Apple has a big opportunity in the games industry

The money ain’t virtual

It’s late where I am, and I’m involved in domestic existence but I figured if I didn’t jump on this fast then I’d skip it, and never jump at all. Tomorrow will be a busy day.

Winter is here

The gamification of everything is a theory that’s thrown around frequently. It is often thrown around by right-leaning pseudo-intellectuals with hipster beards. I know. I’ve heard them. They frighten me.

All the same, the moment has come.

A Needham & Co analysis from analyst Laura Martin has a few messages that hint the time we’ve got too.

Not only does it raise Buy ratings across EA, ATVI and video game industry stock (hello, ARKit), but it also points out that the addictive engagement of gaming – while it may be fragmented – is creating small but powerful (and profitable) empires of customer contact and loyalty.

Actually, Needham & Co don’t say that, but this is what they do say at the top:

“Mobile games and freemium business models are attracting new types of gamers and supercharging gamer growth- The total addressable market (TAM) for games is growing 16%/year;

Churn Fallingis an upside value driver in 3 ways: a) more years paying into the gaming ecosystem; b) more months playing a single title (i.e., big get bigger); and C) longer play times (ie, engagement)/day;

Lifetime Value per Gamer is rising driven by revs/game doubling thanks to in-game purchases and profit margins rising 200-300 basis points each year as digital drives revenue growth.

Valuation: 1) Investment risks falling as barriers to entry rise; and 2) Valuation multiples are expanding as industry business models move toward annuity streams. Based on our proprietary valuation methodologies of 1) time spent and 2) sequel strategy — EA and ATVI should have 20-25% share price upside.”

Now that’s a lot to cite out of an email, but it is well worth pondering.

  • New types of gamers = Fresh souls seeking engagement.
  • Churn falling = Better experiences fostering deep game loyalty and more time from each user (remember time is the metric that made TV).
  • Lifetime value = Your life and time is their exposure to profit.
  • Valuation = Get people hooked and you can build a really great long-term business.

Now – I’m not going to persist on what Needham & Co are saying. I rather thought it might be fun to take their thoughts and then shoot for the stars in my own direction.

The chance

Look through the valuation changes, and you see a whole bunch of stats which show that games industry revenue will inevitably rise as new mobile consumers get online and more and more people playing games become accustomed to making micro-payments in the games they love.

I’ve seen this happen.

It starts as an exception and becomes a cunning strategic play.

Then think about this statement from the repot on EA:

“The video game industry sits at the intersection of content and technology. Game performance is a key driver of game adoption, in addition to content quality.”

Quality is addictive.

All in the game

It’s all in the game.

Addiction isn’t just about the things the white protestants use as an excuse to ramp up their control of all the people who are neither white, nor protestant, it’s also about brand names, experiences, sports entertainment and that desperate driving need for love from your other.

We don’t necessarily need to get into some morality/human nature/psychology discussion on an Apple-focused Website, but don’t ignore those notions as they really and truly are why people are still in love with Atari. People have this need. You know?

Addictive experiences. Video games are addictive. But then, so is IKEA.

Now think how addictive they will become once AR hits the mass market and millions become exposed to those sorts of experiences in everyday life.

As I wrote here:

“Think about Pokemon Go: as this report points out, the game is arguably one of the most successful business launches of all time, moving from an income of zero dollars to a billion dollars in just seven months. There’s nothing virtual about the VR gold rush. And Apple and others plan to grab some of it.”

Then think about how you might go about creating AR/VR-based gaming-virtual-lifestyle experiences your mum and dad might want to spend time in. And then build them. Because if you look at the target price raise Needham just threw at the old guard of games development, then you got to realise the new guard is you.

What game do you want to play?

Build it

PS: The title of the story was “Apple finally has a big opportunity in the games industry”.

It’s possible I failed to answer the question effectively.

What I want to say is that, come fall, the company will offer an AR platform to tens of millions of devices that no one else has. At the same time, conventional media has left doors open to the creation of more engaging, virtual experiences.

What I am saying? This is your chance to build those experiences.

Jonny Evans

Watching Apple since 1999. I don't say what they should do. I say what they might do. They sometimes do.

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