Last Fortnite, Reliance Chairman Mukesh Ambani observed that gaming can become bigger than movies, music and TV shows put together, a week before the annual Indian gaming awards were swept by Indian startups.

Ready, Player One

Games are an ancient human activity, going back to 3000 BC when the Egyptians played the strategy board game Senet. 

Defined as a system in which players engage in an artificial conflict, defined by rules that result in a quantifiable outcome, we have been playing games of various types forever. As games by definition involved artificial conflict, there had to be at least one opponent in every game, making games social.

The arcade explosion of the 70s and 80s changed everything.

Pioneered by Atari and SEGA, eternally loved games like Mario, Pac Man and Space Invaders were created in a burst of creative innovation. As the first game developers of the nascent technology era, the arcades shifted an age-old trend in games. 

You did not need a human to play against you anymore.

Remember this?

The gaming revolution resulted in the formation of an enduring gaming giant, Nintendo, that along with Sony would rewrite gaming in the 90s. With the microprocessor following Moore’s Law to become ever more affordable, they could begin to sell gaming hardware along with the games itself. 

If you were a well to do Indian kid, you could have an arcade at home.

The affordable Gameboy and Playstation would end up in homes earlier than expensive computers, putting infinite games in the hands of users. It is little wonder the PlayStation 2 remains the most sold home console, a staggering 155MM units sold till date.

Until, aided by a certain Microsoft Windows, the computer made way to everyone’s desktop.

Software’s Good Game

The vertical integration of hardware and software that brought arcades home was unbundled by the computer.

Like the arcades shifted the power for players to game alone, the computer shifted the power to developers to focus on building games. Gaming giant Electronic Arts, started by an ex-Apple employee in 1982, led the way in freeing itself from the Sony/Nintendo duopoly and began to focus on computer games in the 2000s. 

Epic, Blizzard and EA were the game development companies born in the 1990s to take advantage of the burgeoning demand. With the advent of the computer, game development began to depend a lot on word of mouth and network effects.

This behaviour would only be a precursor of what was to come. 

Due to the unpredictable alpha of game development, Blizzard and EA would develop hits like Warcraft and FIFA, Epic would wait a decade before building arguably this decade’s biggest hit. Games could be massive duds, or massive hits.

With a young pool of ambitious engineers, India would begin to get into the gaming game.

Dhruva, Nazara, Games2Win, would start and raise capital to be the pioneers of Indian game development. Inspired by American and Japanese pioneers, these companies would build games for the Indian context.

However, their growth was limited by the growth on consoles or PCs, which for an average Indian middle class were highly aspirational. 

Games were also considered a waste of time and hence could never become a mass product with deeper adoption. For digital gaming to grow in India, it needed accessibility through cheap and reliable hardware, which more people could play on without any societal restrictions. 

Games continued to be played offline, as Indian families utilized it as a method to socialize. It would be a while before digital gaming would become prevalent in India. 

The foundations for a massive shift began to be built towards the end of the 2000s.

Building for Handheld Noobs

Steve Jobs launched the 2G enabled iPhone in 2007, laying the foundation for a tectonic shift in gaming.

Arcades made games 1v1. Consoles brought arcades home. Computers became universal consoles. Now you had a computer in your hand. 

In parallel, the adoption of the internet created the gamification of social networks. It explicitly happened with the creation of Zynga’s Farmville on Facebook. More implicitly, the creation of likes, shares, comments resulted in long term, open-ended gamification of social behaviour.

But the mobile would result in the creation of new-age startups building for the computers in your hands. 

Rovio Entertainment launched Angry Birds in December 2009. It was arguably the first game to achieve global success as a casual game. The Angry Birds series amassed over 2Bn+ downloads across all platforms.

The success of Angry Birds resulted in the creation of thousands of mobile games. There would be blockbusters like Candy Crush, Clash of Clans and Temple Run. 

India’s gaming startups would also follow suit, becoming development studios for mobile apps. The most popular section of apps on mobile would become games. 85% of the 1MM apps were games in 2010, and contributed heavily to the 20Bn downloads. Gaming startups would begin to raise capital, hitting more than $800MM globally in 2012. 

