Level 69: The Next Generation of Strategy

Playstation 5 vs Xbox: Series X, Facebook's VR Vision, Some Free Money, and a Virtual Streaming Avatar

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📜 This Week’s Notable News

Playstation, Xbox, & The Spectrum of Games. 

Wednesday afternoon we had a deeper look at the Playstation 5, including information about launch titles, release dates, and pricing. Hearing about the newest releases is fun, but press events can also serve as an excellent window into the long-term strategy behind our favorite consoles. With console releases on the horizon and news flowing in every day, this week’s Playstation event helped crystalize a mental model for how to think about the next generation of video games. It looks a little something like this:

At either end of the spectrum, we have the primary focus of the company: individualized focus versus communal focus. An individualized gaming company is all about depth over breadth, allowing consumers to tailor-fit their gaming experience exactly to their needs. An individualized-first consumer doesn’t spend money unless something is exactly what they want, which in turn demands high quality and less frequent releases from suppliers. On the other end of the spectrum lies communal focused companies, which prioritize delivering value to larger swaths of people over individuals. The fundamental philosophy behind communal-first consumers is “one size fits all”, there’s no time to keep up with new releases or blow through cash on every new game. In turn, communal-first companies deliver value by prioritizing moving consumers into their ecosystem, such as bundling a whole bunch of services together for one low-price. 

After what we’ve seen from Sony and Microsoft in the past few months, it suddenly gets quite a bit easier to place our favorite consoles on this spectrum, and it looks something like this. 

Sony’s press conferences are all about first-party, exclusive titles. Games like God of War II and Ratchet & Clank are beloved franchises that people will spend money to play, and that’s exactly what Sony wants. As they continue to invest more deeply into this individualized ecosystem, spend from consumers is predicated entirely on owning a console. What is the #1 way to sell more consoles? Exclusive Games. This is how console sales have traditionally been done for the last 20+ years, so to see Sony lean in more isn’t surprising. Meanwhile, Xbox failure to produce high-fidelity hardware and compelling first-party games has led it to it’s Game Pass strategy, which bundles so much value for so many different kinds of consumers that they all have no choice to invest in some type of Xbox hardware. In turn, as long as Microsoft keeps its services fresh with a bevy of classic content + a little bit of new and interesting stuff, people will continue to pay $10/month.

The result of these increasingly polarizing console strategies, breadth vs depth, is creating a growing space that Max dubs The Dead Zone. Game developers who aren’t investing enough to cater to the AAA needs of Sony players, but also aren’t integrating into Xbox’s ecosystem platform will be stuck somewhere in the middle, chasing consumers who continue to follow whichever strategy calls more to their needs. It’s fairly clear that Sony’s traditionalist console-selling strategy will certainly win out in the short-term, but Xbox’s platform and services strategy is definitely an intriguing proposition.

Further Reading

  • Industry Analyst Daniel Ahmad On the Playstation 5’s Strategy Link

  • Xbox Head Phil Spencer on Xbox Game Pass Link

  • Washington Post’s Gene Park on the Differing Console Strategies Link

💡 Industry Content

Game Engine: Nicole Williams of Compound — research and thesis-driven venture firm — put together a primer on game engines: why they matter and why they’re “eating the world”. Lots of predictions around cloud gaming, monetization, and machine learning, plus a look into the companies pioneering these technologies. Her main argument is that “Many of the core functions of game engines are being unbundled as a direct result of the massive changes (ML, gameplay, infrastructure) currently occurring in the industry.” Link

An Expert's View on Interactive Entertainment: A big reason behind Take-Two’s (stock up 28% this year) success is GTA V, one of history’s best selling games. But GTA wouldn’t have had the chance to make as much money as it has if not for the man behind the curtain, the company’s CEO Strauss Zelnick. With a background in private equity, film, and music, Strauss is an absolute entertainment heavyweight. Check out this recent interview with Protocol covering cloud-gaming, interactive entertainment, and games-as-a-service. Link

And now I think people realize that interactive entertainment is the standard bearer of the entertainment business. It is the most important entertainment business. It is the largest, it is the most rapidly growing, and it appeals to a very broad audience. It's become America's pastime and the world's pastime.

