Now that the COVID-19 pandemic has forced millions into isolation, video games are seeing a surge in usage as people seek entertainment and social interaction.
When we surveyed gaming-focused VCs in October, Andreessen Horowitz partner Jonathan Lai predicted that “next-generation games will be bigger than anything we’ve seen yet,” eventually reaching “Facebook scale.” This month, when we asked 17 VCs how this era would impact consumer startups, gaming was one of the top verticals they named.
We wanted to learn more about how the venture community thinks about the future of this sector, so we asked five experienced gaming investors about where they do — and don’t — see new opportunities within this trend:
- Kevin Zhang, Upfront Ventures
- Ryann Lai, Makers Fund
- Shanti Bergel, Transcend Fund
- Bertrand Vernizeau, Game Seer Venture Partners
- Siamac Kamalie, Skycatcher
Below are their responses, edited for space and clarity. We’ll follow up with surveys on other gaming categories in the next couple of weeks.
And if you’re interested in understanding the challenges for gaming companies aiming to become next-generation social platforms, be sure to read my eight-part series on virtual worlds.
Kevin Zhang, Upfront Ventures
There are a lot of experienced teams launching studios to build socializing-centric games right now. What’s your framework for identifying which are most compelling?
Experienced team part is very important, games and genres and trends can shift, it takes a team that is disciplined to balance all the changing needs while still having a strong vision for core gameplay. Development speed and internal processes for decision-making are also very important. I’m less interested in AAA, 3+ year development cycles (nothing wrong with it, just less suitable for venture), more interested in teams where constant testing and experimentation from the beginning is valued and practiced within a fast and transparent decision-making process.
What’s different about MMO game studios founded recently versus those founded three or so years ago? Any distinct change in strategies, team composition, etc.?
Directionally as most large-scale game genres go they’re getting even bigger in scale and ambition. As well, it’s encouraging to see MMO now expanding beyond the traditional RPG tropes into many new setting and play styles, especially around more cooperative gameplay.
If the goal is to develop a game into a mainstream social network beyond the core gaming community, how important is an open-world/sandbox environment (versus a casual mobile game with social features, for example)?
I think it’s helpful, not essential. Having strong and customizable player identities and more ways to communicate and socialize are more important. The open-world/sandbox I view as more as an indicator of game architecture design where it’s easier to add modes into the game.
What startups do you wish to see in this space but don’t yet?
A top-charting, fun game for kids that has some tangible educational components built in. Maybe it’s not possible to be educational and fun at the same time, I like to think it’s a design challenge yet to be solved. As well, just overall more cooperative games, they’re finally starting to see more development, people don’t just want to compete against each other.
Ryann Lai, Makers Fund
There are a lot of experienced teams launching studios to build socializing-centric games right now. What’s your framework for identifying which are most compelling?
I still think of socializing-centric games as games. The core game loop and moment-to-moment gameplay are key to building the initial traction and long-term engagement that enable the social layer, and we like to see teams that appreciate this nuance.
What’s different about MMO (massively multiplayer online) game studios founded recently versus those founded three or so years ago? Any distinct change in strategies, team composition, etc.?
I like to think that every game is becoming more MMO-esque with persistent social profiles and deeper social interactions. The “traditional” MMOs themselves are seeing ever-increasing player expectations on visuals, narratives, social systems, and accessibility (e.g., less grind, shorter sessions, cross-play, etc.).
On the supply side — we’ve seen a continued democratization of multiplayer-centric development driven by a) decrease in development and operating costs, as well as b) availability of talents and specialized backend solutions providers that empower smaller (both in size and budget) and more distributed teams to have “MMO” ambition.
If the goal is to develop a game into a mainstream social network beyond the core gaming community, how important is an open-world/sandbox environment (versus a casual mobile game with social features, for example)?
Open-world and sandbox, though each with its own unique set of challenges, offer players a high degree of flexibility and a strong sense of agency. Both can be effective constructs to help amplify audience reach if complemented with well-designed gameplay.
