Category Archives: Deals

A quick note on second-hand software

This is not strictly speaking a mobile topic but, as we all deal more and more in digital goods, I reckon it has its place (and, then, I cannot deny my legalease origins, I suppose), so here we go:

In case you haven’t heard, the European Court of Justice recently ruled against Oracle with respect to the question if a licensee was allowed to sell this license to someone else. The case at hand was against Usedsoft, a company that has made exactly that its business. Now, often software licenses prohibit the onward sale to third parties (the vendors would rather like to sell a new license to a new customer). And, of course, if there was a market opening up for second-hand licenses (mobile games anyone?), this could impact the commercial opportunities of the originators of the software quite significantly. And lots of people came out quickly complaining.

However, what would you say if you could not sell your car once you would want to buy a new one? Or that Ikea table that looked so radically modern only 3 years ago? Unthinkable, huh? That would be a world without car-boot sales, flea markets or eBay or GameStop (who make tons of money with pre-owned games). And, no, no one would understand why that should be prohibited: you bought that car/table/whatever after all, so it’s clearly yours, right?

And, yes, it is. And this principle (well, following the rough outlines here at least) was also applied by the European Court of Justice. And I, for one, would agree with that. What the court also said (and this is where the nitty gritty might come in) is that the seller of a used piece of software would – of course – be prevented from continuing to use it after the sale. I mean: you cannot use your car anymore after you sold it either… However, this is of course not just as trivial for digital goods that can much more easily duplicated than physical ones.

When it comes to the commercial implications, I would posit that this is “merely” a question of business models: if you are “selling” (and Oracle’s lawyers will of course say it wasn’t a sale but a mere license) something, that would be it. However, if you provide an ongoing service (“SaaS”), your continued benefit is in the service, not the piece of software that carries or facilitates that service. So hard to do? No.

So, can we all get back to earth and crack on with it then? Thank you!

Oh, and happy July, 4th to my US friends! :)

Facebook’s IPO with no mobile revenues

So here’s the mother of all IPOs then, and it was coming a long way. The web was buzzing, today analysts of any couleur are commenting and reading through the fine print of Facebook’s registration statement (known as the S-1) in order to find valuable nuggets of information that they had not had before and myriads of bloggers and journalists drool over the new wave of young wealthy people in the Valley.

No mobile revenue

Whilst I’d love to join into this frenzy, I want to focus on one point in the S-1 that caught my eye, and which might pose some interesting challenges for the social networking giant going forward, namely the large abyss between mobile use of the site and revenues derived from it. You will likely have read about the huge amount of Facebook users regularly using the site from mobile devices. According to the company itself, 425m active users (out of a user base of 845m) accessed the site using mobile devices; that’s more than 50%. And yet, Facebook does not derive “any meaningful revenue” (quote from their S-1) from it.

Why (these) ads don’t work as well

This is, of course, because it – thus far – did not find a good way to display ads in their various guises to mobile users. The screen real estate is scarce and it would be easy to destroy the user experience by doing so. However, with that growth in usage, they may have to review this approach. The challenge is then to successfully marry user experience on a small(er) screen with revenue-generating activities. And, alas, the latter are so far mainly display ads of various sorts. How successful will those be? My guess is not very much. It is likely one reason why Facebook so far has shied away from using them: it might just destroy the user experience to an extent that its users would be seriously upset.

And yet, it is only the latest case of highlighting one of the common fallacies of migration from web to mobile (and I am not even saying they are wrong to move that way; their user growth and occuption of that space will likely counter-balance that; I think it was Accel’s Rich Wong who said that it is easier to find revenue streams once you have 100′s of millions of users than to find 100′s of millions of users with a (pre-)defined revenue stream). Nevertheless, none of us would watch a TV commercial showing you a static picture and someone reading something out from the off (this is exactly how TV advertising kicked off). We were not overly thrilled by early attempts of online advertising; they were merely an attempt to convert billboards and printed circulars to the digital realm. It was not until Google’s AdWords that online advertising really hit it off. So why would we now be content with a mere port from another form of media?

The Japanese way?

