Susan Wu - Venture Capital

We at CRV are producing a new program at GDC called Startup Launchpad.  Essentially, it’s a way for game developers - indie to amateur to professionals within studios - to learn how to become entrepreneurs and to become unshackled from the confines of the traditional game industry structure.

 As I’m sure many of you know, many game developers/designers toil long and hard for game studios, only to receive very little if any equity for their efforts.  It’s an inequitable system.  I was an indie game developer for many years (MUDs, Mods) but I never wanted to join the traditional studio system because of what I perceived to be very inefficient employee management practices.

 The gaming industry is at the cusp of major structural change.  Traditional retail channels have left industry power in the hands of the few who could create scale to distribute across retail efficiently.  Now with the advent of open platforms such as such as XBL/XNA and web platforms like Kongregate, MiniClip, Areae/Metaplace, Facebook, etc, there will soon be numerous channels for game devs/designers to leverage to help them build their own profitable businesses.  And also, as players become more accustomed to playing games online or purchasing via online channels, there will be more venues for building new platforms and experimenting with different business models.  More importantly, many of these new games that will emerge will be much more lightweight social games, and so entirely new genres of gameplay will emerge. 

Bottom line: the gaming industry is at the cusp of dramatic structural overhaul in the next several years.  Some of this innovation will be driven by the large game companies (XBL, EA Blueprint), but I expect a bulk of the exciting new developments to come from a crop of startups yet to emerge. 
Anyways, I am hoping that these series of events at GDC will foster innovation, creativity, and a sense of what’s possible in the gaming industry.  At the very least, I want to introduce game industry folks to the possibility of being an entrepreneur or working for a startup.
You can read more about these events at GDC Director Jamil Moledina’s blog:
http://www.gdconf.com/news/directors_cut/

or at Gamasutra:
http://www.gamasutra.com/php-bin/news_index.php?story=17370
 

The first series of events takes place tomorrow, Friday February 22 - you can read about the 3 Startup Launchpad sessions here.

• Raising Venture Financing for your Startup: Tips, Tricks, and Hacks - 9:00-10:00am Room 2004 West Hall
• The 1st Annual Startup Showcase - See the 5 most exciting and innovative startups of the year - 12:00-1:00pm, Room 132 North Hall
• Lessons from the Front Lines: Startup CEOs share their insider stories - 4:00-5:00pm Room 2007 West Hall

Thanks for reading! I hope to see you there. And keep a lookout for the business plan contest we will be launching for Austin GDC in the next couple of months.

I’m heading off for the Austin Game Developers Conference this afternoon.  I’ll be there through Friday evening, if anyone wants to meet up.

I realized recently that I speak mostly in conclusions. That is to say, I am really bad at exposing my thought processes to other folks.  It’s one of the reasons why I blog so infrequently.  I only feel comfortable blogging fully formed thoughts - ones that have relatively well tested hypotheses.  But so much of relationship formation and bonding - the good stuff - happens in the in-between spaces.  I decided I need to actively work on exposing these thought processes.  

So I guess I’ll try posting more casually to my blog. I don’t have a lot of faith in this yet, but I suppose it’s the kind of thing that takes practice.  =)

I had a very enjoyable conversation yesterday with Byron Reeves.  Byron’s the Director of Stanford’s Language and Information Program.  In his spare time, he does a lot of consulting and startup work in the area of virtual worlds and virtual economies.  He told me about some fMRI work he’s done, studying people’s brains while they play World of Warcraft.  And the difference in people’s brain responses depending on whether you tell them the other characters they are interacting with are other people or NPCs (computer AI.) 

One of the companies he’s working with is Seriosity.   They are basically creating a platform to allow companies to create virtual economies by assigning currency values to different types of interaction and communication.  They are coming up with all sorts of very interesting, unique data about how virtual currencies drive behavior and group dynamics. 

Anyways, a few random thoughts have been percolating in my brain:

- What does it do to a [company's] culture if all interaction can be boiled down to some quantitative representation?

- Isn’t a company’s culture really just some expression of a collective utility function?

