UA Apocalypse, Product Validation, Impact Global Recession, Employee Compensation (Philosophy #17)

all right everybody and welcome to philosophy hot topics all right we're gonna saturday but uh we're gonna do a twist on our philosophy series it's been a while since brett and i recorded something together and i think we wanted to try something a little bit new so there are often a number of kind of hot topics hot topics out there that people in the industry are talking about there's a few out there now that i'm hearing and just wanted to kind of bring up some of those topics and talk about those here with you guys and with brett and in ahead of that i kind of one of the things that i did is on linkedin i posted a poll about various hot topics that i'm hearing about ahead of a dinner i had in l.a with a bunch of game industry people and then i

also talked to them about various issues that are concerning them and so we can go over some of what these potential hot topics are and in the poll i was only able to list four but the fourth that i did list was one impact of global recession two do politics belong in a company or not three the dramatic fall of ua in terms of performance and then for how to do product validation and so based on that poll looks like the the topic that most people thought was the hottest topic right now and maybe also because mau was uh was a recent event is the dramatic fall of ua followed by at 43 followed by how to do product validation at 27 impact of global recession at 25 and then do politics belong in a company at only six percent so maybe we could talk about those things in order and there were a few other things that i'm just hearing

of that we can talk about as well and brett if you have anything else you want to that you're hearing about we can talk about those but before we dive in any any thoughts on that brett oh well it just brings me back to my my link testing days and i wonder if dramatic the word dramatic had anything to do with it because that's the first word of the one whereas how to when i did a link test i found that asking a question was not as effective as a statement so it could be uh there could be bias in the framing of your questions here impact of global recession some hot words there although do politics yeah so uh like the two the two ones that were statements did better than sort of the questions okay yeah well given that it may be biased but maybe we could actually dive into those in that order and then bring up any other topics but starting with this ua apocalypse and so just to set the context for

people um ever since like gdc i've been increasingly hearing from game studios that since about may of last year formerly profitable ua campaigns have gone negative or are barely breaking even that but certainly all that stuff at lower scale and so what are the implications of that and um some of these companies have also stated that they previously had like you know offers for acquisition and but now that all their ua campaigns are going lower turning negative they really kind of regret having turned down some of those acquisitions offers and they're actually wondering about going back and trying to get acquired but at a lower valuation now also though um in response to my linkedin post there was please acquire us we changed our mind no no no wait um one comment i got on linkedin was from for those that don't know um warren

woodward the ceo of uptick a really great user acquisition consulting agency but one of the things that he wrote and let me actually read it for you guys one thing i believe we're seeing is a market wisening up to unprofitable financial engineering that was driven by ua in past years many companies were acquired based on fake growth stories due to lack of deep understanding of ua by the acquiring party i think the dirty secret art in our industry was that a large percentage of growth stories were knowingly unprofitable and unsustainable and now larger entities are realizing they didn't buy what they thought they bought i think part of that is true too so but i i think that where i may differ from warren and i'm actually getting a podcast together with warren to dive deep on this uh later probably sometime next month but i do think that with idfa deprecation that the fundamental ua

landscape has also gotten more difficult i i do think that warren for you know maybe he's seeing better performance based upon his games and there's also like the potential implication that depending on the type of game that you have the more hyper casual you are for example it might be easier i mean i don't know but what i am hearing from a number of companies and at that gaming dinner i went to and with some other folks i spoke to in la it does seem that the overall landscape for user acquisition has gotten meaningfully more challenging and so the implication of that would be lower vol the because when roast comes down you have to scale down your user acquisition campaigns meaning lower volume meaning lower revenue and lower margins even at the same volume so essentially higher difficulty in being able to achieve project profitability

but i don't know there are some other folks who have pushed back and said well that you know scad v4 and ios 16 is got going to have three postbacks there's going to be meaningful improvement to ua performance with the next iteration of scad which is the attribution methodology that apple has provided for game developers but i i don't see i mean i think it could be better i just don't see it being able to to return us back to the space where we were before to be able to drive you know meaningfully better profitable roads for your game especially the more mid core hardcore the the longer your rpu curve where early signals won't matter but anyway any any thoughts on that brett yeah a couple dots i i think the first one is that this was somewhat inevitable i mean i i don't like doing this but i i because i probably should pull up when i

was saying it to make sure but i have been saying this for a while that if you think about the ua market it really well represents the perfect market right the platforms have so much data on both sides of the of the market right that it's pretty well designed to be a perfect market eventually right a perfect market being that there really is no no profit and so i kind of feel like in some ways this was inevitable because you just have the platforms gathering more and more information you have the more and more uh the the developers spending more and more and it's sort of like you're you're going to get there now uh what does that mean for a couple of things uh to counter that if when i'm skipping ahead a little bit but if we do go into a recession i think that will open things up for gaming because gaming generally is more more or less recession proof in fact

probably inversely correlated to recession meaning that it may do better in the recession as people turn to cheaper forms of entertainment there's more capital pumped into the ecosystem from government uh yeah just in general so that could make it so that the market opens up more and because you're going to have companies a lot of the other tech companies that are outside of gaming drop off on their ua spend right so it's less competitive and it'll be better that said that's just kind of prolonging again the inevitable when the recession ends hopefully it ends at some point if there is a recession which most people think there's going to be then you're still going to have this perfect market end up happening so what does that kind of mean for games the other thing i'll say okay before i get to that the other thing i'll say is at least from my standpoint the real opportunity then is in the modernization of players right

