Marc Merrill, Co-Founder, Riot Games
Starting a Riot
The dramatic tale of how Marc Merrill and Brandon Beck set out to make a better video game, and changed the industry with League of Legends.
Marc Merrill and Brandon Beck were typical college roommates. They went to class. They studied. They played video games. OK, a lot of video games.
But they also shared an avid interest in business, including the business of their favorite hobby. So while other gamers helplessly yelled at their screens when a glitch popped up or they felt burned by an expensive new sequel, Merrill and Beck thought up ways they could fix these shortcomings—ways they could make the industry and the gaming world better.
Today, the duo co-chair Riot Games, a video game company that places a unique focus on the needs and experiences of gamers. As their signature game League of Legends approaches its 10th anniversary, it operates in 19 languages worldwide, has inspired a line of Marvel comics, and holds competitive tournaments, with the latest championship drawing nearly 100 million viewers.
How does a free game that can only make money through selling virtual goods become such an enormous business? The answer is in the radical vision for gaming that Merrill and Beck strongly believed in, and were determined to realize—even if it meant challenging game publishers, investors, developers, and themselves.
As Merrill tells it, the story of how they pulled it off is legendary.
From Passion to Plan
“We had two shared passions,” Merrill says. “One being gaming—we were both incredibly hardcore gamers, and we loved playing games with each other—and the other being business.”
Merrill and Beck were studying business at USC and, although they spent every spare second gaming, they never imagined it would lead to a career. Even as they worked toward their “responsible, adult jobs,” they constantly bounced ideas off of each other, dreaming up ways to solve the problems that irritated them most as gamers.
After they graduated, and Merrill moved into a career in banking and Beck went into consulting, they continued the conversation in their West Hollywood apartment.
They, and many other gamers like them, found the current model of game development frustrating. The industry ran on new releases, sending gamers to retailers to buy endless $60 sequels to beloved games. Meanwhile, those who played the games didn’t actually want a brand new game or a sequel to what they were playing. Instead, they would have preferred updates, new features, and new adventures to appear in the game they already loved.
Was there, Merrill and Beck wondered, a way to create a game that first and foremost served the wishes of gamers, rather than the needs of retailers? One that could grow over time with the players?
They sensed that the video game industry was headed toward a significant disruption, and as the days passed, they began to realize they might be the disruptors.
“We, as passionate players of games, had identified that we felt really underserved at the time,” Merrill says, “and so had a whole thesis about how to go create a company that solved a problem that we deeply felt.”
So, when the twentysomethings weren’t working diligently away at their respective day jobs, they drafted a business plan for a new kind of game. But they were nervous about taking the plunge, and they wanted to be sure this was something they could see all the way through before moving forward. So they asked themselves three crucial questions.
Was there a demand for what they wanted to build?
Could they build it?
Would they be able to find the necessary capital to turn their dream into a reality?
The moment they felt comfortable answering yes to each of these questions, they charged forward and, in 2006, Riot Games was formed.
The creation of something revolutionary is never easy.
“We’ve had many catastrophic circumstances that should have torpedoed the company,” Merrill says.
From day one, they knew that overcoming their lack of credibility was going to be the biggest challenge in creating the game they were imagining.
“Knowing what we know now, we literally wouldn’t have invested in ourselves back in the day,” Merrill says. “We ironically believe that our naïve optimism was one of the incredibly important ingredients for success.”
Experienced developers were hesitant to join the team because of Merrill and Beck’s inexperience and lack of funding. Meanwhile, shrewd investors were skeptical about hopping on board due to their inexperience and lack of experienced developers. But Merrill and Beck moved forward anyway with the best they could recruit, and they strove to build credibility.
At one point, they tried to bring someone on board as CTO and executive producer who had thrived in the industry for years and even had a publishing background. But as the three of them worked to recruit talent for the business, Merrill and Beck soon realized that they didn’t quite gel with their new teammate.
They felt more drawn to interns who lacked experience, but understood the vision of the game and had great potential. Meanwhile, the senior staffer tended toward experienced developers the co-founders would not have chosen themselves.
Because they didn’t want to come off as overpowering, micromanaging founders, Merrill says they let the developers work freely. But this soon created a serious problem. Merrill says they discovered that the lead developer had plans to steal the company and had been secretly pitching his own version of the game to other publishers.
The cultural divide Merrill saw growing within the young company, punctuated by this betrayal, inspired the co-founders to become far more hands on with their business.
“That was a really galvanizing event that helped teach Brandon and I that when experienced individuals say, ‘Trust me, because my 20 years experience in this particular industry or this field means that I know what I’m talking about,’ it’s really important to say, ‘Well, enlighten us,’” Merrill says. “If somebody can’t articulate a good rationale for whatever it is they’re doing, even if it’s a deeply technical concept, that’s a red flag.”
Merrill and Beck righted the ship, took a more active role, and set out toward building a game demo that would illustrate their idea to investors and publishers. But after constructing the demo, they realized they didn’t have the internal talent yet to fully realize the game they envisioned.
So they established an advisory board, through which very experienced, talented developers could gain free shares in the company by mentoring Riot Games’ young developers, without leaving their full-time jobs.
Over time, the relationships with those on the advisory board grew. While initially, those developers would have said no when invited to join the the team, things began to change. “As that equation changed, those eventually turned into yeses,” Merrill says.
With each new, experienced addition to the team, the game development leaped forward with new input and inspiration for the junior talent, pushing the limits of what was possible for the company.
While the game slowly took shape, they started approaching publishers with the idea. Unfortunately, Merrill says, every publisher they spoke with believed the concept of a free battle arena game that generates revenue through in-game purchases was insane.
“Our whole business model was very unproven at the time,” Merrill says, “because our game was planning to be free, and we were literally selling virtual goods.”
Because of this, they realized they were going to have to publish the game on their own. And that was going to require some serious cash—$20 million, in fact.
“We had no idea if we were going to be successful until spending about $17 million of other people’s money and bringing the product to market and then starting to get validation,” he says.
This made investors nervous, and Merrill says that 50 VCs turned them down before Benchmark and FirstMark Capital decided to come on board at $7 million. Riot Games was given the first half of the investment up front, with the second half to come after they had conducted a 1,000-user beta test.
