Mobile Gaming – Pokemon went.

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Tencent and Activision can breathe a sigh of relief. 

• Pokemon Go is already showing all the hallmarks of being a craze rather than a revolution as the appeal of the game is already beginning to pall despite only being 6 weeks old.
• Data from Apptopia shows that daily active users peaked at around 45m users three weeks after launch but have since declined by 40% in the last month to 27m users.
• Google Trends is also showing that the spike of interest in augmented reality caused by the launch of the game has also declined precipitously as it is almost back to where it was prior to launch.
• Furthermore, in the last two weeks Pokemon Go has fallen in the US Apple App Store to No. 16 although it remains at No. 4 on Google Play.
• The good news is that Pokemon Go remains No. 1 on the grossing chart for both iOS and Android.
• This indicates that the number of new users joining the game is collapsing fast although revenue generation from those that are still playing the game remains very healthy.
• I suspect that this will translate into rapidly stalling revenue growth at Niantic and how long existing players will keep paying is the real question mark.
• From my perspective, the real potential for Pokemon Go was to fill the vacuum that exists in developed markets when it comes to mobile gaming.
• Both Xbox and Playstation Network have failed to gain any traction on mobile devices leaving the largest Digital Life segment unoccupied.
• To fill this segment a thriving multiplayer gaming environment is needed that has comfortably more than 100m MaUs but to dominate it, I think 300m MaUs or more is needed.
• With Pokemon Go having made just half of that and now showing signs of decline, those that are working quietly to fill this segment can breathe a collective sigh of relief.
• Top of this list are Activision which has purchased King Digital (Candy Crush with 500m MaUs) and Tencent which has purchased Supercell (Clash of Clans 100m DaUs).
• These two need to take these single game franchises and entice their players to try the other games and services that they have to offer.
• This is how they can turn a single game community into a place where users come to play games against each other.
• Pokemon Go seems to have fallen short of the critical mass needed to challenge the scale of King Digital or Supercell, Tencent and Activision remain the most likely winners.
• The Gaming segment remains unoccupied and I suspect that there is room for one dominant service and a host of smaller followers.
• Tencent has the most experience of mobile gaming with its dominant position in China but it knows very little of the market outside of China.
• However, at the same time Activision has no experience of mobile which could prove to be an even greater challenge.
• Tencent is the company I would look at for exposure to gaming on mobile devices but I think that Nintendo could fall further as it is still meaningfully above pre-launch levels.