Podcast Summary
Growth of Free-to-Play Games and Tencent's Dominance: Free-to-play games like Fortnite and League of Legends are driving growth in the gaming industry, transforming it into a platform. Tencent leads the way with acquisitions of major studios.
The gaming industry is experiencing significant growth, particularly due to the shift towards free-to-play games like Fortnite and League of Legends. These games, which can be played on various devices with low requirements, have attracted a massive audience and transformed gaming from a hit-driven business into a platform. Tencent is currently the most prominent player in this space, having acquired significant stakes in major studios like Epic and Riot Games. However, there is still potential for up-and-coming companies to make an impact in this rapidly evolving industry. Additionally, listeners are encouraged to take a brief survey at investorfieldguide.com/forward/survey to help shape the future direction of the Invest Like the Best podcast.
Free-to-play games with in-game cosmetics: Free-to-play games like Fortnite, League of Legends, and Counter Strike make money through the sale of in-game cosmetics, creating vibrant in-game economies and secondary markets for rare items.
The gaming industry has seen a significant shift in monetization methods, with many popular games, such as Fortnite, League of Legends, and Counter Strike, offering free-to-play experiences. These games make money through the sale of in-game cosmetic items, which do not affect gameplay but allow players to customize their characters and show off their spending to others. Companies like Valve, Epic, and Riot Games have built successful businesses around these models, creating vibrant in-game economies and secondary markets for rare items. Counter Strike, for instance, allows players to trade and sell skins, with some rare ones fetching high prices. Other games, like Fortnite and League of Legends, capitalize on limited-time events and rare items to drive sales. This evolution in gaming monetization has moved away from the traditional model of buying a game outright and instead offers ongoing opportunities for players to engage and spend.
Digital Economies in Gaming: Self-Expression through Cosmetic Items: Gaming economies driven by cosmetic items allow players to express themselves and contribute to game growth through trading and gambling, with Fortnite's Skull Trooper skin being a sought-after example.
In the world of gaming, cosmetic items like skins have become a significant driver of revenue for game companies, allowing players to express themselves digitally without affecting the game mechanics. One rare example is the Skull Trooper skin in Fortnite, which despite being digitally reproduced infinitely, is highly sought after by players. Companies manage these economies by controlling the supply and demand of these items, sometimes even preventing the sale of accounts. In some games, like Counter-Strike, these items have gained real-world value through gambling sites, where players can trade and gamble with virtual items. This not only adds excitement to the game but also contributes to the growth of the player base. Players use these skins as a form of self-expression, with certain skins symbolizing different aspects of a player's identity within the game community. Overall, the economies of digital items in gaming are a fascinating experiment in economics, providing endless opportunities for players to engage with the game on a deeper level.
The intersection of video games and gambling in CS:GO: The value of in-game items in CS:GO can be influenced by gambling opportunities, leading to economic instability within the gaming community.
The intersection of video games and gambling, as seen in the case of Counter-Strike: Global Offensive (CS:GO) skins and gambling sites, can lead to significant economic fluctuations within the gaming community. The value of in-game items can skyrocket due to gambling opportunities, but when regulatory actions are taken, the economy can crash. Esports, as a whole, is a growing industry with various games, each with their unique business models and regulatory landscapes. For instance, Valve's CS:GO has a more independent tournament structure, allowing new teams to emerge and compete at the highest level. However, the lack of a fixed number of professional teams and the presence of gambling opportunities can lead to economic instability. The concept of esports franchises being valuable like Major League Baseball or NFL teams is still premature, but the potential for growth and the ever-evolving nature of the industry make it an exciting area to watch. One specific example of this is the esports organization 100 Thieves, which has seen success in various games and business ventures.
The evolution of esports from grassroots to a professional industry: From a grassroots scene with no revenue sharing to a professional industry with regional leagues, world championships, and revenue sharing, esports has transformed over two decades, attracting investors and creating opportunities for teams to build their brands.
