0:00

I will say, I want to give you guys just a

0:02

pre-recording compliment. I

0:04

forget what it's called. There's a name for it. But basically,

0:07

it's where you're reading something in the newspaper

0:09

about something that you were a part of, right?

0:12

And you go, people don't know anything,

0:14

right? This is so damn stupid. And then you turn

0:16

the page and there's something about foreign

0:19

affairs. And you're like, wow, super interesting.

0:21

Like the thing you know about, you don't apply that

0:23

same logic to the second thing. And I have to say,

0:25

I have so much trust in your podcast

0:28

because the stuff that you do that I

0:30

was a part of, and there are many things you've done

0:32

that you don't know that I was a part of, that I was a part

0:35

of. You guys are so good.

0:37

Like it's so accurate. It is really remarkable.

0:40

Somehow you're able to tell a story

0:42

that is actually

0:43

as close to true as

0:45

true exists. Well, the secret is we don't have people

0:48

on the show. So this is

0:50

not going to be that.

0:53

Who got the truth? Is

0:56

it you? Is it you? Is

0:58

it you? Who got the truth now? Is

1:00

it you? Is it you? Is it you? Sit

1:03

it down. Say it straight. Another story

1:05

on the way. Who got the truth?

1:09

Welcome to this special episode of Acquired,

1:12

the podcast about great technology companies

1:14

and the stories and playbooks behind them. I'm

1:17

Ben Gilbert. I'm David Rosenthal. And

1:19

we are your hosts. After our deep

1:21

dives into Nintendo and Sega, we

1:23

wanted to do something special to cap

1:26

off our gaming extravaganza.

1:28

And we wanted that something to be a special

1:30

with guests who are actually in

1:32

the belly of the beast of the gaming industry.

1:35

Fortunately, we knew just the people.

1:37

So today our conversation is

1:39

with Mitch Lasky and Blake Robbins. Mitch

1:42

is perhaps the best games

1:44

investor of all time, generating

1:46

literally billions of dollars of returns from

1:49

early investments in

1:50

Riot Games, Discord, and that

1:52

game company, not to mention Snapchat.

1:55

Mitch was also an executive vice president

1:57

at both EA and Activision. and

2:00

took his own gaming company, Jamdat,

2:02

public in 2004. Mitch,

2:05

of course, was a partner at Benchmark in

2:07

the Fab Five era that we chronicled

2:09

on our Benchmark episode. Which actually

2:12

we

2:12

stole that line from Mitch when

2:14

we were talking to him in the research, and that's how he

2:16

referred to it. So we are joined by Mitch and

2:19

Blake Robbins, Benchmark's current principal,

2:21

who has also come up on previous

2:24

episodes.

2:25

Blake is one of the best thinkers in the world

2:27

on the gaming landscape today, and Mitch and Blake

2:29

just launched an incredible podcast

2:31

called GameCraft that chronicles the history

2:34

of the gaming industry from the business

2:36

perspective.

2:37

And one other thing, if you are listening

2:39

to this on the audio feed, we did

2:41

a full video on this. It's up on YouTube.

2:44

You can find it on our website or there. We

2:47

did it at Benchmark's Woodside office.

2:49

And it turns out they have another

2:51

triangle table. So

2:54

we have now recorded acquired episodes at both

2:57

of the famous Benchmark dinner tables.

3:00

Well, listeners, as you know, we have an interview show called

3:02

ACQ2. We've

3:04

had back-to-back killer discussions with the CEOs

3:07

of Retool and AngelList. AngelList

3:09

in particular was like very mind

3:11

expanding for me on how to leverage AI

3:14

to get

3:14

huge, huge leverage in your business,

3:17

like specifically on the operations

3:19

side of the house. And I think Avlok

3:22

is one of the best thinkers about how to

3:24

apply AI to kind of turn

3:26

something that

3:27

looked more like a services business historically

3:30

into a true tech venture

3:32

scale opportunity. So you can find ACQ2

3:35

in any podcasting app.

3:37

Join the Slack. There's an incredible discussion of

3:39

gaming history going on right there right

3:42

now, including a bunch of episode follow

3:44

ups where David and I are learning from you all

3:46

in real time, acquired.fm slash Slack.

3:49

And without further ado, this show is not investment

3:51

advice. David and I may have positions in

3:53

the companies we discuss. As may our

3:55

guests and, of course, their firm, Benchmark Capital,

3:58

today. Yes.

3:59

And this show is for informational

4:02

and entertainment purposes only.

4:04

Well, I think an appropriate place to start

4:07

might be what inspired

4:09

the two of you to go talk

4:12

about this and create Gamecraft and create

4:14

this podcast. Well, I think after

4:16

I retired from benchmark a couple of years

4:18

ago, retired from active investing, obviously

4:20

the glide path out of venture is kind of a long

4:23

glide path. So I'm still involved

4:25

to this day. But after I retired

4:27

from frontline investing,

4:29

I really started to think about ways that I could

4:32

be useful and helpful in the video

4:34

game business and whether that was doing boards

4:36

without compensation and or whether it was helping

4:38

young entrepreneurs or

4:40

mentoring younger venture capitalists.

4:43

And I thought, you know, maybe

4:45

I should just write a book. So I

4:47

was very much inspired by a book

4:49

that I think you know as well. Right. The

4:52

Genius of the System by Thomas Schaff.

4:54

And that book is a remarkable

4:56

book, in my opinion, because it really takes

4:58

the business side of the film

5:01

business back from the 20s to say the 50s

5:03

and really elevates the business side

5:05

of the business and shows how

5:07

a lot of what we understood to be the

5:10

creative part of the business really was a collaboration between

5:13

creative people and business people. And

5:15

I've always had that same sense of the video game

5:17

business. And so I thought it might be fun to

5:19

do something in that vein where

5:22

we showed what was happening on the business

5:24

side and how it was informing what was

5:26

happening on the creative side. And I think the common

5:28

narrative is video games are something

5:30

created by creative geniuses, a Miyamoto

5:33

type person. And then

5:34

the business model sort of rearranged around

5:36

the creative vision, having consumers

5:39

that flock to it. And I think already

5:41

you're introducing this interesting wedge of

5:44

actually there are very clear business models

5:47

that guide where the water of creativity

5:49

can flow. And that has been for

5:51

the last 50 years what has defined the video

5:54

game industry, not the other way around. Yes, and not

5:56

to take anything away from people like Mr. Miyamoto

5:58

who...

5:59

I have infinite respect

6:02

for him. He's a legend. He's

6:04

a god amongst video game designers. I've

6:07

had the great pleasure in my career of working

6:09

with some incredible designers. They

6:13

are the leaders of the industry in many ways,

6:15

but they are constrained

6:18

quite a bit by the business models

6:20

in which they operate. So just to give you an example, in the

6:22

package goods era, your

6:25

goal was to sell a disk and then

6:27

get somebody to come back a year later and buy

6:29

another disk and that's

6:32

a business model choice. And therefore, what

6:34

you're going to put on that disk is going to

6:37

be informed by that business model. It's got to

6:39

have a degree of planned obsolescence

6:41

to it. Because if it doesn't, if you just bought

6:43

one game and played it forever, that's the end

6:45

of the video game business.

6:47

And that's how you get Final Fantasy 7.

6:50

Fourteen. Fourteen. Yeah.

6:53

I mean, think about how many FIFA's are called duties

6:55

there's been at this point. And it's still

6:57

firing on all cylinders despite sort

6:59

of the business models, which we'll

7:02

talk about rotating right underneath them.

7:04

And those still thrive even

7:06

to this day.

7:07

I think one of the super cool things

7:10

for me, and the reason why Gamecraft,

7:13

I think has been listened to by far

7:15

more people than just in the games industry, is

7:18

that this dynamic applies

7:20

to a lot of industries. Like when we did our LVMH

7:22

episode, the whole time I was thinking

7:24

that like it's the same dynamic in

7:27

any creative industry. Like if you want to achieve

7:29

success

7:30

either as a creator and have people use

7:33

and appreciate your work, or on the business side,

7:35

like you have to work together. You can't be at odds.

7:37

Yeah, it's interesting. I actually, I really admired

7:40

that LVMH episode. And there was a part

7:42

of it where in your Nintendo

7:44

episode that kind of reminded me of the LVMH

7:46

episode as well, because those of us

7:48

who had worked as competitors to Nintendo

7:51

in the console business, and I did for a part

7:53

of my career when I was running the studios at Activision.

7:56

They had this- It's interesting you considered yourself a competitor

7:59

to Nintendo.

7:59

Well, we'll come back to that. You know,

8:02

there's limited shelf space in Best

8:04

Buy, and so they were very much

8:06

a competitor for that shelf space. And so on

8:09

the software side in particular, and they would, for

8:11

example, if they had a new Metroid SKU or

8:13

a new Zelda or whatever, they were

8:15

very clever about only releasing a

8:18

limited amount of inventory for Black Friday.

8:20

And then the parents would go, because that

8:23

was on the kids' Christmas list, and they would go to

8:25

buy the disk, and they

8:27

would be sold out, and panic would ensue.

8:29

And then two weeks before Christmas, or

8:32

a week before Christmas, they would suddenly flood

8:34

the shelves with all of the inventory that was

8:36

available. And so everybody was back

8:38

to the stores, and it was just, it

8:41

was genius, but it's something that only they could

8:43

do because they had that sort of luxury good

8:46

kind of vibe. Yeah.

8:47

So to bring it back, you didn't write a book. I wrote

8:50

about a 200-page manuscript,

8:53

and the

8:54

idea, and those of you who haven't listened

8:56

to GameCraft, who are listening to this podcast,

8:59

it's basically eight episodes, but they're topical

9:02

episodes. And so we basically

9:05

retell the same story from 1990 roughly

9:08

until the present, but we look

9:10

at them through eight different lenses.

9:12

And I thought that was kind of an interesting and unique approach

9:15

because all the other histories of the video game business are

9:17

very chronological and very, like, and

9:19

then this happened, and then this happened, and while ours does

9:21

have a bit of that, and then this happened, and then this happened,

9:23

hopefully it's a little bit more interesting than that. So

9:26

I finished it. I sent it to some friends of mine. They read

9:28

it. They said, this is great, but, like, nobody

9:30

reads books.

9:31

And so I was like, well, that's unfortunate, but

9:33

I don't really know what to do with it. And I said, I could read

9:35

it. I could do it as an audio book. I could read it as a monologue.

9:38

I don't know what to do with it. And then I

9:40

had a fateful dinner in Boston

9:43

with Malcolm Gladwell.

9:44

And Malcolm, I'm

9:46

an investor in Pushkin, which is his podcasting

9:49

company with Michael Lewis, and Michael

9:52

and Malcolm are both acquaintances

9:54

of mine. And Malcolm was like,

9:56

dude, you really have to do this as a podcast. And

9:58

he was like, can't do this.

9:59

He tried to get you to do it as part of Pushkin. I did

10:02

submit it to Pushkin. They rejected me. Whoa!

10:06

Why? Two-nitches. Two-nitches. Yeah.

10:11

But he kind of got me to

10:13

rewrite it, essentially, as a dialogue.

10:16

And at the same time, I got

10:18

to meet Blake on Twitter, oddly.

10:20

That's kind of where we met.

10:22

I was admiring his thinking,

10:24

and he was tweeting about the games industry. They're

10:26

so precious, little, good public

10:30

commentary on the games industry. I was kind of attracted

10:32

to it. And so I kind of asked

10:34

him, you want to do this with me? And you want

10:36

to kind of be my interlocutor on this one?

10:38

And he foolishly agreed.

10:41

Yeah. It's funny, because Mitch

10:44

and I knew each other briefly

10:46

before I joined here.

10:48

And then I remember I was just down

10:50

in the office here one day. And

10:53

Mitch and I had asked Mitch if

10:55

he was willing to meet, because before

10:57

you join, you're like, OK, is Mitch actually still active?

10:59

Is he not? What does it actually mean to retire? Because

11:01

LinkedIn says partner. What does that mean? Yeah.

11:04

Is he actually retired? What is it? The

11:06

term for that is uncle's. Uncles. Yeah, you're

11:08

an uncle. Yeah. Mitch

11:11

never retired, and so

11:13

he still hangs out here all the time. And I convinced

11:17

him to meet with me,

11:18

and we were just chatting. And throughout the course

11:20

of those conversations, it just became clear. Like,

11:23

we were having so much fun just riffing on all

11:25

this. And I was learning so much. Like,

11:27

I thought I knew a lot about the games industry,

11:30

and Mitch's vantage point is

11:32

so unique and rare that the

11:34

moment that he shared the manuscripts with me, I was like,

11:37

oh my gosh, this is amazing. Like, I was just

11:39

like the perfect target audience of that.

11:42

And I think it became really clear over time,

11:44

like, oh, this would be a really fun podcast to do. And

11:46

it was really useful as well because there is

11:48

a kind of generational component to the

11:51

dialogue, right? Because we really are starting when I

11:53

started in the business in the 90s, and

11:56

we're ending when he's running the business,

11:58

basically, in the 2020.

