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Master the Meta: Three reasons why Playco is worth $1 billion

Master the Meta: Three reasons why Playco is worth $1 billion

Master the Meta is a free newsletter focused on analysing the business strategy of the gaming industry. MTM and PG.biz have partnered on a weekly column to not only bring you industry moving news, but also short analyses on each. To check out this week's full edition, visit www.masterthemeta.com!

This past week, the mobile gaming industry got a new unicorn! On September 21st, Playco announced a whopping $100M Series A at a valuation just north of $1B.

Playco regards itself as the first instant-play gaming company that hopes to create games that not just millions, but billions of people can play together. Instant play games are essentially game app-like experiences that can be played and shared with friends instantly on a variety of platforms (for example browsers, within messaging apps, or directly on the app stores), without downloading an entire app.

The round was led by Josh Buckley and Sequoia Capital Global Equities, with participation from Sozo Ventures, Raymond Tonsing’s Caffeinated Capital, Keisuke Honda’s KSK Angel Fund, Taizo Son’s Mistletoe Singapore, Digital Garage, Will Smith’s Dreamers, Makers Fund, and others.

Of course, a $1B valuation at only a Series A definitely warrants a deeper look into the business (which we originally conducted here). And we see three reasons that potentially justify such a high valuation so early in Playco’s journey - the team, the tech, and the opportunity.

#1. The Team. Starting with the company’s founding team, the roster is globally distributed and quite talented:

1. Justin Waldron (President, Tokyo): Zynga Co-founder and SVP Product; Invested in 50+ startups including Snackpass and Substack
2. Michael Carter (CEO, Tokyo): Co-founder of HTML5 game engine company Game Closure; acknowledged in the creation of the official HTML5 spec
3. Takeshi Otsuka (SVP, San Francisco): Mastermind behind DeNa’s hit Mobage title “Kaito Royale”; Creator of N3twork’s “Mafia Watch” (Best of Apple 2015); Quoted as the inventor of many game mechanics that are now staples in Japanese game development
4. Teddy Cross (Co-founder, Seoul): Rose from an intern at Game Closure to a Senior Producer there before co-founding Playco with Carter; Regarded as a HTML5 gaming pioneer

Left to right: Takeshi Otsuka (SVP), Justin Waldron (President), Michael Carter (CEO), Teddy Cross (Co-founder)

Looking at their backgrounds and connecting the dots, a few things become clear. First, Carter is a serial entrepreneur, deep-rooted in defining what HTML5 is today, and has clearly focused on the application of HTML5 to the gaming industry for a very long time. Second, his most recent creation, Game Closure’s HTML5 game engine, has now been acquired by Playco.

Third, Cross seems to have become Carter’s right-hand man during their shared time at Game Closure and is highly skilled in HTML5 game development, thereby cementing his position as a co-founder in Playco. Fourth, Otsuka appears extremely talented in Product and seems to focus on building hit-potential games for emerging platforms versus the more mainstream ones. It’s clear he sees HTML5 native games as the next frontier.

Fifth, Waldron was an advisor to Game Closure and Blackstorm Labs, both companies of Carter. Clearly, Waldron and Carter go way back. And sixth, between Waldron and Carter, there is a wealth of entrepreneurial and investing experience, a lot of money raised, and a proven exit rate.

In short, this is a highly experienced team with a proven entrepreneurial track record, and they likely possess best-in-class relevant skills to go after their shared goal of creating games for platforms that have the potential to disrupt the gaming industry.

#2. The Tech: Playco’s vision is - “Bringing the world closer together through play.” Further, Playco considers itself to be the world’s first instant-play gaming company that aims to create games that billions of people can play together. Given how the majority of Playco’s founding team has significant HTML5 gaming industry experience, you could’ve already guessed that Playco wants to realise its vision through a HTML5-first and native approach. But what is so unique about HTML5?

At a very high level, there are three distinct strengths of HTML5 game development:

1. Faster game development and deployment speed, due to its architecture enabling a “write-once-run-anywhere” game production process
2. Platform agnostic nature, since HTML5 applications run in HTML5 containers that can exist across a variety of platforms
3. High fidelity experiences of both simple and complex games, with developers working towards making it hard for players to notice a difference between HTML5 native and platform-native games

All of the above, plus the fact that all major browsers are now HTML5 ready, has resulted in the rapid adoption of the technology to build HTML5 native games - at least on the desktop browser side of the market. This can be seen in the growing share of high-quality HTML5 games on one of the most popular desktop browser-based gaming platform, Kongregate (where HTML5 even beat out Unity’s Web Player).

