10 x Co-Development Trends: Why the Best Studios Are Scaling Without Hiring

Carla Rylance, welcome to the podcast. Thanks, Mishka. How you doing today? Oh, well, you know how I'm doing. We had so many technical issues just before we started. You'll be looking at me for like a pretend like nothing oh, very English of you. Exactly. So Smile and nod and it will be fine. No, we keep it real. So So, um um Carla, you are let me just introduce you quickly to the listeners. You're an external development expert. You've been 20 years in the industry. Mhm. Longer than myself. You look much younger than me. So, just podcasting life is tough. Podcasting life is tough. You get you get dog years over here. Uh and uh you are advisory committee chair at XDS and you are consultant for XDS Spark

and today we are going to talk about the XDS Insights Report. Can you just give two words, three words, five words, 20 words about what is the XDS report? Because it was massive. It had a lot of words in it and a lot of pictures. It did. Yes. And people can download it from the description below, by the way. Oh, that's perfect. Thank you so much for that. And yeah, it's it's available on the XDS website as well. But yeah, um the report was authored by Dave Lamb and he did an absolutely amazing job on this year's report. As you said, it's full of data. I think there's there's like 50 pages of external development data in there. And he's executive producer at um NetEase and he's also a member of our advisory committee for XDS. Um XDS is the external development summit for those who don't know. It's um an annual conference that's held in Vancouver every September. Great time of year to visit Vancouver. It's very busy

in the summer and always great weather. We've got a great venue um for the conference. It's all focused on external development. So, if anyone wants to go and advance their external development processes and pipelines as well as meet um developers and service providers from all over the world. It's like the best place to do it. And um every year we release the XDS Insights Report and it's focused on trends and uh progress and pipelines and everything to do with external development that you want to know about what's going on in the external development landscape. And right now, I think it's a super important report for anyone who's in game dev to read because personally I feel that external development's going to become more and more utilized over the next few years, especially as like we've we've seen fluctuations in the industry to say the least, right? Um so, I think that um

people are going to start at least considering start considering external development more and more and like how to do it efficiently, how to do it properly, how to do it ethically. And so, for anyone who is like, I need to learn more about this, the Insights Report is a great piece of information to go ahead and start reading and start getting acclimatized to the landscape. And for those who are already doing external development, they've been reading it for years and and go and see what's changing and um what they need to bear in mind for their external development strategies. Um so, yeah, it's uh it's a it's a uh a great document. We definitely recommend give it a read. It's very pretty as well. Mhm. Uh yeah. Not not the easiest to read because I'm I'm not the smartest person as anybody listening to this podcast knows. It takes me it takes me a moment to to understand what's happening in the graph. So, I thought that since we're doing so the the report is about like

40, 45 pages or 60, I don't remember anymore the number. It was number. was massive. So, I pulled I think like 10 slides and what we're going to do in this podcast, I'm going to just as we discuss show some of these slides because the graphs are interesting. It takes a moment to understand. Uh and the graphs will support the conversation. So, folks, if you are listening and you're listening on Spotify, then you can watch the video or you can just go to the YouTube, subscribe, like, you know, do all the shenanigans to uh to provide that good boost to the channel. Anyways, enough of the shilling. Let's talk about external development. And the first of course question is like what has happened really since the COVID boom? So, the it was quite interesting when COVID first came about. I'll just go through a little bit of a story of like my experience from it. So, like when when it first came about that we were all going to have to go home from our

offices and work from our office for two weeks as it was going to be originally. Um I I was working as an external development manager at the Coalition at the time working on Gears 5. And um the the the leadership team came to me a couple of times and actually asked for my advice because I'd been working with people externally to the studio Oh, yes. That's true. for many years. And so, they're like, how do we work with our newly distributed team because everyone is now remote and everyone's now working from home. So, it was actually a really interesting exercise to support that larger team and help them figure out what processes needed to be to be put in place. And I think that um people started to embrace external development a little bit more since COVID happened because of that because everyone at that point was almost working externally, you know.

And so, that was a really interesting exercise. Um but um yeah, since then um I feel like strategies have changed slightly when it comes to external development. I think not only has um the COVID boom changed a lot about what what we're all doing in with in um game development, but I think it's now changing that external development is starting to become more of a a considered way of um uh flexible and scalable game development. Um it's also helped the industry to lean more into more um mature external development practices. Uh so, it's it's not all so much like let's throw this work over the fence to an outsourced provider anymore. A lot more game studios are starting to

consider how to use external development to um make our processes more streamlined, how to bring more value to the games that we're making. So, more and more game dev studios are starting to consider co-development style relationships where they're using their external partners to be an integrated extension of their team, um which is becoming more and more popular. That word co-development is almost used hand in hand with external Mhm. Mhm. Which is That's changed a lot over the last 10 years. Um the the we started to hear the word co-development about about 10 years ago at the external development summit and that's been talked about more and more um over the past few years and I really think it's becoming a um an integral word within that ecosystem of making games right now, which is really really great. Um and then I don't remember the question now. I

