Rambling On About Being Acquired

In chatting with people and thinking on the Pearl Abyss acquisition of CCP, I starting browsing though my own memories of acquisitions.

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Working in Silicon Valley, being bought is pretty much a way of life.  I have been through eight acquisitions directly in my career (plus working for two VC funded startups, which is like the worst aspects of being acquired only it never stops), watched a few more from close up, and have listened to friends recount their tales.

Generally a company acquires another for one of the following reasons:

  1. Customers – You are a competitor and we essentially want to get you out of the way
  2. Entering a Market – You’re in a market we want to be in and it is cheaper to buy you than do it ourselves
  3. Tech of Expertise – Occasionally true, but unless your company has some nice patents or is doing something Google is suddenly into, mostly not
  4. Brand – It can happen, though usually a secondary item
  5. Investment – Usually in one of four flavors:
    • Buy you, fix you, sell you for more or take you public to cash out
    • Buy you, fix you, keep you for the revenue
    • Buy you, strip you to bare bones, and milk your revenue (the CA model)
    • Buy you as a way to hide money, especially Russian money
  6. Synergy – This a bullshit word that means nothing when used during an acquisition announcement

I currently work for a company that has acquired a bunch of other companies over the years for the first two reasons, but the part I work in was acquired for the third reason, and the whole company has since been bought out by an investment group that seem set on one of the first two sections of reason five.  We share a building with a group that was acquired for the second reason and who then had to absorb another group that was hired for the first reason.

My last company was acquired three times for the first reason, and none of the companies could get our customers to leave our product for theirs.  Rather than lose the maintenance revenue, they kept is alive and even now I know somebody who is still supporting it.

And I had a good friend who worked for Palm (and got me a refurbed then-current PalmPilot Professional, to put a time stamp on that), saw the founders split off and form Handspring, watched Palm acquire Handspring which ended up with Handspring running Palm, after which he got sick of the whole company and went to work for HP.  HP then acquired Palm and basically sent him back to his old job in the building he left.  He quit that and went to another company and HP got out of the phone business, selling the Palm name to somebody who was going to revive the name for Android phones, but even that seemed to drift off.

Acquisitions are pretty much a constant.  There is even a Silicon Valley business model based on the idea of getting acquired, with Google being the dream buyer.

Being bought can suck.  After the first acquisition of my last company, which had been billed a as a “merger of equals,” the new CEO got up and made sure we knew it was no such thing, that we were those ones being bought and his company was in charge.  I was pretty sure that “merger of equals” was just another form of “synergy,” I was just surprised that he felt the need to discard the pretense and start treating us like shit on day one.  But that helped me feel all the better when, in the end, not one of our customers would move to their product and, after they spun us off to be acquired again, they themselves were acquired and disappeared.

And sometimes being bough can be okay.  As it turned out the company that bought our group actually wanted to tech we had, have adopted it, and continue to use it eight years down the road.

All of which brings me around to CCP and why they got acquired.

It certainly wasn’t for the first reason.  EVE Online players can’t simply be folded into Black Desert Online, and it wasn’t for the second reason as Pearl Abyss is already in the MMO market.  I don’t think internet spaceship MMOs is big enough to be a market on its own.

There could be tech or expertise reasons to buy CCP, but I suspect not.  Any tech would have to be abstract enough to be transferable, while expertise is difficult to pass along.  Likewise, I am not sure the CCP brand brings much to the table.  EVE Online gets more mainstream media coverage than a lot of games, but I am not sure how much the public retains.

And, while both companies have said a lot of synergy-like things, that is never a good enough reason to buy a company.  It is a nice to have, something that can make things work better, but as a stated reason it is BS.

So it seems like an investment.  EVE Online is undoubtedly a minor gold mine, as any MMO that can keep a six figure population is.  If CCP were able to focus on it, tend it, and keep it going it could pay off handsomely for years to come.  I suppose they could spiff up CCP and try to resell it, but it seem more like they bought a revenue stream.

And for CCP this should be a boon.  If the last fifteen years have shown us anything, it is that CCP has spent a lot of time and money trying to create another money earning product.  As a solo company, that no doubt felt like a survival imperative.  Now, however, as part of a larger company, they can just be the EVE Online division.

What I don’t think will happen is any sudden change to how EVE Online is run.  If you go to the AMA that CCP did in their forums yesterday you can see CCP Falcon repeating over and over that no changes are planned. (I recommend that you click on his avatar and click the filter button so you only see his posts, otherwise the whole thing is overwhelming.)  I do not doubt that.  The last thing that Pearl Abyss wants after spending $425 million on a company is to kill it by radically changing how things are done.  I am sure they are well aware of the Incarna and and “greed is good” debacle.

This could very well be a renaissance of sorts for EVE Online.  You’re never going to get avatars into the game.  Falcon was specific on that, so you can let that pipe dream go.  But CCP as part of Pearl Abyss and focused on EVE Online could mean good things.

