Why I sold Backstage to RealNetworks

Last month Techvibes reported that Victoria’s Backstage Technologies was acquired by RealNetworks. Backstage’s CEO Russell Ovans reflected on the outcome in a blog post and he has agreed to republish it here. ___________________________________________________________________________________

Logo_realOne month ago – and three years to the day that Scratch and Win debuted on Facebook –  Backstage became a wholly-owned subsidiary of RealNetworks. The past three years have been a wild ride, culminating in this exciting new partnership. 

Before the success of our games on Facebook, Backstage was a contract software engineering firm that built stock market trading tools for investors. We were not a computer game company in any sense of the word, but we did know how to do two important things very well: build scalable web applications, and keep customers happy. In hindsight, exactly the kind of DNA required to be a great social game company.

When we launched Scratch and Win, we didn’t even think of it as a game. In our minds, it was a gifting app that had a virtual gambling component. Over time, as we added stages, achievements, limited-edition collections of prize sets, and the marketplace for in-game trading between players, we realized that the virtual economy was a game, where players competed to maximize their social status. The economy is the game is a paradigm we like to think we invented (or at least trademarked).

After rebranding Backstage as a social gaming company, our mission was clear: become an unstoppable force in social gaming. In other words, ensure the long-term survival of a thriving studio in Victoria. Secretly Canadian, we felt disadvantaged by our location, which made it difficult to access Facebook or tap into the network of VCs clustered around the Silicon Valley. Earlier in the decade I had worked for five years in Palo Alto, amongst the tons of superbly ordinary people that ride the coat tails of a few visionaries; I knew my team was world class and what we had accomplished was extraordinary. But I also knew we could very easily become the VisiCalc of social gaming, destined to be a long forgotten footnote in a history to be written by those who came after.

By the end of 2009 the landscape on Facebook had changed significantly since the launch of our first game. Independent, small studios were finding it increasingly difficult to compete with the likes of Zynga, Playdom (now Disney), and Playfish (now Electronic Arts). I have blogged at length about this previously so I won’t repeat myself here, but suffice it to say that Backstage needed a sugar daddy. Enter Seattle-based RealNetworks, a company famous for its desktop streaming media player, and their hugely successful casual gaming business.

I can’t underestimate how proud I am of what we accomplished, and I owe a huge debt of gratitude to our customers, my team, the Board of Directors, and our business partners and colleagues in the social gaming industry. But we made some mistakes. If I had to do it all over again I would be less risk-averse and a lot more aggressive. We might have been as big as Zynga, but we acted too cautiously. We should have taken a slightly lower road, and borrowed a page or two from their playbook: clone other people’s ideas and cross-promote to our existing user base.

Under new ownership, the days of being the apologetic, trepidatious little Canadian studio are behind us. In return for our thought leadership in social gaming, Real provides us with the safety harness to build the games we’ve always wanted to build. That, and their people rock — the culture at Real is a great fit for Backstage. Quite frankly, this acquisition frees us from the constraints of running a cash-strapped startup that always needed to take the shortest path to revenue. Now, we can build the billion dollar social game.

 Stay tuned.

– Russ