Nintendo DS and Sony PSP loosing relevance and life on Portable Gaming!

Digital content distribution has disrupted several notable industries. In that context, no industry has been more impacted by digital distribution than the video games. Leading the disruption are iOS and Android devices, whose free and inexpensive games, distributed across a massive installed base of powerful and networked tablet and mobile phone form factors, have already disrupted billions of dollars of game revenue.

Portable gaming, has been dominated by Nintendo and Sony for over two decades. In this model, at retail, consumers pay around $200 for the gaming device and up to $40 for popular game cartridges. Because of the similar form factor, overlap in consumer base (especially younger players on iPod touch) and the casual nature of game content, iOS and Android devices have redefined the category. With the inclusion of smartphone revenue into the category, shifts taking place in market share become clearer.

The most striking trend is that iOS and Android games have tripled their market share from roughly 20% in 2009 to nearly 60% in just two years. Simultaneously, Nintendo, the once dominant player, has been crushed down to owning about one-third of market in 2011, from having controlled more than two-thirds in 2009. Combined, iOS and Android game revenue delivered $500 million, $800 million and $1.9 billion over 2009, 2010 and 2011, respectively.

Within the portable category, an abundance of digitally distributed free and $0.99 games, available on hardware that is both comparably priced and more powerful than traditional portable game devices, better appeals to many consumers. As a result, the days of paying $25, or more, for a cartridge at a retail store may soon end. Further, the installed base of iOS and Android devices has not only reached critical mass, but also continues to grow at unprecedented rates. In their latest public statements regarding installed base, Apple and Google reported a total of 250 million iOS devices and 190 million Android devices activated, respectively.

Due in part to its demise in the portable game category, Nintendo is facing its first fiscal year loss since the company began reporting profits in 1981. Combined with slumping Wii sales, Nintendo is indeed struggling. Equally concerning for Nintendo is that the battle for video game dominance is entering the living room, with entries by both Apple and Google into the TV category. Ostensibly, this new class of hardware will create a new platform upon which the digital distribution model of apps will be overlaid. Now, in addition to tablet form-factor competition, the console game industry, which currently pits Microsoft, Sony and Nintendo against each other, will additionally face competition from Apple and Google TV initiatives. Beyond 2011, if Nintendo continues to face financial hardship, it may be forced to consider difficult choices such as divesting its hardware business and distributing its content, for the first time, across non-proprietary platforms.

In February this year, Nokia’s CEO Stephen Elop mentioned about the burning platform in a internal memo to Nokia employees. Nintendo has a very similar problem at hand. A burning platform and hard decisions for its future – Innovate or Die!

New Revenue Models Augments Social Gaming.

India’s gaming industry is set to grow from Rs 4 billion in 2007 to a projected Rs 14 billion in 2011. India’s Social Gaming Revenues would top $1B in 2011.

Social gaming already is big business in Facebook and the top social gaming companies are making anywhere from $60 million to $ 1 billion per year on Facebook Games.

The stickiness and the traffic generated by Facebook games is the engine driving the social games economy

Of the 33 million Indians registered on Facebook (these form a third of the India’s internet population), an estimated 40% indulge in Social Gaming. That’s 13.2 million Indian’s engaging on Facebook as a portal. And a large and influential mass of people to be discounting for any brand based activity. Interestingly enough, Entertainment related brands which are more relevant to digital media are beginning to make their presence on Facebook. Two interesting instances are

1. Launch of Don2, the social game on Facebook in parallel with the Don2 movie featuring Shahrukh Khan, Priyanka Chopra, Lara Dutta, Kunal Kapoor amongst others. To leverage on the huge popularity of SRK, and the legacy of the Don movies, the Don2 game involves dark and gritty 2D art style gaming with Photo-realistic representations of locations, characters from the movie, weapons and vehicles, Interactive mini-games with multi-layer gaming to unlock special items, weapons and missions with friends, Leader-board system, Global and social ranking. The games include Real and virtual goods received as gifts which could be used as virtual and real monies. The gaming model closely resembles a mash up of Cityville and Mafia Wars. In the true social essence the initial draws will be based upon Facebook Ads, post which the viral effect kicks in, which is fortified with awards and other meet and greet events.

