John Osvald interview: How Gala Games fuels blockchain game hits with fewer players – VentureBeat

Gala Games has been greenlighting bigger and bigger blockchain games with increasingly interesting game developers.

Gala Games has built a platform that combines play-to-earn mechanics and non-fungible tokens (NFTs) with game developers who know how to make fun games. The company is working with developers like Will Wright and Peter Molyneux and popular entertainment brands like The Walking Dead. While games embrace the new technology of NFTs, which authenticate unique digital items, and the model of play-to-earn, where players can own and resell their items, the focus is on creating games that make gamers happy, said John Osvald, president of games at Gala Games, in an interview at the recent Game Developers Conference.

It’s a growing empire, but built on a relatively small base of 1.3 million active players. Gala Games raises funds for its developers and its own purposes through selling NFTs that are used in the games. It pays for its blockchain processing costs — the computing nodes that verify things like the NFT ownership — by giving tokens to those who run the nodes.

Gala Games built its blockchain ecosystem on the Gala Games token (GALA), which was created on the ERC-20 standard for the Ethereum blockchain, and it also works with the Binance Smart Chain. Through the token, players can invest in their game assets, like Spider Tanks, and own them. They can resell them as well. Their tokens also give them the right to vote on the future direction of the game’s development.

That keeps the players more engaged, and it has resulted in a tight community that is far more willing to pour money into games than free-to-play players (98% of those usually don’t pay anything at all), said Osvald. Gala Games has begun investing hundreds of millions of dollars into games that will debut on its platform.

Here’s an edited transcript of our interview.

GamesBeat: Tell me about Gala Games.

John Osvald: [Founder] Eric Schiermeyer and I worked a lot together in the past at Zynga. The startup I did right before this I did with Eric. It was a messenger for mobile gaming companies. Even as long as we’d been in free-to-play, I don’t think we spent as much time with the whale community around free-to-play games as we did with this company. We got to know that group intimately. It struck up this idea that–free-to-play is the biggest segment in games. It makes the most money. There’s something about it, outside of microtransactions, that does that.

What I saw was, these folks that are spending $20,000, $50,000 a year in a game, they’re absolutely getting entertainment value out of it. They like how there’s this real-world money tie-in to it, but they also love the consistency of play being an important thing, outside of just skill. It’s something they can constantly–actually checking in on it all the time is necessary to advancement. And then the social aspect really pulls it in. I was surprised to find that among the whale communities, that’s their actual real-life social group. They know each other intimately. They travel to spend time with each other. They talk to each other all the time. That’s their real-life social network. That’s what holds them in to keep pouring money into the game.

GamesBeat: The players are active?

Osvald: Something like two-tenths of a percent of the players in mobile are driving half the revenue. It really is relying on them to drive the entire industry. That provides the profits for every developer, every publisher, for the platforms. It’s the only version of trickle-down economics that’s ever worked. They’re paying for everyone else who plays for free.

The basic idea was, if we could create games that satisfied all those needs, but figured out a way where you could actually let them be part of it, part of the economy–if they’re creating this game community that provides the development of the game, provides the profits for the developer, creates a huge community of players, why can’t they actually get paid for that too? And if they hate what the developer does, which they all eventually do, they have a path out. Without knowing how exactly we would do that – at least without creating a Diablo auction house situation – that was the core idea. We would tie together aligned objectives between the players, the game developers, and Gala as a platform. That’s where it all started.

Every developer deal we do, we usually do our deals–I think the quickest one was three days. We found a game that wanted to launch on Steam on Tuesday. I spoke to them on Thursday. We signed the deal on Sunday. We don’t typically change our terms. We pay for development costs. That’s recoupable. They keep their intellectual property. We split the revenue 50-50. What they get from us – and nobody else among our competitors that we’ve ever bumped into does this – we do the complete NFT strategy for and with them. We do go-to-market. We bring their game to our community. It’s guaranteed that it’s going to sell if we say it’s going to be a great game. And we do it in a pre-sale fashion. Every pre-sale we’ve had, we’ve always done it within six months of signing the deal, and we’ve always more than recouped the development budget we agreed upon.

GamesBeat: What’s involved in that pre-sale?

Osvald: We pre-sell the NFTs that are going to be usable in the game, that provide earning and utility in the game. At the point where we understand what the game is going to be, we come up with how NFTs are going to be integrated into that experience, and we publish all that. Then we sell ahead of time.

