Indo's Got Game! Arief Widhiyasa of Agaté

Indonesia has soared from relative obscurity just a few years ago to represent more than 40% of Southeast Asia's mobile games market by revenues. Its developmental ecosystem however lags far behind. The country has a mere 1,200 games developers (China has 200,000). Founder of the country's largest game studio Agaté, Arief Widhiyasa, profiles many of the company's initiatives to cultivate a more vibrant ecosystem of gaming studios across Indonesia.

Transcript

ALAN  0:12  
Welcome to the 36th episode of Season Two of the Indo Tekno podcast. Selamat datang semuanya! I'm Alan Hellawell, Founder of tech consultancy Gizmo Advisors, and Venture Partner Alpha JWC Ventures. It is near impossible to go so much as one day without coming across newsflow around mobile gaming. Whether it is the headlines that we read about the pitched battles over what app stores can charge game developers to play mobile games on their devices, or new measures taken in some markets to regulate approvals, or even control the number of hours that can be played per day. Indonesia remains one of the fastest growing mobile games markets of any populous country in the world. Mobile games should generate in excess of USD2 billion in Indonesia this year alone. Today, we're extremely pleased to have join us Pak Arief Widhiyasa, founder of the country's largest game developer, Agate. Thanks for taking time out of your busy schedule today, Pak Arief.

ARIEF WIDHIYASA  1:14  
Hi, Alan. Thank you very much for inviting me. It's really a pleasure for me to be here.

ALAN  1:19  
It's great to have you. Now Arief, when we think of great games development capabilities, we generally think of countries such as China, Korea, the US, even Scandinavia. For instance, China probably has more than 200,000 games developers, and Indonesia maybe has 1,200. Why isn't Indonesia a gaming powerhouse? 

ARIEF WIDHIYASA  1:43  
Wow. You started off with a very hard question. There are two angles to look at. The first one is what we call a "talent capability gap". And the second one is what we call a "supply funding gap". The first one, I could just give some analogy. When we started Agate 10 years ago, I met with a lot of big game company founders from Korea, Japan and the US. A very big Korean mobile game company said that we remind them of what Korean had been 10 to 15 years ago. So we have this gap. And then when I met with Final Fantasy, the Square Enix early team, they said that seeing us remind of them when Square Enix had just began. It was 25 years ago. And then when we met the US company, he said that seeing us with the size of our industry, we are really, really small. He said we are "off the map". So I think that the talent capability gap is naturally because the industry is just started in Indonesia. And second angle, the supply funding gap. For example, in Indonesia, if you accumulate all the sales of the Indonesian industry, it is really, really small mainly because the amount of investment per year in game development in Indonesia. Our data says only 3 million a year. If we compare it with Vietnam, they invest 50 million per year. And China they invest up to 5 billion per year. So those two are the main reasons why we are still not a gaming powerhouse.

ALAN  2:59  
So Arief, let's take this question forward then, into the future. What would be the most important driver of the creation of a strong games developer ecosystem? Would it be universities offering more majors and courses in development? Or is it some other factor?

ARIEF WIDHIYASA  3:16  
I think there are always two sides. It's the university to produce the talents. And also the industry to absorb the talents. And they have to be growing at the same pace. Because if not, the university will try to produce a lot of talent. And then after four years, they see that there is no industry to absorb the talent. And then they will cancel the major. So it needs to be grown on the two sides in parallel.

ALAN  3:38  
Understood. Very clear. So it's a bit of a chicken-and-egg situation. 

ARIEF WIDHIYASA  3:42  
Yes.

ALAN  3:43  
They can commit resources to educating young developers. But if there's not a lot of uptake in the industry, then they could discontinue that. Is that correct? 

ARIEF WIDHIYASA  3:52  
Yes. 

ALAN  3:53  
Gotcha. Now, as the largest gaming company in Indonesia, I assume we are committed to developing various parts of this ecosystem. What would you say are the two most important parts to develop as far as Agate goes...and why?

ARIEF WIDHIYASA  4:08  
For the past 10 years, our two most important areas to develop are one, talent. The second one is what we call a company's stage of development. The talent one, we actually have what we call an Academy programme. Now we train around 2,000 students per year. We are working with around 60 universities to also help them build the games curriculum, bring some teachers to them or train the teachers. That's the talent part of the equation. And the other one is the company part because, in a natural state of the game ecosystem, the game development company actually grows very naturally. They start with a very small team. And then when they have some success in the game, they scale the team. That's the stage that we want to have in Indonesia. But we also want to offer a safety net for any entrepreneur that wants to join the game industry, because it's a very, very hard and risky industry. So what we did is we build an incubation ecosystem. We have incubation programmes in partnership with Telekom that bring around USD200,000 capital per company as seed funding. And that's what we've done in the past. For the next five years, we are only focusing on one: the funding. So now ,we see on the ecosystem for funding up to 200k, there's already a lot in Indonesia. But for funding above 200k, there's none. So a few weeks ago, we introduced what we call the Agate Skylab Fund, where we fund Indonesian games developers up to 1 million. And that's what we have built as the ecosystem part.

