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eSports 3: Mobile, VR, and AR will create the new market reality

by Sean Webster on Jun 15, 2017

In my first two posts in the eSports series, I looked at the industry’s broader ecosystem and asked what must happen for app publishers and advertisers to monetize eSports. In this edition, let’s turn to the future of the industry and how AR and VR technologies will shape the future.

It’s hard to believe that it’s been two years since Facebook scooped up Oculus for $2 billion.

At the time, the narrative went that the acquisition was about getting in on a prime delivery mechanism for a new breed of experiences on mobile and elsewhere before the hockey stick kicked in and the market took off. Zuckerberg and others in the space decided to jump early and take the chance while more skeptical money remained on the sideline, not unlike what’s happened to this point in the eSports world.

It makes sense that the two industries would share some common characteristics in their early days. They certainly share a synchronous future.

While virtual reality (VR) is still looking for its killer, build it and they will consume at-scale use case, Pokemon Go has already provided augmented reality (AR) with its own. The success of Pokemon Go (more than $1 billion in revenue since its launch) has driven a horde of app publishers to create new gaming experiences for mobile. The trickle-down effects will be to create more demand for and easier accessibility to VR/AR peripherals. This, in turn, will draw more gamers and fans, and enable mobile multiplayer competitions based on deep social interactions in a shared reality rife with monetization opportunities.

To understand how we’ll get there, let’s take a step back and understand the different market dynamics of VR and AR.

VR has the PR, but AR leads the league

While VR and AR are both interesting techs with their own unique applications and promise, it is AR that’s approaching its inflection point where large-scale adoption—and therefore, big investments—become a reality for VCs, manufacturers, publishers, and brands. Why is VR lagging behind?

Simply put, VR is still too expensive to adopt at scale. The most expensive head mounted displays (HMDs) can go for $800 (more than a PC). Less expensive options, including Google Cardboard, are a step in the right direction toward getting device adoption at scale and providing manufacturers and game developers with the volume of data they need to feel comfortable making deeper investments in VR. In short, the technology is not going to meet its mobile market potential until device and price point barriers are removed.

AR, on the other hand, is pretty inexpensive to design experiences for and get to market. Pokemon Go itself is a free download (monetization comes through in-app purchases). But, while creating an overlay on ‘real life’ is very cool, having to stare down at a phone while experiencing an AR world is not. To that end, the AR device market is significantly lagging behind its VR cousin.

The next evolution (and we are looking at 2 or 3 years to get there) are AR experiences integrated into commonly adopted and easily affordable peripherals for your mobile—a sort of hero headset. Who’s going to make the AR goggles that are as cool as an iPhone, as or as intuitive as a touch screen? How will this device and evolving smartphones be powered up and stay that way all day through intense, high consumption use? Does the whole world need to get to 4G before AR/VR can reach enough users to even make sense as a commercial force?

Once these questions are answered, an ecosystem of app publishers will still need to form and coalesce to meet user demands for new experiences, and network operators will have to sort out their investment strategies to support those experiences, while optimizing their share of the revenue pie.

eSports audiences want  mobile-first experiences

2017 will be the year that mobile establishes itself as a core medium for eSports gamers and fans, with more than 50 percent of eSports’ $250 million prize pool expected to come from mobile. By all indications, multiplayer games built around AR and VR experiences and tournaments put on by a consortium of technology providers, leagues, and publisher titles will be a big part of that.

Sliver.tv, for example, will partner with the Electronic Sports League and others to put on 14 separate global events featuring “360 virtual reality, live replays and stats technology.” A single similar event in Poland in 2016 drew more than 100,000 attendees and peaked at about 2 million peak concurrent online viewers. If Sliver.tv doesn’t ring as a familiar name to mobile pubs and advertisers, maybe this will help: the founder and CEO is Mitch Liu, co-founder of Tapjoy. Sliver’s calling card is taking the fan beyond just being a fly on the wall and giving them control over their experience with 360-degree cameras, custom viewpoints, live stat feeds, and more.

Unlike traditional sports programming, eSports fans have always been able to watch according to their own tastes and schedule. They can start, pause, and fast forward at home on the PC. They can hop on the subway with a smartphone and share highlights and gaming with others—eSports fans have no idea what it’s like not to have this freedom. Larger players like Twitch and YouTube are putting a stake in eSports ground as well, though the manner of monetization remains an issue. Quoting Edward Chang’s excellent article on [a]list:

“Looking at viewership: MAU ratios for popular titles (based on average professional league viewership), the numbers are extremely low—150,000:100,000,000 for League of Legends and 40,000:12,000,000 for CS:GO. If these ratios are any indicator, the player base needs to grow exponentially before any significant VR viewership takes place.”

So, there’s the critical mass hurdle to clear yet, but that’s not the only challenge for pubs and advertisers that want to monetize mobile eSports.

We’ve already discussed the need for an affordable hero device. There’s also the technical challenge of reducing complex AR and VR experiences and form factors to a smaller screen size, not to mention more practical elements, such as making games that can be difficult to learn how to play fun and accessible for viewers. Remember: the primary motivator for eSports fans is learning to play the game.

All that said, there is every indication that mobile-first gaming experiences built on AR and VR will dominate eSports in the future.

The end game for mobile publishers and advertisers

eSports audiences are growing, and as more young people turn away from traditional sports broadcasts, the eSports fan base will continue to grow. We have already seen entire content networks and technology platforms dedicated to eSports emerge. New shows that are dedicated to eSports and delivered on both traditional TV and OTT (where mobile thrives) are appearing all the time.

Pretty soon, we’ll see an advanced guard of super fans, excited over the immersive experience of VR and AR, driving others to experiment and adopt the technology. More and more content (games, competition formats, sports networks, and reality-styled shows) will be produced, and a McLuhan-esque dynamic will emerge wherein mobile-first fan contributions to the experience become as much a part of the game as the game itself. Innovators will continue to experiment with new technologies (eye tracking, foveated rendering, etc.) and the tools to enjoy great VR and AR experiences will achieve economic parity with emerging global markets, which, conveniently, are loaded with gamers and organically mobile-first.

Device manufacturers, tech platforms, and content networks will initially compete for, then learn to share and jointly monetize eSports athletes and fans. AR, VR, and other technologies that enhance both the gamer and fan experience will take time to develop (they always do), and the subscription vs. ad-supported question must be answered, but there is absolutely no stopping the eSports money train. For game publishers and advertisers, it’s just a matter of going out and competing for your share.

Game on.

Sean Webster is AppLovin’s senior director of Business Development.

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