Ch..Ch..Changes are Coming to Facebook Gaming (Again)

The news coming out of the Facebook gaming summit is, as expected, all about revenue, viral spread, and expansion strategy. Even prior to the Facebook gaming event (liveblogged here), information leaked indicating over 50% of Facebook users are logging on to play casual games. If 19% of all Facebook users are self-described as “addicted”, well you have to think Facebook is banking big on gaming producing an ever larger piece of revenue for the social network.

Facebooks’ latest in a long string of changes move is to concentrate virality spread in a games notification tab, rather than in general notification. Here’s what it looks like:

More significant is a change which can’t be screenshotted. Facebook users who do not play games will no longer see news feed stories from friends who do play games — same goes for any other third-party app.

The reason this is huge news: FB feed stories were a main way that people found games in the first place, an number of developers expect material drop offs in app virality. Facebook is clear about its rationale behind this: “Tens of millions of app wall posts are deleted every day by people who find them irrelevant. By surfacing relevant stories based on usage and discovery stories based on friends, we believe we’re providing the best user experience and building lasting and long term value.”Facebook is replacing hard to meter virality into easier to meter virality (easier for Facebook). What’s driving this is Facebook’s feeling that they generate more traffic than Google, yet pull in less revenue than Google. This is likely Facebook’s attempt to close the gap (perhaps for a future IPO?).

Our take for game developers: game discovery on Facebook is likely to hinge less on news feeds and far more on traditional promotion like banner advertising, cross platform gaming (i.e. iphone/Facebook/web), and intra-publisher game virality. Larger developers may be less affected since they will likely be able to funnel traffic from successful games to newer games.  Facebook is still the casual gaming virality giant, and that’s unlikely to change. However, a cross platform, cross web strategy is a smart strategy to maintain a flow of low cost traffic.

Startups are a Vehicle for Monetizing Your Passions

One of my favorite oldies but goodies: WineTv’s Gary Vaynerchuk. I’m posting this on the blog since it came up in conversation this weekend, and I figured I’d post it. IMHO, this is required viewing for people turning their passions into a startup. There’s some NSFW language here, but don’t let that stop you. I can say from firsthand experience that the crowd present was completely into this talk.

Choice quote: “Look yourself in the mirror and ask yourself what you’d like to do for the rest of your life. I promise you – you can monetize that shit”.

Should Your Startup Hire a “Big Company” Exec?

Successful startups usually reach a tipping point: they find their footing, build a significant mindshare, and (probably most importantly) establish a solid model whereby the ARPU (avg revenue per customer) exceeds the cost of customer acquisition. If you’re part of a startup and you’ve checked all of the above, it’s time to start hiring and start putting your foot on the gas. Inevitably, the question of whether to hire a “big company guy” to scale the operation comes into play, whether the referral comes form an investor, or a friend or professional search.

Then…

The team is pumped, person comes in to much fanfare.  A few months later, the rest of the executive team can’t wait to get rid of the “expensive guy” who “doesn’t get it” and “isn’t carrying his own weight”. The tidal wave of customers hasn’t materialized. Out goes the “pricey”, “self absorbed” big company executive with a nice compensation package to the detriment of the company.

WTF happened?

Focus on Focus

Welcome to the next entry in the “startup toolbox” series. My hope is to calibrate your thinking on the one thing that sets startup execs mindset apart from “big company management” mindset.

Ben Horowitz, in what’s become a must-read blog suggests the answer is twofold: a skills mismatch and a “rhythm” mismatch. My take on it is this: it’s almost always the latter.  Larger companies I’ve worked in certainly prioritize immediate interruptions: meetings, emails, phone calls, etc. Inbox zero becomes a goal in and of itself. Startup founders know that those interrupts will never happen. They have to create traction, buzz, and ultimately a place in the marketplace for their companies. They understand that their job is to create value, not manage distractions.

Startups are creativity focused, whereas larger companies are interrupt focused. Place an interrupt management driven executive in a creative environment, and the result is predictable. You’ll end up with an executive who awkwardly wonders when the interrupts are going to happen and a founding team which wonders when the “big company guy” is going to get off his butt and make things happen.

Large companies tend to teach executives to focus on their inboxes and voice mailboxes – that is, they focus on an interrupt based work model rather than a focus work model.

Screen for Creativity to Avoid a Disaster Later

Creativity is the key – look for a creative mindset during the hiring process rather than a mindset than emphasizes inbox management, fancy lunches, and other non core activities. My company is in the process of hiring a number of key roles right now, and here are a few questions we use to screen for the right kind of startup “mindset”:

“Why do you believe you would successfully transition from <Large Company> to us?”

