The Business

Since the software is free, Xfire makes its money through advertising. A small banner ad is featured on the client, and a few more ads are housed on the player profile sites. "There are no pop-ups or dynamic ads. It's all static content, and that's our primary revenue source," Fong says. With a rapidly expanding customer base of more than three million gamers, Xfire has access to a plethora of data about registered users - where they are, their favorite games, how long they play - so that advertisers can target their ads. The company has only been selling advertising space for less than two years, so Xfire has finally started to make real money. Fong and Cassidy have also raised some serious investment money from such leading venture capitalists as Draper Fisher Jurveston, which also funded Hotmail, Skype, and Cassidy's old company Direct Hit.

Xfire's rise hasn't been without a few bumps, however. Last year Yahoo hit Xfire with a lawsuit alleging that its chat capabilities infringed on Yahoo's patents, which may have had something to do with Chris Kirmse, Xfire's vice president of engineering, who formerly served as a lead engineer at Yahoo. Xfire called the lawsuit baseless, and Fong says Yahoo never contacted the company with any type of grievance before filing the suit. "They just dropped it on our doorstep one night without warning," he says. Xfire responded by offering to let Yahoo's co-founders Jerry Yang and David Filo review Xfire's code and, after attempts at mediation failed, filing a countersuit against Yahoo last March. The two sides finally agreed to settle the case this month, though terms of the agreement were not disclosed. "I'm obviously limited in what I can say," Fong says, "but it's good to have the issue behind us."

Now Fong says that Xfire is looking to expand beyond PC games into consoles and handhelds. "There's tons of room for us to grow," he says. "Our plan is for Xfire to be the only application gamers need to run for their online games besides the games themselves." The company believes it can reach 8.5 million users by the end of this year. Xfire continues to grow beyond just the number of users, too. The Xfire's community is maturing; for example, next week Xfire is hosting a competition that will allow users to play against seven professional gaming teams in such games as Counter-Strike, Battlefield 2 and Quake 4 and win up to $5,000 in Sound Blaster X-Fi cards from Creative, which is sponsoring the event.

Xfire users are also taking matters into their own hands. Earlier this year, Fong and his colleagues noticed something odd. About a week after Xfire added support for Solitaire, the game began climbing the charts at an unnatural pace. In reality, several fans of the computer card game initiated a grass-roots campaign to catapult Solitaire to number one on the Xfire chart and began messaging their friends, friends of friends and so on. "It's one of those odd things," Fong says. "We have no idea who started it, but we started seeing chatter on the forum and messages about how people were sick and tired of seeing World of Warcraft at number one every week." Solitaire eventually unseated Counter-Strike for the number two spot but fell short of taking down World of Warcraft. Still, such phenomena prove not only that Xfire has created a viral community but that gamers truly are social beings, which means Xfire should continue to blaze.