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0:00:21 Hi everyone, welcome to the A16Z podcast.
0:00:24 I’m Lauren Murrow, editor of the consumer team.
0:00:29 Today I’m here with general partner Andrew Chen and deal partner John Lai, both avid
0:00:33 gamers, to talk about what they’re calling next generation games.
0:00:39 That is games that are cross-platform, player driven, self-published, and above all, incredibly
0:00:40 social.
0:00:44 We’ll discuss how video games are dominating not only the entertainment industry, but also
0:00:47 popular culture through the rise of influencer gamers.
0:00:52 Finally, Andrew and John give inside advice for gaming entrepreneurs.
0:00:56 What are some common misconceptions in the gaming world that you’d like to debunk?
0:01:01 So I think there’s a really big distinction between the vast majority of games that have
0:01:06 existed over the last two decades versus the small set of these franchises that are getting
0:01:07 built today.
0:01:10 I think a lot of people will say, “Why are you even looking at this?
0:01:13 Games is like a hit-striven business, right?
0:01:14 It’s content.
0:01:17 You’re going to get this big spike and it’s going to go away.”
0:01:23 So there’s a phrase called games as a service where you’ll publish across console, mobile,
0:01:27 and PC and you’ll continually provide updates over time.
0:01:32 We’re very oriented around things that are really about building communities of people
0:01:35 that happen to have an activity at the center of it, uniting them.
0:01:37 Those are things that can last for a really long time.
0:01:41 I think the other one that I feel like was a thing for a long time was also just that
0:01:45 a lot of negative connotations about games being like, “They’ll rot your brain.
0:01:48 It’ll make you anti-social.”
0:01:52 And I think it just turns out that especially in the genres of games that we’re talking
0:01:56 about, that these are like the most social things that you can possibly do.
0:01:57 Games as the virtual mall.
0:01:58 That’s right.
0:02:00 The virtual mall and the virtual sports bar.
0:02:05 That speaks to another trend we’re seeing, which is games as a social media hub.
0:02:09 People are coming here not only to play, but also to hang out, to interact with their friends.
0:02:10 That’s right.
0:02:11 Yeah.
0:02:16 And if you think about where games was growing up, maybe many of the listeners remember playing
0:02:21 on Nintendo or Super Nintendo or Xbox or whatever generation of console that you use,
0:02:25 but a lot of the experience was really kind of solitary, right?
0:02:31 And I think one of the really interesting changes over the last decade is all of a sudden
0:02:35 the most popular games have all become multiplayer.
0:02:36 Come for the games.
0:02:37 Stay for the party.
0:02:42 I think games potentially will be the social network of the future where instead of scrolling
0:02:47 through feeds and web pages of static images and liking and commenting on things, will
0:02:53 be in virtual worlds and games, like having very real interactions in very emosive environments.
0:02:55 It’s what these kids in Fortnite are doing these days.
0:03:00 The battle royale format is a passive activity that’s happening in the background, while
0:03:04 the actual goal of what they’re trying to do is to just hang out and socialize.
0:03:08 So all of a sudden, that means that you actually want your friends to play.
0:03:11 You want to pull them into the game, you want to play at the same time, it becomes another
0:03:15 way to hang out the way that maybe kids growing up before would have been like, “Oh, let’s
0:03:18 go play kickball together,” instead it’s like, “Oh, well, let’s actually play Minecraft
0:03:19 together.”
0:03:22 Well, and that brings up one thing I’m curious about.
0:03:24 It’s not just kids anymore, right?
0:03:26 Who’s playing now and how has that audience grown?
0:03:32 The majority of these players are young, and so you have essentially teens and tweens that
0:03:37 are going to grow up lifelong gamers, and this is going to be the type of content that they
0:03:39 look for for the rest of their lives.
0:03:45 We’re now seeing parents who are gamers raising kids who are growing up gaming first, sort
0:03:50 of playing video games before they’re watching TV, before they’re reading books in some cases.
0:03:55 I think the exciting thing about that is that gaming is truly sort of a cross generation,
0:03:59 cross gender, and also truly global activity.
