Online Gaming Industry – Opportunity and Challenges

Online Gaming

Gaming Industry – Opportunity and Challenges

The gaming industry is extremely large and keeps on growing at a rapid rate because of the persistent technological advancements and socio-cultural trends. The growth prospect of the gaming industry presents a significant opportunity for businesses to exploit (Comviva Technologies 2009). In addition, technological advancements and socio-cultural trends present a vast business opportunity for industry players to improve their products constantly. Technological advancement is essential for the growth of the gaming industry because producers will have the capability of improving the quality of games to meet consumers’ demand (Arab Media Outlook 2012). The third opportunity for the gaming industry is the increase in internet accessibility, which has helped in revolutionizing the value chains in the industry. The expansion of gamer demographics presents a potential market that can be tapped to ensure industry growth.

Irrespective of the growth prospects of the gaming industry, there are a number of challenges that are likely to hinder its growth. The first significant challenge is the case of rampant piracy that rips off the profitability of the industry. Red Entertainment, a leading game distributor in the Middle East, reported the company only sold 4000 copies out of the 600,000 copies of FIFA 2009 available in the Middle East Market (Duke University 2012). The second challenge facing the growth of the industry is the declining birth rates. It is evident that teenagers are the primary consumers of games, which implies that a declining population of teenagers leads to reduced sales. However, this effect is offset by the fact that there is an increase in the average age of gamers. The third challenge facing the gaming industry is the cultural forces. Culture influences preferences, behaviors, perceptions and values of individuals in society (Duke University 2012). Gaming has been likened to the high levels of obesity and violent behavior among children; this social constructs are likely to dampen the growth prospects of the gaming industry. The fourth potential threat facing the gaming industry is the declining levels of disposal income, which reduces people’s expenditure on gaming. Other probable threats in the gaming industry include the production of cheap games and the rising environmental awareness, which requires the use environment friendly technologies (Hornle & Zammit 2010).

Global Trend and Market Growth

The global game industry is estimated to reach approximately $ 70.1 billion by 2012, which is attributed mainly to the growth of gaming consoles, portable personal computers and online video games. A research by DFC Intelligence estimated that the game industry was worth $ 60.4 billion, which translates to 16 percent growth in over five years (Duke University 2012). In addition, the research pointed out that there is a drop in the pricing of games because consumers are embracing free business models. Therefore, as the gaming industry widens its market and reaches new audience, the revenue obtained from each gamer is declining.

There is a probable shift in the spending patterns of consumers from packaged products towards purchasing products on an online platform through either digital delivery or subscription fee. Consumers are adopting online business frameworks having free components. These business models are likely to generate more revenues than the conventional retail sales business model. New business models are implemented via the PC platform. It is estimated that, by 2015, the PC game industry will be worth $ 20 billion whereas the revenue for console online games will increase fourfold because subscription and distribution are making their way into consoles (Duke University 2012). This will be helpful in offsetting the drop the retail store sales.

The increasing broadband and internet penetration, and mobile and online gaming are the significant factors contributing to the growth in the gaming industry. With high affordability of online and mobile games, video games are increasingly becoming accessible in developing countries. Although console gaming has the largest market share in the gaming industry, it is estimated that its growth will decline by 5.5 percent during 2008-2013 (Duke University 2012).

In 2008, Africa, Middle East and Europe had the largest market share in the video gaming industry (35.3%). It is estimated that, by 2013, the Asia Pacific will lead in terms of industry market share and growth. The market share in Middle East, Africa, America and Europe will decline. The following table illustrates the video gaming market in terms of geographic regions (figures are in $ billions)

Europe, Africa, Middle East	17.5	25.6	7.9%
North America	16.8	23.5	6.9%
Asia Pacific	14.6	25.7	12.0%
Latin America	0.7	1.3	12.4%
Total	49.6	76.1	8.9%

 

