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Mobile Games Business Anssi Vanhanen 3.5.2007


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Title: Mobile Games Business Anssi Vanhanen 3.5.2007

Mobile Games BusinessAnssi Vanhanen3.5.2007
Expectations on Business Potential
  • Gambling could be the killer application that
    will help make third-generation cell phone
    licenses pay off. Promoters of mobile gaming
    think it will attract a new breed of gambler,
    including a younger, more upwardly mobile crowd.
    (Schenker 2001)

  • The average revenue generated by gaming per
    mobile user in the US is starting to increase,
    from 2.00 in 2000 to an estimated 2.50 in 2004.
    (Computer magazine)

  • Global Gaming Revenue
  • 2003 1,100M
  • 2008 8,400M, CAGR 50 (ARC)
  • 2008 4,200, CAGR 31 (Screen Digest)

  • ITU by mid-year 2005, total worldwide
    subscribers totaled 1.5 billion.
  • Nokia the worldwide subscriber base would grow
    to 2.0 billion by 2007.
  • IGDA total subscriber base not as relevant as
    the installed subscriber base with data enabled

The Outcome
The Outcome
  • This year (2006) the mobile gaming market will
    languish at around 800 million Euros.
  • With 60 - plus growth rates predicted in the
    mobile games market in the coming years, the
    problem is perhaps we are counting the wrong
  • (Frost Sullivan 2006)

The Outcome
  • in the UK only about 3.8 of mobile users who
    play games on their handsets have actually
    downloaded one
  • Germany 2,1
  • US 2,5
  • (Frost Sullivan 2006)

The Outcome
The Outcome
  • mobile gaming markets are growing extremely
    slowly in revenue term
  • In contrary to expectations, women are playing
    mobile games longer and harder than men
  • Even afted such relevations, it still remains
    unclear how to translate gaming into commercial
  • - Perhaps operators and publishers need to accept
    that mobile gaming is destined to remain a niche
    activity. (Frost Sullivan 2006)

Mobile Gaming Market
  • The logic behind some of the boldest forecasts
    may be based on the number of handsets and
    comparing it to the number of game consoles.
  • However, mobile phones and game consoles are
    bought for different purposes.

Mobile Gaming Market
  • Recent Market Trends
  • traditional video game publishers jumping in
  • increased availability of games
  • quality of games is enhancing
  • network capability improving
  • a solid growth projection

Mobile Gaming Market
  • Who are the players?
  • more than 60 are between ages 18-26 and single
  • Women are in fact playing mobile games longer and
    harder than men and have been steering the mobile
    game market.
  • more than 70 are sharing mobile gameplay on
    their phones with friends
  • most people who download games learn about them
    through word-of-mouth

Mobile Gaming Market
  • When are they playing?
  • 60 play games once a day or more
  • 30 play games more than 3 times per day
  • more than 70 play for longer than ten minutes at
    a time
  • The common assumption that mobile gamers are
    either core gamers playing console-like ports or
    a mass market consumer bored in their downtime,
    does not hold.

Mobile Gaming Market
  • How to reach consumers and make them purchase?
  • A lot of money and effort invested in mass-media
    advertising such as TV
  • Probably based on traditional market segmentation
    to target certain demographics, for example the
    majority of players, 18-26 year-olds singles

Traditional Market Segmentation
  • 1. Market Segmentation identify segmentation
    variables, segment the market and develop
    profiles of resulting segments
  • 2. Market Targeting evaluate the attractiveness
    of each segment and select the target segment(s)
  • 3. Product Positioning identify possible
    positioning concepts for each target segment (4P)
    and select, develop, and communicate the chosen
    positioning concept

  • (Mattsson 2006)

Mobile Gaming Market
  • Could there be a more effective and efficient
    channel to reach and convince consumers?

Strategic Market Segmentation
  • 1. Valued Customer Who to serve?
  • 2. Value Proposition What to offer?
  • 3. Value Network How to deliver?

