Episode 81: The Indian Video Game Revolution: History & Social Impact of Gaming, The Indian Female Gamer, Unit Economics of the Gaming Industry w/Salone Seghal
About Salone Seghal:
My next guest on The One Percent Project is Salone Sehgal, a trailblazer in the world of gaming and interactive media. Salone has shattered the glass ceiling by becoming the world's first female general partner of games and interactive media VC funds. Her impressive journey has seen her co-founding Lumikai Fund, India's first early-stage interactive media and gaming VC.
Salone's remarkable career expanded to over 18 years as a global game and new media investor, games entrepreneur, and former M&A banker.
In this conversation, she talks about the history of gaming, the cultural impact of gaming, the female Indian gamer, the unit economics of the gaming industry, and much more.
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Key takeaways:
Gaming is a form of entertainment and a training ground for critical skills and qualities that can contribute to success in the tech industry. It fosters agency, collaboration, strategic thinking, and cognitive abilities. It also hones social and collaboration skills and is considered a net positive activity for personal development. Many prominent tech leaders, including Mark Zuckerberg, Elon Musk, and Stuart Butterfield, of FANG, have a background as gamers.
Gaming has gone through a profound transformation, expanding from its early demographic of young males to becoming a universally embraced form of entertainment. The evolution is a testament to the gaming industry's adaptability and ability to break down barriers of access/paywalls/stereotypes, making gaming accessible to people of all ages and backgrounds.
Indian gamers have unique sociological and behavioural characteristics distinct from those of their Western counterparts. Indian gamers tend to be social, and remarkably, almost 40% of Indian gamers are women, which is a demographic evolution distinct from the West. Gaming in the West started as a predominantly male-oriented activity and later embraced female gamers, whereas, in India, it is a more balanced position in terms of gender diversity.
Technology and infrastructure played a key role in shaping the gaming landscape in India. The rapid growth of data availability, driven by the rise of Jio and a 93% reduction in data prices, has made gaming more accessible to a broader audience. Additionally, the rise of digital payments has facilitated monetization within the gaming ecosystem. Events like the COVID-19 pandemic have further accelerated this transformation.
In the gaming industry, revenue generation revolves around three primary sources:. Firstly, there are in-app purchases, which include in-game items or cosmetic enhancements. These in-app purchases constitute a major driver of revenue for games. Secondly, advertising revenue plays a significant role, with developers incorporating advertisements into gameplay to generate income. Lastly, subscription-based revenue models, such as game and battle passes, are gaining traction. In India, real-money gaming has also seen popularity as a means of monetization.
The metaverse concept is complex and has undergone various interpretations and hype cycles. Defining what the metaverse truly means and developing the technology to support it are ongoing challenges. While virtual worlds, digital currencies, and asset ownership have existed in gaming for some time, achieving an interoperable and persistent Metaverse is still years away.
Productivity apps: Slack and Notion
Book Recommendations:
"My Life in Full" by Indra Nooyi
"Never Split the Difference" by Chris Voss
"The Untethered Soul" by Michael A. Singer
In this conversation, he talks about:
00:00 Intro
02:14 Salone's journey into Gaming.
07:38 The History and Evolution of Gaming
16:11 How did Nokia stumble upon "Snake"?
17:49 FAANG founders are gamers.
23:41 The Indian Female Gamer.
27:32 Unit Economics of the Gaming Industry.
30:37 Observations on One-Hit Wonders in Gaming.
34:39 Evaluating Success in the Gaming Industry.
38:36 Understanding the Gaming Demographics- Building a Career in Gaming.
44:26 Views on the Metaverse.
47:59 One management advice that you have learned as a leader.
50:44 Reflections on Leadership Figures- Michelle Obama & Indra Gandhi.
52:22 Are leaders polarising?
52:56 Kindest thing anyone has done for you.
53:32 Key takeaways
Transcript*
Pritish: What's the history of gaming, and where did it start? How did it become a phenomenon, and how did you get involved?
