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Case Write-Up Resources Analysis Paper
Your task for your write-up is to do a resource analysis of Niantic Inc. (Links to an external site.) -AS INCLUDED IN THE CASE BELOW [i.e. no need to do research- and only to the time of the case]. To do that, you can follow the following steps.
TWO PAGES ONLY. You can use bullet points.
Capitalizing on the Pokémon Go craze
A Case Study for class discussion prepared and Copyrighted by Aya S. Chacar, December 1, 2017
This case is meant for classroom discussion. All the key facts are accurate and people are real, however exact dates and private discussion content are uncertain.
This is a copyrighted material. You have personally been given permission for your own class use for free. Copying or sharing this material or any parts of it is an infringement of copyright and subject to legal pursuit.
Pokémon Go, a new game from Niantic Labs, was released on July 6, 2016 and took the world by storm. The free augmented reality (AR) game was based on the original and still popular Pokémon trading card game. It got players out in the real world walking, visiting PokéStops to collect free virtual items and learning about local landmarks. Pokémon Go players catch and collect virtual Pokémon, evolve and power them up and then battle other Pokémon in virtual gyms.
Barely a month after its release the game had garnered 5 Guinness World Records. These included one for a record $206.5 million in revenues through in game purchases in its first month. Some projections predicted game revenues would be as much as $1 billion by the end of the year.
Another record was set for an incredible 130 million downloads which was likely 5 times what the company expected under a best case scenario. This bewildering success was keeping Niantic’s CEO, John Hanke, and his crew awake at night. A burning issue related to handling the much higher than expected traffic volume. Another was the need for a strategy to capitalize rapidly on the game’s success and try to maintain the income stream and grow it.
John Hanke M.B.A. and post M.B.A. days
The legendary John Hanke didn’t get there overnight. He was a big gaming, science fiction, exploration and maps fan. He grew up hiking, biking and reading National Geographic and taught himself programming on his Atari 400 computer in high school. Hanke is now a family man with three children and quite concerned about the impact of technology on children.
He was also very aware of the importance of getting them out to walk and play. At 49 years old, he had already been involved with three successful start-ups. Niantic, a Google spin-off, was his fourth. With a large team on board and a family in tow he was intent on repeating his prior successes.
While studying for an M.B.A. at the University of Berkeley, Hanke joined Steve Sellers, the co-founder and CEO of Archetype Interactive, in developing Meridian 59 or M59 -the first 3D massive multiplayer online role-playing game or MMORPG. Archetype Interactive was sold to 3DO at Sellers’ and Hanke’s graduation from the M.B.A. program in 1996.
The two partners also joined 3DO and commercialized the game right after. Under their helm, M59 became the first online pay-per-play game eventually reaching over 50,000 users. It still holds today the record as one of the longest such running games.
The pair left soon after and launched in September 1997 a new venture Big Network. There, they shifted attention to free online games -especially after seeing the failure of 3DO and the limits of pay-per-play. Big Network monetized its games through online advertising and game licensing. It also developed a successful online community and entertainment platform that was sold in June 1999 to eUniverse.
The Keyhole Phase
Hanke went on to start Keyhole in early 2000. He hired a number of Silicon Graphics alumni with supercomputers experience with the goal of developing aerial and satellite imagery visuals for in flight simulators. The group then had the idea to develop a super version of MapQuest. It ultimately created Earth Viewer 3D which allowed users to fly virtually and view any spot on earth. 3D applications on PCs had just become feasible thanks to innovations by companies like Nvidia’s 3dfx which developed a graphic card that could interpret 3D files and at high speed while being less CPU intensive.
Miles O’Brien, a renowned reporter for major U.S.A. news network, CNN, became a big fan of Earth Viewer. He was especially fond of the Flyover feature and used it regularly in his reporting. Earth Viewer’s popularity with TV reporters helped garner the attention of Google’s Sergey Brin. Brin, another map fan, convinced Eric Schmidt, Google’s CEO at the time, and the other executives to buy Keyhole. Just after Google had become public in October 2004 the sale concluded for $35 million in Google stock.
