As the recent game announcements have been multiplying, Mobile is the new frontier for online games and MMOs. The technical constraints have been mostly overcome, and the apparition of a hardcore audience playing mostly from home has made the main problem (good enough ping) less painful. The possibility of free apps with in-app purchases have finally make the business part of it sensible. It’s thus no surprise that many games are announced. However, as games like Pocket Legends find success, the room for growth is increasingly moving, like for social games, to outside of the US/English-speaking territories. What’s the market looking like in Europe?

Devices

According to ComScore’s last report Mobile Year in Review 2010 in Europe, the smartphone installed base in the 5 biggest EU countries (Germany, UK, France, Italy, Spain) in Q4 2010 is at 72 million subscribers (15% more than the US). The market is pretty evenly divided between those countries, with Italy and UK at about 23%, and Germany, Spain and France a bit below 20%. Compared to the respective countries populations, it means that Spain with 45 million inhabitants has almost as many smartphone subs than Germany with its 81 million people, and more than France with its 62 million people.

That trend can be seen in the smartphone adoption rates from the same countries, with Spain, Italy and the UK far ahead :

I couldn’t find any data for tablets installed base in Europe. According to IDC, shipments in 2010 have been around 6 millions in EMEA (of which 5 million iPads), and they forecast 22 million shipments in the territory in 2011.

Operating systems

It’s difficult to estimate precisely the market share for mobile OS in Europe, as the last months have seen several contradictory press releases from different sources quoting either iOS far ahead or Android winning all.

From a devices sales point of view, it seems that according both to IDC and Kantar WorldPanel, Android is now ahead in Europe.

IDC announced (in the above article) that Android got a 31% market share of Western European smartphone shipments in Q4 2010, compared with Apple’s 20% :

And according to Kantar WorldPanel, Android’s market share for smartphones sales in Q1 2011 is 38% in the UK (vs iOS’s 23%). In Germany, they announced Android’s market share was 35% (vs iOS 24%), in France it was 36% for Android vs 23% for iOS, and in Italy, iOS was shortly ahead with 20% while Android was at 19% (It seems that a lot of smartphones sold there are running Symbian).

All the numbers can be found here, although in a very blurry version:

Nevertheless, since Android’s growth was very sudden (its market share a year ago was only 4% according to IDC), what does it mean for usage and the current installed base?

Mobile OS market share data from GlobalStats StatCounter (an analytics solution which aggregates data fro all the websites that uses it). This data collection method has issues, counting hits on mobile browser is different than giving accurate installed base market share, but it’s nevertheless interesting to see the trends.

According to them, iOS has just below 45% of the market, when Android is just below 18%, a massive progression from just 4% a year ago. Symbian, Nokia’s OS, has declined a lot during that time.

ComScore has also recently published a study where they estimate the European smartphone installed base for the 5 biggest EU countries (Germany, France, UK, Italy, Spain). According to this report, the installed base for iOS devices (iPhones, iPod Touch and iPad) in those 5 countries is just below 29 millions, of which 16 millions iPhones, while all Android devices (smartphones and tablets such as Samsung Galaxy) reached 13.4 million.

What this study doesn’t say, though, is the breakdown between iPod Touch and iPads for the remaining 13 millions of iOS installed base, and the breakdown between tablets and smartphones for Android.

Conclusion

It’s important to distinguish market share in terms of sales and the installed base of devices in a territory. It seems that sales-wise, Android is now ahead, but there is still some space ahead to catch up with iOS, which has an important advance in terms of installed base and usage. According to previous studies by AdMob, Android users have a comparable usage of mobile web and apps compared to users of Blackberry and the late Symbian, who used those features much more rarely, so it implies that it shouldn’t take too long to Android to catch up though in terms of applicable market for mobile connected games (which is our main focus here). Mobile ad network inMobi already reports that most of its impressions in March 2011 already come from Android devices (29%, vs 20% for iOS).

