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The DeanBeat: Do game company valuations make sense?

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We’re getting a good picture of what games are worth because so many transactions are happening in the game industry.

I thought it would be a good time to revisit this idea of relative valuation, or how much each company is worth relative to another one — and whether that makes any sense or not.

InvestGame opened our eyes when it noted that game investments, acquisitions, and public offerings added up to $39 billion in the first quarter, higher than the $33 billion that flowed into games in all of 2020. This week, Drake Star Partners reported that in the first five months of 2021, game deals amounted to a record $49 billion. The stock market has become rocky lately, as have markets like cryptocurrencies. But games seem to be holding strong.

“The rapid consolidation, financings and IPOs make sense, and I don’t see it slowing down,” said Michael Metzger, a partner at Drake Star Partners, in an email to GamesBeat. “It’s a reflection of how the public capital market sees the gaming sector. It’s the largest segment within media and continues to show strong growth. Many companies in the space are highly profitable, and the sector has proven to be resilient to downturns.”

The pandemic placed a spotlight on games as it forced people who didn’t play to turn to games for social solace while they were in lockdown. Those people continued to play and kept their habit even as things opened up again, and Wall Street noticed that game companies like Roblox were hot investments, enabling the company to go public at a $41.9 billion valuation in March.

When we look at companies like Activision Blizzard, maker of Call of Duty, World of Warcraft, Candy Crush Saga, it makes sense that it is valued at $73.8 billion as it has shown leadership in games for decades. Activision Blizzard seems to have a good strategy in creating free-to-play onramps to premium games like Call of Duty.

Fair or not?

But does it seem fair that Apple, the maker of the iPhone, is worth $2.06 trillion, and that roughly 18% of that company’s revenues is coming from games and so its value as a games platform is $369 billion, as estimated by Evan Van Zelfden at the Games One consultancy. Well, life isn’t fair. But it makes sense that Apple has become the No. 1 game company in the world in value, even if it doesn’t make a single game, because platforms are certainly part of the game business.

Van Zelfden created a few lists and one of them shows the most valuable public game companies and another shows the most valuable private game companies that have achieved unicorn status, or valuations above $1 billion. A lot of guesswork is involved, but Van Zelfden’s work gives us a way of looking at the relative valuations.

At the top of the unicorn list is ByteDance, which Games One valued at $62.5 billion, based on the portion of its valuation that is based on game revenues. All told, gaming’s unicorns are worth $192.2 billion, while gaming’s public companies are worth $2.18 trillion. I would wager that games are now worth more than Hollywood, based on those valuations, and I would think that this makes a lot of sense, as much as Hollywood would cry foul.

Gaming's unicorns.

Above: Gaming’s unicorns.

Image Credit: Game One

One of the rules that makes things crazy is that pre-IPO valuations aren’t as high as post-IPO valuations, as public investors are a lot more like fans and private investors are more like analysts. Roblox’s last private valuation was $29.5 billion. But after going public, it’s worth a lot more.

Another one of the rules that applies here is that anything that is going public, being bought, or doing a transaction in this frothy environment will be valued higher than companies that did their last deal some time ago. So Roblox may not be worth more than Electronic Arts on a purely financial comparison. But since Roblox went public recently, it gained the benefit of being valued at modern levels, while EA is stuck with a valuation it has had for some time.

And so, yes, Roblox is now valued at $54.9 billion while EA is valued at $40.6 billion, even though EA has revenues of $5.5 billion and Roblox has revenues of just $920 million. Another reason Roblox is worth more is that it has more momentum, as it had revenue of just $45 million in 2017, while EA had 2017 revenue of $4.8 billion. EA can say this isn’t fair, but momentum and recent transactions matter to Wall Street.

Unicorn valuations

Echo goes up against the Ancient in an Unreal Engine 5 demo.

Above: Echo goes up against the Ancient in an Unreal Engine 5 demo.

Image Credit: Epic Games

Where it breaks down is when you look at the unicorns. Bungie hasn’t done a transaction in a long time, but Games One felt like giving the company a $1 billion valuation. But that means it is worth the same as Playco, which raised $100 million last year at a $1 billion valuation. That’s clearly not fair, as Bungie makes triple-A games like Destiny while Playco hasn’t published anything yet. Playco’s focus is in the promising area of instant games, like those played on Facebook messaging or Snapchat. It’s a sexy market and a way to bypass the 30% royalties of many app stores, as such games don’t need to be installed from an app store.

Meanwhile, Jam City, which is going public in a special purpose acquisition company (SPAC), is barely worth $1.2 billion, or a few times sales, just barely more than Playco. Other companies that most people have never heard of — Moon Active, Voodoo, Nexters, and Wildlife — are all worth more in their valuations than companies like Jam City and Bungie.

