E42: Vertical Progression Is Gaming's Sex & Finally A Web3 Hope

Forget the endless autopsies on why Web3 gaming flatlined, @Chris gets past the clichés and gets into the real pathology: a misdiagnosis of what “play-to-earn” was ever good for. 

• @Eric & @Phil on vertical progression is the most important retention driver for several specific reasons
• The “market for lemons” problem in developer <> publisher relations: why developers can banbooze publishers

Sub to Eric and Chris' Substack here:

• https://substack.com/@ericguan
• https://substack.com/@chriseconomics

00:00 Introduction and Free Trials in Drug Dealing
00:28 Economics of Drug Dealing
02:11 Personal Experiences and Data Collection
03:24 Car Dealerships and Market Monopolies
04:57 Gaming Industry Insights: Clash Royale
19:08 Battlefield 6: Gameplay and Strategy
27:11 Rollerblading Adventures
28:36 Rollerblading Economics
30:16 Web3 Gaming Struggles
34:54 Understanding Play-to-Earn Mechanics
43:42 The Market for Lemons
52:24 Conflicting Data on Gen Z Spending
56:51 The Importance of Reliable Economic Data
01:05:43 Conclusion and Future Topics

Transcript

Speaker: 0:00

Yeah, I frankly don't know any drug dealers who have given me free trials.

Speaker 2: 0:05

I

Speaker 3: 0:05

don't know any

Speaker 2: 0:05

drug dealers now. Neither, neither, to be honest with you. I've never gotten free trials. It's irregular repeat like you're not in your ooi stage. Right. With the drug dealer, they're like, everyone knows what's up.

Speaker: 0:17

The drug does its own user acquisition. I don't have to acquire users or like I, I just have to Yeah. But you

Speaker 2: 0:22

as a drug dealer might want to get someone hooked so they come to you, so you might give them the free sample so they'll come back.

Speaker: 0:28

Yeah. But, okay, so let's say there's 10 drug dealers in an area. The thing is, one drug dealer is taking on the cost of the free trial. If there's multiple drug dealers competing in that area, you know, drug dealer A gives a free trial and then the, the user just goes to dealer B, right? Like, why is, is subsidizing the user acquisition for everybody?

Speaker 2: 0:46

Because you're just arguing It's a homogenous good. So like if this was like a Starbucks coffee that's more heterogeneous, so like they can kind of basically you can't exploit the freeness of it in some respect.

Speaker: 0:57

Yeah. Yeah. Also, I just haven't seen drug dealers give free trials. Like I

Speaker 2: 1:03

never

Speaker: 1:03

encountered that.

Speaker 2: 1:03

I know it's, it's kind of a meme and neither have I seen it either, but I at least wanna play on it. I, well, well, hold on. I think they do for harder drugs. Maybe.

Speaker 3: 1:11

Maybe. I mean, I, I feel like the incentive is stronger for harder drugs. You wouldn't need to do that. Well, oh, I guess the upfront cost is higher. Yeah. I'd imagine that the free trial would only be good for drugs that won't have somebody trying it. It's a user acquisition tactic. Right. It's not retention. Once you're on a drug, you're a retained user. Yeah.

Speaker: 1:31

The drug retains it, but you're, you're retained to the product, but the product's not attached to the specific seller. The product is pretty homogenous. Right. It's a competitive market. Unless, you know, you get into like territory control and like, you know, using violence to enforce local monopolies and stuff. Yeah. Wizards A,

Speaker 4: 1:49

let's start with utility. I don't understand what it

Speaker 2: 1:52

even means.

Speaker 4: 1:54

Everybody has some kind of u tools in their head that they're calibrated. There's hardly anything that hasn't been used for money. In fact, there may be a fundamental problem

Speaker 3: 2:03

in modeling,

Speaker 4: 2:04

wouldn't wanna model.

Speaker 2: 2:07

And I guess we're doing the intros today in case anyone who listens, forgot. I'm joined today by Eric.

Speaker: 2:13

It's been a while. I'm, uh, you know, at second dinner working on Marvel, snap doing data stuff. And you're a drugs expert for Yeah, I mean, I'm probably the, I I used to sell drugs. I dunno, can I say that? Is that illegal?

Speaker 2: 2:25

Dude, this is a very UChicago thing for you to do. Yeah. Yeah. Is this a free market?

Speaker: 2:29

Right.

Speaker 2: 2:29

Did you ever talk to Levitt about this experience? Like No, I

Speaker: 2:32

never interacted with Levitt. Yeah, there's, there's plenty of drug dealer. There were plenty of weed dealers on campus and plenty of them were econ majors. You know, I was, I was not alone in this for sure.

Speaker 2: 2:44

Hmm. Was there any part of the degree that like helped you? Were you doing marginal analysis?

Speaker: 2:50

I tried to collect data at first, and then my friend was like, dude, you can't fucking collect data on my purchases from you, man. Like, what are you doing? And I was date of birth. You're right, I should,

Speaker 2: 3:01

but isn't, isn't eleventh's hole thing is like if drug dealers are so rich, why do they live with their mom? Isn't that this whole thing? Yeah. They're not rich. Is that It's homogenous. Good. Yeah. No, it's

Speaker: 3:09

just most drug dealers, just some kid who consume they, they decided to just acquire the supply for themselves and then chose to redistribute it. You know?

Speaker 3: 3:18

I mean, a dealer is a lot different than a, I mean, I don't think of used car dealers as these rich people. Yeah. It's the, the people importing luxury cars or the people manufacturing the uh, the distributors.

Speaker 2: 3:31

The car dealers are actually like one of the richest classes in America. If you have like a regional monopoly. Yeah. It's actually one of the things people don't know about, but they, they basically have used government law to basically have these localized monopolies over distributing, let's say Hyundai in like a specific geographical area. There's

Speaker: 3:46

a fucked up thing. Hyundai is not allowed to sell directly and like they have to go through a dealership. There's all these like protection laws.

Speaker 2: 3:55

Tesla's, Tesla ran up against this, uh, quite hard. Direct to consumer is very difficult, don't they? They do sell direct to consumer though, don't they? There's some state by state rules and I believe those have also changed recently, uh, or at least those within 10 years. Why have I within the last told have that

Speaker 3: 4:13

the margins for a, a used or a car dealership, does it have to be specifically used or just any car dealership? I've been, I've always been told that the margins are like literally$200 for a vehicle or something like that.

Speaker 2: 4:25

So I mean, there's percent. There's the, there's a monopoly problem we're talking about here, which is like, again, you get exclusive rights and you can basically block direct to consumer, so you're funneling all the people through you. So that would be primary sales. I don't know what, what used cars, like I would say like my uncles used car salesman and Yeah. That's generally what I find loaded. It's low in it's low income people. Right? It's low income People high on credit and need the car to get to work. Like usually there's a financial problem with, with their car or like at the other car and they're, they're low on cash.

Speaker: 4:56

Damn. Yeah. We also got Chris on the cast. Do you wanna do an intro? Oh yeah.

Speaker 3: 4:59

Uh, I'm Chris. I was not the one buying weed from Eric. I was the nerd who was like scared of alcohol. Um, and yeah, I'm an economist at, uh, star Atlas, one of the very few Web3 companies still living.

Speaker 2: 5:16

We have an, an exciting show. Today we're gonna be talking about the drug dealer model of heart currency. Uh, that'll be fun. Uh, we, I think we've already started. We're gonna be talking about a firing, a very prominent economist at the BLS. What the hell is going on? All of us on this podcast deal with data integrity issues, despite the fact that we implement telemetry rather than going out and having survey data. So I think it's time to mouse defense against a fellow empiricist who has to deal with uncertainty. And then we're gonna talk about the market for lemons. I think there's something Eric, you'd like to say about the lemons. Mm-hmm. Make some lemonade.