GamesBeat: But it’s not a token sale, right?

Osvald: No, it’s not a token sale. As far as our Gala coin, the only way that’s been distributed is we have founders’ nodes. The founders’ nodes, every day you run your node for six hours, you get a point in the distribution. Every day we give out 8.5 million Gala. 8.5 divided by points times your points and you get that amount of Gala. Gala is almost like a tremendous Kickstarter, if you think about it. Those nodes were $100 when we started. You’d get a lot of Gala, obviously, because there weren’t that many running. Now they selling for [tens of thousands]. There’s obviously a lot more in the network.

It’s interesting for our business. Our best customers, a lot of them have the means they have because they bought into the ecosystem early. Then they’re supporting it back by buying the NFTs for the games with Gala coins that they create by running the founders’ nodes.

GamesBeat: How did it all get started?

Osvald: I started here in June [2021]. When we first started–we want to be a platform like Steam. Self-service. Everything that I described that we do for developers now, all that would be self-service. Download the SDK, sign the terms, submit your game. The founders’ node network votes on every game that we put on the Gala network. You have documentation now that we’ve figured out exactly how to do NFT strategy, tokenomics, creating an economy. Do it all yourself. Put your items up for pre-sale. What’s popular gets promoted.

When we started, though, there was no reason for any developer to work with us. We had absolutely no traction. We had nothing. We started developing our own games. We started on this path between developer, publisher, and platform. We did two games: Town Star, which is live, a farming simulation, and we started an MMORPG called Mirandus that’s still in development. We’ve done pre-sales for it starting last year. We had two games signed as co-development deals, small-budget games. One of them was Spider Tanks, and the other was Echoes of Empire.

One of the first things we did was we pushed Spider Tanks forward to a pre-sale. In the first two weeks we made back the development budget for that game. Then we did another one, and I think we 5X’d the development budget. Then we applied that to Echoes of Empire. I think we 10X’d the development budget there, and now all of a sudden we had confidence that we had a model that would work. We had a story to tell developers, beyond what I think is just the friendliest business terms ever seen. We had a reason you could believe that this was a viable path to monetizing your game.

We now have, I think, 26 games in development with partners now. I was at Zynga early. Watching the path between FarmVille or Zynga Poker and how long it took–just following free-to-play, going from social to mobile, the time it took to get from FarmVille to Call of Duty Mobile was a long time. That’s all short now for us. We’ve gone from $1 million budgets to $6 million budgets to $10 million budgets to $20 million budgets. Now we’re looking at $75 million, $100 million, a three-year dev cycle, triple-A with teams that have been there.

The game I mentioned earlier that we talked to on Thursday and signed on Sunday, that’s called Grit. It’s a battle royale in the Wild West. We’ll launch that in June. We signed it in February. We’re finding a lot of projects that are further along, and we’re getting better at how we model these economies and strategies so we can do it quicker.

GamesBeat: Some of the people you’re signing are interesting. I saw Peter Molyneux was one of the developers?

Osvald: Yeah, we have a game with Peter Molyneux. It’s called Legacy. We have a whole other side of our business in the collectibles world, the Labs brand. We’ve done generative art drops. We have a series called Vox. We’ve done two drops there, one for Town Star and one for Mirandus. You can put it in Town Star and they earn coins for your daily objectives in the game.

We just announced the Walking Dead Vox. That will have a spot in the Walking Dead game. We have two or three more Vox drops planned for this year. What are they all really going to do, though? All of our NFTs, they have scarcity that gives them value. They have earning that gives them value. Depending on how rare they are, they earn more. They have utility, things they do for you when you play the game. We’re building a metaverse with that. We’re building VoxVerse. That’s what we signed up with Will Wright.

GamesBeat: I’m trying to understand some things about whales and the economy right now. Relating some of it to free-to-play and the reality now. With free-to-play, you had to have that huge user acquisition budget to find the two percent of people who would spend money, the whales. The other 98 percent were like [non-paying gamers] where they contributed to the community but were not powerful. They made the game attractive for those whales to come in.

I remember Dmitri Williams, the professor from USC. He had this theory about “social whales” where he did research. He considered the people who didn’t spend, but who attracted other people who would spend. These were social whales. They were the life of the party at the bar somehow. All these people would spend money around that one person. I thought that was fascinating research.