2. Another global launch that is also being worked out through Facebook is the launch of Enrique Iglesias’s new Album through context relevant advertising through the Facebook’s No.1 game: Cityville. The effort is to drive traffic to the Album’s facebook page including the exclusive video and audio snippets of the album’s numbers. That’s a seamless way of integrating awareness, trial, likes and recommendations about Enrique’s new album across 73 million monthly users of Cityville. Earlier we had Lady Gaga’s Gagaville lord over Farmville for the same set of purposes.

These events are particularly interesting as means through which Social Games are evolving from just being a game to a engagement-led and experiential media for brands to talk to its customers. There would be more such integrations as we go forward. If at all, this medium underscores the importance of traffic and stickiness as pre-cursors to revenue generation mechanisms.

Google+ ventures into online gaming. Facebook and Apple to feel the heat

One of my oft reservations about G+ and after its initial success has been the lack of games. Games have been have been huge sticking pads for Social networking sites such as Facebook. It increases the user time spent on the site and gives that much bigger a window for more ads to be served to the consumers.

With respect to that, Google+’s move into gaming should be a scare to both Facebook and Apple, the two leading next generation gaming platforms. Not with-standing the early success of Google+ and the fact that Google+ could use Google’s portfolio of internet based applications and services over the Gaming domain for more relevant and pertinent targeting, there are other factors that make Google+’s venture into gaming a point of discontinuity

1.Google is attempting to break today’s 30 percent cut that has become standard across both Facebook and Apple. Google will share 95 percent of the revenue from virtual goods sold with the developers and keep only five percent for itself.

2.Google is also interested in allowing games to be played cross-platform, meaning a person could pause their game on the Web and then pick back up in the same place on their phone. If Google+ games could run through the browser on the iPhone or iPad, it could undercut Apple on its own device.In that scenario, consumers would have to find a compelling reason to switch from playing games that are downloaded through the App Store to playing games through a Google+ experience.

3. Google’s partnership with Adobe will be a critical experience factor for users on Google versus Apple. Add to that a HTML5 integration in the horizon, Apple also has a reason to be wary of Google’s moves in online gaming.

Regardless, it should be comforting to developers who are uneasy with the control that either Apple or Facebook has from time to time. Developers will be looking to see if the Google+ game network can be as powerful as Facebook. One thing for certain is that they all can start off with a fresh slate. Not one is massively bigger than the others, like Zynga, which is larger than the next 15 developers combined.

The full list of games now on Google+ includes Angry Birds, Bejeweled Blitz, Bubble Island, City of Wonder, Collapse! Blast, Crime City, Diamond Dash, Dragon Age Legends, Dragons of Atlantis, Edgeworld, Flood-It!, Monster World, Sudoku, Wild Ones, Zombie Lane and Zynga Poker.

Freemium Gaming Business Models: Here for Good!

Gaming takes the cake in terms of Apps and its stickiness with users.Average mobile gamer plays approx 7.8 hours per month where-as an iPhone user plays the most at 14.7 hours per month & Android users play 9.3 hours p.m. This data was released by Nielsen for Q2,2011.

An interesting survey of top 100 grossing games on the Apple Apps store in January and June of 2011 by Flurry yields an interesting trend in terms of gaming. Games occupy more than 75% of all top 100 grossing apps in the app store, it’s the single most dominating business model in the mobile apps industry today. The interesting result of this survey is the growth of revenue from Freemium games at the cost of share decline of Premium-paid up games.