went off on one. Help me. So, well, not really. So, you talked about the uh the longer trend line. But let me let me talk to you a little bit about the other graph that I'm showing here. So, uh what we're seeing in the COVID graph the COVID graph, we're seeing a COVID bump in the external development graph. And what we're seeing is 2022, uh when you look at the columns, it's basically the budgets for over $50 million spend on external development just blows up. Like it there there was a little bit and then it goes like what, five, sixfold? And that amount of large external development spending has pretty much stayed the same. And what we can see proportionally that there has been less and less of those sort of a smaller um external development under 500k, around like between 500 and a million, uh that has been quite minimal. And instead like these big spenders as well as the sort of a, you know, 6 to 10

million range of external development has proportionally increased significantly. And according to the other report, it says like 70% of publishers now spend over 6 million a year on external development. So, as you said, like the COVID really affected in the sense of the budgets getting larger, meaning that there's more work that is handed over to the co-development or external development partners that are essentially seen as co-development. And that, as you say, brings the flexibility. So, less fixed employees that that are, you know, you know, well, we know everything about fixed employees, good bad good things and and and uh challenging things because you have a lot of success to employ armies of developers. And And there's a flexibility with external development. Webstores, you've seen what good looks like, but have you seen great? AppCharge is the direct-to-consumer platform backed by the likes of Supercell and

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game engines, Heroic Labs is doing the same for back-end game tech. Our open-source platform Nakama has nearly 10 million downloads and powers thousands of games worldwide. Heroic Labs, proven for 10 years, built for the next 10 and beyond. It's very true. Like, developers are trying to find creative ways to make more efficient budgets and processes. And what's kind of great with all of these amazing external partners that you can find around the world is they've worked with a lot of different developers as well. They've seen a lot of different ways of doing um development. They've worked on a bunch of different pipelines on so many different games with so many different clients. They're actually a great resource to chat to you and figure out, "Okay, you've seen this in hundreds of different ways. What can we do with you to make our pipelines even

more efficient?" So, not only are developers utilizing it to create that stability and that flexibility, but they're also using external partners to help find creative ways of creating even more value and even more efficiency. Um but yeah, this this graph is really interesting this year. I mean, spending over that 6 million mark has definitely gone up, and it's been going up since COVID, as you can see here, since like that 2021 um year. It's been increasingly going up. But yeah, that there's a huge jump in that 6 to 10 million spend bucket this year. There's a slight dip in that 50 million plus spend bucket, which I find interesting. I'm not exactly sure why that is yet, but it's it's only a small like a teeny tiny little little reduction. But yeah, that 6 to 10 million bucket has grown a lot. So, we talked about the uh the good old budgets and and who's making what money

uh in in external development, and it it's uh it's a interesting graph. But, the next point that will be interesting to talk about is the um the use of AI, and of course Big subject, as always. Big subject. Everybody's talking about it, how AI is going to take everything. And and you had a really interesting graph here that talks about um On a different slide, I'm presuming. Yes, on a different slide. See, I I took the uh the wrong one. This is This is Here it is. So, is a really interesting slide. We can continue talking about Yeah, we can. We can. We can. Let's let's AI. Yeah, let's let's let's talk about rather let's talk about this one. Okay. Okay. So, usage of AI in external development. Now, what is fascinating about this one is does your company utilize AI? And we can see that 78 publish 78% of publishers do

utilize it. And there's interesting changes. There's a publisher and a service provider. And on the publisher side, we can see that their yes goes from 2024 way up in 2025, where it's over 50% are utilizing AI. And um 25% are saying, "Not today, but likely over the next year." So, really, really soon. And at the same time, uh the service providers, the external developers, are exactly the same year over year. So, only about 27% of service providers, those who are supposed to be, you know, the uh the efficiency boosters, only 27% of them is using AI. And 50% is essentially saying, "No." Uh they were saying a little bit less than 50% were saying, "No." in 2024, and 50% So, more more of these service providers are saying, "No." in 2025. What does this mean?

It's very interesting, isn't it? And I found that the conversation of AI has been slowly like morphing over the past few years at XDS. Like, um 2 years ago, the conversation of AI at XDS was kind of like, "We We kind of No one likes AI. Why is it even here? Like, will it just leave?" And then last year, the conversation was more like, "Oh, AI is definitely coming, and I'm curious about it." Whereas this year, the topic of AI with the community is more like, "Oh, okay. Like, it's here. I'm already using it here and there. But like, how can I actually use AI within external development to make things even more efficient when I'm working with external partners?" Um so there has been a slow uptake of embracing AI a little bit more. Um as you've said, like, it's so

interesting here that the there's a difference between the service provider and the publisher this year. Like, the uptake from publishers of using AI this year has grown like Yes. It's almost doubled, right? And um I think there's probably um I think there's there's a lot AI has become more accessible, I think, at least as well. Um especially when it comes to um writing things. It's almost like you can't access an app without having that there at your fingertips. So, when it comes to using AI on the developer side, it could come in use when it comes to um writing briefs, for example. Like, "Help me write this brief for this thing." And it will give you a template. It's, "Oh my gosh, look how much time I've saved here." Or it could be I want to make sure that this email that I'm writing is going to be um easily read

and understood by someone who lives on the opposite side of the world, you know? It's It can help make things so much more efficient when it comes to external development. And I think people are starting to take more and more advantage of that. Um and then um on the service provider side, they're probably a little bit more prohibited because it could be that their contracts that they have in place with their developers or publishers literally say, "Don't use AI." And I'm like, "Oh, okay. Well, I can't then, can I?" And so, Yeah. it's it's probably I don't know. It's probably more like they're being told they can't use it, so they so they can't. You know? But developers probably behind the scenes like, "Whoa, I've been giving the okay to do this." But maybe it might just take a little bit more time for it to become accepted for external partners to use it. I don't know. Because like, when we look at the top three best use cases for the future of AI implementation again from the XDS report, uh we can see that when it comes to publishers, naturally, publishers are out of ideas,

