Introduction
The largest mobile game publishers in the world are racing to add real-money mechanics to their existing titles in order to better monetize player bases, moving beyond traditional ad-based and in-game purchase revenue streams. Skill-based gaming (SBG), where players can wager against each other and win real cash prizes, is rapidly gaining traction as a result. Set to grow from $13B in global spend in 2023 to $40B in 2030, SBG is a key driver of new growth in an otherwise maturing mobile games market.
In the US, the emergence of SBG has been underpinned by regulatory advancements that have created a more favorable environment for the game type (now available in up to 45 states and DC, covering 90% of the US population). Additionally, the legalization of sports betting and iGaming across various states has increased consumer appetites for digital media experiences where users can have “skin in the game”. Consequently, SBG is well-positioned for continued growth, providing publishers with a third monetization lever that enriches the game experience and extends retention.
Illustrative Monetization
SBG Core Considerations & Pain Points
When exploring growth opportunities within the SBG space, several key considerations come into play. In roughly descending order of importance, we evaluate companies across the dimensions of game development, financial/legal/regulatory acumen, game design, and matchmaking/liquidity.
🛠️ Game Development: First-party vs. Third-party vs. White-label
There are three approaches to game development. First-party publishers make the games themselves and manage their own content. They hire their own game developers, designers, producers, and live ops personnel, which allows for more iterative development and often more polished games. However, this approach comes with higher costs and risks associated with creating and scaling said games.
Third-party developers offer turnkey platforms, enabling publishers to easily launch skill-based titles or integrate real-money mechanics into their existing games. This approach reduces the need for publishers to handle SBG infrastructure and compliance themselves and offers the potential for more efficient acquisition costs among existing games with large install bases. However, success depends on the quality and popularity of the games hosted, how well the game mechanics lend to SBG, and, critically, how adaptable the infrastructure is to user demands.
White-labeled developers produce skill-based content that is branded and distributed by partners with large install bases, allowing for lower barriers to testing and scaling games efficiently. This approach unlocks a unique opportunity to tailor content and offerings based on the client’s player base.
💱 Financial and Legal Regulations
Accepting payments and facilitating skill-based real-money contests, among other functionalities, require different combinations of solutions for Cash-In, Cash-Out, Banking Compliance, AML, KYC, Tax, and Legal for each jurisdiction and game, creating an immensely complex landscape to navigate, even for the largest publishers. Approvals to work with payment processors can take up to 18 months.
🕹️ Game Types Best Suited for SBG
Historically, casual games like Bingo and Solitaire have dominated the SBG market with 80% market share due to their simplicity, broad appeal, and low perceived skill gap. In other words, players quickly feel confident competing on a level playing field soon after starting the game. In contrast, games with higher perceived skill gaps, like AAA shooters, can discourage players and lead to high early churn rates.
Many attempts to introduce new game types have struggled to date, limiting variety and innovation in the market. However, arcade and sports-related games are emerging as potential opportunities, albeit untested and uncertain, as the right mechanics and infrastructure continue to develop. We have seen promising (but early) signs of traction in disruptive commercial opportunities that break from historical thematic trends.
👥 Matchmaking and Liquidity
Matchmaking algorithms underpin the success of any SBG title. Even with game mechanics that do not take long to master, players still have to be matched against other players of equal skill to create a perception of fairness. Effective player matching hinges on an effective matching algorithm and a player pool with enough liquidity to minimize wait times.
Without liquidity, game lobbies go unfilled and users quickly abandon ship. With proper attention paid to market microstructure, liquidity can be a competitive moat. LinQ is uniquely positioned to play a much larger role in what we believe to be the future of this space.
Market Opportunity
First-party publishers dominate the market today, with top players like Aviagames, Papaya Gaming, and Play Perfect leading the SBG download charts. However, the same success cannot be said for third-party platforms.
Current platform plays enable developers to launch SBG games quickly and cost-effectively, but the speed and affordability come at the expense of feature development and iteration speed. Rigid SDKs fail to deliver a natively embedded payment stack, personalized live ops capabilities, and bespoke player matching solutions. Additionally, many platforms have outsized take-rates (50%+) to account for the fact that they’re also responsible for user acquisition (UA) spend. This has resulted in low NPS experiences and dwindling market share for incumbent platforms such as Skillz.
The opportunity to bring a first principles approach to turbocharging the monetization efforts of the world’s largest gaming publishers through agile, modular, turnkey solutions is what makes us so excited to announce our partnership with LinQ. The company is led by seasoned entrepreneurs Kevin Cubitt and Dmitry Vysotski. Kevin brings over 7 years of experience as a regulated lender, while Dmitry co-founded and successfully exited ecommerce measurement company, Profitero, for $200M+.
The founding team’s pedigree is reflected in its fintech-first approach. LinQ offers natively embedded solutions for Cash-in, Cash-out, Fraud, KYC, and AML, enabling partners to integrate faster and more efficiently than existing solutions and providing an enterprise-quality deposit experience for users. Alongside its progressive payments stack, the company also provides bespoke matchmaking and live ops modules that are easily assimilated into a game’s existing workflows.
Notably, LinQ employs a different GTM strategy than incumbent platforms who typically work with emerging publishers. Instead, LinQ targets the world’s top mobile game publishers that are actively looking for additional ways to monetize their existing high-quality casual titles with massive audiences (i.e., cross-promote a large and loyal install base). LinQ's ability to sign exclusive commercial deals with tier 1 publishers means they only work with world class organizations that have already optimized their user acquisition funnels and have robust resources to fund further UA efforts. This allows the company to underwrite partnerships with much lower risks of failure, passing the savings along to publishers who enjoy industry-leading take rates with LinQ compared to the competition.
To date, LinQ has already won the trust of top global game publishers and formed strategic partnerships with industry giants like Azur Games (top publisher by mobile downloads in 2023, 8B total installs) and Mamboo/My.Games (1B total installs). In addition to representing validation of LinQ’s technical capabilities and providing significant sources of revenue, these partnerships allow the company to develop new features that are deployed and honed at scale before becoming a permanent part of the product suite. While we can’t share more specific details at the time of writing, we believe some of the custom features LinQ has developed for their clients will become category-defining must-have functionalities going forward.
Final Thoughts
As mobile publishers seek new avenues for growth and monetization, the ability to quickly integrate critical, legally-compliant fintech infrastructure without drag on game development or user acquisition is more important than ever. We believe LinQ is uniquely positioned to capitalize on this opportunity and help this portion of the competitive entertainment ecosystem reach its full potential (and cross-pollinate into other verticals). We are thrilled to support LinQ (alongside a16z Speedrun, Drive by DraftKings, and MiddleGame Ventures) as they derisk the financial, legal, and operational challenges of scaling monetization for the industry's top publishers.
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