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Web 3.0 – Largest Wave Omni Media (Trip Hawkins)

September 4, 2008 12:00 pm ET

Executives

Joe Lambert – Director of Marketing, Singular Research

Trip Hawkins – Chairman and CEO

Joe Lambert

Ladies and gentlemen, it is my pleasure to introduce our next speaker to you, it is Trip Hawkins. He is live on the webcast. Trip is very well known for being founder of Electronic Arts and Digital Chocolate. His topic today is going to be Web 3.0: Largest Wave Omni Media. With that I would like to turn it over to Trip.

Trip Hawkins

Thanks very much, and good afternoon everyone. I'm assuming we are on the first slide where it says Omni Media revolution. That’s the topic today. The word Omni mean all, and we are entering a phase now with digital media where true mass markets are consuming digital media because over the last few decades, everyone has become comfortable with computers. The majority of people on earth today have grown up with computers. Most people are carrying a computer around with them or as they call it, a mobile phone. And there has been a plethora of – especially in the last five years of simple personal digital and network media devices, and of course that several of them come immediately to lines like the iPod and the iPhone and many others. And these are reaching audience sizes that we’ve really never seen before with digital media.

I would say if you look at the last say, 10, 20, 30 years in industries like the game industry, we might reach a 100 million, and in some cases as many as 200 million consumers. We truly now have the potential to reach billions of customers, not just with games, but other forms of digital media. And this is going to create quite a food chain in starting with components and resulting in devices and hardware products and then moving on to networks and new kinds of software and service models, and distribution channels and business models, giving quite a transformation of opportunities here along the way.

So, I am going to briefly review all of these points. Going on to the next slide; this is just a quick summary of media behaviors amongst mass market consumers. And you notice in the column on the right hand side of the slide where it says ‘In’. These are all behaviors that we are familiar with, but the shocking thing about this slide is how recent all these behaviors are. They are predominantly things that have only happened in the last five years. And things are changing so rapidly that ten years ago, a lot of people were not even on e-mail and were not even using Yahoo. Even those conventions are considered to be out now. There is a lot of teenagers and young adults now that don’t use Yahoo, that don’t use conventional e-mail. They will tell their friends, ‘Oh, just post something on my Wall in Facebook if you want to communicate with me.

So, these are really rapid changes and it is quite striking the variety of different kinds of media devices and networks, and type of media content that are being consumed in these new ways.

Going on to the next slide, you can see some really big numbers supporting this trend. We now have over 1 billion PCs that are in use. That number was less than half of that just five or six years ago. We also have over 3 billion mobile phones in use, and essentially they are new kinds of social computers. There are forecasts now that there will be over 1 billion people using SNSs or social network services within just a few years. And if you are making comparison about the impact of the PC versus the iPhone, I was with Apple in the very early days and worked with Steve Johnson and others on rather seminal ideas that turn into the PC. And my personal opinion is that the iPhone is a bigger deal, and of course what happened with PCs that there were some clever ideas and thinking in the first place. Some of those ideas were introduced by companies like Apple. They became commercialized, more successfully by companies like Intel and Microsoft and it became a gigantic industry with a lot of different suppliers contributing in different ways in the supply chain.

Well, a similar thing is happening right now with the iPhone, but as a PC is probably getting kind of to its limit. It’s really a desktop product for the office environment. And it’s in a premature position now with over 1 billion desktops where you can find a PC. But the PC has never really been a true consumer product. It’s a little bit too expensive; it’s a little bit too complicated and so on. You have lot of consumers using them, albeit they’ve access to them at school, at work, at home. But here with the iPhone, it represents an archetype of a type of personal device that literally everybody on earth is going to want to have. And you are going to have billions of people within five years going around with a device that either is an iPhone or is a clone of an iPhone. It is going to be a much bigger consumer phenomenon. I am not trying to say that the total economic value of this trend is going to exceed the economic value of PCs, obviously the enterprise started with the PC; it’s a very big business market. But at least in terms of the units sold and the number of customers, this consumer trend we are talking about is going to be a much bigger deal.

