Digital Goods in Asia

Digital Goods in Asia “Not all Asians are Virtual”

@benjaminjoffe | CEO, Plus Eight Star Virtual Goods Summit | Berlin, May 2011

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VIDEO hRp://www.youtube.com/watch?v=DTXO7KGHtjI

(Hatsune Miku will have a concert in California in July 2011)

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Have you been to Asia?

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Quiz! Who is…

•  The #1 social gaming company in the world?

•  The #1 social network in revenue?

•  The most profitable virtual world?

“Mister Asia” – Mike Butcher, TechCrunch

4 years 1 year 6 years

#HowAsianAreYou?

42%

33%

8%

8%

4% 2% 2%

Chinese

Japanese

Korean

French

American

German

Singaporean

CEO, Plus Eight Star www.plus8star.com

“Innova>on Arbitrage” Best Prac*ces from Asia’s Digital Space

Co-‐Founder, Mobile Monday Beijing (41 events, 150 speakers, 4,000 parkcipants)

•  Speaker 100+ talks in 17 countries

•  Advisor

•  Investor in Asia-‐based global companies

Angel Investor, Advisor, Keynote Speaker

Content

1.  What is Asia?

2.  China 3.  Japan 4.  South Korea 5.  Succeeding in Asia 6.  Some new Asian wisdom

1. What is Asia?

The Trouble with “Asia”

1.  Different infrastructures

2.  Different GDP / capita

3.  Different distribu>on channels

4.  Different payment solu>ons

5.  And somekmes different regula>ons

6.  Highly compe>>ve

(and of course: language)

Users

0

500

1,000

1,500

2,000

Populakon Internet Users Mobile Users 3G Users

USA Japan South Korea China

Sources: CIA World Fact Book, MIIT, Japan TCA, SKT, March 2011

Unit: million ©PlusEightStar, 2011 -‐ www.plus8star.com

Users

Country USA China Japan South Korea

Popula>on 310 mln 1,330 mln 130 mln 50 mln

Internet Users 245 mln 460 mln 100 mln 40 mln

Mobile Users 295 mln 860 mln 900 mln

120 mln 50 mln

3G Users 120 mln 50 mln 115 mln 30 mln

Sources: CIA World Fact Book, MIIT, Japan TCA, SKT, March 2011. Numbers are rounded for easier comparisons

©PlusEightStar, 2011 -‐ www.plus8star.com

Networks 3G

Users (%

)

China

0%

20%

40%

60%

80%

100%

0% 20% 40% 60% 80%

3G: 60% (W-‐CDMA only) Web: 72% Avg. 14 Mbps

3G: 98% Web: 60% Avg. 8.5 Mbps

3G: 40% Web: 34% Avg. 5.0 Mbps

3G: 5% Web: 0.5% Avg. 1.0 Mbps

Sources: Akamai 4Q10, Japan TCA, SKT, ITU, IDA, Internet World Stats, March 2011

Internet Connec>ons Measured >5 Mbps (%)


Source: G

apMinde

r.org

MONEY

H A R D

What is this?

What is this?

Answer: Tencent’s new HQ in Shenzhen

#Gimougous Companies

•  China –  Tencent made $1 billion in 1Q2011 (40% net profit) –  10 others listed on Nasdaq, NYSE, HKSE –  Renren (SNS) listed on NYSE for $5 billion in April 2011

•  Japan –  DeNA $1.3 billion (2010) –  GREE $600 million (2010)

•  Korea –  Nexon $1 billion (2010, 35% from games) –  NHN Group (Naver, Hangame) $1.3 billion (2010) –  NC Sob $525 million (2010)

Social Networks

•  China –  QQ 674M –  Q Zone 490M –  QQ Microblog 160M –  Pengyou 101M –  RenRen 117M –  Sina Microblog 100M –  Kaixin001 178M? –  51.com 100M?

•  Japan –  Mobage (mobile) 24.5M –  GREE (mobile) 23.8M –  Mixi (web+mobile) 22.6M

•  Korea –  Cyworld 25M –  Me2Day (Naver microblog) 5M –  Daum, Naver, Nate

•  SE Asia –  Mig33 (mobile) 40M

Numbers are “registered” and “ackve” accounts as of 2011.05, depending on sources

Digital Goods & Currencies in 2010

Asia: $18 Billion USA: $2 Billion

Source: Plus Eight Star, 2011

$18 billion Digital Goods & Currencies in Asia

5,000 4,700

1,500

200 100

2,000

910

2,000

1,000

0

2,000

4,000

6,000

8,000

10,000

China Korea Japan

Online Games Social Plazorms Social Games

Virtual Worlds Tencent IM, etc. Secondary Market

Unit: MUSD


Digital Labor

Social Plazorms in Asia China Accounts Korea Accounts Japan Accounts

Facebook n.a. Facebook 4M Facebook 2.9M

Qzone (Tencent)

