The absolute best part of life is when new people send me things that enrich my understanding of the world. The joy is in the network. This week’s piece was triggered by a reader sending me a thought-provoking short video called “Gamework” (linked below). Thanks Frank!
Last Thursday’s “Most Interesting People in the World” talk with Rory Sutherland strongly reinforced that we need to look in unusual places for clues about where our futures are headed. This is also about what will endure post market cycles and corrections; where we might be going from here.
On a separate note, I also wanted to flag a truly excellent investing podcast recommended by Tom Pence (below).
“The Next Big Thing”
[9 minute read]
“The next big thing will start out looking like a toy”- Chris Dixon.
There are a lot of extremely interesting and well-researched perspectives about how generational preferences are shifting. But many of these are responding to the new economic constraints of our time, rather than revealing desires. Maybe Gen Z would like large houses and gas-guzzling pick-ups, they just can’t come close to affording them, so they go to Machu Picchu or eat avocado toast instead.
Thus the cliché description of the current generational transition is that younger people want “experiences not things.”
So, subject to economic constraints, what experiences are consumers seeking? One of the dominant answers is: playing video games. According to NPD, three out of four Americans play video games, for an average of 14 hours a week last year. In 2020, on the PC Steam platform alone, people spent 31 billion hours playing games. That’s up 50% from 2019, for obvious COVID-19-related reasons. As always- the global picture is even wilder: as of 2018, there were 2.2 billion gamers globally, and 1.5 billion of them were in Asia.
Rather than place a subjective value judgement on how people choose to spend their time, let’s look at what this might teach us about the future.
This isn’t just about what the next online experience or metaverse will look like (I’ve written about that before); this is about examining a sandbox of revealed preferences for future generations. The online and offline worlds will increasingly coalesce, so pay attention to one for insights into the future of the other. Games are such an incredibly robust source of insights because the numbers have become absolutely astronomical so rapidly. They are now by far one of the biggest real-time behavioural experiments in human history. As Matthew Ball explains:
“This dynamic has been supercharged by the world of “living” games, in which content is constantly being updated and added to sustain, grow, and optimize engagement. Fortnite, for example, performs weekly updates, plus several major content overhauls per year to keep the game fresh and improving. With each addition, it pays close attention to overall metrics, such as average sessions and play time per week, to specific gameplay measures, such as the average time a player spends in the game before engaging a competitor, how long they survive in each game, how many kills they get, and the relationship between skill and success. Everything is being tracked to ensure the best possible experience for the average player (sometimes to the chagrin of the most talented players). If a change creates too large a distortion, a rapid patch occurs to correct it.”
We recently learned that the single game Fortnite generated $9 billion in revenue in its first 2 years in 2018/19. The game itself is free to play! Not only can games tell us what every player across every generation globally wants from their experience in real time, the game can respond! This is a relatively new phenomenon. No passive medium can do that as rapidly.
Yes, some games use aggressive engagement tactics to produce psychological addiction. But, unlike social media and TV, regular gamers self-report much higher levels of overall happiness. The implication is that many games are intrinsically enjoyable, rather than just psychologically manipulative. Meanwhile, the gender gap between gamers has been shrinking rapidly (45% of U.S. gamers are women). There’s more going on here than boys in basements.
Nick Yee at Quantic Foundry developed a “Gamer Motivation Model” from over half a million participants to postulate what gamers want.
Source: Quantic Foundry
Community, mastery, creativity, achievement. These are foundations of the human experience! No wonder the industry has rapidly evolved to produce them.
It’s a compassionate inversion to see the success of gaming as a relative failure of modern work to provide a comparably rewarding experience. And to pre-empt the “real world isn’t a game” objection, it’s interesting to note how many modern games have a “grinding” or work-like aspect to them. As the video below notes, Animal Crossing went absolutely viral during the pandemic, but is very much about commonplace activities. It’s surprisingly uniform that players seem to want repetitive work, they just also want the finely-calibrated feedback that the real world often lacks. And- as many of us have discovered in the lockdown era- many of our “real world” jobs can now be virtualized to a surprisingly significant extent.
Looking at the world’s most successful games, the industry has moved away from the linear storytelling of my youth to open-ended worlds. From three lives, no save-points, and rescuing the princess to living environments. Even though it was released back in 2013, open-world Grand Theft Auto V is now the biggest-selling media title (of any kind) in history, and its player count has remained relatively constant over time. This is important because it tells us what people want from their process and experiences in life, rather than their outcomes.