uh and i think you're gonna basically that's not as progressing probably as fast and as fast enough as a decline in ua but i think that's really where the opportunity's gonna lie right most people in america have some form of smartphone most people in america have played some form of game and then on that spectrum you have older people who have played less you know saying why or or spending less in some ways in some markets obviously saying well this game's like why is this and you have the younger group kind of coming up living in a world where games and spending money on games is completely normal right there there is no world without that right and so that is going to increase the potential the value that you can generate from just users in general um but that's taking a longer time frame than the cost of of acquisition right so that's why you're seeing like this this unprofitable ua uh and then the last the last okay yeah

if you want to jump in jump in but the less you go yeah i was just about to say that there there's like a few different things that i think about based upon some of the comments that you're making but i think the part about competition in for example maturing industry where you know the um theoretically you once you you know in any market you will then have new competitors that then compete away margin in in those businesses right but i i would say one thing that's kind of interesting to think about is how the environment kind of shapes the type of competitors that can compete in a space and so there's a couple of ways that i think about this uh the first side is that when you when when we think about uh the existing players in the market under an idfa scenario in which you're able to you know pretty well characterized players

target players of high monetization which we no longer have but that that especially for super long arpu games the incumbents can actually create a bigger moat because they have data and they have certainty or greater certainty around what rpu profiles look like and they have more certainty around the ability to spend and create this user acquisition mo against competition so to some degree you could say that idfa deprecation will help competition help the ability for new players to come into a market and to compete away margin or profits in uh you know in a specific game genre for example um so i think that's one thing i think the second thing is when we think about the dynamics of the game development ecosystem one thing that we can think about when it comes to competition in the market is that

because of the the macro the macro economic environment you know zero interest rate kind of environment and the um the the impact of which was to really drive up in you know the sort of m a wave that we've had prior to covet for the past five six years and then that dynamic has created a different ecosystem of the kinds of companies that are standalone entities competing as smaller insurgents versus the larger incumbents which are now basically like companies that have acquired a bunch of other entities right and so like when we think about competition um there's like on the demand side sure you know there's the the the part where you're able where you know new new products will enter and then you're able to compete away those profits but on the supply side of companies we're now like if you were to really think about the kinds of players that can then come in and compete away those

profits one a lot of the mid-sized guys are gone right so there they've been acquired what remains are a number of sure a bunch of different game studios but not the best ones have been acquired and then if the recession we'll talk about more about the recession if the recession leads to a little bit of a dry spell or um less funding of startups then you know we may see less uh insurgents coming in to compete to try to compete away those those profits and now i'm not i'm not drawing any specific conclusions but i'm just saying like the picture uh based upon a lot of the things that are happening at the macro level is kind of interesting to think about and could you know kind of heavily impact our industry and the competitive dynamics of of the industry i don't know did that make sense brad yeah yeah most of it also made sense

yeah and then maybe the second point i wanted to make uh and sorry just kind of talking stream of consciousness here but like um i let's talk about it when we talk about the global recession but i do think like the the i i do think the traditional thinking is that games are recession proof i think there's more nuance to that we can jump into it but i do think that not all i love free to play gaming will in my opinion be improved based upon a recession i i think it may be more situational but we can jump into that when we get to talking about global recession and you had another point you wanted to talk about brett oh just that i think the beauty of gaming is that we have tons of companies in gaming we have a very large prize to the winners and low risk and high iteration so it's just a really wonderful environment for innovation

and i and i think that we'll have smaller gaming companies that don't want to compete like on user acquisition or traditional user acquisition find other channels so i think that will inevitably happen i'm surprised it hasn't happened more yet uh and and so you know i'm kind of expecting that to happen once these ua markets dry up yeah i mean i do think uh to your point about like the um the dynamics of the market uh the app store is characterized by parallel distribution in terms of revenue right so the other thing that's really exciting about our current time is that for some of these new startup insurgents you can very easily get from nothing to massive scale very quickly and so you know even looking at a company like dream games with royal match where they're able to just you know become an up like a huge player overnight

i mean i think that's one of the exciting things about in our industry is that the ability to get to scale very very quickly given the size of the platforms that we're operating on yeah i mean i i've joked with you a little bit that i want to start a game myself and i think if i did my first question to answer would be how to get users um in fact that's like the only thing that's not the only thing but that's the major thing that's going to hold me back from from even exploring that more okay all right hot topic number two product validation and what is meant by product validation is basically um ahead of launch so before you launch your game and now a lot of even mobile free to play game studios are working on games with development cycles that are two years three years four years or even longer how do you know that what you are working on for all of these years your

whole team that has invested so much time effort energy sacrifice how do you know that what you're working on will ultimately be successful or not and very recently and i'm not going to call out the specific company or game because i like a lot of people who have worked on some of these games but a few games have launched recently that have been developed for years to pretty big disappointment and the big question here is you know was there any way to have known to have been able to see something course corrected ahead of launch whether it's a game design decision whether it's something with the team or capability um and so kind of like that seems to be a pretty big question especially with you know some

high profile launches in the past where the question there is could we have known earlier i don't you have any thoughts on this spread well i think if you're going to make that large of an investment which obviously is a company you want us you want to stay away from right the the larger bigger bets with more unknowns are are just riskier bets and if obviously you have to accomplish you have to counter that with huge upsides that's what we do in gaming but um you know sort of the standard is you want to figure out ways to find out information earlier on it and somehow do ghetto tests and things like that but i would say if you are going to make those bets then you want to be leaning in i think on your strategic advantages and and that's really nba i know jk you're loving that answer i don't have an mba of half one but uh you know it's if like you have some type of thing that

