Download Report

ABC
Mobile Gaming Solutions
Business Plan
July 2005
Best Quality Ever Seen
ABC
Business Plan
TABLE OF CONTENTS
1
EXECUTIVE SUMMARY.......................................................................................... 4
1.1
Overview .................................................................................................................................................4
1.2
The company...........................................................................................................................................4
1.3
The Problem ...........................................................................................................................................4
1.4
The Solution ............................................................................................................................................5
1.5
The Intellectual Property.......................................................................................................................5
1.6
The Market .............................................................................................................................................5
1.7
Business Strategy ....................................................................................................................................6
1.8
Financial Highlights ...............................................................................................................................6
1.9
The Investment Opportunity .................................................................................................................7
2
ABOUT ABC ............................................................................................................... 8
3
ABC’S VISION ............................................................................................................ 9
4
THE NEED ................................................................................................................ 10
5
THE SOLUTION ...................................................................................................... 13
5.1
Overview of the solution ...................................................................................................................... 13
5.2
How does it work? ................................................................................................................................ 15
5.3
The ABC Architecture ......................................................................................................................... 15
5.4
The Benefits of the Solution ................................................................................................................. 16
5.5
Product Development ........................................................................................................................... 17
5.6
Customer Service and Support ........................................................................................................... 18
5.7
Intellectual Property ............................................................................................................................ 18
6
MARKET ANALYSIS .............................................................................................. 19
6.1
Overview of the Market ....................................................................................................................... 19
6.2
The Market Opportunity ..................................................................................................................... 20
6.3
Target Market ...................................................................................................................................... 21
6.4
The Value Chain and Business Model ................................................................................................ 24
6.5
Competitive Environment ................................................................................................................... 28
6.6
SWOT Analysis: .................................................................................................................................. 31
6.7
Barriers to Entry .................................................................................................................................. 31
7
BUSINESS STRATEGY ........................................................................................... 33
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7.1
Market Entry Strategy......................................................................................................................... 33
7.2
Sales Model ........................................................................................................................................... 34
7.3
Pricing ................................................................................................................................................... 35
7.4
Risk Factors .......................................................................................................................................... 35
8
FINANCIAL HIGHLIGHTS .................................................................................... 38
9
FUNDING SOUGHT AND USE OF FUNDS........................................................... 39
9.1
Funds Sought and Use of Funds .......................................................................................................... 39
9.2
Exit Scenarios ....................................................................................................................................... 39
10
THE INVESTMENT OPPORTUNITY ................................................................ 41
11
APPENDIX 1 – FINANCIAL ANALYSIS ........................................................... 42
11.1
Operating Expenses ($US) ................................................................................................................... 42
11.2
Projected Sales ...................................................................................................................................... 46
11.3
Cost of Goods ........................................................................................................................................ 47
11.4
Sensitivity Analysis............................................................................................................................... 48
12
APPENDIX 2 - BIBLIOGRAPHY ........................................................................ 49
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Business Plan
1 Executive Summary
1.1 Overview
Mobile operators have invested billions of dollars in new 3G network infrastructure, but
expected revenue streams have been disappointing. One of the major revenue generating
value added services, mobile games, has only reached a fraction of the expected penetration.
According to analysts, this is mainly due to poor user experience of mobile phones games
compared to home consoles or PC-based games and high costs of devices and downloads.
The size of this mostly untapped mobile games market is estimated to reach around $ 11B by
2010 (Informa Telecom & Media, August 20051)
ABC has come up with a unique and patented solution to solve this need. The ABC solution
will enable any mobile subscriber to play mobile games on any 3G phone, without the need
to purchase costly devices or to download expensive games, while providing unparalleled
quality and user experience.
To capitalize on this huge opportunity, ABC is embarking on a stage-A fund-raising.
With this investment, ABC is poised to become a leading provider of mobile games
solutions, and provide an extraordinary return on investment.
1.2 The company
ABC is privately held and privately funded software company that began operations in 2004
and is looking for first round funding. ABC received pre-seed funding from the Israeli Chief
Scientist, which was used to develop an initial product prototype of the mobile games service
platform and patent it.
ABC is composed of a strong team combined of seasoned innovators, R&D managers,
operations and marketing experts.
ABC’s vision is to become the leading provider of mobile and wireless games platforms.
1.3 The Problem
Mobile Operators have made huge investments in 3G network infrastructure, and are eagerly
looking for services that can generate significant revenues to recoup their investments.
According to Yankee Group (May 20052), mobile games which was expected to bring in
significant revenues, has only reached a disappointing penetration of 1%, compared to the
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expected penetration of 15%.
This is mainly due to unsatisfying gaming experience, as a result of the limitations of mobile
devices and the high prices of portable game devices. While game consoles and PC games
are constantly getting better, downloadable mobile were not able to close the gap. What is
more, mobile operators are unable to offer their subscribers the popular MMO (Massive
Multiplayer Online) games, a high growth segment of it own right.
ABC has come up with a new concept that will bridge this gap and allow game enthusiasts to
play their favorite games using a mobile phone while maintaining PC-grade user experience.
This will enable the mobile operators to reach their potential penetration and revenue plans.
1.4 The Solution
Based on its patented cutting-edge technologies, ABC intends to provide mobile operators
with a server-based game platform that will enable them to offer mobile games value added
services.
The ABC solution is unique in that it hosts all the game delivery technology at the service
provider back-end servers, thus allowing mobile games enthusiasts to achieve a "gameconsole" like user experience using widely available 3G handsets.
The mobile phone is used only as an input and display device, while the ABC platform
processes the user-generated commands and renders the video display on its servers.
To be able to play, the subscriber will need to download ABC’s software, a small client to its
phone (in a similar fashion to downloading a ring-tone). The games will be provided by
games creators and publishers, who will collaborate with ABC and will need to integrate
their games into the ABC platform.
The ABC platform supports unlimited number of simultaneous players as well as multiplayer MMO games and can run different games simultaneously.
1.5 The Intellectual Property
ABC’s technology and concepts are protected with patents covering usage concepts,
hardware and software components.
A PCT application was filed on March 23rd, 2005 through the patent office of Dr. Mark
Friedman, Ramat-Gan, Israel.
