Invest Like the Best with Patrick O'Shaughnessy - Gabriel Leydon - Designing Digital Economies - [Invest Like the Best, EP. 229]

Episode Date: June 8, 2021

My guest is Gabe Leydon, who is the co-founder and former CEO of MZ, also known as Machine Zone, the company behind huge games such as Mobile Strike and Game of War. Gabe has spent the last 20 years designing video games and is one of the most original thinkers I have talked to in a long time. In our conversation, we cover why great design can be a bad sign that we’d run out of ways to innovate, the most important lessons from human psychology for building games and products, and why products which are busted or breaking but still booming can be great investment opportunities. This conversation rewired my brain on many levels, so I’m excited for you to listen. Take the red pill with us, and please enjoy my conversation with Gabe Leydon.   For the full show notes, transcript, and links to the best content to learn more, check out the episode page here. ------ This episode is brought to you by Tegus. Tegus has built the most extensive primary information platform available for investors.   With Tegus, you can learn everything you’d want to know about a company in an on-demand digital platform. Investors share their expert calls, allowing others to instantly access more than 10,000 calls on Affirm, Teladoc, Roblox, or almost any company of interest. All you have to do is log in. Visit tegus.co/patrick to learn more. ------ This episode is brought to you by Paxos. Paxos offers your customers crypto buying, selling, transferring, and more with easy to integrate APIs. Whether you’re a small fintech or a large financial institution, Paxos takes care of everything in the backend – from licensing and compliance to custody and exchange. You can start offering crypto to your customers within months. To learn more, visit paxos.com/patrick. ------ Invest Like the Best is a property of Colossus, Inc. For more episodes of Invest Like the Best, visit joincolossus.com/episodes.    Stay up to date on all our podcasts by signing up to Colossus Weekly, our quick dive every Sunday highlighting the top business and investing concepts from our podcasts and the best of what we read that week. Sign up here.   Follow us on Twitter: @patrick_oshag | @JoinColossus   Show Notes [00:03:59] - [First question] - Thoughts on the importance of design and the role it plays in capitalism writ large [00:07:26] - Huxley’s vision of the future versus Orwell’s - Amusing Ourselves to Death [00:10:49] - A question about game design in interviews that no one can answer well [00:18:27] - What about his early experiences that allowed him to be good at answering that question when others could not [00:26:35] - Another example to further explain the nature of meta software design mechanics [00:29:44] - Characteristics of what drives players to spend money in games [00:34:46] - Defining heroic spending and the group dynamics of spending gamification [00:38:18] - Skill set required to design an economy and what makes it so difficult [00:41:27] - Cosmetic purchases as a revenue stream in North American video games [00:43:56] - What he’s learned about human psychology through his design work [00:45:48] - How the technological infrastructure developed in building video games overlap in performance marketing [00:48:44] - His experience with the RT platform and some of the technologies he’s built [00:55:49] - Celebrity NFTs and a shift to becoming virtual manufacturers in the future [00:59:58] - What businesses can do now to prepare for and adapt to NFTs [01:01:03] - Why we need AI more than think we might [01:04:32] - What he plans to do with his skillset if the world becomes increasingly gamified [01:05:40] - Companies with poor design may be indicative of an attractive acquisition [01:08:11] - How differing cultural perspectives on video game design permeate into NFTs [01:08:46] - Defining the Chinese item box approach to in-game player rewards [01:11:24] - The kindest thing that anyone has ever done for him

This episode of Invest Like the Best is brought to you by Teegas. I started hearing about Teegas when several of my close professional investor friends sent me passages or ideas they'd found on the Teagas platform. Conducting effective primary research shouldn't take weeks. It should take hours. Searching for answers shouldn't be lengthy, cumbersome process. It should be easy and nearly immediate. Expert calls should not cost $1,000. Teaguez solves these problems and makes primary research faster and better for professional investors. Tecis has built the most extensive primary information platform available for all investors. With TIGAS, you can learn everything you'd want to know about a company in an on-demand digital platform. Investors share their expert calls, allowing others to

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I have personally interviewed Paxos's CEO Chad Kaskarilla on this podcast before, and I'm excited about how they're changing the crypto landscape. Whether you're a small fintech or a large financial institution, with Paxos crypto brokerage, you can offer your customers crypto buying, selling, transferring, and more, all with Paxos's easy to integrate APIs. Paxos takes care of everything in the back end from licensing and compliance to custody and exchange. You can start offering crypto to your customers within months. I've gotten to know Paxos over the years and have been personally impressed with their track record. With clients that include PayPal, Venmo, Revolute, and Bank of America, they're the most trusted infrastructure provider for crypto and blockchain. I'm excited that more fintechs and banks are starting to offer crypto features, and Paxos crypto brokerage is the best way to get to market

quickly and safely. To learn more, visit Paxos.com forward slash Patrick. That's Paxos.com forward slash Patrick. Hello and welcome, everyone. I'm Patrick O'Shaughnessy and this is Invest Like the Best. This show is an open-ended exploration of markets, ideas, stories, and strategies that will help you better invest both your time and your money. Invest Like the Best is part of the Colossus family of podcasts, and you can access all our podcasts, including edited transcripts, show notes, and other resources to keep learning

at join colossus.com. Patrick O'Shaughnessy is the CEO of O'Shaunacy Ashtonnessy Asset Manage. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of O'Shaun's asset management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of O'Shaunicee Asset Management may maintain positions and the securities discussed in this podcast. Today's conversation is one of my favorites in a long time. My guest is Gabe Layden, who was the co-founder and CEO of MZ, also known as Machine Zone, the company behind huge games such as Mobile Strike and Game of War. Gabe has spent the last 20 years designing

video games and is one of the most original thinkers I have talked to in a long time. In our conversation, we cover why great design can be a bad sign that we've run out of ways to innovate, the most important lessons from human psychology for building games and products, and why products which are busted or breaking, but still booming, can be great investment opportunities. This conversation rewired my brain on many levels, so I'm excited for you to listen. Take the red pill with us and please enjoy my conversation with Gabe later. We're going to red pill the audience here. No, we're not. My whole goal with this interview is to get you to dole out as many red pills as you can.

I know you're going to restrain yourself, but we'll do our best. First red pill of the discussion is around the topic of design. There's a huge emphasis on design right now. And I think you've got an interesting take on what an emphasis on design means about where we are in like capitalism. What are your thoughts on the importance of design or what it might mean? I kind of see this push for, you see a lot of people, they're making like productivity apps and they're claiming it's a game now, right? I kind of see things going in this sort of pattern where when things are innovative, nobody really cares what they look like.

If I made up a teleport machine and it was the size of an arena and it was covered in slime and smelled really bad or something. I don't think anybody would care. There would be like a line around the block. Everybody would just jump in and they would think it's the greatest thing ever. But over time, we kind of would make it smaller. And then the artistes would come in

and try to make it look nicer and feel better. And once you kind of get to the design phase, Silicon Valley's been in for about 10 years. There's only so much you can do to kind of make something look better. If you remember like five years ago, everybody was talking about delighting their users, right? Delighting was just like we don't have any more ideas. So we're just going to feel a little bit better because we're out of ideas.

So now we're going to just delight you. And the game design stuff is we don't know how to make this look better. So now we're just going to tap into your human condition biology and psychology to make our products better. Because we don't know how to make them more innovative. We don't know how to make them better looking. But we can add levels. and achievements. How that like kind of presents itself is all of a sudden you're getting like achievements for like buying erectile dysfunction pills from hymns.

