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FT Telecoms July 2001 - Mobile Services
Gaming - romance may be the only everlasting revenue model
by Paul Abrahams
Published: July 16 2001 11:10GMT | Last Updated: July 17 2001 16:48GMT
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Catch a train on the crowded Yamanote subway line that circles central Tokyo and the chances are you will see scores of youths staring at their mobile phones, tapping the keyboards with their thumbs. Most of them will be using NTT DoCoMo i-mode phones, and many will be playing games.

A few may even be playing Bandai's Meru De Koishite - Love via e-mail -a game in which players have to send e-mails to one of seven virtual lovers. The objective is to win the virtual lover's love. Truly successful Romeos need to send about 90 messages over a month to receive the final message: "I love you very much". Those who are less successful receive a heart-rending: "You are just a friend".

Since its launch in 1999, about 300,000 people, mostly young men in their 20s and 30s, have played the game.

Meru De Koishite is just one of thousands of games offered to the 24.6m subscribers who have signed up for DoCoMo's i-mode, 2.5 generation, mobile phone service.

It is the success of such games in Japan that has the rest of the world hoping that mobile gaming will become the killer application for the next generation of phones being rolled out across the world. Datamonitor, the research company, estimates the market could be worth $6bn a year by 2005 and could become the most important driving force behind the take-up of next generation mobile devices.

However, such hopes could be premature, if not completely misplaced. "Mobile gaming has the potential to be the next big platform, like Microsoft's Xbox or the PlayStation 2," says Vince Broady, co-founder of Gamespot.com, the games information website. "Or it has the potential to be like multi-player gaming - which hasn't taken off."

Wireless has been "a hot topic for so long", says Mr Broady. "Yet at the same time it is so nascent in many ways. There are so many issues that need to be resolved. In the end it's a question of money. How can you make it, who is going to pay it and who is going to receive it."

What is certain is that in Japan, mobile gaming has become a viable business, says Billy Pigeon, analyst at Jupiter Media Metrix, the research company. Already 9 per cent of transactions on i-mode are related to games. By 2005 mobile gaming in Japan should be generating $2.5bn in paid content, he says. "But not everything that has worked there will develop well outside Japan," he warns. "The differences are not just cultural, but technological, and a difference in the business structure," says Mr Pigeon.

In the first place, DoCoMo, as the dominant mobile telecoms group in Japan with more than 70 per cent market share, has been able to set standards and create economies of scale that are unimaginable in Europe or the US. DoCoMo also encouraged third-party developers by not being too greedy - providing plenty of incentive for imaginative ideas such as Meru De Koishite to flourish.

In addition, there was a ready-made audience for games among a large youth subscriber base. Unlike the US, where wireless companies have been paranoid about credit control issues and have failed manifestly to target youth audiences, in Japan the pervasive honesty of the population never made such problems an issue. Finally, the long commutes in Japan - almost always on public transport - ensured a captive audience for gaming. Playing Love via e-mail on a US freeway while driving is not really feasible.

The barriers to the widespread adoption of mobile gaming in the US and Europe are considerable, though different in each region.

In Europe, few phones are capable of handling the data or graphics capacity necessary for online gaming to take off, says Mr Pigeon at Jupiter Media Metrix. In particular, Wap phones have been slow to take off. Also there are no set standards. It was not until July this year that Nokia, Motorola, Ericsson and Siemens announced plans to established an industry forum to promote open standards in mobile games for third generation phones.

Hopes for interactive, multi-player games on mobile phones are likely to remain a dream for some time. So far, what has taken off in Europe are simple question and answer games, based on SMS-style wireless technology. Within six weeks of its launch in Ireland, Who wants to be a millionaire? generated more than 2m questions answered, says Matti Hamalainen, chief operating officer of Codeonline, which markets mobile versions in Europe of Who wants to be a millionaire? and Trivial Pursuit.

"Games have to be easy to play and easy to pay," he says. Billing in particular remains a huge issue. Players must know how much the game will cost them in advance, he explains.

The US market has the greatest potential, just because of its size, but at the moment, it is just embryonic, explains Andrew Cole, global wireless practice head at Adventis, a Boston-based consultancy. However, the youth market is almost non-existent, and commuting patterns are primarily by car, except in a few cities on the east coast.

A further problem in the US is the revenue model that most service providers have adopted. Most now provide a certain number of minutes - up to 2,000 a month - for modest fees of less than $40. In Japan and Asia, the advantage of gaming is that it increases traffic and therefore revenues.

In the US, however, increased air-time generated by games does not necessarily improve revenues. In fact, all it does is increase congestion which leads to customer dissatisfaction and the need for further capital investment on infrastructure. The ability to charge premium-pricing for games seems remote.

"The US service providers have got themselves in a terrible hole with their revenue models," insists Mr Cole. "They will have to change the models for 2.5 generation and third-generation mobile."

Without a change in revenue model, games could reduce customer churn, which would have some limited impact on service providers' income, admits Mr Cole. Nonetheless, he believes that gaming will provide a meaningful percentage of revenues for the service providers in the US in the next two to three years, as long as service providers successful expand the youth market.

What is certain is that in the foreseeable future, American young men are unlikely to start playing Meru De Koishite.