I believe that user behavior and preference (platform, control, genre, art style, etc.) are dynamic, and so any game design has the potential to become a mainstream social platform if the experience can recruit a sizeable, highly-engaged core userbase and support a scalable content model (e.g. UGCs, auto-generated) and a robust social-meta.
What startups do you wish to see in this space but don’t yet?
Related to my answer above, I’ve yet to see a game with both a staunch following (think Roblox, Fortnite) and mass appeal transcending its core userbase. Looking at the progress in the space within recent years, I’m hopeful that we will see one soon.
Shanti Bergel, Transcend Fund
There are a lot of experienced teams launching studios to build socializing-centric games right now. What’s your framework for identifying which are most compelling?
I don’t mean to dismiss the history of single-player games or MMOs, but I also don’t think “games as the new social networks” is a particularly useful way to frame an investment thesis because the social aspects of game design are not new per se and comparisons to most social networks actually undervalue the depth of community built in games.
What is new is the democratization of participation brought about by a combination of changes in technology, audience and interaction models. The creative and commercial canvases that this has opened up are unprecedented. There are six drivers of this:
- Technology: As computing has evolved (mainframe > PC > LAN > Internet > mobile > cloud) and cost has dropped, the creative and commercial space for gaming has exploded. The gaming carrier wave is increasingly ubiquitous.
- Scale: From niche to truly mass market, games can transcend traditional entertainment boundaries. New platforms are additive, not cannibalistic. Hits are much, much bigger.
- Speed: Hit games can aggregate audience and drive revenue exceptionally quickly.
- Audience: The potential gaming audience is now everyone, which implies massive expansion along geo, demo, and category lines. Fandoms are also deeper and longer-lasting. Games are part of a social language with cultural impacts way beyond gameplay.
- Platform: Unprecedented variety of game delivery and discovery options. This has dynamic implications for audience development and original IP creation.
- Interaction Models: Free-to-play and technology (mobile, cloud) drive accessibility which in turn amplifies spectating and streaming. Social at the center of it all.
Building a great game has always been hard. Mastering the new levels of complexity that go along with the contemporary gaming opportunity has only added to that challenge. The teams we back therefore tend to be led by craftspeople at the top of their game focused on creating something meaningful and long-lived for a passionate global audience.
Bertrand Vernizeau, CEO, Game Seer Venture Partners
There are a lot of experienced teams launching studios to build socializing centric games right now. What’s your framework for identifying which are most compelling?
Persistence, replayability and sound virtual macroeconomics are the first elements we will usually look at in order to quickly check whether a game could trigger mass interest from players and thus generate extensive social interactions.
Let’s take diametrically-opposed games, yet recent successes: Animal Crossing and Escape from Tarkov.
- In Animal Crossing, the world evolves even if you don’t play it, which triggers the feeling of being part of a compelling experience (\persistence). You can complete tasks, grow your island, help other players complete them, generates engagement and attention (replayability). Replayability increases ARPPU which comes on top of the premium, support by non-intrusive offers in the cash shop (sound virtual macroeconomics).
- In Escape from Tarkov, you never know what to expect when you start a game session: the gear you bring can be lost, you may fight against real players and you may fight against AIs. This makes it extremely persistent and replayable, and the difficulty triggers the need to group up in multiplayer, making it social. The whole experience is supported by RPG elements (increasing your detectability, strength, stamina) in combat plus you have a hideout that you build from the ground up. It is all supported by a flea market on which players trade virtual goods with each other. Their market is the most comprehensive virtual loop I have seen since EvE Online. Some players do not even play the game, they continuously flip items on the market for profits.
You can switch Animal Crossing for the recent indie hit Tem Tem or Tarkov for Valorant or COD Warzone, you will still spot these elements.
What’s different about MMO game studios founded recently versus those founded three or so years ago? Any distinct change in strategies, team composition, etc.?
