over boots on the ground? To the leaders of the world this is all new. To gamers, it is just Tuesday. While game makers like Scvenger, Blippy and Foursquare "gamify" life and others theorize about it, the Egyptians gamified a revolution.

Jane McGonigal is promoting her book, Reality is Broken, by pointing out the value of 21 hours a week of gameplay. She argues gamers are developing skills that are useful in the real world and all we have to do is build games to let them solve the problems. However, the gamers skipped the game. The uprising's use of the social web, and for that matter, the uprising itself, is no different from what gamers know as alternative reality games, or" ARGs" - without the "A." Just off the top of my head can point to ARG's for Hellboy and Batman that organized and drove people to real world protests based on a fictitious fact set and imaginary cause. In case anyone ever wondered what would happen in these scenarios if the stakes were real, we saw it played out in Egypt. The leaders of the revolution used social tools to spread a message, gain credibility and encourage protest. If this were an MMO we would say they leveled up, built a guild and went on a quest.

This Internet thing can be scary. Western governments all call for the growth of democracy and the Internet has done exactly that, whether the rest of the world likes it or not. We say the leaders in a democratic administration serve at the will of the people but we are just now providing the voice to show what this really means. Governments are trying to assert sovereign power based on borders in a borderless world. The Egyptian government learned they could not turn off the Internet. The Jordanian government learned they should listen to the voice of the people - hopefully they did it in time.

Don't get me wrong, job creation is important, but if I was in a room with those people tonight, I sure wouldn't be talking about jobs.

Thursday, February 3, 2011

Jeetil Patel Say Sell EA: Time to Buy ERTS Edition

I owned EA stock for a while. It happened to be wrong while for profit but a very good while for someone looking for a very good way to offset gains in the rapidly rising market. The stock flatlined since I sold it and I did not pay attention to it until I saw the "sell" articulated by Jeetil Patel of Deutsche Bank. Based on his past performance, this rating is a stronger buy indicator than the company's balance sheet could ever be. Forget the forecast he issued the day before the earnings release which was way off, and excuse him for not knowing EA would announce a USD 600 million stock repurchase - no one could anticipate that. These are only embarrassing. Focus on his reasoning. It is bordering on - I would really like to use the "R" word but it is so politically incorrect now and I do not want to say criminal because it really is not - fraud to hold oneself out as an expert and provide an analysis as stupid as Baron's reported him to provide.

Patel’s concern with Electronic Arts is that their product line is simply too broad, in contrast to Activision, where single hit titles have taken the lead, such as Call of Duty: Black Ops, which swept industry sales over the holiday, according to the same NPD report cited above.

This made an awful lot of sense when I heard it from Steve Jobs, but he was talking about an inventory carrying manufacturing company. Jobs explained the need to take Apple's product line down from tens of variations on the Mac, to four simple products. Mr. Patel seems to forget, or never learned, EA and Activision are in the entertainment business. Most people with a brain in their head see strength in numbers when it comes to franchises in an entertainment company. If Mr. Patel wrote this last year he probably would have admired the two prong attack of Guitar Hero and Call of Duty. Does his reasoning mean Activision is better for the collapse of a billion dollar market? If this is the case, then Activision should really focus on burning out Call of Duty so it can put all of its effort into Warcraft. While they are at it, tell Blizzard to scale back on Starcraft and stop production on the new MMO.

The shame lies in Mr. Patel’s failure to identify, or acknowledge what is turning out to be the only publisher positioned to move forward into the next decade. Every other publisher that fell from the number one slot either disappeared or continued as a hollow shell of what they once were. EA looks like it may be turning itself around. There is a glimmer of hope in their core business, and unlike the other publishers who are either in denial or chasing their own tail in social, iOS and freemium, the places where money is being made, EA is making money and leading the field.

A few clicks of light research would have revealed Dead Space 2, EA's strongest launch in years to Mr. Patel. With Dead Space, EA shows an EA internal team other than Bioware is capable of launching a title in the 90's. No small feat considering as only Take Two and Ubisoft join EA on the list of publishers with multiple internally developed franchises scoring above 90 and each of those companies spent significantly more than EA to get there. Couple this with the Syfy feature and a top selling iOS title and it looks like the breadth of EA's production did not preclude their ability to properly market and support the franchise either. This glimmer of hope in the core business is interesting, but the rest is exciting.