Speaker: 5:53

I wrote an article about it, but I also, now I look at the article, I think it's wrong. But anyway,

Speaker 3: 6:01

this paper was seminal for a lot of different branches of economics. And then you'll be talking about, Chris, I'm gonna be talking about one of the, one of the fundamental mistakes or the original sin of Web3 gaming. How we need to atone for our sins. Is that the right, the right term in order to overcome this sin. So that's what I'm gonna be talking about.

Speaker 2: 6:26

But before we do, let's talk about what we've been playing.

Speaker 4: 6:29

Got a selection of good things on sales Stranger.

Speaker 2: 6:33

So I hear Clash Royale's been making a comeback, clash Royal making a comeback. Uh, I covered it recently. I, by the way, if you are a listener, unfortunately LinkedIn is the place where a lot of things happen. That and sub stacks and blogs, which we can look out to. Chris and Eric have your, their substack. I dunno guys, I'm getting weak in knees. I might join you soon. But Clash Royale has been absolutely slang. When you look at year to date revenue, it's up something like 39%. It is. An impressive feat for the team. And if you remember in 2013, this game was suffering. It was at its lowest point. I wrote a piece on squad Busters, one of their releases around that time. And when I was looking over their numbers, I was like, shit, squash rail is actually the most important storyline for Supercell, is like getting this game back on track. If you remember, in 2016 when it launched, it had one of the craziest launches. Of like any mobile game there was featuring everywhere. It was a technical breakthrough, if you remember, sync PVP over Cellular, like having a real time combat over a 5G network, or excuse me, even just back then BG or 4G. Really 4G. That was really impressive. They built that category of games and it's been interesting that despite the fact that millions of people have tried to like follow them and build these kind of mobs on mobile, they've all failed. If you look at that genre, the only one that Sensor Tower has is continuing to persist, is team fight tactics and I don't even consider that in the same genre. I think those are far too different. There's just nothing like, there's this game called World War D, which was by Jam City. Soul of Eden was this Taiwanese game I played a lot, but like none of these have been able to grain significant market share.

Speaker: 8:04

You even Warcraft Rumble, right? It was kind of a fluff

Speaker 2: 8:06

disaster, absolute disaster. Just did nothing in terms of revenue and. Remember Blizzard had a hundred people on that game for like two years, despite the fact that their DAU was around 10,000. It was, it was embarrassing. And so like, okay, what did they do to Clash trial to really bring it back from its steps in 2013 when revenue, I think was around 315 million. And just to give you context, second year in it did$700 million in revenue. So it's gone more than half where it was at its peak and it was at, its all time low. And I've been playing a lot and I've just been surprised at what they've done to the game. They've basically just layered on vertical progression. Like this is a big fuck you to all the people who are like paid to win. Which is something that Jakobe two and a half gamers was talking about, and I completely agree with. They've added these things called evolutions in which your card, it's a very clever to design your card that you play in this MOBA arena. It actually has another version, an upgraded version, and that version activates when you see the card for, let's say the first cycle or the second cycle, or the third cycle. It's a variable that they set. So there are four cards in Clash Royal that appear in your, your hand and you cycle through the deck, and after you play the cards, the deck will loop, and so the second or third time that you might see a card, it'll be the evolved form. I think that's a really, really clever design. I don't know, Eric, if you, you've had a chance to think about this one yet or, or seen this. I think that's a really awesome roguelike innovation to have something like that. It adds no design complexity or tasks in terms of real time twitch on the user. It just is about planning and strategy.

Speaker: 9:42

Yeah, and it definitely in the, in these decks, you know, often there's a, a star card that is the one the decks built around, or maybe your favorite card, and this further leans into that, like, oh, you're gonna play 10 Valkyries. Like, okay, well, like, let's enhance your Valkyrie and make it even better. It's great. I mean, the, the only real issue I think is that it leans more into the vertical side, which may be affecting their horizontal monetization, right? It might trap players into a particular deck or a particular play style. I think that's a trade off worth taking if people really like that one play style.

Speaker 2: 10:11

So the, the way they've combated that is they've essentially built the whole metagame around acquiring cards and figuring out how to get the cards that you want to get to be able to level up your character. So if you remember Clash Royale, how do you get stronger? How do your cards get stronger? They all have vertical progression, they all have levels. You need to get duplicates of the card. And then once you get enough duplicates, you can spend gold, their soft currency, and then you can level up the card and they get more powerful. And so the vertical progression is like strong in this game. And so the way that they've combated you having to get the duplicate is that they'll have wild cards, which can be any duplicate. So they've increased radically the amount of duplicates in the economy, and then they also have literally just a consumable item that's level up the card. It doesn't matter how many duplicates you're missing, it basically just rounds up. And of course there's a lot of economic effects to that. Uh, a ENO is the gain lead at Supercell, and he actually gave an incredible talk. Uh, that's posted online. We'll have a link to it in the description on Clash of Clans is economy and the things they need to do to turn it around, which it was having a huge struggle at the time. And this is exactly the playbook he ran, which is we needed more consumables, we needed to make more things consumables. And even though I don't consider this a true consumable, since you're exchanging it for durable, it gives you so much economy flexibility. And they put these rewards everywhere. They just have so much more service area to be able to, to add these things and to solve a lot of player problems. So anyways, there's, there's a lot going on in their economy, but that's what I've been playing. I've been having a ton of fun. Uh, the content is crazy. These card evolutions I was talking about have really been one of the drivers to get revenue to where it is been today. They added this Lucky Drop system recently, but I think evolutions are really gonna be the long-term revenue driver. They've been slowly dripping out these evolutions for each card. And of course there's a separate currency, evolution shards. You need to be able to level up your character.

Speaker 3: 12:05

Do you think that is, is the, um. Pure system that Marvel Snap uses similar enough to this? Or do you really need to have power progression in order for it to be caught?

Speaker: 12:16

As Phil said, they've lean, switched from a pretty wide model to a more vertical model where it's like upgrade specific cards, evolve them even more.

Speaker 4: 12:24

Mm-hmm.

Speaker: 12:26

And Marvel Snap is built with this just going wide in mind. Like literally you cannot upgrade cards, power and the whole, and you have very little agency over what cards you pick. The whole model is built on like go wide. There's a huge collection of cards and we'll just add more cards. And it's interesting to see Clash Royale run in the exact opposite direction and Marvel Snap. There's no systems that can be easily modified to add that vertical progression. Mm-hmm.

Speaker 2: 12:51

Um, and you know, it power, power fucking cells. I just dunno how else to say it. Uh, cells, vertical progression also means. Guaranteed progression. So if you have a 50% win rate, even if you have bots, right, you want people to be able to progress. And so vertical progression means that holding all else constant, you will eventually move far enough along the vertical progression vector that it can more than make up for your gameplay deficits. And if you suck in CCGs, you'll never be better. You're basically gonna have the long run average of your magic skill. I bet it's relatively stable. Wizards of the coast could tell us more, but I bet that's a very stable function in almost all games. Yeah. I don't think people get very better.

Speaker: 13:30

Yeah. But you can work around that with matchmaking and bots and like artificial rank progression. There's ways to deal with

Speaker 2: 13:35

that. Most people do MMR on the backend, but they don't show that publicly. Everyone's faking it these days.

