Hi Everyone. Thanks for tuning in to another week of Naavik Digest. If you missed last week’s edition, we wrote about how blockchain’s Free-to-Own trend might ultimately change the sales and marketing strategies of gaming companies, and its resemblances to Free-to-Play. Be sure to check it out!
#1: Chess.com, The Everything Store
For many and myself, 2020 was the first time I came across a Twitch stream for chess. Chess Grandmaster (GM) Hikaru Nakamura, was walking fellow creator xQc through the finer points of the game and coaching him on how he could improve. It was for me surprisingly captivating to see a professional walk a beginner through an incredibly complex game on stream.
Little did I know that Hikaru’s stream would help lead into an explosive few years of growth for chess. Accelerated by covid, live events, cheating allegations, and Netflix shows like Queen’s Gambit, the game’s popularity has skyrocketed in recent years. And while a rising tide certainly raises all ships — with creators like Hikaru and other chess streamers becoming beneficiaries of the game’s growth — there may be no bigger winner (and perhaps no bigger instigator) in chess’s growth than Chess.com.
Founded in 2007, Chess.com was built under the premise of being a social platform to allow people to discuss (not play) chess online. Founder Erik Allebest’s initial goal was to simply to create the hub for chess-related conversations and forums among a sea of the web’s pre-existing online chess matchmaking services, akin to a “MySpace for Chess”.
However, In the years since its launch, the site has evolved — growing from a social chess platform into a hub for the game, complete with a creator-led growth strategy and a product that excels at monetizing, retaining, and growing users by being the “everything store of chess.” In 2021 Erik mentioned the company had surpassed $50M in annual revenue with $100M well within reach. Nearly 12 months later, Chess.com is still growing. The site recently surpassed a string of both user growth and revenue benchmarks that are eye-opening; this game has been around for thousands of years and is still reaching new heights:
- According to data.ai, the site is averaging $40K in revenue per day on iOS in 2023
- There have bee new active user records for the company’s site in all but five days of January
- The company’s iOS app reached #2 in Apple’s Free Games Rankings earlier this month
- 31,700,000 games were played on January 20 alone (a site record). The site now regularly sees more than one million games an hour.
The metrics are all positive. Search traffic is up. Product usage is up. Chess is more popular than puppies. There’s no one reason that made January an exceptional month for Chess.com; rather it’s the compounding effect of both macro-economic tailwinds combined with a string of savvy investments that has propelled them to new heights. With such explosive growth, I wanted to revisit what makes this company so great and a profitable cash-flow business within a games context. It all begins with the site itself.
Understanding The Chess.com Product
CEO Erik Allebest knows chess is not a simple game, noting the game is “closer to League of Legends than it is to play solitaire.” With that opinion in mind, it’s not hard to imagine Chess.com building a product that caters to people who already understand the game well, rather than new players. The company has obviously thought beyond this initial premise.
Defined by a product vision to build “the best chess site for everyone”, Chess.com’s strategy is more akin to a traditional consumer software company, and this mindset is a cornerstone to their success. They onboard users using education, community and skill-expanding tools, provide novel ways to improve and play the game of chess, and monetize their most dedicated fans with subscriptions. It’s a strategy that has been designed to nurture beginners into chess experts without having to leave the Chess.com ecosystem (especially when you have a Chess.com Elo). It’s also a large part of the reason they’ve been able to capitalize on the chess boom of the last few years.
The crux of the site’s onboarding onboarding strategy centers around its Learn Hub. Divided by skill-level, the site provides step-by-step courses around fundamental techniques of the game. Starting with lessons titled “How to Move Pieces” all the way up to “Triangulation End Game Patterns”, Chess.com has created a source of truth for players to develop their skills, no matter where they are in their chess journey.
While the Learn Hub serves as an entry point for the game, it’s also an endless library of edge cases and content for even the most studious chess players. It’s a trojan horse that not only introduces players to chess, but also improves them over time. It dovetails perfectly into the site's other gaming offerings, and pairs uniquely well with a game like chess, which tends to rely more on education, practice, and historical context than other titles. In an industry like games, where onboarding follows a “show, don’t tell mantra” in order to teach players game mechanics, Chess.com is an outlier. There are very few games where the rules are already known to the player before they play the game, and its that nuance that makes a depth-first education strategy the perfect way to onboard new users.
