Code to Commerce - The Mobile Gaming Evolution
Vivek:
Hi, everyone. Good morning and welcome to Matrix Moments gaming edition. Vivek here joining from the gaming team. And with me here we have Ashish who’s joining us and we would love to talk about games. But, Ashish, why don’t we start with a brief intro about yourself and your job.
Ashish:
Sure. Thanks, Vivek, it’s a pleasure to be here. So I’ve spent the last ten years in ad tech, I have spent five years in Google. I think I did a very interesting Google, I was part of the ad network team Admob so I’ve worked with a lot of publishers and game developers and B2B partners as well. I was part of the Google Play team and I was part of actually launching RMG on the Play Store the pilot that's ongoing. And I was also part of the Google Ad team so I’ve seen kind of like three interesting parts of Google. On a side note I'm also an angel investor in about 20 companies so really like investing and the space. And most recently since the last year I’ve decided to take the entrepreneurial plunge and right now I'm working as the co-founder at AppBroda. We’re a SaaS company that basically try to help publishers and largely mobile game and app developers to help increase their monetization. So really excited to talk about anything about the mobile app and gaming ecosystem in India.
Vivek:
Fantastic. Thinking about the gaming industry very outside in, right, if you look at the broader gaming opportunity you see headlines everywhere that it’s a $150 billion market, $200 billion market but ultimately when things boil down to what’s the amount of revenue that actually countries make you could see that there’s a significant amount of disparity. Countries like US and China probably make about $45-$50 billion but India is way down on that pile. Despite having such phenomenal engineering product and development talent so far in India why are we at this phase and how does the market landscape itself really look like.
Ashish:
It’s really funny, I was just talking about this with a couple of my friends at Apple and Google about this and we literally realized that very few people know the actual landscape in terms of what’s the TAM. Right, so maybe I can just like throw some numbers out there, so I think the TAM in India right now in terms of this market size, mobile gaming, is $1.5 billion right now, 2022-2023. And I’ll just break it down to three segments, so first is RMG which is actually leading the way. By my estimates roughly RMG GMV is about $10-$15 billion, out of that the rake which is what the companies actually make is 12-15 percent. So billion dollar plus is just RMG revenue. After that comes IIP, so Indian users are spending about $500-$600 million on mobile games like your Coin Masters, your BGMIs and so on and so forth. Unfortunately most of it is going outside to developers not in India. Indian developers only have about $100 million out of the $600 million. A third which is a really interesting piece is ads, I think ads is always looked at as like a stepchild in terms of monetization but it’s actually about $400 million, so lot of developers are actually primarily relying on ads. So we stack these three things up, you have a billion and a half dollar industry in India which is growing really fast but a far cry away from the $40-$50 billion of let’s say US or China. And to answer your question probably India has the highest number of developers even listed on the store so I think there are about 200,000 developers listed on the Play Store for example from India. A really large number compared to other countries, huge dev talent, but I think the challenge is that a lot of people don’t have the risk appetite to self-publish. If you look at gaming there are kind of two kind of models and you're probably well aware of this, you can either be a self-publisher which is that you start your own shop and you publish your own games and you make all the money. Or the other option is you develop games, you be the coder, you be the designer and then you sell your game. And the second model is kind of where India is more at, right, they build great games but in they end up selling them to publishers in Europe or USA and they make most of the money. So I think that change or that inflection point I feel is going to happen sometime in the next 18 months.
Vivek:
Fascinating, right, so at Matrix we do think about the broader gaming opportunity quite a lot and here is the broader narrative about and the reason really by which we’re really excited about gaming is phenomenally large population which is young, very quickly digitizing across the board, payment rails coming in place and the mobile gamer count estimate from an MAU perspective is anywhere between like 400-600 million. Now that's the kind of dev base that most countries cannot come at and given that India as an economy is expected to grow to such significant larger sizes and given that our GDP per capita will also increase it is reasonable to presume that our revenue itself as an industry is likely to grow. So that’s the narrative macro that everybody gets excited about. But where the lot of challenges have emerged in the last 20 years is that despite having the talent like we talked about the execution on high quality globally competitive games have been challenging. One thing to call out is definitely that there has been specific innovation in various pockets in India that have done phenomenally well especially the real money gaming industry including one of our portfolio companies Zupee has done phenomenally well. So that cohort of companies competing on financial expectations of return from users have done well and created proper revenue poles probably one of the very few consumer tech companies in the company. But there has been a challenge of things that you conventionally call as video games, like gaming content that is consumed globally that has been always a challenge. Let’s probably dig into that a little bit like about the gaming ecosystem and the developers we talked about some of the early challenges that they’re facing. How do you outline the landscape of developers in general, you talked about 100,000 developers, where are they, what are they focusing on and what are the things that can be done in order to make their lives better?