  • (Mattsson 2006)

Case Finnish Snowboarder
  • Active skiers living in Helsinki Metropolitan
    Area often tend to travel further to fulfill
    their needs
  • The travel will take at least a couple of hours
  • Many of them use public transportation
  • During the trip, the skiers are bored and
    inactive and may be seeking something to amuse
    them during the trip

Case Finnish Snowboarder
  • In this context, they could be persuaded to try
    and invest into a mobile game that sounds
    interesting to them
  • Word-of-mouth from one of the travelers could
    convince some of the others to purchase a mobile
    game over the air, but chances are that there is
    no one in the group that would persuade the
    others to do so.

Case Finnish Snowboarder
  • Ads of popular mobile games, for example ones
    downsized from PC or console versions that have a
    strong brand and a promising foothold in the
    demographic group of snowboarders, could attract
    the travelers attention.
  • Targeting and serving customers in the context
    where they have the need to play games, the time
    to contribute to playing and the opportunity to
    purchase the game over the air could be very

Case Finnish Snowboarder
  • Serving selected niches in the context of
    potential use and purchase, could be a lucrative
    method to gain customer mass and eventually reach
    critical mass after which positive network
    externalities will have a beneficial impact upon
  • Reaching and serving potential customers in the
    context of use could be more effective and
    efficient than making huge investments in
    mass-media advertising that does address the
    needs of specific customer groups in the context
    of use

Need to Reach Critical Mass
  • Effects of reaching critical mass
  • First, in the case of multiplayer games the value
    of a subscription (player) to the network
    (community of players) would be higher when the
    network has more subscribers. Reaching the
    critical mass in over the air multiplayer gaming
    would allow substantial growth.
  • Second, word-of-mouth in the case of single (and
    also multi) player games could create a
    noteworthy snowball-effect and eventually lessen
    the need for expensive mass-media advertising.

Connection and Its Challenges
  • Multiplayer functionality for mobile games can be
    achieved, for example, through infrared,
    bluetooth, GPRS, 3G or WiFi connections.
  • Infrared the connectivity is not good enough for
    multiplayer gaming because its line of
    connectivity should not be disturbed.

Connection and Its Challenges
  • Bluetooth the possibilities for multiplayer
    gaming are quite limited since the users have to
    be within a relatively short distance
    (approximately 10 meters) from each other. Also
    the number of players is limited and most mobile
    phones support just one peer-to-peer connection
    at a time.

Connection and Its Challenges
  • GPRS
  • A common connection among GSM mobile phones and
    can be used to share the data globally.
  • Developers can connect a mass number of mobile
    games with a single server and share data among
    the players.
  • Some developers have achieved cross platform
    games, allowing a mobile player to play against a
  • GPRS best supports turn based games and small RPG
  • Most of the countries have a weak GPRS speed in
    their carriers.

Connection and Its Challenges
  • 3G and WiFi
  • 3G and WiFi have a high speed which allows new
    possiblities for multiplayer gaming.
  • WiFi connectivity can only be used for an
    intra-networked multiplayer game

Software and Its Challenges
  • - Most common platforms and technologies for
    developing mobile games are
  • Windows Mobile, Palm OS, Symbian OS,
    Macromedia's Flash Lite, DoCoMo's DoJa, Sun's
    J2ME (recently rebranded Java ME), Qualcomm's
    BREW, WIPI and Infusio's ExEn
  • - Java ME seems to be the most popular choice,
    but its performance limitations have led to the
    adoption of various native binary formats for
    more sophisticated games

Software and Its Challenges
  • Mobile Java application concepts are simple they
    inherit a class and override some basic
    functions, but there is a performance penalty and
    lack of some Java features.
  • Native OS games do not have that performance
    limitation. In contrast to Java, Symbian OS
    applications are complex, inherit a large number
    of classes, override some basic functions in all
    of them, and their correct configuration must be
    ensured, but their advantage is that they have an
    improved performance