Gaming Application Trend in UAE

There are four primary gaming application trends in UAE, which include casual single-player game portals, competitive multiplayer game portals, massively multiplayer online games and social games. Casual single player game portals comprise of specialized portals hosting small singer-player games that are played casually in short bursts. Casual single player games have been embraced strongly in UAE (Arab Media Outlook 2012). There are numerous Arabic casual gaming portals that aggregate and distribute various free single player games. Casual single player portals attract at least 46 million visits and 350 million page views. In addition, most directory websites and Arab forums tend to feature single player web games. Casual single player games have also been embedded in the web pages of regional television channels like Cartoon Network Arabic (Arab Advisors Group 2012). Investment trends reveal the potential of single player online gaming trend in UAE. A notable example is Yahoo! Maktoob’s acquisition of three casual single player game portals: Sh3bwah, Shams, and Wslaat. Internet forums have also reported remarkable achievement with casual single player games; for instance, Jeddahbikers.com, a web forum hosting numerous casual games, was sold for about $ 1.87 million. The table below shows the casual single player games portals in UAE (Arab Media Outlook 2012).

Table 1: casual single player games portals in UAE

Name of portal	Description	Total visits per month in millions	Page views per month in millions
G9G	Game portal	18	160
Yahoo! Maktoob Games	Games section of Yahoo! Maktoob	5.8	13
te3p.com Games	Games section of forum	4.9	50
Jeddah Bikers Games	Games section of forum	4.9	32
g5y5.com	Game portal	3.5	31
brg8.com Games	Games section of forum	3.2	19
alaab4arab.com	Game portal	1.8	15
ttt4.com	Game portal	1.5	11
Graaam.com Games	Games section of forum	1.3	12
Dailygame	Game portal	1	6.8

 

Competitive multiplayer game portals comprise of online games hosted remotely on a server having at least two players participating in a competitive session. Under this game application model, the play session determines how game lasts (Afuah & Tuccci 2002). Competitive multiplayer online games are gaining popularity among internet users in UAE. Most competitive multiplayer games involve international portals decoded in Arabic and game portals developed for Arab audiences specifically. Competitive multiplayer games deploy various methods for revenue generation such as premium memberships, in game product placement, fees and sponsorships, tournament participation, and advertising (Comviva Technologies 2009). The most common business models include premium membership and advertising. Under premium memberships, players pay periodically to access to privileges and features of the game. The table below indicates the competitive multiplayer game portals in UAE.

Table 2: competitive multiplayer game portals available in Arabic

Portal name	Game categories	Developer	Country of origin
Arabic Portals
Kammelna	Card games	Remal IT	Saudi Arabia
el3ab.com / MSNArabia	Card games, tablegames	LINKonLINE	Egypt
Jawaker	Card games	Jawaker	Jordan
Kout bo 6	Card games	KB Soft	Kuwait
Balot.net*	Card games	BalotNet	Saudi Arabia
Ultimate Tarneeb	Card games	YallaPlay	USA
Tarneeb		Individual	Jordan
4balot*	Card games	Almasarat	Saudi Arabia
Fuzztak	Card Games	Quirkat	Jordan
Ebaloot	Card games	Ebaloot	Saudi Arabia

 

 

Figure 1: Revenue streams of Arabic card game portals

Massively multiplayer online games entail games that can support numerous players simultaneously in a game world hosted on a remote server. MMOs integrate social aspects because players can communicate, compete and cooperate (Hornle & Zammit 2010). The mounting prominence of free-to-play online gaming model resulted in an increase in MMOs in UAE in Arabic language. As of 2010, UAE had about 47 MMOs serving the region’s demand, and by 2011, there were about 95 MMOs available in Arabic. Most MMOs in UAE are browser-based, with only 10.5 percent being client-based (Arab Advisors Group 2012). The two primary factors that facilitated the boom of MMOs in UAE include the surfacing of the free-to-play business model for online games and the growing accessibility of Arabic content. Whereas user acquisition and retention play a core role in the success of individual MMOs, integrating free or affordable game content in Arabic is also essential in ensuring that MMOs access mainstream audiences (TBWA 2012). Browser-based MMOs have penetrated the UAE faster than client-based because of their cost effectiveness and localization. In addition, Browser-based MMOs have an extremely low barrier to entry, which increases their accessibility to users compared to client-based MMOs. Most BBMMOs deploy the freemium business model, although some make generate revenue using premium memberships, micro transactions and advertising. The following figure shows the number of MMOs available in Arabic content (Karlsson & Picard 2011).

