I was in New York recently and the experience reminded me of how vibrant cities can be when they’re not gripped by a pandemic. To be sure, everywhere we went was strict about checking for proof of vaccination, but beyond those gatekeepers, the venues were bustling with friendly people who were eager to chat with strangers. It was fun to kick around ideas with folks from different walks of life again. Jay-Z isn’t my favorite East Coast rapper (we can debate who’s the greatest), but he’s up there and probably takes the cake for best anthems celebrating the City That Never Sleeps.
On a 2005 Kanye West remix, Sean Carter rapped: “I’m not a businessman, I’m a business, man.” Pronouns notwithstanding, that proclamation might get adopted as the moto behind a transformational shift in the labour market - freelancers. As Digital Native’s Rex Woodbury notes, creators are on pace to make up the majority of the workforce (50.9%) in five years:
I tried to dig into the methodology/data that supports the forecast above. However, I came up empty-handed. Blackbox aside, during the Thinkific Labs IPO process, many institutional investors were onside with the idea of a growing gig economy and Li Jin has published on the theme extensively. Anecdotally, it seems like this phenomenon is gaining momentum and it’s being spurred along by technological advances:
When asked, today’s youth say they want three things from employment: autonomy, flexibility, and financial upside. From their perspective, independent work provides all three, but to earn a living wage, they typically have to stack incomes from a number of side hustles. Maybe I’m just getting old, but whatever happened to valuing stability? I wonder if people’s IG Feeds & For You Pages are doing too good a job of romancing what it’s like to go at it alone… For every Jay-Z success story there are countless rappers no one has ever heard of. However, maybe if those who did make it seeded & mentored a group of artists, then the chances of success could be tilted in favor of the entrepreneurs.
Brushing away my skepticism, there is a related story that emerged out of the pandemic, which you may find fascinating on a number of fronts. From 2010 - 2019, the Philippines’ GDP increased at 6%+ annually; making it one of Asia’s fastest growing economies. Unfortunately, their market is heavily tilted towards tourism & the related services, so lockdowns were particularly crippling:
As COVID and the ensuing response overwhelmed the nation, many already low-income earners found themselves without work. Some government assistance was provided, but citizens had to seek out creative ways to bring in cash. How does someone make money during a lockdown?
In 2018, a Vietnamese company, Sky Mavis, introduced a then-obscure game called Axie Infinity, which is often described as an intersection of Pokémon Go & NFTs. To gain access, players would buy three axies on the Ethereum blockchain with ETH. These avatars would battle others and engage in various adventures to earn winnings in the form of Smooth Love Potion (I’m not making this up). SLP is a token (or cryptocurrency) built for use within the Axie environment as a medium of exchange or to “create” new digital creatures for combat. Important to the story is that this could all be done on a mobile device and SLP was swap-able for other digital assets that were easily converted into cash. For a more detailed description of the game & some stories of lives transformed check out these notes from Rest of World and Trust Wallet
On average, players are able to earn 100-200 SLP per day, which at current exchange rates works out to about 10k – 20k Philippine pesos per month (SLP’s price has ranged between $0.01 – $0.40 USD over the past year vs. $0.06 now). The average monthly income in the country is ~50k pesos (source) and you can imagine the distribution has significant right skew. This game unlocked a way to put food on the table for nearly half a million people & that number is growing.
There was a problem though… As Axie grew in popularity and ETH increased in value, it became prohibitively expensive for many to purchase the initial three fighters. Enter Gabby Dizon, a gaming entrepreneur from the rural province of Nueva Ecija in the Philippines who lent out his axies so that others could play & make SLP (giving up some upside of course). For those who’ve studied economics… do you remember isoquants? They represent combinations of resources (capital & labour) for a given level of production and the substitution opportunities for a given scarcity of both:
Absent technological innovation (which came later), in output to increase production, the curve needs to be pushed away from the origin by adding quantities of the inputs. These are the critical micro allocation decisions that roll up into the macro and shape economic systems. Econ probably plays a bigger role in gaming than you might think. Here’s an excerpt from a job posting for Mythical Games:
Gabby (& others) facilitated a shift in the isoquant, which brought in more users and likely ended up allotting resources more efficiently. The benefits accrued across the ecosystem (you can read about optimization here). This caught the attention of Beryl Li and a third cofounder who goes by the pseudonym “Owl of Moistness” (again, not making this up). The three teamed up to form Yield Guild Games (YGG), which has received venture capital from the likes of Delphi Digital and a16z who wrote:
I can’t blame you for thinking this sounds a bit Ponzi-esque, but recall that Marc Andreessen built the first commercial web browser and said that software would eat the world shortly before it started to. His firm elaborates on the YGG opportunity:
In a recent conversation, a16z partner Arianna Simpson made several bold claims. Notably, she thinks the majority of gaming companies will pivot towards blockchain-based products “within months.” No one knows what will happen, but directionally this is meaningful, since Ms. Simpson’s employer has investments in both traditional & digital ledger entertainment. Clayton Christensen’s Innovator’s Dilemma taught us that disruptive change starts at the margin, so to see crypto gaming flourish in emerging markets might have powerful implications. It can lower the barrier to getting involved in digital assets, plus transform a large and rapidly growing industry while bringing prosperity to the less affluent.
Newzoo estimates that the global video game market will generate revenue of nearly $180B in 2021, half of which is expected to be mobile. Investors in the space are likely aware of the demographic-driven industry tailwinds. Historically treated as pariahs, gamers are entering the mainstream through sports/media partnerships and even education. Even still, many children are limited or prohibited from gaming, but as the pastime starts to pay the bills, it seems reasonable to think that this tendency would reverse.
Patrick O’Shaughnessy interviewed Mr. Dizon on Founder’s Field Guide and the hour-long conversation took me twice as the time to get through. I had to pause & rewind often because the concepts were so outlandish yet familiar at the same time:
Call me crazy, but if you merge this theme with the growing gig economy, you might just have a powerful wave cresting. For numerous young Filipinos, Axie/SLP was their first interaction with financial services and the revenues caught the government’s attention. Regulations are coming to this space, but perhaps it’s for the better – games are defined by their rules. For better or worse, these kids & the industry are learning first-hand what NYC hip hop legend, Notorious B.I.G. cautioned: “mo’ money, mo’ problems”