Bango CEO: Operators are getting more flexible on terms for carrier billing

Bango has become a vizier of sorts to consumer Internet giants like Facebook and Amazon that want to build platforms for mobile apps. Over the last year, the U.K.-based company has become a selected provider that helps partners wade through the complexity of setting up carrier billing for mobile app stores and platforms.

Recently, the company scored a deal to be a provider of undisclosed services to Facebook. Not long after, Facebook’s chief technology officer Bret Taylor announced one-click carrier billing for mobile web apps on-stage at Mobile World Congress.

I initially argued that Facebook is probably breaking even, or even potentially losing money, on these types of transactions because of the steep cuts carriers usually take. The public rates listed on Bango’s website are pretty painful. Some carriers only remit 55 or 60 percent back to the Bango customer. So if Facebook is paying out its standard 70 percent share to a developer, it’s definitely losing money and then you have to factor in the R&D costs associated with supporting the platform.

But after talking with Bango’s chief executive Ray Anderson, it sounds like carriers are becoming more flexible and are charging less than they historically used to for preferred partners.

Several years ago, they might take half or more in transaction revenue. But when Apple launched the iTunes app store, the company established a benchmark revenue share of 30 percent for the platform and 70 percent for the developer. Other companies like Facebook and Google with Android followed suit and copied the structure. Anderson said carriers are acquiescing to this new reality and are actually lowering their takes as long as they’re comfortable with the quality of content being offered on their devices.

“In the olden days, the piece the carriers took was quite large,” he said. “But now they’re becoming more flexible, provided that they understand the customer experience is going to be a good one. The bigger brands give them more comfort because they feel the quality will be good.” He added that in the U.K., some carriers are remitting up to 90 percent.

He said Bango’s publicly-shared standard rates are not representative of what it offers to partners like Facebook or Amazon. “The published rates on our website are for Charlie the Snowman who wants to sell pictures of snowmen to thousands of his friends,” he said.

Anderson says the reason Bango has become a partner of choice is because it can do one-click billing given all of the data it has collected on consumers over the years. Through years of doing billing for feature phones and creating its own unique identifier, Bango can recognize tens of millions of consumers. Consumers can add to their monthly phone bills without going through a tedious process of waiting for a special text message or remembering a special PIN.

“Because we’re involved in payments transactions across wide range of vendors, there’s a reasonably good possibility we’ve seen the person,” Anderson said.

Anderson says that when app stores implement Bango’s one-click billing, it bumps the conversion rate to 75 out of 100 transactions to 50 out of 100 potential transactions. “You’d make an extra 50 percent of revenue if you were a developer,” he said.

But even with its newfound traction, the margins are thin for Bango to operate. Generally, the company is looking at a 5 percent share, based on documents shared in its last earnings report.

In total, the company made 8.66 million British pounds ($13.6 million) in revenue for the six months from March to September of last year. That produced a net loss of 0.22 million British pounds ($345,000), which was about half the net loss from the same time a year earlier. The company is publicly traded because Anderson said the company decided to raise $10 million on public markets in 2005 to enter the U.S. market.



Google+ looks increasingly poised to be the social gaming layer for Android

Earlier this week, members of the Google+ team alluded to plans for building a unified gaming network across the company’s web based properties including the Chrome Web Store and then on Android.

In a talk at the Game Developers Conference this week, Google+’s group product manager Punit Soni reportedly said, “By next year, we will not be here talking about Google+ Games, Chrome Web Store games, Games for Native Client and Android games. We will be talking about Google games.”

It was such a striking comment, because the Android team has been pretty publicly committed to being open and including multiple social graphs.

In an interview last week with Android’s design lead Matias Duarte, we talked about the social contact book integration in the most recent version of the OS, Ice Cream Sandwich. It pulls content from social networks like Twitter and LinkedIn straight into the address book. So you can look at a contact and see their latest tweets or updates.

Being inclusive of other networks sounded pretty important to Duarte. He stressed, “This is an open service. Google+ or anybody who wants to write for this can share their data, not just in address book but also in other social applications.”

We had to get some clarity. If Google is shifting to a world where it favors its own Google+ social graph on Android, it has implications for many other companies that want to do viral distribution on the Android platform like Facebook and then the gaming networks like DeNA’s Mobage, GREE, PapayaMobile, Heyzap and so on. It also has consequences for what sharing features developers should build into their Android apps.

