Don’t play games? So what! You’re still susceptible to gaming mechanics – and so is every human on the planet. Tim Chang, Principal at Norwest Venture Partners, explains why you need to care.
Tim brings a combination of operational, technical and international business experience to Norwest Venture Partners. He focuses on investments in mobile, gaming, digital media, and also leads NVP’s investment practice in China and Asia-Pacific. Tim led NVP’s investments in ngmoco, Lumos Labs, Brite Semiconductor and 3jam, Playdom, and PCH International. He’s also a board observer for Borqs, deCarta, Double Fusion and Veveo.
Prior to joining NVP in 2006, Tim was a principal at Gabriel Venture Partners where he was actively involved in over a dozen wireless-related deals and led Gabriel’s investments in Iridigm Display Corporation (acquired by Qualcomm), Sequoia Communications, Sandbridge, and Kajeet. He also contributed to the boards of Placeware (acquired by Microsoft) and Arula Systems (acquired by Raritan), TestQuest, NextG Networks, and IPWireless. Tim built Gabriel’s wireless sector practice and helped establish business development capabilities through strong, strategic relationships across the wireless value chain, particularly in Asia-Pacific.
Few know the gaming sector better than Tim and that’s why we grabbed an interview with him before this year’s Summit at Stanford
Andrew Bellay: Why are you excited about gaming?
Tim Chang: I’ve actually been programming and playing games since age 10 back in 1982 or so. Back then, I remember getting an Apple II computer that my dad had brought home and I remember saying that I wanted to play games. He threw and Applesoft manual at me and said, "There are no games, learn to make your own."
And that was my introduction to computers and programming. I’ve played games since then and it’s always been a passion of mine. I’ve played almost every major release since then. It’s funny because it’s only really become a hot investment area in the past couple of years with the change in platforms away from traditional consoles.
Packaged software downloads move towards the new platforms of gaming 2.0, as I like to call it, namely social gaming as well as games on smart phones, which is differentiated from mobile games 1.0 – which were simpler, downloadable games on feature phones.
I’m excited by gaming now because whenever you have changes in the distribution platform there are changes in the landscape of the industry. Whenever you have changes in the landscape you have new business models that pop up. With new business models and distribution you have the chance to create new giants.
Gaming used to a little cottage industry. A lot of independent developers were running around, programming games, trying to sell them through mail order or selling them in Ziploc bags at supermarkets. Then the first giant publishers came out like Electronic Arts, Sierra Online and all these other guys. That was built around the distribution model of retail because that’s where you bought the games.
Then as games started to become an online phenomena it created another set of giants who had their muscle online – Blizzard, with World of Warcraft, and some of the Asian Massively Multiplayer Online (MMO) companies. They damaged the distribution console with the online MMO games.
And now we’ve got these whole new platforms like Facebook, iPhone, and iPad and that represents a new shift in distribution. So theoretically the opportunity exists for new distribution muscle and publishers to arise to become the next generation Electronic Arts. So that’s what makes it exciting.
When you really look at what I’m talking about, it’s not that I’m trying to invest in content studios or somebody betting on hits because that’s no different than the Hollywood movie industry which the VC industry has traditionally avoided. Really what VCs are investing in are distribution and publishing companies because that’s the real business play.
AB: Okay, let’s dive into games specifically. What is it that makes games so engaging and compelling?
TC: Human beings are game players by nature. Although we would not, mostly, self identify ourselves as gamers, we all buy into game mechanics. Game mechanics are basically rules, systems, and scoring. Hey, what is money? Money is just a way to keep score relative to the world. Retailers have used gaming mechanics for decades. "70% off, plus take another 25% off the original 70% off…but only for the next week." You see gaming mechanics every time you walk through Costco or Wal-Mart in terms of where they display special items or how they organize their shelf space.
Humans all buy into gaming mechanics even though we’re not all gamers. What games have is the power to engage and retain people. This is a big lesson learned because when web 2.0 and social media first came about, all the buzz was about virality. That was the buzz word. Viral installs, viral growth: fast, rapid, virality. The thing that people didn’t realize was that things that go up fast come down very quickly too. Viral applications on Facebook, websites, and user generated content spread quickly but didn’t retain.
Games have traditionally had the opposite. They would grow at a nice linear pace but they would keep people addicted for weeks or months if not years. I heard a great analogy once, it’s like peanut butter and chocolate. Chocolate gives you that quick rush, spikes quickly, and then drops off. Peanut butter is sticky, it’s a little more linear. What’s really interesting about Gaming 2.0 is that you have these platforms like Facebook and iPhones which actually allow for very rapid distribution.
Some of those apps have viral growth with gaming mechanics, so they have the ability to retain those users. You get that viral mass growth, plus they’ll stick around. That’s very different from some of these early Facebook apps: snowball, superball, and superpoke. Those things were viral but after you installed it and messed around with it for a few days, no one ever used them again and they died off pretty quickly. The gaming power is in the ability to engage and retain those users over time and to also monetize them beyond just advertising.
AB: Can you talk some about the behavioral economics and social psychology of gaming?
TC: Absolutely. There’s a great case study: If I were to show you a website and all it had on it was a button that said "click me," about 50% of people would click it for the heck of it. If you were to click it and it said "Congratulations! You just reached Level 2, click me again," then you’d see about 75% or more people click it because they saw a little Pavlovian response. Research has shown that people will click through stupid websites like that for literally 10-15 minutes before realizing: "Wait, what am I doing? I’m just clicking a button."
Humans love to be scored, we love to be given feedback on ourselves, and we love to see progress in real time. Instant gratification towards this leveling curve is something that’s innate for humans. Games are so compelling because they’re systems which level people up across multiple dimensions based on what the game wants you to do. This leveling curve is a very well known mechanic in game design.
In the first 30 seconds to 2 minutes of interaction, the new player quickly gets a reward for doing something. They’ve leveled up from level 1 to level 2. Similarly, they do a little bit more and they level up to level 3. You see you’re making progress and then over time you make the levels harder and harder to achieve and that’s the classic leveling curve. You can see this in games like World of Warcraft and most social games today. To get people addicted quickly is about getting that compulsion loop going – to show positive feedback, instant gratification, in the first few minutes of interaction. In those first few minutes you’re actually training the user how to keep leveling up. And if you do your job right as the designer of that mechanic, they’re addicted and they’ll keep going to level 5, level 50, or beyond.
What I spend a lot of time on – in addition to just game investments – is applying these gaming mechanics to other facets of real life and industries. That’s called meta-gaming or gamification of life. Good examples are all over the place. When you go to your favorite neighborhood cafe and there’s a punch card – buy 10, get one free – that’s the gaming mechanic of collection. When you choose your next flight and you say: "I’m going with United because I’m Premier and I’m almost going to get Premier Executive," that’s a gaming mechanic at work: leveling up.
Actually, if United was really smart, instead of just Premier and Premier Executive, 1K, and Global Services, they’d have 50 levels and every level would be just within reach after another couple of actions. That granularity can provide people with an even more compelling loop to stay hooked on it and keep playing the game.
AB: You’re interested in tying gaming mechanics into real life, but my personal opinion is that games like Farmville don’t have a lot of societal good outside of a pure entertainment aspect. Have you seen games that have more of a social impact on real life?
TC: Absolutely, one of the first social games out there was created by my friend David King, an ex Google employee. He created Lil Green Patch and this was kind of like a primitive ancestor to Farmville. You were basically cultivating little rainforest patches and you spent money on virtual currencies to buy little items. He tied the money spent on those virtual currencies to saving real life acres of rainforest. And with this application I think he ended up raising a ton of money to save real rainforests. So, oddly enough, one of the very casual games had a social good tied to it. That’s one example.
A second example: Lawrence Bender – Quentin Tarantino’s production partner, behind Pulp Fiction and Inglorious Bastards – recently created a documentary called Countdown to Zero which was about the nuclear arms proliferation and the remaining threat of it. He was very passionate about this and he needed to get the word out because, let’s face it, documentaries around causes are not super sexy and easy to promote anymore. I introduced him to our portfolio company: Playdom. In Playdom social games, one of the social goods is this documentary. The reason it’s in there is to spread awareness about that documentary and it’s already led to hundreds of thousands of people watching that trailer. That’s another example of tying causes into social games.
I agree with you: a lot of social games are frivolous but the potential power they have to be used for causes and create societal good is huge and it’s still in the infant stages of being used for that.
AB: What do you see as potential future games that we might be playing in real life?
TC: I’m involved closely, through TED, in the search for extra-terrestrial intelligence, with the SETI program. The whole purpose of my interaction with them is to figure out how we can use social game mechanics to drive the SETI mission which is to get people around the world interested in science, education, and learning about the challenge of the search for extra-terrestrial intelligence and most of all how do we raise more funding for SETI because they’re independently funded and the government’s not really funding it.
So you can imagine playing this space-farm game and you’re spending money on it because it’s enjoyable but at the same time learning about real astronomy challenges and actually helping fund the SETI program itself. Interestingly enough, the work that SETI does, processing these signals, can be part of the game. As you’re trying to match patterns and whatnot, you’re actually doing the work of processing all these radio signatures that are so expensive for computers to process and now you’ve potentially got millions of people doing the work and saving the money that computers would have to do.
On the real-life gamification stuff, we’re already seeing examples of companies like Foursquare where they essentially took something like Yelp! (local user reviews) and wrapped a lightweight social game around it with check-ins and people competing to be the mayor of their favorite venues and it’s hugely addictive to a lot of people. So that’s an example of game mechanics plus a local user discovery and review site.
You’ve probably heard of Gilt Groupe and Groupon and all these flash sale and e-commerce 2.0 sites, those are basically shopping with gaming mechanics. One of the best, well-worn game mechanics is time scarcity or inventory scarcity: so you say 50% off, but you have to buy in the next hour. That’s a game mechanic right there, leveraging scarcity. It’s very similar to Farmville by the way: "Harvest your corn now or it’s going to spoil."
I’ve even gone as far to say that enterprise software can benefit from game mechanics. Here’s an example: a customer service reps’ job – no matter how you slice it – is kind of a crappy job. It’s not enjoyable being yelled at by people all day. Well the dashboard that a customer service rep uses is not that dissimilar from Farmville perhaps. You’ve got incoming leads or requests and they’re going to expire if you don’t handle them. You need to harvest them, right? So you have a points system attached so that if you harvest these support requests in time you’re earning points, you’re leveling up. You earn bonuses for handling them especially effectively or efficiently or sharing a learning with your co-workers. If you can make the job even a little bit more fun, it will lead to 10% less churn in the workforce. Then you’ve actually created some real value.
Special thanks to Tim for his time!
[Originally published By Andrew Bellay on aonetwork.com]