Bart Decrem's Soapbox Podcast About Tapulous

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About Bart Decrem

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34 minutes, 2 F-bombs, 7 bleeped product names, escalating passion


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'I follow my gut on those things'

Tapulous is Bart's fifth venture after working in the nonprofit, Linux, and web browser worlds, including launching Firefox and more recently Flock. He was an entrepreneur in residence at a venture capital firm mulling different opportunities when the iPhone appeared on the scene in June of 2007:

"I remember sitting in a venture capital firm thinking about what I want to do next with my life and it was like, 'That's a great business idea!' And you sort of weigh the pros and cons and maybe you're gonna do it, and I'm sort of almost in one or two things.

"For me the way it worked for the iPhone was like, [smacks hand] 'I know this thing is gonna be big. I have to be there. I'm gonna be the first one there!'"

Weary of the years it takes to get a big platform off the ground (if they ever hit critical mass), the original idea was a more lightweight platform play, "like RockYou for the iPhone." Tapulous would be a family of widget-like apps with a social network underneath (a profile, friends list, and a feed).

Competing with Some Dude & His Hamster

What were the lessons for "RockYou for the iPhone" 90 days in? It turned out the market was all about games (not location-based services), the iPod Touch (not the iPhone), and a monopoly distribution channel that pits complex apps against throw-away ones for attention and dollars:

"The reason that the App Store is on fire is you've got a bunch of 12 year-olds that buy an iPod Touch--and before they might've bought a Nintendo DS... Now you can get this device for $199 that's almost as good as a Nintendo DS and you go on wifi once every couple of days and you get a farting app, and the next day you get something else, a wallpaper app, and every now and then you buy a game for $2.99 and you put some music on there and some videos. That's the App Store."

"Think about it this way: You're Steven Spielberg and you're building this great movie and the only distribution channel that exists for you is YouTube. Now you're competing with some dude taking a video clip of his hamster or a 15 second clip from Saturday Night Live."

People Don't Get Product!

Why not take Tapulous' success and make the leap from the iPhone to another platform offered by Google, Nokia, or Blackberry? Bart follows his gut on these business decisions too. To date he still doesn't get that same compulsion from any of iPhone's competitors:

"I believe that there will come a time when you have to be there, there is no obvious winner... It's not obvious to me who is going to nail it. And to me the thing that's somewhat shocking, if you'd asked me in June of 2007 when the iPhone launched, how long is it gonna take for Nokia to get their act together or for Android to launch as a competitive product, I would've said, 'Give them a year.' But it's been like two years now and it's like, 'What the hell?'"

Why has a company like Apple been able to maintain its market leadership without a viable challenge to the top spot?

"People don't get product! ... What I'm realizing is that it is hard to deliver quality product because there's so many pressures to make deals, to balance out various considerations. And I think Apple is somewhat unique in just sort of being ruthless about the user experience."

"And it's very hard if you're Nokia, cause you'd be like, 'Why don't they just freakin copy the thing, right? And put a Nokia brand on it and do the industrial design.' It's really hard! To have that commitment as a big company to go do that. And that has been a big surprise to me. I had no idea it was going to take that long to get a really compelling alternative to the iPhone to market. It might never happen."

This hits on a problem in both the software and mobile hardware industries--their organizations are not setup to do product design. Big companies skip design processes and methods and jump from business opportunity into implementation while giving product and interaction design short shrift. This prevents these companies from systemically turning out new products and leaves the door open for Apple to continue to lead in the U.S. mobile space.

Tapping Tomorrow

A lot of companies struggle with the freemium model and get paralyzed trying to decide between ad-supported revenue and app sales. To Bart, it's obvious that free apps drive the traffic that sustains not only ad revenue, but provides the base of premium sales that form the bulk of Tapulous' revenue:

"If we only had paid apps, we wouldn't have a footprint. People sometimes say to me, wow, you've got 5 million users on Tap Tap Revenge. Imagine if you'd charged $0.99 for that, you'd've made $5 million dollars by now. It's like, No, you're crazy. Cause I would've sold 100,000. I would've made $100,000 and nobody would know that I exist. And we would be fucked as a company."

By continuing to invest in free games to sustain and expand their footprint, and by re-investing in premium games with fresh content like their upcoming Coldplay version of Tap Tap Revenge, Bart expects Tapulous to continue to grow and succeed as a company.