so they they use AI. So, that's the that's the overwhelming use case is idea generation. The second is concept art, and the third one is QA. QA, by the way, is uh there's an onslaught on QA. It's horrible. What do you mean? Anyways, it A lot of QA people looking for work. Good QA people. Oh, yeah. Of course. Like, really, really good. I've been Anyways, we're we're deaming hating away. That's a AI versus QA. It's a One is one is providing a smackdown. Uh anyways, and uh service provider side, we see that the procedural content generation is actually number one use case. Programming, number two. And concept art concept art, number three. That's another another one. That's such a tricky one. Oh, it's a I I talked yesterday to a really, really good art director from one of the you know, top 10 studios. And he said he he kind of whispered to me because he forgets I'm not an artist.

You can see you can Like, I'm I'm a business person. He's like, "You know what? He's like, the the work that their AI tools are now doing, internal AI tools, is as good as their concept artists." Oh, man. I was like, "Yeah." Yeah. That's a rough That's a rough um revelation. So, early in AI. Yeah, I know. And you know, these are all It's so tough because these are all going to hurt people. Like, how good this AI is getting in all of these different sections, you know? Like, idea generation, concept art, QA, um content, programming. It all affects real people as well. So, every single one of these conversations is extremely hard. Um I think a lot of the conversation when it comes to external development and using AI is like

taking the work away that is a grind. You know, the the stuff that you don't want to be doing because you want to be spending more time on um ideation and the fun parts of game development and the bits that you don't want to do, see if you can get AI to take some of that load off and and do some of that work for you. So, that's one of the conversation that goes on in just general game dev as well as external development really. Um I've been hearing concept art AI being used to create reference boards or to help add quick ideas to briefs to be sent to external partners to help them do the the concept art or the the say for example or like 3D art. Um but I haven't heard an instance so far where AI concept art has been used as like final pieces.

Um There has been Personally, oh probably, yeah. Yeah, no, yeah. There there there were some like they were like, s- you know, outrages from the developers. I think it was Riot that used Maybe not. Maybe somebody else. a marketing piece? Yes. Yeah, yeah. Yeah, I read that. Yeah, and then there were Adidas campaign that was fully made with AI with dancing, you know, people and so forth. Oh, I've seen some adverts on bus stops and stuff Yeah. where art is being used to tell, right? I I think, you know, I mean it's like watching on Instagram. Uh it's also like, you know, manipulated. It's not Yeah. But but um but yeah, so it's and the report even calls out bait The report calls out that concept art is next. That's pretty brutal. I know. I don't I'm not I'm not up telling like, guys, like if you know how to make coffee or anything with with your hands that doesn't include drawing, now is the time. Yeah, it's it's it's tough. I on it but

honestly like I think there's still a lot of legal loopholes to get through before we get to that point. Um I I think it's I mean right now that conversa- that the legal conversation of AI is still very hot in the external development Yeah. I right now I get the impression that the community isn't quite ready to go that step further of saying, "Okay, well, this AI will be used in game." Like I haven't heard that from the community personally anyway, but in terms of idea generation um creating reference, I've heard that yeah, that's that's that's used. It's used and it it can be a really helpful tool. Yeah. Yeah. I'm surprised like localization isn't higher up on this list actually. Don't Don't Don't They're like, "Shut up. Don't talk about us." I know. I'm sorry. I'm sorry. Uh it's it's so true. It's so true. And um it's like QA is in

there. Like yeah, there's some companies out there that specialize in external development AI QA and it's really interesting. Listen, AI does podcast. Like I've listened to them. They're They're not that great yet, but so were the concept artists saying Yeah, but concept artists were saying that like 3 years ago, like, "This never going to replace us." So, I'm now saying, "Yeah, it's not going to replace I'm going to be a PT in 2 years." So Um And AI can't replace PT. They tried, but That's my get out of jail card. Um Let's talk about Let's talk about happier things and that is customer retention. Uh so, top criteria for developers publishers selecting external partner, that's the uh the graph and what we can see in the graph and the question is like if you are publishers are really switching partners

why is that? Because you would assume that the market situation is so tough and you're going to squeeze your external developer partner, uh you know, maybe change them around, but it's actually vice versa. So, 38% of publishers have no intent to switch partners. It is I I'm not surprised right now. The the market is very cautious, I would say, and a lot of developers and publishers are choosing to stick with the partners that they have because um well, one, like they're obviously getting the quality that they want, right? Because they have this established relationship and it's going well. They've ramped up their teams and um they've given them a lot of knowledge. They have a lot knowledge at that studio don't want to lose. It's there and a lot of those teams as we talked about earlier are co-dev. They're integrated. Like they feel like part of the team.

