Riot Games – A digital winner, but is it revolutionary?
Riot Games, the video game publisher behind League of Legends, has proven its prowess in the industry and is a definite digital winner.
Riot Games, the video game producer behind League of Legends (“LoL”, its only game), has been hugely successful by any metric. In early 2014, 27 million people played LoL each day, which is about 50% more than the average viewership of an NFL game, and about 25% more than the viewership of the most popular primetime TV show. [1] This playership reportedly drove over $1 billion of revenue in 2014. Riot Games is undoubtedly a digital winner in the gaming industry, creating massive value for its players. But, is it actually revolutionary in what it does?
How Riot Creates Value
At the core, Riot creates value by creating, maintaining, and constantly improving a video game that people love to play. There are many facets to how Riot has been able to do this so well.
Looking at its technology, Riot updates its games every one to two weeks via software “patches” or updates that players must download as soon as they are available. This allows Riot to introduce changes that keep the game balanced, fun and challenging over time. The company also strives to reduce the latency that players experience when connecting to LoL servers, creating a more seamless gaming experience.
Riot is also a master of game design. It has a number of features that have been shown to increase the “addictivity” of a game, such as accruing “points” over time, developing quantifiable “mastery” over various ways to play, and playing a “meta-game” that extends beyond the individual games. Furthermore, the LoL world has a rich backstory that captivates its players. Finally, a key aspect of the game is the matchmaking system that groups players into two teams of roughly equal capabilities (based on past performance) for the 5-versus-5 battles, which makes the game more fun for all.
With these elements in place, LoL attracts players and builds up network effects. More players playing LoL means that more data is generated to help optimize the game even further. More concurrent players allows for even better matchmaking and a better experience for all.
How Riot Captures Value
Riot has always emphasized that the quality of the game and the player experience come first. LoL is in fact a completely free game. However, there are a number of ways in which Riot captures some of the value it creates for its users.
The main revenue stream comes from in-game purchases of purely cosmetic add-ons to one’s account. Two other revenue streams come from a budding eSports division, which produces and broadcasts professional LoL games, and from merchandise inspired by the LoL world.
Notably, none of these revenue streams come from products that change the core mechanics of the game experience – you can never buy an advantage in the game. Thus, Riot is essentially monetizing its players’ enthusiasm for and affiliation with the game. This is not online advertising, where publishers monetize the attention of its viewership via injecting ads. It is more akin to professional sports, where teams cultivate loyalty from a fanbase, hold events in which they play, and sell items for fans to display their affinity. Despite being free-to-play, Riot has managed to monetarily capture some of the value it creates.
Is it Revolutionary?
Riot Games is undoubtedly a digital winner, but it seems to have gotten to this point by perfecting an existing product genre (the online, multiplayer video game), rather than revolutionizing it. Many of the technological challenges had been addressed by previous online games. Even with game design, LoL started off as a close follower of a previous game (Defense of the Ancients).
Moreover, it’s hard to argue that LoL has disrupted any other industry. Despite LoL having a massive playership, it has not made a noticeable dent in competitive entertainment sub-industries such as television, movies, or professional sports. Some have hoped that the technological capacities and game design elements from the video gaming world would positively impact other industries such as education, but this has generally not occurred yet.
Riot is certainly a digital winner today because of how well it has executed on its goal of creating a wildly popular and player-focused video game, one which relies on the technology and network effects enabled by the internet. But, it might not be a digital winner forever – Riot will have to invest in constantly maintaining and improving LoL in order to keep players coming back. Perhaps it is only a matter of time before another game similar to LoL captivates players, or a new genre of game becomes popular.
[1] LoL number reported by Riot Games. NFL viewership (17.6M average over the 2014 regular season) reported by NFL and Nielsen. Big Bang Theory weekly viewership (21.3M) reported in June 2015 by tvinsider.
I have found very interesting how the fremium concept has worked with gaming and how it is being reproduced by other industries. LOL is clearly a good example of this as it is Clash of Clans, which makes about $1.6 Million dollars a day just basing their value capture on users that want to get a bit more out of a free game (https://openforum.hbs.org/challenge/understand-digital-transformation-of-business/business-model/clash-of-clans-capturing-value-one-gem-at-a-time)
A very interesting example of how Fremium can be used in other industries is FreedomPop, a cellphone company that gives you the first minutes and data for free expecting that you will pay for more when you ran out of them (http://www.freemium.org/freedompop/).
I believe that digital technologies allow companies to scale very quickly using this kind of services and appealing to the big numbers theory. There will always be people willing to pay for a premium service as long as you reach out to them, and what better than a free-good quality product.
Do you think that a subscription model could be effectively leveraged by this company? While in-app purchases allow for some value capture, could capture be maximized in other forms, with a more stable recurring revenue stream? Several brands that have utilized freemium models have recently begun considering subscription models. For example, YouTube, which has historically been a completely free service, launched a subscription service for its music offerings, and plans to extend this business model across all of its verticals within the next year. Are the existing content and product features (value creation) capable of sustaining a new sales model (value capture)?
http://www.usatoday.com/story/tech/2013/10/24/youtube-music-video-subscription/3178695/
http://www.billboard.com/biz/articles/news/digital-and-mobile/5763268/youtube-close-to-launching-subscription-music-service
Great post. As you suggested, Riot may not be a 100% game changer in the game industry; LOL’s genre, a multiplayer online battle arena and real time strategy video game, has long been popular in the PC game market and freemium model is not totally new in the PC / mobile gaming era. I, however, agree with you that how they have perfected their game and effectively managed their user community makes it a digital winner. Moreover, because of its enormous, loyal user base, I believe Riot has much potential to create new opportunities and to become a leading digital innovator. It already has made much impact on growing the in-game communication and the game broadcasting / live-streaming market. As of now, the company seems to pursue a relatively closed ecosystem model to maintain its user experience. In order to grow sustainably and become a true digital innovator, it should find a way to open its game platform to 3rd parties and to maintain its superior gaming experience.