Heyzap

Our firm, Union Square Ventures, just announced our most recent investment in a YCombinator backed startup called Heyzap.

Heyzap is a bet on the "deportalization" of casual games on the web. I wrote a post a while back about the deportalization of the web. And since then, we've only seen this trend grow. And we think there is no reason why game playing on the web will be any different than any other behavior on the web.

My partner Albert wrote a post on the Union Square Ventures blog about this investment and the reasons we made it. I hope you'll take the time to click on over and read it and let us know what you think.

#VC & Technology

Comments (Archived):

  1. mattmaroon

    Congrats on another great choice. Immad is one of my favorite people from the YC experience. He’s smart and driven and I know he’ll succeed.

    1. immad

      Thanks Matt. I feel the same way about you 🙂

      1. mattmaroon

        Awww. Group hug.

  2. Vladimir Vukicevic

    I like the idea very much. Clearly the Heyzap website is still a little rough around the edges but that will improve with time. The fundamental concept seems solid as does the trend that the concept rides on (deportalization).I think that branding is important for a company like this and its consumer-facing products. Often website-embedded games are associated with the malicious/dark web – i.e. adware, spyware, popups, etc. Thus the digital packaging will be important and should give off a safe, cozy, reputable feel.Is the business model purely based on ads within the games? Licensing will probably make more sense for mass websites like NYTimes.com where more clutter might turn people off.Finally, I believe that mobile should be an important consideration from the beginning. I would love to be able to sit on the train and play a different game very day. Obviously there are different strategic considerations for the mobile ecosystem.Hopefully this helps. Good work.

    1. immad

      Hi VladimirThanks for the feedback.We definately have a lot of work to do still.Branding: Agreed about branding. Do you have feedback on how we can improve how safe, cozy we come across?Licensing: Something we have discussed and several publishers have requested. So we have this on our future plan.Mobile: Currently we are web focused. Many of our games would work well on mobile and We will explore some mobile opportunities in the future.Cheers

      1. Vladimir Vukicevic

        Hi Immad,I think you have a potentially huge concept with Heyzap.Branding: It’s tough to figure out what moves people. I suspect that the placement of the games on the websites will be important – i.e. how integrated the game window is within a particular site – but that is somewhat out of your control. It might make sense for you to clearly highlight the Heyzap logo on the underlying gaming background – so that people begin to associate your games across the web as a part of the Heyzap network – this also somewhat depends on your publishers’ preferences but it’s what makes me feel comfortable about clicking on the relatively dumb Orbitz games. Maybe even partnering with another brand like Nintendo or Sega or even a non-gaming brand like the NFL, etc. might help in the beginning. If the users trust Heyzap they will hopefully trust the games you provide.And then of course color and other design elements of the gaming window might play a part as well. Successfully portraying the safe/cozy feel will probably come from user testing and playing around with different options.Licensing: Glad to see that you are already thinking about it.Mobile: Even though you are web focused at the moment it’s probably wise to have mobile in the back of your head and ready to roll out relatively soon. You’re smart guys so I’m sure you know the power of mobile – mobile access is double the Internet access around the world. Albeit most mobile access still comes from non-smartphones, that is quickly changing and SMS-based games/communication could represent another channel for your developer network especially considering that no one has really been able to successfully monetize SMS-based advertising.Hopefully this helps. I’m available to chat if you have any more questions or just want to discuss other related topics.-Vladvukicevic.blogspot.com

  3. danhau

    I was one of the early beta testers of HeyZap and it’s been awesome to watch them grow – swine fighter and all.

    1. judegomila

      Thanks for the testing Dan….

  4. rsouthan

    The deportalization of the internet is a good example of “the power of small,” and it’s definitely a growing trend. Even the importance of Google is going to be shrinking as the internet evolves to be smaller and more specialized. Wolfram Alpha, though I can’t say I’ve managed to get it to work yet, is theoretically an example of this specialization. Heyzap seems like a smart investment.

    1. fredwilson

      Thanks

  5. Guest

    Congrats on a great addition to the USV portfolio.Two thoughts: 1) What’s up with the TC link snub??2) I think it is a great idea for Heyzap to invest more than $500 but less than $1,000 on a copywriter for the About Us and FAQ section on their website.

