Last week the 2011 Game Developers Conference was held in and around the Moscone Convention Center in San Francisco. GDC is not a sales conference like CES or E3 – it is really targeted towards developers and the gaming ecosystem. As such, every nearby hotel lobby was full of developers showing demos on small screens. This post highlights our key industry takeaways based on conference speeches and our meetings with developers, publishers and service providers.
1. Zynga’s $10 billion market cap exceeds that Electronic Arts. Zynga’s recent Farmville followup, Cityville, hit 100 million users in just over two months, and this unprecedented rapid growth was not lost on developers – hundreds of developers had new social games to show. Social gaming in general was a very hot topic.
2. Mobile continues to grow. The Apple App Store in 2007 started an avalanche of easy-to-download games for iOS smartphones. The Android platform now exceeds iOS in installed base and is approaching Apple in discovery and monetization options for developers. Although the Apple App Store had over 10x the 2010 revenues of the Android App Store and Apple still attracts 8x more developers (see Lookout report Feb 2011), both platforms are taken for granted by developers, and nobody else comes close.
3. Low barriers to entry. Social and mobile games have very low barriers to entry – iPhone and Android alone have over 75,000 developers. And it showed this week – one major publisher had three producers evaluating new games ten hours per day, and was disappointed at the low quality and derivative nature of most of the products they saw.
4. Nintendo CEO’s keynote. Iwata-san spoke for 65 minutes about the state of the industry and some new Nintendo launches, including the news that the upcoming Nintendo 3DS will be able to access some 10,000 AT&T hotspots and will support Netflix streaming movies. But the big news reported by some prominent analysts was his “sour grapes” tone regarding the boom in mobile games. Long-time industry players we spoke with heard a different theme – that the mobile market is cluttered with unoriginal games by programmers chasing a trendy business model who lack the experience to know what makes a great, engaging user experience. See # 3 above.
5. The console business is not dead. The hardcore gaming market is alive and well with some strong new titles previewed at GDC. What is unclear is whether there will be an eighth generation of console platforms in two or three years (and whether Onlive represents a new generation platform), or whether the massive investment required can be supported by a market in which many consumers and much developer talent has been diverted into online and/or mobile games.
6. Shift to Freemium. Several developers talked about the shift from a paid to freemium business model for new mobile titles, and forecast a significant transition by the end of this year.
7. The ascendance of the “plumbers”. In the console days, there were no plumbers except a rotund guy named Mario. Today, there are several layers of companies in the business of helping developers make money – from ad networks to virtual goods platforms. These “plumbing” platform businesses (such as AdMob, Super Rewards, Live Gamer, WeeWorld and Openfeint) play important roles in monetization, are building high market values and are critical to the freemium model, above.
8. Publishers = VCs? Ten years ago, the role of the publisher was to fund development and marketing, and to provide sales muscle to get shelf space. For today’s social and mobile games, publishers often provide little more than funding for development and some marketing, since venture money is not usually available on a title-by-title basis. Distribution is now free, and a sales force is unnecessary.
9. China – it’s really big. This one goes without saying. Tencent has a massive $50B market cap, and has been aggressive regarding acquisitions. Online gaming company Perfect World has a valuation of $1B, and The9 has grown to $200 million in market cap, doubling since last year despite losing the Worlds of Warcraft license. But China business models and game types are different from the North America and Europe, limiting immediate business opportunities.
10. iPad2. At the same time Iwata-san from Nintendo was giving his keynote address, just across the street Steve Jobs was debuting the iPad2. The GDC crowd was very aware of this announcement, and Jobs delivered as expected, keeping the iPad in the lead in the tablet wars.
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