After doing the same exercise last year, we felt it was a bit difficult to do a new trends prediction this year, as many of them are in continuity with the ones we announced for 2009. A year later, we still feel most of them have been happening or are on their way, so don’t expect anything that really conflicts with last year’s predictions. With a year’s hindsight, though, we have been able to refine our opinions about where we think the industry’s going.
1. Facebook will be even more important
2009 has been a huge explosion for “social games” , seeing more than 70 M monthly active users for Farmville, the sale of Playfish to Electronic Arts, and a general “gold rush” for this new platform which growth has seemed unstoppable in 2009. Now Facebook has 350+ million active users, a number that makes console installed bases pale in comparison. Connecting to users’ real life social graph offers a lot of advantages, starting with super cheap acquisition costs and unmatched growth possibilities. Social gaming is likely to expand a lot outside of Facebook in 2010, as the platform is pushing the Connect network, and recent policy changes might prompt developers to also have a standalone web version of their game in order to retain more control over them and promote them outside of Facebook too (like Pet Society or Farmville did). The addition of a dashboard for games is also validating the social network as a primordial gaming platform. A part of Facebook growth in Asian countries is actually tied to the games, as some users register primarily to play.
2. But as the platform matures, market conditions will change.
Facebook’s growth has probably peaked in the US and some EU countries, although there is still plenty of growth margin in some of them like Germany and in numerous other countries. Combined with the new set of rules limiting aggressive viral practices, this should make it difficult for Facebook games to repeat the mass success of FarmVille or Mafia Wars. As the platform matures and competition intensifies, should see retention and monetization gain in importance, and small and middle-sized developers trying to find sustainable competitive advantages (eg non easily clonable games). That could open the way for more niche games with high monetization, such as Challenge Games’ WarStorm. On the casual front, we should see more adaptations on Facebook of casual game favourite genres (time management, hidden object…) and more MMO-lites integrating such gameplays. The dashboard for games is likely to see Facebook play a bigger role in game discovery and recommendation (“kingmaker”). This, in conjunction with the limitations on aggressive viral tactics, could make users acquisition costs more expensive as developers have to resort more to advertising and competition for the “virtual retail space” of the dashboard, making it more similar to other digital distribution spaces (casual games portals, XBLA, App Store, etc) – while of course remaining more social. It remains to be seen if this will translate in developers acquiring some “neo-publishing” skills to adapt to these environments, or if a new breed of companies offering these services will appear (as it might start to be the case on AppStore). Extremely high monthly active users numbers could also become reserved to the most wealthy companies, as the need for cash to market the games intensifies.
3. Android game market will grow, is unlikely to challenge iPhone just yet
Up until now, Android app market has been significantly smaller than the iPhone’s. Estimates for 2009 locate Android game market around $1.7 million, when iPhone game sales are thought to have been around $250 million for the mid-2008 to mid 2009 period. Mobile game publisher Gameloft has recently announced stopping developing Android games as their revenues were about $15k/quarter, or about 400 times less their iPhones sales. Main culprits are thought to be the fragmentation of formats in Android platforms (some handsets have keyboards, others don’t, different screen sizes, etc), a limitation in app storage for most of Android-based handsets (which is adverse to sophisticated apps like games) , and a difficulty of monetizing the app-downloading audience on Android. The fragmentation issue, which is the biggest obstacle, might be less of a problem if a handful of Android phones become very popular in 2010 (the Nexus One is thought to sell 5-6 million units in 2010) or if some standards making the gaming experience more similar across devices are adopted (for example, by HTC, the leading manufacturer). As Android is an open platform, custom app stores will also be possible, although yet again critical mass will be the main problem. Still, there will be some growth on the platform, which recently grew 53% month-on-month. Also, the openness will allow developers to instantly propose a 100% service model from start on the platform, as is only starting to be possible now with the iPhone. Another advantage is the possibility of offering Flash games, as it is unlikely that Flash gets approved on iPhone anytime soon. This could allow developers to release cross platform games web/Android.
