Here's Why Google Inc is Testing the Gaming Waters

Already the leading app download portal, the search giant is now dipping its toes into gaming.

May 20, 2014 at 2:30PM

Facebook (NASDAQ:FB) recently held its first app developers conference in three years. The F8 conference was intended to rally developers behind its suite of mobile app development software. Companies such as Facebook and search giant Google (NASDAQ: GOOG) (NASDAQ: GOOGL) are competing for developers not only to increase revenues from mobile apps and user downloads, but also to boost their No. 1 source of revenue: advertising.

One area in particular holds a ton of upside for both companies in mobile apps, and that's gaming. Non-gamers may be surprised by just how many hard-core gamers there are, and how immersed they can be. Most gaming die-hards use their console of choice, but an increasing number are going mobile, and that's why it makes sense for Google to aim for a bigger piece of the action.

How big is big?
"Core gamers," as defined in a recent study, are those who play games a minimum of five hours a week. Core-gamers comprise over 34 million individuals playing an average of 22 hours a week. That's good news for companies such as Microsoft with its Xbox console, but it doesn't do much for Google, right? Actually, the tool gamers use is shifting -- and  here's where things get interesting for Google and Facebook.

According to the NPD Group report of hard-core gamers, 74% still prefer traditional gaming consoles. That figure was down from 79% just a year ago, and a quick look at the most popular downloads on Google's app store Play supports the notion that more and more gamers -- core and otherwise -- are going mobile.

Last year, Android accounted for about 75% of all mobile app downloads, and two of Google's five most popular downloads are games. In fact, Flappy Bird is the leading Play download, while Minecraft is the store's top paid alternative. As it stands now, Google has yet to make a significant impact on top-line revenue directly from app downloads of any type. 

Steps in the right direction
The aforementioned Facebook conference was a direct means of appealing to developers to write more, and better, apps to jump-start the company's revenues from downloads, particularly games. The recent $2 billion acquisition of virtual-reality device maker Oculus could also give Facebook a significant gaming presence. Not to be outdone, Google is also taking steps to boost its own game alternatives.

Though not what many folks would consider a "game," certainly not in the mold of Minecraft or Flappy Bird, Google recently introduced Spell Up, a "virtual spelling bee" built in-house. Ideally using a Chrome browser, users build a word tower by correctly spelling progressively more difficult words. Spell Up isn't likely to overtake the latest shoot-em' up zombie game in the world of hard-core gamers, but it's an encouraging start for Google to compete in mobile gaming.

More intriguing for Google watchers are recent rumors suggesting the search giant is in the market to acquire Twitch. Twitch, self-described as the "world's leading platform" for gamers , boasts over 45 million visitors a month who broadcast, watch, and discuss gaming. There is no word on what an acquisition of Twitch would cost, but similar to Facebook's Oculus deal, it would give Google an instant jump-start in the rapidly growing world of mobile games.

Final Foolish thoughts
In 2013, Google Play, like Facebook's gaming and app downloads, only generated about $1 billion in revenue. Both Google and Facebook make the vast majority of their respective revenues from ads, which makes Google's foray into in-house games and a rumored gaming-related acquisition of Twitch so intriguing.

In addition to the obvious pay-to-play revenue, the level of user engagement gamers bring to the table could translate into additional advertising opportunities. Self-driving cars and odd-looking balloons get much of the press, but Google's focus on gaming is what could have investors smiling.

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Tim Brugger has no position in any stocks mentioned. The Motley Fool recommends Facebook, Google (A shares), and Google (C shares). The Motley Fool owns shares of Facebook, Google (A shares), Google (C shares), and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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