Engines, Picks, and Shovels

What is Driving the Gaming Gold Rush?

Interest in gaming reaching (arguably) an all time high within the broader business world due to the combinatorial effect of the COVID-19 pandemic and renewed interest in the concept of metaverse (a concept riding precariously on the crest of web3 hype) is a recurrent theme here. I’m quick to caveat this assertion that for those of us working in gaming, particularly in roles aimed at parties outside of the industry, it’s a bit of a mixed bag. 

Yes, more people than ever are interested in gaming in the abstract, which in turn makes conversations “easier.” However, there is a reluctance to engage directly with gaming in a serious way while shiny yet ill-defined concepts like the metaverse set the imaginations of marketers and business decision makers afire. Why mess about with this nerdy gaming stuff when you can look towards the very future of the internet?

Here again, we’ve previously discussed plenty of good reasons to do so, and once again I’ll note that I wrote a whole book about those reasons. And yet, through this lens I can’t help but raise a bit of an eyebrow at the recent influx of VC funding being poured into gaming, perhaps best epitomized by the recently announced GAMES FUND ONE (the upcasing mean SERIOUS BUSINESS, I think) program from a16z. Largely because, not entirely like the rise in gaming-related conversation in recent weeks, I can’t help but think that gaming isn’t really the point.

If we are to consider the glass/bag-o-cash half full scenario, VC funding has the potential to allow for real innovation in gaming - new entrants can establish mechanics, IP, or player engagements outside the standard practices of big publishers or game developers. And yet, one of the three “investment themes” identified by a16z points directly at the profitable but sometimes controversial “games-as-a-service” model:

“Game Studios: The best games today are continually updated online services whose players form an integral part of the game through multiplayer and user-generated content. These “games-as-a-service” have become rich, interactive social networks, with players making in-game friendships that are just as meaningful as those made in-person.”

The call-out makes sense - VCs don’t invest out of the goodness of their hearts, they expect a return, and service-games typically yield a very high ROI (there is a reason Bungie was able to command a high price-tag while Destiny 2 is their only known project). But, this hardly presents a compelling case for a wellspring of innovation so much as focused investing in the profitable bits of the established gaming model.

The other two “investment themes” are a bit more telling. They point towards investments around gaming rather than within gaming. The second is focused on building community tools to cater to the broader gaming ecosystem:

“Games x Consumer: The rapid growth in the number of gamers worldwide has created a thriving ecosystem of consumer apps to support them. As games become the dominant way people spend time, we believe some of the most innovative consumer companies will be built around player communities. (Social apps like Discord that help gamers build community, or platforms like Twitch where millions tune in daily to watch creators livestream video, are just a couple examples of this).”

I’d argue that Discord means a very different thing to a great number of people these days relative to (say) just 12 months ago. The specific call-out of this technology is a perfect wind-up for the third theme:

Infrastructure: As games evolve into virtual worlds and online services, the demand for tools and services needed to build great games is skyrocketing. Not only is this infrastructure important for games in its own right, we also believe that the coming Metaverse will be built by games companies, using games technologies. From content creation to multiplayer enablement to virtual economy management and live ops, the games industry has already solved many of the problems that need to be solved to create the Metaverse.

We all knew the “M word” was coming somewhere in this announcement, yes? So there we have it - the more pessimistic, glass-half-empty view would be that (not unlike the broader gaming conversation in the business world) all roads here are not to gaming, but through gaming…to web3 (yes, web3 and metaverse are distinct and non-dependent ideas, but for all intents they are completely conflated in the language of institutional investment).

One could argue I’m reading too much into what is being said between the lines here. And yet, while $600 million is a lot of scratch, it pales relative to the $4.5 billion in crypto and web3-targeted investments that a16z announced just a few days after the GAMES FUND ONE (why do you keep yelling at us, Andreessen Horowitz?) release. Moreover, in general games can be lousy businesses in which to invest. Making a good game takes a long time, is fraught with peril, and taking VC money (particularly from prestigious sources) is ladened with expectations - well thought-out user acquisition plans, sophisticated analysis of expected revenue per user, and so forth. 

Comparatively, web3-adjacent projects are largely unburdened from many standard parameters of success, and instead tread ground in a world where what constitutes success is anyone’s guess.  Uncertainty is not a liability, but instead something that excites investors to the point of massive over-valuation. Even if not the explicit intent, it is very likely that much of the potential for innovation from this fund will feel a push towards onboarding artifacts of web3.

This same push will also make it increasingly likely that the infrastructure and community themes will be the stars of this show. Better to not tackle building the metaverse directly so much as sell the picks and shovels that will work towards it - even more so when these tools may come in the form of game development engines that could formulate the technological infrastructure of these worlds. There is some urgency here - the reality is that the gaming industry is already well ahead of the pack. 

The recent release of Unreal 5 from Epic and Lightship from Niantic yield powerful engines for building metaverse-esque experiences beyond direct applications in gaming. A $600M shot in the arm might be a last-ditch effort to close this gap, as once some theoretical consolidation around any given engine occurs, deviation from this norm will become nigh-impossible (the entirety of our current internet relies on shared, agreed-upon standards and languages). As much as there continues to be a lack of engagement with understanding the gaming industry more generally, there is perhaps at least a recognition that gaming entities are well-positioned to run away with the fancy technological toys that VCs are lusting after.

So, yes, the continue dialog around gaming and investments into the ecosystem are exciting, but they are also noisy, and we’re perpetuating an unproductive loop where things that already exist are being “reinvented” due to relatively limited knowledge of the gaming ecosystem as it exists now, instead of what folks want it to be. And yet, understanding gaming now is crucial to orienting a proper bearing on what it can be - whether one makes the picks or does the mining is immaterial if we’re pointed in the wrong direction.