11 Dec 2009 14:05

GUEST COLUMN: A Digital Dream for 2010

By Benjamin Joffe

How was your year 2009? This column will reflect on some major events of the past year, and provide open questions for the next.

Virtual goods are consumer goods

Though virtual goods (any digital thing you can buy in a social network, game or virtual world) are now considered like consumer goods by some industry experts and are no news to Asia, they are now taking over the world. I had the chance to keynote last October at the Virtual Goods Summit, probably the largest even globally on this topic, and my presentation title was "Virtual Goods in Asia - the US Gold Rush Begins".

This idea came from three things:

First, our estimate that virtual goods represented over $7 billion in 2009 in Asia versus only $1 billion in the US

Second, the US market quadrupled in the past year notably thanks to social games on Facebook. Electronic Arts just acquired the second largest social gaming company, Playfish, for close to 400 million USD, providing a strong validation to this sector.

Third, Asian companies are expanding overseas! And some of them have unmatched experience and scale:

Nexon in South Korea has been developing online games since 1996,

Tencent in China is on track to cash $2 billion in 2009, 90 percent of which was generated from virtual goods,

Japan has two mobile social networks making hundreds of millions of dollars.

Obviously, they know something others don't.

Will Asian companies take over a large part of the Western gaming market as it transitions to online and virtual goods?

The gaming market is changing quickly

Are you running a farm within Facebook, Renren, Kaixin001 or Mixi? Maybe you're taking care of pet or a whole aquarium? I heard running a hospital was getting popular too. Regardless, the most interesting is not so much which game is popular, as the fact that:

The game concepts are not new

There are many copycats of each, to the point no-one seems sure which is the original

The core competency of making a game has shifted from game production to analytics, social and psychological mechanics

Some Asian companies are doing well on a global scale: China-based Rekoo is the #1 social gaming company on Japan's largest social network Mixi, 6Waves from Hong Kong is among the top publishers on Facebook. Leading players are very profitable and more entrepreneurs are trying their chance.

Who will dominate the online gaming and social gaming markets next year?

No miracle with 3G

In case you are still wondering: don't expect miracles with 3G in China, simply because no miracle happened with 3G anywhere. As the study of Japan and Korea show, 3G networks and good handsets are not enough - data prices have to come down. Only with those three elements a real market will emerge. It took Japan 8 years since launch in October 2001 with over a 90 percent penetration rate and is now on its way to 4G.

We will likely end the year in China with less than 10 million users out of over 700 million. The market might grow another 100 million next year - maybe 10 percent will sign up for 3G. Adding 2G users upgrading, we might have 50 million by the end of 2010 out of 800 million. In terms of data usage, it will all depend on network coverage and pricing.

What's your bet for 3G users?

Who doesn't have an application store?

Did you know NTT DoCoMo in Japan had an app store since 2001 offering "i-appli"? Probably not, but maybe this is why Japan could deserve its "Mobile Galapagos" nickname. In a world where we hear so often the world "open" it is interesting to see application stores -essentially walled gardens - being launched by mobile manufacturers and operators. To name a few: Apple, RIM, Nokia, Google, Samsung, China Mobile, China Telecom and more.

The appearance of those app stores is as much a consequence of the environment (3G networks, lower data charges and better handsets) as it is due to Apple's foray into the field.

If you are in China, will you buy iPhone, OPhone, G3, Nokia or an easy MTK phone - shanzhai or not?

Value of micro-blogging

If you are the only person in the world with a fax machine, it won't do you too much good. If everybody has a fax machine and can spam you anytime, it is also a problem. Those are two simplified views of "network effects". Twitter sits in the middle and has already demonstrated value to me, once I understood how to optimize its signal-to-noise ratio.

In addition to now being for me an important source of information thanks to the social filtering by various interesting people I follow, I actually made good personal connections and even found clients thanks to initial contacts on Twitter!

Twitter Japan announced, then denied, that they would offer paying functions for people who want to charge their followers. I would actually pay for some accounts I follow. Asia is yet to grab the potential of this service but I don't see good reasons why such concept would not work.

In China, the micro-blogging service Digu launched a social game with virtual goods, leading the way in that field. It is possible China's services will be more about entertainment, reflecting the demography of its Internet users.

Now, do you have plans to improve your micro-blogging literacy?

Wishing you a great end of year 2009!

Your comments are welcome to benjamin@plus8star.com. Our presentation on "Virtual Goods in Asia" is available on www.slideshare.net/plus8star.

Benjamin Joffe is the CEO of the digital research and strategy company +8* (www.plus8star.com). Benjamin has been part during the past 10 years of Japan's mobile revolution, Korea's Internet boom as well as China's mobile crash and web 2.0 revival. +8* works with large companies (Adidas, Microsoft, Nokia), investors (MIH, leading investor in Tencent) and startups (IMVU, Baihe.com) to bring them proven and innovative service concepts and business models from advanced Asian markets Benjamin is a regular keynote at Internet and Telecom events and was selected among China's Top 100 Mobile Industry Influencers in 2007 and 2008. Benjamin speaks fluent English, French and Japanese with working knowledge of Korean, Chinese and Spanish