I died.

37 times.

In half an hour.

Worse yet, this painful reincarnation cycle was foisted upon me by a pair of mere children… my own flesh and blood, no less.

Having just finally relented and allowed my children to dip a toe into the murky waters of video games that don’t contain “Lego” in the title, I was struck by their intense killing instinct.

This whooping at the hands of complete novices—ones who should still have some fine-motor-control disadvantages to dear old Dad—got me thinking. Not about whether there’s any real merit to the handful of studies that link videogame violence to real-life behavior, though I am sure I’ll get some email about that shortly after this publishes… but instead, about why a game like Halo, in which you just run around and shoot things, is such a raging success.

Call of Duty, for instance—the reigning champ of videogame entertainment franchises, having stolen the crown from Halo before it—has sold more than $3 billion worldwide.

With all of the many great “indie” games on the market, few achieved even close to this level of success. Instead, year after year, these war simulators top the charts. While they don’t get their numbers reported on Entertainment Tonight like Hollywood has finagled, many times they outsell the biggest blockbuster of the year hands-down.

Just why is it this same formula keeps working over and over again, and all the new products that try to supplant it fail?

Part of this mystery, I think, can be revealed by just how bad a beating I took at the hands of my children, all of three hours after their recruitment to the Space Marine Corps. Remember, I worked at Microsoft: Our break rooms came complete with Xboxes, and many a burnt-out afternoon ended with a team retreat to Halo and a beer. I put in my hours, even if I hadn’t played in four years.  A first-person shooter is at least somewhat akin to riding a bike.

Yet my kids took to it like fish to water. They blitzed me, stalked me, sniped me. They even teamed up, sitting right in front of me without me even noticing, to have one flush me out of a cave while the other one waited with a grenade launcher at the exit. It was embarrassing. They eviscerated me—and any belief that I might still be able to beat them at anything with a controller.

That’s because it’s natural. Young boys are instinctually programmed to hunt. Give them a fun, safe way to do so, and it’s pure gold.

In other words, the game fills a need. It doesn’t just do something interesting. There’s plenty of fun out there to be had in all forms, electronic and not. But these games that have persistently topped the best-seller lists since the days of Duke Nukem on IBM-clone 486s because they provide more bang for the buck.

Anyone who will listen to me knows that I regularly cite the work of Pip Coburn when explaining why one technology wins in the market while another does not. He calls it the “change function” in his book of the same name, and to loosely paraphrase him, it goes like this:

The likelihood of adopting a technology equals the ratio of “perceived benefit” to the “perceived pain of adoption.”

That is, if something is immensely valuable to a particular person or business, they will go through a lot to get it. But if it’s too much of a pain, they won’t bother.

How much is too much of a pain? That’s all relative, of course, to the person buying the product.

With the videogame example, the pain of adopting the first game in any console generation is high. I should know, as I recently forked over $1,200+ to set up two new Xbox Ones (one of the hidden costs of being bicoastal, not that I can complain one small bit). And the cost of learning the new format for a game is also high—a person can spend hours sometimes just figuring out how to jump and stomp reliably.

But the benefit is big—really big. If you’re like me and your weekly gaming-time allotment is somewhere between two hours and “I don’t have time for that junk,” then look at it from the perspective of the primary audience:

Low pain:

  • It’s $60-ish for 20-30 hours per week of entertainment for two or three months. Show me a movie or television show I can buy for $0.16 per hour of entertainment, let alone one I can enjoy socially. Amortize the console over three years or so of life, and even at the steep launch prices, the rates are still in the neighborhood of $0.25 to $0.50/hour, depending on use.
  • They already know the basic format, controls, etc. Sure, there are small twists to keep it interesting, like the infamous zombie mode, but all in all, one plays like the next, and that’s a good thing, for the most part.

High value:

  • They tap into the basic human need to hunt, and to do so in tribes. Reward of the kill spikes adrenaline, dopamine, etc.
  • Admit it: it’s darn fun.

Is it any wonder the category just won’t slow down?

From Shooters to Shutters: The Social Angle

To see the same lesson applied again in more relatable example, look at the meteoric rise of Facebook to the top of the social networking pack.

Facebook’s first major advantage in the social networking category when it appeared wasn’t so much any benefit as it was reductions to the “pain of adoption” category. Everything Facebook could do, for the most part, was covered already by MySpace and Friendster well before it. But both those apps were hard to use.

MySpace in particular was killed by its own ethos: that the site should look like something “Tom” had built in his garage. Facebook instead put a very clean look on the site. It didn’t allow users to embed music players, change the layout, background color, size, nor make things flash and/or scream. On MySpace, the experience for every user was glaringly different. That was manageable if you’re 13 years old and spend eight hours a night on it… it’s awful if you’re 45 or 75 and just want to see some photos of your friends or grandkids.

Facebook took away much of the pain associated with social networking by making it incredibly clean and simple to use, and by constantly experimenting on ways to improve it.