Software and Its Challenges
  • BREW a proprietary wireless application
    development platform. Its main advantage is that
    the application developers can easily port their
    applications between all the Qualcomm ASICs.
  • BREW applications must be digitally signed.
    Because they give complete control over the
    handset hardware, only content providers or
    authenticated BREW developers have the tools
    necessary to create a digital signature
  • As of March 2006, the least expensive digital
    signature for testing costs 400 USD and is
    limited to 100 application submissions. This
    steep cost of entry excludes hobbyists from
    developing for phones that use BREW.

Software and Its Challenges
  • Java ME versus BREW The time and cost to market
    favors Java ME over BREW, because of BREWs
    rigorous certification requirements. On the other
    hand, higher entry barriers may create an
    advantage for established software developers who
    have more resources and do not have to compete
    with self-published hobbyists.

Software and Its Challenges
  • Managing the deployment of games on mobile phones
    can be really complex.
  • Developers have to create multiple versions of
    the applications, even if they write it in Java.
  • Java ME has became a popular option for creating
    games for cell phones, as they could be emulated
    on a PC during the development stage.
  • To maximize return, an application must support
    many, many different models of handsets, yet the
    expense and effort to adapt and test hundreds of
    versions can be daunting.
  • The researcher is stating that the developers of
    J2ME had to make a lot of compromises in its
    standardization and therefore left too much
    freedom in terms of implementation to the
    end-terminal manufacturers.

End-terminals and their Challenges
  • End-terminals are constrained in terms of memory,
    battery and energy consumption, screen size and
  • From the aspect of mobile game development,
    limited screen size and resolution leads to less
    robust graphics and fewer pixels. End-terminals
    are also limited in network bandwidth which
    requires the use of fewer textures and sounds.
    Phone buttons often limited to single key presses
    so the user is not able to control content by
    pressing several keys simultaneously.

End-terminals and their Challenges
  • Moore's Law the empirical observation made in
    1965 that the number of transistors on an
    integrated circuit for minimum component cost
    doubles every 24 (or 18) months.
  • The researcher suggests that if Moores law holds
    in hand-held devices, the strategy of writing
    software to address the needs of future instead
    of current devices may work in the hand-held
  • On the other hand, the implications of Moores
    Law depends on whether the device manufacturers
    decide to cram even more functionality and chips
    into the devices, further increase their
    processing power or just make the devices smaller.

Business Models
Business Models
  • Mobile game industry is closely related to mobile
    telecommunications content business and computer
    and video console publishing business.
  • Four operational phases content creation,
    content aggregation, content marketing and
    content distribution

Business Models Over The Air (OTA)
  • OTA includes downloadable, browser-based and
    messaging-based games
  • The value chain consists of content creators,
    content aggregators, content marketers, content
    distributors and consumers as in the case of
    traditional console and PC game value network
  • The researcher suggests that OTA business model
    enables larger circulation, but on the other
    hand, the protracted value chain with the
    significant power of carriers and game publishers
    leads to limited margins to game developers.

OTA Value Chain
  • In OTA mobile game business, the most important
    players in the value chain are game developers,
    porting services, game publishers, handset
    manufacturers, carriers and some independent
    channels (e.g. online portals)
  • The protracted value chain dictates the cash flow
    and thus developers should expect no royalties
    until six or seven months after the first game is

OTA Value Chain Game Developers
  • The creators and producers of the initial game
    concept to the final playable game.
  • It is not sufficient just to develop great games,
    but also make sure that the games can be run on a
    variety of mobile phones.
  • This complexity is multiplied by the number of
    supported dominant software platforms which
    results in that the number of individual game
    builds may be large.

OTA Value Chain Porting Services
  • Many developers are not prepared to create these
    individual builds for the hundreds of devices
  • Depending on the complexity of the game, the
    porting process usually exceeds the initial
    development costs.

