July 25, 2022

Metaverse...Curb Your Enthusiasm with Eric Kress

This week we continue to deconstruct the metaverse with our brilliant Eric Kress of Gossamer Consulting Group, an independent research boutique that provides investors and industry clients with primary research on console mobile and other related technology companies.

This week we continue to deconstruct the metaverse with our brilliant Eric Kress of Gossamer Consulting Group, an independent research boutique that provides investors and industry clients with primary research on console mobile and other related technology companies.


Richard Kramer: Welcome to Bubble Trouble, conversations between independent analyst, Richard Kramer, that's me, and the economist and author, Will Page, where we lay out some inconvenient truths about how financial markets really work. This week and in coming weeks, the Bubble Trouble team will turn our attention to the phrase du jour, the bait of all click baits, the mother of all bubbles, that is the Metaverse. I read something, Will, that McKinsey says it's going to be five trillion dollars by 2030. More in a moment.

We're going to keep it real and keep this deep dive going with the brilliant, Eric Kress of Gossamer Consulting Group, an independent research boutique that provides investors and industry clients with primary research on console, mobile, and other related technology companies. He also runs a fantastic podcast, covering everything in gaming called destructor of fun. Eric has 20 years of experience in the interactive industry and sell side research, and he's with us today. Welcome, Eric.

Eric Kress: Thank you for having me. Good to be here.

Will Page: So, Eric, before we get going with the guest, we just like to give you the microphone to introduce yourself, you know, the nature of your work, but really important, how people are going to start following you after listening to this podcast.

Eric Kress: Sure. I think, you know, the unique part about my background is I've spent half my career in industry and half my career in, uh, investment research, so I spent about seven years at EA and then, two years at Kabam where I was VP of Corporate Strategy, kind of got my PhD in free-to-play and mobile. Um, and then, the rest of my career has been spent at investment research, and so, right now I run Gossamer Consulting and I have my investment research portfolio, 15 companies. I also do, uh, corporate strategy for Warner, for both mobile and console. And then, I work for the biggest NFT slash blockchain company, Forte, as a consultant, and then I do the podcast for Deconstructor of Fun to keep me kind of, frosty about what's going on, and I think that's the unique thing is that I can keep one foot in the gate and space on industry, and then one foot in investment side.

Will Page: So many side hustles, it's an optagon.

Eric Kress: And then, by the way, best way to reach me is on LinkedIn because I'm way too frickin' old and neurotic for Twitter.

Will Page: I was gonna say, it's a damn good podcast as well. I- I'm hooked on the first lesson, so you've got a new subscriber. Um, we like to get experts like you to come on the show, but really to check yourself [inaudible 00:02:23] you have no prior knowledge amongst the audience. Metaverse, how do you spell that word? Can you chisel out then to 20 words and just tell me in a very short sentence, what the Metaverse is.

Eric Kress: I, basically, that the Metaverse is a community of players that get together to play and socialize around interactive experience. That's it. That's as simple as it gets.

Will Page: Period. Here's Tom with the weather. We're done.

Eric Kress: Yeah, and in that definition, we are surrounded by Metaverses right now. Like, we don't, there is no ubiquitous Metaverse that's on the horizon. You have Call of Duty, World of Warcraft, FIFA, Madden, hell, even Slotomania, and Candy Crush. Those could be considered Metaverses of people getting together with interactive experience and socializing.

Will Page: I- I love it. You scored better than any other guest to date, keeping this tight. I wanna keep it tight and light. Tell me what the Metaverse isn't. In a simple sentence, where is the confusion about what this M word actually is and is not?

Eric Kress: It is not Ready Player One and it is not Snow Crash. I just fundamentally don't think we are going to get there any time soon, if ever, to be honest. Maybe in the next 20 years when I'm long retired and soiling my diapers, at that time.

Will Page: [laughs]

Richard Kramer: Wait, you never told your wife, "Don't worry, honey. This is just a simulation"?

Will Page: [laughs]

Eric Kress: [laughs] Uh, there's, yes. I wish I could. That'd be a great excuse for many of the terrible things I've done over the years.

