Many VCs historically avoided placing bets on hit-driven mobile gaming content in favor of clearer platform opportunities, but as more success stories pop up, the economics overturned conventional wisdom with new business models. As more accessible infrastructure allowed young studios to become more ambitious, venture money began pouring into the gaming ecosystem.
After tackling topics including how investors are looking at opportunities in social gaming, infrastructure bets and the moonshots of AR/VR, I asked a group of VCs about their approach to mobile content investing and whether new platforms were changing perspectives about opportunities in mobile-first and desktop-first experiences.
While desktop gaming has evolved dramatically in the past few years as new business models and platforms take hold, to some degree, mobile has been hampered. Investors I chatted with openly worried that some of mobile’s opportunities were being hamstrung by Apple’s App Store.
“We are definitely fearful of Apple’s ability to completely disrupt/affect the growth of a game,” Bessemer’s Ethan Kurzweil and Sakib Dadi told TechCrunch. “We do not foresee that changing any time in the near future despite the outcry from companies such as Epic and others.”
All the while, another central focus seems to be the ever-evolving push toward cross-platform gaming, which is getting further bolstered by new technologies. One area of interest for investors: migrating the ambition of desktop titles to mobile and finding ways to build cross-platform experiences that feel fulfilling on devices that are so differently abled performance-wise.
Madrona’s Hope Cochran, who previously served as CFO of Candy Crush maker King, said mobile still has plenty of untapped opportunities. “When you have a AAA game, bringing it to mobile is challenging and yet it opens up an entire universe of scale.”
Responses have been edited for length and clarity. We spoke with:
- Hope Cochran, managing director, Madrona Venture Group
- Daniel Li, partner, Madrona Venture Group
- Ethan Kurzweil, partner, Bessemer Venture Partners
- Sakib Dadi, investor, Bessemer Venture Partners
- Alice Lloyd George, founding partner, Rogue VC
- Gigi Levy-Weiss, general partner, NFX
Hope Cochran and Daniel Li, Madrona Venture Group
Does it ever get any easier to bet on a gaming content play? What do you look for?
Hope Cochran: I feel like there are a couple different sectors in gaming. There’s the actual studios that are developing games and they have several approaches. Are they developing a brand new game, are they reimagining a game from 25 years ago and reskinning it, which is a big trend right now, or are they taking IP that is really trendy right now and trying to create a game around it? There are different ways to predict which ones of those might make it, but then there’s also the infrastructure behind gaming and then there’s also identifying trends and which games or studios are embracing those. Those are some of the ways I try to parse it out and figure out which ones I think are going to rise to the top of the list.
Daniel Li: There’s this single-player narrative versus multiplayer metaverse and I think people are more comfortable on the metaverse stuff because if you’re building a social network and seeing good early traction, those things don’t typically just disappear. Then if you are betting more on individual studios producing games, I think the other thing is we’re seeing more and more VCs pop up that are just totally games-focused or devoting a portion of the portfolio to games. And for them it’s okay to have a hits-driven portfolio.
There seems to be more innovation happening on PC/console in terms of business models and distribution, do you think mobile feels less experimental these days? Why or why not?
Hope Cochran: Mobile is still trying to push the technology forward, the important element of being cross-platform is difficult. When you have a AAA game, bringing it to mobile is challenging and yet it opens up an entire universe of scale. The metrics are also very different for mobile though.
Daniel Li: It seems like the big monetization innovation that has happened over the last couple of years has been the “battle pass” type of subscription where you can unlock more content by playing. Obviously that’s gone over to mobile, but it doesn’t feel like mobile has had some sort of new monetization unlock. The other thing that’s happened on desktop is the success of the “pay $10 or $20 or $20 for this indie game” type of thing, and it feels like that’s not going to happen on mobile because of the price points that people are used to paying.
Alice Lloyd George, Rogue VC
With plenty of big players betting on cloud gaming, there seems to be this race to build cloud streaming networks around subscription packages. Does this change how you think about content investments?
It definitely looks more like enterprise SaaS. For all the investors that said, “We can’t touch gaming, it’s a hits business and then you look at Fortnite Battle Pass and their new $12 subscription. I think that people can get more comfortable with that recurring revenue model. The cloud factor hasn’t quite come into play yet but I feel like a lot of the hype around it hasn’t really translated yet.
