The future of gaming and e-sports

When we talk about fundamental human needs, we sometimes forget the need for challenge – the need to face trial, persevere, and prove one’s skill. Innumerable consultants point towards Maslow’s pyramid of needs to explain complex behaviors, pointing out that man does not live by bread alone but that humans also require context, confidence and self-actualization. Perhaps the most ubiquitous way to achieve the latter is overcoming difficulty. When the local sports team wins, when the puzzle is completed, when the summit has been reached – many live entirely for these feelings of victory. For many, the best is to experience victory as a team, overcoming challenges together.

In light of our need to be challenged, compete, and win, it’s no surprise that the games industry has grown enormous over the course of the 21st century thus far. In its earliest years in the 1980s, computer and video games were mostly viewed as a toy, marketed towards children and teens, but it’s been almost 40 years since Amiga was the hottest toy, and those who played with it then are closing in on retirement. If you look to the average “gamer” today, the most important market is overwhelmingly middle-aged women, who put their money towards mobile games. Mobile games which, in turn, earn a lot of additional funding from advertising – which tells us a lot about the modern digital economy. 

High peaks or long tails?
The “long tail” model describes the willingness to pay among consumers. The central idea is a high and thin peak, containing a few consumers flush with cash and ready to pay big time for their demands. In gaming, this is your stereotypical gamer – devoting huge amounts of time and money towards the coolest gaming rig, the glowiest neon keyboard and the most energizing energy drinks. But the big profits for most companies are found not here, but in the “long tail”. The long tail is most consumers – numerous, but not willing to devote that much money towards gaming. As most people have begun playing on their commute or in their spare time, there’s a lot of money to be made from this group of low-spending consumers. The business model is often completely free-to-play, with incomes secured through microtransactions or simple advertising revenue. This in turn has had an impact on the triple-A companies, who add layers of ad revenue or microtransactions atop already expensive luxury products.

All of this points towards that the games business model is evolving to be similar to other media and entertainment. Compared to moving pictures, for example, games already cover everything from the big budget blockbuster (the AAA-games made by huge studios) to the cheap soap opera (mobile games that mostly seek to sell ads). Just as with moving pictures, there’s also a growing space for niche art projects for smaller audiences, which make another form of “long tail” in consumers who are willing to pay for some special interest. E-sports are one such example, where much of the revenue comes from advertising everything from car brands to consumer electronics.

Games permeate the market
The 2020 pandemic saw enormous gains for parts of the games industry. Perhaps the chief example is Animal Crossing New Horizons, which was enormously popular during the spring and brought people together even as the pandemic was keeping them apart. The game was the platform of choice for numerous birthday parties and even a handful of weddings. This shows us that games are becoming increasingly integrated into the digital “everyday life”. The boundary between games and social media has since long been blurry, at least since the massive multiplayer genre of the mid-2000s. By the same logic, gaming becomes more valuable as an advertising platform and even a recruitment platform. One such example is the US military using games to recruit young people.

The experiences and know-how of the games industry, and their business models, are both well adapted to the digital economy of the future. In this way, they’re a great indicator of how the world economy will take shape in the coming years. Both viewed as an art form and as a marketing platform, the games industry is a vanguard of the digital economy, seen for example by how the Chinese tech giants invest heavily into games. Businesses and organizations that seek to benefit in the economy of the future have a lot to gain from a proper understanding of gaming and e-sports.

Would you like to know more about how your business can benefit from these industries? Contact Daniel Lindén at Kairos Future to discuss your organization’s digital strategies in the future. 

By Rikard Molander