Will Page: We spoke to Yoshio of IDG Consulting, who is fantastic, and we also had Ernest from AmazeVR on the show, and one theme which came from those two discussions was, can any one firm own the Metaverse? And this is something Richard, you'll see steam coming out of his ears when firms believe they have the right to win. "I've got the right to win the Metaverse." Is the Metaverse for one company to own or is it more like the internet, which is for all companies to share?

Eric Kress: I'm agreeing with Richard on this one, right? I think it is the collection of experiences. Like, the assumption that there is one company that could build a Metaverse that is compelling for everyone is ridiculous. We just know that, that's not the case in interactive entertainment. These utopian predictions of the needs and wants of the consumer, they focus on this ideal perception of a Metaverse that caters to everyone. That just doesn't seem realistic to me. We've always developed content for different types of consumers, and I think that will continue to be the case for whatever this "Metaverse" will become. And- and Roblox is a great example of that and I don't wanna go too much on a tangent on Roblox, but Roblox is having challenges because of just this. They are good for one segment of the population, kids. Six to eight-

Will Page: Mm-hmm [affirmative]-

Eric Kress: ... to 10 year old kids, basically. That's where they cater. They are trying to move up demo and they're trying to move geo-

Will Page: [laughs]

Eric Kress: And it's not working, right? Not working at all, and we're seeing that happen real time. They cannot grow in 2022 [laughs] because they cannot grow demo or geo, and this has been a challenge for publishing on mobile free-to-play forever, trying to expand outside of geographic locations. And the one example I use that really resonated with my clients last year who went short on Roblox was that, culturally, it is unacceptable in many countries in this world to give money to a six year old to play a interactive experience online. You can't do it in Japan, can't do it in Korea, eastern Europe, the Norwegian countries. You expect to monetize an audience which culturally does not accept that or their strategy to go into China, it's ridiculous. They are legislating against kids playing games.

Will Page: That's interesting.

Eric Kress: Bringing it back to the Metaverse, it's like, you can't build an experience for everybody. Every country is different. Every demo is different. The taste of the consumer is different. So, when Andresen and these McKinsey guys are coming out there with these lofty predictions, they're really talking about the consumer. They're talking about a theory that has nothing to do with the actual consumer and so, this is what drives me insane about lots of these predictions.

Will Page: I'm feeling it. If I could just toss in one quick question before going to Richard, but just, when you talk about Roblox, maybe overplaying their hand, do you think the company formerly known as Facebook has overplayed it's hand as well?

Eric Kress: A hundred percent. They're not even content creators. At least the guys at Roblox know what they're doing in terms of building content and tools and getting the right people to make the games that are compelling to that audience. Facebook is just flying blind right now, and they're shelling tons of money out to the tech, and then they're buying lots of smaller teens, but they don't have the killer experience that's gonna really compel a broader user base to get engaged. They're not Microsoft or Sony or Nintendo, and- and building experiences for that particular audience. And again, the one thing I, and I'll go into it a little bit later is that, the consoles have been optimized against 18 to 44 year old males since inception. Like, the Wii was a little bit of a- a variation on that, but for the most part, that is the audience that they have been catering to for 30 years. They know exactly how to cater to that audience. How is someone like Facebook gonna even come close to appealing to that audience with their content? They're not. It's never gonna happen. And that's why Google Stadia fails miserably, Apple Arcade is a ridiculous thing that they built there. Like, tech companies that think that they can actually appeal to a broader audience in interactive are just kidding themselves, you know, at- at the end of the day. It's just a different audience.

Richard Kramer: That's a fascinating point. You know, one of the things we talked about before on this podcast is how most great companies have one big idea, and finding a second one is incredibly difficult, and something else I've seen with investors time and time again is extrapolating upper middle class behavior to the mass market. Hey, I can afford a $2,000 Peloton at $30 a month for subscriptions. Everybody should be doing that. What is the moth-like attraction to flame, that draws people into this? Is it the corporate arrogance that allows some of these companies to claim the right to win in these spaces where they haven't been present for 30 years? Do they think they can invent a better mouse trap? Do they extrapolate from their own interests or their own fascinations with technologies? What leads all of these big tech companies to say, "Yes, we should just roll our tanks up onto the lawn of these long time video game players-

Eric Kress: [laughs]

Richard Kramer: .. and just take over? Now, Microsoft has aug- arguably done that, but they've paid the price in six to eight billion dollars of cash they're offering for Activision.

