The Origins of RedOctane (Before Guitar Hero)

I am reading a Harvard case study about Netflix for a class at Kellogg right now and reading about its timing of switching to unlimited rentals in the summer of 2000 reminded me of when I first heard about the company that would become RedOctane, the producers of Guitar Hero (did you see: Rock Band is coming back) and a startup success story.

I remembere the exact article posted on April 17, 2000 at IGN: WebGameZone to Offer Import Rentals

Ever wanted to play the latest and greatest games out of Japan, but don’t quite have the budget to do so? There are many titles that are already out that deserve a good run through, but with prices floating around $70 each, one cannot afford to play them all. Well one online retailer noticed this and decided to start a bold new venture: renting import Dreamcast games Online.

WebGameZone is taking the high price of 70 dollars per game and changing it to a simple $4.99 rental. The company is already known for being the largest online videogame rental store, but until now has never offered the latest Japanese titles.

So what does a five dollar fee get you? How does 10 days of usage sound? That’s right… you get over a full week of gaming for the price of a typical fast food meal. After you are done with the game, you just send it back in the pre-paid, pre-labeled box that is provided.

Obviously, we can’t guarantee the quality of the site’s service, but it is certainly something import-hungry gamers may want to check out. Thirty import titles will be made available at first, with more and more being added as time goes on. This is truly a unique venture, and will be interesting to see if it works out.

Both Mike Won and I read the same article and while I am not sure exactly what happened next, one of us found out the company was in Sunnyvale (in Silicon Valley, 20 miles away from where we lived in San Jose), and I contacted them right away about internships. I would have happily worked for free, but got a quick response from Juan, came in a few days later, met the rest of the team (Kai Huang, Charles Huang, Dean Ku, etc.) and essentially had a part time job (probably at $7.50 an hour) at the age of 19 shipping game discs and learning about Japanese import games for the Sega Dreamcast. This probably all happened within 10 days. I was employee #9 or #10 until I left to finish my degree at UC-Berkeley in 2002, but my time there in that first stint is summarized in my LinkedIn profile:

In my first experience with RedOctane (formerly WebGameZone), I started as an intern, learning about shipping logistics. Over time, I was promoted to Customer Service and given complete freedom (and responsibility) to interact with customers and learn how to resolve issues without backup support in a loss limited structure.

Through these experiences, I learned vital lessons about the human psychology, empathy, effective communication, and stress management, critical lessons I still use on an everyday basis.

Promoted from Intern/Shipping Logistics (2000) to Customer Service / Game Inventory Buyer (2001).

Other fun links I found: (but couldn’t find the old logo)

Free Rental Offer

RedOctane Begins Renting Import PlayStation 2 Games

Woa! WebGameZone actually sent it to me!!

I Was Right! [About Coffee Meets Bagel]

It’s not often that I can say I was right, but I feel can do it this time. Six weeks ago, I wrote (about dating service Coffee Meets Bagel):

CMB received $2.8M in venture capital last May, which would not cover its marketing budget for this next year. Yet, its is only asking for 500K from Shark Tank. This leads me to believe CMB is mainly on Shark Tank for the PR and don’t want to give up very much equity, has another round coming, or does not intend to go with its stated marketing plan at all – it would not have the money for it. If it needs to grow massively to become profitable, CMB has no other option than to take the buyout offer.

And so it turns out CMB 1) indeed needed the money despite raising 2.8M eight months ago, 2) didn’t want to give up much equity to get it 3) because they had another round coming 4) to fuel marketing.

In other words, good PR boost. I do think it is odd to raise so much more money so recently after the venture round. CMB must have started looking for more money just 3-4 months after that round. This also suggests that the investors believe the product has hit the right mix of stickiness (if people come on – they will stay, and thus funds are needed to accelerate users into the app).

On Feb 18:

Dating App Coffee Meets Bagel Lands $7.8 Million In Series A

Coffee Meets Bagel, the dating service that focuses on quality over quantity, has today announced the close of a $7.8 million Series A financing round led by existing investor DCM Ventures. Quest Ventures and Azure Capital also participated in the round.

How we won the Kellogg Marketing Conference’s Creative Lab (and a really big shoe)

(This was written by my friend and teammate Justin but reposting it here after it was originally posted at the Kellogg Blog)

How we won the Kellogg Marketing Conference’s Creative Lab (and a really big shoe)

Kellogg’s Marketing Conference is by far one of the largest events at Kellogg. More than 500 attendees, hotshot panelists from companies like Google, SC Johnson, Kraft, Johnson & Johnson, Pepsico and Uber, incredible keynote speakers and the vibrancy of the student leadership team make this an exciting and informative event.

