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
E31: Potty Mouth & "That" Levitt-King Paper
Phil and Chris return from Asia, and it's gachupon from here in-out. Eric talks vertical progression in single player games, while Chris actually agree on the future of web 2.5. The economics of unions weigh heavily: within or between professions?
The crew finally makes it to THE KING PAPER; Eric and Chris make surprising revalation.
Quantity discounts on a virtual good: The results of a massive pricing experiment at King Digital Entertainment
Okay. So the other day I was peeing at the toilet and the cat jumps onto the rim of the toilet right, he's walking on the toilet. He sticks his head straight into the stream, right. So now the pee's getting on his neck. It's splashing everywhere, and so I try to aim around the cat to get it into the bowl and not on the cat. But the cat moves its neck into the path of the stream. It's trying to swat at it with its paws. There's fucking pee slashed all over the toilet and the cat's covered in pee, and so I have to catch the cat and towel it off, because it's wet and your own pee, put it in the bed and afterwards the cat like you know, starts nuzzling my legs and rubbing my pee on my pants.
Speaker 1:It was a nice moment for the cat this is why it's the potty mouth edition.
Speaker 3:Lock the door before you pee.
Speaker 1:Yeah, that helps. But anyway, stupid cats, let's start with utility.
Speaker 2:I don't understand what it even means.
Speaker 3:Everybody has some kind of utils in their head that they're calibrating, there's hardly anything that hasn't been used for money.
Speaker 2:In fact, there may be a fundamental problem in modeling that we don't want to model. Hi guys, great to see everyone again. It feels like it's been forever. Has it been two months?
Speaker 3:It has been forever.
Speaker 1:Y'all are jet-setters. I'm just sitting here at home. Hey Chris, you went to Europe too.
Speaker 3:Yeah, holy Is that the last time we recorded? I think so. Holy is that the last time we think though, yeah, really oh my god. Yeah, I went to europe, then came back for two weeks and then went to singapore and I've been back for about a week and no international travel plans for at least is singapore, the place we think it is.
Speaker 2:What do you think it is? It's just like a rich nation. Like a rich nation, that's like clean, well-functioning, with a healthy food culture. That's what crazy rich asians taught me. Yeah, that's clean, well-functioning, with a healthy food culture.
Speaker 3:That's what Crazy Rich Asians taught me. Yeah, that's probably accurate. It's the most American Asian city I've ever been to. I haven't been to that many Asian cities, but it feels like America and then there's people that are also speaking Chinese and some other languages.
Speaker 1:My impression of Singapore is it's like the autocratic government and liberal economy.
Speaker 3:Yeah, there was a lot of sustainability. I don't know Marketing, but then you also know that it's, yeah, like you said, a very autocratic state, a lot of AC everywhere, but it's disgusting outside. So your system is constantly being shocked from like hot, humid to disgustingly. I guess not disgusting, but like very, do they?
Speaker 1:overcompensate on the ac.
Speaker 3:I've noticed that in hot places they like over crank the ac so there are like certain spots where you'll you there's, there are outdoor. So the area outside of the breakpoint venue was ac'd or like air conditioned and it was outside, but they have these giant vents that are blowing ac. I think the idea is like you get people to come in super fucking expensive. A beer was 18. Everywhere I went it was 18, 18 us now and then 18 singapore. So I think that's probably more like 13 that's fucking great.
Speaker 2:Still, that's swedish prices I went to.
Speaker 3:I just went to. I just went to a liquor store. I got a bottle of whiskey. I was like I'm just gonna instead of buying three beers at the bar. I'm going to get.
Speaker 2:Does that just maximize your drunkness? Per unit Singapore dollar.
Speaker 3:Yeah, that's why I like whiskey, no matter where you go. I bought American whiskey in Singapore.
Speaker 1:You pay import taxes on that.
Speaker 2:This fucking Web3 man thing, think I'm pouring out a whiskey, I'm pouring out a triple for myself you want to tell.
Speaker 1:Tell the listeners what happened I lost crypto money.
Speaker 2:My bank account is zero. I the money was taken from me. I didn't even realize it. I don't know what the fuck happened. It looks like it was transferred out of my account. I don't know what the fuck happened. It looks like it was transferred out of my account. I don't know the addresses. It was $5,000, so it's not the end of the world, but it's $5,000. That was my trip to Japan. That's a lot of anime figures.
Speaker 3:That's a lot of macro transactions. My Star Atlas holdings dumped, I probably lost $10,000 this week. You can just know that there's a bunch of crypto degens that are losing way more money.
Speaker 2:This is why the S&P 500 reigns supreme. Just all hail the efficient market hypothesis. It is the answer to everything. It's the answer to every problem.
Speaker 1:I'm a bogglehead, chris, have you ever gotten crypto scammed?
Speaker 3:No, I only interact with Star Atlas stuff. Can you lie please?
Speaker 1:Just for me, to make me feel better, I lost two grand two and a half grand back in 2014, when Mt Gox got compromised, turned me off of crypto for six years, which I really regret because the market boomed like five times in the meantime. But yeah, so I feel you, chris, it hurts.
Speaker 2:Yeah, so I feel you, Chris. It hurts. I was going to say the FTX situation may have made me feel better, but now it turns out all those people got paid back in full because they invested in Anthropic, the AI company, which is worth like a bajillion dollars now.
Speaker 3:Wait, who got all? What do you mean?
Speaker 3:The FTX people got invested in that. Oh we. Last month, finally, the FTX liquidator, who purchased all of our tokens, stopped selling. They were selling like it was an insane amount. It was a ludicrous amount of tokens every single day. They were selling like a million dollars every single day and I think at the time we were doing like 2 million in volume. They were accounting for 50% of our volume every day. Just sell pressure. It was brutal and things have turned around since they ran out of cash, but then there's war. Brutal and things have turned around since they ran out of cash, but then there's war.
Speaker 2:these are the beauties of exposing your game to a wide open market. Episode. I don't know what. I'm trying to bring back my five thousand dollar lost energy. Uh, I'm trying to. I'm trying to scratch it. Episode 32 uh, I don't know. Web 3 fuck. Web 3 trip to the far east edition. We went places, we did things over the last couple weeks. We're back. I think we're back to a semi normal schedule. We have guests lined up. I do. I am so excited about our guests, like our next two guests. I think the listeners will love our next two guests. I think we're good mix of normal econ and gaming con. I think it's coming up. People who have transversed, they've walked, they're world walkers, which is what we all want, to be right, and as such, as we're coming back, we have a couple of wonderful topics to talk about today.
Speaker 1:I think one that's worth commenting on is unions right now are popular in just America in general, but the World of Warcraft team recently unionized and a month before Microsoft did some big layoffs at Blizzard. Just talk about that a little bit.
Speaker 3:Yeah and oh my gosh, the dock workers in the US, right now on the East Coast.
Speaker 1:Oh, there was a mad rush at Costco to hoard toilet paper. Yeah, I saw that.
Speaker 2:Why is it always the toilet?
Speaker 1:paper, I don't even bother.
Speaker 2:Why is this the first?
Speaker 3:thing people go for. You know what I'm going to do. I just flew through Japan. I'm thinking of just getting a bidet.
Speaker 1:So why you still have to wipe it after?
Speaker 3:you spray it.
Speaker 1:Yeah, okay, but you don't need that much. So shouldn't they be substitutes for one another?
Speaker 2:Yeah, I didn't think about it that way. But you're totally right, when toilet paper rises, shouldn't bidets rise in response? At the margin, we could test it.
Speaker 3:I'm sure we could test it what about towels? No, no, I mean Paper. Towels are not.
Speaker 1:Yeah, they are. What are you talking about, Chris? If you have no toilet paper, if you have no toilet paper in your house, what do you use?
Speaker 3:I'm walking around. I think I would just hop in the shower before I use toilet paper. Really.
Speaker 1:You just have like wet butt, wet poop on your butt. You gotta wipe it with something. What are you gonna wipe it with?
Speaker 2:He's saying the shower head I'm gonna have to walk through the house to get the I'm gonna have to walk through the house.
Speaker 1:Yeah, exactly, you think that cleans it off. I guess you could.
