Esports and Battle Passes extend gamers' gaming sessions while increasing their willingness to spend money in a game. These are two core results of the "Frankfurt Game Studies III" on value creation, monetization and player retention, which Professor Lutz Anderie is conducting with students at the Frankfurt University of Applied Sciences.
The gaming sector has long since become interesting for research. An expert in the field is the Frankfurt professor for business informatics Lutz Anderie, who regularly provides scientific knowledge in the industry with his "Frankfurt Game Studies". Recently, it was about the e-sports area, which - according to a study result - can significantly advance the monetization of games.
High return through competition?
According to the Game industry association, the overall German market size for electronic games amounted to almost ten billion euros in sales in 2021, which corresponds to an increase in sales of 17 percent compared to 2020. The number of gamers in Germany has also risen steadily, and around 60 percent of Germans now play video games, regardless of age. Especially in times of lockdowns and social distancing, gaming has become an accepted leisure activity and a means of virtual contact maintenance.
From a scientific point of view, the games market offers a broad field of research that Prof. Dr. Lutz Anderie has been continuously examined with students since 2019. The game expert, who teaches and researches as a professor for business informatics at the Frankfurt University of Applied Sciences (Frankfurt UAS), is now presenting the results of the “Frankfurt Game Studies III – Value Creation, Monetization and Player Loyalty”. With this study, which follows on from the Frankfurt Game Studies I and II, he is publishing the third and final part of the research series in the run-up to Gamescom, the world's largest computer and video games fair.
This deals with three subject areas: the innovative strength of the games industry (technological innovation driver), value creation through market capitalization (performance analysis) and concepts and mechanisms for player retention. Specific key questions were: Which other sectors benefit from the development of new technologies by the games industry? Is it possible for investors to achieve an above-average return in the growth market "Games"? Which mechanisms and marketing techniques are suitable for player retention?
The Frankfurt Game Studies III were carried out as part of the course Strategic Information Management (business informatics) at the Faculty of Economics and Law of the Frankfurt UAS.
"When we started researching the monetization and value creation of computer games three years ago, nobody expected the success of the series of studies," says Anderie. "In terms of content, we have expanded the research horizon of the Frankfurt Game Studies and analyzed monetization in the broader sense of value creation through positive share price development of games companies. When it comes to retention, we have Battle Passes (reward system with game extras), Season Passes (discount pack for additional game content), Electronic Sports (e-sports), Downloadable and Daily Content (additional downloadable content of a game), Achievements such as trophies or awards, and Gaming streams that have a direct impact on the monetization of a computer game.”
The results can first be roughly separated:
The games industry has demonstrably expanded its innovative strength and importance as a spearhead of digitization (digital frontrunner), especially in the four key technologies artificial intelligence (AI), extended reality, games engine/3D modeling and sensor technology, and generates strong synergy effects for other industries .
The games industry can be evaluated as an innovation driver with above-average value creation potential.
When it comes to monetization, the games industry can attribute an important role to the rapidly developing e-sports (professionally operated competitions with computer games); it ensures a significantly longer playing time and, as a result, a higher willingness to spend.
Innovative strength of the games industry
Innovative technologies are regularly developed, further developed or tested by the games industry and are trend-setting for other industries. Speech recognition, 3D modeling and visualization in architecture, manufacturing and the military, as well as the use of augmented and virtual reality (AR/VR, extended or computer-generated reality) have long been used in medical technology, aerospace, education and training indispensable.
So e.g. B. the VR glasses developed in the games industry are used in medicine to combat phobias and fears; Paramedics use them to prepare for emergencies that are almost impossible to train in real life. In the field of sensor technology, the Kinect technology originally developed for the Xbox is used in medicine for remote monitoring of stroke patients in rehabilitation or for gait analysis. Another application is that of a robotic guide dog that uses the Microsoft device to climb stairs.
“The interfaces in the development of technologies in which the games industry is involved were decisive in our assessment. The games industry generates relevant technical innovations in terms of computing speed, graphics rendering, interface design, haptics, networks, software development and the design of mobile systems. We were able to prove this through literature and web research and on the basis of empirical evidence," says Anderie. "Computer games are also valuable test platforms for external applications," explains the scientist. For example, the game "Grand Theft Auto V" is regarded by scientists as a test bed for autonomous driving. As serious games, computer games serve to impart knowledge.
Value creation through market capitalization
In order to examine whether the games industry can outperform the tech sector as a whole, a specially defined pool of eight companies was subjected to a performance analysis in comparison to the Nasdaq 100 and S&P 500 indices. The period under review covers five years (from January 1, 2016 up to and including December 31, 2020), and historical price data was evaluated on a daily basis.
Anderie's conclusion: “The games industry has been proven to generate added value through market capitalization. From the point of view of investors, the games industry can realize above-average value creation potential.” The games companies examined achieved a significantly higher return (overperformance) during the evaluation period. This was a factor of 100 compared to the Nasdaq 1,78 index. Only three out of eight games companies did not outperform the Nasdaq.
Player retention concepts and mechanisms
“Player retention is very important for games companies. It shows how involved gamers are in 'their' game,” explains Anderie. While the Frankfurt Game Studies II focused, among other things, on monetization through microtransactions, i.e. small purchases of virtual goods (in-game items) made during the course of the game, and it was demonstrated that the game duration plays a decisive role in the acceptance of microtransactions, this has now been examined , which other factors can lead to increased player retention, such as marketing tools such as Battle Pass and Season Pass or e-sports.
An online questionnaire was developed for this purpose. The secondary data is based on the data from Frankfurt Game Studies I from 2020, Frankfurt Game Studies II from 2021 and web research. The primary data from the current study is based on responses from 1107 people (85 percent of whom are men) aged 20 to 29, mostly PC gamers, half of whom play daily and 36 percent several times a week. An average gaming session lasts around 2,7 hours, with 20 to 29 year olds spending 135,70 euros per year on in-game items.
The influence of eSports on in-game purchases and playing time was striking: active eSports players play longer, are more willing to buy in-game items and spend EUR 377,38 per year on them. The consumption of e-sports via live streaming services (e.g. Twitch) also leads to higher in-game purchases (136,56 euros/year) compared to non-consumers (44,21 euros/year). Almost 60 percent of those surveyed consume gaming streams on a daily to regular basis.
"The e-sports industry has developed at a rapid pace," says Anderie. “With the launch of the Dota 2 tournament 'The International 2011', the prize money exceeded one million US dollars for the first time. Within ten years, the prize money for the tournament 'The International 2021' has increased to 40 million US dollars.” With the prospect of lucrative bonuses, interest in e-sports has increased and has a clear influence on the length of the game.
Gamers with Battle Pass experience also play longer on average and, at EUR 216,35 per year, spend around four times as much on in-game purchases as compared to people without Battle Pass experience (EUR 50,19 per year).
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