two & a half gamers honest interviews #5 - Rafael Vivas (How to monetise digital items?)

[Music] welcome dear listeners this is a 2 and a half Gamers no gaming podcast honest interview number five where we ask tough questions have some fun and drop some knowledge and don't forget this is supposed to be a 4 a.m. conference discussion Vibe so let's not take it too seriously this week we're going to have a chat with Raphael Vivas the GM of new initiatives at applen we're going to be focusing on their crypto product vessel but first and foremost R welcome to the podcast how's your week been my week's been amazing thanks for having me on here I'm a big fan of what you guys do and so really excited to be a part of it this week yeah man how like you've really been traveling a lot lately like where you've actually been in the last couple of yeah last three weeks I have we were talking about it so I was uh it's a probably a month now but I was in Dubai I was in

Berlin I was in Seattle I was in San Francisco I was in Hawaii Vietnam a lot of it was visiting Partners visiting our internal Studios and then uh the old co-founder of Liden Studios I went to his wedding in Hawaii so just been jumping around everywhere got got pretty sick along the way but still kicking and uh you know things are moving forward was it the old Rona you got yeah yeah not Rona actually the flu more so which I actually have had Co before and the flew hit me harder than Co interestingly enough fair enough so you've had quite an interesting career like I even read somewhere that you're a SpaceX investor uh do you mind just giving a brief overview of who you are your career and what you're doing now sure so a little bit about myself I've always been obsessed with computers since I was a young kid and so when I was about 12 to 13 years old um I started making on money online building websites doing game server hosting

building Graphics whatever was really needed um and what ended up happening and how I got into the advertising world was uh one summer or no sorry one Thanksgiving my brother came home for contexts uh I have three other brothers and my parents are divorced so my brother at that point was staying with my mom so he came home to my dad's and was telling my dad about his affiliate business and his marketing business that was doing really well and my dad was like oh raph's also doing some business online um build you know building graphics and just selling stuff I think that he can learn a lot from working with you so begrudgingly that uh following year I went and actually went to go intern for my brother and bottom the totem poll was just creating ads adding terms of service on a site but really fell in love with the advertising world and and also just the capability to make money online uh and from there I you know was fully dedicated to that and uh really you know Grew From building ads on on Myspace and Facebook and Yahoo

at the time to then building up Lin building our gam view inside uh and then now well I took a sabatical in between two there too and then now doing vessel okay cool can I just ask you to like maybe double click on like how you ended up in apple and how that came to be yeah sure so previously when I worked for my brother I ran a mobile ad Network actually and app Lov was my client so app Loven was originally a app recommendation tool that's where the comes from so the apps that you love um probably dating myself here but if anyone's familiar with open Fame we were trying to build a competitor to them and and when I say we I really meant App 11 at that the time so App 11 was acquiring traffic from my mobile ad Network and I kept teasing Adam you know saying hey you know you should come work for me we're GNA build this big business and what it really ended up turning into was several months down the line he came to me was like Hey I'm building a mobile ad Network because if you're successful with a one engineer with the experience you have we're going to be exponentially

more successful uh and I said oh no big deal because the company actually at that time was selling to to uh Play phone which then got acquired by gungho I wanted to go into games H but Adam being as training as he was and uh you know and I had a lot of respect for him he says Hey listen come be my team down in PA Alto and if you want to go into game still afterwards go do that but just know that there may be an opportunity here for you and the second I meant the other co-founders of applovin at the time and one of the founding Engineers I just knew that it was an environment that I would strive in everyone in the room was exponentially more intelligent than I was and I felt like everyone had that passion I had which wasn't something that I'd seen in my previous company working for my brother and so from that day on I joined app Lovin and a week later I actually moved into the office uh and then we grinded it out and built the Behemoth we have today nice good story so before actually diving into things I actually just wanted to ask

like it's been a very interesting year for mobile games uh like what's your take on the mobile gaming space currently and where do you think it's heading yeah so I'm gonna break this out two two points I think quality is King what you're seeing is with the changes with ATT games previously that were targeted to to specific niches that were really good at taking a lot of money from a small percentage of users with the tracking changes that is not as successful as a strategy as it used to be and so games are going to have higher purchaser rates across a larger percentage of Their audience instead of one to 5% monetizing realistically have to get to 10 to 20% uh and you know you you probably won't take a million dollars from a user like you did in those other games I'm talking about but you know you'll get uh hundreds of dollars or thousands of dollars from the the 20% and so I think how does that happen creating higher quality games that AC crossplatform and you're seeing

