Super-Apps via Gaming

Gaming Apps: Expanding The Service Offering

Super-apps were one of the hottest discussion topics in 2021. The need for consolidation is clear - the average person has 40 apps installed on their phone but 89% of the time (4.8 hours a day) is split between just 18 apps (Simform). A single application where a user can utilize any digital service - most often provided by third-party developers and service providers - could solve problems for both the consumer and the platform owner.

The success of WeChat, Grab, Gojek, and Alipay in the East, combined with proposed legislation in Washington around how app stores must be operated, has spurred discussion around why a similar concept has not been adopted in the West. Most recently, Walmart announced their intent to build a financial super-app. If Walmart did this, their service would span across a wide array of their existing businesses (retail, healthcare, and financial services). However, we do not believe that super-apps, in general, are currently well positioned to succeed in the West.

This week we will look at the structural barriers for mass adoption of super-apps in the West and analyze the industry specializations that have been used as entry points to-date. After this deep dive, we believe that although there are strong headwinds, gaming has the potential to become the closest to a industry-focused super-app in the West.

WeChat: Why It Worked

When WeChat (then Weixin) started in 2011 as a simple messaging and photo-sharing app, they were entering a market landscape ripe with opportunity. We believe there were four primary factors that spurred the application’s explosive growth:

• Lack of competition: WeChat’s launch could not have been better timed with the gap in the messaging market in China. Foreign companies such as Facebook (now Meta), Google, Twitter, YouTube, and many more had been blocked in China since 2010 or earlier. Even Line, a Japanese application that partnered with Chinese tech giant Qihoo, was eventually banned in 2014 (Sapore di Cina). Though Weibo and Milao (both originated in China) were founded domestically, WeChat quickly surpassed them through rapid product iteration on constant customer feedback.
• Mobile growth fueled internet adoption: In 2010, only 34.3% of China’s population used the internet (vs 71.7% in the US). This was in part due to China’s significant rural population, which represented ~50% of the total population (China census). However, spurred by the availability of affordable smartphones such as Xiaomi and OnePlus entering the market, internet adoption jumped to 50.3% by 2015 (or 685.5m people vs US’s 239.2m internet users in 2015), with 89% of users accessing the internet using mobile devices.
• Existing Tencent resources: WeChat’s predecessor, “QQ” (also owned by Tencent), was a desktop messaging application with hundreds of millions of users by 2010 (Tech in Asia). WeChat was seamlessly available to these users from the start, giving the messaging product a huge advantage versus other domestic competitors who were starting from square one. While other services required email addresses or phone numbers to login, WeChat simply needed a QQ account, instantly migrating these desktop messaging users and their network of contacts to the mobile counterpart.
• Financial services for the unbanked population: China still has the world’s largest unbanked population (225m people in 2021), which consists largely of those living in rural areas (~37% of the total population). Despite lack of access to bank branches in rural areas (which in 2020 was ~38% of the population), these constituents have adopted digital banking and gain access to their assets through smartphones. WeChat also enabled merchants and consumers in these areas to exchange goods and services in a cashless environment, supplementing the lack of traditional infrastructure.

Structural Barriers in the West

Prospective super-apps in the West today are not able to capture the same mobile and banking adoption tailwinds that WeChat benefited from in the East. Furthermore, there are market and consumer driven headwinds that must be overcome:

• Immense competition: Aggregation and accessibility are core to the value provided by super-apps. In order to win consumers, prospective super-apps must have the potential to be industry leaders in each category they operate. In the US and Europe, companies face immense competition, both international and domestic, which limits the likelihood of success for non-core apps. The lack of a sustainable ecosystem then diminishes the ability to attract third party offerings. While companies like Apple and Google have hosted their own marketplaces with third-party content for years, other potential super-app hopefuls, namely Meta, have demonstrated an unwillingness to split the upside of a shared ecosystem (Vox).
• Consumer distrust in big tech companies: The tech industry in the West exists under intense scrutiny of their privacy practices and market influence (i.e. monopolies). Over the past decade, there has been a noticeable shift in skepticism over “big tech” companies and their influence in society. In the United States, we are currently seeing legislation emerge in Congress right now that is proposing significant antitrust reform (The American Innovation and Choice Online Act and the Open App Markets Act). In Europe, there has already been movement in regards to GDPR, DMA, and DSA. In regards to super-apps, this type of legislation in the West inherently limits the scale of potential super-apps in these markets.

Could a Gaming Super-app Work?

