The D2C Iceberg: How top Games hit Record Profits Despite the ATT Crash (And how you can Too).

[Music] [Applause] [Music] to the magical topic of repb store visiter which is sponsored by stash so let's hear from [Music] [Music] them look at this amazing video all right I'm just going to hand

it over to Justin and aie absolute pleasure to have you here thank you all right don't all applaud at [Music] once okay thank you thank you so much um and thanks Jasmine for making that amazing video okay what's up guys um go back one slide going to start at the beginning hello sorry testing okay all right all right it's very auspicious start this is our dry run we're coming back in 20 minutes okay does it work does it clicker work we I think we're good okay we're good all right we're good we're good um we're doing it live so my name is Justin Khan thank you for for staying

with us to the end of the day I'm one of the co-founders of stash and I'm joined on stage by my colleague Archie Stonehill um we're here to tell you about the D Toc Iceberg or how you go direct to directly access your customers um I've been a gaming entrepreneur for the last 20 years started a bunch of different companies the one that people heard of is Twitch Archie you want to give him a few lines about your background it's always a tough one off to Justin um I was a VC at a company called makers fund uh investing in GES businesses for 5 years before joining stash as head of product all right next slide so we're here to tell you about stash and what is stash stash is the anti-platform uh our goal is to help developers directly access their customers uh through a couple different ways number one is directly distribute to their customers by building their own custom launchers the second is to directly monetize their customers uh with their own web shop and the last is to direct engage their customers and

keep them coming back uh with a player Hub that has a bunch of different social features and I want to tell you a little bit about the history of games and intermediation so throughout the history of games games have always uh game companies game developers the people making games have always been intermediated by other people so back in the 90s that was things like third party Publishers but it was also uh companies like GameStop before they were meme stock uh you know you actually went and bought games there nobody here remembers that because they're not as old as I am um and then in the 2000s games started to be distributed digitally and you had Distribution on companies like steam or on consoles like Xbox and PlayStation and then uh starting in the late 2000s the mobile app stores uh with the you know Google Play Store and Apple App Store uh which you guys are all familiar with and then in the 2010s we started to see the first signs of D Toc a companies going Direct to their customers um by

Distributing uh themselves um those are games like uh you know Riot and uh and uh sorry Publishers like Riot and fortnite and epic and today that trend has continued and now we see more and more expansion of D Toc and pretty much everyone is talking about DTC everyone is thinking about D Toc uh I'm sure you've heard about it I think they were talk just talking about up here uh and so what is that that's companies building their own web shops to directly monetize their players and sell them stuff directly uh and have that commercial relationship with with those players directly and it's um building distribution of their games directly uh with those players so with that I'll let Archie take it away cool so I think as everyone knows it's been a tough couple of years uh after a couple of really good years um so this here just shows what I think everyone here knows depending on the source uh I AP and mobile was down 7 to 10% from 21 to 22 and then probably a bit down last year as well um I think the question is why

to some extent this was probably a reversion to the mean following an artificial bump during covid but I don't think that can be the full answer because PC console didn't decline as much um so ATT I think is the obvious culprate um everyone knows that that's dramatically affected the industry but even though ATT has had a huge impact um we want to dig into a little bit of these numbers because it's notable that they are in app purchase only specifically um and so so we want to talk a bit upfront about the relationship between ATT declines in the industry um and DDC uh so this is a shot of genres quarter to quarter uh sorry year to year um Q3 um 21 to 22 um and as we all know High L TV genres the ones with the few players who are massive massive whales with the hardest hit for various reasons you know harder to Target attribute Etc specifically something like Casino strategy RPG those genres match is okay right because it it it uh it has a broader base but um you

know if you look at the conventional narrative those genres have been wrecked um so we're just going to double click into Casino um one of the kind of downsides of consolidation in the industry has been uh fewer public companies from which to read data but plti is one of them so plti is obviously the biggest casino developer in the world um and these are its uh financials from 20 to 2 22 so as you can see uh PLO did not track the industry and did not track its own category uh in fact pla grew by 10% from 20 to 22 uh and was kind of just about flat a little bit up from 21 to 22 um but what that Topline number hides is that in fact pla's mobile Revenue uh has been declining um its inapp purchase Revenue has declined 2% um over the last year uh over that time frame um but that that was offset by uh an explosion in its direct consumer Revenue

um so inapp here is through thirdparty app stores is what pla calls them that's Google play Apple App Store Etc and then direct consumer for plka is almost exclusively web web shops now that revenue is not visible we don't have a good way of tracking it so some of that 7% decline in IAP um presumably is kind of what's Happening Here uh which is a shift from in app and mobile to uh webbased monetization 3D Toc um and remember it's not just kind of Revenue increases but as we all know the one of the major benefits of DDC is the uh margin impact right you don't have to pay your 30% tax to Apple or Google uh so huge is a good example bit behind bka in terms of timing but this is its performance in 2023 um now they did see a decline in Revenue they saw a 10% decline 8% decline um from Q3 2022 to Q3 2023 um and yet they hit record profits uh so how is that possible um couple reasons some UA but even they say the