this already companies like Activision with Call of Duty uh you saw um the guys over who are doing uh stumble guys they're doing a great job and so I think that's where the market is going people are going to have to start releasing higher quality content uh to start growing their games businesses again and then two I think you're going to see a lot of consolidation so capital is a lot harder to come through the market you know last year and prior to that you you were able to go and effectively get debt at close to 0% and now with all the inflation that's going on in the hikes that we've seen it's just a lot more expensive to get or for investors to give you money and for you to raise debt and so what we're seeing is that people previous who don't have as strong of businesses anymore or just didn't have great unit economics and very profitable now these studios are I personally think are going to be uh selling into larger Studios

that will go and optimize them or they're going to have to do radical changes uh or you know I'd say the the worst thing that could happen to them as they would shut down interesting and do you think there's any big winners from like at being rolled out like in the gaming space like who do you think the winners are yeah I think the big winners are the guys who are creating these higher quality games I mean you see company you see like Diablo Immortals you see Call of Duty you see these games they're still sitting at the top gross on the charts supercells doing I think it's actually helped supercell a lot I think those are really the big Winners yeah cool so uh we actually I actually met you during amplifying Berlin where we talked a little bit about vessel and we actually talked about it on this podcast a few episodes ago but can you describe it and what it actually is definitely so I actually want to start with a point that you mentioned earlier you said I'm leading our crypto initiative or crypto product so vessel is nothing to do with crypto vessel is a digital Market place

for items for mobile apps and games this has already existed on web and console for a long time so we've seen on web there's the Steam Community Marketplace where people can go and sell and buy their skins for games that's the same approach we're taking we just think it's crazy that there's 120 to1 130 billion dollars of inap purchase spend going on in the ecosystem you have zero way to get any liquidity out of your assets when people are on these marketplaces that transacting billions of dollars annually like for example this Ste Marketplace you know users aren't going on this Marketplace thinking they're going to make a living off this unlike you see and you know openc and people who are nft Traders people are trading on the marketplace because they think it's fun to get these skins that are very unique and limited in quantity and also just the trading aspect it's very fun playing Market used to be one of my favorite things to do when I play a game like World of Warcraft so when or like our product that's the market we're focusing on target marting which is Gamers inside

of games and providing a marketplace where they can actually trade their assets okay so what does actually vessel do then so very simple we're we're an outof the- box solution that allows developers to integrate a Marketplace and from a consumer's perspective you can come on vessel easily buy other digital assets and then sell your your assets as well okay cool and so how does it really fit into the games like I'm assuming app being App 11 you must have tested on maybe some of your own games like do you have anything you can share on metrics and what kind of tests you guys run yeah definitely so we have a lot of games that are going live with vessel right now internally uh I can tell you you know match 3D which is one I've been very public about in when we talked to amplifi Berlin that was really the case study I gave when when we talked about it back then it was about 3,000 users we tested across if you open up match 3D today what you'll see is that 80% of the top 10 users inside of the game have some sort of nft sticker or Pro badge if

you look in the top teams you'll also see that over 50% of the users in them also have one of these as well and so for us we've seen a lot of Eng a lot of success and engagement around it okay cool like I remember the example you run through in Berlin that it was pretty much an uplift on most metrics and that was the first time you ran it I'm just a bit curious like do you roughly expect to see like the same results if you run a normal in-game events as you do if you're running it with actual vessel items yeah no that's a great question so when we did we showed that analysis in Berlin effectively we showed that we saw dramatically higher monetization from running a vessel event and what we were a what we were testing it against was actually just an event where we gave coins and hearts away okay cool and like have you run any more events since that like I'm so curious to know like what does it actually look like on the third or fourth like event that you're actually doing does it look the same or is it a bit of a like it drops off the results no that's a great question so actually

we've we haven't seen any any material drop offs on our end if you look right now inside of the vessel abster we have over 800 of them I think it's 836 right now that are actually minted so if you times it by 100 there eff 83,000 users now the reason I mean for us you know we've seen incredible results the reason why we haven't rolled it out or continue running this event I would say over and over again because everyone can get into the vessel Marketplace from the game the reason we haven't continued running it minting it is because it's from an economy perspective if everyone has these Badges and everyone has these stickers then what we see is that there's no value inside of them so what we're working on right now or or what the team is really working on right now is building an infrastructure that allows more robust events uh so the economy we don't have to give up the same item the economy can still Thrive and grow okay so if you're a game developer like how would you recommend them to use vessel and what kind of like in-game or items would you actually be able to yeah or would you recommend to

give out or can or you can win yeah so let's start from a first principal perspective because I think it's going to be a lot more useful to start there so when you think of giving out these nfts digital items you have to think about it in terms of giving unique offering right so if you're giving out nfts that do the same thing as I things that you can get via soft currency or through traditional I APS and there's an unlimited amount of them users will have no interest in in enging with them and so the way I would think through it is that these nfts should be limited quantity they should be something that is because if it's limited in quantity then users will want to trade it amongst each other uh something that can be earned uh or or if and if it is earned uh then effectively it requires a user to invest a lot of resources into getting it um I would say those are the two main things that I would focus on uh actually obviously the most important

