Game Economist Cast
What does the new wave of open economies mean for monetization? Will negative externalities overcome cosmetics economies in the long run? What exactly does a game economist do?
Game Economist Cast is a roundtable discussion of the latest developments in mobile, HD, and crypto games through a bunch of people figuring it out using the economic tool kit.
Game Economist Cast
E09: Regressive & Progressive UGC Taxes
The economics of platform success, taxation, and lots of autochess. Definition and implications of the metaverse.
You guys know Frozen Elsa and it's about Elsa the ice. We got ice magic And one of the main characters is Hans, who is he's a orphaned boy who comes up as a blue collar ice worker. He digs ice out of the ground and brings it to the town. This is a medieval fantasy world without refrigeration, and in some of the children's books because you know, i have young kids been reading them and they explain that oh, elsa has these magic ice powers and she can just make ice out of thin air. So Hans doesn't need to dig up ice anymore. But she chooses not to use her ice to generate ice for the town so that Hans can keep his job. And I'm like man, this is just backwards economic policy. Like she's, she can do it. She makes a gigantic ice castle like it's nothing.
Speaker 2:Automation is going to take all of our jobs. Is there an ice?
Speaker 1:union. I don't know, It's just. there's just like a one liner in this book that's just like oh, but she chose not to do it, So all the ice people could keep doing their jobs.
Speaker 3:Let's start with utility. I don't understand what it even means.
Speaker 2:Everybody has some kind of uterus in their head that they're calibrated. There's hardly anything that hasn't been used for money.
Speaker 1:In fact, there may be a fundamental problem in modeling You wouldn't want to model I'm going to.
Speaker 2:I'm going to show my naivete to the frozen universe. but isn't she in love with Hans, so she wants to keep him employed?
Speaker 1:That's her sister, but he's marrying into royalty. He's he doesn't have to work another day in his life. He literally marries into the royal family.
Speaker 2:Yeah, but it's about the. It's about the work ethic.
Speaker 3:It's about fulfillment, the what is it? the Protestant work ethic.
Speaker 1:There's so much more he this is. They don't have plumbing, They don't have electricity, They don't have steam engines. There's so much more he could be doing besides digging up ice.
Speaker 2:Honestly, if she had a plumbing power, that would be better than for, like, ice powers. What?
Speaker 3:if I tried to defend this? What if? what if he's like an awful despot And if he were focused on governing, he would just create all these really stupid rules. And so this is a distraction distract the king. And I only say this as someone who's watching a lot of Bridgerton And I've also been watching the queen. And these people are fucking crazy man. Like none of them are sympathetic characters. They're all awful and I don't want them having any sort of authority.
Speaker 2:For sure Hans is. Hans is a mud, He's a blue collar. He's not one of those inbred like royal people who's been like five centuries of the same blood.
Speaker 3:Are we going to get good policy? Is this going to be like anti-trade? We don't import from the warm lands.
Speaker 2:They're holding back the entire economy for this one dude, and I'm sure that there is an alternative to keep him. Keep him, give him a hobby, get him into Warhammer 40k and like he'll be just as distracted and he won't destroy the kingdom.
Speaker 1:Yeah, Anyway, you guys can probably guess where I land on the whole AI art debate. Did you explain?
Speaker 3:this to your kids. Where you stamped, did you sit down and have a serious conversation with your kids about fundamental economic policy? Not yet.
Speaker 1:It was kind of a gloss over point, but I thought a lot about it afterwards. It kept me up at night and I was like this is wrong. We're teaching our kids the wrong things Anyway.
Speaker 3:Game Economist cast episode 10. Maybe, i don't know update. I'll do the show next, right? This is an underprepared host. It's Phil from Game Economist consultingcom and, i guess, deconstructor of Fun. I'm joined today by both. Eric, how are you?
Speaker 1:Hey, I'm doing all right.
Speaker 3:And also Chris. Chris, where are you from today? Where am I Where?
Speaker 2:am I hosted? today? I'm at the middle school, as they say. I'm at my house in Illinois. What have you?
Speaker 3:guys been up to? Yeah, all right, powerful, powerful content. We have two wonderful articles to talk about today. I wouldn't even say they're wonderful articles. We have two topics to dive into. We should talk about another game that seems to be on ice. Overwatch 2 has decided to scrap its PvE mode. That was launched way early on. Yeah, obviously.
Speaker 1:Overwatch 2 announced that they canceled their PvE mode. Rumor has it's been canceled for a while and this was just a little bit of a surprise. Just they're coming out. Everyone knows that players are mad and this is obviously a huge brand reputation hit. But I wanted to dive a little bit more into sort of what happened behind the scenes, Like why did PvE seem like a good idea in the first place and what went wrong and which could they have done differently?
Speaker 3:That sounds awesome. I'm super excited to talk about that. I definitely have had people messaging me telling me things about the situation. It's been interesting to be leaked to.
Speaker 1:Let's talk a little bit about the feels. No, you're on a podcast.
Speaker 3:You're like a rumor mill now The whisper of the people. I guess I will defend developers if their arguments are strong, All right. So we're going to be talking about Overwatch 2's PvE scrapping And then I think we have a second article or a second topic.
Speaker 2:Yeah, we can say it's me, since I'm the I don't know big MMORPG type of weird games that are pushing the envelope. Roblox there are a million articles about Roblox. I think in particular this topic was sparked kind of in the actual game economists discord chat that we have.
Speaker 3:If you're a game economist, please send me a DM to apply. Join us. There is what is there like? 10 of us. There's a million. There's at least 30. There's at least 30. Sorry, continue. I need to swallow from a real.
Speaker 2:That's okay. No, because somebody posted this podcast. I didn't even know this. There's a podcast called Tech Talks, which is, ironically, just a Roblox podcast that they have branded as, like this, general tech podcast. Sure, one of the episodes, one of the latest episodes, was about their economic machine, their economic engine. What are they doing there? And I think, from a web three slash topical point of view, roblox is probably, in my view, one of the most important things that's going on right now in my ecosystem at least. You should listen to it. I think it's 45 minutes, not that long. And then we also we've probably going to have a link to their marketplace fees and commissions like page, because they have this almost this white papery type of documentation You can go and read about their commissions. How do they get money, where do they, where do the fees go?
Speaker 3:They recently actually hired this gentleman named Steve McBride, who was a economics leader over at Amazon and economists, to go head up an economics group for Roblox. And there's another individual in there with a really strong economics background that is a data scientist. Super interesting to see them like ramp up their economic side of the business And they this. I think this is also run by Enrico D'Angelo, who is their VP of economy, So that's a pretty interesting title to have. Yeah, he was the guy in the podcast. How is he smart?
Speaker 1:He said a lot of things.
Speaker 3:Okay, he's you learn stuff.
Speaker 2:No.
Speaker 3:But before we begin, let's talk about what we've been playing. Got a selection of good things on sale stranger.
Speaker 1:Eric, what have?
Speaker 3:you been playing this week.
Speaker 1:Been playing some last spell to tactics game, but mostly Zelda man, new Zelda, that thing's hot.
Speaker 3:Do you tell us about last spell, because I'm very interested in auto battleers. Is this an auto battle?
Speaker 1:No, no, it's a tactics roguelike game More tactics, less roguelike. You're defending a town from a horde of invading monsters And so, like your team and equipment and stuff is like generated. But it's yeah, tactics RPG is the core of it. No, I want to talk about Zelda dude.
Speaker 3:Let's talk about the man. All right, all right, all right, all right.
Speaker 2:Tell me about the machines. yet See, I don't play single player games.
Speaker 3:They're just the flame, really, oh my God.
Speaker 1:Yeah, I don't play single player games. You don't play Breath of the Wild or Elden Ring.
Speaker 3:I did play Breath of the Wild for a little bit and I was like no MTX, no horse armor, i'm out.
Speaker 1:Wow, so off you go. Wow you've been.
Speaker 2:Your mind is just full of live ops Like you switch genres and you'll start to accumulate this thing called wealth If you stop participating.
Speaker 3:I'm in way too many genres right now. Let me tell you I can't go dumpster diving guys. Sorry, miyamoto, i love you, it's. I'm sure it's a wonderful game.
