275: Riot Games Co-Founder Marc Merrill Shares the Story Behind League of Legends

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. Establishing Credibility 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 Key Takeaways 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