0:04:00 That’s right.
0:04:06 We joke around about how much we would love to find esports for old people category where
0:04:12 maybe you’ve lost your kind of twitchy ability to headshot all of your opponents in the latest
0:04:15 first person shooter, but you still want to play, you still want the feelings of all
0:04:16 of that.
0:04:20 I think taking some of these core dynamics and emotions that this gameplay can create
0:04:24 and bringing it into more demographics I think is very, very interesting, but I think the
0:04:28 other thing that’s been happening that I think is really fascinating is that League of Legends
0:04:32 Riot and Teamfight Tactics uses a lot of the same characters.
0:04:36 I think it’s very possible that we’ll see the next generation Marvel actually coming
0:04:40 out of characters that are rooted in the video game world first and foremost.
0:04:46 These are going to be the next kind of character media franchises the same way that Marvel
0:04:51 and Disney and all of these amazing media companies were built off of like ultimately
0:04:54 people’s childhood relationships with these characters.
0:04:58 What that means, if you take that to a natural conclusion, is not only do you have games
0:05:03 that may last for 10 plus years, but then the actual characters and franchises might
0:05:09 last 50 years, 100 years in the same way that when we love Mickey Mouse in the black and
0:05:15 white like Steamboat Willie kind of version, we may look back at the orcs in Warcraft
0:05:20 2 and 100 years from now think like, “Wow, I like love those characters.”
0:05:21 That brings up an interesting point.
0:05:25 So it used to be you buy a game, you play it, you beat it, now games are living things
0:05:31 that are shaped as you play in some cases going on decades.
0:05:36 My question for you is it should games go on for 10 years?
0:05:40 I’m thinking of like Netflix shows where they have, you know, three great seasons and
0:05:43 then you’re like, “Hmm, should we stop where they were at?”
0:05:45 Should all good things come to an end perhaps?
0:05:49 I’m glad you asked that question because I think one of the common misunderstandings
0:05:52 when people think about games is that they think about it as a hitch-driven industry
0:05:58 where you have a hit and then it’s more of a fad and that it goes away in a couple of
0:06:01 weeks if not months or years.
0:06:05 And I think we’re seeing games have 10 plus year lives, so League of Legends.
0:06:09 I think they’re coming up into a 10th anniversary in a couple of weeks, World of Warcraft hit
0:06:15 its 10-year anniversary ready games like Candy Crush, Clash of Plans, also 10-year plus games.
0:06:20 I think what’s happened with these most successful games is that they’ve evolved to become more
0:06:22 than just an app.
0:06:25 They’ve become a lifestyle for the people who are playing them and so a core part of
0:06:29 their identity is the fact that they’re a League of Legends player.
0:06:31 And so they don’t think about this as an entertainment product.
0:06:33 This is part of who they are.
0:06:34 It’s not just content.
0:06:35 It’s a lifestyle.
0:06:36 It’s a social network.
0:06:42 One great example of that is what’s happening right now in the influencer channels.
0:06:46 Games like Apex Legends and Teamfight Tactics, which were two of the largest games that came
0:06:54 out in 2019 so far, have basically gone from zero to over tens of millions of players.
0:06:58 That’s primarily been driven by players that are going on Twitch and watching their favorite
0:07:03 streamers play these games, where previously it would have taken months to get that size.
0:07:07 This took only a couple of weeks, if not days.
0:07:10 We hear so much about how gaming is growing faster than ever before.
0:07:11 How big is gaming?
0:07:18 Yeah, so gaming is a $139 billion industry from the last research report I checked by,
0:07:20 I believe, New Zoo.
0:07:24 And it is at that level larger than both film and the music industry.
0:07:25 Wow.
0:07:29 So if you add up box office sales and home entertainment, I believe the film industry
0:07:32 was around $130 billion.
0:07:36 So at this point in time, it’s safe to say that games is not only the largest, but it’s
0:07:38 also the fastest growing segment.
0:07:42 And so do you think we’ll see more of gaming seep into the rest of the entertainment industry?
0:07:44 It’s already happening.
