The games industry has expanded to $100 billion in annual revenue, not just through steady growth, but through the explosive rise of new gaming platforms. We’ve seen how new consoles can drive demand for games, but let’s not forget how Facebook gaming generated billions in revenue and created billion-dollar companies like Zynga before mobile games took over. Mobile games have grown to well over $30 billion in annual revenue this year, with more growth ahead. Virtual reality (VR) and augmented reality (AR) are poised to become multi-billion dollar gaming markets over the next few years according to many analysts. Yet, there may be another game market growing right now that could be worth billions, and it’s a place where the biggest tech companies are placing very successful bets: messaging.
“2016 is the year of messaging,” said Alexander Krug, CEO and founder of Softgames, talking to [a]listdaily. “Messaging is about to become the new platform, and chatbots are becoming the new apps.” Krug’s optimism for messaging is founded in observation of the patterns in technology over the past few decades, and some of the current numbers reflecting the state of the mobile game market.
“It may be hard to believe, but the golden era of apps is more or less over,” Krug states. “Sure, everybody’s using apps, and that will pretty much always be the case, but the app boom is more or less over. People are becoming more and more selective of the apps they are finding and downloading. The reality is that the average American is downloading zero apps a month. The reality is that just 1 percent of the developers out there get 94 percent of the revenue.”
It’s not that there isn’t money to be made in apps—in fact, there are billions of dollars in app revenue. However, most of that is going to very few publishers. Krug sees this as following the pattern of technologies introduced since the 1980s. We saw the PC in the early 1980’s, and applications were created for them, which rapidly grew into a substantial market. Eventually, the PC boom gave way to the internet age in the 1990s, and the browser started becoming the place where small developers could enter the market. That time saw both Flash games becoming popular as well as multiplayer online games gaining new prominence. The Facebook gaming era was the height of the browser-based market for games.
Then mobile came along in the mid-2000s, bringing with it the App Store, the Google Play Store, and the explosion of apps. Apple recently announced that developers made over $50 billion dollars from the App Store so far.
Despite the high revenue numbers, Krug sees the current rise of messaging apps, and the opening of them to developers, as a new market with tremendous potential for developers small and large as it booms.
“Messaging apps are showing explosive growth now,” Krug said. “Now almost 2 billion people use messaging services. There’s a massive opportunity out there. Messaging is the top app type in terms of usage. This is where chatbots come into play, as messaging apps become the new platform, subsuming the role of the mobile operating system. Instead of having an app for shipping, game, or whatever’s out there, you just have a messaging app and within it is a bot for a service or a game. Bots are the new apps, and the Bot Store is the new App Store.”
This isn’t just idle speculation. There are several examples of how important messaging apps can be to the success of games, including WeChat, Kakao, and Line. Those are the leading messaging apps for China, South Korea, and Japan, respectively, and their influence on game marketing and downloads in those countries is enormous. Developers create games specifically designed around these messaging apps. We have not seen this take place in the US, but it’s coming. Facebook has already enabled its enormously popular Messenger (with over 1 billion users) to work with developers, who are building chatbots to make it easy to shop, use services, and a wide variety of other functions. In a couple of months, iOS 10 will go live, bringing with it a massively upgraded iMessage app (also with over 1 billion users), which will also allow developers to build apps inside of it. That’s not even counting WhatsApp, Facebook’s other messaging app with over 1 billion users, nor all of the other messaging apps like Snapchat.
“Bots are very easy and cheap to build, it’s super easy to upgrade them, and they are built for specific cases,” said Krug. “From a user perspective, it’s an amazing thing. I don’t have to lose my comfort zone. I can just stay within Messenger or another messaging app. Plus they don’t have to download or install.” There are bots for shopping, news and a variety of services, like ordering an Uber ride. Right now, it’s mostly text-based, so it’s similar to the early days of the internet, Krug pointed out, but that’s changing fast.
“In China, they are further developed,” Krug said. You can see images of things you want to order, “like a mini web page.” Additionally, “smart messages like this are a way better experience for the user than just pure text. Bots in combination with smart messages enable the replication of virtually every website.”
“Bots can also be the starting point for a game,” Krug said. There are already strategy games, card games, and many other types of games in WeChat and other messaging services. “It’s [in its] very early days so far, with a very limited user experience, and very text-based. This reminds me of the early days of games on the C64. Bots are going to implement more pictures, and they are going to take over well-known mechanics from Facebook games. When you look back to the early days of Facebook gaming, they grew extremely fast. The growth opportunities are similarly strong, but probably even better.” You send out invitations to your friends, they click on it, and they start. What could be easier? It’s a marketer’s dream, with an acquisition process that’s about as frictionless as possible. There are no restrictions on virality as yet, so games can grow as fast as possible.
Games can be graphically animated, and the platform is evolving very quickly. “The combination of chatbots with HTML 5 gives us huge opportunities—everything is possible,” Krug said. Discovery is the biggest challenge for the messaging platform, but that’s true of games on nearly any platform. “How do you make money out of this? Advertising is possible. In-app purchases are possible since you can access the APIs for purchase within the messaging app.”
Krug’s final advice: “Instead of wasting hundreds of thousands on user acquisition to an unwilling audience, grab $10K and invest it in a bot and try to make your own experience and push this platform forward.”