Tag Archive Machine Zone

Edge Computing Use Cases for MZ’s (Machine Zone) Platform

Lawrence Abrams No Comments

This is an expanded answer to a Quora question that I posted on August 6, 2017

Machine Zone (MZ) describes its new “RTplatform” as capable of “high-fanout” and “many-to-many” apps. What are the use cases for this?

I wrote a blogpost about 1 1/2 year ago valuing MZ. At the end, I suggested a few use cases that would benefit from the low latency of their platform. With the passage of time, there is a lot of talk about how the IoT requires a new computing paradigm called edge computing. I now am thinking about how MZ’s publish-subscribe, many-to-many platform could be used as a “first alert” messaging platform at the edge. Servers would be called only in cases of a need for higher order compute functions and storage.

The obvious use case for MZ’s platform would be v2x middleware for the era of autonomous cars. Another use case would be a IoT to IoT “first alert” message of a computer virus akin to what Tanium has developed..

Also, moving 400 billion or so daily events connected with RTB ad exchanges to the edge by conducting individual ad impression auctions within a Docker located on the device.

Also, many-to-many AR games placed via Bluetooth at the edge without calls to the server.

MZ’s has contracted with Switch, an innovative data center provider based in Las Vegas, to house thousands of MZ -owned servers with FPGA’s optimized for its Erlang-written publish-subscribe platforms.

Switch has recently announced  “The MOD 100…for a rapidly deployable, single user environment that can be extended to nearly any location around the globe. The MOD 100 data center can be customized to fit on premise, at the edge or in a dense urban environment on a parcel as small as 400 feet by 400 feet.”

MZ has recently entered the AdTech business with an omnichannel, demand-side stack featuring RTB for display ad impressions. We could seem leverage their relation with Switch and growing expertise in rapid-response, FPGA servers.  One way would be to enter AdTech from the supply-side via an edge CDN featuring 1,000 of MOD 100’s full of video ads and connected to auctions via MZ’s publish-subscribe platform.

Below is a picture of Switch’s SUPERNAP 8 data center outside Las Vegas:

 

 

Quantifying the Requirements to Scale a Carpooling Business

Lawrence Abrams No Comments

Summary

  • Carpooling is now seen as last big opportunity to grow a shared mobility as a service (MaaS) business ahead of the arrival of autonomous vehicles (AVs).
  • We present the case that Waze’s altruistic vision of carpooling is insufficient to scale the business.
  • Our transactional vision of the business, requiring market pay rates to drivers, creates little incentive for people to choose carpooling over solo commuting.
  • We think that it will take a minimum of $4,000 in cost saving to motive a significant number of people to go carless.  This implies that fares will have be reduced by an additional $1,583 a year to reach that level of cost savings.
  • The way to recoup this is by negotiating referral credits (dollar or accounting) with related units offering last-mile ride-sharing, delivery, and weekend car rentals.

© Lawrence W. Abrams, 2017

Inquiries : Lawrence W. Abrams, labrams9@gmail.com, (cell) 831-254-7325

Our Vision of the Modern Carpooling Business

A Horizontally Integrated MaaS Business

The success of ride-hailing apps has given rise to the idea that app-enabled carpooling could be a scalable business.  Plus, carpooling at scale could become a much needed poster-child of tech “public good”  as it would be the first impactful solution to traffic congestion and automobile pollution in years.

The question is:  Why would any company want to enter the carpooling business today?  What kinds of driver and passenger incentives would be required to scale this business?  

The unexpected early success of autonomous vehicle (AV) R&D has given rise to the idea that automobile ownership will be replaced within a decade by companies offering shared mobility-as-a-service (MaaS).

Given this, why would any company want to enter the driver-centric carpooling business with its limited life expectancy and profit potential?  

There have been at least a dozen carpooling startups trying to grow the business since 2010, but none have gained traction and most have closed down.  Perhaps their timing was premature as the urban ride-hailing companies like Uber had not yet matured enough to provided acculturation spillover benefits or been in a position to partner with a carpooling company in a tight “mesh-transit™” network. (see more on this later)

Today, the only commuter carpooling service with serious financing is Commute by Waze, a division of Alphabet (Google).  But, Uber, Lyft, and Ford  could enter this business easily by expanding their existing urban ride-sharing services to long-distance commuters.

uberPOOL and Lyft Line are urban shared-ride versions of their on-demand  services.  Ford’s new acquisition Chariot has recently rolled out an app-enabled, fixed-route vanpool service using Ford Transit vans and full time drivers.  Lyft has just introduced a similar urban fixed route car jitney service called Lyft Shuttle.

Waze’s vision of of the modern carpooling business is in the spirit of  altruistic carpooling among neighbors and coworkers.  Everyone takes turns driving and chip in to cover out-of-pocket expenses if there is an imbalance.  

Consistent with this vision, Waze has capped driver pay rates at the business mileage reimbursement rate of $.54 per-mile.  It has set per-ride fares that, when aggregated, just cover driver pay.   It also limits drivers to two-a-day rides, eliminating the possibility of full-time work.

Despite low pay, driver commitment is high because drivers have an altruistic “gift relationship” with passengers rather than a “transactional relationship.” (more on this later)

While Waze’s vision for modern carpooling is laudable, we will argue that scaling the business will require a business-like transactional approach, starting with driver pay rates on par with Uber.  

We envision the modern carpooling business as a unit of horizontally integrated MaaS company that also offers ride-hailing and has third-party tie-ins with ecommerce delivery companies like Amazon and Walmart and rental car companies like Hertz and Avis.  

The carpooling unit would be credited for dropping off passengers at transit hubs for last-mile ride-shares. It would be credited for delivery of meals, groceries, etc.  It would be credited by rental car companies when carless carpoolers come in for cheap rentals on the weekends.

While never profitable on its own, the carpooling unit would be building brand-awareness and customer loyalty.   It would be an important contributor to positioning for the biggest business opportunity of a lifetime —  the AV MaaS business.

The carpooling unit would be accumulating valuable MaaS logistics data.  It would play an important role in the acculturation of commuters to the shared-ride lifestyle much like AirBnB and WeWork are doing for the shared-living and the shared-work lifestyle, respectively.

More MaaS synergies originate from carpooling than any other mobility service.  And those synergies magnify when carpoolers go carless.

The fundamental strategy of an integrated MaaS company today should be to reduce carpool fares to the point that passengers will go carless and unleash a demand for related services.   Good accounting practices dictate that the carpooling unit get credit for these spillover benefits.

We think that it will take a minimum of $4,000 in cost saving to motive a significant number of people to go carless.  This implies that fares will have be reduced by an additional $1,583 a year to reachthat level of cost savings.