Stickiness is the key to success of all gaming because this then provides compelling spending opportunities and branding spaces for consumers as well as sponsors. The best example is that of Zynga which with its Farmville and Cityville franchises has worked its way to a $1bn IPO.

A freemium model with in-app purchases, is perceived to be advantageous as it can induce higher trial and usage rates. Also, when a network of friends opts in to play together, their group profiles and consumption can be an interesting hunting ground for brand ads and sponsors. Those who consider buying or paying money on the gaming app will anyways be doing it if the game appeals to them. Thus in terms of appealing to larger initial masses, a freemium app definitely beats out a premium app. The other problem with a premium app is that without any trials on the game, it is a difficult choice to invest on the game upfront to the users.

Freemium and Free-to-play is here for good.

Mobile Gaming:Engagement, Discoverability and Growth!

A very basic game of catapulting birds across a distance to break eggs which are heavily fortified. That’s Angry birds for you. However this description misses out on the slick gaming interface and the stickiness that has catapulted Angry Birds as one of the highest downloads in history of mobile gaming.

The potential that is offered by Mobile Gaming as an industry is immense. Thanks to games such as Angry Birds, spending on mobile game advertising increase by more than 900 percent according to a new report by Juniper Research. Even then, ad spending will still pale in comparison to direct player spending. Juniper envisions aggregate mobile game ad spending of $894 million in 2015, up from an estimated $87 million in 2010, as more brands show interest in targeting mobile game players.

Despite this increase, Juniper thinks direct revenues from paid downloads and in-game purchases will continue to represent the vast majority of mobile game revenues in five years’ time. The value of these revenues will be 10 times larger than those for advertising in 2015. Juniper forecasted that the total end-user revenues for mobile games will hit $11 billion annually worldwide by 2015, nearly double the $6 billion recorded in 2009, driven by in-game purchases. In-game purchases currently representing roughly 80 percent of all revenue on games for iOS devices. Titles such as Rovio’s Angry Birds that offer full, ad-supported versions are making a significant impact on the mobile game ad market. The beauty of engaging gaming titles is that while users get great games for free, advertisers get significant product/brand exposure.

Citing the profusion of titles and developers, Discoverability — or users’ ability to sift through the tens of thousands of games on the App Store to find the true gems — will remain a hurdle for developers.Discoverability can be a ‘chicken and egg’ problem: high downloads lead to prominence, but achieving a high number of downloads is largely dependent on already being prominent. Consequently, a small minority of games achieve very high downloads, whilst the vast majority achieve very small download figures

Gaming: To be or not to be (The Marketer’s Perspective)

Social Gaming has come a long way since Zynga and Facebook.In earlier posts, i had written about the Promise of Social Gaming and factors that determine its success: Content, Distribution and Platform.

More and more people are spending more and more of their online times playing social games with their friends. Users are willing to spend money on games that they find valuable. Marketers are exploring this avenue to build messages and engagement for their brands through the gaming media. The best advertising for gamers tends to be integrated into the game itself. The challenge here for social games developers is to figure out how to work better with brands to find contextual ways to work brands into social games.

The demographics depend quite a bit on the type of the game. Overall, social games cut across all age groups. Interestingly enough, a higher proportion of social gamers are women as against men (who have dominated gaming as a domain). Relative to other segments of games, there are proportionally more women involved in social games than one would expect.

Social gaming as a business for developers will need a lot of capabilities. Firstly, the businesses need to have the competencies with game design skills, so as to be able to integrate social interactions into the games. Secondly, there is a need for resources to support the game as it scales and grows in terms of usage on the net.

From the marketers and advertisers perspective, choice of a gaming platform depends on the objectives. Gaming is in a more strategic term, a service, which thus needs a long term perspective of the future of the gaming and benefits that it accrues for the brand. As is the case with any dynamic service, it’s important for developers to continue investing in creating new content for users to keep them interested. For instance Facebook as a platform gives the highest reach (They have over 200m people engaging with social games on a monthly basis), whereas a few niche gaming portals have a much higher level of gamer engagement and monetization. There is an opportunity for more specialized sites to succeed by strictly targeting folks who want to play games. The monetization rates in such cases on small platforms can be higher.

