Mike Isaac

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Benchmark’s Mitch Lasky on App Discovery, Distribution and the Power of Chat Networks

mitchLaskyBenchmark partner Mitch Lasky is a games guy.

He has been in the business for decades — long before he went into venture capital — and when it comes to selling games, he has seen what works and what doesn’t.

So it seems strange that Lasky is so knowledgeable on apps like Line, WeChat and KakaoTalk — some of the biggest messaging applications in countries outside the U.S. But it’s not so odd, considering that mobile games companies are increasingly moving toward these chat apps to help people find and download their games.

I sat down with Lasky last week to talk about the gaming industry, and social games in particular, and what he had to say about chat networks is something every gaming company should take note of.

Oh, and while he wouldn’t speak much about it, pay attention to the part in here about Snapchat, the buzzy messaging app he happens to advise and sit on the board of.

AllThingsD: So talk to me about something I know a little bit about, but I hear is going to be big: Games distribution through chat apps. WeChat, Line and KakaoTalk are all offering mobile games for sale or download inside their main chatting apps. Why is this a big thing, and why are American companies interested in it?

Mitch Lasky: It’s amazing — if you look at the Korean mobile app stores, 10 out of their Top 10 mobile games are being distributed through KakaoTalk. It’s totally working. It’s an unbelievably great distribution channel.

So, why is that better than, say, Apple’s App Store? I want to know how it works so well.

Well, if I told you, then I’d have to kill you.

No, seriously, though, I think you need to decouple the concept of distribution and discovery. Distribution has become completely commoditized. It’s electronic; you can get these items anywhere. The discovery part is the crucial part. Right now, because discovery is so inefficient, you’ve got these companies paying seven bucks an install through these terrible networks. It’s really, really messed up.

wechat_logoPart of the historical problem has been that it’s a chicken-and-egg problem. Think about [online gaming network] Steam. Part of what makes Steam great is that it has 40 million or 50 million registered users. So it’s naturally magnetic to the developers who want the audience.

So, think about these chat networks, then. They were kind of built for other purposes, not to distribute games, but they have a lot of user liquidity that’s demographically appropriate.

That is fascinating when you think of this in the context of Snapchat, a company which, as you know, you sit on the board of. Evan [Spiegel, the CEO] has said over and over that he looks up to Tencent, the Chinese company that makes WeChat.

Yeah, I can’t really talk about it. But I will say this: The assumption that monetizing has to be advertising-based is a false assumption.

That’s funny, because it has almost become the assumption in high-growth social networks. Facebook did it, Instagram is doing it right now. So, getting back to chat, since you can’t talk about Snapchat — it’s striking to me how fast these overseas apps came to our attention over the past year.

Well, there’s been a prejudice — at least among the Sand Hill Road investors — that “chat” in its many forms was non-monetizable. You look at AIM, which was huge, but also in a way not really that valuable outside of a way to keep people on AOL for however long. There was a company that tried to create an aggregation play. There were a bunch of clients. There was Jabber for a while. And none of them were really very successful as businesses. So I think people kind of lost the plot for a while.

SnapchatPic-featureAnd then, very quietly, things like Snapchat, and these texting applications — there was a lot of interest in free texting for a while, via Wi-Fi devices like iPods or whatever, for people who wanted to do SMS but couldn’t get on cellular networks.

I guess, just back before this new wave, we only had so many ideas on how to monetize, or something. Like we couldn’t figure it out.

Yeah, it was a binary thing. Either you run ads and offend people, or you make them pay and basically turn them away to other free competitors. And that seemed to be the only paradigms we could hold in our heads. Either paid, or free with ads. I think now we’re a little smarter.

Yes. So that makes me think about maybe Facebook or some other established player jumping into this sort of thing. I mean, obviously they are pretty dedicated to these ad models, though.

Yes, but I think this is something people haven’t really focused on. Look at Facebook’s mobile product. It’s starting to monetize.

The principal means of monetization is basically app distribution. It’s attenuated — not direct distribution of apps — but it’s ads that take you to the app store. Essentially it’s monetizing like KakaoTalk or [Japanese chat app] Line. Maybe one step insulated. It’s essentially the same concept.

Totally. And they downplay how well they’re doing on it, but I suspect it’s not insignificant.

It’s doing really well for them, I think. The numbers they’ve disclosed in their earnings reports suggest it.

Everyone thinks, “Oh, mobile advertising is working!” And it really depends on how you define it. If you define it as a sort of facilitated distribution, then, yeah, it is working. If you think of it as Revlon ads for lipstick — it ain’t working.


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