What’s interesting to me now is that you attract these people in as the first movers. They’re willing to spend money to get in. They’re the whales. You’re getting to the whales first. You don’t have to spend all that user acquisition money to get them, because they come to you through whatever it is, Discord or wherever. You can make these games profitable with these people. If you expose any game to these people, they’ll spend money. Then you don’t have to have to sort through all the [non-paying gamers]. But do you still need those people to make the game interesting for the whales?

Osvald: What we’re learning as we go is that community of spenders that we have–beyond the cost of the NFTs, just to get into the game, there’s a high barrier to entry just getting there. It got easier when Gala got listed on Coinbase and you could buy it there. Previously to that, though, we would have a challenge for new employees where we said, “Go figure out how to set up wallets and buy some Gala. Let’s see if you can do it.” It would take them a day to do it.

But still, getting a new user into the ecosystem–email and password are easy, but we have to introduce you to a wallet. You’d better have a pen and paper. You can’t buy anything with that wallet, really, so then you have to get a Coinbase account. You have to figure out how to get Gala and Ethereum into your wallet to even start. We lose a lot of folks that are curious about this world coming in and just saying, “First of all, I can’t spend $300 on a tank. And I don’t understand how to do it anyway. I’m gone.”

We’ve learned a lot from Axie Infinity. The thing I found interesting getting into that community, what was driving it forward was this idea of managers and scholars. People realized, because of a little nuance, that you could send your NFTs to someone, but they wouldn’t have access to attractive value. Only you would keep that value. Their entire player base is really just there to earn coins and buy groceries or whatever they do. But because they didn’t intend that use case – it just happened – it’s a really toxic environment right now. The managers have the power. The scholars are just begging for a scholarship. They very often don’t get paid. There’s also no way–if you have a scholarship and you’re very good at the game, the opportunities for you to get a better deal from a better manager are pretty scarce. I don’t know where you even go to improve that.

The next step for us in how we bring folks that don’t have the money, but who want to play the game–how do we use that model, but take the toxicity out of it? For Spider Tanks we’re basically taking that concept and putting it into a smart contract. We’re totally empowering the players. You can come to Spider Tanks with nothing, and based on your ELO score you will see what tanks are available from the owners, what the rev share offering is, what your score should be to have access to it, and you can play. If you play and you win, you get paid. You don’t have to wait two weeks to find out if someone is going to pay you.

Additionally, I’m hoping we see the top esports athletes for Spider Tanks come from all over the world. There’s an opportunity there. If you’re good, you will naturally get noticed. You’ll get better and better access to tanks. You’ll make more coins. At that point, you can buy groceries, or you can go buy your own tank. You’re the captain now. That’s the model we built for that.

We want to push that even further with Grit. We believe we can create an economy where the distribution amount of the coin that goes out every day is largely based on how much comes back into the system that way. The ecosystem that we set up for players who want to play a great game that’s fun, it’s kind of like a free-to-play economy. They take that Grit coin and put it back in. Our goal is to have the players that buy the premium NFTs playing for that larger distribution, but then have battle pass users who can pay with their credit card, and they’re in their own little distribution for coins, and they have a possibility to earn NFTs by playing. We also want to have completely free players who have nothing but a Gala wallet in the same 100-person battle royale.

We have a very easy path to entry. If you’re curious, you don’t really have to do anything. You have to put in an email and password. You can play Grit. If you kill a premium character that has a gun? That’s there for you to play with in that match.

GamesBeat: How do you avoid the sort of Ponzi structure, where the early people who join in exploit the people who come later?

Osvald: We launched our own play-to-earn economy in Town Star. We made some mistakes, and you see that in the coin price. We’re applying those learnings going forward. By creating a very tightly designed economy–we’re not creating value from nothing. We’re basing the amount of value we create on the NFTs we’ve sold for the game. It’s not coming from nothing. It comes from battle pass subscriptions and the purchasers of the NFTs in the beginning. That creates the value the coin ultimately has.

What we cannot control, though, and it’s really difficult–if you follow crypto, one thing that is going to move a coin up every time is hype and getting listed on an exchange. We cannot do anything to stop that. Even if we could, it’s against securities regulations for us to try to manipulate the price of the coin at all. That’s where it gets hard. If all of a sudden those coins shoot up in value tremendously – or there’s just speculation, an unhealthy level of profit that’s not sustainable – there’s very little we can do for that transfer.

Ultimately we believe we can create an economy that balances itself over time and comes to an equilibrium. It’s hard to predict the fluctuation. Town Star’s coin went from 20 cents to $2.20 to eight cents, with very little information. It’s highly speculative.

