International Game Developers Association

• It was decided at the last conference call 03/05/2007 to change the format of the present section to be more representative of the material present in the 2004 Persistent Worlds White Paper. The following information is thusly based on that format.

Contents 1 Introduction 2 The Market 2.1 Overview 2.2 Market Size & Growth 2.3 Demographics 2.3.1 Numbers 2.3.2 Platforms 2.3.3 Ages 2.3.4 Gender 2.4 Market Factors 2.5 Markets 2.6 Product Types 2.7 Buiness Models 2.8 The Value Chain 2.9 Value Chain Agents 2.10 Companies & Games 2.10.1 Platform Holders 2.10.2 Publishers 2.10.3 Developers 2.10.4 Games 2.11 Launched Games Overview 2.11.1 Major US Titles 2.12 Subscriber Numbers 2.13 Recent Launches and Games in Development 2.14 Cancelled and Closed Games 2.15 Market Forecasts 2.16 International Business Opportunities 3 The Business of Persistent Worlds 3.1 The Business Case 3.2 Costs and Development Funding 3.3 Distribution and Marketing 3.4 Revenue Models 3.5 Virtual Goods Sales 4 These sections from the 2004 White Paper should be moved to 'How To' Guides 5 Closing Words and Appendices 5.1 Further Reading 5.2 Contributor Biographies

Introduction

There is no doubt the business of the persistent worlds is coming of age. One thinks back to the heady days of the Dot.Com boom of the 1990’s and find’s uncanny similarities with the present state of the persistent world industry. The persistent world industry is seemingly overflowing with wild, mad and oft-times lunatic, VC funded attempts to launch products, services and communities onto the global stage. This is reminiscent of the Dot.Commers who launched a whole plethora of services and products over a then newly commercialized Internet seen by many as the panacea for the world’s business, entertainment and communication ills.

The Internet has been with us now for about a decade in a usable commercial format and has truly and fundamentally changed the manner by which people interact, communicate with and entertain each other. It’s widening and deepening effect has been experienced throughout all business sectors and touches and affects almost every aspect of human endeavour.

Video and computer games have had a more elongated past stretching back into the annals of history by a seemingly incomprehensible five decades. The growth of video and computer games have been inexorably linked with the phenomenal increase in power and global mass adoption of the Personal Computer. The persistent world industry is similarly inexorably linked with the phenomenal increase in access speed and global adoption of Internet access throughout the world.

The persistent world industry is NOT the computer (PC) and video (console) game industry. It is an entirely different industry made up of different companies, organisations, actors, agents and market factors. There is a presence by traditional video game publishers, developers and other industry agents but they tend not to dominate this market in the same way as the traditional PC and console markets. Nor is the virtual world industry a simple hybrid of the existing computer and video game industry and the Internet. Yes the end product of a persistent world project may often be a large scale consumer based video game product aimed at a global audience but this is not always the case. The persistent world industry has more in common with large ISP’s, TV networks, service or telecommunication industries than it does with either the video ,computer game or Internet industry and it is certainly more than the sum of its component parts.

Large ISP’s, TV and telecommunication networks understand the value of product ranges supported by large marketing, advertising, service and customer support infrastructures and the selling and re-selling of specific services to large communities of ring-fenced customers. This business model is tried and tested and has been readily adapted by developers and operators of large scale persistent worlds. MMO operators manage a growing network of their own tied-in customers supporting these customers through a widening range of marketing, advertising, customer & service support infrastructures, business and payment models.

The business of persistent worlds is constantly evolving, adapting, modifying and reassessing. Success within the marketplace of predominantly science fiction and fantasy titles is generating significant external investor, media and business interest in the field. VC’s, angels and large scale media investors are hooked by the success stories in the virtual world arena and are eager to invest large sums to support attempts at market entry, new product development and monetization of this potentially huge marketplace.

Investors enticed by the potential for large-scale growth, elongated product life-cycles and subscription, advertising and micro-transaction based return of investment from hit online games such as World of Warcraft and RuneScape has contributed to an investment environment that is extremely buoyant and in the main independent of the typical publisher financed activities presented throughout the traditional video and computer game markeplace.

It remains to be seen if this frenzy of investment activity will be a bad or good influence for the emerging virtual world and online game sector but it will certainly lead to a growing number of fledgling titles vying for a major slice of the still nascent and relatively small global online game consumer base and will dominate overall growth, business opportunities and new entry activity within this market for a considerable period to come.

Presently the more established genre slices that dominate the traditional video and computer game industries such as FPS, action, sports etc. have not been leveraged into the online space where success is dominated largely by games within the RPG and Sci-Fi genres. Nor are there any major signs of large scale traditional game publishers making large leaps into the online game market. Possible reasons for this remain unclear but certainly contributions are trepidation, risk aversion and lack of financial flexibility. Being that most traditional publisher resources are now heavily invested in ballooning next-gen development projects and an attitude of waiting to see where the market will go are significant contributors to a lack of large traditional game publisher interest in this space.

The real winners of the online game space are large scale publisher/developers in the east principally Korea and China who have through business savvy, favourable market conditions, large embedded customer bases and wide scale local internet accessibility managed growing numbers of product portfolios, customers and communities to maximise super-normal profitability and organisational growth. Organisations like Nexon, NHN, NCSoft and Neowiz are all enjoying the fruits of successful game portfolios and new business models such as micro-transactions, asset sales and RMT.

The West has not been entirely unsuccessful in capitalising on the online game phenomenon. Success stories like World of Warcraft, Habbo Hotel, Runescape and Dofus clearly demonstrate that differentiated products targeted at specific markets, demographics and platforms can be extremely successful. If anything Eastern success has fuelled a wide scale adoption of new business models, research into differentiated products and wide scale investor interest in virtual world and online game opportunities in the West. We have seen this move and counter move play out in many other industries. One only has to look at industries such as semi conductors, consumer electronics and personal computers to see that the power shifts from east to west and back again as companies adapt to prevailing market conditions and the activities of global competitors.

The search for knowledgeable companies with unique Intellectual Property is of primary concern to all major agents within the online game value chain. There is seemingly an inexhaustible demand for online games with a extreamly limited supply due to lack of capable online game studios studios with the deep pockets, technology, skills, talent and expertise to launch successful online games. The biggest challenge therefore could be how will the development community adapt to fill the portfolio expectations of the new formed online game and virtual world publishers.

The landscape is changing in terms of the products and business models that are being used by new and existing developers and the biggest immediate change within the market will certainly lead to the presence of games within other genres supported by a host of new business and revenue models.

Alanodea 03:20, 14 September 2007 (EDT)

The Market

Overview

The present virtual world market is dominated by large scale subscription based AAA+ video game titles such as World of Warcraft developed in the main by large scale dedicated video game development studios. These titles are presently servicing the Fantasy and Sci-Fi genres. The market as a whole is dominated by diverse revenue generation business models with free to play and item sales transactions dominating the Eastern territories such as China and Korea and retail box SKU’s supported by subscription models dominating in the Western territories such as North America and Europe. It would seem that there is a move towards large scale adoption of free-to-play

IGDA - Persistent World White Paper 2004

The Market for Persistent World games is nascent, and the authors do not believe that the current picture is representative of its future. At present a small number of predominantly fantasy games dominate the US market, which has made limited attempts to branch out beyond the ‘core gamer’ audience to reach the ‘casual gamer’. Korea presents a picture of a more mature and competitive market, with a greater pool of active players and many more games in operation. This section briefly considers a few of the games launched, provides estimates of present and historical subscription numbers, and lists some games waiting in the wings. It seems increasingly likely that there are too many games in development for the present market. The section concludes with a few analyst forecasts for the market’s future growth, and a very brief overview of the international opportunities. Alanodea 15:11, 29 May 2007 (EDT)

Products types MMOG, virtual worlds, causal games, serious games.

