IT Sourcing EuropeNearshore IT Outsourcing Market   Research & Consultancy          June 2011
Executive Summary______________________________________ 3The 2011 State of European Gaming Industry_________________ 5Euro...
The 1Q 2011 European Gaming & e-Gambling Analytical Review isbased on the results of country-specific IT Outsourcing Surve...
Study Goals:• Explore outsourcing demands, trends, challenges and problem solving  techniques within European gaming/e-Gam...
The 2011 State of European Gaming Industry               • The online gaming market is currently estimated at             ...
Europe’s Gaming / e-Gambling Outsourcing: Actual           Adoption & Opportunities                 • Game Developers have...
Outsourcability of Processes Within Game          Development Cycle                                                       ...
Respondents’ Profile: Company SizeNearshore Outsourcers                                             Offshore Outsourcers  ...
Nearshore Outsourcers                                          Offshore Outsourcers             Page 9 | Copyright IT Sour...
Nearshore Outsourcers                                              Offshore Outsourcers              Page 10 | Copyright I...
Nearshore Outsourcers                                              Offshore Outsourcers              Page 11 | Copyright I...
Nearshore Outsourcers                                              Offshore Outsourcers              Page 12 | Copyright I...
Nearshore Outsourcers                                              Offshore Outsourcers              Page 13 | Copyright I...
Nearshore Outsourcers                                              Offshore Outsourcers              Page 14 | Copyright I...
Nearshore Outsourcers                                              Offshore Outsourcers              Page 15 | Copyright I...
Nearshore Outsourcers                                              Offshore Outsourcers              Page 16 | Copyright I...
Nearshore Outsourcers                                              Offshore Outsourcers              Page 17 | Copyright I...
Nearshore Outsourcers                                              Offshore Outsourcers              Page 18 | Copyright I...
Nearshore Outsourcers                                   Offshore Outsourcers            Page 19 | Copyright IT Sourcing Eu...
Nearshore Outsourcers                                              Offshore Outsourcers              Page 20 | Copyright I...
Nearshore Outsourcers                                              Offshore Outsourcers              Page 21 | Copyright I...
Nearshore Outsourcers                                              Offshore Outsourcers              Page 22 | Copyright I...
Nearshore Outsourcers                                   Offshore Outsourcers            Page 23 | Copyright IT Sourcing Eu...
Nearshore Outsourcers                                   Offshore Outsourcers            Page 24 | Copyright IT Sourcing Eu...
Nearshore Outsourcers                                   Offshore Outsourcers            Page 25 | Copyright IT Sourcing Eu...
• Large companies (1000+ in headcount) still prefer outsourcing their  gaming development offshore (to Asia Pacific and So...
• The majority of nearshore outsourcers transfer development of projects that  require 1 to 3 persons to complete, while m...
• Operating costs reduction and shortage of domestic IT specialists  with required game development skills are the 2 key f...
• There is a significant difference in service delivery models used by  nearshore and offshore outsourcers to partner with...
• Nearshore outsourcers are most challenged by change management, while  offshore outsourcers – by cultural difference    ...
• 25% of nearshore outsourcers manage to save more than 60% of operating  costs via the outsourced development versus only...
Gaming Development Outsourcing is not yet a commodity business practice as it isin other verticals such as B2B/B2C softwar...
Kops, D., Meta-Leadership: Key to Outsourcing Change Management, in Project        Managers.Net (2 June 2011)“EU gambling ...
About IT Sourcing EuropeIT Sourcing Europe is a UK-based market researchand advisory company specialized in the EuropeanIT...
