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
E10: Monetizing Reddit, Fortnite Into The Bloodstream, & Game Thesis
Chris discovers a small indie title called Fortnite, Eric throws salt on Diablo's big numbers, while Phil peddles his Game Thesis. The group tries to understand Reddit monetization while Phil tallies another win for the supply-siders.
Talked about links:
Phil, give us the dirt top subreddits and also your username.
Speaker 2:Okay so definitely not going to talk about that. Definitely, no one needs to see that. I would say one that I've loved recently is called Two Nordic for You. This is an underground Nordic subreddit. People from various Scandinavian and Nordic countries. Those are different, by the way, and you'll get flamed on the subreddit If you confuse them. They basically just shit on each other. To give you an example, they just posted a picture of the Norwegian king who had accidentally stumbled and was kneeling in front of the queen of Norway and just looked pathetic, and that was celebrated as a victory. Two Nordic for you hilarious. Let's start with utility. I don't understand what it even means.
Speaker 1:Everybody has some kind of utils in their head that they're calibrated.
Speaker 2:There's hardly anything that hasn't been used for money.
Speaker 3:Back. There may be a fundamental problem in modeling when we want to model.
Speaker 2:Game Economist cast, episode 11. Here we are recording on somewhat of a regular schedule. Even I'm surprised We actually put it together on a Thursday evening. Hi Chris, how are you?
Speaker 1:Doing well. Life is exciting at Star Atlas. Lots of new stuff going on. We just cut off an unlimited tranche of fixed price resources in our economy, so now players have to make their resources. So we've seen some really interesting stuff going on there. Otherwise, i'm in my new office. I'm setting up my background to have a nice mix of things that make me look intellectual and fun.
Speaker 2:And that would be War of the Ring, the box set game.
Speaker 3:I mean, you got me talking about it. It's a conversation.
Speaker 1:It's an asymmetric powers to player board game set in the third age of the Lord of the Rings, pretty much the Lord of the Rings trilogy that you guys all know and love. That's the board game for it. So one player plays as, essentially, one player plays as the fellowship of the ring Excellent game. It takes about five hours to play through If you're five hours. Oh, it's a nightmare. sometimes Got to leave a lot of space on the table for it to sit. I played it.
Speaker 3:Maybe it's hard core Yeah.
Speaker 2:Is this the price to be a token fan as your time?
Speaker 1:Oh dude. Yeah, I do see like the thick books down there that I have to read every year. I know I enjoy reading it but, yeah, sometimes it's like I'll be reading and I'm like you know what, Chris, It's not like about the reading. You should also enjoy it. And then I put the books down and I focus on other things that make me happy And then there's Eric from a super layer, head of economy design.
Speaker 2:That's your official title, right? I also want to try to get our titles in here, to make sure that we know people know who are who we are.
Speaker 3:Startup titles are made up, but yeah, super Like Web three company. I just went to a web three convention gaming convention in LA three XP. I got a cold from it So I'm a little raspy.
Speaker 2:But yeah, Doing all right Otherwise we got hot topics to talk about, as well as an experience that Eric had at the gaming convention. The topics we'll be talking about are the incredible numbers coming out of Diablo four, although not everyone agrees that they are incredible numbers coming out of Diablo four. Let's talk about the success, or lack thereof, of Blizzard's hot new game. I also have this game thesis piece that I've been peddling. I'd like to pedal it a little bit more. What is a game thesis? Why it's important, how could we structure it? Let's talk about what that might mean.
Speaker 1:And for a third topic, Chris.
Speaker 2:we'll be talking about the drama that's happening on Reddit. We'll be diving into the economic sociology of the Reddit communities, But before we do, let's talk about what we've been playing.
Speaker 3:Got a selection of good things on sale stranger.
Speaker 2:Chris, what have you been playing?
Speaker 1:I've been playing Fortnite.
Speaker 2:I played for an ironically.
Speaker 1:I have been playing on an ironically playing Fortnite. I played actually many years ago when it first came out, but I hated the building. I was just not sweaty enough to actually be able to build and shoot at the same time. So now you've got like squads and trios and no build modes. All this new stuff, new content and I've gotten into it with a couple of my my friends, my non industry friends, and I won my first match and it wasn't like it wasn't all bots, it was like a legitimate match with my three other buddies and we won And it was like a straight up shot of I don't know heroin into my bloodstream And I played like four more matches after that. I'm a bit I'm a bit hooked right now.
Speaker 3:It's a rush, man. It's a rush Down to the wire. There's two teams left. You're sweaty.
Speaker 1:Oh my god, and you're drinking that slurp juice. Oh my god, it's, that's no. I think the thing that I love about it's like I already want to buy cosmetics, like I've been playing, for I probably have played like 10 matches since I started playing, like a couple of days ago, and I already want I'm a no skin, which means, for those of you who don't know, it means you don't have a fancy like aftermarket skin or not.
Speaker 2:You picked up the cultist terms. You've been in this game for three days. It's one of the. I'm a skin.
Speaker 1:I look Yeah, i like, i changed, like I'm anyway, so I need to get a sweet skin. You've got like Optimus Prime, dark Vader, all these crazy things running around. So no, i've been thinking a lot about monetization and products that have ridiculous scale billion millions, if not billions, of users, and some of those are still unable to monetize, which I think is really interesting. Reddit and Twitter come to mind. But then you look at something like Fortnite and they're just, it's so easy to monetize. And I've been asking myself why lately, and I think I've come to the conclusion that there's just a there's a distinct difference between a social media company that has scale and a video game company that has scale. But anyway, we might touch on that later. So, yeah, fortnite, fun experience, i will say, a little bit addictive, incredible monetization, is it?
Speaker 2:obvious to you when you play it why the game has been the most popular, in some ways live service in the West in the last five to 10 years. Is it just if you didn't know that beforehand what the cultural phenomenon on Fortnite was? does it make sense when you pick it up and play it?
Speaker 1:I think it's early success plays a big role, like it was one of the very first battle royales with the shrinking map. I think that was a pretty novel concept at that time. I remember, like just that mechanic of the map shrinks, you have to get closer and closer together as the number, that that was a very beautiful mechanic for me early on And I think that's what was very addictive to people. And also just this idea of a single winner. Before that it was COD, it was Medal of Honor. Since Phil's here It was like these games where it was a team effort and you basically won 50% of the time Once you get that single player win.
Speaker 1:I think that was super novel and it attracted hundreds of millions of people in the early days. And now I think that they're just capitalizing on that early success. I could be wrong. Maybe there's stuff that they're specifically doing that is just exceptional and better, but I really think it comes down to the fact that they don't have a lot of competitor competition and they definitely didn't have a lot of competition early on On the flip side of that, like so many follow on competitors came right, like Realm Royale, battle Royale, spellbray, there's.
Speaker 3:So bring up Elysium. So many different Battle Royale competitors. They all flopped, and then even their predecessors, pubg and H1Z1, they've massively surpassed them, except maybe in a couple like the East Asian markets and mobile. Yeah, and thanks to the question, like sure you can say okay, maybe they were just at that sweet spot of polish versus being early. I think one of the things that sets Fortnite apart is just the amount of content they churn out, like they're constantly updating the map, adding new mechanics, and I think they made the right call. They were like this is not an eSport, this is a live service. This is not about the competition, this is about the novelty and keeping people coming back with something fresh.
Speaker 3:To me, obviously being Epic Games, the game engine experts enabled that development.
Speaker 1:I think that's super fair at development timeline, 100%, like they have a comparative advantage to everybody out there because they are Epic. So maybe that's not. it wasn't entirely fair to say that they had that early mover, polish, polished advantage. That said, it's almost like they're successful because they're Epic.
Speaker 2:So Epic's made a lot of successful titles right. They had made Unreal Tournament. They made Unreal Engine. Before that They had also made the Gears of War franchise, which they sold to Microsoft. So they had done a lot of successful things and they were okay. Live services There were nothing that impressive.