Market Size & Growth

According to a series of new reports from DFC Intelligence the worldwide video game and interactive entertainment industry is expected to grow from about $33 billion in 2006 to as much as $47 billion in 2009. This forecast includes revenue from video game hardware and software, dedicated portable system hardware and software, PC games, and online PC and console games.

The report forecasts strong growth in all major categories, including PC games. DFC Intelligence forecasts that the PC game market will grow to over $13 billion by 2012. Much of this growth will come from online game revenue, including subscriptions, advertising and digital distribution.

DFC Intelligence, September 18, 2007, Link

• The total overall number of online gamers worldwide is expected to increase 71% from 2005 to 2011 to 364 million.
• Worldwide online game revenue is expected to increase from $3.4 billion in 2005 to $13.1 billion in 2011, a 287% increase. By 2011, 75% of this revenue is expected to be from PC online games, 25% from console online games. In 2005, over 95% of online game revenue was from PCs.

DFC Intelligence, Online Game Market Forcasts 2006 Link

Demographics

The market is typically defined within extant literature as containing three types of players, Hardcore, Moderate and Casual players. This is a somewhat one dimensional interpretation of the constituent mix of consumer types within the diverse global marketplace. Whilst stratifying player’s types into standard definitions certainly does not explore the considerable differentiating factors that exist within large demographics groups general terms such as hardcore and casual has its uses in terms of defining certain general attitudes attributed to consumers for various types of virtual worlds, MMO and online games.

http://www.igda.org/online/quarterly/1_2/mmogdemographics.php

Numbers

The online gaming (OLG) market is poised for explosive growth, according to researchers, ready to experience a nearly four-fold revenue revenue increase by 2008. In-Stat/MDR predicts that the total OLG market will grow from just over a billion in 2003 to nearly $4 billion by the end of 2008. The revenue growth will be fueled by advertising and the millions of new players that are expected by 2008. In-Stat/MDR indicates that roughly half of the U.S. population will participate in online games by 2008, with the massive multiplayer online role playing game (MMORPG) population peaking by 2005.

Online Gaming Revenue to Quadruple, Robyn Greenspan, September 2007 http://www.clickz.com/3403931

Platforms

The NPD Group took a look at the players, and found that two-thirds of the surveyed 13 to 44-year-olds are using their PC or Mac instead of consoles. The study found that online gamers spent more time playing PC games online than offline (60 percent compared to 40 percent), while the opposite was true for connected console gamers.

Online Gaming Revenue to Quadruple, Robyn Greenspan, September 2007 http://www.clickz.com/3403931

Ages

According to a new report by market researchers eMarketer, 24 percent of the 34.3 million US child and teen Internet users will visit virtual worlds once a month in 2007 -- and the rate is rising. Based on its research, eMarketer expects to see the number of young online world users rise to 34 percent in 2008, and 53 percent by 2011.

Leigh Alexander, Septembetr, 2007, http://www.worldsinmotion.biz/2007/09/report_343_million_kids_curren.php

Gender

"The NPD Group found that the genders are nearly evenly balanced, with males accounting for a slightly larger portion (53 percent). May 2004 measurements from Nielsen//NetRatings supported the parity, finding that males accounted for 51 percent of the 46 million online gamers. Other research illustrates the popularity of online games among adult women: AOL found that women over 40 were among the most avid gamers and Nielsen//NetRatings reported that 35 to 49-year-old women spent the most time online at gaming sites in May 2004. "

Online Gaming Revenue to Quadruple, Robyn Greenspan, September 2007 http://www.clickz.com/3403931

Market Factors

• PC Growth

• Broadband Growth

• Internet Penetration

• Higher Specificaion PC's

• General Market Expanison

As the market grows and causla players are a significant majority of users casual games are the largest market share. Show graph here and relationshiop to maret for casual and hardcore gamers.

• Consolidation

• Publisher Entry

• Platform Holders

• New Titles

• New Genres

Market Trends

• Investment

• Game Developers Skill Sets

• Change in Market Power

Developers becoming major drivers of industry value chain. Publishers being used as distribution, retail and co-marketing partners and not financers and moving to less controlling part of the value chain.

• Developer Skill Sets Shifting

• Genre Saturation

• Technology

• Lack of Skills/Employment

• Supply and Demand

Alanodea 04:26, 12 September 2007 (EDT)

Markets

Define Markets

• Global (Difines truly global games such as WoW)
• North America + Canada
• South America
• United Kingdom
• Mainland Europe
• Japan
• Korea
• Rest of World (Defines other territories not included in above)

Alanodea 15:18, 29 May 2007 (EDT)

Product Types

• Traditional Online Games (WoW, Lineage, etc)
• Non-Traditional MMO Games (
• Virtual Worlds (Second Life)
• Browser based Games (RuneScape, Club Penguin, Dofus)
• Social Networking & Community (Habbo)

Buiness Models

• Free to Play
• Subscription
• RMT
• Microtransations (Digital Assests)
• Advertising
• Pay to Play

The Value Chain

Value Chain Agents

• Platform Holders
• Publishers
• Developers
• Intrastate Partners
• Billing Suppliers
• Service & Support Partners )Billing support, technicla support, in-game support, games masters)
• Adfvertisisers (In-Game, Trdationl)
• Media Owners (MTV)
• Hosting

Companies & Games

Company Profiles : I wanted to write a short company profile on all the major publishers, developers, their MMO game products and their overall attitude and policy towards MMO's. For this I wanted to get a key player from each orgainsation with a general quote or paragraph for each. We need to define a standard template for these paragraphs. We need to start gathering the contact for each of these sections so that we can contact them for their intro paragraph. Alanodea 05:07, 30 May 2007 (EDT)

I suggest that we develop a standard list of questions that representatives form these compnaies can fill out. Alanodea 03:37, 31 May 2007 (EDT)

Platform Holders

• Sony (Contacted: David D Christensen, Vice President of Online Business Development to get a quote for the Sony company profile relating to their policy on MMO games) Alanodea 05:07, 30 May 2007 (EDT)
• Microsoft
• Nintendo

Publishers

• Electronic Arts
• Nintendo
• Activision
• Sony Computer Entertainment
• Take Two Interactive
• Microsoft Game Studios
• THQ
• Ubisoft
• Konami
• Sega
• Bandai Namco Games
• Vivendi Games
• Square Enix
• Capcom
• NCsoft
• Eidos
• Lucasarts
• Buena Vista Games
• Atari
• Midway

