1 topic, 2 key figures, 3 startups to draw inspiration from
A few days ago, French gaming ad startup Gadsme raised $8 million backed by Ubisoft. It offers non-intrusive ad formats that are blended, immersed and native to the game, and thus do not risk disturbing the player’s experience. Worth around $200B in 2021, the global gaming industry has exploded in size over the last decades, making it a larger industry than the film and music industries combined. Studies estimate that there are over three billion gamers across the world, i.e. 41% of the world population. Thus, it is unsurprising that companies and venture capitalists of all kinds are seeking to get a piece of the pie. Driven in part by the pandemic itself, gaming startups received a record $4.7B in Venture Capital investment in 2020, a nearly 193% increase over 2019. Gaming here includes startups developing and publishing game titles (e.g. The Sandbox), building tools for studios and players (e.g. Hadean), as well as entrepreneurial efforts focused on eSports (e.g. Sorare), including betting.
At its origin, gaming was defined as playing electronic games using computers, smartphones, tablets consoles or other mediums to entertain oneself. It was solely the pleasure of playing single or multi-player experiences to escape the ‘daily grind’. However, with transformational improvements in technology and faster connection speeds, innovation in the industry spurred. The technological leap led to the growth of massively multiplayer online games (MMOs), the rise of mobile games (the fastest-growing segment) and increasingly immersive universes. Games such as Roblox and Fortnite have been credited with promoting the notion of metaverse (a concept explained in another 123Fab newsletter here) in the gaming community. Gamers began to earn a living, and some, called pro-gamers, began to be paid to play video games and compete full-time, making gaming more than just entertainment.
Based on this observation, we decided in this edition of the 123Fab newsletter to dig into the different use cases of gaming in adjacent industries.
It’s in the years leading up to the end of the millennium that the power of game mechanics gained slowly recognition. Coined by Nick Pelling in 2002, the term gamification qualifies the use of game mechanics in non-gaming situations in order to enhance motivation and influence behavior. Toyota, for instance, encourages safer driving for its Kinto car subscription by rewarding safe drivers with points that lower monthly payments. Gamification has also gained immense traction in digital marketing campaigns. Studies show that while traditional popup designs provide a conversion rate of 3.5%, wheel popup campaigns reach a customer engagement rate around 5-20%. German startup Gamewheel is an enabling player positioning itself as the one-stop shop for playful marketing campaigns.
Another tool inspired by the gaming industry is serious games, which are custom-built games designed with a primary purpose other than pure entertainment, such as education. These emerged after that a series of meta-analyses were conducted indicating that serious games improved learning. After flourishing in universities, serious games made inroads into businesses. Founded in 2014, My-Serious-Game raised 3M€ to design serious game training sessions and has a broad portfolio of clients: Sanofi, Bouygues Construction, Total, Eiffage, SNCF, Carrefour and more.
Long focused solely on entertainment, a new generation of video games is using blockchain technologies like Non Fungible Tokens (NFT) to reward players with cryptocurrency. Players can now receive rewards with real-world value. One of the largest play-to-earn games is Axie Infinity. Larger players have also been enticed by the prospect of NFT. French video game giant Ubisoft has already announced plans for Ubisoft Quartz, a platform that lets players earn and purchase NFTs based on the Tezos blockchain. However, the play-to-earn has also received criticism by players, who were already unhappy with the intrusion of the pay-to-win model and lootboxes, and that argue that this new model goes too far.
Long dominated by gaming players such as Microsoft, SONY, Nintendo and Tencent, the gaming landscape has been upended by tech players who see gaming as a way of community expansion. Driven by the ambition to create ‘the Netflix of gaming’, Google made forays into the industry with Stadia, Amazon with Luna, Microsoft with XCloud and Apple with Arcade. Netflix has also recently begun to increase its gaming investments to capitalize on its streaming capabilities to attract new users via a consolidated entertainment offer. At the end of March, Netflix acquired Texas-based game developer Boss Fight Entertainment, which marks its 3rd acquisition of a gaming company.
Finally, games are also used in more niche field applications such as prevention, in the healthcare industry for example. Seattle company DeepWell DTx, revealed last month that it is aiming to create entertaining, therapeutic games. Expected to be released in 2023, the games are designed to be used to treat depression, hypertension or mild anxiety.
In short, the latest movements in the industry point to radical transformation. We’ve been witnessing a significant deconstruction of the value chain, with the introduction of new tech giants, as well as new business models and distribution canals, further stressing the fierce innovation competition that was already in play. New ways of playing, further acquisitions and the intersection of gaming and the metaverse will result in new experiences that will take the industry to a whole new dimension. This yields exciting opportunities the ecosystem as a whole.
2 Key Figures
The gaming market is expected to reach $340B in 2027
The gaming market was estimated at $194.8 billion in 2021 and is expected to reach $340 billion by 2027, at a CAGR of 9% according to Mordor Intelligence
VCs invested $4.7B in gaming startups in 2020
3 startups to draw inspiration from
This week, we identified three startups that we can draw inspiration from: DeepWell Digital Therapeutics, The Sandbox and Centrical.
DeepWell Digital Therapeutics
The American startup is a video game developer and publisher dedicated to making games that are simultaneously world-class entertainment, as well as therapeutic for a myriad of health concerns. DeepWell’s inaugural slate of games is expected to debut in 2023.
The French startup is a developer of a gaming platform intended to offer a metaverse where virtual worlds and games will be created collaboratively without a central authority. The company’s platform features the animation of three-dimensional objects and the creation of games with the use of in-game visual scripting and non-fungible token (NFT).
The American startup is a developer of a gamified employee performance management software designed for learning through digital motivation. The company’s platform uses the principles of behavioral psychology, motivation and gamification for employee engagement, enabling employees to emotionally get connect to work for a positive and productive culture of success.