Eric Kress: Right. Specifically on Facebook, like, I, you know, we have to unpack that a little bit because everybody's strategy is a bit different on this, but Facebook is really trying to regain control-

Richard Kramer: Uh-huh.

Eric Kress: ... over it's own destiny. They are completely beholden upon Google and Apple for their platforms to continue their advertising jug or not. And- and- and the rug was literally pulled from under them. Apple is continuing to work on the best interest of Apple, of selling as many phones as possible. They are building this ecosystem to do that and their marketing strategy is privacy, but the privacy actions of- of Apple, which are draconian, have basically destroyed the user acquisition market and also have gone directly against Facebook. And so, they absolutely have no control over their own platform and so, that's why they're building the VR. They think that they control that platform. They want to become the Apple and Google of virtual reality. Facebook is just trying to regain control to maintain control over their own destiny, and that's their strategy, and it makes sense from that perspective, but I think what- what they failed to do is acknowledge the fact that the interactive industry is a very different industry. People that play Candy Crush and people that play Call of Duty are completely different audiences. To build something for both with one system is- is near to possible, and no one has been able to do that, really.

Richard Kramer: And if- if we take that to one level beyond, when you think about there have been 10 million Oculus devices sold and finally, years after VR began, we can say that at least half of those might actually be used regularly and the other half are probably people bought them and left them there, and there, that's up against, uh, a- a billion smartphones sold every year or more. How does a technology like VR, where you have to shut yourself off from the outside world and from your normal be- patterns of behavior, how does that ever go mass market? Do you think it goes mass market?

Eric Kress: The ironic truth is that, VR already died.

Richard Kramer: [laughs]

Eric Kress: It came out. It was a disaster of epic proportion, right? No one bought it. No one cared.

Richard Kramer: The only counterargument to that, and I will just throw it out there and see if you react to it, is that we know, I- I- I was there, I was covering HTC last decade and watched when their smartphone business imploded and they were wiped out by the Samsungs of the world and later, the Chinese, and they had to pivot to VR, and the technology was so crude and immature that of course it wasn't gonna work, but the only counterargument to that is that, if you spin forward three or four generations of technology, yes, our eyes see a 20K and we're just moving from 4K to 8K. Yes, we can get better, lighter weight headsets, that we can create experiences which are closer to real reality in the virtual world that make them more palatable. Do you just think, we'll never get there or do you think that, that is possible for a small subsegment of the market, that you'll get experiences which are good enough to entice people into this, putting these bizarre headsets on?

Eric Kress: The only assumption that I would challenge is I think actually, the technology was not that bad. The technology was good. It frickin' worked, right? It- it works then as well as, almost as well as it works now, it's just a little bit different form factor. It's a little bit lighter. Having said that, the answer to your question is no. I think, the consumption of VR experiences is something that is- is not palpable to many people for long periods of time, and that's not the way consumers engage in entertainment. Like, if you're a console player, you could play for six hour sessions easily, and- and that's how you consume that content or mobile phones are like, you're in, you're out. You know, it's like the [inaudible 00:12:36] mechanic of what mobile does for billions of people, and frankly, how they interact in China is different the way they interact in North America, so like, a VR experience in which you are immersed in absence of all the other things in your life, like, there's very, very, very limited use case for that scenario.

It never made sense to begin with to some degree. We're just not there as a culture or as, how we consume entertainment or look at watching TV. Like, you'll sit in front of the TV for four hours just engaging, leaning back, watching. That's the type of experience people are kind of like, trying to replace and replicate how people consume, and VR is just not that. It's- it's really high levels of engagement for a very, very brief period. I don't see it changing any time soon, particularly with the current technology. Now, I am full onboard with VR, right? I, dude, plug me in. 30 years from now when I'm like, 70 or 80, jack me in and let me live my life, so rather than walking around like a zombie.

