Social Gaming Opportunities: Insights from 8 Investors

The video game sector experienced numerous significant developments in 2020 as changes in consumer leisure activities occurred due to the pandemic. A notable development has been the strengthening of massively multiplayer online games (MMOs) as social centers, providing users with a broader range of services than ever before.

After surveying investors concentrating on the gaming industry regarding trends in augmented and virtual reality a few months prior, I contacted several investors to gather their perspectives on the evolving trends and possibilities within social gaming.

• Hope Cochran, Madrona Venture Group
• Daniel Li, Madrona Venture Group
• Niko Bonatsos, General Catalyst
• Ethan Kurzweil, Bessemer Venture Partners
• Sakib Dadi, Bessemer Venture Partners
• Jacob Mullins, Shasta Ventures
• Alice Lloyd George, Rogue
• Gigi Levy-Weiss, NFX

A common sentiment among many investors was their enthusiasm for the expanding entertainment scope of social platforms, with events like concerts and film viewings now taking place on gaming platforms such as Fortnite.

While advancements in free-to-play systems continue to enhance the single-player gaming experience, making it more dynamic, platforms like Roblox have identified unique growth areas, evolving into spaces where users can connect and interact.

“It’s where culture is created,” stated Daniel Li of Madrona Venture Group to TechCrunch.

Not all respondents agreed that a gaming platform like Fortnite would evolve into the next Facebook. Niko Bonatsos of General Catalyst highlighted platforms like Discord and Twitch as enduring elements, remaining relevant as consumers move between different platform environments. Others noted the ongoing challenges of a fragmented experience when switching between mobile and desktop versions.

Creating the metaverse and developing a successful casual mobile game represent distinct undertakings. The investors I spoke with generally emphasized the accelerated rate of growth across various categories, with successful games achieving prominence more rapidly than in the past, while failures also become apparent quickly.

“I think that you look at Among Us, and Cyberpunk on the other side, anything can happen much faster and more extreme than it used to be just because of distribution,” explained Alice Lloyd George of Rogue VC to TechCrunch.

The complete responses from the investors are provided below; some answers have been edited for conciseness and clarity.

Hope Cochran and Daniel Li, Madrona Venture Group

The concept of the next major social platform emerging as a massively multiplayer online game (MMO) is gaining traction among venture capitalists. What challenges stand in the way of this becoming a reality?

Daniel Li: Hope and I have been discussing this, and our belief is that gaming represents the future of social interaction. For Generation Z, gaming is not only replacing traditional games, but also platforms like television and Netflix. Instead of watching music videos on YouTube, they are attending concerts within Roblox, creating a shared social experience with friends. Rather than visiting physical shopping malls, they are now gathering in Roblox. This is where young people socialize and where contemporary culture is being formed.

Hope Cochran: During the COVID-19 pandemic, it became the primary means for them to connect, and the gaming industry has excelled at providing a vital new avenue for social engagement. While I don’t want to limit the discussion to children, parents are increasingly comfortable with their kids’ involvement in games because of this social aspect. For example, I can observe my own child connecting with his close friends upstairs. They log in together and play, replicating the social interactions they would normally have on a soccer field, which is currently unavailable. This is leading parents to feel more at ease with their children’s gaming activities.

Investment in the gaming industry appears to be becoming more widespread. As an investor with experience in this sector, what distinguishes investing in gaming?

HC: It’s a significant challenge to strike the right balance between creative vision and sound business acumen. My experience has shown me that evaluating a gaming company as an investment is heavily reliant on data, statistics, and analytical insights. A strong creative team is also essential. I look for this specific combination of skills.

Specifically, I seek to understand who is responsible for developing content that will resonate with users and who is analyzing user behavior and responding to their preferences. While game development initially relies heavily on creativity, it must eventually shift towards data analysis. It’s a convergence of mathematical expertise and artistic talent, and a successful game requires both.

How are popular games and MMOs growing in scale today, compared to the past? Have you noticed any innovative growth strategies that appear promising?

DL: We are seeing an increasing number of cultural trends emerge unexpectedly, such as Among Us, which remained relatively unknown for two years before gaining popularity through streamers. For almost all of these instances, they fall into the category of social games. A game like Cyberpunk, for example, wouldn’t achieve widespread recognition without substantial marketing investment.

