Esports, the $1 billion industry on the rise (ep27)
Nemanja: This is Chair, a place where we discuss innovations. What is Esports apart from being a very competitive world of video gaming is increasingly becoming the industry itself recently hit one billion dollar market revenue. Our guest today is a key innovator in Esports. It’s my pleasure to introduce Sebastian “Heflamoke” Läger, transitioning from a commentator, organizer and business executive to entrepreneur. He has explored every corner of this blooming young industry. Sebastian, it’s a pleasure to have you here today.
Sebastian: Likewise. Nice to be here.
Nemanja: So, Esports achieved this billion-dollar industry definition but this must be more than a job for you. I’d really like to know what gaming means for you?
Sebastian: Now gaming for me is something that, of course, I did as a child, that’s how it started. I was very early exposed to PC’s thanks to my uncle. He was, like, today we call it “nerd”, back then it was just someone interested in new technology, like the first intel PC’s that came to Germany back then East Germany. Above all, it was not a normal thing to have, and, of course, he used it for his work and everything else but, as with almost all technical devices, there were games on it. So, when they started to play and we kids, we watched how the adults did their thing and whatnot and sometimes we were allowed. So for me, this was a bit like Christmas. And then, of course, as the years moved forwards deeper into the 90s, you know, handheld devices became a thing. Nintendo Game Boy, which was more love than a plush animal for me, right? Other kids had some other toys, I had my Nintendo, I had it everywhere. That’s pretty much how it started and from there on I always had my own PC, my own device and, yeah, that’s pretty much how I grew up. I did everything on a PC, my school work and then, of course, gaming and that’s why it’s so dear to me. Over the years it’s been a companion to me that never left me in any form of way.
N: And your career path, it’s pretty interesting. Because, in the beginning, you love gaming and then you moved in some completely new direction. Can you give me some story behind it?
S: I mean, let’s face it, Esports is such an industry where you can go or even study these days and then have a career and then get paid a proper salary. It’s an industry that’s younger than 10 years old. In the 2010s it really bloomed, before that we also had Esports. I was playing competitive “Counter-strike” and “Quake” and “Unreal” already in 1999, attending LAN parties, but we did this for fun and our prize pools were like maybe a mouse or a keyboard, and that was something amazing, you know. Today, people would laugh about it. So, a viable career path really is just a recent year’s topic and before that, I’m German, I’m coming from an academic family, so I did what I was supposed to do, what my family expected me to do, which means graduate at a good school, go study. First, I thought I’m going to change the world with politics. I studied politics, history and psychology. I hated the guts out of this mostly because of the professors.
N: How long did you stay there?
S: I studied for 3 years there but I said: “We really had bad professors’’. I was at a Technical University so we were sort of the prodigal faculty anyway, and we didn’t get support from the professors. So it felt real, you felt useless in what you studied. Later, I found out actually that, if I would have graduated, there was a high demand, for example, political scientists, and I’m still very political today on the side but that’s not a topic. And then I was like, okay what am I gonna do with my life? I’m coming from a medical family so I studied medicine because I knew there’s always a supply. People always get sick no matter where in the world, and I know exactly what I’m doing because I’ve been working in the emergency service as a paramedic before and whatnot. So yeah, that was my second choice. Little did I know that life will have a third option for me and that came almost in my last year of med school, and all of a sudden all the things I did on the side, the little projects and companies I have built over the years. I had my little production company, I was a Dota 2 commentator, I even did podcasts, as we talked before the podcast about it.
N: This is not new to you.
S: I was the host, actually. So, I did all these things and then, as Esports grew, people were looking for people with experience. But it was really hard to find in an industry that until this point didn’t make any money. So the people that had experienced were the people that are players, coaches… Actually, we didn’t have many coaches back then, but people that were, as a hobby, involved. That was the only way you got to experience, you had to bleed into it, right? With your time, your money and everything. Nobody really made big money back then and that’s pretty much how it started. And then the offers piled up. Every year I got better offers and what not until one day when a big company came to me with a super ambitious project, and with a franchise that was very known in Esports, and I just couldn’t say no. And that’s when I started really full time, not just on the side, not just in the night and ever since I’m in Esports, and the only reason I’m now an entrepreneur is that I hated my CEO. I didn’t understand why I could not just do this myself. Why do I have to listen to this guy?
