I love chess.
I’ve been playing since the age of 17, and managed to reach a peak rating of 2200 online in 2022 (I mostly play blitz & bullet, if I had more time I’d love to play more over-the-board chess.)
All this time playing Chess, I started thinking about chess.com and how amazing it is as business. It is the undisputed, #1 player in its space and has an incredibly strong competitive position in its industry.
And neither did it create the game, nor does it have any ownership or IP over the game.
This is a business I would love to own.
History of Chess.com
Founded in 2007 by Erik Allebest & Jarom Severson, with the idea of building a chess community & e-commerce site. The site has come a long way since then, becoming the go-to place for online chess, which has grown tremendously over the last few years.
The growth of chess
Chess as a game received a huge boost during COVID. With people stuck in their houses, they turned to games like Chess to fill their time.
This was helped by the massive success of the Netflix series ‘The Queen’s Gambit’ released in October 2020 which had the whole world talking about Chess. This led to a growth in its popularity on online streaming platforms such as Twitch, with many of the platform’s biggest influencers playing Chess on Stream, including XQC & Ludwig.
At the start of 2023, there has also been a huge rise in the popularity of chess. The reason for this growth is less clear. It may be a trend going into the new year that will revert to normal or may signal an increasing interest in the game.
We can clearly see that there is obviously increasing interest in Chess, but let’s look at how that is translated to success for Chess.com.
Growth of Chess.com
Chess.com is clearly a rapidly growing and highly profitable business.
In Dec 2022, Chess.com announced that they had reached 100M members. On Jan 20th 2023, they hit a record 10M active members in one day.
They also shared other statistics about their recent massive growth.
- All but five days in January have set new site records for active members.
- The Chess.com app reached #2 in the Top Free Games section of the iOS app store in the US (#1 in some countries!).
- Every day since December 5, one million people have solved the daily puzzle.
- On January 19, we had one million visits from Google for the first time.
- We had over 300,000 members join in a single day, over 100,000 more than at the peak of The Queen’s Gambit.
- 31,700,000 games were played on January 20 alone, a site record, and we are now regularly seeing more than one million games an hour.
- 250,000+ new accounts are created each day
- 16,000 chess moves per second on average
Their growth has been so extreme that their backend infrastructure is now struggling to keep up. They have experienced server issues for the last several weeks, unable to handle all the demand for their services.
This has led to them recently taking on a round of funding from PE fund General Atlantic, to fund their backend investments into infrastructure to support their massive growth.
Estimating Revenue
Chess.com is a private company and is fairly under the radar. Therefore we don’t exactly know their financials. It is a freemium app with different membership options. Premium plans remove ads and include in-depth coaching, lessons & puzzles. I have screenshotted the pricing of the membership plans in the UK below, but I have heard that they differ between countries.
In an interview from August 2021, Erik confirmed that their revenue was between $50- 100M. He also revealed that over the last several years, they have doubled in size every year. That means that they’ve likely seen signifcant growth since this timeframe.
In an excellent Reddit post from December 2022, the user did a pretty good estimate of what Chess.com could be making. They looked at chess.com’s online tournaments and worked out what percentage of tournament players were premium members. They estimated that 12% of tournament players were premium users. From this, they estimated that there 691,200 premium members and 5,068,600 free members active during a day.
They then assumed that half of the premium members would be active each day, for a total of 1,382,400 premium members.
This would mean that Chess.com would make approximately $120M per year, from memberships, ads & other revenue streams.
More Proof of their Success
According to Similar Web, Chess.com got 206M visitors in December 2022, with a global rank of 162. It is the most popular board or card game site in the United States. People spend an average of 15:47 minutes on the site, visiting 7.89 pages per visit and a low bounce rate of just 17.81%.
It is also the 25th ranked app on the iOS app store, with an average rating of 4.8 stars with over 300,000 votes.
Lichess lags behind, averaging 87.9M visits in Dec 2022. However, they did have a slightly higher average visit duration of 16:48 and 19.44 pages per visit.
My favourite part about this business model is how undisruptable it is. AI, or any other tech innovation, is simply not going to change how people play chess, which has been played the same way for thousands of years.
In the next chapter, we’re going to talk about the reasons why.
The Competitive Advantages of Chess.com
The Name is it’s Most Powerful Asset
There are few real forms of true digital scarcity. However, having a powerful domain name is definitely one of them.
Having the domain name chess.com lends them MASSIVE authority. It is perfect for a brand that is aiming to be the go to place for virtual chess. It just sounds so much better than playchess.com or chess24.com for example.
Erik managed to buy the domain in an auction from a failed start up that sold chess tutoring software.
He paid just $55,000. That sounds like a lot for a domain name that costs just $10 to register. However, this is one of the most powerful domain names out there.
When beginners look to play chess online, where do they go? Chess.com is the obvious answer.
Before there were search engines.when you typed ‘Chess’ into your browser on FireFox or Internet Explorer, it would add the.com and take people straight to the site. Nowadays when you search Chess, chess.com is still likely to be the first site to be shown.
Distribution
Nowadays the picture is not too much different, with chess.com dominating online searches for Chess. Chess.com is the first search result when users search ‘chess’ or ‘chess online’ across most countries.
The chess.com app is also the 25th biggest app on the iOS app store, commonly featuring in their top games. This means that chess.com has an incredibly strong organic distribution. Despite that, over 80% of their traffic is direct. This means that most of their traffic is coming from recurring visitors or from word of mouth. This is a sign of a great product.