The Google Phase
Google brought Hanke on board, as the Director then Vice President of Product Management for the Google Geo division. At about the same time Google had acquired a number of start-ups whose products and engineers joined the division. These included the Rasmussen brothers’ Where e Technologies which had developed a web-based map and ZipDash that provided real time traffic analysis.
These products, further acquisitions and internal development became the basis of the highly popular Google Maps launched in 2005. Maps was further merged or integrated with a number of Google products, ultimately adding features such as street view, traffic information in real time, local business and landmarks information, turn by turn navigation for pedestrians and cars, as well as public transit information. The group also developed similar and more specialized products like Google Moon, Google Mars and Google Sky.
Hanke also convinced Steve Jobs to put Google Maps on the iPhone. His division and Google grew phenomenally in the five years since he had joined it. Earth became the second largest Google product by traffic. Hanke was more and more involved in administration and missed the creative process and product development. He was itching to develop a product at the intersection of science fiction and mapping.
Google’s Niantic Phase
As Hanke was contemplating his future, Larry Page convinced him to follow his dream within Google. Niantic Lab was born in 2010 with a mandate to develop products capitalizing on Google’s mapping technology. Hanke named the division after a defunct whaling ship which history conjured in Hanke’s mind ‘peeling back the layers of the world’.
Niantic, the ship, had been abandoned by its crew in the 1849 gold rush, but then had many uses thereafter. It was turned into a hotel then a brothel and even after it burned, its remnants were used as fill-in for bay land of San Francisco’s Financial District. Niantic Lab’s motto was “Adventures on Foot” and its goal was to get people to move more.
Niantic Lab was organized as an autonomous skunk work but could still build relationships with Google’s other groups and on the company’s data and infrastructure. The ultimate goal was to bring back Niantic Lab into the fold or spin it off. Hanke focused on developing a product in the mobile context building on the infrastructure that the geo division had developed. Some of Google’s talent joined along the way like Dennis Hwang, who joined in 2011 as Niantic’s director of visual and interaction design from Google’s Doodle team.
The team’s first product was a free phone app, Field Trip, launched in September 2012. The app was a location-based notification service that automatically provided information on the user’s surroundings. The app pinpointed local landmarks and their history, recommended restaurants and gave shopping tips among others.
It was an example of a new trend called ubiquitous computing. The app was also advertisement free and allowed for information of interest to be downloaded for offline use. Thanks to Field Trip, the company collected a massive amount of data about particular geographic locations from well known museums and historical markers to odd landmarks that often go unnoticed.
The app partnered with a number of companies in the process including Zagat, a restaurant review company, Cool Hunting, Flavorpill and Nerd Trip. The app debuted as an Android App but was later made available for iOS, then integrated into Google Now (May 2013), made available for Android Wear (April 2015), and Google Glass (October 2015).
It periodically provided freebies and discounts such as free entrance to museums and attractions like the Bronx Zoo. Field Trip also provided interactivity, allowing among other things users to vote their choices up or down or share their findings to popular social media sites like Twitter and Facebook.
While discussing game dynamics and how to get users to use their app more frequently, ideas for the next product came about. Niantic recruited game writer Flint Dille, who helped bring all the elements Hanke had in mind: science fiction on top of geographical spots using the database Niantic had accumulated for Field Trip.
The team’s second product was Ingress, launched in November 2012. It was a multiplayer mobile AR game built around physical spots. Players, belonging to one of two teams, move to portals located in different geographic locations, traveling at times to other cities or even countries to capture portals for their teams.
These portals were molded on the same landmarks in FieldTrip. Although its success may not have been at Google scale, Ingress was ultimately downloaded over 14 million times and was being played in more than 200 countries. The game was quite complex but had a devoted fan base with several hundred thousand regular users which organized meets worldwide that had been growing in scale over time.
