Monday, February 23, 2009

Champion's League Restart

Tomorrow is the first match day of the UEFA Champion's League knock-out stage (live on ESPN2 @ 11:30am Pacific, with other matches rebroadcast on Setanta later in the day). There are sixteen elite teams left and some phenomenal ties. It's a great format: they play a two match home and away series, with the winner determined by aggregate goals and the tie-breaker being away goals. It is hard to produce a single fluke result and get through -- the quality teams tend to do well in this format because they are heavily rewarded if they can score goals on the road.

Among the great games tomorrow (and the one ESPN is televising here) is Inter-Milan vs. Manchester United, the current leaders of the Italian and English leagues, respectively. They are two of the best teams in, arguably, two of the most competitive leagues in Europe. Manchester United won the Champion's League last year, beating England rivals Chelsea in a shootout in Moscow. Inter is coached by last-year's Chelsea coach, Jose Mourinho, who got turfed by his Russian billionaire owner, Roman Abramovitch, in the middle of last season's Champion's League knockout stage.

On Wednesday, the marquee match is probably Real Madrid vs. Liverpool, the current second-place teams in Spain and England. Madrid won the Champion's League in '02, Liverpool won in '05. But ESPN is broadcasting Chelsea vs. Juventus, which should also be a great match. Chelsea is currently third in England and Juventus is second in Italy. There's managerial drama here, too: the Juventus coach is Claudio Ranieri, who used to coach Chelsea; Chelsea is coached by current Russian national team manager Guus Hiddink, who stepped in last week after Abramovitch fired Big Phil Scolari (detect a pattern here?).

Friday, February 20, 2009

Pinch Media on iPhone App Usage

Pinch Media released an awesome presentation about iPhone app usage. I haven't validated their data directly, but if it is accurate it has some very important implications for the companies who think they can make a business with free, ad supported apps.

Check it out:

Most of this is pretty well-known to entertainment and e-commerce people: the hit dynamics, the seasonality, the pricing strategies. But the sharp usage drop-offs suggest that for most apps -- not the highly used, sticky ones, but the vast majority of apps -- too few impressions are being generated to justify an ad model. The key slides are #23-#25.

Wednesday, February 11, 2009

Futbol Fans, Set Your Tivo's

This afternoon at 4:00pm Pacific time on ESPN is the first match of the CONCACAF World Cup Qualifying "hexagonal" -- U.S. v. Mexico. All the stars are back from Europe for this intense rivalry.

These teams absolutely despise each other. The Mexicans dominated the series from the 1930's until around 10 years ago. But in the last decade the US is 9-1-2 against them, the only two losses coming at Azteca Stadium in Mexico City, one of the toughest road games in the world. The nine wins include the humiliating (for Mexicans) 2-0 result in the 2002 World Cup finals in Korea, which propelled the US to the quarter-finals.

In order to prevent the Mexicans from enjoying a large expat crowd, US Soccer is holding the match in Columbus, Ohio, where only 2% of the population is Hispanic. They reportedly sacrificed over $1MM in gate revenue to hold the match at the most unfriendly venue possible for the Mexicans -- cold weather, small (24K) but vocal pro-US crowd, no Mexican population.

Should be a great game. Lots of compelling story-lines, including whether the Mexico coach, Swede Sven Goran Ericsson, keeps his job. As a US player once said, "When you beat Mexico, you're smiling for a month."

Wednesday, February 4, 2009

What I Learned About Platforms From Working With Carriers

Almost two years ago, I predicted that the future of the internet may look more like mobile than vice versa.

I was referring specifically to the growing influence of platforms -- i.e., large traffic aggregation points with API's and/or application eco-systems. It seemed inevitable that these platforms would end up playing a similar role in the internet to the role of the carrier in mobile. That role is something of a double-edged sword for the smaller companies in the eco-system: on the one hand, a phenomenally efficient means of customer acquisition; but on the other, a powerful and potentially capricious master, who controls the flow of money, owns the customers, and can snuff your business out like a candle if need be.

