Welcome to Jester's Trek.
I'm your host, Jester. I've been an EVE Online player for about six years. One of my four mains is Ripard Teg, pictured at left. Sadly, I've succumbed to "bittervet" disease, but I'm wandering the New Eden landscape (and from time to time, the MMO landscape) in search of a cure.
You can follow along, if you want...

Sunday, February 26, 2012


Let's say you have a profitable technology company, founded thanks to funding provided by venture capitalists or another small pool of large investors.  You have one extremely successful product and are looking to branch out to a second.  You've hired staff rapidly to support this initiative and to keep your bread-and-butter product rolling.  But because your funding is limited and your staff is growing, your average employee salary is considered sub-par in the marketplace.  Because of that and because your second product hasn't started selling yet, your margins are falling.  Your investors are getting nervous.  Still, you do have that successful product, you are still making a solid profit, and you have positive buzz for your second product.  What's the next step?

Well, suppose you decide to launch an initial public offering (IPO), which essentially means that you're going to go from having very few large investors to a larger number of smaller investors.  This will get you out from under the thumb of your very few investors, so that's an advantage.  And you'll have an expanded funding pool from which to retain your best employees and bring in more industry pros, and that's good too.

What does this have to do with anything?  It turns out CCP is mulling an IPO.

In this interview, CCP announced $66 million in revenue for the year 2011.  That's a pretty substantial increase from their $57.4 million in 2010.  Their cost of sales last year was $6 million and their operating expenses were $46.6 million.  Salaries last year were $21.3 million, but CCP had a pretty significant lay-off in 2011.  So let's assume that cost of sales went up a couple million (they were paying outside firms for marketing, particularly web marketing, last year), and that operating expenses were reduced $4 million total between the lay-offs and other cost savings.

That means CCP ended the year with about a $15 million profit, more or less.

Of course, everything but the revenue numbers are guesses.  We won't know the real numbers until someone in Iceland picks up CCP's financials for the year.  If someone on FHC doesn't think of it, I've got an alliance-mate in Iceland now and I'll ask him to.  Or maybe the financials will be published before Fanfest this year (hint hint).

But even if they are guesses, those numbers are probably pretty good guesses.  That means the $15 million profit was probably consumed paying off their $12 million capitalization loan in October.  That would seem to confirm that without the lay-off, CCP would have ended the year in the red.

So yeah, it's not surprising that they're thinking about an IPO and getting out from under the cycle of those loans.

If CCP goes this route, though, it'll be very interesting to see what they do with those initial shares.  Go back to the first paragraph of this post and read it again.  It applies, almost word for word, to lots of other companies, notably Microsoft and Google.  We'll use Microsoft as our model.

After being founded in 1975, Microsoft operated as a privately-held company for almost ten years before its IPO in 1986.  Microsoft initially had many of the problems CCP has, notably with employee pay.  Well into the 90s, it was quite common for them to recruit large portions of the Computer Science graduating class of local universities, burn them out over two or three years, then replace them with new incoming grads.  They even built and used a software development model that could sustain itself against this continuous churn.

But over time, Microsoft's management learned that you can't sustain and grow your business without consistent leadership.  How to solve this problem, then?  How do you retain strong leaders in your company without a lot of money to pay for them?  The answer was shares in the company.  Initially, these "shares" were outside of the true stock market structure.  They were in the way of promissory notes that could be replaced with actual shares later when Microsoft eventually did have its IPO.  But Microsoft put off its IPO for years, resulting in more and more and more of these "shares".  It got so bad that rumor had it that employees were buying and selling these shares amongst themselves for mutually agreed-upon prices.  At that point, the rumor goes, the U.S. Securities and Exchange Commission stepped in and suggested to Microsoft senior management that it was time to go ahead and have that IPO.  So Microsoft did it, a little bit reluctantly.

And in the process, made thousands of on-paper millionaires overnight.

