#1394: Discussion about VRChat Layoffs & Paths to Profitability with Four Community Members

On June 12, 2024, VRChat announced they were laying off 30% of their staff, and they posted a letter to all employees sent from CEO Graham Gaylor that said, “We’re reducing the size of our team by around 30% and saying goodbye to many talented team members in the process. This is the hardest change we’ve had to make at VRChat, and Jesse and I take full responsibility for the decisions that brought us here.” VRChat listed the four main reasons for the layoff in that they added too many individual contributors to their development team without a management layer to prioritize efforts, which meant they needed to reduce their headcount to folks who were more directly working on features that would lead to a path of profitability over the next five years.

VRChat has taken a long time to launch their creator economy, which is still in closed beta, and their VRChat+ subscription models doesn’t offer all that many differentiated features to drive users to join beyond a signal of patronage to support the platform. I wanted to gather some active VRChat community members to talk about the burgeoning creator economy as well as other potential pathways to profitability around streaming avatar streamlining, events, contributor / group subscriptions, and emerging features like increased instance size caps.

The VRCSpaces community on X (formerly Twitter) held a Space on the day of the announcement discussing the layoffs, and I invited participants Table, yewnyx, and Miss Stabby as well as qDot who wrote up a really great thread breaking down some of the Silicon Vally startup dynamics. More than anything, I wanted to get their take about what VRChat is getting right, and where the most viable pathways for them might be on their road towards profitability.

This is a listener-supported podcast through the Voices of VR Patreon.

Music: Fatality

Rough Transcript

[00:00:05.458] Kent Bye: The Voices of VR Podcast. Hello, my name is Kent Bye, and welcome to the Voices of VR Podcast, the podcast that looks at the future of spatial computing. You can support the podcast at patreon.com slash voicesofvr. So on Wednesday, June 12, 2024, VRChat announced on X, formerly Twitter, that they're laying off 30% of their staff. They say in a post that our responsibility is to grow and maintain the space we've created in VRChat, where so many people have found friends, family, and happiness, and most of all, to bring that opportunity to everyone. Although difficult, this decision enables us to uphold our responsibilities for many years to come. So Tupper, the community manager, also posted an email from their CEO, Graham Gaylor, that was sent to all of VRChat employees. The subject line was, important announcement, company update, June 24. So Graham Gaylor says, hello, everyone. Today I have some very hard and sad news to share. We're reducing the size of our team by around 30% and saying goodbye to many talented team members in the process. This is the hardest change we've had to make at VRChat, and Justine and I take full responsibility for the decisions that brought us here. So in this email, he goes on to explain the four major reasons that were driving the decision. Number one is that they took too long to add a management layer. They had ballooned from like 20 or 30 up to like 150 to 170 plus employees over the pandemic, and they had overhired individual contributors. And so They needed to cut back their staff in order to have an extended runway to be able to execute on their five-year plan that they've laid out, and that there's some different roles and expertise that were needed for the people that were still remaining at VRChat in order to go on the next part of their journey. They're bringing in a whole management layer and they say in the third point around needing more time and runway to execute that with management in place, we now understand what we need for success over the next five years. We're in a good cash position, but need to execute effectively on our five year strategy. We need an extended runway with line of sight to profitability. The current fundraising environment is tough and will likely struggle to fundraise without greatly improved metrics. To take control of our own destiny and not solely depend on market-driven outside investment, we're placing an emphasis on capital efficiency to ensure VRChat thrives. And later down in the message where it says moving forward, they talk a little bit more about the runway, saying that for most of our history, we've always had one to two years of runway. The strategy was that we could always easily raise additional capital. While the capital markets will surely get better over time, our capital strategy will shift towards taking control of our own destiny and being more efficient with our capital." So they're going to be lowering the cost of the infrastructure and increase their revenue growth and to have their income and their revenue start to match all the costs and, you know, move towards this goal of profitability over this five year plan. So it sounds like with this layoffs, they may be able to extend it out into that five year plan, or they may need to raise more money. But at least at this point, they have to cut back on their staff and really double down on all the different ways that VRChat can actually make money. And so there's a lot of different discussion that was happening, both on the platform of X, formerly Twitter. There's actually a whole VR Spaces account that was having a group audio discussion, just basically going through all the logistics of the finances and how they handled the layoff and everything. It was basically a group of VRChat community members who are really interested in discussing some of the latest news within the context of VRChat. So this is a good opportunity for them to get together and share some of their thoughts. So I connected to some of those people that participated in that conversation, including Table, Unix, and Mastabi. And there was another person named QDot who has been on the VRChat platform and did a really great thread on X about the venture capital and startup logistics of what was maybe going on, just giving a little bit more of an insider baseball for some of the behind the scenes of the decisions that So I wanted to bring together these four VRChat community members to recount some of the basics and logistics of the financial realities of the situation. But more than anything, I really wanted to hear from their perspective, like why they're interested in VRChat. What is it that's really drawing them to the platform and their insights for what's going to take for that in-world creator economy to really take off and to start to really generate revenues for VRChat. And there's a number of other different types of things that VRChat could do to potentially charge money and have this path towards profitability. So I really wanted to get some of these insiders into the VRChat community and creator economy and just get a lot more context for this latest news at VRChat, both for where it's at right now and where it could go in the future. So that's what we're covering on today's episode of the Voices of VR podcast. So this interview with QDOT, Unix, MissedAbby, and Table happened on Friday, June 14th, 2024. So with that, let's go ahead and dive right in.

[00:04:50.786] yewnyx: I'm Andy, Andy Toulouse. I'm known online as yewnyx. I work in the VR industry. And in the past, I've worked on various things at Oculus and Facebook. I am a longtime VRChat player, though perhaps not as long as some of the other people here. I took an interest in VR when I joined Facebook, and I saw an early demo of the Rift when the touch controllers hadn't yet been released. And it sort of woke me up to an entirely different medium. And ever since, it's basically been my life's goal to make VR as good as I can.

[00:05:31.052] qDot: Yeah. Hi, I'm Kyle Machulis, better known as qDot Online. I am the founder and CEO of Non-Polynomial. We are a technology production consulting firm based around immersive technologies such as haptics and VR. I've been around VR since VR has been a consumer product. I was going to play virtuality machines in battle tech centers in the early 90s, In terms of virtual world, I worked at Linden Lab sort of during their big heyday, 2006 through 2008. I worked alongside the WebXR team at Mozilla when that was taking off in the mid 2010s and Now I'm just a dedicated VRChat user. I've been in there about four years working not at the company, but around the product to facilitate different types of immersive hardware integration and some consulting on the platform.

[00:06:30.740] Miss Stabby: I'm Miss Stabby. I've been working with VR since I was graduating for my university project back in 2015, 16. Also worked with Philips Research and later also worked on Portal Stories VR and after that ended up with a early prototype of the HTC Vive where I then proceeded to do some small projects with. And after that I got tired in the regular game industry and have been working at various companies as a tech artist and more recent as a VFX artist. And these days, I also spend a lot of time in and around VR chats and collaborate a lot on various creative endeavors.

[00:07:24.371] Table: Hi. Yeah, around VR circles, I'm mostly known as Table. I published online formerly as Metamaniac. I go by Will out in, I guess, the physical space. And most of what I do is kind of a whirlwind. I create a lot of worlds. I'm one of the people responsible for the pool table. and just a wild bunch of other things, benchmarking, community management, a bunch of different aspects of fields, I guess, kind of a multi-classer. And I guess more pertinently to these sorts of, the reason I'm here is that I'm the one responsible for VRC Spaces. I host a number of public talks regarding, I guess, latent VR news, whenever things like come and boil and try to get high-quality discussion spaces similar to this for people to come in and have these exact sorts of discussions to try and help random other people just be educated because nothing irks me more than misinformation. Nice.

[00:08:23.326] Kent Bye: Well, I first came across VRChat at Silicon Valley Virtual Reality Conference all the way back in 2014 when I met one of the co-founders, Jesse Jodrian, did a brief interview with him. And then continue to do interviews with either Graham Gaylor and or Jesse Jodry every year for 2014 and 2019 and then the pandemic hit and then lost touch out of the rhythm of meeting with them at physical conferences, but I didn't really start to dive in until probably around 2017 or 2018. And over time, I've just been really super impressed with what VRChat as a community has been able to really cultivate with focusing on their SDKs and allowing people to really choose their avatar identity or will builders to upload their own Unity worlds with lots of interaction. And so for me, I think it's at the pinnacle for what's possible with social VR, and they've really pushed the edge for the user interface and really cultivated an amazing community. And so I'd love for each of you to maybe just recount a little bit of coming across VRChat for the first time, and what were some of the things that really drew you to become more and more involved with the platform?

