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Mobile Dev Memo Podcast
Season 7, Episode 15: The modern mobile gaming economy (with Phil Black)
01:07:13
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- [00:02]
A
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- [00:35]
B
The problem is that the distinction needs to be drawn between the competence of the economists and the correctness of their analysis.
- [00:47]
A
Hello and welcome to the Mobile Dev Memo podcast. I'm your host, Eric Sufert, and I'm joined today by Philip Black. Philip, welcome to the podcast.
- [00:55]
B
Happy to be here. Thank you for finally having me, Eric. We've traded podcasts now a couple times.
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A
Yeah, we have. So I was on the game Economist Cast. What was that Was earlier. This I always think of in terms of academic years now. So it was earlier in the academic year. So it was like September or October or something.
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B
Sounds about right.
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A
Yeah. But yeah, no, it's great to have you on. For the benefit of anyone who maybe doesn't know of you from the game Economist Cast or Swig, please introduce yourself.
- [01:24]
B
Yes. Hi, I'm Phil. I'm a game economist. And if you don't know what that means, neither do I, is what I like to say. I am a consultant, or at least I have been for the last couple years. I used to work at Scopely as an analytics games manager. I went over to Dice. That's how I moved to Europe, into Sweden. I worked on Battlefront and Battlefield as well as some other EA titles there. They just had a lot of interest in game economies. Some of their games had very traditional game economies too. When you think about FIFA has a marketplace, so there was a lot of questions that they were interested in across a variety of products. And then I worked at Amazon Games, spinning up European operations, whatever that was. We could spend a lot of time talking about that. And now I do consulting, which is about 1/3 mobile, 1/3 PC, and then I would say one third other weird stuff, whether it be apps or theme parks, whatever it may be, kind of thinking about strategy, thinking about economics, thinking about building models for a lot of these things, and a lot of experimentation as well.
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A
What are theme parks? Fill me in.
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B
Yeah, well, I mean, look it, if you were to go to Disney with your friends, one question you might have is why Is this not a co op adventure? It seems to have all the pieces that you would need if someone could just figure out how to connect it digitally or just add that meta layer on top of. So like, hey, how could we reimagine that as kind of an economy?
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A
And that's a project that you've undertaken?
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B
Yes.
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A
Not maybe for Disney, but for some theme park operator.
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B
Yeah. If you go to Dubai, there's this one theme park and you will experience Apex Legends banner system. If you go into that theme park, there's like stat trackers, there's different cosmetics you can get.
- [03:01]
A
Oh, wow. Okay, well, very cool. Maybe just, just kind of give us a little bit of the lore here. How did you get, how did you move into gaming? What brought you into game economy design? Because I feel like a lot of people, I don't work in gaming per se now. I mean I don't have a full time job now, but when I did, you'd get introduced to some student or something by a friend and like, hey, this is my cousin or whatever, my nephew. And they really want to work in gaming. And I'd be like, why do you want to work in gaming? And they're like, well, I love to play video games. And I say like, you're going to destroy the one joy you have in life if you work in gaming. I like video games too, but working in gaming takes a little bit of the, of the veneer of mystery off. How did, how did you make the jump into, into gaming? What, what brought you to gaming?
- [03:47]
B
Well, if you remember Yanis Varoufakis, the Greek finance minister who ends up becoming the game economist for Valve. And I say that loosely. He did like two blog posts.
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A
Yeah, he worked at Valve for like what? It was like a. It wasn't like a freelance thing or something. It wasn't even a full time job.
- [04:03]
B
It was a contract. Gabe had read one of his books and said, can you come on and just like figure out something? And then he does like two blog posts about Valve. One is a spontaneous order itself and then whether or not the TF2 economy you could solve for equilibrium with keys. And that was pretty much it. That's all I remember him doing ever. And he's talked about it for 20 years.
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A
Yeah, he's been dining out on that contract for some time.
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B
Respect, by the way, respect as a consultant. Let him take the W. But that's
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A
what made you interested in gaming.
- [04:32]
B
Well, look, that was one of the things at least told me. This is a thing you can do Previously, I had just been into economics, just an econ nerd, poli sci, history, everything I could possibly eat on the social sciences side. And I never really thought about doing games at all. That wasn't something I had an interest in. I mean, I was a gamer myself, but I hadn't really thought about combining these two things. But now that I'm like, oh, my God, this is an opportunity, where do you start? And one of the things I read was your book. I remember it was like, how could I get my hands on anything that's written just to validate that this is what I think it is? Is there someone who's speaking my language? And when I started to get more encouragement that there are people who are doing this, that this is everything that you imagined, I started spending more time playing these games. And you're like, holy shit. Like, what could you do as an economist in this playground? You have this weird digital product which is some combination of art and science you can run experiments on. Feels like a fairytale. And then you just kind of get addicted to it. You definitely enter through analytics. That's where there seems to be the most demand. And now there's just more demand for more of the holistic. Hey, I know what an economist does, and I know what they can do for me.
- [05:37]
A
Yeah, you know what's weird is I was kind of, like, contemplating this the other day. So my book is 12 years old, and it. There's not much else, like, not much else has been written in that space. Russell Ovens has an excellent book, which was funny. I had him on the podcast, but I bought his book before I knew him, so he offered to give me a copy when he came on the podcast. I already have one. But, yeah, he wrote a fantastic book, but I think other than that, I can't really think of anything else that hits the sort of the analytical framing and that sort of scope of content from economy design, analytics, design, instrumentation standpoint, I don't think anything else really exists. I don't know that mine was the first one per se, but I think it was the first one covering freemium, which is strange because gaming is as well discussed. It's a massive industry. You'd think there'd be more interest in the underlying analytical infrastructure, but it just doesn't seem to be.
- [06:30]
B
Yeah, I would say one of the things I've ended up pivoting on myself is to ask not what can games do for economics, but what can economics do for games? That's something I like to lead with a lot More, I think we have it just backwards. I think we've been trying the wrong quest. Don't get me wrong. I mean, we share mutual friends in academia who study this field and are interested in what you can infer out of it. But I think everyone else who looks into it always ends up disappointed that it doesn't have all this external validity, which I'm totally fine with because I think it's interesting in and of itself. It demands its own study and its own questions.
- [07:03]
A
Yeah, demonstrably so. Look at the size of the market. You know what I mean? Demonstrably so, right. I mean, but like, I mean, if you. I imagine, and I haven't validated this, maybe I'm wrong. But like if you went to go find books on strategy for the film industry, there's probably a lot, I would guess I haven't looked. I haven't looked. I could have just done that just now, but I didn't. But I would. Maybe I'm totally wrong. And there are none. And there. So there are vastly more in gaming than there are in film, because there are none in film. But I would guess that there probably are some. And it's just, it is very odd. And it comes back to that, getting introduced to the nephew or whatever and then they'll flip the question, well, why did you want to get in games? And I'll say, well, because mobile gaming gives you access to a massive audience that emits an enormous volume of data. It gives you the opportunity to do scaled experimentation in an environment that is not possible in sort of like any other context. It gives you all of these really interesting challenges around causal effects and measuring causal effects. And it brings together a bunch of disciplines in a market that is huge. Right. So it's doing really interesting, challenging work, but in a market where you can make real money. And so that's what brought me to gaming. And then that's usually not very satisfying for them to hear because then they're like, well, I could just go work at a bank or something. In some ways the actual job day in and day out is not that much different. Except that you're wearing shorts and there's like a cardboard cutout of a character next to your desk or something.
