Bill Gurley and Philip Rosedale - Back to the Future - [Invest Like the Best, EP. 254]

My guests today are Philip Rosedale and Bill Gurley. Philip created Second Life in the early 2000s and helped build it into the largest virtual 3D world ever created at the time. Frequent listeners will recognize Bill, who was an investor in Second Life via Benchmark Capital. During the conversation, we cover the fascinating story of Second Life and the billion-dollar economy that persists through to this day. Bill and Phillip share their key learnings from the experience, including the importance of usability, their views of the current metaverse opportunity, and what excites them most about the current focus on virtual realities. If you’re curious about what the metaverse might become, these two experts have seen much of this already and are kind to share their lessons with us. Please enjoy my conversation with Phillip and Bill. For the full show notes, transcript, and links to the best content to learn more, check out the episode page here. ----- Invest Like the Best is a property of Colossus, LLC. For more episodes of Invest Like the Best, visit joincolossus.com/episodes. Past guests include Tobi Lutke, Kevin Systrom, Mike Krieger, John Collison, Kat Cole, Marc Andreessen, Matthew Ball, Bill Gurley, Anu Hariharan, Ben Thompson, and many more. Stay up to date on all our podcasts by signing up to Colossus Weekly, our quick dive every Sunday highlighting the top business and investing concepts from our podcasts and the best of what we read that week. Sign up here. Follow us on Twitter: @patrick_oshag | @JoinColossus Show Notes [00:03:22] - [First question] - The origin story of Second Life and why they created it [00:05:38] - How many people were playing Second Life at its peak, the in-game economy and its growth trajectory [00:06:49] - The interface between the in-game currency and its function for players [00:10:53] - An example of early entrepreneurship and user-created IP in Second Life [00:12:13] - Was technology a rate limiter to success in such an early version of the metaverse? [00:14:35] - What was most exciting about creating it and it’s early-stage potential [00:18:23] - Why Unity isn’t more adopted by creators and players like Minecraft [00:24:42] - Defining what the metaverse means to each of them today [00:28:50] - What Discord has taught them about aggregating people digitally [00:33:02] - Simultaneously crossing the digital chasm and the uncanny valley [00:38:16] - Key differences between games and platforms and the role of purpose [00:42:04] - Why cryptocurrencies and blockchains haven’t produced experiences akin to the virtual Travis Scott concert [00:47:13] - Why removing friction and centralizing financial structures can help growth and thoughts on play to earn gaming and user spending [00:53:27] - Digital asset ownership and digital trustless exchanges in the metaverse [00:57:30] - Pros and cons of today’s speculative digital asset valuations [01:01:05] - Interesting pockets of opportunity that could benefit the metaverse ecosystem [01:04:28] - How they’d build and construct an ETF with metaverse exposure [01:07:18] - Thoughts on AR and VR and which holds more promise for public adoption [01:08:02] - Surprising findings about the role audio plays in digital worlds [01:10:23] - What they’re watching most closely in this emergent sector [01:11:29] - Limitations of visual and sonic barriers when recreating real-world interactions [01:12:42] - The kindest things anyone has ever done for them

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Patrick O'Shaughnessy?

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• 0:43Patrick O'Shaughnessy?

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• 1:26Patrick O'Shaughnessy?

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• 2:16Patrick O'Shaughnessy?

  Hello and welcome, everyone. I'm Patrick O'Neal and this is Invest Like the Best. This show is an open-ended exploration of markets, ideas, stories, and strategies that will help you better invest both your time and your money. Invest Like the Best is part of the Colossus family of podcasts, and you can access all our podcasts, including edited transcripts, show notes, and other resources to keep learning at joincolossus.com.

• 2:42Speaker 01

  Patrick O'Neal is the CEO of O'Neal Asset Management. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of O'Neal Asset Management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of O'Neal Asset Management may maintain positions in the securities discussed in this podcast.

• 3:07Patrick O'Shaughnessy?

  My guests today are Philip Rosedale and Bill Gurley. Philip created Second Life in the early 2000s and helped build it into the largest virtual 3D world. Prequel listeners will recognize Bill, who is an investor in Second Life by Benchmark Capital. During the conversation, we cover the fascinating story of Second Life and the billion-dollar economy that persists through to this day. Bill and Philip share their key learnings from the experience, including the importance of usability, their views of the current metaverse opportunity, and what excites them most about the current focus on virtual realities. If you're curious about what the metaverse might become, these two experts have seen much of this already and are kind to share their lessons with us. Please enjoy my conversation with Philip and Bill.

• 3:51Patrick O'Shaughnessy?

  So Philip, thanks for joining us. The metaverse has become this insanely massive topic overnight. Everyone's writing about it. Facebook changed their name to Meta. It seems like the next big trend in technology and consumer behavior. And we're very lucky to be able to discuss with you today, probably the person that has most built a version of the metaverse in the past at huge scale with lots of interaction and tons of lessons. The motivation for this conversation today with you and Bill is really to explore not just what you learned, but also how those lessons might be applied to this very exciting but yet to be proven future of the metaverse. And I think the right place to begin is with an overview of what Second Life was itself. So maybe just give us the origin story of why you sought out to build it in the first place when you did that, and we'll get into

• 4:36Patrick O'Shaughnessy?

  some of the bona fides of this world that you created.

• 4:39Speaker 02

  Thank you. Thanks for having me. Well, first, as people have talked about Second Life, the origin story of it wasn't motivated as much by computer gaming as it was building and Lego kits. I was fascinated by the question of what would happen if people could build things together in a space, starting in darkness, you know, starting with nothing. The thought that I had was, what if we could build a Lego set that was the rules of physics? Of course, things like Minecraft today, fast forward, look a lot like that question in ways. What if we could make some basic rules and some basic building blocks that would let people make things and then also let them do that together in the same space

• 5:22Speaker 02

  and also built an economy on top of it so that they could, if they chose to, they could trade those things with each other. That was really the core idea of Second Life, and this was way before the idea of the VR headset or anything like that, or even really fancy 3D graphics. The enabling technology that I had to actually wait to start with was really broadband and just basic 3D on computers. 3D came to computers in a way that was generalized right at about 1999. And the other thing that happened in that year was it became clear that broadband was useful, and it was something that everybody was going to have in the next couple of years.

• 6:04Speaker 03

  I remember distinctly like being an expert on the GeForce cards back then, the polygon counts and like how quickly they were accelerating and how exciting that was for gaming. And I'm curious, the scope that this got to. So we'll include some like cool screenshots so people can get a sense for sort of the look and feel of this world, which you called the grid. But just talk us through like, how many people were in this thing at its peak? How did that scale and grow? What did the economy look like? Numbers around that, I think, would bring it to life.

• 6:28Speaker 02

  Yeah. And what's really interesting is I'm going to give you these numbers, the numbers for today and the numbers for the biggest that we ever were. So it's about the same today. So the world of Second Life today is really big. It's about a million people using it. It's a space that's about the size of Los Angeles, and that actually is meaningful because the space is, for the most part, one big space. You look at one map, you can click on somewhere and jump to another place, you can visit somebody's house and then go visit somebody else's. But the overall, actual real estate of the space is about the size of Los Angeles. The economy is about $650 million a year in GDP transactions between individuals. And the typical transaction, which I'm sure we'll come back to and talk about because it's so interesting,

• 7:11Speaker 02

  is a couple of dollars. So there's close to a billion dollars in transactions going on. And that number has been the same for more than the last 10 years since from about 2008 on to now.

• 7:25Speaker 03

  One of the big obsessive points that everyone has honed in on today is the ability to on and off ramp into other currencies in the virtual world. This is where crypto and web three become very popular topics. How did that work in second life or how does it work? There's Linden dollars, which I think is the name of the currency on the grid or in the game. And then there's US dollars, like what is the interface between those two things? Is there a consistent exchange rate? Designing an economy is hard. Like, how's all that work?

• 7:53Speaker 02

  I'm thinking of Bill at this moment. When Bill and I met, he had just, among other things, had deeply been exploring one of the world's first widely used digital currencies, which I mean, maybe Bill could explain a little bit about. But that was critical to our success as well. Yeah. What was that story, Bill?

