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If loot boxes are free-to-play's present, what will be the future?

With a new round of funding and Dauntless ramping up to open beta, Phoenix Labs is ready for a free-to-play renaissance

It's been just about four years since the founding of Phoenix Labs, and the Vancouver-based developer is almost ready to launch its first game: free-to-play action RPG Dauntless.

A cooperative action hunting game looking to provide a twist on the Monster Hunter formula, Dauntless is currently in a closed beta test where players were either invited by the developer or purchased "Founders" access at tiers ranging from $40 to $100.

With the game's open beta period fast approaching, Phoenix Labs recently completed a Series B funding round with participation from Sapphire Ventures, GGV, Ridge, Signia, Next Frontier, and MTGx. While the studio isn't saying how much was raised, co-founder and CEO Jesse Houston told GamesIndustry.biz the money "really allows us to take the time we need."

"We're not as focused any more on having to hit such and such date or such and such revenue targets," he continued. "Instead it allows us to be ready when we're ready, and it has also allowed us to expand a bunch more."

The company has grown considerably since its formation. When we last spoke with Houston in 2014, Phoenix Labs was comprised of just eight people. These days there are 52 full-time employees. The company has also opened a second location in San Mateo, California, which it is looking to grow.

Despite that investment and growth, Houston said the developers still maintain control of the studio, which might have been fortunate last October, when the studio decided to overhaul its monetization method to eliminate loot boxes.

"We kind of got started a little ahead of the crashing wave that was Battlefront and some of these other folks that really got signaled out of it," Houston said. "We largely already had a conversation going on internally as well as with our community about what are the types of things they would want to purchase."

"I would rather run a business where we are 100% focused on delivering awesome player experiences and building a game for a community than trying to find the best way to optimize every dime out of them"

As a free-to-play game, the team had settled on loot boxes simply because it seemed like the commonly accepted way for free-to-play games to monetize. But as they iterated on the mechanic, they found that even though players were investing in it, they were viewing it more as a means to the end of getting a specific item than as something enjoyable in and of itself.

As Houston explained, "There are some really awesome loot box models that leverage the idea of, 'I've got a couple extra bucks sitting in my pocket. Can I get something cool with it?' But when you really want to have that bright pink dye... We weren't feeling like we were necessarily giving folks exactly what they wanted. The more we continued to do soul-searching on it, and thinking through what we want players to feel when they invest with their wallet, we really wanted it to feel like, 'I had this want, so I got it.'"

On the player side, this move didn't seem to cause much of a ripple. The developer tied the change to a planned progression wipe, so it wasn't necessarily hurting anyone unfairly. And given that most of the game's closed beta players paid for their access, the studio hasn't been emphasizing the in-game monetization options because they don't want to come across as double-dipping on early adopters. It might also help that even before the monetization overhaul, Phoenix Labs has been clear about making the core of Dauntless' business model be time-saving boosts and cosmetics.

"We really are trying to stay away from anything that could be perceived as paying for power," Houston said. "It's a critical part of our experience that if you see somebody in this badass suit of armor with a badass sword, that you know they earned it and they were able to kill the behemoth that drops all the loot, that you feel a certain sense of aspiration to follow in their footsteps."

He added: "Ultimately it comes down to answering the question of what kind of business we want to run. I would rather run a business where we are 100% focused on delivering awesome player experiences and building a game for a community than trying to find the best way to optimize every dime out of them."

That's all fine and good for a game developer to say, but one might expect a start-up's investors to be a little more concerned about the per capita dime optimization when it decides to toss out the business model du jour in favor of exchanging money for specific desired digital goods, a straight-forward value proposition more closely associated with a less profitable time in the industry. Despite that, Houston said the investment team has been "really super supportive of the vision."

Houston likes to think people will spend the same amount in the game as they would have under a loot box-focused model, and he sees some potential upside in the game's new business model, as it allows for bundled offerings in a way that isn't really well suited to loot boxes. In fact, it's possible Houston has been more concerned about the specific impact the business model changes will have on the team's return on investment than the investors themselves.

"I got more questions about what the favorite weapons and behemoths are than I did about whether or not we'd have similar purchase rates for loot boxes or bespoke purchases"

"When we've been talking to potential investors and other folks, for the vast majority we talk very, very deeply about more gameplay-oriented things," Houston said. "I got more questions about what the favorite weapons and behemoths are than I did about whether or not we'd have similar purchase rates for loot boxes or bespoke purchases.

"We all recognize that monetization is a core component of games in general, free-to-play or not. If you don't sell, you don't get to keep the lights on. And the belief they have is that our history of running great free-to-play products will give us the knowledge to be able to navigate whatever the future of Western free-to-play looks like."

Houston said that a year ago, the future of Western free-to-play looked like loot boxes. Today, it looks like bespoke purchases. His investors understand the specifics will change, and would apparently rather trust in the team's free-to-play experience (the three co-founders all came worked at League of Legends developer Riot Games) and ability to adapt to what the market requires than hound them about the minutia of their model.

As for rules of thumb in how to do adapt, Houston believes there are a few common criteria among the free-to-play games that become worldwide hits, most notably that they build the core loop of the game in such a way that it doesn't require people to monetize in order to function.

"It's not that monetization is an afterthought, but that it feels really cohesive and doesn't feel like this elephant in the room nobody wants to talk about," Houston said. "It's just a logical part of the game, and I'm not punished for not using it."

Houston and his investors are hoping to get confirmation of that approach when Dauntless launches into its open beta period later this year.

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Brendan Sinclair avatar

Brendan Sinclair

Managing Editor

Brendan joined GamesIndustry.biz in 2012. Based in Toronto, Ontario, he was previously senior news editor at GameSpot in the US.