Game developers need to diversify to survive

Mobile and social game developers will need to look beyond simply generating revenue from their games, and diversify into different avenues in order to better monetize the product and survive the cut-throat competition.

Allison Luong, managing director at China-based Pearl Research, said the social and mobile game arenas are getting increasingly crowded and, for many developers, their focus would be on increasing revenue per user and growing their revenue base.

The challenge for these game houses is--apart from creating addictive games--developing a successful monetization strategy around these games to increase revenue. "No games company can thrive without these two components," Luong pointed out.

Aapo Markkanen, senior analyst for devices, applications and content at ABI Research, concurred. "There's a lot of creative destruction in the mobile and social games space in that former success is no guarantee of future success. And customers are proving very elusive in terms of what titles are a hit and what aren't," he said.

The unpredictability of such a competitive industry is why diversification should be high up on game developers' priorities. It helps mitigate some of the surprises, and provides new revenue streams for these companies, Markkanen explained.

Rovio, the creator of mobile game Angry Birds, is a good example of a company that diversified, he noted.

"It's impressive how Rovio managed to turn Angry Birds into a global entertainment brand and develop a loyal fan community around it. It presents an alternative [means], such as merchandising and franchising, instead of relying only on revenue from the actual game," he said.

Diversification is not fail-safe though, and there is no "master recipe" to secure game developers their survival, the analyst qualified.

The industry watchers' comments come after U.S. social games giant Zynga announced it was applying for a license to operate online gambling services--which is a shift away from games it made its name on, such as FarmVille and Mafia Wars.

Zynga has been struggling of late, having had to lay off 5 percent of its workforce and ending 13 game titles as part of cost-cutting measures. Its stock prices have fallen more than 75 percent since it went public at US$10 a share last December, partly because of underperforming game titles.

Asia rising games powerhouse
Markkanen said Zynga has been making headlines for its rough patch recently as it is a publicly-traded company, but there is no evidence game developers in Asia and the West are similarly affected.

Tim Merel, managing director of Digi-Capital, an investment bank focused on digital companies including game developers, also said Asia is on track to dominate mobile and social games. In fact, the region could account for more than 60 percent of global revenue in this market next year, he said.

Asia-based game development companies, such as those in Japan, South Korea and China, are looking to acquire companies outside the region to diversify both regionally and by game sectors, such as tablet-based games or online game networks, Merel elaborated.

On the other hand, non-Asian game companies are looking for regional counterparts to invest in and gain better access to Asia markets, he added.

Much of Asia's potential lies in the high penetration of mobile devices and social media use. A spokesperson from Japanese mobile games company Gree said as people shift from desktop computing to mobile devices, the games industry is similarly moving from consoles to mobile-based social games.

"There is no doubt the social games market has taken a strong position this year, and we believe it will only go up as the number of smartphones increases," she said.

Gree has been on an acquisition spree this year, buying U.S.-based mobile game developers Funzio and App Ant Studios in May and September, as well as Japanese game company Pokelab in October.

The spokesperson said the acquisitions were because the company wanted "talented and powerful game developers", who have successfully released games globally. The talent injection will further assist Gree in game development on its online platform, which is currently available in 169 countries and 14 languages, she added.