1.6 The Market
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The research firm "Informa Telecoms & Media" (August 20051) estimates that the global
mobile games revenues were approximately $2.6B in 2005, and were forecasted to grow to
$11.2B by 2010. According to In-Stat/MDR (September 2004) about 6.5 percent of wireless
subscribers in the United States are "extremely" or "very interested" in purchasing portable
game services. In-Stat/MDR found that mobile gamers spend an average of 5.1 hours every
week playing games on devices such as PCs, game consoles and handhelds.
According to Strategy Analytics (August, 20043), the mobile gaming market is expecting a 6fold growth from 2005-2010 for downloadable games, generating 82% of an $8B market.
The number of active users of downloadable games will grow from 32 million in 2004 to
reach 220 million in 2009. ABC's solution, which enables real time multi-player online
games using mobile phones, can capture a sizable market share and contribute to the increase
in the game market volume.
1.7 Business Strategy
ABC intends to generate revenues using the following models:
•
Direct one-off sale of systems to mobile service providers including annual service fee.
•
OEM the platform or license the technology to major mobile equipment manufacturers
(e.g. Comverse, Siemens, etc.) who will in turn sell the game platform to mobile
operators.
The operators will generate revenues by offering subscription-based games to their
subscribers. These revenues can be shared with the game/content providers.
The pricing scheme of the ABC platform is based on a return of investment (ROI) model of 6
months, which results in a target price of $400 per concurrent user (channel).
For example, an active subscriber base of 60,000 online mobile gamers within one operator
will require about 10,000 concurrent game service ports, which will result in a $4M price for
such a system.
1.8 Financial Highlights
With the contemplated financing, ABC expects to reach yearly net income of $13M at the
end of year four after the specified investment growing to $84M at the end of the 5th year.
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Business Plan
The detailed financial analysis can be found in the body of the business plan and in
Appendix-1.
1.9 The Investment Opportunity
ABC seeks to raise a total of $12M based on the following:
$7.5M from direct investment
$4.5M from the Chief Israeli Scientist fund
The ABC solution can revolutionize the mobile games market and at last enable network
operators to leverage their 3G networks to generate the billions of dollars they hoped to.
While most other players focus on trying to improve game performance of mobile devices to
provide better user experience, ABC is taking a completely different approach, changing
the paradigm to a server-based hosted games solution.
By offering an innovative and cost effective mobile gaming solution ABC can turn any lowcost 3G mobile phone into an exciting game console, thus enabling all subscribers (not only
high-end segments) the freedom to play mobile games with anyone, anywhere and anytime.
ABC is seeking a first stage funding to execute this great opportunity. With a relatively small
investment, ABC can become the standard gaming solution and the market leader, a position
that will assure a large return on investment.
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2 About ABC
ABC is a privately held and privately funded software company that began operations in
2004. ABC received pre-seed funding from the Israeli Chief Scientist, which was used to
develop an initial product prototype of the mobile games service platform and patent it.
ABC is composed of a strong team combined of seasoned innovators, R&D managers,
operations and marketing experts including:
A – has accumulated extensive experience in R&D and QA at AAA. Previously, A served as
Chief Operations Officer (COO) at BBB and Vice President of R&D at CCC. A has created
several products ideas that were developed and commercialized. Yossi has a BSc in
mechanical engineering from Tel Aviv University.
B – B held senior R&D managerial positions at AAA, the leading Israeli mobile
infrastructure provider and at BBB, a leading telecom systems provider. Currently B serves
as a deputy General Manager of CCC, a division of DDD. B has a BSc in Electronic
Engineering from the Technion, a master in Electronic Engineering from Tel Aviv University
and an MBA from Ben Gurion University.
C – has extensive R&D experience at AAA, BBB and CCC. Currently C is chief engineer
and manages system-engineering teams at DDD. C has a BSc in physics and mathematics
from the Hebrew University in Jerusalem,
D – has an extensive marketing, business development and customers' project management
experience at AAA and BBB. Currently D manage a new business line at CCC.
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3 ABC’s Vision
ABC’s vision is to become a leading provider of mobile and wireless games platforms.
Reaching this vision will enable:
Mobile subscribers – to enjoy the exciting and spectacular quality gaming experience
(individual or multi-player), anywhere and anytime, while using widely available 3G/WiFi
handsets.
Network operators – to achieve the long-waited revenue streams of 3G networks, by
offering a new generation of outstanding-quality mobile games, and making it their number
one revenue generator.
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4 The Need
Mobile operators have made huge investments in 3G network infrastructure, and are eagerly
looking for services that can generate significant revenues to recoup their investments.
However, so far, the services that were high on the operators’ list for 3G revenue-generating
services, namely, video games, video content and other interactive services, did not meet
expectations.
According to Yankee Group (May 2005), mobile games which were expected to bring in
significant revenues, has only reached a disappointing penetration of 1%, compared to
expected penetration of 15%.
Mobile operators would also like to tap into the high-growth markets of Massive Multiplayer
Online Games and (MMO) / Massive Multiplayer Online Role Playing Game (MMORPG).
These are online games with hundreds or even thousands of players playing at the same time!
The genre of a MMO can range from shooting, racing, sports, and more, while the
MMORPG is specifically for role-playing games. Role playing games are games which the
player makes a character and decides what he/she becomes. Usually, RPGs involve series of
battles with numbers as a deciding factor for whether it is a victory or loss for the player. It
also includes some kind of story along with the game. In MMORPG, only the virtual world is
created by the game creators, the players themselves create the adventures with thousands of
other people around the globe. These games are often been played for weeks or even months.
This market is growing rapidly as can be seen in the chart from mmogcchart.com.
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Business Plan
The MMO games are still played only by PC users. Mobile operators have not succeeded to
leverage this trend to establish a similar market in the mobile world.
However, even regular single player games have not really caught on by the mobile
subscribers. The slow take up of video games by mobile subscribers is attributed to the
following reasons:
•
Unsatisfying gaming experience, as a result of the limitations of most mobile
handsets
•
High price of portable game devices that were designed for games
•
High cost of on-line subscription or for a one-time purchase (download) of games
•
Inability to support MMO (Massive Multi-Player Online Games) over mobile
network
While mobile handsets are constantly being improved in performance and multi-media
quality and capabilities, so are the PCs. The company expects that there will always be this
gap in capabilities and user experience as well as user’s expectations between the home game
consoles and PCs versus the mobile handsets.
