[Gaming Summit] The New Social Network

Speaker A: Foreign

Speaker B: hi, and welcome to episode three of the Index Ventures Gaming Summit. In this session, Index partner Danny Reimer speaks with Liz, COO of Discord and Nick, co founder and CEO of Rec Room, about the social nature of today's games. Enjoy.

Speaker C: Hey, Liz and Nick, great to see you. Thank you very much, um, for doing this. I'm excited to speak with you today about how Discord and Rec Room are helping gaming become the new home for social interaction. Um, the title of this is Gaming the New Social Network. So really appreciate it and I'd love to kick it off. Nick, uh, if we could start with you and some history first, um, in terms of giving your background, I think everyone knows, uh, what you've created with Rec Room, but nevertheless, it would be great if you took us back to 2016, uh, when VR hardware was still nascent and share the perspective, uh, you and your team had, uh, on coming from hololens, um, that led you to start Rec Room.

Speaker A: Sure. As you mentioned, I had been working on HoloLens with uh, my five other co founders and we had been working on that since maybe 2011. We were way too early. But, uh, I think the thing that we really took away from those new breed of headsets was it enabled something called social presence, which you had in video games before. But you had to a new degree. With these headsets, you could really sense that there was another person behind the avatar. You could see their head movement, their hand movement, you could hear their voice in a way that really made it feel like they were in the same room with you. And as we saw the new VR headsets rolling out, we saw that there was a huge opportunity here, here to build a product that was really built around that social presence. And there was a huge opportunity for someone new to come in and do this. Because social density was so low on these platforms, you couldn't rely on your in real life friends being in a headset, playing the game that you wanted to play and online all at the same time. Really the first generation of social experiences on these headsets was going to be about connecting, um, strangers and trying to break the ice for them, trying to help new friends, friendships form. We felt like that was a really great opportunity for a new company to come along and, um, build an entirely new social craft.

Speaker C: Great. And my understanding from Demir, who's spearheaded this investment for us, was that, ah, thank goodness that when we were chatting with you, you still hadn't shifted to go necessarily beyond VR. Uh, and so as a result of that, he was One of the investors that, while he assumed that you were going to expand beyond VR, was happy to do the round while you were still just focusing on VR.

Speaker A: Yeah, I think when we met with Index, we had started to take very tiny steps outside of VR. I think we had a couple playable, uh, prototypes on phones or maybe on Xboxes or PlayStations, um, and I think what we had seen was, um, you want to go where customers are. Um, we believe that AR&VR will someday be as ubiquitous as many of the technologies that we take for granted today, but it's not there today. And how can you go and introduce your brand to people on the platforms and devices that they're on today? How do you get them started? How do you get them started to, um, build their social graph, their inventories, their experiences inside of your platform so that when they do get one of those headsets, they're already set up. They can just go, uh, and sign in in rec room and continue that journey with their new piece of hardware. Great.

Speaker C: And speaking of VR, Liz, uh, you were running sales and marketing around the same time for Oculus, uh, before joining Microsoft to, uh, lead, uh, the Xbox or help lead the Xbox, um, products. Um, and we are so thankful that you decided to join Discord, uh, some months ago. Now, as coo, would love to hear, um, your story of thinking of joining Xbox and really when you started to hear about Discord and how that thought process happened to decide to join Discord the social network.

Speaker B: Well, Nick and I have some crossover because I actually joined Microsoft to work on HoloLens, and I spent about a year doing that, and then, um, joined Xbox in 2018, which is around the time that I really started to hear a lot about Discord. I had heard of it, but it really came onto my radar, uh, when I started in Xbox, because so many of my coworkers and so many of our customers were really, um, enthusiastic and avid Discord, uh, users. And so, um, that was what made me, um, really recognize the power and the magic of Discord was how much, uh, folks were using it. And I got introduced to Jason, and we got to know each other over a number of months. And as much as I loved working on Xbox, and I still am a huge, huge fan of Xbox, um, and wasn't really looking to do something new. I was really excited by what Discord was doing. Our mission, um, and then just the ability to take Discord from where it is today and, um, bring that magic of Discord, uh, to more people. So I was very excited about um, the founding mission and the team, and then just our opportunity to, um, bring it to more folks.