The way to recoup fare reductions would be to negotiate referral credits (dollar or accounting) with related units offering last-mile ride-sharing, delivery, and weekend car rentals.

Next, we present a brief look at the carpooling business from the vantage point of specific companies — Lyft, Uber, Ford, GM, Google, and even Amazon, Walmart, Hertz and Avis.

Besides spillover benefits to related companies, carpooling at scale will have a significant impact on traffic congestion and automobile emissions.  These “public goods” justifies government support.  We discuss the merits of a few ways government can help scale the carpooling business with minimal expenditures.

A Sense of Carpooling at Scale

By quantifying “carpooling at scale”, we will show why Waze’s altruistic vision of carpooling with driver pay set at $ .54 / mile is insufficient to scale the business.

For this exercise, we chose California Highway 101, a.k.a. “The Bayshore Freeway” between San Jose and San Francisco (SF).

The Reverse Commute along Highway 101 — aka the Bayshore Freeway

There are number of reasons why Highway 101 would be good starting place to scale a carpooling business:

  • Significant carless commuters in SF  
  • Significant reverse commute from SF to Peninsula
  • Ride-hailing at scale that facilitates a “mesh-transit™” system
  • California highway not US Interstate
  • Home of Waze, Chariot, Uber, Lyft, Google, and Ford Smart Mobility

The question is how many carpool drivers would be needed to reduce the rush hour traffic along Highway 101 by, say 30%?  How would that estimate compare with the number of Uber and Lyft drivers now working in SF?

Based on 2015 CalTrans data of vehicle traffic flow, we estimate that there are approximately 150,000 vehicles flowing both ways past a mid-peninsula point along Highway 101 (at Highway 92)  during a typical weekday commute period of four hours (5-9 AM or 3-7 PM).

We derive the following table of driver requirements:

Driver Requirements for Scaling Carpooling Along Highway 101

To get some sense of the magnitude of this requirement, we cite a  2016 report by the San Francisco Treasurer’s Office estimating a total of 45,000 Uber and Lyft drivers currently working in the City.

We conclude that it would take one-third the scale of Uber’s and Lyft’s combined operation in San Francisco for a carpool service to impact commute congestion along Highway 101, assuming an average of 3 passengers per carpool.  And this is just one highway in the Bay Area.

Attracting 15,000 new drivers would be a huge undertaking.  But, if the business could use existing Uber and Lyft drivers during peak commute hours and allow them to do multiple commute loops, the task becomes much more manageable.

Reverse Commuters as Early Adopters of Carpooling

 Highway 101 is especially attractive as a place to start a carpooling business because of a strong city-to-suburb reverse commute.  

The two other areas with strong reverse commutes are in Washington, D.C area with reverse commutes to government complexes in suburban Maryland and Virginia and along Santa Monica Freeway from downtown Los Angeles to coastal Santa Monica.

There are several reasons why highways with reverse commutes should help.  It may be that these corridors should be the only places targeted, given the limited lifespan and profit potential of the business.

Reverse commuters are city dwellers who do not need a car for running errands, going out to eat or seeing a show at night.  Parking is expensive.  They already sense tremendous value and little added inconvenience by going carless.  They are primed to be early adopters of a well-run carpooling service.

Corridors with strong reverse commutes also are attractive to the carpooling business because companies can offer drivers full time work via a combination of multiple carpooling loops mixed with periods of ride-hailing work.

Finding other metropolitan areas with strong reverse commuting would be a high priority research project for any carpooling company.

The Rationale for Market Rate Pay for Carpool Drivers

Carpool drivers have to be on-time twice a day, five days a week, 250 days a year.  After all, failure could cost passengers their jobs.  Work-going carpoolers are “on-the-clock”. Bar-hopping ride-hailers are not.

The management of a carpool business has to demand a greater level commitment out of its drivers than Uber and Lyft now demand of their drivers.   As independent contractors, Uber and Lyft drivers have a great deal of latitude in choosing work hours and routes.

Driver commitment isn’t an issue in Waze’s altruistic vision of the carpooling business because a driver is driving for neighbors and co-workers. The desire for continued respect is the prime motivator. Waze’s choice of limiting driver pay to the $.54 / mile is consistent with this vision.

But, we believe that carpooling at scale has to involve a vast majority of drivers working for strangers, not neighbors and co-workers. It is a transactional business  where driver commitment is secured by market rates of pay and the threat of being fired.

Recognizing that performance is affected significantly by the type of relationship a driver has with his passengers is similar to what Richard Titmuss discovered in blood-giving as chronicled in The Gift Relationship, a social science classic.  

Basically, Titmuss found that the quality of blood was much better when it was give freely by altruistic donors than when it was given in exchange for pay.

As a result, we firmly believe that a carpooling business has to pay drivers equal to what an Uber driver gets per-mile.  

An Estimate of Driver Pay

Below is an estimate of an Uber fare and related driver pay rate on a per-mile basis for a 25 mile uberX ride from Redwood City to San Francisco taking 50 minutes during rush hour.  We use 80/20 as an estimate of Uber’s current driver/company distribution ratio.

Estimate of Uber Fare and Driver Share for Typical Rush Hour Commute

We believe that a transactional carpool business has to match Uber all around in terms of gross fare rate of $1.55 / mile and driver pay at $1.18 / mile, which is set at 80% of gross fare less booking fees.

The idea of uniform fare rates and driver share across all mobility services is consistent with our vision of an horizontally integrated MaaS company and a “mesh-transit™” system that seamlessly integrates carpooling with last-mile ride-sharing.

 An Estimate of Passenger Cost-Saving Over Solo Commuting

We next estimate a passenger fare assuming Uber’s fare of $1.55 / mile shared by 3 passengers.  We also derive the cost savings for switching from a solo commute to carpooling.

Estimate of Carpool Passenger Fare and Cost Saving Over Solo Commuting

Even with 3 passengers who share the fare, carpooling yields only a $2,417 cost saving over solo commuting.  Even if passengers did commit to carpooling, we do not believe that this cost-saving would be enough incentive to “cut the cord” of car ownership and go carless.

Motivating Carpoolers to Go Carless

We were not surprised to see a lack of passenger incentive to choose carpooling over solo commuting assuming market rate pay for drivers.

Our initial thought was that government-mandated congestion pricing would be the only way the carpooling business could scale.  Congestion pricing would force the cost of solo commuting even higher than the already high cost of carpooling.

We now envision carpooling as a unit of horizontally integrated mobility company.  The business scales via reduced fares. These reductions are recouped by referral programs that offer credits and rewards coupons redeemable by passengers for using ride-hailing, delivery, and rental car services of related units.

In economic terms, the business scales via its “own elasticity of demand” through reduced fare prices rather than via its “cross-elasticity of demand” through raising the price of substitutes via congestion pricing.

