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Some of the sheen has worn off mobile gaming. Anecdotally at least, I detect that its popularity has waned among fellow investors, with many of them viewing the sector as overly hit-driven, unsustainable and niche.
They are wrong, of course. Not only has the market rewarded savvy investors well, delivering close to $30 billion of value through acquisitions in Europe alone over the last four years, but a number of emerging trends are set to shake up the top grossing app charts, displace the incumbents, and give rise to new global giants in the mobile gaming space.
Against that backdrop, here are the trends which I’m most excited about in product, marketing and M&A terms for 2017.
Just as there has been a shift toward deeper social engagement within apps generally over the last few years, games too have become increasingly social and the next generation of gamers on mobile — the “Snapchat generation” of 16 year olds to 25 year olds – will expect this in a more extreme incarnation. Forget Candy Crush-style — leaderboards or asynchronous social gameplay – the biggest grossing winners will all need real-time, immersive player-versus-player gaming.
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There will always be a market for quick, casual, offline single-player experiences, and many will continue to perform well in the charts — they offer a safe, noncompetitive environment that can be accessed anywhere, endlessly – but I think we’ll see a move away from the dominance of match-3 and other idle clickers.
Spectators will lead to billion-dollar opportunities
Game streaming and broadcasting have traditionally been the preserve of core gamers in the PC and console markets, but over the past few years, we have begun to see mobile titles making inroads in the space, with the arrival of games like Clash Royale, Vainglory, and Hearthstone.
But as with their PC and console counterparts, the broadcasts are mainly viewed by the serious gamer: someone following a team or looking to improve their own skills. What has yet to emerge, however, is a class of game that is as enjoyable to watch for a mainstream audience as it is to actually play: hybrids of watching and playing.
This, I believe, will have the most transformational impact on gaming and the companies and games that succeed in this space. For one thing, players, through broadcasting, will regularly generate their own content, acting as free marketing collateral for games companies, freeing them from user acquisition arbitrage and app store discovery. It’ll also open up an entirely new revenue stream, as spectators, as well as gamers, can start to be monetized.
But what’s most interesting is the impact this will have on the types of games that will succeed in this world. Match-3, build-and-battle, action/arcade — genres that have dominated the grossing charts — don’t make for good viewing. Games that harness the power of mass-market spectators will be bigger than anything we’ve seen in mobile gaming before, and it doesn’t necessarily follow that the incumbents dominating the charts today are best-placed to build them.
Mobile esports will be the early winners
The ambition of games like Vainglory and the commercial success of Clash Royale have paved the way for a new generation of esports games designed for and better-played on mobile. Winners will look entirely different from those in the PC and console worlds, and poor translations from these platforms to mobile will not work: They’ll need to be designed for mobile from the ground up.
Game publishers will care even more about their brands
Currently, at least at the company level, brands in the mobile gaming space are weak, with the exception of a few like Supercell and King (we’re not talking about long-established IP such as Pokémon or Mario here). Company-level brand will increasingly become a key differentiator for gaming companies, leading to greater loyalty, better discovery and a derisking of product investment.
In order to do this, we’ll begin to see gaming companies take a more integrated approach across marketing channels to build and sustain their brands, from performance marketing, social media, influencers and celebrities, to more traditional marketing channels like TV. Larger companies will also increasingly look to stretch their reach beyond the traditional realms of gaming to become broader entertainment brands.’
Healthy M&A from both incumbents and nontraditional players
The more acquisitive mobile incumbents will start looking to bolster their pipelines by snapping up younger, profitable studios in key hubs around Europe, and with the Supercell/Tencent and King/Activision deals wrapped up, I think we’ll see them engage in the M&A markets more readily in 2017.
Traditional PC and console players will also look to the faster-growing mobile gaming market for growth, so expect activity from incumbents like EA, Ubisoft, Nexon, etc. Finally, I believe we’ll see increasing interest in the market from non-traditional players, such as toy manufacturers and media companies, looking to diversify analogous revenues into digital growth channels.
Alex Brunicki is a partner at Backed, a community-driven VC fund based in London, which invests at seed stage across Europe.
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