Speaker A: Super.

Speaker C: My first question is around social interaction and I'd love to ask both of you this. If you look at the sort of traditional social media, uh, versus what happens on gaming platforms, you now have 3 billion global gamers. You have attractions like the Travis Scott concert on Fortnite or Squid, games that go way beyond the originals or any other platform. Um, and you have games that have been played for over a decade with unbelievable depth of experience and richness and engagement. Um, so how do you think this compares to the other social networks that are out there? And how does this lead to a different type of experience that nevertheless is a social network in a lot of ways? Nick, do you want to start that?

Speaker A: Sure. Um, one of the hallmarks that I think you see with games is you are having a new experience. So if you were to think through spending 2, 3 hours scrolling through a legacy social media site, I don't think most people are forming a new memory. They're reliving old memories. And I don't think that they, I think they regret the time. I think most people that spend hours and hours scrolling through social media don't think back on it days later and think, wow, that was two or three hours really well spent. But we don't regret the time that we spend with people, uh, in the real world. Like if we go and grab dinner together, we don't regret that time. We consider that time well spent. I think what video games provide us is an opportunity to have closer to those in real life experiences, times where we can go meet up with someone that matters to us, have a new experience with that person and form a new memory. And I think it really speaks to something like deeply human, where we really do want to be spending time socializing with each other, not scrolling through a feed approximating a social interaction. Um, and so I think that's one of the things that real time social interaction, real time chat, real time voice chat, real time playing together. I think those really do strike, uh, a different social need inside of people's brains. Um, and so I think that that's the area that you're seeing people gravitating towards these games experiences now, now that they've, now that they've spent enough time on social media that they know that there's some social connection that's missing. I think games is starting to fill that in.

Speaker C: Um, how about you, Liz? What would you say about that?

Speaker B: My thoughts are similar to Nick's I think that games, um, and Discord are about actually connecting people and people spending time together and connecting with the people that they care about and having new, um, experiences together. And I think video games, um, create a real opportunity for folks to spend time together, to connect, to have a new experience, um, to spend time with their friends. And I think, uh, Discord, unlike, um, traditional social networks, is all about actually connecting people and for folks to be able to find belonging and find, um, quality connections either with folks that they already know in real life, or new people that they meet through common interests or common friends.

Speaker C: And so do you envision that it's sort of a starting point. The gaming is a starting point. And then there are just these human connections that get made and folks do whatever they want. I mean, in other words, it's really a free for all, for what interests them as a group rather than playing a specific game.

Speaker B: I think games are one way that people like to spend time together. And then you realize the people you play games with, you like to do other things with. You finish playing a game and then you decide to continue talking about something else. So, so I don't know if they're just a starting point, but they're a core experience that people really like to have together that creates, um, connections that can then transcend the game and either translate into the real world or into other experiences. You find out that someone you play video games with, you have other interests in common with, um, or they're a person that you know in real life and that you have other experiences with them. You might be in a study group at school. Um, you may also both be, um, into some, uh, other hobby. Both might be, uh, sneakerheads. And you end up talking about that, um, on Discord.

Speaker A: So I think the word gaming has expanded a lot in the last 20 years. I think if you look at what it meant decades ago, it meant playing a platformer, it meant playing a first person shooter. I think what you see now is gaming is eating large parts of the consumer web. I mean fashion, dating events, music concerts, these things are now, uh, moving into the gaming world in a way that was pretty unthinkable 20 or 30 years ago. So I think the word gaming has broadened a lot. What people mean when they say gaming has brought quite a bit beyond. I'm trying to level up or I'm trying to collect, uh, this MacGuffin.

Speaker C: Yeah. The other aspect that is really interesting and why we wanted to talk to Discord and Rec Room together is your focus on synchronous communication, uh, voice, video, versus a lot of the legacy social platforms out there that really focus much more on texting, asynchronous communication. Um, can you talk about how important that is for you and you think for the user over time?