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So how can mobile operators lure the PC and home console gamers to enjoy the gaming
scene while on the go using their mobile phones? This is one of the main challenges facing
mobile operators today. When they do, a multi-billion dollar market will be available to
them.
ABC has come up with a new concept that will bridge this gap and allow game enthusiasts to
play their favorite games using a mobile phone while maintaining PC-grade user experience.
This will enable the mobile operators to achieve significant mobile game revenues and to
begin leveraging their unused 3G networks.
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5 The Solution
5.1 Overview of the solution
Based on its patented cutting-edge technologies, ABC intends to provide mobile operators
with a server-based game platform that will enable them to offer mobile games value added
services, with the best quality possible.
The ABC video games service platform will enable mobile subscribers to play games with
superb user experience, while using any standard 3G mobile phone, anywhere and anytime.
The ABC platform will achieve better quality and improved user experience than that of the
portable gaming consoles (e.g. Sony PSP or Nintendo DS). The solution is based on serverbased architecture, where all the heavy-duty processing is executed. At the handset, a small
thin client will need to be downloaded and installed to support the user interface. The thin
application will accept commands from the user, in real time, and transfer them to the backoffice servers. It will also receive the streamed video presentation in real time from the
servers and display the video to the user.
The ABC platform will enable single player games as well as MMMO (Mobile MMO)
games of thousands of simultaneous players. All this is achieved without the need for users to
purchase any special devices and without the need for operators to change anything in their
existing 3G networks. The ABC platform is composed of proprietary hardware and software
components, and is installed at the service provider’s premises (mobile operator, hot spot
provider, ISP, etc.) as a central system or as a distributed one, with access to the mobile data
and telephony networks.
The ABC platform represents a quantum leap over any existing solutions. Today’s mobile
games are software applications that are downloaded and installed in the mobile device. The
mobile device then runs the application, accepts commands from the user and processes the
responses to the user’s actions and renders the resulting video locally using the handset
resources. This means the mobile phone has to be a very powerful computing and video
processing device with a lot of memory (large RAM and ROM memory, high speed CPU,
and high performance graphical card and a long-lasting battery), which results in a very
expensive and cumbersome mobile phone. Otherwise, the quality of the user experience
decreases significantly.
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Business Plan
ABC is taking the opposite approach of all existing solutions. Trying to improve the
capabilities of the mobile phone (CPU, graphical card, memory) and trying to achieve
comparable performance to the PC or game console, a “no-win” situation in ABC’s view.
Instead, ABC is introducing a new paradigm; all processing is moved to the server side
where there is no shortage of performance and resources, while the mobile phone can simply
become a low cost display and keyboard device, which supports 3G connectivity. The end
user initiates commands to the thin client in the phone, which delivers them to the back-end
servers. There, the commands are processes and a new video is rendered, encoded and
streamed in real time back to the mobile device, over the 3G network, where it is decoded by
the phone client and presented to the user over the phone’s display. Furthermore, the ABC's
platform was designed to support central and distributed architectures to achieve optimum
performance while avoiding network backbone load.
In a nutshell, the ABC solution is actually a “hosted” gaming service.
The following diagram depicts the concept behind the ABC solution.
Today, users can only enjoy high quality games on their PC or game console at home.
Portable gaming devices are expensive and do not support the multi-player MMO. Few
players, only if they have the same type of portable game device, can play each other in a
local network environment. Downloadable mobile games exist but have very poor user
experience compared to the home games.
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With ABC, in the near future, every person will be able to play the highest quality games
available, using any regular 3G mobile phone, anywhere anytime and with as many players
as they wish (MMMO). MMO gamers will be able to play on their PC at home and when
they leave the home, continue playing using their mobile phones or any other portable device
that supports the a mobile network connection.
5.2 How does it work?
Following is a description of a typical use scenario.
User (Player):
At the Service Provider:
5.3 The ABC Architecture
The ABC platform is composed of the following modules:
On the mobile handset side:
On the server side:
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5.4 The Benefits of the Solution
5.4.1 The benefits to the Service Providers (network operators)
•
Increase adoption of revenue generating games services by enabling all subscribers to
afford to play the most advanced and exciting games using any 3G mobile phone
•
Increase ARPU by charging per use of games - the better the experience, the longer the
gaming sessions, and the higher the revenue
•
Leverage the unutilized 3G networks to offer online games, one of the most popular and
exciting services
•
Enhance subscribers' stickiness and reduce churn by offering a subscription-based
advanced high-quality games
•
Allow operators to differentiate themselves from the competition by providing high
quality gaming experience and more advanced, MMO games
5.4.2 Benefits to the Subscriber
•
Due to the modest performance requirements for supporting the application at the
handset, subscribers can use any common and low cost 3G mobile phone.
•
Being a hosted service, an additional benefit to users is that they can “pay per use” for
their games, rather than purchase and download each game for tens of dollars, as is
common today.
•
And, the major benefit for MMO gamers is the ability to take their multi-players games
on the go wherever they are and wherever they have a mobile/IP network connection.
5.4.3 Benefits to the Content creator
•
Extend the market potential for small content providers with a new revenue model by
working with mobile service providers
•
Reaching a much wider audience of mobile subscribers that are playing games with their
mobile phones outside the home
•
Reach a wider audiences – anyone with a standard mobile phone who can play anywhere
and anytime; A larger audience than those who purchase an expensive game console to
play at home
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Business Plan
5.5 Product Development
At this stage, ABC has developed a prototype and demo system that supports a limited
number of players, and can be used to demonstrate the solution and show feasibility of the
concept. In addition, sub-contractors for developing or manufacturing some of the
components of the platform have been identified and budgetary proposals for work were
received by ABC.
Once this round of fund-raising is complete, ABC plans to develop the first version of the
operational platform.
ABC plans to develop two major versions of the product in a phased approach. The first
version is intended for the “hot spots” market, while the second version is intended for the
large telecommunications service providers. This phased approach was chosen in order to
minimize technological risks and to accelerate revenue streams. Going to the hot spot market
early, with a small-scale product, will enable ABC to field-test its solution and gain market
feedback and experience as well as generating revenues early.
5.5.1 Hot-Spots Games Platform
5.5.2 Telecom Games Platform
The following Gantt chart presents a summary of the product development and rollout plan.