The Real Money in Virtual Goods

Here’s some trend spotting on Virtual Goods and an assessment of the market for Virtual Goods
1.According to market-research firm In-Stat, revenue from sale of virtual goods is expected to touch $7.3billion in 2010. This figure exceeds estimates from many leading research and investment banking firms, and is in large part tied to the overwhelming success and growth of social games.
2.Juniper research puts the revenue figure from virtual goods to surpass $11 billion by 2015. By 2012, it predicts virtual good sales to surpass the traditional pay-per-download model for game monetization.
3.Another research by Flurry show in-game item sales rising by 80%
4.Zynga’s makes money on Virtual Goods and Ad revenues. Zynga currently has 360+ million monthly active users, and the company was valued at $5 billion in April of this year. Other companies, like Gaia, sell as much as $1 million a month in virtual items.
5.Inside network, another analytics estimates that the market for Virtual goods in US will jump to $2.1 billion in 2011 from $1.6 billion in 2010 and $1.1 billion in 2009.
6.Research reports from Live Gamer and DFC intelligence reveals that 60% of all gamers have purchased virtual goods. Among gamers surveyed 88% had purchased digital content before.This leads credence to the theory that most gamers are now comfortable with the idea of purchasing virtual goods

At this market level, virtual goods have evolved into a major revenue stream from the media and entertainment industry. As consumers spend more of their leisure time online, Virtual Goods are reaping the benefit and becoming a key aspect of lifestyle spending. Accordingly to Nielsen, U.S. consumers already spend a higher share of wallet on game content –of which VGs are a key part – than on print media, premium TV packages, movie rentals, and music.

A key factor in the growth of VGs is the explosive phenomenon of social games—games that are integrated into social networks such as Facebook. Nearly half of Facebook’s over 600 million users play social games. This mass-market success creates an excellent opportunity for publishers and marketers to create a free and diverse market—much to the benefit of both distributors and end-users.

Within this environment, marketers must master a new task: using virtual goods as the carrier for powerful, viral brand messages. Branded virtual goods can work as well as the best word-of-mouth marketing, but they also give the player the control to engage with, reject, or ignore the message. Here, we find a vehicle for extending reach into new markets and for crafting brand messages that are woven into the fabric of user’s social activities. Compared to context specificity of branding/marketing messages in social games, Virtual Goods have the advantage of being context specific already and hence marketers no longer need to look at context. They would need to focus on just the message and how it links up to the medium, the virtual product it is embedded in.

With VGs today, the market for branded goods represents a small, yet growing force and conservative forecasts put the BVGs (branded virtual goods) at $150 million in 2013, with annual revenues of $318 million by 2015. This growth in VGs and BVGs reflects significant strength in the business models of social games. Likewise, it promotes increased control by players-as-consumers.

A few real-life examples of brand orientation being integrated into social gaming:
• FarmVille is teaming up with both McDonalds (offering in-game VGs) and 7-Eleven (branding realbananas in stores)
• “Chocolatier: Sweet Society” is a Facebook game by PlayFirst with a premise of becoming an artisanal chocolatier in San Francisco. For the holiday season, PlayFirst is partnering with Charles Chocolates (a San Francisco-based chocolate company) to offer physical production of chocolates from the game.
• “Retail Therapy” is Facebook game created by the publishers of PopSugar, a popular blog featuring celebrity gossip and entertainment news. The game allows players to create a fashion boutique that sells branded virtual goods from top tier fashion brands such as French Connection and Diane von Furstenberg.
• Mertado’s Embedded Shops appear in social games and allow players to make a purchase of clothing and related items on Mertado.
• Zynga has offered branded virtual goods on behalf of Haitian hurricane victims.

