MAY 20, 2009 • The game peripherals business has seen serious ups and downs during the last decade. What started as a modest secondary market for joysticks, gamepads and steering wheels quickly ballooned into a huge business. The transition tracked with the rise of electronic games as a profitable industry during the mid-1990s.

As games became mainstream entertainment, there soon was demand for specialized input devices like highly responsive mice, purpose-built keyboards with unique key layouts optimized for gameplay, highly stylized and military-inspired joysticks that replaced the relatively simple designs of years past, gamepads that added better keypad layouts and ergonomic designs than what came standard with consoles, plus all manner of wild input designs geared to specific genres like real-time strategy games.

What also happened was a flood of companies entering the peripherals business at the same time the economy slipped into recession in 2000. Soon there were too many manufacturers, pumping too many devices into a flat marketplace. Some of those that remained choose to focus solely on the growing console side of the business – ditching their PC lines. One provider that helped set competitive standards for such devices, and has weathered the tough years, is Razer USA Ltd.

Started in 1998, Razer introduced the first 1000dpi high-response mechanical gaming mouse for competitive players.  The company transitioned to optical mice in 2004, and now has laser-based mice with a 5600dpi rating. Razer has also made major inroads in global markets. To better understand where the peripherals business today, DFC spoke with Razer chief executive Min-Liang Tan.

DFC: Where’s money to be made in today’s game peripherals business? What products and categories are selling well?

Min-Liang: The money to be made in today’s game peripherals business is where the games are. The four major categories for the PC gaming peripherals are mice, mousing surfaces, keyboards and audio peripherals. However, while demands for gaming grade peripherals are rising and the entire gaming peripherals industry has seen significant growth, the focus has been on the four major categories as flightsticks and steering wheels, have seen significant decline.

While the gaming input devices category has been growing year on year, we have seen solid growth in the entire gaming audio category and we expect to do very well for the rest of the year in this category with the recent launch of our gaming headsets, the Razer Megalodon 7.1 Gaming Headset and the Razer Carcharias Stereo Gaming Headset.

We expect the introduction of the products to help us post a massive increase in our sales and that the gaming headset market will see overall increase as other credible players such as Logitech have also introduced competing products such as the Logitech G35.

DFC: Back in 2001 there were too many companies selling gamepads, game mice, joysticks and racing wheels at the same time consumer purchasing cooled. How has the business shaken out in the years since? How is the business different today?

Min-Liang: Back in 2001, there were a multitude of companies that sold poor quality or poorly spec’d out products that did not meet the needs for gamers. Many of the companies competed on price alone or slapped on game licenses and images onto shoddy product.

As can be expected, while some of these companies still exist, many of them have disappeared with the fallout, and today, the gaming peripherals market is dominated by three brands, Razer, Logitech and Microsoft.

The single common element for each of the brands is that there is significant inhouse technology and expertise and the gaming grade products that are designed from each of these houses reflect significant investment in R&D. That much said, with the rise of the gaming peripherals industry in the past couple of years, there have been a resurgence of third tier companies seeking a share of the pie again. However, despite the multitude of products, the industry is still focused on the three top-tier brands and an estimated less than 2% of the entire market is taken up by the third-tier brands.

DFC: How was Razer able to ride through those rough years? What did you have to adapt in your business plan?

Min-Liang: We focused on our core expertise and continued to invest in research and development. We sought to focus on the niche market of high performance peripherals which had a hardcore following. We built our brand and distribution from a small base, and in the following years, expanded globally with a small number of product lines, but each focused on providing an edge for competitive gamers.

We invested heavily in the down years in R&D in various areas, focused primarily on gaming, and this has paid off with the new hardware categories that we have entered into, including the audio space. As always, we have kept our product selection limited but focused on delivering the best gaming experience possible. This strategy of being focused on core R&D and product development as opposed to spending marketing dollars has allowed us to grow to be one of the leading gaming hardware brands in the world.

Today, we’ve managed to carve out a niche for ourselves in the premium gaming peripherals segment and are one of the two leading brands in the global space. We continue to invest in R&D into next generation gaming human interface technologies and expect to continue doing so in the long term.

DFC: What is Razer’s best-selling product and why?

