Data & Dimensions | Ep. 5 - Cracking the Code on In-Game Advertising

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Neil Barbour   00:00:16

Welcome to Data & Dimensions, a podcast dedicated to exploring the transformative evolution of the Internet into immersive 3D virtual spaces. I'm Neil Barbour, industry analyst with S&P Global Market Intelligence, Kagan. Today, I'm with Nic Hill, Co-Founder and Chief Innovation Officer at Sawhorse and host of the excellent Brands in Play podcast. Nic, thanks for being on our podcast.

Nic Hill   00:00:39

Right on, Neil. Thank you. I'm a fan of the podcast that you guys do as well. I'm super excited to be here.

Neil Barbour   00:00:45

Great. Thanks for the kind words. We'll go into it in a little more depth later, but why don't you spend a minute telling us what Sawhorse is and what you do?

Nic Hill   00:00:54

Yes, sounds great. So Sawhorse is a creative agency and production company, and we specialize in helping brands connect with audiences in engaging ways. So we really focus on telling stories in the form of video across social platforms and then helping brands get inside of games on UGC gaming platforms like Roblox and Fortnite and the like. And I think the common through line is really about leveraging new technologies and new platforms to engage with audiences in the next generation of fans and consumers.

Neil Barbour   00:01:27

Great. Yes, I've really been fascinated by that story of pulling traditional media advertising into social media advertising, into gaming media advertising and how that works sort of holistically up and down the pipeline. So great to have you on the show. So we just wrapped up airing a series of episodes recorded in late 2025. And with that in mind, I think we should help our listeners catch up with what's currently going on in the industry. So sort of a review of the last 2 months. I want to start with CES, which itself is a little stale at this point, but still looms large over the industry. And I'll just sort of start by talking about a theme that has been running through our episodes recently, which is the convergence of robotics with the metaverse or 3D virtual spaces informing what robotics can do and vice versa. So when I landed on the show floor, I saw a lot of advancements in practical robotics and humanoids. So one of the big show pieces was LG's CLOiD, which could sort of fold laundry and do other household chores. The issue, obviously, is that it was really slow. It was a little clunky. And so we have talked over the past episodes about how 3D virtual models can train the robot in a fraction of the time.

Nic Hill   00:02:48

Yes. There's one argument about these robots is like do they have to look like humanoids? Is that necessary? Like I'm sort of more of an R2 fan than a C3PO. -- if you get what I mean. It's like these sort of like big humanoid robots, they can be kind of clunky and it's like, do you really want them in your space because it might not be necessary. Because one thing I saw that was really clever was a chess, checkers and go machine, did you see this?

Neil Barbour   00:03:20

No, I did. not. I saw some playing games. I didn't see the chess, checkers and go.

Nic Hill   00:03:23

Yes. It's like a little circular bot and it has a long arm and it has a little display face. And you just play games with it. It communicates with you as you're playing these games.

Neil Barbour   00:03:34

I think to your point about do they need to look like humans, is that a function of are we more comfortable with human-looking robots? Or is it just more practical? Like can an R2 reach the sink, so to speak. You know what I mean, like there's sort of like height issues come into play.

Nic Hill   00:03:53

I think it's a little hybrid of both. The unit itself has to be able to do what we need it to do, but it doesn't necessarily have to look like us. And I think that actually causes problems when we start to kind of make -- draw that connection to make it feel like a person because it just isn't.

Neil Barbour   00:04:11

Let's move on to smart glasses. I saw the XREAL 1S that sort of had some quality of life benefits. I think it took a little bit of a price cut, too. So pushing that out further into the market. I talked with Lumus, who is the waveguide developer for the Meta Ray-Ban Displays. I finally got to try on the Meta Ray Ban Displays. They were excellent. An interesting market growing, I want to say slowly from a nominal perspective, but from a year-over-year growth rate, you can really see some things start to happen. I think Luxottica said they pushed 7 million units out the door last year or something of that effect. I haven't really poked that number a lot. But that's a pretty strong growth story.