You buy like extra orders of monoxidil to like max out your hymns account. It's sort of what we're seeing and it's funny too because that's all I've been doing for 20 years. It's like that kind of stuff. And while I was doing it, I just thought I was kind of wasting my time working on video games. I thought you have like Google's being built around you and Facebook and all the stuff. And here you are, you know, making video games. And you just feel like the losers of technology. The losers make video games. And it's kind of true in a lot of ways. But recently it's kind of like everything's turning my way. Like everything's becoming, you see this kind of talk about everything becoming a video game. And it's pretty bizarre to me because it even caught me by surprise. 20 years feeling like

you're kind of wasting your time. And then all of a sudden feeling, like, hey, am I really good at the world's most important skill all of a sudden? Like, it's very interesting, but I actually kind of see it as a bad sign. We're basically kind of running out of new ideas. The economy is just becoming more and more psychological. And it's less about innovation and more about understanding your condition as a person and then building a product around biological and psychological reflexes rather than teleprone. machine that can move you around the world. So I think you're seeing more and more of that.

It reminds me of that, you know, Postman book, Amusing Ourselves to Death, that Huxley's version of the future was more accurate than Orwell's. I think it's because when people think about capitalism, they think about the early 1900s. They think about cars and radios and TVs and microwaves, and it almost never ends. And I think it kind of peaks in the 60s and the 70s with all that futurism, the futuristic art, flying cars and skyscrapers. And that's the same time we go off the gold standard. And there was like this infinite optimism around money printing and innovation, basically. And we could just print as much as we want because we're going to be immortal space beings zapping around the galaxy. So who cares? That didn't happen. So when the innovation growth

didn't really max the expectation. It's just like things just start getting like design. They start moving towards a design phase and then eventually a gamification phase, like kind of what you're seeing in the financial markets and software and pretty much everything. I'm not like a big person on late stage capitalism. Like capitalism is just human condition. What does that even mean? I think it's more like we just don't know what to do anymore.

So we're just going to add levels to the stuff that we already know how to do. do. And there's a lot of margin in it, too. So it's like a big gravity well, where it's like, well, we can just take the existing stuff and add achievements to it and we'll sell more pills. There's also another part of it in the Silicon Valley where you're a VC. So if anybody ever tried to pitch you a video game, do you understand it at all? No. Right. When you pitch video games, like the first slide in your deck should be why you're not like Zinga. Because it's all anybody's going to ask you is like, you know, Zing is doing great now. But, you know, for a decade, if you're making a video game company, you might as well

just spend the first 30 minutes talking about why you're not like Zenga because that's all these guys know about. And the financiers, the financial guys, they're jealous of the retention. They're jealous of the engagement. They like the monetization, but they don't like video games. But it's also like really mysterious to them. They have no idea what it is. So when you go in and pitch a video game, it's really kind of, it just becomes a funnel.

analysis conversation. What does your installs cost? What's your retention? Like, that's it. That's all they really care about. And then you have to convince them that you can keep doing that. God forbid if you're a fintech company, because oh my, these people know everything about it. If you go in there and you pitch like a fintech company, like anybody who gets funded in a fintech company is a genius. They're all like super gene. They know absolutely everything because they can be vetted like from here to the moon. But there's also like these people kind of in the middle that are building a lot of like products that add gamification because the VCs and those they actually don't understand it at all. So it adds like this level of mystique to your

product that the VC can't quantify, but they like. So you see this kind of like big push towards that because it makes them seem kind of like cool or interesting in a way that they can't comprehend. And then they kind of hope you end up being like the fortnight of email apps. You know, it's like, it's like crazy idea in your head, like, in their head, like, that's what it's going to happen. And of course, it doesn't happen that way, but it is kind of like this confusing, in my opinion, purposely confusing way to describe their productivity app. So if game design becomes super important, you've mentioned to me before this question

used to ask people you might hire to be game designers. So maybe you could tell us what the question is and why the answer is all sucked. Why did nobody ever have a good answer to that question? When people talk about game design and apps, nobody's talking about a gigantic bat that is like blocking your inbox. And you need to find like this legendary pink beanie with cat ears on it to like max out your shriek level to destroy the bat to get your email. Like nobody's talking about that. Like that's not what they mean. What they mean are these kind of features that create predictable outcomes.

They don't really mean video games. games. So I think that's important to recognize because there is a difference. There's a big difference between the art of a video game or the sound design of a video game or exploration or whatever and what Silicon Valley talks about is gamification. These aren't the same things. So when you're making a game, especially gosh, my question is really related to free to play. This weird combination of Silicon Valley funnel metrics and video game design and marketing and a bunch of other things. The purpose of this question is not to actually like get an answer necessarily, but to expose your bias because free to play is a business and it's tough because you're giving away a game

for free. You know, most people don't pay and you have to somehow make money in that scenario. So what I would ask everybody, and it's not necessarily literal, it's more of just exploration, is design a feature that costs a million dollars to complete. And the responses that you get from that question, I mean, if you just think about it, like I almost want like a long pause in the podcast, just like let everybody just try to answer that. Just pause and think about it. Yeah, just pause and think about it because you're going to find yourself stuttering, stammering. You'll end up coming up with like God mode.

You'll say, well, just give them something that makes them, like God, basically. You'll end up coming up with something like that or a rare item. Like, there's only one of them, right? That's what I did. But I asked for a feature, you know, not an item. So they kind of take the easy way out. The follow-up question is design a car that costs a million dollars, which is very easy. And the reason that is is because you like cars and you hate video games. That's a really important thing that I'll kind of recognize about yourself. Just in general, just in designing products, it's very easy to design. design a million dollar car in your mind because I love cars and a million dollars for a car

makes sense to me in some ways. But if I change the question to design a game feature that costs $10, all of a sudden it's very easy. It kind of exposes like the root of the thinking of the person around like their own limitations on what they think a game should be, which honestly, it's a great question just in general because you can really find out like someone's biases. And if you're hiring a game designer, the game designer is essentially CEO, the company I don't care what anybody says. You can be the CEO. You got a game designer or a video game company.

That's the CEO. They tell the artists what to do. They tell the engineers what to do. They tell everybody what to do. And if they're in their head, they're going, oh, I don't really like spending money on video games. That's going to be a big problem, right? That's going to be a problem. So it's not that games are all about money, but if they're free, there's an aspect of it that is.

you need creative people who can handle like really tough problems and not necessarily around amounts of money spent or whatever, but just in general, because you have to balance two different things in your head between the player and the business. I feel really fortunate because I have been in games for a long time, but I spent the first seven years of my career in the arcade business, which at the time was a complete waste of time.

Once I couldn't get any more jobs making arcade games, you know, nobody would hire me, My resume was a joke. I'd only worked on my coin-op games. But in that business, I was a kid. I was 19 years old testing Atari Midway. It was still the real Atari in Miletus, California. Ed Log was still there, the guy who made asteroids.

One of my best friends, Aaron Hightower is there, one of the early guys on like pilot wings. Pretty much the people that invented software, modern software. And I was 19. And I didn't really realize who I was working with. I mean, it's like the same place like Steve Jobs for. job was that I was in there as a tester, like a typical gamer, just complaining about how the game sucks and it should be better or whatever. It got really bad. I was tested for San Francisco Rush 2049, which is like the hardest, probably, well, the second most difficult driving game

of all time. Like the game is really hard, except the sequel, 2049, was easier than San Francisco Rush. And I was so upset because I was really, really good at the first one. And I wanted the second one to be even harder because I spent thousands of hours getting good at it. And I'm in a room and they kept moving me around rooms because I kept complaining all the time. So before they laid me off, I ended up in a janitor's closet. But I was in one of the rooms after they moved me out of the office and I was in this room and Steve Ritchie was in a room and Steve was working on a game called California Speed, which was a competitor to the biggest, most successful arcade driving game of all time,

cruise in USA. And I was complaining about the Rush sequel. And he goes, Gabe, come over here. And get up. He goes, look at this. What do you think makes the most money in the arcade? I said, I don't know. And I kind of knew it wasn't going to be rushed just based on the question.

And he goes, and he shows me the list. And in the arcade business, you get earnings reports of all the games. So the arcades will collect the earning reports and they'll send them back to the kind of manufacturers to get an idea because these people buy these games as investments. And I had no idea. I was just playing video games. And our game games are investments.

