When Mark Gerhard, CEO of Jagex spoke to GamesIndustry.biz he had one thing on his mind: recent reports that revealed the Runescape developer was now 55 per cent owned by an American investor, Insight Venture Partners. He wanted to explain that while the extra capital had come from overseas, control of the company and its plans for the future where still very much on British soil.
In this exclusive interview Gerhard explains that the investment has only changed things for the better, allowing the company to grow, recruit, build new tech and look beyond Runescape and to the three new MMOs it currently has in production. And Jagex's goals beyond that? For the future? Only to become the Google of online games.
Q: We reported earlier this week that Insight Ventures now owns 55 per cent of the company, but can you explain that situation in your own words?
Mark Gerhard: A bit of bad journalism! I'm not referring to you, I'm referring to the Sunday Times [which originally broke the news]. I guess the first to make is this is very old news, this is 13 months ago, we announced it in January 2011, even the apparent news worthy filings discovered we actually made in February 2011 at Companies House. So this is truly after the event.
And I think you know, by and large, the point I want to make is really benign. Nothing has changed as far as the company goes. It's the same management team, we've obviously been at the helm for quite some time and to the best of our knowledge and expectation it will continue to be so. Sure we therefore have some American shareholders, but the management and the culture and the ethos and everything else is the same people, in the same hands, and staunchly British.
But at the same time we're not xenophobic and saying we're only going to hire British people. Obviously I think any successful company is going to be a cosmopolitan mix. But I guess I just keep reinforcing that I've been here going on five years, at the helm for a good few years of those, so as far as I'm concerned and as far as the rest of the team would be concerned life is no different day in and day out.
And maybe the analogy I think of is if you think of... would you say Rolls Royce is any less British now than it was a few years ago? When the truth is its majority shareholders are BMW. But I don't think we think of it... well I certainly don't, as a German company. I can pick any other almost British institution and that will be the case.
If we do want to put Britain back on the map for games development it takes success. And it takes success around the world. I'd say that comes from having investment.
I think any company that truly plans to compete on a global scale, with what are really giants in this space, to that extent we are small. It doesn't matter if we're 400 or 500 people, we're still a very small British company by comparison to the EAs and the Activisions, Nintendos, and the Sonys and Microsofts. But we have to compete with them head on, because we're looking for the same mind share, servicing, some of the same players and in order to do that it does take investment, investment beyond just what was Jagex's means. We're a successful company, we're very proud of what we've achieved to date. If we do want to put Britain back on the map for games development and everything else it takes success. And it takes success around the world in order to do that and again I'd say that comes from having investment from people as visionary as Insight and Spectrum and Raine.
I guess the initial reading of some of the press stuff you know almost slightly hurt, that we're reading this and going "wow", all our values, everything we do, everything we're trying to create is almost being positioned in a slightly nefarious way, and it couldn't be further from the truth. This is a really good thing, it's a really good thing for Jagex and for UK job creation and it's under Insight's investment that we continue to grow, continue to hire more people and increase the calibre of the talent we've brought on board, invested in more games, massive investments in technology.
And that bit does play through, if you look at our Companies House filings revenues are up but profits are down and those aren't because we're doing a crap job, that's because we're consciously taking those profits and ploughing them back into the business. Which wasn't something we did in the past, we used to pay dividends every quarter for a good number of years, whereas since they've come on board we haven't paid any dividends, and we've just been ploughing that money back into the business and growing the business as a whole.
So to me obviously I'm very close to it, to me it seems obvious that this is a good thing. But I think it's one of those classic things, a little knowledge is a dangerous thing and jumping onto one piece of tenuous information and with numerous facts that are wrong, it's very easy to draw conclusions that quite frankly just aren't there. But yeah, as I say, the business goes from strength to strength, we've invested more in games like Runescape than we ever have in our entire history. Both monetary terms and in terms of talent, infrastructure and everything else, invested in new games, and I think that's what it takes if we want to be in the strong position to be the UK's number one developer and publisher, indie developer and publisher.
We have the ability thanks to this to get really cool office space, we used to be in multiple buildings which was really suboptimal in terms of being one big team, one big family. And again, we've been able to bring everyone together in a really high spec new studio, under one roof, so I guess if you were this side of the building you'd probably see the really positive changes that have come from this.
Q: Were you surprised by the reaction?
Mark Gerhard: I was surprised because the narrative somehow seemed to read that this was a big sell out whereas it couldn't be further from the truth. Of course for the founders there was some liquidity involved in that, but by and large they're still involved in the business, rather than truly having sold out in that sense. I think it's disrespectful to the 468 other people who are left behind who are all working incredibly hard to make everything we do a success, and as I say to really make Britain the place to be for great games and great success stories.
There's only one management team and they're in Cambridge.
The insinuation that this is a company that somehow now is run by bankers in the US again couldn't be further from the truth. We're blessed that we have a board that serve, that are so seasoned astute, and serve in a fantastic advisory capacity for us. I really relish having that acumen around the table. The reality and the truth of it is that all business decisions in terms of what games we're going to make this year, where we're going to invest, where we want to take our tech and all that really still gets driven by the current management. And there's only one management team and they're in Cambridge.
