E78: The Sandbox Co-Founder: How Crypto Will Make Gamers Rich In 2024

0:00You need to spend probably seven to eight figures in marketing to hopefully enter in a top grossing. The top grossing hasn't moved for years. There's no new entrants. And that's not good, a market where there's no new entrants, right? But here's the catch. Sebastian Bourget, the co-founder and CEO of The Sandbox. A unicorn online gaming platform that offers a unique and immersive gaming experience. Sandbox started in 2011 as a mobile game, where people could make 2D games and creation, music, pixel art. It then became a large success, driving 40 million downloads and 70 million player-made creation.

0:34In 2017, we started to make some books on blockchain. We talked a bit about NFTs. Are NFTs dead? I think NFTs are far from dead. Cryptocurrencies are a store of value. NFTs are a store of culture. Saying NFT is dead is like saying culture is dead. If you talk about trading activity, there's still a large volume of NFT being traded. We just have to keep educating developers and creators on how to best utilize NFTs to attract users. Why is the concept of digital identity something that is so important to you? Studies show that more than 54 % of people who have an avatar on the Roblox, Fortnite or Sandbox feel more themselves than in a physical world.

1:08And this is where it gets scarier. What do you think is the right way to create a valuable NFT community? I think there is.

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2:09So Singapore, yeah? So you've been there a couple of times? Yes. Yeah? Are you going to token? Token 2049 from Singapore, a few years back. So actually, for a story, like when we were originally fundraising for the sandbox back in 2018 and 19, in Singapore and token for 2049 was the first big conference that we attended we met a lot of investors for Sandbox Yatsu was there and I was there as well and it really gave us a first insight around like the whole crypto side of universe and I came from like mostly gaming so it's been nice I think I met CZ back then and a few other of the OGs it's been interesting so before 2018 you were not really familiar that much with crypto no i was but i wasn't maybe less involved with asia so like walking back a little bit like the story of sandbox like sandbox started in 2011 as a mobile game on ios and android where people could make like 2d games and creation like music pixel art electronics and playing around with physics and the periodic table of elements then they could that more and more game element and share those creation online.

3:26It became a large success driving like 40 million downloads and 70 million player-made creation. But still we were kind of struggling to keep and retain those creators, engage for a longer time, more than a few months or years. Essentially featuring them for social fame wasn't sufficient for them and we couldn't share a form of revenue that they drove because they contributed with their content to the success of the game. and we found in 2017 blockchain with the first game crypto kitties that use nfts and those virtual cat as nfts were exchangeable outside of the game you could buy it from other players on the marketplace open sea sort of ebay of digital asset and using crypto as a way of payment and we found it to be the solution to that problem of monetization for our creators and that's when we started to make sandbox on blockchain why could you not initially share revenue with the creators well what's the problem with the well the problem is like with the web tools yes like when you develop a mobile game you need to publish it either on the app store or the google play store and all those platforms like yes you users can make a payment with their credit card uh so you receive the purchase like in-app purchase virtual item virtual content and you receive fiat payment at the end of 30 days 60 days from apple or google but you don't have a way to send a payment back from yourself as a developer towards certain users on the platform so you have to find manually like who those users are write them a contract and like just like make your own private arrangement which is not scalable basically and like very tedious like the reminder and it requires a lot of manpower.

5:10So the criticism that, hey, gaming developers are basically keeping all the money for themselves in Web2 is actually not that true. It's more that it's not scalable and it's extremely difficult to do at scale. And probably the only moment where you have some serious or interesting money to share is when you have reached a certain scale, but it's not scalable to give this money back. well traditional business model in web 2 and specifically mobile gaming is like this free to play model like you have the platform which are acting as like the distribution channel for the application and they take a fee which range from now it's like five to ten percent in certain case up to 30 percent as a standard fee on any single purchase or payment made by users on those platform.

5:58Developers then normally keep the rest of the revenue, however they still have to bear their own marketing costs and user acquisition costs. The user acquisition costs usually they have to spend on advertising traditionally on the app stores themselves or on Instagram, on X, on YouTube etc to drive users in, convert a certain number of those users to download their application and after like hopefully convert three percent that the industry average into paying users and then retain those users for sometimes many years so that they keep purchasing on a regular basis until like they like the cost of acquisition the cpi is actually lesser than the revenue generated by those users ltv so this equation cpi versus ltv has really been the de facto standard for the industry.

