Entrepreneur gets grant from Facebook

http://www.theglobeandmail.com/servlet/story/LAC.20090113.BREAKTHROUGH13//TPStory

He’s got game

Winning support – and a big chunk of cash – from an Internet giant is a dream come true for founder of online game company

JOANNA PACHNER

January 13, 2009

No entrepreneur needs a reminder of how scarce capital is these days, but things may be toughest for startups – those that as yet lack customers and sales to prove to investors that someone out there wants what they peddle.

So the idea of free money from a tech giant, showing its confidence in your fledgling business, would seem the stuff of fantasy.

But Rob Balahura knows otherwise. The 37-year-old founder of J2Play in Waterloo, Ont., had spent two years building what he terms a “social wrapper” for online games – a way of allowing makers of PC, Web and cellphone games to distribute them on social networking websites such as Facebook or MySpace.

The technology offers game makers a compelling proposition. Instead of hawking their wares on Web portals such as Big Fish Games or Real Arcade, which keep as much as 80 per cent of the revenue, “we enable developers to republish their games on a new channel: the social Web, ” Mr. Balahura says.

By incorporating features such as leaderboard rankings, player profiles and chat functions, developers can foster communities of gamers that expand virally and reach out onto members’ cellphones. They can also insert advertisements for others’ games, generating revenues. “Each game becomes a games portal,” Mr. Balahura says.

For social networks, J2Play’s technology, and social gaming in general, presents a way to keep members around longer. For example, the Scrabulous game was a huge hit on Facebook before the makers of Scrabble forced it to shut down, charging copyright infringement.

In September of 2007, Facebook announced a new way to draw developer interest: It launched the $10-million (U.S.) fbFund, which offers grants to makers of innovative Facebook applications that promote user engagement.

Mr. Balahura had already scored seed funding from Extreme Venture Partners, a Toronto venture capital firm. J2Play also did some contract work for RealNetworks and other major game companies. But the company was starting to run low on money when Mr. Balahura saw the call for submissions on Facebook’s developer site, and learned that one of Extreme’s founders could make an introduction.

The first hurdle was a meeting with Facebook’s development team in Palo Alto, Calif., at which Mr. Balahura and three colleagues demonstrated their software. The Facebook crew was impressed. “They indicated to us that they had not seen anything like this before and wouldn’t change anything,” he recalls.

Then came the critical second meeting with marketing people who were members of the fbFund’s selection committee. It was a casual session, with Mr. Balahura sitting on a couch between Facebook reps and running the software on his laptop.

About six weeks after the second meeting, in late July, J2Play got the good news: It was one of the first 10 recipients of a $250,000 (U.S.) grant. The company was also invited to a Facebook developer conference in San Francisco as an exhibitor, a great networking opportunity.

Combined with R&D tax credits from the federal government, the grant should carry J2Play and its eight employees through much of this year (though the fbFund money has to go toward Facebook-related product only). “It’s a good year to have this money, considering the economic climate,” Mr. Balahura says.

Just as importantly, he notes, “the grant validates to potential clients that an industry leader in this area believes in us.”

It has made a big difference in client pitches. When J2Play recently approached a large game developer (which Mr. Balahura declined to name), the deal closed with unusual speed. Facebook members will see some of that client’s famous PC games later this month, courtesy of J2Play’s technology.

Know a business that has experienced a big breakthrough? We want to hear about it. E-mail: nhulsman@globeandmail.com

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BY THE NUMBERS

217 million

Number of Web users worldwide who engaged in online gaming in 2007 – 28 per cent of the total online population.

1 per cent

Average conversion rate of casual game players from free to paying users. Games with 2 per cent conversion are considered hits.

$30-million (U.S.)

Amount Electronic Arts paid in May, 2008, for Rupture, a social gaming network started by Shawn Fanning, founder of Napster.

Sources: comScore, Frank N. Magid Associates/GameDaily, TechCrunch

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SNAPSHOT

THE VITALS

Based in Waterloo, Ont., J2Play has eight employees. It began in 2006 when Rob Balahura bought the game business of J2X Technologies, a developer of wireless software for which he worked.

KEY DECISION

Mr. Balahura credits his business development work in Silicon Valley with, “directly or indirectly,” leading to a grant from Facebook’s fbFund. Between April and October last year, he travelled to California almost monthly for a week or two at a time. “I’d fill my days with meetings with potential partners or clients, four or five a day. That was an investment, and a lot of work. But all those contacts led to positive things.”

THE OVERSIGHT

He wishes he had hired a designer earlier in the development process. “We were very programmer-heavy. It would have been smarter to add a design person, since the visual has so much impact …”

THE NEXT STEPS

The immediate focus is on attracting more game developers to the J2Play platform. Mr. Balahura also plans look for more financing within the next six months, by which point he hopes J2Play will have enough market traction to lure a significant investor.

THE MARKET

More than 270 million Web users use social networking sites, known as the social Web. They have multiplied in recent years, with the likes of Hi-5, Orkut and Bebo joining stalwarts MySpace and Facebook. J2Play focuses on casual games, such as board games and mazes. Casual games on various platforms, from cellphones to the Web, raked in $2.25-billion (U.S.) last year.

THE INTRIGUING IDEA

Mr. Balahura believes social networks will become our primary entry points to the Internet, through which we’ll access all the Web’s tools and functions. “People will need one network login and password to get anywhere from their Facebook page,” he says. “We’re rebuilding the Web on top of the social Web.”

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