Chinese family in Oregon during the Gold Rush




                Virtual Goods in Asia
              The US Gold Rush Beg...
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, Jap...
Work With Startups
• Newt Games
    • Mobile SNS in 2003 in Japan
       – 3G, GPS, avatars, virtual items
    • Too early...
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...
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 ml...
IT Infrastructure
           100%

                                                    Avg. 7 Mbps
           80%

       ...
Comparison Hack for US Market?
1. Adjust with GDP/Capita
    •   Japan = x1.2 | Korea = x2.4 | China ~ x10
    •   (Avg. i...
Comparison Hack for US Market?
1. Adjust with GDP/Capita
     •   Japan = x1.2 | Korea = x2.4 | China ~ x10
     •   (Avg....
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




                 ...
Quick Calculation
• China
     • $3 to $4 bln market
     • 10 Chinese online game companies on NASDAQ
     • Tencent = $1...
Sharks with Laser Beams vs. Irritated Sea Bass
              Asia’s Virtual Goods Market Estimate for 2009




Asia: 7 Bil...
Sharks with Laser Beams vs. Irritated Sea Bass
              Asia’s Virtual Goods Market Estimate for 2009




Asia: 7 Bil...
Techno-Paleonthology
           The Origins of Virtual Goods

– “It was invented in China”
       – US investor about virt...
+8* Research
• Asia first place where virtual goods reached
  over US$1 billion
    •   (If you except the US stock market...
Revenue Scale

• Online games      x $1,000 million
                                       x10
• Social networks   x $100 ...
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
  – ...
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                    ...
Conclusions

• Easier than 3D

• More fun, but still…

• Growing
Chapter 3
Social Networks
Leading Social Networks
• Japan                    • China
  –   MIXI                      –   QQ (Tencent)
  –   GREE    ...
Revenue vs. Profit
                70%
                60%
                50%
Profit Margin




                40%
     ...
South Korea
Japan
Mixi
Mobile Game Town
Source: DeNA
Gree
Advertising

Gree Home                     Advertising &
                              Affiliates | 25%

            Avata...
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 le...
Chapter 4
Social Games
Quiz: Who Created the First
            Farming Game?
•   Game         MAU          Dev.         Country
•   FarmVille    ...
Answer: It’s Complicated
• Current guess (comments welcome):
  1. Five Minutes? (China)
  2. Zynga (US)
  3. Elex (China, ...
The Mother of all Farming Games?
        or “where is the innovation?”
• I thought Harvest Moon
  was possibly the first…
...
Social Games Going West
• Facebook Developers: Low Entry Barrier!

  Rank     Company          Apps       Location

  #7  ...
Social Games Going East Too?
Quotes from Elex

• High productivity
  – “Anyone is able to develop social games at
    Playfish level”


• 12 languages ...
Conclusion
• Aggressive teams

• “Ramen Profitability” reachable

• Execution >> Creativity

• Can you compete?           ...
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 + Subscription...
Business Model Evolutions
• First wave: Packaged Software
     • First issue: Piracy

• Second wave: Online + Subscription...
Third Wave: Korea
• Online + Virtual Goods




   SuperMarioKart           Kart Rider
Business Model Evolutions
• First wave: Packaged Software
     • First issue: Piracy

• Second wave: Online + Subscription...
Social Games
• Stand-alone to Social Game
Chinese Online Games Companies
• Listed on NASDAQ
     •   NETEASE             NTES   $4.82B
     •   SHANDA              ...
Total Market Cap
• And the total is…
     • 8 Gaming Companies      $17.7 B
     • Tencent                 $34.3B
     • T...
Tencent
Up and To The Right!
Revenue & Profit
                 80%
                 70%
                 60%
 Profit Margin




                 50%
  ...
Remaining Barriers in the West
• Payment infra
  – Getting better


• Legacy industry (packaged software)
  – In transitio...
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 an...
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




Ci...
Virtual Currencies in any
            Online Media
• HoopChina
                           PORTAL      ONLINE STORE

  – Ba...
Evolutions
3D Social Games? Cross-Platform Games?




                             Artist’s view of
                      ...
Most Advanced 3D Game on FB
     Paradise Paintball by Cmune
  http://apps.facebook.com/paradisepaintball/




 Disclosure...
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 (2...
Chapter 8
Questions?
Thanks!
   More about “Innovation Arbitrage”

www.plus8star.com

benjamin@plus8star.com
                                  ...
Virtual Goods in Asia
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Virtual Goods in Asia
Virtual Goods in Asia
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Virtual Goods in Asia
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Virtual Goods in Asia
Virtual Goods in Asia
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Virtual Goods in Asia

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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.
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Virtual Goods in Asia