Year
Milestones
Basic research
Hot-Spots Basic
Development
Beta Site
Sales
Hot-Spots Full Scale
Development
Beta Site
Sales
Telecom Basic
Development
Beta Site
Sales
Telecom Full Scale
Development
Beta Site
Year 1
1 2 3
4
Year 2
1 2 3
4
Year 3
1 2 3
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4
Year 4
1 2 3
4
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Sales
Additional details regarding the R&D plan, in particular resources required (work force,
equipment and contractors) are presented in Appendix X.
5.6 Customer Service and Support
To provide a ‘Telco-grade” 24/7 support level to large network deployments with million of
subscribers, will require a significant global support infrastructure. ABC plans to achieve this
by partnering with local system integrators that will provide the deployment and after sales
support locally (tier-1/2 support), while ABC will provide the tier-3 support, mainly support
to the system integrator support teams, bug fixes and replacement of faulty hardware.
ABC will provide self-test and self-recovery technologies built into the ABC platform and
will be able to conduct remote monitoring, upgrade and maintenance from it central support
location.
5.7 Intellectual Property
In order to be able to meet the challenging requirement of offering a server-based real-time
quality gaming experience to mobile subscribers, ABC is developing a series of unique
technologies for multi-channel, low latency, video streaming, optimized for wireless video
communication, and efficient rendering and compression of video in real time. Any detailed
disclosure of these unique and patented technologies will however require a confidentiality
agreement.
Patents
ABC’s technology and concepts are protected with patents covering usage concepts,
hardware and software components. A PCT application was filed on March 23rd, 2005
through the patent office of Dr. Mark Friedman, Ramat-Gan, Israel.
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6 Market Analysis
6.1 Overview of the Market
While the home and online game (MMO) industries are multi-billion dollar markets and
growing at a fast paste, the mobile games market is still at extremely low levels of
penetration; far lower than its potential. The current offerings of downloadable mobile games
have been very disappointing with very low adoption rates. This is attributed mainly to poor
user experience, high prices of special mobile game devices and games, and the inability to
play MMO games. Research reports show very high consumer interest and project a huge
potential of multi-billion dollar revenues in mobile games .Recently there were
advancements and proliferation of high-bandwidth mobile 3G networks as well as video
enabled mobile phones. The ABC solution comes at the right time to leverage these
advancements and allow mobile games market to flourish.
The main trends in the games market include:
• Networks - Continuous improvement and availability of high bandwidth mobile (3G)
and wireless IP (WiMAX) networks, and in the near future the combined IP and mobile
(UMA) networks. Early this year (2006) Nokia and D1 (leading German mobile
operator) ran a successful field test of a network with bandwidth of 1.7 Mb.
• Mobile Phones market - There are two somewhat opposite trends:
o On the one hand, there are more and more advanced and specialized multi-media
“smart” phones and devices at the high end of the market. These devices have
larger and higher quality screens, more memory, more powerful CPU, WiFi and
Bluetooth connectivity.
o On the other hand, manufacturers are pushing mass-market low-cost phones to
support the growth and penetration of millions of subscribers, mainly in emerging
markets.
• Home game consoles and portable consoles – Sony, Microsoft, and Nintendo are
battling to reach the market before the other, with the newest, more advanced and often
more expensive gaming console. So far the portable consoles do not support multi-player
games (other than limited few players in the proximity of a LAN environment). To be
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Business Plan
able to reach a large customer base, these vendors are selling the consoles and low
margins, yet are still highly price at hundreds of dollars; To generate additional profits
vendors charge a very high prices for each game (30-70$). The new portable consoles
(Sony’s PSP and Nintendo’s DS) are becoming very popular; more then a million units
ae sold every month). The portable consoles and the games are also very expensive.
• Online game market - The popularity and high growth of massive multiplayer online
games (MMO) ,reaching 14M world-wide active subscribers (as was shown above) ,and
the advancements in user experience and ability to create a virtual reality, are a driving
factor in this market.
These trends emphasize the need for network-based massive multi-player mobile
games. ABC’s vision of “play as you go” games, at an affordable and flexible price, for
any mobile subscriber anywhere anytime will enable MMO games to reach a new level
of adoption and experience.
6.2 The Market Opportunity
The primary market for the ABC solution is the mobile games market. According to "World
Wireless Forum" reports (April 2006), 180 million consumers play mobile games globally.
The casual (as opposed to the hard-core gamers) mobile game market will be worth more
than $1B by 2007, exceeding spending on high-end
feature-rich titles.
The research firm "Informa Telecoms & Media"
(August 2005) estimates that global mobile games
revenues will be worth $2.6B by the end of 2005, up
$1.3B from last year. Informa forecasts that by 2010
the global mobile games market will be generating
annual revenues of $11.2B.
In-Stat/MDR (September 2004)4 projected that as many as 78.6 million people will be playing mobile
games by 2009, and that game downloads will have increased more than tenfold from 2003 levels.
Right now, about 6.5% of wireless subscribers in the United States are "extremely" or "very
interested" in purchasing portable game services.
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5
A recent Ziff Davis Video Game survey (August 2005) showed that 76 million people in the United
States play videogames, Of these individuals, 48% play games on their mobile devices. Over 42% of
gamers purchase games for their cell phones. Mobile gamers spent an average of $13, in the 60 days
period before the survey, on mobile games for their cell phones. Mobile gamers spent 19 minutes per
In-Stat/MDR found that mobile gamers spend an average of 5.1 hours every week playing
games on devices such as PCs, game consoles and handhelds. The U.S. mobile-game
industry will leap to annual revenue of $1.8 billion by 2009, according to In-Stat/MDR. By
then, games will account for about 4% of total wireless-data revenue in the United States, the
study said.
Finally, the mobile gaming market is expecting a 6-fold growth over the next five years for
downloadable games, generating 82% of an $8B market according to "Strategy Analytics"
(August, 2004). The number of active users of downloadable games will grow from 32
million on 2004 to reach 220 million in 2009.
It is estimated that the ABC solution can contribute to making the mobile games market even
larger by enabling better user experience at a more affordable price. Such a solution can also
capture portions from other markets, such as the game console market.
