How I Built This with Guy Raz - Riot Games: Brandon Beck and Marc Merrill

Episode Date: December 14, 2020

At USC in the late 1990s, Marc Merrill and Brandon Beck were bonding over video games and noticing that free, player-made modifications for the game Warcraft III were becoming wildly popular online. The two friends were so impressed by these mods that they decided to create their own multiplayer strategy game with an unusual twist: they'd offer the game for free, but charge players money for new characters or customizable clothing (or "skins"). Many investors balked at the idea, unsure that a free game—created by total novices—would generate enough revenue. After three rocky years of development, Marc and Brandon's company Riot Games launched League of Legends in 2009. Over the past 11 years, it's become one of the most popular PC games of all time, pulling in $1.5 billion in 2019 alone.Order the How I Built This book at: https://smarturl.it/HowIBuiltThisSee Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

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tall windows, beautiful old details, and plenty of space for all of us. And being in that home on Airbnb, right in the middle of Vienna, walking distance from so much of the city, made it feel less like a visit and more like we were actually living there. Plus, taking a trip is the perfect time to host your space on Airbnb. Your place with a place with a all of its personal touches and its amazing location could make someone else's vacation even better. Your home might be worth more than you think. Find out how much at Airbnb.ca.com slash host. You know, not only do you have to build an incredibly fun game, which is really hard, by the way, there's a lot of really difficult problems to solve there, where it has to work, and the system has to scale,

and it has to be able to update, and the balance of the game from a math perspective needs to be incredible. I'll be precise. You need the content to be compelling where people fall in love with the characters in the way that somebody would for, you know, Batman or, you know, any of their favorite superheroes. And so there's so many things that you have to get right. Again, it's like Brandon and I sort of joke that knowing what you know now, we wouldn't have invested in ourselves back then. From NPR, it's how I built this, a show about innovators, entrepreneurs, idealists, and the stories behind the movements they built. I'm Guy Raz, and on the show today, how to do you. Two avid gamers fended off reluctant investors, naysaying experts, and their own self-doubt to build riot games.

And one of the most successful video games ever created, League of Legends. In 2006, a video game company called Bethesda Softworks tried out an experiment. At the time, Bethesda had a popular video game called Oblivion. In that year, it decided to offer its users an extra feature, horse armor. not real armor, virtual armor that you could use in the game. And Bethesda offered it up for $2.50. It was an incredibly controversial decision, and most players reacted badly. They didn't like it.

But enough gamers decided to try it out and bought the armor, and it proved a theory that company had, that you could create an entire revenue stream through what became known as micro-transactions. Still, almost no game developers chose to pursue this business model. But that same year, two friends, Brandon Beck and Mark Merrill, pitched an idea to investors. They wanted to build free video games, but offer up things like in-game currency and weapons and characters and skill points for a small price. Brandon and Mark believed that if the game was good enough, players would happily spend a few days. each week to buy virtual products that might enhance the gaming experience.

Not surprisingly, most investors turned them down and thought it was a crazy idea. The question Mark and Brandon kept getting was, who's going to spend money on virtual things, on things that have no value in the real world? And these were fair questions. And it's why it was so hard for Mark and Brandon to get Riot Games up and running. But the game they eventually built, League of Legends, became one of the most popular video games of all time, and a game that helped to pioneer the business model, now known as the free-to-play model. This year, the global video game industry will hit more than $160 billion in revenue.

That makes it four times bigger than the global film and TV industry, and three times bigger than all the music sold around the world in 20, According to Forbes, video games will earn more than $300 billion by 2025. And a growing percentage of that revenue comes from gamers who spend small amounts of money, buying skins or costumes for their virtual characters or buying access to locked rooms and imaginary worlds. Huge gaming tournaments attract millions of viewers, with players earning millions of dollars a year. It's a massive business, and a big part of it has to do with the model that Brandon and Mark's company Riot Games helped pioneer. Mark and Brandon both grew up in Southern California.

They met as teenagers at a summer leadership camp shortly before college. Here's how Mark remembers it. I remember meeting Brandon, and I'm like, oh, you're from Los Angeles, awesome. You know, like, oh, my God, you're like video games? What's up? And so we just kind of instantly hit it off. And then as I got to know him, I also just really thought he had an infectious personality. I thought he had a really interesting way of looking at the world.

It was sort of complimentary from the values perspective to mine. And he had just this incredibly entrepreneurial and kind of business-oriented mind that kind of inspired me where I'm like, wow, I've never seen, I never encountered a person that's also younger than me that felt so vibrant and dynamic in this interesting way. And so because of the shared love of games, so we could, you know, hop on the modem to play StarCraft or Warcraft 2. or Diablo or Duke Nukem 3D or, you know, I mean, I could go on and on about the titles that we all knew and connected about. Yeah. So you meet this like leadership program. And then you both go back to L.A. and you stay in touch or did you kind of lose touch? Yeah. I mean, we stayed in touch and we'd call each other every once in a while. We'd play some games. I remember one of those phone calls, Mark told me I really had to see the Matrix. I was like, what is that? He's like, you'll see.

ended up blowing my mind and being my favorite movie of all time. And Mark, you headed to USC to start college. And Brandon, did that, I know eventually you would also go to USC. Was the fact that Mark was there, did that influence your decision to go there? Or was it just happened to be the place where you decided to go? It was a total coincidence, but it certainly made me more excited about it. I even visited Mark when he was at school and hung out with him. You know, in the dorms where he had a bunch of gaming buddies and they would, they'd play games together.

And I wasn't a very good student. You know, I had ADHD and a variety of learning differences and was in a pretty, you know, tough, competitive school environment. And I just, I was not the kind of student I was sort of supposed to be. But in the meantime, I'm living in this world online. I wanted to spend every minute. In my spare time, I would, you know, build scripts that would play my character for me. while I had to be at school, so I would continue to make progress. Wow, that's pretty impressive. But, I mean, you did, despite your struggles, I mean, you did end up getting into USC. And Mark is already there. And presumably, like, you guys, what, like, start to hang out. And I guess you already have, like, a friend at college when you get there.

Yeah. Mark would take me under his wing a bit and, you know, introduce me to his friends. show me around. So yeah, it was really great showing up and knowing Mark. Mark, when you guys were in college, did you think, you know what, I'm going to start a business with this guy one day? Or was it just like fun conversations you would have about, hey, you know, maybe one day we should do this or that? Yeah, no, we did. But it was sort of accidental in some ways. You know, where Brandon and I, because of our shared passion and games and then also our mutual interest in business, we would strategize or brainstorm or think about opportunities. And this is one of the reasons that I was attracted to

Brandon is because he was sort of the most entrepreneurial and sort of business-minded friend that I had. Like, Brandon ran a music station at SCE and he'd be thinking about events or stuff like that. And so we were playing games and we both loved online games. And so we loved to like watch replays of really competitive players playing online and to help inform how we could get better. And that started us thinking about, well, maybe we could help create or run some gaming tournaments. Maybe we could do some stuff like that just around campus. And actually, maybe there's a business opportunity. Maybe we should create a league that we were going to call the UGL, the ultimate gaming league.

And so, you know, Brandon and I went down to the basement of Levy Library, like late one night, and we started working on this rough business plan. Neither of us really knew how to build a business plan. So we're trying to figure out what that looked like and what to put on paper and all this. And, you know, we kind of never really win anywhere with that business. But nonetheless, like, I just remember being really energized about the possibilities of the future. And again, that's just something that I think Brandon really helped awaken in me was this ability to look at not the way the world is currently, but the way that it could be and how we could potentially go help change it.

So I guess after college, both of you kind of went into, like, quote unquote, safe jobs, right? Like, Mark, you went to work for a bank, and Brandon, you went to work in consulting initially. But you guys were roommates, right? You became roommates after college and lived together in an apartment. Yeah, that's right. So this is like 2002, 2003-ish. Were you guys constantly playing games in your apartment together? Yeah, that's when I was done with banking, and I went to work for a company called Advanced

Air Communications, and Brandon worked at Bain & Company as a strategy consultant. and our lives at the time really consisted of going to work or coming home and playing games. We had back-to-back gaming rigs, and any time we had free time, like, that's all we wanted to do. And it was kind of in that context which we started to explore, you know, different ideas about where the game industry was going. And, Brandon, I read that. Like, at some point, you'd, like, cold called a game company, a gaming company that was, like, out west somewhere. because you heard they were developing a cool game that you wanted to work on.

