Success in MMOGs: Careful Planning Vs. Wildcat Drilling

March 28, 2007

Next month DFC Intelligence will be publishing its latest research on the massively multiplayer online game (or MMOG) market. This is a well-established, but often misunderstood, segment of the interactive entertainment industry. The success of World of Warcraft (WoW) from Vivendi Universal Games is leading to interest and investment in the segment that is far above what its current market size and usage can support. Therefore we feel it is critical to look at some of the factors that could separate the handful of winners from the many losers.

Perhaps the most important point to note is that there will be a great deal of money lost. Since the emergence of the current MMOG market, which we pegged as 1997, there have never been more than a handful of hit products in a given market at the same time. In North America there has been one product (Ultima Online, then Everquest, then World of Warcraft) which stood head and shoulders above a small group of second tier products that had 25-50% of the top game’s subscriber base. Never in the over thirty year history of massively multiplayer games has there been more than five top-line products in existence at one time in a given market. Even then, the top two or three games have always commanded between 85% and 90% of the market

Below that level, there have been niche efforts and upstarts. Despite the increasing variety and number of MMOGs in the market, this quasi-network effect appears to be strengthening, not weakening. The good news, thus far, is that the overall pie does seem to be expanding. That is to say, the niche efforts now sometimes have 50,000 subscribers instead of 5,000 and the mid-level games have 150,000 subscribers instead of 50,000.

The announcements from a variety of well-capitalized companies about new MMOGs in the market is a sign that WoW’s success seems to have touched off another in a series of boom-bust cycles in the online game realm. The prize is so big that people have a hard time averting their eyes. That some companies are devoting huge sums of money to capture market share has not prevented smaller companies and passionate development shops from attempting to enter the fray. As DFC Intelligence tracks it there are currently more than fifty potentially viable MMOGs in various stages of development or private and public testing. This does not count the numerous efforts championed by two or three developers that have no chance of ever seeing the light of day. This also does not count the incredible number and variety of games being produced in Asia, not just in Korea but in China, Taiwan, and Singapore. Some of these efforts are backed by publicly listed companies with millions to throw at the world’s MMOG markets.

If history in this industry is any indication, most of these games will disappear, to be replaced by other passionate optimists. The track record of small, independent efforts with MMOGs has not been good. The track record of large, corporate efforts in the online game realm might even be worse.

MMOG games have very long development cycles and are notorious for missing initial release dates, often by several years. As we predicted, the success of World of Warcraft has resulted in the funding of many MMOG products. This last MMOG boom occurred in the 2000-2002 timeframe after the success of EverQuest. Despite numerous MMOG products being funded, EverQuest remained the largest Western MMOG until World of Warcraft was released in late 2004. Most of the projects funded in the 2001-2002 period were delayed or never released. Two of the largest products that did ship in 2002 were major disappointments, Earth and Beyond and The Sims Online, both from Electronic Arts. A major problem with both these games was that they were released with many bugs as publisher EA was in a hurry to recoup its significant investment. In 2004 there were some major MMOG projects that were cancelled well into development, including Ultima Online: Odyssey, Microsoft’s Mythica and Warhammer Online. Until World of Warcraft came out, interest in releasing an MMOG was clearly on the decline.

For the market to expand, consumers will have to be converted from more standard interactive entertainment experiences to the MMOG paradigm. This has proven more difficult than many market observers expected. A big reason could be that until very recently, the products in the market were basically variations on a theme. Aside from some expected product failures due to inexperience, bad customer service and/or poor hardware and bandwidth maintenance, the products compete with each other in terms of genre, interface and playing style.

Another issue is the limited business model. Until recently, most MMOGs were only offering consumers the subscription business model, which limited their payment options. Younger consumers, without access to a credit card or unable to get their parents to agree to a $15 a month payment (“That’s as much as cable!”), have been underrepresented in the MMOG space. The average age of an MMOG player was about 25 years old. As discussed in detail in our report, more affordable games like the digitally distributed Runescape by Jagex are finally bringing younger players to the genre. Runsecape has 850,000 subscribers at $5 a month and it was never released at retail. This group of consumers have proven to be a lucrative force in the rest of the interactive entertainment market and they could be the true key for expansion of MMOGs. With the introduction of other business models, such as the Korean imported free-to-play/digital item sales model, the market could broaden even more.