Richard Kramer: [laughs]

Eric Kress: But in terms of where we are for the next 20 years, I just don't think this is gonna be a real compelling platform. My data points on Quest 2 have been positive in the sense that, they sold a shit ton of Quest 2s, but engagement is not good. There's no content to play. No one is building content for this platform, period, end of sentence, besides Facebook. That's not enough. You need all the publishers actively building and innovating and engaging and building social experiences, and all that stuff. There's not enough attention on it because the install base is too small, the business model doesn't make sense. That's the other thing that I said way back when, was that the business model for gaming is you pay 60, 70 dollars for 100 hours of experience, right? You're not gonna pay $70 for 30, 45 minute romp through some like, wonderland in VR, right? Yeah. Let me just make one wrap up point here, which is what's so interesting about what you're saying is, there is a quasi religion of techno-determinism.

Richard Kramer: [laughs]

Eric Kress: You just gave me a blow back against the idea that, oh, don't worry, it'll work in the end, and that's been- that's been the thesis on VR that the resolution wasn't good enough, the frame rate wasn't good enough, the content wasn't good enough. Eventually, we will all want to just dive into these pools of content where we can fully immerse ourselves and I've always found that a bit disturbing because of the very simple point that when you put one of these things on, someone can walk up to you and punch you in the head and you'll never- never see it coming.

Richard Kramer: [laughs]

Eric Kress: So, there's a very limited number of places you can use that experience. There is this quasi religion that says, "The technology will get better and it'll all work out," and that's what the tens of billions of dollars of R&D is going to solve right now, and you're effectively tell us, which is a really interesting counterargument, that no, it's not simply about just, more spins of- of your semi-conductor cycle or your optical technology or your display technology. This is just not the kind of content people want to engage with long term.

Richard Kramer: Exactly. That's the point I've been making since Oculus started coming out, and I was one of the first ones on board to buy it, and I loved it. My experience was really positive. Kind of my superpower is understanding what the customer wants and how the customers evolved over the last 25 years, since I've, you know, in '98 when we were doing, what? Playstation one, whatever. It's pretty clear, like what different platforms have enabled in the- in the interactive space. You know, mobile just created an absolutely massive growth in this industry, right, because it catered to different types of audiences that weren't embracing interactive before, and that provided them the platform to engage in not the same experiences as what we saw on console, but on incremental experiences like social casino, and puzzle, and things like that, that cater to that audience and brought them on board to know that interactive is a better experience than passive forms of entertainment. VR does not solve any of these problems or it doesn't offer much incremental, and in some cases, it's detrimental to the way people consume content, so I think it's gonna be a big challenge to get consumers involved and engaged in this type of, uh, experience over time.

Will Page: I like the- the incremental analysis you're bringing to the show and I have to say, as we go to the break that our Facebook men are in the room nextdoor to me eavesdropping on this podcast. I can tell you why because when I look at their screens, they're actually looking at business development partnerships with care homes, so clearly, they've taken your guidance of-

Eric Kress: [laughs]

Will Page: ... when people are in their wheelchair wetting their pants, there's gonna be a VR experience to make them feel slightly dryer. With that, that's- that's a lot for part one. Let's come back to part two where we'll get more into these use cases.

Back in part two of Bubble Trouble with 20 year veteran of gaming platforms, Eric Kress. And Eric, you've kind of been a bit dismissive around the hype around the Metaverse, and perhaps, uh, giving- giving the Metaverse a cold shower. What I want to do in part two is go down a rabbit hole, and one- one lesson I've learned from previous shows, Ernest Lee from AmazeVR made a point. He said that Walmart is using VR for staff training and then, he expanded and said there is healthcare professionals using VR for training in a very critical role in healthcare.

And a few things just to kind of muse on here with you, which is, if there's staff training at, if you know tomorrow there's staff training at your employer's place of work, the first thing you do is get really smashed tonight because you wanna go in with a stinking hangover and pay no attention to it, but in healthcare, if you need to learn there's a cardiac arrest and here's how we resolve it when there's a [inaudible 00:18:12], you need to learn procedures and protocols. You need to pay attention. And what VR does, is it prices in attention. What price your undivided attention, is what VR for me, brings to the game. Now, to learn that healthcare, Walmart, people like these are experimenting with VR for that purpose, let's forget what we discussed about gaming in part one, but for that purpose, do you see that affecting the adoption curve in any way, like it could happen through the back door?