Speaker 1:The most amazing thing is they like built on top of Breath of the Wild and took all the parts that worked and just made those even better and more refined. And it really shows what you can do when you can scrap things away from the originals. For example, the ultra hand, the thing where you build ships, or whatever that thing. They just took the magnet ability. Or like, what's cool about the magnet ability? Oh, let's, why don't you just move everything and be able to boost up. But they said, oh, what's cool about this time freeze ability? Oh, rewinding time. That's even more interesting. There's even more stuff you can do with it. What's fun about this game? Going to the top of a mountain and looking around and then jumping off? Let's lean way into that. All the towers shoot you super high in the air. You've got this ability that lets you climb mountains super fast. Like they figured out what was fun about the original and really refined it and built on top. So what you?
Speaker 2:say, was more like iterative than it was innovative, like they didn't necessarily come up with any new systems, but they just. they took what was really good, they made it better.
Speaker 1:Yeah, but they made it so much better that it became a new system, like the whole building thing or all the sky islands. Right, it's fun to go up into the sky. You look up into the sky and you see an island up there and you wonder, wow, that looks amazing. How do I get there? They took that and they're like oh, let's you know, instead of looking up at a mountain top, now you're literally looking up at a giant island in the sky. They iterated so much it became an innovation.
Speaker 3:This is a narrative you care about. Is this a continuation? Is there a narrative at all that connects both of the Yeah, it's a sequel.
Speaker 1:It's a story wise it's a sequel And I think I don't think there's been a Zelda game that's been as direct of a sequel. I don't care about story, I just want to play with game mechanics.
Speaker 2:And we're trying to make the case for single player games. We care about the story.
Speaker 3:Is there anything you could mind for a live service game?
Speaker 1:Oh, absolutely. I'm sure Genshin Impact is looking at this right now Is that a instead of backing and complimenting Genshin. Yeah, they hit, they nailed the vibes of Breath of the Wild, even if they didn't nail the gameplay loops.
Speaker 2:What's so crazy to me about it is it sounds when people describe it. It sounds like Minecraft or Roblox Oh, you're like building this stuff and like making these machines. It doesn't like like. When I think of Zelda, even Breath of the Wild, i don't think about like this, like construction zone.
Speaker 1:I will say you totally do not have to do that. That's the stuff that shows up in YouTube highlight clips. I'm just running around killing monsters.
Speaker 2:And I'm sure we've all seen the animatronic dude with the very large human body parts that explode. You guys seen that video.
Speaker 1:With the penis rocket.
Speaker 2:I was trying to avoid saying penis rocket, but I'm gonna have to put the adult advisory on Phil. What garbage have you been digging through?
Speaker 3:I have to say I've been revisiting I wouldn't even say revisiting, but I've made a $150 purchase in Clash Mini. So congratulations to Supercell. You are the winner this week About $150 worth of cosmetics. It's a business expense, mostly because I'm always studying Clash Mini And I am obsessed with this game. I think it's something beautiful. I think Eric is completely wrong about auto-battlers being random in the case of Clash Mini.
Speaker 1:Wait, i did not say that Hold up. Hold up. You're misinterpreting what I said. I was agreeing with you saying that it is skill-based, but it can be perceived as random by someone who doesn't understand I agree.
Speaker 3:So that, to me, is an asymmetric information problem, which is something that I think can be solved And to some degree is solved in Clash Mini, and it's solved through repetition And it's solved through pattern recognition. You can determine the rules of the engine from induction rather than deduction, because you start with the general principles of, okay, these units are positioned in a particular way. I wanted to attack this, why didn't it attack this? And then experimenting with how you can tease out that rule by placing the unit in perhaps a new position and seeing whether or not the behavior replicates. That, to me, is what Mini has done really effectively. I think they could get better at it.
Speaker 3:But I would say other auto-battlers do have randomness. When I looked into the Dota Underlords targeting system and how units assign combat, it's actually random. For some shit There's these called zones of control that divide the board, so you can strategize it around that, but it's really hard to remember because there's so many zones. And then there's, like these dead zones, which it actually is a coin flip where these particular hexes will attack, and that's really bad. That's like really bad. So, anyways, i think Mini's great.
Speaker 2:Eric, would you extrapolate, I think, just for the audience, this concept of information asymmetry that Phil was touching on, because I think it was a really interesting nuanced point that you made in the Discord, but maybe it's not obvious Totally lost on some people. Me and Phil both misinterpreted what you were saying and then, once you explained it, we were like oh, okay, that's a nuanced, correct argument.
Speaker 1:Yeah. So I guess, like when you're watching games or feedback loops right, you try something, it works or it doesn't, and you say, okay, like why did that work or not? And when that feedback loop is really clear and distinct, like in Mario, you try to jump over a gap. Oh, i didn't jump far enough. Okay, either I have to run further or jump faster. Run faster or jump In these auto-battlers there's so much shit going on.
Speaker 1:Often there's five to eight units fighting at the same time. There's all these effects popping off. Some abilities pop up, for others. It's hard to keep track of everything that's going on, and so that feedback loop of what went wrong, like what could I have done differently to make this work, is a lot less direct. And for some very smart, astute and observant people like Phil, they'll figure out oh, this is how the targeting system works, or this is how I could make it, so that I could make it so that this ability triggers before this ability.
Speaker 1:For a lot of other people, it's just noise and chaos, and they never get that feedback, they never update their model, they never update their strategy as a result, and so to those people it appears very random. You have the same problem. Honestly, in MOBA teamfights, like in League of Legends, like in a five on five teamfight, it's so fucking chaotic You have no idea what's going on a lot of the time, unless you're very observant. And so I think, to a lot of people auto-battlers appear like they're random, even though there's a huge skill and player input component.
Speaker 3:That makes sense to me. I would say it's the same for Magic of the Gathering, though, and what I would argue is different from League and Mini is that you do have time to absorb the lesson, because you have a round that ends. Like the whole point of an auto-battler is there's no active player input during the battle session. Like you're just watching how the stats are going to resolve. You can predeterminate in a second. Like you're just going through this script. Essentially You're just reading what the lines are, but to me, that is much tighter of a loop and helps accelerate your learning than simultaneous Like. I think you gain a lot of information by observing that. I don't know. Do you think it's inaccessible?
Speaker 1:So to be honest, i have never played Clash Mini so I don't know how transparent it is. But for Super Auto Pets it is very transparent, right, like it's a lot easier process than it's going on. So you would say that it's done well.
Speaker 3:That game solves a lot of these issues.
Speaker 1:But in TFT and Underlords it can be pretty overwhelming And there's very subtle things. If your character takes damage to accumulate mana faster and if your character has a very important spell, you sometimes want them to take damage on purpose, so they trigger their spell first. There's a lot of really unintuitive stuff like that That, unless you're reading strategy guides on the internet, it's going to be very hard to figure out by yourself.
Speaker 3:No, I think that's fair. I give them money. They don't know how to monetize, but I bought some cosmetics because I'm spending enough time in it. I'm very close to reaching the top 1,000. I'll throw. I'm thinking of having some Fiverr art done for the occasion for Twitter, but that's what I've been up to.
Speaker 1:I'm super excited to try it. I love SuperSummon.
Speaker 3:Let me see how I can get you in.
Speaker 1:It'll come out eventually. I have a patient.
Speaker 3:Oh, i don't know, man, you don't think it'll release. I was talking to someone who injected some doubts, thinks there's a long way to go, which was interesting, and I trust this person.
Speaker 2:Why is that What's?
Speaker 3:the issue? I think it's they haven't really figured out monetization right now. My economy participation rate is almost zero. I log in, I play the same deck and I'm done. That's it. That's all I do, And so I've not participated in cosmetics, not participated in even earning the coins. I've never felt the need to So.
Speaker 2:To me, it's just an economy that lacks anything compelling, but why does that mean they're not going to launch in the US? Just too many they're not going to be able to capitalize on.
Speaker 3:If they don't reach certain KPIs. So the one thing we know when you launch a mobile game is that you do so internationally, in soft launch countries, and those KPIs are very predictive of the performance in the United States. So you can go ahead and make some pretty reasonable assumptions about CPIs and LTV and be like is this game going to be profitable or not?
Speaker 2:And so you're just trying to.
Speaker 3:Yeah, you're just trying to get it to a place where it reaches a certain bar.
