There's a very good reason why Samsung is betting big that the creator of 'Pokemon Go' is now worth $3.9 billion

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There's a very good reason why Samsung is betting big that the creator of 'Pokemon Go' is now worth $3.9 billion

niantic ceo john hanke

Niantic

Niantic CEO John Hanke

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  • Niantic, the developer of 'Pokémon Go,' is said to be raising a new round of $200 million, bringing its valuation to $3.9 billion.
  • It's a reflection of the continued success of 'Pokémon Go,' and the sky-high expectations around its forthcoming 'Harry Potter: Wizards Unite.'
  • However, don't miss that Niantic is slowly realigning itself as a maker of tools for other developers - a model that's served 'Fortnite' maker Epic Games to great effect.
  • Samsung, which is participating in the funding round, has already said that it's collaborating with Niantic in this push.

"Pokémon Go" is two and a half years old, but it's still going strong - the game raked in $73 million in October alone, according to estimates, and just this week launched a long-awaited competitive battling mode.

Now, it appears that Niantic, the game's developer and a Google spinoff, is leveling up with a new $200 million round of funding valuing the company at $3.9 billion, according to the Wall Street Journal. The round is reportedly led by Silicon Valley investment firm IVP, with participation from Samsung and eSports investor aXiomatic Gaming. The Inquirer previously reported that Samsung's share of the round was $40 million.

The hefty funding round shows that investors are noticeably optimistic about Niantic. A year ago, the company was valued at $2.7 billion, making this a significant up-round. Previous investors in Niantic include Nintendo, the Pokémon Company, Google, and Peter Thiel's Founders Fund.

There are some obvious reasons for this excitement, on the surface of things: Even as "Pokémon Go" continues to outperform, Niantic is slated to release "Harry Potter: Wizards Unite," a seemingly surefire hit, next year. The Wall Street Journal reports that Niantic is also in talks to develop more games based on licensed intellectual property.

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However, beyond its bright future as a game studio, this investment would seem to have everything to do with Niantic emerging as a maker of software for programs. Earlier this year, Niantic previewed the Real World Platform, software that it intends to license out to developers to make their own GPS-based augmented reality games.

pokemon go

AP Photo/Nati Harnik

Niantic's "Pokémon Go" got players to walk around in search of virtual monsters. Now, it plans to license the tech to other developers.

For Niantic, the Real World Platform appears to be the long-term play. Gaming is a hit-driven business; "Pokémon Go" revenues could hypothetically evaporate tomorrow if another huge title came along. But history has shown that there's a durable business to be built in licensing out the foundational software to help others make games.

If you want an example, look no further than Epic Games, the creator of the international phenomenon that is "Fortnite." Beyond its video game business, Epic has long offered the Unreal Engine, a wildly successful video game engine that it licenses to other developers for free, taking a cut of their revenues in exchange.

An Unreal bet

While Epic doesn't break out how much revenue the Unreal Engine brings in, its sheer popularity in the gaming industry - smash hit "PlayerUnknown's Battlegrounds" is an Unreal Engine game, as is this year's "Dragon Ball FighterZ" - likely means that it's doing just fine. Earlier this year, Epic raised funding valuing it at $15 billion.

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Niantic's big bet is that the Real World Platform will become a similarly foundational cornerstone in augmented reality, which is the technology for overlaying digital imagery over the real world. Companies like Apple, Google, Microsoft, and Facebook all see augmented reality as a major new phase in computing, and there's clearly at least the opportunity for Niantic to play a major role in the gaming industry yet to come.

galaxy s9 case

Antonio Villas-Boas/Business Insider

Samsung has announced that it's partnered with Niantic to build the Real World Platform, which could bring better augmented reality to its phones and other devices.

This, too, is where Samsung comes in. In November, Samsung announced that it is collaborating with Niantic to further develop the Real World Platform, with this investment representing a deepening of that partnership. This alliance makes some sense, as Samsung has touted AR-related features as a selling point for its latest Galaxy S9 smartphones. With Niantic on its side, Samsung hopes to outdo rivals like Apple at AR technology.

Altogether, a picture begins to emerge about why Niantic seems to be in such demand. It has solid-gold gaming hits today that are delivering real revenue, a pipeline of successful games yet to come, and, perhaps most importantly, an actionable plan for generating a business that goes beyond appealing to fickle consumers. Oh, and Niantic hasn't even yet launched in China, which is the biggest smartphone gaming market in the world.

Of course, this all hinges on the expected bull market for augmented reality technology to actually materialize. As we've seen with virtual reality, a sister technology to AR, consumer uptake of these platforms can be extremely slow. If Niantic's bet is correct, it stands to benefit - but, at least, if it's wrong, it still has Pokémon and Harry Potter.

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