The most common answer I’ve heard is “well I managed a small group”. It’s also a clear indication that the person doesn’t get it startups, since he equates size rather than creative bent to startups. Frustration with launching initiatives is a good sign. Frustration with internal politics, job growth, etc indicates a focus on extraneous stuff.

“What would you accomplish by the end of month one?”

As above, the idea here is to look for someone who wants to create content: create opportunities for the company, create mindshare in the market, create a great product, create revenue streams, etc. I’d also suggest drilling down to make sure the person understands and can manage innovation at an atomic level. I’d suggest a pass on anyone who over emphasizes learning, internal coordination, or process definition.

“What are the first three phone calls you’d make your first day on the job?”

I ask this question to understand how proactive the person is (a critical skill in a startup). Look for answers involving launching initiatives: communication to potential customers, media, testing product ideas, etc. Beware of answers focused on process over-engineering. One doozy I’ve heard: “I’d call up my team and set up a meeting to establish the kind of culture and work ethic I expect”.

“Why do you want to join a startup?”

Look for a person who understands the concept of creating something out of nothing. Answers involving working in a nimble organization or the excitement of taking on an “important” role usually get a yawn and a pass from me.

One Last Thought

Content free executives have no place in a startup, so get a sample of content before you take the plunge. Try asking them to open a few doors to sales opportunities, suggest new marketing initiatives, or create a few sketches of ideas they would like to follow through to execution. A work product that is cookie cutter or a “google cut and paste job” is a sign the person may not be focused on creating content. As one CEO I spoke to recently said to me: “delivery is relentless and ruthless in its honesty”. Very true.

Gaming Platforms Compared [Infographic]

There are a number of terrific platforms repositioning their strategy to become a social gaming centric network, including Hi5, Friendster, and others. With the introduction of Gamecenter, Apple has entered the fray as well from the mobile side.  But how to shake out the winners and losers early on?

It strikes me that Facebook’s own growth in the casual gaming market provides a template to assess the new entrants.  AllFacebook provides the following infographic which I found interesting in comparing the adoption, average revenue per user, and developer ecosystem size. I’ll highlight one point I think is grossly inaccurate however: they claim the average revenue per gamer is $0, compared to Apple’s $2.43 and Android’s $2.96.  Facebook’s games usually monetize using virtual goods, which are not included in the calculation. Still, average revenue per user is a bit lower on Facebook games (for more info, see appdata.com for ARPU per game).

Here’s the graph which otherwise is fascinating..

Free (and Awesome) Legal Resources for Startups

Unless you’ve been living in a cave, you’ve probably been privy to the conversation around startups requiring less money to launch and become market viable – and hence the increasing web chatter about free and low cost legal resources for startups. This blog is no exception. If you’re a regular reader of this blog (and I thank you if so!), you’ve probably read the post titled “One Startup’s Toolbox“. The post lists a set of tools we at Doubloon use at our company to manage workflow, track our progress against sales goals, delight customers, and build one seriously kick butt product. Many readers either commented or emailed me directly and asked for additional info on legal tools we use – the trend became unmistakable.

I aim to please, so here’s my follow up specifically listing startup legal tools we’ve used or will be using- the second in what is becoming the “startup toolbox” series. I’ve attempted to divide up the legal resources below into functional groupings: a) Document Generators, b) Templates, c) Online filing agents, d) Legal advice, and e) Blogs written by experts (not discussion threads).  Each list is presented below in no particular order, and is not intended as a comprehensive list, only a “best of the best” as I see it.

Well that last sentence sounded suspiciously like a legal disclaimer… so I’ll stop here while I’m ahead and get on with it..

Document Generators

LegalRiver Terms of Service Generator - Provides a boilerplate terms of service document for your website visitors. Note you may require something substantially different  if you’re providing a service online through that website – a subtle yet important distinction. Enter in your company name, business phone number, etc. and out comes a website TOS. Free.

Legal River Privacy Policy Generator – From the same folks comes this handy privacy policy generator.  It’s worth noting that if you’re involved in some industries, this may not be sufficient. For example, startups involved in healthcare related data processing would likely need to follow HIPPA compliance guidelines.Pretty standard here, minimal options, but free.

Wilson Sonsini Term Sheet Generator – This Sand Hill Road law firm took their internal term sheet generator tool and placed a simplified version of the tool online for all startups to use. The generator provides a customized term sheet after responding to a questionnaire. The too also provides informational annotations and basic tutorials on financing terms. The tool is worth using just for the tutorials alone. It’s free, believe it or not.