The precipitating event for me back then was Myspace's power move on Photobucket, where the social network blocked the photo sharing site for violating terms of service relating to advertising. Myspace was probably a third of Photobucket's business at the time. Thirty days later, Photobucket was acquired by Myspace's parent, News Corp. That felt to me like the kind of thing a mobile carrier would do to a vendor. Show 'em who's the boss.

Since then, my prediction has largely come true. I was talking to the CEO of a company the other day who makes applications for a large social network, and I had an uncanny sense of deja vu. He was losing sleep over whether or not the social network would change its terms of service, alter the economics of customer acquisition, or choose an incompatible monetization strategy and effectively kill his business. I remember having those same fears when we were launching services on the US carriers in 2002-3.

So, what did we learn from being in this position and growing a valuable, public company under this Sword of Damocles?

  • Brands Matter. First, when we were jockeying for position with our largely undifferentiated peer group in the early days, having recognizable and desirable brands under license really helped us. Having exclusive rights to branded content cemented our distribution -- while other companies were offering generic, easily replaceable card or puzzle games, or original intellectual properties that nobody had ever heard of, we brought Tiger Woods Golf (interestingly, it mattered way more to the carriers than to customers -- JAMDAT Bowling consistently outsold Tiger). Later, the power of our own publishing brand, which had become increasingly recognizable and synonymous with quality and value, gave us a similar kind of brand leverage to what MTV or HBO had vis a vis the cable companies. If you were launching a new games service, you had to have us in the mix.
  • Grab Market Share. Immediately after the launch of BREW on Verizon, we had >70% market share of the games category. In the US broadly, by the end of 2005 when we sold the company, we had close to 30% market share (this is huge share; my rule of thumb in media businesses is that the winner in every category -- music, video games, TV, theatrical box office -- aggregates roughly 15-20% market share). By 2005, mobile games were no longer experimental; our partners at the carriers had P&L's and were being compensated on the basis of financial performance. Therefore, with our huge share it became harder for them to mess with us too much and their relationship with us became more symbiotic (the proverbial "win-win"). Had we been a <5% player, they could have eliminated us without significant consequence.
  • Understand Their Strategic Needs. The carriers had their own businesses to run, of which we were a very small part. But the mobile games category fit into a larger story they were telling their shareholders about the future, and it was imperative for us to understand their strategy for mobile data broadly and help facilitate its execution. For example, they needed to be able to show that they could attract world-class content, so our investment in globally recognizable brands played into their strategy. We tried to help anticipate and solve their problems. We always tried to see ourselves from their perspective.
  • Don't Be Piggy. Our peers constantly complained about the revenue splits that the carriers were taking (in our case, 20-40% of revenues). We watched those splits closely, and argued fiercely to maintain them, but we were always cognizant of what we were getting in return: relatively frictionless customer acquisition, billing and collection, the benefit of handset subsidies, etc. If we did the math realistically, the toll we paid to the carriers was a relative bargain. As many of the iPhone companies are soon going to find out, trying to run a nationwide marketing campaign -- even a viral one -- to attract people to your content is very, very costly. Our better carrier partners would embed demos of our games with a link to buy on tens of millions of handsets every year -- reach that would have cost us millions of dollars in marketing if we had to pay for it directly.
  • Plan for End Times. We understood the fragility our our place in the eco-system. Even when we had 30% market share, 4 of the top 10 games, including the clear #1, Tetris, a highly profitable $120MM a year business, etc., we were paranoid. About everything. We constantly talked about threats to our business -- direct or indirect, internal or external or orthogonal. In fact, we had a "threat map" to help us visualize our paranoia. And in every area that mattered to our business -- content innovation, distribution, brands, business model -- we tried to develop defensibility and a fall back position in case of disaster. When you are not in control of the platform, you need a resilient business and a Plan B. The rug could be pulled out from under you at any time.