that you know you're the best at or you have more knowledge of than another all other game companies or most other gaming companies right now the ip is a good example or a certain genre that you're in already in is another example or you have a certain amount of users or you have a platform to feed those users like that is a bet or that is an information advantage that i think you can make those larger bets in or i would say you know take the the bezos approach which is like bet on things that are guarantees which you know bezos case is cheaper and faster service right and and maybe you're in maybe you're attacking a market where it's fairly obvious what players want they want more content or faster game or or something like that it's a little like harder in gaming i think because because price isn't as much of a thing in gaming and most games are fairly fast but i think if you're going to make those bets you just have to be feeling

confident about your sort of like strategic advantage on something because the market changes so quickly that if you if you have an idea two years ago the value of an idea decreases over time so the longer it takes for you to get that idea out into the world the less value valuable it is period um and so you just really want to work on ways to not have two three years you know take two to three years yeah i mean i think this is to some degree this is like the ultimate question in game development how do you know and i think this is such a hard problem i would even argue that even if you try to take the suggestion that you're recommending like just try to do something better faster cheaper by the time you're out to your point things change so fast like are you going to be able to deliver a better product that is better faster cheaper in time before the market shifts well let me add to that i mean the the

console world did that has done this for years right i mean so it's not like it's it's the blueprint's not out there you launch a game you crank the marketing massively and you're basically going to break even at a minimum right and hope that it's going to go big but in console you have some competitive advantage right you have you have like a platform you have minimum games and things like that or you have the ip or something like that right so they kind of lean on that kind of stuff they've done a ton of market research and they're like hey we're going to blast the market and at the very least we're going to make we're going to make like break even i mean obviously obviously they're going to hopefully make a lot more i think the big mistake that a lot of executives at some of the bigger game companies make is that they oftentimes think well there's no way you can predict if a game is going to be successful or not which i personally think is [ __ ] but like you know that so then they'll bet on so then they'll

say well we're going to bet on a team who's been successful but the mistake they often make is they're like okay let's look at bill or sally who's working on this big successful game and so they'll take somebody who's live operating a game but may not have been responsible for the initial game development the initial like development the zero to one side the more the one to n and then they'll say hey bill and sally we're gonna entrust you to make our next big game because you worked on this other big game but then they don't realize there's a big difference between live ops execution versus new game development but i would also say that when it comes to product validation in my mind there are like three specific approaches uh you know just kind of thinking of it from a pm high level perspective that um i can tell you kind of what my my philosophy is on this or my the way i think about it is and maybe you can give

me some feedback on it brett but um it feels like there are three primary approaches to trying to understand product validation for a game in the first two is part of like this pyramid framework that i have that i think are best characterized by blizzard and riot so so starting with the top of the pyramid and we can call it the top of pyramid or blizzard approach i think in this fundamental approach the game design team or the the game team believes that they are the taste makers they are the influencers that if i make a game that i think is going to be fun and oftentimes you know these kind this kind of approach often focuses on mechanics then they believe then we will have a game that everyone finds fun but we

we base this upon our own internal or personal validation as this taste maker influencer type of person so that's the top of the pyramid approach and in my humble opinion is is best characterized or an archetypal example is blizzard and then the bottom of the pyramid is i think best characterized by a company like riot where riot they even say it in their mission statement they're focused on players right they're all about the players and they think that the players dictate what makes a great game so they often orient around how do we get player feedback let's show something demonstrate something have something playable by the players and let's get feedback and then we'll iterate based upon the what the players say right and the third approach is more of a what i would call more of a mobile

free-to-play approach and in this approach it's more about let's look at the market let's see what games are successful and try to look at specific aspects of the game whether it's features or things like that and where you see some level of product market fit maybe on one platform you try to take it to another platform or you kind of see the specific trends or things that are gaining traction in the market and then like pull these things together into a new product and i don't know of a whole lot of people that do that approach but i would say that at our company and you know my co-founder paul leiden that's basically the approach that he follows in terms of like trying to understand okay for this game the specific design that we have taken this will work or this will not work what do you think brett i think those are three great representations of how you may design a game i will say i will add at least my own experience in gaming and in being

entrepreneur is i think that whichever one you take on that i think that going into it realizing that your ideas are more often wrong than right it's a good way to improve your likelihood to to to make a hit and to succeed um you know i often tell people it's like if you've been a product manager in gaming that you understand the best product managers are sort of like baseball players where the best the vests are probably hitting at 33 but as humans we often are more confident in our abilities than we we actually are good at something and so you know often people think their ideas are ninety percent eighty percent a hundred percent like they have so much conviction around it and i think you have to have that conviction around it but you have to go into it with that idea that you could be [Music] mike trout and still be hitting at 34 so if that's the case you're mike trout and mike trout hits at 34 percent

uh then how do you build in systems or get input from other people whether it be the players or whether it be other game designers or whether it be other games itself that basically tell you that you know these these three of four ideas or these two or four ideas are are strikeouts right and these are two are hits because that's i think how you get to a great innovative game is is kind of having this balance between man i have conviction around these four ideas yeah two of them are right right and i think this is a shout out to pinkus but pinkus was kind of really good at that being like listen i have a lot of conviction around these 10 ideas one of them is right and it's going to make us a lot of money it's your job to go figure out which one that is it's my job to think of the 10 ideas so go go figure out a way to convince me that we're going to go bet on three of them and one of them is going to hit right