Salone: My journey with gaming started as a kid. I used to play games. In my social circle, I used to be the only one who used to play games. So, I used to play many games such as Civilization, The Sims, and Mortal Combat and grew up playing games and spending days in gaming worlds. But there was a very clear realisation at that point in time: there weren't people like me playing games or people like me in games. And, as I grew up, I never really thought I would have a career in gaming. I grew up in India, did my undergrad here, and then got a chance to take off my career in Europe and started my career in finance. I was in private equity and then was in investment banking, and I spent time at Morgan Stanley and Barclays. I was doing M&A and saw over 10 billion in M&A transactions. And that was covering, covering deals in Europe. But I guess after the first six, seven years of my career in finance, I was burnt out, and I was taking a break, but I had this big, I'd say, toolkit in financial analysis, investment banking, and private equity. And I got an approach from a colleague from business school who said, hey, do you want to start a gaming company? While that was never on my horizon, I could recollect a time from my childhood when it was a clear passion. And the company that I ended up setting up and launching was essentially an immersive social world built for mobile audiences. At that point in time, the advent of mobile gaming had just started to emerge, there was this completely new demographic of gamers who were women who were playing games, as well as a new business model in gaming that was emerging called free-to-play games. And that was how my journey in gaming started. We raised venture funding. I also thought that business got really entrenched in India. We had an India based SKU, which led me to building Inroads and partnerships with Indian gaming companies, Indian publishers, including Nazara Games, did much work with brands, celebrities, and influencers, both in the global markets and the Indian market, and ran that company for four years. And that's when I met the venture fund, which I eventually worked with. It was a fund called Nunn and Venture Partners, who were investors in my own venture, who essentially said, hey, why don't you, why don't you join us and help us build the fund out? And that was my transition from being an investment banker and an entrepreneur to now transitioning into VC. Venture capital, that too, in gaming and interactive media, and LVP as a fund had pioneered investing in interactive media and gaming. The partners had seen enormous success as their track record backed a few deccacorns and saw strategic exits anywhere in the range of $300 to $500 billion and they really got to learn what best in class looks like, really built up a very large strategic network across Asia, across Europe as well as the U.S. While I was on the journey, I'd always kept track of market, developing markets like China, like Turkey, like, like India. And the India opportunity was something I tracked for a very long time. And India, as a market, had several false starts in gaming. But back in 2019, I started seeing a lot of deal flow and green shoots in the India gaming market. That's when I found out the time was right for me to come back and probably launch a sector-focused, region-focused fund for the Indian market. And that's how I decided to come back. Several of my investors from the previous fund followed me into this fund. And Lumikai was, as we launched Lumikai in Jan 2020 and did a first close in August 2020. And that's how Lumikai's journey began. I guess my journey in gaming has been, I'd say, accidental, but initially, but since then, it has become much more conscious, and I am in complete awe of this industry, which is an incredible confluence of technology, culture, and new media. And if you've seen the evolution of gaming and how it started, it's just an incredibly fascinating history because we've seen the emergence of business models, we've seen the emergence of different platforms, and we've seen the emergence of new demographics. To a point where now there are 2 billion gamers across the world, and this is now a $300 billion global industry. It's bigger than television, it's bigger than box office, it's bigger than music, it's bigger than tv media rights, and two things propel it. One is a tech change in the changing technology paradigm. And the second is a demographic expansion. And that's really been fascinating to watch, but I'm happy to talk a little bit about the evolution of the gaming market. This is just a primer.
Pritish: I watched a Tetris movie a few months ago. It was fascinating, amazing screenplay. And I hope that most of it was true. So that got me very much excited to understand how this industry even evolved. I'm not a gamer. I can probably talk about it, but that's all the bookish knowledge or online content.
Salone: See, the industry has evolved in a really interesting way. The first generation of gamers were essentially the arcade generation, so to speak. It was Atari revolutionising arcade games, and Nolan Bushnell was the developer of Pong, and that was how arcade games were born. And largely, I'd say young teens, younger adults, and arcades were great places to socialise and hang out. That was the original evolution of gaming. In fact, actually, the first game, so to speak, was actually developed by MIT back in the 1960s. It's called the Space War. It is the first-ever recognized video game. That was back in 1961. You have it, it's PVP. You have two players simulating a space combat flight and their source code, so MIT essentially shared their source code with other institutions. And that essentially allowed the game to gain popularity, but that's as early as how video gaming was. Obviously, the early adopters were young adults or students in institutions, very much like what we'd see even now as early adopters of let's say, new games. Followed by the arcade generation, you had the console generation, which arrived. And that was because there was technology leapfrogged. You could have microprocessors, and there was a much better rendering of graphics that was possible, and hence console games emerged. And that obviously also corresponded with the emergence of microchips. And apart from Atari, you had the old school names like Nintendo. Those guys came into the market, and that was an evolution, the next evolution of gaming consumption, and at that point in time, games, the business model of games, were very much boxed goods. It was, you had to; it was what they used to call the ship and pray philosophy. You used to win the game; you used to ship it on the console, and hopefully, it would do well. There was no kind of modern telemetry. There was no kind of user testing. There were no live ops. And I guess there was a generation that was a generation where creativity was really unleashed. That was also the time that corresponded with the likes of a John, the rise of a John Romero, or a John Cormack who built Id software. They were the original makers of the shooter games. They came up with Wolfenstein and Doom. And that generation of gamers was, and the