Joseph Kim

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Speakers

We are joined by the founders and CEOs of 3 recently funded game studios:

1. Antti Hattara, CEO of StarBerry ($1.3M led by ByFounders)
2. Emily Greer, CEO of Double Loop ($2.5M led by London Venture Partners)
3. Travis Boatman, CEO of Carbonated ($8.5M led by Andreessen Horowitz)

Discussion Focus

Today we’ll be talking about what it takes to start a games studio and also how to get funding for your studio.

So more specifically we’ll talk about:

• What is the current environment for starting a games studio?
• What are the key opportunities to pursue?
• What does the funding environment look like?
• What are challenges?
• Advice for new founders?

A lot has been written, and there has been a lot of discussion about, the potential for a huge new gaming and virtual world paradigm which many are calling the Metaverse.

However, very little has been written or yet discussed about how such a platform needs to work. More specifically, in a future Metaverse platform, what kind of economy will be required to support a healthy and vibrant ecosystem for all of the participants: including all players on the commercial side of the value chain and for the future consumers in the Metaverse?

Tim Sweeney, the CEO and founder of Epic Games, has been one of the few vocal critics of Apple and Google for misusing “monopolistic” positions of power on their respective mobile phone platforms. Not only criticism of the 30% platform fees (he believes to be too high), but also about monopolistic practices that restrict competition and potentially new types of innovation on those platforms. For example: Google’s use of user interface barriers with scary pop-ups when end-users try to download an Epic mobile app store for Android.

When I initially contacted Epic, I was surprised that Tim was most interested in discussing the notion of: the “economic sphere” behind the Metaverse and how to build an “efficient economy.”

However, a more careful investigation into Tim’s background provided more insight into his mindset. You see, Tim Sweeney is a conservationist. He’s salvaged 50,000 acres of forest land in North Carolina and donated a bunch of land for conservation purposes. Hence, this is a man who thinks about ecosystems and holistically about how an ecosystem — both physical or virtual — will need to work in order to be viable and healthy.

In a rare and super in-depth interview with Tim, we asked him several key questions:

• What comprises the “econosphere”?
• How will the Metaverse need to support an efficient economy?
• What are lessons learned from today’s economies we can take to improve the Metaverse?

Find out the answers to these questions and more in our Q&A interview session with Tim Sweeney below.

Listen to the podcast: Deconstructor of Fun Podcast;

GameMakers YouTube video below:

Full Interview Transcript:

JK: Well, everybody, today, we are super excited to have a really amazing guest with us. Likely no introduction needed, but we are joined by Tim Sweeney, the CEO of Epic Games. We’ll be talking about the Metaverse. And certainly Fortnite is being held up by many people as an indication of what the Metaverse may eventually look like.

However, the specific focus of what we will discuss isn’t so much what the potential incarnation of the Metaverse could possibly become, but instead, if the Metaverse is the next frontier, if this is the next big platform, then how do we build an efficient and fair economy for this new platform?

So just to kick things off, Tim and by the way, thanks again for being here. And just to get straight into it. Could you talk to us about what you mean when you talk about building the Metaverse as an economic sphere?

Tim Sweeney: Sure. You know, first of all, nobody knows exactly what the Metaverse will be. We have a lot of fictional references on it. Some parts of it. Most of it was written before social networks even existed. And so we’re really improvising and guessing about this.

But the Metaverse is going to be some sort of real time 3D social medium where instead of sending messages and pictures to each other asynchronously, you’re together with them and in a virtual world and interacting and having fun experiences which might span anything from purely games to purely social experiences.

The other critical element of the Metaverse is it’s not just built by one mega corporation, right? It’s gonna be the work, the creative work of millions of people who can each add their own elements to it through content creation and programing and design. And the other way of adding value.

So it will be a massively participatory medium of a type that we really haven’t seen yet. And even though you have Fortnite and Minecraft and Roblox each manifest some aspects of it, I think we’re still pretty far from having the thing. But yet the talk about this thing is it’s not just the work of one company. It’s not just one company’s product or revenue stream. Right. We’re talking about a mass participatory media, which needs to be an economy if there’s not an economy underlying this thing.

And companies will be able to form to create content that builds out this world. People won’t be able to profit from the work and would just be another big tech company extracting money from yet another business.

And so the critical thing with this effort is to build out not just a 3D platform and to have technical standards, but also a fair economy in which all creators can participate, make money and be rewarded in an economy with both the principles ensuring that customers are treated fairly, that there is not, you know, massive fraud or scheming or scams. But also one in which companies have the freedom to release their own content and to profit from it.

