December 5, 2022
Not Just for Kids
The video game industry has evolved quite a bit since the first video game was invented in 1952. Due to the limitations of technology at the time, and perhaps also cultural factors, gaming remained a niche activity mainly for young people for its first few decades. But as with many things in society, trends change and eventually the niche of gaming grew into a world-wide industry. The video game industry has come a long way from just something for the kids, growing into a global industry that is estimated to have a market cap of $314.4 billion in 2026. A look into the current gaming industry reveals that the future looks quite bright for the industry, with the companies that understand these trends, and what the consumers are looking for, are poised to reap the most benefits.
But before examining the future of the gaming industry and what it means for consumers and investors, it’s important to understand what the word “gaming” entails. The simple definition of gaming involves any game that’s played digitally on a console system, home computer, or mobile device. The type of games that can be played are diverse in style and genre, ranging from role playing to first-person shooters. It’s likely that you’ve played or watched others play electronic games, and as gaming increases in popularity, going beyond the niche of “kids games,” its importance in our economy and society will continue to grow.
The numbers all indicate that the gaming industry will continue to grow in the coming years, which has a number of potential repercussions for the consumer. Consumers can expect better games, with higher degrees of playability and realism, while also having a wider array of choices as more companies attempt to enter the industry. Investors will also have plenty of opportunities, but perhaps the greatest benefits for consumers will come as gaming is influenced by other recent tech trends, such as artificial intelligence (AI) and virtual reality (VR), which have the potential of making life easier and giving gamers a more enjoyable experience. So let’s examine how gaming came to be, where it is today, and what investors and consumers can expect in the future.
The Birth of Video Gaming
The video and computer gaming industry has become such an ubiquitous part of our lives that most people don’t consider its inauspicious origins, or how old it really is. Today, many consider engineer Sandy Douglas to be the father of modern gaming, as it was his computerized version of tic-tac-toe – OXO – that became the world’s first computer game in 1952. OXO was certainly a far cry from Fortnite in terms of graphics and playability, and the average consumer didn’t even have access to the game, but it marked the beginning of a process that eventually gained plenty of momentum.
Despite the leap made by Douglas, gaming lagged until Steve Russell created Spacewar! in 1962. Designed for the PDP-1 microcomputer at the Massachusetts Institute of Technology (MIT), Spacewar! featured two spaceships shooting at each other. Although the game was simple by today’s standards, it eventually caught on and was adapted for home computers and the Atari 2600 console system in the 1970s, making it the earliest mass marketed video game and the first true video game in the eyes of many purists. And as Spacewar! found a popular audience, the gaming industry expanded exponentially into Americans’ living rooms.
The first era of console systems – computer systems that are dedicated exclusively or nearly exclusively for gaming – was born when engineer Ralph Baer developed the Magnavox Odyssey system in 1971. The Odyssey went on the market in 1972 and sold more than 130,000 units in its first twelve months, offering such “riveting” titles as Pong, but as the novelty of the system wore off after a couple of years, consumers began looking for better alternatives.
The gaming industry was disrupted once more when Atari’s 2600 system hit the store shelves of K-Mart, Sears, and other popular retailers of the era in 1977. The 2600 was far ahead of the other systems, featuring things that the Odyssey and other first generation consoles didn’t have, including: joysticks, color graphics, sound, and most important, interchangeable cartridges. Other companies followed the 2600’s lead by creating new systems, such as Intellivision and Coleco, but the oversaturation of the market led to the Video Game Crash of 1983 and a reset of the market.
Video Gaming Today
The gaming industry reemerged in the mid-1980s with new companies and consoles. The Nintendo Entertainment System (NES) became the console of this era, but by the late 1990s the Sega Dreamcast, Sony PlayStation, and Microsoft X-Box captured sizable chunks of the gaming market. Some of these systems, such as the Dreamcast, were actually a bit too far ahead of their time and failed, leaving Nintendo, Sony, and Microsoft to dominate the console market.
The technology of current console system has continued to develop and evolve, with one such notable advance being the PlayStation 4 the first to offer 4K video in 2016. And as technological advances were made in the gaming industry, making the games more realistic and fun to play, sales greatly increased. Today, Microsoft and Sony are the number one and three gaming companies in market cap size respectively, at $1.978 trillion and $102.74 billion, but much of their profits are from non-gaming, or not exclusively gaming hardware and software. If solely game companies are considered, then Activision Blizzard has the top spot at more than $61 billion. And as these numbers are expected to steadily increase, investors and consumers should be aware of some of the trends that are currently taking place.
