Excellent set of questions Kinger!
By: Ryan Lambert
Tags: Startup, Gaming, Investing

Excellent set of questions Kinger!

On the investor front, they are mostly backed by brand name VCs and some institutional capital. Crunchbase has a good breakdown. Discord is backed by Tencent in a couple of their rounds so that would answer your question if any publishers are investors.

Onto the next question, how these companies can ensure sustainable value creation and develop moats. Network effects are absolutely the primary moats to both Unity and Discord.

Unity kind of came out of nowhere, but over the years it has cast one of the widest nets for platform support, and has a HUGE developer base (>5MM) that’s familiar with the game engine and integrated development environment (IDE). Having 50% market share helps keep that cycle going. Keep in mind most major game development studios build their own engines for proprietary purposes and ensuring they have complete control. From my lens, Unity was right place and right time as mobile was becoming a great place for gaming and more indie developers were looking for a toolset to get their games off the ground; Unity was there with a comparatively easy to use product. Unity essentially DISSOLVED the moats of other game development tools and the industry itself with its easier accessibility and a strategy of building the “Asset Store” that functions kind of like an App Store to use already developed components rather than building everything from scratch. The mgmt team has also been smart around tactical acquisitions (although one generally would argue “mgmt skill” is not a true sustainable moat). Also one final point tying back to moats – the code for creating Unity games can’t be ported. It’s locked in, meaning Unity is “sticky” as most developers don’t want to radically rework or completely rebuild to move to another engine unless there is some technical reason they need to move. One could argue Unity is actually a classic case of disruption theory in play: it started as “good enough,” disrupted, and levelled up from there.

Discord benefits similarly from network effects as a primary moat and generally benefits from “virality fuel” like a social network. In Discord’s case there are perceptual switching costs of getting a base to follow you off the platform in order to create a similar experience elsewhere. The Supply of content creators, influencers, e-Sports pros are there, and thus if you want to truly interact with them in a more engaging way, that’s where you have to go. Discord is also uber easy to use and it’s got great third party integrations with major streaming services like Twitch or YouTube via tools like Zapier.

I’m a little less optimistic around Blade’s moats. I do think cloud gaming could end up paralleling the streaming industry in a very important way: content, and more specifically, exclusive content, will create winners and losers. That’s why some of the big boys like Microsoft, Amazon, Sony, Google, and Apple will have massive advantages and will probably win the space in the long run.

To circle back to you question on exits, I think Blade is an acquihire for technical knowledge and experience. Unity is seemingly already on path to IPO, and I’d think Discord will either IPO or be acquired by Amazon or Google. Why Amazon or Google? Because Discord is hugely complementary to Twitch and YouTube (Gaming).