- [08:41]
B
I mean, I think the thing I've written about a while ago is that to me it's the only. We say it combines art and science and I think that's certainly true. I think that's one thing games does really well. And even when you look at the P and L, it's always somewhere in between the fundamental economics always sit somewhere in between those different fields. Which I think is interesting. But it has this commerce piece which I don't know if anyone's really respected. Like, you can really express yourself in commerce through mobile games in a way that I think people underappreciate.
- [09:09]
A
Yeah, no, I agree completely. I'm in the middle of this series that I'm publishing called the Prosperous Society. And that was the whole point of the second installment. It was like, that's part of human expression, is commerce. And so if you expect AI to actually fulfill that for you, you're taking away a big piece of the human identity. And it's really dystopian. And I don't think that will come to, you know, can materialize as a scaled application of AI. And I think, I think it's. It's a dead end that people are chasing because the process of buying things is a process of self expression. And doing that in gaming gives you the infinite canvas. Right? Like it's an infinite canvas. And funnily enough, I got the biggest ever royalty check for freemium economics last month. Ever.
- [09:51]
B
Whoa.
- [09:52]
A
But I think it's because, like, and I don't want. We're going to move on to the actual questions I have for you. Like, this is. This was a pit stop that turned up to be the entire road trip. But I think it's because like, a lot of the stuff that I was talking about there was, was. It was speculative around the ability to do freemium with total personalization, which was at that point it was just this, this. It was a very theoretical proposition. Right. Like you can't do that. It would be prohibitively expensive. You can't build a content catalog that gets to that level of specificity. Now you can, right now you can because you just generate it. Right? It's generated. And I think there's like a newfound relevance. I won't say necessarily for my book, but for the freemium model, because that's the promise of AI is personalization. It's the most finely grained personalization. And I think it's for that reason that I think people get led astray with AI and they focus on the outputs and the visual representation of these models in terms of what they produce. But I don't think that's actually the core value proposition. It's the ability to do user level, person level, consumer level personalization at scale that just provides a much more fulfilling experience and then allows you to monetize commensurate with that Right. Which is the whole idea of freemium. That's the whole prospect of freemium. And that's where freemium fails, is when people don't. When they don't respect that and they don't allow the monetization to actually match. They don't actually capture this consumer surplus. That's the whole point. You give it all away. Right. And you don't actually match the economy to that. But we're going to talk about that. I'm going to. I'm going to jump into the question. Okay, so what I wanted to bring you on to talk about was you wrote a tweet on Friday. Was it Friday or. It's Friday, right? Thursday. Friday.
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B
That's all right. Gets hazy.
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A
You wrote that mobile gaming has evolved into essentially two genres, Puzzle and Forex. Walk me through how you got there.
- [11:38]
B
Well, I would say there's always three recurring actors in a mobile story, in my opinion, and one of those is UA Dynamics, which, I mean, you've made me more aware of than I think everyone, and maybe really respect it. I think the market has disciplined anyone who doesn't respect UI Dynamics. That plays into the story. I think you've got east versus west, which is another really interesting paradigm in mobile that doesn't get respected enough. That's a part of this story. And then I would say there's this process I call the Kuhnian genre evolution, if you were to get academic about it. But there's this process in which there are paradigm shifts inside of genres. There are these crises these genres go through. They try to subsume one another. It's very close to a lot of those, you might call it biology models of game theory. When different organisms interact in an ecosystem, what is the payoff? How do these different games survive? And I would say this process we've seen has resulted in what is now 43% of US iOS revenue, according to Spencer Tower, coming from Forex and Puzzle, which to me is pretty remarkable. And then I think the other thing you want to pair it with is the recent revelation that Gossip Harbor, a game by a Chinese firm, has now outgrossed Candy Crush Saga, which is like, wow, it's finally happen happening. It's been going on for a couple weeks now. That game has scaled to an enormous amount. And so just thinking about where we are with UA Dynamics, I'd really go back to one of the first pieces you published, which was talking about where ATT actually reached majority iOS distribution, when that period was based on the adoption of the software that had actually activated ATT in or I think you got the prompt. And then we look at what's happened, sends then to puzzle and 4x versus other genres. And this is like one of the few places that are actually growing in mobile Games is these two genres. When we think about 4x, what is happening in Forex? Well, I think just to keep it brief, they've figured out how to do a bunch of things. They've figured out how to absorb RPGs, they've figured out how to casualize the art style. And they've also figured out how to build fake ad funnels that I thought would never work. And again, we call them fake, but they're integr into the core loop now. It's like part of an increasing. Part of an early onboarding experience is playing something that ultimately isn't representative of the Forex loops. And so at the end of the day, they've been able to scale to these massive levels built on the Forex game economy engine, which is something that we could spend a lot of time talking about, but it allows for almost unlimited LTVs. It's almost like an auction that happens inside of a Forex shard and that has really interesting dynamics when we think about bidding on ua. And so you have Forex, which is driven by these Chinese firms doing all these things. They're eating this other genre, they're doing fake ads. And then you have the Chinese firms being the ones that have been the best at this. They're just absolutely killing us when it comes to LiveOps. They're making content at a rate that we can't seem to keep up. They're moving faster on AI and they're crushing it when it comes to ad creative volume. Just totally outpacing everything that we have to offer. And then we think about the other side of the coin here, which is what's happening with Merge, the expansion of Merge, this new game type. And again, what is Merge? Right? You move one object on top of another, Eric. That's all you do. And then the object levels up and then you complete an order. It actually is combining a lot of old mechanics. This feels like something organic and is a natural Kunian genre evolution of things we've been playing with in other parts of puzzle subgenres. There's been a ton of experimentation, I would say, in puzzle and actually I would give credit to Hyper Casual. Right. They produce a lot of volume. They actually are a great, I would say, minor league farm for game mechanics. I think you might be able to trace some of the merge stuff back to that, that I think is a legitimate part of the market that's expanding. And again, people want to shit on mobile gaming being the end of the world. But I think again that's a really bright sign. It is led by the Chinese. It's something that's been given up again by the west, which feeds back into the east versus west story. And so that's where I think this leaves us. Long intro but I think those are always our three recurring characters.
- [15:42]
A
Just to point out that Phil came prepared with slides and so he's now presenting to me, but I've informed him that this is audio only.
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B
It's okay.
