Ben Joffe\'s Virtual Goods in Asia at Virtual Goods Summit West

Digital Goods, Real Billions Asia’s Digital Life & What it means for the West @benjaminjoffe | CEO, +8* Virtual Goods Summit, San Francisco | 2010.10

@benjaminjoffe

4 years 1 year 5 years

CEO, Plus Eight Star | www.plus8star.com
Best practices from Asia’s digital space
Research, Strategy & “Innovation Arbitrage”
Clients

Speaker
100+ talks in 16 countries
Advisor
Investor in Asia-based global companies
Angel Investor, Advisor, Keynote Speaker

My Interests
Technology, Sociology and Anthropology
Virtual economies
Digital third places
Artificial artificial intelligence (AAI)
Online social dynamics

All the world’s a… All the world’s a stage … All the world’s a game … … And one man in his time plays many avatars . William Shakespeare Gabe Zichermann Benjamin Joffe

Introduction Quiz!
Chapter 1 South Korea
Chapter 3 Japan
Chapter 4 China
Chapter 5 Rest of Asia
Chapter 6 Conclusions
Chapter 7 Globalization

More than Facebook and USA
Facebook
LinkedIn
QQ (Tencent)
Qzone
RenRen
Kaixin001
Xiaonei
51.com
Mixi
Mobile Game Town
Gree
Cyworld
Friendster
And more…

Billion Dollar Brands
Facebook
LinkedIn
QQ (Tencent)
Qzone
RenRen
Kaixin001
Xiaonei
51.com
Mixi
Mobile Game Town
Gree
Cyworld
Friendster
And more… $B $B $B $B $B $B $B

Market Caps (2010.10) $780M $3.3B $43B $4.2B

ngmoco:) news $400M < 2010 Profit!

South Korea

Cyworld
SNS/VG pioneer since 10 years ago
Stagnant for several years
“The new MySpace”?

2009.10 | Nate App Store
Leverages Nate’s reach
Semi-open
Slow rise (2M users)
Rev share (70/30)

Portals join the dance
.
Naver Social Apps
.
Yozm by Daum
Results
Just started
No social graph

Facebook Rising
Facebook in Korea
Usage growing
Local office
Hired from Cyworld
Why?
Users bored of Cyworld
Virtual goods market
Games market

Virtual Worlds
3D virtual worlds still early, even for Korea
Non-gaming not working
Nurien (3D social world) fail, revamp into social app
Only PuppyRed seems successful
Yet not that big…
$4M in 2008, equivalent to $40M in US? (= IMVU)

PuppyRed

PuppyRed | Conversion
225,000 MAU
18,000 paying (8%)
Top 2,000 = 46% sales
Ideas
Ratio > Social games
1% users = 50% sales
Source: Inside Social Games, Oct 2010, PuppyRed data from Nov 2009 to Jan 2010

PuppyRed | Monetizing
Time investment
Since reg.
In-world
Friends
More value to items
Gifts
Items balance
Limit free items
Large inventory (15,000+)
Source: Inside Social Games, Oct 2010, PuppyRed data from Nov 2009 to Jan 2010

Online Games
Online games market $3.3 billion?
Leaders Nexon, NHN, NC Soft
Expanding overseas China, Japan, US, Emerging markets
Source: KOCCA

Answer
#1 in Online Gaming
Pioneer in virtual goods
First MMO in 1996!
Min Seo, CEO

Nexon Today
Revenue 2009: $561 million (+56%)
Over half from overseas (first in 2009 !)
Some famous games
Kart Rider (200M reg. users)
Dungeon & Fighter (200M reg. users)
Maple Story (95M reg. users)
Mabinogi
Combat Arms (FPS)
Sudden Attack (FPS)
Etc.
Source: Nexon

Foreign Players in Korea?
Some limited successes…

And… Starcraft Cheating Scandal!
April-May 2010
Largest scandal in e-sports history in Korea
16 pro gamers involved in match set-ups & illegal betting.
Pro Gamer sAviOr (Ja Mae-Yoon)

Mobile SNS Make a Killing
Revenue total > $1 billion !
All 3 have a mobile app platform
Mass promotion TV, Billboards, Posters…
Publish + Develop 1 st , 2 nd , 3 rd Party dev.