[00:09:29.186] yewnyx: My history is that I've been working in VR for a little bit, but I had not really used VRChat more than once or twice. And I was feeling burnt out at the company I was at, and I decided to quit and go see the world. And just as I was about to book my tickets, everything locked down. Yeah. And I searched for something to do and I actually spent a lot of my time on Reddit and I saw a clip of someone performing in VRChat and I was like, that's kind of funny, but that's also kind of interesting. I should check that out. So I joined in, found my community, and eventually I branched out into other communities. Actually found my current job in the VR game industry through VRChat. I met the co-founder of the game studio I work at. and talked to him a bit and was just chatting about VR in general because he was in the industry, I was kind of in the industry. And I was like, you're not hiring, are you? Like, haha, unless, you know, push his fingers together. And then he told me to send him like his resume, which I did. And, yeah, just for the past four years, I've been in VR multiple times per week, many hours per week. It's how I connect with people and has been since lockdown. So it's like near and dear to my heart. Like there's nothing I don't love about it. Like it's to me, like one of the most interesting modern forms of marrying technology with like the liberal arts and humanities and the feeling of exploration that I couldn't get from traveling. I definitely got from like exploring new and interesting worlds in VR. Yeah. I love it with all my being.

[00:11:24.358] qDot: Hmm. Yeah, I first really started engaging with VRChat around the same time many people did, which was during pandemic lockdown. Before that, I had, I think I'd played with it once or twice. I'd also played with the Neos platform, which is now better known as Resonate. And none of them had really grabbed me all that much because I'd come from the days of Linden where I was like, okay, but I need everything to be built in world and all of this. I had certain expectations that didn't quite map to the VR paradigm, but finally got in, started being social, everything else. And it really just hooked me. And it's where I still am today. It's a comfy technology. The platform that both the company and the community have built just works. It feels correct in a lot of ways. Yes, there's a lot of improvements to be made, a lot of things to do, It's just been pretty enjoyable so far.

[00:12:23.995] Miss Stabby: Yeah. How I came across VRChat was earlier when the Vive was still unreleased, I came across a group of developers that was part of the first wave of VR game developers. Because with the prototype, I got access to this whole developer forum of all these people that are making the first generation of VR. HTC 5 VR games and through there I got introduced to VRChat as a sort of meeting platform of people sharing their progress and their struggles and their developments. And initially I was in there quite a bit, but later other platforms like Outspace came up, which I also attended a lot more because it had by then more polish compared to what VRChat had. And once I got hired in industry, I moved countries and I had the VR gear actually stuck in a box for about half a year or eight, nine months until I got roped back in again by a good friend of mine who wants to show off something he made in the platform. And since then I've been pretty much in VRChat the whole time.

[00:13:41.696] Table: VRChat I discovered through a YouTube video in late 2017. And I thought immediately, this looks amazing. It's everything I wanted out of existing platforms that I'd already been fairly active on as a natural evolution. And I just kind of threw myself at it pretty holistically. It wasn't really until 2020 and the whole pandemic that I was able to actually put a ton of time into content creation, Unity development, and just spending time on the platform pretty much daily. But I've been thinking about it for years. It's been something kind of in the back of my mind ever since I started going in with it, because the prospect of a fully open user generated content, 3D chat app, social platform hybrid was like intoxicating to me as a person. I loved that. It was absolutely phenomenal. And it did end up resulting in a ton of new friendships and I guess now professional connections. I don't know. It's been one whirlwind.

[00:14:40.543] Kent Bye: Yeah, well, I guess we're gathering today because there was some news that was announced this past Wednesday, June 12th, 2024, where Graham Gaylor, the current CEO of VRChat, had sent out an email to all their employees, somewhere between 150, 160 or so, that they're laying off 30% of their staff, so around 40 or 50 of their employees, as best that we can estimate from LinkedIn numbers or whatnot. And so there's this fundamental tension that I see here, which is that VRChat has a number of different ways that they're bringing in revenue. They have VRChat Plus subscriptions that people are paying. They have events that are being held within VRChat. And they have the creator economy, which is, as far as I can tell, still a little bit more of a closed beta, hasn't fully launched, and that they're maybe opening up some different aspects of being able to subscribe to different channels. It seems like that they had too many people that they need to cut back and have a little bit more runway to really get onto a path of profitability. Now, one of the things that I've noticed about VRChat is they haven't taken the approach that most of these social platforms have taken in the past, which is like selling avatars. I know that Second Life and London Lab have the whole in-world economy, which is famously one of the most profitable virtual worlds that has consistently been out there. And they have their financial services company, Tilia, that is going to actually be facilitating a lot of the VRChat backend. VRChat took a decision very early that they were not going to be initially monetizing those avatars. And I think that's actually part of the secret sauce of what has made it such a compelling platform is that people could really innovate and express their identity in any way that they wanted to. And that most of the economy for that has happened outside of VRChat's realm, either in Gumroad or booths or individual commissions. But that's all happening outside of the platform. and that their creator economy is going to maybe add that later. But the first cut is going to be just around these groups and other monetization strategies. So I'd love to hear some of your reflections on maybe the fact that VRChat has not immediately monetized identity is part of the magic of what makes it so great for people to be there and be able to express themselves in that way. It feels like it's qualitatively different from a lot of the other platforms that are out there. James Wagner Au has estimated that there's around 10 million monthly active users on the platform that he claims in a latest blog that he had internally validated. But it's got a lot of users that are using it each and every month, the huge communities, but yet the core monetization is not quite there yet. So I'd love to hear some of your reflections on this paradox of having the magic, but yet still needing to strive towards all the normal things that companies need to do in order to survive.

[00:17:28.499] qDot: Yeah, first off, I would frame that 10 million number a bit. The original source for that number was the press release for when the new chief product officer and board member was hired last fall. And it was based off the term, the next 10 million users, which is a... Fairly normal thing for startups to put in. So 10 million seems like a somewhat high number for a VR chat now right now, just given what other services are pulling and whatnot. So I would probably estimate somewhat lower than that. I can't tell you where, though. I have no numbers.

[00:18:07.891] yewnyx: I have a number where I feel comfortable saying it's at most 2 million. So the way I arrive at that is that the Quest far and away dominates the headsets that people are using. So there's probably about a bit over 20 million sold, and an attached rate of 10% is actually super high. An attached rate meaning number of people who have a headset who play a particular application or game. So let's say that 10% of the Quest is VRChat. That puts it at 2 million. And that's, I think, a pretty optimistic... estimate. So maybe if I'm fudging a bit too much, 3 million is like a ceiling, but it definitely, in my opinion, is nowhere near 10 million.

[00:18:52.519] Kent Bye: Well, just to jump in, because we don't know the numbers. The numbers that they do publish are the peak concurrent numbers of users, which is probably around 100,000 plus. At New Year's Eve this past year, they were saying 105,000. And I think There was a number of months that I was just seeing like, oh, just a normal weekend and they're like breaking the concurrency numbers. So there's at least a large number, like in the hundreds of thousands at the same time. We don't know what the monthly number is, but regardless, I feel like there's a certain amount of success relative to all the other social VR platforms. Well, maybe aside from like Rec Room, which is a whole other sphere of including other people on consoles and mobile phones. But yeah, there does seem to be some level of success that we can see, even if we don't know the exact numbers. So given that, I'll sort of throw it back to each of you.

[00:19:40.385] qDot: Yeah, it was just thinking about the numbers just to establish a baseline of what to calculate off of. Because right now, the major recurring revenue is going to be the VRChat Plus subscriptions. And if we think about that in terms of a few percent of the user base, then this is also going to be negating the discount for yearly versus monthly, because we don't want to get the math too complex here. But we can calculate based off of that what some basic revenue might be. Because if we're pulling way back and talking about general funding right now, in terms of everything that VRChat has taken on, according to Crunchbase, there's $95.2 million in funding in the company right now. And that would be as of June 2021. And if we, not to repeat the thread I wrote on this too much, but if we look at the payroll burn rate at that time, it's probably going to fluctuate somewhere within one to 3 million a month. And once again, this is, we don't know the employment numbers. We don't know where they were hired, what their salaries were. So this is all the ballparkiest of ball. I'm standing miles outside the ballpark probably.

[00:20:58.724] yewnyx: Their employment numbers are most likely about 170, last I heard. So we can narrow it down to probably between 160 and 180. And in terms of salaries, they tended to pay a bit below market rate, but at the trade of having some very good benefits. So take that how you will.

[00:21:18.843] qDot: Okay. Yeah. So I know we can look in the lake. Let's say that there was an average $2 million a month burn from that June 2021 last funding round. That would give them... If payroll was the only cost, which it absolutely is not, but that would give them four years. So that would be from then, summer of next year, 2025. So we would be three or four years into that. Now, obviously, that number is going to... once again, fluctuate. When they got that funding round, they were at maybe 20, 30 headcount. Now they're at 160, 170. So they've grown 5x over the past three years. And what they need to be able to do is offset these costs. So the question becomes, What is the income and how is that offsetting payroll and services costs? So they came up with VRChat Plus subscriptions that seems, going by how many icons you see in the world, it seems to be mildly successful. Events, I mean, they've got VCAT, they've got Ferality, which just pulled 21,000 attendees this past weekend. I believe there's a couple of others. There's the Sanrio Festival and a few other festivals there. And all of those festivals, I believe, are paying event fees. But I'm not sure if there's enough of those to really offset that much cost. And then finally, Creator Marketplace, it just doesn't open yet. It's a few people, but I believe it's still in beta and still going to have to kind of find that traction for the subscription model. So there's There's some basis of some good things, but given that burn rate, they need more than a basis.

