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Available at www.ictom.info Conference Proceedings © 2012 – ISBN: 978-979-15458-4-6 www.sbm.itb.ac.id www.cob.uum.edu.my The 3rd International Conference on Technology and Operations Management “Sustaining Competitiveness through Green Technology Management” Bandung – Indonesia, July 4-6, 2012 An an...

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Available at www.ictom.info

Conference Proceedings © 2012 – ISBN: 978-979-15458-4-6 www.sbm.itb.ac.id

www.cob.uum.edu.my

The 3rd International Conference on Technology and Operations Management “Sustaining Competitiveness through Green Technology Management” Bandung – Indonesia, July 4-6, 2012

An analysis of market expansion strategy in game development services Andrew Pratomo Budianto1, Togar M. Simatupang2,* 1

2

PT Agate International, Bandung, Indonesia School of Business and Management (SBM) - Institut Teknologi Bandung (ITB), Jl. Ganesha 10 (Gedung SBM-ITB), Bandung 40132, Indonesia

Abstract. PT Agate International is a company established in Bandung, Indonesia by 2009 and specialized in game development. The company has two business models, as a game development service provider and as a company that monetizes their own intellectual property. Current strategy of PT Agate International is to keep stable revenue from game development services by expanding its game development market geographically and diversify the types of game development services. Geographically, the analysis will be carried out for international market opportunity. Meanwhile for service diversification, analysis will be done on game with additional purpose other than entertainment, or so-called serious games. This serious games analysis will cover serious game for advertising (advergame), and serious game for training and simulation for corporate employees. From the result of the analysis, this paper is expected to help determine the direction and future of PT Agate International. Data gathering from interview and observation will be used to get the options for market expansion, and then each option will be described using business model canvas and analyzed using feasibility study analysis. After the feasibility study analysis has been done, the implementation activities of each feasible solution will be further analyzed using activity map. The result of analysis and activity map may help PT Agate International, as well as other Indonesian small game development studios to decide their market expansion strategy. Keywords: Game industry, Market expansion, Advergame, Serious game, Feasibility study

1. Introduction Indonesia is a country ranked the fourth largest population in the world with high internet penetration. Currently, only 12 percent of Indonesians use the Internet, and only 5 percent user personal computers, but both of those rates are expected to triple by 2015 (Boston Consulting Group, 2010). From the social media insights, it is also confirmed that Indonesia holds more than 40 million Facebook users and more than 5 million Twitter users (Satvika, 2011). All of these facts lead to a conclusion that Indonesia is a great market for gaming industry. Despite those huge potential, there is not much of game developer activities in Indonesia compared to other countries such as USA, Japan, Canada, UK, etc.

* Corresponding author. E-mail address: [email protected]

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Figure 1 Countries of top 50 game development studios (2008)

The good news is, currently there are more than 60 game developers in many size in Indonesia. Even it could be said that game industry in Indonesia has been started since 2003, but the significant growth is only started by 2008-2009 when lot of new local Flash game developers start their business. Nowadays, the numbers keep increasing and they start developing games for smartphone, tablet, etc. This growth and the market potential also attract many investors from other countries like USA and Japan. Not to mention foreign game companies like Gameloft and Gree, making their ways into the Indonesian market. In Indonesia, many companies still find a shape for their business model. As monetization is now becoming a separate issue, some companies sell their services for outsourcing or advertising and some other create products to be monetized through the best platform to distribute the game. Currently some companies which create products, often port their games here and there in order to maximize the distribution of their game. It is good to see the targeted niche market regardless whether it is for Facebook, Flash, iOS, Android, Java, Symbian, Meego, etc. The suitability between user behavior and the game play is also tailored with the specific user platform character (Mamuaya, 2012).

1.1. PT Agate International: the case company Those facts leads to the writer’s interest to analyze case study of PT Agate International, a company established in Bandung, Indonesia by 2009 and specialized in game development. PT Agate International business model can be divided into two major models: as a game development service provider and as a company that monetizes their own intellectual property to the end user (Widhiyasa, 2012).

Figure 2. The logo of PT Agate International

These two business models have its advantage and disadvantages. As game development service provider, PT Agate International could benefit from its upfront payment and instant revenue, but the profit is bounded by standard game development profit margin and the customer’s budget. In the other hand, monetizing company’s own intellectual property directly to end users though gives chance for higher profit but also followed by a higher risk. This high risk is due to three factors: revenue will be received only after the product is launched to the market, meaning that initial investment is required for product development. The second risk is due to the tight competition in international market, the game will requires extra quality standards, and this mean substantial initial investment. The last factor is an additional process is required to market the game, which was new to PT Agate International which only focused on developing game.Because of those issues, to keep the balance between risk and revenue, PT Agate International dividing its line of production, most production lines

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is allocated to do game development services, while the remainder will be allocated to develop own game. However, with this model, the game development service business model will be the backbone to maintain the company’s sustainability, at least until PT Agate International has develop a successful product that become another cash cow (Ismawan, 2012). Some examples of the company’s product are presented as follows.

