Mobile Game Industry Analysis 2011

Executive summary
1. Should we get into the mobile gaming industry? Of the five gaming platforms, mobile games is the
fastest growing, siphoning casual gamers away from handheld, PC and console. 70-80% of
downloads to mobile devices are games. Mobile games are the least expensive platform to develop
on, as the low computing power has kept user expectation at bay.
2. What platform should we build our games on? The two largest retail app stores in the mobile game
value chain are Android and Apple. By 2015 they will have 81% of the phone / tablet market
combined. Android and Apple control the majority of mobile developer communities worldwide.
3. Is mobile the right platform for edugame genre? The fastest growing genre of mobile games are
puzzles. These kinds of games cross culture, language, age and sex. Mobile games-based learning
revenues will reach US$263.3 million by 2015 in the US alone. Packaged mobile edugames will
account for 90.5% of all revenues by 2015. Packaged mobile edugames are outselling non-mobile (PC
and console) edugames.
4. What is our strategy? The major game developers produce games for 80% of genres. Take a focused
approach, targeting edugames. Long term sustainability and company valuation to come from IP
underpinning games. Mobile games are growing fastest in emerging markets, but edugames genre is
having most success in mature markets like US, Europe and Australia.

Industry analysis
Industry analysis of the mobile game industry according to Michael Porter’s Five Forces.

Threat of new entrants is high.
- Barriers to entry / exit are low. The labour and technical skills required are in abundance. The large
retail app stores are well provisioned creating a level playing field, so even a university graduate
can create apps from home. Barriers to exit are also low, as competitors are not tied to large capex
and can be pushed out easily.

www.futurebooks.com.sg 29-Nov-11 Page 2 of 15

- Cost of producing a mobile game is much less than a full-fledge console or PC game. More
emphasis is on the idea than creating rich story content and graphics. However, as mobile devices
become more powerful, user expectations will rise and so will capex, increasing the industry’s
barrier to entry.
- Compared to other types of mobile content, mobile games are expensive to produce. They also
incur license fees, dev costs and marketing costs to acquire customers.

Barrier to Description
entry
Mobile Games Low Multi-player 2D mobile game format can be the created at less
than US$50,000. A 3D mobile game would cost anywhere
between US$120,000 and US$240,000.
PC games High A good PC game costs around US$2-3 million.
Online PC games Medium Require higher investments since the number of games a portal
requires is more. If the developer goes in for a single-player
format, it would cost less than $25,000 per game.
A multi-player option requires investments of around US$60,000 -
$120,000.
Massively High Segment needs more than US$2 million.
Multiplayer Online
Games (MMOG).
Console games Extreme Played on Microsoft Xbox,PlayStation 2 or 3 and Nintendo Wii -
high need investments of about US$5-10 million.
According to Nazara Technologies, India.

- Prolific growth will attract new competitors
 The mobile gaming industry is predicted to reach $54 Billion by 2015.
 Developers made $87 million in ad revenue in 2010 and will grow 10 fold by 2015.
 70 – 80% of all mobile downloads are games


 Prolific growth will see more competitors enter, especially firms with entertainment
experience example Time Warner.

Bargaining power over customers is high
- Gaming has 5 competing platforms:
 PC games.
 Massively Multiplayer Online Games
(MMOG).
 Wireless/mobile gaming.
 Console gaming. Game consoles are
computing devices that are
designed primarily to play games,
which come on interchangeable
discs or cartridges.
 Handheld consoles. Handheld
consoles are mobile devices which,
similar to game consoles, have
multiple games and for which the
predominant intended use is gaming. As multiple use hybrid devices proliferate, this
definition changes, but the devices we refer to here are thought of gaming devices
centrally.
- Mobile gaming is growing the entire game category, however the largest share of growth is being
captured by mobile games.
- The threat of buyer substitution is low, and decreases further in countries with populations that
are native mobile users. In markets where there is low broadband and PC penetration, mobile
gaming is the de facto gaming platform.
- “Emerging market operators should make the most of the demand for mobile games and the low
PC penetration in these regions and push game sales as a viable, albeit imperfect, lower-cost
substitute to PC and console games,” said Madhusudan Gupta, senior analyst at Gartner.
http://www.gartner.com/it/page.jsp?id=706407
- These emerging markets are particularly price sensitive as a large proportion of their gamers are
from low-to-middle class families.