Japan has shown that there are other ways. Japan’s GREE reportedly records similar revenues from about 5% the user base than Facebook does. It does so mainly with virtual currencies and goods (and, yes,  it has moved to a slightly different target market); users can customize their experiences within that social network by buying “stuff” to embellish their avatars, play, use, customize content, etc. Japan has always been something of the Galapagos Islands when it comes to mobile usage: what worked there didn’t often work elsewhere (anyone remember i-mode?). However, we are seeing a similar effect on smartphone applications: 65% of the top-grossing apps these days use some sort of “freemium” feature. This approach might be too late for Facebook now though. Its users would be up in arms would they start charging for features that users have come to see as free.

I am fairly confident that the good folks of Facebook are here to stay but I am still thrilled to see if, when and how they will begin to adapt. With all the very smart people in the company, we may just see the next wave of mobile monetization, and I wonder what it might be…

In celebration of Tetris (and Jamdat)

The mobile version of Tetris, the iconic game published by EA Mobile, has now clocked up in excess of 100m paid downloads, cracking a landmark that is arguably miles ahead of everything else. This in itself is to be lauded.

However, in the press buzz around this incredible achievement, I have not seen anyone reminiscing on what brought this franchise to EA Mobile, and the deals leading up to that are something not to be sniffed at either, so here’s to the people who made an audacious move in 2005 when they bought Blue Lava Wireless, the Hawaiian studio run by Henk Rogers (who is also the CEO of Blue Planet Software, which still controls the rights to the game), together with a 15-year license to the mobile game for a rather breathtaking $145m ($137m + c. $8m non-recoupable license advance to the Tetris Company in which Blue Planet Software holds 50%).

The company at the time was Jamdat who some people described as the only company ever to go public on the back of a bowling game (Jamdat Bowling was one of the first run-away successes in the mobile space). Jamdat had just floated on Nasdaq in a $86m IPO (here’s the original S-1) with its market cap at the end of the first day of trading standing at $439m (up 45% from opening). They had struggled a little outside North America (as per their S-1/A nearly 80% of their revenues were North American) and were hence pondering to leverage Tetris’ global appeal to grow their markets outside the US. And how well they did!

At the time, however, few people thought the transaction would amortize ever. This might have been besides the point since the amortization for the original Jamdat shareholders came soon by the $680m acquisition by EA but few people (me included) had thought that the mobile Tetris property could yield a positive ROI (in isolation) on the back of, effectively, one game. This is naturally grossly simplifying since the lever of Tetris into carriers Jamdat did not reach prior to that provided incremental growth across the portfolio but the fact that it appeared to being an extraordinarily rich deal remained.

I do no longer have my numbers on what was needed to provide a satisfactory return but, over the 15-year license term, I believe it stood somewhere around $225m. With 100m paid downloads, EA may very well be there already – and this after only 5 years or so (this is again a simplification since there were of course sales prior to the acquisition).

I therefore tip my hat to Mitch Lasky, Jamdat’s former CEO and now a General Partner with Benchmark Capital (his very enjoyable personal blog is here), who had the foresight and/or luck to score this deal and I bow before the success of Tetris!

Gemalto takes majority share in Netsize

Gemalto, SIM card maker turned “world leader in digital security” (I wonder how many companies claim that title; it’s like boxing, it seems) announced it would subscribe to a capital increase in Netsize, turning Gemalto’s share (24% pre-money) into a majority position.

This may well signify another move towards a closer tie to highly integrated hardware/software/service solutions on the mobile value chain. Gemalto is one of the leaders on the SIM card side, it manufactures SD cards, USB tokens, smart banking cards, etc. Netsize sits on the service side of things: it provides SMS and MMS delivery, is one of the leading mobile payment providers and provides content management platforms. Glue it together, and it becomes a vertically integrated solution from the same mould. Has someone been reading Apple’s philosophy?

Besides these points, cross-selling opportunities would appear to be fairly obvious, too. The only mismatch could be that Gemalto focuses on digital security (they list mobile connectivity, identity and data protection, credit card safety, health and transportation, e-government and national security). Alas, no messaging and entertainment here, the two main areas of Netsize’s business.

This little mismatch is not unprecedented: does anyone remember the VeriSign acquisition of Jamba? Whilst it seems it may (just) have been paid off, the match between the companies was never really there, it seems. Let’s hope the Gemalto-Netsize story will be a brighter one.

