Mastering F2P Cosmetics Monetization in Games

hello everyone and welcome I'm here with Anton Bernstein the CEO of pocket worlds and today we are going to be discussing cosmetics monetization and free toplay games and before we kick it off Anton what do you think are some of the most important things we could cover when it comes to uh cosmetics monetization and certainly I think if if we look at the market today and how difficult it is to find success especially on the mobile side maybe not especially I think I think there's problems all over the place I think it really is important to understand how to monetize your game for longer term success but when you think about Cosmetics monetization like what are some of like the highlevel topics or issues that you think about and we can dive into them after after you um after we hear from you the areas that I think are worth exploring one is you know first of all why do people buy cosmetics in the first place uh because there's something about certain games and certain products that uh yield High cosmetic revenue and

others I've seen people try to throw in cosmetics and they just totally fall on their face um and so understanding kind of player psychology and why Cosmetics matter understanding uh collectibility uh as a notion and how that leads into secondary markets so marketplaces uh of cosmetics and of content in general um but a lot of kind of big titles like uh csgo is probably the best best example of um an active secondary Market that drives the primary Market um I think also thinking about the way both cosmetics and non-c cosmetics are sold in games and how those methods might lead to scarcity uh or not lead to scarcity uh and then finally another interesting place to explore is ugc and uh the kind of the Inplay and the connectedness between cosmetics and user generated content and how those two kind of interface with each other um um so I

think all of those would be interesting to explore and then we can go even if I forget to ask you about any of those please remind me but definitely a lot of great topics I think we can start to cover um but just for our audience to establish sort of like your expertise in this area could you also talk to us a little bit about pocket worlds and high-rise and your experience actually with Cosmetics just just to set a little bit more context for our audience sure so I started pocket worlds about 11 years ago uh we have two products today highrise and ever Skies we do about 30 plus million dollar in sales or so uh in the primary market and our secondary Market is quite big almost hundred million uh annually that's people kind of transacting with each other in our in-game currency uh and pretty much the entirety of it you know maybe 80 to 90% is cosmetic cosmetic content um and so yeah we've kind of invested heavily in that uh heavily in the secondary Market uh most of that comes out of high-rise

but also ever SKU is the social Avatar platform that also has uh well the entirety of the revenue there is Cosmetics is just meaningfully smaller than than highrise okay and maybe we could start with one of the topics that you mentioned which is like the kinds of games that are able to successfully sell cosmetics and so if you were to think about some of the most successful games that sell Cosmetics you mentioned csgo obviously there's games like fortnite and games of that nature that have pretty high scale uh with respect to the sale of Cosmetics based items but when you think about specific games and then the kinds of games that are able to sell Cosmetics extremely well what do you think what what are those games and those kinds of games yeah so I would say there's a kind of a few different categories of which games sell it best um so

of course multiplayer PVP so often that's Battle Royale games like uh fortnite or um you know team- based games like a Counterstrike there once people are spending quite a bit of time and they're playing competitively they start to care about status and how they look and how they present themselves yeah you know you look kind of badass killing someone with a certain kind of cosmetic or a skin that nobody else has and I would say there's kind of two motivations there one is um the way that these games are designed they're designed in such a way that um they're spectating after the battling and so if you die you end up spectating someone else you end up seeing their cosmetic you end up spending a lot of time looking at Cosmetics like purely just time spent visually looking at someone's cosmetic they it's it's kind of designed whether purposefully or just by virtue of you

know there's nothing else to do after you're dead in a game of Counterstrike um or a game of fortnite um but you end up staring at somebody's kind of Cosmetics right which one drives your kind of purchase behavior um secondly uh just the fact that um you care about your status in this world and and that's not just PVP multiplayer so for example highrise is more of a simulation type of game or product um similar to Roblox if folks have heard of Roblox on the cast but there as you spend more time in a social world you start to care about your status you start to care about the way you express yourself the way that people see you and so Cosmetics are a huge way to show off your identity show off who you are show off if you have high status just like in real life you know if you're wearing a I don't know if you have a Birkin bag from Herz it signals a certain kind of status and certain kind of access um Cosmetics are

also a social signal so kind of the kinds of games that I see it working in they tend to be very heavily multiplayer they tend to require quite a bit of time and in those games in those worlds people care about their status uh and how they reflect their status and they often do that through cosmetics and when I think about Cosmetics I also wonder about certain other factors that could potentially impact the sales of cosmetics in a game and so a couple of things I I'd love to get your input on is to what extent does a game that's more fair to playay versus Pay to Win impact the sale of cosmetics and then well let's start there get your thoughts and then I've got a couple other factors I'd love to ask you about as well yeah well okay if it's fair to play so say it's you know um counter- strike you know which is purely cosmetic there there literally is no benefit to buying valer fortnite yeah exactly um any of

