Case study

Betting on gaming in SA

The penetration of mobile phones and mobile data will serve as catalysts for a growing mobile gaming market in South Africa. The question is how well the industry will navigate these opportunities.

2 December 2009
Massive Mobile gaming developer Danny Day says the first company to develop a massively multi-player mobile game will win.

Globally, gaming is a hot market – from console, to PC, to online, to mobile. Pyramid Research’s recent report, Mobile Gaming in Emerging Markets, says that mobile gaming will grow at least 20 percent per year from 2009 to 2014 in the Africa and Middle East regions.

Jan Ten Sythoff, research manager for Pyramid Research, says that mobile phone and mobile data penetration serve as catalysts for this market. While Africa has good mobile phone penetration, there are differences between consumers in mature markets like the United States and those in emerging markets like Africa.

Says Matt Benic, a developer with I-Imagine: “While we have high mobile phone penetration, our potential consumers in South Africa typically have low levels of disposable income (also typical of the rest of Africa).”

This means handsets used by consumers are lower-end devices, and the cost of games needs to be lower than in developed markets. In addition, consumers would not necessarily have previous experience with other gaming platforms like consoles and PCs. Says Danny Day, owner of QCF Design: “The first provider that offers a truly engaging, massively multi-player, micro-transaction-enabled game on phones is going to win big.”

Benic says there is also huge opportunity with sports, like soccer, and SMS-based games in South Africa. A “taxi”-driving game might be an appealing concept in South Africa too. This is tapping into what consumers know and feel comfortable with.

Sythoff says the challenges facing emerging markets include game cost, affordable handsets and piracy.

Benic mentions that the misperception that game development is inexpensive is a challenge in the local industry. Companies that would pay to have games developed for advertising and promotional purposes are often shocked when quoted a price.

Furthermore, according to Benic, the lack of sufficient numbers of skilled developers is slowing down the mobile game development industry. And then there is the ongoing issue of the cost of internet access. There are many free and inexpensive tools online to support mobile game development but the data usage expense can be prohibitive for small firms.

Double-edged sword

Challenges impact the consumer too, says Day. “Poor visibility, commodity-focused instead of product-focused marketing, shoddy after-sales support and lack of penetration by local mobile developers means…potential players have to wade through sheets and sheets of poorly advertised games.” In addition, the games are not localised to suit consumers.

Challenges notwithstanding, Sythoff shares several business models with the potential to succeed in African markets. First, there is gaming for advertising, or adver-gaming: players are allowed to download games for free, but the games contain advertisements. The vendor and developer generate revenue by selling advertising space.

A second potential business model allows consumers to play games for free until they reach a certain level, after which they must pay. This is a good way of getting consumers hooked on a game, providing motivation for them to pay to continue.

In some instances, a game developer will work with a data provider to provide games. Both share the revenues while keeping the price of games lower. Day says QCF Design is looking into another business model – subscriptions.

No matter which business model is employed though, says Benic, a game has to make it the first month it is released.

Sythoff says there are potential spinoffs in digital content and educational games, while Day says his firm “has had some success with mobile-based learning games”.

Sythoff points out that new mobile game developers need to address several issues. First, they have to find channels to reach potential consumers. This will normally result in partnerships with mobile phone operators or aggregators. Second, developers need to consider how they will bill the end-user.

Third, games should be localised to match language and culture.

Unlike the iPhone Appstore, which shook the US mobile game industry by allowing new and more agile mobile developers to enter the market, local developers find it difficult to enter the market. Day says “commissioned game development is currently more lucrative”.

Up, up and away

As for the future, Day provides several insights. “New studios are applying lessons learned from digital distribution games on consoles and PCs to the mobile space. These are studios and products that will change the mobile gaming sector in South Africa.”

Also, says Day: “Watch content creators that produce content for local consumers, as well as the Indian mobile game development industry… (it) will inform developers here.”

Finally, Day says to track MXIT.

“MXIT is a heavyweight in the industry. It’s one to watch for future growth in the mobile game sector, especially if it acts as an aggregator for quality local content.”

The sector will also be tamed. “New gambling control laws and changes to premium cost services should help reign in the `Wild West’ nature of many mobile businesses,” according to Day. This will reduce exploitation of consumers.

Overall, two possible scenarios will develop in South Africa’s mobile game sector. Mobile games will be overtaken by flash- or browser-based games as phones evolve, if the mobile game industry does not respond on time. Or, the industry will shift from its current business models to more customer-focused models, which focus on alternative revenue streams.

Sythoff says the mobile game sector is complex. Navigating this complexity successfully is a key enabler for firms wanting to enter this space. Success will come to firms like Apple, which are able to deconstruct the complexity and tap into the potential of the sector. With the potential revenue stream and under-tapped market, it’s definitely a sector to consider.