Speaker 2:What's so weird, though, is like it's just regional costs, regulatory costs, cost of translation, stuff like that, or.
Speaker 3:To be honest with you, it's really about the competitiveness of the market. So some genres do better in the United States and so you have this crowding out effect and that raises prices. And so if you want to compete in a match three in the United States, that's going to perhaps be relatively competitive relative to, let's say, a slots game in Israel, like that might have much lower CPIs. There is some of that, but I think it's mostly driven by market interest and the markets are segmented by country. Like MOBAs in China would be very different than MOBAs in the United States. For CPIs You'd have to pay more. In the United States People are not interested in mobile MOBA here.
Speaker 2:Yeah, no, that's fair, phil. You hate single-player games, video games. I don't hate that much Learnings. I love single-player board games. Oh God, so low board. You sit in front of a bunch of cardboard by yourself and you move the cardboard around.
Speaker 1:You like that better than digital representations of those like Sue And?
Speaker 2:it's awesome. I don't know because yeah, i do, because it's about getting away from a screen. For me, it's about getting in front of some stuff and touching it with my hands, like I've always been deeply fascinated by 40K, but I never want to get into it. It's just way too much. Same with almost any tabletop minis game. That's why these like solo board games are really fun to dive into. I also haven't ever been in a place long enough to really establish like a strong board gaming group. My wife plays board games, but she's not as hardcore as I am. I went through a phase where I was just like getting these like insanely heavy, like boxes that weigh 35 pounds.
Speaker 2:But yeah, what are some good ones, so of solo games that I've played. So all that to say, i was playing a couple of games this last week solo. The one I was playing this week was it's called Pax Palmer P-A-X-P-A-M-I-R. Second edition, specifically the second edition in the board gaming community. If you recommend the first edition, you'll get in trouble And I wanted to go into it.
Speaker 3:It's like wines. There's like a sommelier and you have to go to boardgamenet or something.
Speaker 2:It's a whole, it's boardgamegeekcom Like you got to. It's a whole universe. Anyway, pax Palmer second edition takes place in the takes place in the mid-1800s in the Middle East. It's basically this time period called the Great Game, when the local government in and I'm like a terrible person because I'm forgetting all of the country names, anyway, local government falls apart Russia, great Britain and Afghanistan Afghanistan, that's the country Get involved in kind of this vie for power And so they call it the Great Game because they're playing chess in this Middle Eastern region. Anyway, interesting content, interesting story.
Speaker 2:It's what's called a Tableau Builder. So you accumulate these cards that each have unique abilities that interact with one another, but they set on your table. So you're not drawing cards from a deck. You're not playing cards from a deck, you're purchasing them from this array of cards you have available and you're vying for control over this space And you you verse an autonomous like deck of cards that plays for you. It's a really great solo experience in my opinion, not the best solo experience out there. You asked for recommendations Probably the best solo board game experience of all time. It's a tie between Mage Knight and Spirit Island. Mage Knight is pretty much exclusively solo. You can play with other people, but it's co-op, so it's just run around and lead up these. Fill your face.
Speaker 3:Single player board game. What the fuck is that? You're just sitting there playing with your toys and your wife gets home and she's what are you doing? You're like I'm playing with my cardboard figures.
Speaker 2:Oh my God, and you spend how many hours a day on your fucking phone? Oh, i just spent $150 on fake digital fucking hats. Screw you, it's cool.
Speaker 1:Hey man, whatever gets you off, man, spirit Island, i've actually heard, is a super good co-op. I've always heard it as one of the best co-op games.
Speaker 2:It's my favorite. It's my favorite board game of all time. It's certainly my favorite co-op and solo board game of all time.
Speaker 3:The art looks really fun of Spirit Island.
Speaker 1:Yeah.
Speaker 2:Yeah, it's a really cool. It's a cool. It's a comment on colonialism. So you have these beautiful wooden pieces that are the native tribes on this island and there are these plastic pieces that are the invaders that are coming in and trying to destroy these beautiful wooden tribes, and you play the role of the spirit of the island and you're basically fucking up those plastic pieces, trying to keep them off the island, trying to use the little wooden guys. It is awesome And it's a beautiful. It's a beautiful comment. Typically, board games are with the reverse, where it's all about colonialism. You're going to go sail to an island, you're going to start collecting coal, you're going to start collecting gold and you're going to trade those trading in the Mediterranean essentially like this very basic loop, and it really turned that upside down. It's beautiful.
Speaker 3:It's a place on time. This is actually wildly interesting.
Speaker 2:There's a good digital implementation as well, which, like to me, digital board games defeats the purpose, but whatever.
Speaker 3:Oh man, you can get this from a tabletop simulator. I don't know how copyright has not the fall in those people. They seem to be immune. Small industry, I think.
Speaker 2:It's a small industry and typically the publishers have an agreement with the person that creates the simulator. Do we want to talk about Overwatch?
Speaker 3:Let's do it.
Speaker 1:Speaking of cardboard games, Yeah, let's talk about Overwatch PVE, also known as hero mode. It was meant to be a co-op player versus a horde of enemies mode, and I worked on a very similar mode on League of Legends both the impetus to create the mode and also the impetus to cancel it. I've seen both sides of the coin here, so I want to talk about a little bit like why did it seem like a good idea and also why did it turn out to be harder than they thought and what kind of what happened along the way And spoiler. I actually think a lot of the problem was in the publishing and monetization aspect, not necessarily development, although the development probably wasn't the smoothest. Let's rewind about six years ago. Overwatch was out. It was hot. It was the new Blizzard IP that they really nailed it.
Speaker 1:Honestly, the world and the characterization and just everything about the Overwatch IP was super great and sharp at the time. But it's a competitive team shooter. For those of you who don't know, it's kind of like Team Fortress 2. It's like a six on six shooter. Each character plays a specific, each player plays a specific character with specific strengths and weaknesses and you have to work together to defeat your opponent. But it's a competitive shooter. So as it matured, these things happen. Where the game gets more and more competitive, the optimal strategy, so to speak, gets more and more figured out. Players get more toxic towards each other when their teammates are playing a quote, unquote bad character or when they're performing poorly, and you're seeing this kind of competitive consolidation happening. I'm sure Dao is dropping as well, because it's just, it's getting older And so a lot of the Overwatch players are saying, hey, i love the world, i love the IP. This is a little too sweaty and toxic for me.
Speaker 1:At the same time, a lot of the Overwatch team are probably playing Destiny 2. I think at this time Bungie was still part of ABK, activision, blizzard, king, or, if not, it was around this time And I'm sure they're seeing Destiny. Hey, this game has pretty wide mass appeal. It satisfies so many more player motivations than Overwatch, which is very much competitive focus, and they've got these robust PvE systems. Maybe we should be doing PvE to reach this wider audience that loves our IP but doesn't like our gameplay. So they're like Hey, let's take a shot, let's make them PvE content for Overwatch. That all makes sense, right? Pretty reasonable so far, and here's where I think the first big blunder was they announced that they're making this PvE game.
Speaker 1:They frame it as Overwatch 2, the next iteration of Overwatch, and it's almost a joke when people say, oh, league of Legends 2, or like, what does it mean to make the sequel to a live service game if the game is just being continuously updated And they announced that it will be free to play? And obviously because it's a Blizzard triple, a mainline title, no paper power. So this will hamstrung them a lot And I'll talk about that more. On the surface level that it's a shooter, but there's so many progression systems in Destiny or any of these other Looter shooters that are just totally absent from Overwatch. Right, there's all these stat systems where you've got 10 copies of the same rifle, where the numbers are slightly tweaked And players play for hours just to get slightly higher numbers, right, they've got all these modifier systems, level up system, equipment systems, all these progression systems that are totally absent from Overwatch. So they got to build those And the game is not designed for it, right. Maze, ice sprayer, like it's not. They didn't build in a bunch of parameters that they can tweak to make different iterations of it, so they have to build all that stuff.
