The eleven person team at Albatross Gaming, LLC was faced with a confluence of several pleasant, yet
complex, and some mutually exclusive, decisions. After seven years of the entire team subsisting on burritos,
macaroni, noodles & pizza, the company had recently completed six consecutive quarters, and their first entire
fiscal year, in the black. Their best-selling action, sailing game was now the proverbial cash-cow. Several other
games were either fast becoming or already stars, covering all current fixed and variable costs and contributing
to development costs (i.e. sunk cost). Annual revenue could hit $2,000,000 this year.

The original three founders met at Northeastern University. A computer science major, a graphic
designer, and a finance concentrator. An elective class taken together, their last semester, required the three
team members to develop a viable product and a detailed plan for commercialization. Thus, was born,
Albatross Gaming. The original product was a psychology game app that took the player through various levels
of guilt, with each level of achievement atoning for some personal or societal infringement. Initial revenue
was enough to get them to commit to Albatross part-time upon graduation, while also doing contract work
part-time, and trying to raise seed capital. After a harrowing six-months without fulltime jobs, they were ready
to pack it in. However, a former professor of co-founder Rachel Perez (DMSB), was impressed with the initial
product and the plan. He brought together four additional investors and they chipped in $300,000 for 15% of
the firm (3% each). The founders also were advised to bring on two additional programmers and to provide
them with a piece of the company (i.e., 3% each) to entice them to work for less than market.

Unfortunately, anxiety, stress and financial pressure saw two of the original three co-founders leave
the company within the first 30 months. The third co-founder, Perez, after advice from the former
professor/initial investor, decided it was best to formally cut all financial ties and bought out her co-founders
for a nominal sum. At that point, the company had released three apps, but had yet to release a game for a
major platform. The company had burned through much of their initial investment. Cash inflow was minimal.

With the two co-founders gone, Perez hired three additional programmers again giving up 3% of the
company to each. This creative & coding boost, due to the newly inspired interactions between new & old
team members, allowed Albatross to release a game for a major platform within the next year. This was
followed by cross development for a second platform. Cash flow allowed Perez to add employees, yet they
weren’t making a profit and needed another cash infusion. Perez was introduced to an Angel who invested
$1,250,000 for 25% of the company, further diluting her ownership.

Depending on metrics used, the global gaming & app industry approximated $50 billion (US dollars) in
annual revenue. The top selling game of all time, Grand Theft Auto V, cost approximately $265 million with
roughly half in development and half in marketing. Revenue for GTAV exceeds $3 billion. Yet, only about 15-
20% of game & app developers make decent money. The top 15% of apps for Android and Apple systems
bring in about $5,000 per month. Many make little or no money at all.

Basically, gaming platforms included variations of: PlayStation (Sony), Wii (Nintendo), Xbox
(Microsoft), Nintendo Switch, iOS devices, Android devices and PCs (various operating systems including:
Windows, Linux, UNIX, and Chrome). There is enough variation that successfully developing for more than one
system can be extremely challenging, especially for a resource thin start-up. Yet, a very dedicated, creative
Albatross team, working long hours had developed several products that cut across multiple systems.
However, their bestselling game and a second game were exclusive to one gaming platform. They were now a
preferred partner with the manufacturer of that platform.

Competition in the gaming industry is intense, thus, if you are a game or app developer, getting
discovered can be incredibly difficult. Perez, as CEO of Albatross, used a variety of game and app promotion
networks & agencies and mobile app networks to enhance product visibility. They also adopted a Blue Ocean
strategy, avoiding traditional more costly channels, using more guerilla marketing and creating non-traditional
product. She, and her team, also worked through the world of app store optimization (e.g., SEO). All team
members used spare time for social media outreach.
Product can be sold in retail stores alongside gaming platforms, yet gaining access to those channels
can be costly. Yet, Google Play and Apple’s App Store are not the only alternative distribution channels. For
example, there are manufacturer specific app stores, including: Samsung Apps, LG Smart World, Dell Mobile
App Store, and BlackBerry App World. It’s also possible to develop carrier specific apps (e.g., Verizon App
Store, Vodafone AppSelect, China Mobile, AirTel App Central). Additionally, there is a healthy eco-system of
third party, online stores that can help get product noticed. Some of these offer a better cut of the revenues
than the traditional 70/30% split offered in the App Store. Some allow targeting of audiences in different
geographic markets, such as Asia and Africa. Some simply help by offering a less crowded space to thrive in
(i.e., Blue Ocean).

The company’s recent successes had not gone unnoticed. Several options were now available. A
larger Japanese based firm had made a buyout offer of $12 million. The offer was contingent on keeping the
entire Albatross team on board for a minimum of one year. They were welcome to stay longer. Salaries would
be tied to sales performance. Half the sales price would be paid up front. If any of the existing team left
before the year was up, the price went down 4% per person. If the entire team left before the year was up,
the value of the buyout would shrink to 56% of $12 million (i.e., $6.72 million).
One gaming console company was coming out with a new system. As a preferred partner, they had
provided Albatross with the specifications, allowing Perez and her team to begin development of two new
products and redevelopment of their best-selling game to fit the new platform. The platform and the
Albatross products should be available for the upcoming Christmas Holiday season, a major selling period.
Based on marketing projections, Perez conservatively estimated these three products alone would double
Albatross’s revenue in 2 years.

Given current cash flows, Perez now had the financial resources to expand the business. She believe
adding three additional people would increase revenue 4-5%, while adding approximately $300,000 to annual
costs. They would finally bring on a dedicated marketing person, while adding another programmer and a
tech-savvy, graphic designer. Her estimated time frame to early results was 18 months.
A four year old Indian app firm, Mornii, Inc., approached Perez regarding a possible joint venture. In
addition to a growing business in Indian, Mornii had been successful entering several commonwealth countries
(e.g., U.K., Canada, & Australia). Yet, they have not been successful in China, the largest market, per unit, in
the world. The twenty-two person, Indian firm is staffed entirely with technically educated female employees.
Their products are primarily science and math based educational games. Annual revenues are roughly
$950,000 (US dollars). Mornii’s Director, Meena Patel, has suggested a 50-50 joint venture, with her firm
dedicating five employees and $50,000 and asking Albatross to commit two employees and $100,000. The
mission of the JV would be to develop new products specifically targeting the Chinese market in 18-24 months.
The Albatross team was elated with recent success and with the options facing them. Yet, Perez and
the entire team recognized they were at an important junction, for the future of the firm, and for themselves.

In the Albatross Gaming LLC case, identify four specific advantages and four disadvantages that Perez should consider in evaluating the proposed joint venture