Speaker A: I mean, I think it goes back to what I was saying earlier. If you were to think about the most interesting memories that you've had over the last six months, you were probably doing something novel and unique and you were probably with other people. No one's best memory of the last six months was scrolling through a feedback. Right? And so I think what we get with these synchronous interactions is you get real memories, you get real experiences, you get to deepen the connection with some other person. You're not, you're not asynchronously responding um, to something that they've done. And I think that's a really important part of um, human happiness. I think if you look at even the way that you know, we, we punish people in this country, it's, it's through solitary confinement. It's something that we know the human brain really needs is this like synchronous connection with other people. Um, and I think that's really what these platforms are trying to provide.

Speaker C: So Liz, I mean, I guess you folks seem to be in uh, very clear agreement so I'll push it a little further. If you're thinking about current social platforms that are the most popular today, are they legacy in the way that folks interact? And actually it will be more of a synchronous world where folks find uh, their peers that share affinities and passions and um, want to interact in real time. Is that basically your view of how things are going to develop over time?

Speaker B: Well, I think the real time aspect was missing. I don't know that it's going to replace asynchronous. There is a role for asynchronous. It is nice to see um, some asynchronous content. I think there's a role for that. What I would say is that asynchronous is probably too dominant now. Um, and as Nick was saying, it's not very satisfying over time. What really is satisfying as a human is that I can have a conversation with someone, I can talk to them and connect with them. Um, so I think that the roles of real time kind of connection based, um, products was missing and now um, it's coming to life with products like Rec Room and Discord and I think they will play a bigger role in folks lives. But I Don't think that it will fully replace asynchronous because I think again, there's a lot of benefits to um, some asynchronous communications.

Speaker C: Anything you want to add, Nick? Are you okay with that?

Speaker A: I think if you look at like the, the models that are driving what content were shown in asynchronous content right now, the goal is to get us to keep scrolling generally like that's what the business model is like, continue to scroll. And I think the role for asynchronous communication moving forward might be show us the content that's most likely to transition us to a synchronous moment, show us the content that's most likely to show us, uh, an event we might want to go to, a friend we might want to connect with, or um, some content that we might be able to go and spend those synchronous moments with another person. So I think that's where I would see the role of asynchronous content moving forward is transitioning to that synchronicity.

Speaker B: I also think that you even see synchronous messaging on what we're referring to as asynchronous platforms. If you watch folks on Instagram or on Snap, they're actually real time messaging. They're using it as a real time messenger. Um, because I think that just fundamentally people want to connect and they want to have conversations in real time.

Speaker C: Of course, the benefit of an asynchronous approach is the business model lends itself a lot more to advertising, um, because you can sort of pool people and present ads in this, in this infinitesimal scroll that you were talking about. Nick. So let's talk about business models a bit about what you're focusing on and what you're not focusing on. Um, Liz, how did you feel about uh, when you heard that Discord was so, uh, opposed? I remember those conversations that we had opposed to advertising as a core pillar of the business model. Did you scratch your head a bit, sort of say like, I'm still plunging on this or how did you feel about it?

Speaker B: No, it was actually the opposite. I wouldn't have joined if the model was advertising. So it was actually a big appeal for me. And I spent um, the last few years working on Game Pass, which is a subscription service. I worked previously on Drop Cam, um, which was also a subscription service. So fundamentally I'm very aligned to uh, subscriptions as a, um, really great way to uh, align the interests of the customers and the products, um, and making a great experience, uh, that I think um, drives a great business as well as um, creates products that are great for the world.

Speaker C: And Nick, you talked about previously this aha moment you had on the business model. Can you explain to us how that came about?

