Esports Landscape (July, 2016)

Initially published on Medium — July 21, 2016

It’s been four months, since I last updated my esports landscape. In a space that’s experiencing hyper growth, that’s a long time.

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What is esports?

Esports is competitive gaming. Competitive gaming and organized tournaments have been around for decades. However, major innovations in the space over the past couple of years, such as streaming platforms, have enabled the space to see an explosion in viewership and interest. To give some perspective, during the final match of the 2015 League of Legends World Championships, over 36M unique viewers tuned in. That is more unique viewers that the 2015 MLB World Series had.

Key Players

Publishers:

There are thousands of game publishers; however, for the sake of simplicity, there are only a handful of publishers that have successfully focused on competitive gameplay and reached a critical mass. Publishers play an extremely critical role in whether games will be played competitively as they have full control over gameplay, customizability, and the community involvement.

Without publishers, there would be no esports. They ultimately control all intellectual property and have fortunately allowed their gameplay to be streamed and recorded.

When mentioning gaming publishers, it is impossible to leave out the biggest player, Tencent. Over the past decade, Tencent has managed to acquire minority or majority stakes in some of the biggest Tier 1 gaming publishers.

Majority Stake: Riot Games (100%), Supercell (84%)

Minority Stake: Activision Blizzard (12%), Epic Games (48.4%)

Opportunities:

• A lot of well known publishers have started to put more of an emphasis on competitive gameplay over the past couple of months. Given how lucrative major esports tournaments have become, publishers will likely start to play a bigger role in tournament organization. For example, Riot Games and Valve both help run and organize League of Legends Championship Series and The Dota Major Championships respectively.
• Supercell and Super Evil Megacorp are leading the way for mobile esports. They’ve done an incredible job of validating the massive market opportunity for mobile esports.

Companies:

Riot Games, Activision | Blizzard, Epic Games, Electronic Arts, Ubisoft, Supercell, Wargaming, Capcom, Hi-Rez Studios, Super Evil Megacorp, Valve

Games:

Essentially every multiplayer video game can be played competitively, but only a select few have successfully drawn in millions of viewers. Almost every game played competitively can be classified into one of the following genres — Multiplayer Online Battle Arena’s (MOBA), Shooters, Fighting, and Real-time Strategy.

Opportunities:

• Games that are played competitively (and performed extremely well) have done so because publishers are designing the online and multiplayer experience with tournament and competitive gameplay in mind. League of Legends, Counter-Strike, Dota, etc. have done a great job of validating the demand for competitive gameplay. We can (and should) continue to expect more publishers designing and developing games with esports as a top priority.

Companies (Popular Games Played Competitively):

League of Legends, Dota 2, Counter-Strike: Global Offensive, Call Of Duty, Overwatch, Smite, Hearthstone, Starcraft II, Street Fighter, Clash Royale, Vain Glory, Halo, Rocket League

Major Franchises:

In esports, franchises act similarly to collegiate sports teams, as these esports franchises often have teams across a variety of games. Just as a university would have a volleyball, golf, basketball, and football team — top esports franchises will have teams across multiple games.

Several franchises have established extremely strong brand identities via strong presences on YouTube and Twitch. OpTic Gaming and FaZe Clan are the two main franchises that have become media powerhouses over the past couple years.

Opportunities:

• Over the next couple of years, certain franchises will establish themselves as staples in the industry. There are already several household names within the esports industry. However, in my opinion, many of these have potential to become billion dollar franchises.
• Owners and investors of these franchises range from ex-professional athletes to traditional venture capitalists. A lot of these owners are not businessmen by trade and stumbled into the world by being gamers themselves.

Major Franchises:

Cloud9, Team SoloMid, EnvyUs, Evil Geniuses, Counter Logic Gaming, Ninjas in Pyjamas, 100 Thieves, Elevate, SK Gaming, Fnatic, Team Liquid, Immortals, Natus Vincere, H2K Gaming, Mousesports, Virtus.pro, Echo Fox, NRG, FaZe Clan, Splyce, Luminosity Gaming, G2 Esports, SK Telecom T1, Renegades, OpTic Gaming, compLexity, Team Dignitas

Distribution:

There are four main distribution platforms for digital games on PC. In their simplest forms, they are the “App Store” of the PC Gaming world. However, Steam (Valve) is the only distribution platform that allows games that are not exclusively developed by Valve. The other three major distribution platforms are used primarily to promote their respective publishers.

Similarly to the App Store, Steam takes a percentage of all in-game purchases.