The esports industry has evolved significantly over the past two decades. Initially, it was a grassroots, open scene with no revenue sharing for teams, and teams relied on sponsors for revenue. StarCraft and Counter-Strike are examples of this era. However, around a decade ago, League of Legends emerged, and Riot spearheaded a change by creating regional leagues and a world championship, leading to more stability and revenue sharing. This shift attracted more investors. In contrast, Activision Blizzard attempted to force Overwatch into an esport with a franchise league from the start, charging hefty fees for spots. 100 Thieves, an esports team active in Counter-Strike, Fortnite, and League of Legends, was founded during this period of change when investors, including Ludlow, started to view esports as a viable investment opportunity. The uncertainty around franchising led them to consider building their own team, but they ultimately chose a hybrid approach by acquiring the dormant brand 100 Thieves, tied to a popular YouTube influencer named Nadeshot.
From failure to success with the right backing: In esports, having a clear vision and the right backing can turn a failed team into a successful business with shared revenue and collaborative growth.
Successful partnerships in the esports industry require a strong team with a clear vision and the right backing. Nadeshot, a former professional gamer and YouTuber, tried to build an esports team, 100 Thieves, in 2015 but failed due to lack of management support. In 2018, Dan Gilbert's team saw potential in the brand and proposed a partnership. After extensive discussions and interviews, they secured a spot in the League of Legends franchising and formed a collaborative business model. The partnership has been successful, with teams working together and a shared revenue pool. Esports is becoming more like traditional sports, with fanatical fan bases and a growing media landscape. The industry is still evolving, but the potential for revenue through sponsors, media rights, and fan engagement is significant. Nadeshot's story highlights the importance of teamwork and the right backing in the rapidly growing esports industry.
Creators Building Businesses Around Themselves: Influencers are transitioning from relying on sponsorships to creating and selling their own products, offering opportunities for investors in the early stages of these businesses.
The relationship between media businesses, opportunities for creating businesses in media, and influential people, particularly content creators, is evolving. As creators become more savvy and realize they have distribution and an engaged audience, they're looking to build businesses around themselves rather than just relying on sponsorships. This trend is already evident in industries like beauty and coffee, where influencers are creating and selling their own products. The future may involve platforms that help these individuals white label their products or services. For investors, opportunities lie in the earliest stages of companies, even before they have a playable demo, as building platforms becomes a key focus. However, the scale advantages and economies of incumbent leaders in media and gaming make investing in more established companies a significant challenge.
Empowering Creators in the Gaming Industry: Companies like Roblox and tools for easy game creation are shifting investment towards platforms that empower creators in the gaming industry, enabling those who never had the opportunity before.
We're witnessing a significant shift in investment towards platforms that empower creators, particularly in the gaming industry. Companies like Roblox, which allows teenagers to create games and sell items within their universe, represent the future of the creator economy. This trend is not limited to content creation platforms like YouTube and Twitch, but also extends to the medium itself. Tools that enable creators to easily build games, such as drag-and-drop game creators, will become increasingly important. This approach not only competes with larger incumbents but also empowers those who never had the opportunity to build games before. The best example of this is mobile game studios like Voodoo, which create multiple games and funnel them to each other for growth. Engines like Unity and Unreal, which are starting to rival movie-quality graphics, are in an excellent position to power the back end of these platforms. Overall, gaming is still in its first inning as an ecosystem, and we're starting to see it emerge as a platform rather than a hit-driven movie-like business. These games are becoming the third place, where people spend significant time and engage with each other.
Investing in gaming and the creator economy: Investors focusing on game investing and supporting emerging trends in the creator economy stand to benefit from potential successes in the future of work and online multiplayer gaming.
The gaming industry, particularly in the realm of free-to-play, online multiplayer games, is where young people are spending their time and building friendships. This trend has been overlooked by some investors, but those who focus specifically on game investing and take on early risks stand to benefit from potential successes like Fortnite. Funds such as Play Ventures and investors like Benchmark and Andreessen Horowitz have shown success in this area. Additionally, the future of work and the creator economy are also areas of interest for investors, as people increasingly seek to pursue their passions and be rewarded for their skills outside of traditional 9-5 jobs. The Internet enables this trend, and investors who recognize and support it stand to gain from the growing gig and creator economies.
