Sorry Gamecraft, You Got It WRONG

[Music] Okay, moving on. Game Changers podcast. First of all, highly recommend Game Changers podcast for anybody that's interested. Mitch and Blake talking about the industry. Lots unanimous from awesome, lots of anecdotes, lots of OG [ __ ] right? I've been listening really since they started. Great podcast, Gra, sorry. Great anecdotes from their perspectives on the industry. I generally agree with everything that they're saying. They're kind of like saying the quiet parts out loud a lot of times and they're very straightforward and matter of fact about their opinion. But it was this latest one or the one I think the first or second one this season. This is the third season that they made this assertion that really got me thinking. It got me I was just kind of in my head all weekend about this thing. So I wanted to bring this to the group and discuss debate. So Mitch's argument is that the distribution duopoly from Google and Apple caused consumer preferences for high LTV games, right? He views that the distribution mechanism shaped by this duopoly

determined what games were introduced to the customers and that this in turn shaped what players preferred. So what he's contending is that new methods of discovery are now required to create a more vibrant ecosystem with innovation in the space and they also suggested that steam is creating the same dynamics on PC and of course their solution is their biggest investment which is discord right so this is brings back the discord thing so you know and generally speaking obviously he's pushing his own book so usually I would just ignore it and say okay a venture capitalist is pushing his own book because discord is a solution for the problem on PC and for Steam, right? But I don't know, it just got me really thinking is that like is this really the reason that we have like basically four or five genres that dominate this platform? So my assumption has always been that consumer preference came first, right? Players have been deciding what games they want to play

and what mechanics they're willing to spend on. And given the high LTV nature of these games and the high spenders, the whale type driven economies, there's only a few mechanics that actually can drive spend. And the whales tend to prefer casino, puzzle, forex, and RPG games. So general assumption on this is that the whales have been driving the genre preference because that's the only people that are spending money. That's the only market that really matters in the space. So, do you think it's Apple Google's duopoly that's at fault? So, what do you think, Philip? I don't think they said that the duopoly has changed consumer preferences. And I think that, you know, the wording here is really important. And so, the closest I could get when listening to the podcast again, and for those listening at home, this is 422 on the time stamp, is that they say there's this race to the highest ROI category, casino, match 3, etc. because the UA spending required to bring those games to mass market scale forces you out of innovative content into these tried and trueue play patterns. They

talk about it again in 2016. They say the dark side of freetoplay and IEP started to accelerate the UA and allowed for elastic pricing and whale hunting on the platform. I honestly can't even follow their logic on what they're saying here because of course when you have an LTB that's X number then UA in a relatively frictionless market which is what mobile is you're going to bid up UA to LTV that's not a dark side of anything that's just how a market that has very little friction works like this has a lot of comparables to perfect competition model in economics we have a market with very easy exit and entry we have a market with really lightning fast user acquisition where we can calculate UA and LTV at any moment. I think they totally get this story backwards. This isn't anything about the duopoly or platform incentives. This has always been about user acquisition. This is the story of mobile. It is about user acquisition and distribution. The platforms existed or not. This wouldn't have happened without them. And they don't provide any explanation for why this doesn't happen on Steam. Right?

I'll tell you because they're talking about leaderboards and how leaderboards were this discovery system and when they took that away, discovery went away and that leaderboards were really this perverse incentives. But none of this exists on Steam attribution. It's because for the first time ever on mobile and it's everything you love is as a marketer I now have to report on the ROI of the spend that I have and so everyone got addicted to rorowaz and direct attribution before you know crash your favorite thing IDFA when on mobile we knew exactly how to go out with a sniper and get that whale and take them down. that created in a sense a vicious cycle of performance marketing and UA being go out and find me more of this and and so that's the piece for me is this direct attribution that is the link and the cause of the chicken and the egg is that fact that does exist on Steam. But this is what was keeping me up at night is that is the nature of freeto

play and the way people spend on freeto play is the reason that this stuff works, right? Apple did everything they could to promote premium games during the early days of Apple ecosystem, right? They showcased them on the on on the stage for all their keynotes. They [ __ ] market the [ __ ] out of them on the store, you know, dude. They even still have [ __ ] editorial on the store trying to like showcase these [ __ ] games. But that's not what resonated. And what I know and everyone else knows or should know in this industry and I think this may be the disconnect is that this is not a premium model, right? This is a whale model, right? Where 3 to 4% people convert and the top 5% of that 3 to 4%, so a fraction of a percent of the people that actually download your game are generating the majority of your revenue, right? And so you really only give a [ __ ] about that small group of people that are spending insane amounts of money, right? And so what I'm trying to say is that the mechanics that are built

