Why Developers Should Never Agree to an Earnout...

A few years ago, Disney bought Club Penguin for $700 million....oops, I guess it was $350 million.


http://www.gamasutra.com/view/news/28548/Disney_Skips_350M_Payment_As_Club_Penguin_Misses_Profit_Targets.php

Basically, 50% of the deal was earnout based on profit milestones that Club Penguin missed.  

The biggest problem with earnout is that once you've been acquired you have much more limited control over the future of your product so that hitting your earnout target is dependent on the acquiring company's support.  If the acquirer changes product strategy after the acquisition and re-prioritizes resources away from your product, then you're screwed.  Sure, you can negotiate assurances and control over budget, hiring + firing etc.  But that's a bitch of a negotiation and you're not going to think of everything.


I often tell people to negotiate an upfront that are happy with and think of the earnout like a getting a supermodel's phone number, awesome if actually works, but don't count it.

Hotel City. Playfish is Back! 3M DAU Projected in the First 8 Weeks

Per the headline, I'm projecting 3M DAU in the first 8 weeks. That would be unprecedented for a Playfish title, but makes good linkbait. :)

I had started to worry about Playfish. Poker Rivals and Gangster City are frankly not very good social games. It's understandable, both games were attempts to stretch into Zynga territory, but outside of what Playfish has mastered: cute decorating games with light social interaction.

Hotel City is an iteration of the hotel genre that was initially popularized in China. The genre hasn't seen much success here, mostly because the games were just moved over from Chinese networks without good localization and left to rot.

Hotel City is a hit. It will be large and it will be copied. Should hit 3M DAU within the first 8 weeks if Playfish markets as aggressively as Playdom did for Social City.

High points:
Nearly infinite customization from a very basic building block (the boxy hotel room). Decoration games work best when they start from a very simple palette as they allow the users to run wild. Hotel City accomplishes this in spades.

New viral feature. Playfish has never been strong on viral, so I'm very please to see that in order to hire friends as employees, you need to post a employment notice in your FB stream. Expect to see that adopted by others rapidly. Feels like something Zynga would have come up with for Cafe World. Haven't played Cafe World in awhile so please no flaming comments if they innovated this technique.

Prediction: Hotel City feels much like a dollhouse, which is the logical variation for a cloner who wants to differentiate and target the female market. Sorry kids, Dollville.com and Dollworld.com already taken.

Hugh, feel free to use this writeup in the competitive report. :)

UPDATE: Hotel City reached 3M DAU in five weeks rather than 8 weeks.  For exactly one day, then it fell victim to the changes in Facebook's viral channels and fell.  I won three dinners - Max (with that new Playdom money you can treat me nice.)

Gravity Bear Gets It All Wrong: 5 Common Mistakes of Traditional Game Developers Entering the Social Space

I must be in a critical mood, I apologize in advance to Gravity Bear who did make a well-polished game and doesn't deserve to be my whipping boy. This post is more directed at the wave of traditional game devs who have been entering the social space for a while and having their boats smashed against the rocky shores of Facebook. Gravity Bear simply makes the same mistakes, which are numbered below.

I just played Battle Punks (http://apps.facebook.com/battlepunks/) for the first time, I had been watching Gravity Bear since they announced their formation.

1. Early Press release. I always consider it a sign of impending fail if a studio announces their social game via the press months in advance. It's traditional game industry thinking and has zero impact on adoption of their game. Though it is useful to raise money.

2. Using a Plugin. Everybody wants to make their game to look pretty, I get that. But not at the expense of massive user drop-off. Plugins hurt your funnel badly. Instant Action was actually pretty painless, but I am using the latest version of Firefox on a computer where I'm logged in as an admin. Neither is a likely use case for most of the FB audience.

3. Long download times. I had to wait through multiple content downloading message to get to the core game. Typical user would have gotten bored and left. Also indicative of a big, unoptimized flash file which will likely crash older browsers (which is what most people use).

Both 2 and 3 are classic traditional mistakes, not taking into consideration technology lag and technology adverse users when creating games. Pretty rich graphics have a high cost which most developers don't see because the games run fine on their high-end machines. This technology lag is going to be the biggest impediment to adoption in the forecasted "better graphics = better games" race that everyone is buying into. Believe me, optimizing flash is a hard problem for richer experiences and there are only a handful of guys in the world who have any real (real= years+) experience at this.

4. Focusing on graphics versus gameplay. Most of Battle Punks is watching a repetitive, animated battle that you can't control and can't skip. That's the core of the game. Not fun. There's a reason Mafia Wars doesn't have animations. There's also a reason why Gangster City is a FAIL: because the animations are not the reward, the experience points are. People seem to be confused about that. Civ: Revolution on the iPhone does animated battles well: quick and skippable. They are practically over before I can hit skip.