Does that mean there will never be any changes?  Of course not.  During times like this people always want assurances that go out to infinity, and that just isn’t possible.  If CCP screws up, if EVE Online sees a big drop in revenue, if another company buys Pearl Abyss, or any number of other possibilities come up, the situation may change drastically.  But unless Pearl Abyss is just dumb, they’ll remain fairly hands off.  Some redundant positions will be eliminated.  That always happens.  But for the most part I would guess we’ll see business as usual.

Only time will tell.  But if you’re in a lather about a Black Desert Online pay to win cash shop appearing in New Eden any time soon, you’re kidding yourself.

Other speculation:

13 thoughts on “Rambling On About Being Acquired

  1. tvgrimreaper

    “And for CCP this should be a boon. If the last fifteen years have shown us anything, it is that CCP has spent a lot of time and money trying to create another money earning product. As a solo company, that no doubt felt like a survival imperative. Now, however, as part of a larger company, they can just be the EVE Online division.”

    It’ll be a relative financial boon simply if they stop CCP from pissing money away trying to diversify.


  2. Bhagpuss

    There’s a variation of #2 here that might be relevant. I thought the most convincing explanation I’d heard for the acquisition so far was the way it gives Pearl Abyss access to China.

    The Chinese Government is on something of an anti-gaming crusade right now and South Korea seems to be in the frame as one of the chief villains. Access to the huge Chinese gaming market for Korean companies is supposedly getting quite difficult. CCP already has access, very likely on different terms to those available to a Korean company and apparently China is more interested in keeping on good terms with Iceland as a customer and potential client than it is with S Korea (which it probably sees as both a commercial competitor and a political enemy).

    Also, one of the big problems Korean game companies (and others) seem to have with China revolve around the Chinese cultural issues over certain aspects common to many video games, not least among them blood, gore, sex and death. EVE, by dint of having no avatars and combat conducted entirely through spaceships, very neatly sidesteps much if not all of that.

    If I had to bet on the reason behind the acquisition Trojan Horse to enter Chinese Markets would be a definite runner.


  3. Wilhelm Arcturus Post author

    @Bhagpuss – I’ve heard that, but I don’t know enough about the situation to evaluate its likelihood. If you told me instead that CCP would have trouble with their NetEase deal because they are now owned by a South Korean company I would probably give it about the same weight. Unless Pearl Abyss is going to have CCP front for them I am not sure how that would work out.

    It could be a factor, but in a $425 million deal for a company that has been shopping itself around for ages now, I am not convinced it is high up the list. Again, we’ll see.


  4. SynCaine

    The whole ‘let CCP focus on EVE’ aspect is interesting, and if all goes well, could be a huge boon.

    On the other hand, what is to say that the first quarter revenue dips for EVE, Pearl doesn’t step in and insist CCP put more focus into the cash shop, either directly or via gameplay changes (slower skill gains, new ships with crazy skill requirements).


  5. Wilhelm Arcturus Post author

    @SynCaine – There will come a day. The hope is that with CCP relieved of the need to throw money at other projects that the day will delayed. And who knows if crazy cash shop items, gold ships and what not, will end up being worse than CCP just collapsing if revenue tanks, because EVE is pretty much all that has ever paid the bills since it launched.

    My real worry is when New Eden will drop below critical mass. EVE isn’t dying as fast as Gevlon and Dinsdale claim… it ought to be dead already the way they’ve sold it previously… but the logins are declining. For games like EQ or WoW, you can keep them up in maintenance mode and make money with 20K players. Probably less. But EVE needs people or the market stops working, the supply chains fall apart, the citadels don’t get fueled, and the moons don’t get fracked. What do you do when nobody is there to buy your ore? The moon goo market for tech II is already a tenuous and would be in chaos if the Imperium wasn’t mining more moons than all the rest of New Eden combined. There is so much interconnection between parts of the game that a failure in one could lead to an overall failure.

    It is another area of the game that probably needs academic study.


  6. Dinsdale Pirannha

    Nice to see you have not forgotten me, given my recent lack of interest in CCP or your bosses’ RMT machine. I asked the question on Noizy’s site, and it is rhetorical (wrong term) or rather, impossible to answer. How much of the 425 million was based on the intrinsic value of Eve, and how much was for other things that CCP brings to the table, like access to the Chinese market?

    I have no idea how much Black Pearl abides RMT’ing on an industrial scale, since I know nothing about that corp. But I do so hope they replace Hilmar and his C-suite guys, and come down like a ton of bricks on the RMT cartels. That being said, it is very unlikely they will. You don’t rock the boat on new investments by going after some groups that represent at least 20% of the income base.

    If I see the cartels getting crushed, and the leadership of these cartels abandoning the game, I might actually be tempted to resub. I still have many billions in assets, as well as I guess 16 months in plexes. It would be fun to get in local in goon space and gloat as their leaders craft the reasons they are quitting.


  7. Wilhelm Arcturus Post author

    @Dins – They say the clowns are the most memorable part of a circus. Also, you do have a habit of showing up here and saying the exact same thing over and over. Repetition leads to memory.

    Lots of people, myself included, are trying to project what is going to happen with CCP. Unfortunately for you and Gevlon, your anti-Goon revenge fantasies are not likely to come to pass. Likewise, Gevlon is going to be disappointed when CCP Falcon isn’t fired for making fun of him.