Developers

• Monumental Games (Alan O'Dea)
• Blizzard (Mike Morhaime, President Blizzard Entertainments, Allen Adham and Frank Pearce Co-Founders).
• Sulake Corporation

Games

• Everquest
• Habbo Hotel (Sulka Haro Lead Designer)
• Football Superstars (Alan O'Dea)

Launched Games Overview

Major US Titles

Title	Publisher	Developer	Launch	Estimated Subscribers (2004)
EverQuest	Sony		4/1999	430k
Ultima Online	Electronic Arts		12/1997	160k
Dark Age of Camelot	EA	Mythic	10/2001	200k
Star Wars Galaxies	Sony	LucasArts	6/2003	220k
Final Fantasy XI	Square-Enix	Square-Enix	3/2004 (North America)	500k worldwide
City of Heroes	NCsoft	Cryptic	4/2004	150k
Asheron’s Call	Microsoft	Turbine	10/1999	75k
The Sims	Online	Electronic Arts	12/2002	45k
ToonTown	Disney		6/2003	30k?
Horizons	Artifact	Atari	12/2003	40k
Anarchy Online	Funcom	6/2001	30k
Asheron’s Call 2	Turbine	Microsoft	2003	10k?
There	There.com	2003	10k?
Second Life	Linden Labs	2003	15k

• South-East Asian Titles Subscription numbers for Korea and China are difficult to compare with US titles as much of play is from PC Game Rooms that charge a per-hour fee and pay operators anything from a per-seat fee to per-hour revenue share. In addition many of the popular casual titles use a micro-payment or ‘pay for avatar’ model. However, the revenues are vast and the audience sizes illuminate the mass-market penetration. Game Developer Launched Players Notes Lineage NCsoft 1998 Reported 2m+ Korean market leader The Kingdom of the Winds Nexon 1996 500k?+ First to market, incredible longevity Legend of Mir II Actozsoft 2002? 1m?+ Very successful in China MU Webzen 2000 2m?+ Largest game in Asia Crazy Arcade Nexon 2002 1m+ Casual market, micropayments Ragnarok Online Gravity 2000 500k? First successful Korean game in US Alanodea 15:11, 29 May 2007 (EDT)

Subscriber Numbers

Data on subscriber numbers for active PSW games varies by company; many of the larger games have openly stated subscriber numbers in milestone press releases, whereas others have kept them under wraps.

Bruce Sterling Woodcock has done excellent work and the community a great service by gathering public and anonymously-reported data into his Analysis of MMOG Subscription Growth found here: http://www.mmorpgchart.com Source: Bruce Sterling Woodcock, An Analysis of MMOG Subscription Growth – V.10.0, 9/2004 Alanodea 15:11, 29 May 2007 (EDT)

Recent Launches and Games in Development

The Persistent Worlds space is becoming increasingly competitive. Considering the complexity and expense of development, and the difficulties that many launched games have had in the market, there are a significant number of new entrants waiting in the wings. It is the opinion of the authors that too many of these games are competing for the same audience of ‘core gamer’ subscribers. Here we have listed a few key titles.

Major Titles in Development or Recently Launched Title Genre Developer / Publisher Stage The Saga of Ryzom Fantasy Nevrax Launched Q3 2004 Lineage 2 Fantasy NCsoft Launched Q3 2004 Everquest 2 Fantasy Sony Online Entertainment Launched Q4 2004 World of Warcraft Fantasy Blizzard Entertainment Launched Q4 2004 Guild Wars Fantasy NCsoft / ArenaNet Beta Testing Middle-earth Online Fantasy Turbine Entertainment Software Development The Matrix Online Sci-Fi UbiSoft Development Ultima X: Odyssey Fantasy Electronic Arts Development, possibly cancelled Pirates of the Burning Sea Historical Flying Lab Software Development Wish Fantasy Mutable Realms, Inc. Early Beta Dungeons and Dragons Online Fantasy Turbine Entertainment Software Development

Alanodea 15:50, 29 May 2007 (EDT)

Cancelled and Closed Games

The Persistent Worlds space is becoming increasingly competitive. Considering the complexity and expense of development, and the difficulties that many launched games have had in the market, there are a significant number of new entrants waiting in the wings. It is the opinion of the authors that too many of these games are competing for the same audience of ‘core gamer’ subscribers. Here we have listed a few key titles.

Major Titles in Development or Recently Launched Title Genre Developer / Publisher Stage The Saga of Ryzom Fantasy Nevrax Launched Q3 2004 Lineage 2 Fantasy NCsoft Launched Q3 2004 Everquest 2 Fantasy Sony Online Entertainment Launched Q4 2004 World of Warcraft Fantasy Blizzard Entertainment Launched Q4 2004 Guild Wars Fantasy NCsoft / ArenaNet Beta Testing Middle-earth Online Fantasy Turbine Entertainment Software Development The Matrix Online Sci-Fi UbiSoft Development Ultima X: Odyssey Fantasy Electronic Arts Development, possibly cancelled Pirates of the Burning Sea Historical Flying Lab Software Development Wish Fantasy Mutable Realms, Inc. Early Beta Dungeons and Dragons Online Fantasy Turbine Entertainment Software Development Alanodea 15:11, 29 May 2007 (EDT)

Market Forecasts

Where will the industry be, 10 years from now? Even in the best of situations, forecasting can be as much of an art as a science. And in the tech sector especially, there is a scarcity of good forecasting, not least because this is a nascent industry for which the growth curve is still highly uncertain. Technological advances have been rapid, and early forecasting from several years ago was often wildly inaccurate when compared to the actual state of the industry today. As a further hurdle to the independent game developer, many forecasting reports cost thousands of dollars, making it difficult for a small company to access some of the information. And even for the larger companies, it's often the case that the reports aren't that useful to them, since they're the companies that provided the information to the forecasters in the first place! 1. Forecasting Companies and Info Sources There is no formal list of "the best forecasting sites and companies" for the online gaming industry. But in any informal discussion, there are certain companies that are accepted as being "pretty good at providing information and forecasts" for the online gaming industry. The top names that tend to come up are: • Jupiter Research Corporation • NPD • DFC Intelligence There is also a great deal of other useful information that can be obtained via the web. A recent scan for "online gaming market forecasts" produced both the above names, and many other entities such as the following: • Datamonitor • Electronic Gaming Business: www.electronicgamingbusiness.com • Entertainment Software Association: http://www.theesa.com/pressroom.html • Global Industry Analysts • IDC • Informa Media • Intermarket Group • Juniper Research Limited • Mintel International Group Ltd. • Pyramid Research • SMI Publishing • Themis Group • www.marketresearch.com (search on "online gaming") Providing details from the many forecasts available is outside of the scope of this White Paper, but a few excerpts are offered from some of the reports below: 2. DFC Intelligence In June 2003 DFC Intelligence published a report, ‘The Online Games Market 2003’. On the subject of predicted market size, they said in their summary article: http://www.dfcint.com/game_article/june03article.html DFC Intelligence feels fairly confident that online game usage will grow significantly. Where we feel less confident is forecasting how companies will generate revenue from that growing usage. The report contains 10 scenarios for market growth, each based on different revenue generating schemes employed by the industry. Under what we deem the “Most Likely” scenario, online game revenue grows to $5 billion by 2008 (see chart). Under this scenario, we think the bulk of revenue will come from consumer subscriptions and other “pay-to-play” services. While we present scenarios for the growth of advertising revenue, we think they are rather unlikely to occur.