Social redefines the gaming domain

Zynga’s m-Cap ($5.51 billion) has reportedly edged Electronics Arts’ m-Cap ($5.22 billion) in NASDAQ a month back. Zynga, maker of Farmville is remembered for its contribution to social gaming and analysts in bouts of enthusiasm have called it “Google of social games”. EA’s identity on the other hand is more of a traditional videogame giant with blockbusters like FIFA.

So then, is this the rise of one social game startup over the fall of a traditional videogame giant? Not quite. This is not about social versus traditional anymore. Instead, let’s look at this match-up as competitors battling it out across new platforms.

EA has been aggressively expanding into new gaming territory, including social. The company bought startup Playfish, then the second-largest social games developer, in November 2009 for around $400 million. The course of transitioning out of being a traditional console game publisher hasn’t been easy for the company and it has been rocked by declining profits, share value and layoffs. Inspite of the fact that turnarounds take time, and EA’s online revenues are looking pretty good. This fiscal year, EA expects its digital businesses — including mobile, downloadable games and social games — to reach $750 million, or about 20% of total revenue. That’s about the same, if not more, than what Zynga’s total revenue is estimated as. And that’s not to mention EA’s more than $3 billion in revenue from console and PC game sales.
Impressed by the success of Zynga and Facebook, virtually all of the major traditional game publishers have begun incorporating social games or elements into their products. In effect, everyone in the industry has become “social”. Seen through this longer-term lens, the competition among these companies will ultimately come down to what it always come down to — who has the better games.

The social games business is a hits-driven one, because players flock to whatever game is new and popular at the time.
That’s still as true now as it ever was. Zynga clearly has a lead in social games with its popular FarmVille title. But even that hit is on the decline in terms of number of users, down more than 25% since its peak. It is very possible we may never see a social game with as many users as FarmVille again because the market is fast fragmenting.

Smaller audiences in games aren’t necessarily a bad thing. A game like FarmVille may have all the users, but the average spend per user per month is low, around 10 to 20 cents. But a social game under an IP that commands a smaller but more loyal user base, like EA’s FIFA Superstars, can see an average as high as 50 cents to $1. And EA has a number of traditionally strong franchises under its roof that it’s been rolling out onto Facebook.

Meanwhile, both companies know that social alone isn’t enough either. It’s about having an entertaining game experience that exists across multiple platforms. To that end, both have been pushing out mobile titles and making acquisitions of mobile game developers. EA, for instance, just bought the Chillingo, the publisher of the popular iPhone game Angry Birds, last week. (Though the purchase did not include rights to the game, which belong to its developer Rovio.) And Zynga bought iPhone developer Bonfire Studios, earlier this month. The company also recently released FarmVille for the iPad.
Zynga has certainly been a rocket-ship of success, achieving what it has in just four years. But that doesn’t mean social gaming is poised to capture the larger market. Instead, Zynga’s success has brought the company to a new level of competition that’s not social — it’s about the games.
4

Content and Distribution: Key to Social Gaming success

This is the concluding part on a profile of social gaming as a phenomenon. While the first part was about social gaming beyond Facebook, the second part was mostly about the importance of platforms in social gaming. This post deals with the content strategy and distribution strategy for social gaming.

Content Strategy for Social Gaming

A site’s content strategy must be focused on developing a portfolio of games that are the best fit for its users. The portfolio instead of featuring games of all genre should focus on games that have specific behavioral deployments. In terms of gaming content, one needs to cater to the following guidelines:

 Appeal to the site’s core demographic.
 Promote the behaviors that are key to the site’s appeal — whether that is flirting, keeping up with friends, or gathering around a particular theme.
 Have already proven to be engaging.
 Are continually optimized and refreshed to retain users.
Great content takes significant skill and resources to build, and attracting quality developers can be difficult for smaller sites. In addition, it’s important to realize that many games have a limited shelf life, so new content must be continually added in order to keep a site’s social gaming ecosystem vibrant. For these reasons, content acquisition is a critical step that requires ongoing focus and commitment.