References

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Transcript

Bart: People sometimes say to me, wow you got 5 million users on Tap Tap Revenge. Imagine if you had charged $.99 for that. You'd have made $5,000,000 more. I was like, no you're crazy. But you know what? It's not the end of the world because they're going to have 200,000 users when I have 7 million or 10 million. I know this thing is going to be big. I have to be there. I'm going to be the first one there.

I'm going to be talking about our experiences with a new start-up on the iPhone and the iPod Touch. I think Jerry already introduced myself. This is my fourth or fifth venture. I did a non-profit [inaudible @00:47], one of the first digital to buy programs. I worked on a company called Easel where we set out to make Linux easier to use. I helped launch Firefox. That led to a browser start-up called Flock where I was a founding CEO. Then I was an entrepreneur in residence at a venture capital firm when I got excited about the iPhone. That led to the current company Tapulous.

When we started the company, the idea was that the iPhone was going to be disruptive and that it was going to really mark the beginning of the mobile decade. The idea was that decade one was the PC revolution. Decade two was the network revolution, the Internet and the social user- generated revolution. While we've been talking about it for a long time, with the iPhone, we'd finally start the third phase, the third decade properly where it's all about the device that's now social. It's connected. It's a computer so you can shrink it into your pocket so it's always with you.

The iPhone was the first device to really execute and deliver on that vision. This was going to be big. When there's big new technologies there will be entirely new categories of applications and companies that are built and disruptive new companies can be created. We wanted to be there early and one of the first ones.

On the product side, looking back on my experience working on Linux, then working on web browsers, I like the idea of big platform plays and the business you can build around it and how close and how important you are to the user. But these things take years. In the case of Linux on the desktop, now we are eight years later and it's called the netbook and a couple of people are using Linux for that. But boy, it takes a long time to get people to make those kind of transitions.

With Firefox it took five years. Flock, if it ever makes it, it might still take another four years before the thing gets to critical mass. I'm still excited about big new platforms and big new opportunities, but wanted to be able to do it in a much more light-weight fashion and have something that has some virility and network effects and social aspects baked into it.

So the idea was, hey. Let's build something that's almost like RockYou or Slide for the iPhone, where you have a family of very light-weight, almost widget-like applications where the user can step into it without having to give it too much thought and without having to make a big commitment or feel nervous. But on the back end, let's build a social platform underneath it so that you'll have a concept of a profile, a friends list, and a feed that are shared across all of these networks. So it's like RockYou for the iPhone except that the real value largely resides in the value underneath it that you're also building as you're building just little bits [inaudible @03:23]. That was the idea when we started the company.

Learning from my experiences with Flock in particular where we raised, I don't know, $15 million over three rounds and we ended up with a company of 30 or 40 people before we had any revenues and before we had any users, I wanted to learn from that and do something that was a lot more boot- strapped. Which would be less money, get to market much more quickly, iterate, be able to turn the company on a dime much more easily, and avoid some of the pitfalls of VC funding in terms of the control that you lose and the ownership you lose.

One of the things that I now know, because it's no longer my first time, we always knew- one of the first things I would say if you met me a year ago, is that 90 days after launch I'm sure it will be very different that what we think it is now. That's in fact, what happened. The thing that was constant was that the big idea, in fact, turned out to be right. The big bet. The iPhone has proven to be very, very disruptive.

The users, the number of people that have moved onto the platform, and the success of the app store in particular are now being copied by everyone. There's a guy at Excel Partners, one of the top venture firms, Rich Wong. He talks about the old style of mobile start-ups in the old world. It's like the Soviet model of mobile that is collapsing all around us. It's only a matter of time before you see other carriers and other makers jump onto that bandwagon. They're all jumping on it, but nobody's really come up with a killer alternative for the iPhone just yet. So this is disruptive, the fundamental bet that we placed is correct.

On the product side, instead of having 10 apps that are all each contributing and that are all about location-based services and connect with my friends while I'm on the go, interestingly, we have 10 apps that are out today and we have four that have more than 100,000 users, actually five. Tap Tap Dance has more than 100,000, Nine Inch Nails probably has 100,000 by now. Tap Tap Revenge, Collage, Twinkle, there's one more I think that has a 100,000 users. But one of them has 6 million users and the other ones have 150-200,000 users. So we had one big hit, and it wasn't about location-based services, it's about games. That's a big learning.

