05_shah(video game industry) - The Video Game Industry An...

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The Video Game Industry An Industry Analysis, from a VC Perspective Nik Shah T’05 MBA Fellows Project
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The Video Game Industry An Industry Analysis, from a VC Perspective The video game industry is poised for significant growth, but many sectors have already matured. Video games are a large and growing market. However, within it, there are only selected portions that contain venture capital investment opportunities. Our analysis highlights these sectors, which are interesting for reasons including significant technological change, high growth rates, new product development and lack of a clear market leader. The opportunity lies in non-core products and services. We believe that the core hardware and game software markets are fairly mature and require intensive capital investment and strong technology knowledge for success. The best markets for investment are those that provide valuable new products and services to game developers, publishers and gamers themselves. These are the areas that will build out the industry as it undergoes significant growth. A Quick Snapshot of Our Identified Areas of Interest Online Games and Platforms. Few online games have historically been venture funded and most are subject to the same “hit or miss” market adoption as console games, but as this segment grows, an opportunity for leading technology publishers and platforms will emerge. New developers will use these technologies to enable the faster and cheaper production of online games. The developers of new online games also present an opportunity as new methods of gameplay and game genres are explored. Wireless Games. Mobile gaming is projected to be a large market in the coming years and this has led to its identification as a “hot” VC segment. It has seen a lot of financing and consolidation activity recently, so while we still see opportunity, we believe that it may be approaching the saturation point of initial funding and should be entered carefully. A follow-on investment in a market leader is likely March 11, 2005 Hanover, NH Authors: Nik Shah [email protected] Tuck Class of 2005 Charles Haigh [email protected] Tuck Class of 2005
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Video Game Industry Analysis March 11, 2005 2 the best strategy for entry at this point, until software standards are set and an initial shakeout occurs. Communications. Massively Multiplayer Online Games (MMOGs) involve players scattered in all geographies. Thus, the communication tools within games are important for both interacting during play and recruiting players for a game session. Most of these tools are currently embedded within games themselves, but a few standalone tool suppliers are emerging and we believe that “best of breed” and technology agnostic solutions will win the market.
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