As players move beyond education, the product goes deeper by offering new ways to train skills and interact with the community. There are drills for players to explore that focus on attacking and defending. Scenarios that can be run based on specific pieces, locations, and historical matches. There are chess-training AIs of varying difficulties (the hardest of which is a AI-cat named Mittens that has become so popular it has spawned coverage of its own).
There’s also an active community that rivals even the largest games. Offerings for users to join guilds, chat on public forums and write blog posts gives the site’s most dedicated supporters a place to share their voice. It’s a development strategy that we’ve seen play out in AAA titles like Overwatch or Valorant — good game developers recognize that at scale the depth, fervor, and growth of its community will exceed its ability create content or grow the product.
Once players become familiar with the game, the site introduces them to a litany of options for play: Players can play online, versus a computer, against a friend or in a tournament. Nearly every traditional format, online or otherwise, is accounted for. Most interesting to me, however, is how the site has veered away from the expected and into something entirely new. Dubbed “Chess Variants”, the site also allows players to play chess formats with new and interesting twists. 4-Player Chess, and chess with larger boards, and pawn-only variants are the most tame of options. On the other end of the spectrum sits games like “Atomic” (where captures cause explosions to affect surrounding pieces”), “Duck Chess” (where players have an impassable duck piece they move each turn), and “Fog of War” (where players can only see the squares they can move to, a popular concept used in Roll20 and other online D&D platforms). Each one of these options is free to play, and built in service of finding ways of making the product stickier for online consumers but focusing on retaining their love of online chess and connecting it to the site itself.
While Chess.com didn’t invent many of these variants, these variants’ inclusion to the site does offer a welcome respite for players that want a change of pace. Most intriguing is the site's daily “Chess Puzzles”, a Wordle-style chess problem that gives players unique scenarios to unwind once daily. It’s a welcome, lower stakes addition to what already proves to be the most complete menu of chess-related games anywhere on the internet. Players who want a deeper challenge can opt to sign up for the sites subscription service to unlock additional puzzles, alongside more training bots and bespoke review from coaches.
Despite the site’s “anything and everything” approach to offerings, navigating and playing online doesn’t feel overwhelming. The simplicity of Chess.com’s UI encourages players to come with a purpose (play friends, play for fun, play to improve) and guides them to the right offering accordingly. Social and news features also ensure that even if chess-enthusiasts aren’t here to play, they can still get everything chess-related from the same place.
Chess.com has done an excellent job of capturing the full breadth of what a remix-friendly title like chess can provide. In service of fulfilling its vision of building a “chess site for all” the company has found not only a way to become the “everything shop for chess” but also the ability to help find what a player might be looking for among its litany of offerings.
The Growth Strategy of Chess.com
While strong product fundamentals have powered the company’s success to date, they aren’t the only area where the site has excelled. The company has used a mix of fortuitous tailwinds and well-placed investments to grow its user base.
The cornerstone of the company’s investments has come through its work with creators. In the vision of the company’s ex-CCO (that’s Chief Chess Officer) Danny Rensch, Chess.com bet that creators would be its inroad to mainstream appeal. Affiliate agreements, exclusive contracts, pay per events, and even simple handshake agreements have all helped Chess.com court some of the game’s biggest names, like Hikaru or Magnus Carlesen (who recently sold his own chess site to the company). The company has also placed wagers on burgeoning creators of its own, like 20-year old Alexandra Botez, a well-known chess personality who the site helped cultivate during her time as a student at Stanford. These longer-term investments are akin to the types of names you expect to see coming out of The Fortnite World Cup or CDL, nurturing players with captive audiences.
While a creator growth strategy isn’t new to gaming (it's the cornerstone of esports orgs like FaZe and 100 Thieves), the natural amplification it brings to Chess.com’s product has led to stellar results. It’s precisely because the site has “everything for chess” that the product offers natural opportunities for creators to collaborate and compound their communities on top of one another. Variants like 4-player chess — or the site’s coaching and commentating features — make it easy to open up the site on stream and jump right into creating content. It’s a similar effect to the one we saw play out early in 2020 with creator collectives like The Dream SMP or the rise of Among Us. Chess.com creators are better than the sum of their parts, and that's possible in large part due to the platform they’re all using.
