As the infrastructure for developing games becomes more advanced, studios have turned to buying best-in-class technology from others instead of building everything from scratch (often with inferior quality).
This shift underpinned Unity’s rise as the most popular game engine. The current focus on games as ever-evolving social hubs that can remain popular for a decade requires investment in “live ops” to keep updating the game with new features and experiences, only adding to a game studio’s responsibilities.
There are big movements in gaming right now to make games cross-platform (not just restricted to mobile or PC or one console), incorporate new types of chat (in-game or outside of it) and to automatically remove bullies and bots among other things. Optimizing games’ virtual economies is only getting more complex as trade of virtual goods becomes increasingly popular.
All this means more opportunity for startups (and large incumbents) that provide new tools and platforms to game developers and gamers. To gauge which opportunities are prime for entrepreneurs, I asked four leading early-stage investors who focus on the gaming sector to share their analysis:
- Sam Englebardt, Galaxy Interactive
- Gigi Levy Weiss, NFX
- Amit Kumar, Accel
- Anton Backman, Play Ventures
Sam Englebardt, Galaxy Interactive
Which areas within gaming infrastructure seem firmly dominated by large incumbents, versus open for new startups to rise up?
I’m always rooting for the startup, but some of the really big and expensive infrastructure challenges seem unlikely to be solved by a startup, especially where the incumbents have a lead in time, money and the personnel they’re throwing at the problem. I’m thinking here, for example, about something like cloud computing, storage solutions, etc.
Where do you see applications for blockchain technology in the gaming tech stack?
True ownership of digital objects and all that entails (digital/physical conversion, open economies, decentralized marketplaces for digital goods, etc.) is probably the most commonly cited example of how blockchain technology should impact the gaming sector. And I’m certainly a big believer in this thesis. However, lately I’ve been thinking much more about how we are going to protect and (sometimes selectively) reveal our identity in these immersive digital spaces that we’re creating; blockchain may really be the only technology available to enable the balance of safety, security and decentralization that we’re going to require.
What startups do you wish to see in this space but don’t yet?
I’d love to see more gamified learning platforms. I’m an investor in a gamified health company in India called GOQii; the team members (who are all from mobile gaming) are bringing everything they learned from games to this health and fitness platform; the engagement is just incredible and the results (measured in terms of people’s improved health) are astonishing. I think we’re just getting started in this trend.
Gigi Levy Weiss, NFX
Which trends are you most excited about right now as a VC looking at the infrastructure layer of the gaming industry?
As P2P gaming becomes more and more demanding performance-wise, the need to deploy closer to the edge will continue rising. We are excited about companies enabling such quick deployment, like Ridge.io.
With the Quest being the first truly usable mass-market VR headset, I believe that 2020-2021 are going to finally see users not just buying VR headsets but actually using them. This will be compounded by travel limitations and avoidance of crowded events due to COVID-19. Your next trip to India? Your next football match or concert? Maybe both in VR.
While simple, fun and reasonably priced AR glasses are not available yet, this is likely to change in the coming few years with Apple and others — and then the capabilities that were already used on smartphone AR will become part of our everyday. Unlimited gaming opportunities.
Which areas within gaming infrastructure seem firmly dominated by large incumbents versus open for new startups to gain market share?
- Unity seems strong as ever.
- Payments will remain at the stores.
- Marketing and campaign management tech, while no mega company, seems like little opportunity for newcomers.
What infrastructure needs do gaming companies have now that they didn’t (or at least weren’t focused on) three years ago?
We are in a stage in the industry where most parts are in place and so no major infrastructure gaps. The ones that still remain are around edge deployment for better performance as well as better solutions to the attribution problems in mobile customer acquisition.
What startups do you wish to see in this space but don’t yet?
One of the areas that is still far from automated is product optimization. We do use simulations and model product features as we develop them — but I am still looking for the product that will allow machine learning-driven product improvements. Everything from what should be the color of the next item in the game to adjusting scenery, difficulty levels or character behavior — no reason why that wouldn’t be a more automated, data-driven approach.
Amit Kumar, Accel
Which trends or pain points are you interested in as startup opportunities in gaming right now?
Consumers are turning to games in droves to get through the quarantine instituted by shelter-in-place policies. How those gamers organize, build long-term connectivity and, most importantly, play together remains for me the most compelling opportunity in gaming.
Which areas within gaming infrastructure seem firmly dominated by large incumbents versus open for new startups to gain market share?
Streaming and core game development are areas where the incumbents (Twitch, Microsoft, Google, Amazon, Epic, Riot, etc.) have historically done very well, and they’re only increasing their dominance here over time. However, the social and interactivity layers spanning across these games and mediums are still coalescing, which is where I think the most interesting new innovation is happening — at Accel-backed Mayhem and Discord, or others in the space like Guilded and Bunch.