The only problem was that in 2008—before widespread smartphone adoption or cloud computing—the technology was not yet in a place to support the user base they anticipated for their game, meaning they had to build that, too.
After briefly partnering with a startup in an attempt to outsource the creation of the necessary backend, they were $1 million poorer and no closer to what they needed. So, in the second half of 2008, they worked to build the platform internally from scratch.
With only three months of funding left in their account, Merrill says they hired 1,100 people in the Philippines to beta test the game in internet cafes. The test was successful, and Riot Games lived on.
Charging Toward Launch Day
But Riot Games’ potentially catastrophic struggles were not in the rearview just yet. With launch day rapidly approaching, Merrill, Beck, and the 55-person team prepared to self-publish in North America and to publish in Europe through a licensing deal with GOA, a division of Orange Telecom. They even had a set “ship date” despite the downloadable nature of the game, to try to build credibility with media outlets skeptical of the level of quality found in most free games.
Everything was ready to go. At least it seemed like it was.
Rather than building the store feature of the game themselves, Merrill says they had hired an online store provider to handle the construction and management of the in-game shop. But as the beta tests progressed, the store struggled to keep up with growing demand. They tried removing unneeded features, but it made little difference.
The store was the hinge on which the door swung. It was the only way for the free game to generate revenue, and it housed the players’ in-game wallets and account systems, meaning that without the store, players wouldn’t have any content.
Because of this, Merrill was eventually forced to conclude that, once again, it would be better for them to build something of their own from scratch that could meet their needs. He reached this decision two weeks before Oct. 27, 2009, the set launch date for League of Legends.
It was time to get creative.
To buy themselves the time necessary to build the store, the game started with a “launch party,” during which all players could access all of the game’s content for free. The strategy worked well, attracting tens of thousands of players to the game, and once the shop was introduced, the paid content began immediately generating revenue.
But Merrill says that the main reason League of Legends succeeded wasn’t their ability to attract new customers. It was their ability to retain them. So when the game continued to grow steadily in North America but remained stagnant in the European market, they had to take a closer look at what was happening underneath the hood.
In North America, Riot Games made players feel heard, addressing their concerns with regular two-week patches. The European publishing partner, however, was unable to meet this same level of service, and Merrill says this is what caused the stagnation.
So they immediately set to work unwinding the deal they had made with GOA, and then had 45 days to create a European entity, build an office, hire staff, create servers, and get the whole operation rolling so that gameplay in Europe would go uninterrupted.
Despite the hassle, the change made all the difference.
“We were able to operate differently and demonstrate why quality service matters because the second we took it over, we started growing,” he says. “Then, Europe started growing faster than North America.”
Slowly but surely, month over month, League of Legends gained an avid fan base until it became the worldwide sensation it is today.
But there was one more dream Merrill and Beck wanted to try to bring to life.
A New Kind of Sport
Both Merrill and Beck grew up loving and playing sports in the same way they loved and played video games.
“We always believed that competitive online games of a certain type had all of the same dynamics that ‘real sports’ did,” he says.
They knew that someday, a game would become an arena sport just like basketball or football. So why not theirs?
In July 2010, they introduced the first significant update to League of Legends called Season One. With this update came the concept of singles and team rankings. This enabled them to launch a tournament system that would end in a final tournament in Sweden for a $100,000 cash prize.
Interest in the tournament exploded as gamers battled for the crown. But Merrill says the realization that this could actually become something big came not from the competitors, but from the fans.
During their first end-of-season tournament, over a million viewers tuned in to watch.
“For us, that was validation of, like, ‘Wow, a lot of people are like us and really do want to watch games played at a competitive level.’”
From that moment, the esports aspect of Riot Games grew rapidly. They established leagues worldwide and a world cup system similar to soccer.
Today, they operate 13 leagues across the globe and hold their World Championship in the Staples Center, home of the LA Lakers. Merrill says there is even a player in China sponsored by Nike and that their most recent World Cup had more than 99.6 million live viewers, besting the viewership ratings for the Super Bowl.
“As a League player, there’s always something to watch,” he says. “There’s always something to talk about. There’s interesting drama between teams. There’s players and pros to aspire to or to become fans of. There’s events that are happening all around the world.”
Podcasts have sprung up analyzing players and teams, and fans cheer on players from their country the way they would with any other sport.
Merrill says that about half of League players will never spend a cent in game, but that’s OK with him.
“Our business is fundamentally about keeping players entertained and engaged over the long term,” he says, “and our view is that the only way to really do that is by delivering incredible value to them.”
And if they don’t buy in-game items, they might buy one of the ancillary products, like the comic line currently running through Marvel. Or they may simply tune in for big events to cheer on their favorite players.
While they work to further establish esports leagues, Riot Games is also striving to improve every aspect of the game itself. Merrill says that, since launch, they’ve redone every aspect of the game multiple times, improved their tools pipeline, overhauled their engine, and expanded their team to 3,000 globally.
They are also looking into the creation of new games.
“Riot is Riot Game right now, we’re not Riot Games,” he says. “The ‘s’ is still aspirational.”
But Merrill knows that there is so much more to come for the video game company he and his college roommate founded to solve the woes of gamers like them.
“We really feel like we’re just getting started.”
Marc Merrill’s Tips for Building a Successful Business
When founders set to work on their first companies, they are faced with a whirlwind of concerns, needs, and potential goals. But Marc Merrill believes these four items should be at the top of every early-stage founder’s to-do list:
Set a Clear Mission
“Having a deep sense of purpose and mission can really carry you through the darkest days, and also carry you and your team to great heights.”
Build the Ideal Team
“In our view—and I think in many businesses—the team is by far and away the most valuable asset. So getting the right people, building the right culture, being thoughtful about mission and purpose…those are all really important things to evaluate when building a team.”
Establish a High Level of Trust
“I think Riot’s success has largely been fueled by incredible people who are very committed to our mission and are willing to acknowledge mistakes and learn rapidly through failure because there’s a lot of trust.”