6.3 Target Market
The primary target market for ABC is the market of mobile games provided by service
providers such as mobile operators and WiFi/WiMAX wireless networks. But, in order to
reduce R&D risks and accelerate revenue
streams, ABC will initially target a “low
hanging fruit” market of hot spots (WIFI)
with a smaller scale product.
The fact is that in a couple of years from
now, most high-end handsets will become
dual mode (WiFi and cellular) and will
enable mobile services at hot spots over
IP networks as well as over mobile
networks, as can be seen in the graph to the right6. By 2010 researchers expect there will be
150 millions cellular dual modes. ABC plans to support both WiFi and mobile networks for
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Business Plan
its games service.
6.3.1 The mobile games market
The primary customers of ABC are the mobile and wireless networks operators, about 500
world-wide. Each operator will be a potential buyer of a games platform. But, the size of the
potential market is dependent on the penetration and usage of the games service among the
mobile operators’ subscriber base. The higher the take up by the subscribers the larger
system capacity the operators will require, resulting in a larger ticker price per system sold
for ABC.
The size of ABC’s target market is therefore related to the number of active and paying users
of mobile games. ABC is planning, at the initial phase, to target the active and the highly
interested subscribers of mobile games, estimated at 6.5% of the world-wide subscribers
(about 160 million)7. ABC will offer comparable game experience as is available on PSPs
and home game consoles but with the additional benefit of offering multi player game.
The benefits of the ABC platform and the ability to play high-quality games on any standard
3G phone will enable the mobile operators to grow the current, relatively low, penetration of
mobile games to the target 300 million worldwide subscribers out of the total 2.5 billion
subscribers by 2010, representing a market of about $10B in revenues.
6.3.2 The hot spots market
The number of worldwide WiFi hotspots has surpassed the 100,000 milestone according to
recent numbers released by JiWire (January 2006)8. According to Telephony Online9, as of
October 2005, there were about 80,000 public hot spots and additional 35,000 hot spots in
hotels, restaurants and cafes. The number of hot spots nearly doubled in 2005 as compared to
2004. In the US, telecom and hotspots operators such as Wayport, Surf and Sip, T-Mobile
USA and Cometa, are targeting businesses, hotels, cafes and campuses, to establish and
provide a local hotspot monthly service package. T-mobile for example, has T1 lines set up
in 1,200 Starbucks coffee shops. Although the average monthly cost for operating a hotspot
is between $50 and $170, many hot spots providers are still struggling with the business
model and looking for ways to generate revenues from subscribers and occasional hotspot
visitors.
ABC’s hotspot games service platform is positioned to capture this opportunity and target the
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hotspot market by offering telecom operators and hotspot providers an opportunity to offer a
revenue generating games service based on a pay per use model or a subscription model. So,
gamers do not have to purchase the game they want to play (often tens of dollars) but can pay
only for the amount of time they actually play. Telecom service providers who offer the
broadband connectivity to the hotspots owners, can offer the AMPR games services as a
hosted service and share revenues with the hotspots.
6.3.3 Future potential markets
Although the mobile and hotspots markets have been selected as the main markets for the
ABC platform, a few additional applications have been identied that can potentially serve as
additional or future markets for the same technology.
These include:
1. The gambling and betting market
Leveraging its patented latency resolution and real time multi-user streaming technology the
ABC platform can be used in gambling applications to ensure there is no latency and time
advantage for any of the participants (gamblers) as well as securing the data to prevent any
falsification or misrepresentation.
2. Remote computing
Provisioning of remote applications (not web, http based, but video)
The vision of Microsoft, ORACL, IBM and others to provide hosted, remote and seemless
computing and applications to users across the IP network can present another potential
market for ABC’s technology. The ABC solution, in a similar fashion to the way it provides
hosted games to thousands (or millions) of users over the IP and mobile networks, can be
attuned to provide more generic applications.
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6.4 The Value Chain and Business Model
6.4.1 Entities in the Value Chain
The main players in the games market value chain include:
Comunications service providers (Telcos, mobile network operators) – Provide
communications services to subscribers and businesses. Looking to leverage their unused 3G
or broadband networks to provide value added services and content such as games, TV, etc.,
to generate incremental revenues.
Content and Hosting Application Services Providers (ASPs) – These are a new type of
application and content providers that host the service equipment and content and provide
their services over the networks of Telcos and mobile operators to their own subscribers or to
the subscribers of the Telcos. Typically small content providers (e.g. game creators) or
content providers without communications infrustructure, lease the hosting services of the
content hosting providers or ASP to market their content to the consumers.
Content creators – these are the original content creators and owners. They will tpyically
market their content/games through the pulishers or directly to hosters of content services or
to service providers. The content creators usually receive a share of the service revenue or a
cut (percentage) of the sales of the content. The game service that is provided by operators
who will use the ABC platform will be another additional avenue to generate revenues for
them.
Content Publishers – Re-sell or distribute content to sevice providers and ASPs and
typically receive a share of the revenues, or sometimes sell the content on a per use basis.
Content and Service Providers – Sometimes very large content providers will purchase
their own hardware and infrustructure and provide the service to subscribers on their own,
over the public internet (e.g. AOL) or via network operators (e.g. i-Mode).
Hot spot operators – Operators of hot spots are tpyically small and local and provide access
to the Internet either free or for a fee. They will typically lease the equipment and broadband
access from the local Telco. These include restaurants, hotels, air-ports, etc. There is no clear
profitable business model for these operators. One of the ways to increase their revenues is to
offer additional services (beyond internet access) for a fee; This is where ABC comes in.
Large System Integrators – These companies focus on implementation of large or complex
projects that require the integration of different equipment from several vendors as well as
development or customization to the customer’s requirements. Many equipment or platform
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vendors who need to provide a solution to a network operator, will need to go through a
system intergrator for the project implementation and services. Often the system integrators
will re-sell (OEM) the equipment of 3rd party vendors.
Local Distributors and Integrators – In order to sell globally in local markets, many
vendors use ditributors and local integrators to provide the installation and after sale support
as well as stock replacement parts. ABC will probably use such companies especially in
smaller markets.
6.4.2 The Bussiness Model
The mobile games market has not yet matured, but there are several business models and that
emerged thus far that seem to be dominant.
The following diagrams display the primary value chains in the context of mobile games and
ABC.
