December 2007 Question 1: DAILY FINANCIAL TIMES AcmeGame: is their game over? Four years ago, AcmeGame launched the pathbreaking mathematical mind game, Virtual, in download form. For an annual fee you get access to a fresh problem every day. To everyone’s astonishment it was a runaway success and enrolled 100 000 users. The secret that made it difficult to imitate was the underlying mathematical algorithms that created fresh mind games. Then two years ago MegaCorp cracked the problem and came out with WorkOut, which was cheaper than Virtual and had the added attraction of having different difficulty levels. This was partly due to the fact that MegaCorp had poached some of AcmeGame’s key development employees. Workout increased the market and took away about a quarter of AcmeGame’s customers immediately and now has half the market. AcmeGame has slashed the price of Virtual and put the contract on a monthly basis, but neither game has attracted new customers in the past year. MegaCorp took a chance at the same time as launching WorkOut in bringing QuizNight to market, which provided downloadable general knowledge quizzes. It was an even bigger success and last year AcmeGame followed with a copycat version called WhoKnows. The quiz market is booming and while WhoKnows is selling in large numbers, it has made a relatively small impression in terms of market share. That is probably because it is really no different from QuizNight and MegaCorp immediately matched WhoKnow’s lower price. AcmeGame claims to be a profitable company, but it is not generating much cash at the moment. It is also investing heavily in the new product, Thinker, which it refuses to describe in detail but is undoubtedly a risky project. The inevitable conclusion is that AcmeGame has lost its competitive edge and is heading for disaster. AcmeGame Plc Operating Account at end year: Production cost, and revenue ($000) COST OF GOODS SOLD SALES REVENUE 31 850 GROSS PROFIT 8 842 23 008 Operating

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