[00:23:00.203] Miss Stabby: They've also been partnering with promotional companies to market specific items or things that are going on in the world. And then they pay Veerjet some fee to get some exposure within the platform.

[00:23:14.525] Kent Bye: Okay. So it sounds like that VRChat had grown to the point where, you know, in the letter that Graham Gaylor had put out that Tupper posted to the ask.vrchat.com, they're saying that they essentially hired too many individual community members, that they didn't have a lot of management staff to kind of manage how things were going to really have a target for where they were going. And they were saying that they have this five-year plan, that they have this path towards profitability. Sounds like they hired in new levels of management that I saw just on LinkedIn some people coming in in like March timeframe from different places, from like Spotify, Netflix, Meta. So they have a new management layer. And then now the thing that I have a question on is some of the core mechanics of how the existing culture of VRChat is and how this infusion of the creative economy works. is going to go because they initially announced it back in like 2021 or so and a developer update. And then they started to like have more information at like last May of 2023 for the first kind of announced that they're having the creator economy actually starting on the pathway to shipping. And then in November gave the numbers that they were going to be taking around 50%. cut, which 20% would go to VRChat, 30% would go to either Steam or Meta. And so each of the creators, content creators, would get basically 50% of whatever was going to be donated, which when individual creators were looking at the less than 10% cut from either Gumroad or Patreon or Booth, the economics of that didn't always make as much sense of people continuing to do the status quo of using all these external systems rather than the ones built in, especially because the avatar systems weren't even gonna be in the first round of the creative economy anyway. So I'd love to hear some of your initial takes of how you imagine the best case scenario for this creator economy might go. And they've been very cautious of putting it out there, but what's gonna be the thing that's gonna actually like take hold and get enough of a critical mass of people using it and having something that's going to be driving enough revenue for them being on this path towards profitability.

[00:25:21.275] Table: So the number one thing with regard that we had a whole bunch of talks about this around when C was finally taking shape in a public space and we could actually talk about it. The number one thing that always stood out to me very much with the cut thing, I think the cut thing was Talked about and discussed a whole lot around the time that C first was publicly unveiled, but I'm not really sure it's ultimately the most important aspect. At least it's not going to be long term the main reason why or why not see does or doesn't go. It's very important and valid for an individual creator to assess whether it's. more pertinent for them and their specific business model, especially for people doing subscription stuff. If people's core demographic largely already do exist on Patreon or Ko-Fi or something, then yeah, it makes more sense. If you're willing to put in the time and effort to once every day or maybe a few days, go through your list and then manually update your world to keep the backer list somewhat up to date, then yeah, of course, it's going to be more lucrative financially for you. The entire point of the bet of having to work around that inherent cut limitation that's brought on by the platforms is that the on-app user experience of purchasing something is going to be significantly easier than someone having, especially on mobile or on Quest, having to go off-app, search you up, and then send money to you through some other website that they probably don't already have. This is what I mean, especially with modern Google Play and Apple platforms. storefront, it's just very much going to be like, there's always a little pop-up. I'm pretty sure it's how it is on Apple too. It's like a little pop-up. You just hit basically pay. Everything's already in whenever you just have the thing and then updates instantly. The feedback is instant. People tend to like that and they want to purchase more and that's VRChat's entire bank. The thing that's actually going to push CE forward though is just better implementation of features on the creator's end. Because the number one thing the vast majority of people have largely been pushing for up to this point is just tips. We want an easy, simple way for one person to go, I like this bit of content. I want to just give the person and or slash people who made it a little bit of money to show appreciation for them. It's something that can be universally applied to pretty much all existing content. Like you don't really... There's going to be rare amounts of times where you wouldn't, I guess, want to enable some type of tipping system. Most people can make a simple use of it. It doesn't require any additional work from the end creator. You don't have to design around it. It just works. And if someone wants to give you some money, they now have an easy, clean, on-platform means of doing so. A big concern brought on by a lot of people, including some who... obviously can't name, but some who have been using the crater economy, is specifically about how difficult it is to design around, about how they had trouble trying to figure out what it is they could even monetize with the system as it exists, the sort of faux subscription. We need tips. That's just the, I guess, large and gist of it, but also alternative methods of just sending money would help too.

[00:28:29.161] qDot: Yeah, this provides, I thank you so much for that context, hearing what a creator's perspective on the creator economy is great. I mean, we need tips. Yeah. So going back to the differences in this and Lyndon's economy, the thing about Second Life and the the reason that everyone references that economy is that was completely regulated by Linden Lab because all of the objects had to go through Linden Lab. All of the object stores lived on their servers in their cloud. All of the transactions went through their system and whatnot that was built from the ground up to be that way. And that also provided massive, massive headaches because of the management of permission systems, copying and ripping of assets, which we know was a problem then, is a problem to this day, is just a problem in user-generated content virtual worlds. So there was a lot of differences between what Linden could do then and what VRChat can do now. Like, you cannot put the asset genie back in the bottle for VRChat. They can't just come up with an asset system that works this sort of centrally regulated way now. Everyone is used to throwing these assets around, selling them on Gumroad, selling them on Booth. So yeah, I think the major question becomes is, Where does VRChat begin and Patreon, Subscribestar, Booth, Gumroad, and Ko-fi end? There's just so many different services to cover that already cover these sort of things. And the in-world integration is great. But yeah, it really does sound, as Table said, that being able to tip as you play pool or something like that would really be great when it's front of mind.

[00:30:22.083] yewnyx: I think that covers one of the biggest strengths that VRChat could leverage, which is they control the native platform surfaces that you can present content to. They don't do this yet, but for creator economy content, if they were to provide avatars on it, making it discoverable and searchable and giving people effective metrics are super valuable. So like there are after creators who use a site called Jinxy in order to present assets that they sell on Booth or Gumroad. And one of the things that they offer is metrics on like click through rates. Like you can have like a banner and see of the people who saw that banner, how many clicked through and then how many people bought it. And the 50% cut is actually industry standard or better. There was a controversy a little while back when Facebook announced that for Horizon Worlds, they were going to take a 50% cut of content. And I chatted with Andrew Bosworth about this briefly. And essentially, the reason for this is that there's always the 30% platform tax that you have, whether you're on Google, Apple, or other. And then there's an in-application cut out of that which goes to application in order to compete on an even playing field that's what they arrived at which is obviously self-serving for them but it's not inaccurate that that's essentially the calculation that every one of these services is going through and some like maybe roblox have an even more favorable cut for themselves and creators have a more difficult time earning the same percentage. So 50% is pretty standard. But what I don't think VRChat is doing is actually earning that 50% because they need to give people who are creating content for their platforms the benefits that having that native access would confer. And right now, it's just too little to really make sense. I have no doubt that VRChat wants to expand this, add tipping, et cetera. But they need to focus. They need to execute. And we really have to light the fire under their butts to actually give creators these things that they can't get. Because otherwise, why not continue to use Ko-Fi? Why not continue to use Patreon? Give creators the actual value.

[00:32:41.894] Miss Stabby: Yeah, I think at the moment, since it's mostly still level based, puts a lot of other creative communities at a disadvantage. But if they're going to roll this out, I think the biggest thing that they should look into is lowering the bar of entry to do anything in the game if you're not technically inclined. let's say in the avatar or even components that you could load into editors through the SDK, having these things very easily accessible and easier to purchase and easier to access compared to competing platforms, that would probably make their business succeed. Because if they have something that is just as complicated or just as many steps as, for instance, Booth or Ko-fi or Gumroad or any of the other side loading platforms, then people will just go for those platforms because they can either, for instance, get an item for cheaper or they know that the creator gets more out of it, so they will want to support them. But if it's a low barrier of entry with, like earlier I said as well on the mobile platforms, just a few clicks, that would massively put those things at an advantage. And besides purchasing goods, Indeed, like what Table mentioned, having the ability to, for instance, tip someone who is performing in the platform. Let's say there's a musician or maybe someone doing a DJ set. Those kind of things would also be really good to support the platform because It's probably a lot lower barrier of entry to send someone $3 because they have a nice music set or a nice song that they sang, rather than buying a $50 Avatar pack for them to work with. At least that's what I would think if they would want to increase revenue.

[00:34:46.354] yewnyx: So I think that there's like some really unexplored territory for them. So obviously the world-based, group-based creator economy as it exists now, you can think of it as like game DLC. But the other thing that I think would be a huge opportunity is if they could have like an avatar asset source. Like we did say that the genie is out of the bottle, but I think there's a lot of value if, for example, they were to come out with a standard avatar base or something, or just standard rig for people to potentially create their own assets around, potentially even substitute, but have a system to make an easy mode for avatars. Right now, it's really difficult to expect anyone to download the whole Unity editor create their avatar, and then upload it. So a lot of people will pay the creators to upload their avatars, which is very insecure. I think we've seen some evidence that they are building up some related capabilities. So the Impostor system, the way it worked is it essentially ran Unity in the cloud, took pictures of your avatar from different angles, and then created an avatar and then published it. And the actual implications of this is that it's probably not unlikely that they're creating all the infrastructure that they need to build avatars in the cloud, because that's exactly what they've done with Impostors. And that's also most likely how they're doing the avatar information stuff, where they're saying, this one has way too many polys. We're disabling it. They're introducing the limits, which are going to go into actual enforcement soon, where obviously Crasher avatars are disabled. So if I were to read the tea leaves, they have to be building the foundations of what they need to create a modular avatar system. And they would be very smart to do that and very dumb not to. So I have to believe that at least in some form, they're working on that.