these there I would say it is all about how you present yourself and all about kind of time spent so I would guess I would venture to Guess that um dollars invested for kind of the same person kind of you know whether you're uh I if you have the same-sized wallet dollars invested for those games is highly highly correlated to time spent so as you spend spend more time you care more about how you present yourself in that game and so you end up spending more on Cosmetics over time it's very highly correlated to time spent and that's what we've seen as well in high-rise um when you start adding uh kind of pay pay to play um if you look at you know um I don't know uh a lot of the Eastern kind of MMO games where you end up having the kind of these big gotta purchases that give you actually a lot of power early on

um or TCG games where you're buying card packs things like that um I would say the the desire to have something that's purely cosmetic is just uh intrinsically nerfed in the player behavior and player psychology and instead of something being valuable because it's super scarce that still exists to some degree you know the Black Lotus is still the most valuable card in Magic the Gathering um to the tune of you know hundreds of thousands of dollars I think actually there was like a one million plus dollar purchase in the recent past um but uh at the same time because there's a power progression and because things have stats Beyond uh scarcity and have stats Beyond status uh some of these kind of pay to win power stuff um starts to kind of supersede the problem is that or I don't know if this is a problem but the reality is that in a lot of these

games where it's not purely cosmetic where you start to have power when you start buying stuff with power uh the game ends up getting stuck in this Loop of requiring uh to uh kind of introduce power creep and they start to power creep items and they start to power creep characters um they also have a tool to change the meta so they can either change the meta which sometimes they do and you see that happen in like a clash Royale um where they're constantly tweaking and changing the meta or they have to power creep and power creep just means you're you're turning and burning through through Power and that's the way for example if you remember game of war from machine Zone that just was huge right it was huge for a short period of time billions of dollars in Revenue um and then it just completely died and it completely died because of power creep and it was just designed to constantly power creep um so it's kind a rambly

answer but I will say that you know the tools that people have if they're going to be selling through a gacha mechanic or whatever something that gives power are either power creep or completely changing the meta can can you think of any power creep games that do sell significant Cosmetics as well I I can't think of any offhand um um yeah I'm not sure I guess there's like some middle ground with um yeah like character unlock games sure like games where you're unlocking a character because it is kind of fair to Fair kind of fair play yeah like I think you're generally right where you know I I think pay to win you Pro probably generally don't tend to see it as much cosmetic cells and to your point as well like whether it's League or these mobo type games when they introduce a new champ it's usually a little bit overpowered and you kind of some motivation for buying would be trying out somebody new

but also to increase your win rate potentially and then they Nerf it later um but yeah they changed the meta I mean if you supercell I would say is really impressive um with Clash Royale and brawl star with I mean they they do have it's not necessarily power creep it just they keep changing the meta they keep changing the dynamic like you know as they introduce a character or as League introduces a character it kind of de facto Nerfs some other combination of characters yeah and so that's the way in which they keep it fresh it it's kind of an interesting balance between power creep and uh changing the meta that they really kind of prevent the power Creep by constantly changing the meta every time they introduce some sort of different power or unique power um and that's why they spend so much time tuning pre-launch of any character the second factor I was going to throw at you is something I just call High engagement but like a League of Legends or a valerant or these kinds of games where you're just playing over and over and over again I tend to think that

if you think about monetizing either on the front end or the back end meaning like front end meaning um willingness to pay like you just love this game so much that even if the devs have something stupid like a whatever like a pink bunny suit you're just like well I love this game so much I want to support the devs I'll just buy that stupid thing and then payment optimization is more like the game of war but it does to me seem like and like you kind of alluded to it in in answering the first question but you're saying that the more time spent the more highly engaging a game is the better your odds are at selling Cosmetics is that fair to say definitely yeah it's super highly correlated to time spent I will say also the the community what what I've seen in high-rise for example yeah is the the community often dictates the desirability of content I mean we have tools at our disposal to drive scarcity so depending on how we sell and we can get into merchandising cosmetics

and what that looks like yeah but in general the community decides hey this is this is something that's really appealing this is something that we want and uh because that's kind of the let's call it the um kind of like the the the cultural desire like what people in the community want uh anyone who's spending a lot of time in that world and cares about their status and cares about being part of that world start to buy it start to consume it because you know they want the status they want other people to kind of see them as as um uh someone who cares and someone who expresses themselves the same way that others do um a little bit mimetic in that way uh and so I think that's another Big Driver it's like in highrise for example we can't just like sell some random thing if if we just throw something out there and the community doesn't see it as something that's appealing or something that's interesting it will do palpably worse than something where the community has kind of latched on to it and said hey this is attractive this is

interesting and then there's a ground swell of many many people who are interested in buying that product um and so there is the component of like yeah we want to buy this because we're spending time here but then also there's the component of we want to buy this because other people want to buy this um because humans are mimetic in that way the the third factor I wanted to ask you about is perspective right and so whether you're a first person or third person if you're first person like inv valerant and you're seeing your gun a lot then you know I I would it's a lot easier to sell weapon skins for example but how much of an impact or I'd love to hear your perspective in terms of you know what you can sell or how well Cosmetics sell depending on first or third person perspective yeah um I think it changes which cosmetic cell um I don't know how much it changes whether or not cosmetic cell like as an example degree that itself yeah so fortnite if you look at the breakdowns there was a survey actually done of like a thousand people people spending in in fortnite