6:53But today, traditional model of CPI versus LTV is very challenged. And the whole gaming industry is confronted with an unprecedented situation where they can no longer acquire targeted users as they've done before. Because now new privacy laws are in place. The stores and the platform cannot collect any more specific data about those users. And hence, you cannot target as efficiently like, oh, I want a game for a casual woman between 25 and 45 years old in the US because I'm doing a simulation and management game. Meaning that the cost of acquisition has risen. And unfortunately, the economical context as well of the world, inflation, war, people are spending less, spending less in entertainment.

7:45So the LTV are decreasing. So CPI are rising, LTV are decreasing. It's getting more and more challenging to become profitable operating with this model. Many studios are forced. Actually, we've never seen as much layoff in the industry since the beginning of the year, readjusting workforce post-COVID. And those studios are forced to look at new models because what they used to do and to apply for this VCP that they applied for over a decade no longer works. And Web3 brings a new solution, brings an opportunity to reinvent the model, to distribute the value between the different actors of the value chain, like the players, the developers, and the platform, in a more fair way.

8:31And more importantly, to reinvent this monetization model, not necessarily trying to monetize only 3 % of the user base and the rest with targeting advertising and collecting user data to sell it to the platform, for example. but instead to think of like how we can involve the community to participate more openly become stakeholder of the economy of the game how we can airdrop or distribute content for free initially to drive the community and also how like the monetization is not only on like selling constantly new model making the new content making the previous content kind of like obsolete but only selling limited scarce supply of content, growing its value and then maximizing the time, the number of time that users are going to exchange with each other, like selling to each other those content and taking a small fee on every transaction, the royalties model.

9:33That's really interesting, but it requires some education, some adaptation, some experimentation until we find the next major model that will emerge in Web3 and become probably one or the main recipe that a lot of gaming companies will follow. Does it mean that it's almost impossible for a new Web2 game to launch and be profitable? I think the barrier to entry is definitely getting higher. We know that if you want to enter with your game studio, not only you have like the production cost of your game, but now like you need to spend probably seven to eight figures in marketing to hopefully enter in a top grossing.

10:16The top grossing hasn't moved for years. There's no new entrants. And that's not good, a market where there's no new entrants, right? It's not good, but you could argue, the main question is the big Web2 gaming players, are they incentivized to keep this as is or are they also forced to explore Web3? Because even themselves could benefit much more than staying in this kind of oligopolistic situation. I think like the new studios, new creators entering the space will be more agile in experimenting and will be like definitely best fitted to like adopt Web3, test and experiment and hopefully grow and become the new leader in the space.

11:03We've seen that in the past. Every time there's a new platform, the one that already established are probably the last one who are going to enter and be forced to migrate. Why? Because for them, the revenue opportunity, even if you can earn five, six figures, seven figures in Web3 if you operate your game well, this is not sufficient. That's what they earn on a daily basis in Web2. So they have no real opportunity yet to risk their existing model. The way that some of them have been doing, because I'm also the president of the Blockchain Game Alliance, we count 600 members. Our mission is to educate about how blockchain technology can really empower the video game industry and drive new use cases.

11:46We have some members like Atari, Square Enix, Ubisoft, the few Korean studios as well, WeMade, Netmarble, etc. They are establishing new entities to experiment with Web3. But those new entities, they kind of behave like startups. They do not follow the same rigid corporate structure of thousand big kind of like those Web2 companies. and that allow them to be more agile in like experimenting games and to be more creative as well without like really having to worry too much on what the rest of the company does. So you said the sandbox started in 2011, right? As a Web 2 game. Yes. Then you had some challenges and then you discovered Web 3.

12:36And then you jumped on the opportunity. Does it mean that you were, I mean, a certain size, but not big enough yet to take the leap? Or just that you really understood how this thing changes the game and just jumped on the opportunity, right? And you did that by associating with Alimoka. So why did you do that? And I think the most interesting thing is what happened afterwards for the sandbox. That's a great question. I think we were really quite successful already. From the first month that we launched Sandbox back in 2011, we already got$1 million and probably$1 million revenue back then. And over time, the company made$3-4 million revenue a year, which was reasonable, like put us at the top 500 gaming studio around the world.

13:28And we were excited to be able to keep developing with LiveOps, like regular update of content, adding new elements, new capabilities. and our mission has always been like how we empower anyone to become a creator. So back then, blockchain didn't exist. So there was no question. Like the only way to become successful and grow was to keep improving and iterating between 2011 and almost 17, 18, what we were doing. We were knowing our limits, but we were improving and doing better what we were already doing. Usually in a mobile free-to-play market, the way to grow your revenue, it's either like you spend more in user acquisition and you maximize this CPI versus LTV equation, or you look for new market and specifically publishers.