- Brand loyalty is creating switching costs for buyers.
 Brand loyalty to the platform. Once a consumer decides to buy either Android or Apple,
they are locked into that platform for at least 2 years. Apple iOS has the most loyalty of all
the platforms. Their consumers are 89% likely to buy another Apple device when
choosing to upgrade. http://gigaom.com/2010/08/02/android-sales-overtake-iphone-in-
the-u-s/

 Brand loyalty to game developers. Buyers are becoming loyal to game developers.
Example users of Zynga Facebook apps are seeking same or similar apps created by this
developer on the mobile. Consumers are also becoming attached to gaming developers
like PapayaMobile because consumers have invested heavily in closed communities and
hold virtual credit with PapayaMobile. If they leave, they risk losing friends and non-
transferrable credits.
 Game franchises. Loyalty has also been created with particular titles. For example a
game based on a popular comic or film. Successful games like Angry Birds are turned into
a franchise. Angry Birds has been downloaded 140 million times.
- Threat of mobile web substitution is low.
 The mobile web is the preferred entry point for browsing on a subject to learn more via
blogs and forums. However for specific, singular tasks, apps are preferred over mobile
web, especially music, games and video.
 Cloud computing and HTML 5 may swing favour back to mobile web.


- Casual gaming is dominating mobile gaming, attracting users who would never have engaged in
gaming before, in particular females and upper age groups.
- Casual games are short games that can be played frequently but in short intervals. They fill dead-
space. The complexity and length of casual games is crucial to their success.
- Mobile casual gamers have the highest probability to become active mobile online gamers as
playing online offers them more value for little money spent. Casual gamers are more likely to
switch to new segments like mobile because of convenience.

Casual For a majority in this category, the mobile phone is their only gaming device.
Mobile-Non They would mostly play to kill idle time in between daily activities. However, a
PC section of gamers within this category might own PCs, but not play PC-based
games due to a lack of interest. Many of them are likely converts for mobile
online gaming.
Casual These are mobile indifferent gamers and have no preference for a gaming platform.
Mobile- With the right strategy to tap their interest, they can be converted into regular
Casual PC mobile online gamers.

Core PC- Avid PC gamers, but play occasionally on their mobile phones. A plausible reason for
Casual this is the superior gaming experience provided by the PC compared to the mobile
Mobile phone. With mobile phones‘ advanced capabilities coming close to the PC,
operators can effectively tap this segment of gamers.

Bargaining power over suppliers is high
- There has been an explosion of high quality production houses in India and China. Production
houses are a commodity, except TV stations which function as both content originators and
production houses.
- Dig is an example of an India-based production house focusing on edugames.
http://www.digdesignstudio.com
- Capacity to publish on Android and iOS is essential to survive as a production house.


- Use economies of scale in production to drive down unit cost, and negotiate exclusive
arrangements.

Bargaining power over retail app stores is low.
- The retail stores have ultimate power and control distribution, and have replaced the operators /
Telcos in the value chain.
- Android and Apple App stores are becoming a duopoly. By 2015 Android and Apple will have 81%
of the tablet / handset market worldwide, with either Amazon or Microsoft to take third position.
- Apple / Android distribution fees are identical – 30% of sales revenue from the app store. These
stores collect payment as well via credit card.
- Apple is considered to be a closed system, android an open system. Historically in the tech space,
open systems have beaten closed systems. Apple has stricter policies governing apps which are
approved / rejected.
- The players with the most power have:
1. The most number of apps on the app store to provide exceptional entertainment. Titles
and games are driving purchase of devices.
2. A devoted developer community which derive income from the platform.
3. Ownership of an integrated handset and tablet device. As the PC laptop is phased out and
replaced by the handset and tablet combined, consumers will prefer manufacturers
which can provided an integrated solution and maximize their investment of apps across
both devices. Samsung have Galaxy 2 / Galaxy tablet. Apple have iPhone / iPad.

