Take two technology areas that Seattle is best known for: mobile and gaming. Mix them together in a fast-growing market (iPhone multiplayer games), put some shrewd venture capital behind it (Madrona Venture Group), and what do you get? Answer: Z2Live.
This isn’t two guys in a garage working on their passion. This Seattle startup was very carefully built, and the story of how that happened—and why—holds lessons for anyone interested in building the most promising tech companies of the future.
Let’s flash back to November 2008. The tech community, like everyone else, was reeling, and diving into the depths of the recession. But Apple’s iPhone was already huge, game applications were taking off, and there were plenty of talented people with gaming and mobile expertise looking for work around Seattle. So Paul Goodrich and his partners at Seattle-based Madrona decided to make a big move in mobile, initially based around the iPhone.
The first step was to assemble the best possible team. Madrona hired Damon Danieli, a 14-year Microsoft veteran and senior developer who had designed some of the core features of Xbox Live, including its community and multiplayer offerings. If there’s anyone who knows the technical problems of social gaming, it’s him. Danieli got matched up with David Bluhm, who previously co-founded Medio Systems, a Seattle-based mobile search and advertising company. Bluhm has been involved with more than 20 startups—including two that went public and seven that were acquired—and also has experience at Motorola and Hewlett-Packard. (Danieli and Bluhm happen to both be University of Washington alums—Danieli in electrical engineering and computer science, Bluhm in mechanical engineering.)
Madrona invested a seed round of $1 million that fall, and followed it up with $3 million more last summer. The big idea was to develop a software platform to enable multiplayer social gaming across all mobile devices and all wireless networks—something that did not exist yet—and start with the iPhone and iPod Touch.
It sounds tricky, and it is. There are big technical challenges involved in making reliable and efficient connections between gamers across networks and devices—especially while they’re in the middle of a game. For starters, the Internet has routers that don’t accept inbound requests, and you have to set up a new server to negotiate those connections, as Bluhm explains. (It’s similar to the problem Skype has solved for Internet communications.) To do it right, you have to “serve the game” on the gaming nodes themselves. That means using the processing of the individual consoles or mobile devices to do the networking between players.
So that’s the concept behind Z2Live—“creating the multiplayer experience for the mobile device, starting with iPhone,” Bluhm says. That means enabling players to talk to other players during games, and building community features like leader boards, gifting applications, and personalized avatars. “In theory, this could change the trajectory of game community growth—making sure the game itself is designed with the community in mind from the start,” Bluhm says. “We’re doing things with developers in a very tight manner, so they understand how they can take advantage of the community features we’ve built in.”
Some examples: If a player earns something in one game (virtual goods, say), he or she should be able to use it in another game. Or chatting with other players could be used as a mechanism in the game itself, to create more user engagement. The goal is to “create a real community, with more interaction,” Bluhm says. And the metrics to see if Z2Live’s approach works will include things like whether players spend more time in the community, chat more often, and invite more friends to join.
I wondered whether mobile gaming companies or social networks in Asia or Europe already had a platform like this, since those regions tend to adopt mobile technologies faster than the U.S. Bluhm says he hasn’t seen it yet. In terms of social gaming, companies like Zynga in San Francisco have done a good job of turning Web traffic into revenue. But many developers say game mechanics could be greatly improved on Facebook, for example, with some clear advantages for those seeking to make more money—things like more audience engagement, and more interaction among players online. “There’s a lot missing,” Bluhm says.
Z2Live provides its software platform and services to game publishers and developers. Its gaming canvas includes everything from simple casual games to complex multiplayer games—from Solitaire, Tetris, Bejeweled (from Seattle’s PopCap Games), Pictionary, Scrabble, and other word games, to Call of Duty and Rock Band on the iPhone.
The Apple iTunes store currently has more than 150,000 apps in total, and the average app makes less than $5,000, often much less. “There’s a lot of false promise that has been taken out of the Apple ecosystem, but there’s still some in it,” Bluhm says. “Any startup like us trying to build a business has to make decisions—is this a long-tail problem, or do we go work with the top 20 publishers, or both? I’m not even going to say our business plan will be fully informed after we launch these great titles. All we’ll be able to say is, ‘See, it works and users love it, like it, are not sure, or don’t. We have to be pretty nimble for the next 12 months. I think [the market] is going to change violently, and I think it’s going to happen faster than we think.”
I pressed Bluhm some more on why he thinks Z2Live is such a big deal. “The biggest market opportunity this world has ever seen is being on a handset that everybody carries with them,” he says. “There are more of those than any other single device, and it’s the one thing you’ll turn around and go back and get if you left it at home. Mobile gaming is going to be a redundant descriptor when we talk about gaming going forward.” What’s more, he says, “game mechanics have proven to be invaluable outside of gaming”—in areas like education, corporate training, and knowledge transfer. That’s where studying things like game mechanics, game dynamics, emotional connections, and storytelling can provide surprising value.
“Gaming, not as a business but as a mechanic of knowledge transfer and skill development, has a bright, big, impactful future in the world,” Bluhm says. “Now layer that with, it can happen anytime, anyplace, anywhere.”
In talking with Bluhm, one more thing becomes clear. Z2Live’s real value is not just in the “plumbing” to allow mobile social gaming to happen, but in understanding gaming communities. Bluhm says he thinks any technological advantage, in general, won’t last more than six months. “This is the battle cry I use with our team: who’s going to have the understanding of how these fluffy communities that have been built are really [analyzed] in a purposeful and scientific way? That’s the DNA we want to have,” he says. “We’ll know what metrics to track, and which game mechanics to invoke, depending on your goals. That’s a knowledge business, not a plumbing business.”
And a key piece of that knowledge, he says, will be “learning how to grow a community—through monetization growth, or monthly uniques, or time of engagement [session length], frequency, how motivated are they in inviting others, being viral. There’s a few companies on the leading edge of that on the Web, and mobile represents a different dynamic. We have an advantage going forward—we have a billing relationship that people are comfortable with [99 cent iTunes].”
It’s still very early, of course. Last September, Z2Live announced its platform was available for iPhone and iPod Touch game developers. “We’ve proven the technology,” Bluhm says. “We’ve got the best launch partners you could want to have. We know there’ll be some uptake, but that’s not necessarily enough to say we’ve built a business.”
Z2Live currently has a dozen employees, and is hiring for two more full-time positions and one part-timer. Bluhm says the company has “no plans to expand beyond the iPhone until other platforms represent, on volume, significant targets for us.” Interestingly, he thinks netbooks will end up becoming a very important device for social gaming, largely because they will become kids’ “primary connection to the world” through both home and school.
Because Z2Live is venture backed with a decent amount of cash, it can afford to focus on growth—rather than rushing to break even—for the moment. “Our goals are going to be first, grow the community, and second, monetization,” Bluhm says.
Which made me think about the tradeoffs of being incubated with a venture firm versus doing it yourself—and the broader lessons Z2Live could hold for building a successful company, and putting together the right founding team. It also reminded me of something that Madrona co-founder Tom Alberg told us last year: that in some ways, the VC firm’s main competition isn’t other VCs, it’s bootstrapping.
Bluhm, for his part, says that wasn’t really an option in this case. “I didn’t think about bootstrapping this. Madrona is a great investor. I was happy to have those guys involved. And it came with a technologist too [Danieli],” he says. “It’s ‘who’ for me first. Money is always available if you’ve got the right plan. Ideas are all over the place, money’s all over the place. Great teams that want to cross swords and go capture a hill or go slay a dragon are the magic I always look for.”