Speaker 2:And then this comes out And I think that the thing that is important is like they became something else. When Fortnite came out, what Tim Sweeney did is he seized the moment and he turned Fortnite into a factory. The thing that I always have stand out when I have conversations with people who worked at Epic was just like what the factory was like. It was intense. There are a lot of hours. There was a lot of money to be made. The bonuses were handsome. Like they incentivize their employees to make more widgets, and when you incentivize people to make more widgets, they make more widgets. I just think about the normal incentives in institutions are usually not as strong as the ones that Epic had, but they got the factory right. This is a supply side story. It's a win for the supply ciders out there. Like maybe one way to just win at games isn't to just sit there and fiddle on design for endless amounts of time or QA, or bugs, it's just to make more widgets. Just make more widgets, more heroes.
Speaker 1:You correct me if I'm wrong, but that's Roblox's model right now. They started out with this super basic, boring, shitty product Not shitty, but basic product And look at it now And they're just constantly churning out new product and new updates And they're not focusing on this huge And not to start out as his own horn, but we've actually taken over that same philosophy. Okay, let's just iterate on a simple product over and over again repeatedly, rather than try and churn out this one super mega product after several years or something like that.
Speaker 3:Eric, what are you even playing, surprisingly enough, diablo. I'm gonna be honest. Playing the beta, i was like this game sucks. I don't know if I'm gonna play it when it comes out. Oh no, when I was playing the beta I was like this is an old game, it's super boring and grindy And I'm probably not gonna play this. But for some reason, after it came live, i was like, oh, i want to level up, i want to get more unique enchantments, i want to upgrade my character. But yeah, it's a super old game.
Speaker 3:I don't know how to describe it. You compare it to Zelda. Okay, this is not beating Zelda, an exploration. This is not beating Elden Ring on combat. This is not beating Red Dead Redemption on story. Like the only thing it does better is upgrade systems. But it damn does upgrade systems. Well, i don't know. The little rat brain in my head loves having a short term goal. Oh, go to this quest marker, do this thing. Upgrade your equipment Oh, your equipment got better. And now reconfigure a build. And I realize it's just a Skinner Box treadmill, but damn, is it addictive.
Speaker 2:So why is it more addictive than an MMO, though? Aren't those loops the same Like? why does this do it better than Lost?
Speaker 3:Ark? That's a good question. Frankly, i haven't played too many MMOs. I remember playing WoW and just getting sick of it. I mean like this game is just old and crappy. Maybe it was forcing me to run from quest marker to quest marker until I hit level 70 or whatever the max level to do dungeons.
Speaker 3:I think one of the big differences is Diablo 4 focuses very much on build customization And they allow you to respec your entire build pretty cheaply and quickly, which for me is super fun. I love Roguelex, i love remixing on. Oh, i got this perk, this relic and sleigh of the spire, which increases my poison damage, so let me make a poison build around that. That build crafting is super fun to me And most MMOs lock you into your build. They don't let you respec on a whim, and the fact that this not only allows me to do that, but the new item drops encourage you. You've got a lightning build, but then you get a fire item and you're like oh cool, like what can I build around this? That part of it is very compelling to me.
Speaker 2:So they have a skill tree. Is there anything that they do with their skill tree that makes it different than other skill trees?
Speaker 3:It's pretty slim, simple actually, to be honest. Apparently, if you compared to path of exile, right Like that thing is gigantic and Constellation a thousand stars you can choose from.
Speaker 2:It's on.
Speaker 3:Yeah, it's unheard of you cannot play path of exile without a guide. Right, you need a guy to tell you what to pull guide probably because you're about to play that thing, you know what's your star sign. But I think in Diablo they made it honestly It's a little simple. Apparently during the alpha testing people called it the skill twig because they said it was too simple and too basic. And it is pretty basic, but there's just enough of I can mix and match my abilities and mix and match my perks to keep me coming back. I might be hitting dead ends, like I'm playing the sorcerer and there's maybe 15, 20 different abilities, but there's only three or four builds that I've found really work and It's clear, like, for example, in fire. There's two fire builds, there's the burning build and there's the crit build and lightning. There's two lightning builds, there's the chain lightning build in the arc lash. Well, anyway, it is overly designed, so I am a little worried that I'm gonna run out of bills to try soon. It's got me so far.
Speaker 1:Eric, i've heard that it's just basically like an all-around improvement on Diablo 3 and You had mentioned you were talking about Zelda last episode, i think and you were saying like it's just takes everything about Zelda breath of the wild and makes it better in every single way. It takes it, distills down the good parts and takes out the bad parts. Would you say that's the same story with Diablo 4 or is it like distinctly, is there something special about it? Is there something magical about it? one of the things I've blown away by it's like all my I have friends who have never played an ARPG before and are really not hardcore gamers and I would consider Diablo one of the more hardcore games and They're playing it like everybody's playing it. That I know. It's like the Harry Potter hard warts effect, like all of a sudden, like everybody I know is fucking playing this game and I don't know what happened with hard warts. It made sense like everybody's a Harry Potter fan. What's up with Diablo?
Speaker 3:Yeah, i don't quite understand it either, when I thought it was just gonna appeal to like the old Diablo nostalgia crowd. But I've met a lot of like the zoomers who are playing it. So I didn't play Diablo 3, i'm gonna be honest. So I can't really compare apples to apples, but I know that they're like tagline during development was return to darkness, return to Diablo 2, like there was a return to form for them. They did try that.
Speaker 3:Honestly, the development was pretty Garbled and messed up like their game director left in the middle, louis Borega. That's a funny story here. He's one of those like blizzard old boys and very much like arrogant and self aggrandizing. This is like, unironically, what he said. And there's this great interview, this journalist piece In the Atlantic or something, where people they're interviewing people and they all have very similar experiences with this guy. He's like extremely arrogant, extremely controlling, but also like low throughput, like he's not the creative genius Dan Harmon type Who's an asshole but does a lot of great work. He's low and They were trying to do this open world thing. I don't know if you noticed this, but you can run in any direction, yep, but the rest of the game doesn't facilitate the open world stuff at all and also it doesn't really contribute to that end game loop of running Dungeons and getting better gear. That was just the wow influence. I was just fucking Louis Borega and Jesse McCree being like oh yeah, we love World of Warcraft, let's recreate World of Warcraft in Diablo.
Speaker 2:They don't put any loops in there that make it feel or take advantage of that open world stuff. It really feels like I'm just going from point point exactly. The effective map is really small. In some ways It's actually weirdly shaped.
Speaker 3:It's progressive and small and they had all the crafting materials, like the Herbs and iron ore you can pick up, but they actually had nothing to do with them until the very last minute where they like slapped on a crafting system. Anyway, thank God they got me tuned and kicked out. I think the game would be in a much worse state if they didn't happen to sexually harass some people and get kicked out for that, because then they would never have gotten kicked out. But oh man.
Speaker 2:I really gotta pull out my scalpel on this one.
Speaker 3:But yeah, they got booted and it got saved at the last minute by the the quote-unquote B team. We turned out to be the real talent behind the scene.
Speaker 2:There's this unapologetic piece of hell. But this game somehow delivers in terms of the IP, which to me has helped it like grow and almost as like a vintage experience. I guess it's almost like a sense of cruelty, it's unabashed cruelty that this game has. There's a lot of blood and guts score. Everyone who is an artist on the game, when you look at the dev interviews, just has a smile on their face because they're making such Hellish, demonic creatures and in a twisted way that's fun And I feel like that's something that's like grown in terms of folktale, that like you can play a game like this and it's mainstream and accepted And it's all Diablo man, yeah, let's go play some Diablo, let's go to hell.