11:59

And so I thought that there was some

12:02

nice symmetry to that actually, to have it

12:04

be multi-generational.

12:06

So Mitch entered the industry right

12:08

when I was born, and he's

12:11

telling these stories of all

12:13

of the games that he's worked on. And those are

12:15

literally the games that I played and the games that

12:18

he published and all this stuff. And I'm like, this is

12:20

insane.

12:21

Mitch, when you were on the business

12:23

executive side, did you

12:26

have a sense of like how

12:28

much you were impacting, like the work

12:30

of the industry was impacting this whole generation?

12:33

You know, it was kind of a boiled

12:35

frog type situation for me, because when I entered

12:38

the industry, my first gig really

12:40

was in the formation of Disney Interactive,

12:42

which was in the very, very early 90s. And

12:45

this was right around the

12:47

time Bobby was taking over Activision

12:50

when he and Steve Wynn basically, financed by Steve

12:52

Wynn, Bobby was buying Activision. I

12:54

forgot

12:54

Steve Wynn financed it. Yeah,

12:56

Steve Wynn. The famous story. I don't know if you guys have

12:58

done an Activision episode. Way back

13:01

before we went to research. Because there was a... Because

13:03

he basically, Bobby crashed the

13:06

Cattleman's Ball and

13:09

without an invite and basically did it so that

13:11

he could buttonhole Steve Wynn

13:13

and get him to put the money up for the act to buy

13:16

Activision out of bankruptcy. Wow.

13:19

And it was a genius deal because they renegotiated

13:21

all the debt into equity

13:23

in the new entity. Bobby

13:26

was

13:26

a brilliant, brilliant executive

13:28

even back then. So when

13:32

I worked at Disney and then subsequently

13:34

in my startup and at Activision, this

13:37

was still kind of the geeky era

13:39

of

13:40

the serious video game business. Obviously,

13:42

Nintendo had brought the console

13:44

business back in 1985, but

13:46

we were really only five, seven years into

13:48

that, right? It was still

13:50

a fairly recent phenomenon in other... And it was a corner

13:52

of the toys industry, as we've talked about. Dominated

13:55

by the Japanese too, in general,

13:57

right? I mean, there were a few, obviously, Electronic Arts

13:59

had gotten started.

13:59

and interplay existed and there

14:02

were a couple of others. But it was primarily- They were

14:04

PC publishers. Yeah, primarily PC publishers.

14:06

So that said, no,

14:09

I had no real idea of what the impact was because

14:11

I thought I was making games for myself

14:15

and other nerds like me. And

14:18

the notion of casual gaming hadn't really

14:20

hit its stride yet. I

14:23

think one of my big takeaways from Gamecraft is

14:26

gaming is not for teenage boys. Gaming is a

14:28

innately human activity that now

14:31

we see in full bore. I flew down here this morning

14:33

from Seattle and the amount of Candy Crush going

14:35

on around me on the plane. Gaming is a human

14:38

activity. And during

14:40

the era you're describing, it really hadn't

14:42

fully permeated yet absent maybe's snake

14:45

on some early mobile phones. Not even. I

14:47

mean,

14:47

you think about it, it was like probably 96

14:51

was Barbie's fashion designer and some

14:54

Hasbro games like Yahtzee and

14:56

the Game of Life and other things like that that they basically

14:58

did very lame digital

15:01

versions of. And that was kind of the beginning

15:03

of the casual game revolution really.

15:05

And it happened very

15:07

quickly and those titles did incredibly well. But

15:10

the mainstream video game industry always

15:12

viewed them as kind of, and frankly

15:15

to this day still views a lot of what's

15:17

happening in the casual game industry as like not the real

15:19

games business. And

15:22

yet, as we know, because we now know what the numbers

15:25

look like, it's like

15:26

most of the video game business, right?

15:28

It's probably more than 50% of

15:30

the video game business these days would be considered

15:33

casual gaming by 1990 standards. It's

15:35

interesting because those people who are playing Candy Crush

15:38

still might not even identify as gamers.

15:40

I'm sure they don't.

15:43

And what it means, like when we talk about the

15:45

games industry, it's so

15:48

all encompassing at this point that it does

15:50

include the Candy Crush, but also includes the consoles

15:52

and the hardcore PC games. And there's

15:54

a little bit of

15:55

like, how do you even frame what is

15:58

gaming? And I think for us, you know,

15:59

So a lot of the podcast was walking through

16:02

how that has evolved. That happened, yeah. I mean,

16:04

when I did my second startup, Jamdat,

16:06

which ultimately was the successful one, the one that went public,

16:09

we would be on the road, me and Michael Marchetti, my

16:11

chief financial officer, and we'd

16:14

check into a hotel and, you

16:16

know, we'd ask for a business card, we'd hand them the

16:18

business card, and they'd go, oh, I'm playing your

16:20

bowling game. And it was literally like, you know,

16:22

late night people on the desk at

16:25

a hotel or, you know, train

16:28

operators or people, you know,

16:29

we would just meet these randos all over

16:32

the place. A little girl will sat down on a

16:34

barge in Hawaii next to me

16:36

and whipped out a phone and started playing one of my games.

16:38

And it was like, that was when I really

16:40

understood kind of the ubiquity

16:42

of gaming in that human sense that you

16:45

described.

16:46

So we were going back and forth before recording

16:48

here on sort of big takeaways from Gamecraft,

16:50

and this is one of them. This feels like a huge beat to me.

16:53

What are some of the other big beats for those who haven't

16:55

listened yet? So I

16:58

mean, just to very quickly review what the eight

17:00

episodes are. So they're free to play, which

17:03

was one of the real revolutionary

17:05

business model changes in the industry. I mean,

17:07

it's the equivalent of the film business having

17:10

television introduced, right? Where

17:12

you went from, you

17:13

know, a very formal go buy

17:15

a ticket and sit in the theater to coming into

17:18

your home. Or even probably more apt

17:20

professional sports when television was introduced.

17:23

And like, it was only the upstart NFL

17:25

that embraced it instead of fighting it. So I think

17:27

that it was a revolution of that import. And

17:29

I think we're still feeling the reverberations of

17:31

it to this day, the impact

17:34

of free to play and how it's changed,

17:36

you know, how people consume games, how they play games

17:38

and how games are made, because it requires

17:40

a very different kind of game in order to be

17:42

susceptible to a free to play mechanic than the old

17:44

school stuff, everything onto a disc

17:47

and hope that it's worth 60 hours for $60.

17:50

That's one of the episodes we do an episode on the change

17:52

in publishing from a package goods

17:54

at retail business to an online distribution

17:57

business. Really the rise of steam would be

17:59

kind of.

17:59

indicative of that particular part of it. We

18:02

do an episode on game

18:05

economies and how they've evolved

18:07

from their very, very earliest stages

18:09

to these incredibly sophisticated and now even

18:11

Web 3 enabled economies

18:13

of our era. One of my favorite episodes

18:15

is the Forever Games, which is really

18:18

around this idea of with the shift

18:20

of free to play, can a game actually

18:22

endure forever and what do those play patterns

18:24

look like? Mitch has these amazing

18:27

sort of guidelines or just rules of how he thinks

18:29

about it.

18:30

Going into listening to Gamecraft,

18:33

I sort of had this high

18:35

level idea that there's

18:37

more durability in the video game industry

18:40

now than there used to be. It used to

18:42

be very hits driven. I think a lot of people still

18:45

believe or a lot of investors look at the category

18:47

as very hits driven, but there's two

18:50

different and very distinct

18:52

reasons why there's more durability now. One

18:55

is the concept of Forever Games. The other is

18:57

the concept of, Mitch, I think you coined this term,

19:00

of platform based publishers. Can

19:02

you talk a little bit about each of those

19:04

and how they sort of fuel each other

19:06

and how they're different, but how they both provide

19:09

durability in the industry? Sure. I

19:11

think the Forever Games

19:13

are part of a continuum. There was

19:15

durability in the early video game business. It

19:17

was just not the games themselves

19:19

that were durable, right? Either the franchises

19:22

were durable. I mean, you look at FIFA. I

19:25

started playing FIFA on Trip Hawkins' 3DO

19:28

back in 1993. I'd

19:31

been playing every year continuously for

19:33

the last 30 years. If

19:35

you think about it, that's a 30 year persistent

19:38

play pattern, very much kind of congruent

19:41

with what we've described in the Forever Games

19:43

episode with some of these long duration play patterns.

19:46

It's just that they packaged it very differently. You were playing

19:48

the same game, but you just had to go buy it again

19:50

and again and again and again and again. You look

19:52

at the Nintendo portfolio, which you

19:54

guys have done a really good job of exploring, and

19:58

you look at the continuity of their brands. where

20:00

they've been able to bring the same characters and

20:02

the same kinds of play patterns back

20:04

again and again as they shift from NES

20:07

to SNES to Cube to Dreamcast

20:10

to whatever, and that is, in a sense, durability.

20:13

To my

20:15

mind, one of the most genius things about Miyamoto

20:17

is that he came up with two

20:19

to three really good stories, and

20:22

they tell that story over and over and over. Every

20:24

Mario game is the same story. Every Zelda game is the

20:26

same story. Absolutely, and

20:28

they're fine, because as the graphics get better,

20:30

as their ability to tell that story improves

20:33

and is richer and deeper, then

20:36

you can go back and explore that story again, and

20:39

it has a kind of hero's journey quality to

20:41

it where you don't feel like you're seeing the same story

20:43

again. It feels new

20:44

and old at the same time. Yeah, I

20:47

think Grand Theft Auto is probably one of the best examples

20:49

of it. I think Grand Theft Auto V was probably

20:51

released eight or nine years ago, and

20:53

it still is a top game on

20:55

Steam, and everyone still plays

20:58

it, which is amazing. But when

21:00

they do an update, it's

21:02

to the new generations, and it really blows your

21:04

mind, but very similar play pattern, very similar

21:07

story overall.

21:08

And then to your point about the platform-based publishing,

21:11

I think that's really been more of the way

21:13

that the online distributors

21:15

have created competitive

21:17

advantage against their packaged goods rivals

21:20

and how they built

21:22

very similar businesses to a lot of the kinds

21:24

of businesses that we've seen emerge

21:26

and disrupt

21:27

incumbent industries across the

21:30

internet space. So Uber and the taxi

21:32

industry, or Airbnb and the hotel industry, where

21:34

you aggregate demand on

21:37

an online platform, and then you utilize

21:39

that demand to leverage the supply

21:41

side of whatever industry that you're

21:44

entering. And I think you look at Steam, and

21:46

Steam shares many of those attributes.

21:48

And I think that move, which was

21:51

essentially perfected by Tencent

21:53

with QQ and

21:55

the things that they did, sort of leveraging

21:57

their messaging platform in the games business.

22:00

That's been sort of the kill shot for

22:02

platform-based publishing in the industry. But that is essentially,

22:05

it's more about how you use

22:07

the internet in a jujitsu-like way to

22:10

massively disrupt the packaged goods

22:13

industry, which was up until that point,

22:15

up until maybe 2003 or 2004, absolutely dominant.

22:18

And in fact, I think

22:21

to your surprise, Blake, when we were discussing

22:24

some of the games in the early

22:26

2000s, you were like, oh my God, that game was actually

22:29

on a disk. Like it was surprising to him

22:31

to remember that some of these games that he grew up with

22:33

as downloads were originated

22:36

as packaged goods. The craziest thing is Steam

22:39

was on a disk.

22:40

Our first sponsor of this episode is a brand new

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when you do, just tell them you heard about them from Ben

24:50

and David on Acquired.

24:53

Can you share how Steam

24:54

got started? Sure. So

24:57

the Valve team, Gabe Newell in

24:59

particular, and his partner Mike

25:01

Harrington, they envisioned

25:03

that they needed an updater

25:06

essentially for their software because they were releasing

25:08

these games like Half-Life 2 and

25:11

CSGO. And they wanted

25:13

to be able to sort of affect the competitive

25:15

balance after they released them to fix

25:17

bugs to validate licenses because

25:20

piracy in this era was still a real

25:22

thing. Any time you're selling box

25:24

software, it's going to be a big thing. It's absolutely

25:26

the case. And so they thought,

25:28

hey, we could build this thing basically that would

25:31

function as a software updater for our products.

25:33

We'll put it on the disk and you'll be

25:35

go up, log in, and it'll download patches

25:38

and whatever, rebalance, rebalancing

25:41

for your game, et cetera, et cetera.

25:42

And so they went around to the rest of the industry.

25:45

They went to even their old employers at Microsoft

25:47

where they were early Microsoft employees, I think

25:49

among the first 25 or so employees at Microsoft.

25:52

So had good connections there. And they

25:54

asked if Microsoft would be willing to build this tool for

25:56

them. And they said no. So they built themselves. And

25:59

then very...