Speaker A: I think our original idea for Rec Room was really to think about it being a platform for developers. So we were going to provide tools to allow professional developers to build rooms and objects inside of Rec Room. And I think it wasn't so much an aha moment, it was, it was Rec Room really meeting reality. Uh, it was pretty unlikely that developers who have really tremendous tools and options on a bunch of other platforms with very broad distribution were going to come to our little tiny corner of the Internet and build. Um, at the time we were, we were a very small company but I think we, the thing we saw was there was this desire among the players to have some role inside the game. What could they do to build, what could they do to um, create new content and distribute it on the platform? So our original theory was being a developer platform and I think I'm very happy that we made the shift towards a user generated content platform where the bulk of the content is made by the exact players who are inside the game. Um, and I think it gives a new set uh, of capabilities to a group that really didn't have distribution, that didn't have creation. Um, and it set up a very different value proposition for anyone coming to Rec Room.

Speaker C: Nick, how do you think about the whole, I mean there's been 1.8 trillion of loss of value in NFT, uh, economy, uh, over the last six months. So how do you think of this whole world?

Speaker A: So Rec Room doesn't currently participate in the NFT world at all. We do sell digital good, that's what I mean.

Speaker C: Digital goods for you folks is not something novel. I mean it's the core of your economy.

Speaker A: I mean I think that's what the world probably looks like moving forward. I know during like the early aughts one of the things that was tracked by stock analysts a lot was like what percentage of retail was digital versus physical. And my suspicion is over the next 10 years one of the things we'll start tracking is what percentage of spend from consumers is going towards digital objects versus physical objects. And I think you're going to see more going towards digital objects moving forward. Um, whether those take the form of NFTs or whether they're kind of the more conventional downloadable content that you've been seeing in games for decades. Um, unclear to me what that looks like. I think the way we focused on it at rec room is uh, try not to get enamored with the technology and try to focus more on what it is that the consumers want to do inside of your platform and provide that to them. So I think right now NFTs look like an interesting technology but I don't know how it would um, materially benefit the players just yet. I think if we come to the conclusion that it could, I think we're open minded to it.

Speaker C: And Liz, digital goods on Discord have also been something that has been the core of the business model for a while.

Speaker B: Well I wouldn't say that it's the, I think we think of um, our business model is really related right now to Nitro, which is a premium service and that is around premium expression versus digital goods. And so I can express myself with premium uh, stickers and emojis. I can um, stream in HD when um, I want to play games with my friends and um, I can do some customization and really um, create a more premium experience. But I don't think we think of our business model is really around digital goods but more around kind of what I would call premium expression or um, higher performance in the platform itself. I think similar to what Nick said, we provide a platform for customers to um, have conversations and talk about the things that are important to them or things they care about. Certainly there's folks on Discord that are talking about um, NFTs and digital goods but we really look at ourselves more as um, creating spaces where people can connect around things that are important to them versus uh, taking a position on any one of those things.

Speaker C: Okay, I guess you're hearing your investor talking about the fact that it feels like much ado about nothing for a long time when it comes to the gaming space. Because when we think of how our investments related to the gaming world have monetized themselves, monetized as platforms over time we've seen it as digital goods. So whether it's a subscription, uh, or whether it's individual assets that are being bought uh, or sold, we've viewed it as a digital good. So it's always had a great deal of logic to us when it comes to the gaming environment. But you've seen Index do very few related digital goods or um, NFT related investments in any other area as a result of that. Sorry, just had to add my 2 cents on this. Um, another area that I think is pretty important to talk about, which is controversial in social networks today, revolves around censorship and managing trust and safety. Ah, for your users, um, both of these platforms, I know you take it very seriously. As you scale, this is increasingly a problem. Um, how do you think about creating guardrails in your communities to ensure the safety of your users?

Speaker B: Could you talk about that for us? Um, we really think about, um, how do we create tools for the admins and moderators that are running, uh, servers and communities on Discord today? Um, it's a combination of providing we have both proactive and reactive tools. Um, we continue to invest in reporting tools, and then, um, our safety team will take action on those. About 15% of our employees are actually dedicated to safety. Um, we also look at how do we, uh, continue to, uh, invest in technology to automate some of that. Um, and it's just an ongoing investment for us to create both, like I said, proactive and reactive, uh, moderation tools and, um, programs.