- And, has anyone done any studies measuring what type of correlation exists between the rate of change of a [group|country's] economic growth and the rate of change of its language? I guess I’m curious if various Chinese dialects are changing more quickly than languages in more static socioeconomic conditions.  I feel this must be true to some extent, but I wonder to what degree.

Dearest Readers,

If you enjoy reading my blog or liked any of the panels and conferences I put together this past year, I would greatly appreciate your vote for my proposed SXSW panels:

Virtual Goods: The Next Big Business Model! 
What’s Wrong With Today’s Major Social Networks?
Human and Property Rights in Virtual Worlds

I haven’t put together who the rest of the panelists are yet - I’m waiting to see if any of these panels get selected, but I guarantee any panels I put together will be interesting, fresh, and relevant.  Why? Because I really hate wasting peoples’ time. And I really enjoy being a catalyst of enlightenment, in whatever small way I can.

SXSW is my favorite conference of the year.  It’s just a really cool mix of product oriented people: creative people who build stuff.  These are the kinds of people I love to spend time with.  Plus, it’s in Austin and Austin is a super fun town. 

Greatest thanks,

s

update:

p.s. To all of you lazy folks who are reading this post but not voting (e.g. most of you), because SXSW uses awesome Ajaxy Web 2.0 technology, it only takes you 1 second to vote.  So you have no excuse. 

Leigh Alexander, who is one of my favorite writers on the subject of virtual worlds, interviewed me about the future of online gaming.

The whole thing is worth a read - it turns out it’s a lot easier to speak casually with someone than to blog (surprise!).  In it, I talk about one of the holy grails of online gaming:

“One of the hallmarks of a successful Web company is — if you look at the track record of the most successful companies that have stayed independent and sustainable, like eBay, Google or Amazon — they have built platforms [which can] foster entrepreneurs. There are ecosystems that spawn innovation from the community members themselves, and Facebook is falling in with that too, with the new platform launch. Few gaming people understand this intuitively — though, Xbox Live Arcade really fosters an entrepreneurial ecosystem, too. That’s something Areae is trying to focus on – how to build an actual ecosystem and a real, [open] web platform for people to [work, build, and extend upon].” 

We just announced our recent Series A investment in Conduit Labs, a Boston based company that’s focused on building a social networking / casual MMO hybrid.  Well, what does that exactly mean? And aren’t there a hundred companies now doing this exact same thing? 

This new space - the intersection of Web 2.0 and online gaming - is a very difficult one to define.  This categorization encompasses companies like Kongregate to Areae to Three Rings - each of whom is vastly different from the others.  To make it even more confusing, Conduit Labs is not really like any of the three companies I just mentioned.  They’re inventing an entirely different interpretation of what it means to sit at this intersection. 

Conduit Labs is building a gaming environment.  That is to say, the primary driver of user interaction is game mechanics.  This gaming environment lives in an immersive, graphically rich world.  But the gameplay Conduit Labs is building isn’t exactly like other online games we’ve all now become familiar with: there’s probably not going to be much kart racing or princess saving or dragon slaying.  We aren’t yet disclosing what the gameplay or graphical metaphor will consist of, because that’s part of the secret sauce. 

Leigh Alexander from Worlds In Motion wrote up a great interview with Nabeel that provides more insight into what Conduit Labs is up to.

Nabeel: “I think probably every other day now over the last couple months, I see a new casual MMO or virtual world startup; it’s been constant…and what I saw was the same kind of dichotomy — two types of startups. There’re hardcore MMO gaming guys trying to make that experience more accessible, sort of like World of Warcraft meets the web. And the other side of the coin is a bunch of web guys who want to build a web site with virtual gifting and more gaming.”

While Hyatt recognizes the value in both of those approaches, he adds, “I think they’re missing the larger point – which is that there is no interaction on the web that is like a social game. I don’t mean a single-player game, which is based on a legacy of, really, only video games; it doesn’t last hundreds of years. There’re actually thousands of years of games that are primarily social activities like dancing, or bowling. And those are about you bonding with your friends, and there’s nothing like that online right now. And I think the web and social networks provide a whole new medium to create something that’s never been seen before.”