505M Cyworld 25M Mobage (DeNA)

24.5M

51.com 178M Naver n.a. GREE 23.8M

Renren 117M Daum n.a. Mixi 22.6M

Pengyou (Tencent)

101M Yahoo Mobage

3M

Kaixin001 100M ©PlusEightStar, 2011 -‐ www.plus8star.com

2. China

Users Demographics

35.8%

35.4%

19.6%

7.9%

1.1% 0.2%

11-‐19

20-‐29

30-‐39

40-‐49

50-‐59

60 and above

Source: CNNIC, 2010.07

Educakon

9.2%

27.5%

40.1%

12.0%

11.3%

Primary School

Junior Middle School

Senior Middle School

Professional Training College

Undergraduate Educa>on and The Above


Income

8.1%

20.5%

13.5%

13.9%

14.4%

14.4%

10.1%

2.8% 2.3%

without income

Below $76

$77-‐153

$154-‐229

$230-‐306

$307-‐458

$459-‐764

$765-‐1222

Above $1222


Online Games

•  120 million online game users

•  $5 billion in 2010

Sources: 2008-‐2014 China's Online Game Market Annual Report by Ministry of Culture, iResearch, 2011

3.2 4.1

5 5.6

6.2 6.6 7

2008 2009 2010 2011 2012 2013 2014

Unit: billion $US

Tencent 31%

Netease 16%

Shanda Game 12%

Perfect World 7%

Changyou 7%

Giant 4%

Others 16%

Market Shares

Source: iResearch, 2010

Revenue & Profit

2,966

689 852 866

365 329 203 148 81 213 111 77

1,228

197 180 336

128 176 123 56 5 22 0

1,000

2,000

3,000

4,000

Tencent Shanda Game

Shanda Netease Perfect World

Changyou Giant Interackve

KingsoP NetDragon CDC The9 Renren

Revenue Profit Unit: million US$

Source: Companies, 2010

LOSS

Market Cap

2.4

6.2

4.5

1.1 1.7 1.7

0.764 0.29 0.1 0.165

5

0

1

2

3

4

5

6

7

8

Tencent Shanda Game

Shanda Netease Perfect World

Changyou Giant Interackve

KingsoP NetDragon CDC The9 Renren

$53.5

Unit: billion US$

Source: Companies, 2011.04 except Renren, 2010.05

Digital Goods Dominate a Crowded Market

Charged by time Charged by item others

2,000

1,000

500

1,500

0

Sources: Online game industry in 2010 year-‐end summary report, CNZZ, 2011

New Game Titles (2010)

Tencent

Online Games

49% Non-gaming digital goods

30%

Other 21%

$3B in 2010, $1B in 1Q2011

Renren SNS + Game Dev.

42%

45%

13%

Online Games Top MMORPG = 31% of game rev.

(14% of total)

Value-‐Added Services Includes Nuomi (Groupon Clone)

Adver>sing -‐ Mostly ads sold “per day” -‐ Limited targekng

$76.5m in 2010 (Loss)

Renren Digital Currency

•  “Renren Beans” since 2007.10

•  Sales channels

Type Channel

Online

1.  Bank cards 2.  Mobile Payment 3.  SMS 4.  Third-‐party (Alipay, Yeepay)

Offline 1.  News stands 2.  Convenience Stores 3.  Internet cafes

Walled Garden

Item Figure

Third-‐party Applica>ons 1,000

Revenue from Plamorm in 2010

$3.5 million (Renren share)

Revenue Share Renren: 52% (avg.) Developer: 48%

Most developers Look Overseas or at Qzone

3. Japan

Online Games Market in Japan

Source: Japan Internet White Paper 2010 – Japan Online Game Associakon, 2010.07

Online game users accounts (unit: million, incl. mulkple accounts

by same user)

19 28

42

59

75

89

0

20

40

60

80

100

2004 2005 2006 2007 2008 2009

$1.5B in 2010

MMOs & Casual Games

Origin of PC MMOs in 2009 Origin of PC casual games in 2009

Source: Japanese Online Game Associakon, 2010.07 Korea & China Dominate MMOs

Business Models ShiP

Online games and their revenue model, evolukon since 2005

Source: Japanese Online Game Associakon, 2010.07

F2P over 40% in 2010

The Real Thing: Mobile Social Gaming

Self-‐published + Open plazorms

Some ads

SNS +

Free games +

Virtual goods Homepage

GREE Service

Digital goods

80%

Adver>sing

20%

Adver>sing

Avatars

Social Games

-‐  Banners & >e-‐ups

-‐  Customiza>on with various items (clothes, accessories, etc..)