And I guess the CEO actually called you back and said, hey, we could use your help. Yeah, long story short, that CEO gave me a call when I was at Bain in sort of my second year. And he said, you know, I think we can get to sort of a next phase

of growth for this company. Are you interested in coming on board and helping me out? And I shared it with Mark who was involved, and we both kind of went out there and met with them. And, you know, it just rekindled the, hey, we should be thinking about games. We love games. I think that call really sort of got us working together thinking about possibilities in games. And to me, like, this was an example of Brandon Magic where he hears about this company.

Cold calls the CEO. The CEO agrees to be like, yeah, come out. And so Brandon flies out to Arizona, meets the CEO and CEOs is like, oh my God, you're a kid. You're like, what the hell? But then Brandon convinces them to be like, hey, like, but how can I be helpful? Like there's no downside to like, can I get your materials? What not comes back, shares them with me. And then we start brainstorming on just like other ways to plug in or add value and sort of just finding ways again to add advice or things like that or connect them with anybody we know that may be interested, things like that.

So, all right. So you guys are sort of consulting with this company. Meantime, you're still doing your own jobs. And just briefly, like, what was the game that they were trying to build? It was kind of like a next generation MMO, which is massively multiplayer online game. You know, just a really ambitious vision for one that was like super exciting if they could pull it off. So how did the game do? Ultimately, they ended up failing.

And, you know, it's sort of a good lesson, I think, for us where we could, we learned. sort of got to see up close that you can have a right idea and be in the right place at the right time. But if you can't execute well, it doesn't matter. It crashed, right? It didn't succeed. Yeah. And part of the reason is development is incredibly difficult. And especially building an MMO at the time because technology, like the ability to build an online game is kind of like building a rocket chip where you have to build a game engine and a massive tool pipeline to put assets into the game.

You know, you have to be able to build a whole set of server technologies that can scale to support thousands of simultaneous players all running around the world. So just the technology effort is incredibly difficult. And then from a content and gaming perspective, you have to build a world. You needed to make it feel incredibly good to walk around the world. You needed to have a story arc and character classes and races and cities with political history that it all makes sense. And then the game has to be fun. So you have to be able to understand and build systems where it feels good to move. The sound effects and the visual effects are great, and the combat mechanics, which is the math behind the game, all make sense.

And you want to play it for a long time. I mean, it's an incredibly complex thing. And so the company needed to continually raise money, and they could never quite get the game design or pitch or, like, the problems that they were trying to solve. It ended up just not resonating when they ended up shipping the game. It was kind of a watered-down version of the original idea. And so the company ended up, you know, going out of business. So just to clarify, this is like 2005, right? At the time, if I understand it correctly, games, right? Video games were essentially produced like as a form of software and then shipped out and a user would pay 60 bucks or 100 bucks for that game. And that was it basically. Is that more or less right? Yes. So the typical game model at the time was games would essentially ship the big ones typically around, you know, the Black Friday sort of,

Thanksgiving leading up to Christmas holiday season. And you spent about $60 and you got a game. On a CD. Exactly. Yeah, you bought a box with a CD or DVD or a cartridge. Yeah. And then I guess around this time, too, you started to get into this game called Defense of the Ancients.

I'm going to be just straight up honest with everybody listening to this right now. I am like this is a new, this is like new territory for me. So I know a lot of people listening are like major gamers and super into this. And this is going to be a little hard for you to hear because I'm like sort of grinding through this with my really bad basic understanding of how this works. So bear with me, everybody. But you started to play, like essentially around this time, fans of games like Warcraft were creating their own modifications of those games and making it available to fans of the game to play. Is that basically correct? Yeah, so Warcraft 3, which was a commercial product from Blizzard Entertainment, shipped with what's called a map editor,

which is an ability for players of the game to utilize the in-game assets, meaning like the art and design abilities, things like that, to change the rules. And then you could upload these maps that will have these custom rule sets to anybody else in the world that could then go play them. But everybody that was playing had to purchase a commercial copy of Warcraft 3 in order to play. And so this is one of the reasons it was a good business model for Blueprint. And so, Brandon, just to get a sense of how revolutionary this was, these mods, like in the context of the gaming world in 2004, 2005, when user modified game started to come out, was it like a total game changer? Yeah. I mean, it was. It created this possibility space for people with relatively limited knowledge of, you know, all the various disciplines required to build a game could really, you know, make something. powerful and special out of a lot of the existing assets of the existing game. And so there was a ton of experimentation.

And yeah, there was magic in there. And so it enabled an explosion of game concepts and design because it made it much more widely accessible for people to come up with their own ideas and then ship them to a marketplace for free and then see what would stick and what people wanted to play. Meantime, to get these games, right, you had to still spend money. and go by the physical disc, putting your computer, and then the expansion packs and all the stuff.

Like, that was something you had to do. But from what I understand, like, you guys started to see the potential for something completely different through these modified games. Is that right? Or was that not quite happening just yet? So, yes.

So in particular around Dota or Defense of the Ancient. And so this became, this is a game. And there were multiple iterations of Dota. There was sort of the original Dota. And then there was Dota All Stars. And Dota All Stars in particular was a really, really fun game that started to grow virally. Because it took the heroes, these characters within Warcraft 3, and just made it incredibly fun to team up with a team of five players and fight against an enemy team of five players and all these characters had different abilities.

And there was this community site. called Dota AllSarch.com. And as we got deeper into this community, we're like, oh my God, this type of thing where the developer is connecting directly with the audience and growing it in concert with them over time, this is what the future of the industry is going to look like. And then we thought, well, maybe we could make a Dota type game.

And then we thought, well, maybe the Dota type game, it actually proves this whole game-as-a-service thing. Maybe we should go explore games as-as-a-service. And it was that questioning, which then let us to start working on the business plan, which then had us reach out to the creators of Dota to start being like, hey, why don't we go explore building a company to commercialize this game

and demonstrate that we could make it so much more than if it's just remains a mod as part of this Warcraft 3 ecosystem. And so it was really that which led to the genesis of Riot. So at this point, I mean, clearly the wheels are turning in your head, right? You're now talking about building a company, And, I mean, were you guys thinking of quitting your jobs? Like, what, what steps did you start to take?

You know, every free minute that we had together, we would be playing these games. And as we played them, we would have thoughts and ideas. And eventually, we would start to explore these ideas and put them down, you know, on paper and start to imagine, you know, what if we, it was essentially like the creation of a business plan, almost, like a presentation that we were. we would that we would ultimately refine and share with investors to see, A, what do other, you know, making games is expensive? What are investors going to think? Is this crazy or not? Would they back a couple of young 20-somethings? And B, we wanted to simultaneously reach out to experience game developers and see what they thought. So it was this iterative process of, and, you know, in terms of like quitting our jobs, we were going to, at least me personally, like, I didn't want.

to quit my, I liked my job and I didn't want to quit my job until I was really confident that all those other stakeholders, whether it was investors or potential talent that would want to join us, would validate that we weren't insane. Yeah. So you were, you were a Bain, right? You were a consultant. Yeah. And so did you, the two of you start working on the business plan like on at nights and on weekends and for how long? Yeah, we would get together on on nights and weekends. We spent a lot of time, I think, at Mark's office, over the weekend where we could just be like undistracted, including like not distracted by our own gaming rigs because it was so easy

for us to just fall into playing a game. And we'd spend the whole day there just getting on the whiteboard, thinking about stuff, iterating, you know, building this presentation to sort of simultaneously convince ourselves and then ultimately, you know, convince investors that like we would have a serious plan. And we'd really be able to execute this. It wasn't crazy. And we could make a game. And it was interesting because I started dating my girlfriend at the time.

He was my now wife. And then many of my friends or family, they'd be like, hey, what do you do this weekend? I'm like, well, I'm going to go over to this guy's house and we're going to work on a business plan all day. It became this thing where people were kind of like, oh, interesting. And what's your company you're working on? I'm like, oh, a video game company. And people would be like, huh. Like, I just remember how people, it just felt abnormal.

And so it was fascinating to. to just experience the surprise. And I don't know if it was because of me or because of not many of the other people wanted to go dedicate so much time to something at the time, but I remember being really shocked by that kind of reaction.

So understand it correctly. Like initially, your idea was to be like a, almost like a studio, like, right? Not to kind of develop games and then to work with bigger companies that would then distribute your games. Was that the initial kind of vision for what you wanted to do?