Speaker 1:And then, on top of that, as a team competitive game, the characters are designed to be very sharp. They have very sharp strengths and very sharp weaknesses, and when you think about designing good PvE encounters, you want to know what tools the player has and so you can give them appropriate challenges. For example, let's say there's a big enemy that does a big, massive area of effect attack and you have to dodge it, right. But if one of your characters does not have mobility, if you don't have a dash or a teleport or a way to dodge this thing, you can't design this thing because they don't have an ability to dodge. Another example is in World of Warcraft. There's a lot of enemies that will channel a spell. They'll like channel for four seconds, then cast a very powerful spell and you have to interrupt them before they cast the spell to stop it from killing you. And every single character in World of Warcraft has an interrupt ability so that they can do this And you can do this. And so the designers can say okay, here's a guy who casts a powerful spell and you have to interrupt it as the player In Overwatch or League of Legends or any of these other team hero based games.
Speaker 1:Some characters, specifically, do not have interrupts because that's their weakness, right, that's their vulnerability in their kit. When you're designing PvE content for Overwatch you because not every character has every tool you can't design as interesting enemy encounters. Either you have to give every single character every tool, which is a bunch of work and complexity, or your encounters are just going to be really flat. It's just going to be due damage to enemies and that's about it. Again, this is the same problem we had in League of Legends. So yeah, so from a design standpoint, there's a bunch of challenges there. And then, finally, if this goes to the free to play point, if you're making a single player or a PvE game, content is king, right, especially if it's free to play and you're monetizing on that long tail of engagement, you've got to churn out content like crazy, and Blizzard is not a company that's known for their content efficiency pipeline, like they're not known for churning out update after update, and this is very hard to do.
Speaker 3:Customer engines inside of Blizzard. Do they have their proprietary engines?
Speaker 1:I think so. I don't know exactly what Overwatch was using, but I know a lot of. Some of their games have custom engines Yep, they're just not culturally. Their whole ethos is polish until it's ready, not print, just shove stuff out of the pipeline. And especially if you're going free to play and you're not monetizing on power or progression, you're monetizing on cosmetics exclusively.
Speaker 1:That's very hard to make the money work And I think I'm sure someone in finance did the calculations. It was like we cannot produce enough content efficiently enough to make this profitable. But there's a great talk by the Path of Ex there's. I think there's very few of these PvE games that are able to hit that content cadence. I think Path of Exile is the rare exception And they've got this great GZ talk where they're. For years they struggled to reach the content volume they needed and they finally figured it out, and they've got all a fantastic tooling and all these ways to recombine the mechanics to make this happen. But it is a very difficult feat And definitely not one for a company known for polish over quantity.
Speaker 3:I'm thinking Warframe as well.
Speaker 1:Yeah, they have some pay for progression elements, which is probably fine for them, but I think for a Blizzard audience might ring the wrong way.
Speaker 3:So how do you feel about them selling characters in Overwatch 2?
Speaker 1:I think that's fine, It works. But again, it doesn't work great for PvE if the characters are super sharp and differentiated, because then they might be too strong or too weak, or if they're very flat and they're not compelling. And producing a character is a lot more expensive than producing a shinier gun that has 5% more stats.
Speaker 3:So how do you think Destiny would do it then? How did they solve this problem If we still think they're primarily PvE, or is that a mistaken interpretation?
Speaker 1:To be honest, i haven't played Destiny, but I thought they were box price so that even if someone, if, even if they run out of content, they've got their 60 bucks.
Speaker 3:They are free to play. Destiny is free to play Really.
Speaker 2:Destiny 2 is free to play.
Speaker 3:Yeah.
Speaker 2:Now they tell us they launch in the box.
Speaker 3:They did launch with a box, but they went to free to play.
Speaker 2:Oh, wow, okay, They do have a bunch of DLC that they charge for. They do, yes, okay.
Speaker 3:So if you go right now you can go to the Destiny 2 Steam page and all be free to play They are selling. Light Pass, which is a big expansion they came out with recently, but this was a big announcement. I'm very hot on this free to play stuff. I think it's the revolution, yeah, but I also.
Speaker 1:There's a big difference between launching with a box price and then pivoting to free to play versus launching to play.
Speaker 2:That's fair. You've got 90% of your sales I guess that's what I'm hyper curious about.
Speaker 3:What do you do with Overwatch coming off of Overwatch 1? if you're Blizzard, how do you turn this into a higher monetizing franchise?
Speaker 1:So I think they grossly underinvested in their live service. This was a competitive team shooter. It had clear design problems. If you ever play a roll queue you would know there's this big problem where they designed it like World of Warcraft where you've got like tanks and healers in DPS and everyone knows nobody wants to play healer, Everyone wants to play DPS. This is something League of Legends struggled with And for season after season they kept trying to make support and jungle more interesting to play until they finally hit a good balance. But you know, and Blizzard, they're not really geared towards live service, So they like let that stuff on the black burner.
Speaker 1:I'm sure they had a skeleton crew running the live service while the bulk of the team was working on PVE. I think they should have separated this out, Like the PVE should have been its own spin off product right, Or making this thing They have the time to do all the Blizzard polish and whatnot to it But instead publishing and marketing bundled a live service update right, The free to play update five on five character tweaks with this PVE mode. They called it Overwatch two and they tied the two together And I think what happened was the live service update was ready to ship and PVE was nowhere close ready to ship. And so they're like okay, let's ship, We don't want to wait, Let's ship the part that's ready. And if they didn't call it overwatch two, they could have continued iterating on the PVE as long as they wanted and canceled it maybe even if they wanted. But it got framed as one giant update which was really a maybe six months worth of any other live service game updates.
Speaker 3:Would you have switched the product to free to play?
Speaker 1:I think so I think the if you've managed to reach sustainability, like in terms of engagement and user base, then yeah, free to play is the way to go. I think launching a competitive game box price is what you do if you're not sure it will hit longevity.
Speaker 3:But if you don't think the content pipeline is there and perhaps heroes aren't enough to sell, then what do you do on the monetization front? Are you still saying that's fine, if they didn't make changes to the monetization side They could have kept? should they? let's put this way should they keep the monetization they have right now? then, which is a battle? pass some cosmetics in a bundle store and they sell characters. But what are they? 10 bucks.
Speaker 1:Yeah, fundamentally it's cosmetics based monetization. We talked about this before, but cosmetics sell in vanity, which requires a large social infrastructure to give you that vanity value for your cool hat. Very few games can hit that critical mass, but Overwatch was able to hit that critical mass. I think they could have been successful by focusing on the live service making. Keep that retention and engagement high and then sell vanity through cosmetics. Whether it's through a battle pass or loot boxes, I honestly think that doesn't matter that much in terms of the core model.
Speaker 3:Is what they have right now. Enough then from a monetization perspective. They just need to get back to making retaining content.
Speaker 1:Yeah, I think they have the right skeleton. I think they underinvested in their competitive live service. They tried to attract a new audience like some casual PV audience, ignored their hardcore competitive audience that they probably could have kept on for longer if they maintained the game better.
Speaker 2:What was Overwatch's original monetization strategy when they first launched $40?
Speaker 1:box price and then loot box cosmetics, but they had one of the more generous loot boxes out there, I'd say.
Speaker 3:They also had a very interesting crafting currency that you would acquire in opening boxes when you had duplicates, and sometimes directly. You could get a probability of getting these and that would allow you to craft any item you wanted at fixed prices per rarity, per item slot. So like a Roadhog skin would be a certain price if it was legendary and that'd be the same legendary price for a. What's the gerbil? What do you remember? What's the gerbil that they gave?
Speaker 1:you Hamston, ham, ham, some kind of hamster pun.
Speaker 3:I'm sorry for all the gerbil fans out there. Hold up. I don't want to look this up. I don't want to get attacked by the gerbil.
Speaker 1:It's like a little hamster and a giant hamster ball.
Speaker 3:Ham yes. A little gerbil guy. Interesting because I'm an active fan of this franchise. I play regularly and I've stepped away from it.
Speaker 1:What?
Speaker 3:are you from Roadhog for sure, i'm all about those hooks. I'm all about those hooks because it's also extra insulting to get hooked. Yeah, he's delirious. It's such a power moment when you pull that hook And he has all the answers. You can solo him pretty well if your team is annoying because he can self heal.
Speaker 1:Accept mobility.
Speaker 3:Accept mobility, but he can self heal. And not only that, the damage reduction on the heal is ridiculous, Like sometimes I think it was 40% damage reduction at one point when you're drinking your health potion. How about yourself? I used to play Mei mostly. No fucking way. No fucking way.