They have a dual mandate. They have to make money for the investor in 90 days and they have to be fun. They have to get two and a half continues from every player who plays them, basically. That's a hell of a thing to do at the same time. Make an investment for somebody that has a small footprint. It's not too heavy. The parts, if they break, they're easy to replace. There's a lot of things that you have to do to make something for the investor.

And at the same time, it's got to be good enough for the players to keep putting money into it. Steve shows me, and the number one arcade game in the whole country is Cruising USA. Cruising USA is a driving game that if the gas pedal is broken on the machine, it just goes for you. If the steering wheel doesn't work, it doesn't matter, because the game is on rails anyway, and you always get third place. And here I am complaining about the hardest game of all time, basically, not being hard enough. And that was a big moment. I mean, God bless Steve Richie, because that was a big moment from where I realized,

I was like, whoa, this is actually a business. They're not just making this thing to be fun or cool for me. Like, they have to figure out this complex combination of games for investors and games for players. That setup for me as a 19-year-old kid really set me up for the rest of my career. I understand. I have a pretty deep understanding of having to do both things at the same time. So when you interview game designers, they all know how to add pets. They all know how to make levels or whatever.

They all know how to play Pokemon. They've all been playing Dungeons and Dragons for like thousands of years. They know how to do this stuff, but they don't know how to do the other side at all. And they actually hate it. So that's why I asked the question, because if you hate the business side of it, you're not going to be good at it. What is behind it that allowed you to be so good at this? So I think at its peak, the games that you built and that you designed, you were the CEO of the company, but I think you're also the lead game designer.

What was it from that early coin op experience or just some other experience that let you be good at that question that so many were bad at answering in the free-to-play context specifically? There's two ways that people go about it. Josh Buckley was recently on your show, and he mentioned something that I put together years ago around the qualities of a game. I love Josh, but he sort of mischaracterized as like flow and all this stuff. But reality is, he added a fourth piece, but it's really three. It's variable outcome, frequency, and sense of control.

these are three things that create addiction, not flow. The human brain is built to learn. The brain needs to learn, like it has to. It cannot be stuck in a state of learning. So what these three things do is when you have random outcome, variable outcome, you can't predict what's going to happen next. And then you have it happen frequently over and over and over and over and over again. And then you layer in what's called the game, which is sense of control,

Meaning that sense of control, it's not actual control because it's a variable outcome, sense of control. How these manifests itself is stuff like stop buttons on slot machines. Those don't do anything, but tell that to someone playing the slot machine. So if you put somebody in a highly variable, frequent, with hopefully a complex sense of control, some kind of interface between this variable outcome frequent thing that you've designed the brain actually just malfunctions. It doesn't know what to do. It gets trapped in a learning state and starts inventing ways out. So this is how you end up with a lucky rabbi's foot, because the brain is just so freaked out about not being able to figure out what's going on

and the reward of getting money out of a slot machine or whatever so big, it's going to start inventing patterns. It has to. It has no choice. That's like a style. You can see it too. I love telling poker players that the game is random. I love saying it's all luck. They lose their minds. And you can see the success of the sense of control. If you ever talk to a poker player, they've totally lost their mind. They actually see the whole world through poker playing. You always know a poker player because they'll sit down and talk about how all their decisions are based on the odds of this. It's total nonsense. The game has so thoroughly conquered them that they see the world that way. They have to invent solutions. You have to. Your brain has no choice.

it will invent solutions no matter what. So that's like a style, and like the kings of that, the things that work that way, the number one is the video poker, you know, the 100 hands video poker, the multi-line penny slots. These are like the ultimate manifestation of those. Poker is like a deeper sense of control where the sense of control is so deep that you feel in control, you know, so well designed. And that's like a style of game that I never really, that's kind of what Josh is talking about when you look at like Facebook and Twitter. And they have elements of this, but not really like purposefully in a way that multi-line slot machine does.

But then there's the other kind, which is the kind that I made. When I was a kid, I was like a complete loser. I did really bad in school. Basically didn't go to high school. got out of high school and started working at Golf Land, which is an arcade for like 3, 25 an hour. And this was like 1998-ish. I didn't have a PC. I never had a computer.

I'd never been on the internet, really, except for to check the weather at school, basically. You're kind of average loser, basically, like faceless, nameless loser that was going nowhere in life. Nopetus Golfland had a test run of this online racing game called San Francisco Rush, Alcatraz. I had access to infinite tokens. And this thing was doing like $500 a week tournaments on it. And I'd been good at video games my whole life. So I said, I'm going to get good at this because I can make money doing this. So I play the game like, I don't know.

She, I was playing the game like 10 hours a day, something like that. I got to the point where I was gripping the steering wheel so much. It's like still permanent. I still have it. It's that my pinky, if I make a fist, my pinky doesn't come back up. It's stuck down because it was just. permanent damage from playing this game. And I got so good at it that people wanted to be my friend.

I had people who drove up from L.A. just to meet me. I had like rivals and the North Bay up in Sosolito, like my enemies. And then there was these other guys. And like in Sunnyvale, they were like patrols of the game. And there was like this little community. And in my normal life, I was just literally falling asleep. on boxes of soda syrup in the back, like in the back of the arcade, because it was just like nobody there.

It was a school day or whatever and be raining outside. But when I went on the game, I was the world's best. And I finally had some kind of feeling of importance. And all I had to do is keep playing. So that's a pretty hard thing to turn off, especially when you're making $3.25 an hour. And I ended up spending thousands of dollars on that game that I could not afford. And I don't care. I would do it again in a heartbeat.

It didn't bother me at all. It was so much fun to be in the mix and something in life. There's a tournament coming and I can win it. And there's a lot of people trying. That was really important to me. So the games I made are for that. That's a different mindset. that Game of War and Mobile Strike, we made a lot of games.

We made a lot of top grossing games. I don't know, like 12. But they were all the same in a lot of ways. Those games were all purposefully very social and volatile and more about belonging to something and being in the mix of something than it was about spinning a wheel over and over and over again. So, I mean, that's a different aspect, though. And the addiction stuff works. You see it everywhere.

It works. To me, it's just kind of boring because it's easy. It's not that hard to do. It's hard to do the sense of control really, really well. Ultimately, it's pretty straightforward. But the social stuff is weirder. I'll give you an example. One of my favorite things that I designed in the game,

everybody would have clans. So there'd be clans. There'd be groups in the game. And people would join these groups of like 50 people. And they'd get like a little symbol and a name and all this stuff. everybody's clan had a comment wall. And if I was in another clan and I left a comment on your clan comment wall, it would be anonymous.

It would only be attributed to the clan that I was in, not the person. And the only way to figure out who left the comment was to kick the person who left the comment out of the clan. So what this did was is people would infiltrate clans, go start trouble. anonymously to get two clans to fight with each other. And the clan owner of the person who's been infiltrated is like having to purge his whole clan to try to figure out like who the hell was sabotaging him. And the players would be like, why are they anonymous? But it just created so much chaos. It sounds so simple, but it was like endless amounts of chaos, just endless. It would

trigger like years of conflict, entertainment in a way that a spinning wheel, with a stop button can't do. Does that make sense? It makes a lot of sense. You said some of these things are like not normal, but in some ways maybe they're more normal than anything. Well, it's not a normal way to think about things. Right. But it appeals to some like base or human instinct. It's like you sit down and you think, oh, you know, this page is loading too slow and where's the notification tab at? You know what I mean? Like that's normal way of thinking of software. This is like, diabolical software that is software that is engaging you in almost like a metaphysical way. And it's using the tools to access something that you're not in control over.

You didn't even know existed, really. And it's hard to, that little comment while thing, if somebody would give me that answer, I'd hire them in a heartbeat. That's not a trivial design, actually. that's actually as expert as they come. You don't encounter things like that in the wild very often because that was like purposely built to create as much chaos as possible. And it's actually, it took like a day to make.