We reached out to Soni again to get some clarity. He says:

“We are committed to ensuring Google+ is the social layer on which all Google products are built. This is slowly happening across the board including on Android. We have strong plans around extending our social ecosystem to mobile gaming, but it’s premature to go into further detail at this point.”

So it sounds like pushing Google+ on Android would be more about gaming, not necessarily other verticals. There have already been calls for Google to build its own version of Game Center.

On the one hand, pushing Google+ on Android makes absolute sense. Google+ is not succeeding as a desktop-first product given Facebook’s enormous lead. However, Facebook is fundamentally weak on mobile because it doesn’t own lower layers of the stack. It’s a hugely popular app, not an OS with hundreds of millions of dedicated devices that can support hundreds of thousands of mobile applications. And while Facebook is pursuing HTML5 as an alternative strategy, it may be years before HTML5 produces games that perform as well as native ones do. Realistically, Google+ probably should have been a mobile-first product from the start.

On the other hand, giving Google+ home-field advantages on Android compromises the platform’s original philosophy of openness. It just sounds like there is tension in deciding whether to push Google’s proprietary social graph or keep Android a level playing field for multiple social networks.

Stay tuned on this one. It will be interesting to watch.

OMGPOP’s resurgence draws interest from investors, acquirers abound

A couple months ago, OMGPOP CEO Dan Porter had his speaking proposal rejected by Game Developers Conference, the big industry conference this week in San Francisco.

This week, he’s practically swimming in term sheets and meeting requests from would-be suitors.

The company’s Pictionary-like game Draw Something has been an unbelievable home run, delivering 10 million daily active users in a matter of weeks to a company that never really took off as a social gaming company on Facebook. In another promising sign, Draw Something is also retaining 60 to 70 percent of its users after seven days. For perspective, Zynga last said it had 15 million daily active users on Android and iOS and that took the $53.3 million acquisition of Newtoy and well over a year to do.

Now Porter and the company won’t confirm any of this, but I am aware of exploratory talks with EA as a buyer and a term sheet for $25 million from Institutional Venture Partners.

“I just came out to GDC to go to some panels,” Porter said. “I would consider raising again, but the game has been so strong financially that we’re in a position where we don’t have to raise money.”

He’s clearly considering his options — as he should. Porter has had a quixotic and eccentric enough career not to care that much about what other people think. (The career highlight reel would include being the president of Teach for America for the four years after the non-profit’s inception and working for RCA around the time of the “Dirty Dancing” soundtrack.) Hopefully, his investors, which include Spark Capital, Baseline Ventures and Softbank, and who have put a collective $16.6 million into the company, will agree.

After years of running its own teen-centric site and a little over a year of being on Facebook, OMGPOP launched Draw Something about a month ago as a pair of paid and free apps. The game is a simple draw-and-guess game where players compete against each other to create pictures based on stimulus words. Unlike early competitors, it’s asynchronous. There are a couple other Pictionary-like titles like Charadium, but none have found the chart-topping success that Draw Something has with 17.5 million downloads so far.

However, it’s not totally fair to call the game an overnight success because this is the third time OMGPOP has done the title, after versions on Facebook and its own site.

“Every decision you see in the game is based on things we had learned,” he said. “We are super blessed but we’ve done iterations of this game since 2008. We learned how to manage real-time and semi real-time engagement with our first multiplayer online game site. That’s why game feels the way it does.”

Draw Something has a three-pronged monetization strategy. Players can either pay for the premium app or get the free version that’s ad-supported. Then there’s virtually currency, which can buy “bombs,” that let players skip difficult words, or additional color packs to allow for more detailed pictures. The company’s chief revenue officer Wilson Kriegel says half of revenues are coming from people who upgrade to the premium version and then the rest is split 50-50 between ads and virtual currency.

The game quickly went from 0 to 200 million advertising impressions per day, as of a few days ago. But those advertising dollars aren’t yet adding up in the way that the company hoped, reflecting weakness in the mobile advertising ecosystem given a glut of inventory and a lack of premium advertisers.

“eCPMS are disappointing,” Kriegel said. “Our partners aren’t used to dealing with explosive growth versus a more natural process. I feel like we could double our ad revenues and be making more than six figures a day from that if it were managed well.”

