The appetite for tech investments in Asia is still looking healthy with a number of significant deals being done in the region. Historically Asian capital has flowed into tech investments through private equity or venture capital funds. However Asian investors in the financial and corporate sector have become far more savvy, having larger books in which to drive direct investments.
In this article we will look at some aspects of the Korean Mobile Gaming Market and recent growth for external investment to determine why the Korean Mobile Gaming Market Raises US$1 Billion from Chinese Investments.
The mobile gaming market continues to be one of the largest segments of the tech space with continuing investments and deals being completed. Traditionally Korea has taken the lead in mobile gaming development. The country has seen high levels of investment activity and experienced huge growth in this segment over the last few years, however due to present market conditions the Korean gaming market is estimated begin plateauing in 2015.
Korean gaming companies therefore have been actively seeking external investments from across the region. It’s already widely recognised in Asia that Korean developers have had extensive experience in building many of the popular mobile gaming titles, and have been able to monetize these effectively.
Therefore Korean game industry professionals are highly sought after by overseas companies, looking to achieve similar successes.
Tough regulations to curb ‘gaming addiction’ in Korea has also had an impact on growth of the domestic market, leading further to diversification of the industry outside Korea.
According to industry sources quoted on Business Korea, “Chinese Internet companies like Tencent and Shanda Games have made almost $1 billion USD of investment in Korea’s game and content developers.”
Tencent has also recently announced that it purchased an estimated 25% stake in 4:33 Creative Lab, a Korean gaming company which gained industry repute for its popular titles, Blade and Arrow. The investment was made through a consortium established with Line. Tencent has reportedly invested around $109.8 million into the consortium. Incidentally, this is the third $100 million investment in a Korean tech company from non-Korean investors this year.
Tencent makes China’s most popular messaging app WeChat, which now has 468 million monthly active users, according to a company earnings report released yesterday. Tencent’s other recent deals this year which also go beyond Asia include a $450m equity stake in Sogou, a Chinese search engine, along with investments in Plain Vanilla, an Icelandic games company, and US web platform Weebly. According to a report published by the FT, Tencent’s market capitalisation had risen from $60bn to $140bn in the past 18 months.
Line’s popular messaging app by the same name has 170 million users. Both Line and Tencent use in-app social games to engage and monetize users, however Line has been far more effective than Tencent in achieving this.
Creative Labs says it will disclose more details about the consortium later this year and also has plans to go public in Korea in 2015.
In terms of technical development within the mobile sector, Korea although smaller when compared to its Chinese rival, remains and important focus for investors for several reasons.
With an excellent mobile network infrastructure and massive smartphone penetration Korean mobile gaming business have been able to build, test, deploy rapidly across the commercial domestic market.
Some interesting stats provided by Latis Global Communications a Seoul-based games blog says that penetration is up to 100%, extract below:
“Korea currently has mobile penetration rate of over 100%. Within that 100% nearly 95% of all users use a messaging platform to communicate with their friends and family. While messaging platforms are beginning to pick up steam in North America and Europe, in Korea popular platforms like Kakao have dominated the scene for over several years, and show no signs of slowing down. With over 70 million users in other countries using Kakao and over 90% penetration rate for Korea, Kakao is a platform to connect with all demographics. Whether young or old, rich or poor, everyone uses Kakao to communicate.”
In addition to a strong app and gaming culture, Korea’s mobile R&D in the segment is huge and well established. Tech giants like Samsung were early adopters of the android operating system, and have lead the way in hardware, providing enhanced systems for app and mobile gaming developers.
In the last few years Samsung has spent a huge amount of money on its tech research capabilities in order for the Korean giant to battle rivals like Apple. An article on Engadget (from The Korea Times) reported that the Korean company was set to splurge $4.5 billion to build five research and development centers from 2013 onwards in South Korea. Those R&D facilities will house tens of thousands of new workers.
The five facilities were planned as design centers, and to develop materials, component development, chips, and displays. One of these design research centers will start operating to the south of Seoul in June 2015, while two other research centers in Gyeonggi province will tackle technology development for chips and displays. The latter two facilities were said to be operational this year.
The company has consistently splashed huge sums on research and development in previous years, in 2012 alone hitting a record $10.44 billion in that area.
In terms app revenue Korea is a strong, as shown last year in the following chart indicating google play (mobile/app store revue) it was ranked 3rd in the world. Source
The Q3 2013 Market Index noted the dominance of Asia-Pacific countries in Google Play revenue, which continued in Q4 2013. However, in Q1 2014, App Annie Intelligence data revealed a significant shift in the market.
Outside of Asia, the United States has seen phenomenal growth in Google Play revenue of approximately 55% quarter-over-quarter, significantly outpacing other countries.
This took the United States past South Korea, home to major players in the Android ecosystem such as Samsung and LG. South Korea previously held second place for Google Play revenue in the Market Index since Q1 2013, and with a new set of resent investments could be charging for a comeback.
If you’re interested in more statistics on the global app markets a useful recourse is www.appannie.com. They provide a series of ranking reports and other useful tools for monitoring the Global iOS and Google play app markets. Interestingly we can see that Facebook is the no1 downloaded app in the world followed by Google, and Gameloft.