Virtual Goods In Chinese Gaming Worth $2 Billion

By Chris Sherman On April 8, 2009 · Leave a Comment

Today Pearl Research revealed that the value of the Chinese online gaming market has grown 63% to be worth $2.8 billion in 2008. Pearl Research also disclosed to VGN that at least 70% of those revenues were generated by virtual goods sales with an average ARPU per game of $10. This would mean that $2 billion of the revenues generated by the Chinese online gaming market in 2008 were the direct result of in-game sales of virtual goods.

Pearl Research noted that not all of the goods sold in a Chinese online game are necessarily functional, although players certainly can buy swords and other equipment to help them excel in gameplay. An example offered was money spent on virtual fireworks a guild might choose to set off in-game in order to celebrate a successful raid and advertise their success to other players who might happen to see the celebration.

All of this information is based on Pearl's recently released 140-page "Games Market in China" study, which both examines the current shape of the market and how operators feel about their prospects in the coming year. The general feeling among Chinese game operators is one of optimism, as the global economic downturn has not yet had significant impact on China's predominantly free-to-play online game market.

"Trends to track
in 2009 include the growth of social networking sites in China, with over 55 million users, and their cross-pollination with games. One overall
concern is the lack of diversification with many game operators relying
on a single title for the bulk of revenues. In addition, a glut of
content with more than 200 games on the market, makes releasing a
breakout hit increasingly difficult," said Allison Luong, Managing Director of Pearl Research.

Other findings by Pearl Research in the report include that the most popular MMO in China is Netease's Fantasy Westward Journey with 1.8 million peak concurrent users, followed by Giant's Zhengtu Online with 1.5 million users, TenCent's Dungeon and Fighter at 1.2 million users, and finally Blizzard's World of Warcraft at 1 million.

Game operators TenCent, Changyou, The9, Netease, Shanda, and Giant earned upwards of $200 million in revenue. Of China's 298 million Internet users, about 70% are under 30 and considered more likely to seek out forms of online entertainment that would include gaming activities like purchasing virtual goods.

What is probably most interesting about Pearl Research's findings is that they suggest the world market for virtual goods is significantly undervalued by Western sources. A typical figure discussed when the virtual goods market comes up is the idea that the market is somewhere between $1 to $2 billion dollars, but Pearl's numbers would indicate that China's virtual goods market is likely worth at least $2 billion before any other markets – such as Japan and Korea – are even considered. TenCent alone generated $1 billion in 2008 revenues, most of which were probably from virtual goods sales.

It will be interesting to see what new research incorporating new data about China estimates for the virtual goods world market, because this space is clearly even more lucrative than even major Western players in the space previously believed.