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European Gaming & eGambling Outsourcing Review: 1Q 2011

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The 1Q 2011 European Gaming & e-Gambling Analytical Review is based on the results of country-specific IT Outsourcing Surveys 2011 conducted in the frames of the All-European IT Outsourcing & In-House Software Development Research 2011. The following countries were surveyed between February and May 2011: United Kingdom, Sweden, Netherlands, Switzerland, Malta, Finland & Denmark. Representative sample was comprised of the 205 gaming and e-Gambling companies that outsource their software solutions nearshore and/or offshore

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European Gaming & eGambling Outsourcing Review: 1Q 2011

  1. 1. IT Sourcing EuropeNearshore IT Outsourcing Market Research & Consultancy June 2011
  2. 2. Executive Summary______________________________________ 3The 2011 State of European Gaming Industry_________________ 5Europe’s Gaming / e-Gambling Outsourcing: Actual Adoption &Opportunities__________________________________________ 6Outsourcability of Processes Within Game Development Cycle____ 7European IT Outsourcing Research 2011: Nearshore vs OffshoreOutsourcers Within Gaming Industry_________________________8Trends Analysis_________________________________________26Conclusion_____________________________________________32List of References_______________________________________ 33
  3. 3. The 1Q 2011 European Gaming & e-Gambling Analytical Review isbased on the results of country-specific IT Outsourcing Surveys 2011conducted in the frames of the All-European IT Outsourcing & In-HouseSoftware Development Research 2011. The following countries weresurveyed between February and May 2011: United Kingdom, Sweden,Netherlands, Switzerland, Malta, Finland & Denmark. Representative sample was comprised of the 205 gaming and e-Gambling companies that outsource their software solutions nearshore (1-2time zones away from home country) and/or offshore (2+ time zones awayfrom home country). Ratio of nearshore to offshore outsourcers surveyed was 42% to 58%. Page 3 | Copyright IT Sourcing Europe 2011 | All Rights Reserved
  4. 4. Study Goals:• Explore outsourcing demands, trends, challenges and problem solving techniques within European gaming/e-Gambling industry in 1Q 2011• Explore most popular outsourcing destinations within the given industry• Explore most popular outsourcing service delivery models within the given industry• Explore value of the outsourced projects within the given industry• Explore actual savings from outsourcing within the given industry• Compare and contrast trends, challenges, costs and levels of satisfaction with the outsourcing services provided among offshore and nearshore outsourcers Page 4 | Copyright IT Sourcing Europe 2011 | All Rights Reserved
  5. 5. The 2011 State of European Gaming Industry • The online gaming market is currently estimated at €10bn (European Gaming and Betting Association) • The Online Gross Gaming Revenue is expected to reach €12.5bn by the end of 2011, while the Offline Gaming market revenue is expected to reach €83.7bn (as estimated by EGBA) • Europes digital game market was worth €1.5bn in 2010 with potential to swell to $2.9bn by 2013 (DFC Intelligence) • Revenue from online sports betting is expected to grow by 8% on a year-on-year basis and reach €2.3bn by 2012 (mmC Group) • European mobile gaming market is worth €57m in 2011with the year-on-year growth rate of 51% (Mobile Games Forum 2011) Page 5 | Copyright IT Sourcing Europe 2011 | All Rights Reserved
  6. 6. Europe’s Gaming / e-Gambling Outsourcing: Actual Adoption & Opportunities • Game Developers have traditionally taken a cautious approach towards IT Outsourcing (ITO), but a tipping point seems to be almost reached, as more games studios and e-Gambling providers realize the positive effects of reduced costs and accelerated development cycles and time-to-market (TTM) by going the Outsourcing route • Gaming Development Outsourcing (GDO) is inherently different from other types of Outsourcing as it is dependent on specific skills and capability rather than size of the IT labor pool • The major thing to be considered in GDO is the outsourcability of the processes involved, as different elements within the game / eGambling development cycle require unique skills, creativity and cultural proximity Page 6 | Copyright IT Sourcing Europe 2011 | All Rights Reserved
  7. 7. Outsourcability of Processes Within Game Development Cycle Source: Tholons 2009 Page 7 | Copyright IT Sourcing Europe 2011 | All Rights Reserved
  8. 8. Respondents’ Profile: Company SizeNearshore Outsourcers Offshore Outsourcers Page 8 | Copyright IT Sourcing Europe 2011 | All Rights Reserved
  9. 9. Nearshore Outsourcers Offshore Outsourcers Page 9 | Copyright IT Sourcing Europe 2011 | All Rights Reserved
  10. 10. Nearshore Outsourcers Offshore Outsourcers Page 10 | Copyright IT Sourcing Europe 2011 | All Rights Reserved
  11. 11. Nearshore Outsourcers Offshore Outsourcers Page 11 | Copyright IT Sourcing Europe 2011 | All Rights Reserved
  12. 12. Nearshore Outsourcers Offshore Outsourcers Page 12 | Copyright IT Sourcing Europe 2011 | All Rights Reserved
  13. 13. Nearshore Outsourcers Offshore Outsourcers Page 13 | Copyright IT Sourcing Europe 2011 | All Rights Reserved
  14. 14. Nearshore Outsourcers Offshore Outsourcers Page 14 | Copyright IT Sourcing Europe 2011 | All Rights Reserved
  15. 15. Nearshore Outsourcers Offshore Outsourcers Page 15 | Copyright IT Sourcing Europe 2011 | All Rights Reserved
