This interview breaks down how the gaming industry makes money today. Veteran investor Mitch Lasky explains that games have shifted from selling $60 discs to free-to-play with in-game purchases, where success depends on keeping players engaged and paying. He favors 'forever games' like League of Legends (over $1 billion yearly revenue) and Steam (which evolved from a Half-Life updater into the biggest PC game store). He also warns that Meta's Oculus VR headset, despite $10+ billion in investment, has only sold about 14-15 million units and is essentially a failure.
Benchmark partner Mitch Lasky, in an episode of Invest Like the Best, delved into the investment logic of the gaming industry. His core argument: the modern gaming business model has shifted from one-time sales to a "games-as-a-service" model based on the long-term operation of active users, with ke
Mitch Lasky (Partner at Benchmark, 30-year veteran in the gaming industry) engages in an in-depth discussion with Patrick O'Shaughnessy on the investment logic of the gaming sector. The core thesis: gaming business models have fully transitioned from "one-time disc sales" to "games-as-a-service" (free-to-play + virtual item microtransactions), with key metrics being user retention and paid conversion. Lasky argues that the most overlooked dimension in gaming investment is "whether the most frequent action a player performs in the game is enjoyable" — this is the core aesthetic judgment for determining a game's success, not a purely quantitative metric.
Lasky believes the historical reason is that gaming was once viewed as a "fleeting entertainment business."
Key data point: Lasky notes that the current period is "the best time for gaming companies to raise venture capital."
Lasky argues that modern gaming is essentially a "customer acquisition cost vs. customer lifetime value" business, but its monetization model is more diversified than subscriptions.
| Old Model (Disc Era) | New Model (Free-to-Play + In-App Purchases) |
|---|---|
| All users pay the same $60 | Free to download, pay elastically based on usage depth |
| Heavy users (1,000 hours) and light users (10 hours) pay the same | Heavy users ("whales") pay thousands of dollars; light users may pay nothing |
| High marginal costs (disc pressing, packaging, logistics) | Marginal costs approach zero |
Historical Milestones:
Lasky introduces the concept of "platform publishers": Traditional publishers controlled the distribution end (disc pressing → retail placement → advertising), while modern platforms (Steam, Epic Games Store, Tencent) shift the power structure by aggregating demand.
Lasky emphasizes that the 6–12 months after a game's launch constitute a "monetization experimentation period," during which the team must figure out which in-app purchase hooks are effective.
Lasky believes that mobile (accounting for 50-55% of global gaming revenue) has accelerated the adoption of free-to-play, but has also fostered a dangerous user acquisition model.
Lasky notes that Apple’s IDFA restrictions have had a "catastrophic" impact on mobile gaming companies reliant on Facebook advertising.
Lasky is an "early VR skeptic" and believes Meta’s Oculus project, which cost over $10 billion, is "fundamentally a failure."
Lasky argues that YouTube and Twitch are "the most important non-game drivers of the gaming industry."
Signs of a healthy community:
1. Users' sense of "ownership" over the game (e.g., user-generated content — Minecraft, Roblox)
2. Openness to new members (avoiding the exclusionary "first-comers pull up the ladder" phenomenon)
3. Community-driven organic growth, rather than paid user acquisition
Lasky holds a "cautiously optimistic" view on Web3 games, drawing a parallel to his earlier skepticism of VR.
Lasky cites Blake Robbins' framework: Traditional games operate on a "developer-user" binary relationship. Introducing Web3 adds "speculators" as a third body, rendering the system unstable.
Lasky argues that Web3 games must find player motivations beyond "price appreciation → user acquisition":
Lasky revealed that he has a framework for evaluating "evergreen games," but did not fully disclose it. The portion he shared includes:
1. Durable and replayable gameplay patterns — e.g., chess (14th century), poker (150 years), FPS/MMO (originating from DikuMUD in the early 1990s)
2. Active community — user-generated content (in-game, such as Roblox; out-of-game, such as Twitch/YouTube)
3. Openness to new members
4. (Not disclosed)
5. (Not disclosed)
Key insight: The consumption patterns of the gaming industry distort our understanding of game longevity — "Fun design patterns are extremely durable; stripping away companies and IP, the gameplay itself changes very little."
