How America’s Fastest-Growing Company Turned Video Games Into a $54 Million Cash Cow
You won’t work at Skillz unless you commit to something that could get you fired almost anyplace else: playing lots of video games on your phone. At your desk or after hours, Skillz doesn’t care, as long as you play at least 35 times per week. Play 50 times and you’re entered into a raffle to choose the menu for Friday’s catered office lunch. Play 500 times week after week, like Don Kim, a recent Harvard grad on the Skillz developer partnership team, and a co-worker will gush, “Oh, my god. He’s a beast!”
Andrew Paradise, Skillz’s twitchy, 35-year-old CEO, never struggles to hit his quota. He was weaned on MUDs (multiuser dungeons, a kind of old-school text-based computer game). As a kid, he’d lug his desktop and monitor to a neighbor’s house that had three phone lines, where he and his pals would dial in together and trash-talk one another across the room while they played. These days, he’s into Cube Cube, one of the thousands of games on Skillz’s platform. For a brief and shining moment in early 2015, he was among
the best in the world at Bubble Shooter. Over the course of his Bubble Shooter career, Paradise won 3,363 games. At three minutes per game, that’s almost 170 hours of staring at a tiny screen, popping tiny bubbles. A full month of work–or sleep, for that matter. And that’s not counting all the games he lost.
A snapshot of a Skillz player profile, documenting CEO Andrew Paradise’s stats for Bubble Shooter. Even while running the company, he was briefly a top player on Skillz’s platform at that game.
That obsession is the fuel powering Skillz’s trippy growth rate, which, when charted, resembles the sudden steep ascent of Paradise’s eyebrows whenever he turns serious. Most of the action that Skillz enables is just plain fun; gamers always have the option of playing for free. But one in 10 pays an entry fee, anywhere from 60 cents to 20 bucks per game. (Now the Paradiseal eyebrows are stirring.) Eighty-six cents of every dollar goes into the prize pool, which gets pretty deep. (Alex Heitmann, who owns a carpet-cleaning business outside Detroit, injured his back last year, took to his bed, binged on Bubble Shooter, and wound up winning $390,323.) Half of what’s left over goes to the game developers. The other half goes to Skillz–for providing the venue, organizing tournaments, arranging competitive matchups, managing the bank, and busting ringers, hackers, and cheats. Unfortunately for Paradise and the rest of the gameheads at Skillz, company staffers aren’t eligible for cash prizes.
Seven percent of the till from a sliver of your audience may not seem like much of a revenue stream, until you account for volume. Skillz has more than 12 million registered users in 180-plus countries. Since its founding in 2012, it has hosted more than 100 million contests; currently, there are 500,000 per day. That’s how you get to $54 million in 2016, up from $108,144 in 2013, and atop this year’s Inc. 500 list.
“Crazy,” as Paradise is wont to say, but he didn’t build a grandly scaled mobile gaming platform to collect mere entry fees. He thinks millions of people will ultimately pay to watch, broadcasters will pay for media rights, and sponsors will pay for that audience–everything that mainstream sports is today, in other words, and everything that it might become. A blend of the real world and the virtual world, involving games that haven’t been invented yet. “We started with mobile gaming,” Paradise says. “But we think about the world as digital competition, and this is about building out the future of digital competition.”
Paradise grew up outside Boston. The first computer in his house was a “portable” Osborne 1. It had two floppy-disk drives and a five-inch screen, and it weighed almost 25 pounds. When he was 7, his parents enrolled him in computer camp at nearby Wellesley College. “Totally awesome!” he recalls. “We spent all day writing code and building robots.” Later, he earned two college degrees: one in English at the University of Massachusetts, where he spurned computer science rather than waste time with required entry-level classes; the other in business from the University of Auckland in New Zealand, where he took a semester abroad and stayed.
His mom, having married an entrepreneur and divorced when Paradise was 12, hoped that her son would choose a less stressful path. He tried consulting, venture capital, and private equity, but his focus wandered. His first company, Double Picture, was an early stab at building an image browser, “which in ’05 was a super hard problem,” he says. Luckily, he found a buyer in ’08, just as the economy collapsed. The payoff was paltry, and he had to lay off 75 percent of the staff. Maybe Mom was right. He moved back home and enrolled in a master’s program at Harvard, determined to perfect his coding skills. But it was hopeless. He endured all of one class meeting before he quit school and jumped into his next company.