ALAN  5:33  
Fantastic. I assume the idiom translates across religions; we have a saying that "God helps them help themselves". The company is really throwing itself into helping the industry grow. And that's very reassuring. Now, on the topic of Agate, it's now in its 13th year of operations as a gaming company, I believe. I assume the world was all PC games when you started the company. And now it's nearly all mobile. What have been the largest changes for Agate paid during this period. 

ARIEF WIDHIYASA  6:03  
The biggest change is one of the mistakes that we made. Everybody was doing transition in mobile in the 2012-2014 timeframe. But when we do our transition to mobile, we think that the collaboration between Nokia and Microsoft should be big. Because in Indonesia at the time, everywhere was Nokia phones. And we decided to just jump onto the bandwagon. We became one of the top developers in the Nokia-Microsoft ecosystem. But when they closed down, we needed to restart everything. Definitely big changes. But in some of development, developing online PC games with online mobile games not really different. Technically, it's still easy to catch up. But the largest thing is that when we pick the wrong train, jumping from the Nokia-Microsoft train to the Android and iOS ecosystem, it takes some relearning. So we kinda lost three years of our lifetime.

ALAN  6:50  
I like the analogy of jumping from one train to another. I'm thinking about Harrison Ford in Raiders of the Lost Ark. Now, continuing the comparison between PC and mobile games, has our business model changed dramatically since the beginning? For instance, how long would it take for you to develop a PC game when you guys started? And at what cost? And how long would a successful title last? And on the flip side: How do these values compare with developing a mobile game today?

ARIEF WIDHIYASA  7:18  
Generally, we have two game business models. The first one is what we call "premium games", where users just buy the game and then they play. And then the second one is what we call the "online free-to-play game". The second one is way more complex. Even in the early days of Agate, we actually do these two. For the first one, the transition was not really that big. Because what we do is we transition from the Flash ecosystem. Back then, we built games for web-based Flash, and then to more PC consoles. Technically, there's a lot of change some of the time. Usually during the Flash era, we built one game in less than three months. But when we go to the PC console type of game, for one game we need at least two years. So that's maybe the big gap. Budget-wise it was also scale. But in terms of risks, this kind of business is still a very, very low risk business. That's one part of it. And then the second one relates to the online game business. It's also not really much different in terms of scale. But for example, our previous web social games we built in around one and a half years. And then they have a lifetime of around four years until we closed it down. In mobile, in terms of development time, it's not really that big a difference. Also within around one and a half years we are able to launch. But the life cycle in mobile is shorter. So it's hard for us to maintain a good game even for three years. Usually after two years, we already need to sunset it out.

ALAN  8:40  
Very fascinating. So definitely very different drivers, at least on game lifespan between PC, console and mobile. So taking the question a step further Arief, what percent of revenues today comes from mobile, PC, console, and then others?

ARIEF WIDHIYASA  8:59  
Actually, we have what we call a B2B business where we do games for others, like for work-for-hire, or we do gamification. It is consultation of building the games. If we count the B2B, it really depends on whether we launched a good game this year or not. But at the moment, it's around 60% from our entertainment side of the business, and 40% from the B2B side of the business. But we if have a very good launch, it could be like 80% to 90% on the entertainment side. On the entertainment side, it also depends on whether we have a good launch. For example, in 2018, when we launched our console game, it's actually doing pretty well. And 70% of revenue was just from one game.

ALAN  9:34  
Interesting. I think you beat me to my next question. When I was Chief Strategy Officer at Sea Limited, our top title on our Garena gaming platform was probably 85% of all revenues. Is our revenue concentration similar ,with our "hero" game taking almost all of revenues and then the long tail being the rest? What is our revenue structure between top title and rest?

ARIEF WIDHIYASA  9:56  
It's actually very similar. Maybe the main difference is that we still don't have what we call a "hit" game. We actually have an internal measurement. We call it either a "success" game, or a hit game. A success game is able to make 10X return. The hit game is the one is able to make more than 100X returns in terms of scale of the revenue. Because we only have "success" kinds of games, usually the maximum concentration of revenue that those games could contribute is around 70% if I recall correctly. But yes, one good game could take a majority of the revenue during that year.