That, of course, created its own morale and retention issues.  A persistent urban legend started going around that employees that were a little bit sick of the company would start wearing buttons or t-shirts that read "FYIFV"... "Fuck You, I'm Fully Vested".  That meant that that employee's stock had fully matured in value and the employee could leave Microsoft at any time he liked and still remain financially independent.  The buttons and shirts were almost certainly apocryphal, but the morale problem was real enough.  As a manager, you can't treat a rich employee the same way you can someone who is reliant on his or her pay check.

Communication from upper management have always been a big problem at CCP.  So has equity and fair treatment between employees from managers.  Virtually every review of the company at Glass Door mentions these factors, and lots of ex-CCP employees mention these problems.  CCP is often more of a fraternity house "boy's club" than a professional business (though this seems to finally be changing).  I kind of shudder to think of this kind of morale and equity problem mated to the big pile of money that an IPO could bring in.

So, if CCP does seriously ponder an IPO, it will be interesting to see how the equity problem is handled, particularly since a public company has to be public in how they do so...  In my opinion, it'd be smart to fix the equity and communications problems first.

Of course, it's also possible that CCP has already started distributing paper "shares" in the company, the same way Microsoft did...


  1. Hmmm But how many CCP employees are unhappy with how it is run is the question.

  2. I read the CCP company review on Glass Door and I have to say it worries me. I didn't know that CCP's management was that bad.

    I hope they're working on improving their communication. This should be asked at Fanfest.

  3. "That means the $15 million profit was probably consumed paying off their $12 million capitalization loan in October."

    In short; no.

    Business loans are not like auto or home loans. The term of the loan (usually 5 years, sometimes less) is less than the loan amortization (10 years is pretty normal for businesses CCP's size).

    This gives the bank a chance to revise loan terms based on the perforamce of the borrower; changing the interest rate based on the perceived risk, among other things.

    Just because a loan shows up as short term debt with a footnote declaring an approaching due date in no way, shape or form means the company is going to pay it off in full. That only happens in the absolute worst case scenario, and no bank actually wants to deal with a business in default.

    Now to finish the rest of the post...

    1. We don't know yet if they got their capitalization loan renewed. We're all assuming they did, yes. But unless I missed an announcement, we don't know for a fact they did.

  4. Ok, one more comment.

    You can't really compare CCP to Microsoft or Google, the critical difference being size.

    CCP is TINY.

    We're not talking small cap tiny, more like micro cap. To trade on NASDAQ, among other requirements, revenues has to be a minimum of $110 million.

    So a big fucking deal IPO with major Wall Street banks chearleading for you, ringing the bell at the NYSE, etc etc? No no no. This is an ultra-low volume OTC stock, and the thought of "thousands of on-paper millionaires overnight" is completely laughable.

    1. Yep, I'm aware. I'm thinking it's more and more likely that it might not take long for DUST to push them into that range.

      Microsoft's revenue in 1986 was $197 million. Their IPO raised $61 million, and also wasn't considered that big of a deal at the time. All companies start tiny.

      My fault for mentioning Google, most likely.

  5. I'm not so certain about this.

    I imagine a small group of investors may be willing to wait many years before receiving their profit.

    By going public, they will have a big pressure to have the biggest possible margin at each quarter.

    In many gaming companies, this pressure result in rushed releases, usually with bad software quality. We don't need anymore of this here.

  6. There is of course the alternative that they are not really going for an IPO but preparing for some other form of buyout. Getting ready for the IPO sets a feel wheels in motion, one of them is a real look of the investment community at the dollar value of the corp. This value can be used in negotiating the buyout price. While risky (they could come up much, much lower that what the current VCs want), it gives a negotiation with e.g. Sony (or anyone else) an announced alternative. The CEO pretty much sums that up in his statement:

    “We want to be ready for an IPO from a policy standpoint,” Petursson says in the quoted article “We’re quite a substantial company, so we’re thinking, ‘Okay, what is the next step?’”

    From that statement, its not actually an IPO. An IPO is one of the options possible in the future - what is best for the investors will decide which route they will take.

    As for the rest of your article, I don't know how Icelandic shares work but I very much doubt that CCP's corporate event (whatever it may be) will create as many (by percent or total number) of retirement-ready employees. And nothing frightens the worker bees as much as a bunch of suits walking through the cubicle farm after a buyout looking for positions can can be cut. So I expect morale and work output be very high for a while.