Eric Kress: The I- idea of a backdoor corporate training type access, so like, once you experience VR at these capacity that you're gonna go out and be a consumer of- of VR technology afterwards, I mean, the more people that try it, I think the more people that find it compelling, but the problems that I'm talking about are almost different from that calculus. One thing is try it, one thing is engaging on a regular basis to make it an active entertainment platform in your life.

Will Page: It's a narrow use case.

Eric Kress: Certainly it's a narrow use case, and then even if I go out and buy the device because I'm so compelled by using it at my employer, still like, the use cases doesn't make sense at home because it's just not at a very compelling interactive experience compared to TV, movies, and- and traditional video games, so I don't think that's their backdoor into the consumer's home. I- I can't even think of an example of that ever working before. I'm sure there is out there-

Richard Kramer: To be fair, there is one use case that has been at the forefront of all new technology adoption since, whether it's satellite TV, cable TV, the VCR, the internet, and a DVR, and that's been porn, but it- it doesn't tend to spin out to make things mainstream until there are many, many, many other use cases, and the- and the main use case for satellite or cable TV was that the cost of programming came down sufficiently that you could actually make hundreds of channels, but there was no broadcast space to put more than five or six of them over the air, and the- the- the same thing-

Eric Kress: Right.

Richard Kramer: ... for the VCR, you were producing loads and loads of movies, but there was no way to get access to a movie after it had been in theater until they figured out a way to replicate them in a portable way, but it, those use cases need to have a much broader application and I guess what you're saying is, the combination of, here's what it's like to be on the mountain in Nepal and by the way, here's what it's like to train as a surgeon, none of those are individually or collectively compelling enough to get us all to don these goggles for more than 20 minutes at a time every few months.

Eric Kress: [laughs] Well said. That's exactly what I'm trying to say, and what I've been trying to say for like, the last three years since it came out, is that this is a niche device and these niche applications are not gonna make it more mainstream.

Richard Kramer: Okay, let me give you the one other rejoinder we get from the [inaudible 00:21:08], which is, "Oh, it's the kids."

Eric Kress: [laughs]

Richard Kramer: The kids are different because you remember 3D in cinemas? That was gonna be a big thing and the research showed, 'cause I knew a company called Technicolor at the time and I talked with the CEO about it and it's one of the largest visual affects companies in the world, and the research showed that after an age of about 18 or 19, you didn't like things flying off the screen and into your face. You thought it was really cool when you were eight or 12, when you had these CGI explosions and things would come hurdling towards you, but most people find that kind of disturbing. Is there something about retaining this generation of- of kids, are they more adept or are they more accustomed to this type of technology or do you equally think that the lack of compelling content is gonna turn them off as well?

Eric Kress: Yeah, I think they have much better experiences with, what I would consider the Metaverse of Fortnite or something like that, or if you, even if, even Roblox, which I don't think is ever going to be a VR thing.

Richard Kramer: A two- a 2D Metaverse.

Eric Kress: Yeah. I think that they- they optimize against their experiences that are the most compelling to them. I- I think I say this in the notes, it's like, look, Roblox has built a gajillion different types of Battle Royale games like Fortnite, right? You go out there and play them, but very few people are actually playing those games. They're all still playing Fortnite because that is the most optimal experience for playing that style of game. The point is, is that consumers know what the best experience is for what they wanna do and I don't think, like some ubiquitous virtual world is gonna have the same quality of experience as the best of breed shooter like Call of Duty or Fortnite or RPGs, you know like, Elden Ring or whatever. And so, particularly the western audiences are very fickle, right, and they're used to triple A experiences, and- and again, that's why Roblox has failed so miserably in the older demographic because the experiences are terrible relative to others. You just can't build a collection of experiences that are gonna be as compelling as the individual experiences they can get.

Will Page: Eric, you- you mentioned Fortnite a few times and I- I wanted to go back two years and you mentioned you've been tracking this space for a while but, tell me, what was your impression of Travis Scott's performance in Fortnite. This is around about April 2020 as we went into lockdown.

