2006 onwards

While the 1995-2006 period was characterised by a radical console market transition instigated by the advent and subsequent dominance of Sony’s PlayStation brand, 2006 and onwards will be remembered for multiple market transformations which had, and continue to have, far-reaching consequences:

Console gaming goes mass market

Sony may have proven in the early 2000s that family gamers represented a viable market via a range of PS2 “social games” initiatives such as EyeToy, SingStar and Buzz but Nintendo popularised the concept with its motion control-based Wii console introduced in late 2006. Wanting to distance itself from the expensive hardware arms race between Sony and Microsoft and needing a radical re-think of its console hardware strategy (which appeared to be in terminal decline following poor sales of the GameCube), Nintendo sought to differentiate itself through user interface innovation rather than technological sophistication. The result has been both a dramatic diversification of console gamer demographics as well as market leading hardware sales and record revenue and profit growth for Nintendo. Wii’s success has also inspired the launches of Sony’s Move and Microsoft’s Kinect motion control peripherals as well as the boom in game-specific peripheral-based titles such as Guitar Hero.

Asian gaming comes of age

Outside of Japan, high piracy rates for retail games had rendered much of the rest of Asia a no-go zone for games console manufacturers and therefore games publishers too. Online gaming and MMOGs, mostly from indigenous Asian firms, have steadily filled the void, avoiding piracy through the provision of ongoing online games services rather than discrete games products. Korea with its state-funded, high speed, mass market broadband led the Asian online games market from the late 90s onwards, mirroring the West with MMOG games design but innovating with freemium and microtransaction business models. But by the late 2000s, China had come to dominate Asian gaming. Despite lagging on broadband adoption and, frankly, adding little new to online games design, China, thanks to major trade barriers for foreign games companies, has capitalised on the explosive growth in the population of Chinese gamers with increasing exclusivity, spawning a large number of high margin, high growth games companies such as Tencent and NetEase that are increasingly ranking alongside the size of the larger Western and Japanese console games publishers. With significant room to grow particularly driven by the rapid adoption of indigenous social networks, China is easily outpacing the growth rates of other territories and its larger companies are looking to invest in the west.

The social network revolution 

The runaway growth of Facebook and other popular social networks presented not only a new set of platforms for games developers but galvanised a new generation of games marketed by tapping directly into players’ social networks. Facebook fast became the single largest games ‘platform’ with over 300m players (the biggest group of which were older females) on a monthly basis in 2011. Social network gaming also revolutionised decades-old design and development practices. The ability to track and analyse each and every action a user makes within a game has allowed games to be designed around actual user needs and wishes rather than solely what designers sense the users need or want.  Although not unique to social network gaming, the use of analytics-lead games development became standard practice on Facebook and instigated further innovations such as “minimum viable product” development where games are launched in a minimal state and evolved based on user feedback after launch. The open nature of most social networks combined with these low cost development approaches have also stimulated a boom in independent games developers originating new games IP and self-publishing. Finally, social network games popularised freemium business models based around selling virtual goods and services to the mass market in the West.

The mobile gaming revolution

The advent of the iPhone and its app store shook up not only the moribund mobile games market but the whole of the mobile phone industry. With Java gaming beset with endemic structural problems and in decline in the West, smartphone gaming (and its cousin, tablet gaming) has transformed the mobile gaming landscape not just for consumers but also for developers. As with social networks, the open nature of most smartphone platforms has precipitated a wave of self-publishing from independent developers free to explore not just new Intellectual Property but also new business models such as freemium, in-app purchasing and microtransactions. Although smartphones have been considerably slower to take off in Asia, the mobile games market has thrived thanks to growing handset penetration and advanced mobile games services on feature phones. This is most notable in Japan where social networks and feature phones have been combined to create a high growth billion dollar mobile social network games market, whose leading companies, like their Chinese counterparts, are also investing in western games businesses.

Most of us now play

Gaming’s penetration into the population has gradually but inexorably been rising over the last decade. Nintendo’s success and the growing momentum of online gaming drove penetration of gaming (in all its forms) to between 60-70% of western countries’ populations by the late 2000s. Many of these players refuse to identify themselves as gamers and are subsequently missed by surveys. Social networks’ huge gaming audiences are also often under-estimated by market researchers for the same reason. Gaming on social networks has seen major consumer adoption. For instance the UK was estimated to have at least 13m monthly players or 20% of the UK population in May 2011. This will have driven penetration of gaming to between 65-75% of western populations from the early 2010s onwards.

Network gaming is covered in greater depth within multiple articles in our Insights.