Epic Games has been doing well in catching up with rivals. Epic has a huge revenue advantage over its rival Unity Technologies because of the success of Fortnite. But Unity went public in October at a $13 billion valuation and it saw its value rise to nearly $50 billion before falling back down again to $26 billion.

Epic Games raised $1 billion in August at a valuation of $17.3 billion. Then, just nine months later in April, investors decided that Epic was worth a lot more, valuing it at $28.7 billion after another $1 billion in private funding.

Epic probably doesn’t feel like that’s a really fair valuation, given its higher revenues and profitability. But if it did go public, maybe it would be worth far more, and I’m sure Epic would feel like that’s a fair relative valuation.

If you look at Discord, the audio and video communications firm was worth $7 billion in a private funding at the end of last year. But when it was talking to Microsoft for a potential acquisition, the expected price was above $10 billion. But some believe that if Discord holds out, it could eventually go public at a much higher valuation.

Life isn’t fair

Assassin's Creed: Valhalla is one of the games Microsoft is showing off at Xbox 20/20/

Above: Assassin’s Creed: Valhalla from Ubisoft.

Image Credit: Ubisoft

Too often, we don’t get this kind of information because investors and companies want to carry on some illusions about valuation or keep their competitors from finding out what they’re worth.

But now that so many deals have happened, we’re getting a good picture. And so we can ask these questions about whether some companies are fairly valued or are bargains. Is it fair that AppLovin, which just went public, is worth $25.7 billion, and Zynga, which went public in 2011 and has grown dramatically, is worth $11.2 billion while Take-Two, maker of Grand Theft Auto, is worth $20.5 billion? If I were an investor, I would think the numbers are flip-flopped.

And poor Ubisoft. They’ve got 15,000 or so employees and some very high operating costs, but they’re worth just $7 billion despite owning franchises like Assassin’s Creed and Watch Dogs. Meanwhile, Skillz, which is far younger as a company, is worth $8.4 billion.

I know I shouldn’t think about whether these prices of things make sense or not. But it sure feels like we’re living in crazy times, and somewhere along the way the investors who take advantage of these insane valuation differences can somehow make money exploiting them. When we see the bubble pop or the shakeout happen, the companies that focus on delivering value over hype are going to have the last laugh.

GamesBeat

GamesBeat’s creed when covering the game industry is “where passion meets business.” What does this mean? We want to tell you how the news matters to you — not just as a decision-maker at a game studio, but also as a fan of games. Whether you read our articles, listen to our podcasts, or watch our videos, GamesBeat will help you learn about the industry and enjoy engaging with it.

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Lucidworks: Chatbots and recommendations boost online brand loyalty

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Who is loyal

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Pandemic-related shutdowns led consumers to divert the bulk of their shopping to online — and many of those shoppers are now hesitant about returning to stores as businesses begin to open back up. A recent survey of 800 consumers conducted by cloud company Lucidworks found that 59% of shoppers plan to either avoid in-person shopping as much as possible,  or visit in-person stores less often than before the pandemic.

Above: Shoppers across the U.S. and U.K. agree that high-quality products, personalized recommendations, and excellent customer service are the top three reasons they’re brand-loyal.

Image Credit: Lucidworks

As the world stabilizes, shoppers want brands to provide a multi-faceted shopping experience — expanded chatbot capabilities, diverse recommendations, and personalized experiences that take into account personal preferences and history, Lucidworks found in its study. More than half of shoppers in the survey, 55%, said they use a site’s chatbot on every visit. American shoppers use chatbots more than their counterparts in the United Kingdom, at 70%.

The majority of shoppers, 70%, use chatbots for customer service, and 53% said they want a chatbot to help them find specific products or check product compatibility. A little less than half, or 48%, said they use chatbots to find more information about a product, and 42% use chatbots to find policies such as shipping information and how to get refunds.

A quarter of shoppers will leave the website to seek information elsewhere if the chatbot doesn’t give them the answer. Brands that deploy chatbots capable of going beyond basic FAQs and can perform product and content discovery will provide the well-rounded chatbot experience shoppers expect, Lucidworks said.

Respondents also pointed to the importance of content recommendations. The survey found that almost a third of shoppers said they find recommendations for “suggested content” useful, and 61% of shoppers like to do research via reviews on the brand’s website where they’ll be purchasing from. A little over a third — 37% — of shoppers use marketplaces such as Amazon, Google Shopping, and eBay for their research.

Brands should try to offer something for every step in the shopping journey, from research to purchase to support, to keep shoppers on their sites longer. How online shopping will look in coming years is being defined at this very moment as the world reopens. Brands that are able to understand a shopper’s goal in the moment and deliver a connected experience that understands who shoppers are and what they like are well-positioned for the future, Lucidworks said.