Mixi
Inspired by
21 million users
14 million MAU
Friends (PC)
Mobile (mobile)
FB (apps, “like”)
Twitter (micro-blog)
Pageviews
Mobile 28 billion PV
PC 5 billion PV

Mixi
Revenue 2009 $166 million
Profit margin 20%
2Q2010 $49M
Profit margin 25%
Run rate 2010 $200M

Mixi | Users
Gender-Balanced
90% above 20 y.o.
Total Mobile Mobile Total

Mixi | Pageviews Applications Platform 2009.08 Mobile 2009.10 PC Ad prices for mobile = 1/3 of PC price

Mixi | Apps
Apps
PC > 1,000
Mobile > 600
Apps contribution
Minor for revenue <10%
High for PV
Smartphone UI “Mixi Touch”
Machi Tsuku (3M MAU) by Unoh / Zynga Japan Source: Masaru Ikeda @ Asiajin

Answer
CEO of DeNA
Operates “Mobile Game Town”, a top mobile SNS in Japan
Tomoko Namba, CEO

DeNA
Revenue 2009 $517 million
Profit 2009 $228 million (44%)
Revenue 2Q2010 $279 million
Profit 2Q2010 $138 million (49%)
90% from digital goods
On track for $1 billion in 2010

DeNA | Sales

Mobile Game Town| Sales Breakdown 78% 12% 9% 1% $250 million (2010.04~06)

Mobile Game Town | Users
20 million users
74% over 20 y.o.

Mobile Game Town | Open Platform
154 partners companies
350 titles (July 2010)
In-house games too
Avatars in open platform games too
Common currency

DeNA | Target: Global Leader

Answer
CEO of GREE, top mobile SNS in Japan
#2 youngest self-made billionaire in the world (after Mark Zuckerberg)
Yoshikazu Tanaka, CEO

Gree Home Advertising Avatars & items Games Advertising & Affiliates B2C virtual goods (avatar + games)

GREE | Service Strategy Media Ad Sales VG Sales Social Games Virtual Goods SNS Diary/Notes Q&A Community/BBS Page views Members GREE

GREE
ARPU = $2.2 / month!
ARPPU > $20?
20M $133M Users Revenue 2010.06 2010.04-06 Digital goods (82%) Ads (18%)

GREE
Year to June 2010
Sales $430 million
Operating profit $240 million ( 56% )
Year to June 2011
Apr-Jun 2010 $133 million
2011 revenue run rate >$600 million

GREE | Monthly Page Views 35.7 Billion Google Images = 1 billion/day

GREE
2010.06 | Open platform
2010.10 | Non-gaming apps (27 coming up)

2010.09 | GREE on iPhone ( + Android soon)

Community Safety
DeNA
861 employees…
Many doing content monitoring
Monitoring 24/7 since 2006.11
“Patrol Center” built in 2008.03
Pipo-kun Tokyo Police Mascot Gree’s Patrol Center

Have you heard of…?

CyberAgent
History
Started as ad network
Branched into blogs (10M users) , virtual world & social games
1,900 employees
Sales 2009 $1.1 billion
Profit 2009 $55 million
Sales 2010 (E) $1.1 billion
Profit 2010 (E) $98 million

| Social Games
DeNA 10 titles
Gree 3 titles
Mixi 8 titles
Facebook 7 titles

$4M in July 2010
Run-rate 2010 = $50M ( > ngmoco ? )
| Social Games

| 2D Virtual World

Promotion
Leveraging Ameba’s blog platform
TV ads
Paying Users
80% are 20 to 40 y.o.
70% female
Payment
68% Mobile, 20% Webmoney, 12% Credit Card
| 2D Virtual World

April-June 2010 $10 million
| Revenue split

| Subs & ARPU
4.3 million users (2010.06)
monthly ARPU = $15

| Fishing Game

Facebook Making Inroads
Facebook in Japan
Growing (1.2M)
Mobile JP version
Why?
GDP
Online advertising
Virtual goods
Mobile!
KDDI’s Summer Line-Up

Foreign Players in Japan
Zynga
Acquired local company Unoh
JV with Yahoo! Japan (#1 portal) for games
Chinese social games doing well
Rekoo , Rakoo , Elex
… but for how long?
Online games growing too
Perfect World (China) acquired local licensee

Social Games Growing But…
Fragmented market
4 competing social networks
Facebook still blocked
SNS revenue not great (esp. for third parties)
Low advertising
Platforms develop games in-house
Rev share variable & often unattractive

…Online Games Still Dominate
Online games biggest money maker
$900M in 2Q2010
Tencent (20%), Shanda (20%), Netease (13%)
Social networks channel users to MMOs
China = 30% of global online games market
$4 billion in 2010?
Source: iResearch, Lazard Capital Markets

Answer
CEO of Tencent!
#3 Internet company in the world
Ma Huateng (Pony), CEO

QQ IM & QZone

Digital Goods?
Identity related
Game related
Music related
And more…

Tencent Bigger Than Ever?
Sales 2009 $1.8 billion
Net profit 2009 42% (= $750M)
Sales 1H2010 $1.3 billion
Run rate 2010 (E) $2.5 billion (1/3 games)
Profit 2010 (E) $1 billion
Internet penetration still only 30%!

PHOTO: MOBILE PHONE, BEIJING, APRIL 2010 © Benjamin Joffe / Plus Eight Star Ltd.

