Presentation on virtual goods in Asia covering gaming, SNS, virtual worlds, social games across China, Japan and Korea. Given at the Virtual Goods Summit in San Francisco on October 2009.
Presentation on virtual goods in Asia covering gaming, SNS, virtual worlds, social games across China, Japan and Korea. Given at the Virtual Goods Summit in San Francisco on October 2009.
Download it from www.plus8star.com
Chinese family in Oregon during the Gold Rush
Virtual Goods in Asia
The US Gold Rush Begins
Benjamin Joffe | CEO, Plus Eight Star
Virtual Goods Summit, San Francisco | 2009.10
Benjamin Joffe
本杰明
ベンジャミン
벤자민
4 years
1 year
4 years
Consulting | Startups | Community
| Plus Eight Star
• “Innovation Arbitrage”
• Internet & Mobile Digital strategy
• Best practices from China, Japan & Korea
• Published reports
• Inside Cyworld (2007)
• Inside Tencent (2009)
• Inside Alibaba (upcoming)
• Contact
• www.plus8star.com
Work With Startups
• Newt Games
• Mobile SNS in 2003 in Japan
– 3G, GPS, avatars, virtual items
• Too early!
• Cmune
• Making the 3D Web happen
– fbFund winner
– First 3D FPS game on Facebook
– #1 Widget on Apple.com
– Virtual Goods
– www.cmune.com
Mobile Monday Beijing
31 events
111 speakers
3,500 members
1,500 companies
Let’s begin
The Plan
1. Introduction
2. Virtual Worlds
3. Social Networks
4. Social Games
5. Online Games
6. Others things
7. Innovation Arbitrage
8. Questions?
Chapter 1
Introduction
Virtual Goods Big in Asia
Quoted in this article
Virtual Goods Big in Asia
Quoted in this article
Asia’s Virtual Goods Market Estimate for 2008
5 Billion Dollars!
(25 times USA!)
Internet Mobile
1.3 billion 3.3 billion
Source: Morgan Stanley, 2007
Digital Population
Country USA China Japan Korea
Population 300 mln 1,300 mln 130 mln 50 mln
Internet users 225 mln 340 mln 100 mln 35 mln
Mobile users 260 mln 650 mln 100 mln 45 mln
x5
Total x2
x3
IT Infrastructure
100%
Avg. 7 Mbps
80%
Avg. 15 Mbps
60%
3G users
40% C
hi
n
20% a Avg. 4 Mbps
www.plus8star.com
0%
0% 20% 40% 60% 80%
% of Internet connections measured above 5Mbps
(Source: Akamai, 4Q08)
Comparison Hack for US Market?
1. Adjust with GDP/Capita
• Japan = x1.2 | Korea = x2.4 | China ~ x10
• (Avg. income of web user in China $400/month)
Comparison Hack for US Market?
1. Adjust with GDP/Capita
• Japan = x1.2 | Korea = x2.4 | China ~ x10
• (Avg. income of web user in China $400/month)
2. Adjust with Internet (or Mobile) Population
• Japan = x2.5 | China = x2/3 | Korea = x5
Formulas
$100M in Japan $300M in US
$100M in China $700M in US
$100M in Korea $1.2B in US
Online Games in China
$3.5 to $4 bln in 2009
3Q09 | $1 bln
>40% CAGR
(Most of it from virtual goods)
Quick Calculation
• China
• $3 to $4 bln market
• 10 Chinese online game companies on NASDAQ
• Tencent = $1 bln in revenue (2008)
• Japan
• 3 Social networks market-listed in Japan for over $1 bln
• 2 are 100% mobile with >50% revenue from VG
• Korea
• Popularized the free-to-play model
• $1 bln online gaming market, mostly VG
Sharks with Laser Beams vs. Irritated Sea Bass
Asia’s Virtual Goods Market Estimate for 2009
Asia: 7 Billion Dollars!
USA: $1 bln (Source: Inside Virtual Goods, Oct 2009)
Sharks with Laser Beams vs. Irritated Sea Bass
Asia’s Virtual Goods Market Estimate for 2009
Asia: 7 Billion Dollars!
USA: $1 bln (Source: Inside Virtual Goods, Oct 2009)
US market potential
3~35 Billion Dollars?
