Emerging Trends in Gaming CCS 2011

8/3/2019 Emerging Trends in Gaming CCS 2011

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Tim ChangPartner

Norwest Venture Partnerswww.nvp.com

[email protected]+1-650-321-8000

Casual Connect 2011:Emerging Trends

@timechange


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Gaming-related Investments

5/5/2012 NVP Confidential 3


4/19

Recapping 2010-1H2011 Highlights/Lowlights

Highlights:

- First Big Exits in Social Gaming: Playdom($763M), ngmoco($403M)

- First Big Midcore Exit: Riot Games ($400M)

- Yes, Casual Studios Can Have Massive Outcomes Too! (Popcap)

- Payments/V-goods Infra Exits: Playspan, Zong, Jambool

- Rise of Midcore: Kabam, Kixeye raising massive rounds

- Mobile Social Gaming funding frenzy: TinyCo, Rovio, PocketGems

- Copycat Social 1.0 Memes

- MoSoLo & ARG

- Android Launches IAP (finally!)

- International Platforms Open Up Addl Distro & Monetization:



5/19

Recapping 2010-1H2011 Highlights/Lowlights

Lowlights:

- Social Gaming 1.0 consolidation: game over?

- Facebook Standardizing FB Credit Tax

- Facebook Overrunning Overseas Incumbent Networks? (Orkut)

- Distribution Bottlenecks: Less Virality = More $$ Needed

- Sudden Death of CPI Model for Mobile Distro on iOS: Tapjoy

- Android IAP aint working that great yet

- Frothy Valuations vs. Pending Consolidation

- Cloud Gaming: still not ready yet- HTML5: still not ready yet

- War for Talent: Analytics, Backend, Designers, Mobile Developers



6/19

Global Snapshot


Global Trends Overview:

The Social Gaming Warfront and Landgrab has Expanded Beyond the US

Players Battling for Distribution Power, New Revenue Streams, Talent

Acquisition

Mobile is the New Hope for Social Gaming

New Publishing Models Emerging Across Regions

Facebook Global Growth vs. Incumbent Networks

New Genres Emerging Beyond Copycat x-Ville Games


7/19

Global Snapshot: Whats Everyone Fighting Over?


New Revenue Streams:- US Facebook market dominated by Zynga easier to launch elsewhere?

- US iOS market is extremely noisyhard to cut above the noise

Distribution Power:- If Content is King, then Distribution Power is God Almighty

- 3 Original Pillars of Facebook Social Gaming: Virality, Cross-Promotion, Facebook Advertising

- With Virality gone, Zynga has won the US online Facebook social 1.0 wars GAME OVER (Round 1)- Distribution Power = cross-promotion ability across a loyal network of DAUs: X-Box Live Layer +

Game Cross-Promotion

- Social networks in other regions are opening up their app platforms less crowded territories to

exploit and build distribution power?

- Mobile has never had virality opportunity to create a Zynga and X-box Live style network?

Talent Acquisition:- Getting more expensive to build Social Games, as they scale into micro MMOs and Games as a

Service

- Too expensive to engage in hiring (acquisition) wars with Zynga, etc. in the US

- Need to hire/acquire/partner with overseas studios and teams to lower costs and grow capacity


8/19

Global Battleground Snapshot:


Japan: (New Revenue Streams)- Small market (DAUs), high ARPU- Players used to freemium + MTX model, and paying via mobile)

- 80% mobile (Flash-supported on legacy phones = no app builds needed)

- 3 different networks: DeNA, GREE, Mixi opening app platforms and expanding into

US, China, etc

China: (Talent Acquisition; Distribution and Revenues Still Challenging)

- Large market (DAUs), low ARPU

- Familiarity with freemium + MTX via MMO games + virtual goods on QQ

- Primarily online play; smartphone apps still on the come

- 1 dominant network (Tencent QQ), 3 challengers (Kaixin001, RenRen, 51) not fully

open platforms yet, poor revenue splits- Lower cost labor pool

- MMO companies and Tencent entering US for IP and talent acquisition, as well as

international publishing


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Global Battleground Snapshot:


Korea:

- Traditionally a hardcore/midcore gaming market: MMO RPGs, client downloads- NHN, Nexon aggressively expanding overseas

- Best-suited for midcore if free to play MMO companies go browser-based and leverage social

networks for publishing

Brazil:

- VERY social player base: Orkut is dominant network, with Facebook growing quickly- Payment methods remain challenging, but on the rise with healthy ARPU

- Native players like Mentez and Vostu looking to dominate distribution before Zynga and others

can enter via Facebook

Russia:- Kontakti is incumbent social network leader

- Importer Publishers like i-Jet often critical for market entry

- Tricky region to operate in

India:- Still nascent big potential for mobile social gaming as grey market Android smartphones gain

adoption


10/19

Emerging Trends 2011-2012

Whats Next?