Meanwhile, Tatsuo Nomura, a software engineer, back at the Google Map team was having fun with the maps. Starting in 2012, he used his 20% free time allocation to work on an April Fool’s joke which consisted of building a Google Maps prototype that looked like old fashioned 8-bit role playing games. In 2013, the team changed Google Earth into a pirate’s treasure map. For 2014, Nomura wanted his April’s Fool joke to be more interactive.
As a Pokémon fan, he thought it would be really cool to have Pokémon appear on the map for people to catch. The Pokémon Company happened to have offices in the same building as Google Japan. So Nomura got the approval from an enthusiastic Pokémon company CEO on a trip to Japan for the next April’s Fool project.
The April’s Fool prank consisted of offering iOS and Android users a Pokémon Master job at Google on the condition of catching all 150 Pokémon on Google Map, which required tapping on the character on the map. The game was launched with a professionally produced video which showed people catching Pokémon in extreme and often outdoor scenarios. The game was widely popular with over 20 million users playing it.
The game’s success caught Hanke’s attention and gamers online who suggested a Niantic/Pokémon tie up. A Pokémon type app had been one of the potential projects Niantic was considering and its potential now seemed greater. Other projects considered would have built on the Mario and Donkey Kong characters. The Pokémon Company had recently started a mobile division and a meeting request by Hanke seemed auspicious.
At a May 2014 meeting, Tsunekazu Ishihara, who would eventually succeed his boss Iwata, could quickly see the value in Hanke’s vision for an AR outdoors game. After all, he was an Ingress player who had reached the highest level in the game. Apparently, he even had jokingly discussed the potential of catching real world Pokémon with Nomura and Iwata at some point.
This presented a good basis for understanding but getting the company to approve sharing its intellectual property required both financial and cultural courtship. Eventually, Hanke and his vision got the blessing for the deal from the company’s CEO Satoru Iwata, the man who had revived the company’s fortune by launching family-friendly games and the Nintendo Wii. Hanke agreed to split game revenue with Pokémon Co. and Nintendo although the terms of the deal were kept hush.
By summer, Niantic started to develop Pokémon Go, and Nomura joined Niantic in October, ultimately becoming Game Director of Pokémon Go. Although children were seen as the main game audience, designers were also hoping to rekindle millennials’ interests in Pokémon, so they chose a more sophisticated interface design.
During this same time, Google was being transformed into a new multidivisional company, Alphabet. Questions arose as to where and whether Niantic still fit within the company. Hanke and his team decided to take this opportunity and become an independent company. Niantic Lab was eventually spun-off in August 2015 as Niantic Inc. with Hanke as the CEO.
Niantic Inc. and Pokémon Go
The spin-off facilitated the partnership with the Pokémon Company and Nintendo. This double partnership was key since the Pokémon Company owns 1/3 of Nintendo and manages the Pokémon franchise. By September 2015, Niantic Inc. and Pokémon Company announced they would collaborate on Pokémon Go.
With the company barely a month old, CEO John Hanke attempted to get external funding but all big VCs contacted -including Andreessen Horowitz and Kleiner Perkins Caufield & Byers- balked at the $150 million valuation. Investing in mobile game makers like Zynga of Farmville and King.com of Candy Crush, had not turned out all that had been hoped for. Then in October, Google, Nintendo and the Pokémon Company agreed to invest $20 million in a Series A financing round, as lead VCs.
An agreement was also made to give a further $10 million payment for reaching unidentified milestones. Another $5 million came from angel investors valuing the company at $175 million. This paved the way for Pokémon Go’s launch in July 2016.
As soon as it was released, the game received increased attention from gamers, the press and others who could see the number of downloads and Pokémon Go players growing. Its user base was also reported to be very diverse, with 10% of the U.S. adult population estimated to have played the game. Pokémon Go players’ age and gender went beyond the typical demographics with girls, women, and even senior citizens reportedly playing the game.