The Mobile Games – Telco Business Model
Games
Creators
/ publishers
System
Integrator
Game
Platform
Provider
(APMR)
Subscribers
Service Provider
Network Operator
(e.g. Orange, SBC)
Mobile
Network
Network
Equipment
Manufacturer
SW / HW
Components
Providers
The traditional value added services (VASs) for “Telcos” business model (as described by
the diagram above), includes a vendor that provides the service platform, in this case ABC,
or other games platform vendor. The suppliers to the games platform vendor are the
content/applications creators (in this case game creators) and the software/hardware
component providers. The service itself (to the subscribers) is provided by the service
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providers that are typically the network operators themselves (e.g. mobile carrier). They
charge subscription fees for the service (games) from their subscribers and will sometimes
share this revenue with the games creators. In this model, the network operators purchase and
own the games platform (hardware, software). The games platform vendor can elect to sell
directly to the network operators (service providers) or sell through major system integrators
or alternatively OEM through a large network equipment manufacturer (such as Nokia,
Siemens, Alcatel, etc.).
In the Application Service Provider (ASP) model the purchaser and owner of the games
(VAS) platform, are the ASPs or content and service-hosting providers. They provide the
service to the subscribers of several network operators and share the revenues with them and
with the content/applications creators. This model is very common in Japan (called the iMode model) but also in other parts of the world.
6.4.3 The Sales Process
The sales process in the market of value added services platforms for telecom service
providers is characterized by the following parameters:
A full sales cycle in the Telco market can be quite long (18 to 24 months on the average) and
includes many phases and milestones that vendors need to go through. A typical sales
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process in the Telco market includes the following phases (in the worse / longest case):
•
Request for Information (RFI) – 3 to 6 months
•
Request for Proposals (RFP) – 3 to 6 months
•
Final tender of the short-listed (2-3) vendors (optional phase) – 2 to 4 months
•
Trial of the selected system(s) – 3 to 6 months
•
Selection/approval of the chosen vendor – 1 month
•
Negotiation of final contract and terms – 1 to 3 months
•
Installation of the initial system and field acceptance tests and training of the operations
and support staff – 2 to 3 months
•
Roll-out the full scale system – 3 months to 2 years
Note: in the case of new and innovative value added service (such as ABC’s), telecom
service providers may elect to skip the first stages (RFP, RFI) and go ahead with a trial, in
order to be innovative and introduce new services first.
The sales process for service providers is often complex and requires multiple touch points
and sales efforts targeting different departments and decision makers in the organization such
as: The technical/engineering department which needs to test and approve the technology; the
marketing department which needs to validate the business model and revenue potential of
rolling out the service; the financial department which needs to validate a positive return of
investment, etc. This process requires establishing close relationships and sponsors with key
decision makers in the organization to increase chances for winning the deal and smoothing
the process.
The revenue stream for such a sales process is also prolonged over a lengthy period. The
down payment may only be received after contract is signed. The major payment for the
initial (first) system will only be paid after acceptance test in the field. Sometimes orders get
pushed back to the next year due to budget year constraints.
The upside is that, once a vendor is certified as the sole supplier for a certain solution,
the service provide may well issue a flow of purchase orders for millions of dollars (or
even tens of millions for a large Telco) to roll-out the service to the full subscriber base
(e.g. country-wide) over a relatively short period.
The procurement process in the Telco market also makes for some stringent requirements
from the vendor in order to comply with the service provider’s decision criteria. For example,
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due to the sheer size of the deployment and investment, Telcos prefer to purchase from large,
financially solid, companies with support resources that are available on a wide-spread basis.
OEM Channels
One way that new small vendors can overcome this obstacle is to establish OEM channels
that are large and experienced and have a history of providing complex solutions to their
service-providers customers. OEM partnerships take a long time to build and become fruitful,
but once they are in place, they can significantly reduce the required resources of the vendor
and ramp up market penetration.
For these reasons, ABC realizes that, in addition to direct sales, it will need to establish
partnerships and channel relationship with large equipment manufacturers and system
integrators that can comply with the requirements of service providers and have the
relationships and trust of these customers.
6.5 Competitive Environment
Based on the research that was performed and the patent testing that was done, there is no
existing product that is similar to ABC, i.e. a server-based games platform that does not
require installing the game application in the mobile device. Nevertheless, there are
alternative and supplementary game offering that can be regarded as competition, or at least
competing for the time or the spending of consumers who play games at home or outside the
home, using their mobile. Following are types of potential competitors.
Mobile games providers – There are hundreds or even thousands of small game creators
that drive the downloadable mobile game market and provide games to be played using a
mobile phone, some even with a few multiple players. Recently some large content/games
providers have entered the market (e.g. EA) and are promoting the games together with the
network operators (e.g. Vodafone). The projected multi-billion dollars market of
downloadable games has so far failed to take off. Most games that are offered today are
reasonably priced but lack in quality and user experience.
Portable Game Consoles – This market is dominated by Sony and Nintendo. Nokia has
tried to enter the market with the N-Gage phone that was designed for games but failed. The
vendors claim to sell around a million units each month. Lately sales growth has slowed
down. This is attributed to the high price of the devices and the games ($50 and up per
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game).
With the portable game consoles, the quality of the game and user experience are fine, but
there is still very limited support for multi-player games (limited to 4-8 players in a LAN
environment). The main advantage of the portable consoles is that they do not require a
mobile network data connection.
ABC expects to provide as good or better user experience as the portable consoles with
additional advantages:
• Cheaper for the users: No need to purchase an expensive game console and no need to
purchase expensive games. With ABC, the games might costs of cents per minute or even
be subsidized by the operator, if the operator expects to benefit from air-time or data
access.
• Ability to play with any phone (even the low-end ones)
• Ability to play massive multiplayer online games (MMO) with the mobile phone
• Ability to play any game (from thousands of available games) – not limited to the one
that was purchased for the portable device or phone.
• Can play anytime and any place. Players can play MMO at home and later continue
playing while on the road.
• No need to purchase expensive games
• “Pay per use” basis
• Better user experience and quality, especially compared to downloadable games; since all
processing is done at the server-side, there are no graphical or performance limitations.
Visual quality is only limited by the phones’ colors and resolutions.