Mutual Confidentiality Agreement Generator – by “open source” legal resource Lexpublica, which provides a couple of other basic forms as well. You probably don’t want to spend any money developing an NDA since most people won’t sign it anyway.

Templates

“Ideal” First Round Term Sheet – Published by Adeo Ressi’s Founder Institute (FI), the form’s content was discussed on Techcrunch here. – The goal is twofold: first, to reduce legal fees involved in simple seed fundings. The average legal fees involving a seed funding can fall between 20-50k, which is perfectly fine for a multi million dollar round but not quite so practical for a $100,000 angel round. The second is to protect founders. The FI term sheet eliminates terms commonly considered onerous for founders, such as participation with preferred stock, a 1x liquidation preference, and single trigger vesting acceleration on acquisition. The term sheet is free and “open source”.

Y Combinator’s Series AA Financing Documents – Much like the FI’s model term sheet, Y Combinator’s objective is to avoid burning lawyer time negotiating provisions that are almost never used, and lowering the cost of getting a deal done for smaller seed rounds. The template documents are generally founder friendly, specifically calling out a 1x liquidation preference and remaining silent on preferred participation. Discussion on Techcrunch is here for those who wish to dive into a bit more detail. The documents assume a preferred stock financing instrument, rather than convertible debt which is also a commonly used (and inexpensive) alternative. Free and “open source”.

National Venture Capital Association Model Documents - In their own words: “In general, these documents are intended to reflect current practices and customs, and we have attempted to note where the West Coast and East Coast differ in a number of their practices. However, one of our goals in drafting these documents is also to reflect “best practices” and avoid hidden legal traps, even if doing so means straying from current custom and practice. We have attempted to avoid, or at least point out, certain problematic provisions that have become “market standard” terms. We have generally tried to indicate such issues with a footnote and explanatory language.”. The documents are geared more towards VC rather than seed funding. Free.

Online Filing Agents

Biz Filings – Generally I recommend filing through a processor to save yourself time and money and the aggravation or getting something filed incorrectly. I give Biz Filings high marks here for ease of navigation a wizard-like walkthrough.

Harvard Business Services – Not quite as slick a walkthrough as above, but cheap, cheap cheap if you’re specifically looking to create a Delaware corporation.  We used HBS to form our company.

Legal Advice

There are a number of blog posts, articles, and other sources of information out there. As stated above, this is not intended to be a comprehensive list. I’ve cherry picked articles and blog posts which I consider “must reads”. That is, posts I think are highly relevant and contain a high signal to noise ratio:

How to Work with Lawyers at a Startup by Mark Suster, a founder turned VC and blogger I highly recommend reading in general.  Before you read any other post, read this one.  If you don’t read any other post, read this one. It’ll save you time, money, and make for a more successful relationship between you and your counsel.  Many of the posts below also expound further on summary points included in this post.

The Six Biggest Legal Mistakes Startups Make – by Scott Edward Walker, a lawyer who advises startups and posts on Venture Hacks. The title is self explanatory:  learn what not to do by reading about common fails others have made. Thats’ the same spirit behind this quick read. A longer but similar read from Harvard Business Review is here.

The Top Lawyer Lies List by Guy Kawasaki. Excellent lawyer fail checklist which you can use to ensure you don’t hire a chump. If you hear any of these from your lawyer, walk away and hire someone else.

Lawyers Can’t Tell You Not to Do Something posting on Venture Hacks by Bram Cohen is also related to the above.  I’ll summarize his point here for the impatient. You already know it’s worthwhile to hire the very best developers even if they cost more, because they’ll produce more in less time and cost less overall. Same goes for Lawyers – Bram suggests founders insist only partners produce work. Even if the hourly rate is more, he suggests your long term costs will be lower since the newbies aren’t “learning on your dime”. Choice quote: ““Lawyers are like phone companies. Their bread and butter is in tricking you into racking up minutes.” Brutal but honest.

Term Sheet Series Wrap up by Brad Feld. The classic primer on Term Sheets (written in 2005), if you’re ready to head in that direction. It’s part glossary and part tutorial.

Blogs

StartupCompanyLawyer. com by Yokum Taku, a lawyer at Wilson Sonsini. A great resource organized in a FAQ format, which as far as I can tell is kept by a meticulous custodian. I was fortunate enough to find this blog early on in my clueless newbie phase and picked up a good dose of smarts here.

StartupLawyer.com, by Texas lawyer Ryan Roberts, who apparently registered his domain name before Mr. Taku above did. Great tag-based navigation and clear, concise content make this another winner. The content is a bit “fluffier”/less detailed than the above blog, but a somewhat easier introduction for those starting at square one.