 

Figure 2: number of MMOs available in Arabic content

Social games are embedded in social networking sites and exhibit strong social components. Facebook is a major platform for online gaming and hosts games such as Farmville. As of 2011, there were about 33 million registered Facebook users in UAE, and 53 percent of these users are less than 25 years (Arab Advisors Group 2012).

Gaming Business Model in UAE

Online game services in UAE make use of three main revenue generation models, which include paid subscription, online advertising, and freemium (Schlie, Jorg & Niko 2011). Under paid subscription, users make periodic payments to have access to the full content of the online game; this implies that non-paying users have limited access to the content of the game. Forms of limited content include trial versions or demos, which are used to encourage users to subscribe to the full content of the online game service. In the UAE, the paid subscription is the preferred business model used by competitive multiplayer card game portals (Arab Advisors Group 2012).

Online advertising entails the use of banners on the web page hosting the game, in-game advertising banners, and in-game product placement (Jong 2009). Online advertisements are the preferred business model for casual single player games in UAE although some competitive multiplayer game portals use online advertising for revenue generation.

Freemium involves the use of premium memberships and micro transactions under free-to-play games (Oxford Business Group 2009). Players can purchase in-game benefits and special memberships that lead to an advanced play experience. The freemium business model is preferred by MMOs. The free-to-play gaming model with freemium monetization and advertising is the most prevalent revenue model for revenue generation for online games in the UAE. Contrary to paid subscription, free to play games offers full game experience for non-paying subscribers. A significant fraction of players, at least 90 percent, play without paying and only a small percentage of the player base pay (Arab Advisors Group 2012). Whereas non-paying players do not make any significant revenue contributions, they are a vital component of the gaming ecosystem and are needed to ensure that the game service is vigorous.

It is evident that online games in UAE function in a manner that is similar to freemium consumer-targeted web services, which implies that they rely on the cycle of user acquisition, monetization and retention (Arab Advisors Group 2012). Most online games in UAE adhere to the global trends in these respective areas. User acquisition relies on virality and online marketing. With respect to marketing, it is apparent that the marketing budget determines the number of subscribers registering for the online game service; as a result, having an enormous marketing budget makes it is to acquire many users (Larissa 2011). Virality relies on social channels and word of mouth marketing. The virality of an online game service refers to its ability to obtain new subscribers at no extra costs through incentivizing the existing subscribers to persuade their friends to use the online gaming service (Nichols 2006). User retention refers to the capability of the online gaming service to retain subscribers basing primarily on the user experience. The fundamental logic is that if a gaming service provides a compelling service, then it is highly likely that the user will return and become active. Online games achieve this objective through exceptional game design and periodic updating of features and game content. A profitable online game service must be able to generate more revenue from paying subscribers than the amount it spends on acquiring subscribers (Montefiore 2010). As a result, it is essential to adopt a business model that encourages the conversion of registered subscribers to active and the paying users. Online games in UAE achieve this objective using speed and convenience, and cosmetic and vanity items. With respect to speed and convenience, non-paying subscribers progress slowly in free-to-pay games. This means that subscribers who want faster progress can acquire premium membership (Arab Advisors Group 2012).

Online Games Value Chain in UAE

The value chain for online gaming in the UAE incorporates all activities that facilitate the flow of game content from the game developers to end consumers, and revenues generated to flow in the reverse direction. The figure below depicts the value chain for online gaming in UAE formulated by global games firms and then adapted for implementation in the UAE. Core activities that take place in the value chain for online gaming include the development of the game, localization, publishing, distribution and operation (Arab Advisors Group 2012). According to the business model used, the core activities of the value chain can either be executed all by one firm or by multiple firms positioned in the value chain.