Speaker 3: 13:44

I mean, the only to solve this very problem, the only inherent issue with pay for progression, which pay, pay, pay to win. Mm. And I know this is like the main criticism. I know so many projects that have not. Monetized properly because they're scared of pay to win. The reality is like it's a perception thing. Um, I would doubt that most players can causally, observe or empirically observe, pay for progression, making their experience worse. Right? A lot of players say they don't like it. A lot of players say that it makes their experience worse, but they don't actually experience that. They just might apply that as a reason why they're not having a good time. If they lose, oh, it's because it was paid to win and that's why I lost. But I totally agree. I think it's an incredibly powerful, we just launched the first for to play monetization in our game ever yesterday. We have a free to play game that doesn't cost anything to, to start playing. But we have, uh, battle pass basically more like a subscription, very primitive version of monetization. And it does accelerate how much currency you get every single day for your login, how many crew you get, which accelerate, how quickly you can craft items in the game. Obviously it's a golden cohort, so it's too early to, you know, say, but I mean, 25% of the user base is subscribed to the, to the, um, to the thing, you know, of a thousand users, twenty five, two hundred and fifty of them are paying customers now. And all it does is just accelerate their progression a little bit. Makes them better relative to other people. Um, you know, it's not a hundred x, it's uh, you know, 50% boost. It's incredibly powerful. And does it really make anybody else worse off, especially the non-paying users? I don't know. So I think the issue is really about getting around this narrative. How do we fight this narrative or how do we implement pay for progression and pay for, uh, pay to win without. Hurting the reputation of the game because there are so many projects that I've talked to that have been worried about that.

Speaker: 15:38

There's an important nuance here too, which is like what type of power you're paying for, but uh, this vertical progression where you take your favorite card, you know, like I love hog Rider, just upgrading hog rider over and over. It's a different, you're investing emotionally and you know, financially into this particular card, this particular play style, this particular, you know, identity that you have in the game. And that just seems a lot more compelling than telling people to go wide and buy different things that you'd rather just upgrade the thing that you love. Um,

Speaker 2: 16:08

yeah, I think that's fair too. I would, I would argue that even if you don't monetize power progression, it still is a high retentive factor. Like we sometimes people think throw the baby out with the bath water when it comes to this, because it always ends up being intertwined with. Monetization conversations, but like, even when you look at something like Overwatch, which brought back loop boxes, but they're unpaid. I, I would say the same with the vertical progression. Like to me it's about retention and it's about, you know, guaranteeing that long-term progression that I think gives people a clear path forward. Like if they, if they can progress. I think many players churn and if they're not churning, I think it's because you've created such compelling horizontal gameplay. The puzzles that your new card sets provide are so much fun to solve. That is the utility that they're able to create as recurring. That's why I think we all persist. I mean, we all play magic. The gathering, all three of us for lifelong magic players. I don't think we're getting better, but I think what we like is the new puzzles that we get presented with that experience is we, we like that roguelike.

Speaker 3: 17:14

It's about variety, but it, it is also about the intensity. You can experience the same thing. I mean to use, since we're, you know, we're gonna talk about drugs. Let's say you were to take shrooms before going to see a movie. It's almost like the movie is paid content and then the drugs just enhance the experience in the movie. I'm not a drug like big drug person, so I, you know, I'm just, I'm hype. Hype. I

Speaker: 17:37

understand. So is the movie the game and the, the shrooms are the paper power

Speaker 3: 17:41

or what,

Speaker: 17:41

what, what's the, okay. Yeah.

Speaker 3: 17:43

I'm just saying you can, you can go this way and this way. I don't know why we have to like, choose.

Speaker 2: 17:50

So, so I don't think we have to not choose, but I do think that choice is a garden of forking paths in design. I think just saying, just waking up and saying, Hey, we're gonna add vertical progression to like, let's say magic the gathering, or we're gonna add vertical progression to chess. We're gonna add vertical progression. Like I don't think that's a decision that you take lightly because there's so many gameplay implications. Once that mechanic is introduced, the model changes. Like there's just so many things that are just so, so much different under that assumption.

Speaker 3: 18:21

So has Clash Royale, uh, have they figured it out then since they've now added pay for progression, whereas before it was, what did their model before used to be? Like? How much, what was the main, uh, progress mechanic. So

Speaker 2: 18:34

if you remember, you had to new cards. I mean, it depends on how we define this. The main visual vector was the arenas, which were based on the net number of trophies you have, and that set the cards that were available in the pool. So they would introduce new cards based on those arenas, and you would get rewards when you got to a new arena. That would change the map. Play out a little bit in the background too.

Speaker 3: 19:00

Yeah. So I don't know. My thesis might not stand. Chris, you been playing? Yeah. What have you been playing, Chris? What's up? Uh, I've been playing Battlefield six. I don't have a whole lot to, whoa. It is Phil's old,

Speaker: 19:13

old stomping ground.

Speaker 3: 19:15

Welcome

Speaker 2: 19:15

to Sweden.

Speaker 3: 19:16

My friend. First time pre-order actually played about, uh, I haven't pre-ordered it yet. I, I haven't decided yet. Like, it's one of those games where you really have to commit. Um, I do have a bunch of friends who are playing it, so I think that I would have a good chance at filling out a squad when I do play. But Battlefield is the type of game, like Elden Ring, night Reign. I don't know if I actually talked about night rain. I, I think I did. But like night Rain, it really requires you to at least have some sort of coordination. Um, if you just have a bunch of randos running into battle, you're gonna get absolutely stomped. Um, and the way that Battlefield Six works, I've actually never really played Battlefield before. It's never been my style of game in particular because you, I, you, I think you really do need a good squad in order for it to work. Um, but the way it works is that every death, um. D deducts a point from your score. Each team starts with a certain score. It's, i, it's a couple hundred points and every death subtracts from that. The more of the map that you control your team controls, the more the opponent's death will reduce their score. So if my opponent controls all the bases, then my death counts for, I, I don't remember how many points it is, but let's just say 50 points versus if I was, uh, if we controlled everything, my death would con, would contribute maybe 10 points. So you kind of have this almost like, uh, steamrolling effect, this, uh, gravity where you accelerate the stomp if you kind of dominate the map. Uh, so that makes it very, like, to me it's a group game. I have to have a group of people to be able to play it. So I haven't decided whether I'm gonna, uh, play it.'cause I, I like playing games by myself. Like I don't mind chat chatting with people, but I really to settle into a, you know, dark souls one, dark souls two type of experience where it's just me against the environment. So I don't know if I'll, I'll, uh, do it, but it's definitely, definitely the first compelling battlefield game I played.

Speaker 2: 21:10

So I, first of all, I wish we squatted up. I would've loved to play it. You, we should totally do that up the ocean. I'm curious about is as a new player, this is one of the things we struggled with quite a bit with a franchise, is how do you, so you beautifully explained conquest, by the way, props to you, my friend. How did you know that's how Conquest worked? Just observation or YouTube. There's some in-game

Speaker 3: 21:31

stuff they had in the beta. Well, it was pretty, it was pretty counterintuitive because when I see, uh, like two lines and I'm playing a fighting game, usually it's whoever gets their line across the middle. Correct. First wins. Yeah. But it's the opposite. Mm-hmm. So I think it's, at one point I noticed that my, uh, team score was like de incrementing every time I died. And so I kind of. Thought about that. The only way that I knew that the map domination changed the acceleration or changed the speed at which you lose points was because I was told that by somebody who I was playing with. I would probably not have known that. Um, and I probably would've wondered for a long time, why are we dominating these points? Why don't we just huddle into corner and like not get shot? But it does create an interesting incident mechanism, but I, I do see how it would be confusing. So

Speaker: 22:24

social learning, you know, the community teaches the community

Speaker 2: 22:27

Well, the interesting thing about the mechanic you talked about, right? So it's those tickets, right? So it's the number of response each team gets. So one, it goes away, as you mentioned, when you respond, and then they also tick downward based on how many flags you control. There's a natural rate that decreases. Mm-hmm. So it's a public goods game. There's actually a tragedy to the comments here, because remember, your deaths are actually shared between all people. Your response. There's no reason like your, your death has very little penalty on you. It just subtract from the public pool. And so it basically incentivizes a lot of people just to become like basically chop suey.