and and i think that's i think that's a good way of like balancing those two concepts yeah i personally think that any of those approaches can work and i think they've been shown to work but i think the situational context and the nuance there is that if you are more top of pyramid i believe that that type of approach is better for higher innovation where you're going to see more innovative approaches being taken and integrated into a game versus bottom of pyramid which is more around building a better incremental experience right the players are going to tell you what they know they don't know what they don't know and so at the top of the pyramid as a taste maker you might be able to imagine something that is i would say so top of pyramid you have a higher chance of finding a global maxima in terms of experience relative to um to bottom up pyramid where you're going to take

an existing proven mechanic most likely and make it a really great experience and then i think the third aspect in terms of looking at different things that are working in market i i think that that would probably speak to your ability to make a contemporary game uh so more around like not even like mechanics but even just like an experience or being able to satisfy like what's current in the market but anyway that's just kind of like the yeah the way that i think about it so my counter to this because i always got to throw in the devil's advocate comment is is it goes back to what i was saying before right like humans think they're more con better at things than they really are right and this is my perfect example you're a parent i'm a parent there's just like and i've said this probably on the podcast before is there's this great phenomenon where like a couple has their first baby and they're like we're gonna name them something totally unique and you know

unique to us and we're gonna think of something great and they sit in a room and then they think of a name and it's like bennett or whatever right and then nobody's in right at that moment no one in kindergarten is named bennett right and then their little kid bennett shows up in kindergarten and there's three bennetts in the class yeah and they're like wait a minute i thought we were this like original thought you know number one approach to the system right and what they didn't realize is that their unique thoughts are actually heavily influenced by the same inputs that millions of other people are getting right and millions of people are applying this same sort of creative process and coming up with the name bennett and names are really interesting because there's a lot of data around names and so what we did my wife and i for example we thought of those names and then we went on these websites and they have websites to tell you how names are trending and you can actually see like names like bennett trending up and you can see these curves going up so

that you kind of don't want to name your kid bennett because you can kind of see that by the time bennett lands in kindergarten so i'm not saying that we're like some but i'm saying that using different approaches and applying them to things and that's why i'm saying there's like this this weird dichotomy jacob's one of jocko's favorite words that you have to have as i think a creative or a creator is to have this conviction have these wild ideas right go off and get them and then somehow go find a website a data point a user review a study or whatever to just make sure you're not you're not going to show up in kindergarten there's going to be three bennets right it's like why why are my kids surrounded by the same same name kid um right yeah and not not to not to go too far off topic from your point but i do think the other thing that your point speaks to me about is that there are things that are happening in society and

in the world that we can't quite put our finger to which is why would certain names start to trend there's probably a reason for it but with all the variables and the environment and what's happening in the world we may not be able to like pin it down and same thing happened to me when i was naming my kids as well it's like oh [ __ ] this name i randomly came up with [ __ ] trending like a [ __ ] you know it's like what is going on but you know but i think that's the point like when i meant when you look at existing games on the market and try to find pieces of it to try and pull into a new game design that speaks to cultural relevancy and something that's contemporary right where you i don't know why this feature is working but there's something about this that could work now let me try to holistically or using some intuition figure out you know the the dna of things to put together into this game that are informed by some things that we know are achieving traction in the

market and i think that um you know just because we're using that approach i i'm hoping that there's some magic to that along the lines of the phenomenon that you're talking about yeah i i was thinking about this book a couple of times is my sorry my last point on it is it sort of like i you remember the book or movie sphere by michael crichton yes so they like alien ship so they like basically find an alien ship right and they like it's just this alien ship and it's like down in the bottom of the ocean or something like that and it's all closed like there's no way there's no opening to it okay and i don't want to ruin the whole book it's a story it's a great one i don't think anyone's gonna read it but basically they're like okay let's get a scientist a mathematician a psychologist a artist uh like like basically they just get like a

military guy like they get just a group of different skill set people to go down and like figure out how to get into it what's going on and i mean obviously it's a story of fiction but i feel like that's kind of the process you have to take to figure these things out is you sort of have to go through like the creative process you have to go through the analytical process the data driven process the strategic process you have to kind of go through all of these to to kind of figure it out and i mean of course you can always get lucky right i mean and there's winners by us all over the place right i live in you know if you if you live in if you live in any area you can see it all over the place this is like somebody won right entrepreneurship's very much like that right it's like oh my god this person made this company this way i should do it that way well it's like you're not you don't really know the 999 people that didn't did the same exact thing and that you know didn't die but their company died right so yeah i think that's i think that's

probably a good analogy for how the best system to take okay hot topic number three impact of recession and i know there's been a lot of talk about this you know are we headed into a recession if so what are the implication to gaming companies things like impact funding recruiting you know should should you should companies think about preemptive layoffs other impacts things like that i think from a web 3 perspective we're already starting to see like some web 3 game companies being challenged by the current well just by the fallen crypto more more recently but also if you think about impact of recession well why don't i turn it over to you brett you want to start in terms of when you think about a potential recession coming what would you advise gaming studio folks to think about or what would you

see are the primary implications of a global recession well like i said earlier i think for gaming it can be a positive uh weirdly i mean weirdly i mean just because i think gaming is the highest roi for entertainment right i mean you can play for free you can play these games you can play okay can i add my nuance there brett so yeah the nuance i would add is i i agree with you like games are by far the lowest form of entertainment but i think when the way that i would think about it though is premium and free to play and then on the premium side yeah you know you buy a 60 game you get potentially hundreds of hours of entertainment or even even some free to play games you know you could get thousands of hours of entertainment for a very low cost um i think the where there may be some