It was like a machine. It just constantly created things that we would never be able to predict. And that was kind of what I was trying to do was set up a scenario where crazy things, weird things, funny things could happen and try to make them as interesting as possible and just let everybody fill in the blanks. Is there a second example of a mechanic like this that could drive home this key point that you designed or that you respected somebody else designed?

I'll give you an example. So like in the game you have a hero that you use to manage your empire. If your empire gets destroyed, the person who destroys your empire takes your hero from you. You don't have him anymore. And he goes to jail essentially. And the person who captures that goes into his prison.

And you actually can see it. Your hero's standing behind like prison bars. It looks really funny. But he's there for like seven days, basically. And then you get him back after seven days. Or if somebody destroys his city, all the heroes that are captured inside the city get released. So if I'm your friend and my hero gets destroyed, I'll call you and say, hey, help me, help me, help me, get my hero back. And then you can get all your friends, go destroy that city and release my hero.

But if you've captured my hero, you can pay money. to force change the hero's name. So it's a name. You get to name it whatever you want. But if you've captured it, you can actually go in, pay, and then the name is changed. And in order to change it back,

I have to pay to fix it. Money makes the game like hyper realistic, hyper realistic. It becomes like more real than real in a lot of ways because now someone used money to like force change my hero's name and then I have to use money. It makes it so much more intense.

And the money is actually the feature now. It's not even the name change. The money is a feature. There's a lot of humiliation built into it. It's like building humiliation in the software. I mean, you couldn't get more counter culture to them what's going on on the internet right now. Like the internet is trying everything possible to like get rid of all this stuff. You can't even like find memes anymore, basically.

What did you learn about the reasons why people will pay? Famously in Free to Play, there's this crazy power law of who pays and how much. right? And the 0.1% of the players, I don't know what it is, some crazy high percentage of the revenue. So maybe a better way of asking the question is like, what have you learned about what characterizes that willingness to spend? How I think about it is if you go back, I think we're tribal people by nature. And when I say tribe, I don't just mean your culture. I also mean the size. Tribes tend to be pretty small. If you look at like early America and people say go west and land of opportunities. What does land of opportunity mean? It means

if I'm a blacksmith, and I'm the only blacksmith around for a hundred miles, it doesn't matter if I'm the world's best at making horseshoes or not. I'm the only one around. So that's my land of opportunity. I could just keep going west essentially and there'll be less and less people. And I'll have more and more of an opportunity to become important to the community that I'm in. And we're in this age of like hyper competition where planes, trains, internet, we have these like social networks and forums and chat rooms and clubhouses and whatever where we have essentially like this real time leaderboard of who matters and who doesn't. So when you say that one percent of spenders, that group is even smaller with who matters online.

So that's the answer is that the world has become so competitive. soul-crushingly competitive, whereas being good at something doesn't matter anymore. You have to be the best. Because if you make horseshoes, it doesn't matter. You're not good at it. I'll just order it for someone else and I'll arrive in two days, FedEx. And you better be cheap because if not, I'll wait a week and get it from China. So we're in this hyper state of competition that makes people feel like they don't matter

because they don't. They actually really don't. And everybody knows it. That's the honest truth. So you end up with these like online communities like what you see are people. It's a seductive and simple way to belong to something where where these things actually reward time spent rather than skill. So if I just spend more time, I'll be more important.

So you see that a lot online. You see that a lot on like social networking. Like they're all kind of designed that way. Like spend more time like you'll matter more. And that's got a lot of pull to it because you see. much like online activism, for example. Online activism that you would never see in person, because all I got to do is like post something or whatever.

And they matter. They'll get lots of likes. They'll get lots of retweets. You get the culture and then the counterculture. They're both essentially the same thing. Like one side's saying the thing because that's the thing to say. The other side's saying the opposite because that's the opposite to say. And both sides get a lot of likes.

Video games kind of give more structure to that than like Twitter does. A lot more structure. They can have levels and kings. queens and weapons and kingdoms and whatever you want. You just make it up. So you get more structure and like the video games become a place to kind of get lost in because it has so much structure. That's what I did and I loved it.

And for me, it was really important to me because before that I was just like, what's the point? I don't even know what the point of my life was basically. It's like you're working at Target and Davenbusters and whatever and you're not going to college. What else do you have? That's what I had. And I think that's what made me understand it. It's more of like a reality thing. There's just too much competition and people need environments to excel in. This whole like hyper-globalization thing is just crushes souls because they can't excel.

And they know it. They're like, everybody's like, oh, robots are going to replace you and AI is going to replace you and you got to go eat bugs and go live in a box. It's so funny. I talked to these AI guys in Silicon Valley. It's so funny. They're all trying to make like God versions of themselves. They always say to the game developers, they go, oh, we need you because what are people going to do when my God AI thing work? It's so sick. Like it's really a sick. Like they know what they're doing. They know exactly what's going to happen. And they're looking at the game designers like, well, maybe you'll kind of like distract everybody. Maybe everybody will just be distracted. as like the whole world collapses around them.

It's really funny. Like every person in AI, every single person AI talked to has said that to me. Every single one, they're, oh, we're going to need VR. Like, I wish they would be more honest, like in public about it because they all say it. I think that's what you're seeing. I think this kind of like game design worldwide takeover is partly because the innovators think that's what should happen and also because they don't know what else to do. But I think it comes more from that.

And I think if you start looking at people who are playing. in games or online all the time or whatever, you'll see what I'm saying is true. Can you say a little bit about the idea you've mentioned to me of heroic spending and the idea of like group dynamics and willingness to spend, not just in games, but just generally speaking? This is really simple. I mean, this can be explained really easily. If you go to a restaurant, this is why I mean by gamification, quote unquote, so-called

gamification, it's all very psychological. You're trying to reverse engineer yourself. then turn your internal reflexes into a feature, basically. If you go to a dinner and you're by yourself and the bill is like $2,000, how do you feel? Horrible. Right? It's great. But if you go to a dinner and there's 20 people and it's $2,000, how do you feel? Fantastic. It's not that bad, actually, right? Framing matters a lot. Christmas, we're all, everybody spent their money, like 70% of retail money spent on Christmas. That's for other people. It's not for your yourself. So the ideal scenario for spending money is something where you personally get

tremendous selfish benefit from it. Like it's a completely selfish purchase. It's just for you. Really. You really just want it for yourself. But it also comes with this group benefit that everybody else gets and you get to feel really good and they get to thank you and praise you and say, oh, that's really awesome. So, like, a dinner for 20 isn't necessarily the same thing, right? Because, like, you may not want to feed everybody there. What the idea would be, like, there's something that you wanted the dinner that costs $2,000. I don't know, it's like a golden ham or something. And it's like $2,000, but 20 people get to eat for free. The framing of that, it's like, oh, well, you know, I really wanted this ham thing, but now I'm feeding everybody. And

everybody's like, oh, thank you, right? But really, what I did is I bought this thing for myself. and the other 20 people got to eat for free, but you just don't tell them that part. Just let the guy enjoy his golden ham and then everybody around to them thinking that he paid for dinner. That's what I mean by heroic spending. It's like this combination of extreme, like selfishness and some kind of gift to the people around you. Like, that's the ideal. And in the digital world, you can do that. In the real world, that's actually hard to do because you're dealing with like physical objects.

you're dealing with real things. In the digital world, there's no reason why you can't do that. Everything's fake. The key to video game economics design, which is really hard and basically nobody is good at it. There's like three people in the world that are good at it. The key to it is embracing the fact that it's all fake. When I asked a million dollar car thing, it's like, well, that's real. Like, you get that.

The video game's not real. That's why you hate it. Okay, well, no, that's actually its number one property is that it's not real. So if it's not real, you can do anything. if you've got limitations in your mind on what's okay and what's not okay, then you're just going to hamstring yourself with stuff that problems that the real world has, that the digital world doesn't have. So you can create any scenario you want.