The site’s creators have benefited from the relationship as well. Major Chess creators like Levy Rozman have generated hundreds of millions of views in the last few months on YouTube. Chess.com recently announced a $2M prize pool for the 2023 Champion’s Chess Tour to benefit many of the site’s best players. It’s a symbiotic relationship that we’ve seen play out in community-centric games before. Much in the way that many first and third person shooters gave rise to a generation of streamers thanks to the games ubiquity and consumption-friendly format, so too has Chess.com’s success unlocked new benefits for the partners it works with.
The Business of Chess.com & The Road Ahead
With an understanding of how the company has grown and built its success, the natural question that follows is if its growth is sustainable? Backed by a subscription service that gates some of the site’s deeper features, early signs look positive. We previously discussed how Chess.com’s product is inherently designed to help onboard and retain users. But, much in the way of the biggest mobile games, most of the profits are driven by site’s subscription service, which are solely built around gating features that matter most to only the most hardcore players. This is supplemented by a rather straightforward display/content advertising strategy.
Features like additional Puzzles, more complex AI-Bots, and coaching sit behind a paywall that can cost upwards of $10 per month. The inconveniences afforded to non-paying users aren’t enough that they upset the delicately designed onboarding strategy we discussed above, but they are inhibitors to the site’s most dedicated and growth-focused players. It’s a strategy that works precisely because Chess.com is so good at onboarding new folks to the game and then retaining them. Without the same investment in education and learning, a membership model would only cater itself to existing players who happen to chose the site as their online-chess offering of choice. With inherent growth built into the product, the company has created a sort of self-sustaining flywheel that is powered by the new eyes brought in from its creator and event growth strategies.
Sustainability doesn’t seem to be a concern either. I’ve already mentioned that the site is coming off another strong month, only seemingly hampered by their own ability to serve the growing amount of demand and traffic. While growth spikes can be episodic, it’s encouraging to see how the site has been able to maintain at least somewhat stable plateaus in interest each time it has faced explosive growth in the past few years.
Chess is one of the world’s oldest games. It doesn’t belong to anyone, and is so ubiquitous that it spans cultures, nations, and the globe. How a business like Chess.com has been able to generate hundreds of millions of dollars in revenue from (essentially) a public good is nothing short of impressive. However, I believe the largest risk to the business comes from the broader TTRPG industry. Chess.com has been around for fifteen years, and has managed to stay relevant and successful by writing the playbook on how to take a well-known game into the digital world. It’s hard to imagine that other competitors in the space aren’t taking note, and with venture funding keeping an eye on TTRPG’s more broadly, I can’t imagine we’ve seen the last board game to move online. Chess.com will need to continue to find ways to captivate players attention or risk a portion of its fans leaving to spend time elsewhere as the space continues to grow.
Chess is unquestionably a part of the public zeitgeist, and it’s hard to imagine that changing anytime soon. Even if it does, I continue to feel more and more confident that Chess.com is building the blueprint for how digital tabletop gaming can make the jump online in a more seamless and successful way. We've had missteps with D&D and other titles, but I have confidence that Chess.com is just the first of many pieces to fall in the upcoming TTRPG digital revolution. (Written by Max Lowenthal)
#2: Redecor: Playtika’s Reverse Midas Touch
When sitting at home during the pandemic, perhaps you remember ads about demanding homeowners popping up.
Targeting predominantly the competitive female audience, Redecor, a home design game by Finnish company Reworks, couldn’t have launched at a better time — right at the start of Q2 2020, after 16 months of being in soft launch.
In the game, players compete to achieve the best (most voted for) interior design setup in daily challenges.
The metagame consists mainly of expanding the portfolio of usable materials and thus increasing the design options for each challenge.
To put it simply, the more materials the player has unlocked, the better and more cohesive design options they possess. The materials are applied to surfaces selected by the content creators.
