Alibaba in 2020: Why Esports Are the Next Big Thing

In a recent post, I talked about the deal between Alibaba (BABA) and the English soccer club, Manchester United (MANU). Alibaba has bagged the exclusive rights to stream some of the club’s media content in China. Alibaba’s media streaming platform, Youku, will have a featured channel covering selected Manchester United first-team matches, women’s soccer games, and other dedicated club content for Chinese fans. The channel will also give fans easy access to purchasing club merchandise through an e-commerce portal. The deal with the English club is a big leap for the Chinese tech company. But the buck doesn’t stop there. The Chinese tech titan is also exploring the digital sports arena for opportunities.

Alibaba is also trying to become a mainstream player in the esports realm. Esports, or online multiplayer games, are becoming increasingly prevalent worldwide. Dedicated online gaming tournaments, both global and regional, are exploding, gaining millions of viewers. Business Insider estimates the active fan following for digital sports events could grow 9% compounded annually between 2019 and 2023. The viewer base could cross 645 million by 2023. According to the Business Insider report, this figure is almost two times the viewership of 2017.

And it’s not just the enthusiasm of the growing fanbase. Esports have also captivated the attention of tech companies. Enterprises are trying to build a successful revenue model around esports. Investments in the sector are on the rise. Business Insider reported Deloitte claims esports investment levels reached $4.5 billion in 2018. Compared with the market’s $490 million investment in 2017, the investments in 2018 rose by an immense 800%.

Alisports is a subsidiary of the Alibaba Group, and hosts the WESG (World Electronic Sports Games) event every year. It’s an international gaming tournament among qualifiers from the national level. Established in 2015, Alisports is responsible for setting up the World Electronic Sports Games tournament. The first WESG was held back in 2016. Since then, the trend has continued. WESG 2019 will host championship tournaments for online multiplayer games, such as Counter-Strike, eFootball PES 2020, StarCraft II: Wings of Liberty, and Dota 2. Prizes for the winners of the championship range between $6,000 and $25,000.

The WESG tournament takes place in four stages. It progresses from the Open Qualifiers stage to the Closed Qualifiers stage, then the Regional Finals, and finally, the International Grand Finals. Typically, these games have knockout stages, and viewer engagement increases after every elimination round. The winners of the Regional Finals play at the WESG International Grand Finals, set to be held in March 2020. The Regional Finals broadcast will air on the WGN channel of game streaming platform Twitch. Twitch is an Amazon (AMZN) subsidiary. Twitch also airs traditional sports, politics, and news.

The esports domain has multiple opportunities. Esports merchandise can be sold through Alibaba’s and Amazon’s e-commerce portals. Live streaming games on an online portal could add significantly to their financial statements. Online streamers such as Amazon’s Twitch and Alibaba’s Youku get sizeable traffic from the gaming community. Other well-known portals include Tencent-backed DouYu (TCEHY)(DOYU) and Baidu’s portal, iQiyi. These portals can generate revenue either from ad services or subscription fees.

Companies providing cloud services also have an excellent opportunity to pump their revenue growth upward. Cloud businesses offer infrastructure services and cloud application services. Cloud infrastructure consists of network hardware and cloud storage servers. In all streaming services, viewers connect to cloud servers, which serve as storage units for media content and web-based applications. The applications are then deployed in the cloud servers, and viewers access these applications through their devices. Typically, cloud service providers charge application services on a pay-as-you-go basis. Therefore, the more engaging the content, the higher the cloud revenue.

Currently, Amazon Web Services holds the largest share of the cloud market. Microsoft, Google, IBM, and Oracle are other prominent players in the cloud market. Alibaba’s cloud division is in full swing and catching up with US tech companies. In its last earnings release on November 1, Alibaba’s cloud division recorded revenue growth of 64%.

Esports have evolved impressively in the last two decades. Having started as a mode of entertainment for kids and teenagers at the beginning of the 21st century, it is turning into one of the most lucrative business opportunities of 2020. Spectator sports have a lot of growth opportunities. And these opportunities are not restricted to game developers and publishers, but are also available to cloud service providers, hardware manufacturers, and online media streamers.