Tech Guide 1
Contents 02 03 04 05 06 08 09 10 12 The mobile gaming market Rise of the smart phone Dual market 2015 The year of gaming Revenues Re-entrants and new entrants smartphone sales the top 20 publishers of 2014 top apps 1
The mobile gaming market The mobile app economy is booming and from a value of $53 billion in 2012 the sector is now forecast to be worth a breath-taking $143 billion by 2016. Whilst figures vary slightly from researcher to researcher there is no denying that apps are big business. And gaming is one of the most lucrative areas in the marketplace. Finnish mobile game developer Supercell is now valued at a whopping $3 billion whilst King Games and Zynga enjoy both significant revenues and valuations. But what is driving this surge and how do apps, with the majority costing nothing at all, continue to deliver strong results? 2
Rise of the smart phone Gaming has been part of the mobile system since 1994 when the Hagenuk MT-2000 came with gaming classic Tetris pre-installed. But mobile gaming first came to the masses in 1997 with the launch of Snake on Nokia handsets. The then market leader built on the early successes of Snake with later versions which saw the launch of the first two player gaming platform which utilised the Nokia s infrared port. However since the launch of the iphone in 2007 and the App Store the following year, mobile gaming has become a big, profitable business. Smartphones have spread faster than any other consumer technology in history and have permeated every part of society. And in the Western world, smartphones have even begun to reach the group of relative technophobes that consumer researchers call the late majority. With about half of mobile phone users now owning a smartphone according to Nielsen, and a large proportion of those users playing some form of game on their device, it is clear that the market for gaming apps is huge. Nothing illustrates this better than the sheer volume of smartphones that are sold. Global smartphone sales, both ios and Android, surpassed the one billion unit mark for the first time in 2014 and represented two-thirds of global mobile phone sales. This trend only looks set to continue. And it is not just smartphones that provide opportunities for gaming app sales with the market being further bolstered by the rise of tablets such as the ipad and the Samsung Galaxy tab. 3
Dual market Both Apple s ios and Google s Android operating systems (the software that manages phones systems) came to the fore in the late 2000s and both offer unique advantages on the other. Android is partly open source and as such it is freely available and may be redistributed and modified. Whilst the uniform design elements of ios are generally seen as being more user-friendly. These two phone types combined accounted for 96.3% of smartphones shipped in 2014. Make no mistake the smartphone market is a duopoly with Microsoft being the nearest rival with just a 2.7% market share. Even BlackBerry s spirited efforts to regain market share only saw it gain 0.4% of the market. In essence, it s game over for everyone bar Google and Apple. This makes the choice for those making gaming apps relatively easy. While there will always be a demand for apps for every phone anyone looking to reach a large number of users is going to look towards Android and/or ios. And the app stores for these platforms, Google Play and the Apple app store, are the prime places to sell any app in volume. With Statistica estimating that 1.6 billion Android based smartphones, not including Apple phones, had been shipped in 2014 it is clear that growth opportunities remain in the market. The increase in smartphone prevalence will see global mobile gaming app store revenue reach in excess of $25 billion in 2015, with a combined CAGR of 21.5%, and Apple and Google Play will hold the lion s share. But whilst Android leads the world in terms of the number of downloads Apple apps make more money for developers. Where Android has volume ios has stronger penetration in cash rich markets where the ability to charge through a phone bill and access to mainstream credit facilities make in-app spending easier. And this economic split between Apple and Android is hardly surprising, given that Apple generally command $600 to $700 for an iphone, and rarely tolerates discount pricing of its newest models. 4