Ashish:
I think that's a great question so I’ll probably break it up into a couple of parts. So, one, where are these developers. So we’ve seen hubs, so for example out of the 200,000 50,000 are sitting in Gujarat unexpectedly everybody will think Karnataka, Bangalore would be the natural answer but if you look at specific people who’re building for utilities and gaming which is largely dependent on IIP and Ad tech it is actually Gujarat that emerges as probably the number one hub. Now most of these developers are actually not building games, they’re building apps or like non-gaming tools and utilities, your photo player, your image editors and so on which is also very large market but they’re not yet part of the gaming economy. And one of the challenges is that there’s a lack of talent when it comes to understanding the entire lifecycle of building a game. They know how to code well but they may not know all the aspects of what creates a good game, even a casual game. So I think there’s a learning curve gap there, right, and second what I’ve seen especially from country like Turkey where probably they were in a similar situation in 2017 that India is in now. They were building games that were very local to them, there’s a game called Okey that they built which is a local Turkish game. Now everyone in India if you think about gaming they will say Ludo because in the pandemic everyone played Ludo. And Ludo still contributes to almost 50 percent of downloads in the last year. So how do you make this entire developer hub actually understand that what are the genres beyond this Ludo or let’s say snake and ladders or carrom etc that we’ve grown up playing. The second thing is that lot of people have moved to RMG like you already mentioned is again because it’s a product market fit. So I don’t feel that India gaming is behind in that sense, if you look at RMG like probably India is one of the leading countries in the world in RMG. Right, now why RMG, people said hey, Indians will not pay, this is like something that is never going to happen. But RMG just came in and surprised everyone and they said look, Indians are going to pay and Indians are going to pay a lot of money because there’s a product market fit, because I think somewhere it’s ingrained that people like being competitive, they like playing like Zupee games or like Ludo not just for fun but also for money. Third problem when you spoke about your conventional video games let’s look at a couple of genres, let’s look at casual gaming or hyper casual gaming. It’s exploded for two reasons, one, there’s a lot of knowledge capital available in Western markets and maybe in China that is not available in India. See, you have to understand that this space at the end of it is probably run by 2500 developers globally. So if you look at the publishing model of gaming it’s not that there are many creators, there are many developers but there are very few publishers. So if you look at Zynga or if you look like a Rollic or like a Take-Two interactive which is one of the largest publishers in the world their strategy is okay, I find a game which is suddenly becoming hot it’s growing how do I acquire that game and put it under my portfolio. So there are these 2000-3000 companies that are actually owning the ecosystem and they’re black boxing the information. Right, so now if I'm a new developer I'm 21 years old from India I want to create a hyper casual game I know how to build a game but I don’t know the business and economics of self-publishing a game. I think that knowledge capital is restricting a lot of people from going into conventional gaming. So that's why RMG has become more like the – like you speak to a developer today they’ll be like [0:09:12] [Hindi Spoken] because they understand how that works, it’s simple money in money out, you know, I’ve made a Ludo game, I’ve made a fruit Ninja game, I’ve copied it and that's it. But if you ask them can you make a new casual game they actually don’t know the unit economics, they don’t know how do I make UAC like how do I make user acquisition, what should my D7 be, what should my LTV be, what should my CPM be, how do I get advertisers. All these knowledge gaps it’s available in US, it’s available in, it’s available in China, I think it’s just trickling into India. And I think a lot of it is also to do with platform dependencies that like Apple and Google and Meta every developer is kind of reliant on them. And until Google literally tells them this is how to do it like this is the playbook they’re not able to get that. so I think these are the two, three problems that I currently see why conventional gaming has not grown but RMG has sort of really grown really very well.
Vivek:
Fascinating, right. So I think it might be instructive to dive a little bit deeper into the business models of gaming itself and unit economics. So we have seen traditional pay to purchase premium games for the longest period of time up until like 2010-2011 they were pretty much de facto what the industry really stood for. Buy a game once and then you sort of enjoy the experience for a very long period of time. What as a side anecdote it has been the case that India always had a latent gaming market which is always in the gray zones, people playing video games which are completely pirated and playing them on PCs and consoles. So our estimates vary anywhere from 10-15 million people having done that and growing up with the Western gaming experience. So from an experience perspective the audience is expecting global quality and increasingly becoming so especially as things are becoming more and more democratized. Now if you really dial back and think about what essentially changed from 2011-2012 it is essentially the arrival of the app store economic freemium. The distribution suddenly did not get restricted to traditional consoles that said you have to buy in order to play a game and now you have actual mobile phones that you're carrying around and doing a bunch of first things but you could also fill in their empty type of games. And at the same time the innovation that really gaming brought about was taking the idea of giving away your core product for free and then generating value from in app purchases and transactions which is purely user option and what we like to call as freemium model. Now within freemium itself over a period of time as you mentioned the publishers really came on and that really aggregated value. But outside in it feels like that's a real democratization of the games industry, the ability to distribute my games at very large scale without really having to spend a lot of marginal cost in distributing that, that just seems like a phenomenal unlock that happened in 2012. How is that changing right now and how is that model evolving right now from the 2012 to current time which has been de facto.