And it's really a matter of it's all an imagination problem. Everything's an imagination problem. Asking questions around figuring out where imagination breaks, that's what I try to figure out when I talk to a game designer is like, where does their imagination break down? That's a problem. You should be able to approach. any situation like, okay, what do I want? What can I make that gives all parties everything that

they want? Because it's entirely imaginary. I should be able to. And you need to be able to do that. You mentioned features, the Klan example, the anonymous forum posting Klan example. Why is it so hard to design an economy? What is the skill set there that is important? What have you learned about that? So like when I think about this stuff, I think about the Fed, the U.S. Federal Reserve. In the world, there's only like 10 people on the other side of the table. There's like 8 billion people that take the money and then there's 10 people that print it. And they're not printing it to give you money. They're printing it because they want an outcome. They're designing an economy. You better believe it. They have goals in mind when they

print money. When you take the money, you just think about like your house, your car, or whatever, but they're thinking about like unemployment and productivity and they're moving money around the market to manipulate the market to get unemployment down, to get productivity up. You have to understand there's like a purpose to making money. It's not just there. It is manipulated. It's a whole reason for it.

Money is economic manipulation. At least fiat money is. That's all it is. It's designed to actually make you work. That's the whole purpose of it. So you're using something that's been designed to get you to work, to have constant inflation. The husband and the wife now have to work. The kids are working like everybody in their mom is working.

It kind of increased productivity. So the money is designed to increase productivity and lower unemployment. It's not made to be money. It's an unemployment tool. It's a productivity tool. It's an innovation tool. So when you make a game, it's the same thing. You have your virtual economy and it's there to do something.

Like, what is it there to do? And a lot of times people just think of it as like, you have products. They think of it like a normal kind of like capitalist. Like, I have an item. There's an item. And it costs this much and whatever. They don't really think about it in terms of what's the purpose of these currencies inside the game anyways?

Like, we're just making them up. Like, what are they supposed to do? So that's a pretty philosophical, like answer to your question, not a very good, like, direct answer. But there's not that many people that can wrap. their head around doing both things at the same time. Making a currency that serves the game's needs and making a currency that serves the players needs. They usually just think about it like the consumer side, not the printer side. That's hard, actually. That's really hard. It's hard to think about both. So there's not that many people that can do that. Where do you go to learn how to do that? It's a lot of this

trial and error and you have to have a point of view. You have to have a really strong point of view. and you have to be able to defend it. That's probably the biggest problem with game design in general is that people have cool ideas, but they can't really defend them. It's honestly, like, they don't even know why they like them. It's just kind of cool.

You have to be able to defend the stuff that you're coming up with with logical outcomes. You may not be able to predict all the outcomes, but you should have a pretty good idea of what's going to happen after you do it. And not many people can do that, to be honest. They just make what they think is fun, and they don't really think about it in terms of like a grander ecosystem and how everything fits together.

A lot of the revenue, in this sphere has been cosmetic. You and I joked about like what a single golden shotgun in Fortnite would cost or something. $100 million, you think? If it was an NFT, yeah. If it was an NFT, yeah, it would be $100 million. If they made a golden shotgun, one of one and gave it away in a raffle, it would sell for $100 million. Do you think that will continue as the primary source of revenue is cosmetic items in free-to-play games?

That's a side effect of like American games. You got to think about like how games started and my girls. around the world. American games were skill-based in the beginning. Eugene Jarvis, defender, Robotron. That was what Americans thought of the opong, whatever. They think of it as like a skill. And then the Japanese came around with stories, RPGs.

And then the Koreans invented free to play, and they combined the Japanese style, but with a more kind of deeper economy because they needed to figure out how to make money off a free game. and then the Chinese adapted the Korean style and amped it up like times 100. If you look at Chinese games, they're like really different than American games. You often hear about Chinese apps that have a game design in them. You always hear this.

Like, oh, everybody's got to go buy celery on the same day or whatever. And everybody, America and the VCs are like, why can't that work here? And they keep doing that. And I'll tell you why it doesn't work here. It's very simple. The reason why it doesn't work here is because Americans, especially the developers, hate that stuff. They don't want to build it. They don't want to make it.

They don't like it. They think it's manipulative. They do. Like at their core, that's how they feel. So when they see it, they see something going on in China and then they water it down until they feel good about it. And then it doesn't work. It happens over and over and over again. The whole like skill, cosmetic, that's an American thing, cosmetics, totally American thing.

If you go to Japan, it's all treasure boxes, loot boxes. If you go to Korea, it's loopboxes plus item shops. And if you go to China, it's just like straight item shops. The Chinese way is kind of winning, to be honest. It's just winning because it's just so much more direct. They got games a lot later than everybody else. They got the Korean version of video games. And that is better for the internet.

The internet world, that fits better with the internet world, whereas the Americans are kind of stuck with the arcade world, trying to make it work online. So you end up with cosmetics. If you had to sum up what you've learned about human psychology from all of this design work, how would you sum it up? Players like the game more than you. They like the game way more than you.

That's why I asked that question. Because if you don't like the game and they like the game more than you, then what the hell are you going to make? You're going to make something terrible. Most people who make the game don't like the game they're making. It's just a fact. They're usually kind of surprised with how fanatic the gamers are. They're actually kind of annoyed by it because they work on the same. same thing for years and they're like, oh, God, these like people are emailing me and spamming me.

And you see like gamer energies like super intense. And that energy is never matched in the dev studio. The dev studio is not as like insane about the game as the players are. So just software in general. And this is not just for games. It's just in general, which is that you need to understand that the people who are interacting with your app like it better than you do. So that's a kind of like an out of body.

experience that's really hard to wrap your head around. You can never really wrap your head around it. You have to embrace the fact that they like it more than you do and you need to play into that in a really heavy way. And that's pretty tough because you always have this cognitive dissonance going on around making things that you don't really like that they like. I think that's probably the number one. And I think I've gotten pretty good at that over time. But I would say that's the number one thing that I've learned about making software, combining a human psychology and software, which is that I don't really understand everybody that's playing the game. And that's okay. But if I can recognize that and say, all right, I don't get it. They like it way more than

I do. Let's see what they're doing and like play into it rather than try to get them to like the things that I like. That's an instinct that's really hard to overcome. As you're building these games, you built an insane amount of technology infrastructure. I want to hear about that and how that became an on-ramp into the world of some of the things you're interested in now, NFTs and crypto, more generally speaking. Free to play and performance marketing have a lot of overlap, direct marketing, a lot of overlap. A lot of the successful free-to-play companies were people who came from marketing, not video games because they had to think about funnels and user acquisition and that kind of stuff. Free to play is really, really complicated. It's another

reason why the video game industry at large kind of doesn't like it because it's just so much more complicated than I mean, it's like infinitely more. It's basically the hardest software that you can make. I don't think there's anything harder. You've got graphics and real time and load times and audio and chat rooms and server security and service stability and performance marketing and live game management and analytics. There's a reason the average game developer only last five years in industry because it's ridiculously hard. It's way harder than anything. Like, you go work at Yelp or whatever.

It's like a thousand times easier and you get paid more. And you don't have a 99% chance of failure, which you do in the free to play world. It's probably higher than 99%. It really is on the cutting edge of a lot of technologies. But the combination of all of them is just near impossible. So kind of like a thankless business in a lot of ways where you have to like do all this innovation, try to build all this stuff. And then nobody cares that you did it.

And then it's just like, it's a game at the end of the day. and then it just dies, it gets old and dies or it doesn't work. Machine zone, I really try to kind of conquer all the different aspects, all of them, really. Like, really try to embrace it and try to conquer all the real-time aspects, working on every phone, working in every language, marketing, running television in 62 countries, and buying, you know, every digital ad known demand. Weren't you the biggest buyer of? Basically, it got to the point where every single male outside of, you know,

China saw an ad two impressions of ours for three years straight every day. We had about 400 people in the marketing team. It was just like there hasn't been anything that's talked that yet in terms of direct marketing at scale. That was definitely the peak. And a lot of it's kind of going away because like Facebook, Apple and all the automation and privacy stuff that's happening. So you can't really replicate it.