Nic Hill   00:04:48

I'm extremely bullish on wearables. I definitely think there is a there there, way more than what we were so excited about the metaverse back in the day and how VR was going to somehow be something we use in our daily lives or in our work lives, which was completely off base. With wearables, it's like the opposite. I wear Meta Ray Bans all day, every day. I've just adopted them into my life. I have the displays. Before that, I had the standard smart glasses, and I leverage it and kind of helps me process my daily life. But I think that we are in a really interesting point because this year, wearables are going to pop off. You mentioned a lot of the sort of tech companies and sort of third parties that are kind of pushing the tech forward, which is cool. But obviously, Meta is the frontrunner that is getting all the attention and its partnership with Ray-Ban and Oakley. But what's exciting is later on this year, all these massive companies are dropping their own versions of smart glasses to compete with Meta. So Amazon and Samsung, those are scheduled to come out. And then also Snapchat. Like right now, their Spectacles are available to only developers. But this year, they will be developed or open to the public, and those are full AR-capable glasses. So I don't know. I mean, I think there's no stopping this. I think we're going to see tons of new use cases, lots of utility. And I think we're going to see lots of adoption, especially as these tech companies start to partner with glasses, glass companies and fashion companies because it's just not intrusive. Most people have to wear glasses when they go outside anyways.

Neil Barbour   00:06:36

I think we both have seen the Spectacles really light up over the last 2 years, Snap spectacles, which I believe will be called Specs when they become consumer devices later this year. Snap developed an internal company dedicated to working on this project, especially. And I think you're going to see a lot of interesting things. Now look, pricing and packaging are going to be really important down the line here. I think Meta especially has found really compelling price points for these solutions. And if other people can sort of get in there and be competitive, maybe we really rip this market wide open in the next 3 years, maybe it's not a 5- to 7-year story, which is typically how we talk about it internally.

Nic Hill   00:07:13

For the past couple of years, I've sort of trained myself to have smart glasses at all times. So I've got transitional lenses. So when I'm inside, they're just like normal see-through glasses. And when I'm outside, there's sunglasses and charge them every night, put them on my face every day. And what I do -- what I love most about them is the audio, to be honest. It's basically an extension of my phone. So instead of taking my phone out to like look at text messages, I can access them through my glasses -- they could be -- those messages can be read out to me.

Neil Barbour   00:07:45

Let's move on to the next story. Meta reportedly laying off 1,500 employees from the Reality Labs division. I call out this specifically because it really does touch on a lot of the tech, particularly the consumer-facing tech that we talk about on the podcast. But they're not alone in the sweep of layoffs. I think you've seen a lot of software companies, a lot of platform companies sort of pull back on their payroll over the past couple of years after expanding pretty rapidly during the early part of the pandemic. That doesn't necessarily mean that there's not trouble underneath these moves or should I say, existential threats underneath these moves. But I wouldn't necessarily jump to the conclusion that laying off 1,500 employees is the end of the Horizon platform itself. There are definitely issues with implementing the last mile on Horizon, what I would call sort of finding the right software fit for the community they built and then being able to grow that community. Some of that is tied to how the hardware sort of stalled out. Most of it is tied to the hardware stalling out. But I still think we're going to see more VR from Meta. There's going to be more software experimentation, but it's definitely a realignment. And that realignment is probably toward what we're just talking about: smart glasses, which is they're going to take a lot of what they learned about imposing digital imagery directly in front of someone and sometimes in stereoscopy, sometimes not, and then pulling that across to what they're going to do with smart glasses.