Speaker: 23:01

It's just a run in and die like an idiot. Yeah.

Speaker 3: 23:04

That's, that's kind of, I think it's a bad systems design incentive. Do you think that they could solve that with some sort of individual penalty? Maybe every time you die you have a longer

Speaker 2: 23:14

respon? I do think that would be interesting to experiment with. I think remember Conquest is one mode. Conquest is the one with the flags you just mentioned. Conquest is the worst mode for new players because the Genie Coefficient on Kills is crazy. Like the top 1% of people Do you love using the Genie coefficient? What? It's just so beautiful. It's such a beautiful like single number to express things and it's like my

Speaker: 23:37

variance,

Speaker 2: 23:39

uh, that's true. That's true. I don't know. I like the inequality. I just, I don't know, I just, there's an outrage aspect. It, yeah. I mean, genius

Speaker: 23:46

appropriate is just, you know, I think variance is like a more general term.

Speaker 2: 23:50

Fair. Fair. So let's put it this way, there's a very small proportion of people who capture a large number of kills in conquest. And part of it was this brilliant insight, um, by this guy Julian I worked with to calculate, I forget what we call it, like no scope kills or like no look kills where you couldn't see your killer on the screen and you can calculate it with the dot product of where the killer was and where you were, and you could figure out whether or not they were in your view. Mm-hmm. And one of the things that Conquest has is that because each of the maps, each of the flags are displayed in the map, you know, not, they're in different places and so you could be attacked from anywhere. Whereas if you play something like Rush, you are actually moving sequentially through the map. And so you can actually see the frustration in people getting shot from behind and not having a chance to respond because of the way that the remote incentivizes player movement.

Speaker 3: 24:40

Interesting

Speaker: 24:43

on the, on that, in, on that individual incentive thing, you know, about like, you were dying from the pool. I think Star Wars Battlefront had a system where like if you got a bunch of kills, you could play as the upgraded versions of stuff. Yes. So like the

Speaker 3: 24:57

Battle Point system, you get to become dark. It couldn't, that

Speaker: 25:00

incentivize people to not die. Like if you, if you get more than 10 kills in one life, then you get a

Speaker 2: 25:04

Eric. Yes, yes. I fought for five years for this in the French Act. Yes, is turn into a roguelike. So if you remember Battlefield V, there actually was a version of this. It was points and you could, like, you can call in like a flamethrower tank. I always wanted us to go harder in that direction. I think adding that, like this is what kill streaks do in Call of Duty, right? 10 kills, five kills. Like they, they, they increase the, first of all, it's in round progression, in life progression and it makes you want to continue your life. It increases the stakes, it does all of these, these things that I think are really nice and I think almost every FPS should have a version of this Call

Speaker 3: 25:42

of Duty has that. What's interesting about the tanks and the all the different big weapons that you can get in the game is they're also a tragedy. They're also a common good. They're a tragedy of the commons. It's like I can jump into a tank very first minute. I jump into the game. I can in, I'm in a, I'm in a tank and it has an advantage in that there's like a strong, I guess, retentive mechanic where I. Feel good about that. I'm a new player. I've never played the game. Ooh, I get to jump in a tank. That's kind of cool. Whereas I might not experience a tank for two weeks of playing if I'm not very good. But that said, like, that is a natural, that's an asset that's already built into the game. That'll be trivial for them to say, okay, hey, here's a mode where you know, it's, it's free for all. And here's a mode where, you know, you kind of have to, there's not unlimited tanks. You have to earn the tank through kill streets.

Speaker 2: 26:35

Yeah. You, you, oh my God. We could talk about the vehicle problem, right?'cause to your point, right, do I make a tank or do I make another gun? Well, we can really only have one tank on the battlefield at a time. Two per team six. So 32 players, one outta 32, you can't have it really respond that quickly. Like the math. The math of building a game of this scale looks really scary very quickly.

Speaker 3: 26:58

Well, I mean, actually it gets to Eric's drone thing. Yeah, yeah, yeah. From last time it's. Basically just the same. It's the exact same concept. Speaking of which,

Speaker: 27:11

Eric, what you been playing? I've been, uh, I haven't been playing games as much, actually. I've been revving rollerblading a lot. Did I, did I talk about this last time?

Speaker 2: 27:19

Oh my God. The dream of the nineties. No. Is alive there. There's actually a rollerblading ey soft game really called roller champions.

Speaker: 27:27

Yeah, I noticed like there's like skateboarding games. We are making a comeback roller. Sorry, go ahead. Yeah. Um, yeah, I don't know. I've just been rollerblading a lot. My daughter wanted to go ice skating and I was like, this is gonna be a waste of money. You're just gonna fall that over and over. Like here's some roller blades. We're not gonna go until you can stand up and, you know, skate across the basketball court. We went every day for a week to make her learn. And as I was watching her, I was like, oh, that looks fun. I wanna do that. So I got myself some blades. Uh, and it's fun. I, uh, so I used to ski a lot as a kid and I love skiing. It's great, you know, you gotta move fast and like zip around. But, um, it's just inaccessible. You gotta like find a ski resort. You gotta plan a weekend trip, you know, it costs like a thousand dollars or whatever. Like, um, and I'm just like, oh, I can just strap on these wheels and go to any public park and like roller bla free. And like, this is great. Like, I love this. Um, and then while I was rollerblading, I fell and I, uh, sprained my wrist and so I couldn't play video games'cause my, like, my wrist was sprained, so I just went rollerblading instead. So that injury was just because of rollerblading? Yeah. Yeah. I skim one hand. Why mobile games? Huh? Why not mobile games? Yeah. You know, I play some mobile games. I just, I, I don't like mobile games that much. I don't know. I'm not a huge mobile game fan either. Yeah. I've been playing a bunch of Galaxy, but like, it, it's getting kind of old and um, anyway, uh, but yeah, I've been a ton. It's, it's great.

Speaker 3: 28:44

There's not really much economics in rollerblading. Yeah, no. How much does a pair of roller blades cost?

Speaker: 28:50

Um, like a nice one is like$8,000. Um, how much is a pair of roller skates? Uh, pretty different, probably. It's a lot of it depends on the quality of the build and like wheels and stuff,

Speaker 3: 29:00

but I think that roller skates would be more vintage and exclusive kind of douchey. Like, oh, they're leather and they've got these fancy souls.

Speaker: 29:08

It, it does seem like rollerblading is much more popular. Uh, I, one interesting thing, rollerblade is actually a brand name. It's like the Kleenex and, uh, they're actually called inline skates is the generic term. Rollerblading is the term used in the us but like elsewhere in Europe, they mostly say inline skating. Does she get into, she get into like street hockey? I thought about it, but I don't wanna keep, you know, I'm, I'm kind of like a skinny wiry guy. One of my friends is into roller hockey and he was, yeah, you gotta wear all these. He's like, oh, it doesn't hurt. You just wear all these pads, but it does get super hot, so you gotta go at nine in the morning. I don't, I just wanna cruise around.

Speaker 3: 29:40

Yeah, roller ski is a, or rollerblading is definitely a type of, it's a culture.

Speaker: 29:45

Yeah. But it's fun. I think there's a nice mix of techniques where I'm practicing certain maneuvers and stuff. Just in a game you might practice, you know, your combos in a fighting game or your quick scoping or whatever the fuck. There's a mix of that. And then just a raw exercise that's lettuce is aspect I found if, when I try to exercise by doing something repetitive, running on a treadmill or lifting weights, I just get super bored and I stop very quickly. But when I've got some, like, adrenaline, you know, chasing a ball around or something, like for some reason, I'll just do that for way longer,

Speaker 2: 30:16

man. Oh, shall we talk about articles?

