Decoding Mobile Games Consolidation
July 23, 2014, Casual Connect Conference, San Francisco—Andy Yang from Upsight espoused his views on casual gaming consolidation. The drivers and trends for reducing the number of companies are now moving into prominence, even as the industry is on course to grow to over $22B by 2015.
In the early growth stages of any organization, society, culture, or other grouping, the incumbents look for allies. At the early stages, companies developed coalitions to promote some level of interoperability and to present a unified front to the hardware manufacturers. The advent of the smart phone moved the leverage from the developers and publishers to the apps stores, as the high ASPs allowed the app stores to support new infrastructures.
The next areas for growth will be the developing countries like Brazil, China, India, and Russia. The growth in these areas is projected to exceed 20 percent per year. The challenge is that these countries are adopting the low-end smart phones, reducing ASPs for everything in the ecosystem.
In addition, the apps stores are becoming overloaded with games, and the industry is seeing an explosion of other service providers for in-app functions like analytics and in-game ads. These service providers are hosting point solutions, but the game developers are now looking for consolidated platforms to simplify their development efforts and to reduce the security issues.
As a result, the game developers and service providers are seeing increasing merger and acquisition activities. The studios are also getting into the picture since the service provider consolidation reduces the number of vendors, but allows for easier integration of more functions. The challenge for all parties in both industries is the growing difficulty in holding a competitive advantage.
Simple publishing continues to be the main path for many companies. Nevertheless, everyone needs to consider their next moves; to stay independent, to be acquired, or to become a publisher. Each choice has positives and negatives, and all require access to funding and other resources to remain in business.
Another driver is that smart phone growth is slowing dramatically as the developed world reaches saturation. The market is moving to the lower0end of the market, which is also driving the whole ecosystem towards greater consolidation. For example, in China there are over 300 app stores. The natural dynamic is for greater consolidation as consumers become weary of searching through a subset of the market and not finding what the want.
Other changes driving the industry are in the blurring of categories with phones getting larger and overlapping the small tablets. The slowing growth of the tablet market reflects the idea that tablets are a “want” device rather than a needed device. Wearables have potential for growth, but no one knows how to play a game on a postage stamp. All of the screens are now fighting for eyeball time.
The best path for a company to the developing countries is to start as an international company and eventually move to become a native company. Mobile apps have strong fundamentals and are doing well in valuing their users, but most companies are still paying too much for each new customer. It is possible to rationalize these costs with more meaningful and actionable analytics, as more channels come online.
The analytics need to provide insight and actionable data, and the vendor consolidation should help with more integrated analytics. The freemium model may be under pressure as new regulations are considered in EU and other developed areas to prevent kids from accessing in-app purchases. The clampdown on password borrowing will increase development costs. One area that may benefit from these changes is episodic materials.
