This is the main development in the online games landscape as we see it. Platforms have been multiplying, generating a variety of ecosystems that overarch one or several different devices (PC, console, mobile, connected TV, set-top boxes…):
- Open web
- Social networks
- XBLA and PSN
- Many game portals are their own platform
Although we feel that some platforms have a better chance at thriving than others, fragmentation is likely to persist in the future as the number of devices explodes and the hardware becomes less important. At the moment, platforms are both a springboard and a limitation, as the fastest-growing ones have become increasingly competitive. The situation is likely to continue until we see some true cross-platform endeavours succeed, which leads us to trend #2.
2. Cross-platform (or rather, transplatform)
By cross-platform, we don’t mean a game ported to different ecosystems (like many social games that exist on different SNs) or the same game being accessible through different platforms (as Final Fantasy XI did a long time ago), or what many games are doing through Facebook Connect now, but rather we refer to it in the spirit of what CCP has announced they want to do with Dust 514: different gameplays, on different platforms, targeted to different audiences, but linked. The word “trans-platform” has been used, maybe it’s a better definition. We are not sure what CCP’s game is going to be like, and this specific bet seems very risky, but we definitely see enterprises like this mattering a lot in the future. Given how difficult it is for the second generation of games to do better than the first ones, as many companies have found (Will Ankama ever succeed in making a game that will outgrow Dofus? Will Jagex ever surpass Runescape? Will even Blizzard manage to compete with WOW? Zynga had a hell of a time surpassing FarmVille, but eventually managed it). The portfolio approach has proven tough for many publishers; many portals have one or two clear winners and, as they added more games, are finding it increasingly difficult to repeat their initial success. In a way, this type of approach has been tried in some MMOs: people paying a subscription to access WOW’s Auction House on their iPhone are already doing this, although it is not at all marketed this way. Each platform, each device has strengths and possibilities, and as the world becomes increasingly holistically connected, the successful players will be those who can cleverly play across all without suffering the limitations of being dependent on only one. Audience, needs, and play patterns are all different from one platform to another. Currently, the most promising interactions we are seeing is the integration of MMOs with social networks on the one hand, and the mobile web on the other, with all its portability , geolocation and augmented reality possibilities. Nobody that we know of has really cracked that formula yet, but that’s a very interesting space to watch. At the moment, the developers response to the fragmentation of markets seems to lie in cross-platform titles (with console MMOs such as DC Universe, which apparently sold 50/50 on PC and Ps3), but as more persistent games become available on consoles and mobile, we can expect to see the games adapt more to each platform’s singularities.
3.The beauty of the niche
One of the most interesting recent developments is the rise of niches. People have been talking a lot lately about the trend of successful hardcore games on Facebook, exemplified by companies such as Kabam (Kingdoms of Camelot), which recently raised $30 million, and Challenge Games (Warstorm), which was bought by Zynga last year. As the online games industry matures and acquisition costs rise across the board, with retention proving more essential every day, this shouldn’t surprise anyone. This has actually been most obvious in the social games space, but has also happened in client games, shown by Atlantica Online or World of Tanks; in the browser games space with Urban Rivals; in the shrinking subscription game market with EVE Online… What do these games have in common? They are unique, and certainly not for everyone. They can afford to pay a lot for a well targeted acquisition, because they know that their retention and monetization are high. They have no easily substitutable competitor, and can afford to dictate their price and conditions. It’s a much better situation than being WOW Clone#28, Korean F2P grinder #56 or Kids Cute Virtual World #210. It’s a very good approach, provided there actually are barriers to entry to prevent bigger, more funded competitors to go after them, especially in the very fast-moving parts of the market (social and mobile games) in order to avoid being the next SlashKey (the creator of FarmTown, which was soon plagiarized by Zynga). The size of the pie can be one (I don’t think any big company is going to copy World of Tanks anytime soon); others include the skills and community built over time.
4. More genres : Strategy, action, sandbox
As online becomes the mainstream, every genre is increasingly incorporating progression, and in effect, all are becoming RPGs. This is squeezing the RPGs and forcing the games to diversify. So far, online games have been most successful on the PC, leading to the emergence of online versions of traditional PC genres : RPG, strategy, FPS. DotA-inspired games such as League of Legends are now becoming a successful sub-genre. Online free-to-play FPS games have known some success, but the genre is still waiting for one clear leader to challenge Counter-Strike (on the PC) the way LoL challenged DotA.
Another emerging trend is action games — not the kind of mid-session arcade games (such as BnB Crazy Arcade or Kart Rider) that were very successful in Korea before getting lukewarm receptions in the West, but “hack n slash” RPGs on the Diablo model like Mythos and Fortune Online, or the recently announced Gunshine, which we expect to do well. The genre will also get more mind share with the release of Diablo 3. More ‘evolved’ action will also be on offer in Tera, Vindictus and Dragon’s Nest, but it remains unclear at this point whether real-targeting combat is sustainable for a MMO in the long term.