Most super-apps started as single apps with a specific purpose but have morphed over time into ecosystems of hundreds, if not thousands of mini-apps. The specialization of apps in financial services (PayPal), ecommerce (Walmart), and even transportation (Uber) have been in the news for their potential to become super-apps in the West. We feel that optimism is unfounded; financial services applications are used to facilitate an outcome - purchasing, sending cash to friends and family, financing - and usage of ecommerce and ridesharing applications are exclusively need-based. While these applications are part of a user’s day to day, they are not places where a consumer's idle or browsing time is spent, nor do they have strong social network effects. While financial services, ecommerce and transportation applications are essential features for a super-app, each alone cannot be the core that a super-app is built around.

We believe that social platforms could be the initial starting points for super-apps in the West, however, they have their own limitations. Due to the limited number of players in the space, it makes sense to focus on the largest players versus the category as a whole:

• Google: While the Google ecosystem (YouTube, Android) should indicate that they are a strong candidate to become an aggregator and distributor as a super-app, Google has consistently come up short and has not been a credible threat in any of the core verticals essential to a super-app: messaging, ecommerce, financial services, or transportation. This is shown through the slow adoption of Google Pay (25m users vs Apple Pay’s 44m users, despite having >50% more of the global mobile OS market share), their decision to end the integration of Plex bank accounts, and the graveyard of >200 apps and services that they have tried to internally develop.
• Meta: Outside of the US, there are regions where Meta is a key part of people’s social networks on the internet. However, in the US and Europe, Meta’s potential to become a super-app is much lower. In the United States, 69% of US adults use Meta yet this stat has been flat since 2016. Looking at Instagram, it has rapidly grown its market presence to 40% of US adults (up from 30% in 2016), yet its growth is starting to flatten. Only about 25% of the US population has used WhatsApp (Pew Research). Meta has left a graveyard of financial service applications (Diem, Libra, Calibra, Novi) over the last few years, however, Facebook Pay (now rebranded to Meta Pay as of last week) may prove to be sticky enough to survive.

Today, people launch games to either 1) play a game and/or 2) be social with their community. No one is launching gaming applications with the intent to transfer funds, transact in ecommerce, or order an Uber (yet?). While this is not currently a reality today, we believe there is a (slight) chance that gaming could have the social bedrock of tomorrow’s super-apps in the West. Imagine opening up Steam or Fortnite to not only chat with your friends but also shop on Amazon while you catch up.

Here are 4 ideas on why we think a super-app in the West could emerge from the gaming ecosystem:

• Gaming is already where people spend most of their mobile application time:Not only is gaming a medium where consumers spend highly engaged minutes, it is also an activity that people socialize and spend idle time around (Twitch, Discord, non-combat social hubs within virtual worlds). According to Simform, gaming is 2nd in the average weekly time spent in-app (116 minutes), trailing social (131 minutes) and followed by communication (102 minutes) - the latter two categories were WeChat’s wedge.
• Legislation has the potential to erode existing general marketplaces, opening the door for specialization: Upcoming legislation such as The American Innovation and Choice Online Act and the Open App Markets Act could prohibit dominant tech platforms like Amazon, Apple, and Google from giving preferential treatment to their own services in marketplaces they operate. This would make their own services vulnerable to other product alternatives. Given that a majority of time and dollars are spent on gaming applications, existing PC / console content distribution marketplaces are well positioned to expand distribution of premium content to mobile and build a general app marketplace offering.
• Payments (to entities and peer-to-peer) are already trusted by the consumer: Gamers are already used to paying for in-app purchases (IAP) through Apple Pay, Xsolla, PayPal, and more. Trust and utilization of these channels has already been established, thus adoption of a financial services app in a gaming-centric super-app would be seamless.
• User-generated content / third-party contributed content as a concept is already widely accepted by consumers, developers, and platform owners: Platforms such as Roblox, Minecraft, and Manticore are highly reliant on the experiences that are built by third-party developers. Players know that they are entering games not created by the Roblox platform for example, and still trust that it will be a safe experience.

Takeaway: There are many institutional headwinds that obstruct the potential proliferation of a super-app in the West. Applications that got their start in financial services, ecommerce, and transportation are not well-positioned for product diversification due to their roles as a need-based applications and lack of social network effects. Gaming applications have proven that they are high engagement experiences where consumers spend an increasing amount of their online time and money. We believe that the social fabric of gaming alongside its thriving economic structure could allow for an expansion to non-gaming service offerings to consumers.

We saw WeChat thrive with messaging, ecommerce, and financial services. When we look at gaming economies; they already have messaging (voice / text), glimpses of ecommerce (virtual items, subscriptions), and the initial stages of financial services (transferable assets via digital wallets). Given the pressure that Apple and Google are under from proposed legislation, there may be an open door for a super-app to emerge from the gaming ecosystem that works for the West.