If the tagline for AngelList has become “The LinkedIn for Startups”, will the tagline for Product Hunt become “The Launch Pad for AcquiHires”?
To me, the acquisition of Product Hunt is another signal of the narrowing of business models for standalone apps. Product Hunt was never in the running to scale enough to attract advertisers. The referral fees from Amazon for purchases of makers’ products launched on Product Hunt never really took off.
The growth in the numbers of technology startups valued over $1 Billion, so-called unicorns, has abruptly stopped and even reversed.
In the last several months, a number of unicorns have seen their valuations marked down by mutual funds. This has been accompanied by a number of titillating articles about frivolous spending — Dropbox’s Chrome Panda sculpture — and debauchery — Zenefits’ sex in the stairwells — claimed to be endemic to high flying unicorns.
Unlike stories of fallen unicorns, this article is about a company that “officially” is still on all unicorn lists. It is about the mobile game company Kabam, elevated to unicorn status by its last funding round in August 2014 of $120 Million by the Chinese platform company Alibaba.
Kabam had early success at developing games based on movie IP licensed from major studios like Disney’s Marvel studio, Warner Bros., and Lionsgate.
Beginning in 2014, Kabam started timing new releases to coincide with the releases of mega-hit movie sequels like Fast and Furious and the Hunger Games. The results have been a disastrous string of five failures and one success.
Kabam Timeline of Hits and Misses
What caused this unicorn to stumble?
There is an inspiring YouTube video of a Keynote address given by Kabam co-founder Holly Liu at a Women 2.0 Conference in 2014.
She talks about key moments in the early history of Kabam when the founders decided to “Go Big” in her words. By this, she meant building products based on a vision of where a market was going rather where the market was at. Today, we use a hockey metaphor of “skating to where the puck is going” not “skating to where it is”
Specifically, for the Kabam founders it was deciding in 2007 to port their games to Facebook via its newly created API in a year when the dominant access to games was through the PC browser.
Then again, at the height of game company success on Facebook in 2010, Kabam founders were anticipating Facebook’s closure of its game API and made the visionary decision to develop only for the mobile phone.
Silicon Valley VCs have a bias toward supporting founders opinions over professional managers when startups periodically face existential choices.
This is because founders have vision (“skate to where the puck is going”) and want to build long-lasting companies. They have a Facebook “move fast and break things” mindset that is risky, but can result in outsized payouts in the end.
Whereas professional managers prefer risk-averse choices (“skate to where the puck is” ) that look to be the fastest path to cashing out via a buyout or an IPO.
Kabam stopped making visionary choices in 2013. What had happened was the emergence of a “talk the talk” culture championed by hired professional managers that favored strategies geared toward short-term revenue goals followed by an IPO.
In 2013, Kabam’s revenue grew 100% that year, fueled in part by the explosion of mobile phone purchases. Kabam had 3 hit games with greater than $100 Million in annualized revenue.
CEO Kevin Chou talked to the press about timetables for an IPO. He even announced publicly early April of 2014 that revenue was forecasted to grow 80+% or more and be in the range of $550 — $650 Million.
The safe bet to achieving these short term goals was to release as many games with $100 M in annualized revenue as possible. And that is what Kabam did, with disastrous results.
Visionary game founders in 2013 would have seen that only a company with multiple chart-topping $1 Billion games could ever have a chance at an IPO.
They would have known that another mobile game company Machine Zone (now MZ) was doing the visionary thing by building a ultra-low latency many-to-many game platform based on Erlang and investing in dedicated servers with field programmable gate arrays.
Visionary founders at Kabam would have stopped doing more of the same, and would have started building a new platform. They would have shut off all talk of IPO, stopped giving the press explicit financial numbers and revenue forecasts, and told investors that revenue would plummet in 2014.
In our opinion, the source of Kabam short-sighted culture was non-engineering managers brought in run Kabam’s operations. COO Kent Wakeford, a lawyer and former AOL executive, has been the face of Kabam to the press in matters of deals. To his credit, he consistently deflected any questions dealing with IPO specifics.
The real source of Kabam’s culture of “talk the talk” was former SVP of Corporate Communications Steve Swasey. The idea for making annual explicit financial disclosures can directly be traced Swasey.
The height of Kabam’s arrogance occurred in December 2013 when Kabam announced that it bought the naming rights for the Cal-Berkeley’s football field for $18 Million paid over 15 years. This idea had to be initiated by Steve Swasey. But, to be fair, this symbol of arriveste had to be approved by Kabam’s Board of Directors and founders.
One can understand the desire of Kabam’s co-founders — all three UC-Berkeley grads — to give back to their alma mater. But, founders should wait years after their IPO to give cash for University buildings. For example, buildings on the the Bay Area campus of Stanford and Berkeley include no less than Gates, Allen, Moore, Varian, Hewlett, Packard, and Wozniak.
In our opinion, we do not think Kabam can recover. It is running out of cash. The IPO window is permanently closed to mobile game companies after the Zynga and King Digital IPO debacles. Kabam’s only hope for more funds is Alibaba, its prime investor to date.
The naming of the football field at UC-Berkeley in December 2013 looks to be Kabam’s symbolic “Kiss of Death.”
You heard it here first. There is a new dating app coming soon. But I am not sure if dating is the right category. Whatever category Tinder is in, the Proxtitution app should go there, too.
The bros that make these kinds of things haven’t started it yet. But, trust me, they will start coding the minute they read this. Unlike Tinder, the Proxtitution app is will be monetized from day one as it is fundamentally about transactions. The bros will take a cut. Just like pimps.
New technology spawns newer technology. The impetus for the Proxtitution app is something called “geo-fencing”. Inside of every mobile phone today, there is a GPS chip which can pinpoint where you are at every moment in time.
The app starts out by creating a personal “geo-fence” — a precise, virtual perimeter around you.
Click on and off a button to create a date and location log. If others have the app, and consent is mutual, the logs can be joined by the NFC chip.
This is a revolutionary first step in the transformation of ownership of personal proximity, currently protected by vague nuisance laws, into something more precise, defensible, and for better or worse, marketable.
Unfortunately, this initial use case involves selling personal proximity. But, to be fair, it has been observed lately that lots of new technology generating great social good often starts as inconsequential toys, or in this case, a crass app.
For example, there will be transactional apps based on geo-fencing that will solve the “free rider” problem encountered by street performers. The golden age of this art form is also coming soon.
But, there is more to this app. The real proxtitution begins with “turn on your love light” (from a song by 60s R&B artist Bobby Blue Bland, made famous by The Grateful Dead)
A buyer will see a bunch of dynamically priced “love lights” superimposed overaUber-like map. He/she texts a consent request to enter a seller’s “geo-fence.”
If the he/she says yes, the geo-date date begins. When either party say enough, the geo-date date ends and credit cards are debited and credited.
Proxtitution will really shine in singles bars. A market for proximity is most efficient if the participants are, well, in close proximity to begin with. Plus, there will still be a need for physical bouncers as there are always a few who don’t respect the rules.
Finally, there are historical precedents for the Proxtitution app. There were ticket-a-dance halls that flourished in the 1920s. Earlier, the city of San Francisco had its Barbary Coast dance halls featuring a business model of commissions paid to dancers based on customer drinking.
And it just might be some bro startup in the SoMa district of San Francisco — just blocks south of the city’s historical Barbary Coast — that produces this digital version of a dance hall.
Maybe the so-called “Hawthorne effect” will work here. Rather that waiting 2 years to evaluate the cultural effect of a new app like Tinder, analyzing a work-in-progress like the Proxtitution app might just affect the outcome.