S: I mean, I didn’t hate him on a personal level, I have to make that clear, he was a good guy, rest in peace, he died from Corona (virus) actually this year, but he was just slow, in my head he was slow. I had all these good ideas, I wanted to bring things forward and whatnot. But since I was in the food chain as just the 3rd or 4th guy, I always had to wait. What does the CEO say, when is he in the office, he’s always travelling on business and everything, right? I didn’t feel I was heard and I was at the end — why am I not doing this myself. That’s why after two years I just said like, I’m not gonna work for anyone anymore, I can do exactly this myself, in my opinion even better than my CEO, for example.
N: So, this is bringing us to the main subject of today and we are always talking here about innovations. I want to ask you about TwogNation and what has compelled you to create it?
S: When I founded the company, I’ve seen so much of Esports. The question for me was always how do I solve problems in the industry. Naturally, I don’t like B2B for one reason, because it’s not scalable. It’s like a law firm. You can only have as many clients as you have, lawyers, paralegals and associates, but you can’t dilute yourself down. Nobody sees you as the prime law firm anymore when you have like 500 lawyers. They see you as a mass factory. And you can apply that to a creative agency or anything else, right? So B2B was always for me just a funnel to get into and I wanted to store value, data, anything that grows and scales up over time. So even your company grows by just doing what you’re doing. That was reason number one.
And then reason number two, TwoGHub the original idea was, for those that don’t understand it, the idea was to sort of merge a social platform like Facebook or similar, with a tournament platform, which you need to do all the events and tournaments. And then the third part was aggregation. So everybody knows aggregation in any other industry. You go to booking.com, Google Flights when you want to travel. This is a normal thing. But for those that are a bit older, like, for example, you and me, you remember that we used to look up things in the yellow pages, or that we had to go to a travel agency or call hotels or anything like that.
I know it sounds totally outlandish to the younger people but there were no aggregators. For me, the logic is very simple. In every industry that grows to a certain point, the entropy, like the chaos, gets so high that you need to aggregate. And that’s what I wanted to tackle with TwoGHub. The only thing that happened over time and that’s why innovation is always key is, I realized very quickly that as a European Venture aiming for a big B2C project, you need massive amounts of funding. And funding doesn’t come for free. I’m not talking about money, I’m talking about all the other strings attached. Obligations to shareholders. Shareholders inserting their, often wrong, opinion. Many investors forget that they give the money because they believe in someone and they know their industry. But then they project their other external experience and logic to something they don’t understand and that’s why also many companies fail after investment. So, long story short, the reason we went from the original to big B2C idea to then a gradual B2C with a heavier B2B angle right now, what we do today, is because we wanted to do it without investors. That’s the super short story and reasoning behind how this all came to be. I wanted to solve this problem and I still believe that TwoGHub is going to be a big platform in the years to come. Just how we build it has changed. Slower, more organic, without some dark voice in the back of my head telling me I should do things even though I know much better how we should do it.
N: Can you share with me some insights on how the platform actually works?
S: We took the sort of the best from all the social frameworks. So befriending people chatting with people, sharing interests and whatnot and there we are also innovating more in the sense of engagement. These days everybody’s effectively an influencer. If you have a name and access to the internet you’re an influencer, even a micro one. People want to monetize it, obviously most of the monetization funnels, for example, are in the hands of big companies and they only give you a tiny portion of what they actually make. Every dollar they make on you, you get maybe a cent on it, maybe 10 cents in good cases. Engaging, building better communities, discovering new revenue sources, this is one of our next goals when it comes to influences. So that’s one thing, that’s the social component. Building teams, building communities, chatting with each other, finding people of interest. We have functions, you can filter for example find people that like the same game, find people in the same city. In theory, you can filter by age. Let’s say, someone 30 years old, blonde hair, into World of Warcraft, if that’s your thing. Then you can even use it for dating purposes if you really want to, so that’s the social component. Tournament engine, I said you need to do tournaments, that’s what competitive gaming is all about. Then we have one of the best tournament engines in the world, so that’s sort of a basic tool it’s a must-have, it’s like tires on a car. You can have a Ferrari, however, if you don’t have tires, it’s not going anywhere.