Sandbox has been a big trend in 2010 with the success of Minecraft, but we have yet to see how this can be integrated with persistent universe structures and social interactions. Traditionnally in online games, the ability to build things in a free-form way has been either a secluded part of gameplay, with limited exposure and low connections to other parts of the game (such as instanced housing in many games) , or too tied to PVP so that the ability for someone to spend time and effort building something is matched by other players possibilities to destroy it.
5. Internationalisation and regional specificities
This trend is actually also about a niche… the niche of non-English speaking players, which are actually the majority on most platforms, but fragmented and harder to reach. This is a great opportunity for many developers, especially on social games platforms. Failing to localize and culturalize your games for another market is practically an invitation for local companies to come and grab that market themselves. In Europe, a good example of this is Panfu, which grabbed market share with a Club Penguin-like service before Club Penguin made a move. Even Facebook has lower penetration rates in Europe (38% penetration instead of 63% in the US), since local networks were given time to grow before any serious localization was done. Very similar services were started: one case in point, StudiVZ (still the biggest German social network although Facebook has almost caught up now), was sued by Facebook for essentially copying its features and interface.
If you look at the biggest games on Facebook (and especially the fastest growing ones), you will see quite a lot of titles in Turkish, French, Italian, Spanish… Never heard of Okey or Tavla? They are traditional Turkish games, and the biggest Okey app on Facebook has 4.5 million+ MAU, and is #32 in the game rankings by MAU. The fastest growing rate is often due to the fact that local languages are smaller, tight-knitted communities where virality occurs much faster. After all, more than 50% of Facebook users view it in a language other than English. And that’s only Facebook, when you can also go have a look at the regional networks stats. The key is not only to localize, but actually to develop the game in several languages to adapt to the fast turnaround, while also localizing payments and community management. The Hong Kong-based developer 6 Waves (24 million MAU on Facebook, 7th in the MAU rankings) has been quite successful with this approach, and German developer Wooga (16 million MAU on Facebook, #15 in the rankings) has been even more thorough in its local efforts, with a very good quality of localization and culturalization. Moreover, it’s interesting to note that CityVille (the fastest-growing Zynga title ever, reaching 20 million MAu in 9 days) was their first one to launch directly in 5 languages, as Eric Von Coelln has noted.
6. Industry concentration
As the online games industry matures, we can expect concentration in several domains:
- Old-school publishers trying to get online will try to buy online and social games start-ups while they still have some cash to invest, as they see their markets shrink while lacking the experience and talent to shift to the new models. That’s happened with Activision merging with Blizzard, Atari acquiring Cryptic, EA acquiring first Mythic and Bioware then Playfish, and in some aspects, Disney getting out of console games and acquiring Playdom. As these deals become ever more urgent for the traditional publishers, prices are likely to inflate at the same time as the power shifts;
- The young social and mobile games industries are likely to consolidate even more, with the biggest actors seeing a limit to their growth in the casual segments and try to diversify in the hardcore markets. A few IPOs could also happen for the biggest firms who stayed independent;
- Mature territories’ online game giants (mostly Asian) are likely to buy local companies as part of their Western expansion plans, in order to benefit from their local expertise. Tencent has still $300 million + left in their giant Western game industry fund, even after Riot Games’ acquisition;
- As the online games market grows, B2B service providers (such as payment solution companies, ad networks, customer support software and outsourcing, analytics solutions, etc) are getting more numerous. In fields where the existing skills are common and barriers to entry are low, such as payments and ad networks, this has resulted in a lot of competition from mid-size companies with low differentiation, so we can expect some concentration at this level. The biggest players, on the other hand, are getting big enough to catch the interest of other industries’ giants (like Visa which just acquired PlaySpan).
7. Transition from Pay-to-play box blockbuster MMO model
We think this year is going to put the final nail in the coffin of the pay-to-play, retail model, big-budget MMOs — not necessarily because we anticipate outright massive failures, but we can foresee real difficulties in reaching ROI on this model, even for the biggest profile games. We expect most of the upcoming games following that model (Rift, Star Wars : The Old Republic, TERA, Guild Wars 2 – which is announced without subscription) to have a hard time, at different scales, to keep enough subscribers to be sustainable (or in the case of Guild Wars 2, to monetize properly in the long run –we have no doubt it will sell well at retail). These days, ironically, such a model will actually make you a niche game, which is fine if you have a niche position (with enough differentiation to justify the price to a captive audience) and realistic expectations compared to development and operations costs, but not at all if you set out a few years ago with a massive budget in a different business climate. For big players launching after many years of development and a budget that might have already slipped, the temptation is to blow huge sums in big-buck marketing campaigns just at launch, with a game that might not be ready. They might sell a lot of boxes but fail to retain the users long-term. A soft launch is not really possible with a box, and when the company’s future is at stake, good money can be thrown after bad. We still hope all those games will find their audience and be profitable, of course.
These are general mainstream trends, so they might feel like very obvious things to say. In terms of more edgy things, we’ll probably see more attempts to incorporate new technologies in games, such as geolocation, augmented reality, 3D printing, so generally we can expect more in-game/real world interactions. And also gamification will continue but might be used more intelligently, after the recent backlashes regarding how points and levels invade every single aspect of our life.
We would be really happy to discuss about the future trends, so please don’t hesitate to comment!