Edge Computing

Last week I was in NYC at ESL One, a CS:GO tournament that filled the Barclays Center for 2 days. This week, I’m in Miami at the EsportsBAR conference, where I had the chance to speak on a panel about the investment landscape in esports. A couple of takeaways over the past two weeks:

1) Investment focus: even though a lot of investment has gone into esports teams (trading at ~13x revenue), yet we are seeing a noticeable shift towards a focus on “picks and shovels”. While this has been a foundational theme for us as a venture firm, it’s now a much more common theme amongst founders, investors, and LPs.

2) Gaming + Culture: gaming is no longer just about playing video games. Gaming is now a key part of digital entertainment in our culture. Case in point: In 2018, the hours watched on YouTube Gaming alone was 50B vs Netflix (52B) and Hulu (9.4B). YouTube Gaming alone has 200M users vs Netflix (150M) and Hulu (25M). If you thought that OTT was a good investment theme back in 2007-2010, I’d suggest you watch its next evolution; it’s in gaming.  

3) VC Deals: over the past few years, some VC firms have chosen to be extremely aggressive on their terms with esports/gaming companies (i.e. 2x liquidation preferences at Seed stage). The best founders in this space are now aware of who those VCs are and will not tolerate abnormally aggressive terms from VCs who think “We’re the only show in town, so we get whatever terms we want.” Here at Konvoy, we’re certainly keen on protecting our investment yet not by being predatory, which would ultimately hurt not only the founders but us as investors.

Edge Computing: mentions of "Edge Computing" in earnings calls has now surpassed "Cloud Gaming" over the last 5 years. Edge computing certainly has more use cases (Autonomous Vehicles, Industrial Automation, IoT).  Cloud gaming’s current issue is the speed of connectivity between remote servers and the player’s monitor, while edge computing is trying to bring that computational power as close to the end user as possible, regardless of where the nearest game servers are located.

Based on these earnings transcripts, it seems like edge computing and cloud game are intricately connected with a slightly higher emphasis on edge computing as of late. Between April 1, 2015 and today, “Edge Computing” has been mentioned 336 times compared to 94 times for “Cloud Gaming”.

Game Bundling: It seems like everything is moving towards a subscription model. Google and Apple have both released similar forms of subscriptions for libraries of games, Microsoft has had Xbox Game Pass since 2017, and Sony has PlayStation Now. While this has worked for many people, I think a hybrid monetization model still has a place in this market. As every content owner offers subscriptions, the value of each service decreases. We’ve seen this type of price competition in the OTT subscription market, and I imagine we will see history repeat itself as gaming undergoes the same bundling of content.  

CDL vs OWL: Activision has announced, similar to OWL’s inaugural season, that there will be 12 franchises in CDL’s inaugural season. The first thing I noticed is that, unlike OWL, there are no teams based in Asia for the CDL (OWL has Seoul and Shanghai). It is important to note that South Korea alone represented 59% of OWL players. Also, for the 12 franchises, there is the only crossover for five cities (both have two LA franchises).

From an ownership standpoint, there is some interesting crossover:

• Immortals Gaming Club: Houston (OWL), LA (OWL), LA (CDL)
• Sterling.VC: New York (OWL), New York (CDL)
• NRG Esports: San Francisco (OWL), Chicago (CDL)
• Team Envy: Dallas (OWL), Dallas (CDL)