Yes, yeah, that's exactly right. We felt like biting off developing games was a big enough bite to chew that we wanted to try to be as narrowly focused as we possibly could. So we were going to partner with other companies to publish the game and do everything else that was required. We were going to leverage every existing technology

that we could get access to off the shelf to not have to build things that took us away from developing the core moment-to-moment gameplay experience, which is what we had a really clear vision for and we're really excited but also totally unprepared to make. Now, neither of you guys are engineers, right? I mean, so when you were sort of coming up with the plan, the business plan, iterating and using the whiteboard

and kind of going back and forth, I'm assuming both of you are like, we need to find engineers to help us build this thing. That is right, yeah. Brandon and I were 24 and 25 at the time. with no professional software development experience. And so, you know, we, part of the diligence process in terms of building the business plan was really focused on answering three questions.

And it was, you know, one, you know, if we build this game and this experience that we think would be great, would it work? Would people actually want to come play this? You know, two, could we attract the capital necessary to fund the development to be able to launch this game? And then three, sort of a related note is could we attract developers and the right type of talent to be able to work together with us to build this thing. And when all signs kind of pointed to yes, we ended up jumping ship from our respective careers and opening the office in September of 2006.

But, you know, again, given the lack of experience, we really underestimated the scope and complexity, not only a building the game itself, but then subsequently when we were talking to publishers about financing the game, we quickly realized that that wasn't going to work. part of the experience that we were thinking about delivering was going to be premised upon having the game be free and needing to go direct to consumer and not having single player, potentially exploring alternative business models like digital goods and things like that. And once we started talking to publishers, you know, whose entire incumbency and, you know,

massive multi-dollar billion dollar businesses were built around selling shiny discs at retail, they told us that this was a horrible idea and it would never work, which of course shook our confidence. And we talked to a lot of talented developers too. A lot of people were busy. We're no names. We didn't have a lot of money. So people didn't want to come join us either. And so we had all these different challenges to try to figure out how to move forward. And the scope quickly expanded and it was hugely intimidating. So where did you guys go to get just the initial money to even just have enough money to turn on the lights in the office? So when we put together the business plan, it essentially was, you know, like a 15 slide deck.

And then we ended up having like almost 200 slides of backup, you know, in this really detailed appendix. And we would essentially just tap the network and ask people like, you know, give an example that my then-girlfriend's father who's a dentist, you know, he was friends because one of his patients was a guy named Greg Dollar Hyde who was the former CEO of Baja Fresh. And so he's like, hey, you guys should go talk to Greg. He's a great businessman. And so Brandon and I cruised over to Greg's house in Malibu. And we give him a pitch and run him through the deck. And he's got some good thoughts. And he brings his 17-year-old son over and he's like, hey, have you heard of Dota?

What do you think about this whole game? And what do you think about games as a service? And all that sounds really cool. And so then Greg would be like, cool, yeah, if you get other people that would come in, all invest. Right. So then he'd actually introduce us other people. And that's really how we ended up putting together an angel round of a lot of angels.

And so it ended up being like 25 to 30. individual investors. It's just, you know, you start with friends and family and former bosses or colleagues. And then, you know, they would know somebody and the next thing, you know, you're doing this like, we called it like a living room road show. Right. And you guys, I think you raised about a million and a half dollars through this friends and family around. Is that, is that right? Yep, that's right. And with a million and a half dollars, you can't obviously create a game, right? Or can you? Is that, is that enough? Or was, like, did you guys think you could, you could actually make something with that money? So I think one of the interesting things looking back is we believe

that we could. We had created this really detailed model with all the assumptions from all the conversations and research we did that basically had us convinced that we could build and complete this game for two, I think it was $2.8 million. So we thought we were halfway there with a little bit of buffer. And we were entirely wrong. I mean, I think all said and done, it was closer to $20 million. And it highlights how, you know, honestly, our own naivete was in many ways an asset to us. We were so unprepared to do what we were trying to do, and we were so unclear about what we were really up against that we didn't talk ourselves completely out of it. When we come back in just a moment, how Brendan and Mark built an amazing design team.

then lost their amazing design team and why most investors were not the slightest bit interested in their free-to-play business model. Stay with us. I'm Guy Raz, and you're listening to How I Built This from NPR. Hey, welcome back to How I Built This from NPR. I'm Guy Raz. So it's the mid-2000s, and Brendan and Mark have set up an office in an old converted machine shop near the 405 freeway in Santa Monica. and they decide to call their brand new company Riot Games. We liked Riot because it had sort of this double meaning of kind of the fist in the air,

you know, on behalf of players and gamers. And then, you know, at the same time, this lightheartedness, double entendre for, you know, it's a riot, doesn't take itself too seriously. And the cool thing about the name was when we, you know, when we first started going to conferences and meeting people, you know, they say, where you're from, you know, we said riot games, be like, oh yeah, I've heard of you guys. And of course, they hadn't,

but for some reason there was like something about it that was familiar to people. All right, you guys, your first big coup was you guys hired this guy named Steve Feek to be one of the people in your design team. And he was, I guess, he was like one of the original designers of Dota All-Stars. And I guess he was kind of a big deal in the gaming community.

So what was your pitch to him? And was it like, hey, come work for us? and we're going to build this big thing? And he was like, sure? Well, so, yeah, so Steve Feek, you know, his online handle was Ginsu. And it was very hard to actually track down the real Ginsu online because there were a variety of people who went under the Ginzu handle. And so, you know, I ended up talking to a guy in Brazil and he was trying to pretend

he was Steve and things like that. But ultimately, it took us many months to find Steve Feek. We brought him on to the company, I think it either December 2006 or January 2007. But he was working at Best Buy. in Wisconsin and was in college studying computer science. And he was just this incredibly passionate, smart, thoughtful game designer, but with really, you know, sort of self-taught. Huh.

And so you reached out to Steve and you were like, hey, come move to L.A. We're going to start this thing. And he's like, I'm working on Best Buy. Why not? Pretty much. Yeah. And, you know, we ended up talking to his parents also because they were also like, is this real today and the whole thing?

And yeah, we flew Steve out. And, you know, we ended up having sort of these young, inexperienced, very passionate people that were sort of interns or whatnot that would hire on Craigslist, but that really understood the content and the vision we were trying to create. When we first opened up the office, we essentially, there were four of us. And over the next several months, we probably grew to about 12. And, you know, maybe three of them were interns with, you know, essentially no experience. And what was the, what was like the initial goal? Like when people joined up, you said, here is our plan that we need to focus on now.

Like I guess it was initially it was a game called Onslaught that you were working on. Yeah, we really wanted to essentially get gameplay up and running as soon as possible. So we could start iterating on how do we make the game fun? How do we build out the tools pipeline? And Brandon had to learn all these steps too because, you know, again, this was our first time developing a game. So we had to, you know, we were going to conferences, we were reading books. We were trying to consume everything we possibly could about learning how to develop a game. And from like if I met you at that time in 2006 and I was like, okay, tell me about this game.

And I had no, I knew nothing about video games, which I'm sure a lot of your investors knew nothing about them. And they said, tell me about onslaught. What's the story? How would you describe onslaught to them? So this was this was always incredibly hard to explain to people because there's layers of it. In a nutshell, you're going to jump in a game. There's going to be five players on your team. against five players on another team.

Each of you is going to be, you know, championing a superhero of sorts. And so we'd maybe relate it to Marvel or something. You know, you'll pick a Spider-Man type of hero and you'll have maybe Wolverine on your team and a set of heroes with complementary abilities against another team with a bunch of superheroes with complementary abilities. And you'll essentially, again, this is where it gets tough to explain, but you'll meet on the field of battle and try to destroy the other team's base before they destroy yours. There's a heck of a lot more nuance to it in the moment-to-moment experience, but yeah, that's how we would attempt to explain it.

And it was always a challenge, and it still is to this day. Well, what's interesting is we tended to not focus much on the actual details of the game, but much more on the business opportunity and sort of the transition. that we saw where the game industry would be would evolve from a sort of packaged goods model to a direct-to-consumer model. And that Onslaught was going to be the proof point to this broader company thesis around being able to develop a direct-to-player relationship and grow a community and evolve, you know, initially this game On-Slot, but then subsequently other games, you know, with them.

Right. But ironically, it's the, it is actually a lot of the content details. that Branden and I were most focused on and interested in, and that I think, especially over time, really became a lot of the differentiator of the company. So just to be clear, I mean, you were essentially saying to investors, what we're going to do is different because we're going to offer this game for free. We're going to put it out into the world for free directly to consumers, to gamers.