25:59

very incrementally after they released it originally

26:02

with Half-Life in the box, as you say, and

26:04

it just auto-installed when you installed the game.

26:07

And then, you know, very incrementally

26:09

over the next decade,

26:11

they just kept adding features, community,

26:15

an app store, mods, all

26:17

of these various features and just

26:20

ate the games industry. I mean, now it's an $8 billion a

26:23

year business, right? I mean, it's just a remarkable,

26:25

remarkable company. Completely privately held.

26:27

Yep.

26:28

And Steam itself is an $8 billion or Valve

26:30

all up? I think it's Valve overall.

26:33

When you think about actually the strategy that happened

26:35

there,

26:36

which is really the essence, and we talk about this in

26:38

episode two of GameCraft, where

26:41

it's actually releasing the game,

26:43

like we're talking about with Half-Life,

26:45

and it's like this sneaky route of, oh,

26:47

wait, like, I don't know how intentional

26:50

it actually was in hindsight, but they've

26:52

ended up building this platform and they're like, oh, wait,

26:55

now all these other developers want to use this and

26:58

now it's very clearly become, like,

27:00

it is the go-to place. Even

27:03

a lot of people have followed, right? You have Activision

27:05

having their own launcher. You have all these... EA

27:08

or... Yeah, EA as their launchers. They

27:10

all have launchers and they all

27:12

are still forced, well, not

27:14

forced, but really pushed

27:15

by the market to launch on

27:17

Steam as well. We had breakfast with Phil Spencer,

27:20

the head of Microsoft Games yesterday, and

27:22

we were talking about Steam and Phil was like, I

27:24

put my games on Steam. This

27:26

is Microsoft, which was the most market power of

27:29

any company, maybe apart from Nintendo and

27:31

Sony, to roll their own.

27:34

He's putting games on Steam and so you fish where

27:36

the fish are.

27:37

Yeah, I think there's a new

27:39

iteration of that or the latest attempt

27:41

of being a platform-based publisher would actually probably

27:43

be Epic, which Epic has

27:46

Fortnite, it does incredibly well. They've

27:48

launched that on their own launcher and now they've been

27:50

spending the past couple of years really trying to

27:52

build up the Epic Game Store. My

27:56

vantage point, it hasn't made nearly enough

27:58

like a dent, like relative.

27:59

to Steam because Steam still holds on to

28:02

power. That's one of the things I wanted to ask

28:04

you guys about, which is where

28:06

are we in the business

28:09

model journey of the platform-based publisher?

28:11

Like, it almost feels

28:13

like kind of like the rest of the internet. The platforms

28:15

are starting to ossify. Is

28:18

that fair? Or are there still

28:20

opportunities? You're saying gaming is not ossifying?

28:22

No, no, the gaming is. Like, you've got Steam.

28:25

You've got, obviously, the consoles. You've got

28:28

Microsoft.

28:30

And Epic is trying. But like, who

28:32

else could really conceivable, and Tencent has

28:34

done the best, but who could conceivably break in? Or

28:38

do we need a new paradigm? Well, I mean, I think the

28:40

next one to go is going to be Nintendo,

28:43

right? I think that's,

28:45

if you're looking for a reason to invest

28:47

in Nintendo as a company, I

28:50

think they're about to crack that nut, right, and

28:52

enter the app store business in a meaningful way.

28:54

I mean, they have the lowest

28:57

third-party revenue

28:59

per active user by an incredible

29:02

amount, right? I mean, like

29:04

hundreds of dollars to like $25, right, versus

29:08

the rest of their console competitors. So

29:10

they're waiting for that lid

29:13

to boil off there, I think. So that's on

29:15

the conventional platform-based publishing site. But I want

29:17

to return to the question, your

29:20

original question, which I think is very interesting. I

29:22

agree with you. And I think that Game

29:25

Pass from Microsoft is an interesting

29:28

harbinger of maybe the end of the

29:30

road for the platform-based publisher,

29:32

or at least the end of this road for the platform-based

29:34

publisher, because where they had historically

29:37

aggregated users in an attempt to collapse

29:40

the supply side, so aggregate demand to collapse

29:42

supply,

29:44

he's now filled with Game Pass aggregating

29:46

supply again. And you look at the Activision deal, $69

29:49

billion acquisition of Activision.

29:52

It's basically like Netflix

29:54

or Apple or one of these

29:56

other companies buying exclusive content.

29:59

And now I use the term.

29:59

exclusive somewhat guardedly because

30:02

this is currently in the European Commission

30:04

as a hot button issue. Clearly this

30:06

is Microsoft strategy. Absolutely. So they're

30:08

now back to aggregating supply

30:11

in order to have enough viable

30:14

IP on the platform such that you will continue

30:17

to subscribe. Which is really interesting. I

30:19

mean, just speaking for me personally,

30:22

as a gamer, that is an incredibly compelling

30:24

value prop of like,

30:25

I could, I don't have a gaming PC.

30:28

I don't really want to go make a gaming PC. I

30:30

don't really want to go go deep in

30:32

the valve ecosystem. I don't want to go deep

30:34

in the epic games ecosystem.

30:37

Microsoft is offering this really easy.

30:39

All you can eat option to me and streamable

30:42

in a lot of ways, right? So with the new X

30:44

cloud

30:45

platform and I was a pioneering

30:48

investor in this with guy Kai back in the day. And

30:50

it wasn't really economically viable, but now with

30:53

scale and

30:54

Moore's law and all these other things we've been bandwidth

30:56

improvements. We can now really do it

30:58

well. And so, you know, with a

31:00

device like a steam deck or something

31:03

like that, you know, you're able to really

31:05

avoid going down that path of building

31:08

your own gaming PC. It

31:10

is interesting that we're finally in the cloud gaming

31:12

era. Like this has been the dream

31:15

for so long. And of course, there's this tick

31:17

tock and computing to thin clients. Thin clients,

31:19

thick clients, thin clients, thick clients, but like the

31:21

whole thin client thing never

31:23

really made its way to gaming. I

31:25

remember I worked at Microsoft in 2012

31:28

and I was at our annual meeting in the old key arena

31:31

and I watched a demo of

31:33

cloud gaming on a Windows phone with an

31:35

Xbox controller. And I remember Steve

31:38

Ballmer coming out and being like

31:39

next year is the year we're shipping this. It's finally

31:41

happening. And here we are a decade later and now

31:43

it's it is finally happening. Tesla full self driving

31:46

this year is happening. Yes, my

31:48

question to both of you on this is

31:51

business models are inherently

31:53

intertwined with new technology

31:55

waves and how does cloud gaming

31:58

change the business model of the internet?

31:59

the games industry?

32:01

I think there's one thing that's interesting about the cloud

32:03

model and one of my thesis on why

32:05

it didn't work back when I first tried it

32:08

with GuyKine, when OnLive

32:10

was out as a competitor and some of these others. And

32:12

that was early 2010s? Early 2010s.

32:16

It was a mismatch between the

32:19

user and the technological opportunity.

32:22

So you could stream these games without owning

32:24

a gaming PC, but all the games

32:26

that were really viable to stream were

32:28

the kinds of games that gamers who already owned

32:30

a damn PC wanted to play. So

32:33

you look at Stadia from Google. Like

32:37

what were they, if you walked the floor of GDC and

32:39

the launch year of Stadia, they were showing Assassin's

32:41

Creed and like these other really high

32:43

fidelity. Everybody had this. Well, or

32:45

if you were gonna play that game, you had a PlayStation

32:48

or an Xbox or you had a gaming PC

32:50

that was capable of playing it. And so I

32:53

think with the real expansion

32:55

of the audience and those in that intervening

32:57

decade, you now have actually

32:59

the question that David

33:02

brought up, which is he doesn't wanna own

33:04

one of these devices and yet he wants to play

33:06

those games. And I think that didn't

33:08

really exist so much as a market back

33:11

in the early days of streaming. So you think it's

33:13

demand driven. I do. I do think,

33:15

however, that the audience has

33:17

expanded really in the last 12 to 15 years

33:20

and that this next generation

33:22

of kids who've grown up on Fortnite, who've grown

33:25

up on harder core games, but

33:27

are still

33:28

casual in their self identification,

33:31

who don't think of themselves as being core gamers.

33:34

I think that's the real opportunity for the cloud gaming.

33:36

Yeah, I think it's also a part of, you

33:38

think about all these people that are playing or used

33:41

to play Fortnite on mobile and it's like,

33:44

that's just what I expect at this point. And

33:46

there is a natural evolution that maybe will happen

33:49

with just the number of people that have grown up playing

33:51

games on mobile and just be like, of course I want

33:53

to play Assassin's Creed on mobile, whatever that might

33:55

be. But

33:57

I still think it's one of those things, again, But

34:00

for multiplayer, for those pieces,

34:03

it might take a little bit more time. But surely for the

34:05

single player stuff, it's quite magic right

34:07

now. I

34:09

want to bring it back a little bit to your question,

34:12

David, around the platform-based

34:14

publisher stuff and where those

34:16

might fall. Because Mitch was involved

34:18

with Riot, and Riot is another spin

34:20

of what that looks like today. In

34:23

theory, they could become an actual publisher of third-party

34:26

games at some point. But instead,

34:28

they've decided to aggregate all the demands

34:30

and really keep... It's sort of a social

34:32

network in that there's friends and all that within their

34:35

own universe. And they continue

34:37

to publish their own games incredibly

34:39

well. You have teamfight tactics through

34:41

their launcher and you have Valorant through their launcher. And

34:44

those have worked exceptionally well. And

34:46

it really begs the question, if you're a game today that is just

34:49

launching on Steam and you're a venture-backed

34:51

company, what does that mean? Is

34:53

that

34:53

enough to really endure and build

34:55

a real business? But it's really interesting because,

34:58

yeah, that's a different approach to the platform-based

35:00

publisher because you're really aggregating

35:02

that demand for yourself.

35:04

Right. It's like a Nintendo version of a platform-based

35:07

publisher. So you've got this

35:09

audience there that's pre-qualified where you've

35:11

got their credit cards, hundreds of millions of users.

35:14

And so you just use it as a way to lower

35:16

your customer acquisition cost effectively to zero

35:19

for the next products that you launch in the

35:21

pipeline. And it just gives you

35:23

tremendous competitive advantage. This

35:25

is the bull case on the Switch that we've been talking

35:28

about, which is like at some point,

35:30

Nintendo has to wake up. And I assume

35:32

it will be with the Switch line and say,

35:34

wait a minute, we shouldn't come out with a completely

35:37

new console and have to re-aggregate

35:39

our whole fan base again. We should iterate

35:42

the Switch and make it super backwards

35:44

compatible and bring that 100 million plus

35:47

person install base with us across all

35:49

the hardware we release in the future so

35:51

that we can make this incredibly

35:54

compelling thing to third-party developers,

35:56

Mitch, as you're talking about their sort of app store opportunity,

35:58

but also...

35:59

reserve this ridiculously durable

36:02

first party revenue thing that we've had,

36:04

especially for the last six years with the Switch, but basically

36:06

through Nintendo's whole life, once their

36:08

consoles get to scale. Absolutely.

36:11

I think we will learn a lot about what their strategy

36:13

is going to look like for the next decade in the

36:15

next 90 days. Because

36:18

I think if they do come to market with a non-backwards

36:21

compatible

36:22

device, it's back to

36:24

the Iwata era. We're

36:28

a hardware company and we have proprietary

36:30

software which helps us sell hardware and it's

36:33

back to the toys. If they come out with

36:35

a fully backward compatible Switch

36:38

and an open app store and they really try

36:40

and improve that position of third party revenue

36:42

on an active user basis,

36:45

that's the new Nintendo. That's the Nintendo

36:48

that's going to play in the modern industry. That is so compelling,

36:50

at least for me as a consumer if they do that.

36:52

A game like Hades, an

36:54

incredible game, indie game. The

36:57

Switch is by far the best platform to play that on.

36:59

I've

37:00

sat there for years staring at my Switch

37:02

being like, Nintendo, why do you not embrace

37:05

this dynamic? I think

37:07

you can see publicly in the way that they're going

37:10

with Microsoft against Sony that,

37:13

who knows what this actually looks like in the next 90 days,

37:17

everything we can tell of how they're siding with Microsoft

37:20

and embracing openness

37:22

gives a clue of maybe how this works.

37:24

Yeah, you mentioned that a little bit on the series, on the

37:27

Gamecraft series of Nintendo siding with Microsoft.

37:30

Let's talk a little more about that. Sure, we don't talk

37:32

about it that much on the series just because I'm avoidant

37:34

of talking about the console business and whatever.

37:39

Let me just try and explain why. The

37:41

console business has been essentially

37:44

the same business since 1985, really since It's

37:49

sell a box

37:50

and sell some physical hardware for that

37:52

box and grudgingly

37:55

allow it to be played online and grudgingly

37:57

allow communication between users. And

38:00

I don't find that interesting from a business model

38:02

perspective. I'm interested in revolutionary

38:04

business models, and Gamecraft is really about

38:07

that, right? It's about how these revolutionary

38:09

business models upended the industry. And

38:11

frankly, there haven't been a lot of those in the console

38:14

business. Now, there have been a lot of interesting developments,

38:16

and you guys explore the story

38:18

of Nintendo. It's a fascinating story, but it's

38:20

kind of a human story. And there's a...

