Overwolf – MVP Iterations Until Product-Market Fit

The Hunt for Product-Market Fit





Fast facts:

Ideation began in 2009, at the tail end of the Zell Program. The founders began working full-time on Overwolf in 2010
Currently has a team of 80 employees with headquarters in Israel
Raised $52.5 million as part of their series C
Has 15 million monthly active users (MAU)
Table of content

How Overwolf Began

Uri Marchand sits at his home office, firmly staring at the video call screen as he shares the humble beginnings of his gaming software company, Overwolf. The drumset sits right behind him in clear sight. It’s in the middle of the first COVID-19 lockdown in Israel, where he and Overwolf are based, and he admits that drumming has been a nice comfort between his work and homelife during these several weeks of quarantine. While many industries saw heartbreaking losses throughout the unprecedented pandemic, the gaming industry has since lunged into hypergrowth, and Overwolf has shared in this success.44 For Uri, this has also meant working long hours in order to meet demand. Today, Overwolf offers a clear and central thesis: it is a software for game developers to build experiences around games. It isn’t a game itself, nor is it a technology to build one out entirely; rather, it is a platform where developers can build and provide ancillary services to a game that already exists. Back in 2009, this thesis looked different.

It’s been over 10 years since Uri and his co-founders came up with the idea for Overwolf. As gamers themselves, they saw an opportunity to build a “gaming companion.” At a high-level, they envisioned it as a piece of software that would provide functionality to gamers in order to enhance the experience while they’re in play mode. Before 2009, someone playing a game and listening to music on their computer would need to pause the game, go to the music application to change a song, and then return to the game application to resume play. Online music players and games weren’t synced, so the user experience revealed many moments of stop and go during any given session. Creating a built-in music player for games would be one of the many functionalities that Overwolf sought to build in its minimum viable product (MVP), a fitting example from a music lover. They also sought to release a built-in web browser for gamers to be able to search for solutions to in game obstacles while playing. The list goes on and on, all with the goal of offering game overlay features to gamers for more seamless play time.

Capturing all of the micro use cases under one umbrella would bring enormous value to gamers and the gaming industry alike, at least that’s what Uri thought. His hypothesis wasn’t wrong, but proving it turned out to be time-consuming and expensive. When it comes down to Overwolf’s first executed product, Uri thinks back and admits that the word “minimum” in MVP was totally lost on him. Nevertheless, it would take him and his co-founders 18 months before they would understand that and pivot.

Gotta Build Em' All...Or Do You?

In 2010, Uri and his co-founders raised a Pre-Seed round to build out an MVP. In Uri’s defense, this was a time before books like The Lean Startup45 were published and terms like ‘agile methodologies’ became so widely used. Uri and his team were inventing as they built, without much practical thought to the product roadmap or to the preservation of resources. They developed a lot of functionalities to solve many micro use cases for many games, instead of developing one functionality to solve one highly needed use case for one popular game. Their quick and dirty MVP turned into a long and yet still relatively dirty version of one of the platforms. With a regretful tone, Uri describes the MVP that he should have released – a simple music player for World of Warcraft – but instead, they built a platform that offered a music player that worked in all games, a web browser that worked in all games, and even a built-in voice calling feature that again worked in all games. “It’s a disease that a lot of entrepreneurs have. It’s about wanting to bite off more than you can chew, and not really understanding your capabilities at a certain point in time. There’s a way to be more pragmatic in assessing capabilities,” Uri said.

All things considered, by mid-2011 Uri and his team had managed to release a working product. As a first release, Overwolf was well-received by gamers, and their idea made quite a bit of noise in the gaming industry. They managed to turn heads within the larger gaming companies, who shared their interest in Overwolf’s vision. They acknowledged the various solutions that Overwolf had already started solving, and offered ideas for new use cases. That's when they began pivoting between use cases, developing to solve various micro use cases across the gaming industry. What seemed like opportunities at the time, in hindsight turned out to be distractions. By the summer of 2013, Uri spent over $900,000 dollars, and honestly took stock of all they had developed in the last three years. While their technology worked, they didn’t have many users or revenue to show for it.

