Is The Traditional Gaming Market In For A Shake-Up?

By Lewis Humphries | October 25, 2012 AAA

For the last two decades, the traditional gaming industry has thrived in the wake of increasing demand. In 2011, the Entertainment Software Association reported that consumers spent $24.75 billion on video games, accessories and hardware. This industry is best known for the PlayStation 3 from Sony (NYSE:SNE) and XBOX 360 from Microsoft (Nasdaq:MSFT).

When you also consider that an estimated 67% of U.S. households play video games on a regular basis, it is clear that the industry has enjoyed significant and sustained growth. While industry experts insist that this will continue and that console gaming will never become obsolete, alternative mobile and social platforms are emerging to threaten its long-standing dominance.

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The Advent of Mobile and Social Media Gaming
The concept of social gaming has experienced soaring popularity since its inception in 2009, when it accrued total revenues of $1.84 billion. This year the corresponding figure is estimated at $6.2 billion, and projections suggest that this will rise further to $8.64 billion by 2014. The key advantage offered by social gaming titles is that they can often be accessed for free through media sites or downloaded as mobile applications, so that users can enjoy them in a more flexible and affordable manner. In addition to this, the more innovative and challenging concepts of social games appeal to a wider and increasingly mature user base, with 58% of players aged 40 or over.

While mobile and social media gaming platforms have threatened to supersede their more traditional counterparts, it is the higher-quality graphics and enhanced gameplay of the latter that has enabled them to remain competitive. Newly-developed social media games are being designed to address this issue, however, and the recent adventure-inspired Chrono Blade title has fused exceptional graphics with innovative narrative to provide the ultimate gaming experience for Facebook (Nasdaq:FB) users. This evolution is significant, as, for the first time, it suggests that social media games can become truly dominant over console titles.

SEE: The Evolution Of The Gaming Market

The Social Media Gaming Model: Providing a Valuable Economic Lesson
Perhaps key to the appeal of social media gaming is its apparent and relative affordability, which has additional significance given the uncomfortably high levels of unemployment and diminished economic growth currently being experienced by the United States. The business model that drives social media gaming is one that numerous industries could learn from, as it strives to empower an increasingly demanding consumer base by offering innovative incentives for users to purchase or earn virtual currency. In doing so, market-leading organizations, such as Zynga (Nasdaq:ZNGA), have generated billions of dollars despite cultivating an illusion of free entertainment.

This business model can be viewed at close quarters through Facebook games such as FarmVille, which has recently released a sequel title that has already secured 6.5 million daily users. This game and similar titles solicit money by presenting players with a series of challenges and regular opportunities to progress through levels, which, in turn, demand the procurement of specific items or permissions. Users are empowered to choose how they make their purchases, however, as they have the option of either investing in virtual cash or completing an in-game task to earn revenue, while promoting the social media site in question. This freedom appeals to the modern consumer's sense of self importance and also replicates a conundrum that faces households in austere economic times.

SEE: What Are Social Media Sites Really Worth?

The Bottom Line
This evolved business model not only makes social media gaming an increasingly empowering and affordable practice, but it also generates significant levels of profit for developers and social media sites alike. In February of this year, Zynga recorded revenue of $311 million on just 153 million unique users. Alongside the forecasts for wider industry growth, this could allow social media gaming to usurp its more traditional alternative over the course of the next decade.

The gap between social media and traditional gaming has already diminished, despite the fact that the former did not become widely accessible until 2009. With developers now offering social media games with enhanced graphics and evolving, high-definition display technology, improving the appeal of smartphone-based applications, it appears that nothing stands in the way of social media gaming titles achieving complete market domination.

At the time of writing, Lewis Humphries did not own any shares in any company mentioned in this article.

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