Some not popular thinking about brands and UGC gaming (and other things)
I hung out with Michael Shields on his Next In Media pod last week ostensibly to talk about the rise of young audiences in unstructured spaces both generally and specifically across UGC-gaming platforms like Fortnite and Roblox, and what brands should do about that. Michael is a gifted interviewer and extracted some coherent views from my brain which, post-interview, continue to form themselves into an ever more defined set of positions. I am not certain everyone will agree with them.
As a general first principle, I find myself ever more deeply convinced that all UGC gaming platforms will need to tap brand dollars for developer payouts in order to be long-term financially sustainable. Trying to give as much money as possible to developers while simultaneously being profitable and also continuing to invest in a platform feels like one of those fiendish choose-any-two responses that developers have enjoyed giving me over the years. Accessing brand marketing’s balance sheet in a much more deliberate (and integrated, more on that below) way feels like an inevitability. Not everyone agrees.
Second. There is much written about brand activity on UGC games platforms being disappointing i.e. many experiences are built, deployed, disappoint and then vanish from media planning spreadsheets. There are lots of reasons for this but increasingly I think that one of the biggest underlying problems is a fundamental mismatch between the ad budgets being deployed on UGC gaming, the formats being used, the role of the media agency and a brand’s strategic decision to integrate their business with this audience1.
Currently (and yes obviously Roblox is rolling out features which address some of this) the majority of marketing dollars are going into either bespoke brand integrations (into a game) or developing new games. This is then supported by an amplification campaign to drive traffic. Generally, this is all coordinated by a media agency who in turn is working with a specialist agency (more later) who is in turn working with a developer. It is complex on a good day, and relationship-destroying on a bad one.
In an ideal situation (and I would love to hear alternative configurations), brand marketing dollars should be getting deployed by media agencies into a format which has the design and scale to take them. As I’ve said before, this almost certainly should be incentivised video (good for players, good for creators, good for brands) and given their scale, it’s fairly easy to believe that Roblox and Fortnite are sitting on large nine-figure revenue businesses that have not been turned on with this kind of approach. On the other hand, brand experiences (whether standalone or integrated) should be much more tightly integrated with the strategy (and team) of the brand’s business. Extending your brand surface into gaming should be a strategic decision, with a plan to integrate all the way through your value chain. It’s long-term, revenue driving and maybe shouldn’t be done by the lowest bidder. Not everyone agrees.
Finally (third pillar), I think that the current landscape of specialist gaming agencies is a phase but certainly not an end-state (if for no other reason than business model). History suggests a couple of obvious possible configurations. Most people seem to agree with this one.
Separately but delightfully relatedly, Naavik and David Taylor released a good report on the UGC Gaming space the other week which is absolutely worth reading although I feel reasonably strongly that their measure of brand spending is underestimated. David and I are discussing. Update soon.
Tom Tunguz recently suggested that AI will lead to the 10x sales person and this is a very interesting idea to me. One of my more heretical views continues to be that extremely smart technical people can still be quite incorrect about sales-related things:
One simple-but-still-useful-at-least-to-me models for understanding companies is to grok whether they are a product org in a sales wrapper or a sales org in a product wrapper. Having hung around with a lot of sales people over the last few years, it’s still surprising to me that more investors don’t seek them out. Good (performance-comped) sales people are like heat-seeking missiles for customer problems. There appears to be a curious lack of former sales professionals in the VC community but I’m not sure whether this is down to the compensation structure or the career development challenges of senior sellers (what do successful senior sellers do next is a question I have had long conversations on over the years).
Recent learnings
Max Bleyleben has been writing enviously well on the new COPPA laws and also copyright in AI in his excellent newsletter on policy and tech.
Section 174 of US tax law now requires all US software development to be capitalised over five years. This seems to be confusing the process of software development with the ownership of software and will almost certainly have unintended consequences.
Complexity Investing by Brinton Johns and Brad Singerland is a whitepaper looking at markets as biological systems. In many ways it pairs quite well with Taleb’s Antifragile (except shorter and with less references to weightlifting).
The End of the World Is Just the Beginning by Peter Zeihan. This is a very good book although I don't think that because I agree with it all (Zeihan is overly optimistic about the US, overly pessimistic about China and oddly completely dismissive of nuclear energy) but it's a generally well researched and comprehensive thesis that is a forcing function to examine assumptions about the future. It is though, as the title suggests, depressing in the extreme. But you should still read it.
Which you can reasonably approximate as ‘everything’