The Economic RTS of Gaming Evolution

Pam read my previous post about games, and asked me:

if at all, did technological advances or breakthroughs have an impact on the games that could be created? What was the lead time on that or was it the other way around or 0 correlation?

My answer may seem like a cop-out, but I genuinely believe this: I think the pendulum swings. Technical breakthroughs allow for new capabilities that engender new mechanics. In turn, as new capabilities turn familiar, the imagination of the adjacent possible sharpens and sparks creation along that frontier.

Dialectic, not determinism

The title of First Videogame Ever! is often given to Tennis for Two in 1958, which used an oscilloscope to display the path of the ball and was controlled via knobs. (There are other contenders such as Bertie the Brain, but this was the first entertainment-first development iiuc) You can play a simulation of it here! It was, however, confined to its home at Brookhaven National Library and shown only as part of public fairs. It was Spacewar!, years later in 1962, that promulgated outside of a single research institute. Spearheaded by a group of Harvard & MIT-affiliated folks, it was “open sourced” and rippled out beyond MIT as the community shared, edited, and added.

Here was this display that could do all sorts of good things! So we started talking about it, figuring what would be interesting displays. We decided that probably you could make a two-dimensional maneuvering sort of thing, and decided that naturally the obvious thing to do was spaceships.

• Steve Russell (”Slug”), the main guy behind Spacewar!

Design decisions emerged as a bilateral conversation between constraints and observations about player behavior:

• Compute constraints led to multiplayer. The computer did not have any resources to pilot the second spacecraft, so the game had to be multiplayer by default
• User experience led to star field backgrounds - and then user preference took it one step further. The star field background was initially added as the blank backdrop made it difficult to tell the motion of the spaceships. This was replaced by Expensive Planetarium, a program generating realistic stars because the randomly generated field’s inaccuracy annoyed Peter Samson
• User behavior led to gamepads. These joystick controllers were created when players developed sore elbows from hunching over the computer

Technological change by itself does not a regime change make.

Expansion versus Redistribution

I sort technological shifts into two kinds:

• Platform Shifts: Paradigmatic changes that restructure economic fundamentals, creating entirely new markets, participant pools, and consumption modalities. This requires stepwise changes in cost of consumption (cost of accessing games) and in addressable units of consumption (players and playing time).
• Application Shifts: Evolutionary rather than revolutionary changes that redistribute market share within an existing ecosystem, growing at a function of inflation rather than substantive new productivity gains.

(Note: this is separate from the usual parlance of platforms and applications in the tech world)

Platform Shift 1: Bringing it home

Let’s say the cradle of our procrastination engines lies with analog arcades. Arcades emerged from carnival games, with coin-operated machines such as fortune tellers and strength testers. This became the penny arcades of the early 1900s, then birthed pinball machines (30s-40s) and electro-mechanical games (40s-70s), such as Drive Mobile, which used a steering wheel to control a model car.

The video game version of this arrived on the scene when Nolan Bushnell and Ted Dabney developed Computer Space, basically a coin-operated Spacewar! in 1971. This kickstarted the golden age of arcades in the late 70s and early 80s, and revenues peaked at $7B+ in 1982. For context, music was $4B at that time, and film was $3B.

But the critical technological inflection point was created by the economies of scale that made microprocessor manufacturing cheap enough for home computing. Between 1977 and 1985, home computing grew 80x from 250k units to 20M, and has only continued to grow since. PC games began selling in the hundreds of thousands.

This transition from public gaming spaces to private consumption fundamentally restructured both economic and temporal aspects of gaming. The platform shift changed where games could be played, and when, ushering a new set of gaming industry participants who were not consuming or producing before.

Platform Shift 2: In the palm of your hand

Portable, handheld gaming platforms - from the Game & Watch (1980) through Game Boy (1989) to Tetris on the Hagenuk MT-2000 (1994) - is the next inflection point that reconfigured the gaming economy. I’d argue that mobile is the real shift; the Nintendo Game Boy achieved lifetime sales of about 120M globally, while mobile gamers now number in the billions.