There’s no doubt that the COVID-19 pandemic changed the way people work, invest, and play. The lockdowns devastated a number of sectors of the economy, namely “mom and pop” service businesses, but the gaming industry benefitted tremendously. There was a 37% increase in sales in the US alone, and globally the market size reached over $203 billion in 2020. As more and more people of all ages have found gaming to be an enjoyable pastime during the lockdowns, gaming has moved beyond consoles.
One of the most important trends taking place in the gaming industry is the move from console gaming to home computers and mobile devices. The emergence of social media has brought gaming to demographics that normally wouldn’t have played electronic games. Companies such as Rovio – which created the popular Angry Birds game that later became a media franchise – understand that consumers today who would never consider themselves “gamers” can be enticed to play certain games, if they are accompanied by social media and played with the convenience of a mobile device.
In fact, successful gaming companies are learning that how games are played is often just as important as what games are being played. Many people don’t want to pay hundreds of dollars for a console that they may only rarely use, but they can be persuaded to buy games for their personal computers. Most popular console games are also sold for PCs and many who consider themselves gamers actually prefer playing on their PCs. A survey conducted by Eyes4Research with gamers shows that more than 26% of gamers prefer to play on their PCs as opposed to more than 39% who prefer console gaming. Perhaps an even more interesting revelation of that survey is that more than 35% of the respondents preferred gaming on their mobile devices. These numbers clearly indicate that there is a consumer trend toward mobile gaming and gaming brands that realize this will be better positioned to be successful.
The Future of Gaming
A look at current gaming trends will help us understand where the gaming industry is going in the near future and how that relates to consumers. Online services such as Steam and Twitch, where gamers can download games, will continue to grow. Steam had 132 million monthly users in 2021 and sold $4.3 billion in games in 2017, while the younger Twitch had fifteen million users in 2020. Expect the trend of downloading games to continue, but consumers can also look forward to new technologies that go beyond gaming.
Consumers can expect a new genre of games known as “mixed reality,” which combines virtual and augmented reality, to hit the market in the coming years. This potential development is contingent upon VR headsets becoming more popular, but experts have pointed out that currently the headsets are too bulky and expensive for most gamers. One industry expert believes that for consumers to adopt VR headset gaming in greater numbers, gaming companies will have to develop games that are enhanced by specific sensations. For examples, players will feel the ammo they load into their guns, the wheel of the car they are driving, or even the punch from an opponent in a fighting game.
The emergence of AI will also provide new innovations that consumers can expect to enhance their gaming experiences. Although the role of AI in the games themselves remains limited, and will likely continue to be the case in the near future because studios don’t want games to have “emergent behaviors” that could take a game outside its intended concept, AI is already being utilized in some aspects of gaming. Cloud based gaming, block-chain based gaming, voice recognition games, and even “wearable” games are all presently gaming realities, and as all of these technologies expand in other fields, look for them to present new, more in-depth experiences for gamers.
The final future trend of the gaming industry to consider is the disruption it will bring to the greater entertainment industry. The fact is that after Sony, Nintendo, and Microsoft introduced 3D games in the late 1990s, the entertainment industry was immediately impacted. The advances in video game graphics, playability, and storylines meant that consumers had more options concerning how to dispose of their disposable incomes: better storylines and acting in video games has the potential to cut even deeper into the film and television industries and become a rival cinema of sorts. Although this trend is not really new, with the late Ray Liota playing the part of the primary character in the 2002 game, Grand Theft Auto: Vice City, expect the games to become more “epic” and involve more A-list actors in the future.
The gaming industry has evolved quite a bit from its inception in the 1950s, to its commercialization in the 1970s, and finally to where it’s at today. As gaming continues to evolve, brands that understand consumer trends and sentiments – such as the rise in popularity of gaming on mobile devices, and the growing connection between gaming and social media – will be poised for success. Additionally, gaming companies that understand the role the emerging technologies of VR and AI will play in their industry, and how those technologies will give consumers a better experience, will also find success, because ultimately the gaming industry is truly driven by consumers.