And so there probably is a hunger to just stick with what's comfortable. You know what their rates are. You know when their rates are going to go up. You can plan. You know, it's it's kind of like a nice comfy bed, right? And then you can kind of scale up with that partner as you need to. You'll have that flexibility. You have that trust there. They're going to If you've got that great relationship with them, then they'll know how to scale up in the right way and and how to do it um so it it doesn't cause too much of a problem like scaling up too fast or into an area that might not be the best fit. Um so, I get why people would be more likely to stick with their current external partners. As well like when you're diversifying the amount of partners that you're working with it's it's not as simple as just going, "I like that one. Let's go with them." You know, there's if you want to do it properly and if you want to do it

ethically you need to do your due diligence. They need to do A developer needs to do their due diligence on the service provider and vice versa to make sure if it's going to be a good fit. There's going to be um testing periods. There's going to be pilot periods. There's also onboarding, training. All of that like it's it's a fairly robust undertaking. And when developers are in the position where they're like, "Let's just stick with what we what we know right now. Let's be cautious." Diversifying with new partners becomes more challenging, right? But then also at the same time like I think it's it is important to diversify the partners that you're working with and to have a s- a selection um that you trust and that you know you can go to. Well, it gives you additional flexibility for one, right? But then if anything happens where um say for

example that service provider like they they can't scale up the way you want them to that they're full. Like that they don't have any capacity. Like you then have other service providers to lean on that you can scale up with. Um but then there's also other situations. Something happens with the service provider and it it becomes too rocky for them to actually keep going with that project and so then you have no external partner. You need to have a pool of multiple really to to make things stable when it comes to external development preferably anyway. Attention app and game developers. Are you ready to unlock the secrets behind the world's top performing apps and games? With Sensor Tower, you get the ultimate competitive edge. Whether it's breaking into new markets, fine-tuning your UA strategies, or boosting monetization. Dive into data like never before. Track

global trends across app stores. Analyze market-leading in-app purchase and in-app ad strategies. And benchmark your performance with real-time insight. The best part, Sensor Tower doesn't just deliver data, it helps you turn it into action. With intuitive tools and expert analysis, it's everything you need to make smarter, faster decisions. Thousands of app and game studios from indie creators to global giants trust Sensor Tower to help them win. So, why not you? Start your free trial today at sensortower.com. That is sensortower.com. Yeah, to summarize few things though. Uh the trend is showing that the quality of work, which is the number one criteria, is actually decreasing as the uh as the first and most important selection criteria. Mhm. At the same

time, we're seeing that rates are becoming more and more important. So, there is definitely that squeeze. And there are a couple of more trend highlights. Like for example um current established relationship that has increased in value. So, as you said, relationship matters. Uh and then we can see that that the the language and communication has really gone to almost insignificance from where it was more important. And we can see that the security requirements as well as financial stability of the external developer have been much more important. But all of this this whole graph can be summarized in the word of fa- word words of a famous Canadian No new friends. That's uh that's pretty much it in the um in the trend lines. I feel like a terrible Canadian. Like I know I you talk but you know, you're

English. You're allowed not to know. I I was thinking it as well. This is the uh the the the singer-songwriter-rapper uh Champagne Papi aka Drake from Toronto. Oh man, I should have known that. Where have I been? Yeah, well, maybe after this podcast you should listen No New Friends on a repeat for offending Canadians of not knowing their I'm very sorry, Canada. I am not Drake's biggest fan. No New Friends. Um yeah, um yes. So, lots of change in this graph right now. As you said like quality of work has dipped a little bit, but I think it's probably as you said cuz it's been distributed in other areas this year. I think quality of work is always going to be well, I I think it will always be the top priority because you're working with an external partner because you expect a

certain quality of work and if you don't get that, then then that relationship doesn't work, right? So, quality is always going to be key 100% not just quality in the work you get back, but the quality in the the relationship that you have, the quality in the communication, like it there's a lot of it can be bundled into that. Um but yeah, in rates the importance of rates has slowly been going up. It's at the highest it's ever been this year and I'm not surprised. Like um uh uh uh especially as um there's there was another stat within the report that was saying that service providers haven't been putting their rates up as readily as previous years either. It's kind of being staying quite consistent. Um so, rates is definitely something that is being more and more considered especially as budgets become maybe a a little bit more um uh strict pinched pinched pinched that's that's a better

word, pinched. Um but yeah, I think the really interesting one here is that security requirements like spiking. And I'm not 100% sure why that is. I think maybe maybe as external development starts to become more prevalent and more used the more developers and publishers are starting to pay attention to it and start to understand well, if we're going to be sending more work externally than we ever have before, we need to make sure our IP is safe and our work is safe. And we're not leaked. Exactly. Exactly. So, what do we need to put in place to make sure that we can do external development safely and securely. So, it's possibly that it's that that developers are going we need to do more of this so make sure we're doing it properly and make sure we have the infrastructure to make it work. Do you have in-house servers? How is the locks on your office? Yeah,