demographic was very much male and young adults. These games were very popular on college campuses. And I'd say that, so you had the arcade generation, then the PC generation where the Pi further expanded, but I guess more, and that continued, let's say, in the eighties and the nineties. I guess the biggest push for gaming actually happened with mobile, and that was in the 2000s when you had these mobile phones, which started emerging where you had gaming experiences on those phones. I don't know if you remember the early Nokia days, but they used to have Snake. Everybody played Snake. Everybody. I don't think there was anybody who was immune to playing, playing Snake, and watching that two-dimensional line go across eating things in its way. And as I'd say, chips became smaller, your devices became more powerful, graphics became better, that was an interesting shift that started happening in terms of demographics and, and to reevaluate a little bit before the 2000s, there was a game in the 1990s, which was, I believe, very seminal. Not many people talk about it, but in video game history, this was pretty seminal, and being able to showcase that there is a new demographic of audiences that engage with games, which are women, and that was done by the Sims. So, Will Wright created the Sims, and it is one of the best-selling video games of all time. And when he came up with the idea, eventually it was Electronic Arts which decided to publish the game. And the inspiration for that game came when his house burned down apparently, and he came up with the idea of recreating a game like a virtual dollhouse. And that really opened up a new demographic because nearly 60-70% or even more of the players who were playing Sims were actually women and in order to create that game, Will Wright wrote about architecture and design and Maslow's hierarchy of needs, and it was a game about collecting and decorating and satiating an internal desire just to have agency and control in a game world. And that was the very first time there was a demographic expansion, but there were not many developers who built for that audience. So, for the longest time, I'd say, until the 1990s, the demographic of a gamer was very much male and young, and when you would say the word gamer, you would immediately conjure up an image of a 13-year-old sitting in his basement playing like shooting games. But it was only in the 2000s when you had mobile happen. Suddenly, they no longer needed expensive hardware to get inside a gaming experience. And this was also the same time when social media and social networking was the early rise of Facebook. And on the back of Facebook, a gaming company emerged called Zynga, which made the hugely popular Farmville game. And Farmville just exploded. In fact, the early days of Facebook and Zynga were actually quite synergistic until Facebook just realised that many people were coming into and playing only Farmville. Hence, they eventually restricted Zynga's access to Facebook users. And that was the early days of, let's say, social gaming and the emergence of a model called free-to-play. Now, no longer did developers really need to ship and create that product, but they could do bite-sized content and release it slowly on mobile, which then could be further developed as time went on. And after Facebook, there were other mobile game companies, like SuperCell, which arose, and then of course, we have to give credit to King, which was the hugely popular Candy Crush franchise. And once that happened, people started looking around and saying, hey, now your gamer is the 50-year-old, it's the 30-year-old woman standing in a line, playing a game, it's your 50-year-old grandma, it's your 20-year-old college going kid, it's your 13-year-old. So suddenly, the demographic expansion happened. The pricing power changed. You no longer needed an expensive console, but you also no longer needed an expensive entry barrier. You broke down barriers. You broke down barriers of access, you broke down barriers of paywalls. And suddenly you had this rush of gamers, which were called casual gamers. And casual gamers essentially are an incredibly big part of the gaming industry now, and 60 percent of casual gamers are actually women. And that's when, truly, I'd say gaming became ubiquitous. Now you look around, and everybody is a gamer, and as technology becomes more powerful, as your devices become more powerful, now we have the fortnights, the PubG's, the world being available on the palm of your hand. Now it's a really interesting time because we've seen the emergence of newer markets. You know, earlier gaming was the bastion of. Asia, but that was largely Japan, South Korea, and Taiwan. Then of course, you know, gaming in the U.S. was very popular. In the 2000s, China really emerged as a gaming powerhouse. And now we believe it's India, which is showcasing the world for a new demographic, which is coming in. In a nutshell, I've probably skipped several very important parts of the history of gaming, but this is in a nutshell as to how gaming has evolved and how it's become now a $300 billion industry.
Pritish: Fascinating. Steve Jobs used to work for Atari. He went in and asked for a job to work for Atari.
Salone: He actually wanted to invest in Atari. He wanted to stake one third of Atari for $50,000 dollars or something. And Nolan Washington, he probably, later on he said, look, I really, I probably made the worst mistake. But, yeah, that's right.
Pritish: It would be fascinating to know how Nokia pin down a game like Snake, they could have done a lot of things, but they just chose that. So, I don't know how the virality aspect was, then how did they judge that would be the game they should put on every single phone.
Salone: Yeah. And it was a really interesting one. It was very simple. It wasn’t very complex in terms of its mechanics. It was done to, essentially as an accident. You had those chunky buttons, which would come up on the mobile phone. And it was a completely new phenomenon. It was actually apparently started by an older game developer. It was an arcade game developer. I forget its name. Maybe it comes to me, but it started, was called Gremlin, and they started with the game Blockage. That's how it actually started. And it ended up being published by Nokia. And if you remember, the Atari used to have a version of this game called Worm and that was a precursor to essentially what Snake was. And it was largely just an accident. Essentially, they just decided that they would publish this game and then add it on. And that's how it evolved.
Pritish: Fascinating. Most people remember Nokia now because of the Snake game. That's the only thing they miss about the phone.
Salone: Yeah, probably. And if you remember the first few devices, at least in the 1990s that came to India, there were like these big phones. You could probably hit a person, like kill a person with those.
Pritish: Brick size.
Salone: There were big phones.
Pritish: Brilliant. Going back actually. So, we initially talked about the founders, right? And gamers. So, you have an interesting insight that most of the, or all the FANG founders are gamers. What is that story?