ALAN  10:31  
Understood. Now you talked about a little bit the B2B business. But what exactly do we mean when we say we have a B2B2C model? Basically, you are doing game design for a third party developer and then delivering it to them. They are maybe refining it further, and then delivering it in turn to the end gamer. Is that correct?

ARIEF WIDHIYASA  10:53  
Yes. Partly correct. But for example, we built games for advertising for a big corporate in Indonesia. We also build games for training or learning for frontline employees.

ALAN  11:05  
And is that a profitable business? Or how do you think about it relative to your own self developed games that you market yourself?

ARIEF WIDHIYASA  11:13  
That's a great question. The B2B business is a very profitable business. Why do we enter this B2B business? Mainly because when we start, the capability gap is there, and there is no way we are able to claw our way to build the capability using venture capital money just to learn. So that's why we created this business, to be able to have a training ground for our team to start to build more simple games and start to learn about how to experiment on the game design. Yet, we also still build a division that is able to generate revenue while we are learning. So that's the main reason we have a B2B business.

ALAN  11:49  
Understood. Now, you've mentioned that some of our games are available on console. Do we view that as one of our largest opportunities or over time, is that likely to decline as a percentage of revenues? How do you think about console gaming?

ARIEF WIDHIYASA  12:04  
We group console and PC premium game as one group. It's still growing like 1% or 2% a year in terms of the market. But as an industry, it's not really where the growth is. The reason why we have that business is because we want to get accustomed with the platform. And as a business itself, it's not really that risky. So we have an internal calculation. When we do what we call a premium game or console PC business; when we invest x, the worst case it could become is 1/2x. But the best case it could become is 10x. That is what is the general calculation of the premium business. It's still mildly profitable, not high risk, but also yes, no growth potential.

ALAN  12:42  
Understood. Now I used to get this question a lot when I was still running strategy at Sea Limited and Garena: How are Indonesian mobile gamers different than their regional and global peers? Do they prefer a certain game format? Do Indonesians like the more violent games? Do they like more anime-oriented games? Culturally, how do they compare with (I don't know), a Vietnamese gamer or a Chinese gamer? Are there any differences in that regard?

ARIEF WIDHIYASA  13:10  
Good question. It's fairly fragmented. What we call Indonesian there's a mixing pot where the kind of very, very Chinese-like game could be successful or very, very Western game like PubG could also be successful. So it's really a melting pot.

ALAN  13:25  
Okay. So my quick review earlier today of Android game titles in Indonesia, according to survey from AppAnnie, reveals the top five titles to be: 1. Higgs, Domino Island, 2. The Baby in Yellow, 3. AngleFight 3D, 4. Mobile Legends Bang Bang and 5. Fidget Toys Trading. What does that tell you about the average gamer in Indonesia?

ARIEF WIDHIYASA  13:52  
So there are two categories of game The first one is more of a simple, casual game. And the second one is more games that are already popular. It tells us that the average gamer in Indonesia wants to try games, but they have a limitation in the memory space hard-disk space on the phone. So they usually pick a game that they're able to download easily, maybe less than 100 megabytes in size. Because the phone specification is probably under the low-to-mid end. That's one part of the requirement. And the second one is that they also follow what's popular.

ALAN  14:22  
Understood, do we have to design our games that cater to lower spec Android phones, given the relative lack of higher spec iOS and Android phones locally?

ARIEF WIDHIYASA  14:35  
It really depends on the thesis that we employ as a game company. For example, like Garena and Moonton five years ago, the game development side was focusing on one thesis: proven gameplay for low-end smartphones. So what they do is that they bring a proven gameplay (mobile gameplay in the case of Moonton, or the "battle royale" gameplay in case of Garena) that is able to be played in a very, very low-end phone. And that strategy had proven to be a very, very well executed strategy. But that strategy is already done. And what I have seen in the market in the past three years is that everybody's doing that. It's actually already become a requirement.

ALAN  15:10  
Now Arief, do you ever see Indonesia itself delivering a new mobile gaming genre?

ARIEF WIDHIYASA  15:16  
With the current organic growth of our industry, maybe for the next five years the answer would be "none". Because at the moment, the whole industry is still catching up on its capabilities, and inventing or experimenting with a new category is not really on the horizon, at least for the next five years. 

ALAN  15:34  
Understood. So what has been our most successful games title at Agate in Indonesia, and what factors, as you think about it, went into its success?

ARIEF WIDHIYASA  15:45  
At the moment, our most successful title is a game we call "Memories". It's a "choose yourself" adventure game. It's mainly targeted for our female audience. We are using an anime style of visuals. Basically, we were able to fill what we call a "market demand gap". So there's a gap in the market on what we call an "Otome" game (a story-based video game targeted towards women). It's using a free to play monetization design. Because if you see all the dating or "choose yourself" adventure games, using a free-to-play game design is usually all Western visuals. And most of all, the Eastern visual dating game is usually a premium game. So we saw the gap, and then we filled this gap. So that's one of the reasons why we're able to have this kind of success.