For the first time, this year’s marketing conference featured a creative session competition hosted by the Google Brand Studio. Six teams of four members competed to solve a marketing prompt delivered the day of the competition.We were excited to participate because of our interest in the rapidly evolving tech industry.  Prior to Kellogg, each of us had spent some time in the tech industry:

  • Shriansh worked with mobile and financial software
  • Josh ran several startups in the internet technology space
  • Michael served as COO for Vietnam’s first social networking website
  • Justin worked in venture capital and product development for startups in mobile and clean-tech.

 The ‘crazy, fun and different’ nature of the Creative Lab began with how the challenge prompt itself was chosen. The 500-odd audience members had to vote (with the results being live-streamed right in front of us) on their choice between two challenges. The winning prompt was basically given to us on the spot for us to work on. 

The session itself was 35 minutes of brutal creativity. Spurred on by three of Google’s best, we brainstormed and came up with a solution. Using some of the tools and methodologies used at Google, we worked in our team to flesh out ideas, challenge thought processes and uncover insights to form a strategic solution to the prompt.

The four of us definitely felt the pressure as the clock was winding down to present in front of the other five teams and the three leaders from Google’s Brand Studio. In the last few minutes we wrote down our strategy and how we’d execute it, while also figuring out who’d tell the story.

Through the lab, we learned that creativity can be rapid, structured and apparently time-boxed. We experienced first-hand how rapid brainstorming floods the mind with ideas. Frankly, we feel that being left with more time to ponder the challenge might have derailed the intuition and raw expression that came forward in our strategy. Given how much fun we had, we’ll definitely carry these methods into our classrooms and future organizations.

After each of the six teams presented, the Google representatives selected three teams to move forward and present to the conference attendees. Afterward, the audience and judges voted using a phone app. After tallying the votes, the speaker announced, “And the winner of the Google Creative Lab competition is … Team 1! Michael, Shriansh, Josh, and Justin!”  We were extremely excited!

We won a trip to Google’s headquarters in Mountain View, Calif., where we will present a more detailed version of the idea to a few Google Executives.

Oh. And we won the Kellogg Marketing Conference shoe!

Justin Saeheng ‘16 is currently a student in the MMM program. Prior to Kellogg, he spent two years at a venture capital firm in the silicon valley focused on clean-tech, semiconductor, telecoms and sensors.  He worked closely with startups through product innovation, development and commercialization as well as strategic market entries into Asia and Europe. Connect with him on LinkedIn.

Shriansh Shrivastava ’16 (@Shriansh) is currently a student in the MMM program. He grew up in India, spent 10 years in the UK (undergrad + an awesome job working with unreleased cellphones +  then worked on a mental health suicide prevention project – using smartphones, of course) and finally spent a year in Canada working for an ATM software company. Connect with him on LinkedIn.

Joshua Borin ’15 is currently a student in Kellogg’s One-Year MBA program. Before Kellogg, Joshua ran a small business, survived the rise and fall of an e-commerce company and made an industry-noticing impact on stopping trade of counterfeit goods online. He loves helping small companies overcome the challenges that arise during rapid growth and scaling. Connect with him on LinkedIn.

Michael Nguyen ’16 is currently a student in the MMM program. In the past he served as Chief Operating Officer (COO) at Cyworld Vietnam, the country’s first social network; co-founded Mimo, a popular Twitter-like service in Vietnam; and helped RedOctane launch the Guitar Hero video game franchise. Connect with him on LinkedIn.

Analyzing the Shark Tank – Coffee Meets Bagel Episode [Startups]

I do not really watch Shark Tank, but two recent episodes struck my interest. The first was the episode with Singtrix, which has a connection to my time with RedOctane and Guitar Hero. The other was about Coffee Meets Bagel, the January 9th episode (thanks to Kevin Tung Nguyen for sharing the episode) that you can watch below:

Coffee Meets Bagel (CMB) relates because of my work at FriendsPlus, which we sold pre-launch to Noi.vn, Vietnam’s largest dating service in 2013. Like CMB, FriendsPlus focused on creating a non-meat market dating environment focused on the needs of female users, encouraging offline meets between users who explicitly opted in to each other. Some commentary on the episode and CMB:

  • The team should have been prepared for questions about user numbers. By deflecting the question multiple times, one wonders if they have given different numbers to different people and thus could not say publicly on television what the current numbers were (they would not want to be shown lying), or if CMB is simply at the bottom of the range given (100-500K users). As Cuban implies, there is a big difference between 100K and 500K users, especially considering that CMB has been around for close to 3 years (more on that below) – it suggests limited market or non-compelling and non-naturally sustainable growth.
  • The team mentions that CMB was invested in by a Match co-founder. That person is Peng Ong, who I actually know. Tinder is invested in by Match, the firm. CMB launched in April 2012, 5 months before Tinder, but Tinder is estimated to have 50 million users today. The team cites Match’s 800M in revenue as a sign of their own potential. That’s the same logic that says you should automatically advertise on Facebook because it has 1 Billion users. Yes, there is some superficial logic there, but you need to delve a bit deeper.
  • The Sharks are right in that CMB can easily be copied – look at the popular Noonswoon from Thailand.
  • CMB’s revenue and users are a bit alarming. I discuss it over the next points.
  • Last year, CMB generated $87K in revenue. If that is $0.50 per user on average, this would imply 170K users. This is reasonable for this type of product and follows what the team said. I don’t know how long the average user stays with the product. If they actually have more than 170K users, revenue is actually less than $0.50 per user. Remember this $0.50 figure for later.
  • This year, CMB expects to make $1M USD, but expects to lose $1M, which means costs were $2M USD. Current user acquisition is $0.30 per user.
  • CMB expects to break even at $10M in revenue next year, from 4M users. They expect to spend 3-4M (let’s assume it’s 4M) in to bring on those new 4M users. That is $1 per user. They expect $2.50 per user in revenue, but did not include CMB’s existing users in that revenue figure. This leads me to believe that CMB user lifetime with the service is not particularly long (1 year or less) or that the number of current users and the revenue generated from them is not significant enough to include. This implies the lower user figure in the given 100-500K user range. Increased user acquisition costs suggests this product does not spread virally, something about it does not compel others to talk about it, or you are trying too hard to bring someone who may not be the right fit for your product. If this is the case, the projected gain in average revenue per user (ARPU) for these kinds of users is also a concern.
  • How did CMB estimate $2.50 per user per year moving forward? CMB is going to jump from $0.50 to $2.50 (500%) in 1 year?  How does adding users generate more money per user? Since the revenue is from digital currency / microtransactions, does having more users make the product more sticky? If so, this implies the business is not sustainable now. If that is true, and focusing on this niche is not sustainable, what does this imply about the value the product is creating for its current users? Does having more users actually mean more date / chat frequency which means I need to buy more microtransactions? Again, this is not a meat market like Tinder in which you go on to browse (consume) through people – for Tinder, you need a ton of users. For CMB, you are getting one match per day carefully selected for you. Are there more types of transactions that CMB will be processing in the future that will generate new forms of revenue?
  • Let’s compare CMB to a Facebook type of product. Facebook generates more revenue by adding more business models. Example, Facebook could sell different types of ad products, and can charge more money with an increased user base (market power) increasing the efficiency of those ads. It can also take a share of revenue that is generated within the platform (apps, games), or sell emoticons. Thus, more users could lead to more revenue, but you also need to add more models for those users, it’s not automatic. This concerns me about CMB – it currently just sells digital currency.
  • Why is there such a high burn rate (company spending)? With $2M in expenses, this is over $150K in burn per month. You might want to look at CMB’s jobs page to find out where the money is going: https://coffeemeetsbagel.com/jobs/. From my experience: company trips costs a sh*tload of money. Based on LinkedIn, I found about 15 full-time employees at the company. Let’s say on average, each employee costs the company $100,000 each per year (this is low when you include office space, benefits, etc.). The founders mentioned they each make 100K, which for the Bay Area, is low. Based on CMB’s $1M revenue, and $1M in losses figure, however, the team is suggesting they spend 133K per employee per year, which is possible. (This doesn’t include marketing, which at .30 per user at 170K users, would only be about 50K and can be ignored for now). I know that the Bay Area is a different beast with employee expectations, but in my opinion, startups in need of cash need to learn how to conserve cash better.
  • CMB will break even at $10M in revenue and 4M+ users. With $4M going in advertising, where does the other $6M go? If you stick to the $133K per employee figure, the company would need to grow to 45 people. Perhaps some people are getting raises. Infrastructure should not be a particularly significant cost yet. I don’t think you can have 45 people in a co-working space either. If the cost goes to $150K per employee, that is still 40 employees. If the team can cut the fancy office, parties, trips and focus on profitability, I expect there is a good amount of fat that can be cut. (One of RedOctane’s first offices was a big warehouse with no air conditioning in Sunnyvale – no frills worked out for them)
  • I wonder if CMB’s quoted revenues include the 30% share that is given to Google Play and iTunes for microtransactions. Otherwise, there is no cost of goods (COGS).
  • Why does CMB need to grow to be profitable? This, along with CMB’s slow user growth after nearly 3 years troubles me. I could understand the growth in the sense it’s not a meat market app. It’s for people who want quality, real relevance over gross quantity. But why can’t it be profitable now? This makes me question the revenue model. Is CMB going against its core by going to mass-market advertising? If the app is not for everyone, it should be positioned accordingly. I don’t see how growth rescues them long term.
  • So what should CMB do? I would consider changing to a premium / subscription model to get revenue from more (higher % of users pay, but less overall users) users at higher rates and focus on that smaller niche audience to reach profitability. Do people pay for love? Yes, as long as it is provides real value. CMB seems to be providing that.
  • The Mark Cuban $30M offer: I don’t think he is actually making the offer, he is saying “what if”, to which the proper response to a hypothetical is of course no. If you say yes, you have publicly given a limit to what your company is worth (the team has suggested a $10M valuation with $500K for 5%) for no reason. You would never want to create the sense you do not believe in your product to preposterous levels. If it were a legit offer, I believe they should have taken it. 3X valuation is nothing to joke at, as much as the team may claim to look at Match’s $800M in revenue or Tinder’s billions in valuation. The team suggested CMB is a cash hungry business intent on growth. CMB received $2.8M in venture capital last May, which would not cover its marketing budget for this next year. Yet, its is only asking for 500K from Shark Tank. This leads me to believe CMB is mainly on Shark Tank for the PR and don’t want to give up very much equity, has another round coming, or does not intend to go with its stated marketing plan at all – it would not have the money for it. If it needs to grow massively to become profitable, CMB has no other option than to take the buyout offer.

