The Gaming Industry
While many of us stare at our word document and excel sheets on the computer, or check our Whatsapp and Facebook on our phones, there is another side of that machine that you may not see. That’s right – the digital gaming market is alive and booming. You may wonder, “Games? Blah, not worth my time. Only for kids.”
According to SuperData Research, the digital gaming market hit record high $61 billion in 2015. This is about two-thirds of the global beauty industry (of $95 billion, as estimated by Goldman Sachs analysts). Here is some simple reverse engineering with a couple of games that you may or may not have heard of.
Dota2 has been around for almost 7 years, with its official launch in 2013 and its beta starting in 2011. However, its lesser played predecessor – Dota – has been in play since its creation in 2003 as a custom map in Warcraft 3 (WC3). It remained relatively smaller in WC3 due to its usability limitation (users would need to download specialized software to play with others such as Zion or Garena).
Dota2 solved those problems as it provided a customized platform with Dota2 as the main map as well as connecting players together without additional software. The userbase exploded and now Dota2 is reported to generate about $18 million a month of revenue.
However, what is more surprising is the competitive scene which has been garnering strong growth over the years. The total prize money for the TI, which stands for The International, has had a 4 year 84.4% CAGR from the commencement of TI1 to last year’s TI5 which had a prize pool of $18.4million, which is representative of the growing e-sports industry.
It must be noted that although the prize pool is $18.4 million, it is funded by purchases from the community. Users can buy a “Compendium”, an in-game item, and 25% of compendium money goes to the prize pool. Compendium revenue contributed to $16.8 million of the $18.4 million. This implies that the revenue from compendium sales is 16.8*4 = $67.2 million.
Alibaba has joined in the e-sports industry. As mentioned in the link that started this article, Alibaba subsidiary Alisports announced that they will be running the World Electronic Sports Games (WESG), which will be hosting Dota2 competitions as well at more than a million-dollar prize pool. Other games mentioned are Starcraft II, CSGO and Hearthstone.
League of Legends (LoL)
While Dota2 generates $18 million of revenue a month, LoL generates that in 5 days.
According to Riotgames, LoL’s developer, they have a userbase of 67 million users playing every month, 27 million users playing every day and over 7.5 million users playing at the same time during each day’s peak play time.
During 2015’s LoL world championship, total cumulative daily unique impressions reached 334 million over 4 weeks, and represented a 16% growth from previous year.
Overwatch is a recently launched game by Blizzard entertainment – one of the biggest gaming companies who were behind the likes of World of Warcraft (WoW), Hearthstone and Starcraft. Just 3 weeks after Overwatch’s launch, it has managed to garner 10 million players; this is considering that Overwatch has a US$40 price tag on Console (On Console it’s US$60).
On top of the booming gaming industry, it’s worth paying attention to industries that ride the wave of the gaming craze. For instance, streaming services such as Twitch and Douyu are receiving increasing larger amounts of traffic. In fact, Twitch was acquired by Amazon in mid-2014 for almost US$1 billion.
Marketing efforts are also increasing, and companies are showcasing their goods and services in-between professional matches. Professional teams also put their sponsor names in their logo, and sponsors such as Natus Vincere (NaVi) and Evil Geniuses (EG) are big names across many games.
On the investment front, investors should be on the lookout for a variety of companies and not strike off gaming related companies instantly. Taking into account the huge array of possibilities such as the games itself, operations, connectivity, in-game purchases and ancillary services are areas where companies can innovate and disrupt. A good example is Garena, who entered the market early and allowed players to connect using their platform. They boast a US$3.75 billion valuation in March 2016.
The nature of gaming has changed over the past decade. Prize money has increased by leaps and bounds. Streaming has caused the reach of games to expand, attracting eyeballs worldwide. Even prior to the launch of a game, thousands of orders are placed online and huge sums of money has gone into e-sports betting.
The gaming and e-sports industry is much larger than most would think. There is potential in many areas in this industry, and these are not limited to just the core game itself but ancillary services linked to them. The traditional view on games is becoming irrelevant, and this is up and coming industry is here to stay.