Eric Kress: I, it was a great proof of concept, and actually, Sony made investments in Epic in order to continue to showcase, you know, their music icons in Fortnite and other experiences probably, within the Fortnite universe or Epic universe going forward. I think it's a good marketing vehicle and it gives them street cred, it gives them coverage on YouTube, it gives them coverage on every single channel out there, whether it's Twitch and et cetera. I think it's a super smart idea, but I think it's one channel of many. I don't think it will replace all channels.

Will Page: Well, I'm the student and you're the professor on this one, but I think it could be more the marketing. I go to work on the data science from the backend of that performance. Have a guess how much virtual merch sales he did the 48 hours after that performance. I'm gonna release an exclusive to the show here. How much virtual merch? Not real merch with white vans and T-shirts in the back, virtual merch.

Eric Kress: Like, virtual like, items in the game?

Will Page: Skins, yeah.

Eric Kress: Oh my God. I don't know.

Will Page: 23.6 million dollars.

Eric Kress: Holy crap.

Will Page: And that's virtuals. What's the bottom line of that 23 million, it's 23.6 million dollars. There's no marginal cost at all.

Eric Kress: The- the way I understand that, how that thing went down is that, they- they didn't have the full viewership that they wanted because of technical limitations.

Will Page: Mm-hmm [affirmative].

Eric Kress: And a lot of people were watching it after the fact on other channels.

Will Page: Yeah.

Eric Kress: I'm not exactly sure what the stats you're talking about, but I- I would imagine that it created an ecosystem of engagement that they've never seen before for some kind of release across all channels-

Will Page: Mm-hmm [affirmative].

Eric Kress: ... not just Fortnite. Again, I think it is one of many strategies for marketing, in this case, music, but I don't think it's a replacement at all.

Will Page: But it's crazy to think if-

Eric Kress: Right.

Will Page: ... 60 million people watch you virtually, what would be the overheads driving trucks around America to get to a fraction of that figure? That's what I find fascinating.

Eric Kress: Well, but- but that's the internet in general, right? I mean, the engagement that you can get from a, one YouTube video is far more than you'll ever get from a Super Bowl ad, right?

Richard Kramer: So, I wanna shift a little bit. What is your take on the whole live streaming phenomenon? Because that has been essential to not just educating people about game play, but in a way, many of these live streamers are creating their own Metaverse, where they're interacting with their audience all the time, that the audience feels as if they're participating by watching these highly adept gamers play. Do you think that is the- the sort of, front end of the Metaverse, where we will be watching someone who is exceptional, but feel like we're participating in it or does it have to be something where every individual in the Metaverse is an active agent?

Eric Kress: Actually, that's a really, really good illustration of what my point is, generally, about VR, is that the majority of people are people that consume and not create or participate, right? And I think, this is an example, these type of communities of people that surround these YouTube figures, and I live it every day with my 13 and 15 year old, like, it doesn't make a lot of sense to me, to some degree, although I do the same thing with- with other types of more dorky things on the internet, I suppose, but these are the type of things that is a Metaverse, right? A collection of people that are getting around content or other people and communicating and talking about it and socializing. This is a Metaverse to some degree, in the eyes of this type of, this demographic, and again, you can do this with all kinds of different things on the internet, you know, and any interest that you have. If it's like basket weaving or diving or whatever, you know, like you can find your communities in the internet. You do not have to be an agent. You could just be a consumer of it. That is super compelling ways of reaching those audiences as well.

Will Page: And the niche point is interesting, too. Our producer, Eric Newsome, gave this fantastic speech about podcasts once, where he said, "It's just niches. They're all just niches." You know, Joe Rogan is a really big podcast, but it's a really big niche.

Eric Kress: Yeah.

Will Page: That's what it is. There's an awful lot more people who look at Joe Rogan and say, "I ain't listening to that." That's the definition of a niche.

Eric Kress: Yeah.

Will Page: It's not how big you are, it's how big the audience that doesn't want to engage with you is. I think what you're saying is, it's gonna be big, but it's still gonna be niche.

