Game Theory: Play Pays

Brian Martin never imagined he would become such a die-hard gamer. Sure, as a
teenager he occasionally hit the arcade. But that experience stacks up like a
tilted pinball machine compared with Internet games. With his keypad and mouse,
Martin can skywalk through the air and launch missiles to blast enemy fighters
across the globe in a nanosecond. He says he can sit for hours playing games
such as Team Fortress. "You feel kind of like a kid playing war,’’ says
the 29-year-old computer network administrator from Texas.

That sort of enthusiasm has made gameplaying one of the Web’s predominant
activities. Games top instant messaging and music downloads on the list of
favorite pastimes of online households. Nearly 26% of US Web surfers, or 40
million people, hang out at hard-core game sites such as PlanetFortress.com and
Myst.com, according to researcher PC Data. Add in the millions of Web surfers
who enjoy a quick go at online cribbage, trivia, or puzzles, and the number of
US game aficionados soars to 75 million people, nearly half the online
population.

What’s more, games keep customers coming back. Visitors to Pogo.com spent
an average of nearly three hours per month at the game site, making Pogo.com the
stickiest site on the Web, according to researcher Jupiter Media Metrix. And
they aren’t just twenty-something Rambo-wannabe guys. Half of all online
players are women, although they tend to prefer board games and trivia quizzes,
says PC Data.

Now, the action is breaking out of games-only sites and onto the wider Web.
Games have become standard fare on big Web portals such as Yahoo! and America
Online. Even specialized sites are offering games. Technology professionals
browsing job opportunities at BrainBuzz.com find a game called Prairie Doggin’.
Much like the comic strip Dilbert, the game features cartoon caricatures of
stereotypical workplace bosses–a "high-strung’’ administrator, for
example, and a sales manager named Slick Dick–who pop out of cubicles as if
they were prairie dogs. Players get points by bopping administrators, instead of
co-workers. Although BrainBuzz doesn’t track the number of people who play,
Chief Executive Jeff D’Adamo credits the game with helping to boost site
traffic to 384,000 visitors in January, from 158,000 in September.

Name that tune. It’s best to use games that fit the demographics of your
site. Prairie Doggin’ works because it appeals to the anti-management ethos of
the engineers the site targets. Similarly, tunes portal Planet of Music offers
trivia games that let visitors test their knowledge of jazz, rock, and R&B.
The site also offers keno and blackjack, but the trivia has proven most popular.

Many sites, however, are not so smartly designed. Take Nabisco’s
Candystand.com. The Web site sports games that range from miniature golf to
football, each one tied to a Nabisco product, such as Chips Ahoy! But the
deliciously playful Candystand hasn’t successfully driven traffic to Nabisco–in
part because kids don’t know or care to go to the corporate site. Nabisco
might consider placing a link to Candystand on a site that kids already flock
to, such as MTV.com.

Tie games to your Web site’s demographics and product mix, however, and you
could turn yesterday’s pinball wizards into paying customers.

By
ROGER O CROCKETT in BusinessWeek. Copyright 2001 by The McGraw-Hill Companies, Inc

Divine overhaul

Some of the cash-rich, market-cap-poor companies are taking the opposite
approach. Realizing their original business plans were failures, they’ve done
180-degree turns and overhauled their strategies. Divine interVentures, for
example, went public as an incubator and started up more than 50 companies. In
February, with its stock market value lower than the $190 million in cash on its
balance sheet, Divine announced plans to remake itself into a software company–CEO
Andrew Filipowski’s area of expertise. It even changed its name to Divine. The
moves have helped a little: The stock of the Chicago outfit has climbed from its
low of $1 a share to $1.69, although that’s still well off the $9 a share at
which the company went public last July.

In December, the California company, Ventro, closed two of its online
business-to-business marketplaces–the Chemdex market that allowed companies to
buy and sell chemicals on the Net and the Promedix market for medical supplies.
Ventro then said it would change its focus to helping other companies build
marketplace sites. So far, they haven’t convinced investors that its new plan
is any more viable than its last one. Its market capitalization is still only
$50 million, even though it has a treasure trove of $235 million on its balance
sheet.

Then there are those companies that are sticking to their guns. They simply
think the stock market is unfairly punishing them and, if they perform well,
their stocks will recover. Consider Neupert at Drugstore.com. "We’ve made
a lot of changes in the last six months–laid off a substantial part of the
workforce, dramatically reduced marketing plans, and reconstructed the business
model to break even," he says. That’s why he’s confident his business
will survive, even though its stock has dropped from $67.60 in 1999 to $1.31.

Autobytel is staying the course, too. The company, with $82 million in cash
and a $41 million market valuation, expects investors will become bullish once
it hits operating profitability in the third quarter. "We are well enough
established that we aren’t taking down marketing costs, nor are we
anticipating any large-scale layoffs," says CEO Mark Lorimer. "After
all, we’re going to post profits in a few (months)."

Despite the risks, cash can be a powerful lure for potential acquirers. If a
purchase can be completed quickly, the leftover cash can help fund the
operations of the surviving company. The women’s site iVillage acquired
Women.com Networks for stock in February, partly to get its hands on its
one-time rival’s $30 million in cash. The two sites combined some operations
to reduce expenses and now should have plenty of money to make it to the third
quarter when the business is expected to begin generating cash. "The deal
that we cut with Women.com makes sure that we have enough dollars for a rainy
day," says iVillage CEO Douglas McCormick.

There may yet be a handful of deals like McCormick’s in the wings. But it’s
a treacherous market these days and potential acquirers will have to weigh the
risks carefully–before moving licketysplit. The free cash is disappearing
fast.

Pallavi Gogoi–BusinessWeek