0:07:48 So we’ve seen Netflix’s Bandersnatch episode, which was one of the first attempts at essentially
0:07:53 making an interactive narrative game that could be played just using your TV remote.
0:07:57 And I think music is also becoming an increasingly larger part of the games industry.
0:08:03 So DJ Marshmallow had his first in-game concert in Fortnite a couple months ago.
0:08:08 I think there was about 11 million live concurrent attendees in-game.
0:08:13 And then the subsequent YouTube repost of the concert drew about 40 million views.
0:08:14 Did you attend?
0:08:15 I watched a replay.
0:08:17 I wasn’t quite cool enough to attend.
0:08:21 And I think there’s sort of the idea that a lot of pop culture maybe comes into gaming.
0:08:26 I think the other one that I’m very fascinated with is how something maybe that starts in
0:08:30 games ends up radiating out into the other forms of media as well.
0:08:35 And so today we look at something where if you make a movie about a video game, it’s
0:08:37 probably going to be not very good.
0:08:40 But honestly, movies made about comic book heroes.
0:08:45 The first were often quite bad also until more recently they became good, right?
0:08:50 Like if you watch the Joel Schumacher Batman’s, then you know what I’m talking about, the
0:08:51 super campy bad ones.
0:08:53 And so I think that’s one very interesting version.
0:08:57 I’m also waiting for rappers instead of bragging about what kind of car they have, they can
0:09:05 brag about what in-game items they’ve purchased as a, you know, status sort of seeking thing
0:09:06 as well.
0:09:07 Has it happened yet?
0:09:09 I don’t think so.
0:09:10 But it will happen.
0:09:11 For sure it will happen.
0:09:14 Drake has gone on record as being an avid Fortnite player, right?
0:09:18 So I think those days, if they haven’t already happened, I think they’re coming up for sure.
0:09:22 All of this sort of really speaks to the idea that this next generation, in terms of how
0:09:25 they want to use technology, it’s going to be more dynamic.
0:09:26 There’s going to be more video.
0:09:28 There’s going to be more interactivity.
0:09:31 There’s going to be music layered on top of visuals, right?
0:09:34 And what better medium to deliver that than games?
0:09:37 So then what will these true next generation games look like?
0:09:42 Obviously, with all the new platforms that are coming out, there’s really fun game startups
0:09:44 that are trying to go voice first, right?
0:09:49 As when we have the proliferation of Alexa and like voice apps and like that kind of
0:09:50 thing.
0:09:53 And then there’s another one where the killer app, many of the early things that have gotten
0:09:57 a ton of attraction have been things like Beat Saber, which is an awesome rhythm game
0:09:59 that everyone should go play.
0:10:02 Super Hot is also another one of my favorites on the new Oculus Quest.
0:10:06 And so I think, you know, the other answer to your question is games are intrinsically
0:10:10 part of every computing platform that gets created.
0:10:12 Cloud Gaming is also something that’s under horizon.
0:10:14 And we think there are a variety of ways that can go.
0:10:19 I think in the near term, most folks in the industry think of it as a distribution channel
0:10:24 where we’re most excited about it is actually thinking about games that are being made natively
0:10:25 for the cloud.
0:10:29 If you think about it from the perspective of this is the first time where both the client
0:10:34 and the server for a multiplayer game are persisting in the same cloud instance, I think
0:10:38 the things that you can do from that sort of architecture is potentially really, really
0:10:43 groundbreaking and we’re seeing some developers and folks out there that are trying to experiment
0:10:44 on that.
0:10:48 And I think we’ll see the first wave of those cloud native games and apps pitting and perhaps
0:10:49 a couple of years from now.
0:10:52 And are there certain genres that are best aligned with cloud gaming?
0:10:55 Yeah, I think this is something where we’re all trying to figure it out.
0:11:00 But I think from looking at the current genres that exist onto the PC and console, like we
0:11:05 might expect massive multiplayer games like MMOs, things like World of Warcraft, for example,
0:11:09 things that have a lot of players playing together in the same instance, so battle royales or
0:11:14 the latest iteration of that, you can expand the size of those sandboxes and those instances
0:11:16 massively in a cloud environment.