Going on to the next slide. You can see how rapidly the Internet is embracing this Omni Media trend. If you look at the slide, these are rakings from Alexa.com. And on the left hand side of the slide you see some of the biggest and best media brands from 10 years ago. We have CBS, the Tiffany Network; AOL, the original ISP; you have Sony, the dominant leader with the PlayStation Video game system 10 years ago; and you have Electronic Arts, the leading independent game software company. And those are the rakings they have today according to Alexa on the Internet. So, none of them are particularly high ranking considering where they should be based on the position they had in the industry 10 years ago. You would have expected AOL to remain in the top five or ten, and you would think these other guys could have at least grabbed the top 500. But not only have they’ve been unable to do that but look on the right side of the slide. YouTube, MySpace, Facebook, Miniclip. Miniclip by the way is a free casual gaming site that has only been around for few years. And these are companies that really didn’t even spend any money on marketing to try to build a brand position. They just understood how to use the Internet virally and socially and casually to reach mass audiences with more than Omni Media focus. And as a consequence, they have come out of nowhere. These are all companies less than five years old, but have just exploded on to the scene. And it’s a classic example of what’s called disruptive products.

If we go on to the next slide; this is a concept that was developed by Clayton Christensen, a Harvard Business School professor. He wrote a book about it called The Innovator's Dilemma. And he studied a few hundred years of economic histories down that basically these disruptive products come along and they actually, ironically they offer fewer features and they are less powerful. But they offer some new benefit and they are typically reaching a new audience that is especially interested in simplicity and convenience. And the traditional suppliers in the existing industry tend to overlook these opportunities and they end up with startups dominating and new industry paradigms. And of course the PC wiping out the Mainframe is an example. I think the success of the mobile phone is yet another example. And in some of the recent media examples we can point to you, you can see them listed here in the bottom of the slide, and these are just some of the better examples.

Bejeweled was the very first casual Web game. And the concept there was, "Hey, we are going to give away the game and let people play it for free and then we will see if we can sell them online for over the network delivery of a premium paid version," and the conventional game industries five or six years ago just balked at this idea. That’s now a billion dollar industry of mass market consumers around the world consuming games that way. It’s called the casual Web game industry.

Then you have kits like the iPod, which famously disrupted the music industry. YouTube demonstrating that the Omni Media consumer wants shorter form, more convenient experiences and YouTube I think illustrates this breakthrough about simplicity, convenience. They run the videos right in the browser so the consumer doesn’t have to install a video player and it all happens very instantly. The Omni Media consumer definitely wants instantaneous satisfaction. And then we have the case of the Nintendo Wii coming to market and being less powerful than the PlayStation 3 and yet blowing the PlayStation 3 out of the water. We have Club Penguin where on the Internet the perspective was, well if you are going to make anything on the Internet, it’s got to be 3-D immersive world like Second Life or Warcraft. And by the way, if you are not willing to spend that much money to make something that ambitious, no one is going to buy, no one is going to care about it. You can’t make money on games like that.

And Club Penguin is going to be soon very disruptive. They say, “Look, I’m going to make a virtual world, but it’s not going to be 3-D. It’s going to be cartoony 2-D graphics. And I’m not even really going to spend a lot of time worrying about the depths and complexity of it. I’m going to make it more social and more casual, and I’m going to target at kids who historically haven’t even really been in the target audience for the game industry. And you know what, I don’t care that everybody says that nobody will pay for it, and I have to give away. I’m going to make kids go get mommies’ credit card”. And they were so successful with that approach that they sold the business to Disney last year for $700 million.

Then we have Facebook. Let me give you an idea of the speed of change here. I left MySpace off this list because MySpace another very young company. They have already has been disrupted by Facebook. And Facebook is a more organic service with better plumbing. Facebook is now the most used social network on the Web. The most recent month they had I think over 124 million people use it. It is an incredible phenomenon considering it is only a couple of years old.

And then of course the iPhone is a real water shed at that because prior to the iPhone, mobile devices where perceived as other enterprise products like the BlackBerry or they were perceived as basically voice phones and okay, maybe even to send a text message. But nobody really thought about wanting to have a content platform or a computer within a traditional sense in their pocket that they could carry around with them. The guys at Apple with the iPhone they brought such imagination to presenting the user experience that suddenly everybody that had liked to want it say, Wow, I didn’t realize that I really do want a content platform that I can carry around, and I wanted to be hooked up to these networks and I wanted to be able to retrieve anything from any computer anywhere in the world.

