1Mby1M Incubation Radar 2010: PerBlue, Madison, Wisconsin

The future of location-based games is still up for grabs, and PerBlue, a mobile and social gaming software company, is helping to determine that history.

Founded in 2008, the company is based in Madison, Wisconsin. The CEO, Justin Beck, has been programming since he was 12. He worked at Google as a software developer and Microsoft as a program manager. He and his business partner, CTO Andrew Hanson, developed the idea for PerBlue’s flagship product, the mobile location–based massively multiplayer game Parallel Kingdom: The Age of Thrones, late one night when they were tired of doing homework.

Parallel Kingdom is a role-playing and strategy game that places a virtual world on top of the real world using a phone’s GPS. It can be played massively or privately. The game is free to download, and PerBlue makes money by selling virtual goods in the game. It is a typical free-to-play, virtual goods online game business model in that players play the game, and most of the content can be enjoyed completely free. However, some of the features require the virtual good to unlock. Every new player starts with a certain amount of the virtual good for free, and it is possible for players to trade for the currency, so players can choose between working harder or paying for it. PerBlue makes between $6 and $10 per dedicated player in the game. Other products include Looty, a puzzle game in the style of a treasure hunt that is in beta on Facebook; and Tempest Chess, a real-time chess game.

PerBlue sells Parallel Kingdom directly to consumers. Approximately 270,000 people have entered the company’s product funnel by creating a player account in Parallel Kingdom. It gets about 500 new accounts a day, and this rate has been growing. PerBlue converts about 14% of new users to an actual player (by using the metric that these users log in four out of their first five days. Out of those players, it retains about 13% for more than six months. The target audience is people, male and female, in all countries, who have data plans and want quality games to play on their touchscreen smartphones.

Gaming is traditionally about a $100 billion a year business, with major hits being able to sweep in about a billion dollars. Most hit games get between $50 million and $350 million in revenue. But in mobile and social, the market for games is growing to larger audiences. Compared to the traditional games market, the amount of money in these emerging markets hasn’t been that huge yet, but it is growing fast. About $5 billion of the gaming market was from social last year, and about $4 billion from mobile. PerBlue says that people will spend money in these new markets, and the games are appealing to a broader market than just hardcore gamers. To the extent of how much, developers and industry observers will have to wait and see.

When the company was founded in January 2008, there was no App Store or Android Market. Location-based games such as BotFighters had been released as early as 2001 and 2002, but such games have become much more popular in the past few years. There were about eight close competitors for Parallel Kingdom, including WiFiArmy (no longer around) and Turf Wars. Now, there are many more competitors, such as Foursquare, Gowalla, KingPin, MyTown, and Mobzombies.

Beck and Hanson bootstrapped the business, putting up the initial money to get the ball rolling. Early employees were paid in stock options instead of paychecks, but they now receive pay. In July 2009, PerBlue raised $72,000 with common stock financing. In August 2010, it raised $800,000 through preferred stock, Series A financing. Revenues are between $420,000 and $720,000.

PerBlue is working on two forms of growth. The first is vertical growth within each of its games – adding more content, making the game more fun, increasing monetization by shipping updates and tweaks. The second is horizontal expansion – making more games, reusing in-house technology, and making games on new platforms (e.g., Facebook).

Beck says that down the road, he is looking to sell PerBlue via an acquisition. The company had two acquisition offers that Beck turned down due to incompatibility. He is looking for a strategic acquisition that is a good fit for PerBlue’s creative team as well as the parent company – someone either already in the mobile and social space or someone who wants to strengthen their position in it. If PerBlue reaches a size and position where it would be wise to go public, that could also be an option, but it is not an immediate possibility.

PerBlue presented at the roundtable on October 21, 2010 [recording time 01:15 to 16:30]. Justin wanted to discuss a more efficient customer acquisition model, and Sramana’s suggestion to him was to look into using distributors instead of trying to do all the development and then also all the distribution himself, especially since his heart is more on the creative side.

Recommended Reading
Deal Radar 2010: PressOK Entertainment
Deal Radar 2009: socialDeck

This segment is a part in the series : 1Mby1M Incubation Radar 2010