CEO Niccolo de Masi has big ideas for 2010 and beyond.
The last quarter of 2009 was a tough one for mobile games firm Glu Mobile. Although it was cashflow-positive from operations, the company’s revenues dropped 11.6% year-on-year to $19.1 million, with new CEO Niccolo de Masi admitting last month that Glu’s Java business was falling faster than its smartphone sales were rising to compensate.
ME sat down with de Masi – who joined Glu in January - at Mobile World Congress to find out more on Glu’s plans for a turnaround.
“We’ve been much more aggressive in the past month, pushing all of our studio capacity in the direction of smartphones,” he says. “We’re not starting anything new for feature phones. Everybody, including carriers, is focused on the same thing.”
One of the slides in Glu’s Q4 financials presentation showed the mushrooming market in app stores from carriers, handset makers and platform owners. de Masi says that while this could give users a headache, publishers should be relishing the prospect.
“It’s good news for us, because all the stores are competing with each other,” he says. “Yes, it might be confusing in the short term for consumers, but every device will have one store as more prominent, and that battle is happening between carriers, OEMs and OS players. It’s more discovery entry points for us, but we don’t mind which stores win.”
He admits, though, that some app stores are monetising better than others. iPhone is obviously doing well, and he joins Gameloft in praising the impact of Palm’s App Catalog store, saying that Glu has a “big pipeline” of webOS games, following the success of Glyer 2 on the Pre smartphone.
And Android? “Android isn’t monetising well,” he admits. “It doesn’t have the billing infrastructure of 100 million iTunes accounts or carrier billing, and it’s not a mature experience – it’s a difficult browsing experience compared to iTunes. What works is the tight integration of store plus software plus hardware, and everyone has got to make that magic formula work. They will – the challenge is not if, but when.”
The last two years have been bumpy ones for Glu, to say the least. The company took a cautious approach to iPhone when the App Store launched, and saw rivals like EA Mobile and Gameloft capitalise with their roadmaps of big-budget titles. In 2009, Gameloft made nearly $24 million from the App Store alone. Glu made just $2 million.
de Masi is continuing Glu’s efforts to re-engineer itself for the App Store era, focusing on more own-IP games, as well as his declared intention to launch more ‘persistent’ games with social elements – more of which later. Rivals wonder if Glu has the resources to make the necessary investment, but de Masi talks a good game.
“Historically, when markets get more open, in the short term it’s great for mom’n’pop shops, because there’s no walled garden,” he says, comparing the launch of the open App Store to Wal-Mart deciding to let anyone open their own lemonade stand in its stores.
“A lot of mom’n’pop shops can afford a lemonade stand, but only the companies who can afford one on every corner will get to scale. In mobile games, we are the only independent scaled company left.”
Gameloft – not to mention the freshly-funded-and-merged ngmoco/Freeverse – might have something to say about that. However, de Masi is under no illusions about the need for Glu to up its game in 2010 to compete.
“We are increasingly competing in a digital landscape with the Activisions and EAs, so we need to do the same thing that the content business has always been about – create big brands that consumers have really heard of,” he says.
“We think we’ve got the chops to be one of the big three in terms of scale. But we’re focusing on differentiating with our product strategy, as opposed to a volumetric ‘let’s make 50 iPhone games’ approach like Gameloft.”
de Masi says Glu is “very bullish” on the opportunities for freemium apps, or even just in-app payments within premium games. For example, Glu’s World Series of Poker Hold’em Legend game lets players pay £0.59 / $0.99 for a ‘Re-buy’ when they get knocked out of a big game, to avoid having to go back to the start and build up their cash again.
It’s part of a strategic rethink. “We’re not designing any new games that don’t have a heavy persistent philosophy to the fore, as well as freemium and social features from the start,” says de Masi. “All games are going to be more social, from simple casual genres through to more hardcore titles.”
It’s the freemium strategy that will be interesting to watch – for Glu and other publishers – to see how best free iPhone games can be monetised. Glu has notched up more than 20 million downloads on the App Store, but de Masi says the publisher is focusing on “trying to monetise the 95% of them that are free, through ads and microtransactions”.
He’s also positive about the prospects for in-game advertising in 2010, saying that Glu has seen its ad revenues climbing in the last three months.
“We’re starting to see video pre-roll opportunities,” he says. “They’re not $20-$30 CPMs, but they’re not a dollar like they used to be. They’re climbing towards $4, $5 and $6, and hopefully $7-$8 later in 2010, which is when it starts to become pretty interesting.”
He’s got some interesting views on the changing mobile advertising market too, with Apple having bought ad network Quattro Wireless, and Google in the process of buying rival firm AdMob.
“I think they’re viewing the landscape in the same way that Facebook is – they’d like to have everybody buy inventory from them, the mothership!” he says.
“They’ll start by at least making sure they are able to be the dominant inventory [for ads] if they want to be, so I don’t think in the next quarter they’ll say developers can’t work with anybody else. But probably a couple of quarters after that...”
Meanwhile, Glu is also trying to make social the core of its activities, with de Masi saying the company is keen to “define and dominate what a social MMO means for smartphones”. He thinks no one yet has taken full advantage of the social gaming opportunity on iPhone and rival platforms in the same way that Zynga, Playdom and Playfish have on Facebook.
de Masi also thinks that these companies won’t be the ones to do it on iPhone either – they’ve all been notably cautious so far (although for ‘notably cautious’ you could read ‘notably focused on making shedloads more money on Facebook’).
So, if Glu is the company to help define what these ‘socially persistent MMOs’ are on smartphones, what form will they take? Glu’s recent financials call included an intriguing reference to ‘Farmville meets World of Warcraft’. Tell me that’s about more than ‘Friend X found a Lich King on their barren wasteland’...
“Mobile gaming is probably more hardcore than Facebook gaming, but not as hardcore as World of Warcraft,” says de Masi. “We’ve got to define something new – genres and sub-segments of genres that have the best of both worlds. And they’ve got to be businesses – we want players to stay active so these things can become long-term brands.”
Even so, the risk for Glu is that its IPO was long ago, and it doesn’t have huge cash reserves to sink into this new breed of games. Or to put it another way, the company has big ideas, but can’t afford to waste big sums trying to make the formula work.
“We’re not a startup, and we’re not taking the approach that this is just about audience rather than trying to find the dollar,” says de Masi. “We’re being very pro-active about how you find the monetisation of these models. And we’ve announced a restructuring to ensure that we’re not burning cash.”
At this point in the interview, CFO Eric Ludwig chips in: “This year is all about investing our dollars where they’re going to return big dollars next year. It’s about 2011 and 2012.”
Glu’s strategic shift – along with the plans of ngmoco to focus on freemium in 2010 – will provide a fascinating counterpoint to the more traditional (yet currently more profitable) approaches of EA Mobile, Gameloft and the big guns of the console world.
Back to de Masi: “If we weren’t in this business, we’d be getting into this business. There will be a flurry of venture activity in 2011 around companies that build more persistent titles, and break out branded successes that consumers have heard of. 2010 is a really big year for pieces of the puzzle coming together.”
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