But it was really, really intense. And then so you have all this like marketing going on. But by the way, that's all integrated in. the game design too. When I was there, it was full integration of both of those things. They would actually interact with, like the game economy would react to stuff we were doing in marketing. And then you get into automation and AI and it gets really, really crazy. We did take it to new heights that I don't think have been, I don't know if you necessarily need to pass, but they haven't been passed since. Can you say a bit about the experience with RT platform?

I think some of the technologies that you built. My personal obsession has been trying to create the most amount of human interaction as possible on an app. Everything that I've done online has been an app about trying to get the whole world on one screen. That's my goal is I want 8 billion people on the same screen at the same time. And then I want to just do crazy stuff with that. Because I think that's like the perfect manifestation of the internet. It's like put everybody on the same screen.

You know, we're all connected. So let's all get on the same screen. So it sounds kind of crazy. But to me, it just seems like the logical outcome of the internet is we just all end up. on the same screen and looking at the same thing at the same time. That's what I want to do is try to create a real-time layer between everybody and make all that work. Very, very hard. But the other thing that I think that's really interesting, kind of like change of topic that you mentioned, I'm really excited about NFTs because I see a clear

trajectory from in-app purchases to NFTs where we were the first game on the the Apple platform to have in-app purchases and a game called Race or Die at the time. And then we made another game called Original Gangsters. That was the first one we made for in-app purchases. It was transformative. It was insane. The idea that people can be in the app, they have their credit card hooked up, and they could just press a button essentially, put in their password, put their thumbprint,

look at a camera, and spend one to $100. Totally changed everything when that happened. I mean, our revenue went from selling apps. to when I'm up 700% overnight as soon as we put in, I purchasing the games. It's crazy. As a video game developer, the reason why that works is because I have a centralized economy. I have servers. I have server security. I have a total monopoly on my virtual goods. If you want to buy one, you can't buy it from anybody else. You have to buy them for me. And if you try to hack my server, you can't. You just have to buy it from there's no other way.

we would make items, make new stuff for the game, and they would make millions of dollars in an hour. And the thing that enabled was that ultimately was all the security around the item, like they had to buy it for me. And now we're seeing NFTs where instead of the game developer creating the security around the item, we have Ethereum creating security around the item.

So literally everybody on Earth now has the same montization abilities that a video game has. and you're seeing the same results, like Blow doing $11 million of MP3s in a few hours. That's what video games do. So this guaranteed scarcity, guaranteed ownership, perfect security, or near perfect security at least, around these virtual objects are the next iteration of the in-app purchase

that will invade every single software business there is. Everybody's going to start looking like a gaming company. If you can get an audience together and you can create demand around the virtual object, you now have Ethereum as your security model, and you can control whether somebody can buy it from you or not. I see everyone. And it's sort of like this thing that you can't avoid too because it's all margin. It's like 100% profit. They're all virtual objects.

So I actually see everybody getting into this, even like your local cafe. Everybody's going to be doing this because you can. and because it will make a lot of money. And it's going to come down to, like, going right back. This is what I meant. It's like last year, I was feeling like, oh, gosh, you know, all this video game experience. I was applying it to, like, some friends or whatever. Like, there were some things I worked on and it worked really well on.

So I felt kind of good. It's like, okay, works in other stuff. But when I saw this, I was like, oh, my God, is everybody going to be running a live ops team? And the answer is, yes, everybody is going to say, get on. online at noon and buys one of 30 of these things that unlocks, like, access to the VIP room, the events, the whatever, whatever. And not only that, it's superior to the internet purchase because it's tradable and it's speculative. When people are buying stuff in a free to play game, the only thing they get in return is the experience. That's it. If they stop playing the game,

that's it. They don't get anything. They just get nothing. But they get the experience and it's good enough. It's good enough to be 80 billion a year, just the experience. So what happens when these things are tradable and speculative and guaranteed rare? I think at 10x is, or maybe actually more. I think that people are vastly underestimating what's about to happen. They don't see it in their regular life. They don't work in businesses that do this kind of stuff. So I think it's inevitable and it'll happen slow and fast. Fast in like a video game, but slow everywhere else because there's not enough people that understand this stuff. There really isn't. I mean, there are people who are okay at it. And then there are people who are really, really good at it. There's just not enough. There's no school to go to either.

It's all experience-based and intuition. So like the world isn't going to turn into a video game overnight because there's just really, this is just not enough people to do it. But I do think it is inevitable that everybody starts selling these virtual objects because they can. They can be designed in ways that unlock crazy amounts of profits that are just, I think you could start seeing. I mean, this sounds really extreme, but I think that you'll start seeing more and more businesses adopt loss leader or free-to-play models. The price of coffee could go down because they make more money on the NFT. That sounds crazy. It sounds crazy, but it's not. It's not at all. I read Travis Scott did a performance in Fortnite that generated $70 million. He can't do a concert anywhere in the

world where he can generate $70 million. So expect more of that and expect to keep ramping and expect the numbers to look crazier and crazier. When people sold his painting for whatever it was, like $70 million or whatever it was, people said, oh, this is a fad. Real paint is worth more. No, it's not actually. The digital art is going to be worth more than the real painting because the digital art

is instantly tradable. There's a liquid marketplace worldwide. I don't have to pack it or worry about it getting damaged. The digital art, they've got some technical problems off, but the digital art will never be damaged a thousand years from now. Think about that. Mona Lisa needs an army around it, literally, to protect it. It's inevitable, like the liquidity, the guaranteed longevity,

the guaranteed scarcity. It's inevitable that these things become the world's most valuable objects. And I think it's inevitable that every business starts selling them. I also believe that NFT, that connect to centralized services will be where all the money's at. Maybe not worth the most in dollar terms like a B-Beeble is, but definitely where all the revenues generated because I can take my centralized service and reorganize it around that NFT to change the value of the NFT.

What does a centralized service mean here? Gary V's doing this. So like Gary V's got his NFTs and he says these V coins where he says, if you buy this NFT, you get to go to 10 of my conferences. And I'll do an hour on Zoom call. There's nothing stopping him next year from taking that same NFT and saying, oh, actually I'm going to have that NFT unlock 20 conferences and not one hour Zoom calls, but 10 hours Zoom calls.

So does that value of the NFT go up? Yes. So is Gary V really just managing an NFT index at that point? Yes. So I think you'll see these kind of like businesses, same way like free to play, organizing themselves around user acquisition and then managing their virtual goods, same way a game company does to try to make them as attractive as possible by carving up their businesses and slicing them up in a way where it makes the NFTs attractive.

So it's almost like we're going to see digital manufacturing boom would be one way to think about this. I think of Ethereum as the world's factory. It may be Ethereum doesn't win, but it looks like it will. But I see it as the first time it's a virtual factory and it makes virtual objects that I can own and sell. So everybody has access to this factory. And the only thing that stops you from making something interesting is your imagination. So you'll have 8 billion people manufacturing NFTs. Some of them are going to change people's lives.

They're going to be amazing. Most of them will be worthless because you can make trillions, an infinite number of them. But everyone's going to have a shot at creating digital scarcity like the gaming companies do. and you're going to see more and more Blau-like scenarios where he sells this two-year-old album for $11 million with the NFTs and the stuff that he did, which was brilliant.

But that's actually going to be common. I was joking about this, about, they always say the Americans, they do that, what do kids want to be when they grow up? Do they want to be influencers? In the United States, it's like, the number one job, I want to be a YouTuber, right?