What challenges are today’s game studios facing, that might not have been so pronounced a few years ago?
Well, one thing I know is that everyone has struggled to find Unity developers [laughs]. I think there needs to be more talent, that seems to be in short supply right now. But I think you can iterate and do pretty well on a small budget … Like, these can be very good cash businesses compared to other companies.
I think the question of distribution is big, that whole thing with Epic and Apple has huge impact on everyone and I know they’ve changed some of their rules for anyone under a certain amount of revenue. If you look at the margin compression of Roblox in their S-1, it’s actually quite significant due to mobile, so I’m interested in that element of distribution effects for companies these days.
Ethan Kurzweil and Sakib Dadi, Bessemer Venture Partners
Does it ever get any easier to bet on a gaming content play? What do you look for?
It is much easier now than it has been in the past to invest in gaming. While it is still incredibly difficult to create and launch a title, the cost of production is starting to come down and we are seeing teams able to get feedback from users much faster than ever before. We look for talented, scrappy teams looking to build cross-platform, multiplayer games that are inherently viewable on platforms like Twitch. Those are the types of studios/companies that generate the most love from players and organic adoption, leading them to be successful in the long term.
With plenty of big players betting on cloud gaming, there seems to be this race to build cloud streaming networks around subscription packages. Does this change how you think about content investments?
If anything this makes us more excited to back the studios themselves. As more options become available to get into the hands of players with much less friction, the games will become more valuable should they retain and keep those users.
There seems to be more innovation happening on PC/console in terms of business models and distribution for gaming, do you think mobile feels less experimental these days? Why or why not?
Mobile feels much less experimental given some of the terms app stores have levied on these companies and high cost of getting a game in front of the end user. While this has been the arrangement for many years now, it is hard to overstate how much harder it is to develop for mobile not only when you make less money due to the “Apple Tax” but also when they are the gatekeeper for releases, radically slowing down the release cycle as compared to PCs. This in turn affects the speed at which you can rapidly iterate in order to make the game better and more playable.
What challenges are today’s game studios facing that might not have been so pronounced a few years ago?
Apple and the concomitant saturation of customer acquisition channels for starters! Not to mention that the bar for innovation is a lot higher a decade removed from the first smart phone than it was when the first zombie game hit the app stores.
Are you concerned by Apple’s outsized influence in determining how the mobile games industry can monetize itself? Do you foresee that changing?
We are definitely fearful of Apple’s ability to completely disrupt/affect the growth of a game. We do not foresee that changing any time in the near future despite the outcry from companies such as Epic and others. Maybe they will make some tweaks around the edges to make their walled garden seem fairer but it is one of the core risks that exists in this ecosystem that both investors and entrepreneurs need to be comfortable navigating. However, it is still possible to make incredible games and find an audience for them; Apple’s stranglehold is not a deal breaker in the end.
VCs discuss gaming’s biggest infrastructure investment opportunities in 2021
Gigi Levy-Weiss, NFX
Does it ever get any easier to bet on a gaming content play? What do you look for?
No it doesn’t. But when you find a team that’s great on the data and analytics side and has proven product-making skills, the creative decision is less scary. The area that sometime makes it easier are hybrid games (games combining more than one genre) where there is a reference for each one fo the genres and the bet is mostly on the combination. This is sometimes an easier bet.
With plenty of big players betting on cloud gaming, there seems to be this race to build cloud streaming networks around subscription packages. Does this change how you think about content investments?
I think that the market currently looks at cloud gaming as two combined elements — streaming (technology) and subscriptions. While I believe that with further tech progress and 5G rollout the streaming tech is likely to be used by many game developers, I am not sure that this will always come with the subscription model — which overall is usually a less profitable one for the developers. So I am a believer in the tech but am not sure we will see the top games being bundled into subscriptions; alternatively. with the constant move to free-to-play, the games will be included but the in-app purchases will not.
There seems to be more innovation happening on PC/console in terms of business models and distribution for gaming, do you think mobile feels less experimental these days? Why or why not?
Mobile is a bit fixed on models given the dominance of the stores … where you have to go through a gatekeeper that dictates many of your choices, there is less room for innovation on business models.
What challenges are today’s game studios facing that might not have been so pronounced a few years ago?
Competition is the hardest it’s ever been, with the large studio being more dominant than a few years before. The top games are stable and breaking through is almost impossible. That’s a major challenge.
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