difference though on the free-to-play side is that at least anecdotally i'm hearing a lot of folks talk about how well spending has been reducing now that could be because of idfa deprecation but i think it's also because um and this is something that the nyu professor professor aswath de motaran speaks about is how do you think about spending in a recession or under covet and things like that is like if you were to think about two buckets discretionary non-discretionary uh spending right and non-discretionary means things like groceries your rent things like that um if you think about this as a fixed bucket you've got your non-discretionary which you must buy in your discretionary spend then in a recession you have to think that your available discretionary spend especially against like whale behavior in free-to-play iep based games is going to decrease and i think that's part of what

we're starting to see is that that well spending is starting to come down so i yeah anyway um i'll let you continue brett but just wanted to add that i'm glad i'm glad you asked me to go first but then cut me off [Laughter] oh dude oh sorry i had to throw a singer out there and you um you kind of fro you froze mid laugh which was great but that was um yeah i had to throw a little zinger you know i love you um uh that sounds like how i host my podcast i'd love to hear what you think [Laughter] actually i love to hear my own voice thing you're saying brad okay yeah i was i have no idea what i'm saying uh i you know i think that

applies way too much logic to human beings i mean i just you know when i hear the word professor and like this makes logical sense i mean those people aren't gamers right like go to go to middle america and their spending habits aren't logical they have a an atv uh you know fifth uh huge truck and a boat and a trailer and an rv and their house is you know worth less than all that which is fine i'm not saying that that's just different approach than what generally the the coastal like values are on spending right like they just value entertainment differently right they're going to spend look at an nfl football game how much does it cost to go to them i'm like that's ridiculously expensive but every stadium is packed with people right and and they're willing to spend multiple thousands of dollars on entertainment and and not put it wherever else they're going to put it anyways so why i think that it's going to still

when people go into recession they're going to lose their jobs and they're going to look for forms of escape from their reality and forms of escape or entertainment and what they're gonna say to themselves likely is yeah i could probably cut back a little bit on gaming but what is that really gonna do for me right five ten fifty dollars a week or whatever and it's giving me so much escape happiness joy i've got nothing else in my life right now that's really doing that for me therefore i'm okay with this 5 10 15 50 spend because it's not going to really put a dent in there it's not going to change their outcome of the recession uh not to mention if we have a recession you're probably going to have a lot of people get on governmental like get capital from the government that often goes back into games as well which is you know i didn't really want to say that point on the podcast but that that does happen um and so that's another one um again if they also if they look at their forms of

entertainment nfl whatever you know cable blah blah blah again in terms of roi games are way better you know you can spend zero dollars two dollars five dollars ten dollars and get so much more entertainment that you're gonna get a cable an nfl game or whatever um whale spend i i don't buy that i mean i i i you know i don't maybe yeah there's definitely when i was running a game like there was definitely people that would be like oh my goodness i've spent ten thousand dollars and sing a poker like i need to cut that right and i i get that but i think that that's just natural like progression that's going to happen all the time not i mean we're not in a recession yet you know i mean the recession is probably hitting like traders and web 3 people and finance guys that's not people that are whales right like and it's hitting tech not whales right like the recession at least i'm not a i'm not an expert on finance but

to my understanding the recession hasn't hit like sort of like the the game player base right like i'm talking about like people who are um and i think the crypto thing is kind of separate i mean crypto i don't really think is tied crypto is relative to crypto and basically the confidence people have in crypto so i think that's kind of like completely separate um from from the recession that's going to come from inflation and and um you know what they're doing with uh with interest rates right that's really what's going to drive all this um yeah so i i think for gaming companies well okay so back to the main question and i know you're itching to jump in jk so i apologize yeah that takes time take your time my whole day is free that's a slight dig uh is you know back to the main question listen if you're a game studio what should you do you should as a as a game studio as a business owner you should always be paranoid about

having revenues reduced right like you should just always be under that paranoia i don't care if the recession's coming next week or like 10 years from now or two years now right like you should always be like generally what is it like paranoid survive and generally thinking in those terms um i think one thing to you could do is get more to to protect yourself get more to contract labor that's a good way of hedging and a good thing for large business particularly public companies you don't have to say that you're laying off people which can be bad for your stock so i think going to the more contract labor workforce is a good way of hedging like we you know obviously um we've talked about this liquid grid does that a lot we're not a public company but it's a good way to kind of hedge there are other things about that otherwise though i personally would also be looking at the recession as an opportunity for gaming companies to take advantage because of what i talked about before with ua

salaries talent capital i mean vcs are going to have capital they've already raised the capital they have to put it to work they're not giving it back to their lps okay that's the last thing oh it's a recession okay here i really no they're gonna drop it into some recession-proof industries recession-proof industries are medicine entertainment um drugs and alcohol gambling i mean there's not a ton right like and then what you're saying like basically um unsexy markets right like food and and and some of those things are like necessities but they're just not sexy to vc's so of the sexy markets there's not a ton gaming will be one of them and so again i think it's like be prepared for the worst but also have your eyes open for huge opportunities yeah grocery outlets up like 4x this year yeah it's like ultimate inflation

oh yeah totally like groceries and like all those tech like food related stuff i guess but i mean are you gonna order your food through an app now that you know if the recession hits like i don't think so you're probably gonna drive down there you don't have a job like go down to the grocery store you know yeah so from my perspective i think one thing to think about maybe further down it may not have hit many gaming companies yet but if we look at tech tech's already in i think because tech i i think they try to be a little bit more forward-looking than other companies that are more reactive in nature but we're seeing a lot of layoffs being announced here in silicon valley i can't speak to other parts of the world but i do think that in gaming this will be delayed but i do see layoffs coming especially if we are thinking about a prolonged recessionary environment i don't