and this was kind of the breakdown that the survey identified 10% uh spent on emotes or dance moves um 14% spent on harvesting tools 18% spent on gliders uh and then 60% spent on outfits or characters um and an interesting component for example of uh fortnite is because it's this um kind of third second person perspective y back items are really valuable because you see the back all the time right whereas in Counterstrike it's all about the weapons Y which weapon do you see because you're spending all your time in this first- person view um buying selling trading weapons um but I would say both have massive cosmetic demand despite having different perspectives different angles it's just which items are most visible and so those are the items that people are kind of drawn to or or into right and then maybe the last last Factor I would want to ask you about is it seems

like there may be different by the way oh sorry one more thought on this yeah please it's kind of an interesting stat that almost 20% have spent on gliders uh because gliders are not visible in spectating mode so gliders this is kind of an interesting one which is you're buying it for yourself I mean you're buying the buying the glider for yourself you're getting the glider for yourself you're not doing it so that other people can necessarily see it um so I think that's also kind of an interesting reflection on you know is this driving is this because of status or is this because it just feels good and I'm spending a lot of time here and um I really want this glider to look really good right and maybe this is a question that we can also address when we talk about uh player psychology as well as player motivations as well as primary and secondary markets but it does seem like there are some games that have a a motivation to buy Cosmetics or visibility and if you were to look at a

game like the banana game I don't know if you've played that but that seems like it's more speculation oriented and I don't know to what degree you would consider csgo a little bit speculative as well but when it comes to like potentially the reason why people are buying Cosmetics um and having that whether it's more of a a vanity motivation or a speculation motivation what do you think about that and how that impacts the ability of the degree to which you can sell cosmetics yeah well it totally depends on and and I would say this is a difficult aspect of Designing a game it totally depends on if there's a secondary Market available or not so have the um creators of the game chosen to implement a secondary market so like you know if you remember Diablo II with their auction house yep you know they saw in Diablo I big eBay Market I was playing Diablo I and I was buying and selling items all the time um in Diablo II uh they leaned into that released an

auction house and it just totally fell on its face partly because it was just poorly drop rates were poorly designed um I actually think the auction house would have been great if they had designed it uh correctly when with the drop rates um but I would say that's a a huge component so if you look at Counterstrike and you look at all of the different skins marketplaces that exist around Counter-Strike and if you look at all the gambling marketplaces that exist around Counter-Strike it is so clearly clear that there's a heavy speculation component um there's a heavy speculation component around Counter-Strike and how Counter-Strike cosmetics and secondary content Works um and that's because they've enabled and allowed this uh very rich secondary Market you know the most extreme version of this is crypto games um I'm actually an investor in Sky Mavis they make axi infinity and axi infinity was probably the first highly speculative um very successful uh game with actual gameplay obviously there was crypto kitties before that and um but um

there you saw it was pure speculation I mean the whole thing and the problem with speculation when it's pure speculation is it almost takes over the entire gameplay and it turns into a bit of a um not a pyramid scheme but um you know turns into a bubble speculation is tough unless you really control it and for the game developer you know we think about this all the time we think about our economy and we think about our economy as GDP and we think about our secondary Market as a component of our GDP and we very much control you know the levers that we control is scarcity of content scarcity of items um currency uh for example we look um we look at a trailing 30-day uh amount of currency in people's wallets and if it goes too high or if it goes too low we need to change something about our liveops in order to not inflate the economy or in order to not deflate the economy but in order to kind of manage the economy so that it doesn't

a it doesn't become a bubble but also it doesn't become kind of nothing um and so a secondary Market must be really kind of I would say effectively controlled to not basically take the whole game and turn it into a big speculative bubble game like beanie babies um so that that's like a big component of secondary but there's a lot of games out there that don't have secondary as an example fortnite does not have secondary and it does 5 billion in annual sales um they just have a ton of users in high arpu because people are spending a lot of time there and they care about their Cosmetics right um League also doesn't have a secondary Market um but you know I would say probably Counter-Strike is the best example of secondary Market maybe Magic the Gathering and and Counter Strike are are probably the two best examples that I can think of right and yeah I'd love to touch on that a bit more maybe later but just to kind of close the loop on specific games that

you think the audience should be aware of when it comes to like really great examples and as far as like key reference games or emulation targets we talked about csgo fortnite League of Legends um and they seem to be primarily either shooter games or MOBA games um you also mentioned Diablo which is an arpg but like are there any other specific games that you think the audience should be aware of and then the followup to that would be in terms of the genres what else is selling well in terms of Cosmetics besides clearly and obviously shooter MOA and then what else like what other genres but maybe starting with like specific reference games that you think people need to need to learn yeah well you know there's also the the you know not not quite cosmetic um kind of M RPG character-based games like a genin

