Game ad firm NeoEdge merges with game developer, hires new CEO

NeoEdge, a company that offers a way to insert video ads into online games, is going through some big changes — in part driven by the recession in the online ad market, but also by the proliferation of other, cheaper games.

Today, the company is announcing that is merging with casual game development firm Offspring. And Offspring’s chief executive Lesley Mansford will become NeoEdge’s new CEO. Mountain View, Calif.-based NeoEdge will continue to focus on serving ads to casual games, which you can download from web sites. That business is the mainstay of NeoEdge’s revenues and the reason it was founded.

But NeoEdge will also make its own casual and social games that use NeoEdge’s platforms, now that it has merged with Offspring.

Mansford will be joined by her co-founders: Andrew Pedersen, Karen Schulman, and Todd Heringer. These executives worked with Mansford at Pogo.com, the casual online games company that was purchased by Electronic Arts.  Mansford replaces Dan Servos, who took over in May as CEO after original CEO Alex Terry left. Servos will now be a senior vice president at NeoEdge.

This big change is happening in part because of NeoEdge’s new investor, Vanedge Capital, which (along with Jefferson Partners) has invested $4 million into NeoEdge. Vanedge chief Paul Lee replaced former Atari chief Nolan Bushnell as chairman of NeoEdge in September. The positive for NeoEdge is that it is getting a fresh, proven management team that created a successful casual game business at Pogo.

On the other hand, this is a pretty drastic change that shows something at NeoEdge just wasn’t working right. The downloadable casual games — which players can play on web sites and pay to download them if they like them — have been hit by a huge price drop. The games sold for $19.99 a couple of years ago, but now they sell for only $7  thanks to the proliferation of free games on sites such as Facebook and price slashing at Amazon.com.

In an interview, Mansford said that NeoEdge will continue to push forward on both of its businesses, in-game ad sales and the development of games. The in-game ad platform is being used in 500 ad-supported casual games, and web sites such as Yahoo and NBC Universal have partnered with NeoEdge.

Offspring, meanwhile, was just getting started making social casual games and had not yet published anything. Mansford met with Lee, who brought up the idea of merging the two companies. Mansford said that the businesses are complimentary and that Neoedge has considerable technology that Offspring can use in creating games. The combined company will have 24 people, with four from Offspring and 20 from NeoEdge. In the coming months, Mansford said that NeoEdge will add eight people as it fills out the staff for its game studio in San Francisco. Pederson, one of the Pogo.com veterans, will head the studio.

Mansford said that the company will launch its first game on Facebook. In doing so, that will help kickstart the presence of NeoEdge’s ad platform on Facebook. NeoEdge will add new social features to its platform, on top of the ability to insert video ads into games.

Mansford said that NeoEdge expects an extremely strong fourth quarter, thanks to a comeback in online ads. The average cost per mil, or CPMs, is around $15. CPMs are a measure of the cost of ads per 1,000 views. In in-game ads, rivals include Microsoft’s Massive, IGA Worldwide, Wild Tangent and Double Fusion. But those companies don’t focus on NeoEdge’s niche in downloadable casual games.

The new business won’t be easy. Offspring will compete against the likes of Electronic Arts, which bought social game firm Playfish. It is also competing against more established companies Playdom and Zynga. But Mansford said the social game market is just beginning and there is plenty of opportunity for NeoEdge’s game division.