Pokemon Go Just The Tip Of The Spear As Augmented Reality Rips Into World Of Mobile Gaming

Fads come and go. Some, arguably, are good, like certain diets that help people lose weight and live healthier lifestyles, but most are deeply regrettable. Beanie Babies, for instance, were once a fad. Even earlier, so were Cabbage Patch Kids. Looking back, each was a bit embarrassing and, thankfully, they have all gone away.

The latest fad hitting mobile phone users is Pokémon Go, which has seemingly taken over the world in recent weeks, resulting in over 50 million downloads in just the Google Play store alone and a long list of bizarre tales. The intersection of virtual and real worlds has produced a ripple effect on multiple industries. Ads, for instance, have popped up on Craiglist offering ride-sharing services to make it easier for players to navigate congested metropolitan areas. A University of Iowa football player was mistaken for a bank robber while playing the game and was briefly detained. And churches have even tried to leverage it to boost attendance.

In a nutshell, Pokémon Go is a mobile game that combines elements of augmented reality with location-based services. It awards players for capturing virtual creatures located at so-called PokéStops, which are superimposed on a real-life digital map. The ultimate aim is to collect all the existing creatures within the Pokémon index, referred to as the Pokédex.

As with virtually anything that saturates popular culture, Pokémon Go has its detractors. Those who don’t appreciate the allure of augmented reality simply laugh it off and wish it would go away, but whether people are still playing Pokémon Go a year from now or like other fads it eventually becomes an embarrassing, almost quaint reminder of this era is immaterial. This game has already left its legacy.

The concept of embedding location-based services and augmented reality features into mobile games is likely only to take flight from here, yielding a series of similar offerings looking to piggyback the Pokémon Go sensation. For our purposes, what those games ultimately look like and how they take shape is unclear, and, in the end, not terribly important.

What is important is that Pokémon Go’s success has firmly established augmented reality as the go-to paradigm for both new and re-introduced mobile gaming titles moving forward. That includes games from Activision Blizzard-owned King Digital, the developer of the hugely popular Candy Crush series, as well as Electronic Arts, which almost certainly will implement augmented reality into coming offerings, including those related to the newest additions to the Star Wars franchise, the first of which is due out late next year. Look for other major mobile gaming companies to leverage augmented reality as well, reintroducing many of their old titles using this concept.

Apple and Google will be peripheral winners during this shift. For one, both receive a healthy cut of the sales generated in their respective app stores for premium items and other add-on features. But also they provide the location-based services that are the backbone for such games. And in a world of targeted ads, where tech firms track your search history and display products and services tailored to your individual needs and preferences, this will be just another layer of potential ad revenue.

We saw this last week, when McDonald’s became a part of Pokémon Go’s highly anticipated rollout in Japan, striking a deal to insert PokéStops in many of its locations nationwide. Naturally, this brings up the question of whether players will disengage from the game and make a purchase, though given that retail spending is increasingly shifting online, this approach is one way to boost in-store traffic, and it’s only natural that other retailers will follow suit.

Meanwhile, MGM Resorts International has already announced they are developing an augmented reality-based game for its Las Vegas casinos. Younger people aren’t gambling, and we expect this approach could be a way to increase engagement and traffic for MGM within this demographic.

Three weeks ago, few could have predicted the Pokémon Go craze would evolve the way it has, with people seemingly dropping everything to scrounge city streets hunting for virtual characters. I know I wouldn’t have believed it.

But it happened, and in retrospect it’s easy to appreciate why. Augmented reality is a new bright spot in the future of mobile gaming, and investors need to be aware of the kinds of companies that could benefit.


By Ross Gerber

Ross Gerber is CEO and president of Santa Monica, Calif-based Gerber Kawasaki, an investment advisory with approximately $460 million in assets under advisement. Clients and employees of Gerber Kawasaki own positions in Apple, Activision, Google and EA. Readers shouldn’t buy anything without doing their own research.

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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which course of action may be appropriate for you, consult your financial advisor. No strategy assures success or protects against loss.

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