Eric Kress: Yeah, and it goes back to the World of Warcrafts phenomenon. When I was at EA, we had, we were looking at the MMO space and I- and I think I remember saying back then, I go, "There's just no way there are more than two million people in the U.S. that are gonna pay $16 a month to play World of Warcraft, or play an interactive MMO." There's a fixed audience to that. Now, I may have been wrong by a factor of two, but that became the truth, really ultimately. It's like, there's only a certain amount of people that are gonna interact with that Metaverse, the World of Warcraft. The World of Warcraft is a definition of Metaverse, by the way. Everybody is interacting as- as you were describing and they're going around a virtual world with gills and groups and communicating and there's an internet phenomenon, there's YouTube, just everything about the Metaverse is kind of embraced in one game, right? And- and I'm a huge WOW fan.

Will Page: So, you said, two million was your estimate, your pitch in the address for market and I'm looking at that number and I count six zeros. How many zeros were in the McKinsey estimates and the Gold and Sachs estimates back in those days? [laughs]

Eric Kress: Exactly, and that's one niche, right? That's one niche that caps out at a certain amount, and- and- and this is my point I really wanted to make on this podcast, it's like, do you know how long and how much money it's taken to build World of Warcraft? It's been almost 20 years. Billions have been spent on game development, systems and content and years after years, expansion after expansion. I think they're at their 9th or 10th expansion. It's like, and they still only cater in the west anyway, to like, maybe six billion, maybe eight million, somewhere around that number. A very, very small amount and they minted money. Exactly how can a Metaverse compete with that kind of niche?

Will Page: Wow.

Eric Kress: You know, with that kind of compelling content? It's impossible.

Richard Kramer: Yeah, yeah. And also, you forget that the, of the top 100 watched TV programs in America last year, two thirds of them were NFL football games.

Eric Kress: [laughs]

Richard Kramer: So for all the other compelling content that gets created, if you wanna get a mass audience, it's still, two thirds of it is still watching the NFL. Now, Eric we need to move to our final, signature session of Bubble Trouble, when we ask our guest to do a little smoking with us, and I know you're living in San Francisco, you probably get passive, secondhand smoke literally bleeding out your window at any given hour of the day, but these are these uh-oh moments when you sort of, sit back from the hype and hysteria of Bubble Trouble and you overhear terminology or metaphors or something that just makes you cringe. Give us a couple smoke signals with all this Metaverse hype that obviously has reached a fever pitch last, uh, last autumn with Facebook and- and has carried on with McKinsey saying it's gonna be six trillion dollars or what have you. What are the couple of things that you hear that just say, "Oh, they're smoking something," or "We should really watch out."?

Eric Kress: You know, at the end of the day, any mention of Ready Player One, Snow Crash, or The Matrix. Any time that's mentioned, in any type of press release, about any type of technology, I'm just like, okay, you guys are out to lunch, right? Like, I mean, don't get me wrong, I read Snow Crash in college. You know, Matrix is literally top 10 for me. I'm all in, and as I said, when I get older, just jack my ass in-

Will Page: [laughs]

Eric Kress: Like, no problem. I'm in already.

Richard Kramer: Right, but- but you also realize the reason why the Matrix has this appeal to all these tech bros is because they all wanna look like Keanu Reaves.

Eric Kress: [laughs] yeah, and be an expert in karate and jump off buildings, but I- I- I just think we are- we are so far from there, and the consumer is so far from there, like, if you spent any time in the interactive industry, you know that every customer is different. You know, building a Ready Player One platform that is experiences for everybody is fucking impossible. There are always gonna be better experiences outside of the Metaverse that are more compelling because that's the way things are built. You know, you're seeing this with Roblox right now. You see this with like, the Battle Royale, like on the Roblox like I said before. And you can make the same argument about Social Casino and Puzzle. Like, imagine for a moment, your 60 year old mom is playing puzzle games on their iPhone. You think they're gonna put the phone down, jack in to the Metaverse and start playing a puzzle game in the Metaverse?

Richard Kramer: [laughs]

Eric Kress: No. It's ridiculous.

Will Page: This shower is getting a lot colder now.

Eric Kress: It just doesn't make any sense, you know? And so, I, yeah. At the end, sorry, at the end of the day, I think a lot of these [inaudible 00:31:48], whatever they're doing, they just ignore the customer altogether. The build it and they will come idea, which you, I kind of mentioned before, I- it just, it doesn't make any sense. There will be Metaverses, right, but they won't cater and they'll be niche, and there will be better niches, and it'll maybe appeal to a broader audience. I'm all for that. Grow, expand the market, as long as possible. It's great for me and it's great interactive in general. I'm not saying that they won't create really cool experiences that will attract audiences. What I'm saying is, building something for everyone is impossible in this world.

