The End is Nigh?

TheMittani.com reports that Doctor Eyjólfur Guðmundsson (@CCP_DrEyjoG on Twitter), CCP Games' in-house economist and chief of analytics, is leaving to accept a senior academic position at the University of Akureyri in Iceland. I recently had the opportunity to interview Dr. Eyjo in an EVE University Guest Lecture event, and found him to be extremely insightful. His lectures about the major trends in the EVE Online economy have been some of the most popular presentations at the last few Fanfest conventions.

Dr. Eyjo's departure provides momentum to the theory that high-caliber human resources are departing CCP Games in increasing numbers, and that this exodus indicates the company is imploding. The moderators of a recent episode of the High Drag Podcast examined this perception, somewhat humorously, and concluded that the oft-stated mantra of cynical bittervets that "EVE is dying" has little merit.

Regardless, a significant number of CCP Games resources who are highly visible to the EVE Online player base have left the company, raising concern that the loss of talent represents a significant internal management problem. These departures include:

Reviews by employees of CCP Games about the company on glassdoor.com are middling at best, with more than a few citing cronyism and insular management. The recent decisions to kill the World of Darkness project and lay off employees in the Atlanta and Shanghai offices, as well as a $21 million write-off of intellectual property, further fuels speculation that all is not well. Finally, the lack of mention of growth in subscribers at the most recent Fanfest causes some to wonder: Is EVE Online healthy? Are we seeing the slow demise of our game, and of our community?

The Norm of Turnover

For over thirty years, I have either worked for or with companies in the information technology business. For the first ten years of my career, I worked with a software company that developed apps for maintaining accounting records for large corporations. We had developers who wrote and tested programming code, designers who plotted out the architecture and features of our apps, customer service people who received and addressed user problems, and marketing folks who hyped up new releases and organized annual user meetings for thousands of attendees.

While we players tend to think of CCP Games as a part of the entertainment industry, they are really a software company - their core competency is to write computer code and maintain applications for thousands of users. They have devs, designers, GMs, and marketeers - comparable roles to those found in any software provider. They even hold an annual user conference: Fanfest - and you'd be surprised how similar an accounting software user conference and a gathering of hard-core Internet spaceship pilots can be. (Capsuleers have no monopoly on drunken boisterous partying - trust me.)

For the last half-dozen years, the employee turnover rate in software companies has averaged between 15 and 20 percent annually - and about half of this is from employees voluntarily leaving their companies. The more profitable firms report lower turnover, but all lose a substantial number of people from their ranks every year.

CCP Games is no different than any other technology industry company in this regard. Putting aside the number of involuntarily displaced employees from layoffs due to strategic decisions, the proportion of people choosing to leave the company for opportunities elsewhere seems to fall well within industry norms, assuming that the organization employs a total workforce of around 500 people, approximately. In fact, based on industry averages, we should expect to see between 35-40 devs voluntarily leave CCP Games every year - this is exactly what appears to be happening.

It Ain't Easy Being Icelandic

CCP Games does differ from other technology companies in two ways:

  1. The company is based in Iceland. This makes recruiting and retaining professionals from a diversity of locations outside of the island more challenging, and it encourages a sub-culture of native Icelanders within the management ranks defined by their own common experience and even language. This presents CCP Games management with extra challenges in maintaining and growing a vibrant and productive workforce. They must remain ever vigilant against becoming too culturally isolated, which would be the natural tendency over time. People who join the company from elsewhere are always outsiders to a degree - a difficult obstacle to retaining them for long.
  2. Many CCP employees are celebrities to the user community, not just developers. In every other software company I have worked with, programmers, designers and customer support staff are generally anonymous. But at CCP Games, each dev and GM has their own explicit public persona, and many are well known to the entire user community. As a result, whenever a dev leaves the company, it is a highly public act visible to the entire player base. This amplifies and exaggerates the perceived importance of each individual departure in the mindset of the user community - even though such departures are well within the norms of common behavior in the industry.

As a result of these factors, CCP Games management has some unique human resource challenges, certainly. They have a tougher time in acquiring talent, and they must triage customer perception whenever anyone leaves.