Speaker 1:I was the most obnoxious The ice wall. Yeah, you freeze people you shoot them in the head, you put up a little ice wall, super trolley, super. Haha, you can't get me. My whole thing was just to be annoying in the back line, yeah.
Speaker 3:Did you use the alternate fire, which was like the icicle? I thought that was really.
Speaker 1:Yeah, yeah. So you camp a corner, you freeze them as they run around, Hopefully they don't react in time. You freeze them and then you just You icicle, shot there for a headshot and you punch them and that usually kills them. And then, if their teammate comes, you throw up the ice wall and run away.
Speaker 2:So, Eric, do you think it was primarily the fact that they failed at Like from a design point of view? they just couldn't design this thing, They were too constrained. Or was it the monetization?
Speaker 1:I think both Yeah. So let's put a little kind of takeaway slide for the executives here. So first is Mr Jeff Kaplan. Overwatch came out and said hey, players don't like loot boxes, players want free to play, players don't want paper power. So he said he made monetization commitments that were in line with what the community wanted and props to him for listening to the community But those monetization commitments did not align with the development costs. So he said what the audience wanted to hear, but he did not look at what do we actually need to do to sustain this game? And he made those commitments very early, which hamstrung the whole thing.
Speaker 2:So they were 100% committed to pure cosmetics. Is that? No loot boxes?
Speaker 1:you said So, you have no way to spread. No loot boxes. No paper power, no paper progression, so they weren't.
Speaker 2:But how does that differ from what they have now?
Speaker 1:That is what they have now. It's just for a PvE game most.
Speaker 2:It's more compelling as a PvP game to have pure cosmetics.
Speaker 1:Like most PvE games rely on those progression systems to keep people coming back. So that's the first one For your monetization model. You You can listen to your audience needs, but you also need to listen to the development needs and what is what you actually need to sustain this. The other big thing was that they over bundled and over marketed. They took this free to play live service update and this PVE spin off mode stuck it together, called it overwatch to which is a very grandiose name When none of it had to be together. Release wise, it didn't have to be tied together. Audience wise, they weren't tied together. I think marketing ran ahead of product at that point, for what a real live service sequel looks like. Look at CSGO too. And then, yeah, in general they tried too hard to expand to a new audience rather than maintain their core. Like these, esports games thrive off this ultra hardcore, ultra long lived, dedicated audience and they tried to have their cake and eat it too. They tried to bird in the bush. You know, you come up with an idea.
Speaker 3:Why not license out the overwatch IP in the same way that League of Legends is like they're trying to figure out how to get more people involved in the IP through different genres. Why not at least give another team inside of Blizzard, even, or Activision, the overwatch IP?
Speaker 2:Yeah, that was my question. Like why was this not just a completely different product wrapped up? because you clearly have to break the rules of overwatch in order to make this work. Like, just create some sort of like dungeon mechanic.
Speaker 3:I think about how a lot of big games are being made today at major studios, and it's multiple studios on the same project, like I can tell you. In Battlefront 2, there were three studios There was Dice, who was doing the multiplayer, there was Motive was doing the space ships, and then Criterion was doing the single player. Like this, to me, is the big failure of Blizzard, though, is like they have to scale to do any of this shit, and if you're not going to scale, if you're not going to add headcount or at least improve your tools and tack, then you're just floundering. It just seems like they're flopping right now like a magic carp Just tough to watch.
Speaker 1:They could have learned a thing or two from Activision, that's for sure.
Speaker 3:That's the first time, i think everyone's ever said that.
Speaker 1:Wait Bill, you said you had some juicy rumors. I want to hear them.
Speaker 3:So people have been reaching out here and there from the internet when I talk about things, and I would say the message I've gotten with Overwatch is that, first of all, they did have PvE content previously. I think that's also something worth noting, that they experimented with a small bit of PvE content Overwatch 1. So they had some signal that they were going on. Hopefully, they were at least trying to get cost estimates or at least have an idea of how development would work. But they are going to have more PvE content this year. So some people fought with the characterization that this is them scrapping PvE and this is them only scrapping a PvE mode. Now, that being said, i would push back against that interpretation, because I do think this was the mode that they were advertising. Like, they talked about the skill trees and I believe it was BlizzCon. They've talked the most about us. It was clearly deep mode. This was the PvE mode. I'm sorry, blizzard, i don't want to tell you. So let's say that's pretty expected.
Speaker 3:The other piece is that, blizzard, when they make content, they have a certain content bar, and so, even though some parts of your supply chain can be really fast and be optimized to be really fast. There are other pieces which can be more expensive, so voiceover can be a really expensive part of development, and so when you have this certain bar, you have to, you're slowed down by the lowest common denominator in your supply chain. I think that's actually a pretty good economic principle when you're thinking about content production, and so I think the challenge I would have to them is that you need to be able to drop your content production or come up with a better strategy, like why not release heroes over time? Like why not release a voice pack later on? Why not try to just cut the fat from the herd And I don't think you need to get rid of it unnecessarily completely but think about how you could introduce that in a more creative way.
Speaker 3:This is just as much of a design problem as it is just a spreadsheet problem. So I would say they've been trying. From what I hear, they're trying to change things, but also their monetization values still seem to be handcuffed, as you were mentioning, eric. They just rule out so many things about how they're going to monetize their games. They become beholden to a very small audience. I think some people are trying to change that.
Speaker 3:Do you think they?
Speaker 2:were just trying to copy like Destiny too closely. They were like Destiny has this seamless PvE experience where it's like perfectly frictionless I use the same exact gun, I use the same exact character. I feel like I've seen this before, where you'll have people at the top of the process not necessarily executives, but the creative directors will be like we're going to make it like this, And then it ends up kneecapping you not necessarily kneecapping you, but you end up in this hole, And I wonder if that's what happened with them. They released Destiny 2, oh, Overwatch 2, and it'll be just like Destiny 2, except for with Overwatch themed over top of it.
Speaker 3:I would say what I've heard is that there was an effort to almost revive Titan, which was the former codename of Overwatch, which was an MO and had a lot of PvE aspects, and so you can rebirth that project into what that eventually became, which is weird, i don't know. I just I don't think you should eat the food. You barf up. I just I don't think that's good for you. Like there was a reason that died, but I heard that was a part of this too. Is that? oh hey, i have a chance to complete the thing that I initially wanted to do, because I know that you can fall in love with your initial ideas. But that's also just maturity. You know things die. I'm going to move on. Don't get too attached to any idea. That's the thing I've seen separate junior folk and a lot of senior folk when I work with them is how attached they can get to their inner first idea.
Speaker 2:One tiny little note that I think is just interesting but corollary. Basically, the board games industry does this same exact thing that Overwatch just did. Where they like, try to slap a game mode that doesn't. That fundamentally does not work with the game design, the original game designs. So, like in board games right now, everything is a legacy game, meaning every game, no matter if it's like a puzzle game or if it's like a like a social game or if it's a hardcore dungeon crawler.
Speaker 2:There's always this idea of, oh, we'll add in a campaign, so you go, after you finish with one game, that game leads into another game, or they'll, they'll implements There was a really well, campaign are super popular, co-op modes are super popular, so they would just like, like at the last second they'd be like, oh, and there's a co-op mode, and if they would do this? half-assed approach. But what's interesting, the reason I thought of this bill is you were talking about, like the supply chain or the pipeline, the production pipeline, and for board games that's so much cheaper, it's such a cheap thing to come up with a couple of rules and print three extra pieces of cardboard than it is in video game production, where I don't know, and I don't know if that's because the projects are bigger and there's more people and there's just more infrastructure, or if there's fundamentally something different about video games and board games, but it's not. It's not a video game industry problem, It's ubiquitous.
Speaker 3:I think any supply chain deals with this. Speaking of supply chains, Chris, did you want to talk about Roblox?
Speaker 2:I think we spoke earlier in the episode we're referring to this podcast that they're putting out. I think the CEO and I'm blanking on his name is starting this like podcast. I think there are maybe 15, 20 episodes. I don't know when they started running it, but I'm actually really happy they did, because Roblox is really interesting. A lot of their especially their C level and their executives aren't necessarily or at least from what I I don't have any insider knowledge into Roblox. I don't want to come off as somebody who's very entrenched in Roblox, but just from the people that I've talked and the articles that I've read, there's not a lot of game, or at least early on there wasn't a ton of game industry veteran status inside that company. I think that's a sentiment that I hear oftentimes.