38:25

Particularly your first episode where you go way

38:27

back, right? And you just talk about everybody

38:29

who's everybody

38:29

else's son-in-law. I mean,

38:32

it's an intensely human story in that regard. Well,

38:34

I feel like Nintendo had the...

38:36

In my mind, they did have one

38:39

revolutionary idea that they have

38:41

just run with for the past 40 years,

38:44

which was make incredible

38:47

games and get people who

38:49

are capable of making incredible games either

38:51

in-house or make sure they publish on the platform. I

38:54

don't think anybody else realized that at the time. No, I think that's right.

38:56

Blake put it really well when he was convincing me to

38:59

do the episode, which was he said, look, the

39:01

console, when it entered the market, was

39:03

a revolutionary business model. Because at the

39:06

time, the arcade was the dominant way, and it was

39:08

a quarter drop. And so in some sense, it

39:10

was almost like the equivalent of free-to-play.

39:12

Because instead of having to pay every time

39:15

you wanted to touch the controls,

39:16

now you had the thing in your living room and you

39:18

could play whenever you want. Yeah. You

39:20

talk about the $60 for 60 hours of gameplay.

39:23

That's literally the equation you were doing at the arcade,

39:26

right? You're like, I'm putting 25 cents in for a

39:28

minute. Well, it was in the arcades. It

39:31

was $6 for six minutes of gameplay.

39:33

Exactly. So I accept that, and

39:35

that's why we made that. And

39:38

I think we really end

39:40

that episode to bring this full circle

39:43

around cross-platform, which is sort

39:45

of the latest evolution

39:46

of where the console business has been,

39:48

where you had Microsoft and

39:50

actually Nintendo embracing, and

39:53

Fortnite was really the catalyst of this, to

39:55

let them be able to play across these

39:57

different platforms.

39:59

Up until this point...

39:59

I mean, up until Fortnite, if you had

40:02

an Xbox, you couldn't play with your friend who had a PlayStation

40:04

or a Switch.

40:06

And really, Nintendo and Microsoft

40:08

went to war against Sony. Yeah, I mean,

40:10

as Phil said in our conversation

40:13

yesterday, he said,

40:15

you know, Sony's perspective was

40:17

if you want to play with your friends, get them to buy a PlayStation.

40:19

Yep. Right. All

40:22

these different business strategies are about figuring out in what

40:24

way can you leverage an asset to get people

40:26

to do something that eventually generates profit

40:28

for you. And the way Sony was looking

40:30

at it was, well, you

40:32

want to play with your friends, so we're going to use that as

40:35

the carrot stick, whatever you want to call it, to get

40:37

you to buy our console, which we actually don't make

40:39

money on, to get you to buy our games, which

40:41

we do make money on. And God, it's like, hop,

40:43

hop, hop, hop. And

40:45

Nintendo and Microsoft ended up being

40:47

quite odd bedfellows, having

40:50

completely the opposite strategy. Now, you could be cynical

40:52

about it, and you could say that that is the result of

40:54

the fact that Sony has dominant market share, and

40:56

that if you were the dominant market share player, you

40:59

might not be so embracing of openness either,

41:01

right? Because you had a competitive advantage.

41:04

But I think it's going to come back to bite him

41:06

in the ass over time.

41:08

It's interesting, right? At one point, I think,

41:10

on the series, you guys say

41:12

that with your investor hats on, it

41:16

would be really weird if an entrepreneur approached

41:18

you today and said, I'm going to build a game for a console.

41:21

But everything we're talking about, if the era of

41:23

cross play really comes to bear, that

41:26

might change things. Would you agree? If

41:29

it truly is that you could build a forever

41:31

game with cross play across

41:34

console, PC, mobile? I mean,

41:36

as part of our Nintendo research, we talked to

41:39

the CEO of a very large venture backed gaming

41:41

company

41:42

that is not on the switch right now, that

41:44

is working very hard to come on the switch for this very

41:46

reason. So I will say,

41:49

yes, it is now viable.

41:51

I would not counsel

41:54

any of my portfolio companies to

41:56

launch on the console because

41:58

the hoops that you have to jump through.

42:00

for approvals, for manufacturing,

42:03

etc., etc., for just in general

42:05

are dire. And they're not the

42:07

kind of thing that I would sort of put in

42:09

front of a company that was struggling to find

42:12

product market fit. That said,

42:14

I have greenlit a Switch SKU

42:17

at that game company for Sky. And

42:20

that has now come to market and it is really meaningful.

42:22

And we have a PlayStation 5 SKU as well.

42:25

And so for an established

42:28

product where it's already found product market

42:30

fit on another platform on a more open platform,

42:33

sure, finding that adjunct, it's like as

42:35

Fortnite disclosed in the Apple lawsuit,

42:38

the cross-play players

42:41

monetized like the new whales. I

42:43

mean, they were monetizing it at multiples

42:45

of what the non-cross-play players were playing. And why

42:48

not take advantage of that as a startup? Yeah,

42:50

it turns out that actually like

42:52

the cross-play, there's

42:54

different moments in console where

42:56

console really was the package good. And then at some

42:59

point, the package good business for the games. And

43:01

at some point, free-to-play games were able to

43:04

thrive. And you have the Fortnites actually

43:06

do really well. And if free-to-play games

43:08

are really driven by social or playing with your friends,

43:11

which Fortnite was, it's

43:13

sort of you need to have it on console.

43:15

Yeah, and think about it demographically. If you've

43:17

got a game on the console, for example, we

43:19

were talking about this with one of our coworkers

43:22

about FIFA Ultimate

43:24

Team, which you may be familiar with, which is kind of a playing

43:26

card add-on to the underlying

43:29

FIFA scheme where you can buy card packs and

43:31

open them and then you can play with those players that you get

43:33

in the card pack in the sim. And

43:35

that is a massive business. Like

43:38

it is a greater than a billion dollar a

43:40

year business selling the card packs, literally

43:43

bits. I mean, it is like a 99% gross

43:46

margin. I mean, it's the most astonishing business,

43:48

right? And this person was saying, well, look

43:51

at the attach rates

43:52

for FIFA Ultimate Team, right? And can't

43:54

we accomplish those with a free-to-play game? And

43:57

we were like, whoa, slow down. You understand

43:59

that.

43:59

selling a $20 add-on to

44:02

somebody who's already paid $60 for the game and $500 for the console,

44:06

right? The willingness to

44:09

pay of that user, it cannot be compared

44:12

to getting somebody from zero to one on a

44:14

free-to-play game to put their credit card in

44:16

for the first time to buy a virtual

44:19

good on a free-to-play game. And I

44:21

think that nuance is lost on a lot

44:23

of people when they look at the industry. Well, that's the great pot

44:25

of gold with the consoles, right? You've got these

44:27

highly committed user bases with

44:29

all their credit card information stored.

44:32

You've got easy payment rails, easy distribution.

44:35

It's like the dynamic of iPhone versus Android,

44:37

but like a whole other level. It's, I

44:39

mean, literally you can look at it in the data with Fortnite. It's like

44:41

even better than iPhone monetization. It's

44:44

also exactly what we talked about on the Peloton

44:47

episode where Peloton, despite all

44:49

the problems,

44:50

has possibly the most incredible

44:52

consumer subscription business, at least from their

44:54

first five, eight years of customers

44:57

because they selected into buying a $2,000 exercise

45:00

bike. Of course they're not going to cancel

45:02

a monthly subscription. I think this is part

45:04

of why

45:05

Epic actually felt comfortable going to war

45:08

with Apple is if you look during those

45:10

filings, so much of their revenue is actually

45:12

coming from PlayStation and console. And

45:15

that to me is just like, okay, the

45:18

mobile gamers were not the same value

45:20

as the console and PC players.

45:23

Yeah. I mean, I've been thinking before we leave

45:25

platform-based publishers that I've

45:28

been sort of thinking about, but I don't have a clear

45:30

answer, is when does a company

45:33

have the right to leverage

45:35

their relationship with customers into

45:38

becoming a publisher?

45:41

And like QQ, it was very, I

45:43

mean, it's a chat app. How the heck did they become

45:45

successful in being the 10 cent we know

45:47

today, the most powerful

45:50

video game distribution on the planet?

45:52

Whereas you look at like Facebook has

45:54

made 11 different runs at gaming and

45:57

is not Steam, is not 10 cent.

45:59

Why does sometimes a

46:02

company have the right to leverage that relationship

46:04

to be a publisher and other times not? I would rephrase

46:07

it, right? Which is,

46:08

my opinion is that why QQ

46:11

was successful was that they didn't just

46:14

decide that they're going to be a platform-based publisher.

46:17

They embraced being a platform-based

46:19

publisher. They went out and did deals. They owned 49%

46:21

of Epic. They owned 51%

46:23

of Riot, now 100% of Riot. They

46:26

were one of the financiers of

46:29

resort in the games business for

46:31

AAA titles. They aggregated

46:33

products. They aggregated third-party

46:36

product as a pathway into

46:38

China because you needed a local partner because

46:40

of government regulation in order to publish in China.

46:43

They just ran

46:44

with that, right? They just embraced that. Instead

46:47

of

46:47

Facebook or some of these other American platforms

46:50

that have treated games as kind of a bad

46:52

smell over in the corner that they weren't too crazy

46:55

about, like, okay, yeah, the Zynga

46:57

thing they flirted with briefly,

47:00

but ultimately that didn't go that well and they decided

47:02

now we're just going to become a customer

47:04

acquisition vehicle for the games industry. Frankly,

47:07

it's been a very lucrative piece of their business,

47:09

but they really embraced it Tencent

47:12

and invested deeply in it. I

47:15

think that's the difference, right? It's like they were

47:17

credible as a platform-based publisher where

47:19

Facebook never was. Yeah, Tencent

47:22

and

47:22

QQ is they

47:24

had the games. They were committed and

47:26

they were so intentional. When

47:29

Mitch and I have talked about when we look at investing

47:32

in a studio, for example, it's actually

47:34

how intentional are they at the beginning of setting

47:36

out that you are going to try and become a platform-based

47:38

publisher because even just saying,

47:41

I'm going to launch my game on Steam as a new

47:43

company maybe is just

47:46

showing your ambition of what you want to build. I

47:48

think that when you're talking about Facebook,

47:51

Mitch and I talk about this part, a lot of the

47:54

executives in the Valley, they're

47:57

just not gamers and they're like, oh,

47:59

we can...

47:59

and maybe launch a game thing. But

48:02

they're sort of dipping their foot in the water versus

48:05

actually like really committing to it. Look at Google and Stadia. You're

48:08

saying just because David and I have a bunch of people that listen to

48:10

the podcast, we can't just decide like, all right,

48:12

you guys, we're now acquired games

48:14

now. And you're all going to start playing games.

48:16

And we're turning on the network. Yeah, we'd have to be

48:19

game craft today. Although

48:21

even then, it's difficult. It's like we tried this

48:24

at Discord. And we

48:26

tried to start a game store. This was obviously my

48:29

failure

48:29

because I pushed them very hard toward

48:32

becoming a platform-based publisher. Because I thought, hey,

48:34

man, this is a great way to leverage this audience. And

48:38

look, they already self-identified

48:41

primarily as gamers. This was earlier on before

48:43

the Discord audience broadened to

48:45

becoming the Bloomberg of crypto and now basically

48:48

the launch area for pretty much every AI chatbot.

48:51

But in those days, it was very gamer-centric.

48:53

And it seemed very logical to me that you could try

48:56

and leverage that intentionally into the games business.

48:58

And it didn't work. So it doesn't always

48:59

work. And look, Jason is as deep

49:02

a gamer as you can get. Discord was a failed

49:04

game company, right? And I invested in that failed game

49:06

company. I invested in it as a game company. I was trying

49:08

to blame them, not you. No, no, it was me. So

49:13

even with the best of intentions, it can

49:15

be a difficult proposition. This goes full circle

49:17

to your earlier question, though, David, of just like,

49:20

are the giants already just set on the platform-based

49:22

publisher side? And it's

49:24

really to be determined because you have

49:27

Discord attempt at it. You have Epic really

49:29

trying to do it. And they're sort

49:31

of everything brute forcing

49:34

that they possibly can to make it happen. And

49:36

it doesn't seem like it's sticking at all. And so there

49:38

is a little bit of a question of what does it mean to actually

49:40

try and build one today? And is it even

49:42

possible?

49:44

For our second sponsor, we have another

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50:02

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50:04

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50:07

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50:09

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50:12

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50:14

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50:27

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and David at Acquired.

51:31

Thank you, PitchBook. How

51:33

do you think about

51:35

one of your other investments, that game company? Is

51:39

that game company a

51:41

platform based publisher or is it just like a

51:44

really, really great modern studio or

51:46

is it something else?