5. Overly-complicated Game Systems adapted from MMOs. Don't make people have to active manage their inventory. It's not fun. It's a barrier to the core fun of the game. Only hard-core players can appreciate the nuances. Please stop taking game design lessons from MMOs. It's a different audience (casual) with different requirements. If anything MMOs should take lessons from social games if they want to widen their audiences. Do not pull the World of Warcraft card to try and justify using MMO game design. WoW is unique, the other 100 MMO failures should have taught us something.

I'm stopping at five because I'm starting to rant. My hope for Gravity Bear is that they find their niche audience and monetize well and have a profitable business. There is a popular thesis that niche games with high ARPU is the next social games wave. I hope it is, but I have some opinions on that which I will share another time.

Thank You, Jameson Hsu: Mochi Media Acquired for $80 million

For the first time in about a year have I been inspired to write a post. It's not for lack of ideas or analysis, those nuggets have been going to my employer, Zynga. However, this is the first story in a long time that I really felt was important. On both a personal level and an industry level.

You'll have to discern the importance to the industry here: http://www.techcrunch.com/2010/01/11/mochi-media-acquired-by-shanda-games/

Here's the personal and this speaks to the reason why I'm so happy for Jameson Hsu (CEO of Mochi Media):

Jameson is the reason I'm still in Silicon Valley.

And he probably doesn't even know it. When I first moved out to Silicon Valley about 3 years ago, I only knew one person: my co-founder. Fortunately, he'd met a few people in his eight years out here and one of them was Jim Young, an angel investor in Mochi Media.

My co-founder spent the first few months working on some ideas destined for failure and we had gotten to a point where things looked pretty bleak.

I had been assiduously following the tech and games blogs and had realized that Flash was the future (probably courtesy of Daniel James of Three Rings). We decided to built a flash MMO with embedded multiplayer flash games (which ultimately is what Three Rings built: www.whirled.com). However, we intended to build ours on Facebook and ours was going to be a ripoff of the Nintendo game, Animal Crossing (which Playfish did successfully copy, err...homage, about a year and a half later wisely without embedded flash games). But frankly, we were pretty burnt out and I was having serious thoughts about abandoning the whole thing and going back to the east coast where I had misplaced the woman I intended on marrying (but didn't - a much longer story).

Jim Young intro'd us to Jameson. Jameson was the first person we pitched the concept of a multiplayer flash gaming platform on Facebook. Before VCs, before angels, before employees, he was first.

Not only did he think it was a great idea...he offered to help. Advice, connect us to developers, the whole nine. And he didn't ask for anything in return.

I remember leaving the Mochi offices and noticing that the sun was shining. And both John and I felt hopeful for the first time in weeks.

Though ultimately we failed and never took Jameson up on his offer of help, that meeting keep us going for another few months. Long enough for me to realize that even though my partnership with my co-founder was doomed that Silicon Valley where I wanted to be. I can honestly say if not for that meeting with Jameson I would back on the East Coast reading Techcrunch and telling sour grapes stories.

So thank you, Jameson. And congratulations on your exit, it's well-deserved.

Scrabulous (oops Lexulous) offers a mobile version

Mobile is hot. And the movement of social to mobile is even hotter. But I did not expect Lexulous to offer a mobile version. And I did not expect that mobile version to be incompatible with iPhone and Blackberry.

Here's the scoop as stated on the Lexulous app:


And I'd never expect them to incentivize invites. The Agarwalla Bros have always been scrupulous about obeying the letter and even more the intent of FB's platform policies. I am correct in thinking that offering a mobile version for inviting 30 friends is an incentive, right?

iPhone Current Demographics - Gender

There's a pretty strong data (albeitly indirect) that most current iPhone owners are men 25-35.

However, if you take a look at the current traffic to buyiphone.apple.com (Apple's info portal for buying an iPhone), you'll see that 48% of the visitors are women (according to Quantcast).

Tracking back 6 months, I found that Hitwise did a similar analysis and found the traffic was nearly 50/50.

I haven't been able to find any good current demographic data regarding gender on the iPhone, if anyone has a good link, let me know.

I'm not sure if I find this data conclusive, but I suspect that with the price of the iPhone dropping we will see the percentage of female owning growing (men are much less price sensitive when it comes to gadget purchases).

I'd say if I was building an app for the iPhone for a release in the next 3-6 months, I'd stay focused on the male demographics.

Here's some more demographic data, mostly income. (http://theappleblog.com/2008/11/24/profile-of-an-iphone-user-interesting-statistics-about-yourself/)

And I'd charge money. :)