0:11:22 So instead of having 100% battle royales, maybe you have 1000% battle royales or 1 million.
0:11:28 And instead of having a server instance that’s spun up and shut down due to a hodeword constraints,
0:11:33 you have a persistent living world that lasts for weeks at a time.
0:11:38 I think we’ll see those sorts of sort of experiences more when everything is living in the cloud
0:11:41 and you can log in regardless of where you are and what device you’re on.
0:11:45 We’re seeing more and more developers these days thinking about how to build properties
0:11:50 that are going to be great, not just for one platform, but on every device, mobile, PC,
0:11:55 console, browser, Minecraft and Fortnite, I think, one of the reasons why they’ve achieved
0:11:59 the sort of critical mass and the size that they have is because you can play those games
0:12:02 on legitimately almost every platform there is out there.
0:12:06 And I think more and more games that we see will be going in that direction as well.
0:12:08 What’s the shift then?
0:12:12 Is it the audiences converging, are there different demographics for different kinds
0:12:14 of play, different platforms, different games?
0:12:20 It’s not that the audiences are converging, but that people want to play their favorite
0:12:23 games regardless of where they are in the day.
0:12:28 And so I might want to play Fortnite when I’m at home and in front of my PC, but then
0:12:33 when I’m commuting to work and I’m in the subway, I might also want to play and I have
0:12:36 nothing but my mobile phone or my iPad with me.
0:12:41 And not only are gamers, you know, playing more and playing for longer, they’re also
0:12:44 inherently involved in the development of the game now.
0:12:45 Absolutely.
0:12:51 We’re seeing players as co-creators these days, so instead of just accepting what developers
0:12:55 are working on and feeding to them, players these days now have the ability to go out
0:13:00 and create mods, they have the ability to go out and create entire maps, skins, items,
0:13:04 and games these days are increasingly being architected in ways where they have systems
0:13:09 that enable players to easily create these things and drop them into the world.
0:13:15 And then we also see just sandbox experiences like Minecraft and Roblox where you’re basically
0:13:18 armed at the very beginning of the game with the shovel and then you go out into the world
0:13:22 and like the narrative that you create is the one that you make for yourself, right?
0:13:28 And so today, like we have people building Keen’s Landing and Roblox, these creations
0:13:30 are great because they also make the game viral.
0:13:34 And the way that you get it to work is, well, you’re not spending tons of money on TV advertising
0:13:41 instead, you make your game free, you get people excited about it on Reddit, on Twitch,
0:13:42 on Discord, right?
0:13:46 And so what ends up happening is it goes viral the way that we hear about really cool new
0:13:49 apps or really cool new websites.
0:13:54 It’s really about the same channels, thus circumventing retail and potentially publishers.
0:13:58 I would also add on to that, I think a popular sort of misconception that people have these
0:14:02 days is that they see a lot of news articles about monetization.
0:14:06 There’s this assumption that free-to-play games and live service games sort of have
0:14:10 these evil monetization methods where they’re trying really hard to squeeze every drop and
0:14:11 every dollar out of their players.
0:14:12 How so?
0:14:15 So there’s definitely a difference between pay-to-win and sort of free-to-play.
0:14:17 The two of them often get confused.
0:14:18 Break that down for me.
0:14:19 What’s the difference between play-to-win and free-to-play?
0:14:26 So pay-to-win is essentially a form of monetization where you unlock power behind a paywall.
0:14:31 So by paying, you unlock access to either higher levels or more powerful forms of equipment
0:14:34 and players essentially get angry about this because they feel like people who are not
0:14:38 paying can’t ever beat someone who is paying.
0:14:41 In a game like League of Legends, they don’t have this problem because there’s no pay-to-win
0:14:42 component.
0:14:48 You win or lose purely based on sort of skill and sort of most of the monetization in-game
0:14:53 comes from cosmetics which allow you to express yourself or they allow you to sort of unlock
0:14:57 certain champions, none of which are supposed to be more powerful than any of the ones that
0:15:00 you get access to if you’re a free player.
