Investors are betting on user-generated content. Gamebeast's founder explains why | Equity Podcast

GameBeast and the Rise of UGC

• GameBeast is a startup that offers tools like A/B testing and live Ops to Roblox developers, allowing them to modify games without releasing a new version or interrupting a user's ongoing game, a standard practice in the gaming industry that was missing from Roblox (30s).
• GameBeast recently raised $3.7 million in a pre-seed round led by J2 Ventures, with participation from a16z and others, and is working with around 40 developers, as well as being in talks with the US military about a no-code platform (52s).
• Xander, the founder of GameBeast, has been on the Roblox platform for over 10 years, creating top games that have been played around half a billion times globally, and has also written a best-selling book series called "Coding Roblox Games Made Easy" (1m24s).
• Xander's background includes consulting for Hollywood studios and publishers, such as NBC Universal, Netflix, and Paramount, to bring their IP to the Roblox platform and the UGC space (1m50s).

The Growth of UGC Platforms

• The UGC (user-generated content) space is a growing trend, with double-digit year-over-year growth in the US, and platforms like Roblox and Unreal Engine for Fortnite have hundreds of millions of monthly active users and creators taking home hundreds of millions of dollars annually (2m40s).
• The growth of UGC platforms is significant, with Roblox having over 350 million monthly active users and 80 million daily active users, and Unreal Engine for Fortnite having over 100 million monthly active users (2m48s).
• Creators on both platforms are taking home hundreds of millions of dollars annually, and the trend towards UGC gaming is continuing, with 70% of kids in the US aged 16 and under asking for virtual currency for these types of platforms during the last holiday season (3m5s).

The Democratization of Game Development

• The creative pillar in Fortnite is growing in popularity, allowing users to produce content they want to play, which is a natural progression for gamers who want to create their own games (3m42s).
• Historically, the barrier to entry for making games was high due to the need to learn programming languages and game engines, but platforms like Roblox have made it easier for people to create content from a young age (4m26s).
• Many developers, including the founder of Gamebeast, started creating games at a young age and turned their passion into a profitable hobby or career (4m46s).

Investment and Decentralization in Gaming

• The gaming industry is experiencing a decentralization of game creation, where users can create their own content without relying on legacy companies, similar to the trend seen in other online spaces (5m12s).
• Despite a decline in VC funding, investment in content development startups in the video game space is increasing, with 2024 expected to see around $5.5 billion in gaming investments (5m48s).

The Impact of Generative AI

• The rise of generative AI is expected to change the developer space, making it easier for people to create content and accelerating timelines for developers, with companies like Roblox investing in AI tech to enable users to create 3D models and game worlds with text inputs (6m12s).
• There is concern in creative communities about AI being trained on data sourced from artists and the potential for AI to replace human artists. However, integrating AI models into workflows can make tasks easier for developers, such as enabling 3D modelers to quickly fix topography and ensure game functionality. (7m2s)
• Generative AI provides tools that lower the barrier to entry and democratize development, allowing more people to produce content quickly. However, there is a philosophical concern about whether this will lead to a future where humans are not needed for game development, and whether young people will still learn essential skills like coding. (8m0s)
• People around a certain age may not fully accept pure AI content creation unless the technology becomes indistinguishable in quality from human-created content, which is not expected in the near future. (8m37s)

Concerns and Implications of AI in Game Development

• The rapid progress in AI, particularly in language models like ChatGPT, has been impressive, with significant advancements in text, image, and video generation. This progress raises concerns about young people potentially not learning programming skills if they rely too heavily on AI tools. (9m38s)
• The increasing use of AI tools in daily tasks can lead to a dependency on technology rather than personal knowledge, raising concerns about the role of AI in education and personal accountability. (10m28s)

AI's Effect on Different Developers

• There is a discussion about how AI might impact developers of user-generated content differently compared to major companies like Unity and Unreal Engine, with a focus on whether these big players will integrate generative AI into their workflows. (11m22s)
• AI and machine learning are already being utilized in projects like Unreal Engine's Metahumans, which enhances technical capabilities that might not be feasible otherwise. (11m38s)
• User-generated content platforms are likely to be more affected by AI because they lower the barrier to entry for developers, making them reliant on discovery algorithms and recommendation engines for organic growth. (12m5s)
• Small developers on user-generated content platforms face challenges in focusing on creating desired content due to the pressure of chasing algorithms for popularity, a situation that also affects large studios. (12m38s)
• The competition with AI-generated content on user-generated content platforms could make it more difficult for small developers, as AI can produce a large volume of content by iterating based on various signals. (13m4s)

