Heyzap is an emerging startup, recently funded with between $500,000 and $1 million in a round, led by Union Square Ventures. It's also a graduate of the popular Y Combinator program. Heyzap wants to be the YouTube of flash games. What are the challenges and opportunities that lie ahead for this startup? We brought in Jeff Smith, co-founder of Smule, a maker of popular iPhone apps, such as the Ocarina, which recently eclipsed one million users, and Leaf Trombone to take a look. Smith was also the founder of Tumbleweed, which he brought public in 1999.

An apparent trait of Smith's becomes very apparent in this episode. He's a straight shooter. To Smith's dismay, he also agreed often with Ezra Roizen, digital media investment banker and Vator Box guest host, who wasn't so kind to Smule when the app maker was in the spotlight on Vator Box some weeks ago. See that show: How mainstream can Smule get? 

Here are our collective observations, with a few notable quotes highlighted. As many viewers know, we try to focus on pitch, novelty, challenges/competition, business model and advice.

Pitch: Heyzap's video pitch wasn't a conventional one as we pulled it out of Chris Caceres' interview with them. Nonetheless, the founders - Jude Gomila and Immad Akhund - did a good job conveying their value proposition and future business model. More importantly, first impressions are hard to ignore. "I thought he [Jude] had great hair," said Jeff. "Too many founders try to do too much with their hair. Nice mix. Nice length. Nice accent. Sounded sincere."

Novelty: The jury was out on the novelty. The founders have put some thought into monetization, based on their pitch. So, that's actually quite novel. But while Heyzap is focusing on money early on and targeting a great macro - casual games - there's a number of competitors out there that are already trying to capture the mind share of casual game authors. For instance, there's Kongregate, which allows casual game developers to upload their games and gain a following. Additionally, the founders should probably stay away from the YouTube analogy.  "I'd avoid the YouTube analogy. That's the massive vortext of unmonetizable content," said Ezra. The toughest comments came from Jeff, even though we, here at Vator, recognize that startups iterate often at their earliest stages and more often than not are figuring it out early on. "There's a lot of potential. But it's not baked yet," said Jeff. The founders seem to be "scratching around" to find what the value proposition is, he added. 

Challenges: Heyzap hopes to get bloggers and publishers to embed the casual games on their sites. The challenge is getting that shelf space. "Everyone wants to have the inventory on blogs," said Ezra. The question is: Why would bloggers/publishers want to embed the games? That challenge aside, at the end of the day, it comes down to having great games, and the creation of incentives for people to put the games on their respective blogs. This is a big challenge Heyzap faces. The other is getting the casual gamer to play the game on sites on a random blog sans community. Casual gamers will likely go to places that have community, like Kongregate or Playfish. "I'll probably go to the top casual game site, like Playfish, because I know I can get instant traffic out of the gate," said Jeff. Ultimately, by having a model that relies on publishers to distribute the games and casual games to create the games, Heyzap becomes far removed from the end user (customer).

Advice: "If they're going to do distributed distribution models, they have to figure out ways to catalyze micro-communities," said Ezra. "This [embedded casual games] is probably not a traffic driver, it's an engagement enhancer. They have to figure out clever ways to  bind those communities competing with one another." Just being another fun game isn't going to cut it.

Business model: Heyzap's business model is, as the founders suggest, an advertising-supported one as well as virtual goods, in the future. For the advertising component, they envision pre-rolls and overlays when games are loading up or playing. There is an "advertising matching challenge, which is the essence of advertising," said Ezra. "You have to have demographic data. This is non-trivial technological challenge," said Ezra, adding that while targeted advertising is challenging for everyone, it's particularly difficult when the audience is distributed across various and sundry sites. That said, there may be premium opportunities to display ads on casual games. On the idea of integrating virtual currency, Heyzap would need to create the drivers of virtual currency, which are accomplishment and ego-driven. They probably also have to create longer games in order to create tiers of status. Jeff was also skeptical about the virtual-goods and currency model. "I don't even know how they get to virutal currency," said Jeff, pointing out that it would be difficult to integrate "achievement" models through the widgets, unless Heyzap could convince the casual game authors to write directly to their platform. "Is the casual game author going to be motivated to write directly to the Heyzap platform?" said Jeff. "Perhaps not." 

(Note: We hope the Heyzap founders and backers take our comments and observations in the spirit they're intended. At Vator Box, we're not trying to criticize companies as much as we're trying to help them. We welcome your feedback. If you don't like what we had to say about Heyzap, you should check out what Ezra said about Jeff Smith's company, Smule. See: How mainstream can Smule get? Also, if you'd like, us to evaluate your company on Vator Box.)