Salone: I mean, it's actually interesting that most of the FANG, whether it's Mark Zuckerberg or Elon Musk, Stuart Butterfield who leads Slack, all of them actually are gamers. In fact, they swear by games. In fact, the evolution of many Silicon Valley companies was from gaming. Pinterest, for example, Instagram initially was, the evolution was essentially a game before it became a photo-sharing app, Foursquare, and even Slack. In fact, Slack was actually a video game before. And when they were building the game, they didn't get traction and they got enough traction, but the unit economics essentially didn't work out. And then they decided to pivot to an internal communication tool, which eventually became Slack. If you've grown up playing games, and there's a lot of commentary around gaming for the longest time, people say, oh, games are not really good for you. Still, there are actually several research papers that show that gaming is actually a very inherent part of human nature. It's actually net positive. It talks about it, there's agency, collaboration, and strategic thinking. It's great for cognition. It's great for social and collaboration skills. But it's also all about having balance, but there has to be something to be said. Some of the smartest people in the world have been avid gamers. And even closer to home, Sachin Bansal is actually a big gamer. And I've seen some interviews for him, and he's written about in his book as well how he wanted to have a career in gaming as an esports player, way before he thought of building his company. Correlation doesn't mean causation, but it's an interesting anecdote.
Pritish: Brilliant. You talked about India having a number of false starts, but we do have Nazara technologies. Before time it was launched before its time had arrived in India and is now to an IPO. So, it has been a fascinating journey. What are your views on that?
Salone: The India journey has been long coming, right? If you look, the sociology of the Indian gamer is very different from that of the Western gamer. The Western gamer, as I talked about, went through these different transition points. They had time to transition from arcade games to consoles, PC games, and mobile games. And they saw various business models. They saw the paid games, the mobile free-to-play games, and then subscription games, to some extent. So, it's a gamer who has traversed the world and become educated as much as the industry has grown. The Indian gamer is largely a first-time smartphone user and they are being introduced to everything from social media to video chat, to audio chat, to gaming, all at the very same time. So, the sociology of this gamer is very different. The gamer in India is multiplayer, they are social, and nearly 40% of Indian gamers who engage in games are also women, which is, again, a demographic evolution that is different from that of the West. The West started with gamers, gaming becoming a lot more male-oriented and then transitioning and accepting the female gamer. In India, that's almost where we're starting off from. So, this explains the rise of and the popularity of BGMI as much as it explains the popularity of a Ludoking, right? And that's an interesting combination of the way the Indian gamer thinks. And over the course of the last 4-5 years, gaming is still very nascent, I'd say, hobby in India, just in terms of how early we are in the evolution, we're just about 3-4 years into gaming as user behaviour, because prior to four 4-5 years back, Jio had not happened. Data was not cheap and nor was it ever present. Data prices had to collapse by 93% for data to become completely and freely available. And apart from data becoming freely available, you also needed the emergence of digital payments. So, for monetization really to take place. And both of these are very recent phenomena. One has been accelerated largely because of COVID that is digital payments. The other has been accelerated largely because of the 4G that happened. Now an average Indian consumes 22 GB of data a month. Our data consumption is more than the top geographies combined. So, when you start to put that together and you start to see what rich Indians are doing, they're spending time on video content and gaming as their top entertainment pastimes. And this is also a demographic where 40% of India's population is under the age of 25. So, it's a demographic which sees what global best looks like, which is very discerning, but at the same time, value sensitive. So how do you build experiences for this audience is actually the biggest question that founders should be thinking of. And how do you treat this user with the right respect that they deserve? For the longest time, people have said, oh, Indian users don't monetise. They don't care. You can build India as a Dow firm and you can monetise users abroad, but that's not the case. We see users in India pay, but you have to build something for them.
Pritish: Before we get into the unit economics of the gaming industry, what are your observations with the Indian female gamer?