That was AisleBuyer, for which Paradise built a convenient app so that shoppers could pay with their phones and skip checkout lines. Attractive mobile interface, check. Sophisticated micro-payment processing architecture, check. Both would serve him well in his next venture. As would Casey Chafkin, who started as an intern, joined full time as employee number four (while completing his Harvard MBA), and three years later, after Intuit acquired AisleBuyer for a reported $80 million to $100 million, accompanied Paradise to Skillz as co-founder; he’s the chief marketing officer.
Paradise and Chafkin are used to getting blank looks at parties when they say they’re in e-sports. “It’s a new old thing,” says industry consultant Alex Fletcher. As old as video gaming, which has been around for nearly half a century, though only lately has it made a case for itself as a bona fide pro sport, with all that implies–competition, rabid fans (making up 14 percent of Americans 13 or older in 2016, according to Nielsen, up from 8 percent the year before), and revenue, expected to top $1 billion globally in 2019, according to industry analyst Newzoo.
You can see the evolution in a colorful wraparound mural at Skillz headquarters in San Francisco. It depicts the early days of the Atari 2600 console (released 40 years ago this month), Space Invaders, and Pac-Man, through Nintendo’s Game Boy, GameCube, and legendary handheld DS (for dual screen); features cultural icons Sonic the Hedgehog, Donkey Kong, and that guy with the sunglasses in Grand Theft Auto; and culminates in scenes from League of Legends, which sells out arenas for its tournaments and attracts millions in sponsorships.
League of Legends is owned by Riot Games, Inc.‘s reigning Company of the Year; its backers include forward-looking sports moguls from the NBA and Major League Baseball. Skillz, which has raised $31 million, has big-league investors too, including Marc Lasry, co-owner of the Milwaukee Bucks, and New England Patriots owner Bob Kraft.
Like Riot Games, Skillz wants in on the future of sports, but it’s making a different bet, one that doesn’t rely on souped-up desktop computers, but rather on a device we carry wherever we go–the ubiquitous mobile phone. It’s not about first-person shooters, which don’t translate so well to mobile, but viral hits like Doodle Jump and Color Switch and analog classics like dominoes and solitaire. (“An emotional high point for me in my time here,” says Skillz chief product officer Bill Mooney, “was the first time I won a 16-person solitaire bracket.”) And Skillz invites everyone. Nielsen says 77 percent of e-sports fans are male, but among Skillz players, the gender breakdown is closer to 50-50. (Match-three games like Diamond Strike skew female; bowling is heavily male.) The engineering team at Skillz, led by Miriam Aguirre, is 33 percent female–more than twice the ratio at Uber, and higher than Apple’s, Google’s, and Facebook’s
All this works for gamers only if they trust the setup. That means pairing players with opponents of equal ability, and above all catching cheaters. It’s a delicate endeavor, separating the cheaters from the simply exceptional. “What we never, ever want to do is ban someone who is the world’s best,” Paradise says. “It’s like telling Babe Ruth he can’t play baseball anymore. Part of what makes you want to watch as a spectator are the people who are amazingly good.” Win too much, and you might get visited by Skillz’s prize patrol–a seemingly celebratory occasion with balloons, photographers, and an oversize check, which doubles surreptitiously as an in-person hacker assessment. You may be asked for a utility bill to prove your identity (“Liars correlate with cheaters,” says Paradise) and given a clean phone like the one you’ve been playing on. If you can’t perform at the same level, you’re busted.
There are thought to be 2.6 billion mobile gamers around the world, most of them outside the U.S. According to a survey of U.S. gamers by Frank N. Magid Associates, 40 percent of them say they’d be interested in paying to compete for cash prizes. That leaves a lot of growth in entry fees alone, and hints at new possibilities if enough people who love playing mobile games learn to love watching them, too. Recently, Skillz broadcast a tournament sponsored by Special Olympics, which gathered 140,000 online spectators. “It’s real middle-market, semipro stuff right now,” Paradise admits. But, he continues, if Skillz can position itself to compete one day, like Riot Games, for meaningful ad revenue from sponsors of online competitions, “you have three new businesses. You have event ticket sales. You have merch, which is massive. And you have TV advertising and broadcast licensing.”
That’s not even the endgame. All that activity–every gesture, every pause, every touch–generates an astonishing amount of data, revealing precisely how we respond to tiny variations in color, sound, or movement. What bores us. What thrills us. What keeps us coming back. Given the depth to which Skillz mines data, each of us creates a unique digital fingerprint that Skillz can use to predict, creepily, our next gamer moves, and note anomalies. “We’ve been able to detect different members of the same household handing the device to each other,” Paradise says. “No one’s ever had this kind of data before. When you think about the long-term value of that, it’s like being able to, for all gaming, describe what people like and why.” There go the eyebrows again.