The fundamental strategy of an integrated MaaS company today should be to reduce carpool fares to the point that passengers will go carless and unleash a demand for related services.

We think that it will take a minimum of $4,000 in cost saving to motivate a significant number of people to go carless.  This implies that fares will have be reduced by an additional $1,583 a year to reach that level of cost savings.

The way to execute this strategy would be to build app payment algorithms that posts dollar credits and rewards coupons to passenger accounts that are redeemable at related companies.   

The dollar value of these credits and coupons are set at the discretion of the related companies. Separately, the carpooling company negotiates payments with related companies for setting all of this up. Payments would accrue as these credits and coupons are redeemed.

In the case of tie-ins with third-party delivery and car rental companies, the carpooling company receives cash.  If the carpooling business and the ride-hailing business are owned jointly, say in the case of Uber or Lyft, the carpooling unit earns accounting credits offset by debits to an intercompany clearing account.

Below is an illustration of a series of credits earned from referral programs that would recoup a $1,583 per passenger fare reduction. The distribution of the credits among the related companies is based mostly on a qualitative ordering of “spillover benefits” generated by carpoolers.  

We believe that a ride-hailing partner would get the most benefit by far.  The expected benefit values to delivery and rental cars companies are about equal, but far behind.  

Recouping Reduced Carpool Fares

 

Surge Pricing Would Kill the Carpooling Business

The ride-hailing business is “on-demand” with no set commitments made by drivers or passengers.  Peak-load pricing, or surge pricing, is used to balance out supply and demand.

Commuter carpooling is not “on demand”.  Passengers rely on the service to get to and from work.  They risk firing if late.  The business depends critically on gaining customer confidence through reliability and predictability.  This can be achieved by paying drivers market rates and require them to meet precise pick-up times. Surge pricing would kill the carpooling business.

Given the level of commitment by drivers,  it would be reasonable to ask customers also to make weekly or monthly commitments in return for a set fare rate.

Why Would A Company Enter the Carpooling Business Today?

 The success of ride-hailing apps like Uber and Lyft plus the unexpected early pace of autonomous vehicle (AV) research and development has given rise to the idea that shared mobility-as-a-service (MaaS) may be here sooner than later.

Most agree that so-called Level 4 AVs — no steering wheel or accelerator, but location-constrained —  might start appearing by 2021. But, there is widespread disagreement as to when the ultimate Level 5 AVs (hereafter just AVs) will appear.  

Also, there is widespread disagreement as the length of time it will take to scale AV production. For example, there are a number of optimistic predictions that mobility-as-a-service (MaaS) using AVs will start appearing around 2020 or 2021.  

On the other hand, The Alliance of Automobile Manufactures, a trade group that represents Ford, General Motors, Fiat-Chrysler, BMW and more, has estimated that AVs won’t be available for sale before 2025 and it might take another three decades until 2055 when AVs represent a majority of vehicles in use.

Our view splits the difference between these two extremes.  Namely, we start with the view that AVs first appear in a decade, say around 2027, with another three year to congestion-ending scale by 2030.   

Given the driver-centric carpooling business has a short life expectancy and limited profit-potential, why would a company want to enter the carpool business in 2017?

Traditional Automobile Companies

We think that the fundamental reason for entering the carpooling business today is to establish a consumer-facing MaaS brand ahead of the biggest business opportunity of a lifetime — the AV MaaS business.   

The only companies that NEED to enter this business are traditional automobile companies.  Executives in the automobile industry knows that MaaS and AV are existential threats as they could end their 110+ year history as consumer-facing brand.  Auto companies fear becoming the “Intel Inside” of the MaaS business.

We expect that both GM and Ford will seize this opportunity with the goal of scaling the carpooling business over the next decade. They are also in the unique position of subsidizing this business by using their own vehicles.  

To have any success at scaling they business, they will have to partner either with Uber or Lyft to share drivers and mesh their branded carpooling with last-mile ride-sharing services offered by Uber or Lyft.

A Diagram of a “Mesh Transit™” Sytem

Ford has entered the ride-sharing business by acquiring Chariot.  Chariot is a modern day urban jitney service using 15 seater Ford Transit vans and full time drivers.  It has plans to expand to eight cities in 2017.  

The picture below illustrates what we mean by using carpooling to establish a consumer-face MaaS brand.  Ford is much further along than GM in establishing a MaaS brand.   It has brought all of its AV and MaaS efforts under one division located in Silicon Valley called “Ford Smart Mobility.”   Ford also has promoted the head of this division Jim Hackett  to CEO of the whole company, a huge indicator of Ford’s priorities.

Example of MaaS Branding Ahead of AV Era

GM has just begun to roll out a niche MaaS service called Maven, an hourly car-rental service.   GM is way ahead of Ford in partnering with a ride-hailing company as it has a 9% stake in Lyft.

We expect GM to enter the commute carpooling business shortly with its own consumer-facing brand and partner with Lyft.  But, Lyft and GM are “frenemies”. Both want be a consumer-facing MaaS brand. Lyft might consent to a carpooling service branded as “GM Mobility powered by Lyft”.  The only question is whether Lyft will enter the business with its own brand similar to Lyft Line or Lyft Shuttle.

Ride-Hailing Companies

Uber and Lyft have established MaaS brands at great cost over the last 7 years.  Their existential threat is from the AV supply side not from the branding side.  Uber and Lyft might enter the carpool business, but they don’t need to.  On the other hand, Ford and GM need to partner with Lyft or Uber as a source of shared-drivers and to mesh a carpooling service with last-mile ride-sharing service.  

Google

Alphabet (Google) has chosen to enter the carpooling business via its Waze Division’s Carpool service.  As we have mentioned earlier, Waze’s altruistic vision for the carpooling business doesn’t scale.  

Google is probably in a better position for the coming era of AV MaaS than any other company on the planet.  It’s Waymo division has a 5 year lead on AV R&D. With their Waze and Google Maps real time traffic monitoring apps, Google has established a brand awareness with commuters that is second to none.

But, Google is on the verge of applying the same muddled strategy to the carpooling business as it did with Android and the smartphone business.

Without an existential crisis to focus its thinking, it seems that Google is about to compete with itself once again. Namely, Goggle sold their own Nexus brand of smartphones.  At the same time, they licensed Android to countless Asian manufacturers who turned around and competed with Nexus.  

It is not clear what Google’s ultimate goal is. Does it want to become a consumer-facing MaaS brand with Waze taking the point?   Or does it want to  become an “Intel Inside” AV OEM to automobile brands like Chrysler-Fiat and a host of European and Japanese auto companies?  

Delivery Services

Uber has begun to capitalize on the synergies between its ride-hailing business and the delivery of food, groceries, and other goods.  These synergies would be even greater in the carpooling business.  