51:48

It's a great question. I think that the intention

51:51

is for it to be a platform based publisher. Game two was

51:53

already in development, as is the beginnings

51:55

of thinking about not only game

51:57

three, but

51:59

a sort of.

51:59

way to stitch the games together in a

52:02

more persistent and coherent way and with

52:04

more continuity. So I think Genova,

52:07

he wouldn't phrase it in that way. He wouldn't call

52:10

it a platform-based publisher. He'd call it a digital theme

52:12

park, right? But the idea

52:14

would be... Which is sort of Nintendo-like. Which is sort of Nintendo-like

52:17

in a way, right? And now Nintendo has a legit

52:19

physical theme park to go along with their

52:22

virtual theme park.

52:24

But I do think it

52:26

is in that same vein a... I

52:29

would call it a platform-based publisher. And

52:31

similarly, I think the greatest disagreement I had

52:34

with the founders at Riot was when they...

52:37

We sat down and I was like, okay, great. We got a hit. Now

52:40

we're going to leverage this audience into

52:42

another hit or into a third-party game or into

52:44

a licensed intellectual property. And they were like,

52:47

nah, chill, man. We want to be Blizzard. We want

52:49

to make a game every five years. And I'm like, I

52:51

don't want to fund a studio. I

52:53

want to fund... Now,

52:54

little did I know... As you pointed out on

52:56

GameCraft, only an independent company that

52:58

had to figure out its funding for three years,

53:01

the rest of its history, it's had, you know, Daddy

53:03

Warbucks somewhere figuring out how to fund

53:05

it. Absolutely. And I was wrong because

53:07

they just took their time to become a platform-based

53:10

publisher.

53:11

But they waited... It took them 10 years.

53:13

It took them 10 years. But they did it. I'm

53:15

not that patient. But there was an opportunity to start doing

53:17

it after three years. And I think their

53:20

strategy was like triple

53:22

down on League of Legends and let's make

53:24

sure that we can get it to all corners

53:26

of the globe and that we can really build a billion-dollar-plus

53:29

annual revenue base and the esports

53:31

component and the worlds and all these other things.

53:34

And then we'll go and release Valorant and

53:36

Tactics and some of these other things. Okay,

53:39

fine. But ultimately, they got to the place I wanted

53:41

them to go. It just took them seven years longer. I

53:44

think it'd be interesting if you're willing to

53:46

share a mix of just like what Genova actually pitched

53:48

for that game company back in the day. Because

53:50

I've talked to Peter. I've talked to other people. I still

53:53

remember that pitch being just so like

53:56

just an amazing, amazing pitch. Because

53:58

at the time, it's... This still

54:00

wasn't for you to invest in

54:03

a studio, right? That would have

54:05

been a big ask or a big

54:07

leap of faith. My understanding is you just

54:09

crush it on the page. By now, though... This is great

54:11

too because I bet a lot of people listening will

54:13

be like, what are you guys talking about? What is

54:16

that game company referring to a specific thing or... No,

54:19

it's a little confusing as in it's not my favorite name

54:21

for a game company, although it's

54:23

indicative.

54:24

I want to actually though take a pause

54:27

just because I don't like funding studios,

54:29

right? I wrote about this, I think... You

54:31

reminded me of this because you found it in some internet archive

54:34

somewhere. I blogged about this like 15

54:37

years ago. Yeah, I think it was like 2011

54:39

or something like that and it's amazing. The

54:41

title... I mean, Mitch has probably

54:44

removed all of his blog posts at this point. I think it was like investing

54:46

in content. And he's like, I don't invest in

54:48

content. I don't invest in content even

54:51

though I've done more content deals than

54:53

anyone else in the Valley, right?

54:56

What I meant by that is

54:59

that I invest in businesses, not

55:01

in studios, right? And

55:03

those businesses have to have a strategy

55:06

that transcends, I want

55:08

to make a game and put it on Steam or I want to make a

55:10

mobile game and put it in the app store, right?

55:13

And I'm really interested in that strategy

55:15

more than I'm interested necessarily. The content

55:18

is a means to an end, but the end

55:20

can't be, oh, then we're going to go make another game

55:22

and put it on Steam or put it in the app store. The

55:25

end has to be something better. It has to be something

55:27

more durable. It has to be something more value

55:29

aggregating. And so I've

55:31

had this philosophy since the very beginning

55:33

and I've tried to be very disciplined about

55:36

it. So Genova approached us, Genova

55:38

Chen.

55:39

I had met him

55:40

in the early 2000s when

55:42

he was a graduate student at USC and

55:45

he was making games there and

55:47

I was working at Electronic Arts and I had the license

55:50

for Spore, which was

55:52

Will Wright's kind of creature

55:55

evolution game. Very SimCity. After SimCity,

55:57

yep.

55:58

And...

55:59

I was doing the mobile version

56:02

of that, right? And so, Genova

56:04

had made this game

56:05

called Flow that

56:08

was

56:09

basically this game where little creatures ate bigger

56:11

creatures and evolved based on what they ate.

56:13

And it was just this unbelievably

56:16

cool thing, right? And so I wanted to kind of bring

56:18

him in and build sport, like this mobile version

56:20

of Spore with me. And of course he was way too clever

56:23

for that and said no.

56:24

But I kept up with him and we hung out and then he

56:26

went off into the Sony ecosystem and built Journey.

56:29

Journey is this amazing

56:31

kind of meditation on death where you're playing a

56:33

single player adventure game and you're climbing

56:36

a mountain and enduring all this hardship and

56:38

it's got all this crazy multiplayer play

56:40

where you don't know who you're playing with but you have

56:42

these deep emotional relationships

56:44

with the people. He's just an unbelievable game

56:46

maker. And the art for that game. It's just

56:49

beautiful. I mean you screenshot any frame

56:51

and you can put it up above your fire force. So

56:53

he came to me and said, hey, I wanna, like

56:56

I'm leaving the Sony thing. I wanna start

56:58

over. I wanna make a game

56:59

for the masses. Can you help me?

57:02

And I was like, yeah, I can

57:04

but like let's pitch the partnership. So he came

57:06

in and he did this pitch to the partnership where he basically

57:09

talked the whole time. He didn't talk about

57:11

the game he wanted to make at all. He just

57:13

talked about emotions and

57:15

how the video game business was

57:17

so stunted because it was only serving

57:19

this incredibly narrow band of the human

57:22

emotional spectrum of anger,

57:24

of violence, of

57:25

envy, of accumulation.

57:27

And there were all

57:30

these other emotions that were being explored

57:32

in music and in art and in poetry

57:34

and in the movie business. And

57:37

we should do that in the video game business. And he

57:39

finished his thing and he walked out and I literally

57:41

ducked because I thought that the blast radius

57:44

from my partner's like saying, what are you doing bringing

57:46

this into the partnership? Was gonna be so intense. We're

57:48

a venture capital firm and we're funding happy. Like, yeah.

57:51

Kevin Harvey turned to me and said,

57:53

chase that guy out in the parking lot and give him a term

57:56

sheet. He was like, we are in business

57:58

to fund people like that.

58:00

And it was, and I still get goosebumps

58:03

saying it now, because that's how I felt,

58:05

but I was too afraid to say it in the partnership

58:07

meeting, because

58:09

I didn't have enough juice to really do it.

58:12

That must have been relatively early in your career.

58:15

It was, because I'd been working on that thing forever.

58:18

But yeah, it was probably within

58:20

the first couple years that I was

58:22

at Benchmark. Before SNAP,

58:25

before Discord, before Riot?

58:27

Right around the same time as SNAP. Right

58:30

after Riot. But SNAP, you didn't

58:33

know it was gonna be SNAP yet. SNAP was still pretty small at that point.

58:35

Peter tells exactly the same story, by the

58:38

way, on our team, and he's like,

58:40

when he talks about the range of emotions that he was gonna

58:43

cover and how underserved it was, it

58:45

was just magical, like this moment

58:48

of, oh my gosh, this person's a genius.

58:50

And so in a lot of ways, Genova

58:52

is just like an exception to the rule. And

58:55

even still, he is on

58:58

the path to build this something much bigger

59:00

than just a content. And look, I'm

59:02

a very small contributor to the success

59:04

of it, but what I did help him understand was

59:07

that he can't make Journey again, right?

59:09

That if he makes Journey again, he's

59:11

gonna get the same result that he got from Journey,

59:13

which is he's gonna get a console-like

59:17

indie developer result. And

59:19

so I really helped him understand

59:21

how to build a forever game.

59:24

And he rose to the

59:26

occasion and just built an amazing forever game.

59:28

And that thing is now, I mean, it was in

59:31

the fall, the number four

59:33

grossing game in China by revenue.

59:35

What's the game called? It's called Sky. Sky.

59:39

And so we're talking about hundreds of millions of dollars

59:41

in revenue, and he does it with a tiny

59:43

team. So it's ludicrously

59:46

profitable.

59:47

I mean, I think it's got greater than 30%

59:49

net income margins. And

59:52

would you fund at this point,

59:55

the concept of Sky, even

59:58

if there wasn't a broader... platform-based

1:00:01

publisher strategy around it? Is

1:00:03

that a good enough investment? Or let me make it even sharper.

1:00:06

As a forever game without a... Yeah, let me make it an even

1:00:08

sharper example. If you got the pitch

1:00:11

for Riot Games and it was literally

1:00:13

just League of Legends and it was going to be

1:00:15

a League of Legends-sized impact on

1:00:17

the world, is that interesting as a venture

1:00:20

fundable opportunity? I have the great

1:00:22

benefit at the moment of not being a

1:00:25

venture capitalist in a firm, but having a lot

1:00:27

of dough. I am in a position where

1:00:29

I can make these investments personally, and

1:00:31

so the answer is yes. In fact, Blake and I

1:00:33

have made some of these investments in

1:00:36

things that maybe would have shaded

1:00:38

into the studio realm in my previous

1:00:41

life.

1:00:41

However, I would not have done them at Benchmark. If

1:00:43

I'm hearing you right, it's because it's just difficult

1:00:45

to accrue enough power over the ecosystem

1:00:49

to have flexibility in your business,

1:00:51

to have pricing power, to be able

1:00:54

to negotiate effectively with everyone

1:00:56

else you need to to reach your customers. Yeah, distribution

1:00:59

is king, right?

1:01:00

And if

1:01:03

you can't... Which is so funny, right? Like, everybody

1:01:05

says content is king. And like, nah, distribution

1:01:07

barriers have been removed and anybody can

1:01:09

make a game,

1:01:11

but like... Distribution is king. Today,

1:01:13

in 2023, distribution is king. And if you

1:01:16

don't have distribution leverage of

1:01:18

some sort, I'll invest

1:01:20

against any credible distribution

1:01:22

leverage.

1:01:23

But if you don't have that distribution leverage,

1:01:26

it's very difficult.

1:01:27

It's very difficult to aggregate enough value

1:01:29

to justify a venture investment.

1:01:31

Yeah, I would say the bar... You

1:01:34

should just assume every venture backed studio

1:01:37

is an amazing game. Like, it just should be.

1:01:39

It just should be one of the best games ever. It's

1:01:42

never been a better time to be a gamer. Yeah, like,

1:01:44

it should be an amazing, amazing game. But

1:01:47

like we know with apps and software, like

1:01:50

having a great app, unless it is truly

1:01:52

like top one app in

1:01:54

that category,

1:01:55

people will never even know it exists. And

1:01:57

I think that's

1:01:59

a lot of...

1:01:59

If people that are building studios today

1:02:02

are

1:02:02

much more in the camp of, I'm going to build the best game

1:02:05

ever and people will come. I think if we've learned

1:02:07

anything over the years,

1:02:08

unless it is truly the exception,

1:02:10

they won't come. I think

1:02:13

part of the pitch that Riot made to me that made

1:02:15

me convinced that it had a distribution advantage

1:02:17

that made me willing to invest in it was

1:02:19

the way they understood the existing

1:02:22

audience for Defense of the Ancients, which was the game

1:02:24

that they were essentially modifying in

1:02:26

making into a...it

1:02:28

was a game that was a mod of Warcraft 3

1:02:30

and they were going to turn it into a standalone product

1:02:32

and relaunch it online with its

1:02:35

own characters and own IP.

1:02:37

You could see that as a studio bet on

1:02:40

a certain level, but they had

1:02:42

identified this enormous

1:02:44

pool of users who were playing Defense of the Ancients

1:02:47

and there was this crazy pent-up demand

1:02:49

for exactly what they were going to do because modding

1:02:53

Defense of the Ancients and running it as a user.

1:02:55

I mean, you had to find an out-of-print copy

1:02:57

of Warcraft 3 and go through all

1:03:00

these machinations to like... The

1:03:02

Riot team

1:03:03

did some pretty awesome growth hacks in the

1:03:05

early days. We bought the

1:03:07

websites that...we bought the Defense of

1:03:10

the Ancients websites and just

1:03:11

turned their editorial to the lead of legends.