  1. 1. 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
  2. 2. Benjamin Joffe 本杰明 ベンジャミン 벤자민
  3. 3. 4 years 1 year 4 years
  4. 4. Consulting | Startups | Community
  5. 5. | 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
  6. 6. 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
  7. 7. Mobile Monday Beijing 31 events 111 speakers 3,500 members 1,500 companies
  8. 8. Let’s begin
  9. 9. The Plan 1. Introduction 2. Virtual Worlds 3. Social Networks 4. Social Games 5. Online Games 6. Others things 7. Innovation Arbitrage 8. Questions?
  10. 10. Chapter 1 Introduction
  11. 11. Virtual Goods Big in Asia Quoted in this article
  12. 12. Virtual Goods Big in Asia Quoted in this article
  13. 13. Asia’s Virtual Goods Market Estimate for 2008 5 Billion Dollars! (25 times USA!)
  14. 14. Internet Mobile 1.3 billion 3.3 billion Source: Morgan Stanley, 2007
  15. 15. 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
  16. 16. 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)
  17. 17. 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)
  18. 18. 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
  19. 19. Formulas $100M in Japan  $300M in US $100M in China  $700M in US $100M in Korea  $1.2B in US
  20. 20. Online Games in China $3.5 to $4 bln in 2009 3Q09 | $1 bln >40% CAGR (Most of it from virtual goods)
  21. 21. 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
  22. 22. 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)
  23. 23. 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?
  24. 24. 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
  25. 25. +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”
  26. 26. Revenue Scale • Online games x $1,000 million x10 • Social networks x $100 million x10 • Virtual worlds x $10 million
  27. 27. BUT • It’s converging • Categories make less and less sense • (and “virtual” is a misnomer)
  28. 28. Chapter 2 Virtual Worlds
  29. 29. “Leading” Virtual Worlds • Japan • China – 3D… – 3D… – AMEBA PIGG – QQ PET – NICOTTO TOWN – OTHERS – POUPEE GIRL • Korea – PUPPYRED – CYWORLD 3D – NURIEN – MAPLE STORY
  30. 30. 3D
  31. 31. Japan
  32. 32. Internet Adventure Meet-me (by SEGA)
  33. 33. PS3 “Home”
  34. 34. 25 million Xbox 360 consoles getting software upgrade?
  35. 35. South Korea
  36. 36. China
  37. 37. (60% Made in China)
  38. 38. Conclusions • Emerging • Pure virtual world = Not Fun?
  39. 39. 2D
  40. 40. Japan
  41. 41. Pigg (by Ameba)
  42. 42. (by SquareEnix)
  43. 43. Poupee Girl (by CyberAgent)
  44. 44. South Korea
  45. 45. China
  46. 46. Gaming Mainly Second virtual 2D dating Life adaptations worlds 2005 2006 2007 2008 2009 2D worlds Variety of concepts and revenue models
  47. 47. Conclusions • Easier than 3D • More fun, but still… • Growing
  48. 48. Chapter 3 Social Networks
  49. 49. Leading Social Networks • Japan • China – MIXI – QQ (Tencent) – GREE – RENREN (ex-XIAONEI) – MOBILE GAME TOWN (DENA) – KAIXIN001 – NANI SURU? – 51.COM • Korea – CYWORLD
  50. 50. Revenue vs. Profit 70% 60% 50% Profit Margin 40% 30% 20% 10% 0% 0 200 400 600 800 1,000 1,200 Million USD
  51. 51. South Korea
  52. 52. Japan
  53. 53. Mixi
  54. 54. Mobile Game Town
  55. 55. Source: DeNA
  56. 56. Gree
  57. 57. Advertising Gree Home Advertising & Affiliates | 25% Avatars & items B2C virtual Games goods | 75% 60% avatars 40% games
  58. 58. Niche mobile SNS appearing Nani suru? (What are you doing?)
  59. 59. China
  60. 60. The Facebook Tributes “With enough marketing, the copy becomes the real”
  61. 61. Conclusions • Mobile making hundreds of millions! • Mobile and Web are not the same • Games, Games, Games • Lots to learn from Asia!
  62. 62. Chapter 4 Social Games
  63. 63. 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
  64. 64. Answer: It’s Complicated • Current guess (comments welcome): 1. Five Minutes? (China) 2. Zynga (US) 3. Elex (China, US, EU) • Slashkey? TheBroth? PlayFish?
  65. 65. 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
  66. 66. 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.
  67. 67. Social Games Going East Too?
  68. 68. 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”
  69. 69. Conclusion • Aggressive teams • “Ramen Profitability” reachable • Execution >> Creativity • Can you compete? I’m loving it!
  70. 70. Chapter 5 Online Games
  71. 71. Quiz! What is this game?
  72. 72. Kingdom of the Wind (Nexon, 1996)
  73. 73. Business Model Evolutions • First wave: Packaged Software • First issue: Piracy
  74. 74. Business Model Evolutions • First wave: Packaged Software • First issue: Piracy • Second wave: Online + Subscriptions • Second issue: Competition / Game as a Service
  75. 75. 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
  76. 76. Third Wave: Korea • Online + Virtual Goods SuperMarioKart Kart Rider
  77. 77. 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!
  78. 78. Social Games • Stand-alone to Social Game
  79. 79. 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
  80. 80. 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
  81. 81. Tencent Up and To The Right!
  82. 82. 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
  83. 83. 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%)
  84. 84. Battlefield by Electronic Arts
  85. 85. 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
  86. 86. Better hurry! Asian Online Games Going West
  87. 87. Conclusions Are we so Different?
  88. 88. Conclusions It’s going to change FAST Get on the bus!
  89. 89. Chapter 6 One More Thing!
  90. 90. 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
  91. 91. 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
  92. 92. Evolutions 3D Social Games? Cross-Platform Games? Artist’s view of 3D Farming Game
  93. 93. Most Advanced 3D Game on FB Paradise Paintball by Cmune http://apps.facebook.com/paradisepaintball/ Disclosure: I am an investor & partner of Cmune
  94. 94. Chapter 7 Innovation Arbitrage
  95. 95. When was it invented?
  96. 96. Europe Gutemberg | ~1450 Korea Metal | ~1230 China Wooden | ~1040
  97. 97. Who came first?
  98. 98. Principle • Identifying best practices • Cross-market & Cross-cultural analysis • Adaptation to client market
  99. 99. References EUROPE USA ASIA
  100. 100. 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
  101. 101. Chapter 8 Questions?
  102. 102. 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 * High quality www.slideshare.net/plus8star

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