14:14To publish in Asia, like we were very good with US. US was probably 80 % of our audience, but we didn't have like presence in Japan, in Korea, in China, which were like the other top five markets. So that's how we actually approach Animoca brands, Starting in 2014 and then I believe 2016, we met a few times. We were looking for a publisher for the sandbox in Asia. And back then, Animoca Brands was not a blockchain company either. They were like a game studio for 100 people publishing Western games to Asia or licensing big brands from Asia to add them to Western games, which was a perfect fit for sandbox.

14:55We wanted to work on bringing like Blackjack and from Osamu Tetsuka or Dory Amon as IPs and allow people to make their own games with them. We didn't work together back then, but we kept like meeting with Yatsu and Robbie, the co-founder of Animoca over the years. We updated each other until 2018 and we figured somehow like we are both interested into NFTs and CryptoKitties. And Animoca Brands became the publisher of CryptoKitties in China, where we were implementing NFTs in Sandbox to empower those creators to own and monetize their creation. So at that point of time, it really made sense to work together.

15:37And actually, that led toward the acquisition of that game studio by Animoca Brands. And moving forward, not only they acquired that studio, but we spawned out Sandbox at its own separate product and company. We raised funds in 2019,$4.5 million, with Animoca Brands, Hashed, which is leading in crypto investors from Korea, two global ventures. I had Ryan on the podcast last week. Yeah, they were one of the first to believe in the feces of blockchain gaming, and Sandbox and Axie Infinity were the two projects that they backed back then. And they brought us to Korea, and I'll get back to there after.

16:16and Square Enix from Japan and True Global Venture, a very international investor as well. And interestingly, when we saw that, we said, look, all our investors are based in Asia. There must be something that Asia is understanding much better around like Web3, blockchain gaming and metaverse than us trying to pitch and convince people a traditional way raising funds in the Silicon Valley, explaining about NFT and Web3. So that's where we decided let's double down and working with hashed we started to implement uh our first team in in korea that's and that was a very successful attempt since we were able to sign a lot of like local partners brand uh we we have like what we call the cavers in sandbox and we already would the cavers one two and three giving the amount of like brands from k-pop whether it's sm entertainment cuba entertainment we have Studio Dragon, we have Netmarble, we have A-Story, Tony Wu, and a few exciting content that are part of Sandbox and use our platform to build experiences that engage their audience, allow them to also become creators using our no-code game maker.

17:29And after a while, like, of course, we expanded in Hong Kong, we expanded in Singapore as well, where you base off and Thailand and Japan. So Sandbox now counts 5.7 million users' accounts with a wallet, which in Web3 is becoming a significant number. We have over 800 partners around the world and 400 major brands, and Asia represents 35 % of them, of players, of our creators, our brand, and landowners. So it's quite exciting. What's the plan for the future for the Sandbox? So we still see Sandbox as an alpha in terms of product maturity. We've been building it for roughly three, four years now.

18:13We always started by the product for the creators, and today we're still very creator-driven. We released the 3D editor, VoxEdit, so people can make their own content and animate it. We released the marketplace, so now people can mint their own asset on Polygon and start selling them since last December. we have our no code game maker that keeps being updated every quarter actually we had a major release last at the end of last year and today a new big release as well like the community is super excited about it we opened the publishing so any of the 27 ,000 unique landowners of our map cannot publish experience and we just passed a thousand experiences live by creator so again like a very exciting milestone that shows that there is a lot of traction on the user-generated content side and supporting and empowering the creator economy with Sandbox.

19:09And the more you provide them with tools that unleash their creativity, allow them to make fun games, multiplayer games, add their own rules of gameplay, the more diversity of content you have. Sandbox will probably entered a beta phase this year with more product updates with the upcoming season 4 that's a lot of content from both IP brands and user-driven content. Major partnerships to be announced so very exciting brands entertainment brands I don't want to spoil it but it's very exciting new markets developments like we started Vietnam, we're here in Dubai I'm going to Saudi Arabia after so we keep on boarding local partners and developing the greater economy there.

