India’s online gaming industry growing rapidly

Increasing smartphones penetration and the spread of internet connectivity to the remotest parts of the country are changing the landscape of online gaming. Can investor’s be far behind?

September 14, 2018

India’s online gaming sector appears poised for a four-fold growth over the current size of US$290 million, backed by strong investment metrics

The number of Indian gaming enthusiasts, which stood at around 120 million in 2016, is likely to more than double to cross 300 million by 2021

Game developers such as 99Games, PlaySimple, MoonFrog Labs and Mech Mocha are targeting rising smartphone user base to drive growth

The companies’ India focus will be further driven by a new breed of professional gamers for whom gaming will be a promising career option

The Indian online gaming industry is set to grow by leaps and bounds. Multiple research and consultancy firms have forecast a quantum jump in the size of the industry as well as the number of gamers. While global consultancy firm KPMG has, in a 2017 report, projected a market valuation of around US$1 billion by 2021, competitor Frost and Sullivan has pegged the number marginally higher at around US$1.1 billion. Any which way, the sector appears poised for a four-fold growth over the current size of US$290 million, backed by both strong supply and demand mechanisms.

 

Increasing penetration of smartphones backed by the spread of internet connectivity to the remotest parts of the country as well as a sharp drop in data prices is set to be the game changer. What this means is that there will be a predictable surge in the number of mobile internet users. India’s mobile internet user base is currently estimated at around 500 million, according to a report by the Internet & Mobile Association of India. Meanwhile, the number of gaming enthusiasts, which stood at 120 million in 2016, is likely to more than double to touch 310 million by 2021.

 

These numbers do not look surprising in a scenario where the prices of smartphones are falling while disposable income of middle class Indians, both urban and rural, are going up, as is borne out by empirical data. This is all the more crucial since the gaming industry has seen a steady shift away from consoles and parlours to smartphones. The KPMG report, in fact, suggests that average data usage is likely to touch 7 GB per person per month by 2021. This opens up opportunities for investment in the space, involving games design, development to marketing.

 

Several game developers such as 99Games, PlaySimple, MoonFrog Labs and Mech Mocha, to name a few, are planning to take advantage of the growth in smartphone users to grow their businesses.

 

Heightened investor interest

 

Not surprisingly, an increasing number of gaming companies are eyeing the lucrative domestic gaming market in India. Gaming companies have graduated from outsourcing back-end work in game designing to India to making complete games here. A case in point is Zynga, the American social game developer best known for Farmville. In fact, as part of their expansion plans, the online gaming companies are seeking to popularize social gaming, a segment that is showing steady year-on-year growth. Social gaming is not played for money but players can access different levels by paying through apps for a certain length of time. The three biggest Indian companies in this space are Octro, MoonFrog Labs and Play Games24x7.

 

While global consultancy firm KPMG has, in a 2017 report, projected a market valuation of around US$1 billion by 2021, competitor Frost and Sullivan has pegged the number marginally higher at around US$1.1 billion

 

However, the local market for paid gaming is still nascent. This is likely to change with fast uptake of digital payments among Indian consumers, thanks to the Indian Government’s ‘Digital India’ programme. Google, for one, has already tied up with mobile telephony service providers such as Airtel, Vodafone and Idea to enable billing through the carriers. In July this year, Paytm, the mobile wallet market leader in India, formed a joint venture with the Hong Kong-based lottery firm AGTech Media to set up a gaming platform in India called Gamepind. Paytm has a majority stake in the venture. Incidentally, both the joint venture partners are backed by China’s Alibaba Group, hinting strong foreign interest in the space.

 

The market is also hot for mergers and acquisitions. Multinational gaming company Nazara Technologies, which is backed by WestBridge Capital and leading Indian investor, Rakesh Jhunjhunwala, and with presence in 60 countries, is planning an India-centric growth strategy for its global gaming business. It has acquired Nodwin Gaming and plans to invest US$20 million to develop eSports over the next five years. Nazara has acquired Next Wave Multimedia and taken a major stake in HalaPlay, two game developing startups, and has received the required permissions for an initial public offering (IPO). Earlier, Bangalore-based game studio Dhruva Interactive was sold to Swedish production firm Starbreeze.

 

All of this augurs well for the gaming eco-system which today comprises of more than 250 developers, up from a miniscule 25 about a decade ago. Alibaba apart, Tencent, which has significant exposure to popular online games, is planning to step up investments in India soon, as is Chinese gaming company Youzu. StomStudio of Vietnam has partnered with games publisher Gamesbond to create games in India.

 

Localised content

 

Most in the industry agree that the key to success of online gaming in India will be localization of content. Traditional Indian games will need to be digitized. Indian developers have already explored this path. The opportunity extended by local content can be further augmented by adapting to local languages and tapping into the growing count of Indian language internet users.

 

The next phase of Indian online gaming will comprise an ecosystem of engaged gamers and enthusiastic designers, investors with deep pockets, developers and marketers working together. The India focus will be further driven by a new breed of professional gamers for whom gaming will be a perfectly acceptable career option. Long term success will be based on fan validated themes, the latest in graphics, localized content and technology adaptations. With artificial intelligence (AI) based game development round the corner, all this and more can happen with the click of a button.