Source: The Online Game Market 2003, DFC Intelligence 3. Themis Group The Themis Group is a consultancy that works exclusively in the area of persistent world gaming, with an emphasis on outsourced customer support, community management and marketing functions. In 2004 they released a substantial report on the future of online games, making projections to 2014 based on a Delphi survey. The report can be found here: http://www.themis-group.com/uploads/Themis%20Report%202004%20%20Preview.pdf The report predicts that in 2014, there will be four major revenue streams for MMG operators: • Membership fees for access to the virtual world will remain the leading revenue generator. • A second revenue stream will be direct fees for services or premium experiences provided to MMG members, such as tours, “guaranteed adventures”, opportunities to play special characters, events, etc. • The third revenue stream will be direct sales or leasing of virtual property in the MMG. Only about 10% of total virtual property purchases will be direct from the MMG operator; the remainder will be third party or consumer to consumer. • These C2C transactions will still generate money for operators, through transaction fees, generally set at 5% (the higher transaction fee will be justified by the security and accountability involved in having the operator govern the exchange), constituting the fourth revenue stream. Also, the Themis Group Report 2004 projects worldwide online game revenues will reach US$1B+ in 2004. "“It’s clear that the online gaming portion of the industry continues to experience surging growth, especially in the area of subscription-based games. In calendar 2004 alone, we expect to see over $1.1 billion in total subscription revenues for persistent worlds, such as EverQuest, Star Wars Galaxies and Final Fantasy Online.” - Alexander Macris, Themis Group "Growth beyond 2004 will likely be driven by a combination of an increasing base of subscribers, entry into emerging markets such as China, and new business models such as virtual property sales and online rentals. Virtual property sales are already going to generate over $20m in revenue in 2004, or around $400m in trade volume and could grow to as much as one-quarter of subscription revenues by 2008." - Nova Barlow, Themis Group 4. IDC In their 2003 forecast, IDC estimated revenues exceeding $1.5B for online games in 2007. However, they painted a dismal picture of prospects for the PSW space, noting that it is increasingly overcrowded with similar products. IDC highlighted that casual-oriented PSW games such as ToonTown and There.com have unknown potential to expand the market. Source: U.S. Online PC Gaming Forecast and Analysis, 2003-2007 http://www.idc.com/getdoc.jsp?containerId=30098

Alanodea 15:12, 29 May 2007 (EDT)

International Business Opportunities

Editors note: We have a cursory survey of the International Opportunities presented in this White Paper. We hope to be able to include a more thorough discussion in the 2005 update, and would like to encourage you to help us achieve this goal. If you would like to volunteer to assist with future papers, please contact the IGDA Online Games SIG: http://www.igda.org/online. 1. Korea and China A few years back, Korea eclipsed North America as the largest online market worldwide, and now China has surpassed Korea, at least in number of players that are paying. It is uncertain if China’s revenue has exceeded that of Korea, given the much lower prices charged to consumers there, though this seems certain to eventually happen given their potential and rate of customer growth. Korea’s market was valued at 587bn won (~$500MM) in 2003. No accurate figures are available for China, but it has been memorably described as ‘the zero billion-dollar market’ in a sniping reference to the difficulty of extracting royalties. Many US PSW developers are seeking to place their games in Asia, but so far there have only been two examples of a game successfully migrating across the Pacific: Ultima Online achieved 100k subscribers in Japan and Final Fantasy XI Online had a very successful launch in North America after achieving significant success in Japan. Note that both of these cases are games that moved from Japan to North America; of the many examples we could not find any North American games doing nearly as well in Korea or China. The best performer seems to be the Korean title Ragnarok Online, which has done fairly well in the U.S. and Japanese markets . Some useful information on the Korean Online Game market can be found here: http://www.ica.or.kr/lib/ITKOREA_Eng(0403)/051Special.pdf 2. Europe Europe traditionally has had a relatively weak online game market, with most games seeing only a very small fraction of players relative to North American numbers, regardless if the game was sourced in Europe or North America. The one example of significant success is Dark Age of Camelot, which has had over 60,000 European subscribers. Europe potentially could be a much larger market for these games given the availability of connectivity and disposable income, but we have not yet seen the breakthrough product needed to do so. 3. Rest of the World The rest of the world has very minimal opportunities in paid online gaming. The largest nascent market is India, which has not yet seen the rise of game rooms as were seen in Korea, but this is expected to change in the near future. Australia, Thailand, Russia and other countries have small but active gaming populations.

Alanodea 15:13, 29 May 2007 (EDT)

The Business of Persistent Worlds

Building a business out of Persistent Worlds is challenging, but can be highly profitable when successful. A number of companies have made large investments into the space with varying degrees of success. Curiously, there has been little or no correlation between the level of success and the size of the investment. For example, Electronic Arts in particular has been very successful with its first and lowest-budget title, Ultima Online, only to subsequently lose money on later, more expensive undertakings such as Majestic and The Sims Online. Subscription revenues make for an attractive business case and are necessary to provide a return on the high costs of development and ongoing operations commonly associated with PSW games. There are, unfortunately, limited funding options available to developers. This section concludes with some discussion of the revenue models commonly used in PSW games and the issues surrounding virtual goods sales.

Alanodea 15:13, 29 May 2007 (EDT)

The Business Case

Given the risks involved, it may seem surprising that so many people want to participate. The reason is because when the PSW business model works, the result is a highly profitable service business, which can last for 5+ years. Consider the revenue: 250,000 customers x $12.99 / month = $3,247,500 gross revenue / month This is a number that makes almost anyone in the computer gaming business sit up and take notice. Particularly when multiplied out by 12 months to get yearly gross revenue of almost $39,000,000. Further, this does not even include the retail sales and expansion pack revenue yet! Typically, to get 250,000 subscribers, a developer would need to sell about twice that in retail units. 500,000 units x $25 wholesale price garners another $12,000,000 in gross revenue. As an example, both Ultima Online and EverQuest went over the $100 million revenue mark years ago and are still going strong. Gross revenue is desirable, but what really matters to most companies – and certainly to smaller ones that are the audience for this paper – is the net profit after all expenses. There are two classes of expenses related to PSW games: variable expenses related to the number of subscribers and/or concurrent players, and fixed expenses that stay the same as subscriber counts change. Fixed expenses include the initial and ongoing development team, community management, the equipment the game runs on, and networking staff. Variable expenses may include licensing fees, bandwidth, customer service, and possibly ongoing marketing. There are often “step functions” in either type expenses, for example a floor full of people to stay in business. A good example of a fixed expense that changes based on success would be when a developer chooses to expand or contract the live development team based on how well the game is performing in the market. For a variable expense, the amount of bandwidth needed is variable and directly related to the number of concurrent players. The good news for game producers is that if a game has over 100,000 subscribers it is not hard to realize 25+% net profit on subscriptions and if it is over 200k, 40% is possible. Conversely, a game of 50,000 subscribers may only have a 10% net profit. Scale is clearly a significant issue in profitability, mainly because of the massive fixed expenses required to build, launch and run this kind of business. The reason so many companies are creating PSW games is that there is significant revenue and profit for successful titles. The risk is that failing to capture significant numbers of customers can become very costly. Small can be Beautiful, or at least Cheap All of the above applies to the large-scale massively multiplayer games, not to the very small games run by teams of 2-10 people for small audiences (less than 20,000 subscribers). These games can be profitable at lower subscriber levels because their costs are very different. For example, almost all of these games are distributed online rather than via retail, they have a more limited set of content, and they provide a more personalized service to their smaller audiences.