My MBA Interview with Accepted.com [Kellogg, MMM]

MBA/MMM Interview with Kellogg Student: Using Empathy to SucceedRecently, I was interviewed by Accepted.com for its series of MBA Student Interviews. I just saw that it was posted today!

You can see the original article at: http://blog.accepted.com/2014/12/12/mbammm-interview-with-kellogg-student-using-empathy-to-succeed/ or the text below. Many thanks to the team at Accepted for the honor.

This interview is the latest in an Accepted.com blog series featuring interviews with current MBA students, offering readers a behind-the-scenes look at top MBA programs. And now for a chat with Michael Nguyen, a student at Northwestern Kellogg’s joint MBA/Masters in Design Innovation program.

Accepted: We’d like to get to know you! Where are you from? Where and what did you study as an undergrad? Where are you currently studying?

Michael: I was born and grew up in the San Francisco Bay Area. I was unfortunately a mediocre student at Cal (UC Berkeley) because I spent a lot of my time playing video games. Thus, even though I started in Computer Science and really enjoyed it, I eventually changed to Comparative Literature (which is actually really difficult – I did not know this when I switched) after a couple of years. However, the time spent in both majors has helped me immensely throughout my career.

I am currently at Kellogg (Northwestern) in its newly revamped MMM program, which is a dual-degree MBA and Masters of Science in Design Innovation program run in conjunction with the McCormick School of Engineering and Segal Design Institute.

Accepted: Can you tell us more about your joint degree? What does “Design Innovation” mean? What do you plan on doing with your degrees?

Michael: The MMM program ends at the same time as the normal Kellogg two year MBA program but now starts one quarter early, in the summer. Though this does come with additional cost, this also means you get to enjoy the summer in Chicago! Another great benefit is that you will become very close with your MMM program mates, the other 59 students (the program is limited to 60 per year).

I personally define Design Innovation as an end-user empathy lens for looking at the world, but one that is not just relevant to developing products. If you manage a team, you need to be able to put yourself in team members’ shoes before you can create a rally point. If you are trying to sell a product, you need to know what your target customer is thinking – who they are, why they do what they do. It’s not that someone is just “stupid” or one of “those people” you can generalize. Everyone is unique and design thinking helps you use those lessons in your career.

From my time working in Southeast Asia, I used empathy in order to succeed at creating compelling products for different types of people as well as to win trust and motivate teams despite cultural and language barriers.

After the program, I am looking to return to smaller tech startups or perhaps start my own. However, the range of careers that others in the MMM program are seeking is very broad. Many are looking to enter into consulting, with more top firms now embracing design innovation, but there are also students looking to go into finance, consumer packaged goods (CPG), and technology.

Like the MBA, I think the Design Innovation degree is a toolset you can adapt for any career trajectory. Simply, the Innovation is the change you make in an existing product, process, or organization; the Design is the user-driven approach.

Accepted: It looks like you’ve got an interesting work history! Can you talk about a few of your most recent projects?