We have refrained from investing in any MMO to date, mostly because none of the companies we have had the chance to talk with yet offer a compelling new vision of what an MMO studio’s offer should be. MMOs are cash black holes and the segment has been riddled with commercial failures in a post-WoW world.
We have not yet witnessed a big convincing change in what studios want to offer. Some focus on persistence and mass (Klang). Some focus on how an MMO should be played (Mainframe – streaming). Some focus on delivering extremely evolutive experiences (Ashes of Creation). Some rely on their past success with RvR/World PvP (Crowfall). Some rely on nostalgia (Pantheon: Rise of the Fallen).
We watch the shenanigans in the biggest crowdfunding of the history of the industry: RSI/Star Citizen. We watch New World from Amazon studios, mostly because they have the cash and infrastructure for mass online experiences. We know they are half secretly working on a competitor of Spatial OS. These projects are all big money compared to indie titles. For now we observe while eating popcorn.
When we do spot something fresh and convincing, we will definitely interest ourselves in how teams are composed and how they are different from the days of Mythic Entertainment and Verant Interactive.
What startups do you wish to see in this space but don’t yet?
I would like to see a startup offering a persistent experience in the segment of dark fantasy. All RPG players dream of a Skyrim or Witcher Online, but after so many disappointments it feels that a fantasy MMO is just becoming a myth. Blizzard pulled it off in 2005. A lot of people, including me, have high hopes for New World.
Everyone wonders what game could be “the next big MMO.” I think that question is wrong. Do these genres even still exist? Valorant is merging so many genres, Tarkov mixes RPG elements in a tactical FPS, taking fragments of mechanics from MMOs. CoD Warzones offers interesting and fresh evolution to Battle Royal. We all want a new hit in a segment that has had hits, but it is wrong to think like that. Hits usually bring innovation when they boom.
Siamac Kamalie, Skycatcher
There are a lot of experienced teams launching studios to build socializing-centric games right now. What’s your framework for identifying which are most compelling?
Our north star that guides our decision-making is “identifying longevity.” History serves as our guide and over the last four years we have built our own proprietary video game database where we found that games that exhibited robust “longevity” had players who spend +20hrs per week, each week. These hardcore players in long run have a very high correlation to playing the game for the rest of their lives. Moreover, we find this cohort most often in role-playing and strategy games which have deep, rich, multiplayer experiences such as World of Warcraft, Dungeon Fighter and Black Desert. Essentially, we think the most compelling opportunities are ones that have this deep “hardcore” level of engagement and today that is most often found in a niche genre of MMORPGs. A new component to our framework now is identifying genres that are “making” hardcore players such as most recent cultural phenomenon of Battle Royale genre where Fortnite and PUBG grew the TAM for hardcore engagement across platforms and geographies.
If the goal is to develop a game into a mainstream social network beyond the core gaming community, how important is an open-world/sandbox environment (versus a casual mobile game with social features, for example)?
It’s mission-critical. We think true MMOs have the ability to allow for Player stories vs. Designer stories. Players remember both, but players’ stories are how games spread quickly. Player stories drive word of mouth marketing as they are the ones you tell your friends about. One of the best examples of a game with rich player stories is the largest MMO today, World of Warcraft (WoW). It has an environment that has high randomness, game design that has high combinatorial options – this means it has many ways to play the game, and there are good ‘rough edges’ – these are content updates that break up experience, can be very challenging and cause a strong emotional reaction.
A famous WoW player story is the viral video of “Leeroy Jenkins” who was absent during a group discussion of a meticulous plan for a dungeon crawl and he returns and ruins it by charging straight into combat. This video went on to become an Internet meme and many people who never played WoW discovered the game for the first time from this meme. Simply, people love to tell stories — especially their own ‘player stories’ and this type of organic word of mouth marketing is what’s required for a game to develop into a social network. These experiences can’t be created in casual mobile games which have little randomness, low combinatorial play, and no ‘rough edges.’