impact or um you know fake Grand order honkai star rail um these are more power progression power creep Meta Meta changing but then also um just very much character-based uh and they obviously do tremendous amounts of sales um you know a billion a year for for um these products generally um but but yeah I would say um there's that category of game there's uh also in our category of game there's there's us there's Roblox um to kind of a a smaller level there's you know IMVU or um uh Second Life you know to give you an idea second life is purely cosmetic it's been around forever right yeah you know they do um a tremendous amount of Revenue they they do if you include primary and secondary Market about 180 million maybe 200 million in revenue and off of fairly small base of users you know 50 60,000 concurrent um at the peak uh and so that

is for example a game where they're selling um real estate scarce real estate and items and content around real estate and all of it is heavily ugc so it it's really an old one but an interesting one to explore um uh of course Counter-Strike is is is the biggest we talked about it you know League DOTA um these kinds of uh kind of competitive gameplay valerant um uh Apex Legends too um was doing really well on Cosmetics so yeah I would kind of take a look at those uh pretty heavily and maybe just talking about okay so there's a lot there's potentially a lot of developers in our audience who are interested in in selling cosmetics and from your experience when you think about whether it's the a specific arpo Target for different kinds of games or the the kind of depth of spin that you could could potentially get because for some of these like you

know like a like a game of war you could potentially have someone spend one two 250,000 a month and the those kinds of games can you basically can drain the economy so easily whereas in a Cosmetics based game you know how many skins before it's enough totally whether it's League you know I've got these three skins or I've got 10 shirts and I've got 30 pants you know when how do you think about that and what what the differences maybe if there are amongst different kinds of games yeah so uh I would bring it back first of all to the notion of the secondary market so in a title that has a secondary Market you do have the capacity to spend you know in the case of csgo there was a there there's actually a weapon that is worth about $1.6 million right now so you can spend $1.6 million buying this

weapon in fact it had an offer of 1.2 million um and so if there is a secondary market and there is true scarcity then there is the capacity to spend a lot of money and in just one purchase and it's not because you're looking for power progression it's because you're looking for status it's the equivalent in real life of buying you know the the fanciest branded suit you know um there is theoretically infinite depth and it really just depends on people's available wallet and how much they're willing to spend and what their demand is for that item so I would say in a world where you do have a secondary market for Cosmetics uh it's not that you're going to have a 100 shirts it's you're going to have one shirt that's extremely desirable and extremely valuable and somebody else wants that shirt they want to buy it from you um and so that drives a lot of the meteor kind of spend on Cosmetics if you don't have that then yeah I mean um in general like capacity to spend is a bit lower and it's a little bit more

consistent um I I've seen you know different figures for fortnite um that you know have been pretty broad I've seen a figure of like $80 RPO I've seen a dollar of $10 rpu um or figure of $10 rpu so there's some range there um because their private is a little hard to tell with with league as an example in 2022 u based on the data that we looked at um they were sitting about $12 arpo with about 150 million monthly active users in 2022 and about like say 25 to 35 million daily active users um so but but it's hard to say there because you don't see the the range the the kind of the variability you just kind of see an average arpo um how much of that is carried by you know Big Spenders who who have have very Deep Pockets um but again League doesn't have that secondary Market market so it to your point it's a

little harder to spend like $100,000 in a pure cosmetic you know in fortnite it's going to be hard to spend $100,000 and so they're relying on really really big scale um and much higher conversion and I would say fortnite for example is kind of best-in-class on conversion you know they really pioneered the battle pass system and I think that battle Sy pass system has actually driven meaningful conversion uh combined with you know High ma High engagement um and so that kind of they're balancing It Out by increasing conversion and they can kind of afford lower arpo verse say a lot of these e Eastern games you know a lot of the big MMOs whether it's genin or somebody else um they're having much lower conversion you know probably in the two to four per range if I had to guess right um but they're having way higher average revenue per paying user you mentioned fortnite's battle pass and speaking then to the form of sales of Cosmetics so whether it's in a battle

pass or you're selling items individually or selling as part of some kind of gotta loot box of some kind or some other form uh what what do you what performs the best is is it battle pass to sell Cosmetics that does the best or um I think it depends on the title yeah I think it depends on the title and the type of title so a battle pass works really well to convert Rel relatively highly but at fairly low arpo right you know with a battle pass you just can't spend all that much you know I think the most expensive battle pass that fortnite has is maybe 25 bucks um something like that uh and you know historically it's been 10 bucks 12 bucks uh so you can only spend so much so it's really good if you're a mass product with really Mass Appeal and you're driving up conversion and your whole goal is to drive up conversion and you have really