Speaker C: Liz, I remember that another reason why you leaned in to Discord was that you like the fact that the team was actually taking a stance, um, and wasn't just a platform for freedom of expression, irrespective of what you wanted to say. And obviously that is part of the reason why I think that Discord has been so attractive. But it also implies that there are many, many, uh, challenges to ensure that the environment is kept to those high standards as you scale.

Speaker B: I mean, we want our platform to be a safe and trusted place for our users. And so we need to continue to invest in making that the case. Whether that's, um, related to spam or content or behaviors on the platform. We have to continue to invest to make Discord the safe platform that it needs to be, um, to be a great place for people to find belonging and to build communities.

Speaker C: Yeah. Nick, your thoughts on this?

Speaker A: I would echo a lot of the same points. I think the way we talk about it at Rec Room is, from the beginning, our goal has been to build a fun and welcoming community for people from all walks of life. And the best way that we feel like we can do that is trying to set the tone early. And often we think these communities are like crystals and, you know, they'll grow out of the formation that's there before it. And so if you, um, don't get it right from the beginning, it's very hard to correct. And, um, anything you do early will pay dividends for you in the future. So the way that we've thought about Rec Room, um, has been from the very beginning, it's not an open platform for anyone to say or do anything. It's really Focusing on that fun and welcoming tone that we want to strike and the way that you continue to enforce that is through continued investment. You'll never be done with trust and safety work. Whenever you've solved one problem, another one has emerged. And I think just over time you need to keep holding that investment, um, as a really important part of making sure that the business lives up to the social mission that you have around um, trust and safety.

Speaker C: Last question, we're coming up on time. Thank you very much. Um, and Nick, you sort of started to answer this one, but I might ask you for one more prediction. You talked about perhaps digital goods, um, actually outperforming uh, physical goods in terms of spend over time. I'm fascinated to see how that develops and I'd love to hear one uh, prediction from um, both of you on how you envision the gaming industry uh, to develop over future years.

Speaker A: I'm going to continue to bet on the gaming continuing to eat the consumer web. I think the way that generations in the past explored the Internet was largely through the browser or something like AOL Instant Messenger. That was how I explored it. Come home from school and that was the place that I went. And I think for this generation you're going to see more and more people exploring the Internet, meeting new people, exploring their own personalities, exploring how they connect to the rest of society not through a browser but through um, games, through gaming experiences. And I think you'll see continued shopping, dating, uh, events, music, sports. I think you're going to see more and more of that pulled into the gaming world. And what gaming means is just going to continue to expand. So that's my prediction. Over the next 10 years everyone's going to be a gamer and the amount of time that we spend gaming will continue to expand as well.

Speaker C: Liz, how about from your end?

Speaker B: Similarly I think that with every um, platform shift, and I think we are seeing a platform shift to um, online communities and to these richer interactions. It's essentially a new gaming platform. So there'll be a whole host of new types of social games um, that are well suited to folks uh, gathering online. And so I think you're going to see uh, and I think we're going to see more what I would call high fidelity games transition to mobile. And that um, you don't have as big of a divide between mobile games and PC and console games that we see these sort of richer, higher fidelity experiences come to mobile. And then we also see these new uh, social games uh, that really facilitate interaction um, for folks when they collect together online.

Speaker C: Well, at Index, we've always been interested in investing in gaming and uh, entrepreneurs who are creating game related companies, if you will. Um, because we view this segment as sort of the pioneering segment for things that become pervasive and uh, standard for many communities beyond the original adopters of it. And certainly if we look at rec room and discord, it feels like this is what's happening right now. So, looking forward to catching up with you in a few years time. And thank you very much for, for doing this, uh, this chat with us.

Speaker A: Thank you.

Speaker B: Thanks so much for having us. Thanks for listening to the Index Ventures Gaming Summit. Subscribe to Index Audio to hear more.

Speaker A: Bye for now.