• 8:11Speaker 04

  Mitch Lasky and I had just spent a bunch of time in China, learning what was going on there. Almost everything everyone's talking about, Philip and I talked about 15 years ago. The economy, we had discussion after discussion. We made the decision collectively to keep it fixed, to your point of view, to keep the Linden dollar ratio fixed to the dollar. And that was achieved by actually increasing supply in that case. With the hindsight of everything that's happened in crypto, if you did it again, maybe you don't do that. Maybe you let it appreciate because it's such an attractor from an incentive standpoint. But that's what we did at the time.

• 8:52Speaker 04

  But it had the whole thing. It had all the pieces. It had 3D graphics. It had these building blocks and tools. We had massive entrepreneurism inside the platform, tons of amazing creative work from the people involved. And if you include things, you'll see just unbelievable work that people put together in this thriving economy. It's funny, I look back on it, it makes me smile and enthusiasm, but I'm also knowing we didn't achieve what we hoped would be achievable. And we read Snow Crash when it came out. It's so funny to hear people say, oh, you want to know about the metaverse? Just read

• 9:36Speaker 04

  Snow Crash or watch Ready Player One. We were excited about the same shit. It was just a long, long time ago.

• 9:43Speaker 02

  Another point there, as Bill says, is that what makes Second Life fascinating to look at as a study of what may happen, or I suppose what a lot of people hope will happen next in this space, is that the value of those things people were making and selling to each other in Second Life, and in fact, indeed, the very value of the currency, as Bill said, were basically small and stable. So it was very different than the tulip bulb situation, or the speculative investment situation that we have today with crypto. In Second Life, as Bill said, we actually increased the money supply as people came into the world. To keep that honest, we basically were openly traded against the dollar and the euro at prices that we couldn't control. We essentially made an early version of an

• 10:26Speaker 02

  exchange, as we have today with so many crypto sites. But we had that exchange. And so the Linden Dollar traded freely against the dollar, but as Bill said, we increased the money supply by selling new currency into the market so that it remains steady. In addition to that, the value of things in the world was entirely, or almost entirely in every case, driven by their real utility. So if you bought a baseball cap to wear around on your avatar in Second Life, you probably paid $2, or if it was a designer one, you might have paid $20 or $100. Well, you didn't pay $2.4 million for your profile picture, which is clearly a different phenomenon, right? So it's fascinating that Second Life, the value of the things in there- Was more real world tethered, yeah.

• 11:10Speaker 02

  Yeah, it's tied to their real utility, which is really interesting. And it's almost like Second Life separates the speculation from the utility in a way that lets you study things.

• 11:18Speaker 03

  What was a favorite example of entrepreneurship within the game? Give us an episode or an artist or a builder, someone that was doing something that used this raw physics engine in this world to build something online that kind of feels like entrepreneurship digitally.

• 11:32Speaker 02

  There was a guy named Starax, what was his name? I remember the guy's name and he used our scripting language. Again, this would be like shades of Ethereum virtual machine or solidity today. He used our scripting language to build this thing called Starax's wand. And if your avatar was holding this wand in its hand and you said something or somebody else said something, the wand would magically create these like ridiculous funny props that would go along with what you said. So if you said Santa Claus, I remember Santa Claus and the reindeer would appear 20 feet away from both of you and then fall to the ground and like shatter into pieces in this kind of horrific mess. So it was a very artistic product, this guy's magic wand.

• 12:16Speaker 02

  And it sold for, I think, and I'm laughing saying this, given where we are today with crypto. It sold for like $50 or something. But of course, many, many thousands of copies of it sold. And we were all like, the idea that somebody would pay $50 for a thing made in a virtual world is so incredibly exciting and wonderful. And it was evidence of this guy's capability as one entrepreneur.

• 12:39Speaker 03

  I'm going to try to constantly like come with the argument of what I think the biggest metaverse crypto web three maximalist would say in response to some of this. Well, this time it's different because of X. Have you respond? Cause I do think some things are different. Open public ledger blockchains seem like a really interesting general purpose technology in search of use cases for end users. If we're to respect the new technology, what is the most different that you look at and think, geez, I wish we had that during second life? Another way of asking this is, was it a technology problem that was the rate limiter to success as you saw it back then? That maybe some of these new technologies would address in a new metaverse?

• 13:17Speaker 02

  I mean, there's a couple of things stuck together in there. First, I mean, at a very high level as a two letter answer. I think there are basic technology problems that keep all of us from wanting to go into what we're imagining or talking about here as a metaverse. There are technology challenges that are just as challenging today as they were then that are going to block that are going to make it challenging. However, I think some of the ideas that everybody is putting out there today like decentralization are very powerful ideas as it relates to how you would build such a thing. One of the points I used to make about this is the internet itself, websites themselves, I think, reached their peak rate of growth in about 2012. And at that point, the number of new websites that were deployed per day was something like 300,000 a day.

• 14:03Speaker 02

  So if you really did want to build something like what people are saying with the word metaverse, that is a genuinely open construction that is the scale of the internet, you would have to be putting online hundreds of thousands of new servers or something like that every day at some point. And so you need to build an architecture that would enable that many people to work in parallel to deploy that. The idea that it's going to be something that is both simultaneously can handle and is interesting to billions of people is built by one company that's pedaling the wheels on its bicycle as fast as it can while it puts machines online. I don't think that's a very likely outcome. I think it's much more likely that we have to use some kind of decentralized technology. Now, having said that, I think, as we all know,

• 14:49Speaker 02

  the different pros and cons of where we are in crypto and to what extent that decentralization exists is we're right in the middle of it right now, and clearly everything has not landed at all in that area.

• 15:01Speaker 03

  I want to come back to a lot of these lessons, the things that specifically worked and didn't work, and whether or not those things are going to be different in the future. But Bill, I'm curious, when you first approached this concept and this idea with Philip, what was it that was most exciting to you? What was the promise of it that got you so personally invested in asking all these same questions that we're now asking again 15 years later? What part of reality didn't line up with the excited potential that you saw at the beginning?

• 15:26Speaker 04

  In talking about this in retrospect, I worry a lot about my own bias to protect my own ego to say, is the concept have issues or did we just miss parts of it? Blatantly aware of that. As I mentioned, I got super excited. I'd been to China, I'd looked at what was starting to happen with WeChat and QQ and I had read Snow Crash and the minute I saw what Philip was doing and winning world, it was everything. I had all the same enthusiasm Zuckerberg has right now. I'll probably get some of the timing wrong, but I think the company went from zero to 70 million in revenue in

• 16:10Speaker 04

  less than 18 months. And so you had this vision and excitement about what was possible. You had a founder that was way ahead of everybody else, knew exactly what he was doing. And then the revenue worked. And at that moment in time, that one moment in time, I thought this was going to the moon.

• 16:33Speaker 04

  But it didn't. A fair set of questions. And I'll give you a few of my simple thoughts, but then I think we should ask Philip is, why didn't it go to the moon? I think it's imperative to give credit to Minecraft and Roblox, which have done extremely well and were started shortly after we did. There's two elements of both of them that are worth mentioning. One, their primitives are simpler. And so the creator tools at Second Life, you could do amazing rich things, but they were a little harder to use. And then, well, three things.

• 17:11Speaker 04

  Two, the demographic focus of Minecraft and Roblox were both children and we were not. We were the opposite, actually, which is important. And then three, there were more gaming heuristics there. We truly were an open-ended creator universe. And so those are the things that I think about that were different from some of the things that got a lot bigger. What would you say, Philip?

• 17:37Speaker 02

  I think that distinction you just made about calling out Roblox and Minecraft is really useful and important to look at. I agree with you. Minecraft in particular used simpler primitives, so everybody could build. I've watched my kids when they were 10 and 12, using Minecraft and building the most incredible things. Reminded me of some of the amazing spaces that people built in Second Life, looking over my kid's shoulders, watching them do this, my daughter and my son, building different things, building together. But they were able to take advantage of these simpler primitives. But as Bill said, what's interesting about that and an interesting challenge is that the simpler the primitives are, the more appealing they are to kids and not grownups.