Don’t Get Discouraged
“You’re going to have days where you feel like you can take over the world, and there are so many possibilities, and then other days where you’re like, ‘Oh my god, how are we possibly going to solve this problem. We’re so in trouble.’”
Interview by Nathan Chan, feature article reprinted from Foundr Magazine, by Erica Comitalo
- How Merrill and his roommate Brandon Beck mixed their love of business and video games
- The frustrations the duo had with game development industry
- How the co-founders overcame their lack of credibility in the industry
- A betrayal that changed the way Riot Games was run
- How a strategic advisory board solved their talent acquisition challenges
- Why game publishers and VCs alike weren’t on board with Riot Games’ business model
- The creative problem-solving that made the launch of League of Legends a success
- How Riot Games exploded the world of esports, leading to 13 leagues around the world
- The hunt for the next big video game
Full Transcript of Podcast with Marc Merrill
Nathan: The first question I ask everyone that comes on is how did you get your job?
Marc: Well, the way I got my job at Riot essentially, was by starting the company. The way Riot got started was my business partner, Brandon Beck and I, are longtime friends. We essentially were college buddies. We went to the University of Southern California together. And we had two shared passions, one being gaming where we were both incredibly hardcore gamers, love playing games with each other and the other being business where we would sort of naturally default to the other guy to talk about interesting opportunities, but generally ended around gaming. In fact, when we were at USC, the first business plan we ever worked on was going to be for a company called the UGL or Ultimate Gaming League, where we wanted to build a tournament organising company back when we were 18, 19 years old, which was around 1999.
And after college neither of us actually seriously considered a career in gaming because we both felt it was sort of a dream career and sort of irresponsible, ironically. And so I went into banking, he went into consulting and it was a pain. I was at Merrill Lynch and such in the US bank. And shortly thereafter, we then lived together and had an apartment in West Hollywood. And while we were there, we had these back to back gaming rigs and again, we’d be playing games all the time. And the few times we’d actually be home together, we’d be playing games or sort of talking about games at the industry. And it was really that dynamic, which led to us thinking about how the game industry is going to be evolving.
And we felt like we as passionate players of games had identified that we felt really underserved at the time. And so had a whole thesis about how to go create a company that could solve the problem that we deeply felt and put together a business plan and while working at our respective careers for sort of nine months, tried to talk ourselves out of it and then when we really couldn’t, we said, well shoot, let’s give it a go and see if we can make it work.
Nathan: Interesting. This is your first business?
Marc: Yeah. Our first real business, essentially.
Nathan: Okay. First real business and for a first time founder, you guys knocked out of the park. You’ve got an incredible company. I’m really keen to explore and go deeper with that because I’m actually a gamer as well myself or not so much anymore. I don’t know if you still game Marc, but I find it difficult to find the time. And so I only game when I go to my parents’ place, when I go back for family dinner with my little brother, because I feel if I got a console or did game here at home where I now live I would just knock anything down because I’ve got a really obsessive personality. I’m an ex gamer, you could say. And that was always, it felt like a dream for me as well. It could be so cool to create your own game and everyone has their own ideas and it’s like a bit of a pipe dream. What happened next? You had this business plan, you guys were both working in the corporate world, do you guys have a computer science background? Producing games is really costly, talk me through how did you make it work?
Marc: Yeah. We were 24 and 25 at the time with no professional software development background or experience at all. And fast forward to today and it’s virtually impossible to draw a line and be like, how did we possibly create … become Riot? Because knowing what we know now, we literally wouldn’t have invested in ourselves back in the day. We ironically believe that our naive optimism was one of the incredibly important ingredients for success, which actually speaks to a lot of the challenges that we faced early on. We, of course, at least had the awareness to recognise that we would have a massive credibility hurdle, not to mention executed challenges, when we were putting together the business plan for Riot, we were essentially analysing the opportunity from three main dimensions.
One is sort of where is the opportunity? What is our exact plan? And if we execute this thing, would it actually work? Is there demand in the market for what we want to go deliver? And then two, can we actually execute, how much capital we were going to raise, what’s the type of expertise, how feasible it would be to want to put together a development team, to go execute what we’re trying to do. And then third is could we actually attract the necessary capital to go in a fund the operations and fund this, get to this and win all signs. Again, pointed the S, we said, okay, what the heck, we’re young, let’s take the risk, jump ship from our respective careers and give it a go.
But again, because we were not natives to this particular industry that meant we were obviously not that well known. We didn’t have a name that was relevant and because we didn’t raise a significant round of financing or what not, it was very hard for us to go recruit talent because everybody that’s also great of course is in jobs, they’re busy and they’re doing important things. And in many cases we had to get creative to figure out how do we make ourselves attractive to great talent, to go execute on our vision while still also not telling everybody what we’re trying to do. Because we were also naively at the time believing that what we were trying to do was proprietary and needed to be sort of tightly held to our best in which we have evolved our views on now.
But at the time, that felt like a really important issue for us. And to make a long story short the first person that we wanted to bring in to the company and then we had to put on our slides to demonstrate to prospective investors was going to be somebody who had largely check that credibility box. And we knew of variety people in the video game business, but in order to go find an appropriate sort of CTO/executive producer, we originally worked through recruiter. And to make a very long story short, we found somebody who we really loved that seemed incredibly intelligent, had a great resume from two dimensions, both being an experienced engineer who had lead programmer titles on big relevant credits on big relevant titles.
And then also had a publishing background, was a former SVP and a well known publisher. But long story short, shortly after working with this individual, once we get to convince him to come on board and put them on the slide and it’ll help sort of check the box and be like, “Hey, this person ship lots of games, this is very doable.” When working there was this natural divide that started to evolve in the office where Brandon and I would tend to favour and hire these inexperienced but really high aptitude, really high-potential interns that understood the types of content that we were really focused on creating. And in our view, sort of understood how the industry was going to be evolving. And I can come back to why the industry was evolving and how it’s going to be disrupted momentarily.
