Southeast Asia: Primed for Growth

Southeast Asia: Primed for Growth

Gaming is truly a global industry, and our team at Konvoy is constantly looking for new market opportunities. We are a geography-agnostic fund, and believe some of the industry’s most significant growth will come from markets that are currently being underserved. Back in February, we wrote about the future of India’s gaming market and some of the tailwinds that are making us bullish on the region (Konvoy).

Today, we are covering a promising geography that we have been actively investing in over the last 12 months: Southeast Asia (SEA). While China, Japan, and South Korea have historically dominated the gaming headlines in Asia, we are particularly impressed by the strong founders, innovative ideas, and pioneering consumers that are proliferating in SEA. Our excitement about this geography is most notably demonstrated through our investments in Sky Mavis and Sipher, both of which are based in Vietnam.

We are seeing four core trends that support our belief that SEA is a major player in the future of gaming:

1) Idiosyncratic Economic Tailwinds: It is important to note that SEA is a diverse region from both a cultural and economic perspective. For example, consider the significant variation in GDP per capita between Singapore (~$60,000) and Myanmar (~$1,500). As a result, the adoption of gaming and opportunities for monetization will not be equal across borders.

Although geopolitical tension continues to create problems on a global scale, there may be a silver lining for countries in SEA. Growing contention around China has led many enterprises to seek a more diversified supply chain strategy, and the relatively low cost of labor in nearby countries in SEA is quickly becoming an attractive alternative. Vietnam’s manufacturing industry is already reaping the benefits with a 30.4% year over year increase in exports this past April (CNBC). Additional factors such as China’s population and demographic challenges could continue to accelerate this diversification over the coming decades (NY Times). We see this as a promising sign for the region as a whole when it comes to economic output and quality of life improvements that can elevate disposable income.

2) Mobile Adoption: As we are seeing across most emerging markets, mobile gaming continues to be the primary entry point for consumers. This can mainly be attributed to the growing accessibility and adoption of smartphones. Adoption is particularly strong in Singapore (87%), Malaysia (83%), Thailand (75%), Indonesia (70%), and Vietnam (63%) but continues to gain traction across the board (World Economic Forum). These adoption numbers are notably high when comparing them to other emerging markets like South Africa (61%), Brazil (55%), Nigeria (48%), and India (35%).

The most compelling data on mobile growth is actually around usage. Four of the top markets for mobile app downloads in 2021 were in SEA. This includes Indonesia (#5), Vietnam (#9), the Philippines (#10), and Thailand (#14) (data.ai). For context, each of these markets ranked higher than the UK, Germany, France, and South Korea.

3) Blockchain Gaming: Over the course of 2021, SEA attracted a significant amount of attention as blockchain gaming and play-to-earn took center stage. This originated in the Philippines when Axie Infinity’s tokenized economy enabled players to earn more than the country’s minimum wage (watch this 18 minute documentary). In the midst of a turbulent job market driven by the COVID-19 pandemic, this had significant social impacts across the developing world.

However, the true importance of blockchain gaming over the past year has been two-fold:

1. A growing focus on the local player base has also attracted more attention to content developers in the region.
2. The emergence of virtual worlds as a potential source of (meaningful) income for labor in the emerging markets.

Following in Axie’s footsteps, hundreds of blockchain game studios launched across the world, but also particularly in SEA. Not only does the region have a strong user base for blockchain games, it also boasts strong technical talent for developing these games.

4) Growing Investment in Gaming: The heightened attention on gaming in SEA has been met with a corresponding increase in interest from venture capital funds. While just 12 gaming venture capital deals with a total value of $15.7m executed in 2020, 2021 consisted of 46 deals worth $290.0m. It is important to note that of these 46 deals in 2021, 30 were blockchain-related startups that accounted for $271.8m in value. The other deals were split amongst traditional game studios, live streaming platforms, and esports.

Although a significant portion of last year’s investment growth can be attributed to an active blockchain gaming market, we believe this will have lasting effects on the broader gaming ecosystem in SEA. Such a large-scale influx of capital has the corresponding impact of bringing more ideas to market and continuing to establish the important role of gaming in the region.

Takeaway: The SEA region has established itself as a formidable player in gaming, commanding ~7$b (4%) of the global gaming market and consisting of more than 250m mobile gamers (~8% of the 3b+ gamers globally). We believe that the region will continue to expand its reach through unique economic growth (supply chain shift out of China), rapidly growing mobile adoption, and increasing interest from the venture capital and investment community. We expect countries such as Indonesia, Vietnam, the Philippines, and Thailand to be major sources of growth for the industry over the coming years and decades. The number of investable opportunities will continue to grow, and we believe that SEA has the opportunity to be one of the most innovative markets globally.