GamesBeat: I remember interviewing a CEO about this. He talked about studying Axie, and he said that they don’t have enough sources and drains in the economy.

Osvald: I call them sinks and faucets, but it’s the same thing.

GamesBeat: If you build those into different parts of the game, you always have money going in and money going out.

Osvald: They made two key mistakes in my mind. They made it so the earning amount that you get through playing any three Axies was a whole amount. We made the same mistake in Town Star, actually. Every time a new player came in, you were adding 150 coins every day per player. The other thing was, the only sink or drain for that entire game was breeding, which necessarily meant you needed another player to come into the game to make that work. That had to end. Once they were out of new players that wanted to play the game, they just had a snowball problem.

Once the drain stopped and the Axies started dropping in value, they started trying to raise the price of breeding. They tried to tax supply. They tried to tax demand. They did staking for no reason. AXS went so high and made breeding so expensive that that was going to break at some point. And that was speculation. It was because AXS got listed on Coinbase and Binance. It went up to 150 bucks. That meant the minimum you’d spend was $300 to breed. As soon as the Axies fell below that? I don’t envy them. But I’m grateful to them and their innovation. We learned a lot from them.

GamesBeat: Can you explain some of the solutions that might work here? What do game designers need to consider?

Osvald: One of the rules that we’ve taken forward is that you cannot have–whatever earning mechanism you set up, it’s very hard to control an economy if you set an expectation or a rule for a whole amount of the coin. Whether that’s “earn this much per day” or “this action earns that much,” it becomes incredibly hard to control that. As you get more players, you get more actions. Your success can lead to your failure unless you have those sinks and faucets. You have to have places to spend that money in the game.

Really, the heart of it is that you have to build a great game that people want to play. The mindset that they have is very much the same as the free-to-play mindset. When you’re paying for it, you’re usually paying to save time. Saving time and consistency of play, or a small pay-to-win advantage. That’s what you’re paying for. If that’s not helping, make it so less gets distributed, so they control each other.

It’s still a content treadmill. Essentially what you do there is say, “The game is making money. Great. We’ll invest that into new features and content for the game.” You’ll always be doing that. You just don’t put yourself in a situation where you can’t do that quick enough. I don’t really want to give advice to others, but there it is.

GamesBeat: Some of that’s important, though, because you don’t want players to have bad experiences with anybody’s game. With Axie, a lot of players are learning that they got in too late. It’s better to have more balanced economies across these games.

Osvald: You have one bad experience and it turns you off from crypto as a whole. I hate to see rugpulls, celebrities pumping coins, NFT projects with no plans for support. All that just hurts the entire ecosystem. It leads to a narrative that’s just not true, whether it’s for NFTs in gaming or NFTs as a whole. “Every sale of a Bored Ape is just somebody selling it to themself.” It leads to this narrative that I know is not true.

GamesBeat: With some of these learnings going forward, do you think Grit is going to especially benefit?

Osvald: Every single game we release, we’re learning and changing the next one. In Grit’s case–we advanced our learning before we even launched Spider Tanks to have this path where even if I haven’t purchased an NFT, I can play and earn in the game. It’s running on that leasing model. Grit takes that to the next level to give you a way in without relying on anyone else. We want you to realize that the game is great. Then you can decide if you want to go to the next level, or the level after that. You do that because you enjoy playing the game. With these games, you always have an out, too. There’s always OpenSea if you don’t like the game you’re in and you want to switch.

GamesBeat: You have some music projects happening as well, right?

Osvald: When it comes to music, we had a huge event last year called GalaVerse. Part of that was bringing in a bunch of musical acts. Eric started talking to them. Musicians typically make 12 or 13 percent of streaming revenue. We started thinking. In order to have a better financial deal for what an artist might expect to earn from an album–I think we can do a lot better just cutting that entire middleman out, going directly to their fans that want to own their music.

We’ve come up with a model. It’s different, because music is different from games, but it’s very similar to the way Gala founders’ nodes work to support the value of what we invest. It’s very similar to that. Artists can get a more direct connection with fans, more quickly, more predictable commercial success, and complete control over their music by going through Gala. We’re breaking into a new industry. I think we have a huge success story with our shoe drop, and that’s like our Spider Tanks for games. Now we can tell artists, “Hey, we have a model that shows we can do this for you too.” They can do something directly with their fans.

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