PaaS for Mobile Cloud Gaming

Nov, 2021 nikopartners.com|Silicon Valley •Shanghai •London •Bangkok •Jakartaresearch@nikopartners.com| © Niko PartnersNovember 2021PaaS for Mobile Cloud Gaming

2A New Market: B2B Service Platform for MobileCloud Gaming© Niko Partners•Niko Partners conducts research on the video game industry in Asia.•We have recentlywritten a report on Cloud Gaming in Asia.•In writing that report we became aware of the growing importance of the B2B aspect of cloud gaming–cloud gaming is more than just the B2C platformsconsumers are familiar with.•This is calledPlatform as a Service (PaaS) for Mobile Cloud Gaming and this industry segment has the potential to dramatically impact the mobile and F2P games market.•This white paper explainswhat PaaS for Mobile Cloudis and how it is being proven out in China already.•We believe thatthe market for this extends beyond China,even beyond Asia, and willbe worldwide soon.

© Niko Partners3Mobile Cloud Gaming occupies a distinct industry segment, and unlike console or PC-to-cloud offerings, this technology is already changing how developers and publishers reach gamers.Cloud for mobile gaming is already in place in China and we are seeing new international Platform as a Services (PaaS) Mobile Cloud offerings emerge. This report details how tis technology has been deployed and the areas of mobile gaming which will be affected by this shift.Mobile cloud PaaS does not depend on widespread consumer adoption to achieve viability. Instead, it is a tool developers and publishers are using to streamline user acquisition and reduce associated costs, to circumvent app stores, and to explore new social, cultural, and creative possibilities.Unlike premium cloud gaming which is still developing and depends on a consumer market to succeed, mobile cloud is here now, already changing the games business, and easily integrated by gaming companies.Cloud for mobile gaming is already in place in China and we are seeing new international Platform as a Services (PaaS) Mobile Cloud offerings emerge. This report details how it has been deployed and the areas of mobile gaming which will be affected by this shift.B2B mobile cloud is still nascent, with Tencent, Now.gg, Ubitusand HaimaCloud as emerging players in this market space. The Emerging Opportunity of Mobile Cloud

4Platform as a Service(PaaS) describes a category of cloud technologies that allow customers or developers to manage, provision, and execute software from the cloud.Unlike other notable cloud gaming services that target consumers directly, Mobile Cloud PaaSis designed to serve developers and publishers by giving them the tools to reach new gamers in new ways.Mobile Cloud Gamingrefers to cloud applications that bring mobile games directly to users’ connected devices without the need for installations or complex local computation.All cloud gaming is designed to remove constraints that have been part of the videogame industry for decades –the need to own or dedicate hardware to the storage and execution of game files. A mobile-first or mobile-only approach uses cloud technology to increase accessibility, discovery, and profitability.Defining Mobile CloudGaming & PaaS© Niko Partners

5Niko Partners estimates that there are 1.5 billion gamers in Asia in 2021, with 1.4 billion already playing on mobile. However, most have yet to convert to cloud gaming. It will be more than 5 years before cloud gaming is fully adopted across the region, with established markets like South Korea, Japan, and China leading the way.•As a mobile-first market, cloud platforms will be the first place many Chinese gamers will experience AAA PC and console titles. For this reason, the expansion of all cloud gaming stands to significantly increase the addressable games market.•5G implementation continues to be the hurdle for cloud adoption. Regulation and incentives supporting 5G Infrastructure will be particularly important in markets like China where the government plays a large role.•30% of Chinese gamers have tried a cloud gaming service while another 33% of gamers are interested in cloud gaming. This is fertile ground for cloud gaming implementation and opens opportunities for companies to experiment in the space through both B2C and B2B solutions.China’s Cloud Market is Cutting Edge© Niko Partners

© Niko Partners6B2B cloud gaming PaaS solutions are less prevalent at this stage with only a few players. However, B2B cloud is the segment to watch as many cloud platforms are built on technology from B2B providers, and B2B has the potential to expand the segment into new areas.China’s Cloud Market is DiversifyingChinese game companies, tech companies, and telecoms are all leading the charge when it comes to rolling out cloud gaming services, with government backing growth. Telecoms view cloud gaming as a proof point for 5G, using cloud gaming to drive 5G adoption and increase ARPU. Tech companies and game companies have started to set up their own B2C cloud gaming platforms.Mobile cloud gaming is a recent but important phenomenon in the cloud gaming space. B2C platforms such as Tencent Xianyouare taking the lead in China, but the service has yet to fully commercialize. Other game developers such as miHoYohave worked directly with B2B solutions providers such as WeLinkto create a cloud versions of key titles making them available to a wider range of players. We discuss this in more detail later in the report.