Speaker 2:I think there might be something to that and I think the loot loop gives you that kind of old couch co-op, endless dungeon raiding, night Experience. It's almost like a harken till an earlier time in gaming's history and those systems haven't changed either. To your point, to your point, eric, they feel very dated. The UI even looks dated, feels like something out of the night, like in 90s.
Speaker 1:Finish Evil rock band but it's a hundred fucking gigabytes. I'm like, yeah, we're not an engineering podcast, but what the fuck? it's got some cool cutscenes, i know, but like I Got a fucking external hard drive for my Xbox.
Speaker 3:Xbox. I think they grossly I think they made the same mistake on Warcraft 3 Reforged, where they like Hyperpolished these assets. But they're so tiny, you're all zoomed out Like you don't need them to be super high fidelity and but yeah, that's why the load is so high.
Speaker 3:Yeah, and on economics note, i think there were a lot of been said about this game I think you guys talked about like fastest-selling game of all time or Blizzard game of all time. There's some funkiness there because pre-orders they really juice the pre-orders with the pay $20 extra to play the game Five days early. But it is one of those. I call us the Blizzard Reverse live ops revenue model, which is you charge a Fixed price for a box, a lot of people buy the box and a bunch of those people play for one or two hours in churn and you've got a couple of neckbeards who play for thousands of hours and All of the people who bought the game for $60 and then didn't play are Funding the game for the people who play for hundreds and thousands of hours the bee soos and flashes and J Dongs who play Starcraft for hours and hours on. That it's a little Backwards, right like. The standard free-to-play story is the opposite of that, which is that the whale funds the game for all the free players.
Speaker 1:But for some reason Blizzard has always been doing this thing where the Hordes of casual players are funding the game for the super hardcore one thing I like about the That model is and I've been on this just like good old-fashioned premium monetization kick lately where it's let's just pay for. Let's just pay for good content like Really cool game, let's just pay for it.
Speaker 2:I'm gonna pay for this thing that I like and I know that's like an archaic thought and I think there are maybe like I'll make myself a cocktail and I'll be like this monetization stuff these crazy kids are talking about, let's just go back to premium, baby, like dude. Five bucks a hat, that's it. Yeah, an old shitty, shitty.
Speaker 1:I think though I think Eric Cress has this similar view, doesn't he where it's like the ultimate model, like the most sustainable Model, is like this premium, launch a game, make good content and just charge a price, and I think it's there's something to be said for that, because then, like, you've got all These companies who are doing these like trying to do free-to-play and not able to properly monetize on it, especially small studios who don't have, like, a Economics team, i don't know, but then I'm advocating for people know you're right, but you have to pair the monetization to your own point.
Speaker 2:Earlier episodes, chris, you mentioned you want to pair marginal cost, marginal benefits. Eric's exactly right. Like other these people with thousands of hours in these Blizzard games, how are you monetizing their tail? Yeah, and Blizzard usually doesn't have compelling answers for that, and so what ends up happening, though, is They are IPs, resonate with people, and the gameplay still I don't know is. Do you think it's the promise of Being able to play a game that has so much depth in it that keeps it selling, that keeps the box price moving, because this is a model That's worked for a really long time?
Speaker 1:It's. I hate to always be the guy talking about board games, but it's the board game model. The more you promise in your board game, the higher the price you can charge and the more people are gonna buy it because they think, oh, i'm gonna get hundreds of hours of gameplay out of this, when in reality They're only gonna get two to three hours. Whereas for something like fortnight, it's this closed loop game that you just play over and over again. If I'm thinking about fortnight and somebody's like here's $70 and it's yours, and I'm thinking I might only play six of these matches and get bored of it, whereas with wow you're sorry with Diablo, you're sitting there on me to get thousands of hours out of this because I can play it for hundreds and hundreds of.
Speaker 3:So you said, the existence of Those thousand hour. Try hard. This, hardcore players, increases the perceived value for the casuals.
Speaker 1:Even if, yeah, even if they have to play, maybe a move here or a price counting the future. I think it's a discounting problem.
Speaker 2:Oh, interesting.
Speaker 1:Okay, tell me more. So you've got like this ability to see into the future, and most people are really terrible at seeing into the future. I'm able to say I'm gonna spend less money on whiskey this month, but I'm not able to do that because I forget. So in classic discounting literature You're you basically discount the future by some, some Delta, and this Delta is Compounded over time. So the farther out into the future, the less you're able to anticipate that utility. So a utility today is worth you and utility in the future is worth one minus Delta times you. So some fraction of that you.
Speaker 1:So when I say discounting, that's what I mean, and I think that people discount their ability to enjoy the utility they're gonna get from this game, or I guess rather they discount their. It's not discounting the utility, it's discounting the fact that they're not going to play it, and it's probably a more eloquent way to say that. But I think I'm gonna do better, like it working out, like I'm gonna work out in the future And I'm probably over. I'm probably over estimating how much I'm gonna work out because I'm discounting the disutility It's gonna come from working out. So it's still a discounting problem, but it's like you're discounting the cost instead of discounting the actual utility.
Speaker 2:So do you think premium is like gym memberships? That's what we're selling here. It's like the fantasy of playing the experience, playing the game.
Speaker 1:Think about the subscription models. Wow, in the days of old is pretty successful And it was like it's like a gym membership.
Speaker 3:I will say, phil, i remember working with a some guy who worked at Nintendo at Riot and I showed him one of those. The engagement curve were like the vast majority of your players drop off in the first couple hours And he was like, oh yeah, it looked the same for our Nintendo. Games are like $40 DS games a ton of people just buy the game and never play it Or they don't even get through the first level.
Speaker 2:That's true, at least what I've seen, though it like there is a self-selection bias. When it comes to premium, though, the fact that you're buying into the experience means that you're likely more interested than a free-to-play user. So there is a little bit of a bump, and you see this in Mondays. You see this in every KPI. Every KPI gets a little bit more stacked. It's the equivalent of just like shooting your weakest users to improve arp-dow. That's one of my favorite PM factors. Just Eric can't log in. Oh wow, arp-dow is our test $5. We hit our targets this month.
Speaker 1:You think retention is like useless unless you have a reference point, here's the retention for our game. If, especially I'm definitely thinking about this from like an investing point of view Like a VC comes in and they say, oh, looks like your retention numbers are like it's decreasing Yeah, like it Always, it is like it's naturally decreasing. But you compare that to like competitor and you're like look, actually we're decreasing slower than our competitor. Not really much to say on it, just like video game companies.
Speaker 3:But on that box price premium note. So the first 10 hours of Diablo, i think, are a pretty mediocre game. I would say this the first 10 hours of Diablo are worse than the first 10 hours of Zelda, of persona, of God of War, of Any of these blockbuster triple-a games. Right Like the real Experiential value comes from the last hundred hours. It's super backwards the way they monetize But seems to be making the money.
Speaker 2:Would you sell gameplay? Would you monetize in that way? The?
Speaker 3:game is designed for that super hardcore endgame player, and so I think you sell them things that they can spend along the way, right, and they're trying to sell cosmetics.
Speaker 2:That's all the whole live service push they're doing, so I'm glad they're finally changing that because I wanted to spend on progression to your point, like I want loot, i want all of these things, and I just want them in greater quantities and faster. I Was willing to open my wallet for this game. I Just had nothing to offer me Immortal there's a blizzard. There's a blizzard, immortal pm Somewhere smiling. Maybe that's what I should do.
Speaker 1:Do you guys know the answer to this question? Can you? is it easier to monetize on progression for, like, free-to-play casual games than it is for hardcore games like this? What do you mean by easier? Yeah like the players Rebelling and the community hating you for introducing pay for progression in a more hardcore title compared to a more casual title.
Speaker 2:Oh, they just hate you on different platforms, so older people will. if you do that in Candy Crush, they'll hate you on Facebook Instead of Reddit.
Speaker 1:I'm just a fix doing a bunch of so.
