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Virtual goods market expected to hit $2.1 billion in 2011; who wants a piece of this?
At first, I was going to write a story highlighting the top exits of the year, including IPOs and mergers, in addition to acquisitions. While there were some interesting announcements this year, like HP acquiring Palm, Apple acquiring Quattro and Tesla going public, I soon realized that the hottest stories all had to do with social and mobile gaming.
Though Zynga's FarmVille, the first sigificant social game, was released last year, 2010 was the year that social gaming truly exploded. And no wonder. Virtual goods, the primary source of revenue for games developed by pretty much every social gaming startup, grew from a $1.1 billion market in 2009 to $1.6 billion this year, and is expected to hit $2.1 billion in 2011. Who wouldn't want a piece of that pie?
Disney buys Tapulous
Disney announced in early July that it had acquired Tapulous, one of the most consistently successful mobile gaming startups developing for the iOS App Store. Along with its wildly popular Tap Tap Revenge franchise, on its fourth iteration and now featuring artists like Lady Gaga and Katy Perry, Tapulous has produced othe apps like Riddim Ribbon and Twinkle. Now that same studio is helping Disney bolster its mobile and social offerings. Though Tapulous and Disney both did a very good job of not leaking terms of the deal, multiple sources said the purchase price was somewhere between $22 million and $50 million. That's a nice exit for the startup, which had raised just $2.8 million from Khosla Ventures and Salesforce CEO Marc Benioff.
Disney purchases Playdom for $563 million
Less than a month after acquiring Tapulous to cover mobile gaming territory, Disney agreed to purchase social gaming startup Playdom for $563.2 million upfront with another $200 million dependent on certain performance milestones. Playdom then was (and still is) one of the top name studios developing games for social networks like Facebook and Myspace. Today, with 34.7 million monthly users, Playdom still places in the top ten of developers on Facebook, according to All Facebook. Though serving just a small fraction of Zynga’s 261.6 million, the Disney-owned developer isn’t too far off from the Crowdstar, ranked second with 47.9 million monthly users. Interestingly, Playdom co-founder and chairman Rick Thompson has already moved on to a new social gaming startup called Wild Needle, which just raised $2.5 million from Shasta Ventures in stealth mode.
DeNA buys ngmoco for $400 million
In mid-October, Japanese mobile gaming company DeNA announced that it had acquired San Francisco-based iOS developer ngmoco for $400 million. The startup had raised $40 million from Institutional Venture Partners (IVP), Kleiner Perkins Caufield & Byers, Norwest Venture Partners, and Maples Investments. (IVP and Kleiner Perkins also hold stakes in Zynga.) DeNA had already snapped up two other social mobile game startups in Silicon Valley--GameView and Astro Ape. With expectations to make $1 billion each year in social games revenue, DeNA can hardly be faulted for paying so much for ngmoco.
Zynga acquires every other gaming company
While Zynga has zero plans to be acquired (ha!) or to go public, something it can easily avoid with its latest $147 million investment from SoftBank, the king of social gaming startups is hardly shy about making its own acquisitions happen. Zynga acquired eight companies this year: Serious Business in February; XPD Media in May; Challenge Games in June; Conduit Labs and Unoh in August; Dextrose AG in September; Bonfire Studios in October; and Newtoy earlier this month. At the Newtoy announcement, Zynga said it was "very proud of" its roster of new studios. In general, Zynga keeps the gaming studios operating, but under a different name; Bonfire Studios became Zynga Dallas and Newtoy became Zynga with Friends, for example. The acquisitions aid Zynga in bringing top talent into the company quickly and efficiently, bolstering the company's mission of becoming a global gaming empire, starting with the biggest markets: the U.S. and Asia.
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With $7 billion of committed capital, IVP is one of the premier later-stage venture capital and growth equity firms in the United States. Founded in 1980, IVP has invested in over 300 companies, 106 of which have gone public. IVP is one of the top-performing firms in the industry and has a 36-year IRR of 43.2%. IVP specializes in venture growth investments, industry rollups, founder liquidity transactions, and select public market investments. IVP investments include such notable companies as AppDynamics (CSCO), Business Insider (Axel Springer), Buddy Media (CRM), Casper, Compass, Datalogix (ORCL), Domo, Dropbox, Dropcam (GOOG), Fleetmatics (FLTX), GitHub, HomeAway (AWAY), The Honest Company, Kayak (PCLN), Klarna, LegalZoom, LifeLock (LOCK), Marketo (MKTO), Mindbody (MB), MySQL (ORCL), Netflix (NFLX), Omniture (ADBE), Personal Capital, Pure Storage (PSTG), Slack, Snap (SNAP), SoFi, Supercell (SoftBank), Tanium, Twitter (TWTR), Yext (YEXT), ZipRecruiter, and Zynga (ZNGA). For more information, visit www.ivp.com or follow IVP on Twitter: @ivp.
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Zynga is the largest social gaming company with 8.5 million daily users and 45 million monthly users. Zynga’s games are available on Facebook, MySpace, Bebo, Hi5, Friendster, Yahoo! and the iPhone, and include Texas Hold’Em Poker, Mafia Wars, YoVille, Vampires, Street Racing, Scramble and Word Twist. The company is funded by Kleiner Perkins Caufield & Byers, IVP, Union Square Ventures, Foundry Group, Avalon Ventures, Pilot Group, Reid Hoffman and Peter Thiel. Zynga is headquartered at the Chip Factory in San Francisco. For more information, please visit www.zynga.com.
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Tapulous is a Palo Alto, CA based startup building a family of fun and social apps for the iPhone. We are angel funded and have released two apps for the iPhone (as of early August, 2008): Tap Tap Revenge (a music game) and Twinkle (the app that lets you connect with people nearby and your friends on Twitter).