[00:36:42.369] Miss Stabby: Currently, there's already the system of public avatars where someone can already publicly clone an avatar from a pedestal or from another member. So using that system, they could, for instance, also allow a creator to, say, sanction an avatar to someone else that they are licensed to use after making a transferal. That would not provide much customization. But if that avatar has a bunch of menus that say, pick hair color, pick outfit color, like A lot of the more advanced avatars have already. That would also be a method where they could allow non-technically inclined people to have an avatar that they purchase and then just like a public avatar be part of their accounts and have access to.

[00:37:32.509] Table: A lot of the existing versions of those demo avatars actually will just have, I'm pretty sure they do it through just like multiple animators where they'll have like locked sections. We'll be like, oh, you want customization and buy the actual avatar. It would be great if we had some sort of method to directly hook payment injection into the actual avatar itself such that you only need one animator. You could say this is a locked payment, like locked behind a paywall. feature, part of the animator. If you would like to use this, then yeah, purchase the full version. And then it's just the same one they've already been using, same one they've already favorited. They just now unlock it.

[00:38:07.677] Miss Stabby: Yeah, that it basically is a Boolean of the avatar parameters, similar to, you know, if you're standing or if you're seated or if you're running or stationary, that there's just a Boolean that says purchased. And then whenever that Boolean is true, that certain elements of the avatar become unlocked or like a banner floating above the head vanishes that says sample, for instance.

[00:38:29.488] Kent Bye: Yeah. And thinking about some of the monetization strategies, we've been talking about like selling avatars and there's the creator economy. There's the VRChat+, which I've been a member since it first came out. But honestly, there wasn't any feature that was being offered that made me want to join. It was just more of like, I enjoy VRChat as a platform. I want to see it exist. And so it felt like more of this is a way of subscribing, almost more of a Patreon model for me, at least in my mindset. You get a little bit more extra avatar selections and you get a little badge icon, but there's nothing that is a feature that would be like, oh, if I lost, I'd have any different of an experience on the platform. And I know that unlike Roblox, if you want to have like a private server, you have to pay for it. In Rec Room, you can have private servers, you don't pay for it. And then I don't imagine that that would necessarily be a feature that should be behind a paywall, just because the quality of life experience is so much better when you have private servers. But maybe there's a limit to that of private instances. Or in Linden Lab, they sell land. Again, I don't think that renting out space is necessarily a good model. I mean, it's a good model, obviously, for Linden Lab. They've been able to make it work, but rather than creating a vibes-based world that you're hanging out in, it now becomes a business and that changes the whole monetary exchange of how to make places like that actually profitable. And there's also advertising that they could throw in. And so, yeah, I'd love to hear any reflections on the path towards profitability. What are some of the more viable things that you think should be on the table to be on this pathway towards profitability?

[00:40:04.773] yewnyx: So I want to start with the VRChat Plus thing, which is, I believe it was announced around late 2020, which is probably towards the end of the period after they got their Series C investment. And so even though it released with not a whole lot of really great features, I think the calculus there was probably they wanted to show some kind of number go up kind of thing to investors. and to really say like, hey, we need to raise another round. Here's our promising growth. I'm not sure that even now that VRChat Plus is anywhere close to good enough to sustain the company. It probably is more than I suspect, but there are several things that they need to do that I think investors will be looking for in order for them to essentially continue existing. And that's very, very deeply tied into the ways that they earn revenue. But yeah, the things that the next stage of investors are probably going to look at are like continued growth, profitability, or at least a clear path to it. Good customer metrics, meaning the customer acquisition cost needs to be low enough. The lifetime value needs to be high enough. They need to have low churn rate, and they need to have high customer growth rate. Essentially, number go up and efficiency. And that efficiency also goes into hiring, where they need to reduce their costs. And we saw that day for yesterday in terms of operational costs with employees, unfortunately. They need to see success in entering new markets and delivering new products. which is probably a motivator for their mobile version of VRChat. And they want to see them positioned competitively to their competitors, I guess, like Rec Room and Roblox and similar. So it kind of constrains the things that they can possibly look at. It's really, they need to sell subscriptions and they need to sell content. They need to be the mediators for that. And they need to take a percentage off of that. And then they need to make that as efficient as possible for people who play the game to actually access what they want. And making things discoverable and searchable is a problem that is very adjacent, and I know I might get some flack for this, to advertising. Because it's about figuring out what people want and showing it to them. or figuring out what you can make them want and showing that to them, and then increasing demand. And that's known as demand generation or demand fulfillment, which is fundamentally how Facebook and Google view their access to audiences, through advertisement or through exposure on the feed, through AdSense, et cetera. So they're going to have to orient themselves very much in terms of a typical Silicon Valley company and focus on these things. So I think basically from that, it's pretty predictable the kinds of things they're going to want to do. sell content, sell subscription, make it worth it, make it easy, and try and capture people as young as possible for the prices that are right for them, and then try and capture whales and dolphins, you know, the terms for people with a lot of money to burn, who really want the value, even if it is disproportionate to other players.

[00:43:21.243] qDot: Yeah, and to build on the talk of sort of property, land, everything else, the reason that it cost at Linden was to get land in Linden, usually you were going to buy on big public continents. Linden could charge big money for privacy, for buying your own island where you could regulate who could get to it. VRChat doesn't really have that luxury. Everywhere is an instance that is now already gated by either being public or friends list or invite only or group only, or there's a big list of permissions there. Now, that said, just this past weekend, We had the reveal of a somewhat interesting new feature of sorts. Usually the cap on VRChat instances is, and someone feel free to jump in and correct me here. I believe that we've seen instances in main world of like up to 120 right now. It's 82 normally. 82? Okay. So right now, yeah, the most people you will ever see in a world is 82. Over the weekend during the Ferality furry con in VRChat, they created some instances that had caps of 250.

[00:44:30.087] Miss Stabby: I've seen 300 caps already there. But I think those things are mostly stress tests more than anything. They also did the same thing during the New Year's Eve where one of the instances was set to 200 users. And yeah, while it's really cool, the result of those tests is usually that it turns into a slideshow. sadly, because of the lack of constraints on avatars and performance requirements.

[00:45:01.937] qDot: Yeah, but it's a place that they can push toward. And it's a place that given the extra processing and service requirements could also be like, they could basically charge for conference rooms or something like that, because that while it turns into a slideshow, the feeling of presence of being in a large space with people 200 to 250 other users is really something special. It is really something different. Just the general change in that feeling of being in Proximix within world is a value add. And it's something they're certainly going to need to work toward. There was some talk during the optimization panel at Ferali this weekend of how they're working on the avatar roadmap for that too. So it's not creator economy and subscriptions alone. I do think like, well, I don't think they could take a land based model. There could be capacity based or something like that that they could look at.

[00:46:06.332] yewnyx: Yeah, for sure. Like I was at the 200 person New Year's instance and it was kind of magical how you could go between many different groups. And instead of like traveling worlds, you would travel to different cliques in the same instance. And I was just hanging out with some people and there was an earthquake where I was at. And so I just found the other people who, like I was traveling at the time, who were traveling with me. And we said like, hey, did you feel that? And they said, no. I was like, wait, I felt it. It's amazing. I will say that I know that this is something that they have certainly thought about. They have done these stress tests on the down low for a little while. and the bottlenecks are pretty well known. 200 is definitely the limit. It gets kind of crashy around 180, and the limit is a little bit below that because of people's avatars, which is truly the biggest drag on performance.

[00:47:03.652] Miss Stabby: And there's another limit on that as well, is that they're going to want to focus on Quest and mobile, which are even more constrained performance-wise compared to high-end gaming PCs.

[00:47:15.600] yewnyx: That's a really good point. I think that monetizing large instance caps may be something that affects a couple of groups that maybe we are well exposed to. But the vast majority of the player base is probably going to be content with 80 because practically speaking, they won't reach that on their headsets because a lot of people play standalone.

[00:47:38.163] Miss Stabby: One thing that I did hear people talk about, including Tupper publicly on Twitter, is that they are looking into synchronized instances. So if there's like a big performer or be it like a music festival, or a talk or something that would be beneficial to a lot of people, but has a central origin of the content that they're looking into synchronized instances where someone can go into any instance and still get a visible presence of the person doing the performance. And any kind of parameters that are linked to stuff like a video player would be synchronized across all these different instances to make sure that you would have a similar experience, no matter if you're in the main one or any other ones.

[00:48:29.600] Table: Yeah, I haven't heard of that.