Even though this post was read by hundreds of people from the EA domain, I can't take credit for the company's focus on digital distribution. Riccitiello has been talking about it for years now. But in a very unusual move for a publishing CEO, he is actually following through on his promise. The company showed over USD 200 million in revenue from digital distribution and is still on track to show USD 750 million for the year. Perhaps more significantly, EA dominates the app store and while it is a distant third to Zynga, it is the only console publisher in the top 15 developers of social games. Each of these delivers significantly higher margin revenue than console and provide an opportunity for game makers to take risks on new franchises.

I am not saying I am ready to put in my purchase order, but I am certainly ready to let Mr. Patel and the other naysayers know, the game publishers are not quite dead yet.

Friday, January 28, 2011

A Brave New World: DLD Conference Edition

I am sitting in a Munich hotel room for the first time in 27 years and the only thing that’s changed is me. On the train from the airport I realized I am old enough to measure time between actions in decades. Not so long ago 27 years was a reasonable age for a person and now it’s the time in between two trips I took as an adult. The area around the tube exit in Marianplatz is the same, the Glockenspiel looms overhead and the crowd is standing in the same place I left them 27 years ago. In Europe, where “old” describes increments of hundreds of years this is normal, but in America, “old” is measured in single digits so it is unusual. Other than a 275 Euro a night difference, even my room is indistinguishable from the youth hostel I stayed in as a newly minted high school graduate.

I naively booked the hotel because it had “four seasons” in the name. I say “naïve because I thought four seasons referred to hotel chain when it reality, it can only refer to the number seasons it is open in a year. A room ¼ the size of the smallest room I ever occupied in Tokyo – 30 years ago – does not win the most unique aspect. It is the ability to study real time weather patterns from my bed. The last time I slept in a bed this size there were Flintstones characters on the sheets. The bed is situated just to the right and two feet down from an aluminum-framed window installed by someone who obviously has a grievance with caulk. Turning on the heat upsets the window’s cold breeze, causing the formation of a jet stream right across my pillow. My son tried to explain aerodynamics and weather patterns to me in the past but I never understood them until I was living in the middle of one. Quickly learning one man can not stop the jet stream, I addressed the cold by taking a German “four star” towel and putting across the bottom of the “four star” drapery, thereby guiding the jet stream out the top of the drapery and across the ceiling . Not quite McGuyver, but it got me through the first night.

I may sound like the ugly American, expecting so much from a room and complaining when it does not feel like the Ritz – which incidentally is so old it does not feel lik the Ritz anymore – but stereotypes are there for a reason. Like, ugly Americans who complain to Germans conforming to very rigid rules. I learned the latter when I called down to the front desk.

“Do you have wifi in the hotel.”
“That’s strange, I can’t get a signal in the room.”
“We don’t have it in the rooms, it is in the lobby.”
“Oh, is there someone I can access the Internet in my room?
“Yes there is Ethernet.”
“Oh thank you.”

I am typing to you on a MacBook Air which does not have an Ethernet port. Fortunately, I saw an Apple Store just outside the station - only a five minute freeze my balls off walk from the hotel. I figured I should get out anyway because it was only 7:30 and I wanted to stay awake long enough to fight jet lag. The folks in the Apple Store were exceedingly nice and everyone made great efforts to speak to me in English – which is much more than I can say about my lack of effort to learn how to say anything beyond “bier” in German. My certainties were rattled by the multiple genius bars in the rather small store and ratio of two geni to every customer with no line, but I chalked it up to German efficiency. They quickly provided my adapter and Ethernet cable and sent me on my way. Noting I bought a hat for a reason I made a mental note to wear it the next time I went out and walked back to the hotel. I plugged the adapter and Ethernet cable into their respective ports and got – nothing.