And we're going to make money off of it because they'll be able to make payments, to buy things in the game. Was that essentially how you were explaining it to investors? Yes, and that we believe this would work for a variety of reasons. You know, so one, the free-to-play business model was already having success in Korea in particular and then starting to have some success in China. And then the type of content or games that could benefit the most from this type of model, you know, we thought we're going to be competitive multiplayer games.

And so an onslaught was sort of premised upon being this highly engaging competitive multiplayer game where the depth of engagement was not from adding lots and lots of content, but more from how the game would be dynamic because you're always playing against other players. When you started to show this to potential publishers, how did they respond? Were they like, yeah, I think we can work with you. It was sort of mixed. So, you know, we would very enthusiastically show a video. of our demo

sort of flew around the map and it showed some characters and it showed them fighting and things like this and it had this fast music track playing and so we tried to hype it up and part of what we were saying is there are other key messages

was like we did all this in four months and we had proprietary technology you know talking about the broader opportunity and so a bunch of publishers were also you know just really not interested in particular because of the business model how he didn't want to have single player because you know every game at the time

like publishers would tell us, most people don't play the online component of games at all. They typically only play single player. And the business model is really, you get the vast majority of revenue in the first month when the game launches. So why, how could you possibly make a game free and expect to make money on it over time? And just to clarify, single player is you go out and you buy the disc, put in your computer, and then you play it by yourself on your computer. That was the model that the publishers thought was the most lucrative. Well, basically, the ability to play the game without needing others.

And publishers were just like, well, hey, you guys are leaving a ton of money on the table because the vast majority of the audience isn't going to want to play a multiplayer game. And all this feedback, though, also definitely caused us to reflect and reconsider. And we're like, wow, maybe we're wrong. I mean, these guys are experts who are doing this all the time. And so, you know, we would, you know, our confidence was shaken. And so then we'd have to go back and validate. But then we'd think about it again from a player perspective.

And we're like, no, but we think this is what makes sense to us. And so it was always a confusing time because we were just, we're intimidated to a certain extent by our lack of experience. And I guess in that first year, you had the lead developer for Wright Games with somebody with a lot of experience, but had a really clear idea of what they wanted to do, which doesn't sound like what you guys wanted to do. And eventually you just kind of part of ways with this developer. What happened? Why? I mean, why was there so much tension?

So the tension really was around a lack of shared vision. So we really believed in the ability to build sort of this online experience that would grow and evolve with players. And I think given this individual, tenure in the industry, like his entire frame of reference was built around a very different approach and different model. But because Brandon and I had raised the money to go do a particular thing, we were 100% locked in on finding a way to go do what we need to do. And once we sort of ultimately had this come to Jesus moment where it essentially confided that yet had no interest

in building the thing we wanted to build, we then had to, you know, part ways, which then meant Brandon and I were alone essentially to go figure out, gosh, how do we actually do all this? I read that this lead developer had plans to, or you thought he had plans to kind of take over the company secretly and was also pitching his own version of this game to other publishers. When you discovered that, what did you think? What did you say? So that was a really contentious moment in the office where it turned out that we heard that this individual was having meetings with Sony and Microsoft to try to go build games for the PlayStation Network or for the burgeoning Xbox marketplace. And again, because the company was focused, we had raised money from investors, we had an obligation to go do what we were, that we sold them that we were going to go do.

And so it became a situation where it just was untenable and we had to, we had to move in a different direction. So you parted ways. but that it sounds like that those first two years or a year and a half were just full of these moments where you know like just almost dysfunction maybe I'm mischaracterizing it but it sounds like it was dysfunctional like I think all of your entire core team members had like left by you know within the first 18 months because it was just a I guess a different a different vision but it must have been kind of scary for the two of few of you to all of a sudden lose all these people that you'd worked really hard to recruit that you needed to develop to develop the game right i mean were you very much so in in most other businesses that would have been the end of the company 2008 you would have shut down yeah i mean i would i would characterize the dysfunction as being that we were being bullied essentially because of our own insecurity around our own right uh lack of experience by people who essentially wanted to

do something else and we're telling us we're the experts and this is how we need to go do it and trust us and, you know, but it always just felt wrong and it felt off. And once I think we started to really realize that that was the case, we then realized that we were absolutely going to fail unless we changed the dynamic in the office. And every key inflection point from the organization really was around when we managed to bring in an experienced quality developer who was culturally aligned who believed in the vision. I guess in sort of developing onslaught, right? And you hit this roadblock with publishers who kept.

saying, you know, your concept, your model here is not going to work. This freemium model is, you know, multiplayer only and direct-to-consumer model is not going to work. But you were not going to make a game that you would buy a Best Buy off the shelf. You were going to always make a game that was only online. So why did you need a publisher? So the model for publishing online games were still emerging. And we were thinking about our game as a living, breathing service. So the major online games that preceded us, they all still had a publisher because

to get the game in the hands of players was still done through shipping a package good. So if you played a popular massively multiplayer game like a World of Warcraft, you still bought the game at Best Buy. And then somebody had to host the servers and create the infrastructure and manage accepting payments even online and manage all these things that we take for granted today, there were no real off-the-shelf solutions for. But by working with a publisher, it meant that they would probably own the IP or have a stake in that, right? Yeah, the publishing deal generally came with sort of an advance on those future royalties. So it was almost like an investment in the development of

the game, which is how a lot of games end up being financed. But yeah, in exchange for that, there were, often those kinds of rights were at stake. Also, the most important thing for us was, was we needed to have a direct relationship with our players. This was going to be an online experience that people were going to come back to and play over and over again, that we'd have to balance and adapt and change and add features to. And we needed to have a relationship and a really deep feedback loop with our audience. And we needed to control the things that they were going to care about or at least have a publisher who we believe would care about those things, be attuned to those things, relate to those players, and make those decisions for us.

And I mean, obviously, you were frustrated about that. And I guess that kind of led you to a decision, which was a pretty risky decision, which was to just publish the game yourselves, right? Like, what was the impetus that gave you that idea? You know, I think as we got closer and closer to shipping the game, we would have these meetings with publishers. And far more often than not, we just sort of felt like the other companies didn't really natively understand what we were trying to accomplish and what our players would care about. And it freaked us out. And enough that we decided, you know what, maybe we should figure out how to publish this thing ourselves, at least in English and in the United States. That felt possible. International felt just way

too daunting and we had so many other, so many other basic execution challenges ahead of us that were, that were daunting. So we decided we would publish internationally if we could find a great publisher with a third party, but in the U.S. we'd publish ourselves. All right. Now, but to do that, presumably you needed a lot more money than you had, right? Right. So presumably, you start to hit the road and look for more money. And so when you started to go to VCs and explain all these things that you're explaining to me. Were they super enthusiastic? I mean, were you going to VCs and just like getting term sheets left and right?

No, VCs were not enthusiastic. So we, first of all, we didn't really know how to how to even engage with VCs. And we ended up, you know, getting introduced to somebody who would essentially like make the introductions for us, almost as intermediary and tee up meetings. And we'd go to these meetings. And, you know, I think the VCs said, the passion, but ultimately it came down to betting on content, and most of them felt uncomfortable making a financial bet on a game. They were just like, you know, how do we evaluate if this is

going to be fun or not, or it's going to work or not? So the vast majority of VCs turned us down. You know, I think the sort of worst meetings were obviously when we'd be ignored or VCs would essentially just essentially say like they really don't believe in what we're doing. And I think there was the most poignant memory I have around that was when, I think, a VC was trying to understand, like, okay, so you're going to have a multiplayer online battle arena game where a bunch of college kids are going to be killing each other online and you're going to make money by selling virtual skins, which kind of translate to them playing dress-up doll. And we're like, well, kind of, but not really. And they're like, yeah, good luck with that. And that's, you know, that was a tough

road where we weren't sure or we were ever going to be able to raise money. That must have been pretty demoralizing. I mean, were there other moments like that where you were just like, this sucks? You know, I mean, there were many moments when, you know, I think Brandon and I felt like, oh my God, you know, how are we possibly going to get through this set of challenges, and there were so many that felt overwhelming. And there were times when we also, Brandon and I would sit there and be like, are we pursuing the right model?