around Forex, casino, puzzle, and RPG are catering to that group, right? So it's irrelevant that the different distribution methods. Frankly, Apple and Google have nothing to do with the distribution methods. All Facebook and Apploven and others, right, that are doing the performance marketing. But it's the tastes of that audience that's willing to spend is what's driving this business, not the distribution. Distribution has nothing to do with it except for the fact that they can target these [ __ ] that are spending insane amounts of money. You know what I'm saying? So, this is what was get me keeping me up at night, right? Yeah. I think it's a chicken in the egg cuz I think you're right and I think, you know, I'm right. If you don't have the play that allows there to be whales and then the platform allows you to hunt the whales, downloads have cratered since, you know, the loss of AT and how difficult it is to go out and find players. Revenue has been increasing because games have been figuring out more dark arts to get people to spend more. So, if we had all these different

alternative distribution mechanisms out there, do you think anything would change in the ecosystem? Would it become more innovative? Would we see new genres? Would we see new innovations at all? No. It's just going to go back to the same thing that people are willing to spend money on because that's the only people there's only a few people that are willing to spend money on this freetoplay at scale make the model work, right? And I have consensus with you on that point, Eric. And I think that's what hurts their argument the most is that if this duopoly didn't exist, well, would things be that much better? No. We'd still have the same LTVUA game, which is that you have LTVX and you bid up UA up until UA equals LTV. that that equation in perfect market still works. I have no idea what they're talking about here. Yeah. So, a discord is not a solution. It's just going to be another part of the problem, right? In theory, in terms of innovation. Yeah. Another acquisition. Yeah. Agree. This is what the argument was killing me was that I was like, "Okay, wait a minute. Maybe this is reinforcing these models and these systems that are, you know, extracting as much money as possible from the whales, right?" Like, if the UA

environment is the one that's actually causing that, that's interesting. But I think it's just the player preference of those that really are willing to spend, right? Until player preference changes. It's even the inverse of what they mentioned, right? Like if you know, we were talking about would things be different if there were alternative distribution sources? Well, yeah, we go back to a pre-EAT world. Like really Mitch and Blake should be blaming Apple and Google for the AT situation. It's about distribution. That's what caused all this [ __ ] when we talk about fake ads. But they're trying to say like freetoplay, IEP, and loot boxes are the dark side. No, no. Fake ads and the modern state of mobile user acquisition is the dark side. And that was caused by the duopoly, but at is the problem here, not this other [ __ ] they're trying to mention. This always existed. I have no idea what they're talking about. That's what I'm saying. That's what I'm saying. There is the play into the dopamine. You know, it's why casinos and gambling have addicts. And so, I do think that games have been adopting more of those dark mechanics. So my other counter to their argument is that look the tastes and the

genres that are doing well on console and PC are still hugely you know like 85% of the traffic is from games that have existed like so my other point is that PC and console is in the same situation right they've matured to a level in which 85% of the use is using the same type of genres the same games that have been existing forever right so I would argue that additional ways of finding these customers is not going to change what consumer are preferring, right? Even on console and PC, right? Like the nature of the platform itself is determining what genres do well. It's not a question of discovery and distribution. And so, Discord is not going to help that either, right? We're not going to see more innovation on the space because Discord comes on because the preferences of the consumer have already been stated until we have a new platform. Causal arrow goes both ways, right? So, let's take a look at hybrid casual. Do you think hybrid casual exists as a consumer preference or as a function obviously at some level it does but do you think hybrid casual is more

of a function of institutional incentives or do you think that's more of a function of consumer preference both time you know disentangling these two things because of the motivations of the ad system and hyper casual makes money off of the you know the five ads that they show you right away they shove it in front of your face everywhere you are because everything's an platform, as you like to say. They're on Tic Tac, they're on social. Oh, this cute little time waster game. Looks really fun. Looks really simple for me to pick up and play. I want to give it a I want to give it a shot. Same thing with Squad RPG, right? Like, you know, consumer preferences may be for Squad RPGs, but they've been in decline because the U user acquisition isn't there anymore, and they haven't been able to pivot to the same fake UA strategies that Forex does, right? Forex would have been killed if they didn't pivot to this, right? So, UA and distribution does play a large role in what genres succeed and which ones don't. Yeah, which is why and Crest pointed this out. If you look at all of the art styles on Forex games that are working, what is working? White