• 18:17Speaker 02

  You've got this interesting trade-off. Graphical quality is the same thing. If you want to have, for example, work Or dating, or going to shows, or things like that, you probably need a lot of graphical quality. If you want to have 10-year-olds building stuff together, you don't need as much graphical quality. So there are these really interesting differences in these systems. But I think calling out Roblox and Minecraft as Bill did as the two, I think, most important data points and projects to look at after Second Life is exactly right.

• 18:49Speaker 03

  To me, what's interesting, maybe to throw a third company into that conversation is Unity, which notoriously is also hard to work with. A kid can't pick up Unity and build a mobile game. It requires more expertise. I don't know how it would line up to the Second Life difficulty level or something. There's no grid in Unity. It's a creation tool. It's arming people to build whatever they want, not in a predefined space with a predefined economy. So is there something there that was off, like the combination of it being like an actual space, the actual destination, plus the creation tool that just didn't quite have a big enough TAM? And maybe the question is, what is the TAM of more complicated, not simple adults that want to create this stuff?

• 19:29Speaker 02

  Yes, I could answer that in part. First, the obvious thing which you said is Unity is a software development kit, not a product. And you could want it to be a product, as yet it is not. So it's a development kit. But I think the other interesting thing to say is, do we get to a metaverse by 10,000 different people using Unity, building some kind of a single experience, and then connecting those experiences together? I deeply think that's one of the things we need to carefully consider. In short, I think the answer is no, we don't. I don't think if you were playing a game of Grand Theft Auto, and you could drive your car from Grand Theft Auto into Among Us, I don't think that game designers

• 20:11Speaker 02

  want that. I don't think the guy in the car wants that. Nobody wants that.

• 20:16Speaker 03

  I can't take my Ferrari and put like a grid on the front and go mow down Among Us cartoon characters.

• 20:22Speaker 02

  Yeah, I mean, Bill and I have seen that experience, the positive side of it, like the cases where people do more than anybody else. And so if we're saying that, you should listen to us. I mean, we did find the user stories in Second Life where people do want that. And of course, there are tons of them. There's almost a billion dollars a year of those stories. But the simple idea of a world of worlds, or of a metaverse of games, I just don't think there's a there there. I don't think any of us want to do that.

• 20:49Speaker 04

  Yeah, this gets into something that I think's super important for the listeners, Patrick, which is I'm gonna be mentioning something that I learned from Philip, so maybe he can fill it out more after I say it. There's a version of what people call the metaverse, where we all jump into this 3D virtual world with some representation of ourselves that is an avatar that we've adorned. Our big learning was that there's a certain type of person that really enjoys doing that, and it's a form of escapism. Kids, they role-play all the time. Even before the internet, they do dress up and they build little spaces

• 21:34Speaker 04

  and tents and those kind of things. And so it's very common for a child to want to do that. As we get older, it's less and less common to actually do that. And there's a question, and I think, once again, Philip has some ideas on like, the types of humans that really get a lot of psychological benefit and dopamine out of that type of escapism. It may be actually a small fraction of adults.

• 22:03Speaker 03

  How would you put a number on it, Philip? Like, how do you think about that market?

• 22:06Speaker 02

  That's really well put. I mean, I'd play that back and say it's that for adults, what we learned to the negative in Second Life, although, I mean, again, overall, there's kind of wanting to, like Bill said, you'd look at it with a smile and then with, I guess, some regrets. But there's wanting to have made something that worked for 4 billion people, which is certainly what I said at the time, and I felt that we could do. And then there's the reality of it working incredibly well and in a very hopeful, interesting way in terms of looking at behavior and relationships and stuff, but for a much smaller group of people. Like Bill said, he said it perfectly, kids want to play with their identity, for example. They want to grow up, try what it's like to be 20 when they're 12, you know,

• 22:48Speaker 02

  and that drives the appeal of a lot of experiences for kids. And we have to be careful, obviously, as the making those experiences good ones. But that desire is there from every kid. When you're a grown-up, reasons why you would essentially give up your body and take on a new body in a virtual world are very different, and they're certainly not common. By the way, they're wide ranging to expand on what Bill said. You could live in an authoritarian regime in which you were largely restricted in your ability to do whatever feels like a good life to you. You might be disabled in one way or another. You might be in a rural locale as a creative artist or something where you just don't

• 23:30Speaker 02

  have anywhere to do your thing and have people respond to it. But as Bill said, those things I just listed do not apply to all of us. If you're trying to build something top down like Facebook is saying it wants to do, that applies to all of us. There's a tremendous disconnect between what has worked so far as demonstrated by Second Life and other systems and what we would all fantasize would be a really big opportunity.

• 23:56Speaker 04

  And what Philip just said was proven out in Second Life. When we would get to know these creators that really flourished inside of Second Life, they matched the type of profiles that Philip just went through. And look, I'm not the first person to make this statement that I'm about to make, which is if you pay attention, Snow Crash and Ready Player One are both dystopian.

• 24:19Speaker 02

  Dystopian futures.

• 24:22Speaker 04

  So if you have a dystopia, there would obviously be a much larger percentage of the world that would get value out of role playing in a virtual world.

• 24:33Speaker 02

  And if we don't have a perspective dystopia that really matches up to science fiction levels of quality right now, I don't know what else is COVID, right? We're looking down the barrel of possibility where we all have to shift more of our social life online, even if we don't like that prospect, it could be thrust upon us. And that's a real world scenario that looks like these science fiction stories. I read something funny to say what Bill said, somebody, I don't remember who said it, so I can't credit them, but I read a great quote the other day where they said something like, for God's sakes, people, the metaverse was a warning, not an instruction manual.

• 25:10Speaker 03

  I mean, it reminds me of a funny comment my friend Gabe Leyden made to me who ran Machine Zone, who I think is like a realistic, interesting person when it comes, especially to gaming, but also to the metaverse. And he said, look, all the guys are building like the general purpose AIs. When they have conversations with me, like, we need you, we're gonna need you to like distract the masses, like when the AI takes over. And it is a very dystopian, Wally-like feeling future. It begs the question, like, what the metaverse concept means to both of you today? It's one of these concepts onto which everyone is projecting tremendous excitement. My friend Matt Ball has written extensively about this, I think, is sort of the canon that you should go read if you're interested in diving deeper. But what does the word mean to you today? Like, is it the hype word? Is it a word filled with promise? What might it

• 25:55Speaker 03

  mean in reality? So we could point to something and say, yes, that's the metaverse. I'm just curious how each of you interprets the word itself today in 2021.

• 26:03Speaker 02

  My piece to add to this is, I think, when you look at what's happening now, people are mixing together two pretty different ideas, and they're interesting to consider in isolation. One of them is the trend to go from 2D to 3D, right? People have talked for years about how certain types of information is better presented in 3D. The famous memory palace that we used to talk a lot about in Second Life, where if you see things on a wall in a virtual museum, you remember them better. And you actually remember even conversations that went on and stuff like that. So the transition from 2D to 3D, which is made vaguely possible by increases in computing power, is like one thing. But then on the other side, and Bill, you've talked about

• 26:45Speaker 02

  this with me, on the other side of that, there's just the idea of moving the internet from being a largely lonely, single-player sort of experience to one where there are other people there all the time, where there's communication is kind of embedded in everything. That second one, to me, seems very separable. You don't need to do 2D or 3D to do that. In fact, Bill and I were talking about this earlier. Look at Discord as an example of a communicative metaverse, definitely larger by the numbers in terms of people than anything that's yet been fielded. And I think that's a very interesting way of looking at it. So there's two ideas. 2D to 3D is separable from people being there all the time.