Nic Hill   00:09:20

Yes. I mean I agree. I don't think this amount of layoffs signals that Meta is getting out of virtual reality or that doesn't see the value in it. I definitely think they're going to continue to lead in that space. But the big problem is there's just not enough people spending enough time in the headsets. I don't think it's like a really exciting growth area. And to your point, I think wearables is because there's way less friction, and I think there's faster adoption, and I think that it can scale much easier. And I think in the meantime, Meta is just going to continue to kind of pioneer and improve virtual reality and just continue to like keep it off to the side as the tech advances and then be able to leverage it and capitalize on it once the tech gets where it needs to be or when the audience starts to change. And I will say that the Meta Horizon platform, which is a UGC gaming platform that leverages the new Horizon engine, they are moving more to mobile and less away and away from virtual reality. And I think that there's so many talented people over there that are sort of pivoting their abilities and their skills to kind of focus more on mobile and gaming.

Neil Barbour   00:10:42

Okay. So let's get into the last story here. Netflix is buying Ready Player Me. They are an in-game avatar customization company. I mean, it sort of accords with their ongoing strategy inside of cloud gaming to bring different interactive experiences to their end users through their streaming video platform.

Nic Hill   00:11:01

Yes. I got to say when I saw those headlines, I was shocked. I just did not see that coming. But once I thought about it a little bit deeper, I was like, it kind of makes sense. So I mean, what I liked about Ready Player Me was that it essentially was making an avatar system that tons of different developers and different platforms could use. So you can create your avatar and there was a clothing system that you could pick whatever clothes you wanted. And then if the game or the platform you were going to go into was compatible with Ready Player Me, you can just load your avatar up and then jump into that game. I think it sounds really good in theory, but in practice, not every AAA title or gaming platform wants to participate. So I think they took it to a certain point, but then as far as adoption and sort of getting that across the board, I don't know where they're at with that. But the fact that Netflix jumped in and acquired them I mean I think it signals that Netflix is very serious about gaming.

Neil Barbour   00:12:07

Yes. I think it's really interesting, too. And I also think it signals a sea change in the way they look at gaming, although I'm not necessarily sure how. Right now, most of the games on Netflix are through publisher partnerships, basically porting them. So that sort of doesn't necessarily lead me to believe that they could implement Ready Player Me easily across that existing stack.

Nic Hill   00:12:34

Yes. Well, I think what's really important here is digital identity. Young people really care about how they are perceived online or virtually. So I think this may be instead of connecting to its current ecosystem, it's more like a future leaning play, I think. So it's like you log into Netflix and traditionally, we would watch shows, but now I think they want you to look at that as like, "Oh, I'm watching shows or I'm playing games. and how do I represent myself, Oh, the avatar system, cool. I customize my avatar. Now I can jump into this specific game, and I can show up in the way I want to or even more future leaning like if they start to do co-creation and Gen AI and collaborative real-time story creation, then you have an avatar that you can put yourself in those stories. So I mean, that's probably way out in the future.

Neil Barbour   00:13:28

That wouldn't be this necessarily. Netflix is doing something different from Roblox. But perhaps this is the start of those two approaches merging.

Nic Hill   00:13:37

Yes. No, I think you're totally right. And they're a smart technology company. So they want options. I think this gives them options. I think the one thing that is super interesting that I would really want to get out there is that especially on platforms like Roblox, users love to represent themselves in the specific exact way, and it's so important. And you'd be surprised how people show up. Sometimes they look like weird blobs or they're floating heads or they're really bizarre things. But to them, that's their identity, and they take that so seriously. And one thing I haven't been a fan of on the Meta Horizon World side and also the Ready Player Me side is most of those avatars look very humanoid. They look like people wearing clothes. And I think if you look at like all of the users across the "metaverse", we're talking about younger people that really like games. And from what I've seen, they like to go real bizarre on how they represent themselves. So when I see like a Ready player me, I'm like, looks cool, but what if I just want to be the floating block? Like can I do that? I don't know.