high engagement because the whole way a battle pass works is you're really it's kind of I'll just kind of like detour here I don't know if you remember Club Penguin but but Club Penguin they kind of designed the first um they called it the Velvet Rope so they designed the Velvet Rope I don't know if you ever heard that term but I love it and it's basically this idea that like little kids you know they're playing Club Penguin for free and they're earning currency but they can't spend the currency until somebody buys a subscription and so you're like playing playing earning currency earning currency and then eventually 20 days in you have all this currency but you can't spend it on anything because you can't you need to buy a subscription and so in Club Penguin the kids would then go to their parents and be like look I did all this work can you please buy a $10 a month subscription so that I can spend this currency and so a battle pass is a version of that where you know if you spend 20 20 days on this thing and you've gotten so far this battle pass and you have this whole track where you

you can buy it um but it's funny that Club Penguin was doing this 20 years ago um and it was a different variation and it was like a different motivation but they were doing this 20 years ago um but anyway it's really great for conversion gacha is really great if you have more of a core game with a smaller audience but it really is a core audience it's it's less broad more narrow and you're trying to get those two to 4% of people who end up converting you're trying to get them to uh invest more heavily into the title and so there uh if you look at the Eastern games that's the way they're designed and they're so heavily you know GED every Everything is a gacha um everything is designed for gacha because you're trying to go really really deep there right and I'd love to dive deeper into player motivations and specific types of items that sell well but before that I just thought of a question I'd love to hear your thoughts

on which is you know when I look at some of these shooter games like fortnite it seems like a lot of the Cosmetics or the the conversion of the sale of Cosmetics is driven by big IP Integrations so whether it's like the the ninja integration or the Marvel integration or the Stormtroopers integration or the this and the that and so to what degree do you need scale to be able to do those kinds of things in order to sell Cosmetics well like if if you had a small shooter game with a battle pass how effective are you going to be at selling Cosmetics versus a fortnite where you can you know you can buy a Batman cosmetic or something like that from what I've seen I think it's it's it's definitely tougher um you know I will say supercell has shown that it works on mobile in a fairly casual environment you know brawl Stars has a battle pass um I'm pretty sure Clash

Royale has a battle pass so um it it does work there it's still fairly large scale and they don't do any brand Partnerships from what I've seen um they have their own brand and their own IP and they have done a pretty good job of of kind of monetizing that um but they have a lot of other monetization methods you know they're they're fairly monetization rich and I would imagine the battle pass is not the bulk of their revenue um I'm not sure I don't have dat on that but um that's just kind of my guess um I would say if it's just kind of a small shooter and they're monetizing entirely through a battle pass it's just pretty tough to get the arpo high enough to justify the costs of building and maintaining the live Ops of a shooter that maybe is is ever green and you have to keep changing it without getting some of those really deep deep monetization methods like a gacha system um I I think it's quite quite tough you need to be at

Large Scale to be able to do that that that's my take um and then as far as the IP Integrations um yeah you know we've been doing a some on high-rise for example you know again to give you an idea of scale let's say at about 30 million in primary Market Revenue we've been starting to do some IP Integrations and activations and those have been um interesting I I would say I haven't seen them meaningfully move our Cosmetics sales they've been engaging and they've been interesting for some folks um and we have some interesting ones coming up that like are big IP and big Brands and we'll see what the impact will be there but in general I would say they've been Break Even is in terms of impact um but but also you know we're not working with Star Wars so it's like maybe Star Wars is a whole another level I I would say that the kind of the IP integration the brand integration needs to be really high and it needs to be like of a really strong really relevant BR to that

audience everything else is going to be neutral to possibly negative okay so yeah talking more about player motivations and you had already expressed that one of the primary motivations is is Vanity for example but could you maybe dive a little bit deeper when whether it's in high-rise or from your understanding of some of these games that are so successful selling Cosmetics what are some of the player motivations behind buying specific kinds of Cosmetics if you were to do a highle you know kind of categorical breakdown of of the potential different kinds of motivations and then what are some of the items that you believe sell the most based upon those motivations there's kind of many different types of players and different games attract different types of players um probably you know Bartles kind of taxonomy of of players but there's like Achievers killers socializers and uh I forget what the fourth one is I don't know if you remember um and

so I would say all of them are doing different things so you know the the Achievers for example are often trying to complete so they're they're kind of focused on completion or they're focused on getting the rarest thing in in the game that's what what kind of I've seen um and uh I would say the motivation that I've seen in in high-rises is much more about getting kind of the most valuable or rarest thing there's a there's a concept in highrise they call it paper clipping um I think it exists elsewhere in like um just in real life but this idea of paper clipping which is you kind of try to get items and then you try to uh basically it's kind of a form of social crafting so you have three low value items and you try to trade them up for one Higher value item and then you do that a few times now you have three midv value items and you try to trade them up to a high value item and so on and so there's kind of this I think of it is social crafting uh because you keep kind

