Why is "The Gaming Vertical Platform" the next $1B opportunity?
✨ Key Takeaways.
The opportunity for single-industry verticality is bigger than ever. New platforms serving single sectors are seeing massive increases in TAM, competitive moats, and economic opportunities due to their ability to leverage more complex business models and product capabilities. It already happened in SaaS, and consumer platforms will undoubtedly be the following.
The gaming sector offers the greatest opportunity for a single-industry vertical platform. It has transformed from a niche hobby into a $282 billion major entertainment industry over the past two decades. Despite being the most content-intensive sector globally, it remains highly fragmented, with most market leaders being generalist platforms that do not aim to capture the full vertical. The cherry on top is that distribution has dramatically changed in recent years due to the change in the nature of the games by becoming long-term live services instead of one-hit products.
Various initiatives are in the race to capture this opportunity, such as the “Games as a Platform” approach led by game studios like Roblox and EPIC or the innovative “Community as a Platform” approach advocated by startups like Tacter (this is us!) or Metafy. All these initiatives represent innovative disruptions to the traditional “Store as a Platform” model used by Steam, Apple, and Google.
Why is "The Gaming Vertical Platform" the next $1B opportunity?
The online platform era, as we know it, is nearing its ceiling. The opportunity to expand the platform’s business models needs to go far beyond selling user data to advertisers.
New platforms serving single sectors are seeing massive increases in TAM, competitive moats, and economic opportunities due to their ability to leverage more complex business models and product capabilities for each value chain stage.
There will always be generalist aggregators, but the opportunity for single-industry verticality is bigger than ever. We have already seen it happening in SaaS vendors, and consumer platforms will undoubtedly come next.
🎮 The Gaming Market.
With more than 3.09 billion gamers worldwide, the gaming sector has quickly gone from a niche hobby into one of the biggest markets in the entertainment industry in the last twenty years.
In fact, the gaming market has a current valuation of $282 billion and is projected to be worth over $363 billion by 2027.
The Gaming Market is simultaneously a niche that is no longer a niche - the most content-driven market in the world - and a sector where using new technologies is the norm rather than the exception. This is the ideal environment for a vertical platform to take the baton.
Many of the control points of the gaming industry are led by generalistic platforms like Apple (App Store) and Alphabet (Play Store), which were the second ($14.8B) and third ($12.4B) biggest gaming companies by revenue in the world in 2021. Yet, none of them are the main sources of new game discovery. Those are platforms like YouTube, TikTok, Instagram, and Facebook, ranking even above word-of-mouth, which is fifth, and digital advertising, which is sixth.
🤝 The Status Quo.
A Game Studio gets funded to develop a game. From the start, they have already pledged 30% of their future revenue to Steam / Apple / Google for distribution. However, that’s not even close enough to reach players. They still need to spend most of their budget on paid advertising via Facebook / Google or, the new meta, Influencer Agencies who aggregate gaming demand via Content Creators. After that, a tiny portion of the leftovers will be dedicated to nurturing their organic community on every gamer’s platforms: YouTube, TikTok, Reddit, Twitch, Discord, etc. Meanwhile, the Content Creators who are organically creating the content/community that the game studio really wants on YouTube, TikTok, Reddit, etc, need to launch a Patreon, sell their knowledge on Fiverr, or look for new ways to monetize their content to generate enough revenue to finance themselves.
Notice that apart from Steam, the other companies mentioned above are generalistic platforms offering their generalistic solution across many industries. Their playbook is expanding their offering horizontally instead of vertically within the gaming industry.
Why aren't Reddit or Discord, which every game studio in the world uses as an Official Channel to manage their community, expanding their model to offer specialized services?
[UPDATE 10/06/24] Discord recognizes the opportunity and announced its renewed focus on gaming vs. “being a broad community-centric app.”
Why isn't Steam expanding into the Creator Economy by linking its distribution behemoth directly with Gaming Content Creators who organically aggregate demand through their content?
In fact, going to Steam’s official community site is like traveling back to the ’00s.
👀 It already happened: Patreon vs. OnlyFans.
Patreon, the creator monetization platform, is suffering the blindness of this new opportunity in front of everyone’s eyes with Adult Content (another content-intensive sector like gaming).
Like it or not, Patreon has always been 40% Adult Content (source). However, their vision was to go generalistic instead of capturing a full vertical. Why?
Obviously, the market size of ALL creators is bigger than the market size of the creators of a single industry, isn’t it?
That’s precisely the point, not anymore.
New platforms serving single sectors are seeing massive increases in TAM, competitive moats, and economic opportunities due to their ability to leverage more complex business models and product capabilities for each value chain stage.
A deeper business model, brand recognition, and more complex product capabilities compensate for the arguably lower consumer count. Market size is not only how many lemons there are but also how well you squeeze them.