Opportunities:

• As a tier 1 publisher, it is likely in your best interest to distribute the games via your own platform. The biggest reasons in favor of this, are that you gain full flexibility, customizability, and you are on longer forced to give a percentage of sales to Steam (Valve). With that being said, launching your game via Steam greatly increases your chances of discoverability.

Companies:

Steam (Valve), uPlay (Ubisoft), Origin (EA), Battle.net (Blizzard)

Sponsors

Endemic (Gaming Related):

Given how many gaming peripheral companies there are, it is unsurprising that there is a large number of endemic sponsors in the space. It’s worth noting that I certainly missed a few in the space, but I did my best to cover some of the largest sponsors.

Each of these companies sponsors at least one of the following: a professional gamer, a professional team, or a professional esports league/tournament.

Opportunities:

• The buying power of consumers in esports is extremely high and consumers are always looking for ways to improve their game. Although the peripheral space is crowded, there will always be opportunities to prosper. Sponsoring influencers are a key way to grow your business in the esports industry.

Companies:

SteelSeries, Razer, Turtle Beach, HyperX, MSI, Tritton, Twitch, Intel, Need for Seat, DXRacer, Elgato, Astro Gaming, Logitech, Scuf Gaming, NVIDIA, Zowie (BenQ), iBUYPOWER, KontrolFreek, Cyberpower PC, Sennheiser, Alienware, AMD, NZXT, HTC, GFUEL

Non-Endemic (Not Gaming Related):

Over the last decade, we have a seen a wide range of non-endemic brands start to invest heavily into the space. This space is extremely hard to map out, as major players are regularly piloting sponsorships in the space.

According to a Nielsen report on esports in 2015, “57% of U.S. esports fans fall in the coveted Millennial (18–34) age bracket. eSports fans [also] live in households with strong spending power. [$64,900 mean total household income]”

Opportunities:

• As more events and tournaments start to be nationally televised, the sponsorship opportunities for the space are massive. There is a significant opportunity to capture one of the most highly coveted demographics — if you successfully do your research. If you are a non-endemic brand, it is absolutely critical that you do extensive research on the team, players, and/or leagues that you are sponsoring. Each player, team, and league has certain stigmas and skewed demographics.

Companies:

Coca Cola, Buffalo Wild Wings, Red Bull, Turtle Wax, AMP Energy, Brisk, Bud Light, Loot Crate, Crunchyroll, XFINITY, Gymshark, Monster Energy, GEICO, Quest Nutrition, Hot Pockets, Arby’s, Nissan

Professional Gaming — Platforms & Infrastructure

Organizers:

In esports, there are a lot of tournament and league organizers. Most of the organizers listed have direct support from the game publishers, thus they receive assistance with marketing these events.

League of Legends Championship Series, LCS, is a unique league as it is directly organized and run by the gaming publisher themselves. This, obviously, has pros and cons. For example, in the NBA, you would never see Spalding also making the rules and organizing the league.

For other games, it is quite common to compete in a variety of leagues and tournaments. In Counter-Strike, for example, you will see professional teams compete in ELEAGUE, Dreamhack, Esports Championship Series, ESL, and MLG events throughout the year.

Opportunities:

• Although controversial for certain games, there is a tremendous opportunity to develop a main league for each game, such as LCS. This allows viewers to understand which events and tournaments are most important, while also (hopefully) simultaneously raising viewership numbers.

Companies:

Dreamhack, Major League Gaming, ESL, ESWC, League of Legends Championship Series, EVO, ELEAGUE, Esports Championship Series (FACEIT), Call of Duty World League, GFINITY

Platforms:

If you want to be a professional video game player, there are certain platforms that allow you to stand out. These platforms often host online tournaments and ladders, which allow amateurs and professionals the opportunity to play against one another.

Think of these platforms as both the minor and intramural leagues of traditional sports — where there is an opportunity for you to shine through and catch the attention of major teams.

For the most part, each of these platforms has their own match-making, ranking system, servers, anti-cheat software, admin team, etc.

Opportunities:

• This bucket is unique as there is a large opportunity to own the platform space across all games by offering relevant prizes to even casual players looking to test their skills. On the flip-side, certain gaming publishers have opted to owning this space completely by building a fully comprehensive competitive matchmaking, such as League of Legends.

Companies:

FACEIT, Battlefy, Gamebattles, ESEA, CEVO

Infrastructure:

Given the large number of tournaments and leagues that exist in esports, there are several companies attempting to alleviate some of the pains behind organizing events.