Should we try to pivot to sell a box? Maybe we could convert to free to play later. You know, I mean, it was, you know, in the fog of war around the ambiguity around what the perfect path was when, you know, nobody had done this successfully in the West at the time, especially at what our, as our first entrepreneurial venture, you know, there was a lot of doubt. And again, and this is us also now managing a team of, you know, experienced developers that were oftentimes older than us that had shipped big games and whatnot. And we had to be confident, but realistic and explain.

why this is going to work. Yeah. Brandon, I'm trying to, in trying to kind of understand the business model, I think in a sense, what you were doing at the time and what you're doing today is you were essentially saying, look, the developer, we're spending a lot of money on this game. We're going to make it available for free. And in order to get money back, we're going to offer some cool features for people who get a lot of joy and fulfillment out of playing this game by paying us small amounts of money. and actually over time,

you know, we're going to make more money than these games where you just like pay $60 once a year for. Yeah, I mean, it was a leap of faith, you know,

even for us at the time. And there was a second factor, which is here we are with a game that no one's ever heard of, a no name developer as well, in a genre no one's ever heard of, if we put a $60 price tag on a box,

that's way too much of a leap. Like that's just not going to work. We had to just put something out. And if players for free with no barriers, and then if players were enjoying it, they could monetize. And a large subset of our players never will, but a decent percentage of our players do. And they, and they buy aesthetic customization. And there's, you know, there's an ongoing model. And in 2008, when you were pitching this, this was still pre-Iphone. This is still pre-Mobile gaming. Like, this was, the amazing thing about this is that it required a lot of foresight and also, let's be honest, some luck, too, for this vision to be realized. Definitely.

Just the other day, I was saying to my nine-year-old who loves, he loves a game called Brawl Stars. And I'm sorry if it's a competitor, I don't know, but I don't know enough about this world, but loves this game. It's a great game. And he gets $5 allowance a week, if he does his chores, and he spends it all on in-app purchases on Brawl Stars. So the other day, we're taking a walk, And I said to him, you know, I said, you know, at the end of the year, you're going to spend $240 on this one mobile game. You're spending money on air, on ones and zeros, on digital air. And he's like, I don't care. I love it.

And it just occurred to me. It's amazing. It's an extraordinary, like that's like 20, that's like seven subscription services, you know, the equivalent of like doing seven subscription services for one game, buying skins and characters and different items. And it is amazing that you guys were able to see that there was a marketplace for that. Because I would have thought, who the hell is going to buy this stuff? But you, like, how did you know back then that there was going to be a market for that? I mean, I think our perspective was really shaped by, you know, our experiences in all these different communities and playing games so deeply.

where we just believed that people would try it because it's free, but they'd stay if it's great. And so it was incumbent upon us to develop such a compelling experience that once people got into it, unless they fell in love with it, unless they love the content, the characters and whatnot, then they wouldn't spend money. You know, we really needed to establish trust in our player base that we understand what's important to them. that we care about them and that we're going to invest and also make the experience better. And I want to be clear about something for anyone listening. I'm not, when I say you're buying air, you're buying ones and zeros, I'm just kind of, you know, being a little flip here. The amount of time, effort and money it takes to develop for developers and companies to make those skins and those characters, it's a lot of money. There's an investment in that.

And you are essentially selling content that is valuable to people, that people get joy in place. out of, so they are willing to spend $5 or seven gems or whatever the currency is, you know, on these things that they can then use as part of their character. Like, the point is that there's a lot of work that goes in, like from your side, that goes into developing that stuff that you sell, right? A ton of work. So not only do you have to build an incredibly fun game, which is really hard, by the way, so if you think about, like, how do you go design chess, right?

Or soccer, you know, or something where people can essentially play it infinitely. there's a lot of really difficult problems to solve there. And then you have to do it from a technology perspective, where it has to work and the system has to scale and has to be able to update. And the balance of the game from a math perspective needs to be incredibly precise. You need the content to be compelling, where people fall in love with the characters from a creative standpoint in the way that somebody would for Batman or any of their favorite superheroes.

And so there's so many things that you have to get right. Again, it's like Brandon and I sort of joke that knowing what you know now, you know, like we wouldn't have invested in ourselves back then. But of course, you eventually did manage to get a couple of VCs to agree to put some money. And I think you ended up raising $7 million in 2008. Yeah. Once you started, once you had some money to tackle this problem, you had to build the platform from scratch, the platform to build the game on. Is that right in 2008?

That's right. Yes. Everything outside of the. moment-to-moment game experience that's required to sort of deliver the game. So things like a friend's, a buddy list and the ability to chat with people on your buddy list, whether they're in your game or they're in a different game or they're not in a game yet, or the ability to process payments and have a store, the ability to get match made with other players of appropriate skills.

So you'll hit play and we'll find a team of four other players for you and five opponents, who are in their appropriate skill range, so you'll have a great experience. All of that kind of around game stuff is the platform. But also there's a game server, right, and the operational infrastructure, meaning we had to write software to put onto hardware, which goes into data centers,

that we had to administer ourselves, because this is also, we're building this before the cloud existed. So we had to go put physical hardware in data centers, hire operations people, and we totally underestimated the complexity around this too, which, of course, became a big challenge of our time. All right. I guess, Mark, in that year in 2008, you ended up partnering, or outsourcing the construction of this infrastructure to a startup that, I guess, promised that they could build this for you. And you gave them like a million dollars and said, all right, go for it. And what happened?

Yeah, so we were working with a company, you know, that seemed very credible from our perspective where they came recommended by VC. And to make a long story short, once we were able to bring in Scott Gelb, who became our VP of technology, who had deep expertise around platform, his very first assignment was to go validate where we were with this third-party technology provider and came back after a couple of days and is like, this is not going to be at all what we need in order to achieve what we want to achieve. And so that was a really scary moment for the company because this is June 2008. And we then had to call our board and tell them, hey, guys, you know that. Back-end technology we were building and the million dollars we spent on this, we're literally going to have to throw it all away and start over from scratch.

And that was a horrible moment. Brandon and I were quite terrified that the board would want us to shut down the company. When we come back in just a moment, how League of Legends finally made it to launch without the feature that was actually going to make them money, their online store. Stay with us. I'm Guy Raz, and you're listening to How I Built This. from NPR.

And one more thing, the New York Times best-selling book, How I Built This, is now available. It's a great read and a great gift for anyone looking for ideas, inspiration, wisdom, and encouragement to have the courage to put out an idea into the world. It's filled with tons of stories you haven't heard about how some of the greatest entrepreneurs you know and respect started out at the very bottom. Check out How I Built This, the book, available wherever you buy your books. Hey, welcome back to How I Built This from NPR. I'm Guy Raz.

So it's 2008, and Riot Games is trying to self-publish its first video game, which it's now calling League of Legends. And Brandon and Mark have lost both money and time trying to build out all the back-end infrastructure, an error so costly that it might just convince the VCs to shut everything down. Here's Brandon. So that conversation with our VCs was, you know, something that we absolutely thought was going to be the end of the company. And we would have completely understood if they said, hey, how can we trust you're so bad at forecasting this technology? How could we trust you that this second chance is going to work? I don't think we'd have a great answer to that.

You know, we're just going to be trusting a different set of people. And, you know, there was one VC in particular named Mitch who stood up and calmed everyone's nerves. He was the VC that had experience operating games. He had been a publishing executive activism for many, many years. And he said, listen, I've never seen a game ship without a slip, you know, usually a major slip. This was in my model. and we all need to take a deep breath here. We have to validate this plan going forward,

and I'm going to bring one of my former colleagues to come take an outside look and vet your plan, and if we feel comfortable with that, we're going to keep moving forward. And we do think necessities and mother of all invention and constraints drive a lot of creativity. And because everybody knew we had this fixed amount of runway, it was sort of a do-or-die moment for the company.

Yeah, and from what I understand, I mean, you kind of had to rush it, right? I mean, in order to make your deadline to launch this thing in the fall of 2009. And by the way, why the rush? I mean, why did you feel like you had to launch it by the fall of 2009? I think it was just that's when the plan was forecast and we were going to run out of resources. You were going to run out of money, yeah. So that's because our venture raise, our first series A financing was actually tranched.

So we got three and a half of. of the $7 million. And in order to unlock the second $3.5 million, we needed to successfully run a beta test with a thousand concurrent players. Because that, in the negotiation of the VCs, that was the mutually agreed milestone that like, okay, we're on track if we do that. So then we actually had six months of cash left in order to build a platform capable of running a beta test with a thousand simultaneous players.

