Schafer: Tech firm shifts along with the marketplace

  • Article by: LEE SCHAFER , Star Tribune
  • Updated: October 12, 2013 - 4:10 PM
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NativeX CEO Andy Johnson, left, and Rob Weber in a photo from 2008, when the company was called W3i.

Photo: Glen Stubbe, Star Tribune file

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For the co-founder of a technology company that just laid off 45 people, about a quarter of its staff, Rob Weber of NativeX sure sounded optimistic.

“This category could be a $500 million category that could double or triple every year over the next five years,” he said of the smartphone and tablet advertising niche, in which NativeX has a firm toehold. “We think we have the technology built.”

There’s some reason for his sunny outlook, since what’s happening at NativeX is not a layoff driven by a crisis. It’s called a “pivot.” That’s the wonderful term technology entrepreneurs toss around, perhaps because it sounds so much better than admitting you have to go in a new direction.

NativeX is 13 years old, and companies that far along don’t usually pivot. But “they see themselves as a start-up, still,” said Graeme Thickins, an adviser to young companies who has worked with NativeX in the past. “It’s the way they think, and it’s the way they move.”

Given the blistering rate of change in the market for all things mobile, behaving like an eager start-up may really be the only way to act.

The company, based north of St. Cloud in Sartell, was once called W3i, named in part for Rob and his co-founder brothers. Rob and twin brother Ryan are still active, with Rob in charge of new business development. The CEO since 2007 has been former ­Fingerhut executive Andy Johnson.

The rebranding to NativeX earlier this year reflected the promise of native advertising on mobile devices, and it’s certainly a very hot concept. The simplest way to describe “native” is an advertising message that’s right in the middle of the user experience. Consumers know they are getting a commercial message, they just aren’t annoyed by it.

It’s not exactly a new business for NativeX, which built its company around advertising to consumers who downloaded “free” desktop applications like the Yahoo toolbar, but it’s certainly a new market, and an explosively growing one. NativeX first sold into the mobile market in 2010, and it was in 2011 that time spent on smartphones and other mobile gadgets in the U.S. passed the time users spend online using a desktop computer.

Smartphones can be used to check football scores and post to Facebook, but what people really like is to use their iPhones and Droids to play games. Silly games. And, as the Weber brothers had predicted, free games.

It’s tempting to poke fun at games like Battle Bears, in which anthropomorphized bears keep the galaxy safe from villains that include pink Huggables — who can hug your battle bears to death unless you manage to blast them in the head first. Silly, yes, but the Omaha-based firm and NativeX customer that created Battle Bears, SkyVu Entertainment, has venture capital investors and ambitious plans for growth.

To call the potential audience for free games vast may be understating it. The number of players of a mindless game called Candy Crush Saga grew so fast in the last year that an algorithm designed to track its growth couldn’t keep up. Its monthly player count has surged past 130 million, and it’s still growing.

Games consume 43 percent of application usage on Apple’s and Google’s Android tablets and smartphones, and account for two-thirds of all tablet usage, according to the London-based investment bank Digi-Capital. Last week the bank projected that the global market for mobile and online games will grow from $31 billion in 2012 to $48 billion globally in 2016.

How can mostly free applications generate that much revenue? One way is to have players pay cash for more functions in a free game. A better way to make money, Weber said, is through native advertising.

One native approach is to reward the mobile game user. If a gamer can shoot the alien king he might get 50 points, but what if viewing a new movie’s trailer gave 10 more? More points may mean more ammunition to repel the next alien invasion.

Players also will eagerly try to reach the next level of play. Perhaps to succeed on the next level a player needs a truck, so why not make a player customize a new Ford F-150? A Ford marketer just got a potential buyer to spend a good chunk of time thinking about a $31,000 Ford product.

NativeX works with big consumer brands, and it pitches its advertising platform to the community of mostly small game developers, too. “More than 50 percent of the top-grossing games use our product,” Weber said. “If we can own this market, we can be a really valuable company.”

NativeX was using its desktop business, which is profitable, to fund its move into mobile technology. In August the company recognized that a decline in its legacy business meant it could no longer do that without lowering costs, and that’s what led to the announcement last month that 45 people had been laid off.

It was a question of the right skills as well as costs. Even though there was a layoff, the company last week had open positions for a data scientist and a senior database administrator.

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