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Following is a table of comparison between ABC and the alternative solutions:
Comparison Table – ABC vs. portable gaming consoles
Comparison Table – ABC vs. downloadable mobile games, running in the phone:
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6.6 SWOT Analysis:
Following is Strength, Weaknesses, Opportunities and Threats (SWOT) analyses for ABC.
6.7 Barriers to Entry
Some of the barriers to entry that exist in favor of ABC are:
•
Technology: The know-how and development effort that is needed in order to implement
a hosted mobile games platform is tremendously advanced and extremely difficult to
achieve (dozens if not hundreds of R&D man-years)
•
Intellectual property: The intellectual property of ABC that the platform is based on is
protected by several patent petitions, thus making it extremely difficult for another
vendor to come out with such a set of technologies.
•
The huge investment in R&D, that is required limits competitors to very large players, yet
these players are often slow movers.
•
Disruptive technology: Existing games console providers (e.g. Sony, Microsoft) will tend
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to challenge this new technology rather than adopt it. Shifting to a new technology is a
very painful and slow process for the existing giant players and will harm their present
business. Microsoft / Sony have already invested hundreds of millions of dollars in their
current offerings and will find it very hard to throw it all away and re-invest in a new
strategy.
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7 Business Strategy
7.1 Market Entry Strategy
In order to reduce risks and accelerate market entry and revenues, ABC plans to enter the
market in a phased approach: First, enter the AAA market with the smaller scale product and
later enter the mobile games market with a BBB product. This approach was taken for
several reasons:
• To reduce technology risks and investment by developing an early version of the
platform, based on commercial off the shelf equipment (COTS), with lower capacity and
reduced requirements set and testing it operationally with actual customers
• To accelerate revenue streams and take advantage of low-hanging fruits by providing a
games service platform to the hot spots market. This market is expected to be easier to
penetrate and has shorter sales cycles.
ABC will target the Access Service Providers of Hotspots in roughly YY months from
receipt of the investment, in order to establish itself as the first and leading provider of such a
service platform. The hot spot market, although not as large as the mobile network operators
market or the future WiMAX market, will enable ABC to gain experience with the platform
on smaller scales and establish a brand name. It will also generate revenues that will be used
to develop and market the next generation of its product for the latter markets.
In XX months from investment, ABC will be ready to begin selling its Telco-grade ABC
platform to large mobile network operators and service providers.
ABC plane to enter the market segments in the following fashion:
• Hot Spots operators: Initially, ABC will beta-test its product with hot spot operators on a
very small scale to achieve stability and suitability of the product to customer needs.
Then ABC will promote and certify the ABC platform with the communications- access
service providers who serve the hotspots operators. ABC will train and present the
business case of leveraging the broadband access and gaining incremental revenues to the
Telcos and System Integrators and sell them the platform directly. They, in turn will offer
the games services to hot spots as a hosted service. The relations with these Telcos and
SIs are important since some of them will also be potential customers for their own
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subscribers when the Telco version is released.
• Mobile Operators and Telcos – ABC will begin selling directly to service providers.
Initially, ABC will be conducting trials and beta testing with selected leading network
operators, who will hopefully become references for later customers. Later, ABC will
work to establish OEM and strategic partnerships with leading equipment providers and
system integrators to extend its market reach by selling via these channels globally.
ABC plans to initially screen and target service providers with the highest probability to
make a sale. ABC will go to market globally with emphasis on the US, European and the Far
East markets.
7.2 Sales Model
ABC intends to generate revenues by selling its ABC games platform, hardware and software
as a full solution that will support hosted games services to mobile and hotspot subscribers.
The following models are foreseen:
Mobile market:
•
Direct one-off sale of systems to mobile service providers including annual service fee.
•
OEM ABC’s platform or license the technology to major mobile equipment
manufacturers (e.g. Comverse, Siemens, etc.) who will in turn sell the games platform to
mobile operators.
Hot Spot market:
•
Direct one-off sale of systems to hot spots including annual service fee.
•
OEM ABC’s platform or license the technology to equipment manufacturers and/or
system integrators, who will in turn sell the games platform to mobile operators.
•
Sell the platform to Telco service providers (e.g. AT&T, T-Mobile) who offer the ABC
platform on a hosted service basis to the hot spots operators.
The network or hot spots operators will generate revenues by offering subscription-based or
pay-per-use games to their subscribers. A portion of these revenues will be shared with the
game/content providers.
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7.3 Pricing
Mobile Market:
The pricing of the ABC platform is based on a return of investment (ROI) model of XX
months, which results in a target price of $XXX per concurrent user (channel).
For example, an active subscriber base of XXX online mobile gamers within one operator
will require about XXX concurrent game service ports, which will result in a $XXX price for
such a system. An additional annual service fee of XX% of the total system price will be
charged as is custom in the Telecom market today.
In cases where ABC will license its technology to 3rd party OEM Telecom equipment
providers, transfer prices are expected to be somewhat lower.
Hot Spot Market:
Wherever hotspots operators, who will purchase the ABC on their own (probably large
hotspots), will require a much smaller scale platform than the platforms sold to mobile
network operators; probably a configuration that supports XX to XXX concurrent users. The
system price for such a configuration will be in the range from $XXX to $XXX.
In the preferable case that the ABC platform is sold to a telecom service provider, who in
turn offers the service to the hot spots, the size and price of the system will be similar to the
one for the mobile market.
7.4 Risk Factors
The purpose of this section is to make the investor aware of the various risk factors which he
could be exposed to by investing in the company.
Limited Operating History
The company has a very short history but the leading management team has an extensive
experience in similar companies. The founder and some of the team members have worked
together for many years in Comverse (a company that provides similar types of platforms)
and have a proven successful operational record of accomplishment. The management team
will also be extended with additional members with proven executive experience in this
market.
Migrate PC games to the mobile and achieve comparable user experience
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Due to the small screen and limitations of keys in most phones (e.g. no continuous joystick),
the objects of the game are inherently smaller and less complex and there is less movement
control for gamers. ABC will strive to transform PC games to this limited environment, but
without significantly sacrificing the user experience. This challenge is especially relevant if
gamers will want to take their PC games to their mobile phone and continue to play the same
game. In any case, ABC believed its technology will enable significantly better user
experience and game quality than the existing mobile games.
Risks Applicable to Technology
The challenge of developing the ABC platform and achieving the required performance
levels and latency is huge and risky. To minimize the technological risks, before taking an
investment, two actions have been taken
1.