7Premium B2C cloudgaming exists as an alternative to other premiumor B2P gaming product models. These servicescompete with Steam and other PC game stores aswell as with console game stores. To a moreminor extent they also compete with premium(Pay-2-Play) mobile titles.Many telecom operated cloudgaming platforms opt for a time-based feemodel, where mobile subscribers pay based onthetimethey spend using the service. This worksto introduce players to cloud gaming services andserves as a marketing tool for telecoms, with thepotential to turn some of these users into cloudgaming subscribers.Social platforms likeFacebook are experimenting with ad-supportedcloud gaming. These services benefit social mediaplatforms and aid with game discovery.Platforms adoptinga PaaS approach make titles free to users overthe cloud and operate on a B2B model, wheredevelopers and publishers pay to host a title. Thisworks well for F2P titles that can incorporate thisas part of user acquisition strategy to reducemarketing and take-rate costs. Notable casesinclude Now.GG,Ubitus, and Tencent.The Cloud Gaming EcosystemSubscription & PremiumTime-Based FeeAd Supported F2PFree to Play Cloud Gaming© Niko Partners

© Niko Partners8Notable B2C and Telecom Cloud Gaming Platforms in ChinaTENCENT XIANYOUTENCENT STARTNETEASE CLOUD GAMESCHINA TELECOMTIANYI GAMECHINA MOBILE MIGU GAMEHUYA YOWACHINA UNICOM WO GAMESHUNWANG CLOUD GAMEDALONG CLOUD GAME

9Mobile-First Cloud Gaming is Here, and Only Getting BiggerMobile cloud gaming refers to cloud platforms with a mobile-first or mobile-only approach.These services are similar to PC and console cloud gaming services, with the potential to be much more impactful, but a mobile-only approach comes with its own challenges. Technology is quickly arriving that has made mobile cloud gaming viablefor players: •5G is essential for mobile cloud gaming for low latency, low jitter, and overall playability. According to data from Google, 10Mbps is the minimum and 35Mbps is the recommended network speed needed to support cloud gaming, so 5G is essential to providing this to users.•China began 5G roll out in November of 2019 and has built over 1 million 5G base stations with 365 million users on 5G plans.As these numbers continue to rise, so too does the importance of cloud gaming as a core business model.•It is expected that 80% of all smart phones shipped in China will be 5G capable by year-end.© Niko Partners

© Niko Partners10Understanding the Hurdles of China’s Cloud MarketIn many respects, China has the most developed cloud gaming ecosystems in the world.With more than a half-dozen cloud gaming technology providers and many more cloud platforms. The high number of cloud gaming companies form the basis for an industry with high diversity. Cloud gaming services range from subscription offerings (similar to western cloud platforms like Google Stadia, Microsoft’s Xbox Cloud Gaming, Amazon’s Luna, and Sony’s PlayStation Now), time-based serviceswhere users buy a set number of hours or play by the hour, and free-to-play cloud trials and mobile cloud titles.The number of services in the Chinese market is creating stiff competition, especially among B2C services. Cloud platforms are competing over titles and content while also competing over a relatively small base of cloud users. This has led to consolidation among cloud gaming platforms already. For example, Yoozooclosed their cloud platform and Huawei recently shut down its Cloud PC offering.Cloud gaming market saturation benefits consumers by keeping pricing competitive. However, saturation also spreads content across too many platforms, forcing players to use multiple services to play top titles.Finally, while China is the most developed market, many of its cloud service offerings may be geographically limited to China’s network. As PaaS business models for mobile cloud rise to shape the way mobile titles are marketed, international platforms and technology providers like Now.GGor Ubitusmay have an advantage over domestic Chinese cloud operators because they can scale internationally.