The player’s goal is to reach a higher score than their competitors, either through a challenge in a pool of 10 players/designs or a duel in which the player tries to outdo another player’s design. The score is ascribed to each design through voting — a crucial “judgment” mechanic where the players cast votes on designs they prefer in exchange for one of the game's currencies.
Even when competitive decoration is an attractive and highly polished mechanic, the market isn’t booming with similar titles. It’s more of a niche mechanic within a niche genre. Three successful games of this caliber are Covet Fashion (2013), Design Home (2016), and Redecor.
Redecor caused a ripple in the market, quickly rose to glory, landed a sweet $400M+ acquisition from Playtika in September 2021, and has been declining since it peaked during the pandemic. A promising game with a faithful audience theoretically should be an exact fit for Playtika’s live operations focus — and succeeding at this should be extra important given Playtika’s dwindling valuation (see the chart of Playtika’s stock below).
However, as we’ll demonstrate in this deconstruction, approaching live-ops and in-game economies with solutions learned from social casino games (Playtika’s bread and butter) leads to diminishing returns in games with a more limited audience, a higher price sensitivity, and different player motivations — like Redecor.
In a scenario where the old players desperately need more features and new types of gameplay, and the new users are scarce due to the niche genre and rising UA costs, the developer needs to invest in the existing players and their retention. While shifting the needle of D30+ is notoriously difficult, we argue that for Redecor, a game that heavily lacks long-term progression features, finding a way to do so would have been the right direction, benefiting the players and the developer alike. Deconstructing Redecor and Playtika’s steps will hopefully lead to a better understanding of systems with carefully crafted player-first economies, as these systems have the best chances of retaining players for years.
- So why did Reworks agree to get acquired by Playtika?
- How did the game design work before, and what changes have been implemented under Playtika’s reign?
- Will these new changes work, and what else lies ahead?
- What can other developers learn from Redecor’s saga?
This report will dig into all of this and more. Let’s dig in.
Content Worth Consuming
GameCraft: “Mitch and Blake discuss how the rise of games-as-services has privileged durable, long-duration play-patterns -- leading to the modern idea of the "Forever Game" which can persist for decades. Mitch outlines his five attributes of long-term engagement and provides examples of each from games like Ultima Online, World of Warcraft, Age of Empires, and League of Legends.” Link
The Great Reset: Your Guide to 2023 Web3 Games (Naavik & Delphi Digital): “Web3 gaming faced incredible challenges in 2022, yet we remain optimistic about the future. Of course, that future must look different from the past. Our new joint report covers everything you need to know.” Link
Which Fall Guys Clone Is The King of Mobile? (GameRefinery): “When a game with a unique style and appearance becomes a hit, it doesn’t take long for new games to emerge, hoping to emulate that success by using the same gameplay mechanics, visual style and features. You can also see this happening in the mobile market with new game modes, such as the Fall Guys-style gameplay that’s now used in side modes in Garena Free Fire and QQ Speed (GKart). That said, there’s a big difference between a quick cash-in and a mobile clone that becomes a superior version of the game it’s taken inspiration from by adding new gameplay features and generally being more enjoyable to play. And that’s exactly the case with the chart toppers Stumble Guys and Eggy Party, two mobile clones of the 60-player knock-out party game, Fall Guys.” Link
How Goose Goose Duck Hit 700K CCU on Steam (GameDiscoverCo): “So, you may have heard that a ‘social deduction’ multiplayer game called Goose Goose Duck recently went viral on Steam. But you may not be aware of just how viral - it actually hit 700,000 CCU(!) on the service 11 days ago. The game reached 800k CCU, including mobile versions, around that time.” Link
GDC 2023 State of The Game Industry (GDC): “In advance of the 2023 Game Developers Conference, organizers have surveyed more than 2,300 game developers to shed light on current and future game industry trends.” Link
- Dims: Game Engine Programmer (Stockholm, Remote)
- LBank: BD Manage (Remote)
- FunPlus: Lead GameDeveloper — Casual Games (Barcelona)
- FunPlus: Senior Game Developer - Unity (Barcelona)
- FunPlus: Lead Game Developer - Casual Games (Barcelona)
- Playgig: Senior Backend Services Engineer (Accelbyte) (Brazil, Remote)