The document discusses the growth of digital goods and virtual economies in Asia and what it means for the West. It notes that Asia's digital goods market was worth $7 billion in 2009 compared to $1 billion in the US, and is projected to grow to $10 billion in Asia and $2 billion in the US by 2010. It suggests the global digital goods market could exceed $100 billion within the decade as the transition from analog to digital continues. The document also provides examples of large Asian social networks and gaming companies and their business models around digital goods.

1. Digital Goods, Real Billions
Asia’s Digital Life & What it means for the West
@benjaminjoffe | CEO, +8*
Virtual Goods Summit, San Francisco | 2010.10

2. @benjaminjoffe

3. 4 years 1 year 5 years

4. • CEO, Plus Eight Star | www.plus8star.com
– Best practices from Asia’s digital space
– Research, Strategy & “Innovation Arbitrage”
• Clients

5. Angel Investor, Advisor, Keynote Speaker
• Speaker
100+ talks in 16 countries
• Advisor
• Investor in Asia-based global companies

6. My Interests
• Technology, Sociology and Anthropology
• Virtual economies
• Digital third places
• Artificial artificial intelligence (AAI)
• Online social dynamics

7. All the world’s a…
All the world’s a stage…
William Shakespeare
All the world’s a game…
Gabe Zichermann
…And one man in his time plays
many avatars.
Benjamin Joffe

8. Introduction Quiz!
Chapter 1 South Korea
Chapter 3 Japan
Chapter 4 China
Chapter 5 Rest of Asia
Chapter 6 Conclusions
Chapter 7 Globalization

9. Quiz!

10. Quiz!

11. Quiz

12. Quiz

13. Quiz

14. Quiz

15. Quiz

16. More than Facebook and USA
• Facebook
• LinkedIn
• QQ (Tencent)
• Qzone
• RenRen
• Kaixin001
• Xiaonei
• 51.com
• Mixi
And more…
• Mobile Game Town
• Gree
• Cyworld
• Friendster

17. Billion Dollar Brands
$B $B
• Facebook
• LinkedIn $B $B
• QQ (Tencent)
• Qzone $B $B
• RenRen
• Kaixin001
• Xiaonei
• 51.com
• Mixi $B
And more…
• Mobile Game Town
• Gree
• Cyworld
• Friendster

18. Market Caps (2010.10)
$780M
$3.3B
$4.2B
$43B

19. ngmoco:) news
$400M
< 2010 Profit!

20. South Korea

21. Cyworld
• SNS/VG pioneer since 10 years ago
– Stagnant for several years
– “The new MySpace”?

22. 2009.10 | Nate App Store
• Leverages Nate’s reach • Slow rise (2M users)
• Semi-open • Rev share (70/30)

23. Portals join the dance
• .
Naver Social Apps
• .
Yozm by Daum
• Results
– Just started
– No social graph

24. Facebook Rising
• Facebook in Korea
– Usage growing
– Local office
– Hired from Cyworld
• Why?
– Users bored of Cyworld
– Virtual goods market
– Games market

25. Virtual Worlds
• 3D virtual worlds still early, even for Korea
– Non-gaming not working
– Nurien (3D social world) fail, revamp into social app
• Only PuppyRed seems successful
– Yet not that big…
– $4M in 2008, equivalent to $40M in US? (= IMVU)

27. PuppyRed

28. PuppyRed | Conversion
• 225,000 MAU
– 18,000 paying (8%)
– Top 2,000 = 46% sales
• Ideas
– Ratio > Social games
– 1% users = 50% sales
Source: Inside Social Games, Oct 2010, PuppyRed data from Nov 2009 to Jan 2010

29. PuppyRed | Monetizing
• Time investment
– Since reg.
– In-world
• Friends
– More value to items
– Gifts
• Items balance
– Limit free items
– Large inventory
(15,000+)
Source: Inside Social Games, Oct 2010, PuppyRed data from Nov 2009 to Jan 2010

30. Online Games
• Online games market $3.3 billion?
• Leaders Nexon, NHN, NC Soft
• Expanding overseas China, Japan, US,
Emerging markets
Source: KOCCA

