Tuesday, July 31st, 2012 - OVUM
OVUM COMMENT - Mark Ranson, Ovum Analyst Consumer Telecoms

Mobile messaging service KakaoTalk, which has acquired a user base of 55 million since its launch in March 2010, is about to move into gaming. Its creator, Kakao, plans to launch the tentatively titled “Game Center” service today, July 30, 2012 (subject to change), and the move is likely to be a profitable one.

The company recently launched its virtual currency, “Choco”, and Ovum expects it to pursue a free-to-play (F2P) business model in which digital item sales will be the main revenue stream.

The Game Center will compete with mobile carriers’ services, iOS and Android application stores, and existing game portals in the rapidly developing Korean game market. Korean MNOs have been largely dis-intermediated from the Korean mobile game market in the post-smartphone gaming market. Carriers are now looking to exploit new 4G mobile networks as they seek to re-establish themselves in the mobile gaming space. LG U+ is taking an especially innovative approach, having recently launched the C-games cloud gaming service.

When the Game Center launches it will be easy for Kakao to bring it to users’ attention and to tempt them to try the new service. Companies such as China’s Tencent have had success with this strategy of gaining scale and loyalty through a core messaging service, and then using that messaging service to promote new services that generate higher revenues.

Capturing users’ attention is only the first step towards monetization, but it is a crucial one. KakaoTalk’s users have already demonstrated that they will spend money within the service, and sales of premium emoticons generate revenues of up to USD$87,000 (KRW 100 million) per day. Emoticons may remain a significant revenue stream, but mobile gaming’s broader appeal and larger monetization potential should soon dwarf emoticon sales.

Of all the Korean MNOs, LG U+ has so far taken the most innovative approach to LTE gaming, and on July 18, 2012, it launched the C-games cloud gaming service. The company sees cloud gaming as an effective way to bring high-quality, processing-intensive gaming experiences to almost any mobile device without the need for large initial game downloads, as the game content is streamed from the nearest server to the user’s device.

SK Telecom and KT will no doubt be watching LG U+’s cloud service very closely. If the initial signs for LG U+ are positive, Ovum believes all three carriers could be operating cloud gaming services in the near future. Although the potential to launch cloud gaming services is not limited to MNOs, superior network expertise and the ability to offer special data allowance plans catering to cloud gamers could help carriers to differentiate themselves from their OTT competitors.

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Mobile messaging service KakaoTalk, which has acquired a user base of 55 million since its launch in March 2010, is about to move into gaming.

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