And then the experienced developers that this senior individual’s bringing on, tended from our view to not be the calibre of the digitals that we would have been dissipated being necessary. But again, we would look at ourselves and being like, Hey, this individual and some of these other members of team are saying a lot of things that we don’t think really makes a lot of sense, but we don’t want to be these, “business guys who were getting too close too at development, trying to tell these professionals, you have a lot of experience how to go do things.” However, statements like, we don’t need a development schedule, really raise our, in a spidery sense, but that doesn’t make any sense. And there were all these different signals that were happening and sort of a cultural divide again where there was sort of the youthful passion optimism that with some cynical, jaded, experienced individuals.
And what it turned out to actually happen is the person that we had hired to go build and lead development for us, literally wanted to steal the company and had no intention of going to go build what we are trying to build and was behind our backs pitching other publishers to go build different titles for them.
Marc: And when we discovered that, that was a fascinating thing. But obviously we parted ways with the individual. And it was sort of a galvanising event that I think was critical for the longterm success of the organisation where we then had to really roll up our sleeves and be like, wow, okay, if we’re going to have any chance of this thing working, we have to be close to every detail. We can’t get snowballed. We have to figure out how to go learn and get deeply involved in every aspect of the business.
And then that’s when we really jumped in and got really close to development and had tried to launch or drive the team towards creating a demo video in such short term to demonstrate progress to investors to essentially keep the lights on. And anyway, that was a really galvanising event that helped teach Brandon and I that, when experienced individuals say like, “Oh, trust me, because my 20 years experience in this particular industry or this field means I know what I’m talking about.” It’s really important to say, well, enlighten us with your 20 years experience. Well, what does that mean? Or why, or help us understand the rationale. And if somebody can’t articulate a good rationale for whatever it is they’re doing, even if it’s a deeply technical concept that’s a red flag that is worth digging it on. Anyway, there’s lots of stories I could get into, but we’ve had many catastrophic situations that, in many ways, should have torpedoed the company.
Nathan: Interesting. What happened next?
Marc: Yeah. From there, after making progress and putting together this demo video, we were able to, we still had the issue of like, all right, how do we go really build the game that we’re trying to build, and actually to take a step back and provide some context of what we’re trying to do. Our view was that the video game business was going to be disrupted as it was transitioning from a primarily packaged goods software industry to a more service oriented model. And as end users have lots of deeply engaging games, Brandon and I felt underserved by a lot of the existing content because oftentimes the business model for developers and publishers at the time, they could only generate revenue by selling goods at retail for $60 in a box.
Meanwhile, the communities that would be attached to a particular iteration of a prior version of the game would be like, “Hey, development team don’t move off. We don’t want the SQL, we want more of this game.” There’s lots of franchises that have had great success that over time, through too many skews have hurt themselves. If you think about, as an example, Guitar Hero, there was Guitar Hero I, Guitar Hero II, Guitar Hero III, Guitar Hero Aerosmith, Guitar Hero: Metallica, and meanwhile what the end user wanted was to just play Guitar Hero and have this great game where they can get new songs and they probably play with their friends or they could do it online and what not. And it was trying to raise a bunch of content.
Nathan: …they basically tried to raise LTV.
Marc: Right. And trying to pack a bunch of content and some incremental feature enhancements to then justify another trip to retail to buy it, to spend another $6 for essentially a slight tweak of what is the same game, it was something that a lot of players were frustrated by. And a lot of that related to the publishers, often times focusing on the retail partners as their primary customer that they were trying to serve. And again, there’s nothing inherently wrong with that. And that was good business in a lot of ways at a time. But from our perspective that felt really bad, that’s from a player perspective then that we thought that there was an opportunity to be like, let’s forge or create a company that could forge a deep, authentic relationship with the audience we’re trying to serve and then grow and evolve context brands with that community over time.
And League of Legends was the proof point and sort of content thesis to prove out what that could look like and what the “game company the future” could look like. Of course this has been far more successful than we ever imagined possible. And after putting together that demo and making progress we recognise that we didn’t have the talent internally to take this game to build a high enough quality experience. And our biggest challenge was how do we get great people to come join this company? And we created an advisory board essentially to say how do we justify even getting a little bit of time from great experts who have big roles at different companies to get them to come spend time with some of our junior talent who we think is really smart, passionate but inexperienced.
And that ended up doing a couple things. By creating an advisory board, we are able to give some free shares to talented professionals who thought it was fun to then come do some mentorship, give us advice, get under the hood a little bit, but then go back to their full time career. And as their circumstances would change and as our circumstances would change, it then created a situation where while they would initially tell us, no, when we wanted to give them offers. As that equation changed those eventually turned into yeses. And each new senior development hire that we brought on became a pretty critical inflexion point for the organisation. Our first real great game producer was a guy named Steve Snow who would ship multiple MMOs. And by bringing on Steve, he had deep relationships with lots of other professional developers who became more interested and more aware.
And a lot of our inflexion points for the company were when we’d bring on people like that. Tom Cadwell, who was original head of design and you still runs game design for us today, was from MIT and has a Kellogg MBA and was a lead designer on a Warcraft III, Blizzard and as we started getting great professionals, we started to learn what good looked like across all the critical game development competencies and then we would have them inspire our junior talent. We would then fill organisations around them. Scott Gelb was an absolutely critical technology hire where this is sort of crazy. But we also originally were pursuing a parallel financing strategy. We were simultaneously talking to game publishers at then also thinking about raising venture money.
And the game publishers that we talked to at the time also thought our idea was insane because we’d go talk to them and be like, Hey, yeah, we’re going to build a game that’s essentially 100% competitive multiplayer. And they’re like, “Wait, you’re going to have no single player and you want the game to be free and you’re going to sell virtual goods. That’s stupid. 80% of all game hours played are single player and you’re going to nerf the market tremendously. And how could you possibly just buy a free game, that only works in Korea, blah, blah.” A lot of the sort of nay-saying around core parts of the thesis, which actually then how does conclude, okay, wow, shoot, we actually can’t go just be a game developer and work with a publisher that would do title financing. We had to go build our own publishing business, which meant we have to go raise Metro money, which then meant the scope was increasing significantly and which meant the complexity was increasing, which meant the amount of money we needed to raise is increasing.
And post the creation of that demo, we needed to go evolve the company to become venture ready and evolve our business plan, flesh out what a publishing business would look like, flesh out more of a sort of venture ready business plan and-
Nathan: And this is before you’ve even launched?