31. Answer
• #1 in Online Gaming
• Pioneer in virtual goods
• First MMO in 1996!
Min Seo, CEO

32. Nexon Today
• Revenue 2009: $561 million (+56%)
• Over half from overseas (first in 2009 !)
• Some famous games
• Kart Rider (200M reg. users)
• Dungeon & Fighter (200M reg. users)
• Maple Story (95M reg. users)
• Mabinogi
• Combat Arms (FPS)
• Sudden Attack (FPS)
• Etc.
Source: Nexon

33. Foreign Players in Korea?
Some limited successes…

35. And… Starcraft Cheating Scandal!
• April-May 2010
• Largest scandal in e-sports
history in Korea
• 16 pro gamers involved in
match set-ups & illegal
betting.
Pro Gamer sAviOr
(Ja Mae-Yoon)

36. Japan

37. Mobile SNS Make a Killing
• Revenue total > $1 billion!
• All 3 have a mobile app platform
• Mass promotion TV, Billboards, Posters…
• Publish + Develop 1st, 2nd, 3rd Party dev.

38. Mixi
• Inspired by • Friends (PC)
• Mobile (mobile)
• FB (apps, “like”)
• Twitter (micro-blog)
• 21 million users • Pageviews
– 14 million MAU – Mobile 28 billion PV
– PC 5 billion PV

39. Mixi
• Revenue 2009 $166 million
– Profit margin 20%
• 2Q2010 $49M
– Profit margin 25%
– Run rate 2010 $200M

40. Mixi | Users
• Gender-Balanced • 90% above 20 y.o.
Total
Mobile
Total
Mobile

41. Mixi | Pageviews
2009.10
PC
Applications
Platform
2009.08
Mobile
Ad prices for mobile = 1/3 of PC price

42. Mixi | Apps
• Apps
– PC > 1,000
– Mobile > 600
• Apps contribution
– Minor for revenue <10%
– High for PV
• Smartphone UI “Mixi Touch” Machi Tsuku (3M MAU)
by Unoh / Zynga Japan
Source: Masaru Ikeda @ Asiajin

43. Answer
• CEO of DeNA
• Operates “Mobile Game
Town”, a top mobile SNS
in Japan
Tomoko Namba, CEO

44. DeNA
• Revenue 2009 $517 million
– Profit 2009 $228 million (44%)
• Revenue 2Q2010 $279 million
– Profit 2Q2010 $138 million (49%)
– 90% from digital goods
On track for $1 billion in 2010

45. DeNA | Sales

46. Mobile Game Town| Sales Breakdown
$250 million
(2010.04~06)
1%
9%
12%
78%

47. Mobile Game Town | Users
• 20 million users
• 74% over 20 y.o.

48. Mobile Game Town | Open Platform
• 154 partners companies • Avatars in open
• 350 titles (July 2010) platform games too
• In-house games too • Common currency

49. DeNA | Target: Global Leader

50. Answer
• CEO of GREE, top
mobile SNS in Japan
• #2 youngest self-made
billionaire in the world
(after Mark Zuckerberg)
Yoshikazu Tanaka, CEO

51. Advertising
Gree Home Advertising & Affiliates
Avatars & items
B2C virtual goods
Games
(avatar + games)

52. GREE | Service Strategy
Members
SNS Social Games
Diary/Notes
Q&A
Community/BBS
Page views Virtual Goods
Media Ad Sales VG Sales
GREE

53. GREE
ARPU = $2.2 / month! Revenue $133M
ARPPU > $20?
2010.04-06
20M
Users
Digital goods (82%)
Ads (18%)
2010.06

54. GREE
• Year to June 2010
– Sales $430 million
– Operating profit $240 million (56%)
• Year to June 2011
– Apr-Jun 2010 $133 million
– 2011 revenue run rate >$600 million

55. GREE | Monthly Page Views
35.7 Billion
Google Images = 1 billion/day

56. GREE
• 2010.06 | Open platform
• 2010.10 | Non-gaming
apps (27 coming up)

57. 2010.09 | GREE on iPhone ( + Android soon)

58. Community Safety
• DeNA
– 861 employees…
– Many doing content monitoring
Pipo-kun
Tokyo Police Mascot
– Monitoring 24/7 since 2006.11
– “Patrol Center” built in 2008.03
Gree’s Patrol Center