Speaker 2:That's what a bidet is. This is just like a bidet. I always have to wipe after we're talking about triple and stream strength.
Speaker 1:I have run out of toilet paper and used paper towel. It's my go-to. I don't even know what else is a reasonable substitute.
Speaker 3:Plumbing is not thanking you for that.
Speaker 1:No, no, I don't throw it in the. I'm not a monster. I don't throw it in the toilet, it just goes in the wastebasket. I'm going to call it potty mouth edition.
Speaker 2:All right, so Eric's got topics. Chris, do you have a topic?
Speaker 3:Yeah, I think I'll do my duty and report on the state of Web3 gaming. I just got back from Breakpoint, which is the Solana conference.
Speaker 2:Is that the movie Solana?
Speaker 3:conference. That's a movie. There is also a movie that I have not seen but I've seen lots of memes about.
Speaker 2:Isn't this like a future where it's always in the future and it never happens? Like when's the Breakpoint?
Speaker 1:Yeah, what does?
Speaker 3:that name mean I don't know, I have no Anatoly those guys who knows more about the Solana vision, the state of things, I would argue Web3 gaming is not in a good state, just given my experience there, with the exception of Star Atlas and I don't just say that as an employee I think that was really that exciting. But we'll talk more about it in a bit.
Speaker 2:And we have one paper to discuss today. We're continuing the paper trend and it's time, guys. It's time to talk about Steve Levitt, the John Bates medal winner, the author of Freakonomics himself, his paper that he did on Candy Crush with David Nelson, who he had on the cast with King Entertainment Massive quantity discounts on virtual goods, the results of a massive pricing experiment at king digital entertainment. This is public. Anyone can see it. Links to it are going to be in the show notes. No one talks about this. This was a radical experiment and it's time we talk about it. We talked a little bit when julian was on. Now that I've actually read his paper, we should have fun before we do. Before we get to the topics, let's talk about what we've been playing.
Speaker 3:Got a selection of good things on sale stranger on the in in light of all the crypto talk. I've been playing a game that I saw at breakpoint called backwardsgg. It's in beta. It's a web browser game. It's a top-down hack and slash, very similar to vampire survivors. So you've got this unlimited horror that's coming after you. You're beating them up, you're getting treasures, you're giving, getting health potions, you're getting items. All this stuff honestly, like not a bad game, like I'm enjoying it.
Speaker 3:The problem is any out of round progression is locked behind like a crypto purchase. So they have a free-to play version that you can play that doesn't require any crypto assets or anything like that. The funny thing is you purchase in crypto, so you have to purchase, like you can purchase a hard currency or you can purchase the battle pass and these things allow you to, like, start leveling up and actually getting out of round progression. But without making that initial purchase, you have no way to progress. So you're in this town and you're wandering around the town between rounds and you're trying to upgrade your equipment and you can't, especially if you're not a paying player. So all of the progression is gated behind crypto purchases and I say crypto purchases because it's literally just a payment that happens in crypto, none of the actual assets, nothing is actually on chain, there's no NFTs, there's no cryptocurrencies, there's nothing like that. And when I was talking to the founders there, they were like, yeah, we're basically no blockchain at all, we're just accepting crypto payments, which is really interesting because, if anything, you would think that you would want to have the option to pay in crypto but also have just a traditional onboarding process with a credit card or something like that.
Speaker 3:So that was a bit weird. It was also a little bit frustrating. If you're going to do the free-to-play playbook, I've got to be able to progress without spending money. Just having this blanket you can't progress unless you make a purchase is pretty hardcore, and I played a couple of rounds yesterday, played a few rounds, have enjoyed it.
Speaker 3:Like it's, the balance is not perfect. It's not the most enjoyable game. I'd rather play vampire survivors, but it's definitely a fun kind of compelling game. But the fact that I probably have played 20 rounds, 20 or 20 to 30 rounds and I haven't been able to get past the first level, it's impossible. The retention must be terrible. So I think it's interesting this idea of gated progression, but it's like this awkward marriage between web 2 free to play and web 3, like crypto onboarding and then the onboarding. I didn't even talk about that.
Speaker 3:That was a bit of a mess, because so when you log in, you have to connect your crypto wallet. Except, as far as I know, they accept two different crypto wallets. It's on the Solana blockchain, so they accept the two main Solana crypto wallets or not the two main ones, but two of them, which is Phantom Wallet and Backpack. Once you connect that wallet which is a big ask for a traditional free-to-play player who doesn't have a crypto wallet you connect to the application, which I thought was weird because, like I didn't have to spend any crypto whatsoever, I hadn't even made a purchase yet yet I still had to connect my wallet, which I thought was interesting. Um, because that's a huge barrier to entry for a lot of players. The way I see it, there's no reason I couldn't also log in without that phantom wallet connection I mean it's the web3 version of getting your email address right Basically, but the thing is they also so they collected my phantom wallet.
Speaker 3:That's a big ask, even of a crypto person. Ok, I need to connect my wallet to this application. I need to make sure this application is legitimate. I need to make sure I'm doing this in a secure way. But then I also had to connect my Twitter account and I had to connect my Discord. Not everybody has Discord, especially casual, free to play-play players, so asking them to connect to discord is a big ask, and same with the twitter. So I had these three like pretty big things that I had to sign up for before I was able to even get into the game.
Speaker 3:And then there's no blockchain stuff. It's just crypto payments. So it's almost like asking for the credit card before logging in pay. Give us your credit card before you can play Candy Crush, which, once they get to that point, monetization is much easier. Now their monetization is actually not very good, because when you're in the game and you try to click on hey, I want this chest, it says you don't have any money. It doesn't say go buy money. It says you don't have any money. It doesn't give you any way to actually purchase the in-game currency, which I think is hilarious.
Speaker 3:But, you have to go to a different website in order to actually purchase the progression and the things that allow you to progress. Really interesting. I think it's a great example of where the current state of Web3 gaming is, which is basically, if you're accepting crypto payments, you're a Web3 game. There's nothing to do with blockchains, nothing to do with NFTs, nothing to do with cryptocurrencies. You don't need any of that stuff to be considered a web3 game these days and, honestly, I don't really understand the appeal of being this, like crypto payments, web 2.5 game. You're just hurting yourself, you're shooting yourself in the foot by being labeled a web3 game, and then you've got the challenge of having to create a really good, top tier web2 game I think the the bit about connecting your wallet, discord and twitter they're trying to boost their stats for investors is really what it is right yeah, probably, and if I saw the correct program I did a teeny bit of searching on soul scan before this.
Speaker 3:They're doing quite a bit of volume and there's there's three, three and a half or four, three and a half thousand users daily connecting, which is quite a lot in web 3 actually. So if that's an accurate number, then yeah, they're doing okay for web3 man, we got to bring some more like web3 positivity to the show.
Speaker 3:No, it's interesting, right? One of the big promises of web3 is was to transfer money from one person to another, no matter where they are in the world, and that's what crypto payments gives you. By introducing crypto payments into games, that does introduce an interesting kind of component. That said, the other thing that web3 gives you is blockchain, which is a decentralized computer, which is where you can host your game logic. If you host your game logic on a decentralized computer, then it lives on forever, and I've, at this stage, I've made multiple blog posts about this and I've written linkedin posts about this, but it's that, in my opinion, that's the more important part than, like, crypto payments.
Speaker 3:Uh, but that's what people are excited about right now is being able to accept soul, being able to accept usdc, these types of things. So I think it's cool, I think it's a good place to be. Ultimately, I think what probably we're moving towards is fortnite now accepts soul. Fortnite now accepts usdc. Connect your wallet and you can make a purchase at usc. Better yet, connect paypal or one of these things, or some sort of account that uses crypto on the back end and you can pay in whatever currency you want. Potentially and I'm not a legal person but potentially avoiding some sort of transaction.
Speaker 1:That latter route sounds a lot more plausible than the first one, that is, is PayPal allows you to deposit in Seoul, as opposed to Fortnite accepts Seoul.
