Note: by AI here I mean the 2020+ wave of generative AI. Games have been using AI for ages, and hypercasual mobile games have gotten it down to a science.
Video games is a $180B+ global market. Almost double the movies and entertainment market, although I believe all media will converge into an interactive, self-assembling blob catered to you. In the meantime, what does gaming look like in the next decade or so?
ChatGPT has been rightfully lauded for reaching 100M users in a couple of months - but Pokemon Go reached 100M installs in about the same timeframe.
When life gives you lemons, don’t make lemonade! Make life take the lemons back! Get mad! I don’t want your damn lemons! Cave Johnson, Portal 2
This is the obvious low hanging fruit: make generating game assets and the process of game development cheaper and faster. This is the realm of the likes of Inworld AI (NPC personality & dialogue - recently pivoted its positioning to agentic frameworks, raised $125M); Latent Technologies (generative physics); and nunu.ai (game testing).
If everything works, there’s still the question of live operations: the event-based activities such as discounts, seasonal content, quests etc. in mobile gaming. “Traditional” AI/ML has done a good job here, but generative models can take in a lot more unstructured data to find even subtler, hyperpersonalized signals and knobs to wring out more juice. Companies like SuperScale (raised $1.2M seed) and Pragma (Greylock backed, raised $12M) tackle this.
These are all largely deflationary: most likely it’s the game themselves, not their infrastructure, who will capture the bulk of the upside. Unreal Engine’s revenues was $275M in 2023 - around 6% of Epic Games’ total revenue, while Unity’s Create Solutions (engine) generated around $860M in revenue, compared to the $1.3B its Operate Solutions (ads) made. Part of the challenge in scaling independent engines is that the game developer market is an oligopoly, and those players are vertically integrated and use their own in-house tooling, leaving not much meat on the bone. Unity and Unreal account for 79% of games released on steam, and no other player has made a significant dent in changing that so far.
However, if you are able to incubate a new cohort of creators who didn’t exist before, you may be able to deepen the market by extending its long tail. Rosebud.ai, Jabali, and Breshna are some of the companies tackling this using generative AI to lower the friction of game creation. You can argue the pre-AI version counts Minecraft and Roblox amongst them.
But if you’re bringing new creators online, you also have to help them make money. In my opinion, you have to solve for distribution or monetization to entrench them into your infrastructure or risk becoming commoditized.
A man chooses; a slave obeys. Andrew Ryan, Bioshock
Now that AI is making game production faster and cheaper, there will be a Cambrian explosion of games - including a ton of AI slop. Curation will become even more important. Steam lowered the transaction cost of purchasing games by moving it online, allowing it to hold an impressive 75% of digital game distribution in the US. But its Yelp-esque reviews aren’t sufficient to efficiently match game and player. A record 19K games were launched on Steam in 2024 (52 a day!) but 80% of them had almost no players.
The novelty TikTok introduced was on both demand and supply; on the supply side, it allowed new entrants to be discovered quickly even with negligible followers, but on the demand side, it pushed content rather than waiting for user intent signals like search keywords or followed creators. The motion echoes social media ads that spring on you mid-doom-scroll, except instead of facilitating impulse buying, controlling the content stream itself facilitates impulse binging.
Since the shareware days in the 80-90s, demos have been proffered as a taste test for future purchases. Mobile games have taken this one step further with playable ads, letting you try the game mechanic within the ad itself. But it ultimately still takes time; unlike images or even videos, I can’t grok the gist of a game from a quick glance. Brains show neural activity signaling scene understanding within 250ms after stimulus onset. That’s enough to decide if you want to keep watching a TikTok short clip, but not enough to know if something is fun to play, and our attention spans are ever-shrinking.
Perhaps the answer is hijacking intent even further upstream. Tiktok’s content push shapes the viewer’s interests and introduces them to new categories they would not have discovered on their own. I don’t know what this looks like in the future of gaming - perhaps games-within-games, perhaps mini-games within your ChatGPT conversation, perhaps it is ads adapting to your BCI or wearable signals, perhaps bundled with other entertainment mediums like music or movies as one cohesive experience. The point is finding the player before they even think of finding you - but making them think they did it on their own.
In the 80-90s, internet forums became the water cooler of game discovery as shareware proliferated. Bulletin Board Systems and other gaming specific forums dominated, turning the single-player experience of playing games into a multiplayer social community.
As we form parasocial relationships with our abundance of anthropomorphized AIs, verified-meatbag-relationships become scarce and therefore valuable. Human curated (and ostensibly so) lists become the badge of belonging to a community that will be small but powerful gatekeepers of content. I don’t think human influencers go away; I think they become even more important vis-a-vis other forms of marketing. Even if/when AI influencers become the norm, the identity of being a fellow human follower of the Lunas of the world will still deeply influence who you listen to in decision making.