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The Origins of RedOctane (Before Guitar Hero)

I am reading a Harvard case study about Netflix for a class at Kellogg right now and reading about its timing of switching to unlimited rentals in the summer of 2000 reminded me of when I first heard about the company that would become RedOctane, the producers of Guitar Hero (did you see: Rock Band is coming back) and a startup success story.

I remembere the exact article posted on April 17, 2000 at IGN: WebGameZone to Offer Import Rentals

Ever wanted to play the latest and greatest games out of Japan, but don’t quite have the budget to do so? There are many titles that are already out that deserve a good run through, but with prices floating around $70 each, one cannot afford to play them all. Well one online retailer noticed this and decided to start a bold new venture: renting import Dreamcast games Online.

WebGameZone is taking the high price of 70 dollars per game and changing it to a simple $4.99 rental. The company is already known for being the largest online videogame rental store, but until now has never offered the latest Japanese titles.

So what does a five dollar fee get you? How does 10 days of usage sound? That’s right… you get over a full week of gaming for the price of a typical fast food meal. After you are done with the game, you just send it back in the pre-paid, pre-labeled box that is provided.

Obviously, we can’t guarantee the quality of the site’s service, but it is certainly something import-hungry gamers may want to check out. Thirty import titles will be made available at first, with more and more being added as time goes on. This is truly a unique venture, and will be interesting to see if it works out.

Both Mike Won and I read the same article and while I am not sure exactly what happened next, one of us found out the company was in Sunnyvale (in Silicon Valley, 20 miles away from where we lived in San Jose), and I contacted them right away about internships. I would have happily worked for free, but got a quick response from Juan, came in a few days later, met the rest of the team (Kai Huang, Charles Huang, Dean Ku, etc.) and essentially had a part time job (probably at $7.50 an hour) at the age of 19 shipping game discs and learning about Japanese import games for the Sega Dreamcast. This probably all happened within 10 days. I was employee #9 or #10 until I left to finish my degree at UC-Berkeley in 2002, but my time there in that first stint is summarized in my LinkedIn profile:

In my first experience with RedOctane (formerly WebGameZone), I started as an intern, learning about shipping logistics. Over time, I was promoted to Customer Service and given complete freedom (and responsibility) to interact with customers and learn how to resolve issues without backup support in a loss limited structure.

Through these experiences, I learned vital lessons about the human psychology, empathy, effective communication, and stress management, critical lessons I still use on an everyday basis.

Promoted from Intern/Shipping Logistics (2000) to Customer Service / Game Inventory Buyer (2001).

Other fun links I found: (but couldn’t find the old logo)

Free Rental Offer

RedOctane Begins Renting Import PlayStation 2 Games

Woa! WebGameZone actually sent it to me!!

Analyzing the Shark Tank – Coffee Meets Bagel Episode [Startups]

I do not really watch Shark Tank, but two recent episodes struck my interest. The first was the episode with Singtrix, which has a connection to my time with RedOctane and Guitar Hero. The other was about Coffee Meets Bagel, the January 9th episode (thanks to Kevin Tung Nguyen for sharing the episode) that you can watch below:

Coffee Meets Bagel (CMB) relates because of my work at FriendsPlus, which we sold pre-launch to Noi.vn, Vietnam’s largest dating service in 2013. Like CMB, FriendsPlus focused on creating a non-meat market dating environment focused on the needs of female users, encouraging offline meets between users who explicitly opted in to each other. Some commentary on the episode and CMB:

  • The team should have been prepared for questions about user numbers. By deflecting the question multiple times, one wonders if they have given different numbers to different people and thus could not say publicly on television what the current numbers were (they would not want to be shown lying), or if CMB is simply at the bottom of the range given (100-500K users). As Cuban implies, there is a big difference between 100K and 500K users, especially considering that CMB has been around for close to 3 years (more on that below) – it suggests limited market or non-compelling and non-naturally sustainable growth.
  • The team mentions that CMB was invested in by a Match co-founder. That person is Peng Ong, who I actually know. Tinder is invested in by Match, the firm. CMB launched in April 2012, 5 months before Tinder, but Tinder is estimated to have 50 million users today. The team cites Match’s 800M in revenue as a sign of their own potential. That’s the same logic that says you should automatically advertise on Facebook because it has 1 Billion users. Yes, there is some superficial logic there, but you need to delve a bit deeper.
  • The Sharks are right in that CMB can easily be copied – look at the popular Noonswoon from Thailand.
  • CMB’s revenue and users are a bit alarming. I discuss it over the next points.
  • Last year, CMB generated $87K in revenue. If that is $0.50 per user on average, this would imply 170K users. This is reasonable for this type of product and follows what the team said. I don’t know how long the average user stays with the product. If they actually have more than 170K users, revenue is actually less than $0.50 per user. Remember this $0.50 figure for later.
  • This year, CMB expects to make $1M USD, but expects to lose $1M, which means costs were $2M USD. Current user acquisition is $0.30 per user.
  • CMB expects to break even at $10M in revenue next year, from 4M users. They expect to spend 3-4M (let’s assume it’s 4M) in to bring on those new 4M users. That is $1 per user. They expect $2.50 per user in revenue, but did not include CMB’s existing users in that revenue figure. This leads me to believe that CMB user lifetime with the service is not particularly long (1 year or less) or that the number of current users and the revenue generated from them is not significant enough to include. This implies the lower user figure in the given 100-500K user range. Increased user acquisition costs suggests this product does not spread virally, something about it does not compel others to talk about it, or you are trying too hard to bring someone who may not be the right fit for your product. If this is the case, the projected gain in average revenue per user (ARPU) for these kinds of users is also a concern.
  • How did CMB estimate $2.50 per user per year moving forward? CMB is going to jump from $0.50 to $2.50 (500%) in 1 year?  How does adding users generate more money per user? Since the revenue is from digital currency / microtransactions, does having more users make the product more sticky? If so, this implies the business is not sustainable now. If that is true, and focusing on this niche is not sustainable, what does this imply about the value the product is creating for its current users? Does having more users actually mean more date / chat frequency which means I need to buy more microtransactions? Again, this is not a meat market like Tinder in which you go on to browse (consume) through people – for Tinder, you need a ton of users. For CMB, you are getting one match per day carefully selected for you. Are there more types of transactions that CMB will be processing in the future that will generate new forms of revenue?
  • Let’s compare CMB to a Facebook type of product. Facebook generates more revenue by adding more business models. Example, Facebook could sell different types of ad products, and can charge more money with an increased user base (market power) increasing the efficiency of those ads. It can also take a share of revenue that is generated within the platform (apps, games), or sell emoticons. Thus, more users could lead to more revenue, but you also need to add more models for those users, it’s not automatic. This concerns me about CMB – it currently just sells digital currency.
  • Why is there such a high burn rate (company spending)? With $2M in expenses, this is over $150K in burn per month. You might want to look at CMB’s jobs page to find out where the money is going: https://coffeemeetsbagel.com/jobs/. From my experience: company trips costs a sh*tload of money. Based on LinkedIn, I found about 15 full-time employees at the company. Let’s say on average, each employee costs the company $100,000 each per year (this is low when you include office space, benefits, etc.). The founders mentioned they each make 100K, which for the Bay Area, is low. Based on CMB’s $1M revenue, and $1M in losses figure, however, the team is suggesting they spend 133K per employee per year, which is possible. (This doesn’t include marketing, which at .30 per user at 170K users, would only be about 50K and can be ignored for now). I know that the Bay Area is a different beast with employee expectations, but in my opinion, startups in need of cash need to learn how to conserve cash better.
  • CMB will break even at $10M in revenue and 4M+ users. With $4M going in advertising, where does the other $6M go? If you stick to the $133K per employee figure, the company would need to grow to 45 people. Perhaps some people are getting raises. Infrastructure should not be a particularly significant cost yet. I don’t think you can have 45 people in a co-working space either. If the cost goes to $150K per employee, that is still 40 employees. If the team can cut the fancy office, parties, trips and focus on profitability, I expect there is a good amount of fat that can be cut. (One of RedOctane’s first offices was a big warehouse with no air conditioning in Sunnyvale – no frills worked out for them)
  • I wonder if CMB’s quoted revenues include the 30% share that is given to Google Play and iTunes for microtransactions. Otherwise, there is no cost of goods (COGS).
  • Why does CMB need to grow to be profitable? This, along with CMB’s slow user growth after nearly 3 years troubles me. I could understand the growth in the sense it’s not a meat market app. It’s for people who want quality, real relevance over gross quantity. But why can’t it be profitable now? This makes me question the revenue model. Is CMB going against its core by going to mass-market advertising? If the app is not for everyone, it should be positioned accordingly. I don’t see how growth rescues them long term.
  • So what should CMB do? I would consider changing to a premium / subscription model to get revenue from more (higher % of users pay, but less overall users) users at higher rates and focus on that smaller niche audience to reach profitability. Do people pay for love? Yes, as long as it is provides real value. CMB seems to be providing that.
  • The Mark Cuban $30M offer: I don’t think he is actually making the offer, he is saying “what if”, to which the proper response to a hypothetical is of course no. If you say yes, you have publicly given a limit to what your company is worth (the team has suggested a $10M valuation with $500K for 5%) for no reason. You would never want to create the sense you do not believe in your product to preposterous levels. If it were a legit offer, I believe they should have taken it. 3X valuation is nothing to joke at, as much as the team may claim to look at Match’s $800M in revenue or Tinder’s billions in valuation. The team suggested CMB is a cash hungry business intent on growth. CMB received $2.8M in venture capital last May, which would not cover its marketing budget for this next year. Yet, its is only asking for 500K from Shark Tank. This leads me to believe CMB is mainly on Shark Tank for the PR and don’t want to give up very much equity, has another round coming, or does not intend to go with its stated marketing plan at all – it would not have the money for it. If it needs to grow massively to become profitable, CMB has no other option than to take the buyout offer.

Mimo Lives!