Speaker 3:As long as they're using the blockchain. If they're just transferring, it doesn't help if a centralized authority is transferring my funds, because then I'm still going through a third party and I'm still paying fees to the third party. The whole point of blockchain is to avoid the third party fee. It's just pure to pure trade and we avoid the. I don't know what the visa payment platform fee fee is. It's three percent, I think. So you avoid the three percent visa transfer fee and then potentially even avoid platform fees.
Speaker 2:I buy into this. I actually do buy into. This is the one part of Web3 I think I buy into was really the stablecoin revolution, particularly in third world countries where it's already been successful and failed. Failed monetary policy countries like very easy to adopt usdc as your currency. It is adopting the us currency without having to do any of the legwork and it being digital. That actually makes a lot of sense and if it, if web3 wins in that regard.
Speaker 2:That's part of this is it doesn't help the web3 games to accept crypto payments, in my view, because there's just not that much. There's not that much payments that are being withheld. There's the counterfactual is not that much additional that that much less revenue. But if they do just start accepting this as a form of payment, that helps the currencies. Right, this is the chicken or the egg problem, right? Do you need a lot of people with the currencies for it to be accepted anywhere, or do you need for it to be accepted anywhere for a lot of people to hold the currency? The answer is whatever. Do any and all of them, but this is something yeah, but I guess are there?
Speaker 3:is there? Are there regulatory costs with accepting different currencies in different countries? And maybe this is a moot point because the countries where it would be costly to accept those payments are not?
Speaker 3:tier one countries. These are not where the majority of revenue is coming from, but I think there's an efficiency to be gained from accepting crypto payments and accepting having this transaction. To be gained from accepting crypto payments and accepting having this transaction. The other the thing where it makes even more sense is when you have a market where there are floating prices for items in the game and you can have people trading back and forth on this market with a cryptocurrency and you don't have to deal with all the fees and all the exchanges and all this like this third party stuff. That said, I still stand by the fact that I think that is one of the pieces, a way to do open source that, to me, is really compelling.
Speaker 2:Open source with digital rights management managed via the blockchain is a compelling vision. My issue has always been that no one actually allows you to do this because they don't give you the rights to anything If I own an NFT I own a hash address and that's pretty much it, and I have no copyright on the actual assets.
Speaker 3:The guns and the hammer still win it's a cold start problem too, like eve frontier. I don't think we've had an podcast since they released eve frontier.
Speaker 3:But they're going to be centralized. At first they're going to be on a I believe it's a side chain or a polygon side chain, I'm not sure which one, but it's going to be in the ethereum ecosystem. So they're going to be using all the Ethereum logic, all the Ethereum token standards, and they're making a sidechain. What that means is that they're going to host that blockchain. A blockchain is just as decentralized as the number of nodes that host it are. So if you have a billion nodes, then it's a pretty decentralized blockchain. I'm trivializing this. But if you have one node or two nodes for a blockchain, then it's not decentralized at all. It's just basically owned by the central authority. It's using the technology of blockchain, but it's not a decentralized blockchain.
Speaker 3:They're going to start with a centralized blockchain, which is perfectly fine as long as they're able to decentralize it and pass off that decentralization to the player base. But the interesting thing about creating a game on your own sidechain is that you know you do have this cold start problem. It's like you need to get people invested in the game before it can become a massive success and before it can even become decentralized, because otherwise it's just centralized. So this thing you're promising cannot come until you have success and the success cannot come until people believe in the thing you promise. It's a bit of a yeah chicken or the egg.
Speaker 2:Eric, what have you been playing?
Speaker 1:I've been playing the new Zelda Legend of Zelda, echoes of Wisdom. It's the 2D one that features Zelda as the main character. It's got this glossy plastic toy, dream-like aesthetic. And the game how do I put it? It's like Baby's Breath of the Wild, like it's very open-ended in how you can solve problems. So the gimmick of the game is you can copy items like a chair or a table or a trampoline or a monster and summon copies of them and you can use those to solve problems. You need to get across a gap. You could build a bridge using beds. You can summon a bird and hitch a ride on the bird you could. There's all sorts of different ways to solve problems. And, yeah, I call it babies. That's why I call it baby's first breath of the wild is because it's about the wild, famously very open-ended in how you approach it. This one's a little more constrained. It's 2d, it's a little easier, more kid-friendly. I've been playing it with my daughter, which is great, she's five. It's like that old classic 2D Zelda, kind of modernized. It's definitely made more so.
Speaker 1:There's an interesting dev story where they interview the developers and they talk about why Zelda's the main character and stuff. They had this whole cloning things mechanic and it was much more about this kind of solve puzzles with all these building blocks. You have puzzles with all these building blocks. You have but players when they playtest it would just play as Link and just slash things with their swords. So they're like, okay, we're going to force the player to not have a sword. What protagonist makes sense with no sword? Oh yeah, let's make it Zelda.
Speaker 1:But my wife commented on how it's a really good female protagonist, because in a lot of modern media they've been trying to make more female protagonists, female heroes, which is great. But one common criticism is that they just take a male protagonist and just gender swap it and call it a day and so you end up with these stories where it's like a woman like hacking and flashing and being like angry and like fighting people and that's not like our traditional view of like feminine power. And I think in this game zelda's she's using her cleverness and her wisdom to solve problems. She's summoninging like an army of like monsters to fight for her. It's much more of a powerful female role rather than just like gender swapping a male hero. They weren't like we need to make a game with Zelda as the hero. They were like this game could use a different hero, because we don't want them to have a sword. What character makes sense? And so I think it creates a much more authentic and great so it's a Zelda game where you actually play as Zelda Link.
Speaker 1:I like the art style what is it? Legend of Zelda Echoes of Wisdom. I'm pretty sure if you just google New Zelda you'll find it. Yeah, zelda Echoes looks cool.
Speaker 3:I need to get a Switch very, very turmeric vibes oh, it is Zelda.
Speaker 2:Why does she look like kirby though?
Speaker 1:because that's 2d. They're trying to make everything.
Speaker 3:It's like mostly a head. How much it costs, I think 60 dollars to for zelda.
Speaker 1:Look like kirby it's a good game. Hey, you're not paying for the art. You're paying for the game design. Yeah, I'm not paying the crypto pay functionality give me a little bit on the game design. Give me a little bit on the game design. Yeah, I'm not paying the crypto pay functionality. Give me a little bit on the game design.
Speaker 2:Give me a little bit on the game design, give me an econ analysis. What's going on? Do they have it? Do they Do these single player games? I guess here's the one thing I should look into, which is the evolution of single player progression, because single player has added a lot more systems design over time and I just haven't checked in the last two to three years, but they have deep systems design from what I remember, and it's all vertical progression.
Speaker 1:Yeah, it's just adapting those RPG elements. The same kind of stuff in free to play games, the same kind of stuff you used to see in RPGs, is just in all games now it feels. I think the main differences in modern box games is that they're shorter and that's just. There's a lot more entertainment option competing for your attention so it's no longer worth bragging. It's a thousand hour game. People like I don't want to play for a thousand hours, I want to play for a solid 10 hours and then be done. It wants to start watching dragon ball z because there's like a bajillion episode but they'll watch like a one season show. It's the same vibe, but I don't know. Box games are solid. They're strong. I think it's a. So is there a gear score?
Speaker 2:is there gear?
Speaker 1:no, no, no, it's so. Zelda's always been interesting in that they've been pretty minimalist on the rpg elements. Like it is, in rpg you get better gear and better weapons and more hearts. It's not like your strength and dexterity and charisma are raising every time you level up and there's an xp meter. The main way you progress is like in zelda games. You get heart containers which increase the number of hearts you have, and you learn more things you can summon as you explore the world. You find more things to copy and summon and so you learn to summon stronger monsters or a wider variety of monsters or better traversal tools. Like you start off with beds and you make like a staircase out of beds if you want to move up, but then you get a trampoline which lets you jump up and then you get these water blocks that lets you swim up. You get more powerful tools over time.
Speaker 3:So how much do they spend on these games, nintendo? Typically Is this like a multi-hundred million dollar endeavor. I have no idea on the numbers.
Speaker 1:This one's definitely on the cheaper end. They remade another 2D Zelda game, link's Awakening, in the same engine and art style and yeah, this was with like a third-party outsource studio and that was like the I think the test run. They were like, okay, if they can make this game and they the art style works, the engine works, let's make an original game using this engine. But we developed the engine to recreate an old game, which is probably a very low cost and like low risk way to develop games.