Ashish:
I think it’s a really interesting question, democratization was amazing and if you rode that curve then you reaped a lot of benefits, right, because if you were one of the early people who cracked the model of how to leverage the store, the store at that time wanted you as a content creator to kind of boost you because it was a mutual partnership. Now fast forward to ten or eleven years later where de facto app and Play Stores are the way of distribution I think there are some cons of the democratization because it is unfortunately restricted to two platforms. Right, so now these platforms are also realizing how do we make max money out of the publishers that are now dependent on our platform and we’re seeing that tussle. We’re seeing the tussle in India with the Play Store fees for example and that tussle is ongoing. So publishers are saying, hey, hang on, we got this opportunity to publish for free, we got users for free, we got them to pay, you helped us do all of this but now you're asking in their opinion an inordinate amount of money for what they feel they’re adding value which is their content, their game play that is going out or their content that is going out. So I think this democratization has helped create this industry so I think all kudos to the platform that did it but I think there needs to be now a middle ground. There needs to be a figuring out of a way of how do platforms work with publishers whose unit economics do not match what they think the unit economics should have been. So to break this down, like a store typically takes 30 percent of every in app purchase, same on the ad side. For every ad shown an ad network takes about 30-33 percent of the revenue. Is that sustainable for a publisher in today’s day and age? Not always. So tomorrow if the store says, hey, I want to create one million more creators is it really going to happen. So I’ll give an example of the web world, the web had a Wordpress moment, so we think of today I want to create a blog you can just go to Wordpress and you can create a blog in probably a day. Today you cannot create a game in that easy amount of time, right, it’ll take you like a few thousand dollars and maybe 2-3 months’ commitment to even create a hyper casual game. So today the number of creators in the ecosystem is very limited, right, so while the store has democratized distribution the unit economics right now are not really opening up like a million creators. So I don’t think we’ve seen the Tik Tokisation or the Instagramisation or the YouTubisation of this ecosystem. Now imagine a world where one million people can create games. You know, I think that there will be tools that you can do it quickly, there will be lower costs that you can do it and the store itself will figure out that hey, hang on, right now I have 5000 or 10,000 people contributing 80 percent of downloads what if I have a million people that actually help me reach out to more people come into my store. And I think that’s maybe a little bit of the future where I think the stores also need to think that is 30 percent really a fair amount because if you look at where the stores are reaching now they’re reaching into developing nations. If you look at developed nations they’re okay with this model because the unit economics, the LTVs work out. But for the developing nations like India, Nigeria, Brazil 30 percent is probably too sharp a cut to give to the stores to build a viable business model. So I think this is a very interesting time coming from the democratization of stores which was a big boom but now I think there needs to be a middle ground or at least a localization if not a middle ground maybe a one fit model doesn’t work because in the US you already have the model working but I think stores need to figure out a way to work with game developers here.
Vivek:
Fair enough. So on the freemium bit, right, just for the benefit of everyone what essentially happens is because the game is free to access and play pretty much most of the users end up not really having to pay and that number goes as high as 98 percent, 99 percent. So let’s say a game acquires 100 users you're lucky if you're able to convert one and a half to two percent of that entire user base. And even in that again the distribution supply and you will likely make most amount of money from a very small number of users. So what happened over a period of the last 5-7 years were the developers themselves started realizing that these power loss exists and it is important to find ways who will spend disproportionately in your game in order to sort of make the economics work. So beyond the platform fees that eats into your cost, beyond the fact that you have to actually service 99 users who will actually not pay you are having to pay now additionally in order to figure out ways to get your app to multiple number of users. And so traditionally even though the app stores themselves exist as surfaces where apps can be discovered it is not easy to do when supply is 10,000 games coming out every month. So then suddenly the reliance started coming in on performance marketing and then the whale hunting business really began. Do you want to sort of dial back and walk through how that journey was, a lot of craziness and money went into this whole business. How do you look at that?
