Ecosystem Components

Game Developers : These are usually independent studios who develop games from the ground up. The writing team makes a story around which a design team builds the concepts that would tie the whole narrative together. The programming team codifies this logic into computer software along with additional code for capabilities like Online Gaming and Multiplayer. The major strength of a developer lies in the availability of the game engine at its disposal(made in-house or brought externally). Many game developers are owned by game publishers like DICE by EA which made Battlefield.

Game Publishers /(Distributors) : Much like the publisher of books, a game publisher is responsible for distribution of a ship-pable game. They generally finance the game development, often overseeing the design of the game by gauging consumer interest, prepare manuals, decide on packaging and marketing of the retail version of the games among various others. Many publishers like Activision Blizzard(NASDAQ : ATVI) own studios like Treyarch which made some of the Call of Duty games. Many publishers also distribute their own games by selling to retail stores(maybe through a distributor). Off-late much of the distribution happens digitally through platforms like Steam, Origin, UPlay, PSN among various others. App stores like Apple’s make it one of the top game publishers annually with more than $9bn even though it doesn’t make games!

Hardware Developers : They build the electronic infrastructure required to play games depending on the platforms and the function. The biggest platform currently is mobile(mobile and tablets) which has major mobile phone companies like Xiaomi, OnePlus, Samsung, Apple etc. For PC Gaming( Desktop + Laptop), Intel makes processors(CPUs), Nvidia makes graphic cards(GPUs) and other hardware like monitors, cases, hard drives are made by a plethora of more than 1000s of companies. Last but not the least are consoles majorly 3 — Playstation by Sony, XBOX by Microsoft and Wii by Nintendo. Nascent stage platforms include AR and VR, Oculus owned by Facebook being one of the companies. Keyboards, mouses, headphones and controllers used to play games are made by companies like Razer, Steelseries etc.

Software Developers : Additional software is usually required to make the game work as intended often requiring anti-cheat systems like Punkbuster to ensure a rewarding gameplay experience. Communication software for gamers is developed by companies like Discord (valued at $2bn). There may be an overlap here with the game publishing aspect as products like Valve’s Steam which was a breakthrough in digital game distribution, is a software developer and also makes tools for movie animations. Game engines are at the heart of the game and built by stalwarts like Unreal Engine which was used in two popular battle-royal themed games Fortnite and PUBG, Unity Engine, Source Engine etc. Over the last 2 years Elon Musk backed AI company OpenAI made tremendous progress and has garnered much fame after it managed to beat a team of 5 professional DOTA 2 players convincingly. While plans are not yet known about the use of this product, maybe Musk has his eye on the grand multi-million prize pools of major annual gaming events.

Streaming services : These are services that allow a user to livestream any game or activity they might be involved. Primary companies include Twitch owned by Amazon and Youtube Gaming. Streaming generated an enormous amount of content compared to movie and music industry. This streaming culture has given rise to celebrities who often earn money through sponsorships and fan donations. Netflix has said that they compete more with Fortnite than with HBO in one of their earnings reports. More people are watching their “stars” play their favorite games and this has taken away a noticeable amount of screen time off traditional media like TV and Films. With more than 15mn Daily Active Viewers, 2mn Daily Streamers, 40K concurrent streamers and 1mn concurrent viewers, there is an immense potential for services like these to seriously consider advertising. All in all, streaming services have boosted engagement in the gaming community and thus are looking to improve retention amid threats from companies like Netflix and Apple TV+.

Business Dynamics

The gaming industry underwent an explosion in terms of size and reach in the 21st century. This was a result of the concerted reaction between developments in technology and the ability to monetize these games by improving on every aspect of the process. Major drivers are as follows :

Internet boom : As the reach of internet becoming wider, with greater penetration at a rapid scale, along with higher speeds and lesser cost, the world got smaller than before. It opened an abundance of opportunities and use cases in both business and technology. Multiplayer gaming became popular and this re-engaged those gamers who got bored after completing the single player campaign and were left to wait until the next ‘good’ game was released. Internet had changed the value chain of the industry and also gave rise to the world of ESports. MENA markets like Saudi Arabia have mobile internet penetration over 90% and is one of the fastest growing opportunities.

Community building : Gaming has a simple retention hook to keep you coming back for more — a dopamine hit. Each time you play something, the objective of the game designer is to make it as satisfying as possible. As they started making better games, more players got into the scene and also brought their friends along(often bunking school to “pwn some noobs”). The virality here is high in cases where the game becomes a popular brand like DOTA, CS, COD, LOL etc. As the skilled players came together sometimes moving across continents to form teams which competed amongst themselves in gaming tournaments which later evolved into ESports. The best teams often command celebrity statuses along with a huge fan following. Investors are now looking into sponsoring teams as there seems to be a huge business potential. One of Europe’s biggest football clubs PSG partnered with a Chinese team, LGD a while ago. Apart from fans and players, the community also features cosplay models and independent artists who participate in comic-con events and design in-game cosmetics respectively.

Mobile boom : When Steve Jobs introduced the iPhone in 2007, he gave a glimpse of what the future of mobile would look like. With the launch of Android in 2008, that dream eventually started shaping into reality as games like Angry Birds and Candy Crush got extremely popular. As Google perfected Android with every iteration, the Chinese companies started building world-class mobile phones that rivaled the Apple and Samsung and were priced significantly lower. With e-commerce playing catalyst, the spread of devices became faster and this brought more people into the ecosystem.

Value Chain Transformation

Gone are those days when you had to save up to go to a video game store and get your hands on the latest copy of GTA. The value chain of the industry has changed from offline to online as major components of the chain like distribution and service became digitized.

Shift in meta and business models : Meta is a term that refers to a ‘trend’ in gaming vocabulary. As internet became faster and more accessible, game developers came up with new genres to leverage on the increased player base.one of them being Battle Royale, which has displayed exponential growth in number of gamers. PUBG, Fortnite, Overwatch, Apex Legends are the ones that dominate the market currently. With the accelerated adoption of ‘Freemium’ business model, developers devised innovative ways to make money by introducing in-game currencies and season passes which were usually not one time purchases.

What Lies Ahead

Over the next few years, technological improvements overall will lead to a much more robust ecosystem but these are a few things in the hype currently.

Game Streaming a.k.a Netflix for Games

The concept here is simple — to be able to play games on any device (mobile, tablet, PC, Console) without having to worry about installation or hardware requirements anywhere. The game will run on the cloud and will be streamed to the user over the internet. While this tech is far from polished, Google has launched Stadia with support to 22 games. Over the next year, there’s going to be quite a lot of activity in this space and tech giants are preparing to take a piece of this market. Microsoft’s xCloud(XBOX on the cloud) will begin testing its services in 2020 in countries like Canada, Japan and India.

Hardware Battle

Even though a lot of development is being focused to game streaming, the battle for platform will still continue for some time. With Sony and Microsoft looking to launch their next-gen consoles in 2020 and franchisee exclusivity for games like Red Dead Redemption, Uncharted, God of War, a single hardware platform will take more time to establish itself in the market.

Esports in Olympics

Esports is getting bigger every year and Goldman Sachs predicts Esports monetization to reach $3bn by 2022. It will rival other professional sports like Football, Basketball and Cricket with more spend per viewer. Intel has already taken a step further and is hosting an olympics-sanctioned gaming event next year.