Rent-seeking

The Exponent podcast is back! And there’s a lot of news regarding pressure to change existing App Store pricing models.

it seems incredibly worrisome to me anytime any company predicates its growth story on rent-seeking: it’s not that the growth isn’t real, but rather that the pursuit is corrosive on whatever it was that made the company great in the first place. That is a particularly large concern for Apple: the company has always succeeded by being the best; how does the company maintain that edge when its executives are more concerned with harvesting profits from other companies’ innovations?

via Stratechery and Exponent

Plus, after shipping Fortnite outside of the Google Play Store, Epic Games is moving in on Steam with a new game store and taking a smaller cut of sales.

Developers receive 88% of revenue. There are no tiers or thresholds. Epic takes 12%. And if you’re using Unreal Engine, Epic will cover the 5% engine royalty for sales on the Epic Games store, out of Epic’s 12%.

via Unreal Engine Blog

Is this a legit Fortnite V-Buck site? Probably not.

Fortnite has caused quite the security kerfuffle. Between releasing the Android app outside the Google Play Store, and an insane desire for V-Bucks, scams are running rampant.

Wired put out this article yesterday entitled Fortnite scams are even worse than you thought, and it made me sad that people are being tricked (that’s for tomorrow 🎃).

I made a simple browser extension as a helpful reminder of legitimate V-Buck sites. It will give you a green thumbs up on real V-Bucks websites, and a red thumbs down for sites where you can’t safely purchase V-Bucks. Check it out on GitHub.

If all else fails, to stay safe, remember: ONLY BUY V-BUCKS IN THE GAME.

Installation

Download the extension files by clicking “Clone or download > Download Zip” on Github
Follow steps 1, 2, and 3 here to install the extension
(Yes, enabling developer mode to sideload extensions is a similar security whole to what Epic is doing with Fortnite on Android. I’ll look into publishing the extension officially.)

Test out the extension!

V-Bucks for PlayStation:
https://store.playstation.com/en-us/product/UP1477-CUSA07022_00-MTX01K0000000000

psn_vbucks

V-Bucks for Xbox:
https://www.microsoft.com/en-us/p/fortnite-1-000-v-bucks/c0f5ht9nv86p

xbox_vbucks.png

V-Bucks for PC/Switch/iOS/Android are only available in game, but here’s a link to Epic Games explaining that:
https://www.epicgames.com/fortnite

epic_vbucks.png

Don’t buy V-Bucks on eBay:
https://www.ebay.com/sch/i.html?_nkw=v+bucks

ebay_vbucks.png

Video demo

It’s all out the gifs

Other Fortnite Links and Security Tips

Here’s how to get Fortnite on Android:
https://www.epicgames.com/fortnite/en-US/mobile/android/get-started

How to protect your Epic account:
https://www.epicgames.com/fortnite/en-US/news/protecting-your-epic-account

Epic on V-Buck Scams:
https://epicgames.helpshift.com/a/fortnite/?s=epic-accounts&f=account-security-bulletin&p=all

And a reminder from Wired:

 

I’ll wrap up by saying I don’t endorse actually purchasing these things, but for those of you who do buy, stay safe out there!

Ninja and Kylie Jenner, Who Owns the Future

Supertree Grove at Gardens by the Bay Singapore

In his book, Who Owns the Future, Jaron Lanier discusses the idea of real-time income and wealth generation. He presents the topics through the lens of sharing songs in the music industry, but the principle applies to today’s sharing economy.

Copying a musician’s music ruins economic dignity. It doesn’t necessarily deny the musician any form of income, but it does mean that the musician is restricted to a real-time economics life. That means one gets paid to perform, perhaps, but not paid for music one has recorded in the past. It is one thing to sing for your supper occasionally, but to have to do so for every meal forces you into a peasant’s dilemma.

The peasant’s dilemma is that there’s no buffer. A musician who is sick or old, or who has a sick kid, cannot perform and cannot earn. A few musicians, a very tiny number indeed, will do well, but even the most successful real-time-only careers can fall apart suddenly because of a spate of bad luck. Real life cannot avoid those spates, so eventually almost everyone living a real-time economic life falls on hard times.