Look for Amazon and Walmart to seek tie-ins with carpooling companies.  This could include partial financing of transit hubs where ride-hailing, carpooling, and e-commerce delivery services meet and re-distribute people and goods.  Commuter favorites like Starbucks and McDonalds might also want to lease space there.  

Car Rental Companies

The stock prices of Hertz and Avis shot up by double digit percentages recently when Apple and Waymo announced that they had contracted with these two car rental companies to maintain their fleet of prototype AVs.

Suddenly, there was a recognition by investors that car rental companies might not be wiped out when the era of AV MaaS arrives.  

We can see another reason why Hertz and Avis might want develop an association with a carpooling company.  Carless carpoolers have a need to rent a traditional car for weekends and vacations where getting a car “on-demand” just isn’t good enough.   

It is a natural fit for rental car companies as most of their cars are used for business purposes and sit idle on weekends.  Indeed, they currently offer such steep discounts for weekend rental that we have observed their offices jammed on Friday afternoon with carless families jumping at the chance to get a cheap rental for the weekend.

Example of MaaS Tie-in

The Rationale for Public Support

If the carpooling business could scale, it would provide significant “public goods” via reduced traffic congestion and reduced automobile pollution.

This would justify public support via congestion pricing,  increasing the minimum requirement to use the HOV lane, and building transfer hubs where carpools and last-mile ride-shares could redistribute passengers.

The unexpected early success of AV R&D has given rise to the idea that automobile ownership will be replaced by MaaS within a decade. This realization will actually make congestion and pollution worse in the meantime.

The reason why is that AV forecasts are starting to be used to persuade government authorities rightfully so to kill off plans for expensive, long lasting infrastructure projects like new highway lanes, light rail extensions, and bus terminals. The only positive environmental benefit of AV hype would be if it was used to kill off plans for new city-center parking structures.

Our initial thought was that government-mandated congestion pricing would be the only way the carpooling business could scale.  Congestion pricing would force the cost of solo commuting ever higher than the high cost of carpooling.

Now, we see congestion pricing as a first option primarily in Asia and Europe. At one time, the technology necessary to implement congestion pricing was crude.  But now,  real-time pricing is possible via “connected cars” and real-time cloud-based pricing platforms using an architecture similar to MZ’s (formerly Machine Zone) RTplatform™.

In the United States, we now view congestion pricing as a “doomsday” solution to be deployed a decade from now in the event that AVs show little promise in solving the congestion problem.

And, given that there are about 263 Million passengers vehicles registered in the United States, with about 17 million vehicles sold a year, it might take another ten years, or until 2037, until AV carpooling has scaled enough to end congestion.

In the meantime, scaling the carpooling business is one of the best options we have for reducing traffic congestion and automobile pollution before the era of AVs.  And, support for carpooling won’t cost the government trillions of tax dollars.   It may just take a boost in the HOV lane minimum from 2+ to 3+, which the State of California is considering for Highway 101 .  If a carpooling company could show some success on its own in reducing congestion along 101, this could accelerate the State’s own plans to improve management of HOV lanes.

© Lawrence W. Abrams, 2017

Netmarble IPO: How Greed Destroyed Its Kabam Acquisition

Lawrence Abrams No Comments

Netmarble is the ninth largest mobile app game publisher in the world and the largest in South Korea. In a month, the company is set to raise $2.3 Billion via an IPO on the KOSPI Korean stock exchange.

If successful, the company will be valued at $11.7 Billion and catapult it to the level of Supercell and MZ (formerly Machine Zone) as one of the top 3 most highly valued mobile game companies in the world.

Our analysis of this IPO, indicated that expectations for revenue doubling in 2017 has been fully priced into the IPO price of 157,000 Korean Won  / share or  $138 USD / share (based on conversion of .00088 USD / Won).  We recommended staying away from the IPO, and look for an entry point 36% lower, or around $86 / share USD.  

While doing research on Netmarble, we began to see that the aggressive pricing of its IPO was not the only instance of what we considered to be a pattern of greed as defined by making choices favoring short term gain at the expense of long term gain.

For one, Netmarble had a history of overworking its Korean workers.  So much so that employees pulling “all nighters” before every game patch started calling its highrise HQ in Seoul  “the lighthouse”.  

As Netmarble’s IPO date grew nearer and investor scrutiny intensified, the company changed its work hours policies, saying it would ban “all nighters” and weekend work.

The purpose of this paper is to explore in detail another instance of Netmarble greed:  how it has managed a recent $710 Million acquisition of the Vancouver studio of the fallen USA mobile game unicorn Kabam.

Netmarble has repeatedly stated that its long term growth strategy hinges on growth outside S. Korea.  This includes localizing its Korean hit game Lineage II: Revolution for the Chinese market. It also includes acquisitions of studios in the West with games generating $100+ Million in annualized revenue (ARR)  like Kabam’s Marvel: Contest of Champions (MCOC).

Our interest in Netmarble stems from a long running interest in Kabam.  We have followed the the ups and (mostly) downs of Kabam for the last three years, focusing mostly on valuations based on App Annie app store revenue rank trends. Below is a list of our articles chronicling the fall of Kabam and its causes.  They are available on our blog GloMo Investing:

On October 18, 2016, VentureBeat reported that an unidentified company had made an $800 million offer for Kabam’s Vancouver studio.  That studio had been responsible for the only game keeping Kabam alive at the time:  Marvel: Contest of Champions (MCOC).  

The Vancouver studio also was valued for the game engine behind MCOC and for the hit potential of another game in final development based on Transformer IP licensed from Hasbro. At the time, MCOC was a #9 revenue ranked game with our estimated global annualized revenue run rate (ARR) of $250 Million. We noted at the time that the bid seemed right for a studio + hit game + game engine as long as the two-year running MCOC could sustain a $250 Million ARR.

On December 19, 2016, it was announced that Netmarble was the successful bidder. The bid was later officially pegged at $710 Million based on Netmarble’s IPO filings in late March 2017.

Throughout 2016,  Netmarble talked about an IPO.  It played up its plans to use  the proceeds from the IPO  to buy USA-based companies knowing that the mobile game market in the USA was six times that of S. Korea.  It was especially important for Netmarble to demonstrate its acquisition prowess before its IPO, given that it had narrowly lost a bid for the social casino game company Playtika in June 2016.

What follows is a closer look at the way Netmarble has managed two major software releases since it closed the deal for the Vancouver studio just two months ago. It is evidence of a kind a greed that favors short term monetization over long term player engagement.

The first instance of a disastrous release — the now infamous MCOC Patch 12.0 — was released on March 1, 2017 just one week after Netmarble closed the acquisition on February 23, 2017.  The other was the design and release schedule of Transformers: Forged to Fight (Transformers).  