I kind of liken this to kind of a Star Trek event because while remember how in Star Trek, Kirk would come down planet side and maybe pull out his little mobile phone and flip it open and he would start talking to the ship. But they didn’t really have right computing power with them and he would call Spock and he would say, Hey, Spock, you need to talk to the computer and Spock would go into this room and start having this conversion with the computer. Well, you got that kind of computing power now in your hands with the iPhone you got it right with you. So, it’s like the next generation of what the Captain Kirk had in his hand. And when there was Star Trek, they weren’t trying to use Sci-Fi, they were trying to tell us that stuff that was going to happen in hundreds of years. Well, it’s already happening in real life right now, which is what we mean by disruptive products.

Going on to the next slide. This is a product called Tower Bloxx. It’s one of our games and it kind of gives you an illustration of an example of this type of disruption. We originally made this as a mobile game. It’s a very simple game. It is a crane swinging back and forth. You press a button, it drops the storey of the building, and you are trying to stack up the stories of the building to make the highest possible building. And as your tower gets higher, more of these little virtual people come flying in on umbrellas to live in your building and your building becomes more successful. But if you slight off your aim, the tower will start to sway back and forth, and that makes it harder to grow the building. And then for people with more interest, there is a strategy mode, we have to design to build the whole city. So, we made this for the mobile phones. It was a multiple winner of Mobile Game of the Year awards, did well in the mobile phones. But what really fascinates us that we then put out a pre-demonstration version of it that runs on the PC and that was programmed so that it can spread virally on the Web. And in less than a year, it spread to over 5,000 Web sites on the Web. It’s now been trialed on the Web over 40 million times.

We had about a hundred-fold increase in the number of webpage hit results you get if you do a Google for the phrase “Tower Bloxx”. So, we had tremendous increases in the brand value and then we decided to come back to market with upsells where we can offer these free versions on the Web and get this viral spread and all this trial, and then upsell people to buy a premium version for their mobile phone or a premium PC version. We then took Tower Bloxx over to Facebook and we used some of the intelligent social design of Facebook, and it became one of the 50 most actively used applications on Facebook out of over 30,000 applications on Facebook that have come out just in the last year, and it was rated by one critic as the best game on Facebook. And we are starting to sell a premium PC version. We have got an iPhone version in development, we have an Xbox LIVE version in development.

This is our experience with this concept of Omni Media, where we can put it on all these different platforms because Omni Media tends to be agile. Again, really YouTube, a YouTube video is quite agile, pretty much anybody on any computer can see it. They just have to have to have a browser, and Tower Bloxx is kind of the gaming equivalent of that, and because it is so simple to play, anybody can play it, you know your friends can handle it, it is the kind of game that you want to tell your friends about, where you want to compete with your friends for high scores and so on and that is clearly driving its popularity. Incredibly, there is a mass audience responding to this kind of game that does not want to play conventional video games.

Let us go onto the next slide. What this slide illustrates is that the key to this new market is social value, and I kind of start with the concept of a lost era, as everybody used to live on a little perch and they had a perfect social life and now they live in a big city, and they spend all their time commuting in a car and at home alone watching television; when they are out in public they are surrounded by people they don’t know. So, there has been a very significant decline in the quality of social life according to lives at measurements, and you can see how in the midst of that, there is a gigantic opportunity now to create new kinds of businesses that offer social value.

So, Starbucks wraps some social value around a beverage, Facebook is doing it with a Web 2.0 network service, there are lots of other opportunities and ways of doing this; and historically, consumers will spend ten times more money on electronic media that has social value than just on electronic media where they are going to check out and kill some time being amused. Everybody is feeling kind of saturated with that. And consequently, we see now that the reign of traditional content is over; traditional content like music and film and even conventional video games and magazines and books and there is numerous examples where these are industries that have flat-lined or are in decline and the consumer is kind of moving on because they have had oversaturation of too many choices, a lot of it is cheap, a lot of it can be pirated, a lot of it is free, and they have got too much of it; and they are feeling too checked out. They are looking instead for new ways to check in.