Who Owns the Future, Jaron Lanier

The hope is that creators can make a living from what they create and do so in a way that allows value from previous creations to drive development of the next. Without insurance, musicians may have to record new albums while on a concert tour instead of taking time away from concerts to create new songs. Yet the issues of real-time income are not scoped to the music industry, as they have found their way into many social media driven businesses.

Twitch

Twitch is a video game streaming platform that runs on virtual subscriptions, much like Netflix. However, instead of subscribing to Netflix to unlock all content on the service, Twitch subscriptions are to individual creator’s channels (like Ninja’s).

Imagine paying $5 a month to watch Stranger Things and another $5 a month to watch Orange Is the New Black (plus additional $5 for every other show you want to watch). Would you pay for such a subscription? Sure you could subscribe for a weekend to binge watch an entire new season, but what is your incentive to stay subscribed to Stranger Things while the next season is in development? The show is “off the air” for over a year and you only get to watch re-runs in return for your subscription.

Aggregate movie and music subscription services like Netflix and Spotify garner a recurring subscription fee because there is consistently new content, even if it’s not always from your favorite show or artist. You can watch the entire back catalog of hundreds of other shows, while you wait for the next Netflix original to season to be released.

The economics work a little differently for singular channel subscriptions on Twitch, but the underlying struggle to maintain attention remains the same. There is no monthly subscription to Twitch.tv. Access to all Twitch content is free and ad supported, and viewers can subscribe to multiple streamers’ channels, each with a $5 subscription (or more depending on tier). Because all the content comes from a single source, creators must supply a near constant stream of gameplay to maintain relevancy and keep subscriber count high.

Ninja

Right now, Tyler Blevins (aka Ninja) is the most popular source of gameplay on Twitch and the biggest name in video gaming. He rose to super-stardom in less than a year with the popularity of Fortnite, but his way to the top was not immediate. He’s been at it non-stop for eight years, yet even after such a level of investment, his future success still hinges on him showing up to stream games every day.

Blevins compares himself to the owner of a small business, and the only product is Ninja. He weighs every decision to leave his computer — to travel to a celebrity-heavy event like the Pro-Am in Los Angeles or even to visit family — against the financial repercussions

There’s the constant threat of fading popularity. “The more breaks [streamers] take,” he says, “the less they stream, the less they’re relevant.”

Fortnite legend Ninja is living the stream via ESPN

By default, Twitch creates a business model that plants its creators squarely in a real-time economics life. Ninja and the most popular streamers have some level of recurring revenue through a back catalog of highlights uploaded to YouTube, but staying current is of utmost importance. Attention is fickle and people will quickly find ways to spend their time elsewhere. Over the course of a weekend, Ninja lost thousands of subscribers (equating to nearly a quarter million dollars in lost revenue for the month).

“I lost 15,000 subs yesterday,” he says. Even though he’s headlining today’s celebrity event, because he’s not livestreaming on Twitch, he’s losing subscribers — 40,000 of them, to be exact, by the end of the two days he’ll spend in LA

Yet, his hard work is paying off as Ninja is currently bringing in close to $1 million a month from Twitch subscriptions, donations, YouTube revenue, and sponsorships (up from ~$80,000 in 2011), but others in the long tail of Twitch success are not in such a fortunate position. Streamers and YouTubers are working just as hard, just as often as Ninja and still not at the level of 2011 Ninja. And all Twitch stars are worrying about what comes next.

Say this ends tomorrow, we don’t have enough for the rest of our lives. I tell Jess, “Honey, we’re not going to have that much quality time this year, or even next year. But if we do this right and I continue to grind for a couple more years, we can set ourselves up, and our family and our family’s family, for the rest of our lives.’

Kylie Jenner

Ninja isn’t the only one making waves for tremendous individual online success. Compare the story of the biggest new entrant in the world of sports and with the work of fashion mogul and world’s youngest billionaire: Kylie Jenner. Both have tremendous followings and leverage their social media influence to build greater notoriety. The difference is in the kind of work they do.