Even though development of both started before Netmarble took over, the final releases were made on their watch. Netmarble could have stopped these releases, mandated more player friendly designs that would sustain engagement even if that meant less revenue in the short run.  But they did not.

Using the AppAnnie iOS USA app store revenue rank trend line below, we will show the context and likely rationale for MCOC Patch 12.0.  

MCOC was first released 2 ½ years earlier in December 2014.  Five month later in May 2015 the game cracked the Top 10 revenue rank (first red line).

It remained a consistent Top 8-10 revenue rank for a solid year until July 2016 (second red line) when it started a slow fade down to a Top 10-15 for the second half of 2016.  Patch 12.0 went live on March 1st (third red line).  

Player criticism was instantaneous led by a YouTube video entitled “Patch 12.0 is Terrible” by MCOC Youtube channel celebrity Seatin Man of Legends. It quickly spread.    On March 6th, the MCOC development team issued an official apology, said it heard the criticisms, and would issue a fix shortly. Note that on the day of the apology (fourth red line), MCOC broke below #20 first time in two years.

Here is a more detailed App Annie chart for the last year that shows MCOC fade starting in mid-2016:

MCOC Fade from Top 8-10 To Top 10-15

 

You might think that a slight fade from a consistent Top 8-10 revenue rank game to a Top 10-15 game is insignificant. But,  in the mobile game world, there is a strong power function relation between revenue dollars and revenue rank.  

At this high end of the mobile game power function a single digit swing in revenue rank translates into a $20 Million to $40 Million swing in ARR. Using our long-standing metric of 2.5 times ARR for valuing mobile game companies or studios + game engines, a one digit swing in rank translates into a $50 Million to $100 Million swing in valuation.

Below is our reconstruction of global annualized revenue of top ranking games currently on the iOS Apple app store charts as a function of rank. The iOS USA numbers are from Think Gaming,  which we believe are algorithmically derived and smoothed out rather than actual tallies.  

Over the years, we have used this simple rule of thumb to derive global revenue of top ranking games on Apple iOS USA — companies that generally derive the bulk of their revenue in the USA as opposed to Asia or Europe. 

The global mobile game revenue for top ranking USA iOS games can be divided into three equal segments: iOS USA,  Android USA,  and Rest of World.  Thus, global ARR = 3 * iOS USA.

 

Notice that the average ARR of Top 8-10 game is $242 Million whereas the average ARR of a Top 10-15 game is $156 Million, about $100 Million less in revenue and $250 Million less in value based on our 2.5 valuation multiple.

Obviously Kabam was acutely aware of MCOC’s fade and its implications for the value of the Vancouver studio. Also, Netmarble must of been aware when it turned its eye to Kabam after its June 2016 failed bid for Playtika.

Given the extent of the changes involved in Patch 12.0, the development team must have began work about two months after the start of the fade, say around August 2016. As Kabam and Netmarble were closing in on a deal, Kabam must have discussed Patch 12.0 with Netmarble including design choices based a trade-off between increases in average revenue per paying user (ARPPU) and the likelihood of player defection.

 Kabam may even have been savvy enough to prepare several versions of Patch 12.0 with different expected ARPPU  knowing that it would be Netmarble who would make the final decision once the deal closed. Normally, before a major update to a long running game, it is customary for a development team to do two things:

  1. invite key players to test the beta version and solicit feedback;
  2. present a detailed rationale for each change on official forums on the day of the release.

Netmarble did neither.  On March 1st, the final version of Patch 12.0 was released.

There was an immediate shock and outrage by hard core players as evidenced by their vents on YouTube, Facebook, Reddit, various game blogs, and official Kabam hosted forums. Among long running hard core games, the level and breadth of MCOC player outrage was unpresented.

 When we googled “player revolt” plus game name, we could find evidence only of one revolt by players of  MZ’s Game of War: Fire Age.   There have been no noticeable online revolts by players of Supercell’s hit games — Clash of Clans or Clash Royale — nor of players of MZ’s other hit game Mobile Strike.

Based on our reading of these criticisms, we believe that final version of Patch 12.0 was focused to the extreme on increasing ARPPU without giving much weight to player outrage and defection.

First, beyond the questions of objective, there was a major screw-up of core gameplay mechanics that made block and parry unplayable.  

Then, there was what we call widespread “devaluations” of player assets  designed to increase ARPPU.

 It included diminishing the fighting power (“nerfing”) of the most popular characters, or Champions, and providing incentives to buy unpopular Champions by increasing their power (“buffing”).  

Another devaluation occurred by making battle losses more costly in terms of power loss, thereby increasing regeneration costs. Finally, there was fundamental change in the scoring system with no rationale given.  But it appeared to the most experienced players that this change was designed to increase ARPPU.  

Player outrage and talk of organized revolt ended abruptly on March 6th when the company officially apologized and promised rollbacks which did occur with Patch 12.0.1 on March 10th.

In the end, Patch 12.0 and subsequent roll-back likely did nothing to reverse the fade of MCOC.  But it caused irreversible loss in trust by long term players.  Players can never again be sure that accumulated investments made in MCOC won’t be subject to another Patch 12.0 type devaluation. MCOC will never again be a consistent Top 8-10 game.  

Netmarble will likely hold off from making ANY major changes in the next six months to MCOC, leading to player ennui and defection to more engaging games.

Now on the the other instance where Netmarble’s greed led to decisions which caused a new game release by the Vancouver studio to be a bust. Kabam’s Vancouver studio was especially valuable to any acquirer because it had a proprietary  “game engine” called “Fuse & Sparx” thought to be capable of churning out a series of re-skinned MCOC hits.

First up was a game with MCOC-like game mechanics based on Transformers IP licensed from Hasbro called Transformers: Forged to Fight. (Transformers) Below is the countdown to the global launch of the game:

Notice that there was only a two month soft-launch before global release.  Based on App Annie charts, the game struggled in soft-launch and never cracked the Top #100 with any consistency.  

Normally,  a company would add a couple more months of tweaking before making a decision to launch officially or can the game.   Given Netmarble’s May 2017 IPO date, we think that they rushed released a deeply flawed Transformer game causing it irreparable damage as the early word was that it was buggy, slow to load, and freezes.

Even if the game’s bugs could be cleaned up, early players of the game reported that it is “too complex to play”  and there is “kitchen sink” approach to development with a mashup of game genres and a mind-numbing complexity to scorekeeping and purchasing.  

To us, this suggests that the priorities were early monetization over long term player engagement. Below is the revenue rank trend of the game:

 

Our four years of reading App Annie charts suggests that there are no more “late bloomers” in the mobile game world. If a newly released game does not crack the top 50 in the first few days, it will never crack the Top 10. The Transformer game is a major bust for Netmarble.