And when something like the mobile phone comes along, KaBOOM, it is over $100 billion a year in revenue in the US, even though the market research before cell phones were launched said that the public didn’t even want it. And I will give you another $100 billion gambles [ph], there are over a billion people today that have a mobile phone that are single people that need to play the meeting game, and if those people spend an additional $8,000 a month on services on their phones to help them with this social life, that too would be another $100 billion a year, whereas conventional content industries are struggling to find another single billion in revenue, and they are not going to find it. So, taking this massive trend of Omni Media to – specifically the gaming side is what I call the Omni Media Gamer – Oh My God!

And the rules an Omni Media Gamer, let us go onto the next slide, is basically someone who says “well, you know, I'm not a gamer, but –”, and then you see this rest of behaviors by these people, all they like is actually a game like Bejeweled; they like talking and they personalize their phone; they like family time and they are playing Wii Sports; and maybe they decided to have a family night, where they and their wife and their kids are playing with the Wii; they like music, they went over to a friends house and they play Guitar Hero; they like TV, they watch shows like American Idol, they’ve have learnt to do SMS voting on it; kids adapt to things like Nintendogs and WebKinz, and these were consumers that weren’t really considered quite in the traditional video-gamer demographic. Also, Nintendo pioneered a product called Brain Age to reach senior citizens and now they have a product called Wii Fit, targeting the fitness market with a videogame offering.

So, we have a number of these examples and behaviors, and again all these things are pretty much phenomena of the last 5 years, and clearly they all involve personalized network casual/social media and a lot of these examples on this particular slide are gaming-related. So, clearly there is a mass market for gaming of this type of nature.

So going on to the next slide, you can see the variety of platforms that these consumers are using to play these new kinds of games. Again they are fairly ubiquitous. There are casual computing platforms just all over the place and all I mean by that is that you don’t have to have a tremendous amount of computing power, you don’t have to have PlayStation 3 and that is why the PlayStation 3 is not dominating the world.

And just one thing that I want to point out about this whole phenomenon of Omni Media is that less is more. If you go on to the next slide, it is what I call the inverse law of Omni Media gaming. The audience size is inversely related to power of the platform, because the power is actually perceived as demanding. I mean, when one of your friends sees you playing a game like Madden football or Grand Theft Auto, they think, ‘Wow, you know that is just way too much, I couldn’t handle that’, and a lot feels the same way about services like Second Life or games like Warcraft.

These bigger audiences are going to congregate around things that are much simpler and much more casual. And that is really not the way consumers have historically felt about media; you know, they always wanted more video quality and more sound quality and higher fidelity and you know, deeper audio-visual immersion, and with these digital media with games, it actually goes the other way. They might see something simple and convenient, then they are feel, I can handle that and my friends can handle that and again they are pursuing more of the social value of it.

Just going onto the next slide, it just summarizes some of the results that Digital Chocolate has had in the last year, kind of proving and validating that this market really does exist. So we start with the success we talked about with Tower Bloxx. A couple of months ago, we came back to market with some additional games, one called Rollercoaster Rush, it has already become the most favorite game of all time on some of the leading casual gaming sites on the Web; that means that people have actually installed it as a favorite on their browser. Also, in the mobile market, we had a little breakthrough in that Verizon, the largest US carrier, that’s very well known for preferring traditional game brands and famous media brands in their gaming business. We managed to get at the same time two of our original mobile products to be in their top 20 topsellers and that had never happened before in the history of Verizon.

And you know that there is a market here in part because we already sold 40 million games to mobile phones fitting this exact profile, and now we are cranking out 30 million free web trials per month. So, you know, we know we are increasing the awareness and reaching a larger audience. In fact, our Web traffic to our corporate Web site, our Web site until we started doing this six months ago was just dead, we ranked maybe number 200,000 in the world on Alexa and once we had launched this strategy even with zero marketing budget, we now chart around number 10,000 and we rank as high as the top 300 Web sites in the country like Chile. So it has been fascinating for us to be on this journey and see some of the things that are going on. So we really feel like we have tapped into something.

And going onto the next slide, some of the requirements for anybody just thinking about how to reach these new audiences with Omni Media, it is not just K.I.S.S; you know, K.I.S.S means Keep It Simple Stupid, it is Extreme K.I.S.S, where it is not only simple enough for you, but you have to believe that is simple enough so all of your friends can handle it, it has got to be extremely convenient, and it has got to be social, we actually designed it to have a short session, and to be more socially-engaging and people also tend to prefer themes. They are not, for instance, just playing a game for the sake of playing a game, they want there to be you know some theme, some fantasy and role-playing et cetera.