On the company side, we focused very much on getting to market very quickly and executing very fast and that bit us because we didn't spend enough time building a great team and having the DNA of the company really settle. As a result of that, we had churn on the team side and that's been somewhat painful. This is my last slide I believe. Yeah. I'm going to tell you a little bit about what we're doing this year. Let me do this one now, just so that you know what we're doing next and then we're going to talk about the lessons.

What we're going to do this year is build on the success of Tap Tap Revenge, 6 million users, number one game on the iPhone and the iPod touch, we're going to keep investing in the free game. Second thing we're going to do is crank out more and more of these premium special versions. We're doing one with Coldplay right now, we're doing one with the Dave Matthews Band. We can do as many of these as we want. It's a way of making money and it's also a way of getting more music into the game. We're going to build other music games. That's the first half of the year.

The second half of the year we want to be able to think and say, how do we now move forward as a company? Do we look beyond music games and expand more broadly on the iPhone platform? Or, do we now take this over to other platforms, other devices, other carriers? Thirdly, as we are continuing to invest in our apps and we see real value there that we are building, we're also going to increasingly focus on the social component and the network underneath it as a way of making the apps better, richer, and more fun for the user.

But also as where a lot of the value of the company is created will be in the community, the network, the distribution, the information, and the analytics that we have about the users that we reach, which is on the order of 15% of all iPhone and iPod users. I think after Facebook we probably have the second largest network on the iPhone but it's somewhat latent. We're not collecting enough information. We're not engaging in rich enough of a fashion yet with those 6 or 7 million users as of today.

I guess this is the part where I think we should get much more interactive. I put up a whole bunch of lessons. I didn't take quite enough time to organize them. There's some overlaps and some gaps there. So why don't you just interject when we get to this point. There's a little bit of flow to this list. I don't know which of these lessons you're more interested in. The start-up lessons, the iPhone lessons, or the product lessons, but there's a little bit of all of it in there.

The first one is Angels versus VCs. The grass is always greener on the other side. So when I was with VCs it was frustrating because of the control and the pressure to shoot for the big [inaudible @08:38] even if that's maybe not what you want your company to be or the pace at which it wants to evolve organically. Now I have 40 investors, which means that if anything goes right or if anything goes wrong, you get 40 phone calls.

For a lot of our investors it's a hobby. Most of the time that means that they love it. You get cheerleader feedback from your investors. But it also means that they're not very disciplined and not very focused and that can be distracting. Every now and then you wish for the focus and disciplined attention you get from professional investors. One of my guys said, look you should take our VC money because I wake up in the morning and it's my job to help you. The folks that you have now, it's not their job. You're their hobby, their pet project.

Audience Member: How do you actually filter that? Do you let it all come through you?

Bart: Largely. Some of it ripples out but I've resigned myself to the fact that one way or another dealing with investors as an entrepreneur is going to be about half of what you do. Either it's because you're looking to raise money, or because you have a VC investor that will fire you if you don't do a good job, or because you've got 40 angels that need to be nurtured, maintained, and stay in contact with. When I spent not enough time with those people, they got cranky. They came back to my board and myself and said, you're not doing a good job communicating with us.

So now, every week, I'm meeting with at least one of these folks and I'm reaching out to these folks very aggressively. Realistically, it's about half of my time to be honest. Between current investors and future fundraising, 50% of my time. It always has been that case in every start-up that I've been part of.

Number two, as a said earlier, laying foundations for long- term success versus executing quickly. It's another one of those things where you can get it wrong both ways. If we had spent the whole time building a great team, we would have lost out on the first mover advantage and I'm not sure that I would be here today. On the other hand, because we executed so fast, we didn't properly screen recruits, we didn't properly build a team culture, and that blew up in my face pretty loudly. What happened was I hired the wrong lead engineer and had to fire him because he was not the right guy. That ended up all over the Twittersphere and on TechCrunch.

Even today, as we're recruiting, people always ask about it. Is there something wrong with your company? Why did you lose all these people? Well because they weren't on board. I've actually never changed what I was saying about the company. They were just saying different things behind our back. They weren't listening when I was telling them about that. I didn't take the time to get to know them. So that's about executing and taking the time to build a team in an environment where you have to execute very, very quickly.

Audience Member: How do you actually recover? Moving on with the team you've got? What did you have to do to deal with that? Deal with the investors and deal with the team you've got there?