Open the Floodgates

Running out of cash, Uri used their losses and learnings as the basis for their Series A thesis. They knew for sure that people were going to continue playing PC and Esport games, but was there actual room for a solution like Overwolf? Uri was convinced there was but sought to find a more scalable execution strategy. Instead of Overwolf building all of the functionalities for games in a closed shop, Uri wanted to release an open platform where third-party developers could share in the execution risk. While owning their own development would give them 100 percent of the reward, it would also give Overwolf 100 percent of the execution risk. According to Uri, opening the platform would give Overwolf 30 percent of the reward, but zero percent of the risk. The app store model seemed to be the holy grail of distribution, and a good story to boot.

With this newfound vision to create an open source platform, Uri and his team would need to create a framework that developers could use to build features for games. They had little in the way of cash left, so they got to work. They spent the first year using the technology they already had to build the platform and finish what Uri called “phase zero.” They spent the next two years convincing partners, otherwise known as app developers, to start developing on Overwolf’s new platform. Uri sighs when explaining how slow and tedious this process was. Even after a partner would agree to build on Overwolf, it would take them between six months and a year to release any given functionality. It wasn’t until 2016 that Overwolf made their first buck. Around the time they started generating revenue, Uri was also able to close bridge loan financing following their A round.46 They would spend the next several years evolving the platform and growing their revenue model.

Earning a Piece of the Pie

First came the technology, then came the partners, then came the users, and only after all of that checked out did Overwolf achieve a sustainable revenue model. As for the technology, Overwolf provided an engine and a library that partners (app developers) used to create and launch their apps. They also released a marketplace where game players could browse and download apps that they could use to facilitate their gaming experience, or just simply to add to the fun. Apps hosted on their marketplace could be as functional as adding a player rating tool to give a user more information about their opponents, or as silly as customizing the voice that made mid-game announcements to the likes of Bart Simpson or Arnold Schwarzenegger.

In order to have quality products offered in the marketplace, Uri knew the revenue model needed to incentivize partners in the direction he wanted. “We thought that if we don't create a retention mechanism that makes partners want to go back and update their products, then the apps will continue to be mediocre,” said Uri. With that in mind, they created a win-win business model, where the revenue share of every app built on the platform had a 30/70 split – 30 percent for Overwolf and 70 percent for a partner. As more partners developed quality apps that game players wanted to use, it was only a matter of time before Overwolf’s traffic reached a critical mass. By 2018, they had onboarded enough partners with high- performing apps that Overwolf became profitable. “An ecosystem without an economy is nothing,” said Uri. “Every company has its fundamentals depending on the service that they are providing, and I think the lesson here is that what we should have done as an open framework for creators is think about commercialising from day one.” 

Let’s sum it up: it took nine years of development, two funding rounds, two product launches, and one open source platform for Overwolf to become a profitable business. It’s rarely as easy as it looks to create a self-sustaining business and Uri is the first to own his mistakes. However, it’s also easy to look backwards once the path has been paved, and forget that for most entrepreneurs like Uri who create something new, they spend a lot of their time stumbling in the dark. Uri and his team continue to evolve and grow the platform today with the same persistence that carried them through those nine years of uncertainty. Even when cash was low and a viable business seemed out of reach, for Uri, the game was still on and that’s why he’s still playing today.

Between the time of the interview and publication, and in the spirit of the surge in growth in the gaming sector as a result of the COVID-19 Pandemic, Overwolf secured 52.5 million dollars in Series C funding.47

Discussion Questions

1. Why was it a mistake for Uri to build out a lot of different features in the early version of the product?

2. What were the pros and cons of pivoting to an open platform?

3. What is bridge financing typically used for and when is it most common?

4. Why does Uri suggest thinking about commercialism from day one? Do you agree with his view?

5. What did Uri think was necessary for the revenue model?

6. Is Uri’s timeline slower or faster than a typical venture’s trajectory?