Walt Disney Co.’s $563 million deal to acquire two-year-old Playdom Inc. was the latest big exit in the hot social-gaming space, which is still relatively new considering Facebook launched its third-party platform only in May 2007. The deal follows Electronic Arts Inc.’s acquisition of Playdom rival Playfish Inc. for at least $300 million in November.
- Playdom’s Sorority Life
We caught up with Jeremy Liew, a partner with Playdom investor Lightspeed Venture Partners, to talk about the Disney deal and what he sees happening in this game of musical chairs.
Q. Why was there so much interest in Playdom?
A. At the end of the day Zynga is not really viable, so who else is out there at the top of everybody’s list? Playdom. It’s generated a lot of interest from a lot of people. Disney stepped up.
Q. You mean Zynga—the largest player in the space and reported to be valued at upwards of $5 billion–is essentially too large now to be acquired? (Zynga is reported by The Wall Street Journal to be in talks with Google about a partnership for a new Google social network.)
[Zynga's] valuation is pretty high, which makes them a difficult company to acquire for a lot who would be interested. That’s not to say it’s not worth it–it’s an incredible company. It just means there’s not very many who could afford them.
Q. This was an extremely quick venture exit, even within consumer Internet. How did your firm make out in the deal?
A. Disney made an offer and made a really compelling offer and it was hard to refuse. It wasn’t like we sat around and said we’re going to sell the company. It was opportunistic. Disney wanted it a lot and made it clear it was a strategic thing for them. [For us], we made money and made money fast.
Q. With these big media and entertainment companies seeking to get in on social gaming, do you expect to see more consolidation in the industry?
A. Probably. Other media and gaming companies want to think about what their play is as well. This is a game of musical chairs and there’s probably more people than chairs. You’ll probably see more (consolidation) in this space–big companies but also smaller companies as well, for team and talent, not just scale and revenue.
Q. So despite the strength of “the big three”–Zynga, Playdom and Playfish–there’s still opportunity for start-ups and investors in social gaming?
A. There will continue to be a lot of interest in this space. There’s plenty of interesting companies–though not Zynga-scale. There’s Rockyou, which is one of our portfolio companies. There’s Crowdstar (the fourth-largest social game developer on Facebook), Watercooler, Slide. They’re all out there building games for this market.
Q. What attracted you to Playdom when you made the investment, way back in October?
A. Its real focus on revenue and business model from early on is part of what attracted me. And it was a scrappy and bootstrapped business. Then when John Pleasants (former chief operating officer at Electronic Arts Inc.) joined the company he really took the business to a whole new step upwards.
I’ve known him since we worked at CitySearch 15 years ago. He’s terrific and really scaled up the business. He’s built up a lot more in terms of studios internationally and acquisitions. He’s set up the company strategically to really be a force to increase its scale and scope.
Game designer Jon Radoff designed this astonishing "A Brief History of Social Games: 3100 BC - 2010 AD".
Click HERE to enlarge.
COMMENTARY: Interesting story and I am not surprised to hear that Zynga is now worth an estimated $5 billion. It's private, so nobody really knows for sure. VC's have been pouring capital into Zynga, and the social game producer has not failed. They cast a giant shadow over the entire social game space with big titles like Farmville and Mafia Wars.
Courtesy of an article dated July 28, 2010 appearing in The Wall Street Journal's Venture Capital Dispatch
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