© Niko Partners11B2B Cloud Solutions Open the Playing fieldThere is still experimentation in this space, but if successfully executed, these PaaSofferings solve concerns around the subscription or time-based fee business model andinstead allow for a F2P model that mobile gamers are already comfortable with. For this reason,we expect mobile cloud PaaS to mature faster than B2C premium cloudofferings.The limitations of China’s Cloud gaming market from over-saturation, stiff competition, titles spread across too many platforms, and geographical and regulatory concerns is givingrise to alternativemodels.•B2C Cloud gaming platforms are the most susceptible to these limitations as theyare in directcompetition with each otherfor users.•For the same reason, subscription and time-based fee business modelsexperience similar constraints.Thisopensthe space to mobile-first B2B PaaS solutions that can sidestep some of the issues in the B2C space. These solution providers are buildingplatforms that allow developers to utilize existing F2P models, while reducing acquisition costs, reaching a larger player base,and removing app storefees.•Tencentleads China’s cloud gaming B2B / PaaS space, but other B2B providers include HaimaCloud, Huawei,Alibaba,Kingsoft Cloud, andWeLink.•Outside of China, we have found only a couple of notable companies in the B2Bcloud gaming PaaS space. These areUbitus, which primarily focuses on consoleand PC game solutions, andNow.gg, which focuses on mobile game solutions.B2B PaaS in ChinaB2B PaaS outside China

© Niko Partners12Defining Mobile Cloud and PaaSCloud Market PositionAs cloud technology improves and as more companies in the game space recognize the value of cloud gaming, we are seeing a shift to cloud gaming platforms that focus on mobile games with Facebook Gaming and Now.ggbeing notable examples. These solution providers are deploying business models that enable users to start playing for free, like they would with any mobile game. PaaS business models for cloud gaming are built on partnerships between cloud technology providers and developers or publishers•With a PaaS cloud gaming solution, the developer works with the solution providerto host their game in the cloud and utilize various features offered by the provider.•Current PaaS cloud gaming solutions offer a complete one stop solution that allows developers to host their game in the cloud, benefit from the platform’s discoverability tools and process payments through the solution provider.•This essentially replaces the traditional app store distribution model for games and disrupts the current landscape. Notable examples

13Mobile Cloud and PaaS Cloud: Expanding Markets China is home to 700 million mobile gamers in 2021, but this is less than half of the 1.5 billion smartphone users in China.This means that while the Chinese mobile games market is truly massive, the mobile games market is reaching less than half of its potential possible user base.•The same figures apply across Asia, where mobile gamers account for a combined 46% of the total internet-connected population.•One of the fastest ways for the games market to grow in any country in Asia is begin to convert non-gamer mobile users to the game space, and the simplest way to do this is to lower barriers to discovery and to market entry for new gamers.© Niko Partners

14Mobile Cloud and PaaS Cloud: Generating New OpportunityMobileCloudPaaSisemergingasonetoolthroughwhichpublisherscangrowtheiruserbasebyattractingnew,high-qualityplayers.Byeliminatinghardwareconstraints,points-of-painingamediscovery,andenablingseamlesssocialdiscoverymobilePaaSservicesofferawaytoonboarduserslikeneverbefore.AlthoughFortniteisamorepolished,morewellknown,andearlierentryintothemobilebattleroyalegenre,itlagsfarbehindthepopularityofPUBGLiteandFreeFireacrossAsia.LowendmobilehardwareismorecommonindevelopingmarketsandhighendmobilegamessuchasFortnitestruggletoreachamarketsharenecessaryforviralsuccess.Mobilecloudenableshighendmobilegamestorunonlow-endmobilehardware,andanyotherdeviceaswell.Mobilecloudalsoallowsgamestobeplayedwithoutdownloadinggamefiles,meaninglocalstorageisalsonolongerafactorinadoptability.Discoverabilitytools,suchaslinksthatcanbesharedonsocialmedia,allowuserstodiscoverandplaythesegamesnotjustontheirphone,butonPCs,TVsandothersmartdevicestoo.© Niko Partners