Apple Android RIM Nokia Windows
High volume of
apps
    
> 500,000 > 400,000
apps apps
Sizable
developer
    
community >43,000 >10,000
Integrated
tablet and
    
handset Combined Playbook (sold
sales of over 2.5million
38 million units
worldwide worldwide)
Handset


- Android is catching up to Android in the app store.
http://www.androidpolice.com/2011/03/14/number-of-apps-in-android-market-rapidly-gaining-
on-apples-app-store-but-android-tablets-arent-so-lucky/
- AdMob recently released its Mobile Metrics Report for April 2010, and along with this they
released a spreadsheet showing iPhone iOS and Android usage in their network broken down by
country.

iPhone iPod touch iPad iPhone OS Total Android

Worldwide 27,411,081 13,056,019 294,653 40,761,753 11,566,140

- According to AppStoreHQ’s research, 1412 developers in its database have published apps for
both iOS and for Android. That ends up breaking down to 15% of Android developers and 3% of
iOS developers. http://mashable.com/2010/07/02/ios-android-developer-stats/

Bargaining power over handset manufacturers is low


- Upgrade the technology onboard
smart phones, forcing game
developers to release more powerful,
richer games. Older games may not
necessarily work on newer handset
models eg iPhone 3 Vs 4.
- Change fundamentals of the
operating system which prevent older
games rendering eg Blackberry
introducing QXR.
- Discontinue entire lines eg HP
dropping WebOS and tablet
hardware.
- Games have evolved to become more than shoot-em ups.

Smart phone Out-game social links In-game communities In-game commerce
technology
Bump Twitter Openfeit Avatars
Location recognition Facebook Collaboration Ads
Gyro navigation Youtube Inbox email Virtual goods
Augmented reality Email Credits
VOIP Flickr Gifting
Camera
Near field
communication

Intensity of existing competition.
- Investment firm Avista Partners pegged Nintendo the most valuable company in the games
industry, with a market capitalization of $34.9 billion in 2010.


- The big game developers players in the mobile space compete for 80% of genres in the mobile
game market.
 EA Mobile
 Glu
 Namco Bandai
 Capcom Mobile – 4 apps for Android, 27 apps for iOS
 Gameloft – 12 apps for Android, 136 apps for iOS
 Amazon.com – 2 apps for Android, 2 apps for iOS
- Genres of mobile gaming:
 Action
 Edugames
 sports and racing
 arcade
 role-playing
 gambling
 movie
 adult
 lifestyle games
- The edugame sector is broken further into:
 Knowledge-based games
 Skill-based games
 Brain trainers
 Role-playing and simulation (also called serious games)


 Language learning games
- Fastest growing segments
 The fastest growing genre of mobile games are puzzles. These kinds of games cross
culture, language, age and sex.
 Nintendo almost singly handedly reinvented the edutainment industry with the
introduction of their mobile brain training games. Not only are brain trainers a new type
of edugame, they are designed for the older generations.
 Brain Age and Brain Age 2 have sold over 37 million copies worldwide since their launch
in 2006 (9.3 million sold in the US).
 The number one best-selling game in Europe in 2007 and 2008 was Brain Age. In
December 2009, Amazon placed Brain Age as the top selling game of the decade. Until
August 2010, the top selling video game in the UK across all platforms (including
consoles) was Brain Age.
- Players in the value chain are wrestling to own the communities of buyers
 The ability to communicate and collaborate in real-time as well as form virtual
communities around shared interests and values are integral to digital lifestyles of new
age consumers. With the emergence of virtual game worlds in fixed digital environments,
participation is becoming more about the experience than the game itself — meeting up
online with teammates and friends, developing gaming characters, studying and
planning strategies, as well as spending time with a community of like-minded
individuals.
 Criss-cross communities places the customer everywhere in the value chain. Communities
are rather like Russian dolls – communities within communities.
Example Description Reach
Social media Facebook and Facebook is a pure social media platform 700 million users
networks Google+ for 13+ year-olds. Become ubiquitious worldwide.
through Facebook Connect API, allowing
other platforms to ‘borrow’ their
community.
K-12 social Edmodo and Edmodo is a safe social learning network for 2 years old with
media Little Lives teachers, students, and parents. 500000 users
networks
Social gaming Openfeint and Openfeint is largest mobile social gaming 25 million users
networks GameFly network for iOS and Android. Using a thin worldwide
layer of code, developers ‘borrow’
openfeints community
Game Zynga and PapayaMobile, China-based maker of a 25 million users
developers PapayaMobile mobile social networking platform for in China
Android phones. The Papaya network
generates an average revenue per paying
user (ARPPU) of $22.60 per month from sale
of virtual goods.


