WEBVTT - Pokemon Go Keeps On Going 0:00:04.400 --> 0:00:07.800 Welcome to tech Stuff, a production from my Heart Radio. 0:00:12.119 --> 0:00:14.880 Hey there, and welcome to tech Stuff. I'm your host, 0:00:15.000 --> 0:00:17.840 Jonathan Strickland. I'm ad executive producer with iHeart Radio and 0:00:17.840 --> 0:00:21.640 I love all things tech. And previously on tech Stuff, 0:00:21.680 --> 0:00:25.599 I talked about the founding of the company Niantic, how 0:00:25.640 --> 0:00:28.520 it took its name from a ship that ended up 0:00:28.600 --> 0:00:32.400 being buried under San Francisco, and it went on to 0:00:32.520 --> 0:00:36.560 launch the phenomenally successful Pokemon Go. I covered a bit 0:00:36.640 --> 0:00:41.680 of how Niantic developed another game called Ingress before it 0:00:41.840 --> 0:00:44.839 jumped on Pokemon Go. So today we're going to continue 0:00:44.840 --> 0:00:47.080 our story. We're gonna talk a little bit more about 0:00:47.120 --> 0:00:51.360 how Pokemon Go works and how it makes money, and 0:00:51.400 --> 0:00:54.320 also what else Niantic has been working on. So let's 0:00:54.360 --> 0:00:59.240 first talk about how Pokemon in general, not just Pokemon Go, 0:00:59.360 --> 0:01:02.319 but how Pokemon on in general works. From a very 0:01:02.400 --> 0:01:07.679 high level, the Pokemon are fictional critters. They are pocket monsters, 0:01:07.760 --> 0:01:10.400 if you will, though many of them are far too 0:01:10.520 --> 0:01:14.880 large to fit inside of a pocket. Players called trainers 0:01:15.040 --> 0:01:19.120 attempt to find and catch the various Pokemon and add 0:01:19.160 --> 0:01:23.479 them to their collection or Poka decks. By the way, 0:01:23.720 --> 0:01:27.680 get used to poke a being used a lot in 0:01:27.720 --> 0:01:31.880 this episode. Uh. You use poke balls to catch Pokemon, 0:01:32.000 --> 0:01:36.440 and trainers can even evolve Pokemon into more advanced forms. So, 0:01:36.520 --> 0:01:41.480 for example, the char Mander Pokemon will eventually evolve into 0:01:41.560 --> 0:01:45.280 a form called the char Million and then further evolve 0:01:45.480 --> 0:01:49.400 into the charas Art. Each evolution marks an increase in 0:01:49.440 --> 0:01:54.200 Pokemon power and some changes in their abilities. Trainers pit 0:01:54.440 --> 0:01:59.240 their Pokemon against other trainers into Pokemon battles, and that 0:01:59.280 --> 0:02:02.600 means in most Pokemon games you enter into a turn 0:02:02.720 --> 0:02:07.320 based combat sequence. In the standard Pokemon games, it's clear 0:02:07.360 --> 0:02:10.880 that some trainers are bad guys. They're working to create 0:02:10.919 --> 0:02:14.359 a sort of criminal organization that leans heavily on these 0:02:14.400 --> 0:02:18.760 Pokemon critters to do nefarious things, Team Rocket being a 0:02:18.760 --> 0:02:24.280 prime example. Each Pokemon belongs to a category or a type, 0:02:24.760 --> 0:02:28.600 and each type has strengths and weaknesses against some of 0:02:28.639 --> 0:02:32.800 the other types. And it's kind of like paper rock scissors, 0:02:33.120 --> 0:02:36.440 you know, because paper beats rock, rock beats scissors, scissors 0:02:36.440 --> 0:02:40.640 beats paper. In Pokemon, however, you don't have three types. 0:02:40.800 --> 0:02:45.760 You've got eighteen different types. Some types have no advantage 0:02:45.840 --> 0:02:50.040 or disadvantages against each other. Uh. Some Pokemon types like 0:02:50.280 --> 0:02:54.920 grass types are weak against many other types, and so 0:02:55.000 --> 0:02:58.880 knowing which types are effective against others helps a trainer 0:02:58.919 --> 0:03:02.560 win battles. And just because one Pokemon is naturally weak 0:03:02.760 --> 0:03:08.960 against another does not necessarily mean defeat is inevitable. There's 0:03:09.000 --> 0:03:12.720 an R and G element or random number generator to 0:03:12.840 --> 0:03:16.840 this too, so it is possible, but very unlikely, that 0:03:16.919 --> 0:03:20.360 a Pokemon that's weak against another will still win in 0:03:20.360 --> 0:03:22.960 a battle if it just happens to get really good 0:03:23.080 --> 0:03:27.160 random results and the other one gets really bad results. 