Neil Barbour   00:14:58

All right. So let's get into the interview portion. Let's double-click on Sawhorse itself. Why don't you tell us a little bit about the work? So many interesting projects from Sawhorse over the past year. How to Train Your Dragon, which my kids are really into, Wicked on Roblox, Weapons on Fortnite, Sinners on Fortnite, a lot of film properties. Are there any other projects I haven't mentioned you would want to highlight?

Nic Hill   00:15:23

We've done a lot for like a lot of the different verticals. We worked with Walmart for a long time and helped sort of drive some of their innovation immersive experiences on platforms like Zepeto, Walmart Realm, that was sort of a web-based immersive shopping platform. Also like music, we've worked with Olivia Rodrigo, Elton John, bringing them into Roblox.

Neil Barbour   00:15:51

Take a minute to describe for parts of the audience that might be new to this space, what these experiences are like. So I turn on Roblox or Fortnite and I double-click into one of these experiences, what happens next?

Nic Hill   00:16:01

Yes. Well, I mean, the one thing that I think is so important is engagement. And traditional marketing, we don't really think about engagement. It's really about like it's a top-down approach. It's like we made the video or we made the image and we put it in front of you and you consumed it and you moved on. I think the one really interesting thing about immersive marketing is you have the consumers' attention first off. They're leaning in. They're not sitting back and their hands are on the controller. So they literally are playing your brand. They're spending longer periods of time engaging with the brand and being immersed in a world, whether that's virtual reality or just on a phone, it doesn't matter. They're just playing with your brand. And I think something totally different happens in the brain from a marketing standpoint. It's not just you see it 7 times, and so now you know the brand. It's like really building deep roots into the consumer because they are spending a lot of time and they're engaging and they're challenging themselves in these experiences. And I think that really just leaves this lasting impression of value on the player.

Neil Barbour   00:17:20

Talk to me about -- and you mentioned this earlier, it could be hard to be found on the Roblox platform. What are the ways that you can drag users to these experiences? So you put up a How to Train Your Dragon app. Are you just hoping that users search for things they like and then stumble on it? Are there sort of agreements in place where the platform can elevate these experiences to put them in front of people organically or inorganically? What are some of the levers you can pull there?

Nic Hill   00:17:55

Yes. There's a ton of sort of marketing tactics that you can employ to drive traffic to your experiences. And that's everything from like Roblox example has a really pretty robust ad tech product. So you can pay to advertise your game and have it show up in searches or show up on the main page and everyone sees that, they click it, they go to it. You can also broker deals with other games to create portals. So those games already have a lot of traffic. They jump in the portal that teleports you to the game that you built. You can work with influencers to play the game and then do live streams on other social platforms to make people aware of the game to come in. We can leverage a ton of different traditional marketing campaigns and strategies running media externally and sending people in. So it's really a combination of all these clever marketing tactics to make people aware of the games. But I think the most valuable part is really connecting with the community. And so trying to find other games, other game influencers that are native to that platform and aligning yourself with them because that really cuts through the noise. It's really less valuable if you're just running an ad, playing my game over here. It's really how do you get in with the community? And how do you get them to sort of vouch for the experience that was built or vouch for the brand?

Neil Barbour   00:19:29

Yes. Good games tend to find that word of mouth or other sort of social or para-social dynamics that help them find their audience. But that's an interesting dynamic you point out, the sort of meta marketing user acquisition story to get people into the marketing message.

Nic Hill   00:19:45

These are all tactics to kind of drive traffic, but the best way to drive traffic is just make a good game. Make a great game with a strong core loop that is leveraging trends that are working on the platform and your best marketing hookup is the algorithm. Like you make a good game, people go there. You add a little bit of monetization, you have some tactics. All of a sudden, that game will get picked up in the algorithm and then that's just being served to people. And then that's where your numbers really go up. So it's not -- it doesn't really work if you make a game that nobody wants to play and then you dump a ton of money into marketing. Like that will get you numbers temporarily, but it will not get you sustained numbers or value.