• 27:27Speaker 04

  That's almost identical to what I was gonna say, Patrick. I was gonna say that I think you need to really fork the metaverse into two separate concepts. One of them, as opposed to 3D, I might say avatar centric. Then I went back last night preparing for this and watched a couple of hours of Zuckerberg talking and watching his demos. And most of what he's doing is that avatar centric version, which is really what we built at Second Life. And the separate fork, the other side of it, is this idea of digital place. And can we meet and communicate? We're doing it right now, the three of us. We're all one step away digitally

• 28:07Speaker 04

  from everybody at any point in time. And can you aggregate people into online communities in real time and see wonderful things happen? I would even say, in the past week, it seems like Twitter Spaces is blowing up, at least for my communities. And I think that's a version of that type of connection. And it's audio centric. It's not a 3D avatar. But because of what we've, the ground we've already covered, I'm very skeptical when I see Facebook show like a work scenario, that we're gonna go do board meetings with avatars. And we've done them. Philip and I've done eight of those. Certainly have.

• 28:49Speaker 04

  Board meetings with avatars. And that was pre-Zoom. Now you have a substitute that's a real competitor to that idea. With Zoom, and Zoom will get better. That 3D avatar thing for adults, I'm very skeptical of. This other world, this other concept of creating communities that connect live, and are maybe audio at first, and will grow from there, that's way more exciting to me.

• 29:16Speaker 03

  Maybe we could just double click a bit on Discord, because one of my investors came to me and said, look, like, if there's any launch platform for the internet or metaverse today, it's Discord. It should be like the place you start to then like enter into experiences, because it's the place that aggregates the most seamlessly, the most people together around like a single topic, or idea, or interest, or whatever. As an investor, and I've talked to Mitch about this too, like, what has Discord taught you about why this is a powerful concept? Aggregating more people synchronously digitally?

• 29:47Speaker 04

  I'm going to share something. We all have our own stories that relate to personal experiences, but my middle son has grown up in this world and played Minecraft and has been in all of the multiplayer games. Him and his friend cohort live on Discord. It is their starting point. And he's gone from high school now to college and he's got friends all over the country. You know, if they're going to hang out or get together or do something in this 3D metaverse, they start by meeting in Discord. It's almost like when I was 17, we'd meet at the boat ramp and then we might go do something else. In that way, it really is that kickoff point for

• 30:32Speaker 04

  that community coming together and then they go explore. I don't know that they need to take their Ferrari from one game they're going to play to the other. They're going to hop in one game, maybe play together, come out, chat some more, maybe talk about doing something different, maybe talk about going in another place. But when you see them doing that, and once again, I'll contrast it with some of Facebook's video examples. They show you going in and looking at these screens and saying, I'm, oh, I'm going to go from here and then I'm going to go. They show those transitional things. They're very awkward. That part doesn't need to be 3D. And I think Philip framed it right. It's about separating what's happening

• 31:15Speaker 04

  graphically from what's happening with human connectivity and communication.

• 31:21Speaker 02

  That's so well put, Bill. I mean, this idea that you loiter together as, say, kids or young adults in a place and then you decide what you're going to go do. I'd add the additional point here. That place is typically a public place, which is interesting. It's often a place that's broadly accessible. It's safe. It's a kind of a safe ground where you start. We don't have that yet. And one of the opportunities at then, I think Discord is the closest thing to it, but you can still look at that a bit more and think about what needs to happen next. What is the simplest ground?

• 31:55Speaker 03

  Meeting place that is kind of a public commons that we can go to maybe as adults as well and as young adults where we go off from there together and what are the rules of engagement and to what degree, for example, do we need decentralization or whatever to make that workable?

• 32:11Speaker 04

  I gave you an example of a young group of friends. Discord has already transitioned pretty broadly into shared common interests and then moving into professional, especially in things like crypto. And so you see organizations getting together in real time around like a crypto project in the exact same way I just described about my son with his friends, but with a corporate or a professional purpose in mind, using that space for collaboration and communication. That makes infinitely more sense than having a board meeting with a bunch of people and avatars, at least from my standpoint, in terms of how much scale could you get, how

• 32:55Speaker 04

  quickly and how impactful could it be to the actual progress of what's happening? And maybe crypto, because it's so new and it's so distributed, as a side note, everyone that's learning about crypto should study open source because in some ways, especially on the governance side, it's kind of an evolution or like a 2.0 of what they did in open source. But you have these distributed communities trying to be productive. And so that's a perfect example of someone that would want these new types of tools for the digital place.

• 33:28Speaker 03

  Before we go, I want to spend like a chunk of time on some of these crypto things that are so exciting because they're so poppy in terms of the numbers being eye popping and just like the excitement around them. And I'd love to hear both your impressions of them, but I don't want to leave this chance to talk a bit more about the 3D avatar technology graphics part of the world. Because it's like if you take Minecraft, I think everyone's probably seen Minecraft, like it couldn't be simpler looking graphics. It's like these big pixel blocks. It's not visually appealing, but it's just incredibly malleable. It seems like almost graphics don't really matter. It seems like some of the limiting factors that could be talked to experts on the metaverse, they'll say, To achieve everyone in high fidelity on one screen at one time, we need more bandwidth.

• 34:09Speaker 03

  We need cloud resources that evolve. We need Unreal Engine seven or whatever it is. Just say a little bit about whether or not that is real. Are we really just waiting for technology to unlock more? Or is that really just like nice to have on top of something much more basic?

• 34:25Speaker 02

  I'll answer hopefully in a funny way, hopefully not too cryptic way, which is to say that the challenge of the metaverse is that you have both chasm to cross and the uncanny valley.

• 34:36Speaker 03

  Yeah, I was joking.

• 34:37Speaker 02

  If you're driving your startup motorcycle off the left hand side there, know that you have to actually get over both of those things. And what I mean by that is if you are representing yourself as a player in a game or as a Minecraft character, you don't care much about what nuance you're presenting as a person to the other person. You're using the avatar as a prop in a fun way, maybe an escapist way. Like you're basically playing a character for a short period of time in a game. And even if your character's got expensive sunglasses that were an NFT you bought or whatever, that's all fine, but that's not at all the same thing as coming into a conference or a classroom or a bar

• 35:21Speaker 02

  and presenting yourself with the intention of establishing, you know, a new relationship with the people that are in there, right? The rule for the latter is much more demanding. And indeed, I would say technically we haven't yet crossed it. It's kind of this uncanny valley problem. What Bill would want to adequately be able to walk into a board meeting and fully participate in it, we do not yet have. What we need to be able to play a game that lasts for 10 minutes with people we went to high school with. Yeah, sure. We have all that technology.

• 35:54Speaker 04

  I think it's a provocative question, and I think my personal view is it doesn't matter. I think there are many, many reasons why every hardware company and every microprocessor company wants to believe it matters because it will sell a lot more of those things. But if being close To realism mattered, Second Life would have crushed everyone because it's much closer. And for those that haven't read about the uncanny valley that Philip mentioned, we shouldn't dive deep here, but you should go read it. It's a really interesting reality when it comes to digital realism. Personally, I've always found that simpler heuristics go viral faster than complex ones.

• 36:39Speaker 04

  And so when I equate what's happening in a Discord or a Twitter space with what's trying to be achieved by meta, one of them is a really simple heuristic. And by the way, I guess you could apply this back to Minecraft and Roblox versus Second Life. The simply heuristics, you get way more emergent behavior out of because you have a much higher participation rate. Many more people are comfortable with manipulating and contributing. And so you get this beautiful emergent complexity that comes out of it. And the most beautiful thing about Minecraft is some of the complex things kids have built with these very simple primitives.

• 37:18Speaker 02

  It's funny because for me, the desire to kind of rebuild the laws of physics is better met by Minecraft in some ways than what we've yet been able to do with Second Life. So I agree with Bill on that. And I also think, by the way, that the idea of the world being alive and malleable and subject to understandable laws is itself a cul-de-sac to talk about separately from communication and expression. I think there's an opportunity to build things beyond Minecraft that are simply compelling because they are moldable and simple and the outcomes spectacularly unknowable. Like Bill said about people building things like computers that work inside Minecraft, which they've done, by the way.

• 38:02Speaker 02

  The idea of that emergent complexity is one of the things that drew me to working on Second Life initially. But I have to admit that it's very separable from either the game experience or the communication experience.