QQ Farm

Rest of Asia

Time-Shifted Markets
Vietnam
~$150M from online games
86 million people
4-5 years behind china
Indonesia
#3 on Facebook!
238 million people!
Behind Vietnam
Other places: Thailand (66M), Philippines (92M), etc.
Biggest potential: online games & mobile SNS
Virtual Goods Time Machine

Mig33
“We have decided we want to be like QQ for mobile in the rest of the emerging world .”
Steven Goh, CEO
Source: VentureBeat , March 2010

Mig33
“We have decided we want to be like QQ for mobile in the rest of the emerging world .”
Steven Goh, CEO
Source: VentureBeat , March 2010 Made in China Not iPhone! Not rich countries!

About Mig33
Nationality
Founders from Australia
Moved to Silicon Valley
Relocated to Singapore
Users
India, Indonesia, Bangladesh, Vietnam, South Africa…

Conclusions

Conclusions
Social games = growing fast
Online games still > Social games (except Japan)
Massive ads (TV, billboards, etc.) if ROI is good!
Media properties entering social (portals, blogs)
SNS can channel users to MMOs with better ROI
Mobile great in emerging & advanced markets

Conclusions
CJK companies expanding globally
Transition to digital goods is a tidal wave
Epiphanies in the West like Korea 10 years ago

Asia: $7 Billion USA: $1 Billion US market potential $35 Billion ? Digital Goods in 2009 Source: +8* , October 2009

Digital Goods in 2010 Asia: $10 Billion USA: $2 Billion Source: +8* , October 2010

$100 billion within the decade?
“ The virtual goods market would likely exceed globally $100 billion within this decade .”
Trip Hawkins CEO, Digital Chocolate Founder, Electronic Arts Source: Trip’s OMG Blog , April 2010

Market Potential?
From analog to digital
Global video game market $35 billion
In Korea >50% of ALL GAMES = online games
Potential = all games in the world
Global game market $120 billion
With digital goods dominant model?

Globalization Durian Strudel (Singapore)

Ideas, Talent & Markets
Ideas First farm game = made in China!
Dev. Zynga (JP, CN) Playfish (CN) Kabam (CN)
Market Facebook (JP, KR, SG, SEA w/ MOL) Zynga (JV with Softbank for JP) Rockyou (JP), Others?

Platform Partnership
Cyworld, Mixi, RenRen join forces for one-stop “Social Application Platform”
Catching up on analytics to leapfrog Facebook?
For reference
Cyword 25M users (1999, Korea)
Mixi 21M users (2004, Japan)
RenRen 150M users (2005, China)
Source: Mixi , September 2010

Virtual Goods in Asia The US Gold Rush Begins Benjamin Joffe | CEO, Plus Eight Star Virtual Goods Summit, San Francisco | 2009.10 Chinese family in Oregon during the Gold Rush

Nexon
Ndoor M&A 2010.05 Korea
GameHi M&A 2010.05 Korea
BoomBang Invest. 2010.10 Spain
Disney offering $6 billion ? (rumor)
EA’s market cap is $5.8 billion… (2010.10)
Source: +8*, Nexon

DeNA
ngmoco:) M&A USA
Astro Ape Invest. USA
Aurora Feint Invest. USA
GameView M&A USA
Icebreak M&A USA
TX.com.cn M&A China
Social Gaming Fund of $27.5 million

Tencent
Sanook Invest. 2010.08 Thailand
Comsenz M&A 2010.08 China
Shenzhen DN M&A 2010.04 China
DST Invest. 2010.04 Russia
Riot Games Invest. 2009.09 USA
Outspark Invest. 2008.01 USA

Other Chinese Companies
Emerging markets, Japan, US
Rekoo & Yicha doing great with social games
Shanda buys Mochi Media (2010.01, $80M)

China + Russia + South Africa 29% 10% 35% $35B $3B $18B Source: +8* , October 2010

DST | Digital Sky Technologies
Invested $180M in Zynga
Invested ~$350M in Facebook (~10%)
Invested $135M in Groupon
Acquired ICQ for $188M
Mail.ru (portal), Astrum (games)
70% of all PV in the Russian speaking Internet

NASPERS

From Asia to the World Durian Strudel (Singapore)

Paradise Paintball by Cmune
World’s first FPS on social networks!
Over 500,000 users in open beta
“ Paradise Paintball – you feel like you’re playing a console game.” - Gareth Davis, Games Platform Manager, Facebook
“ Abandoned my clan, crops have withered and my cafe has gone bankrupt. Thank you for creating the first real game on Facebook!” – Facebook user

Paradise Paintball | World’s First Social FPS! www.facebook.com/paradisepaintball www.cmune.com Disclosure I am an investor in Cmune

What we do
Best practices from Asia
Digital Research & Strategy
Clients sample
Contacts
[email_address]
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