Asian markets "two years ahead" of West in mobile monetization

In a panel moderated by Academy Of Interactive Arts president Martin Rae, four prominent venture capitalists outlined future opportunities in the game industry as it becomes more global and platforms continue to shift. Digi-Capital managing director Tim Merel, Signia Ventures partner Sunny Dhillon, WestSummit Capital Management founding partner Raymond Yang, and Madison Sandhill Capital managing director Lars Buttler spoke frankly about where they saw the industry heading in the near future.

Buttler took the lead early on in the talk, explaining that "everything is happening faster and faster" in the industry. He said it's impossible for incumbent companies to "manage innovation in-house" and stressed that a "dynamic approach" is needed, with companies being plugged into the startup scene around the world. The global face of the market means that the industry is ready for a "new breed" of investors that could come from anywhere.

"You have to be on the ground and have a team of industry experts that have the right access," said Buttler. "That is the giant opportunity for smaller companies that can come out of nowhere or for a new breed of investors that really understand the market."

Digi-Capital's Tim Merel said his firm's primary focus was on mobile and that the industry has never seen a market "that big grow that quickly before". He also noted that mobile apps are cheaper, meaning investors can spread their money around to more companies to create a wider portfolio. Signia Ventures partner Sunny Dhillon agreed that mobile is important, but his vision was aimed farther down the line towards augmented reality and wearable tech like Google Glass. Signia invested in wearable tech software firm Mind Pirate earlier this year. Dhillon did say that opportunities in this space aren't immediate since mass market devices are still out in the future.

Merel asked the audience who was making apps for over-the-top messaging platforms like KakaoTalk, Line, WeChat, Kik, and WhatsApp. Only one developer raised his hand, leading Merel to say, "you people need to go and look outside."

"When it comes to creativity and innovation, the US and Europe are still very strong," said Merel. "When it comes to the science of making money on games, China, Japan, and South Korea are about 18 months to two years ahead. I'd encourage all of you to go to ChinaJoy next year and see how the world is changing."

Buttler agreed with the beginning of Merel's premise, saying messaging solves the customer acquisition and content management problem. He said messaging is a "powerful thing," but called messaging on a phone even more powerful.

"When it comes to creativity and innovation, the US and Europe are still very strong. When it comes to the science of making money on games, China, Japan, and South Korea are about 18 months to two years ahead."

Digi-Capital managing director Tim Merel

Yang steered to conversation towards China's large number of app portals, noting that 80 percent of traffic is still controlled by the top three portals. Merel said that China is currently going through "all the markets in the world" looking to IP that will work in their domestic market. He also said that many Chinese companies are beginning a push outward.

"When I'm in China I feel that game publishers and gamers are so hungry for Western-made games," added WestSummit Capital Management founding partner Raymond Yang. "Gaming is so international now, that every hot game is known there immediately. But that are a lot of tricks there. When you put your feet on the ground, then you start to see a lot of roadblocks."

Merel admitted that China and South Korea have a huge advantage over Western markets when it comes to people and monetization. He said that monetization of apps happens "far quicker" in those regions compared to Western markets. Buttler surmised that Asia's strength in mobile and social gaming stems from the fact that there were no older brands and tech to hold them back.

"They don't have a legacy business," said Buttler. "They don't have an old console business. They went to online first. They invented the free-to-play model. It's the innovator's dilemma. Since you're not invested in old parts, you can focus on all the new parts. All the creativity is going to new endeavors. We also should expect more innovation from other parts of the world."

He pointed to developers and markets emerging in the Middle East as one example of innovation coming from places without legacy business.

"You can build great new businesses everywhere, but Asia has the benefit of extra scale," Buttler said.

Yang said the Chinese developers understand how far you can let a user play for free before asking for money and they've collectively "pushed that to the limit." The barrier to mobile is low, so innovation can come from small teams "from anywhere and nowhere."