“Excuse me, I am sorry to bother you, but I am using the Ethernet port in the room and I can’t seem to log into your server.”
“Of course not, it’s down. It has been down for a couple days and probably won’t be fixed for a few more.”
I was a bit upset about the walk and all “ But you told me you had Ethernet access to the Internet.”
“We do.”
“But it’s broken”
To which the gentlemen replied “You only asked if we had it.”
Thank you Rain Man

I managed to avoid creating snow in the higher altitudes of the room, bundled up and slept through the night. In the morning I headed off to DLD. As I walked out of the hotel I found myself walking with someone who was also on his way over. I asked what he did and it turned out he was just leaving employment at Microsoft in a very high level position at Microsoft. He sold his company to them and it sounded a bunch of companies before that, just a taste of what was yet to come. The invitation indicated there was a shuttle to Davos after the conference but I did not expect it to be full. In fact, my failure to receive a Davos invite put me in a small and conspicuous minority. I found myself in a sea of CEOs, bankers and journalists from all over the world. It was TED without the movie stars. Each person was able to make me feel utterly, professionally insignificant in very few words beyond hello.

“Hi, I am ____ and my app just crossed the 100 million download mark.”
“Hi, I am ____ and oversee 57 countries for _____”
“Hi, I am ____ and I just invented a company last year that grossed 1 billion.”

Some of these people even got up on stage to talk. In case the intimidation factor did completely play itself out, they were happy to repeat the introduction in any one or more of the eight to ten languages in which they were all fluent.

I sat in on a panel of young app guys who were likely not alive the last time I was in Munich. In fact, I felt like the underwear I was wearing was probably older than their aggregate age. One ran US for Rovio, creators of Angry Birds, another created Tom the Talking Cat , the next created Getjar and the last one created Doodle Jump with his brother. They all carried a certain level of earned arrogance accompanying the dissemination of a product to more people than had ever owned one thing in the history of man kind. Tom the Talking Cat makes the aggregate sales of Mood Rings and Pet Rocks appear non existent, while carrying marginally more utility. I remembered when people used to talk about console games the way they are talking about apps today. The funny thing is, our console games looked just like those apps when we were the golden children. Simple, low cost development you could pick up and play with low enough budgets to build without projections and take real risk. It was really interesting to speak with each of these creators after the panel. The Rovio guy told me he wanted Angry Birds to be bigger than Mickey Mouse and I started to laugh.

He said, “no, really, I mean it. “
“I, know” I told him. “I am not laughing because I don’t believe you can do it. I am laughing because that is the same thing I told my boss, Charles Cornwall at Eidos when we were promoting Lara Croft. Walt Disney used to say ‘It all started with a mouse.’”

Calling it an “injection medium” I entered the game business as a way to platform intellectual property. It worked while games were cheap, but the opportunity started to fade as games got more and more expensive. Now it is amazingly, unbelievably exciting to see these companies thinking this way and iOS providing a cost effective opportunity to test, pilot and launch IP. Angry Birds was Rovio’s fifty second game. The download numbers are mind boggling and trying to comprehend them is like trying to understand the national debt. But I am still a strong believer in gravity and I wonder whether the launch of these quickly spreading apps are American Idol type fame – remember any of these people, rock on Ruben Studdard – or truly Mickey Mouse.

Next I went to Sean Parker’s panel. My only awareness of the guy comes from the film “The Social Network” and a profile in Vanity Fair. People seem to like to pick on the guy and being involved in any one of the companies he was involved with may be an accident, but putting Napster, Plaxo and Facebook all on the same resume points to substance. These nattering nabobs seem to forget he had to get into the companies and do something before being unceremoniously removed. He may have done something wrong, but he had to do something right in the beginning. I, and probably the whole audience, was wondering how he felt about the not so flattering portrait in the film. This elephant seemed to be stowed quietly behind a curtain until his fellow panelist, Paolo Coelho opened with the question. He said it was a beautifully filmed work of fiction and the character in the film who was not him shared only his name. I could understand the position but I was surprised by the support he gave for his position. He explained it must be a lie because there are no Victoria’s Secret models or nice bars in Palo Alto. Maybe it is just me, but if I were him, the only part I would admit to being true is sleeping with hot women. Does he want us to believe the film is not true because in reality he only sleeps with ugly women and does not appreciate the mischaracterization? He also said he never threw a check at Eduardo Saverin and they remain friends. So we should not believe the film because he is really friends with the other guy who got squeezed out and he sleeps with ugly women.