 

Figure 3: Online games value chain

In the game development phase, game developers formulate a game from a virtual concept to conclusion. In addition, the developer has the responsibility of updating the game content and coming up with new versions of the game (Arab Advisors Group 2012). Localization involves the adaptation of a game to meet the needs of a target audience that is outside the current targeted locales of the game. Localization entails translating the text and adjusting the content of the game to reflect the cultural and legal considerations that are distinctive to countries and regions of the new target audience (Arab Advisors Group 2012). In the UAE, localization may involve scaling down sexual graphics and nudity, and removing provocative depictions of political and religious figures. Publishing involves all facets of advertising and marketing the game to the target audience after its completion. Publishers have the responsibility of financing game development and amassing a collection of games for supply. Distribution of online games refers to the process of ensuring that the game is accessible to consumers (Arab Advisors Group 2012). Game publishers and developers can offer the game using a game portal or an individual website. Game portals are retail stores on the internet. Game developers can form their own portals or can distribute their games using third party portals. Operations refer to all the daily activities need to ensure that the game service is running. Operations include activities such as the management of online communities, customer service and support, and server maintenance.

Companies involved in online games industry include game publishers and developers, web portal and website operators, distributors and firms that provide services associated with localization, online community management, and customer support and service. Most firms combine multiple activities of the value chain in their business models (Arab Advisors Group 2012).

Apart from game development, distribution and operations, payment channel accessibility and internet access are vital components of the value chain of online games. Online gamers require internet accessibility before enjoying online games. In order to prompt payment from subscribers, online games firms in UAE use numerous payment channels like prepaid online shopping cards and credit cards. Payment channel providers play an intermediary role between paying subscribers and game companies, and usually take a fraction of the revenue obtained from users paying via their channel (Arab Advisors Group 2012).

Advertising is a vital source of revenue for games portals and are essential for casual single player portals that do not monetize using subscriber payments. In addition, many multiplayer competitive game portals in UAE use advertising to boost their revenue. Gaming firms can advertise through direct selling of space and regional and international advertising networks. Furthermore, game companies can also use in-game product placement, although this model has not gained prominence in the UAE (Arab Advisors Group 2012).

Competitive Advantage of UAE in Gaming Industry

The gaming industry in UAE is an emerging market characterized by a surging demand and yet to be explored fully. The industry growth prospects of the online gaming industry in UAE are relatively higher than the global growth prospects in the gaming industry. This state of affairs is attributed to a number of factors leading to the competitive advantage of the UAE in the gaming industry (Duke University 2012).

The first factor making a significant contribution towards the competitive advantage of UAE in the online gaming industry is demographics and local tastes of UAE, which tend to accelerate the growth of the gaming industry. The UAE boasts of the fastest growing communities of people engaged in online games, and demographics point out that this trend is likely to continue in years to come. Approximately 65 percent of the UAE population comprise of individuals less than 25 years, with at least 70 million people having access to the internet, which has tripled over the last five years (Arab Media Outlook 2012). By 2015, internet penetration is anticipated to attain 150 million users. These statistics point out the dynamic development of online game industry in the UAE, and more than six Arab enterprises based in Jordan receiving funds from local investors. Arab online gaming has a competitive advantage because the region has the fastest internet penetration. In addition, the consumer interests facilitate the competitiveness of the online gaming industry in UAE. The UAE is oil rich, implying that residents have high disposable incomes to spend on gaming. This is evident by the fact that the average daily revenue for each user in UAE is among the highest in the globe (Arab Media Outlook 2012).

The socio-cultural distinction of UAE makes a significant contribution towards the competitive advantage of the gaming industry in UAE. This, in turn, encourages the product differentiation of games developed for the Arab communities. There is a surging demand for online games having local characteristics; for instance, UAE residents want to see a depiction of the Arab world in the online games (Duke University 2012). As a result, most Arab online games are in the form of card games and historical adventures that are unique having artistic components and storylines that are Arab. Irrespective of the fact that the gaming industry is yet to compete with the high tech games developed in the Western world, the need to address local tastes helps in establishing the competitive advantage of the online gaming industry. In addition, the online gaming industry in UAE is still small, which implies that competitors sometimes collaborate to advance quality and facilitate market growth. The online games in UAE have a socio-cultural mission, wherein games are used in the depiction of the Arab world; this, in turn, enhances the competitiveness of the gaming industry in UAE when compared to other regions like Western world, where games are used solely for entertainment (Arab Media Outlook 2012).

