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MMO Money Magazine

Writings on the business of fun: Virtual Worlds and Real Money Makes Online Gaming a Big Business. My economic view on the world of online games - without the hype.

Author: Inktomi

Free: The Realistic Direction of the Internet Economy.

Posted by Inktomi Monday July 13 2009 at 12:11AM
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Hello all!

 

  Call it the universe, call it luck or call it a co-INKy-dink but I was reading my morning blog posts. I was impressed by Ivan’s post on “MTCW” about the transference of DDO and TCoS to F2P. That was on the heels of Beau hitting the nail on the head about TCoS, both articles put me in a thoughtful mood. So I went outside, enjoyed the sun and read some of the Sunday papers. While I was reading the NYTimes Book Review…yes I read the book review!

“He’s a supergeek! A supergeek! He’s supergeeking owwwwww!”

I’m Rick James…, ANYWAY, to my point it seems the sun had shed light on the whole “where is the P2P MMO community going” conundrum. It came in the shape of an article written by Virginia Postrel who reviews Chris Andersons new book “Free: The Future of a Radical Price” (Hyperion). Chris Anderson is the editor in chief of Wired Magazine and Author of “The Long Tail”, he explains why many of the common services we use online are free, and where the future of the internet price point is going to...

 

$0.00

 

Postrel writes, “Driving the trend are the steeply declining prices of three essential technologies: computing power, digital storage and transmission capacity”. In Anderson’s book he says, “The trend lines that determine the cost of doing business online all point to the same way: to zero.” It seems that all the functions that make content accessible are getting cheaper and that enables online companies to shave off margins so that there over head gets so cheap that they can afford to charge nothing for customers to get in the door.

That may be a reason why a company as Frogster can charge nothing to download the Runes of Magic software, because it costs them nothing to ship it to you and store it. Same as the mirror sites as well. Now how do these internet companies, take MMORPG.com for example get away with charging nothing, give so much and charge absolutely nothing. Anderson’s answer is, “Most obviously, online advertisers pay for eyeballs…” as you see all the ads for games, free to play and otherwise on the home page of mmorpg. That’s how they make their cash, and possibly pay nothing to run the site other than manpower, serverspace and bandwith. And obviously Anderson writes that those are getting cheaper as we speak.

 According to a NDP survey from Gamasutra.com, online and in-game advertising to grow from $886 million to $1.4 billion by 2010, so with margins down and sales expected to grow like this, who do you think is going to make the most money here?

So my answer to both questions from beau and ivan’s post are yes, it will help both DDO and TCoS tremendously to embrace the F2P model at this point. However there is a sobering statement made in Chris Andersons book, “Everyone can use a Free business model, but only the number 1 company can get really rich with it.” This means that only the strong will survive, and they both better bring their “A” game with them.

Free is a powerful word to consumers, it almost gets anyone’s attention. Sometimes skeptically, but never fails to turn a head or two. Case in point when WoW developer Tom Chilton admits that the fact of WoW going full force micro-transactional isn’t out of the question in the future. They will need to adopt a different business strategy for according to Game Analyst Michael Cai “the biggest competition to Wow will be from the F2P market.” He explains that a new company will have to invest from 500 million to 1 billion to create a “subscription based model” to compete with wow.

WoW changing to a free to play/cashop is a possibility according to the new trend; what will it do to the struggling games like Age of Conan, Chronicles and the new DDO Unlimited. TCoS was introduced with a failing business model, “so I can kiss you and don’t have to pay for dinner? Sweet!” Even I who played from CB got bored at level 4 and uninstalled, it just didn’t have the “sticky power” to keep me playing. If it was a freebie, then I probably would have kept it on my hard drive. Plus the whole Akklaim coin thing turned me off, it seemed they were trying to charge you for an Akklaim account and then for the Spellborn sub. Uh-Uh, I was born at night, but not last night.

DDO, they need to admit that they tried to catch the WoW vapors and failed with a buggy launch, forced grouping, and lack of content (then). Agreed, they have made big changes to the game and are offering much more in the way of solo content, this makes it a better game. But going freebie/cashop will get more people that never played the game to give it a shot, as Ivan describes it as a “saving grace”. Even as a F2P do they have the power to compete or even survive this market against pure-bred f2p’s like Atlantica Online? DDo sin’t a bad game, I did some interviews of the community (failed project) and I’ve read many blogs lately, Hudsons Hideout gives a very good, “this game isn’t bad after allz” review of DDO.