I also went to a Juan Enriquez speech. I love me some Juan Enriquez talks. His concept of Homo Evolutus becomes so cool when he makes very simple connection to current discoveries and shows us how we can really reattach Luke’s hand. Well not really that, but he did talk about creating life, growing body parts and storing memories in jars. Just in case the people sitting a literal stone’s throw from the very spot Hitler spoke of the genetic superiority of the Aryan Race, Enriquez explained discovery of genetic markers for physical and mental superiority. One marker showed up in ever mountain climber ascending to super altitudes without oxygen. Another was in 87% of Olympic power sport athletes. He also broke a few down by race. Of course Enriquez was not proposing killing anyone and John Stewart taught me not to throw the Hitler name around, but the proximity and similarities felt a bit awkward. Enriquez said he was not addressing any medical or ethical issues. Shouldn’t he? Shouldn’t someone? It is ok to segregate people based on genetics? Enriquez is partnered with Craig Ventner, who recently created synthetic life. If Mr. Enriquez can point to a single time in the history of mankind that interfering with nature turned out well, I will be able to sleep tonight. Otherwise, feel free to call, I'll be up.

The conference closed with a talk given by Eric Schmidt which I really wish I did not see. To say it scared the shit of me is like saying the sky is a bit high. I've written about scary Google stuff in the past, but this took it to a whole new level. This room’s elephant was his recent departure from Google’s CEO position. No one wanted to mention it. I don’t know why a room full of journalists would, it is only internationally relevant news that came out of nowhere with no public comment after a ten year tenure. He proceeded to give a talk, which sounded like it was written for a bad 1970’s sci fi film. The thesis was “Technology should work for us.” His repeated statement of “more humanity through computers” sounded eerily close to “better living through computers.” It made me feel he should be in a seamless white glowy suit talking about “Omnitech” or some other benign sounding corporation standing in front really bad Soylent Green kind of stuff. The subtitle to the panel could be “with your permission.” Because as he told of how computers can know where you are and suggest restaurants and dry cleaners, tell you where your friends are, pull up relevant files, he always said “with your permission.” He even said the computer would be able to see the proximity of you and your friends and use predictive modeling to determine whether you would meet. He emphasized users’ need to opt in to receive the better life through technology. I could not help but wonder whether I opted in for Google to take my clickprint, track my ad usage? Did people on gmail and google voice consciously opt into to have email and phonecalls transcribed and indexed for incorporation into Google’s vast pool of data? How exactly did Google get permission for its camera cars to grab all the data “accidentally” which was never destroyed. When someone opts into these benign, better living through technology conveniences, do they understand the cost? The Europeans seem to understand. Executives from Microsoft, Salesforce and other US companies moving data to the cloud were asked about US government regulations requiring government access to data and without exception, rather than making any attempt to justify the regulation, they each pointed to overseas servers. They promised to keep the data black by keeping it out of the US. But, what about Google? Sure, many servers are operated outside the US, but all the ones touching my stuff are subject to US law and perhaps their cooperation agreement with the NSA. Where is the line between the government and Google? Schmidt concluded with his dream of driver less cars. He said Google modified a few Prius’s and even though not technically legal, drove them thousands of miles around the US without incident. It is so dangerous for people to drive cars, he reasoned, it should be done by computers – with their permission. If I believed in conspiracy I would say Google is Illuminati and collecting all the world’s data under one roof. Once they parse the data and put us all in cars under their control, they will be able to decide who gets driven home and who goes off the cliff in the great reduction.

The single through line through all the talks was our migration from webcentric to local. Dennis Crowley for Foursquare, Andrew Mason of Groupon, folks from Google, Endemol, Skytv, and every other company emphasized local. Technology to know their local community better. Jeff Pulver and George Dyson pointed to a third wave of computing. Getting away from the search for data and communication with computers at the other end and more toward technology to connect to people. Dating services were not represented, but they no longer carry the stigma of desperation associated with their use. The rise of facebook and other social networks shows technology intermediating links to people who communicate with each other. It draws a picture of people wanting to talk to each other, rather than the computer and wanting to get away from the screen an into activities within their computer. Kind of step back into the real world and away from the metaverse. I know the thought is overly simplistic and probably not true, but at least it let me sleep last night.