Ashish:
I think of this as a world where let’s say there were more stores come into my seguing from the earlier point then whatever you said would actually not have happened. The way that today users are being acquired like you rightly said 97 percent of users that are being acquired and bear in mind those are probably being paid for like you're paying for every download or 80 percent of downloads you don’t know if you're going to get the money back. So I think to answer your question the problem is the same, if you imagine a world where you had 20 stores where I could publish my game and I knew that I had 10, 10 percent of traffic coming from each store each store would actually have to fight harder to prove the value of a user that they’re giving to me. So think of it like a Walmart, right, if it’s only Walmart they have all the negotiating power. A user that is coming they don’t really care if that user is actually going to buy the good or not because the user has no other place but to go up to Walmart. Right, so here we’re seeing and furthering like maybe mid 20 last decade we saw a further black boxisation of the user acquisition tools also. Right, and without taking names like that made it very hard to even prove transparent attribution. So today let’s say XYZ developer has to acquire a user whom he or she believes is a high paying user he or she actually cannot prove that this is a high paying user until they come in and do the whole journey in their app. And these tools I think while again they were great for the boom of getting users in the whole freemium model now again we’re seeing the challenge on all gaming companies you’ve seen the challenge on LTV saying I'm not sure that the user I paid for in like 2020 is worth like $10 but I probably paid $8 for it. And I just think that if you had more stores this problem won't exist. So the unlock for the previous question not this question and the challenges that have existed are germinated in the fact that the dependency on 2 or 3 stores is causing the entire problem. Right, so if you look at Korea they actually have a store which is not just the Play Store and that’s really good for the ecosystem because there the Play Store is forced to compete with this localized store. Now if you had a store in India like you had Indus OS on Samsung and were acquired by Phone Pe. Now fi they were able to breach a scale which is competing at some level with the Google then Google has to fight harder to prove value of the user acquisition to the game developer. So I think this whole problem is kind of stuck in that where else do you go. And I think that is also a great opportunity for a startup, right, for where else do you go there should be a place to go. These platforms are amazing but more opportunity for game developers means these stores have to fight harder to prove value to the game developers also. I think right now the last ten years the relationship has become very one sided increasingly and that is my fear also. Like as an objective player in the ecosystem our fear is that you only have 2 or 3 platforms to really make your entire business out of and that's never good for any business.
Vivek:
Fair enough, right. On a slightly more optimistic note if I'm looking at the industry right now it is still growing at a phenomenal pace, despite being in hundreds of billions of dollars it’s still growing at a reasonable enough pace even though this growth seems to be maturing. Enough developers are able to break out and then create truly remarkable experiences and this is happening across game content formats. We’ve had MONOPOLY GO recently come out from Scopely which was a phenomenal success. And at the same time we had BattleBit come out on Steam which was made by a team of four developers both reaching astounding degrees of success. So as a player it doesn’t feel like there has been a better time to be in the gaming and to be playing games. How does this eventually progress as we take this forward two or three years down the line. Now the player expectations are high, we have high fidelity devices in which complex games can be played and we’ve seen the journey of PUBG and shooting games. Even in markets like Indian phenomenal successes. What really comes next, is it really going to be coming more from these larger developers or how do new and upcoming gaming companies and startups really start thinking about what is the best way to approach this?
Ashish:
I love that question and I have a slightly contrarian point of view. While I think the quality of games has increased tremendously I think the best thing about gaming is that even very simple games which may not look very sophisticated are very popular. And like hyper casual or casual as a category you can play it with one hand and those are not very sophisticated games like you might look at the game art and say, you know, maybe this was like it’s not as sophisticated as it could be but you’ll have millions of people playing it and loving it, not just playing it they’ll be sharing it with their friends and they’ll be playing it in a social manner. So I feel there’s going to be much more content creation, right, and I’ll take a --- if you look at a parallel from Web the problem with the Web is it’s a very concentrated store. If you're not in the top five results you don’t really have a business, so if you're a pdf editor, you're not in the top 10 that's it like you're done, there’s no other way of actually getting users. But if you're a game creator entering the game economy and saying I have a cool idea, I want to build a game like we had the studio in Mumbai they built an ASMR game, Soap Cutter. And that is such an innovative idea, it was the first time I’ve heard of something called an ASMR and there was Soap Cutter game I think it blew up in Christmas time, they got like some 20 million downloads in one week. So the reason they could do that is because unlike Web the channels of distribution to actually acquire users even on to one singular store is huge, you don’t rely on SEO. In gaming you don’t have SEO, sure if you have an Angry Birds or a Monopoly IP titles you have SEO but every new game being published and millions of downloads happening. So as a game developer that's very exciting unlike the Web ecosystem where your biggest fear is hey, I can make better content than the guy who’s probably number one but how do I get to number 1 is really hard in a Web ecosystem. In the game ecosystem you can make a high end game which can take a long time and lot of money but you can also create a very low end game and get like millions of users. I think as a game developer as long as you know to code, you know the right tools you can actually build a really good game in under $10,000 in India. Truly, like I’ve built a game in $1000, it took me 35 days. And it was a very basic game but I felt excited as a creator that I created a game, right, so I think that moment and someone told me this, I was speaking to recently someone who teaches gaming they said that from a study they did 5 percent of all people who play games actually at some point want to create a game. Right, so I think that is the really, really exciting optimistic part of gaming is that it is not dependent on things like SEO, it is content. I think it’s much more like Instagram or like Youtube or like Tik Tok, you don’t know who’s going to go hot tomorrow, you don’t know who’s going to go viral tomorrow it’s like a movie business. It’s suddenly a RRR will come out, you know, there’s no like scientific logic behind it. And then the question though that comes is that, okay, can this person who created that first hit can he or she create the second hit. And I think that's where the unit economics, the data science models and all kind of need to build in to kind of make the developers say okay I can build a really big business out of this. Right, so I would say that for all developers out there create your first few games, learn about the ecosystem but then if you want to make a business out of it that’s the really hard part of it. But the MOT is not very hard, like I think I’ve said this many times on this stock but like I think it’s like Tik Tok. Pick up a phone, create a video you don’t know if it’s going to go viral. Gaming is going to boil down to that, I think there’ll be games published in two weeks and there’ll be platforms coming up which will say okay, I’ll publish your game and like Steam for example like that kind of what it does. And suddenly if it goes hot you suddenly realize okay, wait a minute, I need to quit my day job and this might become my full time career.