I believe a new avenue for growth is leveraging influencers to promote games. Typically, it’s not the large, well-known influencers who drive this initial momentum, but rather a multitude of smaller influencers who begin playing a game and generate organic interest. Larger studios, like those behind Call of Duty, can afford to pay prominent streamers significant sums to play their new releases, but this isn’t a viable strategy for smaller development teams.

MMOs often require active participation. How can they offer a more passive experience for users who are primarily interested in the community aspect rather than engaging in fast-paced gameplay like first-person shooters or battle royales? How can games broaden their appeal to a wider audience?

DL: Many are suggesting that modern single-player games are less about engaging gameplay and more about providing cinematic experiences. Spending 60 hours playing Cyberpunk is a distinctly different experience than binge-watching three television series. What’s truly compelling is the emergence of virtual events within these games. When considering the future of platforms like Twitch, it’s likely to be an immersive experience where users participate in something more passive from within the game itself.

Niko Bonatsos, General Catalyst

The notion that the next dominant social platform will emerge from the massively multiplayer online (MMO) gaming world is a prevalent idea among venture capitalists. However, there are significant challenges that could prevent this from becoming a reality.

The forthcoming social network won’t resemble an MMO, nor will it mirror any existing social network. Currently, people dedicate the majority of their social time to instant messaging applications.

While MMOs are successful at building communities, these groups frequently evolve and move on to other platforms. Younger generations progress from games like Minecraft to Roblox, then to Fortnite, and recently, even Among Us.

These are immersive environments where individuals invest considerable time, but they often socialize concurrently on platforms such as Discord or Twitch. They also serve as excellent venues for viewing shows and enjoying content created by other users. They haven’t yet achieved the complete social network effect.

Within these MMOs, users aren’t typically generating content with the intention of achieving viral popularity within the game itself. Instead, content created or captured often gains traction on platforms like Twitch!

We can anticipate continued innovation in the MMO space, with new mechanics and engaging features. However, they are not poised to become the next major social network – at least not in the current landscape.

Investment in the gaming industry appears to be gaining broader acceptance. As someone with experience in this area, what distinguishes investing in gaming today?

Gaming has consistently presented attractive investment opportunities, and certain gaming properties have grown into substantial businesses. The key difference now is that achieving this level of success often requires a significantly longer timeframe – as demonstrated by companies like Niantic, Epic, and infrastructure providers such as Unity.

Consequently, we are seeing increased seed and Series A funding directed towards gaming ventures. Developing these virtual worlds demands substantial capital and time. The development cycles are lengthy, and success is challenging, particularly regarding content creation, but the rewards can be significant when a game resonates with players.

How has the scaling of popular games and MMOs changed in recent times? Have you observed any noteworthy growth strategies that appear promising?

Live operations have become critically important for MMOs. Previously, expansion packs released every six, twelve, or eighteen months would encourage players to reinvest in a game and access new content. Now, thanks to live-ops powered games, new features and content are consistently introduced.

Players are consistently provided with new experiences. This applies to both MMOs and more casual mobile games. Growth strategies that are particularly interesting focus on simplifying content creation and monetization within a platform. Attracting developers or influential content creators can rapidly generate content and experiences for your user base.

On the infrastructure and tools front, the success of Discord alongside the rise of Among Us this year wasn’t an intentional growth hack, but it demonstrates how ancillary companies can benefit from new interfaces and gameplay mechanics.

How can MMOs, which are inherently active experiences, offer a more passive experience for users who are primarily interested in the community aspect rather than engaging in first-person shooters or battle royales? How can games broaden their appeal to a wider audience?

The key lies in the content. MMOs can attract a broader audience by incorporating content consumption experiences. Given the current need for remote social interaction, MMOs could focus on enabling shared activities like watching movies, attending concerts, or experiencing DJ sets with friends or fellow fans. It may seem straightforward, but it’s about providing opportunities for shared, rather than purely passive, experiences. This approach can attract a more diverse user base to MMOs.

Regarding social infrastructure, what types of startups would you like to see emerge in this space that currently don’t exist?
I am impressed by the work of the teams at Bunch and Powder.gg (both General Catalyst investments) and would like to see more companies focused on simplifying the creation, sharing, and engagement of users within these virtual worlds.

Ethan Kurzweil and Sakib Dadi, Bessemer Venture Partners

The concept of the next major social network emerging as a massively multiplayer online (MMO) game is gaining traction within the venture capital community. What challenges stand in the way of this becoming a reality?

