Startup weekend in Novosibirsk

March 31, 2011

For the fist time ever had we something with words “startup” and “Novosibirsk” in one sentence. Yes, last weekend there was a Startup Weekend held in Novosibirsk, organized by Arkady Moreinis and his incubator company Glavstart. Over 200 people gathered for a marathon of presentations, pitches, and discussions. A lot of crazy ideas, but some were noteworthy. As a result, Glavstart offered $10,000 of seed investment to three startups ($10K for each company). These 3 do not even have working prototypes – they have just ideas, wrapped into 7-8 page presentations.

I think this event was a huge success and it will attract more people in the future. It is certainly not going to turn local startup community into Silicon Valley type of thing any time soon, but it’s a good step in the right direction. It will certainly lead to new companies created and new product launched.

 


Update on note-taking app Catch

March 27, 2011

It looks like Catch has been updated since the last time I wrote about it. First and foremost they got a premium plan called “Catch Pro”, which is $5 per month or $45 per year. If you think this is just like Evernote, you are correct. Catch is similarly creative in how they limit free accounts: you can upload a limited number of pictures and hi-res images per month among other limitations.

Catch also got some platform additions: browser plug-ins for Chrome, MSIE and FireFox, plus they got an API for third-party developers.

I tried the iPhone app and it worked pretty well. It’s very simple, but get the job done. Still, I fail to see how Catch is different from Evernote. It seems that they are going to repeat just every Evernote’s step. As of now, Catch has few features, but this is also how Evernote started. I bet Catch will be beefing up with all kind of features in the near future.

Now some MobileNoter news: DropBox and SkyDrive support for MobileNoter SE is coming out any day now. Then we’ll have a major update to our iPhone app in April with some long awaited capabilities

 


iPhone & iPad game development teardown: Alawar

March 22, 2011

Everybody heard about riches of iOS game developers, but what if you are not Rovio and not even the author of Cover Orange? Can a company be successful in the AppStore without a blasting hit? Let’s take a look at Alawar, one of the most successful gaming companies in Russia. While Alawar publish games for almost every platform, including consoles, I will analyze only its iOS business, which started roughly 2 years ago.

For this, I will use the publicly available data, make some assumptions and educated guesses.

Assumptions:

– the price of a game has been unchanged for its lifetime;

– the free versions of the games don’t bring in any revenue;

– the paid games only bring sales revenue (i.e. no ads or in-app purchases);

– the total sales of a game are two times of the game’s sales in USA. This is important, because it’s relatively easy to estimate USA sales, but not for the rest of the worlds. However, this 2x factor usually works very well.

With these in mind, I ended up with the following guesstimate for the iPhone sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and iPad sales:

 

 

 

 

 

 

 

 

 

 

 

 

As it turns out, Alawar does have a solid hit: The Treasures of Montezuma. However, many games don’t reach a 5-digit level of sales. So the question is the cost of making these games. In this particular case, Alawar produces these games on the cheap, because they port their existing Flash titles to iOS. The cost of porting a single game is $5-10K. Even if we assume the cost at $10K and count the cost for iPhone and iPad versions separately, this line of business is wildly profitable.

However, if a small studio produced games like these without any prior work, it would hardy have cost more than $20K per game. Even in this case it would be a profitable business. No wonder more and more startups are being founded and funded every day to develop games for iOS.

Disclaimer: I have no any relation to Alawar and haven’t received any inside information from anyone in the company. If you want to provide more accurate details, you are welcome to do so. I will update this post accordingly.

 


Small social gaming company teardown: meet Drimmy

March 17, 2011

Even though Zynga is definitely a bubble, there are many successful social gaming companies out there. Most of them were pioneers in the area. This success lead to rapid creation of the followers: entrepreneurs and investors rushed to clone the winners. It is therefore interesting to see if these latecomers can be successful. I picked a company named Drimmi, which is a classical case of entering the market after all the land grabbing occurred.

Drimmi was founded by Nikita Sherman in late 2009, who previously was:

– a top manager at Begun (one of the top Russian online ad network);

– a producer of online games in Mail.ru (yes, that Mail.ru, which later merged with DST and became Mail.ru Group that owns chunks of Facebook, Groupon, Zynga);

– a president of Mamba (top Russian online dating system);

– a president of Odnoklassniki.ru.

In other words, this is probably as high as you can get in the Russian online business. No wonder that ABRT Venture Fund and Mangrove Capital Partners easily gave Mr. Sherman $4m to create a social gaming company. Let’s tale a closer look at the result.

Currently, Drimmi employes at least 50 people, roughly half of them residing in Moscow and the other half in other cities. Assuming average expenses of $3500 per person per month ($1700 – salary, about $800 taxes, about $1000 office expenses and overhead) this gives a burn rate of $175k per month.

How profitable is Drimmi? Their most successful games are:

– Fishing place

– Poker quest

Estimated DAU of these games is about 300,000. A typical DAU/MAU ratio is 20%. It is higher for newer games and it falls down as the game grows older. Thus it is reasonable to estimate Drimmi’s MAU at 1,500,000.

A typical conversion rate to paying users is 1.5% with average monthly spend at $5.5. These figures are known for US social gaming market, therefore they must be lower for Russian market. However, let’s take these as I don’t have any better. A simple calculation gives $123,650 per month of gross sales. This is before social networks take their cut, and they are not shy: 50% for VKontakte and Odnoklassniki, and 30% for Moi Mir. Drimmi has fewer than 10% of their MAU in Moi Mir, so we can safely enough use 50% as the number. This gives roughly $64k as monthly revenue of Drimmi.