How much do the purebred F2P’s are making, we really don’t know. Most companies keep that information guarded and I for one have been crawling for that info continually. The closest I got was from Raph Koster’s website, where he says that “in his observations free-to-play MMOs are that they typically earn from 30 cents a head up to $2 or so in terms of ARPU and from $10 to $60 in terms of ARPPU.” A game like Puzzle Pirates nets $230,000 just from 5,000 users, that’s a pretty good average for an obscure game.

What does all this drivel mean? I will sum it up with, “It is hard to come into a house with a 900 pound gorilla living in it and find a place to sit.” The market is dominated by one game, one company with a couple of not so bad number two’s. It is hard to demand a fee that is par with a more popular profitable (I didn’t say better, I said popular ! profitable!) game and be profitable while giving sub-par content or service. With the costs of distributing going lower, advertising revenues on the rise and an open door “limitless” micro transactional model becoming the norm, then it benefits latebloomers and struggling games to switch gears.

Edit: It seems that there is more "popular" games in the mmo genre, such as Maplestory and Runescape. Hands down, they are, but if comparable to a "pay to play space", where I was talking from. Then you have to realize that Blizzard makes the most money "in that space". 

Thanks BT for pointing that out, I always try for 100% legitamacy in my writing.

Will it save games like DDO and TCoS from the scrapheap alongside Tabula Rasa and The Matrix Online; we really don’t know, time will tell. Our job as consumers is to benefit from their competition and get some free game time, most importantly have fun; and talk about it on our free blogs.

One thing that Anderson does touch on is the amateur market, the people like us that want to contribute, “to have an impact and to be recognized as an expert in something”, he says. This is a never ending flow of really good, amateur content on the internet. I mean the podcasting, vid-casting and blogging market that I just stumbled into like a drunken sailor stumbles into a "w--------e" on leave. Just look at the guy who trashed United over his busted up guitar. I would of paid a couple of bucks for that CD single back in the day I used to buy CD’s, again point proven, I don’t pay for music anymore.

But all this free feel-good feeling lies a warning, “It is false to assume that no price means no value. But it is equally false to argue that value implies profitability.” I pay for value but I like free anything, don’t you. I’m going to find that book tmrw in the library so I can give more information on this oh, so interesting topic.

Until then…

Play safe,

Frank AKA Inktomi

 

ps: I use a larger font because one of my readers personally asked me to, because he has a small screen and his eyes aren't as good as they used to be. I do apologize for the HUGE wall of TEXT.

Mystik86 writes:


The article you sent me was a good read, and very interesting. Personally, I am not too keen on the F2P business model simply because you can end up spending a lot more on a game like that in the long run than a regular P2P subscription. Usually this happens because you absolutely HAVE to buy stuff from a cash shop to compete. This is one reason why I refuse to play Runes of Magic and why I am just so put-off by F2P MMOs.

I don't always have money to spend and even when I do I don't always spend it. I'm sure you can appreciate that of all people. So it's tough for me to have to keep paying into something. No F2P game thus far has really been worth my money anyways. Most of them are either typical point and click to move Asian grinders or WoW-clones. I'd rather pay Blizzard for WoW than mess around with the clones.

The problem for me right now is that we're sitting here waiting on an onslaught of new games with big hype and none of them are extremely close to launching. The next one would be Champions Online by the looks of it and their "Cryptic buck" thing is starting to worry me. I'm now more inclined to play Aion, a game that as you put it was WoW's pretty girlfriend, than Champions.

SWTOR is looking better by the moment too but it's a long way off. Too long for my liking. I think if any game offers premium solo playability and in-depth immersion it'll be SWTOR. I'd gladly pay them 15 bucks a month, or micro payments if needs be.

Anyways, I've almost written an article here lol so I'll cut it short. I am unemployed currently and make money off commissions or Second Life, and even then it's gotten really dry lately. I want to buy the DF NA client but doubt I can.