The other key thing to point out about Draw Something is that it’s impressively viral for a mobile application. Like Zynga’s With Friends line-up, Draw Something is a truly social game. You play against friends or strangers and there’s a social pressure to keep a long streak of successful guesses going. Even now “Draw Something” is one of Twitter’s trending topics in the U.S., suggesting that Twitter’s integration into iOS is working. On Instagram, there are even people sharing their handles in the game so they can find others to play with.

OMGPOP says it has spent minimal marketing dollars with an initial cost-per-install campaign. It was also able to cross-promote from Facebook with an early campaign on its fan page that drove likes. The initial launch looked normal with just a few hundred thousand downloads. But when the app broke above the critical Top 25 mark on the charts, the game took on a life of its own.

“Bots were still prevalent around the time that we launched,” Kriegel said. “But when other companies started to turn them down, we think it really changed the market drastically for us.” (Bots are something I reported on a few weeks ago. They’re fake download farms that install apps millions of times to drive them up the charts. Apple recently cracked down on them.)

The big question now is — what happens when Zynga does “Draw With Friends”?

Draw Something is a game that is so obviously in line with Zynga’s “With Friends” brand, following “Scramble With Friends,” “Words With Friends,” and “Hanging With Friends.” And Zynga’s presence has torpedoed or at least dulled momentum for other venture-backed gaming companies in the space like Pocket Gems and TinyCo.

“Good luck to them,” Porter said. “This is the nature of the business. It’s fine if they or anyone else wants to do it. All I know is that there is a huge network of people who love to play this game and have invested time in making drawings.”

Then again, Zynga did have $1.9 billion in cash and marketable securities on its balance sheet at the end of last year, so it does have the cash to do larger-scale acquisitions.

Kriegel adds, “The competition is going to do what they want to do. Ultimately, we’re focused on building and growing amazing products.”

Secrets of the acquisition process from EA and Zynga (straight from the horse’s mouth!)

The corporate development folks over at Electronic Arts and Zynga shared some insider advice last night on how the acquisitions process works at both companies.

I’ve excerpted some advice from the panel, which was held last night at Pillsbury, a law firm in downtown San Francisco.

Michael Chang, a director of corporate development at Electronic Arts, Grant Olsen of Zynga’s corporate development team, Jeremy Liew, managing director at Lightspeed Venture Partners and Mark Otero, who was CEO of KlickNation, a core gamer-focused company that Electronic Arts bought for the Bioware label spoke about how these deals are done.

Some key takeaways:

1) Be extremely careful about your early agreements, especially with game publishers: Sometimes publishing arrangements that contain options on future games can kill deals because acquirers want teams to work on their games right away.

“With some companies, there have been publishing arrangements that made it unpalatable for us to go forward,” Chang said. He gave an example of an unnamed company that had signed a deal for three games. “We needed to use them immediately, but that deal locked them up on three more titles. That left them with very limited options.”

2) It’s worth it to spend the extra $1,000 on a competent lawyer who can get contracts done correctly: All of the panelists said poorly designed contracts can kill an acquisition if the entrepreneur isn’t careful about how they’re structured. “Even some kind of invention agreement can seem really innocent, but come back to hurt the company later,” Zynga’s Olsen said.

3) Choose your investors wisely, because they can kill the outcome that you want: This is obvious, but there were some stories from the panel that were interesting.

Otero said KlickNation had raised about $100,000 after unsuccessfully making dozens of Facebook apps. In retrospect, the terms were bad because they gave Otero’s angel too much power over potential exits. It was a convertible debt investment with an interest rate and a minimum that ultimately gave KlickNation’s angel 10 percent of the company. (I reported that the company was sold for $35 million in December, including retention. Based on the structure of the deal, the angel likely had a 20X return. While Otero didn’t name names, the only angel in the company that was publicly known was Robert Simon at Ariva Partners.)

There were also veto rights associated with exits.

“Looking back, I kind of scratched my head. What the hell was I thinking?” Otero said. “I didn’t realize how powerful that veto right was when we were in the process of entertaining term sheets. It had tremendous power. It forced us to look at deals we didn’t want to do. I felt so powerless and helpless.”

At one lunch, he and his angel had such a contentious argument that they started yelling at each other. He said, “I told him I could not do this deal and he threatened me back. We both just walked away.”

Otero said he originally took the investment after several unsuccessful attempts at building basic, “spammy” Facebook apps that didn’t produce meaningful revenue.

