Trip Hawkins, CEO of Digital Chocolate, posted an interesting article on the company’s blog last night, suggesting that growth in social gaming has become increasingly challenging, yet he effectively argues how virtual goods could grow to become a $60 billion market in the Western hemisphere. There are a number of interesting ideas postulated by the company CEO, all highlighted below.
- Virtual goods are a $60 billion business – As Trip states, “An estimated $7 billion in virtual goods were sold in China last year, and another $1 billion in the Western World. What gets me intrigued about this is the fact that the West is just getting started and we have 8.5 times more Gross Domestic Product than China. That should generate enough buying power to suggest that when the West is comparable to the 2009 China market, it might be a $60 billion market in the West alone.” It’s a rational argument and one that must have dollar signs flashing before the eyes of many developers.
- Social game developer traffic is flat – The death of notifications killed viral growth. As Trip states, “How’s the social game industry doing in this wake? Not so good: out of the Top 25 publishers of social games with virtual goods, only two publishers increased their customer bases by at least 1 million customers since March 1 (Playdom and Digital Chocolate).”
- Platforms will lose their influence – Trip describes Platform owners losing their influence, in that consumers will want to access their applications everywhere. “The platform operators don’t seem to realize that consumers are going to soon be demanding a SaaS model (Software as a Service) for more games and applications. They’re going to want access to their software services from all their devices, platforms, and networks they can get onto. The public is going to want to decide when, where and how they pay and play. They’re not going to be boxed in any more than they would have been with voice, email, browsing, SMS, MMS and all of which began as platform walled gardens and became interoperable as a result of public demand.”
- Developers will need more funding for bigger (and less spammy) apps – This was effectively articulated in our post on the economics of Facebook games. Essentially it will be come more expensive to build applications as developers try to stand out from one another as users are flooded with new games.
You can read more of Trip’s theories on the Digital Chocolate blog, but the message is pretty clear: while there’s a lot of upside potential for developers, the landscape is becoming fiercely competitive.
You can also view our interview with Trip Hawkins.