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A
Maybe we get a link or something after the show. I'll put in the show notes. Yeah, okay. There's a lot there. Yes. So I think merges and genre is really interesting. So I was an interim CMO at Graham Games. So I was living in London, I was building my products, my company Agamemnon, I knew the founders and they had reached out and asked like, hey, if you're in London, we just bought a game, we're going to launch it, we think it's going to be a hit and can you come in and be our cmo? And I was like, yeah, okay, but I'm building this thing on the side so I'll be part time and, and you know, there's a fixed, you know. And then I sold it so I had to leave. But they just bought merged Dragons and remember Graham started as a hyper casual studio. That was, that was the DNA of the company. Right. So they were based in Turkey and I had gone out to visit their studio early on and it was, it was just a, like, it was like a lab essentially. They just, they all Fridays were reserved for prototyping. Just make a game, make a prototype and then we'll do like it was a game jam basically and then they would, you know, play them and then I think they had some process for like elevating the ones that, you know, got some number of votes into production. And Merge Dragons, it wasn't like the first non hyper casual game, but I think it was the first game that had a lot more of a core loop to it. And it was also like they had done a merge game before that, but this was the economy that they were bringing to this game was what was unique. And it was really like, I felt like that was quite innovative. And again they bought it but they did a lot of work professionalizing it from what they bought into the actual game. That was Launched. It was another six months or a year or something until they launched it. But that was 2016. And I think what happened was the total collapse of Hyper Casual, which then forced that UA discipline, which UA discipline really is. Monetization discipline. It's building enough of a nexus of. Of monetization to be able to deploy UA against, right? And then that. That had enough of scaffolding to support an economy. Do you agree with that? Like, that's hyper. The floor came out on the casual side and so did. So both tails disintegrated. Right? And that was my point with the move to the middle is like both of those tails are going to disintegrate. And a lot of hyper casual game developers were very angry with me, by the way. You know, people writing articles saying, I don't know what I'm talking about. There were articles, you can find them now. People saying, you know, this guy doesn't know what he's talking about. Hyper Casual is not going well. Look what happened. But both tails essentially became unsustainable. Now, the Hyper Casual piece, because that is entirely dependent on just buying new users every day, it kind of reminds me of Lehman or whatever going into summer 08. I mean, they were turning over 30% of their expenses in the repo market every day. They were financing 30% of their expenses every day in the repo market. That's kind of like hyper cash that just went away. Now the other tale, the very core piece, social casino, that remains because they had players that were actually valuable and had retention. And so those companies, you see it,
- [18:51]
B
I think we can simplify It's Monopoly Go, right? I mean, you add or subtract that to casino, it changes the whole picture.
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A
Well, sort of. But you could look at huge. I mean, they're publicly traded, right? So you can look at their financials. I mean, they're printing more EBIT than they ever have because they're not really investing in UA anymore. Right? And that's what had to happen. You just can't do UA anymore. And so that was kind of that merge in the middle. But just kind of go back to my question. Do you think, is that what supports Merge? Is that what makes Merge such a powerful category now? Because it does have that scaffolding to support the modernization while still providing this kind of casual experience.
- [19:23]
B
So, I mean, it definitely has deeper monetization than you had in Match three. I think that's one thing it has to its benefit. Like one of the unique parts of a Match three economy is that engagement is always tied to monetization. The basic model of Match three is how many times you get to level ends and then how many times you end up converting on level ends. What's the average price of that conversion? We've tried experimenting with the price. That doesn't really seem to do anything. And ultimately we settled on, okay, how many times can we get you to level N's? And then what can we do with your conversion rate? Do we add streaks? Do we not merge? Is a completely new economy paradigm that I think is really important. That I think draws a lot from Social Casino because you have like this energy multiplier and you can drain it down. And so they're able to compress time in a way that I don't think Match has been able to. And that takes a lot of plays, I would say, from Social Casino, maybe more of coinmaster.
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A
Yeah.
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B
While combining it with the casual core. So again, like, they got that casualization on the UA side, but I still think they were able to build a deeper economy. And who knows? Like, it's still early innings for the subgenre. It hasn't had its royal match moment is something that I argued recently, like, there's still going to be a refinement to the core engine that I think is coming. It hasn't had its UA moment. I think it had even more aggressive UA discoveries. I mean, who knows? The sky's the limit.
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A
Let's just hover there for a second. So you talk about the energy mechanic being part of the economy. I think a lot of people would find that really interesting because I think when people outside of the space, but even actually within the space think about a game economy, they think about the price of gems or something, the price of hard currency, soft currency. Talk to me about why the energy mechanic actually is fundamentally the bedrock of the economy. Or these. Not just energy specifically, but these mechanisms that moderate sessions and playtime and retention essentially. Talk to me about that.
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B
I would say one of the things you start to learn about in most, but not all free to play economies is that ultimately you're selling time. There's always opportunity cost, which is your own labor that you could have used to get to whatever point in progression you want to get to. You can basically choose the allocation, I would say, in a very econ way, of labor and capital that you want to mix together to get to any point in a progression curve. And so free to play games, I think, have always tried to figure out how we correlate price with whatever that point is. Like, do we make sure that it's monotonically increasing. And so the thing that you start learning about is that sometimes I was talking about earlier, these monetization curves can be tied to engagement. The velocity, we could say, of Match three limits how much spend you could really have per day based on how many levels that you're playing. That's a fundamental fixed ceiling almost on how much money you can spend. If you go into, let's say a social casino game, you can spend, or even Monopoly go, you can spend $300 in 30 minutes. They're able to compress time in a very different way that I think unlocks a lot on the monetization front and power score economies like 4x, where really you're in some sort of combat is one of the core resolution mechanics and you just want the most attack. Again, you could just sit there and basically speed through being able to get to the power score you want just by paying. And that's a much more direct relationship than we've had in a lot of puzzle games beforehand.
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A
Right. And also, what is fundamentally difficult merge here is that if you look like so Candy Crush, let's call that the OG Match three. Let's just anchor that. I mean, you could argue if it is or not. Let's just anchor to that. You know, when they went public, I mean, I remember the stat because it was such a good rebuttal to the people that said, oh, freemium is corrosive. It's psychologically manipulative. It impoverishes people. They can't control themselves. And it was something like 95. No, it was 90% of the people who were on the highest level that was available in the game and never paid a cent. And so this is not, you know, in my book, I talk about the 5% rule, and you can only expect, like, up to 5% of people to pay anything. But this is not just a random sample from the distribution. This is the people that are the most engaged. This is the people that are the most fanatical about the game. They're at the last level. They're waiting for the update that week that gives them 15 more levels. And they have never paid 90% of them. Never paid a cent. Right. And that talks to you about that skewness of the monetization curve. And I think the reality is, though, what you want to do is, and this is kind of just highlighting what you just talked about, is you need to find a way. It's not necessarily about capturing that monetization. It's about Moderating the content consumption. Because if you just get on Candy Crush again, let's call it the OG Match three, it was kind of a primitive, you know, game design, right. And so, you know, notwithstanding the kind of conspiracies about they, you know, the AI optimized difficulty at the. At the pain points, right. Which may or may not exist, but I don't think they certainly didn't when they launched that game.
- [24:05]
B
I know enough people that could say there is no funny business going on.
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A
Right. I feel like I do too. But I wouldn't be surprised if, like in the last year, they. I'm sure they experimented with this. But putting that aside, you know, it was just all you can eat, right? You want to play and eat all the levels. You can do it. And that's actually like a very bad way to run a game. To your point, right? You need to actually control for that. Because ultimately the sort of value that you need to trade for is retention.
- [24:32]
B
That's true. But here's what I point out. The way Match three ended up abandoning. So they've basically abandoned energy in Match three, right? This idea that I would call it the token arcade model, right? Insert 25 cents, go play around. It's basically not become what you might call binding constraint anymore. You're almost never coming up against it. It's very easy to get new lives because we figured out you can just make more money per level end. And so let's just give you more level ends. And what we'll do is we'll use difficulty as the rationing mechanic. That's one way we figured out how to ration people is like, oh, if we just increase difficulty, it takes you more attempts per success. And so that's one way we can ration people is like literally just challenge.
- [25:11]
A
Yeah. Well, another way, though, is to give them access, but they're not rewarded for the content consumption past some. Past some threshold. Right? And that was. I give full credit. And this. They may have, you know, borrowed this mechanic from somebody, but I give full credit to supercell for that. With Clash Royale on the chess, it's like, well, your chest is full. You can keep playing. You're not going to gain anything from playing.