But how were they going to make money? 

Money Sandbox

While games are made for fun, the business is a lot more complicated. 

Stakeholders involve game developers, publishers, app platforms, IP right holders, ad networks, brands and users. In terms of business models, there would be game development, platforms and tools.

Distribution platforms would create a network for developers to distribute, tools would work on a licensing model. But the most complex would be the business models for game developers, which would have four models. 

The most widely used would be the ad-driven freemium model.  Money was made by integrating with ad networks such as Facebook Ad network, Google AdSense. As the ad revenue would be shared, it became very challenging to make money through this model unless the game has high retention or high virality.

The second would be paid games, which is typically heavy on the pocket because of the pay-before-you-play model. The third would be real money gaming, which is built on the casino model where the house always wins. Here players put in an amount hoping for a favored outcome. After taking out a platform fee/rack rate anywhere between 5-20%, the rest is given ‘back’ as real cash to winners. 

The final one model was in-app purchases, where gamers could buy products inside the game, to get ahead or augment their experience. 

Game development, therefore, was the most complex, lucrative and risky model for gaming companies. To make money, the game would need to recover costs in development. The cost for any gaming company typically involves game development cost, customer acquisition cost, and server cost. 

As gaming companies would figure out the right models, a revolution was brewing in India.

Indian Gaming Enters God Mode

The iPhone inspired smartphone revolution would fundamentally alter gaming in ways we couldn’t have foreseen. 

Led by the likes of Apple, Samsung, Micromax, Motorola and followed by the likes of OnePlus, Xiaomi, smartphones finally started becoming not only a communication device but also a consumption device. 

The early 2010s would be especially disruptive for India, as smartphones rocketed from almost zero to 200MM+ by 2014. The hardware became cheap for mass market adoption and for people to use for communicating and keeping themselves entertained. 

Gaming across the world would also see the creation of game streaming as a real entertainment option, aided by internet-enabled phones. Twitch started as part of a general-interest streaming platform, that exploded to be one of the most visited websites by 2015. 

But Indian gaming would enter God Mode in 2016, bankrolled by the same gentleman who predicts gaming will be everything in our future.

Jio launched with throwaway data prices acted as the much needed catalyst for gaming. The cost of data came down from INR 250/GB to INR 15/GB, a 94% drop, literally overnight.

As a consequence, the average time spent on mobile phone increased to over 1 hour everyday, with unforeseen data consumption. That would account for roughly more than 500 million man-hours spent on mobile phones everyday, in India alone. 

In 2016, driven by this combination of data, devices and augmented reality, a new game based on an incredibly popular series would create a frenzy. Pokemon Go would reach half a billion downloads in less than a year, and it would blur the lines between what was virtual and real.

Driven by smartphones and access to data, this would be a sign for the times to come. 

Lines are blurring between real and virtual

The God Mode created by this confluence would unlock a new market over the next three years for gaming, globally and more importantly, in India

A Big Open World

There are now more than 2.5Bn gamers across the world. 

These games spent $152Bn on games in 2019, representing a 9.6% YoY growth. To tap this rapidly growing goldmine, more than $1Bn was invested each year in gaming startups globally from 2016, reaching a $3Bn high in 2018. 

If you dig deeper, $68.5Bn comes from mobile games, which is growing at a 10.2% YoY both in terms of revenue and users. 

No points for guessing which country is leading the way for user growth.

In India, the gaming market is valued at $890MM and is expected to grow at an annual growth rate of 15%. India’s mobile games market will be worth $1.1Bn by 2023, and the number of users is projected to reach 628MM by then. Currently, there are over 222MM gamers in India who spend an average of 42 minutes per day on mobile games.

Another leading indicator of the user/revenue growth can be understood from the growth of game developers in India. The number of game development companies in India today stands at around 275. This number was just 25 in the year 2010. The players have grown 11x in the last decade and the number speaks volumes about the growth and possibilities of the gaming industry in India.

India is clearly a huge market with massive potential waiting to be tapped. 