You know, they say something is only a platform when the majority of the profit is made by creators rather than the company that built the thing right? Windows is a platform. Gee, is iOS a platform? Not sure. Actually, it’s looking more and more like Apple’s old contraption. Android is certainly a platform. There’s dozens of app stores of different things.

But the goal is to go about this thing as a platform. Right?  And figure out rules in an economy that protect consumers participating in the media, but also ensure that there’s robust competition in all spheres, so that the best creators can succeed and they can really profit from their work and they can grow businesses around it.

JK: And Tim, when you think about the economy, should we be most concerned that there’s just enough economics for the different people in the value chain that are delivering the service and for creators, or is there something else about the economy that we should be worrying about?

Tim Sweeney: When you’re talking about something like the Metaverse, the economy should actually be fairly complex and robust. But you have a lot of different companies who can provide services to play a role in this. If you look at the Web economy, the economy is just around the World Wide Web. You have some Web sites, there are commercial businesses, you have an advertising economy, you have a payments processing economy. And there is a big supply chain behind this. Right? If you have a website that takes money, then you can work with PayPal.

And, you know, there is a really competitive infrastructure there where all the payment processors compete to earn clients’ business and there’s many of them and some very robust systems to enable that.

In the case of the Metaverse, you’re also talking about huge shared online experiences that mean somebody is going to be hosting millions of servers that are running all of the simulations that contribute to these Metaverse experiences, whether they’re games like Fortnite or social experiences or streaming video or anything else.

And, you know, that’s going to require a huge cost. Somebody is going to have to spend billions of dollars building data centers on these, you know, just for all of this activity or using existing data centers along this line. And so, you know, there will be consumers spending a lot of money to buy great items and purchase great consumer experiences they can enjoy. But there will also be a lot of companies and a lot of costs behind it all.

And so. Yes. As opposed to creating something artificial that’s just entirely managed by one company. Like, you know, Facebook is artificial. Facebook makes all the money from Facebook ads. You create a Facebook page. Facebook might make millions of dollars from ads from your page. You won’t get a penny.

Then there are things in between. YouTube has ads. Creators can earn some money from ads. But still, the economics are wildly tilted towards YouTube. But I would hope that the Metaverse as a future medium can be a much greater engine for economic efficiency than any of the closed systems that exist today. And that we’d ultimately get to a point where a much higher percentage of the profits go to creators than with any of these other platforms that currently exist. And that when money is going to people who are not creators, it’s really done through competitive dynamics to ensure that their costs and their profits are very, very reasonable relative to the service they’re performing.

You know, like MasterCard and Visa processing payments, charging two and a half percent. You know, they probably make one percent or half a percent of profit from that. And good for them. They deserved that as opposed to, you know, a platform like iOS or Android taking 30 percent and probably pocketing 28 percent of that as profit for themselves. Right. So economic efficiency is going to be a key driver it. Economic efficiency is essential for this thing to really work and to grow.

Wherever you’ve had any form of commerce dominated by a single company that monopolizes and controls the flow of revenue and access to customers, we just use it to extract their profit. And other companies don’t grow. And I think the Metaverse as an open platform, could ultimately be an order of magnitude larger than any one company, including Epic, built entirely on our own as our own proprietary piping.

JK: So in terms of this point about the platform not being owned by a single company then, is there anything that we need to be doing now so that because when we do look at some of the big platforms, whether it’s Apple or Google or Amazon, that because they kind of built the platform that they kind of own it, how do we collaborate or what do you think should be done so that it doesn’t become owned by a single mega corporation, to your point?

Tim Sweeney: Developers… We’ve learned a big lesson over the past 15 years. We were scammed, right? We bought into a lot of things: platforms run by big companies on the expectation that they are open and that we’d be able to participate fairly in it. And it just turned out that in a lot of cases that’s not true.

You know, brands that put their page on Facebook and were able to post messages that all of their followers could read suddenly found that: Oh, now brands have to pay money in order to post messages. The people who decided to follow them wanted to read. Right? And so you have these intermediaries playing this big trick. And they played it over and over and over saying sign up a platform with really loose rules like when Google Play first launched as a service for installing software. You didn’t have to use Google payments. Lots of companies implemented their own payment systems and then they came in and they changed the rules. Google said from now on, if you have a game or any sort of digital purchase, Google has to process your payments. And they took that 30 percent.