OTA Value Chain Game Publishers/Aggregators
  • Publishers plan a slate of titles based on IP
    they either own, create or plan to acquire and
    then match that IP to in-house or 3rd party
    talent to create a game.
  • Publishers want their games as on many devices as
    possible in order to realize the full sales
    potential of any given title, but also due to the
    fact that carriers will favor games that support
    the widest selection of handsets.

OTA Value Chain Handset Manufacturer
  • The mobile industry equivalent of game console
  • Handset manufacturers play an important part in
    setting market direction of the technology that
    enables games and may in some markets play the
    role of distribution partner to publishers and

OTA Value Chain Carriers
  • The equivalent of retail outlets in the
    traditional video game space.
  • Carriers wield significantly more power in the
    mobile gaming space than retailers do in the
    traditional game business because they have a
    monopoly over their very large customer base.
  • Carriers have the widest influence over the user
    experience in the value chain.
  • Today there is no meaningful alternative method
    of distribution.
  • Carriers are the gate-keepers to customers, and
    the established publishers are gate-keepers to
    the carriers.

OTA Value Chain Independent Channels
  • This category contains all web, WAP, SMS sales
    channels and online portals (by device
    manufacturers or publishers) not owned by the
  • Device manufacturers have to make sure that
    content is available for all their handset models
    to make them attractive to end-users, and ensure
    content is available even when a model has just a
    small market, or limited penetration such as at
  • Devices sold through non-operator channels are
    often set-up to drive users to the device makers
    portals (eg., Club Nokia) for content.
  • However, their traffic is very limited in
    comparison to the official carrier channels.
  • Everyone in the value chain, except carriers,
    eagerly waits for the day when non-carrier
    channels become viable for mobile content.

OTA Value Chain Mobile Gambling
  • With the recent internet gambling boom various
    companies are taking advantage of the mobile
    market to attract customers
  • The market is still at a nascent stage at the
    moment due to the uncertain nature of most
    countries' in-decision towards regulation of
    online gambling
  • The researcher states that gambling on mobile
    phones seems like a sustaining innovation to
    online gambling companies, but can be a
    significant extension to their business models.

Business Models Mobile Gambling
  • Advantages of using the mobile phone as a
    platform for gambling application, including
    anywhere/anytime availability, are tempered by
    market constraints, such as regulation, social
    acceptability and getting robust user controls in
  • The Asia Pacific region is expected to take
    8.8bn (pound 4.62bn) in revenue by 2011.
  • Europe will follow closely, taking 7.9bn (pound
    4.15bn), while others fall behind. (Juniper)

Business Models Mobile Content In-game
  • In-game advertising and product placement
    integrates branding directly into the gaming
  • Can be an effective marketing tool.
  • In-game advertising mainly focuses on the pushed
    banner-like ads

Interactive Marketing in Location-Based Gaming
  • The advantages of mobile devices allow highly
    targeted, flexible, and dynamic wireless
  • Location-aware technologies such as Cell
    Identification and GPS (Global Positioning
    System) have inspired to develop location-based
  • Wireless gaming offers opportunities for local or
    customized ads and the ability to pinpoint the
    target market audience by placing the brand
    within a relavant game.
  • The location-based games may also drive people to
    stores in progress of the game.
  • This form of marketing is private, flexible and

Subscription Model
  • Subscription model is the alternative to paying a
    flat fee
  • The researcher is suggesting that generally
    speaking, from the game developers point of
    view, subscription is a billing model, not a
    business model, unless game developers are
    selling the game as a service directly to
    consumers as in the case of some online
    role-playing games on PC.
  • In-game per play/time/level payment business
    model model can be categorized as selling
    software as a service.
  • The business model could attract game developers
    interest since there would be direct billing
    through mobile payment systems, and no payment
    through carriers.

