What was the mood from games industry executives at the 2016 San Francisco Casual Connect? That’s easy: a renewed sense of optimism about the mobile and gaming market. While there’s plenty of concern to go around about discovery issues, increasing cost-per-installs (CPI) and the resistance of the top-grossing mobile games charts to change, there’s also optimism. The wild success of Pokémon GO has brought a smile to many faces, and not just at Niantic.
The message that Pokémon GO brings is that the games industry is still open to new hits, and that innovation can succeed in multiple areas. Some see Pokémon GO as validating the enthusiasm for augmented reality (AR), and by extension, virtual reality (VR). Others see location-based gaming as a new genre that has rich possibilities, not just in motivating gamers, but in finding new sources of revenue like getting businesses to pay for in-game items that can draw customers. Others see the power of an iconic brand that has been building enthusiasm for twenty years, and that makes them want to double down efforts to license other top brands. There’s also a question: will the success of Pokémon GO mean that Nintendo will take mobile games more seriously?
Meanwhile, enthusiasm continues unabated for the areas of the industry that are showing massive investment and growth: VR and eSports. The intersection of mobile gaming with streaming, eSports, VR and AR is obvious, and people in the industry are working to make those connections and crossovers. Mobile games will not be left out in any of those areas, and mobile is becoming the center of people’s online and computing experiences.
Industry executives pointed out specific areas ahead that they see of prime importance. These trends will be defining the market over the next few years, so getting on board early is important.
Social Features In Games
Numerous executives pointed out how mobile games are becoming more social than ever, and the more connected a game becomes, the better. Community is becoming as important to mobile games as it is to console and PC games, as are streaming video and the phenomenon of eSports. Even casual games are beginning to see the importance of this trend. “Casual gaming companies like SGN are going to be adopting midcore features that will make them a lot more social,” said Chris DeWolfe, CEO of SGN. “People want to play games with their friends—it goes back to the board game days; it’s game night. To the degree that you can replicate with mobile games you’re going to be more and more successful. Pokémon GO is hugely social, and things like clans and chat that we see as midcore are all going to be coming to casual games.”
Consolidation
The total number of large companies in the mobile games industry will probably drop, just as we’ll see more consolidation among all the mobile services vendors offering advertising, financial, and other services to mobile companies. We’ll keep seeing mergers and acquisitions in the mobile space for years to come. “There are definitely more gaming companies than there will be in five years in the mobile space, at least of any size,” said Niccolo de Masi, CEO of Glu Mobile. “Console went through this very healthy consolidation where it went from thousands of companies to five or six. Mobile gaming is different because it’s a global market for both labor and distribution. There will be two tiers—a dozen or perhaps half a dozen multinational holding companies that are big in the four markets that matter: Japan, China, Korea and the US. Each of those markets can support a billion dollar game in a year. Very little in the middle, and then you’ll have a very vibrant indie space.” Tencent, the world’s largest game company, will still hold that position in five years, de Masi predicts.
New Markets Will Emerge
Some proclaim that we are seeing another paradigm shift occurring in the tech industry. First the PC revolution, then the internet revolution, and we’re seeing the tail end of the mobile revolution. What’s next? Messaging apps are a platform, and Game Bots are the new apps, “Messaging apps are showing explosive growth,” said Alexander Krug, CEO of Softgames. “Two billion users are using messaging apps. Messaging apps are the top apps—in terms of usage about 8 percent of the time spent with a mobile phone. Bots are the new apps, and the bot store is the new app store.” He sees games already appearing in messaging, and their current crudeness will rapidly give way to more sophisticated efforts. Shopping and gaming will become important things that can be done entirely within messaging apps.
Innovation Is Important
Although there’s more content coming, it’s important to remember that innovation is the engine that drives the whole industry. A new match-3 game may produce some revenue for a publisher, but that’s not going to ignite a whole new audience or boost a company to the next level. VR hardware is coming along nicely, but it’s going to be innovation in the content that will truly see the VR market take off. “Great content is going to drive adoption [of VR], it always does,” said Clive Downie, chief marketing officer for Unity. “Content is and always has been king. That’s where the creators of tomorrow come in. The opportunity is here, it’s real, and it’s waiting for people like you to dream and to invent something we haven’t thought about. Eventually, everyone will be in this place. My advice is to get there first, because it’s going to be worth it.”
Investment In Games
While there’s no scarcity of capital available to fund ventures in the games business, most investors are being careful about where they make their plays. “Games are my home base, it’s a place I’ve done a lot of my investing and I really love the games business,” said Mitch Lasky, managing director of Benchmark Capital. “Despite my background in mobile, I haven’t invested in a mobile game company in four years. I’m finding it increasingly difficult to find competitive advantage in the mobile business. The tyranny of the App Store and Facebook’s customer acquisition is just a very hard place to generate outsize returns.”
