All aboard the Axie Infinity hype train

Early bird or second mouse?

Since the introduction of its own Ethereum-linked side-chain, Ronin, a Pokémon-style game called Axie Infinity has been making headlines all over the place. Good for them. And great for all those play-to-earn people in the Philippines supplementing or outright replacing their monthly income by breeding cute characters.

I’ll have more to say on crypto-gaming in the coming weeks, but for now allow me to throw some cold water on the current exuberance.

Let’s start here. “Every generation thinks it invented sex, and every generation is wrong.” Naturally, catching a wave early on is cause for celebration. More so, the immense, overnight success of a company that kept fine-tuning its gaming during the “crypto-winter” prior to the recent explosion in popularity.

Axie Infinity’s leadership may nonetheless be getting somewhat ahead of themselves. What all the VC fanboys seem to be missing is that how rare it is to score a hit game, and rarer still to become the type of gaming sensation that pulls millions of new gamers into the ecosystem. We’ve seen this only a few times before.

Back in 2004, World of Warcraft managed blow away its own expectations and single-handedly tripled the size of the MMO market. A few years later, League of Legends became the first game to have more than 100 million monthly active players by growing the overall pie. And most recently it was Fortnite that build cross-play bridges between all of the different platform holders and successfully breached mainstream pop culture.

“We really like to find those games that have a lot of hardcore loyalty, and then figure out what are the ways that we can make that game more accessible to a larger audience.”

— Rob Pardo, former Chief Creative Officer at Blizzard Entertainment

More important than their individual success, these titles have something important in common. All three popularized novel game genres (MMORPGs, MOBA, Battle Royale) that other titles had previously introduced. Specifically, World of Warcraft built on EverQuest’s success, League of Legends borrowed from Defense of the Ancients, and Fortnite re-invented itself after observing the popularity of PlayerUnknown’s Battleground.

One swallow does not make a summer. It would be naive to dismiss existing titles so easily, especially the ones that took years to reach the success they enjoy today. Nevertheless, the fluffy figures are cause for some to compare a franchise in its infancy to a powerhouse IP like Pokémon. You may recall that Angry Birds, long-considered the poster child for the revolution of mobile gaming, fancied itself the new Disney. Today, Disney spends two Rovios a year on just interest payments. The Finnish game maker is valued at $615 million and roughly 511 times smaller than Disney’s $314 billion market capitalization.

What excites investors like Delphi Digital (which got in way early and deserve props for that) is that “ARPUs observed in these new virtual goods ecosystems are dramatically higher than what we observe in their non-crypto equivalents.” It lacks historical context and reeks of momentum-based investing.

Over time these numbers will go only one way. You guess as to what direction that will be. It doesn’t take a business degree to know that this level of growth and success is temporary because it invites competition. Already there are newcomers gaining momentum. A yet-unreleased NFT auto-battler title Illuvium already spells trouble: it has more experienced management team, promises higher production values, offers a unique approach to liquidity and NFT sales, and will be a fully DOA from jump.

(Succinctly, Illuvium’s crypto-currency ILV facilitates double-sided staking, which for now offers a 500% return, allowing you to double your tokens in about two months. This reduces the risk because you’re growing your holdings even if the currency doesn’t appreciate. Axie Infinity’s AXS currency doesn’t offer this.)

Personally I’m 100% on board with web3. I see the vision and am excited about its transformative power and the novel applications and modes of play (!) that will spring forth. I also remember that at one point in history, social media were going to connect the globe to become an online utopia. And yet, somehow, we’re now at the start of a period of intense legislation and imminent FTC regulations to curb Big Tech, who are grossly overstepping our personal privacy boundaries.

It is too soon to claim that Axie Infinity is a fluke or *only* a PUBG rather than a Fortnite. But as we set sail for the Next Big Thing perhaps we can leave a bit of space for critical thought and modesty on this journey.

On to this week’s update.


