Pokémon GO - A Thought Snack I: Origin Earth (Week 1)

A story.

In the beginning, there was Earth.

Not the one most think of when they think of 'the Earth', but a different Earth. In a story.

The Earth in the story I'm thinking of was presented in Chapter 13 of Snow Crash (a very cool cyberpunk novel by Neal Stephenson) by the hero/protagonist of the story - who was conveniently named Hiro Protagonist.

"There is something new: A globe about the size of a grapefruit, a perfectly detailed rendition of Planet Earth, hanging in space at arm's length in front of his eyes. Hiro has heard about this but never seen it. It is a piece of CIC software called, simply, Earth. It is the user interface that CIC uses to keep track of every bit of spatial information that it owns - all the maps, weather data, architectural plans, and satellite surveillance stuff."

That was then (1992).

And if you want your mind further blown, you'll see two paragraphs later Hiro meets the 'Librarian daemon', who is remarkably like a Siri or Alexa interface to a search engine. Even better, all of the above is happening in Hiro Protagonist's office in a virtual reality, single-Street-mapped world called Metaverse where avatars interact with the 3D virtual world through VR and processing power, interacting with each other and software agents. But that was 1992, and the first web crawler and search engine called Jumpstation built by Jon Fletcher, "forgotten father of the search engine", did not come until December 1993, where ten days after it started crawling it had discovered everything that there was to discover on the internet. Things have come a long way since then but Jon's still an all-around super-smart and drily funny guy and a first-class human being who has worked in some interesting corners of finance for 20+yrs.

John Hanke

Spinning another thread in our web we look at John Hanke, who as a student co-founded a company which made the first MMO (Massively Multiplayer Online - usually linked with G (Game) or RPG (Role-Playing Game)) - 3D game (remember that bit!) called Meridian 59 (which was commercially launched in 1996). Hanke then went on to found a Keyhole Corp, which was - when it was acquired by Google in 2004 - described as follows:

"With Keyhole, you can fly like a superhero from your computer at home to a street corner somewhere else in the world – or find a local hospital, map a road trip or measure the distance between two points," said Jonathan Rosenberg, vice president, Product Management. "This acquisition gives Google users a powerful new search tool, enabling users to view 3D images of any place on earth as well as tap a rich database of roads, businesses and many other points of interest. Keyhole is a valuable addition to Google’s efforts to organize the world’s information and make it universally accessible and useful." [sound familiar?]

"With an Internet connection, users enter an address or other location information and Keyhole’s software accesses the database and takes them to a digital image of that location on their computer screen. The interactive software then gives users many options, including the ability to zoom in from space-level to street-level, tilt and rotate the view or search for other information such as hotels, parks, ATMs or subways. Unlike traditional mapping technologies, Keyhole creates a dynamic 3D interface for geographic information."

The story is that this effort was inspired by the concept of 'Earth' from Neal Stephenson's novel.

Google

After Google took over Keyhole Inc, the project was renamed Google Earth. Hanke became VP of Product Management for Google's 'Geo' department which, among other things, further developed Google Earth, Google Maps, Streetview, Sketchup, Local, and Panoramio (it also had a separate app which was location-based virtual tourism called Field Trip).

But while all of us use at least some of these items, we hadn't necessarily thought about games. John Hanke had.

In 2010, Hanke set up Niantic Labs inside Google “specifically to explore that intersection between mobile apps and geolocation and entertainment” according to an interview Hanke did with the FT in 2015.

A feature interview in makinggames.biz last January with Hanke (then still with Google) asked... "You previously worked on Google Earth. Why did you decide to start developing games?"

Hanke: "Well, I like games, and I think when you like games it's hard to look at a map and not imagine a game on that map [note: this is where you'd remember the mention of Meridian 59 from before]. A lot of people in our team who worked on Google Maps or on Google Earth dreamed of building games and talked a lot about it. We even had games in mind in the very beginning when we created Google Earth. From time to time, Sergey Brin would encourage us; he always thought there should be a game you can play within Google Earth, for example. That's why there is actually an easter egg flight simulator in Google Earth that lets you fly around in a jet plane."

"But yes, games are something we've always wanted to do, and I think it's a really natural way to use this expertise that we have at Google. Also, games are the most popular thing that people do on their mobile devices; more than 80 percent of people who own a mobile device claim that they play games on their device. According to research, games are often the number 1 or number 2 activity that people do on their devices, so for Android as an operative system, but also for Google we think it's important for us to innovate and to be a leader in this area. So, rather than copy what other people are doing we're really trying to be innovative and to help invent the future of mobile gaming."

Reading the wholearticle is well worth one's while (best article on the future of Niantic I have seen) if you want to learn about how they see location-based games. It is clear they see this as a truly social experience.

An FT article on July 15 writes...

"He says he is motivated by an urge to get people out from behind their computer screens and do more exercise, as players chase Pokémon around its virtual maps. I don’t think we were built to sit in a dark room with a piece of electronics strapped on our head,” he says, in a swipe at virtual-reality goggles such as Facebook’s Oculus Rift. “I’m more enamored of going outside and building real social connections.”