Vivek:
Talking about folks who take this one step further, serious entrepreneurs who really want to take it like as a commercial shot I think the point that you mentioned is really what ultimately sits at the bottom of all fears for all entrepreneurs and even investors for that matter, the fact that games feel like a hits and misses driven business, it feels like a movie blockbuster roulette where you're just spinning the wheel and you might end up with a hit and if yes you're lucky and if not then well, good luck. Is there a way or an alternate path if somebody can take a scientific shot at this space and think about it and break down the problem into multiple components and then figure out a way to systematically build a commercially viable gaming business. How does that playbook look like?
Ashish:
You know, I'm glad you asked that and I think this is where the platforms actually play a really critical role. There are only three parts of any successful game, right, one is user acquisition, second is retention, third is monetization. Each part actually requires just a good level of data science and execution, we’ve seen this in studios in India. The two successful studios, the guys who’re making more than $50 million in ad revenue or revenue in general they’re not making complex games. They’ve actually I would say to a level copied games that have been popular in the West.
Vivek:
They’re making Word games and Master games.
Ashish:
Word games and Master games, you said it, so those are not like a creative boom or a creative disruption that they’ve created something that is like wow, this was never seen before. What they’ve done really well from whatever we’ve studied they’ve actually built really good data science games, they’ve built really good AB testing. So they’ve done the post creation part really, really well so in each element, so in user acquisition they figured out okay, should I use a Facebook ad, should I use a Google ad. And in that there are only few elements like what key words should I target, what creator should I do. If I get 10 percent more click through data on the creative that actually makes a massive difference. Then they’ll move to engagement and say, okay, how do I improve my D7, today my D7 is 22 percent, can I get it to 26 percent. Then they move to monetization, on monetization I think you alluded to this earlier, they found their high paying cohorts, it might just be a few thousand people who end up paying a lot for that particular game or whose value for advertisers is very high and they can make a million dollars from this, that cohort. So then they’ll hyper focus on that cohort and now what happens is that if you look at the three parts if you get a 10 percent increment in every part versus the other guy who’s built the same game you have a very big flywheel because what happens is in these categories most of the money is pumped back into user acquisition. Now the guy who’s not done these three flywheels he is having to pay let’s say 10 rupees for an install this person can afford to pay 15 rupees for install. So most of the traffic is going to him, eventually this guy is going to lose his business, this guy is going to come on top. So data science and here I would say companies like Google, companies like Apps Flyer, companies like Apple have built absolutely amazing tools where you don’t have to as a developer invest a lot of money but you can use these free tools like firebase for analytics, or you have your Play Store, your App Store data that are there and actually say, okay, I can understand how to AB test and build these data science models. I don’t need to hire someone really expensive or like outsource it to someone else. So we’ve seen studios of less than 10 people make the kind of money they have just because they’ve iterated very step by step saying okay look at this data today and like do this test. And I think that's the recipe and this is not something that is localized to India, we’ve seen this, we work with European publishers. The ones who are good, the top 1 percent if you talk to them what is really their secret sauce it boils down to data science, it is just data science.
Vivek:
It feels like from my conversations with global publishers who have managed to break out despite all the odds one theme that has consistently stuck on is their pace of iteration and their commitment to the process itself rather than being married to their ideas. A lot of times and it’s not to call out the fact that very, very vision driven game makers do not really succeed that's certainly not the case. But folks who have been able to rigorously win in this market generally have been very, very iterative in this process. So fascinating insight there.
Ashish:
So if you don’t mind, Vivek, I’d love to know because you spoke about as a developer and we’re obviously as a SaaS player but as an investor like the hits and misses business is not really a business that investors typically like, I mean my understanding is they like things to be logically there. It’s like investing in the movies, I come to you with a script and say, Vivek, do you want to invest in my script you might say, man, this could be a hit or a miss and I feel I’ve seen the same with games. Like publishers say I think I have a good game idea, I think I have a good team but I'm not getting funding. What is the VC’s take on this hits and misses kind of ecosystem?