Marc: This is all before we launched.
Marc: Yeah we thought it was going to take about $3 million to finish League of Legends and build a company to take the market, took about 20. And we had no idea if we’re going to be successful until spending about $17 million of other people’s money and bringing the product to market and then starting to get validation, but we were able to get benchmark capital and first mark capital to come invest and do our series A.
It was a $7 million round in 2008. And it was a trunch financing three and a half million upfront. And because we all mutually agreed that execution risk was one of our biggest challenges we reasonably put in a thousand concurrent user beta test as the milestone to get the second half of the financing. And the challenge there was in mid 2008, long story short, we had a philosophy where we definitely didn’t want to have the not invented here syndrome that many companies have, where they get too precious about trying to develop tech themselves or assume that they’re the best people in the world to go build whatever. We wanted to leverage the middleware market, but we dramatically underestimated the maturity in the video game and in particular, the online video game, middleware market at the time.
We thought that engine technologies would be more readily available than they were. We thought that online store technologies would be more available because again, back until it’s a six as a pre-cloud, the iPhone doesn’t exist, Cloud computing wasn’t a thing. And we had to go find a technology partner or build competency internally to build a robust enterprise style scalable platform business with account systems and massive data infrastructure and scalable chat and matchmaking and all sorts of complexity. And that’s where bringing on Scott Gelb was a huge inflexion point. But we originally were trying to build that out of house and there was a company that was a startup that was founded by a bunch of guys from Stanford who were building a technology platform for id software’s Quake arena or sorry, a Quake online, it was one of their games, an online version of their games.
And we’re like, wow, if John Carmack, who’s the founding CTO of id, who’s an incredible, legendary technologist, believes these guys are the right partner for him to build a back end, clearly there must be amazing. But long story short, after a year of working with them, we weren’t making enough progress from a future or a velocity perspective, we were able to get under the hood, evaluate the technology when we brought on Scott and Scott’s like, “Well, what did you want this to do?” And we described all the different things and he’s like, “Yeah, it’s not even close.” And we then had to tell the board, yeah, that million dollars we’re spending and that year building an enterprise software platform, we have to throw it away and start over.
Marc: And we fully expected the board to pull the plug on the company and Brandon and I would’ve been like, yes, we failed and it’s totally our fault. And lesson learned, and sorry everybody, we do understand if they took the rest of the money back and but that wasn’t the reaction. Fortunately, although everyone was really upset, of course, Mitch Lasky, who was the board member from benchmark capital, was the most experienced video game operator in the venture world. He was the CEO of JAMDAT, which is now EA mobiles, he was the former head of Worldwide Studios in publishing at activision. He had a lot of experience in games and he was like, “You guys don’t have a catastrophic development failure in your model? Of course, they were going to do something like that. This is incredibly difficult. This is online youth development, let’s see how the team reacts.”
And we essentially, but we had six months of cash. We had to build a team and build all the competency to then build a bare bones platform to then run a beta test, a to get a thousand concurrent players. And we had no idea we were doing. But we’re able to pull it off. It’s sort of a very long story, but everybody told themselves for, that the second half of 2008 but ironically, again, because everything that will go wrong. Our game was late and not as mature and sort of where we wanted it to be from a quality standpoint. It wasn’t especially fun. The heart wasn’t that good. We didn’t want to expose the game to a Western audience to run an actual beta. We hired 1100 people in the Philippines and we hired people on bicycles to cruise around and instal the game on CD rom and these PC cafes to then have people login to then join the beta to then hit that thousand concurrent threshold. We did it with three weeks of cash left and we lived to fight another day.
Nathan: Yeah. Wow. Then obviously you got the second round of funding. How long did it take until you launched? And I’m curious, how the hell did you guys still hadn’t proven yourself you didn’t have that traction or track record to kind of build up this incredible boards and get these world-class investors to believe in you guys.
Marc: Yeah, essentially what was our pitch to, how’d we get these investors to believe in us?
Marc: 50 VCs told us, no, almost everybody because a lot of people said you viewed what we were doing as content. And from one lens they’re not wrong. But from another lens we essentially had a content thesis that we could serve a platform in behind and where League of Legends was viewed as sort of the proof point to sort of this broader company thesis around really high quality core games as a service to players all around the world. And League of Legends was the spiritual successor to a very popular online mod called a set amount of Warcraft III, which is called DotA Defence of the Ancients. And a number of the creators of that mod were on our team Ginsu who is, it’s online handle for, you know one of the lead developers of DotA Allstars.
And then Pendragon guy named Steve Mescon who had built this online community when he was 17 years old that numbered in the millions of people. And I think in VC speak, part of the parlance was, oh, there’s a leveraged customer acquisition strategy where if you build this product that there’s clearly a demand for a large amount of those players will then come switch to these improved product where you have a lot of credibility where it’s on the game plays already sort of validated and proven out. But it’s kind of this birth of this new genre. And obviously we wanted to, we viewed DotA as this proof point to this much broader genre opportunity. And because it was growing virally without any advertising dollars spent, despite having incredibly high barriers to entry.
And that we thought that that also helped validate the thesis around games as a service and kind of building a relationship directly to players, but it wasn’t happening in a commercial product. And we wanted to build the official commercial product that did that and then show how a real company that could control all aspects of the experience, not just some of the gameplay levers could deliver something great. And that’s what we’ve done with League of Legends and as we’ve launched esports and a lot of the around game experiences to enhance it.
Nathan: Yeah. Okay, Got you. That makes sense. You had an unfair, what were perceived it would be an unfair advantage with the team, like we do some of these incredible people that you convinced to join you on this mission.
Marc: Yeah. And therefore the audience, essentially the players that we were targeting. And that essentially would create yeah, sort of step one for this multi year plan that Brandon is still working on.
Nathan: I see. Talk to me around launch, when you guys launch League of Legends, did a go gangbusters to start with? Because as I said, I’m out of the gaming world, but of course no of you guy, one of the largest games ever. Yeah, I’d love to hear like what happened next.