- [25:32]
B
Yeah, I think that's fair. I mean, like, I. I'm not the biggest fan of wage limits. I don't know. I just. I don't know if it just sends a shiver down your spine, Eric, but it's just. I don't know, I have the heebie jeebies. Maybe too much time in econ classes.
- [25:45]
A
Yeah, well, I mean, sure, as applied to like a labor market, but I don't, I mean, yeah, it's interesting to think about that as like a wage. Right? Because I suppose it is, but there's a secondary benefit which is just like the satisfaction of playing. Right, but like that's the point because you could deplete that or that is a deteriorating effect.
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B
But that's again, I look at progression as a wage.
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A
Right, okay, then that's fair. And then, yeah, you're okay then fine. If you do, you know, conceive of it that way, then ensure there's like a wage limit. Right, but it's like a time based wage limit. So it's capped beyond any sort of realistic level because there are people that set a timer and then they'll come back to the game when the chests are openable. But I still feel like for most people it's still capped beyond any sort of practical limit. Right. Or is that not the case?
- [26:29]
B
Well, I mean, to give you one example of ways, we've also solved for this in Match three, now you do level looping. So basically you feed in early parts of the levels or you seed them in in some way so you can basically recreate sequences so that there's no such thing as end of content. You keep going. So I think there's been clever solutions to this. I mean, don't be wrong. We definitely do things like increase the marginal price per unit of power score in most of these games too. So as you get to the end of the curve, it becomes increasingly prohibitively expensive to get to whatever the maximum point is. In most games,
- [27:02]
A
plenty of mobile growth strategies are still built on broken journeys and incomplete data and it's costing brands big time. Branch fixes that it's your AI powered MMP that unifies your links measurement and user experience across every channel to successfully acquire, retain and engage your app users without wasting spend. Learn more@ Branch IO and while you're there, check out Branch's AI Search and Discovery report covering insights from more than 300 marketing growth and digital leaders on how they're responding to the rise of AI search. Okay, I want to move on to downloads, right? Because I think that was everyone. I saw a lot of articles about this going into 2026 about how, yeah, mobile gaming is growing again, but it's a little deceptive because downloads have basically fallen off a cliff. Right. And so really it's just these big players that are better at, they've gotten better at monetizing and They've got these big franchises, but downloads are shrinking, they're negative growth year over year. And so just because the market's growing doesn't mean there's a lot of opportunity because it's all sort of being captured by the big companies. And look, I think that is the case. I mean, I'm not arguing with that. I think the issue is a little bit more nuanced than that. And let me lay out a hypothesis and you can tell me what you think, but I also want to get your thoughts here. So first of all, I wrote about the mobile gaming have and have nots like two years ago, right? Like if you looked at that point like the top grossing games, yeah, there were new entrants, right? But it was Scopely and Dream and it was Royal Match and Monopoly Go, and they were performing better than any other game, right? So I mean, these were new games at that time that were out making more money than these established legacy games. And so yeah, they're obviously my point was like, yeah, it's feast or famine, but a well capitalized and experienced dense team can feast even if it's new, right? And at that point Dream was still startupy and Scopely is not. But that was a new game nonetheless. Monopoly Go at the time. And what I think people are maybe mistaking here in this analysis of the install number being down is that Android instituted a much stricter gate for new game publishing that is like AI empowered, right? So it's still fully automated process. It's not the human review that Apple does, but it's much stricter. And my sense is, and this is just, I mean, I haven't validated this, but it's impossible to validate. And I don't think a lot of the tools are good at this anymore, but we'll get to that maybe later. But all you really did was cut a big chunk of the tail off for games that weren't monetizing at all anyway. And if you look at the differential between new game upload or new app uploads on the App Store versus Android, I think that validates that because the App store was up 84% year on year in Q1, Android was not up at all. And so a lot of that AI stuff is not being caught in the filter in the App Store, but it is on Android. But the App Store drives a lot fewer downloads on an absolute basis. My sense is that this new filter just excised a lot of installs that were essentially zero value. And so, yeah, there's fewer installs, but those were fewer $0 installs or fewer installs that were driving no value. And so you are reducing the denominator, but you're not changing the numerator at all.
- [30:28]
B
That seems like a reasonable hypothesis to me. Look at. I can never get anything out of looking at downloads. I feel like there's always some sort of fraud or weird thing. Whenever I look at App Store rankings, I always have to filter out hyper casual. I feel like it's really hard to get signal out of downloads. Feel free to tell me if I'm wrong on this one, but I've never found it to be trustworthy. How am I supposed to separate saturation from just. It just feels like there's a million different effects. And not only that, there are effects within each country too, that I struggle with.
- [30:52]
A
Well, no, but that's my point. Right. And that's my point. That's why just looking at these numbers, like broadly market level, people are drawing the wrong conclusion. They're drawing this conclusion that like UA is impossible. You know, it's. It's like it's all legacy games and they're just getting better at live ops because they, they've reinvested money there. And I just don't think that's true. And so I pulled the numbers before we started recording. But like, if you look at the top 10 games in the US App Store, most downloaded, all but three were launched 20, 24 or later. So tell me about a crisis in installs. Tell me about it. It's impossible to do ua. No, it seems like it's actually UA is maybe more accessible. I think that that's actually a lot of turnover right in the top downloaded chart. I mean, I wrote about this years and years ago. You looked at the top downloaded chart year on year and it was just the same seven studios, right? And now there's like a lot of turnover. Like all but three of these games were launched. Top 10 downloaded in the US App Store were launched 20, 24 or later. And so that doesn't to me sound like it's impossible to launch a new game. It sounds like it's very difficult to launch a new game and it takes a lot of density of expertise. You talk to anybody that's worked with dream games, what are they really good at? They're really good at monetization and they're really good at ua. And those two things, by the way, are essentially like work in concert, right? So you can only be really good at UA if you're really good at monetization. But I think what's happened is that a lot of the talent in the US market got absorbed into the bigger companies, that they have publishing regimes, but they operate across platforms and mobile maybe is not the primary focus. What happened in Europe was that the new studio formation just fell off a cliff because venture capital stopped investing in games. In Turkey you have this density of talents, a lot of which came out of Pete Games. They went on to form numerous studios that are doing very well. And then China, and China, they just, they have a lot of people that they can throw at this problem. To your point, they can produce thousands of creative variations every week. And it's not AI slop, it's, you know, in a lot of cases it's. It's artists making the original variations and then they'll obviously create variations from those with AI tools. But, but so I think like that's. That to me is, is what's happening. It's a totally new operating paradigm. It absolutely is possible to launch a new game into the top 10 downloaded this year if you wanted to. But you need this density of talent that just doesn't exist in the US and you need infrastructure that a lot of the big publishers in the US don't have and you need the ability to adapt and to upgrade your infrastructure, which a lot of the big studios in the US don't have. In Europe that was always kind of driven by like startups turning over. And so by definition they had a lot of new and innovative approaches, but that's just not happening anymore. And then in Israel it was mostly social casino. And then in Turkey there's this explosive growth. In China there's this explosive growth because there is more turnover, there is more willingness to update operating principles. And in China they have a lot of manpower and also it's very innovative creative economy there. And so they are adapting to the new operating norms. And so I do think this idea that it's impossible to launch a new game because UA is dead is a misread of these numbers because it's a misread of what caused them.