Min-Liang: Our best selling product line remains our gaming mice where we are viewed as the world’s leading brand in gaming mouse technology. Following that would be our keyboards. Our audio products line has been very well received since its recent introduction, including the Razer|THX Mako 2.1 Speakers, a world’s first for both Razer and THX.

DFC: There’s a lot of doom and gloom about the future of PC gaming. How good, or bad, is the PC game peripherals business in 2009 in the U.S. and Europe? Where is it going?

Min-Liang: I have heard this doom and gloom story for about 10 years or whenever a new generation console is released. Razer sells only hardware, and while we certainly are affected by PC software acceptance, every year we have been in business our sales, or the demand for our products, triples. Trust me that this would not be the case if PC gaming were in the tank.

Razer is a privately held company and we do not disclose specific numbers. Some of the stories we all read have to do with PC gaming sales at traditional retail and yes those sales are off. However what these reports fail to track are the hundreds of thousands of digital downloaded PC games sold every year. The other evolution in PC gaming is that many games are played over and over, year after year where so many console games are completed and shelved for good. Games like World of Warcraft are immense and certainly addictive. Certainly games like Counter Strike and Call of Duty have legions of loyal players that log more hours per week than nearly any console title. Where is it going? No one really knows. But wherever the gaming market is going to, be sure that Razer will be there, as well.

DFC: How well has your Death Adder for the Mac sold? How much opportunity is there in the Mac side of the business?

Min-Liang: The Razer DeathAdder Mac has been a solid performer. However, Razer is and always will be first and foremost a gaming company, and our focus on the Mac will be limited to its popularity as a gaming platform.

DFC: Why no console peripherals by Razer?

Min-Liang: Our product philosophy has always been to develop products where we could lead the category through innovation. If we could not find a technology solution that would enhance the gamers’ experience we would forego that product. Razer never intentionally rules out any product or gaming platform and to us that means that one day in the future you will see new gaming and interactive entertainment products from Razer.

On a more specific note, as there has been convergence of hardware and software on the gaming front (think Guitar Hero and Rock Band), we have been approached by a number of top-tier game developers to license our technologies as well as to codevelop hardware together with their software, with a view for us to distribute converged games – this is one of the areas of significant growth that gaming companies are slowly embracing.

DFC: Razer has made a major commitment to the Chinese market with at least two distribution partners there. How large is the game peripherals market in China, and how fast is it growing?

Min-Liang: There are no empirical figures at this time on the size of the gaming peripherals market in China as the market analysts are just seeing the impact of gaming peripherals on the entire industry.

However, our business in China has seen triple digit growth in the past couple of years and we are currently the market leaders in China for the premium gaming peripherals space. Our alliances with some of the biggest gaming companies in China are also expected to propel us to higher levels in the next couple of years.

Similarly, we are also seeing other US and EU publishers who are seeking to partner with Razer to enter the Chinese market given our brand recognition and following in the country.

DFC: Which companies are the major players in the Chinese game peripherals business?

Min-Liang: Currently Razer and Logitech are the two major players in this region.

DFC: What percentage of your revenue comes from China?

Min-Liang: Our company’s financial information is confidential and sensitive so we are not able to reveal this information.

DFC: Your entry-level Salmosa mouse is priced similarly in China ($35) and the U.S. ($39.99). How much will Chinese gamers pay for higher-end peripherals in your line? What’s the ceiling?

Min-Liang: Razer has a cult brand following in China and our recent launch of the Razer Mamba that retails at 129.99 in the U.S. has proven to be one of the hottest sellers in the Chinese market. There’s really no ceiling in China for products that meet the value and features associated with it.

DFC: What unique design considerations have to be accepted in doing business in China? What do Chinese gamers want/demand differently?

Min-Liang: Ergonomics and localization are definitely on top of the list of key design considerations. We spend an inordinate amount of time designing products for specific human factors as well as for specific games.

For example, RTS games tend to be more popular in the Asia-Pacific region and the games require intense fast movements as well as ultra-fast click rates – accordingly. Our designs are focused on ergonomics, human factors as well as game specific features for products sold in the Asia-Pacific.

DFC: Where else in Asia is Razer making inroads?

Min-Liang: We are one of the world’s leading PC gaming peripherals brands at this time and similarly, our products are making inroads into countries that are traditionally PC gaming centric – such as Korea and parts of South East Asia.