Social Gaming Distribution strategy

Social networks have three methods for driving traffic to social games:

 Premier placement: Not only creating a dedicated section for social games, but also implementing hooks for those games into a site’s features such as profile pages, activity feeds, and the site’s main navigation.
 Ongoing promotion: A site will dedicate high profile real estate to promote game launches, in-game events, and other calls to action that drive traffic into the games.
 Viral notification channels: A site will allow social games to have reasonably unfettered access to a site’s communication channels including user-to-user messaging, invitations, and activity feeds.
A site must use all of these methods extensively in order to build its base of social game DAUs (Daily Active Users), which are key to driving revenue.

Bottomline
When it comes to social games, social networks often make the mistake of copying what Facebook is doing today without recognizing that Facebook has the benefit of massive success on its side and can afford to make decisions that dampen the ubiquity or virality of its platform.

Instead, sites should look to what Facebook did in the early days of its platform to make applications an ubiquitous part of its experience or take lessons from smaller social networks. There are plenty of good examples of smaller sites like My Yearbook and Fubar which are consistently and continuously making made social gaming and virtual goods a central part of their strategy. Those examples will help companies understand how social games can transform the engagement and monetization potential of their social media sites.

The importance of a robust gaming platform for social gaming

In an earlier post I had spoken about Social gaming beyond Facebook and the fact that Gaming sites can no longer afford to rely solely on advertising revenue—they must master the intricacies of directly monetizing their users via virtual currency, virtual goods, and social games. In this post, i write about Platforms, one of the key elements to seamless delivery of Social Gaming to the users.

There are three main pillars that anchor a successful strategy: The platform, the content, and the distribution.

The Platform

The first step in a successful social gaming strategy is creating an application platform from which social games and virtual goods can be distributed to a site’s users. A great platform must enable social games to be well integrated into a site’s structure, have access to essential social information about a site’s users, and monetize a site’s users with the least possible friction.It is essential for a site to have a private-label, site-wide virtual currency that is used as the coin of the realm. As Facebook is now discovering with Facebook Credits, a site-wide virtual currency has many benefits: It reduces friction by giving players a standardized form of payment across games, creates a barrier to exit for users that have stored value in the system, and gives sites an efficient and fair way to participate in revenue from third-party apps and games. By using this approach, sites can earn a revenue share of up to 30% for providing virtual currency and distribution to their developers. Virtual goods derive their value both from the utility they provide and the social value associated with owning or giving them. Although virtual goods got their start on social networks in the form of virtual gifts, selling virtual goods within social games has become the dominant business model on social networks. This is because social games can support virtual goods that combine gameplay benefit with social value.

A great example of this is Farmville’s most expensive item: the Unwither Ring. This $45 virtual good is priced far higher than the $1 and $2 virtual gifts sold on many social networks due both to its rarity and the powerful benefit it provides the owner — the ring forever prevents the owner’s crops from withering due to neglect. Even Facebook, which was a pioneer in virtual gifting, has decided to shut down Facebook Gifts in favor of positioning Facebook Credits (which was originally developed for Facebook Gifts) as a currency for social games.

A site’s platform need not be open to all developers, however, as is Facebook’s platform. In fact, for mid-tier social networks, an open platform can spread attention too thin and lead to an unwieldy experience for users. It is far better to have a portfolio of content that has been tailored to a site’s particular demographics and can be heavily promoted as a set of core site features. A great example of this is Fubar, a social network marketed as the “first online bar.” The site features a collection of flirtatious social games which are woven into every aspect of the on-site experience, including the login page, profile pages, communication channels and site structure. These apps succeed in attracting and retaining users because of how well they align with the site’s social context and how smoothly they integrate into the overall user experience.