It is translating into a growing and majority revenue share of HTML5 games across Kongregate’s portfolio. Yes, the data below is from 2017 (and the purple bars represent HTML5), but we can safely assume the trends above are only moving up and to the right. Broadly, it is a strong signal that HTML5 native games are gaining ground. And Playco coming out of stealth in 2020 feels like the right timing, though their focus has to be mobile.

The rise of HTML5 native desktop browser games is beautifully captured by their rising dominance on one of the most popular desktop browser-based gaming platform, Kongregate. Source: Kongregate Blog

Unfortunately, HTML5 native games continue to remain relatively unproven on mobile. Mobile is essentially the only opportunity that matters, and these games being able to run across iOS and Android is both Playco’s biggest boon and risk.

The reason is that while high fidelity HTML5 gaming experiences could be delivered through HTML5 ready mobile browsers, the games may still not be able to harness the power of iOS/Android’s native features that make the most of the interconnected OS software and hardware, which not only ensures high app performance but also continues to evolve with every new version of iOS or Android.

All that eventually results in a suboptimal user experience, which is what ultimately matters in mobile. This is likely why there is a middle ground being reached for HTML5 native game development called “Hybrid Apps”.

While HTML5 native apps have clear advantages over OS native apps, it also has clear disadvantages. This is likely why there is a middle ground being reached for HTML5 native game development called “Hybrid Apps”.Sources: Mobile Smith, Step In Solutions
 

This is where Playco’s crown jewel comes into play - its game engine. As mentioned before, Playco acquired Game Closure and in turn its game engine. Some of the biggest upsides of a game engine come from solving many complex game development technical problems (rendering, lighting, texturing, client-server communication etc.) under one hood, increasing game development speed through easier scripting, offering plug-and-play functionality for a multitude of valuable product features (leaderboards, social systems etc.), and simplifying the distribution to multiple platforms that have their own set of intricacies.

Given that HTML5 mobile games are still at a relatively nascent stage, having a game engine that can do all the above and used according to Playco’s needs is definitely a major upside. With the image above, it’s encouraging to see that Game Closure’s engine seems up for the job. The interesting twist though is the game engine’s focus on “Messenger Games”, which is a good segue into the final topic.

#3 The Opportunity: When mobile industry folk think HTML5 games, they think instant games, which have some clear benefits:

1. They can be played instantly on a variety of platforms (for example browsers, within messaging apps, or directly on the app stores), without downloading an entire app.
2. Depending on the platform, one could invite his/her friends and family to play such games through a simple hyperlink or invite. Not only does that sidestep the huge adoption barrier of performing a download, but it also creates the opportunity for the game experience to be inherently social, which is arguably the strongest driver of player lifetime value.
3. Further, the user acquisition economics for instant games are entirely different (and potentially in a favorable way) compared to what it looks like currently on mobile. This is mainly due to the fact that instant games have the potential to sidestep app store click funnels and have access to many more forms of distribution, such as being offered within a widely used messaging app.

This is the market opportunity that Playco is going for. However, we also know that instant games crashed and burned a while ago. So why now?

The strongest tailwind right now is a globally renewed interest in instant games within social networking / messaging apps. Almost all of these top apps across most markets are working to integrate social gaming experiences within their applications, with the goal of increasing the average time spent per user in app, increasing ad impressions, improving the chance of driving various service sales, and eventually increasing user lifetime value. Further, various instant gaming platforms now integrate in-app purchases as the additional monetisation system to ads - something that was largely missing during the first wave of Facebook’s instant games.

Almost every major social network/messaging platform in key global gaming markets are making investments into integrating inherently social gaming experiences within their applications through instant games and mini apps.

The above is bolstered by the broader rising trend of mini apps, showcased by WeChat’s investments into Mini Programs, Snap’s plans to build out their Minis offering, Google’s GameSnacks, and Apple’s App Clip effort with iOS 14. While Snap’s and Apple’s efforts are more recent, the usage numbers of WeChat’s Mini Programs definitely look encouraging.