Bart: In general I try to be a straight shooter. So I try to be open with it and deal with it in a fairly transparent manner. But it's hard. My Twitter lesson learned is that it's a very asymmetrical world that we live in. I don't think that we lived in that world even two years ago where you could bring an intern in for a month. You might think, who cares, if he doesn't work out, he'll be out of here and it's no harm done to us or that person. Well, if that's a guy with a Twitter account and he puts up a Twitter post, and he hangs out with three other buddies, all of a sudden there's some meme out there about you not being a great workplace.

Audience Member: Watch out Alvin. [inaudible @12:20]

Bart: So it's very new, it's very asymmetrical, and from where I'm sitting, it feels unfair because I can't really fully respond to that. You can't really engage on some of these things because you have legal obligations, a number of fiduciary obligations, and leadership obligations so you can't really fully engage. So the whole thing is asymmetrical. This whole Twitter thing imposes a new threshold of diligence, looking over your shoulder, and thinking about worst case scenarios.

I'm very reluctant now to hire anybody that hasn't had three or four years of work experience, that hasn't worked in a normal workplace. Somebody comes around that is 18 years old and loves hacking on the iPhone, I don't want to hear about it because you know what? This guy isn't professional. He hasn't had professional grooming. If I bring this guy into my company, they blow up, they go to a party, or they go on Twitter, that can be very costly to my company. So that's the bad part about it. It makes me much more cautious and less willing to bring on raw talent because I've seen firsthand how expensive it can be. The odds are quite great that raw talent might not work out.

A couple of years ago, that would just be the end of an employment relationship. But now, it becomes a PR issue and in our case we are a TechCrunch story. Everything we do ends up on TechCrunch. So it doesn't matter if it's a big deal for the company in reality, perception is everything. So you're transparent about it. But we're trying to be much more disciplined and more conservative about the kinds of people that we're bringing into the company. That's not necessarily always a good thing.

Number three. The app store is all about games. As I mentioned before, we thought that this was going to be about location-based services and the iPhone. Instead, it's about games and the iPod Touch. I blogged about this on TechCrunch a month ago. More than half our users are on the iPod touch. More than half our users are under 18. Most of those users are not always connected. So much for the idea of being a networked world where you always have location data about your users. They're not under contract through AT&T because they got a Touch. That's the whole point of having the device.

So along with that comes that bullet number 10, the YouTube model. There's a blog post that came out a couple of weeks ago. The title was "Why the app store rewards crappy apps." I think was the title of the blog post. It was a guy that worked for a company where they spend six months building a great app. The app store didn't really move the needle. It didn't really rise very high on the charts. He decided on the side to see what he could do in 24 hours and how high it could rise. It was one of the farting apps. When I say farting app I just mean it's an app that goes [makes noise] and that's all it does. He put that out, didn't promote it, and low and behold it became number five.

So his blog post is that the app store, think about it this way, you're Steven Spielberg and you're building this great movie, and the only distribution channel that exists for you is YouTube. Now you're competing with some dude taking a video clip of his hamster or 15 second clip from Saturday Night Live. That's the world that we're in on the app store. It is a monopoly distribution channel. The reason that the app store is on fire is that you've got a bunch of 12 year olds that buy an iPod touch. Before, they might have bought a Nintendo DS, and you have to spend $20 on a cartridge, there's a selection of 200 cartridges to pick from, maybe you can buy two of those things a month, and you can carry one in your pocket.

Well now, you can get this device for $199 that's almost as good as a Nintendo DS. You go on Wi-Fi once every couple of days, you get a farting app, the next day you get something else, a wallpaper app. Every now and then you buy a game for $2.99, you put some music on there and some videos. That's the app store. So as you're sitting there trying to building a business, you have to be cognizant of the fact that you've got this YouTube sort of bizarre approach to the world where you've got a lot of indie developers that are having fun cranking out an app a day or whatever it is, and then you have to figure out how you're going to be successful in that world.

So that goes back to it's all about games, it's all about the iPod Touch. I believe that Apple did not know that, that this was going to be a gaming platform. In fact, way down there, see where it says Jailbreak? One of the most interesting pieces, if you are a historian, is that again-- I've never worked at Apple. Apple is a bit of a black box, but what I assume is that they put out this device and they thought it was going to be a nice controlled, beautiful, perfect thing that you don't really let people touch and mess with. Right? What happened is underneath it, it had free BSD Or BSD and a whole bunch of developer tools that the open-source community and the new generation of hackers is very familiar with and they decided to break open the box.