“We had 30 failures,” he said. When KlickNation got to its 31st app, it started going into games that focused on more hardcore players — an idea that wasn’t proven at the time since the biggest developers on Facebook like Zynga were targeting casual gamers.

“There were whispers that core gaming would work. But we didn’t know. We just decided to give it shot. We launched in June and never advertised,” he said. “But the algebra began to work. Our topline revenue were was offsetting revenue. This was the Holy Grail.”

But even then, Otero didn’t approach traditional venture capital firms because he didn’t feel confident enough.

He said, “We wanted some validation. We were deeply in debt. It overcame basic common sense. We just wanted someone to let us know we were going down the right path. Here came this guy with a check, a smiley face and a long, impressive resume. We thought that this was our golden opportunity. He did provide good advice and he did help, but in the end, it was very painful.”

Chang added, “There’s plenty of cash out there. You need to be thoughtful about what you take. There are long-term implications of taking capital — sometimes smart, sometimes not.”

He said there was a company EA was interested in acquiring once, but the investors controlled 70 percent of the company while the team had 30 percent. The company’s chief executive told Chang that he wanted to go with EA, but that it was possible the board would go with another buyer that was offering a better price — even if it meant the team would be unhappy and leave.

Chang warned investors that such outcomes can end up being pretty bad for acquirers too and can scare them away from a deal.

“Even if investors have de facto control of the board, you have nothing if the management is not behind you,” Chang said. “If management isn’t coming with the transaction and isn’t going to be happy being part of EA, then we’re not buying the company.”

4) Corporate development folks say you should establish relationships with them early (though I have some mixed feelings about this strategy): Given rampant cloning issues in the industry and the risks associated with revealing too much about your business to a potential competitor, I’m not totally sure this is the best advice. But Zynga’s Olsen said to talk to them “early and often.”

“If you’re a small team with a great product, it’s OK if it’s not launched yet,” he said. “We just want to start a dialogue early. Make sure to keep in contact over time.”

EA’s Chang said his corporate development department often sources opportunities for other parts of the company. “It’s helpful for groups to come to us. We know what different groups inside the company are looking for,” he said.

With the KlickNation deal, EA had started looking at core gaming on Facebook over the past year as the head of the Bioware unit was looking to expand on the social network. Because KlickNation billed itself as the “Bioware of social games” and was profitable, it seemed like a perfect fit.

5) Don’t go out trying to get bought: This is another obvious, but salient point. Liew emphasized, “Companies are bought, not sold. If you’re trying to find a buyer, that’s a difficult situation. If you’re calling EA or Zynga, that’s typically not how these transactions happen. Usually, these guys are reaching out to you. So the real question is how do you get noticed by them?”

6) Look for an acquirer with shared values that you’ll really be happy at: Chang says founders that go to Electronic Arts only to stay for two years and then leave aren’t really that valuable. “That’s a waste of money,” he said.

“We want marriage, not a shot gun marriage,” he said. “I like to tell younger companies that they should be promiscuous. They should find out what it’s like to work at EA or Zynga so they know which one would be the right place to join for a long-term home.” He said two of EA’s most senior executives came through acquisitions, and those are the kind of people he’s looking for.

7) It can be hard to make investors happy with pure talent acquisitions: Liew said “acq-hires” are definitely not what his firm, Lightspeed, is looking for. “We invest because we want to see companies that are worth hundreds of millions, if not billions of dollars. We’re not looking to have a team get trained up, so it can build games for someone else.”

The issue with many talent acquisitions is that the terms can end up being stacked against investors. An acquirer might structure a deal in a way that gives a poor valuation for the company, but gives a huge chunk of retention to the employees.

“What if the buyer wants to give 1 percent to the investors and 99 percent to the employees?” Liew said. “Well, you know what? We may have negotiated a deal where we invested for 50 percent of the company. We have a protective provision not to hurt the entrepreneur but to honor the original deal we made.”

That said, it’s quite common for a company’s trajectory to just miss the mark. And in that case, a talent acquisition is often the best outcome. Liew gave the example of Serious Business, which was sold to Zynga in February of 2010. The company had a popular app back in 2009 called Friends for Sale, but Liew said the game couldn’t really monetize.

“We recognized there were fundamental flaws in the game’s design that wouldn’t help it monetize. So we tried a second game, then a third,” Liew said. “At the same time, Zynga came along and recognized that the team was incredibly talented. Everybody looked around the table and said, let’s do this.”