Business Models Developer and User-generated
  • Users pay for game items
  • The researcher suggests that hand-helds could be
    another channel to existing PC RPG games, but
    taking into account the current limitations of
    hand-helds, this is not going to happen soon.
  • However, RPG specifically developed for mobile
    multiplaying in which users are paying for
    in-game content could be a working business model
    even today.

About Business Models in General
  • Examining all the current and potential business
    models above, one can see that most of them are
    more or less familiar from the PC space.
  • As last but not least, the researcher suggests
    trying to downsize any concept that has worked or
    even failed in the PC or console space to mobile
    phones and hoping that it will fly.

About Value Chains in General
  • To drive usage, the features of mobile gaming
    products have to be clearly advertised and
    marketed to a wide audience.
  • Because of the nature of the product, there is no
    single medium that provides a complete solution
    to vendors' promotional needs.
  • One of the strengths of mobile gaming is that its
    marketing campaigns can be integrated with other
    campaigns, in particular for film and console
  • Television can be used to show gameplay in great
  • Frost Sullivan (2003) Interactive TV and the
    Web are excellent media for offering a variety of
    games and demonstrations. Even so, the lack of
    animation in print media, the high costs of
    television advertising and limited penetration of
    interactive television could prove to be

About Value Chains in General
  • One major problem for developers and publishers
    of mobile games is describing a game in such
    detail that it gives the customer enough
    information to make a purchasing decision.
  • Two strategies are followed by developers and
    publishers to combat this lack of purchasing
  • there is a reliance on powerful brands and
    licenses that impart a suggestion of quality to
    the game such as Tomb Raider or Colin McRae
  • there is the use of well known and established
    play patterns (game play mechanics that are
    instantly recognizable) such as Tetris, Space
    Invaders or Poker.
  • Both these strategies are used to decrease the
    perceived level of risk that the customer feels
    when choosing a game to download from the
    carriers deck

About Value Chains in General
  • Some reasons why operators are the preferred
    direct channel for around 80 percent of mobile
    games is that they have trusted brands,
    subscriber information and control the 'handset
    window interface' and the delivery channel to end
  • Operators stand to gain revenues when games are
    downloaded through a portal and also when games
    or any other content is ordered through other

Retail Value Chain
  • Mobile games can be distributed, advertised and
    sold through retailers in a similar way as PC or
    console games.
  • eg. Nokias N-Gage games use also retail as a
    distribution channel
  • The researcher suggests that with the advent of
    3G and other fast network technologies, the need
    for retail may have decreased, although customers
    may still prefer to buy something concrete.
  • PC game developers often prefer to use game
    publishers that take care of marketing and
  • The researcher suggests that as most mobile game
    developers have even less resources than PC game
    developers, the effort of doing ones own
    marketing and distribution to a global market may
    be overwhelming for game developers.

Other Value Chains
  • SMS games operators charge users a fee according
    to sent messages. The game developer can get from
    20 to 50 percent of revenue.
  • Browser games operators charge users based on
    amount of used the air-time or data-transfer. The
    revenue shared with the developer of the game can
    vary greatly. In North America developers get
    about 10 percent, while in Japan they get up to
    90 percent.

Financial Forecasts
  • The problem is that although consumers are
    increasingly playing mobile games, they are not
    at all keen on buying them. Even though mobile
    games have been around for more than a decade,
    they have yet to succeed in generating
    significant profits for the regions mobile
    operators. (Frost Sullivan 2006)
  • In 2006, the global market for mobile gambling
    alone was forecasted to grow from 1.35bn in 2006
    to 16.6bn in five years' time. Mobile gambling
    often forms the majority of forecasted mobile
    gaming revenues.
  • Forecasts of mobile gaming have changed recently
    due to strenghtened legal barriers in the US.

Financial Forecasts
  • Another indication of the expected continued
    growth of mobile games is the venture capital
    funding being received by proven players as well
    as new start-ups.
  • In 2004, several players got funded for about
  • Acquisitions were of the same size.

Thank you!
  • Questions?
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