The explosion of data did not only boost adoption of games and create markets. It also led to the emergence of newer formats of gaming which were previously restricted to hostel room local area networks.

These would be known as Massively Multiplayer Online games, where thousands of people would play simultaneously. But the waves of disruptions since 1970 would end up completing the circle to make games what they were originally meant to be. 

Social events.

Winner Winner Chicken Dinner

If you have noticed a group socializing and playing intensely on their phones, they are likely playing something called PUBG. 

Before becoming the biggest mobile game in India, PUBG, or PlayerUnknown’s Battlegrounds, was a massively successful PC and console game. Today, it is emblematic of what games mean in a more connected world. 

With over 71MM downloads in India, the genre-defining game is played by over 645K concurrent users, raking in $8.3MM in India, 1% of its $860MM global revenue. PUBG has 10-15 million daily active users (DAUs) and 30-40 million monthly users (MAUs) in India.

PUBG indicates that gaming has become increasingly social, engaging and viral unlocking the network effects earlier seen with social media platforms.

Gaming has thus become a platform for expression, a talent similar to dancing/singing. There are players monetising their gaming skills by live-streaming their game and raking in as much as INR 50K a day. 

Search for the keyword “gaming” on YouTube and you find a strong undercurrent that you may have entirely missed. It is personified by PUBG streamer/entertainer Dynamo, who clearly indicates gaming is no more a waste of time. 

The YouTube/Discord sensation has more than 6MM subscribers, 1MM+ views on a 3hr+ stream that would rival a movie, and a fanatic fan base.

It is little wonder that many connections are being made with gaming as a common interest, creating massive communities. 

This is also translating into incredibly lucrative new user behaviour. 

A huge chunk of PUBG and Fortnite’s revenue is made through online purchase of virtual apparel.  Brands such as Peter England and Louis Philippe from the Aditya Birla Fashion and Retail Limited (ABFRL), with a retail presence of more than 7.5 million Square Feet clocked in revenue of INR 8,118 Crore in FY2019. 

But you would be shocked to know how many clothes a virtual game could sell.

Fortnite, developed by Epic Games, has no ‘retail’ presence and did more than INR 25,000 Cr ($2Bn) globally of merchandise value just by selling virtual clothes online.  It is not hard to believe that gaming revenue is already more than movies and music combined globally. 

India could be at the cusp of a new breakthrough.

Back to The Future

Indian gaming startups are now evolving in their business models and approach.

From starting off as large game development studios like Moonfrog and Nazara, they are now evolving into India specific models. Dream11 has exploded to be one of the largest fantasy startups globally, and is now a unicorn that bases itself on cricket. 

Real money based gaming platforms, modeled on Dream11 have sprouted up. PayTm has got into the game, and Flipkart and MX Player have followed suit. Streaming networks, tailored for India’s vernacular user base, have taken off.  Social networks are being created just for gaming purposes.

Gaming is no longer a hobby, but a part of lifestyle and entertainment. 

With a young millennial user base of 200MM+ with smartphones, India is a great testing ground for new gaming formats. India still is 1% of gaming’s global market, which indicates a significant opportunity to be tapped.

The US gamer spends $200 on games, while the Indian user spends just $4. Even at purchasing parity, if the Indian user spends $60, it could be a $12Bn market, more than 15x.

Global companies have therefore found India to be fertile ground for gaming hits, and there is now an opening for players with deep local knowledge. 

That opening is the first time user of the internet. 

Games built not only for Indian languages, but for ease of understanding of this new user will succeed. Ludo, Rummy and Cricket will obviously prove popular, but games relatable to these individuals will also win. 

Most importantly, these games will have to be social events to truly succeed. 

It is indicative of why Indian gaming companies that have broken out are those that are social. Carrom, Ludo, Teen Patti, Rummy all figure in the top 50, along with the massive social events that are PUBG and Fortnite. 

Games are no longer just being made social, our social lives are now becoming part of games. Indian companies that understand this could build breakthrough games, platforms or tools for the Indian user.

Gaming is India's sleeping giant that could soon be coming out of beta.

Written by: Abhinay, Rohan and Aviral