  7. Man, that link from glass door is gold!

    Now I have a glimpse at what Seleene went through.

  8. I've just read the reviews for CCP on the Glasdoor website, and I have to say I'm a bit less optimistic for the future of EvE.
    I've worked in companies where process, communication and the likes where thought as dead-weights. And unless the upper echelons of management pushed for more professionalism, things didn't change, good employees kept on leaving the company, and the company's products/service became substandard.
    Maybe it's time for Hilmar (CCP's CEO) to move to the board, and for CCP to pick a CEO that has the skills to help the company grow. Because Hilmar clearly doesn't have those skills.

  9. My take is simply that Hilmar got his fingers burned, and figures he doesn't really like cooking pie anymore, and wants to make a graceful exit from the kitchen. Rather than sell his share to someone who would need a huge sum of mulah to buy him out, perhaps he's raised the possibility of selling off his share of the company as smaller part-shares. What Dad wouldn't jump at the opportunity to sell his share of a hobby that was fun for a decade in order to spend more time with his family? What if Hilmar has weighed the options and decided that retiring from CCP and spending time with his family is more attractive than wrestling the can of fire-worms that is the EVE fan base?

    Of course, on the flip side is the fallout of which outcome scares you the most: CSM elected by narrow-interest blocs, or voting shares being bought with real dollars? It's not going to be players who can afford those shares, it will be the RMT cartels (using money stolen/laundered/fleeced from players).

    One option might be for shares to be sold for PLEX. Again, it will be the people who have thousands of PLEX stashed away who will be able to buy those shares (check the historical dev blogs about PLEX: there are more PLEX bought and traded than are actually used, regardless of what "the financials" say).

    CCP might be able to perform a vetted share transfer, where people the company respects are offered the option of buying shares.

  10. wow I have just read the glass door comments from the staff at CCP and am seriously shocked. I can't believe how any company could continue to function with the amount of issues they seem to have. It makes you seriously think twice about paying a years sub in one go, as I not sure they will have any staff left soon.

  11. It sounded to me like the ex-employees wanted more right wing at a lower lvl of the company. Seemed like they were taking american companies for granted or hoped, CCP in a european land. Would be just as american as amercia.

    Bit hard for them, but oh well, propably found what they wanted later on.

  12. Also Suppose not every work story can end like in Grandma's boy.

    Where the lower lvl tester is older and mature and no way to move ahead in life. But he just ups and invents a blockbuster video game, and moves into upper management.

    Suppose none of the ex- employees got that ending. Too bad I suppose.

  13. Actually this all makes perfect sense now. Some interesting turtle-like tinfoilhattery:

    -CCP does its big IPO, is now a publicly traded company.

    -Mittens was a griefer IRL, aka a lawyer, and happened to conveniently come into enough money to be able to retire comfortably at the ripe old age of what? 30 going on 13? Something like that. Bottom line: Mittens is fucking loaded.

    -Mittens purchases majority share of CCP stock with asstons of money that assured his "comfortable retirement". Resigns from CSM, names self Chairman of CCP's board (note Mittens' #chairmanforlife doesn't specify Chairman _of the CSM_ lol).

    -Positive game outcome: hisec massively "nerfed". Nobody's safe anywhere anymore. We used to say that, now we MEAN it.
    -Negative game outcome: nullsec playstyle expands, Titans Online moves to lowsec as well. Hisec belongs to gank-Goons. EVE truly becomes a "wretched hive of scum and villainy" MMO, and is soon referred to as GoonSwarm Online.

    1. If I were a TRUE conspiracy theorist (hint: I'm not, despite the accusations), then I might wonder how much of Mittens's retirement comes out of moon-goo.

    2. Nah, Jester, you are not going far enough.

      If I were a TRUE conspiracy theorist, I would say Sreegs didn't want to discuss CCP's current anti-bot/anti-RMT efforts in december's summit because Mittens and some other folks were in the roon.


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