They jailbroke the thing. They started playing with it. I think Apple did the smart thing by saying, we might as well get in front of this thing and open it up. But a bunch of 12 year olds jailbroke this thing a year and a half ago. As a result of that, now Apple is sitting on not one winning platform, with a next generation mobile phone, but on two winning platforms where they have now gaming platform that is going to move more volume than the Nintendo DS this year. So if you look at crowd-sourcing, the power of community, and this hacker movement I think that's a very interesting take-away here for those of us that are more historically inclined.

The apps have a very short half life. There was a story that got picked up in a lot of places last week by a company called Pinch Media. It was one of these advertising networks, analytic tools for the iPhone. He published a whole bunch of data. The point of it is, what we also see, which is that the half life of an app is usually measured in weeks more than months. Users lose interest very, very quickly. It's a very short half life. What we decided to do as a company is we said well, there's two ways to make that work. You can either optimize yourself for that world and crank out an app a day, the original style model.

I actually think our original style model of RockYou style apps is still a good idea. You might still want to go do that one, but I think we over-thought it. If you're going to do those, then really they should be farting apps and you should crank out one a day. If anyone wants to do one of those, I'll probably write you a check for $200, because I think you can do that. We over-thought it. Our apps take a month build. It's too much. If you're going to do it, then spent no more than two days on them.

That's one way to deal with it. Then focus on selling them for $.99 or having some good advertising relationships and building a network underneath it.

Audience Member: More like Twinkle or Twitter. They don't all have the same short half life, right?

Bart: Yeah. We can talk about Twinkle. It has 300,000 users now. It's one of the more successful apps. We're going to invest more in it because I think it's an interesting app. I prefer to take the Tap Tap Revenge example because that is the counter example which is that with Tap Tap Revenge we believe that there are a small number of apps that become staples and must-have apps that are able to maintain users, keep users involved, and never drop out of the top 50. With Tap Tap Revenge we have one of those.

The other ones that are in that category are very few. There's Facebook, there's Pandora, there's Shazam. Maybe I'm forgetting one but those are the peers that I think of for our little company. Shazam and us are arguably the iPhone original brands.

Shazam was around, but I think that they have greatly benefited from the iPhone. Pandora and Facebook of course are pre-existing brands that had the bulk of their users outside of the iPhone. So there are a couple of new brands here that have been able to establish themselves and we're one of those, arguably the biggest one.

So what we're doing is we're investing in it. We're really bringing up the production values, as you seen from the demo hopefully, and from the device that's been floating around. What we do is we keep it fresh. New music every week. Live features, contests, a tournament every week. So give people lots and lots of reasons to come back, lots and lots of ways to connect with their friends, lots of new content, keep investing in it.

So by doing that, we believe that we have a winner and reaches a critical mass where it's a must-have. We can keep the users interested because music and gaming are a pretty lethal combination in terms of something that users really want. If you can be the leader, there's real value there. That's how we've dealt with this short half-life. So we've taken the opposite approach. Licensing music is very, very important to us. Having branded music as opposed to catchy tunes from bands you've never heard of is very important to us.

So what we've been doing, we have a full time person, I spend probably 20% of my time doing music deals. This year we're trying to do more than a dozen of these custom branded apps. The first one that we've mentioned publicly is Coldplay. Where it's going to be around Viva La Vida, it's coming out in a month. For us what that is, is a land- grab factor to it where we want to do 20 of these deals so that we capture the biggest brands in music and that's going to make them less likely to want to work with other people. That's one part of it. It's a defensive maneuver to keep competitors from coming into our space.

In terms of user engagement and building a powerful platform, that's the other half. Users want music that they love. The third part is that we sell them as premium games. Our model is we say, look, we're going to do a Coldplay game. That's going to be $4.99 for 10 songs. That is the magic price. But then what we do is say, by the way, can we have one promotional track that we can feature in the free game?

What we're doing as a strategy is we're saying we have a free game. Our goal is to get maximum penetration, and really make it [panting]. Right? Sort of like if tomorrow Rock Band launches. I always assume that we wake up and tomorrow Rock Band launches on the iPhone, right? That's going to be a fantastic product. I assume that it's going to be $4.99. But you know what? It's not the end of the world. Because they're going to have 200,000 users but I have 7 million or 10 million by the time that they launch.

