PAYMENTS: Mastercard League of Legends Sponsorship and the Censorship of Attention

Mastercard has thrown a sponsorship behind one of the most popular e-sport games, League of Legends. We think finance people should pay a little more attention to next-gen attention machines, and competitive video games are a black hole for user growth. As symptoms, we point to the $1 billion acquisition of Twitch by Amazon, or the $400 billion market cap of Tencent with an $18 billion revenue run-rate from its game division. Further, e-sports are growing massively as an audience aggregator, with over 300 million people globally. Some events (e.g., League of Legends finals) command 40 million concurrent viewers, larger than many traditional sporting events (e.g., 20 million for the NBA finals). Perhaps not surprisingly given the Tencent example, over 50% of that attention comes from Asia Pacific.

What does this sponsorship really mean? As far as we can tell, it's a combination of (1) banner branding during the games themselves, and (2) creation of rewards related to the video game in Mastercard's Priceless program. Rewards include behind the scenes access, preferred live stadium seating, and the chance to test-drive computers used by the "athletes" at the World Championships. To be eligible for these scarce experiences, users have to input their Mastercard information as a payment rail directly into the League of Legends game platform. What is there to purchase inside such a video game? Usually cosmetic upgrades and other microtransactions -- $1 billion worth of revenue for League of Legends.

Going back to the Asian fintechs: video games are a gateway to messaging, messaging is a gateway to payments, payments is a gateway to banking, savings, lending, and investments. In addition to those watching these games, there are also 200 million active players in these ecosystems, all of which could become a Mastercard user. Further, starting at the attention end locks people into a brand that they actually like, rather than tolerate. That's why entrepreneurs have been trying to "gamify" finance, not "financialize" games, though such financialization is now happening through tokenization and cryptocurrencies. The last bit we'll leave you with is that Chinese regulators think video games to be such an addictive and powerful vector, that they are working on laws that limits time spent and number of new titles released. A freeze on new release approvals has wiped out over $100 billion from Tencent's marketcap.


Source: Mastercard (Press release), Newzoo (Esports market size), Statista (Companies making the most from video games), BI Intelligence (number of viewers), Fortune (Chinese Video Game regulations), Newzoo (Tencent revenue), PC Gamer (LOL revenue)

CRYPTO: $10 Million In Crypto-Games per Week

Source: DappRadar

Source: DappRadar

We've talked before about how important CryptoKitties was to the new web -- with all sorts of technologies like artificial intelligence, augmented reality, streaming video and online commerce getting their start from pictures of cute animals. Content is the killer app of the Internet. And putting aside adult content, video games have been a key driver for the development of online communities (e.g., MMORPGs), virtual economies (e.g., Second Life), video technology (e.g., Twitch), bandwidth development (e.g., Battlenet), hardware that runs AI and Bitcoin mining (e.g., GPUs), and many other key pieces that are responsible for innovation across the web.

It's not a surprise to see that, when analyzing the spending volume in decentralized apps on the Ethereum blockchain, over $10 million of economic activity is happening weekly in gaming, according to tracker DappRadar. So if we put aside the financial speculation in crypto currencies, i.e., trading them as assets or launching fundraises, what's most vibrant in the public ecosystem is video games. From CryptoKitties to EtherIslands or CryptoCities or EtherBots, developers are creating software that functions like a toy around digital assets. In a case of imitation being a source of flattery, decentralized gaming Chinese blockchain TRON launched a Crypto Puppies game for Chinese users and now has $3 billion marketcap.

And this, in our view, is the key insight about the space. What matters most is not the network or the mining, but the ability to make digital assets scarce and transferable. If it works for digital toys, it will work for digital equities, attention tokens, land titles and so forth. Games are the perfect proofs of concept for ownership and designing economic systems, as they are starting from scratch, and are not entangled with existing regulatory and legal regimes. How games turn into reality however, is a matter for the sovereigns. See the latest actions from the SEC, the Milken Institute's report on Fintech legislation, of the German Federal Financial Services Supervisory Authority's statements to see how we are progressing.

S ource: Tron Games

Source: Tron Games

VIRTUAL REALITY: Getting Used to Mixed Reality

Virtual reality is still missing its killer app, though VRChat is showing some real potential with 3 million downloads and 7,000 daily users. The app is an open environment where users can render both their world and their avatars. Think about a rudimentary version of Ready Player One that looks like Second Life. The app has had success for three reasons: (1) user generated content and thus endless variety, (2) the ability to use it even without VR on a regular desktop computer, and (3) video streaming of the app on popular video site Twitch, with nearly as many people watching the the virtual world as are actually in it. 

Source:  Steam / RoadtoVR

VR games are essentially behavioral training for augmented reality commerce. If users build and value objects and experiences in a virtual world, users will value them when overlaid on the physical world. Think about how video games from the 1980s and 90s became the blueprint for gamified mobile interfaces in the 2010s (see Mary Meeker's thesis on this here, pp 103-155). And we already see this happening. One sign is the planned entry of Magic Leap into retail. Another sign is fashion brand Chanel investing into tech company Farfetch (which had already raised $400 million from Asian fintech Chanel is explicitly not interested in distributing through mass online retail, but are moving towards creating highly personalized augmented reality shopping experiences. 

Weaving together some crypto projects in the space can also help us see ahead. AR glasses manufacturer Lucyd has partnered with Gaze Coin, so that interactions with objects rendered in AR can be monetized. Similarly, there's a partnership with gaming network Gizer and algorithmic advertiser Combined with a rights-management overlay like Bubbled, you get a coherent integration of services that replicate digital advertising and commerce infrastructure in the physical world. Because in reality, we search for things not by typing or speaking, but by looking.

Source: Lucyd

Source: Lucyd