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Mobile Games Raking in Cash

If I told you that a Mobile Gaming App could make upwards of $1 Million dollars in a day, would you believe me? Do you believe Business Cloud? Mobile gaming has been around since mobile phones became popular. If you had a Nokia 3310 phone surely you remember playing Snake. As phones began getting more complex with touch screens and sophisticated chips, so did the games. I remember playing Flight Simulator 1998 on PC and I was amazed to be flying a Cessna in around New York City, but now you can fly a plane on your phone.

person playing candy crush on nokia smartphone
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The Creators

The companies that create mobile games vary from private to public and small to large. Here are a few:

Voodoo, is small private mobile gaming company that just raised $200 Million investment from Goldman Sachs. Their games are somewhat addicting. Give Wind Rider a try!

Playdemic, owned by AT&T Warner Media, was a small private mobile gaming company that became part of a conglomerate through several acquisitions. While the studio produced big hits like Golf Clash, their efforts are now being shifted to creating mobile games for Lego.

Zynga, is a small public company that started growing after developing the game Words With Friends. After listening to the CEO, Marc Pincus, on the podcast Masters of Scale I began to think about where mobile gaming may be in 10 years from now.

luigi and super mario figure
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Some of the bigger public companies that are making mobile games are EA Games, Sony, and Nintendo.

Making Money

In mobile gaming, time is money..literally. One of the major sources of revenue for mobile games is ad serving. Free versions of apps have advertisements, however, users sometimes choose to pay for a better experience without ads which is another revenue source. Gaming has almost always been competitive. With the rise of e-sports, public viewing will likely drive additional revenue. In some cases, these companies are building public viewing arenas similar to traditional sports.

man playing game on personal computer
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Economic Value

In game currencies have value in the real world and players are considered athletes.  Gaming takes time and gamers want to win. In some games, building a character a certain way and finding items that your character uses is random chance built into the game. Just like in real life, scarcity drives prices up. Gamers will spend real money to buy things in the virtual game world.  Also, wagers are now placed on matches between individuals and teams. The competition is intense. With sport betting legalization mobile gaming will turn into the wild west.

Stock Buybacks Over Worker Wages

There is not enough discussion going on about the relationship between corporate growth and employee wages. The growth rate of wages seems to be a fraction of corporate growth as measured by the S&P 500. Last year S&P 500 gains were 21.8% while today’s wages have less power than last years wages due to inflation and they are growing slower than before the 2008 recession. It seems like common sense for a company to invest in its workers. Employees at S&P 500 corporations should be rich. If a corporation’s profit grows by double digits wages should follow suit. Where is the money going? Unfortunately, corporate greed at the top has fueled stock buybacks to make corporations more valuable at the expense of workers. At some point in time corporations cared about their workers. Now, it seems that workers are replaceable just like parts in a car. At the heart of this issue is logic versus morality. What is the return on investment that my corporation will attain through buying back stock against investing in the workforce? This is the type of question that needs to be addressed.

The S&P seems to be on a steady trajectory up.

Wages have not recovered to pre-recession growth.

Stock Buybacks

There is no sense in doing research that has already been done. Some Wall Street strategist believe that roughly $1 Trillion will be spent by corporations on stock repurchases in 2018. In an article written by Brian Sozzi at The Street, the argument is made that buybacks manipulate stock prices directly impacting executive compensation. The average worker does not have enough disposable income to invest in their own company’s stock and they are not typically offered stock compensation at mature corporations. It seems to me that the only parties benefitting from stock buybacks are large investment firms and workers who are incentivized by increasing stock price. The reason that corporations buy back their stock is due to a popular corporate investment strategy based on the premise that the management of a company knows the most about future growth prospects. If you knew that the stock price of your company would increase in 6 months from now due to initiatives that have not yet been made public you would certainly buy your own stock now. It’s simple.

Workers

Workers have little bargaining power when it comes to employment at large corporations. Corporations have built redundancies into their workforce so that workers can be replaced without sustained productivity loss. The work that needs to get done is standardized and just about anyone can be trained to complete the task at hand. In addition, workers are discouraged from examining business problems outside of their limited scope of responsibility. In some cases, working outside of a worker’s scope of responsibility is considered insubordination. Corporations are not only controlling the work that a person does, but also limiting the ways in which an individual can contribute value added activities. There was once a time when creativity, curiosity, and ambition were rewarded in the workplace. In fact, this type of work is rewarded in smaller startup companies. Startup workers receive stock compensation because they are considered to be contributing to the growth of the corporation. At what stage in a corporations life it is determined that workers no longer directly contribute to growth? I believe that all workers are contributing to growth. In large corporations it is commonly held that workers do not need to be compensated for work outside their scope of responsibility (new growth) because they were not required to do the work. In essence, intrapreneurs are working for free. Workers are not incentivized to solve major business problems. By keeping quiet and doing the assigned work without questioning the work that is being done you are considered a good employee.

A Solution

I propose the idea that large corporations should invest in employees who want to provide value added activities for the corporation. In a sense, this would be an internal venture capital arm. If an employee has a vision for something that could create value for the company, than that individual should be compensated in a similar fashion to a startup being funded by a VC firm. In addition, the traditional workers of today that are not providing value added activities should still be compensated in relation to the growth that their corporation is attaining. Without workers who maintain the machine, the machine will stop working. Shareholder return should not take precedence over worker compensation.

Are You Brand Aware?

Companies across the board are fighting for consumer attention. From grocery stores to mobile phone apps businesses want their consumers to keep products and services top of mind. Over the years brand awareness has changed and it continues to evolve. With the rise of the Internet brands not only market themselves but communicate directly with consumers. In general, consumers want to know the what, how, and why of your business. With all the buzz around Nike, let’s take a deep dive into their brand awareness.

