VentureBeat

Alex St. John was one of the renegades at Microsoft back in the day. He cut an imposing figure as he wandered the halls and swung a fake battle ax. He got Microsoft to launch its DirectX game development technology. Since 1998, he’s been running his game start-up Wild Tangent, but now he is formally handing the reins of chief executive to his chief operating officer, Mike Peronto.

St. John confirmed in an interview that his management team has been running the Redmond, Wash.-based company for six years anyway, while he has been traveling the world representing Wild Tangent before the media, customers and other parties. He said there was no need for him to “camp” on the CEO position, a reference to a gamer’s tactic of sitting in one spot inside a game to pick off all of the other players running by.

He also said it no longer made sense for the company to run its own internal game studio and so he confirmed Wild Tangent laid off its 20 developers. But St. John said that Wild Tangent isn’t suffering from the bad economy. Rather, he said the company grew its revenues 63 percent in the past year and is making money from a variety of methods for selling and distributing web games.

One of the ways is an electronic payment system dubbed WildCoins, which lets gamers play for fees as low as a quarter. The company also makes games available for free if users choose to watch ads which are embedded in the games.

According to comScore, Wild Tangent ranked third in total online gaming audience in September. The company’s game network drew 11.5 million visitors, more than other big companies such as Disney, Microsoft’s MSN, AOL, and others. It is behind only EA Online and Yahoo Games.

Peronto will handle day-to-day management while St. John as chairman will continue to focus on customers, partners and industry evangelism. Before joining Wild Tangent, Peronto was vice president of Publishing Products at Adobe Systems and the chief operating officer at WatchGuard Technologies. One of the things St. John has been saying for a while is that the game consoles will go out of business and be replaced by web-based gaming on the computer. I don’t know anyone who believes this, except John Welch, the chief executive at PlayFirst, who has been saying something similar.

Despite the comScore number, Wild Tangent claims that it gets more than 30 million unique monthly gamers for more than 500 games, which can be played on the web only or downloaded to a user’s PC. Popular titles include “Polar Pool,” Polar Bowler,” and “Fate.” The company’s internal developers worked on titles such as a new version of Fate, a role-playing game, but the title generated a small amount of overall revenue.

“We decided our core strength was publishing and marketing,” he said.

St. John said that it made more sense to dedicate resources to efforts that would boost overall sales. Wild Tangent reaches gamers in a variety of ways, including its own site. Its software for playing games is pre-installed on desktops from PC makers such as Hewlett-Packard, Gateway, eMachines and Toshiba.

He said that years ago, Wild Tangent needed the game team to produce its titles. But he said there are now lots of independent game developers– more than 150 — who can supply games inexpensively to company. The company still has 80 employees. The company has raised more than $76 million from Advanced Technology Ventures, ATI Technologies (Now Advanced Micro Devices), CIBC Capital Partners, Greylock
Partners, IDG Ventures, Madrona Venture Group, Millenium Technology Ventures, New Millenium Partners, Sony, and Washington Mutual.

St. John acknowledged that Wild Tangent has taken longer than he thought to get to its “liquidity event. “I figured I’d be on my third company by now,” he said. “Certainly I would have thought I would have flipped some companies by now. But I’m proud of what Wild Tangent has become. This is a VC funded company. It’s my job to deliver a fantastic liquidity event. It’s not going to happen in this current market.”

Major portal web sites get a lot of traffic, but sometimes the visitors don’t stay for long. Video games, on the other hand, are extremely sticky. NeoEdge Networks, a start-up whose chairman is Atari founder Nolan Bushnell, is making it easy to put the two together so that visitors can play games on the big web sites and thereby stay longer.

The Mountain View, Calif., company has a casual game ad network that has been feeding ads to online game web sites; the ads are reaching five million gamers a month. Now it is expanding the business with widgets that can embed games into the major branded web sites. NeoEdge Networks inserts video ads into those premium downloadable games. The white-label gaming channel is dubbed the NeoEdge Gaming Channel. I think it’s a formula that can broaden gaming to new audiences and could be great for making portals more engaging places to hang out.

Consumers visit the heavily trafficked sites and play free games without moving to another web site. The consumers playing the games stay longer and view video ads with every round of the games, making the game publishers, advertisers and portals happy. NeoEdge gets a cut of the ad revenue, as do the game publishers and branded web sites.

The 300-plus games that are enabled to run NeoEdge’s ads have drawn a lot of gamers.  Now, with the NeoEdge Game Channel, it can extend the model to social networking sites, blogs, and media sites. Advertisers working with NeoEdge include Bounty, Netflix, Ford, Folgers, Oil of Olay, and Visa.

PerfSpot, a social network with eight million members worldwide, will be the first portal site to use the game widgets from NeoEdge Networks, the companies are announcing today. (Here is a link to the widget for PerfSpot). NeoEdge can take an existing game and use its patent-pending technology to insert a 30-second video commercial into the game. The typical game in the NeoEdge Game Channel isn’t a Flash-based web game but rather a $20 downloadable game that is more appealing and have a higher-quality gaming experience, says Ty Levine, vice president of marketing at NeoEdge.

He says that surveys show that at least 85 percent of gamers will watch a short ad if it means they can play a $20 game for free. Levine says that the online video ads generate revenue of about $25 CPM (cost per mil, or thousand). That’s a higher value that the simpler Flash-based web games.

Asked if the games might distract visitors away from the branded site, Levine said that the content is complimentary, like newspapers having Sudoku or crossword puzzles. Rather than going somewhere else to enjoy a crossword puzzle, a newspaper reader can enjoy it without going to another media source.

Game companies can benefit because they can get new users. These companies already get hardcore fans coming to their own sites. But here they can snag more casual players who come to a portal for another reason and can casually discover a game to play. That explains why Yahoo Games is one of the top game sites, Levine says.

The company calls its widget a “game channel,” where games rotate through the widget on a regular basis. Levine says more portals of the major brands will be signed up over time. There is competition. Hordes of companies are starting casual game web sites, but it’s hard for those small sites to gain traffic. Wild Tangent, based in Redmond, Wash., is a competitor, but many of Wild Tangent’s games are for both hardcore gamers and casual gamers, while NeoEdge focuses on casual. Eyeblaster, Google’s Adscape, Exent Technologies, and Oberon Media are also rivals who are embedding ads into games. The good thing is that casual games are growing, with sales expected to hit $1.15 billion in the U.S. by 2011, according to analyst firm DFC Intelligence.

NeoEdge Networks has 47 employees and it was founded in 2003. It has raised more than $20 million to date from investors including Vimac Ventures and Jefferson Partners. It’s noteworthy that Bushnell, the “father of video games” is chairman of NeoEdge. In an earlier interview, Bushnell told me, “I believe strongly in the casual games space because it is where most of the people are and where the money is.”