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
1. 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
6. | 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
7. 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
11. The Plan
1. Introduction
2. Virtual Worlds
3. Social Networks
4. Social Games
5. Online Games
6. Others things
7. Innovation Arbitrage
8. Questions?
17. 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
x 5
Total x 2
x 3
18. IT Infrastructure
3G
users
% of Internet connections measured above 5Mbps
(Source: Akamai, 4Q08)
C
hi
n
a
0%
20%
40%
60%
80%
100%
0% 20% 40% 60% 80%
www.plus8star.com
Avg. 15 Mbps
Avg. 7 Mbps
Avg. 4 Mbps
19. 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)
20. 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
21. Formulas
$100M in Japan $300M in US
$100M in China $700M in US
$100M in Korea $1.2B in US
22. Online Games in China
$3.5 to $4 bln in 2009
3Q09 | $1 bln
>40% CAGR
(Most of it from virtual goods)
23. 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
24. 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
25. Asia: 7 Billion Dollars!
USA: $1 bln (Source: Inside Virtual Goods, Oct 2009)
US market potential
3~35 Billion Dollars?
Sharks with Laser Beams vs. Irritated Sea Bass
Asia’s Virtual Goods Market Estimate for 2009
26. 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”
– Former exec at virtual world company (2002)
Researchers are Puzzled
Peking Man
27. +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”
28. Revenue Scale
• Online games x $1,000 million
• Social networks x $100 million
• Virtual worlds x $10 million
x10
x10
31. “Leading” Virtual Worlds
• Japan
– 3D…
– AMEBA PIGG
– NICOTTO TOWN
– POUPEE GIRL
• Korea
– PUPPYRED
– CYWORLD 3D
– NURIEN
– MAPLE STORY
• China
– 3D…
– QQ PET
– OTHERS
67. Leading Social Networks
• Japan
– MIXI
– GREE
– MOBILE GAME TOWN (DENA)
– NANI SURU?
• Korea
– CYWORLD
• China
– QQ (Tencent)
– RENREN (ex-XIAONEI)
– KAIXIN001
– 51.COM
86. 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
88. 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
89. 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.
91. 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”
98. Business Model Evolutions
• First wave: Packaged Software
• First issue: Piracy
• Second wave: Online + Subscriptions
• Second issue: Competition / Game as a Service
99. 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
101. 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!
103. 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
104. 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
106. Revenue & Profit
0%
10%
20%
30%
40%
50%
60%
70%
80%
0 50 100 150 200 250
Note: The net margin/profit value used for Tencent game and NetEase is the one of the whole company, 2008
+8* | www.plus8star.com
Revenue (mln USD)
Bubble size = Net Profit (mln USD)
Profit
Margin
107. 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%)
109. 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
114. Mobile Open Platforms
Mixi: Oct 27, 2009
– 39 mobile applications released – mostly games
City Building
By Liveware
Harvest Moon
By Liveware
Shopkeeper
By Geisha Tokyo
Furauni
By Konami
115. Virtual Currencies in any
Online Media
• HoopChina
– Basket-Ball vertical
– 90% UGC
– E-commerce
– Virtual currency
“CA” (for “calorie”)
earned via activity
– Web games
PORTAL ONLINE STORE
WEB GAMES
117. Most Advanced 3D Game on FB
Paradise Paintball by Cmune
http://apps.facebook.com/paradisepaintball/
Disclosure: I am an investor & partner of Cmune
127. More about “Innovation Arbitrage”
Thanks!
www.plus8star.com
benjamin@plus8star.com
benjamin0123
http://twitter.com/plus8star
www.linkedin.com/in/benjaminjoffe
www.slideshare.net/plus8star
+81 | Japan
+82 | Korea
+86 | China
Telecom & Internet
+ Added Value
* High quality