Still, time is an asset too and MMOGs are the most time-intensive of all online gaming products, requiring from five to twenty hours per week for a satisfying experience. One of the big draws of these products is the community of other players which the customer is drawn into; it is one of the reasons players spend that five to twenty hours per week playing the game. Players can’t and won’t invest time in more than one or two MMOGs at any one time; for most, it is just physically impossible to do more. This is likely to result in the great bulk of the coming games experiencing some initial success, as they are ‘test driven’ by the players, only to be abandoned for other games that better meet the technology, playing and social needs of more customers. This has been a major problem for MMOG developers and operators in the more competitive markets of Korea and China.

One of the biggest trends of note in the MMOG space is the products that have experienced success by providing games for underserved segments of the market such as science fiction fans, teenagers, or children. Other games have catered more to fans of purely social worlds, changed game settings, or played with the game mechanics to incorporate new ways of “fighting.” Examples are Eve Online (science fiction), Habbo Hotel (teens), Second Life (social worlds), Toontown Online (children), City of Heroes (setting change), and Puzzle Pirates (game mechanics changes). Many games have introduced different revenue models in an effort to draw customers.

In short, there is clearly a great deal of room for innovation and growth in the over crowded MMOG market. Unlike much of the traditional interactive entertainment market, it is not feasible to slap a popular license on an MMOG and hope to collect a big paycheck. Success with MMOGs requires a disciplined approach to product development, technology, operations, customer service, emerging trends and a solid understanding of the overall competitive landscape. The MMOG business is not for the faint hearted and those that do their homework clearly have the best chance of success.

In April, DFC Intelligence will be partnering with Flybug Media to present ‘Mastering the Craft of Online Gaming Infrastructure.’ This one day event, to be held on April 19, 2007 in San Francisco, will bring together some leading industry veterans to discuss best practices for operating online games. For more details visit

DFC Intelligence’s research services provide detailed strategic analysis of the interactive entertainment industry.

A sample of reports on the video game and PC game market include:

DFC Dossier The DFC Dossier is published ten times a year and provides subscribers with regular updates and analysis of the latest market trends.

The Online Game Market This 800 page report contains a comprehensive analysis of the online gaming market. Includes current sales trends, market forecast, and in-depth company profiles.

The Market for Portable Video Games This 185 contains complete five-year forecasts by platform, a look at portable game software, portable game online trends, and business models and revenue expectations for game publishers.

Worldwide Market Forecasts for the Video Game and Interactive Entertainment Industry Complete five-year forecasts for all individual console and portable game platforms by region (Asia, Europe, North America, rest of world)) through 2012. Also included are PC game forecasts and historical sales figures. The report has several scenarios for future market growth including an analysis and forecasts for new systems from Sony, Microsoft and Nintendo, as well as portable game systems.

The Business of Computer and Video Games This report includes an historical analysis, overview of individual hardware system, top-selling games, game genres, consumer demographics, business models, retailer profiles, marketing elements and case studies, industry trends.

Market Leaders in the Video Game and Interactive Entertainment Industry This 750+ page report profiles major companies in the interactive entertainment industry. Each individual company report is about 25-50 pages and has an historical background, financial overview, product analysis and a frank assessment of the outlook for that company.

Overview of the Video Game and Interactive Entertainment Industry This report is designed to provide an overview of some of the key trends in the video game and interactive entertainment. The focus is on highlights from the forecasts and analysis of trends, game genres and business issues found in DFC reports.

The Game Market in China This 350 page report contains a complete look at the rapidly growing Chinese game market, including forecasts to 2010, government regulations, market entry strategies, business models, distribution options, game genres and numerous company profiles and case studies.

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