Starting from August 21, gamers from around the world will gather in Cologne for Gamescom. The industry is celebrating itself—and with good reason. However, certain trends could slow its success in the coming years.
While other sectors are struggling, the gaming industry is thriving: In Germany, revenue surged by an impressive six percent last year, reaching nearly ten billion euros. It’s no surprise that the organizers of Gamescom, the world’s largest gaming fair, are touting their event with superlatives ahead of the festivities in Cologne.
From Wednesday, 1,400 exhibitors from 64 countries will showcase their latest innovations to industry professionals and the global public across 230,000 square meters. Despite global crises, the industry remains optimistic about the future, both within the host country and beyond. According to a PwC analysis, global revenue could rise from the current $262 billion to $312 billion by 2027, driven primarily by continued strong growth in Asia.
However, alongside these success stories, there are also warning signs that cast doubt on the future visions laid out in recent years. Some developments could even hinder the overall economy’s innovative power in the long run. Those who doubt this need only look at the history of the chip giant Nvidia: Initially a graphics processor manufacturer for the gaming industry, the company is now a key player in the global AI revolution. One could say that without gaming, there would be no artificial intelligence.
Apple shakes up the advertising industry
In recent years, mobile applications have been the primary revenue drivers in the gaming market, with mobile games accounting for $87 billion, the largest single segment in the global market in 2023. But this momentum may have peaked.
According to the PwC analysis, this is partly due to a strategic decision by smartphone manufacturer Apple and partly to the overall saturation of the mobile market, which, after the rapid spread of smartphones since the 2010s, is no longer growing at the same pace.
However, more impactful was Apple’s decision to significantly strengthen privacy protections with its iOS 14 operating system. Users can now choose whether to allow developers to access their data when installing apps. For mobile games, which often generate revenue through ads rather than in-game purchases, this complicates targeted advertising.
As a result, annual growth in in-app advertising revenue plummeted from 46 percent in 2020 to just 16 percent in 2021, according to PwC analysts. Apple justified the move by stating that privacy is a fundamental right and that users should have more control and transparency over how their data is used.
The importance of personalization is underscored by data from the World Economic Forum in 2022. The average age of gamers in Germany is nearly 38, with a nearly equal gender ratio. The stereotype of gamers being predominantly young and male is now a thing of the past.
The XR hype fizzles out
But it’s not just the mobile market that’s facing challenges; attempts to break through with new devices have also proven difficult. This is evident in the now-deflated hype surrounding immersive technologies like VR and AR.
The big year for Virtual Reality (VR) was 2016. Oculus Rift, Vive, and Playstation VR—three major platforms for immersive 3D worlds—hit the market in quick succession. The VR hype was followed by Augmented Reality (AR), a blend of the real world and computer-generated content. Despite sophisticated devices like Microsoft’s HoloLens and the AR headset Magic Leap, both the gaming industry and broader applications have failed to deliver on the promised “disruptive” changes. As a result, ecosystems like Mark Zuckerberg’s Metaverse have faded into obscurity.
Today, AR and VR are grouped under the umbrella term XR for Extended Reality, but little has changed. Analysts, noting the lukewarm reception in the gaming community, see an uncertain future for the widespread adoption of these platforms. PwC estimates that XR could generate just $7.4 billion globally by 2027—a niche market.
For other VR and AR applications outside of gaming—whether in construction, architecture, fashion, furniture retail, or telemedicine—this means that investments in further development will have to be self-financed, rather than supported by millions of enthusiastic and willing-to-pay gamers.
Nonetheless, gaming technologies could continue to drive innovation in the future, according to analysts. They cite examples like computer models that simulate physical forces and their effects on objects in games. These experiences are already being used in so-called digital twins. In both industry and medicine, such computer models are expected to make lengthy and costly trials obsolete.
Since the COVID-19 pandemic, the growth of the gaming industry has been driven by applications for traditional gaming platforms like PCs and consoles, rather than new platforms. According to the German Games Industry Association (Game), new platforms will not replace old technologies. The Gamescom organizer points to Germany, where “around 18.3 million people play on more than one platform.”
Competition for technology is routine
In recent years, chips have seemed to replace oil as the new indicator and currency of the global economy. From supply chain bottlenecks during the pandemic to U.S. chip sanctions against China, and the demand race for Nvidia’s AI chips—nothing functions in the digital age without these thin silicon wafers.
In Germany, however, there’s no concern that demand from other industries will leave too few chips for the gaming sector. Even before the AI hype, the industry had to compete for graphics chips with video editing, image processing, physics simulations, and cryptocurrency mining. This is nothing new.
Generative artificial intelligence is also seen as a way to speed up game development and reduce costs, but not as a job killer for game designers and other creatives. In fact, the industry is already a pioneer in AI use: “Artificial intelligences are already being used to quickly create prototypes, find bugs in software code, or moderate community platforms,” according to the Game association.
Despite a decline in revenue in the first half of 2024, the association isn’t worried about consumer spending being dampened by the economic downturn: “Playing is not a luxury; it’s deeply rooted in human nature.” Currently, six out of ten Germans play video games, and worldwide, there are around three billion gamers. This number is expected to continue rising in the coming years.
