The Future of Handheld Gaming
The gaming industry has always had incredibly intense competitive battles for control of the core platforms that players access content through. We are beginning to see a new chapter in these console wars with renewed development of the handheld gaming access ecosystem; companies like Nintendo, PlayStation, Valve, Microsoft (via Logitech), ASUS, Lenovo, and Qualcomm are all bringing new dedicated and companion handheld devices to market. Mobility is becoming more important as gaming takes on a larger part of consumers’ daily lives (whether competitively, socially, or casually). Some of the most influential companies in gaming (hardware and software) are heavily competing with each other for consumer’s time and handhelds are becoming the next frontier of this ever-present battleground.
While more people are playing games than ever before, consumers are being driven at a higher rate toward mobile games due to the ease of use and accessibility that mobile provides. Mobility is becoming increasingly important as consumers want to play their games whenever and wherever they choose.
To date, mobile gaming experiences have primarily been limited by the computational capabilities of phones themselves. This limitation has now created a market opportunity for high-powered, gaming-focused handhelds that allow users to play more high-powered gaming experiences on the go.
History Rhymes: The Console Wars
With the gaming market trending towards new high-powered handhelds, a comparison to the console wars of the early 2000s is hard to ignore. With this historical precedent, over time we could see gamers converge on a few popular handheld consoles (2 or 3) with the potential for more niche players (another 2 or 3) to emerge on the periphery.
When selling hardware (access), there are different strategies to acquire users but generally the library of accessible content is the most important consideration for users. After the content, consumers tend to buy hardware that their friends are using as well. The first point, content access, is where most companies fall short. Companies like Sega (32x, Dreamcast), Atari (5200, Jaguar, Lynx, VCS), Apple (Pippin), and even Nintendo (Commodore 64 Games System, 64DD, Wii U) all had significant flops when it came to the early days of the console wars because they did not have strong content offerings compelling enough to justify the high initial purchase price.
Today, the console market is now exclusively owned by Nintendo (Switch), Sony (Playstation), and Microsoft (Xbox). We expect consolidation in the handheld market to follow a similar path towards two or three winners.
Who will win and why?
While many companies are investing in building the next consumer handheld device in gaming, the reality is that consumers themselves will ultimately determine who will succeed in the years to come (not who spends the most capital on marketing). If these trends look anything like the console wars, the companies that offer access to the best content (especially exclusive content) for the specific mobile experiences different niches of consumers are looking for will succeed in the market. Below is an overview of the top handheld gaming devices in the market today:
Valve: The Steam Deck is the best solution in the market for PC gamers to play their favorite games on the go. The Steam Deck allows users to play games from their Steam library (>10k compatible games) on one of the most high-powered handheld devices. The computing capabilities combined with the library of high quality games gives Valve a significant advantage over its peers. Valve’s approach is the most straightforward in their attempt to make traditional PC games accessible on the go and suggests that they believe gamers (at least hardcore PC gamers) want to play their favorite games even while away from their PC gaming setup.
Sony: Sony is launching its handheld device, PlayStation Portal, in November of this year and will offer the ability to stream PlayStation games directly to your Portal. This gives Portal users access to all of the content they have on their PlayStation 5. The biggest hurdle for Sony will be mobility; the Portal requires you to play on your local network with your Playstation 5 as the hardware actually running the game, but the library will hopefully be a strong enough wedge to entice adoption. Sony’s approach to limiting games to a local network is a bet that the users may not be looking to play these games on the go, and instead are looking to play games from other parts of the home and in a more casual setting (laying in bed or on the couch for example).
Nintendo: Nintendo is a leader in the handheld gaming space as they have already blown away expectations with the Nintendo Switch and should continue that trend with the release of the Switch 2 later this year. Nintendo exceeded 125m lifetime units sold for the Nintendo Switch and has created a library of Nintendo-exclusive content that rivals (and even exceeds) some of the largest games companies in the world. While Nintendo's library lacks breadth in offering AAA quality games compared to Valve or Sony, one could make the argument that this is actually the type of content most conducive to playing games on the go.
Looking ahead, peripheral players: As of today, it does not seem like there is a clear new entrant to the market that could become a mainstay. The two potential exceptions are Logitech (Logitech G Cloud Gaming Handheld) or ASUS (ROG Ally). Both have Microsoft’s backing as their potential wedge into the handheld gaming space. Phil Spencer, CEO of Microsoft Gaming, has stated many times that Xbox is not necessarily focused on a 1st party handheld device and instead is focusing on being device-agnostic (The Verge).
Logitech has focused on building a cloud gaming-first device while ASUS is focusing on building a Windows gaming machine. Both of these come with access to Microsoft content either through xCloud or Game Pass. Whoever survives, if either, will depend a lot on consumer sentiment around either successful cloud-based capabilities or building a compelling handheld PC.
Takeaway: The success of the Nintendo Switch (and more recently the Steam Deck) clearly opened the eyes of consumers and enterprises to what is possible in the handheld gaming market. This has incentivized large corporates to invest in the prospects of being part of this emerging market in gaming. The issue is that gaming has proven to be a market based on loyalty to content first and foremost, which we believe will force significant consolidation and drive heavy investment in content exclusivity. Many hopeful entrants with no strong content wedge will likely find themselves on the outside looking in. In our view, a content-first approach wins this market and the companies that already have this access (Nintendo, Valve, and Sony) are already miles ahead of the competition.