Just like the Wii and Guitar Hero reinvented the social gaming metaphor for a broader audience, Conduit Labs is trying to do the same for your web gaming experience.  I’ve also seen innumerable business plans in the last year for startups in the online gaming and virtual world space.  But most of them have been rehashes of things we’ve already seen, building things like “making the MMO even more casual” or “putting casual games into Facebook” or “Club Penguin but with chimpanzees.”  (disclaimer: I actually like chimpanzees quite a bit, probably more than I like penguins.) 

We invested in Conduit Labs because I believe the team there really gets it: there’s an entirely new type of immersive experience waiting to be built.  It has less to do with technology (although we are building on the basic assumptions/principles of the zero-barrier MMO and all that entails), and more to do with social engineering.  This is a great team that has the right blend of experience that includes Web 2.0, hardcore MMOs and the scalability expertise that comes from supporting tens of thousands of concurrent users, and understanding how to design “fun” for a mass market audience that comes from building groundbreaking social games like Guitar Hero. 

Yesterday, I got 3 searches for “pirate’s booty.”  Today, I got one search for the “galapagos turtle.”  And another for “making lots of money.” These I understand, because there’s actually content here that refers to these topics.

But some searches are really strange and unexplainable:

• “opening up front panel Wii”
• “club penguin hacking accounts”
• “posh spice new haircut”
• “urban snorkeling vacation”
• “gear military night vision”
• “how much a real baby monkey cost”
• “I NEED TO WRITE DOWN MY BUSINESS PLAN”

Who are you people?

We’ve made a couple of interesting investments recently in the social media space - Twitter and well, the aptly named Social Media.  Social Media, the company, is building a highly viral network of micro-applications that live across multiple social networks.  The announcement regarding the Social Media funding is here.  Social Media is a 1st cousin to companies like Slide and RockYou - both of which are essentially virtualized social operating systems, coordinating massive networks of widget-based microtransactions.

What I find compelling about Twitter and Social Media is that they are both creating standards around specific user behaviors and then syndicating this standard across multiple social operating systems.  This server side synchronization of user relationships and user behavior is the key asset to own.  We’re now moving into a client agnostic era, where clients - whether they be Flash, Ajax, Facebook-centric, or MySpace-centric - are marketing channels whose function it is to drive efficiency into the process of targeting and segmenting your users. 

A client should be an interpretation of a user group’s needs within a specific context (by ’context’, I mean the 14-18 year old females on Facebook have a different community ethos than the 14-18 year old females on MySpace and thus could be segmented into two different user groups).  Done well, this can lead to lower user acquisition costs and a broader distribution engine.    All in the pursuit of creating the zero barrier platform.

Seth Goldstein, Social Media’s CEO, put together a cool summit last week called AppDevCon.  It was a get together of 60-70 of the leading Facebook application developers.  I spoke on a panel about investing in Facebook apps.  Justin Smith, from the Inside Facebook blog, wrote up a good summary of the event’s sessions here.  My comments were truncated because Justin was liveblogging the event, but to sum up what I said:

• We are actively investing in Facebook apps.  However, I feel there are very few, if any, standalone apps today that would make outstanding venture investments.  There are interesting threads and patterns that are emerging that could become great venture investments. For example, MySpace and Facebook are the two most well known asynchronous social platforms. There is great market opportunity for an emergent synchronous social platform or application.  I’m also very interested in virtual gifting and virtual currency platforms that operate across myriad environments.
• I am most interested in investing in smart, creative folks who have an interesting hypothesis, a good process for experimenting in rapid iterations, and a methodology for collecting data that gives them insight into when and where to place the big product bet.  The pace of innovation on the Facebook platform is insane right now.  It’s enormously difficult to predict what the killer app might be. 
• Should app developers be building on other platforms other than Facebook? It depends on the ROI - Facebook is but one user acquisition vehicle with its own Customer Lifetime Value datapoint.  If you build a framework that lets you test aggressively and measure results quickly, there’s no reason you shouldn’t be deploying across multiple environments.