Speaker: 30:18

Yeah, let's do it.

Speaker 2: 30:26

Uh, uh, Web3. Everything going all right

Speaker 3: 30:31

over

Speaker 2: 30:31

there.

Speaker 3: 30:34

Web3. Web3 is certainly going through some pains, more like shrinking pains than growing pains. But I think another major Web3 studio shut down this past week. There are very few Web3 companies left, especially Western Web3 companies. I know the Ronan Ecosystem is doing some stuff over there in the east. I know that there are some projects that have seen some success, but even the projects that I thought were gonna be, you know, pretty, pretty sub substantial, they looked fun, have not really been able to catch on and I have been grappling with why, like what is it about? Other than crappy economic models, boring games, crappy this, crappy that, you know, players don't want NFTs other than these kind of treatments that we've seen people apply many, many, many, many times in the past. There are thousands of articles about why Web3 gaming did not succeed and why people don't like Web3 games and, and what they did wrong. And I find all those fine. That's, that's, that's certainly probably applicable to a lot of the cases, but it is not the underlying fundamental problem, right? It's like, what is the sickness? These are all, yeah, once somebody dies, it's easy to, it's easy to, uh, you know, do an autopsy and, and figure out, oh, well, you know, they, they smoked too much and they drank too much and they had too much sugar. So these are the reasons that they died. But then you've got, you know, an old lady that lives to 90 who smoked a pack of cigarettes every single day for her entire life. So that was the thing that pissed me off about all these articles, just like, okay, I get it. Web3 games have made mistakes. Uh, they're not perfect, but. Why was it so systema systematic? I mean, it was just like a systematic destruction since the very beginning, 2021, everybody's euphoric and then all of a sudden nothing comes of it. And there were good games that that came of this, uh, you know, Chris Heatherly, he had a solid project. Decent user numbers, decent user numbers. Over there at uh, mystery Society, you've got this industry veteran who builds a good company with a good product that has decent users. Um, and Chris, he, this industry veteran, great business person, understands games, builds midnights, and somehow still comes out the other end, you know, unsuccessful. And it seems like the only projects that have actually been able to succeed are the ones that launched a token and are still kind of riding off of those token, you know. Profits,

Speaker: 33:05

they've got like a big war chest built up, but it's not, they're making money from the game anymore.

Speaker 3: 33:09

It's not really enough to grow or, or sustain any sort of, um, you know, product development. So I'm trying to figure out, like I have my own experience at, at my company and, and we're still chugging along. We're still building stuff. We are probably the most productive, pure blockchain gaming company out there. Um, I mean we clearly are, we're probably one of the only ones that still exists. And so I wanted to figure out what it was this underlying cause. I didn't think that it was one of these millions of different excuses, bad economics. We've seen bad economics and web two games that haven't failed. Evon Lines had its fair share of economic problems, but they pushed through them. They worked through them. And it kind of occurred to me yesterday as I was going through our data for our new. Free to play version of our game. It's still Web3, it's still on a blockchain, but it's free to play. We've copied the blockchain so that we can make transactions free and we allow players to level up their accounts basically in the game. So instead of buying a ship, you just earn a ship through the game. So you play, you level up, you get a bigger ship, blah, blah, blah. And you know, it's embarrassing'cause it shouldn't have taken me this long to figure out, but I looked at our numbers and I'm like, oh my gosh, we have a free to play product that you click a link and you're brought to the webpage and you can mo you're monetized almost immediately. You have opportunity to become monetized almost immediately by subscribing, and then you're prompted to subscribe every time you log in from there on out. And we have this conversion rate, obviously it's a golden cohort, it's much higher than what we would probably see if we were to expand to 10,000, a hundred thousand users. Um, but we have this conversion rate of like 25% and I'm just like. Oh shit. Now it all makes sense. We can just go to an advertiser. We know exactly what we can, we, we know what we need to be below for our cost per click. Uh, we know what we need to pay to acquire a user. And so what came out of it was this idea that a web through gaming completely misunderstood what it was that paying their players was doing. They treated paying their players as a user acquisition mechanic when it was not. It was a retention mechanic play to earn. Has nothing to do with acquisition of users. I can have, can have a website that distributes a million dollars randomly to every single user who visits the website. If nobody knows that website exists, it doesn't matter. Nobody's ever going to find it. I have to advertise and if somebody finds it na naturally. That is not going to lead to natural, that's not gonna lead to organic growth. Because if I find a website that's giving me a million dollars a day, I don't wanna add competition to the pie or to, to take from the pie. So it's almost, it's almost hurting. And we've actually seen this in our game and it almost hinders user acquisition. So play to Earn is not a user acquisition mechanic on every single web. Three company thinks of it as an acquisition mechanic. If we pay the players more, then more people will come. No more people that are a part of your ecosystem will be retained. That's for sure. And we've seen that. We've seen that the players that we have, we can reactivate them very easily by growing the pie, but we cannot get new players into the eco ecosystem. That game, that that issue has been solved by ad networks. And so no Web3 person understands this because a lot of Web3 people have non-gaming backgrounds, let alone free to play gaming backgrounds. In banking, if I work at a hedge fund, if I have a really good yield, I'm gonna attract other people. That's just the natural nature of the, I don't have to advertise my fund necessarily, although you see the occasional like QQQ AD or whatever, Invesco, but it's a completely different user acquisition model. And gaming and play to earn has nothing to do with acquisition. It has all to do with retention. What if you could pay a user to stick around because you think that there's a really good chance that they might be monetized in the future? Am I willing to pay Chris 10 cents to stick around tomorrow when I'm gonna be able to convince him to spend a dollar? That's where play to earn comes in. I genuinely think that was one of the critical mistakes was not understanding play to earn as an, as a retention mechanic, but as an acquisition mechanic. And so everybody ignored the acqui, the traditional acquisition, uh, funnel. Oh, I gotta pay for users. I need to understand my LTV. I need to understand my cost per click. These basic things that any free to play person, you know, it's second nature completely ignored by many, many Web3. I'm not saying all Web3 projects did this, but I've never once heard a Web3 founder talk about play to earn as anything but a way to acquire users.

Speaker 2: 37:32

Chris, I'm, I'm clapping. I'm clapping, I'm clapping in mind, I'm shaking. This is a brilliant insight. I guess I want to double down on it because I work a lot with Rewarded Apps. This is actually one of the fastest growing app categories people don't know about. And the way rewarded apps work, like Miss Play, and I worked with this other one called Just Play, is that you go onto the app, you play games. Occasionally there are ads you can sometimes monetize in the games directly, you see the ads. Uh, sometimes people click out and download the games that are being advertised. Sometimes they don't. They stay on the platform. And then what they do is they pay you out. Uh, they pay you out with money that you can cash out to gif to PayPal in very little time. And PayPal is really useful because all you need is an email address. There's isn't any this KYC stuff and you can pay people out very quickly in small amounts. Blowing up and what, and Mis Misplay is a another version of this. They will have apps that you can go and download, which will earn cash for you. You can go, there's, there's another one where you can do coupons, but there's basically a bunch of different versions that are popping up of this. And this is exactly what they talk about, is that people think this is a user acquisition mechanic and the user acquisition that it does do,'cause it is a user acquisition mechanic, it's just a bad one and it gets you all the wrong traffic. Yeah. And some people have been trying to solve that. They were trying to solve that with, okay, let's do a Quest system to get tokens. Let's basically ask more of our users. Rather than just giving random people in the Philippines currency, which is the craziest idea I think Web3 ever did and is still doing, is like, I ugh. But to your point, what they say is that it's a retention mechanic. It's PE people are already doing these activities and they want to get paid for them. And that is the Web3 pitch. Ironically enough, I think rewarded is actually the validation of web three's. Strategy in some way properly Understood.