0:15:03 So that way, the experience between a free player and a paying player is largely the
0:15:08 same except you just have more access to cool stuff if you do monetize.
0:15:13 We talked a lot about this idea here of super apps, so an app in which you’ve got your
0:15:17 payment information baked in, you’ve got social media, you potentially e-commerce.
0:15:21 Do you think that’s the way that games are going, where everything we baked into one
0:15:22 gaming experience?
0:15:27 Well, one of the most interesting parts about the Epic Games, which is the company that
0:15:32 has built Fortnite, is that both they and there’s another company called Valve and there’s
0:15:36 a couple other companies that operate like this, both make the game and they also operate
0:15:38 a platform around their game.
0:15:44 So what that means is you play Fortnite and as part of playing it, you end up using this
0:15:48 application that’s called a launcher that lets you update the game and do all the different
0:15:49 things that you need to do.
0:15:53 What they’ve done, which is incredibly fascinating, is they have taken that and they’ve turned
0:15:55 that into a game store.
0:16:00 And so there’s a whole effort by Epic to go and ultimately build their launcher into
0:16:04 a store, partner with many, many other companies in order to promote them.
0:16:10 They also have bought the Bay Area Company house party, which is a video calling thing,
0:16:12 group calling thing that you use with your friends.
0:16:17 And you imagine how a constellation of these different experiences together start to weave
0:16:21 together the idea that it’s not just about Fortnite, it’s all the things that you do
0:16:23 in and around Fortnite.
0:16:28 And especially once you have with the Epic store, you have your credit card in there,
0:16:33 you have your user ID and your account information in there, you have identity.
0:16:38 Then all of a sudden, exactly to your point, it very much has a platform or a super app
0:16:39 like functionality.
0:16:44 Now, this is actually not the first time that this has happened because there’s a company
0:16:48 called Valve that did Half-Life many years ago that went through the exact same process
0:16:52 and ended up with the Steam store on the other side of it.
0:16:58 This change now and opens the door for entrepreneurs and for startups is all of a sudden you can
0:17:05 have a group of people that decide they have an amazing new games concept and they’re going
0:17:06 to build it by themselves.
0:17:10 And they’re going to actually not go through retail, of course, they’re going to publish
0:17:13 it on Steam or they’ll publish it on Epic.
0:17:15 What kind of games are you guys playing right now?
0:17:16 What are you excited about?
0:17:20 Well, I’m playing an amazing game called the Untitled Goose Game, which has been all over
0:17:21 Twitter, which is fun.
0:17:22 It’s on Nintendo Switch.
0:17:27 It’s an indie game where you basically you play Goose and you kind of run around and
0:17:32 you mess with this farmer that’s kind of like trying to plant his crops and all that stuff.
0:17:38 The other thing that I’m doing is I subscribed to Apple Arcade and so I’ve now gone and downloaded
0:17:41 a ton of different games out of there.
0:17:45 And so the one that I am on my home screen right now is Card of Darkness, which is super
0:17:46 fun.
0:17:50 And then there’s another one that was recommended to me called Sneaky Sasquatch.
0:17:54 And it’s a stealth game where you play a Sasquatch and you have to avoid the resident
0:17:59 ranger who’s trying to track you down and you’re trying to steal food so that then you
0:18:03 can sell this food to get money in order to save the park that you live in.
0:18:04 So that’s a really fun one.
0:18:06 Yeah, John, what are you playing these days?
0:18:10 I’ve been spending a ton of time, maybe too much time, playing Teamfight Tactics, which
0:18:13 is the auto chess game that Riot put out.
0:18:17 And I’ve got maybe two, 300 hours and at this point, then just trying to grind my way slowly
0:18:18 up the rank queue.
0:18:21 So I’ve been taking up most of my time.
0:18:25 I think that the mobile game that’s currently sort of on my home screen is also an Apple
0:18:30 Arcade title called Bleak Sword, which is basically Dark Souls, but on mobile.
0:18:34 So both of you see a lot of gamers, you see a lot of entrepreneurs.
0:18:38 What is your advice for entrepreneurs in the gaming space?
