Exchanges are regulated by the SEC and take years to gain approval. Recently, the SEC has announced that all crypto exchanges are illegal unless they register with SEC.
There are two key design principles informing a market design presented below for a crypto-economy platform involving the exchange of digital assets including cryptocurrency deemed securities by SEC.
Eliminate enormous multi-million dollar rents captured by exchange intermediaries and front running HFT
Accept regulation by the SEC, but as an Electronic Communications Network (ECN) not an exchange.
Traditional currency or asset exchange involve a two-sided auction market design better known as an order book. Currently, all crypto exchanges whether custodial, so-called “decentralized” exchanges (DEX), or relays with 0x smart contracts , still feature order books as a market design.
What we propose is a market design where “the network is the exchange”. We strongly believe that this design would allow for registration with the SEC as a broker-dealer running an Electronic Communication Network (ECN) which is a subset of a Alternative Trading System (ATS) . Getting approval for an ECN would be must faster than getting approval as an exchange.
user-defined contracts ( e.g. options with odd expiration dates, long-short pairs, straddles)
tokens earned by peers supplying liquidity spread contracts
elimination of latency rents going to HFT and server co-location fees going to exchange
elimination of “data ownership” rents earned by exchange
high frequency, many-to-many, pub-sub protocol
messages in form of Myerson “take it or leave it” (TIOLI) bid-asks
“serverless” with ephemeral matching with-in Redis-like in-memory data structure store, used as a database, cache and message broker.
ephemeral bid-ask data, only data “owned” is history of matches.
The year 2016 will be remembered as a year when titillating stories came out about Unicorn excesses — Dropbox’s Chrome Panda sculpture, Hampton Creek’s covert buy-backs of Just Mayo inventory, and Zenefits’ sex in the stairwell.
This is a story about Kabam, another fallen Unicorn, and its excesses. More than just descriptive, we analyze its history to locate the source of its downfall in the emergence of a “talk the talk” culture championed by hired professional managers who focused Kabam on short-term revenue goals and a quick IPO.
We even pinpoint a moment in time when Kabam’s fortunes first turned for the worse — a late December 2013 acquisition of the naming rights to the University of California at Berkeley (Cal or UCB) football field for $18 Million paid over 15 years.
In a March 2014 article, we first predicted that this conceit would be viewed in hindsight as Kabam’s “kiss of death” — a sign foreshadowing bad things about to happen. Sure enough, two and a half years later, the once high flying Kabam now is in the process of being dismantled and sold off.
Kabam’s most valuable asset, its Vancouver studio, has just been sold to the Korean gaming company Netmarble for a reported $800 Million. After this deal closes in 1Q17, the company has announced that the rest of the company’s remaining studios will be offered for sale as acqui-hires. Nothing has been said about the future of Kabam’s three co-founders, but their days as Unicorn executives are over.
Also, nothing has been said yet as to the disposition of the naming rights for the football field. While the future name of Cal’s football field might have low priority for those in charge of disposing of Kabam’s assets, its has enormous social-psychological value to the tens of thousands of people who care passionately about the Cal and its football team.
Where Did Kabam Go Wrong?
Kabam was founded in 2006 by Cal alumni Kevin Chou, Michael Li, and Holly Liu. The company had early success developing mobile “freemium” games based on movie IP licensed from major studios.
But, beginning in 2013. Kabam stopped making visionary choices. In our opinion, this was due to the emergence of a the “talk the talk” culture beginning with the hiring of Steve Swasey from Netflix to be head of Corporate Communications.
In January 2016, Swasey was hired away from Kabam by Lending Club CEO Renaud Laplanche, only to leave several months later after Laplanche was forced out by Lending Club’s Board when they discovered the CEO’s involvement in loan doctoring.
Our interest in Kabam began in 2013 when we discovered the app store analytics company App Annie. We saw a rich set of quantifiable financial data and developed a methodology for translating app store revenue ranking data into global annualized revenue dollars.
Based on comparable valuations for publicly-held companies as a multiple of their revenue, we were able to derive solid valuations for mobile game startups like Kabam and Machine Zone (now rebranded as MZ).
We were also able to make prescient buy recommendations in 2014 for two Japanese publicly-held pure play mobile game companies KLAB and Mixi.