I've gone I've gone through IT reviews. It's a it's a quite expensive thing, so. Yeah, and so I think I think it yeah, like and it can be quite an investment for service providers as well especially if they want to work with if it's their goal to work with with these big AAA companies with these huge IPs um some of the security requirements are quite strict and it can I've heard reports from some service providers that it can take them 2 years to get through a security process with a developer because of the amount of gates you need to go through and checkpoints and then the amount of infrastructure they need to put in place behind the scenes. It can be quite a lengthy process. So, if you're like a new service provider on the scene or a smaller service provider it can be quite tricky to work with some of these AAA companies unless you're dedicated to investing the time and the money into making that work. And so yeah, there's probably quite a few things that are contributing to that right now, but for me it kind of shows people are starting to consider external

development more and what they need to do to make it work. Yes. Yeah. Yeah, be careful who you work with in the sense like don't bite, you know, getting that big deal from a from a big studio may may require a lot of IT development IT investments and and that's a whole different story. So, you have to be of a right size. Anyways, uh top criteria for why developers publishers don't work with external partners. This is interesting. Um geography, bad previous experience. So, geography being number one and bad experience being number two. Then cost to externalize, language culture barriers, lack of expertise to integrate and pipeline both tied at 25%. That's understandable. So, there are a lot of publishers who are just not experienced with external development and that is the reason why they don't work with external development. Yeah, it's it's it's an interesting niche within the

industry really. There are so many amazing external development managers, directors um out there that work for developers and XDS has managed to harness this amazing community where we can all come together and learn from each other and work and and and meet with service providers and and figure out how we can create the the best relationships and processes, pipelines to actually make external development work properly. So, XDS for me is like one of the best tools out there for actually being able to elevate what you're doing with external development and um make it uh work for your studio basically. So, when it comes to all of these points, these are all things that we tend to address when it comes to XDS whether it be on like on stage content, table topics or whatever else. Um but yeah, geography and logistics

Yeah, number one 50% of like the number one criteria why you don't work with an external partner is geography and logistics. So, this is pretty I mean there's nothing you can do about it. So, it's understandable why the top companies, the Room 8, the Keywords, the uh uh Virtuous um I'm blanking. Somebody will be mad cuz I didn't name them. I mean those are the big ones. Yeah. Uh so, it they have so many locations. And they understand that they got to be everywhere to serve everybody. Exactly. Yeah, and I mean, it also depends on what the developer wants at that time. It might be that for the project that they're working on, they need a partner that they can um have highly integrated into their pipeline.

They want to have someone that they can talk to every single day or every other day for example, someone that um they can get in touch with whenever they need to help troubleshoot because they're going to be working closely with their team. In those situations, it might be that because of that they choose to work with a partner that is more geographically close or within a few hours time zone. But then there might be some projects that they're like, you know what? Um what we want is for this partner to take full ownership of this level or this feature or I've got 5,000 outfits I need them to make. This is this is how they do it and they can just go and do it. They own it. In those situations, maybe they don't need someone that is so close. Maybe they can work with a partner that is in a different time zone that is got everything they need to to absolutely fit that work they need to do.

And then it might be okay, well, let's sync up once a week over a call or we'll come and visit you every quarter and check in and do milestone reviews and things like that. So, it depends what the developer wants and needs at the time. I mean, I think that you have to be doing your due diligence properly and if you're doing your due diligence properly, you can get through those geography and logistics barriers as well as great onboarding and training as well. Once you've got those two down like you can make a lot of these different geographical locations work. You just got to know how to do it right. Yes. Yeah, 100% agree. Let's talk about Oh, Devoted Studios. Now I remembered. My friend away Yeah, they're big. Yes, that's plus 15 location. I just said that because uh friend of mine went to work there and she will kill me if I don't mention them. So, also Devoted Studios. She's like, how did you do a whole podcast and not mention the only Yes, that's uh that's another one. Uh

plus 15 locations all over the world. So, anyways, uh let's talk about the let's talk about the rates of of um of these studios and we've been seeing a little bit of a softening uh in in the uh the the rates of these service providers. So, uh when when being asked, have you increased your rates, uh it has been just going down since 2023. Um the the the studios that say yes is down to 30 when it was you know, almost 70% that were increasing rates. Um how significantly has the inflation contributed to your rate increase in the past years. You know, most of them have increased rates and and say So, most of them are saying they have not increased rates, so they were unable to move inflation to their client, which is really bad. So, that means their only beta is going down. And then there's a question, do you expect to to negotiate

rates with your client within the next year? And basically, you know, before 2020 three majority was saying yes every year. 2023 it was like 50/50 almost that that that these studios were saying yes. And then it's been going down. It's like under 50 and closing in on only a on like 30% of the studios are able to negotiate rates. So, essentially what's happening is that these external studios are earning the same as they were earning years before and and eating the inflation rather than passing it to their clients. Mhm. Yeah. So, not a good like when I look at this, I wouldn't open up an external studio. I'm like, "Oof, business is looking soft." Uh I think a lot it's really it's another tricky one. Like again, I think a lot of it is to do with competition

and the fact that we were seeing in that one of those previous slides about um uh developers not diversifying their their partner pool as much as they were. So, um by kind of keeping rates stable, they may be trying to appeal a little bit more to developers by making sure that their rates are are lower than than they would probably usually have at that point. Um but yeah, I I found it quite surprising, too. Like the fact that that that uh service providers aren't planning on negotiating their rates with their clients. Like it's declining year over year. Like I wonder when that will change. Um because we we also want to make sure that uh as a developers and publishers also need to make sure that when they're doing their due diligence with their partners and when they're setting up new relationships with partners, that they are doing so ethically as well. Um making sure that the rates that they're

going to be paying their partners are enough to make sure that they are going to be um supporting their partners in their their their studio stability. So, that that's a big subject for me right now. Like with the with the these kind of trends that we're seeing, how can we make sure that we are working with external partners ethically and they are getting paid what they are worth. It's something that we should all be as a as developers and publishers should be considering when they're when doing due diligence with their partners. I don't think it's about ethics per se. Like this is about business realities. When the when the business of gaming is not growing, then it's hard to share the pie larger chunks of the pie when the pie is not growing. And so, that's why that's why the external developers are essentially, you know, have to have to eat it. And at the same time, as you mentioned, there's more competition. There's more competition because there's less self-publishing.