Mon Jul 13 2009 12:14AM Report
beauturkey writes:

 Well, I think that the market is actually headed not by WoW, but by some of the larger F2P games. I was just going to blog about this, but some of the numbers (according to the developers and a few other sources) on games like MapleStory make WoW look tiny! hehe

 But I know what ya meant. I'm so curious to see what will happen with Spellborn.

 Oh, kind of a joke here, but kind of seriously too: I think WoW going F2P might be just a way of keeping it going while their other, newer, and larger project takes over the market! Whatcha think?

Good read!

 

Mon Jul 13 2009 8:17AM Report
Hathi writes:

 Something occurred to me. What about Rebates?

Mon Jul 13 2009 8:28AM Report
Inktomi writes:

 Beau, 

I don't have alot of hard info on maplestory, but of what I read in finance reports wow makes up for over 50% of the market share for online games. I might be wrong, I'll do a double check on that. Thanks for the heads up. 

And I totally agree with you on the wow "free to play" idea, I wrote it in a recent post that my prediction is when they release the "new" IP then they will take wow back a notch to micro trans.

It's the waaAAaaaaAAve of the future! =)

Thanks everyone for stopping by.

Frank

Mon Jul 13 2009 11:15AM Report
beauturkey writes:

 For information about Maplestory, look into Nexon. Also look at Perfect World intl, the makers of Perfect World and now Ether Saga online.

 There are many, many more. MAny of these gaming "portals" host 5 or 6 games, and millions of players.

 Of course, being cash-shop games, people tend to think that they make no money. Nexon, for example, cleared about 250 million in 2005. (Older data but more recent stuff says about the same.)

 Also, look up how successful Lineage 2 is. It's NUTS. They have game-shows dedicated to dating within the game! lol (I need to google some links for ya...be right back..)

 Here is some older information about Maplestory: (92 million worldwide) http://www.massively.com/2009/05/09/maplestory-announces-over-92-million-users-worldwide-4-year-ann/

 Now, how many of those are spending the equivalent of 15 bucks a month? Who knows. But they are making a great deal of money.

 This is from the Wiki (again, how accurate is anyone's guess):

RuneScape is a Java-based Massively Multiplayer Online Role-Playing Game (MMORPG) operated by Jagex Ltd. It is a graphical browser game incorporating 3D rendering. The game has approximately 8.5 million active accounts[1] and is recognised by the Guinness World Records as the world's most popular free MMORPG.[2] "

 

  Anyway, I didn't want to make such a grand point off of one small part of your blog, because it was good. lol But, I think that many players tend to think WoW is the largest, when we have to define what "large" means.

 

 Beau

 

 

 

Mon Jul 13 2009 11:45AM Report
Inktomi writes:

 Your are correct, however (digging into really boring annual reports) Blizzard's core ops pulled in a Net Rev of $291 million for 2008 period. Now I know it's just comparing to MS NA rev, but unless they did $262 mill in asia and other countries it still puts' blizz in the power seat. [Financially]

I realize that there are other mmo's that are probably seeing more users or "eyeballs" so to speak, but wow is bringing in the most cash. And I always look at things from that perspective, sorry it's in my DNA now.

I will correct my popularity comment, but from the eco-spective, no other game can touch it (for now).

Mon Jul 13 2009 12:25PM Report
Trashcantoy writes:

"For information about Maplestory, look into Nexon. Also look at Perfect World intl, the makers of Perfect World and now Ether Saga online.
There are many, many more. MAny of these gaming "portals" host 5 or 6 games, and millions of players."

i disagree, yes there are a ton of f2p mmos and portal sites like ijji but millions of players? no, not even close. almost all f2p mmos end up with a couple of thousand players.

and id love to get those numbers from maplestory that make WoW look tiny. afterall u can only give the created account, and that is very far from reliable data u can use in this discussion.

Mon Jul 13 2009 1:04PM Report
Trashcantoy writes:

 and to go back ontopic: i dont notice any trend towards more f2p games, its just that korean developers fart out mmos every day but with very poor quality and also very similar to just about every other southeast asian mmo.

Mon Jul 13 2009 1:06PM Report
beauturkey writes:

 Here is some from an interview (notice that I am not claiming that they have more than any US game, but world-wide they are doing fine.):

 "

"With over three million registered players in North America, the global user base for MapleStory has reached almost 60 million," says John H. Chi, chief executive officer of Nexon America. "When you take into account the stunning viral success of our titles, as well as the Item Selling business models extraordinary growth into the mainstream market in North America, Nexon is going to change not only the way people game, but socialize!"