While our focus has been on financial analysis of mobile game companies, in 2014, we starting writing about the differences between MZ and Kabam’s approach to publicity. Not only were the differences between the two extreme, but extreme for Unicorn startups in general.
MZ rarely talks to the press. Between 2013 and today, CEO Gabe Leydon has given two interviews a year and official MZ press releases happen about twice a year. There is no MZ employee chatter to be found on the internet other than anonymous comments on Glassdoor. This is shocking for a tech Unicorn, more extreme than the secretive Palantir, whose core competency is secrecy.
Kabam is the complete opposite of MZ when it comes to publicity. Forget about the number of times the tech press has interviewed CEO Kevin Chou or COO Kent Wakeford. Forget about the progressive “moussing” of CEO Chou’s hair that we have noted in photos and videos over the past five years.
This has allowed us to graph the rise and fall of Kabam’s revenue and headcount — a publicly available graphic that is rare for a tech startup.
The idea for this practice can directly be traced to Kabam’s former SVP of Corporate Communication Steve Swasey. Swasey was also key in pushing the naming rights deal with Cal.
In 2013, CEO Kevin Chou began talking to the press about timetables for an IPO. In early April of 2014, he announced publicly that revenue was forecasted to grow 80% or more and be in the range of $550 — $650 Million.
This public announcement of revenue projections — exceedingly rare for a Unicorn startup — solidified our view of Kabam as an extreme example of a “talk the talk” culture among Unicorn startups.
To achieve its announced short term revenue goals, Kabam started timing new releases to coincide with the releases of mega-hit movie sequels like Fast and Furious and the Hunger Games. The games had no long-term engagement value and “freemium” revenue plummeted within a few months after release. The result was a disastrous string of five failures and one success.
What Should Become of Kabam Field?
The height of Kabam’s “talk the talk” culture occurred in December 2013 when Kabam announced that it bought the naming rights to the Cal’s football field for $18 Million paid over 15 years. One can understand the desire of Kabam’s co-founders, all three Cal grads, to give back to their alma mater.
But, tech founders should wait years after their IPO to consider funding the construction of new university buildings named after them. For example, buildings names on the the Bay Area campus of Stanford and Berkeley include no less than Gates, Allen, Moore, Varian, Hewlett, Packard, and Wozniak.
Now that Kabam is in the process of being dismantled and sold off, the question is what should become of the naming rights to the Cal’s football field?
As we said in the introduction, the name of a university football field has high social-psychological value to the tens of thousands of people who care passionately about Cal and its football team.
The need for the Cal’s administration to address the field renaming issue could not have come at a worse time as they have just fired their football coach Sonny Dykes and Bloomberg has just written an articleon university athletics finances naming Cal as the most debt-ridden program in the country. This is largely due to a $400 Million seismic retrofit of the football stadium after the discovery of a fault line running through it.
To begin cleansing Cal football of its recent bout of bad karma, one solution would be for Kabam and its Cal alumni co-founders to pay off the amount due the University from proceeds of the sale of other Kabam assets. The co-founders could also stipulate that the field renaming be crowd-sourced to University alumni and students.
But, one problem with this suggestion is that there is no obvious Cal sports hero or accomplished coach to rename the field after. Marshawn Lynch Field, Pappy Waldorf Field, Joe Kapp Field. All good, but none as obvious as Bryant-Denny Stadium at the University of Alabama or Amos Alonzo Stagg Field at the University of Chicago.
The other problem is that the naming rights to a Division I football field is an appreciating asset. For example, in September, 2015 the University of Washington received a whopping $4.1 Million per year over 10 year for “Alaska Airlines Field” at Husky Stadium. This is over three times Cal’s 2013 deal of $1.2 Million per year over 15 years for “Kabam Field” at California Memorial.
Given that the naming rights are far more valuable today than in 2013, and given the debt-ridden state of Cal’s athletic program, the University would surely prefer a solution involving a cancellation of the Kabam contract and the tendering of fresh bids from corporations.
The University can be expected to derail quietly any populist solution like a crowdsourcing of a new name. No, the University would much prefer Chase Field or PowerBar Field at $4 Million a year than any other solution.
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.”