N: It’s not a Ferrari, it’s just like an expensive piece of furniture.
S: Yes, exactly. And then, as I said, the last part is about data. I love to aggregate data. In fact, in another life, I would start a company purely based on getting data in one place. Because as I said, I grew up with yellow pages, no internet and everything. So I knew how it was before and now I can open three tabs on my browser and I have half the world pretty much condensed in one place and I love that. That’s why I’m a big fan of Google, for example. So you can think about and Google whatever you want, but bringing one thing, all the things in one place, Google is probably one of the best companies for that, right? Not just search engines but everything around it. I wanted to do this for Esports. We aggregate tournaments, locations and now we launched last year our news aggregator as well. Actually, for business people like you. You don’t have the time to go through 30, 40, 50 different news outlets and find out what Esports is. Not to mention that these paid journalists write long articles and you don’t have time for that, especially millennials. The younger generation, they don’t have time for that. They stop reading after the headline, maybe three more lines. We actually build a news aggregator that takes the news from all places together, headline short descriptions, sources, maybe some quotes from, for example, Twitter. Sometimes we add opinions, but we don’t give opinions. We’re fully agnostic, we just report what the internet says about it. Then you have to choose, either you go next or you say: “ Oh, I want to know more about this”, and when you click on the source. Then you go to this five-page article, I don’t know, the Washington Post or in the useful subserve. So we build things like this and I have a few more things in the pipeline where we want to aggregate things. But it’s a matter of money, we don’t monetize these things, it’s really just a service to the industry. We make our money, as I said, more on the B2B side until the point where B2C grows. That’s what happens without investors.
N: I will come to that later. I want to ask you what is next for the platform as well and what’s the next innovation? But before that, you mentioned earlier that companies are exploiting their users. What are the alternatives?
S: That’s a big problem. I mean, why do they do this? Most of these companies started doing something good, right? It was a great idea, to begin with, and what happened later — these companies grew. Many of them went public, the founders are gone, people from other industries come in as executives and they’re under the fist of shareholders. If you’re publicly listed, everybody expects their dividends and whatnot. So, these companies are not so sharky on data and everything because they want to. It’s not just “Oh God, we need more data and everything”, it’s just because every year they need to do a bit more. And I think they also get a bit lost in their mission. Alternatives, yes, but the alternatives are always less money. So, the reason Facebook is such a hated company today is simply that it lost its mission. The original idea was to connect people between universities, that was literally it. And today’s mission is like, I want to know everything about you because I still believe there is half a cent somewhere to be made. After all, I know which colour your socks are. And that’s really, that was not the original mission. Even though Zuckerberg is still at the helm with many companies after such a long time, the founder is not there anymore, maybe he is some glorified chairman but not actually an executive role. But there are many other examples.
So, what’s the alternative is don’t go public, that’s one. The other alternative is to find other revenue sources or make it very clear that your company is not after this. And then maybe also protect it with technology, I mean I’m not a big blockchain person in the sense of, you know, forcing blockchain on everything but there are some cool technologies where you can even prevent yourself from the temptation to go deeper. So, if you build, for example, data on ledger systems, even you as a company can’t touch it, so there are good things you can do… It’s like with the cookie jar, right? You hide it from yourself or you put a time device on it so you cannot go for more than one cookie a day because that’s what your diet tells you. So, there are a few cool things and, of course, the company culture. Like, don’t have the company be massively replaced by other externals in the search of new revenues and profits, just keep a good core and align with your team. Let’s not be those guys. But other than that, there is no real alternative. In a capitalistic system, you will always try to exploit to the absolute maximum until it crashes, that’s just how capitalism works.
N: So let’s go back to the platform. Can you share with me some things that you are working on right now and the things that you want to work on in the future?