Speaker 2:I think it's easier to ignore in that way, so that's nice Okay.
Speaker 3:Interesting a lot of it's like demographics and historical context. Like the blizzard fanboys, are this some pretty Hardcore, like no pay-for-power. But I'm sure you say the same thing to like people playing even league in Asia And they're like, yeah, sure, whatever, it's annoying and I don't like it, but they don't flame you and give you death threats the way the blizzard fans do.
Speaker 2:I'm not getting our death threats, yeah the thing that's happening right now at Overwatch. What's happening at overwatch? They decided to monetize some of the I guess it's PvE content. Some of the hero missions is is absolute trauma to some of these people that they would dare charge for piece of content. The thing that was Interestingly posted on Twitter was from a VC, andrew Green, who used to be at still front, as now, i think, at crypto agency. He was also at a 16z. He mentioned that The community feels like they own things and that's why you see this in gamers like the game. The community of gamers feels like They own the game. I don't know if you guys would buy that as an explanatory reason. I think it's definitely wrong. We should correct that perception.
Speaker 3:But you're right They. That is the attitude they take. This is my game and you're doing something I didn't want in my game.
Speaker 2:Yeah and they're almost defending social norms in the game too, Like particular cultural institutions.
Speaker 3:You know about web 3 and game ownership.
Speaker 1:Yeah, it's like, hey, hardcore RPG fans go explore crypto. But I said the same thing to the people and it wasn't very. They don't think it's funny. They don't think I'm a funny guy.
Speaker 2:Let's dive into our first topic, Chris. what's happened in the world of Reddit? I'm hearing about all these lockouts and blackouts.
Speaker 1:So I have to caveat this with I'm a long time Reddit user. I wouldn't have the ultra comfortable bed that I have if it weren't for Reddit. I wouldn't have half the clothes that I have if it weren't for Reddit. I rely on Reddit for a lot of things. I grew up without a father figure, so Reddit was my father figure.
Speaker 3:Name your three favorite subreddits.
Speaker 1:My three favorite subreddits. It depends on what we're talking about. If we're talking about like for fun, our board games, our game design, is a fun one. I have to think about the third one in terms of better for me, our homeowners, our plumbing and our male fashion advice And, as you can tell, i'm not really fashionable. But, yeah, i've tried to stay relatively neutral. I understand that Reddit is a profit optimizing firm. I'm not offended by any of the changes they've made. That's your disclaimer. Basically, the article that we're going to refer to in the show notes is actually Reddit post by Apollo's founder.
Speaker 1:Apollo is a third party app. It's a Reddit reader, so it's a third party app that basically allows you to interact with Reddit in every single way, but in a much cleaner, more UI, ux friendly, really sexy UI UX experience. So you, i am, that I am. That is. That's the founder of Apollo. He basically made an announcement a couple of, i'm pretty sure last week that Apollo is shutting down, and this is in response to Reddit's new API pricing structure. On April 18th, reddit had announced a pre announcement that they're going to change their API structure, pricing structure. Nobody really knew what this meant until earlier this month, pretty much beginning of this month, they announced that their API truck structures going to be 24 cents per 1000 calls. That doesn't really mean anything to anybody who doesn't really deal with APIs, and I'm not one of those people. What this does mean, though, is Apollo had made the previous month, so last May, they made 7 billion requests, according to according to the founders Reddit post, that's a lot of money. That basically equates to just under just over 220,000,000,000 dollars per year. So you're talking about a third Reddit developer or third party developer who's not making millions of dollars on this. Probably, i'm sure he churned a profit, i'm sure he's doing just fine with this third party, but we're not talking about a multi-million dollar corporation. So there's a lot of concern and chaos. Obviously, a whole bunch of these third party apps have announced are shutting down. A whole bunch of communities have have rebelled. A whole bunch of communities are at threat of going under because a lot of these communities rely on moderators, who rely on bots, who may or may not be able to operate anymore given these pricing changes.
Speaker 1:All that said, the biggest feedback, the biggest hate comment coming from the community, coming from these moderators and coming from these third party app developers, is that they didn't have the proper time. So Reddit announced this change at the beginning of the month of June and the new API structure comes into play July 1st. So they gave 30 days for all these developers to try and figure out how to optimize their requests Basically. I'm sure Apollo isn't doing everything to the absolute optimal structure. If they could rewrite all their code and redevelop, maybe they'd be able to save a ton of money by batching requests or something like that. So that's a big feedback, that's a big outcry. Is we didn't have enough time to react. Reddit said fuck that, i don't care. Youspez, that is the founder of Reddit. I don't even know. Hoffman, i think, is the CEO. That's Youspez. He's been unapologetic, he's just been brutal, he's no, we're not changing anything, we're going to keep going. We're not going to give in to these users, to these developers.
Speaker 1:It's really interesting to see this for a number of reasons. The first reason is I guess the first question you have to ask yourself is why so quickly? And I think personally, the reason why is that Reddit is unprofitable, reddit has a bunch of investors and Reddit is about to go public. All those three things combined to say you guys need to be profitable and ASAP. Now the API pricing is interesting because what it did was it basically said and you could interpret it as a move to shut down third-party apps. We've got all these users who run third-party apps. We want them on the main app. So that's one of the effects of the API structure is going to kill these third-party apps. You get the users on the primary app. You start to get ad revenue. Here's the thing Only 5% to 10% of Redditers actually use third-party apps. So we're talking about maximum a 5% to 10% increase in ad revenue. That's not going to be the difference between Reddit being profitable and Reddit not being profitable. So that doesn't really explain this move. And then you have to think okay, who's willing and able to pay these API fees? And maybe later on somebody's able to develop an app that uses the API request in a very efficient way and it's able to actually somehow turn a profit.
Speaker 1:But I'm really confused by the API changes. I'm very confused by this move And I'm further confused by their inability to monetize on their user base In 2019, and I couldn't find the most up-to-date figure they had just shy of 500 million MAU. That's a lot of users. It's got to be one of the most used. Oh yeah, oh, hands down, it's one of the most used websites on the planet, or at least in the US for sure. It's massively popular, has a huge user base, and yet they're unable to monetize on it. And I've heard the argument for advertising revenue many times. You've got users monetized on advertising. It doesn't seem to be working. Clearly, they're not able to do it even with 90% of their users being on their main app. To me, that means that there's got to be some other monetization technique that you guys need to use.
Speaker 1:And I'm sure that everybody said Twitter did API pricing. Let's do API pricing. Let's charge for these requests and make a huge change. Is it going to work? Twitter is different, in my opinion. Twitter is a news source. You've got massive news companies who are willing to probably dish out the cash for those. The users of the Twitter API are big, they have money, they have cash. The users of the Reddit API maybe not so much. So I'm just really interested to see how this plays out. One small note, and I don't. Somebody who knows more about this can hopefully lend some insight here. I was able to see a maximum of a $210,000 per month API fee whatever you want to call it for Twitter's data. The interesting thing about Reddit is that it scales with the number of requests, so it's just $0.25 per 1,000 calls. So I'd be really curious to get some clarification there. To me, it sounds like Reddit is more expensive than Twitter now.
Speaker 3:Twitter is a subscription. It's like a flat monthly fee.
Speaker 1:That's what I saw on their website. You have these different tiers ranging from $42,000 to $210,000 per month. It could be completely off there. I'm not like a Twitter expert by any stretch of the imagination. Twitter.
Speaker 2:Enterprise API packages start at $42,000 per month for its lowest subscription tier and go to $210,000 per month. And the different subscription levels appear to be the number of requests. Who's buying this? I guess the question is who would need Twitter's API. You can imagine that sometimes machine learning companies might want to do it. You could also imagine maybe universities might do it for research purposes. But yeah, it seems wild And I guess it would be these app developers or not.
