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Konvoy Ventures is a thesis driven venture capital firm focused on the video gaming industry. We invest in infrastructure technology, tools, and platforms.

SnapchatU

The acceleration of mobile gaming, Snapchat x Unity integration

Mobile Gaming Acceleration in 2020

Today, more than 2.2 billion people play mobile games. This part of the gaming industry has now hit $75.4 billion this year, which is up 19.5% since 2019. Mobile is the largest and most adopted platform (vs console or PC) in the gaming industry. This growth has been primarily due to: 1) the mass adoption of mobile, especially in the emerging markets, and 2) the lower cost to entry vs the expensive hardware costs for PC or console.

While the vast majority of the top games on mobile are free to play (monetized through ads), the average cost for a mobile game is about $0.50 per game. This is much cheaper than games in the PC or console ecosystems. For example, on Steam (PC platform) the average game costs $9.46 and the median is $5.99 (SteamSpy). On console, many games are free to play but the typical cost is between $30-60 per game.

In the United States, video gaming has been a core source of entertainment and being social during 2020. With mobile adoption now at 81% in the U.S. (up from 35% in 2001, Pew Research), it has now surpassed desktop/laptop ownership at 74%. People are not only playing mobile games but also watching other people play mobile games. This was made clear in YouTube’s end-of-the-year statistics (YouTube blog). Mobile game “Garena Free Fire” was the third most-watched game on the platform with 72 billion views, above other major games like “Grand Theft Auto V” and “Fortnite.”

Takeaway: the continued adoption of mobile is leading to not only more players but more viewers across the world. It is also still under-monetized and is a theme we are actively investing in as we walk into 2021.


Snap Integrates Unity’s Engine & Ad Network

Snap will integrate Unity’s game engine (the “Create” arm of the business) into their Snap Kit SDK. This will increase the amount of developers building titles for or porting titles to the Snapchat platform. Snapchat has a daily audience of 249M, and Evan Spiegel (CEO) has made it clear that Snap Games is a priority as the company seeks to increase the ARPU of its users.

As part of the partnership, Snap will also integrate Unity Ad’s video inventory of mobile gaming titles in the Snap Audience Network (SAN). SAN is an off-Snapchat advertising network that distributes ads to Snapchat users on other mobile sites and apps outside of the Snapchat app. With the upcoming deprecation of the IDFA from Apple, there will be repercussions on Unity’s largest revenue stream: their ad network (the “Operate” arm of their business). This partnership is in direct response to that inevitable revenue hit.

This appears to be a smart move that benefits both camps and is timely as Unity seeks to continue monetizing to live up to the momentum generated by the public markets (currently trading at 43X next year’s sales). This is also a powerful partnership as both Unity Ads and SAN continue to compete with the top two ad networks: Google and Facebook.

Takeaway: Unity and Snap have formed an alliance in the war to compete with Google’s and Facebook’s primary revenue streams.  

M&A Activity in 2021 Will be Unprecedented

Tencent has dramatically increased its M&A and investment activity over the last few years. According to Daniel Ahmad from Niko Partners (source), Tencent closed 28 video game-related deals in 2020. This is ~3x the number of deals closed in 2019 and more than 4x the number of deals done in 2017.

Tencent is not the only one who has an active war chest for acquisitions. One other worth noting is Embracer Group, a video game holding company that has been actively acquisitive and currently has ~$1.4B at the ready. This $1.4B includes a credit line from Nordea Bank for ~$326M that expires in May 2022.  This is after announcing 13 acquisitions (11 game studios) in November for $441.5M.

Takeaway: we see these signs (and many others) as a precursor to a highly active M&A market in video gaming in 2021. The quality of companies is increasing, the deal sizes are getting larger, and consumer trends all point towards gaming continuing to grow as a pinnacle of digital entertainment.