© Niko Partners15How Mobile Cloud and PaaS Changes the Cloud EcosystemThe challenge of marketing traditional, premium cloud services (subscription and buy-to-play) to mobile gamers and non-gamers is that these users are not conditioned to pay upfront for gaming experiences.Instead, F2P gamers play until they are invested in a title, before spending money to improve their experience or set themselves apart through cosmetics or other items.•The mobile games market segmentis the most developed in its implementation of F2P, relying on microtransactions, gachamechanics, in-game cosmetics, and season-passes to turn free users into paying users. For this reason, F2P games rely on attracting the widest possible base of players, and mobile cloud gaming is ideally positioned to support this.•Mobile cloud gaming is a much easier conversion than attracting mobile gamers to premium paid content. Offering easier ways for F2P users to try a free game allows publishers to overcome discovery and acquisition hurdles, creating a much larger pool to convert into playing gamers.•Mobile Cloud for F2P Titles occupies a separate segment of the market and does not compete with premium cloud services that bring PC and console to mobile. Instead, mobile cloud platforms facilitate more natural discovery cycles for mobile games.

16How Mobile Cloud and PaaS Changes the Cloud EcosystemPaaS Mobile Cloud extends and integrates discovery into social platforms and browsers. It is not about attracting subscribers, it is about enabling discovery, and to this end it is a more eminently appealing proposition to publishers of mobile titles.Games have frequently sought new users through advertisements, but mobile cloud platforms will enable these ads to immediately place users into a live version of the game.Additionally, players who post about the game will be able to share playable stories and posts with their peers.Developers are struggling to be discovered on app stores and struggling with profit margins within this ecosystem. Mobile PaaS, presents these developers with an alternative route to user acquisition.© Niko Partners

© Niko Partners17CruciallytheDistributedMobileCloudisnotbuiltaroundandroidemulation,butratherdedicatedmobilehardwareatdifferentnodesthatcanbeselectedbasedondemandandleveragedthroughthecloud.5Gisacrucialtechnologicalthresholdformobilecloudgamingaplayabilitydependsfirstonlowlatency.Edgecomputingdescribescloudinfrastructurethatplaceskeydatacentersatnetworknodesclosertoendusers.Thismeansashorterdistancebetweenplayersandtheserverhardwareexecutingthetitlestheyareusing.Whilethisisanemergingtechnology,itsapplicationsarewidespreadwithmanycloudserviceprovidersinvestinginthistechnology.DistributedhardwarebuiltonARMarchitectureallowsmobilecloudgamingserverstodevelopbeyondblack-boxesfullofphonesoremulationonx86architecture.WiththistechnologyaGPUmaybeinonelocation,whilestorageorprocessorsmaybelocatedelsewhere.Dividingamobiletechnologyupinthiswaymeanscomponentscanbeallocatedbasedondemand.The front-end of mobile cloud gaming is also improving, as the user experience is an essential part of acquisition and retention.Mobile cloud discovery may take place on either a mobile device or computer, developing an interface that allows users to play mobile cloud games from any device and both mouse & keyboard or touch interfaces is important for growing user discovery.Technology Making Mobile Cloud Platforms Increasingly ViableEarlyiterationsofmobilecloudgamingsimplycollectedmobilehardwareinserverblackboxes.Arranginghardwareinthiswaymeantthattechnologywasnotadaptiveorscalable.Alow-demandgamewouldusethesamehardwareasahigh-demandgame.Morerecentiterationsofcloudtechnologyarespecializedformobilecloudgaming,beginningwithamoveawayfromacentralizedserverinfavorofscalable,on-demand,andedgeinfrastructure.ThesedevelopmentsmakecloudgamingmorecosteffectiveforoperatorsandB2Bpartners,whilealsomakingtheservicemoreefficientforusers.

18Mobile B2B cloud PaaS exists as a service to developers and publishers. Its primary feature is adding users and revenue that are not already captured by the mobile games market or by mobile app stores.Mobile-First Cloud Gaming: Built to Improve the Value ChainBy making F2P titles accessible over instantaneous cloud services, developers are able to attract new, high-quality playerswho may not be gamers or who may not discover games through traditional advertising or app store promotion.Better integration into browsers and social applications mean cloud-based F2P titles are exponentially more shareable and more viral. User acquisition costs account for 30-40% of game revenue, meaning that low-cost tools to attract new users(especially those unmet by other advertising and promotional channels) are eminently valuable. © Niko Partners