And of course, viral is critical and it has become a design science. There are companies that are far more scientific in their understanding of how to create viral spread, whereas I think 10 years ago, everybody thought ‘Oh, you know, you just have to something that is really, really cool and get everybody to talk about it, that is how you get viral spread’. Well, that is true, that is really the method to pull off; it is much more valid today to be scientific about it.

Of course, now we are heading into what I call Web 3.0, and if you can go onto the next slide just to summarize what that means. It basically means the internet: anywhere, anytime, any network, any device; and we are starting to see some indications of this. For example, the iPhone is smart enough to switch between the AT&T cell network and WiFi once you get to your office, if your office has WiFi or once you get to your house if your house has WiFi, and that ability to have a device that can function across different kinds of networks, that is going to become increasingly common. You see a lot of the phone companies now involved in creating synergy between their wireline broadband businesses and their mobile business, you have companies like T-Mobile that are launching these home routers where you can actually use your mobile phone on the T-Mobile cell network when you are away from your home and when you come home, you will just use WiFi to talk to this router that will you get on the broadband backbone. And therefore able to basically say, you don’t really need a conventional phone service, you just need a mobile phone and you can basically have the benefits of broadband.

So these are examples of devices that migrate across networks, they are going to proliferate, we are obviously seeing different kinds of networks coming into mode like WiFi, WiMax, and 700 megahertz spectrum. The number of different examples are in the works and you are going to see a plethora now of devices trying to pick up on the archetype created by the iPhone, and the problem is basically you don’t expect that the Internet is going to work they are accustomed to as working on their PC. And just following that model, there is going to be a lot of growth as this explodes into an audience that comprises of billions of users.

And going onto the next slide where it says Omni Business Breakthrough, that lists some of the different companies that I think have opportunities. I'll focus on some of the bigger companies, but starting with platforms, I think two of the (inaudible) companies from a platform perspective are Microsoft and Facebook; Facebook for obvious reasons, but Microsoft is a very cunning, shrewd company and they have got a lot of interesting initiatives going on.

For example, they have 10 million customers on their Xbox LIVE platform, which is the number of consumers that are signed up to use their online network service for the Xbox and they are learning a lot from that experience. They also continue to sell more and more mobile phones that have the Windows Mobile operating environment, and they are a player in just about every category of platform and one of the things that is an amusing story going around Silicon Valley is that Microsoft purposely overpaid when they invested in Facebook because they not only wanted to block Google from a strategic deal, but they also wanted to force Facebook to overvalue itself to drive up the cost of stock options to new employees and make it more likely that key staff would make enough money if they would turn over and leave the company. So, just the idea that a company can be that diabolical in how they think about their competition, you really have to respect what Microsoft might be capable of.

Moving on to devices, I think Apple and Nintendo are two extremely unusual companies; they are both big companies that got painted into a corner in the 10 years and then innovated their way out of it by making their own disruptive products and disrupting within the industries they were already in, that is an extremely developed and rare thing to do. And I think you can expect to see more of that from both of those companies and be on the lookout for other companies that you see following in their footsteps and following that road. One such candidate is Nokia; I think Nokia has historically been a proved disruptive thinker and again, Nokia is a very determined company, they are the kind of company that is very stubborn and very disciplined about working on their agenda and they are not going to be deterred by any kind of short-term obstacles and you know, you just know that a company like Nokia is studying very closely what is going with a products like the iPhone and trying to figure out how to be a big player in that end of the marketplace, that is just one example. I think also – they were heavily criticized for the launch of their gaming platform, the nGage, but they are now bringing it back to the market in a new form or it is basically a software platform that runs in a lot of their high-end series 60 [ph] devices and they sell probably around a 100 million a year of those devices. So, pretty quickly Nokia is going to be a player in mobile games as a result.