However, the real value in Facebook lay in the same territory as the first-person shooter. No, not wanting to kill your friends for fun—in satisfying two basic human desires:

Entertainment. Like any social networking site, its bread and butter isn’t the exercise of networking, but of seeing and sharing within that network. We all like to show off pictures of our kids, or videos of our golf outing. It’s bred into us to like to tell stories and jokes and entertain, as it provides us social proof of our value. But Facebook lets us do it without being annoying—yes, my wife posted 258 wedding photos to the site, but we won’t make you sit and watch them in our living room while we drone on about the napkin rings.

And we like to be entertained. No more needs to be said there, other than that Facebook provides a never-ending stream of changing entertainment—in tiny bites, but 24/7. All customized to the person viewing.

The need to establish social status and identity. Facebook and its ilk provide us the opportunity to shape what people think of us by what we post. In fact, studies have shown that people are more likely to post things that reflect how they want to be perceived than the things they actually read.

Think you’ll avoid showing your stripes to the world by not being “one of those people” on Facebook? You’re just engaging in the same behavior, identifying yourself as someone who prefers not to “get it.” Not every non-user, of course, but you know the ones I’m talking about: the ones who tell you every time you meet them for the 10th time that they don’t like Facebook because of [pick your cause this week: creepy stalkers, spying software, psycho ex-boyfriend, etc.].

Facebook is a product with extremely high value—not in a monetary sense of the term, but in a social one—with a very low cost in frustration, confusion, learning curve, et al.

Measured like this, you can see why say Netflix is so successful and Hulu is not as much. Netflix has good entertainment, but it also works the same on every device I try it on. My phone, my TV, my Xbox, my Roku, whatever—it just works. I tried Hulu about three different times, and each time I found a show I could watch on my PC but couldn’t on my TV. Yeah, that’s really user friendly. Adoption pain fail.

Were Hulu the only game in town, it might not matter. But it’s not. Luckily for Hulu, it still looks awfully good compared to how hard to use Comcast and the other cable providers always manage to make their own PPV systems. Furthermore, if it’s taken them this long to “get it,” then chances are they never will.

Putting Theory into Practice

I regularly consult with tech start-ups. My average week is insanely busy with other responsibilities at work and home, so I don’t get to do it as often as I like. But consulting is something I very much enjoy (and which is very profitable too, which might add to why I enjoy it), so I try to do it at least a few times a year.

I recently ran across a company in the storage field I was jumping up and down about: a little three-man firm whose product shares these qualities: it’s stupid easy to adopt compared to its competitors and ludicrously cheaper; but more than that, it has huge improvements on the benefit side.

It has the makings of every truly disruptive technology: It breaks the competitive model, making everyone chase it on one aspect while losing out on what was once their strength. This is, loosely, what Clayton Christensen called the “innovator’s dilemma” in his own book of the same title (I’m sensing a trend in these innovation books).

These companies make products that at first blush may seem inferior:

  • Facebook lacked all of the whizbang features of MySpace, and was even closed to most of the world. But to most users, those losses were really improvements.
  • More importantly, it used smarts to turn the mass of highly structured sharing into a simplified stream of nonstop entertainment without a need to hunt around for it. That’s something MySpace couldn’t chase with its unorganized mess of freedom.

Facebook turned a competitor’s strengths into its weak points, and more effectively tapped into the basic need that drove the market at the same time. It created more entertainment than MySpace and  made it easier for users at the same time… the former occurring because of the latter. MySpace would have needed to give up everything if it was to chase the new leader.

Halo and Call of Duty pump more adrenaline and blood lust—which, despite what the song says, is what I am now convinced little boys are really made of—into the same package as the indie games, and do so with a format that doesn’t have to be learned anew and which brings together familiar friends.

That storage startup? The same formula:

  • It doesn’t do half the things most other million-dollar storage systems do. That’s because the operating systems already do most of it, and 95% of the users don’t need the rest. In the process, its systems cost a fraction of the amount.
  • And because of the model, its systems are some 5-10x faster than the systems that cost orders of magnitude more. To chase them, the competition will have no choice but to scrap their models to match on price or speed, undercutting all the supposed value they were providing.

The company is turning a competitor’s value into its weak point, and fulfilling the same need better because of that change.

The formula works again and again and again in finding a good technology investment. It’s at the root of what we look for in every pick in Casey Extraordinary Technology.

For instance, back in February we found a wound-care company that’s scrapping the antibiotic in its fight against infection. Using synthetic compounds instead of biological ones, it can prevent infection without triggering mutation, and it can fight the already resistant strains like MRSA. It has the potential to push antibiotics out of the wound market almost completely, by eschewing the very thing that made them work to begin with.

That company has traded weakly in recent weeks, opening another buying opportunity at the same price as when we originally recommended it a few weeks ago. Of course, that’s but one potentially disruptive buy in the CET portfolio. And with that formula behind us, is it any surprise we managed an average 75% gain on closed positions over the last year? We hope not, because last year continued our undefeated streak of beating the index—not just beating it either: handing it a “kids playing Halo against their dad”-style whooping—every single year since we started this service.

Take CET for a spin today, and catch up on the entire portfolio in most recent edition, which reviews every single stock—Buy, Sell, and Hold—in our extensive portfolio, and I’m sure you’ll see why we believe we can keep that streak alive.