An industry analysis: the ghost of gaming’s past, its present and future

 

The gaming industry made its first baby steps in the late 1960s and early 1970s America. In 1967 a team lead by Ralph Baer, a German-born American inventor and engineer, now known as “The Father of Video Games” released the Brown Box, a vacuum tube circuit that allowed users to connect control cubes to their television set and chase each other on the screen. Although minimalist, the game system received interest from Magnavox, a powerful company of consumer electronics products founded back in 1915. Magnavox licensed the Brown Box and released it for commercial home use as the Magnavox Odyssey in 1972.

During its 3 years on the market, the Magnavox Odyssey only racked up 300,000 sold units. The electronics magnate attributed low sales numbers to poor marketing efforts and an audience who hadn’t been exposed yet to the wonders of home gaming systems. But little did they know, since this was the beginning of a new era.

gaming-industry-infographic-how-to-web-andra-postolacheThe history of gaming: America vs. Western and Eastern Europe

Now let’s take a step back and look at the bigger picture to pinpoint the actual birth of gaming. The first ever recorded game machine was presented by Dr. Edward Uhler Condon at the New York World’s Fair in 1940. Yet again, America is the homeland of an invention that would shape generations to come, all over the world. Based on the older mathematical game of Nim, Dr. Condon’s machine gathered over 50,000 players during the 6 months it was on exhibition, who were defeated by the computer for a whopping 90% of games played.

North America definitely has more history than other regions in the gaming sector, but things were not standing still in Europe either. The first recognized video game was created by a Cambridge University student named Alexander Shafto Douglas in 1951. It was called Naughts and Crosses and it had the same rules as the American Tic-Tac-Toe.

Of course, Western Europe had a leg up on the “late bloomer” Eastern bloc, who was only factored in the gaming industry at a later evolutionary stage. In 1999, Illusion Softworks launched a game called Hidden and Dangerous, which made them the first Eastern European company to join the big league of international game developers. Hidden and Dangerous racked up over 400,000 sales during its first year and reached the 1 million mark along with the expansion pack and Dreamcast version. A big win for the Czech Republic at the time.

But they are not the only Eastern European country to make a mark in gaming history (and present). Poland, that only ditched its communist regime a quarter of a century ago, is the home of a largely self-taught community of game developers. Although its beginning was humble, Poland now hosts over 500 independent video game studios, according to Daniel Sadowski, co-founder of the Nitreal Games studio and an instructor at the Polish-Japanese Academy of Information Technology.

Names like The Witcher, Dying Light, This War of Mine and Lords of the Fallen might sound familiar to you. They are a few of the most infamous reasons why the Polish game development scene was worth an estimated $280 million in 2014.

Despite its late start, the gaming scene in Eastern Europe came with a handful of advantages that more developed regions can’t match. Operating costs are low, creativity is sparked by less opportunities in the field and developers are self-taught and highly motivated. And the good news for companies that seize this opportunity and either open an office there or outsource part of the work is that this won’t change any time soon. According to an OECD study from May 2004, “it may take between 29 and 40 years before the economies of the new EU members reach 50% of the economic level of their Western counterparts.”

gaming-industry-publishing-costs-model-how-to-webGamasutra.com created a model case (image left) to illustrate the effects of low costs in publishing and how they can impact future royalties for Western versus Eastern developers.

Take a long, hard look at these numbers, and if you’re a startup working in the gaming industry, you should research your options. A good starting point would be co-working spaces or hubs in Eastern Europe, where you gain quick access to the local tech community. TechHub, which has 7 locations on 2 continents, has offices in 3 Eastern Europen emerging markets: Warsaw, Bucharest and Riga.

Gaming present: revenue and player distribution

The early 2000s changed the face of gaming completely, due to growing Internet capabilities and computer processing technology. So much that today over 1.5 billion people play video games, out of the 3.2 billion around the world who have Internet access, according to an ESA gaming report from 2015.

A Statista.com ranking of leading gaming markets according to revenue reveals an interesting landscape: “The Chinese video game market is the largest worldwide in 2016, with a revenue of 24.37 billion U.S. dollars. In general, the global video game market is valued at 74.99 billion U.S. dollars in 2016.

Asia Pacific also accounted for the most video gamers worldwide with approximately 827 million gamers as of August 2014. In comparison, North America was ranked third with approximately 195 million video gamers.

A similar trend could be detected as of June 2014, when estimates were made on the mobile games revenue worldwide, broken down by region. Asia once again was expected to dominate the mobile games industry with revenue reaching 12.2 billion U.S. dollars. However, North America’s output was expected to surpass that of both Western and Eastern Europe with a revenue forecast of 4.9 billion U.S. dollars.”

Gaming future: improving players’ quality of life

A recent ESA gaming report showed that “54% of frequent gamers feel their hobby helps them connect with friends, and 45% use gaming as a way to spend time with their family.” This leads us to a greater question: will gaming bring more benefits to the table and even manage to objectively improve the players’ quality of life?

John Hanke, CEO of Pokémon Go developer Niantic admits to designing the game with the intent of getting people to move around more, encouraging them to explore their surroundings and interact with fellow players in real life. “Our intent was to make a platform for many different experiences,” Hanke says.12640409_10153957416027853_4357785252796015233_o

In a similar manner, George Lemnaru (photo right), CEO and Founder of Green Horse Games, a prominent developer from the Eastern European market believes that gaming is the basis for personal development: “We all have a natural desire to play. Even animals acquire skills through play that later on help them survive and prosper. Somehow, playing is the basis of the natural learning system. Another advantage in many games is team collaboration. The games that we develop rely heavily on group strategy. With LigaUltras for example, the entire concept is based on the competition between football teams: to win, you have to collaborate with your teammates.”

Conclusion

One thing is clear: the future of gaming is adapting to people’s evolving needs and providing more and more value in their every-day life. AI and VR will only enrich the experience of gaming and anchor it to reality in a way that will move it from “distraction” to “essential”.

If you want to learn more about the future of gaming, don’t miss the chance to personally meet startup founders and mentors from the industry on November 1st and 2nd at How to Web Conference 2016. Very Early Bird tickets are still available until Friday, September 23rd!

Promising startups in gaming also have the unique opportunity to compete for the $30k cash prizes and receive tailored mentorship by attending How to Web Startup Spotlight, deal-making program for European startups. Applications close on Sunday, September 25th, so you’d better hurry up!

 

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