• 38:14Speaker 04

  Another way of saying it, Patrick, is if I had to place a bet on whether someone that had 500 million users on a digital place platform where people are communicating, and that they might add avatars or some digital thing that makes it more immersive versus someone that built the perfect digital 3D avatar immersive system but doesn't have the users yet, boy, I'd bet on the first.

• 38:41Speaker 03

  Obviously, Facebook has that network graph. In some ways, they have that interesting distribution advantage. And it raises the question for me of product versus platform, place versus game, what the difference is between those two things. Like, you go into a game, there's a predefined objective versus in Second Life, it's just a place. The users do whatever you want. What lessons have you both learned about that contrast between maybe a platform on the one hand versus like a specific tailored product or game on the other hand? And which is more exciting in the future? Like, if you're looking to invest today, how do you think about that distinction between investing in a great metaverse game or some sort of platform?

• 39:19Speaker 04

  We used to talk about this all the time at Second Life board meetings. And I think when you look at mini-games, even like Call of Duty, the first hour or two of gameplay in Call of Duty, you go to basic training and you learn primitives and stuff. And I think there's some things that are in between that have to do with onboarding that get people committed and bought in and learned. I do think that anything that's game-oriented, especially for children, has the ability to keep them engaged more quickly and you get quicker dopamine stuff versus a wide-open system. What's interesting to me about some of these digital places, which I'm keeping separate from these avatar places, is they

• 40:03Speaker 04

  have that from the start. If I went to a Discord group because I want to work on this new blockchain group, we have a purpose. That's why we're there. I think purpose can really help onboarding new customers and getting them engaged. That'd be where I'd leave it.

• 40:21Speaker 02

  I think that's well put. I mean, I think that games are, Bill mentioned escapism earlier, and you can actually look at it through the lens of, you can kind of look at it, I guess, sort of at a huge meta lens of escaping from Earth to somewhere else. But in the game experience, you can also look at it as just, you know, escaping from your day to day life for a short period of time. But you can do that in a purely consumptive way where you are just on a ride and you go on the ride for an hour and then you come back to the real world and you just didn't add anything there. You just consumed an experience in the same way you'd consume a TV show. I think that's still the mainstay of what we do with gaming. But like Bill said, the purpose part inevitably has to be combined with some ability for you to do something, perhaps with others,

• 41:06Speaker 02

  that is constructive. I mean, it might be meta constructive, you know, it might be investment, or it might be ideation, or it might be whatever. But there's a really big difference, exactly, artistic. There's just this huge difference between the play experience of consumption, and then the together experience and the purposeful experience of making things. And I would just argue that the low level components and the platform components are at least somewhat different between those two. And going back to the Unity comment earlier, they're just very different beasts. And so I don't think we can expect to see them spring from new architecture equally.

• 41:42Speaker 04

  One thing I wanted to mention that may not be particularly in line with that question, Patrick, there's an element of the metaverse that are the classic definition of the metaverse that we experienced many, many times at Second Life that I've seen come up quite a bit in the press, which is some event will happen that's truly extraordinary.

• 42:02Speaker 02

  The Travis Scott concert or something, yeah.

• 42:04Speaker 04

  The Travis Scott thing's a perfect example. We had hundreds of those type examples in Second Life. People immediately make the leap that we're going to do these all the time. And I have yet to see that be true. There's the one off thing that's really interesting because it's unique, but then it's not replicated. The opposite of what people are extrapolating.

• 42:30Speaker 03

  I'd love to explore this intersection of decentralized technology, crypto, web three, whatever you want to call it, with the idea of the metaverse collective behavior together online, because it seems like the promise of some of the decentralized permissionless technologies is that they can help us create better, more scalable versions of these things. Yet to date, we're 10 years into the crypto story, all of the places that we're talking about Discord, Twitter, Roblox, all these places, Fortnite, where the Travis Scott concert happened, there's still centralized companies that are running and responsible for and curating these experiences. Why do you think that is? Why haven't we seen an example that's more crypto native, something protocol enabled, that's as interesting as the Travis Scott

• 43:15Speaker 03

  concert, or the congregation of all these people of humanity together? Like, what am I missing about why crypto hasn't produced more of these stories?

• 43:23Speaker 02

  It's the biggest conversation in the world, right? We could go on for days and days about that. But I think as it relates to virtual world specifically, if you look at Second Life, we had to build a digital currency that spanned multiple geographies, because if you walked up to somebody, I would always say, you know, if you just walked up to somebody in Second Life, right, there was a 60% or more chance, if you're in the US, a 60% chance that they were not in your country. And so if you wanted to buy something from them, you know, say Venmo had existed then, right? You can't just bust out Venmo and pay them offline. So we had to build basically a currency, and we had to make it easy to use and very, very low, or zero in the case of Second Life for most things, fees to make a transaction. And I would just note that despite the excitement that we

• 44:07Speaker 02

  have about crypto and the legitimate excitement around maybe it's moving power or control from one place to another, we don't yet have a stable currency with low fees. We do not yet have it. There's lots of work underway, and that works interesting. Of course, if we had crypto people on here, they'd yell on the screen about all this stuff, Lightning Networks and things that are happening. But the fact is, there's not an easy way for me to pay you for something in crypto. And Second Life was dependent for its success on there being an easy way for me to say to Bill, hey, can I buy that really cool hat that you're wearing? Right now, and we're just not there yet.

• 44:44Speaker 04

  If I made a list of 25 things that I think inhibited us from getting to a higher place, I don't think I'd put decentralization on that list. The creators were cashing out 100 million a year. Last time I had access to the number, so Philip gave the GMV, but they were taking out 100 million. So they were getting the money out. The decentralization kind of has two parts. There's a technical component and a trust governance component. I think from a technical component, because of everything you talked about from a performance standpoint, putting more things on a blockchain versus a database would only make it more difficult to do what you need to do in a 3D world.

• 45:25Speaker 02

  There are a couple of examples of what Bill is saying. There are several decentralized versions in a sense of Second Life that are out there today that you can go walk into right now. And just Bill said, what you'll see is that they're much earlier in their capabilities because it's much more difficult and expensive to do things in a fully decentralized fashion. I always talked about crypto in some measure as being the price of distrust. If you want to build a distributed system in which no one trusts anyone, you will realize that there is a fundamental, basic cost to that, and that cost is nowhere near zero. And it's nowhere near low enough to create a virtual world yet.

• 46:02Speaker 04

  But there are two sides to this, or maybe I would go back and use my word fork. The governance part is possible. And so interestingly, both Reddit and Discord, although they backed off of it, have made comments about looking into tokenization. Reddit's talked about doing it at a subreddit level. So could you imagine a subreddit where the members get to make a decision about whether it's a subscription model there or whether ads can run or who gets to moderate what? That's kind of interesting. Combining what we said earlier about digital spaces, maybe that's where these things might intersect.

• 46:42Speaker 02

  I would say from just going back to Second Life, I agree. I think crypto has got two big. Things embedded in it. One of them's working pretty well today, like it or not, so to speak. And the other one hasn't really been worked on. And that is frictionless capitalism is like what crypto is doing. And that's part of what's interesting about it right now. But the other part of crypto, like Bill said, that's embedded is governance, and in particular democratic governance. And I think that we are a couple of clever innovations, and I'd like to work on them, away from seeing something where, for example, you can vote, one vote per person in a meaningful, easy, quick way on something as a group using crypto. We are not yet there, but there's a bunch of people working on that.

• 47:25Speaker 02

  And I think that once we see the impact that crypto could have on simple, scalable forms of governance, particularly democratic governance, that's going to be really, really cool. And we're not there yet, but there's good light on the horizon.

• 47:38Speaker 03

  It brings to mind, like, one of the most interesting little fact toys I've discovered in the crypto gaming space was for Axie Infinity. And I will ask about play to earn here in a minute, and earning money via online participation. But they didn't explode until they created this Ronin sidechain that didn't have the frictions of Ethereum itself. When they were trying to have their economy beyond Ethereum, it just couldn't possibly work. It wasn't scalable enough. When they made Ronin, which is fundamentally not decentralized, it's like controlled by the company, like it has all the problems. It probably looked a lot like the Second Life economy currency control system worked. The thing exploded in activity. And I think it's a great, like, actual, real recent point of kids being magic. Like, it has to be low friction. It has to, you have to manage it in order for there to be commerce on top of the platform.