Inside the Google Gaming Hivemind

I’m sure you’ve noticed Google’s been on a bit of a shopping spree of late in the casual gaming space. First Slide, then Social Gold, Adscape Media, and now Social Deck. The rumor floating about is that Google is currently building a social network of their own to be named “Google Me” focused on social gaming and casual play as a direct broadside to Facebook’s success in drawing in gaming revenue and mindshare.

I’m hearing from a trusted source (sorry can’t name the person) that the project is focused on casual play as a differentiation angle, because let’s face it, simply providing a Facebook look-alike isn’t likely to draw a large army of switchers.  They’ll have to improve upon the original or create a new niche. That would make sense in light of Google’s pickup of Mark DeLoura, a gaming industry veteran with a resume including the likes of Ubisoft (more on that hire in a bit).

Former Facebook CTO Adam D’Angelo poured fuel into the rumormill fire on a Quora thread with the following (emphasis is his):

• This is not a rumor. This is a real project. There are a large number of people working on it. I am completely confident about this.
• They realized that Buzz wasn’t enough and that they need to build out a full, first-class social network. They are modeling it off of Facebook.
• Unlike previous attempts (before Buzz at least), this is a high-priority project within Google.
• They had assumed that Facebook’s growth would slow as it grew, and that Facebook wouldn’t be able to have too much leverage over them, but then it just didn’t stop, and now they are really scared.

So that’s the buzz (no pun intended) on the possibility of a Google Me project.

However…

There are mixed signals. Google CEO Eric Schmidt was fairly ambivalent on heavy gaming investments when asked about it at the Techonomy summit. Now I mentioned I’d return to the hire of gaming veteran Mark DeLoura. He delivered what was considered  a strong debut presentation he gave at GDC Europe showing off the Chrome Web Store for the first time. A few key slides DeLoura focused on showed games such as the popular game Plants vs. Zombies coming to the store in fact. Then he leaves Google after just 4 months on the job, quite suddenly and unexpectedly.

What Does it All Mean?

So we have some mixed signals but also  This post is my attempt to connect the dots here and what it means for you if you’re a game developer. I’ll note that I have had nearly no contact with Googlers and this is unabashed speculation on my part. However, I think you’ll see that when we tie together a good deal of publicly available data, a coherent picture comes into focus. Here are three data points to consider:

1. Apple Does More Paid Apps, Google More Free Apps -  Take a peek at this chart of the day, courtesy of SAI and Pingdom:

The difference might be due to a number of factors – for example, one is a walled garden while the other is an open source platform. It’s possible in the minds of many consumers open source and “free” are synonyms. In short, for Google to make a strong monetization push, they’re better off leveraging a free to play model than an app purchase model.

2. Mobile games are flying off the shelves

Take a look at 148 Apps.com, and count how many of the top ten paid apps are games. Yep, that’s 8 out of 10, and yes, the two non games are in the 9th and 10th spots. Of the top 20 grossing applications, a full 16 are games – same percentage. The takeaway is hard to ignore: if you’d like to make money in the mobile space, develop a game rather than an application. In-app/game purchase numbers are harder to quantify, but our own data across publishers suggests virtual goods in games are likewise outpacing in-app purchases by a similar margin.

3. The Hottest of the Hot are Free to Play Games

There’s been some speculation about free to play games and the amount of investment going into those games, and some (understandably) wondered whether a new bubble is forming.  It’s understandable considering Disney paid $563 million for Playdom, the sector’s third largest developer, last month, and as CNBC says, “That price could escalate to $763 million if the unit hits performance targets over time. The bubble argument falls flat when you consider there are real revenues behind the investments – poised to hit between $2 billion USD to $7 billion USD by 2015. The payback periods of some gaming investments might be measured in 2-3 years by worst case estimates, and even be measured in months the most optimistic estimates. That hardly sounds like a bubble.

EA's Battlefield Heroes - a free to play game

It’s about the Mobile Free to Play Games

Put all of the above data points together and think about what it means for Google.  I’ll wager Google’s logic goes something like this: ” We’ve become the default repository for the web’s data. The next frontier is mobile game data, which will drive web gaming and stands to become even more lucrative based on early returns. It’s not a bubble, it’s the real deal, and if we don’t move in quickly, we may ceed that position to Apple.”

Hence the Google pickup in three substantial areas of game development and publishing, including the trifecta of game development studios, game publishing infrastructure, and monetization/currency/advertising platforms.

Again, this is all wildass speculation on my part – what do you think?  Comment away below!