Marc: Yeah. 2009 was everybody stepping on the gas pedal, trying to get the game ready to put it out the door. We were going to be publishing legal items ourselves in North America. And then we partnered with a company called Goa, which was a subsidiary of France Telecom to publish the game in Europe. We’re going to be live in four languages in Europe. It was French, English, Spanish, and German. And then we had also licenced the rights to League of Legends for China, which we’re going to be publishing through 10 set. And part of the reason is because one, we also wanted the advances on future royalties because we wanted more cash to ensure we could continue to invest in the product to improve the quality. And because part of the challenge is that our whole business model was very unproven at the time also because our game was planning to be free and we were literally selling virtual goods.
And one VC put it succinctly where they were like, wait, “You want to create a multiplayer battle arena game where a 19 year old dudes or our kids are college kids are going to be fighting each other, but then you’re going to be making money by them playing dress up doll while they kill each other.” And we’re like, well, not really, but kind of. And they’re like, “yeah, good luck with that.” But that’s of course how we make our money. And that ended up working, but that was anything. And then anything from a sure bet at the time. And when we launched to your point, League of Legends was not Pokemon Go. This is not this instantaneous massive online. You had a massive success. It was each month we were kind of incrementally bigger than the next month.
It was slow growth. It was a little bit viral. People would have fun and that may grow over time and I can come back to that. But leading up to launch in 2009 we continued to have lots of different challenges. We grew the team to about 55 people leading up to launch. We had one person for marketing, which you brought on maybe three months prior and all of our resources were focused on improving the game, proving the product and trying to bring it to market. And to that philosophy around trying to leverage middleware, we had an online store provider. They had another partner that we had brought in to our back end ecosystem. And to make a long story short, as we started getting into beta, the store would fall over at every new concurrency threshold where, we’d get 500 users and then a thousand users and then the general users and it would just it’d be slow and sluggish would fall over.
It was a very feature rich store, but it had never been proven in any other commercial products. We were sort of their Guinea pig. To make a long story short, we tried to rip out lots of the heavy, unneeded features. We try to get source code and reverse engineer a bunch of things and try to help out. But we eventually concluded that it’d be more efficient for us to build something from scratch. The problem was this was right around our launch date. And this was crazy because the store was the mechanism of our infrastructure that actually had a players wallet and account system to know who had what in their inventory. Not only could we not make any money, but we couldn’t sell any products, anything.
We couldn’t have any content. But we had a ship date and the reason we had a ship date, which we also didn’t even want to have and we wouldn’t have it in natural online service world, but because there was so much stigma at the time and the industry around free games, no editors would actually cover games that were free because they were all sort of imported from Asia, low quality games that were maybe 10 years old.
And we’d go meet with editors and they’d be like, “Hey, well, we’d love to talk about you guys, whatever, but like is your game free?” And we’d say, you know what? Well we have a box. And they’d be like, “Oh great, we can cover you.” Because we ended up doing a box distribution deal for a small amount of units with THQ, which was a publishing partner at the time, which has been previously a multi billion dollar company now at a business, because they were pretty attached to the sort of retail based distribution model previously. And had a lot of licenced properties like the UFC, things like that. And but anyway, we had a bunch of boxes with THQ and because we had boxes, those boxes essentially were bundles of digital content, but that also then of course had the game installed on the CD.
We would, we’d have these $30 boxes at best buy. But the reason we did that was one, to have some quote credibility at the time around being a retail. We had shelf space, people could see us, but primarily it was media would actually give us attention to then have again, improve our credibility and eyeballs and awareness of us being a legitimate high quality title coming out. And long story short, there’s just a million different issues that came up and in our been our experience. And it really was a necessity became the mobile invention of like, okay, we have a lot of constraints. How do we solve this problem anyway? And back to the store, we had that launch date, which I believe was yeah, October 27th was I retail date 2009. And our store was falling over.
Two weeks prior we pulled out that store, started building around. And then from a player standpoint, we launched the game with launch party where every piece of content was available for free. And all players could play with everything unlocked for the first X number of weeks until we could build a store to then put it up online, but then manageable inventory. Yeah. And the cool thing about that actually was that, felt great for players. Made sense, more people got to attach to the game and it sort of accumulate some of the free currencies. Then once the store actually came online, they were then able to buy a bunch of more content than they would have otherwise, right at launch. It ended up working out great. But then from there again, we had a relatively small community, you’d probably in the tens of thousands and then every month we’d get incrementally bigger.
But then meanwhile, part of the way legal editor became big was not because we were great at acquiring customers. We were great because we were great and not losing them. We ended up having the one of the lowest turn rates in the industry. And I can talk a lot about why and how we did that and how we still do that because it’s still true today.
Nathan: Yeah, I’d love to hear that.
Marc: One of the challenges right at that time, to the extent you’re sitting here about this is Europe was not growing at all. North America was growing pretty steadily, but Europe was completely flat. And it was fascinating because again, Europe was being handled by our publishing partner. And to make a very very long story short we ended up publishing with go up in France at the time because we loved their BD guy. An individual named Nicolo Laurent, who we thought was incredibly smart, very very thoughtful really understood who we were trying to do. And also because they had the number one NMO at the time, which was for Europe, which is Dark Age of Camelot. They were a credible operator at decent size community.
But with league of legends, unfortunately, weren’t able to deliver the types of holistic high quality experiences that we were in terms of building a direct relationship with their player base, making the players feel like they were cared for, that there was hope and how to communicate in a way about the concerns and feedback that players would have, were being heard and acknowledged and then therefore improved as were present in the upcoming patch cadence.
Another thing that was industry first was we were able to get on a very regular two-week patch cadence, which was very rapid and very difficult to pull off from the development team. But we thought it was incredibly necessary to ensure that our players had hope, that the game was going to be constantly improving. They would see not only like micro patches or hot fixes rapidly, but then also bigger batches of content or bigger fixes coming in a very regular cadence. And then also establishing this great relationship where they felt heard. They would have complaints, they would have issues, they would see things that they would want. We would listen, we would connect and we would improve the product with them. We were able to establish that well in North America, not in Europe. And that actually is sort of part of the core underlying answered your question around why was our turn low?