-‐  Integrated with SNS func>ons

GREE top page

banner

GREE Games

Revenue of Leading Plazorms

Net sales and profitability (million USD) Adverksing revenue vs. digital currency*

* Considering that there are no other source of revenues

Not Only Kids & Housewives

Teens 20s 30s

Male Female

Who Pays? Social apps users spending per plazorm according to age

Social vs. Virtual Graph

Benefits of Virtual Graph

DENA & GREE

•  Self-‐Published Games + Walled Gardens

•  Proprietary digital currencies

•  70/30 Revenue share

•  $500 million paid to third-‐parkes (GREE, 2010)

Mobile Social Apps Make Money in Japan

Payment

CyberAgent | $18M in 1Q2011

CyberAgent Subsidiaries 37 >tles across 6 plamorms

Source: CyberAgent, 2011.03

Pigg

Pigg by CyberAgent

•  6M reg. users bring fortunes •  $20M in 1Q2011

•  As much as Angry Birds!

•  $100M+ in 2011?

Mini-‐Games for $1M

•  Each game generated $1.2M in December 2010

On Android

4. South Korea

Digital Goods Market

$4.7 bln

$1 bln

$100 mln $10 mln $10 mln

Online Games

Secondary Market

Social Plazorms

Social Games

Virtual Worlds

Online Games | Key Players

Revenue & Profits (2010)

Unit: MUSD

>50% of Nexon’s revenue is overseas

935

1,310

525 427

243 376

607

251 111

47 0

200

400

600

800

1,000

1,200

1,400

Nexon NHN (Hangame)

NC SoP Neowiz CJ Internet

Revenue Profit

Market Cap (2011.04)

13.0

9.2

5.4

1.1 0.3

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

Nexon NHN (Hangame)

NC SoP Neowiz CJ Internet

Unit: billion USD

This is s>ll $300 million!

Ranking in Internet Cafes

Name Category Publisher Market Share

AION MMORPG NCsoft 15.6%

Tera MMORPG NHN (Hangame) 14.2%

Sudden attack FPS CJ Internet 10.6%

WarCraft 3 RTS Blizzard (US) 5.9%

StarCraft RTS Blizzard (US) 5.0%

FIFA Online Sports Neowiz Games + Electronic Arts (US) 4.3%

World of Warcraft MMORPG Blizzard (US) 4.0%

Lineage 2 MMORPG Ncsoft 3.5%

Dungeon & Fighter MMORPG Nexon 3.2%

Lineage 1 MMORPG Ncsoft 2.9%

Source : Gametrix, 2011.02

MMORPG Massively Mulkplayer Online Role-‐Playing Game RTS Real-‐Time Strategy FPS First-‐Person Shooter

Secondary Markets

Growth of ItemBay users

Unit: million

Source : ItemBay

6M Users $480M

Social Plazorms

•  Fragmented – Naver Social Apps – Nate / Cyworld –  Facebook Korea – Daum Yozm

•  All early stage –  Limited revenue (<$10M in 2010)

–  Facebook growing fast but weak payment solukons

Type of payment

Credit card Regular credit cards

Mobile billing Reported on the mobile phone bill

1588 ARS Call 1588 and bill on fixed line

Rainbow point SK Telecom’s membership

E-Station pointBox SK’s web-to-phone system point

OK Cashbag SK Group’s loyalty points service

BC Top point BC card’s point service

KB Total point KB bank’s point

Hyundai Card point Hyundai credit card point

PointRO(KT point) KT’s point system

Culture Coupon Coupon from Ministry of Culture

Book & Culture Coupon Coupon from Book Organization

Happy Money Coupon Independent firm’s coupon

Teen Cash Independent firm’s coupon

Cyworld Coupon Cyworld’s coupon

Cyworld | Digital Currency

5. Succeeding in Asia

Defining Success

1.  Revenue

2.  Profit

3.  Usage / Brand recognikon

4.  Development

5.  Learning

Western Companies China Japan Korea

Opera>ons n.a. Zynga

RockYou Blizzard (WoW)

Licensing Zynga (rumor)

PopCap PopCap

Crowdstar

EA (FIFA Online) PopCap Kabam RockYou Playfish Cmune

Development

PopCap Zynga Playfish Kabam Cmune

Zynga Playfish RockYou

Ideas too! The First Farm Game was made in China

Wealth of Plamorms: How much for you?

•  China – Qzone $M for happy few (~10) –  Renren Skll small – Others Unclear

•  Korea –  Skll small: total market was $10M in 2010

•  Japan – Mobile mostly, but hundreds of $mln! –  Chinese companies first movers (Rekoo, Rakoo, etc.)

Case Studies

•  Blizzard Korea’s religion

•  EA FIFA Online in Korea

•  PopCap Pragmakc and organic

•  Angry Birds Soon big in China?

•  Cmune Made from China

Case Studies

•  Blizzard Korea’s religion

•  EA FIFA Online in Korea

•  PopCap Pragmakc and organic

•  Angry Birds Soon big in China?

•  Cmune Made from China

PopCap

•  $100 million in revenue (2010), famous games – Dev. team in Shanghai for years – No business in China

•  Partnerships –  Japan: with Taito for mobile social games –  Korea: with NC SoP for web games –  China: PvZ on Renren

•  First ever social adaptakon •  Exclusive launch announced 2 days ago

Rovio

•  Angry Birds | #1 smartphone game in the world –  $20M (1Q2011), $100M+ in 2011 –  100M 200M downloads globally

–  Free DL + Fake birds on sale in China

•  Wants China, Japan and Korea! –  Partnerships with mobile carriers –  Partnerships with handset makers (Nokia, etc.)

– Will release on feature phones in China

Uberstrike by Cmune #1 First-‐Person Shooter on Facebook

•  Made from China + Global reach

•  Combines East & West experkse

•  500,000 MAU = Top 3D MMO on Facebook

•  Get it on the Mac App Store for Father’s Day!

Disclosure: I am an investor in Cmune | www.facebook.com/uberstrike

6. New Asian Wisdom

Intereskng New Things

1.  Nano-‐transackons

2.  SNS as MMO funnels

3.  New social plazorms

4.  Fourth Genera>on Digital Goods Model

5.  Smartphone opportunity

6.  Various deals & partnerships

1. Nano-‐Transackons

•  Tencent had – 1 Q Coin = 1 RMB = 0.1 EUR

•  They introduced – 1 Q Point = 0.1 RMB = 0.01 EUR

•  …To allow items and kme “nano-‐transac>ons”

2. SNS as MMO funnels

•  Renren revenue more from games than ads

•  Mone>za>on much higher in MMOs

•  Reten>on is beRer too

•  What’s your ROI?

3. New Social Plazorms

•  Naver, Nate, Daum Portals

•  QQ, NateOn IM

•  Ameba Blog plamorm

•  DeNA, GREE Mobiles + Smartphones

4. Fourth Generakon Model?

•  1G Box game / Pay-‐per-‐download (e.g. COD)

•  2G Time-‐based (1 hour to 1 year) (e.g. WoW)

•  3G Digital goods: permanent (e.g. IMVU)

•  3.5G Digital goods: rental (e.g. QQ)

•  4G? Digital goods: trading (e.g. ZT Online 2)

e.g. ZT Online 2

•  Giant Interackve no longer sells items in ZTO2! –  Trading is main revenue model –  Reward ackve users with items –  Let users decide on the right price –  5% commission on transac>ons

•  Benefits –  Capture secondary market – Avoid “one-‐price for all” for digital goods –  Ensure fairness – Mo>vate users

5. Smartphone Opportunity •  Smartphones booming in Japan & Korea

–  Japan: 50% of new phones in 2011, already 5M+ iPhones –  Korea > 10M smartphones

•  China has lots of smartphones & feature phones –  Beijing Apple store is #1 worldwide (>Times Square) –  Making money with apps in China skll tough –  Android spreading but app stores fragmented –  Building apps from China is totally fine

•  Localize apps! –  Angry Birds #1 iOS App in China –  Akinator (France) is a top paid app in Japan –  Do it quick with MyGengo

Disclosure: I am an investor in MyGengo

6. Deals & Partnerships

•  China –  Funds by Tencent, Giant, Shanda (>$1B)

•  Japan –  Funds by DeNA, GREE, Mixi (>$1B?) –  GREE acquires OpenFeint (US) –  GREE partners with Tencent (CN) –  DeNA acquires NGMOCO (US) –  Sobbank invests in Japan, China, Korea

•  Korea –  Various M&As –  Some investments by Nexon in US

More about us

•  We helped Kabam with market entry

•  We helped IMVU with best prackces

•  We helped Ci>bank with digital currencies

More about “Innovakon Arbitrage”

Danke Schon!

www.plus8star.com

[email protected]

benjaminjoffe

@benjaminjoffe

www.linkedin.com/in/benjaminjoffe

www.slideshare.net/plus8star

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Digital Goods in Asia