Facebook’s VR Investments: Earlier this week Facebook packed tons of VR/AR-related headlines into their annual Connect keynote. The most important bits include the launching of a new low-cost VR headset, the retirement of the original Rift Model S, the first look at some VR glasses, and a long list of VR-focused games. Facebook is attempting to go the way of Tencent’s “super-app” strategy, and presumably, VR & Gaming will become an important company’s future. Check out this quick recap from the Verge to see what you missed. Link

Facebook’s Musical Edge: Over the course of the last few months, we’ve covered the rising copyright issue facing creators on platforms like Twitch and YouTube. The fundamental problem here is that streaming platforms don’t have the ability to extend musical rights to their users. Facebook Gaming announced partnerships with multiple major record labels to allow its creators to play the music they like while streaming. In a streaming environment dominated by Twitch and Youtube, this is exactly the type of partnership incremental value Facebook. Link As an FYI, Roblox also partnered with Monstercat a few months back on a similar initiative. Expect others to follow. Link

🎮 Fun & Games

Literal Free Money: MSCHF announced its latest project, Card v Card. The project is a multiplayer game where entrants get an unmarked credit card that receives money at random intervals. Consumers can spend that money on anything they want, provided they’re in the store and able to swipe the card. The catch? No one knows when money will be added or how much is on the account. Is the potential embarrassment of a card decline worth the risk? (Yes it is.) Link

Mario’s 35-Year Journey: There is arguably no character more influential in the entire industry that Mario. Check out this WaPo exclusive where four of the creators behind some of Mario’s great games sit down to share the stories behind building one of gaming’s most beloved franchises. Link

Master of Crosswords: The New York Times is hiring an Editorial Director of Games. The job literally entails “managing and leading the team that edits our puzzles”. Link

RIP 3DS: The Nintendo 3DS officially ceased development this week. Pour one out for what very well could be Nintendo’s last true handheld-first device. Link

😎 Other Cool Reads

The Shady Underbelly of Streaming: Overwhelmed with their newfound celebrity, many content creators on platforms like Twitch and YouTube are turning to professional agencies and managers to help accelerate their rapidly growing careers. But in what is meant to be a mutually beneficial relationship, many of today’s top streamers are met with nothing but shady business practices. In this expose for WIRED, author Cecilia D’Anastasio explores the budding world of esports agencies and managers, and brings light to what’s becoming a nefarious operation. Link

Gaming for Good: Games as a vehicle for social change is an interesting concept. Historically games have been great for telling stories and imparting wisdom, but rarely do actions you take in a game drive real-world social impact. Learn how Game Development CEO & Ugandan refugee Lual Mayen is bringing clean water to the world, one game at a time. WaPo | CNN

Digital Girl In A Digital World: Earlier this week, Twitch super-streamer Pokimane went live on the platform debuting a new look — a completely 3D digital avatar of herself. More commonly known as “vtubing” the idea of replacing a creator with a responsive 3D model has been popular on YouTube for years. In theory, it makes a ton of sense: streaming a digital version of yourself allows creators a break from being “on camera” for hours and hours at a time. Dive into the history behind vtubing in this useful catch-up from Polygon. Link

Building Resilience: Continuing on the Pokimane trend, Poki sat down with popular podcast host Guy Raz last week for an episode of How I Built This. In the episode she discusses building a digital brand, maintaining a follower base of nearly 20M fans, and what it’s like to be at the forefront of digital content creation.  Link

📊 By The Numbers

600,000: The number of pre-release sign ups that Spellbreak, an Avatar The Last Airbender-esque Battle Royale, had prior to its launch. In this presentation, Spellbreak CEO Seth Sivak shares his thoughts on growth and drumming up support. Link

260,000: Seraphine’s followers count on Twitter. Riot Games recently revealed that they’re the company behind this new virtual influencer’s meteoric rise. Perhaps all this is an elaborate ploy to reveal a new League of Legends Champion? Link

😍 Our Current Favorites 

Fawzi (@fawzitani)

Has anybody else noticed the bizarre “Mon” trend that’s making a comeback this year? Obviously Pokemon is a beloved classic but there are a myriad of monster games out now that started development a few years back, iterating on a few core Pokemon mechanics. Temtem pioneered the much-requested MMORPG feature (did fan-made PokeMMO ever stand a chance?). Coromon is a hotly anticipated title reliving the nostalgia of our Pokemon pixel art days. Monster Crown plays with the original fighting mechanics to incentivize switching in and out monsters. Any others people have come across?

On a side note, I REALLY enjoyed this Supercell’s latest short film. Link

Max (@MaxLowenthal)

I spent some time with someone who owns a 15,000 person Discord server earlier this week, and it was crazy. The amount of management behind running a community so large is staggering, but the ROI is almost worth it. Something that caught my attention, in particular, is the data that Discord equips server owners with. Info about people’s geographic location, frequency of communication, topics/channels chatted in, onboarding statistics, and pretty much any other cut you can imagine is available to moderators of servers. As Discord continues to invest heavily in its “community-first” strategy after pivoting away from games, this data is going to be the number one thing that keeps big servers sustainable and eventually makes them monetizable too. Lots of thinking here sparked by the NYT piece on the “Gen Z Mafia”, a Gen Z-focused community run out of Discord. Link

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