With a global pandemic keeping people at home, gaming has seen tremendous growth over the past few months.
Unity recently highlighted COVID-19’s impact on the gaming industry through a report that explored 19 takeaways from the pandemic. As a powerful platform that various applications are built on, the company has access to unique data that tells a powerful story of how people are spending their time after sheltering in place.
Three of Unity’s takeaways also signify larger shifts in the gaming industry. First, overall gaming engagement continues to increase. Second, gaming continues to transition to SaaS-like businesses. Finally, gaming is becoming more social in nature. Here are those highlights with our additional commentary.
More people are playing games.
Unity noted that more people are playing games than ever before. Developers have seen a 46% DAU increase in HD gaming (PC), and a 17% increase in mobile gaming, when normalized year-over-year. (For normalization definition, see Unity’s report) Despite activity typically dropping in the spring and summer, engagement is up significantly from last year.
Unity isn’t the first to point out the increase in active players since mid-March. Last month, we highlighted comments that game publishers shared about their most popular franchises.
In that note, we expected games to maintain the rise in active users, despite eventually seeing a reduction in overall time spent game as social distancing ended. While Unity’s data shows a decline in DAUs, which is to be expected, we think the right metric to look for re continued engagement is MAUs. We remain optimistic that game developers will be able to capture and hold their increased MAUs as stay at home restrictions are lifted.
Gaming continues to transition to a SaaS-like business.
According to Unity, revenue from in-app purchases for mobile games has increased by 24% since the pandemic was declared. For this metric, Unity looked at the revenue generated by players within their first week of playing a mobile game.
We recently argued why gaming companies should see valuations like SaaS businesses as they evolve their business model. Increasing IAP revenue, particularly from new players, is a positive step in this direction. There have always been whales, the 1% of players that spend the most in free-to-play games, but the increase in IAP revenue from new players shows an increased willingness to spend money on microtransactions, not only the content itself.
Gaming is becoming more social in nature.
According to Unity, social networking apps and social gaming traffic increased by 83% normalized year-over-year. The company reports that social apps typically decline in usage during the spring and summer which makes sense as people spend more time outdoors. As social gatherings have been limited and discouraged during the past few months, many individuals have turned to gaming to fulfill the need to connect.
We’ve said before that all meaningful social internet platforms are worlds that merge elements of identity and reality so users can interact in a compelling way. Whether it’s the real world, a social network like Facebook, or a game, our identities are stretched across multiple platforms. With access to a particular platform limited, in the case of the pandemic, the real world, it’s necessary that we spend more time socializing in other ways. Alongside our shift in social platform use today, we’ve seen gaming companies focus on breaking down barriers among users. Platforms like Unity give developers tools to create places where a variety of people on a variety of devices can come together for a shared experience. This hasn’t always been possible. Historically, games were individual experiences or shared in a living room. As gaming technology continues to advance, driven by platforms like Unity, games will continue to look more like social platforms.
There’s easy D2C telemedicine and there’s hard D2C telemedicine. The first D2C telemedicine boom, v1, logically focused on the easy categories: hair loss, birth control, erectile dysfunction, skin care. All of these categories require minimal doctor expertise or interaction with patients. Treatments are relatively similar patient to patient. Doctors don’t need to review test results and can process prescription requests within a few minutes.
The companies that enabled D2C telemedicine v1 may disagree with this characterization, but the value they created was easier access to prescription drugs, making them almost like over-the-counter products. The benefit to customers that want access to these drugs is strong, but the problem these v1 companies will face is that the services are effectively identical, as are the drugs. Price becomes the focus when convenience is commoditized.
D2C telemedicine v2 focuses on harder health problems where treatments aren’t the same for every patient, significant doctor interaction is required, and lab tests are necessary. The value of D2C telemedicine v2 services is in the actual practice of medicine for large patient populations, not in the simple access to prescriptions.
Hormone optimization for men with low testosterone is a perfect example of a v2 problem.
Primary care providers often assume there’s nothing wrong with men who demonstrate symptoms of low testosterone, and many endocrinologists and urologists aren’t experts in treating low testosterone. Protocols vary widely from patient to patient and require knowledge to get it right because there are a wide variety of medications that could be appropriate. Labs are required on an ongoing basis. On top of all that, if testosterone is appropriate, there are additional regulations around prescribing as it is a controlled substance.
That’s why we invested in Peak, a D2C telemedicine platform focused on male hormone optimization.
Peak makes the hard problem of hormone optimization easier for its patients through a network of expert doctors available via online consultation and at-home blood testing. More importantly, Peak builds medical relationships directly with its patients given the greater need for physician interaction to maintain proper medical care.
Based on research from the company, 40 million men in the US have low testosterone. 7 million men experience symptoms of low testosterone daily, but only about 2 million men are currently being treated for low testosterone.
Many men go untreated because they may not realize they have low testosterone, which requires blood work to confirm. Others go untreated because of the complexity of finding a good doctor. There are active online communities of men on testosterone replacement helping others who may have been prescribed testosterone but by a doctor who doesn’t understand replacement.
Peak solves both problems. The company offers men a low friction way to get their hormones checked through an at home testing kit. Peak also only works with doctors who are experienced in treating testosterone deficiency. Through Peak’s offering, men with low testosterone who have gone untreated for years now have a convenient, simple and affordable option to get treated.