Developing substantial MMO-style games requires significant investments of time, resources, and capital to both create and distribute to players. Although mobile devices are continually increasing in processing power, the gaming experience on these platforms currently doesn’t quite match that of PCs or gaming consoles. As this performance disparity diminishes, we anticipate a surge in platforms similar to Roblox and Fortnite, functioning as social hubs.

Investment in the gaming industry appears to be increasing in popularity. As someone with experience in this area, what distinguishes investing in gaming from other sectors?

The potential results are considerably more definitive than in many other industries—and predicting what will be enjoyable is a challenge. In the Software-as-a-Service (SaaS) realm, launching products and gathering rapid feedback and data is a relatively straightforward process.

Game development, particularly for high-budget console or AAA titles that require years and millions of dollars to produce, doesn’t offer clear indicators of success until the game is released. Mobile game development is faster and allows for quicker improvements based on player feedback, but acquiring and retaining users profitably presents a greater hurdle.

How has the scaling of popular games and MMOs evolved recently? Have you observed any innovative growth strategies that appear promising?

The majority of gaming startups are now leveraging social platforms such as Twitch and Discord to cultivate communities of fans from the outset. Almost every successful game in recent years has benefited from players regularly watching their preferred streamers, playing with friends, and sharing gameplay moments, resulting in rapid organic growth through word-of-mouth.

The team behind Among Us credits an early growth spurt to a streamer in Korea who helped propel the game to prominence on Twitch. However, many companies attempt to pay streamers to promote their games, which tends to be expensive and less effective than the challenging but rewarding work of creating a game that players genuinely enjoy and return to repeatedly. This approach can also appear insincere, and potential players often recognize it.

MMOs often require active participation. How can they offer a more passive experience for users who are primarily interested in the community aspect rather than engaging in first-person shooters or battle royale games? How can games broaden their appeal to a wider audience?

Gaming has already achieved widespread popularity, with estimates suggesting over 2.6 billion gamers worldwide! While numerous startups cater to specific player demographics, a diverse range of game genres and concepts appeal to gamers of all ages, genders, and locations. We believe that as more companies recognize these opportunities, we will see continued growth in the number of people who enjoy at least one game that resonates with them.

Regarding the social infrastructure, what types of startups would you like to see emerge in this space that currently don’t exist?

There is a significant need for products that effectively connect watching a game with actually playing it. How can we enhance the viewing experience to make it more interactive? This would be advantageous for both gamers and developers, who are keen to reduce the barriers to trying new games.

Jacob Mullins, Shasta Ventures

The notion that the next dominant social platform will emerge from the realm of massively multiplayer online games is gaining traction within the venture capital community. What are the primary challenges preventing this from becoming a reality?

We are already witnessing this unfold, exemplified by the success of Fortnite. However, the biggest hurdle lies in achieving cost-effective user acquisition. With increased investor interest in this area, numerous MMOs will receive funding, but only a select few will attain the widespread popularity of platforms like Roblox or Fortnite.

From both an entrepreneurial and investment standpoint, I recommend prioritizing initial user engagement, sustained retention, and strong viral growth metrics—the K-factor. Without exceptional performance in these areas, attempts to scale user acquisition will likely prove unsustainable. Continuously refine your game mechanics and overall user experience until these metrics are optimized.

Given the increasing investment in gaming, what distinguishes investing in this sector now compared to the past, for someone with experience in the field?

Gaming has consistently been a strong investment area, as demonstrated by the enduring appeal of franchises like Mario Brothers and Zelda. The industry experienced a shift over the last decade due to the increased accessibility of game creation and the proliferation of casual mobile games. The early mobile market offered readily available user acquisition opportunities. However, many of these games relied on simple, casual gameplay that struggled to maintain long-term user engagement.

While certain titles, such as Angry Birds and Candy Crush, achieved significant success, a flood of imitations emerged, became overcapitalized, and rendered user acquisition unprofitable—leading to gaming being labeled a “hit-driven business” and falling out of favor with investors.

How has the scaling of popular games and MMOs evolved in recent times? Are there any particularly promising growth strategies or techniques you’ve observed?

Today’s most successful games are dynamic, social, and continuously updated. These social elements and “live operations” allow games to actually grow engagement, user bases, and revenue over time, rather than experiencing decline. Game developers provide the framework, tools, and rules, while the player community generates the content.