Vivek:
I think that's a fair question and something that we contemplate very deeply and discuss between each other. So broadly as I previously talked about we’re fairly convinced about the market opportunities being there not just for India, not just for games to be made and consumed in India but for games to be made in India and then exported to a global market. This is an industry which is extremely capital efficient, you don’t need a substantial amount of capital to sort of begin with but then if you're able to hit the right notes you would be able to hit the breakout success and then scale into a very, very large outcome both from a balance sheet perspective and as well as from the user retention perspective. You’ve seen phenomenal businesses being made in Turkey and all the other markets that we talked about. Now there is no real reasons why that playbook cannot happen in India but I guess where a lot of the challenges have remained is the process of innovation and how to sort of break away the problems that exist in terms of talent availability in design, how do you figure out what are top down opportunities to sort of go after. Do I just make yet another Ludo game or do other white space opportunities exist. So there is significant amount of information asymmetry, there is this lack of understanding of fundamental design principles and there is a lack of risk appetite for unknown or slightly away business models which might not be very comfortable or intuitively known because that’s not part of your local markets. So if you look at companies based out of Istanbul they’re no longer making games for Turkish audience, they don’t even have teams in global markets but pretty much 90 percent of their revenue is coming from global markets. Now lot of that is being fed by this extremely agile product and data science teams which are able to iterate very quickly. So if we look at the companies in the Indian ecosystem which are doing extremely well in gaming have done breakout successes you would see at least some of these patterns emerge very analytically rigorous creatively focusing on iteration more than being married to an idea and getting their product out quickly and then putting that feedback back into the ecosystem so that in a way that their flywheel keeps on going not just in terms of the amount of games that they put out but also in terms of the service that they provide to the user after it’s acquired which is where life service becomes really such an important fact. So to the question how do we look at this space we definitely think that given the right team and when I say the right team it is a right game team which composes of all this various folks who can really pull off this game. And ultimately boils down to the right sort of production crew the right sort of business and product crew and the right sort of design folks.
Ashish:
So very much the founders first Matrix.
Vivek:
Very much founders first in this case.
Ashish:
Which makes sense, yeah, which makes a lot of sense.
Vivek:
So I think that passion for gaming absolutely needs to be there and a view on what works and not works not necessarily from a Utopian perspective but from the fact that this is a market that is skewed by so to speak and you have to be a very rigorous person to sort of crack the market. You know, beyond that what really makes us excited about this space is the very fact that a small amount of capital early on can be extended much more given the new tech changes that are happening right now. Content creation is becoming an order of a, thanks to the UGC platforms and game engines that have done a phenomenal job shout out to the unit team and folks here but at the same time now with generative AI and technology stuff coming in a lot of barriers to entry that you might have conventionally had, lack of access to let’s say a concept art source or lack of access to specific coding resources lot of those barriers are now starting to come down. Market appetite still is there, developer ecosystem is building out and we clearly see enough amount of intent from fellow VC firms and capital allocators to spend in this industry and help this grow from a long term perspective. So we definitely are thinking about it from the long term horizon, can you build a game which really stands a test of time and becomes a commercially viable business over a period of 5-7 years and not a flash in the pan. So I think that is what necessarily we’re looking for to folks to have that commercial lens at the same time that you think about delivering fund to players because it is ultimately essential for you to manage a business. So we’re looking for the combination of those factors but ultimately I guess the industry like you said it’s roughly about $2 billion right now it’s nowhere close to the entire potential that it has. No real reason it shouldn’t be a $10-$15 billion industry by 2030.
Ashish:
Yeah, you know, I think just speaking on that I really love what you said and I agree with you, I think the ingredients all adding up I think for the last five years they’ve kind of been incrementally adding up. I really feel like now is the time when the talent, the tool realization, the tool usage, the understanding of unit economics is kind of happening. I think one of the key things that probably retrospectively one has to look back as a game developer the mistake that I feel was made too much focus was given on localization. So recently we spoke to someone from a gaming PM from a leading gaming studio who shared that the difference between a US average revenue per daily active user which is a standard metric in gaming was as an Indian is 10x. And one has to realize that you're competing with companies who are globally trend of our audiences. So if they already have a 10x cohort they can afford to burn money in India and acquire users where you cannot. Right, and I think this was a big insight in the last five years we saw 95 percent of gaming developers focusing on hundred percent acquisition from India. Now they never got the flywheel effect of. If they had 20 percent of their revenue or 30 percent coming from the US they could then invest that money into like other areas, other games and so on and so forth. I think this realization, this single realization is something that I think if the market now knows everyone that is successful we’re seeing is just saying okay, right now let’s park or put India on ice in terms of user acquisition, let’s do it in Norway, let’s do it in Sweden, let’s do it in USA because they’re realizing that the their difference is so high both on IIP as well as ads that the India story will play out organically but not yet, not this year. Like this year you will not expect an India CPM to suddenly go from like $20.c to like $1, it’s just not going to happen. So if you keep investing in India you’ll always be like 100th in the chart in number of games. You’ll have the most downloads but you won't have the largest GMV or the largest revenue. And I personally feel that most developers that we speak to I think we did this analysis there are now 600 studios in India, three years back there were 250 including indies. 