Gaming is the Extreme Frontier of Business: Time Machine Investing and Operating

I listened to the excellent Josh Buckley interview on the Invest Like the Best podcast. Josh is a 15 year gaming operator turned investor and consumer startup founder extraordinaire. He states that Gaming is one of the most competitive markets bar none. Not just in the fight for consumer mindshare. But literally super competition in pure numbers.

Hundreds of thousands of products fighting fiercely to fill the very few top slots in the store ie. Apple Appstore and Google Play. In 2020, according to Statista, there were 957,390 gaming apps in the App Store as compared to 3.42 million non-game apps available. This came out in my research and analysis when I was a VC. (I even wrote about this unique industry here: https://hardfork.substack.com/p/why-gaming-industry-is-so-interesting)

Now as a board member of a Gaming holding company I definitely see that in 2021, this space has even become more popular. This competition has gotten even more crazy with consumer interest rising during the pandemic.  

Because it’s so competitive there is an extreme amount of experimentation and the only edge that a games company has is operational excellence in analytics, monetization, gameplay & design + Distribution and customer acquisition. 

It’s almost like a time machine: I talk alot about geo-arbitrage, learning advantage technology or business models and bringing them to a newer geographic market. Well in gaming, the most advanced markets are from North Asia: namely China, Japan and South Korea. There is almost a 2 to 3 year lag time from Eastern gaming market to Western gaming market.  Within the west, we see another 2 year lag time of best practices and learnings being applied to consumer products and then another lag to B2B software. I should note this lag time is shrinking very quickly at each step as business and competition speeds up. 

Gaming is where the cutting edge of analytics & online marketing. I’ve learned a lot of my online marketing tactics from gaming folks when I was retooling back in 2012. 

Games are also where most advanced behavioral psychology is applied. Variable rewards are a very big part of most games. Loot boxes.  Status games & leaderboards. Super engaged communities and belonging. Gaming companies have been integrating and executing on these for the last 2 decades. All things that have migrated to become basic parts of consumer and now B2B businesses over the last 5 years particularly. 

The biggest lesson from Gaming to other businesses according to Josh Buckley & something I wholeheartedly agree with. (and I should note if you ask many of my old portfolio companies I do spend a lot of time talking about customer segmentation with them)

“It would be the full understanding of power laws. It would be understanding your base of users or customers in their segments, and then understanding how much of your business is driven by your biggest segments and realizing you probably don't understand them as well as you think. Both you're probably underpricing that segment because you don't value the product nearly like they do. And you probably don't understand how to build effectively for them, because either you don't love the product as much as they do or you don't derive as much value from it as they do. 

So you can't really build a one-size-fits-all product. There's so many different jobs to be done for a product. Your product may be a Swiss army knife because you have 10 different segments or 5 different segments. And each of those segments may both have different things they want from the product and they may have different importance to your own business.”

I think the point of this incredible discussion is that there is so much to be learned of the art and execution of business from the gaming industry. It is the literal bleeding edge of business. Operators and investors dismiss this industry at their own risk.