Liew says he talks with the company’s team about how the proceeds should be split, to make sure everyone is happy with the outcome.

“We try to document everything upfront,” he said. “We didn’t have any shouting matches with Serious Business because we had been working together for a long time. We understood each other. It was a civilized set of discussions that ended up with them being at Zynga.”

He added that one of the co-founders, Alex Le, ended up being the executive producer on Cityville, and the other, Siqi Chen, went to Zynga China. (Chen recently left Zynga after two years.) “We ended up happy as well,” Liew said. “It was quite a reasonable outcome.”

8) A good acquirer will make a fair earnout, that isn’t impossible to reach: “If you set up unreasonable expectations, then folks will stream out,” Chang said. With EA deals, there is usually an upfront cash component, plus restricted stock units and other types of incentives.

Chang also said there are different ways to structure incentives. They can be tied to milestones, like the launch of certain games, or revenue. The risk though is that the industry is changing so fast, that it can make certain kinds of earnouts obsolete.

“In app purchases weren’t really around a year ago. Facebook wasn’t around as a viable gaming platform until the last few years,” he said. “It’s hard to predict changes in the market.”

In the KlickNation deal, Otero got to have a lot of input in designing his own earnout, based on forecasts for his company’s revenue.

“They allowed us to create our own earnout schedule and timeframe,” he said. “When the deal closed, it was very successful for me. So I was really happy there. Plus, the earnout was this additional piece of cake that I really wanted to earn. I wanted EA and Bioware to know that this was a great investment for them.”

Zynga’s Olsen was less specific but he also said that he tries to find ways to make the entrepreneur’s and Zynga’s interests align. “At Zynga, we want to build a network of entrepreneurs and we give them the freedom and incentives to do this,” he said.

Giving the VC perspective, Liew was against earnouts.

“I hate them,” he said. “Earnouts are used because there is a gap in valuation. The acquirer wants to pay X, and the company wants to sell for X+Y. So how do you bridge the gap? Usually, it’s a difference in expectation about what the company is going to do.”

He said that there are often factors beyond the entrepreneur’s control that can destroy their ability to meet an earnout. Liew said there was a company he knew of that missed a quarter of their earnout because their acquirer had a companywide hiring freeze.

Rovio gives another teaser of Angry Birds Space (from space)

So we hear that Rovio will be teasing the next version of Angry Birds in about 10 minutes from space. We hear that NASA astronauts might be playing with this game or at least offering some tantalizing clues about it from space this morning.

Update: Yep! NASA astronaut Don Pettit fires a red Angry Bird plush toy while in space at a pig, made from a green balloon. He says that objects flung in space change their trajectory if they pass other larger objects with gravitational pull like planets. At the end of the video, there’s some footage of gameplay.

Angry Birds Space is the first new version of the game in quite a long time, following seasonal releases and Angry Birds Rio, which was a tie-in with a Twentieth Century Fox film. Coming out on March 22, it will have 60 new levels. All of the popular birds from the original game will still be there, except they will be re-skinned with a space theme. We hear that there will be one new bird though — an ice bird, perhaps?

Highlighting Rovio’s push into entertainment, the game’s release will be coupled with all sorts of paraphernalia like special edition magazines and toys. The company recently passed 700 million downloads across all platforms last month, so this game should help Rovio get to that vaunted billion download mark.

But like last year, Rovio is increasingly diversifying itself from gaming revenue and is relying more on physical goods and product licensing. Sources familiar with the company’s finances said the company made not far off from $100 million last year. It’s certainly possible that the company could try and double it this year. In Rovio’s most recent $42 million financing round last year, the company was valued at about $200 million.

EA PopCap’s slidedeck on how turning Bejeweled freemium bumped daily downloads by nine-fold

Giordano Contestabile, who is a franchise business director at EA PopCap, was kind enough to share this slidedeck with us on how making Bejeweled Blitz freemium on iOS helped downloads go up by nine-fold. He adds that engagement and revenues are up five-fold as well.

“This was also about trying to give a wake-up call to a gaming industry that is still ambivalent about freemium,” he said.

In December of last year, EA PopCap retired the old version of Bejeweled, and replaced it with two apps. One was a paid version that cost $0.99, while the other was free with in-app purchases for power-ups.