Speaker 3:Yeah, but yeah, I'm certain it was like way cheaper than a mainline 3d game rather than spending billions each year on maintaining a live service game, just release a new game every six months. Sell 100 million copies. Phil, have you been playing? Uh, pokemon?
Speaker 2:I do want to talk about deadlock more. I've become a degenerate deadlock player yeah, you're deep in it dude, it's all I think about should I try.
Speaker 1:My friend was wanted, so I didn't try, but almost every night playing deadlock oh shit okay all right I might hop on. I hear it's like tf2 with moba mechanics so there is this game there.
Speaker 2:There is this uh game called paladins, which is so. There's paladins and smite, which were like the other attempts at trying to do like a battle arena MOBA, third person shooter. There's also Paragon. If you guys remember Paragon, there's the Epic one, and all of them bombed. This one faithfully captures shooting mechanics in a way that I don't think the others did, although I would love to do a deconstruction of both of them side by side, but like I haven't, I'm trying to do introspection on like why I find deadlock so compelling and why it's working so well for me.
Speaker 2:And there's, like the obvious things, that valve just kills, which is like the theme is steampunk and they just really get that. So, like they, they know how to take the theme to the maximum. So, for instance, when you start the match, when you're going to your lanes, you ride on this electric rail, and the rail is actually an important part of the game. The rail is actually how they do a lot of transportation. It's very similar to the revolution that I think Apex Legends spawned, which is using those flags that you go up to get around the map. So you attach to a flag in Apex. It shoots you all the way up and then you skydive down so you can accelerate different parts of the map. We're trying to think about better ways to transport people across the map and I think that was really compelling. But again, like it's in the world of the ip, all the characters are like kind of steampunky and and have that, that, that magipunk theme, which is really cool, like they get all that stuff. But it seems to me so far and I'm not done with my analysis yet but like they just just it's a shooter, like the shooting does matter, like aiming at a character does matter. The thing that's pulling me away from that analysis is that team fights are very mobile, which is spamming.
Speaker 2:So many different abilities, so many different abilities. There's so many. There's also so many stats on screen. I'm very excited. You can deconstruction, take a screenshot and basically point out to everyone that they have 30 to 40 stats on the screen at any one time.
Speaker 2:This game is an embarrassing rich treasure trove of information that they've decided just to display to the player. For instance, they display how far you are to your cap in terms of power score in the game, or their equivalent. I've never seen a game do that before. It tells you, for instance, how much in-game currency everyone is earning, how much the team has earned. It's telling you what the abilities of each of your teammates are and what gear they've equipped. It's telling what your DPS is. There are three stat systems in this game, or, excuse me, two. There's physical damage and there's spirit damage, and they all have separate gear that's associated with preventing and enhancing that specific damage type. So it's a extremely complicated game.
Speaker 2:It goes back to, if you guys remember, there's this 10,000 game hour thesis. That was really hot. It came out of a lot of the x the x right guys were really hot on this that everyone's going to create like the next 10,000 hour game, and no one really talks about that anymore to the degree they used to. I think. What is it? The TheoryCraft guys, the ones that are doing the MOBA Battle Royale?
Speaker 1:Yeah, they used to say 1,000-hour game a lot. I feel like Malcolm Gladwell kind of fell off.
Speaker 2:Yeah, those Google search trends are correlated, but yeah, just like a degenerate Deadlock player now, and I really need to think about deconstructing this.
Speaker 3:It's become too, I've become too obsessed with it. It's in closed access, right? It's closed, no, no it's free to go.
Speaker 2:Everyone can go now. It used to be. There was a very weird launch. The launch strategy is a whole nother conversation we can have. But everyone can download this now and if not I can send you an.
Speaker 3:I see deadlock. Is it deadlock with a capital?
Speaker 2:L. It doesn't matter, just it just says.
Speaker 1:Deadlock Steam. I'm sure you'll find it it might be closed beta but, they're very loose with the invites.
Speaker 2:That's exactly it, anyone can invite anyone else, I can send you an invite, okay.
Speaker 3:Yeah, I'd be curious to try this. I was not a huge fan of Overwatch, which everybody loved.
Speaker 1:I don't know. I phil and I have different tastes.
Speaker 2:Yeah, you like, I like real games. Did you even play turmeric I?
Speaker 1:love. No, yeah, give it a try, dude. I'm sure you'll love it.
Speaker 2:It's just shit. No, I actually, I actually did play for 10 I don't think there's that. There's, like I try to play like I did play hades, like I can do souls like that, that like I would say, eric and I have that venn diagram overlap. I'm not as degenerate as I am. Of course, what unites us is magic.
Speaker 3:That's what unites all the econ people. I played a game of Commander for the first time a month ago. What?
Speaker 1:did you think?
Speaker 3:It was fun. It was grindy until somebody hit their wincon and then it was over. Probably not.
Speaker 1:I feel like the balance is bad and the free-for-all politics kind of messes with what I want.
Speaker 3:Yeah, it's also random who dies first. It's very masturbatory.
Speaker 1:You're just jerking yourself off and then whoever climaxes first wins.
Speaker 3:That wasn't the analogy I would use.
Speaker 2:Let's go into the topics.
Speaker 1:So unions are the talk of the town. There's that whole dock workers strike, there was the writers union strike a while ago, the UCLA or the University of California grad student strike and recently the World of Warcraft team unionized. I believe it was the entire core team unionized. Microsoft, who said they weren't going to do layoffs like they always do, did a round of layoffs which, to be fair, probably was right, I don't think. I think Blitzkrieg was probably pretty bloated, but the WoW team was able to protect themselves somewhat from this by unionizing.
Speaker 1:I think it's a really interesting case, wow in particular because it's such a specialized product that I think was particularly what's the term appropriate for unionizing for a bunch of neoliberals here. Unions, uh, they can be good, they can be bad. There's times where unions can cause problems. I won't go into that too much. I have a friend whenever I say that he gets mad at me because he was in the, the ucla picket line. But I think this is actually a case where it's actually a pretty positive thing, because wow is such a specialized product. Right, there's all these. It a very old game, so modern game designers aren't making games like WoW or Content WoW. So, like those developers are pretty specialized, but also the means of production are wholly owned by Blizzard. Right, you can't just be like, oh, we're going to make a spin-off MMO, we're going to take the WoW team and leave and make a new MMO. No, those World of Warcraft, the World of Warcraft servers, the Warcraft IP, they're not leaving that game. But on the other hand, that's pretty much all Microsoft owns. The actual labor and development skills are not that transferable because WoW is such a specialized product.
Speaker 1:At this point, in absence of unionizing, they have to work together. But it's a one-to-many bargaining scenario which is pretty bad for the workers. You can't just bring in scabs to make World of Warcraft and yeah, so that team's unionized. And I think if we put an economic lens on this, if they were unionized and Microsoft was one-to-many negotiating as the single buyer, as the single employer to a wire market, they can. They would lower wages, they would offer a lower price and it would produce below the socially optimal level of output as the classic monopoly thing where you like, you shift the price in your favor. It reduces the quantity produced or maybe the quality of world of warcraft, but it extracts more profit for the single monopolist. And by unionizing the workers are able to negotiate for a price, a wage rate, working conditions that are closer to the optimal level of production.
Speaker 2:Do you have any insight into like how a particular team unionized? I'm trying to imagine someone, first of all, who controls team movements. Can I move from team to team? Do I have to join the union if I join the World of Warcraft team? Do I leave the union when I leave the World of Warcraft team?
Speaker 1:That's a good question. I actually don't really know. I've never been on a unionization effort like that. I imagine if I had to guess, I would say everyone who's on the team has to be a part of the union. Contract is that World of Warcraft will only employ union members? That's probably part of the negotiating terms, or can be for unions. And yeah, like you said, if someone joins the team they're forced to join the union and if they leave the team it's not really relevant for them to be part of the union and the question is what counts as a team member?