Speaker 1:To me it's OK. API pricing aside, why is Reddit not able to monetize? If Reddit can't monetize, who can monetize? And then I look at Facebook and I know Facebook has way more users than Reddit. I think isn't Facebook's MAU something ridiculous like a billion or something?
Speaker 2:It's fucking ludicrous, i think. Maybe the one thing I'd like to just take a moment and do for context is, when you've mentioned all these MAU numbers, i always get confused, and so one of the best ways we can think about comparing these different things is, if Reddit is at 500 million MAU, that is about five times an individual platform like Steam, xbox or PlayStation are all about 100 million MAU And, just to give you another reference point, roblox is about 300 million MAU. So it's below Reddit, but again, it's above all these other platforms.
Speaker 2:When people think about the comparisons of online mobile gaming to PC gaming or to console gaming, this is one of the things they point out, just in terms of absolute size. Why mobile is such an amazing opportunity is that you're still very much constricted on the device side and you're still only looking at 100 million MAU per platform. There's just a lot of juicy meat to go after and a lot of these bigger scale products Like this is one of the problems gaming has had in becoming a tech company is that we just don't scale to the degree that those companies seem to do, except somewhat in mobile, and even then it's on an individual game basis. Oh and Eric, what's your top three subreddits. You got to show your cards.
Speaker 3:What are my top three subreddits right now? Ask historians Oh, wow, okay.
Speaker 2:It can be a little strict. Yeah, they're very, but.
Speaker 3:I appreciate that because there's so much garbage on the Internet And I know these guys are real try hard about it. After that, it's just whatever I'm into, like Bollysong, butterfly knives, super auto, pets What is it I'm lately. Smash Bros Really ask historians is the big one. Everything else is just random fluff.
Speaker 2:Do you ever go to the all page or just the page that's for you are all I don't think I do.
Speaker 1:This gets exactly into my thesis. Reddit doesn't understand the fact that they're not Facebook. People don't just get onto Reddit to look at whatever the fuck Reddit wants to put in their face. They don't care about your recommendations, they don't care about the ads you're trying to recommend to them and they don't care about other communities. They go on to Reddit to either ask a specific question and get an answer fucking ask historians, okay Or they go into Reddit to look at a very curated list of their niche interests. They're not interested in your recommendations. Just because I'm interested in our Super Smash Bros doesn't mean I'm interested in our Super Mario Party 6. These are not substitutes.
Speaker 1:Whereas with Facebook something like that, it's even Twitter I'm much more likely to click on something that's suggested to me on Facebook. I'm much less likely to get offended by an ad on Facebook. Part of that is because it's a different user experience. I'm going there for a different reason and I'm less likely to get pissed about it. But also part of it's just the selection. The types of users who are using Facebook are more susceptible to click on ads, more susceptible to because of the demographic that uses Facebook.
Speaker 1:There was a really good segment on the difference between Twitter and Facebook on the What's that tech podcast. You recommended Phil All in Sharp Tech. Yeah, they do a really good breakdown on what are the core differences between Twitter and Facebook and why is it necessary to monetize in different ways. And this is the thing that's been pissing me off about this whole advertising revenue thing. Everybody just needs to monetize. They have the users. They need to monetize. You don't think they're doing that. They have their ad revenue streams. They have their users. Why isn't that sufficient? It could be corporate mismanagement. It really could be.
Speaker 1:The CEO of Reddit is not a CEO CEO. He founded a small, tiny little platform back in the day. He's not necessarily this super qualified executive, but I don't know. I think that it has to do with the content. This goes back to what I was saying earlier with. People are willing to pay for a good user experience And that's how I'm monetized by becoming this really excellent product. That people were willing enough. People were willing to spend the extra money for a better version of the app. Now, i mean that in the positive sense and not the negative sense, meaning you give them the baseline of zero and then you allow them to pay for a plus one. You allow them to pay for a better experience. You don't make them pay for the not bad experience. That's the Spotify model. I'm not a huge fan of that, but I think that they need to monetize.
Speaker 3:Is that just Reddit?
Speaker 1:Gold.
Speaker 3:I don't think they make much money from that.
Speaker 1:Yeah, that's like their cost of this economy. They have Reddit. They have Reddit Premium? Yes, they do, but the Reddit app sucks.
Speaker 2:Okay, so are you saying the Reddit premium is the right strategy for them, but it's not well integrated or well executed.
Speaker 1:I think they need a better app, a better UX, a better UI, like the whole entire user experience needs to be better before they can start to actually monetize. On subscriptions to their premium app, like if Reddit had an Apollo like experience, I would be willing to subscribe to their premium in order to have multiple accounts, in order to have access to exclusive features, bundling my subreddits and maybe creating lists and creating different groupings of saved content, stuff like this.
Speaker 3:Is there a version of their API pricing? Let's say they put it much lower so that Apollo didn't have to go out of business and Apollo would just fork over half of their revenue to.
Speaker 1:Reddit. So that's one of the really interesting things here. Right, and I saw this comment on Apollo's founders on that post was like okay, clearly the opportunity cost is huge here for Apollo. Reddit is willing to kill that app in order to try and get some of that revenue. So it seems very weird that they didn't either a purchase Apollo or try to purchase Apollo and I have no idea what the corporate politics are there or the feasibility of that Or B price it, like you said, eric at this, or should I say Mr Diablo, since your name today is Mr Diablo? or should we price it at a range that we are going to start to monetize on our best users like Apollo and Narwhal? What's the other super fun? Reddit is fun. Monetize on these people without actually killing them. Just don't understand it.
Speaker 2:So I need to mention my top three subreddit, gaming, and I would say the last one, which I've really come to love. To be honest with you, it's probably next fucking level. That's got good stuff.
Speaker 3:That's a sweet one. You'll see some good content there. I tried to go slow.
Speaker 2:It's struggling now Because I was because here's the thing I wanted to talk to you about, chris. I have moved to the Reddit app. I have the Reddit app on my phone.
Speaker 1:How dare you Same?
Speaker 2:How dare me. I've had it for actually quite some time. There are things that annoy me about this app because it's clearly driven by a PM and the PM wants growth And to get growth, what they've been doing is they've been shoving new subreddits. They've been saying because you're interested in this, are you interested in that? And the answer is always no, get the fuck away from me. I'm actually not interested in that, leave me alone, because I just want to see more tunordic for you memes. Jesus fucking Christ. Yes, but I do think like discovery is this big problem, because, ultimately, you need to find communities and, like I just read it off, a bunch of communities that people didn't know of before. It's these little corners of the internet that are hard to discover and they haven't done a great job of making them easier to discover. Follow up question.
Speaker 1:How did you discover Nordic to Nordic for you?
Speaker 2:I think it was mentioned in probably a comments thread. It's usually through word of mouth. That's exactly right.
Speaker 1:So Reddit has a natural discovery in itself. All of my favorite subreddits that I found are because I found them through other subreddits, reading through comments, and there will literally be like our ask questions to say what are your favorite subreddits. And I found some of the craziest, weird subreddits that are just like that, are just fun. I discovered our Amish on there, which is blank. There's nothing on our honor, there's no. Somebody created it and then deleted their admin access And it's just. It's completely blank.
Speaker 1:I'm on Reddit's our McMansion hell. That's one I love. It's just a bunch of ugly, giant mansions and they just shit talk them all the time And then on Thursdays they have the counter day where they actually post really beautiful mansions. But this is the thing, right, reddit already has a natural discovery rate built into it And it's frustrating that they don't understand that as the PMs are trying to force this content down our throat. I want, if I'm on, our smoking, i want to go and I want to learn about our grilling and our like brisket or I'm sure there's an our brisket, i have no idea. But like I want to discover those other communities organically and naturally, because the people who know the content that I want to watch are the fucking people in those communities.
