Secret Stash Ep 1: Mitch Lasky Reveals the Secret to Gaming GTM

Secret Stash
Apr 18, 2024

Since the mid 1990s, Mitch Lasky has been building and investing in some of the biggest game companies in the world. He was one of the first, if not the first, investor to take game developers seriously as a venture backable business. He helped build Activision, was CEO of Jamdat (one of the first mobile game studios, which he took public before selling to Electronic Arts for $680M), and was an early investor at Riot Games, helping turn League of Legends from a rough wireframe to the sensation it is today. Suffice to say, Mitch has been around the block and has some secrets to share - specifically the importance of GTM. 

“Having come from the content side of the business and being a creative executive, I'm hyper aware of just how much of the success depended on the way we took a particular product to market,” Mitch told us in our first-ever episode of Secret Stash. While the game industry is quick to attribute some of the biggest successes to groundbreaking product and design, Mitch says there’s more to the equation - that distribution and GTM is arguably the most important element. 

Tune into our first episode below or wherever you listen to your podcasts, hosted by our Co-Founder Justin Kan and Head of Product Archie Stonehill. Or, keep reading for the highlights. 

The challenge in relying on “gross” business models

In his GameCraft podcast a while back, Mitch described some of the industry’s business models today as “gross” - calling attention to the games that explicitly optimize for LTV-CPI arbitrage during design and production. 

In this episode of Secret Stash, Mitch clarified that he was mostly describing hyper-casual and hybrid-casual games. These genres, and many others like them, design games principally to minimize UA costs - creating and testing gameplay that’s marketable rather than fun or engaging, and mostly monetizing short LTVs with aggressive in-game advertising. 

So why is it gross, according to Mitch? There’s two reasons: 

  • First, it encourages bad behavior - games squeezing a little bit of additional monetization where they can “doesn’t ultimately serve the audience” since the games aren’t necessarily designed to be engaging - just marketable. It’s kind of like gaming clickbait.
  • Second, the model doesn’t really lend itself to innovation and disruption in gameplay because design decisions are determined by marketing metrics, while gameplay innovation is deprioritized. Designing for marketability means that there is less opportunity for riskier or more disruptive gameplay that players might be less familiar with, but would resonate if done well. 

Mitch’s criticism is based on a trend that’s seen game success increasingly determined by factors other than game quality, like marketing or social network effects. But this makes it harder for smaller, more disruptive studios to take on the biggest developers, who rely on their scale advantages, access to capital, and existing portfolio to beat disruptive startups. “You look at Monopoly Go, or you look at Marvel Snap or other things like that, they're using that intellectual property as a customer acquisition tool.” In fact, in a study Archie did looking at the number of new games that entered the top 100 grossing in 2021, 70% were IP based. That tells you something about the limited innovation in the space. 

However, this model has faced significant challenges, as UA has become harder and price competition has squeezed margins. The industry is now feeling the pain as studios are unable to profitability scale their games, receiving as little as $0.10 back on their UA invested dollar. “Obviously the bottom has fallen out of the CPI business … We've exhausted the model that built the Kings, that built the Supercells, that built the Rovios.” 

"We've exhausted the model that built the Kings, that built the Supercells, that built the Rovios"

In addition to finding this marketing-focused approach “gross”, Mitch admits that he’s “not bullish on the AAA business model” as it exists today either, and for similar cost-related reasons. Specifically, AAA has focused on games that require 500 person teams and cost $100M+ to bring to market. “When you're taking that much financial risk on product, you're obviously unwilling to take a lot of innovative risk. You're not gonna put something out in the market that's going to push the envelope, because you've already got such a large investment, you're gonna have to recoup on day one.” 

But wait, there's an opportunity! 

Despite the problems Mitch identifies in today’s increasingly tired business models, if you are building an innovative game, Mitch keeps faith that “there’s a path to market for quality and that at some point, quality finds its audience … if you can kind of keep it buoyant long enough.”

"Quality finds its audience if you can kind of keep it buoyant long enough"

But he admits that it’s more of a challenge in the modern industry than it might have been in the past. “The businesses that are most reliant on ‘the grossest business models’ are precisely the ones that have the least ability to achieve that sort of quality finding its own path” - pointing to a sea of similar casino and casual games, which are hard to differentiate on the basis of quality. 

So what’s next? If the CPI and AAA business models aren’t serving the game industry any more, where do we go from here? The good news is that these same problems create possibilities for innovation:  “I think there's some real opportunities out there in the market. I think the fortunes in the next five years are going to be built by people who figure that [distribution] problem out.” 

Replicating Riot: Innovating distribution and GTM 

Mitch emphasizes that game quality or even innovative design aren’t enough to succeed - it is equally (or sometimes more) important to an innovative and intentional go-to-market strategy that complements product innovation, whether it’s a “particular marketing campaign, an initial audience, etc.” 

For modern games, trying to get enough user liquidity into the product - for example, not being too hard or too intimidating - is critical in the beginning. For that to happen, you need diversity of user liquidity. To get diversity, you need to obsess about getting the first 500K to 1M players. 

There are a number of ways to solve that problem, according to Mitch. In the case of Riot, they essentially cloned Defense of the Ancients and had a very intentional GTM strategy that co-opted the existing DOTA community. “They hired members of the community and brought them in-house to be community leaders that would then go out and manage forums.” Then they “very surreptitiously and quietly acquired websites and other communities that we could use to subtly focus editorial attention on the upcoming smash hit League of Legends. That really did achieve that kind of initial frictionless access to the first to that first million or so users.” 

"It's the synthesis of those things that really creates the value"

Riot succeeded because there “was this combination of an extremely passionate team focused on customer quality and engagement, with a distinct distribution advantage and a business model that was amenable to scale.” Not many people today are chasing that combination - “maybe they'll get the team part of it, or maybe they'll get the product part of it or whatever, but they don't understand that it's the synthesis of those things that really creates the value.” 

Replicating thatgamecompany: Game design shines with the right GTM strategy

Paradoxically, the same thinking led to another of Mitch’s great investments - thatgamecompany. It might seem unintuitive: Riot was founded by two people with no experience in game development and weren’t designers, while thatgamecompany’s founder, Jenova Chen, was already considered a master of design. But like Riot, thatgamecompany saw Jenova entering a market and category that he had no experience with. Jenova’s previous games, like Journey and Flower, were premium indie darlings for PC and console. Mitch’s investment, however, relied on Chen building a F2P mobile success. 

According to Mitch, Jenova came to him and said, “I want to do this next studio venture, so that I could have a little bit more elbow room and a little bit more opportunity to create the kind of game I think will succeed in this market.” Mitch responded, “yes, but you can't make a single player adventure game. You're going to have to make a game as a service. That was kind of our bargain.” It took the next 7-8 years to launch the game, and unsurprisingly, it did astonishingly well - generating hundreds of millions in profit. 

Mitch and Jenova realized that “the long term engagement mechanic of getting [players] to play it again was not really a viable proposition” for a free-to-play studio. At the same time, neither Jenova nor Mitch wanted to abandon the same kind of abstract creativity and emotion-driven design philosophy that had made thatgamecompany’s prior games successful. Instead, they built a sandbox - “an evolving universe with content that can be added later and where you can move the product in various directions to continue to engage and accommodate those users.” Jenova’s ability to adapt his approach to an F2P mobile-native model made Sky: Children of the Light a hit that has garnered $100M+ in the 5 years since its release.  

The road ahead: Shifting market structures bring more opportunities 

Likely, we’ll see more disruptions in distribution and GTM in the near future, with Mitch highlighting the current regulatory environment as a driving factor. 

Innovation is deeply related to shifts in more macro, structural dynamics, like where control points sit in the industry’s value chain. These shifts, however, are often painful: “There’s always been a response to negative occurrences in the industry.” Mitch points to 1985-1987, when many games loosened their content restrictions and an abundance of bad quality content followed. “Nintendo and Sega really closed up” as a result, leading to consoles being more controlling about the type and quantity of content allowed on their platforms.

“It’s interesting to see what comes out of this current period.” He points to a lot of current issues that may result in similar shifts in the near future - such as the distribution restrictions in China, the glut of service content, venture funded content fighting with incumbents, IDFA changes, the Digital Markets Act, the DOJ scrutiny, and more. 

In fact, we’re already seeing the slew of anti-competitive regulations begin to open some of those control points, specifically the control points owned by the major platforms like Apple and Google. Mitch brought up the disconnect between what the platforms give developers and how much developers pay to be on the platforms: “on Steam or on mobile, you're kind of left to your own devices … the platform isn't really helping you identify customers with a high willingness to pay. I think that friction, that tension is behind a lot of the current disruption that's going on in and around the distribution part of the business.” 

"Any kind of diversity we could introduce into the platform on the mobile side is going to be great"

That’s why “any kind of diversity we could introduce into the platform on the mobile side is going to be great … and may lead to some interesting new business models.” For example, Mitch expects we may see a new kind of publisher who could aggregate enough content to justify having their own alternative app store. 

There’s likely to be more openness in PC, too. Though the convenience and network effects of Steam are more powerful and durable than most think, whether or not they can continue to take such high commissions is uncertain. “I think that may come under some pressure.” Their recent move to a more open, less curated platform is diminishing the discovery piece pitch - it’s diluting their ability to concentrate users on particular products outside of what’s being featured. “That opens the door for others to come in and compete.” 

His umbrella theory for what’s going to be valuable moving forward is audience aggregation - where we see audiences, we may see control points. For example, PlayStation and Xbox have much smaller user aggregation than Fortnite or Discord - and “yet the consoles are incredibly lucrative because they have the right tens of millions of users on their platform.” It’s nuanced - so it’s not an absolute number, but rather the right potential user aggregation.

Subscribe to Secret Stash wherever you get your podcasts. See you in the next episode!

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