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Asia's Key to Mobile-Game Dominance: Give 'em Away for Nothing

8 November 2013 in Trading Ideas

The video-game industry is used to experiencing continual change – in fact, even the phrase “video game” is rarely heard these days, particularly by anyone creating or playing them.

Now they’re just “games,” because, really – where else would you play one but attached to some device you’re holding two feet (or less) from your face?

But even the gaming industry scratched its collective head at the news last month that Japanese telecom company Softbank agreed to buy 51% of a Finnish mobile-gaming company for $1.5 billion.1

All of a sudden, as the New York Times noted, a three-year-old company with 100 or so employees and two successful games was worth $3 billion. How did that happen?

But Softbank’s move may not only portend the future for where gaming is going – but Asia’s leading role in it.

Just as companies like Sony, Nintendo and Sega were the pioneers of early console-based video games, firms like Electronic Arts played a big part in moving that focus to the personal computer.

online gaming worldAnd PC gaming is still big business, with revenue expected to hit $25.7 billion by 2016.2 Our Online Gaming World motif comprises stocks of companies that are generating revenue from console-free gaming. The motif is down 3.4% in the past month and up 57.0% for the year. During those same time periods, the S&P 500 is up 3.5% and 23.1% respectively.

But with smartphones and tablets combined now easily outselling the PC, mobile gaming appears to be the new growth arena. As the Times noted, mobile is upending the traditional model of selling games and the devices to play them.

Now, the strategy is to give away games for free on smartphones and then earn revenue from in-game purchases, advertising, and other add-on purchases.

This business model was pioneered in Asia, which probably goes a long way to explain why two Asian countries, Japan and South Korea, accounted for 62% of global revenue from games on the Google Play mobile app store. The US represented just 15%.

What’s more, Asia accounts for half of worldwide mobile gaming revenue, a figure that’s expected to climb to two-thirds in 2016.

And that sort of market share may eventually mean that it’s Asia that attempts to crack the US market, rather than the other way around. Softbank, it should be remembered, recently purchased US carrier Sprint.

How ironic would it be if traditional telecom laggard Sprint turns out to be a key ingredient in Asian company grabbing huge piece of US mobile-gaming market share?

1Eric Pfanner, “Asia, Where Mobile Games Flowered, Extends Its Reach,” nytimes.com, Oct. 21, 2013, http://www.nytimes.com/2013/10/22/business/international/asia-where-mobile-games-flowered-extends-its-reach.html?partner=yahoofinance&_r=1&, (accessed Nov. 6, 2013).

2Grant Brunner, “PC games are growing, but will that continue after the PS4 and Xbox 720 launch?”, ExtremeTech.com, March 29, 2013, http://www.extremetech.com/gaming/152053-pc-games-are-growing-but-will-that-continue-after-the-ps4-and-xbox-720-launch, (accessed Nov. 6, 2013).

  1. arun motwani
    9 Dec at 1:21 am

    Great ! I like it so much thanks for sharing it .