Alanodea 15:14, 29 May 2007 (EDT)

Costs and Development Funding

Budgets for Persistent World games range from $2MM up to $30MM and higher, typically 2-5x that of a non-persistent (or “stand-alone”) PC game. The primary reasons for the extra costs are complexity and the need for ongoing content as well as special online requirements particular to PSW games, which include: Having (or connecting to) a registration, authentication and billing system A client/server networking system Servers to run the game on, which are separate from the client software A database for these servers Security coding to prevent hacking and cheating Teams that previously developed stand-alone games typically do not have all of the skills to accomplish these tasks, and adding people to do them is part of the challenge and expense. Complexity by itself will increase development costs. Even though the overall development size of a massively multiplayer game is only approximately 3x the size of a stand-alone game, it is often 10x more complex. While much of this complexity is due to the increased number of systems being built, some of it is due to the online environment itself. Specifically it is nearly impossible to test all the possibilities in a free form online environment, leading to large numbers of unanticipated errors. Contrast this with the highly linear progression of the typical single-player game or the more highly constrained rule and goal systems of stand-alone multiplayer modes/titles. Finally there is the cost of content. A typical stand-alone game today delivers 12-20 hours of non-repetitive gameplay. A stand-alone RPG title might deliver 40-80 hours. An online game needs to keep players entertained for months to be successful. This translates to 500+ hours of content needed to retain customers. Developers have funded persistent worlds as follows, in order of likelihood. There is no doubt that the funding options for PSW games are limited and this fact represents a huge barrier to a new developer. 1. Publisher Funding By far the most common method for funding PSW games is through publisher funding. Indeed, most MMORPGs have been not only funded by publishers but also developed by their in-house studios. A small number of titles have been developed externally with Publisher funding, notably City of Heroes, developed by Cryptic Studios and published by NCsoft, and the Asheron’s Call games developed by Turbine and published by Microsoft. Turbine has since bought back both AC games using venture capital, but is now developing high-profile titles, D&D Online and Tolkien’s Middle-earth Online in partnership with publishers. An entire volume could be written on the vagaries of developer-publisher relationships, and with PSW games another layer of complexity is added. Perhaps the most significant issue – and one which the developer can have some influence in determining – is who will be responsible for support and operations? Because of the viral nature of PSW games, customer retention (which is driven by the quality of the online experience) is arguably the single most important success factor – even more important than budget and tactics applied to marketing and new customer acquisition. Many developers have regretted deals in the past that gave server operations and support responsibility to their publisher. They felt that this division of labor led to patchy service and slow updates/fixes to technical issues. Therefore, we encourage developers pursuing publisher-funded PSW games to own responsibility for at least the technical aspects of service operations. Retaining control of these areas also justifies a much higher slice of the revenue pie -- It gives the developer a much stronger strategic position for raising future financing, and better positioning for a rewarding liquidity event. 2. Venture Capital A few developers have had success in raising substantial venture capital investments, notably: Linden Labs ($8MM Oct 2004), Turbine ($18MM Dec 2003, at least $10MM in earlier rounds), Mythic ($32MM 2003, at least $3MM in earlier rounds), There.com (over $30MM in various rounds) and Artifact Entertainment (at least $10MM in various rounds, including $5MM from NCsoft). Raising VC is extremely difficult, and most of the above developers had established their skills and credibility by working with publishers before raising capital; for example, Mythic produced over 5 online games for various publishers before raising ~$3MM to produce Dark Age of Camelot. VCs are generally more interested in technology-oriented companies than media companies because they are historically more likely to have the potential to generate annual revenue of $50MM+ and lead to a public stock offering or an acquisition with 5-10X+ return on investment. VCs are generally not interested in building non-scalable lifestyle companies, even those with sustainable $1MM+ monthly revenue. Despite the historical reluctance to invest in games though, the venture capital industry is increasingly interested in the space, so for those with the necessary team, contacts and plan, it may be an option. Firms that have made recent investments in gaming include: Trinity Ventures, Mayfield, Kleiner Perkins, Sequoia Capital, NEA, and Draper Fisher Jurvetson. 3. Angel investors, or Friends, Family and Founders A more common approach for smaller teams is to invest personal money and solicit investment from personal friends and acquaintances. This is particularly viable for smaller games with budgets of ~$1MM or less; Puzzle Pirates from Three Rings, Second Life from Linden Labs, and A Tale in the Desert from eGenesis were all funded this way. It is, however, incredibly risky. Other games funded in this manner (Fighting Legends, Maximum Charisma) have failed, leaving their investors out to dry. That said, if costs are strictly controlled and can scale within the bounds of cash flow, this is an attractive option when available. 4. Ramen and moonlight (or the starving artist option) It is possible to develop games in the evenings alongside a full-time job, or for students to develop excellent games. Unfortunately the complexity of PSW games and their support requirements make this option extremely difficult. Developers with this inclination are encouraged to pursue very simple projects that are highly achievable with a quick result, for example a text MUD or simple multi-player game before moving on to any sort of major PSW undertaking. Also, developers with day jobs should carefully review their employment agreements and seek legal counsel to avoid creating assets that are, at the end of the day, the property of their employer.

Alanodea 15:18, 29 May 2007 (EDT)