Peleton’s games strategy is a false flat

The elite bike-in-place company announced a “music-based experience” called Lanebreak. Entering the games industry, as CNBC puts it is a little strong, though. They’ve released a half-baked beta that, according to the Verge, is “boring and confusing.” At most, Peloton is gamifying its workouts by adding an uninspired overlay that may reduce the need for inspiring trainers. I’m guessing that’s the most expensive part. 

More generally, now that games are front and center, I expect to see more of these initiatives by non-endemic firms to capture a chunk of zeitgeist for corporate profit. Mostly because it works: since the announcement, Peloton’s share price is up +9%. I shudder to think what’ll happen when Tesla reaches its natural conclusion as a gaming platform: instead of actually driving your car, you’ll be playing Out Run on the massive iPad that’s bolted on the dashboard.

The next growth driver in games: opting out of life

Whereas in the US there’s been a move toward financial independence and early retirement, the so-called FIRE movement, young consumers in China are taking things a step further. Disenchanted with the sacrifice necessary to have children and establishing a family, a growing number is instead opting to live life according to what makes them happy. This “lying flat” generation is growing in numbers and is expected to drive media consumption in China and the rest of Asia.

Governments in the region vilify the behavior, calling it a social scourge. President Rodrigo Duterte from the Philippines stated that the “standing by” subculture as it is known locally is a national issue and that “the young people who are doing it should be eradicated.” Subtle.

The trend is not unique to Asia, however. A 2017 working paper from the National Bureau of Economic Research concluded that

“younger men, ages 21 to 30, exhibited a larger decline in work hours over the last fifteen years than older men or women. Since 2004, time-use data show that younger men distinctly shifted their leisure to video gaming and other recreational computer activities.”

It’s a mixed bag. On the one hand it will indeed increase demand for digital and interactive experiences. On the other it has the markings of an entire generation slipping into a collective depression. Undoubtedly politicians will point to video games as a culprit. But we’ve been here before. Perhaps this time, we can ask if the it is truly video games that are too blame, or if it is perhaps possible that contemporary demands made by society on younger generation are just becoming unreasonable. Maybe look into that.

Valve announces its handheld Steam Deck

After its unsuccessful attempt to establish the Steam Machine (a line of PC integrated with SteamOS) and the not-quite-overwhelming results from its SteamVR endeavors, Valve continues to push into hardware. Last week it announced a 7-inch controller and touchscreen-based handheld scheduled for release in December that allows playing Windows games from its Steam library. Mr Fortnite himself, Tim Sweeney, called it an “amazing move.”

You can read all about its specs here. But let’s get to the point: because it has a massive line-up of content immediately available at launch, I wonder whether title inventory is really the strongest selling point. Or, put differently, is this a device that is going to fill a need among existing Steam players, or draw in new people into the ecosystem. Does the die-hard PC crowd want a handheld?

In this context, competition with Nintendo is an after-thought. Yes, both are handheld devices, but the two companies cater to radically different audiences. Gabe Newell stated the new device prioritizes performance (the Switch doesn’t) and price point. It suggests that, at least initially, Valve is heavily subsidizing the effort. Doing so will allow them to get insight into the category and market demands for further iterations.

According to Valve designer, Greg Coomer: “You can really do anything that you would expect a [Linux-based] PC to be able to do.” 

The Steam Deck will appeal most directly to audiences that use gaming laptops as their primary device. Companies like Razor, Asus, Dell, and MSI all do an excellent job of improving their hardware, but a Steam Deck removes a lot of steps between booting up and playing.

Did I mention the $399 starting price for lowest-end model? A small form factor further makes this an easy-to-carry unit. If it lives up to its promise, Valve will manage to take a substantial bite out of the $11 billion gaming laptop category and I would encourage them to launch an accompanying set of headphones.

Stepping back, I’m noticing this persistence among digital platforms to push into hardware. Facebook similarly has been doubling down on VR which I’ve come to realize goes beyond just a CEO’s pet project and presents a critical push into future-proofing a billion-dollar business as technology inevitably marches on. Before I start taking bets on a Valve phone, let’s see this handheld first.

