Gaming could be key to engaging the next generation
Podcast episode 68
Telecoms operators are at a crossroads right now. They need to make a decision about whether they want to become a utility, or whether they want to be something more. Vijai Karthigesu, Founder and CEO of Swarmio Media believes the answer to thriving in the years ahead lies in fully engaging the next generation. And, more specifically, through enabling gaming.
Below is a transcript of this podcast. Some parts have been edited for clarity
Michael Hainsworth: The ultra-reliable, low latency and high speed that comes with 5G, have given telecom operators a chance to shed their utility image and play a greater role in the lives of today's digital natives. One area where URLLC (Ultra Reliable Low Latency) really shines is in cloud gaming. The ability to stream high quality games to any device anywhere can bring an additional three to five dollars in average revenue per user. And in parts of the world where credit card ownership is low, the CSP can leverage its existing payment infrastructure to act as an intermediary between its customers and its partners. Nobody knows this quite like Vijai Karthigesu, the Founder and CEO of Swarmio Media, tells me that for telecom providers to remain relevant, they must engage future generations.
Vijai Karthigesu: So, if you look at the future generation, we call them digital natives and millennials, the age group, somewhere between 13 years to 40 years old. It's a wider gap. And the important thing with this generation is, they are born connected. So, for them everything is connected with computers, mobile phones, and it's a completely different generation, especially with the telecom operators where there are traditional companies. The hard time they're having to understand this generation, because traditionally you reach out to your audience with TV advertisements, or radio or newspaper or traditional mediums. This generation don't consume any of the traditional mediums. This is a generation you have to reach them where they are. Which is why there's social media. The big thing now is gaming. Because gaming is the new social media.
MH: And within gaming, there is that subset of it called esports. And you've written that it's on track to be the best application to demonstrate and monetize the 5G telco infrastructure. How does 5G change esports?
VK: As you said, esports is a subset of the entire gaming industry, just to give you some understanding how big the difference is, gaming industry is almost $200 billion industry, which is the largest entertainment industry in the world. Esports is almost just a billion dollar industry. However, esports has some unique advantages and opportunities for telecom operators to easily get into the gaming world. Where esports needs high-definition broadcasting capabilities, because esports is all about competitive professional gamers and players playing, even though they're a small percentage, but the requirement to play in an esports online tournament, it actually requires good quality connectivity, low latency, high-definition broadcasting. All of these things are well suited for the telecom operator to tap into because they are the experts on delivering this kind of services. So, it is an opportunity for them to get into the gaming world easily, but they shouldn't just focus on esports because esports is played by only a really small percentage of the gamers, but the telcos should also focus on the rest of the masses, which is more than 99.99 percentage of the people actually play just gaming itself.
So, there's a huge opportunity for telcos to focus on both the esports –they can get in easily – but also focus on the entire wider gaming sector.
MH: So, before we get into the $199 billion aspect of the gaming industry, let's talk a little bit more about that one billion. Does the venue for esports turn to a telecommunications service provider to wash that stadium with 5G or does the esports provider have the relationship with the telco? Who's involved to make that happen?
VK: It depends on who is the organizer and who is the venue? Sometimes both of them are the same. Sometimes the organizers want a venue and do communicate with the telco. But we are only talking about a small percentage of the esports actually happens in a live venue setting. There's lots of esports tournaments happening in pure online as well. So when people actually play competitively in an online setup, they don't have to be in a physical venue, especially during COVID time, there are lots of esports moved into the online setting where telcos can easily tap into because they have the internet, they have the infrastructure, they can deliver the media and the content to the users with their network.
MH: So, whether we're talking about the one billion dollar esports gaming industry, or the $199 billion overall gaming industry outside of esports, it sounds like there's a place for 5G in this as well because the killer app seems to be edge cloud.
VK: Yes. There are two things. Let me explain what 5G brings to the table. 5G is the next generation of the telco services. We went through 3G and 4G and 5G. What 5G bring to the table is the high bandwidth capability and ultra-low latency last mile capability. There's a misconception of 5G that it’s going to solve all the latency issues. It is not going to solve the entire latency issue. It's just going to solve the latency between your computer or your mobile phone, to the cell tower. And after that, once the packet or your communication touches the cell tower, it is the same network, whether the 4G or 3G and the fiber connection goes into, which is the telco backhaul. But it gives a really good opportunity for telecom operators to expand high bandwidth, low latency connectivity, similar to fiber.
This is still not equal to a fiber to home service, but it is similar and way better than 3G and 4G. So it opens up a huge opportunity for telcos to tap into areas where they can provide high bandwidth, low latency connectivity, that enables now game developers and game publishers to develop games that used to be developed for PCs with fiber connectivity, now they can develop games to mobile phones. That's why you are seeing a huge growth in mobile game usage and players.
MH: But it's also like Netflix for video games. Netflix has a high speed connection to its consumer that shows video. Video games are going to be moving into that realm as well, where you're not going to need a console. You're not going to need a PC. Maybe your mobile phone is sufficient to be able to play any kind of game, regardless as to what the original specifications were, because you're going to have that connection to that near edge cloud and that edge cloud to do all the heavy lifting somewhere else and just pump the video of the game to the end user.
VK: Yes. So, edge cloud plays an important role on what you are describing as cloud gaming, where instead of having your client in your PC or your mobile, everything is in the cloud and its streams to you. Edge cloud is a mandatory requirement to have a proper cloud gaming solution, whether it's Stadia or Nvidia or GeForce NOW. All of these are cloud gaming examples. All of them need an edge cloud. So 5G and edge cloud goes hand in hand. So every 5G build out, the telcos are building edge cloud solutions as well. So there's one important difference between Netflix and cloud gaming. When you watch, is this called buffering. When you watch a Netflix video, you click play, your player will bring in some of the video, and then let's say in a couple of seconds, then it will start playing again.
Then, even if there's a delay in bringing the content to your computer or your TV, you as a viewer wouldn't see that because it's buffered, because it's delay started. But when you play a game online, especially with multiple people, you cannot do that because it's real time. So, one of the challenges that cloud gaming, especially multiplayer cloud gaming, brings to us is how do you do, without buffering, high-definition streaming to you and enable multiple players to play online without buffering? So, you need an edge cloud solution, you need a low latency network connectivity, you need deterministic routing. We call it in telco world, to make this ‘seamless,’ which is not here today. It is actually a future requirement that people are working towards. So, in order for things like Stadia or Nvidia or GeForce NOW to really pick up, we need that kind of network infrastructure and cloud and 5G infrastructure to be available, which is on the works. We are still working towards getting there.
MH: So, we've talked about two use cases that a CSP can engage in partnerships for, when it comes to the gaming world you've got the esport side, maybe you roll a trailer up to stadium to make sure that all the infrastructure's there. Then you've got the edge cloud component where you're ensuring that your gear is the one that's streaming in real time those video games to your consumers. And that gives you a certain edge as well. But let's talk a bit about your role at Swarmio, because there's a third partnership opportunity for CSPs. For example, you've launched that dedicated gaming platform in Sri Lanka. Let's talk a bit about that and what that means for Sri Lanka Telecom subscribers.
VK: Yes. So what Swarmio, delivers is a third option, as you mentioned for the telecom operator, so that you don't have to wait for 5G to be ready or edge cloud to be ready. We can actually go and monetize the gamer base. If you think about three billion gamers, they're already a customer of a telco. So, telecom operators can go and monetize them today. So, we offer to the telco, look at the problems the current gamers face. They face problem with low latency routing, so this is a very important issue. People ask me, "How big is this?" I tell them, "Go and Google, Lag Kills." The term lag is the latency term that the gamers use. ‘Lag Kills,’ you can actually buy T-shirts and hats. So that's how big and prominent the problem is. So as a telecom operator, first thing they can do, they can offer a better routing and low latency connection to all the games servers out there.
Number two, instead of going after these less than 1% esports professional players, you can actually offer engagement platforms, like tournaments and challenges, and enable your local micro influences to get identified within the local country, local community, because gaming is the community. So what we offer to the telco is go after the masses and nurture the gaming community in the local country, in the local community, encourage the local micro influencers. For example, let's say you are a YouTube or Twitch streamer, and you have 10,000 followers. You are nobody in Twitch because in order for you to become a big Twitch earner or big player, you have to have hundreds of thousands of millions of followers. But if you are, let's say Sri Lanka Telecom, identifying a local stream of 10,000 followers and bring that micro influencer to the platform and make him or her identifiable to the community, the gamer community, now you are nurturing the gamer community. So, this gives the gaming community something that they need. You don't need to be a big professional player to go and play a tournament. you can go to Sri Lanka Telecom and participate and experience esports like experiences, but you don't need to be a professional player. So, you can participate in tournaments and events and identify these local streamers and support them.
And now what Sri Lanka Telecom has done with our solution is, nurturing the local gaming community. And they now make the brand cool again, because this is one of the problem with telcos, because telcos are identified with traditional telco services. There's always a low-head relationship with the telco. If you ask every telco user, they will have a complain about it. But what the brand telco brings to the table is trust. When a telco says, "I am organizing a tournament, and I'm putting a price pool." You trust it. And there's an integrity to it. With the trust and integrity, we are enabling the telco to now reach out to the digital natives and millennials and become cool again. Now we give them an emotional connection to that community, and that enables Sri Lanka Telecom to productize and market any other solutions they want.
MH: And so that addresses the issue of churn. The churn rate in any given telecom is always an issue for the C-suite. They want to reduce it as much as possible. So what you're suggesting here is that, relationship with Swarmio, allows you to build a greater relationship with your end consumer, and they're more likely to stick around. But the other side of the equation that's really fascinating to me is the money side of this. The fact that there are three billion gamers in the world today, and two billion of them live in places like Latin America, the Middle East, Africa, where credit card use is quite low. It strikes me that this is an opportunity for a telecommunications service provider to build in additional ARPU, and as that average revenue per user up, that makes that individual customer more valuable to the CSP.
VK: Exactly. You nailed it. Because there are three billion gamers, but as you said, the region that we are targeting Latin, Africa, Middle East and Asia, where the credit card penetration is very low. But if you look at it, who is the major payment provider in those regions? Telecom operators. So people in these regions, they use their mobile payment solution, sometimes it's called DCB (Directly Carrier Billing) payment solution or an e-wallet. Most of the time these local countries, the e-wallets are owned by the telecom operator as well. So telcos don’t just have the access to the gamers, they also have an amazing opportunity to monetize. So in our platform, what we provide, part of what we call Swarmio Hub or Ember Hub. Ember Hub delivers the community engagement aspects, so people can come and watch videos and play tournaments and challenges and earn points.
So, it's a gamification. And with that, they can go to the store, which is integrated with the payment solution, with the telco. Now they have access to in-game items, within the telcos store. Telco can now monetize two ways. One is the whole package, they can bundle it as part of their services and they can charge sometime between three dollars to five dollars, depends on what other services they can bundle with. For example, you can bundle it with a data package. So you get a gamer package and you get free data. Let's say 100 gigabytes of data to play games, because data is very expensive.
Based on that, what you are bundling with the average additional revenue could be sometime between three to five dollars. But on top of that, gamers now can buy items in the store, which is owned by the telco, which we provide the services and connect to telco's payment integration. So instead of gamers going directly and buying it with Visa or MasterCard or Google Pay, now they can buy in the telco store where they can make somewhere between 5% to 15% of the overall revenue. It is really important to note that in the 200 billion dollar industry, around 70% of that money is actually made by selling in-game items. So by us providing that capability for the telco, we are enabling the telecom operator to tap into the gaming revenue stream, which is selling in-game items.
MH: I'm desperately scanning the internet as we talk here, looking for a figure. Maybe you could just tell me if three to five additional dollars in average revenue per user is what one can expect in the telecommunication space by partnering with an organization like Swarmio, give me some perspective, how much more revenue per user is three to five additional dollars?
VK: In the regions that we are going after, three dollars of additional ARPU per user, it's a lot. And depends on how big is the telco. Some telcos have 100 million subscribers, some telcos have 10 million subscribers. So, the number of subscribers in these regions are, the smaller one will have around seven to 10 million, and the bigger ones will have 100 to 150 million, where we are talking about Latin America, Africa, Middle East, Asia, in these countries. And almost 50% of their subscriber base are gamers. That's standard everywhere you go. So, they play different kind of games, not all of them are the same type of players, but in our platform, we try to cater to the wider gaming audience not just a professional players or AAA game players, there are casual game players. So, if you cater to all the game players and enable them to buy and consume items and gaming stuff in your play, you are talking about not just the three dollar monthly recurring revenue, but just as a transactional cost of revenue, of selling item in the store is also huge.