Looking at components, of course all of these devices have to have components and I think Samsung is an example, the kind of company that is going to benefit from this trend, besides their strength as a semiconductor company, Samsung is a very active player in media markets, particularly in Korea, and Korea is now an emerging leadership country in some of the new media like mobile content and Web; and on top of that, Samsung is a major manufacturer of things like DVDs, – no, Hi-Def DVD drives and TVs and those are platforms that will be part of the competitive mix as casual Omni-type content comes into the living room. And that is maybe the last big battleground that hasn’t been brought out yet. You have got basically the civil companies, the phone companies, you have got the major platform companies like Microsoft and Apple, you have got the guys that make the set top boxes, the guys that make the TVs, the guys that make the DVD players, there is all kinds of stakeholders that are going to be wrestling over how that living room becomes essentially an extension of the Internet, and Samsung actually brings that to the table and they could be a winner there from the standpoint of components, from the standpoint of devices, and even from software services.

Then you have companies like N-Vidia, which is one of the leading developers of 3-D graphics chips and they have already produced a lot of the functionality that could compete effectively with the iPhone and of course they are beginning to integrated into a lot of devices with a lot of OEM partners and you know, they are not the only one, I just picked them as an example because they just make good progress on that.

And then you have companies like Qualcomm, where Qualcomm has been such a great company over the last 20 years, they have made so many incredible inventions that have had tremendous commercial success and I think at this point you have to look at the run that they had with things like CDMA and BREW and while you have those cash cows are getting somewhat played out and maybe the heyday is over for Qualcomm but this is such a capable company, such a smart company that they have potential to be the next Nintendo-type recovery story that is capable of innovating their way back into some more great cash cow product lines.

Turning to networks, Verizon and ATC, I wanted to mention them, not just because they are the largest operators in the US, but also they are the ones that bought the most valuable parts of this 700 megahertz spectrum at the auction last year and so they are going to be doing more interesting things. You know, you just see interesting announcements from them the last year, it was AT&T for launching the iPhone, Verizon announcing that they are going to be doing some more innovative things from a device and service standpoint. And then Clearwire is one to keep an eye on because they are collaborating with Sprint, and they are also – the one company that seems to have some momentum around creating a national WiFi-type network that could be more interesting.

From the standpoint of services, of course Google is by far the most interesting company. Again, even they will be somewhat disrupted by Facebook and these trends and Google makes a lot of money when the consumer is using Google to search the long tail and when the long tail is the destination. When something like Facebook becomes the destination, the consumer can set Facebook, it doesn’t rely so much on Google. So of course, Facebook is a big threat to Google, and Google is trying to do things to disrupt Facebook like giving away this platform they call open social. I'm not sure that every idea that Google is working on is going to pan out and – you know, there they have got a lot of irons in the fire that may not make a heck of a lot of sense, they are definitely highly motivated and they are a very smart company, so I expect some interesting things to come from that.

The other area of the world where various new things going on, particularly as it relates to Web 2.0 and gaming on the Internet and gaming on mobile phones is both in China and Korea, there is companies like Nexon in Korea, QQ in China, Shanda in China. One of the really exciting trends in the game industry is going to – what we call it (inaudible) economies where you give away the game play and the customers get involved and hooked onto the social environment in the game and then they have to send money on items that their avatar needs or things that they need for other social status or for competitive edge in the games, and everybody that is doing this is making more money as a result. Shanda has just announced some great financial results earlier this week.

From the standpoint of the big media companies, I think a lot of them are out of position. Disney is trying very hard and I think you can see that in their Club Penguin acquisition and some of their activities, they are trying to see what they can make of it. Same with Viacom, you know, Viacom has been little bit of a pioneer amongst all other companies in trying to get into some of these new web businesses. Viacom bought some of the more interesting Web game businesses like Shockwave and AddictingGames and they are just making a more of an effort and I think we have more insight about where they are headed. And then of course you have a slew of Web 2.0 companies that are going to have an impact. What I want to emphasize about the markets is that they are truly global in nature and a company like Digital Chocolate makes it very, very different from the experience I had both at Apple and at Electronic Arts is that – at Apple and EA, they were really US-driven businesses where most of our market was in the US, and then you had to kind of carefully think about how to get into overseas markets.

From day 1 at Digital Chocolate, we thought as a global company and the majority of our revenue has always been overseas, and we have gotten to the point now where we have successfully off-shored the business so that more than 85% of our employees are overseas and that is probably to be just in alignment with where our customers are and where the revenue is, but it would also make a heck of a lot of business sense because of the cost structure of the San Francisco Bay area, where our headquarters is located. And so we have four major offices, but only one of them is in the US and we have got a much more efficient operation as a result and we have much better regional continental reach out in these other parts of the world.