Opportunities:

• For the most part, tools that exist today are specifically focused on the software infrastructure required to organize events. However, LAN (local area network) events require a large amount of human capital and expertise to successfully organize events. Over the next couple of years, there is a tremendous opportunity to build tools that assist with successfully organizing tournaments, leagues, etc.

Companies:

Skillz, Toornament, Cashplay

Broadcasting:

Unlike Periscope or Facebook Live, Twitch and other live-streaming platforms are a bit more complicated to go “live.” They require specific tools to help organize your overlays and engage with your fans. On Twitch, you will commonly see top streamers using Open Broadcaster Software (OBS), XSplit, and FFSplit. Each of these platforms can be overwhelming and complex to run.

Opportunities:

• Over the past couple of years, several companies have attempted to tackle the high barriers to entry required to stream on Twitch, YouTube, etc. There is a huge opportunity to streamline this process even more, and encourage the next million streamers.

Companies:

XSplit, FFSplit, Open Broadcaster Software, Infiniscene, Mishira, Stage TEN, Gameshow, Maestro, Hubtag, Genvid

Communication:

Communication tools for gamers have always been critical. Skype, TeamSpeak and Mumble have been widely used throughout the space for over the past decade; however, new entrants have started to emerge, such as: Discord and Curse Voice. In just 1.5 years, Discord reportedly had over 2.9M users.

Opportunities:

• This is a space that was ripe for disruption, and entrepreneurs have attempted to take interesting stabs at the space. There is a large opportunity for Skype to support the gaming community by adding key features such as dedicated servers.

Companies:

Discord, Curse Voice, Mumble, TeamSpeak

Aspiring Pro Gamer & Fan Resources

News:

Esports is at an interesting stage where there are established and well respected news publications specifically covering esports. However, larger publications, such as: ESPN, Yahoo!, and DailyDot have started to enter the scene as well. Given that the space is extremely raw and young, it’s worth noting that most of breaking news stories in the space are often first leaked on Twitter or Reddit.

Opportunities:

• ESPN has positioned themselves quite well to replicate what they’ve done successfully with traditional sports for esports as well. For each of these news publications hiring well respected and knowledgable analysts from the space is key. Commentators for esports events often host their own talkshows with guests on YouTube (i.e. Thooorin), and it is critical that the larger news publication understand how this ecosystem wants to consume content.

Companies:

Gamurs, theScore, Strafe, ESPN, DailyDot, Dexerto, Instant eSports, Yahoo!, HLTV, GosuGamers

Stats/Guides:

Given the high complexity of certain games in esports, hundreds of sites have emerged to carefully track your stats while simultaneously helping you with selecting the best weapon, character, routes, etc.

Opportunities:

• This space is extremely unique and exciting for a variety of reasons. Unlike in traditional sports, consumers are often able to immediately apply the information they gather from these guide sites by just “alt-tabbing” back to the game.

Companies:

Mobafire, ZAM, DOTABUFF, HOTS Logs, LoL Class, OP.GG, ProBuilds, Smite Junkies, Tempo Storm, Team Liquid, Team SoloMid, Champion.gg, CSGO Stats

Training/Coach:

Something incredibly unique about video games vs. traditional sports, is that users can easily measure their performance improvements objectively. Consumers also have the opportunity to improve in real-time. Training platforms for esports are fascinating as they can and will be able to add provide overlays that directly impact gameplay.

Opportunities:

• Coaches and training platforms are one of the biggest opportunities in esports. The tutorial/guides space is massive for video games, but adding a personalized layer to it — makes it that much more compelling.

Companies:

Dojo Madness, Skill Capped, Overwolf, Xsolla Academy, Gamer Sensei

Schedule:

In case you haven’t realized by now, it can be a bit overwhelming to figure out which tournaments or leagues to watch. Even more so, it’s difficult to figure out when each match is on. Sites like Abios and Splyce provide the “TV Guide” for esports.

Opportunities:

• Twitch, YouTube, Facebook, etc. all have a major opportunity to clearly and concisely disclose when and which matches will be streamed. Finding out via Twitter that a specific match-up is starting is not sustainable nor scalable.

Companies:

Abios, Splyce

Live-Streaming Resources

Streaming Sites:

Live-streaming is most commonly associated with esports; however, only ~20% of hours watched on Twitch were actually “esports” matches. It’s no secret that there are a lot of companies tackling “live.” Each of these companies has unique value propositions, but all of them want to be the go-to for live-streaming. Without live-streaming, there would arguably be no esports. The invention of Twitch and other tools in this larger segment enabled consumers to watch professionals compete from anywhere in the world.