i don't see how some companies that are already challenged because of ua and other things that we're talking about would be able to keep everybody in my opinion i think in terms of funding so i think that would be just to just to to jump in because uh i was gonna do another joke on this but i think that's more of an opportunity the the company is just doing and taking advantage i think if they do that they're just taking advantage of recession as the storyline and they've been you know like their profit margins have been declining right and they're kind of like throwing this in the in that bucket so they don't have to say like you know our profits have been dropping for three years now ua has been been declining and we're in a recession i you know i i i personally think that's just going to be like pr i i think it's probably gaming companies is different like tech companies i think even for tech companies i think you're right i think that there are a

number of tech companies who probably wanted to do a layoff but it's like you know they're they're [ __ ] so they're like well we're not going to buy these guys and now the recession comes but i i for me though i think it's a little bit of both i think that uh we're looking at you know not only a recession but a potential inflationary period and to some degree i think inflation is the bigger risk relative to a recession because for folks who are thinking about longer term game projects right then it's hard to be able to model and you're going to need a higher a larger amount of capital in order to invest in you know game projects under an uncertain inflationary environment so i don't know i i anyway but i do think that the pc is going to have the same the vcs are going to have the same inflationary impact right so they're going to i thought you were going to say that inflation it's going to be harder for

gaming companies to change prices as inflation happens or something but i i don't see that actually inflation i mean yeah and the vcs are going to have their money and they're going to be giving it to gaming companies right web 3 or just mobile gaming or console gaming like there's just going to remain a attractive market if we hit now i think there's two there's a cav there's obviously always caveats there's two types of recessions there's one that's going to be like the ones we've had in the last 20 years right since we've been alive we've been live a lot longer but like you know working or whatever um where where you basically have a tough time right and then there's like depressionary recession where like people are like it's it's like extreme extreme recession i guess it's a depression but like it just kind of just depends on how close you get to that right like like if you think about the the recessions we've had in the past like at least for you know the bubbles it's i don't know uh i don't know what i'm

trying to say here it's just like i guess it just depends on how how severe these recessions are right like if you do start getting to the to the point where we had in like the 30s or 20 you know late 20s like that's depression i guess area but that would that would definitely impact everybody then you're just talking about like just about but again i think gaming in relative to ever the impact on everyone else is gonna be less you're just gonna people are just gonna have the means to spend five dollars or two dollars or whatever they need to spend yeah gaming is less impacted for sure i agree with that dude but do we agree that layoffs are likely coming on to a on a greater at least to a greater degree than before i mean for gaming i think if they are they're just like you said because companies don't like to get rid of people and this is a really good excuse to do it um you know they're just kind of using that as an excuse i mean they should have probably been getting rid of these people for the last two years and

they're just like oh this is like a good time to you know clean up we've hired a person you know i mean it's just like you get to these companies i mean you like i'll play you in this podcast where you just get to like crap on a random fiction but it's like you get these companies and it's like the last company was like oh talk to the product marketing you know text person who is in charge of writing headers before you do that okay you talked about like one person who's in charge of the header and then make sure you talk to the marketing director header who's in charge of the text and like there's a person for every little thing in the company and just and then the recession comes and you're like do we really need like five people to write like a blog post it's like no it's a blog post like get rid of four of them you know what i mean so yeah that might happen but i don't think it's gonna be driven at least in gaming i don't think it's gonna be driven by the recession i think in tech for sure yeah so i think we both agree on that part i think the part we disagree upon

and probably related to that view is our views on free to play spend so i personally believe there is going to be a decrease now the extent of the decrease i don't know but you know just discretionary spend i just don't see it staying the same it's going to reduce potentially dramatically with a recession and with inflation so in which case i see you know kind of free to play spend decrease which would then decrease the margins and because also because of idfa deprecation and the ability the the fall of ua i i just think that some companies are not going to be as viable as they were before and so focus on cost structure reducing costs some companies going out of business things like that i think that will also lead to increased layoffs i think but that seems to be like the main

area where we disagree probably tied to the free to place better yeah yeah and the last thing i would say i mean you led with like like preemptive i i don't like the idea of preemptive layoff i i think for gaming and i'm just focused on gaming i just think that's that's not something i would do i mean if you i would prepare for a i would always be prepared for revenue declining right whether it be because of recession because of ua because of your game didn't hit whatever right like those it's just like revenue may decline at any moment for lots of different reasons recession could be one of them my guess is it's not jk's guess is it is so it's like okay but there could be something else so preemptive no preemptive prepared to lay people off yes right like that should always be something that you're concerned about um but i wouldn't preemptively because like i said it could be a huge opportunity for gaming this could be like a huge win

so like you you don't want to lay those people off and then and then be short stacked i mean like i mean kobe was a good example it's like if you if you if covet hit and you were like let's preempt if you lay off 10 20 just prepare for whatever's gonna happen with kovit you may have you may have fallen massively behind because other companies did really well during coven right so it's kind of a good example of why i wouldn't preemptively do something like that okay um the other impacts of recession could also impact game monetization and that this is something i also got from aswath de moderan but he mentioned that during a recession people tend to not cancel subscriptions versus like um upgrading so they're less likely to upgrade uh or and so they're less likely to cancel a subscription but also less likely to like upgrade or something like that or make a new purchase so