Kylie Jenner is different than other pure social media stars who rely almost solely on ads and sponsorships, whereas her main source of income comes from her business that sells products (not just brand merchandise). She pieced together various technology services to generate supply, ship orders, and orchestrate the operation from her social media accounts. Instagram and Snapchat are tools in her business strategy rather than arbiters of wealth such as YouTube and Twitch on which so many (like Ninja) rely for their livelihood. And what’s the result? Jenner has transcended all other social media influencers. She is not just the most popular social media icon, but the most business savvy (by far). One can imagine she is the first of many to come.

Forbes wrote an article detailing Jenner’s business success in August:

Kylie Cosmetics launched two years ago with a $29 “lip kit” consisting of a matching set of lipstick and lip liner, and has sold more than $630 million worth of makeup since, including an estimated $330 million in 2017. Even using a conservative multiple, and applying our standard 20% discount, Forbes values her company, which has since added other cosmetics like eye shadow and concealer, at nearly $800 million. Jenner owns 100% of it.

Her near-billion-dollar empire consists of just seven full-time and five part-time employees. Manufacturing and packaging? Outsourced to Seed Beauty, a private-label producer in nearby Oxnard, California. Sales and fulfillment? Outsourced to the online outlet Shopify. Finance and PR? Her shrewd mother, Kris, handles the actual business stuff, in exchange for the 10% management cut she takes from all her children. As ultralight startups go, Jenner’s operation is essentially air. And because of those minuscule overhead and marketing costs, the profits are outsize and go right into Jenner’s pocket.

How 20-Year-Old Kylie Jenner Built A $900 Million Fortune In Less Than 3 Years via Forbes

To compound her success, contrast Ninja’s schedule with Jenner’s. To maintain the Ninja audience, Tyler and his wife Jess keep a tight schedule of 12+ hour days.

They typically spend half an hour together in the morning, then he streams, usually for about six hours while she takes business calls. They take a break around 4 p.m. before he gets back on the stream around 8 p.m. for another six hours. He goes offline one day a week, which they call a “date day,” though recently they’ve been skipping it because he’s been so busy.

And Kylie Jenner?

Basically, all Jenner does to make all that money is leverage her social media following. Almost hourly, she takes to Instagram and Snapchat, pouting for selfies with captions about which Kylie Cosmetics shades she’s wearing, takes videos of forthcoming products and announces new launches. It sounds inane until you realize that she has over 110 million followers on Instagram and millions more on Snapchat

Which job would you rather have? For Jenner, certainly there is more work involved than just posting photos, but the idea remains the same. Her business will continue to operate even when she is not online. Instagram posts can continue to bolster sales, but there is less of a risk of loosing 20-40% of your customers in a weekend.

Yet, like Ninja, Jenner is not immune to the risks of fleeting interest.

It seems far-fetched to think the brand, whose customers are mostly women ages 18 to 34, will last that long, much less independently. Especially with a business tied to the fickle world of personal fame. Stars fall out of public favor or lose interest.

“All of them could change their minds,” Shannon Coyne, an equity research analyst at BMO Capital Markets, says of the influx of celebrity makeup entrepreneurs. “Kylie seems to want to create this beauty empire, but anything can happen, and she’s so young.”

When you can make such quick cash, who needs a big exit? Kylie Cosmetics has already generated an estimated $230 million in net profit.

In either case, both Ninja and Kylie Jenner are doing well for themselves, but it is worth considering the leverage applied to scaling a business. While the next big thing in gaming or fashion may dwarf the current leaders in popularity, maybe future business minds should focus less on “the grind” and more on creating things that last.

Additional reading

Antifragile by Nassim Taleb

Perennial Seller by Ryan Holiday

(Somewhat) Unrelated reading

Crazy Rich Asians by Kevin Kwan

The Genius of Fortnite’s Business Strategy

Fortnite is all the rage right now. It came out a little less than a year ago considered nothing more than a free PlayerUnknown’s Battlegrounds (PUBG) knockoff, but in that time, Fortnite has come to dominate the gaming industry. Some background for the non-gamer types, Fortnite is a free to play video game which means a majority of the game is available to play at no cost. There are many variations on free to play business model, but for Fortnite, the full gameplay functionality is available to everyone. There is one map and one game mode that all people play no matter what you’ve paid for the game. While you don’t need to pay money to play, costumes and skins for your character are available for purchase. These features aren’t too intriguing on their own, but when combined with a uniquely designed quarterly season pass, called the Battle Pass, the package becomes a multimillion dollar a day phenomenon.