A lot of the power of what we're doing is that I building a community with a lot of numbers underneath it reaching a ton of people which allows me to get hundreds of thousands of users on paid games. Even if I need to stop doing music games because somebody comes around and kills us in that category I still have that community of users I can go back to.

So the strategy is let's keep investing and building that free community up because it's the most powerful thing that we have going for us. We have the biggest brand on the iPhone that's an iPhone pure brand. Let's do that in part by bringing in branded music. We bring a little bit of it into the free game and we make it available through content packs.

We've thought a lot about do you let anybody upload music? Any indie artist upload their own music? We haven't finally resolved that but we have a bias towards thinking that it is very important to make the game more social, to listen to the community, have online play, et cetera. But at the end of the day, users want music that they know and like. At some point we may do indie music upload your favorite song.

But at the end of the day, even Hulu and YouTube, right? Hulu is doing very, very well and very, very quickly come out of nowhere to catch up in terms of a business that's arguably bigger than YouTube today. People like branded content. So for us, our first priority is on the branded content site, getting Coldplay tracks in there and getting great music.

But we've had to walk away from a lot of deals. Any one deal we can walk away from, if an artist's or a label's deal terms are too onerous on us we just walk away. We probably have walk away from the majority of the deal we negotiate at the end, because if we don't do that, then as a business, we're not going to be able to have a sustainable business model.

The advantage that we have over some of these other music companies is that we don't need to have every song in the catalog. We need to have a critical mass of catchy tunes that keep our users engaged. Within each of the labels, there are three labels and five big publishers. Then there are five big management companies. So there are these fiefdoms. There's the guy that represents the band. He has his interests as the band manager under some big companies there.

Then there's the label, they're in the business of selling music. Then there's the publisher and they own the underlying content. These are distinctly different industry parties. But if you go within a label, you'll find that there's marketing guy. He loves it when he gets his song featured for free in our game because he's all about getting buzz about an act or a song. If we go to a marketing guy, then we can get Katy Perry in the game for free.

Then there's the licensing dude. He's under directions to make sure there's no more gratis license is what they call them. The guy, at this point, that dude will veto gratis licenses like there no tomorrow in any of these label, because they're under strict instructions to stop giving away music for free. Then there's the mobile guy, then there's the gaming guy, then there's the iPhone guy. It goes on forever. Then there's the band guy. Because every band has their own representative in these label.

So there are different stakeholders. If you go through the right person then your odds of getting some good music in the game without having to pay for it or without having to pay a lot for it get a lot better. But structurally what's going on is the argument of I have 10 million users and this is a great new way for people to discover music does not fly at all with the big labels or the big publishers. They will say no thank you to that argument all day long.

The artists and the Indie labels love that argument. Because they understand that they're going to make money on concerts and they're trying to build audiences and fan bases. But the labels and the publishers, they've got this intellectual properties and they make money by selling it and by licensing it. So they look at us and they go, you've got 10 million users. I don't care. I can get a million plays or a million downloads on iLike or on any number of places all day long. How am I going to make money? So what we say to them is, well, here are three things we can do for you today.

We can do a premium games, we can do riff splits off of that, and blah, blah, blah. That's the conversation we're engaged in. It takes time and energy. We've spent a fair amount of time thinking about whether it was going to be app supported or app sales that were going to be the main drivers of the business. Today for us it's both. We are able to have a footprint and a user base thanks to the free app. We monetize that through advertising. Then we use that as a promotional vehicle for premium apps.

At this particular point in time, we make more money through the premium apps than through advertising. We think it's going to get more so because the CPM rates and the advertising market in general is getting hit pretty bad by the economy. Long-term, I'm not sure which is going to be the more powerful model - the medium model or the premium all model. I'm quite happy to be on both sides of the fence. I would say if we were solely reliant on ads and on free apps today, we would not be where we are today. We were able to break even a couple of months now. If we only had paid apps we would not have a footprint.

People sometimes say to me, wow you've got 5 million users on Tap Tap Revenge. Imagine if you'd charged $.99 for that, you would've made $5 million dollars by now. I was like, no. You're crazy. Because I would've sold 100,000. I would've made $100,000. Nobody would know that I exist and we would be fucked as a company.

So you have to think it through. To finish up the thing here, there's piracy on this platform. Sometimes it's 50, 60, 70% so you have to keep an eye on that. This stuff is very sensitive to pricing, you have to keep changing your prices. It's very hard to hire because everybody thinks they're going to make $1 million here. Why should I get a job with you? This is the new nirvana where everybody can work from our garage without having to talk to people and make a bunch of money overnight. That makes for an eco- system with thousands of apps that are competing with you and it makes it hard to hire talented people that aren't going to walk the first time they have a cranky day.