Lucidworks used a self-serve survey tool, Pollfish, in late May 2021 to survey 800 consumers over the age of 18—400 in the U.K. and 400 in the U.S.—to understand how shoppers interact with chatbots, product and content recommendations, where they prefer to do research, and plans for future in-store shopping.

Read the full U.S./U.K. Consumer Survey Report from Lucidworks.

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Breakroom teams up with High Fidelity to bring 3D audio to online meetings

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Breakroom teams up with High Fidelity to bring 3D audio to online meetings

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Social meeting space Breakroom has integrated High Fidelity‘s 3D audio into its 3D virtual world for social and business events.

The deal is a convergence of some virtual world pioneers who have made their mark on the development of virtual life. Philip Rosedale is the CEO of High Fidelity, and he also launched Second Life in 2003. And Sine Wave Entertainment, the creator of Breakroom, got its start as a content brand in Second Life before it spun out to create its own virtual meeting spaces for real world events.

Adam Frisby, chief product officer and cofounder of Sine Wave, said in our interview conducted inside Breakroom that the High Fidelity spatial audio will help Breakroom create a triple-A quality experience in a virtual world.

“The real benefit of having 3D audio in a virtual world like this is you can have lots of conversations going on simultaneously,” said Frisby. “3D audio is the only way to replicate the real-world experience in an online environment. You can have a 150-person conference and end up with 10 groups of people talking at the same time. That has helped us with engagement.”

Above: Breakroom lets an event have dozens of simultaneous conversations where people don’t talk over each other, thanks to High Fidelity.

Image Credit: Sine Wave

Most online events get engagement times of 20 or 30 minutes. But Breakroom’s average events, ranging from 600 to 1,000 attendees, have engagement times of an hour and 40 minutes, Frisby said.

Sine Wave’s Breakroom draws heavily on lessons learned in Second Life to create a frictionless, mass market, user-friendly virtual world.

“You can hear everything better with High Fidelity,” said Rosedale, in our interview in Breakroom. “Breakroom combines low-latency server-side video and spatial audio in a way that lets you hold an event like it’s in the real world.”

High Fidelity is a real-time communications company. Its mission is to build technologies that power more human experiences in today’s digital world. The company’s patented spatial audio technology, originally developed for its VR software platform, adds immersive, high-quality voice chat to any application — for groups of any size. You can really tell how close you are to someone in a High Fidelity space when they talk to you, as voices become fainter the farther away they are.

“We are super excited about this general direction and we wound up building the audio subsystem and extracting that first,” Rosedale said. “It works well where there is no possibility of face-to-face meetings.”

breakroom 3

Above: I could hear Philip Rosedale’s voice clearly in this conversation in Breakroom.

Image Credit: Sine Wave

Spatial audio in a 3D virtual world helps encourage spontaneous conversations into a fun, productive setting, in a way that flatscreen video calls and webinars simply can’t match, Frisby said. It’s easy to tell in Breakroom who is speaking to you, and from what direction.

It took me a little while to figure out how to unmute my voice. Rosedale was jumping up and down while we were talking.

“It’s all remote rendered. And that means that we can bring people in on a variety of platforms,” Frisby said. “No matter what your target hardware is, you can actually get in here and still get good high fidelity. It’s a good quality 3D rendering experience here regardless of what device you’re on.”

I asked Rosedale if he could hear me chewing lettuce, which sounded very loud on my headsets. But he said no. It definitely helps if you have good headsets with 3D audio.

Breakroom is being used by organizations like Stanford University, the United Nations, and The Economist. Breakroom runs on any device with a Chrome browser, offering good 3D graphics and audio quality, with no installation required.

Frisby said that Breakroom is also a way for companies to enable remote workers to gather and meet each other in more relaxed environments as if it were an intermediate space between online-only environments and going back to work in offices.

breakroom 4

Above: Breakroom and High Fidelity are enabling conferences with spatial audio.

Image Credit: Sine Wave

Its full suite of communication tools includes voice chat, instant messenger, and in-world email. It has video conferencing, media sharing, and desktop sharing tools. It has a diverse range of fully customizable avatars and scenes. You can get around just by pointing and clicking on the environment.

It also has event management tools to facilitate conversation and agenda flow, branded interactive exhibition stands, and private meeting rooms, available for rent by sponsors. It has environments including dance clubs, beach and mountain retreats, casual games, quiz shows, and live music/comedy shows. It has an integrated shop where brands can upload and sell their content to customers for real cash.

It gives you the ability to seamlessly license and import any item from the Unity Asset Store (Sine Wave is a verified partner of Unity). The iOS and Android version of Breakroom is in closed beta and Breakroom for consoles and the Oculus Quest 2 coming soon. It has LinkedIn and Eventbrite integration, including ticket sales. It also has a self-serve portal for customers to quickly customize and configure their organizations’ Breakroom, as well as sub-licensing agreements which enable Breakroom customers to host and monetize events and experiences to their own customer base.