0:18:46 I think first is the ability to find a long-term partner that understands that making games
0:18:49 is at its heart a creative process.
0:18:53 Games can take a long time to build and there can be a lot of twists and turns in that road.
0:18:57 So Fortnite took a while before it found Battle Royale.
0:19:02 Roblox took almost 10 years to grow into its current user base.
0:19:05 Niantic, for example, took a while before Pokemon Go came out.
0:19:10 And I think that the game that they released before that in grass wasn’t nearly as big
0:19:12 or as popular as Pokemon Go was.
0:19:16 And so it can take a while for a studio to find or first hit game.
0:19:17 And that’s something that we recognize.
0:19:22 And I think as a sideline to that, if you’re thinking about building a studio that’s going
0:19:28 to last not just months or years, but potentially decades, you also want to be able to maintain
0:19:30 control of your IP.
0:19:35 I think this is something that in the near term may not seem as important, but IP ownership
0:19:41 enables you to essentially, one, have complete control over sequels, ancillary products like
0:19:46 merch, videos, comics, books, et cetera, and more importantly, it also makes it so that
0:19:50 you maintain creative control over the product.
0:19:52 Someone else has control over your IP.
0:19:56 That means they can take you off the product and actually put a different team on making
0:20:01 that exact same game and we’ve all heard of cases in the industry where that’s occurred.
0:20:05 I think one of the big differences in TAC that John and I have spent time on is the
0:20:13 fact that you actually need years, sometimes two, three, four years to get the first complete
0:20:14 version of your product out.
0:20:21 You actually need to fully finance your game to the release date plus all the live operations
0:20:22 and content that you’re going to do afterwards.
0:20:28 And so a lot of that ends up being then navigating the financing world, but then also the various
0:20:32 stores that are offering minimum guarantees, the publishers that have certain contract
0:20:36 structures, et cetera, and these are things that if you’re a brand new entrepreneur, even
0:20:41 if you’ve developed killer games before, you may not know how to navigate that world.
0:20:43 Andrew, what is your advice to entrepreneurs?
0:20:49 So my advice really comes from meeting teams that often have worked on really breakthrough
0:20:54 amazing franchises at some of the established games companies, but then are going off and
0:20:57 starting their new thing by themselves for the first time.
0:21:01 And I think that there’s a lot of facets that they have to master in addition to creating
0:21:02 the game.
0:21:06 The very first thing is that the entire process of self publishing and going to market is
0:21:08 a skill unto itself.
0:21:13 It’s something where you want to build the right relationships with influencers, with
0:21:17 streamers, with platforms like YouTube and Twitch and so on.
0:21:20 Those become incredibly important as a way to popularize your game.
0:21:26 Similarly, many of these games actually end up being just like mobile apps and websites
0:21:27 and anything else.
0:21:30 You’re going to need to think about what’s my paid marketing budget?
0:21:31 What is my onboarding flow?
0:21:35 What is the LTV and CAC of my users?
0:21:39 And so bringing that all together overlaid on top of a great product.
0:21:42 So what qualities do you look for in game developers and entrepreneurs?
0:21:44 Are there certain criteria?
0:21:49 I think the very first one is it is really clear that the folks that are spinning out
0:21:53 of Valve, that are coming out of Riot, that are coming out of Supercell, that are coming
0:21:55 out of Blizzard.
0:21:59 For many of these teams, they have worked on amazing, amazing games that we all love
0:22:00 and we all play.
0:22:05 But at the same time, those companies have gotten to a point where maybe they’re big
0:22:06 established players, right?
0:22:11 And so some of that creative energy starts to be a little bit more difficult in a large
0:22:12 team.
0:22:16 And so what we’re often seeing is these groups spinning off and starting something.
0:22:20 And especially over the last couple of years, a lot of the entrepreneurial energy that we’ve
0:22:25 seen at places like Blizzard or Riot, once they’re done shipping this big game that they’ve
0:22:28 been working on for years, they’re ready to move on to the next thing.
0:22:32 And so we’re excited to meet teams that are ready for their next adventure.
0:22:33 Great.
0:22:34 Well, thank you so much for joining us.