Monetizing Passions on the Internet: Individuals can turn skills into income streams on platforms like Etsy, Substack, Twitch, and YouTube. Success relies on audience growth and understanding platform nuances. Infrastructure layer companies support growth.
The Internet is providing new opportunities for creators and small businesses to monetize their passions and hobbies. Platforms like Etsy, Substack, Twitch, and YouTube are enabling individuals to turn their skills into income streams. This trend is expected to continue, with potential growth in areas like education and baking. The success of these creators often relies on their ability to grow their audience and understand the nuances of these platforms. Infrastructure layer companies, such as Twilio, Stripe, and Shopify, are also crucial in enabling these businesses by focusing on non-core competencies and providing excellent services. We are still in the early stages of this shift, and there is significant opportunity for innovation and growth in this space.
Enablers of Startups: Companies that help businesses focus on core competencies: Investing in enabler companies that provide infrastructure or services allows businesses to focus on their core competencies and unlock significant value, resulting in mutual growth.
Companies that provide enabling infrastructure or services for other businesses, often referred to as the "enablers of startups," offer significant value and growth potential. These companies, such as Twilio for communications, Plaid for financial data, Unreal and Unity for gaming, and daily.co for video chat, allow businesses to focus on their core competencies while the enablers handle the underlying infrastructure. This results in a win-win situation where the enablers help new businesses emerge and also benefit from their growth. The trend of companies paying for these enabling services instead of building everything in-house is becoming more prevalent across various industries, including health insurance and manufacturing. By identifying and investing in these enablers, one can unlock a lot of value and help new businesses thrive.
Focus on core competencies or building an audience/infrastructure: To succeed, focus on what sets your business apart or build an audience/infrastructure for others. Specializing and offering essential services can lead to success in a rapidly evolving tech landscape.
In today's business landscape, focusing on core competencies and building an audience or infrastructure are the two best ways to succeed. Core competencies refer to what sets a business apart and is essential to its success. Building an audience, on the other hand, is invaluable for any endeavor, whether it's a business or a personal project. As technology continues to evolve, there will be more opportunities for businesses to specialize and offer essential services to others. One example is Truepill, which powers the back end of telemedicine companies, allowing them to focus on marketing and customer engagement. The speaker emphasizes that young people should aim to be either the audience or the infrastructure provider. He also shares his personal experience with investing in 100 Thieves, a gaming team and brand that has evolved into a popular luxury brand within the gaming space. Despite being a small team, the speaker believes that transferring his unique skill set or mindset to another person would be challenging, even for the most talented individuals.
Discovering niche communities leads to unique business opportunities: Passion for discovering new areas and subcultures can lead to identifying emerging markets and insights into future trends in industries like gaming and esports. Aligning incentives between publishers, developers, teams, and players is crucial for success.
Curiosity and a deep understanding of niche communities can lead to unique business opportunities and insights into the future. The speaker's passion for discovering new areas and subcultures has led them to identify emerging markets, such as the PC building community and the evolving landscape of esports. In the gaming industry, the open versus closed ecosystem for esports is an ongoing question, with publishers and game developers recognizing the value of esports beyond marketing. The challenge is aligning their incentives with those of esports teams and players. The speaker expresses gratitude for mentors and partners who took a chance on them early in their careers, emphasizing the importance of betting on young talent.
Investing in gaming and infrastructure: cloud gaming, esports, and digital infrastructure: Identifying and investing in emerging areas like cloud gaming, esports, and digital infrastructure early can lead to significant returns
Potential for significant opportunities in the gaming and infrastructure space in the coming years. Blake Robbins, the founder of Blue Cloud Ventures, shared his insights on this topic, highlighting three key areas of focus: cloud gaming, esports, and digital infrastructure. These categories are expected to see significant growth, and investing early in these areas could yield substantial returns. Another key takeaway is the importance of trying to find opportunities early in emerging spaces. The whole point of investing is to identify promising areas and invest before they become mainstream. Blake made it clear that there will be opportunities to do just that in the gaming and infrastructure space. Lastly, if you're interested in staying updated on the latest ideas, quotations, and insights from the Investor Field Guide podcast, sign up for the weekly Inside the Episode email newsletter. You can sign up at investorfieldguide.com/forward/bookclub.