    1. fredwilson

      I don’t know what’s up with TC but I left them a comment about it

      1. kidmercury

        dont sweat it boss you know they are just a bunch of jealous haters ’cause you have a better blog than they do. you need me to put the smackdown on ’em just holla

    2. immad

      Copy is definitely something we could improve. Will work on it. Thanks

  6. lilibooz

    Suprised by this investment.I have a VC backed casual games business and understand the metrics involved, specifically with Mochi Ads related advertising revenue.Best case sustainable (aggregated across countries) CPM from Mochi: $0.50. Mochi pays publishers, i.e. Heyzap 10% – namely $0.05 CPM. – And even that is predicated on Heyzap hosting the games themselves on their servers and thus paying for their own bandwidth.Earning an effective rate of 5cents CPM for serving 1,000 games whilst at the same time having to pay Amazon? at least 10 cents per GB of bandiwth (1,000 gameplays takes way more than 1 GB!) – I fear that for each and every game HeyZap serves they will actually be losing money. – Unless there is another business model in the pipeline such as virtual currency/subscription (which is doubtful, as integrating them with 3rd party content is a rough deal) – I am not sure how you guys expect to see a return.

    1. fredwilson

      I think you’ve outlined the strategy pretty well

  7. Henry Yates

    I find the deportilisation of the net fascinating. Some segments seem to be more prone than others – portals in some vertical segments such as CraigsList in classified have built up such a strong market position that it is hard to see how their market share will be eroded. They combine a market leading position with a defensive strategy of not permitting feeds making it difficult for other players to gain critical mass or get distribution.Do you think Craigs List will hold on to its position or will other players that have an audience, such as Facebook, be able to challenge it, eventually leading to a more distributed model?

    1. fredwilson

      My friend mark pincus tried to compete with craigslist with a social net approach and failed at it. Maybe FB could do it. But CL has taken a scortched earth approach where so much is free that its not easy to compete with them

      1. Henry Yates

        I agree – a super aggressive shrink the market strategy like that is hard to combat. I read somewhere that the Oodle ceo Craig Newmark said that if he had known how hard it would be maybe he would have tried something else….

  8. kidmercury

    looks like another great investment that will help me make money. thanks a lot boss!

  9. skysurfer172

    Hasn’t widgetbox been doing this for a while now? Just curious what the differences are. . .

    1. fredwilson

      widgetbox, clearspring, and other widget vendors have been doing this for years, but none of them are focused exclusively on games.

  10. danbenyamin

    My thoughts on this are echoed in several of the other comments — I didn’t know about the “deportalization of the internet” post from 2006, but I find it thought provoking. Have you thought of following up that post, including more recent advancements such as the iPhone App store, twitter clients, et al ?

    1. fredwilson

      no, but i should. thanks.

  11. Jon Michael Miles

    Casual games are awesome for me. In fact my favorite games of the last few years were the Orbitz mini-golf games. It didn’t change my behavior to use Orbitz over Hotwire, but I did enjoy the games and made the association. They were perfect, little slices of fun that let me use waiting time for something other than a YouTube re-run of “I’m on a F**king Boat.”Recently I spoke on a panel in DC with Shanna Tellerman the CEO of Wildpockets.com a online 3D gaming development platform, and it’s clear to me that the intersection of the hardcore gamers and the casual catch-as-catch-can games is blending in new and exciting ways.Best of luck with that investment, it’s the next layer in the stack to quote a certain VC we all know.

    1. judegomila

      Interesting point.We see online 3D games on the rise, multiplayer “casual games” on the rise and “social games” connecting with distributed social graphs.The hardcore, social and casual gaming markets are definitely starting to intersect which opens up many possibilities.

  12. David Gillespie

    Fred, can you comment on how the relationship with Heyzap affects the one you have with Zynga? Given they’re both plays in the casual gaming space, is it a bet on synergies with a compelling producer and a distribution platform together? Or do you view them in isolation from each other?

    1. fredwilson

      we don’t see them as that similar beyond their focus on gameszynga creates, buys, and owns their games and operates them largely on social nets, although that is changing with iPhone and other developmentsheyzap is strictly a distribution and monetization partner for game developersi’d love to see them work together

  13. anonymousvc

    With Heyzap making it easy to embed games anyplace on the interwebs combined with the relative ease that casual games are produced from scratch and even greater ease with which they can be re-purposed, there is a great opportunity to customize casual games as advertisements. Bejeweled’s gemstones can become Chevy, GMC and Buick symbols for a GM ad, and the little character in a pre-produced action adventure game can be made to resemble Jack Bauer. The possibilities are limitless.

    1. fredwilson

      That’s a neat idea. But it seems like the game developer would have to incorporate some code in their games to do this in game advertising

      1. anonymousvc

        True.Perhaps Heyzap could serve as a broker. Advertiser comes to Heyzap, Heyzap scans its database of thousands of games and proposes 2-3 that could work well (I assume savvy advertisers would have already done this research and planning themselves or have some specific guidelines for the Heyzap team). Heyzap then contacts the game’s original developers who do a quick mod and include any necessary code for tracking the gamvertisement and for splitting revenue between the developer and Heyzap. Just a thought, I may be missing a critical piece somewhere.