Lasky argues that the "metaverse" concept is more of a "boy's fantasy," with a vast gap from reality.
| Position | Analyst View | Key Data |
|---|---|---|
| Riot Games (League of Legends) | Bullish (early investor) | Annual revenue over $1B, sustained for a decade; accounted for 50% of Twitch's live content in early days |
| Valve (Steam) | Bullish | Steam once held a double-digit percentage share of industry revenue; evolved from a Half-Life updater into the largest PC distribution platform |
| Epic Games (Fortnite) | Neutral to positive | Mentioned Tim Sweeney's skepticism on interoperability |
| That Game Company (Sky) | Bullish (portfolio company) | Ranked fourth in revenue in China at one point; annual revenue in the hundreds of millions of dollars, nine-figure EBITDA |
| Discord | Bullish (early investor) | Transitioned from a gaming voice tool to a community platform |
| Snap | Bullish (Benchmark investment) | Excellent AR filter experience |
| Niantic (Pokémon GO) | Neutral to positive | Phenomenal success in summer 2016, but subsequent products failed to replicate it |
| CCP Games (EVE Online) | Bullish (as a case study) | Free economy + layered security zone design |
| Meta (Oculus) | Risk warning | Invested over $10B, with only 14-15 million units sold |
| Microsoft (Xbox Game Pass) | Bullish | Praised Phil Spencer for "virtualizing" Xbox as a platform rather than hardware |
| Tencent | Bullish (as a case) | Largest game publisher globally (by revenue); aggregates 1 billion users via QQ/WeChat |
| Nexon (Cart Rider) | Bullish (historical milestone) | First successful case of a fully free-to-play model with in-game purchases |
1. "Focus on whether the player's most frequently executed action is enjoyable" (Lasky) — This is the core aesthetic judgment for determining a game's success, not a purely quantitative metric. The problem with most failed products lies in "a mismatch between high-frequency actions and enjoyment."
2. "The shift from a uniform $60 price to elastic pricing is the fundamental transformation of the modern gaming business model" (Lasky) — In the disc era, heavy and light players paid the same, whereas the free-to-play plus in-app purchase model allows heavy players ("whales") to spend thousands of dollars while light players pay nothing.
3. "Web3 games face a 'three-body problem': the relationship among developers, users, and speculators is inherently unstable" (Lasky, citing Blake Robbins) — Most current projects prioritize speculators over players, requiring mechanisms that make speculators "more like players" (e.g., the guild leader role in EVE Online).
4. "Apple's privacy policy changes have caused mobile game installs to drop by 10-35%, forcing the industry to seek non-paid user acquisition methods" (Lasky) — Positive in the long term, but "catastrophic" in the short term for companies reliant on Facebook advertising.
5. "The VR investment boom coincides with the publication of three novels, essentially being a 'boy's fantasy'" (Lasky) — Meta's Oculus project, with over $10 billion invested, is "basically a failure," with only 14-15 million units sold and 120 apps generating over $1 million in revenue — "a failure, not a success."
6. "Fun design patterns are extremely enduring — chess dates to the 14th century, poker to 150 years ago, and FPS/MMO genres trace back to DikuMUD from the early 1990s" (Lasky) — Stripping away companies and IP, core gameplay changes very little; this is the foundation of "eternal games."
7. "The core path for platform publishers: aggregate seed users with one blockbuster content" (Lasky) — Steam originated from Half-Life, Tencent layered games on top of 1 billion QQ/WeChat users, and Disney+ used Star Wars/Marvel to attract new users — "content-driven aggregation" is the natural paradigm.
8. "The 6-12 months after a game's launch are a monetization experimentation period; the most successful strategy is 'design first, quantification second'" (Lasky) — League of Legends unexpectedly discovered early on that experience boost potions became the most popular paid item because they did not undermine fairness.