thing would be utility right so making sure that that nft that the user gets uh that it delivers value a significant amount of value to the user who's engaging with it and and it doesn't have to be in terms of just making the player overpowered inside of the game so like going back to match 3D inside of inside of the prob badge what users are really getting is actually uh social Cloud so what we've seen is that users go and they trade the prob badges amongst each other because users effectively use it to go recruit other players so if you go into the social media on around match 3D what you'll see is a lot of players say hey I've got a pro badge we're experienced and competitive players you should come and join our team and so that's one thing that we've seen there and then on the other hand two another utility that we deliver is that users who are competing in these events for them to get multipliers on their stats they don't have to watch ads and this is something that's actually very beneficial because it gives them slight Edge because they

can still get that multiplier without having that downtime of watching these 30 second reward video ads the admon manager en is dying a little bit hearing that but yeah I can see how that would bring a lot of value yeah it's all relative to the tradeoff right so right now the badge trades around 125 to 130 bucks and so yeah if a user wants to go spend a 100 bucks to to not watch rewarded video ads I think the tradeoff is very good for the studios yeah so just kind of thinking about that like match 3D is a very nice game it's probably got a quite High LTV like I'm sure you've tried it on a bunch of games do you see any gaming categories working better than others or is it just kind of the high ltvs where you would recommend that actually works the best you know we've actually seen it work everywhere everywhere from hyper casual to hardcore games I think you know it really just comes down to these digital items actually delivering value to the user based on where they are in their session so like in hper casual we try to

introduce it very early in the game playay Flow because we know users don't stick around a long time uh and we try to give them it benefits in terms of hey go win this nft and and you can win it through playing more levels and if you play more levels then you get this NFC which you can cash out for vessel currency right and so that's and which then can be turned into fat so that's something that's very interesting to a hyper casual user because they're most likely they're not going to stick around the game for a long time so they would say okay you know getting a n C skin I don't care about that where what we've seen in hardcore games is having a special vanity item which only a small percentage of users can have that's something that works out really well there I I when I think about nft monetization it really comes down to similar actually to IP where it's a it works everywhere it's just about implementing it in a way that actually matters to the user okay makes sense I guess there's uh always like in our industry there's two

big elephants in the room right and that's Apple and Google uh what do they have to say about vessel yeah that's a great question for them it's important really that the user experience is good that it's seamless to the user uh and and also that we offer I would say that we're compliant uh from a regulatory standpoint and by their guidelines and so what we've effectively come down to obviously I can't speak on their behalf but as long as we're using their payment rails and delivering a good experience and users aren't complaining we haven't had a problem okay cool good to hear uh I know that Apple recently updated their guidelines on nft sales on the App Store can you summarize what the new guidelines are and will this change your strategy yeah so in layman terms what they say is that nfts must be able to be purchased via Ina purchase right that's

what it boils down to and for vessel there's no change because since day one vessel coins have been able to be purchased via the app store that's actually the only place you can buy them so you go into the vessel app you buy the coins which are consumable and then you buy another consumable and so for us there's no change of strategy and in fact it just validates what we're doing we're doubling down on okay cool and now the million-dollar question what's the cost for us Developers uh for vessel what do you guys charge yeah so we don't charge any gas or minting fees uh on our platform the reason why is we are centralized and so the cost for us to do this is extremely low uh and also the speeds are fast as well so where the charges come from on our side is we take a a revenue share on transactions on primary transactions when a developer cells uh to a consumer uh and then also when user trade amongst each other there's a

royalty fee that goes to the developer and we take a percentage of that okay so what's the rough complete like percentage like let's say me I have an app and I put in vessel so and then a user buys an nft through vessel like what's like what do I get and what you guys get and what does Apple and Google get yeah so with Apple and Google they get 30% of every coin that Pur uh in regards to like our business economics today 90% to the developer and 10% uh to us on those transactions okay so I guess the total cost then would be 40% uh that's one way to look at it yes okay cool and yeah so I'm just a bit curious as well like do you expect like similar like similar web 3 marketplaces to start popping up like in Mobile app stores or do you guys expect to be the only one I think competition is inevitable and healthy for the ecosystem so definitely would expect other players come to the market as well and yeah yeah

you hearing any rumors yet or no I got see a lot of people with websites in debts haven't seen anything live in the market yet though yeah fair enough so can games using vessel still use their own like webbased marketplaces without any cut or anything like that to yeah and like forther nft sales like to either the stores or to Apple yeah currently we don't support that we only allow vessel coin sales to happen within the stores okay cool and recently also there's been quite a big Trend uh towards free to own it's mainly been propelled by yeah former machine Z CEO Gabe leaden uh and limit break do you see this like of an illusion like in web 3 gaming model DC being sustainable and does this affect kind of your view on kind of the overall Marketplace and how it functions I'm actually G to fli the question to you do you do you actually fully understand what free to own means because I've seen a lot of talks about it I've seen a lot of articles but I