BATTLE PASS

The Battle Pass is a $10 opt in quarterly subscription that is tied to “seasons” in the game. Every three-ish months Fortnite gets a huge update that comes with changes to the map, different character skins, and a new Battle Pass. While everyone is still playing the same underlying game, the pass unlocks new challenges and a leveling system with rewards that adds a reason to keep playing Fortnite. On top of that, everyone’s level resets at the start a new season, so it’s a chance to rank up again to collect all the new items, emotes and experience points. It’s amazing this setup makes any money at all because there is still no need to purchase anything to play the game the exact same way with everyone else. Everything you can purchase is purely for looks**.

Once players buy in to the Battle Pass they are more inclined to continue paying because the game loses some of its intrigue without the content unlocked from the pass. Fortnite reverts to a singular leveling system without much of a goal to the game other than to keep winning and just have fun. You can keep playing on the free tier, but for many (which is quite a lot of people judging by the sales figures) the point of the game is to unlock more content for your character. And what’s the way to do it? Keep playing the game. Keep buying the Battle Pass.

Aside from the joy of almost winning, there is not as much feeling of accomplishment in the free tier. Yet the paid tier continues to be fun because there are just more things to do, even if all sense of additional achievement is fake (not sure what that says about playing video games in general). But the irony is all players are still playing the same base game whether they are paying or not. The progression is purely superficial.

RARITY VS ACHIEVEMENT

And quantity vs quality

The Fortnite development studio, Epic Games, understands their position of reliance on in game purchases, and the Battle Pass for the new Season 4 doubles down on the business strategy. The same leveling and unlockable content system continues to exists from previous seasons, but now there are two skins (Carbide and Omega) than can be upgraded by playing the game more. With the introduction of these upgradeable skins, Epic has created two categories of unlockables based rarity and achievement. In reality however, both tie back to how much you play the game.

fortnite1.png

Because there is no visible ranking in game, to show prestige players can either purchase skins or spend time leveling up their character models. This balance of rarity and achievement serves a dual purpose for the individual player and the entire player base. For the player, upgrading your character visibly reinforces how they stack up against other players in the game. Because there is a time limit to each season, the sooner players have a new upgrade, the better they are assumed to be at the game (or they just played a lot).

fortnite2.png
The green cost line, for context, and not entirely to scale. For that matter, if we’re going to put disclaimers everywhere, this graph is purely a visual aid and has no scientific grounds.

For the rest of the community, this creates a “Stars Upon Thars” environment where those without skin feel inferior to those with the upgraded look. In the game, if you see someone coming at you a rare skin, you shudder at the thought of their skill, even though their character’s costume has nothing to do with how good they are at the game. Nevertheless, new players are naturally drawn to want better looking skins because it feels like once you have them, you will somehow play with improved performance. At that point, Epic only needs to convince new players that Battle Pass is the most economical way to get the skins, and they are swept up into the money machine that is Fortnite.

As an aside, it would be an interesting psychological experiment flip the dynamic by giving new players rarer skins and force experienced players to use the default skins just. Would the better players who were brought up with the skin prestige dynamic experience a role reversal? Maybe give new players a random rare skin for their first few games for a psychological boost against other players (and an advertising boost for Epic).

fortnite3.png

For Epic, building a leveling system into the paid version of the game is a genius idea. For players, it’s akin paying for your own soma holiday. The underlying game you’re playing does not change whether you decide to pay or not. What does change, however, is your perception of the game you are playing. The new layer of intrigue and achievement gives a reason to keep dropping in, playing game after game, and trying to win the base game does not afford. The Battle Royal genre of games has proven to be exhilarating, and Epic built a psychological goldmine on top of the core concept that reinforces itself and keeps people playing Fortnite instead of PUBG (and any other game for that matter). If you want to build a character, why not just play Sims?

