Future of User Generated Content

What is UGC?

Today: User-generated content (UGC) has become a widely recognized term in the gaming industry, defining games or platforms that enable users to create various types of content. Platforms like Roblox offer opportunities for users to design, build, and publish everything from simple cosmetic items to full fledged games, while games like Minecraft employ UGC as an integral part of the gameplay itself. This concept has brought forth a new era of gaming enabled by scalable content, where platform users become the creators rather than just the developers. This shift (where players can be true creators) makes UGC games and platforms increasingly defensible and profitable.

Future: The significance of UGC in gaming will continue to expand, becoming a fundamental aspect of most new games' strategies. A noteworthy shift is the increasing reliance of UGC on a successful game (IP) to kickstart an initial player base. In our view, we believe that Roblox was an anomaly (a 10+ year “overnight success”) and that Roblox’s go-to-market strategy should not be considered the sole guiding star for founders or investors. In the future, UGC platforms will be counted on to facilitate content creation, monetization, emergent gameplay, and even financial opportunities for players and creators. Players (not only developers) will play a pivotal role in driving adoption by continuously generating novel experiences and expanding the range of available content.

Our view is that successful UGC platforms will not win with tool differentiation alone (the “build the best creator tools and gamers will come” strategy) but by starting with a piece of successful content (to get an initial player base to the platform). The go-to-market of the best UGC platforms will be to open up their creation tools to the community of users after (or perhaps while) the game has proven to be successful. This will be core to solving the “chicken and egg” problem that most pure UGC platforms face: creators are not incentivized to build experiences when there are no users and users are not encouraged to adopt a platform without great content. 

UGC platforms with no first-party content will struggle to take off in the future

Roblox is an anomaly: Roblox took a long time to get to mass user adoption, granted to them by a mixture of: 1) no competitors and 2) patience and perseverance. When Roblox was launched in 2006, games were predominantly played through either the browser (Miniclip, Addictinggames, Coolmathgames, etc), console (Xbox 360, PlayStation 2 and 3, Nintendo Wii), or through purchasing physical computer games. 

Steam launched in 2003, but in 2006, Steam only had 71 games launched (compared to 12,746 games launched in 2022). Roblox initially released under the name of “DynaBlocks” in 2004 (beta version of Roblox) before launching officially in September 2006 as “Roblox”. The platform only onboarded 11,253 users in 2006, but started to see steady growth over the next 10 years (Roblox had 101m new users in 2016 alone). Patience was core to Roblox’s success and their valuations over time highlights the long journey they undertook (CBInsights):

• 2005: $2.6m (Series A)
• 2006: $4.72m (Series B)
• 2008: $7.2m (Series C)
• 2009: $14.17m (Series D)
• 2011: $38.04m (Series D-11)

• 2017: $448.27m (Series E)
• 2018: $2.5b (Series F)
• 2020: $4b (Series G)
• 2021: $29.5b (Series H)
• 2021: $41.9b (IPO)

Though Roblox stuck to their vision and over time was able to grow into a significant business, we believe a repeat of that success in today’s UGC market is highly unlikely.

Conversely, Epic Games provides a more repeatable example of how we see successful UGC platforms being built in the future. Epic Games developed arguably the most popular game ever (next to Minecraft): Fortnite. While not initially focusing on UGC, Fortnite leaned into live operations and continuously evolving their game to keep their player base engaged. Now, on the back of the Fortnite player base, Epic Games is betting its future on the Unreal Editor for Fortnite (UEFN). 

UEFN is the UGC strategy for Epic Games. Today, UEFN is an application for designing, developing, and publishing games and experiences directly into Fortnite. It combines the game development power of Unreal Engine with the user adoption of Fortnite. As of February 2023, Fortnite has more than 250 million average monthly active users, with more than 25m playing daily (DemandSage). This is why strong IP to kick-start a UGC platform is so important; it directly combats the chicken and the egg problem by taking advantage of an already invested player base by giving them the tools to create and evolve the IP (or create new IP). Additionally (importantly), a strong user base is best positioned to attract serious external developers who care deeply about distribution. 

Our framework for the future of UGC platforms

We believe that a UGC platform in the future will fit one of four archetypes: 

1) Tools-First Model (the “Roblox approach”): Success will lie in creating a highly accessible tooling system, complemented by robust monetization tools and an efficient distribution channel. This approach, however, will face challenges, as we previously noted, due to the inherent chicken-and-egg dilemma. In short, we do not think this will be successful (Roblox was an anomaly). 

2) Platform with 1st Party IP: Another viable strategy involves constructing a platform that encompasses a comprehensive suite of tools, distribution capabilities, and monetization options, all while strategically developing captivating 1st party IP. The success of this strategy hinges on the initial/launch IP's ability to 1) draw in an initial player base and 2) demonstrate the platform’s potential (i.e. tools, features, monetization, and more).

3) Transitioning from Launched Game to UGC Platform: User-generated content (UGC) will be used as a tool for developers to breathe new life into their communities while simultaneously attracting fresh players. In cases where a game is already launched independently as a stand alone title, developers may choose to reposition their game in the direction of becoming a UGC platform. This makes sense given they already have a launched game with an existing player base.

4) Game-Centric UGC Strategy: This most closely resembles what we are seeing with Fortnite/UEFN. Given the appeal of UGC, some large and established games may choose to go down the path of UGC but have the creativity, new creations, and player engagement be focused on that original IP (vs creating new games like Roblox allows for). This will lead to the opening up the tools and intellectual property to allow users to expand upon the core game, eliminating the need to start from scratch while also being able to create content for a thriving user base. We believe this will be most heavily done by the largest publishers who want to expand on their IP. 

Takeaway: The future of UGC is an incredibly exciting category within the gaming industry. It allows players/creators to not only expand on existing IP and create new IP, but it also aligns financial incentives across the community that leads to a thriving digital economy. We are currently seeing a thriving economy in Roblox and Epic Games (Fortnite) is following their lead through the launch of UEFN. In our view, there are 4 archetypes for the future of UGC: 1) Tools-First (Roblox approach), 2) Platform + First Party IP, 3) Transitioning a Launched Game into UGC, and 4) Game-centric UGC (Epic Games approach). We firmly believe that some of the greatest (and most lucrative) gaming companies of the next decade will emerge from the UGC category.