And in China, it's like an astronaut. And they always go, oh, this is the fall. of the Western civilization. It's like, wait a minute, who the hell wants to be an astronaut? First of all, astronauts are old. Astronauts are kind of ugly. They have to go to school for like a million years and only like four of them go into outer space. It doesn't make any sense. Like, why would anyone want to be an astronaut? And then you look at the influencer guy, thousands of millionaires, they go to all the best parties. They're like 19 years old, right? And pretty soon they're going to be billionaires because they're selling NFTs. And that's just

reality. It's like, and I don't know if you like that or not, but the internet enables that. Like, I can get a big audience. I can make digital scarce goods and I can sell them to you. And you can maybe even profit off of them because they're speculative and they could go up in value. And if I'm good at managing what I put out there, they will go up in value. I think you're about to see, I say this, I believe it, but I also say, I think we're going to see hundreds of social media billionaires in the next 10 years. Anybody, like, like Gen X and hire is going to be like vomiting, you know, disgusted. They're going to want to jump off a bridge, basically, because they can't believe that these

idiots doing dances on TikToks are making like $100 million a year. But they're a business with customers and they have products to sell to them. So it's only logical. So in a lot of ways, it's like the people who want to be astronauts is like, hey, get with the times, man. That was 1960s. That's not where we're going. We're not going outer space.

We're going to NFT, NFT TikTok world. I would make a judgment and say that's not necessarily a good thing, but it doesn't mean it's not true. It's totally true. So I'm really excited about it because I think it's going to fundamentally change everything. Digital goods, like the idea that any business can sell speculative or rare digital goods is going to fundamentally change almost every business. And it's a good time to be a game designer, I guess, now, finally. So what does it mean if you're right and we're going towards this massive, call it NFT manufacturing boom and every business starts over some time horizon,

incorporating this as part of their business model? What does that mean people should do now? There's not that many ETH holders, the universe of potential buyers. NFTs have kind of like broken away from crypto. It's more like a file format. It's like an MP3 to the average person. They just think of it like, oh, it's an NFT is something I buy. Yeah.

No, it's a file. NFT is like a concept, but to them it's a file format. I don't know if it's going to go this direction, but I think you could see like a Disney chain and a universal chain. They'll just roll their own like NFT platforms because there's just no need. People don't care whether it's Ethereum or not. Topshots kind of proves that. So, yeah, I'm not sure it's a crypto product. It's more about crypto blockchains or distributors can enable this stuff.

It'll disappear. It's the guts, yeah. Yeah, and the mind of the consumer, it's just a rare, ownable digital object. I think Ethereum will matter, but I'm not 100% sure that it will matter. I'm not 100% sure. Give me one more thing at least, one more, what we call it, purple pill, like something not too inflammatory, something you think that is true about the world that people wouldn't like to hear?

I think we need AI more than we think. I think that we're at an IQ limit. And the reason why innovation feels like it's slowing down is because we can't do it. we just literally physically can't do it. And there may be an exit ramp through AI, but it's not exactly clear that we can do that either. I really think that the 60s and 70s futurism is the reason why we're suffering so much today

because there was no reason to not print money, to not full-on inflationary mindset and everything, because we were going to live in paradise. We were going to be on the moon. We'll be able to pay all this back. There's no problem. And then financialization happened and gamification of financialization happened because that was easier and it worked.

But it's not better. Like innovation is better. It's clearly better. If I make a teleport machine, I don't need to make a video game. I don't need to have levels and achievements. It doesn't need to look nice. It doesn't need any of those things. It just is what it is and everybody wants one.

That is better. That's the only way to really like have prosperity. And this design slash now gamification is a symptom of our limits of our minds. So instead of doing things in the physical world, we're doing things in the psychological world now. And that's maybe permanent. And I hope that's not true. But more and more of the economy is going into this exploit automation, high frequency trading. that kind of thinking. And it's not rockets tomorrow. It's like we've gotten to the point where

we look at the two richest men, like we used to have the right brothers. These two guys like trying to make an airplane, like they're in the middle of nowhere, you know, who are these guys? Like now we look to the two richest men in the world to solve our most difficult problems. The regular person has no chance in participating in the future of the economy now. The only people have the chance, like, I hope Bill Gates figures out solar panels. And The regular people are just kind of looking up to them saying, well, I don't know what to do. And I think the reality is like the rich guys, they kind of don't know what to do either. And we got the rockets going.

Those are cool. And we're making some incremental innovations. And there's been some really important things like crypto. So it's not hopeless. It's just not what we thought was going to happen. So I think that's the dislocation between the economy and the reality of innovation is that the economy moved way ahead of innovation. under false expectations that we would be able to keep innovating at an exponential rate. I think there's a fear that we know that we can't.

So then you're staring at deflation like a reset, essentially. We've got too much of everything and there's not enough innovation to pay this back. It doesn't exist. So we got to like abandon ship basically. That's pretty bad. But from my lens, from my point of view, it's like that's why gaming is becoming so important. it's because we don't have the teleport machine. We need one.

And if we had teleport machines, nobody would be playing games. What do you intend to do, assuming you're right, that this game design and gamification skill set becomes increasingly valuable in the next couple decades and you've developed it? What are you going to do with it? There is opportunity for somebody like myself to really express these skills across broader things that people don't expect. And NFTs are going to kind of be like the foundation for that, I think.

I'm really interested in investing and thinking about companies around that space because I think that it's going to be in everything, just because they have to. Once again, once somebody else starts making more money than you, because you're doing, like, you have to do it too. So it's just inevitable. It's just going to take over everything. So I think there's a real opportunity for me to have some leadership in that space. I have an idea for like video game again, the next place where all this stuff is going. So I've made put together a team for something like that. But yeah, I think there's a chance for when game designers actually do enter, the NFT space, you'll know because they'll just wipe the floor with all this stuff.

Like right now, this stuff just looks like eBay or like you have this like the entire digital economy and we're making eBay. It's super boring. It's not interesting. So the game designers will definitely take over the space. That's for sure. There's zero down in my mind. Does the idea, I'll call it the gooey teleportation principle or something, is this also an investing principle? You should look for stuff that has terrible design or is breaking. NFTs are important the same way the app store was important, meaning that. at the beginning of the app store, everything was broken. It took like three months to get an app approved. Just crazy stuff. It was a real nightmare. And it was growing like crazy. That's what you want.

Like you want environment that's completely broken. There's like a couple spaces still in the innovation phase. And crypto is clearly one of them. You always hear these VCs who don't know what they're talking about. They go, you know what crypto needs. It needs a good UI. Like, oh my God, just stop. Like stop it. It's innovative. It doesn't. It doesn't need that. It's still growing despite that. If we get to the phase where all crypto can do is add UI, it's over. That's it, right? So then it's just a matter of like, who's got more DAU at that point? And like, it's over. So crypto is a good example of something that's still really deep in an innovation phase. It's not everything, but crypto eventually turned into a game too. Like, it's obvious. Like, it's kind of got elements like that. But my favorite stuff is you go to the website

It's to look terrible. You ever notice that? You look at these DFI projects, like the worst-looking website you've ever seen. That's a good thing. That's what I want. I want it to look terrible, like it's crashing all the time, and it's just growing. That's the sign. Because when you clean it up, when you do put the good UI in and you do gamify it, it will be 100x bigger.

If you're like 10 years deep and it still looks terrible and still growing like crazy, that's all you need to know. If VC is right, that when it does get cleaned up, it's going to be bigger. but that's not what you're looking for. You're actually looking for it being a mess and it's still growing. So there's a lot of examples of this. But I look at it for like working but broken. It's growing like crazy,

but it's completely broken. That's where we're entrepreneurial. Put all your money there. Anything that's just like growing like crazy and totally broken, just put all your money there because obviously when it gets fixed, it's going to be better. And there's tons of examples of this. I mean,

and there are cases like there's like the Myspace Facebook example, right? They both had the broken but working thing, but MySpace couldn't fix itself fast enough. So that's kind of the bet. But if I didn't know the future, I'd be like, yeah, put all your money in MySpace, right? I mean, it's growing and it's like totally broken all the time. That's where I would look at the risk. I think you kind of have to be an entrepreneur to even understand that.