principal reason was their investment in direct consumer so that chart shows the change in direct consumer Revenue as a percentage of Huges total revenue throughout 2023 up to September went from around 3% of Revenue to 10% of Revenue and instead of paying 30% for that Revenue to Apple or Google they're paying more like 3 to 4% payment trans transaction fees um and so this is kind of what we call the DDC Iceberg which is that DDC is pretty invisible but far more prevalent than I think almost anyone in the industry who's not at one of these companies understands um so this is a select list of just a few companies by no means exhaustive and some of the games that they've launched web shops from as you can see it's not just Casino it's not even just strategy it's not just medor games you know scopely has web shops for almost all its games including really successful ones for the games like Star Trek and WWE but also for you know solid chair game similarly Crafton and 10 cent Activision recently launched the Call of Duty web

shop for shooter games on mobile um Zinga has a web shop for its match games roio has a web shop for Angry Birds so really like if you're big in the space you've already been doing this for a while so what does DDC actually involve over the history of games the game developers you know have kind of grown in scope uh in what they are responsible for it started off in the traditional publishing model where the game developers were just developing the game and then they'd hand it off to a distributor who was doing all the marketing and distribution and then those people would send it to retailers who would actually sell the game to people and that's like you know remember GameStop and then you have the digital era the game developers started being responsible for the marketing figuring out how to do App Store marketing and then the app stores and consoles would actually do the distribution and Retail and finally today we're moving to this D Toc era where you as a game developer are responsible for pretty much everything if you want to maximize the

amount of money that you're making so that's not just development of the game and the marketing of it but it's also now figuring out the distribution and Retail which is what stash is trying to help you do yeah and so why is why now why is uh this a trend that's happening now um so there's four reasons uh the first one is um government intervention in regulations in a way that's unprecedented in the digital era uh a bunch of you may have been familiar with the digital markets act which came into effect in Europe on March 7th um that has mandated a bunch of changes in the iOS ecosystem and the Android ecosystem similarly Google Play Google lost a on two counts uh against epic in American courts in December there's regulation in Europe there's regulation in the UK Japan South Korea pretty much every Market globally is doing some degree of digital markets intervention um crossplatform is another huge reason for director consumer Rises if you think about crossplatform it necessitates a direct consumer relationship because the Rel relationship needs to transcend the

intermediary platform um so anyone who's doing crossplatform almost definitionally is direct consumer browser has become a really powerful tool for developers to interact with their Gamers either through you know HTML 5 with webgl and advancements and um you know other kind of web- based Technologies um uh even cloud gaming right could unlock more DTC um and then finally just general advancements in technology whether that's uh licensed engines developing code bases that can be deployed on any platform including HTML 5 or you know the backend Services infrastructure necessary for a first party identity layer uh is easier to access mobile devices can run better games all of this stuff is contributing towards um more and more direct consumer um channels and it's easy to see why developers want to do this now we are all like familiar with the kind of 30% that that's instantly what you think about when you think about the benefits for direct consumer um and so I'm not even going to go into that but it it is probably the biggest benefit uh but it's

not just that director consumer gives you endtoend control over the customer Journey it gives you ownership of your own customers and kind of four ways I think about this benefiting developers the first is that you can actually increase your spend as well um so you can increase you have more flexibility and dynamism in a direct consumer relationship than you do in an intermediated relationship um you can increase Bend depth through more sophisticated loyalty programs rewards programs Etc you can even optimize for conversion with more sophisticated discounting strategies like you know personalized voucher codes that aren really available on mobile um then you can also just improve your game right you can improve your experience of your G core gameplay um by adding to your social systems by improving your competitive ecosystem but just enhancing the kind of richness of your gaming ecosystem um you can also position your company to expand product lines into new revenue streams you look at someone like Riot who have done a great job at this with something like Arcane their licensed their kind of anime series um their Esports productss merchandise uh

direct consumer unlocks all of that and then finally and this is the other thing people really think of is first party data uh I think ATT showed everyone how vulnerable you are in an intermediated relationship where you don't have direct access to your customer where they where Apple earns your customer and all you have as an anonymized identifier at would have been pretty impossible if we we're operating in a direct consumer industry and it's not just user acquisition giving having first party data unlock something for every part of your organization whether that's product improvements from better analytics and knowledge about how players are engaging with your app play testing Etc um so the challenge is that DDC is reasonably new in the games industry at least for developers so at stash we look at other industries that share similarities with games for inspiration on how to do this well I'll just give three examples here um so Casino real money one uh a lot of Casino product differentiation is very hard because they all use the same licensed technology from the same vendors like

