How To Make Freemium Work: Niccolo de Masi, CEO of Glu Mobile (Part 3)

Sramana: What is the business model of Glu?

Niccolo de Masi: Glu used to be a company where 100% of our revenues came from carrier billed stores. Today a majority of our model is coming from the Android Marketplace or from the Apple app marketplace. That is largely credit card billings, not carrier billing. In the long term I expect that carrier billing will become a feature again, especially as emerging markets look for features that do not use credit cards. They use things like prepaid phones or postpaid carrier billed phones. You will see more engaging and effective ads contribute to the overall revenue mix.

We see ourselves as fundamentally taking games and making them work for as many consumers as possible. At the same time we allow them to use as many different billing mechanisms as possible. We don’t want there to be any friction.

Sramana: Let’s dive down into the Glu story where it transitions from feature phone games to smart phones. It sounds like that is the story that you want to tell.

Niccolo de Masi: That is a very important story for Glu. We were in a paid, featured phone company mode until my arrival. Between the IPO in 2007 and my arrival the company went through a very tough time because they did not bet as large on the smartphone market as they could have and their reliance on a paid model.

When I arrived at Glu I made three changes. The first was shifting the business model away from paid to freemium. The second was away from licensing other people’s brands and making games out of them and instead creating our own brands; original IP, original brands. That meant we were paying less in royalties, that we had higher gross margins, more control, and we were building much more equity value here when we are able to invest our blood, sweat and tears in building our own content. Third, we made a big shift to stop developing feature phone games. I stopped developing new games on feature phones and focused on smart phone only titles.

I don’t want to underestimate the enormous leap in production values and game quality that we have had to make to produce games on iPhones which are nearly console quality compared to the feature phone market which was very much an early adopter gaming experience.

We spent the first half of 2010 rebuilding the balance sheet, raising capital, and paying of debt incurred under previous regimes. We also transitioned the three aspects of the company. The one thing we maintained from feature phone days that will be powerful in smart phones is our ability to make our games work on all devices. Unlike smaller competitors we are very efficient technologically and with human capital when it comes to making a game work on all Android devices. We are a company in tune with growth for International markets. We localize the languages in our games. We also make sure we support titles with storefronts and billing overseas which caters to local consumer preferences. That is where consumers will discover and pay for content.

This segment is part 3 in the series : How To Make Freemium Work: Niccolo de Masi, CEO of Glu Mobile
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