The most interesting slide in the whole deck is a comparison of revenues per user on iOS to Facebook. Average revenue per user on iOS is nearly double what it is on Facebook. Engagement and seven-day retention are also twice as high on iOS compared to Facebook. The percentage of users that pay on iOS is also double what it is on Facebook.

It’s frankly not that surprising though since consumers actually have to buy a device to be on the iOS platform while Facebook is free. Apple also has payments data on virtually all of its users, while Facebook is still building up its credit card database.

Phones are also more portable than desktop devices, meaning there are more opportunities to play games with them throughout the day.

“Unlike your computer, your phone is always with you. One of my favorite statistics is that 20 percent of mobile game sessions are on the toilet,” he said. “So toilet gaming is the new big trend.”

When PopCap re-launched the Bejeweled games, it used traditional marketing channels. It relied on ad networks like AdMob and iAd, along with cross-promotion from Facebook and connections with Apple to get featured in the app store. Contestabile said about 25 percent of Bejeweled’s players on iOS connect with the Facebook platform.

PopCap: Setting Bejeweled Free

In a boon for 3D and high-end games, Android and iOS boost app size limits this week

Huzzah for higher-end game developers this week. Both Android and iOS raised their app size limits, which will help developers push higher-quality apps to consumers.

Apple today said it will raise its over-the-air limit to 50 megabytes. Previously, if a developer pushed apps with file sizes of more than 20 megabytes, their users would be prompted to use Wi-fi to download them. That caused many would-be users to drop off, so many developers would do everything possible to get their apps under the 20-megabyte limit. It was extremely painful for 3D developers, who have apps or games that usually take up more space.

Apple’s announcement comes just a day after Google said it is increasing the maximum file size from 50 megabytes to 4 gigabytes. Note: That’s not the over-the-air limit. That’s the total size limit.

The size of an Android apps’ original APK file, or “application package file” still has to be under 50 megabytes. However, developers can add expansion files that are up to 2 gigabytes in size. Android Market, also now known as Google Play, will host the files. When users download apps, the expansion files will be downloaded automatically.

Overall, this pushes both ecosystems in the direction of games with higher-production values, a trend we’ve already seen with increased competition over the past year.

Ngmoco’s Neil Young: “Zynga is a far more formidable competitor than GREE.”

With DeNA’s Mobage platform finally coming to iOS this month, the company says its mobile gaming platform has now seen 160 million app downloads across Android and iOS.

We checked in with Neil Young, who is leading the Japanese gaming giant’s expansion in Western markets. A former EA executive, Young co-founded Ngmoco, the early mobile gaming company DeNA acquired 1 1/2 years ago for $303 million plus a $100 million earnout. Ngmoco’s mandate is to help get DeNA’s international revenues and profits at parity with the company’s performance in its home market of Japan by 2014.

That’s no small feat. DeNA brought in 34.2 billion Japanese yen ($420 million) in revenue last quarter alone, which — just for perspective — is more than the $311 million in revenue Zynga pulled in during the same period. Now with the domestic market saturated, DeNA and rival GREE are looking to duplicate their model abroad on the back of smartphone adoption worldwide. However, Western consumers have a long way to go in matching the spending habits of Japanese mobile gamers.

“Obviously, there’s a big disparity between where the West and Japan are today. But we think we can narrow that gap,” Young said in an interview. “Just so we can benchmark, on a given day in Japan, you might see 10 to 15 percent of your audience pay money. In the West, you would feel successful if you saw 3 percent of users pay.”

Spending is starting to pick up among English-speaking smartphone and tablet owners though. Young said when Ngmoco started out, perhaps 0.5 to 0.75 percent of the company’s users would pay with an average transaction price of $2.79. Now they’re seeing about 1.6 to 2 percent on a daily basis with an average transaction size of $12 to 13.

He said that while revenue per user in the English-speaking markets might never catch up with Japan, the overall market size is so large that DeNA could bring international and domestic revenues to parity. “There’s 10X the population of Japan in the Western developed world,” he said.

Android’s in-app billing system is also improving dramatically. “On an absolute basis, Android is pulling in less revenue than iOS. But it’s only because in-app purchases and billing on Android trailed iOS for over a year from an implementation standpoint,” he said.