BUSINESS MODEL

Many successful services in other industries employ business strategies where plans start with a free tier to get people on board and only pay as they scale. This benefits both those entering the market as they begin using the service with a few users and the service provider as successful clients are locked in and pay more overtime. There’s a similar funnel for Fortnite. Since the game is free, the sum total of people who know about the game is the mouth of the funnel. These people get to play the game but don’t see much additional benefit. Moving down the funnel, Epic needs to convert as many of these people into paying customers to profit on their investment. How does Epic do it? They increase the value for players as players decide they want to invest more time in the game. People want to pay more as they play more. It’s an amazing phenomenon.

In principle, Fortnite’s business model is simple: release a free to play game for everyone to try, include fun character outfits with no effect on the core gameplay, let players buy the outfits individually or through a leveling system. In practice, Epic executed the strategy to give all players from the most frugal to the most invested a way to play the game the way they want.

You don’t have to buy the Battle Pass. If you just want skins, you can pay for them individually. Although, the rarest can cost upwards of $20 and only a few are available per day, adding to the allure and impulsiveness. For the more frugal gamer, investing in a Battle Pass just feels like the better option. It includes many more items and gives players V-bucks, the in game currency, just for playing. If you are patient, you could purchase one Battle Pass and use all the V-bucks collected from playing the game to finance the next season’s pass. But with so many cool new things to purchase, how many players are really going to pass the marshmallow test?

Buying in to the Battle Pass unlocks an entirely new experience, reserved for those in the “elite” class who are truly invested in the game. While you can play without a Battle Pass alongside your friends, listening to them rank up and go for challenges can make you feel left out. For Epic, this desire to be “part of the club” is bolstered by the fact that Fortnite is the most popular game to watch on Twitch, and when people aren’t playing Fortnite, they are watching their favorite streamers use literally every new skin in the game. From a marketing perspective, Fortnite generates so much value that the free advertising from watching streams of the game is even a multi-million dollar enterprise. With this level of attention from such a captive audience, it’s crazy we haven’t seen Fortnite repeat Apple’s In App Purchase fiasco from years past (you can now refund Fortnite purchases).

COMPETITION

For many games, micro-transactions are unsuccessful and linked to abusive gambling techniques. Recently there has been a large backlash against micro-transactions in the gaming community. For these games, the additional transactions are added on top of a paid game, making it seems as though your initial purchase only unlocked a piece of the full game. Plus the core gameplay provides replay-ability that does not require additional enhancements to stay fun.

I mention this up because the old behemoth, Call of Duty, recently announced a battle royale mode, called Blackout, in its upcoming Black Ops game. CoD isn’t going to rip out its tried and true multiplayer prestige system and replace it with a free to play system like Fortnite’s. There is too much history of success riding in the existing $60+ a year model. Instead the game will remove it’s single player campaign opting instead to bundle Blackout with the purchase of the game.

Psychologically, spending $60 upfront more feels like a greater investment than spending $60 in $10 or $20 increments. So while Blackout could be popular, the initial investment narrows the funnel of possible players and limits the number of people who might be willing to pay less than the sticker price. For a direct comparison with the previous battle royale king, PUBG sells for $30 and is losing ground to Fortnite.

GAMING PSYCHOLOGY

Everyone is playing Fortnite because the core of the game is a blast, and Epic is making boatloads of money because the paid model adds a level of replay-ability that keeps the core gameplay fresh. This is why the Battle Pass is genius. The game is fun, and people want to keep playing, but on its own, the game gets repetitive over time. Epic developed a solution. Pay $10 to have fun, play more, get hooked and pay more in the future. Once bought in, players become invested in their progress and will continue paying to maintain their status. Plus going back to the free tier is boring, so why do that? The intrigue of the game is baked into the business model.

With all this said, I still can’t get over the fact that there are two versions of Fortnite. One that you pay for and one that’s free. The one you buy into feels more fun and engaging because you have a sense of purpose in addition to just trying to win games. But once you jump in and start playing, there is no underlying difference between the free and paid game. Truly a testament to the nuance of human psychology. Epic is playing us at an entirely different game than we think we’re playing.

 

*Disclaimer/skin in the game: I bought the Season 4 Battle Pass and wrote this while waiting for the Battle Bus.