Distribution and Marketing

Distribution and marketing has traditionally been the province of publishers rather than developers, but with online games there are more elaborate possibilities than simple retail release. More importantly, there exists an opportunity for developers to form lasting direct relationships with their players. 1. Digital Client Distribution vs. Retail For many years now the prophets of digital distribution have proclaimed the end of the retail release and the dawn of a new era of direct-to-consumer distribution over the Internet. Alas, this era has yet to truly arrive for PSW games. The reasons are as follows: • Publishers are still reliant on the income from boxed retail products. • Broadband is prevalent amongst hardcore gamers but among the general public, it is still not widespread enough. And even for existing users, it is still not fast enough to support wide release of large (>500mb) game clients. • Retail releases have credibility in the eyes of press and consumers that downloadable games do not. • Retail releases are accompanied by a much larger degree of advertising and promotions. As long as online-only releases are considered second-class in terms of marketing dollars they will not be able to compete with a retail box release. • Customers who have invested in a retail product are substantially, perhaps an order of magnitude, more likely to subscribe than those who have downloaded a free trial. This is perhaps the most compelling (though annoying) reason for retail's continued dominance. Despite often-heard complaints about ‘paying for the box and again for a subscription’, it would appear that consumers prefer to do this than to try a PSW game for free via download and then subscribe if they like it. This is, of course, related to the marketing budget issue. • Retail provides a valuable marketing channel; people browse in stores for games. • There is a lack of viable marketing and distribution channels for downloadable clients. For most games the casual gaming sites are not suitable, although sites such as Gamespot DLX, IGN Direct2Drive, Gigex.com and Yahoo! Games on Demand are beginning to fill this need. This is not to say that download is not a viable marketing and distribution channel; it is. Developers would be wise, however, to consider reaching the greatest audience possible, and retail is still the most effective way to ensure that. 2. Game Portals and the lack of them The rise of the downloadable games business in the casual gaming segment has been driven by the game portals; sites such as Yahoo! Games, Shockwave.com, pogo.com, Real Arcade and Microsoft’s Gaming Zone. The ‘core’ PSW market is much more fragmented, with a multitude of destination sites with much more narrow focus, such as the various ‘fan sites’ grouped under the Warcry Network, IGN’s Vault, Stratics, and so forth. Whilst publishers can reach their audiences through advertising on these sites, most visitors are not visiting to discover new games, but rather to gather information about their existing obsession. 3. Cover-disks, OEM, Cheap CDs and Bundling Few publishers have pushed hard on alternative distribution of PSW clients, although this would seem to make sense from a business perspective. Those that have tried it report unimpressive results. Lineage led the field with its North American release on cover-disks and with an impulse-purchase $2.99 CD on retail store checkouts, but results were disappointing. So far the jury is out, but expect more publishers to attempt wide distribution through these channels in the next year or two. 4. The efficacy of a large, long Beta In the ‘second wave’ of MMORPG releases in the U.S., a number of publishers offered extensive open public betas. It is often said that this did them no favors, Asheron’s Call 2 and Earth and Beyond being two examples of games with long beta cycles that were then poorly picked up at launch and beyond. Anecdotally there is evidence that players either played the game to their satisfaction during beta, or found reasons to become frustrated and never try the full game. It is believed that both of these examples had well over 100,000 beta players, but fell far short of these levels of paying subscribers when they went live. There is also a growing group of PSW players who ‘beta surf’, simply moving from one new beta to another. The continual stream of new releases ensures that they can easily find a new game and never have to purchase a subscription. The authors caution developers to consider carefully to what extent they wish to support a large open beta, and note that recent publishers have been more cautious, only admitting large numbers of players towards the very end of the beta cycle.

Alanodea 15:20, 29 May 2007 (EDT)

Revenue Models

1. Revenue through Distribution: Retail Sales The majority of large PSW games have shipped via the traditional computer games retail channel. As discussed above, despite the prevalence of downloads for beta testing and promotions, retail remains the preferred method of launching the game. Revenues from retail sales of the client software at full-price might generate $25 per unit for the publisher, recouping a substantial part of development expenses. a) Collector's Editions One way companies increase revenues is through releasing Collector's Editions. Collector’s Editions are packages that tend to include pins, collector’s maps, and other knick-knacks as well as the latest expansion release for a game. By providing an up-to-date client, these packages serve as an “all in one” enticement for new players, and an easy way to re-install for old/returning players. Star Wars Galaxies perfected the concept of the Collector’s Editions, making one abundantly available while restricting the concurrent release of the regular retail client; this tactic drove the hardcore early adopter to pay $20 extra to get into the game. 2. Primary Revenue Model: Subscriptions At present, and for the foreseeable future, the primary revenue source for persistent online games, at least in the U.S., is the monthly subscription. Subscription pricing has increased steadily from the early days of the web. Simutronics' play.net site was one of the early subscription-based models, charging $9.95/month in 1997. Ultima Online, launched in 1998, followed suit, also charging $9.95. Today, prices tend to range between $10 & $15 per month, with $14.95 seeming to be the most popular price point. It seems that the gaming audience, once they are already signed up to a game, does not appear to be particularly price sensitive. Indeed, it has proven possible to raise prices on customers without suffering substantial attrition; in 2001, Funcom and Mythic launched their titles at $12.95 per month, and in 2002, Sony Online Entertainment raised the monthly price of EverQuest from $9.89 to $12.95, with virtually no increase in customer churn as a result. Ultima Online and Funcom’s Anarchy Online raised rates as well. Upon a price increase, some customers, to be sure, will quit and say that the price change was what prompted their departure, but the numbers do not bear this out. There are always new customers joining a game each month, and old customers choosing to cancel for a wide variety of reasons. Typically, there is a 3-8% "churn" each month in most PSWs; that is 3-8% of users will cancel each month, regardless of what else is going on in the game. During price increases, this percentage seems to hold constant -- the only difference is in the exit interviews, where customers state that the price change was the reason for their departure (as opposed to listing some other reason). But there still tends to be no higher percentage than normal of cancellations. It should be noted though that raising prices in this manner will only go so far, and may exacerbate the problem of concentrating the audience for PSW games in the ‘core’ gaming market, by excluding more price-sensitive casual gamers, or alienating potential new customers. a) Game Aggregation An elusive but attractive prospect for publishers of multiple games is to offer a combined subscription in order to keep players loyal to their primary offerings, as well as entice the player to try out additional offerings from the same company. Sony Online Entertainment (SOE) has introduced a “Station Pass”, allowing customers to access all games published by SOE for $21.99. While this option covers the EverQuest franchise and PlanetSide, SOE’s other popular offering Star Wars Galaxies is not included. Information on its success is not public, but Electronic Arts terminated a similar offering with Ultima Online and Motor City Online. Skotos similarly offers an array of graphical and text games for a single subscription. b) Multiple accounts There is no doubt that a large number of PSW players maintain accounts across multiple games as well as, in many cases, multiple accounts on the same game. Little empirical data exists and companies are not prone to disclosing the information, but anecdotal tales are of players with three or more largely unused accounts on games such as Ultima Online, paid up purely to maintain ownership of characters, items and other in-game property. However, it is the author's opinion that such players are extreme examples of relatively wealthy and/or super-hard-core consumers and do not warrant much consideration until a game achieves scale. 3. Revenue Generation from Services In the search for additional revenue from their affluent core gamer customers, PSW operators have increasingly begun to explore premium service offerings. a) Selling Experiences and Special Events Simutronics games (www.play.net) pioneered the concept of making money from virtual experiences/events. Tickets averaging $20-70 can be purchased ahead of time for various events or quests. Players can also purchase wedding packages costing $200 or more for elaborate in-game weddings with staff-created special effects. In just one of the Simutronics games, GemStone, reportedly over 600 weddings have taken place, with a recent calendar scan revealing between two to six weddings per month. Sony's Ultima Online attempted something similar with the "Magic Moments" program, but it was later cancelled, reportedly in part due to the complexity of operations. b) Pre-made Characters or Power-leveling Within an Advanced Character Service offered by Ultima Online, players may purchase a ‘pre-built’ character with abilities and skills usually earned over a long period of play. Doubtless inspired by the robust eBay market for established characters, it is still unknown how much revenue has been generated by this effort and whether it warrants the negative publicity associated. See: http://support.uo.com/advancedcharacter.html c) Character Transfers With the rise of special servers, as well as the ongoing problem of server overcrowding, companies have started to offer character transfer services. Character transfers range from $15 to $50 for 1 character up to a range of $49.99-$125 for a full set of characters, and some services make it possible to transfer these characters between accounts, as well as servers, for additional fees. While only a few games have adopted this idea, large games such as Ultima Online are currently discussing the idea with their player base for feedback before implementing. In this author's opinion, while developers of new games might consider providing character transfer as a feature, they should not look to it as a major source of revenue until their game hits large scale. d) Account Transfers One activity that customers take part in is "selling" a game account from one player to another, much as offline gamers might sell collectable cards or comic books. The legality of this type of transfer is ambiguous (see "Virtual Goods Sales" below). Recognizing the popularity of this practice though, Ultima Online developed a “safe account transfer” service by warning players who do not use the service, “if you choose not to use the official Account Access Transfer service created by Origin, and a dispute over the use of the account ever comes up, we may not be able to determine who rightfully has access to the account and, as a result, the account could be terminated.” See: http://www.uo.com/acct_xfer.html e) Character Renaming In conjunction with the account transfer service, Ultima Online adopted the “character renaming” service, which, when combined with the above service, allows a non-original account holder to mask the origins of an account. This service has already shown up in newer games after a period of time, such as Earth and Beyond and The Sims Online. EverQuest also has had a character renaming service for several years.