Frisby said it has been a technical challenge so that people don’t get kicked out of the room, but his team has managed to refine the technology during the pandemic. He thinks conferences are great use cases for the technology because so many people come together simultaneously and push the tech to the limit.

As for High Fidelity, Rosedale believes that the education market will come around, and the whole world will eventually move to better spatial experiences.

GamesBeat

GamesBeat’s creed when covering the game industry is “where passion meets business.” What does this mean? We want to tell you how the news matters to you — not just as a decision-maker at a game studio, but also as a fan of games. Whether you read our articles, listen to our podcasts, or watch our videos, GamesBeat will help you learn about the industry and enjoy engaging with it.

How will you do that? Membership includes access to:

  • Newsletters, such as DeanBeat
  • The wonderful, educational, and fun speakers at our events
  • Networking opportunities
  • Special members-only interviews, chats, and “open office” events with GamesBeat staff
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Moderne helps companies automate their code migration and fixes

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https://www.youtube.com/watch?v=uR9EPALJKjI&feature=emb_title

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While every company may well be a software company these days, the software development sphere has evolved greatly over the past decade to get to this stage, with developer operations (DevOps), agile, and cloud-native considerations at the forefront.

Moreover, with APIs and open source software now serving as critical components of most modern software stacks, tracking code changes and vulnerabilities introduced by external developers can be a major challenge. This is something fledgling startup Moderne is setting out to solve with a platform that promises to automatically “fix, upgrade, and secure code” in minutes, including offering support for framework or API migrations and applying CVE (common vulnerabilities and exposures) patches.

The Seattle-based company, which will remain in private beta for the foreseeable future, today announced a $4.7 million seed round of funding to bring its SaaS product to market. The investment was led by True Ventures, with participation from a slew of angel and VC backers, including GitHub CTO Jason Warner; Datadog cofounder and CEO Olivier Pomel; Coverity cofounder Andy Chou; Mango Capital; and Overtime.vc.

Version control

If a third-party API provider or open source framework is updated, with the older version no longer actively supported, companies need to ensure their software remains secure and compliant. “It requires revving dependencies [updating version numbers in configuration files] and changing all the call sites for the APIs that have changed — it’s tedious, repetitive, but hasn’t been automated,” Moderne CEO and cofounder Jonathan Schneider told VentureBeat.

Moderne is built on top of OpenRewrite, an open source automated code refactoring tool for Java that Schneider developed at Netflix several years ago. While developers can already use the built-in refactoring and semantic search features included in integrated development environments (IDEs), if they need to perform a migration or apply a CVE patch, they have to follow multiple manual steps. Moreover, they can only work on a single repository at a time.

“So if an organization has hundreds of microservices — which is not uncommon for even very small organizations, and larger ones have thousands — each repository needs to be loaded into [the] IDE and operated one by one,” Schneider said. “A developer can spend weeks or months doing this across the codebase.”

OpenRewrite, on the other hand, provides “building blocks” — individual search and refactoring operations — that can be composed into an automated sequence called recipes anyone can use. Moderne’s offering complements OpenRewrite and allows companies to apply these recipes in bulk to their codebases.

Above: Moderne screenshot

Enterprises, specifically, can accumulate vast amounts of code. One of Moderne’s early product design partners is a “large financial institution” that incorporates some 250 million lines of Java code — or “one-eighth of all GitHub Java code,” Schneider noted, adding that this is actually on the “low to medium” side for what a typical enterprise might have.

“Some of this code is obsolete (e.g. accrued through historical acquisitions), some is under rapid development (e.g. mobile apps) — but the majority represents super valuable business assets, such as ATM software and branch management software,” Schneider said.

And let’s say a company decides to redeploy developers internally to work on rapid development projects — it still needs to consider the core software components that underpin the business and need to be maintained. Moderne automates the code migration and CVE patching process, freeing developers to work on other mission-critical projects.

When Moderne eventually goes to market, it will adopt an open core business model, with a free plan for the open source community and individual users, while the premium SaaS plan will support larger codebases and teams with additional features for collaboration.

The company said it will use its fresh cash injection to grow a “vibrant open source community for OpenRewrite,” expand its internal engineering team, and bolster its SaaS product ahead of launch.

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VentureBeat’s mission is to be a digital town square for technical decision-makers to gain knowledge about transformative technology and transact.

Our site delivers essential information on data technologies and strategies to guide you as you lead your organizations. We invite you to become a member of our community, to access:

  • up-to-date information on the subjects of interest to you
  • our newsletters
  • gated thought-leader content and discounted access to our prized events, such as Transform 2021: Learn More
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