- [34:07]
B
I think that's fair. I would say it's also interesting that every time a game scales, usually in this category recently, it's always clouded by accusations of scaling unprofitably or negative roas or something. There's always some sort of air of suspicion around whether or not this is feasible. But don't you think there's at least something to the idea that. I've always thought about mobile gaming in particular as closer to a perfectly competitive market where things basically, I don't want to say they don't get bid down to the cost of production, but they move in that direction. There's very little modes, everyone copies from one another. You can't really hold on to any intellectual property. I mean, UA moves at the lightest speed. Even more so with ua. Do you think the United States has lost its comparative advantage in content?
- [34:48]
A
Yeah, and I think it's worse than that. I think the United States has more or less lost its advantage in machine learning and that's a bigger problem. We don't produce nearly enough machine learning engineers, people that are fluent in that space. And that is the modern industrial tech economy. That is it. And it's actually very scary. But putting that aside, yes, I do think that, look, you talk to these legacy publishers and they're operating the Stone Age. So I saw. I don't want to denigrate what people are doing, right. But the thing is I'll see these decks or whatever that get made. And I saw there was someone had a picture of a slot slide that they gave at a, you know, some UA conference or whatever. And I just sent it to a buddy of mine and I was like, this could have been a photo from 2014. It like this people are stuck in thinking from like 12, 13 years ago. Like it just hasn't evolved. And that's not true. Like you go and talk to people that work at Dream Games and they're, they're operating on the frontier. You talk to these Chinese studios are operating on the frontier and maybe they're not sharing. I mean, that's just one of the things that's happened. And so I do think, yes, anything that you push out in Facebook ads library is going to be copied mercilessly within a day. Right. I had Matei Lankyrick on a while back and you know, he was talking about, I asked him like, what's the life cycle? How long do I get? How much lead time do I get with a winning creative? And he said, a week, I think, if I remember correctly. And. But that number is on the decline, right? It's just in decline. And in some cases he was saying that it won't be a clone of your creative, it will be your creative. The creative will be the exact same thing. It's just the end card gets swapped out. It's not cloning, it's just stealing. But that's not actually where the value is derived in ua, it's not at the output layer, it's in the Underlying PLTV model, it's in the mechanism for doing signal engineering and passing back the most relevant and sort of information then signal to the platform. Right. It's in, you know, kind of cohort level prediction and it's, it's in all of that sort of predictive infrastructure. Which just ties back to my ML comment. Like all this is ML now and that's where a lot of the studios in the US certainly have fallen behind. And so yeah, all this stuff gets, it gets copied, it gets cloned, but that's not the actual power of the product. It's not the things that you can see. It's not, it's not the sort of like these visual artifacts. It's everything that empowers those being served to you in the game or at the first contact, which is the ad.
- [37:21]
B
So you think the United States is behind in efficiency of buying UA traffic? If we made these optimizations that the Turks and the Chinese have, then we'd be in a better place. You think if the Swedes had made this optimization for Candy Crush, they would have been able to, I guess, counteract against Gossip Harbor? I mean, Gossip harbor is on its own trajectory, but is that what the west is missing?
- [37:41]
A
Yeah, and look, I mean I have more limited exposure now. I don't like actively and I do consulting like selectively, so I see. But like big companies, right. And it's at like maybe a higher altitude than, than I would, you know, then I would need to get like really specific in answering this question. But yes, I do believe so. I do believe so because I think, I think we don't do in the west, you know, Western studios are not really doing scientific ua. And like a lot of that, my insight that that is the input to that assessment comes from places like LinkedIn which are biased towards slop. Right. So maybe it's not, maybe it's not the best. You know, maybe I've got just, just a sort of biased sample here. But, but my sense is, yes, and this, this also comes though from talking to a lot of people and doing selective consulting. I do think the approaches haven't evolved since like that maybe 2014 to 2017 era. And that's a real operational and competitive disadvantage. And I do think that explains a lot of the bifurcation that you're seeing in the market. But what you're not seeing is an inability to launch a new game to be a hit. You're not seeing that. It's, that's, that's just incontrovertible. Look at the Dates of launch for the top 10 most downloaded games in the US App Store, you're not seeing an inability to launch a new game in the year 2026 to be a hit. You just are not seeing that mobile game developers no longer need to Pay up to 30% in major app Store fees. With Xsolo Webshop, you can create a direct storefront, cut fees down to as low as 5% and keep players engaged with bundles, rewards and analytics storage. Start today at Xsola.com that's X S O-L-L-A.com or use the link in the episode Show Notes so we're seeing mobile games M and A pick up again. Does this result in further genre concentration or can we see diversification as a result of this look?
- [39:28]
B
I mean is it really picking up? It's always hard to tell. These are like rare events, like outliers can really drive a lot of this analysis. So I'm scared about that as always. But I guess it is picking up again. But it doesn't feel like valuations are up. I mean it feels like it's more like it's residing, it's shrugging towards being back again. Something of that nature. I don't know. Tell me more for my read is off here, but I don't know if there's anything really exciting again in M and A.
- [39:52]
A
Well, we've had a number of big blockbuster deals, Moonton being the biggest that obviously.
- [39:59]
B
But that's like a Chinese sell off. That's like a bad.
- [40:02]
A
Well okay, yes, but that is captured in the headline number. But we've seen a lot more studio acquisitions, right. So I mean I just know this from my friends at Arena. I mean they're posting a tombstone once a month and these are not billion plus stuff that makes the Wall Street Journal. But still it seems like there's more of a cadence of M and A.
- [40:19]
B
Now look, Pixel Flow I think was really exciting, but that game has underperformed since it was purchased. Moonton, which you just talked about, was selling from a position of extreme weakness, I would argue rather than strength. Action RPG is way down. Their portfolio is way down. I guess Dream is kind of interesting, but I don't know what does that acquisition do? I guess it returns money to people. That's interesting, but does it like enable them to do anything that they couldn't have otherwise done? I don't know. It just doesn't seem exciting. I guess Scopely seems the most exciting here they have any in tech. I thought that was really fun But a lot of their other acquisitions have also gone by the wayside. You remember tag games? What happened to them? Digits kind of fallen by the wayside. Pixel flow doesn't look like it's going anywhere. There's been some huge misses, Miniclip, Easybrain and I don't know, has that been explosive growth? I don't know. It just feels like the outs should be bigger here and that would also help valuations.
- [41:10]
A
Okay, but let's say that it does pick up. Do you think that just results in more concentration or is that going to lead to category expansion and adjacency exploration? Because that was the outcome of the 2017ish boom of M and A. I
- [41:26]
B
would say, look at, I go back to the perfect competition model. If there are economic profits to be had, new firms enter the market and compete for those profits. I think this market responds very well to incentives and I think it responds pretty quickly. So if companies get sold on one end, then there's going to be news companies coming in on the other end.
- [41:43]
A
What about AI generated games? Are we seeing any traction there or any games being launched with AI that are worth talking about? No.
- [41:49]
B
Fuck no. Complete waste of time. Complete waste of time.
- [41:51]
A
Complete waste of time.
- [41:52]
B
Complete waste of time. No one's doing this shit. It's really disappointing. Look, you wrote a piece a while ago about the stages of UA creative, which I thought was really apt. I definitely see it there. I mean I literally see it in my Instagram feed. Just click on all these things. You can see the AI ads, you can see the move into this Pixar style art which had already been happening beforehand. Again, Chinese Turks mastering this shit. But AI games have been disappointing. I got a piece coming out on this, but I think we've really abandoned the engineer founder. I think they're completely by the wayside. I think you look at the founders in games, they're not the original engineer, they're not the Tim Sweeneys who had some technical background. It's not the Carmax of the world, it's not Will Wrights. And I think we're losing our connection to the actual technology, which is the driving force in video games. We talked about art and commerce, but technology is the most important. It's the thing that makes it video games. And I think we lost sight of that. So we're not seeing it through the funnel, we're not seeing the ideas. Mobile studios don't take risks like this. This will happen in indie Steam. This is where this will start. We've seen so many trends in mobile gaming start in indie Steam. We talked about hyper casual. I would go even one step earlier on the farm system it'd be indie Steam. I mean this is where so many Habby's games have come from. This is where the UA for Kingshot that came from. It is an incredible farm league in and of itself but it's not going to happen in mobile in my opinion.