S: Important to know is that, as I said, being without investors what we did is all the money we put into the platform with the original B2C mission was that I said to myself why don’t we share this with others, right? And that got us into SAAS IPCELL and customizing for clients, right. Because many people, don’t want to be on someone else’s platform, they want to have a bit of me in there, right. They want to say this is my URL, my design, it feels, smells touches like it’s my own. That’s when we started using our engine and the things we had built for other clients and that goes really really well. And my innovation part there is not just a technology but it’s also to have business models that are very compliant with eSports, is that eSports is an under-monetized very young industry which means, if you ask an IBM or Siemens guy how much they charge for their enterprise services SAAS or anything like that we’re talking about six-seven figures, right. In eSports, you have to provide things for three and four figures in some cases. So we build everything from little grassroots solutions. Let’s say a high school that doesn’t have much money but also up to big TELCOs everywhere in Asia and Middle Eastern Europe and most of the businesses are not flexible and one of our missions is to always stay flexible. I don’t want to build a one size fits all kind of thing. So yeah, we build really four grassroots as well as for the big names out there but it’s difficult right. Because on the one hand, you don’t want to be that static. On the other hand, clients expect you to be static. They expect to have a call with you and after that call, you send the deck through with sort of option A, B and C in three different sizes. If you give them too much freedom, especially corporate entities, their brains explode and they don’t work with you because it feels too complex, it feels too much freedom. They’re not used to freedom, they’re used to….
N: They’re used to like... Put me in a specific part…
S: Yeah! They’re like business development managers or acquisition managers, or whatnot, and they go out there, they have chats with people and then they expect three options. Then they choose and they go back to their board to get the green light, that’s it. And when I’m coming to them and say: “Look, we can make it really just like it’s your own, you know, people don’t even need to know I build it”, they’re confused by this. So the corporate world and the eSports world are clashing in that sense as well on top of us having to explain what eSports is. So long story short, we innovate on this, as in, we build engagement technology, something around, integrating better with the games, the aggregation I mentioned in the beginning, I want to build a few more of those and that’s pretty much it, that’s our B2C side. We also want to take our chat out to let’s call it, like a “Whatsapp up for gamers”. So effectively, you know, from Telegram, Signal Whatsapp, Viber and so on, but with a twist towards gaming. So there’s a few projects we have in the pipeline, but we’re still a startup which means priorities and pipelines shift.
N: That was my next question. How do you define priorities? How do you decide where to go next and what to do next?
S: Well, the number one decision is always money. So, whatever pays the best on the B2C side, you have to go for it right. Of course, sometimes you take a hit on the money for something strategic. It gives you users, it opens your other doors and everything, so that would be my second priority decision. And if the decision is, I don’t know, sort of 50–50, then I would go with the most innovative thing to do. So when you’re a young company and you go into something as old as the internet, by now there are two ways of building things. Either you innovate by looking at all the other products and you take the best of everything in hopes that you build something better with the best of all, the above-average of all kind of thing. Or you try to disrupt entirely. Like you try to go for something that nobody has ever seen before but then you also run the risk that your users are like: “Oh my god I’m not comfortable with this one I’ve never seen it feels weird”. So you have to walk a very fine line with it. I’m also the product owner apparently in my company. I’m trying to hire product owners but it’s hard to find in eSports, but I’m doing all the research really in the same way. I look around, also, outside the industry. What is there, what is the best and that is sort of my baseline and then I’m trying to find the magic source I can put on top, something someone has never seen before or that explores a new revenue source or anything like that and that’s pretty much how most of our new features are being built.
N: So I want to go back to eSports. You mentioned earlier it’s a new thing. It’s 10–15 years old actually, but now it’s coming to the Olympics in 2024 and it’s so interesting. So do you think that gamers will have to do more cardio for this?
S: Yeah, let’s start somewhere. I’ll get back to cardio, but let’s start with defining actual eSports for the listeners and viewers that might not understand. You have gaming, right, and gaming is not just a billion-dollar industry, it’s much bigger than that. It includes everything from your little mobile game, your browser game on your Facebook Messenger. It includes everything right from triple a down to casual and eSports is a super tiny fraction of that really. I’m just throwing out some numbers but please don’t hit me on the numbers if they’re incorrect. But you have, let’s say, 70–80 of the games are non-competitive titles right? That’s just what you play in your free time and that’s it, right? Then you have 20 competitive titles. And competition starts when you start ranking yourself. You play for scores and you rank on a ladder right? So you can be number one, number five whatsoever. So that’s mildly competitive, and then of course come games where you play against other players in real-time or turn-based or whatsoever, and the competitive density gets higher. And the higher they are, the closer we get to eSports.