Indeed, part of the appeal of games is that the outcomes are comparatively low-consequence. And it might not be so foolhardy for future generations to focus on experiences they intrinsically enjoy rather than chasing the more ephemeral discrete goals of modern consumer capitalism. Especially if those material goods now feel out of reach relative to their parents’ generation. Hopefully as digital economies increasingly bleed into games (as they already are), this will inevitably become less of a binary choice.
As games also merge into the stock markets, I think a neglected point is that many younger investors also want their investments to be fun. You wouldn’t go to Las Vegas to bet on something that returned 2% a year. Traditional equities have a relative predictability to them. Hence the explosion in demand for options, OTC stocks, digital assets, and new SPACs that promise a more volatile experience. It’s not just the app-based trading interfaces that have become more gamified, it’s the “investments” themselves.
To borrow a term from James Carse’s famous book, the most successful games are now “infinite games.” A finite game is played for the purpose of winning, and an infinite game is for the purpose of continuing the play. The dog knows that to keep the game of fetch going, they have to bring you back the stick. Carse’s book is so wildly influential (including with our previous “Most Interesting People in the World” speaker Jaron Lanier) because it hints an optimal societal design. For example, current video games are designed to be much more cooperative and dynamic, both in terms of other players on your team and the game world adapting to your skill level.
The obvious problematic element to this is that virtual violence is a foundational aspect to many games. But, again, it is also violence free of real-world consequences. Maria Konnikova of the New Yorker makes an interesting point on that:
“Far from isolating us in a virtual world of violence and gore, first-person shooters can create a sense of community and solidarity that some people may be unable to find in their day-to-day lives—and a sense of effectiveness and control that may, in turn, spill over into non-virtual life.”
Games can provide big hints as to what younger generations want from their jobs, their leisure time, their paid experiences, and their relationships.
Why do toys show us where the future is? The answer is in the concept of play. Play is perfectly balanced of challenge and safety. The gamboling lion cub may get hurt, but he probably won’t get killed. It’s why virtually everyone likes like foreign travel. We are rewarded for optimal growth and exploration with a sense of deep meaning and engagement. Games are now maximally calibrated to keep us on the razor’s edge of play. Game designers are increasingly responding to financial incentives and instantaneous feedback to try to create a virtual utopia. The rest of us should pay close attention to how that evolves. Even if it’s a simulation, you can’t blame the players for wanting more.
“Always and already, the Other World is this world, rightly seen.”- Nisargadatta
Update: What’s really weird is that the excellent Packy McCormick essentially wrote this same essay (but better?) this week on his “Not Boring” Substack. It seemed to go pretty viral. This proves: A) I am unknowingly completely enveloped in groupthink or B) totally on the pulse of where the next big thing is. Perhaps it’s not surprising that they are related.
Other Interesting Reading:
- Listen/watch. James Carse on Infinite Games at the Long Now Foundation (1 hour 27 minute listen).
- Why listen. Carse’s book has been wildly influential to a remarkable number of impressive people. Kevin Kelly called it “a mathematical framework for my own spirituality.” It’s also a favorite of our former “Most Interesting” speaker Jaron Lanier. In this 2005 talk from before his death, Carse explains the concept in more detail. I tried the book a few years ago, really didn’t get into it, and probably need to try again.
- Read. Why Gamers Can’t Stop Playing First Person Shooters by Maria Konnikova in The New Yorker (13 minute read)
- Why read. Konnikova draws the links between games, flow states and the desire for control.
- Watch. Gamework on YouTube. (14 minute watch)
- Why watch. A short “video essay” shared by a kind reader (thanks Frank!) first highlighted via O’Shaughnessy Asset Management. The video discusses a lot of the motivations behind game-playing and makes the case that players are actually looking for the experience of work. But work “free from the obligation of being productive.”
- Listen. Yen Liow on Capital Allocators (1 hour 14 minute listen)
- Why Listen. Recommended by The Knall/Cohen/Pence Group's own Tom Pence. His own growth strategy incorporates a similar approach to risk management and emphasizing investment in companies that can potentially compound growth over the long term. This was an atypically insightful podcast on investing. It also relates directly to the central recent theme of investing in an increasingly tail-driven world. I found Liow’s articulation of the various different kinds of edge and risk very clear and insightful. A kind person called Thomas Chua at Steady Compounding actually synthesized the key insights from the entire podcast (10 minute read).”
Have a good weekend everyone!
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The Knall/Cohen/Pence Group
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