19:55And ultimately, this year, the launch of the DAO as well, it's coming. So allowing landowner and sandholder to participate in the governance of Sandbox and support values initiative to grow this ecosystem. And later next year, I think Sandbox will launch the public 1.0 version. will also be available on mobile and we'll start seeing like probably an acceleration of the growth phase both from the creator side and the player side. The central piece of all of that is NFT? This, in sandbox yes, you have like the NFTs so various kind like the lands virtual real estate is an important aspect of sandbox with our map.

20:37You have the avatars which are really the entry point for anyone who wants to enter the metaverse and it serves as their digital identity. Each one is unique. We have 19 collections live between 1 ,000 to 10 ,000 unique supply based on your favorite IP or celebrity. Smurf, Rabbits, Snoop Dogg, Steve Aoki, Paris Hilton. You can use them. And we also support external collections to become interoperable. like with this idea of open mail hours I can have NFTs from outside sandbox that become usable in sandbox we have as well all the user-related content what creator make with voxedit mint on the marketplace that can be used with a no-code game maker to build your own experiences soon credit can also like mint their own collection of equipment or avatar that's coming this year and you have sand which is not an NFT, but it's also an important part of the sandbox ecosystem.

21:41It's a utility token that power our platform, allowing users to buy land, to participate in the creator economy. Creators are being paid in sand as people buy their content on the marketplace. And users who engage in various events, complete quests, earn sand as well. But I think sand is much more than only the token for the sandbox platform. We are known as one of the top metaverse tokens and top gaming tokens between top 50 and top 100 on CoinMarketCap. Like, SAND is listed everywhere in the US, in Japan, one of the only 20 tokens listed in Japan, in Korea, in Europe. and we're starting to see other games, other applications and even real IRL events accept SAN as a mean of payment or to attract our community of users to offer them value services.

22:38So it's exciting to see how SAN can also extend and be more adopted beyond just the sandbox game platform by itself. You mentioned the avatars and you talked about something key here, which is digital identity. why is the concept of digital identity something that is so important to you it's essential i think like we having the ability to choose your identity for the first time like when we are born in this physical world we don't really get to choose who we are where we are born and that really will start to define a lot of things in our life unfortunately like We inherit certain culture, tradition, our social status and situation, and our access to certain opportunities, education, etc.

23:27We're quite conditioned by it. But in the main universe, we can really choose who we want to be, whether it's a male, female, or non-human or non-gendered person. And we choose the community we belong to. So the digital assets that we own also start to define which community we are affiliated with. And we can build a new online reputation based on the action we complete online, like as a creator, as a player, as a contributor on the sandbox, but also different platforms. And this digital identity can keep evolving. It doesn't age. People can upgrade that avatar over time it gets new emotes and animation and i think it's a great way for people to feel like and actually studies show that more than 54 percent of people who have an avatar in platform like roblox fortnite or sandbox feel more themselves than in a physical world so it's really interesting that how like we re-appropriate ourselves that identity even if it's virtual Why do you think it's the case?

24:35I think like we're living in a society that's really putting a lot of pressure on like how we look and how like there's a lot of aspects to our like the vanity that's important. And unfortunately, we don't have a chance sometimes to be really included as part of the conversation or we cannot really express who we truly are because of the various filters, because of how we have fear of being judged by our surrounding environment, society, school, work. Things we don't really choose, right? Exactly, things that we don't really choose. The ability of choosing your identity and building your reputation online, it's a new chance.

25:25Sometimes I feel like we are reborn in the metaverse. And then we can choose, of course, hopefully, like we choose to do great action, positive impact to drive a change that, like, basically give us a chance to be appreciated for who we truly are. And people are no longer judging us based only on our appearance, which is unfortunately still most of the case today, but by our action, how we contribute, how we build, how we bring value towards certain communities. The digital identity would be a collection of NFTs that basically prove the things that you've done. Because one of them is definitely vanity.

26:07Your profile picture, I'm a bored ape or I'm a crypto punk. It's not really different than the real world, right? No, exactly. But then you would have other compliments that would show what you've done. Yes. So it's more than NFTs. It's more than only what we own that will define who we are. That's an important thing. I think it's one step toward it. Definitely what you own define like probably which community you belong to, your tastes. And so I can choose to be part of the Pug the Penguins, which is a very family friendly community. Or I can be more around like Bored Ape and have like a certain lifestyle associated with it, etc.

26:48etc. A little bit like in the real world, I would choose to buy a Ferrari or a Renault car. Both are cars. They have the same utility. You use them to drive. You probably cannot drive more than a certain speed in our cities, but they reflect a certain social status and belonging or not. A notion of belonging toward a community of people who like those different cars. Which one is the Renault and which one is the Ferrari? The Pudgy or the Bored Ape? More complex than that. But what's beautiful with blockchain is like our reputation is also based on like it can be transparent and it can be recorded on chain like the different actions and contributions.

