Friday, March 27, 2009

GDC Recap

This week I spent a day at Dean Takahashi's GamesBeat conference (where I did a panel with some sharp investors from other venture firms) and two days at the Game Developer's Conference (including a solo session in the business track -- slides posted here). Didn't get a chance to see many GDC sessions, given all the meetings and presentations, but I was able to see a couple, and walk the floor and check out what was on display at GDC. I also caught up with many old friends and colleagues over the course of my time there, and met with a number of entrepreneurs.

I went to my first GDC in 1993. Literally, the entire game developer community fit into a single banquet hall in San Jose that year. The next year, the "old timers" (Chris Crawford, Ernest Adams, etc.) were both lamenting and celebrating the explosion of newbies. They asked for a show of hands at dinner in '94, which indicated that about half the attendees were at their first GDC. Fifteen years later, with the demise of E3, GDC is now the pre-eminent show on the domestic calendar. This year's GDC was certainly as well-attended as any show I can remember.

What's great about GDC is that despite the huge surge in attendance, it still feels like a "gathering of the tribe" and the speakers are still remarkably forthcoming and candid about their craft -- you rarely feel like you are sitting through a sales pitch when you attend a technical session. I always learn more at GDC than any other conference.

There were a couple of big trends in evidence that I think are worth mentioning:

1) Digital Distribution: between the massively-hyped OnLive launch, the Qualcomm-backed Zeebo, the large number of MMO's and casual game plays, the frothy (and mostly misplaced and uninformed) attention given to iPhone/iPod Touch, and the frequent lamentations about long development times and huge budgets for traditional console and PC games, digital distribution was clearly the trend of the show. It seems to me that the old-line publishers are way out of position on this one. I predict that you'll see a strange detente between retail and traditional publishers (maybe a trade-off on used games vs. digital distribution) as they circle the drain together.

2) Virtual Goods: with advertising on an apparent decline as a way to monetize free games, a worry about how many online subscriptions an average user is willing to take on, and a yawning gap between the retail price points and free-to-play ARPU, virtual goods has emerged as the "white knight" business model for games. Easier said than done. I heard that Don Choi from OGPlanet gave a great presentation on the actual mechanics of virtual goods, but I sadly missed it (Don worked for me as a business development executive at JAMDAT before returning to Korea -- he's a very smart guy).

3) The Economy: not what you'd think. It was really the profound lack of visible concern about the economic melt-down that was so startling. Attendance was up. The "job fare" aspect of GDC seemed to be in full swing. Certainly the venture appetite for games is not what it was two years ago, but I got the distinct vibe that the industry expected to make it through the down-turn, with most job losses hitting the big publishers rather than the indy/next-gen developers.

4) Hardware Transition: again, significant by its general absence from the discussion. We're 4 years into this cycle, and historically at this point we would have been obsessing about Xbox vs. PlayStation vs. Wii, speculating about hardware and who was getting early access to dev kits, etc. I heard none of that. I saw a lot more MMO-enabling technology than console-enabling ones. It begs the question whether there will actually be a transition in the traditional sense. With the X360 and PS3 already moving well in the direction of being living room set-top boxes and home media hubs (with music, online services, Netflix, etc.), could we possibly see a disc-less PS4 from Sony?

Friday, March 6, 2009

Powerball vs. Moneyball

My friend Rick Heitzmann sent me a blog post by Stephen DiMarco from Online Metrics Insider titled Powerball vs. Moneyball Marketing. It is interesting reading. DiMarco's point is that there are two approaches to marketing: the Powerball approach, which is a high risk/high return, "swing for the fences" strategy; and the Moneyball approach, which (hat tip to Michael Lewis) is a metrics and measurement-driven strategy designed to "engineer outcomes."

I'm no marketer, so I can't really comment on DiMarco's post from that perspective, but I think his analogy is broadly applicable to the current state of the video game business. The packaged goods publishers are playing a lot of Powerball -- buying lottery tickets for new IP, spending horrendous sums of money up front with very little understanding or measurement of audience dynamics, and hoping for home run outcomes. The fact that every so often a new game becomes a monster success keeps everybody buying lottery tickets.

Conversely, the approach that companies like MiniClip, or some of the social network-based publishers are taking looks a lot like DiMarco's Moneyball strategy. I'd be willing to bet that MiniClip knows exactly the amount of traffic they can drive to a game featured on their home page, and structures their economics accordingly.