There's less new games. So, there's like that that's really affecting it. And unfortunately, you know, it's the it's the the flexible ones, in this case the external publisher or external developers, that are that are eating up the cost. And there's a there's also a graph that shows uh the health of the industry. And essentially what we're seeing here, like third of the publishers predict no growth in demand for services this year. But that's up from and from from the from the last year. Um but that's like not not positively up. And and when when being asked like you know, the business optimism between developers and publishers and service providers. So, we see that that uh in service providers, there's like uh in 2023, there is pretty significant optimism. Uh in publishers, less. So, they're kind of like coming in behind. And then when we go to 2024,

uh they there's, you know, they uh the sort of a not optimist and somewhat optimistic grows and the optimism decreases as well as the sort of So, so with the time, it's almost like the publishers are feeling it first and then the next year we can see that the the publisher not feeling optimistic, then the next year for sure external developers are not feeling optimistic. And publishers kind of show the way. And then finally, the publishers perceive growth in demand for external services. We're seeing that the yes in in demand is in decreasing and no is increasing. So, essentially, they are not seeing that they will be spending more on external services. Today's podcast is brought to you by AppsFlyer, inviting you to dive into their new first-of-its-kind report, The State of Creative Optimization 2025 Edition. It's not about how to make creatives. It's about understanding what makes

users actually stop scrolling and what emotional and psychological triggers drive performance. Based on over a million creative variations and nearly two and a half billion dollars in ad spend, the insights in the report will help you develop a winning creative strategy. Check out the link in the podcast description below or go to appsflyer.com and search The State of Creative Optimization. That's appsflyer.com. Yeah, that that could be the case. I mean, I think it it kind of makes me a little sad that service providers are becoming less and less optimistic as the years go by. It's it looks as like publishers, though, are becoming a little more optimistic. Um I I mean, it's it's difficult to stay optimistic when you see so much change happening in the industry all the time. It it it it it does become quite worrisome. Um and

I I don't know where that's going to go over the next year, but from what from what I hear from service providers who I've been talking to recently, about 50% of them around about like 2024 was really, really hard. But 2025, at least now, like at this this point in the year, they're starting to see some improvements. So, maybe things have become a little bit more stable since the report was released about a month or so ago. We started collecting the data like December and January as well. Um so, maybe things are starting to change a little bit. Um so, I'm keeping my fingers crossed there because uh well, we all want to, right? Well, you know, what as they say, hope is not a strategy. I know I know. I know. I care so much about the community and I I really want to see things improving. Um but yeah, I think um uh uh when it comes to the publishers

perceive growth in demand for external services kind of going down, I don't know. I'm I'm personally kind of hopeful. At least as a strategy over the next few years that developers and publishers will will actually start to use external development a little bit more to as I've said, like to create more of that flexibility and scale where they need it when they need it. Mhm. I think like more and more people will start considering that. So, I'm personally hopeful that over the next three years we'll start to see that that bar start to shift again. Yeah, I mean, yeah, I'm I'm naturally joking because uh it's it's good for my business as well when gaming grows. Like you know, kind of have to joke around that cuz the the reality is a bit sadder. But there has been, you know, good games coming out lately uh selling really well, which is the most important part. But, you know, there's the the capital crunch that kind of keeps it away. But nevertheless,

external development is the flexibility part and you would assume that at least in this settings, it would be getting more demand than before because games are bigger and budgets are tighter. So, that's when you when you tend to strategically use external development. Exactly. And you can use your external development companies as well to help you brainstorm creative ways that you can work with them to create extra pipelines efficiencies as well. As I've said previously, like they've seen so much. They've seen so many games, so many companies, so many processes. They're a great tool to brainstorm what could we do differently to actually make a a bigger difference in what we're doing. Yeah, I mean, the the biggest cost for game companies in game development, based on my limited 15 years experience, is that the most expensive thing is when you don't know what you're doing and you're doing it. And that means when you

don't know which Well, well, not even that. I mean that you're building a game that you haven't designed fully. That you don't really know what you're building and you're like, "We'll figure it as we go." And then you get into the reality of development, especially with larger companies that have budgets and and predictions and and, you know, you're accountable for delivering this product that you promised and you kind of can't really just come back and say, "Hey, you know what? Like I don't think it's it's going to come in or I want to pivot. I want to do something else. I don't think this is the right thing." Like I worked with in several publicly traded companies and they kind of have to inform their slates and you can't just walk in and and be like, you know, we we tried multiple different things, but I think I think I'm going to pull the plug and come up with a new idea. That's just No. No, they they say, "Hey, no, you got to you got to gut it out. You got to get this game out at in this quarter that you promised." And Yeah. And that's a challenging thing.