The real figures may differ, e.g. the conversion rate can be higher, and average monthly spend is likely to be lower, but the final number seems to be accurate. This lands the company into negative cash flow of $110k per month. However, the revenue will grow eventually, while the expenses can be controlled to stay the same. The current growth rate of Drimmi’s MAU is about 10% per month. This is a good growth. If it can be sustained, it will move the company from negative territory in about a year. Overall, it will take the company 2 years to break even (one year has passed and another is ahead). This is considered to be a great achievement among venture capitalists.

Disclaimer: I have no any relation to Drimmi and haven’t received any inside information from anyone in the company. If you want to provide more accurate details, you are welcome to do so. I will update this post accordingly.

 


We did it again: another release for Android

March 12, 2011

MobileNoter SE for AndroidWe just released a new shiny MobileNoter SE into Android Market. How is this release different from the one we did a week ago? Well, the differences are significant.

First, the application was completely rewritten. SE stands for Standalone Edition. It highlights the fact that the shiny MobileNoter SE doesn’t require a Windows synchronization client and it doesn’t require Microsoft OneNote. Pretty soon the SE version will be able to grab OneNote files from DropBox, SkyDrive, and other file sync and share services. We believe this to be a huge advantage compared to Evernote and its clones. With Evernote, all your notes reside on Evernote servers. You don’t have any control over your data. You don’t own your data. You don’t even know who and when may decide to peek into your data. When you can store your notes on DropBox or similar services, you have much more control. Plus, most of these services give you a lot of space for free. Even better, you can set up your personal DropBox-like server and use it to sync all your data, including notes. While this may sound complex, this is the way the corporate users will go. No corporate would want to store their employees’ notes on someone else’s servers (be it Evernote or SkyDrive). They would want to host the server themselves for security purposes. Pretty soon we are going to give them this ability!

The second difference between MobileNoter and MobileNoter SE is that the latter is sold through the Android Market, while the former can be downloaded for free. Before this, we’ve used Plimus and PayPal to sell software. Well, Google Checkout is definitely the easiest to set up a merchant account with. However, the merchant interface is so basic at the moment. It’s not just basic, it is plain ugly to the point of being unusable. Come on people! Even downloaded CSV files with transactions are not formatted properly, like dates are wrong and amounts are mixed with currency symbols. I really hope Google will fix this soon.


Zynga the super bubble

March 7, 2011

ZyngaThe biggest social-gaming company Zynga recently reached private capitalization of over $7 billion. To put that into perspective, that’s more than total cost of Electronic Arts, which produces and publishes bestselling games like Mass Effect, The Sims (oh), Dead Space (my favorite). The conventional wisdom should go like “EA is a nice big company, so it’s outright silly that Zynga costs more”. The truth is that EA is not doing well. EA has been losing money for last 3 years for a total of $2.2 billion.

Now I could compare Zynga to other gaming companies, like Activision Blizzard (they are doing very well) or Take Two (they are doing nice too), but that’s boring and isn’t really relevant. EA, Activision and Take Two are publicly traded companies. They have been around for some time (read: they are not growing like crazy). Zynga is assessed by investors by its money making power and most importantly its growth factor. Let’s review these in more details.

1. Zynga money making power

Zynga’s rumored revenue for 2010 is $850m. Let’s divide that by 12 and round up a little, because the revenue was likely to be growing month by month. Zynga has roughly 1500 employees. Their main expense is Facebook’s cut of 30% off revenue. Add infrastructure costs, advertising, and some overhead and we land with this table:

Estimated revenue $75,000k 100%
Number of employees 1500
Full employee cost $10k
Total employee expenses $15,000k 20%
Facebook fees $22,000k 30%
Advertising spend $10,000k 13%
Estimated infrastructure $10,000k 13%
Estimated overhead $3,000k 4%
Total expenses $60,000k 80%
Monthly net margin $15,000k 20%

$15m of profit per month is great, but no one would pay $7b for this. So it must be Zynga’s growth that makes it so highly priced.

2. Zynga growth

Here is the dynamic of DAU (Daily Active Users( and MAU (Monthly Active Users) of top social gaming companies on Facebook:

MAU 12/09 DAU 12/09 MAU 2/10 DAU 2/10 MAU 2/11 DAU 2/11
Zynga

219m

64m

234m

66m

295m

61m

Playfish/EA

59m

12m

48m

10m

37m

6m

CrowdStar

38m

11m

68m

12m

44m

4m

Playdom

23m

3m

25m

4m

28m

3m

Whenever a number decreased comparing to the previous value, I highlighted it by red. As you see, beginning of 2011 is red for everyone. This means that the number of people playing Zynga games is decreasing on Facebook. And just when I was writing, the latest MAU and DAU numbers were published, showing that Zynga’s MAU on Facebook shrank by roughly 30m during last month. Since Facebook is the biggest network and is responsible for the lion’s share of Zynga revenue, it is safe to assume that Zynga’s revenue is plunging, not growing.

How is that for a hot shot company? The social-gaming industry is over-invested, with too many games fighting for attention of the limited pool of people. The MAU and DAU of all major companies saw their fastest growth in 2009 and in the first half of 2010. These days are long gone. There is still a chance for small companies to make a breakthrough (and get acquired by Zynga). In the next post I will review one small company trying to make it despite bad odds.

 


MobileNoter for Android shipped to stores

March 3, 2011

As promised, a full version of MobileNoter for Android was just released. So if you are a OneNote fan or heavy user, you can now access your OneNote notes on Android too.

There are going to be a few more updates during March, including MobileNoter for iPhone and iPad.

Even more exciting updates are coming one or two months later. The new MobileNoter will be able to sync with OneNote files stored on DropBox or SkyDrive. This will surely beat the hell out of Microsoft’s OneNote for iPhone. Stay tuned!