Launching the Mobage platform in the West

The big challenge both DeNA and GREE face in coming to English-speaking markets is whether their business model and games will translate well for Western audiences. Both companies operate distinctly from American platforms like Facebook because they are dual platform providers and game producers. Not only do they support third-party games, they also produce their own original content. Facebook and Apple, in contrast, would never make their own games. Young said DeNA is aiming for an eventual 50-50 revenue mix between first-party and third-party content.

After DeNA acquired Ngmoco, it took longer than originally anticipated to roll out Mobage in English-speaking markets. There were a few kinks during the beta because DeNA made consumers download a special Mobage app before getting the games they wanted. That hurt pick-up, so Ngmoco quickly changed its approach.

“We made some good discoveries. We had to shift from requiring the download of a primary mobile application to a more disaggregated model,” Young said. “In October, we reached a point where we were comfortable with the metrics. We needed to make sure that there was no friction in registration and payments services. We’ve now had four to five titles in the top 10 on Android.”

Now Mobage has seen 160 million downloads of the platform’s apps across iOS and Android, including games tied to Ngmoco’s original Plus+ platform. Young said most of the games on the Android side are seeing between 1 and 5 million downloads. That’s not crazy high, but it’s not in the low thousands like last fall when venture-backed competitors like PapayaMobile criticized Ngmoco’s model.

On Friday, Ngmoco brought the Mobage platform to iOS with three titles including Ninja Royale, Putt Putt Penguin and Blackjack! for Mobage.

Young argues that the value-add Mobage brings is in additional distribution and monetization. The platform’s revenue share starts at around 15 percent following Google Android or Apple’s 30 percent platform cut. For games or ports that Mobage finances, that share goes higher.

“If you’re a developer what you want is a pretty big audience of customers that participate in the network. And we have that in Japan and we’re bringing that to the U.S., Korea and China,” he said. Ngmoco also offers ngCore, which is supposed to make easier for developers to write a game once in Javascript and have it function across multiple platforms.

What about the competition?

This past year, DeNA’s net sales grew just 16 percent year-over-year while archrival GREE saw its net sales nearly triple to 41.5 billion yen ($511 million).

“The momentum you saw from GREE is the same momentum you saw for DeNA in prior quarters. It’s really a function of GREE getting much better at yield management,” he said. “The second thing is — candidly — we were out of card collecting games. You’ll see a turnaround.”

But in the U.S., Young said GREE doesn’t keep him awake so much at night — at least compared to Zynga.

“Zynga is a far more formidable competitor than GREE,” he said. “They’ve got really great management. They have a scaled audience. They really understand the Western audience. So here in the West, Zynga is far more formidable. GREE can buy billboards. But they’re going to end up bringing over Japanese games, which won’t work.”

Zynga is shifting into publishing with the recent re-launch of as a destination off Facebook, which will eventually include games from developers like MobScience (inFamous Anarchy), Row Sham Bow (Woodland Heroes) and Sava Transmedia.

Facebook also doesn’t really concern him. The social network has effectively ceded the mobile gaming market by pursuing HTML5, which is going to take years to be competitive with natively designed games.

“Facebook has a really important role to play in being the canonical identity provider,” he said. “But how is Project Spartan doing? HTML5 is interesting, but it will take time for it to be viable.”

Kihon Games takes $1.5M in round led by Playdom co-founder Rick Thompson

Tuscon-based Kihon Games just picked up $1.5 million in a round led by one of mobile and social gaming’s most prolific angel investors, Playdom co-founder Rick Thompson.

The funds will go toward Kihon’s second game, a physics-based title called Dojo Danger that will come out next quarter. It’s a strategy game that combines elements of pinball, billiards and a “touch of Angry Birds.” Thompson and Dan Fiden of Signia Ventures join Kihon’s board.

Kihon’s last game, Baby Monkey (Going Backwards on a Pig) is a whimsical platformer where a tiny monkey rides on the back of a pig and has to avoid obstacles like space unicorns and hamsters.

The company was co-founded by a duo from Sony Online Entertainment. Dan Kopycienski was a director of development there overseeing a few social gaming titles while chief executive Mark Grossnickle worked at Sony for a short time after several years in creating online brand advertising campaigns and websites for clients like KFC, Verizon, and Transition Lenses.

This deal adds more to Thompson’s portfolio of early-stage investments including holdings in Idle Games and Wild Needle. He also was an early investor in Modern War and Crime City-maker Funzio.