You know, Apple did that from the beginning. But, you know, Apple, many years into the platform after Developer’s thought that they had signed up for this thing and that they knew the rules. Apple started putting ads in front of everybody’s searches. Search for Fortnite, the first thing that pops up is not Fortnite, might be PUBG, might be Minecraft, it’s whoever paid for that ad, they’re putting some random ad ahead of the actual thing the actual customer is searching for. It’s super anti-customer, anti-consumer, and it’s also against the interests and the partnership with all the partners that participate in the ecosystem.

And so I think as developers, all of us, all million of us developers, large and small, need to resist and refuse to continue cooperating with these platforms, which intermediate and obstruct this and are basically holding our businesses hostages to larger and larger ransom over time. That’s one thing. We also have to work proactively to define new standards and also connect all of our systems. Right?

I think the most plausible way the Metaverse is going to rise isn’t from one company even Epic building this thing and forcing everybody to use it. It’s going to be from more and more companies and brands connecting their products and services until you have a much, much more open thing that everybody participates in. You know, like the Epic Games store, the store we launched. And one of the things we’ve done is we’ve supported purchasing integration with every other PC game store if its willing. Now we also support third party stores like GOG, accessing the Epic library and being able to be an alternative launcher for the store.

We’re trying to work with more and more partners to connect our social systems and our account systems so that Epic friends system that you build up through buying Fortnite connects with other services’ friend system that you have all of your friends everywhere you go.

I think interconnecting systems is a great way to to to move forward with this. I think, you know, a lot of the big game companies and even many of the ecosystem companies have come to the realization that they’re never going to be the one monopoly that dominates the whole thing. And so it’s in everybody’s interest to really interconnect and standardize over time. And to build this more connected world and to all benefit from it side by side with no one company dominating.

And on the technical side, I think what I’m really arguing for is for a series of incremental improvements we make every month, month over month until over the course of several year they accumulate and then leave us with something that does resemble the Metaverse. Right? Interconnection of social systems. You know, we have the game social system.  We have XBOX Live, we have Steam, there’s Nintendo switch, there’s the PlayStation Network. There are a bunch of these disconnected systems. We should start connecting them together.

We have several different game engines, each competing really robustly. But we need standards that we can start agreeing on. And there are already some really great ones, like the Pixar USD scene format for interchanging 3D scenes. That’s one of your standards for materials. We need standards for networking so you can have a multiplayer game in which some people participating are using a client on Unreal engine and some people participating are using a client that’s built in Unity. Like really being able to create standards for an interoperability so that everybody can have access to this. And the future is going to be very interesting.

JK: So Tim, speaking about you personally, because it’s not lost on me that you’re actually a conservationist. It’s been publicly announced that you’ve salvaged a lot of forest land and things like that. And so is it fair to say that you probably, as a conservationist, think more about ecosystems and the environment more than the typical person?

And so from a personal perspective, is it fair to say that perhaps your personal focus in terms of Metaverse will be more around the environment, the ecosystem, making sure that it’s a fair and vibrant sort sort of place to be?

Tim Sweeney: Yeah, absolutely. You know, an ecologist will tell you something quite different about ecosystems, right? Wolves always eat deer. A deer never eats a wolf. Right? It’s a very unfair place in the real world. It’s a very harsh, you know, survival of the fittest environment. And it’s the law of the jungle that rules out there. And I think mankind does better. Right?

We have laws and principles that we operate under. You know, going back to ancient Greek philosophers and the renaissance thinkers and the enlightenment thinkers who formed a large body of modern human rights that governs most of the Western world. And I think we have the ability to create ecosystems built on principles they’re enduring and fair and lead to much greater efficiency.

Economic efficiency not only means a better environment for companies to do business, but also means a much fairer environment for consumers. Where everybody is competing to offer you the best product at the best price and lots of robust actions to foster that. As opposed to a monopolized system where one company just dictates the rules to everybody else.

It’s like, remember the cable TV industry. I guess it still exists, right? I haven’t had one for a decade. Cable TV signal coming into my house. But an old industry like that where the business terms are set by essentially oligarchs or oligopolies dealing with each other to screw the smaller players. Just think of how much more robust like the PC software economy is then that and how much better even still, we could build the Metaverse as an environment. Not just where everybody is running a common operating system, but everybody is in a shared 3D environment in which all of these different software components can interoperate in one scene together in real time 3D to create entertainment experiences that go far beyond anything we have now.

JK: In speaking of the Metaverse, it is probably going to be some form of creator platform. You talked about making sure that creator economics are viable. How should things be architected to make sure that creators do have viable economics? Is it really the platform fee or are there other things that we need to be thinking about?