Now, what’s the difference between a competitive game and eSports? Very simple, just like with sports, some weird local sports that nobody ever heard of. That’s a sport but it doesn’t make it like a big title in the Olympics or World Championships, or anything like that. I mean there are things like rolling cheese down the hill in Scotland or something like that, that’s considered a sport, right? Do they do this in Finland or Russia? Definitely not. It’s the same with eSports.
So what happened is you have these, let’s say 20 competitive games, and out of that, probably one per cent or so made it to the top, and they became actual eSports. Esports means you have a competitive title with a very active community behind it. Broadcasting, merchandise, franchises names, betting, data business. So everything you can think of right from the entertainment and the sports business — and that effectively makes esports. Esports in itself is pretty much the umbrella form of that one little one per cent of the gaming industry and then within esports, we’re still dividing between regions because they’re often very different in how they operate and we’re dividing between the games. So Counter-Strike is totally different from, for example, League of Legends. It’s entirely different industries, different business models, different people doing it, the culture is different, the users are different. So when people say they know eSports they’re mostly lying, they mostly know one part of eSports. And then you have to realize they know effectively 0.001 per cent of the gaming industry, and that’s what most people don’t understand. There’s no such a thing as eSports experts, it’s just people that have been for a long time in esports knowing a wide spectrum of things.
Now let’s get to the Olympics. One of the issues in eSports we had is that we sought after recognition right. When in 2004 I organized the LAN party and the local TV channel, that nobody probably watches, came I was super excited like: “Wow, a camera, a microphone, someone asking me questions’’, you know. And then over the years, we were like, we measured ourselves a bit like a child and parent, right? You have like a dad or a mom who are super busy and you’re trying to do things, good or negative sometimes, to get the attention. And they’re like: ”Oh, good boy, that was really good, I’m so proud of you”. And we felt for many years like this, but for me, it shifted. Especially in the 2010s, because we’re grown up, we’re making our own money, we have our own business models, we found our own magic sauce. I don’t need to get the approval from sports, from E-gaming, with casinos and betting giants and other things. And that’s pretty much one of the conundrums we have these days. There’s still a good part of most new eSports people that came recently to the industry, recent means in the last three, four, five years, and they still believe that if Warner music or Amazon or whatever is not in the loop, eSports is not a real thing, it’s just niche, and small and everything. While we older guys in eSports we’re like: “We’re fine”. So if Amazon wants to be involved in eSports, they bought Twitch for example, but let’s say another example Warner music, if they want to be involved, then please go for it. There are sponsorships, activations, tech, you can invest, they can do anything, but not in a sense that we’ll sell ourselves out.
And now to the Olympics. The problem is actually, TV and traditional sports, they need us, it’s a fact. They’re dying! Their users are getting older, nobody’s watching their stuff, their formats haven’t changed, in sometimes decades, you know?
The Olympics I watched as a child with my parents are still the Olympics today. If I watched it, which I don’t because it’s boring. So that’s their problem, they need to rejuvenate their audience, they need to innovate. They tried that in the past with, you know, getting new sports in there. I don’t know if you remember like maybe 10 years back, 15 years back it was cool when they brought snowboarding in the winter Olympics, right? They’re not interested in eSports, in fact, they hate us because we’re not compliant, we’re asymmetric users or we’re very digital and they’re old and non-digital right. They’re linear TV and newspaper kinds of logic. So they actually don’t like us, but they need us. Now here’s my problem — there are people in eSports that want recognition from them. They would do everything, bend everything, they would work for free just so: ”Please, please Olympics, take us” or “Please football club, please football league” or whatever “please take us”. But in reality, you just need to sit it out. You sit on the gold pot, they’re running out of money, they need YOU. You’re not the next mining location, and we’re not taking advantage of that. So the Olympics, for example, come with their outside rules, they don’t bother to understand eSports, they’re not the user, not the entrepreneurs and people behind it, not the business models, nothing. Not even the rules in the culture. So when they come just like:“ We’re the Olympics, we’re like big and everything”, even though for me they’re just nothing but a corrupt bunch of old people making millions. While billions of athletes often are not making that money and then they come and project their rules. So the Olympics, for example, don’t allow violent games, which I find hilarious because they allow shooting and judo and karate and everything where you literally punch someone in the face. But “Oh God forbid, there are some fantasy figures I don’t know fighting each other”, that’s for example forbidden. So what they call eSports is exactly against the definition I gave earlier in this segment. It’s not esports, they allow things like e-sailing. So effectively a simulation for sailing. I mean has anyone ever heard about that? It’s not even considered eSports, nobody in eSports even knows there’s an electronic version of a sailing simulation. There are, I don’t know, maybe a few thousand people in the world that even know that, let alone a competitive scene or commentating or anything like that. So they just pump up these things so they find something from our industry to put into the Olympics.