- [43:10]
A
What did you make of the crimson desert furor with the AI generated placeholder art and people are up in arms about it because they didn't disclose it.
- [43:22]
B
There's always going to be the Reddit agenda represents a certain voice in the Internet and then particularly in HD gaming and so does this voice matter? Well I would tell you for mobile gaming it never does. There's a subreddit I remember dedicated to the Walking Dead. It was just like hate Scopely Tuesdays or something along those lines. There's always been look at this has always been the case. There's allowed further against free to play games by some consumers and on Reddit it's worse for PC console games. It's just not a large share of dau. So they've aligned on an agenda which is anti AI assets. It won't matter for mobile gaming and no one will talk about it. They don't want to make the issue more salient in PC console which I think is a smart strategy. Same thing we played for monetization when there was loot box controversy. Reduce the salience.
- [44:04]
A
Yeah, I can't imagine that there would be that same intense inherent hostility to it in mobile gaming but just because mobile gamers are not fanatical in that way. But I agree with you. I think it's just so first of all I think the impact of AI is invisible. I mean there has been a tremendous impact on studio operations in terms of certainly in the UA space. And I'm not just talking about art creation actually I think art creation is the lowest value part of that. But I've seen a lot of really interesting things being done that bridge monetization and player lifecycle management with AI, when
- [44:40]
B
does that hit a GDP number? This is what I don't understand. So I agree with you. I feel like I've seen magic. But when does that hit a top line number that we can observe if it's so magical? Right. I mean I feel like this is where it should land is some top line number that the AI has lifted. Like why aren't downloads back up if we got better at discovery process through all this UA creative that AI can generate.
- [45:01]
A
But that's my point. So first of all, I think it has, it has the UA layer certainly. But again, keep in mind, who's investing in this stuff? It's the big companies. It's not small studios who can do this right now. And so I do think that there's a deck going around in some big company that shows like, hey, we instituted this system and it drove like 4%, 5% incremental conversions, right? And that's important. And you look at Meta's earnings and it's like they drove 10% improvement in Instagram reels engagement from an optimization to their, their recommendation system. And those are important boosts. Right. And that trickles down to every other aspect of monetization. I do think, I do. So you're asking like when is it apparent in revenue numbers, like broadly. Well, no, I think, but my point is, I think it is, I think it is. You won't be able to parse apart the impacts at the individual company level layer because no one's going to explain that to you. No one's going to tell you how they're using it or what they're, what they outcome is because this, right now, this is secret sauce stuff. This is not something that you explain in a, in a GDC presentation or a blog post. It isn't. This is very, very sensitive competitive intelligence or advantage. And so you wouldn't just give it away. But I do think studios are applying this to like great effect now. Now when does it trickle? When does it become so impactful that you see it in the top line numbers? I think probably when we look back at 20, 26 revenue, we'll see, we'll see effects of that. But again it's the biggest companies that can implement it. And when does it become available? Startups, it becomes available when the biggest companies make it available. And that'll be like, ask yourself, has Axon increased revenue broadly for mobile gaming? Yes, it has, it has. So that's a GDP number and that's AI. That's an impact of AI. Right. And so like I do think, but it's going to be the biggest companies that make this stuff available and it won't be, you know, I don't think it'll be SaaS tools. I think it'll be the biggest companies making these available mostly at the UA lever layer, but, but also maybe with production. But then all, you know, and then it'll be like smaller studios that build this stuff as part of the game development process and they get gobbled up, they get acquired.
- [47:02]
B
So if, if this is the case and this is the same question we talk about like D2C, do you really think like I call it like the marginal propensity to add networks, like when you see these increases, we could call it increases what an LTV from like better matching from ads or if more, more efficient matching from the different volume of ad creative. It's just the algorithm can act on a bigger supply combines with yada, yada, yada. Do all these gains go to the ad network or do you think some of them also go to the game provider? And it's the same thing with dtc. Are all the DTC just getting bid? Because once LTV is higher, then you just bid higher in the adoption, right?
- [47:34]
A
100%.
- [47:34]
B
Yeah, you bid more. So you got to think about what's the marginal propensity for the ad network when you get gains like this? Do you think it's 100%? And now I get to turn the tables a little bit because I wanted to ask you for this for a
- [47:44]
A
little bit like 95%. But where does the value? Or between 95 and 100 or more or it's 110 if the studios aren't good at doing PLTV.
- [47:56]
B
So that speaks to the. That's a perfect competition result though I would argue that falls straight out of the model. But you can see why that's frustrating though when people learn that all my gains basically get bit away.
- [48:08]
A
But where does the value come from in the first place? It comes from ua. It comes from these platforms. If they didn't exist, you'd have zero. So thank them.
- [48:14]
B
No, I completely agree with you. I completely agree with you, I think. But I mean what you want to do is you want to form a cartel. That's what they're looking for to restrict supply and raise price. I think that's the only way out of this. But this is the mobile gaming nature though.
- [48:27]
A
Yeah. But keep in mind it's always going to be brutal, right? Yeah, sure. But you drive your revenue up, you drive the value of your studio up. So it's like, yeah, the cash just gets recycled back in the ua. But my studio is worth more because the top line's worth more.
- [48:41]
B
More. Yep, that's fair. I agree with that.
- [48:43]
A
That's always been the case. I mean that's always been the operating model. I mean these margins are like, they're thin. It's. The volume is high. Right. When you account for UA spend.
- [48:52]
B
But I think that goes back to M and A and why private equity is interested in it. I think it goes back into what you see as mobile gaming, as a piece of software or as a piece of entertainment. It has a very unique profile. Economics.
- [49:04]
A
Yeah. But a large one. Like a huge footprint in terms of tam and like so I think like it's, that's, you know, and maybe that needs, like so look, this is like a, maybe this is like a short term dynamic because you know, the point that you're sort of, you're shadow boxing is like at some point, like if I just keep recycling this extra money that I'm making as a result of these tools, I'm only enriching the ad networks really. And there are massive margins and in my margin on acquired users is 2% or something or 3%. Unless my EBIT multiple is expanding as my top line goes up, I'm not really getting much. But that's the whole point. That's why these investments are being made by the ad platforms, because they benefit the most. It's just the incentive structure. Unless you truly are, you're operating at such an LTV frontier that there's no one that's competing with you. Right. And in that case, I'll bank the last six months of this extended life cycle of the average cohort as pure profit. If you were there, then you could just bank that maybe as extra ebit. But that's not what people are doing. I see it. They are recycling the money into UA and this all goes back. And a lot of it goes to
- [50:18]
B
Apple too, for asa little velocity attacks.
- [50:22]
A
Yeah. Talk to me about DTC and how that's impacted the ability to do the kind of analysis that we're talking about. Looking at revenue, looking at revenue per download. How is that changing things?