30 studios have broken the $1 million ARR mark which is great. In Turkey it is 6 times of this, right, I feel like because of the single insight that Turkey also had that let’s not make games for Turkey because again the Turkey is so low let’s make games for the US market and just by the way one more myth I want to debunk people believe that if you want to go into the US you have to create an IOS game, it’s not true. I think Android is 35-40 percent of the US market so it’s a huge market for Android so you don’t need IOS developers in India which is a talent problem to actually build for the US. And I think that single insight is what we’re now seeing studios say that let’s have a mix of US and India or Norway and India or Western Europe and India because I want to create $10 million game. So I think the challenge that everyone’s saying is how do I make a $10 million revenue game on IIP and ads. And I think monetization is a singular thing that we have seen differentiates a really big developer from the rest. Because UAE has become very standardized to a large extent because of the platforms because you only have 2 or 3 options, Apple search, ads, Google and Meta, and maybe Unity and but like largely you have 3 or 4 platforms. And they’ve kind of let’s be honest, they’ve black boxed the ecosystem and I don’t see that changing because they’re making a lot of money that way. So the trick really, I think the difference really lies in the engagement and monetization part of the journey for the developer. And like you said of course passionate gaming and creating the creativity part of gaming will continue to exist but I see that as the least differentiating point in this whole journey. Because today developers have access to Sensor Tower, data.ai, all the popular mobile intelligence platforms. Everyone is seeing that the games that are being made are kind of replicas of each other level. So a certain studio would make a core loop and then they will just keep making games on that core loop with minor modifications because the diminishing cost of creating the game is really beneficial to them. What they’ve cracked is the product data analysis and the monetization side of things. And I think you hit the nail on the head by saying that if India has that team probably VCs would also be like we can become like a $10 billion market from India no matter where the audience is, that doesn’t really matter.
Vivek:
Let’s just probably man some time on the monetization bit, classically you’ve had your in app purchases which is fairly well understood and I guess at this point in time and then there is the ads opportunity which is traditionally been seen as a category which is not really positive to player engagement and experience but recently been debunked that that's not necessarily the case.
Ashish:
Thank God for that.
Vivek:
You also have subscription revenues which really sort of contribute to some amount of business including Battle Pass. How should a founder or an early stage person looking at this industry and the monetization opportunity really start thinking about this? If you could walk me through in terms of the specific approach to build out a fairly robust and diversified monetization profile for this specific game that you're talking about, what will the process look like?
Ashish:
Yeah, I think that's a great question. I think most developers who have been in the industry for a long time do not like ads, there’s just this perception and I think it’s also extended to some stakeholders like VCs like they don’t like ads. I think now that's changing, they’re realizing that ads is a growing part of the ecosystem so the open internet which is known as like all this combination of mobile apps and websites is actually now as large as the closed or Chinese wall garden internet which is like your Tik Toks, Instagrams, Google search so on and so forth. And I think that's just going to grow because this content is just growing, more creators are coming. So I think now firstly everyone has realized ads is a part of the business model, it is not an annoyance, it is not a secondary monetization model, in some cases it is the model. And I think that shift of mindset was important because now more founders are saying okay, I'm comfortable now because to create an IIP or subscription business is extremely hard because you have to convince the user twice, once to download your app second to pay for something in your app. In the ads business you only have to make one decision point, download my app, use it, don’t worry about it, ads is happening. So my advice to a founder would be that A, now debunk the myth in your head if you ever thought that ads is not good or VCs don’t like ads or like people don’t like ads or like you look at a store reviews people come to us and say, hey, people wrote in my store review that I don’t like ads. That is like 0.1 percent of your entire reviews and we always tell people just AB test how many users are actually uninstalling, it’s usually like 0.1-0.2 percent. So first ads is very much a sexy model and I think people have realized that. So advice to founders first build that into my mindset, second one you got into your mindset build in ads into your game play. We’ve seen a lot of developers that we’ve worked with now trying to force fit ads into an existing game. That is very, very hard, right, because the user has gotten used to a certain way of playing your game he or she doesn’t want to suddenly see a rewarded ad pop up or an interstitial ad pop up. So from day 1 if you have got the kind of user who’s okay with ads and is retaining on your app you know that user is okay with ads and he’ll keep giving you money through ads. So I think that's the second thing that I would advise. Third, you have to look at user GOs, so you have to do before you launch your game you have to realize that your game might be popular in many countries. We look at people who say that I think I'm building my game for India, I think I'm building my game for Southeast Asia, I think my game [0:42:28] [Hindi Spoken] US but there are 150 other countries which are very high CPM which you're not looking at. Maybe you’ll only get 500 installs like I spoke about Norway, Norway you can get a $60 CPM from a rewarded ad. So even if you get a 100 users you're going to make much more money than you’re making from 10,000 installs in India. Right, so user GO is the second thing that I would say, so first is your mental mindset, ads are good. Second is built in ads into day 1 into your game play, third, look at where your user GOs are. And I think this is a mistake a lot of developers make, they distribute where they’re based. They think this game is I'm in Dubai so this game is for Middle East. But this game is actually could be played in Spain so I’ll give an excellent example. Ludo King is obviously really popular in India but the second mover said is Ludo popular in Spain. A lot of people in Spain play Ludo, it’s not intuitive, but when they decide to just open up the market they realize my IIP revenue from Europe on Ludo is higher than my IIP revenue from India, so user GO needs to be experimented with. The third thing I would say is monetization as we’re definitely moving to more premium formats. I think gone are the days of just relying on your banners.
