Who wants to be a billionaire

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Billionaires with virtual goods? Already in Asia!

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Who wants to be a billionaire

  1. Who Wants to be a Billionaire? Asia’s Best (and Worst) Practices With Virtual Goods Benjamin Joffe, CEO | Plus Eight Star Ltd. Virtual Goods Forum| London, 2010.06
  2. @benjaminjoffe 4 years 1 year 5 years
  3. | Plus Eight Star • “Innovation Arbitrage” • Internet & Mobile Strategy & Research • Best practices from China, Japan & Korea • Published research • Inside Cyworld (2007) • Inside Tencent (2009) • Clients • Microsoft, IMVU, Mig33, DeNA, Mail.ru, Vinagame, Nokia, Harvard Business School, etc.
  4. Work With Startups • Mogi, by Newt Games (2003) – Mobile SNS in Japan • 3G, GPS, avatars, virtual items – Too early! • Paradise Paintball, by Cmune (2010) – First 3D FPS game on Social Networks • “Best New Game” on MySpace (GDC 2010) • #1 Widget on Apple.com • > 500,000 MAU across all channels (2010.06) – On time!
  5. Plan 1. What I learned about virtual goods so far 2. What happens in Asia 3. What I think might happen soon
  6. PART I What I Learned About Virtual Goods So Far
  7. Orientation Test Who has a Facebook account?
  8. Orientation Test Who has played a game on Facebook?
  9. Orientation Test Who has paid for Virtual Goods before?
  10. Our Challenges • We are old • We are not local • We are not users • We have (lots of) cultural stereotypes • Things have been pretty good this way so far
  11. Semantic Prisons?
  12. “There are plenty of semantic prisons which do not permit us to think straight” Aldous Huxley, The Human Situation
  13. Cell 1: Virtual (Goods)
  14. Virtual??? • Connotations – Not real – Valueless – “Who would be stupid enough to pay for that!” • Opposite of Real = Imaginary • It’s Digital but it’s Real
  15. Virtual Goods = Digital FMCG? • “Virtual Goods are Consumer Products” – Cary Rosenzweig, CEO, IMVU Inc.
  16. Analog vs. Digital Experiences World Cup! Concerts, Travels, Encounters…
  17. Cell 2: (Video) Games
  18. Video Games • Connotations – Childish – Waste of time • Adults don’t play games! • Updated terminology – Video = Digital (is this needed?) – Games = Entertainment
  19. Field Research: My Aunt (Mountain View)
  20. Field Research: Halloween (San Francisco)
  21. Field Research: Santa Con (London)
  22. To Understand Online, Look Offline • Look at Social Behavior • Look at Animal Behavior • Look at Foreign Cultures
  23. Sociologist (esp. Social Psychology) Stanley Milgram (1933-1984) “Small world experiment” / 6 degrees (1967) “Behavioral Study of Obedience” (1963)
  24. Sociologist (esp. Social Psychology) Philip Zimbardo (1933) Stanford Prison Experiment (1971) The Lucifer Effect (2007)
  25. Zoologist Desmond Morris (1928~, North Wiltshire) “The Naked Ape” (1967) “The Human Zoo” (1969)
  26. Anthropologist Robin Dunbar (1947~, Liverpool) (Dunbar Number)
  27. Evolutionary Biologist Charles Darwin (1809-1882, Shropshire) “The Origin of Species”
  28. Chilled-Out Entertainer David Brent
  29. The Situation • Emotions & Experiences vs. Commodities • Digital entertainment offers Super-Stimuli – Pure mental stimulation >> Daily grind – The largest sexual organ is the brain! Left : Super Stimulus mimicking beak targeting the “Fixed Action Patterns” of Seagulls
  30. All The World’s a Stage…
  31. All The World’s a Stage… …and all the men and women merely Avatars Picture courtesy of Asiana’s in-flight cartoon team
  32. PART II The Asian Situation
  33. Quiz
  34. Answers World’s #3 largest Internet company after Google and Amazon #2 youngest self- made billionaire in the world after Mark Zuckerberg of Facebook Pony Ma, CEO, Tencent Yoshikazu Tanaka, CEO, GREE