Data from CustomerThink on app usage for the month of July in the US showed daily usage on the app exceeded all other popular apps including Facebook, Tinder, Snapchat, and Instagram. Some Ingress fans were seen migrating towards Pokémon Go while at the same time downloads of Ingress recorded a big spike following the new game release. Ingress climbed up to #3 in game app ranks in the US in mid-July.
With Niantic being a private company, its game’s success has led to an initial doubling of the Nintendo stock price –the most obvious public company to be associated with it. The stock price gain was not sustained as investors understood the limited returns from the game to the company. Nintendo had offered for presale a wristband peripheral, Pokémon GO Plus, that would allow among other things to be playing the game without continuously looking at the device screen.
The launch, planned to be concurrent with the launch of Pokémon Go, was still being delayed. A Japanese bakery firm First Baking Co., ltd., which sells Pokémon bread, also saw its stock price rise by about 40% to 144 JPY right after the launch of the game. Many websites rushed to post articles on the games and saw their traffic increase dramatically.
App Annie reported that Pokémon Go players spent as much time on the game in the three months following its release as they did on the next 19 games combined. Mobile usage had reportedly gone up dramatically in areas where Pokémon Go was popular; forcing even some telecommunications firms to buy more antennas.
The complex ownership picture makes it difficult to estimate exactly how much each partner gets from the revenue generated, if at all, as the gains may simply be equity gains. What is likely is that Apple and Google keep each about 30% of sales in their respective app stores sales -which are generated when users buy Poké Coins. One analyst estimated that Niantic Inc. keeps 30% of app store sales. As the developer, Niantic also has to pay for the game development and server usage and will have to also deal with liabilities associated with the game. The remaining 40% of revenue is perhaps split 30/10 between the Pokémon Company and Nintendo.
After the Height of Summer
Early data for Pokémon Go according to Survey Monkey Intelligence showed some decline in retention rates. Apparently, about 20% of users were ‘lost’ by mid-August 2016 since the July peak while new downloads had remained at about 400,000 per day, underscoring the continued popularity of the game around the globe.
Part of users’ losses may have been self-inflicted with the company experiencing continued, albeit improving, server issues which also forced the delay of its launch in some countries. The company was also facing other issues including a near revolt by its user base following an update to its app that removed its Pokémon tracker and forced third party tracking companies to shut down.
Game playing slowed down with the start of the new school year, but Niantic periodically changed different elements of the game or introduced promotions that helped spike usership for the most part. A Halloween promotion ran from the 26th of October to the first of November and led to a 13.2% in active daily users globally and 19.2% in the U.S.. The promotion increased the frequency of Pokémon appearing to the players, especially specific and previously rare Pokémon, like Gastly and Golbat. An Apple watch version was released in December 2016. By then the game was down to #9 in sales but its daily revenue reached $3 million per day following a Halloween promotional event.
Nonetheless, the app was the Top Trending Game of 2016, according to Google’s 2016 Ranking. It was also #3 on Twitter’s 2016 list of most tweeted topics behind RIO2016- or Rio’s 2016 Olympic Games and Election2016- or the highly contentious U.S.A. Election.
Other companies were trying to capitalize on the Pokémon GO craze. Many local business owners found that buying lures in the Pokémon store and using them to attract Pokémon and Pokémon hunters is an inexpensive way to bring potential customers in.
The city of Düsseldorf’s transportation office set up a Pokémon train that rode very slowly- to allow Pokémon eggs to hatch- through a set of stops and favorite hunting grounds. A subsidiary of TripAdvisor, Viator, launched Pokémon Go tours in thirteen European cities and the United States, adding to fan organized marches in Singapore, Australia and other countries. Websites writing about the game saw a dramatic increase in traffic.
Pokémon Go had won a Guinness Record for topping download charts in 70 countries in both count and revenues. However, the game had not been equally welcomed in all countries. In Japan for example, a country with a large gamer base, Japanese authorities are trying to capitalize on the popularity of the game to promote tourism especially in parts of the country that suffered from deadly earthquakes recently.