Niantic Labs and Ingress

Seven months after the makinggames.biz article, in August 2015, Niantic Labs spun out from Googleas an 'independent company' after having spent five years building its technologies and launching a game called Ingress. Ingress launched in 2012 and by the time of the spinout from Google had 12 million downloads and a loyal following.

Ingress is a very interesting location-based game where one walks around as a member of one of two teams trying to capture portals (set up by alien life forms), or destroy the opposition's ownership of that portal. It is something like a cross between Google's Field Trip app, a very rudimentary 'skin' to google maps, and a GPS-based massively multiplayer online game attached. As explained later, it has the structure one should look at to see what Niantic has planned for Pokémon GO. Try it. It's an interesting game. It is very clearly a model for Pokémon GO's evolution as a business, and from what I can tell of the weaknesses of Pokémon GO as reported by some users, I would expect Pokémon GO to 'learn' from Ingress to keep it 'friendly.'

In January this year, Ingress was at 14 million downloads (it's apparently 15 million now), 5.4 million 'portals' created, players had walked 258 million kilometers, there had been 700+ million portal visits and the game was being played in 200 countries.

Those Ingress portals are the starting backbone for Pokémon GO. As John Hanke explains it in an interview with gameinformer last Monday, there were a couple hundred thousand portals from Google Maps which were, as an article in Mashable last Sunday put it, formed from "a beginning pool of portal locations for the game based on historical markers, as well as a data set of public artwork mined from geo-tagged photos on Google."

Then Niantic asked for user submissions of good places. "We encouraged users to submit places that they thought should be portals within their neighborhoods where they were playing Ingress.... And we gave them... you could earn a medal for that, you could earn badges for submissions of portals. And we established some guidelines: It should be safe and publicly accessible; it should be a work of art, an important piece of architecture, or unique local business; and then we had a group of operations personnel that reviewed those submissions and approved the ones that seemed to meet our criteria." Niantic stopped accepting user submissions before the spinout because of the heavy operational load. In the article, John Hanke was specifically asked whether they would open portal submission for Pokémon GO and he was non-committal. "We are actively working on a way to re-enable submissions of portals within Ingress. Whether or not we extend that within the Pokémon Go app or not, I don’t know at this point" citing the significant processing burden. The FAQ is similarly non-forthcoming.

Interestingly, the old (2013) interviews with John Hanke seem to indicate Niantic had not expected the users to become social networks. Reading between the lines, he seemed to expect the 'team' members would be teams like in regular MMOGs where people may know each others' handles (usernames) but wouldn't know each other in real life. This is surprising because in fact the game is explicitly built around teams who attack and defend real-world sites. If the game is successful enough, team members (and opposition members) are bound to meet each other. In Ingress, clubs and fan sites were formed and eventually, events were held (you can think of them as giant treasure hunts or easter egg hunts with a smartphone 'guided orienteering' aspect to them). Some are extended periods (from a few weeks to a few months) called 'Anomalies' where teams can collect larger-than-normal amounts of XM (you have to get involved), and there are 'Mission Days' which bring players from both sides together, almost like a Comic-Con event.

Dozens of subsequent interviews with John Hanke point out the purpose of Ingress is to get people out and about, exercising/walking and seeing the world and its sites around them. By summer last year the 10mm+ downloads and 1mm average daily users (figure from John Hanke in May 2015) had recommended 15 million new geo-locations (of which 5.9mm had been processed by Niantic). That is a lot of participation. The numbers may be off because the GPS data had suggested 258 million kilometers walked which means the 1mm users are averaging something like 700 meters a day with the game on/open and GPS running. Which is perhaps less impressive. [Early reports for Pokémon GO users suggest lots of people complaining about sore legs. You've been warned. (Users are called "Trainers" and they go to, 'attack', and 'defend' "gyms." Hehe)].

Who Owns Niantic?

Google was apparently a Day1 investor in Niantic and in October 2015, Niantic raised a US$20 million Series A round with Google, Nintendo and The Pokémon Company also investing with an extra US$10mm to be paid based on performance targets met (I assume they have been met in the first week). No split of the equity stake is publicly known however, interviews with Hanke discuss the help given to Niantic from Google since launch with regard to office space, hardware/servers, connectivity, data, Google's intellectual property, so one assumes the spinoff was created with John Hanke and Google each having significant stakes in Niantic (with Google contributing the ownership of life-to-date work and other help), and likely some of his long-time partners also having stakes (and options), then everyone getting diluted (but Google less so) by the first Series A round with the three companies, then the second Series A round which was 5 more investors for US$5 million in February 2016, which looks like a 'doing-a-solid-for-friends-and-family' kind of round but also was there to sign up strategic advisors and future partners (including Fuji TV). There is a hint on crunchbase that the second series A was done at a pre-money valuation of US$150mm. If the two rounds were done at the same $150mm valuation, It might make sense that it was $20mm based on a $100mm valuation with a $10mm step-up on performance perhaps putting it to $150mm. For that, I will suggest the $20mm Series A round was done at $100mm. Again split is not known but if the new game was with Nintendo and The Pokémon Company offering cash and use of IP, one might expect a healthy participation. I will, for the sake of throwing spaghetti at the wall, suggest the original split could have been a NianticTeam/Google split of 70/30, which when done at a $100mm post-money valuation, in order to keep Google at 30% and get an equal Nintendo/TPC split, it would have been 7/7/6 for Nintendo/TPC/Google. This is all rude conjecture but getting to a $150mm pre-money valuation for the second round (as suggested by crunchbase) would have made the percentages the same. In any case, we know that Nintendo does not have enough to call Niantic an equity affiliate (15-20% of voting rights) because Nintendo did not report it as such in its Annual Report released two weeks ago (would have been on p7).