- [50:33]
B
Well, it's always similar to what we talked about with ad networks, right. I mean you never had ad revenue and Sensor Tower, so it always felt like a hole. And you were undercounting hyper casual. You weren't really getting the full picture. And again, you still aren't in many games, like, oh my God, we could be off by like 30 to 40%. Which is why sometimes you got to look at downloads too. Right. Because usually downloads again, they're the result of that process. You just talked about that cycle. And so if those are scaling or decreasing, usually it gives you a hint. So you have the same problem where you're not observing the data anywhere. But I can tell you it's very much real. It's very much real. I can tell you Almost every single one of my clients has it. And again is driven by games in which there is a socio competitive benefit to optimizing on spend. This is why almost every forex game has it is that if I can get a cheaper price per unit of a hard currency, that means I can actually progress faster than my clan mates. And so that's why you see this huge adoption of DDC in a lot of mid core games. While casual sometimes sits around 30%. And again you're seeing this kind of war between some of these payment processors, different platforms, everyone's competing for this space. I think margins are basically getting bid down to zero on DTC transactions or they're really getting squeezed on how much a third party provider can take versus you just doing it in house. But that is certainly something real. And again if it ends up increasing LTVs because you're taking more home than if you're a studio, you're going to bid more on UA traffic. And what does that mean at equilibrium CPI goes up and ad network gets to reap the gains
- [52:00]
A
across the companies you've worked with that are doing this, which I guess it sounds like it's most to all. What's the largest percentage of revenue you've seen be generated from D2C?
- [52:09]
B
50%.
- [52:10]
A
50.
- [52:10]
B
50% I would say. The other thing you just got to keep in mind is that there are time series effects. One of the things you talked about at the top of the hour was the fact that oh my God, only 10% of people at the end of Candy Crush repairs. If you examine that over time the share of your DAU who are customers or people who have made a payment at any one point will increase just by survival bias because people who tend to make payments have longer retentive life cycles and so they stack over time. And so by some games can have 80% of their DAU be payers and so you these survival bias effects. So DTC revenue can also increase over time. But I've seen, I personally have observed as much as 60% in a forex title.
- [52:50]
A
And how are they implementing that? Was that just moving the existing catalog into a web shop or was that, were they applying some science there?
- [52:59]
B
Always incentives, always paying people. Now I would say again science was not done in an effective way in that there was a controlled AB test where we know the causal uplift of all these effects versus people just naturally discovering it. But usually there's always some sort of VIP program straight out of the Eastern playbook from 10 years ago. They were running there's usually easy. Apple Pay checkout. That's extremely important. This is one of the things that. Oh God, why do you keep hitting yourself? Is that when you get to the checkout for many of these D2C platforms you can use Apple Pay. You don't have to pay them. It's Apple Pay on the web. So you can basically guarantee that if you're on iOS, you're going to be able to solve this. And the linking out is becoming far more aggressive. So now Clash Royale has a link out where you claim a free daily reward by going to the web store, which loads very quickly. Scopely has something similar with the Tycoon Club, but you can get far more aggressive at getting people to the web stores than you ever could. But usually again, loyalty programs, discounts, sometimes a special skew, again just to get you into the habit of getting into the web store. But they're definitely subsidizing it.
- [53:58]
A
Talk to me about those incentives though, because you still have. So like this whole fake furor over Apple kicking out what was the app. I'm blanking on the name that, that calai. The calorie tracker app that got on my. My fitness pal for like 50 million and they got kicked out like 2. Like this was Apple's overstepping and it's violating the. The Yvonne Rogers is enjoying. Like no, it wasn't. They were doing all of this unscrupulous stuff, first of all at the checkout and second, there are still rules. This isn't like we haven't been thrust into anarchy here as a result of the epic trial. There's still rules. And the reality is actually, and David Barnard made this point on Twitter, the fact that Apple couldn't implement the pricing on the link out stuff was actually a benefit. Now that they can, they're going to start taking a cut of the linked out transactions. But like that whole idea that like, oh, Apple is violated, you know, people are going to go to. I saw people on Twitter. It's driven hysterics over this. Like people at Apple are going to go to jail because they violate. No, they're not. Like this app was blatantly violating the rules. And also like they were doing it in an in app browser, which you can't do if you link out and then you have to offer the iap. You can't just have exclusively these alternative payments processes. But talk to me about how people. So that's too far. Right? But how, like where are people getting right up the line there? If you're talking about they're getting more aggressive with the link out.
- [55:27]
B
So I mean, I mean you can just straight up, you press one button and then boom, I'm in the web store. My information's usually already saved or linked out beforehand and then I'm in checkout in a couple taps. Like it never used to be this aggressive beforehand. It never was pushed in my face. I never was made aware of the web store. It's not the original Project Liberty screenshot. Like if you remember Tim Sweeney and the original screenshot it was the crossed out price. Right, right. That to me was always the vision he was fighting for and I haven't seen that. But what I have seen is just straight up links to the web store inside of the traditional hard currency store in many games or where the hard currency skus sit.
- [56:06]
A
Interesting. And have you seen people do any sort of, with any kind of sophistication, do kind of content optimization there?
- [56:13]
B
I would say CRM still exists. You'll still get emails that might push you to the web store again so they can get you outside of you just clicking the app icon or being in the app experience to get you the web store. But that's pretty much been the extent of it. I mean if you remember, you can use WhatsApp numbers too. AFK Journey used to do that for me to push me towards the web store. It sent me a WhatsApp text message and then it linked me into the Lilith store.
- [56:36]
A
Well, the emails were the original tactic because that just totally sidestepped any sort of limitations in the app. You just send emails and then that was actually what got allowed in the first place. Remember there's that class action lawsuit from customers and they said Apple we can't get. And so Apple had to allow the. No, sorry, it was small developers that had sued Apple in the class but, but the Apple had to allow apps to collect the email address early on in the onboarding and then you could just. They had allow people to be able to communicate with the users that way. And that was how a lot of people managed that. They just did the web store via email discovery. All right, I want, I want to. I got two more questions. So talk to me about gdc. So I haven't been to gdc. This is the second year I didn't go. I don't know how to trust how well, how well the LinkedIn chatter was, was rep have represented the actual boots on the ground experience. Tell me about GDC and talk to me about what you perceive as the prospects of GDC going Forward.
- [57:27]
B
Are you using it as a bellwether to evaluate the whole industry or just what's the mood?
- [57:31]
A
Mood. And I think people are more dour than they need to be. And I think that if you had a better representation of studios there, you would probably be more optimistic. But I don't want to lead the witness here.
- [57:43]
B
I did not find that to be the case. And maybe it's survival bias and all the marginal people got removed. So now it's only the excited people who are happy to be there. I found the mood to be high. I thought it was great. I mean, look at. I always have a great experience. It certainly shrunk. There's no doubt about it. There's no doubt about it. I mean, you can look at the numbers. GDC reported it, it was down like 10,000. Don't quote me on that, though. The hotel lobbies were not as packed as they normally are. I had a great time. I think everyone else who went usually has a great time. I didn't think there was any dour moods or sour moods. I think there's always news about what is the. I think the unemployment news has become a vicious cycle. And the thing I always like to point out is that we don't know what hiring is like. Don't get me wrong, I don't think hiring is outpacing the closure of studios. Actually. I'm certain there's been a net loss. Again, demand fell out the floor. We overestimated demand. And labor markets are going to correct. They're slow. We know they're sticky, so they take longer. And this has been a slow process. And I think people want to rejugal error. But we don't know what hiring is. It's not zero, I can tell you that. So I think until that, until that ends though, that's going to be like basically torture, water torture for developers. And so that was always in the mood. But besides that, like AI was, was more affirmatively on the menu than I expected. Again, it's not what you're. You're reading about. More people are curious. They're AI curious.