Eesh.  I’m really playing catchup on this post.  My apologies.  If you want to be immersed in my life’s trivialities on a somewhat regular basis, you can follow my Twitter stream.  

For the 2 people that read my blog that don’t read Techcrunch (hi Mom, hi Grandma!), here’s a link to the Techcrunch article that I wrote awhile back on Virtual Goods: the Next Big Business Model. 

Also, the videos from the Virtual Goods Summit can be found here.   These are all worth watching, but if you have only 1 hr, I highly recommend that you watch the first one, Virtual Goods Success Stories.  Kira from Neopets, Paul from Habbo Hotel, David from Tencent, and Min from Nexon all disclose fascinating and very proprietary statistics about their businesses. 

I’m just getting back from a brief vacation.  I thought about going somewhere exotic, but I ended up being very, very lazy. I went to San Diego, hung out with old friends at ComicCon, and emptied my brain at the beach.  I read about a dozen books and watched Season 1 and 2 of Battlestar Galactica.  I know that sounds horribly dorky, but alas.  What can one do? 

When I started writing this blog, very few people were talking about the melding of MMOs and Web 2.0.  My goal for the last year was to proliferate this concept widely and to help bring together what I observed to be two very segregated, but highly complementary communities.  This was my motivation behind putting together a Virtual Worlds/Casual MMO panel at the Web 2.0 Expo and for including the panel on “Virtual Items: Mainstream or Not” at the Virtual Goods Summit. 

 Yesterday, BusinessWeek published a special report called “Getting Serious about Gaming.”  Two of my investments are mentioned in this article, one of which is Areae:

“One of the most high-profile efforts in this area is the L.A.-based Areae, founded by industry veteran Raph Koster (former chief creative officer at Sony Online Entertainment (SNE)) in December, 2006. Still in stealth mode, the company is talking very broadly about its plan to reinvent virtual worlds. But the basic idea is to bring down the astronomical development costs of the popular MMOGs by borrowing from the equally popular and vastly more economical Web 2.0 technologies supporting sites such as MySpace and YouTube.”

Hrm, they don’t exactly get it right.  What they do get right is that Areae is still very stealthy. In all seriousness, I don’t like invoking a Web 2.0 metaphor where the sole conclusion is ”cost reduction.”  Web 2.0, while an accelerant of more cost efficient development models, is in my mind, primarily characterized by a collaborative and community-driven relationship with your users where “A+B” does not merely equal “A+B.”  This is the kind of alchemy all of us technologists strive for - how do we transform mundane, commodity database driven web pages into something that supports life?  ;>

And since when was MySpace Web 2.0?  

In any case, all my good natured snark aside, I’m very happy to see the transformation in the market that has taken place over the last year.  The conversation around next generation social media has moved far beyond Second Life and WoW.  Every day, I see new business plans and prototypes of entrepreneurs constantly innovating in this space. 

I am producing this awesome conference, the Virtual Goods Summit, with my friend Charles Hudson.   We wanted to put together a conference that moved the dialogue beyond “Virtual Worlds: Hype or Not” to discussions that can inform meaningful industry evolution and actual implementation.  With companies like Tencent ($500M+ yearly revenue) and Habbo Hotel ($65M yearly revenue) generating a significant portion of their revenue from virtual goods, it’s clear that virtual goods represent a real, viable business model and will likely have a huge impact across all of the consumer Internet.  [update: Note that this isn't just for people interested in gaming.  There's a reason we only have one session related explicitly to virtual goods in gaming & entertainment!]

What: Virtual Goods Summit 2007
When: June 22, 2007 from 10 AM - 5 PM
Where: Annenberg Auditorium Stanford University

Virtual goods and virtual currencies are growing beyond their traditional
roots in online gaming and beginning to exert growing influence on the
development of social networks, community sites, and casual games. This
growing influence is due in large part to the fact that consumers have shown
a willingness to embrace virtual goods as a way to express themselves
online. From pets to coins to avatars, virtual goods are becoming a real
opportunity for companies who are looking to build more engaging online
experiences: