eSports, a billion-dollar industry Part 1: From humble beginnings to the snowball effect

Epic Games

Unless you were living under a rock these last few months, you learned that a formerly unknown 16-year-old video game player from Pennsylvania named Kyle Giersdorf, aka Bugha, was the first-ever winner of the Fortnite World Cup, earning USD 3,025,900 in prize money. As a comparison, Novak Djokovic’s prize money for winning Wimbledon this year was USD 2,983,748. Yes, you read right, Nole won less money than Bugha. Another irony of this tennis comparison is that the Fortnite World Cup took place in the legendary Arthur Ashe Stadium, home of the US Open. With this, ladies and gentlemen, we have officially stepped off the high board into the depths of eSports..

Humble Beginnings

The first known eSport competition was more of a geeky reunion at a time when the term didn’t even exist. In October 1972, a Stanford student saw a flyer on a bulletin board that read: 

“The first 'Intergalactic Spacewar Olympics' will be held here, Wednesday 19 October at 2000 hours. First prize will be a year's subscription to "Rolling Stone". The gala event will be covered by Stone Sports reporter Stewart Brand and photographed by Annie Liebowitz. Free Beer!”

The event consisted in a Spacewar deathmatch. Let me explain: On this game born in 1962, both players control a spacecraft, floating randomly in space. The ships are armed with 2 weapons: torpedoes and jet boosters. The goal is very simple, deathmatch situation, you just have to find the best way to destroy your opponent’s ship! 

Bruce Baumgart, who by day was building sensing intelligence into robot vehicles, won the competition with a powerhouse performance. It was an era when pixels were big and computers even bigger and largely unpopular. As a matter of fact, people didn’t trust these electronic objects, ignorant to their capabilities and fearful that they may negatively impact human wellbeing – a debate that has yet to be settled and probably never will be. 

Rolling Stones

In the early 1980s, console brand Atari created Space Invaders, the first larger-scale video game tournament competition, attracting more than 10,000 participants across the United States and establishing competitive gaming as a mainstream hobby. This attracted media interest, and, in 1982, Space Invaders aired on the television game show Starcade, where video game contestants competed for the highest score.

The popularization of video games and international tournaments

In the early 1990s, Japanese video game company Capcom launched Street Fighter II, changing the game industry forever. The fighting game broke a fundamental pattern: instead of relying only on the highest scores to determine the best players, now gamers played against each other directly, "face-to-face", which changed everything. 

This new way of challenging each other paved the way for the competitive multiplayer and deathmatch modes found in modern action games. The rising popularity of these games, and the fact that they were accessible through consoles like Nintendo Entertainment System (aka the ‘NES’), led to the founding of one of the biggest tournaments in the world, the Evolution Championship Series (EVO) in 1996. Around the same time, Nintendo, then video game industry leader along with Sega, also created the ‘Nintendo World Championships’, which toured across the United States and held its finals at Universal Studios Hollywood in California. 

Evo Tournaments

These events (especially EVO), were at the top of the list when talking about video game tournaments, until the online revolution began.

The Korean crisis and the rise of the internet café

The 1997 Asian financial crisis hit a few countries hard, especially Korea. The following year, the country invested heavily in broadband internet, leading to the creation of internet cafés. At this point, home computers were becoming more accessible, but were still not the norm, so gamers who wanted to play video games, especially the newer ones like First Person Shooters (FPS), had to go to an internet café. 

Seoul Insider

The internet opened the door for players to compete against opponents from across the globe. Such was the trend that, in 2000, the Korean Ministry of Culture, Sports and Tourism created a new government branch called eSport, one of the first applications of this newly-coined term. 

With Korea paving the way, it took less than 10 years to see eSports expand in most first-world countries. More personal computers and the creation of global online tournaments meant more people started playing from home. The popular games at the time were FPS’s Counter-Strike and Quake, as well as Blizzard’s hit role-playing games Warcraft and Starcraft.

A new business model for developers

Not only was this the start of a revolution, but it also created a new opportunity for video game companies to generate revenue. Most of these new online games are hosted on the companies’ servers, where users pay a monthly subscription of around USD 15, providing a more regular income stream than one-off game sales. 

Today companies use an even more efficient way to generate revenue: microtransactions. Users can purchase virtual goods with micropayments that are usually processed through a credit card. 

Electronics Arts

Historically, microtransactions have been used in free-to-play games, especially mobile games, to insure a revenue source for the developers. Bigger developers saw an opportunity to build on this since most gamers want their in-game avatar to look unique, which requires personalization, which means more microtransactions. The success of microtransactions is best illustrated by an example from Electronic Arts, the developer of FIFA soccer games that recently published undisputable numbers concerning Ultimate Team, a mode that enables players to build teams using any player from any league. Coins earned in online or offline play allows for the purchase of better players or packs containing random players. The most incredible part is that the revenue it earns from these microtransactions has actually surpassed its game sales revenue. 

The eSport snowball effect

The year 2010 marked the definitive explosion of eSport. After many years of ignoring and even suppressing the eSport’s scene, Nintendo hosted Wii Games Summer 2010. Spanning over a month, the tournament welcomed over 400,000 participants, making it the largest and most expansive in the company's history. 

Nintendo America

Video game companies grew exponentially following the success of their online tournaments. And really good players started posting their gaming sessions on global online platforms such as Youtube and Dailymotion, to showcase their skills to the world. Although viewership was high, something was missing: the capacity to live stream the performance and let fans interact directly with the players, as well as to assemble the gaming community. This led to a simple yet remarkable solution that changed the industry forever. 
We’ll tell you all about it in Part 2 of eSports, a billion-dollar industry: New heroes on the rise.
Stay Tuned for the Part 2 next week! 

A The Consultancy Group article, written by Alessandro Di Benedetto

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