Interview with Paul Flanagan, Executive-in-Residence, Ariadne Capital
By: James Peck, Contributor

Paul started his career at IP Sharp Associates in Toronto helping to take to market their databases, mainframes and international network, focusing on the financial services industry. After working in London with Reuters, Paul studied for his MBA at INSEAD. Upon graduation he worked with Citibank and then JP Morgan helping to implement trading platforms, risk management systems and cash management and liquidity solutions for financial services institutions.  Leaving the City in 1996 Paul set up two gaming companies Cybernetic Productions and Entertain.

So where have Reuters gone wrong?
Well when I was at Reuters they were such an incumbent that the sales teams ended up almost fighting each other to get a share of this one huge revenue stream. They banked on it and didn’t really look for new ways of making cash. All activities were internally focused so they didn’t really see Bloomberg creeping up behind them. Their pricing was also that of an incumbent with a total monopoly. Essentially Bloomberg have undercut them, have a better system and now have more restrictive and binding contracts.

Are we moving towards totally automated markets?
We are certainly moving towards far more efficient markets. Some hedge funds are now using systems that replace human beings but there will always be a role for advisors. Technology now is all about providing traders and brokers with as much information as possible to enable them to make the right decisions. Systems in place today are enabling trade books to move around the globe constantly, that is massively complex and technology is allowing us to do it more efficiently. Technology is reducing restrictions and blockages in the system, allowing institutions to manage their risk and maximise their liquidity more fully than ever before. So I think we are constantly increasing our efficiency rather than replacing humans altogether.

So how did you move from Citibank trading systems to computer games?
I visited a friend and Senior VP of Citibank, in New York. He was playing Wolfenstien 3-D, a PC game with incredible graphics. I got back to London and discovered that a group of tech support guys at Citibank had fenced off a bit of the shared server and were playing a game called Doom all hours of the day and night. These were the guys getting in earlier and leaving later than anyone else! I realised this was getting massive – there were tens of thousands of people playing Doom over their office networks. Check out this article for a snapshot.
(http://www.cnn.com/TECH/computing/9807/20/play@work.idg/)

Afterwards, I moved to JP Morgan working in fixed income and emerging markets and the story was the same. Forget the corporate finance guys, the people putting in the most hours were the people staying into the night to play games at work!

So how are games developing and how have you taken advantage of their growth?
Many of these games have come out of the military, or rather been carried to a next level as military training simulators. The US army have taken Doom and turned it into a training tool, a virtual battlefield if you like. In their scenarios you can have hundreds of players interacting, they even have the guys in the flight simulators flying over head – all part of the scenario. The military have really scaled these things out and that eventually spills into the consumer market.  These exercises help with decision making, team building and strategy. I took some of those principles and formed Cybernetic Productions, which uses multiplayer battling games as a corporate team building exercise.

And it works?
When you see 40-something accountants and management consultants shouting at each other to “kill the monster, kill the monster!!” – you’ll see how effective it can be. It opens people up, they really enjoy it and it really is about communication. There is a more commercial aspect to these games as well. After Cybernetic I started Entertain, a company that uses games as a promotional and marketing tool. A good example is with the new Jeep Rubicon launch. Jeep made a simple online racing game whereby if you won the race you could then race the Jeep Rubicon around the course. It follows and extends the concept of product placement. There was an online competition and the winner won a Jeep. However, of all the people that then bought a Jeep Rubicon – 14% had played the game. That is a massive figure for the advertising industry. Also the game that spun out of the Nike football advert for the 2002 World Cup, had 1 million downloads. You can start to see how powerful these games can be.

Many people are starting to talk about the Internet II – the next wave of applications, companies etc – are games going to drive the new internet generation?
I think so. You have Microsoft and Sony opening up the internet with games on the Xbox and Playstation 2 – I don’t think the little guys can make this happen it really will be these big companies driving huge online gaming communities. We already have Battlefield 1942 where thousands of people interact online in a virtual environment – communities are formed, people play in groups and teams log on at a specific time to play other teams. This will only increase. We will see more persistent, episodic games which can be choreographed and moderated. Just as you would tune in to Eastenders we will see people sit down and log on to virtual worlds in which they can interact in different ways. iToy is a big step towards that – where your actions and body movements are mapped into the game.

It sounds like the Matrix...
Its exactly like the Matrix – in fact there is a company building the Matrix Online. It is an entire world populated by hundreds of thousands of people in huge cities with all the characteristics of a modern metropolis. In that environment your clothes matter, you can fight ‘the agents’ and live out an entire life in the game.

Is that a good thing? Some sides of the gaming industry have had bad press. Do you ever worry about the violence or some of the negative/anti-social elements of gaming?
Games aren’t just about violent battle games – they are about communication and pulling together people who otherwise would not meet. Think about how lonely a big city like London can be if you are on your own. These games create huge online communities where people of similar interests can meet and interact. Technological advances are being made in mapping people’s faces and expressions and instantly datastreaming that into the game. So you will be able to see people as they are - in the online/gaming environment. That beats TV any day of the week! One of the latest things to happen are ‘LAN parties’, where online communities meet up ‘offline’ to play games and extent their relationships.

It is human nature to interact and create communities. In fact online teams are know as Clans or Tribes – how much more human can you get?  This is where the internet is going. It will be about allowing people to communicate and interact absolutely.

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Paul Flannagan is an Executive-in-Residence with Ariadne Capital. For more information on Paul, see: http://www.ariadnecapital.com