Michael: Previous to Kellogg, my professional background for the last decade has been in Business Operations at multiple startups. My first work experience was helping RedOctane become acquired for the Guitar Hero game franchise by Activision. I ran its e-commerce operations, including shipping logistics and customer service.

I then spent 7 years in Vietnam, becoming COO of the first social networking service there, Cyworld Vietnam, a 70 person startup funded by SK Telecom and IDG Ventures Vietnam. During my time in Vietnam, I worked closely with partners such as Nokia, LG, and Yamaha as well as local mobile carrier giants such as Viettel within the restrictions of one of the rare capitalist-socialist governments in the world.

During this time, I co-founded the most popular Vietnamese microblogging service, Mimo.vn, in 2010, helping it grow to 2 million users. Before I left Vietnam, I also worked on another side project which became a dating app called FriendsPlus. It was sold pre-launch to the largest dating service in Vietnam, Noi.vn, and the technology and service concept was integrated into Noi.vn as a whole.

In general, I have a deep interest in how different types of people connect with and add meaning to each other’s lives.

Accepted: What is your favorite thing about Kellogg so far?

Michael: When you are in a good class (happens more often than not thankfully), you can compare it to seeing a brilliant performer, whether that be musical, athletic, or theatrical. In many ways, that’s exactly what it is – a professor with a tremendous academic and real work pedigree who is educating you about different aspects of business. Because of this, I actually like to sit in the front to get the best view. After all, I am paying over $60,000 a year for this show!

What most surprised is me how every class links to each other. In a business setting, that wouldn’t be surprising because well, that’s business. If you run a company, you cannot just be a product guy with no understanding of finance and vice versa. But in this class format, you will see each class bring in aspects of the entire MBA education. Thus, if you are taking Finance, you are not asked to just do math. You are asked to think about what firm and market strategies change the math in the real world and how you sell that story to someone else (your boss, management, investors, etc.).

I feel that in every class, you are not challenged to solve the problem but to create and then sell the story so it can be implemented in a company.

Accepted: If you could change one thing about the program, what would it be?

Michael: In the busy lives of the MBA students here (classes, groupwork, recruiting, competitions), it’s not easy to make deep connections with others in the student body. I think this problem likely exists at many schools, so despite Kellogg’s reputation as a great school to make friends and be around team-focused individuals, no school can create the perfect social setting for everyone.

Thus, if you are an international student or more of an introvert, Kellogg’s emphasis on big social group events may be uncomfortable at times. CIM week can feel like a rehash of your undergrad years where the majority of students solidify their social groups within the first few weeks and do not go outside their comfort zones to befriend people that may be unlike them.

It is something that Kellogg is aware of and looking for initiatives to help address the issue. In fact, a friend and I are working on a mobile product that we hope will help with this and we are looking to get the Kellogg administration’s support for it as well.

Accepted: Looking back at the MBA application process, what would you say was your greatest challenge? How would you advise others who may also be facing that challenge?

Michael: I actually decided to apply to MBA programs two months before Round 1’s began, and I also wanted to make sure I applied for Round 1. This meant I needed to prepare for the GMAT and every other part of the application in a very short amount of time – an MBA was something I had not seriously considered for the previous five years. Fortunately, things worked out, and I got into a great school.

However, others should not follow this route. An MBA program is a very serious time and financial commitment, one that is essentially your last chance to use an academic setting to create a long term impact on how people view you professionally. Do spend the time (at least 1 year in advance) to prepare your applications properly to maximize your chance into getting the program that’s best for you. Beyond that, also use that time to get a proper understanding of which schools you can actually get into.

I am not a big believer in backup schools. If you there is a school you absolutely want to go to, and your background is a good fit for that school, spend the most time on that school. Even if that means working an extra year to improve your professional accomplishments, I say do it!

Accepted: Do you have any other admissions tips for our readers?

Michael: Although we are asked to pretend we know what we want to do after our MBA, few people really do. Because of this, don’t be worried if you really will follow-up on everything you talk about in the application. What’s most important is to think about what you would want to do right now and think through how going to a particular school is well suited to help with those specific goals. I think schools like Kellogg are not judging your ambitions but your ability to construct plans and build towards them.

For Kellogg MMM specifically, it’s a great program that is not getting a lot of publicity right now, likely due to the recent curriculum change. However, I recommend (to everyone) to look at it more closely and talk to people in the program (like myself). Many people I’ve met at Kellogg regret not applying for it because they had misconceptions about the program or thought it wouldn’t be relevant to their career. Once they better understood how the program works, however, they realized its applications were much more broad than the words “Design Innovation” may initially suggest.