Salone: There's, sadly, not that much data available. At Nomikai, we do the State of India Gaming Research Report. And through that, we look at both primary data as well as secondary data. We also undertake surveys. And we do some of the most comprehensive surveys of smartphone users and gamers in the country. And it's across demographics, across cities. So, we've got tier 1, tier 2, and tier 3 cities, metros, non-metros, English speakers, Hindi speakers, regional language speakers. And some of the very interesting data is around the Indian female. 40% of smartphone users, 40% of gamers are actually Indian, are female. They're the age profile and the demographic of the gamer, nearly 30-40% are over the age of 18. They're between the 18-24 years bracket. So, they're older and what's, and the first-time user is, and the gamer is actually a young professional. Which obviously also intuitively makes sense as well, you've got young professionals who've just started in the workforce. And it's also very similar to paying behaviour that we saw in China. Like the first-time paying gamers in China were also young professionals. And the rise of the Chinese gaming industry also coincided with the influx of young grads entering into the workforce, especially post, let's say 2004, 2005, 2006, in China. Especially in tech and not in the manufacturing side. These are very interesting trends. The Indian female gamer is largely social. She's playing games to relax, to unwind, to entertain. The purpose of gaming is not to compete, but it is almost as a stress buster. So, the kind of games that are being played and which are being consumed are casual games in India, especially with the female gamers. So, you see the increase in casual gaming revenue in the India market, especially over the course of the last year. And obviously over COVID, we saw the likes of Ludo King, which hit a 50 million daily active users at its peak. And that was a demographic, which was 50% women actually on that app. So those are really interesting observations. Of course, the slicing of it is another, the further slicing of it is interesting for us to do, and this is the part we are undertaking for this year. But we see evidence of this, for example, in a company that we backed called EloElo. These guys are a company, they raised, just announced around a $22 million just about yesterday, funded by Quartzsite and Griffin Gaming, which are two of the largest gaming funds in the world. And they are essentially building a games platform to transform TV experiences. So, if you think of the TV in the 90s, you had everything from astrology to celebrity shows, to quizzes, to dance competitions, to game shows. They've essentially brought it on top of a platform where creators can play these games with their audiences and their audience base demographic is 45% women. And it's literally tier 2, tier 3 cities. The Dow ratios are nearly 60%. So, you have people tuning in every week to watch the same creators and play games. And they have everything from Sanpseedi to TolmolkeBol to Ludo to just generally chit chat and banter. There's astrology happening. Then you've got comedy nights happening all on this platform. So, they run about 28,000 live sessions a day. And that app now has 37 million users across tier 1 and tier 2 cities. That is an essential embodiment of this demographic of, I'd say, this new game, new digital Indian.
Pritish: Brilliant. Let's talk about the unit economics of the gaming industry. You talked about freemium, there is in game economics. How do you break it down and how do you assess it as an investor as well?
Salone: Games monetise through three primary sources of revenue. The first is In-game apps, in-game, which is in-app, purchases, sorry. So, in-game items essentially. So, they could be everything from skins or cosmetic items that help you either propel your gameplay or not. Sometimes they can be completely cosmetic and have no gameplay benefit and sometimes they can have gameplay benefits. So, items. offered within the gaming economy are called in app purchases. And that's essentially what is one major revenue driver for games. The second major revenue driver for games is advertising and advertising revenue. The third major, I wouldn't say it's a major source of revenue at this point of time, but there is also a certain level of subscription gaming or that is emerging, which is essentially, you can have game passes and battle passes, for example, in mid court games, and this has been essentially used where you get certain benefits versus the amount that you pay. Now, in India, we have also seen the emergence of an industry called real money gaming, where essentially people have been using real money to drive competitions and to drive revenue in games. And that in India has been a very popular use for monetizing games. But I'd say broadly, globally, in app purchases, advertising revenue, and then to some extent, subscription-based revenue has been largely the three main levers of driving revenue in the game.
Pritish: Who would you say has really cracked in game economics?
Salone: Oh, so many. So many, actually. Western developers in the Western markets, even Japan, South Korea, Taiwan, these markets are replete with large developers who have built enormous Businesses off the back of in app purchase economies. And a great example of that is a company called Supercell based out of Finland. And these guys do mid-core games, strategy games, and it was a company that was backed by the partners at my previous fund, NBP, and they came in at a very early seed stage. And the company got sold to Tencent for $10 billion a couple of years back. They make about$ 3 billion of annual revenue, and they have about anywhere between $600 million to $1 billion in free cash flow. They have about a hundred million daily active users playing their games. And it's a company which has over time really innovated and built themselves up to be young experts in monetizing via in game items and IAPs. The Western and the Asian markets are replete with examples of companies who have really monetized users via in app purchases.
Pritish: Just an observation, and I could be wrong about this. I see that a number of gaming companies, most of them, or let's say majority or let's say a sizable number of gaming companies, the one-time wonders. So, there is obviously EA electronics, electronic art, which has obviously done marvellously well across different games, but then there is King. Candy Crush has been a massive hit, but I'm not sure if there are other games that have been able to really crack the whip on and get the same kind of outcome. So, is that a correct observation and why does that happen?