And the game was behind schedule two. So things were hectic. So you must have been under intense pressure. I mean, were you guys super stressed out for that six-month period? Absolutely. Like the whole team, you know, we were very transparent with the team in terms of how, like, what the situation was, how many resources we had. And one of the solutions that the team came up with was we ended up hiring 1,100 people in the Philippines to go play the game. because we knew that if Western audiences

participated in a beta with a game of this quality at this point in time, even if there was an NDA, it could really risk the brand positioning. People were like, wow, this game sucks. Because it just wasn't good enough. The content, it wasn't mature, there was really buggy,

we didn't have enough of the systems to sort of make it feel sufficiently fun. Right. By doing it in the Philippines, it was sort of a stealth way to test it out, right? Yeah, exactly. And actually, a lot of Filipino players, were familiar with the rough gameplay, and they had the sort of the PC cafe infrastructure,

which was sort of a good way to manage the test. And I think when we were able to run a successful beta test, we had less than a month of cash left. And we were doing it at like one in the morning and everybody was in the office and we were logging on all the PCs. We had the office also. And we have a video of it. But it was this incredibly exciting moment once we, you know, the numbers ticked just

above a thousand, we all cheered. And then the VCs were aligned with us where, you know, they were hoping that we would achieve that because, you know, they wanted to see if this thing would be able to go. And so that then gave us the next tranche of financing, which led us to continue to move forward. All right. I guess you were planning to officially launch League of Legends on October 27, 2009. You were going to be the publisher and the developer of the game in North America and are going to work with partners in Europe and in Asia. So let's just talk about that launch because the way you were going to make money, the value proposition to your investors was people would play the game.

They'd like it so much. They'd become so into it that they'd want to buy different characters and different features and so on. But you didn't develop the online store, like the way that people could actually send you money. Once again, you decide to outsource that, which from what I gather, was like a total catastrophe. Yeah, that's right. So we were weeks away from launch. I think it was four or five weeks away from launch

when we come to the realization, and we were concerned about this for a while, but we come to the realization that the third, you know, that the partner who we had selected to provide the payment solution, that their tech, which hadn't really been tested in a wild in a big game, might not stand up to the challenge of scale.

And it was a bit of deja vu from somewhat we went through on the back end. And sure enough, we just get to a point, again, where this is not going to be salvageable. The faster path than fixing this is to literally build something new, bare bones, purpose built from scratch that will be able to be sort of a minimally functional store that can process payments and transactions. And this is like a few weeks before you launch. I'm just curious, was there like, is there somebody at Riot Games at that point where you're like, hey, can you build a store in two weeks? Did you have that person? We had much, much better engineers this time around because of the experience with the back end failing previously.

And because we had to build a team now and hire a team as fast as possible from scratch that could build the entirety of the back end, we had some really great experienced engineers. years and they, you know, they're the ones that sort of diagnosed this problem and had sort of the suspicion that this may, may not land. It was worse than everyone expected. And then, you know, they just leapt into action. And we were just spending, you know, almost 100% of our energy trying to solve this wall. At the same time, making sure that our game was actually ironing out all the bugs and the last remaining features for a fixed launch date. And we shouldn't have necessarily had a fixed launch date at this point, given all the risks. But we sort of naive. So there's another thread here, which is we had a box. So we ended up having a box on shelves. Oh, you could,

you could go to a best buy. You could go to a store and buy the game. Yeah. So we ended up deciding to sell a box because interestingly, as we got closer and closer launch, the game's media wasn't going to pay attention to us. In fact, we didn't exist. if we did not have a box. If you were a game that didn't have a physical box, you weren't a game. And so we partnered with a traditional publisher, THQ, to create a box. What would be in a box? We had to figure out what that would be.

It ended up being a bundle of the same digital content that you could, you know, that you would theoretically build a buy in the game. And the irony of it is we did end up getting reviews. And one in particular, we got a 60 out of 100. from like a premiere game review site, along with the icon of burning money. Like literally like money on fire, which symbolized awful value. And the reason it was an awful value was why would I buy this box relative to the game being free if I download it?

So it wasn't really evaluating the game as a whole, but it was evaluating this box specifically. So it kind of wound up biting us. Yeah. And it wasn't just awareness. It was also credibility. And that's because there was a lot of stigma where any free game that existed in the West of the time was generally like a really low production value sort of like mini game. And so we really thought it was critical to have the main gaming review sites like PC gamer play the game and say this is a real game in order for players to take us sufficiently seriously to even be willing to try it. All right.

So you finally hit this date. October 27, 2009. That's the launch date. And how to go? Well, I guess it's also, it's worth mentioning, we didn't finish the store in time. Oh, okay. So we had to figure out what to do,

you know, at the last minute knowing we would not have a store, and so we arrived on this concept of a launch party. Everything in the game is going to start off just being free. And there would be no store. And so that was that was kind of where we landed. And, you know, that would be for some period of time until we could actually finish the store. And one thing that was worth mentioning to this period of time, too, is my wedding was scheduled on the first week of November. That's because originally when we had set the date like a year and a half previously, we're like, there's no way we're going to slip the game this far.

And so it was just so many things kind of going wrong all at the moment. And, you know, we did this brief destination wedding. And, you know, obviously the whole time we're sort of freaking out based on where things were. And it just, it just, yeah, I remember the game was now live. Then we had to go to the wedding. And we didn't get the store on until, you know, for another three weeks post-launch. So here's the amazing thing. It's 2009.

You are more than three years into this business. And you have earned a project. approximately zero dollars at this point. Was any part of you, because you guys seem like pretty self-aware guys, Brandon, was any part of you, like, worried that if this didn't work, you're three years into this now, that all of that would just go down the drain? Or did you think, okay, we're good, we're good to go. We're going to launch this thing. It's going to work. Everyone's going to make money out of this. Yeah. So there was even a second round of venture, I think, for $8 million. And there was some venture debt, like on top of it for a,

a total, I think over 20 million. That was an immense responsibility coupled with just the hopes and dreams of the whole team that have been on this journey with us. Yeah. So I worried about it every single day and every single night. And we had to be good at figuring out how to manage our own psychology through the journey. And for me, a lot of that was just was leaning on Mark. There were just tons of times where Mark would just lift me out of a dark place because I'd be staring ahead and it felt like I was staring into an abyss of like how do we get out of how do we get to the next milestone how is it even possible and um you know and and and going into launch was was no different we there was nothing about our lead up to launch that should have given us a ton of confidence

that we were going to be a success and we launched the game and we weren't an overnight success we had a reasonable amount of players hop into the game and so the game was working the technology was working, no transactions were happening, we're running out of money. And the next week, you know, a few more players. Right. And the next week, a few more. Right. And only when you zoom out over a long period of time does that start to look kind of like the hockey stick that it was. And the reason was because players stayed. And as the word got out, more and more people started to join. Because it was multiplayer, people wanted to go bring their friends to play it with them. and then their friends would help people get over that learning curve.

And so once we turned on the store and we started making some, you know, some transactions, and we were like, wow, like, okay, our burn rate, which was the highest burn rate of any company in any of our VC's portfolio, started to trend down, you know, a little bit just month over month. And then it's like, wow, maybe we'll break even. Maybe we're not going to run out of money. Maybe this can be something sustainable. And how did you create awareness around the game? Was it by putting those boxes out and then just waiting for?

for magazines and bloggers to review it? Or like with a consumer package goods, you'd hire a PR firm, right? And you'd start to take advertisements out. Like how did you develop awareness? We did do PR because so we tried to get as many interviews and game reviews as possible because that's sort of, you know, free awareness. But what we really focused on was credibility from a positioning standpoint to our audience and then trying to create incentives for them to help.

help bring in other people. So we created a friend referral program as an example. And, you know, where as people with their accounts would bring in other people and have a code that would give credit to the person who referred them, you know, they could unlock additional content or get sort of a scaling amount of rewards or things like that. And then, you know, YouTube was starting to grow at the time. This was, you know, 2010. And so we created a YouTube channel and we created a show called Summoners Showcase because players of League of Legends were called Summoners. And then we started getting millions of views of this show because people wanted to get their stuff highlighted.