- Social Gaming Distribution 2.0: Life in the Post-Viral Era

- More Midcore: Online + Mobile

- Proof of Real Gamification?

- Healthy Gaming / Quantified Self

- Next-gen Platforms: Cloud Gaming, 3D-in-Browser, HTML5

- New Genres: Music, Physical/Gesture, Youth Edutainment

(Club Penguin 2.0 on Tablet)

- Evolution of Business Models + Mechanics



11/19

Life in the Post-Viral Era

The original social gaming tri-pod of distro is dead:

FB Credits: more convenient peanut butter w/ 30% tax!

Shift towards building own destination sites w/ own

XboxLive-style layerUse FB as new retail storeshelf?

FB Ads FB Installs; non-FB Ads non-FB Players, but nolink between FB Ads and non-FB Players yet

No link between FB online notifications & mobile app installs!

5/5/2012 115/5/2012 NVP Confidential 11

Virality

Cross-promotion

Facebook

Ads


12/19

That Darned G-word

Gamification Hype & Backlash:

Cant just bolt-on or retrofit Gamification as an afterthought

Not just about slapping on badges or leaderboards

Toolkit for Loyalty & CRM 2.0, behavioral analytics?

Agency / Consulting Project-Based Model vs. Saas Platform?

Renewal and Upsellbased on ROI will be the Ultimate Test

Weve seen this movie before: white-label social networking,

branded Facebook app & fanpagebuildseven Omniture

7 Deadly Sins Motivation Design Framework

3 Phases of Gamification:

1) New User Onboarding (Levels 0-5)

2) User Engagement (Levels 5-50)

3) User Retention & Power User Cultivation (Levels 50 100)



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Healthy Gaming example: Lumosity

NVP Confidential5/5/2012 13


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Music Edutainment example: Rock Prodigy



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Social 1.0 -> Midcore: Gaming Archaeology



17/19

Untapped Models & Mechanics?

Freemium + MTX + Subscription: Lumosity, Youth, Edutaiment More Innovation on the Earn It Side of Buy It or Earn It: CPE, CPI, Viral Work

MoSoLo: Foursquare w/ Real-Life Missions? (To-dos, Fitness, Nutrition,

Education, etc.)

Offline Actions + Online Rewards (and Vice Versa): Earning Virtual Currency

through Retail Transactions? Check-in + Loyalty & Leveling

Winsters multiplayer synchronous collaborative gameplay

Turn-based phase-matched PvP (Steambirds; oldschool games like Starfleet

Battles) ex: Magic-style card games; RockScissorPaper Combo Sequences

Whale-hunting & cultivating

End-game / Epic Win in Social Games (vs. attrition / burn-out / saturation)

Reputation & Referral-based social mechanics: Linked-in meets Social Gaming

for Guilds, Alliances, etc?

Social Q&A (Quora, Formspring, Friend.ly, OpinionAided)



18/19

Recommendations for Entrepreneurs

Zynga IPO + PopCap M&A = continued frothiness for the next 6-12 months

but these valuations are unsustainable

and distribution is consolidating

and marketing is getting tougher and more expensive

and players (+investors?) are hitting saturation and fatigue points

So either:

A) Raise a ginormous warchest at a crazy valuation, sit on it, and then buy up your

competitors on the cheap once the market crashes

B) Sell out in the short term while the market is hot! (Zynga, Publisher1.0, Media, Intl)

C) If youre just starting out, put together the best possible talent and build to flip as a

talent acquisitionD) yes, its possible to raise a high-priced Series A or Bbut you better not run out of

gas before hitting major traction or milestones!

AND ALWAYS THINK ABOUT HOW YOURE BUILDING YOUR OWN

DISTRIBUTION MUSCLE ALONG THE WAY!



19/19


Tim Chang

http://www.nvp.com

[email protected]

Twitter.com/timechange
mailto:[email protected]:[email protected]

Emerging Trends in Gaming CCS 2011

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