i think from a free-to-play monetization perspective what if that's true then you could interpret that to mean that during under recession things like battle pass may see increased concentration uh concentration of revenue versus like a new spend or like a sales bundle of some kind so we we may see a shift in terms of the types of iep spend that players will buy during a recession or not but i i believe that will happen and maybe the the last thing to talk about is and you you brought this up before brett is cost structure that under recession i think that we're gonna see organizations and the longer we're under a recession i think the more that this occurs is increasingly shifting towards lower cost structure types of organizations so we kind of saw this before and if you look at the

the public financial disclosures of many gaming companies you saw increasingly over time like zynga ea would start to shift their development offshore and i would think that under prolonged recession we'll see an increasing shift of these organizations towards more offshore to india to china to come to countries like that yeah well i mean i think that i think that's a very i would say that you should focus on i mean you should always do this but you should i mean i think recession will help you take a clerical eye on things it's just higher roi processes right and and i think we we gravitate towards it being lower cost because i think i think that um it's just kind of like i don't know why i mean it's sort of an obvious sort of an obvious potential solution but there's lots of solutions to the

problem and valve is a good example of going the complete opposite direction and saying we're not going to lower costs we're going to go better people and we're actually going to pay them a lot more than the market because we believe that we're getting 5x the value from the best developer and therefore the gap between their cost and the value you get from them is much larger than getting the low-cost developer and having to hire like 10 of them and so i think i just like going to add to that i want to say like oh recession go low cost because or like reduce your employee cost it's that's that's not at least to my mind it's a little nuanced but that's not really what i would think it i would think like how do i get more value gap between my costs and my revenue right like that's more or my you know that's more important um so maybe like i'm like my example was like maybe there's one person who could do all five jobs and the reason they're not is because your systems suck and that was

kind of the example that i experienced when i was at the last company which was like i could probably do most of this but we've hired five people and those five people have to [ __ ] do they have to legitimize their job so they're going to like you know [ __ ] own the header and then own the subheader and then own the text and everything else you know yeah i think to your point i think it's true that it actually i think it's situational right it depends on the kind of product that you have if you have an incredible product that scales then it's kind of like you're operating a facebook or a google right like they hire people to just sit on the bench for you know three hundred thousand five hundred thousand dollars a year just so that they don't go out and compete against them you know i'm saying like so it just it depends on the situation you're in but i i think the the general view of taking um especially like from a live ops perspective of taking like you know more turn the crank top types of opportunity

um and reducing costs if it's not like like a super scale type of product like a facebook or google i i can see that happening it won't happen for every game studio but i can see it happening for a number of game studios yeah well it will and what i'm saying is it will because to jump on your bandwagon i mean there's a lot of shitty managers out there right so they're just gonna like go to the uh the most obvious answer which is it's outsourced to india like you know and they're that for some companies that will work right and some you know or wherever it is like you know i'm not saying that's like you know just an obvious i know you guys are doing that i'm not like shooting i'm just saying like i feel like there's reducing cost is one way of solving the problem it's not the only way right and i think it's like the easiest it's sort of the easiest thing for management so yeah um and ultimately like when you think about engineers for example like there are i mean steve jobs

characterize was as a 30x engineer like the like what was could do you'd have to get 30 other people to to you know compare to his productivity and output and so like if you were to find a was and pay him 5x then you've got a dramatic cost savings so it also depends on people and it's it's all very situational in the end yeah yeah and it's just like looking for value gaps is kind of the point right with the assumption that yeah yeah i guess it's just you know i should always be doing that i guess i guess there's like extreme potential extreme drop in revenue what would i do yeah you should email all the people that were going to acquire you a month ago and tell them that you want to get acquired now all right hot topic number four politics in the company oh what do you think what do you think about we're almost about that hour what do you think about i think that that

topic is like maybe something we don't want to hit on an hour into our dog we're like pretty loose and that one's like a little bit sketchy i think we should cut it it's saturday we're like three nobody we can't we can save it for next week i'm okay i'm thinking that that's probably one that we want to flush out a little bit man we'll punt on that but i i do think it got and it was and it was like if if you look at yeah if you look at the ranking of your your survey to adopt your your second uh approach to uh game development or podcast development do politics belonging companies only got six percent so we hit the three big ones we hit uh what i guess 93 percent of all of the people that wanted to talk about so we need to go into like let's just trust the player let's trust the users and say that's not and it's not interesting and it's potentially going to get us in trouble

both so maybe just to just to speak on some of the other hot topics that kind of came up or that i've been hearing from folks one is around employee compensation meaning have we gone too far and i know of some game studios who are who are paying like fresh graduates this is someone just out of college like 150 to over 200 000 you know it's just like what is going on and then you know and and then they're like they're like jen's ears you know it's just like hey do i get to work from home and like what are my hours going to be like oh my god see this is why i'm glad we're not doing the other topic we're loose we're loose as you go later in these podcasts it gets looser and looser you know it's like we're just like making fun of generations of people i'll counter that i have to i have like i have a lot of really strong young workers um i you know and and you're

right though they will be i'll be like you want to work how often you don't work they're like i ideally like to work three out of four weeks i'm like okay like our structure just set up for it yeah but of those three weeks they're amazing you know they're like really good workers i mean there are you know obviously counter examples of that but but yeah you'll be like do you want to work you know more than like nah you want to like move up no you know okay well you're good i guess the question is has comp gotten out of hand though just because of all the crazy funding in the current you know macro economic environment you know and how the fed just flooded the system with cash and zero interest rates and now and ever like everyone's comp has gone crazy and things like that uh this is one of the reasons why i actually think a global recession is good for us right like can we can we reach oh i'm saying that's good no i'm saying that's good like if if your competitors are all spending like