59. Have you heard of…?

60. CyberAgent
• History
– Started as ad network
– Branched into blogs (10M users), virtual world &
social games
– 1,900 employees
• Sales 2009 $1.1 billion
– Profit 2009 $55 million
• Sales 2010 (E) $1.1 billion
– Profit 2010 (E) $98 million

61. | Social Games
• DeNA 10 titles
• Gree 3 titles
• Mixi 8 titles
• Facebook 7 titles

62. | Social Games
• $4M in July 2010
– Run-rate 2010 = $50M ( > ngmoco ? )

63. | 2D Virtual World

64. | 2D Virtual World
• Promotion
– Leveraging Ameba’s blog platform
– TV ads
• Paying Users
– 80% are 20 to 40 y.o.
– 70% female
• Payment
– 68% Mobile, 20% Webmoney, 12% Credit Card

65. | Revenue split
• April-June 2010 $10 million

66. | Subs & ARPU
4.3 million users (2010.06)
monthly ARPU = $15

67. | Fishing Game

68. Facebook Making Inroads
• Facebook in Japan
– Growing (1.2M)
– Mobile JP version
• Why?
– GDP
– Online advertising
– Virtual goods
– Mobile! KDDI’s Summer Line-Up

69. Foreign Players in Japan
• Zynga
– Acquired local company Unoh
– JV with Yahoo! Japan (#1 portal) for games
• Chinese social games doing well
– Rekoo, Rakoo, Elex
… but for how long?
• Online games growing too
– Perfect World (China) acquired local licensee

70. China

71. Social Games Growing But…
• Fragmented market
– 4 competing social networks
– Facebook still blocked
• SNS revenue not great (esp. for third parties)
– Low advertising
– Platforms develop games in-house
– Rev share variable & often unattractive

72. …Online Games Still Dominate
• Online games biggest money maker
– $900M in 2Q2010
– Tencent (20%), Shanda (20%), Netease (13%)
• Social networks channel users to MMOs
• China = 30% of global online games market
$4 billion in 2010?
Source: iResearch, Lazard Capital Markets

73. Answer
• CEO of Tencent!
• #3 Internet company in
the world
Ma Huateng (Pony), CEO

74. QQ IM & QZone

75. Digital Goods?
• Identity related
• Game related
• Music related
• And more…

76. Tencent Bigger Than Ever?
• Sales 2009 $1.8 billion
– Net profit 2009 42% (= $750M)
• Sales 1H2010 $1.3 billion
– Run rate 2010 (E) $2.5 billion (1/3 games)
– Profit 2010 (E) $1 billion
Internet penetration still only 30%!

77. PHOTO: MOBILE PHONE, BEIJING, APRIL 2010
© Benjamin Joffe / Plus Eight Star Ltd.

78. Hardware Innovation: “Shanzhai” (山寨)
PHOTO: MOBILE PHONE, BEIJING, APRIL 2010
© Benjamin Joffe / Plus Eight Star Ltd.

79. PHOTO: MOBILE PHONE, BEIJING, APRIL 2010
© Benjamin Joffe / Plus Eight Star Ltd.

80. QQ Farm

81. Rest of Asia

82. Time-Shifted Markets
• Vietnam
– ~$150M from online games
– 86 million people
– 4-5 years behind china
• Indonesia
– #3 on Facebook!
– 238 million people!
– Behind Vietnam
• Other places: Thailand (66M),
Philippines (92M), etc. Virtual Goods Time Machine
• Biggest potential: online games
& mobile SNS

83. Mig33
“We have decided we want to be like QQ for
mobile in the rest of the emerging world.”
– Steven Goh, CEO
Source: VentureBeat, March 2010

84. Mig33
Made in China
“We have decided we want to be like QQ for
mobile in the rest of the emerging world.”
– Steven Goh, CEO
Not iPhone! Not rich
countries!
Source: VentureBeat, March 2010

85. About Mig33
• Nationality
• Founders from Australia
• Moved to Silicon Valley
• Relocated to Singapore
• Users
• India, Indonesia, Bangladesh, Vietnam, South Africa…

86. Conclusions

87. Conclusions
• Social games = growing fast
• Online games still > Social games (except Japan)
• Massive ads (TV, billboards, etc.) if ROI is good!
• Media properties entering social (portals, blogs)
• SNS can channel users to MMOs with better ROI
• Mobile great in emerging & advanced markets