  16. 16. Nearshore Outsourcers Offshore Outsourcers Page 16 | Copyright IT Sourcing Europe 2011 | All Rights Reserved
  17. 17. Nearshore Outsourcers Offshore Outsourcers Page 17 | Copyright IT Sourcing Europe 2011 | All Rights Reserved
  18. 18. Nearshore Outsourcers Offshore Outsourcers Page 18 | Copyright IT Sourcing Europe 2011 | All Rights Reserved
  19. 19. Nearshore Outsourcers Offshore Outsourcers Page 19 | Copyright IT Sourcing Europe 2011 | All Rights Reserved
  20. 20. Nearshore Outsourcers Offshore Outsourcers Page 20 | Copyright IT Sourcing Europe 2011 | All Rights Reserved
  21. 21. Nearshore Outsourcers Offshore Outsourcers Page 21 | Copyright IT Sourcing Europe 2011 | All Rights Reserved
  22. 22. Nearshore Outsourcers Offshore Outsourcers Page 22 | Copyright IT Sourcing Europe 2011 | All Rights Reserved
  23. 23. Nearshore Outsourcers Offshore Outsourcers Page 23 | Copyright IT Sourcing Europe 2011 | All Rights Reserved
  24. 24. Nearshore Outsourcers Offshore Outsourcers Page 24 | Copyright IT Sourcing Europe 2011 | All Rights Reserved
  25. 25. Nearshore Outsourcers Offshore Outsourcers Page 25 | Copyright IT Sourcing Europe 2011 | All Rights Reserved
  26. 26. • Large companies (1000+ in headcount) still prefer outsourcing their gaming development offshore (to Asia Pacific and South Asia), while small companies (less than 50 in headcount) look at nearshore (Central & Eastern Europe) as a hub to leverage their development and QA costs It can in part be explained by the fact that large EU gaming enterprises arefocused on reinforcing their presence on the Asian markets and gaining access to theiradvanced 2D/3D expertise. Additionally, countries like China have since long beenused as the back-office for artwork development for the Japanese market and are ableto offer a vast pool of skilled games developers at significantly low rates. However, with rapid emergence of innovative lucrative niches such as casualor mobile gaming that are mostly saturated by startups whose game / e-Gamblingconcepts require 1 to 3 specialists to realize and development cycles not exceeding a6-months period, Eastern Europe is now considered as an effective cost optimizationand product quality enhancement destination well suited for more complex processesin the end-to-end development cycle such as cinematic walk-through and motioncapture. Page 26 | Copyright IT Sourcing Europe 2011 | All Rights Reserved
  27. 27. • The majority of nearshore outsourcers transfer development of projects that require 1 to 3 persons to complete, while most of offshore outsourcers transfer projects requiring 11 to 20 persons to complete• Most of gaming projects outsourced nearshore are small in value (€0-49K), while most of projects outsourced offshore are large (€500K+) These 2 findings prove the rising demand for outsourcing from casual/socialmedia and mobile gaming segments. Mobile platforms rapidly become an alternativemedium of revenue streams augmentation. The massive install bases of different AppStores allow small game studios and online gambling providers to win a substantialonline market share by creating and selling gaming and betting applications prior totheir large competitors who are much slower in decision making due to the complexmanagement hierarchy and bureaucracy in processes Page 27 | Copyright IT Sourcing Europe 2011 | All Rights Reserved
  28. 28. • Operating costs reduction and shortage of domestic IT specialists with required game development skills are the 2 key factors driving both nearshore and offshore outsourcers to transfer their solutions to execution by an external 3d party. However, the third key factor is different: nearshore outsourcers are driven by urge to speed up time to market, while offshore outsourcers tend to free their in-house resources for other non-core purposes. This finding can be best explained by difference in companies‟ sizeand business goals. It is critical for European startups and small game studiosto be ahead of peers and competitors in presenting their innovative gamingsolutions to the end user. Therefore, they choose to outsource to reduce timeneeded to translate a creative idea into a fully ready-to-sell product. Page 28 | Copyright IT Sourcing Europe 2011 | All Rights Reserved
  29. 29. • There is a significant difference in service delivery models used by nearshore and offshore outsourcers to partner with their outsourcing providers Half of all offshore outsourcers surveyed transfer fixed-price projects, while almosthalf of nearshore outsourcers set up either Own Development (SCRUM) Teams or „buy‟Dedicated/Managed Teams from their vendors. This finding marks a difference in perceptionof the role of outsourcing vendor in the development process by offshore and nearshoreoutsourcers: the latter view their vendors as office space and resources providers rather thansole project executors. By setting up own teams, outsourcing service buyers retain maximummanagerial control of their gaming projects, select candidates to be involved in projectexecution (the vendor only provides access to the resource pool, but all of the hiring decisionsare made by clients), negotiate salaries with each certain project team member (that allowsreduction of staff turnover in cases when the vendor refuses to raise his developer‟s salary nomatter how productive s/he is on the client‟s project). In short, most of EU gaming industry players literally extend their in-house IT teamsto lower-cost nearshore locations, but continue to fully manage the development process andmake sure their extended team follows their corporate culture, mission and values. This modelcannot be successfully used in offshore partnerships due to geographical distance and timedifference. It is very hard to effectively manage own development teams located in, say, 12hours away from the company‟s head office /in-house IT team. Page 29 | Copyright IT Sourcing Europe 2011 | All Rights Reserved