1:03:14

All the fan's content

1:03:16

on the internet. It still sits

1:03:18

on Reddit, by the way, if you like search. I forget what the name of

1:03:20

it is. I love this. This is even better than

1:03:22

the Airbnb Craigslist growth hack. Yeah,

1:03:25

if you search this company... You could call it a

1:03:27

growth hack. I call it a customer acquisition

1:03:29

advantage. It

1:03:32

gets you out of the

1:03:35

junk pile of

1:03:37

throw a game up on Steam and pray.

1:03:40

That was enough because I knew if I could leverage

1:03:43

that, it would give me enough of a profit

1:03:45

advantage that I could reinvest, maintain

1:03:48

that customer acquisition advantage and

1:03:50

build a platform-based publisher out of it. That's

1:03:54

how I roll.

1:03:54

Blake, what were you saying about the Reddit thread? I

1:03:57

was just saying, on the Reddit thread, if you

1:03:59

search it...

1:04:00

I forget what the name of the website

1:04:02

is that they bought.

1:04:03

It's all these people who were playing

1:04:05

defense of the agents and they're like, what

1:04:08

the hell happened? What happened to the

1:04:10

site? What's going on? And it was

1:04:12

like the top host of the

1:04:14

Dota subreddit at the time. And it's just like, what

1:04:16

happened? Who are these people? What

1:04:18

are they buying? What happened? They

1:04:20

killed this and they all just move over. It's like, oh, no,

1:04:23

Dota's still over there. But

1:04:25

the forums are all pointing to this very similar game with different

1:04:27

IPs. If you want to discuss something, you've got

1:04:29

to discuss this. I will

1:04:31

say it's incredible how there was a thing with

1:04:34

clear product market fit

1:04:35

that was kind of unloved and unmaintained

1:04:38

and hard to discover. In our world of

1:04:40

podcasting, that was Apple Podcasts and

1:04:43

the small team at Apple that

1:04:45

was sort of looking after it. They didn't turn it into a real

1:04:48

business. There wasn't

1:04:50

like prioritization at the company. And

1:04:53

as a podcaster, it was always hard to like get in touch

1:04:55

with someone or be like, can I get editorial

1:04:58

on this thing? I don't even know. It's this weird black

1:05:01

box. It's basically just like a directory where like

1:05:03

it's a key value store on the left side. They have a URL

1:05:07

and on the right side, it just points to my RSS feed. And

1:05:10

then Spotify comes along and is like, oh, well,

1:05:13

we have tons of users. We're just going

1:05:15

to expose this right on the main feed. We're

1:05:17

going to redirect. So much of our

1:05:20

growth in the last year or two years

1:05:22

has come from Spotify

1:05:23

specifically because

1:05:25

more people are listening to

1:05:28

podcasts on Spotify. There's some cannibalization,

1:05:30

but there's an enormous amount of brand new

1:05:32

market because it's easy to find. As

1:05:34

a total neophyte to this world, right? Like

1:05:36

we have both been just gobsmacked

1:05:39

by how, what percentage of our

1:05:41

users are coming from Spotify. I would never have

1:05:43

predicted how big of an audience was on

1:05:46

Spotify because it just didn't occur

1:05:48

to me, right? That Spotify had done that well in podcasting

1:05:51

until we started releasing these episodes. And we were like, wow,

1:05:53

like more than 50% of our audience is coming

1:05:55

from Spotify. If you had made Gamecraft two

1:05:57

years ago, that would not be the case. It's

1:06:00

actually really weird. It's wild. Yeah,

1:06:03

it's wild. It's like there's this really interesting

1:06:06

opportunity in capitalism where sometimes there's

1:06:08

clear product market fit, there's clear heat

1:06:11

around a use case, and yet there's still

1:06:13

massive economic opportunity for some new company

1:06:16

to come in and say, oh, that thing, And

1:06:19

by the way, it happens again and again in the video game business. I mean,

1:06:21

you look at, so for example, the survival

1:06:24

genre, right, which started with ARMA

1:06:27

mods like DayZ

1:06:29

and H1N1

1:06:30

and sort of evolved

1:06:32

into PUBG and then into Fortnite, right?

1:06:35

But these were dead genres, right? These

1:06:37

were super geeky, hardcore kind

1:06:40

of weirdnesses, right? Tarkov,

1:06:43

right? Which now is like a dominant play

1:06:45

pattern in the kind of moba shooter industry.

1:06:47

Yeah, it's basically these genres emerge, right?

1:06:50

And it gives product market fit. And

1:06:53

then they realize, oh, wait, if we just make this maybe

1:06:55

more casual or we change the business model,

1:06:57

whatever it might be, they expand the overall

1:06:59

audience. And one of the most famous

1:07:02

examples right now is Fortnite comes

1:07:04

from PUBG and sort of stole that

1:07:06

whole reign, is actually Fall Guys, which

1:07:09

Fortnite or Epic bought.

1:07:12

And Fall Guys was this amazing party

1:07:14

game that they couldn't publish

1:07:16

on iOS because of the Apple lawsuits.

1:07:20

And so they never built a mobile game for

1:07:22

it. And then there's these

1:07:24

three guys in Finland made basically

1:07:26

the same exact game, pushed it on mobile.

1:07:29

It's called Stumble Guys. And then it gets acquired by... I

1:07:32

mean, it's like one of the number one apps for the entire year,

1:07:34

number one games for the entire year and

1:07:36

gets acquired by Scopely. And then

1:07:39

Mitch was showing me the other day, the biggest game in

1:07:41

China is

1:07:42

this game called Eggie Party on

1:07:44

mobile. And that is actually

1:07:46

literally just a Fall Guys clone. It really

1:07:48

is. It is kind of remarkable. I mean, look,

1:07:51

you could argue World of Warcraft was

1:07:53

this, right? That like there

1:07:55

were, you know, you started with Ultima

1:07:58

Online and EverQuest and these

1:07:59

But they were all that we made a joke

1:08:02

in the video. They weren't ambitious enough. Well, and they

1:08:04

never, yeah, they weren't ambitious enough. They weren't, they

1:08:06

didn't reach out enough. Like they were very

1:08:08

content to serve that core 500,000 users. And

1:08:11

the joke at Activision back in the late 90s, early

1:08:14

2000s when I was working there was, there was a herd

1:08:16

of 500,000 users who just migrated

1:08:19

from one MMO to another, but the audience

1:08:21

never grew. And then boom, World of

1:08:23

Warcraft basically does this, right? They

1:08:26

find the product market fit and just like, and

1:08:29

just embrace it and blow

1:08:30

it out. And it's 17

1:08:32

years later, it's still a number one product.

1:08:35

I want to pick up on something Mitchie said a minute ago

1:08:37

about how you roll. And I

1:08:40

think it also might be

1:08:42

relevant far beyond games. And

1:08:44

some of you are investing beyond games too. You

1:08:46

said you'd look for something that can have a distribution

1:08:49

advantage upfront, gain differential

1:08:52

profits versus your competitors and

1:08:54

then reinvest. Yeah. How

1:08:56

do you, once something starts, let's take a game. Once a game starts

1:08:58

to work,

1:08:59

how do you think about the

1:09:01

reinvesting piece? Like that's the customer acquisition

1:09:03

piece, right? Yeah.

1:09:05

What's that calculus for you? I

1:09:08

resist as long as possible going paid.

1:09:10

Although sometimes you're so profitable that

1:09:12

you can and not really mess

1:09:15

your margins up too much, right? But

1:09:17

I think once you start down the paid path

1:09:20

for customer acquisition, it's kind of a slippery

1:09:23

slope and it's a very difficult thing to come

1:09:25

back from because you become almost like

1:09:27

an addict to it. And you're so reliant

1:09:30

on it and you start to twist your mental

1:09:32

model to believe that like you're in

1:09:35

this lifetime value return

1:09:37

on investment kind of thing that is

1:09:39

unhealthy, I think. But

1:09:41

what I do love is doubling down on the

1:09:43

organic stuff, right? So like

1:09:46

in the that game company case, it's like, okay, we got

1:09:48

this thing crushing on mobile.

1:09:51

Let's look at some other platforms where

1:09:53

a similar kind of user could be aggregated,

1:09:55

whether it's Switch, whether it's like casual

1:09:58

PlayStation, et cetera.

1:09:59

and let's go after those and then

1:10:02

Apple wanted us in the arcade, we couldn't do it because

1:10:04

we wanted to be cross platform, right? And

1:10:07

they wanted exclusives. So it's

1:10:09

also what you say no to

1:10:11

during that because it would have been easy to say, okay,

1:10:13

hey, there's a couple million dollars of minimum

1:10:16

guarantees. But you're not gonna expand your audience

1:10:18

by doing it. Not gonna expand the audience. So it's

1:10:21

making those kinds of key choices that

1:10:23

continue to reinforce

1:10:25

the competitive advantage. Yeah, I think there's another

1:10:27

piece of this, especially for free-to-play games, where

1:10:30

live operations, keeping the events fresh,

1:10:33

adding new cosmetics in a game like

1:10:35

League of Legends is actually

1:10:37

where most of the reinvestment probably goes

1:10:40

versus any of the marketing.

1:10:41

Let's keep this game fresh because

1:10:43

in a lot of ways, when you launch a game

1:10:45

like League of Legends, that's just the starting line. And

1:10:48

they're still on a 10-year journey of

1:10:50

keeping this game alive and fresh. And that's

1:10:52

where a lot of the reinvestment goes in these

1:10:55

studios. How does the

1:10:57

level of and capital intensity

1:10:59

of reinvestment in fresh

1:11:01

content for forever games compared

1:11:03

to the old world of building

1:11:06

new package games for a studio or

1:11:08

a publisher? Oh man, it is fast

1:11:10

becoming like

1:11:11

an annual amount equivalent

1:11:14

to what an annual amount during production

1:11:16

was. So I don't know if that makes any sense, but let's say that

1:11:19

you were spending $100 million, God forbid,

1:11:21

let's say you're spending $50 million, it's like I'm breaking

1:11:23

out in hives, you know, saying that number. But

1:11:26

to build a package game. Let's say

1:11:28

it took you three years, right? So you're spending roughly $15

1:11:30

million a year, right? Like

1:11:32

I think you can expect to spend as

1:11:35

much or more on an annual

1:11:37

basis than you were spending in development in

1:11:39

LiveOps.

1:11:40

In LiveOps, wow. Yeah, and

1:11:42

that can cover anything from the

1:11:44

support side of this of when people

1:11:47

report toxic users. But really,

1:11:49

you see it a lot in the events of, oh,

1:11:51

I need to make new skins. Content refresh. Yeah, it's

1:11:53

like, or I need a new champion

1:11:57

in League of Legends. And when you think about League of Legends,

1:11:59

so.

1:11:59

of that game is actually around balancing. And so

1:12:02

then you're investing all this time

1:12:04

in QA testing and balancing and making

1:12:07

sure things don't break. And Riot

1:12:09

updates League of

1:12:11

Legends every two weeks. And every

1:12:14

two weeks, they're putting out new content. They're balancing

1:12:16

everything. And so that's pretty much

1:12:19

the entire P&L of that game at this point is

1:12:21

just keeping it fresh. Plus story

1:12:23

content, too, right? Like people

1:12:25

have realized the IPs for this has become

1:12:28

incredibly valuable.

1:12:30

Where are we in the esports journey

1:12:32

in terms of that being a sort

1:12:34

of reinforcing marketing strategy? And

1:12:36

I asked Blake because you asked

1:12:38

Blake for good reason. Because

1:12:41

you're going to get a very different answer if he asked

1:12:43

me. Well, I want both your perspectives. Actually,

1:12:45

I think we'll be closer than you

1:12:47

think. And then I think

1:12:49

it's I believe you helped start

1:12:52

famous esports team. So

1:12:54

you thought it was a good idea at some point.

1:12:56

Yeah, well, I would say like the. Not

1:13:00

to lead the witness. No, I think I actually

1:13:02

think if you like for 100 Thieves, which

1:13:05

is an esports organization that has

1:13:07

three pillars of it, which is content

1:13:09

and immediate side, has an apparel

1:13:12

side, which is also a thriving business,

1:13:14

and then the esports side. And the view was always,

1:13:17

which is probably similar to Mitch's, is that esports

1:13:20

is marketing. And the view

1:13:22

was how do you start a brand in gaming was

1:13:25

let's try and we'll go and get

1:13:27

a spot in League of Legends, which was franchising

1:13:29

at the time, that will legitimize the brand.

1:13:32

And then we will be able to, and while

1:13:34

hopefully that eventually figures itself out

1:13:36

and becomes sustainable, it will be great

1:13:38

marketing and distribution for legitimizing

1:13:41

a new brand in the gaming space. And I

1:13:43

think there's all sorts of nuances around

1:13:46

League of Legends esports

1:13:48

and Counter-Strike esports. And really, when

1:13:52

you say the word esports, and this is probably the real struggle

1:13:54

of it, is it's

1:13:56

quite literally just saying, what do you think of sports and owning

1:13:58

a sports team? And it's like... Every

1:14:00

single sport actually has its own pros

1:14:03

and cons to it. And there's certain

1:14:05

leagues that maybe accrue more values than not.