The third factor contributing towards the competitive advantage of the online gaming industry in UAE is because the digital platform in the region depicts the highest growth potential because of the favorable demographics of UAE; that is, at least 50 percent of the population has less than 25 years. In addition, there is an increasing uptake of tablets and smart phones in the UAE, which tend to increase verticals in the online space leading to increased levels of online gaming. In a nutshell, the competitive advantage of the gaming industry in UAE is attributed to demographics and local tastes, socio-cultural differentiation, high levels of disposable income, and the fastest growing digital platform in the region. These variables give the UAE gaming industry a competitive edge over other regions, which, in turn, promises higher growth prospects than the global prospects of growth in the online gaming industry (Arab Media Outlook 2012).

Opportunity and Challenges in UAE

The online gaming market in UAE is experiencing exponential growth rate because of the massive increase in internet accessibility. About 1.6 billion internet users participate in online games, and 38 percent come from the Arab world (Arab Advisors Group 2012). The gaming industry in UAE is yet to mature and presents a myriad of opportunities for growth and challenges that tend to dampen this potential growth. There is business potential in online and mobile gaming in UAE, wherein content creation should aim at localizing the game content to reflect the region and invest in verticals that underserved locally at the moment such as mobile apps. In terms of content packaging, online and mobile game producers must enhance interactivity and leverage on local content, and explore business models that are consistent with the digital media consumption habits in the region (Jong 2009). There is also a potential opportunity for defining an approach to engage the social media and formulate a better understanding of the various online business models. The favorable demographic characteristics of the UAE present an opportunity for business growth yet to be explored. The emergence of the digital media platform presents a vast opportunity that the online gaming industry can exploit for revenue generation and revolutionize their value chains to foster profitability. For instance, online game content can be monetized using freemium and integrated digital subscription, free online content funded by advertising, and limited online edition (Arab Media Outlook 2012). The opportunities include free access to a limited game content and paid premium content, online editions having unlimited access funded using advertising, and developing game content for the online platform. The surging demand for community-based content gaming presents an opportunity yet to be explored in UAE. In addition, integrating social game design and marketing strategy presents an opportunity for growth markets in the online gaming industry in UAE. The business models for online gaming may vary; however, the industry is exhibiting growth and placing emphasis on localization and the development of homegrown products to address the consumer interests of UAE audiences (Arab Advisors Group 2012).

Amidst the vast opportunities of online gaming in UAE, there are a number of challenges affecting the industry. The first challenge is the need for game producers to localize content to reflect the dynamics of the Arab world, which implies that the power of consumers is relatively high. Localization of content hinders competition with games targeting international audience, which is likely to hinder the expansion of the industry beyond the region. The fundamental argument is that content localization tends to compromise universal appeal and their capacity to compete globally. This is because content localization means that games produced meets only the consumer interests in the Arab world, and cannot compete with international games outside the Arab world (Hornle & Zammit 2010). The second challenge facing the gaming industry in UAE is that game developers in the region lack the marketing muscle and technological sophistication associated with the huge rivals in Asia and the West. This hinders competition on technological fronts with rival games produced to target international audience. In addition, localization and translation tends to increase the costs of production. Censorship is also a significant challenge for the online gaming industry in UAE, which hinders the success of international games (Human Rights Watch 2005). For instance, the National Media Council is considering the censorship of Spec Ops because the game portrays a destroyed Dubai. Game developers and publishers in the UAE must self-regulate within the boundaries of socio-cultural and legal restrictions of the country.