And it just felt like this organic, positive community that people wanted to come be part of. And the idea was, unlike most games where you would just buy the next version every year, Madden comes out every year, you get a new version of it, right? You would constantly be sending out updates called patches, right? That's what you would do. So the existing game would just constantly improve and get better,

That's right. So one of the focuses of the development effort was to first of all make our characters, which is the thing that the players would play in any given session. They had to be really cool. Really great theme, really fun to play. Another key success factor was matchmaking, the ability to align players of relative skill. Because sharks playing against sharks is really fun. Minnows playing against minnows is also really fun. Sharks and minnows, not so fun because the sharks is eat the minnows. It's not great for anybody. But then another was the ability to update the game rapidly. We would have this feedback loop with the community on message boards about here's all the changes they're making the game, here's why, and players felt that they were being heard that, hey, this thing's unbalanced, or we don't like this, or we want to see more of this, and they would see rapid progress, which helped build trust that the game is getting better. And now everyone's used to updates. You've an iPhone, your apps are automatic, if you have it set that way, they're just automatically updated every week or so, and we don't even notice. But in 2010, this was like a really new thing, right?

Like especially because you guys were doing like 20 updates a year. Right, right. I think this was like kind of unprecedented at the time. Especially at the rate. Yeah. And it was free. So after, I think, a year, a year after you launch League of Legends, this is incredible. Your revenue was like $17 million.

I mean, do you remember getting to the point where the two of the two of the ones? have you started to feel like this is going to work. This is actually really going to work. Definitely not in 2010. Because, you know, we were still, our platform was often unstable.

We had to add features. StarCraft 2 was coming out. This is going to be the sequel to the best PC game of all time, which was going to have a new map editor that birthed the genre that inspired League of Legends, and they were going to have a mechanism to enable for the creators of these mods to actually make money and sell them directly.

We were terrified of StarCraft 2. And so we actually timed our season one competitive update two weeks before they launched. And then subsequently both Valve Entertainment and Blizzard announced mobas, you know, direct competitors to come directly after us. And so we did not have a moment's rest. And anyway, there was just one thing after another. where it wasn't until late 2011 where we started to realize, okay, you know what, maybe this is actually going to be a thing. Meant, concurrently, you are also getting into this like nascent at that time, 2010, the nascent world of e-sports, which is now, of course, a multi-billion dollar industry. But at the time, it was still really, really new.

And you guys became kind of one of the big giants of e-sports. Yeah. And just at a curiosity, how do they work? Like, how does riot games make money from e-sports tournaments? because you give away a lot of money. Yeah, we didn't look at it as a revenue stream, especially early on. We looked at it as sort of a feature that would help drive engagement and just be a value-added experience for the community for just something cool to watch.

Right. And pros and teams to aspire for. And like this kind of fun path to pro where it's like, hey, if you're really good at the game, come sign up, see if you can win some money and get some fame and just have a blast. But it's at the end of season one when the viewership numbers come back that we realize, hey, this is way bigger. and this appeals to a way bigger part of our audience than we expected. Millions, over a million people had tuned in substantially,

and the whole audience had a great experience. And so for season two, we take a completely different lens. It's what's the next step? What's the dream? We now have a license to sort of fulfill the dream of e-sports, and can we be in an arena? Can we fill an arena? Would that make sense?

And so, season two, like preparing for the finals of season two was all about building the broadcast capabilities and the event capabilities to land that finals in an arena. In a physical arena, which is where these tournaments are, I mean, did you imagine in 2010 that there would be people who would make entire careers becoming professional e-sports gamers and become extremely wealthy doing this? there had been some precedent for that. So there was sort of an idea that this was possible,

but there wasn't a perfect example for like formal leagues and teams with infrastructure and stability and dedicated places to train and coaches and analysts and sports psychologists and all the infrastructure that now exists behind league. Right. And so we had to figure out a lot of things from scratch. Essentially to help invent this. this new thing. Yeah, well, and a lot of it was about trying to nurture an ecosystem where the team

really came together to try to focus on how do we make it easier to be a fan. That would then create the viewership, which could then create the advertising model or the interest for sponsors, which could then create the incentive for team owners to then take the risk of raising capital or going and buying good players, which would then create the, you know, the incentive for players to be able to tell mom, it's worth me dropping out of college or not taking this job to go. go be a full-time professional gamer because it's real now. I mean, there were all these different barriers to overcome, and so it had to happen incrementally.

I'm curious about an aspect of League of Legends, which is for some reason, and I'm not pulling this out of thin air, you know that this perception exists. There has been a perception of the past that League of Legends had a particularly toxic user base, that there was like a particular level of abuse among, them, let's say a significant cohort of players, and that this goes back to the early days of the game. And obviously, you didn't create the game for a bunch of toxic jerks to behave badly.

Anybody who creates something hopes that people will be behave and positive. But I'm just curious, Mark, why do you think that League of Legends attracted that kind of player? Well, I think that so while there are some players who get aggressive and are, you know, toxic and don't behave, it's really, it's a really diverse community. You know, so while there are some notable, you know, say, streamers or, you know, situations that have been controversial from a toxicity standpoint, there's also huge amounts of beauty and cosplay and fan art and friendship. and marriages. And I think that, you know, we made a mistake when we were investing in building out our player behavior team to try to nurture, you know, a really positive community and promote sportsmanship and train people how to be better online, where we moved from sort of a crowdsource self-policing model where the community would agree to sort of a code of conduct

to one where riot was sort of identifying what good or bad was and all this. And in a lot of ways, we then started creating headlines where we pat ourselves on the back for reducing toxicity. And then so the headlines or the stories really became bad toxic community gets incrementally better. And when you get really large and there's just a lot of, a lot more people in the ecosystem, you know, it's just really hard to solve for everything that every individual cohort is looking for simultaneously. And if you're a truly toxic player and consistently toxic, you're going to get banned from the game in relatively short order because of, you know, a bunch of the systems that are in place to allow players to report each other and to try to

really remove, you know, frequent toxic behavior from the game. But the challenge you run into is when the average player is put, this is a very stressful environment. So when you're just a normal person, you've had a rough day, you're in a five-on-five competitive game. Four other team members are depending on you or you're depending on them. And, someone has a view that you made a misplay or you have a view that they made a misplay. And you're prone to sort of blurting it out. And now you've hurt someone's feelings. And now the two of you are getting into an argument.

It's awful. And it's those moments that you really, if, you know, you're in a constant, constant effort to try to educate, raise empathy, raise self-awareness around. I think it was in 2011. That year you hit like $85 million. in revenue. And you sold Riot Games to Tencent to the Chinese gaming company and internet company. And I think they reportedly bought most of it for like $400 million, which is an incredible amount of money. And then a few years later, they bought out the remainder of the

company. At the time when they came to you with that money, I'm sure it was just an astounding amount of money. Was your decision to make that deal motivated primarily by just trying to make good to your investors to just give them return and then take that pressure off? I think there's a variety of their variety of factors. I think one was you sort of know that as a venture-backed company, you sort of know that at some point or another, you're going to have to be positioned for for a sale or a merger of some kind or go public. And there's, you know, Tencent had built a relationship with us over many years. Was it, as far as your concern, was it like a no-brainer?

When they came to you with that offer, it was like, of course we're going to do this deal. Brandon and I didn't control the company at the time. Right. Because we had to raise so much capital prior to launch that we gave up a majority of the equity. And our perspective was it's better to have a smaller piece of something it works than a big piece of something it doesn't. And 10 cents perspective was like, why are you guys selling? Like we actually think that this company is just getting started. And so part of their pitch was we don't want to run it for you guys. We want to empower you to keep running it. And so we were lucky in some ways that, you know, the deal was able to come together in that way.

So they essentially said, we'll pay $400 million, but we just want you to keep going and and we'll keep the investors happy. By the way, just for other entrepreneurs listening to this, you know, a lot of people, a lot of people in the show have said, you know, should never go for VC money, or you always have to protect your equity stake, or you never want to let, you know, your investors own more than 50% of the business.

But it seems like you guys pretty quickly realized that you didn't care, or maybe you did it or no, but that it was better for you to have a small piece of a bigger company than a big piece of a smaller company. Is that advice that you give to other entrepreneurs that don't worry so much about your equity stake? I think part of it was we were young 20-somethings raising a substantial amount of other people's capital

to essentially build our dream game. And so we felt so grateful to have that opportunity and almost such impostors to be able to have that opportunity that we wanted the investors to have certain controls. Like, we felt better about it if they had the right risk reward equation, because from our perspective, this was still a crazy bet. I think in terms of advising other entrepreneurs, I think it's really case by case.

I think if you partner with the right investors and you can confirm that they're aligned with the vision for all the right reasons, that that can be a really effective and important partnership. And we tended to be pretty trusting on that angle and it worked. And so then I think we got more aggressive around continuing to reinvest in the business. Reinvest in starting more games. Reinvest in adding features. Reinvest in expanding all the world and building offices.