But that's how I look at it. Where's a space that's just totally screwed up and it's still working? That's what you want to be involved in. Do you think that the characteristics you mentioned of American versus Japanese versus Korean versus Chinese, what works in games, item boxes versus cosmetics. Will that translate into NFT economy world too? Chinese are taking over video games for a reason. Genshin Impact. That's the biggest game right now. It's Chinese. They're more adept to the internet age. They don't have the arcade world dragging them down. They don't have any. They don't have street fight. It's like all comes

down to like street fighter, plaguing the West. Every game has to be about practice and competition. and high scores and like stuff like that. The Chinese games don't have this problem. They don't think that way. So I think that the Chinese style takes over the world. Can you just define that style? Because we didn't do it when you said item box. Like say a little bit more about what that means if that's going to be the thing that takes over.

One example is they were the ones that really pushed getting walking out of 3D MMOs, automatic walk. You don't have to play. And if you think about it, it's like what's walking in a game for other than to waste your time. But in the West, it's like, no, it's the experience. And then over there, it's like, what do you talk? Like, I just want to level up and play the game. And that kind of mindset is more successful.

That's in more people, essentially. It's a more cut the crap, very, very focused. And you could lose a lot of, like, the art and the feel that Western games bring. But it's easier to add that mindset to their mindset than vice versa. From the economy side, they're much more Chinese MMO. for example, much more emotional, like the comment wall thing that's more of like, I don't think I've ever seen. I've never seen that in another game, but that fits more how they think about things.

The Chinese have a very specific style that there's only parts of it that don't work in the West, very small parts. Everything else works except for like they do lots of like, they have item shops with like millions of items that cost like a penny. When people buy stuff, they want to feel like they got a lot of stuff. You don't really need to do that in the West. And the other thing that they do that you can't do over here. is they're very punitive, extremely punitive, meaning like you'll have a sword and you have to put like five stars in the sword.

Okay. And each time you put a star in the sword, there's a higher chance that the sword blows up and you lose it. Players will end up spending like, I don't know, like $10,000 on swords that break. They finally get the one that doesn't blow up and then everybody's like, whoa, he has five stars and that's crazy. That won't work in the United States. And I can just say that and you know it. I just say it and everybody listening to it knows that will not work here because you feel like, no, I'm not going to stand for that, like spending money for something that just breaks randomly. You probably rigged it so I have to keep spending. That's what we think.

That's an example of something that can work in China that doesn't work. But almost everything else translates perfectly. And to be like critical, there hasn't been a lot of real, in my opinion, Chinese game design style really peaked around like 2012. They haven't really done anything new since. So free to play kind of like ran out of ideas really around like 2012. So there hasn't been a lot of like new stuff from anybody. But in general, their design pattern just works better. I ask everybody the same closing question.

What was the kindest thing that anyone's ever done for you? Oh my gosh. That's easy. Well, look, I'm married. I want to stick to career. I want to stick to career. But you know, you have to bring in the wife and the family and all that. but in my professional life it would be Aaron Hightower, the guy who I was just a tester who kept getting fired because I was annoying, thought he knew everything.

And this guy kept going to new places and kept hiring me over and over and over and over again until he got fired or laid off from every place. I just had to start my own thing. So a real reason you start a company is because nobody will hire you. You know, and then you've got to convince that all day, D.C.'s you're likable afterwards, you know. That's the challenge. No one will hire me, but I'm likable. Without him, I wouldn't be where I am today. So I like to try to do the same for younger kids, but that guy really changed my life. And he didn't need to. He just did it. So that was the nicest thing. Taking an unemployable guy and just kept giving him a job. That's a really great thing.

When you and I first talk, you almost instantly rewired my brain, which is kind of what I'm searching for in all of these conversations is to have someone just rip something I view of the world up. And this idea of design as being the end, not the beginning of an innovation, innovation in some space. Well, look at the iPhone. Yeah, I won't forget. Yeah, just incrementally better, right? Once you get your business goes into the design phase, you need to really look around and start wondering, like, do you have the right people there to come up with the next thing? You may not. It's a lesson I won't forget. And I've really enjoyed our conversations. They've opened my mind and expanded my mind. So thank you so much for the time. This episode was brought to you by Teegas.

In this five-part miniseries, I sit down with Elliot Turner, the managing partner at RGA Investment Advisors to talk about how he discovered Teegis, how Teegis helps him with his investing process, and how Teegas has made him a better investor. In this week's episode, Elliot and I discuss how he first came across a Teegas transcript. Could you describe the circumstances under which you came across Teegas? Because I think obviously you came across it for some reason, probably as part of a research process or learning about a company or a stock. Just describe how you first encountered it and why it was interesting when you did. So I had been invested in PayPal heading into the split from eBay.

So I had shares in eBay and I was very interested in PayPal and that was exactly what I wanted to own on the way. I'm not a specialist in payments. I had read a lot about payments and got myself quite familiar with the space, but it's definitely not a core competency. I'm a generalist investor at the end of the day. And so when I first was involved in PayPal, I did everything I could to learn about the business, learn about the key drivers. And I had what I thought was a differentiated thesis. Effectively, what I was looking at was I felt engagement was the most important variable. That's transactions per user. Meanwhile, the average analyst who was covering PayPal obsessed over take rate. And they were obsessed with

different funding instruments, what the relative cost was to PayPal, and what PayPal was able to ask merchants for as a percent of a given transaction. And so while I firmly believed engagement was the right way to think about the business, I didn't truly know the right way to pick apart, take rate and understand it. And sure enough, I had a friend who was on Teegas at the time, who was also involved in PayPal. And as we were having these conversations, he's like, rather than me explaining this to you, why don't you read this awesome call from Teegas? And I was like, well, I don't know Teegas. Would you be able to send that to me? and he was kind enough to send that over my way.

I had my first clean-cut read of a transcript from Tegas and understood, wow, this is pretty powerful stuff. This is pretty awesome. And not long after that, I reached out, started my own trial on Tegas, got access to the vault. And parallel to that, I was also researching this company, Canby, which is a Swedish sports batting B2B provider. And so in conjunction with having access to the vault, even before signing on, as a customer, I actually commissioned my first couple of calls. And so even while in trial mode,

Degas was kind enough to let me do these calls at cost, get an appreciation for both their ability to source experts in an area where I myself, through my own network, couldn't find anyone interesting, and I could peruse the vault at the same time. And all of this was incredibly helpful to me. At the time, we were underwriting Camby. It was a pretty contentious debate over what the business would look like if Draf Kings did or did not leave them. That was a key. customer, anchor customer to get them into the U.S. market. They set up calls for me with a former from Draft Kings and another former from Canby who had worked at a competitor that Draft Kings was thinking of acquiring in its own right. Both those calls were extremely valuable to me in my

process. So right away, at an appreciation for both the power that TIGIS brings to sourcing unique experts. And I typed up every ticker I had in my portfolio and every watchless ticker I was following at the time, read as many calls as I could. And I was like, wow, this is pretty interesting. And I'd say one of the other things with Tigas that I think is pretty cool. In the grand scheme of things, you know, everyone talks about how do you take these unique insights that everyone is access to and pull them into your mosaic and make it something that's differentiated.

That's hard in its own right. And it begs the question, why do you even recommend Teegis to all your friends and whatnot? And I think one of the powers of that all is when I tell my friends to get on Teegas, especially people who I know are going to do great calls, who are going to use Tigis to start sourcing their own ideas, I know I'll get great calls that I could tap into, that I could get interesting insights two weeks after they've had access to the information. If you enjoy this episode, check out join colossus.com. There you'll find every episode of this podcast complete with transcripts, show notes, and resources to keep learning. You can also

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