Speaker 2:This is actually not really a hardcore video games industry. It's not like a bunch of people from Riot, a bunch of people from Epic, got together and created this baby called Roblox. It was just a couple of computer science people, software people, even engineering people got together and started making this thing. From my understanding, it really started off as this physics simulator for the most part. Here are these two objects, here's how they're going to interact, like this really weird kind of project. The fact that it has turned into what it is today and somebody said this in our chat the fact that the games industry is ignoring them, seemingly ignoring them, it equals they have come out of nowhere And I think they've really taken the entire games industry by storm. But also like the Web 3 industry by storm. I don't think a lot of Web 3 people think about Roblox a lot and it's embarrassing because Roblox is doing what Web 3 people want to be doing, but they're doing it better. That is, i think, to say that Web 3 people should pay attention and see what they're doing and how can this blockchain tech make this better and how can it improve.
Speaker 2:Anyway, that's an introduction on Roblox. The particular podcast episode that sparked this conversation just talks about the economy And it's interesting because when you listen to the description of the economy and when I listen to their head of, i think it's like head of economics, just head of economics. I think in that podcast episode it sounded a lot like listening to a Web 3 games head of economics. We're creating this future for creators and consumers to come together and we're providing the tools for them to do that And it's a whole ecosystem and it's an economy, a living, breathing economy, with floating prices and people making money and living. It's a very crypto sounding argument.
Speaker 1:There's a line I've heard crypto people use that he also used, which was it's like running a small country where the only industry is tourism.
Speaker 2:Oh, really, which is? I think that's a very interesting. Tourism is not the biggest industry in the world And if you think about this as a subset of the tourist tourism industry, we're not talking about millions of people making like full living salaries in a single metaverse. It's just and that's where, yeah, i roll my eyes, some of these guys okay, yeah, you're going to have creators, you're going to have people, you're going to have an industry potential. You're going to have a labor market for this potentially. You know, i think UGC, the UGC conversation to me, i always think about YouTube and how many. How big is that labor market? It's very global. It's a very global labor market. It's a star's labor market. The top 0.001% make it, which is cool, and it and people are making a living through YouTube, through user generated content. But it's not, as the distribution is not a normal distribution, i think a lot of people, when they visualize these economies, they think of a normal distribution.
Speaker 3:Can I ask you if you think the distribution of LTV is more hyper Pareto distributed than the distribution of talent on some of these platforms, and specifically not talent but rather their earnings? If we put those two Lorenz curves on top of one another, which one would bend more inward, suggesting higher inequality.
Speaker 2:So if I'm interpreting your question right, you're asking about the distribution.
Speaker 2:So, distribution type aside, pareto distribution aside, you're asking is the distribution of, like lifetime value of a customer significantly skewed left compared to the talent, to the skill set of a of one of the public, the UGC people? So I think the greater the disparity between those two means the greater the price of the content. I think there's a really there's a pretty like elegant model that you could write that, that I'm actually trying to write that, that tries to get at this question Right What is the distribution of of this, the skill that you were talking about, the ability to produce content that people want to consume? What is the distribution of that look like compared to what is the distribution of people who want to consume that content? I think that's the question, the crux of the question, and so I actually see this as an international trade model where one of the goods that is being produced is the ability, is the enjoyment of that good. So this thing that people are creating, one of the goods that can be traded around, is fun, is the enjoyment of that thing, is I'm having fun, i trade that to people who are producing the fun, and so there's like this exchange of goods. Now it's a very weird concept, but there's a distribution of my ability to enjoy content and my skill at enjoying content, and then there's a distribution for my skill, there's a distribution for someone's skill in producing content. So there's this awkwardness where as those distributions. So if you think about just uniform distribution, you don't even have to go like with any fancy distribution, you just take like uniform distribution with a mean, that is beta, which is larger than the mean for the uniform distribution with alpha.
Speaker 2:Okay, so we got alpha smaller than beta. Alpha is your ability to produce content. So you have a much lower productivity for producing content. There's a much higher productivity for enjoying content. I can produce a million units of enjoyment of content because I can sit there and play video games all day long without much effort, versus producing that content is a much lower rate of production.
Speaker 2:So we think about the classic Robinson Crusoe economy. Maybe it's harder to build houses than it is to go fishing. The production of houses is slower than the production of fishes. So that's all I think about this type of economy. The greater is the disparity between the ability to create content and not and enjoy that content, the kind of the larger the prices will be, the higher the payout will be, the more uneven the distribution of wealth will be. There's a whole bunch of things you could say about it. You think about Minecraft. Anybody can go into Minecraft and user generate a sword like a stone sword, so there's no premium for that stone sword because anybody can go out and do it. The production of the sword and the production of the enjoyment of the sword are pretty much the same. Those distributions are the same.
Speaker 3:Those things are that in Elastic though. So, for instance, you don't think that many people who are interested in a particular thing can't retool and make another thing. Let's say, a lot of people have a very high rate or ability to consume sci-fi content, and then we also find that there's actually an enormous number of people who are very productive at making sci-fi content, and so prices, if I'm understanding your theory correctly, would be rather low. In that situation We're just assuming a relatively high rate of sci-fi producers I don't know, maybe there's just people who get PhDs are really into sci-fi.
Speaker 2:That's actually a bizarre thing that came out of your tie.
Speaker 3:James Carmack, one of the guys going to the base Connor Oh really. That was a minor controversy. I've seen a lot of highly educated, weird econ people also do sci-fi stuff. Okay, so let's take that all as a given. If that's the case, why can't they retool to make comedy? Are you saying that's not something like? I just feel like there's a lot of room here to really spread out those prices and skill sets. Yeah, exactly.
Speaker 2:So you could think of this like basic two good model, where you have the and the reason. So here's the reason that I think of it as an international trade model, because you might be telling, you might be thinking to yourself, why the fuck is the person creating content not a firm and the person consuming the content not a consumer? And we have a classic firm consumer like model, like very simple industrial organization model. The reason is, like you said, the ability to switch between the good, the two goods. I can go out and try to start becoming a Roblox studio, or I can be a Roblox consumer. I can go out and there's unlike in typical IO models where there's, first of all, there's no concept of the worker, there are worker firms, like things out there, a pretty niche subgenre of industrial organization, but in video games, in virtual worlds, there's almost zero friction. Almost zero friction. There's certainly no, not a lot of capital costs is associated with becoming the firm and then going back to being the consumer. So why not have this person be the same person And instead of thinking of people as consumers or firms? everybody is a country, everybody is their own productive capabilities.
Speaker 2:Now, the more complicated version of this model is that everyone has a. They have a. Everyone has a different skill set s, i, j, so individuals, each I has a different skill across all j goods. So there's a million goods and a million individuals. They have a dish. Each individual has a million different values of their skill And they're just going to, they're obviously going to specialize in the production of the thing that they're good at.
Speaker 2:Now I gave it a simple, to to good example. People who have a comparative advantage of enjoyment, more so people who have a comparative advantage of producing really good user generated content, will specialize in that. And the people who are consuming that content will specialize in consuming of it. And we can think of this as a World Warcraft economy too, and it could be okay. My ability to maybe even line is bad. My ability to produce political capital versus my ability to produce guns. There's a whole bunch of different goods that you can produce and you can be a net exporter or importer of any one of those by specializing in a specific one. I think that can be generalized or maybe even specials made more specific for the Roblox economy.
Speaker 3:To your point. You don't have to just make entire levels. The other thing you can do in Roblox is that you can also make assets.
Speaker 2:Yeah, exactly.
Speaker 3:Maybe I'm not good at design or narrative, but I'm good at, like, making 3d objects and other people can use those 3d objects. It's almost like I can. I'm good at shooting, i'm good at cameraman, but I'm not potentially good at other things, and so when I hear you say that, you wonder what they could also do to disintermediate more parts of level creation and take advantage of natural skill distribution.
Speaker 3:And I think that's coming together effects like more of a job marketplace where you can combine to make frictionless teams. There isn't a whole lot of that. Like you can't form clans, no one's gamified that.