With this platform, games can now slot themselves into the idle gaps while waiting in line, taking the bus, or just winding down in bed. The activation energy required from extended sit-down sessions was now dramatically reduced, letting in a new cohort of people who had not previously considered themselves gamers. This also expanded geographically, as smartphones became cost effective enough for emerging market consumers to access compute.

Newzoo’s 2023 Global Gamer Study estimated that ~35% of all video game players only played on mobile. This is in contrast to 8% PC Master Racers and 9% Console Cultists. Only 15% of gamers played across all 3 platforms; 44% played on at least one platform. This suggests that platform expansion did indeed create new gaming converts who did not participate before.

Platform Shift 2.5: Watch me

Cheating with a decimal point here because this economy is not exactly gaming (are cooking videos part of the F&B industry?) but it is important to mention: esports. According to Newzoo (2019) and KOCCA (2020) 20-30% of esports fans do not play the games they watch. That’s a substantial slice of the 300M+ esports enthusiasts who only engage via this particular brand of voyeurism. This mirrors the sports ecosystem (if you didn’t already guess from the sector name) which also feature a significantly asymmetric player:viewer distribution.

Platform Shift 3: ?Fog of war?

The ways to drive new economic expansion are therefore:

• Adding more players: Capture more humans who pay or engage with the market. Apart from emerging markets, I believe growth from this driver is saturating and thereby plateauing. Gaming penetration has reached 3B+ players globally, or about 40% of human beans. Emerging economies is the primary growth vector left, and that’s a long game (hah). Perhaps there is an avenue here by bringing esports to a broader public, but I suspect it remains correlated to active gamers rather than an independent function. And either way, it is still subject to the physics of human attention…
• which is …Taking up more time: Capture more of the finite 24 hours a day. I think this is also asymptotic; the fentanyls of social media and other entertainment platforms have already absorbed most, if not all, possible leisure time. Expansion here as a gaming company is a pure zero sum game at this point, either by displacing another game or by eating into other entertainment modalities such as video.

I suspect that the Gen AI-enabled proliferation of new games will mirror the great game crash of the early 80s. By 1982, the market was flooded with consoles and - with no quality control - shitty games. Retailers were left with unsellable inventory and shrank their videogame orders. North American video game revenues fell from $3B+ in 1983 to $100M by 1985; global video games went from $42B in 1982 to $14B by 1985.

But that dip was temporary. Nintendo responded with their deal of quality control, and eventually digital distribution changed the economics of sales and erased the need for capital at risk in inventory. In a similar vein, I think as cost of development falls, it will be the gatekeepers of quality directing attention traffic that will emerge victorious. This is why I think the bottleneck in gaming is in distribution and discovery, not production. Yet even then, it still is moving numbers from one pocket to another, rather than net expansion.

There is one angle left, which is the biggest unknown for me:

• Adding more time: As technological advances across AI, robotics, energy et al becomes ubiquitous, the productivity per headcount - and per hour - is going to leapfrog. There is a non zero probability that human employment changes dramatically, and leisure time as a proportion of our day increases significantly. This technically then expands the amount of time available, thereby deepening the market.

But there’s a Jevons paradox possibility here as well. The introduction of machinery and factory systems during the Industrial Revolutions shrank the time needed to make a dress shirt from 14 hours to just over 60 minutes; but this did not immediately translate to reduced working hours because demand was elastic and simply sopped up the new, cheaper supply. It took years to contract to modern levels of 40 hour workweeks. Distribution of access to AI will be highly skewed and very few people will reach the level of abundance imagined in this optimistic scenario, at least in the short term. Just like how we already produce more food than we can consume - it is distribution that is creating starvation - I think it will be difficult to break out of human greed to allow for an equitable allocation of access.

The Cucco or the egg

The question of primacy between technology and usage thereby dissolves into recognition of their fundamental interdependence. The more important question is whether an economic or technological change drives a platform, or an application, shift. I’m more interested in the former - the new capabilities that lay the bricks for humanity to walk towards new production possibility frontiers.