88. Conclusions
• CJK companies expanding globally
• Transition to digital goods is a tidal wave
• Epiphanies in the West like Korea 10 years ago

89. Digital Goods in 2009
Asia: $7 Billion
USA: $1 Billion
US market potential
$35 Billion?
Source: +8*, October 2009

90. Digital Goods in 2010
Asia: $10 Billion
USA: $2 Billion
Source: +8*, October 2010

91. $100 billion within the decade?
“The virtual goods market
would likely exceed globally
$100 billion within this decade.”
Trip Hawkins
CEO, Digital Chocolate
Founder, Electronic Arts
Source: Trip’s OMG Blog, April 2010

92. Market Potential?
• From analog to digital
– Global video game market $35 billion
– In Korea >50% of ALL GAMES = online games
• Potential = all games in the world
– Global game market $120 billion
– With digital goods dominant model?

93. Globalization
Durian Strudel (Singapore)

94. Ideas, Talent & Markets
• Ideas First farm game = made in China!
• Dev. Zynga (JP, CN)
Playfish (CN)
Kabam (CN)
• Market Facebook (JP, KR, SG, SEA w/ MOL)
Zynga (JV with Softbank for JP)
Rockyou (JP), Others?

95. Platform Partnership
• Cyworld, Mixi, RenRen join forces for one-stop
“Social Application Platform”
• Catching up on analytics to leapfrog Facebook?
• For reference
• Cyword 25M users (1999, Korea)
• Mixi 21M users (2004, Japan)
• RenRen 150M users (2005, China)
Source: Mixi, September 2010

96. Chinese family in Oregon during the Gold Rush
Virtual Goods in Asia
The US Gold Rush Begins
Benjamin Joffe | CEO, Plus Eight Star
Virtual Goods Summit, San Francisco | 2009.10

97. Nexon
• Ndoor M&A 2010.05 Korea
• GameHi M&A 2010.05 Korea
• BoomBang Invest. 2010.10 Spain
• Disney offering $6 billion? (rumor)
• EA’s market cap is $5.8 billion… (2010.10)
Source: +8*, Nexon

98. DeNA
• ngmoco:) M&A USA
• Astro Ape Invest. USA
• Aurora Feint Invest. USA
• GameView M&A USA
• Icebreak M&A USA
• TX.com.cn M&A China
• Social Gaming Fund of $27.5 million

99. Tencent
• Sanook Invest. 2010.08 Thailand
• Comsenz M&A 2010.08 China
• Shenzhen DN M&A 2010.04 China
• DST Invest. 2010.04 Russia
• Riot Games Invest. 2009.09 USA
• Outspark Invest. 2008.01 USA

100. Other Chinese Companies
• Emerging markets, Japan, US
• Rekoo & Yicha doing great with social games
• Shanda buys Mochi Media (2010.01, $80M)

101. China + Russia + South Africa
$18B
$3B $35B
10%
Source: +8*, October 2010

102. DST | Digital Sky Technologies
• Invested $180M in Zynga
• Invested ~$350M in Facebook (~10%)
• Invested $135M in Groupon
• Acquired ICQ for $188M
• Mail.ru (portal), Astrum (games)
– 70% of all PV in the Russian speaking Internet

103. NASPERS

104. From Asia to the World
Durian Strudel (Singapore)

105. Paradise Paintball by Cmune
• World’s first FPS on social networks!
• Over 500,000 users in open beta
– “Paradise Paintball – you feel like you’re playing a
console game.” - Gareth Davis, Games Platform
Manager, Facebook
– “Abandoned my clan, crops have withered and my
cafe has gone bankrupt. Thank you for creating the
first real game on Facebook!” – Facebook user

106. Paradise Paintball | World’s First Social FPS!
www.facebook.com/paradisepaintball www.cmune.com

107. Asia is part of your world too!
What we do
– Best practices from Asia
– Digital Research & Strategy
Clients sample +81 | Japan
+82 | Korea
+86 | China
Telecom & Internet
+ Added Value
Contacts
* High quality
– benjamin@plus8star.com
– @benjaminjoffe
– www.slideshare.net/plus8star