Neil Barbour   00:20:28

So we talked a few years ago, not long after Sawhorse stood up the Walmart Discovered experience, which allowed users to purchase real-world goods inside of Roblox. Roblox later codified that purchase strategy through an API that released to a lot of developers. But so far, we haven't seen evidence of a lot of revenue running through that subsegment. Can you talk about your experience with what Walmart tried and what you see going on with retailers and virtual spaces in that sense?

Nic Hill   00:20:57

So I think we really got to give props to Walmart for being the very first company to do any type of like e-commerce inside of almost any of these platforms, but Roblox specifically. So it was really cool to be involved in that sort of historic moment. And yes, where we were selling physical goods from an e-commerce standpoint that came with a digital twin that the avatar could keep inside of the game. So -- and since then, Shopify has been rolled out, like you said, to any developer that can put it inside of their game. I don't think we've seen super large numbers as far as people buying things. I think that, that is because it's a new behavior. When you go to Roblox, you're going there to play games. You're not going there to shop. You're going there to like play games with your friends and socialize. So it's a new behavior that's going to take time. Also, you're competing with all the other ways people can shop. And those ways are great, fortunately or unfortunately, you can log in to whatever on your phone in 2 seconds, you click 2 buttons and you have it, right? So we already have a solution. I think the real opportunity is in virtual -- like items that are cost effective. So you're not selling like a $400 jacket that's going to be tough in these environments. like a lower-priced item, also make it exclusive to the game itself. This is something that maybe you could only get on Roblox. Or is it an item you're manufacturing that has the game's IP woven into what the product actually is. So I think if you kind of hit all 3 of those things and you kind of create a lot of items and make them available in that space to those fans, that's opportunities to heavily monetize. I think if you're trying to sell normal stuff that we can get in the real world, there's already -- there's a lot of competition for ways of getting that stuff already.

Neil Barbour   00:23:00

Yes. I think about this a lot. What is the right fit and finish for this market. When you think about what really set the flywheel for buying goods over the Internet, like the original e-commerce, was Amazon saying now you can buy books online. And you could, of course, buy books in the real world, but it was hard to find the one you wanted or it was hard to do discovery, but they really found the right product for the right market. And then once people got used to buying things in that way, they said, well, what else can I do? So I mean, to that degree, I think, yes, once they find the right thing that sort of resonates with that group, then maybe there are opportunities they unlock to sell more.

Nic Hill   00:23:42

Agreed. And maybe over time, behaviors shift. If you're going to spend so much time on these UGC gaming platforms where you're not only playing and getting your play time out, but you're also socializing casually. And these platforms are available across PC all the way to your phone to anything, you could see a world where you kind of stay there longer than we currently are. And there's -- it's not outside the realm of possibility that like you do your shopping. But I don't think that is currently high on the list of what people want.

Neil Barbour   00:24:15

So is there an AI component to the Sawhorse story, perhaps beyond just your internal workflow? How do you think about these new tools that are coming up where you can create assets or ideate certain virtual worlds more easily? I don't know if necessarily everyone's got their hands around what AI does on that level for their day-to-day operations. But what is your team thinking about as they see all these new tools come online?

Nic Hill   00:24:46

Yes. I think our perspective is we're fully embracing it. I think in order to stay competitive in today's landscape, you have to be leveraging AI. You got to understand it. Just a nuts and bolts production standpoint, we've already rolled it out across the entire company. So the way that we do administrative work to coding to postproduction to some 3D art generation, we're already -- our teams are already leveraging that. But I think where it gets really exciting is how it lowers the barrier to entry for those to create. So we're seeing this on the video side and also the gaming side. So on the video side, it's amazing we can create these sort of co-creation applications with video and Gen AI, where we can create an app and serve it out to the public, and we can have them engage and create with a branded experience, their own content, and then we can share that widely. And it's kind of like the same mentality I was talking about earlier of like when you have a marketing campaign and you're actually playing or engaging, you're now doing that with an audience in the form of video. So they are making their own spin-offs of a brand IP and kind of their own stories and you're kind of working with them in a deeper way. So that's really exciting.

