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Hi friends,

Greetings from Utrecht!

I want to try out a new format for the newsletter where new essays are included in the body of the text. I figure this will make it easier for you to parse the text and decide if it’s useful to you, without having to click through to the website first. Let me know if you think this is an improvement!

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Today at a glance:

• New essay: how to use the Product/Distribution mental model to make sense of the games industry.
• The practical barriers to web3/DAO, as exemplified by ConstitutionDAO
• Mark Cerny dives into the PS5’s hardware
• Jason Schreier on the crypto craze

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​Mental Model: Product/Distribution​

Running a business is hard. In order to understand what’s going on and make effective decisions, you have to be able to wear many different hats, and take into account many different perspectives and types of information. Mental models can help to cut through the clutter and get to the heart of an issue.

Mental models are simplified models of reality that highlight specific aspects of that reality, and the relationships between them. Being deliberate in your use of mental models can be tremendously helpful in making sense of the world, explaining concepts and making decisions.

Famed investor Charlie Munger has popularized the use of multidisciplinary mental models as frameworks for making business and strategy decisions. He advocates building a latticework of mental models, a repertoire of ways to think about different situations.

There are many such models, and a lot of them can be used to understand (parts of) the videogames industry. One of the most important ones, in my opinion, is the Product/Distribution mental model.

Product/Distribution

I first came across this mental model in Visakan Veerasamy’s twitter threads. Visa posits that product and distribution are two parts of the same problem. Namely, the problem of how to be successful as a business. If your business fails, either your product wasn’t good enough, or you didn’t distribute it well enough.

Let’s look at each part separately for a moment:

Product is whatever you’re selling. It can be a game, it can be hardware, it can be a service. It’s what you make or what you do.

Distribution here is the delivery mechanism, the way your product reaches its intended audience. You could also call this marketing, sales, customer acquisition, PR; or really any of the other activities that support and promote your product.

Every business needs to find their own balance between these two domains.

This model is especially important for the games industry because of the high amount of creators we employ. I think we tend to see product as the more inherently valuable of the two. Making something, creating something, perhaps even creating art, is why many people get into the games industry in the first place.

From this perspective, distribution is just what’s necessary to get the product into the hands of an audience. Game companies that favor the distribution side of the equation optimize their games for metrics like DAU, MAU, RR, CR and other rates that determine how well a game is doing. These games are often built to take advantage of distribution mechanics to optimize revenue. Sometimes even explicitly so at the expense of their users. Companies at this end of the scale are often seen as sellouts, and stand in stark contrast to the artists on the other extreme of the spectrum.

And yet…

Average games with superior distribution tend to do at least as well as superior games with average distribution, if not better. For a quick example, simply compare the sales figures of your favorite indie game from 2020 to the 31 million people that bought FIFA 21 on PC alone.

The bottom line? Distribution matters at least as much as product.

How to use this model

Here are three things you can do to put this mental model to good use:

1. Understanding the market
   Applying this framework will help you understand why some games and game companies succeed, and others fail. Really, deeply understanding this will give you a leg up when working on your own business.
2. Pay attention to your distribution
   Think about all the time and effort you’re putting towards your product. Now, think about all the things that go into the distribution of your product. Think about things like marketing, PR, community building, customer acquisition, sales. Are you putting anywhere near as much time and effort towards getting these things right as you are with your product? Chances are, not even close. Of course, the advice here is not to redistribute your efforts until there’s a 50/50 split between product and distribution. The point is to invest enough time and resources into distribution to get it right, just like you would for your product.
3. Show your work
   This tip is based on Austin Kleon’s book by the same name. Show your work, even if it’s just WIP. Share it early, and share it often. In doing so, you start putting out signals that will allow people to find and follow you. Doing this means giving yourself a head start on your distribution.

Photo by CHUTTERSNAP on Unsplash​

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The Best Bits

​The aftermath of ConstitutionDAO: I’ve been following this one from the sidelines. ConstitutionDAO was an effort to crowdsource enough money to buy an OG copy of the US constitution at auction–and they almost won! It’s an incredible case study for what DAOs can accomplish, but also where their pitfalls lie.

​How PlayStation 5 was built: This video is a fascinating look into how the PS5 was designed and built. A bit technical, but well worth your time if you’re into that sort of thing.

​Blockchain buzz kill: I really liked this piece by Jason Schreier on the shortsightedness of current crypto projects in games. Personally, I think one of the few areas where blockchain could potentially add value for users is in the resale of digital games. Of course, none of the powers that be have anything to gain from this, so it’s very unlikely we’ll see this any time soon.

See you in two weeks!

Martijn