Speaker 3: 39:21

It's the validation of play to earn. Yeah. My and Ted Casanova's or paper on, on video game economics and different monetization models, the whole insight wasn't that play to earn is this movement of capital from the rich world to the poor world. It was about, hey, there is a zero price currently people are willing to to charge you nothing because they make enough off of ads. What if they were willing to give you something? I mean, it's not a, it's not a fundamental shit. It's just a slight, you just, you know, you, you're charging money, charging money, charging nothing. Mm-hmm. And then maybe I give a little bit back. That's the tragic thing is Entropia Universe was probably one of the first play to earn games. You could say Evon Online was a play to earn game because there was a black mar, a gray market for earning and making revenue in that game or making a wage. The critical piece is that those games were played because they were fun and they used traditional user acquisition. Mechanics wasn't. Troia didn't go out saying, oh, you're gonna play our game because you can earn. It was, Hey, there's this interesting mechanic where you can earn. Now what we need is a company, a game like Eve Online that opens up a labor market that's distributed across the whole world and utilizes this open market, this open market economy. And then you end up with a sustainable, successful, fun product that's transferring money around. And I guess you could boil down my argument to Game First Monet, or Play to Earn later game First Crypto later. Um, I think that doesn't fully do justice to the actual problem, though. Everybody knows that you need to make a good game. That wasn't really controversial. That was something that people started figuring out in like 2023. I mean, that's two years too late.

Speaker: 41:09

Whew. Well, we'll give'em the benefit of that 2022. So I guess to offer the Counterpoint is. People would say, well, it's a user acquisition tactic because you can advertise the game as play earth, right? You can advertise the game as like, Hey, here's a fun game that you can earn while doing, and maybe that'll get you more trials than just, here's a fun game, period.

Speaker 3: 41:29

What I would say to rebut that as somebody who has seen this in practice is that that is not what I see happening. I see the vast majority of the major, kind of like Web3 games that exist right now. They're not advertising, my company's not advertising, though. We are gonna start advertising now that we have this free to play game. That's very well understood what that funnel looks like and how much we need to spend on advertising. This is perhaps subjective, but I think that Web3 gaming operates in, in a, in a silo of information. I think that Web3 gaming companies think that their gamers are on Twitter and they're abso fucking lly, not the people that they want to communicate with are not following KG or all these other Web3 crypto influencers. Yet you see the same companies constantly trying to play this playbook of, oh, well let's give, let's give these creators some more crypto coins so that they can promote our game. But the audience that's listening to those people are not the people that you're trying to attract your game. And Twitter is not the platform that is going to get you paying users in your product. Uh, it's just not.

Speaker: 42:36

So the other thought is if Playto Earn is a retention mechanic, but the problem is at the top of the funnel, why not just front load your rewards? Right. Have like a first time account registration reward. And that will function more on the U acquisition side than the retention side.

Speaker 3: 42:51

Well, that gets into a, an inflation issue.'cause then you can just harvest accounts, especially if you have an account. Yeah. Assuming there's some

Speaker: 42:58

kind of verification, some way to stop people from defrauding the system may maybe there isn't. And so that's a dead end.

Speaker 3: 43:03

I mean, that is a huge, huge, huge complication. But if we were to assume that you could Sure. I've often, I've often thought that, uh, a big way to be able to. One way to combat a lot of issues in plate earn gaming is to front load content, front load reward, and limit reward per account. But it's nearly impossible to do either of those things'cause you can't verify accounts. Yeah,

Speaker: 43:42

there's this classic econ paper, the market for Lemons in like 1950s. American slaying Lemon was another term for a shitty car. There's this famous thing about used car sales where as soon as you drive the car off the lot, it's value goes down by like 10%. Um, and you know, if you're looking for a good deal on a car, you can often get a car that's only been driven for a thousand miles and it's a pretty good discount from a brand new car. And, and there's this question of why, right? Why is used cars market seem to have this issue and there's this great paper by Kerl. Called the market for lemons, where he basically analyzes this market and says, there's certain signaling issues here that cause this problem where it's hard to identify a quality used car. He calls it a peach from a lemon, a shitty used car. And there's a few main car issues that causes, one is that the car seller is unable to signal whether it is a good or bad car. So, and the buyer has no way to determine whether there's a, it's a good or bad car. There's no like third party used car rating agency, right? Like they can say, oh, this car model is good, but I don't know about this specific car if it has a problem or not. Right? So since the, the buyer, the seller can't credibly claim this is a good car and the buyer can't credibly verify if it's a good car. The lemons and the peaches get blended together and the market price is actually a blend of the shitty and good cars. And you're kind of buying a loot box as to whether it's good or bad. And so you, you're kind of paying that average price instead of identifying whether it's good or bad. Now, the problem with this is it creates an unraveling effect where, let's say you're a seller, you know you got a peach, right? You know you got a great car, but no one else can tell that it's a peach. And the market price is lower than what it should be. And so you say, well, I got a peach, I'm not gonna sell it.'cause they're paying for, they pay for it like it's a lemon, but I actually have a peach. And so they don't sell their car. And now there's fewer peaches in the market, there's more lemons in the market. And then the price, you know, the meat, average price or whatever goes down and gradually all the peaches leave the market and you've only got lemons for sale. Um, so this is the market for lemons. And obviously this example is specifically about used cars, but this applies to a whole bunch of different markets where there's. Unverifiable quality. Uh, Chris, you mentioned it's a big deal in labor economics, right? Where employers and employees, you know, the employee has a hard time signaling whether they're good or bad.

Speaker 3: 45:55

I think that the lemons paper underpins a lot of labor economics. Ultimately, the lemons paper is an information economics paper. So information economics is basically the study of how uncertainty, uh, plays a role in our optimal decision making in economics. And it's another, it's a reason why I'm often found to say that I don't actually think that there are any irrational people. I think there's just uncertainty. And so I believe that information economics can, or I have experienced that information economics can explain most inconsistencies in behavioral choice theory. So this lemon paper is super critical in labor economics because in labor econ, it's basically the same thing. You have an interview process, you're trying to determine the quality of the candidate, and the candidate is trying to. Lets you know that they're the highest quality possible. The candidate wants you to think that they're a peach, regardless of whether they're a peach, and you are trying to determine whether they're a peach. It's hard to tell whether they are. So this is where, um, kinda the fundamental theory of like statistical discrimination comes from where if you have this, let's say affirmative action or some sort of, uh, policy that shifts the distribution of a specific type of worker. For example, a black worker in the labor force, let's say you have a policy that statistically lowers the mean quality of that group relative to the other group or relative to where they would be if that type of intervention weren't happening. And so the idea is some sort of policy intervention, like affirmative action can lower the quality of a black candidate. And so good black candidates end up getting mixed up with the bad black candidates. And so because of the only ones that face this, you know, this, uh, confirmative. Affirmative action. They're actually negatively impacted where white people aren't because they don't have that policy applied to them. So it's almost basically the exact same thing where information asymmetry leads to an inefficient allocation or an inefficient wage because there's some uncertainty about the quality of a black candidate.

Speaker: 47:53

I think you see this kind of information seeking in games a lot. I, I don't know if this applies directly, but like, you know, let's say a, a game, Marvel Snap releases a new card, right? And you can see the buyers trying to get signals as to, is this a good card? Is this card gonna improve my deck or not? Is what does it fit, you know, archetypes, does it fit into, and they're doing that research in order to get a signal, is this a lemon or a peach? And then on the, on the seller side, the games, whenever they release new content, it's always, this is amazing. It's gonna look at all this new stuff you can do. It looks so powerful. Mm-hmm. They're trying to signal to the buyer, Hey, this is a good card and not a, like a, just a trash card and you should buy it. And so there, there's constantly this kind of quality signaling going on. And if you find yourself in a situation where those quality signals are. Incredible. Or, uh, you know, there's, there's difficulty determining then you, you might end up in this situation.