three hundred thousand dollars on a new grad they know nothing about like good you know to again i'm just quoting jocko it's like great you know what i mean like i'll find somebody from india like you guys have who costs up like a fraction of that and i'll get the same output from them and i'll be building a similar game so i mean if that's the case good you know what i mean like if that's if you've let your hr department just go crazy and compete and just be like you know i mean because that's what happens it's like individuals and organizations not aligned with the actual goals of the company right they're aligned with their individual goals which is likely to be beat out facebook we can't lose this person to facebook like why not you know like let you know if if why are you competing with facebook facebook is facebook like figure out a different way to get that person and don't compete on salary right like as a put but ah no we gotta

right so good i mean that's great i hope everybody just like when everyone's going back to work i'm like good you guys should all go back to the office you guys should all drive and commute and um [ __ ] have one-on-ones and happy hours spend all your money on happy hours and and parties and espressos and whatever else the [ __ ] you guys spend your money on good i'm sitting here with like a super efficient company that doesn't spend any money on any of that [ __ ] i thought what was the other one oh we've we've saying i have some finance guy we all flew to portugal for an offsite good good that's good i like that you should spend more money on your off sites where you flew across the world for i don't know to have a conversation with someone you could have over zoom you know like i i don't know i that's that's my lucy goosey rant that's why we uh we have to end this soon

it's like let people do stupid [ __ ] jk just let them that's awesome for us if you're out if you're smart of them and that's kind of why i started my company it's like if you think you're so smart if you think you're so smart jk right if everybody's doing this terrible thing then great then then take advantage of that you want people to be stupid in a way right because that makes more if everyone's super awesome on salary you're not going to be able to get people yeah and by the way i i bring up the issue not so much in terms of hey i want to make a value judgment on this but more around you know what does where do where do we think it's headed and what are the potential implications for this right and so i mean i think that part of the implications is that a lot of the employee comp that's kind of gone too far really speaks to some of the higher wage areas so like silicon valley new york places like that

and so i don't know i mean i think that in in the current situation um remote work as well as offshore work workers or organizations benefit but i also think that with a global recession this this current i mean i think the thing that is a problem for businesses isn't so much hey you know we're spending x amount of money on on new grads but what does our compensation what does our expense expenses look like in the future can we can we predict what our costs are going to be or are we going to have to increase comp by 30 50 every year you know like what does that look like how can we how can we plan in an era of so much uncertainty where

comptis continues to drive upwards in a non-predictable way so uh you know that's probably more of why i bring up employee comp rather than hey i think these you know you know [ __ ] these you know uh these fresh grads making too much dude i i don't care what they make you know i i all the more power to them i and uh to your point i fully accept you know whatever whatever the market does what the market does and that's great but then how do we operate the most effectively under the the current market environment and then how do we think about where the market's going so that we can best prepare for it i i think that's that's my point but yeah i mean for me a global oh go go ahead i mean i i've probably said this before but i think it's probably the most important thing i've learned the last couple years is that you generate the greatest value for

yourself in business and generally in life i think if you push yourself to find a creative solution to a problem that everyone else is having or that you have right or that is a common problem okay and i think that's what really is important for leaders to do it's critical for people to do that in entrepreneurial roles it's it's more a little bit more difficult when you're in a larger business so i apologize if you don't have like the basically the the um the control to do it you know but you can do in your own life it's like humans will often just that first solution right i mean it's just like there's an obvious one okay and pushing yourself spending more time meditate write out research talk to experts blah blah blah push yourself to be like okay here is how everyone's solving this with like sort of their just initial like unedged not not educated but like

less vetted way how can i push myself to find a solution that's different and that can give me an advantage over other people and i think this is a perfect example it's like okay people are paying people too much apparently great how can i figure out a way that i can pay people a lot less but give them something else for example right i could give them more equity i could give them more autonomy i could give them the ability to work wherever they want i could give them way better medical benefits i could you know it's just it's it's like get creative you don't always have to just get creative in your game design right like you can get much very creative in your company design and in your in what you do so yeah i totally agree with you brad i think that that aspect is a good part of employee compensation going higher is that you need to then think about how do you compete on a non non-comp based level and i think the other thing that i would

just warn founders is that you know you can kind of say well okay great employee compensation i'm not going to think about it i don't need to worry about it but by default as a founder or executive at a company you must have a perspective on employee compensation because if you're doing any form of long-term planning and you don't have a view on where it's going it's automatically reflected for you in whatever your p l assumptions are so if you've raised too little an employee comp goes up well guess what you're [ __ ] and so i i just think that um you know uh to your point more people need to think about this in the context of not only how do we compete and how do we get people and retain people in in an era of high employee compensation and a highly competitive employee market but also based on planning and whether you have

planned appropriately and designed a team in a way such that you're able to complete your projects under budget oh it's time okay yeah all right well i'll bring up the last thing and this is actually a topic i think i got i think this is probably good as much as i can go yeah i well yeah just because i gotta i gotta go take care of the kid my wife's gone this weekend so um kiddos are downstairs i think we should save it we've got next week to do we've got an hour i'm also not like i don't have the stamina that i used to i gotta build it up a little bit we're an hour and ten who's gonna listen beyond an hour and ten minutes jk like you'd be surprised all right well okay we'll call it right here there you go we got this for next week we got it for next week dude i'm around let's just do another one you know all right um

yeah yeah i think this is this was fun that's all right with you man yeah all good all good all right guys until next time philosophy hot topics catch you later [Music] you