Disrupting the Gaming Industry with the Same Old Playbook

by Alessandro Di Fiore | 1:00 PM June 3, 2014  Harvard Business Review

With a market size of $8 billion in 2013 Massive Multiplayer Online Gaming (MMOG) is becoming big business. It’s not just about the players, either: people are going online just to watch the games being played, a global viewership estimated at about 71.5 million as of 2013.

Welcome to the brave new world of e-Sports. Some MMOG professional teams players can command six figure salaries, thanks to the finance provided by corporate sponsorships and advertising. Recently the USA recognized professional e-gamers as pro athletes eligible for P-1A visas.

The MMOG that epitomizes the birth of this new industry is perhaps League of Legends (LoL). LoL’s core gaming business is built around by the Free to Play model in which community building and social engagement are the main objectives. The model is in part monetized through micro-transactions in which virtual goods used in the game are purchased with real currency. The game has been popular since its release in the 2009 and has an active unique monthly user base of 67 million, generating $625 million in annual revenue.

But the real revenue driver is viewership. Online broadcasting channels are filling up the distribution space just as television did in conventional sports. Twitch.tv — one of the leading on-line game streaming channels — has partnered with game publishers and game console makers to add features that allow gamers to stream their game play live or recorded over the channel. Revenue flows primarily from the online ads targeting the soaring viewership.

And what a viewership! LoL’s 2013 World Championship garnered online viewership of 32 million on Twitch.tv alone, significantly more than Game 7 of the 2013 NBA Finals, which had a peak viewership of about 26 million over various media formats. The event itself in the Los Angeles Staples Centre was a sell-out. Sponsors included big names like Coca Cola, Intel, and Amex, all looking to reconnect to the lucrative demographics (18-35) LoL caters to.

This all sounds splendidly disruptive: new technology-enabled social media redefining what we think of as sport. Yet the hype tends to obscure just how familiar the story actually is and just how much of the success is the result of canny business folk applying a well-used playbook.

What LoL is doing in MMOGs is pretty much repeating what shoe manufacturer Vans did for skateboarding. A fad for 20 years up to the 1990s, skateboarding was haphazard and disorganized: it lacked adult supervision, provided few external rewards and was widely seen as solitary activity for misfits. No sponsors or advertisers invested in it. At certain moments, only the enthusiasm of skateboarders kept the sport alive.

Until Vans made its move. The company institutionalized the sport creating a world championship as a way to recognize player excellence and found a mass audience by selling rights to ESPN and similar channels. It invested in organized and parent-friendly skateboard parks; produced a Sundance festival winner documentary on the history of skateboard (Dogtown and Z-boys); and sponsored the Warped Tour, a series of concerts in various cities showcasing trendy, cool music in line with the skateboarding lifestyle.

In other words, just as LoL is doing today, Vans created a sports ecosystem. Its festivals, skateboard parks, and world championships represented new business lines, most of them profitable in the first half of 2000s. But the real benefit for Vans was that its strategy made the sport mainstream and opened it up to the masses, which ultimately had huge benefits for its core shoes and clothing businesses.

Stories like LoL and Vans illustrate a profound truth about strategy and business. Industries are reinvented and new ones are born all the time. But this does not mean that the strategies by which they are redefined or created also change. If anything, the stories of LoL and Vans illustrates just how enduring strategy actually is. Disruption doesn’t change the rules for good strategic moves — rather, it gives new players more opportunities to apply them.

More blog posts by Alessandro Di Fiore