Speaker 3: 48:41

Yeah. This is why priors are so powerful, because if, let's say there's an archetype that that sucks or historically has sucked, the minute a card comes out that is that same archetype, you, you just kind of assume that it sucks. Um, because you know, there's this familiarity you could apply this to. I think it more naturally applies to other situations that aren't card games, but you kind of get the point. Um, prior history can play a role in determining the quality of a, a new card.

Speaker 2: 49:11

The place I see it most in games is actually in publisher. Developer negotiations. And so for people that aren't familiar, the way most game operations work is that there's a developer, which is the people who quote, actually make the game. They're the ones that have all the engineers. They sometimes have their own IP ready to go. And what the publisher does is they pay capital to the developer. They usually pay a fixed fee every single month to cover the salaries. And what's happened is that every time they make that payment, it builds up in, almost in an accredit account. It builds up as debt. And then what happens is after the game goes on sale, the first debt or the first amount of revenue that's made for the game goes to pay off the debt that was funded during development. So it goes essentially to the publisher to pay them back. And then after that you get a rev split. And so one of the things that often happens is that there's a ton of asymmetric information, so that if you remember, like the developer knows how the game is going, and the publisher only gets. Images or pictures. They, they are trying to do some principle agent monitoring. That's the whole point of milestones. So one of the things that happens is that you'll have to have a milestone, and that will be a kind of a, it's not a specific KPI or target they need to hit. It's like, hey, you know, does the game have sort of this semi objective criteria, this, this of criteria? Like is it fun to play, I mean. You could go through how these milestones are written. Like did they deliver 10 weapons? Okay. You know, what does it mean to have 10 weapons? What is an epic cosmetic, I mean, you can go through all of this laundry list of things, but publishers are trying to close this asymmetric gap. Mm. But because developers know much more than I think publishers do, they can really string these publishers along for many, many years. I mean, we just saw Cloud Imperium. They've been working on the next biohack for 10 years and it's gone absolutely nowhere. And I think this is one of the key reasons you end up in development Hell, is that there's this asymmetric information problem. And I think in this case, the used car dealers that are selling a lemons, I think in many cases it can, it can be developers going s bios shock

Speaker 3: 51:15

still not out. Now that's super interesting. I mean, and, and. This is why it's such an important paper, right? It underpins everything. Anytime there's any sort of negotiation going on where you need to determine the quality of a single good, it happens in VC all the time. It's like, okay, do we invest in this company? Well, how do we determine whether this is a good company? Industry is important. Founders are important. Now, it doesn't necessarily devolve into the market that Eric was talking about where all you end up with are lemons. But it does explain why certain market segments can become lemon markets because all the talent leaves because the market price is too low. And they say, F that I'm, I'm not messing around with that. And then they go to the next thing.

Speaker: 51:59

I had originally looked into this topic'cause I was thinking about like fake news or just journalism in general. There's a lot of like bad information out there and oftentimes it's hard to tell whether an article actually has truthful information. There was that rcna surveys that we got shared around a bit that showed that, uh, zoomers basically were spending 25% less on games or something. Um, and it, it seemed credible. There was a chart, there were citations, but probably not that credible.

Speaker 3: 52:24

It seems like a good transition.

Speaker: 52:34

So this thing was getting circulated that, uh, gen Z was spending way less on games. Mm-hmm. But there's also a bunch of other contrary data that says Gen Z is actually earning more than their cohorts or maybe Gen Z is earning the same amount as their, uh, previous cohorts. And frankly, it's hard for me reading it through this to decipher what's true or what's not. You know, two of these sources claim. Coming from the Federal Reserve offering contradictory information. So,

Speaker 3: 53:01

uh, what, what, so what is conflicting? Is it the, the first chart

Speaker: 53:07

claims Gen Z spends less on games. Where, and that's a, that's a

Speaker 3: 53:11

survey by, uh, news Zero or whatever. Yeah. Survey by crc Ana,

Speaker: 53:16

I don't know who they are.

Speaker 2: 53:17

Rcna. Okay. So notable, they're fine. They used to be Nielsen.

Speaker: 53:21

Mm. Okay.

Speaker 2: 53:22

To the TV people. If you remember the boxes,

Speaker: 53:24

there's qualitative survey data. Um, the next chart is from the Economist, you know, the, the newspaper or the magazine. And according to this, gen Z is earning more than previous generations.

Speaker 2: 53:38

But this is from a working paper from the Federal Reserve looking at medium income after taxes and transfers in the United States. And what's very interesting about this chart is that it's broken down by age, but then it's subdivided by what age? Across each generation. So how is Gen Z at 20 doing, how is Boomer at 22? Like you really gotta do these cohort over cohort comparisons to make these conclusions.

Speaker: 54:03

Mm-hmm. But the weird thing is there's another Fed article, if you go to the next chart that basically does the same comparison, but this chart shows Gen Z earning pretty much on par with everyone else.

Speaker 3: 54:14

I mean, is this just, is this just real earnings? Well, both of them claim to be an inflation adjusted, but the other one is net of transfers and median income after taxes and transfers. Oh. So is this same what

Speaker: 54:28

ta there's like lower taxes or something?

Speaker 3: 54:30

Could be. I mean, it could be. It could be a ton of, and then I'm curious, like on the bottom graph for.

Speaker 4: 54:38

Uh,

Speaker 3: 54:38

we don't really know what the Y axis is here. Um, it's just, just Is this media or average? The, the full article has the charts. This was for people with college degrees. It's tough to compare to completely different sources, apples to apples. Um, at the end of the day, it's all survey data. If you have a different sample, you could see wildly different results. But the Fed doesn't

Speaker: 55:00

use like IRS data or anything?

Speaker 2: 55:02

No, this is real. This is, this is not, this is, this is real data. This is household data. Yeah. The, the sarna one's the bullshit. The bullshit is always the survey data. We always know survey data is bullshit. Survey data bullshit bad except for the bls.

Speaker 3: 55:15

So the Fed uses, um, the Fed uses BLS data to make their de determinations, and a lot of that data is survey data. That is true. But it's a stable time

Speaker 2: 55:27

series. It's a stable regular time series.

Speaker 3: 55:30

Yes. And, and it's consistency that matters. Right? And, and so that's why you can, you want to compare the same institution making the same observations over and over again using the same set of rules. It's less useful to compare two different charts from two different organizations. They might be using different data, they might be using different methodology. They might be, you know, changing the function entirely. You know, I'm not like those two charts were too disparate to be able to even glean anything meaningful. Mm-hmm. I'm less convinced that like there's conflicting evidence. I think the important part is no matter what, there's potentially evidence that they're spending less on video games, which I would be surprised by that to be honest, given how heavily Gen Z uses Roblox and how well monetized Roblox is. Doubtful. Doubtful. So doubtful. I don't, it also makes you question like, okay, what were they counting as a video game purchase? Do Gen Z people think that Roblox counts as video games? Or are they thinking, you know, how much do you spend on Xbox? You know, there's a big difference between, I am sure Gen Z spending on Xbox, PlayStation, and PC is way lower than it is for our generation. I don't think that it's way lower for mobile and Roblox spending.

Speaker: 56:46

But, uh, you know, Chris, you mentioned the consistency of the institution's really important for the trustworthiness of the data. Now, have there been any institutional changes in the, in the Bureau of Labor Statistics?