Salone: Look, that is an observation, that is an observation. However, as I mentioned, you've got companies like Supercell or like Zynga or like Take Two or, you've obviously got larger companies like Blizzard and Activision, even, you know, as you rightly said, there's EA. But there are these companies which have, or let's say even Riot Games, they've come out and done everything from League of Legends to Valorant and several other games as well. Closer to home we've got Krafton as a major publisher which has done PUBG and they've developed other titans as well. You've seen in Asia, you see the likes of NCSoft, Smilegate, Mixi, Kolobla, and these, these are developers who have innovated over time. And after a decade or more, these are publicly listed companies which have survived the test of the public markets. So, I'd say that is not necessarily a fair statement of being one hit wonders. But I have to say it’s incredibly hard to build winning games again and again. And there is a reason why public market exposure to gaming companies is fairly, I'd say, still shallow. It is much better for games companies to stay private, and for staying private as long as possible, because at the end of the day, it is art as much as it is science. To be able to withstand the pressures and the scrutiny of the public market quarter after quarter, and to put a formula to producing winning games is incredibly hard and incredibly challenging. And that's where the public market landscape for gaming companies is incredibly small as compared to the wide swath of value creation that takes place in the private markets. But because developing hit games is so challenging, the other side of the industry is that large players are very acquisitive. Because the industry is dynamic, trends change almost every two years, there is always a new demographic, a new platform, a new genre that emerges where these large players have just realised that, look, it is easier to buy than it is to build. And these companies are incredibly profitable, are incredibly cash rich, they typically don't have debt. As a result of which, every couple of years, you'll see an incredible wave of acquisitions that take place, and we've seen this, time and time again. In, back in 2010, you saw a wave, 2010, 2012, you saw this wave of M&A that took place. Then you had 2015, 2016, there was another wave of M&A that took place. Then in 2019-2021, there was another big wave of M&A that took place, and at each point of time, the quantum of the M& A that was happening has increased. You earlier saw the $200-500 million mark. Then you had, over the next cycle, it's a $1-5 billion mark. And then the last cycle, we've seen M& A which actually just has been approved, the Microsoft Activision deal for $70 billion. And that's now just been approved even by the U.K. regulator as well. The business of gaming has largely been able to propel itself to newer highs because of this acquisitive nature of the industry, as well as the fact that it's so difficult to institutionalise innovation.
Pritish: As you said, gaming is a creative process as well as a science, So as an investor, how do you bet on an early-stage gaming company?
Salone: Yeah, one has to recognize it is very hard to say, oh, this piece of content will work or this piece of content will not work. If you've been in the industry long enough, when you're in the industry long enough, your developer knows and a pulse for the business. Somebody who's been in the film business will have a sense. Somebody who's been in the music business will have that pulse in what the market and the consumers want. It's very similar for the games industry as well, because there's a very creative process towards game building and the DNA of building games has to be there within the founding team when they take on and embark on this journey of wanting to build these gaming experiences. And that is often very critical, which a lot of founders approach gaming as, oh, it's very formulaic. I'm going to do X, Y, Z. And of course, Z is going to be the outcome. And unfortunately, that's not how it works. You may try it. And there have been several, I'd say many companies who may have tried that approach and then to their dismay have realised that it's not worked. But as an investor and early-stage specialist investor, the first and very important thing is you have to learn to separate the wheat from the chaff. And a lot of investors tell us, hey, we saw a hundred games, gaming deals last quarter, or we saw 200 games deals, and I tell them that we've seen 1500. And over my career, I have seen many thousands and multiples of that. So, you develop a certain kind of pattern recognition about founders, the kind of market, what's trending, what is the current zeitgeist? If you're too early in the market, there are probably a graveyard of startups, which have already been there. And if you're too late, you've probably missed the hype cycle. Or it's a completely red ocean and it makes no sense to actually go and build in that space. How do you keep track of that industry only happens if you're very entrenched in that market, right? So, tracking global trends, tracking India trends, tracking the data, are you building a shooter game when battle royale game interest globally is winning? That's a question you must ask yourself. Or are you going and building games in a deep red ocean where user acquisition is going to be challenging? So, you must ask that question. So understanding global trends is deeply important. The third thing is that understand that gaming is not a monolithic industry. A lot of investors say, hey, you back one games company and you've seen it all. But the games content in the IP business is nearly $180 billion business. Globally gaming infrastructure and tools is a $50 billion business. Even the likes of a second-hand market of virtual goods is north of a $10 billion global industry. So, there is a depth and breadth that can often be very difficult to parse through for a lot of, let's say, people who are just approaching this from, hey, I'm just going to make a bet and then we'll see what happens. So, that is a very key point that you want to keep in mind as an investor. And the way you evaluate various parts of a gaming business, whether it's a content business, whether it's a platform business, whether it's a tool tech business, they're all very different. You have to wear a very different lens when you look at those businesses. But fundamentally, especially when it comes to content, VCs like the vitamin painkiller approach. What are you building? Then will the user really like it? But let's be honest, the biggest competition of a game developer is boredom. It's an entertainment product at the end of the day. All of these are nuances towards evaluating games business. And there is a reason why there are 30+ specialist funds which operate in the world. At this point of time, there are several funds with several pieces. Around different regions, different markets, different swaths of the gaming industry vertical as well. And, there's a reason for it. It's a very specialist asset class.
Pritish: One other observation I have, please correct me again. I feel that gaming after a certain age, so let's say by your late 20s, early 30s, you move away from that. So, it's an industry which is concentrated on most of the users or gamers are in the age of, let's say 18-30, roughly. Is that the right observation? And if so, what is, let's say, because a lot of people, not a lot, but let's say a considerable amount of people are thinking of it as a career and they become professional gamers. So, what do they do? What is the retirement age of a gamer? Is there one?