out survival, Last War, Kingshot looks like a ripoff of an art style of Supercell. You know, there's a massive 4X monetization machine behind these more approachable art styles. And that's like a lot of the thesis of why Supercell games have worked so much is they have this really fun, casual, appealing brand on top of a cash machine. My point again is that any new distribution, it has nothing to do with distribution, right? It has to do with consumer preference from a spending perspective. And so, yes, they're making more casual games, but the underlying mechanics of these games are identical almost to the older Forex games. They're just doing a casting a broader net and bringing these whales in. Right. But I did think that there was innovation. I mean this hybrid nature of I'm going to put a very simple mechanic on top of hab casual like that that is oddly innovation. All right. Innovation. I think they're intertwined. Yes. I was a little disappointed. I'll be honest at

this particular podcast because I think it didn't make sense what he was talking about. I don't think Discord is a solution. It's just going to perpetuate the problem. There's no innovation on gameplay that's going to happen because Discord is a new distribution channel. I'm just saying that like it is just going to be the same situation as all. All these games are the same games that they were like 10 years ago in terms of the same mechanics that are monetizing these same gotcha energy power creep. All these same things are going to be the same thing making money of the small percentage and we're talking about millions of people in the US that actually spend money like [ __ ] drunken sailors on these games. That's the audience and that's what you're optimizing against. I actually think they're correct in until there is a new distribution model that allows new creative and innovation to flourish, we are stuck in the system that we are in today. And Discord, what we talked about today, it's an ad platform. I don't know what that platform is as a place for new

games to kind of flourish and live. I mean, we live through I was there at the beginning of mobile where I was selling Scrabble for $6.99 and then I had to go in front of Hasbro and be like, "Hey, uh, we're going to make more money if we take Scrabble for free." And, you know, the CEO was like, "Are you [ __ ] kidding me? Like, what do you mean? What is free to play?" That is because of the nature of the platform and because everything's an ad network, you have to go, you know, it's scale. That's what this distribution model lent us. You know, if there is a new distribution model that pops up, I do think that would allow for innovation of gameplay to flourish depending on what this is where this is what got me really kind of confused is I don't think it changes one thing. I don't think MOBAs are all of a sudden going to be successful on mobile in the West because we have new distribution mechanisms. I just I'm just saying in general the consumer that's spending money on these games like these lunatics that are spending tens of thousands of dollars are not spending it on MOBAs with cosmetic economies. Like that's just there there's not a broad group of people spending on freeto play

to justify any type these type of gameplay mechanics that you're talking about, right? Or these new genres or new gameplay mechanics. That's just not the nature of the mobile uh free-to-play system period, right? Regardless of distribution, let's say Apple gets rid of the 30%. Yeah. Right. At comes back, right? Because they get legisl Nothing's going to change. The point is that distribution affected what genre succeeded and which ones failed, right? That's our central point of disagreement. You think consumer preferences drive everything. And I would argue, yeah, that's that does drive a lot. But user acquisition is a really important part of finding an audience. And that helps give life to mechanics that would not otherwise exist because they can find an audience that is small enough when you have targeting. When you don't have targeting, this is your words, Eric. You remember you had to go casual. You had to go casual on the front end to get people into the funnel, right? So, it's harder to find. I'm not talking again. I'm talking about what people are spending money on, not what people are downloading and playing. How would you explain the decline in

squad RPG revenue? They're [ __ ] out these AAA bazillion dollar. We're talking about ZZ Miyo Zen. Yeah. No, no, but those are not to the west. The collection mechanic type games. They haven't innovated on the games that have done well. Star Wars Galaxy of Heroes and Marvel Strikeforce. Like they there hasn't been a new game in that category that has taken to capture the hearts and minds of that audience. And I think a lot of those likely the spenders are all moving back to 4X is kind of what it looks like like those are capturing the same maybe that same like whale audience. Isn't that because 4X is now adding character collections inside and so 4X is like the ultimate shout out hybrid? You know, it's like but seriously like when I was playing White Adult Survival, I was like, "Oh my god, there is like old school squad RPG character collection involved in this just like everything else, just like the mini games. Just like like I felt like when I was playing White Out and it's been a while. I'm sure when we look at Kingshot and all these other like they are now shoving everything into these game