[00:48:31.380] Miss Stabby: Yeah, they were mentioning it, I think just a few days ago and they didn't provide a timeline on it. But one thing that's actually already being done on some of the bigger club events is that they use multiple hosts to manage secondary instances. An example is, for instance, the shelter club. They have a bunch of different instances live at the same time to manage the amount of interested people that want to attend the club. Everyone still tries to get into the main one, but yeah, alternatives are getting set up.

[00:49:07.512] yewnyx: I think the idea of a synchronized instance is really interesting because I think that it's been done by Fortnite before and other games where performances have been done within their platform.

[00:49:19.625] Kent Bye: Actually, the Altspace had the front row system, which was very good for the one to many broadcast model. So if there's someone giving a lecture or something, then you could have multiple instances And this goes for anything that's performance-based. So a DJ or there might be other things with VJ effects, which is like someone controlling the shader aspect. So part of the reason why people want to be in the main instance is that you don't always get all of the avatar performance aspect or even the world effects that are happening. So finding ways to synchronize all those things, I think, would alleviate some of those challenges of everybody rushing to get into a single instance and being capped out at 80 or even if it was 200 and I saw that even on the VRChat+, one of the things was the priority queue so that you could become a member. And then if you were queuing and waiting, that you would be the VIP, metaphorical VIP list, which might get in a little bit sooner because you have a priority queue. But if they have these multiple instances and they're synchronized, then some of those features may become less desirable, except for there is the fact that the main instance is everybody wants to be in because all the core critical mass of the people that you want to see and hang out with The fracturing of the social dynamics, which I think having the instance size of like 200 starts to alleviate some of that and you start to have a real sense of having these big events. And with those big events would create other incentives for people to get into those. Yeah, and I think the other thing just to point out is that there is this super user power user dynamic here, which is like a lot of the stuff we're talking about are people who are already like well connected and immersed within these different communities. And I think there's a larger question of like, how does someone just coming in cold as a new user get exposed to all these private instance discords and all these things that are happening? Again, a lot of it's happening off the platform on these discord communities and other ways to kind of get into these groups. But yeah, just thinking about the new user journey for how do you come on into the brand new user and ramp up to being connected into all this kind of underground rave scene or other things that are happening that again, you often need a PC to do that and then expanding out to both the Quest platforms but also potentially like iOS and mobile 2D kind of interfaces and how that there's already a fracturing of the VRChat community where some people are in PC VR based experiences and then there's the Quest based experiences and then mostly a lot of the Quest-based experiences have been in a lot of ways seen as second-class citizens in the context of VRChat where there hasn't been as much effort to create those because you have to have a lot of optimization, you have to be a good developer, and it's just different dynamics where there's kind of a split within the ecosystem of VRChat that has this Quest-based worlds and the PC VR-based worlds. And I can imagine for really wanting to think about growing their community is how do you start to close those gaps between that fracturing that's happening and how do you take a new user that's coming in and have them get exposed to all of the amazing stuff that's happening behind the scenes in these private instances and these social networks that could potentially be difficult to break into as a new user.

[00:52:22.745] yewnyx: So if I'm going to channel what I think their mindset is probably, given that they've hired a lot of people out of Silicon Valley and that's kind of my background, I imagine they may not even want to bridge that gap. There are some things that are impractical on Quest, but I imagine some of them might think of PC VR players as cash cows. And so if they were to make, for example, a synchronized instance where people could have performances, I think what they would probably approach it is rather than bringing the community together to sell tickets, like be ticket master and profit handsomely off of exclusive performances. Like just given what I've seen from their hires and their change in approach and the fact that they've had slimmed down, I think they're going to be very much focused on profitability in the short and midterm. And I think the mindset to approach this with is how can they without making that experience too bad for players, like find things to skim off of. And it's a little bit unpleasant to think that way. But like, unfortunately, the community has to be sustained by the platform, the platform needs to find a way to profitability.

[00:53:31.906] Miss Stabby: There's also another thing to consider is that people on purely only the Quest are people usually that have a less wider margin in their budget because the barrier of entry to play, for instance, PC VR is already a $1,500 to $3,000 gaming PC and then a headset that also costs about a thousand bucks. Before you even set your first step in VR, so to say, on PC, you're quite deep down the hole, so to say. And with the Quest, someone can, especially if they pick up a second-hand headset somewhere, they can be there for quite a lower budget. So you see also that the average age and the average spending abilities between the two platforms is very skewed between them.

[00:54:21.348] qDot: Yeah, and going back to Andrew's point about trying to kind of skim some money off of what's already there to a point that hasn't really been brought up yet is what the layoff means for the company internally and for development schedules as is. 30% of that company that was there at the beginning of this week is not now. And not only that, within the email that was sent by Graham, the CEO, there's the statement of this new management structure being built. Rome was not built in a day, nor was it burned down and rebuilt in a day. So we've now got to look at how much time is it just going to take for things to come back? to some sort of decent development pace, there's going to be a morale hit in that company. A lot of people had friends that are no longer there. And these companies tend to be pretty tight knit. when everyone is working on a product like this, where if you're there, you're probably pretty deeply involved. This is going to be where this is also divergent from your normal Silicon Valley startup, where you might just want to start up to get those sweet, sweet options or something like that. This is a place where people really deeply, truly care about the product, both that are there and for those that were let go. And that morale change, along with going from this sort of open, flat management style to an actual middle managed hierarchy system with new executives and stuff, It's going to take time. It's going to be a culture change. It's going to be turbulent. So even before we can get to these amazing blue sky dreams we have of major features for profitability, there's going to be the current company realignment of just getting back on track and being functional and progressing at all.

[00:56:33.710] Miss Stabby: One thing to also take in mind is that besides profitability per individual user, one thing that Veerchats, especially the investors behind it, are after is to grow their user base, their numbers. So at the moment, I think they care a lot less about individual spending and how to monetize things quickly but more how to gain that like 100 million users over time right because even if they make a very very slim margin per user as long as the volume that gets sent around is high enough that's how they'll become interesting for investors and

[00:57:17.877] yewnyx: Future developments. Not quite true anymore. This was something that was true for a very long time, but sometime during late lockdown, the way investors specifically approached user growth versus making cash was that they devalued user growth by about 7x compared to before the lockdown boom. And as a result, I think that the investment culture in Silicon Valley is going to be focused around making cash, not about user growth. User growth is certainly good, but there are certainly also ways to grow fast while making things free and burning cash, and then to crash and burn afterwards. We saw this most recently with one of the basketball games that got released on the Quest store. It was in early access for free for a very long time, and they made a great game. They were a Y Combinator funded startup, I believe. And so the idea was that they would grow the number of people who were playing the game. And then they went to the purchase model once they graduated and properly went on sale. And the company has laid off a bunch of employees because they're not making any money. So there's a real risk if you go too hard for user growth, what you're doing is you're growing your expenses for running the platform. And when you switch over to making cash, you don't want to grow that user base and burn them so that they don't come back versus grow slower with a revenue model that doesn't burn your company to the ground. So I don't think that VRChat should necessarily focus on user growth over creating the economy because they have a pretty short timeline in order to actually earn money. Their Series D investment was 36 months ago. And usually after 18 months, you need to show the investors like, hey, we're on a good path, we're growing. And I don't think that they have satisfied the investors. I think their investors are probably a little bit hesitant. And so they need to buckle down, show them that the money is going to make sense in two or three years time. And if they don't do that, they're toast.

[00:59:34.218] Kent Bye: Yeah, and it sounds like they have at least like a year or two of runway, maybe up to five years after the layoff. And I think it's sort of dependent upon their revenue as well. But it sounds like they may have to do another funding round. But in Graham's letter, he seemed to indicate that it's not a great environment to do that. And so they're really trying to focus on capital efficiency. And I think that makes sense of like trying to really figure out how to monetize the users because it is a platform where you don't actually have very many opportunities to even give them money. And that if I look at something like Rec Room, there are a lot more guns and a lot more interactivity and agency that's in Rec Room. And then sometimes you'll be in a world and it's like, oh, well, if you want this super powered gun, then you pay this extra money, and then it immediately changes your play experience. So it's a little bit like play to win, where there are some games on VRChat, but I don't know if there's a critical mass of the experiences that are even on VRChat that are even gaming or agency-focused. It's a different vibe of more of a hanging out in a world and an experience that doesn't have as much of intuitive, like, OK, this is how you would monetize this immersive experience that I'm taking in. And so it's a different type of worlds that are on VRChat versus on Rec Room.

[01:00:42.321] Miss Stabby: Yeah, the most common experience that people have been doing to monetize their worlds is to add VIP sections to a place that is like a special private room that you can only access if you pay for that support or subscription.