We view what Peak is building as the early stages of widely available frontier medicine, a frontier technology of a different kind. How we manage our biological reality will be just as important as how we manage our digital reality. Optimizing one’s hormones can have a profound impact on quality of life. I know because I’ve been on testosterone for five years, and it has had the single greatest impact on my life of the many supplements and diets I’ve tried as a health enthusiast and competitive athlete.
We’re excited to back Saad, Stuart, and the Peak team in introducing the world to the power of frontier medicine.
Apple has risen to the challenge of COVID-19 making WWDC 2020, which kicks off on Mon. June 22, entirely virtual and entirely free. Now, the company has an even more profound opportunity to double down on inclusivity.
In our view, WWDC is one example of several steps Apple has taken to assume a leadership position in the global response to COVID-19. Historically, WWDC tickets have been expensive and hard to come by. Attendees paid $1,599 per ticket only after winning a lottery, and the cost would double for many developers traveling from 80+ countries around the world.
This year’s virtual format unlocks Apple’s largest gathering of developers for everyone. Apple has sent an open invitation to anyone who wants to change the world using its tools — a radically inclusive opportunity at a time when inclusivity is in the spotlight.
But Apple’s work in this area has long been underway.
Apple’s Think Different campaign captured the early spirit of a company bent on changing the world regardless of cultural norms. And that 1997 campaign continues to resonate, especially today: “Here’s to the crazy ones…They’re not fond of rules and they have no respect for the status quo… Because the people who are crazy enough to think they can change the world, are the ones who do.”
In that same spirit, the company recently shared Tim Cook’s reflection on the killing of George Floyd, Speaking up on racism:
“At Apple, our mission has been and always will be to create technology that empowers people to change the world for the better. We’ve always drawn strength from diversity, welcomed people from every walk of life to our stores around the world, and strived to build an Apple that is inclusive of everyone.
“But we must do more. We commit to continuing our work to bring critical resources and technology to underserved school systems. We commit to continuing to fight the forces of environmental injustice — like climate change — which disproportionately harm Black communities and other communities of color. We commit to looking inward and pushing progress forward on inclusion and diversity, so that every great idea can be heard.”
Apple’s mission is a powerful force. Just a few days after posting his statement, Cook announced a $100m commitment to a new Racial Equity and Justice Initiative.
As a free online event, the barriers to joining the Apple developer community have never been lower. I’d challenge Apple to take it one step further and reduce or even eliminate the $98.99 per year subscription cost for the Apple Developer Program. All of this is an investment in making the Apple ecosystem better. A more diverse offering of software and solutions is a better offering.
Inclusivity is a competitive advantage for Apple and the company should double down at WWDC20.
What to expect from the annual software updates
In addition to a missional message, we expect a focus on the typical software upgrades including iOS 14, iPadOS 14, tvOS 14, watchOS 7, and macOS 10.16. An underlining theme with these updates will continue to be security and privacy, also core to Apple’s mission.
- iOS 14. We expect the most notable new iOS features to include the ability to recall iMessages, an updated fitness app, and a Safari language translator. Our take: The updates will be modest but continue to refine what is already a world class mobile OS.
- New macOS with Arm-based Mac Roadmap. We expect refinements to iMessage, Siri, and a built-in Safari language translator similar to iOS14. The biggest news related to Mac will be a roadmap for Apple to move away from Intel processors to its own Arm-based processors. This is no surprise given the company already makes its own chips for the iPhone and iPad. This topic is of particular focus for developers that will have to make changes to code to make sure they run properly on the new Arm-based chips. Our take: The move away from Intel is meaningful. This puts Apple in control of the timing of Mac hardware updates and should improve performance while reducing cost.
- watchOS 7. We expect the most notable new features to be centered on wellness, including a sleep app along with a blood oxygen estimator. New watch faces and parental controls will also be included. Our take: Apple Watch is still early its adoption curve. We estimate that over the past 12 months Apple has sold about 30m Apple Watches. More importantly, assuming a 3 year watch life, we believe there are 70m active Apple Watches, which implies about 8% penetration into the iPhone user base. Over time that penetration rate will grow, potentially to 33% to 50% of iPhone owners. Leading with digital health and wellness is the winning approach for Apple Watch over the next decade.
- Additional updates. tvOS and HomePod will likely see updates but we do not have insights on what the new features will include.
Potential Hardware Announcements
Our WWDC hardware wishlist includes:
- AirTags. The idea is to make it easier to find your keys, purse, wallet, computer, etc. with Bluetooth tracking tiles. This would compete with Tile, which launched in 2012. We have been expecting Apple to announce AirTags since last fall. Our take: While not the next AirPods, AirTags should see measurable success and contribute to Apple’s wearables segment growth.
- AirPods over-ear headphones. Apple has been slowly shifting its energy in hearables away from Beats to Apple-branded products like AirPods. In line with that trend, we expect Apple to announce over the ear AirPods. Some Beats products already auto-connect to iOS with a W1 chip, so the value of AirPods over the ear would be primarily branding and design related. Our take: Apple could ride the momentum behind the AirPods brand and tap into consumers’ willingness to spend more on headphones. In terms of revenue, this product would likely not move the needle for Apple.
- New HomePod or HomePod Mini. The voice interface will play an increasing role in computing and HomePod is the best way to get Siri into the home. That said, HomePod’s success has been muted mostly due to its $299 price, about 6x more than most “mini” digital assistants. In 2019 we estimate Apple sold 3.5m HomePods and generated about $1B in revenue, less than 1% of overall sales. Our take: For HomePod to gain mainstream adoption among the current 1 billion active Apple customers, the price needs to be sub $100.