Alanodea 15:20, 29 May 2007 (EDT)

Virtual Goods Sales

The most popular Persistent World Games have seen the rise of robust markets exchanging in-game currency, goods and characters for real money. This phenomenon has been concentrated on eBay and a few specialty sites. There is considerable controversy surrounding these markets, and reactions from publishers and customers have varied. • A vocal part of the core gaming community resents the very idea of these markets, where in-game achievements (often directly related to time invested by the player) can be traded for real money. • The purchasers of such virtual goods clearly value the service highly enough to part with their money. Considering the incredible time investment required by most persistent world games, players with more available money than time are, in many ways, well advised to make use of these services if they wish to compete with other players who have more free time to play and build up their characters. The demand is often exacerbated by design, in particular the necessity that a group of players’ characters are of similar ‘level’ in order to usefully collaborate, and the inability in most games to switch character type while retaining invested time. • Large-scale PSW games have only scratched the surface of the business opportunities in this area, for fear of alienating their core clientele. Ultima Online’s aforementioned pre-made character-sales option was limited and yet still caused an outcry. • Magic Online, the online implementation of Magic: the Gathering, has proven that in the right context players will spend substantially on such services. • The text-MUD Achaea and its siblings have demonstrated that the sale of in-game content by the operator is a viable business model on a small scale, and titles such as Quiz-Quiz and Crazy Arcade in Korea, and Habbo Hotel in Europe, have shown that it can work well for a mass-market audience. There.com has a similar model in the U.S., and has reportedly achieved revenues of over $100 per customer per month. All these operators report substantially higher average revenue per customer from such sales than the usual subscription prices. • Most U.S. PSW operators have explicitly outlawed the resale of game accounts and property via auction services, yet with the notable exception of Mythic Entertainment, do not tend to enforce these Terms of Service provisions unless called upon to resolve customer service requests caused by such sales. Only Ultima Online has actively condoned the secondary market in game content. • It is also worth noting that along with the out-of-game transactions, comes a fair amount of fraud. One game developer estimates that 5-8% of all out-of-game transactions each month involve some sort of fraudulent activity, ranging from a player selling items that do not perform as advertised, to the tried-and-true "rubber check" syndrome -- paying someone with a check that does not have sufficient funds behind it. Game developers can expect to receive complaints from customers to the effect of, "So and so bought my sword but his check wasn't any good -- do something!" It is the editors' recommendation that game developers have clear policies in place ahead of time to deal with this situation, even if it's just, "We are not responsible for trades that occur outside of our control." Here we present the views of some other individuals who have studied virtual goods sales. a) Edward Castronova, Economist From the earliest days of online game interaction, commodities and accounts from games have been sold between players on dollar-based markets outside the game. These markets emerge under the following conditions: a. There is something scarce in the world, in the economic sense: the players would like to have more of it than there is. b. Access to the scarce thing(s) can't be secured in-game using US dollars. c. The scarce thing(s) can be traded in-game between players. Note how widely these conditions apply to online games. As for item (a), for the game to have any challenge/reward system at all, some things have to be scarce. Some things have to require work or skill or (in-game) money to get. For persistent worlds, content itself has to be made scarce: elder content is supposed to be reserved only for those players who spend the time immersing themselves in the world, as a reward for going through the advancement process. The rags-to-riches storyline is a core element of all character-advancement games; without scarcity, it makes no sense and provides no emotional satisfaction for the player at all. As for item (b), character-advancement games need to avoid selling content within game for $US, for exactly the same gameplay reasons as with item (a): a game where you buy your way to level 50 isn't a character advancement game and can't provide players with a sense of accomplishment and satisfaction. Item (c) refers to player markets, an element that is universally considered a core element of the fun factor in any persistent world. All three of these features are going to appear as core elements in the design of a typical persistent world. Once written in, however, they hard-code in an incentive for every player to seek advancement using dollar-based markets outside the game. As the scope of online interactive entertainment has widened, opportunities to trade things outside the game have also widened. eBay is the most successful market in human history, with billions of dollars traded every year. 'eBaying' has evolved into an everyday feature of games. The eBay market has become a meta-game; if you can't advance in-world using your resources of time and player skill, you can just advance out-world using your real-world incomes. The eBay meta-game does strange things to the design of a world that is supposed to give users an immersive role-playing personal-advancement experience. Truly idealistic users will faithfully struggle through challenges to advance. But then one day they encounter other players who have simply bought their way to the top. It is difficult to sustain immersion, role-playing, and the illusion of personal fulfillment from that moment forward. Suddenly, the real game appears to be about spending money wisely on eBay rather than slaying the right foe. Does it matter? In some designs eBay makes no difference at all. Indeed, it could be a welcome factor. Embrace eBay, and you don't have to code in-world markets at all. It could be made consistent with various kinds of lore; eBay is 'the Spice trade' or 'smugglers from the outer galaxy.' This would be a stretch, of course. But even if we assume that eBaying wrecks immersion for 90 percent of the players - especially now that it has become so widespread - it still might not be so terribly bad for a design. The supply-demand pressures are certainly there; if they are not satisfied through eBay, will they be satisfied at all? If they are not satisfied, subscriptions may fall. Thus it may be the case that eBaying has to be accepted; it ruins lore but enhances user satisfaction so much that it increases the subscription base. But there are many reasons not to accept eBaying as it is today. When eBaying becomes an accepted part of a design, the project changes from an immersive, fantasy role-playing game into an avatar chat room with certain crafted entertainments, and special content for those who want to spend money on it. The latter is a perfectly acceptable project design, but the point is, it's probably not what the buyer expects. And because of that, the acceptance of eBay probably does more to damage subscriptions than to help them. True, many individual users will report happiness that there is a fluid external market where various game challenges can be overcome. But collectively, the user base may well judge this game to be less than what they hoped it would be: less immersive, less escapist, and less introspective. The social logic is like that involving pollution: every person who tosses a wrapper on the ground is happy to be able to get rid of it; but if we just accept that practice, then everyone suffers from a mountain of garbage on the street. In economics-ese, eBaying in a fantasy role-playing game is individually incentive-compatible but collectively sub-optimal. It is a market failure: people left to their own intentions and devices will pursue courses of action that make sense to them as individuals but, once everyone does it, result in everyone being worse off. There are other reasons why eBaying is a problem. The outside market has a powerful effect on what happens in the in-world market. If the external market becomes dominated by a few big marketers, then the world suddenly has acquired an independent Finance Ministry and Central Bank, capable of dictating how the in-world economy