1. This Town Ain't Big Enough for Both of Us –
Trend Compendium for the F2P Online Games
Industry
Cédric GENIN
Director Southern Europe, Bigpoint
November 2012
Game Connection, Paris

3. With Outstanding Growth
• Average growth rate of 8% for the gaming industry in total
• The games industry is the fastest growing sector of the entertainment industry with a double-digit growth rate
• Online gaming is growing faster than the total gaming market
Global Online Gaming Market Growth Rate
+15%
+20%
+20%
+32%
+37%
2007 2008 2009 2010 2011
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Source: PricewaterhouseCoopers LLP 3

4. But there are too many players
• Click to edit Master text styles of it
fighting for a share
• Second level
• Third level
• Fourth level
• Fifth level

5. The Atari Syndrome – when the platform is not large enough for all the games
Original Atari Ad
in 1982

6. We can see this repeating in platforms such as mobile, with thousands of new free games and
apps each day

7. Facebook does not guarantee endless growth either and the lifecycle is getting shorter due to
increased competition
FarmVille Cityville Sims Social
99
MAU in millions
89 88
83 80 76
76 78
63 64 62 66.5
54
53 47
45 50
35
33 31
30.9
24.6
5
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11
Timeline 7

8. Even Facebook’s largest gaming partner is looking for growth outside of Facebook as the
platform finally reaches maturity
8

9. Traditional console players are also entering the F2P online gaming market with large budgets, while
growth in traditional retail gaming slows down

10. Online F2P will become the norm even for traditional console players
10
Source: Marketwire, TechCrunch

11. But there is no added value for the user with more competition,
just fragmentation
“Equivalent value is not the same thing as actual value”
(Tadhg Kelly Article: “Zynga Colapse Now”) 11

12. In a crowded market it’s getting harder and harder to stand out

13. And competition is increasing even faster than the overall market, which is a problem for
everyone
Release of F2P online Shooter games

14. Consumers face too many choices, which reduces loyalty. They don’t need to pay any longer;
they can simply move to another game

15. Therefore, more and more games with an F2P model need a constant flow of new users, which
must be acquired

16. Game searches by users are more or less flat
Development of search engine requests for “F2P Game” since 2010
Source: submitted by Google

17. Game searches by users are more or less flat
Development of search engine requests for “Farm Games” since 2010
normalized data in a scale from 0-100.
Source: http://www.google.com/insights

18. But competition for user acquisition is getting harder and harder
Source: google.de

19. Which translates into more expensive user acquisition
CPC Evolution (Cost per click)
UK
USA
+74% FR
in 12 months
CPC
DE
2010 | Q1 2010 | Q2 2010 | Q3 2010 | Q4 2011| Q1 2011| Q2
Source: Global Facebook Marketing Report 2011

20. Which translates into more expensive user acquisition
CPL Evolution (Cost per lead)
UK
USA
FR
+152%
CPL
in 12 months DE
2010 | Q2 2010 | Q3 2010 | Q4 2011| Q1 2011| Q2
Source: iQU internal data

21. Reaching levels that make it hard for some developers to justify the investment
Average CPL (for general online marketing campaigns)
Additional cost
for F2P gaming
Source: Pontiex CPL Benchmark
Study, own assessment

22. And in certain genres the impact is even higher
Farmerama DE: Development CPL (index 2010)
384% increase
500%
450%
400%
350%
300%
250%
200%
150%
100%
50%
0%
2010
2011
2012

23. How to escape the tight market?!

24. First, remember that we do entertainment! We
need hits: Awesome, fun games that users love
to play

25. Adopting the online F2P model is not enough to
be successful

26. To build a hit nowadays requires 3 fundamental ingredients

27. Top Quality
1
High-performance games need:
• Bug-free play
• Great art
• Great game design
• An understanding of the user-life-cycle
• An understanding of the game-life-cycle

28. Users expect top quality on every platform, including the browser

29. 2 Innovation
 Don’t create copycats – games are not
commodities!
 Create new genres or put a new spin on
existing genres
 Experiment with new game mechanics
 Attract new target audiences
 Explore Web 3.0 – user-generated content

30. Truly innovative games are risky, but it is the only way to stand out in the crowd

31. User
3
Retention
• Extensive user knowledge
• Smart cross-promotion
• Behavioral targeting
• Personalized offers
• Real-time pricing

32. Retain the user in the game as long as possible and once they are about to leave offer them the
next product

33. Long-time users tend to be heavy spenders, who ultimately generate
the majority of our revenue
33
Long Tail: 20% of Customers
80% of Revenue

34. But all of this requires scale and funding, giving the larger players a huge advantage
1. Top quality Bigger budgets
2. Innovation More risk
3. User retention Large user base

35. Inevitably, only the big, well-funded
players will survive in this extremely
competitive environment, bringing
balance back to the industry

36. This is absolutely normal while the industry matures; it happened before in other
segments and it will happen now in the online F2P space
Sector Sector Launch Sector Growth in Sector Sector
Consolidation Scale Consolidation Equilibrium
High Console/PC
Client based MMO
Social/Casu al Online
Browser based MMO
Medium
Mobile
Middleware Social-Mobile
Low Advertising
- VC Investment - Growth equity - Leveraged buyouts - Limited M&A/ Expected
- Some small M&A investment - Low volume, large- investment Deal
- High volume, mid- scale strategic M&A - Cost focus Activity
market strategic M&A - Alliances or spinoffs

37. Investors continue to believe in our industry – investment more than doubled in 2011
Global video game private placements ($M)

38. But consolidation is starting to pick up already - M&A more than doubled in 2011
Global video game mergers and acquisitions ($M)

39. With the most activity in social, mobile, MMO & middleware
Selected M&A
2011
Full-Year
hi

40. With the most activity in social, mobile, MMO & middleware
Selected M&A
2012
Q1/Q2
(14.7 %)

41. Potential Consolidators
Asian Games Online/Mobile Games
- International growth platforms - Synergy with core business
- IP for strong domestic markets - Diversifying revenue streams

42. Potential Consolidators
Console Games Media/Other
- Investments in growth markets - Synergy with core business
- Diversifying revenue streams - Leverage distribution platforms

43. Growth and consolidation opportunities
Mobile Social/Casual
 Small to mid-market tactical tuck-in or strategic  Small to mid-market tactical tuck-in or strategic
roll-up M&A roll-up M&A
 Selective large-scale M&A for international  Highly selective, large-scale M&A for international
growth platforms or to bring leading IPs into growth platforms or to bring leading IPs into strong
strong domestic markets domestic markets
 Organic investment in mobile and social-  Organic investment in social, with focus on cross-
mobile, with focus on cross-platform platform
(iOS, Android, Facebook, Tencent, Renren, Gree,  Leverage IPs from social to cross-platform social-
DeNA, other) mobile
 Leverage IPs from mobile to cross-platform  Commercial partnerships with brand owners for
social-mobile licensed social/casual games
 Commercial partnerships with brand owners for
licensed-mobile and social-mobile games

44. So remember!
Improve Innovate
Quality
Retain Secure
Users Scale

45. Contact us
Bigpoint France
Cédric GENIN
Director Southern Europe
54 avenue Hoche
75008 Paris
France
c.genin@bigpoint.net
www.bigpoint.net