Lousy Business Ideas in Gaming: Why Some Strategies Are Doomed to Fail

Despite its emotional appeal and the nostalgia it evokes for many, the video game industry should be taken seriously, especially from a business perspective. While the gaming sector offers immense opportunities, it’s essential to know specific business ideas that might not end well. Here are four such strategies that often lead to disappointment.

1. Create a Free-to-Play Game

The allure of creating a free-to-play game can be intense. After all, games like Fortnite and Genshin Impact have seen phenomenal success with this model. However, the immense audience required to break even is often overlooked. According to a report by Newzoo, the top 10% of free-to-play games generate 75% of the revenue in the market. This leaves many games vying for the remaining 25%, making profitability a steep uphill battle.

2. Cater to a Small Niche

Targeting a niche audience is a good idea, mainly if that niche is passionate and loyal. However, niche games with big budgets rarely break even. For instance, games like Shenmue III struggled to meet sales expectations and recoup its development costs despite its cult following and substantial crowdfunding support. A report by SuperData highlights that games targeting a small niche audience often need more growth and profitability, as their market reach is inherently restricted.

3. Dethrone an Existing Top Game

Attempting to challenge industry giants like League of Legends or Apex Legends is an ambitious but often misguided strategy. The dominance of these games is fortified by years of development, community building, and continuous updates. According to a study by NPD Group, the top 5% of games account for more than 90% of the market share in the multiplayer online battle arena (MOBA) and battle royale genres. New entrants face the challenge of developing a high-quality game and the formidable task of drawing players away from their established favorites.

4. Establish a Pro Roster

Creating a professional esports team or stable is an excellent way to boost visibility and sales. However, pro game stables are seldom profitable in themselves. According to research by Deloitte, most esports organizations operate at a loss, relying heavily on sponsorships and merchandise sales to stay afloat. The primary value of a pro roster lies in its marketing potential rather than direct profitability. For example, Cloud9, one of the most recognized names in esports, has diversified its revenue streams to include merchandise, content creation, and sponsorships to stay viable.

Also, there are quite a few production pitfalls that gaming start-ups may need to be made aware of. With the rising misunderstanding of the role of AI (or rather the lack of understanding of its ginormous limitations) and the abundance of so-called 'game templates' on the market, it is hard not to fall victim to the misconception that game development is an easy walk. So, if you have no background in the industry, better build your first title with the help of a co-development partner.