[01:00:58.342] Table: Yeah, that and the general names boards. You're always going to see primary sections of VRChat's content. Specifically, what does the best on VRChat is always ostensibly going to be those sorts of experiential or more atmospheric environment art worlds that are specifically socially driven. Anything that kind of takes the... inherent social natures and social leanings of the platform into account stuff like jar and fax machines games stuff like you know just any cozy hangout world or any just space designed for friend groups to facilitate conversation and are going to be what the meta tends to structure around whether year by year it's changed look, but never really inform. And it's those exact types of content that I guess going way back earlier, I was saying are struggling right now to integrate what has been given to us through creator economy, because it always comes back to, we're trying to design gamification into spaces that we didn't have to gamify before for people to want to come into. And for the few people who are doing social games, that's one thing. The vast majority of people are not specifically like game developers in a design sense, though, and are instead just trying to get their chops with these game development tools through just, again, environment art or creating social spaces for others to hang out and like have conversations. And those are the ones who are most at need of creator economy. And they're also the ones who are the most struggling with what we have given to our disposal right now. And there really isn't much of an easy way to fix that aside from just

[01:02:38.035] Kent Bye: open up more options give those people more tools to actually you know stuff like tips keeps coming back to tips yeah one of the things that i wanted to also bring up you know one of the challenges of running a social vr platform is that there are public instances and there are private instances and that in the public instances you know there's moderation and other ways that you have to keep a hold on how do you actually manage it's like 100 people and there's like hundreds of thousands of users and potentially in the millions of monthly active users. And so this disconnect between the amount of staffing they actually have to do the type of moderation, because there is this split between the type of experience you get with people that you are friends with in private instances versus going into the public instances. Does anyone have any sense of like, how are they going to like continue to wrangle this trust and safety dimensions of the platform? Not even to speak of how in some of the private instances, there's 18 plus type of content where the SRB rating is something like teens or 13. So there's a little bit of disconnect between the range of reading of the different type of content that's on VRChat versus what it's rated for and How do you deal with the trust and safety and moderation issues as you just cut your staff by 30% and are continuing to be one of the biggest social VR platforms?

[01:03:58.536] yewnyx: The same way you scale it up at any other user-generated content place, you increase the amount of automated enforcement that you can do, you restrict the capabilities in a more systematic fashion, and then you create a streamlined moderation flow. Like 10 years ago at Reddit, the entire content moderation was done by four people who were insanely stressed out. And over time, they built a lot of machine learning models, stuff to automatically detect and delete some really objectionable content. And even Reddit, as we see it now, this is after all of that amount of work has been done, like with auto moderator and all the tools that have been given to subreddit mods. So I think we can expect that the moderation quality might actually, from our point of view, go down. And it's not just because of staffing down. It's also because if they grow, content moderation becomes more and more difficult, and the amount of things that fall through that don't make sense when the automated system fails seem worse and get amplified more. I don't think we can expect to really see much of that because a lot of times trust and safety stuff is very, very private. But what I do think that we should ask for VRChat to do is to lean on their platforms to do some of that legwork. Like, there should be some kind of context clue from meta that, hey, this user is probably not allowed to see this kind of content. Please automatically block them. And then VRChat should actually re-enable their content filters and really put some muscle into enforcement when those are reported. They are already reactive in their moderation practices, and I think that is fine. But they just have to really seep that into every part of the application and systematize it very strongly in order to survive the onslaught of content as people filter into the platform.

[01:05:59.338] Table: Yeah, the nature of VRChat as a platform is always going to be such that it's almost wrapped around recursively to be part of the whole user-generated bit, wherein it's going to be users who have to generate moderation actions. They very much have been banking on groups and increasing levy of tools to end users to perform moderation stuff in TNS, like at a more microscopic level, because they will never have the means to facilitate, especially with something like VRChat, where it's not just whole text, it's 3D conversations happening in real time with avatars that they can detect on a server, but can't magically understand the context of. You're always at that micro level going to have to rely on just end user Reporting and end user self-facilitation and giving people more tools to do that is finite, though ultimately what is most crucial since they can't ever scale into that, especially not now.

[01:06:58.612] Kent Bye: Yeah, one of the points that Britt and Heller would make is that moving from 2D to 3D, instead of content moderation, you're really into conduct moderation. And conduct is something that unfolds over time, in real time, and also is very contextual. And so it presents an entirely different type of problem. And maybe you can do like real-time machine learning, like detecting when people are using maybe some words that would be a trigger for that. But yeah, there's some like startups that were presenting that type of option to help improve some of the conduct moderation, as it were. But yeah, I think it's an ongoing issue.

[01:07:35.057] Miss Stabby: I can comment a little bit on that. It's that a game that I'm currently working on has implemented a system that is able to detect if a user is saying very bad things in voice chats. It's mostly like online multiplier games, but these things, I can imagine making their way into the... base of the platform but at that point you're also gonna have to worry about privacy concerns because in these instances people are having very private conversations and the moment something like that's coming out that would be probably a massive hit to their standing in the community. Like if it's a multiplayer game where the goal is to run around and shoot things and jump things like that's one thing, but in a platform, a social platform like VRChat, people having private conversations that might cause a lot of issues the moment people find out they're being screened either by humans or by AI.

[01:08:40.512] qDot: Yeah, I mean, the problem continues to be context, really. The great and horrible thing about a virtual world is that context is everything and also nothing versus, as Mistabi was saying, like the context of a game where it's like, okay, there is a cooperative or personal or something goal. There's no goal here. There's just content that's created. And while Machine learning models are definitely good for some things. This issue of context we've seen many times, they are not right now. And especially applied to translated context from speech, from all the features you get of a 3D virtual world, it's a tough problem. And then there's going to be on top of that the lack of clarity in VR chats in terms of service up until now. So if someone tries to create a new rule, any rule is going to cause some uproar in some part of the community because a lot of things have been very, very squishy, very fuzzy about what's allowed on the platform. And that makes it difficult going forward to create any sort of structure in any direction. So it's a huge challenge.

[01:09:58.359] Kent Bye: Yeah, I can imagine that a system that is automatically detecting what you're saying may only be deployed on public instances or VRChat, as well as all the different social VR platforms have this mysterious and visible social score to help whenever they're as a disagreement between two individuals, then they have this trust and safety score. It's actually explicitly shown on VRChat, but a lot of different social VR platforms, it's kind of an invisible number, but it's just a way for them to help with their moderation decisions to see like if someone is skewed towards a certain score, then it could be that decisions that need to be made for exiling or temporarily banning people from platform that plays into it. So I can imagine that type of system like that could be playing into some of these kind of invisible ways that could help with the moderation. But yeah, I guess as we start to wrap up, I'd love to hear from each of you what you think the ultimate potential of virtual reality and this type of social VR experiences that we've had in places like VRChat, what the ultimate potential of that might be and what it might be able to enable.

[01:11:05.902] qDot: Gosh, that's a lot to end on. Honestly, the whole reason I stay in the platform, that I've done so for the better part of almost 30 years now, is I'm not sure. I like being constantly surprised. I saw really cool and interesting stuff in the early days of Lambda Moo and Furry Muck completely in text. There was all sorts of interesting interactions that came out of Second Life and VRChat has built similarly where we find out what we get when instead of being locked to a keyboard and mouse and monitor, we get to strap TVs to our heads and be whatever we want. So it's abstract, but the thing I look forward to is the things I don't know. And that constant discovery and rediscovery. And that's why I hope VRChat grows, because to continue my sort of interest in this, we need more people finding out about this, having that, wow, it's cool moment, Getting through that quickly and then making it theirs. That's the awesome part about this. And that's really, in the end, what VRChat facilitates. And yes, I want to see them continue. I want to see them facilitate that more. And it sucks that we're in the middle of a turbulent period right now. I definitely... feel bad for those that were let go and similarly to a lot of the people that are there that are going to be picking up the slack of 30 of their teammates being gone it's rough on all sides right now but i'm hoping we can get through it because i believe in the potential the people that were there and still are there believe in the potential and hopefully we can get there

[01:12:53.177] yewnyx: And I feel bad for the employees who have been let go from something that very obviously they are passionate about. But I'm still optimistic about VR as a whole. I am really hopeful that these people who really poured all their passion and expertise into VRChat can still stick around VR and maybe fertilize the entire industry with their passion and their expertise and their just like feel for what makes VR good. I think that VRChat to me has been a very fulfilling manifestation of the past maybe three or four decades of technology. The way I see it, like from e-commerce to social networks and online gaming, a lot of the technology that has been made has made the world smaller and more connected, more empathetic, and ultimately formed deeper, closer, more intimate connections between people. And I think WhoVR is the next stage of that. It is intensely, deeply connected to our minds and our psyches in a way that nothing else has been before. And I'm really looking forward for that to continue. And maybe it means that we'll have some more people creating some software that fulfills the same promise that they hoped to fulfill at VRChat. And I think the competition might be good. Certainly, I want to see VRChat win, but I would love for creators from all over to really create lasting impact, because VR will outlive VRChat. And I think it would serve us all best to both root for VRChat's success and to root for people to learn whatever they can from it and make the entire field better.