Speaker 2:They're not the PM at Reddit, so that that's entirely logical to me, but I still think you get approached at the margin, even if most discovery is happening organically. can we at least just get the number up, because what they're trying to maximize is the number of communities that you're subscribed to, because I'm sure that correlates to engagement, and so that's the thing they're going to twist, i guess. maybe is there a way you could think of a feature that you're thinking of, a feature that could put organic discovery on steroids? Do you think there's anything they could do from a design standpoint?
Speaker 1:How do they improve discovery, how do they enhance the organic discovery that they already have? I think that sorting sorting comments is a nap is a good, a good example, which they already have. You can sort comments by popularity, by controversial, by most recent These are all. Sometimes I'll scroll through my, my, all of my reddits by just the newest, because that's where, like, you, get to discover the newest, most interesting stuff. That never really makes the top because it doesn't hit the mainstream, but that's all I can say, and they already have that built in, so maybe I'd have to think about it harder, yeah.
Speaker 3:The other obvious avenue is putting the reddits they want you to look at in your feed. But, like we said, like a lot of times, those are a miss.
Speaker 2:I think this is where gamification can help. We've been talking about monetization for Reddit. They've done interesting things. They've taken a little bit of. It's not even the game playbook, it's really the creator playbook of Patreon. It's similar to just like these mechanics of Patreon. Like a lot of it is conditioned on almost being a donation to keep the servers up. That was something that was really important in the beginning of red is that we need help to cover the funds. Give someone red at gold. That was just the ability to add a small little cosmetic to a particular comment. So they've been doing like this almost donation tips model, and even when you look at a lot of the things that they're selling you in the subscription model, it is very similar to that. It's mechanics that essentially just let you give money back to Reddit in many ways. So, okay, what do you do with this? They've decided to go down the ads route, but they also explored that NFT route, that profile picture route, where they were selling some cosmetics And that was celebrated in the Web3 community for, i would say, probably about a good week. The new shiny object syndrome is alive and well And no one has really checked back in on that, but it's clear it wasn't enough And I still think there's something there in monetizing status for especially a website that is built on karma.
Speaker 2:There has to be something more compelling there. But I also wonder if there's something that they can gamify in terms of discovery. I would love to get rewarded for discovering new content in some ways or contributing to a community, and I just I still don't understand my relationship to the many of the communities I visit. Like I would love to have a stronger identity on our NFL, like I spent a lot of time in our NFL. I think I can contribute something there, but I feel like I just get lost in a sea of user names. It's hard for me to really craft who I am within a community And I wonder if they've just missed an opportunity to monetize that more. I want to go deeper, not necessarily wider.
Speaker 3:So the speaking of incentives, the main one that you have is karma, right, upvotes and downvotes, and the karma is for posts and content. What is karma for recommendations, right? What if, when you recommended our NFL, you would get some kind of karma for that? I don't know.
Speaker 1:And they have this built into. Some communities have like Kickback Within. Yeah, a kickback would be cool, but so I see what you're saying with this reward mechanism. But even within certain communities our advice is a really great example of this where you have a ranking within that community based on how many times you've helped somebody. So if you comment on their advice question oh my car is broke down, what should I do? And you give. If you give advice, that they will say thank you And once you get that thank you, the bot records that and it gives you a ranking within that subreddit.
Speaker 1:It's interesting because all these things have been built by the community and built by the communities, and maybe Reddit just needs to try to like, try to capitalize on those systems that are already pre-built. Maybe they do have something that's more compelling than just the overall karma, i don't know. Like a special banner for like Google guides. Does this, for Christ's sake? like I'm like a six star guide on Google, like that I pay attention to people's rankings in Google reviews when I see five stars four stars compared to zero stars.
Speaker 2:Let's talk about your web three convention. Eric, you went to the. was it a track convention or a crypto convention? Future convention I don't know What do they talk about with these things.
Speaker 3:Yeah, Three XP. It was a web three gaming convention. It was at the end of LA tech week, which I didn't know was a thing until I found went up there. Honestly, this was my first embarrass to a man. This is my first game convention and my first crypto convention. I didn't really know what to expect. There's a lot of games there. I don't know. They look like your work in progress, small studio games, which is what you'd expect. But a few things I noticed. One was a lot of card games, lots of card games or turn based strategy games, card adjacent games, which I can see why. that's intuitive. It's very easy to tokenize that there's cards or tokens and Axi did well. but Card games are a pretty niche market. Right, I want to say half the games that were card games. there's no way half the game industry is card games. I don't know. I don't think they're going to do very well. We'll see.
Speaker 1:They might do well. Crypto card games might do well, but, like most of those companies, won't do well.
Speaker 3:Yeah, and some of them were pretty out there And you always. It's always a really bad sign when the when you're someone goes to play the demo and the person at the booth the company person is making all the moves for them and telling them what moves to make, because it means that the game is not at all intuitive to play, and I watched that happen multiple times. Yeah, that's always a red flag. Like the other big category, i saw a lot of shooters and, in particular, extraction either extraction shooters or like extraction MOBA likes one guy, he kept insisting I kept calling it extraction shooters. It's not a shooter, it's like a MOBA. I'm like, okay, whatever Extraction game, it makes sense. Shooters are popular.
Speaker 3:I think all of those games are going to struggle with anti cheat because, first off, shooters are very easy to cheat at because it's fundamentally a dexterity is.
Speaker 3:One of the primary things they test is how quickly can you click on someone's head and computers are much better at clicking on heads and humans And if there's money on the line, whether through wagering or through.
Speaker 3:So for those you don't know these extraction games like Tarkov what they do is you go into the match either, with you got to choose whether to bring your expensive loot gear with you, like your guns and armor and equipment, or your inexpensive stuff.
Speaker 3:You go in, you try to harvest resources, you try to kill other players and steal their loot, and then you get out, and so essentially, you're wagering at the start of the match how many resources you want to bring in with you. So you can think of it like a wagering with extra steps. If you're wagering and you can cheat to get more out of it, then yeah, people are going to cheat, and if there's liquid financial value to these assets, then yeah, they're going to cheat even more. There was an interview with the valorant folks who said like they spent $80 million on the anti cheat, which might be an exaggeration and also riot has deep pockets. But even if you cut that down 10x right, $8 million on anti cheat is a lot. So yeah, i think these games are all going to run into massive problems there.
Speaker 2:So why hasn't a solution scaled for anti cheat, like I would imagine the economics of any solution that they came up for, valorant, would scale to other games. It feels weird to me that an individual developer, just the economics, would work out like a centralized solution should work.
Speaker 3:Yeah, that's a great question I actually was thinking about. So Valk Valve has their like Valk anti cheat? Can third parties?
Speaker 2:use that. Any game can use Valk. Any game can use Valk Any game. Okay, yep, i'm seeing this in the arc, I'm seeing it in Rust Daisy, and it looks like even the Call of Duty franchises use Valk.
Speaker 1:Oh, is it open source, or how much does it cost?
Speaker 2:I'm sure it's a condition of publishing on Steam. I can't imagine that you can use Valk for an off steam distribution. I'm sure it's tied to the platform. And I'm sure, they might charge something underneath the hood.
Speaker 3:Yeah, a lot of these crypto games are being forced off of Steam. I'm sure Epic has the chops to make anti cheat. I'm sure Fortnite has anti cheat. Yeah, maybe there is just a scalable solution. Why did Riot spend so much money on it? I don't know. They wanted to have the best in class, whatever.
Speaker 1:But speaking of issues that these games are going to come into contact with. I also I can't remember I think it was shrapnel that was having like terrible matchmaking issues And I don't know if it was on the matchmaking side or if it was on the actual server side But people were just like it would take them like 40 minutes to get into a match And then, once they got into a match, it was like six other people and then it would drop out. But that's something that I think a lot of like non industry vets don't even think about is matchmaking and anti cheat. They don't think about that stuff when they were designing, because they typically just have a really strong. They'll focus on design. They'll focus on monetization or, i guess, economics, tokenomics more, but they'll maybe forget about some of the live off stuff. They'll forget about some of the like game management stuff. I don't know if you have any.
