Online Gaming Industry: Behind the Scenes of the Premium Cosmetics

Foysal Mahmud Niloy, Shaugat Ashraf Khan and Raihana Rahman Shorna

The gaming industry has come a long way from something that was catered towards Pre-Adolescent teens to a blooming, multi-billion-dollar industry that has been integrating itself into our global culture at a rapid pace. Most people find it hard to believe that the gaming industry is currently worth more than the Movie & Music industry combined. Top brasses of the business world have avoided this industry as something not worth their time, but the lucrative opportunity, especially from Online Gaming, has more and more big names getting attached to this industry every day.

An enormous part of this gaming industry consists of Online Gaming. Most of the big companies within the industry favor this medium of gameplay just because it rakes in hundreds of million dollars every single year and is a constant revenue stream for the company to sustain itself, because just 20% of gaming titles that come out actually become profitable, even if they generate revenue. 

Brief History of the Platform

Online gaming existed long before in the 80s but burst into the scene in 1992 when an Online FPS game called Wolfenstein-3D was launched. The increasing number of internet users was one of the reasons the game saw huge success and the developers of that game soon launched another beloved title which is admired even to this day, “Doom” in 1993. The success of these online games inspired more and more developers to jump into the online gaming scene. In the late 90s and early 2000s, we saw some amazing titles such as Counter-Strike, Medal of Honour: Allied Assault, Call of Duty, League of Legend, Dota 2, and many more. With the world getting more and more connected through the internet, so has the online gaming communities with staggering growth every year.

Technological and Psychological aspect of Online Gaming

After 2010, some developers started to bring more modern titles that were bending the genre as it is. Games like Player Unknown: Battlegrounds, Fortnite brought in the Battle Royal genre that revolutionized the industry. More and more casual players were joining in on the fun because these games were easily accessible. Online gaming still had a lot of barriers to entry, that being money to buy the game and having a decent computer to play those games. Nevertheless, Fortnite, PUBG, Valorant, CS: GO, League of Legend, Dota 2, Apex Legend, Paladins, and even Call of Duty are trying to eliminate these barriers of entry by offering up these titles for free. It was kind of a gamble for the companies, but for most of them the gamble paid off. More and more gamers flooded through the online games to join in on the fun and their built-in Micro Transaction systems (which players can use to buy customizable items that don’t affect their game) brought them billions of dollars in revenue. The developers are also trying to enhance and structure these titles in a way that even some of the basic systems can run it. That worked wonders for them as well, because a lot of people can’t buy expensive computer systems and don’t get the chance to join in. Such low technological requirements brought in millions of new players on the platform in the last couple of years. Casual people are getting more and more into these online platforms because of the low barriers to entry nowadays. Most of them play and get hooked to these games because they observe the progression of their skills as they invest more and more time into the game. At the moment, companies are developing these games in a way that rewards the players for getting familiar with the game, a bit challenging, but not too punishing to pick up. It has also helped foster and connect millions of players in a community, increasing communication and teamwork skills. 

Constant need for Development

Marketing these games has become very easy as well, thanks to online platforms such as Twitch, YouTube Gaming, Mixer, etc. But there are some notable issues here as well. You’re not done by just making the games. The company needs to keep developing these games to keep the players satisfied and interested. Otherwise, a big chunk of them will shift to anything else that is relevant. Bringing on new maps, new characters, and new game modes to intrigue players into staying on their platforms. Apex Legend is a big example, as they have not done any notable development in their title and have seen a drop of 75% after just 1 year of launching the game. 

Economics of Gaming 

The gaming industry is among some of the few global entertainment industries that the world of business has seen a drastic growth in recent decades. The number of video game players rose from 1.84 billion in 2014 to well over 2.5 billion in 2020. In 2019, digital games generated $109.4 billion in revenue, which is more than two times compared to that of Hollywood. The industry is characterized by a high degree of innovation and dynamics. Besides, it often bridges into other forms of entertainment (such as Lord of the Rings as a game as well as the movie). 

Video games are a “cyclical business.” That is, the performance of games largely depends on the capabilities of the hardware in which they are played, and these capabilities have advanced so much in past decades. The market for video games is oligopolistic in structure. According to Newzoo, top producers of the gaming industry are Tencent, Sony, Apple, Microsoft, Google, and so on. Of them, the top 5 companies account for more than 42% of the global market share of the gaming industry. Interestingly, because of the high systematic interrelation between hardware and gaming markets, leading hardware producers are also on the list of the top game producers. This two-sided market is sometimes attributed as an indirect market effect by some analysts. Indirect network effects work in the way that an increased variety of games increases the value of compatible hardware for gamers, which in turn affects the first product. 