What the data shows is that WeChat users gravitate towards quick to access, low data usage, instant high-fidelity experiences that satisfy momentary and on-the-go needs versus having to engage in long wait WiFi-preferable downloads and complex in-app UX flows. But it should be called out that WeChat is a one-stop shop for the average Chinese citizen, so the growth of mini app experiences within WeChat would make sense.

While these numbers might support the long-term viability of such experiences in China, it is yet to be proven out in the west. From Playco’s perspective, our thoughts around evolving user preferences would indicate that their first few games will likely belong to the casual genre.

 

The rise of engagement with WeChat mini programs is clear, and it is also interesting to see users usually access mini-programs through organic sharing. Source: WalktheChat

By now, you would’ve already guessed that creating instant games for all these messaging platforms could be done through the use of HTML5. And given Game Closure’s focus on messenger games, it is likely that the engine makes it super easy to “write-once-run-anywhere” across a variety of key messaging apps.

Further, Playco has already confirmed partnerships with Facebook (US), Line (Japan), Rakuten (Japan), Viber (Belarus, Ukraine), and Snapchat (US). Maybe conversations with other giants like WeChat (China) are already in progress. Given these partnerships, the team’s choice of globally distributed locations, and the relatively unproven nature of instant experiences in the west, there could be a material chance that Playco equally prioritises game content for eastern markets as well as western ones.

With all that said, there are three risks that emerge when tackling this opportunity. First, since instant games within messaging apps will essentially function as an app store within an app, it remains to be seen how the messaging platform holders solve for the problem of game discoverability.

This was one of the major failing points of Facebook Instant Games, because Facebook simply showcased a library of games as a scrollable list. In other words, Facebook invested zero effort in solving for instant game discoverability similar to how Apple or Google evolve their app store experiences to enable personalised app discoverability. We can say, though, that with the launch of Facebook’s standalone Facebook Gaming app, they’ve vastly improved upon that experience. And Playco’s already secured partnerships can definitely help lower the risk here.

Second, the player lifetime value of instant game experiences within messaging apps continues to remain unproven. While we weren’t able to collect any specific monetisation data, retention rates of WeChat’s mini programs seem abysmal, even though they have improved across the board between 2017 and 2018.

Further, Facebook’s first wave of instant games were notorious for low retention rates versus OS-native mobile gaming experiences. It remains to be seen whether today’s instant games are accepted by the modern mobile gamer and if they deliver better retention rates at all.

Retention rates of WeChat’s mini programs seem pretty abysmal, even though they have improved across the board between 2017 and 2018. Source: WalktheChat

And third, security may be a concern as showcased by how Apple did not allow instant games to be part of Facebook Gaming’s iOS app unless all games were Apple pre-approved. That said, Snap’s ability to host games within its app does make for a potential silver lining. Apple will continue to fight for full platform control, but there still may be ways to support instant game experiences while pleasing the platform gods.

The last remaining question is whether Playco can create a great game. There are certainly high hopes! Notably, the team behind Playco has already proven its product prowess during the first wave of instant games with EverWing - a shoot ‘em up that was a huge hit on Facebook Instant Games, and won the Facebook Game of the Year award in 2016. This game was built on the Game Closure game engine, and the game looks pretty slick, which partially confirms that this game engine is a major Playco asset. Further, Playco’s product team is now bolstered by the proven game design experience of both Otsuka and Waldron, who are quite vocal about making social connection core to the gaming experience.

All in all, Playco makes for a very interesting business. It has a stellar founding team with highly relevant tech and product experience for the instant play opportunity they’re gunning for. Also, the chances of that succeeding are made favorable due to the game engine behind the business. That said, there are material risks that still exist around the discoverability, viability, and acceptance of instant game experiences within the mobile gaming ecosystem. These risks are mostly out of Playco’s control, and the $1B valuation hinges on these risks being eliminated. Whatever the case, we eagerly await Playco’s first game, and hope that the company finds success! We’ll keep subscribers updated on Playco and more on Master the Meta, so make sure to sign up.

Master the Meta is a newsletter focused on analysing the business strategy of the gaming industry. It is run by Aaron Bush and Abhimanyu Kumar. To receive future editions in your inbox sign up here:

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