  35. Where To Find Digital Goods? 1. Social networks 2. Online games 3. Virtual worlds 4. Offline?
  36. Digital Goods Market for 2009 Asia $7 bln USA $1 bln Sources: www.plus8star.com (Asia) - Inside Virtual Goods, Oct 2009 (US)
  37. Digital Goods Market Estimates for 2010 Asia $9 bln USA $2 bln Source: www.plus8star.com
  38. 1. Social Networks
  39. Asian Social Networks
  40. Market Caps (May 2010) $35.3B $4.2B $2.5B $900M
  41. QQ IM & QZone
  42. More on Tencent • Revenue 2009 $1.8B • Net Profit Margin 40% • Revenue from Digital Goods 90% – Digital currency – Multiple payment methods – Purchase, rental, subscriptions…
  43. 11:30 Shin Takamiya Advertising Gree Home Advertising & Affiliates | 25% Avatars & items B2C virtual Games goods | 75% 60% avatars 40% games
  44. Mobile App Platform since Oct.09 (330 apps as of February 2010) City Building Harvest Moon Shopkeeper Furauni By Liveware By Liveware By Geisha Tokyo By Konami
  45. 2. Online Games
  46. Business Model Evolutions • First wave: Packaged Software • First issue: Piracy
  47. Business Model Evolutions • First wave: Packaged Software • First issue: Piracy • Second wave: Online + Subscriptions • Second issue: Competition / Game as a Service
  48. Quiz! What is this game?
  49. Kingdom of the Wind (Nexon, 1996)
  50. 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
  51. Third Wave: Korea • Online + Virtual Goods SuperMarioKart Kart Rider
  52. Nexon Today • Some famous games – Kart Rider (200M reg. users) – Dungeon & Fighter (200M reg. users) – Maple Story (95M reg. users) – Mabinogi, Combat Arms, etc. • Revenue 2009: $561 million (+56%) – Over half from overseas (first time!) • Disney offering $6 billion? (rumor) – EA’s market cap is $5.3 billion… (2010.06)
  53. “Nexon has perfected the free to play model worldwide and has applied it as a winning formula to very outstanding games” Daniel Kim, CEO Nexon America
  54. 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!
  55. Social Games • Stand-alone to Social Game
  56. Some Data on China (source: GAPP) • 2009 market: $3.75B • 105 million game users – SNS games = 87.7% (92 mln) – MMOs = 22.7% (24 mln) – Single-player PC games = 36.1% (38 mln) • Ads – 71.3% of SNS game players see an ad when playing – 2.2% CTR for SNS games (>>0.1% for web ads)
  57. Chinese Online Games Companies • Listed on NASDAQ • NETEASE NTES $3.93B • SHANDA SNDA $2.65B • SHANDA GAMES GAME $1.56B • PERFECT WORLD PWRD $1.20B • CHANGYOU CYOU $1.49B • GIANT INTERACTIVE GA $1.64B • Listed on HKSE • TENCENT 0700 $30.6B • NET DRAGON 0777 $250M • KINGSOFT 3888 $595M Data as of: 21 June 2010
  58. Revenue & Profit (2008) 80% 70% 60% 50% Profit Margin 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
  59. Tencent: Up and To The Right!
  60. Total Market Cap • And the total is… • 8 Gaming Companies $13.3B • TENCENT $30.6B • TOTAL $43.9B • Comparables • ACTIVISION BLIZZARD $14.27B • ELECTRONICS ARTS $5.28B • TAKE TWO INTERACTIVE $853M • UBISOFT $817M • ATARI Delisted from NASDAQ • TOTAL $21.2B Data as of: 21 June 2010
  61. More Comparables • Korea • NHN (Naver, Hangame) $7.6B • NC SOFT $3.8B • NEXON Private ($6B offer?) • Japan • SEGA SAMMY $4.1B • KONAMI $2.5B • SQUARE ENIX $2.3B • NAMCO BANDAI $2.2B • CAPCOM $1.2B • (NINTENDO $44.2B) Data as of: 21 June 2010
  62. Guitar Hero • Inspired by “Dance Dance Revolution” (Japan) • Japanese publishers: “It won’t work in the West” • US publishers: “It won’t work in the West” • It worked in the West.
  63. Rhythm Game = Dating Game?
  64. Case Study: Farm Games
  65. 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
  66. Answer: “It’s Complicated” 1. Five Minutes (China) 2. Slashkey (US) 3. Zynga (US) 4. Playfish (UK), Elex (China), etc.
  67. The Mother of all Farming Games? or “where is the innovation?” • Harvest Moon (1996) – On Super NES, by Victor Interactive – Inspired Happy Farm • Sim Farm (1993) – On PC, by Maxis • Where is the innovation? – Not in the game concept, but in viral & social mechanics
  68. A FarmVille Button? PHOTO: MOBILE PHONE, BEIJING, APRIL 2010 © Benjamin Joffe / Plus Eight Star Ltd.
  69. There is a link to check your QQ Farm PHOTO: MOBILE PHONE, BEIJING, APRIL 2010 © Benjamin Joffe / Plus Eight Star Ltd.
