In this series of articles, I wanted to break down the gaming/esports ecosystem. The industry seems a bit taboo for most investors. However, the growth of this industry is something that can’t be ignored.
What: I categorized 759 gaming/esports startups into 15 categories. I then broke each one apart by how they innovate by function, feature or use case to understand how each category is evolving.
Purpose: To build a better understanding of the gaming/esports industry to encourage investment and continuous innovation.
Why It is Important: Before I dive into how game categories differ, I want to give you a macro view of the industry. This way it’s easier to understand which components of the industry are important.
The gaming and esports industry are on a rapid rise. The viewership of competitions and developers DAU continuously show outstanding numbers. Game developers like Supercell are worth more than Evernote, Eventbrite, and BuzzFeed combined (The Hustle). League of Legends 2017 World Championship had over 70M viewers. For reference, the NBA finals only had 25M viewers. (DreamTeam). This industry is the next evolution of sports and many investors should be paying attention.
How much money is flowing in the gaming industry? Newzoo graphs below showcase its incredible size and growth. Mobile is the dominate platform for the gaming industry. The future is mobile.
A better view of this growth is in Newzoo’s chart of growth by platform since 2012. The industry has more than doubled through mobile games.
Esports is also a prominent component of the gaming ecosystem that is rising quickly. DreamTeam’s white paper does a fantastic job comparing esports to traditional sports. What’s exciting is the mass viewership within the esports ecosystem and how this will be monetized in the future. Below is a graph comparing the esports market size to the entire gaming market.
Viewership for esports championships are no joke. League of legends competitions are outpacing traditional sports by far. Does this mean we will soon see massive stadiums built across the country to cater to these new esports competitions?
The graph below shows what could be a big opportunity for esports compared to traditional sports. We can expect these numbers will catch up to traditional sports hopefully soon.
With such big market size and opportunity ahead, how is capital being invested to fuel this growth? At the moment, majority of funding flows to game developers and publishers. Those who can create the right IP hit the jackpot. As an example, Supercell’s success with Clash of Clans makes them worth more than Evernote, Eventbrite, and BuzzFeed combined. Streaming being the primary means of consuming gaming content and gaming leagues will continue to rise as viewership and esports rises.
The graph below also highlights the exits and closures per category. Developers and publishers are a unique category as ~23% of startups exit and 10% close. Where there are more exits, there will be more funding.
The graph below highlights the average value per startup in each category. This graph would signal that investors value game streaming category much higher than any other category. However, there are a few outlier streaming startups in China that have raised massive funding rounds. If they were removed, the average value of the streaming category would come down to ~$24M. Game platforms average funding is high as well, but this is due to massive gaming engines like Unity or Improbable that push up this average. If you removed these companies, the average funding would drop down to ~$6M per startup for this category. The same result would happen if you removed Discord from the social category, the average would drop to ~$6M.
Next, I wanted to focus on where game publishers/developers and top venture investors are investing. The developer that stands out the most is Tencent. They are aggressively investing in new developers globally. The strategic angle must be to acquire partnerships with valuable IP to redistribute in China. Surprisingly, you don’t see developers investing aggressively in other parts of the ecosystem. You’ll notice top venture investors are heavily focused on developers, which is not a surprise based on funding and exit trends above. The second category most investors gravitate towards are game platforms. Note, disregard blockchain category, I did not count developers or investors within this category. Stay tuned for a blockchain industry breakdown.
Mobile is the future of gaming. It is the most important platform for developers to launch their portfolio. In addition, investors seem to be heavily focused on finding the next popular gaming IP. You can see funding for developers far outpace every other category. Nonetheless, the rise of esports is building a whole new ecosystem. The race to become the top platform or community of choice for gamers is on. For now, it feels like we are still at the very early stages of esports and exciting growth is coming. I will post an article soon on how each category breaks down.
Notes: Investors interested in the database I’ve created, message me and I’d be happy to share.