Techno-Paleonthology
The Origins of Virtual Goods
– “It was invented in China”
– US investor about virtual goods in SNS (2009)
– “China learned from Korea”
– Chinese online gaming executive (2007)
– “Korea learned from the US”
Peking Man
– Former exec at virtual world company (2002)
Researchers are Puzzled
+8* Research
• Asia first place where virtual goods reached
over US$1 billion
• (If you except the US stock market )
• Online communities since the mid-80’s
• Some services included virtual goods
• Same ideas often found independently “when
the time is right”
• “Techno-Darwinism” vs. “The Inventor Myth”
Revenue Scale
• Online games x $1,000 million
x10
• Social networks x $100 million
x10
• Virtual worlds x $10 million
BUT
• It’s converging
• Categories make less and less sense
• (and “virtual” is a misnomer)
Chapter 2
Virtual Worlds
“Leading” Virtual Worlds
• Japan • China
– 3D… – 3D…
– AMEBA PIGG – QQ PET
– NICOTTO TOWN – OTHERS
– POUPEE GIRL
• Korea
– PUPPYRED
– CYWORLD 3D
– NURIEN
– MAPLE STORY
3D
Japan
Internet
Adventure Meet-me
(by SEGA)
PS3 “Home”
25 million Xbox 360
consoles getting
software upgrade?
South Korea
China
(60% Made in China)
Conclusions
• Emerging
• Pure virtual world = Not Fun?
2D
Japan
Pigg
(by Ameba)
(by SquareEnix)
Poupee Girl
(by CyberAgent)
South Korea
China
Gaming
Mainly Second virtual
2D dating Life adaptations worlds
2005 2006 2007 2008 2009
2D
worlds
Variety of
concepts and
revenue models
Conclusions
• Easier than 3D
• More fun, but still…
• Growing
Chapter 3
Social Networks
Leading Social Networks
• Japan • China
– MIXI – QQ (Tencent)
– GREE – RENREN (ex-XIAONEI)
– MOBILE GAME TOWN (DENA) – KAIXIN001
– NANI SURU? – 51.COM
• Korea
– CYWORLD
Advertising
Gree Home Advertising &
Affiliates | 25%
Avatars & items
B2C virtual
Games goods | 75%
60% avatars
40% games
Niche mobile SNS appearing
Nani suru? (What are you doing?)
China
The Facebook Tributes
“With enough marketing, the copy becomes the real”
Conclusions
• Mobile making hundreds of millions!
• Mobile and Web are not the same
• Games, Games, Games
• Lots to learn from Asia!
Chapter 4
Social Games
Quiz: Who Created the First
Farming Game?
• Game MAU Dev. Country
• FarmVille 61.6M Zynga USA
• Farm Town 18.6M Slashkey USA
• Country Story 8.1M Playfish UK
• Barn Buddy 6.8M TheBroth USA
• Happy Farm 2.5M 5 Minutes China
• Happy Harvest .6M Elex China
Source: Appdata and Facebook, 2009.10.26
The Mother of all Farming Games?
or “where is the innovation?”
• I thought Harvest Moon
was possibly the first…
• By Victor Interactive (1996) On
Nintendo’s Super NES
• …but a reader found Sim Farm
• Maxis, 1993
• Where is the innovation?
• Not in the concept, but in gaming,
viral and social mechanics
Social Games Going West
• Facebook Developers: Low Entry Barrier!
Rank Company Apps Location
#7 6 Waves 104 apps Hong Kong
#30 Rekoo 2 apps Beijing
#36 Elex 7 apps Beijing
#229 Tyler Projects 1 app Singapore
• Strong in China & entering Russia, Japan, etc.
Social Games Going East Too?
Quotes from Elex
• High productivity
– “Anyone is able to develop social games at
Playfish level”
• 12 languages versions
– “We can localize our game in different language
versions in 1 day”
Conclusion
• Aggressive teams
• “Ramen Profitability” reachable
• Execution >> Creativity
• Can you compete? I’m loving it!
Chapter 5
Online Games
Quiz!
What is this game?