Business Models in the Gaming Industry

Traditional business models for games require a fixed price to purchase games and allow consumers with unlimited time to play. For online games, a different business model relies on a subscription service which is paid periodically. Some games adopt a “freemium” pricing strategy, especially those played on smartphones or social networks. In this case, the games are available for free, but the play is restricted to a specific period or a certain range of in-game actions. Free-to-play games accounted for 4 out of every 5 dollars spent on digital games in 2019. By paying a fee, consumers can access premium parts of the game. In this way, the producers generate revenue through in-app purchases. The free-to-play model has proven to be one of the most profitable forms of video game models in the modern age. Today, most of the gaming industry’s revenue comes from the high demand for in-game items, which can be purchased with real money. In addition to revenues from customer sales, in-game advertising also generates revenue for the game producers. In-game advertising creates another form of a two-sided market, with advertisers and gamers as the actors and the game as the mediator. Best gamers in the world can compete in the e-sports arena and earn money from the competitions carried out in front of crowds and on live TV. By this year, e-sports is projected to have a viewership of more than 70 million people for a final. That is more viewers than the NBA finals. 

How Promotions are done? 

Producers declare a game way before its actual release date to grow anticipation among consumers. As a result, discussion on the game stays all over social media, blogs, and online forums. Game producers spend a substantial amount of money in pre-release advertising as it is proved to be critical for the game to succeed financially. 

Impact of Micro-transaction in Gaming Industry 

Micro-transactions are small amounts of value exchanged electronically and they have become increasingly popular in video gaming. It is estimated that only 5 to 20% of gamers take part in micro-transactions, still generate a significant amount because of the enormous amount of micro-transaction in free-to-play games. Micro-transactions in the gaming industry is changing the way that game producers generate revenues and allow greater flexibility for gamers to enjoy and interact with video games. 

Because of the increasing ability of the internet, the popularity of online gaming is rising day after day. At present, the current count of Valorant players is unknown, yet last year it drew about 3 million players per day. The same goes for the other gaming platforms like CS: GO with 20 million players, Call of Duty with about 6 million players, PUBG which has a player count of 3.2 million, and so on.

State of Online Gaming Industry in the pandemic 

It is estimated by the Tech Jury that the gaming industry will be worth about $180 billion in 2021 including the contribution of the mobile games which, is about 51% of the entire global revenue from the gaming industry. Now, Focusing on segmentation, the gamers are mostly 13 to 35 years of age, where 45% of gamers are females. 

As far, the pandemic has made some business sectors miserable. However, the online portion managed to maintain its stability and continued to lead its sustainable trade. This quarantine increased the consumption of digital entertainment, particularly online gaming and related activities. For instance, there was a 75% increase in online gaming activity coinciding with initial stay-at-home directives. Also, the gaming distributor reported that more than 20 million concurrent active users and live-streaming platforms YouTube Gaming and Twitch stated a 10% increase in viewership. At present, online gaming is considered less harmful than many other potential activities/methods used to cope up with stress and aversive emotions. The pandemic just boosted the usage of online games where the sales of the Asian gaming giants Nintendo and Tencent increased during the first quarter and Tencent saw a 31% year-after-year revenue increase. Also, the games released amidst the pandemic are doing great. According to the data from Comcast, the download rate of new games has risen by 80% in the pandemic, in comparison to the growth rate of 50% before the pandemic. Moreover, platforms like Twitch, YouTube Gaming, and Facebook Gaming have also experienced an increase in growth of 20% in usage hours reported across services.

According to the situation, online gaming platforms are on the rise. The popularity of online games among people of all ages is increasing day by day as it is keeping them distracted from all the stress and other problems they have been facing during this situation. The revenues of these online gaming platforms are at the highest peak now. With the launch of new consoles (PS5 & Xbox Series X) in the coming month, it will be interesting to see how they integrate themselves into this growing culture. Another notable factor to look out for is Cloud gaming, where big companies are offering gamers the chance to play multiple gaming titles online with a monthly payment figure, similar to what Netflix is doing. With bigger and bigger companies jumping in to get a piece of the industries huge cash cow pie, we will either see more growth, innovation, and development of even greater titles that pleases different category of players, or the market getting oversaturated with bland games that companies made to quench their corporate thirst for profit.

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