Speaker 3: 57:03

It's a, it's a dark day in economics. It's a dark, it's a dark. Dark day for data folks. It's a dark day for economists. Um, in the, for the first time in history, a sitting president has fired a BLS Commissioner for suspicion of manipulating data. This has never happened in the history of our country, along with a lot of things that have happened recently that have never happened in the history of our country. Video games industry is certainly going to feel these types of changes. We're already feeling the changes, uh, or the effects of the tariffs. PlayStation five just announced that the price in December is going up to$750 for PS five pro, uh, which is absurd. But the BLS Commissioner for BLS Commissioner Erica Centar, FERBs was fired. Uh, this is a problem for a number of reasons. Beyond political reasons, it's important that the BLS is seen as a trustworthy institution if its trust is put into question. That means that we have to question the reliability of that institution over the last 50 years, a hundred years. I don't remember when it was founded

Speaker: 58:13

and, and specifically the BLS released data that showed the economy might not be doing so great. I think unemployment was higher. Yeah. Or new jobs was lower.

Speaker 3: 58:22

It showed that very few jobs were generated over the last two, two or three months, basically. Beginning of the year was a lot worse than we originally thought. I think we went from adding a hundred and, what was it, 171,000 jobs to like 10,000 jobs. So a massive pullback in the numbers. Now, I don't know what they mean by the numbers are hokey or the numbers are wrong. Um, but what happens at the BLS is they release information. They release statistics on a regular cadence because world financial institutions rely on those statistics coming out. Now, if there's a concern about. Giving it more time, then that's one thing. But the fact that this person was fired specifically for the numbers being bad, it's catastrophic for data integrity in the country. Um, and it's an illogical, it's a fallacy to say that, you know, changing the operations of how things have been done for a hundred years will change the outcome because you could just instruct the BLS Commissioner, Hey, we think that you should maybe adjust this now what do you do? You remove the person and you put in a lacky so that you don't get any questions. But the, the question now is what's the reliability of that data? And I think that this is a moment in time where we need to kind of, as, as pathetic as it is, look at private institutions and see what private institutions can do that are not directly manipulate, manipulated by the government. So are there institutions that track this type of data? There are Nielsen. Out of Chicago Uch Chicago, uh, they collect all purchase history. All purchases that happen on POS systems in the United States and other parts of the world is all collected in the Nielsen dataset. It's a multi terabyte, massive, super massive dataset. Hundreds of billions if not trillions of observations. So we'll have to rely on somebody like that to collect our price data. How do we go about collecting labor data? Well, maybe we start to have some sort of integration with all of these different HR companies that manage companies, HR processes. The point is, if you have an institution that's supposed to be apolitical, that's collecting data over time, over many, many, many, many dozens of years that has never had any intervention or needed any intervention, and now we're calling into question the legitimacy of that organization, we have to call into question the last hundred years of legitimacy of the organization. So it's an extremely concerning thing. Not to mention that removing apolitical public officials is a hallmark of not good things. You

Speaker: 1:01:06

know, a lot of countries publish their economic stats and Russia's in particular, very suspect. Oh, yeah. And most analysts don't even use the government published data. They just kind of do their own. Exactly. It's

Speaker 3: 1:01:14

completely unreliable. You know, it was funny, I think throughout the seventies, maybe it wasn't Russia, but you know, it's like, I, I think it was Russia. They, they reported like 12%. Um, this was Soviet Russia, 12% growth, annual growth or something like that. And it was really like negative two or 3%. But basically the, the critical part is for a long time people thought that Russia was growing, but it was actually shrinking. And it really wasn't until kind of the things got so bad that it was like, oh, well, there's no way that we're possibly growing because everybody's impoverished. There's no way that there's a 2% unemployment rate because everybody I know. Unemployed. And that's why I think that having private institutions tracking this data where it can't be touched by the government is extremely important. This is exactly the reason that people are so concerned about government intervention.

Speaker 2: 1:02:05

The Soviet union's, GDP, is a closely guarded state secret. Even the Soviet planners don't know it.

Speaker 3: 1:02:13

I mean, there have been people who have estimated it. Um, you can actually estimate GDP with, uh, especially over a long timeframe with maps. Um, there have been a couple of econ papers that have looked at, uh, like, uh, satellite imagery over time to try to determine the value of a, of an economy.

Speaker: 1:02:30

Yeah. And I think, but like how many roads are being built or how many lights are on at night, roads,

Speaker 3: 1:02:34

buildings, lights, that's how people are able to estimate North Korea's. Um, GDP,

Speaker 2: 1:02:41

the, the thing that I think is worth pointing out. Because there's, you know, we do shit on survey data quite a bit. We were shitting on it earlier, but the CCPs, which is where a lot of the BL S'S data comes from. I mean, there's a variety of sources. It isn't just survey data. They use this thing called jolts, which is really interesting. They have another thing called CES, which is like, it is a survey data, but it's for employers. There's a lot of ways that they get information and again, like the key, the key, the methodology, if there's a bias in the methodology, then adding more N doesn't make it better. That's one of like the fundamental things you learn in stats. And so I think that's, that's always been an issue, but it is still our first best indicator because it's also updated monthly. And when you're doing survey data at this scale, updated monthly there, there are going to be errors, there are going to be problems, but it's so fruitful to be able to get monthly data on key parts of the economy, even if there's a large error bar. The most important economy in the world. That's such a valuable part of this. And making sure that that data is honest and good is important because it, it's relied on by so many different people. And taking that away takes away so many of those public goods that we always, those positive externalities, we love to say, exist because of all these knowledge spillovers. Like it's always a topic when the GDP numbers are released because everyone's debating from the same set of truth, the same set of facts. And that's what I think is a problem, even if it gets privatized, is that we don't have a common publicly sourced way debate, like sensor towers kind of become that for mobile games because most people have it. But you can't have a debate at that scale with something like sensor tower. You need something public and available. Well,

Speaker 3: 1:04:25

what, I mean, what happens to Wall Street when they don't have reliable data that they can trust?

Speaker 4: 1:04:29

Hmm.

Speaker 3: 1:04:29

It's, it goes back to the market for limits. If all of a sudden, you know, the market for data is unreliable and there's uncertainty, what happens to the market price? Market price drops because of this uncertainty. So a world of uncertainty and chaos is horrible for economic progress. It just cannot, the two are incongruent.

Speaker 2: 1:04:49

Yep. Couldn't agree more.

Speaker 3: 1:04:51

I have those Soviet Russia, GDP numbers real quick.

Speaker 2: 1:04:54

Yeah, they hate that.

Speaker 3: 1:04:55

So, so in the 19, in the 1970s, uh, Soviet Russia claimed that their annual growth was five to 7%. Uh, other estimates, Western estimates were in the two to 3% range. Now, by the time you get to the 1990s, um, estimates are that it was contracting by about negative three to negative 5%, um, throughout the 1990s, which is obviously after the collapse of the Soviet Union, this is when you know all hell breaks loose. Um, and then by 94, uh, roughly 10 to per 10 to 15%, uh, negative growth in GDP. Now, the institution, the government, the, I mean, it's, it's an autocracy obviously. It's, uh. Autocratic government is claiming that they have positive GDP growth and unfortunately, these things unfold over the span of decades and decades.

Speaker 2: 1:05:43

Ladies and gentlemen, we will talk about drug dealers next time and how it relates to free to play. Many things relates to free trials. There's so many things we could talk about. Drug dealers.

Speaker: 1:05:51

You're making our industry look bad, man. You're comparing us to drugs.

Speaker 2: 1:05:55

I feel nothing. I just, I am a valiant defender of this industry no matter what form it takes. Uh, I'm okay with these analogies. Game economists. Episode 42. 42 in the canned. We should teach this to our children. Economics is major, major, major. Everyone has to major in economics. Number one for personal survival. Economics is major.