Richard Kramer: And a second- a second smoke signal that just make you absolutely cringe with anguish?

Eric Kress: Any time, any time McKinsey writes anything about entertainment or interactive or anything like that. They're really good at operations and things like that, but they're not gaming people, you know? And they've been basically, destroying studios for the last decade, you know, with Blizzard and others. All these McKinsey people being drop shipped at studios and trying to manage them like a business class as opposed to the creative enterprise that it is, it just ends up destroying things, and so in this case, they're just creating lofty expectations that will never be attainable, so it's gonna feel like a failure. And it goes back to the Facebook thing. I talked to the Facebook guys before VR launched, and their expectation about what that thing would do was reasonable.

There was like, literally, five million PCs in the planet that could run that thing effectively, right? I'm exaggerating a little bit. It was a small percentage that, they, if they captured like, 20 percent of those people, they would be happy. It was like a two million unit thing, but then you had guys like IDC and- and- and Newzoo and others that were expecting like 30 million install base in three years. That's the one thing that drives me insane. Stop making these forecasts and if you do make these forecasts, just acknowledge the fact that it could be a disaster scenario in which noth- nothing happens, like what happened with VR to begin with. I know why they do it. They need to be more appropriate in their expectations or create scenarios that are more reasonable and you know, best case, worse case type thing, or something, because I think they set expectation and it's impossible to succeed based upon the expectation, so...

Richard Kramer: Never expect a man to understand something when his job depends on not understanding it.

Eric Kress: [laughs]

Richard Kramer: So, all those guys who are trying to sell reports, they know selling something that isn't a hockey stick curve or is the other side of the hockey stick curve that collapses, doesn't sell reports. If you hop on the buzzword bandwagon and put out an outrageous number, like a food delivery company having a total addressable market of all the food ever consumed in America-

Eric Kress: [laughs]

Richard Kramer: You know, it sells a lot more reports than just giving a modest prediction that it's going to take a long time to develop, and over to Will to wrap it up.

Will Page: Yeah, well, I think, uh, you mentioned conflict of interest in- in that McKinsey tight world. I think the T-shirt actually says, "No conflict, no interest," so [laughs]

Eric Kress: [laughs]

Will Page: Your- your- your eloquent rant, Eric, has just reminded me of just speaking to a long time friend of mine who [inaudible 00:34:49] on the biggest festivals in Britain and across Europe, so he's putting out festival tickets, which would be like, half a million people, uh, this summer. [inaudible 00:34:57] budgets were around about 1.2 billion, million per show. I just asked him like, does this Metaverse frighten you that people are gonna stop going to wedding and leads and start putting on headsets? And the expression he gave me, uh, if an expression could say a thousand words, was just like, wake up, Will. [laughs]

Eric Kress: [laughs]

Will Page: I can double my prices and still sell out this festival [inaudible 00:35:18]. People want to be together. They wanna be in a muddy field, drinking, potentially smoking, potentially pilling, up to yourselves, each to their own, but they want human interaction. That's mainstream. Every summer, Britain goes to festivals. America goes to festivals. The world goes to festivals. Every summer, in 20, 30, 40 years time where we're all in care homes wetting our pants, we will not be wearing headsets. We'll still be going to festivals, and I think that's- that's what you made me, that's the point you've hammered home for me. Bit, but niche. Let's underline the word, niche. It's a niche thing. Eric, this has been an absolute hoot. I loved having you on. We'd love to help your podcast out, too. Thanks so much for bringing 20 years of experience to Bubble Trouble.

Eric Kress: Yeah, thanks for having me. It's been great.

Richard Kramer: If you're new to Bubble Trouble, we hope you'll follow the show wherever you listen to podcasts. Bubble Trouble is produced by Eric Newsome, Jesse Baker and Julian Net at Magnificent Noise. You can learn more at bubbletroublepodcast.com. Will Page and I will see you next time.