  30. 30. • Nearshore outsourcers are most challenged by change management, while offshore outsourcers – by cultural difference This trend can again be attributed to the fact that the majority of nearshoreoutsourcers are yet small and immature, have weak corporate culture and/or unclear goalsand, thus, are unable to manage the change inevitably caused by any outsourcingengagement. They usually place certain expectations on outsourcing relationships andauthorize their IT manager/director to endorse the change within the company. The factthat the change should be properly and timely articulated to all of the stakeholders is oftenignored. Any successful outsourcing relationship is much dependent on the availability ofsourcing meta-leaders who “don’t just preside over meetings and are quoted inPowerPoint presentations”, but “actively develop and articulate outsourcing changechallenges” (Deborah Kops) The Asian region has low cultural affinity to Europe which (by default) leads tothe second most critical challenge facing offshore outsourcers – misunderstanding incommunication with ITO vendors. Cultural gap can be a crucial hindrance in the gamedevelopment outsourcing journey, where the properly articulated and well understoodconcept or creative idea ensures 50% of development and testing success. Page 30 | Copyright IT Sourcing Europe 2011 | All Rights Reserved
  31. 31. • 25% of nearshore outsourcers manage to save more than 60% of operating costs via the outsourced development versus only 9.5% of offshore outsourcers This finding proves Central & Eastern Europe to be more mature in terms ofinnovative service delivery offerings that can easily be tailored to rather shrunken ITbudgets of small game developers and online gambling providers Page 31 | Copyright IT Sourcing Europe 2011 | All Rights Reserved
  32. 32. Gaming Development Outsourcing is not yet a commodity business practice as it isin other verticals such as B2B/B2C software development, financial and professional servicesand digital media. However, the sustained rise of different console and PC platforms, globalincrease in broadband Internet usage as well as 3G and likewise technologies penetration anddynamic ascension of casual / social media games and online sports betting make outsourcinga potential-rich niche to fill in the years to come. Today‟s consumer demand for innovative andsophisticated gaming solutions as well as safe and secure protection tools for online gamblingis robust and needs being satisfied in a small fraction of time. Startups and SMOs will have toretool their existing development cycles to not only effectively manage costs, but also toincrease output across all production stages and improve efficiency. If to look at outsourcing beyond the mere cost saving benefit it provides, but as along-term cross-border knowledge sharing strategy, it is possible to resume that outsourcingwill serve as the last best option for many gaming industry players to achieve their bottom-linerelief and in-source skilled specialists / the newest technology expertise from cross-borderengagements. According to Tholons Report (2009), “there is not a singular dominant region orcountry in the world that is able to fulfill or corner any significant portion of the demand foroutsourced processes. Alternatively, this also highlights the gaps found in existing GameDevelopment delivery centers.” Outsourcing is generally expected to become an integral part of gaming / e-Gambling development cycle in the forthcoming years and this integration is inevitable giventhat service delivery models become more mature, strategic and cost-transparent. Page 32 | Copyright IT Sourcing Europe 2011 | All Rights Reserved
  33. 33. Kops, D., Meta-Leadership: Key to Outsourcing Change Management, in Project Managers.Net (2 June 2011)“EU gambling market needs harmonised rules„” in EurActiv.Com (25 March 2011)“European Gaming and Betting Associations Sigrid Ligné Interviewed,” Public Gaming Research Institute (2011)“European IT Outsourcing Intelligence Reports: UK, Sweden, Netherlands, Switzerland, Malta, Finland & Denmark,” IT Sourcing Europe [http://www.itsourcing-europe.com/IT_Outsourcing_Reports.html] (2011)“Game Development Outsourcing,” Tholons (May 2009)“Strategic Reflections on Mobile Betting and the Mobile Gambling Opportunity,” mmC Group (June 2011)DFC Intelligence Website, [http://www.dfcint.com/index.php]Mobile Games Forum Website, [http://www.mobilegamesforum.co.uk/] Page 33 | Copyright IT Sourcing Europe 2011 | All Rights Reserved
  34. 34. About IT Sourcing EuropeIT Sourcing Europe is a UK-based market researchand advisory company specialized in the EuropeanIT and/or software development outsourcing. The Contact Us:company‟s key goal is to conduct an independent Web: www.itsourcing-europe.comand unbiased ITO research and increase the Email: info@itsourcing-europe.comEuropean business communities‟ awareness of thecurrent outsourcing demands, trends, challenges Follow Us:and problem solving practices. Blog: http://itsourcingeurope.wordpress.com/IT Sourcing Europe cooperates proactively with theEuropean ICT and Outsourcing organisations suchas the Outsourcing Verband, NGI (DutchIndependent Non-Commercial Association of andfor ICT Professionals), Poland‟s Outsourcing Portaland others in terms of free information exchange Page 34 | Copyright IT Sourcing Europe 2011 | All Rights Reserved

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