of like combining these items into one Higher item and so I would say there's there's these Achievers who are really trying to get kind of the rarest item or trying to complete collections um there's the the at least in highrise there's a major kind of self-expression um category of person so it's someone who's trying to express themselves through cosmetics and they have a certain Identity or image of themselves and so when they see something that resonates with that image or resonates with that identity they really feel the need and desire to to have that thing so that they can wear it and express themselves and high-rise is an example so high-rise is a kind of a simulation social type of platform um people are changing their outfits five plus times a day uh and so they're changing their outfits constantly uh and there's different reasons for that but mostly it's you know there's some other energy that they want to put forward or some other way that they want to express themselves like 2 three hours later um or they're trying to hang out with their

friends and as they're hanging out there with their friends their friends are dressing up in certain way they want to dress up in that way too um so there's like a big um self-expression component uh there's the there's the speculative component so there's this kind of genre of player that I've seen who are really trying to play the economy game I would say they're also Achievers um but they're trying to kind of drive towards collectibility um they're trying to kind of the way they see winning is uh not losing money and essentially their portfolio of assets growing in value over time and it's kind of a non-trivial uh number of players who are who are trying to do that um so yeah those are some um you know there's also kind of the The Killers the competitive players I would say those they're kind of trying to show off generally speaking um and trying to show off to other and show off high status one other Nuance I wanted to ask

you about is um basically the difference between east and west and so a while back I think it was around 2015 or so I was working in China and one of my friends was talking to me about a game in which it's like a farming game but it was connected to WeChat and there was an incredibly expensive building like I don't know something like $10,000 or something like that and he's like the reason why people buy that is because people can see that you have that building and so the guy that has that building all these girls would message that person with that building for example and so um I I guess there's kind of two nuances or questions I have there one is like do you see any games doing things like that with status and the impact of having a community or social to your point like some people are buying Cosmetics even though no one else can see them so like that the social impact of that and then East versus West

in the sense that we also discussed or you had mentioned before that in Asia there's a lot more gotcha loot box pay to win is more acceptable right because there it's like it's not like in the west it's more about hey I'm so skilled I don't pay even though some of these players may have spent you know hundreds or thousands of dollars they try to say that they don't pay whereas in Asia it's more like look how rich I am I paid all this money in this game and so maybe you could speak to some of these nuances with respect to status social community and then East versus West which might be a little bit tied to the issue around uh the culture around fair to playay or pay to win yeah I mean it's it's spoton it's 100% true I mean I've heard of stories where um Western games would launch in Asia and people would churn because they literally cannot buy the High status item until they make more progress right because in the west

uh like you said people tend to um kind of look down on people who just pay a win or look down on people who just jump in and spend all their money and now they're like super loaded in the game they they they value effort they value work and they value kind of getting there fairly um from their perspective and so that's the way often times Western games are designed you know the the battle pass as an example is very much a western design because you need to play a bunch in order to unlock on the you know 30th day the really rare item Eastern games are designed in such a way where on day one you should be able to spend dramatically and be able to get the highest value thing um very quickly and I I've heard of stories where when they're not designed that way in the East people actually churn out um especially high value kind of players people players who want to invest heavily they just turn out because they're like this is going

to be too much work I'm out um and so that is definitely a major cultural difference and cultural nuance and that's why you know the these games in in Asia particularly in China Taiwan um but also even Japan uh and South Korea uh they're super gacha heavy the gacha is totally unlocked from the beginning and you can just sink a lot into that title so that you can immediately um be kind of leveled up and be strong and um they're also very heavily MMO focused they're deeply social you know if if you look at those games they very much tend to be uh normally like kind of like top- down MMOs um you know think like a a maple story or something like that um and so yeah it's it's a huge difference I'll flag that high-rise for example we're not um live in China South Korea Japan um a little bit in Taiwan and so

we don't get as much exposure to that yet um we're kind of uh starting to and working on it um if you look at you know our number one competitor Roblox they ended up partnering I think with tensent to launch in in China and kind of tailored it that way and I see a lot of Western titles needing to partner with someone in the East partly you know for Regulatory and government reasons but also partly because that there is a very big cultural difference into terms of how people spend and how they think about spending right um maybe for our audience I I can just name without naming the specific game as an example of a game that was a little bit more pay to win oriented where we saw in the west or in the US sub 2% conversion but then in China the conversion was over 10% and the AR poo poo was actually dramatically higher so to your I think that just kind of confirms to us like what we've been talking about that this is this is certainly a phenomenon that Developers will have to try to understand and um

you know whether you're catering for the Western Market or if you're catering to China it's probably gonna have to be a little bit of a different design I think what's interesting is the so Western games I think have a hard time entering the East but there are a number of Eastern games that are entering the west and fairly successfully um and I think it's because that there is that kind of depth of spend in the West and it's possible and and viable it's not like everyone's like no you know it's it's not fair and I'm not going to participate in this game because very early people can come in and and spend a bunch um so so I will say it's like on the margins a little bit one-sided um but obviously you know league has become huge in you know yeah I I think that's an important point I think in our conversation I don't think we're telling the audience pay to win can't win in the west because clearly it does yeah of War being a good good example but uh that there are

