Video Games ARE the Video Games of the Future!

No doubt, it is a hot, hot market and apparently somewhat recession proof. Video Games and, by extension, Virtual Entertainment(basically a game but based on a paradigm of experience rather than score/achievement) are a huge market with a worldwide projected value of $47Bn by 2010 under a CAGR of 14%(PwC, 2008). Great potential and a huge area for VCs to invest in.
In 2008, funding alone for games & virtual worlds reached almost $1Bn from Venture & Angel sources which went into a approximately 110 firms(VentureBeat, April 26th 2009).

With that in mind, it is a good market for any VC to be aware of so here are some thoughts about innovations that might make for good investments:

Mobile Gaming / Wireless - not wireless game controllers, but actual wireless/mobile game versions that can be ported over to PDA/Cell device so that people can continue to play while on the subway or training to work or breaking for lunch. Packet or "chapter" technology that can allow for people to download a discrete module to play, then synch back when ready to continue on their computer or console. Everything is moving to our mobile devices and full video gaming will be expected to follow.

The Marriage of Video Games & Social Networking - currently the social web is just "dating" the video game industry in the form of virtual world platforms such as Second Life. They are converging and turning the online interaction with other people in other environments into an actual dynamic experience for everyone - not just tech heads in their basement. The next innovations will start when Facebook buys a video game company that allows its members to participate in next-gen interactions and real-time gaming scenarios. Who cares about Facebook's "What Rock Star are You?" Quiz when you could hook up with your friends in Sweden, Micronesia & Pensacola, Florida and play Guitar Hero  - live and online? Or settle grudges with groups of other friends by playing a medieval war game in which you storm their castle - online and live?
Basically, VCs should be on the look out for gaming startups that firmly have a social networking platform in their sites or via an API that allows this to happen. This is the next step after the flirtations going on between these two industries and some great things will happen when they tie the knot.

Pre-paid Access - this is more of a complementary service but adds to the overall video game market. Many MMOGs are subscription based but in Asia pre-paid cards are also an option allowing for innovations in pricing and supply sources. Considering the way pre-paid cellular usage has made a dent into standard cell phone plan revenues, this could be the next step for the US gaming market. Intermediary firms enabling this type of alternate revenue model could be an interesting step for any VC in that sector.

This is an ongoing topic that I will need to revisit again. New innovations and booming numbers in the industry make it a very active area to keep an eye on.

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