Double down on, you know, really investing in e-sports to try to grow it. But in 100% of our growth since that 2011 transaction is organic. Right. Like, Riot's never taken on or capitalized the business at all. It's, you know, so like it's been a sort of since that period of time. time, a very profitable, you know, business, but we've now scaled to, you know, over about 3,000 employees around the world. About three years ago, you both stepped away from the day-to-day management of the company,

so you could focus on the thing that you really love to do, which is to make games. But, I mean, at this point, do you, I mean, do you see your future with riot games? I mean, I mean, this is a company you started, right? But can you imagine, you know, at some point moving on and starting something different or new? You end up building something for so long and you invest so much. And I don't feel like it's done. I feel like there's so much more to do. And, you know, we're still early innings.

Yeah. Like part of the reason Brandon and I stepped down was because we needed to also make it sustainable. Like we were exhausted from running this place from, you know, with so many crises every step of the way. And when we're, as the company really grew and continued to scale over and over and over, and the surface area got larger, it sort of shifted into governance mode where we're sort of an inch deep and a mile wide. And the balance of energy draining activities versus energizing activities really got out of whack for a long period of time. And so we feel it, we feel tremendously fortunate to be able to elevate a team of great leaders to now manage the data operations.

And I don't know when we're going to not want to do that anymore. But I know that it's hard to sit on the sidelines when they're struggling and trying and to figure these things out that are just really, really hard. And so that's why we like to be able to be helpful. And about a year after you step down, an article came out in a gaming magazine that was pretty scathing. I'm sure you read it that reported a bunch of incidents of sexism at Riot Games. and it alleged there was like a toxic bro culture and that it was like a fraternity and the women quoting the article that they weren't treated fairly. And then there was a class action suit that was filed later that year.

I know that the company has tried to address this. Like you've made some hires and you're trying to work through this. And I know there are things you probably can't talk about because they're lawsuits. But I just I want to dive into this for a moment because. For people who are listening to this who are not gamers, there is a perception that the world of gaming is misogynistic and broish. Tell me about how those allegations make you guys feel as the founders of this company. I mean, I can't imagine you're proud of those allegations. Yeah.

Yeah, when the article first came out, I mean, to be honest, it was sort of devastating, right? Because a decent chunk of the company, you know, we're like, ah, is this true? Are our leaders, these horrible people? Like, what? How could we, we've been born our heart and souls in this place. We're supposed to be the good guys. This is an amazing, this supposed to be, you know, one of the best places to work in gaming. Ah, what is going on?

And where are you? You know, because Brandon and I, we didn't even get up in front of the company when this made it happen until, you know, about a week later. because we also weren't running the company. You know, at the time, you know, and once we got up and actually on stage and, you know, started to speak to all rioters, right? Like, you know, we broke down and started crying and, you know, apologized for, you know, for anybody that felt that this incredible riot experience and mission we were trying to be on. And it was just, it was devastating because we always tried to be an incredible place to work. And to think that some people perceive that that wasn't the case, it did really hurt because that's definitely not intended.

And so, you know, we've done everything we possibly could to bring everybody together. And we brought in our first chief diversity officer. are in, you know, I think the company did a lot of soul searching. And I also think we've learned that, you know, perfect inclusion is sort of something that's, we're never going to achieve. And, you know, but that's okay. That is actually the, like, elevating it as a priority is what's super important and involving everybody in the conversation about what can we do better.

And, but yeah, it's, it really, it still hurts. This year has been a. challenging year for everybody, but for certain industries, it's worked out well, let's say the from, from an economic standpoint, like if you're Netflix, it's worked out pretty well. And if your Slack and Zoom, and gaming companies have done well, and this year you introduced a new game, Valorant. Have you noticed in the COVID era, just like a pretty significant surge in in people playing longer or more people joining the games and, and, you know, and, you know, and playing the games.

Like, have you seen those kinds of trends in your company? So, yeah, so we are fortunate relative to, I think, many industries in that, you know, when people aren't able to go outside or do a lot of things that they would normally do, a lot of people choose to spend some more of that time playing games. And so, you know, we do benefit. That being said, it is also very difficult, you know, to shift to a remote work model because we're such a collaborative organization where teams work so iteratively and so close together. And so we've really had to evolve this whole work from home model where about 99% of our staff around the world are working from home.

And it's been incredibly exciting to see rioters find ways to continue to support our games or add content or even launch new games all around the world while doing it all remotely. That's incredibly cool. And then because the business is up, also, you know, we've been trying to figure out, well, what else can we do to help? And so the company's been trying to donate money to help frontline workers and get masks allocated. And, you know, I think we've donated several million dollars, you know, just around COVID relief and support, you know, in different parts of the world. And so I think from a lot of perspectives, we're just proud of how rioters have responded because we know that this is just a really tough time. I think the game over the course of its lifetime now has generated like more than $20 billion in retrospect. of you. Is that,

is that sound right to you? Yeah. Yes. Which is just unbelievable to me. I mean, it's just incredible that so many people play it and buy features and skins and things like that. And it's still, I think, one of the most widely played PC games. Could either of you have imagined that that was going to happen?

I mean, Mark, when you put this out there, did you think 10 years later, you could say, yep, this is going to be the most widely played PC game of all time. Never in a million years. Our first financial model that we built assumed that we would hit 20,000, or like our basic scenario was 20,000 simultaneous players. And if we did that, we hoped we could break even and have a business. And still magical when we actually get back to be able to go back to the office because of COVID, to walk into campus and to see art and to see,

see community faces on the walls and see how lively the community is and see esports matches. Like it's just, it's super exciting. Honestly, if you suggested that, I would have vigorously debated you. So not only would I have not believed it, but I would have said it's impossible because the, you know, we were, we were building something that wasn't trying to be and really had no chance of being something for everyone. It was going to be specifically catering to a very competitive. experience. And it was going to be hard to learn. It was going to require hundreds of hours of

investment to sort of, you know, get really good at the game. So, no, I mean, it, it almost seemed impossible. When you guys think about everything that happened, you know, you met in college or right before college, and then you became good friends and had this idea to make a game and became a publisher and then made the game that became the biggest PC game of all time. And then it made both of you guys pretty much financially set. for life and beyond. How much of that do you attribute to your work and the work you put into it and how much do you think is just because you got lucky? You know, I think we definitely got lucky. Like, we were in the right place at the right time. And if one of many, many, many different

variables just went slightly differently, there would have been a totally different outcome. Like if the board pulled the plug in 2008 after, you know, we failed on the platform, that wouldn't happen at all. And we're the exact same people who love games and are driven by the same things. And obviously we've learned a lot and had a lot of experiences. But, you know, it's a team effort. There are so many things that need to go right. And there's so many great people that need to collaborate or have it come together

to achieve these types of things. It's just really, really hard to do. And so the probability is incredibly low. And so I think we feel tremendously fortunate in order to, you know, have the result that we've that. Brandon? I would echo that, you know, I think there's been a tremendous amount of luck. And the only reaction I have is is gratitude because, you know, every day that we walk on campus, like, you know, you walk into this giant studio that is making the games that we love, the way we always wished they would be made. I mean, it's just we are literally living the

dream. And we feel like, you know, I, at least I, I, I, I personally feel like a complete imposter. Every time I'm there, it's just sort of pinching myself. How did this happen? And, you know, so I just, I count those blessings and I'm grateful for all the look. That's Brandon Beck and Mark Merrill, co-founders of Riot Games. By the way, 10 cents 2011 purchase of Riot Games for $400 million was actually an incredible bargain. League of Legends alone has earned the company nearly $10 billion since then.

Oh, and one more thing. If you're interested in hearing Mark and Brandon's thoughts on screen time for kids, whether massive multiplayer games are really the new Campfire Circle and why I ban all screen use on Saturdays, check out a bonus extra episode we're dropping on your podcast queue this week. Thanks so much for listening to the show this week. You can subscribe wherever you get. your podcast. You can also write to us at

HibT at npr.org. If you want to follow us on Twitter, we're at How I Built This or at Guy Raz. And on Instagram, it's at guy dot Raz. This episode was produced by James Delahousie with music composed by Rumpine Arablui. Thanks also to Liz Metzger,

Dareth Gales, J.C. Howard, Julia Carney, Neva Grant, and Jeff Rogers. Our intern is Farah Safari. I'm Guy Raz, and you've been listening to How I Built This. This is NPR.