Games 2.0 Web 2.0 Expo April 25, 2008 Jeremy Liew MD, Lightspeed Venture Partners www.lightspeedvp.com lsvp.wordpress.com jeremy@lightspeedvp.com

Birth of Web 2.0 has been driven by making costs variable Development Build everything from scratch Open Source Outsourcing Marketing Superbowl ads CPC and CPA Distribution Multi year, multi million dollar portal deals Social network platforms Viral growth Content Teams of writers and editors User Generated Content Monetization Internal sales teams Ad networks

The games industry is starting to feel the same dynamics Development Massive development projections Fat clients In browser gaming Flash and other rich media improving Marketing Offline advertising driving players to retail CPC and CPA online advertising driving online play Distribution Controlled by retail and big game portals Social network platforms Viral growth Content Teams of level designers Multi player is user generated content for games Monetization Selling games in jewel cases Digital download Free to play supported by subscription and digital goods Advertising

Development: “Low fi” games gathering more users Development Costs ($M) Players (M) Halo 3 Power Challenge Zynga’s Texas Hold’em Friends for Sale SGN’s Jetman Sources: Lazard Capital Markets, Adonomics, Press Releases, LSVP Estimates

Marketing: Online distribution allows CPC and CPA advertising $30M in marketing - Primarily offline 10M copies sold - 90+% through retail

New user growth (illustrative) Distribution: Viral growth and social networks allow games to grow virally * Not to scale TYPICAL AAA GAME New user growth (illustrative) Marketing campaign supports big launch, with sales declining thereafter SOCIAL GAMES Friend invitations drive increasing growth curve as user base grows

Content: Multiplayer is user gen content for games Single-player games Need new levels to keep player interest AI for NPCs to maintain challenge vs. Multiplayer Games Each game is different, keeping player interest Other players have real intelligence, not AI Asynchronous Play - Large pool of other players - Easier to play against friends - Players playing in sequence, not in tandem. - Requires persistent state which all players affect, and which in turn affects all players. - Breaks between players are the organizing principle Source: Ian Bogost, Lightspeed analysis

Monetization: Online games market growing as revenue sources become more variable ONLINE GAME REVENUES Sale of downloads Advertising Digital goods Self expression In-game power Extra levels/content Attention Convenience

If Web 2.0 is the social web, then Games 2.0 is social gaming MODERATOR PANELISTS Jeremy Liew: MD, Lightspeed Venture Partners Siqi Chen: CEO, Serious Business (Friends for Sale) Johan Christenson: CEO, Power Challenge Shervin Pishevar: CEO, Social Games Network Mark Pincus: CEO, Zynga Game Network