Developing nations are playing
technological leapfrog.
In the developed world, when we think of
technology, the roots of much of what we do today were born decades, or even
a century, ago. While the evolution has been fast paced, the progression from
there through today is a straight line from the technologies that preceded
them. A television program is still a television program. A phone call is
still a phone call. The devices might look different and certainly do more,
but the lineage is obvious.
But what happens when your starting point isn’t the invention of the
phone or the first personal desktop computer? What happens when you start
from today?
In many parts of the world, most of the
people still have never had a telephone conversation. Phones are coming,
inevitably, as cheap technology leads to more widespread access and as global
prosperity increases. But in these places, utilities don’t bother to
string wire from poles to every single home on a block. It simply isn’t
cost effective given today’s technology. Instead, they’re putting
up wireless towers. The first and only phones their citizens will ever have
are cells. Essentially, they’ve just vaulted over all the intervening
technology, and their idea of what a phone call is doesn’t involve
party lines, rotary dialing, or switchboard operators.
The computer is a similar story. For
many people in the developing world, an iPod or a smartphone
will be the first computer they ever have. Mobility is baked in; the
interface is a touch screen instead of a mouse. They will forever be
unencumbered by the antiquated notion of “sitting down at the
computer.”
The same holds true with entertainment.
We’re familiar with the progression from staged plays and Wild West
Shows to movies, radio, TV, and the Internet. It’s logical to us. But
hundreds of millions of people in the world are skipping the intermediate
stages and jumping straight into the Net. With both feet. Especially in
China.
It’s not that the Chinese
don’t have movies and TV. It’s just that they won’t be
going from Ozzie and Harriet to Hill Street Blues to Lost.
They have discovered more interesting forms of entertainment. Specifically,
online gaming. And more specifically, MMORPGs.
For the rising generation of Chinese
citizens – and we’re talking one heck of a lot of people –
entertainment has been interactive from the get-go.
MMORPG stands for massively
multiplayer online role playing game. It’s a mouthful to say, but
the idea is simple. Game developers create a virtual world, making it as
complex, as exciting, and as beautiful as they can. Players log into this
world – much like a chat room from the days of AOL, only massively more
complex, with 3D monsters and knights – through their laptop and play
the game. Typically, it’s a game without a specific endpoint; the joy
is in the play. And, most important, it’s a game that’s designed
to be shared. The players wandering around in the faux world interact with
each other. Joint quests are undertaken, friends and enemies are made, alliances form and dissolve.
In addition, because these games are
Internet-structured in real time, they have another monster advantage over
traditional games: they constantly change. Developers have no constraints on
adding new content, new features, new characters, and new storylines,
ensuring that the games can stay fresh for years.
So engrossing is the result that the
word addiction is bandied about with some frequency.
The big kahuna
of MMORPGs is the U.S.-based World of Warcraft,
the most successful such game of all time. WoW,
as it’s commonly referred to, boasts 11 million users. And it’s
been around since November of 2004… how’s that for longevity? Not
only is it still attracting new players, it’s
retaining most of the ones it already has.
Despite the fact that WoW is very Western in orientation, half (5.5
million) of the players are in Asia. That dwarfs participation among North
Americans (2.5 million) and Europeans (2 million), and it’s a sure sign
of where future growth lies.
Expenditure figures back that up.
Chinese gamers spent a whopping $5 billion in 2009 on MMORPGs, while
Americans only spent $3.8 billion. France, Germany, and the U.K. combined for
less than 3/4 of a billion dollars.
And consider the mind-boggling rate at
which the country’s citizens are hooking up. At the end of June 2009,
there were 338 million Internet users in China. Just a year later, that number had rocketed to 420 million, a 25%
increase, with 87% of them enjoying broadband connections. In other words,
China has 17% more broadband users than the U.S. has people!
However, although China is booming
economically and the Internet is obviously exploding, its citizens still lag
the West in earning power. That’s had a couple of consequences.
For one thing, it means that the country
is largely skipping over the console-based video games pioneered by the U.S.
and Japan. Most homes can’t afford a Playstation,
not to mention the pricey discs that go with it. The Internet, by contrast,
is a bargain.
For another, it has forced Chinese
companies to the forefront of free-to-play game development.
Most American games employ a
subscription-based business model. WoW
players, for example, fork over fifteen bucks a month for access to that
virtual world. Not much for a teen over here, but more of an investment in
China. So most Chinese games are free-to-play. Meaning that you can play all
you like for nothing, while the company makes its money by selling relatively
inexpensive enhancements (so-called microtransactions).
Advertising is also emerging as a supplementary revenue generator.
Because free-to-play means there are no
hard subscriber numbers, it’s difficult to determine how many gamers
there are in China, and guesses vary widely. One 2009 survey pegged the
number at 68 million, which is undoubtedly low today. On the other hand,
Chinese website cnzz.com recently estimated that 2/3 of all Internet users
play some form of online game at some time. That’d be 280 million,
which is probably too high.
Wherever the truth lies, one thing is certain
looking ahead: for hundreds of millions of people, MMORPGs are going to be
the preferred form of home entertainment. And the trend is by no means
confined to China alone. Chinese gaming companies are already extending their
reach into other developing nations as yet untapped, such as Vietnam and
Thailand.
This is one heck of a growth market,
offering outstanding prospects for investor profit.
At Casey’s
Extraordinary Technology, we are so confident of the potential of this
sector that we’ve already tucked three gaming companies into our
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Doug Hornig
Senior Editor, Casey Research
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