haven't actually seen it rolled out I see a lot of these nfts go sell and open C see a lot of pumping but I don't see the full monetization model because I've never seen it rolled out in a game it's interesting you're saying that cuz like I was doing research for for the interview and literally like I was looking around and I couldn't find a single example but one thing I have to admit free to own it sounds really great right but I haven't seen it in practice yet I mean I can free to own digital items today myself I just go play a game and the game gives it to me as I get further so I I would say this Gabe bladen's an extremely smart guy you can't you can't uh count him out but I need to see the product get rolled out before I can give you true feedback on like what is how is it going to change the industry okay yeah fair enough and some web like web 3 developers already like kind of removing the royalties from their secondhand like markets um such as pseudo swap um starts

have already started to like bypass develop a royalty by giving and kind of giving them the edge over other marketplaces like do you see this is a trend that's yeah going to be growing in the future and do you see kind of vessel following suit here or is kind of the royalty fee like a really integral part of kind of your fees the the royalty fee is integral 100% the developers and the creators that are making this content need the way to monetize it or El they just won't build on it I see a lot of marketplaces as you're saying you know they take out the royalty fee but they actually give it back to the developer in another way they say Hey listen uh there's no royalty fee in the smart contract but the fee that we get we'll split it with you your Creator and so at the end of the day I think what it comes down to is the creater getting paid and I don't see a way that they're going to get bypassed and and if they do if that somehow happens I don't see developers that are going to be interested building onp on that type of ecosystem because it just doesn't make sense from them for a

monetary perspective makes sense and kind of just zooming out from this whole conversation let's just say like there's a couple developers listening to this podcast we have quite a few they're listening to this they're maybe hearing like the 40% fee but they're kind of interested like what should they think about like if they're actually going to go down this this route to actually start working with you guys how should they be thinking about what type of nfts they should be minting how should they get started how should they think about a project like this yeah so look at vessels incremental Revenue Source I know in web 3 you hear a lot like nfts and play to earn take over everything I'm completely on the opposite of that I think that you're going to have an ad economy an IP economy and then you're going to have a Marketplace economy which effectively users can sell these limited items in and so if you take that approach then the way you should think through it is okay what type of items should be limited right not Hearts coins that should be in that purchases but rare badges certain vanity skins uh certain

power items that you know are very rare inside of a game those are items that should be nfts um so that's how I would think through it on my end okay sweet and like how do you actually get started working with the developers they come to you you guys help them out or is it kind of just they decide everything and they can just yeah Run free yeah so I mean you're more than welcome to come to go and run free but and and we'll give you access to our platform but we've been working very closely with our developers it's very early right so nobody knows the secret answer of how to how to like make this work what is the most optimal integration what I think is the optimal integration today I bet you a year from now will not be and we'll find something that's exponentially better and so uh for us though we that's actually why we work closely with the developers because we try to take our learnings from all of our tests and we give feedback that hopefully should reduce their chance of failure and allow them to maximize their bation and and how do they Ju Just real quick just add on that how do they get in touch with us they can go on open vessel .io they can go reach out there

or they can just email us directly um my email is Rafael atl.com or you can always reach out to BD at open vessel. and one of our team members will respond back cool so last and final question just yeah I was just think thinking here what you were kind of saying and let's say everything works out in five years in the future so a typical game now that's earning you know 70% iaps 30% ads like how do you expect that mix to change if you know this actually sees wide ad option and kind of every event has you know a vessel nft sale going along with it yeah so the way I would look it on my end is I would I think that I would see nft sales be 20 to 30% of Revenue right and so that's how I would think through it I think that's how the Max the Mix would be okay cool is there anything else a developers should kind of know about vessel um before we kind of wrap up the thing that I would tell Dev ERS is that the window is open now there's a

lot of people that are moving quickly on these opportunities and those that do invest in this type of new monetization strategy I believe will have an edge compared to their peers and just you know putting a side vessel if you look in the past right the first developers who integrated I APS and used them meaningfully they had an edge over their competition a perfect example would be machine Zone in supercell or developers that really leaned into ads on hyper casual games or casual games were able to get a massive lead as well Voodoo is a perfect example of that uh the guys over at kilu uh the Temple Run uh team and so I would look at you know if you look at the evolution of monetization I think this is the new Milestone and developers who come in now really figure it out even though the path isn't completely paved will be able to set themselves apart from their competitors as well cool I'd actually love to have you back in like a year's time maybe with another developer has actually been using it and then actually going through

some more data cuz the data did look quite interesting in Berlin um that's all the questions uh I had uh I just want to thank you for your time so much thank you so much for coming on the Pod thank you for having me here Felix big fan bye [Music]