• 48:23Speaker 03

  It seems like kind of the same thing.

• 48:24Speaker 04

  As Philip said, if you distrust everyone, Satoshi's blockchain

• 48:29Speaker 02

  Is amazing. Yeah, yeah.

• 48:31Speaker 04

  But it's ridiculously expensive as a database. And one thing that I think the Bitcoin maximalists miss is that there are degrees of decentralization and degrees of governance. And I've seen this in the open source world. So Linux is a much more decentralized governance structure than Android, which is pretty much controlled by Google. There's a continuum of decentralization. People would argue Ethereum's at a different place than Bitcoin, and Solana's at a different place. And they all trade off on these two things Philip talked about, which is trust versus performance, you know, and cost.

• 49:09Speaker 03

  Bill, your partner Mitch Lasky taught me kind of everything about the evolution of the models in gaming from $60 for a game to free to play with whale-dependent spending to play to earn. What do you both make of the business model behind some of this stuff? As you think about Second Life, if you were to try it again today from scratch, like, how would you think about business model? How do you think about concepts like play to earn? Like, is that fundamentally just a race to the bottom? How should we think about the evolution of games and these places and how people earn or spend money?

• 49:39Speaker 02

  That's a big couple of questions. I mean, one thing I'd say echoing something Bill said, if you told me to build Second Life all over again right now, I'd focus on, first of all, knowing, as we discussed before, that without magic changes that haven't happened yet, we're going to have a smaller audience. So I'd want to be saying at the get-go, this is going to not be the new internet, but it's going to be something amazing. Then what I would do is focus on simpler building blocks that were still adequate for people to be expressive, so that the on-ramp to the thing could be a lot easier. And that would get us to a larger market than we have today. But as we touched on earlier, it doesn't just mean that you get to get 4 billion people using the thing the way. I've always said about crypto versus the internet, I was there, as Bill was, I was there in 1994 when we started the internet, so to speak.

• 50:22Speaker 02

  And the thing that was really different in comparing, say, crypto and the internet was, we actually all knew what the internet was for. There was a strong sense of urgency. We had to have email addresses because you get calls from people or you get emails from people. And we had to put up websites about what our companies did. There was a very real, like, let's get this party started sort of a thing, because there was a utility function that was obvious around broadcasting information. And crypto doesn't yet. It's anchored to a couple of big ideas, some of the same ones that were in Second Life, but those ideas as yet have no immediate utility. I think that's part of what makes it so polarizing and divisive when people talk about it, is that there's not just a basic, like, everybody's got to get crypto because now all chewing

• 51:06Speaker 02

  gum and hats worldwide bought and sold using crypto. We're just not there yet.

• 51:11Speaker 04

  Specifically on the pay for performance thing, I think it's remarkably nuanced and tricky. There's a ton of people that are thinking about tokenization and how that intersects with a marketplace company or a UGC company and a game company. Those all three would be the same thing in my mind. Certainly, if you have a hard form network effect, then getting initial conditions going and increasing liquidity might then lead you to success. And so if you build the right incentive structure around your tokenization, that could be a massive advantage to an on-ramp, especially if you're able to get your currency to appreciate over time.

• 51:54Speaker 04

  And that's why earlier in this conversation, one thing, if I went back on Second Life, I'd probably not stay with the fixed currency. I'd probably let it explode. I mean, I'd probably not increase the money supply. I'd probably let it explode because of the incentive structure that then creates. You get a double incentive structure. The participant gets handed a coin that might go up. It's like you're handing out lottery tickets to everybody. Now, whether or not that remains legal, we could have another hour about AML and KYC. Because Second Life spent $20 million on those protocols. But anyway, I think it's remarkably powerful, but you can miss too.

• 52:35Speaker 04

  The internet has, from the very beginning, and continues to be, the ultimate arbitrage machine. And if you make a mistake, that someone can get rich off an arbitrage, they will. That's the risk that you have with those types of structures.

• 52:50Speaker 02

  I remember Bill, that being a point that, yeah, you made to great effect. That was very helpful. The Second Life was anything that can be arbitrated will be instantly. And now that was something I took to heart. I would add that if you look at pay to play, or you look at this idea of there's a limit case where, that Second Life demonstrates, where Everything that's built is creative and the native value and all the assets driven by the creative efforts of the participants. There's a far other side version of that where you have a scarce set of fixed assets in a virtual world and you basically allow people to compete to farm those assets by essentially, how much time will they devote to get those assets distributed? I think that's an extraordinary, like Bill said, it's very nuanced.

• 53:34Speaker 02

  That's an extremely different thing than something like Second Life, this pay for performance type thing. I guess I would say that it's also something that we must, outside of the capitalist model, be thoughtful about. That may be something which does real harm to people. I think as entrepreneurs, we have a responsibility to be thoughtful about that.

• 53:53Speaker 03

  We talked already about taking the Ferrari from Grand Theft Auto to Among Us. But I remember originally when I started exploring crypto in 2016, 2017, one of the core ideas that really caught my attention was the internet was about the permissionless open exchange of information. And this is about the same openness, permissionless exchange of value. Digital asset ownership in a trustless way should lead as a simple building block, back to that concept, all this other crazy stuff. And we're kind of seeing that. The market value of, let's say, NFTs or something, bubble or not, is a large number compared to like the market value of all in-game items or something from pre-NFTs. How do you guys think about that as an exciting component of the metaverse of all these concepts? This idea of persistent, provable, trustless digital ownership?

• 54:39Speaker 02

  I want to tell you a story from Second Life about that because I think you'll get a kick out of it. And Bill had just joined the team at this time, but we had a meeting about the end of 2004 where we brought a bunch of people who didn't have a background in necessarily in computer games, but they were just big thinkers about this together in a room and had a meeting about this stuff. And we were talking about digital assets and their intrinsic value and like what makes them real? What will make things that people make in a virtual world real outside of those things being the result of their creative efforts, which was kind of fundamental to our strategy? We were talking about exactly the issues that we're seeing today with NFTs. And one of the people in the room in this meeting that we had invited was Lawrence Lessig.

• 55:24Speaker 02

  And I remember this moment where we were talking about what is the value of digital things? What makes them real? And he said, I'll tell you exactly what makes them real. He said, what will make digital goods real is if they are alienable. And he said this word alienable. And it was so funny because I had one of these moments where we didn't yet have iPhones. This is 2004. And I thought to myself, well, shoot, I don't know what that word means. This table of really smart people, and I don't know what alienable means. But in short, what alienable means is that like a hat, like you're wearing, alienable means something that you can sell or give to somebody else without anybody else being in the middle of the transaction. Your clothes on your body, the things on

• 56:08Speaker 02

  your desk, the paintings on your wall are alienable. Your car, your iTunes, your house, more complicated. Other people have to be involved. So that idea was fundamental and it came out of this meeting in 2004. And we went to a law conference in New York and made the pronouncement that we intended to build a world where we made no claim on the intellectual property that people created and that to the greatest extent possible and someday in a decentralized fashion, no one would be able to stop somebody from selling something to somebody else. And so that was very, very much what NFTs, for example, are enabling today. And I think it is very important. People want the freedom to control trade, person to person.

• 56:53Speaker 04

  Yeah, although they are building secondary rates into several of these NFTs. Yeah, I think authenticity and scarcity, to the extent that you can validate both of those things, obviously, you're going to create economic value. As we already mentioned, I don't think taking that asset from one platform to the next, I think that's kind of a wank. I don't think that's a real thing because the likelihood of having applicability there, I mean, I guess that could become some emergent property if everyone bought into the same, you'd have to have some type of framework that two different games both agreed upon for that aesthetic or that performance enhancement to matter. But the odds of that are pretty low at this point in time.

• 57:38Speaker 04

  But if there's a construct within NBA fandom or something within one of these worlds and you want to keep authenticity, scarcity, and what Philip said, the ability to be able to trade it, obviously, those things enhance the economic value of a digital asset.