Neil Barbour   00:26:12

Yes. We've talked about this on our platform occasionally. There's a tension in particularly AAA gaming of having a lot of AI-generated assets make it to a premium product. There's the sort of apprehension around "slop"." -- what I think is really interesting is the Roblox community hates Gen AI. They hate it. They hate it. Like if you create a thumbnail for your game and you use Gen AI and you post it, you have people leaving that game. So I was like shocked at first. I was like, oh, I thought they'd be leaning into GenAI. But in general, they -- I think they really appreciate the developer community. And these developers are humans. They've built games. They've made these massive followings. And I think that they really respond to that. And I think in general, beyond the Roblox community, people have an AI fatigue. I mean, slop is real garbage. Like if you -- it's like what is the point? I don't need to see another cat on the surfboard. -- it doesn't -- yes, it looks so interesting, but like why? I've already seen it. And that's the whole point is like that's why we need artists and storytellers. They have a point of view. What are you telling me? I don't care how cool it looks. Like I will look at something that is cool for 3 seconds and think it's interesting, and I'm moving on. If you really want me to engage and lean into what it is, you need to be saying something. And I think that's working. Are you telling me a story? Or are you making a screen saver? Like where is the content?

Nic Hill   00:27:57

Exactly. And I'm just so tired of like I'll say this a lot, but I'll say it again. It's like I am so tired of these people on LinkedIn posting like Gen AI video that's like 1 shot or 2 shots of something, and they're like, Hollywood's Dead. And it's like we're looking at 4 seconds of a video render. What are you talking about? -- why don't you make a story and post it and have a ton of people engage and think you're awesome. I doubt you'll be able to do it.

Neil Barbour   00:28:27

I do agree that where probably AI fits in is that it's more a bicycle for the mind than it is a replacement for true creative instincts or true creative actions that needs to slot into a workflow where a human is sort of guiding it to a place where it can resonate with other humans and where that distribution begins and ends is going to be something that we're going to have to come together as both consumers and creators.

Nic Hill   00:28:58

And we've already gone through this revolution with media creation. Look at how cheap it is to film a video and then distribute that globally. Anyone can do that right now on the phone for nothing. But that means that we're all creators, but then no one is a creator. We still have artists, filmmakers, amazing influencers that know how to engage an audience. This is -- you still need humans at the wheel with something to say.

Neil Barbour   00:29:24

Yes. That's such an interesting point about the democratization of creative tools. There's always sort of these growing pains where people start to pick it up and just let it fly, whatever comes out the other end. And it's interesting to see these experiments, although I do agree that at this point, the LinkedIn craze of just saying 2 seconds of video is kind of like, yes, yes, we get it. What else.

Neil Barbour   00:29:46

All right. We ought to take this thing home here. What can we -- so what can we look forward to in the year ahead from Sawhorse?

Nic Hill   00:29:52

Well, because we're under NDA on a lot of stuff, I can't really go into details of projects. But I will say one thing that you can count on from Sawhorse is bringing really interactive, immersive kind of world-first type of branded experiences. And I think that we're going to continue to develop on these platforms, these UGC gaming platforms like Roblox and Fortnite, but we want to go outside as much as we can and continue to develop on all these emerging technologies and emerging platforms and figure out how to add value for brands and connect with audiences. I will say like I'm extremely bullish on the wearable space, and I'm really -- I think there's so much potential to unlock there. So I hope to be delivering some newsworthy stuff in that space this year at some point.

Neil Barbour   00:30:43

Very interesting. Great. Well, thanks so much for your time, Nick. It's been a great conversation.

Nic Hill   00:30:48

Right on, Neil. Likewise, this has been fascinating stuff. Keep up the great work with