Salone: Yeah, so these are two different questions. The first is what does a career path as a professional e-sports gamer look like? And the second is, is the demographic of gaming, is it actually young? And that's a very common pre-conceived notion. In fact, 60% of casual gamers are actually women. The average age of a casual gamer is 30-35. In fact, a lot of Zynga games and the social casino games industry, the slots machine, the games which have slots machines, actually nearly 50-6-% of their audience, if not more, are women and older women. In fact, games like social simulation games actually have a much older gaming demographic. You've got, that's not nearly the case anymore. You've got the 70-year-olds playing games. You've got the 25-30-year-olds playing the likes of a covet fashion or a design home. You've got your 18 to 20-year-olds playing Fortnite. And then you've got the 10-12-year-olds playing Minecraft. So now there are gaming experiences across demographics. And the reason why that is because it is an entertainment medium. Do you stop watching movies when you grow old? Not really. The evolution of your experience, what you need from that gaming experience evolves. So maybe at one point of time, you were looking for deeply adrenaline-inducing gaming experiences, but as you grow older, you want to play more role playing games, or you want to play more social co-op games. So that need, that gaming experience evolves as the user evolves. And it's very interesting is there have been studies which have shown the map of the gaming demographic, gaming audience, where as each new platform emerged, as we went from arcade games to PC console, then we went to mobile, at each point of time, the gaming demographic expanded. It was not like one cannibalised the other. In fact, you added more people because games became more accessible. And at the end of the day, it's the ultimate lean forward experience. It is the only entertainment medium where you have agency. And that is why there's a lot of like misconceptions around saying, oh, gaming is a really young boy phenomenon, which is no longer the case. But there is an association where a lot of people don't identify themselves as gamers. But if you sit in a flight in India, going anywhere, and just observe what people are doing around you. They're doing two things. They're watching video content or they're playing games. And I have done this so many times where I've leaned over and talked to the person and saying, hey, you're playing a game, and they’ll say no I’m just passing the time. And then if I see their phones, they have 3-4 games in their phones and I say you play a lot of games and they will shrug their shoulders and just say that, no, no, that's not me. So, then the word gamer is very misplaced. Why do we need it in the first place? Nobody says, are you a movie or just because you watch movies? It's a word, which is almost redundant, I feel. The evolution of that game of preference changes as you age. Circling back to the question that you had, what is the lifecycle or shelf life of an eSports player can throw that question back to you and say, what is the life or a shelf life of an athlete? It is still the time you are able to physically compete in competitions without it causing excess wear and tear on your bodies and doesn't cause mental, physical, and psychological damage. And that is the evolution of the same eSports athlete as well. And now it is becoming a lucrative career option. It is a medal sport. In India, the DOTA team, I believe, won a bronze medal at the Commonwealth Games in esports. You have chess competitions, and you've got now esports competitions, which are evolving. And that is the next generation of what competition also is looking like in gaming. Some of these games are deeply complex. They require a huge level of cognition, cognitive abilities. It requires a huge level of discipline, and to do well in those games. And it's now becoming like another sport.
Pritish: Do you think that Roadblocks and Discord are the new hangouts?
Salone: A lot of people ask that. I think, we've lived, we've seen games be social experiences. If you go back to the 1990s, we've seen these multi virtual worlds and these multi user domains. Back in 1995, there was a game called Worlds Away, where, it was a virtual chat environment where people could manage their avatars, and you pose, and you talk, and they had this in game currency and virtual businesses that you could pay to get access to. Then, there was RuneScape, which was hugely popular, and it was part of, for many people, it was part of who they were for more than a decade. We say, we've seen games like Second Life launch, and it has many hundreds of thousands of users. We've seen AvakimLife. Well, they found an accessible way to virtually meet and socialise with people across the world. We've seen games like EVE Online, which have also been running since, 2003. We've always seen games be social destinations. People who've been playing games have always been aware of it, but now, it has become mainstream. Now you've got a lot more people engaging and saying, hey, this is a new way of being. But actually, for people who have been in the industry for a long time, this is not a new phenomenon where you've basically been online, where you've chatted, socialised and played games. It's not a new phenomenon.
Pritish: What are your views on Metaverse?
Salone: The Metaverse is such a complicated topic. And when you speak to people at the Metaverse, especially during the hype cycle, a lot of people didn't even know what they were referring to. What is it? Is it a virtual world? Is it a blockchain? What is really the Metaverse? So again, as I said, I don't think virtual worlds or virtual currencies or ownership of assets is a new phenomenon. Digital tokenization and virtual identities have long been present in gaming. We went through a certain hype cycle within what the metaverse means. And everybody had a very different definition. If you spoke to various companies, they had very different definitions of what the metaverse means. Ultimately it is essentially about finding a common definition of what it means, and second is the technology of being able to achieve it. If it is a persistent world, which is interoperable, and it is constantly running, do we even have the technology available to be able to support those experiences at this point of time? And all of those currently, we're still significant years away from it. I'd say that it was a nice hype cycle that we went through. A lot of businesses got funded in the first place, which shouldn't have. And probably some history of gaming would have been helpful because over the years we have seen various hype cycles come and go. In gaming, we saw the wave of startups. Then we saw the wave of rush of e sports companies. Then we saw this wave of metaverse and web3 companies. And ultimately, it's important that the building blocks of these experiences need to be laid down. The technology needs to become a lot more possible for what the metaverse is envisioned to be. And then I'd say over the next 8 years, we'd see what those experiences do become. And will it be as radical as the Ready Player One fantasy that a lot of people have? We're some years away from that.