1:14:08

But for the most part, they really are like a marketing

1:14:10

engine. And they can be a marketing

1:14:12

engine for your organization if you

1:14:15

have set it up that way. But

1:14:17

for the most part, it's a marketing engine for the game itself

1:14:19

and keeping it fresh. That's actually

1:14:21

what I'm more curious about. David took it to enterprise

1:14:23

value of esports organizations, which I'm less

1:14:26

like... That's less interesting because it's an

1:14:28

obvious failure. No, it is. But

1:14:31

is it a good idea for the game? With

1:14:34

all due respect, there are some, yours,

1:14:37

Team Liquid, there's a few of them that have kind of transcended

1:14:40

and that are now brands in and of themselves

1:14:42

of a certain sort and can

1:14:44

sell merch

1:14:45

and other stuff like that. And they compete in

1:14:47

the League of Legends worlds and get a lot of exposure

1:14:49

and sell skins and all that other stuff. 100 million viewers

1:14:52

on that? Yeah. But even those are struggling

1:14:54

financially. Those are still not

1:14:56

great businesses, but they're kind of viable

1:14:58

businesses. But

1:15:01

ultimately, all of this

1:15:03

is accruing benefit to the League of Legends,

1:15:06

to the Overwatchs, to the CSGOs

1:15:09

of the world because that's really what it's functioning

1:15:11

as. It's basically like you're getting 30 million

1:15:14

people to watch League of Legends streams

1:15:17

during the worlds and those people are going to go play

1:15:19

more League of Legends and buy skins and whatever. And

1:15:21

it's like when the Chinese team won

1:15:23

worlds, the Riot guys were like

1:15:26

throwing confetti because when the Chinese

1:15:28

win, it's like $150 million

1:15:30

revenue opportunity in

1:15:32

terms of increased unexpected

1:15:35

sales of skins.

1:15:37

When I think about why I was excited

1:15:39

or why I actually still am excited about

1:15:42

esports

1:15:43

is video games, especially a

1:15:45

free to play game like League of Legends,

1:15:47

it feels different than let's say

1:15:49

soccer or basketball. In

1:15:52

basketball, I know at a very young age, I'm

1:15:54

not going to go pro. And

1:15:57

I also don't have any real way

1:15:59

to even play with the players.

1:15:59

people of similar skill level of me, like in

1:16:02

my neighborhood. And I think when

1:16:04

I play League of Legends, there's clear signs

1:16:06

of progression. And I actually just think

1:16:08

the average person probably feels like it's more achievable.

1:16:11

It's more if I hadn't been at ours, I

1:16:13

could go pro in League of Legends. The

1:16:16

average person might actually say that. So more like golf

1:16:18

or tennis maybe than a team

1:16:21

sport? Yeah, I would just say you think so

1:16:23

much of the skill just feels more obtainable.

1:16:26

And because you're seeing another kid in

1:16:28

a town who's

1:16:29

making money, you're like, that could be

1:16:32

me if my parents just let me play. And

1:16:34

it's even better, it's way better than golf or

1:16:36

tennis because the

1:16:37

barriers to entry are so much lower. You don't need the money.

1:16:40

You gotta have a lot of money if you're gonna play golf or tennis. Yeah, and

1:16:42

you're immediately queuing up against the best in the world, right?

1:16:44

But I'm just thinking about it in terms of participatory

1:16:47

with a smooth continuity to pro. One

1:16:50

of my favorite examples is you

1:16:52

think about, there's a streamer named Tifu

1:16:54

in Fortnite.

1:16:56

He got famous because he ended up

1:16:58

in the same lobby as Ninja

1:17:00

and he just absolutely styled on Ninja

1:17:03

on a stream and his name was twitch.tv

1:17:05

slash Tifu. Truly

1:17:08

any given Sunday for everybody. Yeah, it

1:17:10

would be like imagine just being able to go and play pickup

1:17:12

basketball with LeBron and LeBron

1:17:15

wouldn't do that because he'd risk getting hurt and

1:17:18

all this stuff. Whereas Ninja's playing

1:17:20

all day and if you style on

1:17:22

him, there's a real chance for you to get famous. And

1:17:24

that part, there is just a difference of

1:17:26

like the dream is obtainable and

1:17:30

that is just so compelling to me. In

1:17:32

that way, I think it's very similar to what we saw

1:17:34

during the poker boom, right? Where

1:17:36

people were playing online and you

1:17:39

could play into the World Series of Poker,

1:17:41

right? Like from those online

1:17:43

games. And so there was like, I think that's

1:17:46

kind of an interesting analog. Yeah, yeah,

1:17:48

and actually

1:17:50

Valorant, for example, just recently

1:17:52

released this sort of semi-pro

1:17:55

mode where you

1:17:57

have a team and actually let you run tournaments.

1:18:00

And eventually, if your team gets

1:18:03

high enough up the ladder, they will play in

1:18:05

essentially the World Cup. And I think that

1:18:08

is just so amazing of selling

1:18:10

that dream. Because it's not even just selling

1:18:11

it. It's like sort of real, and

1:18:14

that there is going to be someone's life who's changed if they

1:18:16

get discovered. And that's just amazing. And

1:18:18

so back to the earlier conversation

1:18:20

about

1:18:21

reinvesting in the game over time,

1:18:24

like what an incredibly leveraged way

1:18:26

for successful forever games

1:18:29

to... like the ROI on

1:18:31

investing lots of capital in

1:18:33

your esports ecosystem is going to be very high.

1:18:36

Very high if it works. Yeah.

1:18:38

Yeah, and there's a lot of different approaches

1:18:41

for what it's worth. Like you look at Counter-Strike

1:18:43

and Valve, and they've taken a very... like

1:18:46

they just don't really care. Yeah, it's more like golf.

1:18:49

It's more like the PGA where they sanctioned

1:18:51

events, right? As opposed to basically

1:18:53

owning the league, right? They'll

1:18:55

co-sign like four tournaments a year.

1:18:58

They'll call them majors. But there's hundreds

1:19:00

of tournaments that happen outside of that. And

1:19:03

as a team, you choose which ones you go to. And

1:19:05

actually the real reason why the esports boom happened

1:19:08

from an investment standpoint is you

1:19:10

finally had the publishers like

1:19:13

League of Legends stepping in and saying, no, we're

1:19:15

going to try and run this like a sports league where

1:19:18

teams are able to buy a franchise spot. This

1:19:20

should be like the equivalent of a

1:19:23

token somewhere to an MLS team. There's

1:19:25

a lot of things. But really it goes

1:19:27

into... Can this

1:19:30

accrue value? And I

1:19:32

think that's really a different dynamic. And I

1:19:34

spent five years talking to those owners, like

1:19:36

the existing sports owners who had terrible

1:19:38

FOMO from like

1:19:40

dumping money into these things. And some of them took

1:19:43

my advice and some of them didn't and ended up in, you

1:19:45

know, with some really dead assets. But that's what... that

1:19:47

was Bobby's strategy. That was the League

1:19:50

of Legends strategy. Bobby got people so

1:19:52

whipped up. Whipped up because he was basically like, look,

1:19:54

I'm going to... this is the next NFL. Get

1:19:56

in now where it's still... where you can buy in for

1:19:58

tens of millions of dollars.

1:19:59

as opposed to tens of billions. And this is the Overwatch

1:20:02

League, indeed. Yes. Yeah. And

1:20:04

by the way, that's,

1:20:06

I think, even me at that time was

1:20:08

telling people that's probably not the wisest thing, especially

1:20:11

when you think about it's not even a forever game. And you were working

1:20:13

for a sports program. Yeah. Yeah. Right.

1:20:15

And that was a game that's a $60 package good

1:20:18

that's trying

1:20:20

to be an e-sport. And my brain

1:20:22

just sort of broke at that moment. I'm like, OK, at

1:20:25

least let's think about the incentives here. Like, we're

1:20:27

going to align this. That's a completely different business

1:20:29

model and game overall, at least

1:20:31

in League of Legends, incentive is still to keep this

1:20:33

game alive for hopefully forever. And

1:20:36

that could accrue differently than something like

1:20:39

an Overwatch League.

1:20:40

And now it is time to tell you about another one

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So she left and started Seek.

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After she raised an angel round, her

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of course, she called other great friend of the show, Vanta,

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to get SOC 2 compliance certified.

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This acquired cinematic universe is blowing my mind.

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working with Vanta, she realized she also

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and David sent you.

1:23:18

Thanks, Vouch. So we were talking

1:23:20

a minute ago about in gaming,

1:23:23

as in many corners of the internet and

1:23:25

investing, there are things that

1:23:27

have lots of usage but

1:23:30

have not attracted a lot of capital

1:23:32

or attention or care.

1:23:35

Perhaps we could talk about the

1:23:38

opposite of that with Web3

1:23:41

and crypto over the past few years and specifically

1:23:43

Web3 and crypto gaming.

1:23:45

You end Gamecraft, to

1:23:48

my mind, kind of on a hopeful note about that. Would

1:23:51

you agree? How are you feeling about it? I do

1:23:53

and I have been incredibly

1:23:55

skeptical, right? And I'm primarily

1:23:58

skeptical because it's...

1:23:59

It's a character flaw of mine that I am part

1:24:02

of the original tribe. I'm

1:24:04

part of that OG gaming tribe.

1:24:07

Maybe slightly younger than the real OGs

1:24:09

being in Tripp, but still

1:24:12

part of that generation. I still

1:24:14

am very protective of the video game business

1:24:17

because it was this kind of nerds

1:24:19

paradise back in that day. I'm

1:24:22

always resistant to tourism. I'm

1:24:25

always resistant to people coming in from

1:24:27

outside and claiming it as their own. It's

1:24:30

a character flaw because I should be big

1:24:32

tent and I'm just not.

1:24:35

At the same time, Riot

1:24:37

was that, right? They never made a game

1:24:39

before. They never made a game before, but man,

1:24:42

those kids were so down.

1:24:44

No, they were super hardcore. I

1:24:49

would have adopted them. They

1:24:52

deserved to be in the tribe. They embraced

1:24:55

the tribe. A lot of the early Web 3

1:24:58

gaming content came from

1:25:00

crypto people slumming in games,

1:25:03

who had no idea what they were doing, who

1:25:05

made really crappy games that were really

1:25:08

just

1:25:08

an opportunity to mint

1:25:11

and launch NFTs and participate in

1:25:13

an NFT

1:25:14

marketplace that had some lightweight

1:25:18

game mode that was associated with it. There's

1:25:21

a bunch of those out there and I don't want to go through them chapter

1:25:23

and verse, but they're hideous.

1:25:25

This new crop that we're starting to

1:25:27

see now, and I just actually invested

1:25:29

in one, oddly enough, just

1:25:32

recently, Supercell,

1:25:34

the Finnish game company,

1:25:36

and I made a joint angel

1:25:39

investment in a deal that has a

1:25:42

component of this. You saw Eve

1:25:44

Online just raise $40 million

1:25:46

led by Andreessen Horowitz to make

1:25:49

a crypto-enabled version of Eve.

1:25:51

Oh, I didn't realize that. Eve is like a long

1:25:53

running ... I mean, that's a 15-year-old. 15, 20-year, 18

1:25:55

years, I think. Icelandic

1:25:59

gaming company?

1:26:00

So now you're seeing game people who've

1:26:03

had a chance to kind of digest the technology

1:26:05

and see if they can find an organic

1:26:08

use for it, start to bring product to market. And

1:26:11

that gives me a bit of hope, right? Because

1:26:13

maybe because it aligns with my narrow

1:26:15

view of the games business, but maybe

1:26:17

also because we're going to get good games out of

1:26:19

it that don't seem like scams. And

1:26:22

so for our audience who's not been

1:26:24

paying attention to Web3 Gaming, how

1:26:26

is it mechanically different

1:26:28

than traditional game business

1:26:30

models or even let's just say that the

1:26:33

current most popular free to play business

1:26:35

model of gaming.

1:26:36

What new things does

1:26:39

blockchain unlock? The good news

1:26:41

is not that much, right? No, I

1:26:43

honestly believe this, right? I

1:26:45

think the best of them

1:26:47

adhere very closely to the conventional

1:26:50

models and they use the crypto

1:26:52

component really almost to maybe

1:26:55

improve or enhance an elder game. So

1:26:57

for example, if you've been playing for a while and you're kind of bored

1:27:00

with just grinding on the underlying

1:27:02

free to play progression mechanic, there's

1:27:04

another sphere where you could play, right? Where

1:27:07

you could take your character and mint it as an NFT.