Speaker 2:So if I'm someone who's an analyst and quote, I sit in central, which is very common for analytics orgs to necessarily be what they might call embedded, but to report on a central org or someone who allocates hours towards the blue graph team Imagine an HR or business representative Are they probably very interested in a union insight? I think, from a collective bargaining standpoint, a country from a collective bargaining standpoint.
Speaker 1:It doesn't make sense for those central functions like HR or analytics to be part of the union because they're not part of that same locked in labor pool, right, they're not. They are much more flexible in where they can move. They're much more fungible in terms of how they can be replaced than the game devs themselves who are on this specialized game and using this old ass code base.
Speaker 2:So what was the actual benefit of them joining the union? Did they extract anything immediately?
Speaker 1:I don't know the full details. I'm sure there's a bunch of negotiations. My guess is they probably did not get hit as hard by the layoffs. My guess is in the future going forward, their wages and working standards will be higher. That's just me speculating. I'm not actually very. I don't know anyone on the WoW dev team or anything, so I don't actually know.
Speaker 2:It'd be very interesting to learn how that was constructed.
Speaker 1:But yeah, I don't know. It'll be interesting to see if there's more unionization efforts in the games industry going forward. I saw people talking about it at gdc a little bit, but it didn't seem like it was that had that much momentum.
Speaker 2:I don't have a good political economy explanation for this. Like people say layoffs, but I, the way I look at it, is like the game industry has never been this good, and I know that's weird for us to say right now, especially amongst layoffs. But we've experienced dramatic growth in the past 10 to 20 years, not just in the number of people employed in the games industry, but also in wages, benefits, opportunities like it you literally could not choose, except maybe during Zerp. You could not choose a better era to be born if you wanted to work in games, and we're all beneficiaries of these. Like the working on the empirical side of games, that's completely new paradigm. That's never happened before. Not only that, like we're seen as having opportunity costs in tech firms which pay even higher, and so they have to keep wages higher for some parts of the organization because of that opportunity cost demand.
Speaker 2:I think this is one thing listeners may not understand is like game designers don't get paid that much. It's actually like people in analytics, the empirical side those are where some of the highest wages are that and product management, which are the two area, and software engineering, of course. These are all positions that have strong demand outside of games, like it's really only the game designers that tend to have domain specific skill and maybe some of the art team has domain specific skills but like it feels like it has never been better and so I'm struggling to understand what's, what's driving this and what people I think I understand from qa. I understand qa is like always treated like garbage but I think it's exactly what you said about um for the wow team who have very domain specific skills.
Speaker 1:This unionization effort makes a lot of sense For a generic analyst who could go to a tech company, go to a healthcare company, go to a game company. There's much less need to do that because the employer and the employee relationship is less constrained.
Speaker 2:So what does that predict then? Do you predict long-run games with tribal knowledge that have become more specialized in their production will convert to unionizations, or they have more to gain from unionization?
Speaker 1:yeah, or other forms of worker empowerment, worker ownership, that kind of thing. Well, I'd be curious what other games we could think of. I'm sure eve is probably very heavily in this camp it's iceland, though like they've, are they've.
Speaker 2:They've likely got sectorial bargaining already yeah, is there another us? Game runescape, they're yagx, they're uk, so probably already into unionization or something. Actually, I'm not quite sure. I don't think they are.
Speaker 1:They got laid off and my boss used to work there but I imagine these like super old games that have the thousand hour games that you were talking about, these forever games like leak of legends, counter-strike, I'm sure those types of riot you think riot might have tribal?
Speaker 3:knowledge that you actually don't understand the logic here. You would think that there would be a less need for a union. The more domain specific that the employee base becomes, the shouldn't the employer realize that they have a very specific set of skills that they were, that they need, that nobody else can satisfy? It almost seems like it should be the opposite the more fungible you are, the more you need a union. That's what I would think.
Speaker 2:Because the employee's going to be in that situation, but the employer does not.
Speaker 3:Yeah, exactly, the employer cannot easily replace talent escape, for example, where you've got somebody who's maybe been. I think even some of the old supercell games might be this like they have been working on these. The game designers, the supercell, have been working on these games for years, like many years, and they have like formulas in their head. They have all this data in their head that nobody else really has tickets basically, uh, they're basically unplaceable. So I don't know, eric, what do you?
Speaker 1:think I'm no expert here, but do you think it would be easier for runescape or, let's say, clash of clans, right? Do you think it would be easier for supercell to replace, like a 10-year clash of clans veteran and replace them with a game designer who just fresh out of school? Or do you think it would be easier for that clash of clans veteran to find a comparable job somewhere else, when they've only worked on clash of clans veteran to find a comparable job?
Speaker 3:somewhere else when they've only worked on clash of clans. I think real like practically the latter. I think it'd be easy for somebody who's super senior in supercell to go knock on the door of any big company and they would say, yeah, come in, even though maybe they don't have the exact transferable skills. I don't know, because the whole thing. You mentioned the word monopsony in your piece about unions, eric, it's like the. It's confusing. In labor economics the supply is the worker and the demand is the firm, whereas I think a lot of the times we think of the firm as the supplier. But anyway, the firm is a monopsony. They're the only, or at least like an oligopoly but monopsony side. I don't know what you would call that Monopony A monopony, monopony.
Speaker 3:But you've got like this very small set of employers and once you are employed by that employer, then it is a monopsony. They're the only person you're able to sell your product to, your labor. So the idea behind this is oh, let's become a monopsony too, Because right now there's a bunch of competitors, a bunch of people on my end of the transaction. I prefer to have a bigger, more power in numbers. I would think that the incentive to create a monopsony on your side, on the labor side, would increase the more fungible you are. And then, ironically, the more fungible you are, the more damaging that monopsony is to the employer, because they're losing efficiency.
Speaker 1:Yeah that would explain why QA unionizing makes sense. Sorry is because they're a lot more fungible.
Speaker 3:Factory workers. A lot of times, these professions that are skilled but not super high skilled, and there are a ton of workers. That's why factory UAW is the largest union in the entire country.
Speaker 2:Yeah, Eric, even more complicated than that. Just we were talking about there's all these different labor types that are pulled together in this union. Normally, it's a specific labor type that unions form around writer, strike directors, producers, SAG, like all are like pretty constrained, more homogeneous professions. We're talking about a team that unionized and that's everything from artists to game designers to imagine, producers. That's a lot of heterogeneous labor with very different wage rates too, very different wage rates between all of them.
Speaker 1:I'm just very curious about the political economy of this yeah, what I imagine is that the some non-linearity to people quitting. If one person quits, let's say, like writers, right, if one writer says, fuck you, I'm not taking this job, it doesn't really affect the labor pool. But if they all quit at the same time or they all go and strike at the same time, it actually has big consequences, whereas if it's random people quitting from the film industry, right, there's a what's called like self-complimentarity. So I imagine it's a similar deal with wow. We're like, if enough people on the wow team quit, even if they're coming from different departments, it like totally impedes that product's ability to turn out expansions and turn out content and stuff. So it's more that that like complementarity between wow workers is strong, even if they're in different disciplines. So it's not necessarily a discipline specific thing. I think just unions are grouped by discipline because disciplines have self-complementarity.
Speaker 3:Did you guys have unions? Phil, you went to grad school right. Did you guys have a union?
Speaker 2:No, not a real union either.
Speaker 3:What's interesting, I haven't really noticed a huge difference between universities with unions and without unions, especially in terms of pay. Pay is actually very flat across different universities for grad programs. But I guess I'm curious if anybody's ever looked at the counterfactual what would wages look like with a union versus without a?
Speaker 1:union. Well, the University of California. They unionized. They had a strike, they got better wages and working conditions.
Speaker 2:This is the eternal debate, chris. This is the never-ending empirical dogfight that every fucking econ professor has like some sort of pet project or like stake in an outcome. The paul krugman study that sets this all up the card. The card study in new jersey, the diff and diff regression what are those studies?
Speaker 2:oh, that, like this, is the most infamous this like sets up the entire minimum wage debate the card study with Provement Card. I forget what year it was. It was the one where New Jersey raised minimum wage and they used New York as a control group and they ran in diff and diff and they found that it did not decrease employment levels.