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As a co-founder in Mimo, the Vietnamese microblogging service that grew to 2 million users before it closed earlier this year, it is great to see the benefits of this guerilla marketing campaign still alive! When our team traveled in taxis for business meetings all over Saigon (Ho Chi Minh City), we would make sure to leave a sticker to share the service with others. By the way the sticker was placed, I probably placed this sticker myself in this Vinasun taxi at least two years ago.

I hope to visit Vietnam after I graduate from Kellogg – I wonder if I will still be able to find a Mimo’d taxi then.

(Photo sent to me a couple of days ago by Jin)

Sheryl Sandberg, You’re Wrong [Lean In]

imageForgive the provocative title – I actually liked Sheryl Sandberg’s book Lean In quite a bit. If there is anything I look back on with pride at my time in Vietnam, it’s that I treated men equally to women. I feel very confident about my track record in making sure that women and men were paid equally to each other, and that they also had the same opportunities to advance and improve themselves.

Back to the book, Lean In gives a great perspective about the issues women face in the workplace, and reading it can provide the empathy to understand the interpersonal dynamics that may be occurring around you. My wife Ha has found it very insightful for her as well as she has just started her MBA at IE Business School in Madrid and many of the situations explored in Lean In are those that she faces in class on an everyday basis.

That said, this one excerpt at the beginning of chapter 4 bothers me:

About a month after I joined Facebook, I got a call from Lori Goler, a highly regarded senior director of marketing at eBay. I knew Lori a bit socially, but she made it clear this was a business call and cut to the chase. “I want to apply to work with you at Facevook,” she said. “So I thought about calling you and telling you all of the things I’m good at and all of the things I like to do. Then I figured that everyone was doing that. So instead, I want to ask you: What is your biggest problem, and how can I solve it?

My jaw hit the floor. I had hired thousands of people over the previous decade and no one had ever said anything remotely like that. People usually focus on finding the right role for themselves, with the implication that their skills will help the company. Lori put Facebook’s needs front and center.

At first, reading this particular passage excited me – it was exactly what I was looking for and I ask people this all the time. My work history had been to always do what was needed to help the company succeed. I personally do not care what I do as long as I maximize my impact. Over the years, I have gone from customer service to ecommerce logistics, to sales and business development, to marketing and digital product management.

Yet, when I was at UC-Berkeley, I failed presentations by refusing to do them, not showing up (I remember letting some classmates down, which I still feel guilty about), or simply reading my notes face down. I absolutely hated public speaking. Who could have imagined that today, as along as I prepare, I am a pretty decent public speaker? I have spoken in front of hundreds of people and taken their criticism, complaints, and questions without fear. I have pitched digital campaigns, sought funding for my companies. Public speaking was something I never imagined I could do, nor was it something I ever even aspired to do. I developed the skill once I started working because it was necessary for the success of the company.

Thus, as a veteran of multiple startups, I recently looked to take Sandberg’s advice and see what kind of demand there was for a flexible manager unafraid to focus on a company’s greater good to create success. Someone, like her friend, who would be happy to do whatever he could to create the most value. My work experience proved that was exactly what I had done in the past, spanning multiple industries and countries.

The verdict, from talking to friends, successful startup founders, recruiting managers, and even staff at Facebook over a few months time? You need to be specialized, you need to say what you want to do, and you need to create a story that shows you know how to do that. Without fail, even when I mentioned Sandberg’s story, no one bit. Kind of like, “sure, that sounds great, but what is it you want to do exactly?”

I then looked to contact Sandberg myself or see if there was a forum for the book to discuss this point. I couldn’t find a good way to do either – I wanted to learn if others had been successful where I had not, and how they had done so. No success.

This is why I believe Sandberg is wrong. Yes, if you happen to know Sheryl Sandberg, this approach could work. But you probably don’t know her. And that’s too bad (for us).

Learning about my Interests, Motivations and Skills through my CareerLeader Profile [MBA, Kellogg]

As part of preparation for incoming Kellogg students, I was asked to develop my profile on CareerLeader. It was an enlightening process, and gives me some things to consider while moving forward. Here are my results:

My Interests:

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Will my interests and scores change over time?

Research shows that by young adulthood, individual patterns of interest are set and remain consistent over time. You may become even more interested in activities you have strong interests in now, and less interested in activities you aren’t interested in now. But, the pattern of your scores is unlikely to change substantially.

Motivations:

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Skills:

This is a measure of your perception of your skill versus the perception that other people have of their own skill. While self-confidence is a powerful predictor of actual performance, we recommend that you also ask for feedback from other people who are able to assess your skills.

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With the items listed above, each has subcomponents of which I feel strong in (able to make decisions) and not as strong (negotiator, motivating others, convincing others).

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Above are the careers I may be best suited for. I can’t disagree with the assessed interest in physical and digital product development. After all, I did write this 4,300 word article on basketball training wearables. With my double degree MBA and Design Innovation program at Kellogg, I am also hoping to major in Marketing as Kellogg is generally considered the best Marketing program in the world and I also need to better understand how to sell any product I work on. Incidentally, I started on this path at Cyworld, and led our team to the largest social media marketing contracts to date in Vietnam.

If you happen to know me, I wonder how much you agree with these assessments. Let me know!