Jump Forward to Spring 2016

Actually, first let's jump back. The relationship between Google Maps and Pokémon started as an April Fool's prank (video link) set up between Google and The Pokemon Company in 2014 when there were Pokémon hidden inside Google Maps. Later, Niantic approached The Pokémon Company because of the natural links to exploration and discovery of Pokémon in the other games. Upon approach, it turned out The Pokémon Company CEO Ishihara was an Ingress fan, and as John Hanke put it - a 'compulsive' player. How involved is The Pokemon Company? Game Freak founder Junichi Masuda is the producer of the new Pokémon GO game.

That started the ball rolling obviously and the announcement of the Pokémon GO game last October heralded the start of bringing external content into Niantic's mapped world. In March, Niantic started field testing in Japan. Later in March, on its blog Niantic released a few screen shots and an explanation of what Pokemon GO would be like.

"Players will walk to hatch previously-acquired eggs that might reveal new Pokémon. Eggs and other special items such as Poké Balls can be acquired at PokéStops - located at interesting places such as public art installations, historical markers, museums, and monuments." [i.e. at Google Field Trip and/or Ingress 'portal' locations].

"Yes, there will be battles. Players will be encouraged to join one of three teams [in Ingress it is two] in order to compete over the ownership and prestige of Gyms [like an Ingress portal, but different]. They will do this by placing their captured Pokémon in a friendly Gym or by battling with an opponent’s Pokémon in another team’s Gym [similar actions are in Ingress]. Gyms - just like PokéStops - are also found at real world locations." [like in Ingress and Google Field Trip (and Google Maps)]

In April and May field testing expanded to Australia, NZ, and then the US. In June they announced the camera feature and presented with Nintendo at E3.

And on July 6 last week, John Hanke announced the launch of Pokémon GO and the upcoming $35 Pokémon GO Plus (which will mean you can keep your phone in your pocket while exploring). In the Pokémon GO trailer on the Niantic website, you can see the GO Plus (shaped like a cross between a Pokeball and a Google Maps pin) on one user's bag strap at 0:47-51 and then at around 1:23 in the video. Using one will allow players to be notified when they are at a Pokéstop, or allow users to "throw" a Pokéball by pressing the button, capturing Pokémon which they have already captured (if it's a new one, you have to take out your phone), and vibrating if successful. This means you can get to see each new one you catch but can build your level without excessive phone-watching.

And in an interview with Reuters on Friday, July 15, Niantic CEO John Hanke announced the rollout of the game to 200 countries "soon" (with another article suggesting "in the coming days"). He noted that the rollout of Ingress to 200 countries came over the space of 'a month or two'. He noted South Korea and China have obstacles because of rules regarding maps in South Korea and because of Google exposure to China.

Pokémon Players - How Many Are There?

It was immediately the top downloaded free app on the App Store and within two days was the top-grossing app. How many downloads is that? There are lots of tallies. As of Wednesday, CNET had it at 15 million in the US, SurveyMonkey was at 21mm, and recode was at just under 10 million. It's more now. The early success was clearly a significant surprise to the Niantic team and there was not nearly enough server capacity to support the early popularity and so there have been widespread complaints of server outages. As of Monday, fixing that was a key short-term goal for the team followed by the rollout to new countries.

Does it really matter? No. There will be a LOT more.

According to Famitsu, on the 20th anniversary of the Pokémon franchise (end-Feb this year), total software sales in the franchise had been 279 million units. In my experience, that means even more that in terms of players. In addition, there is a new title coming this winter called "PocketMonster Sun & Moon", and this may add another generation of players. In the meantime however, perhaps 5% of the world's population has played a Pokémon franchise game, and given that this time it can be played for free rather than shelling out a few dozens of dollars on a game and a few hundred on a console, the potential market for Pokémon GO is MUCH bigger.

For those who haven't played and want a guide on how Pokémon GO is played, one is here.

This piece is first in a three-part series to be published this weekend on Smartkarma.com on Niantic & Pokémon GO, Nintendo and its economics, and a thought snack on the possible future of Niantic and Pokémon GO.

my first impression: the Rabbit Hole could go a lot deeper than casual observers may know.

For more discussion on Ingress, and Pokémon GO's uptake and monetization, there's much more below the fold...