19Mobile-First Cloud Gaming: Built to Improve the Value ChainPaaScloud services also allow publishers to circumvent app stores for payments made over the cloud. With take rates for app stores averaging 30%, the ability for publishers to direct some of these payments through a cloud platform instead is an opportunity to make each payment significantly more valuable.By attracting new, high-quality users, many of which are not addressed by traditional user acquisition efforts, and by giving these users alternative ways to pay that circumvent take-rates, Mobile Cloud PaaScuts down on the two major costs of doing business mobile game developers and publishers face. Combined with increased virality, mobile cloud gaming will dramatically shift the way F2P titles are marketed and paid for.•Breaking away from a reliance on app stores will be a dramatic shift for the mobile games industry with effects on everything from the value titles can generate to design and the implementation of monetization. © Niko Partners

Leading B2B Cloud Gaming ProvidersAn Opportunity for GrowthChina20International

© Niko Partners21•In September of 2020 miHoYolaunched its F2P MMO ARPG, GenshinImpact,on Android, iOS, Windows, and PS4. GenshinImpact enjoyed local and international success, becoming the third most profitable mobile title in Chinafor several months.•As a cross platform mobile/PC/Console title the game pushed the limits of mobile phones as it delivered a console-like experience on mobile. The Android installation of GenshinImpact requires 8GB of free space and a minimum of 3GB of local RAM to run. These requirements limited the mobile market for the game to users with high-end devicespurchased in the last few years.•To make the game more accessible miHoYoworked with cloud services provider WeLinkto create a mobile cloud version of the game.This would allow mobile gamers with fast enough network speeds to play without having to download the game or run it locally.•This meant that players on older phones, players without the storage space required, and players who did not have the time to download the game files could instantly play the game on the cloud. Even users of high-end phones benefit from the cloud version of the game, as it offers graphical features that are only available on the PC or PS5 version.•However, miHoYoand WeLinkare still working on the cost of hosting games in the cloud and are currently passing on those costs to consumers through a time-based fee business model.•miHoYowas one of the first mobile developers to adopt this mobile cloud strategy, but as more mobile titles go cross-platform, and as install sizes and processing demands grow, we expect these kinds of launches to become more common.Mobile Cloud Case Study: GenshinImpact

© Niko Partners22The case for F2P mobile cloud gaming in China is growing with numerous developers experimenting in this space and leveraging PaaS cloud gaming solution providers to expand the addressable market for their games.The Future of Mobile Cloud Gaming is TransformationThis is the core value proposition for mobile cloud gaming, and what sets it apart from premium and B2C cloud offerings: mobile cloud technology is immediately deployable and eminently valuable as a tool to speed discovery, user acquisition, shareability, and accessibility of mobile titles.By reducing acquisition costs and providing an alternative to app stores for payment processing, mobile cloud PaaS is already beginning to dramatically reshape the F2P mobile games market.Because Mobile Cloud PaaS is already in place and does not rely on large-scale subscriber buy-in, we expect that this market segment will continue to mature much faster than B2C cloud gaming.As this segment matures the possibilities opened by mobile cloud platforms –including customization, immediate patching, social integration –stand to further redefine how mobile games are played, how live operations are conducted, and how games are experienced culturally. Some international platforms like Now.ggare already experimenting with this.Mobile cloud gaming is at the cutting edge of cloud technology and network design. It benefits from edge computing, scalable and on-demand resource allocation, and the continued development of 5G infrastructure and user penetration rates.While China is becoming a proving ground for this technology, we expect it market impact to be global and already on the horizon.

23Niko News –free weekly market intelligence, subscribe at nikopartners.comnikopartners.com/blog –articles, industry updates, and reports@nikochinaSyndicated ReportsData & Insights SubscriptionsCustom & ConsultingIntelligence, Strategy, and Guidance for Asia’s Games MarketWe’re a market research and consulting firm covering the games, esports and streaming markets in Asia.We provide qualitative and quantitative data collection and analysis, market models, forecasts, and strategic advisory services to give you the intelligence and answers you need to truly understand the region.We leverage our own proprietary data, andour panel of more than 4 million consumersin China and millions more throughout Chinese Taipei, India, Indonesia, Japan, Korea, Malaysia, Philippines, Singapore, Thailand, and Vietnam.We’ve helped game publishers, platforms, hardware makers, esports, consumer brands, investors, payments providers, hedge funds, telecommunications, consulting firms, and others —in the West and in Asia —understand and succeed in the world’s largest and fastest growing games markets.© Niko Partners