Russell Beattie

Very cool news that Jamdat Mobile has filed for an $84 million IPO. They've filed a nice fat prospectus with the SEC for your evening reading pleasure. (Okay... *my* reading pleasure). Actually, skipping through all the stock and investment crud down to the business description and there's quite a lot to learn about the environment a thriving mobile application publisher must operate in. This is really cool! A *mobile* IPO! Soon followed by the Virgin Mobile IPO and whoever else crawls out of the woodwork once Google pops. This is great news as money from these IPOs will lead to further investment and focus on the sector in general.

I just skimmed through and a few things jumped out at me:

Our carrier agreements are not exclusive and generally have a limited term of one or two years with evergreen, or automatic renewal, provisions upon expiration of the initial term. These agreements set out the terms of our distribution relationships with the carriers but generally do not obligate the carriers to market or distribute any of our applications. In addition, the carriers can terminate these agreements early, and in some instances, without cause.

Many other factors outside our control could impair our carrier relationships, including the following:

• a carrier's preference for the applications of our competitors over our applications;
• a carrier's decision to offer its own competing entertainment applications;
• a carrier's decision to offer entertainment applications to its subscribers for free;
• a carrier's network encountering technical problems that disrupt the delivery of or billing for our applications; or
• a carrier's decision to increase the fees it charges to market and distribute our applications, thereby increasing its own revenues and decreasing our share of revenues.

If one or more of these wireless carriers decides not to market or distribute our applications or decides to terminate or not renew its agreement with us, we may be unable to replace the agreement with an acceptable alternative, causing us to lose access to the subscribers covered by that wireless carrier, which could materially harm our business, operating results and financial condition.

I alluded to this thought before in my mGuru post, but man, isn't there some way around the carriers? I mean, they're just pipes, dammit. I don't see AOL and Earthlink having as much control over Microsoft's Revenues, do you? Though it's interesting to note that Jamdat plays this card both ways:

Next-generation mobile phones may significantly reduce or eliminate the wireless carriers' control over delivery of our applications.

Some next-generation mobile phone models currently available use an open platform operating system that allows for Internet browsing. By using these browsers, wireless subscribers could avoid their carrier's branded e-commerce service and access data applications directly from third parties. If this practice increases, our primary distribution channel could be significantly harmed and, accordingly, our business may suffer.

Heh. So in one paragraph they talk about how the fact that they have to rely on the carriers is bad, and then in another paragraph they warn that newer phones could break the carrier's strangle-hold on the distribution pipeline, affecting their revenues as well. Not an enviable spot to be in - but I think this is pretty typical of the sector right now.

Here's the important part for those companies looking into mobile application development:

Sources of Revenues

We principally derive revenues from the licensing of our applications to wireless subscribers for a one-time purchase fee or a monthly subscription fee. Substantially all of these fees appear on our customers' monthly mobile phone bill. In accordance with our carrier agreements, the carriers perform billing and collection functions and remit a percentage of the fees to us. We recognize the net amount of revenues due to us from the wireless carrier. See "—Application of Critical Accounting Policies and Estimates—Revenue Recognition." We generate the vast majority of our revenues through our carrier distribution channel when wireless subscribers download our applications to their mobile phones, typically through a carrier's branded e-commerce service. Our customers may also initiate the purchase of our applications from various Internet portal sites or through other delivery mechanisms with carriers continuing to be responsible for billing, collecting and remitting to us a percentage of those fees. We also generate revenues from mobile phone manufacturers when they embed one of our applications directly into a mobile phone. We generally receive payment from the manufacturer on a per mobile phone basis. Finally, we generate limited revenues from the sale of some of our applications, including PC and PDA products, through Internet portal sites and retail stores.

Wow. The spells it out very clearly, no? Both in terms of sources and percentages. There's a ton more to mine from the prospectus, actually. Last year Jamdat spent close to a million dollars on marketing. They've got 70 different games and relationships with 72 carriers in 38 countries (all listed). And Jamdat considers its "primary competitors in the global publishing market to be Disney, Gameloft, Mforma, Namco, Sony Pictures and THQ Wireless". Good stuff to know (but where's EA?).

Anyways, like I said, I think that this is a harbinger of good things to come in the mobile space. This could be the wake up call that we've been waiting for. Really, Wall Street and Silicon Valley need to wake up to the fact that 19 phones are being sold every second. Let me repeat that for the skimmers:

There are currently 19 mobile phones being sold every second.

(Almost all of them data-enabled and capable of running third-party software). If this doesn't wake them up, I'm not sure what will.

-Russ