What startups do you wish to see in this space but don’t yet?
Rather than building games for well-established and crowded genres like FPS, free for all, MOBA, I’d love to see more innovation from startups on new game formats. Genvid is a startup that I admire doing some really interesting work around creating games where viewers can interact and influence the happenings in-game, in real time.
Anton Backman, Play Ventures
What trends are you most excited about right now as a VC looking at the infrastructure layer of the gaming industry?
As game development tools, such as Unity and Unreal Engine 4, have become more accessible, this has allowed small teams to enter the market with production values similar to larger industry incumbents. To further accelerate this trend, we have seen a number of startups moving more infrastructure services (e.g. matchmaking, anti-cheat) to the cloud and making these services more cost-efficient and scalable for a wider group of developers.
On the mobile side, pre-COVID, we’d seen CPIs increasing steadily YoY, making advertisers (gaming companies) increasingly mindful of their UA spend. App install fraud has become an increasingly difficult problem for advertisers during recent years, and we see great potential in bridging advertisers directly with SSPs to minimize fraud and maximize efficiency when buying in the mobile advertising value chain (our portfolio company Dataseat is pursuing this opportunity).
In order to keep up with the increasing demand for content, while also providing an outlet for community creators to effectively distribute and monetize their content, we’re excited about infrastructure that brings the services of UGC platforms such as Roblox to other developers who are keen to include tools for the efficient creation and distribution of UGC for their games, including bringing mods cross-platfom like our portfolio company Mod.io does.
To increase viewer engagement on live-streaming platforms such as Twitch and Mixer, we have seen startups building tools for developers to allow audience participation in-game. These products provide an SDK for developers to create more flexible viewer experiences, e.g. dynamic camera angles controlled by viewers, roamable game maps from a bird’s eye view and interfaces for viewers to affect the streamer’s gameplay in real time. If (when) cloud gaming hits mainstream, it is reasonable to expect that the viewer participation experience will rise in importance, as it will also function as an important new avenue for acquiring users through live streams.
Which areas within gaming infrastructure seem firmly dominated by large incumbents versus open for new startups to gain market share?
Live streaming is currently dominated by larger incumbents such as Amazon and Microsoft, and is unlikely to change due to the heavy infrastructure costs (video transcoding and other computationally heavy work) associated with running these platforms. Some companies have emerged to try and build out cheaper, distributed alternatives to these services, but remain in very early stages still. Looking at other kinds of gaming content consumption, there exists no clear market leader yet when it comes to bite-sized gaming content consumption on mobile devices. Therefore we have seen a number of startups aiming to build the Instagram stories-like experience or TikTok of gaming content.
Not exactly tech infrastructure, but the esports league and tournament layer around professional gaming is currently largely controlled by publishers, with the likes of The International and Overwatch League being run by Valve and Activision Blizzard, respectively. Earlier this year we saw the announcement of Flashpoint, a team-owned professional CS:GO league bringing an alternative to the traditionally publisher-controlled layer. Contrary to traditional sports, where no single entity owns the sport in question, esports startups are constrained to the titles (sports) being owned by the publishers. This creates a favorable position for incumbents and thus they are largely free to dictate the rules for startups operating in the professional esports space.
Toxic player behavior remains a major problem for both incumbents and smaller developers. While industry incumbents have had the upper hand in creating in-house solutions for tackling toxic player behavior in online multiplayer games, e.g. with Riot Games introducing the honor system that allows players to focus on endorsing good gameplay and sportsmanship instead of punishing bad behavior outright, there still exists room for services that are targeted toward solving toxic player behavior at scale.
What infrastructure needs do gaming companies have now that they didn’t (or at least weren’t focused on) three years ago?
With the increased adoption of the free-to-play and games-as-a-service model also outside of mobile, gaming companies across all platforms need to emphasize efficient live operations in order to give their games longevity. In order to have your company’s live ops people focus on the essentials, a number of products have emerged to bring the required suite of tools for effective content, event and monetization management.
Mobile game companies that are looking to self-publish their games may also today choose from a wide range of tools. All-in-one solutions combining ad networks, ad mediation and other tools for user acquisition have become table stakes for companies looking to handle their UA activities in-house.
Going forward, companies looking to build games with wide viewer participation in mind may be increasingly looking to integrate with tools and services that allow for this kind of spectator gameplay.
What startups do you wish to see in this space but don’t yet?
Startups building tools for developers to more efficiently tackle and manage toxic player behavior. Placing too many restrictions on player-to-player communication and other interactions places a burden on games that rely heavily on their social element. Transparent cross-game ID systems with proper incentives introduced for players might bring a solution to a problem that has long affected the engagement and retention of players in real-time multiplayer games.