Brief:

• Snap plans to start a hub for gaming inside the Snapchat messaging app later this year, unnamed sources told The Information. Snap is already signing on game publishers to participate in its efforts.
• It's not clear whether the gaming titles will focus on augmented reality (AR) gaming, which has been a focus for the company in the past year. Previously, the company debuted Snappables, AR games that are played with facial gestures on a mobile device. Bud Light, Dunkin' Donuts and King Digital, maker of Candy Crush, were among the first brands to partner on sponsored Snappables earlier this month.
• Last year, Snap bought a web-based 3D game engine called PlayCanvas. Disney, Nickelodeon and King Digital are among the companies that have used PlayCanvas to develop games.

Insight:

Snap's plan to start a messaging-based gaming platform comes as the company seeks additional ways to engage its younger-skewing audience with Snapchat. Luring gamers is one way for Snap to generate more ad revenue from the video game industry and possibly develop subscription revenue for games down the line. As The Information notes, CEO Evan Spiegel has expressed admiration for Chinese tech giant Tencent, which attributes 40% of its revenue to in-game purchases in the WeChat messaging app.

Tencent, which last year invested invested $2 billion in Snap, earned $12.7 billion from gaming and its "Kings of Glory" mobile game had 160 million active users, per Variety. Almost two-thirds (60%) of Americans play video games daily, while 36% play them on a smartphone, the Entertainment Software Association found. As smartphones become the primary way that people consume media, video games are likely to grow more popular, leading to a natural progression in app evolution.

Snap's rival Facebook in January similarly launched a pilot program to appeal to game creators. The test focused on helping creators build more meaningful and engaged communities on the social network, and boost discovery and distribution on Facebook-owned platforms like Instagram and Oculus. Meanwhile, Facebook this month also started a video service to attract gamers who stream their game play online for others to watch, similar to Amazon's Twitch.

Snap may be focusing on AR gaming down the line to differentiate its platform from competitors. Daily engagement with Snapchat has fallen 7% from last year, amounting to average use per user of 33 minutes a day, signaling why the company is looking to expand its offerings and entice more people to register and stay on the platform.