Chess.com has also done well to make deals with some of the largest names in Chess. SOme of the best chess players in the world such as Hikaru Nakamura & Magnus Carlsen now play on chess.com
Network Effects
If friends want to play together, it’s likely they’re going to use chess.com. It is the obvious place for amateur players to go because their friends are probably already there.
When you talk to someone about chess and they ask ‘what’s your rating?.’ You’re probably gonna reply with your Chess.com rating. Not your FIDE rating. Not your Lichess rating. They are slightly different, but the one rating they’re likely to understand is your Chess.com rating.
There is also a deep ‘liquidity’ of players on the platform, meaning that is easy to find a game against a random person, no matter your rating or time control you prefer to play.
Threats
When we analyse businesses, I like to ask the question.
‘What would it take to compete with this business
And in this case, it would take a whole lot.
There is not a lot of possible product innovation. Chess hasn’t changed in thousands of years. They already have deep relationships with the biggest names in Chess and have developed a massive userbase & brand.
I really don’t see how it would be possible to compete.
Competition
Chess.com’s biggest competitor is a free non-profit server that relies on donations to survive. It is a great service and has gained a massive userbase. However, they haven’t shown any intent to compete for Chess.com’s slice of the pie.
Lichess is much stronger for the edgier chess players who want to try something different than regular chess and try one of the many available variants on the server, such as Crazyouse or Atomic chess. This has been an excellent differentiator for lichess and has helped them pull some users away from chess.com, the number of players of these variants is very small and is unlikely to grow in the next few years significantly. If one of these variants became significantly more popular, then chess.com could always add this, however, their brand has always been about pure chess and providing the ecosystem for that.
As we’re going to discuss, chess.com has done well to out-compete or acquire its biggest competitors. In October 2013, they acquired chessvibes.com, which provided coverage for chess tournaments. This helped chess.com to become the largest player in chess streaming & commentating as well.
Influence
Another threat would be if one of the biggest influencers in chess started their own server in an attempt to compete with them, using their popularity and status in the game to draw in users.
There are probably three influencers in the Chess space who are large enough to try this, Gary Kasparov, Magnus Carlsen & Hikaru Nakamura. Two of the best chess players of all time and another incredibly strong grandmaster who has built up a huge following as a Twitch streamer.
And one of them has already tried.
This was the playbook of Play Magnus Group, founded by world chess champion Magnus Carlsen. This started as an AI, trained on his games, so that users could virtually play against Magnus Carlsen at different ages. From age 5, all the way to his world champion status.
A chess learning app followed this and Magnus Carlsen was often seen playing on streams on the Chess24 server, where he offered to play premium members of the service. This was a great marketing scheme to gain users to the platform.
However, even this was not successful enough to compete with Chess.com, and after stagnant growth for several years, accepted an acquisition offer from Chess.com for $85m. This was a big payout, however, it was a big win for chess.com, removing their largest for-profit and gaining the world champion Magnus Carlsen as an ambassador instead of a competitor. He will likely be playing on chess.com in online tournaments for the foreseeable future.
Chess.com also has deals with many of the other most influential chess players in the world, such as Hikaru Nakamura. This has solidified their place as an authority in the chess scene.
Product
Chess is addictive. I know that because I definitely am. I think there are two reasons for this.
Firstly, I hate losing and feeling stupid. Chess has a way of humbling you, no matter how good you think you are, there is always someone better than you. You’re too weak, too slow. The reason I kept playing Chess was that it irked me deep inside that I wasn’t good at something that is pure intelligence, there is no randomness in chess.
However, there is another reason. The way that the pieces move, especially when you take an opponent’s piece, can be incredibly satisfying. Lichess is actually probably stronger on this than Chess.com. The gameplay feels much stronger and the sounds are so much more satisfying. Chess.com also does not allow for zero second pre-moves (allowing you to make a move without using time) which makes the gameplay feel clunkier, which can be felt in time troubles. There is a reason for this, and that is chess.com’s purist attitude towards Chess. In real life, it is also impossible to make a move in zero seconds. However, we’re playing online chess for a reason. There’s no reason to hamstring your product like this.
Regulation
Chess.com definitely has power over the chess scene, with a huge presence in both online and real-life chess tournaments and players. This was a point raised by Hans Niemann in his lawsuit, when he argued that he was being ‘bullied’ by the monopolistic power that chess.com, and other streamers, has over the chess.com community.
However, it is very difficult to see any regulation coming to prevent this. Chess is a small industry with little strategic or political value. It is a board game that people can enjoy. There are no serious societal effects of chess.com reaching efficient scale and owning the virtual chess scene. Therefore this doesn’t seem like a real risk.
Apple
In my opinion, the biggest threat to Chess.com would probably come from above in the digital hierarchy. Apple products come loaded with a built-in chess application that is very basic. If they decided to stop promoting Chess.com in the app store and encouraged people to use their app, it is possible that they would have the capital & influence to succeed. However, you could say this about almost any app. Facebook is a good example of a business that has had its business model set on fire by Apple removing the IDFA. I think it’s fairly unlikely that this is a business that Apple would care about. The Chess space is small and has reached efficient scale. It would unlikely be worth the effort for the trillion-dollar company.
In my opinion, this is a great example of a ‘resilient’ digital business that is undisruptable and has the ability to survive in the long term with good management decisions.
Please let me know your thoughts in the comments. How would you compete with Chess.com if you had to?