India’s Gaming Industry is Taking off — Can it Go the China Way?

team from Jungle Games, one of the biggest gaming companies in India (source: angel.co)

India’s gaming industry has finally picked up! Even though it is going to be a while until it becomes as big as that in China, it is amazing to watch the boom of an industry and imagine if this is how it used to be when gaming started to become popular in the Middle Kingdom.

Growing up as a kid in New Delhi in the 90s, I remember persuading my parents to give me a total of 10 rupees, almost a quarter of a dollar and expensive by most middle class standards back then, to go to a cyber café and play a round of Dangerous Dave. I would have to wait for about 20-30 minutes in an alley outside the basement arcade along with friends from the street. This is quite different from today, with subways filled with eyes glued to their screens and massive gaming events receiving traction now. While the prime of my gaming days ended around the time Mortal Kombat 4 and Grand Theft Auto 5 came out, I seem to have developed a new found appreciation for the gaming sector. Partly because it seems to have entered pop culture, attracting the attention of my friends in India and, partly because I now look at it as the multi-billion dollar and accelerating industry that it is. No longer is gaming just a kid’s past time.

So, I was especially excited when Ankush Gera, the CEO of Junglee Games (one of the biggest gaming companies in India) agreed to talk to us on the Use Case podcast. In the text that follows, I have tried to outline what I learned from the episode and other interviews I conducted.

First, let’s talk MONEY!

The whole story began with the absolutely brutal price drop in data costs in 2016 (India has the world’s lowest data prices now- $0.26/GB compared to global average of $8.53/GB). This along with the arrival of cheap mobile phones (led by Chinese brands like Oppo/Vivo/Huawei/Xiaomi) brought many first time online gamers to the market. KPMG, in a report, estimated that ~120 million online gamers entered the market in 2016, making the market valuation of India’s gaming industry ~$290 million in 2016. This number is peanuts compared to that of the US and China. In fact, the budget of one successful game in the US is probably much more than that.

The report also estimated a CAGR of ~28% per year with an expected market value of ~$1 billion by 2021. But as Ankush noted in the episode, that growth rate seems to be “highly inaccurate”. And honestly, it makes sense! The biggest players in the Indian industry, of which Junglee is one of them, and which control at least three quarters of the market are all growing at least 40-50%. So the average for the industry should be higher.

Within the sector itself, there are multiple segments – and growth rates in revenue vary drastically depending on the type of game. So in a space as diverse as this, making overall averages doesn’t seem to do much good, though the trend is definitely upwards. The biggest upcoming segment in India is the whole “skills-based gaming” segment. Junglee, which calls itself a “skills-based gaming company”, has grown more than 100% year on year by revenue for the last five years. This is a company that has long surpassed their seed stage and is still more than doubling its revenues each year!

While I attribute much of it to Ankush being an extremely smart and seasoned entrepreneur, it’s also an incredibly smart policy play! You see, many of the skill-based games are card games like Rummy and fantasy sports, such as Fantasy Cricket (which, trust me, is sacred in India). These require gamers to make informed choices, which had been an issue in the Supreme Court of India. Some argued that these games were akin to betting, which is illegal. But by classifying such games as skill-based and not betting, the Supreme Court ruled in favor of the gaming industry and since then the whole skill-based gaming sector has been a huge success. Domestic Indian VCs such as Kalaari Capital and Nexus VP have started actively looking into the space.

However, monetization is an issue.

The average Indian digital consumer is exceedingly frugal. In fact, the Average Revenue Per User (ARPU) of Indian mobile gamers is USD 0.78, far below the global average of USD 26.28 and again, the lowest among BRIC markets with Brazil at USD 5.96, Russia at USD 4.90, China at USD 25.17 and South Africa at USD 5.13.

So how are firms planning to make money and why is this industry waiting to boom big time?

The answer, yet again, lies in demographics. About 60% of online gamers in India are under 24 years of age. This user segment doesn’t have a ton of disposable income. The next segment of 25-40 year-olds is where users have disposable incomes and are willing to pay. So the long term strategy for the industry is to wait for the < 24-year-olds to turn into mature gamers and have more disposable income. This creates experienced customers who are willing to pay. That seems to be the long-term tactic, which Kanan Rai from Google Play India also reiterated on a recent panel.

So for now, to make money, most gaming apps in India tend to build on the freemium or advertisement based models, and platforms use sachet pricing (like buying a cheaper sachet of shampoo rather than the whole bottle) instead of one time fees or subscriptions. The race to get those MAU and DAU numbers is on, and boy is it in full swing!

Interestingly, in the last few months, it seems like the industry has caught the attention of Chinese investors as well. Friends from across the border keep enquiring about the space, to whom I apologize I have been no help until the episode came out. Thus, I can’t help but wonder what would happen if big Chinese gaming companies decided to enter with their products (and not just investments). Would Indian gaming companies be able to compete? I am reminded of a similar situation towards the end of 2016 when as new user growth in Chinese social networks began to saturate they started focusing on outward markets, including India. If and when, new user growth in the gaming space in China begins to saturate and these firms decide to promote their games in global markets, the domestic Indian gaming companies are in for some serious competition.

For now, it seems like local Indian companies have a cultural edge. Storyboarding is a huge part of successful game design and domestic firms have a natural advantage in it. That’s visible in the kind of games that get the most traction in India. Cricket, Ludo, Rummy, ChotaBheem, Bollywood themed games and the like are big favorites. Still, it would be fascinating to see if Chinese and Indian gaming firms collaborate, compete, or do both.

Also, amusingly, after we published the show, a friend shared the link of the famous Chinese gaming blogger ‘Necromanov’ (you can find the original here or Jeffery Ding’s translation here). In the blog post, the author argues (translated) that “the diverging trajectories of China and India in the information revolution was largely due to the outbreak of online games in China in the late 1990s…FromNetease,Sohu, andShandatoTencent, about half of the large Internet companies in China use games as their main source of income, while other companies share gains from the advertising and distribution fees that game companies pay for traffic.”

We haven’t verified these claims but, at least trend-wise, it is true that gaming is a significant part of the total revenue of the aforementioned firms. In that way, Indian gaming companies are way behind their Chinese counterparts, but the country has been a hub of IT and animation outsourcing for many decades now and that adds to its competitive advantage.

What is more interesting is that Necromanov believes that because gaming was such a significant part of Chinese technology companies as against their Indian counterparts (which focused on outsourcing services), Chinese developers were able to come up with several features in non-gaming applications that were inspired by games. Specifically, he points out to retention engineering features such as “login rewards, new rewards, rewards sharing, track your points, reward leaderboards — innovative designs you won’t see on Facebook or Youtube.”

Now that is a very interesting argument to make!

I am continually amazed at the massive size of the gaming industry and its impact on the economy. I wonder now, how the Indian economy will change given the impact gaming will have in the country as it becomes more and more popular.

Ravish Bhatia is the host of Use Case, a podcast focused on the emerging startup and technology ecosystem in India which is available on apple Podcasts, Spotify or Google Podcasts. He tweets @RavBhatia