So they sort of call it sports washing.
They’re sports washing us.
So they ignore all the big successes, they ignore all the culture, and they just take a few little things and paint it over and write eSports on it. And that’s what they put into the Olympics. So I like the efforts they do next to the Olympic sort of activations with real eSports, the successful titles and everything, but what we’re gonna get now in the next year in the Olympics is not eSports. That’s just my outright opinion and that’s why I don’t condone it. However, one last thing, I do see some positives in it. While we might not be happy with the results right now, they see it as innovation, but it probably paves the way forward. Give it another 10 years and I think they will break down these rules, and idiotic title choices that they have, but yeah, it will take time. I just don’t like the sellout period that we’re in right now. I think we could do much better, again they need us, we don’t need them.
N: You basically define yourself as a veteran of eSports, and with that said, can you share with me your vision on what will eSports evolve in the future?
S: Yeah, eSports and gaming, right? Because here’s the thing. Esports has this trickle-down effect just like football. You have football, the top one per cent, the Champions League and the Premier League, Bundesliga and whatnot, but let’s face it, that’s just a few hundred footballers and all the millions behind it. If you go downwards to second divisions, and whatnot, all of a sudden all the money and the attention is gone. However, the kids still play football behind the house, right? So you have eSports, the top thing and then the trickle-down effect, that’s all the people that are closer to games play it casually and also use it as a skill. So for me, the final vision is that eSports becomes a lot more consolidated, a lot more rules will apply, governments will embrace it to a certain point, a lot more innovation will come into space and I do believe we have an actual run against the sport. We’re not going to cannibalize each other. Most people see it maybe as a threat that these new guys come and they take it away, but I do believe we actually have a solid chance to be, you know, when I go on my Serbian TV channel, I have like, I don’t know, 15 channels from golf and football and UFC, MMA and now, these days I have for example an eSports one. So this will become a very normal thing across all media and everything. What I also do believe is that the trickle-down effect of eSports. And it has nothing to do with eSports, but a trickle-down effect is that we’re going to utilize gaming for many other things such as education. So for example I learned English, not in school, I learned English in games — because I had to. There was no German localization of the game, I just had to learn it and I had to go with a dictionary.
Then later I was leading 40 and 50 men raids in World of Warcraft in English as a guy who was really just having school English and whatnot. The reason I speak English today as I do is because of gaming, not because I’m in business today or anything like that. So the ability to lead a team of 40 people, that’s 40 active players and reservists you would call them, like guilds, up to the size of 100 people. Organizing 100 people, that’s why I’m not even sweating when I organize my 20, 30 people in my company right now. I did this 10 years ago in games and that’s even more complicated. All remote different characters, different cultures and everything. So gaming teaches essential skills and you see it across the world that teachers started to use it. Why force people into books and boring topics, when you can do it through games or in a gamified way? So this is also the really cool trickle-down effect. Gaming is an essential part of our lives and this whole stigma that we had over all those years is going away.
Today if you ask someone about gaming — “Yeah, yeah, I have like three apps on my phone” — it’s the normal thing. In 2005 when I told someone I’m gaming, I have a PC, you were still the nerd, you were the unwashed basement kid. So this is, we’re talking only about 20 years now this thing gets traction, imagine what we can do in the next 10 years.
N: Heflamoke, thank you so much for this conversation, I enjoyed it. And for you out there, see you next Thursday, when we talk about some innovations, thank you!
S: Thank you very much!
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