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SEPTEMBER 29, 2004
By Olga Kharif Wireless Gaming Is Getting Serious Gamemaker Jamdat Mobile is launching its IPO into an environment that's suddenly heating up. More could follow You could say Jamdat Mobile, a mobile-gaming provider about to sell its shares to the public, is playing a version of its own popular bowling game. By adjusting the virtual ball's spin and power, Jamdat is hoping to score a perfect 300 the last week of September in its initial public offering. If Jamdat pulls it off, it would be a first for wireless-related IPO this year. The rest have ended up dropping 30% to 40% after the first few days of trading. Jamdat, already selling its wares to the likes of Verizon Wireless and supported by chipmaker Intel (INTC ) and server maker Sun (SUNW ), hopes to do much better. The company and its shareholders should price 5.3 million shares at $13 to $15 on Sept. 29 or Sept. 30, and the stock could quickly appreciate by as much as 50%, predicts Tom Taulli, co-founder of IPO consultancy CurrentOfferings in Newport Beach, Calif. "This is a very exciting IPO opportunity," he says. "It's gotten some cool factor to it" because mobile gaming is a relatively new phenomenon. "A BIG BUSINESS." Some signs show that money is flowing to this small but simmering industry. Late last year, Trip Hawkins, founder of video-game developer Electronic Arts (ERTS ), received $8.3 million for his new venture, mobile-game developer Digital Chocolate. The startup has raised more money since. And anecdotal evidence indicates that a first-quarter explosion in wireless venture funding unseen since 2001 is benefiting the industry. U.S. mobile-gaming revenues are projected to more than double from $91.3 million in 2003 to $203.8 million in 2004, according to tech consultancy In-Stat/MDR. Companies like Los Angeles-based WireJack, a rival mobile-applications marketer, are seeing a 30% month-over-month increase in subscriptions. "The [Jamdat] IPO is really a sign of things to come, that mobile gaming is going to be a big business," says Clint Wheelock, an analyst with In-Stat in Scottsdale, Ariz. As more mobile phones become capable of running complex graphics and as wireless networks become faster, this market should reach $1.8 billion by 2009. Jamdat is seeing the result of this hot growth. It lost about $7 million on $13.5 million in revenue last year, but it was profitable in the first quarter of 2004. Jamdat already sells more than 70 games to 72 carriers worldwide, including Verizon Wireless and Sprint PCS. And its backers are about to grow in numbers: the CFO of auction powerhouse eBay (EBAY ) is expected to join Jamdat's board following the IPO. FORMIDABLE THREAT. As mobile gaming gains critical mass, current market leaders will certainly face tough competition from large gaming companies like Electronic Arts, which are starting to ramp up their own mobile efforts. This year, EA plans to release three mobile titles, and a mobile version of its popular role-paying game, The Sims, should ship in 2005. Considering its success with console and PC games and its marketing muscle, EA could pose a formidable threat to smaller companies like Jamdat and other startups over the long run. The newbies could compete against the larger players by banding together through a series of mergers and acquisitions, Wheelock believes. Here's why: Today, an average wireless service provider resells about 250 game titles. Carrying so many games is costly and hard to manage, so most carriers want to reduce that number to about 150. They also want to cut the number of vendors they deal with, again, to slash expenses and allow for more standardization, for example, of game controls, Wheelock says. A larger mobile-applications provider has more of a chance to succeed. So Jamdat's main rival, Mforma, has been on an acquisition spree for the past six months, acquiring game-development studios in South Korea, Britain, and San Francisco. Soon, it'll announce another acquisition, says Robert Tercek, chief strategy officer for Mforma Group in Los Angeles. Jamdat can't comment until after it goes public but with the $42 million or more from its IPO, it's likely to start making acquisitions as well, say analysts. And if Jamdat's IPO does well, other wireless-gaming startups could follow its lead and go public or reach for more private-equity funding.  Kharif is a reporter for BusinessWeek Online in Portland, Ore. Edited by Beth Belton
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