Mobile gaming is the future—people have been saying that more or less since the first iPhone. Especially in the developing markets of Asia like China, where even hardcore gamers typically didn’t own their own PCs or consoles, plenty of pundits have suggested over the past five years that PC games are going the way of the dinosaur, and mobile games are the new king – and for entrepreneurs, the new cash cow.
And to be fair, there’s no denying that mobile gaming has absolutely exploded. Virtually everyone who has a smartphone spends at least a slittle time playing games, and for many of us, smartphone games have become a core feature of the device. Personally, I can barely even remember the dark days before smartphones, when I had to look out the window (ugh) while sitting on a bus instead of playing Jetpack Joyride.
But I’ve always been a bit skeptical of the notion that in the long run, mobile games are going to be a big moneymaker for game developers and publishers in the Middle Kingdom, at least directly. And increasingly, I’m seeing signs that the mobile gaming market isn’t quite as profitable as it’s often cracked up to be.
Numbers don’t lie
Actually, for most developers, the Chinese mobile gaming market isn’t profitable at all. Chinese regulatory agency SAPPRFT released a report this summer that contains some grim numbers for mobile gaming hopefuls: 92 percent of Chinese mobile games lose money. And of the remaining 8 percent, many only break even. Some reports suggest that as few as 2 percent of China’s mobile games actually turn a profit.
That makes developing a mobile game a very risky proposition for startups. Those numbers still can work for China’s tech giants, who can afford to develop 20 different mobile games with the hopes that one or two of them actually find an audience and make some money. But even the big guns seem to be having trouble making money these days. As Sina Tech blogger Xiaohaozi pointed out in a recent post, Qihoo 360 saw its revenue from mobile gaming services slide nearly 17.2 percent in the second quarter of this year, and Tencent‘s revenues from mobile gaming haven’t been growing either.
And although download numbers are crazy, mobile gaming in China has never been quite as profitable as people imagine. Consider this: at the end of 2013, China had 500 million mobile web users. That’s more than double the number of broadband PC users China has now. But despite the fact that there are way, way more smartphone owners than PC owners in China, revenues from PC gaming blew revenues from mobile gaming out of the water in 2013. It wasn’t even close. Between client-based games and online browser games, PC gaming in China generated more than US$10 billion in revenue last year. Mobile gaming generated less than US$2 billion, and that’s despite the fact that games were the most-used type of app on smartphones in China during 2013.
People are downloading mobile games in droves, and they are playing them a lot. They simply aren’t paying for them.
Are demographics to blame?
These numbers may surprise you, but they haven’t particularly surprised me. I play mobile games – including Chinese games – all the time, but I can’t remember the last time I paid actual money for an in-app purchase or anything else that would actually generate revenue for the developer beyond seeing the occasional ad. Meanwhile, between PC games on Steam and the Tencent-owned PC game League of Legends, I’ve spent enough that I probably owe Tencent CEO Pony Ma my firstborn child at this point.
Part of the problem may be unique to China’s market, which has embraced the “freemium” monetization model for mobile games with an enthusiasm that is, I suspect, unrivaled elsewhere on the globe. Gamers complain frequently that many of China’s mobile developers push things too far, instituting draconian stamina systems and other obstructions to try to squeeze money of out their users. The user response, apparently, is just not to pay at all.
See: If you put a stamina system in your game, I hate you
If you put a stamina system in your game, I hate youBut part of the problem, I think, is broader. Mobile games tend to be tuned for a short, casual gaming experience. That makes sense given that a touchscreen phone is too small to produce deeply immersive graphics and too unwieldy to offer the precise controls hardcore games require in most game genres. But it also makes users less likely to spend money, because most mobile gaming experiences are casual, fleeting, and ultimately replaceable. To most of them, mobile gaming isn’t something they’d connect to their own identity, it’s just a way to kill time on the subway. This is in stark contrast to the way many PC gamers see themselves, and I think the results of that difference in passion are evident enough in the breakdown of China’s gaming industry revenues.
With the admission that I’m aware anecdotes are not data, I think my wife and brother-in-law – both of whom are Chinese – are good examples of what I’m talking about. My wife would not consider herself a gamer, but she does have dozens of Chinese games on her smartphone, and she plays them somewhat frequently. Last spring, she even got a little addicted and spent of ton of time playing a Candy Crush-style game one of her friends told her about, and ultimately beat the entire game. But she’s never spent a dime on a mobile game. Her brother, meanwhile, does consider himself a gamer. He’s a big fan of Dota 2, and between his in-game purchases, internet cafe time, and other expenses, I’m sure he’s spent quite a bit on the game.
Winter is coming
All of this is not to say that there’s anything wrong with mobile games, or that one can’t make money off of mobile games in China. That is obviously not the case. But I do think that the idea that mobile gaming will replace “traditional” gaming is silly, and that we may be headed into a cooler period in terms of China’s mobile gaming market.
Until someone can figure out a way to get mobile gamers to spend on mobile games the way that hardcore gamers spend on PC games, I think PC games will continue to dominate China’s gaming market.