So, coming back to games, what’s a developer to prioritize now? At the moment, it seems that the growing market share and the reduced competition on Android make the platform slightly more attractive for smartphone focus, but still not there yet for a tablet focus. On the other hand, that space is quickly becoming even more crowded as the Apple App Store due to the simpler publishing process. Marketing games on Android is poised to become less hit-or-miss, but also more complex and time-consuming than the App Store due to the probable multiplication of channels such as the Amazon store. In the future, it could certainly open the way for more dedicated Android publishers. In all cases, now’s a good time to take a strong footing there.

Like every new year, it’s time for looking back at the past one and trying predictions for the next one. We are quite late in the exercise as we post this, so we’ll concentrate on the predictions part for the future. These are based on our observations and deductions and various chats with clever people from the industry. We might be right or wrong, but what is sure is that this industry is moving very fast, and is fascinating to watch. Anyway, it will be fun to check at the end of the year to see where we guessed right and where we missed – most of the points seem to us  to be quite logically tied together at the moment.

1. Browser-based

We don’t think we’re taking much risk on this one. There are many reasons why we think browser-based games will become more and more popular :

• Increased accessibility
  • more and more users are reticent to downloads
  • more fluid and more flexible user acquisition and viral funnel (can be propagated instantly just with a link)

• Runs on every OS and most hardware (when laptops and netbooks are growing the fastest)
• Runs in schools, offices, libraries, etc : more accessibility, less issues with installation of applications, and more social occasions to spread to schoolmates, colleagues, etc watching you play behind your shoulder.
• Opportunities for around-game advertising, which has more standards and is easier to integrate than in-game advertising
• Better opportunities for game/web integration
• Opportunities for mobile ports (iPhone, Android, etc)
• Less bandwidth costs to download huge clients, no need to send users to Fileplanet, hosting sites, etc…
• Generally cheaper to develop and test, allowing for better ROI and easier to recoup.
• More and more general applications are browser-based (Google Docs, YouTube, Hulu, emails, etc) and web habits taken now will influence game playing patterns in the future.
• For the same reason, as a very large part of kids’ game playing already happens on web-based games, there is little evidence that they will return to client based games in the future.

When it is more and more difficult to differentiate oneself on a maturing free to play offer, why have a big barrier to entry in the form of a download? It’s already not just indie projects anymore, even if some of them (Runescape, Habbo, Neopets, Stardoll, Webkinz, AQWorlds) have grown tremendously now, there are bigger titles coming on browsers :

• for children’s titles it now seems a requirement : FusionFall (Cartoon Networks) launched a few weeks ago and uses the Unity engine, zOMG (Gaia Online’s MMO) is Flash-based,  Webcarzz will be, and all the new Disney properties since Club Penguin have been browser-based.

• More “hardcore” games with high production values are coming like QuakeLive, Heroes of Might & Magic Kingdoms, Fallen Empires: Legions and other games in the InstantAction platform, Power Racing, Ohai’s recently announced project… Clearly, browser is now a platform, not a genre.

Europe has historically been at the forefront, and Acclaim in the US has recently quietly been licensing US versions of a lot European browser games : Muniz Online from Chapatiz, Pony Stars and MyDivaDoll from Feerik, Ranchstars from Telaxo, Tribal Nations from Celsius Online, Knightsblood from RedMoon Studios, etc.
Ironically, the biggest dedicated browser-based games companies, like Gameforge and Bigpoint, are more and more trying to expand in downloadable games (Gameforge publishes Metin2,  Nostale, and 4Story while Bigpoint has recently partnered with GOA.com with their F2P games). Only time will tell if this strategy will succeed, as they have a lot of competitors in that space and less competitive advantages.
There still are technical barriers to that : most 3D tech in browser still requires plug-ins, or some kind of webstart/minimal download which carries friction. But we believe the opportunities are too good for those problems not to get solved.

2.    Free to play is here to stay

Again, this doesn’t seem to us like a dangerous prediction to do. The free to play market is still growing, but starting to mature now. As the first wave of downloadable free to play casual games imported from Asia has passed in the West with more or less success (so far it appears the biggest free-to-play winners have been MMORPGs like MapleStory, Flyff, Fiesta etc, with limited success for downloadable arcade or action games…) , the second wave is appearing , consisting of browser-based or tiny client downloadable games, developed locally in the West, and more suited to PC players’ tastes. Will these overcome the other factors that prevented Kart Rider and the likes to succeed in the West (audience reluctant to downloads, used to play on a console, with a pad, etc…)?  Again, time will tell.