Conclusion and Recommendations

This paper has reviewed the state of the online gaming industry in the UAE. It is evident that the gaming industry is extremely large and keeps on growing at a rapid rate because of the persistent technological advancements and socio-cultural trends. The potential challenges facing the global gaming industry includes declining birth rates, cultural forces, declining levels of disposal income, and the production of cheap games and the rising environmental awareness, which requires the use environment friendly technologies. With respect to the global trend and market growth, it is apparent that the gaming industry will continue witnessing an exponential growth in future because of the increasing broadband and internet penetration and mobile and online gaming. The paper has identified four primary gaming application trends in UAE, which include casual single-player game portals, competitive multiplayer game portals, massively multiplayer online games and social games. The paper has also established that online game services in UAE make use of three main revenue generation models, which include paid subscription, online advertising, and freemium. In the UAE, the paid subscription is the preferred business model used by competitive multiplayer card game portals. Online advertisements are the preferred business model for casual single player games in UAE although some competitive multiplayer game portals use online advertising for revenue generation. The freemium business model is preferred by MMOs. Core activities that take place in the value chain for online gaming include the development of the game, localization, publishing, distribution and operation. The competitive advantage of the gaming industry in UAE is attributed to demographics and local tastes, socio-cultural differentiation, high levels of disposable income, and the fastest growing digital platform in the region. The surfacing of the digital media platform in UAE presents a vast opportunity that the online gaming industry can exploit for revenue generation and revolutionize their value chains to foster profitability. However, there are significant challenges associated with the localization of content, censorship and lack of technology matching the Western and Asian rivals. These challenges compromise the universal appeal of the gaming industry in UAE.

In the wake of the above growth prospects of the gaming industry in UAE, potential investors can tap this market that is yet to be explored fully. As a result, the government and regulators have a responsibility of setting up effective and sustainable gaming ecosystems characterized by research and development, technological leadership, diverse gaming content, and access to funding from both private and public sources. Localization is essential for competitive advantage of the online gaming industry; however, game developers and publishers must strike a balance between localized content and universal appeal in order to ensure that the gaming industry in the UAE competes at a global level. global competitiveness of the UAE gaming industry can also be achieved by ensuring effective marketing strategies are in place, and the use of advanced technologies matching international games produced by their Western and Asian counterparts.

 

References

Afuah, A & Tuccci, C 2002, Internet business models and strategies: text and cases, McGraw       Hill, New York.

Arab Advisors Group 2012, ‘Online Games in the Arab World 2012’, Arab Advisors Group:         Media Strategic Research Service, Jordan.

Arab Media Outlook 2012, Arab Media: Exposure and Transition, Dubai Press Club, Dubai.

Comviva Technologies 2009, ‘Realizing the Potential of Mobile Gaming’, White Paper, Sharjah,    UAE.

Duke University 2012, The Video Game Industrty, viewed 11 June 2012,    http://sites.duke.edu/soc142-videogames/global-value-chain/evolutionary-value    chain/evolution-of-the-value-chain-and-industry-implications-for-components-in-value         chain/.

Hornle, J & Zammit, B 2010, Cross-Border Online Gambling Law and Policy, Edward Elgar       Publishing, New York.

Human Rights Watch 2005, False Freedom: Online Censorship in the Middle East and North       Africa, Human Rights Watch, Washington.

Jong, W 2009, Innovation and Strategy of Online Games, Imperial College Press, Hackensack,      NJ.

Karlsson, C & Picard, R 2011, Media Clusters: Spatial Agglomeration and Content Capabilities,   Edward Elgar Publishing, Cheltenham.

Larissa, H 2011, Games and Gaming: An Introduction to New Media, Berg, Oxford.

Montefiore, S 2010, ‘Online Gaming: A Gamble or a Sure Bet’, Canadian Gaming Magazine,       May 2010, pp. 1-2.

Nichols, D 2006, Brands & Gaming: The Computer Gaming Phenomenon and Its Impact on        Brands and Businesses, Palgrave Macmillan, Basingstoke, UK.

Oxford Business Group 2009, The Report: Abu Dhabi 2009, Oxford Business Group, Oxford.

Schlie, E, Jorg, R & Niko, W 2011, Simply Seven: Seven Ways to Create a Sustainable Internet     Business, Palgrave Macmillan, Basingtoke, UK.

TBWA 2012, ‘twofour54 competitive analysis-gaming’.