        1. judegomila

          Interesting – this idea has come up before somewhat through a conversation with Y Combinator Paul Graham.It sure would make adverts more engaging and be a way of legitimizing the market for those ‘punch the monkey’ type interactive ads.

        2. fredwilson

          This is one area of promise for sure. There are several and most have been mentioned in this thread. Once again proving that comments are where the action is in blogging

      2. GiordanoBC

        It has been done before, and if you look at MSN, often you will find versions of some games (including Bejeweled, mentioned before) customized for advertisers.The problem is that, unless the game is built from the ground up for this, customizing means lots of programming and design work (some games are easier to customize, depending on the mechanics), and for that reason it’s difficult to scale it up enough to turn it into a business in its own right. Also, you would need to have a constant stream of advertisers to make it worthwhile, and at the moment the in-game ad business is not exactly giving stable returns.

    2. immad

      That is a great idea. The game could easily swap certain graphics to change the “ad”. It will probably take a while to get to critical mass with advertisers and game developers to make such a system.

  14. GiordanoBC

    Hi Fred,congrats on the investment. I have to say that I don’t really get the rationale of a distribution play in the web games space, though… the cost of going direct is very low, and every game studio I know is trying to shorten the path to consumer. In fact, most casual games distributors are struggling, as their margins get compressed by portals on one side, and developers on the other, when they aren’t cut off completely. There is a risk of limiting the service to lower tier players, and lower quality products that can’t get to market otherwise… the casual games market is already flooded with low-value products that, while bringing traffic, have very little monetization potential: as the space gets more crowded, just having a web or social game isn’t enough: you need to have a *great* game, and for that you need real, experienced game devs. Adding a virtual good model is also pretty challenging, unless you are only distributing and the developer manages it (but then the value is very low), because different games call for different virtual currencies as well as different way to integrate them in the game. Best of luck to the team, anyway, and curious to see how it pans out.Cheers, Giordano

    1. judegomila

      Interesting points. It’s important to differentiate between those distributors who merely package a couple of games up for publishers and those that add much more value to the stack. This stack that we have built/building at Heyzap includes not only smart distribution technology but also tackles the user recommendation and monetization problems.On the quality of content side we are filtering the content in a smart way. The best part about this space is that the problems are currently in an unsolved state including monetization.

      1. GiordanoBC

        Hi,naturally I don’t know the details of your strategy, so I’m speaking in broad terms here, but it seems to me that, as a distribution play, the bigger risk is disintermediation, namely the most successful devs on your network would be compelled to strike on their own, once they have enough reach (most will likely build hooks into the game taking people to their own site, and build a user DB over time). There are 3 scenarios if that comes to pass:1) You are able to provide so much value to them that they don’t have an incentive to do so2) You become simply a channel for them, in addition to their own, and take a smaller cut of revenues for it3) You start developing your own products and use the traffic you are driving to promote themAgain, I’m speaking without exact knowledge of your biz model, so I might be off-base. In any case, syndicating games based on a microtransaction model is probably the most challenging part because, unless they are simple games, the currency model will be specific to the game itself, likely with a dual system of currency (money and experience-based) tightly integrated into the game and, often, into a metagame. The only cases in which I can see it working are cosmetic items (avatars etc.) and in-game items for simpler games, such as the 1st generation social games that are on the market now. As more and more people enter the space, though, social gaming companies need to step up their game, and I don’t know how long games based on simple gameplay and with very little in terms of mechanics will encounter the favor of the audience.Cheers, Giordano

        1. fredwilson

          GiordanoThanks for all the feedback. Heyzap is just two really talented dev/entrepreneurs right now. So getting this feedback early is helpful. It crystalizes the things they need to be thinking about as they build the business

          1. GiordanoBC

            And I wish them all the best. Guys, if yo uever want to exchange ideas, hit me up. I’m always happy to discuss games, often obsessively 🙂

          2. judegomila

            Thanks Giodando,Let’s continue this conversation over email. Many interesting points to go over.

      2. GiordanoBC

        Btw, I think there’s definitely lots of space for companies aiming to build the underlying infrastructure and tools of the online casual game space… I wrote a piece on this a few weeks ago on Casualgaming.biz. Maybe you might find it interesting: http://www.casualgaming.biz

        1. judegomila

          Reading…