Speaker 2:Exactly. I think like you might be asking yourself why does this model matter? Why does like? why do we care about the different types of people and their abilities to produce in this economy? But it all comes back to monetization. What is the distribution of skill look like? Because that distribution of skill is going to have heavily impact prices. The number of goods is going to heavily impact prices And for the Roblox economy and maybe we get into this now they make all their money by charging that not necessarily the crypto kind of transaction fee, they get a cut of all of the money that anybody makes in their economy. And it's not a small cut. It's not a crypto 5% cut, it's a 30% And we can't figure out if it's 30 or 70%.
Speaker 3:No, it's 70%, Because you remember so. first of all, there's platform fees. And then you remember, if you want to calculate the total, take it's after platform fees, and we're talking about Apple and Google, or Microsoft and PlayStation Don't forget Microsoft, playstation are still platform holders. Take 30%, and then you take the Roblox fee, which is enforced, however, through an exchange rate, but the end of the day, you only keep 30% of the gross revenue that a consumer spent.
Speaker 2:Yeah, it's insanely high, and but again, like they, cover O-Core.
Speaker 3:They cover server costs. If you can scale your business instantly, the problem is there's no way to decrease it over time, like I think they should reduce tax rates for high earners on Roblox. I think they should reduce tax rates. I think they should have a lower marginal tax bracket. So when you earn above a certain amount in Roblox, you go from having only 30% of the gross dollars remitted to you to perhaps giving you as much as 70%, so actually flipping the amount of taxes, the superstars on platform.
Speaker 1:This is to keep the soup.
Speaker 3:You want them to scale their businesses. You want them to grow sub businesses on the platform. That, to me, is really important. I think what was the bill was the Bill Gates quote that you're not a real platform until the people on your platform are making more money than you are, something to that nature.
Speaker 2:And.
Speaker 3:Roblox has just been strong in their ability to extract economic rent because they have such a proprietary tool stack. So they make the engine, and the engine is the only thing that's allowed to submit content onto Roblox. I think that's what people forgot. They have a monopoly on the type of uploading software that you would use to YouTube as an example, so everyone's going to get up Anyways. I think that's an important piece of their tech stack that's forgotten about.
Speaker 3:I think you want people to form larger firms and I think that can help scale the business. If adopt me goes off platform, i think you're fucked. I think it's the potential that the studio is creating games on Roblox. Is this really where they're going to stay for the next 10 years? Right now, what Roblox needs to do is they need to get more people on the platform And, to be honest with you, i was really surprised in their quarterly earnings that they did it. It's unbelievable, the growth of this platform. They had a 20% increase in DAU in the last quarter. It's just growth rate after growth rate. Half of people that are aged I believe it was 8 to 16. I forget the exact age demo. It's something like 50% of a particular slice of American children of that age range play Roblox.
Speaker 1:Every kid I know talks about it. Every parent I know is like my son's always asking me to play Roblox with them.
Speaker 2:But those are the consumers of the content, right? You might have super high DAU, and that's an interesting problem. that Roblox faces, that nobody else faces, is that content production is dependent on their customers, which is crazy to think about. Maybe that's easier for them, right? They don't have to necessarily worry about attracting new. They don't have to worry about the consumer UA. They have to worry about the producer UA. Who are these people who are like net producers of content and attracted in their platform? Because those people are the ones who are going to naturally bring new users in through the consumption pipeline.
Speaker 1:Phil, it's funny you suggested a regressive tax, because I actually suggest the exact amount of progressive tax.
Speaker 3:So would you tax them more above 30% remittance?
Speaker 1:It was more about taxing the small creators, less, But I think taking a step back, like I think the regressive tax, creates a class of like essentially professional developers giant superstar games on this platform And your thesis is keep adopting me on the platform, keep them profitable, keep them happy And they'll. That's what's really attracting people, And I think the progressive tax does the opposite words get a lot of small creators, get a lot of crazy innovation and new ideas in here. Yeah, I'm curious what, what actually would be better for the platform.
Speaker 3:To me. I think it's all about scale. I just look at the games that are successful on the platform. They tend to compose a large share of total DAU And, just as we were talking about their superstar producers of these games and their superstar games, so if you look at like, even on steam, like the top 100 games on steam compose a large share of the total number of PSU that are on steam at any given one time. There's a ton of inequality just in terms of engagement on what games succeed and which games fail. Same thing on steam When we look at CSGO it also composes a lot of hours.
Speaker 1:If their marginal tax rate was, let's say, higher, would they be producing less? Like if adopt me was making 28% instead of 30%, would they do less than platform? Yes?
Speaker 3:And here's why They would have more capital to scale, because they keep more of their marginal dollar. So you'd have more real income and there's no way the amount of money you're putting back in that at zero. And even if they don't, okay, they can go invest in other things. I think this to me is I think you just got to grow the pie as large as you can if you're a platform holder.
Speaker 1:And it is adopt me scaling more versus, let's say, a small creator with some innovative, janky idea that's not big yet scaling more. That person gets the revenue and they get to reinvest in their new idea, like which one improves the fun of the platform overall.
Speaker 3:I think you have to keep your superstars Like that.
Speaker 3:We know this is what puts butts on seats like go sign Tomberg There are. There are crazy effects here that I think you get at scale And I think it's very hard to choose the winners that are in the early part of the funnel And I think it's much better to make sure that the big players who end up winning, they're your whales, They're the people you got to keep on the team And they tend to also be your golden cohort. They actually do wonder if we see the same things. When we look at consumer KPIs, we look at producer KPIs And I actually wonder if it's the inverse. But the thing that I think is interesting is whether or not, when you look at a time series and you look at the lifetime earnings let's say after a year on the platform for a given developer, is that increasing or decreasing over time? So when they acquire the N plus one developer, are they less skilled than the original people who came onto the platform? I think that's something that be curious to look at.
Speaker 2:I would expect it to be relatively uniform, because the only people that are really going to you don't have any big established studio. You don't have any established studios coming to Roblox to develop, do you? These are just like pretty much inexperienced studios, some of them are pretty professional.
Speaker 1:Now, i was thinking about what you said about platforms. I was thinking about Unreal Engine. They actually have a regressive tax as well. Right, it's a percentage until you, or a million dollars, and past a million dollars It's flat. So same thing with steam.
Speaker 3:Steam changed this. By the way, they tax their high developers less to keep them on the platform. I actually think this has been an unreportable Oh man, but this is, i think, one of the reasons steam struck back. So, if you remember, there was this splits and kind of the mid to late 2000s where you saw origin, you saw GOG, you saw the people from CD, project Red have their own launcher, you saw Activision go with their own launcher, like everyone was doing their own launcher again, and most of these have been brought back into the fold in some way.
Speaker 3:So, like, one of the things steam has done is they introduced that regressive tax. So I think if you earn more than 15 million, the platform fee goes down. And the other thing that I think they did that was super important is that they allowed thin clients onto the platform. So now you can launch origin from within steam, which sounds like Babushka doll Oh shit, it's another launcher. But I do think that also helps bring people back into the fold, because publishers want that data and they want direct, i think, consumer relationships And they were really bummed by not having those.
Speaker 2:But the critical distinction though, for anybody, any business, people who work in, especially, web 3, listening that's that that is only possible because those big money makers have relevant alternatives. It doesn't work if there are no alternatives, right. So if you have, if you have a monopoly over, basically, it doesn't necessarily work. For like a user, for any user, it has to be like these giant studios who need this massive infrastructure in order to do what they do. Because once they get to that level, just once they get to scale, if they find that it's going to be profit maximizing to just go create their own engine or go use a different engine and get off the platform, then it'll be worth it. Now they're pretty.
Speaker 2:I'm still on the fence about this. I still am not sure I'm convinced about it, because all their users are on roblox, right, if your users are like you can't leave. So I would be surprised if they did a regressive tax, because it's just subtly different. I think it's slightly different. Like you can, you could technically pivot away from the Unreal Engine. It would be very difficult to.
Speaker 1:But a lot of the big game developers have their own in-house engine. for that reason, yeah.
Speaker 3:Do you? if you looked at that as a time series, do you think that share is increasing or decreasing, though? Oh, decreasing for sure.
Speaker 1:But that has more to do with tech than the fees, I imagine.
Speaker 3:I see so many people throwing in the towel and going to Unreal as their engine. Is it hard to make an engine? Yep, supercell's only non-Supercell Engine game is Unreal.
