How The Game Industry Is Evolving From Gaming 1.0 to Gaming 2.0 [Part 1 of 6]

We here at Social Times watch social games on a daily basis, and in light of the social gaming phenomena and some of the recent analyses of the subject, we are proud to introduce our 6 part series regarding the evolution of the gaming industry from version 1.0 to 2.0. We’ll be discussing how the rise of digital games on new platforms have disrupted the old video game industry paradigms and enabled new audiences who might never have embraced gaming to participate with their own set of behaviors. We’ll also take a look at the fundamental aspects of Gaming 1.0′s evolution to 2.0 in light of Tim Chang’s ‘Emerging Business Models’ session at Casual Connect 2009. Our desire is to help social gaming entrepreneurs and investors navigate through these waters. Read on for part 1, where we introduce the decline of Gaming 1.0 business models and introduce Gaming 2.0.

What is Gaming 1.0?

The terms Gaming 1.0 and Gaming 2.0, coined by Tim Chang of Norwest Venture Partners, represent the shift in game production and consumption for billions around the globe. The current video gaming industry in United States is gigantic, bringing in revenues of $29b FY2009 reported in March according to Daniel Earnst from Hudson Square Research, surpassing the $27b movie industry. The hardcore PC and console gamers make up a massive core audience for the likes of Nintendo Wii, PS3 and hand held games. The prevalent business model in the hardcore industry focuses on production of packaged goods. Production of these high-end games requires $20m to $40m in budgets and multi-year development cycles. The games range in pricing from $30 to $60 and are pushed into traditional retail channels for distribution. In the age of digital, you can probably see the problems with this model.

Gaming 1.0 was not attractive for investors

The large amount of money required to produce these games is likely to have been unattractive for most investments especially because hits were unpredictable and betting on one game carries too many risks. Not only were substantial marketing budgets required but many players faced difficulty in securing finite retail distribution. To hedge against this problem, video game industry saw much consolidation with a few players remaining in the end. The drive to make ‘safe’ choices resulted in extending proven franchises thus mitigating innovative yet riskier content from emerging. While this was happening, consumer demand started revamping due to the emergence of platforms like Facebook and iPhone and Gaming 2.0 took everyday social and mobile users by surprise.

Enter Gaming 2.0

More than just the application of new technology to old gaming paradigms, Gaming 2.0 embraces new combinations of technology, designs and business models, paving way for new industries with sustainable business models primarily powered by virtual currency and subscription based models. Most ‘under 30′ consumers today grew up digital and now spend a lot of time using social media services. These audiences, however, can be distinguished from self-proclaimed gamers because they lack the time and devotion to commit to resource-intensive games. They really don’t have to embrace such forms of gaming because mobile technology enables millions to readily access interactive content that they can engage with in short bursts. With infinite choices at their disposal, the next generation suffers from short attention spans and are likely to flock towards instant gratification that can be achieved from easily accessible and socially-connected games.

What Lies Ahead

Fulfilling consumer demands are small upstarts that seem to be innovating faster than the traditional giants and gaining tons of users through channels like Facebook. Gaming 2.0 is thus, in a nutshell, about frictionless, ubiquitous, social and service-oriented games. Tim Chang’s session was extraordinary in the sense that it detailed the future of gaming and media in a very concise and holistic manner and we felt that we should delve into the details and further elaborate on Tim’s wisdom. In the following series, we’ll look at:

- Ubiquitous and frictionless gaming – Easy to access and free to play

- Snack gaming – Frequent session play due to compulsion loops

- Social distribution – Direct to consumer publishing coupled with channels enabling player to player viral distribution

- Games as a Service – On-going relationship with consumers

- Mystery post

Stay tuned.

Check out the rest of the series: Part 1, Part 2, Part 3, Part 4, Part 5, Part 6.

Join Baratunde Thurston (left), The Onion’s Director of Digital and author of How to Be Black, for an entertaining look at creative social media campaigns in our Social Media Marketing Boot Camp starting February 16. Other speakers include Morin Oluwole (Facebook), Tim Devane (bitly), and SocialTimes' writer Devon Glenn.   Register now.