0:03:27.200 --> 0:03:30.280 But obviously the odds are against you in that scenario. 0:03:30.800 --> 0:03:33.280 Oh and each Pokemon has a few different moves that 0:03:33.360 --> 0:03:36.280 you can play in this turn based system. Some moves 0:03:36.320 --> 0:03:40.200 are meant to reduce your opponent's defenses, some are meant 0:03:40.240 --> 0:03:44.000 to decrease the potency of their next attack, and some 0:03:44.080 --> 0:03:47.640 are just meant to inflict damage. When a Pokemon has 0:03:47.640 --> 0:03:49.800 taken all the damage it can take, in other words, 0:03:49.840 --> 0:03:53.040 all of its hit points are gone, it faints. There 0:03:53.120 --> 0:03:55.720 is no dying in Pokemon, which is something of a 0:03:55.760 --> 0:03:59.360 relief in most Pokemon games. If you're a creature faints, 0:03:59.640 --> 0:04:02.760 you can swap in another Pokemon from your collection and 0:04:02.800 --> 0:04:05.840 continue the battle. But if all of your Pokemon in 0:04:05.840 --> 0:04:09.120 your in your little group faint, you lose the battle 0:04:09.440 --> 0:04:11.600 plus some money, and you head off to a Pokemon 0:04:11.640 --> 0:04:14.080 center where you can have your poor little critters recover 0:04:14.200 --> 0:04:16.800 before heading back out to do it all over again. 0:04:17.640 --> 0:04:20.200 Now there are other aspects to the game as well. 0:04:20.560 --> 0:04:23.720 Most games allow players to buy various items which can 0:04:23.760 --> 0:04:27.800 help during Pokemon battles, like it can help restore hit points, 0:04:27.839 --> 0:04:30.880 for example. And then there's the poke ball, which is 0:04:30.920 --> 0:04:34.039 a small sphere that acts both like a net to 0:04:34.160 --> 0:04:37.160 catch Pokemon and also a storage space where your little 0:04:37.160 --> 0:04:41.320 pokemons live. It captures them and holds them wild Pokemon. 0:04:41.600 --> 0:04:44.120 If you encounter one in the wild within these games, 0:04:44.400 --> 0:04:46.039 you have a chance to try and capture them and 0:04:46.040 --> 0:04:47.760 add them to your collection, but they have a chance 0:04:47.800 --> 0:04:51.640 to escape capture. Battling wild Pokemon with one of your 0:04:51.640 --> 0:04:54.680 own can weaken the wild ones enough so that when 0:04:54.720 --> 0:04:58.240 you grab them, they don't have the strength to escape. Charming, right, 0:04:58.520 --> 0:05:01.200 all right? So in pokem Mon Go, some of these 0:05:01.240 --> 0:05:04.320 elements made it into play early on, but not all 0:05:04.400 --> 0:05:06.760 of them did. There were some limitations on things like 0:05:07.200 --> 0:05:10.039 whom you could actually battle. You couldn't go head to 0:05:10.080 --> 0:05:13.440 head against another player for example. But Pokemon Go also 0:05:13.480 --> 0:05:17.600 introduced some elements that are not in the standard console games. 0:05:18.120 --> 0:05:21.560 For one, the types of Pokemon you encounter depend heavily 0:05:21.680 --> 0:05:25.680 on where in the world you really physically are. Some 0:05:25.720 --> 0:05:29.919 Pokemon are unique to specific continents, meaning you could wander 0:05:30.120 --> 0:05:33.600 all over uh, well, let's say North America, and if 0:05:33.600 --> 0:05:36.760 you did, you would never see a Mr. Mine, which 0:05:37.279 --> 0:05:40.920 frankly might be a blessing. But that's because Mr. Mime 0:05:41.080 --> 0:05:44.039 is exclusive to Europe. You would have to travel to 0:05:44.120 --> 0:05:46.920 Europe to have a chance of finding one in the wild. 0:05:47.480 --> 0:05:49.680 And also the time of day matters too. You will 0:05:49.720 --> 0:05:53.280 see a different distribution of Pokemon monsters in the morning 0:05:53.400 --> 0:05:56.880 versus the evening, for example. Now for another thing, The 0:05:57.000 --> 0:06:01.320 act of catching a Pokemon in Pokemon involves a gesture 0:06:01.360 --> 0:06:04.680 control mechanic. So you've got your little poke bowl on 0:06:04.760 --> 0:06:07.479 your screen. Then you can also see your Pokemon that 0:06:07.520 --> 0:06:10.559 you're trying to capture on your screen. If you're playing 0:06:10.560 --> 0:06:14.240 an augmented reality mode, the Pokemon actually appears as an 0:06:14.240 --> 0:06:16.840 overlay of a camera view of your environment. So you'd 0:06:16.839 --> 0:06:19.480 be holding up your camera. Maybe you're looking at like, 0:06:19.520 --> 0:06:22.200 say a park bench, and you notice that the little 0:06:22.240 --> 0:06:25.719 Pokemon is apparently standing on top of the park bench. 0:06:25.760 --> 0:06:28.840 It's cute, but a lot of folks actually switch this 0:06:28.880 --> 0:06:31.839 mode off because it does also suck up battery life 0:06:32.440 --> 0:06:36.159 really quickly. Well, then you use a vertical swipe motion 0:06:36.279 --> 0:06:40.720 to virtually toss your poke ball at the Pokemon. If 0:06:40.760 --> 0:06:43.240 you first swing the poke ball around a bit like 0:06:43.279 --> 0:06:46.279 you swirl your finger around in a circle, you charge 0:06:46.400 --> 0:06:49.680 up the poke ball, which increases your chances of catching 0:06:49.760 --> 0:06:52.599 the Pokemon. It also makes a little more challenging to 0:06:52.680 --> 0:06:55.200 aim the poke ball before you throw it, which means 0:06:55.240 --> 0:06:57.720 you might miss wildly. But even if you hit the 0:06:57.760 --> 0:07:02.520 Pokemon smack dab and it's poke a face pa Poco face, 0:07:02.920 --> 0:07:06.960 you aren't guaranteed to catch it. Some Pokemon are rare 0:07:07.120 --> 0:07:09.800 and powerful, and the odds of a successful capture are 0:07:09.960 --> 0:07:13.000 decreased unless you're using a more powerful version of the 0:07:13.000 --> 0:07:16.640 poke ball, which leads us to the next really big 0:07:16.680 --> 0:07:22.240 element of Pokemon Go. Most importantly for Niantic, Pokemon Go 0:07:22.720 --> 0:07:26.840 created lots of opportunities for micro transactions. Now in the 0:07:26.880 --> 0:07:30.760 world of games, micro transactions have become the big money 0:07:30.760 --> 0:07:33.840 maker for certain types of games. They also can be 0:07:33.920 --> 0:07:37.640 a real pain point for players, and depending upon the implementation, 0:07:37.960 --> 0:07:41.280 players could just see it as a small price to 0:07:41.400 --> 0:07:43.040 pay in order to play a game that they really 0:07:43.040 --> 0:07:47.920 love playing, or they might see it as being really predatory. Now, 0:07:48.160 --> 0:07:54.240 let's explain the emergence of micro transactions in the old days. 0:07:54.640 --> 0:07:58.280 Back in like the eighties, buying a computer game meant 0:07:58.320 --> 0:08:01.640 you plunked down your harder cheddar and you purchased a 0:08:01.720 --> 0:08:05.400 copy of Zork and you headed on home to play 0:08:05.480 --> 0:08:07.320 it as much as you like. You just put that 0:08:07.400 --> 0:08:10.320 five and a quarter inch floppy disc into your disk drive, 0:08:11.000 --> 0:08:13.040 loaded it up, and started playing, and you can play 0:08:13.040 --> 0:08:15.160 as much as you wanted. You owned that copy of 0:08:15.160 --> 0:08:18.360 the game, and everything associated with that game was on 0:08:18.400 --> 0:08:20.840 the game's floppy disk. Everything that was that version of 0:08:20.920 --> 0:08:23.880 Zork was right there, forever and ever the point of 0:08:23.920 --> 0:08:28.160 purchase mark the one and only transaction involving you and 0:08:28.200 --> 0:08:32.680 that Zork game. But let's skip ahead. Games get much 0:08:32.679 --> 0:08:35.400 more sophisticated than complicated. Now. You can still buy a 0:08:35.440 --> 0:08:39.600 full game, but now developers start creating additional material based 0:08:39.720 --> 0:08:42.560 on that game build and they offer it as a 0:08:42.600 --> 0:08:46.160 separate purchase. These could be sequels to a title, They 0:08:46.200 --> 0:08:49.880 could be side adventures, or extra levels for certain games, 0:08:50.080 --> 0:08:53.600 and typically these expansions would be built upon the same 0:08:53.640 --> 0:08:57.400 game engine, using the same graphics resources, and featuring the 0:08:57.440 --> 0:09:01.439 same gameplay elements, but with more content. So let's give 0:09:01.440 --> 0:09:04.480 an example. Let's say you really loved Ultimate seven The 0:09:04.559 --> 0:09:09.040 Black Gate, a computer RPG from back in the day. Well, 0:09:09.360 --> 0:09:11.679 you play the game, you love it, and you wish 0:09:11.679 --> 0:09:15.040 that there was more of it. Then you find out, hey, Origin, 0:09:15.360 --> 0:09:19.000 the company behind it, has just made an expansion. They've 0:09:19.040 --> 0:09:22.600 created a game called Ultimate seven The Forge of Virtue 0:09:22.880 --> 0:09:27.280 that has more content within that game world, same graphics, 0:09:27.360 --> 0:09:30.600 same game engine. You can keep the party going, and 0:09:30.600 --> 0:09:33.160 if that weren't enough, you could go even further with 0:09:33.280 --> 0:09:36.800 Ultimate seven Part two Serpent Aisle, which was really more 0:09:36.880 --> 0:09:39.960 like an expansion pack. If that's still weren't enough, you 0:09:39.960 --> 0:09:43.560 could also get Ultimate seven Part to the Silver Seed, 0:09:44.000 --> 0:09:49.360 even more content built on that foundation. So this was 0:09:49.400 --> 0:09:52.560 a way where you could keep players engaged. The players 0:09:52.559 --> 0:09:56.400 who really loved a title could continue buying content that 0:09:56.520 --> 0:10:00.720 tied into that title. And when massively multiplayer or online 0:10:00.840 --> 0:10:03.920 role playing games where m m O RPGs became a thing, 0:10:04.559 --> 0:10:07.200 then we saw this idea expand further. You would have 0:10:07.240 --> 0:10:10.080 eager players who would soak up all the content of 0:10:10.120 --> 0:10:13.680 an M m O RPG, and then naturally they wanted more. 0:10:13.960 --> 0:10:17.160 They had just you know, really explored this whole environment, 0:10:17.200 --> 0:10:20.680 and they wanted to have even more experiences. The way 0:10:20.720 --> 0:10:24.040 the typical M m O RPGs made money, at least 0:10:24.080 --> 0:10:27.400 back then, was twofold. First, the developer would sell a 0:10:27.440 --> 0:10:30.240 copy of the game, just like any other computer game. 0:10:30.280 --> 0:10:32.480 You would you know, buy a game for like thirty 0:10:32.600 --> 0:10:36.040 forty sixty bucks whatever it might be. But then you 0:10:36.120 --> 0:10:39.319 also had a monthly subscription fee that would kick in 0:10:39.400 --> 0:10:42.840 at some point. That was a monthly charge to continue 0:10:42.840 --> 0:10:44.800 to play the game online, which was the only way 0:10:44.840 --> 0:10:47.920 the game existed. So, in other words, players had to 0:10:48.040 --> 0:10:51.640 keep paying to play the game. Now, with that kind 0:10:51.640 --> 0:10:54.880 of revenue model, you obviously need to keep supplying content 0:10:55.040 --> 0:10:58.160 to your customers or else you're gonna lose them. If 0:10:58.160 --> 0:11:00.160 someone feels like they've done everything there is to do, 0:11:00.400 --> 0:11:02.160 then they're like, well, why am I going to pay 0:11:02.280 --> 0:11:04.640 you know, ten bucks a month to keep playing this game. 0:11:05.120 --> 0:11:08.439 So m m O RPGs like World of Warcraft would 0:11:08.440 --> 0:11:13.160 introduce new expansions that would, as the name implies, expand 0:11:13.400 --> 0:11:16.600 the scope of the game, while also typically increasing the 0:11:16.720 --> 0:11:20.120 maximum character level cap so that players could continue to 0:11:20.160 --> 0:11:23.120 progress the characters they had already created when they bought 0:11:23.120 --> 0:11:25.880 the original version and kept them invested in the game. 0:11:26.360 --> 0:11:30.680 This process would repeat many, many times, with lots of 0:11:30.720 --> 0:11:33.880 expansions for the really successful games like World of Warcraft. 0:11:34.160 --> 0:11:37.800 But on top of that, these games would eventually promote 0:11:37.840 --> 0:11:42.720 a different type of transaction, sometimes not on purpose. There 0:11:42.760 --> 0:11:47.200 became a market for in game items, stuff like weapons 0:11:47.320 --> 0:11:51.000 or armor or potions or other things of perceived value 0:11:51.040 --> 0:11:53.280 within within the game. You know. Sometimes these were things 0:11:53.280 --> 0:11:57.960 that legit gave your character extra abilities. Originally, the idea 0:11:58.040 --> 0:12:01.199 was that players would be allowed to trade for this stuff, 0:12:01.240 --> 0:12:04.880 you know, using in game transactions between each other. So 0:12:05.280 --> 0:12:07.439 let's say you and I are both playing this game, 0:12:07.440 --> 0:12:10.640 and I offer you gold that I have acquired within 0:12:10.720 --> 0:12:14.559 the game, and you need some gold, so in exchange, 0:12:14.559 --> 0:12:17.880 you're offering me a sort of butt kicking or whatever 0:12:17.920 --> 0:12:21.760 it might be. But before long, people started offering real 0:12:21.920 --> 0:12:25.800 world money for in game items, or more likely, people 0:12:25.800 --> 0:12:30.120 started soliciting for real world money in order to sell 0:12:30.360 --> 0:12:34.600 an in game item. Initially, the reaction to this from 0:12:34.640 --> 0:12:36.680 the company side was to try and get a lock 0:12:36.840 --> 0:12:39.760 on it. Uh. Some players would be shelling out money 0:12:39.760 --> 0:12:42.240 to deck their characters out and stuff that they didn't 0:12:42.320 --> 0:12:45.840 find themselves, and other players saw it as almost like 0:12:45.880 --> 0:12:48.640 a pay to win kind of scenario, and it created 0:12:48.679 --> 0:12:52.680 an unbalanced environment. I'm sure I would feel a lot 0:12:52.720 --> 0:12:55.559 of resentment if I were playing, you know, the game 0:12:55.679 --> 0:13:00.000 as intended. And then meanwhile, Richie rich is kidding himself 0:13:00.040 --> 0:13:02.880 out in magic armor and weapons that he just bought 0:13:02.920 --> 0:13:05.880 from someone else and never actually bothered to, you know, 0:13:06.000 --> 0:13:08.640 put in any work to trying to earn them himself. 0:13:09.679 --> 0:13:12.840 But that experience also illustrated how lucrative it could be 0:13:12.960 --> 0:13:16.839 to offer in game items for real world cash, and 0:13:16.880 --> 0:13:19.679 we started to see some games begin to experiment with 0:13:19.720 --> 0:13:23.360 this in different ways. Mobile games do this a lot, 0:13:23.880 --> 0:13:27.200 and in fact tend to build in limiting factors within 0:13:27.280 --> 0:13:31.480 the game that keep players from progressing unless they pay 0:13:31.600 --> 0:13:34.600 a small amount to get more playtime or an extra 0:13:34.679 --> 0:13:37.280 item or an extra life or whatever it might be. 0:13:37.480 --> 0:13:40.520 And computer and console games began to implement it in 0:13:40.559 --> 0:13:44.360 the form of lute crates. So these are boxes that 0:13:44.400 --> 0:13:51.040 contain some in game you know, asset inside of them. 0:13:51.080 --> 0:13:53.880 It might be something common, you know, which means it 0:13:53.880 --> 0:13:56.559 wouldn't be of great value to the player. It might 0:13:56.559 --> 0:13:59.640 be useful but not particularly valuable, or it could be 0:13:59.679 --> 0:14:03.079 something really rare, something that's really sought after. And some 0:14:03.160 --> 0:14:06.640 games only allow these items to enter the game through 0:14:06.720 --> 0:14:08.880 loot crates. In other words, you won't be able to 0:14:08.920 --> 0:14:12.240 find them through regular play unless you happen across a 0:14:12.320 --> 0:14:14.520 loot crate and you open it up and you luckily 0:14:14.600 --> 0:14:18.240 get that item. The odds of getting something rare reflect 0:14:18.559 --> 0:14:21.640 how rare it is. Because this is a video game, 0:14:21.880 --> 0:14:27.880 scarcity doesn't really exist, right. The number of Ultimate powerful 0:14:28.000 --> 0:14:32.120 swords is limitless, despite the fact that the word ultimate 0:14:32.120 --> 0:14:34.920 would suggest that you could only have one. No, you 0:14:34.960 --> 0:14:38.040 could have limitless versions of this, so the supply is 0:14:38.080 --> 0:14:40.920 completely controlled by the developer. So if say you wanted 0:14:41.000 --> 0:14:45.160 a fancy costume for your character, like a very specific outfit, 0:14:45.800 --> 0:14:48.440 you might have less than a one percent chance of 0:14:48.520 --> 0:14:52.440 finding it in any given loot crate situation. And of course, 0:14:52.760 --> 0:14:55.880 games began to introduce different tiers of loot crates, so 0:14:55.920 --> 0:15:00.360 a basic loot crate would rarely have anything special in it. 0:15:01.160 --> 0:15:04.840 More expensive, higher tier loot crates had a better chance 0:15:05.040 --> 0:15:07.880 of holding something you wanted, but there was no guarantee, 0:15:08.240 --> 0:15:11.360 and you were encouraged to buy these loot crates for 0:15:11.480 --> 0:15:15.800 real money. A lot most games allow you to earn 0:15:15.920 --> 0:15:19.120 loot crates through play, but it's at a very controlled, 0:15:19.400 --> 0:15:23.840 slow pace, and the goal is to convince players to 0:15:24.440 --> 0:15:27.000 hand over real world money to buy more of these 0:15:27.080 --> 0:15:30.520 loot crates rather than just pouring extra hours, especially if 0:15:30.560 --> 0:15:33.560 you've just played a game for hours, you finally opened 0:15:33.600 --> 0:15:35.960 up the loot crates you've earned and you don't get 0:15:36.000 --> 0:15:38.480 the thing you wanted, and you still have that desire 0:15:38.520 --> 0:15:41.920 to have that thing. Now, let me be clear, there 0:15:41.960 --> 0:15:44.800 are a lot of games out there that have loot crates, 0:15:45.000 --> 0:15:47.520 and some of them don't require you to purchase the 0:15:47.520 --> 0:15:50.520 crates with real world money. You just earned them within 0:15:50.560 --> 0:15:52.960 the game by playing the games. But a lot of 0:15:52.960 --> 0:15:55.800 them also do offer up that option to purchase additional 0:15:55.840 --> 0:15:58.360 loot crates for cash, and the more you spend, the 0:15:58.440 --> 0:16:02.160 more you get. Most of these games will offer discounts 0:16:02.160 --> 0:16:05.640 if you buy in larger numbers. So let's say that 0:16:05.840 --> 0:16:08.120 a single loot crate might set you back a dollar, 0:16:08.520 --> 0:16:11.680 but if you spend five dollars, you get seven loot crates, 0:16:11.800 --> 0:16:15.040 so it's less than a dollar each. Right, ten bucks 0:16:15.120 --> 0:16:18.200 might get you fifteen loot crates. A hundred dollars might 0:16:18.200 --> 0:16:20.800 get you two hundred loot crates. You get the idea. 0:16:21.040 --> 0:16:24.360 Now here's the brilliant thing. From the revenue standpoint, Like 0:16:24.400 --> 0:16:27.160 I said, there's no real scarcity in the real world. 0:16:27.640 --> 0:16:30.560 Buying in bulk means that the merchant who's selling the 0:16:30.600 --> 0:16:35.160 stuff is offloading real merchandise in the process. So if 0:16:35.200 --> 0:16:38.160 I'm selling oranges and you decide you want to buy 0:16:38.280 --> 0:16:41.280 five hundred oranges from me, I'm likely going to cut 0:16:41.280 --> 0:16:44.160 you a big deal because there's a real risk I'm 0:16:44.200 --> 0:16:45.600 not going to be able to sell all of my 0:16:45.680 --> 0:16:48.360 oranges before they start to go bad, which means I'm 0:16:48.400 --> 0:16:52.320 gonna have waste. I'll make no money from those spoiled oranges. 0:16:52.720 --> 0:16:56.800 So even though I might charge customers for each individual orange, 0:16:56.880 --> 0:17:00.040 like I don't know, fifty cents, if I'm selling the 0:17:00.200 --> 0:17:03.120 in bulk to you, it's probably gonna be closer to 0:17:03.200 --> 0:17:07.040 like twenty cents each, less than half, because it's still 0:17:07.080 --> 0:17:09.879 guaranteed money for me, and otherwise I could end up 0:17:09.880 --> 0:17:12.359 with a lot of waste and very little revenue. Right, 0:17:12.400 --> 0:17:15.000 if I don't think I'm gonna sell those five hundred oranges, 0:17:15.600 --> 0:17:17.680 then I'm not gonna make any money from them, So 0:17:17.800 --> 0:17:20.119 of course I'm going to start cutting deals for selling 0:17:20.119 --> 0:17:23.160 in bulk. However, once I do sell you those five 0:17:23.240 --> 0:17:27.359 hundred oranges, clearly I no longer have those five hundred 0:17:27.359 --> 0:17:29.919 oranges anymore. They don't belong to me, they belong to you. 0:17:29.960 --> 0:17:34.200 They're gone from my inventory. So I have whatever is left, 0:17:34.480 --> 0:17:37.320 and maybe I keep selling those for a fifty cents apiece, 0:17:37.640 --> 0:17:40.040 or maybe less if someone else's trying to buy them 0:17:40.040 --> 0:17:42.719 in bulk. But when it comes to stuff like loot crates, 0:17:43.160 --> 0:17:45.840 there is no scarcity. The merchant that is the game 0:17:46.080 --> 0:17:48.960 doesn't run out of loot crates. There's no limitation on 0:17:49.040 --> 0:17:52.399 how many loot crates can be sold. The scarcity of 0:17:52.480 --> 0:17:55.639 the items inside the loot crates are determined not because 0:17:55.680 --> 0:17:58.600 there's a physical limit to how many can exist at 0:17:58.640 --> 0:18:03.119 any given time, but because the percentage of likelihood that 0:18:03.200 --> 0:18:05.760 they will be generated by any loot crate is just 0:18:05.920 --> 0:18:09.520 really small. So if a merchant sells one thousand loot 0:18:09.520 --> 0:18:12.080 crates to someone, that doesn't mean the merchant now has 0:18:12.160 --> 0:18:15.399 one thousand fewer loot crates because they're just digital items. 0:18:15.400 --> 0:18:18.639 The merchant can sell a limitless number to customers, so 0:18:18.720 --> 0:18:22.600 the supply and demand mechanics don't really apply here because 0:18:22.640 --> 0:18:27.200 there's an infinite supply. The merchant can run specials this weekend, 0:18:27.359 --> 0:18:30.280 all loot crates are fifty off, and the merchant isn't 0:18:30.359 --> 0:18:33.720 losing any money in the process because loot crate production 0:18:33.840 --> 0:18:37.080 is effectively free. I mean, yeah, they're the cost of 0:18:37.080 --> 0:18:40.199 doing business. There's the cost of running the computers and 0:18:40.200 --> 0:18:43.280 paying the people who are running the game. Those costs 0:18:43.280 --> 0:18:46.639 exist whether you're doing a promotion or not. But the 0:18:46.680 --> 0:18:49.560 actual generation of loot crates, it's not like that requires 0:18:49.640 --> 0:18:54.680 extra effort or or energy. The off weekend isn't really 0:18:54.680 --> 0:18:57.000 a mark down in the traditional sense. It's an effort 0:18:57.000 --> 0:19:00.119 to convince people who might not otherwise spend money on 0:19:00.240 --> 0:19:03.080 in game stuff to go ahead and do it. And 0:19:03.119 --> 0:19:05.560 once you convince them once, you might be able to 0:19:05.560 --> 0:19:09.400 do it again. These micro transactions within games can be 0:19:09.440 --> 0:19:13.320 incredibly lucrative, and they're not always so micro. There are 0:19:13.359 --> 0:19:15.679 games that include in game purchases that can be in 0:19:15.720 --> 0:19:19.040 the one hundred dollar range, which means you'd be spending 0:19:19.080 --> 0:19:22.120 more money for in game items than you would typically 0:19:22.119 --> 0:19:25.640 spend to purchase a triple A title video game period 0:19:26.000 --> 0:19:29.119 those running the sixty to seventy dollar range. That's for 0:19:29.240 --> 0:19:32.160 a full game. So let's just remember that, like there 0:19:32.160 --> 0:19:35.639 are one in game purchases, which means you'd be spending 0:19:35.640 --> 0:19:39.000 more within a game than you would to buy your 0:19:39.040 --> 0:19:42.479 average game. Now, an important component of this dynamic is 0:19:42.520 --> 0:19:46.080 the psychological rewards. All of these games to some extent, 0:19:46.200 --> 0:19:49.520 depend upon creating a sort of dependency, and I promise 0:19:49.920 --> 0:19:52.080 that will be coming back to Pokemon Go in a 0:19:52.119 --> 0:19:55.040 little bit. But in order to understand revenue models and 0:19:55.080 --> 0:19:58.280 how Niantic went from a scrappy company with around forty 0:19:58.280 --> 0:20:02.720 employees to a multi billion dollar success, we need to 0:20:02.760 --> 0:20:05.720 learn about how our ding dang brains work, because trust me, 0:20:06.359 --> 0:20:10.760 game developers are all over it. But first, let's take 0:20:11.119 --> 0:20:22.119 a quick break. Okay, so I've covered the basics of 0:20:22.200 --> 0:20:25.320 micro transactions and how they work from an operational side, 0:20:25.359 --> 0:20:28.359 but we also need to look at why they work. 0:20:28.800 --> 0:20:31.159 I mean, sure, I might play a game that offers 0:20:31.200 --> 0:20:33.960 me to the chance to, you know, purchase an item 0:20:33.960 --> 0:20:37.280 within game, or maybe just the chance to find an item, 0:20:37.280 --> 0:20:40.159 But why would I actually follow through with that? What 0:20:40.440 --> 0:20:44.320 is compelling me to spend real world money on a game? Well, 0:20:44.440 --> 0:20:46.399 maybe I just like the game and I want to 0:20:46.440 --> 0:20:49.840 reward the developers. I have actually done this before. I 0:20:49.840 --> 0:20:52.679 have a game on my smartphone that was free to download, 0:20:53.000 --> 0:20:55.560 it was free to install, it's free to play, and 0:20:55.600 --> 0:20:58.040 I've played it for about a year without ever making 0:20:58.119 --> 0:21:02.240 any in game purchases. There's no advertising in this game either, 0:21:02.320 --> 0:21:05.360 and I thought, you know, I've had hours of enjoyment 0:21:05.359 --> 0:21:07.719 with this game. I enjoy playing it. I should at 0:21:07.760 --> 0:21:10.919 least fork over some money to the developers. That to 0:21:11.000 --> 0:21:13.919 me seems fair. So I made a twenty dollar in 0:21:14.080 --> 0:21:17.359 game purchase, and every year or so I do the 0:21:17.400 --> 0:21:20.120 same because I'm still playing that game and I'm still 0:21:20.119 --> 0:21:23.160 getting enjoyment out of it. The developers keep adding content 0:21:23.280 --> 0:21:27.160 to it. So without any other stream of revenue from 0:21:27.160 --> 0:21:29.040 that game, I feel like, you know, I kind of 0:21:29.040 --> 0:21:32.320 owe it to pay some money since I'm enjoying the 0:21:32.640 --> 0:21:35.679 fruits of their labor. And I feel that's a pretty 0:21:35.800 --> 0:21:39.200 fair approach because that's the way I'm viewing it. That's 0:21:39.200 --> 0:21:42.240 the perspective I'm taking. But that's not how games, even 0:21:42.280 --> 0:21:46.359 including the one I'm vaguely referring to, really make lots 0:21:46.359 --> 0:21:50.399 of cash. They depend upon a different sequence. See. Games 0:21:50.440 --> 0:21:54.199 like these really establish a reinforcement and reward system that 0:21:54.280 --> 0:22:00.359 fulfills a psychological need we humans typically have. We crave awards. 0:22:00.920 --> 0:22:04.600 It feels good to get a reward. Rewards fulfilled needs 0:22:04.640 --> 0:22:07.760 like a sense of autonomy, like in other words, yeah, 0:22:07.880 --> 0:22:10.040 I rescued the kingdom. Now I've got a pile of 0:22:10.080 --> 0:22:13.560 gold for doing it. Or it rewards a sense of competence, 0:22:13.600 --> 0:22:16.760 like yeah, I chopped that would so well that now 0:22:16.800 --> 0:22:20.720 I'm even better at chopping wood. So video games set 0:22:20.760 --> 0:22:24.480 up cycles that present players with tasks and then rewards. 0:22:24.880 --> 0:22:28.840 Completing tasks means you get the psychologically satisfying result of 0:22:28.880 --> 0:22:32.600 getting a reward, which in turn encourages you to tackle 0:22:32.680 --> 0:22:36.479 more tasks. But let's say we tweak this dynamic a 0:22:36.560 --> 0:22:39.320 little bit. There are a few ways we could do this. 0:22:39.440 --> 0:22:42.400 We could create a shortcut. So yeah, you can play 0:22:42.440 --> 0:22:46.040 the game and you can get a reward, or maybe 0:22:46.080 --> 0:22:48.520 you just spend some real world money and you get 0:22:48.560 --> 0:22:51.600 the reward right now, So you get sort of that 0:22:51.680 --> 0:22:55.960 psychological rush of receiving a reward without all that pesky 0:22:56.160 --> 0:22:59.159 chore stuff that leads up to it. Your character in 0:22:59.200 --> 0:23:02.080 the game, it's more powerful, or it gets a better outfit, 0:23:02.240 --> 0:23:05.480 or it gets more time to spend playing, or opens 0:23:05.560 --> 0:23:08.360 up a new region, or whatever it might be. Or 0:23:08.520 --> 0:23:11.520 we could make the tasks more difficult to a point 0:23:11.600 --> 0:23:14.720 where most players will not be able to complete those 0:23:14.760 --> 0:23:19.160 tasks without paying for help. Maybe you have a game 0:23:19.160 --> 0:23:23.080