playtech uh and they don't want to compete on price because that would just be a price War so they differentiate on customer service you know flying people out to Vegas and giving them free drinks and stuff like that we can do that in games pretty easily as well fashion and retail I think is a great analog because it had a similar kind of two-step journey to direct consumer as games are having uh at First fashion and retail was a brick and morar intermediated Industry where brick and morar retailers um sold on behalf of um producers then it went to a digitally intermediated ecosystem where you had the likes of Neta Porter farfetch other online marketplaces and then fashion and retail businesses managed to launch their own direct consumer channels um and they did this by maintaining the basic experience of the intermediated distribution Channel and launching a enhanced experience that was first part direct to Consumer with exclusive offers um a broader catalog and just a more kind of Premium experience finally Airlines and hotel is probably my favorite example

because they share similarities with games in that their unit economic cost per unit sold is negligible so it doesn't really cost anything to have 97% occupancy versus 100% occupancy in a hotel or an airline so that's why they can give away really generous rewards now we have that even more in games it doesn't cost you anything to give away a skin um except if you're cannibalizing spend so we can take a lot of learnings from how they've done loyalty and rewards um to induce direct consumer choices um just a really good case study I'll touch on quickly I think it's n Nike I think Nike is a phenomenal brand to look at when it comes to doing DDC well you think about Nike is a shoe company and yet it's one of the most omnipresent Brands um I think Nike run Club is a perfect embodiment of this um it is a tool it is an app that's a companion running app it features all of their sponsored athletes like in your area and somehow Nike's managed to go from a shoe company to a brand that its best customers engage with on a daily basis it's really impressive um and as Justus mentioned

like there are a few case studies of this going well in games um there aren't many but the two but when it works it works really well so you look at Riot and EP and epic um they share certain features uh both were competing in genres that were fundamentally uh clones of mods right the Battle Royale and the Moa um and they both beat really really powerful like the best game developers in the world lizard valve whoever and won the category um and they both did it by innovating on business model Riot was really the first freeo playay Western developer to to achieve scale um and uh fortnite was really the first freeo playay console game uh and they both did it by going direct to Consumer which was harder for Discovery it meant they couldn't use steam's algo to discover users but it meant that they built these incredible relationships with their customers and Community Management by Riot is like Best in Class look at their orts um uh tournaments similarly fortnite you know is a cultural phenomenon because epic has this Direct act relationship with its

players um so we'll talk quickly about like how to think about doing DTC um the key thing to remember is that you index on experience over convenience it will never be as convenient to buy something directly from a brand as it is to buy it from an intermediary think about buying something from you know I don't know a fashion brand versus going to a moall right it's easier to go to a moall than go to that brand specific shop however you can offer a better experience that gives consumers a reason to go to to give up that convenience I'd remember I'd remember three things when thinking about how to design this the first is DC is for your most engaged users it's not really a UA channel for marginal users this is for your core players second is you need to tailor DDC to suit what makes your game special what players like about your game normally that's your meta game you can look at peers in your genre but really think about what it is about your experience you can enhance and then finally like Leverage the medium in which you're interacting with your consumers to its maximum potential you think about like how Disney in

reality does Disneyland right like it has created a product to suit physical interaction to match its its Cinema products so you can do things on web you can't do on mobile so think about what what the medium unlocks um this is just an example of like what some of this looks like applied uh so there's a couple themes I'll call out here um across a bunch of these social is is uh very common so enabling social activity particularly social discovery which is much less solved in games enabling players to meet other players whether that's in an mm RPG where you're enabling people to find Clans or people to do raids with looking for group or a competitive game where you can enrich your competitive ecosystem um exclusives like a lot of this involves giving exclusive content um uh which is kind of easy to do uh and Suits everything from hybrid casual to casino um and then finally like user creativity like harness your community I play a lot of raid Shadow Legends and the community of raid's amazing they've created all these tools that raid uses

that you can only use with raid's uh PC launcher Play and play um cool all right so if you remember anything from this talk then uh just remember these three things number one is you're already late there's companies like plka who are doing 600 million on their DTC web shop uh and you can be too yeah but um we can help if you uh want to get set up uh the second is DC is about more than just preserving margin from know third party who may be rent seeking your uh property uh but it also improves your margins and lastly the experience all about the experience and that's much more important than the convenience so you got to go figure out ways to go beyond the gaml and engage your users uh in your web store and uh your website and we have set up this easy calculator uh to tell help you determine whether web Shop's worth it for you so you can go to st. fee calculator to understand how much you're paying to uh your third party uh outlets and uh we can help you understand what you might

save if you directed people to your own web shop and I think that's it so thank you very much for attending this talk if you made it to the end of the day I applaud you yeah thanks everyone thank [Music] you [Applause] [Music]