Pritish: So, do you think Facebook made a good decision pivoting into it? Because they have the wherewithal to sustain it for 10-20 years maybe.
Salone: Sure, but the reality labs has been a bane of contention with their investors. They're spending about $10 billion and burning capital in reality labs. In fact, that's been a big source of investor discomfort, in fact. And given that their experiments in the metaverse and horizon world haven't panned out as they expected, and that's probably an understatement, maybe perhaps it was a little bit of a hype cycle and a rushed move. Now, there is an increasing revival of interest, though I would say in virtual reality, in VR. People are increasingly seeing there is an uptick in adoption. A lot more enterprises are starting to use VR. But is it the whole metaverse style experience? We're still some way off because A: wearing those devices for a long period of time, discoverability, monetization for developers on those is, is still challenging. However, at the Apple Vision Pro launching, let's see when, what commercial adoption of that looks like. It's probably going to be starting, being available in December. But, what I'd say that perhaps is that they could have done all of this without rebrand, frankly.
Pritish: One management advice that you have learned as a leader.
Salone: Ultimately, you have to invest in people. It's not as much about what you do, but it's about who you do it with. It's incredibly important and spending time, nurturing talent and focusing on personal development pays off in the long term, right. Whether it means executive coaching or investing in defining culture, vision, mission, very early on and talking about that with early, with team members and keeping that almost like at the backbone of the organisation, that is incredibly important, constantly aligning your team to, and reminding them of the purpose of why an organisation exists, what their purpose is. Why are you here? Asking why and having the team have an answer for it is, without you having to prompt it is a big win. That is any leader, any manager, their ability to be able to do this is almost as important as the goals that they're going to achieve because without that it's incredibly hard to drive an organisation forward. So, investing in the right people and building the right culture, from day one, and culture is not about free food, it's not about pets at work. It's about what people do on a Monday morning and how they feel on a Monday morning without you looking and, or without you prompting or nudging them, the behaviours that they exhibit, ultimately talks about the culture of the organisation.
Pritish: Three books or blogs.
Salone: Three books? Wow, that's a lot. One where I've just finished reading My Life in Full by Indra Nooyi, which is a fantastic autobiography. She's such an exceptional leader in what she's gone on to achieve for herself in the U.S. it's remarkable I would definitely recommend it to anybody who's looking to read leadership books. It doesn't read like a leadership book, but it reads just like a really great story and you have to admire her grit, resilience, and persistence and it's incredible. There is a book called Never Split the Difference. It's written by Chris Voss. he's a former FBI negotiator. It's one of the best negotiation books I've read in a really long time. And finally, I'd say there's a book called The Untethered Soul, it's written by a gentleman called Michael Singer, who was actually a software engineer who took a company public and basically then, left that for a life of meditation and it was his journey on what he calls in his enlightenment and it's about how do you calm your monkey brain when your mind is very active and how do you constantly associate with ego? And it's a beautiful, beautiful book.
Pritish: You talked about leadership. If you had to meet someone from the past as one of the great leaders, who would that be?
Salone: From the past? Does it only have to be the past? There are some pretty incredible leaders that I'd like to meet.
Pritish: Sure, make your pick. You can have more than one as well.
Salone: I'd love to meet Michelle Obama. She's an incredible role model. Again, first lady, their journey to the White House and to be able to last in the most public role. And to manage a family and to do it for eight years very gracefully without the scandal, and in the face of extreme criticism and racism and sexism, that is an incredible achievement. I would also actually be very curious about Indira Gandhi. She's a polarising figure when she, before she emerged in the political scene, used to barely speak. They used to have some very unflattering names for her, but the iron will with which she governed this country, whether good or bad, I'm not passing any judgments or social commentary here, but it was a very tumultuous reign and she was a female leader again in a world where there were not many comparable peers.
Pritish: Brilliant! Don't you think all leaders of her stature are polarising?
Salone: Yes, I definitely think so. You cannot please everyone, but how you withstand and withstand that kind of pressure and that constant commentary and judgement is deeply admirable. Some people do it very well. Some people don't do it well and some people like to shut down dissent, but I have great respect for people who can withstand criticism without having to shut down detractors.
Pritish: The kindest thing anybody has done for you.
Salone: Actually, very recently there was a, it's actually such a lovely thing. I met a very senior VC from the industry and she was in Delhi and she had a crazy schedule, but she still took time out to meet me. And because she was meeting me, she actually got fruit from her homegrown garden, which was, I thought, quite sweet. And she carried it all the way from the city where she's based to give it to me. I thought it was incredibly sweet.
Pritish: Brilliant. Thanks, Salone. It's a great place to close the conversation.
Salone: Thank you so much for having me. It was such a fun conversation.
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