What

What your business does is logical. Nike makes shoes and apparel for people with an active lifestyle. The iconic swoosh logo is present on all Nike products.

How

How your business operates is subjective. Nike sources materials from all over the world and employs people to manufacture their products with the help of machines.

Why

The why behind your business involves feeling and emotion. Just Do It. Nike’s brand inspires you to be the best version of yourself by being active.

Positive and Negative Awareness

The goal of brand awareness is to make sure that consumers think of your business when they are ready to buy something. The only way for a consumer to choose your business is if they know that your business exists. There are many ways to reach consumers. Mail, billboards, television, social media, and email are just some of the ways for a brand to reach consumers. Sometimes grabbing the consumers attention involves marketing in a gray area. This could be when your brand provides a stance on a controversial highly debated public issue. The good news is that people usually forget your stance on the issue and they just remember that your brand said something. If you’d like to read more about this topic in particular there are plenty of articles about this phenomenon. Get out there and grab attention whether it is positive or negative.

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But First Let Me Get Free Shipping

You can blame the e-commerce giant Amazon for the pain that some small businesses are feeling as a result of Amazon’s decision to offer standard free shipping on most orders. From a consumer standpoint many people have no problem with their purchases being shipped for free. As a business, watching my margins shrink and absorbing costs that were notoriously passed on to the consumer is quite a challenge. The name of the game is scale. Economies of scale explains how costs decrease as volume increases. If you fill up one truck with 10 boxes due west to California, the total cost of fuel, driver, and truck maintenance will be spread out over the 10 boxes. If that same truck was capable of holding 100 boxes, the shipping cost for each item would be decreased by a factor of 10. This is how Amazon is able to negotiate such low rates with logistics companies.

Perceived Value

The idea that we place a price on things that are not priced can be beneficial in e-commerce. Some examples are baseball cards, rock star guitar picks, and Disney Trading Pins. What these three things have in common is scarcity, emotional attachment, and low manufacturing costs. However, the buyer of these items does not care about the cost. The buyer cares about the value. A Derek Jeter rookie card will never be printed again. There are only so many guitar picks used by James Hetfield from Metallica. Disney and Apple once collaborated to produce Mickey’s Mac Club pins in 1990. I think you get the point. Theses items have big margins and can be used to offset shipping costs.

Shipping Pricing

So, you want to compete with Amazon’s free shipping as an e-commerce company. Find something that you sell with high perceived value and low cost. At the time of checkout you give the customer an option to choose free shipping slow, free shipping fast with purchase of this exclusive high margin high perceived value item of your choice, or paid shipping fast. Not all of your customers will accept the offer, but the offer acceptors will offset some of the free shipping costs. Give this a try and examine the results.

Something About Moats

The way in which corporations battle for market share is similar to the way in which civilizations of the past fought for land and protected their territory. Some members of the civilizations would venture out in an effort to expand reign while others would protect the fortress. If the resources of found civilizations were valuable, war would be waged in the form of a hostile takeover. If a civilization was sophisticated it had walls, weapons, and men trained for war. At some point it was determined that a moat could be used as an extra layer of defense. An additional form of resistance before the walls of the civilization could be reached. A barrier to entry. A moat is body of water that sits between the walls of a civilization and open land. In business, a moat is not water unless you’re in the business or extracting pure drinking water from a glacier in Antarctica. The fact that the water is from Antarctica May be difficult to compete with due to the resources needed to capture the water and transport it to market.

Corporate Moats

A moat is just a metaphor for something that protects your business from competitors. Businesses work hard to make profit, and that profit needs to be protected. Profit secures continued existence of a corporation just as resources are needed to feed a civilization. Competitors will try to take customers away from your company so that they can make a bigger profit. A competitor can be a company that already exists, or they can be newly formed entity. For existing competitors your company must find a way to differentiate your product or service in a way that provides more value to your customer.  This can take form of better quality, better service, or cheaper price. For a new entrant your company can make it extremely difficult for others to replicate. Startups are always looking for a weakness to exploit. Your company can protect its assets with patents and internal controls. See if you can find the recipe for Coca-Cola’s secret formula, or KFC’s proprietary blend of herbs and spices. Whether by law or strategic protection protocols your business can thwart the efforts of new entrants into your market. Your company can also use monetary investment as a deterrent for new entrants. This is why you do not see new airplane manufacturers popping up frequently. The amount of money that it takes to start competing with the incumbents may not turn out to be an investment with a positive return. It’s too risky given the amount of capital needed to compete.

Potato Chips

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Some corporations have built moats that are very challenging to surmount.  If you wanted to compete with Lay’s potato chips there are many obstacles to overcome before you can even get on a shelf.  Each state has different regulations on how food can be prepared and where it can be prepared.  These regulations must be followed closely to avoid costly problems in the future. Furthermore, the equipment needed to produce an ample volume of product at scale can be very expensive. Not only does is cost money to get your product on the shelf of a grocery store, but the buyer of product at a specific store needs to like your product and be willing to give you a chance.  Let’s say that you’ve finally gotten your product on the shelf.  You are now picking a fight with brands that are stronger than yours and have more resources at their disposal to push your product out of the market.  In a sense, it is like playing a game of No Limits Texas Holdem’ with the small stack.  You can still win, but surely it is a challenging road to victory. Lastly, if you’re entering the chip market it takes time to build relationships as FritoLay has done. Can you imagine how many contractual agreements have been signed to exclusively sell Lay’s potato chips.

Moats serve as an effective way to protect your business. While scaling your business it is important to understand how you can prevent competition from eating away at your business or even worse pushing your business out of the market.

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