But worse, it raises doubts about the hit making ability of  Vancouver’s game engine “Fuse and Sparx.”  Could the success of MCOC be due more to the original team that developed it, long since gone,  and not its game engine nor the current team?

The bust of the Transformer game and the fiasco of MCOC Patch 12.0 raises serious doubts about Netmarble’s ability to manage future acquisitions in the West.  

Will Netmarble’s greed once again force newly acquired companies in the USA to release their own Patch 12.0?   

Will Netmarble’s greed force acquired companies in the USA to junk up games similar to what happened with Transformers: Forged to Fight?

Netmarble’s IPO will give the company  $2.4 Billion to make acquisitions of USA-based companies with current Top 20 hits.  This would include the privately-held companies Pocket Gems, Product Madness, and Jam City, a company already with a $100 Million Netmarble investment.

It would also include the publicly-held company Glu Mobile and the Com2uS, a company listed on the Korean exchange, but with most of its revenue coming from its global hit Summoners War.  

Unless Netmarble can change its focus to long term player engagement over short term monetization boosts, we think that they will destroy future acquisitions just like they destroyed Kabam’s Vancouver studio in two short months.

It’s In the Metagame: A Monetization Opportunity for Twitter

Lawrence Abrams No Comments

broadcasts during a quarterfinal game of the Pac-12 Basketball Tournament between the Colorado Buffaloes and the Oregon Ducks at the MGM Grand Garden Arena on March 12, 2015 in Las Vegas, Nevada. (Photo by Ethan Miller/Getty Images)

Color Commentator Bill Walton (Photo by Ethan Miller/Getty Images)

“A Twitter feed of a college basketball game is like being in a room with 20 stoned Bill Waltons”

“A Twitter feed of an NFL game has become shoutcasting without the noise.”

In July 2016, Twitter announced a pair of deals with the National Football League and the National Hockey League to live stream a select number of games side-by-side with the Twitter feed of the game.  

In term of business model, Bloomberg said that “the company will share revenue on ads that are sold alongside the content.”

However, Patently Apple was less enthusiastic, saying that  ”Twitter recently beat out Facebook for live NFL streaming by conceding most of the TV ad revenue to the NFL in contrast to Facebook demanding total control over advertising.”

These deals are moves in the right direction for Twitter.  Twitter at its best is a platform for real-time shared commentary of live TV events, especially sporting events, games if you will.

Real-time game commentary on Twitter is outside the game itself.  The general term for this is “metagame” (after the Greek prefix meta- for  “after” or “beyond.”

A college basketball game can be boring. But, it is never boring if Bill Walton is the color commentator.  Bill Walton is metagame.

Insightful analysts of the now mature mobile game industry see the metagame as more engaging, and monetizing, than the games themselves.

For example, it is chat room strategizing among alliances ahead of battles (called “progressions” ) that is more engaging for players than the battles themselves.  

It is watching and listening to esport live-streams of games on Twitch, with commentary by “shoutcasters”,  that is far more interesting than playing the games themselves.   

Jon Jordan, co-founder of pocketgamer.biz has written the most insightful stuff on the rising importance of metagame in the monetary success of mobile games.

Gabe Leydon, co-founder of MZ, credits the success of its top ranking games to metagame, especially an internal real-time, crowd-sourced chat translator build using the messaging language Erlang.

Here is a quote from a re/code video interview (5:14 – 5:48) with Gabe Leydon,

…”We really care about player-to-player interactions. From a content perspective, I don’t believe that I’m creative enough to come up with something that everyone will love.  So, I create scenarios that people will play with each other.  So, whatever they do with each other is far more interesting than what I could come up with.

“ We we have is a highly structured chat room.”

So Twitter gets that metagame has become as exciting and engaging as the games themselves.  And that Twitter is in a better position than its arch rival Facebook to provide a REAL-TIME metagame platform.

But, in our opinion, what’s missing is the business model. It’s recent deals with the NFL and NHL suggest that it will get a very minor share of the native ads.

We have another idea: position itself to offer real-time, peer-to-peer sports betting — like overseas companies Betfair and BET365’s “Live Play.”

These are known as peer-to-peer betting exchanges with a real-time many-to-many messaging system as the platform. The business model is strictly fee-for-service.  Both buy bets (bet to win) and lay bets (bet to lose) are allowed.

Betting exchanges are different from Las Vegas style bookmaking operations based on a traditional many-to-one client server platform.  The business model is profit and you can only bet to win.

Interesting enough, the real-time messaging platform underlying MZ’s mobile games and chat translator is similar to the real-time, peer-to-peer betting exchange platform of Bet365, as both are based on  Erlang,  the programming language optimized for many-to-many “high fan-out” messaging.

Also, Twitter has a history with problems in scaling over the years with platforms based first on Ruby on Rails then moving to Scala.  Maybe now is the time to look at what MZ and Bet365 has.

Twitter gets the metagame trend.  Monetizing a metagame platform by linking it with peer-to-peer gambling would be amazing.

 

Machine Zone (MZ): A $10 Billion Dollar Unicorn in the Making

Lawrence Abrams No Comments

congestion

 

 

 

 

 

 

(original publication date: 6/7/16)

(Our suggested “moonshot” for MZ: ending urban traffic congestion via a real-time pricing platform + “connected car”)

(Our suggested new tagline for MZ: “put a price on it.”  Shoutout to Portlandia for its “put a bird on it” tagline for a hand-crafted gift store capturing its big picture strategy)

In a year when valuations of so-called Unicorns — startups valued at $1+ Billion — are being marked down by investors, we will present the case that Machine Zone, recently rebranded as MZ, is a $10 Billion Unicorn in the making.

This is audacious claim. A January 2016 Unicorn list compiled by Fortune Magazine assigned a $3 Billion valuation to Machine Zone based on a WSJ report in June 2014 of a funding round of $250 Million led by JPMorgan Chase. There was second hand confirmation of this in Pitchbook.

Machine Zone was not even listed on any Unicorn list a year ago simply because such lists required that valuations be based on reported equity financing with implied valuations of $1+ Billion. Machine Zone’s last reported funding round listed in Crunchbase was a Series B done a full four years ago when Machine Zone was just beginning.

We found Machine Zone’s absence from 2014 Unicorn lists both perverse and ironic. It was perverse in that Machine Zone didn’t need financing so it was excluded from successful startup lists. It was ironic because, unlike most other Unicorns, Machine Zone’s revenue levels and revenue trends are observable daily via app store data reported by analytics companies such as App Annie or Thinkgaming.

On July 15, 2015, Bloomberg reported that the company was in discussions with investors for an additional $200 Million in funding at an implied valuation of $6 Billion. Dean Takahashi of VentureBeat also reported rumours of this new funding round. But, he reported that Machine Zone was seeking $500 Million at an unstated valuation — not the Bloomberg figures. Takahashi’s source also said that “the pitch has met with skepticism.”

