Cloud content and services markets, enabled by the ubiquity of smartphones and tablets, are a battleground between major content providers, device manufacturers, and service providers.
ABI Research recently evaluated several key segments of cloud content and services, including gaming, music, social networking, and search. Overall, revenues in these digital content ecosystems are expected to grow 122% from 2014 to 2020 and approach US$320 billion. Search and Social are each led by dominant international companies, with Google capturing 60% of 2013 search revenue while Facebook has 55% of 2013 social networking revenue. While some regional differences exist, these positions should remain relatively defensible for the foreseeable future. The gaming market is significantly more fragmented, but Tencent’s leading 8% share in 2013 game revenue highlights the impact of digital content and importance of the Chinese market.
While search and social incumbents both face challenges arising from changes in consumer behavior, such as the use of online retailers’ sites for search related shopping, the music and gaming industries have the added challenge of moving business from physical media to digital distribution.
Practice Director Sam Rosen noted, “As new populations shift their purchases from physical goods to digital goods, and as advertisers follow consumers migration of their screen time, you see the average revenue per engaged user increasing together with the number of consumers in each region growing. However, the total spend, including both physical and digital goods, in transitioning markets, music and gaming, increases at a modest pace overall.”
Senior Analyst Michael Inouye added, “The devaluation of content by consumers because it is digitally distributed isn’t guaranteed. However, this often results from a penchant for industries and companies to favor business models that put participation before monetization. As purchasing behavior has shifted from the lucrative CD to digital tracks and now ad-based or subscription services each transition has often resulted in less revenue per user. For some companies within the game industry similar issues might arise if their business model likewise moves from discs and game downloads to ad-based and free-to-play.”