Compounding these issues is the player base's perception of multiple people leaving to join the same company - in this case, several CCP Games employees leaving to join Riot Games. This began with CCP Soundwave, who was later joined by CCP Navigator and others. However, this kind of thing happens all the time in technology companies, as recently migrated people refer previous colleagues to their new employer for potential recruitment. Such changes do not necessarily indicate a persistent or accelerating trend beyond the typical industry turnover levels, though it may appear otherwise to outside observers.

The Cost of Focus

While CCP Games has never officially confirmed it, their $21.4 million write-off of capitalized development is certainly due to the closing down of the World of Darkness (WoD) project. There is good news and bad news about this decision - but neither means that the company is in dire straights.

First, the bad news - a write-off of this size is a loss of a very significant investment. The fact that this was an expensive failed experiment cannot be denied by CCP Games management.

Now, the good news - this was a courageous decision by CCP Games management, and focuses the company's resources entirely on enhancing the value of the EVE Universe. To acknowledge that WoD was a mistake had to be a difficult decision. The easier choice would have been to double down on that bet and invest more cash and capital in that project's development, in hope it would become a viable and profitable asset. But hope is not a business strategy - that requires a clear direction, and knowing with certainty about what not to do as well as what needs to be done. The end result is that CCP Games' balance sheet is now an honest statement of company value, and compared to several years ago, is actually stronger.

Further, many players misunderstand the true impact of the dispensing of a capitalized asset. They only see the "$21 million write off" in news reports and assume that means CCP Games chucked cash into a furnace. In actual practice, the company simply removed the accumulated expense related to this project - money that was previously spent -  from their list of assets, as it no longer represented a potential revenue-producing resource. This is normal accounting practice in software companies, and does not indicate a sudden loss in liquidity or cash position for CCP Games. In short: there is no cause for panic here.

Earning and Learning

CCP Games' financial success and stability are important to the EVE Online player base, as they mean that the game and its community will continue. But CCP Games is more than just a vehicle for maintaining the games of the EVE Universe - it is also a personal growth experiment for its managers and employees.

The best-run companies in the world do two things in balance: they earn, and they learn. Those organizations who focus on profits end up squeezing ongoing investment in innovation to nothing. In the short run, this means higher financial returns, but at the expense of long-term growth. At the other extreme, those organizations who spread their limited resources across a wide diversity of development projects, in hopes of finding the next big money-maker, likewise fail because they lack discipline and focus to keep their business a going concern - in other words, they spend themselves into oblivion.

For CCP Games, the emphasis between earning and learning has swung back and forth over the last few years. In the long run, this is a good thing. In a healthy company, there should be some degree of tension between the mundane practicality of keeping the lights on and the excitement of exploring the risky unknown. Creating a work environment where employees have some freedom to scrutinize new ideas is difficult, especially when there are safer places to invest that time and talent in existing assets that already produce revenue and profits.

But taking some risks produces new opportunities, like EVE: Valkyrie, which now promises to be a strong addition to the EVE Universe, and one that is highly likely to generate acceptable financial returns for CCP Games. Sometimes investments in learning do lead to incremental improvements in earning potential.

I've been impressed with how CCP Games' management team is not afraid to make mistakes, and then acknowledge and learn from them. I recall Hilmar's heartfelt apologies at Fanfest after the Incarna-inspired "summer of rage" and the company's subsequent refocusing on spaceships, producing some of the best expansions for EVE Online. While I agree that the Project Legion announcement at this year's Fanfest was poorly handled, I must give CCP Games high marks for recognizing that developing DUST 514 on the PC, and taking it to a higher level of playability, is critical to that game's commercial success. And no one I know who tries the prototypes of Valkyrie believes it will be anything less than a critical and commercial success, when it is ultimately released - a new asset that began only as an internal experiment.

The question about the health and ongoing viability of CCP Games should not be focused solely on numbers, in my opinion. It is easy to get distracted by the numbers of employees coming or going, the numbers of subscribers going up or down, or the numbers of financial income or expense. These are all important, certainly - but equally vital to the health of CCP Games is its management team's willingness to try new things, fail at some of them, learn from mistakes, and convert the winning ideas into earnings.

I'll get worried if I see CCP start to withdraw and entrench itself in existing assets only, and start to lose a willingness to experiment. As long as the balance between earning and learning remains evident, I am confident that we'll be playing in the EVE Universe for quite a while.

Fly safe! o7