Speaker 3:It was like the first diff and diff paper.
Speaker 2:Well, not the first, but one of the first big ones. Don't get me wrong, there's been a ton of contradictory evidence.
Speaker 3:A case study for the fast food. Sorry, go ahead. Minimum wage, wages and employment. A case study of the fast food industry in New Jersey. To evaluate the impact of the law, we surveyed 410 fast food restaurants. Comparisons of employment growth at stores in New Jersey and Pennsylvania provide simple estimates of the effect of a higher minimum wage.
Speaker 1:I remember a similar thing repeated for Washington, when they had a minimum wage and similar results as well.
Speaker 2:That one got refuted actually. That's the one that got destroyed, the Seattle minimum wage, the most recent one, that one got wrecked. They found, though, that the effect was mostly in the shortening of hours worked, though, or hours of employment offered, so they ended up shrinking Q rather than P, which, though, are hours of employment offered, so they ended up shrinking Q rather than P, which is also a response Act fact great setup when we look at the paper. Chris has got a breakaway, not the movie.
Speaker 3:Oh, I went over it. I went over it in my discussion about the game I've been playing, but basically there was not a single what I consider Web3 game at the event. It was all Web 2.5. And Web 2.5 just basically means you accept crypto payments on your platform. Now the problem with this is you're pretty much marketing as a Web3 company and probably also working with talent Web3 talent, which is not as good as Web2 talent so you're crippling yourself in a couple of regards. You're working with a team that's not top tier and you're working in Web3, which has a negative stigma among traditional game players. A lot of Web2.5 games I talked about backwards. Uh, it's just really interesting.
Speaker 3:A lot of the companies that were super popular two years ago in the space genopets, aurora, steppen those are all solana blockchain games none of them are using blockchain anymore and they're all releasing web 2 apps. Genopets is releasing a pokemon go as a walking app and steppen is doing the same. It's more fitness focused, but there's literally no blockchain aspects at all. There's no nfts, there's no cryptocurrencies, it's all on. It's all web2 stuff. They just accept web3 payments. So that was the takeaway. For me is holy crap. There's actually nobody doing real web3 stuff, star atlas we're still doing on-chain. So we like have all of our game logic is deployed, all of our accounts, all of our statistics, all of our game logic is deployed. All of our accounts, all of our statistics, all of our everything to do with the game and the players is stored on-chain on a decentralized computer. So even if the company goes out of business, even if the players stop playing, that stuff will always exist there so long as the Solana blockchain is operating and anybody can operate the Solana blockchain. If all the nodes and validators die tomorrow and there's nobody validating Solana blockchain, all it takes is one person to start up their computer and start running a Solana node and they can start to actually validate the Solana blockchain. It wouldn't be very decentralized, but it's always going to exist there on people's computers. Anyway, not any blockchain aspect whatsoever and in fact, even though we were at a blockchain conference, when I asked founders, oh, what are you guys doing on chain? They're like yeah, not really. We're pulling away from the blockchain aspect. We're trying to get away from that and we're trying to create a more easy onboarding process.
Speaker 3:I played the first couple of minutes of GenoPets. I downloaded their app, their new app and you get like this unique little character and it's cool. But then by the time you get your character, you have to put in your wallet details. It's a mobile app so it's a little bit depending on who you are, it might be a little bit more. I only do my crypto stuff on my computer. I don't do it on my phone, so I don't have my wallet or anything on my phone. So I was like, okay, I can't connect my wallet and it's really awkward because, like, why are you making people connect your their wallet if it's all web 2 stuff? Like it's basically I said it earlier it's oh, give me your credit card information before I let you play this game.
Speaker 3:So I think we're in a bit of an awkward spot right now. I think we need to figure out what does that onboarding process look like? Because this is not it, like making people put in their wallet information when you're not actually using any blockchain stuff to begin with. It's just not really a good way to do it. But the good news is, like the gameplay looked cool. Nyan heroes was there. They looked cool. They've got 50 000 d8 giving me shrapnel vibes. There's a lot of hype around it. Let's see how they can. They can execute on that. If you don't know, shrapnel is in deep water right now.
Speaker 3:They're not doing, they are in like people just like they're not in a good financially just or I guess corporate on the corporate side they're not. What happened I?
Speaker 1:missed the news.
Speaker 3:They built an extraction shooter, what, and then what? Nobody plays it, or what it was. Also. There was also some issues with their founders. Let me look at the old game. I can't remember what I know. Something also happened with eluvium, but they are in such a clusterfuck right now. Il Ilve is in deep water.
Speaker 3:The funny thing is, all these companies are struggling and Stepin's literally not even have a blockchain game anymore. They're releasing a new app called Stepin Go. It's a completely different economy, has nothing to do with the current Step token, yet the Step token is taking off. All these tokens are still being traded by the same alg algo bots that have the same bundle of 100 different tokens. They all trade together. So you've got businesses that are actually producing shipping products and you've got businesses who have shut down. They're completely closed their doors and the tokens are still trading. It's insane. So, yeah, those were my impressions of Breakpoint. Stepin was not there. They were like the Solana golden child. For a while they were the hottest shit. That's like web 2.5. It's the worst of both worlds.
Speaker 3:I don't know why people are doing it to themselves. Yeah, and the incumbents, like the Geno pets, the Aurorys and the Stepins, they just have to. They started web three and then put their tails between their legs and started to back away. And they're tails between their legs and started to back away and they already have that label. But I don't really understand why you would come in to the space as a basically a web 2 game but accepting web 3 payments. I'm really curious to see who the first company is that that incorporates web 3 payments, crypto payments but is just a web 2 game. In fact, like I could see roblox doing that if they don't already. I didn't do anything else at the conference.
Speaker 2:I was just you didn't even do any of the crazy rich asian stuff.
Speaker 3:You didn't go to a bottle of whiskey yeah oh, like in singapore, I sat in the pool of the andaz and watched what is oh yeah, that was cool pool at the top of the andaz, which is a hotel. You're like a rooftop. That was sick.
Speaker 1:Yeah, I felt like a billionaire.
Speaker 2:It's the coolest F1 race as well, because at night it's a street race. Everyone's sweaty as fuck.
Speaker 3:We had a couple people go. They said it was amazing. I couldn't justify the.
Speaker 2:Crypto loves to waste money in F1. It's one of their favorite money wasters. Let's do a partnership.
Speaker 3:We to waste money in F1. It's one of their favorite money wasters. Let's do a partnership. We think that Breakpoint is following F1 from now on, because I think they're in Abu Dhabi next December.
Speaker 1:The organizer just loves F1, so they're just.
Speaker 2:Just an excuse to write it off. Oh wow.
Speaker 3:The strange part of Austria we're in again.
Speaker 2:Wow, so weird. The time has come. The time has come. The time has come. All right, let me set up this paper. Let me just set up this paper. This is the infamous paper. Steve Levitt does this paper with David Nelson. This was done a while ago. This paper was actually accepted for review in 2015. They're probably doing the experiment in 2014. So it's almost been a decade since they've done this experiment. David Nelson, who we had on, said they've been doing a lot more stuff since then, but the whole idea here is that when Levitt was approached by the idea was that they had not done a lot when it came to doing pricing experiments.
Speaker 2:So the way that Candy Crush works is that you go into the game. You buy gold bars with real world money, with USD or with pounds. The gold bars let you buy in-game boosters so you can buy pre-round boosters, or you can buy rooster roosters that are activated in game. So if you buy a pre-round booster like a bomb, the bomb is automatically deployed when you start the round, whereas if you buy an in-game booster, you can use that at any time in game like a shovel to clear a row, but what happens is that 95 of players end up spending on continues, which is extra moves that you have at the end of the levels. You may only have 20 moves to reach some sort of target for the level. Let's say, get 20 gem, blue gems. If you don't reach it, you can buy five extra moves.
Speaker 2:For gold bars, which we just mentioned, were priced in real world money. What they ended up so, before they ran the experiment, the way that King employed second degree price discrimination was that they offered a 9% discount on each of the different SKU options they had. So if you bought more gold bars so instead of spending, let's say, a dollar for 10 gold bars, if you spent, let's say, a hundred dollars they would offer you a better value. So you would pay less per unit of gold bars, and each package offered an additional 9% difference or better value per unit of gold bar. So they did not spend a ton of time optimizing about this. They did not spend a ton of time really thinking about if this was the right pricing strategy.