So, the top line revenue is going to be big and also the actual profit margin is going be huge. So, I don't want to give you a specific percentage, but for any telecom operator, three dollars extra from additional revenue from your existing customer base is a big deal.
MH: You're concerned though that the telecommunications industry is taking a wait and see approach to these kinds of partnerships. What's the risk to that?
VK: Telecom operators are at a crossroad now. So they have to make a decision whether they want to become a utility, or they want to be something more than that. If you look at it, telcos lost movies to Netflix, and they lost music to Spotify. They now lost even video conferencing to Google and Microsoft and Zoom. So they are already becoming a utility provider. I have three kids, they play games all the time and they're on the net all the time. But if you ask them, "Who is your network provider?" They don't know. They don't care. As long as the internet works and they can get there, and they will complain if the latency is low, and they don't really care who the brand is. So, what that means is telecom operators already becoming a utility. So, they need to make a decision, because everybody's talking about 5G, if you look at some of the business cases for 5G, in order to really build the 5G, there's lots of CapEx and OpEx needed.
So sometimes you're talking about more than 30 years ROI on this investment. So telcos are desperately needing to find a different way to add additional revenue stream and they need to reconnect. If they want to be something bigger than a utility, where they used to be, where everybody knows the telco brand and where the telco brand means something, and the emotional connection was there. They’ve lost that emotional connection with digital natives and millennials.
So, they need to move, this wait and see game, it doesn't work. And they’ve learned from the Netflix’s of the world. So they were waiting to get into the streaming, because the technology wasn't that bad, they could have done it. And they lost that. Look at cloud. A book company becomes the largest cloud provider in the world, and where all the Telcos had all the technical knowledge and money and infrastructure, they didn't even think about it. So, they lost all of these opportunities, but gaming is something they haven't lost yet. So there's an opportunity for them to get in and the time is now. They need to move fast and do it now.
MH: You've written that building valuable long-term relationships with consumers will be key to driving ongoing success. As an industry player that is all about relationships and without naming a specific relationship or anything, what's your best practices advice to an industry that's not accustomed to this kind of relationship? Is there a horror story that can be a cautionary tale for the rest of us?
VK: For telcos, traditionally they tend to treat each like an independent customer. They send a monthly bill they expect you to pay. If there’s a problem, you phone in and wait on the line to get a ticket going. But gamers, you cannot treat just as gamers, the digital natives and the millennial generation, you have to treat them like a community. That’s the concept. Instead of an independent customer relationship, you have to build a community around your brand, which is kind of an alien concept for most of the telecom operators. So this is part of our solution, when we go to the telecom operator, we are co-branding our Ember brand with the telecom. And the reason we are doing it, because telco brand brings in the integrity and the trust, but they do not bring customer service. The actual gamers, the millennials and the general natives, they don't look at telcos as the cool brand, or they don't look at them as an extendable gaming brand.
So, what we are doing is, we are bringing our Ember brand and we do end-to-end solutioning, including the customer service. Because in order to build a community you need to have a discord community, you have to actually be online. You have to talk to them, and you have to really be actively building that community, and we are experts on that. That's why we are a partner to the telecom operator. Most of the telecoms, the C-levels if you talk to them, they will tell you that they don't have the expertise, the culture of the company isn’t easily changeable. It's not easy to include this huge change. It’s like a paradigm shift. When you think about a customer service point of view, it's a paradigm shift, how you serve this new generation of gamers. So that's why we come in as a partner to deliver that community to the telco and offering them an end-to-end easy way into... I call it, we are building the runway for the telecom operators to land into the gaming industry.
MH: If there was one thing you'd want a CSP to take away from this conversation, what is it?
VK: You have to move faster. And gaming is a huge opportunity that telcos already have everything they need to get into. They don't need to wait. They have the customers, they have the payment solution, they have the capability to do micropayments, they have the network, they have the edge cloud infrastructure, everything they have, and we have what they don't have, which is how to run and engage the gamer communities. I think it is time. They cannot wait any longer. They need to move faster.