ALAN  16:29  
Great. So it sounds like it's a good example of Agate leaving its own unique mark on gaming culture by adapting game formats to reflect the unique interests of the local Indonesian gamers. Let's flip the coin Arief: have any of our titles succeeded overseas? 

ARIEF WIDHIYASA  16:47  
Yes. Usually our console games are way more successful overseas than in Indonesia. And in particular, one of our titles derives 99% of its sales from overseas.

ALAN  16:58  
Excellent. So that's a pretty strong proofpoint of being able to succeed outside of Indonesia. Now I assume the entirety of our listening audience has read of the increasingly restrictive measures that China is taking around "gaming addiction". The average gaming time now is up to some 80 minutes a day across most teenage groups. What is the level of gaming addiction in Indonesia, if there is any?

ARIEF WIDHIYASA  17:22  
I haven't really seen any data recently. But for example, using our game "Memories", most of our daily active users (DAU's) spend around 55 minutes per day on the games. We don't see that as an addiction, because they have a choice to play. And usually in the game, we also try to limit their play time. I see increasing concern in parents. But on the other hand, also because the rise of Esports and the rise of influencers that use popular streaming sites like YouTube, people are earning money. There is also rising support from parents for the kids to play games.

ALAN  17:54  
Sure. One other angle that I have found very interesting is that local politicians will ally themselves with gaming tournaments just to attract the younger voting demographic. And so it's "cool" for a lot of politicians to support online gaming because it really speaks to that younger demographic. Arief, how did COVID impact our game usage? And how did it impact our revenue, or our P&L?

ARIEF WIDHIYASA  18:23  
Generally, COVID had a very positive impact. In March 2020, the lockdown was happening everywhere. Our console games quarter-on-quarter jumped 200% in terms of sales. Our online games in some of time spent per day jump two times. So the lockdown brought more usage to our games. Two or three months after the lockdown, it actually fluctuated. While in the early days our revenues were increasing, but two or three months after the lockdown, the ARPU is going down. Basically, because people either try to save their money because of the uncertainty, or because they already spent the savings. So that's why they don't want to spend more on leisure activities. So it's up-and-down. And near the end of the year, it was going up again. So it's really up-and-down. But generally, it was very, very good impact on the gaming industry.

ALAN  19:08  
Gotcha. Now, moving on to something totally unrelated: paradigms such as blockchain and NFT (or Non-Fungible Tokens) seem to have a nice "home" in mobile gaming today. Do you feel that we are indeed in the midst of a massive paradigm change? And if so, how will things change for the average gamer in the blockchain and NFT era?

ARIEF WIDHIYASA  19:32  
This is a very interesting topic for me myself. At the moment I come to the conclusion that the answer is "Yes". There will be a massive paradigm change in the next maybe 5 to 10 years to become more mainstream. How will this change for the average gamer? Now, the average gamer has the power to really own the asset in-game and not really be influenced by just a single organisation. Blockchain is a decentralised concept, but I think it could grow to become a bigger concept. For example, my sword in one of our MMO games could be transferred to another MMO game. I'm not really sure how this will fall out. But this could be the next big thing for games. Because the NFT aspects are a very, very fundamental part of the game. It's about ownership.

ALAN  20:17  
Gotcha. Now on the topic of next big things, what new directions can we expect from Agate going forward?

ARIEF WIDHIYASA  20:24  
Basically, we just try to find out what's next for the industry in the next five years. And at the moment, our main thesis is what we call "collaborative play". Now, the game space is already filled with a lot of competitive games. And the ones that play this game are usually more hardcore gamers, already veteran gamers that play and want to play competitively with their friends. This competitive gamer at some point will become fatigued, because competitive is very, very straining. They want more leisure, more casual play for social experience with the friends and the collaborative play element might really fit well on the next new big demographic that will be growing for the next five years.

ALAN  21:03  
Fascinating. A very interesting picture of the future, one that you're suggesting will become increasingly collaborative and maybe less competitive. That all makes sense. Well, Pak Arief, I really enjoyed our conversation today. It's clear that Indonesian mobile gaming has so many fascinating dimensions to it, and there definitely seems to be a lot of growth in front of us. Thanks so much for coming in today. 

ARIEF WIDHIYASA  21:23  
Thank you very much for having me, Alan. 

ALAN  21:26  
You're very welcome. We hope our listeners have enjoyed today's episode. As always, please consider sharing any feedback that you have about the Indo Tekno podcast with us. Terima kasih telah mendengarkan. Sampai jumpa lagi!