Pokemon Go is the ultimate example so far of the #AppRevolution that I’ve been highlighting for the last nearly 10 years now.
Here’s what every Revolution Investor needs to know about how best to invest in its wild success.
The Pokemon Go game has been downloaded hundreds of millions of times already and by the end of this week or even earlier, Pokemon Go will have been downloaded more times than Twitter.
Unfortunately that means that hackers and spies and other people with bad intentions are likely to find some security hacks, lapses and gaps that will impact tens of millions of people. Twitter has spent years developing and securing their network. Pokemon Go? The entire Pokemon Go project didn’t even exist until nine months ago.
Speaking of security, Pokemon Go has “accidentally” been asking for complete and total access to your gmail and Google accounts if you use Google to log in on your iPhone. And even though the developer of the Pokemon Go app is now pledging to work with Google behind the scenes to revoke that total access, the app still has access to much more of your personal data, your location, the inside and outside of whatever images you’re seeing in your camera and much more.
Pokemon Go was developed by Niantic, which is run by John Hanke, and which used to be a division of Google, until it was spun out in September of last year when Google created its Alphabet organization. The company has raised $25 million in two Rounds from 8 Investors and its most recent funding was for $5 million just four months ago at a $150 million valuation in February.
On a paranoid note, you should know that the developer of Pokemon Go used to run a company called Keyhole which took funding from the NSA. Google acquired Keyhole in 2004, at which point Keyhole’s flagship product was renamed to Google Earth. You know who else took funding from the NSA though? Google. So on the one hand if you’re paranoid about Pokemon Go having access to all your Google files because you’re worried about spyware, you probably ought to be just as worried that Google Search, Ads, Android, Chrome, YouTube, and all other divisions, entities, acquisitions and spin-outs of Google are doing the same thing to you.
All that said, it’s interesting to think about the potential for spies and other hackers to create complete real-time VR imagery of the inside of entire buildings, public gatherings and so on as the game picks any particular area it wants as a targeted location for the people playing the game and all those people point their cameras where their being directed to by the game.
Back to business now, did Google spin Niantic out as an independent company?
According to ReCode, Niantic’s independence was likely the clincher in getting its partner, Nintendo, signed on for Pokémon Go. (We asked Niantic if that was the case but didn’t get a response.) Hanke told Business Insider his operation was “always kind of bumping up against Google’s desire to stay neutral.”
That is, Google loves platforms (which is something I’ve long highlighted as my primary reason for owning Google since the day it came public) and does not want to be seen as favoring one developer over others. And potential partners, like Nintendo, would usually rather partner with an independent company rather than a giant like Google.
It’s not public information just how much Google still owns of Niantic, but the company does still own a chunk of equity in the spin-out.
So, the safest way to play the wild success of Pokemon Go Niantic remains — Google. To a lesser extent, Apple is also a relative safe way to play the Pokemon Go frenzy as Google and Apple take 30% of straight profits from every dollar spent on their app platforms and in app purchases and so on.
Google, as I’ve explained before, is making more of a bet and is a better way to play the Augmented Reality Revolution and the Virtual Reality Revolution than Apple is and Google’s early bets on AR/VR are already paying dividends as Pokemon Go/Niantic underscore.
Nintendo’s ownership in and ability to profit from Pokemon Go is similarly derivative. The company owns 33% of the company that owns the Pokemon brand and intellectual property and other assets. CNBC and others have widely quoted Morgan Stanley MUFG Securities equity analyst Mia Nagasaka who poo-poo’d the potential earnings impact for Nintendo from Pokemon Go:
For Pokémon Go to have a meaningful impact Nintendo’s profits, the game needed to hit a minimum of 15 billion to 20 billion yen ($140 million to $196 million) turnover per month.
Currently, the game is freely available for download on the App Store and on Google Play but offers in-app purchases for additional items and power-ups.
Nagasaka added that the estimated daily turnover for Pokémon Go on the first day was around 400 million to 500 million yen ($3.9 million to $4.9 million), so in order to give Nintendo a serious leg up earnings-wise, the app needed to be consistently at the top position for sales on app stores.
On a broader level that is much more important to the long-term, Pokemon has just rejuvenated/saved the Pokemon brand itself from total irrelevance and there are now much bigger potential for billion dollar Pokemon-themed movies, parks, licensing opportunities, etc.
Nintendo’s Wii has also perhaps been saved from Irrelevance if they can successfully branch/tie in the newest Wii which is slated for sales release in March next year. While I’m not one to chase a stock that’s just popped 30% and am not buying (nor do I currently own) Nintendo, it is clearly the most direct beneficiary in the near-term and long-term from Pokemon Go’s success. It’s not, especially after a 30% one-day pop, a “safe” way to play the AR and VR Revolutions, but it’s now very much a better-positioned company for those looking for a higher-risk way to play those revolutions.
Given that Nintendo’s ownership/ancillary benefits of Pokemon Go has added $9 billion to Nintendo’s market cap in the last two days, you can safely assume that Niantic’s own valuation has gone up at least ten fold since its prior two rounds which valued the company at just $150 million, which means that all of the owners of Niantic, including Google, are up 1000% or more on that investment. It’s not exactly the impact that the early investment in Alibaba had for Yahoo, but it’s not insignificant either.