1:27:10

It gives you certain benefits in the underlying

1:27:12

game, but it's kind of gives you status that

1:27:15

in the status competition that you and the other like

1:27:18

very advanced players are engaged in. Because

1:27:20

at some point, if you've been playing World

1:27:23

of Warcraft for 15 years, you're not

1:27:25

running around killing chickens for gold, right? Like

1:27:28

you're playing a very different kind of game and

1:27:30

you're playing kind of a social game, right?

1:27:32

And so I

1:27:34

think there's aspects of that that can be enhanced

1:27:36

and enabled with the Web 3 technologies

1:27:39

that actually are additive to the gameplay.

1:27:42

And I think that's exciting to me. What's

1:27:44

an example? I'm not going to tell you. You

1:27:47

could imagine Eve

1:27:50

with this. Yeah, I mean,

1:27:52

he's a good example. So they're going to have a token

1:27:55

and that token is going to be useful

1:27:58

in the game.

1:27:59

in a way that's not pay to win, right?

1:28:02

Which is the death of a free to

1:28:04

play game, right? And Blake

1:28:07

is almost a religious fanatic around play

1:28:09

to win. Why do people do pay

1:28:12

to win then?

1:28:13

Like it will kill your game. Because

1:28:15

it works. Because it works in the

1:28:17

short term. I was talking about this with someone

1:28:19

at SuperSew recently. And I think like

1:28:22

Clash Royale, if you play that game,

1:28:24

has some real pay to win mechanics. It's like

1:28:26

softer. Where you can

1:28:29

go from, you could probably spend 100

1:28:31

hours playing that game completely free to

1:28:33

play. And it's balanced and great. But

1:28:35

once you hit a certain point, it's like, oh you hit

1:28:37

a wall. Like it's

1:28:39

gonna take a while to grind out here. And so

1:28:42

either like spend or you're gonna be playing

1:28:44

this game like eight times longer than the person you're

1:28:46

playing against. And I think that's

1:28:48

one way that you see it. You typically see that more on mobile.

1:28:51

But if competitive integrity isn't

1:28:53

the goal of your game. Like from a multiplayer

1:28:56

standpoint, then it's way easier to do

1:28:58

more pay to win stuff. Fair enough.

1:29:00

So when social status is a key

1:29:02

component of the game, that's when pay to win

1:29:05

is the worst thing you can do.

1:29:07

Yeah, well I would say. Leaderboards.

1:29:11

Yes. I mean in progressive

1:29:14

status, yes. Yeah.

1:29:16

If your rank meant something

1:29:19

in League of Legends, which it does, if there

1:29:22

was a way for you to pie the highest

1:29:24

rank, that game would break. Like it would just

1:29:26

simply would break.

1:29:28

So wait, let's go back to the token notion.

1:29:30

So what is the token in Yvonne

1:29:32

Line? Okay, great. Now there's this like

1:29:34

crypto element. What can I do with it? So Hilmar hasn't

1:29:36

released the design yet. And because he

1:29:39

pitched Blake and I, I'm a little uncomfortable

1:29:41

discussing it. Of course. But let's just say abstractly,

1:29:44

it functions in a way

1:29:46

like a store of value,

1:29:49

almost like a super currency where you will

1:29:51

have the token as

1:29:53

well as an in-game currency. And

1:29:55

the token

1:29:57

isn't necessary and the token can

1:29:59

be acquired.

1:29:59

through play, but it has

1:30:02

some interesting properties that are

1:30:04

acquired through ownership.

1:30:05

And you're incentivized to buy

1:30:07

it

1:30:08

because it provides you with certain benefits

1:30:10

in the game that don't necessarily make

1:30:13

it competitively unbalanced,

1:30:16

but that

1:30:18

open up areas of gameplay that might be close

1:30:20

to you if you didn't own it. Interesting.

1:30:23

Very clever, by the way. Blake

1:30:25

and I have looked at a bunch of these things. Most of them are absolute

1:30:28

crap.

1:30:29

This one is really well thought out. He

1:30:31

has one of the best framings that I've ever

1:30:33

heard around this, which is, even

1:30:36

online the original, he's like, this is

1:30:38

Rome. And

1:30:40

you have broken sewage

1:30:42

and just no paved roads, all

1:30:44

this stuff. And he's

1:30:47

like, Web 3 and building it with

1:30:49

crypto rails actually makes

1:30:51

it look closer to New York City. And so he's

1:30:53

like, we'll still keep Rome, and that

1:30:56

version of the game will still be here. But now we

1:30:58

can build it with the right pipes and do

1:31:00

this the right way. And he

1:31:03

had this great line of, and you still

1:31:05

have Italians that moved to New York. And

1:31:09

he's like, it might take a bit, but they still

1:31:11

move over to New York. And I just think that's

1:31:14

the right way to think about it is there's very

1:31:16

different cities and people like them for their

1:31:19

own reasons. But in a New York example,

1:31:21

he just thinks there's a lot more you can do with the game.

1:31:24

And Eve is fundamentally an economic

1:31:26

simulation. Even though it has a veneer

1:31:28

of being a kind of space combat kind

1:31:30

of thing,

1:31:31

fundamentally 80% of the gameplay

1:31:33

is economic. Mining, trading,

1:31:36

manufacturing, et cetera. It is the perfect

1:31:39

vehicle. Yeah. Like,

1:31:42

if this game doesn't work,

1:31:44

it will be actually very telling of

1:31:47

the current. Because if it works anywhere, it should work

1:31:49

here. Exactly. Yeah, like it is a perfect

1:31:51

application. There's a real question of is this game

1:31:53

still a viable game that people

1:31:55

want to play in That's

1:31:57

maybe a different question, but it is the perfect.

1:31:59

vehicle for Web 3. I

1:32:02

ask these questions because my skepticism has sort

1:32:04

of come from ... There's all these egalitarian

1:32:06

notions of,

1:32:08

in the Web 2 world, it's awful

1:32:10

because you have to pay the gaming company

1:32:13

for the items. But in

1:32:15

Web 3,

1:32:15

you can actually own your own loot, and

1:32:17

then you can all trade that around, and you don't have

1:32:19

to go ... Not everyone has to go back to the store to buy

1:32:21

the thing. You can buy it peer to peer. And in my head,

1:32:24

I'm always like, well, that sounds nice, but why would

1:32:26

a gaming company ever enable

1:32:28

peer to peer sales when their

1:32:30

whole business model is having them buy the goods

1:32:33

from you? Because they

1:32:35

can hopefully increase the size

1:32:37

of the pie,

1:32:38

incentivize you to trade at a

1:32:42

much greater volume and harvest

1:32:44

transaction costs. Look at Roblox.

1:32:48

Roblox doesn't have a Web 3 component, or at least not

1:32:50

yet, but man, it's got

1:32:52

a very viable peer to peer economy

1:32:55

in it, and Roblox is the most highly

1:32:57

taxed app store on Earth. Because

1:33:01

you get paid as a developer

1:33:03

in Robux, so when you're

1:33:05

extracting those, they're taxed. Right. It's

1:33:08

not Roblox isn't

1:33:08

Web 3, but it might as well. It might as well be. It

1:33:11

might be the most successful Web 3, quote unquote,

1:33:13

Web 3 application out there. Absolutely. And

1:33:15

so I think the last time I calculated the total

1:33:18

tax, the gross tax, was somewhere close

1:33:20

to 60%. It was like 57% of ... Yeah. I was

1:33:22

going to say, the last I heard is

1:33:24

like 55% to 60%. Yeah. Because

1:33:27

it just keeps compounding. Every time that Robux

1:33:30

moves between parties, it just keeps getting ... And

1:33:33

like Twitch and like

1:33:35

YouTube gaming and other things, where there

1:33:37

was this incredible feedback

1:33:38

loop, and we talk about this a bit in our user-generated

1:33:41

content episode in GameCraft, Minecraft

1:33:43

for example, where they just crossed

1:33:45

the one trillion view

1:33:48

mark on YouTube

1:33:49

of Minecraft related videos.

1:33:52

You know what? The company that made that, Mojang,

1:33:54

didn't make any of those videos. They

1:33:57

were 100% made by the community. Right? Yet

1:34:00

that community was highly incentivized because

1:34:02

they had an economic incentive because they became

1:34:04

famous. They became rich by becoming

1:34:07

Minecraft streamers, by becoming Minecraft

1:34:09

YouTubers. And the same

1:34:11

thing is happening inside of Roblox in

1:34:13

a certain way. And I think the dream

1:34:15

of the Web3 space is that this can be

1:34:17

more broad than even that. I would say even

1:34:20

you look at a game like Counter-Strike and a lot

1:34:22

of people don't look at Steam and view

1:34:24

it like an open sea or one of these marketplaces.

1:34:27

But in

1:34:29

Team

1:34:29

Fortress 2 and in Counter-Strike,

1:34:32

they introduce these virtual goods and they're literally

1:34:35

just cosmetic. But you open a loot box, you

1:34:37

get the skin, and those

1:34:40

skins have real value because it costs $2

1:34:43

to open up that crate. And you might have just got something

1:34:45

that's super rare. And in the public

1:34:47

market that is hosted on Steam, where

1:34:50

they take, I think it's 10%, they

1:34:53

are double dipping and triple dipping on the content that

1:34:55

they primarily issued. And they're getting all the secondary

1:34:58

sale of just recycling through of, oh, you

1:35:00

got a knife? I want a knife skin. That's like $400

1:35:02

is what those go for on that market. So Valvin

1:35:06

is actually the closest to probably Web3

1:35:08

being just open, where they

1:35:10

actually let you take these things off and you can transact

1:35:13

for US dollars if you want to. They'll

1:35:15

eventually shut down that site maybe. But it's

1:35:18

there. People use these accounts.

1:35:20

People spin up Steam accounts as escrow services.

1:35:23

And it's like they're bots. And there

1:35:25

are sites that just literally will transact for US

1:35:27

dollars. So I think there's

1:35:29

a lot to study there. And one thing

1:35:32

that Mitch and I always talk about is there is

1:35:34

a speculator problem in

1:35:37

a Web3 example, where if you truly

1:35:40

were looking at Counter-Strike and you wanted to buy,

1:35:42

in theory, you wanted to speculate, is Counter-Strike

1:35:44

going to be bigger over time? I should just buy

1:35:46

all these skins in the open market.

1:35:49

And that just raises the price.

1:35:52

And it's what we saw in crypto, where the

1:35:54

people who are owning these NFTs were never even playing

1:35:56

the game and you just priced out your average user. That's

1:35:59

one sort of thing.

1:35:59

unsolved or to

1:36:02

be determined problem. Yeah, I mean, Blake and I, Blake

1:36:04

and I talk about this, we call it the, you

1:36:07

know, the Bitcoin pizza problem, right? Which

1:36:09

is, you know, you have the person who

1:36:11

spent three Bitcoin back in the early

1:36:13

days on a pizza and that those

1:36:15

three Bitcoins are in today's dollars worth 75

1:36:17

grand. And so

1:36:20

you feel like a fool because you spent

1:36:22

that currency. And so when you're when

1:36:24

we're looking at web three related deals,

1:36:27

like solving that problem, like incentivizing

1:36:30

you so that you don't feel like an idiot

1:36:32

for utilizing the token

1:36:34

is a key, key factor in these games.

1:36:37

And I think it was one of the things that got me over the hump

1:36:39

on Hill Mars, you know, new

1:36:41

Eve game, right? Awakening, because

1:36:44

he actually had a really interesting solution

1:36:46

to that problem. And we've seen so

1:36:49

precious few good solutions to that problem.

1:36:51

And it's a double solve because

1:36:54

when something goes up a lot in value,

1:36:56

there's a problem because you don't want to spend it. And

1:36:59

the goal of creating any economy is dynamism

1:37:01

to create a lot of transactions and turnover.

1:37:05

Then there's the second problem of speculation.

1:37:08

When things go up a lot in value, it encourages a lot

1:37:10

of people to speculate, brings in the wrong sort of people, makes

1:37:12

the game not fun, messes up the incentives for everyone. So

1:37:15

if it doesn't have that problem, then you solve

1:37:17

two issues. Yes.

1:37:18

Yeah, it's really tricky. And

1:37:21

I don't think anyone has solved

1:37:23

it yet. But we're certainly finally starting to see

1:37:26

some people have theories around how to solve that. And

1:37:28

it will be really interesting to see it play out because if

1:37:31

you can solve it, then there's no reason why

1:37:34

these things shouldn't exist in games moving

1:37:36

forward.

1:37:37

Yeah. So when we were going

1:37:40

back and forth on what to talk about on this episode,

1:37:43

Mitch, I think it was you in our shared doc

1:37:45

here, had quite a few thoughts

1:37:47

that you wanted to add on to our Nintendo

1:37:50

episode.

1:37:52

Specifically, I thought the most interesting was around

1:37:55

our assertion that the NES was the

1:37:57

first consumer device.

1:38:00

with a GPU architecture. Right, your PPU

1:38:02

discussion. Yeah. Yeah. And yeah,

1:38:06