Designer Matias Duarte on steering the “ocean liner” that is Android

When crossing over from leading user experience at Palm to Google two years ago, Android’s design lead Matias Duarte had to reconsider how he would implement ideas in an environment where it would be difficult — if not impossible — to enforce any of them.

“The biggest thing I had to do was just understand how to manipulate the giant aircraft carrier that is Android,” he said in an interview last week at Mobile World Congress in Barcelona.

It was that complexity that attracted him to the job. By 2010, Android had already gained momentum with pick-up from virtually all of the major handset makers, which were looking to counter Apple’s resurgence with the iPhone. Microsoft still hadn’t offered a credible alternative at that time.

“It was an opportunity to work across an entire ecosystem. I knew things we were going to have to create systems, instead of impose controls,” Duarte said. “But it was much harder and much slower than I expected. You want to move so fast. But it’s like you’re driving an ocean liner. You try to turn left and somebody’s got to run downstairs, then put a paper into a tube that goes down to the engine room.”

Case in point: even now Android Gingerbread, a version of the OS that was released in late 2010 is still the most widely used one more than a year after its launch. Newer versions of Android like Honeycomb and Ice Cream Sandwich have just under 5 percent market share.

Duarte said, “Even if you move quickly, the rest of the ecosystem is like a wake that dissipates behind your ship. The steps that you take will fan out like ripples, impacting the ecosystem for years. And it’s an ecosystem where you can’t directly control the levers.”

That said, if Google’s $12.5 billion acquisition of Motorola goes through, the OS maker will have a hardware manufacturer under its belt for the first time. But Duarte declined to comment on how Google might potentially influence Motorola. “I don’t think we can even speculate about that,” he said.

On Google’s design culture

When Duarte came to Google, he entered a company that had long valued brute force engineering over showmanship and design. But Google is in the midst of change, and that’s in no small part due the competitive pressures it faces from more design-centric companies like Apple.

“Google as a whole company is starting to take design very seriously. You’ve started to seeing it roll across products,” he said. “The company has always prided itself on being open-minded and very egalitarian. It’s always been very willing to look at itself and adapt to however it needs to be. It’s not about a dogma. It’s about merit.”

Because of the very independent way that Andy Rubin runs the division inside Google, Duarte gets relatively free rein in fashioning the look and feel of Android. He’s been trying to get Android designers to think outside of conventional UI patterns. “I ask my team to think about where we’re going to be five years from now,” he said. “We’re going to have screens everywhere. They’ll be able to recognize your faces and recognize sounds. But there will be all sorts of nuance.”

And he dismisses designs that try to graft real-world metaphors onto touchscreens (hence, apps like Apple’s Find Your Friends or Game Center, which mimic the feel of leather, paper or old poker tables wouldn’t really fly on Android.)

“We gave people the canvas of the screen,” Duarte said. “It’s a machine that can become anything. And yet, there are designers who have built a whole bunch of buttons, knobs and switches that are virtual representations of things in the real world.”
On managing designers
What Duarte likes to do is get designers writing one-pagers describing a problem, an opportunity and what it would mean to solve it. It might be easy to think up a solution immediately, but that isn’t the point, Duarte says.
“All product development is about exploration. If you knew where you were going, someone would have beat you to it,” he said. “If the proposal at the end of your iterative design process is the same as your proposal, it was too obvious.”
He also encourages his designers to use paper. “I’m a huge believer in paper over digital,” he said. “It’s just so much more flexible. We can put everything on the wall.”
To find inspiration, he’s taken teams on field trips with U.K.-based Android designers visiting a Mini factory and Mountain View-based ones going to the Dieter Rams exhibit at the SF Museum of Modern Art.
He also knows the challenge of getting designers away from butting heads with product or engineering. “It’s very easy for teams to enter into an us-versus-them mentality,” he said. “But it’s important not to disregard others’ fields of expertise. There might be good reasons why there might be things that can’t be done. As a designer, you might not know about network latencies and their limitations.”
“One of the things that is absolutely essential is to make everybody realize that everyone else on the team is a user too,” he said. “Everybody will have an opinion about what a features should be included.”

Duarte was a little hesitant to name any design influences, especially in the field of computer science. He instead pointed to leaders in other industries like Pixar’s chief creative officer and Toy Story director John Lasseter.

“I’m really influenced by craftsmen who are artists that really understood the technical aspects of their medium,” he said. “They understood how to leverage that for emotion.”

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