Speaker 2:They need publishers. This is so frustrating is like so many web three projects need a fucking publisher that has this institutionalized knowledge, like the role of VCs I think has actively harmed the web three ecosystem because they're trying to in house all of this stuff rather than going to a publisher because they have VCs, like they need exit opportunities, and it's frustrating.
Speaker 1:The VCs are pushing for them to develop everything in house. Oh, you guys have this really cool unit because it's a new technology. They're like, if you're developing this, then you might be able to actually sell it as a as a sass play, when we really just want to build the game.
Speaker 3:So I asked around a lot. Obviously I was like Hey, so what's your token model? How are you making revenue? And the vast majority of it was pretty uninspired. It was just the game. Assets are NFTs, which are tradable, whether it's cards or guns or hats or what have you. The thing you would normally buy with in-game monetization is an NFT and you can trade it now and they'll make money on the marketplace somehow. And we've talked about right. We don't think trading fees are actually going to be a huge source of revenue.
Speaker 3:Yeah, i get the vibe that a lot of these are just game companies that got funded by slapping Web3 on. They probably got four times as much funding as they would have otherwise, and so they did that. And now they're like Oh, i actually don't know what to do with these tokens. The only one that I saw that had been interesting thing was shrapnel. They've got this kind of UGC incentive program where so players can make maps, right, but some maps are better than others, and so you can also stake on a map, basically placing a bet that says, hey, this map is going to be popular. And, as someone who is placing a bet on this map, any percentage of the revenue that gets generated by this map I get a share of. So basically, the market will believe map A, b and C will be very popular And so they'll have a ton of tokens staked on them. And then the game says, okay, the market believes these games will, these maps will be popular. Let's feature these maps in the game. So it's a economics driven discovery system Interesting.
Speaker 1:So that's really cool. It's just betting.
Speaker 3:Yeah, it's like you're betting on which? imagine you could bet on a subreddit and say, like this game of skill, chris.
Speaker 2:They're identifying unique assets.
Speaker 1:So I think one of the most less explored, like in the web three game space. I know this is explored in the web three space in general. Betting is huge. There are, i forget, soul casino, like Jesus, it's just it's degenerate like casino land. But I feel like it's not something I hear a lot about in games And from my own personal experience that's basically a legal issue. I'm curious. It sounds like they would face the same legal issues that you would if you were doing betting, but if they're not, i think that wagering and betting has huge potential in web three gaming. It's difficult to implement, i guess for legal reasons. I don't know. That's what lawyers tell me.
Speaker 2:We've gone back and forth about what is the web three thesis, what is it that actually brings to players, and we've gone back and forth on what are the strength of those arguments. I do think one of the ones that, eric, you've identified and you've been a really big proponent of is stakes. Stakes are one of the things that are just compelling here. just the idea that there's a financial asset, it's valuable and it's in this game And there is some sensitivity to that asset's value based on my own agency, like that to me would be the broadest way I've defined stakes, i think is something that we haven't seen. a lot of games and crypto like. there are a lot of equilibrium's here, and one of the equilibrium's could be that crypto survives just on the people who are interested in those stakes games. That might be enough.
Speaker 3:Yeah, i definitely know a friend who got Bitcoin just so you could play online poker, i guess. Coming back to that, what is the thesis of web three? and keeps evolving, but the two that I saw on display were marketplaces and real money gaming. Those were the two main things. The whole decentralization aspect out the window. There's some of this like fully on chain stuff, but none of them had booths because those are like low budget companies.
Speaker 1:Yeah, it's all wagering, it's fully on chain.
Speaker 3:Yeah, yeah, you guys are that. I think the oddball out is like the big game, that a lot of it is like Dark Forest, which looks more like an avant garde, like indie art project than a game.
Speaker 2:That's an amazing description.
Speaker 1:I love that Yeah.
Speaker 3:But and then I guess one last thing is a lot of these games were PC. They're almost all PC. None of them were ready to ship. They were like the closest was like yeah, we'll ship in three months, six months, maybe a few talked about going mobile, mostly the card games, but it seemed like way down the line, which surprised me, because we know mobile is huge globally, we know huge mobile is a huge sector of the gaming industry. But yeah, very, they were very much PC focused.
Speaker 1:I know Epic Games Store is, like super, not hostile towards Web three, which can't be said for some other platforms, so that could play a role.
Speaker 2:So do you come out of this conference feeling more or less positive about the state of Web three?
Speaker 3:Games looked better than I expected. Their business models go to market plans. Revenue models were worse than I expected.
Speaker 2:Oh, so they need a fucking publisher.
Speaker 1:Yeah, I guess so.
Speaker 2:This is what I'm going to do, Eric. I'm going to work. We'll print out t-shirts for all of us. We'll put them on and do you know what they'll say Get a fucking publisher. and we'll walk around Web three conventions. This is they're supposed to help you out. Oh, even better, Get a consultant. A consultant might be able to help you with those things.
Speaker 3:But what publisher is like taking on a bunch of Web, three games.
Speaker 2:I think that's the problem, is that there's only what is it? Amica Brands, Amica Brands.
Speaker 1:The Amico, yeah, yeah, amico.
Speaker 2:Yeah, they seem to be the only publishing.
Speaker 3:They're not really game publishers either. They're like oh.
Speaker 2:Annie Mocha. Sorry, annie Mocha. Yeah, that was it Annie Mocha Brands, they're not really a game publisher?
Speaker 3:What?
Speaker 2:did they all Her? What about Avalanche That's doing the shop now game? It's just a blockchain.
Speaker 3:They're a blockchain. They're pushing games pretty heavily and their chain is pretty game friendly, but they're a blockchain first, so they know how to find Web three D gens and not like casual gamers. What about Gallo games, also a Web three company?
Speaker 2:But their publisher.
Speaker 3:I don't know They have any reach outside of crypto. They definitely.
Speaker 2:But that's okay, though I would just are you questioning about any Web three publisher that you could go to? Like you could go to Gallo games.
Speaker 3:That's true. There are a bunch of games that are published under them.
Speaker 1:I think we have some sort of exclusivity with respect to their tokens, so that's one downside of working with them. I'm not 100% sure how it works, but I know that you have to integrate with their tokens somehow, which is not desirable for some project.
Speaker 2:Why don't you see competing blockchains And I guess we've seen a little bit of this but why don't the blockchains build out publishing arms themselves? So Lana will give you grants, but why shouldn't they build out more centralized services to get games out and exclusive to their platform? Like, why don't you see those platform exclusives with publishing?
Speaker 3:publishing. They do have marketing. I know Avalanche and Polygon have been making big pushes in games, but no services, yeah.
Speaker 1:Could just be lack of experience Weirds me out.
Speaker 2:It's interesting on just like where the economics form to solve these problems, like at what scope is this institution going to arise at? Because, to our point about anti-cheat, like anti-cheat emerged from Riot, when you look at the economics of anti-cheat, it should scale, and so I'd expect the incentive to developing anti-cheat software to be at enterprise companies that can sell it B2B, rather than an individual firm. And yet that's not where this institution arose out of. That's not ultimately what happened, and even we were talking about VAC. Vac happened really only on Steam's platform. Like it hasn't scaled that much. So it's just interesting like where you see, like certain publishing arms emerge. It's not the blockchain level, it might be at a, it's at the monetization level. It's at the monetization type level almost.
Speaker 3:So on the anti-cheat, actually, I think one interesting point here is that the games that need the most the best anti-cheat are the biggest games, right, CSGO and VALORANT And so a B2B solution is going to serve that like large pool of like mid-tier games that only needs mild anti-cheat. And to get to the high level of anti-cheat that VALORANT needs, they either have to do it in-house or the third party has to build something very custom for them. But to your point, now that it has been built, maybe they should scale it out.