Tim Sweeney: Well you know there are a lot of components to it. A key realization here is that there’s actually a lot of operating cost in this. You can’t compare it to… Like Epic knows the operating cost of a store. You have payment processing costs two and a half to three and half percent, you have CDN bandwidth, which you buy from Akamai or Amazon or others. About one percent of revenue goes to that. You have customer service and one or one and a half percent revenue goes to that. So a store can operate with a cost of five to seven percent. And anything that they charge, they make above that, is profit.

We charge twelve percent. But when you’re talking about something like the Metaverse, you’re talking about hosting farms of millions of servers, serving user content and doing real time 3D simulations involving potentially realistic physics simulations and things like that. So, you’re talking about entirely new components of cost. And I think what’s most important there is transparency and competition. Right?

We have to also be comfortable getting to this destination incrementally. Right? Because Fortnite, Minecraft, ROBLOX aren’t these open platforms built entirely on standards.  And I think our best hope to get there is to adopt more and more standards and open up the economy more and more to get to this open state, as opposed to trying to throw this all out and start from scratch and then invent some block chain thing or whatever it is. Right?

We have some really great products that are already heading in this Metaverse direction. We should just support steering them in the direction we want them to go. I think ensuring that everybody who is a potential supplier of critical components in operating this thing should have a fair chance to compete for everybody’s business.

If you look at like much of the game industry other than the supply side, the Apple App Store and Google Play, you have actually a very, very robust economic competition. If you want an engine, you can choose Unity, with a one business model. It’s based on a per seat license cost. Or you can choose Epic, which is free to use but carries a royalty on profit or you can use like the Godot Engine, which is free and open source. And you can use it for anything you want, not pay a penny, and you can contribute your changes back to the community. So you have great, great competition in the engine sphere and then you have online services. There’s a huge variety. Microsoft offers some. Amazon offers some: Gamelift and Gamesparks. And then you have Steam and then you have Epic Online Services where we’re also competing. Great thing about this whole market is as a game developer, you can go around and you can choose the best of all these different components. You can use Epic Online Services or Gamesparks or whatever you want. You can use Unreal or Unity.  And there are no unnatural barriers saying, “Well, if you use Unreal, then you have to use our online services and you have to ship on our store. We don’t say anything like that.

Every one of Epic Services is open to interoperate with every competing service. And it imposes no licensing, technical or business restrictions against that happening. And I think it’s really critical as we build out the Metaverse and build more and more open platforms out of what are currently just one company’s game, that we should ensure that we’re opening up all parts of it to competition, ensuring that the best competitors can survive and win. Even if they’re competing directly with some core business of Epic or others.

JK: Right. So it kind of sounds like when we look at the current creator platform like ROBLOX, which is kind of a closed system. It sounds like the vision that you’re kind of supporting is one in which the basic ecosystem is defined in some standardized way. And you just want to see competition at every point in the value chain, where every component of the value chain that there’s a healthy competition there. Is essentially… Is that what you’re advocating for?

Tim Sweeney: Yeah, exactly. Healthy competition at every point and facilitated by technical interoperability standards. Right. Unreal and Unity compete. But what you’re really doing is you’re licensing one or the other and you’re building your game in it. And your game is either based on Unreal or Unity. And they’re totally different APIs.

You can’t just move your Unity game to Unreal or vice versa. But, you know, as we talk about the Metaverse as an open platform, we have to evolve to the point where we have portability of assets and eventually code, you know, between any engine that could run the thing. We’re talking about different tweets of creation software for 3-D modeling. You need file format standards for exchanging data so that you have the same data moving back and forth. It’s not just enough to have competition, but you have to have enough interoperability that developers are actually pretty seamlessly moved from one supplier to another without losing all their work.

JK: Right. So maybe we can actually talk about the dangers of not having that, which is the dangers of having more of a company that does become that mega corporation and has monopolistic power.

And, you know, it’s no secret that you’ve been a critic of App store taxes and the potential for that kind of of of monopolistic organization to create restraints on trade, potential for new ideas to flourish, potential for new business models to emerge. So maybe you could talk a little bit more about that in terms of if we don’t have these open standards, then what’s the danger? What could potentially happen to the Metaverse?

Tim Sweeney: Well, you know,  I think that the real risk is that these creator based platforms are hijacked for the benefit of a corporation, and the corporation ends up automatically extracting more profit from creators work than the creators make themselves. And the Apple and Google story is one warning from history of the perils of that.

