PART 3 of 4 (Globalization)
Over the past few blogs I touched on two of the biggest four game changers I’m seeing hitting the gaming ecosystem simultaneously. First we covered the trends and impact of Mobile. Second we covered the trends and impacts occurring at the Format and Business levels. For this discussion we’ll discuss what I think is another enormous trend impacting the games market: Globalization.
Globalization: I cannot emphasize the importance of this trend enough either. By percentage of market share, as other geographies begin to mature and disposable income rates increase abroad, the US and other traditional gaming Geo’s become smaller as an overall percentage of market share. The primary reasoning behind this is that most of the industrialized nations markets have already been saturated with game systems. Makes sense but why should we care? Several reasons the entire gaming ecosystem should pay heed. They boil down to: source of revenue, more choices, fierce competition, and innovation and growth shifts.
Source of Revenue: There’s a big disparity between the Western and Eastern Hemisphere’s traditional gaming revenue streams. For the combined Consoles nearly 83% of their revenue is derived from both North America and Western Europe. Whereas for the PC - North America and Europe its about 42%. Personally; if I were a Console bean counter I’d view that as having a lot of eggs in a few baskets. Conversely when we look at a Geo like China, 99% of PC Gaming revenues are derived from non-retail sources. Given some of those stats there seem to be some interesting spikes pointing to PC Gaming being in a really good pole position in those Geo’s transitioning from an emerging to maturing market. While I won’t go into this too deeply, what we're seeing is that there are some really good gaming-capable PC’s that are very respectable and affordable entering the market in numbers never before possible. Consequently the PC Gaming TAM in the BRICS is going to sky-rocket over the next decade or more. The Games ISVs, such as those in China, or Games ISVs that go through the extra spit and polish will theoretically be able to target a TAM that is 10x that of any individual Console which will become more critical over time to scale to given existing trends towards such things as the free to play business model.
• Note: When I say PC’s – I use that term loosely to also include Tablets/Slates/iPads; from the perspective of the innards: Motherboard, Proc, Ram, Hard Drive, Graphics that are either integrated or stand-alone; and not some sort of marketing or analyst re-invention of the term PC.
More Choice: This can be a double edged sword. On the down side an end user may have to sift and search through over 400,000 or more available games or apps and that number is growing. Some games are a needle in the proverbial haystack. On the other side of the coin we have game choices that we simply wouldn’t, or couldn’t have imagined now available to us, and across a broader swath of platforms. For example; I’m seeing some incredible games coming out of the Eastern Hemisphere that are creating more pull and attach than I’d ever imagined. Game diversity definitely exposes us all to more culture and flavor than ever before. From an awareness perspective I love that! The Games ISVs able to reach and appeal to these broader Geo’s and Markets are more likely to increase their chances of success.
Competition: If Games ISVs think they have it tough now; I’m guessing it’s only going to get tougher. Not only is there a schism with the various Console Mfgs fighting for their lives, (Yes... for their lives - think in terms of margin) we also have some very successful PC Gaming ISVs coming out of the East hungry to expand into N. America, and Europe. This coupled with all the shifts occurring in the business models, (e.g. Web, F2P/Freemium, Online, etc), and format shifts (e.g. Digital Distribution, Streaming), along with the current craze for ‘mobile’ – we are in interesting times indeed. Putting my Game ISV hat on from the ‘old-days’ I believe it is absolutely critical that Games ISVs NOT do exclusives for any particular platform. Call it divestment, taking out an insurance policy on your future whatever; the main point is that given the current economic climate, the fickleness of the market and consumers, and everything practically hitting the fan at once the risk is far too great to gamble on betting on the success of only one or two proprietary platforms. From a Consumers standpoint we should be seeing more value for our money. If not the ultimate litmus test will be consumers being a forcing function by voting with their wallets.
Innovation and Growth Shift: I spoke to this trend at length in a previous blog “Could PC Gaming be critical to our nation’s future?” To build on this idea I think it’s also critical for Game ISVs to keep a very close watch on the emerging and maturing markets. If a publicly held company wants to grow and be able to fund RnD (Research & Development) for either the next game or platform; that is going to be increasingly difficult with added competition and not addressing the aforementioned shifts occurring in a wise manner. On the flip side again though - perhaps seeing some of the innovation erosion might also finally be the straw that broke the proprietary Consoles’ backs. Countries like Russia for example are trying to shift towards Linux. Not too much of a stretch to see that possibly happen in other BRICs as well. This would also have tons of implications for things such as the OS’s needing to be supported and things such as either Web Graphics and or OpenGL based graphics solutions. Cause and Effect here could potentially be extremely disruptive but also lead us closer to a buy the game once and plays anywhere scheme. The growing pains in getting us to that point however will most likely be pretty significant for those ISVs that don’t plan for the future.
So those are some of the key things I see taking place on the globalization front. I’m sure I’m missing some other key points. I’d love to hear from anyone that has anything to add or another perspective. For the next and final installment of this blog I’ll touch on the some of the biggest Innovation game changers and what impacts they might have on our gaming futures!
Gaming in Transition and Revolution: Pt 3 of 4
PART 3 of 4 (Globalization)