27:29So not just like the fact that we own, but also the fact that we completed certain quests in certain application. if you spend 100 hours a week playing a MMORPG like World of Warcraft. Before, all of that was not tracked anywhere. It was just reflected somehow in the level of your avatar. But you could buy that from another account. So nothing really proved that it was actually you playing that. Now, if I'm an employer and I see, oh, that person is so dedicated and has been actively, I don't know, progressing, leveling up his avatar and I have the whole history on Shane proving that it's him, I can start to derive a certain interpretation of his skill, of his dedication, and define those are potentially valuable skills for the jobs of the future in a more digital world and digital economy.

28:22And all of this moving on Shane can be part of your reputation. Basically, yeah, absolutely. You're grasping value that was there, but that couldn't be valued before, right? I had this conversation with the co-founder of SwissBorg and he was giving a Duolingo example saying, hey, look, we have one of our employees. He's done 8 ,000 days, right? Duolingo every day. But the problem with Duolingo is, okay, maybe he has some clappings or something. Congratulations, you've done an 8 ,000 days trick. But this could be actually extremely valuable for... for, I mean, just think about badges as NFT. Or just marketers of other apps, right?

29:06Knowing who is a top super user for some applications and who to target. And even personally, the fact that you're building these competencies and that are going to be valuable to one person or another or business or another can make a huge difference. Whereas in the Web2 world, it's just lost in the mix, right? No one knows it and no one cares about it. Exactly. Like the information is only held by like those centralized company operating and there's a lot of like dormant data that's not being utilized or monetized and i do believe that open ecosystem bring much more opportunity to grow value to interpret the information that's available and to create new business model new synergies new way to target users and to develop this overall digital economy absolutely we talked a bit about nfts we mentioned bored apes pudgy penguins are nfts dead i think nfts are far from dead like nfts are like a store of culture which you if you very often you compare like cryptocurrencies are stop or store of value and if you have store of culture is culture dead no culture keeps reinventing, regenerating.

30:23Sometimes you have collections of NFTs, like profile picture. Maybe that was one slice of what NFTs are. NFTs represent many different asset class, whether it's art, it's like virtual land, it's avatar, it's game item, it's a profile picture as well. It can be a music file, sounds file, and so on. Right now, like NFTs, NFT community, really live through like the actions of their holders. Like stakeholders of NFTs are like the, for me, the living earth and body like that make a collection more or less or dead. If you talk about like just the trading activity, no, like there's still a large volume of NFT being traded, by the way.

31:15Like I think it just moved from certain marketplace like OpenSea to what like now Blur and other Magic Eden, for example. But definitely I think like saying NFT is dead is like saying like culture is dead. Like there's no way like NFT are dead. They are, NFT is just a technology. The content that's being pushed on that technology might become obsolete at some point. And still, like you still own it. You don't lose that ownership even if the collection is maybe less active at some point because the people in charge of that project are less active. And we are seeing that it's totally possible to have new owners or new community members that decide to revive a community.

31:55You take Buggy Penguin. It's a great example of communities that's been revived by a new team behind. There's so many opportunities to also target OGs or people say, oh, you know what? You were there in 2018. You already owned some early crypto kitties. It's a skill or you're the right kind of user. so I'm going to actually offer you like a special benefit in my game no more not necessarily just whitelisting access like we are seeing now but I'm going to allow you to turn all your crypto kitties into a specific equipment or specific avatar in my game we've seen those strategies applied quite often and they are interesting I think and you don't lose access of that content as a user you don't lose your NFT you just keep having like new utilities and new possibilities is behind.

32:45We just have to keep educating developers and creators on how to best utilize existing and upcoming NFTs to attract users. What do you think about the Pudgy Penguin, I mean Lucanets and Pudgy Penguins? Because they're doing something different than other NFT collections. So maybe you can tell us what you think about what they're doing and then you can tell us what you think is the right way. Obviously there is things being tried, right but what do you think is the right way to create a valuable NFT community I think there is obviously not just one way to create a valuable NFT community we've seen like how board ape and then the apecoin and the apecoin DAO ecosystem have evolved we've seen our sandbox as well is evolving progressively focusing on creators and users range content while leveraging brands and having a very cultural approach, very inclusive and global.