Netflix hires seasoned games exec to make a play

I wrote previously about what a successful strategy would look like for Netflix’ attempt to break into gaming. Apparently they’ve now tasked former-Facebook/EA/Zynga exec Mike Verdu with doing so.

Thus far the preferred games market penetration plan among Big Tech is a simple five-step disaster:

  1. hire senior executives from the games business,

  2. give them a massive budget,

  3. reduce platform fees to keep the spice flowing,

  4. fold the add-on service into the regular offering anyway, and finally

  5. watch their talent abandon the project in favor of pursuing their own creative vision.

I’m absolutely hoping things will be different this time. Based on its most recent earnings call, Netflix is approaching gaming as a “new content category” that will be rolled into the existing subscription.

“We’re also in the early stages of further expanding into games, building on our earlier efforts around interactivity (e.g., Black Mirror Bandersnatch) and our Stranger Things games. We view gaming as another new content category for us, similar to our expansion into original films, animation and unscripted TV. Games will be included in members’ Netflix subscription at no additional cost similar to films and series. Initially we’ll be primarily focused on games for mobile devices. […] we think the time is right to learn more about how our members value games.”

The name of the game is life-cycle management. Since Netflix already sits at the higher end of the subscription range compared to its competitors, asking audiences for more money may run into pushback from consumers.

Given the firm’s visibility, Netflix’ rollout could do well: imagining a board game based on Stranger Things and following it up with an RPG-style title isn’t difficult. But it’ll have to try harder than that. The current thinking about streaming games is akin to moving forward through the rearview mirror: platforms are merely making existing content and formats available via a new service. To make this a success, Netflix will need to develop stream-native gaming content. 

Meanwhile, the market seems increasingly hostile toward tech firms’ entry into games. That’s largely their own fault. What Amazon and Google have offered so far lacks personality and creative vision. You can’t blame consumers to be disinterested when all you’ve done is offer them a half-hearted effort. Netflix hasn’t yet played its hand and retains the initiative, so it has yet a chance to succeed. But Amazon and Google should serve as a warning for any newly-minted Netflix exec thinking it’ll be easy for a Big Tech firm to penetrate the games industry.


Genvid raises $113 million C round. Following its early run with Rival Peak, the NY-based firm is reorganizing itself to a separate tech and entertainment unit. The latter released Project Raven that, similar to its predecessor, facilitates what the firm calls Massive Interactive Live Events with additional user-input. When I spoke to management in June, they informed me that players will be able to go beyond just watching and also shoot zombies, harvest resources, etc. Valor Equity Partners and Atreides Management co-led the round, with participation from Third Point Ventures, Cobalt Capital, Galaxy Interactive, and Samsung Ventures. Link

Google introduces a new rev sharing model for Stadia Pro. During its Google for Games Developers Summit, the firm announced two important changes. First, using what it calls “session days,” based on whether or not someone plays a specific game on a given day or not, Google is planning to distribute monthly subscription more fairly among partners. It sounds like a Spotify-inspired model and will similarly be skewed in favor of online titles that have a lot of recurrent players. Short-burst indies, by comparison, will likely capture less playtime and therefore a smaller share. To compensate for that, I think, Google announced a second change: it will also reduce platform fees for the Stadia Store to 15 percent up to the first $3 million. Link

Roblox fully launched in China. As of July 13th, the user-generated prodigy is available to Chinese players. An important part of its pitch to Wall street investors back in November 2020 was the growth potential of Asian market, after securing the necessary paperwork with partner Tencent in December last year. That day has now arrived and should show up, or not, in its monthly metrics. I’m not yet convinced that Chinese gamers will immediately make up a huge part of the firm’s global playerbase, but do expect a deluge in the availability of novel experiences created by users. Link

The Metaverse gathers. My colleague at Makers Fund and Mr Metaverse himself, Matthew Ball, was recently accused by the New York Times of being a prolific essayist. Judging by available evidence, I concur.