will respond to design decisions. As such developers may find themselves negotiating with them about patch notes. The eBay market also represents an expression of user interests. It only exists because there are things that players want to do but can't do within the world. In a sense, it represents a design flaw. If the design produces conditions a, b, and c above, the design needs to deal with the incentives that those conditions create. eBay is a place where users go to satisfy something; if they can instead satisfy it within the world, the world has become a more fun place. Or, to view this more crassly: with hundreds of millions of dollars being traded for a world's items on eBay, why would developers allow someone else to profit from that revenue stream? Handle that market in-world and the revenues will become the developers, in the form of enhanced subscriptions. Still another reason: eBay monetizes a world's items and tells Earth's governments, lawyers, businessmen, and economists that what's going on in there is not a game. Someday, perhaps soon, the officials of the outside world may reach the further conclusion that it is really just a tax haven, and respond accordingly. They may also begin to hold developers liable for the dollar value of lost/destroyed/bugged items and characters. This precedent has already been set in Korean law. Needless to say, this would seriously affect the financial status of the game. On some level, again, none of this is necessarily a problem. If the intent is to design an avatar-mediated communication space that has entertaining things to do, then the only problems revolve around how to capture revenues from the incentives behind the eBay market, and do it without arousing the interest of the tax authorities or the courts. As eBaying becomes more common and more people become familiar with avatar-mediated communication, the revenues from virtual items sales will grow. Trade in these digital goods may well become one of a largecomponent of economic production. But this document is written for game designers, and most game designers view themselves as designers of, well, games. Not as designers of chat spaces with digital item trade. Chat spaces are not why they got into this business. They got into the business because they wanted to make imaginary worlds, separate from Earth, where the rules of advancement are different from the rules we face every day. eBaying is a potent threat to this vision. It imports the status and resources and practices of the everyday Earth economy into what is supposed to be a different realm. It does not completely destroy a game design, but it does remove its heart: the aspect of alternative reality. The Holy Grail for the game design community, c. 2004: Build a fantasy role-playing world, with markets and character advancement, where eBaying does not happen - not because eBay is forbidden, but because no player wants to use it. b) Gordon Walton, Executive Producer eBay exists and will continue to exist to satisfy consumer needs. Unless developers use artificial (and non-immersive) design techniques such as no-drop items to thwart players exchanging items in-game, people will exchange items. And if they can exchange items that have perceived value, there will be an out-of-game market for them, with or without an eBay to facilitate it. Even if they can’t exchange items, they will sell their accounts with the characters and items included to other players. Even if developers sold the items in-game for dollars, all that would do is set the ceiling price for the item in the external market. My advice is to focus their energies on making a really fun and compelling game rather than spending excessive time attempting to stop eBay. After all a so-called “eBay problem” is a high class problem, meaning it only exists because a game is successful. c) Elonka Dunin, General Manager of Online Community, Simutronics Corp. One other point-of-view, reflecting why allowing item sales can be a bad thing: Part of the formula of making money from a game has to do with customer lifecycle. The way this lifecycle works is as follows: Customers are attracted by some means to a game, hooked on it (hopefully because it's fun!) and converted from free trials to paying subscribers. The next stage in the lifecycle is that they play the game for some period of time, before they get tired of it and move on to another activity. There are indeed some people who get hooked on a game and stay with it for years (GemStone has customers who have been with the company since the late 1980s). However, it seems that a more typical play cycle is for most customers to stay with a game from 6 months to 2 years. The longer duration of time that this typical lifecycle can last, the lower the churn rate, and ultimately the better for the company's revenue. It is my opinion that promoting any mechanism which allows players to get ahold of advanced game items rapidly, whether it be via out-of-game sales or giving away too-powerful items in "Monty Hall" quests, is detrimental to game balance. It may allow some customers to become more engaged with the game more quickly, but it will also cause them to work through the game's challenges more quickly, get bored more quickly, and, eventually, leave more quickly than they probably would have if such boosted items were not easily available. For a persistent-state world to be successful, it must keep an eye on long-term trends and game balance -- not just short-term gratification. d) Daniel James, CEO, Three Rings The use of real money to create an advantage in a virtual world is no doubt egregious to players who believe that their gaming experience should provide a ‘level playing field’. Imagine a game of Monopoly in which a wealthy player bribed the banker for additional game funds – and consider whether such a player would be a popular gaming partner? However, moral debate over the impact of the influence of hard currency on a persistent world’s economy is of limited utility. I believe that in any popular game with an in-game economy in which such trade is possible, the infiltration of real money is inevitable. If the developer is opposed to such trades, the onus is upon them to engineer the game in such a way that they cannot take place. City of Heroes has taken substantial strides in this direction by creating a world in which there are effectively no items to be traded, and currency is of limited utility. None the less, ‘Influence’ can be purchased for City of Heroes on ige.com (the leading broker of PSW game currency, item and account sales). To completely harden a game against such trades would require a more robust obfuscation of the trading mechanic, such as that proposed by Randy Farmer in Kidtrade: http://www.fudco.com/habitat/archives/000023.html It is my personal belief that developers will either take the above routes towards games without a currency-trading mechanic, or that they will embrace virtual goods sales and transactions within their games and seek to concentrate profits within their own walls. Examples of this can be seen with Achaea, Habbo Hotel, Project Entropia, There.com, and Second Life. In Entropia’s case the developers support exchange to and from game currency (a risky move!), whereas There.com and Second Life leave such exchanges to a third-party peer-to-peer service. It may be that many successful games will continue to muddle along in the ambiguous middle-ground, so long as the myth of their level playing field can be perpetuated, but I suspect that player concerns and potential profits will, in the end, drive us all in one direction or the other.

Alanodea 15:27, 29 May 2007 (EDT)

These sections from the 2004 White Paper should be moved to 'How To' Guides

• Persistent World Design: An Introduction
  • Design objectives
  • Social, Political and Economic Systems
  • Design to Minimize Griefing
  • Player-Created Content
  • Designing for the Masses and Designing for the Few
  • Technology
  • Standard Technology
  • Software Architecture
  • Middleware

• Production
  • Building a Persistent World
  • Testing Persistent World Games
  • Launching a Persistent World
  • Live Team Production

This section should be moved to How To Guides

• Customer Service and Retention
  • An Introduction to Customer Service
  • Customer Service Tools
  • Support Staffing
  • Community Dialogue and Forums

Closing Words and Appendices

Further Reading

Will Online Games Decide the Upcoming Video Game Console War?, DFC Intelligence, April 04, 2006 Link

Success in MMOGs: Careful Planning Vs. Wildcat Drilling, DFC Intelligence, March 28, 2007 Link

Hardware and Hosting - What every online game developer should know [1]

MMOG Demographics: Perspectives from Industry Insiders [2]

Contributor Biographies

Alanodea