It started because of this type of philosophy where we needed to develop this intimate relationship and trust with players. And we weren’t able to do that in Europe through this third party publisher. And we then worked on how do we unwind the deal? And to make a long story short, we’re able to hire Nicolo to then join our team. And because he understood their company, he was able to unwind the deal. And then we had 45 days to take over the service from them create a European entity, build an office, hire staff create servers, get the whole thing up enrolling in literally 45 days. And about on day 30 the Icelandic volcano erupted. Which then created a massive amount of soot in the air which then shut down our air travel.
In order to get the hardware and networking infrastructure from the US to Europe in time to build our data centres went up, we had to route circuits and things like that. And if it’s through Africa and sort of fly it around, we had some people go on planes and personally deliver some things. Again, it was sort of every hand on deck going crazy, trying to get the European service up. But once we got Europe up and we were able to hire some people from Goa that loved and loved what Riot was all about. We’re able to sort of operate differently and demonstrate why quality service matters. Because the second we took it over, we started growing and then Europe started going faster even than North America. And then fast forward to today and we have millions and millions of players across both regions. It was pretty important for us to be able to get the rights back.
Nathan: Interesting. Talk to me around the esports part of your business because this is massive. I’ve seen some photos of the stadiums. This is like an Olympic level it’s crazy. I’d love to hear about that side of the business and how that all came about in the league.
Marc: Yes, absolutely. Yes Brandon and I both grew up playing sports, being big sports fans, love most sports in general. And we always believed that competitive online games of a certain type had all of the same dynamics that quote real sports did. And we along with many many other players for a long time, we were sort of dreaming of a world where gaming a professional esports gaming would be recognised or sort of on par and respected in the way that mainstream sports are and that the athletes would be sort of treated with respect and valued and paid well and the production by be great and all that. But for us, that again was a pipe dream. We had no idea at that’d be 30 years out but we believed it was inevitable.
And but it’d be incredibly arrogant to plan on League of Legends kind of being that game. But we always had a hope that we could deliver some great competitive experiences. And when we launched League of Legends, we didn’t have ranked. And our first major update were because we do these to pack patch cadence where we’d be adding characters, we’d be doing balanced tweaks we’d be adding incremental content but in July of 2010 we did a big update called Season 1. And this was time to be just before StarCraft II was coming out, which was essentially the sequel to the biggest and best PC game of all time, which we were absolutely terrified about from blizzard with the company we grew up loving and admiring and playing all their games.
And their map editor from Warcraft III spawned DotA which helped sort of spawn the mobile genre, which League of Legends was inspired by and what not. Then they had this whole arcade plan with a great modding tools for the whole arcade ecosystem and StarCraft II. We were terrified about that. The positive aspect of that is it helped catalyse a team’s focus around delivering a great Season 1 update. And the whole concept of coming up with seasons was to help frame and position the game as a sport. We were going to launch ranked and, which then had draught mode and felt more competitive, which was a new matchmaking cue, which would then segment our population of players.
There is an account levelling mechanic where in order to prevent new players from being too overwhelmed by the massive amounts of content that exists on the League of Legends in the hybrid and the knowledge, we kind of breadcrumb it where there’s only a couple of characters you can play and then you didn’t have all these summoner spells and a lot of the hours around game decisions. But over time, as you got more familiar with the game, we’d give you more options. And once everybody hit level 30 though, when people really started getting, really understanding the game, they wanted a higher, more competitive experience and we wanted a matchmaking cue where people that were really wanted to try hard and focus and have numbers that where the at ranking system that mattered could go into a rank cue. That’s what rank is all about.
And we had individual ranking with our solo cue, but then we had sort of a team rank where people could play five on five with friends against other teams. And then as part of the Season 1 announcement at launch, we announced that we were going to essentially create what has subsequently become sort of like the birth of our esports efforts, which was a tournament system focused on circuit points where different teams could go to approved events that third party providers could work with us to get approval to go run their own events. And then teams would go show up to the events and there would be a leaderboard that we would own. And at the end of the season, the top X number of teams would then go to a tournament. We would run at dream hack, which was a big land party in Yon shipping Sweden where it’s one of the cool things in the world were literally 15,000 gamers show up to like this random town in the middle of Sweden in the middle of winter, you spring your own computer.
And they play three days of just hardcore games and like nobody sleeps or if you do, you’ve got to see the bag on your desk. It’s amazing that, we hosted our first esports event there and it was our Season 1 world championships and that’s where we had our volunteers shout casters like Freak and Rivington and Daniel Klein who are on our community team. We had really low budget graphics and it just really bad production value. But this was also the birth of the streaming ecosystem. Twitch TV wasn’t even a thing yet. I think it was Justin TV at the time. And then there was another platform called OWN3D. And we didn’t know which streaming platforms was going to really win or evolve. And we wanted to be on everything.
But the numbers of online viewers that watched were really large. We had over a million people tune into watch, which blew our play where expectations there’s $100,000 cash prize tournament. And anyway, for us, that was validation of like, wow, a lot of people are like us who really do want to watch games played at a competitive level. Now that we’re growing, and we’re having this momentum and we’ve sort of validated this, how do we take this to the next level? And then come Season 2, we essentially had eight months to then figure out how to build what has now become the LCS which is League Championship. Essentially our league ecosystem, we now have 13 leagues around the world, but at the time we started this with two as North American LCS and EU LCS and Season 2 it was the first time we did events in arenas as well.
And I think we also launched in Korea that year, which was 2012, or maybe that was early 2011, I actually forget exactly the timing, but the evolution of esports from season 1 to season 2 to season 3 to season 4 and beyond was incredibly rapid. And there’s some graphics around in the internet that illustrate it pretty well. But I think if you do a search for like League of Legends season either one through four evolution or things like that, you’d find some cool images. But we went essentially from having folding chairs at a land cafe to doing an event at the Galen Centre at USC to then a year later doing the world championships at the Staples Centre. And each year the world’s became much more relevant because we had more leagues around the world that we’re becoming more professional, where the top teams from each region would then qualify to go to essentially a world cup.
And then the world championships was the finals of the five week World Cup tournament. And now it’s, last year we had 98.6 million people watch our World Champions live.