Vivek:
Or interstitials.
Ashish:
Interstitials, no, I would argue interstitial is very much hot still but banner blindness is becoming a larger problem in the industry, advertiser banners are just like banners but if you have a full screen ad on a nice phone like an interstitial or rewarded it’s hard to ignore. So you’ve got the full attention of the user on let’s say an Amazon ad and advertiser willing to pay a premium for that. So premium GOs, premium formats. And then lastly tools, I think there’s abundant knowledge of which tools are already used by top developers and I can name a few. So if you're creating Unity or unreal, if you're using Ads you start with Admob, Applove, and iron Source Meta. They’re the four. So if you look at the split of the ad revenue pie today 60-70 percent in casual gaming is Google, 12 percent Meta, the rest Applove and Unity. So you don’t need to really think, you know what you got to put. You know you got to put these SDKs and work with them. In terms of IIP you have two stores, you have the app store and you have the play store. Within that you got to figure out your data science and that's it. So if you're a game developer today your business part of it is actually been sorted by platforms because they’re desperate to try and sell their business to you. I think as a developer you’ve got to focus more on doing a research on where my game is popular and where does the unit economics actually work out and then like is my game and ads game, is it an IIP game, is it a hybrid game and then just like you said five years is execute. Don’t worry, like just don’t worry that oh, he’s doing better or she’s doing better, just execute, execute, execute and you’ll be successful. We’ve seen developers when I started out three, four years back in Google who had built one game making $10 a day now they’re making a million dollars a year and developers who didn’t stick to it they just kind of dropped off these developers have suddenly grown really fast because they just found that one thing that worked for their game and now they’re million dollar studios. I mean what a story, like I’d say super inspirational. So that would be my advice, it’s not complicated, it’s a lot of years of learning up crunched in but all the tools are out there.
Vivek:
Yeah. Absolutely. I think great advice for any game developer who’s listening in. And thank you so much, Ashish, for really sharing your insights deeply into the space and talking about the business of distribution of games. Thank you so much and --
Ashish:
Before we wind up I would have one question, one of the things that I get asked a lot and since I have the opportunity to sit with Matrix what is the dry powder right now, what is the appetite for VCs as a whole ecosystem for Indian developers. This is something that a lot of people ask me especially since India is a non-gaming developer market. We have 50,000 folks who have all the tools and capital to actually build games but they just don’t know how to. One of the key things they’re looking for is can I get funding from a Matrix or a Sequoia or a Lumikai or whatever it is what’s the dry powder.
Vivek:
I think that's a fair question and to the first part, right, is there a dry powder, absolutely yet. There is clearly capital on the sidelines and there is very clearly a high degree of intent to deploy that capital and this is true not just for funds like us but pretty much across the spectrum. Because of the macro conditions you definitely do see some degree of slowdown in the broader growth segment investments in gaming but that doesn’t necessarily reflect on the Indian ecosystem which is still quite nascent, still growing at a phenomenal pace and there is no real reason why a VC wouldn’t take a conversation with a developer given that you have built enough amount of progress into the business that you're trying to make. You definitely will be able to get a conversation, I don’t think access to VCs or the conversations itself are necessarily a problem. Bear a lot of struggle ultimately allows us to really cross the line in terms of hey, is this a commercially viable thing or is it more of a hobby project which tends to be the case for a lot of developers which is perfectly fine but that might not be necessarily be commercially viable enterprises which will become value drivers. So having that mindset definitely helps for sure. But to the original question there is absolutely --
Ashish:
You think it is more $100 million?
Vivek:
Yeah, I think we could say that enough amount of capital as much as required would probably be able to come into the market and you would see much more exciting news coming on on that front in terms of funding coming in not just from us but also from our fraternity.
Ashish:
So good time to be a game developer.
Vivek:
Good time to be a gaming developer and excellent time to be a game developer.
Ashish:
Great. So get funded by Matrix and then come to AppBroda and we’ll help you. It’s a shameless sale pitch but thanks so much for this opportunity, Vivek. It was great catching up. I think gaming and especially we haven’t talked about non-gaming developers they contribute a big part of this ecosystem. I think one of the things I'm most excited about is this inflection point of them building games. I’ve seen like especially in Gujarat, I’ll double click Gujarat here, the appetite to create and scale once they figure it out we’ll leave all the other countries far behind, far, far behind. So I think just this education thing is something I'm so excited about so really thank you for this opportunity for speaking about this.
Vivek:
Thank you so much. And hoping that you’ll come back very soon on another episode of Matrix Moments.
Ashish:
Sure.
Vivek:
Thank you, everyone, for joining in.
Ashish:
Thanks.
