Emerging Markets: India

The rapid spread of 3G wireless technology across India was one of the most quietly significant stories of last year. India is one of the world's fastest growing economies, supported by 1.2 billion people who had no consistent access to affordable broadband internet until a little over 12 months ago. In 2010, wired broadband connections reached less than 1 per cent of that vast population - 3G connections surpassed that within the first few months.

These are the very early days of India's connected culture and business. Operator charges and Android handsets are still beyond the reach of a great swathe of the population, but those costs are only coming down, and the GDP is only going up.

For Robin Alter, co-founder of the Mumbai-based developer Kreeda Games, it's an important moment in the country's economic development. Kreeda is now a game developer, but Alter and two colleagues started the company with an ambition to become India's first MMO publisher. He had travelled widely in Asia working in IPTV and contracting for companies like IBM. He had seen the rapid growth of online gaming in China and South Korea, but India was lagging behind. The internet was too expensive and too scarce for that kind of online gaming to be a viable business, but it was 2005 and every analyst foresaw an imminent explosion in broadband connectivity.

"I'm absolutely sure that India is the next frontier for many gaming companies. India is still untapped"

Robin Alter, Kreeda Games

"But that didn't happen," he says, "It was a good bet. The problem was that PCs and broadband just weren't hefty enough... It's basically happening now with 3G. Combined with the proliferation of cheap smartphones, it is an unprecedented degree of connectivity."

Alter puts the number of smartphones in the country at 30 million, but the number of people with active mobile phones is on the far side of 800 million. Smartphone penetration doubled last year, but Alter expects it to go "much, much faster now." That means the rise of social networking, more refined and secure e-commerce, and, of course, the emergence of a huge market for videogames.

"I'm absolutely sure that India is the next frontier for many gaming companies. India as well as Brazil. But Brazil has had a lot of interest and done very well in the last few years. India is still untapped."

Putting The 'Free' In Free-To-Play

Kreeda Games' tale is not unusual. Jugul Thachery started his business, Chayowo Games, in 2007. There was no iOS, no Facebook, no Android, and only "a couple" of other developers. Most of the work available was outsourced from companies in Europe and North America, but the arrival of these new, relatively low-cost platforms was more significant than any of Chayowo's existing plans. There was no sensible choice other than to, "go with the flow."

Of course, social networks and smartphones have disrupted markets the world over, but it's important to remember that India didn't really have a market to begin with. For developers, these platforms are all raw potential and boundless promise, but actually making the economics work for consumers is proving to be a challenge.

"The problem with the Indian consumer is how to monetise," says Thachery. "If you offer a Freemium model that is profitable in the West, they will play for free but the monetisation is really limited. They will just continue to play for free. They wouldn't want to pay for an extra upgrade."

India's new smartphone users aren't used to entering credit card information into payment gateways, and operator billing, the most common alternative method of payment, means losing a huge chunk of revenue. "Unlike in Europe where the operator keeps only 10 or 20 per cent, here the operator keeps 70 per cent," adds Thachery. "So developers are not keen on that model."

However, both Thachery and Alter firmly believe that free-to-play is the most viable model for the direction that India is currently heading. As the spread of connectivity improves e-commerce and builds trust among the rapidly growing number of consumers, the benefits will naturally trickle down to game developers seeking new methods of monetising their products. Alter's early experience publishing MMOs taught him that there is always a sweet-spot for micro-transactions. In 2006 it was nominal amounts like 1 rupee and 5 rupees; not enough to sustain a publishing business, but that is quickly changing.

India remains a very price-sensitive country, but its population has a high tolerance for advertising. As long as there's no charge for the product, the intrusive in-game adverts that led to the rise of micro-transaction based models in European and North America are more than welcome. Given time, higher standards of living will see that market for free games turn into an even larger market for low-cost or Freemium games.

And the conventional wisdom is that Android will get there first. At the Mobile World Congress in Barcelona last week, Google CEO Eric Schmidt said that the company's mobile partners were pushing towards the "ultimate goal" of $70 Android smartphones by next year. Once packaged into deals by mobile operators, these devices could retail for less than $30.

Apple is also keen to drive the price of an entry-level iPhone down, but the open-source nature of Android will keep it one step ahead for India's prudent consumers and nascent development scene.

Creating A Culture

Even though the emerging market for mobile gaming is experiencing teething problems with regards to generating revenue, it is still serving a valuable purpose in the country. Rajat Ojha is president of Version 2 Games, the first Indian developer to receive a PlayStation 3 dev kit, and the first to release a game for the current generation of consoles - the PSN car-combat game Smash 'n' Survive.

Version 2 started out as the simulation developer Zen Technologies. As the team acquired more experience with popular technologies like Unreal Engine 3, Ojha decided to make the unprecedented leap to console development. The studio has two more downloadable console games in development. If all goes according to plan, Version 2's fourth project will be a AAA retail release aimed at an international audience.

Ojha seems entirely confident that the studio will achieve its lofty goal. However, he is keen to point out that, at this stage in the evolution of India's games industry, console development isn't exactly a "cash cow." Ojha grew up playing Carmageddon and Road Rash; the move towards console was motivated by passion rather than profit. When an American developer plays the 'passion' card it can occasionally ring hollow, but there's no doubting Ojha's sincerity.

Like Robin Alter's ambitions to be the country's first MMO publisher, Ojha is making a bet that this is the optimal moment to kickstart next-generation console development. Version 2 may not be making any mobile games, but the spike in their popularity will help seed a gaming culture in the country, stirring up national interest in all forms of gaming.

"Mobile gaming has brought gaming culture into India," he says. "The country didn't have that culture at all, and thanks to the mobile liberation it is now very much in everybody's hands and everybody's thoughts - Angry Birds, Cut The Rope, and all those other games."

"There used to be 15 studios in India, probably three or three-and-a-half years back, and today there are now more than 500 studios...for mobile, for Facebook, and all those things, because they are the places where you can actually control your destiny."

This is a key trend. Finding the right business model may be difficult, but there are now hundreds of studios making profit, however small, from game development. As consumers define their comfort zone in terms of pricing and methods of payment, those companies will start to make more money and better games, which will, in turn, stimulate even more interest in gaming. At least, that's the idea.

"The current young population, the young consumers coming up, have grown up playing games, but not before," says Chayowo Games' Jugul Thachery. "The generation getting out of college and school already have mobiles, they are already on Facebook, so there is much more exposure and internet penetration."

"It's a natural thing that they will spend money on games. Earlier [younger consumers] used to only spend money on movies, but that shift is definitely going to happen."

And the leading players in mobile and social gaming are certainly taking notice. Every developer we talked to for this article admitted that they had met with Rovio, Zynga, EA and other major companies on several occasions. However, rather than regarding the hungry eyes of these behemoths as a threat, the majority could see only opportunity. Western mobile games are already popular in India; the arrival of their creators would flood the market with high-quality, properly supported products, but it would also mean more outsourcing work and potential partnerships.

There used to be 15 studios in India, probably three or three-and-a-half years back. Today there are now more than 500 studios

Rajat Ojha, Version 2 Games

"They are already targeting India," Thachery says. "Just yesterday morning I was speaking to the Zynga guys here. Not really from a development point of view, but from a consumer point of view also they want to target here. And I was checking out the number one grossing app on iOS devices today and it is already Zynga Poker."