And so that's that's where the cost come when you start pivoting, when you start changing things, when you get external developer you something you were like, "Okay, this was cool, but we're going to a different direction." So now you spent hundreds of thousands going to one direction, then you start going to another direction and and then you say, "Hey, we need to move faster to all the directions at the same time." So you're now spending even more and all of this is just, you know, um not when when you don't plan what you want to do, you end up paying for it. So that's my Yeah. And especially like external development engagements can convey from quite as we've seen in the money from quite small to extremely enormous. Yes. And um so having someone there on the developer side on the service provider side that totally understands how to do it well will make things 100% easier. They'll be able to put pipelines in place and strategies. They'll be able to track KPIs, making that we have to that that

that they they're great experienced external development managers aren't just like amazing producers or art reviewers. They're great at conflict resolution and communication and relationship building, networking. They are amazing creatures. And um if you can get the right ones in place at both sides, that's when you can really make external development um a very efficient part of what you're doing with game dev. But they're also not magicians. Like you can't just come in to them and say, "Hey, I'd really I'd like to have a top 10 grossing puzzle game." Like No. No, no, no. You design, we build. What do you want, sir? Um ma'am. It's a you have to know what you're asking for. Like that yes, they can produce all the content. Um they can design many things, but nevertheless, you are the one ordering the dish. Uh so

yeah. I I've seen also I've seen I've seen situations where where, you know, reputable companies have have essentially just resorted to going to external developers with uh a pretty high-and-mighty ask and those external developers were like, "Okay, well, we'll do it. Like sure. We'll make you, you know, I'm just going to throw it out like a a puzzle game." Um and that game is not going to be, you know, outstanding. It's going to look good. It's going to play good, but it's not going to be anything special cuz you didn't invest into it in in the sense of of finding what's the specialty about it. Well, yeah, that has to be a good vision and there has to be a good product. Yeah. Yeah. And and they can copy any any game, but, you know, they would be self-publishing if if if they would have the other magic sauce. It's it's quite interesting as well like the different types of external development and and how they relate to a

developer's vision and such. Like when it comes to traditional outsourcing, the the overall vision is like mostly with the developer, right? They're like, "Do this Do these things for us. These are the very strict specifications. Here's the brief. Do it like this. Here's the package. Go ahead. It comes back and you review it and you put it into game." Then when it comes to co-development, that's when and that more ownership does go into the service provider's hands. It could be a case like we gave the example earlier of like, "Okay, we'll give them this level to build." And it could include art assets. It can include design. It can include VFX, lighting, audio, like everything. And that's when you do start to put more trust into that service provider and maybe it's a case of you give them a small brief, you give them the vision, you give them the goals

and they go ahead and do it. But then there's also full development where the full pro the full game is in the partner's hands and you are just giving them the the vision of the game, what you want from it, and what the product needs to succeed. And you leave all of that in their hands. And that's a very different style of external development. It's it's a delicate balance of giving them the right amount of control, but then also not the developer or publisher not being too overwhelming that you're taking over their DNA and what they're bringing to the to the the game themselves because you've chosen that partner because you love what they do, right? And you want to invest in them to to make this full game for you. So that's when it becomes uh an extra level more difficult, I would say, because you have to balance ownership with making sure that you're

you're um not overtaking what they're trying to bring to the game at the same time. Yeah. I've I've had the best experience when we were very strategically using external developers. So for example, in the art pipeline, this was an uh in a hero creation playable hero creation pipeline. Um we had our external sorry, internal art team. Like when it went from a concept to modeling to rigging to animation to VFX um and so forth. And what we did is because we hired This was a smaller team, but we hired very senior people and essentially uh the person who was rigging was also supervising maybe one or two other riggings that were happening in parallel with external development. So external developer weren't doing anything that we weren't doing internally. But our guys were building themselves and also leading an external team that was essentially

creating parallel pipelines through their development. And so this small team internally that was very senior was able to produce a lot more content than it would be seeing if you'd walk into a studio. Like, "How did you make so many heroes?" Like, "Well, technically, you don't see the 30 other that are that are working in parallel." But at the same time, it was important for me, I don't know if this is security or other elements. It was just important that we're not throwing money away. We're not asking anything that we couldn't build ourselves. Uh and also it gives more responsibility to these senior talent in their own craft that they're actually leading a team uh that is that is doing wonderful things in parallel. Then they were able to choose what we want to do internally, which were the coolest stuff, and then uh I'm going to give this to the external guys. Yeah, exactly. Yeah. Um it's it's I've seen it before as well where you are working with like an art manager or a senior artist for example and they are working with these external artists and

and showing them what they need to do and it's almost like it's almost a track for an art director in a way because you are art directing the external partners and it's it's actually like people don't think of it that way, but it's actually interesting way to learn about the art of art direction. Right? Yeah. It's it's at least a lead and and so that way you you're have And and it's also an an easier lead than internal development because hey, guess what? You don't need to have one-on-ones and and, you know, you don't need to know the name of their kids. You're literally just doing the craft. And you could say that's a good thing. You could say that's a bad thing. It's it's a it's efficient, you know. It wasn't that they didn't care about each other, but they they talked about work and they did the work and and that's it. Yeah. I mean, there are you do get um some developers that create those really close bonds with the the studios that they're working with whether that is like they'll go to

the studio and they'll do training and they'll have um they could have like uh social gatherings and really get into know each other and that we have I've I've I've seen in the past that does actually positively improve the work that you're doing, but not not everyone does it. Yeah. I think they're talking about having one-on-ones. I think I think that's that's the difference between outsourcing and co-development. So with also work with co- with co-development, you're essentially taking the full studio and that studio is part of your And we've had one where we had a very small team inside house in in house, then we had a co-developer in another the country, and then we had external outsourcing partner that was just cranking the content and um and, you know, far far away. And so yes, with the co-developer, the relationship was naturally totally different than with the external uh outsourcing partner. With the