experiences that keep you involved in collecting and continuing your collection. That's where I feel like there has been innovation and changes in gameplay because of the distribution model pushing that. I don't think we love where it's going because it, you know, in a sense like we hate, you know, hyper casual because it was how do I get you to stay for 30 minutes so I can show you 10 ads and monetize you off platform which I think we as people that love games I think we felt gross about what that was. My whole thing is that because the whales constitute the majority of the revenue on the app store full stop. like it's the games and genres that cater to that audience despite whatever [ __ ] distribution mechanism that you have, whether it's, you know, [ __ ] Discord or anything else that is going to will see success in the marketplace, right? So, you don't cater to that audience that's willing to spend $10,000 a year on a game like you're it's over. Okay. Well, two things. one is I think

there are a lot of companies that made a lot of money on ads and we won't know that because sensor tower has you know that's not exactly what shows up however two what is going to change that we need to keep an eye on and I know you love and hate this topic is web shops as I talk to more people that have mostly midcore games that mostly service the whales to exactly what you're saying those people are moving off platform to these web shops in some cases as you know we've all heard 40% of game revenue can come from a web shop that is no longer being tracked in what we are seeing in a sense on sensor tower. And so I'm actually wondering are we losing sight of actually what's really going on in the industry. That actually reinforces my point, right? Because the people that are moving over are the whales that are spending insane amounts of money, right? And they're still spending on the same games that they spent on 10 years ago. Is that a distribution innovation? That's actually the opposite of innovation. That's like sticking with exactly the games that are doing well. Now, this is my point. It's

like you have a new distribution mechanism that's not going to improve discovery and capture new audiences and capture new gameplay. I mean, hyper captur is one example. Squatter RPG is another. The last one I'd probably put is like the failure of the design home genre to launch. I think could have been a sacrificial lamb of AT as well. Like I really thought design home in that genre would expand. And I think at probably played a big role in stunting the success of products like Redcore as another example. Well, no, the LTBs were not high enough to justify the spend, right? You can always lower CPI CPI, right? I mean, that's the other that's the flip side, right? That's that's what could have made this genre viable, right? If you can find an audience, CPI can be lower and you can still hold LTP constant and your genre can persist. That makes sense to me, right? is that if we did have ways of capturing those audiences that are lower. Your assumption is that if without AT&T we could have actually had lower CPIs to grow the design home audience. I think it's one example and it's speculation on my part. I think there's a million things on reticore we

could talk about, but that's something I've always been curious is about why this genre didn't take off. It's a very particular market and I think we need highly targeted creative to be able to continue to have that genre really succeed and it hasn't, right? It's been design home and design home's been kind of on the decline for a really long time. I mean, isn't it exactly what you're saying is there's nothing to spend money on for whales in those kinds of games. There's a ton of things to spend money on. Not only you have e-commerce in those products, too, which is also a really nice back end. I I would argue it the other way is like the depth of spend is not there to justify the spending to find these this audience, right? Yeah. Exactly. versus spending the same amount of money and building the same type of game as a 4X game and capturing that audience, right? So the rorowaz calc is just not there for design home versus 4x games. I'm interested in that as a topic because you would imagine that how do so many people spend so much money on stupid puzzle games which I am one of those people. I play the [ __ ] out of Royal Match and Royal Kingdom. I mean, for me

it's a fidget toy, but how do people spend money on like more lives, but not like I want to decorate my room? Is it because of the play pattern? Is it I don't know. More particular audience. Match three. Match three is a very I mean, people will use match 3. They'll frontend their creative with match three. Like AFK Journey had a freaking match three game that you had to play when you downloaded a squad RPG, right? It's a much more broad appeal genre than Redcore or Design Home. Yeah. So then that's the problem again. And it goes to like there is no innovation on the platform cuz it's all going to the you know crush to what you're saying the top three things that are working on maybe we're all I don't know the whole yeah the whole point of targeting right just put aside mobile for a sec the whole revolution of Facebook was that you could do hyperargeted things which gave rise to like all these PCG companies that are making like you know you know particular shaving products or or selling you razors whatever it may be but that wasn't necess necessarily a

product of consumer preference. Obviously, the latent consumer preference was there else it wouldn't sell. There has to be demand at some point. But what unlocked that possibility was being able to find these particular audience because hyperargeting exists. We wouldn't have had all those PCG companies if we didn't have Facebook. And I think you can make the same parallels here. Like there is a back and forth causal relationship between the two. All right, we got we got to [ __ ] wrap this up. All right, everyone. Hope you enjoyed our debate. Uh I think actually Mitch andor Blake is coming on a podcast with Mishka. I wish we could all be there. [Music]