    And there are plenty of other unlikely fantasies circulating. Everything from bringing back walking in stations to making high sec perfectly safe has had its moment. And of course there are the people who think the sky is falling, that the cash shop will go crazy.

    My call is that basically nothing is going to happen, at least not right away. There will be some staff adjustments and Pearl Abyss will watch the books, set some revenue goals, and start talking with CCP management how best to keep things going. That is what you do when you buy a company as a long term investment as opposed to trying to flip it. EVE already makes money. CCP could be reshaped so that it nets more money. But it still needs to be developed, so they won’t go the Computer Associates route and strip it to the bones and run it as maintenance to maximize revenue.

    As for valuation, we covered that a couple years back in comments. In 2015 CCP made $67 million in revenue. Other video game company purchases seemed to be going at about 8x revenue. But CCP isn’t a growing concern, so you need to discount that some. In 2016 CCP made $87 million in revenue. We don’t have numbers for 2017 that I have seen. But almost all of the income is from EVE during a time when they were spending a lot on developing VR. CCP trimmed down to just work on EVE could be profitable enough to be worth the price, especially when we know that some of the $425 million only gets paid out if certain financial targets are met.

    I think the access to China portion may be a bit of a chimera. I don’t think China is suddenly going to consider a title built in South Korea to be Icelandic because Pearl Abyss bought CCP. But the task of dealing with China is onion-like in complication, so who knows what bits of smoke and mirrors will actually work.


  8. Bhagpuss

    @Wilhelm Your reply to SynCaine includes some super-interesting information that hadn’t occured to me and which I haven’t seen mentioned before (hardly surprising since I don’t generally read about EVE unless you or Nosey write about it). The idea that EVE is entirely reliant on its player-driven economy, without which there wouldn’t be a game at all is obvious when you point it out but invisible to most MMO players who don’t play EVE.

    I can log into almost any MMO from 1999’s EverQuest to 2018’s Bless and play indefinitely even if I’m the only person online. I can quest, level up, craft and sell to NPCs. I might not get the best gear but I’ll get everything I need. With NPC henchmen or mercenaries I can even do group content alone. It’s not ideal but it works.

    I’m not familiar enough with EVE to know if the same would be possible there. If everyone in Null and Low Sec up and left, could the PvErs in High Sec carry on as if nothing had happened, mining and running their missions or whatever it is they do, and trading only with NPCs, or would mining and mission-running become completely pointless because there’d be nowhere to spend the reward money or sell the mats?


  9. Wilhelm Arcturus Post author

    @Bhagpuss – A couple of items. First, EVE is really a PvP game, and as such there is a minimum population after which the hunters run out of targets and leave so the population collapses. I have asserted in the past that EVE might be the most long term successful PvP-centric MMORPG out there. Ultima Online is still going, but had to go with PvE only options as they faced PvP population collapse.

    Second, the economy is the really scary bit when the population shrinks. CCP has gone pretty far in making sure that players make most items. Aside from a few early learning quest give-away, ships hulls are all player built. There is no NPC vendor you can go to in order to buy things. Modules need to be built or collected as drops from running missions. But you have to run a LOT of missions to get useful items for your own ship. If you like to use a Caldari ship (shields, rail guns, and missiles) but you run missions in Amarr space (armor, lasers, and drones) you’re going to get almost nothing worthwhile as drops.

    Tech II stuff requires a bunch of special moon mining and PI derivatives along with having done blue print research in order to come up with the plans to make such items. I did the research part of that at one point and it was a lot of effort to get a few items. It is something that lends itself to the obsessive and cooperatives.

    Tech III stuff needs materials from wormhole space and I don’t even know where to start with that.

    And even faction items, things you can buy for loyalty points from mission running, requires you to have the tech I version as part of the price.

    So as a new player entering the game, you could run level 1 missions with the frigate you get from the learning quests. But if you lose it or want to advance to level 2 missions, or want to upgrade the fit, you will need to buy blueprints for the items you want (those are available from NPCs for ISK, but they are very expensive when you’re getting level 1 mission rewards), mine the ore you need to make the items (and salvage ships to make rigs, another type of fitting), then go to an NPC station and start combining them… then waiting, because building takes time… before you can start fitting better hulls and better modules.

    It is mind bogglying complex. High sec players like to complain about the attention null sec gets, but our little war in the north is currently driving an economic boom in Jita as both sides go there to replace losses. Manufacturing care bears have no customers without PvP blowing things up.


  10. evehermit

    Playing EVE with a small population is an interesting idea. It is technically feasible, particularly if CCP fixed any deadlock gotchas such as needing A to build B, but needing B to build A. It would be more of a long building and exploration grind, which a certain type of player would like. I expect the problem would be once the rare PVP player found the rare Industrial player, they would just hound them for content until the other quit the game.


  11. Wilhelm Arcturus Post author

    @evehermit – I’d be interested to know if somebody at CCP has thought about a low population plan for the economy. I wonder if that is the tipping point where you just make high sec safe from ganking and tighten up war decs so that they can’t be abused the way they are now.


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