Apple is really particularly interesting. You have one of the best businesses and most honest businesses in the world, which is selling people phones. They sell phones. They don’t profit from your data or surveillance or any adversarial practices towards users when they’re selling you a phone. They are competing by selling premium priced phones, which are awesome value, and they succeed on their merits. You go into a store and you can choose between an Android smartphone and an Apple iPhone and Apple gets an awful lot of that business. That’s completely earned by them and deserved by them because it’s 100 percent Apple engineers and hardware makers and the suppliers that they contracted to make their platform.

But they also run the like, you know, one of the most manipulative businesses in the world, which is hosting a store that prevents all other stores from existing on their platform and it’s tracked a 30 percent tax from all commerce. Demands that you cannot process payments in games other than through us. And. You know, that 30 percent is a killer for most game companies. Apple is making a lot more profit from their game then they are making themselves. Apple’s 30 percent tax is almost entirely profit to Apple.

I bet their underlying costs are in the 5 to 7 percent range. The other 25. 23 percent all goes to profit. And that’s money that’s not being reinvested into making better games. It’s money that doesn’t need to be reinvested in building the hardware because they are already funding that from I think the most profitable hardware business that’s ever existed in history, which is the iPhone business. Right?

And so it’s interesting to see that bundle of contradictions. You know, one company with two businesses and one is so extractive from other people’s work and the other is so entirely customer focused and well-deserved. It’s a warning from history and, I think, the really critical thing is, as developers are making decisions about what platform to support… basically what kind of game you’re building, and what you’re building it for?

Right now, your decisions are you’re building a mobile game for Google Play and the App Store or you’re building a PC game for Steam and the Epic Game Store, or you’re building a console game and maybe you’re doing PC and console together, right? I think the world needs a plethora of additional options. You should be able to build a game within Fortnite. And that should be such an attractive prospect financially that a lot of developers consider it. A lot of highly acclaimed developers who can make a lot of money from the App Store or from console, which is instead to make their game in Fortnite.

And that need to be facilitated by us voting on an economy to achieve that. And same thing with Minecraft and Roblox and, you know, the other upstart efforts to build games as platforms.

JK: Right. And so when you talked about how you determine the kind of revenue share for Epic’s store, it sounded like you just determined the costs and determine a fair markup. It’s kind of like a cost plus model.

And so is that, in your opinion, what Apple and Google should be doing? Should Apple and Google’s platform fee be like 12 percent as well?

Tim Sweeney: First and foremost, these platforms should be truly open to competition. You can come in and say the revenue sharing should be X or Y.

But really, the core problem here is that the revenue sharing is not determined by free market competition. If the revenue sharing is determined by free market competition, then maybe Apple and Google can charge a premium if their services warrant it. But right now, rates are completely disconnected from any competitive barometer. And so they’re not honest rates and they’re distorted and for different reasons. Right?

You know, Apple says you can’t have any other stores on iOS and you can’t process payments other than through us. And so it’s very clear on Apple that the only way to do business on iOS as a game developer is through them and their app store, unless you’re building a website or something, which is nowhere near competitive in capabilities.

Google is in a different position because they built Android as an open platform. But then they built a kind of maze of business dealings with carriers and with OEMs, which make it de facto closed. It’s kind of a fake open platform. The Android software is an open platform. The Google services suite that everybody has to take in order to use any of Google’s services. They’re all forced bundle it together in one massive package. You have to take it or leave it. It really locks down the platform so that you can’t install a third party store and have it operate on par with Google Play.

And you can use a Fortnite installation experience as a comparison, right? To buy an app on Google Play, you click the Google Play icon type the name search. Maybe scroll past an ad that they put in front of you and then click one button. You’re playing the game. Fortnite, it’s something like twelve steps and 12 to 20 taps on your screen to get there. You go to our website. You search for Fortnite. You go to our Web site. You click the Get Fortnite button. And if this were windows, there would be two more buttons and then it would be installed in your machine and you could play.

Windows is an open platform. It has good user protections to prevent malware. But it’s easy to install. Whereas on Android, you have to go through this incredibly complicated series of screens, some Epic explaining what to do on the next screen and then some designed by… Google has awesome UX designers. And so when there’s a really bad user experience or UI screen in a Google product, you know it’s intentional, right? Because they’re better than that. And you just have to click through a whole bunch of these screens to give it permission to go to the permissions. Finally, it downloads Fortnite. And then every time we have an update, you know, there’s potentially more obstruction screens. And if we try to open up the Epic Games store on Android, then every time you store a new app, go through another series of scary dialogs. Each one of which is designed to scare the user off. Right?