Opportunities:

• The great debate for streaming is whether consumers come to your site because of specific streamers OR because they genuinely like your platform. A famous example of this is: Nadeshot and his streaming experience. Nadeshot is widely regarded as one of the most influential console players in the world; however, when he was locked into an exclusivity contract with MLG.tv — he was getting around 5–10k viewers per stream. When his contract ended with MLG.tv, he made a return to Twitch which peaked with over 85,000 concurrent live viewers.
• Each of these platforms can (and should) do a better job of creating more engaging experiences for fans, providing better analytics to streamers, and facilitating sponsorship opportunities to streamers. As an example a new live-streaming player recently emerged, Beam.pro, which provides viewers with an extremely unique and engaging viewing experience.

Companies:

Facebook LIVE, Beam, Douyu, Twitch, YouTube, Azubu, MLG.tv, Hitbox, Afreeca

Mobile Streaming:

Mobile games are having a moment right now, with Supercell and Clash Royale leading the charge. For years, there have been debates on whether mobile esports has the potential to be bigger than PC/console esports. It only makes sense that platforms would be designed specifically for streaming your mobile games and mobile phone.

Opportunities:

• For mobile live-streaming to really take off, there is heavy reliance on exciting spectator games to be built on mobile. This is arguably inevitable, but a huge key to their success. It’s crucial that these platforms work closely with mobile publishers and top streamers to ensure that future tournaments, events, and casual streams will take place on their platform.
• These platforms have an upper-hand on platforms on traditional live-streaming platforms like YouTube and Twitch, as they have fully designed the experience to be mobile-first. However, they need to continue to tweak and refine the experience, as I promise Facebook, YouTube, Twitch, etc. are coming.

Companies:

Kamcord, Mobcrush, Mirrativ, Shou

Game Highlights:

Every game you play OR watch there will be a highlight. Whether it was a funny joke someone said on stream, or an amazing shot — people love to consume highlights. For this bucket, it’s worth making the distinction that there are two types of game highlights tools. One to clip highlights from YouTube, Twitch, etc. such as: Oddshot, Vibby, and LiveCap. Whereas Forge, Plays.tv, and Leet allow you to creating highlight clips of your own gameplay and matches. The reason for grouping the two together is because each of these companies will likely attempt to own entire space.

Twitch also recently entered the space by releasing a “Clips” button to create stream highlights directly inside of the stream.

Opportunities:

• Discovery is one of the biggest opportunities for these platforms. One component would be to discover new and exciting players/streams, another is to enable consumers to easily discover and compile the best highlights of the day. There is zero doubt that consumers want to watch these highlights; however, surfacing the best content will likely be the key to winning the space. Several of these sites have started to gravitate towards this, but continuing tweak and refine the user experience will be critical.

Companies:

Oddshot, Vibby, LiveCap, Plays.tv, Forge, Leet

Streaming Tools:

Given the massive audience size of live-streams, it’s only natural that tools were built for streamers to make everything more seamless and engaging. A lot of tools have emerged over the years to dramatically improve the experience for viewers, while also allowing streamers focus more on gameplay and fans. These tools range vary from engagement tools, monetization tools, and chat-bots to answer frequently asked questions.

Opportunities:

• There are unlimited possibilities to improve the viewer experience and back-end for streamers. Several companies have emerged in an attempt to build a suite of tools for streamers. Building streaming tools does not come without risks. The biggest risk is platform risk. These live-streaming platforms obviously have the most control and flexibility, thus the tools that they can provide to streamers can be far superior than one built by third-party developers. Recently, Twitch launched Cheering which allows viewers to engage (and donate) via the chat.

Companies:

Matcherino, Muxy, StreamPro, GameWisp, Revlo, Vulcun, Branebot, Streamtip, Nightbot, TwitchAlerts

• Disclaimer: Ludlow Ventures is an investor in Vulcun*

Analytics:

It’s worth noting that this bucket should be split between viewership and game analytics (play-by-play, player and team stats)

On the viewership analytics side, it’s no secret that brands and major businesses are looking to invest in esports. In order to fully understand what (and who) they are sponsoring, extensive data analytics of viewership and statistics of games is critical.

Opportunities:

• By owning the viewership analytics space, you have the opportunity to be the main communication and reporting platform for both brands and influencers. As an influencer, you want to be able to succinctly and effectively report the impact you’ve made on a brand; while brands obviously want to understand this data clearly. Platform risk is extremely high for this bucket, as the live-streaming services will undoubtedly have the best and most data.

