We have spoken with several casual online game publishers, social networks, and companies that facilitate virtual good transactions in the past week.
Based on these conversations, we estimate that virtual goods sales could grow as much as 100% to 150% this year in America and Western Europe.
This is off of a very small base, of course–a few hundred million dollars. Virtual goods have been generating billions in revenue in Asian countries for years, however, so we believe the industry has plenty of room for impressive growth rates for years to come.
The growth is being driven by:
- More people playing casual online games.
- More publishers and social networks offering the ability to sell and buy virtual goods.
- Consumers becoming more comfortable paying real money for virtual goods.
CASUAL GAMERS IN THE WEST ARE BECOMING MORE COMFORTABLE BUYING VIRTUAL GOODS AND SPENDING MORE PER PURCHASE
Virtual goods are still a fairly new product in the US and Europe versus Asia, but western gamers are becoming increasingly comfortable spending real money on virtual products.
We estimate about 5% of all casual gamers in America and Europe are buying virtual goods, versus about 2% to 3% a year ago. In addition, the size of the average purchase has increased somewhat in the past year as well. We estimate the average buyer of virtual goods spends about $5 to $10 per purchase, up modestly from a year ago.
MIDDLE-AGED WOMEN ARE THE HEAVIEST CASUAL ONLINE GAME PLAYERS
Surprisingly, the demographic that overwhelmingly plays the most casual online games are women aged about 35 to 40. The biggest gamer demographic – young men – are considered hardcore players and typically play console or MMPORG games, which are more technologically sophisticated and have deeper storylines and character portrayals. Some social networks that offer role playing type games with weapons tend to skew a little more toward the younger, male demographic.
Casual online game players are typically not viewed as “hardcore gamers” – i.e. they don’t spend a large chunk of their free-time playing games (hence the name casual games).
Here is an average “lifecycle” of a game played casually online:
- A woman chats with friends on a social network like Facebook and comes across a game she likes.
- She plays the game to kill time then finds she is getting “hooked on it.”
- She is offered free virtual goods like avatar accessories or gifts for friends on the game. She often buys more virtual goods after the free sample.
- She plays the game habitually over a period of about a few weeks to a month before tiring of it.
- She chats with her friends on a social network like Facebook and comes across another game she likes.
Because of this high turnover, casual online game developers must release a steady flow of games or risk losing audience. The short lifespan and subsequent need to consistently release new games is the primary reason why casual online games are less sophisticated technologically and cost less to make than console games.
WE BELIEVE THERE WILL BE INCREASED M&A/INVESTMENT ACTIVITY IN THE CASUAL GAMING SPACE THE NEXT YEAR
Most sources we spoke with expected the larger strategic gaming companies to meaningfully enter the casual gaming space in the next year–either through an acquisition or investing in their own internal efforts.
rumours have already started circulating that industry leaders Zynga and Playfish have both been the target of acquisitions by larger console gaming companies recently.
For example, Electronic Arts has online game extensions for Tiger Woods PGA Tour and NCAA Football. In addition, in mid-2009 it launched an online component to its FIFA game in China and attracted 1 million users and $250,000 in revenue in just four days. Activision also released a free online game called Legends of Zork in which it sells virtual goods.
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