co-development, they came to the studio every month, every quarter. We did business planning, but on their side, it was essentially the full studio working on it. But we didn't do the same with the with the folks who cranked the content and they might have even interacted more with the co-developer than with us uh at the HQ. Yeah. I guess it depends on the developer and and what they want to get out of the partner and how complex the work is, how long the engagement is. If it's like a multi-year contract, and you're going to be working with a large team of theirs, and they're working on something very important for the game, maybe it's uh it's it's wise to invest time in having that strong connection, and going in person, and doing the training. But, if it's something a lot smaller, or maybe um something that isn't as prevalent in the game you're making, maybe developers

would choose not to. Exactly. Co-development, you have to bring them close, and and essentially their goal is to get a master agreement at some point, and through that, you know, get acquired. That's uh that's the path. Bingo. That's the path. And with uh with, you know, with the outsourcing partners, you know, maybe one day they can become co-development, but they need to be full houses. So, usually outsourcers, they might be focused on art, they might be focused on specific craft, and in in that sense, that's not even their goal. They're just doing their craft, and doing it extremely well, and and being the preferred partner for this specific thing, at least. But, what do I know? So, uh Sounds like you've worked with quite a few external developers. Oh, you know, I know. Um I'm uh I'm older than that. Um so, for final final final thing, here and there, you know, few million spent on that stuff. Why developers and publishers work with service providers? Uh so, this was like um

basically what we've been talking about, and the question really is is external development now central to how games are made at scale, and what we can see in in, you know, in this in this graph, basically, you know, as you said, like flexible skill set ramp up and down. Um this is crucial, because all the time that you're waiting for, you know, that animator, or whoever you need in in your workflow, that you can actually outsource, or work with an external developer to to keep moving forward. Uh but, yeah, what are the some of the other reasons why uh develop developers and publishers work with service providers? Well, I think I think that Let me just start with this. Yeah. I think, as I've said, as I've said about 50,000 times already, I think external development is going to become

a central part of game development. I think, as as developers' core teams have become more core over the past few years, it makes logical sense to work out how to do ext dev well, and use that flexibility to create capacity and skill set when you need it, and for how long you need it. These external partners, they get stability from having multiple different projects all at one time, and and supporting multiple different developers and publishers. So, it makes it it makes sense from both the development side and the service provider side. Um But, yeah, um build um building flexible skill set ramp up and ramp down is definitely number one. I think it makes it makes perfect sense in the landscape we're in today. That flexibility when

you need it is absolutely integral. Um And, yeah. I think it's going to be I think it's going to become more and more prevalent over the next few years. That's my prediction. We will see. I I think you're correct correct. 63% according to this report site cost saving um as um as the uh as the number one reason. So, it doesn't look like, you know, the growth is just around the corner, and that means austerity is in very much in vogue, and that means the use of of external developers who are able to deliver quality work on time, on budget, um that they will, you know, they will sustain, and keep their position in the market. So, that's how I see it as well. Yes. Goo- good. Perfect. Well, Carla, thank you so much for going through this

very insightful and information-filled report with me. You are so welcome. As you said before, you have a link to the report, and Yes. there's the XDS website, as well. You can go and download it from there if you want to read more. There's There's lots of very interesting facts and stats through that report. So, I recommend everyone go ahead and give it a read. And if anyone wants to learn more about ext dev, and how you can use it, we've got the XDS conference coming up in Vancouver in September, as well. So, check that out. And um yeah, if anyone wants to talk ext dev, message me on LinkedIn. I am right here. Yeah. Just grab a cup of tea, and uh and you can have a conversation. Lo- lovely cup of tea. Yeah. This This is really unrelated. This is not a diss. We had a conversation about tea, so you're like, "This is I'm rude."

No. You already understand my love of tea, and how specific I am about it, so So, uh So, yeah, uh reach out to Carla, and learn more about external development. It's um If you're not doing, you should be. I mean, I I think you should be. It's It's a great cost saving, and and uh and a way to move faster. And if you are doing, I'm sure there are ways you could do it better, but at least understanding the trends where they uh where they this part of the industry is evolving is very beneficial. This is a good time to start strategizing, and working out the best way of you utilizing fresh ways of tackling the the game you're working on. Yeah. Um I I'm obviously very passionate about this subject. So, if anyone wants to reach out and chat more, I'm I'm right here. Yeah. So, on that note, Carla needs to listen to Drake, and we are

finalizing this this podcast recording. So, thank you everybody for for listening, and um you know, just remember, no new friends. So, on that note, goo- goodbye everybody. Thank you, everyone. Thanks for having me. Bye. You did it. You made it to the end of the episode. As a fan of the show, it would help us out if you'd subscribe, and leave us a review on the podcast service of your choice. Those stars and likes, while small action on your part, mean a lot to us, and help to grow the show. More importantly, are you a member of the Deconstructor of Fun Slack group? If you have 5 years or more of games industry experience, go to deconstructoroffun.com/slack, and apply to join. Join the games industry's best professional community, filled with peers always willing to lend a hand, or subscribe to our newsletter to get all the latest insights from the Deconstructor of Fun content creators. Thanks for listening.