Industry Predictions and Investor Perspectives on AI

• A survey by Bandon Company indicates that video game industry executives believe generative AI will manage more than half of game development within 5 to 10 years, up from less than 5% today. (13m48s)
• Investors are optimistic about AI and the growth of user-generated content (UGC), considering how companies plan to utilize these technologies during due diligence processes. (14m44s)

Data-Driven Development and Analytics

• There is a focus on democratizing resources for discoverability and success, with an emphasis on data and analytics, especially on platforms like Roblox. (15m1s)
• Automated insights are being developed to help creators understand and act on data, providing actionable feedback from community interactions and analytics. (15m47s)
• This data-driven approach is gaining traction among developers, helping them move beyond intuition to make informed decisions, which is particularly beneficial in regions with fewer resources or experience. (16m33s)

Dual-Use Applications and Military Simulations

• The lead investor, J2, is a dual-use venture capital firm that focuses on investments with both commercial and defense applications. The co-founder has experience in dual-use applications, and there is a personal connection to the military through a family background. (17m20s)
• There is an opportunity in the defense sector to apply detailed analytics and insights from gaming to military simulations, particularly in wargaming, where the Department of Defense is investing to improve accuracy. This is important due to changing global situations and the need for better understanding of potential outcomes. (17m49s)
• The focus is on understanding interactions at the individual level in simulations, similar to multiplayer gaming, to enhance cooperation and outcomes in military scenarios. (18m31s)

Accelerator Program and Mentorship

• The a16z Speedrun accelerator provided significant support, allowing the team to develop their product from a basic proof of concept. The program included mentorship from industry leaders like Mark Pincus, founder of Zynga, and executive producers from major games. (19m15s)

UGC and the Gaming Landscape

• User-generated content (UGC) is a significant focus in the gaming industry, with platforms like Roblox and others developing community-driven content and modular games that emphasize social interaction and connectivity. (20m50s)
• A substantial portion of companies in the discussed cohort are focused on generative AI, with applications ranging from content production to workflow improvements. (21m25s)
• The gaming content market is diverse, covering various domains such as anime and cozy games, with a mix of content creation and technology development. (21m45s)
• The current market conditions favor acquisitions as the primary exit strategy for startups in the UGC and gaming space, with notable acquisitions occurring on platforms like Roblox. (22m26s)
• Gamebeast, a company operating in the UGC space, believes in the growth and proliferation of UGC, positioning itself to support existing and emerging platforms as the gaming industry continues to evolve. (22m51s)

The Future of UGC and Market Trends

• The gaming market is expected to see a significant shift towards user-generated content (UGC), with predictions that UGC could account for around half of the market share in the next 5 to 10 years. This trend is already evident among younger demographics, with platforms like Roblox engaging half of U.S. children aged 16 and younger daily. (23m53s)
• The appeal of UGC in gaming is compared to the rise of short-form content in video platforms, drawing parallels between Roblox for gaming and TikTok for video. The ease of accessing games without downloads and the algorithm-driven content are highlighted as key factors. (24m36s)
• Social engagement and interaction are seen as fundamental drivers of the shift towards UGC in gaming, reflecting a deeper human desire for connection and collaborative play. This is expected to be a natural evolution in the gaming industry. (25m1s)

The Potential of VR and AR in Gaming

• The potential growth of virtual reality (VR) and augmented reality (AR) in gaming is discussed, with a focus on the importance of creating compelling experiences to drive user adoption. The release of the Meta Quest Pro and its integration with Roblox led to significant user growth, demonstrating the potential for VR to connect users to a larger ecosystem of content and social interaction. (25m56s)
• The future of VR and AR gaming is seen as promising, with an emphasis on socially driven content and the potential for growth in the near future. (26m33s)

Show Credits and Acknowledgements

• Listeners can find Rebecca on Twitter at SLX Rebecca Balon and also on threads at Rebecca bonor wrs (27m10s).
• The show, Equity, can be found on X and threads at Equity po (27m14s).
• The production team for Friday Equity includes Teresa Lo as the producer, with editing by Kell Bryce, and Durban as the illustrator (27m22s).
• The team would like to thank their audience development team and Henry pet, who manages TechCrunch audio products, for their support (27m29s).
• The show is appreciative of their listeners and looks forward to the next episode (27m35s).