Scaling VR's Social Gaming Platform
Last Acquired left the plucky Rec Room crew in our 2018 "Part I" episode, they were a seed stage startup making a VR game that users loved but grew slowly and barely monetized. Fast forward to today, and they're now a multi-platform social "place" with millions of active users, 500%+ YoY growth and a robust creator economy that's rivaled only by their oft-compared metaverse cousin Roblox in dynamics and efficiency. And oh yeah, they're now a $1B+ company after a new $100m fundraise from existing investors Sequoia and Index, which they're announcing today. We figured it was high time to revisit Nick & crew for a Part II...
More on the episode
Playbooks
1. It's ok not to have a grand plan from the beginning.
As Nick says, company founding stories tend to get romanticized in retrospect. (Guilty as charged here at Acquired!) As a founder it can feel like there's so much pressure on you to "have it all figured out" from day one. But the reality of most great company beginnings is nothing so grand: often it's just founders who have an inkling about something interesting and the combination of courage + right life circumstances to jump into the unknown and learn as they go. Things change quickly in new or evolving markets, and if you're too wedded to a master plan you're likely to miss more opportunities than you seize.
2. Don't let early (or even just recent) success blind you if potential headwinds are on the horizon.
Rec Room experienced "explosive" growth during the 2017 holiday season with the launch of Playstation VR. However this was a classic "wiggle of false hope" (in Paul Graham parlance), not real product-market fit. It would have been easy to ignore the very real warning signs (e.g., that VR adoption as a whole was slowing) and plow full steam ahead. Instead the team realized they probably needed to step back from the temporary momentum and diversify out of solely focusing on VR to find new avenues for growth.
3. Build your company into a robust organism.
Startups constantly face existential risks: what if the market shifts? What if we make wrong strategic decisions? How can you architect your business as a system so that "you" (either you personally or the company management as a whole) doesn't need to always be right in order to succeed? For Rec Room this has meant investing deeply into UGC and letting creators lead growth. Any room or piece of content might be no more likely to breakout than another — but in aggregate across now millions of creators, Rec Room is almost guaranteed a constant stream of "hits".
4. UGC is a flywheel that's difficult to start, but creates incredible business dynamics once spinning.
- Like any flywheel, UGC requires a ton of effort to get moving in the beginning. (E.g., why should people bother to create? What tools do they need? How do you get the incentives right?) But once momentum takes over, it can become an incredible virtuous cycle where users' creativity inspires more users both to consume and create themselves, which compounds faster and faster over time.
- Furthermore, once a UGC flywheel is spinning, the underlying platform's unit economics get pretty fast: costs to produce content go down (or to zero), cost to acquire users go down (or to zero), and retention, engagement and monetization all spike up. In previous eras Facebook, YouTube, Instagram and Twitch rode to this dynamic to incredible success. Today Roblox, Rec Room, TikTok and others are following the same playbook.
5. When operating a "metaverse", the best business dynamics result from having everything on a single platform (vs. siloing users based on devices/geos/etc)
Having all users able to interact on one platform not only maximizes liquidity across the creator-consumer marketplace, but affords the company more power across brand (e.g. Rec Room is the sole brand, not "Rec Room on xbox/steam/VR/etc") and central economic control.