The online gaming industry is "incredibly fun" and "really cool," agreed a group of panelists gathered for the Cyberposium 2004 conference at Harvard Business School on January 17. But what will be the winning business model in a rapidly changing industry that keeps its players guessing?
Moderator Schelley Olhava of market research firm IDC immediately dispelled the myth that all online gamers are twenty-something males who play EverQuest and other MMORPGs (massively multiplayer online role-playing games) for hours on end. While these hardcore gamers represent a segment of the market, tens of millions of other people play solitaire and backgammon on Yahoo! and pogo.com.
"We estimate that the online gaming space in North America in 2003 was worth about $450 million; it should grow to well over $1 billion by 2007," she said.
Who are these gamers? And why do they play? Slightly more than half are women, said professor Henry Jenkins III, director of MIT's Comparative Media Studies program. The average age of players skews from the mid-forties all the way up to housebound senior citizens who see their online experience as a form of virtual travel.
There are four broad categories of players, he added, citing distinctions made by British game designer Richard Bartle: socializers who see the game as a club; achievers who want to score points; explorers who want to travel through a new environment; and competitors who like to go one-on-one with other players or virtual monsters.
"An online game is more than a product," Jenkins said. "It's a world, it's a community, it's a service. You have to consider the social dynamics you create in measuring success."
Lands of opportunity
There are plenty of opportunities, and potential models, in the online gaming industry, said Patricia Fry of IBM. But where will the money be made?
An online game is more than a product. It's a world, it's a community, it's a service. |
Henry Jenkins III, MIT |
Customers can be charged on a subscription basis to play games or pay a fee to compete in a tournament; there's also revenue in rights and the licensing of spin-off products. The market has grown so quickly that there's still a "garage shop" mentality in the business, she added, with little focus on its long-term development. Over time Fry predicted movement towards a more streamlined market with a core set of game publishers.
Dramatic consolidation is already a fact of life in PC console games. Gabe Zichermann, vice president of strategy and communications for Trymedia Systems, said that five years ago about 1,500 game titles were published; in 2004 the number is expected to be closer to 400. Such games require a great deal of upfront investment and have a limited shelf life. Now the emphasis is on creating smaller-budget games with a better ROI, he said, likening the current trend to the effect "The Blair Witch Project" had on movie production.
Expect the unexpected in a world where consumers can control the game experience, said MIT's Jenkins. For example, what do you do if, on a Korean national holiday, all of your Korean players go online and slaughter the Japanese players who are at work? Do you refund the Japanese players' subscription money? Rewrite the rules of the game to bring the dead characters back to life?
Organized gambling
Such questions aren't an issue with games of chance, of course. So what about online gamblers, asked Olhava. Who are they, and how do they fit into the picture?
"Homo sapiens is a gambler," stated Steven Kane, CEO of GameLogic. "It's cradle to grave, it's every society on earth."
Casino gambling in the United States nets approximately $41 billion each year, but the online market is still moving slowly. In addition to regulatory barriers, Kane said there's a deep fear among casinos that going online will create unwanted competition. Casinos haven't repriced their product in a hundred years"it's not a broken business," he commentedbut convincing players to gamble in their living room may require such tactics as advertising payout rates, something casinos are loath to do.
Inside the casinos, however, computer networks are one of the biggest trends, Kane said. Cashless, networked slot machines can reduce overhead (no more dirty coins to manage), keep tabs on a player's activity, and tantalize them with personalized gifts.
For members of the audience interested in entering the games market, Zichermann recommended advergaminginteractive marketing that combines the elements of a game with a company's productas the hot place for a start-up.
Jenkins observed that the educational market should expand rapidly, given that the new generation of teachers grew up playing games and will be more likely to see them as a useful learning tool.
Fry suggested that collaborative games with a community aspect have strong potential for advertising revenue, although Zichermann wasn't so sure. Instant Messenger is one of the most popular community games around, he remarked. Why compete with that?