Nexon also announces a second print run for its Nexon Game Cards at Target stores nationwide. The partnership with Target Corporation is the first of its kind for a mass-market retailer and MMO publisher, enabling consumers to redeem real dollars for virtual in-game items and accessories within MapleStory and its upcoming Audition. The gift cards are available now at all Target retailers for purchase in denominations of ?10 and ?25."

 This was in 2007, more modern information is out there. I just found this quickly. And there's this:

 "As the pioneer of the microtransaction, or Item Selling business model, Nexon has sold millions of virtual items worldwide through MapleStory and other hit titles such as KartRider and BnB: Crazy Arcade. In 2005, Nexon Corporation reported ?230 million in revenue, driven primarily from millions of microtransactions."

More recent information, IIRC, has shown that the rate of growth among games like Maplestory is about the same. Anyway, there ya go. You asked! :) Remember that just because we don't read about it on our NA gaming sites, does not mean it isn't happening.

 Beau

 

 

 

 

Mon Jul 13 2009 10:19PM Report
ihaveurnose writes:

I just wanted to drop a comment about this little segment on runescape..."approximately 8.5 million active accounts"

I've been playing the game since april 2004 (however, I've been playing off and on since dec. 2007). I think whoever posted 8.5 million active accounts was exaggerating on that number. I say this because they reached over 1 million active accounts (maybe a year and half ago at most), so I really dont think it could've jumped by 7 million players that quickly. Especially since before dec. 10 2007 (they announced reaching 1mil players after this date) the the LOWEST number of players currently online averaged at 100k (this number is based on week nights at 1-3 am PST) players. A high point I remember seeing was in the 400k range, I remember this number because I was shocked to see so many people online at a semi-late hour in the middle of the week. And after dec. 10 2007, the HIGHEST number of players I've seen ON WEEKENDS has been about 260k. And the reason why is because jagex now controls the market, it is no longer in the hands of the players. They also removed some key features for the pking community. So the game has been going downhill for people that like pvp and merchanting.

Sorry about making such a long post just for something so small lol. Just wanted to give my 2 cents on that one matter :P

Oh btw, if I had to make a guess, I would say that runescape is somewhere in the range of 2-3 mil active accounts at best.

(And "hopefully" to prove that im not trying to dis RS, look in the high scores for these accounts: ihaveurnose, ihaveurnoze, B L O R G, elite769. I have other accounts but they dont have high enough stats to rank in the highscores yet)

Tue Jul 14 2009 12:00AM Report
beauturkey writes:

Ah Frank, I wouldn't think you should correct anything, anyway! :)

 And you are right in the fact that the most cash equals the most success. I wonder, though, how much it costs to develop and maintain a game like Runescape or MapleStory (it's 2 d! hehe) compared to WoW. Kind of like comparing an indie movie and a big budget film, and their proportionate success.

 

 Beau

 

 

 

 

 

Tue Jul 14 2009 1:34AM Report
Inktomi writes:

 BT,

It's really hard to get good comparison data from 3-5 year old info. And it's really even harder to find out info on privately held korean companies. Ah well. It is what it is, the whole point of my article was that the whole industry is headed to a micro trans model. It's proven to be better for companies to do so, the players...well. It's all a matter of taste imo. As far as who is more popular and who makes more money, it's not easy to prove. But is there a reason why the whole industry views wow as the biggest of the bunch, thats from the peer groups. 

I don't know, I need some sleep.

Night and thanks for coming on board with this one.

Tue Jul 14 2009 3:11AM Report
beauturkey writes:

 I've changed my thinking a bit, though, thanks to a commentor on my spouse blog.

 My prediction has always been that within 2 years most of the major MMO's will be mostly F2P, or Freemium games, if not totally F2P. It was a stretch, but I have seen some signs of that happening.

 But he said he pictured something more like hybrid models: freemium, regular subs with cash-shops...combinations. I think that is a safer bet. Whatcha think?

 

 Beau

 

 

Tue Jul 14 2009 8:28AM Report

MMORPG.com writes:
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