Despite Zynga's flop, social gaming is not a fad

Zynga's early struggles have led many to call mobile/social gaming a fad. Don't believe that myth.

Zynga’s poor post-IPO performance has perpetrated the belief that mobile/social games are a fad and are not a sustainable business. Japanese mobile game company DeNA, which owns hits like Rage of Bahamet, will dispel this as well as a few related myths that have recently become pervasive. Despite dreary reports, mobile/social games are a thriving business.

Not many years ago, Japanese mobile company DoCoMo led the world in mobile data innovation. Apple, later joined by Android, changed this by replacing feature phones with smartphones, decoupling innovation from the carriers and letting mobile apps and the mobile web drive growth in mobile data usage through a diversity of new smartphone functions. Today, Japanese mobile/social gaming companies hold a similar lead to the one held by DoCoMO, and DeNA wants to expand its share of leadership into western markets.

Speaking at the recent Open Mobile Summit in San Francisco, Neil Young, the chairman of DeNA’s U.S. business ngmoco, estimated that Americans spend about $500 million in all forms of social/mobile gaming. In the same category, Japan spends about $5 billion. If the 1.2 billion consumers in western economies spent the way that the Japanese spend, mobile/social gaming would represent a $30 billion western market.

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Most of DeNA’s $637 million in revenues is earned from in-app virtual goods purchases. DeNA has succeeded by classifying mobile/social games as luxury goods and focusing on player’s needs rather than wants. Many people are compelled by primordial human psychology to successively achieve higher levels of performance defined in role playing and battle games because it is satisfying even though achievement is intangible. By combining entertainment and psychology – through a combination of an understanding of human behavior and data-driven testing - game developers like DeNA are able to evoke purchases of virtual goods at predictable rates. Time pressure, social obligation, completion, compulsion, gotcha, stress and relief and social expression are just the self-explanatory techniques that drive spending for virtual goods in DeNA’s many role-playing and battle titles.

In addition to dispelling mobile/social gaming as a fad, DeNA disproves the myth that the Google Play store is not a good venue for producing app revenue. DeNA acquired ngmoco last year, and through its operations has applied its monetization techniques and introduced localized versions of its Japanese games based on its mobile/social game platform called mobage (pronounced "mo-big-guy").

DeNA began its U.S. venture on Android. Rage of Bahamut has been the top-grossing Google Play Store app for the last five months without losing its position for even a day. Other DeNa games hold two more of the top five grossing apps and five of the top 30.

DeNA started later in the Apple App Store, where it commands one of the top-five grossing games and two of the top 25. It is likely that DeNA started with Android first because the monetization techniques of the games were iteratively market tested to acquire the data to decide on code changes that would optimize the games for the U.S. market. Determining the optimal monetization techniques on Android first would accelerate the process because apps are not subjected to the six-week submission and approval process in Apple’s App Store. Applying the changes learned on the Android platform to the iOS version cuts the time to market.

There will always be a place for paid mobile app downloads. Many developers were spoiled by the early Apple App Store days, when there was a scarcity of apps and a creative design guaranteed paid download revenues. Today, there are so many creative apps that it is difficult to successfully implement a paid download strategy. Google Play Store arrived after the golden age of paid downloads, and new app developers may be encountering equal friction to paid downloads in both the Apple App Store and the Google Play Store.

Mobile/social gaming is a distant cousin to Xbox and Playstation console gaming. Game developers need to be creative in applying monetization techniques. Because the Google Play Store audience formed later, gaming apps need sophisticated revenue-generating techniques that are designed in the game. For the developers that do this well, there is a potentially large market, if, of course, Neil Young’s predictions are correct.


Copyright © 2012 IDG Communications, Inc.

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