Speaker 2:Supercell. They mostly put out like mobile games. Oh only.
Speaker 3:Although that's actually going to be changing very soon.
Speaker 2:Okay, What's their Unreal Engine?
Speaker 1:game It is Clash.
Speaker 3:It's Clash Quest. It's the one that's not out yet. It's going to be an ARPG, okay.
Speaker 2:The reason being like you're like we've talked about this tooling is, like extremely valuable to those people. Even if Roblox is taking a little bit off of their transaction fee, they're scaling so much that they're still getting more out of that person for every additional user that studio is getting. I think it's an interesting question. I think maybe there's a more like a. There's a trend that the more popular Roblox gets, the more high skilled studios will come, like almost just for the UA, like almost just for the access to the pool of users. Now, that said and this is like a, this is another point It's not really about the economy, but that also becomes more attractive when they get their like search under control, because, as far as I know, search is a little bit wonky and it's something they're working on.
Speaker 2:How do you find like this content that is buried in a billion different games? I think it's. I think it's really interesting. I do think the content, the production, will just keep going up and up and the studio talent just keep going. I think that distribution right now where it is, if you were to say SIJT, like time, individual products and time that as we move through time, that distribution is going to shift to the right as talent gets better, wow, probably consumption of that is just going to stay the same And that's why I really, i really find this their entire monetization started so unique, it's so interesting And it's really to me one of the first it really feels like a metaverse. Like when people talk about metaverses, this really feels like a metaverse. Wow, eve online, those feel like virtual economies, virtual environment. Do they feel like a metaverse where there's like real economic stuff going on?
Speaker 3:I was going through Matthew Ball, who wrote metaverse and is the infamous VC and Canadian who wrote that a meta, and I was very particular in his definition because it does. It takes this guy a while to get to definitions. You got to read through 2000 words of ancient history to figure out what fire is. But the thing that's interesting is that he defines it as having a 3D interconnected space and Roblox fails that definition because you use icons in the 2D menu to go between worlds. I are taking a consistent identity with you, so Roblox character comes with you, but it's just like the thing that. It's just the thing.
Speaker 3:I never get in the metaverse thing And we might be getting sidetracked. Here is the positive normative distinction. So when people argue for a metaverse, are they arguing that this is what's going to happen, left to its devices? If we were just to take where we are in history and just track the developments where to look back, this is what's going to happen. We're going to end up in these 3D worlds. Are they saying that this is a compelling thing we ought to make? We ought to do the metaverse thing? And I always find it really confusing when metaverse advocates make these claims, because I don't know what I'm supposed to do with that And honestly, i just don't care What I think.
Speaker 2:I totally disagree with that definition. I really don't think that you need this physical. If I go to sleep and I interact with a menu that's not a part of my real world in my dreams, does that mean that's not a part of the fucking reality? No, it's just, it's a sub menu of my life and I go to sleep. So I think that distinction, just like even just from a pure logical standpoint, doesn't make any sense. Okay, but now let's take it to the next level.
Speaker 2:What is the point of a metaverse? And I personally think that metaverse is a very important thing And I personally think it's like would this exchange, whether it is the exchange of goods, like in an economic capacity, or an exchange of, like, a social exchange would this exchange have happened if it weren't for this platform creating an environment for me to do that? And I know that's like a pretty broad definition. I guess that's like my test. Is the answer yes, then it's a metaverse. If the answer is no, it's not a metaverse, and I could probably refine that if I had more time. I personally see like Facebook and Twitter as metaverses. I think of them that way, especially when I'm writing.
Speaker 1:There is a the article you linked, phil, but I forget who it was talking about.
Speaker 3:metaverse, different definitions Raph Koster who is a, by the way. He's one of our few acolytes in this industry. I highly recommend people pay attention to him.
Speaker 2:Oh yeah, he's huge.
Speaker 1:Ultima online. He said if you look historically at the definition of metaverse, it's always a little bit beyond the current tech we have. Like he says it's. It's not a specific definition. The definition is always beyond what we currently have. So it's more of a futurist term of like future. There'll be a metaverse, but the goalpost is always ahead of where we are. So yeah. I think that's part of why it's so ill-defined.
Speaker 2:I think I'm always showing Castronova stuff, but Castronova wrote a book with Vili the do the economic sociologist guy from Oxford Boo. Yeah, But he wrote today. they wrote virtual economics like a design. Oh no, this is a Castronova exclusive. He's the only author on it. It's synthetic gods. Now we can promo it.
Speaker 2:Yeah, it's synthetic worlds and people probably aren't even taking me seriously anymore because I talked about Castronova so much. But that book I don't recommend it necessarily for somebody who's like in, entrenched in the industry, but if you're an outsider I think it could be really eye opening. He talks about these worlds connecting people that would have never connected And to me the metaverse becomes real. So it's really interesting And I loved his definition because he's you don't need hyper realism, you don't need that. I'd like it needs to be hyper real, like you got to go from one physical space to another And so if there's a Matthew ball, matthew ball he's wrong, because you just need to be convinced that you're in a reality That's outside of your physical existence.
Speaker 2:I remember playing games on the N64 or maybe even like Nintendo, super Nintendo that felt really real when I was there. I enjoyed them like crazy. And now obviously they look crap and we wouldn't call them a metaverse, but I was in a different reality. And then I think of metaverse. You hit this when you have multiple people interacting, it feels real. Doesn't matter if it looks real, it doesn't matter if it is real. It feels real to them. They're interacting with other people they would have otherwise not. And I think, when we think about virtual economics or, i don't know, metaverse economics, that once it becomes economically real is the switch.
Speaker 1:So for you it's a experiential psychological criteria, not a technological criteria.
Speaker 2:It can't happen without tech, though, right, yeah, yeah.
Speaker 1:But it's not like you need specifically 3D avatars. It's not. as long as it feels real and feels social, it's done.
Speaker 2:Yeah, exactly, i don't know.
Speaker 3:I agree with that. Have you tried the meta headset?
Speaker 2:Oh, i know I tried an Oculus once. Is that the meta has had?
Speaker 1:Yeah, Did you work with a company as meta? Yeah, Sorry No it's fine, it's just, it took me a second.
Speaker 2:The reason I know I'm writing this. I'm writing this PC man.
Speaker 1:I was like meta meta.
Speaker 2:I'm writing like academic papers and I need to like use the proper names of these companies, because I'll get so much shit if I write Facebook in 2023.
Speaker 1:What's the name of that big building in Chicago?
Speaker 2:The Sears Tower Now they changed it.
Speaker 1:They changed it like 10 years ago The Willis Tower. It's the Willis Tower, is it really?
Speaker 2:It's the Willis Tower, yeah.
Speaker 1:No, it's the Sears Tower, and Facebook makes the Oculus.
Speaker 2:I'm just happy to see that.
Speaker 3:He's a show for this. I just want to see him dump truck. I'm trucking money, i'll call whatever he wants me to call it. Once I call it his dog, the mop dog, i'm like sure, would I, oh sure.
Speaker 2:But yeah, so like that was sweet, but that was a single player experience. I wouldn't even consider that experience the metaverse, which is hilarious because it was the most realistic thing I've ever experienced, because it was covering me 360 degrees. Also, the first time I ever tried an Oculus, any VR, was in a mall. This was 10 years ago and I fell over and face planted into a display case of these things, so I'm not a huge VR person.
Speaker 3:And I wish I could. But that is the cold. Oh, that's amazing.
Speaker 2:I have a video of me crashing into the wait.
Speaker 1:Oh, you got to share that.
Speaker 2:Well, isn't it?
Speaker 3:called snow crash. That's all I got.
Speaker 1:Somehow we managed to devolve into debating the definition of metaverse.
Speaker 2:I know It's fair, roblox. I think that's totally fair.
Speaker 1:All roads lead to what is the metaverse, metaverse anyway, what is the law about?
Speaker 3:all conversations end up talking about like I guess this is the new one.
Speaker 1:I hope that happens. All right, guys, this was great, let's talk soon.
Speaker 3:Yo Discord's bopping these days. That's been awesome.
Speaker 2:Yeah, I know I'm super pumped about that.
Speaker 3:We should teach this to our children. Economics is major.
Speaker 2:Everyone has to major in economics Number one for personal survival. Economics is major.