Speaker 2:And so what Steve Levitt does to them is he comes up with three more variants. The first variant is the control group or, excuse me, there are four variants in the experiment. He comes up with three, and of course, we have the control, which is the standard discount, and so what he does is he changes the number of gold bars that were available at each of the price points. So he's not changing the price points, and the reason for that is that King didn't want to be perceived as unfair to its players. They only want to offer more value, and that's perfectly fine. That's a way you can estimate demand curve is. You can do it by quantity rather than price Hold price fixed, and that's what they did here.
Speaker 2:And so in the three discounts that he offers beyond the control group, he has one that's called the enhanced discount, and what that does is it has a much more radical or, excuse me, it has a much stronger price per unit discount across all of the SKUs, and there's a slight increase in the discounts as the package SKU increases.
Speaker 2:So rather than it being a constant 9% for each of the SKUs, it actually accelerates and the discount becomes a little bit more advantageous when you get to the higher price SKUs. He's got a deep discount, and the deep discount is even more radical when it comes to scaling, so the rate of change of the discount gets even higher and higher, and so by the time you're at the highest priced package, which is 1000 gold bars, you're looking at a 50 discount relative to the base skill. And then he's got one more variant called the radical discount, and this is a huge discount increase. This is a up to a 70 at the highest priced skew, better value over the base skew, the base conversion rate. And so he goes out and he offers this discount and what it's done is it's run on a wide variety of players I think it's 12 to 13 million different users end up being in this experiment.
Speaker 3:So the sample size is just absolutely crazy.
Speaker 2:And table two if you're following around on YouTube, if you aren't on our YouTube yet, you should get on that shit and subscribe for the visuals. But we're looking at the main table, which is which is table two, and so we're looking at the different variants here the standard discount, the enhanced discount, the deep discount, the radical discount and of course, the first question we want to know is what is revenue per user and each of the discounts? And what we find is that they're all virtually the fucking same. They're all the same except for the radical discount. We can talk about like why the radical discount had less revenue per user, but the standard discount, the enhanced discount and the deep discount all had just about the same revenue per user.
Speaker 2:Then you go down and you look at some other interesting metrics and this is these were the ones that I think have almost been overlooked in the experiment, because already that's an interesting result, but it's not an interesting result that I think is going to get published or at least get a lot of attention and that is the share of players making at least one purchase. So it was 2.6% of players made at least one purchase in every single variant. So while this experiment was running and I forget how long they ran it for I think it was over the course of three to four months and users were not notified that they were in any sort of variant. The other thing I want to mention there wasn't any special tag, so there's no Hawthorne effect risk here, where they were playing up to the experimenters.
Speaker 3:Real quick question they ran. Each of the variants were run simultaneously, of course.
Speaker 2:Yes, of course, of course, to control for any like feature level effects that were happening or user acquisition effects that were happening. So the discount alone did not incentivize anyone who was a non-payer to become a payer. It looks like we're looking at a flat number of players making at least one purchase. The other thing that's pretty interesting is the game rounds played per user and the levels completed per user. So, remember, you can play a level multiple times if you fail. So that's the other thing. You can divide by you can get a metric that's called attempts for success, which is a really popular metric, and match three to measure difficulty. That's the other thing that kind of pops out of this. But the engagement levels were also the same across each of the variants, just completely flat. So, giving players more currency and again, like so few players made a currency that it would be very hard for this to pop, they ran this thing.
Speaker 2:Absolutely no effect, or at least it doesn't seem to be. In effect, the only effect seems to be at the radical discount and the revenue seems to be lower. And then he has another table three and what he does is he has this arbitrary I don't want to say arbitrary, but he has this distinction between medium value players and high value players, and he's making that same disambiguation chart we saw previously looking at revenues per user, quantity of purchase, all the things we were just looking at, and what's also interesting is that they're virtually all the same across in each of these groups. So if we look at like revenues per user, it's virtually the same in the medium value players. If we look at revenue per user in the high value players, it's virtually the same. The only one that starts to show any difference is again that radical discount is a little bit lower.
Speaker 3:And the radical discount hurt them, the radical discount is a decrease in revenue.
Speaker 1:The radical discount is higher in the medium value player group right.
Speaker 2:Exactly. That's the only time it's higher and it's lower for the high value players but overall it's lower.
Speaker 3:Yes, but overall it's lower for the high value players, but overall it's lower. Yes, but overall it's lower and the impact overall is lower, exactly because the high value players drove so much more of the top line revenue.
Speaker 3:I was going to say they're looking at the external margin and with such a massive sample size it's probably going to be difficult to see a significant change. But the medium value and high value players, that's going to give you that kind of a big, a better view of the intensive margin. And it's still negligible, which is just now. What. What was? Do you guys remember what julian's critique was?
Speaker 1:yeah, it was that the only things. If you scroll up to the earlier discount chart, only the high price skews were discounted. I'm pretty sure it was like $20 and up or something. And while the whales may buy those, a big chunk of the players is only really interacting with those first few.
Speaker 3:Yeah, are there a bunch of SKUs down there?
Speaker 2:Yeah, this chart should be log scale in the bars. Oh man, I already threw on fire. So little of the total revenue share comes from low value SKUs. Like the vast majority of revenue, like probably 90 to 95% of the revenue, came from SKUs which is that true?
Speaker 3:But we're not interested in. We're interested on the extensive margin, like how many people are unemployed, not how many. How much are you know people making right? We want to convert the unconverted users right.
Speaker 2:So I don't give a shit if we convert or don't convert. I want to increase revenue. At the end of the day, I want more money If that comes by converting users no I can increase average revenue per paying user. That, to me, is the flexible metric. That's always been the metric that has most elastic is average revenue per paying user. Conversion is an extremely inelastic metric and I think this shows how inelastic it is Well.
Speaker 1:I think Chris's point is that maybe it would have converted more if we discounted on the low end and not the high end, because they're converting on that.
Speaker 2:But they're not going to make subsequent purchases, though.
Speaker 3:Yeah, maybe, but it's money. So like. The thing is, the high spenders are inelastic. They're going to spend no matter what the price is. They Thing is, the high spenders are inelastic. They're going to spend no matter what the price is. They have a certain amount of money that they're willing to spend. If you decrease the price by 73%, they're still going to buy the same quantity that they were buying before. They're inelastic. These guys on the margin are potentially more elastic. They're going to be more willing to potentially convert. I definitely agree with Julian's critique here. It's like we're not even testing the correct thing we're seeing. If we decrease the price for people who we're already going to spend, do we get more?
Speaker 1:money. Well, it's possible. Decreasing the price will improve the intensive margin.
Speaker 3:But, yes, it would potentially increase the intensive margin. That said, players are spending X amount of time playing per day and they can only use Y number of units of power-ups or gold bars, so they're only consuming a fixed amount of gold bars every single day, these high spenders. So changing the price is not going to impact the spend.
Speaker 1:It's going to decrease the spend or the revenue that might explain why we only see a negative effect in the highest group, in the first three, in the high spenders right. Maybe they're just they're buying some amount and they like just consume their tokens, they use it until they run out and then they have a $100 budget a month or whatever. But in the radical discount, the most extreme discount group, maybe they bought so much that they actually couldn't use it all in their normal play session and so they were like saturated and had leftover power-ups that they had their hundred dollar a month spending budget but they didn't need to use it because they had extra stuff left over that that is the right.
Speaker 2:that is the right, I would argue. Takeaway eric, and that's why I think julian gets different results than the match paper is that we saw that they weren't playing more because of the discount, at least on average, and again I would have loved to see more split outs, but it looks like they're not playing more on average, and so if you're playing the same amount, you're sinking at a constant pace. So you're spending, let's say, three gold bars per attempt, and if your attempts don't change, you're going to sink the same amount on, and so I'm only going to purchase when my balances hit zero. But because I've gotten so much more value per year for all the dollars that I spent, I'm not playing more. Then my balances are just going to be higher than they would otherwise be, when normally they would have hit zero and I would have made a repurchase, and so I'm just making less purchases as a result of that.