proclivities and cultural differences that one should keep in mind definitely cool so I I think one of the other topics that um we were going to punt on so maybe we talk about it now or punt on to later in the conversation is this notion of primary and secondary markets and so I i' love to hear more about that I know you're running something specifically you had mentioned I think in primary you're selling like 30 million and then in the secondary you I think you said 100 million so could could you break out like so what does that mean uh from an economics perspective in terms of like that 100 million do you take a rake on some of those transactions how does that benefit you and then I'd love to hear more about the Dynamics between of what you mentioned because you also said that having a secondary Market is a little bit potentially dangerous with Diablo being you know a a the an example and so I'd love to hear more about the dangers

of a secondary Market as well yeah sure um so I I'll kind of cover our um primary and secondary market so our primary Market mostly consists of um either gacha or direct sale so we sell Cosmetics through a gacha mechanism I mentioned we release it for a limited period of time people can buy it and then they can um trade it in the secondary Market we also do some direct sales where we sell it for limited quantities or limited time or Limited stock um we also have some kind of event progression systems where people can progress over time and they they can kind of win items and then trade them away um and then the secondary Market we have um a few different methods that people can uh tap into the secondary market so the way that they can sell through the secondary Market one we have a Marketplace so people can list items on that Marketplace uh two they can trade with each other directly so I can give you an item in exchange for another

item or for currency our in-game currency is called gold um that's kind of the the scarce currency it must be purchased you can't really earn it um and then also we have something that we call Secondhand grabs which basically you have your own gacha in your own room and you can put a bunch of stuff in it and then people can spin it and they can um kind of win one of your items one of your kind of inventory items um the last piece I'll mention is because we just rolled out high-rise Studio which which is our IDE to be able to build games and experiences inside of high-rise uh creators can now start giving away or selling items directly inside of their experiences using H studio so um anyway that that's kind of the way that we're designed uh the bulk of the secondary Market transactions happen through the marketplace but a non-trivial amount you know 20% or so um come from Trading uh and another large non-trivial amount comes from secondhand grab so um they all kind of drive towards the secondary Market uh I would say the the

dangers one one of the biggest challenges with having a secondary Market is uh exploitation and fraud it's so hard to have the levers that a product that doesn't have a secondary Market has so as an example we can never give away our currency because if we start giving away our currency I mean we can to some degree as a marketing expense but if we start giving it away somebody will find a way to exploit it and start to flood the market with currency right so just blue Stacks all that yeah and so it's very it presents this challenge where if you do offer a secondary Market all of a sudden you can't you know bring someone in and start kind of like giving them currency in order to succeed and because there's no power progression you know most other currencies just aren't that valuable you know where if you remember

Game of War I don't know they had like 20 currencies and each currency was actually important because it would gate power and so you could actually give away a lot of these different currencies without giving away the hard currency you know the the really kind of valuable expensive one that must be purchased whereas for us um because it's purely cosmetic uh and there isn't kind of this power progression it's much it's more difficult to introduce these soft currencies that normally in a traditional free to play game you'd be kind of giving away to get people to return and come back it's a really nice lever so we don't have that lever as much and so that that's a problem with a secondary Market you just don't have that currency lever um and that's true of of Counter-Strike that's true of League that's true of all these kind of kind of games but at least they're hyper competitive and they've turned into sports um whereas for us we're we're kind of more about simulation and and kind of uh either building games or or kind of consuming games um so so yeah I would say that's kind of the biggest challenge of having a secondary Market

in addition it's what we talked about which is um if purchase behavior is driven in some part by secondary Market or you know perceived value that kind of stuff then if the economy gets away from you and you don't have enough visibility into the economy you can really destroy the the product so uh I don't know if you remember Gaia Online um but Gaia Online was huge it was a it was kind of this for for and and you had avatars and all this stuff I worked there for like one or two months okay well then uh I don't know if you were there before or after they completely decimated their economy um but there was a time when they completely decimated the Eon the economy they essentially sold sold a machine that produced currency um and that created massive inflation and because of the massive inflation you know Gaia completely tanked and so there's a this big component of managing controlling the economy you know Eve online CCP games they they I I remember hired a um I don't know if they still have them but

they have um uh economists who who manage the economy steam I remember had hired uh an economist and scientist to analyze the steam economy and so um these are kind of complicated problems because they're complicated systems but at least there are some metrics and kpis that if companies do have secondary markets they can look at you know they can look at gold in the system or currency in the system that that's currently alive you know they can look at the GDP and transaction volume um all that kind of stuff uh last thought um in terms of taking a rake um yeah we take a rake and we feel we have to because without taking a rake so so you know a rake is a Sync It's a sync for the currency if we don't have any kind of sync then a lot more currency stays in the system and it drives inflation uh and inflation is really scary for us because then as new users join our platform everything becomes