A prototype has been developed to test the high-risk design concepts and assumptions
and to show feasibility.
2.
A phased and gradual R&D plan has been designed to allow for marketable versions of
the product early on, thus accelerating revenues and lowering risks. At each milestone,
there is a product that can be sold and not only a feasibility prototype.
Competition
As presented above, ABC has patented its concept and technology. There are no known
competitors that provide a similar type of solution to ABC’s.
Some of the very large players in the market (Nintendo, Sony, etc.) are formidable
competitors, yet ae unlikely to adopt such a different approach to their existing strategy.
These same competitors are also candidates for strategic partnerships or M&A.
Proprietary Technology (ability to protect its technology)
ABC’s technology is protected by patents. Nevertheless, ABC will limit any exposure of its
technology and business strategy until it is ready to take the first version to market. ABC will
aim to collaborate with some of the potential competitors rather than compete.
Management of Employee Growth
ABC expects that once the product is launched and is successful, the company will need to
expand at a very fast rate. To ensure the smooth growth, the company will use an
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organizational consultant and hire a veteran human resources executive to facilitate the
growth.
Dependence upon Key Personnel
The founding team is made up of a skeleton of people who know each other for many years
and have worked together in the past. The role definitions as well as recruitment policies
should ensure that there is no dependency on a single person for any critical area.
Dependence on Key Suppliers
ABC will attempt to work with more than one supplier for every component in the system
and that there is an alternative supplier in case one is no longer compliant.
Become a credible supplier in the telecom market
Telecom service-providers present tough requirements in order for their suppliers to be
certified, among which are “telco-grade” products, having enough support resources and
solid financials. One-way to shortcut this process somewhat is to sell through OEM channels.
Alternatively, ABC will initially need to win the trust and the recommendations of few
leading customers by providing excellent quality and dedicated service.
Potential Additional Funding Requirements (will current round be sufficient?)
The current round of funding and the business plan were planned such that this round will be
sufficient to take the company to the end of the development of the Telco-grade product and
beginning of the sales of the product. Since the smaller scale hot spot product will be already
sold for at least a year before that, the company does not expect to need significant additional
funding. If more funding is required, mainly for marketing the products, it is expected that
due to the growth performance and unique offering of the company, and the expected
strategic customers and partners, it will not be difficult to raise the additional funds.
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8 Financial Highlights
With the contemplated financing, ABC expects to reach yearly net income of $13M at the
end of year four after the specified investment growing to $84M at the end of the 5th year.
Following is the projected profit and loss for the first five years of operations.
The detailed financial plan can be found in Appendix 1.
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9 Funding Sought and Use of Funds
9.1 Funds Sought and Use of Funds
ABC seeks to raise a total of $12M based on the following:
$XXXM from direct investment
$XXXM from the Chief Israeli Scientist fund
Use of funds
The $XXXM investment will be use to achieve the following:
• To develop the ABC server-based, multi-player games platform; hot spots and telecom
versions
• To establish a sales, marketing and support structure and launch a world-wide marketing
and sales campaign to its target customers
• To achieve annual sales and profits as detailed in the P&L table above
9.2 Exit Scenarios
Following are the likely exit scenarios for the investors.
Merger & Acquisition (M&A) – Acquisition by a large mobile equipment provider (such as
Nokia, Siemens, Alcatel, Comverse, etc.), who are looking to be leading providers in the
upcoming huge and attractive mobile gaming market by providing the most advanced gaming
solution.
IPO - Within a period of 4 years ABC expects to generate revenues estimated at dozens of
millions of dollars. Upon reaching the milestone, set out in this business plan, ABC will be
ready to go public, at a pre-IPO valuation anywhere between $XXX.
Samples of Exits
Electronic Arts' $684 million purchase of mobile-games publisher Jamdat last December,
its biggest-ever acquisition, served notice to a game industry that has been slow to adapt
to the massive proliferation of mobile phones around the world, (Dec 8, 2005).
http://news.com.com/Mobile+games+coming+of+age/2100-1043_3-6051722.html
http://info.ea.com/news/pr/pr719.pdf
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InfoSpace, Inc. (Nasdaq:INSP) today announced that it has signed a definitive agreement
to acquire Elkware GmbH, a German mobile games company, for approximately $26
million payable in cash. (Dec. 2004)
http://investor.infospaceinc.com/ReleaseDetail.cfm?ReleaseID=165863&PageSection=Pr
essRoom
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10 The Investment opportunity
ABC's solution is truly innovative and can have a huge impact on the mobile games market.
A basic prototype of the solution is already available to prove feasibility of the solution.
By offering a unique high quality and cost effective mobile games solution, ABC can turn
every low-cost mobile 3G phone into the most exciting game console, with the freedom to
play with anyone, anywhere and anytime.
To capitalize on this opportunity, ABC is seeking a first stage funding. With a relatively
small investment, ABC is poised to become a leading provider of mobile games solutions,
which will assure an extraordinary return on investment.
Now is the time to invest.
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11 Appendix 1 – Financial analysis
11.1 Operating Expenses ($US)
11.1.1 General and Administration
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11.1.2 Research and Development
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11.1.3 Marketing and Sales
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11.1.4 Total Operating Expenses
11.1.5 Human Resources
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11.2 Projected Sales
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11.3 Cost of Goods
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11.4 Sensitivity Analysis
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12 Appendix 2 - Bibliography
Following is the list market sources used:
1
Informa Telecom & Media, www.informatm.com, (August 2005)
2
Yankee Group, May 2005
3
Strategy Analytics, http://www.strategyanalytics.net/, (August, 2004)
4
In-Stat/MDR (http://www.instat.com, (September 2004)
5
Ziff Davis Research http://www.ziffdavis.com/index.php, Video Game survey (August 2005)
6
Gizmag. http://www.gizmag.co.uk/go/3675/ , Worldwide WiFi Handsets Revenues (Feb. 2005)
7
http://www.w2forum.com/i/Reports - World Wireless Forum Reports: (April 2006)
8
Information week (Jan. 2006 ), http://www.informationweek.com/showArticle.jhtml?articleID=177103323
, http://www.jiwire.com (January 2006)
9
Telephony Online, www.telephonyonline.com (October 2005), there were about 80,000 public hot spots and
additional 35,000
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