- Mobile games are price competitive
 Direct correlation between the price of the game and the number of downloads per
customer per month. For example, in Asia Pacific where the price of the game is between
USD 1 and 2, the average number of downloads per customer per month equals 0.8.
 In Middle-East and Africa where the price per download ranges between 3.5 and 4 US, the
number of average downloads per customer per month equals 0.4 and 0.25 per customer
per month. (View Figure 6 and 7)

Shifts in the value chain


- App store retailers to maintain dominance in the value chain, commanding the most brand loyalty
from buyers.

- As the industry matures, control will shift up the value chain to content originators and game
platforms.

Sustainability and strategy


- Focus strategy
 Focus on edugames and develop skills, experience, brand association in the edugame
genre. Overall they can remain a cost leader (example $1 per game), or charge a premium
(eg $10 per game) due to their focus and IP.
 The most ideal customer to come from any country(s) with the following profile:
1. Greatest number of smart phones per capita
2. High propensity to purchase online education services
3. Low PC / broadband penetration.
- According to Ambient Insight, the U.S. game-based learning market reached $231.6 million in
2010, and the combined five-year compound annual growth rate (CAGR) for content, services, and
tools is 12.3% and revenues will reach $413.2 million by 2015.
- Mobile is revolutionizing the games-based learning field. Revenues will reach $263.3 million by
2015. Packaged mobile edugames will account for 90.5% of all revenues by 2015.
- In terms of revenues for packaged games, the greatest opportunities are for mobile edugames for
young PreK-3 children, (which spans the consumer and education segments) and mobile brain
trainers designed for older generations.
- In terms of revenue, packaged mobile edugames are already outselling non-mobile (PC and
console) edugames.

Retail app store revenue models
- Free or lite. These terms are two of the most key searched words on the App stores. Initial
download is free to win the users participation. User consumer enough utility until a point where
to consumer more utility, they make in-game purchases or upgrade to pay-per-download version.
- In-game purchases should overtake pay-per-downloads by 2013.
- In-game virtual goods and advertising
 Community-based games
require a virtual lobbies where
players can meet online before
joining a game. These lobbies
provide a congenial space to
draw players‘ attention through
targeted advertisements.
 Advertisers can explore a
number of game-related online
community spaces, such as
gaming blogs, social discussions
forums, and communities of interest formed by players for mobile online multi-player
games.
 Interactive advertisements placed at these social corners have the potential to tap the
mindshare of the gaming community even after the game is turned off. Moreover, the
strong viral nature of these user-created communities enables rapid dissemination of
favorable brand impressions.


Telco / operator models
- Time Defined Play: Under the time-defined pricing plan offered by operators, mobile users will
get to play the game for a certain period (maybe a few minutes, or a couple of hours), irrespective
of the number of sessions they play within the stipulated time. The pricing will be based on the
amount of time spent online while playing.
- Usage-based Play: The usage-based play pricing plan aims to target users who do not want to
pay a lump-sum for downloading the game, but still wish to play continuously without restrictions
on time or the number of sessions.
- Subscription-based Pricing. A subscription-based pricing plan allows users to subscribe to a
game (or a pack of games) available on the operator‘s portal for a limited number of days.
Subscription packs may or may not limit the volume of data consumed while playing the game
during the subscribed period.
- Bundled Pricing. Telecom operators can offer mobile online games as a bundled offering along
with consumers‘ mobile Internet subscriptions. For example, bundling online play of particular
games for a fixed duration along with a monthly mobile Internet subscription at an affordable
price point will not only generate greater value for consumers, but it will also help operators drive
usage of their mobile gaming services.

Reports worthy of purchase
http://www.ambientinsight.com/Reports/MobileGames.aspx
http://www.morebusiness.com/templates_worksheets/bplans/printpre.brc

References
http://www.industrygamers.com/news/serious-games-mobile-driving-a-renaissance-in-edutainment/
http://www.prweb.com/releases/2007/10/prweb565125.htm
http://www.digdesignstudio.com/projects/interaction/edugame
http://www.mendeley.com/research/video-game-industry-industry-analysis-vc-perspective/
http://blog.flurry.com/bid/60307/Apple-and-Google-Capture-U-S-Video-Game-Market-Share-in-2010

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Mobile Game Industry Analysis 2011

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Mobile Game Industry Analysis 2011