Modern MMOs are able to scale organically as players create content and naturally share it with their social networks. The key is to empower users to create and share their experiences.

How can MMOs, which typically require active participation, offer a more passive experience for users who are primarily interested in the community aspect rather than competitive gameplay like first-person shooters or battle royales? How can games broaden their appeal to a larger audience?

MMOs have incorporated spectating features, which have fueled the growth of esports. Similar to traditional sports, the game itself is central, with players of varying skill levels competing or striving for improvement, while others enjoy watching and admiring the gameplay.

Because the community itself generates the content, games are no longer limited to a single, predetermined storyline. Games are incredibly popular with Gen Z, the largest generation in history; as they mature and gain greater purchasing power, we can anticipate increased time spent watching MMOs and esports.

Regarding the underlying social infrastructure, what types of startups would you like to see emerge in this space that currently don’t exist?

There’s a significant opportunity to develop a portable identity and authentication system that can be used across multiple games. Similar to Facebook login, imagine being able to use your Fortnite avatar in other games, or even during a social viewing experience on Netflix.

I anticipate this becoming a reality. In addition, emotional connection—which is often lost in MMOs—could be enhanced through virtual reality, incorporating elements like body language, gestures, and eye tracking.

Alice Lloyd George, Rogue VC

There's a growing belief among venture capitalists that the next dominant social platform will be a massively multiplayer online (MMO) environment. What challenges stand in the way of this becoming a reality?

I believe these platforms require robust, operational economies. While some attempts have been more successful than others, a viable economic system connected to content creators is essential. Beyond that, a broader level of interconnectedness and interoperability is crucial for widespread adoption.

A potential difficulty that isn't always immediately apparent is the issue of instancing. For example, the Marshmello concert within Fortnite accommodated millions of simultaneous users, but they were divided across numerous instances, preventing friends from experiencing it together. Resolving the complexities of the social network itself is a key hurdle, and a significant part of that is a technical one.

How has the approach to scaling popular games and MMOs evolved recently? Are there any noteworthy growth strategies or techniques that you find particularly encouraging?

We’ve observed that games like Among Us, and even Cyberpunk in a different context, can experience rapid and substantial growth due to the current distribution landscape. Things can happen much more quickly and with greater intensity than in the past.

Gigi Levy-Weiss, NFX

The notion that the next dominant social platform will emerge as a massively multiplayer online game is gaining traction among venture capitalists. What challenges stand in the way of this becoming a reality?

I believe there’s a distinction to be made between an MMO and a virtual world. The forthcoming social network needs to function as a gathering place even when individuals aren’t actively participating in a gaming session. While platforms like Fortnite incorporate numerous social networking elements—such as user relationships and interactions—they still fall short of being complete social networks. Therefore, my perspective is somewhat reversed: for games to achieve massive scale, they will require features akin to those found in social networks and virtual worlds, rather than the other way around.

Investment in the gaming industry appears to be experiencing a surge in popularity. As someone with experience in this field, what distinguishes investing in the gaming sector now?

Gaming represents a distinctive blend of technical expertise and creative artistry, engaging both analytical and intuitive thinking. It’s rarely solely a matter of technology—such as software and data—which often presents a challenge for investors. Its increased appeal recently stems from the fact that many of the newest, highly successful gaming companies (including Playtika, Playrix, and Moon Active) place a greater emphasis on data-driven strategies than on artistic design, making them more readily understandable to investors.

How has the scaling of popular games and MMOs evolved in recent times? Have you observed any noteworthy growth strategies that appear promising?

Scaling methods have remained largely consistent over the past few years, with some innovative applications of influencer marketing. However, it generally still relies on a combination of paid advertising and viral techniques that encourage users to invite their contacts.

MMOs typically offer intensely interactive experiences. How can they also deliver a more passive experience for users who are primarily interested in the community aspect, rather than engaging in first-person shooters or battle royale games? How can games broaden their appeal to a larger audience?

This is a significant hurdle, as game creators often concentrate on the game itself. Individuals who don’t enjoy the gameplay are unlikely to appreciate the environment if they aren’t actively playing. The question is whether any game developer can construct a universe that welcomes non-gamers and provides them with engaging non-gaming activities that extend beyond isolated events (such as an in-game concert). I haven’t yet encountered a truly compelling example.