Speaker 2:That makes sense to me. I'm just surprised we wouldn't see a little bit more of that at the enhanced deep discounts. Like, the difference between the deep discount and the radical dismount was 20 percentage points, which is significant, but I thought I would still see a little bit of that effect popping up another weird thing if you look at that average price paid per gold bar, it's pretty much the same for the first three groups, even though they're getting big discounts.
Speaker 1:Does that mean it's?
Speaker 2:that this. It's indexed to 100. That's the other thing to keep in mind. Sure, but they? What do you mean by that? So if you look at the bottom table, the table presents results during the experimental period across medium and high value players variables per user, revenue per user, quantity purchased per user, average price paid per gold bar, yada, yada, yada, yada, and levels completed per user and indexed to 100 on the pre-treatment standard discount.
Speaker 1:Okay so this deep discount group. 55% discount, that's big. Their average price paid per gold bar is not that different from the control group. It's only like 10% less than the control group, but it's a 55% discount. So they must not be buying those hyper-discounted SKUs. How could that not be different? It's because they're just buying the low-end SKUs, the undiscounted ones, but they're literally a dollar.
Speaker 3:Yeah, maybe they're just popping quarters. They don't even have what portion of the player population purchased that specifically discounted SKU no, which seems like a relevant metric right?
Speaker 2:Oh man, here's. One of the saddest things about this paper is that the paper is basically three pages. It's three pages and you can just clearly tell that Leavitt got the results back from this experiment, didn't give a flying fuck and just immediately pieces out halfway through the paper. Yep, this didn't work. Who cares?
Speaker 1:on to the next thing, so back to the point, though, average price pay per paid per gold bar, I think, if I'm interpreting this correctly, it implies that not very, yeah, not very many people actually bought these high-end, super large size, large discount things which julian's point, that would have to be 95 of like gold bars, of quantity of gold bars purchased, for this result to be true.
Speaker 1:That just doesn't make sense to me I think you guys underestimate the number of people who so far don't buy in bulk and like who will buy stuff at the beginning, but this is all pooled together.
Speaker 2:So, like we have to look at, we looked at. Let's, for instance, the amount of revenue that each you composed. You're telling me that the sub $10 SKUs were like 90-95% of revenue was generated by those SKUs.
Speaker 1:That doesn't align to anything that makes sense.
Speaker 2:It doesn't have to be sub $10. What?
Speaker 1:is the smallest price that was discounted. If you go up to that gold bar chart discount, they're all on top of each other at certain point. What is? At what point do they actually?
Speaker 3:discount. A quick question though like deep discount, maximum discount, and then there's a number of players underneath. What game was this? This can crush there's like probably not enough information in the tables to be able to understand what the composition looked like, what the the crosstabs looked like.
Speaker 1:It does surprise me the fact that I believe it's 100 gold bars is $10. Honestly, here's my takeaway from this paper is that the experiment was poorly designed and, frankly, I've seen better experiments run internally at game companies. You can't pull in an outsider like Steve Le levitt and john list and I expect them to design the jesus man.
Speaker 2:You are brutal christ dude this. You took a class with him, didn't? You went to you chicago?
Speaker 1:yeah, I didn't take a class it was, it was oversubscribed, it was a market failure okay, so here we go.
Speaker 2:Our experimental intervention took the form of four treatment arms that offered different degrees of quantity discounts. Figure one shows four different price schedules. Prices were held fixed for small purchases 9 to 59 gold bars across the four treatment arms, which is exactly why we see all those dots clustered in the beginning. Only purchases 100 or more gold bars, allowing us to isolate the effect of quantity discounts from the impact of lower prices per se. Historically, about 10% of purchases involved at least 100 gold bars and these purchases account for 45% of revenue.
Speaker 1:If we just assume dollars, revenue is proportional to gold bars purchased, that means 45% of gold bars purchased are in the treatment range, which doesn't explain why we don't see that big of a difference. Although now that we look at this chart here, if you compare the deep and enhanced discounts, like treatment 1 and 2, their discounts are the same at the 100 gold and the 250 gold skew, or same at the 100 and similar at the 250. So maybe those two account for a lot of the purchases and that's why there's a small gap.
Speaker 2:So he's saying that they didn't discount the smaller skews or they didn't add more gold bars to the smaller skews, and I don't understand why. Because he's saying that they didn't do so because it allowed them to isolate the impact of coin discounts from the impact of lower prices per se. I don't understand how that allows you to do that. You should have just added the quantity to the lower skew prices. The other thing is you're saying that the price is varied for only purchases of 100 more gold bars and historically, about 10 of purchases involved at least 100 gold bars. 10 involved at least 100 gold bars. Are they saying 90 of purchases were less than 100 gold bars? 10% of purchases involved at least 100 gold bars? Are they saying 90% of purchases were less than 100 gold bars?
Speaker 1:Yes, that's fucking insane. I think that's purchase counts, though, not purchase revenue.
Speaker 2:That's still fucking insane. It's 90% of purchases were happening in the area that they didn't discount and they're saying that 55% of revenue happened in that early area. 55% of revenue happened before they hit 100 gold bars.
Speaker 1:So 55% of revenue is happening in the non-discounted area, apparently, yeah, and so the other thing that this would suggest that or it's possible that there's other ways to spend money that aren't captured, but it's like ways to spend that aren't gold bars, that they're including in the denominator or something.
Speaker 2:The small differences in revenue across treatments disguise significant impacts on quantities purchased Relative to the standard discount treatment. The progressively deeper discounts drive quantity increases of 6%, 12% and 44% respectively. Customers who responded to discounts by buying larger quantities use them. Use the items they purchase quickly rather than saving them, even though the items are storable. These differences are all highly statistically significant. The average price falls by similar proportions, however, leaving revenue unchanged we'd love to see the effect by skew yeah, that's the other thing that isn't in the julian paper is.
Speaker 2:He doesn't tell us when he's doing the discounts on the skews. He doesn't tell us when he's doing the discounts on the SKUs. He doesn't tell us what SKU drove the value.
Speaker 1:Do you think this was censored by the company because they thought it was?
Speaker 2:No, what do you think? Is this bad?
Speaker 1:methodology by the researcher.
Speaker 2:I think just Levitt just doesn't care and it gets published in PNAS, which is an okay.
Speaker 1:I will say this as a meta commentary on the paper. I think it's a great way to highlight hey, you can do these kinds of experiments in games. It's super easy to run the A-B test. You can get really significant results. But I think it also highlights that the people doing the analysis, and potentially even the experiment design, didn't really understand what they were doing, like the fact that this isn't broken out by SKU, right when the treatment effect was different by SKU. And then this percentage discount has these weird handcrafted curves here. I don't know, it's bizarre.
Speaker 2:So they say first, varying quantity discounts across an extremely wide range had almost no profit impact in the short term. Second, almost all of the impact of the price changes were among those already making a purchase. Radical price reductions induced almost no new customers to buy. And third, there was heterogeneity in response, especially to the radical discount treatment, which led to an increased revenue for medium value customers but a sharp reduction in value from high value customers. Finally, we observe a few key differences in behavior in post-experimental period, but these were pretty much all a walk in terms of habit formation. They don't think these results generalize either and they say from a corporate perspective, the experiment was a failure. Yeah, okay.
Speaker 2:Maybe I'm fine with those conclusions.
Speaker 1:I don't think it was the best experiment design or analysis.
Speaker 2:The problem with this andian's paper is they don't do analysis on the skews, the skews and the skew prices. They talk a lot about them. It's the centerpiece of the strategy, centerpiece of this experiment, and they just don't. They just don't discuss it enough. It's where all the action's happening. It feels like they don't even fucking give us a 100% stack bar chart of what the distribution is pre-post between revenue and the different skew price points. That's insane. It's like such an important piece of information. Yeah, this is a smoking gun you've discovered I don't know.
Speaker 1:People out of context are bad at studying things in context no, it's okay, let the beast awaken.
Speaker 2:All right, shane mcconnell's cast elbow 23 peace out. See everyone soon.
