Hashed Interview: Yat Siu, Animoca Brands, “We invest in games with blockchain technology.”
“People have lost trust in games because they’re taking so much value from users, and they’re not giving any value back. This is why the conversion rates are suffering. I think the next valuable paradigm is blockchain games. If I can earn money by playing games and obtain transferable items which are backed by the blockchain then this proves real value because my investment will never be lost — even if the game shuts down. Therefore, we think that conversion has more value, and more value means more adoption.”
Partner at Hashed, Ethan Kim, asked Yat Siu, Chairman at Animoca Brands, the reason why they invest in games supported by blockchain technology.
Hello Yat, thanks for agreeing to an interview.
My pleasure.
We are very honored to have you at Hashed. To those in the audience who are not well aware of Animoca Brands, could you briefly talk about yourself and Animoca Brands?
Sure. Animoca Brands is a public game company listed in Australia. We have a traditional mobile game business, but now we’re very heavily investing in blockchain gaming and in 2018 we’ve done a lot of moves in that space.
How about yourself? Could you introduce yourself as well?
Sure. So I have been in both the internet and gaming business for over three decades. My very first job was with Atari in the 80s and I kind of half-joke about this because I started really working and coding for them when I was maybe twelve, or thirteen years old. And it’s funny because of course that’s kind of child labor, it’s probably not entirely legal, but back then, you couldn’t find programmers. And I think the area’s similar to today’s as well. If you are very good at coding, or if you’re very good at blockchain, for instance, age doesn’t matter. You can always find a job because [personnel] is scarce.
Could you explain the current core business of Animoca Brands?
The core business is a mobile game business, which generates the majority of the historical revenue in tower defense games, based in Finland, but recently, especially in this last quarter, we’ve done a lot of activities in blockchain, including, obviously, our recent deal in The Sandbox, as well as our launch of a Formula 1 NFT option. So all of the activities that we’ve been investing in blockchain basically have started to bear fruit in the first quarter of 2019. And we certainly hope that the blockchain side of the business will become bigger in the near term.
Got it. As you mentioned about blockchain, we’ve recently heard much news that Animoca Brands invested in several blockchain game companies. So what triggers your interest in blockchain gaming, and what is so special about blockchain and gaming?
So before I talk about blockchain and gaming, I want to talk briefly about blockchain, and exactly why it’s so important. Obviously, with the internet, we’ve been given access and information. One of the challenges we now have is that there’s a breakdown in trust, and there’s a breakdown — there is no value, really. What blockchain delivers, at scale, really, is a form of — actually is a trust-free market, where you can basically transact this way. But one of the challenges of blockchain has — is adoption. So if you don’t get people using it, it can never actually come to fruition. And I look at the similar parallels back in ’96, ’97. Back then, AOL and Softbank, Yahoo, Amazon — all these companies really emerged. There were only 36 million internet users. And back then, we were — I was a big believer, and I was like, how do we get more people to use the internet? Dial-up internet can be hard. You have to understand TCP/IP, you have to understand DNS. But we all saw what the internet could be. We saw the potential. But we also knew it was difficult, because once you got a person to go online, they went to a pretty crappy website, and they said, “That’s not very interesting. Why should I do this?” Blockchain is kind of the same thing. But there was one industry that pushed forward that connectivity in a way and that was gaming. Gaming really delivered a large form of mass adoption for the internet as well. People were first playing multi-user dungeons, and they were playing online games, MMORPGs, network connections, and in a large part, they became big users of the internet. So we think blockchain is the same. We think there’s an added advantage. Gamers understand virtual value. I don’t have to explain to them why you have to spend money for visual codes. Why you have to spend money on digital weapons. They get it. So we think that’s not too crazy a leap for them. So that’s one advantage. And therefore, we can create more adoption, faster. So that’s the first reason we thought blockchain and gaming is important. But the second reason we think it’s so important is that our industry is actually slowing down. There are 2.3 billion gamers. And while it’s a growing market, it’s not growing 30, 40, 50%. It’s growing, you know, 6% or 8%. And so what is a new paradigm that can shift that? And we believe that blockchain, basically, will create a new wave of conversion and growth because of true digitalization.
Would you give us some examples of the companies you’ve invested in? Why did you make the decision on those companies and what do they want to achieve on top of blockchain?
Well, one of our favorite projects, as you might know, is The Sandbox. The Sandbox is basically Minecraft on blockchain. We love that a lot because Minecraft was actually a n early form of decentralized gaming. It was decentralized because everyone could host their own servers and host their own worlds, and it wasn’t really owned by anyone at that time. But the challenge that Minecraft had was that while it provided information and access, it could not transfer value. So if I was playing a Minecraft game on server 1, I couldn’t actually transfer that value into Minecraft server 2. Which meant that there was no consistent transfer, and everyone ultimately had to ask people to play their particular server. So with The Sandbox, what we like about this is that through the blockchain, you actually mint NFTs, which can then can be transferred as permanent items throughout any one of the other The Sandbox games that play like Minecraft. And what we love about that as well is that they’re all designed in Voxels. So Voxels are visual Legos. And the thing about visual Legos is that anyone can do it. You don’t need to know Photoshop, you don’t need to know 3ds Max, you can make beautiful items. Give someone a bunch of Legos and they can make something. That means everyone can be a creator. That means everyone can become someone who can make a non-fungible token. So that’s one set where we think user-generated NFTs are going to be one kind of revolution. A little bit like the Maker Movement on Axie. The other area that we’re focused on is projects related to branded NFTs. So recently, Formula 1 or our acquisition of Stryking, which does football brands like Bundesliga and Bayern Munich. These are deals that are important for us because we think the first wave of mass adoption will happen with brands that non-blockchain people are familiar with. Today, there are maybe 30 million users; it’s not very big. So we can focus on the 30 million — that’s one thing. But there’s a few billion people whom we still need to move. So how do we bring the extra billion into it? We think, if there’s a brand that you know, let’s say at Formula 1, as 1.4 billion viewers, half a billion fans, even if just a small percentage says, “you know what? I’m going to try this game and play a round with NFTs and learn about blockchain,” that’s a huge win. Because even if we can get just a few million people, that’s a big number in the blockchain world. So I think branded IP in the short term will become very very important, especially for collectibles. And of course, the most famous one in our portfolio is CryptoKitties. That’s how it all kind of began with us as well.
When it comes to blockchain gaming, non-fungible tokens have now become a global trend. Would you briefly explain what NFTs are and why blockchain gaming companies are focusing on NFTs?
Well, first of all, I would say that not enough companies are focusing on NFTs. However, I would say, to explain in fast terms what an NFT is, much like the blockchain, it can confirm the provenance and the validity of the fact that this is a true Bitcoin or Ether, and you don’t have to worry about it being forged. With an NFT, you can do the same for individual items — they are indivisible, they are scarce, they are unique. Whether you make one, ten, or a hundred, it’s confirmed. And that in itself adds a huge element of trust. Now I know that if this was a digital cup, I know that there’s one of them, so is it worth 1 dollar or 10 dollars? I don’t know, but I know there’s only one. So that’s one aspect that you couldn’t get before. Because before, I could give you a digital cup, and you could make a thousand copies. In fact, in games, they make a million copies. So the cup has no value, and I don’t care. But in the real world, actually, a cup does have value, in its utility and its function. Now, what a non-fungible token could do on top that is exciting, beyond the fact that it’s scarce, is that it has provenance and history that is certified immediately. If I buy a Picasso, I have to go to a museum or a curator, I have to go to an art collector, he has to certify, he has to give me a document. The painting without the document and the certificate is not worth that much because I don’t know if it’s true. It could be fake. Only with the certificate is it valuable. Blockchain is auto-certificate. Every time we do something digital, we get a certificate, so you could do it en masse. Now, take that concept one step further. This is a normal cup, but if I sell it to you, maybe it’s 1 dollar because it’s a normal cup. You use it to drink. But if Mick Jagger owned this cup, is it worth 100 dollars? Or is it worth 1000 dollars? Maybe it’s worth 10,000 dollars. So it matters who owned it or who made it. Just like art. The other thing that’s fascinating, especially in the gaming world, is when you think about weapons or items. The sword that won the championship. Or the gun that got to level 50. Even though it’s exactly the same gun, that gun that won the championship is worth more and becomes a collector’s item. It’s the same thing when you play tennis. You can buy the same tennis racket at the store for a hundred bucks, but if Roger Federer won the tournament with that racket, it’s worth more. So these are all things that you can now do in the digital world at a massive scale.
That’s a very interesting concept. My next question: many people in the blockchain gaming industry expect that blockchain gaming will be their new opportunity. But conservatively speaking, there are only several hundred thousand users in the blockchain scene, and the revenues of blockchain game companies are not big enough yet. In these circumstances, why are you so bullish on the blockchain gaming market?
In 2008 and 2009, we started going into mobile gaming, when we first saw the first smartphone and saw that the app store was about to come, we said, “this could be something big.” But of course at that time we weren’t sure. I would say that blockchain gaming is the same. How many big companies were doing mobile games in 2009, 2010? Zero. And those companies that did do mobile games became the leaders of today. Supercell, Rovio, even companies that moved to mobile, like Google or whatever — these are companies that were not doing well and have done incredibly well because they went with a growing, emerging trend. And we think blockchain is the same. So I think to look at blockchain and say, this is the market today, is not correct. I think you have to look at where you think blockchain will be in the future. Now, we believe that it’s in the early adoptive phase, so we think that blockchain gaming is two, three years away from rapid mass adoption. It might be wrong, but if we are right, then we can move with that massive trend. And we think many industry indicators show that it is. One of the important theories, when you talk about the diffusion of the innovation curve, is essentially social diffusion. How many people know about it. And they may not know everything about it, but they have heard of it or they might care about it. And with blockchain, it’s just like the internet, 25 years ago. Or even mobile, smartphones, circa 2009–2010. You may not have owned a smartphone, but somewhere in your network, someone is telling you, “that Apple iPhone, that’s the best thing. I have it, it cost a lot of money, and it’s really good.” And I don’t have one yet, but I hear about it, I’m thinking about it, but I’m not sure. Blockchain is like that, too. I may not have Bitcoin, I may not understand it, but somewhere in my social network there’s some crazy guy who’s telling me blockchain is going to change the world, it’s going to be a revolution, and you have to do it. It’s kind of the same period. So whether we’re 12 months off or something, I don’t know, but I definitely, personally believe that we are at this cusp of the adoption where the adoption will move rapidly.
So you’ve mentioned rapid adoption. What do you think are the key factors that will grow the blockchain game market?
Number one is usability — UX. I mean, anyone who’s tried to set up MetaMask can understand exactly how difficult it is. And to me, MetaMask is parallel to dial-up internet in ’96 and ’97. For those of you who remember how it was like to connect to the internet: you had to buy a modem, you had to have a router, you had to understand TCP/IP, and you had to set up your DNS — these are all things not everyone will do. So you had to ask a friend, “hey, can you help me get on the internet?” and then they’d help you get on the Internet, and you could go online. So adoption is slow, because it’s just difficult. And on top of it, when you’re online, it’s actually a pretty crappy website so it doesn’t look that good. Now, blockchain is the same, actually, at the moment. If I have to set up MetaMask, you probably lose everyone within the first minute. And then there’s another 5 minutes just to get it right. Then maybe 10 minutes, if you don’t really know what you’re doing. So that usability of the wallet, and the adoption of the blockchain, needs to be solved. And that’s where I think gaming is very good. Because some of the concepts that we’re trying to teach around trust, and awareness of blockchain, needs to be educated. But the problem is, you have to go through these steps. So how can you go through these steps without making it feel boring, or difficult? So gamification also plays a role. You can make the process fun, and you can make it educational. How many children learn educational topics because it’s gamified? We think it’s the same thing, and, I think, as that result, gaming will be a key factor in bridging blockchain adoption.
When I met blockchain game founders, most of them were struggling with the current infrastructure of blockchain technology. What obstacles do blockchain game developers need to overcome to make a success in the industry?
I don’t think technology is the most limiting factor. Because you can separate the value aspect, and maybe put that on a public chain, even if it’s slow, like Ethereum, it would still have the value aspect. When you’re transacting with money, or something that has value, it can take some time. When you’re playing the game, it doesn’t always have to be on chain. Unless there’s an aspect where value is exchanged or maybe when you’re doing a bet or something, or when you’re fighting for something that is real. But where a strong level of trust is not needed, if it’s for fun, if it’s for entertainment, you don’t need it to be on a public chain. Nobody said that you need to replace every database in the world, right? In fact, a normal MySQL database can do just fine for most of the gameplay aspects. So I think that’s a technical distinction we need to make. What I think is a bigger challenge is making a blockchain game that has the elements of fun but are also value-based. So one of the challenges that games have is that many game designers talk about economies, but it’s not an economy. It’s — unless you call Venezuela an economy, right? Which, of course, it’s not a proper economy. It’s entirely inflationary, it has no real sustainable value, and it tends to live very short [lives]. So game developers don’t have to worry about a game that lives forever. I mean, who makes a game and says, “this game will last a thousand years”? That’s not what you think. People think of a game as lasting one year, two years, five years — so if you think of it that way, then of course you have no permanent economy. You don’t have to think about it that way. So to me, that is the most essential thinking — that a game designer has to become an economist, a real one. It has to think about consequences that are long term, and how you manage that, which is super difficult. So I think the planning that goes in the UX, that goes into the game, has to change. And that, to me, is the challenge. Because even if you know how to make a fun game, that doesn’t mean you really understand value. And if you understand value because you’re a blockchain geek, that doesn’t mean you understand how to make a fun game. So that bridging still has to happen.
To traditional game developers, who have not yet jumped into the blockchain game industry, what would you want to advise?
I mean, there are a lot of things, right? But obviously, I think the first thing I would suggest for them is, that they should focus on what is of most value to their customer. Often, not just with game companies but any company, when you have a mature industry, we sometimes forget what’s important for our customer. We think more about our product. But who does a product serve? It serves the customer. So what is best for the customer? So once we start thinking about what is best for the customer, at that point, we can probably design the right framework for a long-lasting game. And so for the game developers, I ask the question: is the way you’re making games today really the best experience for your customer? And I’m pretty sure most of them don’t think that way. They think of an existing model, they have a lot of science, they have a lot of data, they think about making a lot of money from their customers. But is it really the best experience for the customer? So when you think about the history of games, in the beginning we had packaged games. For 40, 50 dollars, I buy a CD, I pop it in, I play on PlayStation, Xbox. The conversion — the number of people playing was relatively small. And most people still didn’t buy games because they didn’t understand the value — “why would I pay 50 dollars for something I don’t know?” Then they had demos, light versions, so you try the light version, so more people convert, so I can try it out, a little bit more value, but I still have to pay for the full game before I play. And then the big revolution was, essentially, freemium games. You can play the entire game for free. Now, why was that attractive and why did it kill most of the paid game industry, especially mobile? Because it was more value to the user. It was a better experience for the customer. Of course the customer, if they have the choice to play for free, will choose to play for free, rather than to play for money. So that value came in. But then, they started finding ways to make more and more money, which is, I guess, needed as a business. But now, people have lost trust in the games, because you’re taking so much value from me, but then you’re not giving any back to me. So the conversion rates suffer. So I think the next paradigm with blockchain is games with value. If I am playing a game and I have value, maybe I can even earn money, or at least have long-term retention, or if I can take the item and give it to my children — even if the game shuts down, I can still own the items, then the investment in the game is no longer lost, and as a result, we think that conversion has more value. And more value means more adoption.
This will be my last question: do you have anything to say to the Hashed audience or the crypto gamers?
Well, for the crypto gamers, you are early adopters and innovators, so you are definitely driving forward an industry, so we’re honored and pleased to be part of this. One thing I will say — and we see this with early forms of gamers as well — it’s a territory that you own, but in order to allow a broader market to enter, you need to welcome them. And I think I have one thing I would love for the community to become better at, it’s to be welcoming to the people who know nothing, because that’s what we need. You are the experts, so you know everything about it. But to make the market bigger, you have to become teachers to those who don’t.
Thank you very much for your time and valuable opinions.
Thank you.
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