4. Towards service model games on iPhone?
Apple has only towards the end of 2009 allowed in-app payments inside of free apps. This, combined with push notifications (at the moment too power-hungry, but that might get improved in a new version of the handset?), should allow for evolving, service-based games. There are already some instances of free to play apps with “micropayment” on the iPhone. What is still missing would be allowing currency selling or Apple credits that would allow real micro-payments, along with an auto-patch function. Could that make the App Store less product-based, as it is now, with a very “digital retail-like environment”, and more service-based, with more opportunities for developers for persistent environments?
5. Hardware changes : mobility
2009 has been the year of the netbook (+103% shipments y-o-y worldwide according to DisplaySearch ). The same institute predicts more moderate growth for netbooks in 2010, at only +19%. Still, with the expected Apple tablet computer and many competitors that are all the rage at CES this week, we should see further convergence between laptops/netbooks/tablets/smartphones. With it may come the long announced reign of mobile web, which could impact gaming more than we have seen so far with mobile games, as we might be able to see games totally designed for nomadic use and real-world interaction (via geolocation, augmented reality, etc). Again, that could open the door for nice cross platform apps and mobile extensions of PC or web-based games
6. Hardware changes : consoles decline and transformation
So far, console manufacturers’ answers to digital distribution and now to complete digital replacement (Onlive, Gaikai, etc, which might well become a reality in 2010 if the technical side follows, and connected TVs) has been rather limited and patchy. Even recent initiatives, like Xbox Live Twitter and Facebook integration, has been reserved to paying subscribers, showing that once again Microsoft got the business implication backwards (namely, Microsoft should incentivize people to share Xbox related content on social networks, not try to make people pay for it). The recently announced Game Room should be available to non-subcribers, though, but it could take advantage of the Facebook/Twitter interaction for them too. PlayStation Home so far has 10M registered players, but in last July it was stated that only 25-35% logged in more than once . Total revenue was at that time $1M/month. If the service has found a niche community of active players, that could be a quite good ARPU. It remains to be seen if the service can be a profitable platform for free to play multiplayer games such as the recently launched SodiumOne. Nintendo’s digital distribution offering is still limited, and Wii’s connectivity ratio is lagging behind rivals (35-45% of the Wii installed base is estimated to be connected, as opposed to around 60% of Xbox 360s, hence the Wii Ambassador promotion at the end of the year.). Generally, console and package game sales have been tough in 2009 : just in the UK, home consoles hardware unit sales have been down 25% and software -12% . As the recession amplified the latent shift to online models, it is going to be very tough for incumbents to adapt quickly enough. EA seems to go in a good direction with Playfish acquisition, but is likely to have to undergo a real shift of culture and priorities, and 2010 looks again like a painful transition year. The future looks even bleaker to all of the traditional video game publishers that are moving slower than EA, not even speaking of retailers and distributors. Consoles are unlikely to die completely in 2010, as price cuts and motion control novelty can slow the decline, but unless manufacturers really make drastic changes (becoming cloud-based online services ?), it’s difficult to be very optimistic for the console business outside of the “family and party entertainment” niche (music games, Mario Kart,WiiFit, PES/FIFA, fighting games, etc).
7. MMORPGs : free, browser-based, and more diversity in genres
There has been relatively few pay to play MMORPG releases in 2009. Darkfall Online launched in February as a very niche product. Champions Online launched in September to a wider audience, but still relatively confidential. Aion, launched later in September, seems the only P2P game to have achieved relatively large scale success last year. It remains to be seen how good its traditional formula with hardcore/grind elements will be at retaining its whole audience long-term. In 2010, there will be some interesting P2P MMOs : Tera, Final Fantasy XIV, APB, Star Trek Online, DC Universe, maybe betas for Star Wars Old Republic, Guild Wars 2 and Blade and Soul, without forgetting the Cataclysm expansion (although no official date is announced, so it might well happen only in 2011). Still, it’s becoming more difficult to imagine new games starting development now following the same business model and “walled garden” design (client-based, with very few interactions with the rest of the web and social networks).