Kingdom of the Wind (Nexon, 1996)
Business Model Evolutions
• First wave: Packaged Software
• First issue: Piracy
Business Model Evolutions
• First wave: Packaged Software
• First issue: Piracy
• Second wave: Online + Subscriptions
• Second issue: Competition / Game as a Service
Business Model Evolutions
• First wave: Packaged Software
• First issue: Piracy
• Second wave: Online + Subscriptions
• Second issue: Competition / Game as a Service
• Third wave: Virtual Goods
• Third issue: User Acquisition / Balancing Economy
Third Wave: Korea
• Online + Virtual Goods
SuperMarioKart Kart Rider
Business Model Evolutions
• First wave: Packaged Software
• First issue: Piracy
• Second wave: Online + Subscriptions
• Second issue: Competition / Game as a Service
• Third wave: Virtual Goods
• Third issue: User Acquisition / Balancing Economy
• Fourth wave: Social Games
• Fourth issue: Competition again!
Social Games
• Stand-alone to Social Game
Chinese Online Games Companies
• Listed on NASDAQ
• NETEASE NTES $4.82B
• SHANDA SNDA $3.11B
• SHANDA GAMES GAME $2.75B
• PERFECT WORLD PWRD $2.25B
• CHANGYOU CYOU $1.65B
• GIANT INTERACTIVE GA $1.71B
• Listed on HKSE
• TENCENT 3888 $34.3B
• NET DRAGON 0777 $0.34B
• KINGSOFT 0700 $1.07B
Total Market Cap
• And the total is…
• 8 Gaming Companies $17.7 B
• Tencent $34.3B
• TOTAL $52.0B
• Comparables
• Activision Blizzard $14.1B
• Electronic Arts $6.05B
• Ubisoft $1.56B
• Take Two $0.94B
• TOTAL $22.6B
Tencent
Up and To The Right!
Revenue & Profit
80%
70%
60%
Profit Margin
50%
40%
30%
20%
10%
+8* | www.plus8star.com
0%
0 50 100 150 200 250
Revenue (mln USD)
Bubble size = Net Profit (mln USD)
Note: The net margin/profit value used for Tencent game and NetEase is the one of the whole company, 2008
Remaining Barriers in the West
• Payment infra
– Getting better
• Legacy industry (packaged software)
– In transition
• Electronic Arts
– Revenue 1.2 billion USD
– Profit margin (-30%)
Battlefield by Electronic Arts
When we started two years ago, there
was a real question mark: Can the free-
to-play model work as it did in Asia?
The answer is an emphatic yes.
Ben Cousins
General manager
Battlefield Heroes team
Electronic Arts
Better hurry!
Asian Online Games Going West
Conclusions
Are we so Different?
Conclusions
It’s going to change FAST
Get on the bus!
Chapter 6
One More Thing!
Mobile Open Platforms
Mixi: Oct 27, 2009
– 39 mobile applications released – mostly games
City Building Harvest Moon Shopkeeper Furauni
By Liveware By Liveware By Geisha Tokyo By Konami
Virtual Currencies in any
Online Media
• HoopChina
PORTAL ONLINE STORE
– Basket-Ball vertical
– 90% UGC
– E-commerce
– Virtual currency
“CA” (for “calorie”) WEB GAMES
earned via activity
– Web games
Evolutions
3D Social Games? Cross-Platform Games?
Artist’s view of
3D Farming Game
Most Advanced 3D Game on FB
Paradise Paintball by Cmune
http://apps.facebook.com/paradisepaintball/
Disclosure: I am an investor & partner of Cmune
Chapter 7
Innovation Arbitrage
When was it invented?
Europe
Gutemberg | ~1450
Korea
Metal | ~1230
China
Wooden | ~1040
Who came first?
Principle
• Identifying best practices
• Cross-market & Cross-cultural analysis
• Adaptation to client market
References
EUROPE USA
ASIA
Stimulus Package
For All VGS Attendees until Nov 10!
• 25% off our research on Tencent & Cyworld!
• Inside Tencent (2009)
– 280 pages
– US$5,000 US$3,750
• Inside Cyworld (2007)
– 180 pages
– US$2,000 US$1,500
Chapter 8
Questions?
Thanks!
More about “Innovation Arbitrage”
www.plus8star.com
benjamin@plus8star.com
+81 | Japan
benjamin0123 +82 | Korea
+86 | China
http://twitter.com/plus8star
Telecom & Internet
www.linkedin.com/in/benjaminjoffe + Added Value
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Youngsoo Kim
A site our agency has recently worked on: http://www.boonspace.com - possibly a model that would work well in the asian markets 3 years ago