Pokémon Go Creator Has a Plan to Be More Than a One-Hit Wonder

(Bloomberg Businessweek) -- Pokémon Go—a game based on people using their smartphones to chase virtual characters through public spaces together—probably should have died during the pandemic. Instead, Niantic Inc., the company behind the game, tweaked the experience of playing indoors and managed to pull in its already committed user base in even deeper. Monthly active users increased 15% in the year through May, and consumer spending on the app soared 49% over the same period, to $1.4 billion, according to data from Sensor Tower.

The success has been a boon for Niantic, which was founded inside Alphabet Inc.’s Google in 2010 and spun off into an independent company five years later. It also presents a challenge: The company depends deeply on the game but knows it needs a new hit. On June 14 it’s announcing a deal with Hasbro Inc. for a Transformers game, the most recent result of a series of partnerships with content companies. Simultaneously, Niantic is looking to transform itself into something more than a game studio while it’s still a leader in the nascent but heavily hyped augmented reality industry.

For years, tech and video game companies have enthused over the potential of AR, the technology of producing digital imagery that appears to interact with the physical world. Companies are developing new headsets, making funny filters for smartphone videos, and trying to adapt the technology to everything from interior decoration to city planning.

When it comes to one of the most obvious use cases, gaming, there’s really nothing but Pokémon Go. The game accounted for about 85% of the $1.5 billion in revenue augmented reality games generated in 2020, according to market research firm Omdia. Niantic’s short-term priority is to be the company that makes the next hit, too. It released Wizards Unite, a Harry Potter-themed game, in 2019, but performance has been lackluster, and the company is working with a handful of high-profile content companies to build AR games for other recognizable franchises.

Niantic has about a dozen games in development, targeting different types of gamers. Having held up some public releases during the pandemic, it’s beginning to roll them out as normal life returns in parts of the world. “Some of it has been ready for a while. We were just sort of waiting for the right time to start introducing that—as people will kind of reconnect with the real world,” says John Hanke, Niantic’s chief executive officer. The company has announced a collaboration with Nintendo to adapt its Pikmin game and a game based on the board game Settlers of Catan. Users are testing both games, which are slated for general releases later this year.

Transformers: Heavy Metal, which Seattle-based   
game developer Very Very Spaceship is building for Niantic, is also scheduled for a full release in 2021. It will allow groups of players to battle digital robots, and Niantic will begin testing a pared-back version—with the robots appearing against a static background instead of looking like they exist in the real world—with a limited group of players in New Zealand in June.

Niantic has been talking for about eight years with Hasbro, the toymaker that owns the rights to the Transformers franchise, about an AR adaptation. “It’s almost as if it was designed for augmented reality,” says Hanke. “This isn’t battle on a distant planet in a galaxy far, far away. It’s about giant robots coming to Earth and having battles in the middle of Los Angeles. For us, giant robots walking around the real world is just too good to pass up.”

Creating a game in which groups of smartphone-toting players battle huge digital robots in city streets was a significant technical challenge because it means rendering large, constantly changing images and understanding how each player is interacting with them. But technical wizardry alone is unlikely to keep anyone engaged, according to Julie Ask, an analyst at Forrester. “Consumers aren’t interested in augmented reality. They are interested in what augmented reality can do for them,” she says.

Reopenings in the U.S. and some other countries are giving Niantic a chance to return to limited outdoor events. Hanke has said the company’s annual Pokémon Go Fest would be completely virtual, but he’s aiming to have smaller in-person events, and the company is changing the gameplay to give incentives to play outdoors. Niantic is also introducing new social features in its games to let players coordinate meetups, which they currently do mostly through Discord and Facebook.

Niantic is also building an AR platform to provide other developers with technology to build games and apps. In May it released a toolkit that several hundred independent developers are testing. It’s working with Qualcomm on a design for AR glasses, although Hanke says the company hasn’t decided if it will turn the glasses into a consumer offering. Niantic also wants to work on an advertising marketplace for AR games and apps. Taken together, the plan is to help shape the broader AR world while it’s still in its early stages. “This moment is similar to that of a completely new console—or even the early stages of the PC—as we look at what is becoming spatial computing,” says Kellee Santiago, who runs Niantic’s external publishing operation. “It’s a whole new paradigm.”

This could draw it into direct competition with Microsoft, Amazon.com, and Apple, which have their own AR-related ambitions. But the company has also seen tech’s behemoths as potential buyers. Within the past year, Niantic has engaged with multiple companies in acquisition talks, according to two people with knowledge of those discussions, who requested anonymity to discuss private business dealings. One company was Microsoft Corp., which declined to pursue a deal, according to one of the people. A Microsoft spokesperson declined to comment. Hanke says there are always talks between companies and declined to comment further, except to note that Niantic is focused on being an independent company.

In October, Niantic hired Brian Benedik, Spotify’s former chief revenue officer, as vice president for global revenue. The company has already signed consumer brands such as Starbucks and Verizon to pay to have their store locations featured within Pokémon Go, as well as to provide both in-game rewards and real-world coupons. Benedik is working with additional retailers that want to use the game to help draw players back into physical stores. Clothing designers such as Gucci and North Face have offered virtual outfits in which people can clothe their avatars.

Benedik says he already has elicited interest in ads for a Transformers game. A stable of new AR games from Niantic and independent developers would provide more opportunities for partnerships with brands, which Niantic is betting will view augmented reality as a novel form of marketing. “They’re starting to understand,” he says.
 
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