  70. 3. Virtual Worlds
  71. Virtual Worlds • Strengths – Exploration – Creativity – Online Economy • Weaknesses – No social graph – No fun! • IMVU, Second Life “pivoting”
  72. (from Web 2.0 Conference, 2010.05) • Revenue 2009: $22 million (x2) – Became profitable & cash flow positive • Revenue 2010: $44 million? (x2) • Begin pivot… Virtual World to Social Entertainment – “From Dress Up to Level Up” – Game Mechanics – 2D and 3D Games
  73. Japan
  74. Internet Adventure Meet-me (by SEGA)
  75. PS3 “Home”
  76. 25 million Xbox 360 consoles getting software upgrade?
  77. Poupee Girl (by CyberAgent)
  78. (by SquareEnix)
  79. Pigg (by CyberAgent)
  80. Pigg (by CyberAgent) • 1Q2010 Revenue >$7M – 3M+ users (2010.04) – TV ads! • Paying Users – 80% are 20 to 40y.o. – 70% female • Payment – 68% Mobile, 20% Webmoney, 12% Credit Card
  81. South Korea
  82. China
  83. (60% Made in China)
  84. Conclusions • Pure virtual world = Not fun enough? • Emerging & Converging with SNS & Games
  85. 4. Offline (but Digital)
  86. South Korea | “Screen Golf” Mainstream! 5,000 “Golf Cafes” US$ 500 million market 82,000 daily visits (vs. 65,000 for “real” golf) US$ 20 / 18 holes (10 times cheaper)
  87. South Korea | VR Golf Going Global? “I almost feel like I'm actually playing on the fairway” “Screen golf has created a unique market in our country, where people prefer rooms for chatting and socializing” “In view of growing demand for simulators abroad, I believe screen golf will become a global trend”
  88. Best (and Worst) Practices
  89. Categories Social Game-related Metrics
  90. Social Best Practices • Engaging with strangers • Triggering emotions • Group behaviors and social proof • Desires of power, fame, greed, lust (“attachment”) • Willingness to help (goodwill & cooperation) • Community Engagement
  91. Game Best Practices • Target: Don’t leave money on the table! • Balance vs. Conflict (cf. Zhang Ye) • “Endorphin” feedback loop (actions, levels) • Lottery systems (borderline gambling)
  92. Metrics Best Practices • Improve conversion ratios – Double your revenue? – From visitors to active to paying to high ARPPU • Measure ROI and maximize channels • Trigger virality (K-factor) and re-engagement
  93. PART III What Might Happen Soon
  94. Proven Models Spreading • Asian companies expanding – Bring online & social games overseas – Acquire IP from Japan, US, Europe? • Huge opportunities in emerging markets – “Tencents” of… Russia, Brazil, Vietnam, Indonesia… • Globalization of dev & publishing abilities
  95. Remaining Barriers in the West • Semantic prisons • Payment infrastructure – Getting better, but still far off • Industry legacy – Content production & operation
  96. Chinese Companies Going Abroad • Online game companies – Perfect World | Japan, (US) • C&C Media | 21 million USD, March 2010 – Shanda | US • Mochi Media | 80 million USD – Tencent | Russia, Vietnam, India, USA… • Social game companies – Rekoo | Japan (#1), Korea (#1), Russia – 5 Minutes | US, others – 6 Waves (HK) | One of FB’s top global publishers
  97. China’s Hurdles: Soft Skills Building Selling • Disruptive vs. • Cultural tuning Incremental Innovation • Design • PR • Product/Project • Country “brand” Management • Quality • Partnerships
  98. Cmune’s Case • Paradise Paintball • First FPS inside social networks • International Team in Beijing – Founders: Australian, French, Korean • Launched on Facebook, MySpace, Apple.com
  99. Paradise Paintball | World’s First Social FPS! www.cmune.com www.facebook.com/paradisepaintball
  100. AWARDED “BEST NEW GAME” ON MYSPACE (GDC 2010)
  101. If I did a good job, you… • Enriched your views on virtual goods • Understand gaming is moving to online • Recognize that Asia has a head start
  102. Thanks!
  103. Thanks! I’m here until Sunday
  104. Thanks! I’m here until Sunday and… go England!
  105. More about “Innovation Arbitrage” www.plus8star.com benjamin@plus8star.com +81 | Japan benjamin0123 +82 | Korea +86 | China http://twitter.com/benjaminjoffe Telecom & Internet www.linkedin.com/in/benjaminjoffe + Added Value * High quality www.slideshare.net/plus8star

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