The ways to make revenue are evolving : new indirect ones are appearing as the advertising outlook for 2009 seems gloomy, (lead gen, different kinds of advertising/sponsorship, grid computing), the item sale business is getting more and more finely tuned as ecommerce experts start handling item shops, and is likely to focus even more on collectible and consumables, the optional subscriptions will probably stay in certain cases (when the user is not the payer, for instance, as it is mostly common in children’s games). We are pretty sure that in any case, the free part will become more and more common.
In economic terms, MMOs are goods which value to the user increases over time (due to persistence and social bonds). The cost of switching to another game is higher the longer you’ve been playing. Games also benefit from a network effect (each new player increases the value for everyone else). In a business where the marginal costs per user are low and where acquisition costs are what can make your business succeed or fail, why would put a financial barrier to access the game in the first place?

3.Retail distribution won’t stay around for long

Again, an easy one. So what about boxes? They are for sure nice to get a retail presence in the street, but make little economic sense overall as they force publishers to adopt an un-natural way of launching an online game. This is all resulting from the scarce shelf space and expensive distribution model, which implies set in stone release dates, hasted beta becoming only a marketing exercise (which is fine if you had accounted that for and had a real beta before), big marketing push, big spikes.
Those factors are merciless with any non-perfect game (and who is perfect? Even wow at launch wasn’t) and in a lot of cases are calling for spectacular failures at launch (like Auto Assault for instance) or successes at launch, then big drops (Age of Conan). Instead, the games could garner some players over time, building on a core fanbase and increasing with the game getting better. The “no recovery from a bad launch” is mainly tied to boxes and traditional “big push” marketing in our opinion .
All of that seems a lot of sacrifice when the only valuable thing in the box is a keycode for a game activation, subscription or in-game currency. Boxes, because they bring big spikes of revenues quickly for publishers, also have the additional risk of misleading them about what is important in their business. They also tend to artificially raise the ticket of entry in the business by demanding big distribution channels. Established publishers owning these channels can still make money off them, but the reasons to release at retail become thinner every day as digital distribution develops. Integrated services like Steam or Stardock offer more than just distribution, and new ways of distributing clients are growing (Bittorrent, or solutions like AWOMO – we haven’t tested yet and don’t know if it’s good), while the idea of big clients itself is moving away (see trends 1 and 4). Also, technologies like Allegorithmic‘s procedural textures can be used to reduce 3D game client sizes a lot.
Retail and physical products is not going to become totally irrelevant though :  Collector boxes, because they are closer to merchandising, should ultimately become the only retail box bringing some value to the user. And there is a ton of money to make in ancillary physical products, which can be tied to the in-game world: bringing real world data in-game (like the Pixie Hollow friend bracelet for instance, or following the Nike+iPod idea with real-world stats of any sort, geolocation data, etc), or the other way round (miniatures or papercrafts of your character, guild T-Shirts, augmented reality cards, Lego Factory-like initiatives, etc …).

4. Even more backend-based games

This one will probably take more than a year to happen, but we see it as a big trend for the future. Online games are already server-based, one could say. We actually believe that more and more things traditionally left to the client will be transferred to the backend. This seems the goal of a company like Trion, and probably a few others around, and we think the idea will spread over time. It is believed even rendering could be done server-side.

This would allow to have tiny clients , with high quality rendering, playable on any device (including set top boxes, phones, netbooks, etc), better security with less risk of hacked server code by reverse engineering it from the client, and as the client becomes so small and dumb, to radically change its info on the fly for everyone connected, allowing more evolving worlds.
There are challenges in this path as well, as the more real-time the games become, the more need there will be for clever solutions to alleviate the load and costs.
We don’t think we’re there yet – the amount of information to process makes us think we won’t see a FPS or racing game entirely server based anytime soon, but turn-based games might be exploring that path.

To be continued…