We once had a meeting with some senior executives from a well-known video game publisher when we were running JAMDAT. The head of studios for that publisher finished getting demos of our best-selling products and famously said, "A monkey could make these games." What he was responding to was the lack of whiz-bang 3D graphics, the lack of fanboy, nerd-core "innovation". He was used to playing Powerball. We, on the other hand, were playing Moneyball. We knew from studying our customer data that our audience didn't care a rat's ass about the kinds of things that Gamasutra editors cared about. They wanted simplicity, accessibility, and value. So we made products to "engineer" that result. And we acquired IP that fit into that mold, like Tetris.

What Michael Lewis described the Oakland A's doing in Moneyball -- buying players who were undervalued by other clubs but who were overachievers in the metrics which actually produced results -- is really quite similar to the the ideas of customer acquisition leverage and audience measurement in the entertainment business. I think there's going to be a lot of value created exploiting this in the future.

Tuesday, March 3, 2009

Why the Lahore Cricket Attack Matters

In Lahore, Pakistan, a group of up to a dozen terrorists brazenly ambushed two minivans carrying the Sri Lankan national cricket team and officials, killing 7 police and civilians, and injuring 9 of the cricketers.

Just another sad and pathetic day for Pakistan, fast becoming the Somalia of South Asia? A blow to Pakistan's government, which -- after the destruction of the Islamabad Marriott, the assassination of Benazir Bhutto, and the Mumbai attack fiasco -- appears to have no control over the security situation inside its country? All certainly true, but I think, ironically, this incident is potentially more profound in its regional implications.

The government of Pakistan has recently embarked on a new strategy for dealing with its internal security issues. After failing to defeat the Islamic militants in combat over the last year or two (despite inflicting mass casualties on the Talibs in Bajaur and elsewhere), and after failing to root out the Islamist sympathizers in their internal security services, Pakistan has started a campaign of appeasement, including several cease-fires and an agreement to allow the propagation of Islamic sharia law in the Swat Valley. The theory seems to be to grant autonomy and an Islamic identity to these loosely-governed regions in exchange for peace in the rest of Pakistan.

Meanwhile, the Obama administration continues to assassinate Taliban and al Qaeda leadership inside Pakistan, with 4 CIA drone missile attacks killing 90 people since the new president took office. These attacks have been brutally effective but wildly unpopular inside Pakistan; viewed there as both a provocation of the enemy and an infringement of Pakistani sovereignty.

And, now, the Lahore attacks. This is not like Mumbai (an attack on an old enemy), or the Marriott (an attack on a symbol of American influence), or Bhutto (an attack on a controversial politician) but rather an attack on what is probably an institution second only to Islam in Pakistani esteem: cricket. If you think I'm exaggerating, you've never been to South Asia during a test match. I was in Mumbai and Delhi a couple of years ago when the Indian national team was visiting Pakistan for a series of one day internationals, and these huge cities were literally shut down during the matches. I was trying to get a deal done, and my Indian counterpart was getting a text message from his wife after every couple of balls were bowled. After India won, there was rioting in the streets of Mumbai.

The ICC (the FIFA of cricket) has already questioned whether Pakistan can participate in the 2011 World Cup as a host (they were going to co-host with India, Sri Lanka and Bangladesh). No team is going to go to Pakistan to play, and it's equally unlikely that the Pakistan team is going to be welcomed abroad.

I think this could be the tipping point for the moderate majority in Pakistan. Up until now, I think you could be a moderate, worldly Pakistani and still be an apologist for Islamist terror. There is widespread popular support for the Taliban as freedom fighters in Pakistan, widespread hatred for the US and India, and the usual Islamic tendency to blame a long string of political, social, and economic failures on outsiders.

But this is by all indications a home-grown attack, on a national institution that will serve to punish and humiliate average Pakistanis in an area, cricket, where they are reasonably competitive (World Cup winners in '92, runner's up in '99). This attack is indefensible to even to the Pakistani apologist. There is not going to be a solution to the Pak-Afghan terror crisis without the political support of the majority of Pakistanis. And if there is not a change in mindset after this attack, it's likely time to consider a more aggressive worldwide censure and isolation of Pakistan.