Last week, we all found out that the company running Shadow has decided to file for Chapter 11 bankruptcy in the United States and its equivalent in France.
They stated that this is a "new era" for the company, and filing for bankruptcy will help them grow into the future. But, how can bankruptcy help a company grow?
First, we need to understand better what Chapter 11 Bankruptcy is.
What is Chapter 11 Bankruptcy?
According to Investorpedia, "Chapter 11 is a form of bankruptcy that involves a reorganization of a debtor's business affairs, debts, and assets, and for that reason is known as 'reorganization' bankruptcy. Named after the U.S. bankruptcy code 11, corporations generally file Chapter 11 if they require time to restructure their debts. This version of bankruptcy gives the debtor a fresh start. However, the terms are subject to the debtor's fulfillment of its obligations under the plan of reorganization."
Going off the description, Shadow's thought process of this being a "new era" and a way to move forward after facing significant financial trouble does start to make more sense.
Shadow and its debt
Most companies have some sort of debt. Although it does not sound ideal, if done correctly, companies can leverage a specific amount of debt to expand business operations and make more money, outweighing the cost repayment on said debt.
Companies like Shadow that offer a type of service need to expand operations to fit demand. In Shadow's case, the more demand for the service, the more servers they needed to rent, purchase, and house Datacenters.
If you think about Shadow's business model, it relies highly on having as many subscribers per server as possible without going over capacity.
Of course, there are scenarios where Shadow has been unable to expand fast enough and has caused queue times in specific datacenters, but they have tried to follow this business model for the most part.
Now, here is the fun part. The servers are expensive, Datacenter space is costly, and management costs can get up there as well. Considering a Shadow Infinite/Ultra server, Shadow could be spending $8000+ per server. This number is roughly based on the current MSRP prices of components we know in the servers (CPU and GPU).
Even if they rent said server, they are still shelling out a high monthly cost.
Suppose you consider that Shadow charges around $25 or $40 a month of the Ultra/Infinite offers. In that case, it is easy to see that the upfront cost can easily outweigh the amount of income the company generates from its consumers.
This is where the phrase "becoming a victim of your own success" comes unto play.
Shadow has blown up so significantly over the last few years that the demand has pushed Shadow to require more and more money. Thus, leading them to the position that they are in today. Too much debt preventing them from moving forward and growing.
What would filing for bankruptcy do for Shadow?
As mentioned above, Chapter 11 bankruptcy would be a way for Shadow to restructure their debts, increase cash flow, and operate in a way that would keep the company running and, hopefully, become profitable.
Through this bankruptcy process, Shadow is also looking for new investors. Essentially, Shadow is looking for a new owner. With the company filing for bankruptcy, the overall financial value for Shadow drops significantly.
With the company being leading pioneers in the Cloud Gaming market, Shadow hopes that the technological advancements they have made and the drop in overall value can be attractive to some big investors.
They hope that the process will attract someone who plans to turn Shadow into a profitable company while also continuing to strive to bring powerful computing to consumers' homes through the cloud's power.
If all goes as planned, the bankruptcy proceeding will allow Shadow to find a new owner, restructure their debt, and work on a plan to rebuild and continue to grow.
What am I worried about in this whole process?
I am worried that the new owner for Shadow would end up being someone, or some entity, that does not care about the vision of Shadow and ultimately wants to make a quick profit without taking into consideration Shadow's vision.
If this were the case, Shadow as a cloud gaming leader, would start to dwindle fast.
As a fan of Shadow, I hope that the new owners they find will be one that will help them refine their business plan and then operate, for the most part, on their own.
This would give Shadow their financial backing while also keeping their vision alive.
I will continue to watch Shadow's bankruptcy and restructuring closely. When I hear anything about a new owner, I will write about it.
I know there have been rumors, such as the CEO and Founder of OVH showing interest; however, nothing has been confirmed yet.
As I sit here typing up this article on my Shadow, I hope that Shadow will continue to grow and become even more dominant in the cloud gaming and cloud computing spaces!
Will bankruptcy help Shadow continue to grow? Theoretically, yes. However, it is too early to make that conclusion, at this moment!