So, on an open platform like Android should be. And it was advertised as being… All stores should operate at parity. Right? Once you’ve decided to install another store like the Epic Games store, it should have equal access the system software, as Google’s own store has, so that it should be able to install and update software as seamlessly as Google Play does. I mean, this is just a basic principle of competition. If you allow other stores but you make them really, really suck, then that’s just fake competition they’re creating. And there’s no questioning they do this.

All stores operate at a slight disadvantage to Apple Store, but not much. Windows is totally store parity. Steam, Epic Games store operate just as well. And actually in a lot of cases better than Microsoft’s own store. The Microsoft store in Windows. And we need to get to that point on all these platforms. There’s no question every platform needs real open platform supporting stores side by side. But also even in the in these stores which have, you know, ninety nine percent plus market share. Ninety five percent or whatever. And excluding China at least.

These stores need to be opened up. Open to let each developer choose which components to use in their software. They want to use Epic’s friends system, they can use Epic’s friend system and they want to use PayPal instead of Apple payment service. They should be free to use that. So you really have two principles. Number one is real open platforms where users can install software and developers can release software without permission of a mega corp. And number two is just the ability for apps from any source to be able to use services of their choosing and not be forced through compulsion and tying to to use, you know, especially use noncompetitive services like the iOS App Store.

Your original question was about what, OK, thirty percent is too high. What should the number be?

I think that number should be set by competition. I think if competition settles in, it’s going to be set somewhere in the 7 to 12 percent range. Epic’s able to operate our store on a 12 percent fee. We’re doing a lot of marketing and things and other forward investments that make the store dis-economic. As long as we’re paying, you know, hundreds of millions of dollars for various rights and things and marketing campaigns. However, the core economics of the store, the transactional economics, are profitable. Right now. We make about 5 percent profit from each transaction, we process at the 12 percent fee. And that’s without huge economies of scale. I think Epic has processed, it’s more than a billion dollars of direct transactions with customers so far, but far less than Apple and Google. And with massive economies of scale like they have… who knows what the numbers could be.

JK: So given that you guys are in the driver’s seat for delivering a Metaverse, so is it fair to say that we could expect Metaverse platform fees from you guys if you guys were doing it to be in the 7 to 12 percent range?

Tim Sweeney: Well, I think what we need is a component economy, because you can’t compare this directly to an app store. It might cost us more than seven, eight percent just to run the servers. And so I think we also have to approach this gradually because we have this game that works called Fortnite. We need to turn it into an into a much more open system that still works. So we need to do that without ever breaking it. Right?

If we do something that causes all of the Fortnite users to leave, then by the time we build the best, the new system we’ll have lost them and the whole effort will have been for naught. And maybe some other company, maybe Facebook will take over the space. And so we have to transition from where we are to where we’re going. I think my point is, as we do this, we need to do it in a way that ensures that all major cost centers of the equation are opened up in due course to competition. So that. There is complete transparency for your costs are going and users, developers have the right to choose among the different components.

If you look at ROBLOX, I heard from a ROBLOX creator who was complaining that ROBLOX only pays creators 20 percent of revenue. I was getting really mad about that.  And I actually backed up and thought, what is their revenue? What’s their operating cost for building out their game and their toolset? And what’s their cost of operating servers? I don’t know. But I’m not sure that their economics are wrong. Right?

But there’s no transparency, so you can’t really know. Right? But if if it turns out that a low monetizing game that has a huge number of users might have operating costs that are, you know, leave it with a 20 percent profit margin. If that’s the case, then I think the key is that the economics be completely transparent, but also that, you know, if some super highly efficient game has low server costs and high monetization, is able to, you know, make an 80 percent profit margin, then that’s great, too. But I think transparency and open competition there, are the critical elements of it.

JK: And just speaking about cost. Now, we’ve seen that with new platforms like Google Stadia, for example, costs and business models seem to be stymieing the potential, you know, proliferation and the popularity of that service. When you think about cost and business model for the Metaverse, are there any specific concerns you have in terms of cost categories or business model?

Tim Sweeney: You know, I think if you itemize all costs associated with operating a game, you get a big list and it has a lot of items. There are small costs, but when they add when you add them all up, they’re pretty high. Right? You have everything from download bandwidth for updates to server hosting costs. The database costs we’re operating within. And you have a customer support team. You have operations teams that make sure the servers are running. You have payment processing.