And as a concept of off-shoring, you know, initially it was only trying to address really simple things like call centers and really conventional off-the-shelf IT work and that sort of thing, but it think that it is kind of trend where there is such skill and capability in so many other countries where it is easier to scale an organization and it is easier to manage that organization and minimize turnover and keep your costs competitive that there are a lot more industries now that can take on more significant – and consults business problems and handle them in overseas operations and I think you can see more companies having success that other companies that have figured out how to truly be global companies, both in terms of their market reach and in how they have got their offices and their organizations coordinated around the globe.

Okay, the next slide just talks about converged broadband services. This is a new concept that you are going to begin to see more of where the consumer, right now they might use a brand like Google where they are on the PC and they are on broadband and they are talking to Google servers and that is all it is. But there are very few brands where the consumer has the feeling that ‘Hey, any computing client that I have, you know, whether it is the computer in my hotel room or in my airline seat or in my hand or at home or in the living room or at work, what about the idea of having consumers have brand experiences that are consistent no matter what kind of clients/computers they are coming in from, and they have always talked to the same unified server backend. So we really have a precious few examples of this so far.

Going on to the next slide, the examples of we all live are basically around text, you know SMS and e-mail and instant messaging have all kind of migrated across platforms, and Google is one of the few service brands that is now kind of recognized to be a cross-platform brand. The consumer accesses Google from, say their iPhone, or from their hotel set-top box or from their PC, they know what Google is as a brand, they know how it works, it works the way they expect it to, the brand attributes are maintained and that works out from here on. That is really the concept of what I'm talking about here, but there are very few examples of this and the ones we have seen so far involve text. Text is the simplest data type. It is the most agile data type to cross platforms with, a lot more work to make, say something like the World of Warcraft or something like Second Life to get that to work across all platforms in a coordinated fashion, that is why nobody has been able to do it. So –

Joe Lambert

Trip, this is Joe Lambert, here. Sorry to interrupt, but we have a schedule that we have to – we are a little bit behind on and I was wondering if you could wrap it up or –

Trip Hawkins

Yes. I am actually wrapping up and maybe it doesn’t sound like it. I was just going to mention that we are working on this year deploying our first of these converged services, it is called Avatar [ph]. And if you kind of flip through the next couple of slides, it’s sort of visually what it is. The other Avatar is a concept where consumers can create their own avatar and the avatar has a social life and it has moods and it goes out on dates with other avatars and it opens up messaging with the owners of the other avatars. So this just not coming out on mobile phones, we are also launching on the Web, later in the year it will be on Facebook and on iPhone, so again it is ubiquitous across platforms. When we first put this out a few months ago, it only took four days before users told us that they had met and gone on dates in real life after meeting through their avatars. And our average customer is viewing about 100 pages a day from our server. So it is clearly an interesting phenomena.

Anyway, just coming down to the wrap-up slide here, the summary, again we are talking about this concept of Omni Media, finally reaching billions of consumers with new digital media, social value is the key, there is this inverse law of Omni Media Gaming, which is that less is more to kind of interesting things. So, you want to bet against the guys that are trying to do technology overkill. It’s like you’ll never say I didn’t really focus on Sony and Activision and EA traditional companies like that, because they are a little more focused on the traditional audience and the traditional approach. There is a lot of opportunities at this Web 3.0 model emerges and the impact is going to cover many sectors. And that sums it up. Thanks for your time.

Joe Lambert

I apologize but at this time, we will not be able to take questions; and Trip, again thank you very much, very informative presentation.

Trip Hawkins

My pleasure.

Question-and-Answer Session

Unidentified Participant

Hey, just one quick question, when is the IPO?

Trip Hawkins

We got a little more work to do. But (inaudible) the company is profitable growing, and we will (inaudible).

Unidentified Participant

Great. Thanks a lot, Trip.

Trip Hawkins

Okay. Take care.

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Source: Web 3.0 – Largest Wave Omni Media at Singular Research's Annual ‘Best of the Uncovereds’ Conference
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