Figure 3. Cube Colossus Best game in Flash Gaming Summit 2010 – San Francisco

Figure 4. Football Saga Self-published to international market

Figure 5. Earl Grey and this Rupert Guy 1 million hits in its first week launch to international market

Figure 6. Vindicta 3D games multiplayer game with rich 3D graphics

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Another issue from PT Agate International as a local game developer is the Indonesian game industry is still new; most of local industries still do not familiar with the idea of games in helping their business process (Ismawan, 2012). Therefore, in order to sustain the game development service business, local game company has to expand its market while educating them at the same time, this market expansion strategy will then be the main research focus of this paper. The purpose of this paper is to help PT Agate International, as well as other Indonesian small game development studios to decide their market expansion strategy. In order to achieve the purpose, we will start by identifying the business issue, including how the research method will be done and the analysis of business situation. Then, we will present the alternatives and the analysis of business solution of the issue. After that, we will briefly discuss the conclusion with a discussion of theoretical and managerial implication and directions for further research.

2. Business Issue Exploration Production process in PT Agate International is divided into two: the company as a game development service company or a company that develops their own product or intellectual property and then monetizes it by themselves.Broadly speaking, the difference in the business of PT Agate International as a service company or a company that develops and monetizes their product is just prior to the commencement of the production process.However, in practice the product that is made by the company is highly variable. Even each product has its own business model. Because of the variations and most of the production lines from the company is made to order, as well as a main topic of this thesis, the discussion will focus on PT Agate International as a game development service provider.

2.1. Literature Review Despite its huge potential, Indonesia’s game industry is still new and there are not many literatures discussing about it. And specifically in market expansion strategy, lot of game development company in Indonesia still doing trial and error method in exploring it. In his presentation about Indonesia’s Game Industry, Widhiyasa (2012) describes some ideas for Indonesian game developer to collaborate with Japan’s market in outsourcing service, co-development, talent exchange, or publishing access to Japan’s market. In advergame industry, Wiana (2012) also stated that Indonesian advertisement expert and brand’s owner start to realize that giving experience through game give more positive impact to the brand rather than only giving one-way information about the product. Both of literatures show that the opportunity for Indonesian game development studio to expand its market into international outsourcing and explore more about advergaming business in Indonesia is highly possible. About training and simulation game, however despite its popularity in global market (Alhadeff, 2007), the idea is still new in Indonesia and no specific literature is found by the author.

2.2. Research Method In order to conclude the best market expansion strategy for PT Agate International, data gathering from observation and interview from the company’s CEO and marketing division about current company’s situation and strategies is used to get the options of marketing expansion options. Firstly, we analyzed the current situation of Indonesian game industry and also the issue that the company facing in expanding its business. From the interview, we got that the company already has some market expansion strategy, though it is still subjective and further research has to be done before executing the ideas. Below are several possible options of company’s strategy in expanding its market (Ismawan, 2012): 

 

Game development service for international market International game market is more educated on game development and is growing continuously. PT Agate International also believes that as long as Indonesian game developer company can maintain the quality they deliver to international market, there are no reasons for them to not entering international market. The cost to develop a game in Indonesia is several times lower than other famous game development countries such as USA and Japan. There are other challenges such as geographical distance, time difference and language barrier, but those issues are still tolerable. In-depth exploration of advergame development service Currently, most of the company’s advergame development is still custom digital advergame. However the local market will be educated overtime following the global trend, if PT Agate International wants to be the market leader, then they have to explore and research more about this service. Training and simulation game development

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Training and simulation game is globally popular and proven to succeed in giving value to its users. However the idea is new in Indonesia and very potential to be implemented. After interviewing on the company’s options, the writer analyze the options using feasibility study from market, technical and financial point of view and together with the company, each feasibility study point of view will be scored and then prioritized using feasibility study matrix. After that, selected strategy will be paired with activity map to give a visualization of the final implementation.

2.3. Analysis of Business Situation 2.3.1. Growth of Game Industry In the last 10 to 15 years, there has been remarkable transformation within game industry. Technological advancement and cultural shift in software industry also cause the advent of online, social, and mobile game (Muller-Veerse et al., 2011). These factors then multiply the market size of game industry within very short time.