So sure, the guys ask us tough questions to make sure we're thinking about everything. And I think again that's what it takes to make sure you can compete with global markets in a global space. Again for us, as a small British company in comparison to the others, one misplaced footstep could be terminal on some level whereas the bigger studios can just wear that multimillion pound loss here or there like, "so what?" For Jagex that could be significantly detrimental. So I'm deeply grateful for the fact that we have such a robust board that makes sure that anything we put in front of them gets maximum scrutiny, because it feels like we're that much more likely to back the right horses and everything we work on has to be a success really, if we continue to grow and compete.
Q: So they are much more advisory than controlling? They're not wandering into the office demanding changes?
Mark Gerhard: Not at all. As I say again, it couldn't be further from the truth. Obviously I've known Insight for a number of years, even when I wasn't CEO and they always served in that capacity and the feedback around the board table was "are you guys thinking about that? What are your thoughts on this topic? Are you worried about that? Can we get bit more intel on the following?" Rather than "all change now, we think the future is in mobile games."
Even when they went from the minority stake to the majority stake that hasn't changed. They've just become closer friends, partners really for us. The talent and the expertise pool, the wisdom pool, if I can call it that, has grown significantly but that's, again, that's needed if we're going to make sure we're very surefooted and continue to deliver to succeed.
Q: You mentioned a few things there. Obviously the investment happened at the end of 2010 and since then you have new offices, new tech. Are those a direct result of that extra backing?
Mark Gerhard: Absolutely right. And to that point both I and everyone working here is deeply appreciative for that, because we now feel we can go from a one product company to a multi product, multi successful product company. At the same time none of us trivialise the enormity of that task, it really is a fine balance between building up the right teams in terms of expertise, having the capital to actually go out now and tell the word about your next big thing. The long investments in technology and stuff that don't necessarily pay dividends until a number of years out, it takes a lot of vision and substance to get behind a lot of the stuff we're working on.
There was never a pressure for us to do anything or a need for us to sell any shares or attract investment.
But again, that's what we believe it takes to be a company that in 2020 you're writing about saying "wow, how did they do it, and what a great story." So absolutely, and I think we're doing far greater stuff now in terms of specifically tech and tackling more games than we ever have in our past.
Q: Why was it an American company? In the past we've heard that UK and European venture capitalist are less comfortable with the video games industry. Has that been your experience, or is it more to do with your relationship with Insight?
Mark Gerhard: Both are true actually. So without doubt American investment mindset is far more attuned to this market and understanding of fast paced tech, change, content, entertainment. And I suppose also... so on that point absolutely, and I don't think there's the, and I don't want to do anyone a disservice of course, but from my exposure to people in UK, European investment space, it tends to be painfully shy, risk averse by and large.
Maybe that's not, as I say, a blanket or fair statement whereas the Americans are far more, by and large, to say "here's a great team, with a great pedigree, let's go help and have some fun and we'll see what happens, but we think it will be a good outcome." So that seems to feel far far easier to be done stateside.
But at the same time of course we knew Insight well, we got on fabulously with them, we knew they'd be good partners going forward. The crucial point is, and you'll probably know this anyway, there was never a pressure for us to do anything or a need for us to sell any shares or attract investment. We were very selective and we spent almost a year determining who would come in and who we'd allow to become part of the Jagex family, and we were very careful to make sure everyone that came in would really contribute in a really meaningful way apart from just writing a cheque.
Anyone, I mean not anyone, but numerous people would like to have written the Jagex cheque if they had the opportunity to do so, and we dated very very selectively. And we're very happy where we've ended up. And at the same time that's why we never did a big roadshow and as would be typical of other companies in the space to have a big "for sale" sign outside our door because we never were for sale. And we don't see ourselves even for sale today. We see ourselves as having brought on some very thoughtful, very smart, strategic investors and really wanting to become the Google for online games over the next couple of years.
And obviously between now and then we need to make a number of very good games that achieve and exceed even the numbers that we've seen from Runescape. And we feel in great shape to do that with this current cohort.
Q: So looking forward, this year has already been big in terms of offices and tech and talent, so what are you looking forward to in the next 12 months? Are we going to see the fruits of the money that has been spent?
Mark Gerhard: Yes indeed. So there's that and of course we launched Eight Realms, our first casual, realtime, strategy browser game a few weeks back. We've been very quiet about that, it's still in a VIP beta if you will. But we're very very happy with that and the numbers and the conversions and everything is tracking well well well above our initial expectations.
We see ourselves as having brought on some very thoughtful, very smart, strategic investors and really wanting to become the Google for online games.
So yeah, I think 2012 is going to be a very exciting year, we're obviously going to continue to invest heavily in Runescape and that will go from strength to strength. We will I think see great things coming from Eight Realms, which is also a plug-in-less browser experience and our work on our next big MMOs will come to fruition this year and so I think yeah, 2012 is an interesting year. It's a year of no doubt a tonne of hard work, if this was easy obviously everyone would do it. I'm very excited for the year ahead and everyone in the studio is very focused on, not just making Runescape and Eight Realms a financial success, but our work on Stellar Dawn and even Transformers coming together to make a truly great game for this year and then again, you know, they'll be another in the following year. So none of us are daunted by that, but all of us understand the enormity and even the focus required to make all those things a success.
So a very exciting year for us, but you probably won't hear that much from us because we'll just be back here in Cambridge working really really hard.
Q: Just quietly becoming the Google of online games?
Mark Gerhard: Exactly. And if no one notices while we slowly creep up and do some great things I'd be happy with that too. Unfortunately when you're number one you're in everyone's cross hairs and the only place to go is number two. We'd like to be as quiet and understated as possible and just get on and make great games.