EA & Playfish: Gaming Being Re-Defined

In my last post, I hinted that the Google/AdMob deal might just not be the #1 deal of the week and, whilst one can of course dispute this, here’s why:

On the same day Google’s AdMob acquisition was announced, there were more guys walking to the bank, namely the good folks from Facebook games kings Playfish (well, joint kings with Zynga) who have been acquired by Electronic Arts for a cool $400m (incl. earn-outs).

Why is this more significant? Because it is (like Google/AdMob) a cross-platform play that (unlike Google/AdMob) also expands the basis of business models deployed. Playfish derives the majority of its revenues from so-called virtual currencies, and in particular also from lead-generation deals (which recently have become “a little bit” under fire for queries of their ethics). But ethics or not (and Playfish seems to have been fairly clean in this respect), the main point is that there has been a business model that is new, well -ish: it is not reliant on display ads nor paid subscriptions or download fees, etc. It is a new form of engagement there, crude in its beginnings but new no less: users are encouraged to interact with brands in exchange for personal details. Now, if done – as often – crudely, this has a bad feel.

But brands might also want to grab this with both hands because it offers unprecedented opportunities to truly enagage their users: interact with them and they will be more forthcoming. Behave and their sentiment will be positive. Be sincere and they will recommend your brand to their peers (which accounts for 74% of purchases online!). Check my recent keynote on this topic…

EA had changed the mobile gaming world when it acquired Jamdat by using a significant distribution footprint and leverage it with its own brands and the financial muscle only someone with its revenue HQ outside mobile could at the time. The acquisition of Playfish provides a similar footprint in the online world (do not forget that Facebook is “only” the largest bridgehead of online games).

As with Jamdat, EA is expanding the options of available business models and this is to be commended!

Google & AdMob: Is that It?

It was an eventful week but I shall pick Google’s acquisition of AdMob as my top (well, maybe only #2) item. A game changer, the final acknowledgement of the power of mobile, there is a lot one can find to describe the deal and for all the right reasons:

The acquisition of Admob by Google shows Google’s commitment to “mobile, mobile, mobile”, which in itself is encouraging for the sector that is – despite a number of larger players evolving and despite the still relatively recent paradigm shift initiated by the iPhone – still fledgling. That in isolation makes it great news for the mobile sector!

From Google’s and Admob’s respective business perspectives, it appears to make eminent sense, too (and I am not privy to their numbers): Admob will be able to bulk up and cement its leadership position in the segment. Its inventory and back-end ad management will be able to dip into Google’s vast resources, which is great for them. Google probably realized that Admob’s strength meant that they would be difficult to beat. And who you can’t beat, you shall join (or, in Google’s case, buy) them. For Google, it is a smart move as it gives them critical mass in an ad format where they have not nearly been as dominant as for other formats and gives them access to a lot of eyeballs.

The eyeballs bit is, however, maybe the concerning piece of this: Google makes 97% of its revenues from its legacy business using AdSense, AdWords, etc. Nothing much has changed for a couple of years and it has miserably failed with a couple of acquisitions (anyone remembering “the 2 kings have gotten together” [1:00]?), YouTube is a great site but did Google maximize it (yet)? Probably not. Jaiku was more than just a worthy competitor to Twitter; they were history the moment Google bought them (well, it was eventually moved to Google’s App Engine but no one seems to have made much use of it).

As much as I admire Google, the company (where – get this -, when in new product development, you are allegedly judged by the number of failures you managed to produce! Very, very good and gutsy thinking!), it has to get its head around more “modern” approaches to marketing and engagement. Text and display ads alone won’t cut it in the long run… But, in any event, the combination with AdMob will give Google a little bit more of a runway to get this right and – smart companies both of them are – I am sure there is more than enough brain cells to get it right. All good!

Gamevil valued at $70m

gamevil-eyeGamevil’s very own, indominable Kyu C Lee (@kyuclee) was kind enough to share with me the total number of shares in relation to Gamevil’s IPO (on which I reported earlier today). The total number of shares in the company is 5,484,780. Therefore, the company is floating stock representing c. 14.5% of the total, which values them at a fairly impressive $145m 69.65m or so.

Very respectable, folks! Well done!