Figure 7.Global video games market, million US$ (PWC, 2009)

Figure 3 shows estimates of the total size of the global video games market up until 2013. In the period 2004 to 2013, the global video games market is expected to grow from less than 30 billion to over US$ 70 billion.From thosereport, it can be assumed that game industry is estimated to increase in the coming years. It can also be expected that the growth of game industry will result in the increment of the need for game development, and Indonesia as a country with relatively low production cost automatically gives competitive advantage to Indonesian game development companies. These phenomena encourage the emergence of many new Indonesian game developers. 2.3.2. Game with additional purpose other than pure entertainment With the increasing number of gamers from any gender and age range, the industry is becoming attractive to other industries as well. Various industries that are proven to use game to satisfy their needs for example: the advertising industry, human resource training, and education. This kind of game, which serves additional purpose than pure entertainment, is then often defined by serious game. There are many definition of serious game, one of them define serious game as games that do not have entertainment, enjoyment, or fun as their primary purpose. However, this definition does not say that serious game are not entertaining, enjoyable, or fun, just that there is another purpose (Michael and Chen, 2006). An adequate question to ask is how serious games differ from entertainment games. Discussing the issue from a design and development perspective; contrary to many markets for entertainment games, the hardware used in many of the markets for serious games is years old and therefore less than optimal. The serious games market is also more likely to possess a wide variety of hardware and operating systems. Furthermore, this market includes, not only experienced gamers, but also possible first-time players and the games must therefore be even more accessible (Michael and Chen, 2006). Hardcore gamers generally want the richest possible experience from their games. For serious games, however, it is more important that the model or simulation can be used to solve a problem, than providing rich The 3rd International Conference on Technology and Operations Management (ICTOM) Conference Proceedings © 2012 – ISBN: 978-979-15458-4-6

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experiences of the kind sought by hardcore gamers. Further, for serious games it is essential that the most important elements of learning are in focus, and that the assumptions necessary for making a simulation workable are correct, otherwise the simulation will teach the wrong kinds of skills. Entertainment games, on the other hand, allow players to focus on the fun parts and to use a number of techniques (random numbers, time compression, etc.) for simplifying the simulation processes. In serious games, it may be important to rethink the use of such simplifying techniques. For example, serious games should respond more to the conscious decisions made by players than to chance, and therefore randomness may be inappropriate. Another example is communication, which often is perfect (i.e., without delays and misunderstandings, etc.) in entertainment games, whereas some serious training applications should rather reflect that communication seldom is perfect (Michael and Chen, 2006). The differences between entertainment games and serious games are summarized in the following table (Susi, Johannesson and Backlund, 2007): Table 1 Differences between entertainment games and serious games Task vs. rich experience Focus Simulations Communication

Serious games Problem solving in focus Important elements of learning Assumptions necessary for workable simulations Should reflect natural (i.e., non-perfect) communication

Entertainment games Rich experience preferred To have fun Simplified simulation processes Communication is often perfect

2.3.3. Problem formulation With the above facts, we can conclude that the current condition of the gaming industry is very attracting, which led to many new comers in Indonesia gaming industry. In addition, it also encourages the trend of gamification, which is to add game elements in various aspect of human life. These situations, indirectly gives challenge to Indonesian game developers. The first challenge is how to capitalize on the growing industry. With so many changes in the global industry, the local game developers have to adapt and seize every opportunity. Missing the opportunities can mean losing the competition. Moreover, Indonesian game industry is not limited to local companies, international companies also interested in investing to Indonesia, and they generally do have more budget than local companies. This results to additional challenge for local developers to keep the local market from domination of foreign companies. In addition, the emerging of new competitors forces PT Agate International to diversify its business model, to find the new blue ocean and to streamline its current business model. This is not so easy, because every market expansion has its own risks; meanwhile the game development service is one of main source of revenue for PT Agate International. Because of this situation, then in-depth analysis of market expansion strategy is becoming the main focus of this paper. Since the establishment of PT Agate International, there have been many changes in its business model. The first business of the company is to focus in developing Flash games to be sold to international sponsor. Over time, in 2010 the market was shaken by changes in Google Adsense placement rules by Google Inc. These external factors are then forced PT Agate International to find new business model, so that by year 2010 PT Agate International start to open game development services for any type of consumers’ needs. Start from game development for pure entertainment purpose, to game development with additional purpose such as advertisement.Then, since PT Agate International start to learn about the industry’s growth and the need to ensure the cash-flow by diversifying its business model, by 2010 PT Agate International decided to develop new market for its game development service.

3. Business Solution Within this paper, feasibility study will be used to solve marketing expansion issue. The feasibility study itself is defined as an analysis of possible alternative solution to a problem and a recommendation on the best alternative. It can decide...