Back to our example, OnlyFans (2016), by focusing only on Adult Content (after hesitation), is now making $5.55B in revenue (2022), while Patreon (2013) is somewhere between $75M to $180M (2022). Nobody cared until the opportunity for verticality became big enough.
I’m not saying Patreon should have gone full-on Adult Content. That was not their mission! My point is that the opportunity to fully capture a single vertical is bigger than ever, and counterintuitively, it might be bigger than the generalist approach.
🤔 By the way, gaming represents around 10% to 25% of Patreon, 6% to 28% of Reddit, 80% of Twitch, 30% of YouTube, and 90% of Discord… More importantly, none of them embrace the vertical but go generalistic instead.
⏰ Why Now?
Video games are not fads anymore. There will be video games being played for more than 100 years. How long have people played chess? and poker? What about sports like football or basketball? Hundreds of years, and they’re still played today more than ever!
Technology is already mature enough to allow this natural human behavior in video games. In fact, it’s already happening: Counter-Strike is 23 years old and hitting active player records (source), World of Warcraft is 19 years old, League of Legends is 14 years old, Clash of Clans is 11 years old, etc.
The playbook of developing a game as a product, for which players pay 60 dollars in exchange for 60 hours of enjoyment, launching a big release marketing campaign like a Hollywood movie, and then focus on developing the next hit after hit does not work anymore. Games are service-based models now! Live services (GaaS) are specifically designed to evolve into what we call “forever games.”
This change in the nature of video games has disrupted the distribution layer. New games cannot reach players; even if they do, they cannot compete with established players with more than a decade of community building. Data speaks louder. 61% of total hours players during 2023 were on +6 years old games (source)
To adapt, game studios are changing their distribution approach from getting massive attention at launch to building direct, long-term relationships with players.
🛠️ Who is seizing this opportunity?
Slowly but surely, boards wake up to the opportunity. They realize that the race is on to capture the full potential of their vertical and with opportunity comes competition, both from within one’s category (e.g. application area) or from adjacent categories within one’s vertical (e.g. industry).
Generalistic Platforms.
Generalistic platforms (YouTube, Reddit, TikTok, etc) do not seem to care for now. Understandably, they’re leaders in their categories, and they’re not exclusively focused on gaming. Some of them have taken timid approaches like Discord with a mission to help game developers or YouTube unsuccessfully trying in the past with a standalone app: YouTube Gaming.
[UPDATE 10/06/24] Discord recognizes the opportunity and announced its renewed focus on gaming vs. “being a broad community-centric app.”
“Store as a Platform”
On the other hand, traditional market leaders in gaming distribution like Steam, the Apple Store, or the Play Store do not seem to be concerned yet. They're likely experiencing the innovator’s dilemma and continue exploiting the 'Store as a Platform' approach that has been successful for the past twenty years.
“Games as a Platform”
Market leaders are seizing the opportunity by “platforming” their games following the “Games as a Platform” approach popularized by Roblox.
In this approach, the game itself becomes the vertical platform, allowing players to play other games inside the game via UGC or socialize inside the game.
Another example is EPIC Games, which initially tried the more traditional “Store as a Platform” approach with the EPIC Games Store but recently joined the new approach of ‘Fortnite plus other games within Fortnite.’
In the words of Jacob Navok: “Live service titles will increasingly platform-tize and offer UGC [user-generated content] tools (expect this to be a big part of GTA.)”
“Community as a Platform”
However, while I believe “games as a platform” is a promising approach, it is only valid for market leaders. Not every game will want to be “another game within Fortnite”; however, all of them will need a way to generate those direct long-term relationships with their players.
Ways of doing this are to empower the community by building dedicated tools and incentives with your own resources as a game studio (Hoyoverse is doing with Hoyolab) or via third-party help that’s exclusively focused on solving that problem, which is what startups like Metafy ($105M valuation) or Tacter (this is us!) are doing.
At Tacter, we follow this approach, which we call “Community as a Platform.“ — We’re building a platform that empowers the three main entities of the gaming market:
Content creators by empowering them to monetize (disrupting Patreon) and manage their community (disrupting Discord).
Players by empowering them through specialized content (disrupting Reddit) and relationships with their friends (disrupting Discord).
Game studios by empowering them with community-building services to adapt to the new distribution opportunity (disrupting Steam).
That’s what we have been building since 2023. You can read our first-year results and upcoming challenges at:
🔥 The race is on. Gaming is a sleepy giant market, and I firmly believe that the company able to capture the potential of the full vertical will be an order of magnitude bigger than generalistic companies controlling parts of it.
If you think similarly or want to discuss the opposite, say hi at marcos@tacter.com
“Most entrepreneurs aren’t building a house. They are putting bricks in the foundation of a skyscraper.”
- Naval Ravikant
Thanks to Florent Simon, and Jaime Novoa for their expert guidance and suggestions in writing this specific post to share our vision at Tacter. You rock!