The company struck some formal partnerships like the ones the company had made with Ingress. McDonald Japan was the first to partner with Niantic for the launch of the game in Japan, turning 400 stores into gyms and another 2,500 into PokéStops where players can get free items for visiting, including balls, potions, eggs, and razz berries. On the other hand, it is considered a security threat in Egypt as many fans were found playing in security sensitive areas.
The formidable international expansion was also facing roadblocks in the most populous Asian countries while potential users were clamoring for it and getting impatient. Pokémon Go was still not available in a number of countries including the key Asian countries of China and South Korea –likely due to security restrictions- and India.
Gamers around the globe were expecting a continued roll on of the game to new countries. Impatient players from China and South Korea have been flocking to Sokcho in South Korea, the only place where the game is playable thanks to a security loophole. Its mayor, often seen dressed as Professor Oak, delights in the bus services bringing gamers from Seoul and has organized extra Wi-Fi Zones and mobile charging stations for tourists.
Local businesses also offer discounts to players such as to those who have captured the most Pokémon. Clearly the potential in Asia is likely great if the Taiwan, Hong Kong, or Singapore examples have anything to say. Transportation officials have reported tripling ridership in some parts of Taipei due to Pokémon hunting, with a near stampede recorded in Taipei following a Snorlax- a rare Pokémon alert. Businesses in areas surrounding Pokéstops reported selling out of food in abnormally extended hours in Singapore.
Pokémon Go Challenges and Opportunities
Intellectual property protection (IP) had become a big issue as some businesses were profiting illegally from the game. Apps had been written to help Pokémon hunters locate and catch their favorite Pokémon. These often relied on scraping, a technique that required playing the game continuously to copy and download its data and recreate its algorithm.
The data was then used in cheat type apps or sold to other app developers. Besides the intellectual property theft, scraping was putting extreme pressure on the servers and slowing down the game for everyone. A slew of imitators were emerging as well. Knock-offs, such as Monster Ball in China have emerged and more are likely to.
Current users were hoping for a swift resolution of server issues reflected in the inability to access the game and glitches. Pokémon fans had been promised that the next game release will give the possibility to trade Pokémon, grow the list of Pokémon available and other. These were beloved features of the original Nintendo card game and may be useful in maintaining players’ interest. Gamers around the globe were expecting a continued roll on of the game to new countries.
The game was also facing various degrees of resistance from several governments and local authorities worried about privacy and security, and users and non-users worried about trespassing and invasion of privacy among others. Some well publicized cases of cheaters were being shared widely across traditional and social media, as well as accidents taking place while gamers were not paying attention, something that was perhaps inevitable considering the hundreds of millions of people that were playing the game.
Pokémon players have also been trespassing on private property and congregating in mass in certain areas, leading to backlash, accidents and even lawsuits against Niantic, and forcing local authorities to deal in various ways with the issue. Users have had to be warned from playing and driving, ignoring their surroundings, and venturing into hazardous areas including some rife with landmines such as in parts of Bosnia.
The game market was also known to be fickle so maintaining the popularity of the game was a continuous concern. Most games also had declining retention rates after their launch and to top this off, this game required walking outdoors so some wondered how much game playing would take place as winter neared and students got busy at school. The nay-sayers were even saying it would be a two-month wonder.
There were many additional potential revenue sources that could be tapped and needed to be explored such as the recent win-win partnership with McDonald Japan. Moreover, while the game creators were focused on doing good and getting gamers out of their living room and into the world socializing and exercising there was a number of unintended consequences. On the plus side, many entrepreneurs were finding ways to make money from the game. It was not all rosy though.
With limited management time and attention, a choice needed to be made on the next steps the company would take in the immediate future: further develop the game itself and work on licensing, organize fan meets and take these and Ingress’ fans’ meet in-house, develop new AR games, develop hardware to help users play the game or partner with hardware developers in the process, or assist other game developers in adding AR to their games. These were only some of the many options that John Hanke and his team, which needed to grow, could pursue but there were so many possibilities and so little time it seemed.