Speaker 2:Let's close it out Game thesis stuff. This is something that I've been thinking about for a really long time. There's this idea of a game thesis or just a thesis in general. You mostly see it in talks with venture capitalists, and when they're referring to their thesis, they are referring to their investment strategy. So when they go out and they raise funds from external investors or from partners, what they're offering them is a thesis, a vision of the world that they have, and so it's an argument, more than it is anything else. Not just a vision, it's an argument. It's a structured argument on hey, we think that gaming is going to be a really important industry in 10 years. We should invest in it. And here's the type of things that we think are going to succeed within gaming, with a lot of empirical evidence. Again, it's always formed as an argument. It's the same thing for a PhD Your thesis is an argument for how you see the world. It's an argument for a model. It's an argument for an historical interpretation, but at the end of the day, it is an argument.
Speaker 2:So what if we took this idea of a thesis? and what if we applied it to a game itself? What could we learn by doing that, and that's the whole idea of developing a game thesis, because when I work with teams, what you usually see in their slide decks is something that approaches a series of USPs, maybe some player profiles or some demographics of the players that they're going to go after, but it's hard to really get a stronger structure of what it is that the game is doing. And so I think there are these five questions that I've worked with teams on that have helped me define what a game thesis is and have helped teams think rigorously about their games. So the five questions I ask are what has the market told us? So perhaps there's some sort of market insight or high level soil that you can plant your game in. So, to give you an example, it isn't always about choosing a proven monetization mechanic, it's just a market level insight. Hey, dual stick has arrived in the West, so the idea of dual analog stick controllers on mobile has been something new. That is a very broad market insight. That could be something the market has told us. Then you ask what is the opportunity? Hey, now that dual stick, virtual analog sticks have arrived on mobile, what would be the opportunity? And you could say, okay, maybe we could port more HD games to mobile because we could easily translate the dual analog sticks on console. We can map those controls now to mobile controls and they'll be accepted. There's a lower cost of doing so, so maybe that's the opportunity.
Speaker 2:Then you ask how you'd be the same or how you'd be different, and this is like one of the most important things about our thesis is identifying where you're going to copy things and where you're going to innovate. That is a huge part of really thinking about what your budget is, and when I work with HD studios, they struggle with copying. Mobile is really good at copying things and not trying to reinvent the wheel, making very literal interpretations of another's work and then building on top of it, as in many ways how mobile has evolved. Hd struggles with this, but on the flip side, hd is really good at innovation. They're really good at pushing. How are we going to be different?
Speaker 2:And so then the two last questions we end with and they are closely related is what is the main content pipelines and whether or not there are clear monetization hooks. So in many games, the monetization pipelines are not the same as the monetization hooks. So, to give you an example, we were talking about Fortnite at the top of the hour. There are cosmetics there, and it's certainly true that cosmetics are content pipeline, but there's also things like maps Maps are a really big part of Fortnite or their weapons. There are different parts of the map that they update. There's a lot of different content pipelines. Ultimately, the ones that you're trying to define are the ones that end up driving retention. So what are the pipelines that Fortnite services that maximize returns? Those are the ones that should be identified ahead of time as part of your thesis, because you need to optimize those. Like we were just talking about winning on the supply side. Adopting or at least identifying what your factory is at the thesis stage to me can be a big win for studios and really get their shit in order on. Hey, we got to figure out how to make more of these widgets And I would say the last one is just monetization hooks.
Speaker 2:And, again, like, we need to understand how these games are going to monetize, especially if you're trying to do something new, removing away from traditional models. If you're going to make a match three, it's very obvious what that playbook is. Extra moves is almost always what is going to make hard currency If you're building, let's say, like a shooter, if you're selling characters, like just making sure that they're obvious and clear, folks that you can monetize is a good checkbox to have when it comes to thinking regularly about your game. So, anyways, i think these are things that, when put together, can be a rigorous interpretation of a game and ultimately, can help make a game into an argument. A game should be solving a problem. That's the one thing I would emphasize overall. Like a game should be solving a problem, it is an argument. It is an argument to the market on why they should go ahead and see whether or not this is going to succeed, and I think we should frame more of our arguments in terms of thesis for games. Phil.
Speaker 1:I have a question Do you expect the studio to look at these questions? I guess, sir, is this like a top down or a bottom up approach? Is this do they design with these goals in mind or do they try to come up with answers to these questions conditional on their design?
Speaker 2:Usually we are taking a preexisting design and we're trying to figure out and clarify what it is about this game that it's solving. So it's usually like the answers to these five questions are in most proposals and most pitches. Sometimes they're not, and when they're not obvious or they don't spring out, that's when there's a problem, because when most people see this, they sit down, they're like OK, these are reasonable questions, like we should have answers to this, and when you start to get stumped, that's when you start to have a real problem here, and so there's just a sense of rigor that I think comes with the process that you can unearth that already exists within your game, and I think what that means is that you end up sharpening those things and doubling down on them and getting rid of the noise. Ok, so it is very much.
Speaker 1:We've got this. I feel like a lot of games are able to, at least to me, like the product side is really like the critical side of the business early on. And the red question here what are the main content pipelines? So that's probably like the question that is easiest to answer for a lot of these companies, but then it's the tough thing is really to me, connecting that to the next, to the last question, which is what is, what are your monetization hooks? Because if you can't, you think about crypto is a really good example of this Like, what's the content pipeline? Oh, we have these really cool tradable NFTs that are that have sexy appeal in the game. You can trade them on the marketplace. Ok, where's the monetization? monetization Do they purchase them upfront Or are you trying to get this like recurring fee in the marketplace and to get the thing for free? I think that's I don't know. I guess I don't have much more to say than that's really interesting.
Speaker 3:Yeah, i mean I think walking through this for, like Valorant, as an example, i'm pretty familiar with, let's see. So what the market told them was hey, tax shooters are a thing. Counter strike go was steadily growing at that time And they're like, hey, this genre's got legs, but Counter Strike was the only player right And it's got this modern military theme Like we think we can do this in a more colorful, more broad appeal theme. That's like less in white dudes with helmets and guns. And also the live service for Counter Strike wasn't very good. We can beat them on anti cheat, we can beat them on server stability, beat them on ping.
Speaker 3:However, they were like we're not going to innovate on the gameplay at all. The core gameplay is still fundamentally stand, still shoot right Like stare at the corner and click on the head when it comes out And I got criticized for that. That was part of what reduced. Their dev cost was like we're just going to copy a lot of the core mechanics, even all the guns from Counter Strike, right, it's almost the restraint that's worth celebrating, like it's that question of how we'd be the same or different.
Speaker 2:Defining how you want to be the same is just as important as defining us how you want to be different.
Speaker 3:Yeah, you save a ton of product because making something new takes so much more than just copying something that works.
Speaker 2:Now and I'm totally with you on Valorant having a really strong thesis And again, like, what drives us to say Valorant has a strong thesis? It felt like it was very purposeful and what I was trying to do, to your point, anti-cheat was a problem specifically for people and these competitive shooters. There was a unique benefit to solving this, like they were reacting to a problem that this particular community had And they were able to solve it, not only with Anti-Cheat, but they also added characters. Right, like, how will we be different? They added characters which, again, like the beauty of design things is not when they just answer one question, but when they seamlessly answer more than one question.
Speaker 2:It's not this trade off of like form and function. It's okay, this is beautiful because it expands the PF curve. But to put it, to put in economics curve terms, so when you expand production, you're just not making trade offs. The whole curve is shifting outward. That is what design does. It shifts the curve outward. And so when they added characters, like you get something that's different. You add something that is a main content pipeline and you have a clear monetization hook. So, like they were able to kill a lot of these birds one stone while just hedging against risk and making sure that they copied a lot of things. So like props to them. All right, with that note, we'd like to wrap up the game. Economists cast, episode 11.