- [59:02]
A
Like, talk to me about like what. What did you see that. That you thought was inspiring or, or you know, insightful related to AI.
- [59:09]
B
So they had a AI session. They have these open sessions where everyone just kind of basically gathers in a room and then they throw a cube with a phone around if you want to know what really happens behind those doors. And it ends up being, I think, a pretty well moderated discussion. So I sat in on two Days worth of that. Again, not for the whole session, but for subsections of them. And of course you have people who self selected into a conversation about AI. But almost all of it was super productive conversations. It was trying to think through whether or not there was any legal exposure which remains on a lot of people's minds, I can tell you that. Like oh my God, am I violating Do I have copyright over the assets that AI produces Was like a high hot topic that was of debate. Trying to figure out where you hand things off between a model and actually hiring someone to do the work I think was another interesting conversation. Integration with the 15 million different tools. But it was mostly about trying to unlock this as a productivity tool than anything else.
- [60:03]
A
Yeah, okay, but that's not unique to gaming.
- [60:07]
B
No, that's the problem that I haven't seen is no one is thinking about what are the AI first game designs. How do you use AI to create new experiences that you couldn't otherwise have? Like this is the only way I see us growing our TAM at the moment. Moment I don't think it's going to come through making a faster horse. That doesn't seem viable to me.
- [60:23]
A
Does TAM need to grow? Isn't it already kind of saturated?
- [60:26]
B
Look, I think Roblox hit a fundamental limit. When you look at how many kids they have. The first decrease in dau. What in forever? And they were sitting at one in four kids in the United States. I forget the age range but I mean it was some even half I think depending on the cut of kids. I always looked at that as a positive demographic signal for us because how many of those people can re retain going forward? Think about it like a life cycle. Like this to me is us basically stacking highly interested gamers. And that to me if you just multiply this out, if we stack this wave of Roblox players, even if it decreases, that means total TAM will increase over time. So I think does it need to expand? No, but look, I mean I'll take anything that can help us win and I think this is one thing that's positive.
- [61:12]
A
So here's what I think we'll get from AI. I don't think it's TAM expansion. I think it's engagement expansion, expansion. And I think a lot of the analysis that points to sports betting and more participation in stock markets as sort of taking away engagement from mobile gaming, I think that's a misread. I think the reality is those things are not mutually exclusive. These are bite sized sessions. Right. So there's no reason why you can't have those existing in a day, coexisting in a day. My sense is like we Talked about for 20 minutes, look at the top 10 downloaded chart. 7 out of 10 launched since 2024. But it's like a lot of that. It's not that it's impossible to launch a hit new game. It's impossible for the people who don't know how to do it. And so my sense is we had this very disruptive, exogenous shock with att. We're five years past that and you're still hearing people talk about, about how to market in a post ATT world. And it's like, no, the companies that are successful learned that four years ago. If you're still asking that question or going to talks with that title. And look again, I don't want to denigrate anybody and what they're doing. And again, the resources aren't evenly allocated here. But if you're even asking that question, it's like you lost the plot. You're so far behind, it's going to be really difficult to catch up. That was five years ago. If you're still talking about that as an operational challenge. It's not just that you're behind, it's that you're impossibly behind. Right. And I think it would just make a lot of sense to look at the companies that are doing that well and try to reverse engineer what they're doing. But yeah, Roblox is down 20% after their earnings. They had weak 2026 guy too.
- [63:00]
B
Let's see. There's a lot riding on them.
- [63:02]
A
Well, yeah, but I think that also felt like it wasn't the right bellwether for gaming. I think a lot of people repackage their Metaverse enthusiasm into Roblox as a story and if that crumbles too, then, well, maybe that whole project just never had any merit, which I don't think it did. But. Okay, we don't need to go there. All right, I know we're way over. I want to ask you one last question. What's the most interesting thing you're seeing in economy design?
- [63:29]
B
I would say I'm going to be personally biased here. War bonds, I think are really interesting. If you've ever played Helldivers 2, it's their version of the Battle Pass. And it solves a lot of fundamental problems with Battle Pass, which is, I would argue, probably the biggest innovation in monetization design in what a decade was Battle Pass. I mean, not in the last 10 years, but it basically gets popularized in Dota 2, I would argue. And then Fortnite takes it. And I'm sure you could point to examples before it, but you know your traditional battle pass, right? Usually every three months you charge $10. Usually there was 100 tiers worth of content that you could upgrade as you go along the pass. You could choose at any time to pay $10 and get the premium lane and you would earn all the rewards that you had gotten up until the level that you had progressed to. And remember, you only had a certain amount of time to earn the rewards you only had usually three months. New battle pass would come. That ended up forming, I would say the delusion of many mid price premium studios is what you could use as a revenue stream. People figured out it was more of an engagement driver than a monetization driver. And how do you solve for this? I wrote a piece about this a while ago. Just build a model. What's $10 divided by 30 days or excuse me, 90 days on a three month cycle. That's your average daily monetization cap per day. And that's going to be far less than a dollar, just dividing by 90. And so that's very low for a free to play game. You can't support the LTVs you need. And so the War Bond system I would argue is an iteration, a kind of Kunian evolution of trying to solve some of those problems, which is that, oh, what will happen is that we'll stack battle passes. If you remember, Battle pass was only available for players who would play in those three month periods. I always like to point out if the Disney vault is the revenue maximizing strategy, would HBO make more money if they only had Game of thrones available for 30 days in a month? Of course they wouldn't. We think that's an absolute farce. But yet we believe this is the right strategy for content. And we've started to move away from this. We start to have more permanent stores. War Bonds falls in the same mechanic where you can buy as many as you want of them. They stack over time. So you could go into the game game day one, maybe it's been a year since development and you can buy four war bonds at once. So that's one piece is just stacking the war bonds so you don't have to be pressured into them at any one time. And then you also have the ability to choose which items you want in a War Bond. So rather than this lane we were talking about, you choose from a page and then when you're reached a certain amount within a page, you can flip to the next page so you have some level of autonomy. And so this, to me has been a huge innovation and monetization design for a lot of HD games. It solves a lot of problems. You can stack content, you can stack monetization. I think it's a big winner and I think you're seeing more games do it.
- [66:05]
A
Anything else that's more mobile specific?
- [66:08]
B
Oh, I would say absolutely. We've seen more event box design. I think this really comes out of the east, where you basically have a fixed pool of items and then what's happening is you're sampling without replacement. So you're going in, you're removing an item from the pool, you're getting rewarded. And then the drop weights or the drop rates are getting recalculated now that it's been removed from the pool. And sometimes what the eastern games will do is they'll increase price proportionally with that. So the game also becomes more expensive to play. But you're seeing a lot more of, I would argue, kind of like Eastern RNG or gambling design come into LiveOps and those games be popular in the West.
- [66:40]
A
Phil, this was great. Tell people where they can interact with you online, where they can consume your insights online.
- [66:46]
B
Yes, I am on LinkedIn, unfortunately, or fortunately. I have my own blog, gameconomistconsulting.com blog where I subscribe. I don't know, don't drop a. Like, there's no commenting feature. And I'm also on the game Economist Cast, which is my own podcast. And then there's also this week in Games on Deconstructor 4 fun.
- [67:01]
A
Thank you so much.
- [67:02]
B
Thank you for having me.