Machine Zone has refused to comment on any venture capital interest or funding. As we blogged at the time, compared to most startups who would relish disclosing funding rounds that would confer Unicorn status, Machine Zone “walks the walk, not talks the talk”.

The Evolution of Machine Zone’s Identity

Until this year, Machine Zone’s CEO Gabe Leydon averaged about two interviews a year and never talked about revenue, valuation or IPO plans. He never talked about the state of the mobile game industry. In fact, he rarely talked about Machine Zone’s two hit successes Game of War: Fire Age or Mobile Strike.

Instead, he used rare interviews to advance the theme that Machine Zone was a technology company with software platforms whose applicability and marketability extended beyond games.

In a 2013 interview, Leydon said that Machine Zone had developed a “game engine” that could be “re-skinned” to create other genres of games with the same underlying play and communications innovations. This comment was designed to counter the perception that Machine Zone was a one-hit wonder deserving less of a valuation than mobile game rival Kabam with multiple Top 10 hits at the time.

In 2016, Machine Zone has done just what Leydon predicted in 2013. It had “re-skinned” their top revenue rank Game of War: Fire Age to release another Top 5 revenue rank game Mobile Strike, published by their downtown Palo Alto studio Epic War LLC. What is remarkable to us is that there does not seem to be much cannibalization going on between the two games.

In 2014, Leydon talked about Machine Zone’s real time, crowd-sourced chat translation engine. We wrote several papers speculating that this chat translator would be a valuable addition to Slack as it would open doors to large multi-national corporations.

In a March 2015 interview with Bloomberg’s Robert Kolker, Leydon identified what he thought was the “Wow” factor of its hit game Game of War: Fire Age — the low latency of the game play.

“…Game of War accommodates about 3 million users in simultaneous play, with what the company clocked as a 0.2-second response time…. This is the largest real-time concurrent interactive application ever built. There’s nothing even close to it.”

He also hinted at the marketability of this technology outside of gaming.

An additional signal of Machine Zone’s intent on being a fundamental technology company was a report in the Las Vegas Sun that the data center builder Switch would be expanding its Southern Nevada facility to house 4,000 dedicated servers owned and managed by MZ.  These servers likely feature FPGAs that optimize the speed of MZ’s Erlang-written, publish-subscribe messaging platforms.

On February 18, 2016, Machine Zone and CEO Leydon had a “coming out party”. He broke out of his pattern of infrequent print interviews to give a full blown 39 minute video interview at the important Code/Media 2016 Conference.

In our opinion, it was here that Leydon first demonstrated his charm and ease at speaking as he mixed in fond memories of 90s skateboard videos with big picture views of the state of ad-tech. The interview was convincing evidence to us that Leydon was capable of leading an IPO and being the spokesperson for a publicly-held company.

Within the first minute of the interview, Leydon articulated a more focused view of Machine Zone as “real time” technology company. However, because the audience were media and ad-tech people, Leydon did not talk about the software technology at all.

Instead Leydon startled the crowd with sharp criticism of 3rd party buy-side ad-tech platforms and the state of ad-tech in general. He casually revealed that Machine Zone had developed it own ad-buy platform specifically tailored to the acquisition and retention of freemium game players aka “whale targeting and retention”.

This platform was an alternative to relying on outside platforms like Chartboost and Tapjoy, used by Machine Zone’s rival Supercell and other top mobile game companies. According to Crunchbase, Tapjoy has received a total of $2.47 Billion in VC funding over the years.

Once again, by building its own buy-side ad-tech platform, Machine Zone has set itself apart from other mobile app Unicorns. Supercell, its chief rival in the mobile game industry, uses Amazon AWS for infrastructure and Tapjoy for ad-tech. Supercell does not have any internal chat function for players to communicate.

On April 4, 2016, Machine Zone issued a press release stating that it had changed its name from Machine Zone to MZ to underscore its new identity as a “real time” technology company. It also announced that it would begin licensing its real time publish-subscribe messaging platform, branded as RTplatform™. Leyton suggested in a follow-up conversation with Venturebeat that RTplatform ™ had wide-spread applicability ”from financial service companies to connected car companies to government institutions”

Valuing MZ’s Mobile Game Business

What follows is an estimate of MZ’s current valuation based solely on its mobile game business. There are three pieces of data required: (1) App Annie revenue ranks for MZ’s games; (2) an estimate of a power function relation between annualized revenue run rate (ARR) and app store revenue rank; and (3) “market-derived” valuations of pure play mobile game companies as a multiple their ARR.

For example, Activision Blizzard recently bought King Digital for 3.08 times ARR. Using that as a comparable and an estimate of MZ’s mobile game ARR of $2.0 Billion, we would arrive at a valuation for MZ of 3.08 * $2.0 Billion = $6 Billion.

We have used this methodology to value MZ over the past 2 years: Machine Zone: The $4 Billion Unicorn that Walks the Walk ; Machine Zone and the Perversity of Unicorn Lists and Machine Zone: IPO or What? (for Seeking Alpha).

We used the same methodology in articles to value other publicly-held mobile game companies — King Digital, Zynga and GLU Mobile — and the start-up Kabam. Finally, we have used the methodology to make prescient buy recommendations for two undervalued Japanese mobile game companies — Mixi and KLAB.

Below are two “market-derived” valuations of pure play mobile game companies as a multiple of ARR. The first is a valuation of 3.08 * ARR that Activision Blizzard paid to acquire publicly-held King Digital in late 2015. Using King’s ARR, as reported in 10-Qs to the SEC as a checksum, we present below an estimate of the distribution of King’s ARR by individual game revenue and associated revenue rank as reported by App Appie.

 

king-valuation

 

The second is a market-derived valuation for Finland-based Supercell. While the company is not listed on a stock exchange, it is required by Finnish law to report financials once a year. In 2015, Supercell reported revenue of $2.326 Billion. We coupled that with a reported $5.5 Billion valuation that Softbank placed on Supercell when it bought an additional 22 percent stake in Supercell (bringing its ownership to 73 percent) in mid-2015.

As with the King valuation, we use Supercell’s reported 2015 revenue as a checksum when estimating the distribution of Supercell’s ARR by individual game revenue and related revenue rank.

supercell-valuation

 

For our valuation of MZ here, we chose the lower, more conservative, Supercell valuation of 2.36 * ARR. The higher 3.08 * ARR that Activision-Blizzard paid for King Digital was 20% higher that the market value of King at the time. Plus, most financial pundits felt that Activision-Blizzard paid too much for King.