2015 The year of gaming A recent report named 2015 as the year in which the value of the mobile games market will exceed that of games consoles, including the PlayStation 4 and Xbox One, making it the industry s most lucrative sector. The Quarterly Global Games Market Update, from Newzoo, estimates that the total value of mobile games will hit $25 billion for the year, a huge leap of 42% from the total value in 2013. Those figures are attributed to both a sudden rush of revenues from developing markets like India, and continuing performance of markets such as North America and Asia, which some had predicted to have reached saturation point. Spending is where gaming really dominates. Nearly 75% of all spending on the ios App Store comes from games. For Google Play, that number is closer to 85% and both stores see the majority of their income coming from purchases made by people whilst playing an app. Games like Clash of Clans (Supercell) and Candy Crush Saga (King) have both made around $1 billion each over the last few years. But the top-grossing games on mobile platforms for the final quarter of 2014 were almost exactly the same as the year before. Clash of Clans, Candy Crush Saga, Puzzle & Dragons and Monster Strike are in the top five on both ios and Android and all of these apps have dominated the charts for months now, and in some cases years. Whilst the domination of Clash of Clan s et al may appear as stagnation, other players, and Apple and Google, continue to benefit from strong spending in other games. And the developers responsible for the perennial hits have found different ways to attract new players and to squeeze more money from their existing base of gamers. Whilst developers may struggle to crack the top five on the highest-grossing chart it s not for a lack of quality new games or a lack of user spending. 5
Revenues But that is not to say that developers cannot learn a lot from the apps at the top of the charts. These apps are built to generate revenue and maintain user interest. These freemium (where the initial download is free but players spend money on features in the game) apps use a number of ways to generate revenue. Typically mobile games use one of four models: pay-per download, subscription, free-to-play or advertising. Traditionally the main option for generating revenues was a one-time payment however this model is diminishing in prevalence. Subscription business models also existed and had proven popular in some markets (notably Japan) but were rare in the West. However the now dominant model is the freemium one where the game download itself is free and then revenue is generated after download either through in-app transactions. And these in-app transactions can generate significant revenue with some costing in excess of in excess of $100. Additionally revenue is generated from advertisements where a user has to watch a set number of ads to receive a boost. For this type of app it is critical that a large number of users download the app and play all they want for free, with a small percentage of fanatics paying for advanced features or to skip levels For proof of this model s effectiveness, look no further than the booming Supercell which posted annual revenues of 1.55bn in 2014 from its three titles. But that is not to say other models don t work too. Apps where users pay for the initial download, such as the highest-grossing Minecraft Pocket Edition, can do well if built on strong brands and reviews. And then there are also successful non-game apps, like Pandora, which offer an upgrade to a better service for a one-time or recurring in-app purchase. 6
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Re-entrants and new entrants But whilst there are a number of apps out there the market is far from saturated. In April the first title from revived Big Huge Games landed high on the top-downloaded game charts. DomiNations launched globally April 1 and quickly joined the ranks of some of the highestgrossing games in Apple s App store and the Google Play store. Its place on those lists suggest it is raking in tens of thousands of dollars per day. The re-launch of Big Huge Games and the recent statement of intent from re-launched Atari to enter the mobile gaming space shows that there is still room for new players to crack the market. The app stores have created an opportunity for any developer to build their own products and reach a global audience with them. With firms like Supercell making $5 million a day from Clash of Clans alone it is clear that that opportunities continue to abound in the gaming app market. 8
Smartphone sales Worldwide Smartphone Sales to End Users by Operating System in 2014 (Thousands of Units) Operating System 2014 2014 Market 2013 2013 Market Units Share (%) Units Share (%) Android 1,004,675 80.7 761,288 78.5 ios 191,426 15.4 150,786 15.5 Windows 35,133 2.8 30,714 3.2 BlackBerry 7,911 0.6 18,606 1.9 Other OS 5,745 0.5 8,327 0.9 Total 1,244,890 100.0 969,721 100.0 Source: Gartner (March 2015) Worldwide Smartphone Sales to End Users by Vendor in 2014 (Thousands of Units) Company 2014 2014 Market 2013 2013 Market Units Share (%) Units Share (%) Samsung 307,597 24.7 299,795 30.9 Apple 191,426 15.4 150,786 15.5 Lenovo* 81,416 6.5 57,424 5.9 Huawei 68,081 5.5 46,609 4.8 LG Electronics 57,661 4.6 46,432 4.8 Others 538,710 43.3 368,675 38.0 Total 1,244,890 100.0 969,721 100.0 Source: Gartner (March 2015) 9
the top 20 publishers of 2014 10
the top 20 publishers of 2014 Game companies dominated App Annie s list of the top-grossing app publishers for both ios and Android in 2014. Of the top 10, all were either publishers or had dipped into gaming in some manner. (Credit both below to App Annie) Console figures (Credit Statista) 11
top apps 12
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