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Why Snap Wants Games on Snapchat

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Video games are big business

Snap (SNAP) is launching a platform that will allow people to play video games directly within its Snapchat app, according to a report from Cheddar. A Snapchat gaming platform would see Snap join Facebook (FB), Amazon (AMZN), and—more recently—Google (GOOGL) in the pursuit of the multibillion-dollar revenue opportunity in the video game market.

According to Newzoo estimates, the global video game market was worth $134.9 billion in revenue in 2018. The market is expected to reach $174 billion by 2021. To capture a piece of this market, Facebook has created a gaming platform called Instant Games that allows people to play their favorite games directly within its flagship app. On its part, Amazon runs a video game streaming platform called Twitch. Google has also created a gaming platform called Stadia that it plans to launch in the coming months.

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Snap backer Tencent leads in the video game business

Snap investor Tencent (TCEHY) is the top video game company in terms of revenue. Newzoo data show that Tencent generated $15.1 billion in video game revenue in the first nine months of 2018, beating Sony’s (SNE) $9.9 billion and Apple’s $6.9 billion. Microsoft (MSFT) generated $6.2 billion in video game revenue in the first nine months of 2018.

Video game platform operators have many avenues through which to make money. They can charge developers and brands to advertise on their platforms, thereby generating advertising revenue. They can also make money through in-game purchases.

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