Apple is a black box that is really hard to have visibility into what's going to happen next. But at the end of the day, it's all about having a great product in a good category and you have to get lucky as well. In our case, the getting lucky part was the first mover piece. So to come back to your question, you have to have some way of rising above the noise.

If you can rise above the noise and reach customers with a paid app, more power to you. But in our case we rose above the noise by being in a killer category, being there first, and getting to 6 million users and then being able to monetize those users. If you look at a 2% upsell rate in a premium model which is the typical rate, well for most people that's not so great. If you have 100,00 people and you up-sell 2000 of those and you're making two bucks off of them then that doesn't do much. But if the number gets big enough, then it works. Our numbers are big enough right now.

I remember sitting at a venture capital firm thinking about what to do next with my life. It was like, that's a great business idea. You weigh the pros and cons, maybe you're going to do it. I almost did one or two things. Then something comes along that you have to do because it's a thing you must do, you're beyond reason. Every time I've done something, it's that feeling. So for me, the way it worked for the iPhone was, I know this thing is going to be big, I have to be there, I'm going to be the first one there.

When I look at Android, when I look at [inaudible @30:17], at Microsoft with their new thing, and at Palm, I'm like, you know what? I know there's going to be more than one big player here. But none of these feel like they have killed. I don't get that feeling, that sort of imperative of action, and because of that, I'm more conservative. My general attitude has been, well I've got two engineers.

Let's say I've got two or three engineers I can employ to a new product. Would I rather have them work on Android or would I rather have them build another app for the app store? I know that if I put them on the app store I'm going to get a couple of million of users within three months. If we had put those people in the fall on Android, maybe we'd have 10,000 users on so Android app today. It just doesn't move the needle.

So to me, I follow my gut on those things. While I believe there will come a time when you have to be there, there is no obvious winner. That's how it's proven out. [inaudible @31:15]. The [inaudible @31:16] is not out yet. Windows announced their thing. It's not obvious to me who of these people are actually going to nail it. In fact, to me, the thing that's somewhat shocking is that if you'd asked me in June of 2007 when the iPhone launched, how long is it going to take for Nokia to get their act together or for Android to launch and have a competitive product? I would have said, give them a year. But it's been two years now and it's like, what the hell.

People don't get product. Why the fuck is it just because you play with this [inaudible @31:50], it's like Jesus Christ. I love these guys. I want them so succeed. We want there to be more than one winning platform, right? What I'm realizing is that it's hard to deliver quality product. There are so many pressures to make deals, to balance out various considerations. I think Apple is somewhat unique in just being ruthless about the user experience.

It's very hard if you're Nokia. You could be like, why don't they just copy the thing? Put a Nokia band on it and do their industrial design. It's really hard to have that commitment as a big company to go do that. That has been one of the bigger surprises to me. I had no idea it was going to take that long to get a really compelling alternative to the iPhone to market. It might never happen.

That's the good news for us. If we build a solid new app, first of all, people pay attention to us. We will get a certain amount of press coverage and curiosity where even if we didn't have the other app to directly promote it we would have that going for us. The numbers are big enough that I can use my user base to channel traffic to that app.

One of the things that's interesting is that if you look at the app store, one of the more interesting things in the Pinch Media report that came out last week is that if you're in the top 100, there's a 2.5x multiple on the number of downloads that comes from being in any top 100. In other words, users can't find you if you're not in one of the leader boards. You get a 2x from being in the top 25 or something.

So you're sitting there, you've got a winner app, it's got 200,000 users, then it drops to number 10 and you're at 100,000 users. Then you're at number 40 and you've got 20,000 new installs a day. What happens when you drop to 101, all of a sudden you'll drop to 1000 users a day or something. A lot. There's this big old drop-off. We are at the point where that law no longer holds for us.

With Tap Tap Revenge 2, we have a Nine Inch Nails version of the game. We can keep selling 3 or 400 copies of that game everyday until the end of time. Because people will keep discovering it by playing Tap Tap Revenge. So we have an additional way for people to discover our other apps. We're going to hopefully get better at doing that in an organic and natural way that doesn't feel like it's overly spammy or whatever to our users. Thank you.

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