On the Free to Play front, at the contrary, the year has been rich in successes: Runes of Magic’s formula of polished F2P WOW-style MMO reached 2.5 M registered players, SOE’s Free Realms quickly reached 5 M registered. Earth Eternal (in Open Beta) and Allods Online (in Closed Beta), along with Runes of Magic, are raising the bar in terms of quality expectations for Free to Play MMOs. Browser-based MMOs, such as previously mentioned Earth Eternal, but also Artix’s AQ Worlds (which launched in late 2008, and scored 11 M registered players in a year), or Gpotato’s Canaan, scheduled for early 2010 release, are likely to grow provided they have the sufficient quality, and can be accessible and connected enough to the social web. Existent browser games leaders such as Bigpoint have been announcing more sophisticated games (such as PoisonVille), while splitting portals in “hardcore” and “casual” channels . It will be more difficult for new entrants on the market entering with lower quality or non-original games, or licensing games already out for a while in Korea, as we have seen recently with the closure of serveral services in Europe.
In terms of genres, “casual” (arcade, sport, racing) client-based games have all been struggling and aren’t likely to take off in 2010. PC favourites genres have had more success, namely FPS (Battlefield Heroes, Combat Arms, Soldier Front have a sustainable, if modest, audience, although a Pay to Play larger scale project like Crimecraft didn’t take off), and more recently, DOTA-inspired games (League of Legends, Heroes of Newerth) seem to have found an efficient niche. As competition intensifies, more games have been exploring different genres in the hope of differentiation. In 2009, crossovers have been attempted, for instance MMO/City Builder by Cities XL, which doesn’t seem to have attracted a large subscriber base for the MMO part, and Champions Online and Dragonica have been forwarding very action-based combat systems with more success (in very different genres). This should be a further trend in the future, as generally we should see more games mixing more action-based gameplay with traditional MMORPG elements. CCP has announced Dust 514, a console shooter tied to EVE’s universe, Blizzard is rumoured to work on a shooter-MMO, and Star Ward Old Republic, Tera and Blade and Soul all seem to be vying for more action.
Regarding the provenance of foreign MMOs in the Western market, we are likely to see fewer Korean games and the start of an influx of Chinese games, from browser based games to AAA Unreal-based ones (directly operated like the infamous Evony, on proprietary portals such as Webmmo or Perfect World portal or via license deals like Castle of Heroes, the new Gpotato game) .
8. User Acquisition becomes a big issue again in the new gaming universe
As developers are turning into publishers and the new landscape emerges, the main problem for game operators is to acquire users for their services in a fragmented and competitive environment. Social games have been an opening through which it was possible to acquire a lot of users for very cheap and very fast. As the social graph spills out of social networks and extend to every game on the web, and as social networks restrict aggressive viral practices, reaching a critical mass for a service is likely to become tricky again, to the point that a lot of observers are thinking about the return of a new kind of publisher, with pockets deep enough to buy enough users from start. So far, free to play games browser and client games have been good at acquiring users via partnerships with media and community sites, and recourse to specialized ad networks (CPMStar,Ad2game, etc). Good cross promotion strategies have been using low CPA games as a “bait” to convert players to higher CPA, more profitable client games – something Gameforge has done since Metin2. As we discussed earlier this year, 2010 will probably see a lot of activity as operators try to appropriate this crucial part of the value chain, by buying media, ad networks (see the recent Shanda’s purchasing of Mochi Media), community sites, etc, and the strongest actors in the user acquisition and channelling business, including big mainstream Internet media companies, considering going further down the chain by starting their game development and operations divisions or making acquisitions in that space.
9. Deeper service integration and developer resources changes
It is increasingly business and operational excellence that will drive a developer’s sucess, and there will be more integration of marketing and community management at all customer touchpoints. As most game developers will have to become operators/publishers, it is likely to make sense for a lot of them to hire a limited number of staff with expertise on publishing topics (marketing, customer support, billing, hosting, etc) and work with specialised service vendors for each of these topics. Of course, some of the biggest players will internalise those functions, but most will prefer to outsource this, keeping a few very experienced people internally to manage the relationship. Also, data- metrics capture and analysis is going to be a very important competitive advantage, so data capture systems and data analysts should be in high demand in 2010, and maybe more companies in that service field will emerge. By next year, we also expect that expertise on virtual goods design, marketing and sales will be pushed to the next level.
We would be happy to discuss reader’s opinions on what you think will be 2010’s big trends, so please don’t hesitate to comment!
Also, we at ICO Partners wish all our blog’s followers a great 2010, and hope we’ll have a thrilling 2010, full of great online games!