exorbitantly expensive for them uh but old users who are very rich because they've been trading between each other uh they end up kind of driving the entire top end of the economy right because everything's highly inflated and so for us our secondary Market we take a 30% rake off the marketplace um we actually tested a 10% rake and a 30% rake and we actually saw virtually no difference in transaction volume just a much lower rate take rate you know um rake uh we take a 10% rake when with direct peer-to-peer trading um and we take a 30% rake uh with secondhand grabs so um we definitely take a rake and I find that it's very important to do so uh otherwise you're going to start experiencing massive inflation to your point when you mentioned kpis and metrics so I I can understand it's very important that you're kind of trying to keep a pulse in terms of your economy if

you have a secondary market for example and there's C probably you know maybe outside the scope of this discussion but probably a lot of things that you should be looking at but if you don't have a secondary Market um how would you like to a product manager that may be listening that is overseeing a game with a Cosmetics based economy like what are some of the kpis or metrics or things that you would track you in order to let you know whether the Cosmetics that you have in your game is performing well or not uh what should PMS be aware of that's an interesting question because you know for us we think about it a lot in terms of secondary market so so the nice thing about having a secondary Market on the flip side is we can easily see what the community wants and what the community doesn't want by virtue of the value of the items and the cosmetics in the secondary market so we kind of

track the price of every single item in the game relative to volume um I would say without that then you really only have the kind of the primary Market data and so you're looking at you know how many users end up purchasing you know this item obviously it depends on your merchandising strategy if you're using a Goa system vers a direct sale but basically you know how many people are are are kind of buying this item how often are they wearing it you know what's what's kind of like the wearing or equip rate um you're uh you're looking at um kind of conversion uh and and depth of spend so so if you're looking at a gacha for example you're looking at the depth of spend on a gacha and when when do players stop so do they stop when they reach a certain item because that item is the desirable item um or do they stop because they've Rage Quit because there's no not a good pity mechanic or you know the the the rates are really poor and and painful um so so

I would look at things like that but there's no better indicator than Topline so you know you do some sort of live Ops event um that has Cosmetics how much revenue did you generate per user you know from on an arpu basis from this kind of cosmetic uh sale there's there's no better high level metric than that um and guidance than that but then within that you're looking at depth of spend on you know again if you're looking at aacha you're looking at conversion rates um and you're looking at equip rates and going back to the very beginning of our conversation there were a bunch of topics and issues related to Cosmetics that you had mentioned is there anything important that I left that I haven't asked you about I I forget there was a long list that you described um so so the question is uh like kind of dangers of Cosmetics you're saying or oh well I I forgot you you mentioned a list of issues but yeah maybe we could

talk about that what what are dangers of selling Cosmetics then I think Cosmetics are a are a pretty great augmentation in in terms of Revenue um and player engagement if you can get them to work the big challenge is getting them to work and the reason why they work is because people care about the way they present themselves in your Universe which means they have to care about your universe and they have to care about others in the universe because otherwise why do you care about presenting yourself in a certain way you know Cosmetics will rarely almost never work in any meaningful way in a single player game it's just there's there's just no obvious reason why you would spend Beyond I don't know a few bucks or maybe a 100 bucks on cosmetics in a single player title and don't know of any single player title that monetizes really well or well at all through

cosmetics and so you know I've seen some kind of Junior game designers or or PMS think that they can just kind of roll out cosmetics and people will start to buy them and that's simply not true people buy Cosmetics because they care about their status in that Universe which means they need to care about that Universe they need to spend time in that Universe they need to care about other people and what other people think inside of that Universe um so I would say the the pitfall of Cosmetics is thinking that you can just roll them out and there will be demand uh that is far from true well Anton I think that was the last question that I can think of do you have maybe a final message or a way in which if people are interested in reaching out to you where where they could uh contact you in some way sure yeah well uh I guess I'll share that pocket worlds um we are uh growing pretty quickly and we're hiring pretty quickly um we were

about 120 people today uh we're building out an office in Austin so if anyone's listening out of Austin they should reach out to me um they can reach out to me at antono worlds.com or Anton bur on Twitter uh and in general we're hiring so if you go to pocket worlds.com careers uh you'll see a bunch of open positions there um you know our our goal is to build a platform where on one end we have creators building games and experiences and deploying them with one click directly into high-rise and then on the other end you know our mission is to connect the world through shared experiences so we're all about hey how do these experiences uh help people connect with each other help them to socialize with each other I mean this is why people care about Cosmetics inside of our world because we're entirely designed uh around uh having a social experience within uh a world that contains games and game like uh experiences so yeah if anybody's

interested in in that in in kind of accomplishing what we're what we're working on and trying to accomplish uh I welcome them to reach out great well thank you so much for your time Anton I kind of feel like we've only scratched the surface in terms of Cosmetics um and selling cosmetics and free-to-play games so um maybe we could actually do a deeper dive in certain areas and if you if you can join me again perhaps to co-host with some other folks to discuss these things I'd love to have you join me in the future yeah I'd love to and I I'd also love to learn from uh from from other folks cool well with that uh to our audience thanks for making it this far and we will catch you next time thanks Anton yeah [Music]

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