Picks and Shovels Plays in Gaming

Globally, gaming is larger than movies (box office) and music combined and is one of the fastest-growing entertainment mediums, registering a 20% CAGR between 2014 and 2019.

India is among the top 5 global markets by user base, with 440m gamers, which is 16% of the global gamer base of 2.7b. This massive user base propelled India to rank one in global mobile game downloads for the first nine months of 2020. With 7.3b games installed, nearly 17% of all worldwide downloads are from India.

And gaming reaches only 60% of internet users currently signifying the potential for an even larger market. While LTE is currently the dominant technology, with the 5G roll out due in 2021, an estimated 20% of the 1bn smartphone connections forecast to be 5G by 2025. Gaming is set to become the fastest-growing form of entertainment in India with digital demographics in its favor.

• Young audiences: 53% of the Indian population is <30 years old and 65% of internet users are <30 years old
• Overall Internet Penetration at 54% in Dec19

India is gradually moving from consuming to transacting online - In revenue terms, the market is $1.2b, making it just 0.7% of the global market with massive tailwinds to scale. In terms of revenue potential and market size, Real Money Gaming (RMG) at $856m is the largest sub-segment at 71% of total market size, followed by casual gaming and esports which have seen wide adoption but lagged on monetization. Average Revenue Per User (ARPU) and Average Revenue Per Paying User (ARPPU) remain significantly low for the Indian market at $12-15 when compared to $100+ in US and China.

Growth enablers include improving digital infrastructure:

• Affordable and reducing mobile data costs have propelled mobile data traffic per device, per month. At 13 GB, it is 1.5x higher than the global average of 8 GB per device per month
• 4G download speeds have increased from 6mpbs in 2018 (One of the slowest globally) to 12-13mbps in 2020 (comparable to South Asia) but remain slow
• While LTE is currently the dominant technology, with the 5G roll out due in 2021, an estimated 20% of the 1bn smartphone connections are forecast to be 5G by 2025
• This growth is driven by relatively inexpensive entry-level smartphones (~$40 in 2020 driven by the introduction of the JioPhone)
• Mobile payments will increase to 3.5% of all digital payments from the current 1% and will be dominated by wallets
• These digital wallets have enabled the instant withdrawal of game winnings and eliminated the need for a credit card

CoVID further accelerated the uptake of online gaming with dramatic increases in users and engagement:

• ‘Ludo’ and ‘rummy’ search on Google surged to ~5x and 2x respectively post lockdown (Mar 2020) 
• Ludo King reported a 2.5x growth in revenue with daily time spent up to 45 mins from 25 mins. New downloads even in Sep20 remained high at 10m
• With time spent on gaming rivaling that of social networks and video streaming at 3 hours per week

The internet landscape continues to evolve in India with rural internet users outstripping urban for the first time in 2020 and recovery from the CoVID crisis also being propelled by rural markets. And while data consumption is still higher in urban India and internet penetration has touched 100%, rural at 30% will fuel future growth and bring the next 500m users online. For the first time in 2019, rural internet users exceeded urban internet users by up to 10%. This translated to a 45% YOY growth in 2019, compared to urban India’s 11%. Rural markets were also the faster segment to recover from the peak of the lockdown induced CoVID crisis in 2020. They account for 40% of FMCG sales in India and grew at 3x the national average in June 2020.

Given this potential, the profile of the rural digital user warrants greater study and will be driven by the key trends of voice, vernacular and video. According to Google, searches in local languages have seen 66% growth. Nine out of 10 new internet users in the country are consuming online content in Indian languages. Voice search is active in nine Indian languages on Google Assistant and Hindi is now the second-most used assistant language globally after English.

And in terms of demographics – female users are set to accelerate growth of mobile gaming with the lockdowns demonstrating interest and pent-up demand. Globally, female gamers contribute to 38% of the gamers and 35% of the revenue. In India, there is a significant lag, with only 18% of gamers being female. This is driven by the fact that internet users are still majority male and the divide is even larger in rural India, where only 31% of users were female. More about female gamers and audiences in my separate post here.

All this and more convinces us beyond doubt that there is significant upside potential and headroom for value creation in the Gaming Industry in India. While Real Money Gaming has been the segment that has attracted the highest valuations and investor interest hastened with the early monetization these platforms garnered; regulatory challenges remain since online gambling is a state subject along with distribution challenges outside the play store and more recently advertising restrictions too. WBV took an early bet in this space and invested in 9stacks in August 2018 as part of its series A. 9Stacks has since grown to become a prominent online poker platform using trust infrastructure and a data science approach and is recognized among the top gaming companies in India today. In an operations and execution heavy space, the stellar founding team with their professional background has enabled fast growth. With 9Stacks in the portfolio, we are seeking exciting game developers focused on casual to mid-core mobile games building live-ops and Games-As-A-Service platforms. We have written more about what excites us about this space here. There is a real opportunity to build an alternate, virtual social medium to challenge the user-generated content horizontals or short-video platforms for a generation of Indians who do not speak English as a first language for whom the content on their 4G smartphone catalyzes their aspirations and is their primary and predominant means of socializing. GenZ has dismantled the traditional stereotype that gaming is solitary and antisocial and game platforms are in fact their primary hangout destination, even over Facebook, where they play in groups with their friends as well as strangers.

Here are our specific areas of interest within the realms of gaming:

• We believe there is a significant opportunity within esports for a picks and shovels play with the pure-play tech tools and platforms to not only localize content but also improve player discoverability, (something Twitch does not efficiently do) audience engagement, and support gamers. For eg: Twitch’s tech stack is suited for desktop rather than mobile and may not work in an Android saturated market like India. Companies like Skillz (tournament hosting platform) and Ethusiast Gaming (Content and fan engagement-focused) have done this well
• As deep-pocketed, game publishers continue to iterate on AAA titles and extend game title life through a live ops model, it will become increasingly difficult for indie studios to compete unless they are backed by significant capital. The positive side of this is the massive user scale that India lends to gaming worldwide and hence the incredible opportunity for a picks and shovels play and need for platform-independent, enterprise tools. These could include tools focused on user acquisition and retention, gamer profiling, segmenting and targeting, data mining and analytics, audience engagement and personalization. These business models can be particularly lucrative since they can be title/platform agnostic while gaining access to user behaviors in the world's largest and fastest gaming market.
• Streaming platforms and Games-as-a-service developers could also be interesting if they are localized for Indian audiences and actively use vernacular and voice tools for user engagement beyond the English-speaking metros. More about our take on the esports and live streaming space here.

This chart of streaming and content platforms and B2B, gaming-focused companies, courtesy of Konvoy Ventures sums the current value chain players and the breadth of opportunity well.

If you are a founder building in any of these areas, reach out to us here or hop over to our website or Medium Page to see our full list of insights.

Information Source Credits:

(1) KPMG India Analysis 2020

(2) News Articles

(3) PGA Labs / Praxis Global Alliance