And if you just look at the agreements you sign when you become a Visa or MasterCard merchant, you don’t actually sign with just one vendor. You have a whole repertoire of different services that are all part of that processing credit card transaction, this little insurance component that might take zero point two percent to insure against fraud. And there’s, you know, lots and lots of different services pertaining to accounting and bookkeeping and tax and everything else.

And I think the key is setting up a market where developers can choose among components with full awareness of their costs and competitors can provide their own components that compete on cost is the key thing that keeps businesses honest, right? Whether you’re running an oil refinery or a vegetable stand, knowing the costs of all of the different components going into the business are key to ensuring that operates smoothly.

JK: So one question I actually want to ask you about. When we’re talking about the dangers of monopoly and something that’s actually kind of relevant in the news today is really around this issue about information and data. And so one of the big dangers of monopoly ownership of the platform has been the potential abuse of platform owners to compete against participants of their platform using customer data.

So the game industry: we’ve seen ad networks compete against their customers, potentially having used customer ad and user acquisition data. Amazon’s been in the news also reportedly having used customer data to compete both from its sort of corporate venture fund as well as using seller data to compete against those sellers on Amazon.com and to some degree there’s a potential — I don’t think it happens but — with Epic as well. With Unreal Engine, Epic publishing, and Epic store, whether there’s that danger of misusing data to compete against customers as a risk.

And so in terms of the Metaverse and information and data — or even even in terms of the current industry and market — could you speak to how we should be thinking about the potential of information and data as a risk?

Tim Sweeney: Yeah, you know, this is another area where the big platform companies fooled us.

You know, they got game developers to sign up for Facebook and ship Facebook’s plugin, in their apps, and Google’s plugin, in their apps, because it provided some nominal service to developers. But it turns out what they’re really doing with these plug ins is tracking everybody using your app and then selling access to your customers, to your competitors. And not paying you anything. Right?

That’s the core of their business model as intermediaries. I think everybody’s wised up to that. Right? You see more and more game developers removing all of these nefarious plugins from their software and recognizing the extent of the data leaks when you use, you know, Google or Facebook components on your Web page or in your mobile app. And it’s actually what they’re doing and exactly how it’s against their customers’ rights and also against your rights as a game developer.

But everybody is wising up and I think the really critical thing is for companies to have principles on data security and really clearly state them. Apple does a great job of that in terms of customer privacy and where they explicitly tell you. We are not in the data business. We don’t want your data. We are never in a position to profit from accessing or selling your private data. And you know, they have a business that is based on profiting by selling smartphones, which they markup awesomely and they deserve too. So they don’t need it. And Google is in a different position. And Facebook’s in a different one still.

I think especially when a supplier — Facebook, Google, Apple, Epic — is in a position of serving multiple customer bases and is in some cases in a business that’s competing with customers like we have an engine business, but we also make games. Our customers make games. And so our games are competing with other customers games to the extent that all games are competing with each other. I think it’s really, really important to have not just publicly stated policies, but binding agreements governing data privacy.

For example, we have Epic online services that we’ve launched recently that hosted two kinds of data. There’s Epic accounts and friends which are Epic data. Like if you use our friend’s system, then you have access to all the friends’ connections. The more than two billion friend connections that have been built up through Fortnite. And when your players add their own friend connections, they go into the system and Epic and all of the developers using the framework have access to that and benefit from it. So that’s one part of the service. The other part of the service is data that we host on behalf of game developers. That data is owned by the game developers. Epic has only has the contractual right to access it for the purpose of providing these service to them. And so all the metrics data associated with all of these games using the Epic online services are off limits to Epic to use for any company purposes. We can only use… We can only serve Ubisoft data to Ubisoft. And we’re barred contractually from using using data for for other purposes, and those kinds of agreements are critical.

Amazon is a good example. If different parts of Amazon… Amazon Web Services is absolutely operating in that role as a trustworthy data provider, where they provide services and Amazon does not rummage through your data stored on AWS to analyze your customers behavior. Right? They do not have access to it. And, you know, if somebody at Amazon accesses that, they’d probably be in jail. Right? So, having those sorts of agreements more pervasively throughout the other parts of the business they expect it, is going to be really critical.

I think that’s an area where companies need to do a better job, especially these big tech companies that are in lots of different markets in explaining and contractually committing to firewalls between different parts of their business and where there is no firewall, being really explicit about that and what they might do with the data.

JK: So I have one last question for you, Tim, which is in terms of other companies that could potentially deliver the Metaverse besides Epic. Who do you think about as potential leaders in terms of that opportunity? And then also, when do you think the Metaverse could potentially be delivered in an economic and commercially viable way.

