Stewart Butterfield Fixes a Glitch One Day at a Time

Last summer, serial entrepreneur Stewart Butterfield was living in “perpetual fear,” he told me for a story. The source of his anxiety? The impending launch of Glitch, a highly anticipated, massively multiplayer online player game that his startup, Tiny Speck, had developed.

I assumed that Butterfield was exaggerating. After all, his 40-person company has raised $17.2 million since its founding in early 2009, mostly from the tony venture firms Andreessen Horowitz and Accel Partners. And Butterfield has a strong brand of his own. Not only did he co-found the photo sharing site Flickr in 2004 but he remains the “éminence grise of Vancouver’s tech scene,” where Tiny Speck is headquartered. (In fact, a number of Flickr’s original team rejoined Butterfield at Tiny Speck.)

But evidently, things that could go wrong did, and just two months after Tiny Speck opened up Glitch to the public last September, it yanked the game back into beta.

It still hasn’t re-released Glitch, despite hints that it will soon.

Insiders won’t say what happened, not yet. Through spokespersons, Butterfield and Tiny Speck’s investors declined to answer numerous questions for this story, suggesting that Butterfield won’t discuss Glitch until later this summer. (One story published earlier this year ascribed Glitch’s “unlaunch” to the game’s “addictive” nature, reporting that “users burned through years of programming in just months.”)

What happens going forward isn’t clear, either. While analysts say the move is unprecedented for a game of its kind, not all agree that it’s cause for concern.

“I think Tiny Speck just wanted to re-address some key areas,” says gaming analyst Michael Inouye of ABI Research. He says that perhaps the company “went to market too soon or perhaps [its] beta lasted too long” or maybe it’s “re-addressing [its] business model,” which centered on the sale of virtual goods and subscriptions. “That strategy is quickly losing ground to the micro-transaction/freemium model,” he offers, noting that even the popular game World of Warcraft now has a “pseudo free” model that allows users to play without time constraints.

Either way, Inouye suggests that Glitch’s disappearing act might prove a non-event over time, particularly if what’s re-introduced is dramatically better. “True fans are willing to wait,” he says.

Certainly, Butterfield sounds more confident than ever about Glitch, telling Canada’s Globe and Mail earlier this year: “There have only been a few massively multiplayer online games that have been really successful,” including World of Warcraft. If Glitch catches on, he said, “[W]e’re talking billions of dollars from one game.”

Still, producing a runaway success is a long shot and it grows longer every week that the company tinkers with Glitch, suggest analysts.

For one thing, Glitch reportedly amassed just 150,000 users before reverting back to beta. Though “quite low,” according to senior gaming analyst Piers Harding-Rolls of IHS Screen Digest, he says that with “an independent production like Glitch, you’d expect to start off slowly and build up over time.” (Of course, the company can’t start building its user base again until it’s public.)

More, competition for users across all games categories has grown intense. When Zynga reported weak second quarter financial results yesterday, its COO, John Schappert, conceded that retention is now a problem. “Our users did not remain as engaged and did not come back as often,” he said. Even World of Warcraft hasn’t been spared. It had 12 million paid subscribers in the fall of 2010. As of last December, it had lost 17 percent of them.

It’s also worth noting that while World of Warcraft still generates billions of dollars, the game also costs its parent company, Blizzard Entertainment, “hundreds of millions of dollars to keep up,” says Wanda Meloni, a gaming industry analyst with M2 Research. Tiny Speck doesn’t have that kind of money.

You “don’t just put out a new [game like Glitch] and have instant success,” says Meloni. “I wouldn’t say the window is closing, but getting your game out there and above the noise of everyone else’s game is tougher to do all the time, and it becomes really hard to re-introduce it once you’ve launched it, then taken it off the market.”

Photo: Image courtesy of Tiny Speck.