[01:14:42.271] Miss Stabby: Yeah. It's also like when you're looking at what happened when VR was initially released as like, oh, here we're having the innards of a cell phone, but now we put a box around it and some cardboard and some lenses, and suddenly you have something called VR. all the way to evolving what you have now where full-on spatially tracked headsets, including face tracking and positional tracking for limbs. This evolution is still ongoing and it will probably not stop for a while. And another example is when Vive initially made their trackers, those were meant to be put on props like tennis records or fire hoses or baseball bats or whatever a professional would use to create a better simulation. And then people found out they can strap them to their arms and legs and suddenly people have live motion capture as the most normal thing in the world in VR. These things keep evolving in unpredictable ways and I'm really curious to see where this leads. And also the fact that processing power becomes more and more powerful. I will see like, as you can see in the past, the avatar requirements, for instance, have been going up and up, but they have been stagnant for a while, like the limitations on what they can have. So I can see that at one point, mobile VR is going to reach parity again, power-wise with PC VR. And once that happens and there's no need to compile for separate platforms or to create different content, then you're going to have like a real big acceleration of this space.

[01:16:25.700] Table: Yeah. Social VR is the future. God. Endless thoughts swimming around regarding the actual topic question. I think to use the prior discussion as a little bit of a segue, my empirical kind of gut response to context in terms of moderation and like... trying to figure out how we can gleam someone's context in terms of the usage of the platform. Even we humans are bad at deducing this, like even just casually in conversations about VRChat, it seems like even we're not great at being able to put words to a lot of people's usage of the platform since it's going to be as varied as the people. For me personally, I feel like I've been on that journey that Doc kind of outlined a Having it somewhat changed, I think, every couple of years, wherein right now I kind of view the Art Chat as an art museum and very much preserve and engage with it under the context of my own submissions. I'm kind of throwing my hat into the ring to be presented amongst everyone else's hats, and we're all kind of just collectively trying to express ourselves through this I think the one thing that's never changed, though, from the beginning was me always seeing it very holistically away from VR as the context. I've always very much seen it as like, this is a generic Unity asset bundle loader that you then have a cool chat, 3D presence, social functionality directly built into and utterly entwined with. And the two work incredibly hand in hand as a way of expression, because this has just been, at least for me coming from all these different internet circles, the ultimate culmination of and like peak perfection of being able to. look the way you want to look, be where you want to be, be able to talk to the people you wish to speak to, have full control over a situation, generally speaking, and how you choose to engage with it, and just have the most self-expression you possibly could. I genuinely don't know where you could go from this. Like, aside from, I guess, the kind of Snow crashy, lofty, sort of ready player one, elusive, full dive, whatever you define it. And even then, that's just this with extra steps. I don't know conceptually how you could go much further than we already have in terms of social platforms and their natural evolution. And so VR chat as a space has always just really excited me because it feels like we're in this wild west of... I don't want to say the end because that feels a little definitive for what we end up actually getting in the practical day to day. But the beginning of the end? Like, we're kind of getting to the penultimate slash ultimate stages of, okay, it's 3D now. We can just run around fully representing ourselves how we want. Spatial audio, presence, the concepts of someone persisting. The fact that we have virtual spaces where people will not, like, try to walk into each other, will go around each other, despite that not being a limitation. The fact that behaviors are skimorphic is like, okay, where do you go from there? And I think the way people use VRChat is going to continue to change as the way people on the internet just generally use social platforms changes. And I'm excited to see where all of that goes and help ferment a little piece of that. As I very much believe in expression art, the ability for the tool sets to improve such that more people can express themselves, have an easier time expressing themselves and just kind of place you into... someone's headspace directly. Like if you want to go that lofty about it, like the fact that I can right now, like I can poke someone on Discord and say, hey, I want to talk to you later. Let's meet up in VR chat. And then I can open Unity and try to make some worlds in a couple hours that just expresses my current mood and then bring them in there. And then we have a chat and what is effectively a sort of metaphysical manifestation of what I'm going through at the moment while I'm telling you about what's happening. You can't do that anywhere else. And that's insane. The prospects from that, the creative potential are just going to be boundless, endless as the amount of people who could use VRChat. That's the population we're dealing with, as many people as possible, which is why more platforms across compatibility are always going to be really important. But yeah, VRChat's wide. It has a whole lot of potentially amazing applications for, I think, society as a whole and how we engage with other people long distance. I want to keep pushing for that.

[01:20:58.331] Kent Bye: Nice. And in an interview that I did with Javier Fardul last year, he said that it's the end of the beginning rather than the beginning of the end. So we're moving into a next phase of VRChat and the XR industry in general. It's been over 10 years that it's been out, and I think it's in a new phase of figuring out how to go from here. And I guess any other final thoughts or anything else that's left unsaid that anyone would like to say before we put a pin in this conversation?

[01:21:24.931] Table: I definitely would like to regard a little bit earlier. I want to actually thank you for bringing up the topic of when it comes to monetization, the bigger instance caps thing as the person who organized the first big instance push tests back in like early 2021. where we hit 139 people at the time. It's definitely gotten, I could say, a lot better since then, both in terms of end users having different client-side functions to be able to moderate their own performance, stuff like avatar hiding, distance, et cetera, imposters. We have a lot more tools. It has gotten so much better, as well as just client-side performance has gotten better to the point where during the 139 test, we were genuinely struggling with mostly audio systems. It was actually less avatars because all of us were just in dummy IK test avatars, but it was audio that was the big hitch back then. And since then, it has gotten good to the point where, yeah, those Ferality 200... 50 capped instances or so, people were honestly saying that with the right settings in mind, like with a lot of people not hidden unless you get really close and stuff, and on like somewhat decent systems, they were obviously because you couldn't do it on mobile regardless. Although mobile can be pushed a little harder if you really go extreme when an end user hides a bunch of avatars, that they were having a good time. And it really did feel that feeling of being in an instance with a whole ton of other people is super pertinent. I was having a conversation about this recently, but an MMO that I've recently very much come to respect and have been enjoying a lot is that game's company, Sky Children of the Light. They broke several world records about a year or two back with the Aurora concert where they had A couple million people at the same time across different instances of, I want to say, I don't remember, but it was in the ballpark of like 5,000 to 10,000 people per instance, all together at the same time in a small stadium watching a concert go down. They did a whole bunch of tech to make sure player characters were not transmitting IK. They were all very simplistically rendered, but you could still see them, their colors. their presence, their movement, etc., such that especially during parts of the concert when everyone would get up and start flying around and moving in almost a big swarm, that everyone could see that and participate in it. And the director on the game very much at a number of talks, because they've done a good number of talks at this point about the tech stack and how they were able to pull that off, expressed that exactly. I think it was brought up earlier. I don't remember who. The Fortnite concert was a big inspiration, wherein he looked at that and basically went, this is great, but Having 50 or so people in a kind of like big space, you don't feel a sense of presence. You don't feel like you're at an event. And he went to his engineers and we're like, how can we do this? How can we get a whole bunch of people together in order to make it really feel as though you're at this greater event in order to kind of feel that passive Kamamuda, the camaraderie. aspect of social events like that and they did what they could to pull it off and it was wildly successful and I think VRChat doing any amount of work to emulate it through like some kind of conference inference or just like forced good avatar slash reduced IK sending just to get as many people through the pipeline as possible for likely at first PC-only instances, but eventually could be cross-platform, as Stabby was saying, with hardware getting better. That would go a long way, I think, and would be a decent benefit to add on to some type of packages for probably groups, probably groups needing to pay for unlocked grouped instances or something like that. Or if an event like Forality or TLX or some big conference from an outer perspective, maybe I don't know who owns TED. I don't know what the parent company is. But if they wanted to do VR talks, for example, and they got licenses from VRChat to be able to make and build that info to do so, opening larger instances to avenues like that would absolutely be, I think, a wholly good thing for both the people at the events, but also the people managing them and for VRChat getting the money. Those are my two cents.

[01:25:23.274] Miss Stabby: Yeah, if I may say as well, like regarding the final notes, that one thing that I've also been quite surprised with seeing in VRChat, probably a lot of other online platforms like this, is that people have gotten way better at discovering themselves, like be it the way how they want to present themselves, the way how they want to orient themselves. And just seeing all of that and the support and the interest that it gets, it's really amazing to see. Like even the current week, they had a big promotion on the Trans Academy that was going on where people are discovering and talking about these experiences. yeah it's a really amazing thing because even if someone is interested in transitioning they would have to go through multiple years of trying to pass and a lot of social stigmas around it but inside of a platform like this if you want to change your appearance it is one click and you're instantly appearing exactly how you want to appear which is a super powerful thing that hasn't been something experienced before because changing a profile picture on a social media platform doesn't really do it that much compared to loading your body into whatever you'd like it to be.

[01:26:47.923] Kent Bye: Nice. And a shout out to Body of Mind, which is an experience that was at South by Southwest and won a special jury prize last year and just released on the MetaQuest platform yesterday. So definitely check out Body of Mind. So yeah, QDOT or Unix, any other final thoughts or anything else left unsaid? I'm good.

[01:27:06.572] yewnyx: I guess my closing thought is actually not especially optimistic. It's that we should be very intent on holding VRChat 2 accounts to make sure that this layoff was worth it. We should see them make progress. We should see them deliver value and make progress on their goals towards profitability. Because I never wanted to see so many really passionate people suddenly ripped out of that passion. It's painful to see. So I want to say, let's make sure that they make it worth it. Let's push them to execute well and tell them when they're not. That doesn't mean crazy, stupid criticism, but it does mean that let's keep an eye on this. Let's make sure that if they misstep, that we as a community let them know.