Tim Sweeney: You know, there’s a really wide spectrum. There’s Fortnite, Minecraft, and ROBLOX are pretty widely recognized as the big contenders, each in a different way. Each is strong in a different area. I think ROBLOX has the best extant economy, or the most robust extant economy of all the games. And that there’s a big market of creators building content and earning a living from it. Minecraft has done the most with user generated content. And with all these worlds that users have built up Fortnite creative is interesting in that respect to. And then Fortnite is the most compelling core game experience, which is a really critical element. Keeping people coming back, but really entertaining them while they’re in this thing, because just pure 3D social doesn’t really work. Right? You need fun to frame your social experiences. You know, those are the big contenders right now.

There are a lot of upstarts, probably a dozen, each working on their own takes on creatorr economies and platforms. I think they’re going to be very interesting. You know, they don’t all necessarily have to be these massive 3D experiences. I think there’s like probably a 2D Sprite based version of this with retro graphics. There could be a 100 million user ecosystem in the future. I think there are really endless possibilities there. There’s also the prospect of new startups that we don’t even know about, haven’t heard of, haven’t seen their games and what they might do in the future.

But, you know,  I think we’re gonna really see a gradual move in the direction of views becoming more, less and less standalone games and more and more platforms for user content and more and more economies and competition, forcing these economies to be really fair and robust and competitive. So I don’t think, you know, it’s like… I go way back. In the 1990s, all the politicians were talking about the information superhighway. And how it was going to connect people and they didn’t really put one and two together and realize that we already had this Internet thing, this weird Unix platform that had been existing for about 20 years, was actually going to become that thing because we didn’t have the Web, we didn’t have video. It was a pretty goofy nerd technology at the time. You know, in the end, the Internet became that thing.

And I think when we talk about the Metaverse, what we’re going to see is something that’s not quite what we’re talking about now, but it has many elements of it. And we don’t even know what it is until a more and more parts of it have emerged. I think that’s gonna be the really exciting part of it over the next five and 10 years is watching this medium take shape and seeing how it evolves and how it comports with the science fiction from the nineteen eighties and how it totally diverges and does unexpected things. So I think that the rules of this whole new medium have only partially been written so far.

JK: All right. Well, thank you very much for joining us today, Tim. I just wanted to ask if you have a final message for our audience at all?

Tim Sweeney: Well, thanks. You know, I think as game developers and game players, you know, we’re all going to play a part in creating this thing in the future. I think we should all be advocates for the world that we want. If we aren’t forceful and fighting for the world that we want as gamers and games developers, then we’re going to get a very different world. And by the time it’s set in stone, it’s going to be too late to change it.

And so I think now is a really critical time. It’s all conversation about open platforms and app stores. Ironically, largely taking place in the context of this 15 or 20 year old store platforms. While there is the advent of a new medium that’s just starting to shape up now. What happened in this previous generation of platforms that everybody’s working desperately to undo is a foreshadowing of what could go wrong here. And so be vigilant. And don’t be afraid to speak up and speak your mind in transforming the world into a better place. It’s the only way we’re going to succeed in this together.

JK: Actually, I do have one last question for you, Tim. When do we see Epic’s version of Adventure? I saw that you had actually… That’s one of the few games you completed and you were working on that when you were younger.

Tim Sweeney: Well, you know, actually, this game that I released in 1991 called ZZT. It was a… I started out to build a text editor, and I got bored by that, and so I turned the cursor into a smiley face and turned the characters you can type in into walls and you built this world out of it. Right? But it’s kind of the original Atari Adventure style of simple, iconic graphical exploration of the world.

And it’s amazing playing a game like that with such low fidelity graphics like ZZT or Zork or anything else. Like your mind projects into the dreams and memories you have, which have nothing to do with what’s actually on the screen. But, you know, I think. Even then, even in 1991, and even in 1985, we saw the potential for virtual worlds. Everybody who was developing games or playing them saw that: Oh wow, when you connect a bunch of players together into a multiplayer experience, it’s a 3D world and users can contribute their own content to it. As the early MUDS pioneered and other games have done. Then you kind of get something magical that goes way, way beyond a bulletin board or a social network or traditional game. And I tell you that, gosh, thirty five years later, we’re still working on it. But we’re so close now. It’s really uncanny how close we are.

JK: Well, that’s it. Tim, thank you again for your time and thank you for being so ambitious with Epic and for supporting small indie developers. I think everyone in the industry definitely has a lot to thank you for.