• 57:56Speaker 03

  Interaction, which we talked a lot about as a key driver of the metaverse, the Discord concept and ownership, like, these are huge concepts that we're kind of recreating digitally with powerful effect. Bill, you've studied bubbles and value creation and value capture for a very long time. As you look at something like the emergent NFT economy and some of the speculative returns, that Santa magic wand would not cost $50, it'd probably be $50 million, you know, in today's context. Offer your reaction to kind of what you're seeing today. Where does it just seem insane? Where does it seem like there's lots of promise hidden in the rough?

• 58:31Speaker 04

  I'm going to answer the question, but just a quick aside, when Philip brought up the magic wand, I was thinking about, I remember when pets became huge in second life. We had these digital chickens and they got really, really popular and your server ran the whole time. So your chickens would evolve even when you weren't there. It was really cool.

• 58:50Speaker 02

  Very much like crypto kitties. I mean, it was interesting. We, as Bill said, we had these pets that people would breed and they would grow and it, and it actually, that continues to be one of the big markets in second life.

• 59:02Speaker 04

  It's interesting to me. I've been spending a lot of time trying to go deeper on crypto and I think there's a fascinating question about whether or not a token will have value if it doesn't have the ability to eventually rake a system that it's involved in. And one of the great examples out there is the Uniswap DAO and the Uniswap token. And in the DAO, it says that the community can vote to take a rake of up to 5%. And I think it's a fundamental question, if that term weren't in the Dow or if instead it said, the community will never rake a transaction, what would that do to the value

• 59:47Speaker 04

  of Uniswap? And everything from my history of studying finance and economics would say that if you declared you'd never rake the system governance token, simply the right to kind of control a group or community would be worth a fraction, a small fraction of what an economic token would be. I also think it's a fascinating question. Any primitive that's out there, there could be a version that's completely benign. The Linux Foundation's not trying to get rich. They're just trying to promote the success of Linux. So someone could create a Uniswap competitor where the Dow does say, we will never rake the

• 1:00:30Speaker 04

  system. We're here solely for the benefit of the community. And ironically, that's truer to the narrative that the crypto religious claim to be making. And I think highlights a massive irony between them collecting tokens and where they say they want to get to.

• 1:00:49Speaker 03

  Does it stand to reason then, Bill, that like something like Ethereum might be philosophically at least intriguing to you because there is sort of like a, whether it's for miners or soon to be validators, there's like a rake mechanism that's built into the incentive structure or the system itself?

• 1:01:03Speaker 04

  Yes, but I think there's an equally interesting counterpoint to that. Solana might be cheaper than Ethereum, but then the son of Solana might make Solana equally uninteresting. And that's why someone said to me the other day, if Solana eats, then all of these tokens are worth far less than we imagine because there's just a race to the bottom.

• 1:01:29Speaker 03

  Something will come along to eat that. Yeah, it's a fascinating thing to consider. And if we bring it back kind of in the last section here, thinking about the future of this metaverse concept and what is exciting and what isn't. Where Bill and Philip, as a builder and investor, both, where do you think about interesting pockets of opportunity to build things? Like what doesn't yet exist that through all these lessons we've talked about from Second Life, through all the investing lessons from your career, Bill, what is missing from the ecosystem that you think it could benefit from in pursuit of the right kind of global digital togetherness?

• 1:02:03Speaker 02

  I'm going to say something I think Bill was saying earlier, which is if you look at that second idea of the metaverse being about enabling communication and you forget about the avatar or the 3D environment, then it's interesting to say, what is the simplest next step, if there is, what is the simplest form of broad scale communication that kind of works for the internet? Is it something that looks kind of like Discord or something like that? I think the investment opportunity is to say, what is that? What is the very simplest step forward from here where we all start to be able to communicate while we're doing the internet, whatever that means? And then what's the simplest medium of that? Is it just our voices? Is it 3D audio?

• 1:02:46Speaker 02

  That's what I've been working on for the last couple of years, making it sound perfect so that if you close your eyes, you'd feel like you were in a room with people. If it's that, then what are the governance structures and the rules that we need to get to, to make that work for everybody? I think that's a really interesting space to look at. And like Bill said, I would entirely back up away from graphical detail and even avatars and everything and asking that question, trying to find a grown up version of something that works for all of us, not just Minecraft. I mean, we three have probably all used Minecraft. I doubt we use it on a day to day basis, but what is the simple thing that we would use on a day to day basis? And then what's the governance and the rules and the implications for centralization or whatever that we need to get to, to enable that?

• 1:03:29Speaker 04

  I totally agree. If you take that simple starting point that Philip laid out, while he was talking, I was thinking about a whole bunch of crazy ideas. Like I told you about how my son and his friends get together and have a central meeting place. Well, me and my adult friends don't really have that. We might have a group on WhatsApp or something like that, but it's that kind of rudimentary. So there was an interesting feature of BlueJeans that was a little bit different than Zoom, where someone had a room. And I can remember Zillow was on Blue Jeans for a while before they finally switched to Zoom. And I remember Rich had a room, Rich Barton, and he would just say, oh, come by my room.

• 1:04:09Speaker 04

  And I would go in and it'd be like us joining a Zoom call, but there'd be two or three people there. But he had set that expectation of everyone with his room. And that was cool. That was a cool concept. And I could imagine the marketing department having a room, Zoom room that's just live all the time. You may get a ping if someone's in there and then you could go in there and then you start to have serendipity around that thing. So this notion of digital connectivity, bringing together like-minded groups, whether they're professionally organized or whether they're ad hoc organized, which I think is more what Twitter Spaces is doing. I think that's all super interesting and could give way to a ton of different, really cool emergent things.

• 1:04:54Speaker 03

  Maybe a fun closing question for you both, and then I'll ask Bill my traditional closing question since Bill's already answered it. Again, my friend Matt Ball has an ETF now called Meta. Quite funny that he beats up to the Meta ticker. Get a kick out of that. But it is meant to be a financial exposure to this idea of the metaverse. It's filled with Meta, with Facebook, with Nvidia, with a lot of the companies that might power this emergent thing. If it comes to be, what would your like synthetic financial exposure be? If, let's say, we wanted to get exposure to the version of the metaverse, maybe not the avatar version, but the comms version. What would your ETF of the metaverse be? Assuming you could buy private companies, you could buy cryptocurrencies, you could buy anything. What do you think it would look like? Would it just be Discord? How do you think about financial exposure to the metaverse?

• 1:05:38Speaker 02

  It feels to me like with the metaverse, we're still super early. I mean, if you wanted to go for a short-term win, then you'd get into things like we're talking about like Roblox. That's clearly something that is working for us, a specific demographic. If I could reinvest in Second Life and look at how does Second Life take advantage of technology changes to be more accessible to its audience, enlarge its audience somewhat, sure, you know, I'd look at ways to do that. But I'd say it's still quite early. I'm interested in what Bill says. I don't really know. I don't know how I would do it.

• 1:06:10Speaker 04

  Yeah, consistent with what we talked about. I mean, Discord's not public. So if you could get some shares, I think, put that in there. I think Roblox, you gotta give credit to. I think Zoom has a shit ton of potential with things they could do on top of where they stand. If you view it in the way we described it as digital connectivity and communication, there's a lot of ways you could go from there. Those are the things that excite me. When you think about Facebook, and you did mention they do have billions of users, I would be way more excited for them if they were doing a bottom-up thing on top of that liquidity. I think the top-down avatar-driven thing, completely disconnected from that platform,

• 1:06:54Speaker 04

  I don't put a lot of excitement into that being successful.

• 1:06:57Speaker 02

  We didn't touch on something that I've become, I guess, to some extent, a reluctant expert in, which is the VR headsets and the problems therein. But in short, adding on to what Bill said, I think that believing that there's a way that we're all going to put on a funny headset and that it's going to transport us to other worlds or even put stuff on top of the real world, I think that is, as yet, a very difficult and unproven theory. And trying to build community infrastructure that's dependent, you know, on a VR headset, which is part of what Metastory is, just doesn't feel like the right direction to me.

• 1:07:32Speaker 04

  By the way, I might include Reddit and Twitter, too, just because I think things that bring these, these community groups together in this third place are super interesting.