Companies:

Viewership Analytics: Repable, Stream Hatchet,Gamoloco, NOSCOPE, Social Blade

Game Analytics (Play-by-play, player and team stats): Panda Score, Sportradar

Betting & Item Marketplaces

On July 13th, Valve made an extremely important decision regarding gambling in-game items. In short, they decided to ban every gambling site. On July 20th, Valve sent out the following letter informing over 20 gambling websites that they need to seize operations by the end of the month. It is unclear whether this is just the first (or final) wave of letters to be sent out.

Skill Based Wagering (Money & Items):

Given that “gaming” and “banter” have quickly become synonymous, it’s no surprise that wagering for money and virtual items has become a hot space.

Although there are a lot of companies within this bucket, it’s worth noting that most these aren’t competitive (yet). Some of these companies only focus on specific games, while others have decided to take a more broad approach. Aside from game-specific platforms, some of the platforms have differentiated themselves by using virtual items (and currency) instead of strictly cash wagers.

Opportunities:

• As mentioned above, this is a massive space with a ton of opportunity. If a game can be played competitively, people are likely willing to “put their money where their mouth is.” There isn’t a go-to wagering platform for all games yet, and there is a clear opportunity to become a major winner in the space. Self-reporting is obviously flawed, so any and all platforms that can ensure scores are accurately (and hopefully, automatically) reported have a clear leg up. Unfortunately, this requires support and flexibility from the gaming publishers.

Kickback*, World Gaming, UMG Gaming, PVPro, Leet, GamerSaloon, BattleRiff, PlayVS, Wombo, Evolve Arenas

• Disclaimer: Ludlow Ventures is an investor in Kickback*

Fantasy/Betting:

It shouldn’t come as a surprise that virtual items/currencies and real money are often bet on esports matches. With that being said, I think many will be surprised to learn how closely viewership numbers and betting are potentially correlated.

It’s extremely difficult to pinpoint what impact betting has had on major tournament viewership, but Will Green did an excellent job correlating the impact that bet volume has on viewership for Turner’s new ELEAGUE broadcast of Counter-Strike.

Bloomberg also recently highlighted just how massive this market is — “3 million people wagered $2.3 billion worth of skins on the outcome of e-sports matches in 2015”

Opportunities:

• There are endless opportunities for the betting/fantasy scene, but it is absolutely crucial to prove that esports can survive without viewership being reliant on betting. Virtual currencies and streaming tools open a unique opportunity to engage users creatively without encouraging consumers to bet real money (or valuable virtual weapons) on esports matches.
• CSGO Lounge is proof that betting on matches encourages fans to watch games they might otherwise skip. Given the recent decision by Valve to ban these sites, there will be a large opportunity to encourage consumers to still engage and watch all matches.

AlphaDraft, C̶S̶G̶O̶ ̶L̶o̶u̶n̶g̶e̶*, Dota 2 Lounge, DraftKings, Unikrn

*CSGO Lounge is still included in this landscape given the pivotal role that they have played in the betting scene; however, they WERE included on the list of 20+ gambling sites that needs to seize operations by the end of July.

Marketplaces:

I’ve wrote about it before; however, virtual items are a huge component of games such as: Counter-Strike. Steam (Valve) puts a strict limit of a $400 maximum listing price on all items listed within their community marketplace. Additionally, items sold directly on Steam means that proceeds are to be only added into your steam wallet (and not real USD).

As a result of these two major constraints, several players have evolved to become a safe and secure escrow service of virtual items for real currencies.

Opportunities:

• OPSkins is undoubtedly leading the charge in this space. As of June, 2015 — Vice reported that OPSkins was earning over $12,000 in profit per day; however, I expect this number is now drastically higher given that trade volumes have only increased. There is definitely room for other companies in this space; however, OPSkins has done an incredible job earning a great reputation within the gaming community.

OPSkins, CSGO Shop, Bitskins, Loot Market

Esports is undoubtedly on a lot of people’s radar. The truth of the matter is that most of them likely laughed at the initial idea of playing video games competitively. The tides are changing though. Children are growing up watching YouTube videos of their favorite pro gaming teams and players. When I was a kid, I remember telling my parents I wanted to be a professional gamer.

At the time, it felt like it was impossible to make a living as a professional gamer. As a result, I parted ways with those dreams. My hope is that those who grew up playing video games or shared similar dreams contribute and build the necessary companies, tools, etc. so that no kid ever feels like playing video games professionally isn’t a viable career.

As always, if I missed any companies or you are working on a company in the esports industry, I’d love to hear from you. Please feel free to tweet me or e-mail me, I do my best to respond to everyone.