Marc: Oh, sorry, 99.6, which was a little bit more than the super bowl at which not quite apples to apples because there are just a US number, but in ours as a global figure. But nonetheless, the scope enriches becoming really significant. And the average salary of a player just in North America, there’s 50 starters on the teams, it’s about 350 top player, last year made five and a half million dollars.
Marc: Sponsors are coming in all over the place. There’s now a player in China who is sponsored by Nike, it’s been a blessing to see it all evolve and then really come to fruition. But it’s required an awful lot of blood, sweat and tears from an awful lot of people all over the world building, all of the different aspects of how to create a healthy league ecosystem like players associations, and team structures and partnership agreements and media rights and how do you hold players teams accountable, and teams accountable, how do you find them? I mean, it’s been a really interesting experience.
Nathan: Yeah. And I think this has been a big, would you say a big component, to really further fuel the growth of League of Legends? Would you say that because now you’ve got this whole ecosystem, you’ve got this whole tournament and from there, that’s like a whole nother business?
Marc: Yeah, it really is. It’s a very different business, very different competency, but it does, the whole is greater than sum of its parts where as a league player, there’s always something to watch, there’s always something to talk about, there’s interesting drama between teams, there’s players in on pros to aspire to or in it to become fans of, there’s events that are happening all around the world. There’s stuff to watch when you don’t want to play and you just want to watch, you can watch it on your phone. It’s just like any other traditional sport, you have the talk radio circuit and there’s podcasts and there’s data to pour over and analyse and to theorise about who’s going to win different leagues around the world. There’s the international dynamic where just like in the World Cup, people get really nationalistic about cheering for team China or from a team from Korea versus teams from North America, Europe.
There’s a whole regional aspect and it just helps find the community in a really cool way and keep people engaged. And our business is fundamentally about keeping players entertained and engaged over the longterm. And our view is the only way to really do that is by delivering incredible value to them. Half of League of Legends players never spend any money and that’s totally fine because from our perspective, their content for other users, the burden is on us to deliver an experience that is so cool or compelling that they want to spend money. And if it’s not going to be in League of Legends, hey, maybe it’s going to be in the comics that we’re now doing with Marvel. Maybe it’s going to be in future games that we’re doing.
But either way, we’re always trying to take this long term relationship approach where we’re cultivating trust. We’re not only trying to work to League of Legends the game, but also the intellectual property, we’ve ridden every asset in the game multiple times over now, we’ve totally rehauled our engine, our tools, pipeline’s way better. We’ve grown the team, we’re have 3000 people around the world and we really feel like we’re just getting started and hopefully that’ll be the case.
Nathan: Yeah, that’s really interesting. Something you were saying around a large portion of your community don’t pay anything and that’s totally fine. And I think it just comes down to, and you said how that could be perceived as a burden on you guys because fundamentally a transaction takes place when value exceeds price and that’s totally fine. If you always think of it like that, really what you guys are really masterful at and people can take everything that you’ve shared throughout this conversation around how do you build a community around a common goal? How do you build a community around a mission or a problem that you guys are trying to solve? And-
Marc: For sure.
Nathan: Yeah, that’s interesting. Look, we have to work towards wrapping up Marc. I could talk to you all day, is fascinating stuff. Few last questions. One, what’s next for you guys? And two, any kind of … Yeah, what’s next for you guys? And really, any words of wisdom that you’d like to share just to finish off?
Marc: Sure. This is the year where we’re celebrating the League of Legends 10 year anniversary, which is a sort of a really exciting time for us to take a look back but then also look forward about what’s to come for League and whatnot. And the question around what’s next, how I mentioned Rise is getting started. There’s a lot of things that we’re working on from League of Legends, the mobile perspective, there’s a lot of different things that we’re doing to try to expand the game and expand into multiple games. Riot is again, in Riot Game right now, we’re not Riot Games, the S is still aspirational. But that’ll change over time. And we’re really trying to evolve the company from being the super focused company on League of Legends to be able to do more things that are still very much aligned with our mission and sort of more games genres and continue to improve our intellectual property and expand into different mediums, things like that.
And that’s all really hard to do, just like esports is, it all requires different competencies. We have to build a muscle, we have to take it slow and we’ve had lots of failures and learnings as we’re evolving in this journey. But it’s exciting and to that end, building the organisation capable of delivering on all the ambitions and the possibilities that we have is a huge focus and a huge challenge. And I can talk about that all day long and I guess that would tie into the advice I’d potentially give to anybody, which is our experience was really around in a sort of, there’s a great Henry Ford quote, he says, if you think you can or you think you can’t, you’re right. And I think that is an important mindset to take as an entrepreneur where you’re going to have days where you feel like you can take over the world and there’s so many possibilities and then other days where you’re like, Oh my God, how are we possibly going to solve this problem? We’re so in trouble.
And necessity is the mother of all invention. It creates the constraints, which often drive to, or the catalysing events for teams to come together to solve problems, which means in our view, and I think in many businesses, the team is by far and away the most valuable asset. Getting the right people, building the right culture, being thoughtful about mission and purpose. And who’s motivated for self-interest versus the genuine mission of the company or sort of extrinsic rewards because they’re primarily motivated by comp or sort of financial upside from options rather than what the company is here to do. Those are all really important things to evaluate when building a team.
And obviously there’s trade offs where you can’t always get everybody 100% aligned to everything you want and you got to be practical, move forward. But I think Riot’s success has largely been fueled by incredible people who are very committed to our mission and who are willing to acknowledge mistakes and learn rapidly through failure because there’s a lot of trust. And building an organisation that feels safe and where there’s a lot of trust is absolutely critical, which is really hard to do at scale. But if anybody’s, a founder working on a company, having that deep sense of purpose and mission can really carry you through the darkest days and also carry you and your team to great heights.
Nathan: Thank you so much, Marc. And it sounds like you guys have been through one hell of a journey and a that’s been the guiding light that’s kept you guys going and being super relentless with achieving your vision and mission.
Marc: Well, thanks Nathan. Yeah, we hope so and hopefully we’ll keep it rolling for the benefit of our players all around the world.