[01:27:57.653] Table: And I fully agree. And if they misstep to the extent that it goes beyond what we can as a community view is tolerable, we then ourselves need to step away and express that wholly.

[01:28:12.975] Miss Stabby: I feel as well that if there's too much change in how the platform runs, that since there's already a significant proportion that is outside of your chat now because of the layoffs, that a new platform could be started by people that exile from the company. This is something I've seen a lot with different game companies, where whenever management or organization does something that most of the workforce is very disagreeing of, especially the more passionate side of the workforce, these people end up leaving a company and basically trying their own attempt at what they've been doing before, but at a new instance, so to say.

[01:29:00.509] Kent Bye: Yeah, and at the end of the day, the technology of VRChat is enabling people to connect to each other, and it's those relational connections that is really the heart of the community, the Metcalfe's Law idea that the value of a network is the number of nodes in that network squared, and so you have an exponential growth of the value of the platform, given how many people are connected to it. But at the end of the day, it is those people that are connected to it and the content that's there, but also the relationships and that people are able to develop. It is called VRChat and it's all about connecting. So I very much appreciate each of you for joining me today, both Mistabi, Table, Unix, and QDOT for giving all of your deep insights into what's happening in the context of VRChat and just to help contextualize what's happening. in the past with the platform and where things could be going in the future and different ways that people could help support and get involved. So obviously, if you want to become a member of the VRChat Plus to help the overall venture of helping the platform sustain itself, with not a lot of actual return on that investment right now, but I'm sure that they're going to be adding more perks and benefits as time goes on. There's a creator economy that's there and there's events that are also happening And there's also merchandise that they've been selling as well. So yeah, any way that you can find to support the platform and to find creators that you like and to support their work on the platform as well. So again, thanks again for each of you for joining me today to help break it all down.

[01:30:22.667] Table: Thank you for having us. Support indie creators. Go to small worlds. I appreciate the opportunity to speak.

[01:30:29.408] yewnyx: Thank you.

[01:30:30.349] Miss Stabby: Yes, likewise. The same.

[01:30:33.106] Kent Bye: So that was QDOT, Unix, Mistabi, and Table, who were all VRChat community members, speaking about the latest VRChat layoffs and some of the future potentials for revenue streams for VRChat. So I have a number of different takeaways about this interview, is that first of all, Well, it's clear to me as I speak to all these different VRChat community members, just how beloved the VRChat platform is. I mean, it's a technology that's facilitating all sorts of really meaningful connections and relationships and experiences. And yes, at the heart of it are the people that are on the platform, but the technology and the way that it's architected and built is really enabling lots of different communities, culture, art, and context for people to really have these meaningful connections. So with the concurrency rates around 100,000, whether or not the monthly active users could be anywhere from 2 to 3 million or maybe upwards of 10 million, as Wagner James Howe was claiming on his blog, although there's a lot of skepticism, maybe it's more around the 2 to 3 million mark. But from that, they have a really dedicated user base, but really not a lot of opportunities for people to give VRChat money. There is the VRChat Plus subscription, but that doesn't honestly give a lot of benefits at this moment. A lot of people are just perhaps using that as more of a patronage model for people to subscribe to be able to support the platform, which I feel like at the end of the day might be something to further lean on. You know, if there's the threat that VRChat is going to go away, then how many people would want to actually join up to just help to support whatever they're doing? Or if there's going to be even more explicit benefits that is going to qualitatively change the experience of interacting with the platform. But there's all sorts of other things with avatar representation and identity. As QDOT said, the third party asset and avatar genie is sort of already out of the bottle with people being able to sideload things in and buy things off the platform and to bring them in. But it's really a lot of friction in that process. It's not easy. There's like requirements to download Unity and it's a hassle. But there's a lot of ways that VRChat could make that process a lot simpler. And maybe they'll have some sort of hybrid method where there's like a centralized method where they have more control and maybe still that option for people to slide the things in, especially for those power users that are out there. One of the more striking things is when Table was talking about, as people are trying to implement the existing creator economy system as it's set up, it's really driving people towards this gamification of their experiences. And VRChat, while it does have some social games and games, there's a whole wide range of different worlds that don't really have any gamification at all. And so it doesn't really make sense to start to apply that type of gamification to some of these existing worlds. And so What Table was saying is that one of the things that creators have been asking for again and again is just an easy way for people to tip. Whether or not you want to subscribe to the creator or just tip them, it's a difference between just giving people some money in the moment in the experience or to commit to a recurring subscription to things that you may or may not ever go back to again. there's a little bit less of a connection there for people to go into that subscriber model, unless you're a part of a community that is running events and you want to help to support it. I feel like that's something that makes a lot more sense than just going into a random world that someone spent a lot of time creating, but there's no real easy opportunity for people to give anything back to those creators. So I know that money laundering is an issue for, you know, try to prevent that. Perhaps one of the barriers to just having tipping is like, how do you counter against money laundering so that people aren't just using VR chat to exchange huge amounts of money to each other? So I feel like there's probably some like reasonable caps of like, you know, most people are not going to be giving like $10,000 to creators, but you know, it could be a part of the calculus as they're trying to figure out how to actually implement that. Also, we talked about the larger instance sizes. And so the potential there, maybe that there's some advertising that's possible and advertising feeds into like discoverability and trying to match up the different types of worlds or experiences that people might be interested in. but also I think the onboarding process of people just coming into the community, how they get connected to all these existing communities and groups and different experiences that they might be into as well. So just the point that Unix had mentioned is that there is this split between the Quest users and the PC VR users. In a lot of ways, those PC VR users are the whales. They're the ones who have clearly committed to the platform, have often uploaded their own avatars, and are also willing to potentially pay for a lot of those different types of features that people that are on the Quest may not be as interested in, especially because a lot of those types of experiences might not even be available on the Quest. Yeah, it's for me just a really interesting survey of some of the different dynamics of what's happening in VRChat right now from these different perspectives, especially from the content creators, but also some of the pathways that VRChat might have in order to really get to this point of being a sustainable, regular Silicon Valley startup. I do think that there is something that's different about VRChat and they do have a possibility of having something like a subscription model take off, especially because, you know, so much of the existing business models from the web are driven by this surveillance capitalism type of model where you everything is free and people do sort of expect things to continue to be free. You know, so there's this kind of paradigm shift of the VR chat platform has been free for a really long time and it's been funded by tens of millions of dollars of VC funding that's been able to facilitate that. So in order to really sustain that moving forward, then what is the model to really make it work, they've been able to really have this incubation period to create some real magical platforms and context and cultures that have been able to really benefit from that money that's coming from the VC funding, but that's not going to be infinite and everything is built on unity and then unity has also been doing a lot of shenanigans over the last couple of years with their runtime fees and so vr chat is the type of enterprise that could be hit with some of these new unexpected runtime fees that weren't on their original plan because they were just using unity for free now if they have a certain number of users a certain amount of revenue they may be on the hook to pay lots of money to unity just even sustain that and so is the stability of Unity as an entity feeding into a company like VRChat and how much of their entire system is built upon that assumption, Unity existing. So yeah, that's a whole other thing that we didn't have time to really dive into, but that's another dynamic. So there's been existing roadmaps that have been presented out on the canny for ask.vrchat.com. But honestly, right now, everything's up in the air in terms of just having these new management layers, the 30% layoff, like basically around a third of all the different employees and developers that may have been working on existing projects. And so there's going to be like a regrouping and trying to have a new cadence to really drive towards some of these different features that are going to be shipped for the creator economy and profitability. They first announced the creator economy back in like the spring of 2021. And then it took a couple of years before we even heard anything more about it. And then in May of 2023, they had the update that it was going to be starting to launch in some sort of alpha or beta form later in the year. And then November, they opened it up to a closed beta for people to start to join in and get more involved. And that's when they announced the 50% cut for any money that was going to the creators. 50% of that was going to the creators, 20% to VRChat, and then 30% to the platform fees of either Steam, Meta, Google, and potentially in the future with Apple with their 30% tax of any transactions that happen on the platform. And just how the existing platforms of like Gumroad, Booth, or even Patreon is taking like less than a 10%. So for a lot of creators, it hasn't necessarily made as much sense. You know, you'd have to get a certain amount of volume of people participating in the economy to offset the differences in percentages and to be able to participate in the VRChat solution that they're providing. So it just has to have something that's way more tightly integrated with a lot more people and a lot more volume just to make it make sense for them to switch over to the creator economy. so i do expect to see some changes that have to happen over time either for what the features that they're implementing and maybe some other policy level things that start to have different ripples within the vr chat community as they are trying to get on this path towards profitability so that's all i have for today and i just wanted to thank you for listening to the voices of vr podcast and if you enjoy the podcast and please do spread the word tell your friends and consider becoming a member of the patreon this is a this is a part of podcast and so I do rely upon donations in order to continue to bring you this coverage, so you can become a member and donate today at patreon.com. Thanks for listening.

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