In past valuation of MZ, we chose 2.5 * ARR based on market-derived valuations of publicly-held Japanese gaming companies. Given, the general downward drift in Unicorn valuations, the use of the lowest multiple of 2.36 * ARR seems appropriate today.

Based on the estimates above of individual game revenue associated with various iOS Apple USA revenue rank as reported by App Annie, we derive an estimate below of a 2016 power function of global ARR vs iOS USA revenue rank.

power-function-2016

 

We now present a current valuation of MZ based on its two hit games alone which rank #2 and #3 on the App Annie iOS USA revenue charts.

mz-valuation-april-2016

 

Note: during the writing of this paper in April 2016, Supercell’s Clash Royale and MZ’s Game of War have traded #1 and #2 positions multiple times. We are being conservative in our valuation here by using the lower #2 ranking for Game of War. Had we chosen #1 for Game of War with an associated ARR of $2.1 Billion, our valuation for MZ’s game business would have come in at $7.3 Billion instead of $5.7 Billion

Using “top-line” metrics like sales or monthly active users to value Unicorns has become suspect today. Observers of the startup scene have come to the realization of the futility of growing the top line if unit margins are negative and not likely to turn positive with scale. A freemium mobile game company has zero value if the advertising costs of acquiring a new user are greater than a user’s long term value (LTV), as measured by the discounted present value of money spent. Valuations based on solid top-line data have a greater validity if they are supplemented with some rough estimates of what a Unicorn’s full P&L looks like.

So, to add weight to our $5.7 Billion dollar valuation, we present below a rough estimate of MZ’s full operating P&L. First, our estimates shows that MZ has been responsible in growing headcount consistent with revenue.

headcount-comparisions

 

 

mz-pl

 

Our estimates for MZ’s contribution margin (sales — advertising cost) is a healthy positive number. It is likely that MZ has THE highest contribution margin in the mobile game industry given an estimated average annual in-app game spend of $550 per MZ game player.

It is likely that MZ currently is showing a small operating loss as measured by GAAP, but it would be positive if non-cash, stock-based compensation were backed out. The company is likely cash flow positive from operations. Because MZ as a mobile game company has no inventory or material accounts receivable, it does not need cash for working capital.

As CEO Leydon has observed, mobile games are the most efficient cash conversion operation in the history of modern business. At the Code/Media  2016 Conference, he observed that there can be a 120 second turn-around from cash out for an “call to download” ad to a new user download of a game to the first payment for in-app boosts posted to MZs cash account at the app stores.

MZ does not need cash for working capital or to cover operating losses. It has been reported that their new data center in Nevada is costing them $50 Million, and we could see them needing $100 Million per year for the next 5 years to expand data centers globally.

Use Cases for RTplatform™

We place the MZ’s valuation today at $9.1 Billion as a fundamental technology company. We think the valuation for its ad-tech platform is fair at $1.0 Billion, give that VC’s have poured over $2.7 Billion so far into Tapjoy, a comparable platform. We think the licensing value of its chat translator is fair at $400 Million, given the doors it might open for Slack. There might even be interest in the chat translator from Facebook or Microsoft, given the current interest in text messaging as a replacement for apps and mobile OS.

valuation-of-mz-as-a-tech-co

Admittedly, our $2.0 Billion valuation for RTplatform™ is the most speculative component as no comparable market-derived valuations are offered. One factor that caused us to value it so highly was the very fact that MZ hyped it. Here was a Unicorn company and CEO who had “walked the walk” for years and never made comparisons. Suddenly, it started “talking the talk.” as in “our specs crush your specs” and “ our new specs crush our old specs.” We believe the company can make good on the hype, given their amazing string of accomplishments.

According to the Venturebeat interview on the day of the launch, the company said its platform was “much more scalable than what is currently available in the market from rivals like Amazon or Google…” Leydon said PTplatform™ was “100 times bigger” than its current platform running Game of War.

The other factor underlying our high valuation was the use cases and market potential we were envisioning for a platform described by the company as a

  • massive platform for doing high-fanout data processing,”
  • many-to-many applications
  • an infrastructure that allows you to do some extremely large things in real time at scale.”
  • “unique ability to interconnect ‘billions’ of endpoints worldwide and transmit data at low latency”

In the Venturebeat interview, the company hinted at use cases “from financial service companies to connected car companies to government institutions”. In earlier interviews, Leydon hinted that its game engine was transactional with ultra low latency. He compared it to platforms required for high frequency trading.

We present the following broad use cases for a real-time pricing or auction platform coupled with the “connected self” or the “connected car”:

  1. eliminate information asymmetry and “moral hazard” between insurers and customers;
  2. eliminate the “tragedy of the commons” like urban traffic congestion or overfishing;
  3. eliminate transactions costs causing “sticky prices” for services whose performance over time is uncertain;

A specific use case for (1) would be real time auto insurance pricing. In 2014, consumer auto insurance had been estimated to be a $190 Billion market. MZ should be targeting one of the top 4 auto insurers — State Farm, Geico, Allstate, and Progressive — as an exclusive licensee. They should aim for an announcement within the next three months, with a roll-out and initial monetization within a year.

This “early win” will shock the auto insurance industry, impress the VC investment community, and finally clue tech writers that MZ should listed along with handful of unicorns — Uber, Airbnb, WeWork, Palantir and Slack — as having the greatest upside potential.

A specific use case for (2) would be a real-time auction for peak commute time on urban freeways. There is an article in Forbes citing a report which estimated the direct and indirect costs of traffic congestion at $124 Billion in 2013.

There was also something called the Millennium Project out of UC-Berkeley in the mid-2000 which used (then novel) mobile phones to gather data on drive times and traffic congestion in the Bay Area. In 2011, there was a report which presented in detail the problems in ”scaling up the Mobile Millennium traffic information system using cloud computing and the Spark cluster computing framework”.

Surely, the 2016 RTplatform™ would be a prime candidate to underpin any solution to urban traffic congestion. Needless to say, solving this problem would require government sponsorship so monetization by MZ for this use case might be a 5+ years off. But, announcing that it would be involved in a project to end urban traffic congestion would place MZ alongside only a handful of companies undertaking a “moonshot” and “make a difference in the world” type of project.

A specific use case for (3) would be dynamic pricing for sporting and entertainment events. Many Major League Baseball team are setting aside bleacher sections with individual game day tickets that vary by day of week, opponent, and weather. The National Football League is also starting to set aside individual game day tickets that vary over the course of the season by attractiveness of the matchup.

We could envision MZ’s platform taking this dynamic pricing of sporting events to a “real time” level by allowing both baseball and football fans to bid on game day seats inning by inning or quarter by quarter. Obviously, this use case seems ludicrous, but it does emphasize widespread instances of “sticky prices” due to transaction costs for a steam of services with uncertain, highly variable quality.