• 1:07:44Speaker 03

  We didn't touch on your interpretation of VR and AR. Can't finish a Metaverse conversation without at least touching on that and your kind of view on them.

• 1:07:52Speaker 04

  I'd be much more excited investing in an AR-type thing because of all the stuff we've talked about. And that could maybe be audio. I'm on a tour, I'm standing in front of a building, and it just tells me. Some of the visual overlay stuff, it's super pragmatic and interesting. I do think there are some things people are getting a lot of value out of with the full 3D immersive, especially gaming. I've heard good things about Trip and some of the anxiety and meditation stuff, but it's not the end-all 4 billion-user type thing for all the reason Philip talked about.

• 1:08:28Speaker 03

  Audio is such an interesting, talk about Twitter Spaces kind of taking off, Clubhouse, who knows where that's going, but audio as a specific standalone medium seems incredibly compelling. What have you learned building in this space in the last couple of years? Like, what would be the most surprising findings or potential for new technology? When we think just about audio as a medium of communication and exchange?

• 1:08:50Speaker 02

  If you want to get to something amazing, you want to get to something that everybody perceives as having immediate basic utility. And audio is certainly that. I mean, in the age of COVID, for a lot of people that say know each other well, a lot of businesses transition from that video on all the time to experimenting with rooms, like Bill was mentioning with Blue Jeans and experimenting with audio only, you know, where you can just kind of pop in and talk to people, especially for people you know. Audio, if it's done right, convey a lot. The big magic trick with audio, which is what we've worked on at High Fidelity, is that if two people talk at the same time, you can't understand them unless their voices come from two different points in space. That's the simplest way to explain it. That cocktail party feeling of like being in a conversation in a party at a conference or something,

• 1:09:35Speaker 02

  that's all driven by this magic of the audio being three dimensional, where it seems to be coming from where it's coming from. That's what enables you to feel, to be part of two conversations at once, for example, which is a very common thing in the real world, but very uncommon online. There's a magic trick associated with advancing 3D audio. It's what we've been working on at High Fidelity and we've got customers at Clubhouse that are using it to do that, so that multiple people can talk at once and it feels great. There's so many learnings, like time delay, one of the things I'm obsessed with. I'm a latency freak with this stuff. The time it takes from my sound to get to your ears, if it's below two tenths of a second, we get along with each other and we have fun and we interrupt and have a lively conversation.

• 1:10:19Speaker 02

  If it's above two tenths of a second, we have that painful waiting to talk, stepping on each other, cell phone experience. That's an example of where. Good technology work can bring us from disliking people we meet online to liking people we meet online. And then the other one is just, how do I give you a room of 1,000 people? And then that goes back to what Bill was saying about Discord. How do I come up with the simplest experience that, for example, gives me a lot of scale? Because that's something that we haven't had on the internet. We haven't had on any of the video games that are out there yet.

• 1:10:49Speaker 03

  Bill, I'll make up a closing question for you. What are you watching most closely as it pertains to the metaverse? What signs or companies or people are you just tracking?

• 1:10:58Speaker 04

  That may have changed, having sat through this call and listening to this ideation. So I think one thing that could be somewhat interesting is the emergence of the adult version of what I described with my son's use of Discord. It might happen on top of Discord. And touching on the thing we said about games, there are adult games when groups of adults get together on the weekends, frequent to play spades or do charades or something like that. It's actually quite shocking that we don't have a digital form of those more simplistic type adult games

• 1:11:37Speaker 04

  that bridge and might add in the audio piece, maybe video that Philip's talking about. And Zoom could do that, Discord could do that, a whole bunch of people could do it. But if someone got all the ingredients just right, something like that could take off, I think, pretty quickly.

• 1:11:55Speaker 03

  Philip, a technical question with the latency as the root of the answer. Is it conceivable that we could just have like a whole wall that's a screen that could be made to look like I'm looking into another room? And then it sounds like someone's talking at me? That's something that seems like a mixed technology to make it feel physically like I'm in a space with somebody else. Like, is that a conceivable version of this in the future that reduces the friction of connection across space and time?

• 1:12:19Speaker 02

  Well, yeah, I mean, if you use something like Clubhouse today, like we're talking about, and I agree with Bill, I think Twitter Spaces is also really important to look at right now and see what happens there. If you use Clubhouse, you get this experience of hearing people all around you, which is really, really cool. I mean, it's a different experience. Yeah, you can do that with a wall. The only little technical geeky point I would make is because you and I. And Bill, all three of us are using pretty nice microphones is that being able to walk around the room while you talk to people through the wall. No, we're not there yet because the problem is we've got to keep your mouth close to a microphone. And so there's a physics problem with that. But I think that one's solvable. Microphones are getting better and better, but it's still a problem. Your AirPods, which we're not using on this call for that specific reason, just don't reconstruct the snout of your

• 1:13:04Speaker 02

  voice well enough to do a good job with 3D audio.

• 1:13:08Speaker 03

  Bill and Philip, this has been awesome. I mean, what an interesting exploration into some real world experience that you've had with a lot of these concepts that have everyone worked up into a excited tizzy and how the future might look. Philip, I ask everyone new to the show the same closing question. What is the kindest thing that anyone's ever done for you?

• 1:13:25Speaker 04

  I probably have two thoughts. One, there were a number of people that I think took a bet on me and helped my career along that had they not done that, it would be hard for me to know that I'd have ended up where I am. And one person that really stands out is Al Jackson, who ran Equity Research at Credit Suisse. I cold called him. You know, that story you hear everyone, oh, I went to Manhattan and not my doors. I did that. All the other firms eventually turned me off. And by the way, when I got there from the University of Texas, I remember we had orientation and the other 40 first years, we went around the room and they asked us to say what college you were from. And it was Wharton Harvard,

• 1:14:10Speaker 04

  Wharton Harvard.

• 1:14:12Speaker 02

  Yale.

• 1:14:12Speaker 04

  Chicago Yale. And I was the only one, even I think below the Mason Dixon line. So Al took a shot. I've kept up with him, which is great. And I've been able to tell him that many times, but that was super, super impactful to my career.

• 1:14:26Speaker 02

  Kind of the easy answer. And then there's the harder answer. You like Bill, the easy answer for me would be specifically in the case of Second Life too, Mitch Kapor, who was the first investor in Second Life. And the story people often don't hear, and I mean, Bill knows as well from us, is Second Life was a pretty odd idea. It may not seem like it now, especially with all this metaverse stuff, but it was really pretty difficult to get people's heads around the idea. And so I think there were a lot of moments where we wouldn't have made what we were able to make there if I wouldn't have had people saying, keep going, keep going, don't worry. Your investors don't understand, but you gotta just keep going, keep going, keep going. I really appreciate Mitch for that, but I guess I would say the elephant in the room too is I can't come up with those stories very easily. Maybe that tells us something about tech and what we all are doing and, you know, what we need

• 1:15:11Speaker 02

  to think about. Like, I don't know if there's enough kindness out there in that space, right? I mean, the tech, I guess, is supposed to be this bastion of unfettered capitalism where we're all just trying to climb over the bodies and get to a new idea. I don't know. It does feel a little bit like a time to reexamine that. Why more of my kindness experiences are outside of work, which is for me the case.

• 1:15:33Speaker 04

  I will defend Silicon Valley a tiny bit in reply to Philip in that I do think, and I've said this before, one of the most amazing things about Silicon Valley is nine times out of 10, if you ask someone for a reasonable amount of their time, they tend to give it to you. And the people that are successful had that happen for them and then for the most part turn around and try and do it for others. And I think Mitch Kapoor would agree with that being his place in life right now. And so there is a unwritten rule of helping people out that I think is pretty pervasive.

• 1:16:12Speaker 02

  Well, this has been a fantastic, wide-ranging, really fun conversation. Thank you to you both for your time. Can't wait to watch what happens with Metaverse.

• 1:16:20Speaker 04

  All right. Thanks, Patrick.

• 1:16:21Speaker 02

  Thank you.

• 1:16:23Patrick O'Shaughnessy?

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